ARLINGTON COUNTY, VIRGINIA County Board Agenda Item Meeting of June 26, 2004 DATE: June 16, 2004 SUBJECT: Request to the Arlington Industrial Development Authority (the Authority ) to issue Lease Revenue Bonds in the maximum aggregate principal amount of $66.5 million to finance various County capital projects. C. M. RECOMMENDATIONS: 1. Adopt, by roll call vote, the attached Resolution authorizing the County Manager, the Director of the Department of Management and Finance, and the Chairman of the County Board, or any of them, after legal review and approval by the County Attorney, to approve the Industrial Development Authority (IDA) Lease Revenue Bonds and the Basic Documents, which includes an Indenture of Trust, a Lease, a Financing Lease, a Continuing Disclosure Agreement, a Leasehold Deed of Trust, an Assignment of Rents and Lease, and a Bond Purchase Agreement. 2. Authorize the Chairman and the Vice Chairman of the County Board, the County Manager, and the Director of the Department of Management and Finance, or any of them, to execute on behalf of the County the Basic Documents. ISSUES: Should the County finance these capital projects through the Industrial Development Authority? SUMMARY: The County Manager is asking the County Board to authorize him to pursue alternative financing opportunities for various capital projects. These projects include implementation of the Trades Center Master Plan, the George Mason Center renovation, the Enterprise Resource Planning (ERP) project, and the Emergency Communication Center (ECC). The total cost of these projects is $63.9 million. The timing of these essential County projects is such that they are ready to be implemented. The ECC equipment contract needs to be executed in the near term so that the County will not lose the proposed bid. The Trades Center Master Plan is complete and ready for implementation and County Manager: County Attorney: Staff: Barbara Donnellan, Dept of Management and Finance Gus Vega, Dept of Management and Finance
the ERP request for proposal will be out in the market at the end of June or early July. The criticality of these essential projects necessitates the timing of this financing. The par amount, $63.9 million will be affected by market conditions on the date of sale. The market conditions will determine if the bonds are sold at an original issue premium or discount. If the bonds are sold at a premium, the par amount required to fund the projects will be less, approximately $60.3 million. If the bonds are sold at a discount, the par amount required to fund the projects will be more, approximately $66.5 million. In the end, the total debt service in both cases is about the same. Delaying the funding of these projects could generate additional costs to the County. The County will ask the Authority to issue tax-exempt revenue bonds to finance these projects. These Bonds will be paid on average in 8.1 years. The County Board will be asked every year to appropriate funds to pay the debt service through the Authority. The E-911 fee collected by the County will be used to off set the portion of the debt service for the equipment and construction of the new ECC. The bonds will be sold through a negotiated process. The County, with the assistance of the County s financial advisor, selected Morgan Keegan & Company, Inc. to underwrite the bonds, if approved by the County Board and the Authority. During the negotiation process in July 2004, the bonds will be priced and the terms of the bonds and the payment schedule will be determined. In September 2004, the County Manager will request authorization from the County Board to appropriate and allocate the bond proceeds. BACKGROUND: The projects to be financed are: The Trades Center Master Plan The Trades Center is a complex of buildings that houses approximately 500 County employees from Water Sewer Streets, Traffic Engineering, Parks, Solid Waste, Vehicle Maintenance, Fire Department, and Schools. Most significantly, the Trades Center Master Plan includes a new 34,000 square foot Parks Operations building that will replace an extremely outdated facility that lacks running water and toilet facilities. Other improvements will include a three story parking deck for County and employee vehicles, chain shop, warehouses, vehicle wash facility, and Police impoundment lot and lab. George Mason Center George Mason Center is a 40-year-old building located at 1801 North George Mason Drive that formerly housed human service programs now at 3033 Wilson Boulevard. The facility will be fully renovated and then leased to the Arlington Community Action Program (ACAP). The renovation will include interior improvements, replacement or upgrade of all mechanical systems, window replacement, and the addition of an elevator to make the building accessible. ACAP is a County supported not-for-profit agency that operates Head Start and community action programs targeted to lower income and disadvantaged residents. Programs are currently Authority to issue Lease Revenue Bonds - 2 -
