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I1. Reso 5798 - ROI - Immanuel Lutheran Bond IssuanceCity of Kalispell Charles A. Harball Office of City Attorney City Attorney 201 First Avenue East P.O. Box 1997 Kalispell, MT 59903-1997 MEMORANDUM Tel 406.758.7709 Fax 406.758.7771 charball@kalispell.com TO: Doug Russell, City Manager FROM: Charles Harball, City Attorney SUBJECT: Resolution No. 5798 — Preliminary Resolution for Issuance of up to $75,000,000 City of Kalispell, Montana Housing and Healthcare Facilities Revenue Bonds (Immanuel Lutheran Project) and Calling for a Public Hearing MEETING DATE: January 17, 2017 — Regular Council Meeting BACKGROUND: The City has previously acted as the issuer of bonds for the Immanuel Lutheran Corporation [ILC] capital improvement projects on its properties on Buffalo Hill. Most recently the bond funding mechanism was used by the City for ILC in April, 2016. Now, as ILC continues to move forward on its capital improvement master plan, it seeks to refinance the existing debt structure on more advantageous terms and obtain further bonding for its projects. The City is in the position, as a municipal government, to be the necessary conduit issuer of the bonds under the terms required to issue Montana Housing and Healthcare Facilities Bonds. Bond Counsel for the City has provided a memorandum explaining the terms of the financing structure as it affects the City. He explains that the 2016 bonds issued by the City will be retired and replaced with the 2017 bonds. The projects that are being financed are described as being beneficial to the city's residents. The bonds shall not be a general or moral responsibility of the city and the full faith and credit and taxing power of the city will not be pledged as security for the bonds. ILC shall provide a guarantee to reimburse the City for any lost "bank qualified" borrowing opportunities it may experience as a result of this issuance. ILC shall pay the City's bond counsel costs. RECOMMENDATION: It is recommended that the Council consider and pass the offered resolution. ALTERNATIVES: Upon consideration of the proposal the Council may reject the resolution. Memorandum To: Doug Russell, City Manager Charlie Harball, City Attorney City of Kalispell, Montana From: Ben Johnson, Barnes & Thornburg LLP Date: January 10, 2017 Re: Issuance of up to $75,000,000 City of Kalispell, Montana Housing and Healthcare Facilities Revenue Bonds (Immanuel Lutheran Corporation Project) Series 2017AB/C You have requested a memorandum describing and explaining the proposed issuance of bonds requested by the Immanuel Lutheran Corporation of Kalispell, Montana, a Montana nonprofit corporation (the "Borrower") with respect to the up to $75,000,000 Housing and Healthcare Facilities Revenue Bonds (Immanuel Lutheran Corporation Project) Series 2017A/B/C (the "Series 2017 Bonds") proposed to be issued by the City of Kalispell, Montana (the "City"). This memorandum (the "Memo") will describe the proposed issuance of the Series 2017 Bonds (the "Transaction") and the City's role in the proposed Transaction and certain legal considerations for the City with respect to the proposed Transaction. The Series 2017 Bonds may be issued in one or more series of taxable or tax-exempt bonds with various maturity dates. Enclosed with this Memo is the form of a resolution of the City Council of the City that provides for preliminary approval of the issuance of the Series 2017 Bonds and also calls for a public hearing as required under Montana and federal law with respect to the Series 2017 Bonds and the improvements to the Borrower's campus to be financed and refinanced by proceeds of the Series 2017 Bonds. Background. The information under this section of the Memo is to provide background relating to the issuance of the Series 2017 Bonds for the City Council and City staff. On April 1, 2016, the City issued its (a) Housing and Healthcare Facilities Revenue Refunding Bonds (Immanuel Lutheran Corporation Project), Series 2016A (the "Series 2016A Bonds"), issued in the original aggregate principal amount of $12,537,000, and (b) Housing and Healthcare Facilities Revenue Bonds (Immanuel Lutheran Corporation Project), Series 2016B (the "Series 2016B Bonds," and together with the Series 2016A Bonds, the "Series 2016 Bonds"), issued in the original aggregate principal amount not to exceed $21,095,000 and loaned the proceeds of the Series 2016 Bonds to the Borrower under the terms of a Loan Agreement, dated as of April 1, 2016 (the "2016 Loan Agreement"), between the City and the Borrower. The Series 2016 Bonds are special, limited obligations of the City payable solely from loan payments to be made by the Borrower under the terms of the Loan Agreement and a Continuing Covenant Agreement, dated as of April 1, 2016 (the "2016 CCA"), between the Borrower and Compass Bank d/b/a BBVA Compass (the "2016 Lender"), as purchaser of the Series 2016 Bonds. The Series 2016 Bonds are not a general or moral obligation of the City and the