MINUTES OF A SPECIAL MEETING
CALL TO ORDER AND ROLL CALL
The meeting was called to order by President
Puddicombe at 3:00 p.m.
During public forum Carolee Krieger asked why her questions were not going to be answered at the public meeting. The General Manager said that formal answers were on the May 12, 1998 2:00 p.m. special meeting agenda, but that the information relative to the financing would be covered in the public meeting. The General Manager instructed staff to give her a copy of these responses.
DISCUSSION OF VERSIONS OF 30 YEAR
PLAN FOR POSSIBLE
The Board discussed the different versions of the 30 year plan. The proposed rate increases over the next 30 years was discussed. If the District chooses, it could raise rates earlier and pay off the capital appreciation bonds quicker. Version 1 was already approved.
Director Abel requested that the dollar differences between what the rates increases are now and what they will be increased by be shown. She would like to see consistent increases and not such a dramatic jump every five years.
Director Wilson asked about whether the capital cost recovery fee was going to be increased. The General Manager said that it will be addressed in the budget next month.
Carolee Krieger asked about which hookup size was used more frequently in the District. The General Manager said that 3/4" meters were the most common. Ms. Krieger said that it would be good to show the charges for 1" meters also.
Director Campbell explained the differences between Versions 1, 2 and 3. He said that Version 1 would take longer to pay because there would be interest only payments for several years. Version 2 will reduce the debt quicker, and it is the version recommended by the Financial Consultant. Version 0 is a pay as you go basis. Director Campbell felt that making the public pay today for future costs was wrong.
There was a discussion among the Board whether to present all versions or to present the version the Board favored in order to eliminate some of the confusion. Director Wilson said that as a Board member he would like to hear what the public prefers. Director Campbell said that version 2 clearly has lower interest costs, repays debt faster and has lower charges to the customers. He said that he would like to see this version fine tuned to smaller increases each year. Director Abel and Puddicombe stated they strongly favored version 2 and that the public has already been presented version 1. They indicated the Board might want to explain at the public meeting the reason for going with version 2 instead of version 1. Version 3 was the version that included the loan from SBB&T. The payments to the bank would be twice what the bond payments would be. President Puddicombe stated it was appropriate to follow the prudent buyer rule. Counsel Wullbrandt recommends that staff walk through the different versions and that staff could mention the fact that the Board has now focused on Version 2.
It was the consensus of the Board to present all versions.
The meeting was adjourned at 11:00 a.m.
Note: The agenda for this meeting was posted at the front
MINUTES OF A SPECIAL MEETING
CALL TO ORDER AND ROLL CALL
The meeting was called to order by President
Puddicombe at 2:00 p.m.
President Puddicombe welcomed everyone and requested that questions and comments be received after the presentations regarding the Capital Improvement Program and the financing of this program.
During public forum Arve Sjovold and Carolee Krieger said that they couldnt understand how the District was making its State Water payments. Director Puddicombe said that the District would be having a Finance Workshop Board meeting on June 1st and that their questions regarding District state water payments could be answered there. A member of the public asked what this meeting was about. The Business Manager said the purpose was to give the public the opportunity to hear about the Capital Improvement Program and the financing of this program.
DISTRICT STAFF PRESENTATION ON PROPOSED DISTRICT CAPITAL PROGRAM AND PROGRAM FINANCING
The General Manager gave a presentation on the history of the Districts infrastructure changes and the purpose of this meeting, including the proposed capital improvement plan. He said that during the last twenty years the Districts top priority was obtaining an adequate supply of water. He said now that a wide variety of water sources are available to the District, the focus has shifted to making sure that this water can be delivered to customers by keeping the distribution system working.
Dave Houston with Salomon Smith Barney presented its proposal for the current interest bonds.
Steve Mihalek, Chief Loan Officer with Santa Barbara Bank & Trust reviewed the alternate financing proposal to provide a bank loan for the financing.
The Business Manager presented the 30 year plan to the public and reviewed the Districts revenues and expenses.
Doug Brown, Special Bond Counsel, explained the legal documents necessary for the current interest bond proposal.
Glenn Reiter, Financial Consultant for the District, presented a report on the two proposals and gave the advantages and disadvantages of each of the proposals. He recommended that the District approve the current interest bonds because the interest is fixed and this will enable the District to be certain what its expenses will be in the future.
PUBLIC MEETING ON PROPOSED CAPITAL
President Puddicombe then opened the floor for comments and questions from the public. Carolee Krieger asked if any of the money the District is borrowing is going to be put in the reserve funds? Doug Brown said the legal documents require money to be used for specified capital improvement projects and that is the only projects those monies can be used for. She asked if any of that money would be used to pay for the state water debt? Doug Brown said the authorized purposes are for the Ortega Reservoir cover, seismic improvements at Cachuma and for the pipeline replacement projects and pump stations. He said there is no authorization to use it to pay for the state water bills from CCWA.
Joan Wells asked if the District was going to take the money from the interest earned on the borrowing and pay off the debt for the bond proposal, or any other debts of the District? She said how do you foresee using these other funds to make sure it is not used to pay for the state water debt. Doug Brown said money that the District is borrowing is construction money. All of that money is used to pay for the prespecified capital improvements. There is no other money being borrowed. Carolee Krieger asked if the borrowed funds were going to be placed in a separate account that is not part of the general fund. Doug Brown answered that the District is required to set up a construction fund that will be accounted for separately from other funds of the District and these funds are restricted.
