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8.3 Water and Sewage Bonds CITY OF SALINA REQUEST FOR CITY COMMISSION ACTION DATE TIME 3/21/11 4:00 P.M. AGENDA SECTION ORIGINATING DEPARTMENT: FISCAL APPROVAL: 8 NO: BY: FINANCE AND ADMINISTRATION FINAL APPROVAL: ITEM NO:3 BY: Rod Franz BY: Page 1 ITEM: Resolution No. 11-6811 and Ordinance No. 11-10595 Consider legislation necessary to consummate the planned Revenue Bond Sale, financing improvements to the Water Distribution System in the City of Salina, Kansas. A. Resolution No. 11-6811 authorizing the offering for sale of Water and Sewage System Revenue Bonds, Series 2011. B. First reading of Ordinance No. 11-10595 authorizing and providing for the issuance of principal amount of Water and Sewage System Revenue Bonds, Series 2011; making certain covenants and agreements to provide for the payment and security thereof and authorizing certain other documents and actions in connection therewith. BACKGROUND: The City of Salina has previously authorized a number of projects to replace and upgrade our water distribution system infrastructure. These projects include: A multi-year project to replac e aging distribution system lines with new lines to improve water quality and fire flow availability in the community. This project is planned in $4,000,000 annual increments over up to a 20 year period. These bonds will pr ovide financing for the first $4,000,000 increment of this project. Approximately $1,000,000 has already been expended on the first phase of this project. The City has a number (about 7,906) meters located off city right-of-way and inside residential and commercial structures. A project has been aut horized and a contract executed with Siemens Corporation to relocate these meters to the public right-of-way. The cost for this component is $5,272,875. A project has been authorized and a contract executed with Siemens to replace the aging water metering system with a new and technologically current system. The cost for this component of the bond issue will be $9,361,975. We anticipate the meters to last with acceptable accuracy parameters, in our environment, for a period of at least 20 years. The meter replacement project will be self-supporting through enhanced meter accuracy, and will generate, by the end of the 20 year bond term a positive net cash flow on the order of $36,000,000. This will be reflected in future rate structure calculations. Preliminary sizing calculations place this issue at a par amount of $20,515,000. This includes the following: Underwriter’s Discount: $ 205,150 Costs of issuance: $ 75,850 Debt Service Reserve:: $ 1,580,452 Deposit to the Construction Fund $18,650,000 Rounding Factor $ 3,548 CITY OF SALINA REQUEST FOR CITY COMMISSION ACTION DATE TIME 3/21/11 4:00 P.M. AGENDA SECTION ORIGINATING DEPARTMENT: FISCAL APPROVAL: 8 NO: BY: FINANCE AND ADMINISTRATION FINAL APPROVAL: ITEM NO:3 BY: Rod Franz BY: Page 2 The Debt Service Reserve is a normal requirement with a Revenue Bond Issue to assure investors that resources are available to apply to bond pa yments, should revenues of the utility fall short. Because the City of Salina has a practice of r outinely adjusting rates to cover costs based on periodic, professionally done rate analysis, we have never, to st aff’s knowledge, had to use a reserved amount, nor do we anticipate doing so in the future. In the case reserves are not used during the course of the issue, they are typically applied to the final payment. At this point, interest rates are projected to vary from a low of 1.4% for the 2012 maturity to a high of 5.05% for the 2031 maturity. FISCAL NOTE: The waterline replacement project and the metering system upgrade were contemplated in the five year Capital Improvement Program. The meter relocation element of the project was not included in that program, as we were then pursuing that with in-house staff resources as available. The project was on an approximate 79 year schedule. During discussions of the meter system upgrade, it was decided to incorporate the meter relocation element because of the positive cash flow, and availability of the third party contractual resources that were available to us. This project will now be completed in approximately 18 months. None of these projects were incorporated into the 2009 – 2013 rate study. However, that study did include a “set-aside” or reserve for future projects. This, plus the cash positive nature of the metering system replacement, an early call of the 2002-A Revenue Bonds using bond reserves to retire the final maturity, and refinancing of the Kansas Public Water Supply Loans and the 2002-A GO Wastewater Bonds insure that ample resources ar e available in this rating period to support proceeding without adverse affect. CONFORMANCE WITH STRATEGIC PLAN: The City will provide the highest quality of services, consistent with governing body direction, available resources and staff commitment to quality. RECOMMENDED ACTION: A. Pass Resolution No. 11-6811 authorizing the offering for sale of Water and Sewage System Revenue Bonds, Series 2011; and B. Pass Ordinance No. 11-10595 authorizing and providing for the issuance of principal amount of Water and