City of Reno
Nevada

Resolution
8713

Staff Report (For Possible Action): Resolution to adopt an Authorization Resolution for the issuance of Medium-Term Obligations to fund the Fire Apparatus Replacement Program in an amount not to exceed $6,500,000. (two-thirds majority voting requirement)

Information

Department:FinanceSponsors:
Category:ResolutionProjects:Provide Public Safety

Attachments

  1. Printout

Recommendation and Proposed Motion

Recommendation:  Staff recommends Council adopt an Authorization Resolution for the issuance of Medium-Term Obligations in an amount not to exceed $6.5 million in order to fund the Fire Apparatus Replacement Program, directing the officers of the City to forward materials to the Department of Taxation of the State of Nevada; and providing certain details in connection therewith.

 

Proposed Motion:  I move to approve staff recommendation.

Staff Report Formal Body

Summary: Staff requests authorization from Council to pursue issuing the Medium-Term Obligations. The Medium-Term Obligations would be used to finance a portion of the Fire Department Apparatus Replacement Program.

 

Previous Council Action: 

July 24, 2019 - Council adopted a Resolution of Intention to hold a Public Hearing concerning the issuance of Medium-Term Obligations. This Public Hearing will be held on September 11, 2019.

 

During the FY 9/20 budget process, Council discussed this program several times and appropriated $1.5 million into the program to begin replacing antiquated fire apparatus.

 

December 12, 2018 - the Finance Director and Fire Chief presented to Council an update on the status of the Fire Department’s Apparatus Fleet, along with an analysis of potential mixes of financing and cash funding to reach a sustainable replacement program.

 

Background:  The Fire Department’s fleet is rapidly aging and much of the front line apparatus has exceeded its useful life.  Best practice for structure engines is to utilize them for 10 years or 100,000 miles, followed by an additional five years as reserve apparatus.  The average age of the City’s fire engines is 13.8 years (the oldest is 32 years) and the average mileage is over 99,000.   In order to replace all of the apparatus that currently exceeds its useful life, 25 pieces of heavy-duty apparatus, the replacement cost would be approximately $16.4 million in FY 19/20 alone, with additional costs each year after.

 

The Council appropriated $1.5 million in FY 19/20 for fire apparatus replacement. Under current fiscal constraints, allocating the remaining funds to the Fire Department this fiscal year is not feasible nor is the Fire Department advocating for such an approach. Instead, staff requests Council pursue issuance of Medium-Term Obligations in order to finance a portion of the Fire Apparatus Replacement Program over the first three years as staff ramps up the annual budgeted amount for the program.

 

Discussion:  On December 12, 2018, the Finance Director and Fire Chief presented to Council an update on the status of the Fire Department’s Apparatus Fleet, along with an analysis of potential mixes of financing and cash funding to reach a sustainable replacement program.  Council selected a ramp-up scenario for budgeting which will ramp-up the budget appropriations over the next three fiscal years.  In order to allow for the ramp-up of the budget and to keep the replacement program on track, additional funds are needed for the first three years.

 

Unfortunately, the City does not currently have an additional $3.1 million to budget annually for a replacement program, which would have provided for a sustainable program. Therefore, the Consultant who assisted with the development of a sustainable replacement program was asked to provide alternative scenarios that could be met despite the City’s short-term budget constraints while still arriving at a sustainable replacement program in the future. The Consultant provided two additional scenarios: (1) a Ramp-Up Scenario, and (2) a Ramp-Up and Delay Scenario. Both scenarios contemplate the City ramping up the investment in this program beginning with the $1.5 million that was approved in the FY 19/20 budget and increasing to $2 million in FY 20/21. The scenarios also both contemplate the City issuing Medium-Term Obligations to borrow funds estimated at $6.5 million in FY 19/20.

 

For the Ramp-Up Scenario, at the end of the first 10 years, the fleet would have an average life of 5.6 years with the oldest fire engine being 13 years old. For the Ramp-Up and Delay Scenario, the Consultant examined extending useful lives of the front-line engines from 10 years to 12 years.  It should be noted that this is still far superior to our current situation with an average age of 13.8 years. Overall the Ramp-Up and Delay Scenario’s cost is slightly less but the fleet age at the end of 10 years is 1.7 years older than the Ramp-Up Scenario and the age of the oldest reserve engine is eight years older.

