Thursday, March 31, 2005
focus on Forex study
Holly Springs Mayor Andre DeBerry and Ken Robinson, director of information technology, delved into their view of how a credit rating and bond registration by International Forex Financial Group (IFFG) would benefit the city.
After over an hour of presentations March 22, the topic was opened up for the aldermen to discuss and then the public in attendance, followed by a 3-2 vote for a Forex study.
The proceedings of that meeting follow.
Mayor introduces topic
DeBerry told an audience of about 40 and the board that some aldermen needed more information following a lengthy presentation by Robinson and DeBerry during the March 15 board meeting which lasted until about 10:30 p.m. The topic was also presented to the board at a special meeting of the board earlier in March.
DeBerry said that a board member (Tim Liddy) had met with Robinson after the March 15 meeting hoping to clear up some gray areas about the Forex study and to provide an example of a project that could follow as a result of the citys bond registration process.
Over the course of the last two months I have tried to lay out what we are trying to do, DeBerry said. As the board looks for support documents, if we look at our budget, about $5.4 million, about $1.3 million in revenue comes in through utilities. Taxes bring in about $800,000.
Those revenues bring in about 50 percent of the budget, he said.
As a rise in utility costs go up each year, customers are complaining about utility costs, DeBerry continued.
He said residents of Holly Springs are taxed 46 mills for the general city fund and most of the remainder of the 77 mills levied goes to the city school district.
As the school budget is being cut, a lot is going to fall back on local government to try to undergird and in some cases to carry the water, he said. As 50 percent of the citys budget comes from elsewhere, services are still expected to be rendered. Sales tax (increase) is not an option. Property tax (increase) is not an option. So on this third occasion we have tried to come up with a funding source to create new revenue for the city and job opportunities.
DeBerry said it is important for the city to look at the cost/benefit ratio - to look at new options for improving revenue.
He said he and Robinson were privy to information about a possible expansion of the energy producing sector and that there are four places in the country already doing that. He cited a $36 million appropriation from the U.S. Department of Energy for such projects and a $1 billion plant expansion in Minnesota.
We are poised with our political stature - Sen. Lott, Governor Barbour, President Bush and all their buddies from long back to make sure they provide for citizens of this state, said DeBerry. Sen. Cochran is aware that we have a good track record of working with Lott, Cochran and Wicker.
He admitted the board of aldermen held some concerns about moving forward on his proposals for a credit rating, bond registration and big project development.
What I am trying to get across is there is no certainty in life, he said. I wish I could tell you we could invest $180,000 (in the Forex study) with no risks. I cant tell you that. We do so based on an expectation of a sound return.
He said he provided figures for the board drawn up by a certified public accountant who had crunched numbers to make sure the proposed energy project was doable and plausible.
He said a project in the northern part of the state could bring in $140 million into the areas economy.
It is nothing that has ever happened in this state, not even Nissan, he said.
The project would be operated by Holly Springs Utility Department which would manage the proceeds and the profits, DeBerry said.
He cited increasing manufacturing in Mexico and China which he said were becoming financial giants.
We are a world economy. All this process (credit study and bond registration) does is get us on the team, he said. You cant play if you dont get on the team. If the board decides to do the financial checkup, the board still must come back through a resolution to order a decree for selling bonds. I dont have authority to do that; only the board can do that with a resolution and memorandum of understanding with the one selling the bonds.
The mayor said it is not the role of government to create wealth but to expand the wealth it creates - to expand opportunity.
We create opportunity for citizens to be able to have careers and not just jobs, he said.
Robinson expands on topic
Four states have taken advantage of an opportunity and qualified for Department of Energy funding - a federal investment of $800 billion - to support alternative sources of energy, Robinson said.
Our foreign dependence on energy is what this is all about, he said.
He cited interest in the automotive sector for alternative fuels, saying the United States has imported a lot of products and services and has to look to the global economy for ways to secure our future.
The alternative fuels we have before us now just happen to be aligned in proper location, he said.