Sewage System Revenue Bonds, Seri es 2011; making certain covenants and agreements to provide for the payment and secu rity thereof and authorizing certain other documents and actions in connection therewith. RESOLUTION NO. 11-6811 RESOLUTION AUTHORIZING THE OFFERING FOR SALE OF WATER AND SEWAGE SYSTEM REVENUE BONDS, SERIES 2011, OF THE CITY OF SALINA, KANSAS. WH EREAS , the City of Salina, Kansas (the “Issue r”), owns and operates a Water and Sewage System (the “System”); and WHEREAS , the Issuer is authorized under the provisions of K.S.A. 10-1201 et seq. (the “Act”) to issue and sell revenue bonds for the purpose of paying all or part of the cost of the acquisition, construction, reconstruction, alteration, repair, improvement, extension or enlargement of the System, provided that the principal of and interest on such revenue bonds shall be payable solely from the Net Revenues derived from the operation of the System; and WHEREAS , the governing body of the Issuer has pursuant to Resolution No. ____ declared its intention under the Act to acquire, construct, reconstr uct, alter, repa ir, improve, extend or enlarge the System (the “Project”) at an estimated cost of $34,650,000 and to issue Water and Sewage System Revenue Bonds in an amount of not to exceed $39,850,000; notice of such intention was published one time in the official newspaper of the Issuer and no sufficient written protest thereto was filed with the Clerk within fifteen (15) days after said publication date all as set forth in the Act; and WHEREAS, none of such revenue bonds so authorized have heretofore been issued and the City proposes to issue $4,440,000 of the revenue bonds so authorized to pay a portion of the costs of the Project; and WHEREAS , the governing body of the Issuer has caused plans and specifications for the Project and an estimate of the cost thereof to be made which have previously been accepted and approved and shall be placed on file in the office of the Clerk; and WHEREAS , the Issuer desires to authorize the Financial Advisor to proceed with the offering for sale of said System revenue bonds; and WHEREAS , one of the duties and responsibilities of the Issuer is to prepare and distribute a preliminary official statement relating to said System revenue bonds; and WHEREAS , the Issuer desires to authorize the Financial Advisor, in conjunction with the Clerk to proceed with the preparation and distribution of a preliminary official statement and all other preliminary action necessary to sell said System revenue bonds. BE IT RESOLVED BY THE GOVERNING BODY OF THE CITY OF SALINA, KANSAS, AS FOLLOWS: Section 1 . The Issuer is hereby authorized to offer for sale the Issuer’s Water and Sewage System Revenue Bonds, Series 2011 (the “Series 2011 Bonds”) as described in the Notice of Bond Sale, which is hereby approved in substantially the form presented to the governing body this date. Section 2 . The Mayor and Clerk in conjunction with the Financial Advisor are hereby authorized to cause to be prepared a Preliminary Official Stat ement, and such officials and other representatives of the Issuer are hereby authorized to use such docum ent in connection with the sale of the Series 2011 Bonds. Section 3 . The Clerk, in conjunction with the Fi nancial Advisor and Gilmore & Bell, P.C., Kansas City (“Bond Counsel”), is hereby authorized and directed to give notice of said bond sale by distributing copies of the Notice of Bond Sale and Preliminary Official Statement to prospective purchasers of the Series 2011 Bonds. Bids for the purchase of the Series 2011 Bonds shall be submitted upon the terms and conditions set forth in said Noti ce of Bond Sale, and shall be delivered to the governing body at its meeting to be held on such date, at which meeting the governing body shall review such bids and shall award the sale of the Series 2011 Bonds or reject all bids. Section 4 . For the purpose of enabling the purchaser of the Series 2011 Bonds (the “Purchaser”) to comply with the requirements of Rule 15c2-12 of the Securities Exchange Commission (the “Rule”), the Mayor and Clerk or other appropriate officers of the Issuer are hereby authorized: (a) to approve the form of said Preliminary Official Statement, and to execute the “Certificate Deeming Preliminary Official Statement Final”, in substantially the form attached hereto as Exhibit A, as approval of the Preliminary Official Statement, such official’s signature thereon being conclusive evidence of such official’s and the Issuer’s approval thereof; (b) covenant to provide continuous secondary market disclosure by annually transmitting certain financial information and operating data and other information necessary to comply with the Rule to the Municipal S ecurities Rulemaking Board; and (c) ta ke such other actions or execute such other documents as such officers in their reasonable judgment deem necessary; to enable the Purchaser to comply with the requirement of the Rule. Section 5 . The Issuer agrees to provide to the Purchaser within seven business days of the date of the sale of Series 2011 Bonds or within sufficient time to accompany any confirmation that requests payment from any customer of the Purchaser, whichever