 

Despite the fact that the cost of vehicles is assumed to escalate at three percent annually, delaying the program by extending the useful life of the front-line engines from 10 to 12 years results in a less expensive program: $52.57 million through FY 38/39, which is $9.54 million less than the Ramp-Up Scenario. Part of this reduction in cost is driven by a lower and smoother annual replacement schedule. Due to the delayed replacement schedule, six fewer front-line engines are purchased within the FY 21/22 to FY 28/29 timeframe, also reducing overall cost of the program. Thus, the fleet is slightly older than the Ramp-Up Scenario when measured in FY 28/29 (1.7 years older). However, the effect of the delays stabilizes over time: by FY 38/39 the fleet is 1.5 years older than in the Ramp-Up Scenario (8.2 years versus 6.7 years) and the oldest front-line engine is 11 years old, which is three years older than in the Ramp-Up Scenario. The oldest reserve engine is 19 years old, which is five years older than in the Ramp-Up Scenario.

 

If this Authorization Resolution is adopted, Finance will submit a taxation packet to the Nevada Department of Taxation for approval per NRS 350.089. After arranging for the sale of the Medium-Term Obligations and after approval by the Department of Taxation, Finance will present the proposed final terms of the Medium-Term Obligations to Council for its approval by adoption of an Ordinance.

 

Financial Implications:  Both scenarios assume Council approves the issuance of Medium-Term Obligations to borrow funds estimated at $6.5 million in FY 19/20, and that budget appropriation in FY 20/21 will be $2 million.

 

For the Ramp-Up Scenario, beginning in FY 21/22 an annual appropriation of $3.42 million will be required to pay debt service and purchase apparatus ongoing through FY 28/29. Additional borrowing or cash savings will be required in the amount of $5 million in FY 33/34 with annual appropriations beginning in FY 29/30 reducing to $3.1 million on an ongoing basis.

 

For the Ramp-Up and Delay Scenario, beginning in FY 21/22 an annual appropriation of $2.7 million will be required to pay debt service and purchase apparatus ongoing through FY 28/29.  Additional borrowing or cash savings will be required in the amount of $5 million in FY 33/34 with annual appropriations of $2.7 million on an ongoing basis.

 

Council did not decide on which Ramp-Up scenario to pursue. Finance continues to recommend the Ramp-Up and Delay scenario.

 

Legal Implications:  In accordance with NRS 350.087, by adopting the Authorization Resolution by a two-thirds majority vote, the Council will authorize Finance to move forward with issuing the Medium-Term Obligations.

 

 

Ordinance or Resolution

RESOLUTION AUTHORIZING MEDIUM-TERM OBLIGATIONS IN AN AMOUNT OF UP TO $6,500,000, IN ORDER TO FINANCE THE CITY’S FIRE APPARATUS REPLACEMENT PROGRAM; DIRECTING THE OFFICERS OF THE CITY TO FORWARD MATERIALS TO THE DEPARTMENT OF TAXATION OF THE STATE OF NEVADA; PROVIDING CERTAIN DETAILS IN CONNECTION THEREWITH; AUTHORIZING THE SALE OF THE CITY OF RENO, NEVADA, GENERAL OBLIGATION MEDIUM-TERM OBLIGATIONS IN THE MAXIMUM AGGREGATE PRINCIPAL AMOUNT OF $6,500,000; AND PROVIDING THE EFFECTIVE DATE HEREOF.

WHEREAS, the City Council of the City of Reno, Nevada (the “Council,” “City,” and “State,” respectively) proposes to incur medium-term obligations of the City in an amount up to $6,500,000 (the “Obligations”) under Chapter 350 of Nevada Revised Statutes (“NRS”), in order to finance the City’s Fire Apparatus Replacement Program (the “Project”); the Obligations to bear interest at a rate or rates which do not exceed by more than 3% the “Index of Twenty Bonds” most recently published in The Bond Buyer before bids are received for the Obligations or negotiated offers are accepted, and to mature within 10 years of the date of issuance thereof, in order to pay the costs of the Project (the “Proposal”); and

WHEREAS, the Council has determined that legally available funds of the City will at least equal the amount required in each year for the payment of interest and principal on the Obligations; and

WHEREAS, NRS 350.087 requires that a notice of intention to authorize medium-term obligations be published not less than 10 days prior to the consideration of a resolution authorizing medium-term obligations; and

WHEREAS, a notice of intention to act upon the resolution authorizing the Obligations has been duly published in a newspaper of general circulation in the City not less than 10 days prior to the date of a public hearing thereon, and such public hearing was held prior to adoption of this resolution; and

WHEREAS, all comments made at the public hearing have been duly considered by the Council and the minutes of such public hearing are attached hereto as Exhibit “A.”

NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF RENO, NEVADA:

Section 1.              This resolution is hereby designated by the short title the “2019 Medium-Term Fire Apparatus Replacement Program Authorizing Resolution” (the “Resolution”).

