City Council Agenda Report
May 28, 2024
TO: Honorable City Council
FROM: Jesus M. Gomez, City Manager
BY: Jana Stuard, Director of Finance/City Treasurer
SUBJECT: SOLAR ENERGY PROJECT LEASE FINANCING – RESOLUTION NO. 24-21 - APPROVING THE EXECUTION AND DELIVERY OF A LEASE
AGREEMENT, A PURCHASER LETTER, AN ESCROW AGREEMENT
AND A LEASE PLACEMENT AGREEMENT; AND AUTHORIZING
CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH; AND
RESOLUTION NO. 24-22 - BUDGET AMENDMENT TO RECORD
FINANCING TRANSACTIONS
Background:
The City’s Strategic Plan outlines the City’s commitment to sustainability and climate resistance. To do so, staff worked with Syserco Energy Solutions (“SES”), a qualified energy services company, to develop an analysis of opportunities for the City to upgrade its facilities to achieve energy efficiency and cost savings measures for the City.
Necessary energy conservation measures identified included:
•Installation of solar panel arrays at several facilities •Installation of energy efficient “cool” roofs at the City’s Transportation Center/Public Services facility buildings
•Installation of building management system thermostats at several facilities •Retrofitting ballfield lighting at two City parks
•Installation of ballfield lighting at several parks
•Replacement of heating, ventilation, and air conditioning control (HVAC) units older than 18 years
•Refurbishment of HVAC units to provide protective polyurethane coating •Replacement of transformers at City Hall to a high efficiency unit •Building exterior upgrades to add/replace door sweeps and sealing doors
City Council
Solar Energy Project Lease Financing
May 28, 2024
Page No. 2
8 5
5 On November 7, 2023, City Council adopted Resolution No. 23-68 authorizing the City Manager to finalize negotiations with SES and acquire the necessary conservation equipment to implement the energy conservation measures through the Sustainability, Energy Efficiency Infrastructure Improvement Project. The City Council also authorized the City Manager to secure necessary financing for the solar panel installation component of the project (“Project”). On February 6, 2024, City Council adopted Resolution No. 24- 08 engaging a finance team for the financing of the Project that covers six locations and has been divided into two separate projects as follows: City Hall, Transit Center and Social Services facilities do not qualify for Low Income Credit (LIC) and are collectively known as the Non-LIC Facilities Project with cost of $7,000,000; Sports Complex, Aquatic Pavilion and Well 10 facilities do qualify for LIC and are collectively known as LIC Facilities Project with a cost of $5,000,000.
The total cost of both projects is $12,400,000, including a $450,000 contingency. Of this amount, the City will finance $5,000,000 of Non-LIC Facilities Project and advance approximately $3.8 million in anticipated rebates from the Building Renovation Fund to fund LIC Facilities Project. The rebates are expected to be received and replenish the Building Renovation Fund once the installation of the Project is complete in two years.
The balance of the costs are allocated to the Proposition C Fund and the Water Fund, due to the location and use of facilities where the solar panels are to be installed.
The City, with assistance of its Municipal Advisor, determined that a private placement (that is, direct financing with one lender) would be quicker and more cost effective than a stand-alone bond issuance to fund the $5,000,000. Timing was an important factor, since certain rebates available to the City will be reduced if the Project doesn’t commence by December 31, 2024. The staff will provide SES with a notice to proceed on the Project as soon as the financing is in hand.
The Underwriter, acting as a Placement Agent, solicited bids to provide financing from seven lenders. The best bid was received from Webster Bank, National Association (“Webster Bank”), at a rate of 4.44% for 15 years.
The next step in the process is to approve the form of various agreements in connection with the financing. Resolution No. 24-21authorizes the following documents:
•Lease Agreement by and between the City and Webster Bank setting out the terms and conditions of the funding of the Project and terms for repayment; •Purchaser Letter (Exhibit D to Lease Agreement) by Webster Bank containing certain representations;
•Escrow Agreement by and among the City, Webster Bank and US Bank, setting out the terms under which the funds for construction will be administered during the construction period; and
City Council
Solar Energy Project Lease Financing
May 28, 2024
Page No. 3
8 5
5 •Lease Placement Agreement with Raymond James & Associates, Inc. describing the services provided to the City, compensation and any limitations on their engagement.
Resolution No. 24-21 authorizes (1) the Lease Agreement to be executed in an amount not in excess of $5,500,000, (2) the City Manager to sign a “rate lock letter” with Webster Bank locking in the 4.44% proposed interest rate until the closing date of June 12, 2024 and (3) the City Manager and the Director of Finance to execute the documents as necessary in connection with the financing.
Fiscal Impact:
The City expects that the Lease Agreement will be executed in the principal amount of $5,458,000. This will fund $5,000,000 in Non-LIC Facilities Project Costs, $117,000 in costs of issuance and $341,000 in capitalized interest. The Capitalized Interest Funds will be used to pay interest on the Lease Agreement during the construction period, and before the City is receiving the benefit of the lower energy costs resulting from the installation of the solar panels.
Interest on the Lease Agreement through December 1, 2025 will be paid from the Capitalized Interest Funds. The annual lease payments will be $532,000 for 14 years commencing in Fiscal Year 2026/27, with an interest-only lease payment of $121,000 in Fiscal Year 2025/26.
The costs of issuance include bond counsel fees, special tax counsel fees, municipal advisor fees and placement agent fees, payable under agreements approved by Resolution No. 24-08.
Citizens Advised:
N/A
Strategic Plan 2023 Implementation:
Said improvements align with the City of Norwalk’s Strategic Plan Goals 2, 3 and 4; work in partnership with the community, re-invest in aging infrastructure; maintain the City’s financial resiliency, build great public destinations, and support sustainability and climate resilience throughout the community.
City Council
Solar Energy Project Lease Financing
May 28, 2024
Page No. 4
8 5
5 Recommended Action:
Staff recommends City Council adopt:
a. RESOLUTION NO. 24-21, A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF NORWALK APPROVING THE EXECUTION AND DELIVERY OF A
LEASE AGREEMENT, A PURCHASER LETTER, AN ESCROW AGREEMENT AND A LEASE PLACEMENT AGREEMENT; AND AUTHORIZING CERTAIN OTHER ACTIONS IN CONNECTION THEREWITH; and
b. RESOLUTION NO. 24-22 - A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF NORWALK AUTHORIZING A BUDGET TO RECORD FINANCING
TRANSACTION
Attachments:
1. Resolution No. 24-21 – Authorize Financing Documents
2. Resolution No. 24-22 – Budget Financing Transactions
3. Lease Agreement
4. Escrow Agreement
5. Lease Placement Agreement