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HomeMy WebLinkAboutDebt Service Study 1989 CITY OF OAK PARK HEIGHTS, MINNESOTA DEBT SERVICE STUDY - $995,000 G.O. IMPROVEMENT BONDS OF 1987 MAY, 1959 CITY OF OAK PARK HEIGHTS, MINNESOTA DEBT SERVICE STUDY - $995,000 G.O. IMPROVEMENT BONDS OF 1987 MAY, 1989 TABLE OF CONTEN'T'S PaLye No. SECTION I: INTERPRETATION OF FINANCIAL PROJECTIONS AND ACCOUNTANT'S RECOMMENDATIONS • Introduction 1 ® Analysis Data 3 • Summary and Conclusions 6 Reference SECTION 11: FINANCIAL PROJECTIONS • Accountant's Report on the Compilation of the Financial Projections • Summary of Significant Financial Projection Assumptions • Financial Projections of Cash Flow Based on the Following: 100% Collection Rate for Assessments at: 6% Future Investment Interest Exhibit 1 8% Future Investment Interest Exhibit 2 10% Future Investment Interest Exhibit 3 95% Collection Rate for Assessments at: 6% Future Investment Interest Exhibit 4 8% Future Investment Interest Exhibit 5 10% Future Investment Interest Exhibit 6 90% Collection Rate for Assessments at: 6% Future Investment Interest Exhibit 7 8% Future Investment Interest Exhibit 8 10% Future Investment Interest Exhibit 9 SECTION I INTERPRETATION OF FINANCIAL PROJECTIONS AND ACCOUNTANT'S RECOMMENDATIONS �i �� - I. I ty.�'I 6 �� IY,J -' - - _ —,. _ - - - - . 91 - - - _ _ _ _ - _- nu n w I � :..al ru tluell .ml u.nl.ulwl!! ulunm.l _!e�_l. e�auelllul�ll II'• n u , „�" II �� _, iN�l llltl �!! l�I!I!tlll Jill IIIeII: IIB11nIL�llt tll!!LLp= fu111lI „LLLYtII!1'J!I! "LY lYiIII,1k"I.I,I II. Il lllf ��� '� r Il� I' �I I�'Yldudlf � udllll,lWhl IV ilk _ 1 - ; I r t } "a CmL I_, -R `f _- - { 4 — — - — — _ *woo" ftwomom"Ww"to I�IIj - b s J 1 'i. i �I - _ _ - - -. SI I' l'li - _ _ war 06 y - f e i II I ^J } i II NI II eII IIYIIY � ��_ Ef �� 'l 11 _:WI 1 1191tll dl ll14111L'J:,kLL�L'IlIkf1LL! JI Illlnl I _ = ® plY 1p 11 l!liIJ.I I,IIJIM9 .t{µL'iJl _ II p!I: - — _ City of Oak Park Heights, Minnesota Interpretation of Financial Projections Page 2 The projections referred to in this report were compiled by Voto, Tautges, Redpath & Co., Ltd. The cash flow schedules are computer - generated which allows for presentation of various optional schedules with minimal additional effort. All reports may be updated in future years. More important, the cash flow projections can be used to monitor actual future results on an annual basis without the necessity of annual updates. One important element of these financial projections which will affect options available to the City is future interest on investments. Such interest represents a major portion of the projected balances presented herein and is only a projection at this time. Future interest on investments is speculative and highly subject to market yield plus other factors as shown below. Interest on Investments Interest on investments is the single most significant factor of the debt service analysis. It is also the most volatile variable in that accurately predicting future yields on investments is impossible. The projections contained in this report have been prepared with interest yields at 6%, 8% and 10% to present various potential outcomes. Interest is a direct function of monies available to invest. A reduction of monies available has a compounding effect over the term of the bond fund. For instance, $10,000 on hand and earning compounded interest would increase substantially depending upon the term (time) and the annual interest rate as follows: Interest Rates Years 6% 8% 10% 5 $13,382 $14,693 $16,105 10 17,908 21,589 25,937 15 23,966 31,722 41,772 20 32,071 46,610 67,275 Another feature which may affect the ability of the Debt Service Fund to earn interest is the cash balances of other City funds. The method used to distribute interest to the various City funds is based on average positive cash balances. Should other City funds carry an overdraft, the total monies available for the City to invest is lowered. The effect of this is to limit the effective interest earned by the Debt Service Funds to an amount less than that which is available in the market. City of Oak Park Heights, Minnesota Interpretation of Financial Projections Page 3 ANALYSIS DATA The Improvement Bonds of 1987 were issued July 1, 1987 to finance the construction of local improvements for the Swager's 9th Addition. This project was substantially completed and assessed in 