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delay(s) in awarding the project bid, we would not be able to complete the tie-ins prior to the summer peak demands. Q: If this is for upgrading the system to accept additional Zone 7 deliveries, and it now costs $18 million, while two new wells without Zone 7 are expected (based upon the Brown & Caldwell Report presented 10/17/23) to be $23 million and with Zone 7 would be expected to be $8-$10.2 million, did staff evaluate other options? A: These improvements are necessary with or without new wells, as they are needed for all of the alternatives in the Water Supply Alternatives study and are also identified as being needed in the capacity analysis and condition assessments that are being completed as part of the Water System Management Plan. Q: If we've missed 2024 for additional capacity of water deliveries, have we considered abandoning that and putting the money to the two new well project (that may be just a year out) and then staging these upgrades for later? A: We are managing risk and these improvements are necessary to implement the two new wells and to manage peaking demands and to address known/current capacity issues. The water supply alternatives study identified that the well projects could possibly be completed in 2027 assuming full design was started before the end of 2023; however, the City would not be able to fully incorporate the PFAS/well study that Zone 7 is currently completing. The preliminary design and studies are underway and the current schedule —working in partnership with Zone 7 — is the end of 2028. Q: What is the total cost of paying off the current loan? Staff notes that we'll save $17,000 in interest, but what is the total cost to pay this off and refinance? A: The outstanding debt for the 2017 Revenue Bond is about $980,000 (principal). In terms of interest expense, it depends on how we structure and repay the debt. As an example, if we borrow money from the Equipment Internal Service Fund and charge an interest rate that is based on our current investment return (about 1.5%) with a repayment period of 3-5 years, the interest expenses are estimated to be $22,000 - $38,000, with the total payment more than $1 million including principal. Alternatively, if we repay the outstanding debt through bond issuance, the overall interest expense will be higher since the debt will be repaid over a 30-year period. In that case, we will issue two series of bonds. The first series of debt will be about $1 million to pay off the outstanding revenue bond in year 1. The second series of debt will be for $18 million with a repayment term of 30 years. Since the outstanding debt will be paid off first, we will incur more interest cost on the $18 million of debt. importantly, we don't have the revenue to cover a $1 million debt and $1.2 million in debt service payment in year 1, so the $18 million debt may need to be structured in a way that only interest payment will be made in year 1. The issuance costs are also expected to increase by approximately $10,000. Borrowing from an internal service fund to prepay the debt is a less expensive option. -Vo.. 2