Facility Financing
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SA LINAA irport
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EXECUTIVE DIRECTOR
3237 Arnold Ave.
Salina, Kansas 67401
Telephone (785) 827-3914 . FAX (785) 827-2221 . E-Mail trogers@salair.org
DATE:
September 12, 2006
TO:
SM Board of Directors
FROM:
Tim Rogers
SUBJECT:
SLN Aviation Service Center Facility Financing
As progress is being made marketing the SLN Aviation Service Center, I've started to focus more on
the issue of how to best finance the construction of the large hangar structures necessary to locate
aviation firms at the service center. To date our most promising prospects all require major, new facility
construction ranging in size from 50,000 SF to 250,000 SF. A key to adding new aviation and
aerospace jobs is our ability to quickly finance and build new buildings. The largest of the potential new
buildings would require up to $16.5 million in financing.
Bond financing appears to be the best financing option due to the amount of dollars required to execute
a single or multiple building construction program. It is not unreasonable to expect that the SM would
need to be able to finance from $5 million to $20 million of the new facility construction to locate new
tenants at SLN Aviation Service Center. Whether a single project or in the event of multiple projects,
bond financing is the best means to finance new construction.
The SM's enabling statute (KSA 27-312 to 27-323) sets the Authority's power to issue its own general
obligation bonds, revenue bonds, industrial revenue bonds and no-fund warrants. Specifically, KSA 27-
323 specifies the restrictions and limitations that the Authority's bond financing is subject to. Enclosed
is a copy of KSA 27-323.
Of the options made available by KSA 27-323 the use of general obligation bonds provides the
Authority the necessary flexibility. General obligation bonds are readily marketable, and funds can be
made available in less than 90 days with an initial issuance of general obligation temporary notes.
Temporary notes can be issued for a maximum offouryears. A four-year term provides sufficient time
to construct a facility, finalize lease negotiations, move in the tenant and start receiving rental
payments. General Obligation bond financing anticipates SM ownership of all new buildings and
improvements.
General obligation temporary notes can be paid off by either the issuance of long-term general
obligation bonds or leasehold revenue bonds. My preference would be to retire temporary notes with
leasehold revenue bonds tied to a facility lease with the new tenant. The use of leasehold revenue
bonds also provides future general obligation bond issuance capacity since a leasehold revenue bond
issue does not count towards the general obligation bond limit.
At the present time, the SM is limited from utilizing its general obligation bond powers for expensive
facility construction. This is due to the fact that the current general obligation limit (temporary notes
outstanding included) is too low and does not provide sufficient capacity for large scale (50,000 SF _
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300,000 SF) facility construction projects.
According to KSA 27-323 "The general obligation bonds of the authority shall not be issued in excess of
3% of the assessed valuation of all taxable tangible property within the City as shown by the
assessment books of the previous year." With the 3% limitation in mind, the SAA's current general
obligation issue capacity is calculated below:
Assessed Valuation - City Taxable Tangible Property (7/1/05)
SAA 3% Limitation
SAA Current outstanding G.O. Bonds
Current SAA G.O. Bond Capacity
$401,250,141
$12,037,504
$( 10.295.000)
$1,742,504
An amendment to KSA 27-323 to increase the 3% limit to 10% would provide the SAA sufficient G.O.
Bond capacity to finance multiple large SLN Aviation Service Center hangar facilities. A 10% limit
applied to current previous year assessed valuation would result in the following capacity:
Assessed Valuation - City Taxable Tangible Property (7/1/05)
Proposed SAA 10 % limitation
Current SAA Outstanding G. O. Bonds
SAA G.O. Bond Capacity
$401,250,141
$40,125,014
$(10,295,000)
$29,830,014
The cost to complete 300,000 SF of the new SLN Aviation Service Center buildings could be in excess
$25 million. An additional 300,000 SF has the potential of supporting over 250 new aviation and
aerospace jobs. The resulting payroll would exceed $11 million. According to the May, 2006 Kansas,
Inc. Kansas Aerospace Industry Forecast, aerospace employment is expected to increase at an
average rate of 2.41 % per year from 2006 through 2016. Each aerospace job generates approximately
3.9 total jobs upon both the employer's and employee's spending. 250 new aviation and aerospace
jobs for Salina and Saline County would have a profound effect on our local economy.
