04-0428R

RESOLUTION AUTHORIZING THE ISSUANCE AND SALE OF A $2,485,231 GENERAL OBLIGATION WATER UTILITY REVENUE NOTE, SERIES 2004, AND PROVIDING FOR ITS PAYMENT.

BY COUNCILOR NESS:

BE IT RESOLVED, by the city council of the city of Duluth, Minnesota (the city), as follows:

Section 1. Note purpose and authorization.
1.01 Under and pursuant to the provisions of Section 55 of the City Charter, Minnesota Statutes, Section 444.075 and Chapter 475, and other pertinent provisions of said Charter and statutes, the city is authorized to issue its general obligation bonds or notes to provide funds for the payment of costs of improvements to the municipal water utility, which bonds or notes shall be a specific lien upon the water utility and are payable primarily from net revenues to be derived from the operation of the municipal water utility and pledged for their payment. The city has applied for and received a commitment from the Minnesota public facilities authority (the PFA) for a loan for the project, as hereinafter defined.
1.02 The city council has, by Ordinance No. 9659 adopted May 10, 2004, ordered the issuance, sale and delivery of a general obligation water utility revenue note in the amount of $2,485,231 of the city, for the payment of the costs of improvements to the municipal water utility through the installation of watermains in portions of the Morgan Park neighborhood (the project) as identified in the city's application to the PFA, and for the payment of part of the interest cost of the bond or note (the note).
1.03 The city hereby authorizes the issuance and sale of the note, in substantially the form set forth in Section 2.06 hereof, for the project to the PFA pursuant to a Minnesota public facilities authority project loan and bond purchase agreement dated May 26, 2004, between the PFA and the city, in substantially the form presented to the council and on file in the office of the clerk (the loan agreement), as Public Document No. _________ which is hereby authorized and approved.

Section 2. Execution and delivery of note and loan agreement.
2.01 The note to be issued hereunder shall be dated as of the date of delivery, shall be issued in the principal amount of $2,485,231, or so much thereof as shall be disbursed pursuant to the loan agreement, in fully registered form and lettered and numbered R-1. The note shall bear interest on the outstanding principal balance at the rate of 2.53 percent per annum (calculated on the basis of a 360-day year of 12 30-day months), payable semiannually on each February 20 and August 20 commencing on August 20, 2004. Principal payments shall be made on August 20 of each year commencing on August 20, 2004, in the amounts set forth in the note.
2.02 The note and the loan agreement shall be prepared for execution in accordance with the approved forms and shall be signed by the manual signature of the mayor and attested by the manual signature of the clerk. In case any officer whose signature shall appear on the Note shall cease to be an officer before delivery of the note, such signature shall nevertheless be valid and sufficient for all purposes, the same as if such officer had remained in office until delivery.
2.03 The city will cause to be kept at the office of the city clerk a register in which, subject to such reasonable regulations as the city clerk may prescribe, the city shall provide for the registration of transfers of ownership of the note. The note shall be initially registered in the name of the PFA and shall be transferable upon the register by the PFA in person or by its agent duly authorized in writing, upon surrender of the note, together with a written instrument of transfer satisfactory to the clerk, duly executed by the PFA or its duly authorized agent.
2.04 Delivery of the note shall be made at a place mutually satisfactory to the city and the PFA. The note shall be furnished by the city without cost to the PFA. The note, when prepared in accordance with this resolution and executed, shall be delivered to the PFA by and under the direction of the treasurer. Disbursement of the proceeds of the note shall be made pursuant to the loan agreement.
2.05 In the event of an inconsistency between a provision of this resolution and a provision of the loan agreement, the provision of the loan agreement shall govern.
2.06 The note, together with the certificate of registration thereon, shall be in substantially the following form:

UNITED STATES OF AMERICA
STATE OF MINNESOTA
COUNTY OF ST. LOUIS

CITY OF DULUTH, MINNESOTA

GENERAL OBLIGATION WATER UTILITY REVENUE NOTE, SERIES 2004

R-1

Rate: 2.53%
$2,485,231

Date of Note: _________, 2004

Final Maturity Date: August 20, 2018

 

