Memorandum

City of Lawrence

Finance Department

 

TO: 

Dave Corliss, City Manager

 

FROM:

Ed Mullins, Finance Director

 

CC:

Diane Stoddard, Assistant City Manager

Cynthia Wagner, Assistant City Manager

 

Date:

July 15, 2010 – Updated 07/16/10

 

RE: 

Water SRF Refinancing

 

 

Background

The City of Lawrence has executed two Kansas Public Water Supply Loan agreements for water system improvements, one in 2001 and a second in 2002.  The loans were received from the state and are known as State Revolving Loan Funds (SRF).  One of the SRF loans was for the treatment of lime residuals and the second was for an expansion at the Clinton Water Treatment Plant.  Both of the loans are scheduled to mature in 2023 and total approximately $8.6 million in outstanding principal.  Earlier the City Commission authorized the City Manager to sign an agreement with George K. Baum to act as financial advisor for the refinancing of this loan with a general obligation bond to be paid with water and sewer revenue.

 

Description

In order to initiate the refinancing, it is required that the Kansas Department of Health and Environment (KDHE) be provided a written notice of intent to redeem the SRF Loan.  Bond counsel has prepared the required notice.  Our financial advisor recommends that the letter be sent prior to July 27th, in order for KDHE to be able to apply the funds prior to the October 1st principal payment of the bonds.

 

The refinancing would reduce annual debt service in the water and sewer fund by an estimated $45,000 per year until 2023.  Baum estimates that the general obligation bonds will pay an average interest rate of 3.0% versus the SRF effective rate of 4.2%.

 

Recommendation

It is recommended that the City Commission authorize the City Manager to execute the notice of intent to redeem the SRF Loan. adopt Resolution No. 6896, authorizing conditional notification to KDHE of prepayment of State Revolving Loan funds.  The City will issue general obligation bonds for this debt to be retired with utility revenue at a lower cost to the City.