The Kansas, Inc. report also makes the key finding that "both commercial aviation and general aviation
are in growth modes that are forecast to continue for some time into the future." The report also states
"employment in the Kansas aerospace industry forecast to experience growth over the next ten years,
based upon key assumptions. That Kansas continues to be a national and world center of aerospace
manufacturing activity is the fundamental assumption underlying this forecast."
Existing provisions of KSA 27-323 provide for the focused use of in the SAA's general obligation bond
issuance limits. Already the SAA must submit a resolution setting the amount of general obligation
bonds to be issued to the City Commission for its approval or disapproved. By statute, the city
commission has the option to approve or disapprove. The commission may also direct publication of
the Authority's intent making the bond issue subject to public petition. I would anticipate that the City
Commission would request more detailed project information prior to taking action on a general
obligation bond request under an increased limit.
For a new SLN Aviation Service Center facility project I would provide to the City the following package
of information in addition to the required resolution:
1. Copy of a Letter of Intent to Lease from the tenant that will occupy the new facility. The
letter of intent should specify lease term, options, rental rates and other essential lease
terms such as maintenance and bond payment reserve funds.
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2. A full description of the tenant's business operation.
3. Economic impact information detailing jobs created, estimated payroll and value of the
local purchase of goods and services.
4. A full site development plan and construction cost estimates
5. G.O. Bond temporary note repayment method.
6. Projected long term G.O. Bond or Leasehold Revenue Bond debt service schedule.
An important point to keep in mind is that the additional general obligation bond financing for the new
SLN Aviation Service Center buildings and improvements would be paid off by the lease revenue paid
by the tenant. This means that mill levy revenues will not be used to payoff the bonds. The SANs
long-term plan for its mill levy is to remain at less than 3 mills. The development of a bond payment
reserve fund will minimize the need to use mill levy funds for debt service in the event of a lease
default.
With the SM Boards concurrence, I would like to begin the process of obtaining legislative approval for
the proposed amendment to KSA 27-323. This will require coordination with the City Commissioners,
County Commissioners, the Salina Area Chamber of Commerce, Salina/Saline County state legislators,
other key members of the Kansas Legislature and state agencies such as the Kansas Department of
Commerce. I will use services of Jim Gregory as our lobbyist to move the KSA 27-323 amendment
through the legislative process.
Please let me know if you have any questions or comments.
Notes:
1. Kansas Inc. was created by the Kansas Legislature in 1986 by the Kansas Legislature as an
independent, objective and non-partisan organization designed to conduct economic development
research and analysis with the goal of crafting policies and recommendations to insure the state's
ongoing competitiveness for economic growth.
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Kansas Legislature
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Home> Statutes> Statute
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27 -323
Chapter 27.--FEDERAL JURISDICTION
Article 3.--SURPLUS PROPERTY OF FEDERAL AGENCIES
27-323. Same; bonds; approval by city; election, when; conditions; revenue
bonds, conditions, restrictions and limitations; no-fund warrants; state or
municipality not liable for obligations of authority. The authority shall have power to
issue its own general obligation bonds, revenue bonds, industrial revenue bonds, and no-
fund warrants as provided by this section:
(a) If the authority desires to issue its general obligation bonds, the board of directors
of the authority shall adopt a resolution setting forth the principal amounts of bonds
proposed to be issued and the purpose for which the bonds are to be issued, and shall
forward a copy of such resolution to the mayor of the city. The mayor shall present such
resolution to the governing body of the city for its approval or disapproval. If the governing
body of the city, by appropriate ordinance, disapproves the resolution of the authority, no
further action shall be taken by the authority on the basis of the resolution. If the governing
L..'"ldy of the city, by appropriate ordinance, unconditionally approves the resolution of the
.Ahority, the governing body of the authority may proceed to authorize and issue the
general obligation bonds of the authority in the amount and for the purpose specified in the
resolution of the authority. The governing body of the city, however, upon the presentation
to it of the resolution of the authority, in lieu of disapproving or unconditionally approving
the resolution, may adopt a resolution giving its approval of the resolution of the authority
but directing the publication once in the official city newspaper of a notice setting forth the
intention of the authority to issue its general obligation bonds in the amount and for the
purpose specified in the resolution of the authority, and if within 15 days after the
publication of the notice there is filed with the city clerk a written protest against the
issuance of the general obligation bonds of the authority signed by not less than 20% of
the qualified electors of such city, the governing body of the city shall submit the proposed
improvement and the proposed general obligation bond issue of the authority to the
electors of the city at a special election to be called for that purpose upon at least 10 days'
notice, to be held not later than 60 days after the filing of such protest, or at a regular city
election or general election which will occur not sooner than 30 days nor later than 60
days after the filing of such protest. In the event that a majority of the voters voting on such
proposition at such election vote in favor thereof, such improvement may be made and
such general obligation bonds of the authority may be issued by the authority to pay the
cost thereof. General obligation bonds of the authority shall not be issued in excess of 3%
of the assessed valuation of all the taxable tangible property within the city as shown by
the assessment books of the previous year. The general obligation bonds of the authority
as to the term, maximum interest rate, and other details shall conform to the provisions of
.....~ general bond law. The full faith and credit of the authority shall be pledged to the
. Jyment of the general obligation bonds of the authority, including principal and interest,
and the authority shall annually levy a tax on all taxable tangible property within the city, in
addition to all other levies authorized by law, in an amount sufficient to pay the interest on
and principal of the bonds as the same become due. Such general obligation bonds of the
http://www.kslegislature.org/legsrv-statutes/getStatute.do
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authority shall not constitute a debt or obligation of the city which established and created
the authority.
