SPECIAL MOUNT PLEASANT TOWN COUNCIL MEETING MARCH 7, 2000 Mayor Woods-Flowers called the meeting to order at 12:00 Noon. In attendance were Council members Robert Dodds, Mark Fava, Terence McManus, Ted Power, Gary Santos, Kruger Smith, Thomasena Stokes-Marshall and Bobby Utsey. Also in attendance were Ms. Jernigan, Mr. Young, Mr. Ford, Ms. Phipps, Chief Perry, Chief Mims, Mr. Peele and Mr. Gartner. The Financial Consultant Mr. David Morrison and Bond Attorney Paul Trouche were also present.

Mayor Woods-Flowers stated that the purpose of the meeting is to receive an overview of the Financing Plan and Capital Improvements Plan, and that it was not to review individual projects. She informed Council that the meeting on March 21st will allow Council to fine-tune the plan for the public hearing scheduled for March 28th. She suggested that in addition to questions presented today, that Council also provides written comments to Ms. Jernigan, who in turn will provide the information back to Council.

Ms. Jernigan introduced Mr. Morrison and Mr. Trouche. She stated that the funding plan is based upon the recommendations of the CIP, based on the departmental committee’s review and made recommendations. She brought Council’s attention to the transportation plan. She stated that they were not able to make all the changes that were discussed last Friday. She noted that they updated the transportation plan relative to the committee’s recommendation. She said that included in today’s discussion in the funding plan is northern sector improvements. She also stated that the bike path network improvements are included in 2001. She stated that Hungryneck Boulevard west is not in the funding plan, which is programmed in 2006. Mr. Morrison made his presentation. (A copy of the overhead presentation is attached.) He commended Town Council for going into this type of exercise and doing this type of planning. He said he is not aware of anyone in South Carolina doing this. First, he presented the summary. He said that the projected capital outlay for the Capital Improvements Program developed out of the various committees is approximately $59 Million. He said that of this transportation is about 53%, and recreation is about 21%. He said that the projected long term debt that he calculated in order to accomplish this is $41 Million. He said his recommendation is to use General Obligation bonds as the preferred funding approach. He said that is not the only way you could do this, but it is the cleanest, lowest cost approach and is one that will involve citizens. He said that they are looking at referendum being required. He said that the State requires that you have to expend the approved amount within a three year period or you lose it. He said as far as an amount, the suggested total for a bond referendum is $17,850,000, which are the expenditures over the next three years. He said that this could be varied, with doing financing using the 8% bond capability in the first year. He said that the plan contemplates that you would have a referendum early in fiscal year 2001. He said that the Capital Improvement Program impact on the general fund are transportation and recreation. He said about $5.4 Million is assumed to be necessary from the general fund right now over the fifteen period to accomplish the transportation plan and they have not included the additional amount, as Ms. Jernigan stated. It is before the Hungryneck Boulevard west portion. He stated that all of that is from the impact fee portion of the transportation plan. He said that the tax increment portion pretty much pays for itself. He said that they have shortage, and in four years it could be made up and paid back, but it is about $500,000. He said that recreation is about $500,000, and obviously that is where a lot of the major expenditures are and it would be necessary to make up this shortage. He said that when he speaks of general fund, when he was doing the cash flows, they were trying to use all of the identified available revenues and if there was anything left over, they would use it in the next year or it was carried forward, or there was a deficit, and they just said “general fund”. He said that this money may come from other sources, but that is his balancing number. Mr. Morrison said that the total impact on the general fund (for transportation and recreation) is about 56% of the amount showed would have to come from the general fund or other sources. Mr. Morrison said that the challenges really start in fiscal year 2003 and continue through 2007 before the impact on the general fund begins to lessen. Mr. Morrison said that the available revenue sources are impact fees, tax increment revenues, accommodations tax, and general fund revenues. He said that they used the forecast of town staff for impact fees. For tax increment revenues they used the initial starting revenues provided by staff and they inflated those by about 7% per year, because that is what has been experienced over the last three or so years. He said that obviously to the extent those revenues increased greater it has a positive effect if they don’t increase at the same rate. He said that the accommodations tax was not inflated; there are restrictions on how it could be used.