He said Mississippi has coal reserves but only one coal production plant and there is enough coal in the United States to last 400 years.
Robinson said the production of alternative sources of fuels fits well with the citys utility company.
He mentioned the areas abundance of natural springs and shipments of coal over the railroads from the west where it is mined to the power plants in the east.
He said Kingsport, Tenn., is the industry leader in this area of energy and is willing to show what it is doing in this market to the city fathers.
He cited a 425-megawatt power plant built by the city of Tampa, Fla., and a 418-megawatt plant in Texas, and a natural gas pipeline running from Amarillo, Texas to Massachusetts that passes right by our back door.
So a lot of things are in the right position for the city to take advantage of if we so choose, he said. It is very important we look at alternatives that will give us a future where we can chart our destiny rather than receiving what is given us.
Robinson said he came back to Holly Springs to help people as he was helped.
Ive always watched us want to do better, to do more, he said. I believe of what Ive seen, this is a solid solution. It is not just that we have a utility company, but the resources we need to power the plant are all in this area.
He said he had presented the board with figures that support construction of such a plant.
DeBerry said a power plant would take three years to build and provide from 300 to 500 continuous jobs in the construction.
In the fourth year - 2008 - we would be looking at 800 to 900 permanent jobs with a payroll of $8 million to $9 million, he said.
Other industries associated with power production would be attracted, he said.
DeBerry said HSUD does not generate revenue from water and sewer services but does on gas and makes no money of electricity which is provided by the Tennessee Valley Authority.
So, we propose to develop another component in HSUD so revenue will come to us rather than to TVA, he said. In the end, thats what its all about.
Mountain Iron, Minn., is considering investing in a $1 billion plant, according to DeBerry.
Were interested in investing in one-third of that - $318 million, he said.
The bond issue of $318 million would be paid off with revenues generated and the city would do what it could to get state and federal support for the project, he said.
He admitted the idea had been a tough sell just trying to get information to the board so the board can make a rational decision.
The mayor asked the board not to get hung up on the $180,000 for the credit review which he said was a minimum cost but not a formidable one. The city spends that kind of money all the time, he said.
Were paying out to get something back in, said DeBerry. Thats all Im trying to get us to see.
Questions from the board
Alderman Russell Johnson asked what other states had done business with Forex for bond registration purposes. Robinson said Texas and one in Mexico.
They (Forex) do have a track record? Johnson asked.
They do, said Robinson.
Alderman Naylond Hayes asked what percentage of the project is possible to do for $180,000.
Robinson said the full process involves full disclosure of all the citys accounting practices and that $180,000 is the minimum cost for bond registration. The city and community would have to get through a rigorous audit and additional costs could be incurred beyond that if the city did not meet certain standards.
He said the audit was to protect investors who set the requirements.
So, if anything were found or seen it might cost the city money to correct so investors would come to the table, Robinson said.
Alderman Garrie Colhoun asked if bonding certification has anything to do with the physical plant or trying to locate one here.
In a sense it does, said DeBerry. The process gets you to the point where you are at a position where people can look at you to buy bonds.
You have to be rated A, AA, AAA? Colhoun asked. So if we dont fall in an AA or AAA, the whole process is not null and void?
Robinson said if the rating process turned up a glare point the city would have to do something to improve its rating.
The cost might be prohibitive to improve the rating, said Colhoun.
I wanted to make sure you understand the most important aspect is the plant, said Robinson.
It would be hard for us to float a $318 million bond issue, said Colhoun. I would like to know more about the product - what we are going to build. This process wont kill the other project if we are not AAA rated?
DeBerry said it would not.
Robinson said investors want to know what they are investing in and the credit rating helps that process.
I just want to make sure just because we are voting to do this, it does not obligate us for the $318 million plant, said Colhoun.
The mayor said the bond issue would be taken up separately after the citys financial checkup.
Its merely a process to get the financial checkup to go to the bond market to say we are a not a risk, he said.
