BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: Title
Adopt a Resolution Authorizing the Issuance of Water System Refunding Bonds, Revenue Bonds, Refunding Notes, and Revenue Notes in an Aggregate Not-to-Exceed Amount of $600 Million to Finance Certain Costs of the Water Utility Enterprise, and Approving the Execution and Delivery of Certain Documents and Certain Acts In Connection Therewith; Adopt Resolutions Authorizing the Execution and Delivery of Tax and Revenue Anticipation Notes to Support Short-Term Obligations; and Adopt Resolutions of Intention to Issue Tax-Exempt Obligations for the Water Utility Enterprise, Safe, Clean Water Program, and Watershed and Stream Stewardship Projects.
End
RECOMMENDATION: Recommendation
A. Adopt the Resolution authorizing the issuance of WATER SYSTEM Refunding Revenue Bonds, Revenue Bonds, REFUNDING NOTES, AND REVENUE NOTES, AND approving the execution and delivery of certain documents and certain acts in connection therewith;
B. Adopt the Resolution AUTHORIZING THE EXECUTION AND DELIVERY OF A TAX-EXEMPT TAX AND REVENUE ANTICIPATION NOTE AND A TAXABLE TAX AND REVENUE ANTICIPATION NOTE to support short-term obligations;
C. Adopt the Resolution AUTHORIZING THE EXECUTION AND DELIVERY OF A TAX-EXEMPT TAX AND REVENUE ANTICIPATION NOTE NO. 2 to support short-term obligations;
D. Adopt the Resolution INTENTION TO ISSUE TAX-EXEMPT OBLIGATIONS FOR WATER UTILITY ENTERPRISE;
E. Adopt the Resolution INTENTION TO ISSUE TAX-EXEMPT OBLIGATIONS FOR SAFE, CLEAN WATER AND NATURAL FLOOD PROTECTION AND WATERSHED AND STREAM STEWARDSHIP PROGRAMS;
F. Authorize the Chief Executive Officer, Chief Financial Officer, or their designees, to execute the Tax and Revenue Anticipation Notes and the Certificates as to uncollected taxes, income, revenue, cash receipts and other money;
G. Authorize the District Counsel, or their designee, to approve as to form the Tax and Revenue Anticipation Notes; and
H. Authorize and direct the Chief Executive Officer, Chief Financial Officer, or their designees, and such other officers and staff of the Santa Clara Valley Water District, acting singly, to do any and all things to execute and deliver any and all documents which such officers may deem necessary or advisable in order to consummate the sale and delivery of the Refunding Revenue Bonds, Revenue Bonds, Refunding Notes, and Revenue Notes, and the ongoing administration thereof.
Body
SUMMARY:
ISSUANCE OF WATER UTILITY DEBT
Staff recommends Board approval to issue debt up to $600 million for the Water Utility (WU) enterprise for the following purposes (Attachment 1: Resolution):
1. Refunding Bonds to refund:
a. outstanding short-term obligations;
b. all or a portion of the outstanding Series 2017A and 2019A bonds for savings; and
c. all or a portion of the outstanding taxable Series 2016BD obligations for savings.
2. Revenue Notes to fund ongoing capital costs.
3. Refunding Notes and Revenue Bonds, as needed, based on capital market or other conditions.
4. Pay costs of issuance.
The Refunding Bonds, Revenue Notes, and any Refunding Notes and Revenue Bonds that may be issued are collectively referred to herein as the “Debt.”
Method of Sale
The Debt is recommended to be sold on a competitive basis, which is expected to result in the lowest overall financing cost. Staff will be placing Notice of Sale advertisements in the San Jose Post, El Observador, Chinese News, Vietnam Daily, as well as the Bond Buyer, the daily municipal bond newspaper, to ensure a broad and diverse audience of potential bidders is informed of the competitive sale. The Notice of Sale will specify minimum qualifications as follows: (1) the firm must be in compliance with the Santa Clara Valley Water District (Valley Water) Board of Directors’ Executive Limitation (EL) 4.7.7 which requires an environmental, social and governance (ESG) rating of medium or better (small local firms are exempt); and (2) the firm is currently qualified in the California State Treasurer’s Office underwriter pool.
Financing Plan
The Debt will be secured by a pledge of and lien under the Water Utility System Parity Master Resolution (16-10) on Water Utility System Revenues and is payable from Net Water Utility Revenues. The authority to issue the Refunding Bonds and any Refunding Notes is provided for in Sections 53580-53589.5 of the California Government Code. The authority to issue the Revenue Notes and any Revenue Bonds is provided for in Section 25.2 of the District Act and Sections 54300 et. seq. of the California Government Code. The Refunding Bonds are expected to be issued with a maximum 30-year repayment term. The Revenue Notes are currently structured to mature in December 2029, to fund capitalized interest for the term of the notes, and are anticipated to be paid at or prior to maturity from proceeds of a refunding issuance or other available funds.