1988. These bonds are scheduled to be retired entirely by capitalized interest and special assessment collections. This bond issue is payable over a relatively short time period (i.e., 1989 through 1993 - five years). Accordingly, the special assessments (to finance the debt payment schedule) are collectible over a relatively short time period (i.e., 1989 through 1993). Cash flow projections were prepared on several sets of assumptions. Projected cash balances at the end of the final year of bond maturity are summarized as follows: Projected Cash Position Assuming Interest Earnings of: Assumptions 6% 8% 10% 100% COLLECTION RATE FOR SPECIAL ASSESSMENTS: Projection before investment interest ($51,174) ($51,174) ($51,174) Future projected investment interest 82,285 115,703 152,439 Projected cash position - December 31, 1993 $31,111 $64,529 $101,265 95% COLLECTION RATE FOR SPECIAL ASSESSMENTS: Projection before investment interest ($85,002) ($85,002) ($85,002) Future projected investment interest 77,098 108,625 143,384 Projected cash position - December 31, 1993 ($7,904) $23,623 $58,382 90% COLLECTION RATE FOR SPECIAL ASSESSMENTS: Projection before investment interest ($118,830) ($118,830) ($118,830) Future projected investment interest 71.909 101,549 134,331 Projected cash position - December 31, 1993 ($46,921) ($17,281) $15,501 City of Oak Park Heights, Minnesota Interpretation of Financial Projections Page 4 The preceding projections indicate that this fund will have sufficient assets to meet bonded debt obligations if the special assessment collection rate equals (or exceeds) 95% and future investment earnings equal (or exceed) 8% over the remaining term of this bond issue. The underlying property (of this assessment roll) is substantially owned (and/or controlled) by a single developer. Accordingly, future assessment collections may be contingent upon actual development and/or sale of individual lots. Home mortgage interest rates (a factor strongly affecting development) have increased during recent months. Such an increase could limit future development which (in turn) could limit (or delay) future assessment collections. Special assessments certified and committed for this bond issue are summarized as follows: • Original Roil Adopted - 1988 $918,117 • Adjustments (4,261) • "Conditional Payment" (36,640) • Prepayments: 1987 $128,240 1988 167,569 1989 (to 4/30/89) 42,315 (338,124) • Balance - April 30, 1989 $539,092 The above prepayments were due to the sale and /or development of individual lots within this subdivision. The remaining assessments are scheduled to be collected over the following time period: Year Principal Interest Total 1989 $107,818 $45,823 $153,641 1990 107,818 36,659 144,477 1991 107,818 27,494 135,312 1992 107,818 18,330 126,148 1993 107,820 9,163 116,983 Totals $539,092 $137,469 $676,561 City of Oak Park Heights, Minnesota Interpretation of Financial Projections Page 5 Failure (by the developer) to meet the above payment schedule will have an adverse effect upon the projections contained herein. Accordingly, such collections should be monitored closely and timely. We recommend that the City closely monitor future collections of these special assessments. County remittances of assessment collections include a listing of assessments paid by parcel. The City will have this information each July and December. The City should monitor actual payments (each July and December) against scheduled payments for this subdivision to insure full and timely payment of these assessments. The amount shown above as a "conditional payment" represents an apparent prepayment in 1988. However, the check was "returned" by the payor's bank. The City has taken legal action in this matter and expects full settlement in 1989. Should this settlement not occur, the projections contained herein will be adversely affected by $36,640 plus future interest thereon. We will continue to monitor the situation and (if necessary) recommend an alternative source of financing as required. A comparison of projections contained in this report (at a 95% collection rate and an 8% investment yield) with the original bond issue estimates or budget is as follows: Original 4/30/89 Budget Budget Projections Variance ASSETS PROVIDED /PROJECTED: Special assessments: Rolls adopted $995,000 $914,003 ($80,997) Interest earnings: On assessments 232,167 108,965 (123,202) On investments 