TO: Members of the Governing Board
FROM: Christopher Silke, District Engineer
REPORT BY: Annamaria Martinez, Assistant Engineer
SUBJECT: Approval of letter requesting the re-issuance and consolidation of two temporary loans from Napa County totaling $1,625,000, and Adoption of a Resolution requesting the loan and authorizing the Chair to sign the Promissory Note
RECOMMENDATION
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Authorize a letter requesting the re-issuance and consolidation of two temporary loans from the County totaling $1,625,000 and adopt a Resolution requesting the loan and authorizing execution of the Promissory Note, pursuant to Government Code Section 25214.4. (Fiscal Impact: $1,625,000 Revenue and Expense, Budgeted, Discretionary)
[4/5 vote required]
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BACKGROUND
NBRID is a special district of the State of California organized under the Resort Improvement District Law (Public Resources Code Section 13000 et seq.) for the provision of water and sewer service in an unincorporated portion of the County of Napa, which includes Unit 1 and 2 of the Berryessa Highlands and the Oakridge Estates.
Government Code section 25214.4 authorizes Napa County to loan funds to NBRID with a term of up to three years after the end of the fiscal year in which the loan is made, with a 4/5 vote of the Board of Supervisors.
NBRID currently has five active loans from Napa County totaling $3,839,634. The loans include:
Loan No. 1 for $869,000 and Loan No. 2 for $625,000, which are the result of the consolidation of five smaller loans issued between 2008 and 2012 used to fund capital projects and operations and maintenance activities, Loan No. 4 for $1,000,000 which is an original loan from 2021 used to fund operation and maintenance; Loan No. 5 for $345,634 which is an original loan from 2022 used to supplement funding for a capital project, and Loan No. 6 for $1,000,000 which is an original loan from 2023 used to fund operations and maintenance activities.
Loan No. 1
On May 7, 2013 two loans were consolidated into a principal amount of $869,000 and issued for a three-year term. This loan has been repaid and renewed for three, three-year cycles, with the third renewal occurring on June 4, 2019. Loan No. 1 incorporates the following original loans and is scheduled to be paid in full by June 30, 2025:
1. On October 14, 2008 a loan for $474,000 was received to pay HydroScience Engineers. It was NBRID’s intent to sell bonds and repay the County immediately thereafter.
2. On June 29, 2010 a loan for $395,000 was received to cover shortfalls in the FY 2009-10 operating budget and for District improvements.
Loan No. 2
On October 6, 2015 three loans were consolidated for a principal amount of $625,000 and issued for a three-year term. This loan was repaid in FY2017-18 and renewed for a third three-year term on May 4, 2021. Loan No. 2 is included with today’s requested action. Loan No. 2 incorporates the following original loans:
1. On May 10, 2011 a loan for $205,000 was received to pay for non-budgeted County costs, including engineering, accounting, Auditor's Office, legal and County Executive Office expenses that were needed for the day-to-day operations of the District.
2. On June 5, 2012 a loan for $325,000 was received to pay for legal expenses that exceeded the amount budgeted for the Administrative Civil Liability (ACL) Complaint R5-2011-0590 issued by the Regional Board for wastewater discharge violations that occurred in FY2010-11; professional services expenses related to the contract with Western Water Constructors; and emergency repairs to the District’s water distribution system. $45,000 of this loan was sourced from the County Accumulated Capital Outlay Fund.
3. On September 11, 2012 a loan for $95,000 was received to pay for the ACL Complaint R5-2011- 0590 settlement which was not budgeted in FY 2012-13.
Loan No. 3 (defeased)
Special Assessment District 2012-01 was created and approved by property owners to finance the entirety of the USDA loans, but the District did not have sufficient reserves to meet USDA loan conditions. The County provided a loan in 2013 totaling $1.1 million to fund the reserve requirements for the water and sewer capital improvement loans issued to the District by the USDA Rural Development. By 2022, the payments received from AD 2012-01 were sufficient to meet current annual repayment and total reserve requirements and Loan No. 3 was paid in full.
