City Council Minutes 04-14-2008 SpecialSpecial Meeting Minutes 4/14/0$
MINUTES
SPECIAL MEETING -- MONTICELLO CITY COUNCIL
Monday April 14, 2008 - 5 p.m.
Members Present: Clint Herbst, Wayne Mayer, Tom Perrault, Brian Stumpf and Susie Wojchouski
Members Absent: None
Others Present: Lynn Dahl Fleming, Bryan Nelson, Brenda Krueger, Milda Hedbloom, Brett
Weiss, Torn Scott and Doug Dawson via telephone.
1. Call to Order.
Mayor Herbst called the meeting to order at 5 p.m. and declared a quorum present.
2. Fiber Optics Engineering and Proiect Update.
Jeff O'Neill provided background on what has transpired with fiber optics thus far,
Construction is planned to start in June. However before that time there are some decisions that
have to be made. Three items will be the faces of this workshop: 1) Update on engineering and
other aspects of the project; 2) Consideration of approving a resolution an the sale of bonds;
and 3) Review of the governance model.
Update on Engineering:
Bruce Westby reviewed the engineering side of things. Spectrum. Engineering has been hired as
design manager for the project. U-recka Broadband was hired to the field walk-out. The field
walkout is done to verify that everything is accurately reflected on the plans. The
walk-out was completed on Apri14, 2008. The firm was looking for any anomalies from what is
on the plans ar if there is something in the right-of--way that may impact the project. Hopefully
the walk-out would eliminate the need to make changes later on in the project.
The City submitted an advertisement for pre-qualifications requests which are due on April 18,
2008. Sa far 12 firms have requested the documents. The City will review all pre-qualification
documents and those firms that attain 800 points or more will be allowed to bid on the project.
Doug Dawson commented that a lot of work had been done to identify the site for the central
office building. The selected site is near the water tower in the Jefferson Commons Addition.
Currently they are getting the bid documents for the building ready. Public Works Director John
Simola said the site plan for the building will be completed this week. The garage and the head
in building will be located an the site with the garage being bid separately. The site will be
screened and fenced.
3. Consideration of a resolution callin for the Sale of Telecommunications Revenue Sonds
Series C:
The task force has been working to identify the conditions under which the bonds will be sold.
Brenda Krueger and Bryan Nelson discussed the bond sale noting that because construction is
proposed to begin in June the bond sale will be done in the near future. Funds from the bond
sale proceeds should be available far use in early June. The financial consultants will be back
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before the Council on May 13, 2008 with the results of the bond sale. The financial consultants
discussed: 1) Security for the bonds; 2) Covenants to the bond holders; 3) Terms and conditions
of bond repayment; and 4) Bidding activity.
Repayment of the bonds will come from net revenue of the system. Repayment in this fashion is
for the life of the bond. There is also capitalized interest covering the debt payment for the first
three years and a debt service reserve fund which is funded by principal from the bond sale. The
debt service reserve funds saver one year bond payments. Brenda Krueger noted this is standard
in a revenue transaction. The first few years of operation of the system are critical. The debt
service reserve funds are invested and any interest earned is used to the debt amount. Wells
Fargo is the trustee and works on behalf of the bondholders. Wells Fargo also holds certain funds
such as the debt service fund. The trust indenture is the "bible" of the transaction. As part of
this document the City will be making certain covenants including:
1) The City is going to complete the system; 2) The City is going to continue to operate the
system effectively; 3) The City will prepare an annual budget; 4) The City will prepare a capital
improvement plan; 5) The City will make regular financial reports; and 6) The City will impose
fees and charges sufficient to make the debt payment on the bonds. Minimum revenue
generated from the operation of the system should be at least 1.25 times the principal and interest
on the bonds. Based an the business plan for the operation it is anticipated that revenues
generated will be 1.75 times principal and interest.