137,363 137,363 Bond proceeds 112,873 120,561 7,688 Net Assets Provided/Projected 1,340,040 1,280,892 (59,148) BOND REQUIREMENTS: Bond principal 995,000 995,000 0 Bond interest 261,778 261,778 0 Paying agent fees 492 492 Total Bond Requirements 1,256,778 1,257,270 492 PROJECTED FINAL BALANCE $83,262 $23,622 ($59,640) City of Oak Park Heights, Minnesota Interpretation of Financial Projections Page 6 The above budgeted projected balance of $83,262 represents the statutory 5% reserve which is built into all City bond issues. The budget variance is primarily the result of actual assessments being less than budgeted. This was the result of actual construction costs being less than original estimates. A similar amount ($83,000) remains in the related construction fund at December 31, 1988. This balance will be transferred to this debt service fund at the end of 1989 after payment of final construction costs. This transfer will have a positive effect upon the projections contained herein. SUMMARY The financial projections contained herein generally support a conclusion that the debt service fund for the Improvement Bonds of 1987 is in a solid financial position and that sufficient assets have been committed to fully (and timely) meet the bond payment schedule. The primary purpose of this report was to verify this conclusion. Such conclusion (by necessity) is predicated (and contingent) upon substantially full payment of the remaining special assessments over the scheduled period as indicated herein. Any substantial deviation from this payment schedule will have an adverse effect upon this debt service fund. This particular bond issue contains a somewhat added inherent risk to the City as follows: 1. The repayment schedule for this bond issue is relatively short (i.e., 5 years). Accordingly, any potential problem situations must be identified (and rectified) quickly. 2. The underlying property (of the assessment roll committed to retire this bond issue) is substantially owned and /or controlled by a single developer. There is inherent greater risk in relying upon one single property owner than several property owners for collection of the same special assessments. Accordingly, the City should monitor such collections closely and timely. Respectfully submitted, VOTO, TAUTGES, REDPATH & CO., LTD. Certified Public Accountants May 10, 1989 SECTION H FINANCIAL PROJECTIONS —. .. �=.--. 5�. w_.. �. v�.+ �r, .- _w- .w.�,— �rwa_�f�lffl�Pi�'•'� rr� • _Y4e�T iY. Mai( Y`i�Gr.�ril�'fll�il/T� •���ii err_�_�YL 1 � Bll leS it r L6 1lIN I.... 1'11 u�1160 _I'1!,I CIIL91�lill II III'!LI „ 1111.11 II.CI II L' -I,d;ll1,l11yyl „l, LII 111111 IL 4 lit arm tt P t — i Fc F r — II = a f I I nc e or F ta lit I F — E i - F c W _ - _ 4 1 0 1 1 Y 111111 LL I 1 IJ 1 1 V . 1 1 1 1 1 . . . � 1 , 1 1 , I I I I II ,Cl AJUlIn.,L.A RII.m I1l1 ill I,,.UI. I d I S, d.t6dd u4111 J. „�tl.14.III 11111 i{1IJ @IISI. Al , 11141114 1,11 .. W...{..11_..I.I. 111._ utl11. LLJY t--. M2 I .. l'ly:A 4 IIIti. 4 J. ::..' .- u'u,.:.Lr�_:.,y;�w�u.r.�:,•. .....,�.�.� ., 1 CITY OF OAK PARK HEIGHTS, MINNESOTA SUMMARY OF SIGNIFICANT FINANCIAL PROJECTION ASSUMPTIONS In order to compile the following exhibits, various assumptions of future events must be determined. A summary of such significant management assumptions used in the compilation of the exhibits is as follows: BeEinninL Cash Assets The January 1, 1989 beginning cash assets consist of cash, investments and other balance sheet accounts which represent current cash conversion type amounts such as accrued interest receivable, collections due from county, due from other funds and due to other funds. Future year's beginning cash assets are the cumulative result of all projected financial activity in each of the following categories. Debt Pavment of Principal and Interest Future debt service payments have been compiled from original bond sale resolutions. The call options have not been considered as such call options are generally not favorable to the City and the exercise of future call options is not predictable. Debt payments are assumed to be made in the month preceding due dates which fall on the first day of the month. Investment Interest Interest is calculated on positive cash asset balances based on average monthly balances. The various sets of exhibits have been prepared on the basis of interest earnings compounded monthly at 6, 8 and 