full faith and credit and taxing power of the City are not pledged to the payment of the Series 2016 Bonds. The Series 2016 Bonds are a conduit revenue bond and the City did not have any repayment obligation with respect to the Series 2016 Bonds. The proceeds of the Series 2016 Bonds were used by the Borrower to (i) financing the redemption and prepayment of the Issuer's Housing and Healthcare Facilities Revenue Bond (Immanuel Lutheran Corporation Project), Series 2010 (the "Series 2010 Bonds"); (ii) financing the costs of the installation, renovation, rehabilitation, and equipping of certain capital improvements to the Housing Facility and the Nursing Facility consisting of (a) renovation of the skilled nursing unit wing of the Nursing Facility, (b) the construction and equipping of 32 short term rehab units, (c) the construction and equipping of 24 memory care residences, and (d) certain predevelopment costs for future development of the Borrower's campus in the City, including but not limited to the construction and equipping of 36 independent senior living apartments (collectively, the "2016 Project"); and (iii) the financing all or a portion of the costs of issuing the Series 2016 Bonds (including the City's administrative fee related to the original issuance of the Series 2016 Bonds). The Series 2016 Bonds were issued by the City under the terms of (i) Montana Code Annotated, Title 90, Chapter 5, Part 1, as amended (the "Act"), (ii) Resolution No. 5750 of the City Council of the City adopted on January 19, 2016; and (iii) a Bond Indenture of Trust, dated on or after April 1, 2016 (the "2016 Indenture"), between the City and U.S. Bank National Association, as bond trustee (the "2016 Trustee"). On January 19, 2016, prior to adoption of the 2016 Resolution, the City held a public hearing with respect to the 2016 Project, the use of the proceeds of the Series 2016 Bonds, and the 2016 Bonds after notice of such public hearing was published in accordance with the provisions of the Act and Section 147 of the Internal Revenue Code of 1986, as amended (the "Code"). The 2016 Project in not entirely complete. The Borrower is proposing that the City issue the Series 2017 Bonds in the Transaction. The Borrower will apply the proceeds derived from the Series 2017 Bonds for the purpose of: : (i) the redemption and prepayment of the Series 2016 Bonds; (ii) financing the costs of the installation, renovation, rehabilitation, and equipping of certain capital improvements to the Housing Facility and the Nursing Facility consisting of (a) the construction and equipping of 36-units of independent living in villas, (b) the construction and equipping of a "community center meeting room that can be used for resident gatherings as well as hosting the greater community and (ii) an indoor pool and related changing rooms to expand the Corporation's wellness and fitness offerings, and (c) the renovation of certain portions of the Nursing Facility (collectively, the "2017 Project"); (iii) the funding of certain reserves and capitalized interest for the Bonds; (iv) the financing all or a portion of the costs of issuing the Bonds (including the City's administrative fee related to the original issuance of the Bonds); and (v), if necessary, fund an interest rate swap termination payment. The Series 2017 Bonds are proposed to be issued by the City under the terms of (i) the Act, (ii) a resolution of the City Council of the City to be adopted in February 2017 after a public hearing called under the terms of the enclosed preliminary, conditional resolution for the Series 2017 Bonds (the "Preliminary Resolution"); and (iii) a Bond Indenture of Trust, dated on or after April 1, 2017 (the "2017 Indenture"), between the City and U.S. Bank National Association, as bond trustee (the "2017 Trustee"). If the City Council adopts the enclosed preliminary resolution, the City Council will hold a public hearing with respect to the 2017 Project, the refunding of the Series 2016 Bonds, and the issuance of the Series 2017 Bonds at the City Council meeting on February 21, 2017, after the publications required under the terms of the Act and the Section 147 of the Code. Like the Series 2016 Bonds, it is proposed that the proceeds of the Series 2017 Bonds would be loaned by the City to the Borrower under the terms of a Loan Agreement, dated on or after April 1, 2017 (the "2017 Loan Agreement"), between the City and the Borrower. The Series 2017 Bonds would be special, limited obligations of the City payable solely from loan payments to be made by the Borrower Immanuel Lutheran Corporation Bond Memo Page 2 under the terms of the 2017 Loan Agreement. The Borrower has engaged B.C. Ziegler & Company (the "Underwriter") to act as underwriter on a public sale of the Series 2017 Bonds. The Series 2017 Bonds are proposed to be issued as long-term fixed interest rate bonds with a final maturity date of approximately 35 years from their date of issuance. The final terms of the Series 2017 Bonds will be set forth in a