Saturday, November 19, 2011

Buyer's Remorse? The Devil is in the Details.

It's been interesting to read articles in the Argus Leader after the election and listening to the bond council presentations. It's kind of like buyer's remorse when you've bought a big ticket item and then you go home and wonder what the heck you have done and how you are going to pay for it. Don't anyone get their pants in a wad since I am sure the yes voters do not have buyer's remorse yet.  It's just that it's interesting to hear certain things slowly come to the surface since reality has set in.

Listening to the presentation last week when  the bond presenters said the final maturity date of the bonds could be as late as 2037 gave me pause. We were told the bond debt would be for 22 years. I guess we will find out how long the bond debt will actually be in January 2012 when the bond sale is finalized. The actual bond amount will be $115 million plus the cost of insurance, capitalized interest and the $9.5 million debt service reserve fund.

So, how much will the city pay in interest? What exactly is going to affect the interest the city will pay on those bonds?

  • It gave me pause when I heard that federal government gets concerned when tax exempt bond proceeds get used for private purposes. We might have to issue a combination of tax exempt and taxable bonds which could drive up the interest rate. The issuance of all tax exempt bonds could possibly limit operations that precludes revenues from private sources who benefit from the using the facility. The bond company will structure the bonds to maximize the city's ability to enter into private contracts with private sources to maximize the revenues.  The bond council said the only reason you issue taxable bonds is you perceive the benefit of having the flexibility to generate private revenue from private users is going to be more than pay you back. So, I guess we will see how much their analysis says private revenues will be forecasted when we see the percentage between the tax exempt bonds and the taxable bond structure.
  • Because of the issue size of the bond, the recommendation is to get two bond ratings, one from Standard and Poor's and one from Moody's. Normally, the city only got one bond rating in past bond debt issues. With two bond ratings, you get more people interested in bidding on the bonds because of the size of the bond. Each bond rating will cost $65,000 which is built into the bond proceeds.
  • Bank qualified or non-bank qualified? Anytime you issue more than $10 million in a calendar year, the bonds become non-bank qualified. From a bank's perspective the bonds are not as attractive to buy because they can't write off the interest cost so you tend to pay a little higher interest rate for bonds that are not bank qualified.
This is all very interesting because now the rubber hits the road. The devil is in the details. Citizens voted yes on the cost of $115 million for construction.  The train is leaving the station. After 2nd reading next Monday, publication of the ordinance and 20 days after publication (referendum period), they will move forward to authorize the execution of the contracts and documents to close the transaction. Issuance of the bonds will occur in mid to late January 2012. That's when we will all know just how much that $115 million construction loan will actually cost long term.

12 comments:

  1. What about Ray Woodsen getting up in front of the City Council last week stating that a public sale wll cost the taxpayers more money than a private sale. Granted his bond firm is a competitor for bond sales but he gave examples of how the school district and other entities saved money by using a private sale.

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  2. The important word here is Referendum.

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  3. It will be interesting to follow the cost over-runs brought about by design oversights/inadequacies from a code (building, fire, mechanical, etc.) standpoint and changes (mid-project) to designs surfacing during construction. Can't think of a project yet where designs have been 100%. As usual the code officials, dutifully performing their respective jobs in enforcing city adopted law, will be the bad guys "holding-up" the project and "costing us extra money". From there planning and MMM will get involved to "fix" things. It's occurred time and time again!

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  4. Has anyone heard the old saying, 'my mind is made up do not confuse me with any of the facts'? My guess is that the mind(s) of Build It Now are already made up, facts or no facts. Traffic issues, roads, and other Infrastructure needs, now and into the future, be dammed. It will be of some comfort to know that when the snow piles block my drive - providing there is snow removal - sewage is again pumped into the Big Sioux River, and the overlay on the roads disintegrate I can drive to the new EC, search out a parking place and then walk a couple of blocks to sit cheek to cheek with up to 12,000 of my closest friends. No increase in taxes, no CIP projects will be delayed, no surprises. Yeah Right, just as I still believe the politicians in Washington, DC and in the tooth fairy!

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  5. What the public needs to be concerned about NOW, is the Council vote this Monday at the 7:00 meeting!!

    Negotiated vs. Competitive Bond Sale......

