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Water Connection fees have not been updated since the 1980s. Staff intends to update the Water Connection Fees by the end of FY 2022/23 after completing the Water System Master Plan. The 2018 Development Impact Fee study concluded 17 percent of the cost of projects that benefit both existing and new development can be allocated to Development Impact Fees. Absent an updated Water Connection Fee study, staff is using the 2018 Development Impact Fee study to determine maximum allocations to the Project. Financing Options — Up to $31.4 million Ideally, financing will be in place by September 2022 to have sufficient funds in place to award equipment procurement and construction contracts. Staff worked with the City's Financial Advisor, PFM, to explore options available to finance the Project. Based on their analysis, staff concluded that the following two options were relatively more likely to result in funding in time to award equipment procurement and construction contracts and have reasonable interest rates. Each option is identified in the chart below outlining the pros and cons of each option. State;R'evoIv' ing Fund (SRF) Loan �`r „Reue.nue Bond E ' x a. ... R_. a_ ,,..e. Wim... !_.._,.._ ......,.e.. ..4{'. ._._. a<� '.d a,. .. .. ow i�l..,..a cells.. ..,..a➢8.� • Pros • Pros • 1.8%Current Interest Rates • City controls timing • No additional environmental • Cons review • Requires add'l environmental • No state agency review and review including alternatives approval analysis • Can refund bonds at years 10 and • Could delay project 20 to reduce interest expenses • Delays could result in state shutting down the City's wells • Cons • Would need to buy more water • 3.2% Current interest rate = $7.7M from Zone 7 add'I debt service over 30-year assuming no refinancing The SRF loan's interest rate of 1.8 percent is materially less than the current revenue bond interest rate of 3.2 percent, which makes it the preferred financing alternative. However, securing the SRF loan requires increased environmental and technical analysis as well as state review and approval of the conclusions. The additional analysis and state level reviews could delay the project such that DDW issues final MCLs before the project is complete, and if the City's concentrations are above these MCLs, the City's wells may require shutdown until the project is completed. The additional analyses will also increase the project cost. If the City wells are shut down, the City will have to buy more water from Zone 7 which would reduce or eliminate the interest rate advantage of the SRF loan over a revenue bond. To mitigate this risk, staff is proposing to initiate the SRF loan process in September 2021 and switch to issuing a revenue bond in May 2022 if the state indicates there will be material delays in securing funding. Page 4 of 7