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Independent Financial Feasibility Review for the Lewis County Facilities District Bond Issue BEFORE THE BOARD OF COUNTY COMMISSIONERS OF LEWIS COUNTY, WASHINGTON APPROVE THE INDEPENDENT FINANCIAL ) RESOLUTION NO 19- O I FEASIBILITY REVIEW FOR THE LEWIS COUNTY FACILITIES DISTRICT'S BOND ISSUE WHEREAS,the Lewis County Public Facilities District (the "District") anticipates the issuance and sale of not to exceed $8,000,000 aggregate principal amount of its Limited Sales Tax Obligation Bonds, 2019 (the "Bonds"), the proceeds of which will be used to finance improvements and additions to the multipurpose event center and sports complex known as the Northwest Sports Hub and Sports Complex (the "Project"), refunding a portion of the District's outstanding Limited Sales Tax Obligation Bonds, 2010 (Taxable Build America Bonds— Direct Payment) (the "2010 Bonds") (the "Refunding") and pay a portion of the loan provided by Lewis County (the "County Loan"), and WHEREAS, the District has requested that Lewis County (the "County") provide credit support for the Bonds to permit the District to obtain financing for the capital costs of the Project, to carry out the Refunding and repay all or a portion of the County Loan at the lowest available interest rates, and WHEREAS, pursuant to RCW 36 100 025, an independent financial feasibility review (the "Independent Financial Feasibility Review") is required to be performed prior to the issuance by the District of any indebtedness, such review is to be conducted by the State Department of Commerce through the Municipal Research and Services Center under RCW 43 100 030 or under a contract with another entity under the authority of RCW 43 110 080, such review must examine the potential costs to be incurred by the District and the adequacy of revenues or expected revenues to meet those costs, and such review, upon completion, is to be submitted to the Governor, the State Treasurer, the State Auditor, the District,the County, other participating local political subdivisions and appropriate committees of the State Legislature, NOW,THEREFORE, BE IT RESOLVED,that the County has been presented with the Independent Financial Feasibility Review and the Commission has reviewed the report and finds it acceptable ADOPTED this 14th day of January, 2019 Page 1 of 2 APPROVED AS TO FORM BOARD OF COUNTY COMMISSIONERS Jonathan Meyer, Prosecuting Attorney LEWIS COUNTY, WASHINGTON 4111P' By e•• - - Prose uting Attorney Robert C Jackson, Chair ATTEST Gary Stamper, Vice Chair i/ • I / Rieva Lester, Clerk of the Board Edna J Fund, Co issioner '• `SCOA� W •'. SINCE .\1 O• ''h16 1845 * • • ••�\�! 5gti • • Mc.e• Page 2 of 2 INDEPENDENT FINANCIAL FEASIBILITY REVIEW Provided to: Washington State Department of Commerce Pursuant to RCW 36 100 025 Regarding Lewis County Public Facilities District Lewis County, Washington Financing and Refinancing of Bonds Relating to Event Center Dated November 13, 2018 Prepared by Susan Musselman LLC INDEPENDENT FINANCIAL FEASIBILITY REVIEW Regarding Lewis County Public Facilities District CONTENTS Executive Summary Section 1 Overview of PFD and Related Agreement Section 2 Potential Costs and Risks Relating to the Event Center Section 3 Potential Costs and Risks Relating to PFD Revenues Section 4 Potential Costs and Risks Relating to PFD Indebtedness Section 5 Review Summary Appendix A Documents Related to the Review This report has been prepared by Susan Musselman LLC, a Washington corporation specializing in municipal consulting The report was prepared pursuant to a contract with the Washington State Department of Commerce Susan Musselman has over 35 years of experience in public finance, having assisted with capital planning credit review and debt issuance for many Washington entities during that time. Susan Musselman LLC P 0 Box 2469 Mount Vernon, WA 98273 360 391 2666 Sdm2@fidalgo net INDEPENDENT FINANCIAL FEASIBILITY REVIEW Lewis County Public Facilities District Executive Summary This review is provided to comply with provisions of RCW 36 100 025, which require an independent financial feasibility review prior to certain events, including "the issuance of any indebtedness, excluding the issuance of obligations to refund or replace such indebtedness, by a public facilities district" The purpose of the review is to "examine the potential costs to be incurred by the public facilities district and the adequacy of revenues or expected revenues to meet those costs " The independent financial feasibility review, upon completion is to be a public document and is to be submitted to the governor, state treasurer, state auditor, public facility district participating local political subdivisions and appropriate committees of the Legislature • Lewis County Public Facilities District ("Lewis PFD") proposes issuance of indebtedness to obtain funds for expansion of existing facilities and to restructure outstanding indebtedness The scope of this review is to examine the potential costs to be incurred by the Lewis PFD and the adequacy of expected revenues to meet those costs • Lewis PFD has undertaken a regional center, the Northwest Sports Hub and Sports Complex, in Lewis County (the "Project") The Project is a partnership among the Lewis PFD, city of Centralia (the "City") and Centralia School District (the "School") The City and School have primary responsibility for operating the Sports Complex and the Lewis PFD owns and operates the Event Center, known as the Sports Hub • Lewis PFD issued Limited Sales Tax Obligation Bonds in 2010 (the "2010 Bonds") and used proceeds for, among