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RESOLUTION 87-18789 RESOLUTION NO. 87-18789 A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, AMENDING THE INTERLOCAL AGREEMENT BY AND BETWEEN DADE COUNTY, FLORIDA, AND THE CITY OF MIAMI BEACH, FOR THE FINANCING OF EXPANSIONS AND IMPROVEMENTS TO THE MIAMI BEACH CONVENTION CENTER BY ADDING TO SECTION 5, A PARAGRAPH A, CONDITIONS FOR THIRD PARTY CONTRACTING AND A PARAGRAPH B, CONDITIONS CONCERNING THE SERVICE AMERICA, INC., CONCESSION AGREEMENT AND AUTHORIZING THE MAYOR TO EXECUTE THE NECESSARY DOCUMENTS. WHEREAS, the City of Miami Beach entered into an interlocal agreement with Metropolitan Dade County in December of 1984 for the purpose of issuing a County Special Obligation Bond for the expansion of the Miami Beach Convention Center; and WHEREAS, pursuant to the change in the Tax Codes enacted by the Tax Reform Act of 1986, the City must covenant that it will abide by the Act for third party contracts and concession agreements. NOW, THEREFORE BE IT DULY RESOLVED BY THE CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, that: 1. The Interlocal Agreement by and between Dade County, Florida, and the City of Miami Beach for the financing of the expansions and improvements to the Miami Beach Convention Center is hereby amended to include the following additions to Section 5 of the Agreement. Section 5A. The City of Miami Beach, Florida, hereby covenants that it will not enter into any contracts with a third party for the rental or use of the Miami Beach Convention Center which contain provisions that are inconsistent with, contrary to or violative of the following requirements of the Internal Revenue Service: All contracts shall not exceed five years (including renewal options) and shall contain the following provisions: 1. At least fifty percent (50%) of the compensation to any manager, other than a governmental unit is based on a periodic, fixed-fee basis; 2. No amount of compensation is based on a share of net profits; and 3. The governmental unit owning the facility may terminate the contract (without penalty) at the end of any three-year period. Section 5B. The City of Miami Beach covenants that so long as any Dade County Special Obligation Bonds (Miami Beach Convention Center Bonds) Series 1985 remain outstanding, the fees paid to the City pursuant to the contract with Service America, Inc., shall not exceed twenty-five percent (25%) of the annual principal and interest payments on all bonds which remain outstanding with regard to the Miami Beach Convention Center. 2. The City of Miami Beach hereby authorizes the Mayor, in his absence, the Vice-Mayor, to execute any documents for the above amendment to the Interlocal Agreement. 3. The above additions to the Interlocal Agreement constitute the second amendment to the Agreement. PASSED and ADOPTED this .18th day of March 1987. c r Ce Mayor Attest: City Clerk APPROVED AS TO FORM: 4,71 . 2, tgat,tie Legal Department Dated 2-1447 LANGUAGE FOR INTERLOCAL AGREEMENT The City covenants that it will not enter into any contracts with a third party for the rental or use of the Miami Beach Convention Center which contain provisions that are inconsistent with, contrary to or violative of the following requirements of the Internal Revenue Service : All contracts shall not exceed five years (including renewal options ) and shall contain the following provisions : 1 . At least fifty ( 50% ) percent of the compensation to any manager other than a governmental unit is on a periodic, fixed-fee basis ; 2 . No amount of compensation is based on a share of net profits ; and 3 . The governmental unit owning the facility may terminate the contract (without penalty) at the end of any three-year period. The City covenants that so long as any Dade County Special Obligation Bonds (Miami Beach Convention Center Bonds ) Series 1985 remain outstanding, the fees paid to the City pursuant to the contract with Service America, Inc. shall not exceed twenty-five ( 25% ) percent of the annual principal and interest payments on all bonds which remain outstanding with regard to the Miami Beach Convention Center. dr 2k Y.� SUMMARY OF THE LAW BACKGROUND The purpose of this summary is to explain to you the practical reasons for the two covenants required by the County from the City. The Memorandum of Law prepared by Kutak Rock & Campbell after consultation with tax attorneys of my firm (the "Memo" ) covers the technical IRS provisions. I hope to provide you with an analysis in lay terms. The Tax Reform Act of 1986 eliminated tax-exempt financing for convention centers through the issuance of private activity bonds. This is significant since a facility owned by a government entity which is used by the private sector to such an extent that it would not be eligible for tax-exempt financing as a governmental facility would no longer be eligible for tax-exempt financing. Moreover, it tightened the test which the IRS utilizes to determine whether bonds will be traditional governmental bonds or private activity bonds. As the Memo points out, the percentage of private use permitted for a governmental facility was reduced from twenty-five ( 25% ) percent to ten (10% ) percent. When the County issued the original bonds in 1985 (the "1985 Bonds" ) , the test which we applied to the contracts at the Convention Center was twenty-five ( 25% ) percent. If the