Section 2.              The Council hereby finds and determines that the public interest requires medium-term obligations to finance the costs of the Project, in an amount not exceeding $6,500,000.

Section 3.              The facts upon which the finding stated in Section 2 above are:

(a)              There is a need to acquire, improve and equip the Project in the City for the safety and welfare of the City’s employees, residents and visitors.

(b)              It is in the best interests of the City and its inhabitants, and would best serve the safety and welfare thereof, if the Project is now accomplished, thereby assisting in alleviating the needs mentioned in (a) above;

(c)              It is not feasible to finance the Project from other funds of the City, among other reasons, because of restraints on the City’s budget for the current fiscal year and other demands on and needs for existing funds of the City.

Section 4.              The City proposes to borrow a sum not to exceed $6,500,000 at an annual interest rate estimated to be 3.50% to be repaid over a period of not more than 10 years.  The Obligations shall be evidenced by the issuance by the City of medium-term negotiable notes or bonds which mature not later than 10 years after the date of issuance (which term does not exceed the useful life of the Project), and the interest rate shall not exceed by more than 3 percent the “Index of Twenty Bonds” which is most recently published in The Bond Buyer before bids are received or a negotiated offer is accepted.

Section 5.              The City’s Finance Director is hereby authorized to arrange for the issuance and sale of the Obligations in an amount not more than $6,500,000, and to carry out the Project, subject to ratification by Council through adoption of a bond ordinance authorizing the Obligations (the “Ordinance”).  The medium-term notes or bonds issued to effect the Project shall be issued on such other terms and conditions as the Council determines, all as provided in NRS 350.087 to 350.095, inclusive (the “Note Act”), NRS 350.500 to 350.720, inclusive (the “Bond Act”), and as authorized by the Finance Director at the time of sale of such medium-term notes or bonds and thereafter ratified by the Council as set forth in this Resolution.

Section 6.              The Obligations shall not be paid in whole or in part from a levy of a special tax exempt from the limitations on the levy of ad valorem tax, but shall be paid from other legally available funds of the City, including, without limitation, monies in the City’s General Fund, estimated to range from $700,000 to $800,000 per year, for a period not to exceed 10 years.

Section 7.              The officers of the City be and the same hereby are authorized and directed to take all action necessary to effectuate the provisions of this Resolution, including, without limitation, forwarding all necessary documents to the Executive Director, Department of Taxation, Carson City, Nevada, and, if necessary, amending the City’s capital improvement plan to include the Project, if necessary.

Section 8.              The Finance Director is authorized to offer for sale the Obligations in the maximum aggregate principal amount of $6,500,000 in such manner as she shall determine, and she is authorized to specify the terms and details of the Obligations, including, without limitation, the maturity date or dates, the interest rate or rates, the redemption features, if any, and the other terms and conditions thereof; all subject to ratification by the Council by adoption of the Ordinance.

Section 9.              The officers of the City are hereby authorized to take all action necessary or appropriate to effectuate the provisions of this Resolution, including without limitation, assembling of financial and other information concerning the City, the Project and the Obligations, and, if deemed appropriate by the Finance Director, preparing and circulating a request for proposals in the form specified by the Finance Director.

Section 10.              The Finance Director shall, after arranging for the sale of the Obligations and after approval of the Obligations by the Executive Director of the Department of Taxation of the State of Nevada, present the proposed terms of the Obligations to the Council for its approval by adoption of the Ordinance.

Section 11.              The officers of the City be, and they hereby are, authorized and directed to take all action necessary or appropriate to effectuate the provisions of this Resolution.

Section 12.              All resolutions, or parts thereof, in conflict with the provisions of this Resolution, are hereby repealed to the extent only of such inconsistency.  This repealer shall not be constructed to revive any resolution, or part thereof, heretofore repealed.

Section 13.              If any section, paragraph, clause or other provision of this Resolution shall for any reason be held to be invalid or unenforceable, the invalidity or unenforceability of such section, paragraph, clause or other provision shall not affect any of the remaining provisions of this Resolution.

Section 14.              This Resolution shall become effective upon the approval hereof by the Executive Director of the Department of Taxation of the State of Nevada as provided in NRS 350.089, which approval shall be recorded in the minutes of the Council in conjunction with the adoption of the Ordinance.

Upon motion by Council Member _________________, and second by Council Member ___________, the foregoing Resolution was passed and adopted this 11th day of September, 2019, by the following vote of the Council.

AYES:                                         

NAYS:                                         

ABSTAIN:                             ABSENT:                           

APPROVED this 11th day of September, 2019

             

HILLARY SCHIEVE

MAYOR

ATTEST:

             

ASHLEY D. TURNEY

CITY CLERK