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HomeMy WebLinkAboutMINUTES-07/24/1990-Adjourned' ADJOURNED MEETING OF THE COUNCIL OF THE CITY OF FORT COLLINS, COLORADO Council -Manager Form of Government July 24, 1990 6:15 p.m. An adjourned meeting of the Council of the City of Fort Collins was held on Tuesday, July 24, 1990, at 6:15 p.m. in the Council Chambers in the City of Fort Collins City Hall. Roll call was answered by the following Councilmembers: Azari, Edwards, Horak, Kirkpatrick, Mabry, Maxey, and Winokur. Staff Members Present: Burkett, Krajicek, Roy Items Relating to the Acquisition of 281 North College Following is staff's memorandum on this item: "FINANCIAL IMPACT The purchase price for 281 North College is $715,000. If the decision is to finance the property through a lease purchase agreement with Safeco Credit Company, Inc., Denver, Colorado, the net effective interest rate is 7.3% with quarterly payments in the sum of $42,992.08 ($171,968.32 annually). Sufficient funds are budgeted in 1990 to make the initial lease payment. If the decision is to purchase the property outright, funds would need to be appropriated from the General Fund Undesignated Reserves ($543,000). This would reduce the balance of the General Fund undesignated reserves to $1,164,041. EXECUTIVE SUMMARY At the July 17, 1990 City Council meeting, Council requested that staff examine the direct purchase of 281 North College. The analysis for the recommendation is summarized under Background. In order to purchase 281 North College Avenue using the proposed financing arrangement with Safeco Credit Company, Inc. the adoption of Ordinance 85 and Ordinance 86 by City Council must occur. A. Hearing and First Reading of Ordinance No. 85, 1990 Authorizing the Sale of 281 North College, Fort Collins, Colorado, to Safeco Credit Company, Inc. -179- July 24, 1990 This Ordinance authorizes the City Manager to enter into an Agreement of Purchase and Sale of Real Property for the sale of 281 North College Avenue to Safeco Credit Company, Inc., contingent upon Safeco Credit Company, Inc., entering into the Lease Purchase Agreement with the City that is the subject of Ordinance No. 86 below. This Ordinance also authorizes the Mayor to execute a deed conveying 281 North College Avenue to Safeco Credit Company, Inc., pursuant to the terms and subject to the contingencies of the Agreement of Purchase and Sale with Safeco Credit Company, Inc. B. Hearing and First Reading of Ordinance No. 86, 1990, Authorizing the City Manager to Enter into an Agreement for the Financing by Lease Purchase of Real Property and Improvements Located at 281 North College Avenue, Fort Collins, Colorado. Proposals were solicited on April 11, 1990,from seven firms to provide lease purchase financing for the City's current equipment requirements. The lowest net effective interest rate of 7.3Y was received from Safeco Credit Company, Inc. of Denver, Colorado. This rate has been extended to the City for the lease purchase of the real property and improvements located at 281 North College Avenue, Fort Collins by Safeco Credit Company. If Council chooses to purchase the property outright, the following Ordinance must be approved. C. Hearing and First Reading of Ordinance No. 87, 1990, Appropriating Prior Year Reserves in the General Fund for the Purchase of 281 North College Avenue. BACKGROUND In comparing the options for acquisition of 281 North College, the recommendation is based on the financial benefits associated with lease purchasing the building. Currently the City earns 8.3% on its investment portfolio. In negotiations with Safeco Credit Company, Inc., a very favorable interest rate of 7.3% was secured. Thus, there is a potential savings of $25,000 - $30,000 over five years by financing the building rather than paying cash for it. The negotiated agreement with Safeco provides two additional assurances which strengthen the staff recommendation: 1. If the City's interest earnings on investments should fall, the City could purchase the property at the next quarterly payment date without penalty; and 2. If the financing interest rate should drop, the City could refinance the agreement to take advantage of the reduced interest rate. 1 BI1E July 24, 1990 These two assurances ensure that the City retains flexibility over the term ' of the lease purchase agreement to make financially prudent decisions. The lease purchase does not adversely impact the City's credit rating