FOR VALUE RECEIVED, the CITY OF DULUTH, St. Louis County, Minnesota, a duly organized and existing municipal corporation and political subdivision of the State of Minnesota (the "City"), and whose office address is 411 West First Street, Duluth, Minnesota 55802-1102, for value received, promises to pay to the MINNESOTA PUBLIC FACILITIES AUTHORITY, its successors or registered assigns (the "Lender") at its offices in St. Paul, Minnesota, or such other place as the Lender may designate in writing, the principal sum of Two Million Four Hundred Eighty-five Thousand Two Hundred Thirty-one Dollars ($2,485,231) or such portion thereof as is disbursed to the City (the "Loan"), on August 20 in the years and installments as follows:

Year Amount Year Amount
2004 $ 10,231 2012 $178,000
2005 $150,000 2013 $183,000
2006 $153,000 2014 $187,000
2007 $157,000 2015 $192,000
2008 $161,000 2016 $197,000
2009 $165,000 2017 $202,000
2010 $169,000 2018 $207,000
2011 $174,000


pursuant to the Minnesota Public Facilities Authority Project Loan and Bond Purchase Agreement between the City and the Lender dated May 26, 2004 (the "Loan Agreement").

From and after the date hereof until the unpaid principal balance of this Note is paid, such unpaid balance shall bear interest at the rate per annum set forth above, as calculated on the basis of a 360-day year of 30-day months.

Interest on this Note shall be payable each February 20 and August 20, commencing on August 20, 2004. Principal on this Note shall be payable in installments as set forth above on each August 20, commencing on August 20, 2004. Principal and interest payments shall be subject to adjustment as provided for in the Loan Agreement. Both principal hereof and interest hereon are payable in lawful money of the United States of America by check or draft directly to the registered owner hereof shown on this Note registration records maintained by the City, without, except for the final payment of principal on this Note, the presentation or surrender of this Note, and all such payments shall discharge the obligations of the City to the extent of the payments so made. The final principal payment shall be made upon presentation and surrender of this Note when due. For the prompt and full payment of such principal and interest as they become due, the full faith and credit and taxing power of the City are irrevocably pledged.

This Note, issued for improvements to the municipal water utility, is issued pursuant to the authority contained in Minnesota Statutes, Chapter 475, and Section 444.075 and Section 55 of the Home Rule Charter of the City, and all other laws and charter provisions thereto enabling and pursuant to Ordinance No. 9659 adopted May 10, 2004, for the purpose of providing funds for improvements to such municipal water utility in the Morgan Park neighborhood. The Note and interest thereon are payable from the net revenues to be derived from the operation of the municipal water utility of the City, as set forth in the Resolution dated June 28, 2004, to which reference is made for a full statement of rights and powers thereby conferred. In the Resolution, the City has pledged and appropriated the net revenues to be derived from the operation of the municipal water utility in excess of normal, reasonable and current costs of the operation and maintenance of the utility, for the payment of the principal and interest when due on the portion of the Bonds issued for the water utility, and has covenanted and agreed that it will impose and collect just and equitable charges for all use and for the availability of all facilities of the municipal water utility at the times and in the amounts required to pay the normal, reasonable and current expenses of operating and maintaining such facilities, and also to produce net revenues at least adequate at all times to pay the principal and interest due on the portion of the Bonds issued for the water utility.

This Note is subject to redemption at the option of the City, in whole or in part on such dates and at such prices and upon such other terms as are specified in the Loan Agreement.

This Note is transferable by the registered owner hereof upon surrender of this Note for transfer at the office of the City duly endorsed and accompanied by a written instrument of transfer in form satisfactory to the City and executed by the registered owner hereof or the owner's attorney duly authorized in writing. The City may deem and treat the person in whose name this Note is last registered upon the books of the City, with such registration noted on this Note, as the absolute owner hereof for the purpose of receiving payment of or on account of the principal balance, redemption price or interest and for all other purposes; all such payments so made to the registered holder or upon the order thereof shall be valid and effectual to satisfy and discharge the liability upon this Note to the extent of the sum or sums so paid, and the City shall not be affected by any notice to the contrary.

IT IS CERTIFIED AND RECITED that all acts and conditions required by the Charter of the City and by the laws and the Constitution of the State of Minnesota to be done and to exist precedent to and in the issuance of this Note in order to make it a valid and binding general obligation of the City in accordance with its terms have been done and do exist in form, time, and matter as so required; that all taxable property within the corporate limits of the City is subject to the levy of ad valorem taxes to the extent needed to pay the principal hereof and the interest hereon when due, without limitation as to rate or amount; and that the issuance of this Note does not cause the indebtedness of the City to exceed any constitutional or statutory limitation.

