Funding Recommendation: IFA Funds Totals

Transcription

1 Date: March 31, 2016 To From: Robert Ault, Program Services Division Manager Infrastructure Finance Authority Mary Baker, Regional Coordinator Infrastructure Finance Authority Janna Graham, Public Finance Officer Infrastructure Finance Authority David Barnett, Senior Finance Accountant Business Oregon INTEROFFICE MEMO RE: Recommendation for Safe Drinking Water Revolving Loan Fund (SDWRLF), City of Ashland, New 2.5 MG Water Treatment Plant, Client-Deal # , ($14,811,865) Funding Recommendation: Project Activity IFA Funds Non-IFA Funds Totals Engineering $2,608,360 0 $2,608,360 Construction $11,882,540 0 $11,882,540 Project Management $40,000 0 $40,000 Legal, Permits and Plan Review Fees $280,965 0 $280,965 Total $14,811,865 $ 0 $14,811,865 Source of IFA Funds (Indicate Loan or Grant) Safe Drinking Water Revolving Loan Fund (Loan) $13,781,865 Safe Drinking Water Revolving Loan Fund (Forgivable Loan) 1,000,000 Safe Drinking Water Revolving Loan Fund Labor Standards (Forgivable Loan) $15,000 Safe Drinking Water Revolving Loan Fund Project Management (Forgivable Loan) $15,000 Total $14,811,865 Source of Non-IFA Funds (Indicate Loan or Grant) None 0 Total $ City of Ashland Staff Recommendation Page 1 of 11

2 Conditions of Award: Based upon the following analysis, the award recommended above will be subject to the IFA s standard utility loan contract which will include but not be limited to the following conditions: A. GENERAL FUND PLEDGE. The Recipient will be required to pledge its full faith and credit and taxing power within the limitations of Article XI, Sections 11 and 11 b, of the Oregon Constitution to pay the amounts due under the Loan Agreement and the Note. The Loan Agreement and the Note shall be payable from all legally available funds of the Recipient. B. PLEDGE OF NET REVENUES AS SOURCE OF REPAYMENT. The Recipient will be required to grant to the State a security interest in and irrevocably pledge its Net Revenues of the Recipient s WATER System to pay all of the obligations owed by the Recipient to the State under the Loan Agreement and Note. C. FINANCIAL COVENANTS. The Recipient shall charge rates and fees in connection with the operation of the Water System which, when combined with other gross revenues, are adequate to generate Net Revenues each fiscal year at least equal to one hundred twenty (120%) percent of the annual debt service due in the fiscal year on the Loan, any outstanding senior lien obligations, and any outstanding Parity Obligations. D. Affordability Rate. If, at the Project Completion Date, the average monthly residential water rates for the water supplied by the Water System are not at or above the affordability rate of $45.31 per 7,500 gallons, the amount due under the Disadvantaged portion of the Forgivable Note will not be forgiven. Further, the Note shall, at IFA s discretion and after notice to Recipient, be modified as follows: (1) Interest shall accrue at the rate of One and Ninety-Eight/100ths percent (1.98%) per annum. This rate will no longer be the reduced Affordability rate. (2) The annual payments shall be adjusted to an amount to fully amortize the then outstanding balance of each Loan by the 19th anniversary of the Repayment Commencement Date, on which date any amounts outstanding under each Loan shall be due and payable in full. PROGRAM / PROJECT ANALYSIS 1. Need & Solution or Opportunity Background The City of Ashland, owns and operates a municipal drinking water treatment, storage and distribution system under Public Water System Identification Number On April 17, 2012 the City adopted a new Water System Master Plan (WMP), prepared by Carollo Engineers. The City used a citizen selected committee, Ashland Water Advisory Committee (AWAC) to work with City staff and Carollo Engineers in the development of the WMP. The City adopted WMP was approved by the Oregon Health Authority Drinking Water Section (OHA-DWS) on August 8, City of Ashland Staff Recommendation Page 2 of 11

