REPORT TO THE CITY COUNCIL
November 3, 2016
THROUGH: BRUCE RUDD, City Manager
RENENA SMITH, Assistant City Manager
BY: MICHAEL LIMA, City Finance Director/Controller
SUBJECT
Title
***RESOLUTION - 27th amendment to the Annual Appropriation Resolution (AAR) No. 2016-118 to Appropriate $116,000,000 for Deposit Into an Escrow Account to be used to Partially Defease the 2008 Sewer System Revenue Bonds (Requires 5 affirmative votes).
Body
RECOMMENDATION
Staff recommends that the Council approve the 27th Amendment to the Annual Appropriation Resolution No. 2016-118 to appropriate $116 million ($116,000,000) for deposit into an escrow account to be used to partially defease the 2008 Sewer System Revenue Bonds.
EXECUTIVE SUMMARY
Finance staff continually reviews the City's debt for opportunities to save the City money and enhance credit ratings. Lowering debt service payments provides improved coverage for remaining debt and frees up annual revenues to be used for other purposes. In the most recent review, staff observed that the Wastewater Division of the Public Utilities Department (Wastewater) has a large amount of cash on hand available to reduce debt. With interest rates on the City's pooled cash being far less than the interest being paid on the bonds, it is fiscally prudent to use the cash to eliminate some of the most of the expensive debt. One of those relatively expensive issues is the 2008 Sewer Bonds, which has an outstanding principal balance of $159.8 million as of 6/30/16. Staff has determined that placing $116 million in an escrow account to defease a portion of this debt, when it becomes callable in September 2018, provides the best opportunity for savings, while at the same time leaving sufficient cash on hand to fulfill the operating and capital needs of the Wastewater Division. This approach is estimated to save $200 million in interest expense currently attached to the debt service.
BACKGROUND
Wastewater has accumulated cas...
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