CCP 06-24-1996 - Laserfiche WebLink

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I' I Financing Alternatives I- Applicable Legislation I The ability to bond for the construction and improvement of ice arenas lies within various areas of the statute. The applicable statutes provide for the issuance of the following types of bonds: 1. Gross Revenue Bonds . 2. Lease Purchase Revenue Bonds 3. General Obligation Bonds - generally 4. General Obligation Bonds - "Mighty Ducks" authority I Gross Revenue Bonds I Minnesota Statutes, Chapter 471.191 permits cities and school districts to borrow and expend funds for the capital costs of providing skating rinks and arenas and other recreational facilities. 471.191 indicates that bonds may be issued pursuant to chapter 475 to fund these I capital costs. Without other express legal authorization or authorization by approval of the electors, the bonds must be issued as gross revenue bonds supported by revenues of the facility to be financed. I A gross revenue bond would have a first lien on all of the gross revenues of the arena and operation and maintenance costs are paid after debt service obligations have been met. I. Covenants would be entered into with the bondholders which pledge that the arena will continue to be owned and operated during the entire life of the revenue bond issue. Under this covenant, the arena must continue to be operated until the bonds are paid off, even if revenues of the arena are inadequate to cover debt service on the bonds and/or the costs of I operating and maintaining the facility. The law directs that the "goveming body of the issuer shall provide in its budget each year for any anticipated deficiency in the revenues available for such operation and maintenance". It further clarifies that the deficiency funding may be from a I property tax levy which exceeds taxes otherwise provided for within charter limitations; however, the authority to levy additional taxes does not apply to cities or towns in which the net tax capacity consists in part of iron ore or lands containing taconite or semitaconite. Because . cities currently do not have general levy limitations, their obligation to a gross revenue bond could be met by an increase in their levy. School districts, however, do not enjoy this flexibility and if obligated under this type of financing, a school district would have to seek special permission to increase its levy to cover any operating deficits or would have to find money for . the obligation within its existing operating budget. The advantage, of the operating pledge to the bondholder is obvious. The issuer must . continue to operate the facility, directing revenues first to the bonds, second to the operating and maintenance of the facility and levying, if necessary, to make up any operating and maintenance shortfalls. To achieve marketability, an investor must become comfortable that the revenues from the facility will provide ample coverage for debt service and operation of the I facility. The investor will also look to the issuer's ability to provide outside funds for the operation of the facility, where the revenues will come from, and their availability in the event of difficult budgetary times. . The pledge by the issuer towards operation of the facility is not an annual appropriation pledge. The law provides specifically that the issuer "shall provide in its budget each year" for .e anticipated deficits. Borrowing under this section should be viewed as a long term commitment to both operate the facility throughout the term of the bond issue and to potentially provide for full operating costs if revenues after debt service are insufficient to cover operating obligations. I DRAFT REPORT 5/30/96 Page 8