City of Gonzales
FINANCE DEPARTMENT
STAFF REPORT
TO: Honorable Mayor Rios and City Council
DATE: November 6, 2023
FROM: Mike Howard, Finance Director
THROUGH: Carmen Gil, City Manager
SUBJECT: Payoff 2005 Loan for Water Tank Project & Sewer Expansion
RECOMMENDATION
It is recommended that the City Council of the City of Gonzales adopt Resolution No. 2023-65, A Resolution of the City Council of the City of Gonzales Authorizing the payoff of the City of Gonzales, 2012 refunded 2005 Loan for the Water Tank Project and Sewer Expansion Project in the amount of $563,740.02, and approving a FY 2023-24 budget amendment in the amount of $334,330.72.
BACKGROUND
In 2005, the City of Gonzales took out a loan in the amount of $3,131,500, for the purposes of a Water Tank Project and Sewer Expansion Project. The proceeds of the loan were predominantly used for the Water Tank Project with the remaining funds used towards the sewer plant expansion.
In June 2012, the City of Gonzales refunded the 2005 loan to take advantage of lower interest rates. The new 2012 loan was $2,475,000, with semi annual payments of $114,704.65 for principal and interest.
The new 2012 loan has a maturity date of December 29, 2025.
On October 24, 2023, the City requested and received a “Payoff” invoice for the 2012 loan in the amount of $563,740.02. The payoff represents the scheduled December 29, 2023 payment of $114,704.65, $440,230.75, outstanding principal, and a prepayment premium of $8,804.62.
AGENDA
ITEM
8 REVIEW AND ANALYSIS
The City of Gonzales is currently undertaking a Wastewater Expansion Project to expand the capacity of the existing treatment facility to ensure capacity for future development within the City. Through the preparation of a long-term wastewater management plan, it was determined that the most economical way to increase the capacity of the sewer system was to treat the industrial wastewater, or “Ag Wash” separately from the domestic wastewater.
The City has been in discussion with the State Water Resources Contral Board regarding a low interest loan for the construction of the expansion to treat the “Ag Wash” wastewater separate from the domestic wastewater. As part of the conditions of the loan, there cannot be any outstanding debt against the Wastewater Enterprise Net Revenues. The current 2012 Loan pledges both the Water and Wastewater Net Revenues as security for the loan. Since there is only two years left on the loan, Staff is recommending that the loan be paid off in December 2023, to satisfy the requirement of the State Water Resources Control Board of no current outstanding debt within the Sewer Enterprise Fund and allow the City’s loan application to proceed.
Explain Recommendation and How it Supports the Vision
Gonzales will continue to be a safe, clean, family-friendly community, diverse in its heritage, and committed to working collaboratively to preserve and retain its small-town charm.
Explain: The expansion of the wastewater treatment facility will ensure our city has the capacity for commercial and residential growth.
Explain how the Recommendation Directly Implements the Mission The City Council and Staff of the City of Gonzales will realize our Vision by providing the leadership, commitment and resources necessary to provide excellent services that enhance the quality of life of our diverse community. X Yes ___No ___ NA
Explain: Please see explanation above for the Vision.
City services will be delivered in a cost-effective, respectful and friendly manner to ensure the safety and well-being of the residents and the promotion of business, recreational, housing and employment opportunities in an environmentally sustainable manner. __X_ Yes ___No _ NA Explain: Please see explanation above for the Vision
Strong fiscal reporting allows us to provide appropriate resources for:
• Public Safety X Yes No N/A
• Housing X Yes No N/A
• Recreation X Yes No N/A
• Environment X Yes No N/A
• Education Yes No X N/A
Explain: A stable organization is needed to ensure a high level of service necessary to promote public safety for the community and to maintain the City’s infrastructure.
ALTERNATIVES
• Adopt Resolution No 2023-65 authorizing the payoff on the 2012 Water and Sewer Loan in the amount of $563,740.02, and approving a FY 2023-24 budget amendment of $334,330.72, or • Do not authorize the payoff of the 2012 Water and Sewer Loan, or • Direct Staff with an alternative.
BUDGET IMPACT
The current fiscal year budget already has approved payments of $229,409.30. With the payoff of the 2012 Loan, an additional budget amendment of $334,330.72 would be necessary for the payoff.
The current loan matures on December 29, 2025, which would leave three scheduled payments after this fiscal year. The loan documents have a “Prepayment Premium” of 2% of the outstanding principal. In this case, the Prepayment Premium cost would be $8,804.62, however with the early payoff, the City would save $18,587.88 in interest cost. The net savings would be $9,783.26.
The Water Enterprise Fund currently has $3.8M in cash which is sufficient to make the prepayment.
CONCLUSION
It is recommended that the City Council of the City of Gonzales adopt Resolution No. 2023-65, A Resolution of the City Council of the City of Gonzales Authorizing the payoff of the City of Gonzales, 2012 refunded 2005 Loan for Water Tank Project and Sewer Expansion Project in the amount of $563,740.02, and approve a FY 2023-24 budget amendment in the amount of $334,330.72.