housed in a portion of Reed School planned for demolition and leased space at the Ballston Baptist Church. Emergency Communication Center (ECC) The County communication system, which serves the ECC, the Police Department, the Fire Department, the Sheriff s Department and general county radio users, is in need of a major upgrade or complete replacement from an analog radio system to a digital radio system to maintain reliability, system integrity, maximum application of technological advances, maintain interoperability with the adjacent County and City radio systems, and to improve radio communication and dispatching between County departments and agencies. To accomplish the upgrade/replacement, the shell space in the Court/Police Facility must be constructed to house the new radio system and staff while the existing ECC maintains full operation. To allow for a parallel operation of the new ECC and the existing ECC during the transition stage, the new ECC build-out must be completed ahead of the ECC radio equipment manufacturing, delivery and installation. Additionally, a conference room at Court Square West currently serves as the EOC during emergency. While a new and permanent EOC will be constructed, the location has not been determined. However, to provide for better communication and coordination of emergency activities and responses, as recommended in the After-Action Report following 9/11, a Situation Room will be constructed adjacent to the ECC for use by the Office of Emergency Management. The ECC project has been divided into three (3) phases. Phase I, which is now complete, includes services to assess the existing ECC radio equipment; the current needs of the Police, Fire Departments, Sheriff Office, and all non-public Safety agencies including the Schools; interoperability with adjacent jurisdictions; design of the new ECC space; concept plans for the new EOC space; specifications for the new ECC radio equipment; plans for the new radio infrastructure, new radio towers, and improvements to existing radio towers; and pricing of the ECC radio equipment and radio system infrastructure. Phase II includes negotiations for the procurement of the ECC Radio equipment and infrastructure upgrade, which is now complete; engineering and architectural design services for the schematic design and probable construction cost, design development drawings, construction documents, and evaluations of the construction bids. The Authority Lease Revenue Bonds will finance Phase III; which includes: construction of the ECC space, signing of the contract for the procurement of the radio system infrastructure upgrade; manufacturing and delivery of the ECC Radio equipment; consulting services to assist the County in construction oversight; post construction services; and disposal of old radio system equipment. Enterprise Resource Planning (ERP) The adoption of ERP follows and supports the County strategy promoted in the e-government Master Plan 2001. In this document, the Department of Technology Services (DTS) emphasizes the need for a single integrated solution for financial and human resources functions. The objective of the Business Case study was to briefly examine the status of the major automated systems (Finance and HR/Payroll) and others that the County does not have (such as procurement and budget) and make a report on how Arlington County could benefit from using a new fully integrated system. Authority to issue Lease Revenue Bonds - 3 -
The current financial system (Advantage) developed by American Management System (AMS) will not be supported after July 1, 2005. Any further support of the system will be done on a consulting service basis at the going market rate at the time of the service. While the mainframe Payroll/Human Resource system (GEAC) will continue to be supported by the vendor, the core system will not have any additional functionality added directly to it after July 2005. The county has looked into the possibility of upgrading the current Advantage financial system and the preliminary cost is $1.2 million. The upgrade will not provide any new functionality that the county plans to achieve with the ERP implementation. A similar scenario would occur with an upgrade to the GEAC HR/Payroll system. An additional disadvantage will be the need to maintain and support two different systems. The scope of this Business Case study gathered information that substantiated the need to purchase a single source, fully integrated system (ERP) that will align itself with the County s e-government Master Plan 2001. The recommended modules present in an ERP system that will satisfy the County s business needs include: Procurement, Accounts Payable, General Ledger, Budgeting, Human Resources, Time and Attendance, Payroll, Capital Assets, Project Accounting, and Grant Tracking. The Bonds The Authority will issue its Lease Revenue Bonds Series 2004 (the 2004 Bonds ) payable over a period of 20 years in a maximum principal amount not to exceed $66.5 million. The par amount of the bonds will be affected by market conditions on the date of sale. Those market conditions will determine