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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 01/06/2009 - FIRST READING OF ORDINANCE NO. 002, 2009, APPROPRI ITEM NUMBER: 11 AGENDA ITEM SUMMARY DATE: January 6, 2009 FORT COLLINS CITY COUNCIL STAFF: Chuck Seest Terri Bryant SUBJECT First Reading of Ordinance No.002,2009,Appropriating Proceeds from the Issuance of City of Fort Collins, Colorado, Wastewater Utility Enterprise, Sewer Revenue Refunding Bonds, Series 2009, Scheduled to be Sold the Week of January 20,2009,In the Maximum Aggregate Principal Amount of$34,000,000 in the Wastewater Utility Fund. RECOMMENDATION Staff recommends adoption of the Ordinance on First Reading. FINANCIAL IMPACT The Ordinance will appropriate in the Wastewater Utility Fund proceeds from bonds proposed to be issued in Ordinance No. 003, of the Board of the Wastewater Utility Enterprise, for the purpose of funding a major capital improvement project at the Mulberry Reclamation Facility. The improvements including both design and construction of the new facility will total approximately $34 million. EXECUTIVE SUMMARY Immediately following the January 6, 2009 regular Council meeting, the Board of the Wastewater Utility Enterprise will consider on Second Reading,an Ordinance which authorizes the issuance of City of Fort Collins Colorado, Wastewater Utility Enterprise, Sewer Revenue Bonds, Series 2009, in the Maximum Aggregate Principal Amount of$34,000,000. The Bonds will be issued to pay for a major capital improvement project at the Mulberry Reclamation Facility. The passage of the TABOR Amendment by the Colorado voters in 1992, required the City to form enterprises in order for its utilities to be able to issue municipal bonds without an election. Since that time,all utility bonds have been issued by the appropriate utility enterprise. However,the City Charter grants only the Council the power to appropriate the funds. Therefore, this action by the Council is necessary in order to appropriate the bond proceeds for the Wastewater Utility. Authorizing the issuance of the bonds and appropriating the proceeds are both necessary to complete the bond transaction. The final rates will be determined by selling the bonds at a competitive sale in January 2009. January 6, 2009 -2- Item No. 11 ATTACHMENTS 1. Council Finance Committee minutes -November 17, 2008. 2. Excerpt from the Water Board Minutes -November 20, 2008. ATTACHMENT 1 Council Finance Committee City of Minutes Fort Collins 11/17/08 • Eliminate Purchase Power Reserve Policy • Spend down for Capital required to implement Energy Policy/Climate Po ' itiatives — Benefits rate payers — Reduces rate impacts otherwise needed to implement P initiatives • Future Purchase Power increases will be passed throu retail customers to reflect full cost of power Terri Bryant said staff is proposing to eliminate urchase Power Reserve policy which will reduce rate impacts otherwise needed to i ment policy initiatives. Darin Atteberry stated that he do support using one-time reserves to buffer consumers from rate increases for on ye ce It would just make the increase more extreme when it did happen in the folio ear(s). Mayor Hutchi sked what the next steps would be if the Committee accepts these recomme ions. Terri Bryant stated that first, it would have to be approved by the Electric Boar d eventually it would come to the City Council for approval. This would occur ime in the first quarter of next year. Mulberry Wastewater Bond Discussion Chuck Seest told Committee that he and Terri Bryant had a recent meeting with City's bond counsel and financial advisor to recommend to the Finance Department the best way to structure these bonds. The City is scheduled to take these bonds to the market during the first full week of January, 2009. The City's intent is to sell approximately $30 million of bonds. Terri Bryant pointed out that during budget development it was important to develop a stable rate for the coming years, so rate adjustments have been budgeted for fiscal years 2008-2013 as follows to maintain the operations and meet the required debt service: 2008 - 12%, 2009 - 11%, 2010 - 10%, 2011 - 9%, 2012 - 8%, and 2013 - 7%. (This structure is in place to avoid a 25% rate increase at the outset to cover the cost of the plant improvements.) DDA Bonds Bond Structure • Will utilize Updated City Investment Policy Borrowing meets the criteria of "Stub Period", not t t�d■fl11"tTfE� market (4 years) — Borrowing total of $10.5 millio s — Source of funds will b rtfolio — Bonds will 012, tied to 5 year Treasury Note (approx. 2.50% 11/1 • Bo make payments in June Et December ATTACHMENT Excerpt: Draft Water Board Minutes November 20, 2008 Meagan Peil, Board Secretary Wastewater Debt to Council Utilities Finance and Budget Manager Terri Bryant asked for a recommendation from the Board for Council to approve the $30 million bond for the Mulberry Reclamation Facility. We are structuring the debt so the first two years will be interest only payments to manage the Wastewater debt load and retire current debt. Wastewater recently completed a $10 million refunding which obtained a 3.46 percent yield. The Wastewater new bond issue for the $30 million will go on the market, tentatively, in the first part of January. Discussion: How does the debt from Anheuser Busch impact the City? It has an impact on debt ratio calculations for the City, and it must be disclosed. How long ago did we get the 3.46percent rate? The rate was received yesterday through a private sale. A competitive bid would likely not bring this type of rate. What is the threshold for sell? The City has put a threshold of 7 percent and will not sell above that. Rates in the market are currently good for bonds, and this issue will sell after school bonds which typically go to the market in December. Have you in fact watched the market? Colorado Springs recently sold a $42 million 40 year debt ranging from 4 percent to 6 percent coupon rates. The Wastewater Debt is structured over 20 years. What if the City cannot get the best rate? If the market is not favorable, there are different strategies, not a competitive bid or private bid, but possibly a negotiated bid. Will interest rate changes to bond debt impact customers such as monthly rate changes in the future? Most likely this will not impact the projected monthly rate changes. A 7 percent interest rate over 20 years was used to budget the new debt service payments. Also, other debt will be retired and the total debt service will decrease. If we had adjusted the wastewater monthly rates in one year to meet the future debt service of the $30 million, we would have had to raise it 25 percent in 2008. What if 4 percent was used? Would that decrease rates? Not necessarily, because the City is seeing a reduction in wastewater revenues, partially due to conservation efforts on the water side, and we anticipate that revenues will go down in the next five years. The rate increases to meet the debt 1 service and maintain operations are projected to be 11 percent in 2009, 10 percent in 2010, and 9 percent in 2011. What is the cost and life of the project? The goal is to remain in the $30-32 million range for this project, and the timing for this project is 24 months with 40-50 percent of the design currently complete. Some demolition has occurred, and we are re-using some of the materials and using sustainability methodology. The life of this facility is 20 to 30 years. The design is meant for upcoming conservation. Certain components like mechanical parts will only last 10 years, but the structure itself should have a life of 60 years. The City also has the ability to refund the debt in 10 years if necessary to take advantage of lower interest rates. With stimulus packages and money for loans for infrastructure from the government, would we have an opportunity to use these funds? It is an option; however, most loans like this will not allow us to pay off debt before the term is due. Would Fort Collins compete for these funds or programs? It is hard to predict without knowing all of the programs. The City last used these programs for funds in the 1970s from the EPA (Environmental Protection Agency). Do you expect the Federal government to announce new rates or an interest rate cut? That is unknown. Motion for recommendation to take this proposal to Council. Vote: 9 for, 0 against. Motion passed. Board Member Connor has reservations about bonds, but would like to express the City should try to lower the rate from 7 percent to 5'/z percent. 2 ORDINANCE NO. 002, 2009 OF THE COUNCIL OF THE CITY OF FORT COLLINS APPROPRIATING PROCEEDS FROM THE ISSUANCE OF CITY OF FORT COLLINS, COLORADO, WASTEWATER UTILITY ENTERPRISE, SEWER REVENUE REFUNDING BONDS, SERIES 2009, SCHEDULED TO BE SOLD THE WEEK OF JANUARY 20, 2009, IN THE MAXIMUM AGGREGATE PRINCIPAL AMOUNT OF $34,000,000 IN THE WASTEWATER UTILITY FUND WHEREAS, upon passage on first and second reading of Ordinance No. 003 of the Board of the City of Fort Collins, Colorado, Wastewater Utility Enterprise (the "Bond Ordinance"), the Enterprise intends to issue City of Fort Collins, Colorado, Wastewater Utility Enterprise, Sewer Revenue Refunding Bonds, Series 2009, scheduled to be sold the week of January 20, 2009, in the Maximum Aggregate Principal Amount of$34,000,000 (the "Bonds"); and WHEREAS, the issuance of the Bonds, and the appropriation of the proceeds thereof, is necessary to complete the refunding of the City's Sewer Revenue Refunding Bonds, Series 2009; and WHEREAS, the bond proceeds will be used to make improvements at the Mulberry treatment plant including upgrading the plant's secondary treatment processes by removing the trickling filter and its associated facilities and installing a new aeration basin and associated facilities as well as install new odor control improvements; and WHEREAS, proceeds from the Bonds of $34,000,000 were not included in the 2009 budget, the appropriation of which is necessary to authorize the payment to the refunded bond escrow agent and of bond issuance costs; and WHEREAS, Section 19.3(b) of Article V of the City Charter provides that an enterprise board of the City shall not exercise powers reserved to the Council by the City Charter or otherwise (other than the power to issue revenue bonds and other obligations); and WHEREAS, Article V, Section 9, of the Charter of the City of Fort Collins permits the City Council to make supplemental appropriations by ordinance at any time during the fiscal year, provided that the total amount of such supplemental appropriations, in conjunction with all previous appropriations for that fiscal year, does not exceed the current estimate of actual and anticipated revenues to be received during the fiscal year; and WHEREAS, City staff has determined that the appropriation of the previously unappropriated proceeds of the Bonds in the amount of $34,000,000 will not cause the total amount appropriated in the relevant funds to exceed the current estimate of actual and anticipated revenues to be received during the fiscal year. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS that the previously unappropriated proceeds of the Bonds in the amount of THIRTY FOUR MILLION DOLLARS ($34,000,000) are hereby appropriated in the Wastewater Fund for the purpose of funding a major capital improvement project at the Mulberry Reclamation Facility, including both design and construction of the new facility. Introduced, considered favorably on first reading, and ordered published this 6th day of January, A.D. 2009, and to be presented for final passage on the 20th day of January, A.D. 2009. Mayor ATTEST: City Clerk Passed and adopted on final reading on the 20th day of January, A.D. 2009. Mayor ATTEST: City Clerk