MINUTES OF THE INFORMAL MEETING OF THE JOHNSON COUNTY BOARD OF SUPERVISORS:
OCTOBER 9, 2008
TABLE OF CONTENTS
Page
County Engineer Greg Parker: Quotes Received for Replacement of a Case 821B, 1995 Wheel End Loader with 4,650 Hours for a New CASE 821E, for a Net Purchase Price of $123,900.00.............. 1
Public Risk Financial, Inc Managing Director Jon Burmeister, CFA: Financing Options and Associated Activities Regarding the Joint Emergency Communications Center................................................ 2
Reports and Inquiries from the Board of Supervisors......................................................... 10
Chairperson Sullivan called the Johnson County Board of Supervisors to order in the Johnson County Administration Building at 7:03 p.m. Members present were: Pat Harney, Larry Meyers, Terrence Neuzil, Sally Stutsman, and Rod Sullivan.
County Engineer Greg Parker said the purchases have been approved in the FY09 budget. He said in the past this was brought as an informational item to the Board that does not need formal approval. Parker said they are replacing a 1995 wheel end loader model that is due for replacement because it is rusting out due to the amount of hours placed on the equipment. He said they try to keep them as long as possible, to the point that maintenance exceeds the price of replacement. Parker said more funds will have to be put into the truck to keep it running. He said five bids were received on the unit, with the highest bid being $185,000. He recommended proceeding with the CASE replacement at a price of $123,900. He said that price is under what was estimated in the budget.
Meyers asked if Parker gives any consideration to the different makes of vehicles. Parker said yes, in terms of specifications. Meyers said there are different brands such as John Deere, Volvo, Cat, etc. He said CASE had the lowest bid, but people don't necessarily buy the cheapest car when they are shopping, the options on each brand have to be considered. Parker said yes, the CASE model meets the written specifications. He said the other units also met the specifications but at a higher cost. It is very important to meet the specifications because they are written based on what has worked in the past. He said they look at new technologies and minimizing expenditures by incorporating economical specifications for the piece of equipment being replaced. The Board thanked Parker for the report.
R. Sullivan said Iowa City Planning and Community Development Director Jeff Davidson is also present and has been the point person for the project. Davidson said he is the temporary interim project manager for the Joint Emergency Communications Center. He said the Joint Emergency Communications Center entity, on the recommendation of the Iowa City City Attorney Eleanor Dilkes and the County Attorney Janet Lyness, has hired their own legal counsel for representation. Davidson said that legal counsel is the Simmons Perrine Law Firm. He said the JCCC has a team of individuals from the firm helping. They have an expert helping them with construction, an expert in financial matters that was put to task immediately because they have bonds to sell in order to proceed with the construction of the system in 2009. Davidson said Burmeister is a subconsultant to the financial legal counsel. He said he and Harney can provide information on what is going on with the project.
He said currently they are trying to hire an executive director, get the facility under construction, and select a radio system vendor. Davidson said the matter to address specifically is the bond sale for construction of the facility. He said right now the construction of the building is proceeding ahead of the radio system. He said bids for the construction project have been received. The contract was awarded to American Construction of Cedar Rapids. Davidson said they are in the process of selecting the radio system vendor. He said the system is the largest financial part of the project consisting of 80% of the budget. The building construction is about 20% of the project. The radio system bid will be awarded in November 2008. At that time the financing needs to be in place. He said they asked Burmeister to figure the best method to conduct the bond sale. Davidson said they have three options; the City selling bonds, the County selling bonds, or the 28E entity selling bonds. He said Burmeister and Simmons Perrine Attorney David Kutcher have advised them on how to proceed, and the Board has concurred with their recommendation.
Davidson said there was surprising language in the State Code. He said they have a strategy for working through problems. Davidson said he thinks there are actually a couple strategies. He asked Burmeister to go through the recommended course of action, which requires approval by the Board. He asked if the Board had questions about the project before Burmeister presented.
