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 $27 million of which $19 million will require financing.  The portion of the project that is not financed will 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 Projects 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 $5.41 per month, or $64.92 per year) that is designated to pay for flood mitigation projects with the City of Sparks. On December 14, 2015 the Sparks City Council approved Resolution No. 3288 authorizing the issuance of medium-term obligations up to $20 million to help finance flood control and drainage projects.

The purpose of today’s agenda item is to seek approval of the attached bond sale ordinance from City Council authorizing the sale of Medium-Term General Obligation Bonds not to exceed $20 million at a public offering to help finance the North Truckee Drain Realignment Project.  Based on project needs, staff is recommending bonds to be offered for sale with a par value of $18,800,000. Upon Council approval of this Bond Ordinance the actual bond sale is scheduled February 18, 2016. We would expect final bond closing to occur in early March 2016.

Current estimates for the bond offering of $18.8 million at an average bond yield of 2.05% (True-Interest-Cost of approximately 2.48% including costs of issuance) project annual payments of $2.2 million principal and interest not to exceed 10 years.  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.  Based on a par value of $18.8 million, underwriting and issuance costs would be around 1.7% of par.  The approximate $3 million of annual revenue generated from the flood control sewer fee should provide ample coverage of the estimated $2.2 million debt service as presented today (i.e., approximately 1.4x coverage).  However, market conditions often can change dramatically and quickly, so staff is utilizing conservative estimates at this point in the approval process.

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 Standard & Poor’s, a national ratings agency, and obtain the most competitive interest rate possible by backing this debt with the full faith and credit 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 Bill No. 2701, 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 Bill No. 2701, authorizing the issuance of medium-term obligations up to $20 million and provided alterative directions to the City Manager.

“I move to approve the Bill No.  2701, authorizing the issuance of medium-term obligations up to $20 million to provide for financing of flood control and drainage projects”