other things, construction of the Event Center, which is operated pursuant to a lease with a private operator • Additionally in 2010 Lewis County provided a loan to Lewis PFD in the amount of $550,000 to provide additional funds for construction of the project. Lewis PFD has repaid a portion of the loan $366 667 remains outstanding • At this time, the Lewis PFD intends to incur additional indebtedness ("2018 Bonds") to fund expansion and improvements to the Event Center and restructure the 2010 Bonds maturing on and after 2021 The result of the financing will be level annual debt service payments beginning in 2021 and extending out to 2047 • In accordance with the resolution authorizing new indebtedness, the Lewis PFD will repay the loan to Lewis County with $122,222 of bond proceeds and through four annual payments of$61,111 between 2021 and 2024 • The addition and improvement project is planned in phases so construction can proceed at different levels Project bids are expected to be received in late 2018 or early 2019 after bonds are issued and the amount of available funds is known Construction is expected to begin in early 2019 Project risks are generally mitigated by the nature of the improvements and the phased approached planned by the Lewis PFD Independent Financial Feasibility Review—Lewis County Public Facilities District 1 • A private operator has managed the Event Center for several years and is responsible for operations If the Event Center were not operational for any reason, it is expected that the Lewis PFD would have an obligation to insure the building, pay utilities and provide at least minimal maintenance to retain the value of the facility We believe Lewis PFD's financial exposure from operations is low • Sales and use tax is the primary revenue source for the Lewis PFD and is to be used together with interest earnings, to pay debt service on the 2010 Bonds and the 2018 Bonds, core operating expenses (i.e , audit, insurance and basic operating costs), and loan repayment to Lewis County • Lewis PFD and Lewis County entered into two Contingent Loan Agreements relative to the 2010 Bonds and the 2018 Bonds (collectively referred to as "CLA ) to provide additional security to bondholders in the event of revenue shortfalls The CLA mitigates the risk of nonpayment of bond debt service but shifts some level of risk to Lewis County We estimate that sales tax revenue would need to decline 12 percent to 16 percent from expected 2018 levels before loans from the County would be triggered under the CLA We believe any County exposure is relatively small in any given year • Sales tax revenues are relatively strong at this time The current financing and restructuring plan targets annual debt service at a level approximately equal to 2016 revenue collections, which is about 90 percent of 2017 revenue collections • We have not identified institutional concerns The sports complex and event center have been in operation for several years We believe the Lewis PFD will have sufficient revenues to meet its annual obligations under the proposed financing structure If the Lewis PFD's revenue were not sufficient to meet debt service payments in any year Lewis County would be obligated to lend the amount of shortfall to the Lewis PFD It is our belief that the financial risks to both Lewis PFD and Lewis County have been reasonably mitigated and are manageable Independent Financial Feasibility Review—Lewis County Public Facilities District 2 INDEPENDENT FINANCIAL FEASIBILITY REVIEW Lewis County Public Facilities District Section I — Overview of PFD and Related Agreements Introduction The Lewis County Public Facilities District ("Lewis PFD ) has undertaken a regional center known as the Northwest Sports Hub and Sports Center, which includes an Event Center and Sports Complex in Lewis County (the "Project") The Project is a joint undertaking of the City of Centralia (the "City"), Centralia School District (the "School") and the Lewis PFD, and it includes several Project components and division of responsibilities Pursuant to multi-party agreements, the City and School have primary financial and operating responsibility for the Sports Complex, and the Lewis PFD has primary financial and operating responsibility for the Event Center known as the Sports Hub Lewis PFD has entered into a facility lease with a private operator to manage and operate the Event Center Lewis PFD issued Limited Sales Tax Obligation Bonds in 2010 (the "2010 Bonds") in the amount of $5,795,000, which provided funds for construction of the Event Center Its construction was undertaken in 2012 The 2010 Bonds have a final maturity of Dec 1 2032 The Lewis PFD plans to issue Limited Sales Tax Obligation Bonds (the "2018 Bonds") in an amount estimated at $6,065,000 to provide funding for expansion and improvements to the Event Center and to restructure the debt service on the 2010 Bonds maturing on and after 2021 That approach would extend the final maturity of the Lewis PFD's bonds to 2047 This review is provided to comply with provisions of RCW 36 100 025 As enacted by the 2012 Washington State Legislature, RCW 36 100 025 provides as follows (1)An independent financial feasibility review under this section is required to be performed prior to any of the following events a. The formation of a public facilities district under this chapter[RCW 36 100], b The issuance of any indebtedness, excluding the issuance of obligation to refund or replace such indebtedness by a public facilities district under this chapter, or c The long-term lease, purchase, or development of a facility under this chapter (2) The