HomeMy WebLinkAboutRES2023-092 AK DEC Agreement CITY OF SEWARD,ALASKA Sponsored by: Regis
RESOLUTION 2023-092
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD,
ALASKA, AUTHORIZING THE CITY MANAGER TO ENTER INTO A
LOAN AGREEMENT WITH THE ALASKA DEPARTMENT OF
ENVIRONMENTAL CONSERVATION
WHEREAS, city staff identified several issues necessitating the addition of a
Hypochlorite Generator for the SMIC water pumphouse, and
WHEREAS, staff completed and submitted the required questionnaire to for loan
monies being offered by the Alaska Drinking Water fund, and
WHEREAS accepting the total loan amount of $476,000 with loan forgiveness of
$238,000 from the Department of Environmental Conservation Clean Water Fund is in the
best interest of the city by allowing the city to utilize the fund to invest in infrastructure,follow
regulations set forth by the Alaska Department of Environmental Conservation and remain in
compliance with the current permit,
WHEREAS,the City of Seward seeks to obtain the necessary financial assistance to
complete the SMIC Hypochlorite Pumphouse Addition Project by obtaining a loan from the
State of Alaska Department of Environmental Conservation's Alaska Drinking Water Fund.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF SEWARD,ALASKA that:
Section 1. The City of Seward hereby confirms its commitment to the State of Alaska
(ADEC) and its intent to fund $476,00 for the SMIC Hypochlorite Generator Pumphouse
Project,with an estimated principal forgiveness of$238,000 for a total repayment of$238,000
subject to receiving a loan from ADEC.
Section 2. The City Manager is authorized to apply for a loan in the amount of
$238,000 from the State of Alaska Department of Environmental Conservation, Drinking
Water Fund for the water system improvement known as SMIC Hypochlorite Generator
Pumphouse Addition Project.
Section 3.The City Manager is hereby authorized to execute any and all documents
that may be necessary to affect a $238,000 loan from ADEC, the terms of its repayment
over 20 years at a rate of interest equal to 1.5% subject to annual appropriations, including
but not limited to an agreement for the loan and a promissory note. Annual loan payments
shall not exceed $15,470.
Section 4.This resolution shall take effect immediately upon adoption.
CITY OF SEWARD, ALASKA
RESOLUTION 2023-092
PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 14th
day of August 2023.
THE CITY OF SEWARD, ALASKA
Sue McClure, Mayor
AYES: DeMoss, Finch, Barnwell, Calhoon, Osenga, McClure
NOES: None
ABSENT: Wells
ABSTAIN: None
ATTEST:
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Kris Peck
City Clerk
(City Seal) �sAstot SEW,q�O.,.,,
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City Council Agenda Statement
Meeting Date: August 14t'', 2023
To: City Council
Through: Norm Regis,Acting City Manager
From: Doug Schoessler, Public Works Director
Subject: Resolution 2023-092: Authorizing The City Manager To Enter
Into A Loan Agreement With The Alaska Department Of
Environmental Conservation
Background and justification:
The current SMIC water system uses chlorine gas cylinders in the SMIC water pumphouse. The declining
availability and hazards of chlorine gas cylinders necessitates a change to the same system that was already
installed at the North Seward Water Plant facility. CRW Engineering investigated sizing and other
requirements for infrastructure in the SMIC water pumphouse.
City staff utilized the CRW report as part of a master project list to identify potential funding sources. The
SMIC Hypochlorite Generator Project was placed on the master project list because of issues outlined in
both reports and staff observations.
If the City is successful in procuring funding, it will construct the SMIC Hypochlorite Generator to the
SMIC Water Pumphouse,which will serve the clean water needs of the Seward Marine Industrial Complex
on the East side of Resurrection Bay well into the future.
