Public Safety Center financing – live blogging the HRA meeting

The next step in the Safety Center financing is approval of the bonding by the HRA (see the agenda and packet here)

Public comments first.

  • Kris Voh, former Councilmember and former HRA member, “after years and years of deliberation” about this project, Mr Vohs urges the HRA to “do it” and approve the funding mechanism.
  • Victor Summa reiterated his request for objective legal advice and opines that the legal counsel from Kennedy & Graven and Ehlers is not entirely unbiased.  He continues to discuss the “statutory slipperiness” and suggests Council member Erica Zweifel who sits on the HRA and all the Council members have a conflict of interest in this transaction.
  • Don McGee (who is a member of Northfield Citizens Safety Center Task Force along with Jerry Anderson, David Ludescher, Joe Grundhoefer, Ken Malecha, and John Machachek)  with a letter in the Northfield News) “concerns of things I think are happening to you” and talks about the interleaving of actions asserting that the HRA approval comes too late (or the Council’s action came too early).
  • David Ludescher, one of my opponents in the Council race, states “we all know what’s going on here” which is, in his opinion, solely to avoid the voters (he asserts this repeatedly as well as misrepresenting the process and burden on the HRA over on Locally Grown).  He continues to tell the HRA this is a “task you’re really not qualified for” and that the Council has made an “unfair request” of the HRA.
  • Patrick Ganey, Council member, notes “loud voices are not always the correct ones” and urges the HRA to act according to the statute which authorizes this action and not be intimidated by a small number of people.
  • Mayor Mary Rossing “we’re all on the same team” and urges the HRA to act for the good of the community and use this “tool you have in your toolbox” (see the Mayor’s statement from the News, too)

Moving on to the first action item which is to authorize that preparation of documents for issuing the bonds and to request the Council hold a public hearing.  Jenny Boulton, of Kennedy and Graven explains the legal status.  Questions from chair Leota Goodney to clarify what might happen if the City decided not to pay (“non-appropriation” is the term – the City would make an annual appropriation to the HRA to pay the debt); the HRA assets would not be available to the bondholders, but the HRA would own the project, the City’s bond rating would suffer, but bond rating agencies view this as a remote possibility.   Ms Goodney also asks about the time commitment for the HRA and Ms Boulton states that the commitment is only the approval process but nothing else.  Mark Ruff of Ehlers addresses the RFP (page 56 in the Council packet for next week) for the sale and the negotiated sale process.

5:50 pm: The HRA gets to discuss…no questions are asked.  Erica Zweifel states that she is “overwhelmingly” in support of the project and the financing mechanism, especially thanking Councilor Vohs.  She also notes that this financing choice IS a response to voters, rather than avoiding them, by acting as many constituents have asked.

Dayna Norvold, who spoke at the Council meeting (see my previous blog post), says the only issue is “does it fit within out mission”? And the answer for her is “no.”  Kevin Fink, “I don’t think this meets our mission” although he is in favor the project and will also be voting “no.”  Susan Crow only states she wished for more time and some concern about ability to manage the information.  Leota Goodney notes she believes the HRA is part of the City and feels she had her questions about impact on the HRA answered. Michele Merxbauer emphasizes the conduit nature of the financing and not adding to the workload of the HRA.

6:10 pm. Competing readings of the statute lead to a discussion of blight.  Ms Norvold has a firmly held belief about what blight is, I think, and I’m guessing it has something to do with delapidation.  Ms Merxbauer points out that the current site can be considered obsolete and blighted as well as the new property, platted 30 years ago, but too small for many current industrial uses. Jenny Boulton encourages a broader use of “blight” and helping development through this financing mechanism.  In response to Kevin Fink and linking the broader mission to housing: public safety is related to the entire community.  Ms Norvold suggests that approving this bond issue would open the door to the HRA being asked to finance many projects.  Ms. Goodney emphasizes that no housing projects are on the horizon – implying that a housing project would be financed first – so it is available.

6:20 pm. Is it worth putting this action off?  asks Ms. Goodney.  No.  Erica Zweifel moves the suggested motion and it fails for lack of a second.  A disappointing result based, I believe, on misunderstanding of the financing authority.  Back to the Council.


Financing the Safety Center – taking the next steps – UPDATED

UPDATE: Mayor Rossing has a column in the Northfield News on this topic.

On June 5, the Council voted to use lease revenue bonds to finance the Public Safety Center, an action which generated much quiet support for acting to move the project ahead directly and efficiently plus a little public outrage from the same small group of Council watchers.

Between June 5 and Tuesday’s special meeting, city staff recommended the HRA rather than the EDA be asked to issue of the debt and the HRA has received an introduction to the project.  Both the EDA and HRA have the requisite authority to undertake this transaction, so the choice is more related to which group is best able to do the job we’re asking them to do. The EDA has new leadership and is rebuilding, but is still short two members and quorum issues are still very real.

Northfield’s HRA has been quietly effective for many years; the HRA’s ability to work collaboratively and finish projects is significant. Dayna Norvold, HRA member, spoke at the meeting and said this request would “totally hijack our agenda” but she gave no specifics to explain her fear. In fact, the HRA board function will be to review materials and take action at the appropriate points in the process.  The work of drafting documents, preparing materials, etc. will fall to city staff, bond counsel and financial advisors.  The programs of the HRA will continue unaffected, their budget untapped and their ability to carry out their fine (award-winning!) work on housing issues in Northfield uninterrupted.  The Council is asking the HRA to let us tap into their financing authority, as do non-profits in town, but not to take over the project.  The burden to the HRA is small.

