Providence Committee on Finance-Tuesday, May 28, 2024-5:30 PM

Good evening. My name is Helen Anthony, chair of the committee on finance, and I'm calling to order our regular meeting on Tuesday, May 28 at 05:33PM. Madam clerk, would

you please call the board? Chairwoman Helen Anthony. President, vice chairman, Denise Taylor. Here. Councilwoman Garcia Grant there.

Councilor Miguel Sanchez.

Yeah. Miguel, dear.

We have. We have. You so much. And I would thank... I would like to thank Nelson and Oscar Vargas for joining us this evening.

Thank you very much. Thank you, Marsha. I also would like to recognize who's here in the solicitor's office. Thank you very much. We also have a wonderful course.

We have Julie Delanco here, which is great have you back, and Donna. So thank you very much. So noted. Yes. Yes.

So that part, would you please read item number one?

Item number one, an ordinance amending chapter 21, revenue and finance of the to add ARPA 19, a law qualifications.

So I think I've communicated this before, but I think we need a little more time from the for this. And so I am going to ask for a motion to come to the general. Second. I'll say a motion made by consular Andrew Boss, seconded by consular Graves, all in favor. I'll get you all those.

You also like to make a motion to, I think, address items two and three together. Does that make sense, Keith?

I think so.

Okay. Make a motion to to take items two and three and discuss them together. Second. K. Motion made by councilor Amber Law, seconded by councilor Taylor.

All in favor? Aye. All opposed. Madam clerk, would you mind reading to handwritten to the record? Sure.

Thank you. Item number two. An ordinance authorizing the financing of

the acquisition of equipment and vehicles through a lease purchase agreement in a principal amount not to exceed $20,000,000 authorizing the execution and delivery of a lease agreement and related instruments and determining other matters in connection therewith. Item number three, resolution authorizing approval of the following contract award by the Board of Contracts and Supply in accordance with section 21 dash 26 b three of the court of ordinances, Bank of America Public Capital Corporation, $20,000,000, the.

Thank you.

Thank

you all for joining us. So I am going to turn it over to you.

Thank you, madam chair. So I will chair him to the committee and the council. Thank you for the. Starting with the mass release ordinance, if you notice, there's a required instrument about it. Anytime that we plan to put together any masterpiece, particularly meant by following it up with...

Or financing instrument, we will then supply it to list by category or the problem. Those items that would be proposed for acquisition. This process was in process that commenced at the beginning of the budget season and sometime in April or thereafter, working through all of the various departments. The finance directors, including and working regularly with the province and their operating. It's also the way we identify their cabin units.

And with that, the conversations, if you will, to assemble the list as before you totally now talk to them. It originally began at ten

So sorry. I think we're It's okay. With this. Go right ahead. I'm sorry.

It originally began as a $10,000,000, but it's based on adequate or that service capacity at that time, but we also realized that there were other needs of public safety police supply that had to be included. So we submitted a to purchasing to ask the companies that are bidding on the master lease. Some meeting in banks or we forward which we spotted. We ask them to price it on a $20,000,000 basis. We'll talk about that as we get to number three.

With that said, madam chair, the committee comes to the council. We're waiting to submit to a summon a $20,000,000 asset acquisition last week's. This, you know, the term masterpiece of the term that means equipment finance. It is a financing. It is a financing that will occur over a period of seven years.

We've been given stable terms. The terms will include the first two years interest only at a rate of 4.20. But the committee should know that because $10,000,000 acquisition list includes public safety, fire, and police approval, Given the manufacturing timelines, particularly for fire apparatus, there is a long lead time that is at least twenty four to thirty six months in order to build and deliver specific fire apparatus equipment. However, we are not able to issue purchase orders or commitments unless we have an identifying financing source. So we built a bid set on the $20,000,000 financing to include the $20,000,000, 10,000,000 of which, if approved, can be immediately drawn for those acquisition of general government vehicles and.

And while we will not be able to draw the funds for the remaining 10,000,000 thereabouts of fire and leasing, will be earning interest in an interest escrow account that ranges today from 4.25% to 4.65%. The net effect of that is that in the first two years of an interest only payment, it will reduce the net payment over the first two years to $552,000, roughly $260 per year between the interest earned in escrow and the amount that we paid in. And the reason why that's important, the remaining five will be the full payment of the republic's 1,000,000 over the five year period, locked in at 4.2%. In addition to that, there are two leases that are falling off the city and books in FY '25. They total $3,000,000 in debt service payments so that when the new payment arrives in FY '27, it'll be a new cost net of only 1,500,000 because the 3,000,000 that are formed off the books has already been built into the city's.

Taking all that into consideration, madam chairmans of the committee, members of the council, we have analyzed the financing act... Attributes that I must say that four years ago on the historic borrowing terms, the city made the borrower at slightly within 2%. Those terms have not existed in more than three years. And so having seen multiple investor leases over a period of time that we have all worked together at financing, the rate of 4% is considered to be well within the average to borrow on a fixed basis for 70. And offering us terms of interest only, while that's unusual, we have always scriped us to have that term to give us the opportunity to phase into the next budget payment.