Mr. Morrison said that the projected expenditures are broken down into three categories: Major transportation improvements, major facilities, and major and small equipment and vehicles. Mr. Morrison said that the potential additional revenue sources that have been identified are as follows: Utility franchise tax. It is estimated that a 1% increase in this tax (currently 3%) would produce about $479,000 a year. He said that he understands that there are no “strings” on this revenue. It goes into the general fund; therefore a good source. Hospitality tax. He said that there has been some information provided by the town that it could produce as much as $625,000 a year. It does have a lot of strings attached, but is one that could be enacted easily. Business Tax District. He said that this could be used for the Patriots Point Boulevard, and could generate up to $1 Million in additional revenue. He said if it were available, it would really eliminate the tax increment deficit in those years. Sales Tax. He said that this is an additional capital source. There are two state statutes that provide for sales tax to be levied for capital outlay purposes. One is a capital projects sales tax act which is fairly broad in scope. The other is the transportation facilities act which is payable from sales tax but it is limited to transportation purposes only. He said any kind of a sales tax would require a referendum. He said that there are other problems too. He said that the county would be involved. Mr. Morrison listed the funding alternatives: Cash or pay as you go. He said that the funding plan does use as much cash as is available each year. General Obligation Bonds. The options are “voted” GO bonds where a referendum is required, and 8% GO bonds. He pointed out that under voted GO bonds you have to use it within a three year period of time. In regard to the 8% GO bond, they show that in 2003 you are going to run out of capacity. If you voted a $17 Million GO bond, it does not count against the capacity. Therefore, you are eliminating any kind of problem.

Mr. Dodds spoke about the voted GO approved bonds. He said that the plan says that the bond must be issued within three years of approved. He asked if the funds have to be expended for the bonds issued. Mr. Trouche answered that the bonds have to be issued and then if you want to avoid things like yield restriction, you must spend it within three years. You would actually have as much as six years because you could wait three years to issue the bond and then have three years to expend. Mr. Morrison added that you could sell your bonds incrementally, but the last one has to be sold within the three year period, and then you could spend the money.

Mr. Power spoke about the GO bond. He asked if some of the bonds could be set up to be repaid by the revenue generated from TIF. Mr. Morrison answered in the affirmative. Mr. Power said that in terms of the taxpayers’ understanding of what they were voting for was in fact going to be a minimal if no cost to them in terms of additional taxes. Mr. Morrison said that is the whole plan here; what you are doing is leveraging your strong credit rating and avoiding some of the disadvantages of other types. Mayor Woods-Flowers said that if those TIF funds are obligated some place else, and they are not available to repay those bonds, then you would have to use other sources of revenue, like taxes. It depends on what is available. Mr. Morrison said that is what they are currently doing on the bonds now; they are not necessarily levied an ad valorem tax to pay all those.

Mr. Morrison said that they are currently doing lease purchase on an annual basis. They did use this for certain capital outlay for equipment.

Mr. Morrison said that in regard to tax increment financing, there is legislation that allows you to issue bonds payable purely from tax increment. It is an option, and one that they could get into in more detail. He said he does not think it is the preferred alternative. He said that he has done tax increment bond issues before and there are some difficulties with it. It is not the best alternative.

Mayor Woods-Flowers asked what the difficulties are.

Mr. Morrison said that the town has a AA rating and tax increment issue is not going to be rated the same. It will be at least one rating grade less, and the interest rate is going to be higher. Also, tax increments are really looked at as revenue obligations, and he can’t control the tax increment that is received. You get less money out of the bonds issued. He said that no bond insurer or credit enhancer is going to let you use 100% of those monies. With GO bonds you can use all the monies. You probably have about 90% of the monies that are identified and available right now that they can leverage and finance. You can’t really look at what you expect to have in four or five years. There are a number factors; it is an option that can be used, but it would not be cost effective if you are willing to do the voted GOs.

