Citizen Bond Committee Meeting City of Peoria, Pine Room November 28, 2007 A regular meeting of the Citizen Bond Committee of the City of Peoria, Arizona, was convened at 8401 West Monroe Street in open and public session at 6:30 p.m. Members present: Greg Loper, Barry Spiegel, Ron Lyzniak, William Schindler, Phil Hanson, Pat Temes, Jim Redondo, Ken Myers, Pete Rivera, Frank Bohall, Santos Diaz III, Wendy Wood, Marvin McCloe, Armando Macias, William Bercu, Tom Campbell, Mark Proctor, Kathy Heyman, Jamie Arkin, Gary Nelson, Don Holtzee, Peter Raymond, Jack McCleary, Gracie Gibson Members Absent: Salvatore LaPuma, Michael Rogers, Paul Studer, Gary Nerdig, Anne Wojcik, Alan Doerschel Regular Agenda The meeting was called to order by Committee Chairman Greg Loper at 6:33 p.m. He announced that these meetings were open to the public. He also requested that, when committee members ask questions and address the group, they provide their name before speaking. He also reminded committee members to sign the attendance sheet at each meeting as this document will serve as the official record of attendance. Mr. Loper then asked for a motion to approve the minutes from the November 14, 2007 noting two small changes had been made. William Schindler made a motion to approve the amended minutes and Vice Chairman Phil Hanson seconded the motion. There was no further discussion, and the minutes were approved by a unanimous vote. John Wenderski, Deputy City Manager, provided a brief introduction to the Financial Overview presentation. He directed committee members to think of philosophy and framework when making financial decisions. Committee members should also understand the impact decisions have on citizens as well as how the decisions influence the City. Brett Mattingly, Chief Financial Officer, spoke about the City’s ten-year Capital Improvement Plan (CIP). He explained the planning timeline and how the first year of the CIP becomes part of the fiscal year budget. In the coming weeks, departments will speak to committee members about various proposed capital projects. There are a variety of revenue sources to potentially fund these projects including cash, revenue bonds, impact fees, and agreements with other state or local entities. Each revenue source has different criteria and can only be applied to certain projects. General obligation bonds are one source for funding capital improvements. Mr. Mattingly continued by discussing the City’s forecasting process and the need to look out on the horizon for ten, fifteen or even twenty years. When looking at capital projects, one must also consider the operating costs of those projects which will become an ongoing expense. The challenge is to have good planning while finding a balance. Mr. Mattingly reviewed the City’s Principles of Sound Financial Management which includes seventeen policies related to financial planning including parameters on how the City issues debt, what types of projects can be bond funded, and other important financial considerations. Jeff Tyne, Budget Director, began his portion of the presentation by discussing the four main considerations for issuing bonds, including assessed valuation, property tax rate, constitutional capacity and voter authorization. Constitutional capacity is defined by state law which places a maximum limit on the amount of bonds that can be outstanding at any point in time. The limit is twenty percent of assessed value for debt outstanding for water, wastewater, open space, park and recreation, streets, and public safety. Six percent of assessed valuation is the maximum limit for libraries and public office buildings. Chairman Greg Loper asked if the six and twenty percent limits were cumulative and Mr. Tyne acknowledged that they are, totaling twenty six percent of the City’s assessed valuation. Mr. Tyne next provided an explanation of the City’s property tax. There are two components to the tax, a primary and secondary component. The primary property tax can be used for any purpose, including general operations. The secondary tax can only be used to pay principal and interest on outstanding debt. The City of Peoria’s primary property tax rate is currently $0.24 for every $100 of assessed value and the secondary rate is $1.25 for every $100 of assessed value. Other agencies in addition to the City set their own tax rates and receive property tax from citizens, including school districts and counties. Committee Member Gary Nelson requested an explanation of the breakdown for school and county taxes and inquired as to the variation in percentages. Mr. Tyne responded that school and county taxes vary depending on the area you live in. Jeff Tyne continued with a projection of future assessed value. His projections assume a slowdown in the next couple of years following all of the growth we have experienced during the past two years. However, after the slowdown, assessed values are expected to grow at more historical rates. Peoria, when compared to other cities, is in the middle range of tax levy per capita. Mr. Tyne explained that the voter authorization requirement restricts bonds from being issued without the prior consent of voters. In addition, the City’s Charter requires separate voter consent to fund City office projects of twenty thousand