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<br />~4 <br /> <br />recommends that the 2006 bond issue size be increased to meet project expenses over <br />the next 18 months. The bond sale planned for 2007 would be correspondingly <br />reduced. <br /> <br />A sources and uses of funds table showing the projected application of bond proceeds <br />for each of the four remaining bond sales that are planned for this project is included in <br />this package as Attachment II for your review. Actual bond issue sizes will depend on <br />future interest rates, future project funding requirements, and future incidental financing <br />expenses and will vary from the estimates shown in Attachment II. <br /> <br />Competitive Sale <br />As were the 2005 Bonds, the 2006 Bonds will be offered for sale in an auction format, <br />referred to as a competitive sale. Competitive sales are generally thought to result in <br />the lower interest costs for high credit quality bond issues with straightforward <br />redemption, amortization, and interest rate features. The proposed PFA bonds will <br />meet these tests. Such bonds are easily marketed and attract widespread investor <br />interest. Two weeks prior to the sale the City will advertise the bond issue and <br />distribute the preliminary official statement and official notice of sale to all of the major <br />bond underwriting firms in the country. A number of those firms will bid on the bonds, <br />either alone or in syndicates on the sale date. The winner will then redistribute the <br />bonds via its distribution system. <br /> <br />Bond Documents <br />A description of the bond documents can be found in Attachment III. The indenture of <br />trust, the installment purchase contract, the official notice of sale, and the continuing <br />disclosure certificate are available in the City Clerk's Department for your review. The <br />preliminary official statement is included in this package as Attachment IV for your <br />review. <br /> <br />Next Steps <br />Staff expects to sell bonds on February 8, 2006. The first debt service payment will be <br />in August, and no FY 2005/06 budget amendment will be necessary for the debt <br />service. A budget amendment, however, will be presented to Council at a later date this <br />fiscal year to appropriate the bond proceeds. <br /> <br />Fiscal Impact <br />This bond issue will raise approximately $23.5 million for recycled water project <br />expenditures and encumbrances to be made over the next 18 months. Staff expects <br />this project to require approximately $29 million more to complete construction, to be <br />spread out in additional bond issues over the ensuing years. <br /> <br />Debt service on the 2005 Bonds is approximately $2.3 million annually. Debt service on <br />the 2006 Bonds is expected to be approximately $1.7 million annually. The City will <br />covenant in the installment purchase contract to maintain net operating revenues (total <br />revenues less operating expenses plus depreciation, "Net Revenues") in an amount that <br />is at least 120% of debt service. Even if no provision is made in next year's budget for <br /> <br />4 <br />