Neuzil said the latest report from Simmons shows the cost at $22,565,615. He wants to make sure they are getting accurate numbers because he heard it will cost less. Neuzil asked if $5,946,000.00 for the building and $16,619,615 for systems and equipment were the correct numbers. Davidson said those numbers are not correct. He said $16,619,615 for the radio system is an estimate. He said they are working off the estimate until negotiations with the radio systems vendor are concluded. He said there has not been a contract awarded for that element of the project. The consultant that is assisting with the radio system bid is confident that they will be at that number or below. Davidson said they are hopeful they will be below, but he cannot confirm that until the bid. He said they received a favorable bid from Merit of Cedar Rapids, at $4.034 million without a contingency. Davidson said Merit recommended a $250,000 contingency for the project. He said the cost is 4.5 to 4.6 million which is lower than the expected cost for the building construction bid. Meyers asked if the number included construction, site work, and everything else. Davidson said yes. Neuzil said the cost for the project is over $20 million. Davidson said that is correct.
Meyers asked about the useful life for the systems and equipment. Davidson said Burmeister will go through that. He said there is a difference in terms of the bond sale. The building has a twenty year life span for construction. The life span for the system and equipment is much shorter. He thinks the span is seven or eight years, and they can use a shorter amortization schedule. He said given how long the existing systems have lasted, they will get at least seven or eight years out of the radio system. Neuzil asked if that life span estimate was only for the radio system and not the towers that will be constructed. Davidson said that estimate is for everything. He said the towers are the big cost variable that is not pinned down yet. Neuzil asked if the towers will last seven years. Davidson said he misunderstood and thought Neuzil meant everything included in the price. Neuzil said the life span is important because it determines how long to bond. He said $16.6 million is going to be a much less request beyond seven years, because they are not including the tax. Davidson said, yes, there are elements of the radio system that will last longer. The consultant indicated that there are elements that may be replaced in a four, five, or six year time span. Davidson said the towers are expected to last longer.
Davidson said the tower is the big cost variable that leads to speculation about the cost. He said their speculation is probably overstated in terms of the number of towers, and probably reflects stand-alone tower locations. He said they hope to do collocation on antennas. He said collocation on an existing tower saves as much as half a million dollars. Davidson said the Sheraton Hotel and buildings in downtown Iowa City are popular antenna sites. He said they hope to collocate wherever they can. Collocation is part of the negotiations with the radio system vendor. Davidson said they need to have an adequate number of tower locations for better communication throughout the County. Negotiations will impact cost numbers by a couple of million dollars which is why they are currently using the estimate.
Stutsman asked if the Board has any authority to make any changes in the money requested. Stutsman asked if they could pare the request for $20 million down to $15 million. Davidson said they will be talking about the bonding issue. He said it is his understanding that the bonds will be paid for by the supplemental levy. He said the Board has already agreed to levy for the money. Davidson said the Board does not have the authority to change the budget of the 28E entity. He said the Board agreed to accept the budget from the 28E entity and pass it through using the supplemental levy. He said that avoided a lot of political problems. Davidson said the idea was to make the entity stand alone. He said to keep the entity as above the fray as possible they have set up the joint entity. The Board agreed to utilize the supplemental levy and pass through and accept the budget, then levy accordingly. He said the Board is the only entity that can utilize the supplemental levy. He said the Board can tell people the ultimate decision is made by the Policy Board. He said the Board has representation on the Policy Board. Meyers said the City of North Liberty, Coralville, and Iowa City also has representation on the Policy Board. R. Sullivan said the Boards influence is Harney as their representative. Davidson said Harney, County Sheriff Lonny Pulkrabek, and Emergency Manager Dave Wilson are representatives for the County.
Burmeister said Public Financial Management is a financial advisory firm located in Des Moines. He said they work with many municipalities in Iowa and all across the United States. As Davidson indicated, they were brought in to review the legal authority of the various entities and the cost implications. Burmeister said the Board should have received a couple letters. He said one was from the Attorney of the Association, and a letter written by the Bond Counsel Dorsey & Whitney of Des Moines. Burmeister said the County can sell the bonds associated with the project. There are various steps they have to go through to get that point. He said the various cities can sell a general obligation bond for this purpose as well. Burmeister said they also looked at the 28E Emergency Entity selling their own bonds and discovered that the 28E agreement entity will have to sell lease revenue bonds. He said whenever a revenue component is introduced in bonding, compared to a general obligation bond, the interest rates increase. He said they are estimating the interest rates could be anywhere from 1/2 a percent to one percent higher because of the revenue component.
