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HomeMy WebLinkAboutREP FC 466 02/08/1988 1984-1988 OFFICE INFORMATION ONLY Meeting: March 2, 1988 Aio t' n• Receive and file Bill Draft 2 & Draft 3. c 472, NOTE: See FC Report 473 Re: 1 • 411 f- REPORT OF THE 111 COMMITTEE ON FINANCE Date: February 8, 1988 Place: Councilroom Time: 10:00 a.m. Chairman and Members Hawaii County Council Hilo, Hawaii 96720 Your Committee on Finance, to which was referred Bill 472, Draft 2, reports as follows: The purpose of Bill 472, Draft. 2, is to authorize the issuance of 510,000 ,000 general obligation bonds of the County of Hawaii for the purpose of financing various highway improvements of the County of Hawaii ; and describing the same; fixing the form, denominations , and certain other features of such bonds and providing for their sale; and authorizing the issuance and sale of a like principal amount of general obligation bond anticipation notes in anticipation of the issuance and sale of said bonds . Bill 472, Draft 2, passed first reading by the Council on January 18, 1988 and has been referred to the Finance Committee for further consideration. Bill 472, Draft 2, affords the Council the full extent of its powers available under Chapter 47, Hawaii Revised Statutes, and the County Charter . Your committee expressed its concern as to the variances existing between Drafts 1 and 2 of the proposed bill, and asked and received comments and recommendations from Bond Counsel . Bond Counsel explained that Draft 1 essentially maintained the historical approach to issuing general obligation bonds by vesting in the Director of Finance, certain discretions which would allow for greater flexibility in timing the issuance. Draft 1 also indicated that the issuance would be for the purpose of public improvements and betterments contained within the capital budget ordinance adopted in 1987 . Draft 2 alters the historical rocess byvesting the Council with P the ability to make most decisions that would ordinarily be made by the Director of Finance. Draft 2 also limits the proposed utilization of the bond proceeds to improvements of highways . Bond Counsel explained that historically, the Council would approve or authorize the issuance of bonds by the Director of Finance and in theory, the Director of Finance should be vested with an adequate level of discretion to effectively and in a timely manner , negotiate the best possible deal. FC REPORT No . 466 ADOPTED : . . i FC-466 Page 2 February 8, 1988 Bond Counsel explained that the ideal situation would be one in which both branches of government could be equally involved in the issuance process; however , the Council can act in only two ways, by either resolution or ordinance. The process by which each step would be approved by resolutions or ordinances makes for a more complex and difficult process . Your committee was also made aware that any risk that the terms or details of the bonds would be altered at a resolution reading and that reading occurred subsequent to the award of the bonds, the credit worthiness of the County could be affected. It was pointed out that in 1986, the County did issue bonds in the historical practice with minimal or no complications. Your committee is aware that a typical delay between the awarding of the bond bid and the delivery of the bonds is a week . Any substantial, delay caused by cumbersome approval process could, to some degree, affect its marketability. Bond Counsel indicated that their reasonable interpretation and construction of Section 5-3. 3(c) , Hawaii County Charter, when read in light of Section 47-7 (b ) , Hawaii Revised Statutes, is that the Finance Director should be allowed the powers and discretion, as necessary, and incidental to the issuance and the negotiation for the issuance and sale of County bonds . Based upon the foregoing procedure, Bond Counsel would be willing to issue an opinion on the bond issue. To follow a procedure where Council would negotiate the issuance and sale of bonds would require a finding of an inferred power to act under circumstances where an expressed power is set out. Bond Counsel would require Corporation Counsel to issue an opinion on the procedure before Bond Counsel would be willing to issue their opinion. Bond Counsel also explained that they would be reluctant to issue an opinion on the bonds, if the Council were to appoint a designee other than the Director of Finance or to strip the Director of Finance of those powers expressed under the Charter and Statute. committee to consider longand hard Bond Counsel advised the , how intricately involved they would want to participate in the issuance beyond the historical procedure of authorization of the issuance. Although the bonds to be issued are to be a first charge on the general fund, it is the intent of the Council that the first charge be also applied to the County 's highway fund upon adoption of a fuel tax increase of one cent per liter . FC- 466 Page 3 February 8, 1988 During the committee meeting