REPORT TO COUNCIL
SUBJECT
Title
Adopt a Pledge of Revenues Resolution and a Resolution Approving an Installment Sale Agreement in Support of the State Revolving Fund Financing for the Sunnyvale Clean Water Program
Report
BACKGROUND
The City is currently fully engaged in the most significant single public works program in its history, the rebuild of its aged Water Pollution Control Plant, which treats sewage from all of Sunnyvale and a small area inside the Cities of Cupertino and San Jose. Named the “Sunnyvale Clean Water Program”, current cost estimates for this program are slightly over $450 million over approximately fifteen to twenty years.
In the planning phase for many years, the program is now under construction for the first phase of the project, which includes the facilities that handle the incoming sewage and the initial treatment process. Throughout the planning process, staff has included a placeholder in the City’s Wastewater Management Fund long-term financial plan that estimates annual debt service associated with this program. This assumption has been based on a standard utility revenue bond financing.
Upon evaluating financing alternatives, staff identified that more favorable financing is available for a portion of the program through the State of California Clean Water Revolving Fund. In order to apply for this funding Council adopted three resolutions in December of 2015. This enabled the City to complete its application, and funding is now anticipated to occur in October. One of the adopted resolutions was a Pledge of Revenues Resolution. After Council adoption, the State Division of Financial Assistance (DFA) has asked the City Council to adopt a new resolution with revised language (See Attachment 1).
EXISTING POLICY
Council Fiscal Policy 7.11 Enterprise Fund Policies, 1.1b.1 Capital improvements associated with the existing infrastructure of a utility should be primarily funded from two sources: rate revenue and debt financing.
Council Fiscal Policy 7.11 Enterprise Fund Policies, 1.1b.3 Local, state and federal funding sources, such as grants and contributions, should be pursued for utility -related capital improvement projects consistent with City priorities.
ENVIRONMENTAL REVIEW
On August 23, 2016, the City Council certified that the Programmatic Environmental Impact Report, adopted the mitigation monitoring and reporting program and the statement of overriding considerations for the Sunnyvale Clean Water Program.
DISCUSSION
The DFA administers the implementation of the State Water Resources Control Board’s (State Water Board) financial assistance programs, which include loan and grant funding for construction of municipal sewage and water recycling facilities. The Clean Water State Revolving Fund (CWSRF) Program provides low-interest loans (less than 2% vs. the 3-5% for traditional revenue bonds) for a term of 30 years for water quality improvement projects. The Sunnyvale Clean Water Program is eligible for planning/design and construction CWSRF funding and, due to the drought and corresponding financing incentives to develop alternative water supplies, may be eligible for even lower interest financing because it produces recycled water.
The City has submitted a detailed Financial Application Package for the first phase of the program, construction of the primary treatment facilities and head works. The total estimated cost of the first phase is approximately $130 million. Staff will evaluate funding options for the remainder of the project phases as they come up for design and construction in the future, and will apply for additional CWSRF funding if available and cost effective.
In order to complete the application process two documents require approval by City Council. They are a Pledged Revenues Resolution with the revised language requested by DFA and a Resolution approving an Installment Sale Agreement and authorizing the City Manager, or her designee, to execute the Agreement.
Pledged Revenues and Fund Resolution
This Resolution identifies the funding source that will be pledged to pay the ongoing obligations established through a financing agreement with the State. In this case, the funding source is revenues from the Wastewater Management Fund as defined in the Resolution. This was originally adopted in December of 2015. The State has requested an amendment to identify the pledge of “Net Revenues” opposed to just “Revenues.” A redline version is provided as Attachment 1. The reason for this change is to affirm that SRF funding is on parity, meaning the new debt will not be senior to the previously issued 2010 Wastewater Revenue Bonds.
Resolution to Approve an Installment Sale Agreement
The Installment Sale Agreement is the agreement between the City and the State that lays out the details of the transaction and how it will be repaid. The resolution authorizes the City Manager, or her designee to execute the Agreement within certain parameters, in this case with a principal not to exceed $1350 million and an interest rate less than 3%.
FISCAL IMPACT
It is anticipated that even in the current favorable rate environment, the very low rates obtained through the CWSRF Loan Program has the potential to save the City’s rate payers twenty million dollars or more over the life of the loan when compared to a traditional public market financing. Taking this approach is the lowest cost option for financing the first significant phase of this project.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City's official-notice bulletin board outside City Hall, at the Sunnyvale Senior Center, Community Center and Department of Public Safety; and by making the agenda and report available at the Sunnyvale Public Library, the Office of the City Clerk and on the City's website.
RECOMMENDATION
Recommendation
Adopt a Pledge of Revenues Resolution and a Resolution Approving an Installment Sale Agreement and authorizing the City Manager, or her designee, to execute the Agreement in support of the State revolving fund financing for the Sunnyvale Clean Water Program.
Staff
Prepared by: Timothy J. Kirby, Director of Finance
Reviewed by: Walter C. Rossmann, Assistant City Manager
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Pledged Revenues Resolution
2. Resolution Approving and Authorizing Execution of an Installment Sale Agreement
3. Draft Installment Sale Agreement