so we believe there are no financial advantages to purchasing the building outright. Council expressed some concern about the reaction the state legislature may have if the City lease purchases real property. During the 1990 legislative session, the Council Legislative Review Committee watched closely as the legislature debated the merits of limiting local governments' use of lease purchase as a financing technique. The debate ultimately focused on the issue of accountability of the governing body to its electorate. Abuses by other Colorado governmental agencies of lease purchase as it relates to real property acquisition were cited only when the governing body used the lease purchase technique after the failure of a bond issue. These issues do not apply to the situation with 281 N. College. We have been examining the option for over a year and had openly discussed lease purchasing the facility during the 1990 Budget process. The decision to lease purchase the building is not the result of covert action, but rather of thoughtful analysis leading to a financial decision. The law passed by the state legislature, which will go into effect next year, imposes the following limitations: ' 1. Local governments will be required to set forth separately in their budget, the total amount to be spent in the ensuing year on lease purchase agreements involving real property; and 2. Local governments must set forth. separately in their budget the total maximum payment liability under all lease purchase agreements involving real property over the terms of the agreement, including any optional renewals; and 3. Local governments will be prohibited from entering into a lease purchase agreement that exceeds the useful life of the facility. Although these requirements do not have to be met until the 1991 budget is published, the 1990 Facilities Budget makes specific reference to the lease purchase of 281 N. College. Additionally, the useful life of the building greatly exceeds the 5-year length of the lease purchase agreement. We believe that we fully comply with the pending law, and there should be no negative impact or reaction from the state legislature resulting from this decision. Based on financial realities, staff's recommendation is to purchase 281 N. College Avenue by utilizing the financing package offered by Safeco Credit Company, Inc. If Council prefers to purchase the property outright, an alternative appropriation ordinance has been prepared for consideration." -181- July 24, 1990 Director of Administrative Services Pete Dallow made a brief presentation on the options for purchase of 281 N. College. Councilmember Mabry made a motion, seconded by Councilmember Winokur, to adopt Ordinance No. 87, 1990 on First Reading. Councilmember Edwards commented that his preference was to lease the building until priorities could be set during the budget process. Mayor Kirkpatrick stated her preference to look at undesignated reserves as part of the regular budget cycle. Councilmember Maxey inquired if there were closing costs in the lease/purchase and why there is a difference in present value under purchase vs. lease/purchase. Mr. Dallow replied there are no closing costs or financing costs in the lease/purchase. Actual purchase price is the same today for either option. Councilmember Mabry reminded that $172,000 per year for 5 years plus interest would be available if the building were purchased outright. The vote on Councilmember Mabry's motion to adopt Ordinance No. 87, 1990 on First Reading was as follows: Yeas: Councilmembers Maxey, Mabry, Azari, and Winokur. Nays: Councilmembers Kirkpatrick, Horak, and Edwards. THE MOTION CARRIED. Executive Session Authorized Councilmember Maxey made a motion, seconded by Councilmember Edwards, to adjourn into Executive Session for the purpose of conducting the annual performance review of Municipal Judge Kathleen Allin. Yeas: Councilmembers Mabry, Azari, Kirkpatrick, Winokur, Edwards, and Maxey. Nays: Councilmember Horak. ' THE MOTION CARRIED. At the conclusion of the Executive Session, the meeting was reconvened at 8:05 p.m. Adjournment Councilmember Maxey made a motion, seconded by Councilmember Edwards, to adjourn the meeting to Thursday, July 26 at noon to conduct the evaluation of the City Attorney. Yeas: Councilmembers Maxey, Mabry, Azari, Kirkpatrick, Horak, Edwards and Winokur. Nays: None. THE MOTION CARRIED. -182- July 24, 1990 J The meeting adjourned at 8:10 p.m. Mayor -183-