The City of Seward loan requires the City to commit to the State of Alaska(ADEC) and its intent to fund
$476,000 for the Hypochlorite Generator Pumphouse Project, with an estimated principal forgiveness of
$238,000 for a total repayment of $238,000 from the State of Alaska Department of Environmental
Conservation Drinking Water Fund. The repayment terms are over 20 years at a rate of interest equal to
1.5%, resulting in annual payments of approximately $15,470. This debt payment was not previously
budgeted in the Water Fund and will be subject to annual appropriations. Unfortunately, the Water Fund
does not have adequate cash reserves to fund the project without assistance. However, the most recent
Financial Capacity Assessment found the fund healthy enough to cover existing and potential loan
obligations.The Water fund generates sufficient revenue to fully pay anticipated expenses attributed to the
operation of the water system and also pay all debt service for existing loans and the proposed SRF loan
during the next 5 years.
Comprehensive and Strategic Plan Consistency Information
This legislation is consistent with(citation listed):
Comprehensive Plan:
Strategic Plan:
Other:
197
Certification of Funds
Total amount of funds listed in this legislation: $
This legislation(✓):
Creates revenue in the amount of: $
x Creates expenditure in amount of: $ 238,000/$15,470 Annually
Creates a savings in the amount of: $
Has no fiscal impact
Funds are (✓):
Budgeted Line item(s):
x Not budgeted
Not applicable
Fund Balance Information
Affected Fund(✓):
General SMIC Electric Wastewater
Boat Harbor Parking X Water Healthcare
Motor Pool Other
Note: amounts are unaudited
Available Fund Balance/Net Position $ 9,269,962
Finance Director Signature:
Attorney Review
RxYes Attorney Signature:
Not applicable Comments:
Administration Recommendation
eAdopt Resolution
Other:
198
7/27/23, 12:00 PM Application Review
Department of Environmental Conservation
DEC Online Application System (OASys)
ADWF Loan Application
Status: Submitted
Status Details:
Completed
Signed-Administratively signed on 12/2/2021 9:25:21 AM
Application Submitted
SMIC Water Pumphouse
Tracking#: ADWFLA-0252 Facility: Addition&Hypochlorite Type: ADWF Loan Application
Gen
Org: City of Seward-Public Works
General Information Details
Project Title: SMIC Water Pumphouse Addition&Hypochlorite Gen
Data Universal Numbering System 037996634
(DUNS)Number:
Location Latitude: Converter 60.095973
Location Longitude: -149.342382
General Project Location: SMIC Water Pumphouse
Total Community Population: 1000
Population served by the system: 1000
Population served by the project: 1000
Project Type: New Construction
Is the proposed project an amendment to No
an existing SRF Loan?
If yes,exiisting SRF Loan Number:
Please indicate the type of amendment:
Project Scope Water Treatment
Distribution System
Capacity/Restructuring
Project Need:
Upgrade to onsite Hypochlorite Generator System and Pumphouse Addition.
Project Description:
Upgrade to onsite Hypochlorite Generator System and Pumphouse addition. Disinfects organisms/bacteria for safe and healthy
water distribution.Benefiting area for 25-30 years with system.Eliminating the issues with gas chlorine usage.
Public Health Benefit(s):
Water efficiency&rehabilitation of distribution: Elimination the issues with Chlorine Gas usage and upgrade to onsite
Hypochlorite Generator.Also,new pumphouse addition-structure and equipment benefiting area for 25-30 years. This will also
reduce costs in the future from eliminating Chlorine Gas usage.By eliminating Chlorine it reduces the risk of exposure to this
harmful chemical.
Providing fire protection? No
Expand the drinking water system to No
attract future population growth?
Expand the drinking water system to an No
undeveloped area?
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Contacts Details
Signatory Official Doug Schoessler
Public Works Director,City of Seward-Public Works
PO BOX 167
SEWARD,AK,99664-0167 US
Phone: 9072244058
doug*cityofseward.net
Financial Contact Sam Hickok
Deputy Financial Director,City of Seward
PO Box 167
Seward,AK,99664 US
Phone: 907-224-4067
shickok*cityofseward.net
Application Preparer Kirsten Loertscher
City of Seward
434 6thAvenue
Seward,AK,99664 US
Phone: 9072244058
kloertscher*cityofseward.net
Project Costs Details
Administration: 8,500
Engineering Design: 55,000
Engineering Construction: 25,000
Construction: 275,000
Equipment: 70,000
Contingencies: 42,500
Other(Identify Cost):
Amount: 0
Other(Identify Cost):
Amount: 0
Other(Identify Cost):
Amount: 0
Total of Other Costs: 0
Total Cost: (Sum of Above) 476,000
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Green Project/Component Information Details
Is this a green project? Yes
Identify the most appropriate"Green" Water Efficiency-the use of improved technologies and practices to deliver
category type. equal or better services with less water.Examples:water meters;fixture
retrofit,replace/rehabilitation of distribution,and,leak detection equipment.