Outstanding debt previously issued under the Parity Master Resolution (“Parity Debt”) is currently rated ‘AA+’ by Fitch Ratings (“Fitch”) and ‘Aa1’ by Moody’s Investors Service (“Moody’s), both one-notch below the highest possible ratings of ‘AAA’ and ‘Aaa,’ respectively. Staff will be requesting ratings for the Debt from Fitch and Moody’s and anticipates receiving similar high-grade credit ratings for this transaction.
Board approval of the Resolution does not commit Valley Water to a definite course of action with regard to any particular project and does not limit Valley Water in exercising any discretion following California Environmental Quality Act (CEQA) review of the project, including (i) considering other feasible alternatives and mitigation measures to avoid or minimize project impacts, (ii) making modifications deemed necessary to reduce project impacts, or (iii) determining not to proceed with one or more components of a project. Additionally, approval of the recommended actions does not obligate Valley Water to approve the construction of any of the projects.
Estimated Sources and Uses of Bond Proceeds
The estimates of sources and uses of funds for the Bonds are set forth below. The amount of each type of debt may be adjusted to reflect business needs and market conditions at the time of issuance.
|
|
Refunding and Revenue Bonds 2026AB (excluding Taxable 2016 Obligations) |
Refunding Revenue Bonds 2026B (Taxable 2016 Obligations only) |
Revenue Notes 2026C |
Total |
|
SOURCES |
|
|
|
|
|
Principal Amount |
$ 362,150,000 |
$ 93,065,000 |
$ 108,530,000 |
$ 563,745,000 |
|
Premium |
17,965,686 |
-- |
8,528,287 |
26,493,973 |
|
Total |
$ 380,115,686 |
$ 93,065,000 |
$ 117,058,287 |
$ 590,238,973 |
|
|
|
|
|
|
|
USES |
|
|
|
|
|
Repay Short-Term Debt |
$ 327,180,000 |
$ -- |
$ -- |
$ 327,180,000 |
|
Refund 2017A and 2019A Bonds |
50,999,124 |
-- |
-- |
50,999,124 |
|
Refund 2016 Debt |
-- |
92,575,851 |
-- |
92,575,851 |
|
Capitalized Interest |
-- |
-- |
16,472,503 |
16,472,503 |
|
New Project Funds |
-- |
-- |
100,000,000 |
100,000,000 |
|
Underwriters’ Fee* |
1,448,600 |
372,260 |
434,120 |
2,254,980 |
|
Costs of Issuance |
487,962 |
116,889 |
151,664 |
756,515 |
|
Total |
$ 380,115,686 |
$ 93,065,000 |
$ 117,058,287 |
$ 590,238,973 |
*Reflects a conservative assumption of the underwriters’ fee that is subject to the competitive bid of the winning firm.
Good Faith Estimated Costs
Refunding Revenue Bonds, Series 2026A and 2026B (not including Taxable 2016 Obligations)
Pursuant to California Government Code Section 5852.1, the good faith estimates are as follows: (1) the true interest cost is currently estimated to be 4.80%; (2) the finance charge (which means the sum of all fees and charges paid to third parties) is estimated to be $1,936,562; (3) the amount of proceeds received by Valley Water (which is net of the finance charge) is estimated to be $378,179,124; and (4) the total payment amount (which means the sum of all debt service payments to the final maturity) is estimated to be $688,893,505.
Refunding Revenue Bonds, Series 2026B (Taxable 2016 Obligations Only)
Board approval of the refunding of the Taxable 2016 Obligations would give Valley Water the option to refund these bonds should market conditions change at the time of the bond sale, thereby producing economic savings. Pursuant to California Government Code Section 5852.1, the good faith estimates, assuming interest rates reduce uniformly by approximately 1.66% compared to current market rates, are as follows: (1) the true interest cost is currently estimated to be 3.94%; (2) the finance charge (which means the sum of all fees and charges paid to third parties) is estimated to be $489,149; (3) the amount of proceeds received by Valley Water (which is net of the finance charge) is estimated to be $92,575,581; and (4) the total payment amount (which means the sum of all debt service payments to the final maturity) is estimated to be $136,757,719. The refunding of the Taxable 2016 Obligations will not occur unless market rates are sufficiently reduced to result in a true interest cost of 3.94% or lower.
