CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
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Pass the ordinance authorizing the issuance of General Obligation Bonds, Series 2026, for an amount not to exceed $41,000,000 (Item 1 of 2)
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DEPARTMENT: Finance Department
SUBMITTED BY: Raymond Munch, Director of Finance
BOARD/COMMISSION REVIEW:
The Financial Advisory Board (FAB) reviews debt issuance plans as part of the annual budget process. FAB supports using bonds as a strategic financing mechanism for capital improvement projects and recommended the debt financing projections included in the 2025-27 utility rate studies.
BACKGROUND:
The other related item on the City Council agenda is:
• 26-0694: Pass the ordinance authorizing the defeasance of outstanding General Obligation Bonds, Series 2018 (Item 2 of 2)
In December 2025, the City Council approved the 2026 Annual Budget and Capital Improvement Program (CIP). The 2026 CIP included $58,000,000 in capital projects without an identifiable funding source. By adopting this budget, the City Council tentatively authorized staff to issue bonds to pay for all unfunded capital projects, with the City Council retaining final approval of any bond sale.
Since 2018, the City has issued bonds using a project reimbursement methodology. This allows staff to analyze capital project spending and make any adjustments to the required borrowing amounts. This practice also allows staff to manage cash flow more effectively and reduce interest costs.
To use this methodology, the City must pass an Official Intent for Reimbursement Resolution for capital projects. This allows projects approved through the annual budget to be included in any future bond sale. The resolution itself does not authorize borrowing; it only reserves the right to fund current projects through a future bond sale.
On January 21, 2025, the City Council adopted Resolution 25-001, making any capital expenditure included in the resolution eligible for reimbursement over the following 18 months. Then, on January 20, 2026, the City Council adopted Resolution 26-003 for the reimbursement of 2025 capital project expenditures.
Through these two resolutions, the City has legal authority to issue bonds to reimburse capital project costs incurred between October 1, 2025, and the date of the bond issuance. Staff have analyzed capital project spending and are ready to proceed with a bond issuance to fund these projects.
Staff also evaluated all outstanding bonds eligible for redemption or refinancing. Two bond series, General Obligation (GO) Bond, Series 2017 and Series 2018, are callable as of December 1, 2026.
DISCUSSION:
New Issuance - Series 2026
The City proposes to issue Series 2025 GO Bonds, with the proceeds to reimburse the Electric Utility and Water Utilities funds for costs incurred on capital projects in 2025 and 2026. Those capital projects include capacity and process improvements at the Springbrook Water Reclamation Center, replacement of water distribution system infrastructure, and replacement of electric utility infrastructure, including underground distribution cables, electric substation transformers, and related equipment.
The total anticipated project expenses reimbursed from the Series 2026 bonds will be $40,000,000, which is less than the amount contemplated in the 2026 Budget. The amount is lower due to project timing and the use of an interest-free IEPA loan for lead service replacements. Project expenses are allocated to the following funds:
• Electric Utility Fund - $10,000,000
• Water Utilities Fund - $30,000,000
The bonds will finance the cost of those projects over 20 years, which is less than or equal to the life expectancy of the assets created or improved. The resulting debt service will be allocated proportionally according to the fund breakdown above.
Summary
Staff is seeking a not-to-exceed amount of $41,000,000 for this bond issuance, with a projected true interest cost (TIC) of 3.85%.
The difference between the $41,000,000 not-to-exceed value and the projected $40,000,000 in project expenses provides the City with protection against market and sale conditions and accommodates the costs of bond issuance. The City will only sell bonds in the amount necessary to cover actual and projected project expenditures incurred during the eligible reimbursement period, plus issuance costs. Staff will provide the City Council with a final report on the bonds sold after the sale is completed.
As part of the bond issuance process, City representatives will participate in credit rating calls with Moody’s and Standard & Poor’s the week of June 22. Both agencies will issue an official rating opinion before the bond sale. Staff is confident that the City will maintain its AAA bond rating with both agencies, given that the City’s financial position has remained strong since the last rating in 2025.
Series 2018 Redemption (Item 2 of 2)
The Series 2018 bonds were issued for general government capital improvements with the annual principal and interest paid from the Debt Service Fund. The remaining principal as of July 1, 2026, is $3,435,000 payable through 2038 at an average interest rate of 4.0%. The bonds are callable as of December 1, 2026, which means the City can refinance the bonds at a lower interest rate or redeem the bonds, otherwise known as defeasance. Through defeasance, the City would pay the remaining principal in 2026 using accumulated balances in the debt service fund, thus eliminating future interest costs totaling $945,219.
Staff does not recommend any action be taken on the Series 2017 bonds, as the current interest rate is favorable (compared to current rates) and the outstanding principal exceeds available resources on hand.
FISCAL IMPACT:
The Series 2026 bonds will have their first interest payment due in June 2027, and the final payment will occur in 2046. Interest is payable semi-annually on June 1 and December 1, and the principal is due annually on December 1.
The average annual debt service payment will be $2.66 million, with approximately $1.89 million allocated to the Water Fund and $767,000 allocated to the Electric Fund. All debt service will be fully funded through utility revenue and abated from the property tax levy annually. The principal and interest payments are in line with the assumptions made in the 2024 electric and water rate studies.
The defeasance of the Series 2018 bonds will be funded through excess cash balance in the Debt Service Fund, resulting from annual Food and Beverage Fund transfers that exceeded budget estimates. The early payoff of these bonds will save taxpayers $945,219 in total interest payments over the next 12 years, or about $80,000 annually.
All costs associated with this bond issuance are financed through the issuance itself.