10% interest. Regular Assessments Upon completion of construction, the City adopts assessment rolls to charge benefited property owners. These assessments are extended over a period for collection with interest added on the unpaid portion. It is the option of property owners to prepay their assessment upon adoption of the roll (full amount) or at any future time (remaining amount). The projections assume no prepayments other than those received prior to April 30, 1989. The effect of future prepayments is to reduce assessment receipts by an amount equal to future assessment interest and to increase cash assets at the time of the payment which should allow for greater future investment earnings. The collection of assessments is the responsibility of the county. The county remits assessment collections primarily in July and December of each year. The projections assume one -half of the assessment collections will be received in July and the remaining half in December. The projections assume collection rates as detailed in the Table of Contents. City of Oak Park Heights, Minnesota Fund 521 Exhibit 1 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $153,641 $47,788 $23,232 $224,661 $258,890 $0 $326,958 1990 326,958 0 144,477 36,640 22,034 203,151 247,390 0 282,719 1991 282,719 0 135,312 0 17,275 152,587 235,890 0 199,416 1992 199,416 0 126,148 0 12,375 138,523 224,090 0 113,849 1993 113,849 0 116,983 0 7,369 124,352 207,090 0 31,111 1994 31,111 0 0 0 1,867 1,867 0 0 32,978 Total $0 $676,561 $84,428 $84,152 $845,141 $1,173,350 $0 Assumptions Special assessment collection rate ................... 100% Property tax collection rate ............................ 0 % Investment interest rate .. ............................... 6.00% Negative interest charged to funds ? .................. yes Unaudited - see accountants' compilation report and summary of significant projection assumptions. City of Oak Park Heights, Minnesota Fund 521 Exhibit 2 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $153,641 $47,788 $30,976 $232,405 $258,890 $0 $334,702 1990 334,702 0 144,477 36,640 30,000 211,117 247,390 0 298,429 1991 298,429 0 135,312 0 24,290 159,602 235,890 0 222,141 1992 222,141 0 126,148 0 18,318 144,466 224,090 0 142,517 1993 142,517 0 116,983 0 12,119 129,102 207,090 0 64,529 1994 64,529 0 0 0 5,162 5,162 0 0 69,691 Total $0 $676,561 $84,428 $120,865 $881,854 $1,173,350 $0 Assumptions Special assessment collection rate ................... 100% Property tax collection rate ............................ 0% Investment interest rate .. ............................... 8.00% Negative interest charged to funds ? .................. yes Unaudited - see accountants compilation report and summary of significant projection assumptions. City of Oak Park heights, Minnesota Fund 521 Exhibit 3 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $153,641 $47,788 $38,719 $240,148 $258,890 $0 $342,445 1990 342,445 0 144,477 36,640 38,275 219,392 247,390 0 314,447 1991 314,447 0 135,312 0 31,965 167,277 235,890 0 245,834 1992 245,834 0 126,148 0 25,267 151,415 224,090 0 173,159 1993 173,159 0 116,983 0 18,213 135,196 207,090 0 101,265 1994 101,265 0 0 0 10,127 10,127 0 0 111,392 Total $0 $676,561 $84,428 $162,566 $923,555 $1,173,350 $0 Assumptions Special assessment collection rate ................... 100% Property tax collection rate ............................ 0% Investment interest rate ................. I............... 10.00% Negative interest charged to funds ? .................. yes Unaudited - see accountants' compilation report and summary of significant projection assumptions. City of Oak Park Heights, Minnesota Fund 521 Exhibit 4 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $145,959 $47,788 $23,116 $216,863 $258,890 $0 $319,160 1990 319,160 0 137,253 36,640 21,459 195,352 247,390 0 267,122 1991 267,122 0 128,546 0 16,237 144,783 235,890 0 176,015 1992 176,015 0 119,841 0 10,877 130,718 224,090 0 82,643 1993 82,643 0 111,134 0 5,409 116,543 207,090 0 (7,904) 1994 (7,904) 0 0 0 (474) (474) 0 0 (8,378) Total $0 $642,733 $84,428 $76,624 $803,785 $1,173,350 $0 Assumptions Special assessment collection rate ................... 95% Property tax collection rate ............................ 0% Investment interest rate .. ............................... 