Burmeister said there is also a requirement for a death service reserve fund meaning they have to sell more bonds to put into a fund that will protect the interests of bond holders in the event of a revenue shortfall. He said even though it is a property tax supplemental levy there is a level of risk on the part of the bondholders because it is a lease revenue bond. The other aspect is a lease revenue bond cannot be promoted as a competitive process. Burmeister said as a financial advisor they promote a competitive bidding process and let many underwriters bid to get the lowest cost for the County. He said there was enough information specific to the transaction that they would have to hire one underwriter to negotiate so that the bond specifics can be explained to the bond holders.
Burmeister said they discarded the lease revenue bond idea and looked at other opportunities to see if there were more efficient ways to sell the bonds. He said the cities can sell general obligation bonds. He said it is inefficient for each city to sell a component of the bond issue separately. He said the cities have the authority to sell separately but it drives up the cost of issuance because they would have to do multiple bond issues. He said the City of Iowa City could sell bonds in the whole amount. Burmeister said there was not a connection between the Iowa City general obligation bonds and the supplemental County-wide levy. He said there was a gap between the deed issuance and how they would ultimately pay for the bonds. After working with Dorsey/Whitney they concluded that if the County sold general obligation bonds they would correspond with the supplemental levy which will ultimately pay back the bonds.
Burmeister said Johnson County is very well respected and has a pretty strong credit rating. He said selling general obligation bonds, particularly in today's environment, has almost ground to a halt. There are fewer bonds sold now and there are no municipal bond buyers purchasing bonds. A general obligation bond is the clearest form of protection for a bond holder because it is the best credit they can receive as opposed to lease revenue. He said general obligation bonds would get the lowest cost of the bonding.
Burmeister said there is a Senate file 2366 approved in 2008 that gave counties and cities the authority to sell bonds for communication purposes. Burmeister said unfortunately when the bill was passed the building aspect was left out. Technically speaking, the County has no essential county purpose authority to sell bonds for a building through the normal general obligation bond process. He said the County would need to create an urban renewal area for the site that would require them to hold various public hearings. Burmeister said anything that is constructed inside that area would then be an essential County purpose and they would have the ability, subject to reverse referendum public hearing process, to sell bonds for the building as well as the equipment.
Burmeister said another benefit of the County selling general obligation bonds is they could, theoretically, levy a debt service levy as opposed to a supplemental levy to pay back the bonds once they are sold. Burmeister said it is important to the Board because there is about $748 million of TIF increment inside the County which can be applied to as well. He said the preliminary numbers are around $.08 . Burmeister said it is quite a substantial reduction and potentially to the County tax rate as well. He thought that was an advantage to be able to sell bonds and apply it to the TIF increment. He said they aren't looking for any action other than to approve the concept. Burmeister said the next step will be to come back and start the process to create an urban renewal area for the site. Once that urban renewal area is created, they will have to set and hold a public hearing for the issuance for the bonds. He said as soon as they get the bids set in place in November 2008, they can craft the structure of the bond issue. He said they have to be very cognizant of the useful life of the project. He said the IRS lets them go up to 120% of the blended average useful life of the project. He said they don't want to have a debt payment continuing a few years from now when a part of the system has to be replaced.
R. Sullivan said he doesn't understand why they have to create an urban renewal district to use the debt services levy. Davidson said an urban renewal area gives them the legal authority to sell the bonds for the building component of the project. He said without a referendum or the creation of an urban renewal area the County doesn't have the legal authority to sell bonds for a public building. Davidson said urban renewal usually means slum and blight area or economic development. Apparently it is the economic development side that this project would fall under. Davidson said he thinks the Board could do a general obligation general fund loan which may have been used in the past. He said that is limited to 10% of the overall budget, so they have to check to see if that is an option. That will then limit the Board from being able to use the debt service levy for other things, so that may not be useful.
