Financing the Public Safety Center-what and why

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How did we get here?

The June 5, 2012 Council agenda included 2 items related to financing the Public Safety Center – a public hearing required before the City could issue Capital Improvement Bonds and approval of a resolution authorizing the use of CIP Bonds for the Safety Center.

The hearing was duly held and the Council heard from members of the Chamber of Commerce, NDDC, and interested citizens who asked for the Council to send the Safety Center issue directly to a referendum rather than using CIP bonds.  The Council did decide not to issue CIP bonds, but also decided not to send the issue to the voters.

Procedurally, the meeting was complicated by Patrick Ganey’s absence.  A motion to use GO referendum bonds and the motion to issue CIP bonds both failed on tie votes (Rhonda Pownell, Suzie Nakasian, and Ivan Imm supported both; Mayor Rossing, Erica Zweifel and I voted no).  Erica Zweifel made a motion – not impromptu as the LWV blog called it, but well thought our and justified – to use EDA/HRA lease revenue bonds; the motion was adopted on a 4-2 vote (Yes – Rossing, Buckheit, Imm, Zweifel; No – Nakasian and Pownell.

Statutory interlude about bond types: skip it if you know this stuff.

Under state statute, cities may issue general obligation (GO) bonds for a wide range of public purposes (except operating expenses) which pledge the full faith and credit of the city to payment of principal and interest (which is why municipal GO bonds are considered such safe investments).  GO Bonds usually require voter approval – a referendum – before the City can issue the debt.

Capital Improvement Bonds (CIP bonds) are a type of GO Bond which may be issued only for building or improving a city hall, library, public safety facility, or public works facility; CIP bonds are also an exception to the voter approval requirement, but citizens may submit a petition calling for a reverse referendum.

In addition to GO bonds, there are financing methods which do not pledge the full faith and credit of the city, but instead use the revenue from the project financed to pay the debt.  The Council chose a type of revenue bond on Tuesday: EDA/HRA lease/revenue bonds. Either the Housing and Redevelopment Authority or Economic Development Authority may issue revenue bonds to pay to construct the facility, and then lease the facility to the City.  The City then makes lease payments to the HRA or EDA to pay off the debt.

Back to the “why?” 

My starting point is a firm belief in representative government and not seeking voter approval for essential projects.  But, as I blogged back in 2010, I did not have much confidence in the Safety Center decision making process and particularly not in the information flow for making the decisions.  I have been extremely sympathetic to the referendum advocates because if I struggled with the project, those without a seat at the table would likely be more confused.

Since 2010, I’ve come to believe that CIP bonds are a strange compromise financing vehicle which can lead to the sort of brinksmanship we saw at the Council meeting with threats (very real ones, I’m sure) of a reverse referendum and its “citizen veto” character.  So, there I was, impaled on the fence between referendum and lease/revenue bonds.

Since 2010, and especially since earlier this year, the Council has made significant progress in defining the scope of the project, cost, location, and creating flexibility to address fire department organization, equipment and facilities issues (June 12 worksession includes a discussion of the possibility of creating a joint powers board to govern a fire district which includes Northfield, Dundas, Dennison and the townships who are members of the current Rural Fire association; the last worksession included information on equipment).  So, while the road to get here has been bumpy, we’re nearing the destination and I’m leaning away from the referendum.

The speakers at the public hearing, however, pushed me over the edge toward lease/revenue bonds.  The general message from the public: we are in favor of this project and want it to succeed.  More information was requested by a few, but, as Mayor Rossing pointed out, the City would not be spending additional money to develop more detailed plans and specifications until we know the project will move ahead which requires the authorization to finance it.  I fell off the fence here.

So, the best way to get this project done, provide more detailed information to the public, get our police officers into a facility which helps rather than hinders their ability to protect us, and save time, professional fees, and possibly increased construction costs would be to proceed directly to the project via lease revenue bonds.  The best way to fix the process problems is to determine what we can learn from it and improve it – hindsight can provide quite a lot of perspective on what we could have done better and differently.

Keep nagging us, however, to get information out and even suggest the best ways to do that.  We’ll keep working to keep the project costs down and build a functional, efficient facility.

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