Bond Purchase Agreement or Bond Purchase Contract (the "BPA") between the City, the Borrower, and the Underwriter. The Underwriter will use a Preliminary Official Statement ("POS")to market the Series 2017 Bonds to prospective purchasers, but, unlike the City's general obligation bond sales, the City is not the responsible party for the POS since the credit of the City is irrelevant to an investment decision with respect to the Series 2017 Bonds since they are conduit revenue bonds. The Series 2017 Bonds will not be a general or moral obligation of the City and the full faith and credit and taxing power of the City will not be pledged to the payment of the Series 2017 Bonds. The Series 2017 Bonds will be a conduit revenue bond and the City will not have any repayment obligation with respect to the Series 2017 Bonds. In order to provide for the issuance of the Series 2017 Bonds, the City, the Underwriter, and Trustee will need to enter into the 2017 Indenture, the 2017 Loan Agreement, the BPA, and any other documents and certificates as requested by Bond Counsel and the Underwriter. The Borrower and the Underwriter are requesting that the City Council of the City adopt the Preliminary Resolution on Januaryl7, 2017 preliminarily approving the Transaction and authorizing the publication of the notice of the public hearing and setting the date for such hearing on February 21, 2017. As bond counsel to the City ("Bond Counsel"), we have prepared the Preliminary Resolution on behalf of the City and will be acting as Bond Counsel with respect to the proposed Transaction. I also acted as bond counsel to the City with respect to the issuance of the Series 2016 Bonds and other prior conduit revenue bonds that the City issued for the benefit of the Borrower. As Bond Counsel to the City, we will be reviewing the proposed Transaction and working with the Borrower, Borrower's counsel, the Underwriter, and Underwriter's counsel to make sure that the Transaction is done in a manner that maintains the tax-exempt status of the Series 2017 Bonds that are intended to be tax-exempt and also to provide that the Series 2017 Bonds are validly issued under Montana law. We will also be drafting the appropriate certifications of the Underwriter and the Borrower and also working with the Underwriter and the Borrower so that the proper documentation is in place. Legal Discussion. The Series 2017 Bonds are proposed to be issued in one or more series of taxable or tax-exempt bonds under both federal and Montana law. In order for certain of the Series 2017 Bonds to be issued as tax-exempt obligations, the City must approve the proposed Transaction and execute and deliver the Series 2017 Bonds and related documents to the Underwriter in order to provide funds to the Borrower to finance the 2017 Project and refinance the Series 2016 Bonds on a tax-exempt basis. Although City is not obligated to repay the Series 2017 Bonds, the City is required to be the technical maker of the Series 2017 Bonds since only states or local units of government may issue tax-exempt bonds. The Borrower cannot borrow funds on a tax-exempt basis without a bond or note being issued through a local unit of government such as the City. If the City does not adopt the Preliminary Resolution and subsequent final resolution, then the City will not have approved the Transaction and the Series 2010 Bonds will not be refunded and the Borrower will not complete the financing of the 2017 Project on a tax-exempt basis. The proposed public hearing on the Series 2017 Bonds is also a necessary requirement under the Act and federal law in order for the Series 2017 Bonds to be issued as tax-exempt bonds. Immanuel Lutheran Corporation Bond Memo Page 3 The City has favorably used its ability to designate its own tax-exempt bonds as bank qualified in the past and local Kalispell banks have loaned funds to the City utilizing this designation. Examples of prior City bank qualified tax-exempt borrowings include the City's (i) limited tax bond for a new fire truck, and (ii) general obligation refunding bonds in 2013. The aggregate principal amount of the proposed tax-exempt Series 2017 Bonds is greater than $10,000,000. Under the current Code, the principal amount of any issuance of tax-exempt debt by the City for the benefit of a 501(c)(3) organization (nonprofit) such as the Borrower counts against the City's ability to designate the City's own tax-exempt bonds in calendar year 2017 for new money projects (such as a new road project) as "qualified tax-exempt obligations" under Section 265 of the Code. These tax- exempt bonds are commonly referred to as "bank qualified" bonds. The principal amount of the Series 2017 Bonds counts against the City's calendar year bank qualification limit. Therefore, in the year the Transaction is finalized, the City will not have the ability to designate the City's own new money tax- exempt bonds as bank qualified because the principal amount of the Series 2017 Bonds is more than $10,000,000. The City will still