12. Siemens energy savings performance contractOFFICE OF ADMINISTRATIVE SERVICES
CUPERTINO
CITY HALL
10300 TORRE AVENUE - CUPERTINO, CA 95014 -3202
(408) 777 -3220 - FAX (408) 777 -3109
SUMMARY
Agenda Item No. I a.
SUBJECT AND ISSUE
Meeting Date: June 9, 2010
Recommend the following actions regarding permanent financing for the energy savings
performance contract with Siemens Building T ,-chnologies:
a. Approve using undesignated General Fund reserves of $1,133,845 to replenish the
Economic Uncertainty reserves borrowed for the Siemens project;
b. Adopt Resolution 10 -�I 1 ' giving th City the option to obtain financing in the
future for the project, if conditions warrant; and
c. Amend the Economic Uncertainty I fund reserve policy to authorize that the City
Council may approve borrowing up to 10% of the policy level, for a term not to
exceed six years, if payback of said reserves can be reasonably estimated and
assured.
BACKGROUND AND FISCAL IMPACT
The City Council awarded the streetlight and irrigation energy retrofit project to Siemens
Building Technologies on April 20, 2010 with a budget funded by a $438,000 grant,
$562,000 in capital reserves and, in the interim, $1,133,845 from economic uncertainty
reserves. Staff was directed to come back with a permanent financing recommendation for
the $1,133,845 after the Council had a chance to review the recently proposed 2010 -11
budget and five -year plan.
Staff analyzed two alternatives: 1) Self - finances the amount out of reserves, forego a loan,
and return the energy savings to the General Fund reserves; or 2) Obtain $1,133,845 in
bank or private financing and use the energy savings to pay back the loan and interest.
Self Financing
This is the lowest cost alternative as City reserves, in concept, are being loaned out with
current portfolio returns at 0.44 %, and long -teen five -year Treasury interest rates of 2.15 %,
both of which are lower than the estimated 4.25% debt interest rate. $16,000 in debt
issuance costs are also saved. Through the end of fiscal 2015, $1,166,000 in energy savings
would accumulate over 4.5 years, assuming project completion in mid -2011, using the
Siemens forecasts. Savings are used to payback the loan whether it's from internal or
outside financing, with the remaining savings available for other purposes. However, on a
cash flow basis, the General Fund has a lower initial cash balance with self - financing. The
12 -1
Energy Savings Performance Contract Permanent Financing
June 9, 2010
Page 2 of 3
General Fund in the next five years with internal financing and the energy savings coming
back into the fund would look as follows (in thousands):
2011 2012 2013 2014 2015
Economic Uncertainty I 12,500 12,500 12,419 12,430 12,500
Economic Uncertainty H 915 915 915
UUT 534
Undesignated 1,380 321 1,268
Total (Policy at 13,915) 14,414 12,821 13,334 13,345 14,683
With self - financing, staff recommends that a resolution (Attachment A) be adopted by the
Council to give the City the flexibility, but not obligate it, to obtain a loan in the future at
tax- exempt interest rates, if conditions warrant it. The resolution states that the loan intends
to reimburse payments that the City made on the project.
Moreover, the current reserve policy says that the Economic Uncertainty reserve should
only be used for economic downturns and major unforeseen outlays. If the City chooses
self-financing, staff recommends this policy be amended to ensure that the fund will be
kept at amounts sufficient for its main purpose.
Economic Uncertainty I - $12,500,000 policy level: For economic downturns and
major unforeseen outlays. The City Council may approve borrowing up to 10% of
the policy level, for a term not to exceed six years, if payback of said reserves can
be reasonably estimated and assured.
Debt Financing
The General Fund would receive $1,133,845 in loan proceeds in fiscal 2011 to replenish its
reserves. The five -year fund levels would look like this, with energy savings offsetting the
five -year debt payment and interest earnings on the replenished reserves:
2011 2012 2013 2014 2015
Economic Uncertainty 1 12,500 12,500 12,500 12,500 12,500
Economic Uncertainty H 915 915 915
UUT 534
Undesignated 2,400 1,120 480 239 1,313
Total (Policy at 13,915) 15,434 13,620 13,895 13,654 14,728
If the City pursues debt financing, then private financing is a lower cost alternative than
publicly issuing bonds (see chart below and Attachment B).
*Note: Final payment comes out of bond reserves.
12 -2
Interest
Net
Costs of
Annual
Total
Financing Alternatives
Term
Rate
Interest
Issuance
Payments
Payments
Cost
Private Financing,
5 Yrs
4.25%
4 . 2 6%
$ 16,000
$ 254,202
$1,271,008
Bonds (competitive)*
6 Yrs
2.25%
4.21%
$ 203,463
$ 240,012
$1,440,071
Bonds (negotiated)*
6 Yrs
2.40%
4.45%
$ 209,000
$ 241
$1,451,783
*Note: Final payment comes out of bond reserves.
