CCMIN 09072021 - Laserfiche WebLink

Department of Drinking Water has not yet established the minimum contaminant levels (MCLs) for PFAS and it is possible that delays could happen or wells could be shut down. In that event the City would need to buy water from Zone 7 at $6 million annually which would negate any interest - rate advantage. The other option is the Revenue Bond which is significantly faster, has no environmental review or state agency review, and the bonds could be funded. One negative is that the current interest rate of the bonds is 3.2% which assumes the City is not refunding although she believes they can be refunded. Another is that the Revenue Bond debt service is $7.7 million more than the SRF loan. She reported the rate consultant reported the SRF loan would result in a $9.50 or 18% increase in customers' bi-monthly bills and Revenue Bonds would result in an $11.60 or 22% increase to customers bi-monthly bills. Director Olson reported the City has joined in litigation to try to recover some of the costs associated with mitigating the PFAS from the companies that are suspected to have released it into the groundwater. There are over 500 lawsuits in multiple jurisdictions that have been consolidated in the U. S. District Court in South Carolina and it is unclear when it will be resolved and how much the City will receive. If the City prevails the amount of the bonds issued or loans taken out would be reduced if received before the project begins and if received afterward would be put towards the service and reduce the water rates in that year. The alternative to the PFAS Project is to buy water from Zone 7 which would be a 42% rate increase and that compares to up to 22% for debt service with the Revenue Bonds. There is also an annual rate increase for Zone 7 and there is uncertainty whether Zone 7 would be able to increase the water supply long-term. Staff has spoken to Zone 7 in the short term if the City has to shut down all wells and is not proposing that alternative. Staff will be restarting the rate review process that was paused due to the pandemic and the PFAS project. Other rate considerations include increased labor costs, increased costs to manage new well treatment facilities, increased major maintenance capital requirements including results of the Water Master Plan that will need to be incorporated into the rates, and drought -related revenue impacts. A rate review will need to be completed before securing debt funding and recommends modeling a 4% interest rate which is more conservative. If the rates are less than that the water rates can be adjusted downward. Staff recommends beginning the process with the State to apply for the SRF loan and if there is no movement by May 2022, to change gears and start the process to issue the Revenue Bonds. The rate review process will be restarted to bring them back before City Council by spring 2022. In response to Councilmember Narum, Utilities Planning Manager Todd Yamello confirmed the well rehabilitation and PFAS equipment would need to be done at the same time for cost savings. Being able to procure the vessels in advance due to the long lead-time would be dependent on the SRF approval and is why May 2022 was defined as the timeframe to have funding in place. In response to Councilmember Narum, Director Olson confirmed the City investigated borrowing funds and the fund she would be comfortable borrowing from is the Low Income Housing Fund that has between $10 to $15 million. The General Fund Reserve is invested with the PERS Section 115 Pension Trust Fund and would not want to liquidate it. In response to Councilmember Balch, Director Olson confirmed the net proceeds and issuance costs are factored in when comparing rates. There is less of an issuance cost with the State SRF loan than issuing bonds from the City. Mr. Yamello explained the increased operating costs will be due to the PFAS media which needs to be replaced annually. The vessels themselves will be housed outdoors with no structure at the corp yard. City Council Minutes Page 13 of 16 September 7, 2021