HomeMy WebLinkAbout12/06/2011 04G Irrigation System Upgrade Project Funding via Interfund Loan 0 ' / ' ' .`, -LI .o ' k ''
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BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT /�
Item No. 1 1 G•
For Meeting of: December 6, 2011
ITEM TITLE: Resolution authorizing an Interfund Loan from Fund 551 - Equipment
Rental Fund to Fund 479 - Irrigation System Improvement Fund, to
provide cash flow for the irrigation system upgrade project.
SUBMITTED BY: Rita DeBord, Director of Finance and Technology .
CONTACT Dave Brown, 575 -6204
PERSON /TELEPHONE: Cindy Epperson, 575 -6070
Tara Lewis, 576 -6639
SUMMARY EXPLANATION:
During the many Council Study Sessions, Meetings, Public Hearings, and Public Information Meetings over the
• past decade, plans for the future of the City's Irrigation System were discussed in detail. Based on those
discussions, the City Council authorized the following plan of action:
* Fund rehabilitation /replacement of the General Irrigation System replacement through a combination of
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revenue bonds ($10M) and funds generated through a CIP rate component. Total cost estimated to be $13-
$14million;
* Revenue bonds to be issued in two increments of $5M each. The first bond of $5 million was obtained in 2004,
with the second bond of $3.5 million expected by the end of 2011. The $3 -$4 million difference between the bond
proceeds and the estimated total project cost is planned to be funded from monies collected as part of the CIP
rate;
* Completion of the General Irrigation System replacement project scheduled for 2012;
* The General Irrigation System project is considered the highest priority; .
* Bond repayment is from the funds collected through revenues generated by the CIP rate.
The Irrigation system will require approximately $3.8 million over the next two winter seasons for ongoing
upgrades. With municipal borrowing rates much higher than what can be earned on cash deposits or short term
investments, it is prudent to use the interfund loan process to fund this project during construction. Interest costs
can be reduced and deferred in that amounts will be drawn only as needed and the rate will be closer to what
could be earned should such funds be invested as opposed to current borrowing rates. Capital earnings from
irrigation fee rates generated in the Irrigation Capital Fund will be used to pay down interfund balances in the
amounts estimated that would otherwise be used toward debt service if the City were to finance the project
immediately through a bond issue. In this manner, any financing needed at the end of the upgrade is anticipated
III to be significantly less than if outside financing were to be obtained currently. Financing will likely be obtained at
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the conclusion of the project and such interfund amounts will be repaid with interest back to the Equipment
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Rental Fund. Should interest rates begin to rise, outside financing in the form of a bond issue or private
placement may be pursued sooner. City Finance staff will continue to monitor the debt environment for
circumstances that would alter the intended timing of future borrowing for this project.
The Equipment Rental Fund currently has sufficient cash reserves to participate in the interfund loan process
• described above. Interest to be charged on the cash advances to the irrigation system will be at 1.0% above the
1 month LIBOR rate (currently 0.26 %) in effect at the time of the advance as quoted on Bankrate.com. Interest
will be calculated on each advance separately and repaid in full, with accrued simple interest according to the
First- In,`First -Out (FIFO) method.
Resolution X Ordinance Other (specify)
Contract: Mail to:
Contract Term: Amount: Expiration Date:
Insurance Required? No
Funding
Source: 551 - Equipment Rental fund Phone:
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APPROVED FOR 4 . (' City Manager
SUBMITTAL: fti�
STAFF RECOMMENDATION:
Adopt resolution •
BOARD /COMMISSION RECOMMENDATION:
ATTACHMENTS:
Click to download
❑ Resolution Authorizing an Interfund Loan for Irrigation System improvements
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• RESOLUTION NO. R -2011
A RESOLUTION authorizing an Interfund Loan from the 551- Equipment Rental Fund
to the 479 Irrigation System Improvement Fund.
WHEREAS, the Equipment Rental Fund has sufficient resources available for
investment to make the Interfund Loan authorized by this Resolution; and
WHEREAS, the Municipal Bond market is not currently conducive to debt
issuance where the balance of interim, unused proceeds can only earn interest at a rate
that is significantly below current debt rates (negative arbitrage); and
WHEREAS, funds should be loaned to the 479 - Irrigation System Improvement
Fund in order to provide for cash flow requirements during the next phase of the
Irrigation System Rebuild project, now, therefore,
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA:
A loan of up to $3,000,000 may be borrowed in whole or in part only at such time
as it becomes necessary to complete the project. The interest rate to be paid to Fund
551- Equipment Rental Fund for borrowing these funds shall be based on the current 1-
Month LIBOR rate plus 1.0% at the time of each draw, and each draw on the loan shall
® be repaid with principal and interest from the Irrigation Capital Fund as the fund is able
and /or upon issuance of debt for the Irrigation System Rebuild project, but no later than
three years from the borrowing date. Repayment shall be made from Fund 479 - Irrigation
System Improvement Fund.
ADOPTED BY THE CITY COUNCIL this day of December, 2011.
MICAH CAWLEY, MAYOR
ATTEST:
CITY CLERK
Legal BD /Resolutions
Interfund Loan