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Home My WebLink About1986-07-09 District 5 COUNTY SANITATION DISTRICTS OF ORANGE COUNTY, CALIFORNIA tip P.O.BOX 8127,FOUNTAIN VALLEY,CALIFORNIA 92728-8127 °yam IW44 ELLIS,FOUNTAIN VALLEY, CALIFORNIA 92708.7018 (714)962-2411 July 3, 1986 NOTICE OF SPECIAL MEETING DISTRICT NO. 5 WEDNESDAY, JULY 9, 1986 - 6:30 P.M. 10844 Ellis Avenue Fountain Valley, California I am calling a special meeting of the Board of Directors of County Sanitation District No. 5 of Orange County, California, at the above hour and date. The purpose of the meeting is to review long-term debt financing alternatives. /a/ Evelaiyn Hart Chrman BOARDS OF DIRECTORS County Sanitation Districts Post Office Box 8127 of Orange County, California 108" Ellis Avenue Fountain Voiley, Calif., 92708 Teleµoaes; Area Code 714 540-2910 DISTRICT No. 5 962-2411 AGENDA SPECIAL MEETING JULY 9, 1986 - 6 : 30 P .M. (1) Roll Call ( 2 ) Consideration of items re long-range debt financing alternatives: (a Verbal report and presentation by consultants/staff on long-term debt financing alternatives (b) Discussion c Consideration of direction to consultants/staff re long-term debt financing (3 ) Other business and communications , if any ( 4) Consideration of motion to adjourn / MEETING DATE July 9, 1986 TIME 6:30 p.tG.DxSTRtCTS 5 & 6 DISTRICT 1 JOINT BOARDS (SALTARELLI)...HOESTEREY... (MANDIC).........BAILEY...... (CRANK)........HANSON......__ _ _ (MURPHY).........BEVERAGE...._ (LUXEMBOURGER).GRISET......_ _ _ (ZIEGLER)........BUCK........ (WIEDER).......STANTON....._ _ _ (NORBY)..........CATLIN...... _ (RISHER).........CLIFT....... DISTRICT 2 (PERRY)..........CULVER...... (SALTARELLI).....EDGAR....... (NORBY)........CATLIN...... (REESE)..........GRIFFIN.....— (ZIEGLER)......SUCK........_ _ _ (LUXEMBOURGER)...GRISET...... (LUXEMBOURGER).GRISET......_ _ _ (CRANK)..........HANSON...... (SILZEL).......KAWANAMI...._ _ _ (COX)............HART........ (WEDEL)........MAHONEY....._ _ _ (SALTARELLI).....HOESTEREY..._ _ (BEVERAGE). ....MURPHY......_ _ _ (SILZEL).........KAWANAMI...._ (SCOTT)........NEAL........ (SALTARELLI).....KENNEDY. .... (CULVER).......PERRY....... (WEDEL)..........MAHONEY..... (OVERHOLT).....ROTH........ (COX)............MAURER...... (SEVER)........SMITH....... (BAKER)..........MILLER...... (WIEDER).......STANTON....._ (BEVERAGE).......MURPHY...... (NELSON).......SUTTON...... _ _ (SCOTT)..........NEAL........ (SUTTON).........NELSON...... DISTRICT 3 (LACAYO).........PARTIN...... (CULVER).........PERRY....... (LACAYO).......PARTIN...... (COX)............PLUMMER..... (NELSON).......POLIS ......_ _ _ (NELSON).........POLIS....... (MANDIC).......BAILEY...... (WIEDER).........RILEY....... (HORSY)........CATLIN...... (OVERHOLT).......ROTH........ (RISNER).......CLIFT......._ _ _ (PACE)...........SAPIEN...... (PERRY)........CULVER...... (WILES)..........SIEFEN...... (REESE)........GRIFFIN..... (BEYER)..........SMITH....... (LUXEMBOURGER).GRISET......_ _ (WIEOER).........STANTON..... (WEDELI........MAHONEY..... (NELSON).........SUTTON...... (SCOTT)........NEAL........ (MILLER).........SWAN........ (SUTTON).......NELSON...... (SELVAGGI).......SYLVIA...... (OVERHOLT).....ROTH........_ _ __ _ _ (FINLEY)...... ...THOMAS...... (PACE).........SAPIEN...... (GREEN)..........WANNER...... (WILES)........SIEFEN...... (WIEDER).......STANTON....._ _ (SELVAGGI).....S YLVIA......_ _ _ \/ DISTRICT 5 STAFF. SYLVESTER... CLARKE......_ (COX)..........HART........ I� DAWES....... (COX)..........MAURER........ v ANDERSON...._ (WIEDER).......STANTON.....� _ BUTLER...... BROWN....... DISTRICT 6 BAKER....... KYLE........ ( )....WARNER...... VON LANGEN (COX)..........PLUMMER....._ _ _ WINSOR...... (WIEDER).......STANTON..... STREED...... CLAWSON..... DISTR C OOTEN....... LINDER...... (SALTARELLI)...EDGAR......._ (BAKER)........MILLER...... (LUXEMSOURGER).GRISET......_ (Cox) ...... OTHERS: WODDRUFF...._ (BEYER)........SMITH... ...._ _ _ ATKINS...... (WIEDER).......STANTON....._ _ _ HOHENER..... (GREEN)........WAHNER......_ _ _ HOWARD...... HUNT........ DISTRICT 11 KEITH....... KNOPF....... (MANDIC).......BAILEY......_ _ _ LE BLANC...._ (WIEDER).......STANTON....._ _ _ LINDSTROM..._ (FINLEY).......THOMAS......_ _ _ LYNCH......._ MARTINSON..._ DISTRICT 13 PEARCE...... WASON....... (NELSON).......SUTTON......_ _ _ YOUNG....... (MURPHY).......BEVERAGE...._ (OVERHOLT).....ROTH........_ (BEYER)........SMITH......._ (WIEDER).......STANTON......_ DISTRICT lA (BAKER)........MILLER...... (MILLER).......SWAN........ _ (SALTARELLI)...KENNEDY..... (BEYER)........SMITH......._ (WIEDER).......STANTON....._ _ _ 07/09/86 DISTRICT NO. 5 SPECIAL MEETING (JULY 9, 1986 @ 6:30 p.m.) and DISTRICT NO. 6 SPBCIAL MEETIN3 (JULY 9, 1986, @ 6:30 p.m.) NOTES as (separate meetings were called but the two Districts met jointly prior to the regular Joint Board Meeting) Y2 - Consideration of long-term debt financing alternatives The Director of Finance reviewed revenues in operating and capital funds. He stated that the two Districts were in slightly different financial positions. Re District 5, he said that during the budget process we attempt to spend money as fast as possible which makes expenditures high and operating costs go up about 15% per year. Budgets provide worst rase scenario. The figures before Directors were a little bit worst rase than normal. These figures include federal and state grants but we expect that the grant program is almost finished. The rash flow information does not include grant funds. $1.7 million is expected to be received over the next five years for both Districts 5 6 6. District 5 is in excellent financial health. The uses fee and connection fee allows the District to stay above the line (referred to yellow package). The case is slightly different with District 6. As presented in budget documents, District 6 is headed down. The grant revenues reflected in the budget documents allow the District to stay solvent for five years. If we ' assume grant revenues are gone, the District finds itself overall in a negative position in 1990-91. District 6 has sane alternatives available to then. They increased their user fee and connection fees this year from $26 to $29 and from $500 to $1,000. They can increase fees again. Anticipate that a 10% per year a.r increase would be appropriate, considering the loss of grant revenues. The Summary schedule includes a 10% increase in supplemental uses fees. It would be $39.60 by 1990-91. It would still be inadequate to fund the District's needs long term. The District has the option of increasing the user fee or connection fee or both and participating in the long-term debt financing program. With the long-term debt financing program, sufficient funds are provided to meet requirements for three years of joint works capital construction work. Net bond proceeds for District 5 would be $7.4 million and for District 6 would be $7.6 million. Even though the Districts would participate in debt financing, it wouldn't mean their financial problems would go away. Will still need to increase fees in the future. It is appropriate for District 6 to consider some other alternatives to provide for $7 million of expenditures required in 1991-92 and 1992-93. Director Wahner asked if they went with bond financing, would there be an immediate increase in the rates? Bill Butler answered that there is not a need for an immediate increase because the District will receive $7.6 million and will generate interest earnings on that money. District 6's debt service requirement would be $833,000 per year at 89 for a payback of 25 years. Director Plumper referred to tan report which indicated no further grant funding plus 10% increase per year. Asked why they would be in a better position if they borrowed $7 million now and then in 1995-96 would still have deficit of $8 million, and they would still have 15 years more to pay the money off. If the District didn't borrow the money, by that same period (1995-96) would need $9 million. Only $1 million difference, right? She added that they would also have an opportunity to make some changes in 1995. Thought one of the problem in District 6 is that they don't have the potential for growth. Don't have the increase in property values like District 5. However, wanted the District to realize that there are 500 acres being developed. The first project will be coining down the line in a couple years. The 500 acres are along the Santa Ana River (Banning Ranch) and will eventually be annexed. Said that is an important consideration when thinking long-term. Should look into increasing connection fees. Said at this point she didn't support going into debt for $1 million less deficit. Doesn't make sense to borrow $7 million if figures are correct. Bill Butler stated that the figures were correct if you go out 10 years. Need to increase fees 2-3 times greater next year. Chairman Hart asked about District 5 for 10 years plus. Bill replied that District 5 doesn't need to change their fees for the next 10 years. Because of the outstanding tax base in Newport Beach, they have a sufficient amount of reserves in their Operating Fund. Their increase in property tax base is about 17% versus 9.5% for District 6. The existing supplemental user fee is adequate to meet the District's requirements. Director Stanton referred to the two projections--"with" and "without" the secondary treatment waiver. In bond assumptions there are no grant monies included. Said that bothers him that this is so conservative. What is the probability of no grant monies? The General Manager explained that there is currently pending before Congress reauthorization of the Clean Water Act and both the Rouse and Senate have passed separate versions and are waiting to work out the differences. In both versions they propose to phase out