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HomeMy WebLinkAbout02/07/2017 Study Session Meeting Minutes 'Ad ...................................................................... ------------ �C==:Lw MARA NA AZ E STAB L I SHED 1977 MARANA TOWN COUNCIL STUDY SESSION MEETING MINUrl"ES 11555 W. Civic Center Drive, Marana, Arizona 85653 Council Chambers, February 7, 2017, at or after 530 PM Ed Honea, Mayor Jon Post, Vice Mayor David Bowen, Council Member Patti Comerford, Council Member Herb Kai, Council Member Carol McGorray, Council Member Roxanne Ziegler, Council Member STUDY SESSION CALL TO ORDER AND ROLL CALL. Mayor Honea called the meeting to order at 535 p.m. Town Clerk Bronson called roll. Council Member Kai was excused; there was a quorum present. Council Member Ziegler arrived on the dais at 5:40 p.m. PLEDGE OF ALLEGIANCEANVOCATION/MOMENT OF SILENCE. Postponed until the regular meeting. APPROVAL OF AGENDA. Motion to approve by Vice Mayor Post, second bCouncil y Member Bowen. Passed unaniniously 6-0. CALL TO THE PUBLIC, No speaker cards were presented. DISCUSSION/DIRECTION/POSSIBLE ACTION DI Relating to Utilities; update regarding the Marana Water Reclamation Facility expansion and recharge facility construction, and discussion and possible direction regarding related financing plan options and overall budgetary impact(John Kmiec and Erik Montague) Erik Montague began by providing a follow-up to the March 2016 study session where staff presented scenarios on how the 1"acility can be expanded. Staff received direction to move February 7,2017 Study Session Minutes 1 f-6rward with expansion of the existing plant. He then gave Council an update on the current state of the plant and the upgrade. With respect to financing the new treatment facility, Mark Reader will present information on various scenarios and how they fit with the overall objectives. Stifel, Nicolaus & Company will be serving as underwriter on any future project. John Kmiec gave background and where we are to date. We are averaging about 400,000 gallons per day for treatment. Our biolac system is rated for half a million gallons a day. Our trends show we are close to reaching a half million gallons a day a year from now. Currently with expansion we are moving from a .5 to a 1.5 conventional activated sludge process Eacility. The estimated cost is between $22M and $24M. We plan to begin construction in the next several weeks with completion in the spring of 2018. The recharge facility co-located on the east side of the plant is planned to take advantage of the treated effluent. The cost of that -facility is about $2.1 M. We are at 60% design and moving to 90% completion and 100% design within a week or two after that—with completion estimated for September 2017. Mr. Kmiec then described the site plan for the plant expansion and the site plan for the recharge facility. The recharge facility has the potential to be a park, although it will be a working facility, To conserve costs the projects are tied to a similar timeframe. PCL Construction was selected as the construction manager at risk. We just finalized the first of two GMP's. The first GMP (guaranteed maximum price) has an estimated cost of about $4.2M which we are starting now because there are some long lead items regarding the purchase of equipment. The second GMP has not been negotiated. The current cost is estimated at $18.9M, but it is based on the 60% design model. We hope to get the costs down slightly after we reach 90%. The final GMP will essentially bring the plant to fruition. The variables which are different from 2016 design are the concrete costs, and local labor shortage. We may have trouble securing the labor because there are several major projects going on simultaneously within the town and the region. However, we are working on an accelerated schedule to make sure the facility is up and running 12-14 months from now. The last potential obstacle is site stabilization. The soils at the treatment plant are not conducive to holding the necessary structures, so there is an anticipated but unknown cost for that. Mr. Kmiec concluded with a value of water slide, showing the CACI annual increase over time of 1% 5% or 7.5% ' or $21,374,753 to $47,298,134. Mr. Montague presented on the facility financing described some of the original financing for this acquisition as well as transitioning to new scenarios on the facility. To insure that we have the available cash to pay for those assets when needed, we want to maximize wastewater revenues related to bonds necessary for the expansion project. There are different ways that can be done. We can accumulate cash now, build it in the future; or build it now and then generate revenues over time to pay off through a financing mechanism. We want to maximize