3 Need One of the many recommended improvements in the approved WMP, is the construction of a new 2.5 million gallon (MG) treatment plant in an alternate location that is not subject to flooding. The new plant is needed since the existing 7.5 MG plant will be at full capacity by 2018 and is nearing the end of its useful life. The new treatment plant will have the ability to be expanded to 10 MG to meet 2060 needs. The existing treatment plant will eventually be taken offline. The nearly 70 year old, existing treatment plant (7.5 MG) is located near Ashland Creek in a canyon below Reeder Reservoir and Hosler Dam. In 1948 a rapid sand filtration plant was built to treat the Ashland Creek water, and then in the mid-1960 s the plant was converted to a high rate filtration plant. The location of the plant is problematic as it is subject to natural disasters (floods, slides and wildfire etc.). In fact, flood events in 1964, 1974 and 1997 disabled the current plant operations forcing the City to distribute bottled water to the citizens. The 1997 flood caused much damage to the aging plant. Refer to the attached pictures. The concern is that eventually a natural disaster will completely destroy the plant, leaving the community without drinking water for a long period of time. In addition, the current plant will be at full capacity by The new water treatment plant must be built simultaneously with a new 3.0 MG reservoir, Crowson II Reservoir, which is designed to serve as the clear well providing chlorine contact time for the treated water before it enters the distribution system. The OHA-DWS determined that the Crowson II Reservoir project was not an eligible priority under the Safe Drinking Water Revolving Loan Fund (SDWRLF), and the City determined that it could finance the project at a better interest rate and term than utilizing the Infrastructure Finance Authority s (IFA s) Special Public Works Fund (SPWF). Therefore, City intends to utilize local funding for the $8,136,600 Crowson II Reservoir project in conjunction with securing the 14,811,865 of SDWRLF for the new 2.5 MG water treatment plant. Solution Once funding is secured for the treatment plant, the City will issue a Request for Proposal (RFP) for final design, construction engineering and geotechnical services. The engineering will include an alternatives analysis for the type of water treatment plant that will work best with the raw water source, involving bench scale testing of the raw water along with treatment alternatives and comparing to the finished water of the existing treatment plant to verify all OHA-DWS requirements for potable water are met. Once a final treatment process alternative is selected, final engineering will commence, along with appropriate permitting. The construction project will be publicly advertised for bid, and a construction contract will be awarded to the lowest responsive bidder. The project will consist of geotechnical site evaluation, final design, construction, and engineering construction inspection of a new 2.5 MG water treatment plant, which will have the ability to be expanded to 10 MG to meet 2060 needs. The project will also include related legal, project management, permits and plan review fees. The construction plans, specifications, contract documents and advertisement for bid will be reviewed and approved by OHA-DWS and IFA, before the project can be advertised for bid. Other The City acknowledges that that this request exceeds typical IFA allowances under the SDWRLF program and is seeking favorable consideration. In considering this request the following is provided, demonstrating the community s capacity, local support and economic need: City of Ashland Staff Recommendation Page 3 of 11

