HomeMy WebLinkAboutItem 3
March 30, 2020 Item No.
BONDING AND CONSTRUCTION PROJECTS UPDATE
Proposed Action
Staff is looking for direction in order to prepare for the April 6, 2020 city council meeting.
Overview
The 2020 Budget and 2020-2024 Capital Improvement Plan included many construction projects
scheduled to start in 2020, either the design phase and/or the construction phase. A number of the
projects included bonding as a funding source. See attached memo from City Engineer Zach
Johnson regarding 2020 construction projects update.
During the 2020 budget/tax levy process, staff had projected an increase of slightly more than 10%
would be needed in 2021 to address inflationary increases (3%) and transitional costs for new
personnel in 2020; increased funding for pavement management, equipment, technology, park and
trail improvements; and debt service for both existing debt as well as the 2020 debt issuance. The
debt service levy was projected to increase about $1.29 million or 4%. This increase reflected
reductions anticipated in some bond funds due to cash on hand (prepaid special assessments) and
included an additional $938,000 for the 2020 debt issuance.
Debt 2020 Tax Levy 2021 Tax Levy Estimated Change
Existing Debt $7,235,000 $7,588,000 $353,000
2020 Debt Issuance $105,000 $1,043,000 $938,000
Total $7,340,000 $8,631,000 $1,291,000
Based on some preliminary calculations for the 2020 debt issuance and assuming a ten-year term
for the bonds, the first levy for 2021 is estimated to be about $963,000. There are some options we
can consider that will mitigate the large increase in debt service levy, including the following:
• Extend the term of repayment for both the city portion and the assessed portion
o 10-year versus 15-year term
• Timing and amount of first bond principal payment
o 2022 versus 2023
• Timing and amount of first tax levy
o 2021 versus 2022
There are pros and cons for any of the options. Staff worked with Northland Securities to see what
the financial impact would be if any of the options were implemented. The 2020A debt issuance
is based on the following projects being included in the calculation:
• #20-02 – 2020 Street Reconstruction
• #20-04 – 170th Street
• #20-08 – 179th Street (Cedar – Flagstaff)
• #21-03 – Highview Avenue (Design)
• #22-03 – 210th Street (Holyoke-Cedar; Design)
• Ames Arena Parking Lot
• Various Water Improvement Projects
Attached is the “Summary of Scenarios” prepared by Northland. It reflects four scenarios for
discussion purposes. The descriptions for each scenario are included in the “Description” column.
The following chart shows the variance in the total interest paid for the bonds and the 2021 tax
levy if going with an option other than scenario A:
By extending the term of the improvement portion from 10 to 15 years, this would cost an
additional $985,780 of interest. It would also reduce the 2021 tax levy by $389,613.
By delaying the first principal payment by one year (from 2022 to 2023) would cost an additional
$238,548 in interest, but it would also delay the first tax levy to 2022.
Staff anticipates the following schedule for issuing debt in 2020:
April 27, 2020 Council Workshop – Review of
2020A Finance Plan
(Bond Recommendations)
June 15, 2020 City Council - Set Sale Resolution
Adopted
Week of June 22, 2020 Calls with Rating Agencies
July 20,2020 Bond Sale
In the coming weeks, Staff and Northland will be preparing the finance plan (bond
recommendations) for the April 27, 2020 council workshop. Any direction that the council can
provide regarding the 2020 bond structure would be helpful.
Variance from 2021 Variance from
Scenario Interest Scenario A Tax Levy Scenario A
A 1,457,942 962,830
B 2,692,470 1,234,528 573,217 (389,613)
B2 2,443,722 985,780 573,217 (389,613)
C*1,696,490 238,548 - (962,830)
*First year tax levy is in 2022.
Primary Issues to Consider
• What is the projected increase in debt service tax levy for 2021?
• What is the projected increase in interest costs for extending the term of the 2020A debt
issuance?
