CITY OF ROCKY RIVER
MARCH 15, 2004
The Committee-of-the-Whole was called to order by Mrs. Bobst, President of Council, at 8:00 p.m.
Council Members Present: Mr. Gollinger, Mr. Potterfield, Mr. Frost Mr. Hurtuk,
Mrs. Bartolozzi, Mr. Hagan, Mrs. Bobst
Administration: Mayor Knoble, Mr. Linden, Ms. Wollenzier, Mr. Patterson, Mr. Koran
Assistant Law Director: Mr. Hotz
Press: Mr. White
Mrs. Bobst introduced Mr. John Petty, a 29-year resident and member of the Parks and Recreation Commission since 1981 who, at the request of Mr. Hurtuk, volunteered to share his expertise in the bond rating process with Council. Since 1985, Mr. Petty has worked for a bank in public debt issue as a financial adviser or underwriter and has participated in a number of rating transactions.
First, Mr. Petty addressed the question of the meaning of the rating. He explained that it is the basis by which capital markets determine the credit quality of an issuer of debt. These ratings are formulated by an impartial third party, and there are three major firms in this country: Moody's, Standard and Poor's and Fitch. The City of Rocky River is rated by Moody's with a current rating of Aa2, the second highest. The highest rating, Aaa, has been given to only two cities in Ohio, Columbus and Westlake. There are 10 Aa1-rated cities (Beachwood, Pepper Pike, Strongsville, Solon), and 18 Aa2 (Lakewood, Avon, Middleburg Hts, Lyndhurst, Willoughby). Rocky River is, therefore, in the top 17%, or top 30 of 170. There are five levels of ratings, and it is the goal of every city to improve its rating by comparing favorably with its peers, locally and nationally.
The process is subjective with four criteria: finances, local economy, debt and capital management and administration and management strategies. During a presentation, the rating company, in Mr. Petty's experience, gravitates to a city's weakness and explores it fully, and it is as difficult to obtain an upgrade, as it is a downgrade. Of most concern today is "structural imbalance", or spending more than you are taking in. This will definitely be explored during a presentation. This means revenues will be examined and a determination will be made as to whether expenditures are level, increasing or decreasing because their premise is that a trend will continue. If expenditures are increasing, an explanation, such as capital expenditures, is necessary.
A rating will determine the cost of money, but Mr. Petty commented that, within a category, the difference is not significant, perhaps one or two basis points between Aa1 and Aa2, for example. Name recognition among bond traders is also a factor, and fortunately, Rocky River has a good name.
Mr. Hurtuk expressed surprise that the difference in rates is not greater. Mr. Petty emphasized that the small differences are between ratings within a category. Between categories, there could be a much greater gap, 15 basis points or more. With every bond issue, a new rating is necessary. At a minimum, the City would like to maintain its rating. Moving up is difficult, as we would have to show that we deserve a better rating than other cities in the Aa2 rating group.
The local economy, in the Cleveland area and in Rocky River, is another factor.
Mr. Gollinger noted that the City has bonds which were issued 3/31/94 and will mature in 2014. He asked, if we go forward with this issue, whether we can pay those off and include the outstanding amount in the new bonds which would be issued at a lower rate. Mr. Petty indicated that this does not always work, and that the City is borrowing more to pay less. It is necessary to create an escrow fund that will meet the debt service on the old bonds. If Council wishes to consider this however, it may be an option because with the new bond issue, there would be no additional costs. The feasibility would depend on the interest rate.
Mayor Knoble asked if the bonds, at 10 years old, were callable. Mr. Petty said that they were, probably at a premium of 2%, but that savings may still be realized.
The Mayor then asked for a synopsis of the bond-selling process. Mr. Petty responded that there are two methods. The first is by competitive bid. In this method, the public is advised that on a certain date bonds will be sold to the highest bidder. In negotiated transactions, an investment banking firm is hired and bonds are sold to the underwriter in a private sale. Because timing can be important, and it is most beneficial to sell bonds with as little competition with other bonds as possible, this process allows more control. Either method requires bond counsel and a rating. The job of the bond counsel is to review the offering and state that in its opinion, the bonds are in order and exempt from state and federal taxes. It is difficult to compare costs of these two methods, because the latter includes much that competitive bidding does not. The City could also hire a financial adviser to work with the bond counsel and take competitive bids.
Mrs. Bobst asked if guidelines exist for how much debt a City can assume without being downgraded. Mr. Petty said that such guidelines do not exist, but the rule of thumb is that a City should not allow a rating agency to decide what funds can be spent. That is the function of the elected officials. The proper debt level is how much a City can pay for.
