Consideration and Adoption of Ordinance No. 2017-11:  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 2017 Utility System Revenue Trust Agreement of Utility System Revenue Refunding 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 2017 Utility System Revenue Purchase Agreement to refinance certain 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 refinancing such costs of such improvements to the water and sewer utility system of the City 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.

As part of debt management, City Staff frequently look at the opportunity to refinance current debt with lower interest rate debt for a financial savings to the City.  Staff is seeking Council approval to consider refinancing three issues of water and wastewater debt obligations with the Water Infrastructure Financing Authority (WIFA).  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.  

Refinancing of water and wastewater debt will provide a reduced annual debt service of up to approximately $80,000 per year based on projections of interest rates at the time of finalizing the transactions.  This potential savings would have an overall cash flow savings up to $800,000 to the water and wastewater funds.  Actual savings will be base on proposals and economic conditions at the time of closing the contracts. The City will be assisted in the transactions by our Financial Advisor, Stifel, Nicolaus & Company (Stifel), and Bond Counsel, Greenburg Traurig LLC (Greenburg).  Both companies are under contract with the City and the fees associated with the transactions are included in the savings above.  

None

Strategic Plan: Foster a resilient and economically prosperous city-Enhance the organization's fiscal stability and resourcefulness. 

No.

1) Approve the Ordinance 2017-11 as submitted.
2) Amend Ordinance 2017-11 to change Authorized Representatives or other items within the Ordinance.
3) Do not approve Ordinance 2017-11 and maintain the existing debt with the Water Infrastructure Finance Authority of Arizona. 

The City currently has debt issued for water and wastewater debt which was approved by voters at the November 6, 1990 and May 18, 2004 elections.  Council subsequently approved issuing debt for water and wastewater projects.  There are three separate debt obligations with WIFA that are being considered for refinancing.  

Staff works closely with the City’s Financial Advisor (Stifel) to review our current debt with regard to possible refinancing opportunities to save the City significant debt service savings.  We now have an opportunity through a direct placement of utility system revenue obligations – markets permitting while we follow the required financing timeline requirements as outlined below.  Accordingly, the following Water Infrastructure Finance Authority (WIFA) Loans previously entered into for the purpose of completing capital improvements to the City’s water and wastewater utility system have been identified as possible principal maturities to refund based on the private placement market financing alternative.  Below is an example of the possible refinancing outcome:
 

WIFA Loan	Principal Outstanding (Subject to refunding) (a)	Current WIFA Rate	Maturity Dates	Estimated 2017 Rate (b)	Estimated Net Cash Flow Savings	Estimated Net Present Value Savings
2003	$ 2,159,907	3.580%	2018-2022	1.75%	$ 111,000	$ 105,000
2006	$ 4,155,000	3.280%	2018-2026	2.25%	$ 206,000	$ 185,000
2007	$  4,155,000	3.512%	2022-2027	2.35%	$ 386,000	$ 346,000
Total	$ 8,983,997				$ 703,000	$ 636,000

(a) Estimated principal - subject to change based on final bid reception.
(b) Estimated rates base on preliminary maturity schedules - subject to change based on market conditions, economic factors and the final bid reception.  

Based on the above estimates, the City would save approximately $63,000 per year (structured on a level debt service basis).  Such savings would accrue to the water and wastewater enterprise system.  The net present value savings of $636,000 represents a savings percentage of approximately 4.15% with a 3% net savings parameter generally considered to be the minimum savings from an efficiency perspective. 

The City will submit a Request for Proposal (RFP) to several financial institutions seeking bids for each of the above WIFA loans with the goal of seeking the lowest cost of capital for the City.  The RFP will be issued early April and is estimated to close early May.  The City has a structured a minimum savings threshold of 3%.  If bids come in higher than the above estimates, the City will likely not move forward with the refunding transaction.  If the bids come in at or below the above estimates, the City’s savings would increase. The estimated closing date of the transaction will be May 19, 2017.  

We are utilizing the services of a Financial Advisor and Bond Counsel to assist with the refinancing of debt.  Under our existing contracts we will pay our Financial Advisor, Stifel, up to $47,700.00 and our Bond Counsel, Greenburg, up to $50,000.00.  Final amount will be determined on the final bid reception .  These fees will be paid out of the proceeds at the close of the refinancing and are already calculated in the estimated savings.   

By refinancing higher interest rate debt will reduce the amount of interest expense paid by the Water and Wastewater Funds and provides additional fiscal stability to the funds.  

Inform: To provide information on refinancing debt transactions. 
Empower:  The citizens of Flagstaff approved issuing debt for water and wastewater improvements during the November 6, 1990 and May 18, 2004 elections.