if the bonds are sold at an original issue premium or discount. If the bonds are sold at a premium, the par amount required to fund the projects will be less. If the bonds are sold at a discount the par amount required to fund the projects would be more. The total debt services in both cases is about the same. The proceeds of the 2004 Bonds will be used to (i) fund the projects described herein and (ii) pay the costs of issuance associated with the 2004 Bonds. The communication equipment for the ECC project and the computer equipment and system design under the ERP, will be paid over a period of ten years. All construction costs for the remaining projects will be paid over 20 years. The County will enter into a Lease with the Authority to lease certain projects to the Authority and will lease those projects back from the Authority pursuant to a Financing Lease. The Authority s bonds will be payable solely from revenues derived from Financing Lease payments made by the County. Under the Financing Lease, the County Board, will undertake in each fiscal year to consider appropriations of the full amount necessary (i) to pay the scheduled debt service on the 2004 Bonds (including any amounts due as a result of any optional or mandatory redemptions of the 2004 Bonds) and (ii) to pay all other amounts required to be paid by the Authority under the Bond Documents (as defined in the Financing Lease) in each fiscal year, and to deliver to the Authority sufficient funds for the Authority to make timely payments of such amounts. The obligation of the County to make payments under this Financing Lease is subject to and conditioned upon annual appropriation by the County Board. Prospective purchasers of the 2004 Authority to issue Lease Revenue Bonds - 4 -
Bonds will consider them to be secured by the County s annual appropriations. The obligation of the County to make payments under this Financing Lease does not constitute a debt of Arlington County within the meaning of any constitutional or statutory limitation nor a liability of or a lien or charge upon funds or property of the County beyond any fiscal year for which the County Board has appropriated moneys to make such payments. Based on the not to exceed bond sizing, average annual debt service associated with the ECC and ERP projects is anticipated to be $4.9 million. Average annual debt service associated with the remaining projects is anticipated to be $1.6 million. The maximum annual debt service for the bonds is anticipated to be $7.3 million in the first 10 years and $1.9 million for the remaining 10 years. The bonds will carry an optional redemption feature, or call provision, that allows them to be retired early at the option of the Authority and the County approximately 10 years from issuance. In conjunction with the sale, the Authority and the County will execute a Continuing Disclosure Agreement requirement as required by the Securities and Exchange Commission. The Authority and the County will also enter into a Bond Purchase Agreement with the underwriter. DISCUSSION: Additional information on each project includes: Trades Center Master Plan The Arlington County Trades Center is the location of field staff and equipment for Parks, Water Sewer Streets, Traffic Engineering, Solid Waste, and Vehicle Maintenance. The Fire Department and Schools also have facilities at the complex. In 1997 the County retained the services of an architect to assess operational and space needs at the Trades Center and develop a master plan for the complex. The need for a master plan was necessitated by a number of issues including an outdated Parks Operations building, insufficient parking, lack of storage, poor vehicular circulation and security, and the proposed redevelopment of Shirlington that would utilize a portion of the Trades Center. Implementation of the master plan will include a new 34,000 square foot Parks Operations building, multi-story parking deck for County and employee vehicles, Police impoundment lot and lab, storage facilities, chain shop, and vehicle wash. Construction is estimated to take 18-24 months. The total cost is estimated at $18.5 million. George Mason Center ACAP administrative and classroom space is for the most part located in the former Reed Elementary School and the Ballston Baptist Church. The Reed School building is scheduled for demolition as part of the new Westover Library project and the Ballston Baptist Church is a short term option. This project will renovate the 40-year-old George Mason Center, which will then be leased to ACAP. When completed, the renovation will include significant interior improvements, mechanical and electrical system upgrades and replacement, installation of an elevator to provide accessibility, and construction of a play area. Construction will begin this fall with move-in expected in the spring. Funding required for the project is $3.5 million. Authority to issue Lease Revenue Bonds - 5 -
