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Home My WebLink About0592.093• November 18, 1993 THE HONORABLE CITY COUNCIL Palo Alto, California PAtOl' or 1.81 VTILITJ_REVENYJ IOXDI Members of the Council: ~rt LA Brief 1 :;> .-~- The city of Palo Alto utility Re,renues and Refunding Bonds 1983, Series AI currently has a $2,175,000 principal balance outstanding, 'With interest ra.tes (J.f between 8~O and 8.25 pe.rcent. As the interest rate of this debt noW" qreatly exceeds the projected return on city investments and funds are available in the appropriate reserves, staff recommends that the City Council adopt the attached ordinance authorizing the early payoff of these bonds and providing for the current fundin9 of the debt payoff. BaCII:qrOUR4 In 1983 .. the city of Palo Alto issued. $4,765,000 in Utility Revenues and Refunding Bonds to re.fund the Electric and Cas Revenue Bonds 1979 Series A, originally issued to acquire and construct a solid waste dewatering facility and to design a steam and electric cogeneration facility at the Regional Water Quality Control Plant (RWQCP) • The bonds were issl.Oed W'i th inter-ast rC!tes starting at 6.25 percent and increasing to 8.25 percent by tbe year 1$:95. The RWQCP serves the Cities of Palo Alto. Mo~ntain View, Los Alto6, and Los Altos Hills. Stanford University, and the East Palo Alto Sanitary District (Partners}. The ·Partners l along with the city's Electric and Gas Utilities, were involved in the bond financinq. The proportionate share of each party?s payoff amount, with redemption and other costs, is included in Appendix A. Cost Plow Analyais The City has the option of contlnuinq t'.D pay the current debt service at 8.25 percent to maturity or paying off the outst~ndin9 CMR,S92:93 • " .. , ...... ';k. ",,"'", " :" ~. ::~~i: / ., ~untl thus foreqoing the interest income ob~ainable trom inve.stment of rese.rved funds. Due to prior long;-t.erm in'lest'mlants, the city is projected to earn a 5.5 percent average return on its 1n~st.ent portfolio in 7Y 1993-94. Ne~ investments ~re eaxninq only about 345 percent I based on the return on ~ one-year trea9ury bill. staff performed a cash flow analysis for both options under J. 5 percent and 5.5 percent inter:est rate scenarios {Appendix 5). Below is a summary of this analysis: original Debt Payment Payoff 1 payoff 2 Schedl11e (3.5%) (5,5\) 1994-99 In'tere,t Payable to Maturity $475,994 0 0 Interest Income Foreq.one 0 $202,038 $:117,488 Early Rede:o.ption CQsts 0 $58,125 $58,125 Total $475,994 '$2'60,161 $375,613 Net savings 1994-98 N/A $215.831 $100,381 Based on the this analysis l the cost savings of the bond payoff is betwe~~ $100,381 and $215,831. l'Pact on City of Palo Alto utilities The City of Palo Alto sold these bonds on behalf of the RWQCP Partners. Each year, the City bills the othe~ Partners for their portion of bond. debt service. Thus, the benefit of the debt savings viII be experi~nced by all the partners~ Palo Alto's poction of the bonds is 52.66 percent. shared by the Electric Fund (10.85 percent), Gas FUnd (12.20 percent), a.nd Wastewater Collection FUnd (2~. 61 percent). There ·..,i 11 be no rate impact to any of these utilities as a result of this early payoff. In the long run, Palo Alto's ratepayers will benefit from the cost savinqs. CMR:592,93 2 • Tbe Partners aqreea to this early payoff proposal at the RWQCP Partners September ~eetln9 and gave the city of Palo Alto peratssion to initiate the early payoff process with the bond trustees. The RWQCP 6.Xpenses irl Fi' 19!12-93 tatere under budqet by $1.3 .111ion as a result of vacancies $ decreased overtime, decreased chemical usa9~. effective operation, and other savings. Therefore, with the exception of East Palo Alto Sanitary District (£PASO], all partners have e credit from the 1992-93 budqet that will tully cover their portion of the bond payoff. EPASD will also be able to take advantage of this earl~· bond payoff, supplementing tb~ 1992-93 credit with additional funds~ Staff recommend~ that Council approve the early payoff or the 1983 Utility Bonds ~nd the attached Budget ~endment Ordinance, which provides the necessary funding from. the appropriate enterprise funas' rate stabilization reserves. Respectfully submitted, Attaclullents: Appendix A Budqet Aaendment Ordinance CXR:592:9J 3 , E 0 § 0 E 0 ~ 0 :; 0 I • • 0 • • ~ i • '!. • '!. c " ~ • ~ ,; z 0 0 .. • ~ .; • 0 .. : • " : ~ 0 • " • • "0 e "0 • " • • " 0 • ~ · : • ; · I • : • 0 • : • • ~ • 0 0 0 • " • 3 " · · .; • ,; ,; !. .; • • I • • • • " 0 • ~ ~ : z I ~ • 0 • • : • ~ • " • ~ • '!. " • : :: ~ • 0 0 i " • : " • ~ = · • • • :;; 0 : " • S-o I • • " • • • • • § ~ • • • '! • ~ " • • • • " .