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Finance Committee Agenda 05/17/2019Finance Committee Agenda May 17, 2019 County Manager’s Front Conference Room 10:00 a.m. 1. Call to order 2. Approval of Agenda (meeting noticed on May 6, 2019) 3. Approval of Minutes from November 20, 2018 Meeting 4. General Governmental Capital Planning and Funding (attachment) 5. Pelican Bay MSTBU Financing (attachment) 6. Other Business 7. Public Comment 8. Adjourn – Next Meeting – TBD Collier County Government Communication & Customer Relations 3299 Tamiami Trail East, Suite 102 Naples, FL 34112-5746 colliergov.net twitter.com/CollierPIO facebook.com/CollierGov youtube.com/CollierGov May 6, 2019 FOR IMMEDIATE RELEASE NOTICE OF PUBLIC MEETING COLLIER COUNTY FINANCE COMMITTEE COLLIER COUNTY, FLORIDA FRIDAY, MAY 17, 2019 10:00 A.M. Notice is hereby given that the Collier County Finance Committee will meet Friday, May 17, at 10:00 a.m. in the County Manager’s Front Conference Room, second floor, Collier County Government Center, 3299 Tamiami Trail East, Naples, Fla. About the public meeting: Two or more members of the Board of County Commissioners may be present and may participate at the meeting. The subject matter of this meeting may be an item for discussion and action at a future Board of County Commissioners meeting. All interested parties are invited to attend, and to register to speak. All regist ered public speakers will be limited to three minutes unless permission for additional time is granted by the chairman. Collier County Ordinance No. 2004-05 requires that all lobbyists shall, before engaging in any lobbying activities (including, but not limited to, addressing the Board of County Commissioners, an advisory board or quasi-judicial board), register with the Clerk to the Board at the Board Minutes and Records Department. Anyone who requires an auxiliary aid or service for effective communication, or other reasonable accommodations in order to participate in this proceeding, should contact the Collier County Facilities Management Department located at 3335 Tamiami Trail East, Naples, Florida 34112, or (239) 252-8380 as soon as possible, but no later than 48 hours before the scheduled event. Such reasonable accommodations will be provided at no cost to the individual. For more information, call Mark Isackson at (239) 252-8973. ### APPROVED FINAL COLLIER COUNTY FINANCE COMMITTEE MEETING MINUTES November 20, 2018, 1:00 P.M. Board members in attendance: Mark Isackson, Corporate Financial Operations CMO; Crystal Kinzel, Clerk of the Circuit Court and Comptroller; Joe Bellone, Director of Operations Support-Public Utilities; Gene Shue-Growth Management Operations Support Director; Susan Usher, Senior Budget Analyst OMB. Other attendees: Derek Johnssen-Clerk of Courts Finance Director; Jeff Klatzkow-County Attorney; Christopher Johnson-Financial & Operations Support Manager; Sergio Masvidal-PFM Group; Jim Gibson. Present by phone: Nicklas Rocca from the PFM Group; Steve Miller from Nabors, Giblin & Nickerson; Duane Draper with Bryant, Miller, Olive Law; Rob Ori with PRMG Inc. 1. Call to Order: Mark Isackson called the meeting to order at 1:00 p.m. 2. Approval of Agenda: Meeting noticed November 9, 2018. Motion to approve agenda. Joe Bellone seconded. Unanimously approved. 3. Approval of Minutes from July 17, 2018 meeting: No changes. Mark made motion to approve minutes. Susan Usher seconded. Unanimously approved. 4. Collier County Water-Sewer District Capital Improvement Program; Future Financing Requirements (attachment): Joe Bellone opened discussion on PFM’s Plan of Finance, summary of PowerPoint, and cost estimates. Downside risk if development lags is about a 2-1/2% increase in water-sewer rates. Duane Draper indicated that CIP will include disclosure assumptions/risks. PFM’s Plan of Finance is flexible and will form part of Board Communication on February 12, 2019 when the reimbursement resolution, financial plan and capital improvement program is planned for discussion. Mark made a motion to endorse the Plan of Finance dated 10/11/18. Susan Usher second. Motion approved unanimously. 