12 -2
Energy Savings Performance Contract Permanent Financing
June 9, 2010
Page 3 of 3
RECOMMENDATION
Given the current budget projections and the fact that a loan does not significantly bolster
five -year fund balances above policy levels, using the self - financing alternative for the
$1,133,845 is recommended for its cost efficiency. With that, it is recommended that the
Council:
a. Approve using undesignated General Fund reserves of $1,133,845 to replenish the
Economic Uncertainty reserves borrowed for the Siemens project;
b, Adopt Resolution 10- giving the City the option to obtain financing in the
future for the project, if conditions wanunt; and
c. Amend the Economic Uncertainty I fund reserve policy to authorize that the City
Council may approve borrowing up to 10% of the policy level, for a term not to
exceed six years, if payback of said reserves can be reasonably estimated and
assured.
Submitted by:
David Woo
Finance Director
Approved for submission:
David W. Knapp
C:.ty Manager
Reviewed by:
_�_44�74' 1
Carol A. Atwood
Director of Administrative Services
Attachment A: Resolution
Attachment B: Detail of Financing Alternatives
12 -3
ATTACHMENT A
RESOLUTION NO. 10 -114
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF CUPERTINO INTENDING TO USE POSSIBLE OUTSIDE FINANCING TO
REIMBURSE CITY RESERVES FOR PAYMENTS MADE ON THE ENERGY
SAVINGS PERFORMANCE CONTRACT WITH SIEMENS BUILDING
TECHNOLOGIES
WHEREAS, the City of Cupertino awarded an energy savings performance contract to
Siemens Building Technologies on April 20, 2010; and
WHEREAS, the City will pay the contract out of grant funds and City fund reserves; and
WHEREAS, the City may consider obtaining outside financing in the future to reimburse all
or part of the reserves used to pay for this contract.
NOW, THEREFORE, BE IT RESOLVED that if the City does indeed obtain outside
financing, it intends to use the financing proceeds to reimburse all or part of the City reserves
used to pay the energy savings performance contract with Siemens Building Technologies.
PASSED AND ADOPTED at a regular adjourned meeting of the City Council of the City of
Cupertino this 9th day of June, 2010 by the following vote:
Vote Members of the City Council
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
City Clerk
:T'j"J;• 7
Mayor, City of Cupertino
12 -4
ATTACHMENT B
SUBJECT TO AND MADE APART OF THAT CERTAIN PROPOSAL DATED APRIL 14, 2010
LESSEE:
CITY OF CUPERTINO, CA
LESSOR:
HOLMAN CAPITAL CORPORATION
COMMENCEMENT:
7- May -2010
TERM:
5 YEARS
1$T PAYMENT DUE:
1 -Nov -2010
RATE:
4.2500%
OPTION A
LEVEL PRINCIPAL AND INTEREST
5 YEARS
$1,133,845 Project proceeds
1,000 Issuance costs from lender
S 1 , 134,845 Loan
$15,000 Issuance costs out of pocket - For bond counsel
Purchase option represents an early payoff of the loan which equals paying 103%
of the loan balance.
12 -5
Purchase
Payment No.
Date
Payment
Interest
Principal
O ption
0
5/7/2010
1
11/1/2010
$
127,100.79
$
23,520.83
$
103,579.96
$
1,062,202.99
2
5/1/2011
$
127,1Q0.79
$
21,914.38
$
105,186.41
$
953,860.99
3
11/1/2011
$
127,100.79
$
19,679.17
$
107,421.62
$
843,216.72
4
5/1/2012
$
127,100.79
$
17,396.46
$
109,704.33
$
730,221.26
5
11/1/2012
$
127,100.79
$ ,
15,065.24
$
112,035.55
$
614,824.64
6
5/1/2013
$
127,100.79
$
12,684.49
$
114,416.30
$
496,975.85
7
11/1/2013
$
127,100.79
$
10,253.14
$
116,847.65
$
376,622.78
8
5/1/2014
$
127,100.79
$
7,770.13
$
119,330.66
$
253,712.20
9
11/1/2014
$
127,100.79
$
5,234.35
$
121,866.44
$
128,189.76
10
5/112015
$
127,100.79
$
2,644.71
$
124,456.08
$
-
Grand Totals
$
1,271,007.90
$
136,162.90
$
1,134,845.00
OPTION A
LEVEL PRINCIPAL AND INTEREST
5 YEARS
$1,133,845 Project proceeds
1,000 Issuance costs from lender
S 1 , 134,845 Loan
$15,000 Issuance costs out of pocket - For bond counsel
Purchase option represents an early payoff of the loan which equals paying 103%
of the loan balance.
