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ADMINISTRATIVE COMMITTEE |
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ITEM: |
ACTION ITEM |
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9. |
DEVELOP
RECOMMENDATION TO BOARD FOR DESIGNATION OF WATER SUPPLY PROJECTS AS AN
“ENTERPRISE” PURSUANT TO SECTION 671 OF THE DISTRICT LAW AND ADOPTION OF
RELATED COVENANTS |
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Meeting
Date: |
October 8, 2012 |
Budgeted: |
N/A |
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From: |
David J.
Stoldt, |
Program/ |
N/A |
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General
Manager |
Line Item No.: |
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Prepared
By: |
David J.
Stoldt |
Cost
Estimate: |
N/A |
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General Counsel Review: Yes |
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Committee Recommendation: N/A |
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CEQA Compliance: N/A |
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SUMMARY: On January 25, 2012 the District adopted Resolution 2007-01 wherein the District stated its intent to reasonably expect to reimburse expenditures for Phase 1 Aquifer Storage and Recovery. At this time, the District should pursue replenishing the reserves that were expended for such purposes. Approximately $2.2 million of previous expenditures could be reimbursed, and there are approximately $1.6 million of additional expenditures to be made on the project. The District would like to explore the availability of commercial bank debt for this purpose. The small amount makes a tax-exempt debt issuance cost prohibitive.
The District should desire any bank debt acquired for this purpose to be on a basis consistent with any future borrowings and should not hinder the future use of tax-exempt debt. Hence, it is desirable to establish provisions to take to the banks that would closely mirror future provisions for revenue bonds or Certificates of Participation (“COPs”).
Section 671 of District Law provides,
“If the board by resolution determines that a bonded indebtedness to pay for the acquisition or construction of any works for any purposes of the district should be incurred, and can be repaid and liquidated as to both principal and interest from revenues designated by the board, the district is authorized and shall have the power to define such works as an "enterprise" and to issue revenue bonds all in the manner and as provided in the Revenue Bond Law of 1941, Chapter 6 (commencing with Section 54300) of Part 1 of Division 2 of Title 5 of the Government Code, and for such purpose the district shall be considered a "local agency" as defined by Section 54307 of such code…”
In support of the District’s water supply projects, the District may choose not to utilize 1941 Act revenue bonds, but instead choose to execute publicly offered COPs, or simple state, federal, or bank loans (“Loans”). In the event of any borrowing, establishing the District’s projects as an “Enterprise” will be an important means to establish the security for repayment and the underlying creditworthiness of the District.
It is timely for the Board to consider terms, conditions, or covenants under which any future loans, bonds, or COPS might be undertaken by the District. With the Board’s approval, proposed conditions can be shared with potential lenders. If changes or modifications are required, such changes will be brought back to the Board. Any proposed Loan or COPs will be brought to the Board for approval.
RECOMMENDATION: The General Manager recommends that the Committee recommend the Board designate of District water supply projects as “Enterprise” projects and to adopt related covenants governing collection of revenues and repayment of debt, as described under “Discussion,” below.
DISCUSSION:
The Board should consider adoption of the following terms,
conditions, or covenants as conditions under which any future loans, bonds, or
COPS might be undertaken. Loans or COPs would
be limited obligations of the District payable solely from “Net Revenues,” a
term defined below.
Net Revenues – “Net Revenues” means, for any period, an amount equal to all of the Gross Revenues received during such period minus the amount required to pay all Operation and Maintenance Costs becoming payable during such Period.
Gross Revenues – “Gross Revenues” means all gross income and revenue received by the District from the ownership and operation of the Enterprise, including, without limiting the generality of the foregoing:
• all income, rents, rates, fees, charges and other moneys received for, and all other gross income and receipts derived by the District from, the ownership and operation of the Enterprise or otherwise arising from the Enterprise, including the Water Supply Charges or User Fees established pursuant to Sections 308 and 326(b) of District Law, or pursuant to any other authorizing law, and including fees or charges collected from sale of water from a District project. Gross Revenues may include groundwater charges, if any, levied pursuant to Article 2 of District Law beginning at Section 341 unless such charges are dedicated to a specific zone or zones of the District;
• all ad valorem taxes of the District which are levied upon taxable property in the District by the Board of Supervisors of Monterey County, and which are allocated to the District under the provisions of the Revenue and Taxation Code of the State of California; but excluding any taxes levied for the sole purpose of providing for payment of principal and interest on any voter-approved indebtedness incurred by the District, which taxes would not otherwise be subject to levy but for the issuance of such indebtedness;
• all amounts levied by the District as a fee for connecting to the Enterprise, as such fee is established from time to time under the applicable laws of the State of California;
• the earnings on and income derived from the investment of such income, rents, rates, fees, charges or other moneys to the extent that the use of such earnings and income is limited by or under applicable law to the Enterprise;
• the proceeds derived by the District directly or indirectly from the sale, lease or other disposition of a part of the Enterprise; and
• amounts transferred from a Rate Stabilization Fund to the Enterprise Funds in any Fiscal Year.