5. General Governmental SO Revenue Bond Infrastructure Finance Plan and approval of the Local Option Infrastructure Sales Tax (attachment): Mark indicated that adoption of the local option infrastructure sales tax simply reduced the borrowing need – not eliminate borrowing. Projects like replacement bridges, storm-water, and phase 2 of the Big Corkscrew Regional Park will require financing. This plan will be refined and brought back to the committee for future consideration. 6. Investment Policy Discussion (attachment): Derek discussed the County’s Investment Policy last amended December 2014. This discussion was prompted when the Productivity Committee asked the Finance Committee to review the policy and investment approach. Mark and Derek along with Clerk of the Circuit Court C. Kinzel had a discussion with Rich Pengelly of PFM and after discussion, it was concluded that the policy provides sufficient flexibility and the investment approach is appropriate. Crystal K. recommends continuing the policy as is and communicating as such to the Productivity Committee. Mark seconded. Motion approved unanimously. APPROVED FINAL 7. Other Business: None. 8. Public Comment: None 8. Adjourn: Meeting adjourned at 1:45 p.m. Motioned by Mark Isackson and seconded by Crystal Kinzel. Unanimously approved. Next meeting TBD. © PFM 1 Collier County, Florida Future Capital Planning and Funding Discussion May 2019 PFM Financial Advisors LLC 2222 Ponce De Leon Blvd 3rd Floor Coral Gables, FL 33134 786-671-7480 pfm.com Item #4 © PFM 2 General Governmental Projects (Special Obligation) Item #4 © PFM 3 Capital Improvement Funding Discussion Points The County has three large project categories that will need funding in the near future, anticipated from the CB&A security. •General government -purchase of existing golf course parcel ($28M, 160 acres). •Uses currently contemplated include a Not-for-profit operated golf course and/or private use facility which the Board may determine. •Private uses are considered taxable, whereas the taxability of the golf course will depend on the Qualified Management Agreement. •General government –replacement needs include $16M of bridges and $20M for Big Corkscrew Park improvements (totaling approximately $36M). •Stormwater –$75M of near-term improvements: FY20: $13M / FY21: $37M / FY22: $25M •Stormwater five-year master plan totals $130M ($55M above the near-term improvements). •Commercial Paper Balance –$12M of outstanding CP that was utilized for the Sports Complex The recently approved sales tax will fund several projects on a pay-go basis. •Depending on the expenditure schedule, the County may need access to short-term funding liquidity •Alternatives range from commercial paper, lines of credit, or other short-term instruments Item #4 © PFM 4 Financing Scenarios –CB&A Security Scenarios below include projects funded by long-term bond issuances, either on a level debt service basis and wrapping around the County’s existing CB&A debt (or in the case of bridges and roads, around the County’s existing Gas Tax debt). •Wrapped debt service signifies amortizing new debt around existing obligations to create an overall level debt service payment •Certain obligations may be paid by specific sources with capacity for level debt service The table summarizes these alternatives *Bridges and roads wrapped around existing gas tax bonds, with final maturity in 2025. Bond Statistics Structure Level Debt Service Wrapped Debt Service Level Debt Service Wrapped Debt Service* Level Debt Service Wrapped Debt Service Dated / Delivery Date August 1, 2019 August 1, 2019 August 1, 2019 August 1, 2019 August 1, 2019 August 1, 2019 First Principal Date October 1, 2020 October 1, 2036 October 1, 2020 October 1, 2025 October 1, 2020 October 1, 2040 Final Maturity October 1, 2039 October 1, 2039 October 1, 2044 October 1, 2044 October 1, 2044 October 1, 2044 True Interest Cost (%)3.48%3.77%3.33%3.37%3.33%3.77% Average Life (Years)11.73 18.71 15.70 17.31 15.70 23.27 Total Par Amount ($)28,285,000 28,285,000 31,105,000 30,770,000 25,220,000 25,320,000 Average Annual Debt Service ($)1,970,000 2,380,000 2,205,000 2,280,000 1,790,000 2,175,000 Total Debt Service ($)39,740,000 48,045,000 55,525,000 57,395,000 45,020,000 54,775,000 StormwaterBridges and RoadsLand Acquisition Item #4 © PFM 5 Collier County CB&A Debt Service - 5 10 15 20 25 '20 '22 '24 '26 '28 '30 '32 '34 '36 '38 '40 '42 '44MillionsNew Projects -Level Debt Service Structure 2010 Bonds 2010B Bonds 2011 Bonds 2013 Bonds 2017 Bonds Land Acquisition Bridges and Road Stormwater - 5 10 15 20 25 '20 '22 '24 '26 '28 '30 '32 '34 '36 '38 '40 '42 '44MillionsNew Projects -Wrapped Debt Service Structure 2010 Bonds 2010B Bonds 2011 Bonds 2013 Bonds 2017 Bonds Land Acquisition Bridges and Road Stormwater 2021 MADS: $21.91 million 2021 MADS: $23.95 million 2036 MADS: $5.91 million 2035 MADS: $11.31 million As illustrated in the charts: •Level Structure (top) has a higher initial debt service obligation, but lower total debt service over the term (~$140M). •Wrapped structure reduces the near-term overall debt service, with greater total debt service over the term (~$160M). Item #4 © PFM 6 Moody's Local Government Rating Calculator Category Weight Indicated Rating Economy/Tax Base 30%1.06 Fund Balance 15%2.12 Cash Balance 15%0.72 Management 20%2.25 Direct Debt 10%1.63 Pension Liability 10%2.03 Indicated Rating Score 100%1.56 Indicated Rating -Aa1 Credit Profile The County currently uses Moody’s and Fitch for bond ratings. Moody’s current approach uses a metric-based scorecard to calculate the indicative rating for an entity, while Fitch continues with a qualitative approach. In addition to the scorecard, Moody’s incorporates numerous “below-the-line” adjustments to be considered within each overarching rating category. The County currently maintains a Aaa rating from Moody’s, which means that the County is likely benefiting from a qualitative adjustment to their quantitative metrics Collier County Item #4 © PFM 7 Credit Profile PFM is able to use its proprietary model to perform scenario analysis, including layering additional debt onto the County’s metrics As seen below, when the issuance of this new debt is contemplated (approximately $84 million total), the County’s rating score changes very little and remains in the same rating category Moody's Local Government Rating Calculator Category Weight Indicated Rating Economy/Tax Base 30%1.06 Fund Balance 15%2.12 Cash Balance 15%0.72 Management 20%2.25 Direct Debt 10%1.82 Pension Liability 10%2.03 Indicated Rating Score 100%1.58 Indicated Rating -Aa1 Moody's Local Government Rating Calculator Category Weight Indicated Rating Economy/Tax Base 30%1.06 Fund Balance 15%2.12 Cash Balance 15%0.72 Management 20%2.25 Direct Debt 10%1.63 Pension Liability 10%2.03 Indicated Rating Score 100%1.56 Indicated Rating -Aa1 Current Score Projected Score Item #4 © PFM 8 Sales Tax Funding Program Item #4 © PFM 9 Sales Tax Projects Fully-funded program, with potential timing mismatch •The County’s sales surtax is projected to provide slightly less than $6 million per month ($70M per year) •Actual expenditures will fluctuate depending on the project (totaling $420M) •As a result, a short-term funding mechanism may be desirable Potential alternatives include: Facility Type Draw Timing Carrying cost Interest due Estimated interest rate Repayment Term Notes Commercial Paper As needed None On drawn amount 2.90%*Flexible 3 years Line of Credit As needed 0.00%– 0.30% Drawn amount 2.55%Flexible 1-3 years Revenue Anticipation Note Upfront N/A Issued amount 1.50%- 2.00% At term 6-12 months County retains arbitrage *Estimated commercial paper rate is provided by Florida Local Government Finance Program website, May 7, 2019 Item #4 © PFM 10 0 25 50 75 100 SpreadsGO / Rev AA GO / Rev A GO / Rev BBB Given current long-term rates in the municipal market and the County’s spread to those rates, locking in interest rates for at least a portion of upcoming projects would appear to be a stronger alternative. Market Snapshot County spread to AAA MMD (approx. 13 bps) MMD Ranges Over Past 10 Years Current 10yr Avg vs. 10yr Avg Min Max 2-Year 1.57% 0.72% 85 bps 0.25% 2.11% 5-Year 1.63% 1.34% 29 bps 0.62% 2.41% 7-Year 1.68% 1.78% -10 bps 0.89% 2.77% 10-Year 1.84% 2.28% -44 bps 1.29% 3.46% 30-Year 2.52% 3.36% -84 bps 1.93% 5.08% Market data as of the week ending May 3rd, 2019 Item #4 © PFM 11 Line of Credit -Introduction A line of credit (LOC) allows a municipality to access funds from a financial institution, usually a bank, at any time (within set parameters described in a letter of credit agreement) as long as they do not exceed the maximum amount set in the agreement Lines of credit can either be revolving, where municipalities borrow money, repay it and spend it again in a revolving cycle, or non-revolving, where the pool of available credit does not replenish •Outstanding amounts can be converted