be able to issue certain current refunding bond issued to refinance outstanding City issues as "bank qualified" if the City meets certain technical requirements under the provisions of the Code. In the draft 2017 Loan Agreement, we have drafted a provision that provides for a reimbursement mechanism to the City by the Borrower in the event that the City needs to issue any unanticipated tax- exempt bonds that would otherwise have been "bank -qualified" but for the issuance of the Series 2017 Bonds. The "bank -qualification" reimbursement provision in the 2017 Loan Agreement is intended to hold the City's taxpayers harmless in the event that the issuance of the Series 2017 has the result of causing the interest rate on an unanticipated 2017 City borrowing costing more in interest over its term. Conclusion. The City will not obligated to pay any City funds with respect to the Series 2017 Bonds since the Series 2017 Bonds will be conduit revenue bonds that are special, limited obligations of the City payable solely from the revenues of the Borrower. The proposed Transaction and adoption of the 2017 Resolution does not change this fact and the City will not be liable with respect to the Series 2017 Bonds. Also, consistent with the process for the issuance of prior conduit revenue bonds such as the Series 2016 Bonds, the Borrower is the party responsible for paying our fees as the City's Bond Counsel. As Bond Counsel to the City, we would advise the City Council to adopt the Preliminary Resolution and call for the public hearing on February 21, 2017. The adoption of the Preliminary Resolution is conditional in nature and does not obligate the City to issue until after the public hearing and adoption of a final bond resolution. The proposed Transaction does not provide for any liability of the City with respect to the Series 2017 Bonds. Consistent with the approval process for the Series 2016 Bonds, I will be in attendance at the City Council meeting on February 21, 2017 and I will be able to answer any questions that the City Council or the public may have with respect to the issuance of the Series 2017 Bonds. Please do not hesitate to contact me at bjohnson@btlaw.com or (612) 367-8794 if you or any members of the City Council have any questions regarding the proposed Transaction, this Memo, or the Series 2017 Bonds. 06139-4 (BWJ) 45826I 4x .1 Immanuel Lutheran Corporation Bond Memo Page 4 CERTIFICATE AS TO RESOLUTION AND ADOPTING VOTE I, the undersigned, being the duly qualified and acting recording officer of the City of Kalispell, Montana (the "City"), hereby certify that the attached resolution is a true copy of a Resolution entitled: "RESOLUTION RELATING TO ISSUANCE OF REVENUE REFUNDING BONDS AND REVENUE BONDS, THE PROCEEDS OF WHICH WILL BE LOANED TO THE IMMANUEL LUTHERAN CORPORATION OF KALISPELL, MONTANA FOR THE REFINANCING OF CERTAIN REVENUE BONDS PREVIOUSLY ISSUED BY THE CITY OF KALISPELL AND THE FINANCING OF CERTAIN CAPITAL IMPROVEMENTS TO BE MADE TO THE CAMPUS OF IMMANUEL LUTHERAN HOME LOCATED IN THE CITY OF KALISPELL; CALLING FOR A PUBLIC HEARING WITH RESPECT TO THE ISSUANCE OF SUCH REVENUE BONDS; GRANTING PRELIMINARY APPROVAL TO THE ISSUANCE OF SUCH REVENUE BONDS; ESTABLISHING COMPLIANCE WITH CERTAIN REIMBURSEMENT REGULATIONS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND TAKING CERTAIN OTHER ACTIONS WITH RESPECT THERETO" (the "Resolution"), on file in the original records of the City in my legal custody; that the Resolution was duly adopted by the City Council of the City at a meeting on January 17, 2017, and that the meeting was duly held by the City Council and was attended throughout by a quorum, pursuant to call and notice of such meeting given as required by law; and that the Resolution has not as of the date hereof been amended or repealed. I further certify that, upon vote being taken on the Resolution at said meeting, the following City Council members voted in favor thereof: voted against the same: abstained from voting thereon: or were absent: WITNESS my hand officially this day of January, 2017. Aimee Brunckhorst, CMC City Clerk RESOLUTION NO.5798 RESOLUTION RELATING TO ISSUANCE OF REVENUE REFUNDING BONDS AND REVENUE BONDS, THE PROCEEDS OF WHICH WILL BE LOANED TO THE IMMANUEL LUTHERAN CORPORATION OF KALISPELL, MONTANA FOR THE REFINANCING OF CERTAIN REVENUE BONDS PREVIOUSLY ISSUED BY THE CITY OF KALISPELL AND THE FINANCING OF CERTAIN CAPITAL IMPROVEMENTS TO BE MADE TO THE CAMPUS OF IMMANUEL LUTHERAN HOME LOCATED IN THE CITY OF KALISPELL; CALLING FOR A PUBLIC HEARING WITH RESPECT TO THE ISSUANCE OF SUCH REVENUE BONDS; GRANTING PRELIMINARY APPROVAL TO THE ISSUANCE OF SUCH REVENUE BONDS; ESTABLISHING COMPLIANCE WITH CERTAIN REIMBURSEMENT REGULATIONS UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND TAKING CERTAIN OTHER ACTIONS WITH RESPECT THERETO. BE IT RESOLVED by the City Council (the "City Council") of the City of Kalispell, Montana (the "City"), as follows: Section 1. Recitals. 