Agenda Item # 1
Columbus Consolidated Government
Council Meeting
August 12, 2008
Agenda Report # 305
TO: Mayor and Councilors
SUBJECT: 1990 GMA Lease Pool Payoff
INITIATED BY: Finance Department
Recommendation: Approval is requested to payoff the 1990 GMA Lease Pool
Variable Rate Demand Bonds, authorize the City Manager and Finance Director to
complete all necessary documents, and approval to use $700,000 of Debt Service
Fund-Fund Balance and $1,000,000 of General Fund-Fund Balance.
Background: In 1990, the Columbus Consolidated Government entered into a lease
pool agreement through GMA to provide low interest, short term financing for
capital equipment. The lease pool has proven to be a viable option during the
budget process each year and the city has taken advantage of this program over
the past 18 years.
On June 5, 2008, Standard & Poor?s rating agency downgraded MBIA Insurance
Corporation from an AAA to an AA rating. On June 19, 2008, Moody?s rating
agency downgraded MBIA Insurance Corporation from an AAA to an A2 resulting in
a decline of five (5) rating categories due to their exposure in the sub-prime
collateralized debt obligation (CDO) market. MBIA provides the bond insurance
for the 1990 GMA Lease Program. As a result of MBIA?s recent downgraded
ratings, the interest rates on the variable bonds has risen from less than 2%
to almost 4% to 8% as of July 24, 2008. GMA has decided to terminate the
program.
Columbus Consolidated Government received the July 2008 invoice on July 8, 2008
and noticed the invoice was significantly higher than expected. The invoice
for June 2008 was $11,404.78 and the invoice for July 2008 was $51,540.44. GMA
was immediately contacted as no notification was provided to the participants
of the lease program of any change in the program. GMA provided a brief
explanation of the issues with a formal explanation provided on July 30, 2008.
Analysis: GMA offered participants to exit the lease pool on September 1, 2008
or October 1, 2008. In order to avoid continued higher interest rates on the
balance of $2,099,048.63, Columbus Consolidated Government will exit the lease
pool on September 1, 2008.
Financial Considerations: The payoff of the 1990 GMA Lease Pool will be funded
by the current amount budgeted in FY09 for lease pool principal and interest,
$700,000 of Debt Service Fund-Fund Balance, and $1,000,000 from the General
Fund-Fund Balance. GMA did provide an option to have alternative financing
directly with a lending institution, but considering the balance outstanding,
it did not prove to be overwhelmingly beneficial compared to paying off the
lease pool balance. In FY2010, the millage rate for debt service will be
evaluated for possible reduction based on the expected digest.
Legal Considerations: Pursuant to Sections 4.5 (d) and 4.7 (a) of that certain
Lease Agreement, dated December 1, 1990 between Columbus Consolidated
Government, as Lessee, and the Georgia Municipal Association, Inc., as Lessor,
the Columbus Consolidated Government provided written notice to exercise its
Purchase Option with regard to Equipment subject to the Lease and of the
Termination of the Lease, effective September 1, 2008 by paying the Purchase
Price no later than five (5) days prior to said termination date.
Recommendations/Actions: Approval is requested to payoff the 1990 GMA Lease
Pool Variable Rate Demand Bonds, authorize the City Manager and Finance
Director to complete all necessary documents, and approval to use $700,000 of
Debt Service Fund-Fund Balance and $1,000,000 of General Fund-Fund Balance.
ATTACHMENT 2.
"Lou Comer"
07/31/2008 10:40 AM
To
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, "Matt Williams" , "Ronnie
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Subject
Termination of 1990 GMA Certicates of Particpation
Gentleman:
As you know the 1990 GMA Lease Pool Variable Rate Demand Bonds have been
remarketing at rates substantially above the SIFMA index due to MBIA?s
downgrade. As a result of this occurrence our participants are exercising
their ?purchase option and termination? rights under Sections 4.5 (d) and
4.7(a) of their individual leases to pay off their outstanding leases and
subsequently terminate all outstanding COPs. Attached are letters from nine of
our twelve participants giving notice of their intention to pay the purchase
price no later than five days prior to termination on September 1, 2008.
Letters are attached from the following nine (9) governments:
Cobb County Board of Education
City of Columbus
City of LaGrange
City of Macon
City of Rome
City of Savannah
City of Smyrna
City of Sugar Hill
City of Valdosta
The remaining three (3) participants, City of Atlanta, Gwinnett County Board of
Education and Savannah-Chatham Board of Education, could not execute their
notices in time to meet the thirty (30) day purchase option notice requirement
for September 1 but plan to tender their notice for a termination effective no
later than October 1, 2008. If these participants are able to take action
within the next few weeks, we would like for you to consider granting a waiver
of the 30-day notice requirement in order to terminate all leases earlier than
would otherwise be possible.
Lou Comer
GMA
678-686-6260 (direct dial)
678-686-6360 (fax)
lcomer@gmanet.com
www.gmanet.com
A Resolution
No. _______
A RESOLUTION REQUESTING APPROVAL TO PAYOFF THE 1990 GMA LEASE POOL
VARIABLE RATE DEMAND BONDS AND AUTHORIZE UP TO $700,000 OF DEBT SERVICE
FUND-FUND BALANCE AND $1,000,000 OF GENERAL FUND-FUND BALANCE FOR THE PAYOFF.
WHEREAS, in 1990, the Columbus Consolidated Government entered into a
lease pool agreement through GMA to provide low interest, short term financing
for capital equipment;
WHEREAS, in June of 2008, Standard & Poor?s and Moody?s rating agencies
both downgraded MBIA Insurance Corporation?s rating categories due to their
exposure in the sub-prime collateralized debt obligation (CDO) market;
WHEREAS, as a result of MBIA?s recent downgraded ratings, the interest rates on
the variable bonds has risen from less than 2% to almost 8% as of July 24, 2008;
WHEREAS, GMA has decided to terminate the program, offering participants to
exit the lease pool on September 1, 2008 or October 1, 2008;
NOW, THEREFORE, THE COUNCIL OF COLUMBUS, GEORGIA HEREBY RESOLVES:
That the City Manager and Finance Director are hereby authorized to:
1. Proceed with completing all necessary documents to initiate paying off the
1990 GMA Lease Pool Variable Rate Demand Bonds; and,
2. Expenditure of funds up to $700,000 of Debt Service Fund-Fund Balance and
$1,000,000 of General Fund-Fund Balance for the payoff.
_____________________
Introduced at a regular meeting of the Council of Columbus, Georgia held on
the 12th day of August, 2008, and adopted at said meeting by the affirmative
vote of ____ members of said Council.
Councilor Allen voting __________
Councilor Anthony voting __________
Councilor Baker voting __________
Councilor Barnes voting __________
Councilor Davis voting __________
Councilor Henderson voting __________
Councilor Hunter voting __________
Councilor McDaniel voting __________
Councilor Pugh voting __________
Councilor Woodson voting __________
_________________________________ __________________________
Tiny B. Washington, Clerk of Council Jim Wetherington, Mayor
Attachments