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04. Interlocal Agreement - Greenacres Water and Sewer DistrictTel 406.758.7709 Fax 406.758.7771 charbalI C kalispell.com Mayor 'Tammi Fisher and Kalispell City Council Charles Ha.rball, City .attorney Jane Howington, City Manager Interlocal .agreement with Greenacres water and. Sewer District November 1, 2010 -- Regular Council meeting BACKGROUND:The neighborhood, known as Greenacres, located southeast of Kalispell, is in the unincorporated area of Flathead. County, but otherwise wholly surrounded by the City. A portion. of Greenacres is served by a community water system. The residents, so served, desire to make improvements to this water system and have therefore formed a county water and sewer district. By virtue of this new entity they are now able to obtain the necessary financing through the sale of revenue bonds. Bond counsel for Greenacres has indicated that he is not able to provide an unqualified opinion about the bonds, which would affect the bonds negatively, unless the District is able to enter into an interlocal agreement with the City of Kalispell regarding the pledged revenues securing the bonds. This is due to the fact that Greenacres, being wholly surrounded, is subject to the possibility of a forced annexation by the City of Kalispell should the City make that determination. In that event the City could determine to subsume the Greenacres water system into its existing municipal water system which could result in compromising that portion of revenues pledged to the bonds. The proposed interlocal agreement addresses this issue. By approving and entering into this agreement the City is agreeing that, in the event that it annexes this portion of Greenacres, it will segregate that portion of the water revenues pledged to the bond and make such payments on the bond when they are due. The consideration that the City is receiving for this agreement is the improved water infrastructure that it would receive upon any annexation. RECO ATION: That City Council gives consideration to the proposed interlocal agreement and pass a motion to approve the agreement and give the authority to the City Manager to execute it on behalf of the City. Greenacres Interlocal Agreement Memorandum October 26, 2010 Page - 2 FISCAL IMPACTS: In the event that the City should determine to annex this portion of Greenacres, it will benefit from the improved grater infrastructure that has been paid for by the residents of that community. Respectfully submitted, Charl arball, City Attorney 1 ane Howington, City Mann r Office of City Attorney City of Kalispell BETWEENINTERLOCAL AGREEMENT ,: SEWER DISTRIC AND THE CITY OF KALISPELL WITH RESPECT TO CERTAIN FINANCED WATER IMPROVEMENT] WHEREAS, the Greenacres County water and Sever District (the "District") is a county water or sewer district, validly organized pursuant to Title 7, Chapter 13, Parts 21 and 22. The District was incorporated on .August 9, 2006, is located within the boundaries of Flathead County, Montana, and the boundaries of the District are more particularly described on the attached Exhibit A.; and WHEREAS, the District owns and operates a water system that serves persons and improvements in and about the District (the `District System"); and WHEREAS, A.S, the District has determined that it is in the best interests of the District to improve the District System by installing water meters, meter pits, rehabilitating a pumphouse, replacing main valves and blow -off valves, and related improvements (the "Project"); and WHEREAS, the District conducted an election on April 27, 2010 to issue water system revenue bonds in the total aggregate amount of up to $377,000 to pay a portion of the costs of the Project, and the voters in the District authorized the issuance of the bonds in the amount of up to $377,000; and WHEREAS, bonds are now contemplated to be issued in two series, one a Series .A .Bond in the maximum principal amount of $208,000 (the "Series A. Bond") and the other a Series B Bond in the maximum principal amount of $208,000 (the "Series B Bond"); and WHEREAS, the costs of the Project will be paid by a combination of grant funds, funds of the District, and proceeds derived from the sale of the Series A Bond and the Series B Bond (together, the "Bonds"), each having a 20-year terra, to the Department of Natural Resources and Conservation of the State of Montana (the "DNRC") to evidence loans from. the DNRC to the District in an amount of up to $416,000; and WHEREAS, provided that the District complies with certain conditions for principal forgiveness, the District's obligation to repay the Series A Bond will be forgiven; and WHEREAS, the District is situated adjacent to the City of Kalispell, Montana (the "City"); and WHEREAS, the City has informally identified the District as a potential area for annexation, but has no present intention to annex. the District; and WHEREAS, so that the District System may be improved with proceeds of the Bonds, the District and the City desire to enter into this Agreement to memorialize the rights and obligations of the parties with regard to the District System and the Bonds in the event the District is annexed into the City and the District System is connected to the municipal water system owned and operated by the City (the "City System"), recognizing that the City has no present intention to annex the District into the City. Now THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the City and the District agree that it is to their mutual advantage to enter into this Interlocal Agreement (this ",Agreement"') as follows: Section 1: Purpose It is the purpose of this Agreement to delineate the responsibilities between the District and City with respect to the District Systems and the Bonds. The primary purpose of this Agreement is to ensure the continued security and source of funds for the repayment of principal of and interest on the Bonds as and when due. Section. 2: Administration 2.01. No separate legal entity is established by this Agreement. 2.02. The District will administer the funding established for the Project and the City shall have no responsibility therefor. Section 3: ownership, operation, and Maintenance of Project The District owns the District System and will own the Project and the District System as improved by the Project. The District is responsible for and will pay the cost of operating and maintaining the District System, as unproved by the Project. The parties agree that in the event the District should be annexed into the City and the District System connected to the City System, then (i) the District shall continue to own the District System until such time as all the indebtedness of the District payable from the revenue of the District System, including the Bonds, is paid in full, and (ii) the District and the City will agree as to the operation and maintenance of the District System. Section 4: The District and the Bonds 4.01. The District is a validly existing water and sewer district under the laws of the State of Montana. The District agrees that it shall continue in existence as a valid water and sewer district under the lags of Montana until all indebtedness of the District, including the Bonds, are paid in full. The City acknowledges the existence and continuation of the District and the District's responsibility to repay the Bonds over the life of the Bonds. 