    And, the possibility that the repayment period will be extended from 22 years to 26 years!

    **The information that Mike and his team gave to the public was a 22 year repayment period with an end date of 2033. The information that Doug Hajek, bond counsel, gave to the Council last week is that the final maturity date could be as late as 2037!!!

    I CANNOT believe that we have not heard a word from the local media about this...they've had since Monday to be talking about a bond sale that could potentially cost us "more" (negotiated), put us at more risk, and take longer to pay off!!!!!!!!!!!!! (see siouxfalls.org November 14, 2011, 7:00 Council meeting, Ray Woodsend public input)

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  6. I read in Patrick Lalley's column the other day that in places like Omaha it takes 1.5% of the metro population to fill their events center.

    In the Sioux Falls metro area it will take 5.3% of our population to fill the new events center. That's a huge difference.

    I wonder what the financial stats of the families who live in Sioux Falls and the surrounding area are like? Jennifer, do you know?

    I know the Mayor said that 60% of the people coming for events will be from out of town. Exactly where is he talking about, and what are the financial stats for them. Did he cover any of this in the "educational meetings"?

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  7. Jennifer's MusingsNovember 19, 2011 at 2:26 PM

    The Sioux Falls Metropolitan Statistical Area is defined by the United States Census Bureau and includes 4 counties: Lincoln, McCook, Minnehaha, and Turner Counties. The 2010 Census says the MSA population is 228,261.
    MSA median household income: $40,590
    MSA median family income: $48,191
    MSA median income for males: $30,994
    MSA median income for females: $22,493
    MSA per capita income: $19,184

    LINCOLN COUNTY:
    Median household income: $48,338
    Median family income: $55,401
    Median income for males: $34,486
    Median income for females: $24,133
    Per capita income: $22,304
    3.2% of families and 4.4% of population is below the poverty line.

    McCOOK COUNTY
    Median household income: $35,396
    Median family income: $42,609
    Median income for males: $28,390
    Median income for females: $21,073
    Per capita income: $16,374
    5.5% families and 8.1% population is below the poverty line.

    MINNEHAHA COUNTY
    Median household income: $42,566
    Median family income: $52,031
    Median income for males: $32,208
    Median income for females: $24,691
    Per capita income: $20,713
    5% of families and 7.5% of population below the poverty line.

    TURNER COUNTY
    Median household income: $36,059
    Median family income: $42,704
    Median income for males: $28,833
    Median income for females: $20,075
    Per capita income: $17,343
    5.7% of families and 7.2% of population is below the poverty line.

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  8. If 60% of the event goers are coming from out of town, this doesn't look too promising. I am shocked by how low the income levels are. We females don't make much money. Now we know why EC vote was based on south part of Sioux Falls. They all live in Lincoln County. TIME magazine is doing a piece on poverty in America and they focus on 7 states and SD is one of them. How comforting. We will have to move out of Sioux Falls because we won't be able to afford living here.

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  9. You've got to be kidding me. You'll have to move out of Sioux Falls because you can no longer afford to live here? Where do you plan on moving, Iowa, Minnesota, Nebraska? Have you checked out their tax structure? I'm sure you'll find that it is much cheaper to live here than there. Do you plan on driving to work in Sioux Falls? Did you really pay attention to the stats as presented by Jennifer. Looks to me like the income earned in Sioux Falls beats all but Lincoln County and that is rapidly becoming Sioux Falls. If you didn't want the EC then don't attend any events there. Show them,keep your money. The rest of us will be content and happy with a vibrant and growing city.

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  10. To the 130,604 Sioux Falls citizens who did NOT vote in favor of the Events Center......

    The attitude demonstrated by anonymous at 5:25 is what you have just sacrificed $183 million dollars worth of second penny projects for......

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  11. Now spread those limited entertainment dollars to the Pav, Orpheum, and soon, the State Theatre and the Events Center(and a dozen other venues) what could possibly go wrong?

    Wait, 'projections'.

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  12. If I was someone involved with the State Theatre - I wouldn't want a penny of city money. I wouldn't want one ounce of this administration touching any project that I can raise the money for. It may take longer - but in the end - this BS isn't involved and MMM can't touch it with any of his cronies such as Darrin Smith or having a say of who is on your board. Hell no!

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