Green Project/Component Description:
Water efficiency&rehabilitation of distribution: Elimination the issues with Chlorine Gas usage and upgrade to onsite
Hypochlorite Generator.Also,new pumphouse addition-structure and equipment benefiting area for 25-30 years. This will also
reduce costs in the future from eliminating Chlorine Gas usage.By eliminating Chlorine it reduces the risk of exposure to this
harmful chemical.
Is a project cost estimate attached? No
Administration: 8,500
Engineering Design: 55,000
Engineering Construction: 25,000
Construction: 275,000
Equipment: 70,000
Contingencies: 42,500
Other Component(description): N/A
Other Amount: 0
Other Component(description): N/A
Other Amount: 0
Other Component(description): N/A
Other Amount: _0
Total Costs: (Sum of Above) 476,000
Estimated Project Schedule Details
Is this application for a construction Yes
loan?
Loan Agreement Signed: 03/31/2022
Preliminary Engineering Report: 02/28/2022
Design Engineering: 02/27/2022
Preparation of Bid Documents: 02/14/2022
Award of Construction Contract: 03/15/2022
Construction Initiation: 03/31/2022
Construction Completion: 09/30/2022
Initiation of Operation: 04/01/2022
Anticipated first payment request: 01/01/2023
Other Funding Details
Federal Funds From:
Amount:
Other State Funds From:
Amount:
Other Local Funds From:
Amount:
Other(Identify Source):
Amount:
Other(Identify Source):
Amount:
Describe how these other funds will be used for this project:
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Financial Information Details
Loan Amount: 476,000
Desired Repayment Term(yrs): 20
Estimated Annual Payment:
(Given the above information,we will provide
this if you wish.)
General Funds 238,000
Capital Reserves 0
User Fees 0
Assessments,LIDS 0
Taxes(identify type) N/A
Amount 0
Other(identify) N/A
Amount 0
Describe whether or not any of these sources of funding or revenue have been previously pledged and,if so,please indicate the type
of pledge or encumbrance(such as a previous bond sale,special assessment,legal or judicial settlement,etc.),amount pledged and
any balance remaining:
(If none,enter'no')
N/A
Please describe any litigation that could affect your community's ability to repay this loan:
(If none,enter'no')
N/A
Does your community have a debt No
ceiling?
If so,what is it?
How much remains available?
Does your community have bonded No
indebtedness?
What is your current level of bonded
indebtedness?
Date:
Rating:
Amount:
Operating Revenues: 1,275,656
User Fees Collected: 1,275,656
Non-Operating Revenues: 55,139
TOTAL Revenues: 2,606,451
Operating Expenses: 1,320,878
Annual Debt Service: 893,570
Other Non-Operating Expenses:
TOTAL Expenses: 2,214,448
Reserves: 0
If User Fees are intended to repay any Current fee structure
portion of this loan,
please submit:
Number of existing residential and 1015
commercial users:
Number of proposed residential and 1015
commercial users:
How much will this loan repayment 0
increase user fees?