Mr. Gollinger indicated that part of the debt carried by Rocky River is court-related and repayment is not from operating funds. Although there is always concern for repayment, he feels that long-term debt for capital improvements means doing the projects at a time when costs are lower and will be repaid in inflated dollars over 20 years. Mr. Petty agreed, saying that it is not uncommon in the construction phase to issue short term notes and then bond out. Present interest rates are low, and he feels they will not go much lower because he is seeing "buyer resistance", buyers waiting for higher rates to purchase bonds.
To Mayor Knoble's question about asset valuation, as opposed to considering only fund balances, revenues and expenditures, Mr. Petty observed that this is not a factor as cities are strictly on a cash basis.
To Mr. Potterfield's question about how much it could cost the City if it sold its bonds on a bad day, Mr. Petty said that he was unable to estimate because it would depend upon the magnitude of the swing. Mr. Potterfield then asked, if the City anticipates additional income, might not notes be considered? Mr. Petty's opinion was that cash should be reserved to pay for short lived items like computers, police cars, City trucks, etc. Financing should match the life of the asset. Using cash now for long term projects like sewers penalizes folks who live here now to the benefit of those who move in later. He stated that there are valid uses for cash and valid uses for debt. Long term rates will extend for the life of the asset, and everyone pays his full share.
The Mayor asked about a timetable for bonds of $7.4 or $7.5 million. Mr. Petty felt that it could be done in 60-90 days. This much time would be required because the bond counsel must be hired, and the rating must be updated from 2002. Another option he had not mentioned before is bond insurance in which the City pays a premium to a company which insures bonds. This insurance company has a Aaa rating and the City gets that rate. However, the one time fee may offset savings because in fact, those bonds do not trade as well a Aaa uninsured bonds. Generally, they sell more like Aa, but there are times when this could be practical, e.g. after 9/11 when no bonds would sell without insurance.
Mr. Gollinger asked if a bond counsel would handle ratings. Mr. Petty stated that it is not what they do, although it may be possible. An experienced presenter would address problems and be pro-active in putting the best face on those problems. A bond counsel's function is to opine on the legality of the transaction.
The Mayor asked about negotiated sale criteria. Mr. Petty responded that under Ohio law, hiring an underwriter is hiring a professional service, similar to hiring an attorney. There is no requirement for competitive bidding, although cities may request proposals for which it would need an RFP evaluation. Generally, the cost is expressed in cost per thousand dollars of bond.
Mrs. Bobst thanked Mr. Petty for sharing his expertise and answering all of Council's questions. Mr. Petty added that if there were any further questions, Council members should not hesitate to call him.
MISCELLANEOUS BUSINESS:
Master Plan Update Process: Because Director Koran was present to update the Master Plan process, Mrs. Bobst suggested that Miscellaneous Business be considered next.
Mr. Koran noted that the Master Plan was making good progress, and 3/4 of the way toward completion. The three stakeholder meetings were well-attended, and a summary of the comments made at those meetings and compiled by City Architecture has been received, and will be distributed to Council. The firm has taken those comments and will use them to rework plans for focus areas as well as specific recommendations for other areas. In the next four weeks, they will notify Mr. Koran about the next meeting of the Working Group where a final draft plan will be discussed. At that time, it will be basically complete, requiring mostly fine tuning, and ready for the public.
Mr. Koran has reviewed the process with Law Director Matty because the Charter states quite specifically how it is to be handled. It will be presented to Council in ordinance form with the Master Plan as an attachment. It will then be referred to the Planning Commission for its recommendation and returned to Council for a public hearing and subsequent approval. Also in the contract with City Architecture is a final public meeting for the general public. (The Stakeholder meetings were for residents and property owners in the specific focus areas.)
MAYOR'S REPORT:
The Mayor coached a successful City team to victory in an exciting game for the benefit of Community Challenge. Council representatives on the team were Mr. Hagan and Mr. Hurtuk, and the final score was 76-70. The Mayor thanked all team members for their participation.
Last week, Council members asked the Administration how the Exterior Maintenance Program would be publicized. The Mayor reported that details will be published in the Quill, through the Meals on Wheels program, and the Junior Women's Rocky River Assistance Program.
A packet of petitions has been received from the Ohio Citizen Action group. These petitions, signed by Rocky River residents, protest the proposed rate increase sought by First Energy before the PUCO. The Mayor presented the Clerk with a letter sent by the Cuyahoga County Mayors and City Managers Association of which he is a member, to the PUCO, protesting previous payments and requesting lower electric rates.
