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HomeMy WebLinkAbout04.d. Review draft Position Paper to adopt Resolution 2021- to appoint the proposed 2021 Bond Offering Financing Team; authorize financing through the use of Certificates of Participation and other securities transactions; revise the Fiscal Year (FY) 2020 Page 1 of 19 Item 4.d. BOARD OF DIRECTORS 20L POSITION PAPER MEETING DATE: APRIL 27, 2021 SUBJECT: REVIEW DRAFT POSITION PAPER TO ADOPT RESOLUTION 2021- TO APPOINTTHE PROPOSED 2021 BOND OFFERING FINANCING TEAM; AUTHORIZE FINANCING THROUGH THE USE OF CERTIFICATES OF PARTICIPATION AND OTHER SECURITIES TRANSACTIONS; REVISE THE FISCAL YEAR (FY) 2020-21 SEWER SERVICE CHARGE (SSC) ALLOCATION RATIOS AND DIRECT DISTRIBUTIONS TO RESERVE FUNDS; AND ADOPT RESOLUTION 2021- TO SPECIFYTHE INTENT OF THE FY2020-21 SSC SPENDING BE REIMBURSABLE FROM BOND PROCEEDS NO EARLIER THAN 60 DAYS PRIOR TO ADOPTION SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION-FINANCE PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION REVIEWED BY: KENTON L. ALM, DISTRICT COUNSEL ISSUE Per Board Policy 029 - Debt Management and Continuing Disclosure Policy (BP 029), Board approval is required for the selection of the financing team that will assist with the execution of a 2021 debt transaction. The financing team includes the appointment of a financial advisor and bond counsel/disclosure counsel. With respect to the proposed method of issuance of the debt, a competitive offering is proposed, whereby the winning underwriter would be selected based on proposed lowest interest yields to Central San. Several other actions proposed in connection with the issuance are also recommended for Board adoption. BACKGROUND At the March 25, 2021 Financial Workshop, staff discussed the potential of achieving interest savings through the issuance of debt in 2021 to finance a portion of the planned Fiscal Year(FY) 2021-22 capital improvement budget (Cl B). Sewer Service Charges (SSC)that would have otherwise gone to fund the FY 2021-22 Cl B would be used to pay down the unfunded actuarially accrued liability(UAAL) attributable to Central San's pension plan administered by Contra Costa County Employees Association (CCCERA). This proposal could generate significant interest savings, as well as help fully fund the pension. The latter is a goal specified in Board Policy (BP) 041 "Pension Funding", which contains the following principles: (1)Annual contributions toward defined contribution benefit plans should be made to ensure that the funded ratio is targeted at and maintained as close to 100% as is reasonably practicable. April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 148 of 217 Page 2 of 19 (2) When defined benefit plan funded ratios are below 100%, efforts should be taken to ensure the funded ratios are restored to 100% as soon as is practicable given other reasonable rate making constraints. The attached memo addresses the overall proposed transaction and anticipated savings, including current market conditions, recommendations on the structure for the debt, and appointment of a financing team. Proposed Transaction and Anticipated Savings The anticipated savings related to the financing are the difference between the carrying cost of the pension UAAL, and the cost of the bonds to finance the FY 2021-22 CIB, inclusive of bond issuance costs. The issuance costs are anticipated as: Financial Advisor Fee $50,000 Bond Counsel $50,000 Disclosure Counsel $49,000 S&P Rating $50,000 Other miscellaneous cost $25,000 Total costs without underwriter costs $224,000 Current Market Conditions 10 Year-Municipal Market Daily (MMD) composite tax exempt interest rates have trended upward from the low points in August 2020 (0.68%) and December 2020 (0.71%), but are still near historic lows, at 1.03% as of April 12. This is lower than such rates have been over the past decade, apart from the lows mentioned in the past year. The interest rate on the proposed transaction, with a final maturity of about 7 years from now, are anticipated to be between the 5 year and 10 year MMD rates noted here, or somewhere around 1%. - Jov mMo - Apr202F 0.52% 1.10% Mar 2021 0.50% 1.109 s mr. Feb 2021 0.31% 0.83% 4� 1ae 