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