1.01. Montana Code Annotated, Title 90 Chapter 5 Part 1, as amended (the "Act"), authorizes the City to issue revenue bonds for the purpose of defraying the cost of acquiring or improving any land, building, other improvement, and real or personal property considered necessary in connection with an improvement that is suitable for: (i) commercial, manufacturing, agricultural, or industrial enterprises; (ii) recreation or tourist facilities; (iii) local, state, and federal governmental facilities; (iv) multifamily housing; (v) hospitals; (vi) long-term care facilities; (vii) community -based facilities for individuals who are persons with developmental disabilities as defined in Montana Code Annotated Title 53 Chapter 20 Part 102, as amended; (viii) medical facilities; (ix) higher education facilities; (x) electric energy generation facilities; (xi) family service provider facilities; (xii) the production of energy using an alternative renewable energy source as defined in Montana Code Annotated, Title 90 Chapter 4 Part 102, as amended; and (xiii) any combination of these projects. As a condition to the issuance of such revenue bonds, the City must hold a public hearing in accordance with the requirements of Section 147(f) of the Internal Revenue Code of 1986, as amended (the "Code"), and the requirements of the Act. 1.02. Immanuel Lutheran Corporation of Kalispell, Montana, a Montana nonprofit corporation (the "Borrower"), currently owns and operates (i) a 155-bed nursing home facility known as Immanuel Lutheran Home, located at 185 Crestline Avenue in the City (the "Nursing Facility"), and (ii) a [112][106]- unit senior retirement apartment facility (currently comprised of approximately [70] [48] senior independent living units and [42][58] senior assisted living units) known as Buffalo Hills Terrace (the "Housing Facility") located adjacent to the Nursing Facility at 40 Claremont Street in the City. 1.03 In 1992, the City previously issued its Housing Facilities Refunding Revenue Bonds (Buffalo Hills Terrace Project), Series 1992 (the "Series 1992 Bonds") under the provisions of the Act, and loaned the proceeds thereof to the Borrower for the purpose of financing the acquisition and construction of the Housing Facility. 1.04. In 1992, the Borrower borrowed from Norwest Bank Montana, N.A., pursuant to two mortgage notes (the "Norwest Bank Loans") for the purpose of financing capital improvements to the Nursing Facility and the Housing Facility. 1.05 In 1997, the City issued its Housing Facilities Refunding Revenue Bonds (Immanuel Lutheran Corporation Project), Series 1997A, and Health Care Facilities Revenue Bonds (Immanuel Lutheran Corporation Project), Series 1997B (collectively, the "Series 1997 Bonds") under the provisions of the Act, and loaned the proceeds of the Series 1997 Bonds to the Borrower for the purpose of (i) refunding the Series 1992 Bonds; (ii) refinancing the Norwest Bank Loans; (iii) financing the construction of certain improvements to the Nursing Facility and installing equipment therein; and (iv) funding certain reserves for the Series 1997 Bonds and the payment of costs of issuance of the Series 1997 Bonds. 1.06 In 2010, the City issued its Housing and Healthcare Facilities Revenue Bonds (Immanuel Lutheran Corporation Project), Series 2010 (the "Series 2010 Bonds") under the provisions of the Act, and loaned the proceeds of the Series 2010 Bonds to the Borrower for the purpose of (i) financing the redemption and prepayment of the Series 1997 Bonds, (ii) financing the costs of the installation, renovation, rehabilitation, and equipping of certain capital improvements to the Housing Facility and the Nursing Facility; (iii) funding certain reserves and capitalized interest for the Series 2010 Bonds; and (iv) paying a portion of the costs of issuance of the Series 2010 Bonds. 1.07 In 2016, the City issued its (i) Housing and Healthcare Facilities Revenue Refunding Bonds (Immanuel Lutheran Corporation Project), Series 2016A (the "Series 2016A Bonds") and (ii) Housing and Healthcare Facilities Revenue Bonds (Immanuel Lutheran Corporation Project), Series 2016B (the "Series 2016B Bonds," and together with the Series 2016A Bonds, the "Series 2016 Bonds") under the provisions of the Act, and loaned the proceeds of the Series 2016 Bonds to the Borrower for the purpose of. (i) financing the redemption and prepayment of the Series 2010 Bonds; (ii) financing the costs of the installation, renovation, rehabilitation, and equipping of certain capital improvements to the Housing Facility and the Nursing Facility consisting of (a) renovation of the skilled nursing unit wing of the Nursing Facility, (b) the construction and equipping of 32 short term rehabilitation units, (c) the construction and equipping of 24 memory care residences, and (d) certain predevelopment costs for future development of the Borrower's campus in the City, including but not limited to the construction and equipping of 36 independent senior living apartments (collectively, the "2016 Project'); and (iii) the financing all or a portion of the costs of issuing the Series 2016 Bonds (including the City's administrative fee) related to the original issuance of the Series 2016 Bonds. 