City Manager's Report May 23, 2017 City Council Meeting Prepared ...
12.6 “Placerville, a Unique Historical Past Forging into a Golden Future”
City Manager’s Report May 23, 2017 City Council Meeting Prepared By: M. Cleve Morris Item#: 12.6 Subject: Adopt a Resolution authorizing the City Manager to apply for Clean Renewable Energy Bonds as an alternative financing for the solar project at the Water Reclamation Facility. ____________________________________________________________________________________ Background: On March 28, 2017, the City Council approved a contract with Johnson Controls (JCI) for Energy Efficiency measures at various City Facilities. As part of that agreement, staff and JCI were tasked with bringing back recommended financing options for the program. Staff has been working on the State Water Resources Revolving Fund Program (SRF). In addition, we learned of a Federal Program called Clean Renewable Energy Bonds (CREB). Other jurisdictions have been successful with this program in securing funding. Although this type of financing would not provide the same level of savings as the CWSRF Program, it may provide an overall savings to the City. Discussion: The City may be eligible for the Clean Renewable Energy Bonds (CREB). The program was established under the 2008 Energy Act. This program allows the City to issue CREBs for an allowable energy program at a taxable interest rate. Under the Direct Payment to Issuer option, the Federal Government would subsidize the City’s interest costs, with the maximum subsidy being 70% of the Federal Tax Credit Rate (which is adjusted periodically, and is 4.42% as of May 17, 2017) in place when the CREBs are issued. This subsidy would lower the City’s effective out-of-pocket interest cost. For example: if the taxable rate is 5.00%, the City’s effective out-of-pocket interest cost would be 1.92% (5.00% - (4.42% x 70%) = 1.92%). It’s important to note that Federal Sequestrations have reduced the amount of Direct Payment to Issuer subsidies in the recent past. The maximum term of a CREB financing is adjusted periodically, and is 32 years as of May 17, 2017. The amount of issuance related expenses that can be financed with CREBs are limited to 2% of the issuance amount. Therefore, it is likely that a portion of the City’s issuance cost would need to be financed with taxable interest rate bonds that are not eligible for the CREBs subsidy. Because CREBs can only be used to finance the renewable energy (solar) portion, the City would have to issue additional financing for the non-solar parts of the Johnson Controls (JCI) project within each fund. These would be in the form of Revenue Bonds or Lease Revenue Bonds or Certificates of Participation (COPs), etc. There is minimal cost to apply for the CREBs and there is no penalty for not accepting the allocation after awarded to us if some other form of financing proves to be more beneficial to the City. The cost would include statements from our Financial Advisor and our Bond Counsel. These costs could be rolled into the overall cost of the financing.
12.6_SR CMReport 05232017 CREBS Program
12.6 The City will continue to pursue the CWSRF Loan. However, if we are not successful in obtaining that loan, the CREB program is another option to consider. This will allow the City to possibly take advantage of a lower interest rate form of financing for the solar related part of the JCI project. Since there is no application fee and no obligation to use the CREBs if the City is awarded, the application has minimal risk. Options: 1. Authorize staff to work with JCI to apply for the CREB program. 2. Don’t apply for the CREB and continue to pursue other options. Cost: There is minimal cost to apply for the CREBs. Costs for Financial Advisor and for Bond Counsel services related to the CREBs application may be later reimbursed to the City should we proceed with a CREB financing. If the City chose to not issue CREBs, any Financial Advisor and for Bond Counsel costs may have to be absorbed by the Sewer Enterprise Fund. Budget Impact: If awarded the CREBs, the City could see a reduction in overall financing cost for the JCI project which will result in more savings to the City. The exact amounts will vary depending on where the Tax Credit Rate is at when we are awarded the CREBs but at this point in time, the effective interest rate using CREBs may be significantly less than a capital lease or COP financing. An updated cash flow analysis will be presented to the City Council at a later date once the City has received approval of its CREBS application. Recommendation: Adopt a Resolution authorizing the City Manager to apply for Clean Renewable Energy Bonds as alternative financing for the solar project at the Water Reclamation Facility.
