The purpose of this Mayor and Council Communication (M&C) is to take actions to enhance compliance with bond covenants of the Water and Sewer System Revenue Financing Program.
The Department of Finance, in conjunction with the Water Department, has completed a review of existing debt covenants and requirements associated with the System's current outstanding revenue bond issues. As a result of this review, it has been determined that the current balances maintained within the Water & Sewer Debt Service Funds (Priority Lien and Subordinate Lien) are below calculated requirements. The appropriations and transfers outlined within this M&C reallocate funds that are available within Fiscal Year 2017 as a result of positive operating results in the Water Department to the debt service funds to increase the balances within these funds. This activity is planned on an annual basis until adequate reserves are in place.
The City's current practice includes budgeting funds required to meet the annual debt service obligations for each Fiscal Year, and then transferring that total via a series of equal monthly installments that commences on October 1 and continues through the subsequent and respective debt service payment date. In effect, the yearly transfer amounts have equaled the total principal and interest payments due for the Fiscal Year. While this practice has supported the timely payment of principal and interest of all bonds outstanding without missing a debt service payment, it is not in full compliance with the technical requirements of certain bond covenants.
The System's bond documents call for monthly installments of a portion of the subsequent principal and interest payments that are due, with those transfers to occur on an on-going basis from each principal or interest payment date to the next, resulting in a funding schedule that would cross Fiscal Years. As such, the actions outlined within this M&C are a step toward ensuring the fulfillment of covenants moving forward.
This M&C does not request approval of a contract with a business entity. |