CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
5/8/2023
1 SUBJECT:
Consideration of financing and other related actions relating to the Lower Linda Mar Sewer System Rehabilitation And Repair Project and the Ultraviolet Disinfection Replacement Project (“Projects”) as part of the Wastewater Capital Improvement Plan RECOMMENDED ACTION:
Move to adopt a Resolution of the City Council to approve the receipt of funds from IBank, in the maximum principal amount of $21,000,000, to finance wastewater system improvements Projects, secured by a pledge of a lien on net revenues of the wastewater system and authorizing the engagement of Jones Hall, a professional law corporation to serve as bond counsel, and authorizing the execution and delivery of a related installment sale agreement and approving related matters and official actions; approval of financing is not a "project" subject to review under CEQA.
STAFF CONTACT:
Nelson Schlater, Engineering Manager - Wastewater
(650) 738-3767
[email protected]
Lisa Petersen, Director of Public Works
(650) 738-3767
[email protected]
Yulia Carter, Assistant City Manager
(650) 501-6004
[email protected]
BACKGROUND:
The purpose of this report is to request the Council to adopt a resolution to authorize the City Manager to execute an agreement to receive funds from IBank, not to exceed $21,000,000, to finance the Lower Linda Mar Sewer System Rehabilitation And Repair Project and the Ultraviolet Disinfection Replacement Project. These projects were factored into the recently completed Sewer Rate study and included in the Wastewater Capital Improvement Program as approved by the City Council on June 27, 2022, as part of the budget.
IBank approved the City’s application on January 25, 2023 for $21 million at 4.36%. Staff is requesting that the Council authorize the City Manager to execute the agreement with IBank.
DISCUSSION
At the May 9, 2022 City Council Meeting, Council adopted a resolution approving New Wastewater Service Charges (Rates) to finance the upcoming 5-year Wastewater Capital Improvement Program (CIP). As documented in the Sewer Rate Study conducted by Bartle Pacifica City Council 2
May 08, 2023
Wells Associates and discussed with Council during the rate adoption, proposed borrowing for the 5-year CIP included financing of approximately $31.5M in FY 22-23.
Staff worked with Luhdorff & Scalmanini Consulting Engineers (LSCE), sewer infrastructure financing experts, on developing the best funding strategies to finance these upcoming Projects needed for both the Collections System and the Plant during the 5-year rate increase period.
The consultant has evaluated the funding agreement closure time, securing the best overall interest rates and payback periods. Based on work with LSCE, staff recommended proceeding with borrowing $21 million from IBank in FY 22-23 and borrowing the remaining amount needed for the 5-year CIP funding period in FY 23-24 from the Environmental Protection Agency Water Infrastructure and Innovation Act Program (WIFIA). WIFIA related funding will be addressed in a future Staff Report.
IBank was created in 1994 by the State of California to finance public infrastructure and private development and is operated out of the Governor's Office of Business and Economic Development.
Funding from IBank has proven to provide a quick and cost-effective method of financing the necessary infrastructure funding requirements and will allow the City to quickly start on the needed Wastewater repair and replacement work. WIFIA financing is expected to provide lowinterest rates and repayment flexibility. However, WIFIA financing is also time-consuming (18 to 24 months) to apply for and secure. Using IBank for the first funding tranche allows for an expedited start to complete the necessary capital repair/replacement work.
At the August 8, 2022 Council Meeting, staff recommended the City Council direct staff to submit an application with IBank for the first needed $21 million of funding. The City submitted the application. On January 25, 2023, IBank’s Board approved the City’s application and locked in the inclusive rate of 4.36%. Furthermore, IBank stated that the agreement (Installment Sale Agreement) is required to close by May 26, 2023 in order to secure that above stated interest rate.
If the City Council approves the proposed financing and execution of the Installment Sale Agreement (See Attachment 2), the City will be agreeing to make semi-annual installment payments over the next 30 years at an all-in interest rate of 4.36%, which includes IBank’s annual fee of 0.3%. The payments will be secured by the Wastewater enterprises fund net revenue. IBank requires the Wastewater enterprise fund to maintain a debt service coverage ratio of 125%. Taking the maximum annual debt service payments over the next 30 years for all existing debt and the new IBank debt, divided by the most current net revenue (Fiscal year end June 30, 2022 audit), the Wastewater Fund’s coverage ratio is 158%, which is well over the 125% requirement.
Staff also recommends that Council also approve the engagement of Jones Hall, A Professional Law Corporation, to serve as bond counsel to the City in connection with the execution and delivery of the Installment Sale Agreement and the financing of the Projects (See Attachment 3).
The compensation to Bond Counsel is contingent upon the successful execution and delivery of the Installment Sale Agreement and the financing of the Projects.
