Title
Resolution Regarding Approval of Series Ordinance Authorizing Issuance and Sale of Water Supply System Revenue Bonds in an Aggregate Amount Not to Exceed $51,894,938 (Ordinance 2025-03) for FY 2025 Drinking Water State Revolving Fund (DWSRF) Projects
Body
Agenda of: June 25, 2025
Item No.: 2025-163
Amount: Not to Exceed $51,894,938
TO: The Honorable
Board of Directors
Great Lakes Water Authority
FROM: Suzanne R. Coffey, P.E.
Chief Executive Officer
Great Lakes Water Authority
DATE: June 25, 2025
RE: Resolution Regarding Approval of Series Ordinance Authorizing Issuance and Sale of Water Supply System Revenue Bonds in an Aggregate Amount Not to Exceed $51,894,938 (Ordinance 2025-03) for Fiscal Year (FY) 2025 Drinking Water State Revolving Fund (DWSRF) Projects
MOTION
Upon recommendation of Nicolette N. Bateson, Chief Financial Officer (CFO) and Treasurer, the Board of Directors (Board) of the Great Lakes Water Authority (GLWA), approve a resolution for the Series Ordinance Authorizing Issuance and Sale of Water Supply System Revenue Bonds in an Aggregate Amount Not to Exceed $51,894,938 as presented, and authorizes the Chief Executive Officer (CEO) to take such other action as may be necessary to accomplish the intent of this vote.
BACKGROUND
The Detroit Water and Sewerage Department (DWSD) was awarded low-interest funding for a Water Main Replacement project through the Michigan Department of Environment, Great Lakes, and Energy (EGLE) FY 2025 DWSRF program. This project has two components, referenced as Project A and Project B, and will have separate loans. Both projects are supported by this series ordinance (Series 2025 SRF-1/2: with 1 representing Project A and 2 representing Project B) in an aggregate amount of $51,894,938.
The calculation of this Series Ordinance not to exceed (NTE) amount includes a 10% loan financing contingency to allow for fluctuations in the final State Revolving Fund (SRF) award amount. See Attachment 1 Table 1 for additional details.
Project A (Series 2025-SRF-1) NTE amount: $27,857,000
Project B (Series 2025-SRF-2) NTE amount: $24,037,938
Aggregate Series Ordinance amount: $51,894,938
There are two considerations related to this resolution: the projects being funded and financing.
Drinking Water SRF (DWSRF) Funding
On March 20, 2024, the DWSD Board of Water Commissioners adopted a resolution approving the Water Main Replacements project plan following a public hearing on the same date. The projects were subsequently approved for funding as notified on EGLE’s final DWSRF Intended Use Plan (IUP) in October 2024. The funding allocation is summarized below with additional details in Attachment 2 Table 1:
Project A (Series 2025-SRF-1, Contract No. WS-741, SRF No. 7887-01):
DWSRF Loan: $15,670,000
Principal Forgiveness: $9,620,000
Lead Service Line Replacement (LSLR) Grant: $380,000
Total funding awarded: $25,670,000
Project B (Series 2025-SRF-2, Contract No. WS-742, SRF No. 7888-01):
SRF Loan: $15,540,000
Principal Forgiveness: $5,943,938
LSLR Grant: $4,056,062
Total funding awarded: $25,540,000
Financing
The series 2025 SRF-1/2 Junior Lien Bonds will be sold through the Michigan Finance Authority under the state of Michigan’s DWSRF program. The amount to be financed through the DWSRF bonds is within GLWA’s authorized limits. On July 29, 2022, the GLWA Board of Directors approved Resolution 2022-312, “Resolution of the Great Lakes Water Authority Authorizing Publication of Notice of Intent (NOI) to Issue Water Supply System Revenue Bonds in a principal amount not to exceed (NTE) $250,000,000.” These are the second and third series of water bonds from that NOI.
JUSTIFICATION
The approval of this series ordinance is the next formal step required by the GLWA Board in the bond issuance process, and this proposed action authorizes the bonds to be issued. The series ordinance also sets forth the guidelines for the DWSRF bonds, designates the bonds as 2025 SRF-1/2 Junior Lien, and authorizes the CEO or the CFO/Treasurer to execute the final terms of the bonds, paying issuance costs, and signing of the Purchase Contract and Sale Order within the parameters set forth in the Series Ordinance.
The bond series authorized by this ordinance will support the local water system project for DWSD to address aging water mains. GLWA secures capital improvement financing for DWSD in accordance with foundational documents related to the establishment of GLWA. Pursuant to Section 7.2(b) of the Regional Water Supply System Lease between the City of Detroit and GLWA, the Authority shall cooperate with the City in the implementation of this Detroit capital improvement, including financing through the Authority. GLWA is the loan applicant on behalf of DWSD, and DWSD will be the DWSRF loan recipient. All project costs financed by GLWA through this program, and resulting principal and interest payments on the bonds, will be directly allocable to the DWSD local system.
An advantage of the SRF program is the low interest rates. Potential dollar savings are significant when compared to municipal bond interest rates in a market-based transaction. The current interest rate on a 20-year and 30-year loan for a significantly overburdened applicant is 1%, which applied to both projects. By way of example, the anticipated DWSRF loan amount for Project A will be $25.3 million (rounded). Potential interest savings on a 30-year loan would be approximately $17.2 million when compared to a 4.5% estimated market-based rate. See Attachment 3 Table 1 for additional interest savings calculations.
Another advantage of the SRF program is that interest costs are only incurred on the amount drawn from the loan as project expenditures are incurred. This results in additional debt service savings early in the term of the loan compared to market-based transactions. Further, use of SRF funding as junior lien does not impact GLWA debt reserve requirements.
BUDGET IMPACT
GLWA will be the loan applicant on DWSRF loans issued on behalf of the DWSD, and DWSD will be the DWSRF loan recipient as determined by EGLE. All project costs financed by GLWA, on behalf of DWSD, through the program bonds and resulting principal and interest payments on the bonds, will be directly allocable to the DWSD local system. Debt service for both projects is anticipated to begin in October 2026 and will be included as part of the FY 2026 - FY 2027 biennial budget.
COMMITTEE REVIEW
This matter was reviewed by the GLWA Audit Committee at its meeting on May 23, 2025. The Audit Committee unanimously recommended the Board of Directors approve a resolution for the Series Ordinance Authorizing Issuance and Sale of Water Supply System Revenue Bonds in an Aggregate Amount Not to Exceed $51,894,938 as presented and authorizes the Chief Executive Officer (CEO) to take such other action as may be necessary to accomplish the intent of this vote.
SHARED SERVICES IMPACT
This item does not impact the shared services agreement between GLWA and DWSD beyond the terms outlined above as well as reimbursement of financing costs incurred.