Enterprise Resource Planning (ERP) Over the last eighteen months, the Departments of Human Resources, Management & Finance, and Technology Services have been developing a plan for the replacement of two of the County s core legacy applications: HR/Payroll and General Ledger/Accounts Payable. The urgency to replace these systems has become even more critical because the vendors of these systems will no longer provide technical support as of June 2005. The County s current systems are supported by staff nearing retirement age and over twenty percent of our workforce will reach retirement age during the next five years. The time is right to replace these critical and outdated systems with ones that provide the tools to support the information and service needs of the organization. Based on a combination of research, reports, vendor demonstrations, site visits and a business case study, the sponsoring departments recommend replacing the HR/Payroll and General Ledger/Accounts Payable systems with an integrated business suite, commonly known as Enterprise Resource Planning (ERP). The cost of implementing this solution is substantial, approximately $8.5 million. While this amount does not include implementation costs for the Schools or the Treasurer's Office (as recommended in the business case study), an ERP system will be able to support these future initiatives and in the long run will save money, time, and support resources. A multi-year implementation period combined with attractive financing options allows the $8.5 million expense to be spread out over a period of up to ten years to minimize the actual expenditures in any particular year. This will allow the County to modernize outdated and inefficient business processes without having to delay other important projects. Although there are tangible benefits to the project, there are many strategic business initiatives and intangible benefits that drive the recommendation to implement an ERP, such as: Improved customer service (internal and external) from enhanced, real-time data and selfservice tools. Better utilization and allocation of human resources Recruiting workforce of tomorrow as the Employer of Choice Institutionalization of business knowledge as our workforce nears retirement Empowered agencies making better decisions Increased employee and customer satisfaction Enhanced reporting capabilities (all organizational data stored and reported from one common database accessible to management in real-time) Seamless data integration between the various components of the system (i.e. purchasing, budget, and accounts payable). Authority to issue Lease Revenue Bonds - 6 -
An out-of the box ERP solution will require re-engineering in every business process to be implemented. There will be a significant culture change and change management issues must be addressed throughout the project. However, at the end of the project, the County will find that its people, systems, and business processes will have been integrated and transformed in a way that will better meet the challenges of the coming century and the e-government environment within which the County must work. A decision to move forward toward an ERP approach is also important to prevent the development of various non-integrated systems within Arlington County that will move ahead without the context of an overall ERP solution. Emergency Communication Center (ECC) The ECC project contemplates the built out in the 7 th Floor at the Police/ Court building at 1425 N. Courthouse Road. This space will house the ASTRO SmartZone audio switching and control equipment, and the console backroom electronics. The estimated cost for the build out is $5.1M. The ECC and the OSS staff have been working with a specialized vendor, who based on a set of specifications approved last December, has developed a system design that will meet the mission critical communication needs of Arlington County public safety and local government communities. The specialized vendor has proposed a new ASTRO Digital Trunked Simulcast System to replace the County s existing analog SMARTNET Simulcast System. The new system will provide reliable analog and digital communications; enhance radio dispatch; improve network management, alarm and control; and enhance feature set for the Public Safety Community. This system design incorporates the necessary equipment and, methodologies to successfully cutover the Arlington County user community from the one system to the other without missing a call. The cost of the system plus peripherals totals $28.3 million. Projects Total Cost The total cost of the four projects is $63,875,000. Of this total, $36,772,500 will be paid back in 10 years. This total includes the equipment for the ERP and the ECC projects. The remaining $27,102,500, for construction of the Trades Center Master Plan, the George Mason Center, and build out on the 7 th Floor of the Policy/Court facility, will be paid in 20 years. Project Cost 20 Year Amort. 10 Year Amort. % of Total Trades Center Master Plan 18,500,000 18,500,000 28.96% George Mason Center 3,502,500 3,502,500 5.48% ERP 8,500,000 8,500,000 13.31% ECC 33,372,500 5,100,000 28,272,500 52.25% Total 63,875,000 27,102,500 36,772,500 100.00% FISCAL IMPACT: The preliminary interest payment for FY 2005 is approximately $0.98 million, of which $0.324 million is for the Trades Center Master Plan; $0.06 million for the Authority to issue Lease Revenue Bonds - 7 -
