THE CITY OF STREETSBORO, OHIO SPECIAL FINANCE COMMITTEE MINUTES. Monday, May 9, 2016

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1 THE CITY OF STREETSBORO, OHIO SPECIAL FINANCE COMMITTEE MINUTES Monday, May 9, 2016 This Special Finance Committee Meeting was called to order on Monday, May 9, 2016 at 7:08 p.m. by Tim Claypoole, Chairman. PRESENT: ABSENT: Jeff Allen, Bridget Pavlick, John Ruediger, Jessica Timmons, Julie Field, Tim Claypoole Steve Michniak ALSO PRESENT: Glenn Broska, Mayor Paul Janis, Law Director Darin Powers, Police Chief Robert Reinholz, Fire Chief Jenny Esarey, Finance Director Joe Ciuni, City Engineer Bill Miller, Service Director John Cieszkowski, Jr., Planning Director Rob Peters, Economic Development Director Caroline Kremer, Clerk of Council MOTION: TO EXCUSE MR. MICHNIAK. Moved by Mrs. Pavlick, seconded by Mrs. Field. Upon voice vote, motion carried. Special Business Discuss Refunding of 2013 Bonds Ms. Esarey said Council had received in their packets various financing alternatives due to the discussions at the last Finance Committee Meeting. Brian Cooper and Jeff Rink were available to answer questions for Council. Mr. Cooper reviewed the information provided [see attached]. He summarized that the City had bonds outstanding that were issued in 2013 to fund judgment and water tower bonds. He said in May 2016 they prepared a re-funding analysis that showed savings in those bonds of 8% to 10% and questions were raised about the call feature (the City s right to redeem bonds early) and on the term of the bond and whether the savings (generated by the re-funding) should be used to pay off the bonds a little early or be used over time. Mr. Cooper said they had prepared for tonight an analysis with several scenarios outlining different costs related to the different assumptions. Mr. Cooper reviewed each scenario [see attached]. He explained that the cost to have the 10 year call was about $30,000, but the benefit was that it would save money in the long run to be able to

2 refund the bonds early for a Net Present Value savings of about $603,126 vs. a max savings of $516,562 for the non-callable structure. He gave an example of a 7 year call option also which would cost more, but could save more too. He stated there was a cost to have a call option, but it basically reserved the City s right to come back at a later date and either do another refunding or have flexibility to restructure the debt or to pay it off early. He mentioned that the ordinances were drafted so they were flexible enough to do any one of the scenarios presented. Mr. Cooper reviewed the scenarios on the right side of the page [see attached] where the savings were used to pay off the bonds early (deferred savings / accelerated debt service). Using the savings would shorten the maturity by one year so the City would be borrowing for 16 years instead of 17 years. This would make the true interest cost go from about 2.261% to about 2.140%. He reviewed the non-callable deferred saving scenario and explained that the 10 year call would cost about $20,000 vs. the $30,000 in the earlier scenario because it was a function of interest rates and premiums. He noted the City would still have the flexibility on the deferred savings model, if the bonds were sold with a call option, to come back and preserve the ability to refinance and restructure. The savings would be pretty close to the total potential savings of Scenario A or Scenario E, but the City would be securing the up front saving earlier and reducing the future savings by a lesser amount because the City would have the ability to refund less bonds in the future because the City would be accelerating the debt service. Mr. Cooper also mentioned the City had been fortunate since May that the rates had remained stable with a very low interest rate environment and the market was still good for doing re-fundings. He recommended getting started with this process if this was something Council wanted to pursue because the ordinances would still need to be adopted by Council and they would still need to prepare and discuss the City s credit rating with Standard and Poor s. Mr. Ruediger thanked Mr. Cooper for the information; it helped Council understand this a lot more. Mr. Ruediger asked Ms. Esarey which scenario she supported. Ms. Esarey said she liked the call option as being most beneficial to the City. She said it would be up to Council to decide between a 7 year and 10 year call option. She felt it wasn t worth it to do the deferred savings; she thought the City should realize the cash flow savings every year. But it was up to Council to decide. Mr. Ruediger also supported the call option and noted that lately Council had been leaning toward paying the debt down quickly. Mrs. Pavlick commented that it didn t seem the City would get much by using the deferred savings options. Ms. Esarey said with the deferred savings the City would realize the cash flow at the end to take a year off the debt. From a cash flow perspective and for budgeting purposes, she preferred realizing the savings each year, especially since it was only one year off the debt. Mr. Cooper added that about 9 out of 10 of these types of arrangements were sold with a 10 year call option; the 7 or 8 year call was less common. The uniform savings each year was also more common that shortening the debt term, and it allowed the City to amortize the asset over the full term of the bond instead of shortening the term. He said Scenario A was the most utilized structure in the market. Page 2 of 6