Please describe the increase:
N/A
Current Ave Monthly Residential 54
Customer Charge for Service:
Number of days in billing cycle: 30
Frequency of rate setting: Annually
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Number of changes in past 10 years: 10
Date of last rate increase: 01/15/2021
Description of guidance in rate setting:
Water and Sewer Tax Tariff.
ttached Document Checklist Details
ttachments Title(Type),Description
Other Documents Type
ADWF Loan Application Signature ADWFLoanApplicationSignPageV l0.pdf
Page.pdf
Xerox Scan_12022021092912.PDF Hardeopy signature page for ADWF Loan Application,Tracking Number:
ADWFLA-0252, Signed By:Doug Schoessler,Title:Public Works Director,
Authority:Not Applicable
ADWFLA-0252.pdf ADWF Loan Application.pdf
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State Revolving Fund Program—Alaska Drinking Water Fund
Financial Capacity Assessment
Project Name: Seward Marine Industrial Center(SMIC)Water Pumphouse Addition Hypochlorite
Generator System Upgrade
Project Number: 769121-S
Loan Applicant: City of Seward
Project Description: This project will include an addition to a pumphouse and upgrade the hypochlorite
generator system to eliminate the use of chlorine gas.
Date: 11/29/2022
Loan Amount $476,000
Proposed Principal Forgiveness $238,000
Loan Principal to be Repaid $238,000
Estimated Annual Debt Service $14,555
Assumed Loan Finance Rate (to be determined at time of loan offer) 2%
Loan Repayment Term 20 years
City of Seward—Population (2020 U.S. Census)' 2,717
Number of commercial and residential accounts 11015
Population served by project 1,000
Median Household Income $74,110
Audit Findings
Fiscal Year(FY) 2021—Type of Opinion Issued: Unmodified
Finding 2021-001—Lack of Internal Controls over Billings
A Corrective Action Plan was prepared to address this issue.
FY2020—Type of Opinion Issued: Unmodified
Finding 2020-001 —Lack of Internal Controls over Governmental Activities Capital Assets
Finding 2020-002—Lack of Internal Controls over Lack of Year End Close Procedures.
Finding 2020-003—Lack of Internal Controls over Utility Billing
Corrective Action Plans were prepared to address these issues.
FY2019—Type of Opinion Issued: Unmodified
Finding 2019-001 —Lack of Internal Controls over Year End Inventory Balances
Finding 2019-002—Lack of Internal Controls over Lack of Year End Close Procedures
Corrective Action Plans were prepared to address these issues.
FY2018—Type of Opinion Issued: Unmodified
No material weakness or significant deficiency was identified.
FY2017—Type of Opinion Issued: Unmodified
No material weakness or significant deficiency was identified.
' https://data.census.gov/cedsci/all?q=seward,alaska%20population
Z https://data.census.gov/cedsci/all?q=seward,alaska%20median%20household%20income
SOURCE OF REPAYMENT
State Revolving Fund (SRF) Program borrowers are required to submit documentation of the availability of, and the
commitment to use, one or more dedicated sources of revenue for repayment of the financial assistance and sufficient
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reserves for the loan as may be necessary.The City of Seward (City) has indicated that the proposed loan will be repaid with
the General Fund.
OPERATING RATIO
The operating ratio indicator measures the utility's self-sufficiency—whether the revenues are sufficient to operate the
facility.The natural benchmark for the operating ratio is 1.0, or break-even, but often a higher number is desired. An
operating ratio of 1.2 with depreciation and 1.5 without depreciation is recommended to cover daily expenses, debt service,
capital replacement costs, emergencies, and unexpected revenue shortfalls.
As shown in the table below,the operating ratio with depreciation fell below 1.0 in two of the past five years, specifically in
2018 and 2020. For the past five years, when depreciation is excluded from the calculation,the operating ratio is below the
recommended EPA level of 1.5, except for two years: 2017 and 2021. Expenses dropped to the lowest in the five-year period
in 2020 due primarily to a drop in administration expenses in that year.
Operating Ratio—Water Enterprise Fund 2017 2018 2019 2020 2021
Operating Revenues $1,441,320 $1,356,104 $1,453,343 $1,275,656 $1,511,295
Operating Expenses $955,270 $1,084,964 $1,032,225 $897,206 $969,217
Depreciation $396,426 $393,587 $423,612 $423,672 $417,881
Operating Ratio(with Depreciation) 1.07 0.92 1.00 0.97 1.09
Operating Ratio(without Depreciation) 1.51 1.25 1.41 1.42 1.56
The table below shows projected water utility operating revenues and expenses that were provided by the City of Seward.