Revenue Notes, Series 2026C
Pursuant to California Government Code Section 5852.1, the good faith estimates are as follows: (1) the true interest cost is currently estimated to be 2.58%; (2) the finance charge (which means the sum of all fees and charges paid to third parties) is estimated to be $585,784; (3) the amount of proceeds received by Valley Water (which is net of the finance charge and capitalized interest) is estimated to be $100,000,000; and (4) the total payment amount (which means the sum of all debt service payments to the final maturity net of amounts paid with capitalized interest) is estimated to be $108,530,000.
The estimates provided above are based on market conditions as of March 18, 2026, for tax-exempt and taxable debt, plus a 0.50% market rate buffer. Actual results will differ depending on market conditions on the pricing date currently targeted in August 2026.
Financing Documents
The following financing documents, in substantially final form, are attached as follows for Board review: Indenture of Trust, Continuing Disclosure Agreement, and 2017A/2019A Escrow Agreements (Attachment 6: Financing Documents, Series 2026AB); Indenture of Trust and Continuing Disclosure Agreement (Attachment 7: Financing Documents, Series 2026C); and Notice of Sale of the Debt (Attachment 8: Financing Document, Notice of Sale).
Additionally, an agreement with the trustee to provide annual reporting of the amount of purified water produced and allocated to public use by Valley Water is attached (Attachment 9: Financing Document, Purified Water). This agreement was approved by Resolution No. 2026-03, adopted by the Board on January 27, 2026, and is required to maintain the tax-exempt status of debt issued by Valley Water for the direct potable reuse project.
Issuance Costs
The estimated total costs of issuance, if all the authorized bonds and other obligations are issued, in the amount of $756,515, will be paid from the proceeds of the debt issuances upon or shortly after closing:
|
Description |
Estimate |
|
Rating Fees (Fitch/Moody’s) |
$ 405,000 |
|
Bond Counsel |
205,000 |
|
Municipal Advisor |
82,130 |
|
Trustee |
25,000 |
|
Printing (Official Statement) |
5,000 |
|
Bond Buyer Ad |
2,500 |
|
Verification Agent |
2,000 |
|
Contingency |
23,370 |
|
Total |
$ 750,000 |
Additionally, underwriting costs of approximately $2,254,980, which are dependent on the amount bid for the Bonds, will be retained at closing by the winning firm.
Financing Schedule
The anticipated financing schedule is summarized below; it is preliminary and subject to change based on market conditions and business needs.
|
Description |
Date |
|
Board Meeting - Financing Plan/Documents |
May 12, 2026 |
|
Board Meeting - Preliminary Official Statement |
August 11, 2026 |
|
Receive Credit Ratings |
August 12, 2026 |
|
Post Preliminary Official Statement |
August 14, 2026 |
|
Pricing |
August 25, 2026 |
|
Closing |
September 9, 2026 |
Preliminary Official Statement
Staff anticipates presenting the Preliminary Official Statement for Board approval in August 2026. As the primary securities offering document to potential investors, the Preliminary Official Statement (POS) contains all material information relevant to the Debt and the security thereof. Valley Water’s Board and executive team are responsible for ensuring that no material facts are omitted or misstated in the POS in accordance with federal securities laws and disclosure requirements outlined in the Valley Water Debt Management Policy (Attachment 10: Debt Management Policy).
TAX AND REVENUE ANTICIPATION NOTES
Each fiscal year, the Board is legally required to adopt a new resolution reauthorizing the execution and delivery of Tax and Revenue Anticipation Notes (the “TRANs”) to support Valley Water’s Revolving Line of Credit (Attachment 2: Resolution, FY27 TRANs). The combined amount of the two FY 2026-27 TRANs exceeds the Revolving Line of Credit commitment, allowing greater flexibility in issuing more revolving certificates of a particular tax status (i.e., tax-exempt vs. taxable). Debt proceeds from the Revolving Line of Credit may be used for any Valley Water purposes, including, but not limited to, capital expenditure, investment and reinvestment, and the discharge of any obligation or indebtedness of Valley Water.
Board Resolution (Resolution 20-11) was adopted on April 28, 2020, and provides for up to $200 million in revolving lines of credit and the ongoing administration of the facility, including extensions. The TRANs issued last year for FY 2025-26 totaled $150 million, matching the Revolving Line of Credit commitment at the time. On March 30, 2026, the Revolving Line of Credit commitment was increased from $150 million to $200 million to provide additional short-term debt capacity for Valley Water’s growing Capital Improvement Program, and the term of the commitment was extended to April 30, 2029. Due to the $50 million increase in the commitment and the short-term debt issuance plan, an additional FY 2025-26 Tax-Exempt TRAN needs to be issued to support drawings on the Revolving Line of Credit (Attachment 3: Resolution, FY26 TRAN No. 2).
