BACKGROUND
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.
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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:
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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:
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The estimated cost of the project or projects on account of which such bonds are to be issued;
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The estimated annual revenues, if any, to be generated by such project or projects; and
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The estimated annual cost of maintaining, repairing and operating such project or projects.
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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.
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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 Enterprise Fund 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 September 30, 2015 City Commission Meeting. Public Resources Management Group, Inc. (“PRMG”) was asked to evaluate the current rate structure and propose alternative (redesigned) rates as necessary to recover the costs of providing service given the target monthly user rate revenues for FY2017 which will incentivize conservation of valuable water resources, meet industry standards regarding cost recovery/rate application to its customers, and maintain rate reasonableness among customers.
The City Commission approved additional water and sewer rate increases and rate restructure at its September 27, 2016 meeting effective October 1, 2016 for FY2017 in accordance with the Study and PRMG’s recommended rate structure. Such rate increases provide the City with the ability to fund $85 million in new projects with a bond issue. The City’s FY2016 and FY2017 Capital Improvement Program includes $50 million in proceeds from a Series 2017 Bond issue to fund water and sewer projects. On March 31, 2017, the FCWPC reviewed and approved a new money bond issue of $50 million. Subsequently the Administration was asked by the Budget Advisory Committee (the “BAC”) 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 $35 million is included in the FY2018 capital improvement plan. 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 and Series 2006 Bonds described below this goal, of a new money bond issue of up to $85 million, could be achieved.
Due to the favorable interest rate environment, the City has the opportunity to refinance approximately $31 million of its Series 2000 Water and Sewer Revenue Bonds for annual savings. A refinancing/restructuring of the City’s Series 2006B-2 and Series 2006E Gulf Breeze Bonds, of approximately $17.4 million, which funded water and sewer projects, also provides savings and a more level overall debt service pattern for the City’s aggregate Water and Sewer debt. The total proposed refunding of approximately $48.4 million provides approximately $7.4 million in net present value savings, which is 15.2% of bonds refunded, based on current market conditions.
As stated above, 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. The additional $35 million in projects and refunding of the Series 2006 Bonds was scheduled to be heard at the September 8, 2017 FCWPC meeting. This meeting was cancelled due to hurricane conditions. Subsequently this item was heard and approved at the September 20, 2017 FCWPC meeting. The funding plan for water and sewer capital projects were presented at the July 20, 2017 BAC meeting.
The foregoing information is summarized in the table below:
Based on the above combination of new money, refunding and relate transaction costs, I recommend approval of this issuance, not to exceed $130 million aggregate principal amount of the bonds.
PROCEDURES GOVERNING THE ISSUANCE OF BONDS
In accordance with the provisions of Section 2-278 Procedures governing the issuance of bonds, the Administration prepared the required fiscal analysis which included the following breakdown of the proposed Water and Sewer Revenue 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 $39.7 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 adopted water and sewer rate increases in FY2016 to pay the new debt service for the projects. Water and Sewer rates were adjusted effective October 1, 2015 from $4.43 per 1,000 gallons of water to $4.61 per 1,000 gallons and the sewer rate 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.
RESOLUTION
The City Commission may approve by resolution other improvements as part of the Series 2017 Project in addition to and/or in lieu of one or more of the above improvements.
If approved by the City Commission today, in accordance with Sec. 2-278 (a) 3, a second public hearing will be held for this proposed Water and Sewer Bond issuance on October 18, 2017, and will be advertised at least fifteen (15) days prior to the public hearing date.
Because of the character of the Series 2017 Water and Sewer Bonds, the prevailing market conditions, the complexity of a combined new money and refunding/restructuring issue and the recommendations of the Financial Advisor, it was further determined that the sale of the Series 2017 Water and Sewer Bonds on the basis of a negotiated sale rather than a public sale by competitive bid is in the best interest of the City.
The Resolution for the issuance of the Series 2017 Water and Sewer Bonds will delegate to the Mayor, relying upon the recommendation of the Chief Financial Officer and RBC Capital Markets (the City’s Financial Advisor), the determination of various terms of the Series 2017 Bonds, including whether to secure one or more Credit Facilities and/or Reserve Account Insurance Policies with respect to the Series 2017 Bonds, the final award of the Series 2017 Bonds, the dates of redemption of the Prior Bonds to be redeemed prior to maturity, the payment of all related costs and expenses in connection with the issuance of the Bonds and all other actions necessary or desirable in connection with the issuance of the Series 2017 Bonds.
The Chief Financial Officer is further authorized to establish procedures in order to ensure compliance by the City with the Series 2017 Continuing Disclosure Agreement, including the timely provision of information and notices. Prior to making any filing in accordance with such agreement, the Chief Financial Officer may consult with, as appropriate, the City Attorney or Bond Counsel. The Chief Financial Officer, acting in the name and on behalf of the City, shall be entitled to rely upon any legal advice provided by the City Attorney or Bond Counsel in determining whether a filing should be made.
In order to describe and specify the terms of the City’s Continuing Disclosure Agreement, the Chief Financial Officer is hereby authorized and directed to enter into and deliver, in the name and on behalf of the City, a Disclosure Dissemination Agent Agreement (the “Series 2017 Continuing Disclosure Agreement”), with Digital Assurance Certification, L.L.C. (“DAC”), which is hereby appointed as the disclosure dissemination agent with respect to the Series 2017 Bonds, in substantially the form presented at the meeting at which this Series Resolution was considered, subject to such changes, modifications, insertions and omissions and such filling-in of blanks therein as may be determined and approved by the Chief Financial Officer, after consultation with the City Attorney. The execution of the Series 2017 Continuing Disclosure Agreement, for and on behalf of the City by the Chief Financial Officer, shall be deemed conclusive evidence of the City’s approval of the Series 2017 Continuing Disclosure Agreement.
U.S. Bank National Association is hereby appointed as Bond Registrar for the Series 2017 Bonds.
The officers, agents and employees of the City, the Bond Registrar and DAC are hereby authorized and directed to do all acts and things and execute and deliver all documents, agreements and certificates required of them by the provisions of the Series 2017 Bonds, the Bond Resolution, the Series 2017 Bond Purchase Agreement, the Series 2017 Continuing Disclosure Agreement and this Series Resolution, for the full, punctual and complete performance of all the terms, covenants, provisions and agreements of the Series 2017 Bonds, the Bond Resolution, the Series 2017 Bond Purchase Agreement, the Series 2017 Continuing Disclosure Agreement and this Series Resolution.
The proposed Resolution appoints the following underwriters for the Series 2017 Bonds:
Senior Manager - Raymond James & Associates
Co-Manager - Stifel Nicolaus
Co-Manager - Loop Capital Markets
The underwriters for the Series 2017 Bonds were also approved at the City Commission meeting on March 1, 2017.
Additionally, the proposed Resolution provides the structure for the issuance of other Bonds and other forms of indebtedness of the City payable from the Net Revenues of the Water and Sewer System for the purpose of paying all or any part of the cost of any other improvements to the Water and Sewer System or to refund or refinance all or a portion of the Bonds or any other series or other indebtedness of the City incurred with respect to the Water and Sewer System then outstanding. All such additional actions would require approval of the Mayor and City Commission. The proposed resolution also calls for refunding of certain City debt issued by the City of Gulf Breeze. Loan amendments are required to effect the prepayment of the Series 2006B-2 and Series 2006E Gulf Breeze bonds. Loan amendments are attached hereto.