HomeMy WebLinkAboutCC AG PKT 2007-08-13 #S
. AGENDA REPORT
DATE: August 13, 2007
TO: Honorable Mayor and City Council
THRU: David N. Carmany, City Manager
FROM: Mark K. Vukojevic, Director of Public Works/City Engineer
SUBJECT: SEWER SYSTEM CAPITAL IMPROVEMENT PROGRAM
FINANCING
SUMMARY OF REQUEST:
The proposed City Council action will provide direction regarding the schedule and financing of
the Sewer System Capital Improvement Program and authorize Staff to initiate the process
required for the issuance of bonds.
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BACKGROUND:
On August 8, 2005, City Council adopted the 2005 Sewer System Master Plan Update
("SSMP''). In summary, the SSMP identified: an aged System needing rehabilitation and
improvement; insufficient revenue generated from fees charged to users to pay for the cost of an
adequate system; and approximately $15 million in capital improvements over the next 10 years
needed to maintain an adequate system. The existing sewer capital fund charge structure simply
could not generate sufficient revenue to implement the capital improvements reco=ended by
the SSMP.
Accordingly, the City Council adopted the SSMP recommendation that sewer capital rates be
adjusted to provide adequate service and directed staff to proceed with the sewer capital rate
adjustment and the sewer rate adjustments for Sunset Aquatic Park. To overcome the revenue
shortfall, the revised Sewer Master Plan recommended a $15 million capital plan for sewer
facility improvement to sustain the operation of the sewer system, comply with waste discharge
requirements, prevent sewage spills, and improve the aging infrastructure including
improvements to sewer capacity and pumping stations. The proposed funding method chosen
increased the sewer capital fund charge over a multi-year period with bond financing for upfront
cash flow.
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On October 24, 2005, City Council held a Public Hearing and approved a multi-year sewer
capital charge increase for the construction, repair and rehabilitation of the City's sewer system.
In addition, City Council directed staff to initiate the process required for the issuance of bonds
in the amount of $7 million dollars to assist in financing the capital plan.
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Agenda Item-.S
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Since that time, there was turnover with the Administrative Services Director and no bonds, were.
issued. Also, the sewer capital revenues were higher than anticipated with new Sunset Aquatic
Park sewer charges and the Boeing Development allowing capital construction to continue.
Approximately $750,000 in sewer projects have been completed, approximately $1.5 million are
now in construction, $1.5 million in projects are shelf ready and $1-2 million will be shelf ready
by the middle of the fiscal year. It seems appropriate to now pursue financing for future sewer
capital improvements.
Staff has met with bond industry professionals, financing professionals and the City Attorney's
office to discuss bonding for $7 million. This method is feasible and Staff has a good
understanding of the procedure, costs, and consequences and is requesting direction from City
Council.
The proposed plan is to bond for sewer improvements using Certificates of Participation Bonds
similar to the ones completed in 2000. The estimated cost for a $7 million bond is approximately
$485,000 per year for 30-years and $500,000 in issuance costs. The total estimated cost for the
$7 million is $17 million over 30 years. The concept is very similar to a 30-year mortgage.
Financially, the sewer capital fund can absorb the proposed debt payments and the money could
be available within 3-5 months after City Council authorization. Upon receiving direction from
City Council, Staff would begin the process including bringing back the necessary contracts and
consultants.
Another issue that staff is requesting direction on is on the guarantee of the debt payments. In
2000, the sewer debt was structured so that both Sewer Maintenance and Capital Funds serve as
the guarantee for the debt. Staff is requesting direction if the new debt should be the same or
should the Capital Fund be sole guarantee for the debt. Going with the latter may be more in-
line with the intent of the funds. However, it may make the debt issuance more complicated,
increasing the cost of the issuance. The City Attorney's staffwill be looking into this.
City Council may also want to direct Staff to research other financing mechanisms. Alternatives
include pay-as-you-go and slow-down the Capital Improvement Program, short term borrowing
from the General Fund of $2-3 million, low interest loans from the State or Federal Government,
or other creative financing mechanisms. Staffis requesting policy direction from City Council to
authorize Staff to initiate the process required for the issuance of bonds. The Public Works
Director and Interim Director of Administrative Services will make a presentation as part of this
item.
FISCAL IMPACT:
There is no fiscal impact at this time. The current sewer capital revenues for Fiscal Year 07/08
and 08/09 are estimated at $1,066,000 and $1,216,000. Current existing debt expenditures are
approximately $210,000 per year. The proposed new debt financing would add $485,000 per
year of ~ditional expenditures for 30-years.
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Agenda Item_
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RECOMMENDATION:
It is recommended that the City Council provide direction regarding the schedule and financing
of the Sewer System Capital Improvement Program and authorize Staff to initiate the process
required for the issuance of bonds.
Prepared By:
~~{tC' --
Director of Public Works/City Engineer
NOTED AND APPROVED:
-.....,
Da::'armany, J
City Manager
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