current ten (10% ) percent rule was in effect at that time, the bonds would not have qualified as governmental bonds. In order to assist a governmental entity which finances one of its facilities through the issuance of tax-exempt bonds such as a convention center, the IRS has developed guidelines which, if followed, would preserve the governmental character of the facility. The guidelines set forth certain provisions which must be included in all contracts with private entities with regard to the use of the facility. Those guidelines are set forth verbatim in the covenant which we are asking the City to give in the Interlocal Agreement. ADVANCE REFUNDING The Tax Reform Act of 1986 includes a transition rule for advance refundings of governmental bonds. As you know, the County is currently planning to refund a portion of the 1985 Bonds which at the time of their issuance were classified as governmental bonds. The County will receive approximately $2 million in present value savings at the time of the refunding which will be available to the City for the construction and expansion of the Convention Center. The transition rule provides that the twenty-five ( 25% ) percent test will be utilized instead of the ten (10% ) percent test to determine whether the 1985 Bonds are still governmental bonds and whether it is reasonable to assume that they will remain governmental bonds until paid off or refunded. As a result, it is important for the City to maintain the governmental status of the 1985 Bonds in order to qualify for the advance refunding. The current financing contemplates -2- that the 1985 Bonds will be paid off or defeased by 1992 . In order to maintain the governmental status of the 1985 Bonds , the City must enter into the two covenants which I have presented to you for inclusion in the Interlocal Agreement. By complying with those two covenants, the City will assure the County that the 1985 Bonds will not be deemed to be private activity bonds as a result of any current or future contracts between the City and users of the facility. The first covenant merely requires the City to comply with current law. So long as the City enters into contracts with users of the Convention Center which are not contrary to, inconsistent with or violative of the IRS guidelines, the 1985 Bonds will maintain their governmental status. Since the City has already entered into a contract for the concession portion of the facility which is not within the - guidelines of the IRS, it is important for the City to limit the amount of money it receives from the concession contractor while the 1985 Bonds are outstanding. As long as the amount of money collected by the City from the contractor annually is less than twenty-five (25%) percent of the annual debt service on all bonds issued and outstanding at that time, the 1985 Bonds will retain their governmental status in spite of the concession contract. From our discussions with Norman Litz, it appears that neither one of these covenants will have an adverse effect -3- on the City. The contracts typically used by the City for events such as the Boat Show, Home Show, etc. are within the IRS guidelines He did mention, however, that he was considering an arrangement with an electrical contractor which would require all private users to contract with the electrical contractor. We advised him that such a contract and similar contracts (telephone ) may violate the IRS provisions and that he should seek advice before entering into such a contract. As a practical matter, therefore, the first covenant requiring the City to include certain provisions in its long term contracts (less than five years ) will not affect the operation of the Convention Center. With regard to the Service America Contract, Norman Litz advised us that he estimated that by the year 1995 the concession contract may be generating over $1 million per year in revenues to the City. Until that time he anticipates the • amount will be less than $1 million. The current debt service for the bonds is approximately $4 . 8 million. The Underwriter has indicated that the debt service will remain approximately the same after the refunding and the new money issue. As a result, the City would only jeopardize the governmentalstatus of the 1985 Bonds if it were to collect more than $1.2 million per year from the Service America Contract while the 1985 Bonds are outstanding. Since the bonds are scheduled to be def eased or redeemed by 1992, the covenant by the City not to collect more than twenty-five -4- 73 ( 25% ) percent of the annual debt service is not an important factor. By the time the City expects to receive an amount of money which may come close to twenty-five ( 25% ) percent of its annual debt service, the 1985 Bonds should be paid off and def eased. I hope that the foregoing Summary is helpful to you. If you would like to discuss the matter further, please feel free to contact me at your convenience. -5- ORIGINAL RESOLUTION NO. 87-18789 (Amending the Interlocal AgiE by and between Dade County, Florida, and the City of Miami Beach, for the financing of ex- pansJons and improvements to the Miami Bch, Convention Center by adding to §5, aara- graph A, conditions for third party con- tracting and a paragraph B, conditions concerning the Service America, Inc. , con- cession agreement and authorizing the Mayor to execute the necessary documents)