is earlier, sufficient copies of the final Official Statement to enable the Purchaser to comply with the requirements of Rule 15c2-12(3) and (4) of the Securities and Exchange Commission and with the requirements of Rule G-32 of the Municipal Securities Rulemaking Board. Section 6 . The Mayor, Clerk and the other officers and representatives of the Issuer, the Financial Advisor and Bond Counsel are hereby authorized and directed to take such other action as may be necessary to carry out the sale of the Series 2011 Bonds. Section 7 . The Financial Advisor is hereby authori zed to submit a bid or participate in a syndicate submitting a bid for the purchase of the Series 2011 Bonds. Section 8 . This Resolution shall be in full force and effect from and after its adoption. [BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] 2 ADOPTED by the governing body on March 21, 2011. (SEAL) _________________________________ Mayor ATTEST: _________________________________ Clerk (Signature Page to Sale Resolution) EXHIBIT A CERTIFICATE DEEMING PRELIMINARY OFFICIAL STATEMENT FINAL MARCH 21, 2011 To: [Purchaser Name] [Purchaser City, State] Re: [$4,440,000] City of Salina, Kansas, Water and Sewage System Revenue Bonds, Series 2011 Ladies and Gentlemen: The undersigneds are the duly acting Mayor and Clerk of the City of Salina, Kansas (the “Issuer”), and are authorized to deliver this Certificate to the addressee (the “Purchaser”) on behalf of the Issuer. The Issuer has heretofore caused to be de livered to the Purchaser copies of the Preliminary Official Statement (the “Preliminary Official Statem ent”), relating to the above-referenced bonds (the “Bonds”). For the purpose of enabling the Purchaser to comp ly with the requirements of Rule 15c2-12(b)(1) of the Securities and Exchange Commission (the “R ule”), the Issuer hereby deems the information regarding the Issuer contained in the Preliminary Offi cial Statement to be final as of its date, except for the omission of such information as is permitted by the Rule, such as offering prices, interest rates, selling compensation, aggregate principal amount, principal per maturity, delivery dates, ratings, identity of the underwriters and other terms of the Series 2011 Bonds depending on such matters. Very truly yours, CITY OF SALINA, KANSAS By: Title: Mayor By: Title: Clerk ORDINANCE NO. 11-10595 OF THE CITY OF SALINA, KANSAS PASSED APRIL 11, 2011 ____________________ WATER AND SEWAGE SYSTEM REVENUE BONDS SERIES 2011 (PUBLISHED IN THE THE SALINA JOURNAL ON APRIL ____, 2011) ORDINANCE NO. 11-10595 AN ORDINANCE AUTHORIZING AND PROVIDING FOR THE ISSUANCE OF PRINCIPAL AMOUNT OF WATER AND SEWAGE SYSTEM REVENUE BONDS, SERIES 2011, OF THE CITY OF SALINA, KANSAS; MAKING CERTAIN COVENANTS AND AGREEMENTS TO PROVIDE FOR THE PAYMENT AND SECURITY THEREOF AND AUTHORIZING CERTAIN OTHER DOCUMENTS AND ACTIONS IN CONNECTION THEREWITH. WHEREAS , the City of Salina, Kansas (the “City”) is a city of the first class, duly created, organized and existing under the Constitution and laws of the State; and WHEREAS , the City is authorized under the provisi ons of the Act, to issue and sell revenue bonds for the purpose of paying all or part of the cost of the acquisition, cons truction, reconstruction, alteration, repair, improvement, exte nsion or enlargement of the System, provided that the principal of and interest on such revenue bonds shall be payable solely from the Net Revenues derived by the City from the operation of the System; and WHEREAS , the governing body of the City has pursuant to Resolution No. ____ declared its intention under the Act to acquire, construct, recons truct, alter, repair, improve, extend or enlarge the System (the “Project”) at an estimated cost of $___________ and to issue Water and Sewage System Revenue Bonds in an amount of not to exceed $___________; notice of such intention was published one time in the official newspaper of the City and no sufficient written protest thereto was filed with the Clerk within fifteen (15) days after said publication date all as set forth in the Act; and WHEREAS, none of such revenue bonds so authorized have heretofore been issued and the City proposes to issue $[Principal Amount] of the revenue bonds so authorized to pay a portion of the costs of the Project; and WHEREAS , the governing body of the City has caused plans and specifications for the Project and an estimate of the cost thereof to be made which have previously b een accepted and approved and shall be placed on file in the office of the Clerk; and WHEREAS, as of the Issue Date, the Issuer will not have Outstanding any System Indebtedness. NOW, THEREFORE, BE IT ORDAINED BY THE GOVERNING BODY OF THE CITY OF SALINA, KANSAS, AS FOLLOWS: Section 1. Definitions of Words and Terms . In addition to words and terms defined elsewhere herein, the following words and terms in this Ordinance shall have the meanings hereinafter set forth. Unless the context shall otherwise indicate, words importing the singular number shall include the plural and vice versa, and words importing persons shall include firms, associations and corporations, including public bodies, as well as natural persons. “Act” means