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8.2 Agr KDHE LoanCITY OF SALINA REQUEST FOR CITY COMMISSION ACTION DATE TIME 4/02/01 4:00 P.M. AGENDA SECTION: ORIGINATING DEPARTMENT: APPROVED FOR AGENDA: NO. 8 Utilities NO. 2 BY: Don Hoff BY: ITEM Ordinance Number 01-10028 authorizing the execution of a loan agreement between the City of Salina, Kansas and the State of Kansas for the purpose of financing a public water supply project, establishing a dedicated source of revenue for the repayment of such loan; authorizing and approving certain documents in connection therewith; and authorizing certain other actions in connection with the loan agreement. BACKGROUND A letting date of April 3, 2001 has been set for the Phase II Water Treatment Plant Improvement Project. This project involves the construction of two secondary clarifiers; rehabilitation/expansion of laboratory and maintenance facilities; conversion of an old pumping facility into an administration building; rehabilitation of the existing chemical building and filter building; and miscellaneous controls, piping, etc. The current estimate on the project is approximately $5,000,000. Our Capital Improvements Plan had contemplated funding this project through Revenue Bond proceeds, however, KDHE indicated late in 2000 that loan funds for this project would possibly be available through the Kansas Public Water Supply Loan Fund (KPWSLF). On January 8, 2001, the Salina City Commission authorized submission of an application for that program. We recently received notice that our loan application has been approved in an amount not to exceed $5,000,000. The Kansas Department of Health and Environment has requested that Ordinance Number 01-10028 is adopted. The ordinance authorizes the loan agreement and provides for the revenues to repay the loan. In the event the project cost exceeds the amount of the loan, we will have to make up the difference with local resources. If we do not expend the approved full amount, then the repayment schedule is adjusted downward to reflect that fact. The loan differs from a bond issue in that we do not receive the $5,000,000 at time of closing. We will expend the money, and then file for a reimbursement from KDHE. The loan is for a term of 20 years, which is consistent with our policy regarding bonds issued for utility improvements. The first payment on the loan will be due one year after completion of the project, or two years after we receive the first disbursement from the loan fund, whichever is earlier. The interest rate is set at 4.13%. CITY OF SALINA REQUEST FOR CITY COMMISSION ACTION DATE TIME 4/02/01 4:00 P.M. AGENDA SECTION: ORIGINATING DEPARTMENT: APPROVED FOR NO. AGENDA: Utilities ITEM NO. BY: Don Hoff BY: Page 2 The loan agreement pledges revenues of the utility for repayment, however, this pledge is subordinate to pledges on other Revenue Obligations of the City. Should system revenues not be sufficient to make payments on the loan, the loan agreement provides that we levy ad- valorum property taxes to make the loan payments. No bond reserve funds are required, which normally account for about 10% of the issue. In addition, there are no covenants requiring bond "coverage". In our past revenue bond issues, coverage requirements have been set at 125%. On an issue of this amount coverage would have required approximately $110,500 more in annual revenues than required to make the principal and interest payments on the bonds. The loan is not considered debt for the purposes of bank qualification, nor does it count towards our statutory debt limitation. While our intention is to repay the debt with utility service charges, any taxes that may have to be levied for repayment of the loan would be outside of the tax lid. We may prepay all or a part of the loan at any time, provided we give KDHE 60 days notice of our intent to do so, and the amount prepaid is $50,000 or greater. Attached is a spreadsheet prepared by the Finance Department comparing the costs associated with the KPVVSLF loan to the costs of a conventional Revenue Bond issue. Closing cost savings will be about $22,500, with annual revenue requirement savings of about $182,800. Present worth savings over the 20 year period total approximately $2,300,000. We anticipate this issue closing in early May. RECOMMENDATION Approve Ordinance Number 01-10028 on first reading. Attachment: KPWSLF Water Plant Loan #2 KPWSLF Water Plant Loan Revenue Bonds KPWSLF Loan Project Expenses: Reserve Requirements: Bond Proceeds Required: Interest Rate (Average): Annual P & I Additional Coverage Requirement Total Annual Revenues Required Closing Costs 20 Year Revenues Required Reserve Released, Year 20 Total Gross Costs Gross Savings 5,000,000 555,556 5,555,556 4.90% $442,020 $110,505 $552,525 Gross Cost Analysis $35,000 $11,050,502 ($555,556) $10,529,946 5,000,000 5,000,000 4.13% $369,737 $o $369,737 $12,500 $7,394,750 $7,407,250 3,122,697 Present Worth Analysis with Inflation @ 3.5% Closing Costs $35,000 20 Year Revenues Required $7,852,710 Reserve Released, Year 20 ($279,203) Total Present Worth Costs $7,608,521 Total Present Worth Savings $ $12,500 $5,254,858 $5,267,372 2,341,149 KPWSLF Loan #2