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8.A. - Page 3 of 73 ANALYSIS The City's sewer enterprise will fund all of these and future capital obligations of the Authority. Revenues and expenses of the sewer enterprise are accounted for in the Sewer Utility Fund, which is a proprietary fund of the City separate and distinct from the General Fund. The sewer enterprise provides wastewater collection services to residents and businesses within Redwood City, five San Mateo County sewer maintenance districts, and a small sewer assessment district that is part of the Town of Woodside. The sewer enterprise is financed solely with connection and user charges, which are collected in an amount sufficient to pay: • City's sewer enterprise operation and maintenance expenses • City's pro rata share of Authority operation and maintenance expenses • City's pro rata share of debt service on capital obligations of the Authority • City's sewer collection and conveyance system capital expenditure needs • Authority capital charges and reserve deposits approved by and imposed on its Members • Prudent operating and capital reserves required for the City's sewer enterprise The Authority's completed projects and projects underway have been funded with a combination of cash contributions from Members, four bond sales issued by the Authority (in 2009, 2014, 2015 and 2018), and three loans from the State Water Resources Control Board (SRF Loans). SRF Loans are State -subsidized loans that bear interest at approximately one-half the State's general obligation bond rate. Demand for SRF Loans currently exceeds the supply of funds, and the Authority's ability to secure additional SRF Loans is uncertain. Additionally, State lending terms are often difficult to meet. At present, the Authority is forecasting that approximately $140 - $169 million of its $519 million unfunded CIP will be financed with SRF Loans. The actual amount of future SRF Loans could be less. The Authority expects to finance the balance of its unfunded CIP with market -rate bonds and cash contributions from Members. Financial Analysis Staff retained the services of the City's long-time municipal advisor, William Euphrat Municipal Finance (WEMF) to evaluate the financial feasibility of the City's participation in the proposed 2019 Note issue and WIFIA Loan. WEMF prepared sewer enterprise cash flow projections using City sewer enterprise budget and operating data provided by the City and projected JPA capital obligations provided by the Authority. WEMF determined that using the proposed 2019 Notes to finance construction, and the WIFIA loan to repay the 2019 Notes and provide long-term financing, would be more cost effective than using the WIFIA loan for both construction and long-term financing. Using SVCW estimates of debt service on future SRF loans and market -rate bonds, WEMF also concluded that the City's sewer enterprise would need some cash flow relief to fund both its collection CIP, operating and maintenance expenses, and SVCW obligations. This is most cost-effectively achieved by borrowing (or capitalizing) the interest due on the 2019 Notes. With only modest sewer rate increases in the 4.5 percent to 5.0 percent range over the next ten to fifteen years, the City should be able to meet all of its SVCW financial obligations, maintain strong debt service City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 517