Managing Underwriting ServicesMasterpiece on the Mississippi
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Managing Underwriting Services Recommendation
DATE: October 8, 2013
Dubuque
band
AI- America City
1
2007 • 2012 • 2013
Budget Director Jennifer Larson is recommending approval of R.W Baird for managing
underwriting services. The City is submitting a Flood Mitigation Grant application for the
Bee Branch Creek Watershed in November 2013 to implement sales -tax tax increment
financing under Senate File 2217 approved by the Iowa General Assembly during the
2012 legislative session, which allows use of state sales tax revenues. If the Flood
Mitigation Grant application is successful, the City plans to issue sales tax increment
revenue bonds using State of Iowa sales tax revenues to help fund the Bee Branch
Creek Restoration project and to replace the Bee Branch flood gates. The City
anticipates issuing the bonds during calendar year 2014.
The City's financial advisor, Piper Jaffray & Co., has recommended that the City
consider selling the sales tax increment revenue bonds as a negotiated sale to receive
the best interest rate possible. As this is a new statute, the type of bond to be sold has
never been sold before in Iowa. The use of sales tax increment revenue to pay revenue
bonds is a new concept, with no prior financings like this sold in Iowa, which may not
produce ideal interest rates if the City used the sealed bid approach that the City
traditionally uses for general obligation and essential utility revenue bonds. In order to
complete a negotiated sale, the City must select an underwriter. The selected
underwriter will be providing suggestions with respect to structure, timing and marketing
of the bonds being sold in order to sell the bonds with the best possible structure and at
the lowest interest cost.
A request for proposal was approved on October 1, 2013 and sent to twelve potential
firms that regularly practice municipal finance in Iowa. The City received five proposals.
R.W. Baird scored the highest points over all related to the service criteria. Their plan of
finance, qualifications, bond pricing and effort was clearly documented in their proposal.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
Michael C. Van Milligen
MCVM /jml
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Teri Goodmann, Assistant City Manager
Jennifer Larson, Budget Director
Kenneth TeKippe, Finance Director
-2-
THE CITY OF
Dui
Masterpiece on the Mississippi
TO: Michael C. Van Milligen, City Manager
FROM: Jennifer Larson, Budget Director
SUBJECT: Managing Underwriting Services Recommendation
DATE: October 8, 2013
Dubuque
band
AI- America City
11111r
2007 • 2012 • 2013
INTRODUCTION
The purpose of this memorandum is to recommend approval of managing underwriting
services.
BACKGROUND
The City is submitting a Flood Mitigation Grant application for the Bee Branch Creek
Watershed in November 2013 to implement sales -tax tax increment financing under
Senate File 2217 approved by the Iowa General Assembly during the 2012 legislative
session, which allows use of state sales tax revenue. If the Flood Mitigation Grant
application is successful, the City plans to issue sales tax increment revenue bonds
using State of Iowa sales tax revenue to help fund the Bee Branch Creek Restoration
project and to replace the Bee Branch flood gates. The City anticipates issuing the
bonds during calendar year 2014.
DISCUSSION
The applicable state statute allows the City to issue sales tax revenue bonds in an
amount granted by the Iowa Flood Mitigation Board, plus reserves, bonding costs and
capitalized interest, if necessary. The statute allows the City to freeze the quarterly
sales tax receipts for the fiscal year ending 6/30/2013, with 70% of any increase in sales
tax receipts ( "Incremental Receipts ") (excluding LOST and SILO) going to the City to
retire the bonds. The statute requires the Iowa Department of Management to set up
funds and accounts on behalf of the City, and deposit money quarterly into the funds, if
any incremental receipts exist. The City may request funding from the Treasurer of
Iowa not more often than quarterly; in lieu of requesting quarterly receipts, the City may
file the bond payment schedule with the Treasurer, who shall provide up to the amount
of money payable on the bond to the City.
Under the Statute receipts that can be paid to the City over time cannot exceed the sum
of (a) scheduled bond payments plus (b) scheduled capital improvements that are
approved by the City and the Board but which the City intends to construct on a pay -as-
you-go basis. No city may receive more than $15 million in total receipts during one
fiscal year.
The Iowa Department of Revenue advises that it may take approximately 75 days after
the end of the fiscal year quarter to deposit money into the City's fund. In the event that
there are no incremental receipts available, no funds will be deposited into the City's
account to retire the Bonds.
Fund reserve levels will be reviewed annually during the budget process. Any
recommended adjustments to reserve levels will be presented to City Council for its
consideration during the annual budget process.
The City's financial advisor, Piper Jaffray & Co., recommended that the City consider
selling the sales tax increment revenue bonds as a negotiated sale to receive the best
interest rate possible. As this is a new statute, the type of bond to be sold has never
been sold before in Iowa. The use of sales tax increment revenue to pay revenue bonds
is a new concept that may not produce ideal interest rates in the more typical sealed bid
sale process. In order to complete a negotiated sale, the City must select an underwriter
not currently affiliated with the City. The primary role of an underwriter is to purchase, or
arrange for the placement of, securities in an arm's - length commercial transaction
between the issuer and the underwriter. The selected underwriter will be providing
suggestions with respect to structure, timing and marketing of the bonds being sold in
order to sell the bonds with the best possible structure and at the lowest interest cost.