(b) The authority may issue from time to time the revenue bonds of the authority for
~~e purpose of purchasing, constructing, or otherwise acquiring, repairing, extending, or
71proving any property or facility of the authority and may pledge to the payment of such
revenue bonds, both principal and interest, any rental, rates, fees or charges derived or to
be derived by the authority from property or facilities owned or operated by it. Such
revenue bonds of the authority shall mature not later than 40 years after the date of
issuance. The revenue bonds shall bear interest at a rate not exceeding the maximum rate
of interest prescribed by K.S.A. 10-1009, and amendments thereto. Such bonds shall
contain recitals stating the authority under which such bonds are issued, that they are
issued in conformity with the provisions, restrictions and limitations of such authority, and
that such bonds and interest thereon is to be paid by the issuing authority from any rental,
rates, fees or charges derived or to be derived by the authority from property or facilities
owned or operated by it and not from any other fund or source. The resolution authorizing
the issuance of revenue bonds of the authority may establish limitations upon the issuance
of additional revenue bonds of the authority and may provide that additional revenue
bonds shall stand on a parity as to the revenues of the authority and in all other respects
with revenue bonds previously issued by the authority on such conditions as specified in
the resolution. The resolution may include other agreements, covenants or restrictions
deemed advisable by the governing body of the authority to effect the efficient operation of
the property and facilities of the authority, and to safeguard the interests of the holders of
the revenue bonds of the authority, and to secure the payment of the bonds and the
interest thereon promptly when due. When an authority authorizes and issues its revenue
bonds under the provisions of this section, an amount of the net revenues of the property
and facilities of the authority sufficient for the purpose shall be pledged to the payment of
"'~ principal of and the interest on the bonds as the same become due, and it shall be the
. ..andatory duty of any authority issuing revenue bonds under this act to fix and maintain
rentals, rates, fees and charges for the use and services of the property and facilities of
the authority sufficient to pay the cost of operation and maintenance of such property and
facilities, pay the principal of and interest on all revenue bonds or other obligations issued
by the authority and chargeable to the revenues of the authority as and when the same
become due, provide an adequate depreciation and replacement fund, and create
reasonable reserves therefor, and to provide funds ample to meet all valid and reasonable
requirements of the resolution authorizing the revenue bonds. The bonds shall be
registered in the office of the secretary or clerk of the authority issuing the same and in the
office of the state auditor and shall not be offered for sale to the state school fund
commission.
(c) The authority may issue the industrial revenue bonds of the authority, such bonds
shall be issued in the manner provided by K.S.A. 12-1740 to 12-1749, inclusive, and
amendments thereto.
(d) The authority may issue its no-fund warrants under the conditions and in the
manner provided by law for the issuance of no-fund warrants by cities of the first class.
(e) The bonds, warrants, and other obligations and liabilities of the authority shall not
constitute any debt or liability of the state of Kansas or of the city which established and
created the authority, and neither the state nor the city shall be liable thereon.
History: L. 1965, ch. 117, 9 9; L. 1970, ch. 64, 9 72; L. 1978, ch. 99, 9 31; L. 1983,
ch. 49, 9 77; May 12.
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