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6.C. - Page 46 of 57 O•i public finance NIMM Date: July 22, 2020 To: South Bayside Waste Management Authority Joe La Mariana, Executive Director John Mangini, Finance Director From: KNN Public Finance David Brodsly and Melissa Shick Re: Additional Cost Analysis for the Town of Atherton's Withdrawal Below are some additional thoughts regarding exit costs for the Town of Atherton to withdraw from the South Bayside Waste Management Authority (SBWMA). This memo updates our December 2019 bond allocation defeasance analysis to incorporate current rates and a January 2021 transaction date, analyzes the cost if only the 2019A refunding bonds were used as the basis of determining outstanding liabilities, and provides comments on the memo prepared by NHA Financial Advisors (NHA) for the Town of Atherton. Background The Town of Atherton has submitted its official notice of its intent to withdraw from the Authority at the end of the current rate year, which ends on December 31, 2020. Section 15.1 of the Joint Powers Authority Agreement states that, prior to its exit, a Member Agency must "achieve... the liquidation in full of its proportion of any and all existing debts, obligations, and liabilities incurred, earned, or expected to be earned by the date of withdrawal, but not limited to the Revenue Bonds, as determined by [approval of four-fifths (4/5) of the members ofJ the Board." The agreement does not specifically define liabilities. We have focused our analysis strictly on the SBWMA's outstanding Revenue Bonds, consisting of $31,860,000 in 2019A refunding bonds (refunding a 2009 bond issue that financed various capital improvements) and $16,915,000 in 2O19B bonds, issued to finance various new capital improvements (referred to as "new money" bonds). The agreement is also silent on how any member's "proportion" should be determined. In our December 2019 memo, we utilized the same methodology used by the Authority in its annual rate setting - franchise tonnage - to determine Atherton's share of liabilities. In our opinion, franchise tonnage is the most reasonable measure to use in determining a member's proportionate share of liability because it mirrors the long-standing practice of allocating costs. The NHA memo explores other approaches to proportionality, which we discuss below. Update of December 2019 Defeasance Analysis We have updated our December 2019 analysis, using current interest rates for a defeasance escrow, and assuming that the transaction is executed not in March 2020 (as was the case in our prior analysis), but instead on January 15, 2021, two weeks after the end of the rate year. As before, we relied on 1300 Clay Street, Suite 1000 I Oakland, CA 94612 I Main 510-839-8200 I Fax 510-208-8282 1451 Quail Street, Suite 200 I Newport Beach, CA 92660 I Main 949-346-4900 I Fax 510-208-8282 5757 W. Century Boulevard, Suite 700 I Los Angeles, CA 90045 I Main 310-348-2901 I Fax 510-208-8282 77