ITEM TITLE:
Consideration and action upon Resolution of the City of Lawton, Oklahoma (the “City”) authorizing and approving the incurring of indebtedness by the trustees of the Lawton Water Authority (herein the “Authority”) to be accomplished by the issuance of its Line of Credit Note, Series 2024C or other evidences of indebtedness in one or more series designations on a tax-exempt or taxable basis, at a premium or discount, in the aggregate principal par amount of not to exceed Ten Million Dollars ($10,000,000) (herein the “Note”) for the purpose of securing funding for the closure and post-closure cost estimates regarding the statutory required financial assurance mechanism for the City of Lawton’s landfill facilities as required by the Oklahoma Department of Environmental Quality, said facilities being part of the “Utility Systems” of the Authority within the City of Lawton, Oklahoma (the “City”); and pay costs of issuance related thereto; providing that the organizational document creating the Authority is subject to the provisions of the indenture authorizing the issuance of said Note; approving the award of the sale of said Note on a negotiated basis, approving the waiver of competitive bidding with respect to the sale of said Note; and approving the proceedings of the Authority pertaining to the sale of said Note; approving and authorizing a Sales Tax Agreement (the “Sales Tax Agreement”) by and between the City and the Authority pertaining to the year-to-year pledge of certain sales tax revenues; and all matters related thereto, including execution of all related documents thereto.
INITIATOR: John Andrew - City Attorney
STAFF INFORMATION SOURCE: John Andrew - City Attorney; Timothy Wilson - Deputy City Attorney; Rebecca Johnson - Finance Director
BACKGROUND: On November 1, 2023, Oklahoma Department of Environmental Quality performed an inspection at the city’s municipal landfill. On Nobember 1, 2023, DEQ performed an inspection of the facility and observed the FY-2022 and FY-2023 financial assurance mechanism updates, local government test, had not been submitted for DEQ approval. These updates were due by December 31, 2022 and 2023. These updates were late due to the city’s audit being late. As a result, a notice of violation was issued by DEQ on February 14, 2024.
On or around August 6, 2024, ODEQ approved a consent order with the city requiring the city to “establish and submit to DEQ an alternative financial assurance mechanism(s) in the amount of the currently approved cost estimates (approved on April 18, 2024) no later than October 31, 2024.” That amount is $9,133,582.25. The purpose of the alternative assurance mechanism is to guarantee to ODEQ that the city has the financial ability to handle the closure and post-closure costs associated with the landfill, in the event it became necessary to close the landfill. Such alternate financial assurance mechanisms include: putting funds in escrow, purchasing a certificate of deposit, purchasing a bond, obtaining insurance, obtaining a letter of credit.
After looking at the various options, the letter of credit was determined to be the best option, from both a legal and financial perspective. A letter of interest was submitted from BancFirst wherein a one-year letter of credit is offered for a 2% origination fee. The interest rate on the debt would be 6.75%, but would only accrue if there is a draw on the line of credit. In its letter of interest BancFirst is requiring city’s 2023 audit be submitted by October 2024 and the 2024 audit by March 2025. Both our bond counsel and financial advisor have agreed to reduce their normal fees and each charge $68,000 for their services. The letter of credit would be issued to the Lawton Water Authority; “refuse utility facilities” are part of the “utility systems” referenced in the Authority’s amended trust indenture. In the event of a draw on the line of credit, the debt would be secured by a sales tax agreement between the Lawton Water Authority and the City.
The proposed resolution authorizes the incurring of indebtedness through a line of credit in the amount not to exceed $10 million. This is because in April 2025 the city will have to submit updated landfill closure and post closure costs to DEQ. It is anticipated that these costs will increase, so staff is seeking a letter of credit that will also cover the increased costs.
EXHIBIT: Proposed Resolution 24-___; Consent Order
KEY ISSUES: Approving a resolution to authorize a letter of credit to cover the 2024 closure and post-closure costs for the landfill.
FUNDING SOURCE: Origination fee and other debt issuance fees to be paid from city’s general fund; in the event of a draw down on the line of credit the debt service will be secured by a sales tax agreement between the City and Lawton Water Authority.
STAFF RECOMMENDED COUNCIL ACTION: Approve the resolution authorizing and approving the incurring of indebtedness by the Lawton Water Authority to be accomplished by the issuance of a Line of Credit Note in the aggregate principal par amount of not to exceed $10,000,000; and take all action necessary to effectuate the terms of the resolution.