3 Jeff Rink, KeyBanc, added that whichever way Council decided (7 year call or 10 year call) it would be advantageous to have flexibility all the way through to pricing because costs could change as they got closer to pricing and setting the interest rates on the re-funding over the next month or two and to let the Finance Director make the decision up to when the interest rates were locked in on pricing day to get the best performance for the City. Mrs. Field thanked everyone for the presentation; she thought the charts were helpful. She supported the 10 year call option. Ms. Esarey noted Council had seen two draft ordinances at a previous meeting and Ms. Esarey had been working with Pam Hanover, bond counsel, to redraft the ordinances to reflect Council s concerns, especially the interest rate that was too high in the earlier drafts. The administration had wanted Council to review these scenarios and maybe indicate which direction they were leaning so Ms. Hanover could finish preparing the ordinances and move forward in the direction Council wanted. Mr. Cooper recommended the best way to move forward was to put the ordinances on the Council s schedule to be approved; the sooner they were approved the sooner Mr. Cooper and Mr. Rink could go out to market. He noted that they put a savings threshold in the ordinances of about 5% (the expected saving in Scenario A was about 10.73%); if the potential savings fell below that threshold they would not move forward with the refinancing without coming back to Council first. If it was between 5% and 10% the Finance Director could decide what to do. Mr. Allen asked why the par amount (amount to be borrowed) was different in each scenario presented. Mr. Cooper explained that the bonds were valued based on two interest rates and a price; each bond for each year had its own coupon rate and its own yield and that then derived the dollar price for each bond. As they moved the maturity around and moved the call date around and accelerated the savings in each scenario, all of the yields tied to the call date and the par amount changed a little bit. Mr. Allen asked Mr. Cooper what he thought was the best option. Mr. Cooper recommended utilizing the 10 year call. He didn t really have a recommendation on the uniform savings vs. the deferred saving; they were both solutions to a financial problem. He didn t think paying off the bonds a year early would impact the City s rating one way or the other and the uniform savings over time would give the City the most flexibility from a cash flow and budgeting perspective so he suggested that option. Mr. Claypoole said he hated debt and liked to pay things off as quickly as possible. He asked what the administration planned to do with the expected $35,000 saving per year. Ms. Esarey said there was nothing concrete, but there were two funds to think about: the Water Fund for waterline projects and the Bond Retirement Fund. In 2014 the City transferred money from the General Fund to the Bond Retirement Fund to cover to the end of the 2010 refunding series which was 2019, so the money the City was saving would allow the City to not have to transfer money from the General Fund, but also the City could potentially transfer into the Bond Retirement Fund in case the Mayor and Council wanted to move forward with any City Hall improvement or any other capital type Page 3 of 6

4 structures in the future; so there were ways the City could use these monies. It was clarified that even with a 7 year call, the City could wait until 8 years or 9 years or 10 years to call or to the maturity of the bonds until there was economic savings to effectuate a refunding. Mrs. Pavlick wondered if the 7 year call option might be better than the 10 year call option for more flexibility. Mr. Cooper agreed the 7 year call would give more flexibility, but there was a cost for that. He said based on current market rates it would be better financially to get a 10 year call. Mr. Claypoole asked what the rate would have to get to before it was not beneficial to refinance. Mr. Cooper said the rates would have to go up 161 basis points for break even, so if the rate was 3% today (which was good), it would have to go to 4.61% before it would break even in Scenario A. He noted that interest rates go up and down all the time and could go up 161 basis points overnight. He noted that a few months ago back in October or November 2015 this deal was marginal savings but short term interest rates had gone up a little bit and long term interest rates had been pushed down which created this opportunity today, but rates could change again just as quickly and the savings opportunity could go away again in just a couple months. Mr. Ruediger summarized that he s heard from Council that they were looking toward the 10 year call, and that was the option he was most comfortable with. Mr. Cooper said that conversation could continue as the ordinances were discussed into a future meeting, but Ms. Esarey was getting some direction from Council so on pricing day if the City could do a 9 year call or 8 year call with no cost or a very small cost, she would know if she should pursue that. Ms. Esarey had wanted to know if Council was comfortable moving forward with the refunding at all, because she wasn t sure she had heard every Council Member s thoughts on this. Council looked toward Mr. Claypoole who did this type of thing for a living. Mr. Claypoole said he liked the idea of getting rid of the debt a year early, but he understood the potential benefit of having the $35,000 per year and he was OK with either one of those two ideas. He said he was willing to gamble on the $40,000 worth of saving to get the 10 year call provision to potentially recoup that amount. He supported Scenario A (uniform savings) or Scenario B (deferred savings), whichever the administration thought best. Mr. Ruediger confirmed the ordinances would give the Finance Director authorization to enter into these based on what was best in her opinion at the pricing day and not determine it for her prior to the pricing day. Mr. Claypoole thought from the previous meeting that all the Council Members were OK with the refunding if it was something that was going to save the City money, but this meeting helped clarify which option to go with. Mr. Claypoole assumed Ms. Esarey would go with the 10 year callable option, but mentioned that if she could get an 8 year or 9 year call for no additional cost he would encourage that. Others agreed. Ms. Esarey said Pam Hanover had been working on the ordinances and Council would have those for the next Finance Committee Meeting and could move them to the Council Meeting that night if they were comfortable with that. MOTION: TO MOVE THIS ITEM TO THE MAY 23, 2016 FINANCE COMMITTEE MEETING. Page 4 of 6

