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<br />Project Financing
<br />The City anticipates financing the recycled water project with a series of annual revenue
<br />bond issues aligned with project funding needs. The bonds will be secured by a lien on
<br />net revenues of the water enterprise and the City's legal promise to raise rates, as needed,
<br />to fund annual operating expenses and achieve a 120% debt service coverage ratio.
<br />
<br />A summary of anticipated bond issues is listed below. Debt service estimates are based
<br />on 30-year bond terms, cash-funded debt service reserve funds, and availability of
<br />AAA rated municipal bond insurance.
<br />
<br />Water Revenue Bond & Debt Service Projections
<br /> 2005 2006 2007 2008 2009
<br /> Bonds Bonds Bonds Bonds Bonds Total
<br />Anticipated Issuance Date Feb-05 Feb-06 Feb-07 Feb-08 Feb-09
<br />Bond Issue Size $35,790,000 $18,260,000 $17,090,000 $7,770,000 $14,280,000 $93,190,000
<br />Project Funding $32,807,500 $16,481,000 $15,334,000 $6,860,000 $12,779,000 $84,261,500
<br />Bond Term (Years) 30 30 30 30 30
<br />Average Interest Rate 4.30% 5.00% 5.50% 5.50% 5.50%
<br />Annual Debt Service $2,146,000 $1,188,000 $1,176,000 $535,000 $983,000 $6,028,000
<br />Net Annual Debt Service $2,053,000 $1,129,000 $1,111,000 $506,000 $929,000 $5,728,000
<br />
<br />Prior to issuing new bonds on legal parity with the City's outstanding debt, an
<br />independent auditor or financial consultant will need to verify that the City meets an
<br />Additional Bonds Test. The test protects outstanding bondholders by ensuring that City
<br />cannot issue additional parity debt unless it can demonstrate adequate repayment
<br />capacity. BW A has determined that the City can issue a maximum of a little over $26
<br />million of bonds for the upcoming February 2006 bond issue. The City has the option of
<br />a) continuing to align bond issues with annual project costs, or b) issuing more debt in the
<br />near term, which would reduce future financing needs and enable future bonds to be
<br />issued after, not before, the City raises rates each year.
<br />
<br />The City should continue pursuing potential grants and subsidized loans, which provide a
<br />lower-cost option than bond financing. Existing water enterprise operating fund reserves
<br />should not be used to fund the project. A spend-down of these reserves would draw
<br />water fund balances below prudent levels and reduce the City's future financing
<br />flexibility. However, if the City collects more Facilities Fees than projected over the next
<br />few years, the City should consider using these fees to directly fund projects, thereby
<br />reducing the amount of bond financing.
<br />
<br />Cash Flow & Rate Projections
<br />
<br />Cash flow projections were developed to determine the long-term revenue requirements
<br />of the water enterprise and project necessary water rate adjustments. The projections
<br />developed in this report are based on the best information currently available and
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