2021 024% 0.76% Ott 2020 0.23% 0.71% N-2020 0.26% 0.80% Ott 2020 1 094% Sep 2020 0.2556 0.8496 1% Aug 2WO 0.22% M. % Iu12020 0.34% 0.77% of6 Ju-1070 039% 087% Ma 2020 0.70% 1.05% rary Apr 2O20 vat% 1.10% Note:Thetables on the right show monthly averages of short term indkes and fax-exemptfded Interest rates.As of COB Apri 7,2022 0isdaimer Mello&Company has prepared this material for informational purposes only, The outlook for interest rates in the coming months is uncertain. The Federal Reserve has issued generally dovish statements, but concerns about inflation are being more widely discussed. The increases from the lows seen over the past years, and the possibility of future increases, is a driver for moving as expeditiously as possible to lock in as much of the savings as possible from this transaction. Recommendations on the Structure of the Debt Two general alternatives are possible as to a debt structure for"new money" (as opposed to refinancing of existing debt): (1) Certificates of Participation ("COPs") or (2) Revenue bonds. 1 . COPs. Central San has issued COPs in 1994 and 2009, in the amounts of $25 million and $30 million, respectively. The COP structure provides that the obligations would be sold through the Central Contra Costa Sanitary District Facilities Financing Authority ("Financing Authority"), with Central San responsible for the debt service obligations. As of 2020, Central San's financial plan did not April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 149 of 217 Page 3 of 19 anticipate a new money bond issuance in the foreseeable future. As such, staff recommended dissolution of the Financing Authority in January 2021, with a resolution adopted by the Board to that end. However, as the paperwork has not yet been filed with the State to officially dissolve the entity, using a COP structure through the Financing Authority remains a viable option. Concerns about potentially higher interest costs of a COP transaction versus a revenue bond option have also been considered by PFM. In PFM's opinion, the COP structure presently remains a cost effective compared with revenue bonds, and PFM supports using this arrangement for this transaction. 2. Revenue Bonds: Central San has issued Revenue Bonds in 1998 and 2018, in the amounts of $25.335 million and $19.450 million, for the purpose of refinancing previously issued COPs to take advantage of lower interest rates then available in those years. New money (in contrast to refunding/refinancing) revenue bonds cannot be issued directly by a sanitary district without a majority public vote. Given the costs and timeline involved, this is not the recommended course of action. Alternatively, revenue bonds can be issued through a joint powers authority of which Central San is a member. This is a possible option, and one that was anticipated for future bond funding needs. However, it is expected that the timeline for this is still longer than proceeding with COPs, and given the concern about rising interest rates in the current environment, this is considered by both staff and PFM as less desirable. Appointment of a Financing Team The financing team is comprised of a Financial Advisor, Bond Counsel/Disclosure Counsel and an Underwriter. • Financial Advisor- Staff is proposing to proceed with PFM Financial Advisors LLC ("PFM")as the Financial Advisor. Central San appointed PFM as a financial advisor in December 2017 under a contract of up to five years. PFM's work on this matter will include financial analysis related to the potential savings, evaluation of bond structuring alternatives, bond document review, bond pricing process/competitive sale coordination, interfacing with the rating agencies, and assistance with state and federal initial and continuing disclosure compliance. PFM's fee for this work, payable from bond proceeds, will be $50,000. • Bound Counsel/Disclosure Counsel -The law firm of Jones Hall served as both bond counsel and disclosure counsel to Central San in the 2009 bond issuance and 2018 bond issuance. The District has been well served by their previous work, and staff believes it is prudent and cost effective to have this firm continue in those roles. As Jones Hall drafted the documents