Water Resources Municipal Property Corporation

MINUTES OF THE BOARD OF DIRECTORS OF THE TOWN OF GILBERT, ARIZONA WATER RESOURCES MUNICIPAL PROPERTY CORPORATION BOND MEETING, MONDAY, FEBRUARY 14, 2022 at 2:00 P.M., VIRTUAL MEETING, GILBERT, ARIZONA BOARD MEMBERS PRESENT: President John Dalen Wilcock Vice President Nicholas Macaluso Secretary-Treasurer Lisa Horne Director Kevin Boudreau Director James Graham BOARD MEMBERS ABSENT: None COUNCIL LIAISON PRESENT: Councilmember Scott Anderson TOWN STAFF PRESENT: Kelly Pfost, Management and Budget Director Håkon Johanson, Finance and Management (FM) Services Director Tanya Wright, FM Services Accounting Manager Nicholas Baldelli, FM Services Accounting Supervisor Jeanne Jensen, Capital Improvement Projects (CIP) Project Supervisor Sandra Spoon, Management and Budget Specialist OTHERS PRESENT: Ben Lee, Waterworks Engineers CALL TO ORDER President Dalen Wilcock called the meeting to order at 2:05 p.m. OATH OF OFFICE None. ROLL CALL Management and Budget Specialist Sandra Spoon called roll and declared a quorum was present. COMMUNICATIONS FROM CITIZENS None received. AGENDA ITEMS 1. WELCOME AND INTRODUCTION TO MUNICIPAL PROPERTY CORPORATION (MPC) President Dalen Wilcock welcomed those in attendance and briefly went over the proposed agenda for meeting. Management and Budget Director Kelly Pfost mentioned the agenda items that they would be providing additional information for. President Wilcock asked those in attendance to introduce themselves and thanked them for their presence.  Town of Gilbert AZ Water Resources MPC February 14, 2022 Page 2 of 8 2. ELECTION – Nomination and election of officers for 2022. President Dalen Wilcock recommended the nomination and election of officers for 2022 be held off until later in the meeting at such time Secretary-Treasurer Lisa Horne and Director Kevin Boudreau check in. Management and Budget Director Kelly Pfost gave one point of interest regarding the holding of officer positions according to the bylaws – and that was how the board members may hold the same office for two years in a row, but not a third year in a row. Director Kevin Boudreau joined the meeting at 2:13 p.m. Director Lisa Horne joined the meeting at 2:40 p.m. She stated she would be relocating in the Fall and would no longer be residing in the Town of Gilbert and added that she would be happy to remain on the board and serve until then. Kevin Boudreau was nominated as President. Nicholas Macaluso was the nominated to remain as Vice President. Dalen Wilcock was nominated as the Secretary-Treasurer. A MOTION was made by President Dalen Wilcock and was seconded by Director James Graham for the above nominations. Motion carried 5 - 0 3. MINUTES – Consider approval of the minutes of the meeting of February 23, 2021. A MOTION was made by President Dalen Wilcock and seconded by Director James Graham to approve the minutes of the meeting of February 23, 2021. Directors Boudreau and Horne were absent at the time of the vote. Motion carried 3 - 0 4. AMENDMENT TO THE WATER RESOURCES BYLAWS – Consider updating the WRMPC Bylaws to reflect the timing of the annual meeting to be held each year at a time and place designated by the board. Management and Budget Director Kelly Pfost briefed the current WRMPC Bylaw section reflecting the timeline of the annual meeting and made the recommendation to update the section to reflect the timing of the annual meeting so that it can be held each year at a time and place designated by the board. Staff will review all the bylaws and bring recommended updates to the next annual meeting. A MOTION was made by President Wilcock and seconded by Director Graham to approve the amendment to the bylaws as suggested. Directors Boudreau and Horne were absent at the time of the vote. Motion carried 3 - 0  Town of Gilbert AZ Water Resources MPC February 14, 2022 Page 3 of 8 5. CAPITAL PROJECTS – Update for potential Federal funding. Management and Budget Director Kelly Pfost began by answering some questions emailed earlier in the year about federal funding and some of the infrastructure bills that have passed at the federal level. She noted that everything which has passed into actual legislation or law is more focused around transportation infrastructure or smaller communities and that the Water Resource MPC has not seen anything that would allow for use towards water infrastructure. Because of this, the possibility of offsetting some of the costs of those bonds or help with some of the upcoming projects has not been seen. Management and Budget Director Pfost also noted that they are working on some of the other areas to see if projects align, but so far nothing that would be of interest to the Water Resource MPC. President Wilcock asked if there were some water infrastructure funding being proposed? Management and Budget Director Pfost stated that they will keep an eye out for those proposals. She went on to say that the water infrastructure she has seen so far has focused on small communities and Gilbert would be too large to effectively apply for it as they are there looking for more rural areas. 