The projected operating ratio is above the recommended ratio of 1.5. It should be noted that the revenue and expense
projections are considerably higher than the amounts recorded in recent financial statements.The applicant pointed out the
fact that the projections were prepared using a cash accounting method, as opposed to the accrual method used for past
financial statements, as an explanation for the higher revenue and expense projections during the next five years. In
addition,the provided projections include a gradual increase in the number of customers throughout the projection period
from 1,017 in 2022 to 1,058 in 2026.
Operating Ratio Projections—Water
Enterprise Fund
(not including depreciation) 2022 2023 2024 2025 2026
Operating Revenues $2,121,597 $1,877,529 $1,909,080 $1,941,262 $1,974,087
Operating Expenses $1,204,169 $1,227,153 $1,251,696 $1,276,730 $1,302,264
Operating Ratio 1.76 1.53 1.53 1.52 1.52
The General Fund operating ratio has been included in this financial capacity assessment because, as stated in the SRF loan
application,the applicant has indicated that the General Fund will be the source of loan repayment.The General Fund
operating ratio remained at or above the 1.0 benchmark from 2017 to 2021. Both revenues and expenditures decreased
significantly in 2020.The City of Seward 2020 financial report states that"General Fund revenues came in $2.9 million lower
than in 2019, mainly due to the lack of tourism due to COVID-19, and expenditures came in $1.2 million dollars less." It
should be noted that the revenue/expenditures and the operating ratio increased considerably in 2021 compared to the
previous year; in fact,the 2021 revenues/expenditures were the highest in all of the five past years.The operating ratio was
the highest in this period as well, and this can be explained by a return of the tourism industry and "normal"financial
conditions in that year.
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General Fund Operating
Ratio(not including
Depreciation) 2017 2018 2019 2020 2021
Operating Revenues $11,472,454 $12,382,548 $12,814,693 $9,941,142 $15,212,200
Operating Expenses $10,055,269 $10,513,847 $11,028,343 $9,934,619 $12,730,903
Operating Ratio 1.14 1.18 1.16 1.00 1.19
DEBT SERVICE COVERAGE
The debt service coverage ratio (DSCR) helps determine whether there are sufficient revenues available after operating and
maintenance expenses to pay debt service on existing and anticipated loans. A coverage ratio greater than 1.0 shows that
revenues exceed expenses; many lenders require a minimum coverage ratio greater than 1.0.
The City of Seward is currently repaying existing Alaska Drinking Water Fund loans. Repayment of those loans is reflected in
the DSCR shown in the table below.The DSCR was well above 1.0 for all five past years between 2017 and 2021.
DSCR—Water Enterprise
Fund 2017 2018 2019 2020 2021
Operating Revenues $1,411,320 $1,356,104 $1,453,343 $1,127,656 $1,511,295
Operating Expenses $955,270 $1,084,964 $1,032,225 $897,206 $969,217
Debt Service $156,844 $156,844 $156,844 $156,844 $156,844
Result 2.91 1.73 2.68 2.41 3.46
The DSCR for the General Fund for 2017 through 2021 is also included in the table below and remained above 1.0 for all
years, except for 2020 when the ratio fell to 0.02 due to the COVID-19 pandemic and the significant decrease in tourism
revenue in that year.
General Fund DSCR 2017 2018 2019 2020 2021
Operating Revenues $11,472,454 $12,382,548 $12,814,693 $9,941,142 $15,212,200
Operating Expenses $10,055,269 $10,513,847 $11,028,343 $9,934,619 $12,730,903
Debt Service $921,839 $1,030,497 $454,106 $434,581 $492,976
Result 1.54 1.81 3.93 0.02 5.03
The General Fund Beginning Ending and Change in Balance for the years 2017 through 2021 can be seen in the table below.
Overall,the table demonstrates a gradual increase in the Fund's Ending Balance within this time frame, although there is
some variability in both the Fund revenue and expenditures during the period between 2017 and 2021. It should be noted
that the General Fund is used for a variety of the City's programs, only one of which includes water projects such as the
proposed project discussed in this assessment. In addition, as has been mentioned above,the General Fund fluctuates with
the source of revenue.The low Change in Fund Balance in 2020 demonstrates how the recent COVID-19 pandemic and the
subsequent loss in tourism-related tax revenue affected the Fund.