related to the 2009 certificates of participation, they are well situated to draft agreements on the new bonds which are proposed to use the same structure. As to the disclosure counsel work, their familiarity with Central San, and the past two bond official statements will allow them to assist with constructing required disclosures for the new bonds in the most timely and cost effective manner. Jones Hall's fees for bond counsel are $50,000, and for disclosure counsel are $49,000. Both of these fees are payable from bond proceeds as a cost of issuance. • Underwriter: Staff recommends selling the debt on a competitive basis, whereby the underwriter is selected based on the lowest overall yield of the bonds based on the maturities and amounts established by Central San. This contrasts with a negotiated transaction where an underwriter is selected up-front, typically based on an RFP or abbreviated RFP process that considers qualifications and cost. Attachment 3 contains a resolution that appoints the financing team, and repeals resolution 2021-1 that was to have dissolved the Financing Authority. Other Implementing Actions The precise borrowing amount(estimated at around $60 million), specific maturity schedule (estimated at April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 150 of 217 Page 4 of 19 about 7 years), and other transaction details are yet to be finalized, with further details provided at the time of Board adoption of the issuance resolution (May 2021) and after the close of the transaction (specific interest rates, and debt service schedule). n order to effectuate the intended goal of the transaction of freeing up FY 2021-22 SSC that would have gone to the Sewer Construction fund, and alternatively use that SSC increment to pay down the UAAL (approximately$70 million), several changes to the spending plan set forth in the currently drafted budget for FY 2021-22 will be necessary. Central San will need to change the allocation of SSC between the O&M and Sewer Construction funds currently specified in the draft FY2021-22 budget. Once more precise details of the amount of the SSC that needs to be re-directed are available, staff will propose a budget amendment to the FY 2021-22 budget that would take the following actions: 1 . Change the reallocation of SSC to O&M and Sewer Construction specified in Table 5 of the budget book; 2. Revise the revenue sources for the SSC and Sewer Construction budgets; 3. Reduce the O&M budget to reflect lower UAAL payments payable to CCCERA; 4. Increase the debt service budget to reflect interest and principal payments payable on the new debt; 5. Show revised Reserve Projections (Table 14 of the budget) Furthermore, preliminary information suggests that the amount of SSC allocable to the Sewer Construction fund in FY 2021-22 (estimated at$34 million)will insufficient (we need about $58 million) to provide sufficient funding to pay off the UAAL ($70 million) along with the available funds in the Pension Prefunding Trust ($11.9 million). This $24 million shortfall can be addressed by: • Revising the FY 2020-21 SSC allocation to direct any remaining available funds from the April and June 2021 County distributions of SSC to the O&M reserve. The Sewer Construction reserve is projected to have $28.8 million more than is needed for the policy required level at J une 30, 2021. Then, the proposed forthcoming borrowing of about$60 million can be used for not only FY 2021-22 CI B, but future years spending, or even FY 2020-21 expenditures that would have come from these revenues. • With respect to using bond proceeds to fund FY 2020-21 sewer construction expenditures, the adoption of a reimbursement resolution (Attachment 2) is proposed. This will allow bond proceeds to fund FY 2020-21 expenditures not earlier than 60 days prior to the adoption of the resolution. Schedule and Next Steps An initial financing schedule was prepared by PFM in early April, and will be refined as necessary. It is provided as Attachment 1. The schedule targets an issuance in late June 2021. The next key milestone for Board and Finance Committee involvement will be approval of several key documents, which would be scheduled for May or June, as noted below: 1 . Adoption of the Financing Resolution, authorizing the issuance of certificates of participation by the Central Contra Costa Sanitary District Financing Authority; 2. Approval of draft Preliminary Official Statement for the obligations; 3. Approval of other necessary documents to authorize and implement the financing; At the May Finance Committee and related Board meetings, Financing Team members will available to answer any further questions the Board may have on the documents and proposed transaction. April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 151 of 217 Page 5 of 19 ALT ERNAT IVES/CONSIDERAT IONS The primary issue is whether to proceed with a debt issuance to fund a portion of the FY 2021-22 capital improvement budget; free up Sewer Service Charge funds to be used to pay-down UAAL obligations. Various analysis prepared by staff, and by financial advisor PFM indicates the value of proceeding along those lines. Beyond that, details of the proposed transaction for which alternatives are possible include: 1. Members of the financing team. As noted above, PFM and Jones Halls are recommended based on availability, familiarity with Central San, and the value of proceeding on an expedited basis. 2. The nature of the sale- negotiated or competitive. A competitive sale is recommended for the following reasons: a. Avoid the need for a separate process to select an underwriter. a. A competitive sale is likely the most cost effective manner of issuing the debt. 3. The type of debt to be issued- revenue bonds through a J PA, or certificates of participation through the financing authority. As noted, COPs are recommended due to: a. Proceeding with a COP arrangement is viewed as the most expeditious approach, and avoids the need to establish or participate in a pre-existing J PA for the issuance of revenue bonds. a. In PFM's opinion, there is no material pricing disadvantage to a COP structure versus the all-in cost of issuing revenue bonds. 4. The amount of the offering. Just enough to accomplish the pay-down of the pension UAAL is recommended; this is expected to be approximately$60 million. Alternatively, a higher amount could be issued to provide funding for FY 2022-23 C 1 B needs as well, potentially to reshape the financial plan's anticipated rate adjustments. This is not recommended at this time, as the forward looking rate adjustments are anticipated to be in the low-single digit range. FINANCIAL IMPACTS The debt offering is proposed in order to reduce the combined interest carrying cost of the pension plan UAAL (with a 7% discount rate), and interest on bonds (with an interest rate anticipated somewhere on the order of 1%). Because of this significant differential on the UAAL amount of approximately$60 million on a net basis (CCCERA less balance in pension trust), interest savings on the order of $9.4 million are anticipated. Actual savings will depend on the actual debt interest rate, and the earnings on the CCCERA assets. PFM conducted analysis (Attachment 4) of the potential savings by building a sophisticated model comparing prospective pension returns versus debt service costs. Then, a Monte-Carlo type simulation was run with ten thousand iterations, where historical returns over the past 20 years are the set of potential annual returns over the next decade. From this, distributions of potential savings were generated and displayed graphically. This modelling shows that the savings are expected to be favorable with an 81% probability, and at least $1 million with a 79% probability. Why is it not nearly 100%? This is because of the relatively short duration of the debt (about seven years), and the potential volatility of returns. The "worst case" scenario would be significant adverse returns early in the seven-year period, which would then be a challenge to recover from, and which could affect the overall "profitability" of the transaction. Despite this, both staff and PFM believe the transaction is worth pursuing given the still high probability of savings. April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 152 of 217 Page 6 of 19 COMMITTEE RECOMMENDATION The Finance Committee reviewed this matter at its meeting on April 27, 2021 and recommended