SERVICE PAYMENT FUNDING

Transcription

1 ITEM 43 CITY MANAGER S REPORT ITEM 2003 WATER REVENUE BONDS JUNE DEBT SERVICE PAYMENT FUNDING RECOMMENDATION Adopt a Resolution Approving an Interfund Loan from General Fund Unassigned Reserves to Water Fund for a Portion of the 2003 Water Revenue Bonds Semi annual Debt Service Payment Due June SUMMARY In 2003 the City of Lathrop took part in a multi agency water supply project known as the South County Surface Water Supply Project SCSWSP Richland Planned Communities Richland committed to paying a large share of the debt issue which financed the City s participation in SCSWSP In 2008 Richland defaulted on its obligation and since then the City has financed the debt service payments as follows through Richland Letter of Credit LOC through General Fund loans to Water Fund Saybrook Advisors LLC Saybrook payment The next debt service payment is due June and to cover it a General Fund loan to the Water Fund is needed City Staff recommends City Council approval of the loan as a short term means to stay current on the debt service The other part of the debt service payment will be funded by a payment from Saybrook Staff has been in negotiations to sell a portion of the City s share of SCSWSP with the City of Tracy This sale of water capacity is now imminent however it is not expected to be completed prior to the upcoming debt service payment on June Once the sale to Tracy is completed the gross sale proceeds will repay all General Fund loans to the Water Fund for debt service coverage which total Staff has been working with consultants to refinance the water bonds and expects that refinancing to be completed in September 2013 This will reduce the debt service costs and part of that savings will be from the Tracy water sale proceeds net of the General Fund repayment In summary this loan request is being made due to timing issues related to the debt service payment being due prior to completion of the water sale and the bond refinancing

2 CITY MANAGER S REPORT PAGE WATER REVENUE BONDS JUNE DEBT SERVICE PAYMENT FUNDING DEVELOPER PORTION BACKGROUND In an effort to secure a long term quality water supply for its existing residents and future residential and commercial growth the City partnered with South San Joaquin Irrigation District SSJID and the Cities of Tracy Manteca and Escalon in 2003 to fund the South County Surface Water Supply Project SCSWSP The City of Lathrop s portion of the SCSWSP was financed by 1 City issued 325 million in bonded debt 2 River Islands 17 million payment Total 49 5 million The City s 325 million SCSWSP contribution was in the form of Water Revenue Bonds commonly referred to as the 2003 Water Bonds and was secured with three sources of funding 1 City issued 325 million in bonded debt from above A Existing 2003 Rate Payers on water bill 63 million B The Mossdale CFD on property tax bill 87 million C Future Development 176 million 165 million of this component approximately 94 and referred herein as the Developer Portion was an obligation of Richland Planned Communities Richland Pursuant to the Central Lathrop Specific Plan CLSP Development Agreement Richland obligated itself to pay the Developer Portion of the 2003 Water Bonds annual debt service and provided the City a3 million Letter of Credit LOC as security to cover any payment deficiencies Annually the Developer Portion obligation for the 2003 Water Bonds is approximately 12 million This funding along with the CFD and City Ratepayer contributions was to be paid to the City in order to fund what is owed to the bondholders However Richland stopped paying in late 2008 This has left the City responsible for the Developer Portion of the debt service payments to bondholders as well as the other two portions mentioned above per Covenants made to bondholders when the 2003 Water Bonds were issued Utilization of the LOC provided full funding for the Developer Portion of the debt service payments through the June semiannual payment After this payment was completed an insufficient amount of funding remained for future semiannual debt service payments The follow paragraphs chronologically detail how the debt service payments have been covered and highlight progress toward the future development of CLSP For the December Developer Portion of the Water Bonds debt service payment the remainder of the LOC funds along with interest earnings anda City Council authorized interfund loan