The bond structure calls for three years of bond payments from capitalized interest with the first
payment being made in 2013 and the final payment in 2031. After ten years there is an option to
call the bonds. Susie Wojchouski asked if after three years, the City finds it cannot make the
debt service payment is the risk would be to the bond holders or to the City. Brenda Krueger
said there are certain actions the bond holders could take to make the City improve the
operations and Bryan Nelson said there is no recourse by the bond holders to the general funds of
the City. Bryan Nelson indicated the band holders may request the trustee to have the City retain
a consultant to come in and make recommendations as to the operation of the system.
Oppenheimer will be marketing the bonds for several weeks with prospective investors. Brian
Stumpf asked what the financial consultants considered as favorable conditions for the bond sale.
Bryan Nelson responded that the financial markets have came through some rough times. He
said the City's revenue bonds would be attractive to band buyers because of the strong feasibility
study and the 74% referendum approval. It was noted since this is a riskier venture, the interest
rate would be higher but investors are willing to take on a higher risk for a higher return. Bryan
Nelson estimated the interest rate to be somewhere betweert 6%-9% with the actual figure being
Glaser to 6% than 9%.
Brenda Krueger stated there was a change in Sources and Use Fund. The bond amount changes
from $22,400,000 to $27,000,000 and for the purpose of the bond issue they would be using the
$27,000,000 figure. Going with this figure would allow some flexibility and it was pointed out
that $27,000,000 was the ceiling. Milda Hedbloom felt that the task force has tried to err on the
conservative side. Doug Dawson explained what they had done thus far in the way of estimates
and providing Far contingencies. The $27,000,000 gives the enterprise some funds for wiggle
room. Brenda Krueger said any excess funds would stay in the enterprise fund. Susie
Wojchouski asked if these excess funds are not used for construction how would they be
handled. Brenda Krueger said the funds would be used to repay debt. Doug Dawson said the
bonds are also funding some working capital as it is expected that the system will lose money the
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first few years. Any surplus would also help the City get a good rate on a second round of
borrowing if it is needed.
The preliminary official statement (FOS) is the legal document on which the borrowing
goes forward. The document describes the payment and what is expected in the way of revenue
and expenditures. The preliminary official statement summarizes the transaction. Milda
Hedbloom said in the preliminary official statement information is made available on how the
system will be managed and a detailed description of the role of the manager is provided. They
are currently in the process of naming the management firm and this will be the focus of the
Apri121, 2008 special meeting. Other items included on the document are a description of the
economic benefit and development that will result from this project.
The official statement is not going out until April 25, 2008 because they are still in the process of
finalizing the agreement with HBC. Once this is done the management services agreement can
be incorporated into the preliminary official statement. HBC is Hiawatha Broadband
Communications out of Owatonna. They have experience in Minnesota in management services
and also have the cable signal. They are looking at a minimum of a three year contract. Milda
Hedbloom summarized the discussions with Hiawatha Broadband Communications and the
mutual benefits to both HBC and FiberNet Monticello. Bryan Nelson felt that a contract with
someone like Hiawatha Broadband Communications would give confidence to the bond holders
as well as provide cost savings to the City.
Tarn Perrault asked why the building was being located by the water tower. John Simala replied
because the City owns the land, it is centrally located and sewer and water are available to the
site. John Simola added that the other site that was considered was near the reservoir on Chelsea
Road.
4. Consideration of a royal of the Governance Ordinance for FiberNet Mantieelia.
City Administrator, Jeff O'Neill reviewed the establishment of FiberNet Monticello and the way
it is intended to operate. The Council has authority for setting the budget, establishing a capital
improvement program and establishing policies. The Advisory Board is to provide direction to
the manager of FiberNet Monticello. FiberNet Monticello operates with the programs set forth
by the City. Overall FiberNet Monticello is fairly autonomous but it would be similar in
operation to any other enterprise of the City.
Lynn Dahl Fleming and Cathy Shuman are developing a recruitment plan to be used for filling
the positions on the Advisory Board. It is hoped to have the Advisory Board in place before the
manager is hired.
5. Adiaurn:
TOM PERRAULT MOVED TO CLOSE THE FIBER OPTICS WORKSHOF AT 6:25 P.M.
WAYNE MAYER SECONDED THE MOTION. MOTION CARRIED UNANIMOUSLY.
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Recording Secretary