6. CAPITAL PROJECTS – Status report and timeline on upcoming bonds. Management and Budget Director Kelly Pfost informed that she would be keeping the presentation brief as most of the questions she wanted to be able to answer at the April meeting. Management and Budget Director Pfost addressed that she wanted to make sure if there are specific pieces of information the board is interested in that they make them known and, as such, she would have the information ready and available for the WRMPC board at the next meeting update. Management and Budget Director Pfost then presented the WRMPC Bond Update which covered North Water Treatment Plant, the Financing Plan, Water Utility and SDF Rates and the Next Steps. She explained how the North Water Treatment Plant is really the driving force behind needing the bonds. She explained that the North Water Treatment Plant is in the northern part Gilbert and it serves a good portion of our customers and residents throughout the town and is very much an important part of our water infrastructure. An in- depth condition assessment was conducted two or three years ago now and recognized that there was some significant erosion happening - metal corrosion and some cracks. It was recognized that for this facility to continue to operate and provide the needed water, significant investment would be needed. Management and Budget Director Pfost stated that the Council gave staff the direction to go ahead with the rebuild of the system that is the most cost-effective option that we have. She further explained that design is currently underway for the rebuild and mentioned that on March 1, there will be a construction groundbreaking in which invitations will be provided to the WRMPC members interested to come on site. The target date for many processes to be online is 2025 and then construction is estimated to be complete in 2027. The construction includes many elements - one of them is replacement of the existing facility that has the condition issues and then the facility expansion. She explained that as long as we are building it, we are going to be needing the additional capacity for growth. Before the plant would  Town of Gilbert AZ Water Resources MPC February 14, 2022 Page 4 of 8 finish construction, we are going to expand it to a 60 million-gallon-per-day facility instead of replacing ‘like for like’ on the 45 million-gallon-per-day facility which currently exists. Management and Budget Director Pfost went on to explain how the water quality coming down the canal that is treated at this facility is worse and the technology that the current plan has does not treat the water as effectively as the newer processors could. With this, the Water Funds are also working to include some additional infrastructure that will make it better and easier for treatment of the lower quality water coming from the canals. This is anticipated to be a long-term issue due to the fires and the organics which are coming down from the watershed. Management and Budget Director Pfost briefed that the project is around $460 million. She then detailed the financing plan and the four main components - the ‘Water Operating’ portion which is North Water Treatment Plant, the ‘Repair and Replacement’ (R&R) portion which will be both the North Water Treatment Plant and some other R&R pipe replacements that are needed, the ‘Water System Development Fees (SDF)’, and the ‘Water Resource SDF’ for some water rights acquisition which are planned in the near future. She then explained that for the bonds to be able to pay for all these things, the appropriate revenue needed to be in place, therefore, we need to update the water rates and system development fee study that we've been working on. She then explained that the total bonds are likely around $520 million Management and Budget Director Pfost then briefed the rate updates for both the Water Utility Rates and the Water SDF and the various states of development. She described the work being done with the public by way of ‘notice of intent’ and having open houses, public notices, and working with the public. She explained that on February 22, Council will consider adoption of the new water utility rates and noted that if Council adopts those new rates, they will be effective on April 1. She added that there is more information Gilbertaz.gov/UtilityRates website if there are questions. She then spoke about the Water SDF Update as they are a growth-related portion and how the study needs to be updated to include the North Water Treatment Plant project. She described the current work being done by way of ‘notice of intent’, public outreach, and adopted the land use assumptions. She added that there is a public hearing scheduled on February 22 for the updated fees, and then the consideration for adopting the fees would take place on March 29. If Council adopts those new fees, they will be effective June 20. She explained that there has been a great deal of work going into making sure we have the revenues ready for bond issuance. Management and Budget Director Pfost then outlined the next steps for the bond issuance, beginning with the Council Direction at the financial retreat the first week of March, followed by the next step which is to make rating calls in March or early April with the rating agencies to get our credit score for this bond issuance. She continued by stating that in April there would be another meeting with the WRMPC group to approve the bond documents and then we would take those documents to Council and they would also need to approve them – that would give us the authorization for both of those groups to move forward into the market with actually selling those bonds. She explained that we are going to work with technical advisors and decide what our best time is for the least amount of volatility and to hopefully get the best rates. She closed out the outline of the timeline by stating that we would do final documentation, official statement and closing documents in May and then close the bonds in  Town of Gilbert AZ Water Resources MPC