The International Falls Economic Development Authority tomorrow will offer $11.5 million of taxable lease revenue bonds backed by a general obligation pledge of the federal government to finance construction of a new National Park Service headquarters.
Located on the Canadian border in northeast Minnesota, with a population of 6,300, International Falls has no outstanding debt. The transaction marks the authority’s first bond sale.
Minneapolis-based Northland Securities Inc. is the underwriter and Briggs and Morgan is bond counsel. The finance team plans to sell the bonds Tuesday, said Dick Asleson, senior vice president of Northland.
The bulk of the proceeds will be used to finance a new headquarters for park service employees who operate the nearby Voyageurs National Park, one of 58 national parks in the U.S.
“The city’s lease with the federal government requires that the project be complete by March 1, 2011,” Asleson said. “Keeping in mind that the city of International Falls has the title 'the icebox of the nation,’ construction season starts in May. So everything points toward this timing [of entering the market].”
Of the $11.5 million sale, $10.2 million will be used to finance construction, $281,400 will be used for costs of issuance and underwriter’s discount, and just under $1 million will be used to set up capitalized interest and debt service reserve funds in case the project hits delays.
For decades Voyageurs park employees have worked out of a former car dealership, and about 10 years ago began planning for a new building, according to Rodney Otterness, executive director of the EDA and International Falls’ city administrator.
The project is one piece of the city’s overall plan to develop 20 acres of a 70-acre waterfront area, he said, .
Debt service payments on the 20-year bonds will come from lease payments from the federal government, which will pay $1.3 million annually to lease the space from the city.
The lease payments are not subject to appropriation and carry the full faith and credit of the U.S. government.
Because the government is the tenant of the space, the bonds do not qualify as tax-exempt under the tax code.
Moody’s Investors Service rates the bonds A1 based on the triple-A rating of the federal government.
The rating reflects the government’s general obligation pledge as well as risks associated with the project.
Risks include construction delays, which are mitigated by capitalized interest and debt service reserve funds, as well as lease termination if the facility does not meet the government’s standards or is destroyed, Moody’s said.
As well, the possibility that International Falls would file for bankruptcy — a remote chance but one that is allowed under Minnesota law — is taken into consideration, according to Moody’s.
So far construction is on track, Otterness said. “We do believe this project will help spur further development on the waterfront and we are excited by that,” he said.
In addition to the new headquarters, planned projects include a heritage center and amphitheater as well as development of a hotel and restaurant and possibly a Homeland Security facility.
The city has spent roughly $1.3 million on developing infrastructure on the waterfront and hopes to secure federal and state financing for additional projects in the future, Otterness said.
“We do hope that a little bit of action prompts more action, and getting the park headquarters building in there helps with the overall vision for a vibrant waterfront area,” he said.