HomeMy WebLinkAboutA001 - Council Action Form dated October 22, 2024ITEM #:23
DATE:10-22-24
DEPT:FIN
SUBJECT:APPROVING STATE REVOLVING FUND AGREEMENT IN THE AMOUNT
OF $65,185,000 TO BE REPAID WITH SEWER UTILITY REVENUE
COUNCIL ACTION FORM
BACKGROUND:
This resolution is the final step in authorizing a not-to-exceed amount of $65,185,000 in Sewer
Revenue Bonds through the Iowa State Fund Clean Water Program (CWSRF), in support of
improvements to the Water and Pollution Control Facility. As previously discussed with the City
Council, these improvements are necessary to comply with the unfunded mandates of the 2013
Iowa Nutrient Reduction Strategy.
Staff believes utilizing the CWSRF to fund improvements is in the City's best interest. This
program has a long history of providing below-market rate loans to municipalities to fund utility
improvements, including several loans to the City of Ames.
A summary of the project costs is as follows:
Engineering - $ 6,038,000
Other Professional Services - $ 166,220
Construction - $ 53,645,000
Total $ 59,849,220
Contingency $ 5,335,780
Total Authorized Amount $ 65,185,000
It should be noted that the contingency amount listed above includes an additional $2,668,000,
over what was initially presented as part of the project costs. The purpose of the additional
contingency is to provide a cushion for project changes and prevent unnecessary issuance costs
associated with increasing the not-to-exceed amount as a separate action, should it be necessary.
Staff believes that the CWSRF program offers the lowest-cost option for borrowing for capital projects,
with a 2.43% annual interest rate and a 0.25% annual servicing fee, in addition to the $100,000
origination fee. The twenty-year loan is estimated to have a total debt service cost of $88,747,452. The
funding source for the loan's repayment will be sewer utility revenues, which have been included
in the financial model used to project future rate increases.
Based on market condition information provided by the City's financial advisor, if the City were to go
to the market to issue Sewer Revenue bonds, the true interest cost would likely be between 4.00%-
4.25%. Additionally, Sewer Revenue bonds issued into the market would require a debt service reserve
and higher debt service coverage requirements than the CWSRF Program. Staff believes this further
confirms that utilization of the CWSRF program as the funding source for this project is the
lowest-cost alternative.
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ALTERNATIVES:
1. Adopt a resolution approving a State Revolving Fund Agreement in the amount of $65,185,000 to
be repaid with Sewer Utility revenue.
2. Do not approve the loan and disbursement agreement and provide staff additional direction for the
project's financing.
CITY MANAGER'S RECOMMENDED ACTION:
Authorization of the loan agreement will allow the City to access State Revolving Funds to
finance necessary improvements to the WPC facilities. The financing terms of the CWSRF
program are the most cost-effective method of financing the project. The principal and interest
payments related to the loan have been accounted for in the Sewer Fund rate design. Therefore, it
is the recommendation of the City Manager that the City Council adopt Alternative No. 1, as noted
above.
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