into a term loan, allowing for repayment on an amortization schedule PFM has done numerous lines of credit for other municipalities, with selected results as shown below Line of Credit Statistics City of Coral Springs Palm Beach Schools Miami-Dade County Structure Line of Credit Line of Credit Line of Credit Date Received May 30, 2018 March 25, 2019 September 4, 2018 Winning Bid Formula 80% of LIBOR + 70 bps 79% of LIBOR + 41 bps 80% of LIBOR + 91 bps Indicative Rate at Time of Bid 2.28%2.38%2.61% Non-Utilization Fee None 0.10%0.35% Security CB&A NAV Revenues Sales Surtax Sales Surtax, Hospital Amount 10,000,000 100,000,000 200,000,000 Draw Term 1.5 Years 3 Years 3 Years Repayment Term 5 Years -4 Years Item #4 © PFM 12 Revenue Anticipation Notes -Introduction Revenue Anticipation Notes (RANs) are a form of note, typically tax-exempt, that a government usually repays from a named revenue source within a period of one year. Local governments often issue RANs when they want to reconcile a discrepancy between tax revenues and current costs. •Whereas governments collect taxes sporadically in uneven amounts throughout the year, in many cases they must pay for construction and associated labor costs on a more consistent basis. •By issuing RANs, the County can fund expenditures that may not match timing of revenue receipts. The revenue that the government uses to repay a RAN can come from a variety of sources depending on the project, such as sales, fees, or rate increases. According to IRS guidelines, issuers can retain the investment earnings from a RAN (positive arbitrage) and use the earnings to fund projects or towards debt service payments •This would be in addition to earnings on the accumulated sales tax receipts Item #4 © PFM 13 Revenue Anticipation Note –Liquidity Strategy RANs are issued and repaid within one year, and are note subject to arbitrage restrictions. •The County maintains the flexibility to utilize sales tax or RAN proceeds depending on project expenditure amounts •The County will earn interest on the proceeds of the RAN and the Sales Tax receipts during that time General RAN Strategy: •Sales taxes are received monthly and accumulate in the fund earning interest. •TAN proceeds are deposited at closing and drawn down for projects •At maturity, sales tax receipts are used to payoff the RAN •County retains accumulated interest Item #4 © PFM 14 Short-Term Note Comparables PFM has pulled a few short-term notes that have been issued in the last couple of weeks in order to show where these types of transactions are pricing in the market. Bond Anticipation Notes (BANs) have been more common in the market recently, and thus are used as a proxy for RANs in the below comparison. Note that some issuers elected to have their anticipation note outstanding for the maximum allowable term of one year, while others elected to have their note mature after about six months. Note Statistics Galway Schools North Bergen Broome County Lexington Schools Richland Schools Structure Bond Anticipation Note Bond Anticipation Note Bond Anticipation Note Bond Anticipation Note Bond Anticipation Note Dated / Delivery Date May 1, 2019 April 30, 2019 May 2, 2019 April 30, 2019 May 2, 2019 Final Maturity April 30, 2020 April 30, 2020 May 1, 2020 October 30, 2019 October 1, 2019 Coupon (%)3.00%2.50%2.50%3.00%3.00% Yield (%)1.70%1.69%1.60%1.55%1.58% True Interest Cost (%)1.70%1.68%1.59%1.55%1.59% Spread (bps)16 bps 15 bps 7 bps 2 bps 5 bps Total Par Amount ($)26,100,000 25,593,000 67,000,000 85,000,000 26,000,000 Item #4 © PFM 15 Summary The County currently has capital infrastructure needs to be debt financed •While the Special Obligation pledge will be the security vehicle, actual payment will come from specific sources •Certain of these issuance could potentially wrap around the County’s existing debt, reducing the near-term aggregate debt service payment The County may also desire leveraging its sales tax revenue stream by creating a short-term financing mechanism, allowing the County to smooth out any discrepancy between monthly tax revenues and spending costs •Potential mechanisms include a commercial paper program, a line of credit, and a revenue anticipation note The County can take advantage of the municipal market rally that has driven fixed-borrowing rates lower, and fund the necessary governmental projects at attractive