Consideration and Adoption of Ordinance No. 2022-08:  An ordinance of the Council of the City of Flagstaff, Coconino County, Arizona (1) providing for the sale and execution and delivery pursuant to a Series 2019 Utility System Revenue Trust Agreement of utility system revenue obligations, in one or more series evidencing proportionate interests of the owners thereof in installment payments of the purchase price to be paid by the City of Flagstaff, Arizona, pursuant to a Series 2019 Utility System Revenue Purchase Agreement to finance costs of certain improvements to the water and sewer utility system of the City; (2) authorizing the completion, execution and delivery with respect thereto of agreements necessary or appropriate as part of financing the costs of such improvements and paying related financing costs; (3) delegating to the Mayor, the City Manager, and the Management Services Director certain authority with respect to the purposes hereof; (4) authorizing the Management Services Director to expend all necessary funds therefor and (5) authorizing the Management Services Director or his designees to take all other actions necessary to the consummation of the transaction contemplated by this ordinance and establishing an effective date.

This ordinance authorizes the issuance of up to $9,865,000 of revenue pledge indebtedness for water and stormwater projects.  There may be one financing or two separate to provide up to $4,100,000 for the Stormwater fund and up to $5,765,000 to refinance existing loans in the Water fund.  An ordinance is required to authorize the City to borrow money, pursuant to City Charter ARTICLE VI - FINANCE AND TAXATION, Section 5 - WHEN ACTIONS ARE TO BE TAKEN BY ORDINANCE.

The issuance of debt for the Stormwater fund has been established during the 2018 rate analysis and is included in the current 5-year plans for the fund.  The future debt service payments of principal and interest are also included in the 5-year plan.  We are requesting to issue up to $4.1 million in debt to fund Stormwater studies and infrastructure.  The funding will be used to help pay for the construction of two new stormwater detention basins at Killip Elementary School, per the Intergovernmental Agreement entered into by and between the City and the Flagstaff Unified School District in January 2022.   

The issuance of debt for the Water and Wastewater funds has been established during the 2016 rate study and is included in the current 5-year plans for the funds.  The City has several outstanding Water Infrastructure Financing Authority of Arizona loans that exceed today's interest rates.  The City seeks to refinance up to $5,765,000 for those loans which may provide approximately $150,000 in savings for the Water fund.

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PRIORITY BASED BUDGETING KEY COMMUNITY PRIORITIES:
Sustainable, Innovative Infrastructure: Deliver outstanding services to residents through a healthy, well maintained infrastructure system.
Safe & Healthy Community: Foster a safe, secure, and healthy community.

REGIONAL PLAN:
Goal WR.5. Manage watersheds and stormwater to address flooding concerns, water quality, environmental protections, and rainwater harvesting.
Goal WR.6. Protect, preserve, and improve the quality of surface water, groundwater, and reclaimed water in the region.

CARBON NEUTRALITY:
CR-1: Ensure all mitigation actions improve Flagstaff’s ability to adapt to the future.
CR-2: Strengthen existing community systems to create resilience to both short-term shocks and long-term change.

On July 5, 2019 Council adopted Reimbursement Resolution 2019-42 for $18,000,000 related to stormwater projects.

• Approve the Ordinance as written allowing the City to move forward with the issuance of pledge revenue obligations. 
• Recommend changes to the Ordinance modifying the issuance of pledge revenue obligations.  
• Do not approve the authority move forward with the issuance of pledge revenue obligations. This will delay financing of infrastructure and may result in higher interest rates.

Issuing debt for water, wastewater and stormwater funds is a common practice to pay for large capital improvement projects for such utilities.  Rate studies for these utilities address this when setting user fees and balancing the consideration of fee-based capital projects versus debt-based capital projects.  Often there is a balance of both.  The most recent rates adopted included the consideration of issuing debt for capital improvements as well as meeting the financial policy of the utilities. 

As a result of flooding events in the community, the City recognized a need to deliver infrastructure and complete a feasibility study.  The recent flooding events had an impact on the cash balances of the Stormwater fund.  In order to advance the Killip Detention Basin in cooperation with the Flagstaff Unified School District and to complete a feasibility study quickly, financing was determined as the best approach allow the projects to move forward.  

Working with our Financial Advisor this year, they identified an opportunity to refinance some existing loans with WIFA for a more favorable interest rate.  There is up to $5,765,000 allowed to be paid off with WIFA and replaced with a private placement revenue obligation.  The City will only consider financing if there is a favorable cost savings.  

While the purpose of this agenda items is to approve an ordinance to allow the City to issue debt, we have included a draft Trust Agreement and Purchase Agreement as informational documents you may review. These documents have been reviewed by our Financial Advisors and Bond Counsel.  These are materially complete however may have some changes prior to completion of the debt transactions. Final documents will be available upon request to the Management Services Director.

City staff will issue a formal request for proposals (RFP) which banks will respond to.  City staff will then negotiate best and final offers prior to award.

Inform: To provide the public information related to the issuance or water and wastewater revenue obligations.