of February 8, 1988, your committee expressed its general consensus that should a bond issue be the means by which the roads of the County would be maintained and improved, the debt service would be tied to the increase in the fuel tax rate . Committee Member Kokubun expressed his concern regarding Corporation Counsel 's opinion that the fuel tax resolution as received and filed is currently deferred indefinitely and that it can be reconsidered, provided the rates are not changed and that other amendments would be acceptable. As pointed out by Kokubun, the intent to utilize proceeds from the fuel tax increase for road maintenance and administration is quite different from servicing a debt . Committee Member Kokubun expressed his concern that a bond issue may be very premature at this point since projects have not been delineated in Exhibit A and it is questionable whether the Department of Public Works would be able to process $10 million in three years . The County has a basic responsibility to maintain the tax exempt status of the bonds, especially as applied to the Tax Reform Act of 1986 . Committee Member Kokubun stressed that going to a cash basis will allow the County the much needed time to develop necessary plans and to position projects for a future bond issue, possibly in three years , without incurring any debt . He introduced a resolution for consideration as a vehicle to move forward to public hearings being that it is questionable as to which resolution is available for public hearing purposes . The resolution, as submitted, includes : 1 . A proposed increase of 10 per liter . 2. Incorporation of Exhibit A, projects to be clearly delineated. 3 . A district apportionment formula based upon percent of vehicle weight tax and percent of road miles (formula to be updated annually) . Council Chairman Yamashiro expressed his concern that too often highway funds have been expended for purposes other than for our highways . He cited the use of highway personnel and equipment for solid waste, landfills and sewers . He clearly stated that any fuel tax increase would have to be for no other purpose but road repairs and improvements . Chairman Yamashiro indicated that of the projects available in our current capital budget , there are substantial amounts in road projects . These projects should be funded from the fuel tax increase and should enable the Department of Public Works to get an early start on the expenditure of bond proceeds . The committee also heard from the Director of Finance that the projected revenues of $1 . 3 million represents only 70 percent of the anticipated total revenue increase. Projected revenues were based upon the 70 percent because of fluctuations in actual revenue collection and a desire to have a safety factor . Excess funds could be used to amortize the debt earlier than ten years . FC- 466 Page 4 February 8, 1988 Based upon a 7 percent interest rate, the first year 's debt service could range from $1 .6 million to $1 .7 million, should the debt be serviced on an equal principal basis . The debt service could be $1 .4 million, should the debt be retired on equal principal and interest payments . Chairman Yamashiro questioned the basis by which the bid acceptance recommendation would be made. Bond Counsel Lombardi explained that the ordinance currently mandates that whoever accepts the bid must take the lowest net interest cost as defined by statute. Two methods available are: 1) present value; and 2) lowest rate based upon date of issue through term. Committee Member Dahlberg recommended that because of the drastic change in the direction for the use of revenues of the fuel tax increase, public hearings be held on all versions of how the fuel tax would be used. Your committee also heard from Corporation Counsel that the Council 's rules do not recognize the motion to "receive and file. " Should it be desirable to defer for an indefinite period, then the motion should be "to postpone indefinitely" . Should the desire be to kill the matter, then the proper motion would be "to close the file on the subject matter" . Your committee was also made aware that Bond Counsel did submit a proposed amendment to Draft 2, which included amendments to concerns and directions expressed during the January 25 , 1988 committee meeting . Committee Chairperson Jitchaku-Inouye expressed her disappointment that the submittal of January 27, 1988 by Bond Counsel did not make the committee agenda, however , she explained that if any Councilperson should desire, it could be surfaced at the next meeting. Your Committee on Finance, after hearing the debate for and against a bond issue to repair our County roadways, does not concur with the intent of Bill 472, Draft 2, and recommends the file on Bill 472, Draft 2, be closed. (ABSENT & EXCUSED) FRAN DE LUZ III, CHAIRMAN 4Iti -, lar - LOR' • CHAKU- •UYE, V.C. AM' '' L. K. D BE' , MBER IMF (ABSENT & EXCUSED) �I TAKASHI 0 OMI G!. p = 'USSE . . 9 KUBUN, MEMBER ME' 3 K. LAI, EM: : - SPENCE' K. SCHUTTE, MEMBER /HAT