In 2010, the City entered into a lease purchase financing with the Missouri Development Finance Board (MDFB) to fund projects for Independence Public Utilities. There was a provision in the lease documents allowing the City to call (payoff) the lease early. The current interest rate environment gives the City an opportunity to pay off the outstanding series 2010B lease by issuing lower interest debt for interest savings.

City Council authorized City staff to pursue the refunding on August 16, 2020. The Ordinance under consideration authorizes staff to negotiate and execute documents necessary to refinance the lease with MDFB and complete the transaction. 

The authorization to City Staff is limited to the parameters within the Ordinance. Specifically, the authorization for staff to complete the transaction is limited to:

• Maximum principal of the borrowing not to exceed $12,000,000
• The true interest rate of the borrowing shall not exceed 3.5% per annum
• The final maturity date of the Lease shall be not later than June 1, 2035
• The refunding of the 2010 debt shall have present value savings of at least 3.0%

This transaction is the first in a series of debt refunding opportunities' staff are reviewing. Parallel to this transaction, staff continues to working with PFM to develop a risk-based liquidity model. Staff plans to present this model in November to PUAB and City Council. 

City Council will then have the opportunity to use the model to set policy for cash balance levels and debt refunding decisions. 

The City entered into a lease purchase agreement with MDFB in November 2010 for  $33.6 million and currently, $10.6 million can be refinanced without penalty. The City can refinance the lease while interest rates are very near historical lows. Interest rates on the 2010 lease range from 4.00% to 5.25% currently.

The latest estimate is that the City can enter into a new lease for a true interest cost of 2.75%. This lower rate is estimated to save the City an estimated $2.3 million in net present value interest costs. 

The City's Municipal Advisors, PFM, recommend completion of the debt transaction before the end of the year. There are several steps needed for completion including:

• Authorization of issue by the Missouri Development Finance Board (anticipated October 20),
• Request for Proposal process with regional and national banks
• Time for negotiation with bank submitting best bid
• Time for any market considerations 
• Completion of legal documents

In order to complete the process by the end of the year, staff recommendation is to declare an emergency and pass the Ordinance in one reading. 

This lower rate is estimated to save the City an estimated $2.3 million in net present value interest costs. 

The lease payments are paid out of the Power and Light Fund 020, which may be found on page 186 of the City budget for 2020-2021. The Debt Service/lease payment budget line item is listed as $10,547,050.