HomeMy WebLinkAboutAgenda Bill 06/25/2001 (27) •
CITY OF PETALUMA, CALIFORNIA
AGENDA BILL 'JUN 2001
Agenda Title: Meeting Date:
Resolution of the City Council Authorizing the Issuance and Sale of June 25, 2001
• Water Revenue Bonds Relating to the Refunding of 1990
Certificates of Participation Issued"by the City and Funding of New
Water System Projects and Approving Related Documents and
Authorizing Official Actions
Department: Director: Contact Person: Phone Number:
Finance William J. Thomas William J. Thomas 778-4352
• Cost of Proposal: $125,000 to be paid from proceeds of bonds Account Number: N/A
Amount Budgeted: N/A Name of Fund: Water #601
Attachments to Agenda.Packet Item:
Attachment I: Resolution Authorizing the Issuance and Sale of Bonds
Attachment II; City's Financial Advisors Refunding Financial Projections
Attachment III: Timeline for Issuance of bonds
Attachment IV: Draft Indenture of Trust and Preliminary Official Statement
Summary Statement:
The Water System 5 Year Capital Improvement Program calls for $5.7 million in projects to be financed
with water revenue bonds. A portion of the proposed increase in water rates is to cover the debt service
on these improvements.
• In 1990, the Petaluma City Council issued $6,600,000 in Zone IV Water System Improvement Certificates
of Participation to finance certain water system improvements in Zone IV. The coupon interest rate on
the 1990 COPs range from 5.0% to 7. 1% with a final maturity on November 1, 2013. The City's financial
advisor, the firm of Kelling, Northcross & Nobriga, is recommending that the 1990 COPs be refinanced at
an approximate interest rate of 535% (All In True Interest Cost (TIC)). The estimated net savings is
$365,000.
The City's financial advisor, the firm of Kelling, Northcross & Nobriga, is recommending that the 1990
COPs be refinanced by Water Revenue Bonds at an approximate true interest cost of 5.35% . The
estimated net savings to the Water Fund would be about $365,000. These savings are after $125,000
associated with the cost of issuance of the bonds has been paid. These expenses will be paid from the
proceeds of bonds so that no appropriation is required. The Water System Capital Improvement Program
through 2003 also requires expenditures of over $5.7M for projects such as additional storage, well
improvements and a renovated corporation yard. To take advantage of the economies of scale, it is
recommended that these improvements be financed at the same time as the Zone IV refunding issue
Council Priority: THIS AGENDA ITEM IS CONSIDERED To BE PART OF, OR NECESSARY To, ONE OR
MORE OF THE 1999-2000 PRIORITIES ESTABLISHED BY THE CITY COUNCIL ON JANUARY 30, 1999
AND MARCH 18, 2000
Priority(s): Increase revenues and/or decrease current expenditures
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Recommended City Council Action/Suggested Motion : Adopt the Resolution
That the City Council adopt the resolution in Attachment I which:
• Authorizes the issuance and sale of refunding bonds in the aggregate principal amount not to
exceed $11.5 million;
• Approves the Indenture of Trust; •
• Approves the preparation and distribution of the Official Statement; and
• Authorizes and approves all actions taken by the officers and agents of the City with respect to
the issuance of the bonds
Reviewed b •Finance Director: Reviewed by City Attorney: A i •roves b, City Manager:
�1 Date: Date: Date:
'`tlacc-41,42 ��jI Icq
Today's Date: Revision # and Date Revised: Fit: ode:
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June 11, 2001 # S:/agenda/zone11199000Prefunding
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CITY OF PETALUMA, CALIFORNIA
• JUNE 25, 2001
AGENDA REPORT
FOR
RESOLUTION OF THE PETALUMA CITY COUNCIL AUTHORIZING THE
ISSUANCE AND SALE OF WATER REVENUE BONDS RELATING TO THE
FINANCING WATER CAPITAL NEEDS AND THE REFUNDING OF CERTIFICATES
OF PARTICIPATION ISSUED FOR THE ZONE IV WATER IMPROVEMENTS AND
APPROVING RELATED DOCUMENTS AND AUTHORIZING OFFICIAL ACTIONS
1. EXECUTIVE SUMMARY:
The Water System 5 Year Capital Improvement Program calls for $5.7 million in projects to be
financed with water revenue bonds. A portion of the proposed increase in water rates is to cover
th •debt service on these improvements.