He said the old retired bonds held by the city utility department would be rated by showing the payment history and there would be a city audit for the years 2001-2003. That information would be made available to bond buyers on a secure website, he said.
City board attorney Ki Jones weighed in with his concerns.
He said he was not consulted by the mayor and board in taking $180,000 out of the citys certificate of deposit for the financial checkup.
I have two concerns, Jones said. First it is not a part of this years budget and second is it legal. Has any contract by Forex been presented telling what services Forex will provide?
I would advise the board not to spend $180,000 without a contract detailing what is being provided, Jones said.
First to speak was W.A. McMillan.
It seems a little sad we wouldnt debate issues if we are talking about benefits coming to the city of Holly Springs, he said. I have some reservations, myself. I dont think anyone on the board would not want sidewalks.
Liddy said no one on the board has objected to the city looking at alternative ways to generate revenues - that the board was not advised of the energy project until the issue on bond ratings had been discussed two-thirds of the way through. He said he was only given hints or glimpses of what a project might be.
The debate we have now is the process of getting from point A to point B, he said. Im uncomfortable with the process of where this money is going to go and what we are getting for it.
The first process - there are many ways to go about that without looking at an international company not located in the United States.
Robinson said the United States has laws that prohibit international companies from being located in the United States but International Forex Financial Group has an office in Houston, Texas.
Would there be a way to have their representative come to talk to us? Liddy asked.
We dont do that; weve never done that on professional services, said DeBerry. A contract can only be executed by the mayor and city clerk and then the funds are expended.
We all know we have spent money before contracts were entered into. I stood on the bridge (Chulahoma Avenue bridge) and signed a contract. Lets dont play moving the pebbles. We accept the bid before we expend the contract.
We have not always had people come up here and sit with this board. We are not going to set a precedent that every time the mayor wants to do something, somebody has to come up here and explain it.
We are not going to be intelligently informed on everything that comes to the table.
Liddy said he didnt know there was a potential project until just weeks ago.
The mayor replied that the board of aldermen is a policy board and is not there every step of the way. We could not be keeping you in the dark, he said.
Thats not what I said, Liddy replied. Were talking about paying this company $180,000.
DeBerry said the work has already been done and the city has not paid a penny.
We have a right to craft a contract that protects the city, he said.
Scott Beggs entered the fray.
I understand that with a rating you look at the assets as one issue, he said. If the city of Holly Springs obtains a rating from this agency, it would be entirely different in rating for the bond issue.
Beggs said the two were separate processes and what that is obtained by the financial checkup would not carry forward to the bond issue.
DeBerry said IFFG does the bond registering also and the process allows bond buyers to view the rating of bonds.
A private investor would not be able to find the bond without a bond registration number, he said.
This is but one cog in the wheel, he said.
State Rep. Kelvin Buck asked how the figure of $180,000 was decided as the minimum payment for Forexs credit rating and registration service. He wanted to know how knowledgable the city is about IFFG.
Normally, there is a greater rate, said DeBerry.
He said the company is familiar and he has given the company vitas and dossiers. He said the board has been handed out supporting documents about the company.
Are they registered with the Mississippi Secretary of States office? Buck asked. Thats just one thing we deal with in the legislature. They (Forex) have come up with a figure of $180,000. Do they have specifications as to what you want them to do?
This is just a general process, said the mayor, a cookie cutter process for whomever they do this for.
It wont cost you more than $180,000? Buck asked.
It could if in the audit process they find something that does not meet international requirements, said Robinson. They could correct it, if the board wanted to do it.
I want to go back to another issue, said David Beckley. No bond rating. How have we existed for this many years without one?
City clerk Sandra Young answered that the city has no obligation bond indebtedness.
Beckley asked what would the upper limit of borrowing be for the city.
Young surmised that it would be as much as 15 percent of the citys assessed valuation, then withdrew that guess.
The mayor said the city has borrowing power of up to 35 percent of taxes projected for the next year.