The Mayor has had a number of meetings with the City Engineer, Mr. Lesiecki, his staff and the consulting engineer on the Hilliard Road sewer project. The project has begun on the north side of Hilliard with plans to replace the sanitary sewer. In excavating the site, the contractor has found that the sanitary sewer and the storm sewer, although separate, do not have properly applied fill. With the removal of the sanitary sewer, the storm sewer is crumbling, and the Mayor has authorized a contract to replace the storm sewer as needed. This will amount to another $30,000 to $35,000 and has used up the contingency in the existing contract. The contract may have to be revised, but there is no alternative.
UNFINISHED BUSINESS:
Ordinance No. 32-04: Mr. Hagan reported that the Contracts Committee has received a Turf Field Agreement approved by the School Board. He has called a committee meeting to discuss it next week at 7:00 p.m., and a recommendation will be made following that meeting.
Ordinance No. 35-04: Mrs. Bobst noted that the ordinance was not read last week, and that a revised easement agreement has been received. Mr. Potterfield indicated that this is basically a housekeeping ordinance seen from time to time to provide water for new developments. The City of Cleveland requires the granting of this easement. This will be placed on the Consent Agenda.
Ordinance No. 37-04: Mr. Hagan asked for open discussion as this ordinance has been read once on March 8, but no discussion held. This ordinance would authorize architectural services for preliminary design for the expansion of the Don Umerley Civic Center. This is not approval of the expansion, but authorization for a study which would provide costs and plans and allow public discussion.
Mr. Potterfield noted that Council has had no discussion of the project, but only seen a presentation, and he wondered if this is an appropriate time to authorize funds.
Director Patterson came forward to participate in the discussion. He began with some background materials, noting that the Recreation Facilities Task Force had been appointed by the Mayor last April because of questions asked during the opening of the Civic Center as to the pool, babysitting, fitness areas, etc. Their report, presented to Council in January, asked for these funds as the next step. It would authorize a preliminary design, cost estimates and projected revenues. These facts are necessary for public discussion, public input, Council discussion and a possible ballot try as early as this November. Without this preliminary architectural design, the Task Force is in limbo and cannot move forward.
Mr. Potterfield asked if Council had already appropriated funds for a preliminary study. Mr. Patterson explained that those funds were for the Triad survey to gauge community support for going forward and to see what amenities and programs were favored by residents. This ordinance will be on the regular agenda next week.
COMMITTEE REPORTS:
Contracts-Government and Judicial Committee will meet next Monday, March 22 at 7:00 p.m.
Planning, Zoning and Economic Development Committee: will meet on the same evening at 6:30 p.m.
Environmental Committee has scheduled a meeting for April 5 at 7:00 p.m. in the David J. Cook Council Chambers.
The Parks and Recreation Commission will meet this Wednesday, March 17 at 8:00 a.m.
Mr. Hurtuk mentioned that because of a possible conflict of interest, he will not attend the meeting of the Planning, Zoning and Economic Development Committee Because of his work in real estate, he could be involved in the sale of the property.
Safety Committee's Working Group on Animal Control Laws will meet next Tuesday, March 23 at 7:00 in the Committee Room. This is not a meeting with the Safety Committee, but only of working group members. The topic will be Dogs-at-Large.
NEW BUSINESS:
Ordinance No. 38-04, 39-04, 40-04 and 41-04: Mr. Hagan called upon Mr. Linden to discuss the bids.
Resolution No. 42-04: This resolution appoints two members of the Storm Water Management Committee, James Barrett appointed by the Mayor, and Betsy Yingling appointed by Council. Mr. Gollinger indicated that there were two other well-qualified volunteers, Hugh Blocksidge and George Remias. Ms. Yingling, however, has had past experience in public education materials, which is an important function of the Committee. This will be on the Consent Agenda.
COMMUNICATIONS AND ANNOUNCEMENTS:
The annual report has been received from the Municipal Court.
The biennial Ice Show will be held at the end of the month, on March 27 and 28. All are encouraged to attend.
Next Monday, a fundraiser will be held at the Pearl of the Orient to benefit "Rylo", the City's police dog.
Mrs. Bobst encouraged everyone who has not yet done so to look at the City's website which has had much new information. She again thanked Jim Umerley and Ron Gottschalk for their work as well as the Mayor for providing much of the information. News of the Wooster-Story reconstruction project is also on the website.
Mr. Gollinger commented that information from the Cuyahoga County Soil and Water District has been received. It is a positive article, and Mr. Gollinger will discuss it next week when Mr. Lesiecki, the City Engineer, is present.
Mr. Hagan is sending a letter to Ward IV residents affected by the Wooster-Story project who were unable to attend the meeting or do not have access to the internet. He will provide information distributed at the meeting with engineers and City officials on March 3.
The meeting was adjourned at 9:21 p.m.
_____________________________ _____________________________
Pamela E. Bobst Misao Kurokawa
President of Council Clerk of Council