The Municipal Securities Rulemaking Board is the regulator agency that oversees firms
involved in underwriting municipal bonds and providing financial advice. Rule G -23
became effective on November 27, 2011 and the primary purpose of the rule is to
prevent conflicts of interest by prohibiting an underwriter from serving as a financial
advisor and subsequently serving as the underwriter of the issue. As such, our financial
advisor, Piper Jaffray, cannot act as underwriter to the City in a negotiated sale. Piper
can only act as financial advisor, with its fiduciary obligation to the City solely and only.
It is important that the City has an underwriter in place prior to the Flood Mitigation
Grant application being submitted to the Flood Mitigation Board in November 2013 in
order to have all funding mechanisms in place.
A request for proposal was approved on October 1, 2013 and sent to twelve potential
firms that regularly practice municipal finance in Iowa. The City received five proposals.
The analysis of the proposals produced the following scoring:
Service
Criteria
Request For Proposal Scoring
Maximum R. W. William D.A.
Points Baird Blair Davidson
Northland
Stern
Brothers
Plan of Finance
25
25
25
15
10
5
Qualifications
25
15
10
20
5
5
Bond pricing
10
10
8
7
3
2
Sales staff strength &
sales effort
25
20
10
15
0
5
Past experience with
City and State
5
5
0
5
5
0
Fees
10
10
10
0
7
10
Total Points
100
85
63
62
30
27
R.W. Baird scored the highest points over all related to the service criteria. Their plan of
finance, qualifications, bond pricing and effort was clearly documented in their proposal.
Baird proposes a traditional grows underwriting spread of not -to- exceed $4.951$1,000 of
the public offering price of the City's bonds. The proposed fee includes a management
fee, takedown and expenses. The fee is transaction related and if for any reason the
transaction does not close, the City would owe nothing to R.W. Baird.
RECOMMENDATION
I respectfully recommend the approval of R.W. Baird for managing underwriting services
for the negotiated sale of sales tax increment revenue bonds.
JML
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Teri Goodmann, Assistant City Manager
Kenneth TeKippe, Finance Director
October 7, 2013
Ms. Jenny Larson, Budget Director
City of Dubuque
City Hall - 50 W. 13th St.
Dubuque, IA 52001 -4805
Dear Jenny:
3900 Ingersoll Avenue, Suite no, Des Moines, IA 50312
Tel: 515 247'2340 1 Toll Free: 800 333-6008 ( Fax: 515 247-2352
This letter covers our recommendation regarding the selection of an underwriter to
assist the City with the proposed sale of Sales Tax - Tax Increment revenue bonds
(ST -TIF), to fund a portion of the City's flood mitigation program. Our
recommendation is that the City Retain Robert W. Baird & Co. to act as the
managing underwriter for this issue.
BACKGROUND
We discussed the rationale for the use of a negotiated format for this issue with the
City. Our concern about attempting to sell this issue in a competitive format was
focused on three areas: (a) the absence of current incremental revenues upon
which an investor could easily assess the bond coverage; (b) the annual
appropriation nature of the backup pledge of the City; and (c) the fact that this type
of bond is new to Iowa, and that the City will likely be the first issuer selling such a
bond. For these reasons, we believe that a negotiated effort, focusing bond sales
forces on the marketing and education process regarding the bonds, ahead of the
date on which the bonds are to be sold (as opposed to afterward, which often
happens in a competitive sale) is appropriate.
REVIEW AND ANALYSIS
We put together, and the Council approved, the form of request for proposal. We put
together a list of twelve potential firms that regularly practice municipal finance in
Iowa, to send the request. Proposals were received on October 1. The City
received five proposals, including one from a firm not solicited by the City. Others
either did not respond or responded that they could not meet the timeline.
Prior to the receipt of proposals, we put together a scoring summary based on the
scoring matrix in the RFP. The summary was to be used as an evaluation tool
toward assigning points per the scoring matrix. Our analysis of the proposals
produced the following scoring:
Firm Name
Service Maximum R. W. William D.A. Stern
Criteria Points Baird Blair Davidson Northland Brothers
Plan of Finance 25 25 25 15 10 5
Qualifications 25 15 10 20 5 5
Bond pricing 10 10 8 7 3 2
Sales staff strength & sales effort 25 20 10 15 0 5
Past experience with City and
State 5 5 0 5 5 0
Fees 10 10 10 0 7 10
Total 100 85 63 62 30 27
Ms. Jenny Larson
Page Two
October 7, 2013
We have reviewed the proposal with officials of Baird. At this time, we have no issues with the
content of their proposal, and we see no reason to interview firms. The proposal process
yielded some good ideas to pursue between the City, us and Baird, that might produce a lower
cost of capital, but nothing so significant as to outweigh the scoring process.
If you would like to review any of this, please call or email me at timothy.j.oswaldApjc.com or
(800)333 -6008.
Very truly yours,
Timothy J. Oswald
Managing Director
TJO: