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HomeMy WebLinkAbout05/06/2008, BUS 4 - TANK FARM SEWER IMPROVEMENTS FINANCING council 5-6-08 j agenba Rep= �N � CITY OF SAN LUIS OBISPO FROM: Bill Statler, Director of Finance & Information Technology Debbie Malicoat, Finance Manager SUBJECT: TANK FARM SEWER IMPROVEMENTS FINANCING CAO RECOMNMNDATION 1. Adopt a resolution approving an installment sales agreement with the City of San Luis Obispo Capital Improvement Board to assist in financing the Tank Farm Gravity Sewer, Lift Station and Force Main Project. 2. Revise the project budget and funding sources downward based on favorable bid results. DISCUSSION Overview The attached resolution implements the financing previously approved by Council on February 12, 2008 in funding this project. The following summarizes the current and revised budgets (downward, surprisingly enough) and funding sources for this project based on recent bid results. ProjectBudget Study $60,345 $60,345 Land Acquisition 308,167 166,000 474,167 Design 933,216 933,216 Construction 9,947,700 (768,700) 9,179,000 Construction Management 994,772 (338;500) 656,272 Office Engineering 340,000 340,000 Contingencies 1,101,700 165,300 1,267,000 Total $139685 900 1 ($775,900)1 $12 9101000 Funding . Pay-As-You-Go $997,500 $2;500 $1,000,000 I-Bank Loan(net of issuance costs) 10,000,000 (85,000) 9,915,000 -Bond Proceeds(net of issuance costs) 2,688,400 (693,400) 1,995,000 Total $1396859900 ($775 00) $12,910,000 As discussed with the Council on February 12, the project funding strategy relies on pay-as-you- go financing of$1,000,000, State of California Infrastructure Bank (I-Bank) loan of$10,000,000 (net proceeds of $9,915,000 based on loan fees of $85,000) and net proceeds from private placement financing of$1,995,000. 4 , 1 Tank Faun Road Sewer Improvements Financing Page 2 Background Project Description. The Tank Farm Gravity Sewer, Lift Station and Force Main Project has been under study and design for the last four years. This project will replace two aged and over capacity lift stations with one large lift station that will serve existing customer needs in the southeastern portion of the City and provide service to the Orcutt Annexation Area, eastern portion of the Airport Annexation Area and a portion of the Margarita Annexation Area per the City's General Plan. Approval of Plans and Specifications and Funding Strategy. On February 12, 2008, the Council approved construction plans and specifications for this project, as well as the project budget and funding strategy, which included: 1. Submitting an application to the I-Bank for a$10,000,000 loan. 2. Issuing private placement financing for the remaining project costs. Construction Bid Results. The City received ten construction bids by the April 10, 2008 closing date, three of which were below the engineer's estimate of $9,947,700. The CAO awarded the low bid to Mountain Cascade in the amount of $9,179,000, which is $768,700 below the engineer's estimate. The favorable outcome may be a positive indicator of current trends in the construction industry. Construction Management Results. Three proposals for this work were received on April 15, 2008. The CAO has awarded the contract to Penfield & Smith as the most responsive proposer at a cost of $596,600. This is $398,100 below the budget estimate of $994,700. Providing adequate funding for changes in the scope of work during construction of $59,700 (10% of the base contract)results in a reduced construction management budget of$338,500. Land Acquisition. Staff recommends an added $166,000 based on potential increased costs for easement acquisitions. Actual costs may be less; however; to finalize the project budget for financing purposes we recommend augmenting the project budget by this amount. Contingencies. The contingencies increase of $165,000 brings the total contingency budget to $1,267,000. This provides a net construction contingency of 12% of construction costs ($1,101;500) along with funding for $42,000 for environmental services, $65,000 for construction site dewatering services and $58,500 in expenditures .for permits, engineering services, plans and specs, advertising and reproduction services. Debt Management Policy Links The proposed financing is consistent with the City's adopted capital financing and debt management policies as provided in the 2007-09 Financial Plan. The use of debt financing is appropriate for one-time capital improvement projects when the project's useful life exceeds the term of the financing. In addition, the proposed financing meets the following key criteria: Tank Farm Road Sewer Improvements Financing Page 3 1. Revenues for debt service are sufficient and reliable. 2. Current market conditions present favorable interest rates. 