1.08 The Borrower has requested that the City issue its revenue refunding bonds and revenue bonds in the approximate aggregate principal amount not to exceed $75,000,000, in one or more series of tax-exempt and/or taxable bonds at one time or from time to time (the "Bonds"), the proceeds of which will be loaned by the City to the Borrower. The Borrower will apply the proceeds derived from the Bonds to the following purposes: (i) the redemption and prepayment of the Series 2016 Bonds; (ii) financing the costs of the installation, renovation, rehabilitation, and equipping of certain capital improvements to the Housing Facility and the Nursing Facility consisting of (a) the construction and equipping of 36-units of independent living in villas, (b) the construction and equipping of a "community center" meeting room that can be used for resident gatherings as well as hosting the greater community and (ii) an indoor pool and related changing rooms to expand the Corporation's wellness and fitness offerings, and (c) the renovation of certain portions of the Nursing Facility (collectively, the "2017 Project"); (iii) the funding of certain reserves and capitalized interest for the Bonds; (iv) the financing all or a portion of the costs of issuing the Bonds (including the City's administrative fee related to the original issuance of the Bonds); and (v), if necessary, fund an interest rate swap termination payment. 1.08. Under Section 147(f) of the Code and the Act, prior to the issuance of the Bonds, the City Council must hold a public hearing that has been duly noticed. Section 2. Preliminary Findings. Based on representations made by the Borrower to the City to date, the City Council hereby makes the following preliminary findings, determinations, and declarations: (a) The 2017 Project consists of the components described in Section 1.08(ii) above. (b) The City will enter into a loan agreement (or other revenue agreement) with the Borrower requiring loan repayments from the Borrower in amounts sufficient to repay the loan evidenced by the Bonds when due and requiring the Borrower to pay all costs of maintaining and insuring the Nursing Facility and the Housing Facility as improved by the 2017 Project, including any payments in lieu of taxes thereon. In all events, it is understood, however, that the Bonds shall not constitute a charge, lien or encumbrance, legal or equitable, upon any property of the City except the City's interest in the loan or revenue agreement with respect to the Bonds and the Borrower's facilities, and the Bonds, when, as, and if issued, shall recite in substance that the Bonds, including interest thereon, are payable solely from the revenues received from the 2017 Project, the property pledged to the payment thereof and other sources of security for the Bonds, and shall not constitute a pecuniary liability of, or a general or moral obligation of the City, within the meaning of any constitutional or statutory limitation. The full faith, credit and taxing power of the City are not pledged to the payment of the Bonds. (c) In preliminarily authorizing the issuance of the Bonds, the refinancing of the Series 2016 Bonds and the financing of the installation, renovation, rehabilitation, construction and equipping of the 2017 Project and the related costs, the City's purpose is and the effect thereof will be to promote the public welfare of the City and its residents by retaining and improving affordable senior housing, assisted living and nursing home facilities in the City and otherwise furthering the purposes and policies of the Act. Section 3. Public Hearing. 3.01. Barnes & Thornburg LLP, as bond counsel to the City, with cooperation from City staff and staff of the Borrower, has prepared a Notice of Public Hearing (the "Hearing Notice") with respect to the refinancing of the Series 2016 Bonds, the 2017 Project and the issuance of the Bonds by the City. The Hearing Notice will be published in the Daily Inter Lake once a week for three consecutive weeks in preparation for a public hearing to be held by the City Council on Tuesday, February 21, 2017, at or after 7:00 p.m. in the City Council Chambers located in Kalispell City Hall at 201 11t Avenue East, Kalispell, Montana. All persons who appear at the public hearing will be given an opportunity to express their views with respect to the refinancing of the 2016 Bonds, the financing of the 2017 Project and the issuance of the Bonds. The City Council will consider the views of the public expressed at the public hearing, any written comments filed with the City Clerk and the information submitted by the Borrower prior to the decision by the City Council on whether to issue the Bonds. The Hearing Notice will be published by Barnes & Thornburg LLP, as bond counsel to the City, in substantially the form attached hereto as Exhibit A. 3.02. The City