Otsego EDA approves moving forward with lease-revenue bonds to finance new fire station, 3–1

The Otsego Economic Development Authority voted 3–1 on Nov. 12 to move forward with the competitive sale of lease-revenue bonds to finance a new fire and emergency services facility and approved a municipal advisory agreement with Northland Securities. The EDA also scheduled a Dec. 9 meeting to consider awarding the bonds.

Jessica Green, a representative of Northland Securities, told commissioners the draft finance plan under discussion would allow an issuance sized for about $18.42 million, including a proposed $2 million city cash contribution and a 20-year amortization as the staff-recommended starting point. "The purpose of the bonds, of course, is to finance the fire and emergency services building," Green said. She described the estimate for true interest cost as "currently ... 4.26%," and emphasized the figure is preliminary until bids are received.

Why it matters: The structure chosen affects both the city’s overall borrowing cost and the annual tax levy residents would see. Staff presented scenarios showing a 20-year structure has the lowest total cost but a higher average levy; longer terms lower the annual levy but increase interest paid over the life of the bonds. Staff said a $2 million one-time city cash contribution would reduce principal and produce measurable interest savings in the examples presented.

Key details: Green described that the bonds would be secured by lease payments from the city to the EDA (not general obligation debt), that maturities in the 20-year scenario would run annually Feb. 1, 2027–2046, and that interest payments would be payable Aug. 1 for the first interest payment and then semiannually thereafter. The plan assumes seeking a rating (staff used a double-A assumption in examples) and that the bonds would be tax-exempt. Green said Northland planned to solicit competitive bids on Dec. 9 and present results that same evening; any EDA award would be contingent on city council concurrence. She also noted an optional redemption date beginning Feb. 1, 2033, and an extraordinary redemption feature in the event of catastrophic loss to the building.

Contracts and fees: The EDA approved a municipal advisory service agreement with Northland Securities Inc.; staff said the advisory-fee amount in the agreement is $57,657 and that fee would only be payable if the EDA proceeds with issuing the debt.

Board debate and vote: Discussion covered tradeoffs between amortization length and levy pressure, the accounting and timing of a cash buy-down and the fact that the capital improvement revolving fund (the likely source of a $2 million contribution) has no dedicated ongoing revenue. One member argued against using the EDA route rather than a CIP bond, saying that approach was chosen to avoid a citizens’ petition and criticizing the decision to limit direct voter input; that member said in part, "Otsego residents aren't to be trusted with their own money." Other members defended the EDA approach as faster and likely to save money and noted arrangements with neighboring cities to cover service in the interim. The motions to approve the municipal advisory agreement and to adopt the resolution authorizing the competitive sale of Lease Revenue Bonds Series 2024A each passed by 3–1. The EDA then voted 3–1 to schedule a meeting on Dec. 9, 2024, at 5:30 p.m. at Perry Center to consider award of the bonds.

What’s next: Northland will solicit bids on Dec. 9 and present the results to the EDA that evening; if the EDA awards the bonds, the city council must concur that same night. Staff and Northland said the bonds could close by the end of the calendar year if the sale proceeds; exact interest rates and the final size of the issuance will be set by the competitive bidding process.

No action was taken tonight to obligate the city beyond the document approvals and the scheduled award meeting; commissioners directed staff to refine numbers and return with the bid results.