4 1) The City of Ashland is proactive in improving its water system and has demonstrated good performance and administration capacity on the existing SDWRLF funded project #S14005 in the amount of $3,511,027, matched with $2,400,000 of City funds for a total project cost of $5,911,027. The funds are being utilized for the Talent Ashland Phoenix (TAP) intertie (construction is completed), the TAP Booster Pump Station (construction is underway), the Talent Irrigation District (TID) Pump Station (under final design) and the Loop Road Reservoir (under final design). The completion date for this project is July 18, At this time, the City is managing this project in conformance with the program requirements and it appears the project will be completed before the required project completion date. 2) The City has the capacity to undertake this project and will enter into an intergovernmental agreement with the Rogue Valley Council of Governments (RVCOG) to assist with project management. 3) The City has strong community support through the Ashland Water Advisory Committee for the proposed 2.5 MG water treatment plant project, and financial plan that established successive rate increases to support capital improvement projects. 4) Business Oregon has determined that Jackson County, including the City of Ashland is considered distressed in In addition the City has a 5.4% unemployment rate that exceeds the statewide of 4.8%; a tourism based economy that is home to 6,000 students from Southern Oregon University; a median household income of $43,500 which is 86.1% of the statewide average of $50,521; and, 42.58% of the residents are considered low to moderate income. 2. Project Description / Contract-Ready Scope-of-Work The City of Ashland will procure and retain the services of a professional engineering firm to prepare Oregon Health Authority Drinking Water Section (OHA-DWS) and Infrastructure Finance Authority (IFA) approved construction plans, specifications and contract documents, for the 2.5 MG water treatment plant project. In addition, the City will publicly advertise for bid and retain the services of a construction contractor to complete the construction of the 2.5 MG water treatment plant. 3. Proposed Workplan Activity Date RFP for Engineering Services and enter into agreement September 2016 Complete OHA-DWS approved final design October 2017 Advertise project for bid and enter into construction contract April 2018 Complete construction of 2.5 MG water treatment plant May Eligibility Criteria Safe Drinking Water Revolving Loan Fund (SDWRLF) The programmatic and financial sections of the Eligibility Checklist have been completed and the project has been determined to be: Eligible for funding under current ORS Not eligible for funding under current ORS City of Ashland Staff Recommendation Page 4 of 11

5 The detailed review is attached. 5. Other Comments: The City owns the land where the new 2.5 MG water treatment plant will be located. No land acquisition is required. 6. Recommended Disbursement and Monitoring Plan The following is the minimum disbursement and monitoring plan recommended for this project and the applicant: Ongoing Monitoring Desktop Monitoring NA Field Monitoring Site Inspection Projects are continually monitored through a two-way communication process between the state and the recipients and involves frequent telephone contacts, written communication, analysis of reports, audits, and periodic meetings Monitor on-site at the earlier of: A. 60% of funds being expended, or B. 24 months after the funds are awarded At project completion FINANCIAL REVIEW 1. Eligibility and Financing Recommendation: The application for the City of Ashland was considered under SDWRLF guidelines. SDWRLF applicants are required to submit a Letter of Interest and be rated and ranked by Oregon Health Authority (OHA) to determine eligibility of the project. This project received 60 out of a possible 130 points and ranked 6 th on the OHA priority list. Applicants under the SDWRLF program may be determined Disadvantaged and qualify for Forgivable Loan, reduced interest rate, and an extended repayment term. A Disadvantaged Community is determined by; A Communities Median Household Income (MHI) being less than the State s MHI (unless the water rate is 1.5 times the Affordability rate) and The Communities Affordability rate is lower than the actual monthly water rate per Equivalent Dwelling Unit ( EDU ). An EDU is one residential connection or up to the equivalent of 7500 gallons of usage, whichever is less. The City of Ashland qualifies as a Disadvantaged Community due to their projected rate at project completion of $ This exceeds the Affordability Rate (AR) of $ The 2014 Affordability Rate based on the American Community Survey data is calculated at 1.25% of MHI. The City of Ashland s MHI is $43,500 X 1.25%, divided by 12, equaling the Affordability Rate of $ All The financing consists of an Award in the amount of $14,811,865 which is to be distributed as follows: City of Ashland Staff Recommendation Page 5 of 11

