Council approves $36 million in wastewater management
On Tuesday night, the Porterville City Council, acting as the Board of Directors for the Porterville Public Improvement Corporation, held a meeting to discuss financing no more than $36 million for water capital improvements.
In June of this year, the Council adopted a resolution to initiate the process for up to $50 million in certificats of participation efforts.
An analysis of the city’s water fund financing capacity established a capacity of $44.5 million. Within that financing is a number of capital projects, including the development of a wastewater tertiary treatment recycled water facility in partnership with the Tule River Tribe near the Porterville Airport, close to the location of the future casino. The facility will be able to treat roughly 500,000 gallons of water a day. The project is ready for construction at an estimated cost of $17 million. The Tribe has a proportional share which is estimated at roughly $6 million.
There’s a $5 million to $10 million water recharge basin proposed for development in the same area which would account for drainage and the city’s recharge needs and groundwater management goals. Combined these two projects equate between $22 and $27 million of the $35 million financing effort estimate. There are also several other water capital projects including wells and other recharge basins. Currently, Henderson Avenue is getting purple pipes that will carry water to the wastewater treatment facility, which is running at a cost of approximately $1 million in water components.
The bond market is strong and is anticipated to continue that way. The par amount of bonds based on the structure presented to the Council equaled $30,745,000 with a premium of $4,902,000 that will be generated at the sale of the Certificates of Participation.
The city has the opportunity to issue COPS at a higher coupon rate than the market rate of interest but sell them at the market rate of interest, in turn selling those COPS at a greater value. That leads to generating more funds for less COPS being issued.
With the sale of $35 million in COPS produc
ing $35,647,782, $35 million is put into the project fund and is drawn by the city as the projects are completed.
Currently, interest rates for COPS are historically low, and the demand is high. The coupon rate for a COP is estimated at 4 percent. This is the interest rate paid on the COPS. When COPS are sold, more money will come in than face value because premiums are created. Yields on the COPS proposed to the city are expected to be low in the first few years, but will increase to 2.5 percent over time.
When certificates for bonds are issued, investors require a debt service coverage, meaning the COP has to generate more money than the debt service payment. A debt service covenant is part of the COP document which commits the city to maintaining a minimum level of debt service coverage or making sure the debt service coverage is there in the future. The debt service will generate approximately $1.79 million per year
“This bond allows for projects to be completed that are needed in the city and also places us in a very good position in terms of what we’re doing with water tertiary treatment plans and all of the other things we have planned for the future,” said Council member Virginia Gurrola.
The net proceeds to be received from the bonds equal $35 million, but the total payment amount through the COPS maturity is estimated at $55 million. If issue rates increase or decrease, estimates on the payment amount will fluctuate.
The City Council acting as the Board of Directors approved financing $36 million in bonds for water projects with a vote of 5-0.