6.00% Negative interest charged to funds ? .................. yes Unaudited - see accountants' compilation report and summary of significant projection assumptions. City of Oak Park Heights, Minnesota Fund 521 Exhibit 5 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $145,959 $47,788 $30,822 $224,569 $258,890 $0 $326,866 1990 326,866 0 137,253 36,640 29,228 203,121 247,390 0 282,597 1991 282,597 0 128,546 0 22,889 151,435 235,890 0 198,142 1992 198,142 0 119,841 0 16,272 136,113 224,090 0 110,165 1993 110,165 0 111,134 0 9,414 120,548 207,090 0 23,623 1994 23,623 0 0 0 1,890 1,890 0 0 25,513 Total $0 $642,733 $84,428 $110,515 $837,676 $1,173,350 $0 Assumptions Special assessment collection rate ................... 95% Property tax collection rate ............................ 0% Investment interest rate .. ............................... 8.00 % Negative interest charged to funds ? .................. yes Unaudited - see accountants' compilation report and summary of significant projection assumptions. City of Oak Park Heights, Minnesota Fund 521 Exhibit 6 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $145,959 $47,788 $38,527 $232,274 $258,890 $0 $334,571 1990 334,571 0 137,253 36,640 37,306 211,199 247,390 0 298,380 1991 298,380 0 128,546 0 30,189 158,735 235,890 0 221,225 1992 221,225 0 119,841 0 22,649 142,490 224,090 0 139,625 1993 139,625 0 111,134 0 14,713 125,847 207,090 0 58,382 1994 58,382 0 0 0 5,838 5,838 0 0 64,220 Total $0 $642,733 $84,428 $149,222 $876,383 $1,173,350 $0 Assumptions Special assessment collection rate ................... 95% Property tax collection rate ............................ 0% Investment interest rate .. ............................... 10.00% Negative interest charged to funds ? .................. yes Unaudited - see accountants' compilation report and summary of significant projection assumptions. City of Oak Park Heights, Minnesota Fund 521 Exhibit 7 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $138,277 $47,788 $23,001 $209,066 $258,890 $0 $311,363 1990 311,363 0 130,029 36,640 20,882 187,551 247,390 0 251,524 1991 251,524 0 121,781 0 15,200 136,981 235,890 0 152,615 1992 152,615 0 113,533 0 9,378 122,911 224,090 0 51,436 1993 51,436 0 105,285 0 3,448 108,733 207,090 0 (46,921) 1994 (46,921) 0 0 0 (2,815) (2,815) 0 0 (49,736) Total $0 $608,905 $84,428 $69,094 $762,427 $1,173,350 $0 Assumptions Special assessment collection rate ................... 90% Property tax collection rate ............................ 0% Investment interest rate .. ............................... 6.00% Negative interest charged to funds ? .................. yes Unaudited - see accountants' compilation report and summary of significant projection assumptions. City of Oak Park Heights, Minnesota Fund 521 Exhibit 8 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $138,277 $47,788 $30,669 $216,734 $258,890 $0 $319,031 1990 319,031 0 130,029 36,640 28,457 195,126 247,390 0 266,767 1991 266,767 0 121,781 0 21,487 143,268 235,890 0 174,145 1992 174,145 0 113,533 0 14,227 127,760 224,090 0 77,815 1993 77,815 0 105,285 0 6,709 111,994 207,090 0 (17,281) 1994 (17,281) 0 0 0 (1,382) (1,382) 0 0 (18,663) Total $0 $608,905 $84,428 $100,167 $793,500 $1,173,350 $0 Assumptions Special assessment collection rate ................... 90% Property tax collection rate ............................ 0% Investment interest rate .. ............................... 8.00% Negative interest charged to funds ? .................. yes Unaudited - see accountants' compilation report and summary of significant projection assumptions. City of Oak Park Heights, Minnesota Fund 521 Exhibit 9 Projection of Cashflow Improvement Bonds of 1987 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursements December 31 1989 $361,187 $0 $138,277 $47,788 $38,335 $224,400 $258,890 $0 $326,697 1990 326,697 0 130,029 36,640 36,339 203,008 247,390 0 282,315 1991 282,315 0 121,781 0 28,414 150,195 235,890 0 196,620 1992 196,620 0 113,533 0 20,030 133,563 224,090 0 106,093 1993 106,093 0 105,285 0 11,213 116,498 207,090 0 15,501 1994 15,501 0 0 0 1,550 1,550 0 0 17,051 Total $0 $608,905 $84,428 $135,881 $829,214 $1,173,350 $0 Assumptions Special assessment collection rate ................... 90% Property tax collection rate ............................ 0% Investment interest rate .. ............................... 10.00% Negative interest charged to funds ? .................. yes Unaudited - see accountants compilation report and summary of significant projection assumptions.