the use of wastewater revenues generated out of the enterprise system which is consistent with the original acquisition debt as well as any new debt that might be issued related to the expansion project. In a more mature wastewater system, there might be some combination of wastewater utility rates as well as impact. fees. With the maturity and size of our system, it is less likely that we'll have February 7,2017 Study Session Minutes 2 enough rate revenues to pay for any significant project going forward. One of the assumptions is that we will rely solely on impact fees. We continue striving to minimize the financial exposure to the general fund because of the amount of debt initially taken on and some of the debt we will be talking about later to mitigate impacts to the town's overall credit rating and capacity to -fund other projects. The current plant was purchased in June of 2013. Debt service was structured to maximize use of system revenues, with excise tax from general fund as a backstop. He then reviewed the source of the debt service repayment and the expected and actual results. With regard to financing expansion, again the goal is to maximize use of system revenues. The projected impact fee revenue is based on updated, preliminary growth numbers and the current impact fee rates. We may need to use an estimated savings from the 2008A bond refunding to achieve financing objectives or possibly give an additional initial infusion of cash. Sources of funding come from up to $12M from the current wastewater impact fee or updated wastewater impact fees, rates and general -fund monies up to $9M. All of the numbers are based on current planning numbers. Mr. Montague noted that the growth assumptions are just estimates, it is not a calculation of an impact fee. With respect to the actual plant, it is assumed that the cost of the plant or related financing will be included in the future infrastructure improvement plan, and that will be the basis of calculation of fees. With respect to treatment capacity, he does not anticipate a scenario where a developer would get credit for capacity from a treatment standpoint. From a delivery standpoint, there could be credits to the extent that there is a project included within the IIP. Mr. Kmiec inter ected that a developer wouldn't get credit at the plant because they would be taking capacity at the plant. With a conveyance structure, it would depend on development if they have to build an additional conveyance structure to stand on its own or if the town has to make it a regional project to help potential developments going forward. The conveyance lines will generally be worked out in a development agreement based on the need related to the development. If we're building a regional conveyance system, then the developer would pay a different impact fee for that. Discussion continued with respect to the Saguaro Bloom connection and its regional application. Mr. Montague then noted that the scenarios presented tonight are predicated on a flow assumption and that debt gets paid first. The scenarios which will be presented calculate an. estimate based only on 50% being available from the general fund. The other 50% would be for other projects identified in the capital plan. Other questions were posed by Council for furth6r clarification on funding related to Mr. Montague's presentation. Then Mark Reader with Stifel Nicolaus discussed some savings options to reduce debt with the 2008A bonds and reviewed those for Council. The starting premise is that growth pays for growth. The town has done a revenue projection of its impact fee revenue of about $2.7M a year and it goes up over time based on the town's projections. Based on those projections we developed a debt bond structure that works with thin margins based on the preliminary projections using the outstanding municipal property corporation bonds. If revenue projections are not met, there will be pressure on the general fund. The town currently has about $22M in outstanding debt from the 2008 transaction. The current cost of capital is about 5.06%. If you do nothing at all, you will continue to pay the cost of the capital. When we did the transaction in 2008 to get the appropriate credit rating, the town did February 7,2017 Study Session Minutes 3 fund out of the proceeds of that bond issue about $3.4M. That is the town's cash, and it is kind of underutilized and doesn't earn much interest and can only be used in the unlikely event the town could not make a debt service payment. You can use the $3.4M to reduce debt and buy down funding on 2008 funding. The town has done well financially, and is an AA rated city. Mr. Reader proposed releasing that cash back to the town. There are some significant benefits to using the $3.4M cash to reduce the cost of