levels Item #4 Market Conditions as of May 2019Total Par Amount ($) 10,000,000 15,000,000 20,000,000 30,000,000 10,000,000 15,000,000 20,000,000 30,000,000Structure Level Debt Service Level Debt Service Level Debt Service Level Debt Service Level Debt Service Level Debt Service Level Debt Service Level Debt ServiceDated / Delivery DateJuly 1, 2019July 1, 2019July 1, 2019July 1, 2019July 1, 2019July 1, 2019July 1, 2019July 1, 2019Final MaturityJanuary 1, 2026 January 1, 2026 January 1, 2026 January 1, 2029 January 1, 2029 January 1, 2029 January 1, 2029 January 1, 2029Average Life (years)3.623.623.623.625.275.275.275.27All-in-TIC (%)3.23%3.15%3.11%3.10%3.41%3.36%3.33%3.32%Maximum Annual Debt Service1,585,4252,376,5503,169,7504,753,1001,173,1751,758,8812,345,1753,516,225 Total Debt Service 11,086,00016,628,85022,172,15033,257,700 11,711,12517,568,47523,423,71335,136,138 Debt Service Cost per ERU 7,615.29$208.19$312.08$416.23$624.15$154.06$230.97$307.96$461.73 Millage Calculation Taxable Value 6,586,278,944 6,586,278,944 6,586,278,944 6,586,278,944 6,586,278,944 6,586,278,944 6,586,278,944 6,586,278,944 One Mill Revenue @ 95% Collection 6,256,9656,256,9656,256,9656,256,9656,256,9656,256,9656,256,9656,256,965 Millage Requirement 0.250.380.510.760.190.280.37 0.56 Increased Annual Homeowner Taxes by Taxable Home Value: 200,000$50.68$75.96$101.32$151.93$37.50$56.22$74.96$112.39300,000$76.02$113.95$151.98$227.89$56.25$84.33$112.44$168.59400,000$101.35$151.93$202.64$303.86$75.00$112.44$149.92$224.7910-year Scenarios7-year ScenariosCollier County, FloridaPelican Bay Beautification MSTBUItem #5 U.S. PUBLIC FINANCE CREDIT OPINION 20 March 2019 Contacts Nisha Rajan +1.212.553.1978 Analyst nisha.rajan@moodys.com Valentina Gomez +1.212.553.4861 AVP-Analyst valentina.gomez@moodys.com CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 Collier County Water-Sewer District, FL Update following upgrade to Aaa Summary Collier County's Water-Sewer District (Aaa stable) benefits from a substantial, growing local economy and service area, a healthy financial position driven by annual rate increases, and strong debt service coverage. The county's population increased 11% between 2013 and 2018, and the district acquired two utility systems within its boundaries in 2017 and 2018, which have both contributed to its expanding customer base. Although the system has sufficient water and wastewater treatment capacity over the next five years, district management accelerated projects in the fiscal 2019-2024 capital plan to enhance treatment capacity (particularly for the wastewater plant), storage, water mains and pump stations, notably in the northeast service area. The capital projects will utilize a portion of the district's ample liquidity, which is somewhat mitigated by the district's cash-funded debt service reserve just shy of MADS. Capital projects have historically been funded with cash reserves, keeping the district's debt burden and fixed costs low. Despite an additional planned issuance in 2022, the district's debt profile will remain manageable due to revenue growth and the amortization of outstanding debt, and debt service coverage is anticipated to remain strong in line with current levels. Exhibit 1 Historically Strong Coverage Will Continue Despite Additional Debt in 2019 and 2022 As Net Revenues Grow Fiscal 2012-2019 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 $- $10 $20 $30 $40 $50 $60 $70 $80 2012 2013 2014 2015 2016 2017 2018 2019* 2020* 2021* 2022* 2023* 2024*Debt Service Coverage (x)Revenues in MillionsSenior lien DSC (x) (left axis)Total Annual DSC (x) (Left axis)Net Revenues (right axis) Note: spike in 2018 net revenues were due to insurance proceeds from Hurricane Irma *Fiscal 2019-2024 are preliminary Source: Collier County, FL & Moody's Investors Service On March 18th, we upgraded to Aaa from Aa1 the rating on the district's $48.1 million outstanding parity revenue debt and assigned a Aaa rating to the county’s $78.5 million Water and Sewer Revenue Bonds, Series 2019. A stable outlook was assigned. Item #6 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Credit strengths » Healthy debt service coverage bolstered by recent rate increases and customer growth » Large, diverse service area » Sufficient intermediate-term water supply and system treatment capacities » Manageable debt burden and