RECOMMENDED BOARD ACTION Staff recommends that the Board: 1. Adopt the proposed resolution (a) appointing the financing team proposed for the 2021 obligations, consisting of PFM Financial Advisors LLC as financial advisor, Jones Hall as disclosure and bond counsel and repealing previously adopted Board resolution 2021-01 that would have dissolved the Central Contra Costa Sanitary District Financing Authority; 2. Authorize staff to pursue the financing transaction through the use of Certificates of Participation as an obligation of the Central Contra Costa Sanitary District Financing Authority; 3. Authorize that the securities be sold on a competitive basis to an underwriter; 4. Revise the FY 2021-22 Sewer Service Charge allocation ratios specified in the adopted budget (44% to O&M, 56% to Sewer Construction)to direct remaining funds from the April and June County distributions of SSC to Central San, to be placed in the O&M Reserve; 5. Adopt a reimbursement resolution specifying the official intent of the District that FY 2020-21 Sewer Construction Spending not earlier than 60 days prior to the adoption of the resolution be reimbursable from bond proceeds. Strategic Plan Tie-In GOAL THREE:Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability ATTACHMENTS: 1. Schedule 2. Reimbursement Resolution 3. Initial District Resolution 4. PFM Pension Funding Analysis April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 153 of 217 Page 7 of 19 0 Central Contra Costa Sanitary District Wastewater Revenue Certificates of Participation, Series 2021 Financing Schedule as of April 1, 2021 Board meetings are on the first and third Thursday of the month S M T W F S S M T W T F S S M T W T F S S M T W T F S 1 2 3 1 1 2 314 5 1 2 3 4 5 6 7 8 9 10 2 3 4 5 6 7 8 6 7 8 9 10 11 12 4 5 6 7 8 9 10 11 12 13 14 15 16 17 9 10 11 12 13 14 15 13 14 15 16 17 18 19 11 12 13 14 15 16 17 18 19 20 21 22 23 24 16 17 18 19 20 21 22 20 21 22 23 24 25 26 18 19 20 21 22 23 24 25 26 27 28 29 30 23 24 25 26 27 28 29 27 28 29 30 25 26 27128 29 30 31 30 31 Board Meeting Finance Committee i Holiday Thursday, March 25 ■ CCCSD Board Annual Financial Workshop CCCSD, MA Week of April 5 • Working group organizational call CCCSD, MA, BC • Circulate information request for Preliminary Official BC Statement Friday, April 16 ■ Finalize materials for April 27 Finance Committee meeting CCCSD, MA Monday, April 19 ■ Packet mailed for April 27 Finance Committee meeting CCCSD Friday, April 23 ■ Information provided by District for POS CCCSD Tuesday, April 27 ■ Finance Committee meeting to discuss financing CCCSD, MA strategy [and method of sale] Wednesday,April 28 • Circulate drafts of bond documents, POS, and NOS BC Monday, May 3 ■ Circulate first draft of credit presentation MA Weds., May 5 ■ Conference call to review bond documents, POS, NOS, All and credit presentation Monday, May 10 ■ Circulate second drafts of bond documents, POS, and BC NOS Wednesday, May 12 ■ Circulate revised draft of credit presentation MA Monday, May 17 • Conference call to review revised documents and credit All presentation Weds., May 19 ■ Circulate revised drafts of bond documents, POS, and BC NOS Thursday, May 20 • Send draft bond documents and POS to S&P MA Financing Schedule 1 April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 154 of 217 Page 8 of 19 0 Central Contra Costa Sanitary District Wastewater Revenue Certificates of Participation, Series 2021 Financing Schedule as of April 1, 2021 Board meetings are on the first and third Thursday of the month S M T W F S S M T W T F S S M T W T F S S M T W T F S 1 2 3 1 1 2 314 5 1 2 3 4 5 6 7 8 9 10 2 3 4 5 6 7 8 6 7 8 9 10 11 12 4 5 6 7 8 9 10 11 12 13 14 15 16 17 9 10 11 12 13 14 15 13 14 15 16 17 18 19 11 12 13 14 15 16 17 18 19 20 21 22 23 24 16 17 18 19 20 21 22 20 21 22 23 24 25 26 18 19 20 21 22 23 24 25 26 27 28 29 30 23 24 25 26 27 28 29 27 28 29 30 25 26 27128 29 30 31 30 31 Board Meeting Finance Committee Holiday Monday, May 24 ■ Conference call to finalize bond documents and POS for BC submittal to District Tuesday, May 25 ■ Deadline to submit POS and bond documents to District for BC June 3 Board meeting ■ Credit presentation dry-run All Weds., May 26 • Packet mailed for June 