The term “Gross Revenues” does not include (i) customers’ deposits or any other deposits subject to refund until such deposits have become the property of the District, and (ii) the proceeds of any special assessments or special taxes levied upon real property within any improvement district for the purpose of paying special assessment bonds or special tax obligations of a specific zone or zones of the District pursuant to Chapter 5 beginning at Section 401 of District Law.
The obligation of the District to pay the Loan or COP payments will be a special obligation of the District limited solely to Net Revenues. Under no circumstances is the District required to advance moneys derived from any source of income other than the Net Revenues for the payment of the Loan or COPs and such other amounts, and no other funds or property of the District are liable for the payment of the Loan or COP payments.
The obligation of the District to pay the Loan or COP payments from Net Revenues and to perform and observe any other covenants in the Loan or COP documents is absolute and unconditional, and is not subject to any defense or any right of set-off, counterclaim or recoupment arising out of any breach by the Bank or the Trustee to any obligation of the District or otherwise with respect to the Enterprise.
Rate Covenant - District will agree to fix, prescribe, revise and collect rates, fees and charges for the services and facilities furnished by the Enterprise during each Fiscal Year which are sufficient to yield Net Revenues of the Enterprise which are at least equal to 120% of the amount of Debt Service calculated for such Fiscal Year with respect to the Enterprise.
The amount of Net Revenues for a Fiscal Year will be computed by including in Gross Revenues all amounts transferred into the Enterprise from the Rate Stabilization Fund during the Fiscal Year.
Rate Stabilization Fund - The District has the right at any time to establish a fund for the purpose of stabilizing the rates and charges imposed by the District with respect to the Enterprise. From time to time the District may deposit amounts in the Rate Stabilization Fund, from any source of legally available funds, including but not limited to Gross Revenues which are released from the pledge and lien which secures the Loan or COP payments and any parity obligations, as the District may determine.
All interest or other earnings on deposits in the Rate Stabilization Fund will be retained therein or, at the option of the District, be applied for any other lawful purposes. The District has the right at any time to withdraw any or all amounts on deposit in the Rate Stabilization Fund and apply such amounts for any other lawful purposes of the District.
Reserve Fund – If required by a lender or for the public issuance of COPs, the District will establish and maintain a special fund designated as the Debt Service Reserve Fund to be held in trust for the benefit of the District and such that if prior to any Loan or COP payment date the moneys available in Enterprise are insufficient, the moneys available in the Reserve will be applied.
Additional District Indebtedness - The District will covenant not to issue or incur any lien on Gross Revenues, which is senior to the lien which secures the Loan or COP payments, or that has any priority in payment of principal or interest out of the Net Revenues over Loan or COP payments. The District may issue future parity obligations payable from Net Revenues on parity with the Loan or COP payments. The Loan or COP agreements will not impose any limitation on the issuance of additional obligations which are secured by an interest in the Gross Revenues which is junior and subordinate to the pledge of and lien upon the Gross Revenues made for parity Loans or COPs.
The District may only issue or incur such parity obligations upon satisfaction of all of the following: (a) The Net Revenues for the latest Fiscal Year for which audited financial statements have been prepared, are at least equal to 120% of the Debt Service for such Fiscal Year; (b) The Net Revenues for the latest Fiscal Year for which audited financial statements have been prepared, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Enterprise which have been approved and which are in effect as of the date of calculation are at least equal to 120% of the sum of: (i) Debt Service for such Fiscal Year, plus (ii) Debt Service which would have accrued on the parity obligations then proposed to be issued and on any parity obligations issued since the end of such Fiscal Year, assuming all such Parity Obligations had been issued at the beginning of such Fiscal Year.
For purposes of calculating annual Debt Service on any balloon Loan or COPs, it shall be assumed that the principal of such Loan or COPs, along with interest thereon at the then-current interest rate will be amortized in equal annual installments over a term of 30 years.
Notwithstanding the foregoing, parity obligations may be issued to refund outstanding Loan or COP payments if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year.
Other – Until all of the payments and other amounts coming due and payable under a Loan or COPs have been fully paid or prepaid, the District will not suspend or discontinue payment of any Loan or COP payments or such other amounts, including the occurrence of any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to the Enterprise, failure to complete the acquisition and construction of a project by the estimated completion date thereof, sale of any component of the Enterprise, the taking by eminent domain of title to or temporary use of any component of the Enterprise, commercial frustration of purpose, any change in the tax or law other laws of the United States of America or the State of California or any political subdivision of either thereof or any failure of the Bank or the Trustee to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with Loan or COP agreements.
EXHIBIT
None
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