In 1990, the Petaluma City Council issued $6,600,000 in Zone IV Water System Improvement
Certificates of Participation to finance certain water system improvements in Zone IV. The
coupon interest rate on the 1990 COPS range from 5.0% to 7.1% with a final maturity on
November 1, 2013. The City's financial advisor, the firm. of Kelling, Northcross & Nobriga, is
recommending that the 1990 COPs be refinanced at an approximate interest rate of 5.35% (All In
True Interest Cost (TIC)). The estimated net savings is $365,000.
• Therefore, the purpose of this item is to request City Council to:
• Authorize the issuance and sale of refunding bonds in the aggregate principal amount not
to exceed $11.5 million;
• Approve the Indenture of Trust;
• Approve of the preparation and distribution of the Official Statement; and
• Authorize and approve all actions taken by the officers and agents of the City Council with
respect to the issuance of the bonds.
2. BACKGROUND:
As a result of the recent decline in interest rates, the City's financial advisor, Kelling, Northcross
& Nobriga, has examined the feasibility of refinancing,the 1990 Zone IV Water System
Improvement Certificates of Participation (COP's). An analysis revealed that refinancing the
1990 COP's would save a net $365,000. The interest rate would drop from over 7% to 5.35%
and the City would save in excess of$40,000 a year in debt service through 2013.
At the same time, over $5.7 million in capital improvements are required by the water system,
including additional•storage,and new facilities. Combining the financing of these faculties with the
refunding of the COP's will allow the City to take advantage of scale and save the costs of
issuance of a second bond°issue.
The City's financial advisor, the firm of Kelling, Northcross & Nobriga, is recommending that the
• 1990 COPs be refinanced by Water Revenue Bonds at an approximate true interest cost of 5.35% •
. The estimated net savings to the Water Fund would be about $365,000. These savings are after
$125,000:associated with the cost of issuance of the bonds has been paid. These expen ses will be
paid from the proceeds of bonds so that no appropriation is required.
The new Water Revenue Bonds will be an obligation of the Water Fund only and not of the
General Fund. Debt service will continue to be paid from water revenues. In order to issue
revenue bonds, the City will have to make several covenants, similar to those made in connection •
with last year's issuance of Wastewater Revenue Bonds. The most important of these is that the
City set its water charges so that revenues from operations minus operating expenses are at least
1.25 times the annual debt service on the bonds. These revenues, in excess of debt service,
referred to. as "debt service coverage", can be used to pay for additional capital improvements.
The proposed new rate structure will satisfy this requirement.
3. ALTERNATIVES:
No Refinancing: Under this alternative, the City would retain the 1990 COP's at high coupon
interest rates of 5.0% to 7.1%, foregoing a net present value savings of approximately$365,000
over the life of the COP. This alternative does not maximize the City's resources and would be
inconsistent with previous Council direction.
No Refinancing of CIP Projects: Under this alternative, programs would need to be eliminated
from the Water Fund operations and maintenance budget..
4. FINANCIAL IMPACTS:
The refinancing of the 1990 COP's will result in a projected savings of$365,000 over the life of
the COP. This is after the expenses associated with the cost of issuance have been paid. The
costs for issuance are estimated as follows:
Rating Agency $ 25,000 •
Printing 15,000
Trustee/Escrow Agent 7,500
Verification 4,000
Bond Counsel (Jones-Hall) 30,000
Financial Advisor (Kelling, Northcross & Nobriga) 30,000
Contingency/Expenses 13,500
Total Cost of Issuance $ 125,000
Expenses associated with the transaction will be paid from the proceeds of bonds. Therefore, no
appropriation is required (see Attachment II). Additionally, by combining the refinancing of the
1990 COP's and the inclusion of new funds for the Capital Improvement projects, economies of
scale are realized in comparison with two separate bond issues.
5. CONCLUSION:
The City's financial advisor has concluded that it is cost-effective to refinance the 1990 Water
System debt, estimating that a net savings of$365,000 will occur from the proposed action.
6. OUTCOMES OR PERFORMANCE.MEASUREMENTS THAT WILL
INDENTIFY SUCCESS OR COMPLETION:
Successful completion of the refunding of the existing Water Revenue Bonds. •
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7. RECOMMENDATION:
It is recommended that the City Council adopt the resolution in Attachment I which provides for:
• Authorization of the issuance and sale of refunding bonds in the aggregate principal
amount not to exceed $1 1.5 million;
• Approve the indenture of Trust;
• Approve the preparation and distribution of the Official Statement; and
• Authorize and approve all actions taken by the officers and agents of the City Council
with respect to the issuance of the bonds.
s:/agenda/zone❑1990coprefunding
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