Manager or his designee is hereby authorized to establish an alternate date for the public hearing, if necessary, in conformity with the requirements of Section 147(f) of the Code and the requirements of the Act. 3.03. It shall be the Borrower's responsibility to pay the costs of publication of the Hearing Notice. Section 4. PreliminM Approval. This City Council hereby grants preliminary approval to the issuance of the Bonds in the approximate aggregate principal amount not to exceed $75,000,000 to finance all or a portion of the costs of the redemption and prepayment of the Series 2016 Bonds and the installation, renovation, rehabilitation, construction and equipping of the 2017 Project and the related costs discussed in Section 1.08 of this Resolution, subject to final approval following the preparation of bond documents, and subject to final determination by this City Council that the refinancing of the Series 2016 Bonds, the financing of the 2017 Project and the issuance of the Bonds are in the best interest of the City. Section 5. Reimbursement of Costs under the Code. 5.01. The United States Department of the Treasury has promulgated final regulations governing the use of the proceeds of tax-exempt bonds, all or a portion of which are to be used to reimburse the City or a borrower from the City for project expenditures paid prior to the date of issuance of such bonds. Those regulations (Treasury Regulations, Section 1.150-2) (the "Regulations") require that the City adopt a statement of official intent to reimburse an original expenditure not later than sixty (60) days after payment of the original expenditure. The Regulations also generally require that the Bonds be issued and the reimbursement allocation made from the proceeds of the bonds occur within eighteen (18) months after the later of. (i) the date the expenditure is paid; or (ii) the date the 2017 Project is placed in service or abandoned, but in no event more than three (3) years after the date the expenditure is paid. The Regulations generally permit reimbursement of capital expenditures and costs of issuance of the Bonds. 5.02. To the extent any portion of the proceeds of the Bonds will be applied to expenditures with respect to the 2017 Project, the City reasonably expects to reimburse the Borrower for the expenditures made for costs of the 2017 Project from the proceeds of the Bonds after the date of payment of all or a portion of such expenditures. All reimbursed expenditures shall be capital expenditures, a cost of issuance of the Bonds, or other expenditures eligible for reimbursement under Section 1.150-2(d)(3) of the Regulations and also qualifying expenditures under the Act. Based on representations by the Borrower as of the date hereof, other than (i) expenditures to be paid or reimbursed from sources other than the Bonds, (ii) expenditures permitted to be reimbursed under prior regulations pursuant to the transitional provision contained in Section 1.150-20)(2)(1)(B) of the Regulations, (iii) expenditures constituting preliminary expenditures within the meaning of Section 1.150- 2(f)(2) of the Regulations, or (iv) expenditures in a "de minimus" amount (as defined in Section 1.150- 2(f)(1) of the Regulations), no expenditures with respect to the 2017 Project have been made by the Borrower more than sixty (60) days before the date of adoption of this resolution. 5.03. Based on representations by the Borrower, as of the date hereof, there are no funds of the Borrower reserved, allocated on a long term -basis or otherwise set aside (or reasonably expected to be reserved, allocated on a long-term basis or otherwise set aside) to provide permanent financing for the expenditures related to the 2017 Project to be financed from proceeds of the Bonds, other than pursuant to the issuance of the Bonds. This resolution, therefore, is determined to be consistent with the budgetary and financial circumstances of the Borrower as they exist or are reasonably foreseeable on the date hereof. Section 6. Costs. The Borrower will pay the administrative fees of the City with respect to the original issuance of the Bonds and pay, or, upon demand, reimburse the City for payment of, any and all costs incurred by the City in connection with the 2017 Project, the refinancing of the Series 2016 Bonds and the issuance of the Bonds, whether or not the Bonds are issued. Section 7. Commitment Conditional. The adoption of this resolution does not constitute a guarantee or a firm commitment that the City will issue the Bonds as requested by the Borrower. If, based on comments received at a public hearing to be held pursuant to this resolution, or other information made available to or obtained by the City during its review of the 2017 Project, it appears that the 2017 Project or the issuance of Bonds to finance or refinance the costs thereof is not in the public interest or is inconsistent with the purposes of the Act or the Code, the City reserves the right not to grant final approval to the issuance of the Bonds. The