capital needs » Sole rate setting authority with planned annual rate increases Credit challenges » Coastal location susceptible to weather-related events and rising sea-levels » Moderate reliance on impact fees Rating outlook The stable outlook reflects the district’s healthy financial position and coverage supported by annual rate increases, growing service area, and manageable debt and capital plans to support additional demand and capacity. Factors that could lead to an upgrade » Not applicable Factors that could lead to a downgrade » Deterioration of debt service coverage and liquidity » Significant increase in debt or capital needs » Erosion of service area This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 20 March 2019 Collier County Water-Sewer District, FL: Update following upgrade to Aaa Item #6 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE Key indicators Exhibit 2 Collier County Water & Sewer District, FL System Characteristics Asset Condition (Net Fixed Assets / Annual Depreciation)19 years System Size - O&M ($000)$89,274 Service Area Wealth: MFI % of US median 102.80% Legal Provisions Rate Covenant (x)1.25x Debt Service Reserve Requirement DSRF funded at 125% of ADS or MADS Management Rate Management Aaa Regulatory Compliance and Capital Planning Aaa Financial Strength 2014 2015 2016 2017 2018 Operating Revenue ($000)$107,924 $116,645 $123,856 $135,045 $145,757 System Size - O&M ($000)$69,710 $75,021 $83,523 $93,898 $89,274 Net Revenues ($000)$39,943 $43,517 $42,133 $42,323 $66,835 Net Funded Debt ($000)$208,583 $194,165 $168,539 $149,350 $167,529 Annual Debt Service ($000)$21,548 $19,644 $15,960 $16,270 $19,726 Annual Debt Service Coverage (x)1.9x 2.2x 2.6x 2.6x 3.4x Cash on Hand 741 days 688 days 634 days 598 days 543 days Debt to Operating Revenues (x)1.9x 1.7x 1.4x 1.1x 1.1x Source: Collier County, FL & Moody's Investors Service Profile The district provides water treatment and distribution and wastewater collection and treatment to unincorporated areas of Collier County (Aaa stable). As of 2018, countywide population was estimated as 368,534. Detailed credit considerations Service area and system characteristics: large, primarily residential service area that will continue to grow; ample treatment capacity The district has sufficient water supply and water and sewer treatment capacity for the intermediate term to accommodate growth and demand. The district provides water treatment and distribution, wastewater collection, treatment and disposal, and reclaimed water processing to unincorporated portions of Collier County. While the region has historically been centered around retiree communities and a strong tourism economy, a new influx of families is driving recent growth, further improving the housing and job market. Additionally, the district acquired the Orange Tree Utility Company (OTUC) in March 2017 and the FGUA Golden Gate Utility System in March 2018. As a result of the latter, the district’s net position increased by $39.6 million in fiscal 2018. Moody's Economy.com reports job gains in the area will accelerate in the months ahead as the economy makes inroads. Employment will surpass its pre-Irma peak in the near term, propelled by rapid gains in construction and consumer-related industries. Longer term, favorable demographics will fuel the county’s services-driven recovery and allow it to perform above the state and national averages. Countywide socioeconomic factors remain above average, with median family income representing 118.8% and 102.8% of state and national levels, respectively. As of December 2018, unemployment of 3.2% is below national (3.7%) and statewide (3.2%) rates. The district has added an average of 2,776 and 1,800 water and sewer customers, respectively, over the last five years. As of 2018, the district reported 96,622 water equivalent residential connections (ERCs) and 98,539 sewer ERCs, and 74,726 water and sewer accounts. The service area is diverse with the top ten water and sewer customers accounting for 4.01% and 1.67%, respectively, of revenues in 2018. Over the next 3 to 5 years, the district anticipates growth from the expansion of the potable water system in Golden Gate City, 3 20 March 2019 Collier County Water-Sewer District, FL: Update following upgrade to Aaa Item #6 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE which is