HomeMy WebLinkAboutItem C: MWMC IGAEUGENE CITY COUNCIL
AGENDA ITEM SUMMARY
Work Session: An Ordinance Creating the Metropolitan Wastewater Management
Commission as an Intergovernmental Entity; and Providing an Immediate Effective Date;
and
A Resolution Approving the Issuance of Revenue Bonds by the Metropolitan Wastewater
Management Commission; and Providing an Effective Date
Meeting Date: May 9, 2005 Agenda Item Number: C
Department: Public Works Staff Contact: Peter Ruffler
www. cl. eugene, or. us Contact Telephone Number: 682-8606
ISSUE STATEMENT
The regional wastewater program is managed under an intergovernmental agreement (IGA) between
Eugene, Springfield, and Lane County. Changes to this agreement are being proposed to align it with
operational conditions and public policies that have evolved in the wastewater program over the past 25
years of the agreement, and to incorporate recommendations that will facilitate the issuance of revenue
bonds by the Metropolitan Wastewater Management Commission (MWMC) in support of the 2004
Facilities Plan and related capital projects for the regional wastewater program.
BACKGROUND
The council held an informational work session on this topic on February 9, and another work session on
April 11, 2005.
Feedback from the council on February 9 led to some modifications to the proposed amendments to the
IGA. The modified IGA was reviewed and discussed by the council during the April 11 work session.
In this work session, concern was expressed about the proposed amendments that provide limited
recourse to local government in regard to regional wastewater user rates or charges recommended by the
MWMC--specifically the vagueness of the grant of authority to MWMC to adopt and impose "any
additional amount [of the recommended user charges or systems development charges] that is necessary
to maintain adequate bond ratings and reasonable access to the capital market." Based upon this
concern, the definition of MWMC's authority to adopt rates and amounts above the level necessary to
meet bond covenants has been modified to read" ....and to achieve and maintain an unenhanced credit
rating of A for the Commission's Bonds from at least one nationally recognized rating agency." [Note
that this language now appears in Section 3.e. 1 of the draft IGA and is cross-referenced in sections 8c
and 16.] An un-enhanced credit rating represents the rating of the bond issuer in the absence of any
additional guarantees for payment of debt service, such as bond insurance. This modified language was
reviewed by Bond Counsel for the governing bodies and was determined to meet the objective of
ensuring the MWMC would have reasonable access to the bond market for capital financing purposes.
Questions were also raised in the work session about what the council's authority is in the process for
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setting the regional wastewater user rates, and what authority the council has in the review and approval
of the implementation of the capital projects contained in the 2004 Facilities Plan. The MWMC
establishes regional wastewater user rates on an annual basis. These rates are part of the annual regional
wastewater program budget, which must be ratified by the governing bodies before they go into effect
(see Section 13 of the proposed IGA). The governing bodies, therefore, have approval authority over
the annual regional wastewater budget and associated user rates, with the exception of that portion of the
user rates necessary to meet bond covenants and to achieve and maintain an un-enhanced credit rating of
A for the commission' s bonds from at least one nationally recognized rating agency.
The annual review and approval authority of the governing bodies extends to the capital improvement
program as well, since the capital projects are listed in, and funded through, the annual regional
wastewater budget. Any of the governing bodies may object to the capital projects list in an annual
budget for the regional wastewater program, which would require written notification to the commission
of the specific reason for the objection and a request for reconsideration. Under Section 13 of the IGA,
if a governing body objects to the commission's decision after reconsideration, the governing body may
refer the matter to the general membership of the Metropolitan Policy Committee (MPC) for mediation
in accordance with any procedure adopted by MPC. Furthermore, the draft IGA calls for the MWMC
to update the 2004 Facilities Plan on a five-year frequency, with these scheduled updates to be submitted
to the governing bodies for review and approval at least 6 months in advance of the anticipated approval
date and accompanied by an estimate of the effect the update may have on sewer user charges and
system development charges.