Mr. Power said that from a bond underwriter standpoint, wouldn’t Mount Pleasant’s growth rate and economic strength, the fact that real estate values are increasing, he asked if those would be positive underwriting indicators for the Town. Mr. Morrison said that the town is a better candidate for tax increment financing than some other places. One, you have a large area that is diversified and a lot of properties, and if your tax increments are based purely on a start up company, etc., then no one will have an interest. But the town can be financed. He said that the study assumed that they would be issuing GO bonds. He said that the cost would be a little bit higher because of the interest rate and you won’t be able to get as much money. Mr. Dodds said that he would assume they would be looking at what bonds could be supported by those revenues for purposes of determining the amount of debt they want to issue. He said from an underwriter’s perspective they can only look to tax increment revenues versus full faith and credit of the town, it will be a higher cost to us. He said that the source of repayment from the town’s perspective or a planning perspective would still be those TIF revenues. Mayor Woods-Flowers said it is being able to capitalize on having those revenues but using the town’s lower interest rate. Mr. Trouche added that if you could have a GO bond format you would have a lower interest rate, because your tax increment bonds will be marketed and they will be less expensive than tax increment bonds from another city because you have a good credit, but they will trade at least if not lower than the GO credit, because it is the nature of the beast – it is not your full faith credit. They also might require a reserve fund and would certainly require _______ ratio to get sold, which means you won’t be able to leverage your tax increment revenues dollar for dollar. Mr. Trouche said that they could do another GO issue, a portion of which could be justified as applicable to the redevelopment project cost and all the tax increment bonds could go dollar for dollar to use to pay debt service. He said that it is a more efficient mechanism – cheaper rate, no reserve fund, and no coverage.

Ms. Jernigan asked Mr. Trouche to comment on the revenue sources mentioned. Mr. Trouche said that there are two relatively new statutes that allow additional penny sales tax to be put on. There is a capital projects sales tax and there is a transportation infrastructure tax. He said the former has been used; bonds were issued for the first time under that statute in Newberry County. He said both of these taxes require ordinance by County Council and a county-wide referendum. They both have complex procedures set forth in the statutes. Mayor Woods-Flowers said that you can anticipate County Council having a referendum on a half penny or penny some time for additional funding for CARTA, and the bill currently allows a penny, but the amendment would be less than a penny, and would allow you to use it for purchasing open space. Mr. Trouche said that if you use the penny from one statute, the other statute is foreclosed. He said that if the County were to do something, the allocation protects Mount Pleasant – you have to get a certain allocation.

Mr. Trouche said that they have discussed the business improvement district methodology yesterday and it would be an appropriate vehicle if you want to consider it for an area like Patriots Point. It involves basically the allocation of some or all of the cost to the adjoining landowners. The statute allows five methods – assessed value, front footage, parcel, combination and another. He said you could pick a formula and allocate cost for road improvements. Ms. Jernigan said that they have not fine tuned the methodology of allocation that Council has approved. She said that this may be a mechanism for the town to put a collection methodology into place for the dollars that were committed by the property owners. Mr. Trouche said that you cannot have that assessment go against residential property.

Mr. Santos asked how would that affect the town with the ballfields. Mr. Trouche said that when you allocate, the town would be treated like an owner for allocation purposes. He said that for the methodology you might want to use assessed value or a parcel basis. He said you would have to use a consistent application. There would be some share picked up by the general fund of the town by the fact that the town owns the ballfields.