anticipated to add approximately 5,000 new accounts. Further, developments in the northeast area of Collier County including Hyde Park Village, River Grass Village, Immokalee Road Rural Village and Hogan Island Village will add a minimum of 10,000 new water and wastewater customers to the district’s service, averaging approximately 2% growth annually through 2024. Raw water is drawn from three wellfields and is regulated by a consumptive use permit (CUP) with the South Florida Water Management District (Aa2 stable), which was issued May 8, 2018 and expires September 22, 2036. The district also has 2 additional raw water supply sources with active CUPs through the acquisition of the two utility systems mentioned above, although they are not currently in use. Water is treated in three treatment plants with a combined reliable treatment capacity of 48.75 million gallons a day (MGD) (constructed capacity of 52.75 MGD). Plant capacity compares favorably to average daily demand of 25.4 million gallons and maximum consecutive 3-day daily demand of 36.9 MGD. The system maintains 35.8 million gallons of usable water storage. The district operates two wastewater treatment plants and two water reclamation facilities. Combined treatment capacity of 42.97 MGD is ample relative to average daily flow of 19.58 MGD and maximum daily flow of 21.22 MGD. The majority of effluent is treated to irrigation quality and sold, with the remaining unsuitable effluent pumped into deep injection wells. The system maintains two aquifers for storage and recovery of excess irrigation quality effluent and plans to construct a third by 2022. Biosolids are transported outside of the county for disposal. All of the district's operations are in compliance with environmental regulations. Debt service coverage and liquidity: strong coverage and healthy liquidity benefit from annual rate increases and customer growth The district will continue to report strong debt service coverage and liquidity levels given recent rate increases, projected customer growth, and manageable debt service requirements. Fiscal 2018 experienced a boost in non-operating revenues, driven by insurance proceeds received for damages sustained from Hurricane Irma. As such, senior lien debt service coverage was a strong 9.43 times including pledged system development fees, and over the past five years has averaged 7.33 times. The system is moderately dependent on system development fees ($14 million in fiscal 2018); however, coverage remains very high (senior lien coverage of 7.79 times in 2018) without these revenues, minimizing the district's reliance on these revenues to meet debt service needs. Total debt service coverage, which includes payments on a subordinated bank loan, averaged a healthy 3.24 times (with development fees) and 2.54 times (net development fees) over the same period. Coverage between fiscal 2019-2024 is anticipated to average approximately 2.52 times (net development fees). The district is still awaiting FEMA reimbursements due to costs incurred during Hurricane Irma to get water out of pump stations and deploy backup generators for 900 lift stations, the result of the power outage in the county spanning two weeks. District management subsequently identified funding generators as a priority to improve resiliency at more stations (52), and applied for grants to fund these improvements and will be dedicating a portion of the local 1% sales tax increase (passed November 2018) to fund resiliency projects due to weather-related events. While the district did not raise rates throughout the recession, it adopted three years of rate increases effective fiscal 2015 through 2017 of 9%, 5% and 5%, respectively, to adjust for CPI growth. Additional board approved rate increases were 2.9%, 2.8%, and 2.9% in fiscal 2018-2020, respectively, per budget policy and a rate study conducted in 2018. Five-year financial projects estimate that coverage will remain ample, increasing moderately as debt service requirements decline. Projections are conservative, assuming 1,500 new connections annually, 2% rate increases and expenditure increases based on inflation. LIQUIDITY The district's liquidity position will remain healthy despite planned use of reserves for capital projects due to solid revenue growth relative to expenditures and the maintenance of restricted funds that