the construction grant program which has been in effect since 1972. The major difference in the two versions is how soon they phase them out. 1992 is the latest phase-out proposed. It is fairly complicated. The current level of grant funding ($2.4 billion) is allocated to the State. The proposed House and Senate versions have different formulas. Senate proposes to change and House proposes to remain with existing formula. State must then allocate to local entities. The difference between the two versions means $42 million to California. Over the phase-out period, the annual allocation for grants reduces each year $2.4 - 2.0 million. The projects that we are talking about in the next five years would not be eligible for grants even if the grants are available. Grants are available for advanced treatment. The only grants we would be eligible for would be after the five-year horizon if we don't have our waiver renewed. There may be a limited amount of funds available depending upon which bill passes. The Administration would like to phase out grants by 1989. Another provision of the bill is to drop the federal share to 55%. Whatever funds were available would be at a reduced share. Stanton questioned why we are projecting zero and are actually getting something in the next five years. Said what is the real probability of what we are going to get in the next five years? He was told that the project that is in the budget that reflect the grant, is the long-term sludge project. $40 million for ultimate solids disposal project. We are still very much in the study phase of this project in sorting out what to do with our sludge. Our position on the State's priority list for grant money is not terribly high in comparison to other agencies that have more pressing priorities. The Districts have received significant funds at Plants 1 and 2. The only major funds we might expect relate to this project which is still in study stage. This project is not high on the State's priority list. The majority of the money reflected in the budget documents is shown toward the end of the five-year planning period. We feel the probability of receiving any grant money is not high. The Hyperion project is taking a significant amount of grant money now. The General Manager stated that ..i our assessment of availability of grant money is appropriate at this time. -2- Question was asked re proposed loan program to replace grant program. Item Woodruff replied that they are doing away with the grant program but can't comment on loan program at this time. They are all being administered pursuant to rules and regulations of EPA. Can't say today who will qualify. Was asked when he would have a better idea. TIN said he wasn't optimistic re whether there will be a bill even passed this year. Have to work under existing law and appropriation. The best estimate is hopefully that the Clean Water Act will get out before the fall recess. Then there will be a lot of compromise. Both sides propose reducing federal share to 55% and total appropriation is greatly reduced. It will be passed but is a question of when. The General Manager added that there are actually three versions of the bill. The House, Senate and the Administration takes a position. The Administration would like to phase grants out by 1988-89. Senate proposes me year earlier and House one more year. Mr. Sylvester commented re bonding. Said Director Swan had suggested considering these hods because of pending tax reform legislation which will phase out current favorable tax laws by September 1st. Stanton asked what the difference was between bonding now and bonding afterwards. Was told that it means you keep interest on money and use it, or you send a check to the federal government for that amount of money. Stanton asked, if you bond nest year, what does that mean in terms of money? TIN replied re arbitrage. If you get bond proceeds, you have those earnings. They could go to the benefit of the Districts. Under the new law, you give federal govermmnt the arbitrage earnings. Ave mach it will be depends on interest rate. It is 1-28 higher than the cost of the borrowing right now. If you bond before 9/1/86 then throughout the remainder of the term of the bond proceeds you are free to invest at maximum yield. You would lose interest on bred proceeds in excess of cost of borrowing. Stanton said he felt uneasy. He thought assumptions were excessively conservative as far as what is going out and the need for reserve funds. Each District briefly caucaused re log-term debt financing. DISTRICT 5 - It was moved, seconded and duly carried to terminate oconsideration of log-term debt financing. Did not wish to participate. DISTRICT 6 - It was also nomad, seconded and duly carried to terminate consideration of log-term debt financing. Did not wish to participate. Director Stanton commented that he appreciated the staff's professional and conservative