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HomeMy WebLinkAbout2007-09-18 WUCFD MINUTESWATER UTILITIES COMMUNITY FACILITIES DISTRICT (APACHE JUNCTION WATER COMPANY) CITY OF APACHE JUNCTION, ARIZONA REGULAR MEETING SEPTEMBER 18, 2007 The regular meeting of the District Board of the Water Utilities Community Facilities District (Apache Junction Water Company), City of Apache Junction, Arizona, was held on September 18, 2007, at the Apache Junction City Council Chambers pursuant to the notice required by law. CALL TO ORDER Chairperson Insalaco called the meeting to order at 6:00 p.m. ROLL CALL Board Members Present:Chairperson John Insalaco Vice Chairperson R. E. Eck, Jr. Mrs. Robin Barker Mr. Rick Dietz Mr. Jeff Serdy Mr. Joseph Severs Mr. Chip Wilson Staff Present: Others Present: George Hoffman, District Manager Kathleen Connelly, District Clerk John White, District Finance Manager Frank Blanco, Water District Director Bryant Powell, Assistant City Manager Hazel Randall, District Admin. Asst. Greg Swartz, Piper Jaffray 2007 WATER INFRASTRUCTURE AND FINANCE AUTHORITY LOAN UPDATE )District Manager George Hoffman briefed the board on the item.He stated staff had talked to Greg Swartz today about upcoming finance issues and he "wanted to give them an overview tonight. Water Utilities Community Facilities District Meeting Minutes of September-18, 2007 Page 1 of 10 Water District Director Frank Blanco stated Mr. Swartz is on his way to the meeting at this time.He would get started on the update.The Water Infrastructure and Finance Authority is the state board that issues loans for the construction of water and wastewater projects.The federal government mandates that certain regulations be met and then for unfunded mandates the federal government issues some money to the state who then loans it. They have gone for the loan and they were approved.The current water supply is sufficient for the current service area plus about 50% of the Lost Dutchman Heights area.We have enough water rights for the current service area and the Lost Dutchman Heights parcel.Recommendations given were acquiring additional Central Arizona Project water allocations, acquiring additional groundwater south of Baseline Avenue, and to expand the reuse capability.Infrastructure recommendations include the Mesa interconnect and a surface water treatment facility.The projects that have come out of the water resource assessment report are the Mesa interconnect, the design of a surface water treatment plant and a groundwater monitoring project. District Finance Manager John White stated there are several different uses with the proposed financing through and Finance Authority.The district has but the Water Infrastructure and Finance the entire amount.Mr. Swartz suggested funding sources and Water Infrastructure applied for $7,000,000 Authority may not award we scale down the request for funding and leverage with some of our own funds, such as the funds in the capital facilities fees and our recent land sale.It is recommended $2 million from a combination of these be leveraged with the remaining $5 million being from the Water Infrastructure and Finance Authority.This would also relieve pressure to meet revenue coverage.To be eligible to borrow and maintain good standing with borrowers the district must meet certain requirements.He described coverage requirements, net revenues calculation, gross revenues, operating and maintenance expenses, and debt service. Vice Chairperson Eck asked him to explain the debt ratio.He is used to the opposite in debt service when he borrows on his home and everything else and gets a debt ration up to 30% or 35%.One is maxed out around Water Utilities Community Facilities District Meeting Minutes of September 18, 2007 Page 2 of 10 40%.He does not understand 1.15% on the annual projected debt service. District Finance Manager John White stated that is almost looking at the fraction in an inverted way.The way he is looking at it is they take the debt and divide that by the income and come up with a fraction.They could do that here and it would come out with a different amount.It is just the mechanics of the formula.It would actually come out to about 86%. Vice Chairperson Eck commented with 86% that would mean they are making a 14% profit. District Finance Manager John White stated that is not correct. Vice Chairperson Eck commented he would talk to him about it later. District Manager George Hoffman asked Mr. Greg Swartz to explain it a different way when he got up. District Finance Manager John White continued on with how the debt ratio is calculated and how the coverage certificate is calculated.They will need to have a feasibility study for the projects and a bond counsel opinion. He then walked the board through the existing Water Infrastructure and Finance Authority debt of $2,500,000 for the Royal Palm project years ago and for the arsenic treatment plant and an additional $4,535,000 on the bond issue from 2004.The total is a little over $7 