3. The life of the project to be financed is longer than 10 years.. Proposed Funding Sources As noted above, there is a three-part financing structure with this project: 1. Pay-As-You-Go. The Sewer Fund has already allocated $1,000,000 in working capital toward the project. 2. I-Bank Loan. The loan application has been submitted to the I-Bank and this project is scheduled to go before their board on May 20, 2008 for final approval. The I-Bank has indicated support for this project and we anticipate that the loan will be approved. The total amount of the loan will be $10 million, with net proceeds of$9,915,000 after accounting for I-Bank loan fees. 3. Private Placement Financing. The balance of the project will be funded through a private placement financing via an installment sales agreement. The net proceeds from the financing will be $1,995,000. Including the costs associated with issuing the financing, the maximum amount of the placement is not to exceed $2,075,000. Structure of the Financing The financing will be issued through the San Luis Obispo Capital Improvement Board (Board). To secure the debt repayments, the Board will sell the improvements to the City via an installment sales agreement for the same annual amount as the Board's debt service payments. In turn, the City commits that it will annually budget for the installment sale payments. Private Placement versus Public Offering. It is the City's standard practice to conduct debt financings through a competitive public offering. However, as discussed in the February 12 report to the Council, a private.placement makes more sense in this case due to the small size of the financing. In this case, we still recommend that the financing be conducted on a competitive basis but through a request for proposal process targeted directly to likely purchasers. These include large banks and leasing companies. The attached resolution authorizes the Director of Finance & Information Technology to make this award to the best bidder as recommended by our financial advisor. Sewer Fund Obligation. Debt service payments will be secured by a pledge of net Sewer Fund revenues over the 15-year life of the financing. It is important to note that only sewer revenues are pledged as repayment sources forthis financing: there are no General Fund (or other source) obligations for this financing. The 2007-09 Financial Plan anticipated this financing and included adequate resources in the Sewer Fund to make the required debt service payment. � -3 \ I Tank Farm Road Sewer Improvements Financing Page 4 Professional Assistance In accordance with service agreements previously approved by the Council, bond counsel services will be provided by the law firm of Jones Hall and financial advisor services will be provided by Fieldman Rolapp. Description of Financing Documents The attached resolution approves the documents that are required in order to proceed with the financing. Prepared by the City's bond counsel and financial advisor, the following is a brief description of these documents, which are on file in the Council office: 1. Request for Proposals. This document provides prospective bidders with information the proposals terms and conditions in preparing their proposals. It is similar to the Official Statement in a public offering. 2. Installment Sale Agreement. This agreement is between the City and the Board and ensures that the installment sale payments from the City to the Board will be sufficient to pay principal and interest on the financing. This document also contains the key terms and conditions related to the financing. 3. Assignment Agreement. This agreement transfers the installment payments, which the City is obligated to pay to the Board, to the bank or other financial institution that will provide funding for the project (lender). .As a result of the assignment, the City will make the installment sale payments directly to the lender; and in return, the lender will deposit funds needed to acquire and construct the project. As reflected in the attached resolution approving these financing documents, the Director of Finance & Information Technology is authorized to make minor amendments to these documents as recommended by bond counsel and the financial advisor, and to execute the final documents. Project Financing Schedule The following outlines key dates in completing the financing for this project: Task Date Council . - Council approval of financing May 6 I-Bank loan approval May 20 Bid opening May 21 Financing closing and receipt of funds June 5 As reflected above, we will not close the private placement financing until we have the I-Bank loan approval on May 20, 2008. 