Council approves water revenue bonds and refunding to refinance commercial paper and capture savings

City finance staff asked the City Council and the Public Facilities Financing Authority Feb. 24 to authorize issuance of water revenue bonds that would both refinance outstanding 2016 bonds and provide up to $150 million of new money to retire commercial paper funding the water utility's capital program.

Jyoti Pantlu, assistant director in the Department of Finance, and municipal-advisor representatives described the structure: bonds to be issued by the Public Facilities Financing Authority, repaid from net system revenues of the water utility, and expected to be sold via a negotiated public offering; staff estimated an interest cost in the low-to-mid 4% range and estimated net present value savings of roughly 13% for the refunded series (approximately $46.4 million of life-cycle savings depending on market conditions).

Finance staff said the issuance would also retire up to approximately $150 million of outstanding commercial paper used for interim financing of water CIP projects; about 98% of the financed CIP is pipeline work. The transaction assumes water rates already approved by council will provide coverage required by the utility's debt covenants (120% senior coverage, 110% total debt service coverage) and staff noted future rate studies may be needed to support ongoing capital needs.

Councilmembers asked technical questions about environmental review scope and the relationship of these bonds to ongoing projects such as Pure Water; staff replied the bond authorization scope is financial and not a CEQA action and that specific CIP projects continue to be subject to separate environmental review as required.

Council approved the ordinance authorizing bonds and the PFFA action; the City later reconvened as the PFFA and approved the corresponding authority action.