City also retains the right, in its sole discretion, to withdraw from participation and accordingly not issue the Bonds should the City Council, at any time prior to the issuance thereof, determine that it is in the best interests of the City not to issue the Bonds or should the parties to the transaction be unable to reach agreement as to the terms and conditions of any of the documents for the transaction. Section 8. Effective Date. This Resolution shall be in full force and effect from and after its passage. PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE CITY OF KALISPELL, THIS 17TH DAY OF JANUARY, 2017. Mark Johnson Mayor ATTEST: Aimee Brunckhorst, CMC City Clerk EXHIBIT A FORM OF NOTICE OF PUBLIC HEARING CITY OF KALISPELL NOTICE OF PUBLIC HEARING NOTICE OF PUBLIC HEARING WITH RESPECT TO THE ISSUANCE OF REVENUE REFUNDING BONDS FOR REFINANCING REVENUE BONDS PREVIOUSLY ISSUED FOR IMMANUEL LUTHERAN CORPORATION OF KALISPELL, MONTANA AND ISSUANCE OF REVENUE BONDS FOR THE FINANCING OF IMPROVEMENTS TO THE FACILITIES LOCATED ON THE CAMPUS OF IMMANUEL LUTHERAN CORPORATION OF KALISPELL, MONTANA NOTICE IS HEREBY GIVEN that the City Council of the City of Kalispell, Montana (the "City") will meet on February 21, 2017, at 7:00 p.m. in the Council Chambers at City Hall, 201 First Avenue East, Kalispell, Montana, for the purpose of holding a public hearing to consider the preliminary approval of the issuance of one or more series of tax-exempt and/or taxable revenue refunding bonds and/or revenue bonds (the "Bonds") in accordance with the requirements of the Montana Code Title 90 Chapter 5 Part 1, as amended, and the Internal Revenue Code of 1986, as amended (the "Act"). The proceeds of the Bonds, if issued, will be loaned by the City to Immanuel Lutheran Corporation of Kalispell, Montana, a Montana nonprofit corporation (the `Borrower"). The Borrower owns and operates a 155-bed nursing home facility commonly known as Immanuel Lutheran Home, located at 185 Crestline Avenue in the City (the "Nursing Facility"), and a 112-unit senior retirement apartment facility commonly known as Buffalo Hills Terrace (the "Housing Facility") located adjacent to the Nursing Facility at 40 Claremont Street in the City. The Borrower will apply the proceeds derived from the Bonds to the following purposes: (i) the redemption and prepayment of the Series 2016 Bonds; (ii) financing the costs of the installation, renovation, rehabilitation, and equipping of certain capital improvements to the Housing Facility and the Nursing Facility on the Borrower's campus consisting of (a) the construction and equipping of 36-units of independent living in villas, (b) the construction and equipping of a "community center" meeting room that can be used for resident gatherings as well as hosting the greater community and (ii) an indoor pool and related changing rooms to expand the Corporation's wellness and fitness offerings, and (c) the renovation of certain portions of the Nursing Facility (collectively, the "2017 Project"); (iii) the funding of certain reserves and capitalized interest for the Bonds; (iv) the financing all or a portion of the costs of issuing the Bonds (including the City's administrative fee related to the original issuance of the Bonds); and (v), if necessary, fund an interest rate swap termination payment. At the public hearing, the City Council of the City will consider granting approval to the issuance of the Bonds by the City for and on behalf of the Borrower for the purposes set forth above. The aggregate face amount of the Bonds proposed to be issued by the City is presently estimated not to exceed $75,000,000. The Bonds will be special, limited obligations of the City payable solely from the revenues of the Borrower pledged to the payment thereof under the terms of a loan agreement (or other revenue agreement) between the City and the Borrower. The Bonds will not be a general or moral obligation of or be secured by the taxing power or any property or assets of the City. The full faith, credit and taxing power of the City are not pledged to the payment of the Bonds. The City, the State of Montana, or any political subdivisions thereof are not obligated in any manner for repayment of the Bonds. Anyone desiring to be heard during the public hearing will be afforded an opportunity to do so. After the public hearing, the City Council of the City will consider adoption of a resolution granting final approval to the issuance of the Bonds. The aggregate face amount of the Bonds proposed to be issued by the City is presently estimated not to exceed $75,000,000. Persons desiring additional information may contact the City Clerk at 201 First Avenue East, Kalispell, Montana or by calling (406) 758-7756. All persons interested may appear and be heard at the time and place set forth above, or may file written comments with the City Clerk prior to the date of the hearing set forth above. Aimee Brunckhorst, CMC City Clerk Publish Date: January 29, 2017 February 5, 2017 February 13, 2017