6 $13,781,865 SDWRLF Loan (30 year term loan at a 1.79% interest rate, as a Disadvantaged Community).! The Disadvantaged rate of 1% is limited to a grant equivalent of the subsidy of $2,500,000 over the life of the loan, thus producing a 1.79% interest rate for this project $1,030,000 SDWRLF Forgivable Loan! All eligible projects up to 10% of Total Award not to exceed $250,000, additionally! For a Health and Compliance project Up to 20% of Total Award not to exceed $250,000, additionally! All Disadvantaged Communities are eligible for up to 50% of Total Award not to exceed $500,000, additionally! All eligible Project Management costs, not to exceed $15,000, additionally! All eligible Labor Standards Compliance costs, not to exceed $15,000! The forgivable portion not to exceed the lesser of $1,030,000 or 60% of Total Award 2. Financing Structure: The proposed SDWRLF loan will be structured in two phases. The first phase, Planning, Engineering and Construction Phase, will accrue interest on actual funds disbursed, estimated first disbursement is May 1, All accrued interest during the first phase, will be due prior to or with the first principal and interest payment. The interest rate will be set at 1.79% for the first phase. Planning, Engineering and Construction is scheduled for completion by May, The following table summarizes the Planning, Engineering and Construction Phase interest estimate of the proposed financing: Planning, Engineering and Construction Phase Interest Estimate City of Ashland- Ashland 2.5MGD Water Treatment Plant Estimated Beginning Date Estimated Ending Date Loan Principal Annual Interest Rate Estimated Accrual Period* Estimate Accrued Interest** 5/01/ /1/2019 $13,781, % 43 $442,300 * Number of Months. Based on a 30 day month, 360 day year. Actual accrual period depends on the dates funds are disbursed. ** The estimate of accrued interest during the initial accrual period is based on 1/2 the maximum loan amount drawn during the full accrual period. The actual amount of accrued interest due will be based on the dates and amounts of disbursement. The second phase, Repayment Phase, will begin with constant annual payments of principal and interest sufficient to repay the outstanding principal balance, together with interest, within a 30 year period. The estimated first principal and interest payment due date is December 1, The loan may be prepaid in part or in full without penalty. The interest rate will be set at 1.79% for the repayment phase. The following table summarizes the repayment phase of the proposed financing: Repayment Phase Loan Summary City of Ashland Type Award Forgivable Loan or Grant Loan Principal Interest Rate Amortized (in years) Est. Annual Payment* City of Ashland Staff Recommendation Page 6 of 11

7 SDWRLF $14,811,865 $1,030,000 $13,781, % 30 $597,700 * Actual payment will likely be different. Payment rounded to nearest $100. Construction Period Interest is expected to be paid prior to or with the 1st scheduled P&I payment date. 3. Repayment Sources: Water Fund Operating Revenues The following table shows the combined historic Schedule of Receipts, Expenses, and Changes in Fund Balance from the City of Ashland s Water Fund for audited fiscal years. Water Fund City of Ashland Performance Review audited audited audited FY Ending June 30th Beginning Fund Balance 2,708,907 6,437,576 6,273,415 Revenues Charges for Services 5,547,560 5,913,633 6,163,924 Other Operating Revenues 266, , ,414 Operating Revenues 5,813,756 6,182,662 6,492,338 Interest and Miscellaneous 496,779 49,733 41,527 Intergovernmental & Bond/Ln Proceeds 4,517,770 1,069, ,389 Total Non-Operating Revenues 5,014,549 1,119, ,916 Total Revenues 10,828,305 7,301,772 7,349,254 Expenditures Materials & Services 6,520,293 6,602,426 7,366,825 Total Operating Expenses 6,520,293 6,602,426 7,366,825 Net Operating Income (706,537) (419,764) (874,487) Interfund Loan and Capital Outlay 200, ,000 0 Debt Service 379, ,507 1,047,252 Total Expenses 7,099,636 7,465,933 8,414,077 Net Revenues 3,728,669 (164,161) (1,064,823) Ending Fund Balance 6,437,576 6,273,415 5,208,592 Operating Revenue has increased the last three years due to water rate increases. Net Operating Income has been negative, primarily due to the expenses of the Forest Interface Program being paid through this fund. Beginning FY 2016 these expenses are being allocated to the General Fund. On Average the expenses for Forest Interface were approximately $800,000 per year. Materials & Services were up in The increases were due to expansion of the Conservation Program that included an additional employee, and a connection to the Medford water source due to the severe drought. The City s top ten ratepayers as a percentage of revenues is less than 5%. The City does not have any one water customer that exceeds 2% of total consumption or 1% of total annual income resulting in stable revenue. % of Total Rank Name Annual Revenue 1 SOU/Physical Plant Department.68% $ 49, Lisk, Michael.64% 47, City of Ashland Staff Recommendation Page 7 of 11

