April 1, 2025
TO: City Council
REQUESTED BY: Erika Gomez, Finance Director
APPROVED BY: Robert A. Johnson, City Manager
SUBJECT: Approval of Financing for Certain Water System Improvements RECOMMENDATION:
Staff recommends that the City Council adopt the attached Resolution No. 4069, authorizing and directing execution of an Installment Sale Agreement, Assignment Agreement, and Escrow Agreement to finance the purchase of equipment and the construction of a new treatment plant and well, including site improvements, project management, and inspection costs related to the water system (the “Project”), and approving related documents and official actions.
DISCUSSION:
The Grand Well and Grand Well Treatment Plant project (Project) emerged as a vital response to the City’s growing water infrastructure needs. Initially funded by the American Rescue Plan Act of 2021 (ARPA) and the Infrastructure Investment and Jobs Act of 2021, the project aimed to strengthen the City’s water system. In 2022, the first phase of the initiative was successfully completed with the drilling of the Grand Well. However, as the pandemic brought rising costs nationwide, the City Council approved reallocation of all remaining ARPA funds in 2024 to finalize other critical infrastructure projects, like the Bath Well Treatment Plant and its site improvements.
Despite the shift in funding, the completion of the Grand Well and its treatment plant remains essential. This facility replaces the former Grand Well, which was abandoned and removed from the City’s Water Conveyance System roughly five years ago. The new Grand Well and Treatment Plant will improve and address inefficiencies in the City’s water distribution. The location of the new treatment plant resolves logistical challenges caused by the concentration of the City’s three active wells on the east side of town and minimizes costs associated with pumping water across town.
As residential and commercial growth continues, ensuring a reliable water supply has become a pressing priority. The new well delivers a production capacity of up to 2,500 gallons per minute, which will allow the City to maintain full reservoirs and steady water pressure during extreme heat or emergencies, such as fires. Beyond increasing supply, the Grand Well Treatment Plant enhances water quality by eliminating contaminants like iron and manganese, improving the color, taste, and odor of the water. Reliable access to high-quality drinking water is fundamental to public health, and this investment will enhance the overall well-being of the community while supporting future economic growth.
Summary of Bids
In order to secure the funds required to construct the Project, a Request for Proposal was sent to 17 banks on March 4, 2025, and 10 bids were received on March 13, 2025. Of the ten bids received, two were considered the most competitive, and a summary is provided below:
Banc of America Webster Bank
Term 15-Year Term 20-Year Term 15-Year Term 20-Year Term Interest Rate 4.1357% 4.3204% 4.18% 4.43%
All-in True
Interest Cost
4.30% 4.45% 4.34% 4.56%
Optional
Redemption
Feature
Callable on or
after 2/1/2033 at
100%
Callable on or
after 8/1/2035 at
100%
Callable on or
after 6/30/2030
at 100%
Callable on
6/30/2030
through
6/29/2032 at
101%, and on or
after 6/30/2032
at 100%
Based upon an evaluation of the bids and the specific terms requested by the bidders, staff and the City’s Finance Team are recommending the selection of Banc of America Public Capital Corp (the “Bank”) as the City’s lender at a rate of 4.3204% for a 20-year term. A copy of the Bank’s term sheet is attached.
Actions Needed
Resolution No. PFA 25-02 authorizes all proceedings related to the financing of the Project and approves the following financing documents necessary to complete the lease financing:
• Installment Sale Agreement – is between the Authority and the City. In order to provide financing for the Project, the Authority and the City wish to enter into this Agreement under which the Authority will provide funds to acquire, construct and/or improve the Project and sell the Project to the City in consideration of the agreement by the City to pay the purchase price thereof in semiannual installment payments. The obligation of the City to pay installment payments under this Agreement will be secured by a pledge of and lien on the Net Revenues of the Water System and a lien on the Project. • Escrow Agreement – is between the City, Authority, the Bank, and Argent Institutional Trust Company (the “Escrow Agent”). The Escrow Agreement sets forth the terms and conditions under which the Project Fund is to be held and disbursed in connection with the financing of the Project.
After the adoption of the Resolution, staff and the City’s Finance Team will complete the required actions to close the financing by April 10, 2025, at which time the funds will be available.
FISCAL IMPACT:
Approval of this item does not impact the General Fund. Principal and interest on the financing will be repaid by the Authority from semi-annual installment payments received from the City.
The City’s installment payments to the Authority will be made from the water system’s Net Revenues. Financial projections indicate there will be more than sufficient Net Revenues to meet the debt service requirements. The financing is being structured to provide a total of $9 million in net proceeds to fund the Project. Repayment will be made through level annual payments, with the average annual payment estimated at approximately $678,879. Including the water system’s existing 2015 loan, the total average annual debt service cost is projected to be about $988,470 from FY 2026 through FY 2036, when the 2015 loan is scheduled to mature.
From FY 2037 to FY 2045, only the new 2025 loan will remain outstanding.
Actions Needed
At tonight’s meeting, the attached Resolution authorizes all proceedings related to the financing of the Project and approves the following financing documents necessary to complete the lease financing:
• Installment Sale Agreement – is between the Authority and the City. In order to provide financing for the Project, the Authority and the City wish to enter into this Agreement under which the Authority will provide funds to acquire, construct and/or improve the Project and sell the Project to the City in consideration of the agreement by the City to pay the purchase price thereof in semiannual installment payments, and provides that the Authority purchase the Project and.
The obligation of the City to pay installment payments under this Agreement will be secured by a pledge of and lien on the Net Revenues of the Water System and a lien in the Project.
• Assignment Agreement – is between the Authority and the Bank, as the Assignee. The rights, obligations and interest of the Authority will be assigned to the Assignee, in exchange for the assignment by the Authority of its right to receive the Installment Payments.
• Escrow Agreement – is between the City, Authority, the Bank, and Argent Institutional Trust Company (the “Escrow Agent”). The Escrow Agreement sets forth the terms and conditions under which the Project Fund is to be held and disbursed in connection with the financing of the Project.
After the adoption of the Resolution, staff and the City’s Finance Team will complete the required actions to close the financing by April 10, 2025, at which time the funds will be available.
FISCAL IMPACT:
Principal and interest on the financing will be repaid by the Authority from semi-annual installment payments received from the City. The City’s installment payments to the Authority will be made from the water system’s Net Revenues. Financial projections indicate there will be more than sufficient Net Revenues to meet the debt service requirements. The financing is being structured to provide a total of $9 million in net proceeds to fund the Project. Repayment will be made through level annual payments, with the average annual payment estimated at approximately $678,879. Including the water system’s existing 2015 loan, the total average annual debt service cost is projected to be about $988,470 from FY 2026 through FY 2036, when the 2015 loan is scheduled to mature. From FY 2037 to FY 2045, only the new 2025 loan will remain outstanding.
ATTACHMENTS:
Term Sheet
Resolution No. 4069
Installment Sale Agreement
Escrow Agreement