[ Council Communication ]  [ Resolution ]

Council Communication

Title:	Resolution Authorizing the Financing of Capital Costs associated with the Ashland Fiber Network
Dept:	Finance Department
Date:	June 18, 2002
Submitted By:	Lee Tuneberg, Finance Director
Reviewed By: ........................	Greg Scoles, City Administrator

Synopsis:	Attached is a resolution authorizing staff to enter into a second bank loan representing the additional construction costs for building the fiber optic network that were not anticipated within the original financing plan.
Recommendation:	Staff recommends approval of this resolution.
Fiscal Impact:	Approving this loan will allow the city to replace considerable internal fund borrowings with a second bank loan of $2.52 million based upon actual and anticipated construction costs totaling approximately $8.3 million. It will also fund an increased level ofconstuction for FY 2002-03 moving "build-out" nearer to completion. The immediate impact will be to reimburse the Telecommunications fund for $1.5 million, reducing internal borrowings, and to reserve the remainder for FY 2002-03 capital costs. A comparison of internal and external borrowings is Loan Type FY 01-02 FY 02-03 Budget FY 02-03 With Loan Conventional Interfund Total 5,700,000 5,225,000 10,925,000 5,400,000 6,625,000 12,025,000 7,920,000 5,125,000 13,045,000
Background:	Anticipated AFN capital costs were originally funded by a $5.8 million tax exempt loan placed with US Bank in August 1999 at a 5.14% interest rate. Since that time, other capitalized costs and operational cash shortfalls have been funded by internal borrowings from other funds totaling $5.225 in FY 2001-02 and projected at $6.6 in FY 2002-03. The level of internal borrowings is partially due to pushing construction efforts ahead at a more rapid pace last November when an opportunity arose from the competitor suspending service levels in Ashland. Moving ahead required considerable cash outlay beyond what was being generated by sales. This strategy has increased the need to do additional financing sooner than could be expected. A report from the financial advisor is attached comparing the three bank proposals received and providing information on selecting Key Bank. The proposed loan is for $2.520 million and is being classified as taxable, not tax-exempt. Taxable borrowings generally carry a higher interest rate but provide other opportunities not provided by tax exempt issues. The estimated rate for this financing is 7.19%. In this case, the city will have more flexibility in operations and use of the proceeds for building and operating infrastructure than a conventional tax-exempt issue would allow. This is quite important as the city finishes construction, offers more attractive programming choices and provides services toward Medford. The October 2001 business plan included a peak debt level of $12.4 million in FY 2004-05 and a maximum of $8.9 million in inter-fund loans two years later. External financing will raise total borrowings to $13.045 million and reduce the peak internal borrowing amount to approximately $6.6 million.

End of Document - Back to Top

RESOLUTION NO. 2002-

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ASHLAND, OREGON, AUTHORIZING THE FINANCING OF CAPITAL COSTS ASSOCIATED WITH THE ASHLAND FIBER NETWORK

Recitals:

The City Council finds as follows:

A. The City wishes to finance costs of expanding and improving the Ashland Fiber Network (the "Project").

B. The City is authorized by ORS 271.390 to enter into financing agreements in order to finance the cost of any real or personal property that the City determines is needed.

C. The Project is needed to provide services for the City and its citizens.

THE CITY OF ASHLAND RESOLVES AS FOLLOWS:

Section 1. Loan Agreement Authorized. The City is authorized to enter into a loan agreement in an aggregate principal amount of not more than $2,520,000 (the "Loan Agreement"). Loan proceeds shall be used to finance the Project and related expenses and pay costs associated with the Loan Agreement. The Finance Director, the City Administrator or the designee of the Finance Director or the City Administrator (any one or which is described as the "City Official"), on behalf of the City and without further action by the City Council, may:

1.1. accept the proposal of Key Bank to fund the Loan Agreement, negotiate the terms of the Loan Agreement, and execute the Loan Agreement in an aggregate principal amount of not more than $2,520,000;

1.2. execute and deliver a note reflecting the City's obligation to make the payments due under the Loan Agreement:

1.3. provide that interest payable under the Loan Agreement will be includable in gross under the Internal Revenue Code of 1986, as amended (the "Code");

1.4. execute and deliver any other certificates or documents and take any other actions which the City Official determines are desirable to finance the Project with the Loan Agreement in accordance with this resolution.

Section 2. Security. The City Official may pledge the City's full faith and credit and taxing power within the limitations of Sections 11 and 11 b of Article XI of the Oregon Constitution, and any and all of the City's legally available funds, to make the payments due under the Loan Agreements.

Section 4. Effective Date. This resolution takes effect on adoption by the City Council.

This resolution was read by title only in accordance with Ashland Municipal Code §2.04.090 duly PASSED and ADOPTED this __ day of ., 2002.
Barbara Christensen, City Recorder

SIGNED and APPROVED this __ day of June,2002.
Alan W. DeBoer, Mayor

End of Document - Back to Top