The obligation of Valley Water to make payments of principal and interest on the TRANs is a general obligation of Valley Water. Valley Water has also pledged Net Water Utility System Revenues of Valley Water on a subordinate basis to the payment of bonds and contracts (i.e., the Debt) of Valley Water to additionally secure the payment of the principal of and interest on the TRANs, all in accordance with the Water Utility Parity System Master Resolution No. 16-10 adopted by the Board of Directors on February 23, 2016, as amended from time to time.
In addition to the $200 million Revolving Line of Credit, Valley Water Board previously authorized a $250 million Commercial Paper (CP) program, supported by a Letter of Credit from the Sumitomo Mitsui Banking Corporation (SMBC) on October 22, 2024 (Resolution 24-49). The Revolving Line of Credit and CP are good sources of low-cost, short-term debt issued at variable interest rates.
The long-term strategy is to issue short-term debt to provide just-in-time funding for capital expenditures, thereby minimizing interest costs. As outstanding short-term debt reaches its capacity, it is refinanced with long-term debt to be repaid over the life of the improvements.
INTENTION TO ISSUE TAX-EXEMPT OBLIGATIONS
Board approval of the resolution of intention to issue tax-exempt obligations is legally required to allow Valley Water to finance eligible capital costs of the WU enterprise (Attachment 4: Resolution, WU), Safe, Clean Water and Natural Flood Protection (SCW) Program and Watershed and Stream Stewardship Fund (WS) (Attachment 5: Resolution, SCW/WS). The estimated not-to-exceed amounts to be financed conform to FY 2026-27 projected capital improvement costs of $498.9 million for the WU enterprise and $242.4 million for the combined SCW Program and WS Fund, subject to Board approval of the FY 2027-31 Capital Improvement Program in May 2026.
ESG POLICY AND LOCAL INVESTMENTS
The Board’s Executive Limitation 4.7.7 stipulates that Valley Water can only do business with banks that have an ESG risk rating of average/medium or better from at least one professional ESG research company. Small and local banks/credit unions located within the nine Bay Area counties with total assets of $10 billion or less are exempt from this provision. Staff verifies ESG compliance with the banks with which Valley Water does business, including investment banks in the bond underwriting pool. Additionally, Valley Water has expanded its support of local community banks through the following investments:
• $65 million in deposits with various small, local banks.
• Three letters of credit issued by San Jose-based Technology Credit Union totaling $841,000 to meet the U.S. Army Corps’ financial assurance requirements for the operations of Upper Penitencia, Coyote Ridge, and Rancho Cañada de Pala Preserve watershed projects.
ENVIRONMENTAL JUSTICE IMPACT:
There are no Environmental Justice impacts associated with this item.
FINANCIAL IMPACT:
The estimated total costs of issuance in the amount of $756,515 plus underwriter’s fees of approximately $2,2554,980 will be paid from the proceeds of the debt issuance. The Board-adopted FY 2025-26 operating budget, and the proposed FY 2026-27 operating budget includes sufficient funds for the short- and long-term debt programs.
Based on market rates as of March 18, 2026: (a) the refunding of the tax-exempt 2017A and 2019A Bonds is estimated to result in annual debt service savings of $341,000, and $7.8 million in total savings over the life of the obligations; and (b) the refunding of the taxable 2016 Obligations, assuming interest rates decrease by approximately 1.66% compared to current market rates, is estimated to result in annual debt service savings of $200,000, and $4.0 million in total savings over the life of the obligations. Actual results will differ and depend on market conditions on the pricing date currently targeted for August 2026.
CEQA:
The recommended action does not constitute a project under CEQA because it does not have a potential for resulting in direct or reasonably foreseeable indirect physical change in the environment, as outlined in the State CEQA Guidelines, Section 15060(c)(2).
ATTACHMENTS:
Attachment 1: Resolution, Water System
Attachment 2: Resolution, FY27 TRANs
Attachment 3: Resolution, FY26 TRAN No. 2
Attachment 4: Resolution, WU
Attachment 5: Resolution, SCW/WS
Attachment 6: Financing Documents, Series 2026AB
Attachment 7: Financing Documents, Series 2026C
Attachment 8: Financing Document, Notice of Sale
Attachment 9: Financing Document, Purified Water
Attachment 10: Debt Management Policy
UNCLASSIFIED MANAGER: Manager
Darin Taylor, 408-630-3068