8 3 Ashland Community Health Care.55% 40, Southern Oregon University.54% 39, SOU/Physical Plant Department.52% 38, CPM Real Estate Svcs Inc..50% 36, City of Ashland.39% 28, Parks Department % 26, Parks Department % 25, Ashland Apartments.33% 24, % $ 357, Full Faith & Credit Pledge (LTGO): The Loan shall be payable from the general fund of the Borrower and shall be a full faith and credit obligation of the Borrower which is payable from any tax which the Borrower may levy within the limitations of Article XI of the Oregon Constitution. The table below shows the City s historic General Fund Schedule of Receipts, Expenditures, and Changes in Fund Balance for the past three audited fiscal years ending June 30, General Fund City of Ashland Performance Review audited audited audited FY Ending June 30th Beginning Fund Balance 3,495,819 3,385,681 3,719,810 Revenues Property Taxes 12,278,716 17,805,058 18,128,150 Other Operating Revenues 2,677,160 2,342,712 3,041,112 Operating Revenues 14,955,876 20,147,770 21,169,262 Interest and Miscellaneous 98, ,199 96,771 Intergovernmental and Interfund Loan 571, , ,215 Total Non-Operating Revenues 669, , ,986 Total Revenues 15,625,425 20,959,129 21,936,248 Expenditures Personal Services 3,621,898 7,626,596 8,519,679 Materials & Services 12,117,991 13,102,433 13,328,400 Total Operating Expenses 15,739,889 20,729,029 21,848,079 Net Operating Income (784,013) (581,259) (678,817) Total Expenses 15,739,889 20,729,029 21,848,079 Net Revenues (114,464) 230,100 88,169 Net Transfers/Adjustments 4, ,029 (187,714) Ending Fund Balance 3,385,681 3,719,810 3,620,265 A surge is noted in 2014 in income and expenses. The City changed reporting to include property tax revenue for Parks as well as Park s expenses in the General Fund. The fund s Total Expenses and Total Revenue vary and often offset from year to year, from a negative $100,000 to a positive $200,000. This is absorbed annually by a $3+ million ending fund balance City of Ashland Staff Recommendation Page 8 of 11

