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6.C. - Page 11 of 57 1) 2018 calendar year tonnage — 3.25%; 2) three-year average tonnage — 3.27%; and 3) three-year average tonnage rounded — 3.30%. The cost ranged from a high of $2,019,383 to a low of $1,987,908. ON also recommended that SBWMA include an additional amount of $100,000 for costs related to work that would be required by bond counsel, verification agent, escrow agent, and municipal advisor related to the defeasance transaction. KNN's analysis was based on market conditions as of December 4, 2019. After receiving Atherton's June Notice of Intent to Withdraw, KNN was asked to update its earlier analysis. In a July 22, 2020 letter, KNN provided an updated analysis based on July 14, 2020 market conditions. (Attachment 4.) As shown in that updated opinion, Atherton's 2019 franchise tonnage percentage was 3.24, slightly smaller than the 3.25% from 2018. Additionally, interest rates have fallen since December 2019, so the cost of the defeasance escrow has increased. Based on these changes, ON determined that the updated amount of Atherton's proportionate share of the bond obligations, using the 3.24% figure from 2019, equals $2,103,016. Adding the $100,000 for defeasance costs, the liquidation number equals $2,203,016. Atherton/NHA Advisors Analysis: Atherton engaged a different financial advisor, NHA Advisors ("NHA"), to review the December KNN analysis and to "take another look" at its financial obligations in the event of withdrawal. The NHA analysis was included in the June 291h Notice of Intent to Withdraw. (Attachment 2.) In its analysis, NHA acknowledged that KNN's approach, using franchise tonnage as the measure of proportionality, is "the simplest and most straightforward," but proposed that other factors should be used in the calculation in order to reduce Atherton's exit costs. Most of the other factors proposed by NHA are revisionist in nature, essentially stemming from an assumption that, based on its waste generation profile, Atherton paid more than its fair share during the entirety of its membership in SBWMA, and that this unfairness should be addressed retroactively by way of a reduced exit cost. Within this context, NHA suggested five different scenarios that could be utilized to determine what proportionality to assign to Atherton in calculating its exit costs, which are discussed below. Each of the five scenarios include a deduction labeled as "overpayment" in the amount of $581,386. NHA contends this deduction is justified because Atherton, which has mostly single-family homes, did not itself need the build -out part of the Shoreway facility that accommodates multifamily and commercial recycling and processing, and that therefore its portion of the payments for the 2009 bonds was higher than it should have been. NHA notes that the $581,386 "represents a calculated total amount overpaid in the last ten years." The actual analysis NHA utilized to reach this number is not included in its letter. The five scenarios proposed by NHA, which result in exit costs from Atherton ranging from $1,677,498 to negative $79,573 (where SBWMA would owe money to Atherton), are summarized below for the Board's convenience.4 They are contained in their entirety in Attachment 2. ■ Scenario 1: this scenario uses the same methodology as the KNN analysis, but includes the $581,386 deduction for "overpayment" discussed above. Based primarily on this adjustment, NHA concludes the amount owed is $1,677,498. Scenario 2: this scenario assumes that in the future Atherton's share of the franchise tonnage will decline from 3.25% to 1.5% because it will remain stable while other member agencies will see population growth. Using this hypothetical reduced percentage would reduce the cash required to defease Atherton's portion of the bonds from $2.26 million to $1.5 million. After deducting the overpayment, the amount owed is $933,748. a All of NHA's scenarios include the $100,000 defeasance costs. SBWMA BOD PACKET 8/20/2020 AGENDA ITEM: 5A - p3 42