8.6 Agr Water Supply Loan City Of Salina
Request for Commission Action
Date Time
11/24/97 4:00 PM
AGENDA SECTION: ORIGINATING DEPARTMENT APPROVED
FOR AGENDA
NO. 8 FINANCE
ITEM NO,
BY: Rodney Franz BY:
ITEM: Ordinance Number 97-9839 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: City staff has spent considerable time working with the Kansas Department of Health
and Environment (KDHE) regarding proposed improvements to the City's Water Treatment Facility which
will help to resolve the groundwater contamination problems in the central part of the City. This project is
currently under design, with a scheduled bid letting and construction start in early 1998. The current
estimate on the project is $5,200,000. Our original Capital Improvements Plan had contemplated funding
this project through a combination of Revenue Bond proceeds and resources available State Trust Funds
through a separate agreement with KDHE. However, in early June, KDHE announced that loan funds
would possibly be available through the Kansas Public Water Supply Loan Fund (KPWSLF). On
September 22, 1997, the Salina City Commission authorized submission of an application for that
program.
We have now received notice that our application has been approved in an amount not to exceed
$3,600,000. The Kansas Department of Health and Environment has requested that Ordinance Number
97-9839 be 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 other resources. In our case, this will be the State Trust Fund and/or local resources. If
we do not expend the approved full amount, then the repayment schedule is adjusted downward to reflect
that fact. Our strategy, if permitted, will be to spend trust fund resources first, then loan proceeds, and
then, if necessary, other resources.
The loan differs from a bond issue in that we do not receive the $3,600,000 at time of closing. The
mechanics of getting the resources will operate much as a reimbursable grant does. That is, 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
will be set, as of closing, at 80% of the Bond Buyers top 20 index. This week, the rate would have been
4.31%. This is a relatively stable index, and we do not anticipate much change between now and the
closing date on the loan. We anticipate that the average rate on the issue will be from 70 to 75 points
below a revenue bond issue of comparable term.
The Loan agreement pledges revenues of the utility for repayment, however, this pledge is subordinate to
~ledges 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. The cost of issuance is limited to a .25% ($9,000) "origination fee". No bond reserve
funds are required. These 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 this issue, coverage would have required approximately $80,000 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 that we give KDHE 60 days notice of our intent to do so, and
that the amount prepaid is $50,000 or greater.
Attached is a spreadsheet comparing the costs associated with the KPWSLF Loan to the costs of a
conventional Revenue Bond issue. Closing cost savings will be about $21,000, with annual revenue
requirement savings of about $130,804. Present worth savings over the 20 year period total $1,480,046.
We anticipate this issue closing in early December.
REQUESTED ACTION:
Approve Ordinance Number 97-9839 on first reading.
MOTION BY:
COMMISSION ACTION
SECOND BY:
THAT:
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
3,600,000
400,000
4,000,000
5.00%
$320,970
$80,243
$401,213
Gmss Cost Analysis
$30,000
$8,024,259
($400,000)
Total Gross Costs $7,654,259
Gross Savings $
3,600,000
3,600,000
4.31%
$270,408
$0
$270,408
$9,000
$5,408,169
$5,417,169
2,237,090
Present Worth Analysis with Inflation @ 3.5%
Closing Costs $30,000
20 Year Revenues Required $5,702,200
Reserve Released, Year 20 ($400,000)
Total Present Worth Costs $5,332,200
Total Present Worth Savings $
$9,000
$3,843,154
$3,852,154
1,480,046
KPWSLF Water Plant Loan