Item Coversheet

NEW BUSINESS  7.

COMMITTEE MEMORANDUM

TO: Finance and Citywide Projects Committee Members


FROM:
Jimmy L. Morales, City Manager


DATE: September 20, 2017


SUBJECT:ADDITIONAL INFORMATION REGARDING THE ISSUANCE OF NEW MONEY AND REFUNDING WATER AND SEWER REVENUE BONDS

HISTORY:

In November 2007, the Mayor and City Commission approved Ordinance 2007-3582 which amended the procedures that the City followed in connection with the approval of a bond issue and added the following Section to Chapter 2 of the Miami Beach City Code, entitled "Administration"; Article V entitled "Finance"; Sec. 2-278, entitled "Procedures governing the issuance of bonds”.

 

Sec. 2-278. Procedures governing the issuance of bonds.

 

  1. Prior to the adoption by the city commission of the final resolution approving the issuance of any bonds by the city, the following requirements shall be complied with:

     

  1. In order for the city commission and the public to be fully informed on all matters relating to the proposed issuance of bonds, the city manager shall prepare, or cause to be prepared, a fiscal analysis of the economic impact of the proposed bond issuance using the following criteria:

    1. The estimated cost of the project or projects on account of which such bonds are to be issued;

    2. The estimated annual revenues, if any, to be generated by such project or projects; and

    3. The estimated annual cost of maintaining, repairing and operating such project or projects.

  2. Upon completion of the fiscal analysis in subsection (a)(1), the proposed issuance of bonds shall be first considered and reviewed by the city's finance and citywide projects committee.

  3. The city commission shall hold two public hearings, each advertised not less than 15 days prior to the hearing, in order to obtain citizen input into the proposed bond issuance.

 

At September 30, 2016 the City had approximately $105.9 million in outstanding Water and Sewer Enterprise fund that was issued in 2000, 2006 and 2009.  The outstanding debt for each Series in the Water and Sewer system are as follows: Series 2000 Revenue Bonds of $30.8 million, Series 2006 of $21.5 million and Series 2009 New Issue and Refunding Bonds of $53.6 million.

 

The City Commission approved water and sewer rate increases effective October 1, 2015 for FY2016 in accordance with the final Water & Wastewater Rate Review Study (the “Study”) dated September 30, 2015, at the City’s September 30, 2015 Commission Meeting.  The City Commission approved additional water and sewer rate increases and recommended rate restructure which is identified in the Water and Sanitary Sewer Rate Structure Evaluation, at its September 27, 2016 meeting effective October 1, 2016 for FY2017 in accordance with the Study and the Public Resources Management Group, Inc.’s recommended rate structure. 

 

Such rate increases will partly fund $50 million in new projects with a bond issue as described in the evaluation.  The City’s FY2017 Capital Improvement Program includes $50 million in proceeds from a Series 2017 Bond issue to fund water and sewer projects.

Due to the favorable interest rate environment, the City also has the opportunity to refinance approximately $31 million of its Series 2000 Water and Sewer Revenue Bonds for annual savings.  The issuance of the $50 million in new money and refunding of all or a portion of the Series 2000 Bonds was recommended to the FCWPC on March 31, 2017.

 

Since that time, it was determined that a refinancing of the City’s Series 2006B-2 and Series 2006E Gulf Breeze Bonds (together, the “Series 2006 Bonds”), which provided funds for water and sewer projects, could also provide savings and be restructured to provide a more level overall debt service pattern for the City’s aggregate Water and Sewer debt.  The total proposed refunding of approximately $38 million including the Series 2000 Bonds provides approximately $7.4 million in net present value savings, which is 15.2% of bonds refunded, based on current market conditions.

 

Additionally, the funding plans for water and sewer and stormwater capital projects were presented at the July 20, 2017 Budget Advisory Committee (the “BAC”) meeting.  The BAC and the Administration discussed the need to make water and sewer improvements concurrently in areas where stormwater improvements are to be constructed.  The Administration was asked to determine if existing water and sewer rates would provide sufficient capacity for an additional $35 million in new money water and sewer proceeds to be issued with the Series 2017 Water and Sewer Bonds.  The Administration, the City’s Financial Advisor, RBC Capital Markets, and Public Resources Management Group determined that due to low interest rates and the refunding/restructuring of the Series 2000 Water and Sewer Bonds and Series 2006 Bonds, this goal could be achieved.

ANALYSIS:

In accordance with the provisions of Section 2-278 Procedures governing the issuance of Bonds, the Administration prepared the required fiscal analysis which include the following breakdown of the proposed Water and Sewer Bond issue. 

 

Sec. 2-278 (a) 1 (a) - estimated cost of the projects:

The water and sewer program will fund priority repair or replacement projects as well as the water and sewer portion of existing and future neighborhood projects, as identified by the Public Works Department.  The upgrades include portions of multiple neighborhood improvement projects to upgrade or replace the aging water and sewer infrastructure.  In addition it includes agreements with the Florida Department of Transportation to replace water mains under state roads, while they are already undergoing construction.  Finally, this includes the final portion of the 54” redundant force main, an American Society of Civil Engineers (ASCE) award winning project, to make the sewer system more resilient. The estimated portion of the projects for which the bonds are to be issued is $85 million.  The City to date has committed $37.2 million for future projects that are to be funded from the Series 2017 bond proceeds.

 

Sec. 2-278 (a) 1 (b) - estimated revenues to be generated by the projects:

These projects will either replace or enhance portions of the existing water and sewer system; the operation of such system is funded by water and sewer rates and charges. No additional fees are anticipated to be earned as a result of these projects. The City has adopted water and sewer rate increases in FY2016 to partially pay for the projects.  Water and Sewer rates were adjusted effective October 1, 2015 from $4.43 per 1,000 gallons to $4.61 per 1,000 gallons and sewer was adjusted from $7.55 per 1,000 gallons to $8.23 per 1,000 gallons. 

 

Sec. 2-278 (a) 1 (c) - estimated annual cost of maintaining, repairing and operating the projects:

The City’s utility rates for water and sewer services are structured to collect the necessary revenues to meet annual operating and maintenance costs of the infrastructure, to cover debt service for water and sewer bonds, to maintain adequate operating fund reserves, and, to pay Miami-Dade County for wholesale water purchased, the treatment of the City’s sewage and other fees.

 

If recommended to the full City Commission today, in accordance with Sec. 2-278 (a)(3), two public hearings will be held for this proposed Water and Sewer Revenue and Refunding Bond issue. The dates of the public hearings are to be determined and each date will be advertised at least fifteen (15) days prior to the public hearing date.

 

The Water and Sewer Enterprise fund must issue tax-exempt debt to provide $85 million in new money proceeds, plus issuance costs, to fund water and sewer improvements concurrently with stormwater improvements.  A refunding of the outstanding Series 2000 Water and Sewer Bonds and Series 2006 Bonds will be combined with this issue if market conditions make such a refunding economical.