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Recommendation for Water & Wastewater Commission COA Strategic Decision: Government That Works For All Commission Meeting Date: March 11, 2020 Council Meeting Date: March 26, 2020 Department: Client: Austin Water Christina Romero, David Anders SUBJECT Recommend approval of an ordinance amending the Fiscal Year 2019-2020 Austin Water Operating Budget (Ordinance No. 20190910-001) to increase the transfer in from the Capital Improvement Program by $5,428,000 and increase the transfer out appropriations by $5,287,000 for a net reduction to the ending balance of $141,000; and amending the Fiscal Year 2019-2020 Combined Utility Revenue Bond Redemption Fund (Ordinance No. 20190910-001) to increase the transfer in from Austin Water Operating Budget by $15,287,000 and increase other operating requirement expenditures by $15,287,000 to fund debt defeasance. AMOUNT AND SOURCE OF FUNDING Austin Water Operating transfer of $10,000,000 and Capital Recovery Fee (CRF) revenue transfer of $40,000,000, the sum of which ($50,000,000) will be used to fund the defeasance of certain outstanding debt of the Water and Wastewater System. Purchasing Language: September 10, 2019—Council approved an ordinance adopting the Operating Budget for Fiscal Year 2019-2020. March 11, 2020 – To be reviewed by the Water and Wastewater Commission. Prior Council Action: Boards and Commission Action: MBE/WBE: N/A  A defeasance is a method of using available cash to pay off outstanding debt. The cash is placed in an escrow account held by an escrow agent to make principal and interest payments on the required payment date for the bonds being defeased. The obligations payable from the escrow are no longer secured by or payable from the revenues initially pledged to their payment. The proposed action seeks authorization to pay off certain maturities of the City’s outstanding Water and Wastewater System Revenue Refunding Bonds. This process allows Austin Water to remove the debt from its books, which reduces debt levels and improves debt service coverage by lowering the burden of debt service payments in the short-term. Also, this proposed defeasance action is in direct relation to achieving a Water and Wastewater system rate stability over the next few years. The total source of funds for the defeasance of $50,000,000 will be provided from a combination of $10,000,000 in Austin Water Operating Funds, and $40,000,000 in Impact Fee/CRF collections. The final defeasance transaction and savings amount are dependent upon market conditions. Impact fee/CRF collections are restricted in use by Texas Local Government Code Chapter 395.012. Allowable uses include paying costs of constructing capital or facility improvements and pledging for payment of debt service issued to finance capital or facility improvements identified in the Impact Fee Capital Improvements Plan 5-Year Update. This budget amendment will transfer the funds into the correct account to make those funds available for this defeasance. For this transaction, PFM Financial Advisors LLC will serve as Financial Advisor, McCall, Parkhurst & Horton L.L.P will serve as bond counsel and The Arbitrage Group will serve as Verification Agent. OPERATING BUDGET FISCAL NOTE DATE OF COUNCIL CONSIDERATION: DEPARTMENT: FUND: 3/26/20 Austin Water Water, Wastewater, and Reclaimed Water Operating SUBJECT: Approve an ordinance amending the Fiscal Year 2019-2020 Austin Water Operating Budget (Ordinance No. 20190910-001) to increase the transfer in from the Capital Improvement Program by $5,428,000 and increase the transfer out appropriations by $5,287,000 for a net reduction to ending balance of $141,000; and amending the Fiscal Year 2019-2020 Combined Utility Revenue Bond Redemption Fund (Ordinance No. 20190910-001) to increase the transfers in from the Austin Water Operating Budget by $15,287,000 and increase other operating requirement expenditures by $15,287,000 to fund debt defeasance. Related to Item # CURRENT YEAR IMPACT: Beginning Balance Revenue Transfers In General Fund CIP Austin Water Utility Support Services/Infrastructure Funds Austin Resource Recovery Fund Total Transfers In Total Available Funds Program Requirements Other Requirements Debt Service Transfers Out This Action 2019-20 Approved 197,908,618 577,216,450 0 34,572,000 12,417,313 300,582 53,334 0 5,428,000 0 0 0 47,343,229 5,428,000 624,559,679 5,428,000 221,918,148 22,409,495 186,475,923 110,005,966 40,000,000 34,713,000 0 2019-20 Amended 197,908,618 577,216,450 0 40,000,000 12,417,313 300,582 53,334 52,771,229 0 629,987,679 221,918,148 22,409,495 186,475,923 110,005,966 30,000,000 40,000,000 10,000,000 0 0 0 0 0 0 0 0 Trf to Wastewater CIP Fund Trf CRF to Debt Defeasance Trf Operating to Debt Defeasance (10,000,000) 5,287,000 10,000,000 184,718,966 5,287,000 190,005,966 Total Requirements 615,522,532 5,287,000 620,809,532 Excess (Deficiency) of Total Available 9,037,147 141,000 9,178,147 Ending Balance 206,945,765 141,000 207,086,765 FIVE-YEAR ESTIMATED IMPACT: FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Total Available Funds Total Requirements Net Budget Impact 5,428,000 5,287,000 141,000 0 0 0 0 0 0 0 0 0 ANALYSIS / ADDITIONAL INFORMATION: Capital Improvement Program (CIP) transfers in are from impact fee/capital recovery fee (CRF) collections that are restricted in use by Texas Local Government Code Chapter 395.012. Allowable uses include paying costs of constructing capital or facility improvements, and pledging for payment of debt service issued to finance capital or facility improvements identified in the Impact Fee Capital Improvements Plan 5-Year Update. The transfers out to CRF to debt defeasance of $40,000,000 and Operating to debt defeasance of $10,000,000 for a combined total of $50,000,000 will be used to reduce Austin Water existing debt service.