TOWN OF MOUNT PLEASANT, SOUTH CAROLINA
FINANCE COMMITTEE
Municipal Complex, Conference Room 103

Members Present: Paul Gawrych, Chairman, Kruger Smith, Larry Carr, Joe Bustos
Also: Thomasena Stokes-Marshall
Staff: Mac Burdette, Colleen Jernigan
Mr. Gawrych called the meeting to order at 10:22 a.m.
1. Approval of Minutes
Mr. Bustos made a motion to approve the minutes from the August Committee meeting. Mr. Smith seconded the motion. All were in favor.

2. Proposed Revenue Bond Issue - Mount Pleasant Waterworks
Mr. Clay Duffie, with Mount Pleasant Waterworks, stated that they were in attendance to present to the Committee their proposal to issue $30 million in revenue bonds for Mount Pleasant Waterworks. He stated that Dr. Golightly, Paul Trouche, Edward Pierce, and Edward Boyles were also in attendance. He stated that Mr. Boyles was with Banc of America and he had a presentation that he will be giving relative to this bond issue. The proceeds are for waterworks improvements that are necessary to complete the water master plan and wastewater management plan.

Mr. Trouche stated that the ordinance is a supplemental ordinance to the existing general master ordinance. He stated that the one thing he wanted to bring to the Committee’s attention was that the $30 million of new money that Mr. Duffie alluded to, is to be broken down into two series, a $20 million variable rate series of bonds and a $10 million fixed rate series.

Mr. Boyles stated that he had been working on this utility revenue bond issue for some time with staff and with the Waterworks Commission and what he has is a summary of their plan of finance. He indicated that they are looking at about $30 million in projects be funded by this bond issue. Page one of the presentation showed the different approaches which have been looked at. He stated that the baseline that was looked at is what if they do the issue as an all fixed rate issue today. The cost of money would be about 4.32 percent. He added that was compared to looking at diversifying the approach of the Waterworks debt and borrowing a portion of it at a variable rate. The cost of money there is estimated at 3.58 percent. He added that foot note one is key because they are using the 15 year average for tax exempt variable rates. He stated that variable rate bonds have been around for a long time in the municipal market. Traditionally they have been an attractive cost for the money and that is one of the reason this is being looked at. He stated that they use a 15 year average of three percent. The most current rate is 2.35 percent. He stated that the comparison on the right hand side of the page shows the annual repayment service under two scenarios and the mixed scenario shows that they estimated savings of $200,000 or more per year over the 20 year period that they are financing. One of the reasons this is being looked at is cost savings.
Mr. Carr asked if the 20 year term is the industry standard, or does Mount Pleasant Waterworks have other options, and that is the option they are choosing.

Mr. Boyles indicated that it was the option chosen; however, it goes out to 30 years because the assets they finance are very long lifed. Based on their calculations and models it looks like they could afford it at 20 years which saves them on interest over time.
Mr. Smith stated that the presentation says at the bottom, “assumes a 5-year cap at 5 %. He asked if this is a five percent cap for the entire period of the bonds.

Mr. Boyles stated that what they looked at was buying an interest rate cap for the first five years of financing and that cost has been factored in. That is approximately 12 bps per year. Then they assumed that cost going forward but they would have to decide to get a new cap at the end of the fifth year, should they want to get a cap at that point and time.

Mr. Smith asked if they have the option of converting to fixed at that rate at the end of those five years.

Mr. Boyles stated that they had the option of converting to a fixed rate at anytime. It would be subject to where the interest market is at that time. He stated that part of the thought here was the five year interest rate cap was a lot less expensive than going the entire 20 years. He added that there is some expectation that impact fees in the next few years out will be coming into the point where they want to pay down this debt and this floating rate debt can be prepaid at any time with no penalty. That was part of what drove this thinking; a portion of the debt could float and be prepaid as impact fees came in. He stated that several projections were done on what impact fees may do and in certain scenarios that money could build up and they could decide to pay down a good portion of this debt.