So, the Council took three more actions to advance the project; all votes were unanimous (6-0; Erica Zweifel was not present).  We approved the form of an RFP for the negotiated sale of bonds, a resolution to transfer funds internally for cash for the purchase of property and other items, and to authorize staff to proceed on closing on the purchase of the Cowles property (the City had a purchase agreement contingent on financing method) in conjunction with the bond sale.

Is this the right horse for our cart?

We were accused of putting the cart before the horse, but I think that metaphor does not capture the situation.  Right now, we’re deciding which horse to pull the wagon (we’re asking to use the HRA horse, a fine steed), what we need to put in the cart (cash for land purchase, plans, etc.) and when the two should be hitched (following HRA decisions, bond sale, etc.).  This project is complex – the multiple steps (which would be present with any financing mechanism, incidentally) must be correlated with particular transactions and decisions.  Coordinating action by the Council with action by the HRA with our respective meeting schedules, as well as making the decisions, negotiating the bond sale, purchasing the land will all happen at the appropriate time, but the truth is that many are executed by staff between meetings or by the HRA at separate meetings.  By having Council approval in hand, the other decisions can be scheduled and made efficiently.

We got more good news from our financial advisor (Mark Apfelbacher of Ehlers) – because this project is for an essential facility and because we are putting dollars in upfront to purchase the land, the debt issuance costs are likely to be lower because, even if lease revenue bonds are not backed by the full faith and credit of the city, this project already has city commitment and the risk that Northfield would not pay its debt is very low.  Combine that with historically low interest rates and this project is a good deal now.

My opponent has accused the city of “not having the courage” to do the project ourselves. Again, the complain is misplaced.  The City is doing the project and (see above) requesting the HRA assist us as the financing conduit; we’re not transferring responsibility for the project or the debt payment to any other group, but will be making an annual appropriation for payment from property taxes.  The only lack of courage I see was the original compromise on CIP bonds – a choice which I think says the Council has believed all along that this was not a project to send to the voters, but were not bold enough to act to use lease revenue bonds at that time.  Now that we have made more decisions about the project – location, scope, carved off the fire organization and vehicle location – we could and did make the clear financing policy decision.

See also: Council’s statement on the choice of financing method (I’m working to make sure this is the first of a series of statements to the public to clarify decisions and push information to residents, rather than rely only on media coverage).

Financing the Public Safety Center-what and why

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.

Safety Center decision making

Yelling "Fire" in a crowded Council chamber

“Safety Center Policy Decisions” is first on Tuesday’s worksession agenda.  The staff memo states:

The City Council has three major policy decisions to make related to the new Public Safety Center:

1. Reconfirm the joint Public Safety Center (PSC) Project

2. Choose a site for the PSC

3. Establish a budget and financing for the PSC project

These are important decisions, but these are not policy problems.  These are concrete, implementation problems.  Unfortunately, the Council has not yet really been clear about the underlying policy problems and I consider myself at fault for failing to articulate questions clearly and not finding ways to guide the discussion more fruitfully.   And, of course, hindsight helps, too.   So, from the acres/tons/volumes of raw information we’ve received, here’s how I’m trying to structure my own thinking for the discussion tonight:

1. Let’s review ALL the capital spending we anticipate: I’d love a user-friendly inventory of all existing capital assets, but simply working with our CIP we can construct a forecast of the capital projects, their cost and approximate timing of expenditures.   So far, we’ve discussed the library (CIP includes $7.6 million in 2015).  Street improvements are a regular item on our agendas, but we’re struggling find ways to catch up with street reconstruction/repair.  Goal: make choices for the PSC which will not adversely affect the city’s ability to maintain and replace other capital assets in future years or at least be able to project the limitations the PSC will create.

2. Let’s determine how much debt we can afford.  We’ve begun to discuss the “how much” issue in relation to our street reconstruction projects, but not for the PSC and future facilities projects and not all together.  For an $8.5 million dollar bond issue, our finance director has projected an annual levy of $600,000.  – this levy amount is about 50% of our current debt levy and almost 3x the total levy increase for 2012.  Where will the revenue to pay the add’l debt service come from?  It doesn’t get any easier when our revenue stream is partly in the hands of the state legislature and its decisions on local government aid.

We need help from staff to bring this information together in a useful form so the Council understands the consequences and so we can clearly explain it to you taxpayers since you’ll be paying for it.  So, if we had knew what we needed to replace when AND had developed guidance on how much debt we should reasonably issue relative to our expected revenue, our budget choices would become a lot clearer.  And, if the budget choices were clearer, I suspect the site, design and timeline would also come into focus.

The other large unanswered question not entirely unrelated to the above:  “Partners”: We’ve talked about our partners – colleges, Dundas, rural fire association – but what sort of relationship are we talking about?  We have a rough commitment for a capital contribution of $500,000 from the rural fire association.  However, the service agreement is decades old and Northfield relies on the rural association’s equipment.

The Council is scheduled to receive an update on our partners tonight.  I’m eager for this update since the Council hasn’t had much information about the details of negotiations, so my more cynical self thinks it looks like Northfield tries to see how much we can get our not entirely enthusiastic customers to pay without giving them a great deal of input on what they’re buying.  So far, contract talks seem stalled.  A bolder alternative strategy would be to create a regional fire district governed by a joint powers agreement for services, facilities and equipment?  It would certainly clarify the relationship, support Northfield’s interest in regional solutions, and perhaps build in a more sustainable structure where all parties have a strong stake in helping the fire district succeed.