M. Cleve Morris, City Manager
Attachments: --Resolution
12.6_SR CMReport 05232017 CREBS Program
Dave Warren, Director of Finance
City Manager’s Report May 23, 2017 City Council Meeting Prepared By: M. Cleve Morris Item#: 12.6 Subject: Adopt a Resolution authorizing the City Manager to apply for Clean Renewable Energy Bonds as an alternative financing for the solar project at the Water Reclamation Facility. ____________________________________________________________________________________ Background: On March 28, 2017, the City Council approved a contract with Johnson Controls (JCI) for Energy Efficiency measures at various City Facilities. As part of that agreement, staff and JCI were tasked with bringing back recommended financing options for the program. Staff has been working on the State Water Resources Revolving Fund Program (SRF). In addition, we learned of a Federal Program called Clean Renewable Energy Bonds (CREB). Other jurisdictions have been successful with this program in securing funding. Although this type of financing would not provide the same level of savings as the CWSRF Program, it may provide an overall savings to the City. Discussion: The City may be eligible for the Clean Renewable Energy Bonds (CREB). The program was established under the 2008 Energy Act. This program allows the City to issue CREBs for an allowable energy program at a taxable interest rate. Under the Direct Payment to Issuer option, the Federal Government would subsidize the City’s interest costs, with the maximum subsidy being 70% of the Federal Tax Credit Rate (which is adjusted periodically, and is 4.42% as of May 17, 2017) in place when the CREBs are issued. This subsidy would lower the City’s effective out-of-pocket interest cost. For example: if the taxable rate is 5.00%, the City’s effective out-of-pocket interest cost would be 1.92% (5.00% - (4.42% x 70%) = 1.92%). It’s important to note that Federal Sequestrations have reduced the amount of Direct Payment to Issuer subsidies in the recent past. The maximum term of a CREB financing is adjusted periodically, and is 32 years as of May 17, 2017. The amount of issuance related expenses that can be financed with CREBs are limited to 2% of the issuance amount. Therefore, it is likely that a portion of the City’s issuance cost would need to be financed with taxable interest rate bonds that are not eligible for the CREBs subsidy. Because CREBs can only be used to finance the renewable energy (solar) portion, the City would have to issue additional financing for the non-solar parts of the Johnson Controls (JCI) project within each fund. These would be in the form of Revenue Bonds or Lease Revenue Bonds or Certificates of Participation (COPs), etc. There is minimal cost to apply for the CREBs and there is no penalty for not accepting the allocation after awarded to us if some other form of financing proves to be more beneficial to the City. The cost would include statements from our Financial Advisor and our Bond Counsel. These costs could be rolled into the overall cost of the financing.
12.6_SR CMReport 05232017 CREBS Program
12.6 The City will continue to pursue the CWSRF Loan. However, if we are not successful in obtaining that loan, the CREB program is another option to consider. This will allow the City to possibly take advantage of a lower interest rate form of financing for the solar related part of the JCI project. Since there is no application fee and no obligation to use the CREBs if the City is awarded, the application has minimal risk. Options: 1. Authorize staff to work with JCI to apply for the CREB program. 2. Don’t apply for the CREB and continue to pursue other options. Cost: There is minimal cost to apply for the CREBs. Costs for Financial Advisor and for Bond Counsel services related to the CREBs application may be later reimbursed to the City should we proceed with a CREB financing. If the City chose to not issue CREBs, any Financial Advisor and for Bond Counsel costs may have to be absorbed by the Sewer Enterprise Fund. Budget Impact: If awarded the CREBs, the City could see a reduction in overall financing cost for the JCI project which will result in more savings to the City. The exact amounts will vary depending on where the Tax Credit Rate is at when we are awarded the CREBs but at this point in time, the effective interest rate using CREBs may be significantly less than a capital lease or COP financing. An updated cash flow analysis will be presented to the City Council at a later date once the City has received approval of its CREBS application. Recommendation: Adopt a Resolution authorizing the City Manager to apply for Clean Renewable Energy Bonds as alternative financing for the solar project at the Water Reclamation Facility.
M. Cleve Morris, City Manager
Attachments: --Resolution
12.6_SR CMReport 05232017 CREBS Program
Dave Warren, Director of Finance