Loan No. 4
On May 18, 2021 a loan for $1,000,000 was received to cover projected three-year shortfall in the District’s operating budget. The shortfalls were projected using budget models prepared for the District by Robert D. Niehaus, Inc. (RDN), the consultant retained to complete a five year rate analysis for the District. Loan No. 4 is included with today’s requested action.
Loan No. 5
On October 27, 2022, a loan for $345,634 was received to supplement construction of the Wastewater Pond 2 Slope Stabilization Project. This loan is scheduled to be paid in full by June 30, 2025.
Loan No. 6
On June 6, 2023 a loan for $1,000,000 was received to cover projected operating budget shortfalls while concurrently granting staff time to 1) update a Median Household Income Survey to determine eligibility for Federal and State grants for capital projects that will contribute to reduced operating and maintenance costs and 2) proceed with measures (ie, rate adjustment, special tax, other) to bring in enough revenue to balance the budget over the next five years. This loan is scheduled to be paid in full by June 30, 2026.
District residents agreed to a modest rate increase of approximately 12% effective December 1, 2021. While the additional revenue received as part of this rate increase did help the District’s financial situation, it was not sufficient to cover prior expected and future anticipated annual deficits, and the District has not been able to build enough budgetary reserves to satisfy the current payment for the third term of Loan No. 2 for $625,000 and the first term of Loan No. 4 for $1,000,000 - both of which are due June 30, 2024.
The loan requested as part this agenda report includes the renewal and consolidation of Loan Nos. 2 and 4 to into a single loan to be redesignated as Loan No. 7 for a total amount of $1,625,000.
Requested Actions:
1. Authorize the attached letter to the Board of Supervisors requesting a loan of $1,625,000 pursuant to Government Code section 25214.4 - which includes the reissuance of Loan No. 2 in the amount of $625,000 and of Loan No. 4 in the amount of $1,000,000) - both loans to be consolidated into a single loan and designated as Loan No. 7.
2. Adopt a Resolution approving the loan to provide the requested funding and authorize the Chair to sign the Promissory Note - contingent upon approval of the loan from the Napa County Board of Supervisors.
FISCAL & STRATEGIC PLAN IMPACT
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Is there a Fiscal Impact? |
Yes |
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Is it currently budgeted? |
Yes |
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Is it Mandatory or Discretionary? |
Discretionary |
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Discretionary Justification: |
NBRID may request a loan from Napa County pursuant to Government Code Section 25214.4 establishing a three (3) year term. Through a Proposition 218 protest hearing, rates were increased in Fiscal year 2021-22; however, due to limited growth in active water and sewer accounts and an overall reduction in water usage and revenues, NBRID is not able to repay the previously issued loans at this time. The requested loan will consolidate two existing loans (Loan Nos. 2 and 4) that are due June 30, 2024 into a new loan to be designated as Loan No. 7. |
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Is the general fund affected? |
Yes |
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Future fiscal impact: |
NBRID will repay the loan as required by Government Code section 25214.4 which allows NBRID to avoid being required to repay the funds plus interest for three years. However, it is not anticipated that NBRID will have the ability to repay the loan within the statutory three-year period, which will likely prompt refinancing on the loan term length until such time that a proposed rate schedule, or increase in customers, or addition of a resort, provides sufficient revenue for repayment. |
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Consequences if not approved: |
If the District does not request the loan renewal, the payment for the third term of the two prior loans - issued on June 30, 2021 - is due on June 30, 2024, and must be paid from its operating fund balance. Repayment of the loans issued on June 30, 2021, will deplete NBRID’s operations budget and available fund balance, causing NBRID’s inability to pay for other critical operating and maintenance expenses. |
ENVIRONMENTAL IMPACT
ENVIRONMENTAL DETERMINATION: The proposed action is not a project as defined by 14 California
Code of Regulations 15378 (State CEQA Guidelines) and therefore CEQA is not applicable.