Consideration and Adoption of Resolution No. 2022-14: A resolution of the Flagstaff City Council, declaring, for the purposes of Section 1.150-2 of the Federal Treasury Regulations, official intent to be reimbursed in connection with certain capital expenditures relating to the Wastewater Projects, Reclaimed Water Projects, Stormwater Projects and Transportation Projects, and establishing an effective date.

This resolution will allow the City to reimburse itself for expenditures made on wastewater, reclaimed water, stormwater and transportation projects that are currently being planned or under construction in advance of issuing the debt (bonds) for the projects. Federal regulations provide that the City may reimburse itself for expenditures incurred prior to the issuing of debt so long as this type of resolution is adopted. Without the resolution, only City construction expenditures incurred after the issuance of debt would be allowed.

In development of the City's 5-year plans, there is often the consideration of debt financing for capital projects, operations and capital when balancing cash flow needs.  Furthermore, when developing rates and taxes the consideration of debt is considered.  Our current 5-year plans show that our Wastewater, Reclaimed Water, Stormwater and Transportation funds may see a need to issue debt in the next two fiscal years.  This reimbursement resolution does not have any direct financial impact, however it allows the City to move forward with capital projects prior to completion of future financing. 

None

Council Goals:

Environmental and Natural Resources: Actively manage and protect all environmental and natural resources.

Transportation and Other Public Infrastructure-Deliver quality community assets and continue to advocate and implement a highly performing multi-modal transportation system.

Regional Plan:
 

Goal E&C.3. Strengthen community and natural environment resiliency through climate adaptation efforts.

Goal WR.2. Manage a coordinated system of water, wastewater, and reclaimed water utility service facilities and resources at the City level and identify funding to pay for new resources.

Goal WR.4. Logically enhance and extend the City’s public water, wastewater, and reclaimed water services including their treatment, distribution, and collection systems in both urbanized and newly developed areas of the City to provide efficient delivery of services.

Goal E&C.3. Strengthen community and natural environment resiliency through climate adaptation efforts.

Goal PF.2. Provide sustainable and equitable public facilities, services, and infrastructure systems in an efficient and effective manner to serve all population areas and demographics.

No.

1. Approve the Reimbursement Resolution: This is the best option to allow the City the greatest flexibility to issue debt when it is most advantageous while allowing construction expenditures to occur; or
2. Do not approve the Reimbursement Resolution:  If not approved, staff will need to quickly bring back a debt issuing ordinance for Council and would issue debt at the earliest possible time or projects would need to be delayed.

The current City 5-year plans demonstrate a need to issue debt to finance capital projects during fiscal year 2022-23 and 2023-24 in four of the City funds.  This reimbursement resolution allows the City to begin construction on the capital projects prior to completing the financing.  The Wastewater Fund shows $6.5 million in financing needed for infrastructure and facility improvement.  The Reclaimed Water Fund shows $2.0 million in financing related to a reclaimed water line replacement to expand capacity.  The Stormwater Fund shows $22.9 million for the Rio de Flag project and infrastructure projects located in east Flagstaff.  A portion of the Stormwater projects will require a rate increase or approval of a bond ballot measure.  The Transportation Fund shows $15.7 million for several transportation infrastructure projects.  By financing transportation projects, it allow the completion much faster than a pay as you go financial plan.   

When considering issuance of debt financing in our 5-year plans, the City also demonstrates the annual debt service requirements are funded for the length of the financing.  This assures the City can pay our obligations by reserving future revenues.  

IRS regulations are very specific as to what capital expenditures are eligible for reimbursement. These expenditures must be any cost of a type that is properly chargeable to a capital account (or would be or chargeable with a proper election) under general federal income tax guidelines.

Utilizing a reimbursement resolution allows the City to issue debt at the appropriate time.  In addition, there is value in not issuing debt for capital project prior to construction because the City will not incur interest expense. 

Inform: This resolution informs the community of its intent to reimburse construction projects with future debt issuances.