financial reports. -3- COUNTY SANITATION DISTRICTS NOS. 5 6 6 OF ORANGE COUNTY, CALIFORNIA MINUTES OF SPECIAL MEETING `J July 9, 1986 - 6:30 p.m. 10844 Ellis Avenue Fountain Valley, California Pursuant to the call of the Chairmen, the Boards of Directors of County Sanitation Districts Nos. 5 and 6 of Orange County, California met in a special meeting at the above hour and date at the Districts' administrative office. The Chairmen called the meeting to order at 6:30 p.m. The roll was called and the Secretary reported a quorum present. District 5: DIRECTORS PRESENT: Evelyn Hart, Chairman, Philip Maurer, Roger Stanton DIRECTORS ABSENT: None District 6: DIRECTORS PRESENT: James Wahner, Chairman, Ruthelyn Plummer, Roger Stanton DIRECTORS ABSENT; None STAFF MEMBERS PRESENT: J. Wayne Sylvester, General Manager, Rita J. Brown, Secretary, William H. Butler, Thomas M. Dawes OTHERS PRESENT: Thomas L. Woodruff, General Counsel, Joint Chairman Don R. Griffin, Ed Long, Frank Coughlin, Jr., Lora Stovall DISTRICTS 5 6 6 Chairpersons Hart and Wahner reported Report, discussion and actions re that the purpose of the Special Meeting long-term debt financing for was to review and give further funding capital construction consideration to the alternative of projects partially funding the Districts' long-term capital construction program needs by issuance of tax-exempt certificates of participation, as discussed at the regular meeting of the Boards on June 11, 1986. The Director of Finance then reviewed the five and ten-year updated fiscal projections of the Districts based upon two sets of assumptions for the Joint Works Master Plan Sewerage Facilities Construction Program requirements; and the supplemental financial information prepared by staff and the Districts' financial consultant, Bartle Wells Associates, which had been provided to the Directors. He also reviewed the alternative financing methods for funding Districts' operations as well as the capital expansion program including ad valorem taxes, -1- Districts 5 S 6 07/09/86 user and connection fees, federal and state construction grants, use of existing reserves and long-term debt financing. District 5 projections indicate that it is in relatively good financial condition. District 6 projections, however, indicate that it will have a capital funding shortfall in the early 1990's. Considerable discussion centered around the potential availability of federal and state construction grants. Both the U.S. Senate and the House have passed different versions of proposed reauthorization of the Federal Clean Water Act. The bill is awaiting resolution of the differences by the Conference Committee. Both versions propose the phase out of the federal Clean Water Construction Grant Program over the next few years by reducing the level of funding appropriations each year until totally phased out, as well as a reduction in the federal participation from 75% to 55% of projects deemed to be eligible. The Districts do not anticipate receiving any major grant appropriations over the next five years because our construction program is primarily for hydraulic capacity rather than grant-fundable advanced treatment facilities. Following a review of financial projections reflecting the Districts' fiscal position with and without issuance of long-term debt securities, and the impact on the Districts' financial position by issuing debt instruments, the Board entered into a lengthy discussion on the relative merits of issuing tax-exempt certificates of participation to partially fund the Districts' share of joint works capital construction requirements over the next three years. Also discussed was the benefit to the Districts of issuing long-term debt securities prior to September 1, 1986, to take advantage of currently favorable tax laws, versus issuance of such securities in future years because of pending changes in the tax laws by Congress. DISTRICT 5 It was moved, seconded and duly carried: That the District not proceed with issuance of tax-exempt certificates of participation to partially fund the District's share of joint works sewerage facility requirements. DISTRICT 6 It was moved, seconded and duly carried: That the District not proceed with issuance of tax-exempt certificates of participation to partially fund the District's share of joint works sewerage facility requirements. DISTRICT 5 Moved, seconded and duly carried: Adjournment That this meeting of the Board of Directors of County Sanitation District No. 5 be adjourned. The Chairman then declared the meeting so adjourned at 7:25 p.m., July 9, 1986. DISTRICT 6 Moved, seconded and duly carried: Adjournment That this meeting of the Board of Directors of County Sanitation District No. 6 be adjourned. The Chairman then declared the meeting so adjourned at 7:25 p.m. , July 9, 1986.'°' �`'--M' Secretary, Directors County Sanitation Districts Nos. 5 S 6 of Orange County, California -2-