18 - Tax Notes Series 2020 authorization

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Item No. 18 TO: Mayor & City Council Grayson Path, City Manager FROM: Gene Anderson, Finance Director SUBJECT: CITY OF PARIS TAX NOTES, SERIES 2020 DATE: October 26, 2020 BACKGROUND: The number two priority of the 2020-21 budget was to replace outdated equipment/vehicles. This budget takes a two prong approach to accomplishing this goal. First, approximately fifty percent of the needed equipment will be purchased outright through the normal operating budgets of the various departments. Second, the remaining equipment will be financed over a six year period. See the attached list for the equipment/vehicles being acquired through financing. STATUS OF ISSUE: The City Council adopted the 2020-21 budget as proposed by the City Manager. The city staff had originally expected to finance approximately fifty percent of the equipment through a series of lease/purchase agreements. However, we discovered that the City could competitively bid and privately place a single tax note large enough to obtain the second half of the equipment. When using a tax note, the equipment is purchased outright using the proceeds of the tax note so that there will be no liens against that equipment. The tax note is secured by ad valorem taxes levied annually. The note is not subject to redemption prior to the stated maturity. The note would be designated as "bank qualified" which means under Sections 103 and 265 of the tax code the interest earned by the buyer of the note would be excludable from their gross income. This tax exempt feature makes this type of note very attractive to bidders and aggressive bidding is anticipated. BUDGET: The estimated annual principal and interest payment on the tax note will be approximately $192,000 which is the amount included in the 2020-21 budget. The actual amount cannot be calculated until the bids are received. OPTIONS: The Council may reject all bids or it may accept the bid which offers the lowest interest cost to the City. RECOMMENDATION: Motion to accept the bid which offers the lowest interest cost to the City.