Finally, during the work session a question was asked whether SDCs will fund the new capacity
necessary to serve growth in the service area. The 2004 Facilities Plan estimates a total of $144 million
(in 2004 dollars) in capital improvement needs over the next 20 years. According to CH2M Hill, $57.8
million of this total is related to projects needed to serve projected growth in the service area during the
planning period. The rates derived from the adopted SDC methodology were calculated to raise this
amount of funding. For informational purposes, Attachment E includes a project list from the 2004
Facilities Plan which identifies the funding allocation for each project based upon the percentage of the
project that is attributed to growth versus the percentage to be funded by existing users.
The council is now scheduled to hold public hearings on the ordinance and resolution related to the
amendments to the IGA and issuance of revenue bonds by MWMC, respectively. Final action on both
the ordinance and the resolution is scheduled for May 23, 2005.
Financial and/or Resource Considerations
The regional wastewater program is supported by user fees, which are established annually by the
MWMC and reviewed and ratified by the city councils of Eugene and Springfield, and the Lane
County Board of Commissioners. Capital projects are also supported by revenue from systems
development charges (SDCs). The proposed changes to the IGA do not directly affect these rates,
but they improve and strengthen the agreement for the bond market and give the MWMC the ability
to offer revenue bonds that will be competitive in the market. The most cost-effective financing for
the regional wastewater projects is a combination of user fees, SDCs, and bond proceeds. Without
the ability to obtain competitive bond rates, the commission would have to consider raising user
rates in the next fiscal year, possibly by as much as 65%, to generate the necessary revenues.
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The 2004 Facilities Plan outlines a schedule for construction of the capital improvements necessary
to maintain the needed wastewater treatment capacity and capability. This schedule, if followed,
allows MWMC to maintain compliance with the current discharge permit and anticipated future
needs of the Eugene/Springfield communities. Adhering to the Facilities Plan construction schedule
for the next five years is crucial if the MWMC is to comply with a deadline of 2010 set by the
Oregon Department of Environmental Quality (DEQ) to prevent wastewater overflows during
specified storm events. Delays in the construction schedule will result in any or all of the following
consequences: 1) increased costs of construction; 2) increased costs due to enforcement actions
taken by the DEQ or the Environmental Protection Agency (EPA) or both; 3) increased costs from
defending MWMC and the partner agencies from regulatory enforcement actions and/or third party
law suits; 4) threats to public health and safety caused by sewer overflows, which are projected in
the next few years but will be controlled by constructing the planned improvements according to the
plan schedule; 5) the establishment of a potential requirement that significant industrial users reduce
or curtail their discharges during times of peak flows at the plant; and 6) the potential denial of new
connections based on inadequate wastewater treatment capacity within regulatory guidelines.
Timing
The timing of required capital improvements to the regional wastewater facilities is set forth in the
2004 Facilities Plan. The CIP schedule starts in 2005 and includes an extensive list of projects and
activities that must be undertaken to meet the objectives for regulatory compliance. A draft
resolution has been prepared (Attachment D) authorizing MWMC to issue bonds so that, if
approved, a total amount not to exceed $100,000,000 in revenue bonds could be issued by the
commission. This would be approximately the amount needed to finance the first five years of
construction projects, as included in the Facilities Plan, taking into account inflation. The first
issuance of approximately $35,000,000 in revenue bonds is planned for September 2005.
Subsequent issuances would occur over approximately a five-year period, and would be planned
strategically under the advisement ofMWMC's Financial Advisor.
The regional wastewater sewer user rate established by MWMC to cover operations, capital
improvements and debt service is proposed to increase by 6% in fiscal year 2005-2006, an increase
which equates to about 70 cents per month on an average residential sewer bill. Without the timely
issuance of revenue bonds it would require at least a 65% increase in user rates to generate sufficient
funds to support the CIP, which equates to an increase of over $7.00 per month on the average
residential user's monthly bill.