capital by at least 2%n we are hoping to get 2.75/0 money. The $3.4M is held by a trustee and cannot be used for any other purpose and is not included in the town's reserve fund. Mr. Reader then presented an interest rate chart and two scenarios for refunding savings. In the first scenario, we would use the $3.4M. not toward the wastewater treatment plan but to reduce debt to buy-down refunding on the 2008 transaction. If we use the $3.4M and reduce the cost of capital and buy down to the high 2%, you will get almost $6M in cash flow savings back to the town over the next 10 years. The nice thing about re-savings is that we can put our savings wherever we want to. This is a very efficient operation if the markets hold. The other option is that if we don't use the $3.4M and buy down the refunding bonds, but use the $3.4M to finance the treatment plant, we issue $3M less in bonds. This is also a very efficient option. over the next four years, conservatively, the town could get about $2.2M a year in those two revenue streams, the revenues of which can be used to pay debt service because this is a growth-oriented project, and impact fees pay for growth. He then reviewed the cash flow model for Scenario 1. Rounding off we have $2.2M from impact fee revenues for this year, the 2013 bonds issued to acquire the plant is $1.8M payable from the impact fees. So you are $354K positive. There isn't a lot of margin there. Then you structure in the new bonds at about $22.9M for the wastewater treatment plant. The question becomes how to structure this so that the impact fee revenues achieve our debt service. There will be some interest payments of roughly $1 M a year on the new plant, minus the $2.2M coming in, which is about $600K. The benefit of the 2008 re-funding gives you a structural balance. As long as the revenues come in as expected, the margins are still thin but it looks life it will work. If the revenues don't come, there will be pressure in some form. Your excise taxes will be pledged as they have been in previous years. You are pledging town's revenues to get your A.A. bond rating. As a side note, the 2008 bonds were used to improve streets and Crossroads Park. Mr. Reader then presented the cash flow model for Scenario 2, which is to issue $20M in new debt for the wastewater plant construction as well as use the $3.4M released from the 2008 transaction. That is a lot cleaner and gives you a positive cash flow from the impact fee revenues. :dither scenario can be achieved; it just depends on where the Council feels comfortable putting the $3.4M, Vice Mayor Post asked if the calculations were based on debt and expenses. Mr. Montague replied that in this particular circumstance, it is expected that the new debt structure will be considered in the calculation of the new fee. vice Mayor Post asked if we paid down the debt with other money, that wouldn't be an accurate calculation on the true debt of that wastewater facility. Mr. Montague responded that that would have to be considered in the calculation. The current impact fee is set to generate cash for that particular improvement, or in the case of the original acquisition, the amount required to maintain the debt service payments. The difference February 7,2017 Study Session Minutes 4 between the two scenarios is the increase in the shortfall. Again, these numbers are based on current growth assumptions as well as what our current impact fees are. If the numbers improve or if we can set a higher impact fee, then these numbers will be impacted as well. vice Mayor Post asked regarding a scenario if the $3.4M is used for the new facility and impact fees are more or higher-than expected, then we lose the ability to use that money for anything else as opposed to putting it into the general fund for a variety, of uses. Can we make the shortfall out of the general fund? Is that a correct assumption? Mr. Montague reiterated that these numbers reflect his and Mr. Leader's belief that growth is going to happen. Council Member Bowen expressed a concern that building might stop at some point which would affect the debt payments. Mr. Montague referred to a large spreadsheet that calculates flow assumptions as growth occurs and said that we are eventually going to need to talk about expanding the plant from 1.5 MGIC to some other iteration, so based on the estimated flows per connection, we will also have to factor that in as well. Mayor Honea noted that almost every farm in north Marana is owned by a developer and has zoning now, and the capacity is here to build up to 20,000 homes, So the capacity to grow at three or four times this rate is there. Mrd leader again pointed out that on the new money, you are going out 25 years. So if you issue $3M more new money, you are going to pay more interest. He