February 14, 2022 Page 5 of 8 June. She closed out her briefing by asking if there were any questions for her or any of the technical experts who were also present at the meeting. President Dalen Wilcock had noted that the Town Council had adopted a notice of intent to increase rates. He then asked if it had passed. Management and Budget Director Pfost responded that it had passed – both for the system development fees and for the utility rates. She further clarified that the notice of intent does not adopt any of the new rates, but it does publicly declare so that anybody wishing to provide feedback has notice that it is the time to provide feedback. Director James Graham asked if the utility rate increase is something that was anticipated this time last year and how long had it been? Management and Budget Director Pfost responded that it was, and that Council had given the go-ahead at the financial retreat a year ago to have the staff to do the rates study. Director Kevin Boudreau then asked that with the system development fees funding a portion of this, where do we stand regarding the build out with the community, and are we going to have a new concern with the slope down of the new comments? Management and Budget Director Pfost responded that they anticipate buildout will be 2030’ish. Construction will continue after buildout, but it will likely be at a slower pace. There's still continued growth in Gilbert and probably will be for a number of years, however, that is one of the topics that is going to be talked about with Council - the Water SDF and the capacity for all of the bonds repayment and if there are any holes in the bucket that would need to be possibly repaid with another area and we are going to talk about some options. Director Kevin Boudreau then stated the SDF has been so strong over the last 25 years that obviously we want to go into this being able to explain why it’s going to work and get bond holders comfortable before they ask questions. President Dalen Wilcock asked about the expansion and quality enhancements as discussed in the last meeting was going to total cost of $422 million and now, we are looking at $457 million – that is a large increase in one year. CIP Project Supervisor Jeanne Jensen replied that the short answer is escalation and that it represents an 8.4% increase from this time last year. She elaborated further by stating cost escalation is different for every project depending on if it is equipment heavy or more labor heavy. An 8.4% increase is lower than we are seeing on other projects and the team is comfortable that construction can be delivered at the updated budget amount. She then explained that a lot of times projects work to purchase things early to avoid a future cost increase, however, in this case they are trying to hold on as long as they can before making a purchase to be able to take advantage of a lot of those cost curves with prices starting to come back down. President Dalen Wilcock asked about the water processing and is the process the same as the Santan Plant or is it different. CIP Project Supervisor Jeanne Jensen responded with clarification on how the facility there here currently is a traditional sedimentation flagellation, however, the new process will look very similar to the Santan Vista Plant, will have two notable differences. She explained the differences are what happens in the front and the back. At the front, because of the volatility of the water that comes to this facility  Town of Gilbert AZ Water Resources MPC February 14, 2022 Page 6 of 8 can experience, multiple water sources, and groundwater essentially at no notice from the six large wells upstream of this facility that SRP can turn on as needed to maintain groundwater levels, that means the chemistry can change very quickly so we are going to be constructing three large Pre-sedimentation Basins which will add about an hour of storage time ahead of the treatment process. This will allow to let the plant get their arms wrapped around any chemistry changes that may be happening. She continued by noting that the other minor difference is they are looking to do something called deep bed biologically active filtration which is basically the filter media would be set up such that we intentionally develop beneficial microbial community on that filter material will help remove additional organic carbon which in turn will take that water and feed it to a granulated activated carbon system. So, the two noticeable structural differences are the pre-sedimentation tankage and granulated activated carbon contactors. CIP Project Supervisor Jensen concluded by adding that they have a pilot of the technologies on site currently and has been running since July. President Dalen Wilcock then asked if this process was to supplement the current process? CIP Project Supervisor Jeanne Jensen provided that the best analogy is it’s not a belt and suspenders which are two things doing the same job. It is in fact, two things doing different versions and different progressions. She explained that there are essentially a lot of different tools in the toolbox which can all be used. Some of them during certain part times of the year where they have to use all of them to meet our treatment objectives. Those toolboxes we can change them up based off the water quality. The big difference is the existing facility and the distribution system have to work in close concert and both of them have to be running almost flat out to meet our current needs, and as such we don't have any opportunity to do cost effectiveness, cost modeling, or