The proposed amendments to the intergovernmental agreement for the Metropolitan Wastewater
Management Commission are presented in Attachment A (which is in legislative format) and
Attachment B (which is a clean copy for improved readability). These amendments are the culmination
of several years of work reviewing the agreement. The scope of the review initially included only
changes to align the IGA with changes in operational and physical sewerage system conditions and
public policies, which have evolved over the past 25 years. With the adoption of the 2004 MWMC
Facilities Plan, review of the IGA was necessarily expanded to support implementation of the Facilities
Plan and enable the use of low-cost financing mechanisms needed to serve the metropolitan area for the
next twenty years.
The majority of the changes proposed in the IGA are related to the need for periodic updates to reflect
current operational practices, adopted plans, and metro-wide policy documents. These modifications do
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not reflect or implement any changes in the relationship or authorities between the governing bodies and
the MWMC. The modifications will result in an agreement that is aligned with administrative and
operational practices and that is consistent with current regional planning policies and terminologies.
Proposed modifications to this end include:
· Update the language to reflect adopted Metro Plan terms and policies.
· Update the financing guidance by deleting Exhibit B (which refers to the 1992 Financial Plan, the
County Service District and General Obligation bonding) and replace it with MWMC's 2003
Financial Plan (including the financial policies and revenue bonding strategy). Move relevant
financial management guidance from Exhibit B into the main body of the IGA.
· Change the directive from "compensating" the cities for the regional facilities to "facilitating timely
transfer of ownership," with the same consideration of funding equity among all sewer users that
currently exists.
· Eliminate provisions referencing triggers for planning to expand capacity (Section 9 of the IGA),
because the 2004 Facilities Plan and its updates replace the need for this provision. As
recommended, the changes continue the requirement of obtaining governing body approval for the
partial and comprehensive facility plan updates that are scheduled at five-year intervals during the
planning period. The recommended changes also allow MWMC to make other relatively minor
revisions to the facility plan, such as the annual updates to the regional CIP, without governing body
approval. Notwithstanding these recommended changes to the IGA, however, the governing bodies
will continue their existing role in reviewing such revisions through the annual MWMC budget
adoption process.
· Delete the outdated provisions for compensation from the three jurisdictions for "initial expenses."
· Move some sections of text for better organization, without modifying intent.
Additional modifications to the IGA are being proposed that reflect the recommendations of MWMC's
Financial Advisor in consultation with the Lane County Financial Advisor and the Bond Counsel for
Eugene (and now MWMC). The drafting of those changes was facilitated by MWMC legal counsel in
collaboration with the legal counsels for all three partner jurisdictions. One of the recommended
changes, described in the last bullet point below, limits the individual governing bodies' right to adopt
regional user rates and systems development charges less than those recommended by the commission in
certain situations. The language was recommended by the Financial Advisor and the Bond Counsel to
strengthen the assurance that adequate rates and fees will be established to cover long-term borrowing
by the commission, and that revenues will be collected and forwarded to MWMC. Adoption of the
recommendations is necessary to satisfy the concerns of the bond market and position the MWMC to
attract bidders and sell revenue bonds at the lowest cost to the regional sewer customers. Proposed
modifications to the IGA in this respect include:
· Incorporate the regional wastewater 2004 Facilities Plan as the basis for planning and improving
facilities, and specify that updates that will be submitted for review and approval by the governing
bodies.
· Delete the user charge reference to federal regulations (40 CFR 35.929), because previous federal
restrictions under the grants no longer apply, and replace it with language ensuring that sufficient
user charges will be established to meet debt service requirements in addition to operations,
maintenance, etc.
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· Strengthen language about collection and remittance of revenues, in response to Financial Advisor
concerns and the need to satisfy bond rating agencies.
· Remove 30-day notice of termination; leave one-year notice requirement, and further restrict Eugene
and Springfield from terminating when there is outstanding debt requiring long-term commitment of
revenues, unless a provision is made for debt repayment.
· Modify the dispute resolution process to provide that, after the Metropolitan Policy Committee
makes its recommendation, the commission's action takes effect only after all the governing bodies
agree, except that the objecting governing body's recourse is limited to submitting the matter to the
commission for reconsideration when: 1) The objection is to the commission's determination of
rates and amounts pursuant to Section 3.e. 1. Note that the current IGA contains a comparable clause
that committed the governing bodies to adopt rates and connection charges that were sufficient to
comply with the wastewater grant requirements of the CFR.
