PURPOSE

The purpose of this report is to request City Council approval of the following:

• Appointment of a Financing Team to review the potential refunding of the existing Wastewater Treatment Revenue Bonds.,1995 Series A and issuance of new money bonds of $5 million.

• Adoption of a reimbursement resolution to be reimbursed for capital expenditures should the bonds be issued.

BACKGROUND ANALYSIS

As part of the annual budget process, Staff updates the five-year cash flow projection for the Sewer Fund to review the adequacy of sewer rates to determine compliance with bond covenants, financial policies, and cash flow needs.  During the FY 2003-04 budget process, it was disclosed that sewer rates would need to be increased by 8.5% in FY 2003-04 and 7% for four years thereafter.  Spreading needed rate increases over time has the negative consequence of reducing needed cash balances.  Staff is still recommending limiting sewer rate increases to 7% over the next four years. 

Staff is also recommending that the City Council approve the appointment of a financing team to review the potential refunding the Wastewater Treatment Revenue Bonds, 1995 Series A with a bond issue that would include $5 million of funds for planned capital expenditures.  The advantage of refunding existing bonds and issuing $5 million in new money would be to restore available cash balances.  This approach may result in eliminating or reducing the final year of the 7% rate increase.  The potential bond issue would only be issued if the net present value of the savings from the refunding of the 1995 issue was at least 3%.  Interest rates have been fluctuating and currently are at a level that we would not meet our savings target.  At this point Staff does not recommend issuing bonds for the new money portion alone.  By approving the financing team, bond documents can be developed and brought back to the City Council for approval.  This will give authority to issue the bonds when sufficient savings can be generated.

The reimbursement resolution gives the City the ability, for federal tax purposes, to reimburse itself from the proceeds of a tax exempt bond issue for capital expenditures made prior to issuance should the bonds ultimately be issued.

Public Works is ready to proceed with phase two of a nitrogen removal project which has been estimated at $5 million.  This project includes the conversion of the disinfection process, modification of the return activated sludge pump system, construction of a new chemical storage building, modifications to the existing chlorine contact chamber, and electrical demolition, relocation and replacement.  It will allow the Burbank Water reclamation Plant to treat wastewater more safely and effectively.

Due to the market timing need and other financing challenges, it is the City�s benefit to appoint a Financing Team which has an understanding of the existing outstanding Wastewater Treatment bond issues.  The Financing Team recommended is as follows:

            Peter Ross, Ross Financial                                            Financial Advisor

            Rich DeProspo, E.J. De La Rosa & Co., Inc.               Underwriter

            Brian Quint � Quint & Thimmig, LLP                              Bond Counsel

The Financing Team will also prepare the necessary bond documents and return for approval. 

FISCAL IMPACT

Compensation for the Financing Team will be paid as part of the bond issuance if the bonds are issued.  The $5 million in new money strengthens the cash balances of the Sewer Fund and would enable Staff to recommend eliminating or reducing the planned 7% rate increase scheduled for FY 2007-08.

RECOMMENDATION

It is recommended that the City proceed with the potential refunding of the Wastewater Treatment Revenue Bonds, 1995 Series A and issuance of new money bonds of $5 million by appointing a Financing Team and adopt the following resolution:

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BURBANK EXPRESSING OFFICIAL INTENT REGARDING CERTAIN CAPITAL EXPENDITURES TO BE REIMBURSED FROM PROCEEDS OF TAX-EXEMPT OBLIGATIONS AND APPOINTING CONSULTANTS.

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