the Constitution and statutes of the State including K.S.A. 10-101 to 10-125, inclusive, K.S.A. 10-620 et seq., and K.S.A. 10-1201 et seq., all as amended and supplemented from time to time. “Additional Bonds” means any bonds secured by the Revenues hereafter issued pursuant to the Bond Resolution. “Additional Obligations” means any leases or other obligations of the Issuer payable from the Revenues, other than the Bonds. “Bond Resolution” means the resolution to be adopted by the governing body of the City prescribing the terms and details of the Series 2011 Bonds and making covenants with respect thereto. “Bonds” means the Series 2011 Bonds and any Additional Bonds. “City” means the City of Salina, Kansas. “Clerk” means the duly appointed and acting Clerk of the Issuer or, in the Clerk’s absence, the duly appointed Deputy Clerk or Acting Clerk. “Expenses” means all reasonable and necessary expenses of operation, maintenance and repair of the System and keeping the System in good repair and working order (other than interest paid on System Indebtedness and depreciation and amortization charges during the period of determination), determined in accordance with generally accepted accounting princi ples, including without limiting the generality of the foregoing, current maintenance ch arges, expenses of reasonable upkeep and repairs, salaries, wages, costs of materials and supplies, paying agent fees and expenses, annual audits, periodic Consultant’s reports, properly allocated share of charges for insurance, the cost of purchased water, gas and power, if any, for System operation, obligations (other than for borrowed money or for rents payable under capital leases) incurred in the ordinary course of business, liabilities incurred by endorsement for collection or deposit of checks or drafts received in the ordinary course of business, short-term obligations incurred and payable within a particular Fiscal Year, other oblig ations or indebtedness incurred for the purpose of leasing (pursuant to a true or operating lease) equipment, fixtures, inventory or other personal property, and all other expenses incident to the operation of the System, but shall exclude all general administrative expenses of the City not related to the operation of the System and transfers into the Debt Service Reserve Account[ and Depreciation and Replacement Account] provided for in the Bond Resolution]. “Fiscal Year means the twelve month period ending on December 31. “Mayor” means the duly elected and acting Mayor or, in the Mayor’s absence, the duly appointed and/or elected Vice Mayor or Acting Mayor of the City. “Net Revenues” means, for the period of determination, all Revenues less all Expenses. “Ordinance” means this Ordinance authorizing the issuance of the Bonds. “Parity Bonds” means the Outstanding Series 2011 Bonds, and any Additional Bonds hereafter issued pursuant to the Bond Resolution and standing on a parity and equality with the Series 2011 Bonds with respect to the lien on the Net Revenues. 2 “Parity Obligations” means any Additional Obligations hereafter issued or incurred pursuant to the Bond Resolution and standing on a parity and equality with the Parity Bonds with respect to the lien on the Net Revenues. “Parity Resolution” means the Bond Resolution and the ordinances and/or resolutions under which any Additional Bonds which constitute Parity Bonds are hereafter issued. “Project” means the acquisition, construction, reconstruction, alterations, repair, improvements, extensions or enlargements of the System described in the Preamble to this Ordinance or any Substitute Project. “Revenue Fund” means the Water and Sewage System Revenue Fund referred to in the Bond Resolution. “Revenues” means all income and revenues derived and collected by the City from the operation and ownership of the System, including investment and rental income, net proceeds from business interruption insurance, transfers from the Surplus Account to the Revenue Fund of Net Revenues drived in a prior Fiscal Year, and any amounts deposited in escrow in connection with the acquisition, construction, remodeling, renovati on and equipping of facilities to be applied during the period of determination to pay interest on System Indebtedn ess, but excluding any profits or losses on the early extinguishment of debt or on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets. “Series 2011 Bonds” means the Issuer’s Water and Sewa ge System Revenue Bonds, Series 2011, authorized by this Ordinance. “State” means the State of Kansas. “Substitute Project” means a substitute or additional project of the System authorized in the manner set forth in the Bond Resolution. “System” means the entire combined waterworks plant and system and sewerage plant and system owned and operated by the City for the producti on, storage, treatment and distribution of water, and for the collection, treatment and disposal of sewage, to serve the needs of the City and its inhabitants and others, including all appurtenances and facilities connected therewith or relating thereto, together with all extensions, improvements, additions and enlargements thereto hereafter made or acquired by the City. “System