The City Manager recommends the Council adopt a Resolution approving this financing with IBank.
ALTERNATIVE ACTION:
The Council may choose not to adopt the Resolution approving the application. However, this would delay securing a loan for the Wastewater Division repair/replacement work, possibly Pacifica City Council 3
May 08, 2023
resulting in higher interest rates and delays in addressing the critical repair/replacement needs.
RELATION TO CITY COUNCIL GOALS AND WORK PLAN:
Adoption of the Resolution is consistent the these adopted City Goals:
· Stewardship of City Infrastructure and Maintaining a Safe Community: Adoption of the Resolution is the first step to ensuring sufficient funding to begin implementing the 5-year Wastewater CIP.
· Fiscal Sustainability: The adoption of the Resolution will allow for securing the lowest interest rate possible from iBank, as interest rates continue to rise.
CEQA:
Approval of the proposed Resolution relating to financing is not subject to review under the California Environmental Quality Act (CEQA) pursuant to Public Resources Code Section 21000, et seq. and the CEQA Guidelines (14 Cal. Code Regs. §§ 15000 et. seq.), including without limitation, Public Resources Code section 21065 and California Code of Regulations 15378 as approval of financing is not a “project” that may cause a direct, or reasonably foreseeable indirect, physical change in the environment and if a “project,” is exempt under the “common sense” exception (14 Cal. Code Regs. § 15061(b)(3)) because it can be seen with certainty that there is no possibility that this action may have a significant effect on the environment.
The Projects have been determined to be categorically exempt per Class 1 and Class 2, Section 15301 and 15302. Notices of Exemption (Receipt Number 41-08312022-001 and -002) for both Projects were filed with San Mateo County on August 31, 2022.
FISCAL IMPACT:
Adoption of this Resolution will commit the City Wastewater enterprise fund to an average annual finance payment of $1,244,673 over the next 30 years which was factored into the recently completed Sewer Rate study and included in the Wastewater Capital Improvement Program as approved by the City Council on June 27, 2022, as part of the budget.
ORIGINATED BY:
Public Works - Wastewater Division
ATTACHMENT LIST:
Attachment 1_ISA final (PDF)
Attachment 2_ Legal Services Agmt with Jones Hall Pacifica IBank Loan (PDF) Attachment 3_ IBank Payment Schedule (PDF)
Pacifica City Council 4
May 08, 2023
RESOLUTION NO._______ -2023
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PACIFICA
APPROVING THE RECEIPT OF FUNDS FROM THE CALIFORNIA
INFRASTRUCTURE AND ECONOMIC DEVELOPMENT BANK IN THE
MAXIMUM PRINCIPAL AMOUNT OF $21,000,000 TO FINANCE
WASTEWATER SYSTEM IMPROVEMENTS, SECURED BY A PLEDGE OF A
LIEN ON NET REVENUES OF THE WASTEWATER SYSTEM AND,
AUTHORIZING THE ENGAGEMENT OF JONES HALL, A PROFESSIONAL
LAW CORPORATION, TO SERVE AS BOND COUNSEL AND AUTHORIZING
THE EXECUTION AND DELIVERY OF A RELATED INSTALLMENT SALE
AGREEMENT AND APPROVING RELATED MATTERS AND OFFICIAL
ACTIONS
WHEREAS, the City of Pacifica (the “City”) owns and operates a system for the collection, treatment and disposal of wastewater within the service area of the City (the “Wastewater System”), and the City is proceeding to acquire and construct additional improvements to the Wastewater System consisting generally of the rehabilitation and replacement of the Lower Linda Mar wastewater collection systems and the replacement of an Ultraviolet Disinfection System (the “Projects”); and
WHEREAS, in order to provide financing for the Projects, the City has proposed to enter into an Installment Sale Agreement (the “Installment Sale Agreement”) with the California Infrastructure And Economic Development Bank (the “Infrastructure Bank”), under which the Infrastructure Bank will agree to provide financing in the amount of not to exceed $21 million the proceeds of which will be applied to acquire and construct the Projects, and under which the Infrastructure Bank will agree to sell the completed Projects to the City in exchange for periodic installment payments as the purchase price of the completed Projects (the “Installment Payments”); and
WHEREAS, the Installment Payments will be payable from and secured by a pledge and lien on the net revenues received by the City from the Wastewater System, on a parity with the obligations of the City under an Installment Sale Agreement dated August 27, 2012, between the City and the City of Pacifica Financing Authority (the "Authority"), the City of Pacifica 2014 Wastewater Revenue Refunding Bonds and the obligations of the City under an Installment Sale Agreement dated as of June 1, 2017, between the Authority and the City (collectively, the “Prior Wastewater System Obligations”); and
WHEREAS, in accordance with Government Code Section 5852.1, the City has obtained and wishes to disclose certain financial information relating to the execution and delivery of the Installment Sale Agreement as set forth in Appendix A hereto; and WHEREAS, the execution and delivery of the Installment Sale Agreement will be in compliance with the Debt Issuance and Management Policy which has been adopted by the City; and
WHEREAS, the City Council wishes at this time to approve and authorize the execution and delivery of the Installment Sale Agreement and all related agreements and official actions, Pacifica City Council 5
May 08, 2023
for the purpose of providing funds to finance the cost of the Projects in furtherance of the public purposes of the City.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Pacifica as follows:
Section 1. Recitals. The City Council hereby finds and determines that the foregoing recitals are true and correct.
