At its last meeting (on August 27, 2019), the Riverdale City Council unanimously approved entering into a memorandum of agreement (MOA) with Wellspire, LLC, a venture co-owned by Genesis Health Systems and WesleyLife. The agreement will allow Wellspire to utilize the city’s ability to issue “conduit” bonds totaling $10,000,000 to help finance a senior living facility to be located at Middle Road and 53rd Street in Bettendorf.
A formal announcement for the project, known as The Summit, was announced this past summer. The community will have over 100 independent living units as well as limited assisted and memory care units. There will also be twenty short-term, rehab suites and twenty medical suites at the facility. The total estimated cost of the project is in excess of $40,000,000.
The Council action, in the form of a resolution (Resolution 2019-29), authorized the mayor to execute the MOA with Wellspire, LLC on behalf of the City of Riverdale. The Council also authorized the mayor and city staff to take any other actions necessary to carry out the intent and purpose of the MOA, although the final decision whether to issue the bonds and the final amount of the issuance will be dependent upon further Council action (another vote).
The City Council will meet on September 24 at 7pm for a public hearing on this matter. Formal notice will be posted to the website, the City’s social media accounts, in the newspaper and on the bulletin board for such notices at City Hall.
What is a “Conduit Bond”?
Cities in Iowa are authorized by Chapter 419 of the State Code to issue bonds and loan the proceeds to a borrow to assist the borrower in financing projects like the Wellspire senior living community planned for Bettendorf. Bonds issued under this chapter are common methods of obtaining federally tax-exempt financing for non-profit corporations engaged in projects like this.
A city can issue conduit bonds for facilities located within the city limits and anywhere within eight miles of the boundary of the city – that’s why Riverdale can issue bonds for a project in Bettendorf.
These bonds are referred to as “conduit bonds” because the city acts as a conduit between the purchasers of the bonds and the borrower. These bonds are typically purchased by institutional investors (e.g. banks) and the proceeds of those bond sales are loaned to the borrower according to a loan agreement in which the borrower (Wellspire) agrees to repay the bonds.
Once the bonds are issued by the city, the city steps out of the picture and the repayments are made directly by the borrower to the bond purchasers. The city has no accoutning or processing responsibilities.
Does issuing conduit bonds have an effect on the City’s bonding capacity?
The short answer is “no.” These bonds do not count against the City’s contintutional debt limit. As specified in the State Code (#419.3), these bonds would never constitute an indebtedness of the city and would not make the city liable for repayment in the case of default.
The only affect issuing the conduit bonds has on the City’s bonding capacity is in the year in which the bonds are issued. For example, if we issue the maximum amount as a conduit bond, we won’t be able to issue any more bonds for the rest of the calendar year. After December 31st, though, we are able to issue bonds again.
How big can a conduit bond be?
Cities are capped at $10,000,000 per year in conduit bond capacity each calendar year. The City Council will be considering this amount at the public hearing on September 24.
Where can you find more information?
Here is a link to the resolution passed by the Council at our August 27, 2019 meeting. It includes lots of back-up documentation and a fairly straight-forward explainer as to how conduit bonds work and what issuing those bonds would mean to the City. Please read it and come informed to the public hearing on September 24th.