WASHINGTON COLLEGE TEFRA BONDS
MAYOR AND COUNCIL
NOVEMBER 16, 2015
Mayor Cerino called the TEFRA Bond Public Hearing to order at 7:02 p.m. In attendance were Council members Liz Gross, Linda C. Kuiper, Samuel T. Shoge and Mauritz Stetson, W.S. Ingersoll, Town Manager, Jennifer Mulligan, Town Clerk, Lindsey Radar of Funk & Bolton (Bond Counsel), Mark Hampton and Joe Holt from Washington College.
Mr. Ingersoll stated that Ms. Lindsey Rader represents the Town as Bond Counsel to make sure that the Town is represented properly and is paid by Washington College as an expense of floating the bond. He called Ms. Rader forward.
Ms. Rader stated that the purpose of the public hearing was due to a requirement of the Federal Tax Code. Washington College has requested that the Town issue up to $20,750,000.00 of tax-exempt loans in order to finance various capital projects for the benefit of the College. The bonds would be issued pursuant to the Maryland Economic Development Bond Act.
Ms. Rader stated that notice of the Public Hearing was published in the Kent County News at least fourteen (14) days prior to the hearing as is required by the Federal Tax Code.
Ms. Rader stated that the tax code required a public hearing to be held by the Mayor and Council and if the bond issue is approved, it would be a by a Resolution adopted by the Council and approved by the Mayor.
Ms. Rader stated that the College submitted a letter of intent to the Town asking the Town to issue the requested bonds. The money would be used mainly as follows:
- New residence hall containing one hundred twelve (112) beds and fourteen thousand (14,000) square feet on the main campus;
- New academic building containing approximately fourteen thousand four hundred (14,400) square feet to house faculty offices, classes and laboratories for anthropology, environmental studies and sciences programs located at 215 Washington Avenue;
- Acquisition, construction, renovation and design of miscellaneous other capital projects to be located on the borrower’s main campus;
- Renovation of existing residence halls;
- Acquisition of furnishings, fixtures, equipment;
- Landscaping, roads or other rights of access for utilities and other facilities as deemed necessary; and
- other eligible costs under the act and federal code.
Ms. Rader stated that if the Town approves and issues the bonds there is no obligation to make payment on the bonds, except to the extent that the College makes the required loan payments that support debt service of the bonds. Ms. Rader stated that the College will not make payment to the Town and that payments would be sent directly to the bond holder.
Ms. Rader stated that there would be two (2) outstanding bank holders; one holding the 2013 bonds issued for the College and a bank that has offered to purchase the 2015 bonds.
Ms. Rader stated that the Town reserves the right not to issue the bonds or to issue less than the College requests. It was anticipated that the bond closing would take place sometime next week. All costs would be paid from the College either from bond proceeds or from the College’s funds on hand, whether or not the bonds are ever issued. There was no personal liability to Town Officials or employees if the bonds are issued.
Ms. Rader stated that the Resolution delegated to the Mayor the authority to determine most of the details of the bond issue, other than those expressed prior to the Resolution by executive order otherwise, which was the customary procedure followed by the banks for the College. The authority to issue the bonds expires within one (1) year of the Resolution’s adoption.
Mr. Stetson stated that at one time in the past the College paid a fee for the Town to act as a conduit. Ms. Rader stated that the Town did collect a fee in 2008 or 2009 but no fee has been paid since that time or before.
Mr. Stetson stated that he thought it was time to have a conversation with the College for payment in lieu of taxes as the College relies on the police, fire department, and other services offered by the Town that are paid for by the taxpayers. Mr. Stetson said that the police budget was half of the Town’s budget. Mr. Stetson stated that the College also rents rooms in the summer when school is out yet did not pay the Hotel Tax.
Ms. Rader stated that charging an issuer’s fee was something that could be taken under advisement on a case-by-case issue. She said that pilots were governed to a certain extent by State law and the Town attorney could help put that in place.
Mayor Cerino stated that by using the Town as a conduit Washington College receives a lower interest rate which helped to save the College money and that this was the fifth time the College used the Town in this capacity since 2008. Ms. Kuiper stated that if the Town did not work with the College for the bonds, the College could approach the County. Ms. Rader agreed, stating that it was common for a borrower to go to the smallest jurisdiction in which it is located for a request of this nature.
Ms. Gross asked how the College has managed to come so far with construction on some of the buildings mentioned in the bond proposal. Ms. Rader stated that the College had a Declaration of Official Intent in place to use bond proceeds to reimburse itself for any advanced amounts.
Ms. Gross asked for clarification on the amount of the bonds. Mr. Mark Hampton stated that the original request was for $20,000,000.00 and when closing costs were discussed he had Board approval for $20,000,000.00 but requested to extend the amount beyond that to incorporate all closings costs. He said that the $750,000.00 far exceeds any closing costs but he thought it was prudent to list a figure that would exceed those costs to avoid another hearing for additional funding.
Mr. Hampton stated that the College has cash reserves that they were able to use to fund construction to date, but to continue the cost of construction without the bond would be a serious hardship and cause them to seek a much less favorable financing arrangement. He said that the Town’s August 2015 motion on the bond funding gave them adequate justification to proceed.
Mayor Cerino stated that the Town would and should help the College as it was a great asset to Chestertown and the local businesses. He said that the College has grown significantly in the last twenty (20) years from a population of eight hundred (800) to fourteen hundred (1400) and has also increased its land-holding by taking properties off of the tax rolls. At the same time the demands on infrastructure was funded with taxpayer money and those demands have risen over the past few years. He said that at some point the Town was going to need help from the College, noting that the largest expense in Town was the police force and the College relies heavily on police protection each day.
Mayor Cerino stated that any tension between the Town and the College was probably fiscal, at the end of the day. The Town saw infrastructure needs for the College increasing while the tax base was decreasing, which was not a sustainable formula.
Ms. Gross stated that she agreed with Mr. Stetson and Mayor Cerino, suggesting that pilot examples from other College communities similar to Chestertown be studied to see how this they handled this problem.
Mayor Cerino asked if there were any further questions or comments. There being none, Ms. Gross moved to close the TEFRA Bond Hearing at 7:25 p.m., was seconded by Mr. Shoge and carried unanimously.
Submitted by: Approved by:
Jennifer Mulligan Chris Cerino
Town Clerk Mayor