12 -5
$1,490,000
City of Cupertino
Competitive Certificates of Participation
(Sustainability Project)
Net Debt Service Schedule
Date
Principal
Coupon
Interest
Total P +1
DSR
Net New D/S
0610 V2010
-
-
-
-
-
-
06/01/2011
240,000.00
1.000
29,195.00
269,195.00
(3,343.16)
265,851.84
06/01/2012
240,000.00
1.450%
26,795.00
266,795.00
(3,34116)
263,451.84
06101/2013
245,000.00
1300%
23,315.00
268,315.00
(3,343.16)
264,971.84
06/01/2014
250,000.00
2.250
19,150.00
269,150.00
(3,343.16
2 65,806.84
06/01/2015
255,000.00
2.500
13,525.00
268,525.00
(3,343.16)
265,181.84
06/01/2016
260,000.00
2.750%
7,150.00
267,I50.00
(152,343.16)
114,806.84
Total
$1,490,000.00
-
$119,13000
$1,609,130.00
(169,05896)
51,440,071.04
$1,133,845 Project proceeds
203,463 Issuance costs
152,692 Debt service reserve
N. • ! 111 •.
Re I CUPERM SF I Competitive COPs I SINGE PURPOSE 141132010 1 11:25 PM
12 -6
$1,495,000
City of Cupertino T �
Negotiated Certificates of Participation
(Sustainability Project)
Net Debt Service Schedule
Date
Principal
Coupon
lnter
Total P +I
DSR
Net New D/S
06/0112010
_
06/01/2011
240,000.00
1.000%
30,875.00
270,875.00
(3,573.72)
267,30126
06/01/2012
240,000.00
1500%
28,475.00
268,475.00
(3,573.72)
264,90128
06/01/2013
245,000.00
1.750%
24,875.00
269,875.00
(3,573.72)
266,30128
06/01/2014
250,00
2.
_ 20,5
270,587.50
3 5 .72
267,013.78
06/01/2015
255,000.00
2.750%
14,962.50
269,962.50
(3,573.72)
266,388.78
06/01/2016
265,000.00
3.000
7,950
272,950.00
(1
119,
Total
$1,495,000.00
-
$127,725A0
$1,622,725,00
(170,942.32)
$1,451,782.68
$1,133,595 Project proceeds
209,000 Issuance costs
152,155 Debt service reserve
$1,495,000 Lom
File I CUPERT - ISF I N09008 "COPS I SINGLE PURPOSE 14/i3/2010 1 11:08 pm
12 -7
EXHIBITS
BEGIN
E
-RE
cc W q 110 x - 1,2
Self- Financing vs. Debt Financing
Effect on General Fund Reserves- Per staff report
Self- Financing (in 000's)
Fund Balance per Proposed Budget pg. 36
Accumulated Energy Savings
Accmulated Interest Earnings on Savings (1)
Fund Balance per 6 -9 -10 Staff Report
Debt Financing (in 000's)
Fund Balance per Proposed Budget pg. 36
Loan Replenishment
Accumulated Interest on Replenishment
Fund Balance per 6 -9 -10 Staff Report
6/9/10 Agenda Item #12
Page 1 of 2
2011 2012 2013 2014 2015
14
12
12,708 121
13 J
118
358
614 884
1,166 CUPERTINO
1
6
12 18
24
14,414
12,821
13,334 13,345
14,683
14,295
12,457
1 2,708
12,443
13,493
1,134
1
1,134
1,134
1,134
5
29
53
77
101
15,434 13,620 13,895 13 14, 728
(1) On annual energy savings
Self- Financing vs. Debt Financing
Effect on General Fund Reserves - Revised (1)
Self - Financing (in 000's)
Fund Balance per Proposed Budget pg. 36
Accumulated Energy Savings
Accmulated Interest Earnings on Savings (1)
Fund Balance per 6 -9 -10 Staff Report
Debt Financing (in 000's)
Fund Balance per Proposed Budget pg. 36
Loan Replenishment
Accumulated Interest on Replenishment
Fund Balance per 6 -9 -10 Staff Report
6/9/10 Agenda Item #12
Page 2 of 2
2011 2012 2013 2014 2015
14,295 12,457
12
12
13,493
118 358
614
884
1
1 8
21
40
66
14,414 12,823
13,343
13
14,725
14,295
12,457
12,708
12,443
13,493
1
1
1,134
1,134
1
5
29
53
77
101
15
13,620
13,895
13,654
i 4,728
(1) On accumulated, rather than annual, energy savings