1 � S Tank Farm Road Sewer Improvements Financing Page 5 FISCAL IMPACT As detailed in the table below, the average annual debt service will be about $746,400, with payments beginning on December 1, 2008. The 2007-09 Financial Plan anticipated this financing issue and includes adequate resources for the debt service payments. A detailed analysis of key project financing assumptions and annual debt service costs prepared by our financial advisor is on file in the Council office. Average Annual Debt Service I-Bank Loan(30-Year Term) 549,900 Private Placement Financing(15-Year Tenn) 196,500 Total $746,400 CONCURRENCES The Utilities Director concurs with this recommendation. ATTACHMENT Adopt a resolution approving the an installment sales agreement with the City of San Luis Obispo Capital Improvement Board to assist in financing the Tank Farm Gravity Sewer, Lift Station and Force Main Project AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE 1. Request for Proposals 2. Installment Sale Agreement 3. Assignment Agreement 4. Detailed Analysis of Financing Terms and Assumptions 7777.1 T:Tank Farm Lift Station/Debt Financing/Council Agenda Report,Tank Farm Lift Station Financing,5-6-08 l� RESOLUTION NO. (2008 Series) RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO APPROVING DOCUMENTS AND ACTIONS RELATING TO THE FINANCING OF TANK FARM WASTEWATER IMPROVEMENT PROJECT WHEREAS, the City of San Luis Obispo (the "City") owns and operates facilities and property for the collection, treatment and disposal of wastewater within the service area of the City (the "Wastewater Enterprise"), and is proceeding to finance the acquisition and construction of improvements to the Wastewater Enterprise known as the Tank Farm Gravity Sewer, Lift Station and Force Main Project(the"Project"); and WHEREAS, in order to provide funds to finance the acquisition and construction of the Project, the City has proposed to enter into an Installment Sale Agreement with the City of San Luis Obispo Capital Improvement Board (the `Board") under which the Board agrees to provide financing for the Project and to sell the completed Project to the City in consideration of the agreement by the City to pay periodic Installment Payments as the purchase price of the Project; and WHEREAS, the Installment Payments will be secured by a pledge of and lien on the net revenues of the Wastewater Enterprise on a parity with the pledge, lien and security interest which secure certain outstanding obligations of the City under loan agreements with the State Water Resources Control Board; and WHEREAS, the Board proposes to raise funds for the Project by assigning its rights under the Installment Sale Agreement, including the right to receive Installment Payments, to a bank or other lending institution; and WHEREAS, the Council wishes at this time to approve all proceedings to which it is a party relating to the financing of the Project; NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. Approval of Financing Plan and Installment Sale Agreement. The Council hereby approves the financing plan for the Project as set forth in this Resolution. To that end,the Council hereby approves the Installment Sale Agreement in the form thereof on file with the City Clerk together with any changes therein or additions thereto deemed advisable by the Director of Finance & Information Technology ("Director"), whose execution thereof shall be conclusive evidence of the approval of any such changes or additions. The Director is hereby authorized and directed for and in the name and on behalf of the City to execute, and the City Clerk is hereby authorized and directed to attest, the final form of the Installment Sale Agreement. SECTION 2. Assignment by Board. The Council hereby approves the assignment by the Board of its rights under the Installment Sale Agreement, including the right to receive the Installment Payments, to a bank or other lending institution which is selected by the Board upon the advice of the Fieldman, Rolapp & Associates, as financial adviser to the City and the Board, which.selection may be made on the basis of limited competitive bidding, by sole designation or any other means deemed advisable by the Director. SECTION 3. Official Actions. The Mayor, the City Administrative Officer, the Director of Finance & Information Technology, the City Clerk and all other officers of the City are each authorized and directed in the name and on behalf of the City to make any and all assignments, certificates, r A _ 1 Resolution No. (2008 Series) Page No.2 requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they or any of them deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution. Whenever in this Resolution any officer of the City is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer is absent or unavailable. SECTION 4. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. Upon motion of seconded by and on the following vote: AYES: NOES: ABSENT: the foregoing Resolution was passed and adopted on May 6, 2008. Mayor David F. Romero ATTEST: Audrey Hooper, City Clerk APPROVED AS TO FORM: J na . Lowell, City Attorney