George Mason Center; $0.105 million for the ERP project; and $0.49 million for the ECC project. The first principal payment will due in FY 2006. To cover the debt service for the Trades Center Master Plan and the George Mason Center, the County Manager proposes to use 2004 bonds premium and debt service savings for an amount equal to the debt service on the Authority Lease Revenue 2004 Bonds. The ECC debt service will be paid with the new E-911 wire line fee increment. Any excess in FY 2005 will be carried over to cover the FY 2006 debt service, including the first principal payment. To cover the ERP debt service, the County Manager proposes to use the $1.3 million approved by the County Board in the FY 2005 PAYGO budget. Any excess will be carried over to cover the FY 2006 debt service, including the first principal payment. If approved, this debt financing will free up PAYGO funds that the County will use to complete other essential capital projects in process. Authority to issue Lease Revenue Bonds - 8 -
A RESOLUTION OF THE COUNTY BOARD OF ARLINGTON COUNTY, VIRGINIA REQUESTING THE INDUSTRIAL DEVELOPMENT AUTHORITY OF ARLINGTON COUNTY, VIRGINIA TO ISSUE LEASE REVENUE BONDS TO FINANCE VARIOUS COUNTY CAPITAL PROJECTS WHEREAS, the County Board (the "County Board") of Arlington County, Virginia (the "County") has determined that it is necessary and advisable to undertake the acquisition, construction, improvement, renovation and equipping of certain capital projects, including various improvements to the County's Court/Police Facility that are a part of the relocation of the County's Emergency Communication Center, communications equipment, communication tower improvements, various improvements to the County's payroll and human resource systems, computer equipment, improvements to the County's George Mason Center and various improvements that are a part of the County's Trades Center project consisting of a warehouse, vehicle maintenance facility, equipment storage facility and parking deck, for the County (the "Projects"), and to obtain financing for the Projects through lease revenue bonds (the "Bonds") to be issued by the Industrial Development Authority of Arlington County, Virginia (the "Authority"). The County will lease certain of the Projects to the Authority pursuant to a lease (the "Lease") and will lease those Projects back from the Authority pursuant to a Financing Lease. The Bonds will be payable solely from the revenues derived from a Financing Lease between the Authority and the County ("Financing Lease") pursuant to which the County will agree to make rental payments, subject to annual appropriation, sufficient to pay the principal of and interest on the Bonds. WHEREAS, the Bonds will be issued pursuant to the following documents: (i) an Indenture of Trust between the Authority and a trustee to be selected by the County Manager or Authority to issue Lease Revenue Bonds - 9 -
the Director of the Department of Management and Finance (the "Trustee"), with the form of the Bonds attached thereto; (ii) the Lease; (iii) the Financing Lease; (iv) a Leasehold Deed of Trust from the Authority to the individual trustees named therein; (v) an Assignment of Rents and Leases between the Authority and the Trustee; (vi) a Preliminary Official Statement (the "Preliminary Official Statement") and an Official Statement (the "Official Statement") with respect to the issuance and sale of the Bonds; and (vii) a Bond Purchase Agreement (the "Bond Purchase Agreement") among the County, the Authority and the underwriters for the Bonds (the "Underwriters"). All of the documents listed above, except the Bonds, the Preliminary Official Statement and the Official Statement are referred to in this Resolution as the "Basic Documents". NOW, THEREFORE, BE IT RESOLVED BY THE COUNTY BOARD OF ARLINGTON COUNTY, VIRGINIA: 1. Issuance of Bonds. The County requests the Authority to issue its Bonds in the maximum aggregate principal amount of $66,500,000 to be paid from revenues derived from payments made by the County pursuant to the Financing Lease. 2. Authorization of Basic Documents. The Basic Documents are approved in substantially the forms on file with the County Board, with such changes, insertions or omissions (including, without limitation, changes of the dates thereof) as may be approved by the County Manager, the Director of the Department of Management and Finance or the Chairman of the County Board, whose approval shall be evidenced conclusively by the execution and delivery of the Basic Documents to which the County is a party. The execution and delivery of and performance by the County under the Bonds and the Basic Documents to which the County is a party are authorized. Authority to issue Lease Revenue Bonds - 10 -