Mr. Morrison said that there are several funding considerations. Interest rates: He said he does not forecast interest rates. They picked February 1st as the interest rate for calculation purposes. Debt Service Reserve Requirements: He said that they are not required for a GO bond issue. It is generally required for any kind of revenue bond issue. The amount is lesser of either maximum annual principal and interest; 10% of the principal bond issue or average principal and interest. He said that these were not calculated in any of these numbers. They would have to be if they used something other than GO bonds. Credit Ratings: He said that the town has a strong credit rating; it was just upgraded by Moody (AA). He said that it makes sense if you have a strong credit rating to use it. Third Party Credit Enhancement: He said with a good credit rating, it would not be necessary to use this method. He said that this is primarily for municipal bond insurers. There is a cost to this. If the town issued tax increment bonds or any other type other than GO, you may want to consider this if it is cost effective. Bank Qualification: He said that they didn’t consider that any of these obligations would be issued at bank qualified, although it is likely that some or all may be. He said that you issue less than $10 Million in a calendar year, they can be bank qualified and it would save about a quarter of one percent. Construction Fund Spend Down Requirements: He explained that in this analysis the funding plan assumes that all monies are spent when the bonds are actually issued. That is not going to be the case. It would be spent down over some period of time. He said that the requirement under tax regulations is that you have to spend the bond issue first within a three year period of time. If you do expend it, then any interest earnings over the cost of the bonds, you have to rebate to the Treasury. He said that there are some exceptions – if you spend the monies in two years, then any arbitrage earned can be kept. He said that there are some arguments for not borrowing out more than two years requirement. Structuring Assumptions: He said that the structuring requirements he used for transportation financing, they assumed that 2015 would be the final maturity. He said that the interest rates they used were GO interest rates as of February 1st. All the other bonds with the exception of that for a swimming pool, were assumed to mature over 10 years. They used 5 ½% interest rate assumption. The swimming pool was for a 20 year period at 5.75%. He said that the general fund leases are 3 years at 5% interest, and all other leases were for 4 years at 5 ¼%. Mr. Morrison referred to Table 13 in the packet. This table shows the general fund payments. He said that there is not a problem until 2004, and in 2007, you max out on the impact fees that are available to pay for projects. He said that there are no other sources available to pay those. He said that the tax increment portion with the transportation plan over its life generates more than enough revenue – it is just when it produces those revenues that cause the problem. He said that the general fund equipment purchases are not new. They used whatever monies allocated to them, but for the most part, it is replacement equipment and general fund. Ms. Jernigan clarified that they show general fund and show that as equipment. She said it is all replacement equipment for all departments. They show the lease purchase debt right now. She said when it eludes police, fire, public services, etc., those are things that they pay for out of impact fees. Those are new. Mayor Woods-Flowers pointed out that this is using the current ability for using impact fees for items under $100,000. Ms. Jernigan said that the funding plan is based upon the things that they currently do now and have available. It does not assume changes. Mr. Power said that he assumes a lease purchase arrangement would offset the effect of the town not being able to utilize the existing $30,000 threshold if they change impact fees and are subject to State legislation. Ms. Jernigan said that that the general fund amount would increase, and it would be done as a lease purchase. Mr. Dodds asked what happens if they increase impact fees both the revenues and to the ability to spend it. Ms. Jernigan said that when they discussed this today, they didn’t have time to change it. She said that they will go back through the CIP and any particular project that is less than $100,000, it would be paid for out of impact fees. She said that they would estimate what the additional impact to the general fund would be. She said that they will provide this information prior to the meeting on March 21st. She said that if there is additional information Council needs, they will add it to the list for that meeting.

Mr. Power said that it is a key point that they have been given a number of sources of additional revenue and it seems that the goal is to reduce the amount of funds that they would have to bond and therefore incur interest expenses, etc. He said that they should have on a general level some understanding that they want to accomplish that and reduce the number of GO bonds and instead convey that cost through an increase of impact fees, hospitality tax, etc. He said it seems that staff needs to have an understanding how strongly they feel one way or the other as to how they come back to Council as far as using those other mechanisms.

