Memorandum. May 12, 2017

Transcription

1 Memorandum May 12, 2017 TO: Ed Tabor, Programs & Incentives Manager Robert Ault, Business & Community Development Division Manager FROM: Ami Keiffer, Regional Project Manager Rich Rodriguez, Finance Officer SUBJ: Funding Opportunity of $2,000,000 Safe Drinking Water Revolving Loan Program for City of LaPine, Water System Improvements, No Please accept this memorandum for the Oregon Infrastructure Finance Authority (IFA) for funding assistance. Business Oregon s (statutorily and by rule referred to as Oregon Business Development Department) staff administers the IFA. This memorandum will provide an application review, findings and analysis, and staff s recommendation for requested action. There may also be post approval follow-up instructions for staff. BACKGROUND Applicant: City of LaPine; located in southern Deschutes County. LaPine has a population of 1,670 and is considered rural and distressed by ACS study. Funding Request: Loan Project Type: Construction Project Background: The city has identified several water system improvements to meet current and long-term water system needs. City does not have the required water system redundancy that is recommended by the Oregon Health Authority Drinking Water Services (DWS) A 2016 study evaluated the system and recommended improvements. The water system upgrades will: Improve water supply, storage, circulation, and redundancies Upgrade distribution system quality, pressure, and fire flow capacities in several key areas of the city Provide service to an additional 275 connections inside the city limits at Cagle and Glenwood areas These additional connections, located in the Cagle and Glenwood areas, currently utilize private shallow groundwater wells in an area with septic tank drain fields. Nitrate contamination is a

2 regulatory agency concern, which would be addressed by the project. Overall, the proposed water system improvements will provide a much improved and more reliable water system that will eliminate nitrate concerns for 275 residential connections and serve the city of LaPine for many years. Project Description: The Proposed improvements to the city of LaPine s water system focus on infrastructure needs to properly serve the entire city, while also adding to the city s water system. A number of improvements have been identified to enhance the capacity and reliability of the system. The city proposes to construct a new well and pump station, new transmission line, new 500,000 gallon storage reservoir, and distribution system improvements to enhance water transmission throughout the existing system and extend service in the Cagle and Glenwood Acres areas. The distribution improvements will provide looping for dead-end lines while overall improving water quality. Work Plan: This project is receiving funding from USDA for pre-construction work. Therefore, construction phase of this project will begin after all land surveys and reports, acquisition, and design/engineering is complete. Bidding and awarding a contract for this project is expected to being in September 2018, with construction work beginning in March 2019 and completion sometime in December Public Involvement Statement: The city has engaged the public since 2016 about updates to the system and the potential of fee increases. They are continuing their outreach efforts while the design and engineering phase of this project continues, through December FINDINGS AND ANALYSIS This project helps implement the following goals and objectives: ORS 285A.213, this division of OAR governs the administration of the moneys awarded through this Safe Drinking Water Revolving Loan Fund by the Oregon Business Development Department through its Infrastructure Finance Authority in cooperation with the Oregon Health Authority (OHA) of the Oregon Department of Human Services, but not activities of OHA itself. Program Findings & Compliance 1. Applicant eligibility: As referenced in OAR , all community water systems and nonprofit non-community water systems are eligible to apply for financing except those determined to be ineligible by the department because of prior nonperformance. 2. Project compliance: Nitrates 3. Project priority: 50 on Oregon Health Authority, Project Priority List. Received 15 points for Health Risks (40 pts possible), 10 points for Compliance (30 pts possible), 0 points for Drinking Water Source Protection (15 pts possible), 5 points for Community Affordability (15 pts possible), 10 points for Cost Effectiveness (10 pts possible), and 10 points for Consolidation or Partnership of Two or More Systems (20 pts possible). 4. This is a traditional project; no waivers are requested. Page 2