Harney said the bill from the legislature first included the building portion. He said when it passed the building portion was taken out. Meyers asked if Harney was talking about the legislation for central county purposes. Harney said yes. Davidson said Burmeister said it has been taken out. Burmeister said it has had to have been taken out because the current bill does not have it in there. He said Dorsey & Whitney is working with Scott County and the City of Davenport, and Davenport is selling their debt for the building while the County is selling debt for the equipment. He said the reason the City of Davenport is selling a piece is because Davenport has broader legal authority under some kind of charter that the legislature gave back in the 1800s that they can sell general obligation bonds for any purpose without a referendum. Burmeister said Davenport has had to carve their bond issues apart to get beyond the legal authority issue.
Neuzil said the shorter the amount of years for a project of this nature means higher taxes. He said the Joint Emergency Communication Services Association would be forwarding the higher taxes to them to approve. Meyers said it would they would be forwarded to pass and not just approve. Neuzil said they will still be approving the budget. He said the Board is the ones that get blamed for the tax increases which happened in 2007. Neuzil said he hoped the Association would give that consideration in regards to the impact on taxes. He said the County saw $.77, which equals roughly $3.5 million towards the project. He said operations and other functions will start to deplete the $3.5 million Neuzil said when they start looking at paying off $20 million in a bond they are going to have to ask more than the current existing $3.5 million. He said the process is frustrating because he heard that $.77 was going to be the highest and then it would decrease. He said he is not sensing that and he would like a prediction from the Association of what they intend to pass to the County so the Board can give an explanation why taxes are increasing to the taxpayers.
Davidson said at the time they set the levy amount, they did not have any part of the design, and they had an estimated operating expense predicated on the two existing centers. Davidson said from that point forward, they have been able to increase their accuracy. He said they increased accuracy last week when the contract for the building was awarded which was under the Engineer's estimate. Davidson said once the radio system bid is awarded and once they start operating they will know how much it is really going to cost. Davidson said that by the end of FY10 they have will have six months of operation at the existing centers and six months of operation at the new center. He said by the end of FY11 they will have a full year of operation history and they will know for certain the cost.
Neuzil asked when Davidson wants to know how much they need. He said they need to know how much they are going to levy before they have six months of operation history. Neuzil asked when they are going to know exactly how much to bond for. Davidson said want to wait until they get the bids in November for the equipment. He said they have the building bid currently, and in the next month or two they will have the bonding amount. They also have a part of the levy implemented in 2009 that is not being used for operations that can be used for the project. Davidson said that levy will bring down the bonding amount and reduce the amount of levy needed to move forward. He said with the current status of the municipal bond market he expects to begin the bond issue in January 2009. That will set the debt service component to the 2010 budget. Neuzil said they will need to know by the end of January 2010. Neuzil said he hopes the Association will consider the current economic times and status of the bond market before passing on to the County.
Davidson said Dorsey & Whitney will scrutinize all of the various components of the equipment to approximate the useful life of each component. He said they will try to extend the bond issue that is appropriate to the life of the equipment but also take as much pressure off the levy as possible. Meyers said people should know that some of the people on the governing board of the Communication Center are also on some of the respective city councils. He said the Board of Supervisors are not the only ones making the decision, it is hometown elected representatives as well. Meyers asked Davidson if he knew what the annual operating expenses are going to be. Davidson said the premise they are operating off of is what the consultant has given them. He said that the Iowa City Police Department and the Sheriff's Office operate the two existing centers. There are some things they will no longer need to do in the new center that the existing centers do but there are some new things that the new center will have to do that the existing centers don't. Davidson said that the net is supposed to be a wash. He said they have budgeted for the net and have used it to set levy. He said the net is currently the existing combined operating expenses, about $1.6 million annually.
Stutsman asked Davidson what the $.08 difference by using the debt service levy over the whole County means. Davidson said the debt service component, for one million dollars, the operating levy; that is levied for operating purposes, is an amount that is lower than the amount that can be levied against the debt services levy. He said the difference is the increment value allowed in the County. Burmeister said a debt service levy can be levied against all of the valuation, including the tax increment for a debt service, but not for an operational component. He said it is about $748 million. Stutsman asked what that means to her as a taxpayer. Burmeister said it means lower rates. Stutsman asked how much lower it will be in dollar value. Burmeister said the preliminary numbers don’t have all the accurate final numbers or the terms stretched out, but it is about $.08 on the tax rates. Stutsman clarified $.08 per $1,000 dollars. Neuzil said if the request comes in from the Association that it is going to be $1.20 instead of $.77, it would be $1.28 if they didn't go through this.