Mayor Woods-Flowers said that they are still in the conceptual stage. At this point, staff has no direction to assume that Council has any certain approach for funding. Mr. Morrison continued stating the Fire Dept. is in good shape. The Public Services Dept. is about normal. There are a couple of adjustments that need to be made in this area, but not a substantial change. Ms. Jernigan said that they will use more of the Sanitation impact fees which would bring down the impact to the general fund in the Public Services area. She said that in 2003 – 2005, those shortfalls will have to be made up in the general fund. It will be less after they adjust this. She said that they recommend that they revisit the impact fees. She said she believes that the general fund could support or absorb the $100,000 difference. Mayor Woods-Flowers asked if this information will be provided by the 17th. Ms. Jernigan answered in the affirmative. Mr. Morrison said that Recreation is a major item. There is a lot of capital outlay and not a lot of fund sources. He said that any of these bond issues could be matured over a longer period of time. He said that from a financing standpoint, it should run over the useful life of the project. Ms. Jernigan said that they have had ten year GO bonds in the past. She said that part of that goes back to the length of the existing plan as it is now which runs out to the year 2007. She said that they want the town to be in a good position for those years past 2007 to pay for the projects that subsequent councils will add to the list and taking into consideration that some point usually after the year 5 or 7 you find that you have to put money back toward maintenance or renovation. She said that is why they look at a ten year period of most facilities. She said that when they did the Jones Center they went out further, and they did do a refinancing in the early 1990s and late 1980s. Mr. Smith asked if they would be well served to look at those things that they could put on a 20 year bond with the option for review or refinance at 10 years. Mr. Morrison said that you could do that. He said that this is fairly conservative. Ms. Jernigan said that a lot of the function of refinancing was the interest rate, and they are saying that there will be no substantial change in interest rates. She said that as time goes on, it is something that needs to be looked at. Mayor Woods-Flowers said that as long as you understand that it may not be in the best interest to refinance. Mr. Smith said that if you are buying a house you may not be able to afford the payment on a ten year mortgage, but you can for 20 years. The question is what they can manage. Ms. Jernigan said that they know that they have to buy a second house after the year 2007, so they are trying to position themselves by having the ten year debt now to pay for that second house in the year 2007. Mr. Morrison said that they can use a longer period. He said that they will look at bond issues every year for the next seven years, not that they would issue bonds every year. You will be better able to project what your revenues are. Mayor Woods-Flowers said that it is not responsible to finance anything past its useful life. Mr. Power said that Ms. Jernigan raised a good point about the “second house”. He said in Table 12 it shows the transportation bonding requirements through the year 2007 at $25 Million. He said the transportation plan shows $115 Million less the projects that are going to be paid by the state; i.e. widening of US 17. He said that they are still looking at $80 Million; therefore, they are accounting for the expenditure of money toward road improvement through the year 2007 in the amount of $25 Million when in fact there is going to be an even bigger amount of money that has to be financed some way if they are going to continue the 15 year transportation plan. Mr. Dodds said he is not sure the amounts are accurate in regard to the local share. Mr. Power said that is assuming that the state is only going to finance the two projects on the books – Long Point Road and the widening of US 17. Mr. Dodds pointed out that it is four a five year bond program, and the likelihood is that at the end of the five year bond, they are looking at another five year bond to generate additional fund. Mr. Dodds said he agrees that his approach is the most conservative, because those two are actually funded, but the likelihood is that there will be additional state funding for part of the $115 Million. Ms. Jernigan said that each year this will be reviewed, therefore, about three years out is as far as you can go with a lot of certainty. Mr. Morrison said that the impact fees for transportation could be doubled and it would basically wipe that out. He continued stating that the shortfall in recreation is obvious. There is not a lot you can do with that other than eliminate projects or stretch them out over a longer period of time. He said impact fees to the extent they can be increased could lessen some of that. He said in public services they believe the general fund should be able to absorb that. Ms. Jernigan suggested that all impact fees be reviewed. Mr. Santos added that they need to do something with recreation because it is a tremendous impact on the residents and it looks like it will not slow down; they should search for ways to raise the impact fees for recreation. He does not believe in stretching them out; but find alternatives.

Mayor Woods-Flowers informed Council that on March 17 the final draft should be ready for Council’s review; on March 21, there is a meeting for final look at the CIP. She stated that on March 28 there will be a public hearing on the CIP. She said at that time, they will likely consider first reading of the CIP.

Mr. Young requested that an item be added to the agenda – final reading of the Ordinance extending the franchise with SCE&G up to five months. Mr. Fava moved for approval to add the item; seconded by Mr. Dodds. All present were in favor. Mrs. Stokes-Marshall moved for final reading; seconded by Mr. Dodds. All present were in favor. Mr. Young read FINAL READING BY TITLE ONLY. This Ordinance SIGNED, SEALED AND DELIVERED THIS DATE.

There being no further business, the meeting adjourned at 1:15 p.m. Carol Hunter Clerk of Council