will look further into how the town sets its impact fee relative to the amount of debt and the interest on the debt, Discussion continued about the options represented by the two scenarios. Mr,, Montague emphasized that the plan is not to issue debt longer than the usefulness of the value of the assets, specifically the 1.5 MGD, vice Mayor Post asked if the impact fee calculations were based on paying off that debt as we use that capacity. Mr. Davidson said that the impact fee does not align with our debt program, Most likely we will face a scenario where we will have three debt issues for this plant -- the original one of getting into the business, the current expansion, and a third depending on growth. In 10 or 15 years, we may have to do another expansion and would st'11 be paying on this second debt issue. Mr. Kmiec noted that the current expansion would allow us to add somewhere close to 7,500 homes. Mr. Deader said that we can do a series of bonds that would be eligible to be called early versus the traditional S or 10-year call protection. If the town staff believes we will have some extra impact fee revenues, we could do a possible carve-out of$5M, although it does slightly raise the cost of capital. on those bonds. we did this successfully with Twin Peaks and the little yield differential was very minor. It would be a cost to the town, but it would give you the flexibility to buy down your debt from the general fund revenues or impact fees revenues. we can continue to think about that option. IIe noted that we need to move quickly even though there are still some unanswered questions. we could come back to Council on March 7t" for adoption of a resolution that grants Stifel the authority to move forward and parallel track the credit rating process, sell the bonds in the latter part of March and close in April so that you can continue with your construction program.. Mr. Davidson noted that even though this is a pretty aggressive time frame, there is a little time that we can spend talking about the scenarios and growth assumptions if Council wants another study or review session. what is driving this is that we have to have this plant expansion underway within two months in order to meet time frames with connecting Saguaro Bloom and also, we are reaching capacity on the current plant. If we hit capacity, the state will impose a moratorium on building both residential and commercial for north Marana. They have done this February 7,2017 Study Session Minutes 5 with other communi*ties around the state and it can have a huge impact. 1f Counci'l wants another study s s o ., we can do that, one-on-one ti s to go over numbers and the ng. In � � �t t� tl � t dor the March '7"' meets p response to a question frorn Council Member Ziegler, Mr. Montague responded that the 0 bonds ire scheduled ,to be paidin 2028. To meet the criteria for the 2.75% money whi'chwould save us $6M, Mayor Ilonea askedits the ideabehind that to paythe emir $ s to pay the 2008bondoff and have one bond. If we dolt that way, as one bond, l louse could e both f those separate? Mr. Montague respon ed that from a repayment sta olr t that could happen, stat is what we did for the 2013 bond, because that included not only the it it al acquisition but also refunding the portion of the PC's. Council said that she would like to have the one-on-one to make sire that she gets the ti"r picture. Reader said if March 7 i's the date set to adopt a resolution, he can, all l the offering document, the resolutionand other legal documents to coincidethey have to be s tantl .11 final by March . Davl*dson emphasized that this prseptation was to tay out the dataand et everyone tl r l nout it. What he heard is that it would be alta to have some one-on-ones and follow-up conversations. We can schedule the tinal decisi*on on whicht to tale for February 21 then approve the final documents on March t" EXECUTIVE SESSIONS El Executive Sessionpursuant to A.R.S. §38-431.03 ounc a ask for discussion or consultation for legal a v1c wi"th the Town Attorneyoncer lnany matter 11"sted on this agenda. FUTURE AGENDA ITEMS Notwithstanding the cors discretion regardingthe 'teres t be placedon the agenda, three or more Councl*l members request that an I*tem be placed on the da, it must be placed on the agenda for the second regular Town Council meeting after the ;ate of the request, pursuant to Marana Town CodiSecti*on 2-4-2(B). Motion to adjournat 7:03 p.m. ' Council Member Bowen, second by Vice MayorPost. Passed unanimously herebyCERTIFICATION ertl ' that the foregoing are the tree and correct minutes of the study ses is s � t .tion of the ; grana `oCouncil tin e oFebruary 7, 017. further rh y that a quorum was present. ceiyn C. ro s Town Clerk MAMNAAZ ESTASLISH90 1971 February 7,2017 Study Session inn s