R. Sullivan asked County Treasurer Tom Kriz if he could talk about that the implications on the County's ability to do other things if bonds are sold. Kriz said to stay back qualified the County strives to stay under the $10 million level. He said it can be structured accordingly on an annual basis to stay under that, but those dollars would still have to be figured in against what the County spends. Kriz said selling bonds impacts it in some ways, but they couldn't possibly do it in a one-term type position. He said they have to use the legal ways to structure that over a yearly basis.
R. Sullivan said the County has some bonding already. He said they have that and hypothetically in a year or two, they may have a big bond for a Jail. R. Sullivan asked if that impacts the County's ability to bond for that. Kriz said it could impact that depending on the size and scope of a law enforcement center. He said they have to balance it out and see. Kriz said they can cross the $10 million threshold and get to what is/not bank qualified which changes interest rates by basis points. He said it varies, but there is an impact and the County does have borrowing. He said the County will complete a small amount of borrowing in 2008 and then borrow on some projects in January 2009 to stay bank qualified. Kriz said another major project that will have some bearing on the rating. He said it can be structured and done. R. Sullivan asked if Kriz would still be able to structure the bond because the Board relies on Kriz. Davidson said yes. He asked Kriz, Executive Assistant Mike Sullivan and Budget Coordinator Rich Claiborne to make sure the financing package doesn't in any material way hamper what the County is currently doing.
R. Sullivan said the Board does not have any authority over the levy, but would have authority over how the bonds are structured. Davidson said yes to the extent that the IRS rules are not violated. Meyers said it will be a continuing problem if they have radio equipment estimated at $17 million, with a seven year life span. He said not all of that will have to be replaced, but out of the $16 or $17 million they need to spend for equipment, $10 million of that needs to be replaced every seven years. Meyers asked if that means they will have to float one of the issues every seven years. Davidson said potentially, or they could, theoretically, build it into their budget where they are putting money aside for equipment replacement over its useful life. Meyers said the Board wouldn't have to, the Association would have to set that aside. Stutsman asked if the planning for replacement would be included in the total amount of the bond. Burmeister said they will probably want to include that once they get to the point of replacing equipment. He said they don't want to sell bonds in advance of trying to replace them in seven years because the IRS won't let them. He said they have to spend the proceeds.
Burmeister said the sinking fund they may create to replace the capital asset will be something budgeted through the levy if the entity decided to do that. Harney said once they put in the levy they are missing out on the TIF areas if they don't bond for any replacements. He said, in essence, the $.08 per 1,000 will go off to just the property tax payers instead of the TIF. Harney said if they are coming to a point where they need to start replacing things, they should have an idea of how much it is and bond for that amount to save costs rather than spreading it out. He said in the end they can put money away for expenses. He said realistically they won't be spending $17 million on a replacement piece of equipment within five or seven years. He said replacement does not have to be done all at once either, they can replace on a long term basis.
R. Sullivan said he wants everyone to understand that the levy doesn't change. He said they do the debt service in order to access the TIF areas. Davidson said they aren't proposing changing anything with the levy that is in place for FY09. He believes it is adequate. Harney said the levy is used to pay the bond back. Neuzil said it is FY10, FY11, and FY12 they are looking at, not only the potential of dropping off after seven years and increases in operational expenses that are not going to decrease which is a factor as well. Neuzil said he hopes the Association recognizes all of those factors. Stutsman said that is why the Board has to be in close communication with the Association. Stutsman said this County levy affects all the taxpayers in the County, as well as all of the taxing bodies. Davidson said Stutsman is in close association with Harney. Stutsman said there are two votes from the Board. Meyers said it is a seven member board for the communication center, and there are two rookies. Neuzil said people need to recognize that what the Association forwards to the Board passes through the Communication Committee Board. He said it is that association that is going to have to understand that the public is now watching. It watched with the $.77 increase. Neuzil said if that amount is increased even more the community is going to recognize why their taxes are going up.