4.02. The security for the repayment of the Bonds is primarily rates and charges imposed by the District for the use and availability of the District System. The resolution of the District authorizing the issuance of the Bonds (the "Bond Resolution") requires that such rates and charges of the District System will be sufficient to produce Net Revenues (as defined in the Bond Resolution) in an amount equal to at least 120% of maximum fiscal year debt service on the Bonds (the "District water Pates"'). Because the Series B Bond was authorized by an election, the District has the authority and obligation to cause a deficiency tax levy to be levied by 2 Flathead County, Montana in the event Net Revenues of the District System are insufficient to repay the Series B Bond (the "Deficiency Tax Levy"). Section 5: Annexation If the District is annexed into the City and the City System is connected to the District System: (i) the District shall continue to remain in existence as a valid county water and sewer district within the State of Montana until the Bonds and any other indebtedness of the District are paid in full in accordance with their terms; (ii) the District shall continue charging and collecting, or cause to be charged and collected, that portion of the District water Rates to and from persons and entities who are within the boundaries of the District and/or who are or were served by the District System, in an amount sufficient to produce Net Revenues of the District System at least equal to 120% of the fiscal year debt service requirements of the Bonds (the "Bond Repayment Charge'), from which the District shall remit to the holder of the Bonds an amount sufficient to pay the principal of and interest on the Bonds as and when due, as provided below; and (iii) the dollar amount of the Bond Repayment Charge charged to persons or entities in the District or who are or were served by the District System that is set aside for and applied to the repayment of the Bonds shall be a direct offset against and reduce in the amount of such Bond Repayment Charge any water billing that the City charges to such persons or entities for the use or availability of the City System. To implement the foregoing sentence, in the event the District is annexed into the City and the City System is connected to the District System, the District shall present to the City a list of the addresses and owners of the persons or entities who are charged the Bond Repayment Charge and a schedule showing the amount of the Bond Repayment Charge that is to be set aside for and applied to the repayment of the Bonds, as such list may be updated from time to time to show the current owners. The City shall then bill the persons or entities who are subject to the Bond Repayment Charge an amount equal to the amount all users of the City System are customarily charged, in accordance with the rate schedules of the City for all City water customers as then in effect. From collections of such City water billings, the City shall segregate an amount equal to the Bond Repayment Charge and deposit monthly the cumulative amount of the Bond Repayment Charge into a subaccount in the City's water system funds denominated the Greenacres Subaccount and remit monthly all amounts in the Greenacres Subaccount to a designated official of the District. The District shall deposit amounts representing the Bond Repayment Charge upon receipt from the City in the Revenue Bond Account of the District and apply all such amounts to the payment of the Bonds as and when due. The District shall cause the Deficiency Tax Levy to be levied if at any time during the term of the Series B Bonds the District water Rates are or the Bond Repayment Charge is insufficient to pay the debt service of the Series B Bonds. In addition, the City shall timely enforce all remedies available to the City against any person or entity whose water bill includes the Bond Repayment Charge for failure to pay the City bill for water service, including shutting off water service. No provision in this Agreement shall prohibit the City from acquiring, with the prior agreement of the District, the District System and in connection therewith repaying and discharging in full all amounts owing on the Bonds or the City otherwise paying and redeeming in full the Bonds. 3 The parties acknowledge that the primary purpose of this Agreement is to provide for the ongoing security for the repayment of the Bonds in the event the District is annexed into the City and the City System is connected to the District System.. This Agreement shall not be used or referenced to show, or construed to have a bearing on, whether the District may be annexed into the City or to enhance or diminish any legal rights or obligations of the parties with respect to annexation itself. Section 6: Miscellaneous 6.01. This .Agreement and any right or obligation hereunder shall not be assigned or amended except in writing and only following the express written consent of the parties. 6.02. This Agreement is entered into voluntarily, with each party, through its governing body, having read and approved by resolution the same upon an independent consideration of its terms and conditions. The District and the City have full right, power, and authority to execute, deliver, and perform their respective obligations under this Agreement and to consummate the transactions contemplated hereby. 6.03. This Agreement shall be binding upon each of the parties and their respective successors and assigns and the terms hereof shall be effective on the date last set forth below (or if there are two different dates, the later of such dates). 6.04. If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of this Agreement shall not be affected thereby, and each term or provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 6.05. This Agreement may be executed in any number of counterparts, which when taken together, shall constitute one and the same agreement. Section 7: Interlocal Agreement This Agreement is an interlocal agreement under Section 7- l l - 104, M.C.A. To that end, this Agreement shall remain in effect until all the obligations of each party are fully discharged; the District is a valid and existing water and sewer district and the City is a valid and existing municipal corporation; the financial obligations of each party hereunder shall be satisfied from amounts each party has on hand and available therefor; no joint board or budget shall result from the undertakings set forth in this Agreement; no retirement or other employee obligations are shared between. the District and the City as a result of this Agreement; and no partnership or joint venture exists or shall be deemed to exist between the parties. 51 IN WITNESS WHEREOF, the City of Kalispell and the District have caused this instrument to be duly executed by their proper officers on the day of November, 20 10. The District: The City: GREENACRES COUNTY WATER AND SEWER DISTRICT President of the Board Authorized by Board Resolution, dated ,200. CITY OF KALISPELL ob City Manager Authorized by Motion of the City Council, dated November I , 20 10.