CWA forms joint powers agency, approves $686M bond issuance

The San Diego County Water Authority (CWA) board created a joint powers agency (JPA) which authorizes the CWA to issue revenue bonds while also authorizing the issuance of up to $686 million in such bonds to finance the CWA’s Capital Improvement Program and to refinance existing debt.

The December 17 board action also adopts resolutions declaring the official intent to reimburse certain expenditures from proceeds of future CWA debt obligations and addressing the future treatment of interest subsidy payments.

CWA staff put together a package which enables the formation of the new JPA and the issuance of the bonds, which are expected to reduce the CWA’s debt service obligation by $3.1 million annually.

“We all understand and appreciate that this is not an easy project,” said CWA Administrative and Finance Committee chair Ken Williams.

The CWA has historically raised funds in the public debt market by issuing certificates of participation (COPs). Although there is no substantive difference between revenue-secured COPs and revenue bonds, recent market events have forced investors to favor bonds over COPs. The current difference of 50 basis points (0.5 percent) translates into $3.1 million annually in debt repayment.

In 2004, several local agencies created the California Municipal Finance Authority (CMFA) to allow the CMFA to enter into joint powers agreements with local agencies in order to allow tax-exempt financing. The CWA’s December 17 action authorizes the CMFA and the CWA to form a joint powers agency called the San Diego County Water Authority Finance Agency.

The governance of the JPA will be similar to the San Diego County Water Authority Financing Corporation which currently issues COPs, and the CWA will have control over all finance matters. The JPA board will consist of the CWA board chair (currently Bud Pocklington), the chair of the Administrative and Finance Committee (currently Williams), the CWA’s finance director, the CWA’s general manager and the CWA’s general counsel.

A government agency’s debt is often subject to philosophy. Some boards believe that the pay-as-you-go method frees up interest payments for other projects. Another philosophy is that bonding for capital improvement projects translates into future beneficiaries paying their share in contrast to having a project paid for in full by current residents who leave the area before the project’s completion and newer residents not paying at all for the project.

Under a fair-share bond philosophy, a project’s lifecycle may also dictate the period between a bond’s issuance and its maturity.

Based on issuance of 40-year bonds, the CWA’s interest obligation is likely to be between 3.90 and 4.20 percent. The majority of the bond issue will fund the San Vicente Dam Raise and Carryover Storage project, which has an expected service life of 100 years. Including pumping and interconnect projects, the Capital Improvement Program calls for $353.6 million to be spent on the San Vicente Dam.

The CWA’s 2009-10 and 2010-11 capital improvements budget also includes $3.1 million for the Camp Pendleton desalination facility planning process, $2.7 million for the Fallbrook 7/Rainbow 14 flow control facility, $2.5 million for the Fallbrook 8 Flow Control Facility and DeLuz 1 Supervisory Control and Data Acquisition project, $2.1 million for Pipeline 6 planning and design, $1.9 million for additional aqueduct right-of-way width, $1.8 million for planning and design work on the Pipeline 3 pump station and interconnect in Fallbrook, and $1.0 million for planning and design expenses for the Pipeline 4 pump station in Fallbrook.

The actual authorized issuance amount is $685,636,378 which will cover $524,869,799 for capital acquisition, $71,034,276 for capitalized interest, $51,769,049 to refinance the Series 1998A COPs, $30,692,494 for the debt service reserve fund and $7,270,760 for the cost of issuance.

The acquisition fund is sized to provide approximately 24 months of Capital Improvement Program financing while the capitalized interest fund will be used to provide interest payments during part of the construction period in order to mitigate rate impacts.

The December 17 authorizations allowed for preliminary official statements to be distributed to the bond market on December 22. Pre-sale marketing and an investor road show will take place during the first full week of January, pricing is slated for January 11, and the bond sale has a January 25 closing date.

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