Supporting Information
• Memo from City Engineer Zach Johnson regarding 2020 construction projects update
• Summary of Scenarios (Northland Securities)
Financial Impact: Budgeted: Y☒ N☒ Source:
Related Documents: (CIP, ERP, etc.):
Envision Lakeville Community Values: Good Value for Public Services
Report Completed by: Jerilyn Erickson, Finance Director
$16 Million Various
2020-2024 CIP
City of Lakeville
Public Works – Engineering Division
Memorandum
To: Jerilyn Erickson, Finance Director
From: Zach Johnson, City Engineer
Copy: Justin Miller, City Administrator
Paul Oehme, Public Works Director
Date: March 30, 2020
Subject: 2020 Construction Projects Update
Action Requested
None. This memo is in support of City Staff’s update on 2020 Bonding and Construction
Projects Update at the March 30th City Council meeting.
Overview
Lakeville’s 5-year Capital Improvement Plan (2020-2024) programs multiple projects for
construction in 2020. Maintenance and construction of our critical public infrastructure
(sanitary sewer, water, storm sewer and streets) remains a priority. Cities, Counties and
Contractors are preparing to continue construction operations within Centers for Disease
Control guidance. An update on 2020 construction projects proposed to be funded with
bonds is below.
2020 Street
Reconstruction
Ames Arena
Parking Lot
Improvements
170th Street
Reconstruction
179th Street
Reconstruction
Project Number CP 20-02 CP 19-13 CP 20-04 CP 20-08
Bid Opening 2/21/2020 2/28/2020 3/6/2020 3/26/2020
Award Date
(Proposed)
4/6/2020 4/6/2020 4/6/2020 4/20/2020
Award Date
(60-Day)
4/20/2020 4/20/2020 5/4/2020 5/18/2020
Start Construction 4/13/2020 7/6/2020 4/27/2020 TBD
End Construction 10/15/2020 8/15/2020 8/28/2020 11/30/2020
Bid proposals include bid guarantees that are held by the City for 60 days until all bids have
been reviewed and a contract awarded. Any extension beyond 60 days must include a mutual
written agreement between the City and the bidder.
Construction includes uncertainties (i.e. weather), but the 2020 season introduces new
unknowns to prepare for. In consideration, the City and prospective contractors are working
in collaboration to establish milestone dates that assist in project delivery that will provide
excellent public value. Below are details specific to the projects listed in the table above.
CP 20-02: 2020 Street Reconstruction Project
• McNamara Contracting is the apparent low bidder.
• The project size/scope requires a detailed, time-dependent construction schedule.
• McNamara provided a project schedule consistent with Contract requirements.
• The schedule provides a 4/13/2020 start date and a 10/15/2020 completion date; and
road closures outside the 2019/2020 and 2020/2021 school sessions.
• Delay in awarding a contract may require construction operations (i.e.
concrete/paving) outside MnDOT guidelines/specifications.
• Staff recommends a 4/6/2020 Award of Contract.
CP 19-13: Ames Arena Parking Lot Improvements
• Friedges Contracting is the apparent low bidder.
• The project size/scope requires a detailed, time-dependent construction schedule
coinciding with planned Pan-O-Prog events, ISD 194 athletic activities and Lakeville
Arenas programming.
• City and Contractor coordination is essential to ensure materials/supplies are timely
produced/delivered in support of construction operations.
• Staff recommends a 4/6/2020 or 4/20/2020 Award of Contract.
CP 20-04: 170th Street Reconstruction
• McNamara Contracting is the apparent low bidder.
• The project requires a detailed, time-dependent construction schedule including
watermain replacement and road closures outside the 2020/2021 school session.
• McNamara provided a project schedule consistent with Contract requirements.
• Delay in awarding a contract may extend construction operations into the 2020/2021
school session and extend construction impacts to residents and businesses.
• Staff recommends a 4/6/2020 Award of Contract.
CP 20-08: 179th Street Reconstruction
• McNamara Contracting is the apparent low bidder.
• The project requires a detailed, time-dependent three-phase construction schedule to
minimize impacts to businesses, residents and schools.
