Memo-03-13-2018-Item-10

March 13, 2018

MEMO TO:        Mayor Barber and Board of Commissioners

FROM:             Frank A. Rush, Jr., Town Manager

SUBJECT:       Proposed Installment Financing Agreement –McLean-Spell Park Land Purchase -  (Summary & Suggested Motions)

The Board of Commissioners is scheduled to conduct a formal public hearing and consider the issuance of up to $600,000 of new installment financing debt at the March 13 meeting.  The new installment financing debt will fund the Town’s share of the land acquisition cost for the 29.7 acre tract of land (the Surfside tract) adjacent to the Town Government complex that is now known as McLean-Spell Park. 

Update – Federal and State Grant Funding

As you recall, the total purchase price for the Surfside tract is $3 million, and the Town plans to reserve this land (the last large vacant parcel in Emerald Isle) for passive (20 acres) recreational use and the development of future active (9.7 acres) recreation facilities.

The Town was awarded a total of $2.545 million of Federal and State grant funding in 2017 for the acquisition of the Surfside tract.  A total of $1.5 million has been awarded by the US Department of Defense - Readiness and Environmental Protection Integration Program (REPI) through MCAS Cherry Point.  A total of $500,000 has been awarded by the NC Parks and Recreation Trust Fund (PARTF), and a total of $545,000 has been awarded by the NC Clean Water Management Trust Fund (CWMTF). 

Due to the very lengthy process for the release of Federal REPI funds, the Town facilitated the interim purchase of the Surfside tract by the Conservation Fund of North Carolina in October 2017.  The Conservation Fund’s mission is to assist local communities with the preservation of park land, and their services are aimed specifically at situations like this one where the land, the political will, and the funding are all available, but the timing is not quite right.  Upon release of Federal REPI funds later this spring, the State will release the PARTF and CWMTF funds, and the Conservation Fund will formally convey the Surfside tract to the Town of Emerald Isle.  At that time, the Town will be required to contribute the balance of the funds necessary to complete the land acquisition – a total of $455,000.  The Town has also agreed to compensate the Conservation Fund for its services and for the short-term interest cost, and expects to remit a total of approximately $75,000 to the Conservation Fund at or soon after the closing date.  Thus, the Town’s total cost is expected to be approximately $530,000, as discussed with the Board in September 2017.

The Federal REPI process is ongoing, and several important steps have been completed in the past few months.  I have worked closely with staff at the Conservation Fund, MCAS Cherry Point, PARTF, and CWMTF over the past few months, and everything appears to be falling into place.  The REPI funds are expected to be released within the next 60 days, which will also trigger the release of the PARTF and CWMTF funds.  Thus, the Town will need to provide its contribution in early May.  The proposed installment financing agreement would provide the required Town funds.

Public Hearing

As per NCGS 160A-20, a public hearing is required before the Board approves the issuance of Town debt, and has been scheduled for the March 13 meeting.  The proposed installment financing agreement is with Branch Banking & Trust (BB&T), and includes a principal amount of up to $600,000 (the actual amount issued will likely be less).  The proposed term is 10 years, with level principal payments ($60,000 annually), at an annual interest rate of 3.57%.  The debt will be secured by the Surfside tract, and the first year debt service payment is estimated at $81,420.  Annual debt service payments would gradually decrease over the 10-year term, with the final payment estimated at $62,142.  The proposed installment financing agreement includes a 1% prepayment penalty, and $1,000 of closing costs.    

The Town is fortunate to have relatively minimal debt.  As of March 13, the Town’s total outstanding debt is approximately $1.64 million, or approximately 0.06% of the Town’s total assessed value.  (The Town’s official debt policy limits total Town debt to 2.00% of the Town’s total assessed value.)  The Town’s FY 17-18 debt service expense is approximately $557,000, or approximately 5.8% of the FY 17-18 budget.  (The Town’s official debt policy limits annual debt service expenditures to 15% of the annual budget.)

As you know, the Board indicated (informal) approval of this financing strategy in September 2017, and the Town’s 5-Year Capital Replacement / Improvement Program also includes this financing strategy.  This financing strategy has also been noted at recent Board meetings, and was also discussed at the recent budget workshop meeting. 

Resolution Approving Financing Terms

The attached Resolution Approving Financing Terms formally authorizes a new installment financing agreement with BB&T in an amount up to $600,000.  As noted above, the exact amount has not yet been finalized, and is dependent on the actual closing date for the Town’s acquisition from the Conservation Fund, and also the potential inclusion of a new pedestrian bridge over Archers Creek to connect the new park with the Community Center.  We anticipate the actual amount issued to be approximately $560,000+/- if a new pedestrian bridge is included in the proposed installment financing agreement, however, we have intentionally structured the attached resolution to provide maximum flexibility for the Town.  

The new installment financing agreement includes an annual interest rate of 3.57% over a 10-year term, and results in annual debt service payments that average $71,781 per year for 10 years.  The Board should note, however, that the Town will make level principal payments rather than equal payments, thus the first year debt service payment is $81,420.  The annual payment declines gradually each year, with the 10th and final annual payment of $62,142 due in 2028.  Debt service payments will be included in the Town’s annual General Fund budget. 

The Town solicited proposals from several financial institutions, and received three proposals – from BB&T, PNC Bank, and Sound Bank.  BB&T’s proposal quoted a 3.57% annual interest rate with $1,000 of closing costs, and PNC’s proposal quoted a 3.66% annual interest rate with up to $7,500 of closing costs.  Sound Bank’s proposal included a 10-year term, but the quoted interest rate was only fixed for 5 years – thus, the Sound Bank proposal was not considered further.  BB&T’s proposal is the most favorable for the Town, thus the recommendation to accept BB&T’s proposal.  In addition, BB&T is the Town government’s bank, and also holds the Town’s other significant debt instruments (the 2013 refinancing, and the 2013 “Community Improvements Package”).   

The attached resolution also includes provisions authorizing the Finance Officer to submit the necessary application to the NC Local Government Commission (LGC) and includes several statements supporting the use of an installment financing agreement under NCGS 160A-20.  The proposed installment financing agreement will be formally considered by the LGC at its April 10 meeting, and is expected to be approved.      

Laura Rotchford, Finance Director, and I look forward to discussing the proposed installment financing agreement with the Board at the March 13 meeting.