REPORT TO THE CITY COUNCIL January 7, 2016 FROM: THOMAS C. ESQUEDA, Director Department of Public Utilities THROUGH: MICHAEL CARBAJAL, Division Manager Department of Public Utilities - Water Division BY: GLENN A. KNAPP, PE, Professional Engineer Department of Public Utilities - Water Division SUBJECT ..Title Authorize the Director of Public Utilities to accept and execute Safe Drinking Water State Revolving Fund Low Interest Loans for funding related to construction of the City of Fresno's Friant-Kern Canal Pipeline, Regional Water Transmission Pipelines, and Kings River Pipeline projects through the State Water Resources Control Board. ..Body RECOMMENDATION Staff recommends that City Council authorize the Director of Public Utilities to accept and execute Safe Drinking Water State Revolving Fund Low Interest Loans for funding related to construction of the City of Fresno's Friant-Kern Canal Pipeline, Regional Water Transmission Pipelines, and Kings River Pipeline projects through the State Water Resources Control Board. EXECUTIVE SUMMARY Through recent Council approvals, the State Water Resources Control Board (SWRCB) has provided State Revolving Fund (SRF) Low Interest Loan construction funding for the City of Fresno's (City's) Southeast Surface Water Treatment Facility and Orange Center School District Consolidation Incentive projects. In its continuing efforts to complete essential infrastructure projects while minimizing rate-payer impacts, the Department of Public Utilities (DPU) has submitted three (3) additional construction funding applications to the SWRCB for construction of the City's Friant-Kern Canal Pipeline, Regional Water Transmission Pipelines, and Kings River Pipeline projects. The SWRCB has recently submitted a 'draft' funding agreement to the City for the Friant-Kern Pipeline project which is currently under review by the City Attorney's Office. The SWRCB anticipates additional funding offers to be submitted to the City related to construction funding for the City's Regional Water Transmission Pipelines and Kings River Pipeline projects in the near future. The DPU requests that the Director of Public Utilities be authorized to accept and execute these funding agreements, pending legal review and approval of financing terms and conditions in order to expedite execution of these funding agreements and meet anticipated construction timelines. BACKGROUND Upon Council approval, the DPU- Water Division has submitted SRF Low Interest Loan applications for construction for various major infrastructure components that will ensure the City a safe, reliable and sustainable water resources portfolio. These SRF Low Interest Loans provide the City's rate-payers a low-cost financial alternative with loan interest rates at or below 2%, as compared to significantly higher municipal revenue bonding over a 30-year term at or near 5.5%. Upon review of funding applications for the City's Friant-Kern Canal, Regional Transmission Mains, and Kings River Pipeline projects, the SWRCB has submitted anticipated funding amounts and financing terms for each project as noted on the attached correspondence. Loan repayment for all three projects will be at an interest rate of 1.663% over a term of 20 years, resulting in rate-payer savings of over $169,000,000 when compared to other 30-year municipal revenue bonding at 5.5% and costs associated with bond issuance and reserve fund implementation and maintenance. Completion of the Kings River source water supply pipeline to the City's Southeast Surface Water Treatment Facility, and connection of the Friant-Kern Canal Pipeline to the Northeast Surface Water Treatment Facility will enhance the City's ability to meet demand and supply water throughout the metropolitan area. Distribution of water from these facilities throughout the City will be accommodated through construction of Regional Transmission Pipelines. Expedited completion and execution of SRF Funding Agreements for these projects is intimately connected to infrastructure completion and overall operational start-up schedules. Council authorization for the Director of Public Utilities to accept and execute these funding agreements will provide an avenue in meeting construction timelines associated with completion of these major infrastructure projects. All funding agreements for these projects will be subject to approval by the City Attorney's Office regarding financing terms and conditions. ENVIRONMENTAL FINDINGS Authorization to accept an agreement for SRF funding is not a "project" for the purposes of California Environmental Quality Act (CEQA), as it is a funding mechanism or other government fiscal activity, and does not involve commitment to any specific project which may result in a potentially significant physical impact on the environment as contemplated by CEQA Guidelines Section 15378(b). LOCAL PREFERENCE The local preference was not implemented because this is not a competitive bid award. FISCAL IMPACT There is no impact to the General Fund or other City debt service obligations. The debt service costs for the construction of the City of Fresno's Friant-Kern Canal Pipeline, Regional Water Transmission Pipelines, and Kings River Pipeline projects were included in the water rate model used to create the five-year utility rate plan and adopted by the City Council on February 26, 2015. As a condition of accepting these loans, the City will need to demonstrate adequate water rates and associated budgets to ensure that debt coverage ratios and reserve funds are maintained for all existing and additional debt that is incurred. In addition, the City must demonstrate through rates and the associated budgets that it can operate and maintain the existing the water system, as well as the new facilities being constructed with these loan funds, for their useful life. Total funding for these projects funding is anticipated to be at or near $164,785,000. Attachments: SWRCB Correspondence - Financing Evaluation for City of Fresno's (City) Drinking Water State Revolving Fund (DWSRF) Projects