3 CITY MANAGER S REPORT PAGE WATER REVENUE BONDS UNE DEBT SERVICE PAYMENT FUNDING DEVELOPER PORTION from General Fund unassigned reserves to the Water Fund City Council Resolution No were combined and utilized to fund the payment In an effort to minimize eliminate this unexpected additional financial burden going forward City Staff began negotiating with other agencies to sell a portion of Lathrop s treatment and conveyance infrastructure as a means of securing revenue with the purpose of funding part of the Developer Portion of the 2003 Water Bonds debt service payments until development moves forward in CLSP The June Developer Portion semi annual payment was funded with a City Council authorized interfund loan from General Fund unassigned reserves to the Water Fund City Council Resolution No Efforts toward selling a portion of the Developer Portion the Sale Portion continued but were stalled by delays from other agencies In mid 2012 a new developer Saybrook Advisors LLC Saybrook purchased a large majority of the Community Facilities District No special tax bonds and a sizeable portion of the land within CLSP The Developer Portion less the Sale Portion is defined as the Saybrook Portion Saybrook paid the December Developer Portion of the Water Bonds debt service payment of both the Sale Portion and the Saybrook Portion which was net of interest earnings of and a one time refund of SCSWSP capital costs from SSJID of As illustrated in Table 1 the next debt service payment to bondholders is due June The Developer Portion of this semi annual payment is A partial offset is available via in interest earnings This leaves an anticipated shortfall of this sum is comprised of two parts Saybrook Portion and Sale Portion A transaction for the sale of the Sale Portion with the City of Tracy is near completion Given this recent development City Staff recommends the utilization of a interfund loan from the General Fund to the Water Fund for the Sale Portion share of the Developer Portion of the 2003 Water Bonds debt service payment due on June This assumes a payment of from Saybrook for the Saybrook Portion Staff expects the proceeds from the sale in the near future totaling 5 million When the proceeds arrive they will be set aside and be sufficient to repay the General Fund for all interfund loans to date including tonighys recommended loan the total loan amount is and provide a partial funding source to be used in conjunction with an ongoing refinancing of the 2003 Water Bonds Staff expects this refinancing to be completed in September 2013

4 CITY MANAGER S REPORT PAGE WATER REVENUE BONDS JUNE DEBT SERVICE PAYMENT FUNDING DEVELOPER PORTION Table 1 FY Anticipated Revenues Expenses Developer Portion of 2003 Water Revenue Bonds Debt Service FY FY Debt Service Payment Due Date Revenues LOC Balance as of Semiannual Interest Earnings Total Revenue Available Expense DebtServicePaymentAmount Anticipated5hortfall FY Shortfall Breakdown Saybrook Portion Sale Portion Total Developer Portion REASON FOR RECOMMENDATION City Staff recommends this course of action as a means to prevent a debt service payment default A default of this sort has many significant consequences including potential litigation from bondholders and credit downgrades from Nationally Recognized Statistical Rating Organizations NRSROs such as Moody s and Standard Poor s These consequences could also greatly inhibit a future bond issue or refunding which would severely limit financing options available to the City

5 CITY MANAGER S REPORT PAGE WATER REVENUE BONDS JUNE DEBT SERVICE PAYMENT FUNDING DEVELOPER PORTION FISCAL IMPACT City Council adoption of the Staff recommendation and associated City Council resolution would facilitate a transfer of from Unassigned Reserves of the General Fund into the Water Fund An interfund loan would be required as follows Decrease of General Fund Unassigned Reserves Increase of Water Loan Payable CLSP ATTACHMENTS Resolution 13 Approving an Interfund Loan from General Fund Unassigned Reserves to Water Fund for a Portion of the 2003 Water Revenue Bonds Semiannual Debt Service Payment Due June

6 CITY MANAGER S REPORT PAGE WATER REVENUE BONDS UNE DEBT SERVICE PAYMENT FUNDING DEVELOPER PORTION APPROVALS Mike Sylvia Special Districts Manager 43ofZo 3 Date Cari Ja ies Acting Finance Director i Date I3 vl 3 Glenn Gebhardt Date Community Development Director City Engineer Ta i 3 Salvador Navarrete City Attorney Date J1 Ste n J Salvatore Date City Manager 5 13