3 Board meeting CCCSD ■ Final credit presentation sent to S&P MA Thursday, May 27 ■ Credit presentation to S&P All Monday, May 31 Memorial Day Holiday Thursday, June 3 - Board/Financing Authority Meeting to approve 2021 CCCSD, MA, BC COPS Monday, June 7 ■ Receive credit rating MA Weds., June 9 ■ Post POS and NOS BC/P Weds., June 16 ■ Bond sale All Monday, June 21 - Print final Official Statement BC/P ■ Circulate draft closing documents BC Monday, June 28 ■ Preclosing All Tuesday, June 29 ■ Closing All Financing Schedule 12 April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 155 of 217 Page 9 of 19 Central Contra Costa Sanitary District Wastewater Revenue Certificates of Participation, Series 2021 Financing Schedule as of April 1, 2021 Board meetings are on the first and third Thursday of the month _S M T W ILF S S M T W T F S S M T W T F S S M T W T F S 1 2 3 1 1 2 3 4 5 1 2 3 4 5 6 7 8 9 10 2 3 4 1516 7 8 6 7 8 9 10 11 12 4 5 16 7 8 9 10 11 12 13 14 15 16 17 9 10 11 t2627 14 15 13 14 15 16 17 18 19 11 12 13 14 15 16 17 18 19 20 21 22 23 24 16 17 18 21 22 20 21 22 23 24 25 26 18 19 20 21 22 23 24 25 26 27 28 29 30 23 24 25 28 29 27 28 29 30 25 26 27128 29 30 31 30 Board Meeting Finance Committee ■Holiday GroupParty Working Participant Abbreviation Issuer Central Contra Costa Sanitary District CCCSD Municipal Advisor PFM Financial Advisors MA Bond & Disclosure Counsel Jones Hall BC Trustee U.S. Bank T Printer TBD P Financing Schedule 3 April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 156 of 217 Page 10 of 19 Attachment 2 RESOLUTION NO. 2021- A RESOLUTION OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT FOR WATER AND WASTEWATER CAPITAL IMPROVEMENTS PROJECT FUND REIMBURSEMENT WHEREAS, the Central Contra Costa Sanitary District (the "Agency") desires to finance the costs of constructing and/or reconstructing certain public facilities and improvements relating to its water and wastewater system, including certain treatment facilities, pipelines and other infrastructure (the "Project"); and WHEREAS, the Agency intends to finance the construction and/or reconstruction of the Project or portions of the Project with moneys ("Project Funds") provided by a planned debt offering ("Debt Offering") through the Central Contra Costa Sanitary District Facilities Financing Authority targeted for June 2021); and WHEREAS, the Debt Offering may fund the Project Funds with proceeds from the sale of obligations the interest upon which is excluded from gross income for federal income tax purposes (the "Obligations"), and WHEREAS, prior to either the issuance of the Obligations, the Agency desires to incur certain capital expenditures (the "Expenditures") with respect to the Project from available moneys of the Agency; and WHEREAS, the Agency has determined those moneys to be advanced on and after the date hereof to pay the Expenditures are available only for a temporary period and it is necessary to reimburse the Agency for the Expenditures from the proceeds of the Obligations. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Central Contra Costa Sanitary District (the "Agency") that: 1. The Agency hereby states its intention and reasonably expects to reimburse Expenditures paid prior to the issuance of the Obligations; and 2. The reasonably expected maximum principal amount of the Project Funds is $70,000,000; and 3. This resolution is being adopted no later than 60 days after the date on which the Agency will expend moneys for the construction portion of the Project costs to be reimbursed with Project Funds; and 4. Each Agency expenditure will be of a type properly chargeable to a capital account under general federal income tax principles; and April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 157 of 217 Page 11 of 19 Central Contra Costa Sanitary District Resolution No. 2021- Page 2 of 2 5. To the best of our knowledge, apart from a resolution of August 2020 related to the Solids Handling Project (DP 7348) State Revolving Fund Loan, this Agency is not aware of the previous adoption of official intents by the Agency that has been made as a matter of course for the purpose of reimbursing expenditures and for which tax-exempt obligations have not been issued; and 