Loading...
Item 8EAGENDA ITEM # 8E JANUARY 12, 2009 CITY OF ATLANTIC BEACH CITY COMMISSION MEETING STAFF REPORT AGENDA ITEM: To authorize the City Manager to proceed with Dunlap & Associates, Inc. to secure a $10,000,0001oan for utility system improvements. SUBMITTED BY: Nelson Van Liere, Finance Director DATE: January O5, 2009 BACKGROUND: Through the strategic planning process and subsequent Fiscal Year 2009 Operating Budget adoption, the City Manager has recommended a proposed list of capital improvements that were to be funded by issuing debt. These projects are planned system improvements designed to improve water quality and reduce the amount of nitrogen being discharged into the St. Johns River from our sewer treatment plants. A report by the City's wastewater consultants was presented to the Commission on December 15, 2008 updating cost estimates and making several recommendations. The next step will be to enter into an engineering agreement for the design and permitting of the wastewater improvements. The funds for design and construction are to be financed. The following items were originally programmed to be funded with debt over the next three years: Original Spending Plan FY 2009 New Well at Water Plant #1 $800,000 TMDL Plant Upgrade Design 510,000 FY 2009 Total $1,310,000 FY 2010 TMDL Waste Water Treatment Plant # 1 Construction $4,100,000 Reuse System 1,176,000 Miscellaneous Plant Upgrades 469,000 Lift Station Upgrades 700,000 FY 2010 $6,445,000 FY 2011 Waste Water Treatment Plant #2 design and construction $1,650,000 Misc. Plant Upgrades at Waste Water Treatment Plant #2 781,000 FY 2011 Total $2,431,000 Total $10,186,000 Amended Spending Plan The engineer's report last month updated the capital estimates and recommended a revised timetable. This new plan increases the capital cost by consolidating the City's two waste water treatment plants which AGENDA ITEM # 8E JANUARY 12, 2009 will be more than offset by operational savings and other benefits. The moving ahead of some related expenses will enable the City to take advantage of the present favorable construction climate and improve eligibility for federal grants. The revised schedule is as follows: FY 2009 New We11 and Piping at Water Plant I $800,000 Design for the Wastewater Plant upgrades, piping, surveys, geotech work and the elimination of WWTP II 1,100,000 Total $1,900,000 FY 2010 Upgrades to Lift Stations E and Mimosa Cove $700,000 Force Main /Lift Station construction sending flow to WWTP1 2,460,000 WWTP I upgrades to meet new TMDL nitrogen standards 5,830,000 Total $8,990,000 FY 2011 Abandon WWTP II and upgrade the Master Lift Stations at WWTP I and WWTP II $930,000 TOTAL $11,820,000 Changing the capital spending plan and the timing will require a budget amendment and adjustments to the approved Long Term Financial Plan adopted as additional information to our 2009 Annual Operating Budget. Funding• The City has three basic options for borrowing funds. After discussing these options with the City's Financial Advisor, Craig Dunlap, we came to the conclusion that a bank qualified loan is our only practical choice at this time. However, this may change considering the possibility of additional grant funds becoming available. The three basic considerations are a bank loan, a bond issue or the state revolving loan program. Under normal economics times, these three types of debt would be more comparable. At this time it is clear our only option is the bank loan. State Revolving Funds -Based on quoted rates, the SRF loan is considerably less expensive. However, according to staff members at the SRF, new applications would not be considered until July-August of 2010. The SRF loan program is not lending funds due to the demand for funds far exceeding what is available. The application process and subsequent monitoring of the project if funded with SRF loans is filled with bureaucratic red tape. If funds could be obtained, it would be worth it to perform the extra work. This option would be considered when funds became available. AGENDA ITEM # 8E JANUARY 12, 2009 • Utility Revenue Bonds -Bond issues would incur the highest issuance costs and they are very difficult to insure at this time. The issuance costs are significantly higher than the bank loan option. Considering the tremendous burden that these new regulations have put on public utilities, we are optimistic that new sources of funding may become available to the City during the project. Locking into bond financing would limit our flexibility to prepay or refinance with better terms should other sources such as grants become available. • Bank Qualified Loan -The bank loan will have the lowest issuance costs and can be structured as a line of credit to save interest expense by only paying on the drawn down balance. The process for obtaining a bank loan is streamlined and can be done in a relatively short period of time. If other sources of funding become available, a bank loan can be paid down immediately. The qualified bank loan is limited to $10,000,000 per calendar year. Due to this limitation, and the timing of the drawdown schedule, we will most likely need two separate loans. • With the bank loan option, depending on available credit, we may need to structure the debt with a shorter term. This would mean higher annual payments of principal unless we structure the loan with an interest adjustment or balloon payment at the end of the term. These options will all be considered when obtaining quotes from the various banks. The Process• We are requesting the authority to use Dunlap & Associates, Inc under the current contract terms to facilitate the acquisition of this debt. Dunlap & Associates continues to assist the City throughout the year with all of our debt service estimates. They have agreed to the contract price of $10,000 which is lower than other firms would charge for the same services. Once favorable terms have been agreed on by the financial advisor and the City Manager, we will bring the loan agreements to the City Commission for final approval. The Finance department will work with the Financial Advisor to prepare a loan packet containing financial statements, rate ordinances, project descriptions and any other documents the banks may need to evaluate the Utility System. This packet will be the basis of determining the City's credit and will be distributed to those banks that are known to do these types of loans. The Financial Advisor will also assist in the selection of a bond counsel if requested. The City has used Jack McWilliams of Livermore, Freeman and McWilliams, P.A. for all of our needs in the past and it is my recommendation that we continue with that relationship based on past performance and the familiarity with the City's current bond issues provided his current rate is competitive with other bond attorneys. The Commission may be familiar with Jack as he last reported on the liability concerns the City Commission had surrounding the issuance of the 2006 Healthcare Facilities Revenue Bonds issued as conduit debt by the City for Fleet Landing. His services may be used to write loan documents including a Supplemental Bond Resolution if necessary. BUDGET: The original operating budget for FY-2009 assumed that bonds were to be issued and that debt service would not be due until next year. The project budget was $1,310,000 as shown above. The plan now is to spend $1,900,000 in late in 2009 and finance it with a bank loan. Depending on the timing and the terms of the loan, a budget ordinance will be prepared in conjunction with the loan agreement to fund the debt service and the movement of the project costs ahead of schedule. Under the bank loan AGENDA TTEM # 8E JANUARY 12, 2009 option, we may borrow the funds sooner than originally expected, but we should only have to pay interest on the drawn down balance. RECOMMENDATION: To authorize the City Manager to proceed with Dunlap & Associates, Inc. to secure a $10,000,000 loan for utility system improvements. REVIEWED BY CITY MANAG .-.