7 RESOLUTION NO 13 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LATHROP APPROVING AN INTERFUND LOAN FROM GENERAL FUND UNASSIGNED RESERVES TO WATER FUND FOR A PORTION OF THE 2003 WATER REVENUE BONDS SEMIANNUAL DEBT SERVICE PAYMENT DUE JUNE WHEREAS previously the City of Lathrop participated in the South County Surface Water Supply Project SCSWSP with South San Joaquin Irrigation District SSJID and the Cities of Tracy Manteca and Escalon in 2003 and WHEREAS the City of Lathrop s 495 million share of the SCSWSP was financed with a325 million water revenue bond issue the Z003 Water Bonds and a17 million contribution from River Islands and WHEREAS the 2003 Water Bonds aggregate issue amount of 325 million included three components to secure the financing water ratepayers Mossdale CFD and capacity designated for the Central Lathrop Specific Plan CLSP or Future Development in the amounts of63 87 and 176 million respectively and WHEREAS 16 5 million approximately 94 of the Future Development component Developer Portion was an obligation of Richland Planned Communities Richland as agreed upon within the CLSP Development Agreement and WHEREAS Richland provided the City of Lathrop with a3 million Letter of Credit LOC as surety for the repayment of the Developer Portion of the 2003 Water Bonds and WHEREAS Richland defaulted on its obligation to fund the Developer Portion of the 2003 Water Bonds beginning with the December semiannual debt service payment and WHEREAS the City has used the LOC funds to fund the Developer Portion since the December semiannual 2003 Water Bonds debt service payment and WHEREAS The final remaining LOC funds interest earnings on LOC funds anda loan from General Fund unassigned reserves to the Water Fund funded the Developer Portion of the December semiannual 2003 Water Bonds debt service payment and WHEREASa loan from General Fund unassigned reserves to the Water Fund funded the Developer Portion of the June semiannual 2003 Water Bonds debt service payment and WHEREAS Saybrook Advisors LLC Saybrook acquired a large majority of

8 the Community Facility District No CFD special tax bonds and a sizeable portion of the land within CLSP area land held by Lathrop Land Acquisition LLC in mid 2012 and WHEREAS City Staff has been in negotiations with the City of Tracy for the sale of part of the Developer Portion which is identified as the Sale Portion and WHEREAS the remainder of the Developer Portion after the sale of the Sale Portion is identified as the Saybrook Portion and WHEREAS Saybrook viaa payment to the City with the following components Saybrook Portion and Sale Portion funded the Developer Portion of the December semiannual 2003 Water Bonds debt service payment and WHEREAS Staff recommends an intertund loan from the General Fund unassigned reserves to the Water Fund in the amount of to fund the net Sale Portion of the June semiannual 2003 Water Bonds debt service payment and WHEREAS Staff has submitted a invoice to Saybrook to fund the net Saybrook Portion of the June semiannual 2003 Water Bonds debt service payment which includesa credit to the Saybrook Portion as repayment to Saybrook for the payment of the Sale Portion of the December semiannual 2003 Water Bonds debt service payment and WHEREAS upon successful completion of the sale of the Sale Portion to the City of Tracy gross proceeds from the sale will be used solely for in order of priority 1 Reimbursement of the General Fund unassigned reserves for the interfund loans to the Water Fund referenced herein totaling and 2 a source of funds for the reduction in the anticipated refunding amount of the 2003 Water Bonds and WHEREAS if the sale of the Sale Portion to the City of Tracy is unsuccessful Saybrook will be responsible for repayment of all funds which were utilized from the General Fund unassigned reserves in the payment of the entire Developer Portion both Sale Portion and Saybrook Portion of the 2003 Water Bonds debt service payments in addition to future 2003 Water Bonds debt service payments or refunding debt instruments of the same and WHEREAS it is in the public interest and for the public benefit that the City declares its intent to reimburse the interfund loans referenced herein NOW THEREFORE BE IT RESOLVED the City Council of the City of Lathrop does hereby authorize an interfund loan from General Fund unassigned reserves to Water Fund in the amount of to fund the Sales Portion of the June semiannual 2003 Water Bonds debt service payment and

9 BE IT FURTHER RESOLVED the City intends to reimburse the total interfund loan amount of upon receipt of proceeds from the sale of the Sale Portion to the City of Tracy and BE IT FURTHER RESOLVED the City Council of the City of Lathrop does hereby authorize the following interfund loan Decrease of General Fund Unassigned Reserves Increase of Water Loan Payable CLSP

10 The foregoing resolution was passed and adopted this 6 day of May 2013 by the following vote of the City Council to wit AYES NOES ABSENT ABSTAIN Sonny Dhaliwal Mayor ATTEST APPROVED AS TO FO M Mitzi Ortiz City Clerk Salvador Navarrete City Attorney