HomeMy WebLinkAboutA001 - Resolution setting May 26, 2026, as Public Hearing and action to enter into General Obligation Solid Waste Disposal Loan Agreement and to borrow money thereunder (Resource Recovery & Recycling Campus)ITEM #:1
DATE:05-19-26
DEPT:FIN
SUBJECT:SETTING DATE OF PUBLIC HEARING FOR A GENERAL OBLIGATION
LOAN AGREEMENT IN A PRINCIPAL AMOUNT NOT TO EXCEED
$24,000,000 FOR RESOURCE RECOVERY AND RECYCLING CAMPUS
PROJECT
COUNCIL ACTION FORM
BACKGROUND:
As part of the financing strategy prepared by the City’s design consultant, HDR, Inc.,
Bond Anticipation Notes (BANs) were incorporated to provide interim financing during
the construction phase of the Resource Recovery & Recycling Campus (R3C). BANs
are short-term financing instruments, typically offered by banks and financial
institutions, commonly used to provide temporary funding prior to the issuance of
permanent long-term debt. In many respects, BAN financing functions similarly to a
construction loan by allowing the City to access capital during construction while
deferring the issuance of permanent long-term financing until the project is
substantially complete.
The use of BANs provides several advantages. Most notably, the City benefits from
lower short-term interest rates during the construction period and gains additional
flexibility in timing the issuance of the permanent financing.
Upon completion of the project, the BANs are expected to be retired through a future
General Obligation (GO) bond issuance. Alternatively, the City may evaluate other
permanent financing structures at that time, including a direct bank placement or
private placement, should market conditions and financing terms prove advantageous.
An additional benefit of utilizing BAN financing is the ability to phase in the rate
increases necessary to support long-term debt service obligations. Under a traditional
long-term financing structure, the first principal and interest payment would likely have
been due on June 1, 2027. By utilizing BAN financing during construction, the first
significant long-term debt service payment is anticipated to occur on June 1, 2028. This
extended implementation period provides the utility with additional time to align
revenues with projected operating and debt service requirements.
Furthermore, the interim financing structure allows the City to evaluate operational
performance and revenue generation from the R3C facility prior to the commencement
of full annual debt service payments. Modeling performed by HDR, Inc. indicated that,
absent the use of BAN financing, the resulting extension of the debt amortization
schedule would likely have required substantially larger rate increases beginning in FY
2026/27.
Similar to a traditional bond issuance, the utilization of BANs requires a public hearing. This
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resolution would set May 26, 2026, as the date for a public hearing on a proposal to enter into
a General Obligation loan agreement in an amount not to exceed $24,000,000.
If approved, the agreement would provide the funding necessary to support the construction of
the Resource Recovery & Recycling Campus (R3C). Based on the bids received and the
financial plan established for the construction of the facility, the City is expected to utilize
approximately $22,006,730 in proceeds to support the project. All financial obligations
associated with the loan are expected to be repaid from annual revenues generated by
the City’s Resource Recovery enterprise operations.
It should also be noted that, pursuant to Iowa Code Section 384.24, the proposed borrowing
qualifies as an essential corporate purpose because the project involves the “acquisition,
construction, reconstruction, extension, improvement, and equipping of works and facilities
useful for the collection, treatment, and disposal of sewage and industrial waste in a sanitary
manner, for the collection and disposal of solid waste, and for the collection and disposal of
surface waters and streams.” As an essential corporate purpose, the issuance is not
subject to a mandatory or reverse referendum.
ALTERNATIVES:
1. Set May 26, 2026, as the date of public hearing to authorize the issuance of Essential
Corporate Purpose General Obligation Loan Agreement in an amount not to exceed
$24,000,000.
2. Reject or delay the public hearings and provide direction related to the financing and
funding of the R3C project.
CITY MANAGER'S RECOMMENDED ACTION:
Prior to the issuance of debt, Iowa law requires the City to hold a public hearing. A
hearing date is therefore proposed to be set prior to authorizing the use of General
Obligation Loan agreement to finance the R3C project.
In addition, the financing plan developed by the City’s financial consultant includes the use of
Bond Anticipation Notes (BANs) during the construction phase. As modeled, this financing
structure results in the lowest overall impact on tipping fees, thereby minimizing the
financial impact on customers. Therefore, it is the recommendation of the City Manager
that the City Council adopt Alternative No. 1, as described above.
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