HomeMy WebLinkAboutResolution No. 12-C260 0
RESOLUTION NO. 12-C26
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA
APPROVING AMENDMENT TO WATER UTILITY BUDGET IN
AMOUNT OF $2.4 MILLION FOR FISCAL YEAR 2011-2012 PURSUANT
TO SECTION 2-450 OF THE AZUSA MUNICIPAL CODE.
WHEREAS, on April 23, 2012, the City Council, acting as the Utility Board, adopted
Resolution No. 12-C25 which approved a plan to refund certain long term debt ("Refunding Plan") issued
in 2003 on behalf of the City's Water Utility; and
WHEREAS, the Refunding Plan calls for the City to make use of about $2.4 million in
existing water utility reserve funds in order to pay off a portion of outstanding debt that cannot be
advanced refunded with tax exempt bonds; and
WHEREAS, the use of existing water utility reserve funds to effect this refunding is
expected to produce an annual cash flow savings of about $520,000 per year for 10 years, and improve
the water utility's debt -coverage ratio; and
WHEREAS, the Operating Budget of the Water Utility does not currently include budget
appropriations sufficient to cover the $2.4 million as contemplated the by the Refunding Plan; and
WHEREAS, Section 2-450 of the Azusa Municipal Code requires that budget
amendments over $1 million must be approved by resolution at a public hearing;
NOW THEREFORE BE IT RESOLVED that the City Council of the City of Azusa
does hereby approve the following:
The FY 2011-12 Operating Budget of the Water Utility Fund 32 is hereby amended
and approved as follows:
a. Reduce Water Fund 32 balance by $2.4 million;
b. Increase Interest Expense account no. 32-40-721-530-7001 by $200,000;
c. Increase Principal Expense account no. 32-40-721-530-7005 by $2,200,000;
2. The Finance Department is hereby ordered to record this budget amendment in the
City's books of account as if adopted with the original thereof.
ADOPTED AND APPROVED this 7th day of May, 2012.
ASE R. ROCHA, MAYOR
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I HEREBY CERTIFY that the foregoing Resolution No. 12-C26 was duly adopted by the
City Council of the City of Azusa at a regular meeting thereof on the 7"' day of May, 2012, by the
following vote of City Council Members.
AYES: COUNCIL MEMBERS: GONZALES, CARRILLO, MACIAS, HANKS, ROCHA
NOES: COUNCIL MEMBERS: NONE
ABSTAIN: COUNCIL M ERS: NONE
ABSENT: COUNCIL MBE&Si NONE
VERA MENDOZA, CITY CLE
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PUBLIC HEARING
TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS
FROM: GEORGE MORROW, DIRECTOR OF UTILITIES
VIA: JAMES MAKSHANOFF, CITY MANAGER
DATE: MAY 7, 2012
SUBJECT: PUBLIC HEARING TO APPROVE WATER UTILITY BUDGET
AMENDMENT IN AMOUNT OF $2.4 MILLION TO EFFECT COST
SAVINGS THROUGH DEBT REFUNDING PLAN
RECOMMENDATION:
It is recommended that the City Council open public hearing to consider comments on proposed
budget amendment and then close public hearing and adopt attached resolution entitled:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA
APPROVING AMENDMENT TO WATER UTILITY BUDGET IN AMOUNT OF
$2.4 MILLION FOR FISCAL YEAR 2011-2012 PURSUANT TO SECTION 2-450
OF THE AZUSA MUNICIPAL CODE.
BACKGROUND:
To reduce interest expense associated with certain long term debt incurred by Azusa Light & Water,
Utilities staff initiated efforts to assemble a Finance Team to take advantage of the current
historically low interest rate environment. The Financing Team focused on refunding two Series of
Certificates of Participation (COPS) executed and delivered in 2003.
This report concerns the Series A COPS which were executed and delivered in the original principal
amount of $20.37 million to finance certain water infrastructure and refund certain outstanding debt
associated with the purchase of the Azusa Valley Water Company in 1993. One limitation on
refunding the Series A COPs was that about 20% of the outstanding debt had been previously
advance refunded. Since public agencies are not allowed to advance refund long term tax-exempt
debt more than once, 20% of the Series A COPs was ineligible for advance refunding with tax-
exempt revenue bonds. Without refunding the 20%, the prior COP documents would have required
Water Utility Budget Amendment
May 7, 2012
Page 2 of 3
the City to continue to maintain a large reserve fund with the Trustee, and this would have reduced
the benefit of refinancing.
To address the non-refundable 20% portion, the Finance Team considered various alternatives,
however, recommended that a refunding plan be adopted that allocated water fund cash reserve to
defease the 20% ineligible portion of the Series A COPS. The City Council approved this option on
April 23, 2012, when it met as the Utility Board because it maximizes our savings potential and cash
flow savings. This alternative requires $2.325 million in cash from the water utility reserve funds,
and since this payoff amount was not previously budgeted, a budget amendment must be approved.
The rationale for using this refunding alternative is set forth below:
A. The cash reserves of the water utility were about $21.4 million according to the audited
financial report for fiscal year ended June 30, 2011. Hence, cash is on hand to maximize our
savings potential.
B. Rates earned on cash investments are very low right now, below 1%, and so if we can use our
own cash to reduce the cost of borrowing, the net effect is akin to getting a higher rate of
return on our cash.
C. For fiscal year ended June 30, 2011, the water fund debt coverage was about 1.30 and the
minimum is 1.25. Using water utility cash reserves to buy down our long term debt will
allow the City to reduce its interest expense on installment payments significantly and
thereby improve our debt coverage ratio without having to rely on a retail water rate increase.
D. The added positive cash flow, as shown below in the "Savings" column, can be used for
other purposes, such as funding capital improvement projects or replenishing cash reserves:
Series A Installment Comparison
FY Yr
Existing Pymm
New Payment
Savings
2012
$ 53,774
S 36,681 S
17,093
2013
1,553,883
1,032,500
521,383
2014
1,555,138
1,033,800
521,338
2015
1,553,275
1,027,800
525,475
2016
1,553,175
1,029,200
523,975
2017
1,555,025
1,029,400
525,625
2018
1,553,505
1,028,400 1
525,105
2019
1,552,930
1,031,200
521,730
2020
1,554,743
1,032,600
522,143
2021
1,548,063
1,022,600
525,463
2022
1,552,738
1,026,600
526,138
2023
1554 000
1,029,000
525 000
Total
S 17,140,246
S 11,359,781 $
5,780,466
Water Utility Budget Amendment • .
May 7, 2012
Page 3 of 3
FISCAL IMPACT:
The proposed refunding plan requires a cash contribution from the water fund in amount of $2.325
million, however, since final amounts and expenses may vary, staff is requesting the amendment be
approved in the amount of $2.4 million. Any unused portion will be returned to fund balance.
Staff estimates that the Water fund had approximately $22.7 million in cash as of December 31,
2011, and so this cash contribution Will lower the water fund cash balance, however, adequate funds
are on hand to effect this refunding.
It is estimated that the water system will save about $520,000 in annual cash flow through 2023, and
approximately $1.58 million in discounted net present value savings through the life of the bonds
(under current market conditions).
The savings to the water system is expected to exceed the City's target of 5% minimum present value
savings over current debt repayment.
Prepared by
Cary Kalscheuer, Assistant to the Director of Utilities
Attachments:
Resolution