Additional provisions of this Note are contained in the Loan Agreement and such provisions shall for all purposes have the same effect as though fully set forth at this place.

IN WITNESS WHEREOF, the City has caused this Note to be executed in its name by the manual signatures of its Mayor and Clerk as of the date of Note set forth above

______________________________
Mayor

Attest:

______________________________
Clerk

PROVISIONS AS TO REGISTRATION

The ownership of the unpaid principal balance of this Note and the interest accruing thereon is registered on the books of the City of Duluth, Minnesota, in the names of the holders last noted below.

Date of Registration Name and Address of Registered Owner Signature of Clerk
_________, 2004 State of Minnesota
Public Facilities Authority
500 Metro Square
121 Seventh Place East
St. Paul, Minnesota 55101

Federal Tax I.D. No.: 41-6007162
_______________
 

ASSIGNMENT

For value received, the undersigned hereby sells, assigns and transfers unto __________________________________ the within Note and all rights thereunder, and does hereby irrevocably constitute and appoint __________________________________ attorney to transfer the said Note on the books kept for registration of the within Note, with full power of substitution in the premises.

Dated: ________________

 

____________________________________

NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within Note in every particular, without alteration or enlargement or any change whatever.

The Treasurer will not effect transfer of this Note unless the information concerning the assignee requested below is provided.

Name and Address: ______________________________

______________________________

______________________________

Taxpayer Identification No.: ____________________

Section 3. Revenues, accounts and covenants.
3.01 The city council covenants and agrees with the PFA and with its taxpayers that it will impose and collect just and equitable charges for all use and for the availability of all facilities of the municipal water utility at the times and in the amounts required to pay the normal, reasonable and current expenses of operating and maintaining such facilities, and also to produce net revenues at least adequate at all times to pay the principal and interest due on the Note and on all other bonds heretofore or hereafter issued and made payable from said net revenues, and will operate the utility and segregate and account for the revenues thereof as provided in this section.
The city will place all such charges, when collected, and all money received from the sale of any facilities or equipment of the municipal water utility in a separate water utility operating account within the public utility water fund maintained under Section 54 of the City Charter. Except as provided in this section, this account shall be used only to pay claims duly approved and allowed for payment of expenses which, under generally accepted accounting principles, constitute normal, reasonable and current expenses of operating and maintaining the municipal water utility, and to maintain such reasonable reserves for such expenses as the director of finance shall determine to be necessary from time to time in accordance with policies established by the city council. Sums from time to time on hand in this account, in excess of sums required to make such payments and maintain such reserves, constitute the net revenues which are herein pledged and appropriated first to pay the principal of and interest on all water utility bonds or notes when due.

3.02 The city hereby creates a separate construction account within the public utility water fund to which there shall be credited the proceeds of the note as received, together with any additional funds which may be available and are appropriated for improvements to the project. This account shall be used only to pay expenses duly approved and allowed which, under generally accepted accounting principles, constitute capital expenditures for the completion of the Project and costs of the issuance of the note.
3.03 Until the note issued hereunder is fully paid or duly called for redemption, or otherwise discharged, the city will also maintain a separate debt service account (the water debt service fund") in the public utility water fund to be used solely for the payment of the principal and interest, as such principal and interest become due and payable, on the Note and on any other bonds or notes which have been or may be issued and made payable from said net revenues of the water utility. The treasurer shall transfer from the water utility operating account to the water debt service fund amounts of the net revenues sufficient for the payment of all interest and principal then due on the note. Such transfers shall be made at the times and in the amounts determined by the treasurer, in accordance with policies established by resolutions of the city council.

3.04 Surplus utility revenues from time to time received in the water utility operating account, in excess of payments due from and reserves required to be maintained in the water utility operating account and in the water debt service fund, may be used for necessary capital expenditures for the improvement of the municipal water utility, for the prepayment and redemption of bonds constituting a lien on the municipal water utility, and for any other proper municipal purpose consistent with policies established by resolutions of the city council.
3.05 A. In the event the monies and payments appropriated to the water debt service fund are insufficient to pay principal of and interest on the note and the bonds and notes payable from such fund as the same become due, the city is required by law and by contract with the holders of the note and such bonds and hereby obligates itself to levy and cause to be extended, assessed and collected any additional taxes found necessary for full payment of the principal of and interest on the note.