Indebtedness” means collectively all Bonds and all Additional Obligations. Section 2. Authorization of the Series 2011 Bonds . There shall be issued and are hereby authorized and directed to be issued the Water and Sewage System Revenue Bonds, Series 2011, of the City in the aggregate principal amount of $[Principal Amount] for the purpose of providing funds to: (a) pay a portion of the costs of the Project; (b) pay costs of issuance of the Series 2011 Bonds; and (c) make a deposit to the Debt Service Reserve Account; and (d) pay the interest accruing on the Series 2011 Bonds during construction of the Project. Section 3. Security for the Series 2011 Bonds . The Series 2011 Bonds shall be special obligations of the City payable solely from, and secu red as to the payment of principal and interest by a pledge of, the Net Revenues, and the City hereby pledges said Net Revenues to the payment of the principal of and interest on the Series 2011 Bonds. The Series 2011 Bonds shall not be or constitute a 3 general obligation of the City, nor shall they constitute an indebtedness of the City within the meaning of any constitutional, statutory or charter provision, limitation or restriction, and the taxing power of the City is not pledged to the payment of the Series 2011 Bonds, either as to principal or interest. The covenants and agreements of the City cont ained herein and in the Series 2011 Bonds shall be for the equal benefit, protection and security of the legal owners of any or all of the Series 2011 Bonds, all of which Series 2011 Bonds shall be of equal rank and without preference or priority of one Bond over any other Bond in the application of the funds herein pledged to the payment of the principal of and the interest on the Series 2011 Bonds, or otherwise, except as to rate of interest, date of maturity and right of prior redemption as provided in this Ordinance. Th e Series 2011 Bonds shall st and on a parity and be equally and ratably secured with respect to the paym ent of principal and interest from the Net Revenues with any Parity Bonds. The Series 2011 Bonds shall not have any priority with respect to the payment of principal or interest from said Net Revenues or otherwise over the Parity Bonds; and the Parity Bonds shall not have any priority with respect to the payment of principal or interest from said Net Revenues or otherwise over the Series 2011 Bonds. Section 4. Terms, Details and Conditions of the Series 2011 Bonds . The Series 2011 Bonds shall be dated and bear interest, shall mature and be payable at such times, shall be in such forms, shall be subject to redemption and payment prior to the maturity thereof, and shall be issued and delivered in the manner prescribed and subject to the provisions, covenants and agreements set forth in the Bond Resolution hereafter adopted by the governing body of the City. Section 5. Rate Covenant . The City will fix, establish, maintain and collect such rates, fees and charges for the use and services furnished by or through the System, including all repairs, alterations, extensions, reconstructions, enlargements or improvements thereto he reafter constructed or acquired by the City, as will produce Revenues sufficient to (a) pay Expenses; (b) pay the principal of and interest on the Bonds as and when the same become due; and (c) provide reasonable and adequate reserves for the payment of the Parity Bonds and the interest thereon and for the protection and benefit of the System as provided in this Ordinance and the Bond Resolution. The Bond Resolution may establish requirements in excess of the requirements set forth herein. Section 6. Further Authority . The Mayor, Clerk and other City officials are hereby further authorized and directed to execute any and all do cuments and take such actions as they may deem necessary or advisable in order to carry out an d perform the purposes of the Ordinance to make alterations, changes or additions in the foregoing agreements, st atements, instruments and other documents herein approved, author ized and confirmed which they may approve and the execution or taking of such action shall be conclusive evidence of such necessity or advisability. Section 7. Governing Law . This Ordinance and the Series 2011 Bonds shall be governed exclusively by and construed in accordance with the applicable laws of the State. Section 8. Effective Date . This Ordinance shall take effect and be in full force from and after its passage by the governing body of the City, approval by the Mayor and publication in the official City newspaper. [BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] 4 P ASSED APPROVED AND SIGNED by the governing body of the City on April 11, 2011 and by the Mayor. (SEAL) Mayor ATTEST: Clerk [BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] (Signature Page to Bond Ordinance Certificate) LEGAL OPINION The following is a true and correct copy of th e approving legal opinion of Gilmore & Bell, P.C., Bond Counsel, which was dated and issued as of the date of original issuance and delivery of such Series 2011 Bonds: GILMORE & BELL, P.C. Attorneys at Law 2405 Grand Boulevard Suite 1100 Kansas City, Missouri 64108-2521 (PRINTED LEGAL OPINION) A-8