• Delay in awarding a contract may extend construction operations into the 2020/2021
school session and extend construction impacts to residents and businesses.
• Staff recommends a 4/20/2020 Award of Contract.
ScenariosDescription Total Par
Amount 7
Term
(Years) 2
Total Interest
Life of Bonds
Estimated
True
Interest Cost
3
First Year
Principal
Due for
Improve-
ment
Portion 4
Last Year
of
Payment
on the
Bonds
Special
Assessment
Revenue First
Year 5
Tax Levy First
Year 6, 7
Utility
Revenue
First Year 6
A
Based on historical
type of structure for
the City with 10 year
terms
$16,320,000 10/10/10 $1,457,942 1.67%2022 2031 $412,702 $962,830 $389,277
B
Extend term for
Improvement Portion
and Water Portion to
15 year terms to
reduce annual Tax Levy
$16,340,000 15/15/10 $2,692,470 2.05%2022 2036 $412,702 $573,217 $289,410
B-2
Extend term for
Improvement Portion
to 15 year term, and
keep all other Portions
at 10 year terms
$16,340,000 15/10/10 $2,443,722 2.00%2022 2036 $412,702 $573,217 $389,277
C
Extend first principal
payment on
Improvement Portion
by one year, from 2022
to 2023
$16,325,000 10/10/10 $1,696,490 1.70%2023 2032 $412,702 $996,482 $389,277
Notes that Apply to all Scenarios:
1
2
3
4
5
6
7
Special assessment revenue is based on the following, as listed below. The City plans to spread a portion of the assessments for certain property
owners over 10 years and a portion over 15 year pursuant to city policy.
a) Special assessment revenue is based on assessments totaling $1,650,000, spread in equal principal payments over 10 years and assessed at a rate
of 3.70%. First payment collected in 2021.
b) Special assessment revenue is based on assessments totaling $1,650,000, spread in equal principal payments over 15 years and assessed at a rate
of 3.70%. First payment collected in 2021.
Tax Levy First Year includes levy to pay principal and interest on the Improvement Portion, net of the special assessment revenue to be collected only.
It does not include Levy for debt service to pay for the Tax Abatement Portion. The City anticipates it will receive lease revenue of approximately
$80,000 annually that it will use to pay the majority of the estimated annual debt service of approximately $95,000 for the ice arena improvements.
Capitalized interest fund (CIF) is included (and needed) to cover 2/1/2021 interest payment for the Improvement Portion and the Tax Abatement
Portion only. The first principal payment on the Bonds is 2/1/2021 for the Water Portion. CIF is needed due to the timing of collection of tax levy and
special assessment revenue. The 8/1/2021 interest payment will be paid from the first distribution from the County in June 2021 of tax levy and
special assessment revenue collected. The par amount of the Bonds varies between scenarios due to the size of the CIF.
City of Lakeville
Summary of Scenarios
General Obligation Bonds, Series 2020A (the "Bonds")
Scenarios for Preliminary Planning Purposes Only 1
Scenarios are based on the City issuance of the Bonds to include three portions to finance the following construction costs:
First Year Principal Due is for Improvement Portion only. The first principal payment date for the Water Portion and the Tax Abatement Portion is the
same across all Scenarios and is 2/1/2021. The first principal payment date for the Improvement Portion varies by Scenario.
a) Improvement Portion to finance $11.8 million of street improvements supported by special assessments and tax levy; and
b) Water Portion to finance $3.4 million of water infrastructure improvements supported by net revenues of the Water Fund;
c) Tax Abatement Portion to finance $0.8 million of parking lot improvements at the Ames Ice Arena supported by lease revenue and levy of the City.
Term (Years) refers to the total number of principal payments, term by portion (Improvement Portion/Water Portion/Tax Abatement Portion).
Preliminary interest rates on the bonds estimated based on 'Aa1" Non-BQ rates as of March 6, 2020, plus 0.50%. This is for planning purposes only.
Final rates will vary and be based on market conditions at time of issuance of the bonds.
3/27/2020