Mr. Carr asked if that was the variable rate portion.

Mr. Boyles responded in the affirmative. He added that was the flexibility. He stated that there were four bullet points that touch on the thought process they had; one is they could borrow up to 20 years but the rate looks like a short-term rate. The history has shown that they can save money just as some individuals choose an adjustable rate mortgage as there is a difference between a short term rate and the long term rate.

Mr. Smith asked if there were any prohibitions against defeasing this fixed rate portion at anytime.

Mr. Boyles responded in the negative. He added that Mount Pleasant Waterworks’ debt is approximately $50 million all fixed rate. He stated that if this were layered on they would be looking at a quarter of the debt being variable rate. He also noted that they have some cash investments on the balance sheet; that money tends to be invested very short-term and fluctuate and if they have some debt that behaves the same way that is a nice internal hedge as the debt would perform much like their cash investments do. Currently, all of their debt is long-term fixed rate. He stated that a significant point that came up was with this type of debt (variable) they have the flexibility to prepay at anytime at par. Mr. Boyles indicated that page three and four of his presentation gave some history on what rates have done. He stated that on page three the red line is essentially a proxy for tax exempt fixed rates. The blue line is the proxy for variable rate in the tax exempt market. The green line is the three months Treasury bill. He added that one of the interesting things about that is that treasury bills are at a taxable rate and they yield a higher rate than the tax exempt rate. One of the positive things about having some cash in the bank is as the rates fluctuate on that cash it is going to continue to earn more interest than they are paying out on the tax exempt bond.

Mr. Smith asked where the point comes in where someone borrows money and then invests that borrowed money.

Mrs. Jernigan stated that Mr. Smith was referring to the arbitrage rebate limits.

Mr. Boyles stated that there are two points there, the cash that they have that they have earned from fees and rates are not subject to arbitrage, the bond that they borrow will be and if they spend the money like they typically have, if they make any money on that they can keep it under federal tax laws. It is an incentive to borrow the money and then spend it quickly.

Mrs. Jernigan asked if they did not spend the money down within a 36 months time period when they calculate arbitrage would they do it based on the fixed and variable issues together or do they have to look at it separately.

Mr. Trouche indicated that they are going to certify that they do intend to spend it down in the allowable time period and they are going to rely on that. He stated that hypothetically this issue will be considered one issue for federal arbitrage purposes. Essentially, to go back to the point Mr. Smith raised, yes if it was all spent within two years they can keep the arbitrage property in the construction fund but, that is going to be very minimal. More importantly the non-borrowed funds, the funds they have on hand in cash balances, they are not borrowed therefore they are not subject to any rebate or arbitrage restrictions.

Mr. Smith asked if interest rates went up they would not want to be paying this bond back.

Mr. Boyles stated that for instance it they look back when these rates were at 3.5 or 4 percent, the Treasury rate was a higher rate so they could have a spread on their money.

Mr. Smith stated that the only thought that comes to his mind is the public is very critical of any governmental agency having a huge bank roll sitting there. There maybe a good reason to do it but the public is always very critical about that. He asked, if on page one, this is based on the fact that nothing changes.

Mr. Boyles responded in the affirmative.

Mr. Smith asked if the rates were to go up to ten percent and they were on this variable rate, where would they stand with respect to the fixed rate. He stated that he knows they would be paying less interest in the beginning, he asked where the break even point is.
Mr. Boyles said for instance if they ran three years at three percent they could do a calculation that shows what would happen if the rate goes up to six percent at that point.

Mr. Smith asked if at some point in time if the rates continued to go up Mount Pleasant Waterworks would have to decide whether to transition to the fixed rate or not.

Mr. Boyles responded in the affirmative and added that this is something that is monitored.