independent financial feasibility review required by this section must be conducted by the department of commerce through the municipal research services center under RCW 43 110 030 or under a contract with another entity under the authority of RCW 43 110 080 The review must examine the potential costs to be incurred by the public facility district and the adequacy of revenues or expected revenues to meet those costs The cost of the independent financial feasibility review must be borne by the public facility district or the local government proposing to form a public facility district (3) The independent financial feasibility review upon completion must be a public document and must be submitted to the governor the state treasurer, the state auditor, the public facility district and participating local political subdivisions and appropriate committees of the legislature Independent Financial Feasibility Review—Lewis County Public Facilities District 3 Formation and Agreements Lewis PFD was formed by the Lewis County Board of County Commissioners (the "Commission") on Aug 13 2007 by Resolution No 07-247, for the purpose of "acquiring, constructing, owning, operating, maintaining, remodeling, repairing, equipping, reequipping and/or financing a public facility or projects, with contiguous parking facilities which may include a regional center located with the county providing for business, recreational, equestrian, rodeo, musical and cultural exhibitions and presentations " Lewis PFD held its organizing meeting Aug 27 2007 At the meeting, the Board approved bylaws Lewis PFD by Resolution No 2007-001 adopted Aug 27, 2007, imposed a sales and use tax at a rate of 0 033 percent, pursuant to RCW 82 14 390 The sales tax is credited against the state's 6 5 percent general sales tax and therefore is not an increase to consumers. This sales and use tax is the primary revenue source for Lewis PFD In March 2010, the Lewis PFD entered into an Umbrella Agreement among the Lewis PFD, the City the School and a private company The purpose of the Umbrella Agreement was to outline a joint undertaking for financing, construction and operation of the Project In June 2010, the Lewis PFD entered into an Interlocal Agreement among the Lewis PFD, the City and the School to jointly proceed with design and construction of the Project The Interlocal Agreement sets forth a detailed description of the facility as well as development, funding and operating agreements The Interlocal Agreement specified that the PFD owns the Event Center and leases it to a third-party lessee and the City and the School manage operation of the Sports Complex, with the responsibilities among the City and School further set forth Lewis PFD and the City entered into a Ground Lease dated June 2010 Under the Ground Lease, Lewis PFD leases the site on which the Event Center sits Additionally, Lewis PFD is responsible for payment of utilities, taxes and other amounts under the lease The Ground Lease has a stated term of Dec 1, 2032, and includes a 20-year extension at the option of the Lewis PFD At expiration of the Ground Lease, the project and all improvements will become the property of the City By Resolution No 2010-005, the Lewis PFD approved a contingent loan agreement with Lewis County in connection with the 2010 Bonds (the "2010 CLA") issued by Lewis PFD The 2010 CLA states that the County will provide loans to the District to provide additional financial protections to holders of the 2010 Bonds and the Lewis PFD The Bond Resolution authorizing the 2018 Bonds also approved a second contingent loan agreement with Lewis County in connection with the 2018 Bonds (the "2018 CLA ) to provide additional financial protections to holders of the 2018 Bonds See Section 4 herein, under the heading "Contingent Loan Agreement with Lewis County " In October 2018, the Lewis PFD and Lewis County entered into a Construction Agreement that sets forth the expected construction cost and phases and requires County input and consent before any material changes are made to the plan Additionally the Lewis PFD is to notify the County if it does not have sufficient funds to complete a phase of the project It is also to provide the county with quarterly reports showing construction progress, amounts spent and sources of funds for the prior quarter The Construction Agreement does not obligate the County to pay for the Project or the Lewis PFD bonds but recognizes the commitments under the 2018 CLA Independent Financial Feasibility Review—Lewis County Public Facilities District 4 Section 2 — Potential Costs and Risks Relating to the Event Center Introduction As stated in the overview, the City and School have primary financial and operating responsibility for the Sports Complex, and the Lewis PFD has primary financial and operating responsibility for the Event Center The Sports Complex was completed in about 2010 and the Event Center was constructed in 2012 Both have been in operation for several years The Lewis PFD now plans an addition and improvements to the Event Center to provide for additional events and uses The PFD intends to award a construction contract after bonds are sold and the amount of available bond proceeds is identified The Event Center is operated by a private company pursuant to a lease with Lewis PFD Under the lease, the private operator has responsibility for all costs relating to operation of the Event Center and provides a small lease revenue to the Lewis PFD Costs and Risks Relating to Construction of the Event Center Lewis PFD has worked with a design firm to develop plans and specifications for construction of a 