Opinion ID: 1649985
Heading Depth: 1
Heading Rank: 15

Heading: Is the brokerage fee to be paid Piper, Jaffray & Hopwood in violation of 473.581, Subd. 3(n)?

Text: The Statute reads: The council has entered into an agreement with the brokerage firm or brokerage firms to be used in connection with the issuance and sale of the bonds guaranteeing that fees and charges payable to the brokerage firm or firms in connection therewith, including any underwriting discounts, shall not exceed fees and charges customarily payable in connection with the issuance and sale of bonds secured by the pledge of the full faith and credit of the municipality in which any new sports facility is to be located. (Emphasis supplied) The Clerk of the City of Minneapolis testified that since the City does all of its own legal work which ordinarily is done by the underwriter in the sale of the City's general obligation bonds, no underwriter's fees as such are paid. In fact, it appears that the City prepares and sells its bonds on competitive bids which often results in a premium paid to the City. The premium apparently results because the City of Minneapolis general obligation bonds carry a higher rate of interest. The Council and Commission's agreement with Piper provides for the sale of $55,000,000 special obligation bonds to the underwriters who may resell the bonds to the public at a premium not to exceed 1.9 percent of the aggregate principal amount of the bonds. The parties also further agree that for more effective marketing of the bonds, the bonds may be purchased by the underwriters at a discount to be agreed upon by the parties. Such further agreement as to discount is conditioned upon the agreement provision that all fees and charges proposed to be paid to the underwriter for the sale of the bonds, including underwriter's discounts, will not exceed fees and charges customarily payable in connection with the issuance and sale of the bonds secured by the full faith and credit of the City of Minneapolis. The agreement further provides that certain expenses would be paid by the underwriter while other expenses would be paid for by the Council and Commission. Because of the manner in which the City of Minneapolis has marketed its general obligation bonds, a customary fee has not been determined. However, the stadium law cross-references the state bonding law, M.S. 475 which provides for a statutory maximum of two percent for general obligation bonds. M.S. 473.581, Subd. 2 provides that the bonds shall be sold, issued, and secured in the manner provided in Chapter 475 . . . except as otherwise provided in Sections 473.551 to 473.595. . .. Exactly what commissions or fees the underwriter will be paid cannot be determined until just immediately before the bonds are issued and sold, however, the agreement gives no indication that the provisions of the statute will be violated. Received into evidence as part of Plaintiff's Exhibit 14-B is a letter from Springsted, Inc., public finance advisers, to the Metropolitan Council advising the Council of the propriety of the bonding agreement with Piper. That letter states in relevant part: Two percent is probably the industry average underwriting cost for revenue issues. Two percent was the underwriting cost paid by the City of Minneapolis for its $55,240,000 mortgage revenue bonds issues in November, 1978, and also by the City of St. Paul for its $50,000,000 mortgage revenue issue in March of this year. We do not know precisely what issuance costs for these issues were included in the underwriting cost which are not included in the underwriting proposal before the Council, but believe that probably more of the issuance costs were included in the underwriting cost of those issues. However, it is our opinion that this issue is of greater complexity and is demanding of a larger takedown (cost of distribution) by reason of which we believe the amount of issuance cost to be paid by the Council is justifiable and reasonable. Based upon our conversations with representatives of the underwriters it is our understanding of the proposed agreement that should the takedown portion of the underwriting cost be less than $14, a fact which will be disclosed by the underwriters at the time a firm offer is made, the 1.9 percent will be adjusted downward accordingly. In our opinion if the City of Minneapolis were the issuer of these bonds, the underwriting and issuance cost would be comparable to those proposed to the Council by the underwriters. The Council agreement with Piper, Jaffray & Hopwood, Inc. does not violate the statute. More troublesome is the proposal of the Council to issue an additional $1,065,000 bonds pursuant to the provisions of Minnesota Statute 475.56. The Council contends that 473 does not conflict with 475 and therefore since the Council has all the powers and duties of a municipality in issuing bonds, it has the authority to issue the additional bonds which it intends to use to pay the underwriter's fee. The Council further argues that 475.56 does not require the additional two percent bonds be included in the amount authorized by the electorate to be issued for the reason that the electors need not be notified of the additional two percent since the two percent represents the cost of the borrowing. The court in determining that the Council was not authorized to issue and sell an additional two percent of the amount otherwise authorized to be issued is satisfied from the history of the stadium bill that the legislature intended the bond issue to be limited to $55,000,000 and M.S. 475.56 is in conflict with that limitation.