B. The full faith and credit and taxing powers of the city are irrevocably pledged for the prompt and full payment of the principal of and interest on the note, as such principal and interest respectively become due. However, the net revenues of the water utility appropriated to the water debt service fund are estimated to be not less than five percent in excess of the principal of and interest on the note and the other bonds and notes payable from such fund, and accordingly, no tax is levied at this time

Section 4.Tax covenants; miscellaneous.
4.01 The city council covenants and agrees with the holders of the note that the city will (i) take all action on its part necessary to cause the interest on the note to be exempt from federal income taxes including, without limitation, restricting, to the extent necessary, the yield on investments made with the proceeds of the note and investment earnings thereon, making required payments to the federal government, if any, and maintaining books and records in a specified manner, where appropriate, and (ii) refrain from taking any action which would cause interest on the note to be subject to federal income taxes, including, without limitation, refraining from spending the proceeds of the note and investment earnings thereon on certain specified purposes.

4.02 A. No portion of the proceeds of the note shall be used directly or indirectly to acquire higher yielding investments or to replace funds which were used directly or indirectly to acquire higher yielding investments, except for a reasonable temporary period until such proceeds are needed for the purpose for which the note were issued. To this effect, any proceeds of the note and any sums from time to time held in such debt service account (or any other city account which will be used to pay principal and interest to become due on the note) in excess of amounts which under the applicable federal arbitrage regulations may be invested without regard as to yield shall not be invested at a yield in excess of the applicable yield restrictions imposed by the arbitrage regulations on such investments after taking into account any applicable temporary periods of minor portion made available under the federal arbitrage regulations.
B. In addition, the proceeds of the note and money in such debt service account shall not be invested in obligations or deposits issued by, guaranteed by or insured by the united states or any agency or instrumentality thereof if and to the extent that such investment would cause the note to be federally guaranteed within the meaning of Section 149(b) of the Internal Revenue Code of 1996, as amended (the code).
C. The city hereby covenants not to use the proceeds of the note, or to cause or permit them to be used, in such a manner as to cause the note to be a private activity bond within the meaning of Sections 103 and 141 through 150 of the Code.
4.03 A. Pursuant to Section 1.148-7(d) of the treasury regulations, relating to exception from rebate, the city hereby covenants that with respect to the gross proceeds of the note, the following schedule will be met: (i) at least 15 percent of the gross proceeds of the note will be allocated to expenditures for the governmental purpose of the note within six months of the date of issue of the note; (ii) at least 60 percent of such proceeds will be allocated for such purposes within the one-year period of such date; and (iii) 100 percent of such proceeds will be allocated for such purposes within the 18-month period beginning on such date; subject to an exception for reasonable retainage of five percent of the available proceeds of the note, and that 100 percent of the available proceeds of the note will be allocated within 30 months from the date of issue of the note.
B. The city shall use its best efforts to comply with any federal procedural requirements which may apply in order to effectuate the designation made by this section.

Section 5. Certificate of proceedings.
5.01 The clerk is directed to file with the county auditor a certified copy of this resolution and such other information as the county auditor may require, and to obtain from the county auditor a certificate stating that the note herein authorized has been duly entered on his register.
5.02 The officers of the city are authorized and directed to prepare and furnish to the purchaser and to bond counsel certified copies of all proceedings and records of the city relating to the authorization and issuance of the note and other affidavits and certificates as may reasonably be requested to show the facts relating to the legality and marketability of the note as such facts appear from the official books and records of the officers' custody or otherwise known to them. All of such certified copies, certificates and affidavits, including any heretofore furnished, constitute representations of the city as to the correctness of facts recited therein and the actions stated therein to have been taken.
5.03 The officers of the city are hereby authorized and directed to certify that they have examined the official statement prepared and circulated in connection with the sale of the note and that to the best of their knowledge and belief the official statement is a complete and accurate representation of the facts and representations made therein as of the date of the official statement.

STATEMENT OF PURPOSE:  This resolution establishes the terms and form of the $2,485,231 general obligation water utility revenue note, Series 2004, to be issued to the Minnesota public facilities authority at an interest rate of 2.53 percent per annum payable over 14 years. The proceeds of the note will be used to provide a portion of the funds necessary to finance improvements to the water mains in the Morgan Park neighborhood.