On September 28, 2015, the Sparks City Council approved General Business item 9.4 to direct staff to seek financing options for Phase 3 of the North Truckee Drain Realignment Project. For this project, staff estimates total construction costs will approximately equal $25 million of which $15 to $20 million would require financing.  The portion of the project that is not financed would be paid from cash that has accumulated from the flood control fees paid by the City of Sparks sewer customers.

City staff is recommending Council approve the issuance of Medium-Term bond obligations (which are defined as obligations with a maturity term up to 10 years in length) in accordance with requirements as outlined within NRS 350 that cover the issuance of Medium-Term Obligations.

The source of revenue anticipated to be used to repay the proposed obligation is accounted for within the City's Storm Drain Capital Project Fund.  Residential and Commercial Flood Control User fees generate approximately $3 million in revenue annually.  These flood control fees were approved by City Council to be effective beginning in April 2008, and is an assessment of $16.23 per quarter (equaling $5.31 per month, or $63.72 per year) that is designated to pay for flood mitigation projects with the City of Sparks.

The purpose of today’s agenda item is to seek initial approval from City Council to issue Medium-Term General Obligation Bonds not to exceed $20 million to help finance the North Truckee Drain Realignment Project.  The actual amount of debt issued is yet to be determined and staff will bring before Council the final Bond Ordinance for approval at a later date.  At this point, staff’s preliminary expectation is to seek Council approval of the final Bond Ordinance at the Council’s regularly scheduled meeting on February 8, 2016 with the actual bond sale occurring a couple of days after Council approval of the Bond Ordinance.  If this initially expected timeline is realized, we would expect final bond closing to occur in early March 2016.

The initial bond authorization resolution being considered today is seeking an amount not to exceed $20 million with initial annual interest rate estimated conservatively at 4% for a term not to exceed 10 years.  Staff’s expectation is that the actual amount of debt issued will be quite a bit less than $20 million at an annual interest rate significantly less than 4%, and we are seeking to obtain early call provisions that would allow for prepayment of the debt sooner than 10 years should the ability to do so present itself.  However, market conditions often can change dramatically and quickly, so this initial authorization utilizes conservative estimates at this point in the approval process.

Based on the conservative estimates being considered with this initial bond authorization presented today, the estimated Annual Debt Service Payment would be slightly less than $2.5 million including both principal and interest.  Based on a par value of $20 million, underwriting and issuance costs would be slightly less than 1.5% of par.  See the attached Debt Service Schedule for estimated detail payment information.  Even under these conservative estimates, the approximate $3 million of annual revenue generated from the flood control sewer fee should easily provide ample coverage of the estimated $2.5 million debt service as presented today (i.e., approximately 1.2x coverage).

Additionally, the bond issuance being proposed would pursue a public sale with the resulting debt being a General Obligation of the City of Sparks.  Issuing General Obligation bonds by way of a public offering will allow us to obtain a debt rating from a national Ratings Agency (i.e., S&P or Moody’s ratings services) and obtain the most competitive interest rate possible by backing this debt as a General Obligation of the City.  However, even though this will be a General Obligation of the City, there is no expectation that this debt will ever be paid from any funds other than those resulting from the flood control fees paid by the City of Sparks sewer customers.

1.  Approve the attached Resolution authorizing the issuance of medium-term obligations up to $20 million in order to finance flood control and drainage improvements.

2. City Council could not pass the attached Resolution authorizing the issuance of medium-term obligations up to $20 million and provide alternative direction to the City Manager.

"I move to approve Resolution No. 3288 authorizing the issuance of medium-term obligations up to $20 million to help finance flood control and drainage projects."