201 S. Anaheim Blvd.
Suite #1101
Anaheim, CA 92805
Tel: (714) 765-5173
www.anaheim.net
CITY COUNCIL AGENDA REPORT
City of Anaheim
PUBLIC UTILITIES DEPARTMENT
DATE: DECEMBER 12, 2023
FROM: PUBLIC UTILITIES GENERAL MANAGER
SUBJECT: DECLARATION OF OFFICIAL INTENT TO REIMBURSE
CERTAIN EXPENDITURES FROM THE PROCEEDS OF
WATER UTILITY BONDS OR OTHER OBLIGATIONS
ATTACHMENT (Y/N): YES ITEM # 16
GOVERNMENT CODE § 84308 APPLIES: NO
RECOMMENDATION:
That the City Council, by Resolution:
1) Declare its official intent to allow the Water Utility Fund to incur debt, and affirm that the Water Utility Fund may be reimbursed for certain expenditures from proceeds of that debt, if issued; and
2) Authorize and direct the Anaheim Public Utilities Assistant General Manager – Finance and Energy Resources, for and in the name of the City of Anaheim (City), to take certain actions necessary to reimburse the Water Utility Fund.
DISCUSSION:
At the meeting on November 15, 2023, the Public Utilities Board recommended that the City Council approve these actions.
To maintain high water service reliability, Anaheim Public Utilities (APU) invests in capital improvements that include replacement of water mains, wells, pump stations, and other potable water supply infrastructure nearing the end of their useful life. Periodically, APU issues bonds to finance the construction of such infrastructure in order to minimize rate impacts to customers and to distribute capital costs equitably over the lifespan of an asset.
The proposed Resolution does not commit the City to incur debt, make any expenditure, or proceed with any capital project. The Resolution only establishes compliance with Internal Revenue Service (IRS) regulations (U.S. Treasury Regulations Section 1.150-2), allowing APU to reimburse itself for pre-construction expenditures along with approved construction and material costs incurred should any bonds be issued, in an amount not expected to exceed $60 million. This will ensure maximum financing flexibility by giving APU the opportunity to reimburse itself for any eligible construction, engineering, or procurement costs from a water revenue bond offering that would require Public Utilities Board review and City Council approval.
Declaration of Official Intent to Reimburse Certain Expenditures from the Proceeds of Water Utility Bonds or Other Obligations December 12, 2023
Prior to the actual construction of water capital projects, numerous pre-construction activities occur before a request for construction bid is issued. APU typically funds such pre-construction activities, consisting of contracting with consultants to perform environmental and right-of-way permitting, coordinating with other utilities and agencies, performing geotechnical investigations and site surveys, executing preliminary design work, and preparing construction drawings and specifications through restricted utility funds (absent other applicable funding sources). From a financial perspective, the proposed Resolution offers operating flexibility and allows APU to maintain prudent reserve levels rather than drawing down reserves below acceptable thresholds or draw upon the line of credit to fund capital expenditures. Reserves and the line of credit are maintained to provide immediate resources should a sudden and catastrophic event occur.
While 30-year, tax-exempt municipal bond rates have increased recently, APU consistently issues bonds with a five-year call option, allowing for relatively quick refinancing opportunities that have saved ratepayers over $215 million in the last decade and shortened the life of existing bonds by three years on average. It is important to note that APU does not overextend its bonding capacity and has a current long-term debt-to- asset ratio of 45% which is well within industry best practices. Additionally, ensuring the ability to pay debt obligations is a high priority, as demonstrated by debt service payments that are 15% of annual water revenue. This balanced approach to financial health and debt portfolio management has enabled APU to maintain its AA+ credit rating for the water utility.
APU continues to pursue a long-term strategy of cash financing most of its routine capital projects to gradually reduce reliance on debt financing. However, accessing the bond market can help to keep up with aging infrastructure replacements, sustain sufficient cash for working capital and reserve requirements, and minimize rate impacts to customers. APU will monitor financial metrics, bond market conditions, and capital project expenditures prior to seeking the Public Utilities Board’s recommendation and City Council approval to issue bonds.
IMPACT ON BUDGET:
There is no budgetary impact. The proposed Resolution is intended to establish compliance with IRS regulations.
Respectfully submitted,
Dukku Lee
Public Utilities General Manager
Attachment:
1. Reimbursement Resolution (Water Utility)