24,000-square-foot addition to the existing 66,000-square-foot building Additionally, if funds permit, the project will include finishing about 10,000 square feet of mezzanine space to provide for retail and other uses within the Event Center Table 1 Event Center Addition Project Cost Estimate Phase I Interior Construction (Existing Facility) $ 270,500 Phase II Foundation and Building Erection 1 102,000 Interior Addition Electrical 91,600 Contingency, Design, Other Costs 385,897 Phase III New Building Finish 284,250 Total Project Budget $2 134,247 Source Construction Agreement between Lewis PFD and Lewis County dated Oct 17, 2018 • The Lewis PFD will consider construction bids after bonds are issued This introduces some risk that the bids will come in higher than the amount of funds available for construction Current planning includes completing the project in phases, which mitigates this construction cost risk, with Phases I and II estimated to cost about $1 850 000 and Phase Ill to add about $285,000 Independent Financial Feasibility Review—Lewis County Public Facilities District 5 • The ability to complete all three phases will depend on the amount of proceeds obtained through the proposed financing as well as results of the construction bid process Current estimates indicate $1,740,000 of bond proceeds will be available for the project The actual funds available will depend on results of the bond sale At this level of funding, the Lewis PFD might need to eliminate or reduce portions of the Phase I and II improvement plan, currently estimated to cost $1,850,000, or identify additional funding sources • Phases I and II are intended to provide a complete and functional addition in the event Phase III cannot be funded • The construction of the addition and improvements is not expected to interrupt or impact the current uses or operations in existing facilities • With any construction project, there is risk of changes or delays adding cost The cost estimate shown above includes 10 percent contingency on the construction budget In addition, the largest portion of the project will be a steel building that, when acquired and erected, should introduce less construction risk than a traditional construction project • The construction agreement between Lewis PFD and Lewis County is intended to provide certain oversight of the planned improvements and funding arrangements through quarterly reporting prior County consent for changes and County access to construction documents, reports and invoices • The financing plan does not rely on revenue from the addition and improvements Costs and Risks Relating to Operation of the Event Center The Lewis PFD has entered into a lease with a private operator who has been operating the facility for several years The lease is structured as an absolute net lease, which means the Lewis PFD incurs no costs for operation of the facility as long as the lease is in place and the operator complies with its terms Under the lease, the Lewis PFD receives annual lease revenue equal to 1 percent of gross revenues from the Center and is not responsible for operating costs The improvement project is expected to provide added use and revenue opportunities According to the draft Preliminary Official Statement ("Statement") for the 2018 Bonds, as of October 2018, gross revenue of the Event Center was reported to be $238 524 in 2017 $216,862 in 2016 and $148,996 in 2015 The Statement also states that the tenant has four employees and the Event Center is the only facility the tenant operates Although the Lewis PFD owns the Event Center, nothing in the agreements or state law requires that it be operated by Lewis PFD Lewis PFD has stated that, in fact it does not have staff or expertise to operate the Event Center Therefore, in any circumstance in which the current tenant/operator were to terminate the lease the PFD would expect to close the facility until a replacement tenant were in place However, this scenario would not affect the Lewis PFD's authority and ability to collect sales and use tax The collection of sales and use tax is critical to repayment of bonds and payment of Lewis PFD's core operating expenses, as discussed in the next section This is reinforced in "Priority of Use of Sales Tax Revenue" in Section 4, which summarizes the payment obligations of the Lewis PFD as set forth in the Bond Resolution, the 2010 CLA and the 2018 CLA If circumstances were to lead to termination of the lease with the operator the Lewis PFD would remain responsible for the Event Center In such event, it is expected that the Lewis PFD would close the building until a replacement tenant/operator were in place Although there is no requirement to operate the building (i.e offer programs and services), it is expected that the Lewis PFD would insure the building, pay utilities and provide at least minimal maintenance to retain the value of the facility all of which would be new costs for the Lewis PFD Lewis PFD maintains an operating reserve of $100,000 as described in Section 4's "Reserve Accounts " Independent Financial Feasibility Review—Lewis County Public Facilities District 7 Section 3 — Potential Cost and Risks Relating to PFD Revenues Overview of Revenue Sources The Lewis PFD receives revenue from a sales and use tax, a lease payment on the Event Center and interest earnings Sales and use tax revenue generally represents 98 percent of total revenue for the Lewis PFD Revenue for 2016 and 2017 as tracked by the Lewis County treasurer, is shown in Table 2 The information in Table 2 is cash basis, not audited and has not been confirmed against County financial