I agree and disagree with you, Ki, said Beckley. Wouldnt you think the next step would be the detailed contract? Beckley said the city should do nothing without a contract.
I was not asked for a legal opinion, Jones said. I just wanted the audience to know as a board its great to go out and look. If its required to have a bond for an industry, weve gotten bonds without a rating.
Legally, it would be good to see a contract to see what you are getting for your money.
Jones asked what motion would be on the floor.
The board would authorize the mayor to execute a contract with IFFG for the stated purposes of bond registration, DeBerry said. The bond rating process and the future economic opportunities associated with this, the board would revisit down the road.
Beckley asked if the board approved that motion, would there be an opportunity later for the board to amend or rescind it.
DeBerry said IFFG has recommended a cooling off period between the motion and a contract. He is trying to move with expediency, he said, and that the bond issue would be delayed by waiting for a motion.
Do you all have statutes requiring you to do something within 60 or 90 days? Buck asked.
Any action taken by this board can be rescinded by the next board, the mayor said.
So, the laws relating to purchasing (before a municipal election) do not apply here? asked Buck.
We are talking about professional services, said DeBerry.
Alderman Nancy Hutchens weighed in next.
I dont think any of us sitting around this table are willing to step out on a limb from the get-go, because we were given only tidbits, she said. This CPA that brought these figures, where did they derive these figures? Did you talk to Jackson, Mississippi?
Hutchens said nobody knows the Forex company or if the state or federal government has been asked to be on a bond issue with the city.
Thats just a red flag thats come up. Speaking of $180,000 - weve lost money before. If were going to talk about rating, the people in Jackson say it can be done for $10,000.
It it takes that company to get the project, who is going to be the mesh between Forex and the energy company - a separate beast?
Hutchens asked why would the city do business with Forex when it could get a bond rating for $10,000.
And then on the projected revenue (from the energy project), somebody has got to buy this energy and if we have no revenue, everybody in the city has to pay them (the bond buyers) back.
At this juncture, Liddy made a motion to get three quotes for a credit study from three companies that have experience with advising municipal governments about the credit rating process.
Ill veto that, DeBerry said.
Johnson followed with a motion to support the mayors recommendation to pay Forex $180,000 for the process of registering existing and future bonds as well as the rating process for future economic development.
Hutchens argued that Johnsons motion was for appropriating money after the contract with Forex is available for review.
Your contract will still come back before the board for approval? asked Colhoun.
It is well within the boards provision to see the contract, DeBerry said.
So basically we are approving the expense ($180,000), said Liddy. What is the objection for getting a contract?
We dont bid for professional services; it is not required by statutes, said DeBerry.
This is not a motion on building a bridge, said Liddy.
The thing that I still want to get clear in my mind is this is for the process of getting the city a rating and open the door for possibly building an energy plant, said Colhoun. Is that where we are now? My concern is if we get bogged down ... and have to fix something for a rating, what will that cost? Do you think thats big money?
I dont know, Im not an accountant, said Robinson. Im just basically bringing up what the process would be.
Johnsons motion, seconded by alderman Naylond Hayes, was brought to vote and roll call.
The motion passed 3-2, with Colhoun voting aye, and Hutchens and Liddy opposing the motion.
When will we write a check? asked Young.
We will make a contract for the city and no check will be written until a contract is executed, DeBerry said. The attorney will be working with me to draw up a contract.
Liddy offered that he is new to the board and the board has no experience with bond issues.
Weve had to educate ourselves, he said. Personally, Im all for this energy part of it, and if we are going to be a player, the community will get audited. It not something we can go out and fix. It may take years. All the advice Ive had is from people who do this for a living who say this is not the process.
I still am uncomfortable with this company we cannot seem to find information about.
DeBerry said the process had been vetted.
Im not against the process of vetting, he said. Its nothing personal at the end of the day.
Johnson added that he did not think it unusual to do business with an international company that deals with international money and people.
I have confidence ... the international market is what the United States thrives on, he said.
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