Title
Resolution Regarding Approval of Series Ordinance Authorizing Issuance and Sale of Water Supply System Revenue Bonds in an Aggregate Amount Not to Exceed $20,900,000 (Ordinance 2023-03 / Series 2023 SRF-2 / DWSD 7656-01 Water Main Replacement WS-732)
Body
Agenda of: June 28, 2023
Item No.: 2023-179
Amount: Not to Exceed $20,900,000
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 28, 2023
RE: Resolution Regarding Approval of Series Ordinance Authorizing Issuance and Sale of Water Supply System Revenue Bonds in an Aggregate Amount Not to Exceed $20,900,000 (Ordinance 2023-03 / Series 2023 SRF-2 / DWSD 7656-01 Water Main Replacement WS-732)
MOTION
Upon recommendation of Nicolette N. Bateson, Chief Financial Officer & Treasurer, the Board of Directors (Board) of the Great Lakes Water Authority (GLWA), approves the resolution for Approval of Series Ordinance Authorizing Issuance and Sale of Water Supply System Revenue Bonds in an Aggregate Amount Not to Exceed $20,900,000 for DWSD 7656-01 Water Main Replacement WS-732 as presented, and authorizes the Chief Executive Officer to take such other action as may be necessary to accomplish the intent of this vote.
BACKGROUND
There are two elements to the background related to this resolution: financing considerations and the project being funded.
Financing Considerations
The Great Lakes Water Authority (GLWA) secures capital improvement financing for the of Detroit Water and Sewerage Department (DWSD) in accordance with foundational documents related to the establishment of GLWA. The amount being financed with revenue bonds via the Drinking Water State Revolving Fund (DWSRF) Bonds is within authorized GLWA limits. On April 13, 2022, the Great Lakes Water Authority (“GLWA”) Board of Directors approved Resolution 2022-120, “Resolution of the Great Lakes Water Authority Authorizing Publication of Notice of Intent to Issue Water Supply System Revenue Bonds in a principal amount not to exceed $400,000,000” (the “Notice of Intent”). This is the fourth series of water bonds from that Notice of Intent in the amount not to exceed $20,900,000.
The proposed action authorizes the bonds to be issued. The approval of the Series Ordinance presented today is the next formal step required by the GLWA Board of Directors in the debt issuance process. Series Ordinance 2023-03 authorizes the issuance of the bonds by GLWA, sets forth the guidelines for the DWSRF Bonds, designates the bonds as 2023 SRF-2 Junior Lien Bonds, and authorizes the Chief Executive Officer or the Chief Financial Officer 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.
Project Considerations
Project Plan Approval - Pursuant to Section 7.2(b) of the Regional Water Supply System Lease between the City of Detroit and GLWA, the Authority shall cooperate fully with the City in the implementation of the Detroit Capital Improvement, including financing through the Authority. Therefore, GLWA will submit the local project plan as it will be the DWSRF loan applicant. Per notification from the Michigan Department of Environment, Great Lakes and Energy (EGLE), GLWA does not need to hold a separate public hearing on the local project however, the GLWA Board of Directors will need to act on the resolution to issue additional debt. Last year, in preparation for the submittal of this project for DWSRF consideration, the FY 2023 DWSRF Project Plan and public hearing for the DWSD Water Main Replacement WS-732 were presented at the DWSD Board of Water Commissioners meeting on April 20, 2022. Following the public hearing by DWSD, the GLWA Board of Directors adopted the project plan <https://glwater.legistar.com/LegislationDetail.aspx?ID=5666990&GUID=9A38B6E7-CF48-49CB-B7F1-7C23AC8E0CE4&Options=&Search=> on June 22, 2022.
Project Plan - This project plan incorporates two projects which seek to replace aging water mains at select locations in the various neighborhoods in the City of Detroit. Project A (WS-732) consists of the neighborhoods of Warrendale, McDowell, Brightmoor, Claytown, Springwells, Crary/St. Marys, Grandmont. Project B (WS-733) consists of the neighborhoods of Martin Park, Pilgrim Village, University District, Grixdale Farms, Greenfield Park, Mapleridge, East English Village, Yorkshire Woods, Denby, and Outer Drive-Hayes. The projects are being funded through two, separate DWSRF loans. Project A (WS-732) is supported by the series ordinance being presented as part of this agenda item.
Construction will include excavation of existing water mains, installation of new pipes, rehabilitation of pipes, replacement of Lead (Pb) water service lines of two inches diameter or less to connect the water main and the customer water meter, pressure testing, backfill of the excavation required for piping work, and restoration of each work site.
JUSTIFICATION
The bond series authorized by this ordinance will support a Local Water System project for DWSD Water Main Replacement projects to address aging water mains.
The 2023 SRF-2 Junior Lien Bonds will be sold through the Michigan Finance Authority under the state of Michigan’s DWSRF program (Project #7656-01). The current interest rates for the DWSRF program for an overburdened applicant are 1.875% for 30-year loan. Potential dollar savings are significant when compared to municipal bond interest rates in a market-based transaction. Compared to an estimated market-based rate of 5%, potential interest savings on a 30-year loan would be $13.3 million based on a DWSRF loan amount of $20.9 million. It is also anticipated this loan qualifies for up to $19.0 million of loan forgiveness due to grant funding available through the State.
Another advantage of SRF is that interest costs are only incurred on the amount drawn from the SRF loans 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 DWSRF program bonds and resulting principal and interest payments on the bonds will be directly allocable to the DWSD local system. Debt service is anticipated to begin in FY 2027 for this project 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 26, 2023. The Audit Committee unanimously recommends that the Great Lakes Water Authority Board of Directors approve the resolution Regarding Approval of Series Ordinance Authorizing Issuance and Sale of Water Supply System Revenue Bonds in an Aggregate Amount Not to Exceed $20,900,000 as presented.
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.