ITEM 8: PROPOSED REVISION TO STATE REVOLVING FUND (SRF) LOAN CONTRACT LANGUAGE REGARDING FUTURE LOCAL DEBT, CITY OF CHICO (CITY), SRF LOAN PROJECT NO. C-06-4504-110

DISCUSSION: The City received a preliminary SRF loan commitment for $25.3 million for the Treatment Plant Upgrade and Expansion project, from the State Water Resources Control Board (SWRCB) on March 20, 1997. The City is currently in the process of executing a SRF loan contract with the SWRCB. On March 4, 1998, the City made a written request proposing a modification to the Division of Clean Water Programs (Division) contract language.

The Policy for Implementing the State Revolving Fund for Construction of Wastewater Treatment Facilities (Policy) Section XV.E. provides that all future local debt incurred by the City be on parity with, or subordinate to, the SRF debt. The standard language contained in Section 11 of the loan contract reads "Future Local Debt: All future debt incurred by the City shall be on parity with, or subordinate to, the SRF debt, and this reflects the requirement of the Policy."

The City feels that the language of Section 11 is too broad and requests that it be modified to read "(a)ll future debt incurred by the City which is secured by the dedicated source of revenue shall be on parity with, or subordinate to, the SRF debt." Because the City has an approved dedicated source of revenue to assure repayment of the SRF loan debt, they assert that a modification of Section XV.E. can be allowed. The SRF loan debt would be secured by the dedicated source of revenue.

The Division proposes that the City be required to submit a revised revenue program to the Division whenever it plans to incur bond indebtedness for other locally funded projects. The revised revenue program must be approved by the Division. This should provide an acceptable level of assurance that the City's responsibility to secure a dedicated source of revenue repayment fund is not compromised. `` responsibility to assure repayment is not compromised.

POLICY ISSUE: Should the SWRCB approve the proposed modification to Section 11 of the SRF loan contract? Approving this request may result in modification requests from other SRF loan recipients expecting to sell future local debt. allow the City of Chico to sell future debt which is secured by the dedicated source of revenue? Approval of this request.

RWQCB IMPACT: None.

FISCAL IMPACT: There is no direct program impact. There is a remote possibility that, in the event of a default, the SRF may not receive all of the repayment monies due on a loan.

STAFF RECOMMENDATION: That the SWRCB adopt a resolution approving the City's request to limit future debt that is secured by the dedicated source of revenue to debt which is on parity with, or subordinate to, the SRF debt issued by the SWRCB.

DRAFT May 4, 1998

WHEREAS:

1. Section XV.E. of the Policy for Implementing the State Revolving Fund for Construction of Wastewater Treatment Facilities (Policy) and Section 11 of the SRF loan contract prohibit the sale of future local debt that is senior to any SRF debt;

2. The City of Chico (City), by letter dated March 4, 1998, requested a modification to the language of Section 11 of their SRF loan contract; and

3. The Division of Clean Water Programs has reviewed the request and finds that review of future City revenue programs for the SRF debt is adequate to assure reasonable protection against default.

THEREFORE BE IT RESOLVED THAT:

The State Water Resources Control Board approves modification to the language of Section 11 of the SRF loan contract to read "Future Local Debt: All future local debt incurred by the City which is secured by the dedicated source of revenue shall be on parity with, or subordinate to, the SRF debt. The City must submit a revised revenue program to the Division of Clean Water Programs which must be reviewed and approved prior to the time that the City incurs any bonded indebtedness for other locally funded projects."

The undersigned, Administrative Assistant to the Board, does hereby certify that the foregoing is a full, true, and correct copy of a resolution duly and regularly adopted at a meeting of the State Water Resources Control Board held on May 27, 1998.

__________________________

Maureen Marché

Administrative Assistant to the Board