-.. • ,; ~ .0 .. • • • • • • !Z • " j i • • : • 0 0 0 • • ~ • I • • • I • 0 : • ~ ~ • • ~ "0 0 ": • " 0 0 0 ~ .; " ; .. ; e I!' § • " " • :;! 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ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO k~ING THE BUDGET FOR THE FISCAL YEAR 1993-94 TO PROVIDE AN 1.DCITIONAL APPROPRIATION TO PA~OFF 1993 UTILITY BONDS WHEREAS, pursuant to the provisions of section 12 of Article III of the ~~arter ot the City of P410 Alto, the council on June 21, 1993 did adopt a bUQqet for fiscal year 1993-94; and WH..EREAS... the city of Palo Alto issued $4.765 million in utility Revenue and Refunding Bonds in 1983 to refund Electric ana Gas Revenue Bonds 1979 Series A, originally issued to acquire and construct a solid waste dewatering facility and to design a steam and electric coqeneration facility; ana WHEREAS, there is an outstanding balance of $2.175 million in the Utility Re~undinq Bonds with interest rates between 6~25' and e.25t; and WHEREAS, the Electric Fund, the Gas Fund, and the Partners in the Regional water Quality Control Plant (Palo Alto, Mountain View, Los Altos, Los Altos Hills, East Palo Alto Sanitary District and stanford University) participated in the bond financing; and WHEREAS, the bond participants have decided to payoff the outstandinq balance of the bonds because the interest rate on the debt now greatly exceeds the projected rate of return on City investments; NOW, THEREFORE, the council of the City ~f Palo Alto does ORDAIN as follows: SECTIQH 1. The sum of One Hundred Eighty Three Thousand One Hundred Sixty Two Dollars ($183,162) is her-eby appropriated to General Expenses in the Electric Fund, and the Electric Rate stabilization Reserve is correspondingly reduced. SECTION 2. This transaction will reduce the Electric Rate stabilization Reserve from $37,855,745 to $37,672,583 as of October 31. 1993. SECTION 3~ The sum of TWo Hundred Five Thousand Nine Hundred Fifty One Dollars ($205,951) is hereby appropriated to General Expense in the Gas Fund, and the Gas Rate stabilization Reserve is correspondingly reduced. SECTION Stabilization 1993. 4. This transaction 'Will reduce the Gas Rate Reserve from $7,627,706 to $7,421,755 as of June 30, SECTION 5. Sal9s in the wastewater Treatment FUnd are increased by One Million TVo Hundred Ninety Nine Thousand ~«elve Dollars ($1 1 299,012J and General Expense is increased by the sa~ .. ount. SECTION 6. This transaction will have no impact on t..l-J.e Wa&te~ater Treatment Fund Rate stabilization Reserve. SECTIQtL2,. The sum of Four Hundred Ninety Five Thousand seven Hundred Three Dollars ($495,70J} is hereby app~opriated to Allocated Charges in the Wastewater Collection Fund, and the Wastewater Collection Fund Rate Stabilizati'::m Reserve is correspondingly reduced. SECTION 8. Collection Fund $2,712,590 as of This transaction Rate stabilization June 30, 1993. will reduce the Wastewater Reserve .from $),208,293 to SEctION 9. As specified in Section 2.28.08Q(a) of the Palo Alto Municipal Code, a t:wo-thirds vote of the City Council is required to adopt tbis ordinance. SECTION 10. The Council of the city of Palo Al to hereby finds that the enactment of this ordinance is not a project under the California Environmental Quality Act and, therefore, no environmen tal impact assessment is necessary~ SECTION 11. Municipal Code, adoption 4 As provided in section 2404 4 375 of the Palo Alto this ordinance shall become effective upon INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT: ATTEST: APPROVED: city Clerk Mayor APPROVED AS TO FORK: Sr. Asst. City Attorney , APPROVED: city xanager DIrector ot Finance ".HI