So the first payment will not commence until 07/01/2025. It'll be an integral repayment. But in the meantime, the unutilized funds are earning interest at escrow account at 12.25%. All the banks were not able to offer that condition. Some banks outright denied giving an escrow interest there.

In fact, they said if we do it, they want to keep the interest. So Bank of America and Capital Corporation was the only one that we can afford for most favorable terms, and we agreed to go along with that. So what happened is, simultaneously, we introduced the board officers of majority of the table. We introduced the master lease form that's the property that's the as item number two. That was introduced in...

On May May sixteenth at the council meeting. Referred to finance this evening. And at the same time, on May 6, we we had a meeting of the contract supplier making recommendation of the award in the amount of 20,000,000 for the bank financing. That also was referred to council, and it appeared on the same docket on May 16 so that this evening, those two separate items that traveled together to arrive this evening for your consideration, that they are considered convenient because without the finance and approval of the master lease ordinance to the various equipment items would not make sense. It would not be included.

So that's a general of the proposal. I know that the lobby leader, Taylor, had asked me on a couple of occasions about the list. And I will say that, madam chair, we embedded this list with the box, and they did identify the athletes. I can recall they were asked, the public works and box rack And these are identified that really need to all the criteria. And the directors and their staff had to give them no positive affirmative testimony that they did in fact work with the department of finance, work with the mister Lindbergh as what the officer can arrive at.

List that and will be more than adequate to support their equipment operations over the next several years.

Maybe just ask clarifying questions. So I'm sorry. Over how many years? I'm I'm I'm just. The financing lease will

be a seven year lease with the first two years interest only. Right. The remaining five years will be full principal of the $20,000,000 rebate principal over the remaining five years. The first payment of interest only will not commence until 07/01/2025. This year is the last payment on two leases, the $13,000,000 suite light lease and the $9,000,000.

Collectively, those two leases in this year's budget for 2025 equal close to 3,000,000, two more, and three later. So when the new payment commences in July 2027, We will pick up the savings of 3,000,000 by expired leases against the new cost of 4,500,000. Therefore, the new net cost required $20,000,000 of less necessary equipment will be about the $1,500,000 additional debt. I might say that all debt in the city, the government's, the gold bonded debt and future capacity is at 73,000,000. You would not see that number exceeding 73,000,000 at any point in the next ten years, including master lease financing, capital improvement financing, and contemplated.

I appreciate that. 73,000,000 is the total

Is the current today... We actually see that number declining over the next ten years with all those lease debt based upon projection.

And and I'm glad you brought that up. My question is, so as the debt... We're retiring our debt, are we automatically billing... Still taking on more debt to replace it every

year? Do not automatically, and we don't just try to substitute the payment. We try to we try to strategically plan Okay. For when that debt service expires. And then whatever the critical needs are, certainly, because of that conversation.

And then we try to... But oftentimes, the payment that ex... That insurance can expire. It's sufficient to meet the new needs of a new master lease or... And they need to write about bond bonded debt which are generally used on a twenty year life for things like the capital improvement plan or factory doing some.

But It's not an automatic, so it's strategically planned.

Okay. I appreciate that. My other clarifying question before I open it up. So we have a list of of of vehicles that we're going to be using the 29 for. So this...

What happens over the next seven years if we do other agents? And then how are they financed?

So once again, budget and debt capacity will end again. So budget capacity really means the capacity to bring on new expenditures in any budget in any year, whether it's salary,, pension, specifically, with debt service from the previous conversation, that's managed even further micromanagement because we know by schedule because it's fixed payments what's gonna fall off, and when do we think we need to begin to substitution for replacement new assets with the the very same fund. Now for funds that fall now may not be may not be able to give us as much buying power as it did, as I said, four years ago. Four years ago, we borrowed that 2%. It's a little better than seven.

Today, it's at 4%. So while the payment amount is available, it may not buy us as much as we need based on interest rate and, of course, the current cost of those goods in the market. You know, supply chain delay and long lead delay has really put a significant fiscal impact on everything that's just one of those considerations. But as vehicles begin to age, we rely upon the directors around the box and to keep those vehicles in good working order. We do supply them with repair and maintenance budget annually.

We hope that that will be sufficient to keep those vehicles running. If it's a big ticket item, it's quite expensive. You know, it's not measured by road miles unless it's measured by hours of operation if it's mechanical. Right? So we would expect that between the city and boarding staff that are trained in mechanics, like, all the outside maintenance and a budget that supports that annually for maintenance.

They need be kept in good running oil. It's certainly sufficient to last more than seven days. Alright. Before we open it

up to questions, I'm gonna recognize other counselor Mary Gay Harris for the same thing so much for attending tonight. So, hey. I'm gonna open it up for questions. Yes. They're answered together.

I just wanna say thank you. I know I've been in pain in the last six months. Come on. Never. Never.