ITEM:

ACTION ITEMS

 

17.

REVIEW FUNDING ALTERNATIVES AND CONSIDER PAY-AS-YOU-GO APPROACH FOR COMPLETION OF PHASE 1 OF THE AQUIFER STORAGE AND RECOVERY PROJECT

 

Meeting Date:

November 19, 2007

Budgeted:

Yes

 

From:

David A. Berger,

Program/

ASR Project

 

General Manager

Line Item No.:††††† 1.1.2-A

 

Prepared By:

Rick Dickhaut

Cost Estimate:

$985,000 in FY 2007-08

†††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††† $665,000 in FY 2008-09

General Counsel Approval:Yes

Committee Recommendation: The Administrative Committee reviewed this item on November 8, 2007 and recommended approval.

CEQA Compliance:N/A

 

SUMMARY:Over the past months, District staff has been evaluating various alternatives to secure debt funding of approximately $2,800,000 for completion of the Phase 1 Aquifer Storage & Recovery (ASR) Project.However, as previously reported to the Board, staff has thus far been unsuccessful in finding a suitable financing mechanism.At the September 17, 2007 Board meeting the Board authorized the General Manager to enter into an agreement with Urban Futures, Inc. for an amount not-to-exceed $34,500 to provide financial advisory services related to obtaining financing for the Phase 1 ASR Project.Staff reported that UFI would only be compensated if and when financing is obtained, and at that time the fee would be paid out of the financing proceeds.

 

Since that time, District staff and counsel have been working with UFI and its proposed bond counsel, Richard Watson and Gershon (RW&G) on the financing project.In addition to processes already identified by staff, RW&G and District counsel have now determined several additional actions the District should take obtain tax-exempt debt financing.First, they recommend that the District hold an election, or go through a court validation process, to validate the ASR Project as well as the issuance of debt to finance the project.While a court validation process could probably be completed within a couple of months if there was no opposition, it is estimated that it would cost between $9,500 and $14,250.Second, because the probable method of financing would be Certificates of Participation, RW&G has determined that the District would need to form either a Public Facilities Corporation or Joint Powers Authority to act as the issuer of debt for the District.While this would be relatively inexpensive, it is another additional task that would need to be completed within a short timeframe.As a result of these new requirements, it is now anticipated that funding from a debt issuance could not be secured until near the end of June 2008, or possibly later.

 

Based on the above mentioned developments, District staff has again evaluated the possibility of funding the entire project on a pay-as-you-go basis and has determined that it is now feasible.At the time of adoption of the 2007-08 budget, it was contemplated that the entire amount of approximately $1,700,000 to complete the Phase 1 ASR Project would be expended during Fiscal Year 2007-08.However, due to unanticipated and unavoidable delays in completing the project,it is now projected that the amount to be spent this fiscal year will be about $985,000, with the remainder to be spent in Fiscal Year 2008-09.Based on these new projections, and assuming all non-ASR related portions of the 2007-08 budget remain unchanged, the general operating reserve as of June 30, 2008 would be about 8.2%, which is well within the 5% -10% minimum established by the Board in 2005.While the remaining expenditure of approximately $665,000 to complete the project in Fiscal Year 2008-09 would likely reduce the general operating reserve below the 5% established minimum, staff feels that this is an acceptable alternative due to several factors as follows:1) In addition to the general operating reserve, the District currently has additional Board-designated reserves of over $1,000,000 that could be used in the case of an emergency; 2) the 1.2% additional user fee adopted in 2005 now generates over $350,000 per year and the general operating reserve would be replenished to minimum acceptable levels within a year or two; 3) the Districtís two main sources of revenues, user fees and tax revenues, are fairly stable and not subject to much variation due to changes in the economy; 4) the District will save interest costs, plus around $100,000 in fees, associated with a debt issuance; and 5) general counsel has determined that although the findings adopted by Ordinance 123, the ordinance that increased the user fee by 1.2%, refer to a debt financing plan to implement the project, the purpose section set forth in the body of the ordinance does not limit proceeds to debt repayment or reduction, and that they may be used to pay direct project expenditures so long as the purpose for incurring those costs relate to water augmentation and water supply activities.

 

As recently reported to the Administrative Committee, due to a 2006 Supreme Court ruling that makes water user fees subject to Proposition 218ís notice and protest procedures, District counsel has determined that it would be prudent to conduct a re-enactment of the 1.2% user fee adopted by the Board in 2005.This process, which is recommended whether or not there is a debt issuance by the District, consists of a notice and majority protest proceeding to validate the user fee increase.If Phase 1 ASR Project is completed on a pay-as-you-go basis, the Phase 1 ASR Project user fee re-enactment will be presented as a separate issue to the Board.

RECOMMENDATION:District staff recommends that the Board:1) authorize completion of the Districtís Phase 1 ASR Project on a pay-as-you-go basis; 2) authorize a one-time exception to the 5% established minimum for the general operating reserve for this purpose; and 3)direct staff apply the 1.2% User Fee increase adopted in 2005 towards the cost of the Phase 1 ASR Project until they are reimbursed in full.†††††

 

BACKGROUND:The Fiscal Year 2005-06 budget included a user fee increase of 1.2% (from 7.125% to 8.325%) to fund District water supply activities, including Phase 1 of its Aquifer Storage & Recovery Project effort.The user fee increase became effective October 14, 2005 and has already generated approximately $690,000 in additional user fee revenues for the ASR Project.The Fiscal Year 2007-08 budget includes $1,703,000 in anticipated expenditures for ASR Project Phase 1 work, with the total cost to complete Phase 1 estimated be $2,800,000.This amount also includes funds spent in Fiscal Years 2005-06 and 2006-07.At the January 25, 2007 Board Meeting, the Board adopted Resolution 2007-01 Declaring the Official Intent to reimburse expenditures from the Proceeds of Tax Exempt Securities.That Resolution would allow the District to reimburse the General Operating Reserve for funds spent on the Phase 1 ASR work completed subsequent to the Resolution, but prior to receiving the funds from a debt issuance.At the June 18, 2007 Board meeting, the Board adopted Resolutions 2007-09 and 2007-10 which authorized the District to participate in a tax-exempt pooled bond financing program through the California Statewide Communities Development Authority (CSCDA).Subsequent to adoption of those two resolutions, the CSCDA financing programís bond counsel determined that the District could not participate in the CSCDA tax-exempt pooled financing program because the ultimate recipient of the water injected by the ASR facilities would be California American Water, which is a private, for-profit company.At the September 17, 2007 Board meeting the Board authorized the General Manager to enter into an agreement with Urban Futures, Inc. for an amount not-to-exceed $34,500 to provide financial advisory services related to obtaining tax-exempt financing for the Phase 1 ASR Project.

 

EXHIBITS

None

 

U:\staff\word\boardpacket\2007\2007boardpackets\20071119\ActionItems\17\item17.doc