Section 2. Approval of Financing. The City Council hereby approves the receipt of funds from the Infrastructure Bank in the maximum principal amount of $21 million for the purpose of providing financing for the Projects. Such financing shall be accomplished pursuant to the Installment Sale Agreement which is approved pursuant to Section 3.
Section 3. Approval of Installment Sale Agreement. The City Council hereby approves the Installment Sale Agreement between the City and the Infrastructure Bank, in substantially the form on file with the City Clerk together with any minor changes therein or additions thereto deemed advisable by the City Manager, the Finance Director and/or the City Attorney, or the written designee of any of them (each, a “City Representative”), whose execution thereof shall be conclusive evidence of the approval of any such changes or additions. A City Representative is hereby authorized and directed for 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 4. Pledge of Net Revenues of Wastewater System. As provided in the Installment Sale Agreement, the City shall be obligated to pay the Installment Payments which are due thereunder from the net revenues of the Wastewater System. The Installment Payments shall be secured by a pledge of and lien on the net revenues of the Wastewater System on a parity with the Prior Wastewater System Obligations. A City Representative is hereby authorized and directed to execute and deliver to the Infrastructure Bank all certifications and other documents as may be required to evidence such pledge of and lien on the net revenues of the Wastewater System.
Section 5. Engagement of Bond Counsel. The City Council hereby approves the engagement of Jones Hall, A Professional Law Corporation, to serve as bond counsel to the City in connection with the execution and delivery of the Installment Sale Agreement and the financing of the Projects as described in this Resolution. Said firm shall be engaged pursuant to the agreement with the City in the form on file with the City Clerk, which a City Representative is hereby authorized and directed to execute on behalf of the City. As provided in said agreement, compensation to Bond Counsel shall be contingent upon the successful execution and delivery of the Installment Sale Agreement and the financing of the Projects.
Section 6. Official Actions. The City Representatives are hereby authorized and directed, for and on behalf of the City, to do any and all things and take any and all actions and execute any and all certificates, agreements, and other documents, and to take any and all other actions, in furtherance of and consistent with the transactions contemplated by this Resolution. All actions previously taken by the City with respect to the transactions contemplated by this Resolution are hereby approved, confirmed and ratified.
Section 7. Effective Date. This Resolution shall take effect from and after the date of its passage and adoption.
• • • • •
Pacifica City Council 6
May 08, 2023
PASSED AND ADOPTED at a regular meeting of the City Council of the City of Pacifica, California, held on the 8th day of May, 2023, by the following vote:
AYES, Councilmembers:
NOES, Councilmembers:
ABSENT, Councilmembers:
ABSTAIN, Councilmembers:
Tygarjas Twyrls Bigstyck, Mayor
ATTEST: APPROVED AS TO FORM:
______________________________ _________________________________ Sarah Coffey, City Clerk Michelle Kenyon, City Attorney Pacifica City Council 7
May 08, 2023
EXHIBIT A
REQUIRED DISCLOSURES PURSUANT TO
GOVERNMENT CODE SECTION 5852.1
1. True Interest Cost of the Installment Payments (Estimated): 4.36%.
2. Finance charge of the Installment Sale Agreement and the Credit Agreement, being the sum of all fees and charges paid to third parties, in the amount of approximately $50,000.
3. Proceeds of the Installment Sale Agreement and the Credit Agreement expected to be received by the City, net of proceeds for finance charges in (2) above (Estimated): $20,950,000.
No portion of such proceeds will be applied to pay capitalized interest on the Installment Payments or to establish a reserve fund for the Installment Payments.
4. Total Installment Payments to be paid to final maturity (Estimated): $37,340,191. *All amounts and percentages are estimates, and are made in good faith by the City based on information available as of the date of adoption of this Resolution.
Estimates include certain assumptions regarding the final terms and provisions of the Installment Sale Agreement.