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:	June 28, 2010
RE:	Financial Advisor-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. 

Description

The SRF agreement with the Kansas Department of Health and Environment has been reviewed by bond counsel.  Bond counsel has confirmed that the loans may be prepaid without penalty.  The SRF rates have been compared with the current market rates for general obligation bonds by George K. Baum.  Baum has estimated that the city could save approximately $560,000 in present value or in excess of 6.5% of principal by refinancing the SRF loan with general obligation bonds.  The bonds would be repaid with revenues from the water and sewer system. 

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 attached scope of services for financial advisory services related to the refinancing of the city’s water SRF loans at a cost not to exceed $35,000.  The cost of these services will be paid with bond proceeds and is included in calculating the savings from the refinancing.  The Finance Department also recommends that the refinancing bonds be included with the next general obligation bond issue scheduled for September.