3 5. The facts cited above indicate this project is found to be compliant with applicable Department policies, Rules and Statutes. 6. The programmatic and financial sections are found to be compliant with applicable Department policies, Rules and Statutes. Financial Findings & Compliance General Fund summary: The below table shows a performance review of the Applicant s General Fund for the last three audited fiscal years ending 30 June 2016 and fiscal year 2017 budget. General Fund current FY Performance Review audited audited audited budgeted FY Ending June 30th Beginning Fund Balance 436, , , ,239 Revenues Property Taxes 234, , , ,239 Other Operating Revenues 247, , , ,500 Operating Revenues 482, , , ,739 Interest and Miscellaneous 4,558 27,272 12,621 7,500 Other Non-Operating Revenues 41,361 70,828 86, ,500 Total Non-Operating Revenues 45,919 98,100 98, ,000 Total Revenues 528, , , ,739 Expenditures Personal Services 99,889 61,365 71,010 72,751 Materials & Services 232, , , ,227 Total Operating Expenses 332, , , ,978 Net Operating Income 149, , , ,761 Capital Outlay ,000 Debt Service 44,208 43,608 43,008 45,000 Total Expenses 376, , , ,978 Net Revenues 151, , , ,761 Net Transfers/Adjustments (39,000) (334,000) (349,000) (427,000) Ending Fund Balance 548, , , ,000 In FYE 2015 the city changed their auditor, which may account for the changes in operating expenditures from the prior year, there was no information regarding this in the management discussion and analysis (MD&A) in the audit. The General Fund transfers out in FYE 2015 and 2016 reflect transfers into the Street Fund, the city s second largest governmental fund by expenditures. Existing obligations and risks The Applicant has debt service requirements as of their last audit, see following table. Page 3

4 Loan Source Summary of Outstanding Debt Obligations June 30, 2016 Balance Annual Debt Service Payment Source Maturity Net Direct Debt LTGO Bonds - City Hall Certificates of Participation $435,000 $42,270 General Fund 2031 Capital leases $9,082 $3,361 General Fund 2020 Net Direct Debt $444,082 $45,631 Self-Supporting Debt Revenue Bonds Water - Refunded USDA $2,420,000 $193,068 Water Revenue Fund 2031 Deschutes County Note - Special Sewer $903,526 $0 System Development Charges 2054 Self-Supporting Debt $3,323,526 $193,068 Gross Bonded Debt $3,767,608 $238,699 The Deschutes County Note Special Sewer obligation financed a sewer expansion, this has no defined payment schedule. Accordingly, annual debt service is zero. In FYE 2016 the city refunded a USDA water bond maturing in 2031, reducing the interest rate from 4.5% to 2.4%. The refunding is indicative the city actively manages its debt portfolio, a mitigate to credit risk. Repayment source The table below shows historic revenue from the Applicant s Water Fund for the last three audited fiscal years ending 30 June 2016 and fiscal year 2017 budget. Page 4

5 Water Fund current FY Performance Review audited audited audited budgeted FY Ending June 30th Beginning Fund Balance 1,659, , , ,066 Revenues Charges for Services 581, , , ,000 Other Operating Revenues 0 20,260 9,033 18,500 Operating Revenues 581, , , ,500 Interest and Miscellaneous 8, ,500 Other Non-Operating Revenues 0 7,405 13,000 0 Total Non-Operating Revenues 8,307 8,214 13,777 10,500 Total Revenues 590, , , ,000 Expenditures Personal Services 134, , , ,418 Materials & Services 144, , , ,648 Total Operating Expenses 278, , , ,066 Net Operating Income 303, , , ,434 Capital Outlay 51,924 48, ,000 Debt Service 193, ,082 2,609, ,000 Total Expenses 523, ,995 2,950, ,066 Net Revenues 66,554 75,650 (2,366,721) 6,934 Net Transfers/Adjustments (821,176) (212,000) 2,040,000 (215,000) Ending Fund Balance 905, , , ,000 During FYE 2016 revenue in the city s Water Fund increased to $584,035 (or +1%) from the prior year while operating expenditures grew to $341,679 (or +31%), information about these changes were in the MD&A. The audit presented expenditures differently in FYE 2016 from the prior year, providing only a single aggregate amount. The figures shown above for FYE 2016 for personal services and materials and services were derived from the prior two years average ratio for these accounts. On May 13, 2015, the city passed Resolution establishing annual increases of water rates by three percent (3%). Establishing an annual incremental rate increase is indicative of sound financial management. As noted earlier, in FY 2016 the city refunded a USDA Water Bond. This accounts for the increase in debt service from the prior year as the old debt was refunded and reflects a corresponding receipt of funds increasing the net transfers / adjustments line. In the two most recent fiscal year ends, the city has transferred $200,000+ out of the Water Fund while transferring into Reserve Fund 26 for future Water and Sewer purposes. These transfers are indicative of prudent fiscal management. Page 5

