City Council Study Session Agenda and Packet 2013 01 29

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CITY COUNCIL COMMUNICATION SUBJECT: FINANCING/BONDING OPTIONS TO ADVANCE CAPITAL IMPROVEMENTS DATE: JANUARY 29, 2013 PAGE 2 OF 4 Additionally, the City Council could propose a property tax increase to the voters for additional capital projects. The increase to the current mill levy to fund a range of $10 million to $30 million in capital projects is also provided below. The City could also sell revenue bonds for its enterprise funds, which would not require a vote of the people. However, the revenue generated must be able to cover the debt. It is unlikely the Golf Course can generate sufficient revenue to cover debt service for the anticipated improvements described in the Golf Course Master Plan. Thus, staff does not recommend pursuing this avenue for Golf Course improvements. Rather, if City Council wishes to include golf course improvements with other capital projects, staff would recommend adding those improvements to a larger list in conjunction with a tax increase or bonding up front using existing revenues. This would require a vote of the people. As a result of changes in Federal water quality regulations, the City will have to make significant improvements at the Wastewater Treatment Plant in the next five years. At this point, staff projects the rough cost of these improvements will be close to $20 million. The Wastewater Fund is an enterprise fund, and consequently the City can sell revenue bonds without a vote of the people. Because there are not currently sufficient reserves to fund these projects on a cash basis, because these projects will provide benefits over numerous years, and because interest rates are at historic lows, staff believes it is appropriate to fund these projects with bonds. With interest rates so low, the overall cost of construction will likely increase more rapidly than the cost of borrowing. Thus it may make sense to use bond financing to complete these projects now rather than wait until cash reserves have built up. If the City waits, the cost of the project at a later date would likely exceed the cost, including financing, of using bond funding to construct the project now. Staff also anticipates the Water Treatment Plants will require maintenance upgrades as well as possible expansion at a cost of $20 million. However, staff anticipates that these improvements can likely be spread over the next 20+ years and be funded with anticipated tap fee and rate revenue. Another reason for not using bonds to fund the Water Treatment Plant improvements is because the improvements are not needed for a number of years and proceeding now would create intergenerational equity concerns; while the City could use bonds to build the improvements now to take advantage of the low interest rates, is it equitable for current ratepayers, who would receive minimal benefit from the improvements, to pay the debt service on the bonds for those improvements? One last consideration, many of the Water Treatment Plant improvements are maintenance driven and are more properly supported by ongoing revenues rather than one-time bonding efforts. The planned Utility Rate Study will clarify rate impacts related to bonding vs. rate increases. Staff requests that City Council discuss this and other factors as it reviews future financing and bonding options. 20