Consideration and Adoption of Ordinance No. 2019-33:  An ordinance of the City Council of the City of Flagstaff, approving the form and authorizing the execution and delivery of a loan agreement with the Water Infrastructure Financing Authority of Arizona from its Clean Water Revolving Fund program; delegating the determination of certain matters relating thereto to the Management Services Director of the City; providing the transfer of certain moneys and making certain covenants and agreements with respect thereto and authorizing the taking of all other actions necessary to the consummation of the transactions contemplated by such loan agreement; providing for severability, authority for clerical corrections, and establishing an effective date
(Water Infrastructure Loan Authorization - Flagstaff Watershed Protection Project)

This ordinance allows for the City of Flagstaff to enter into a loan agreement with the Water Infrastructure Finance Authority (WIFA) for the purpose of financing the Flagstaff Watershed Protection Project as approved by voters on November 6, 2012.  An ordinance for this action is required by City Charter ARTICLE VI - FINANCE AND TAXATION, Section 5 - WHEN ACTIONS ARE TO BE TAKEN BY ORDINANCE.

The WIFA loan will be issued in the first quarter of 2020. In 2012  the voter authorized $10,000,000 for Forest Health and Watershed Protection Project.  The city has already issued and spent $4,000,000 and we are anticipating issuing the remaining $6,000,000 authorized.

This loan will be repaid through secondary property tax collections within the current rate of $0.8366 per $100 of assessed valuation.

None

COUNCIL GOALS:
Environmental and Natural Resources: Aggressively support efforts for forest health.

REGIONAL PLAN:
Goal WR.6. Protect, preserve, and improve the quality of surface water, groundwater, and reclaimed water in the region.

Yes. Council authorized the 2012 election which voters approved the issuance of debt for the specific projects. Issuing debt was anticipated when the voters approved the questions on the ballots. Council authorized the issuance of $2,000,000 of the authorization in 2013 and another $2,000,000 in 2018.  On April 3, 2018 Council adopted Reimbursement Resolution 2018-18 for the remaining $6,000,000 authorized.

• Approve the Ordinance as written allowing the City to move forward with the loan agreement. Pros-Allows for cash flow necessary to complete voter-approved projects while maintaining the current secondary property tax rate. Cons-Increases City debt.
• Recommend changes to the Ordinance modifying the loan agreement. Pros and Cons are dependent on changes.
• Do not approve the authority to enter into a loan agreement. Pros-Delays level of debt for the City. Cons-Projects may need to stop and the City will need to find the cash flow for work completed to date.

On November 6, 2012, the City voters approved $24,000,000 in General Obligation bonds to be issued. $14,000,000 for a Core Services Facility and $10,000,000 for the Forest Health project. The City has issued $4,000,000 to advance the forest health project and has spent these funds as of May 2019.  This issue will be for the remaining $6,000,000 authorization.  This funding is anticipated to be spent or encumbered by December 2020. 

Staff worked with our Financial Advisor, Stifel, Nicolas and Company (Stifel) to determine the best financing approach.  The City and Stifel, contacted WIFA to discuss the project and financing needs of the City.   WIFA is authorized to finance the construction, rehabilitation and/or improvement of drinking water, wastewater, wastewater reclamation, and other water quality facilities/projects.  The term of the loan is estimated to be 20 years with an estimated $1 million of forgivable principal (grant funds). WIFA will also provide low-interest rate loans (subsidized by the federal government) and which is currently estimated at 1.5% (subject to change based on the natural AAA General Obligation Bond Index at closing and the appropriate subsidy to be negotiated.  Normally, Davis Bacon would be a consideration in issuing debt through WIFA, but working with City and WIFA staff, it was determined that Davis Bacon does not apply.  Stifel is assisting the City with providing WIFA the required Project Finance Application and related documentation for this project and is anticipated to be discussed and approved at the Arizona Finance Authority Board of Directors meeting in December of 2019.  The combination of the staff recommended $1,000,000 Grant (estimated and subject to approval by the WIFA Board of Directors) along with the subsidized interest rate summarized above (approximately 1.5% currently) results in the most efficient financing for the City compared to other options, especially since Davis-Bacon Wages will not be required on this project.

The proposed ordinance includes the maximums contemplated to be issued to provide the greatest flexibility in both amount and timing.  While the purpose of this agenda item is to approve an ordinance to allow the City to issue debt, we have included a draft WIFA loan agreement as an informational document you may review. This document has been reviewed by our Financial Advisors and Bond Counsel. Once we have WIFA support to move forward with the loan, these documents will be updated to the final form. Final documents will be available upon request to the Management Services Director.

The new loan will be paid through the assessment of secondary property taxes. To meet the promise made to the public to hold the secondary property rate flat, the City will use strategies including using the secondary property tax reserves and issuing debt that is layered in so that the City can maintain the existing secondary property tax rate of $0.8366 per $100 of assessed valuation.

The process to select the projects that were voted on by the public involved: Consult, Involve, Collaborate and Empower.
The process to authorize the issuance of debt is to INFORM the public.