Finance Highlights 2011 1021 - Laserfiche WebLink

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Side Fund Refinancing -Page 2 of 3 - October 21, 2011 the ongoing national and global economic turmoil and uncertainty. In just the past six weeks, rates have risen about 0.50 %. The City's underwriter estimates that the City's pension obligation bonds could be sold at an all -in interest rate, including the cost of issuance, of around 5.17 %. This results in a potential reduction of over 2.6% in the interest rate paid by the City, a potential General Fund savings of approximately $285,000 annually through 2024. DISCUSSION The following information is provided to the Finance Committee for continuation of discussion on the refinancing the Side Fund using Pension Obligation Bonds: • October 4, 2011 Court Order to Publish Summons. The City received Judge Keller's order to publish the Summons Citation Judicial on October 4, 2011. The order is published in the Hayward Daily Review beginning on October 7, 2011 and is posted at City Hall for three successive weeks. (Attachment 1) • Updated Financing Schedule. The original Financing Schedule called for this to occur between October 7 and November 7. This action permits revision of the schedule to eliminate date ranges for actions to occur. For example, the end of the 30 -day Validation appeal period is anticipated on January 11 (the original schedule showed between January 12 and February 9. (Attachment 2) • Reaffirmation of the City Moody's Credit Rating. The rating committee for Moody's reaffirmed the City's current rating on September 9, 2011 (the same day as the last Finance Committee meeting). The attached, from the Moody's website, confirms the action by Moody's to maintain the existing Al rating for the City. Moody's rating scale is also attached. (Attachment 3) • Provide Direction on the Safety Fund Pay -Down by Lending Wastewater Fund Reserves. In addition to issuing the pension obligation bonds, Finance and Public Works staff has analyzed utilizing a loan from the Wastewater Pollution Control Plant Fund reserves to partially cover the side fund refinancing. The amount of the bond financing could be reduced by up to $6,000,000. A loan in this amount from the Wastewater Fund potentially could be made at a lower rate than dictated by the bond market and yet higher than the rate reflected by the City's current investment portfolio return. Utilizing Wastewater Funds to pay down the side fund obligation will increase savings to the cities general fund by approximately $50,000. Ultimately, the Wastewater rate payers also would benefit from this approach. (Attachment 4) Staff recommends that the pension obligation bond amount to $19,000,000, with the remainder of the obligation pay -down come from the Water Pollution Plant Fund reserves. The Fund reserve currently is at $17,500,000. The $6,000,000 loan from the Fund does not adversely impact either the Water Pollution Control Plant Rehabilitation Project or the on -going demand for pay -as -you go capital improvement projects. Long term rate projections reflect future rate adjustment to be 4% or less annually during the amortization term of the loan. A combination of refunding the pension side fund through the pension obligation bond and a loan from the Wastewater Fund may result in the overall greatest benefit and savings to the General Fund.