square feet or more and a cost of over five hundred thousand dollars. Bond elections can only occur in November at a General Election. City staff is currently updating the Capital Improvement Plan for the next budget year. Simultaneously the Citizen Bond Committee is meeting to develop their plan. Both groups will be able to work together to optimize capital plan moving forward. Michael Cafiso, the City’s Bond Counsel, discussed bonds and his role in the process. A bond is nothing more than a loan and a commitment to repay borrowed monies – similar to a home mortgage. The City tries to get high bond ratings so that the City’s bonds have lower interest rates. The two important things a bond buyer wants to know are: 1) without qualification, the bond will be repaid and 2) whether the interest on bonds will be tax exempt (federal and state). The City of Peoria has never had problems with its bonds. Tom Hocking, the City’s Financial Advisor, continued the discussion of bonds and provided an overview of his role. There is a team effort between staff, outside bond council and City Council to issue bonds. The issuance of bonds must comply with the City’s policies. The most common method of sale is competitive bidding. In order to take bids, City makes publishes a notice requesting bids for the bonds on a certain day and time. The bids are received electronically via the internet which is similar to how trades are done these days on the stock market. Mr. Hocking also assists the City with its bond rating process. Very few cities in Arizona have an AAA rating. Peoria has a solid AA rating for its bonds. As part of the bond issuance process, Mr. Hocking also assists in the preparation of the Preliminary and Official Statements. These are offering documents that require accuracy and full disclosure. They include the projects to be funded, security pledged, credit rating, and demographic and financial information of the City. John Wenderski asked if someone can get in trouble for preparing the bond statements inaccurately. Mr. Hocking restated that the Preliminary and Official Statements have to be completely accurate with detailed project information and the City’s most current financial information. Mr. Hocking continued the presentation with discussion regarding the methods of financing projects. Utilizing cash is considered “pay as you go” financing. But, it is not always the best method because by the time you collect the necessary cash, the cost of the project may increase due to inflation. Debt is considered “pay as you use” financing. The combination of cash and debt is typically what the City uses for funding projects. Committee Member Mark Proctor asked what the difference in interest rates would be for an “A” versus a “AA” rating? Tom Hocking replied there could be a difference of ten to fifteen basis points which, depending on the amount of debt issued, could equate to one million dollars of debt service over a twenty year period. The City also has the option to buy municipal bond insurance which provides a higher rating. Mr. Hocking explained there are four types of bonds: General Obligation Bonds (secured by full faith and credit of the City), Revenue bonds (specific revenue pledged to pay for bonds), HURF- Highway User Revenue Bonds (city receives a percentage of gas tax and can pledge the revenue to repay the bonds) and Special Purpose District Bonds (not city- wide but only in one concentrated area). Committee Member Gary Nelson inquired as to City improvement districts. Mr. Hocking explained they are used in isolated areas where property owners must agree to have their property assessed and then bonds issued for specific improvements in that area. Brent Mattingly reviewed the City’s outstanding bonds for the group. The City’s largest outstanding bonds are the General Obligation bonds. The City last issued approximately $94 million in general obligation debt. That is why the General Obligation Bond category is so large. John Wenderski closed out the presentation by going over key items for discussion when considering the City’s Capital Improvement Program. One of these items includes an economic development work plan that includes focal points in the community such as “Old Town” and 83rd Avenue and Bell Road. The City Council wants the city to be “naturally connected”. Other key items include sustainability, ongoing maintenance costs, and voter authorization. Mr. Wenderski emphasized the Committee’s role, encouraged them to ask questions of the staff presenting projects over the next few meetings, and their role in ultimately providing the recommendation as to projects and voter authorization needs to the City Council. Chairman Greg Loper made a call to the public and there were no requests to address the group. He announced the next committee meetings were on December 12, 2007 and December 19, 2007. If a committee member is absent, staff will provide the presentation handout at the next meeting. He also acknowledged the attendance of a new committee member, Gracie Gibson. Being no further comments or questions, the meeting was adjourned at 8:06 p.m. ___________________________________ Greg Loper, Committee Chairman Submitted by: _________________________________ Michelle Grieb, Executive Assistant Finance Department