Agenda Item No. 12
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: July 24, 2023 FROM: Matthew Bronson, City Manager
PREPARED BY: Deanne Purcell, Administrative Services Director SUBJECT: Authorization to Submit Water Infrastructure Finance and Innovation Act (WIFIA) Application for Central Coast Blue Project and Incur Related Loan Application and Issuance Costs
RECOMMENDATION
Authorize staff to submit an application to the Environmental Protection Agency (EPA) for a Water Infrastructure Finance and Innovation Act (WIFIA) loan to fund the City’s share of Central Coast Blue project costs and incur related costs related to the application.
BACKGROUND
The City is a member of the Central Coast Blue Regional Recycled Water Authority which is a Joint Powers Authority (JPA) tasked with building and operating the Central Coast Blue recycled water facility. The total construction costs are currently estimated at $93 million of which $49 million would be paid by grants, leaving $44 million to be financed by Grover Beach, Pismo Beach and Arroyo Grande. Grover Beach’s share of CCB is 36% and therefore, after adding Grover Beach preconstruction payments of $2.5 million, the City would need to finance $18.3 million.
According to JPA consultant WSC, the State Revolving Fund (SRF) does not have funds available to finance the Central Coast Blue project costs. It was therefore decided by the JPA to seek financing from the EPA through the WIFIA Loan Program. A Letter of Interest was submitted to the EPA for the WIFIA Loan and after EPA approval, the JPA was invited to submit a full application for funding of CCB.
The WIFIA Loan is similar to the SRF program in that draws are made to fund construction of an eligible project until the project is completed. Once the project is completed, the drawn amounts are aggregated into a loan amount and amortization begins on the loan. This is a more costeffective form of financing than a traditional tax-exempt bond issue where a project amount is funded and then interest on the principal balance begins at closing. The WIFIA Loan rate is the published State and Local Government Securities (“SLGs”) rate published daily by the US Treasury, plus 1 basis point (.01), based upon the average life of the Loan. The WIFIA Loan is a 30-year Loan that starts amortizing once the Project is completed and therefore, the average life of the Loan is estimated to be 20 years. As of June 17th, the current SLGs rate for 20 years is
4.09% and therefore the WIFIA Loan rate would be 4.10%, which is subject to change.
The JPA agencies are seeking separate financing arrangements for each agency’s estimated project costs given the unique financing needs across communities. Arroyo Grande and Pismo Beach are applying together using their common financial advisor whereas Grover Beach is applying separately as the City has a prior Series 2020 Water Bond that must be taken into account when issuing the WIFIA Loan along with a defined financing team which has extensive WIFIA loan experience. Grover Beach would be applying as a “Small Community” because our Staff Report: Direction to submit WIFIA Loan Application Page 2 July 24, 2023
population is less than 25,000 with an application fee of $25,000. Once the EPA begins working on the Loan and engaging their outside legal counsel, they estimate that the total costs for the EPA portion of issuance costs would be approximately $150,000 on which the initial fee of $25,000 is applied towards. These costs once incurred by the EPA, are payable from the initial draw upon closing, but are not contingent upon the Loan closing and will be due and payable should the City decide not to proceed with the Loan for whatever reason. Other Loan costs include the City’s own consultants but, these are contingent and payable from the Loan once it closes.
Therefore, if the Loan does not close, these consultants will not be paid.
These costs will be provided once the EPA approves the Loan and Council is requested to approve the loan documents. An additional upfront fee is the Standard & Poor’s cost for their Rating Evaluation Service (“RES”). The WIFIA application requires a rating evaluation that the Loan would be investment grade (BBB- or higher). The fee for the RES is $28,000 and is applied toward the S&P Rating Fee of $35,000 which is the fee for the full rating once there is a Loan Agreement and Term Sheet.
Staff have been preparing the WIFIA Loan application with the City’s consultants and are seeking Council approval to submit the application with the fee of $25,000 along with the fee for the S & P Rating Evaluation Services of $28,000. This is just the initial step in the Loan process in order to proceed in a timely manner that would enable the City and the other JPA member agencies to begin funding construction costs in early 2024. The Council will ultimately have the authority to consider a WIFIA Loan Agreement provided by the EPA’s legal firm at the end of 2023 following consideration of updated utility rates to fund future water and wastewater needs. Following the presentation of utility rate study results on September 5 and subsequent action by the Council to issue Proposition 218 notices, the rate study would then be sent to S&P to start the RES process with payment of related fees.
FISCAL IMPACT
The initial $25,000 WIFIA application fee and $28,000 S&P RES fee will be paid for from Water Enterprise Reserves. The additional estimated costs of $125,000 for the EPA legal team for WIFIA Loan will be paid for from the first draw of the Loan; however, if the Loan does not close the Water Enterprise Reserves will need to pay this amount. Additional WIFIA Loan costs are contingent upon the closing and will be paid for from the Loan.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Authorize staff to submit an application to the EPA for a WIFIA Loan and appropriate $53,000 from Water Fund Reserves to pay costs related to the application of $25,000 and S&P Rating Evaluation Service of $28,000; or
2. Provide staff with alternative direction.
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.