DATE: November 4, 2026
TO: Honorable Mayor and City Councilmembers
FROM: Financial Services Department
TITLE: ADOPTION OF RESOLUTION REGARDING THE CITY’S INTENTION TO ISSUE TAX-EXEMPT OBLIGATIONS TO REIMBURSE ITSELF FOR THE CONSTRUCTION OF CERTAIN SEWER SYSTEM CAPITAL IMPROVEMENT PROJECTS
RECOMMENDATION
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Staff recommends that the City Council adopt a resolution to stating the City’s intention to allow reimbursement of project costs occurring prior to the issuance of tax-exempt obligations, with a maximum anticipated principal amount of $300 million.
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BACKGROUND AND ANALYSIS
The sewer infrastructure inventory for the City of Oceanside is substantial and consists of approximately 450 miles of sewer pipelines, two wastewater treatment plants, and thirty-three sewer lift stations. The ability to continue to provide safe and reliable wastewater collection and treatment services and be prepared to serve future growth critically depends on the continual reinvestment in capital replacement and renewal programs. Oceanside’s sewer utilities are also challenged by the need to “catch up” with legacy deferrals of capital investment; these infrastructure priorities have been identified in the 2015 Water and Sewer Master Plans and Master Plan Update in progress.
With the planned decommissioning of the La Salina Wastewater Treatment plant, and to meet the City’s water reuse goals, consolidation of sewer flows to the San Luis Rey Water Reclamation Facility must occur. To achieve this objective and replace aging infrastructure, several sewer improvement projects must be completed.
The projects include:
• Oceanside Mesa Garrison Lift Station (OMG LS)
• Oceanside Mesa Garrison Force Main (OMG FM)
• Buccaneer Lift Station
• Buccaneer Force Main
• Mission Avenue Force Main Replacement
• Land Outfall Replacement Parts A, B, C1, C2 and D
• Mission Ave Gravity Sewer Lining and Replacement
The funding for this capital campaign has been achieved through annual rate adjustments, the collection of developer buy-in fees, as-needed debt issuances and receipt of grant funding from the State and Federal governments. Although the Department has instituted the annual setting aside of designated capital funds to cash fund many of the capital projects, there are future years in which capital spending for the utility exceeds the cash balances (inclusive of grants and other revenues) and the utility will need to issue debt. When debt issuance is required, staff seeks to fund these projects in the most cost-effective manner to minimize the need for rate increases, to stabilize long-term expenses and the balance costs between existing and future ratepayers in conformance with City Council Debt Policy 200-14. To this end, staff have been working to secure the use of several alternative funding sources including California Department of Water Resources Integrated Regional Water Management, EPA WIFIA loans, Bureau of Reclamation, grants and revenue bonds.
Resolution - Intention to Issue Tax-Exempt Bonds
The City has historically used a combination of sewer revenues, developer fees, grants, and revenue bonds to finance sewer infrastructure improvements. Bond financing is an established financing method that allows the City to borrow funds to pay for major capital projects and repay the borrowed amount, plus interest, over time. Rather than paying the full cost of a project upfront, bond financing spreads the cost over several years, allowing both current and future ratepayers who benefit from the improvements to share in the cost. The City has previously used revenue bonds to finance utility infrastructure, so this is not a new financing strategy.
The City is evaluating several funding sources for the proposed sewer capital improvement projects, including grants, low-interest government loans, and tax-exempt revenue bonds. As noted in Attachment A of the Resolution, there are multiple projects with each project potentially having several financing sources. The availability of funds for each project will depend on when the various grants, loans and/or bonds are approved. The Resolution allows the City to pay certain project costs from available City funds before any debt obligations are issued, and to reimburse itself for those costs from the proceeds of the obligations once they are sold.
The resolution establishes a maximum anticipated principal amount of $300 million, which may be issued in one or more series. Under federal tax regulations, the City must adopt the reimbursement resolution within 60 days of incurring expenditures it intends to reimburse. Reimbursement must generally occur within 18 months of the later of the expenditure date or the date the project is placed in service, and no later than three years after the original expenditure. Certain exceptions apply, including qualifying preliminary expenditures of up to 20 percent of the aggregate issue price of the obligations financing the project, and expenditures not exceeding the lesser of $100,000 or five percent of the bond proceeds.
Adoption of this resolution does not authorize the issuance of debt or obligate the City to borrow the full $300 million. Any future bond issuance would require separate City Council authorization.
As with any borrowing, bond financing carries financial risks, including interest costs, changes in market conditions, and the obligation to make scheduled debt payments over the life of the bonds. For sewer revenue bonds, repayment is supported by revenues generated from sewer operations rather than the City's General Fund. The primary financial risk is that sewer revenues may be insufficient to cover operating expenses, debt payments, and future capital needs, potentially requiring adjustments to sewer rates or expenditures. These risks are managed through financial planning, maintaining adequate reserves, and evaluating the affordability of debt before issuance.
The proposed reimbursement resolution itself presents no financial risk because it does not require the City to issue debt.
FISCAL IMPACT
The resolution is a necessary pre-cursor that will allow the City to seek multiple financing sources to reduce the overall cost of the debt. Adoption of the resolution provides the City the flexibility to spend available cash reserves on project cost and if financially prudent to reimburse itself at a later date from proceeds of tax-exempt bonds. Without this resolution, the City would lose the flexibility to reimburse the funds it has spent on the project prior to the issuance of the tax-exempt bonds. The total fiscal impact of the resolution will be determined when the financing is secured.
COMMISSION OR COMMITTEE REPORT
Does not apply.
CITY ATTORNEY’S ANALYSIS
The Resolution has been reviewed by the City Attorney and Bond Counsel and approved as to form.
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Prepared by: Jill Moya, Financial Services Director
Reviewed by: Frederick Mayo, Water Utilities Director
Submitted by: Jonathan Borrego, City Manager
ATTACHMENT:
1. Resolution