Kriz said R. Sullivan's real question was if this levy will ever go away and the answer is no. He said it is unrealistic. He said also they cannot bond for 20 years for equipment that has a lifespan of five to ten years. Kriz said there is confusion that the initial large amount in 2008 would drop off and slowly go away but in reality that is not the case. He said the taxpayers were furious this year when statements where sent and wanted to know when the increases are going to stop. He said he doesn't see it stopping. Kriz said he sees continued expense. Harney said nobody expected the levy to go away but they did expect it to lower, as things are paid for it will decrease. Harney said the big issue is that the one and a half million dollars already being spent for communications should go away unless entities decide they are going to spend that money. Kriz said they talked about that, and there were questions about how Coralville, North Liberty, and Iowa City have been putting money away to replace their systems. He said that now they collaborating where is that money going and how does that lower this levy. Stutsman said she knew it wouldn't ever go away, she just didn't think it was going to be $.77 forever. Harney said he doesn't think it will. Neuzil said now it sounds like $.77 will be low.
Meyers asked how much money that is generating per year. Kriz said it is 3.7 million dollars for 2008 during the taxing cycle which about half will be in right now and the other half coming. Davidson said in general numbers $1.6 million is for annual operating expenses, and the remaining $2.1 million is for the debt service. Harney said they will have a much better idea of the costs once the bids are in for the equipment. Stutsman said they need to decide if the County is going to do the bonding or sell those bonds. Burmeister said he needs to know if the Board buys into the concept presented by Davidson. He said once the process is started they will discuss it further in the formal meeting.
R. Sullivan said he is very much in favor of proceeding this way so they access the TIF areas. His only concern is that they do this with Kriz so they have a full County perspective. Davidson said absolutely, they won't move forward with anything without involving the individual from the County that has the big picture. He said involving Kriz is the best way to do this process. He said Claiborne, M. Sullivan, and Kriz will be actively involved and get approval before Davidson would come to the Board. Burmeister said at their last Communications Center Board meeting, in which Claiborne and M. Sullivan were both present, the policy voted to move forward in that manner. He said Claiborne and M. Sullivan concurred.
Harney asked if the building is bonded separate from the equipment. Davidson said they would be bonded together. He said they will probably see a bond issue that has larger principle and interest payments in the front end to amortize the equipment over a shorter period. He said the building piece will be over 20 years. He said they will have a bonding structure that has a larger principle payment in the front end for seven to eight years, and then lower on the back end. He said hopefully that helps when they have to replace the equipment. He said the debt service will have fallen off and if they have to sell bonds or replace equipment the obligation is gone. He said they would hate to have another debt payment for two more years and have to replace the equipment because now they are doubling expenses. Harney said they want to avoid the spikes.
Neuzil said he doesn't really like the location. Harney said they can't change it now. Meyers asked if the urban renewal area has to be drawn up on a map. He asked how that is set up. Burmeister said there is a detailed legal description so they will figure out the legal description and draw an area, and then that site will be inside the urban renewal area. Stutsman said they will have to go through a public hearing process. Burmeister said they will have Dorsey & Whitney work very closely with Assistant County Attorney Andy Chappell to make sure the legal proceedings are proper and he can look at that and then bring them to the Board. He said they will have the urban renewal area match the site itself, because that is the cleanest approach. Chappell asked Davidson whether the City will have to approve Urban Renewal Area because they are within the City limits. Davidson said that is a good question. He said because they are within the City limits they probably would. Stutsman said she remembers when they were in discussion with the SEATS facility and they had to agree to take TIF money from Coralville. Davidson said he assumes they would.
Stutsman attended a Finance Committee meeting.
Harney said the groundbreaking for the Joint Communication Center will be at 1:00 p.m. on October 22, 2008. He said Johnson County did not receive the $1 million grant request from the Emergency Operation Center Grants program. He said there is another $3.5 million in grant requests that are still out.
Meyers said Sunday, October 12, 2008, from 1:00 p.m. to 4:00 p.m. the County Poor Farm and Asylum will be open to the public for tours. Meyers said refreshments will be provided, courtesy of the County Historical Society.
R. Sullivan said the Board has a meeting Friday, October 10, 2008 at 9:00 a.m.
Adjourned at 8:03 p.m.
Attest: Tom Slockett, Auditor
By John Deeth, Recording Secretary
Sent to the Board of Supervisors on July 20, 2009 at 5:00 p.m.