Mr. Duffie stated that if the market moved away from them and those variable rates continued to rise and it did not look like they were going to come down, they would be back to the Committee for a fixed rate. He reiterated that it was going to require monitoring on their part.

Mr. Carr stated that he was prepared to make a motion, he just wanted to make sure two things were on the record. One is if they desire to make a conversion at some point from a variable to fixed will it take subsequent action on the Town’s part or do they have the authority to do that on their own.

Mr. Trouche stated that the ordinance provides, as now written, it can be done by Council at the recommendation of the Commission. The final decision making would be Council’s.

Mr. Carr stated that he wanted to make sure before he makes a motion that the Committee understands that is a feature of this entire exercise. He added that he would also like on the record, that staff is comfortable with this.

Mrs. Jernigan stated that this would have to be watched every week and there is administrative requirements here but she feels the Waterworks is more than willing to do that; they want to benefit the citizens just as much as the Town does. She added that she has no problem in what they are proposing here.

Mr. Smith asked, regarding the way the bond is written now, is it the Council decision to either revert to fixed rate or is there a requirement that there has to be a recommendation from the Waterworks.

Mr. Trouche stated that the input that he got was that Council needs to make the final decision. It is predicated now on the recommendation of the Commission, the thought being that Council did not want to burden themselves or their staff with monitoring this issue.

Mr. Carr stated that the point is that Council is not exercising for their self the unilateral authority to do that.

Mr. Trouche reiterated that as it is written now it predicates on the recommendation of the Commission.

Mr. Carr stated that he would rather not put Council in a position where they could take a unilateral position. He stated that he does not feel that is fair, he feels they should have to negotiate their way through it.

Mr. Carr made a motion to recommend to the full Council that they adopt the ordinance as presented to the Committee today with the stipulations as pointed out on the record today. Mr. Smith seconded the motion. All were in favor.

Mrs. Jernigan stated that she did want to clarify when Mount Pleasant Waterworks came before Committee two or three months ago, there was a conversation about maybe reissuing some old debt of about $18 million, which was really where the original $48 million came from; she stated this was looked at back in June and they are not planning on doing that. She asked if this was the last piece of the financing to come to Committee.

Mr. Duffy stated that this was not the last piece because they still have two other state revolving fund loans that they will be bringing to Council in the next month or so.

3. Donation request for military BRAC Committee

Mr. Gawrych stated that Ms. Mary Graham, with the Chamber of Commerce, was in attendance.

Mr. Burdette stated that the Town did not budget additional funds to assist the Chamber with their BRAC efforts this year and they are requesting an additional one time contribution of $20,000. These funds would come from the general fund.

Mr. Gawrych asked for a history of what the Town has done with BRAC in the past.

Ms. Graham stated that they started about three years ago preparing for BRAC. They asked each of the Counties and larger municipalities to provide funding for their efforts. They did ask for two and a half years worth of funding for that to get them through the end of this December, which is when BRAC 2005 officially ends. This would be the last half of year for that. She added that last year the town contributed $40,000 to the effort and the year prior to that $20,000.

Mr. Smith stated that he would like to add that he feels everyone remembers when the Navy yard closed, and had felt they worked a little harder they very well could have kept that Navy yard from closing. He stated that he would not say they mishandled it but he does not feel they prepared for it like they did prepare for this particular BRAC. He added that he thinks when they did their analysis of what they lost after the based closed he feels it became apparent that a significant amount was lost with respect to revenues. He added that he thinks they did a wonderful job in positioning them in this BRAC to maintain what was maintained. He stated that he would suggest that the Committee should certainly consider honoring their request.

Mr. Carr asked if the contributions that have been received are going to pay for presentations and travel of the various personnel who go up and make these presentations.

Ms. Graham responded in the affirmative.

Mr. Carr asked if the chamber was having a separate accounting exercise.

Ms. Graham responded in the affirmative.

Mr. Carr asked if there were funds left at the end if everyone would be refunded.