· Provisions were also added to Section 13 to facilitate adoption of the MWMC budget by the start of
the fiscal year (July 1).
Changes also are proposed to Appendix A of the intergovernmental agreement to reflect a revised
definition of"regional" wastewater facility. This revision shifts the current definition from an arbitrary
pipe size, to a consistently applied concept of"shared flows." The new language establishes a logical
ownership pattern whereby components of the overall wastewater collection and conveyance system that
serve only Eugene or Springfield are owned and maintained by the appropriate agency. Components
that transport or treat wastewater from both Eugene and Springfield are defined as part of the regional
MWMC system. This revision reflects the actual practices used by the Cities' local sewer programs and
the Regional Wastewater Program for many years.
The City Council of Springfield held a work session on the proposed amendments to the IGA on March
21, and an additional meeting on April 18, 2005, for the first reading and public hearing on the
ordinance related to the proposed amendments to the IGA and the related issuance of the revenue bonds.
Two members of the public spoke at the public hearing, and the council maintained its schedule for final
action on May 2, 2005.
The Lane County Finance and Audit Committee first discussed the proposed amendments to the IGA on
March 15, 2005. This committee is comprised of Commissioners Anna Morrison and Bill Dwyer, and
staffed by County Administrator Bill Van Vactor and County Tax Assessor Jim Gangle. A follow-up
meeting of the Finance and Audit Committee was held on April 11, at which time the committee voted
to forward the proposed amendments to the full Board of Commissioners for consideration. The first
reading of the ordinance approving the updated IGA is scheduled for May 18, 2005, with a second
reading and public hearing on June 1, 2005.
Amending the IGA requires consensus of all parties to the agreement; therefore, if any one jurisdiction
does not accept the amendments, the IGA remains as it is currently written. In this eventuality, the
MWMC would not be able to utilize revenue bonds as the most cost-effective mechanism for raising the
revenue necessary to implement the 2004 Facility Plan and would have to turn to higher cost options,
which include substantial increases in user rates or borrowing at significantly higher interest rates. It is
unclear, given the out-of-date nature of the IGA and potential conflicts among the governing bodies,
whether any external borrowing (even at higher interest rates) would be possible. Should the governing
bodies not universally agree on the need and language for amending the IGA, any of the parties to the
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agreement have the option of terminating their participation in the agreement, by providing one year's
advance notice of termination to the other governing bodies. If the County Board of Commissioners
was willing to withdraw from the MWMC, the change could be handled as an amendment to the existing
IGA and potentially could happen fairly quickly. If the County were not a willing partner in such a
change, the dissolution of MWMC and subsequent reformation of an agreement for management of the
regional wastewater program could take one year or longer. It is uncertain what the budget/fiscal status
of the regional wastewater program would be during the process of reformulating the agreement.
COUNCIL OPTIONS
Following the public hearing on this item, the council has the option to:
1. Approve the recommended changes to the intergovernmental agreement between Eugene,
Springfield, and Lane County for the regional wastewater program, the related ordinance for the IGA
and the resolution to approve issuance of revenue bonds by MWMC;
2. Direct staff to modify the proposed changes to the IGA and return with a modified proposal for City
Council approval; or
3. Take no action on the proposed changes to the IGA.
CITY MANAGER'S RECOMMENDATION
The City Manager recommends adoption of the proposed changes to the regional wastewater IGA and
approval of issuance of the revenue bonds by MWMC.
SUGGESTED MOTION
None; this is a work session only.
ATTACHMENTS
Please refer to the attachments that are included with the Agenda Item Summary for the May 9, 2005,
Public Hearing on this item.
FOR MORE INFORMATION
Staff Contact: Peter Ruffler
Telephone: 682-8606
Staff E-Mail: peter.j.ruffler~ci.eugene.or.us
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