ITEM: ACTION ITEMS
19.	REVIEW AND DISCUSS ALTERNATIVES FOR FINANCING MPWMD WATER SUPPLY PROJECTS
Meeting Date:		June 16, 2008	Budgeted:	N/A
From:		Darby Fuerst,	Program/
		General Manager	Line Item No.: N/A
Prepared By:		Rick Dickhaut	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: The District’s current Strategic Plan was adopted on February 28, 2008 and included a goal to enhance revenue from external resources. The first strategic objective within that goal was to present to the Board alternatives for financing future District water supply projects at its June 16, 2008 Board meeting. While it is not possible to present actual financing mechanisms available until a specific water supply project is chosen for development, potential funding options can be provided at this time. Actual funding options will be dependent not only on the project selected, but also the amount of funding needed and other variables. Available options will also be largely dependent on whether the project is public or private endeavor, or a combination of the two. Below is a listing of potential funding sources and related comments:

• Grant Funding – Once a specific project is identified, staff would investigate the possibility of obtaining any grant funding. Success would be largely dependent the type of grants available, project participants, and the District’s ability to effectively apply for and obtain a grant.
• Bond financing – The most economic form of bond financing would be to participate in a tax-exempt pool with other agencies. This enables cost sharing for large debt issuance costs such as financial advisors, bond counsels, underwriters, etc. The District could also issue bonds on its own, but the associated costs would be greater. It should be noted that availability of this tax-exempt funding source is greatly diminished when a private, for-profit, entity is involved in the project.
• Bank Loan – A tax-exempt bank loan is also a possibly funding source. With a bank loan, a public agency is lent money at favorable tax-exempt interest rates, but at a fraction of the issuance cost of a traditional bond. A loan also requires considerably less staff time and can close in as little as 30-60 days. However, interest rates are typically somewhat higher than those on bonds. The ability to obtain a tax-exempt bank loan is unlikely if a private entity is involved in the project.
• User Fee Increase – The Board could take the necessary action to increase the District’s User Fee to fund a project on a pay-as-you-go basis, or to provide funds for repayment of a debt issuance. Cash funding a project would require a much larger increase over a relatively short period of time, while an increase for debt service could be a smaller increase spread over a longer period of time. Based on the User Fee revenues anticipated in Fiscal Year 2008-09, Exhibit 19-A shows the additional amount of user fee revenues that could be generated at various percentage increases.
• Private financing – If the District was willing to do a joint public/private project, it is possible that a private company such as California American Water (CAW) would be willing to fund the project.
• New Revenue Categories – The District could consider new revenue mechanisms such as special taxes, benefit assessments, pumping fees, standby charges or others that may be authorized by the District’s enabling legislation. It is likely that the establishment of most, if not all, of these new types of revenues would be subject to the election requirements of Proposition 218, rather than the majority protest process that is required to increase the User Fee.
• Other Revenue Increases – Other revenue increases, such as User Fee revenue increases based on CAW rate increases could potentially supplement funding of a water supply project.

RECOMMENDATION: District staff recommends that the Board discuss the alternatives presented, as well as any other alternatives identified, as potential funding sources for a water supply project; and provide general direction to staff pending Board selection of a specific water supply project or projects.

BACKGROUND: In October 2005, a user fee increase of 1.2% (from 7.125% to 8.325%) went into effect to provide funding to pay debt service on amounts to be borrowed through a pooled debt issuance to complete Phase 1 of the Seaside Basin Aquifer Storage and Recovery (ASR) Project, as well as other ASR costs and water supply projects. However, because of California American Water’s (a private, for-profit company) involvement in the operation of the Project pursuant to the Project’s Management and Operations Agreement, the District was unable to obtain regular tax-exempt financing. In lieu of a tax-exempt debt issuance, the Board authorized completion of the ASR Project on a pay-as-you-go basis at its November 19, 2007 Board meeting. Subsequently, the District’s current Strategic Plan was adopted on February 28, 2008, and included a three-year goal to enhance revenue from external resources. The first six-month strategic objective within that goal was to present to the Board alternatives for financing future District water supply projects at its June 16, 2008 Board Meeting.

EXHIBITS

19-A MPWMD User Fee Revenue Projections

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