records Table 2. Lewis PFD Revenue—2016 and 2017 2016 2017 Sales and Use Tax $440,916 $ 481,911 Interest Earnings 4,593 4,747 Lease Payment 2,026 2,412 Total $447 535 $489 070 Source Lewis County treasurer, Excel files named 2017 Fund Balance and Revenue Tracking"and"2016 Fund Balance and Revenue Tracking." Overview of Lewis PFD Expenses Lewis PFD is responsible for payment of bond debt service, PFD operating expenses (i e , insurance and audits), and repayment of a loan from Lewis County Expenditures for 2016 and 2017 as tracked by the Lewis County treasurer, are shown in Table 3 The information in Table 3 is cash basis, not audited and has not been confirmed against County financial records Table 3 Lewis PFD Expenses—2016 and 2017 2016 2017 Bond Debt Servicee'> $362 442 $373,841 Insurance 1,493 2,769 Audit and Accounting 468 5,586 Repayments to County -0- 61 111 Capital/Repairs(2) 53 714 -0 Other 1,475 2,252 Total $419 593 $445,559 (1) Bond Debt Service is shown as net of Federal Subsidy Payment for Build America Bonds (2) Turf purchase and roof repairs Source Lewis County treasurer Excel files named"2017 Fund Balance and Revenue Tracking" and 2016 Fund Balance and Revenue Tracking Independent Financial Feasibility Review—Lewis County Public Facilities District 8 Sales and Use Tax Revenue Lewis PFD, by Resolution No 2007-001 adopted Aug 27, 2007, imposed a sales and use tax at a rate of 0 033 percent pursuant to RCW 82 14 390 The sales tax is credited against the state's 6.5 percent general sales tax and, therefore, is not an increase to consumers As shown in Table 2 above the sales tax is Lewis PFD's primary source of revenue The table below shows the amount of sales tax distributed to Lewis PFD each year from 2007 (a partial year)through 2017, as reported by the Washington State Department of Revenue Like most other entities in the state of Washington, taxable retail sales in Lewis County declined after 2008 for a time Additionally, the County's taxable retail sales were unusually high in 2008 due to an extraordinary level of capital investment by one taxpayer in the County which makes comparison of 2008 distributions to later years misleading Table 4- Lewis County Public Facilities District Sales and Use Tax Distributions Year Revenue 2007 $ 31,350 2008 450,232 2009 372 489 2010 339,368 2011 345,411 2012 341,668 2013 365,370 2014 397,194 2015 415,045 2016 440,658 2017 481 533 Source Washington State Department of Revenue, Local Tax Distribution Reports for all years except 2012 and 2013, which are taken from the Lewis PFD audited financial statements Tax revenue for 2018 through July 31, 2018, is about 7 9 percent above the 2017 tax collections through the same period in 2017 If this rate of increase continues for the full year 2018 tax revenue will be about $520,000 If collections for the past five months of 2018 instead are equal to 2017 collections for the same period, the 2018 tax revenue will be about $500,000 It should be noted that the state Legislature, through EHB 2163 extended the sales and use tax to include bottled water and other miscellaneous items as well as remote sellers starting in 2018, which is one of the reasons for the increase between 2017 and 2018 • Like all entities relying on sales and use tax there are risks relating to general economic conditions, potential for specific businesses to fail or leave the county and legislative changes that impact the items subject to retail sales and use tax Independent Financial Feasibility Review—Lewis County Public Facilities District 9 Section 4 — Potential Cost and Risks Relating to PFD Indebtedness Lewis PFD Bonds Lewis PFD issued $5,795,000 of Limited Sales Tax Obligation Bonds on Oct 26, 2010 (the "2010 Bonds") Additionally, Lewis PFD borrowed $550,000 from Lewis County in 2010, of which $366,667 remains outstanding The proposed financing is for an estimated amount of$6,065,000 of Limited Sales Tax Obligation Bonds, which are expected to be issued in December 2018 or January 2019 (the "2018 Bonds") The 2018 Bonds may be sold in two series and are currently estimated to provide $1,740,000 for the proposed addition and improvements project, about $4,660 000 to refund the 2010 Bonds, and $122 222 for partial payment of the loan to Lewis County Table 5 Lewis PFD 2018 Bonds Uses of Bond Proceeds (rounded to thousands) New Money Series Refunding Series Estimated Bond Proceeds $1 776,000 $4 880 000 Uses of Bond Proceeds Refunding Escrow $4,660,000 Payment to Lewis County 122,000 Available for Project $1,740,000 Bond Issuance Costs 36,000 98,000 Total Uses $1,776,000 $4,880,000 Source Cash flows for the proposed financing structure, dated Oct 10, 2018, prepared by Key Bank Capital Markets, underwriter for the bonds This information will change based on interest rates and other conditions at the time of financing Debt service on the Bonds is to be paid from sales tax revenue and other revenues collected by the Lewis PFD each year 2018 Bond Structure The 2018 Bonds will provide funding for additions to the Event Center and will restructure the debt service on the 2010 Bonds Both (1)the elimination of escalation in the annual debt service payments for the 2010 Bonds and (2)the lower annual debt service obligation for the 2018 Bonds will alleviate long-term risks of revenue shortfalls and reduce the probability for Lewis County making loans or paying debt service under the CLA The general bond structure is consistent with financing plans developed by many public facilities districts in the state It assumes that the project tenant/operator will pay for costs of operating the project, reflecting the agreements