6. This resolution is adopted as official intent of the Agency in order to comply with Treasury Regulation §1.150-2 and any other regulations of the Internal Revenue Service relating to the qualification for reimbursement of Project costs; and 7. All the recitals in this Resolution are true and correct and this Agency so finds, determines and represents. PASSED AND ADOPTED this 6t" day of May, 2021, by the Board of Directors of Central Contra Costa Sanitary District by the following vote: AYES: Members: NOES: Members: ABSENT: Members: Tad Pilecki President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California COUNTERSIGNED: Katie Young Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California Approved as to form: Kenton L. Alm, Esq. Counsel for the District April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 158 of 217 Page 12 of 19 ATTACHMENT 3 RESOLUTION NO. 2021- RESOLUTION OF THE BOARD OF DIRECTORS OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT APPOINTING FINANCING TEAM TO ASSIST WITH PROPOSED FINANCING OF CAPITAL IMPROVEMENTS WHEREAS, the Central Contra Costa Sanitary District (the "District") owns and operates facilities and property for the collection,treatment, disposal and reuse of wastewater within the service area of the District (the "Wastewater System"), and in order to provide funds to finance improvements to the Wastewater System, the District anticipates working with the Central Contra Costa Sanitary District Facilities Financing Authority (the "Financing Authority") and a corporate trustee to execute and deliver certificates of participation (the "Certificates"); and WHEREAS, the Board of Directors of the District wishes at this time to appoint a financing team to assist the District with the financial and legal aspects of the proposed financing; and WHEREAS, the legal documents pursuant to which the Certificates will be executed, delivered and sold, and the preliminary official statement pursuant to which the Certificates will be marketed to potential purchasers thereof, shall be brought back to the Board of Directors for approval at a later meeting. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Central Contra Costa Sanitary District as follows: Section 1. Engagement of Professional Services. The Board of Directors hereby approves the engagement of PFM Financial Advisors LLC, to act as financial advisor to the District in connection with the execution, delivery and sale of the Certificates. The Board of Directors hereby further approves the engagement of the law firm of Jones Hall, A Professional Law Corporation, to act as special counsel and disclosure counsel to the District in connection with the execution, delivery and sale of the Certificates. The Director of Finance and Administration is hereby authorized and directed to execute an agreement with each of said firms on behalf of the District, as and to the extent deemed necessary or advisable. The Certificates are anticipated to be sold via to an underwriter to be selected via competitive sale. Section 2. Repeal of Prior Resolution. On January 21, 2021, the Board adopted Resolution No. 2021-01, pursuant to which it was anticipated that the Financing Authority would be dissolved. Given the need for the Financing Authority to assist in the execution and delivery of the Certificates, Resolution No. 2021-01 is hereby repealed in its entirety and shall be of no force and effect. Section 3. Official Actions. The President, the General Manager, the Director of Finance and Administration and all other officers of the Board of Directors and the District are each authorized and directed in the name and on behalf of the District to execute and deliver such additional documents that they or any of them might deem necessary or appropriate April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 159 of 217 Page 13 of 19 in order to effectuate the purpose and intent of this Resolution. Whenever in this Resolution any officer of the District is authorized to execute and deliver any document or take any action, such execution, delivery or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf in the case such officer is absent or unavailable. Section 4. Effective Date. This