cost optimization on the processes as a result. President Dalen Wilcock – then asked when the facility was built if there was a bond on this facility and is there way to go after the contractor? Jeanne CIP Project Supervisor Jeanne Jensen responded that it was built in 1995 to 1996 and that there is no legal remedy and that the contractor in question is essentially legally out of business. The construction bonds that issued are issued for the duration of the project on the warranty which traditionally runs out one to two years after the construction is complete. Management and Budget Director Pfost asked CIP Project Supervisor Jensen to discuss ‘low bid’ and how that is no longer the process. CIP Project Supervisor Jensen then explained that back in 2000 the State statue changed to allow ‘alternative delivery’ and that up until then the only way to build something was to design it, put the pick up the plans on the street, and allow contractors to bid on them. ‘Alternative delivery’ in this case is using a Construction Manger (CM) at-risk, which is having our contractor at the table throughout design which allowed us make sure that what we're designing is actually constructible at it has been drawn and that helps us ensure a better product. Additionally, having a CM at-Risk allows for things that we can't do in the low bid - we can have things like asking them to warranty the work for longer by simply pricing it into the package, it's a negotiated item as opposed to a bid item at that point. She concluded by stating that ‘alternative delivery’ gives us a lot more to use all of the tools to be able to select the exact right and to use for each component of the project as we move forward.  Town of Gilbert AZ Water Resources MPC February 14, 2022 Page 7 of 8 President Dalen Wilcock asked the board members if they have any other questions regarding this agenda item after which Management and Budget Director Kelly Pfost asked if there are any questions the board would like to have for the next meeting. President Dalen Wilcock asked Director Kevin Boudreau if he any recommended questions for the meeting. Director Boudreau stated he recommended that there be some re-education on the funding so the board can be prepared for questions from the bond community. Management and Budget Director Pfost stated that they can get the information together and have it ready for the meeting. President Dalen Wilcock noted that the Town of Gilbert is almost to point where it is landlocked and the SDF fees will have to come down. Director Kevin Boudreau asked if there could be more information provided in the next meeting about the Repair and Replacement fund balance and cash flow. Management and Budget Director Kelly Pfost responded that we did use some Repair and Replacement money on the Wastewater side to pay a bond early and she thinks there's only a couple years left on that internal loan, but she will make sure to have the information ready for the April meeting. President Dalen Wilcock then redirected the meeting back to Agenda Item #2 to continue with the nomination and election of officers for 2022. 7. ANNUAL REPORT – Consider approval of the annual financial report. Finance and Management Services Accounting Supervisor Nicholas Baldelli introduced himself and then reviewed highlights from the WRMPC Annual Financial Statement dated June 30, 2021. He made note there is a pretty large fluctuation, but that is expected as cash is down mainly for spending on the capital projects and paying down those bonds as scheduled. Next, he reviewed the Interim Financial Summary dated December 31, 2021 and noted therein that the July 1, 2021 principal and interest payments were made as scheduled along with the Jan 1, 2022 required debt service. A MOTION was made by President Kevin Boudreau and seconded by Secretary-Treasurer Dalen Wilcock to approve the Annual Report. Motion carried 5 - 0. FUTURE AGENDA ITEMS/MEETINGS: Identify future agenda items None at this time. COMMUNICATIONS From the PRESIDENT on current events.  Town of Gilbert AZ Water Resources MPC February 14, 2022 Page 8 of 8 None. From the BOARDMEMBERS on current events. Secretary-Treasurer Dalen Wilcock asked about the groundbreaking happening in March and CIP Project Supervisor Jensen replied that the event invite will be sent out through email. The meeting will be noticed but will not have any business intended for the WRMPC. From the COUNCIL LIAISON on current events. Councilmember Scott Anderson thanked all the WRMPC board members for serving and that the Council appreciated all that they do. From STAFF on current events. Management and Budget Director Kelly Pfost thanked the WRMPC board members for what they do as well. She also noted President Kevin Boudreau has been a WRPMC board member for 23 years and a town volunteer for 30 years and thank him for his service. ADJOURN A MOTION was made by Director James Graham and seconded by Vice President Nicholas Macaluso to adjourn the meeting. Motion carried 5 - 0. The meeting was adjourned at 3:07 p.m. ATTEST: ___________________________ ________________________________ Kevin Boudreau, President John Dalen Wilcock, Secretary-Treasurer CERTIFICATION I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the Annual Meeting of the Town of Gilbert Arizona Water Resources Municipal Property Corporation was held on the 14th day of February 2022. I further certify that the meeting was duly called and held and that a quorum was present. Dated this __ day of _____________, ______. ___________________________________ John Dalen Wilcock, Secretary-Treasurer