6 Debt service analysis Net Revenues for Debt Coverage: The below table reflects the Projected Net Revenues for the Applicant s Water Fund based on the Applicant s application. Summary of Revenues, Expenditures, and Debt Service Coverage PRO FORMA Current FY Projected Year (ending June 30th) Beginning Fund Balance 504, , , ,026 1,141,220 1,313,811 Operating Revenues Water System Revenues 550, , , , , ,162 Backflow Testing, Source testing, etc. 16,000 16,500 17,000 17,500 18,000 18,514 Miscellaneous income 10,500 10,800 11,100 11,400 11,700 12,008 Total Operating Revenues 576, , , , ,300 1,017,685 Operating Expenses Personal Services 170, , , , , ,081 Materials & Services 152, , , , , ,758 Other Operating Expenses Total Operating Expenses 322, , , , , ,839 Debt Service Funds Avail for Debt Coverage 253, , , , , ,846 Existing USDA , , , , , ,068 Proposed USDA , , , ,641 Business Oregon Proposed Loan ,800 40,700 Total Debt Service 193, , , , , ,409 Debt Service Coverage Ratio Other Activities Cash Avail After Debt Service 60,532 68, , , , ,437 Loan Proceeds / Drawdowns - Business Oregon 0 666, , , Loan Proceeds / Drawdowns - USDA 0 2,772,300 2,772,300 2,772, Capital Outlay (OUT) (25,000) (3,463,967) (3,463,967) (3,463,967) (25,000) (25,000) System Replacement Reserves 10,000 10,000 10,000 10,000 10,000 10,000 Other Non-Operating Activity Net Other Activity (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) Net Transfers IN (OUT) (15,000) Adjustments Net Transfers & Adjustments (15,000) Ending Fund Balance 534, , ,026 1,141,220 1,313,811 1,470,248 Avg. Rev's per EDU (calc) $51.73 $53.29 $68.88 $58.67 $60.10 $61.57 Rate per EDU (app) $41.00 $41.00 $41.00 $41.00 $55.00 $55.00 EDU's (app) ,111 1,336 1,336 1,336 Connections (app) Operating revenue and expenditures are per the provided Applicant s application. On debt service; the existing USDA 2003 line is per the schedule in the city s most recent audit, the proposed USDA line is based on a one-stop with the city and recent communications with the USDA on an anticipated loan, grant, and interest rates for the city, while the Business Oregon Proposed Loan line is based on the proposed award herein (see Staff s Recommendation section, below). For simplification loan drawdowns and capital outlays are distributed over the span of the project. The pro forma reflects more than adequate net revenues to provide the required 1.20 coverage ratio. Page 6

7 Underwriting standards The Applicant meets 14 of the 17 applicable indicators in the attached Financial Summary. The following indicators are not met: Net Direct Debt Service to General Fund Revenues (mry); [7.29% > 5% standard] Number of Connections (mry); [610 < 1,500 standard] Revenue Debt Per Capita (mry); [$1,445 > $650 standard] Applicant s bond rating The city s Certificates of Participation (COPS) were issued to the public as part of the Local Oregon Capital Assets Program COPS 2011A series. This debt is currently unrated. Financial statement of program Safe Drinking Water Revolving Loan Fund (SDWRLF) 1. Available SDWRLF balance $60,045, Remaining balance, if the project is approved, is $58,045,163. STAFF S RECOMMENDATION According to department policy, Statutes, and Rules the Applicant does qualify for the recommended financing. The programmatic and financial sections of the Eligibility Checklist have been completed and the application has been determined per current ORS to be eligible for funding. Under the SDWRLF program the Applicant has been determined to be a Disadvantaged Community and qualifies for grants/forgivable loan, reduced interest rate and an extended repayment term. A Disadvantaged Community is determined by the following criteria: 1. Actual water rate is higher than the affordability rate [rate $44.00 > affordability $32.13]. 2. Community Median Household Income (MHI) is less than Statewide MHI [community MHI $30,842 < Statewide $51,243.] Financing is awarded in the amount of $2,000,000 which is distributed as follows: $1,050,000 SDWRLF Loan; 30-year term loan at a 1.00% interest rate as a Disadvantaged Community. $950,000 SDWRLF Forgivable Loan; comprised of o $200,000 All eligible projects up to 10% of Total Award not to exceed $250,000, additionally, o $250,000 For a Health and Compliance project up to 20% of Total Award not to exceed $250,000, additionally, o $500,000 All Disadvantaged Communities are eligible for up to 50% of Total Award not to exceed $500,000. The proposed loan will be structured in two phases. The first phase, construction phase, will accrue interest on actual funds disbursed, estimated first disbursement will be in September 1, All accrued interest during the construction phase (estimated to be $11,800) will be due prior to or with the first principal and interest payment. The interest rate will be set at 1.00% for this phase. Construction is scheduled for completion by 1 December Page 7