3. Execution of Documents. The Chairman and the Vice Chairman of the County Board, the County Manager and the Director of the Department of Management and Finance, or any of them, are authorized to execute on behalf of the County the Basic Documents to which the County is a party, and, if required, the County Manager and the Clerk of the County Board are authorized and directed to affix or to cause to be affixed the seal of the County to the Basic Documents and to attest such seal. The Chairman and the Vice Chairman of the County Board, the County Manager and the Director of the Department of Management and Finance or their designees are authorized to execute and deliver on behalf of the County such instruments, documents or certificates, and to do and perform such things and acts, as they shall deem necessary or appropriate to carry out the transactions authorized by this Resolution or contemplated by the Basic Documents; and all of the foregoing, previously done or performed by such officers or agents of the County, are in all respects approved, ratified and confirmed. 4. Sale of Bonds. The Director of the Department of Management and Finance is authorized and directed to select a firm or firms to serve as Underwriters and the County Manager and the Director of the Department of Management and Finance, or either of them, are authorized and directed to consent to the terms of the sale of the Bonds by the Authority to the Underwriters and to execute and deliver the Bond Purchase Agreement, provided that (i) the true interest cost of the Bonds shall not exceed 6%, (ii) the aggregate principal amount of the Bonds shall not exceed the amount set forth in paragraph 1, (iii) the sale price of the Bonds to the Underwriters shall not be less than 97% of the aggregate principal amount thereof (not taking into account any original issue discount) and (iv) the final maturity of the Bonds shall not be later than approximately 21 years from their date. The approval of such officer shall be evidenced conclusively by the execution and delivery of the Bond Purchase Agreement. Authority to issue Lease Revenue Bonds - 11 -
5. Disclosure Documents. The Preliminary Official Statement is approved in substantially the form on file with the County Board, with such changes, insertions or omissions as approved by the County Manager or Director of the Department of Management and Finance. The County Manager or Director of the Department of Management and Finance, or either of them is authorized and directed to prepare and deliver the Official Statement. The use and distribution of the Preliminary Official Statement and Official Statement by the Underwriters is authorized and approved. The County Manager and Director of the Department of Management and Finance are authorized to execute the Official Statement, if required. The Preliminary Official Statement and Official Statement shall be published in such publications and distributed in such manner, including by electronic distribution, and at such times as the County Manager, or such officers and agents of the County as he may designate, shall determine. The County Manager, or such other officer or agent of the County as he may designate, is authorized and directed to deem the Preliminary Official Statement and Official Statement "final" for purposes of Securities and Exchange Commission Rule 15c2-12. 6. Nature of Obligations. Nothing in this Resolution, the Bonds or the Basic Documents shall constitute a debt of the County and the Authority shall not be obligated to make any payments under the Bonds or the Basic Documents except from payments made by or on behalf of the County under the Financing Lease. The County Manager is directed to submit for each fiscal year a request to the County Board for an appropriation to the Authority for an amount equal to the rental payments coming due under the Financing Lease for the next fiscal year. The County's obligations to make payments to the Authority pursuant to this Resolution shall be subject to and dependent upon annual appropriations being made from time to time by Authority to issue Lease Revenue Bonds - 12 -
the County Board for such purpose. Nothing in this Resolution, the Bonds or the Financing Lease shall constitute a pledge of the full faith and credit of the County. 7. Official Intent. The County Board adopts this Resolution as a declaration of official intent for purposes of Treasury Regulations Section 1.150-2. 8. Effective Date. This Resolution shall take effect immediately. Adopted this day of, 2004. Antoinette Copeland Clerk, Arlington County Board Authority to issue Lease Revenue Bonds - 13 -
CERTIFICATE OF THE CLERK OF THE COUNTY BOARD OF ARLINGTON COUNTY, VIRGINIA At a regular meeting of the County Board of Arlington County, Virginia, held on the 26 th day of June, 2004 the following County Board members were present as shown: PRESENT: On motion of, seconded by, the following Resolution was adopted by a majority of the members of the County Board by a roll call vote recorded as follows: MEMBER VOTE Dated:, 2004 Antoinette Copeland Clerk, Arlington County Board Authority to issue Lease Revenue Bonds - 14 -