with the City and School as well as the lease with the private operator This means that the sales and use tax is primarily available for debt service payments and related reserves Independent Financial Feasibility Review—Lewis County Public Facilities District 10 The 2010 Bond Debt Service requirements ranged from $488,775 in 2019 to $579,727 in 2032 (prior to any federal subsidy payment for Build America Bonds) which reflected an escalation of about 3 percent from year to year PRIOR BOND DEBT SERVICE Lewis County Public Facilities District, WA Limited Sales Tax Obligation and Refunding Bonds, 2018 •'Preliminary Cash Flows'• •'Crossover Refunding &New Money" Period Ending Principal Coupon Interest Debt Service 12/01/2021 235,400 5.320% 270,524.20 505,524.20 12/01/2022 255,C(}(J 5.320% 258,022.20 513,02220 12/01/2023 275,000 5.320% 244,456.20 519,45620 12/01/2024 300,000 5.320% 229,826.20 529,826.20 12/01/2025 325,400 5.320% 213,866.20 538,866.20 12/01/2026 350,000 6.372% 196,576.20 546,57620 12/01/2027 375,000 6.372% 174,274.20 549,27420 12/01/2028 405,000 6372% 150,379.20 555,379.20 12/01/2029 435,000 6.372% 124,572.60 559,572.60 12/01/2030 470,000 6.372% 96,854.40 566,854.40 12/01/2031 505,000 6.372% 66,906.00 571,906.00 12/01/2032 54500 6.372% 34,727.40 579,727.40 4.475,000 2.060,995.00 6,535,985.00 Independent Financial Feasibility Review—Lewis County Public Facilities District 11 After the 2018 Bonds are issued and the 2010 Bonds are refinanced, the bond debt service requirements will be level annually at about $440,000 per year except in the first two years (i e , 2019 and 2020) when the net debt service obligation will be about$475,000 This reduction in annual debt service payments after 2020 will reduce the risk exposure to both the Lewis PFD and Lewis County NET DEBT SERVICE 1.twis County Public facilities District,WA linked Sales Tax Obligation and Refunding Bonds,2018 ••Preliminary Cash flows•• ••Crossover Refunding&New Money'• Total Net Annual Date hincipal Intetest Debt Service Refund Escrow Debt Storks Net O/S 06/0112019 118.24257 138.242.67 1102,685.47■ 35.557.20 12/0112019 152,660 53 152.660 63 1113.395.00) 39265.63 74,822.83 06/01/7020 152.660 63 152.660 63 1113.395.001 39.265.63 12/01/2020 152.660.63 152,660 63 1113,395.00) 39,265.63 78.531.26 06/01/1021 152,660 63 152.660 63 152.660.63 12/01/2021 135.000 152,66063 287,660.63 287.660.63 440,32126 06/01/2022 150,163.1.3 150,163 13 150,163.13 12/01/2022 140.000 150.163 13 290.163 13 290,163.13 440,326.26 06/01/2023 147,503.13 117,503 13 147,503.13 12/01/2023 145,000 147,50313 292,503 13 292.503.13 440006.26 06/01/2024 144.71188 344.711 83 144,71188 12/01/2024 150.000 144.711.88 294.71188 294,711.88 439.423.76 06/01/2025 141 74938 141.749.38 141,749.38 12/01/2025 155.000 141.149 38 296.749.38 296,749.38 438.498.76 06/01/2026 138,610 63 138,610 63 138,610.63 12101/2026 160.000 138,610 63 298.610 63 298,610.63 437,221.26 06/0112027 135:290.63 135.290.53 135290.63 12/01/2027 170.000 135,290 63 305.290 63 305,290.63 440.581 26 06/01/2028 131.678 13 131.678 I3 131,678.13 12/01/2028 175.002 131.678 13 306,678 13 306.678.13 438.356.26 06/01/2029 127.87188 127,871 88 127.871.88 12/01/2029 185.000 127.871 88 312.871 88 312,871.88 440,743.75 06/01/2030 123,755 63 123,755 63 123,755.63 12./01/2030 190040 123 755 63 313,755.63 313,755.63 437,511.26 06/01/2031 119.480.53 119.480 63 119,480.63 12/01/2031 200.000 119.480 63 319,480 63 319,480.63 438,961.26 06101/2032 114,880 63 114,880 63 114,880.63 12101/2032 210.000 114,830 63 324,880 63 324.880.63 439,761.26 06/01/2033 109,998 13 109,998 13 109.998.13 12/01/2033 2.20,000 109.998 13 329,998 13 329.998.13 439.996.26 06/0112034 104.773 13 104.773 13 104.773.13 12/01/2034 230,000 104,723.13 334,773.13 334,773.13 439.546,26 06/01/7035 99,16113 99.161 13 99,161.13 12/01/2035 240.000 99.161 13 339.161 13 339,161.13 438.322.26 06101/2036 93,305.13 93.305 13 93,305.13 12/01/7036 250.000 93.30513 343,305 13 343.305.13 436.610.26 06/01/2037 87205.13 87,205 U 87,205.13 12/01/2031 265,000 87.205.13 352,205 13 352,205.13 439.410.26 06/01/2038 80,73913 30,739 13 80,739.13 12101/2038 275,000 80,739.13 355.739 U 355,739.13 436.478.26 06/01/2039 74,029.13 74,029 U 74.029.13 12/01/2039 290,000 74,029.13 364,029.13 364,029.13 438,058.26 06/01/2040 66.75013 66.750 13 66,750.13 12/01/2040 305,003 66.750.13 371,750 13 371,750.13 438.500.26 06/0112041 59.094 63 59.094 63 59.094.63 12/01/2041 320.000 59.094.67 379,094.63 379,094.63 138,189.26 06/01/2042 51,062.63 51,062.63 51,062.63 12/01/2042 335.000 51.062 63 386.062.63 386.062 63 437,125.26 06/01/2043 42.654 13 42.65413 42,654.13 12/01/2043 355.000 42,654.13 397.654.13 397,654.13 440,308.26 06/0112034 34.453 13 34.453 1.3 34.453.13 12/01/2044 370000 34.45313 404,453 13 404,453.13 438,906.25 06/01/2045 26 359 38 26,359 38 26,359.38 12/01/2045 385.000 26.359.38 411.359 38 411,359.38 437,718.76 Independent Financial Feasibility Review-Lewis County Public Facilities District 12 Priority of Use of Sales Tax Revenue The resolution approving the 2010 Bonds and the resolution approving the 2018 Bonds include a covenant to expend sales tax revenue for the following purposes in the following order 1) To make deposits into the principal and interest account to pay interest on the bonds, 2) To make deposits to the principal and interest account to pay principal on the bonds 3) To pay "Core Operating Expenses" of the Lewis PFD, which are defined as (a) insurance premiums for building insurance, directors and officers insurance and/or other insurance policies deemed to be reasonably necessary by the Lewis PFD, (b) fees and costs associated