While the voters approved Measure I in March, there is pending litigation that may be impacting the ability of the city to finance the project. According to comments from City Manager Steve Pinkerton at this past Tuesday’s city council meeting, the city will need to produce 30 to 40 million dollars by this fall to finance some of the costs the city has incurred to date on the surface water project.
The Clean Water Agency will select its DBO contractor and execute a contract by September. Staff reports, “The City will need to be prepared to fund its share of the DBO’s design costs and any initial project mobilization costs by September.”
The report continues, “Since the City’s financing plan for the WDCWA project, as presented during the recent Prop 218 process, relies on debt financing, the City must be prepared to issue bonds secured by water revenues on or before September 2013.”
Typically, there are a number of ways that debt financing can occur: “Public offering of water revenue bonds sold through competitive bid, public offering of water revenue bonds sold through a negotiated sale with one or more bond underwriters, private placement of water revenue bonds with a sophisticated institutional investor loan secured by water revenues from the State Revolving Fund.”
Most frequently, the public offering through competitive bid is the means by which public agencies finance their debt.
However, as staff notes, “While City staff will continue to pursue all available financing alternatives, the City’s financial advisors, NHA Advisors, believe that a private placement with sophisticated institutional investors is the most feasible financing alternative, considering the current lawsuit challenging the City’s water rates.”
“Our concern in talking to our financing consultant is that the pending litigation on the water project, at least for the first round of funding, likely precludes our ability to sell these through a public offering,” City Manager Pinkerton told council on Tuesday night. The city will need to consider doing a private placement “and the additional costs that are typically associated with a private placement.”
The staff report notes, “The proposed agreement would retain Piper Jaffray as the City’s Private Placement Agent. Piper Jaffray would begin work on finding one or more sophisticated institutional investors who would be willing to fund the initial phase of the City’s share of the WDCWA project now, despite the litigation risk.”
“As part of its work, the Private Placement Agent will review the strengths of the City’s water credit with potential investors, as well as review the risks involved with the litigation,” staff writes. “In order to review the risks of the litigation, the Private Placement Agent would retain Purchaser’s Legal Counsel to review the legal issues on behalf of potential investors. Purchaser’s Counsel is a law firm experienced in 218 matters that works for the potential investors, gives potential investors their assessment of the litigation risks.”
Staff notes, “While the Private Placement Agent’s fee is contingent upon a successful closing of the transaction, Purchaser’s Legal Counsel’s fee is not, and would be paid by the City in an amount not to exceed $25,000.”
Councilmember Rochelle Swanson said on Tuesday, “One of the reasons I wanted to highlight that, one of the reasons we’re doing it is litigation, so there are costs involved with that that wouldn’t otherwise exist.”
Staff notes that Piper Jaffray would be retained to serve as the city’s bond underwriter as well as its private placement agent as “this arrangement would facilitate a public offering, should this be the most feasible and economic way to proceed at the time the City needs to fund its share of the water project.”
Furthermore, if this route is selected, “the sale of bonds would proceed by negotiated sale with the Bond Underwriter. NHA Advisors believes that there would be insufficient time for a competitive sale of bonds given the current circumstances and time lines.”
Staff notes, “The private placement fee is higher than the bond underwriting fee because with the current litigation, a private placement will require more work than doing a public offering if there were no litigation.”
While the cost of the private placement agent is a relatively modest $25,000, the bigger financial hit could come from the fact that the city would not be able to sell the bonds on the open market and instead would rely on a private placement to find purchasers.
According to some in the city, this could end up costing the city millions in additional financing costs.
—David M. Greenwald reporting
Mike Harrington doesn’t care that he is costing us money by his frivolous actions. Don’t expect much of a reasonable response to this news from him.
Mike’s actions aren’t frivolous. The City adding money to the budget for irrigation is the direct result of the lawsuit.
I guess when you are trying to preserve our walkable Mecca and save our rate payers money from going into the coffers of private enterprise browning of greenbelts and parks are the price we must pay. Addition costs for financing are just the cost of keeping our rates low. As they said during the Tet offensive “We had to destroy Ben Tre in order to save it.”
[quote]The City adding money to the budget for irrigation is the direct result of the lawsuit.[/quote]
No, this is not true. The City was already in the process of enacting this change before Mike got wind of it and tried to make it a campaign issue. The lawsuit is about his dissatisfaction about losing the vote and failing to get enough signatures for his referendum. It is frivolous. It is costing us money, a lot of money. Mike Harrington doesn’t care.
Measure I would have failed if people knew they were going to get fluoridation in the bargain.
Fluoridation is a separate issue than accessing river water and hasn’t been decided. But, yet another issue that Mike could potentially sue over and cost us even more money.
The fact that fluoridation was backdoored into the water treatment plant is going to cost the city a lot of money.
I suspect the anti-fluoridation folks will be looking for ways to impede the water treatment plant if fluoridation passes.
Ernesto
[quote]Measure I would have failed if people knew they were going to get fluoridation in the bargain.[/quote]
I think some more folks would have voted against it. I think it is over stating the case to declare what the outcome would have been. Fear and desire to not pay for public well being are emotional issues which can be played upon when issues come down to a political vote. But fluoridation has both its supporters and detractors.
This is not a “slam dunk” either way.
Ernesto 05/24/13 – 11:46 AM. “Measure I would have failed if people knew they were going to get fluoridation in the bargain.”
You make a good point, Ernesto! Many Davis residents strongly objected to the fluoridation program now being proposed for the SWP for a variety of reasons during the lengthy public comment portion at the WAC Meeting last night. Under similar circumstances, voters in Portland, Oregon voted down fluoridation of their water supply by a 61% to 39%. majority.
It appears that the SWP (Measure I) proponents didn’t want to take that chance here. As a result, I expect that Davis voters will be given an opportunity to have a stand alone vote on this SWP issue in the near future.
Much as everyone wants to blame Mike Harrington for this, he does have actual plaintiffs and I assume that John Munn and the Prices could simply direct him to withdraw the lawsuit. Their names are on the complaint.