During the FY21 Budget process and onset of the COVID crisis in spring of 2020, Council directed staff and the Town’s financial advisor, Davenport, to research short term financing options that would provide maximum liquidity and flexibility given the economic and fiscal uncertainty associated with the health emergency.  After consulting with the Town’s financial advisor and bond counsel, it was agreed a Line of Credit was preferable to a Tax Anticipation Note (TAN) as its provides a high level of flexibility regarding draw down of proceeds, maturity dates and payment terms.  Davenport issued an RFP on July 31, 2020 and presented the “Summary of Bids” to Council on August 25, 2020 (Attachment 1). 

Of the 3 bids, the BCT bid best fits the Town’s needs as the proposed Line of Credit offers competitive interest rates and very flexible terms. Furthermore, it provides the Town with (1) enhanced liquidity given the uncertainty of the COVID crisis, (2) not liable for interest payments unless Town choses to draw down proceeds, (3) three maturity options, (4) and provides future capital planning funding vehicle, if needed.

To date the COVID emergency has had limited impacts on the Town’s budget and revenue streams largely due to various federal stimulus programs and local government support via the CARES Act.  The Town’s reserve levels remain strong and well in excess of fiscal policy guidelines.  The following is a summary of the Town’s reserve levels as of June 30, 2019 Comprehensive Annual Financial Report:

·       General Fund Unassigned Balance- $6.2M ($2.9M over policy)

·       Water Fund Cash & Equivalents- $6.1M ($2.9M over policy)

·       Wastewater Fund Cash & Equivalents - $6.3M ($2.6M over policy)

In order to preserve reserves or need to issue permanent debt during the COVID emergency, capital projects were deferred during the FY21 budget process.  Also, a fair amount of economic and fiscal uncertainty remains especially as health experts warn COVID spread may increase as we enter the fall and winter seasons and Congress has not been forthcoming with additional federal stimulus to support the economy.  The Line of Credit was initially proposed during the budget process as a low cost liquidity tool if a worst case economic scenario unfolds.  However, it can also be leveraged as a capital planning tool if Council takes action to move forward with deferred capital projects or an unanticipated asset failure occurs.  The Town has strategically utilized short term financing in the past for capital project construction to include the $2.7M 2011 Interim GO bond with RBC (Town Hall Renovation and Fireman’s Field Upgrades; converted to permanent bond via 2012 Cardinal GO) and the $1.4M 2012 Line of Credit with Cardinal (SCR; no proceeds were drawn).  

The Hirst Reservoir Improvements capital project (Attachment 5) was deferred during the FY21 budget process and presents a somewhat high level of risk to the Town’s water supply.  Currently, the 5-year Capital Improvement Plan (Attachment 5 & 6) proposes cash funding (reserves) totaling $1,430,000 with project execution across 4 fiscal years: $80k appropriated in FY20, $100k in FY21, $400k in FY22 and $850k in FY23.  Per Council request, the Engineering Department is working with consultants to review the project schedule in order to limit risks to the Town’s water supply.  If approved, the Line of Credit could be leveraged to support the project in order to preserve cash reserves during this period of uncertainty.  If credit proceeds are drawn to support this project, interest costs will accrue and, upon maturity, the Town can assess whether to pay off the principle balance with reserves or take action to secure permanent financing. 

The proposal from Key Government Finance expires after September 9, 2020 if not accepted.  The rates proposed by BCT are valid through November 17, 2020 (90 days from the date of the proposal).  Due to the bid’s time constraints, it is recommended that Council set aside rules to take action on this item following the public hearing.

If Council is interested in pursuing the Line of Credit to support capital projects, staff recommends consideration of the BCT Option B with a maturity date of June 30, 2023 and 1.81% interest rate.  Relevant legal documents are attached: Note Resolution (Attachment 2), Note Ordinance (Attachment 3) and Note Purchase and Loan Agreement (Attachment 4). 

Suspend the Rules (if desired)

“I move that the Council suspend the rules to allow action on the general obligation Line of Credit the same night as the public hearing.”  (approval requires two-thirds affirmative vote)

AND THEN (if motion to suspend the rules is adopted)

“I move that the Town Council approve the attached Ordinance #20-09-02and Resolution #20-09-01 to authorize the issuance of a general obligation Line of Credit with Bank of Charles Town (BCT) in the aggregate amount not to exceed $3,000,000 with a final maturity date of June 30, 2023 and an interest rate of 1.81% in order to finance general and utility capital projects.  I further authorize the Town Manager, Director of Finance, Town Attorney, Town Clerk and Mayor to sign all needed financial forms related to this transaction.”