are available for debt service. In fiscal 2018 the system reported $132.8 million in unrestricted cash, or an ample 543 days cash on hand. The decline in cash from $153.7 million (598 days cash on hand) in fiscal 2017 was a result of loans made to other funds, particularly to fund debris removal after the hurricane. District 4 20 March 2019 Collier County Water-Sewer District, FL: Update following upgrade to Aaa Item #6 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE management reports that all loans totaling $20.9 million will be repaid from state money received within fiscal 2019. Further, the system averaged approximately 641 days cash on hand between fiscal 2014 and 2018. Within unrestricted cash, the district maintains water and wastewater capital accounts, which are annually funded from excess system net revenues (after debt service payments), with a policy to contribute a minimum of 15% of the previous years gross revenues. At the end of fiscal 2018, these accounts totaled $83.2 million. Although the district will draw down these unrestricted reserves to fund capital projects over the next five years, it also maintains a fully-funded debt service reserve at 125% of annual debt service ($22 million post-issuance, which is just shy of MADS at $23 million) and a fund restricted for capital related expansion projects, which can also be utilized for the payment of annual debt service (both senior and subordinate). Inclusive of these funds, fiscal 2018 cash totaled $162.2 million, or 663 days cash. Fiscal 2019 anticipates unrestricted cash of $115.4 million (428 days cash on hand) and total cash with the restricted reserves of $154.7 million (574 days cash on hand). Total cash on hand will average approximately 379 days between fiscal 2019 and 2024. Debt and legal covenants: debt ratio expected to remain manageable given majority cash-funded capital plan; sound legal covenants The district's debt burden will remain manageable despite an additional planned issuance in 2022 due to amortization of debt coinciding with revenue growth. Including the 2019 issuance and subordinated loan, the system’s net funded debt burden is a low 1.6 times 2018 operating revenues and the debt ratio is below average at 23.2%, affording additional capacity for future issues. The district maintains a $567 million five year capital improvement plan (CIP) from 2019-2024, which is expected to be funded primarily from the water and wastewater capital accounts dedicated for capital ($365.8 million or 64.5%). The remainder is funded mostly from bond proceeds (31.7%), which includes the current issuance ($79 million) as well as an additional issuance in 2022 for $104 million, which will coincide with a decline in debt service payments to approximately $18.5 million in fiscal 2023. DEBT STRUCTURE Legal covenants include a 1.25 times rate covenant and additional bonds test, including special development fees, and sum sufficient requirement net of special assessment fees, and a cash funded debt service reserve funded at the lesser of MADS ($23 million) or 125% of average annual debt service ($22 million), a substantial credit strength. All of the district's debt is fixed rate. Payout is average, with 48.8% of senior lien principal repaid within 10 years, and 100% of debt repaid in 20 years. DEBT-RELATED DERIVATIVES The district is not party to any derivative agreements. PENSIONS AND OPEB The county participates in the Florida Retirement System, a defined benefit, multi-employer system managed by the State of Florida (Aaa stable). The district's portion of the annual required contribution was $1.2 million or a manageable 1.4% of operating expenses in fiscal 2018. The county funds OPEB on a pay-go basis. Management and governance The district is governed by Collier County Board of Commissioners, and the district has sole rate-setting authority that is adopted through the annual budget process and approved by the board. 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REPORT NUMBER 1166344 6 20 March 2019 Collier County Water-Sewer District, FL: Update following upgrade to Aaa Item #6 MOODY'S INVESTORS SERVICE U.S. PUBLIC FINANCE CLIENT SERVICES Americas 1-212-553-1653 Asia Pacific 852-3551-3077 Japan 81-3-5408-4100 EMEA 44-20-7772-5454 7 20 March 2019 Collier County Water-Sewer District, FL: Update following upgrade to Aaa Item #6