million.The proposed Water Infrastructure and Finance Authority debt, even with a reduced amount, would bring it up to about $12 million.It would be a debt service of about $800,000 annually until 2017 when the 2004 debt is paid off. Mr. Greg Swartz, Piper Jaffray, addressed the board.He stated he was asked to clarify what coverage is in the finance market.When a homeowner borrows money for a home, the lending institution will look at how much of the disposable income is set aside for a mortgage Water Utilities Community Facilities District Meeting Minutes of September 18, 2007 Page 3 of 10 payment.The general test is if it is more than 1/3 of the disposable income it is a problematic loan.In public finance markets, coverage means they have to have a certain amount of net revenues in excess of debt service on an annual basis.If they have a dollar in debt service on an annual basis, then the district would need to have $1.15 of net revenues to support that debt.That cushion is there to protect them in case there has been a reduction in revenue or some unforeseen circumstance that requires a use of revenue.He gave as an example the recent borrowing through the Greater Arizona Development Authority through the city.He briefed them on the proposed Water Infrastructure and Finance Authority loan with a 3.75% interest for $5 million.With the recent federal action of lowering two key rates by one-half percent, it will have a pleasing effect on this and other government loans.The loan could be as low as 3%.They are attempting to structure the new loan to achieve, in total, approximately level debt service across all the debt.They will defer principle from the period of 2008 through 2017 and push it into 2018 through 2024 so that they will not have to have a rate increase to assume this loan. The loan will mature on July 1, 2023.He described the coverage and bond indenture requirements. Vice Chairperson Eck asked if it is possible to meet the 1.15 ratio once they have the projects done. Mr. Greg Swartz stated that is a true statement based on what their expenses include right now.There will be fewer expenses and operation and maintenance translating into a higher coverage.The 1.15 is a starting point.If they have operating efficiencies, then it just follows that they -will have higher coverage as they will be able to forego some current expenses. Water District Director Frank Blanco stated the current expenses for transporting water through the Arizona Water connection from the City of Mesa is $143,000 thus far this year.By bypassing that and moving to transporting directly through Mesa, we should save substantially.Conceptually they are looking at having the construction of the treatment facility started in 3 years.In today's dollars, the facility cost will be $10,700,000 on the Water Utilities Community Facilities District Meeting Minutes of September 18, 2007 Page 4 of 10 low side and $15,200,000 on the high side.He listed the potential funding sources.What happens in the next couple of weeks will be very important.The Water Infrastructure and Finance Authority Board will decide by October 3 if it will award the loan. District Manager George Hoffman commented Arizona Water may have a level of interest in providing a non -Mesa alternative to treating their 6,000 acre feet of Central Arizona Project water.We have 2,900 acre feet of that water.He asked if the board had potential interest in exploring this with Arizona Water. Mr. Dietz commented he had talked to Frank about that some time ago as far as once we get going on this to work together and get an agreement on this. They could share funding on it. District Manager George Hoffman stated they could build a larger plant. Mr. Dietz agreed.It makes sense to him. Vice Chairperson Eck commented they should checkwith Arizona Water and make sure they have not Invested in a:future plant with Mesa. District Manager George Hoffman stated they could.ask.They need to get on with it before design occurs.. he would like to go that way. Chairperson Insalaco stated District Manager George Hoffman stated he will check -on it and report back. Mr. Dietz asked if they are short about $1.2 million in the capital facilities fees. District Finance Manager John White stated the $1.2:million.listed in thereAs what is Water Utilities Community Facilities District Meeting Minutes of September.18, 2007 Page 5 of 10 suggested to leverage the plant.The amount was used to leave a cushion of about $500,000. Mr. Dietz asked if that is over this. District Finance Manager John White stated that is correct, as of August 31. Mr. Dietz commented they are about $1,750,000. District Finance Manager John White stated they are $1,785,000 approximately as of August 31. Mr. Dietz asked about the $3.3 million for the 16 acres. District Finance Manager John White stated Mr. Swartz suggested using a portion of that. Mr. Dietz commented he does not see any of that listed here.There are land sale proceeds at $750,000..He asked if that is the $3.3 