5 Moved by Mrs. Pavlick, seconded by Mrs. Field. Upon voice vote, motion carried. T-6192 Amend Pay Ordinance for Position of HR Manager Mr. Janis thanked Council for including this on tonight s Special Finance Committee Meeting agenda. He stated the Human Resources function was not staffed at this time and was being handled through the Law Department. He had developed an ordinance that established a pay range for a fulltime Human Resources Manager because the ordinances already provided for a full-time Human Resources Manager including a job description in Code Section He had submitted a draft job description and a pay range set at $50,000 to $65,000. His investigation with adjacent communities indicated that pay range was very similar to what was out on the market right now. He asked Council s approval so the administration could move on with recruiting for that position. He had wanted to present this to Council, but if it wasn t approved tonight, it wasn t critical. Ms. Timmons had some issues she would discuss with Mr. Janis regarding the job description. She understood it was being changed from a director level to a manager level, but felt it needed someone with more than two years of experience. She also thought the pay range was a bit low because previously the City had a part-time person at the top end of that range and she wanted the City to have a competitive salary for the right candidate. Mrs. Pavlick agreed this needed reviewed to meet the salary levels being considered by the Department of Labor for exempt and non-exempt employees. She thought this was a good time to revamp the job description so the City would get what it wanted from the applicants. Mr. Allen asked what the City needed to spend to get qualified candidates. Ms. Timmons thought the years of experience would be a factor and thought raising the top end of the range to $70,000 or $75,000 would open the candidate pool a little more. Mr. Janis said they hadn t started recruiting yet, so he wasn t sure if the proposed pay range would bring in acceptable candidates, but he had chosen the pay range based on the ranges in other public sector entities in this area as well as the general ranges he saw on the internet for the private sector. With the job description he tried to reduce the level of job responsibilities to bring it into a lower pay range position with the idea that the Law Department would be available to assist the HR Manger for higher level tasks. Mr. Allen suggested trying it as proposed and if it didn t work, it could be amended. Mrs. Field agreed with Mr. Allen that the proposal was a great starting point because at times in the past Council had amended the salary range on the night a person was hired, so that option was available. Ms. Timmons thought the changes to the job description made the position a good junior level job and she thought the City may be able to find someone within the proposed range with the Law Director as a mentor for negotiations and arbitrations. Mr. Ruediger suggested moving this to the May Finance Committee Meeting for further discussion, but Mayor Broska asked that this be moved forward quicker because the Law Department was drowning in work with the health insurance renewal, Bureau of Workers Comp stuff, and everything else the Human Resources Department needed to be doing and the recruiting/hiring process could take a month or more. Page 5 of 6

6 MOTION: TO MOVE THIS TO TONIGHT S REGULAR COUNCIL MEETING AS PRESENTED TONIGHT. Moved by Mr. Ruediger, seconded by Ms. Timmons. Upon voice vote, motion carried with Mrs. Pavlick opposing the motion. Announcements The Service Committee Meeting will immediately follow this meeting. There being no further business to come before this Special Finance Committee, and upon motion by Mr. Ruediger, seconded by Mrs. Pavlick, this meeting adjourned at 7:52 p.m. ATTEST: Caroline L. Kremer, Clerk of Council Tim Claypoole, Chairman ck Page 6 of 6