8 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 1 December The loan can be prepaid in part or in full without penalty. The interest rate will be set at 1.00% for the repayment phase. The Repayment Phase Loan Summary table in the attachments summarizes the repayment phase of the proposed financing. Funding Recommendation and Conditions of Award Financial Conditions: Based upon the following analysis, the award recommended above will be subject to the Business Oregon s standard utility loan contract which will include but not be limited to the following conditions: A. Full Faith and Credit 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 Financing Contract. The Financing Contract 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 Financing Contract. 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. Additional Award. This award is conditional upon the Recipient receiving an award from the USDA in the amount of approximately $8,316,900 which must be received before funds are disbursed. Recipient shall provide copy of award letter as evidence of award. E. 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 $32.13 per 7,500 gallons, the amount due under the Forgivable Loan will not be forgiven. Further, the Financing Contract shall, at Business Oregon s discretion and after notice to Recipient, be modified as follows: 1. Interest shall accrue at the rate of 2.27% per annum. 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. F. Parity. This Business Oregon loan will only be junior to a USDA bond to be issued and associated with this project. No other parity or senior debt is permitted without the advance notice of, and approval by, Business Oregon. Page 8

9 Recommend Approval: Regional Development Officer Date: Public Finance Officer Date: Program & Policy Coordinator Date: Budget recommends that this award come from: Program Funds Senior Finance Accountant Date: RECOMMENDATION: We respectfully request your recommendation on the subject application. Approve project as submitted Approve project with the following modifications: Robert Ault, Business & Community Development Division Manager, Business Oregon Date IFA BOARD APPROVAL The IFA Board shall consider loans over $3,000,000, grants over $500,000 and Safe Drinking Water forgivable loans over $750,000 for approval. The Drinking Water Advisory Committee shall consider Safe Drinking Water projects over $6,000,000. This project exceeds the regular approval dollar amount. Infrastructure Finance Authority Board has discussed the proposed project and has concluded to approve the award Chris Cummings, Assistant Director of Economic Development, Business Oregon Board Meeting Date List of Attachments 1. Financial Summary 2. Board Action Request Memo Page 9

10 Attachments Type Award Amount Repayment Phase Loan Summary Forgivable Loan or Grant Amount Loan Principal Amount Interest Rate Amortized (in years) Est. Annual Payment* SDWRLF $2,000,000 $950,000 $1,050, % 30 $40,700 * 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. Funding Recommendation Project Activity Business Oregon Applicant's Other Funds Funds Funds USDA Totals Design/ Engineering , ,000 Storage 2,000, ,500 2,977,500 Transmission / Distribution - - 4,627,000 4,627,000 Water Source , ,400 Land, Easements, Rights-of-Way ,000 70,000 Other: Permits/Environmental/Legal , ,000 Other: Contingency , ,000 Total Project Costs 2,000,000-8,316,900 10,316,900 Proposed Work Plan Activity Start Date Finish Date Public Outreach and Education Program (ongoing) 1 Feb Dec 2018 Identify and Submit Funding Application 1 Oct Nov 2016 Environmental/Cultural Resource Reports, Land Acquisition De 1 Mar Dec 2017 Design Improvements 1 Apr Jun 2018 Bid and Award Construction Contract 1 Sep Nov 2018 Construct System Improvements 1 Mar Oct 2020 Close Out Project 1 Nov Dec 2020 Page 10

11 Source of Business Oregon Funds Safe Drinking Water Revolving Loan Fund Amount SDWRLF Loan - Public, tax exempt, Principle Forgiveness $950,000 SDWRLF Loan - Public, tax exempt $1,050,000 Total $2,000,000 Customer Name: System's Ten Largest Customers Annual Consumption % of Total Annual Consumption for System Annual Water Revenue Received by System % of Total Annual Revenue received by System Rosland Elementary 2,956, $14, Prairie House 2,429, $14, La Pine Park and Rec Dist. 2,413, $1, Wickiup Jct. LLC 2,233, $8, Best Western 1,693, $7, Midstate Electric Co-op 1,339, $8, Glenwood Acres Homeowners Association 1,255, $8, Altra LLC 1,173, $5, Gordy's Truck Stop 1,137, $8, La Pine Laundromat 1,086, $4, Total 17,717, $ 81, Page 11