Department of Finance
Reference: Water Treatment Plant Financing Update
To: Mayor Gregory Mills and Members of City Council
Through: Michael P. Martinez, City Manager
Prepared By: Catrina Asher, Director of Finance
Date Prepared: January 14, 2025
PURPOSE
To provide City Council with a financing update related to the Water Treatment Plant.
BACKGROUND
Financing Review
The Water Treatment Plant (WTP) project is financed by a combination of ARPA Grant Funding, the issuance of $80M in bonds in 2022, fund reserves, and the proposed issuance of $85M in bonds in 2025. The following section will provide updates on the 2022 bonds and information regarding the proposed issuance in 2025.
2022 Bond Rating Update
The 2022 bonds were issued in November of that year and provided a total of $80M in proceeds to finance the first portion of the WTP project. At that time, the issuance was rated by Fitch and S&P rating agencies. S&P provided a rating of AA with a negative outlook. In the report provided, S&P cited reliance on development revenues as well as the 8% rate reduction in 2019 as being a compounding factor in stress on the fund. They also cited management's positive actions to address financial stress and negative trends in the fund, but the risk associated still warranted a negative outlook in the opinion of the agency.
In November 2024, S&P reviewed the rating with staff and decided to downgrade the rating on these bonds to AA- with a stable outlook. The agency cited continued reliance on development revenues as the primary reason for the downgrade. While development revenues are a strong source of revenue for the City's utility funds, and a necessary and appropriate source for financing system expansion, they are nonetheless considered less reliable than user rate revenue, which drove the agency's rating decision.
The new rating of AA- is generally considered to be a strong rating and is consistent with the City's rating on other borrowings. Being that this ratin...
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