Resolution shall take effect from and after the date of its passage and adoption. PASSED AND ADOPTED this day of , 2021, by the following vote: AYES: NOES: ABSENT: Tad Pilecki President of the Board of Directors of the Central Contra Costa Sanitary District, County of Contra Costa, State of California COUNTERSIGNED: Katie Young Secretary of the Central Contra Costa Sanitary District, County of Contra Costa, State of California Approved as to form: Kenton L. Alm, Esq. Counsel for the District -2- April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 160 of 217 Attachment 4 0 PfM Central Contra Costa Sanitary District Pension Funding Analysis PFM Financial Advisors LLC Sarah Hollenbeck and Nicholas Jones April 2021 April 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 161 of 217 0 Tax-Exempt Borrowing Rates Near All-Time Lows • AAA rated tax-exempt borrowing rates have been lower than their current levels less than 3% of the time since 1993 • 10-year AAA MMD index stands at 0.97%, 30-year at 1 .60% as of April 14th % of Time AAA MMD was Below Current AAA MMD Yield Curve as of 4/14/21 3.0% — 1.8% o N o c c U 1.6% � N � 2.5% U a o 0 0 1.4% n o o w rn a> 2.0% N N 1.2% <o Cn CO 1.0% p 1.5% 7 0.8% � Q E 1.0% 0.6% Co 0 0.4% 0.5% 0 0.2% 0 0.0% 0.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Maturity © PF%pril 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 162 of 217 2 0 CCCERA Historical Returns • CCCERA has achieved an average return of 7.7% since 2001 , slightly above their discount rate of 7.0% • Annual returns have ranged widely, from -26.5% to 23.5% Year Annual Return 2001 -2.4 2002 -9.5 2003 23.5 2004 13.4 2005 10.8 2006 15.3 2007 7.3 2008 -26.5 2009 21 .9 2010 14.0 2011 2.7 2012 14.1 2013 16.5 2014 8.4 2015 2.6 2016 7.4 2017 14.2 2018 -2.7 2019 14.6 2020 9.2 © PFN%pril 27, 2021 Regular FINANCE Committee MAMMUWgftnda Packet- PageMZ of 217 3 0 Probability of Success Model • PFM has evaluated the probability of success of the proposed financing strategy • "Success" is defined as achieving at least $1 of financial benefit over the life of the bonds as compared to the status quo • Model compares two alternatives: 1 . Make payments into CCCERA over time as scheduled through FY 2028-29 2. Pay $58M CIP funds into CCCERA now and issue $58M bonds to fund CIP; bonds repaid through FY 2028-29 • Model simulates 10,000 possible investment performance scenarios through FY 2028- 29, with each annual investment return selected randomly from CCCERNs actual annual investment returns over past 20 years © PF%pril 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 164 of 217 4 0 Probability of Success Model, continued • For each iteration, at end of FY 2028-29 model quantifies two metrics: 1 . The asset balance in CCCERA (higher asset balance = better off) 2. The amount of cash CCCSD has paid, to CCCERA or in bond debt service, through FY 2028-29 (more cash paid = worse off) • If the total financial benefit (asset balance in CCCERA minus cash paid) is higher in the bond alternative, that iteration is considered a "success" for the bond alternative • The probability of success metric measures the percentage of time in 10,000 iterations that the bond alternative produces positive financial benefit as compared to the status quo © PFNApril 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 165 of 217 5 0 Probability of Success, continued • Using the methodology described, we estimate an 81% probability of the proposed financing strategy generating a positive financial benefit • 79% probability of generating a benefit of at least $1 ,000,000 • Financial benefit of $9.2 million anticipated over the 7-yr bond term if CCCERA achieves its 7% return target each year • Actual savings will depend on the actual bond interest rate and future earnings of CCCERA assets • If CCCERA misses its 7% earnings target in any year, a new UAL will be generated, whether or not bonds are issued 35% 32.0% 30% 26.6% m 25% an c a 20% 18.0% T m 15% 12.7% 4 a 10% 5% 4.8% 4.9% 0.6% 0.6% 0.0% o��o $30 to-$20 -$20 to-$10 -$10 to$0 $0 to$10 $10 to$20 $20 to$30 $30 to$40 $40 to$50 $50 to$60 Range of Benefits($Millions) © PF%pril 27, 2021 Regular FINANCE Committee Meeting Agenda Packet- Page 166 of 217 6