with audits, and (c) other operating expenses of the Lewis PFD that the Lewis PFD and the County determine to be essential to the continued operation of the Lewis PFD and/or protection of the Lewis PFD and its assets, 4) To replenish the debt service reserve account (DSRA) to equal at least the Reserve Requirement as defined in the Resolution approving the 2010 Bonds (until 2020) and the 2018 Bonds (to maturity), 5) To repay principal of and interest on loans made by the County under the 2010 CLA or the 2018 CLA, 6) To pay other administrative operating expenses of the Lewis PFD 7) To fund any reserves that the Lewis PFD is required by contract, resolution or otherwise to create and maintain, 8) To pay principal and interest on any subordinate obligations 9) To provide for costs and reserves for long-term capital repairs, renewals and replacement of the Sports Complex and Event Center, and other lawful purposes Based on this "flow of funds " payment of debt service on the 2010 Bonds and the 2018 Bonds is the highest priority for the Lewis PFD, followed by Lewis PFD operations, funding of the debt service reserve account (DSRA) and then repayment of loans to the County under any CLA In the 2018 CLA, the Lewis PFD agreed to make annual payments to Lewis County so the current balance of its capital loan to the County will be paid in full by 2024, subject only to availability of revenue There is no obligation under this structure to operate the Event Center, since the Event Center is operated by a third-party operator as discussed under"Costs and Risks Relating to Operation of the Event Center" in Section 2 Reserve Accounts The Lewis PFD maintains two reserve accounts as mitigation against revenue shortfalls as required by the financing documents I Operating Reserve—The Lewis PFD maintains an operating fund reserve account equal to $100 000 This is separate from any balances that might be maintained in the general revenue fund of the Lewis PFD We understand that no draws have been made on this reserve, and the reserve has consistently been maintained at least at the $100,000 balance 2 Debt Service Reserve Account("DSRA') — In accordance with the Bond resolution for the 2010 Bonds and the draft Bond resolution for the 2018 Bonds, a debt service reserve account is to be maintained to provide additional security for payment of debt service on the bonds The reserve is currently to be maintained at a level equal to 50 percent of average annual debt service The 2018 CLA with Lewis County as currently drafted states that this will be a minimum balance of$250,000 unless otherwise approved by the County Contingent Loan Agreement with Lewis County The Lewis PFD and Lewis County entered into two CLAs to provide additional security to bondholders and to provide the PFD with resources in the event of shortfalls in revenue The 2010 CLA states that the County will provide loans to Lewis PFD in amounts sufficient to replenish the DSRA (defined above) to its required balance The 2018 CLA states that the County will provide loans to Lewis PFD if there are insufficient funds in the Lewis PFD Bond Fund or the 2018 DSRA In the event loans are provided under either the 2010 CLA or 2018 CLA the Lewis PFD will be obligated to repay the loans with interest thereon The 2010 CLA will remain in place until the Lewis PFD's 2010 Bonds are retired which is expected to happen Dec 1, 2020 The 2018 CLA will remain in place until the Lewis PFD's 2018 Bonds are retired, which is expected to happen Dec 1, 2047 The mechanics of the 2010 CLA and 2018 CLA are designed to ensure that funds are available for timely payment to bondholders However, it shifts some financial risk and responsibility to the County If for any reason a circumstance were to necessitate a loan from the County we believe it would be a relatively small amount in any given year This is because the County loan would be in an amount equal to the shortfall in Lewis PFD revenue as compared to the expected annual debt service of$440 000 We estimate that sales tax revenue would need to decline 12 percent to 16 percent from expected 2018 levels before loans from the County would be required under the CLA Even though the County has not made loans to Lewis PFD pursuant to the 2010 CLA, the County did provide a loan for capital costs from its Distressed County Fund This loan was in the amount of$550 000 and was used to provide additional funds for construction of the project in 2012 Lewis PFD has repaid a portion of the loan, of which $366 667 remains outstanding The financing plan relating to the 2018 Bonds includes repayment of$122,222 of this balance, and the Lewis PFD has agreed to make payments of$61,111 in each of the years 2021-2024 to fully retire the loan The obligation to make payments to Lewis County is subordinate to payments on the 2010 Bonds and 2018 Bonds, so is subject to receipt of sufficient sales tax revenue Independent Financial Feasibility Review—Lewis County Public Facilities District 14 Section 5 — Review Summary We believe the Lewis PFD will have sufficient revenues to meet its annual obligations under the proposed financing structure Those obligations include costs for annual debt service to be structured as $440 000 per year through 2047 and core operating expenses If Lewis PFD's revenue were not sufficient to meet debt service payments in any year, Lewis County would be obligated to lend the amount of shortfall to the Lewis PFD, to be repaid from future year revenue If revenue were to decline more than the 12 percent to 16 percent estimated to create such a shortfall the loans from Lewis County would ensure debt