HomeMy WebLinkAboutPR 11631: BUSINESS PARKI N T E R
MEMO
OFFICE
To'
From:
Subject:
Date:
Mayor, City Council & City Manager
Mark T. Sokolow, City Attorney /tq~
P. R. No. 11631
Council Meeting - January 15, 2002
January 10, 2002
Attached is P. R. 11631 which pertains to authorizing thc financing mechanisms
to build a Business Park in conjunction with the Port Arthur Section 4A Economic
Development Corporation. At the joint meeting with the EDC, the City Council and
the EDC can determine the financing mechanism or the particular option as delineated
in Exhibit "A'.
MTS/ts
Attachment
CC:
City Secretary
Ike Mills, Interim Director,
Director of Finance
EDC
z.pr 11631. memo
P. R. No. 11631
01/11/02 ts
RESOLUTION NO.
A RESOLUTION AUTHORIZING THE
FINANCING MECHANISMS TO BUILD A
BUSINESS PARK IN CONJUNCTION WITH OR
BY THE PORT ARTHUR SECTION 4A
ECONOMIC DEVELOPMENT CORPORATION
WITH THE PARK BEING IN THE VICINITY OF
HIGHVqAY 365 AND WEST PORT ARTHUR
ROAD
WHEREAS, the Port Arthur Section 4A Economic Development Corporation
is in the process of building a Business Park in the vicinity of Highway 365 and West
Port Arthur Road; and
WHEREAS, thcre is a need to select thc type of financing or options that will
be used to construct the physical improvements at the Business Park, i.e., roads,
drainage systems, utility systems and other similar improvements.
NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF
THE CITY OF PORT ARTHUR:
Section 1. That the facts and opinions in the preamble are true and correct.
Section 2. That the type of financing described as
in Exhibit "A" is hereby approved as to build the Business Park.
Section 3. That a copy of the caption of this Resolution be spread upon the
Minutes of the City Council.
READ, ADOPTED AND APPROVED on this day of
z.prl1631
2002, A.D., at a Meeting of the City Council of thc City of Port Arthur, Texas, by thc
following vote:
AYES: Mayor ., City Council
NOES:
ATTEST:
OSCAR ORTIZ, MAYOR
CAROLYN DIXON, CITY SECRETARY
APPROVED AS TO FORM:
MARK T. SOKOLOW, CITY ATTORNEY
APPROVED FOR ADMINISTRATION:
STEVE FITZGIBBONS, CITY MANAGER
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EXHIBIT "A"
January7,2002
Ms. Becky Underhill
Director of Finance
City of Port Arthur
444 Fourth Street
Port Arthur, TX
RE: Options for the financing of the Industrial Park
Dear Becky,
You have asked me to put in written form a synopsis of the presentation given to council regarding the
proposed industrial park. At that meeting I discussed two alternative methods for funding the project. The
first method involves the Corporation selling its own Sales Tax Revenue Bonds while the second method
involves the City selling Certificates of Obligation on behalf of the Corporation.
Sales Tax Revenue Bonds
Sales Tax Revenue Bonds are different than the tax backed bonds and certificates that the City usually
sells. The Corporation can issue bonds backed by a sales tax, the City cannot. A revenue bond is backed
up by a cash flow, in this instance, receipt of sales taxes by the corporation of ½%. The cash flow is
leveraged by selling debt with annual payments that am less than the annual cash flow. The difference
between the cash flow and the debt payments is referred to as debt service coverage. Also, a revenue bond
is required to have a reserve fund. A reserve fund is typically equivalent to the average annual debt service
payments. It is used to make the payment in any year in which the sales tax receipts do not produce
sufficient revenue to make the debt payments. The cost of insurance is typically higher than with a tax
backed issue because the City has little or no control over the receipt of sales taxes. Finally, due to the
same reasoning on insurance premium, even an insured sales tax revenue bond prices slightly higher in
yield than an insured tax backed credit would.
Certificates of Obli~afion
Certificates of Obligation are issued by the City and have a pledge of ad valorem taxes, the full faith and
credit of the City behind them. The City can issue debt obligations with an ad valorem tax pledge behind
them, the Corporation cannot. The pledge of taxes makes for a very strong pledge because the City can
levy a tax up to the limit imposed by the City Charter to pay them (In the event the. In this case however,
the Certificates would be anticipated to be paid back by the Corporation. This could be accomplished by
entering an interlocal agreement with the Corporation to pay the annual debt service on the Certificates.
Such an agreement would need to be drawn up by the City's Bond Counsel. By having such an agreement,
the Corporation could avoid having to fund a debt service reserve and could take advantage of the slightly
lower interest rates and insurance premiums ora tax backed issue. The Corporation may also not have to
deal with limitations imposed by a required debt service coverage.
There are economic advantages to the City selling Certificates of Obligation on behalf of the Corporation.
These include slightly lower reoffering yields, a slightly lower cost of insurance, no need for a reserve fund
and no requirement for debt service coverage. There are also benefits for the Corporation selling it's own
debt in the form of Sales Tax Revenue Bonds. Such debt is not considered an obligation of the City of Port
Arthur. This means that the City does not have to step up and make the payment if the Corporation cannot,
unlike with Certificates of Obligation where the City is "on the hook."
I hope that this letter covers the points that you wanted addressed. Let me know if I may be of further
assistance or provide you with more information.
Sincerely,
Joe Morrow