General Fund Beginning,
Ending, and Change in
Balance 2017 2018 2019 2020 2021
Beginning Balance: $7,957,498 $7,477,288 $8,540,289 $10,031,708 $10,224,310
Ending Balance: $7,477,288 $8,540,289 $10,031,708 $10,224,310 $11,583,494
Change in Fund Balance -$480,210 $1,063,001 $1,491,419 $192,602 $1,359,184
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The Water Fund DSCR is projected to remain well above 1.0 throughout the projection period.This indicates that there is
adequate revenue to cover operating expenditures and any debt service in each of the projected years.The City of Seward
expects to begin repaying the proposed loan (769121-S) in 2024 and this explains the increase in debt service and the
decrease in the DSCR in that year and subsequent years.
DSCR Projections 2022 2023 2024 2025 2026
Operating Revenues $2,121,597 $1,877,529 $1,909,080 $1,941,262 $1,974,087
Operating Expenses $1,204,169 $1,227,153 $1,251,696 $1,276,730 $1,302,264
Debt Service $156,844 $156,844 $171,399 $171,399 $171,399
Result 5.85 4.15 3.84 3.88 3.92
AFFORDABILITY
In order to determine the affordability of user rates,the U.S. Environmental Protection Agency(EPA) uses the user rates as a
percentage of Median Household Income (MHI).Typical benchmarks used by EPA are 1.5%for water rates, 2%for sewer
rates, and therefore, 3.5%combined.
The current average rate for residential water service, $54 per month, has been in effect since 2021.The user rate is
approximately 0.88%of MHI which is well under the EPA's benchmark for water rate affordability.
Current User Rates as Percentage of Median Household Income
Annual Water User Fees -Current $648
Median Household Income $74,110
User Fees as a%of MHI 0.88%
The City of Seward 2022 Utilities Tariff includes a provision for annual rate adjustments that reflect an average of the five
previous published years' annual increases in the Consumer Price Index published by the Alaska Department of Labor.
Because the current rate is under the affordability benchmark,the anticipated rate increases to adjust for inflation are not
expected to create unaffordable rates in the next five years.
SUMMARY
Some of the important summary points of this financial capacity assessment are listed below.
• Based on financial records provided for 2017-2021,The City of Seward's Water Enterprise Fund has
operated below the break-even point with an operating ratio including depreciation below 1.0 during two of
the past five years; however,the City's General Fund has operated at or above the break-even point for all
of the past five years.
• The General Fund Ending Balance increased annually between 2017 and 2021.
• Projected operating revenues for the Water Enterprise Fund exceed expenses in the next 5 years according
to information prepared by the City of Seward.
• The City's utility tariff includes a provision to allow for annual rate adjustments to reflect an average of the
five previous published years' annual increase in the Consumer Price Index. Current water rates are well
below the EPA benchmark for affordability;therefore, rates are anticipated to remain affordable over the
course of the next 5 years.
• The City is currently repaying existing Alaska Drinking Water Fund loans, and these are reflected in the
Water Enterprise Fund's debt service coverage ratio for the past five years (2017-2021);the coverage ratio
remained above the target of 1.2 during this period.
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• The debt service coverage ratio for the past years (2017-2021)for the General Fund also remained above
the target of 1.2 except for one year: 2020.
• The Water Enterprise Fund projected coverage ratio through 2026 remains above a target of 1.2 Based on
the information supplied by the applicant,the City of Seward generates sufficient revenue to fully pay
anticipated expenses attributed to the operation of the water system and also pay all debt service for
existing loans and the proposed SRF loan during the next 5 years.
RECOMMENDATION
Based on the assessment of financial capacity, acceptance of the City of Seward's request for a loan of$476,000 with
$238,000 in principal forgiveness from the Alaska Drinking Water Fund is recommended.
It is also recommended that the SRF Program conduct an annual review of the City of Seward Certified Annual Financial
Report to detect changes in indicators such as the operating ratio and the debt service coverage ratio that may indicate
short-term weakness.
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