WATER SUPPLY PLANNING COMMITTEE
ITEM:		ACTION ITEM
3.	CONSIDER RECOMMENDATION TO THE BOARD ON LOAN AGREEMENT FOR AQUIFER STORAGE AND RECOVERY RELATED COSTS
Meeting Date:			December 4, 2012	Budgeted:	N/A
From:			David J. Stoldt,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Suresh Prasad	Cost Estimate:	N/A
General Counsel Review: Pending
Committee Recommendation: The Administrative Committee reviewed this item on December 3, 2012 and recommended __________________. The Water Supply Planning Committee reviewed this item on December 4, 2012 and recommended __________________.
CEQA Compliance: N/A

SUMMARY: District’s Aquifer Storage Recovery (ASR) related costs were previously reimbursed from a portion of the User Fee collected on the California-American Water Company bill. Since May 2011, the District has not been able to collect the User Fee. Exhibit 3-A is the Annual Status Report on the 1.2% Water User Fee used to reimburse the ASR costs. As the report indicates, expenditures for the stated purpose through Fiscal Year (FY) 2011-12 totaled $4,364,445 and revenue collected are $2,176,021, leaving a balance of approximately $2,188,625 to be collected. The remaining balance has been used from District reserve funds and the Bank of America credit line. Staff is proposing that the District borrow funds from Rabobank, N.A. (Rabobank) to replenish the reserves including paying off the credit line, deposit to the Water Supply Capital Account to fund a portion of the current year ASR costs or be reserved for other water supply related costs, and fund newly created debt reserve fund and rate stabilization fund.

A breakdown of the proposed borrowing is as follows:

Reimburse Reserves $1,463,562

Pay Credit Line 725,063

Deposit to Water Supply Account 1,496,101

Rate Stabilization Fund 55,055

Debt Reserve Fund 220,219

Loan Origination Fees 40,000

Total Loan Amount $4,000,000

RECOMMENDATION: Staff recommends adopting Resolution No. 2012-15 (Exhibit 3-B) to obtain a loan with Rabobank, N.A. in an amount not-to-exceed $4 million for ASR related costs as per the terms outlined in Exhibit 3-C.

BACKGROUND: On December 8, 2008, the Board of Directors adopted Ordinance No. 138, An Ordinance of the Board of Directors of the Monterey Peninsula Water Management District to Re-authorize a Water User Fee to Fund Aquifer Storage and Recovery and Related Water Supply Projects. In addition to re-authorizing and extending the 1.2% portion of the water user fee for the stated purpose, the Resolution required that the Board of Directors hold a public hearing each year in conjunction with review of the annual District budget to review the amounts collected and expended in relation to the purposes for which the fee was imposed. Since May 2011, the District has been unable to collect the 1.2% user fee from the Cal-Am customers.

The District has used its reserves and credit line to fund the ASR project in anticipation of getting reimbursed from the User Fee. Since the User Fee is not available, these funds remain outstanding. Staff proposes that District borrow funds from Rabobank to replenish the reserves and pay off the credit line. The semi-annual payment for the loan will be paid from the newly established Water Supply Charge.

Staff contacted Bank of America, N.A. (BofA), US Bank, and Rabobank to solicit proposals for a commercial term loan. BofA and US Bank declined to submit a proposal until after at least a 6 month history of collections. Attached as Exhibit 3-C is Rabobank’s proposal.

The Rabobank proposal stipulates creating and maintaining a reserve fund in the amount of 1 year of debt service. It also requires a rate covenant of 1.25x maximum annual debt service, meaning that Water Supply Charge revenues minus operating expenses related to the water supply activities will, in every year, be at least 1.25% of debt service due in that year.. The interest rate is to be fixed at 3.6% per year, with 30 year amortization and a 10 year maturity. The District will have a balloon payment of the outstanding principal at the end of 10 years. However, there is no pre-payment penalty if the District chose to repay the loan before the maturity date. District’s Water Supply Charge will be pledged as security for the loan.

The schedule of repayment is included in Exhibit 3-D. The payoff balance in year 10 is $3.1 million and would have to be refinanced or repaid from reserves at that time.

EXHIBITS

3-A Annual Status Report on 1.2% Water User Fee

3-B Resolution 2012-15

3-C Rabobank Terms and Conditions

3-D Calculation of Debt Service

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