9 4. Debt Service Analysis: Net Revenues for Debt Coverage: The following table reflects that the Projected Net Revenues are sufficient to provide the required 1.20 coverage for the Safe Drinking Water Revolving Loan Fund loan request. Summary of Revenues, Expenditures, and Debt Service Coverage City of Ashland PRO FORMA Current FY Projected Year (ending June 30th) Beginning Fund Balance 4,028,874 2,849, , ,264 1,851,227 1,929,740 Operating Revenues Charges for Services 6,710,900 7,243,700 7,605,900 7,986,200 8,385,500 8,804,800 SDC charges and Mics/Interest 132, , , , , ,000 Other Revenue Source 2 Total Operating Revenues 6,843,300 7,376,100 7,800,900 8,181,200 8,580,500 8,999,800 Operating Expenses Personal Services 1,737,310 1,820,030 1,875,000 1,931,000 1,989,000 2,049,000 Materials & Services 3,219,460 3,184,186 3,248,000 3,314,000 3,380,000 3,448,000 Total Operating Expenses 4,956,770 5,004,216 5,123,000 5,245,000 5,369,000 5,497,000 Debt Service Funds Avail for Debt Coverage 1,886,530 2,371,884 2,677,900 2,936,200 3,211,500 3,502,800 Go Bond ,666 66,666 66,666 66,666 66,666 66,666 Go Bond , , , , , ,425 Go Bond , , , , , ,100 Medford Water Comm 163, , , , , ,755 S14005 OBDD loan 78,271 78,271 78,271 78,271 New Debt Service* 294,800 1,053,920 1,053,920 1,172,920 1,214,920 1,238,420 IFA Proposed Loan , , ,700 Total Debt Service 911,846 1,669,616 1,746,437 2,311,137 2,511,737 2,528,337 Debt Service Coverage Ratio Other Activities Cash Avail After Debt Service 974, , , , , ,463 Loan Proceeds / Bond Issue 3,935,000 11,069,125 11,936,900 2,285, , ,500 Capital Outlay (OUT) (5,839,400) (12,289,525) (11,262,760) (1,328,150) (698,125) (559,750) SDC Improvement (1,871,975) (1,045,390) (50,625) Net Other Activity (1,904,400) (3,092,375) (371,250) 956,900 (371,250) (371,250) Net Transfers IN (OUT) (250,000) (250,000) (250,000) (250,000) (250,000) (250,000) Net Transfers & Adjustments (250,000) (250,000) (250,000) (250,000) (250,000) (250,000) Ending Fund Balance 2,849, , ,264 1,851,227 1,929,740 2,282,953 Avg. Rev's per EDU (calc) $56.85 $61.27 $64.80 $67.96 $69.88 $71.88 EDU's (app) 10,032 10,032 10,032 10,032 10,233 10,434 Connections (app) 8,823 8,823 8,823 8,823 9,002 9,181 *New debt service includes Water Supply & Distribution looping 2016, Crowson II Reservoir 2017, Future Distribution projects and Water Mainlines coming on in 2019, 2020 & Revenue is projected to increase through rates and growth at approximately 5% per year, with expenses anticipated at 2.5% over the next six years. The Water Fund balance and projections, reflect fluctuations from funding influxes in the form of bonds, loans and grants, with outlay for various capital improvement projects. This takes place over the course of several years beginning in The large projects are anticipated to be winding down in 2019, thus the fund balance stabilizes in City of Ashland Staff Recommendation Page 9 of 11

10 5. Existing Obligations: The following table shows the City s existing debt service requirements as of their last audit. Summary of Outstanding Debt Obligations City of Ashland Loan Source Annual June 30, 2015 Debt Balance Service Payment Source Maturity Net Direct Debt GO Bond $1,190,000 $274,500 General Fund 2023 GO Bond $684,962 $95,236 *General Fund/Water 2028 GO Bond $9,620,000 $1,622,300 General Fund 2023 GO Bond $2,455,000 $200,788 General Fund 2033 GO Bond /Medford $11,205,000 $1,250,310 *General Fund/Water 2028 GO Bond $4,210,000 $370,875 *General Fund/Water 2028 Net Direct Debt $29,364,962 $3,814,009 Self-Supporting Debt OBDD - SPWF B06003 $478,543 $84,128 Street Fund 2028 Revenue Bonds 2013 Water Debt $1,400,000 $191,350 Water Fund 2023 S14005 OBDD loan $1,654,000 $0 Water Fund 2047 Revenue Bonds $5,952,390 $236,882 Utility Fund 2040 Self-Supporting Debt $9,484,933 $428,232 Gross Bonded Debt $38,849,895 $4,242,241 *This is blended debt, with a portion attributed to and paid by water. The current total outstanding debt balance attributed to the Water Fund is $7,003,352. S14005 OBDD loan is $2,566,027 with $1,654,000 currently drawn and payments beginning Dec, All debt with Business Oregon is paid as agreed. 6. Demographic Data and Underwriting Standards: The City meets 14 of the 19 applicable indicators in the attached Financial Summary. The indicators not met are as follows: a) Net Direct Debt Service to General Fund Revenues (mry) 16.19% < 5% b) Net Direct Debt Per Capita (mry) 1,289 <1,000 c) Percentage of Debt Retired in 10 Yrs % >60% d) Debt Service Coverage Ratio (mry) >1.20 e) Assessed Value Annual Growth Rate since % >3% City of Ashland Staff Recommendation Page 10 of 11

11