Carolee Krieger asked a question from page 6 of the bond prospectus. If the District is funding $14,0000,000 in the publics name why is it not being called debt? Counsel Wullbrandt stated that if the full paragraph in the prospectus is read that particular sentence states that this funding is not an illegal debt. Doug Brown said that this is permitted under State constitution and State law. Ms. Krieger asked if the $14,000,000 is in addition to debt incurred by the District for its State Water Project funding? Doug Brown said the debt for the State Water Project belongs to CCWA just as much as the Cachuma Project costs are an expense of the USBR. The District has entered into a contract to pay for certain portions of this debt but that is not a legal or accounting debt of the District. Ms. Krieger said the Montecito community will have to pay for it. Mr. Brown said after the District pays for the State Water Project, Cachuma and the District O&M, District revenues need to be 1.25 times the debt service. The contractual obligation is to make annual payments. The annual expense is included in the Districts budget.
Ms. Krieger asked if, under either scenario, there is a prepayment schedule to get a little more money or a penalty? Mr. Brown said yes, the legal documents allow for a prepayment under certain circumstances such as an earthquake where some pipes are destroyed and the District elects not to replace them because there is a better way to deliver water. The District can use those insurance proceeds to pay the debt off and there is no prepayment penalty. It is expected that there will be an optional prepayment plan. This is negotiated at the time that the District goes to market. It has been customary to have a prepayment option 10 years and with a 2% prepayment penalty.
Don Dickens asked how will the new pipes will react in an earthquake or other major disaster. President Puddicombe said the pipe replacements will be ductile iron pipe, like the rest of the Districts distribution system. This type of pipe came through remarkably well during the recent Northridge earthquake. The Northridge earthquake was a good test and this is the best the District can do at a reasonable price.
Don Dickens asked whether or not the June 1st meeting was scheduled for the evening. President Puddicombe said it was scheduled for 10:00 a.m. but, it was found to be necessary, the District would schedule another evening meeting. Mr. Krieger asked the following questions: Does the 1.25 amount pertain to the amount suggested to be borrowed plus the amount thats due CCWA plus the amount that is due to DWR. Doug Brown said that the agreement that the District has entered into with CCWA says that the District sets rates and charges so that revenues minus O&M costs equal 1.25 times. Mr. Krieger asked how do we pay annually to CCWA? Mr. Brown said in 1997 the District paid $1.4 million. Mr. Krieger asked how about for the State Water Project? Mr. Brown said that amount includes everything. Mr. Krieger asked is that the amount that the District will be paying over the next number of years or will that amount increase? Mr. Brown said that number ramps up over time as everything gets fully built. The net payment in the year 2002 is about $2.7 million. We are four times over that 1.25? Doug Brown said 5.65 is coverage of the District debt. That is after payments to CCWA. After you pay all of your operating expenses including Cachuma and State Water Project costs, you have 5.65 times revenues remaining after the Districts own debt. Is it not anticipated that there would be any increase in water rates on the basis of this loan? Tim Campbell said just the opposite the facts are opposite because. It clearly states in the handouts that the District reserves are currently $4.23 million and that the CCWA $3.2 million payment due June 1 is paid from the Districts existing reserve funds which would leave after that payment $1.3 million left in reserves. There was some discussion about concern for the correctness of the State Water Project numbers in the Preliminary Official Statement (POS). It was said that the POS was still in draft form, and that the most up to date POS was not distributed to the public and had one page with an incorrect number.
Joan Wells said she feels there is some confusion on the cost of the State Water Project. She said to make sure all of the numbers on the prospectus are correct and up to date. She asked how the District is going to come to some conclusion on what proposal the District is going to go with? What is the total cost to the District going to be of the Smith Barney proposal and the total cost of the Santa Barbara Bank & Trust loan? Evalyn Kerman said for the SBB&T loan, the total is $22,038,524 to be paid over 20 years, assuming current low interest rates remain unchanged. Depending on which alternative is chosen, the Smith Barney proposal on bonds that are repaid as soon as possible (Version 2) the total is $29,230,039 over 30 years. Steve Mihalek said that the SBB&T loan can be paid down as soon as the District would like to if there are excess funds during the term of the loan.
The question was asked why the District was not currently requesting bids for the bond proposal. The General Manager said that the District about 18 months ago had evaluated Smith Barney and determined that if the District was going to do bond financing the District would do so with Smith Barney. The Business Manager said that three other banks were contacted. The President stated that Smith Barney was selected because it had worked with the District in the past through the CCWA and CPA.. The Financial Consultant said that what is going to drive the final cost is not the underwriter but the interest cost at the day the bonds go to sale. Smith Barney has every opportunity to provide us with as low a bid as anyone else. They have to be in the market just like every other firm. When it gets down to the wire it is competition. Doug Brown said that Smith Barney has worked with CCWA and the Cachuma Project Authority and that the familiarity with the District would be a better way to go since the firm would be able to sell the District bonds better due to its past association with the District and which would result in lower legal costs.
Another member of the public asked did the District earn the A+ rating ourselves? Or are we going with AMBAC again? Doug Brown said the resolution authorizes the General Manager to select the bond insurer. The District did earn the A+ rating. The District will have an AAA rating with the purchased insurance.
Dan Eidelson was introduced and commented on the value of property in the District. He said that the bank loan appeared to have the most flexibility.
Director Campbell said that they would be astounded to see how cheap the water rates are in Montecito compared to other areas. If we do the bank deal we have to charge the public a lot more on water rates and service charges. There are a lot of people on fixed incomes and elderly and a lot of struggling young families and they just cant pay additional costs for water.
It would be punishing those on fixed incomes. It makes sense to pay the debt back quickly and pay less interest, but people cant afford to do it.
David Yawitz stated he believed the District should go with the bank loan. Carol Valentine also favored the bank loan.
The meeting was adjourned at 4:45 p.m.
Note: The agenda for this meeting was posted at the front counter and on the outside front wall at the Montecito Water District on May 8,1998.