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TO: Mayor Richard C. Irvin
FROM: Martin S. Lyons, Chief Financial Officer/City Treasurer
DATE: February 19, 2020
SUBJECT:
A Resolution authorizing the Chief Financial Officer to repay the Line of Credit issued with Fifth Third Bank and Old Second Bank up to $3.0 million in 2020 in three equal installments on or before April 1, 2020, July 1, 2020, and October 1, 2020 as provided for in the 2020 Approved Gaming Fund Budget.
PURPOSE:
The City utilized approximately $9.8 million in Line of Credit funding to secure multiple properties on Bilter Road as approved by Resolution R19-207, which is attached. This loan usage carries a variable interest rate established at the London Interbank Rate (LIBOR) plus between 80 and 100 basis points, which varies around 3.0% depending on market conditions. The repayment of this Line of Credit will save the City in carrying costs for the properties at a rate roughly equal to $30,000 per year per $1.0 million. As such the repayment of $3.0 million in 2020 could save the City approximately $90,000 annually.
BACKGROUND:
The City invested approximately $9.8 million in 2019 in multiple properties along Bilter Road east of Farnsworth Ave. The City anticipates using the approximate 45 acres of land for development purposes to be defined during the 2020 fiscal year. It is probable that this land will be a part of a development incentive. This incentive should be valued at no less than the City's purchase price if at all possible. In such a situation the City will reduce the actual cash/revenues dedicated to the development of Bilter Road by the value of this property. Assuming this course is chosen in some form, the City will need to consider alternative means to pay down the Line of Credit for the property purchase.
DISCUSSION:
Current and future development activities involve the issuance of debt in many cases for the City's contribution/incentive for a given development. Presently, with the approval of the Craft Urban loan, the City has authorized the use of all of the approved $20.0 million Line of Credit approved in 2019 ($20.5 million in total development projects). However, with the budgeted pay down of these loans from the Gaming fund, the total outstanding line of credit will be well below the original authorization. As has been detailed in numerous reports to City Council and summarized in the attached table, these funds have been used for both grants and loans. For those funds categorized as loans, per each redevelopment agreement, repayment may come from tax credits, or other revenues from the given project. Those funds categorized as grants will be repaid through the use of project revenues, Tax Increment property taxes, sales tax, food and beverage tax or other sources at the discretion and approval of the City Council. The Line of Credit Funds used to provide these grants will be converted into long term bonds using the above referenced revenues as funding sources for annual debt service amounts.
Given this framework, the 2020 Gaming Fund Budget includes funding in account 215-4010-417.71-01 for the repayment of up to $3.0 million in Line of Credit debt. When the original purchase of the Bilter properties was made, $4.8 million was drawn from Old Second Bank, and $5.0 million was drawn from Fifth Third Bank. In order to maintain future access to both lines of credit Staff recommends a pay down of $500,000 to each bank for the three installments, which will result in $1.5 million being reimbursed to both Old Second and Fifth Third Banks during 2020.
The City may have need of Line of Credit funding during 2020 for other development projects, and the pay down of a portion of this debt will allow for continued development projects without the need to expand the line of credit. It is anticipated that further debt will be issued as a part of the funding of the redevelopment agreement for the Old Copley Hospital, which included two payments of $4.5 million, one of which is scheduled in May/June of 2020. Based on discussions with the Finance Committee, Staff will prepare a Debt update prior to the issuance of bonds in 2020.
IMPACT STATEMENT:
Approval of this resolution will provide interest savings on the City's outstanding line of credit as noted above.
RECOMMENDATIONS:
That the City Council authorize the Chief Financial Officer/City Treasurer to make quarterly installment payments to reduce the outstanding line of credit by $3.0 million as outlined herein.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
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A Resolution authorizing the Chief Financial Officer to repay the Line of Credit issued with Fifth Third Bank and Old Second Bank up to $3.0 million in 2020 in three equal installments on or before April 1, 2020, July 1, 2020, and October 1, 2020 as provided for in the 2020 Approved Gaming Fund Budget.
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WHEREAS, the City of Aurora has a population of more than 25,000 persons and is, therefore, a home rule unit under subsection (a) of Section 6 of Article VII of the Illinois Constitution of 1970; and
WHEREAS, subject to said Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs for the protection of the public health, safety, morals, and welfare; and
WHEREAS, The City has purchased several properties on Bilter Road for future economic development purposes through the use of Line of Credit Funding from Fifth Third Bank and Old Second Bank as described in Resolution R19-207 approved by the City Council on June 25, 2019 :
WHEREAS, sufficient funds are available and Budgeted in the Gaming fund for the repayment of up to $3.0 million of the outstanding Line of Credit.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows: that the Chief Financial Officer/City Treasurer is authorized to repay the Line of Credit issued with Fifth Third Bank and Old Second Bank up to $3.0 million in 2020 in three equal installments on or before April 1, 2020, July 1, 2020, and October 1, 2020 as provided for in the 2020 Approved Gaming Fund Budget.