Ms. Graham stated that they could come back with a full accounting.

Mr. Carr stated that with that understanding he is not pressing that they need to make some extraordinary effort over there to hirer additional staff to do this correctly. He stated that he would hope that if the full Council was to authorize this payment, that when they wrap up the books and sort of “close up shop” there would be some type of prorated return of anything that was left over.

Mr. Gawrych asked where this money can be found.

Mr. Burdette indicated that this would come out of the general fund.

Mr. Carr made a motion that the Committee recommend to the full Council that they go ahead and pay the invoice as has been presented and that the money come from the general fund and that the Council respectfully ask the chamber that if at the end of the BRAC Commissions work that any additional funds be returned to all the contributors on a prorated basis. Mr. Smith seconded the motion.

Mr. Gawrych stated that from time to time he sees things come out in the paper out the red zone and the blue zone for the approaches to the airbase. He stated it seems like every time he turns around Mayor Summey is building things closer and closer. He stated that he would hope they have an eye on that.

Ms. Graham stated that issue is being looked into.

Mr. Carr stated that he thinks what Mr. Gawrych is saying and he agrees is they are spending all this time and effort to save themselves this time around, but are they doing other things that are adversely affecting the position next time around.

Mr. Gawrych called for the vote. All were in favor.
4. Discussion of Senior Services Center funding
Mr. Burdette stated that what staff gave to the Committee was a suggestion for discussion purposes only based on the 2005 bond issue. He stated that there is a $350,000 grant that is apparently coming, staff is suggesting taking $250,000 the Town gets from sale of the land on Mathis Ferry Road and adding that to the project and then adding another additional $550,000 which would come from the bond that will be issued. That will give $1,150,000 to use for building a senior facility. That would have to include the design services in the cost. It would really come down to approximately $1 million for actual construction if this formula is used. If this Committee and Council decide they want to spend more or less staff will adjust accordingly. Staff would advise that there are in terms of looking at special funds to pay for this, there are very few they can turn to. He stated that they do not believe this is an eligible project for Hospitality tax or for Accommodations Tax funds unless, they can figure out someway to use the facility to support tourism. He added that if they found a site, and the Recreation Committee just recently talked about the hospital site offering of 4 acres of land only, if they built it there that would not be in the TIF district so they could not use TIF funds. He stated that if a site could be found in the TIF district then they could use TIF funds to help build it. He stated that he is not sure where they could find that type of acreage in the TIF district and if they did they would probably have to buy the property and they would be looking at $250,000 an up and acre, so they just negated the gain by using TIF funds by having to buy land. He stated that he felt he was correct, even though the hospital area was in the TIF district it did not go back to the Query property.

Mr. Smith asked if the Roper facility on Long Point was within the TIF district.

Mrs. Jernigan stated that she did not think it was.

Mr. Smith stated that his thinking is when Roper builds their new facility they may not have a need for that and they may be willing to either sell it to the Town for a greatly reduced cost and them they can use TIF funds.

Mr. Burdette suggested that Roper is just one of many tenants in there.

Mr. Smith stated that they own it.

Mr. Burdette stated that the catch to this is that if they do not break ground on this within 18 months they will loose the grant.
Mr. Smith stated that was not necessarily the case because they grant extensions to that.

Mr. Burdette stated that he would look into that. He stated that the bottom line is the Finance Committee is to talk about funding or financing a senior center. He stated that staff talked to the Recreation Committee but it would be hard for the Finance Committee to do their job without having some idea of what is being requested. The amount that staff has come up, they feel is the minimum amount needed if the Town gets a gift of land and they want to build the minimum building that would house the first phase of a senior facility.

Mr. Gawrych stated that the key is phase.

Mr. Carr asked if staff was contemplating that the proposed amount of $1,350,000 contemplates something in the 5,000 square foot range.
Mr. Burdette responded in the affirmative.