service were paid as scheduled Additionally, the Lewis PFD has an operating reserve and DSRA, either of which could be drawn on in the event of sustained declines in sales and use tax revenue It is our belief that the financial risks to both Lewis PFD and Lewis County have been reasonably mitigated and are manageable 1) Lewis PFD has limited risks relating to operation of the Event Center Even though it owns the Event Center it has contracted with a private operator for management and operation pursuant to a triple net lease We have not reviewed the financial or operating ability of the LLC but confirm that the PFD is not paying expenses relating to the Event Center The proposed project is not expected to have a material impact on operations during construction 2) Lewis PFD has mitigated its risks relating to construction costs by using a phased approach to ensure the PFD contracts only for costs that can be covered from bond proceeds Additionally, the project budget includes a 10 percent contingency on construction, which is largely made up of acquisition and erection of a metal building system Even though there is a risk that bids could come in higher than expected, Lewis PFD should be well positioned to adapt Additionally the Lewis PFD and Lewis County entered into a construction agreement intended to provide additional construction oversight for the project 3) The proposed financing plan restructures the outstanding 2010 Bonds in a way that lowers the annual debt service obligation from current levels after 2020 and limits the impact of additional payments required by the 2018 Bonds The current schedule of increasing annual payments will be replaced with a level annual payment schedule The annual debt service payment is targeted at a level equal to 2016 sales tax collections which is about 90 percent of actual 2017 sales tax collections, and provides some cushion for unexpected declines in sales and use tax revenue 4) Lewis PFD and Lewis County entered into a Contingent Loan Agreement in 2010 to provide additional security for bondholders and to mitigate the risk to the PFD of revenue shortfalls The parties will enter into a new CLA to cover the term of the 2018 Bonds, which will mature in 2047 While the CLA provides security for bondholders and safeguards to Lewis PFD, it shifts some risk of revenue shortfalls to Lewis County The CLA, though provides for repayment with interest of loans that may be made by Lewis County Based on the proposed debt service structure which incorporates some cushion for unexpected declines in sales and use tax revenue, we believe the County's financial exposure is relatively small each year 5) We have not identified any institutional concerns Even though there are many agreements and participants, including the School, City and County, the Project has successfully operated since 2010 (sports complex) and 2012 (events center) The bond- related documents are consistent with similar financings for similar governmental entities and do not introduce additional risks or unreasonable exposures 6) The County loaned $550 000 to the Lewis PFD in 2010, of which $366,667 remains outstanding The financing plan includes provisions for repayment of the loan to the County by 2024 including a payment of$122,222 to be funded from proceeds of the 2018 Bonds Independent Financial Feasibility Review—Lewis County Public Facilities District 15 Appendix A Documents Related to the Review In conducting this review, the following documents were examined • Chapter 36 100 RCW, which sets forth requirements for this review • Resolution No 07-247 of the County for formation of the Lewis PFD • The bylaws of the Lewis PFD • The Umbrella Agreement, among the City, School and Lewis PFD • The Interlocal Agreement among the City, School and Lewis PFD • Copy of Ground Lease between the City and Lewis PFD dated June 2010 • The new construction cost estimate, provided by the PFD Aug 30 2018 • Lewis County Resolution No 18-2011 dated June 25, 2018 approving a CLA • A Construction Agreement dated Oct 17 2018 between Lewis PFD and Lewis County • Bond resolution authorizing Lewis PFD's proposed Limited Sales Tax Obligation Bonds and approval of the CLA with Lewis County • Draft Preliminary Official Statement relating to Lewis PFD's proposed Limited Sales Tax Obligation Bonds provided in October 2018 • Cash flows for the proposed financing structure, dated October 10, 2018 prepared by Key Bank Capital Markets, underwriter for the bonds • State Auditor's Audit Report relating to the Lewis PFD's financial statements for 2010 through 2013 • Fund Balance and Revenue Tracking schedules provided by the Lewis County treasurer • Continuing disclosure filings with the Municipal Securities Rulemaking Board EMMA system Independent Financial Feasibility Review—Lewis County Public Facilities District 16 BOCC AGENDA ITEM SUMMARY Resolution. BOCC Meeting Date. Jan 14, 2019 Suggested Wording for Agenda Item. Agenda Type Consent Approve the independent financial feasibility review for the bond issue for the Lewis County Public Facilities District (PFD) RECEIVED Contact Clerk of the Board Phone 3607401419 JAN 0 8 2019 Department Board of County Commissioners LEWIS COUNTY Action Needed Approve Resolution PROSECUTING ATTORNEY Description Approve the independent financial feasibility review for the bond issue for the Lewis County Public Facilities District(PFD) Cover Letter To Amy Davis Nancy Neraas, Foster Pepper nancy.neraas @foster.com Scott Bauer,Northwest Municipal Advisors scott @nwmunicipaladvisors.com Stacie Amasaki,Foster PePppper ��al svg ,n a tS i�etvgyin 1 �. offiutrkesgroup.com