HomeMy WebLinkAbout18 DWR SRF Loan Early Payoff
AGENDA ITEM #18
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MEETING DATE: June 2, 2021
TO: Board of Directors
FROM: Michael Salmon, CFO
SUBJECT: Early payoff of California Department of Water Resources
(DWR) State Revolving Fund (SRF) Loan related to Donner
Lake water system acquisition and improvements
APPROVED BY______________________________
Brian C. Wright, Interim General Manager
RECOMMENDATION:
Approve the payoff in full of SRF loan on 7/1/2021 in the amount of $3,802,173.30, saving
$202,088 in interest expense through loan scheduled ending 1/1/2026
BACKGROUND:
In 2001, the District and community of Donner Lake formed the Donner Lake Assessment
District (DLAD) to fund Donner Lake’s private water system and system improvements
specific to Donner Lake system customers.
Acquisition of the system and improvements to system occurred in 2001 through 2005,
both at a cost greater than forecasted. The DLAD was established for 20 years at a fixed
amount. The District incurred bond debt to fund the cost over-runs. Accordingly, a Donner
Lake Surcharge of $6.65 per customer per month was established through 9/2036 (30
years) to cover the incremental water system costs not included in the DLAD loan
proceeds/assessment.
The DLAD assessment, established for a term of 20 years, started in 2001/2002, ending
with the 2020/2021 tax year. Whereas, the subject 20-year loan payments started in 2006
and are scheduled to end 1/1/2026.
In 2005, the District incurred debt in the form of a 20-year loan with the California
Department of Water Resources (DWR) through the State Revolving Fund (SRF) in the
amount of $12,732,965 at an interest rate of 2.34%. The first semi-annual payment was
7/1/2006. Attachment 1 is the loan amortization schedule.
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In 2011, the District invested $1.660 million in a 14-year investment, Fed Farm which
earned a yield of 5.25% over those 14 years. The investment income credited to the
Donner Lake restricted account and amounted to $1,220,100 over those 14 years, net of
premium. The investment matured in March 2021.
The DLAD Reserve Fund was funded of $830,000 was accumulated over 10 years of
annual payments of $80K, funded by the annual investment income of $87K earned by the
long-term investment of $1.7M made in 2006, which matured in March 2021.
The District has on-hand cash equivalent funds to pay off the loan now, instead of as
scheduled through 1/1/2026. Cash funds are currently earning less than 0.4% and the
interest rate on the loan is 2.34%.
The DWR has provided a 7/1/2021 loan payoff quote, which comports with staff
calculations, in the amount of $3,802,173.30. Attachment 2 is the payoff quote from DWR.
Loan balance components:
$ 3,758,202.33 Principal balance after 1/1/2021 loan payment
43,970.97 Interest accrual 1/2/2021 to 7/1/2021
$ 3,802,173.30 Amount due 7/1/2021 to payoff loan in full
Available DLAD Restricted cash fund components, estimated as of 6/30/2021:
$ 1,700,000 Fed Farm Investment (14 year investment, matured 3/2021)
830,000 Reserve Fund account
667,000 DLAD Invested - UPTIF
283,000 DLAD funds received from NV County in May 2021 for 20/21 Assessment
25,000 DLAD funds received from PL County in May 2021 for 20/21 Assessment
877,000 DLAD Improvement Fund
$ 4,382,000 Total Cash Funds
$ 580,000 cash funds available (Restricted), post-loan payoff
Components estimate:
$ 202,000 interest expense savings, 7/2021 to 1/1/2026
$ 180,000 interest income earned from DLAD Reserve Fund
$ 198,000 capital improvements contingency ($228K in ‘06 Forecast)
The cash funds available are restricted, specific to DLAD. The funds can be utilized for
future Donner Lake system improvements. If no projects necessary, the funds could be
used potentially to end the Donner Lake Surcharge earlier than the scheduled end date of
October 2036. The surcharge currently generates approximately $110,000 annually, which
is applied to corresponding Donner Lake portion of 2016 COP Bonds (a refunding of 2006
bonds). If all post-7/1 early payoff cash funds ($580k) were applied to ending surcharge
earlier than planned, this would equate to 5.3 years earlier or approximately Q2 of 2031.
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This item is in support of the following objectives and goals identified by the District.
1.05.020 Objectives:
1. Responsibly serve the public.
6. Manage the District in an effective, efficient and fiscally responsible manner.
1.05.030 Goals:
1.1. Conduct the District’s business in a legal, ethical, open, and transparent
manner.
6.6. Develop appropriate financial procedures to assure responsible financial
management.
FISCAL IMPACT:
With early pay off of the loan on 7/1/2021, the interest expense savings from 7/2/2021
through 1/1/2026 is $202,000. If the loan is paid off over time through 1/1/2026 as
scheduled, the interest expense is $202,000 and interest earned on cash funds in the bank
would be an estimated $40,000 (at estimated 0.5% investment earnings rate) for the period
7/2021 through 12/2026. Accordingly, the net cash flow savings 7/2021 through 1/1/2026
is $162,000. Discounting to 7/1/2021 value, the $162,000 cash flow savings has a Net
Present Value of $160,000 (at 0.5%).
ATTACHMENTS:
1. DWR SRF 2006 Loan Amortization Schedule
2. DWR Loan payoff on 7/1/2021 quote