Otsego EDA approves $16.9 million lease revenue bonds to fund fire station; 4-1 vote

The City of Otsego Economic Development Authority voted 4–1 on Dec. 9 to adopt a resolution authorizing the issuance and sale of $16,900,000 in lease revenue bonds, Series 2024A, to finance a new fire and emergency services building.

Jessica Green of Northland Securities, who reviewed the competitive bond sale, said the EDA received five bids at a 10 a.m. sale and the low bid came from Baird (Milwaukee). Green said the sale produced a reoffering premium that reduced the par amount issued to $16,900,000 while leaving roughly $18,000,007 in proceeds available for the construction fund. She said the bonds were structured for 20 years, carry a final maturity of Feb. 1, 2046, and an optional call date of Feb. 1, 2033. Green reported a rounded true interest cost of about 3.83 percent and estimated total principal-and-interest savings of about $828,480 over the life of the issue compared with earlier estimates.

The city sought and received a credit-rating report referenced in the packet; Green said S&P (referred to in the meeting) affirmed the city—s rating with a double-A assessment and noted the city—s robust financial planning and economic profile.

Staff described the transaction documents included in the packet: a resolution, two lease agreements (a ground lease and a lease agreement) between the city and the EDA, and an indenture of trust naming U.S. Bank as trustee to receive proceeds and pay debt service on behalf of the EDA. Staff said the resolution and related documents were drafted by Taft Law and that the sale was scheduled to close Dec. 30 if the board approved the resolution.

Board members asked technical questions about the sale. Green explained that a reoffering premium is paid to the issuer at closing and effectively reduces the par amount sold while investors accept a higher stated coupon. She told commissioners that coupons are the stated interest rates by maturity but that yield (the city—s true interest cost) accounts for premium; the sale produced lower estimated long-term debt service compared with the prior finance plan.

A commissioner asked about limits on non‑government use of the facility so the bonds retain tax‑exempt status. Green said the inducement language limits private use to no more than 10 percent of the facility without risking tax‑exempt status and that certain management arrangements for non‑government users can be allowed if specific contract provisions are met.

The motion to adopt the bond resolution was met with a lengthy objection from one board member who said the EDA structure was being used to avoid citizen referendum rights associated with capital-improvement (CIP) bonds and claimed the project would increase property taxes "by roughly 46%." Other board members questioned that calculation and noted that five citizens serve on the EDA. After brief rebuttals the board held a voice vote and the bond resolution passed 4–1.

The board—s packet lists a par amount of $16,900,000, an issuer contribution from the city of $2,000,000, a reoffering premium of about $1,000,000, and an approximate lifetime savings figure of $828,480 as presented at the meeting. The indenture and lease documents define the flow of funds: bond proceeds held by the trustee will be deposited to the construction fund and the city will lease the facility from the EDA and make lease payments that the EDA will use to pay bondholders.

The board directed no additional action at the meeting beyond approving the resolution; staff said the bond closing was scheduled for Dec. 30 pending execution of the documents and routine closing procedures.