million. Assistant City Manager Bryant Powell stated it is potentially. Mr. Dietz asked what they were doing with the balance. Assistant City :Manager Bryant Powell stated the rest of it would be invested and ready to go for the treatment plant in the future. Mr. Dietz stated that is a good idea. District Manager George Hoffman stated that is something that would be great for the board to give some deliberation on.When they talked about it, his comment was that things happen in the world, with prides going up and revenues going down.From his point_of view, he Water Utilities Community Facilities District Meeting Minutes of September 18, 2007 Page 6 of 10 would like to have some of that set aside from the first project and keep it in reserve.They had a bad thing happen to the district and they had to dip into their seed corn.He does not want to do that again. Mr. Dietz agreed.He likes using the $750,000 now and reserving the rest for the future treatment plant.They can build on that with future Central Arizona Project fees that they get. District Finance Manager John White stated when they look at the amount they are taking, it would be proportional to what they are leaving versus the amount for a future project. Vice Chairperson Eck commented the money would be there whether they designate it as for the plant or for something else or reserve. The board consensus was to invest it wherever they could get the highest return and get the principle back. District Finance Manager John White stated Mr. Swartz pointed out this morning that they are probably gaining more right now in interest in the investment pool than they would be paying out in debt service to Water Infrastructure and Finance Authority.It is where they can make a profit on investment holdings over bond payouts.They would get into trouble if they borrowed the money and then invested it. District Manager George Hoffman asked if they would be talking to the board at some time about rates. District Finance Manager John White stated they would.Internally, the assistant district manager has invited him and Frank Blanco to a meeting on December 4. Assistant City Manager Bryant Powell stated the sewer district basically does a 3% raise every Water Utilities Community Facilities District Meeting Minutes of September 18, 2007 Page 7 of 10 year on their customers and they get used to that.This district has had the painful experience of doing a larger increase.They need to look at doing increases every year and incremental increases. District Manager George Hoffman stated that is if the board is okay with that. Chairperson Insalaco stated it is better than hitting them with a large increase all at once. Mrs. Barker commented she thought they had looked at this already and decided they wanted to see it done every year. District Finance Manager John White stated the timing is also important on that.When they implemented the last one it was effective November 1 which is when the snowbirds come back and the use starts to increase again.One of the best times to do an increase is when the consumption is decreasing as it is like a double whammy to do it when the consumption is increasing.The worst time is in April when people are starting to water for the summer.He believes September 1 would be one of the more optimum times. Assistant City Manager Bryant Powell stated that issue had come up during their budget meetings.They will be meeting in November on this. Water District Director Frank Blanco stated the next action that will come in front of the board will be the substantially final form of loan documents in late October or early November.The final terms and conditions will be known at that time and they will likely be more favorable than what was presented here. WATER DISTRICT DIRECTOR REPORT None. DISTRICT MANAGER REPORT None. Water Utilities Community Facilities District Meeting Minutes of September 18, 2007 Page 8 of 10 DISTRICT TREASURER REPORT None. DISTRICT COUNSEL REPORT None. ADJOURNMENT Chairperson Insalaco adjourned the meeting at 6:43 p.m. ACCEPTED THIS 1ST DAY OF OCTOBER , 2007, BY THE CHAIRPERSON AND DISTRICT BOARD OF THE WATER UTILITIES COMMUNITY FACILITIES DISTRICT (APACHE JUNCTION WATER COMPANY), CITY OF APACHE JUNCTION, ARIZONA. SIGNED AND ATTESTED TO THIS 1ST DAY OF OCTOBER 2007. J F-ajt_IA0 n S. In alaco Kairbersonairperson ATTEST: Kathleen Connelly District Clerk Water Utilities Community Facilities District Meeting Minutes of September 18, 2007 Page 9 of 10 WATER UTILITIES COMMUNITY FACILITIES DISTRICT MINUTES CERTIFICATION I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the regular meeting of the Water Utilities Community Facilities District of the City of Apache Junction, Arizona, held on the 18th day of September, 2007.I further certify that the meeting was duly called and held and that a quorum was present. Dated this 21st day of September, 2007. Kathleen Connelly District Clerk Water Utilities Community Facilities District Meeting Minutes of September 18,,2007 Page 10 of 10