Mr. Carr stated that all the Committee is in a position to do this morning is ask the staff to include this line item in this bond issue. This makes no particular comment with regard to this site. He stated that this Committee is not making a comment with regard to whether one site is better or worse but rather saying no more then adding $550,000 to the bond issue seems to be an appropriate step to take in order to move the ball down the field. The issue about accepting the gift or not is really for the full Council based upon what the Recreation Committee did earlier. He stated, to him, the only question is, does the Committee feel that number is big enough or do they want to have the staff contemplate a number larger then that or less then that. He stated that he can live with that number for this first phase but he is not shy about being more aggressive with that if Mrs. Jernigan feels there is enough money to pay it down without putting the Town at risk. He reiterated that he feels what this Committee’s is tasked to do, is get the money in place so the rest of this debate can start to advance further.

Mr. Smith stated that he felt if there were time constraints to the point where no other option could be considered, he would agree with Mr. Carr; however, he is not sure if there are time constraints.
Mr. Carr stated that there are time constraints in the sense that these bonds need to be let and the projects to be identified within that bond ordinance.

Mr. Smith stated that there would be a subsequent bonding period.
Mr. Carr stated that he would rather it be in this issue.
Mr. Bustos stated that he feels they need to go ahead and do this on this bond issue. He stated that he also thinks they need to do whatever they can to leverage the Town’ s money with the $350,000 of grant money. He stated to let that slip through their fingers he feels would be wrong.

Mr. Bustos made a motion to recommend to Council that this funding mechanism for the senior citizen center be recommended to full Council for approval and that includes accepting the grant award and doing whatever it takes to get the $350,000 grant award, to pursue the $200,000 in-kind land grant and allocating the proceeds from the Mathis Ferry Road property sale and including the proposed amount in the bond issue of $550,000 and then to move from there either up or down with the cost of what the senior citizen project may be. Mr. Carr seconded the motion.

Mr. Smith stated that he does not see any real sense of urgency here because at this point in time no one has been able to determine what they want to put on this property. He stated that he thinks they need to investigate the options that may be offered by Roper Hospital with respect to their building on Long Point. He suggested that he would want to see those things accomplished before they did this. He asked that if they do not include this in the bond issue at the September meeting are they beyond a drop dead date?

Mrs. Jernigan stated they needed to move forward with the 2005 issue and stated that in looking at the long-term she does not think this Council will have another big bond issue to let for another two to three years and they would pay a lot of closing costs for a small issue in the interim .

Mr. Smith stated that they are doing this for a couple of reasons, one is to keep costs down, and the second thing is staff believes there are time constraints.

Mr. Burdette stated that the feels the grant could be in jeopardy if they did not make some demonstrated improvements by 18 months. He added that he does not think that is as important as the majority of the elected officials coming to grips with does the Town need a senior center now or do we not.

Mr. Bustos stated that he feels what they are saying is they do need one. He added that if Roper were to come to the Town by Tuesday and says they will sell that property when the Town is ready for it, that would be wonderful but he feels just to say maybe they will sell it sometime in the future he feels is to open ended.

Mr. Smith stated that the Town does not know.

Mr. Bustos stated that upon hearing this discussion, if Roper comes to Council by Tuesday and says they are willing to sell that would be a big indicator as to their intentions.

Mr. Burdette stated that he would place a call to Roper.

Mr. Gawrych called for the vote. All were in favor.

Mr. Carr made a motion that the recommended adjustments to the November 2005 bond issue as found in the packages today including Hungryneck Phase II at $500,000, the visitors center at $600,000, and the senior center as just described at $550,000 be added to the November 2005 bond issue appropriately for a total issue of $12,653,493 for Council consideration on Tuesday night. Mr. Bustos seconded the motion. All were in favor.

5. Adjourn
With no further business to be discussed the meeting adjourned at 11:03 a.m.

Respectfully Submitted,
Dionna L. Ebeling