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AUTHORIZE THE CITY MANAGER TO APPLY TO THE STATE WATER RESOURCES CONTROL BOARD CLEAN WATER STATE REVOLVING FUND PROGRAM, EXECUTE A FINANCIAL ASSISTANCE AGREEMENT FOR THE PLANNING, DESIGN, AND CONSTRUCTION OF THE REGIONAL WASTEWATER CONTROL FACILITY MODIFICATIONS PROJECT, PLEDGE REVENUES AS SECURITY FOR PAYMENT OF THE FINANCING AGREEMENT, AND REIMBURSEMENT OF CITY’S EXPENDITURES PAID PRIOR TO STATE WATER BOARD APPROVAL
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RECOMMENDATION
It is recommended that the Council adopt three resolutions to:
1. Authorize the designation of the City Manager as the representative to apply for, file and execute a Financial Assistance Agreement and amendments with the State Water Resources Control Board Clean Water State Revolving Fund Program for the planning, design, and construction of the Regional Wastewater Control Facility Modifications Project and make other certifications.
2. Authorize the City Manager to dedicate and pledge Net Revenues of the Wastewater Utility Enterprise Fund as a source of revenue for the repayment of any and all Clean Water State Revolving Fund Program financing for the planning, design, and construction of the Regional Wastewater Control Facility Modifications Project.
3. Authorize the City Manager to reimburse the City’s capital expenditures related to the Regional Wastewater Control Facility Modifications Project.
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Summary
The Municipal Utilities Department (MUD) is in the process of submitting a Financial Assistance Application to the State Water Resources Control Board to fund the planning, design, and construction of the Regional Wastewater Control Facility (RWCF) Modifications Project. The project is currently in the planning and design phase. Council approved a Progressive Design-Build contract on November 15, 2016, to implement the Capital Improvement and Energy Management Plan (CIEMP) adopted in 2011. The RWCF project will result in lower ongoing operating costs by implementing the operational and energy efficiencies defined in the CIEMP. A contract amendment for the construction phase of the project is expected in 2018 upon completion of a majority of the design work.
The construction financing offered by the State Water Resources Control Board Clean Water State Revolving Fund Program (CWSRF) provides lower rates and allows for retroactive reimbursement of planning and design costs already incurred. Council previously authorized the City Manager to apply for planning and design financing. The City submitted a Financial Assistance Application in 2016, but was informed that funding was unlikely. Based on research and feedback from state staff, it is recommended that the City submit a new application for the planning, design and construction phase of the project. The new application will better highlight the green infrastructure components (energy efficiency) and other project elements to gain a higher score and improve the chance for funding approval for the second application process.
The CWSRF Financial Assistance Application requires certain actions to demonstrate eligibility for funding. Three resolutions, prescribed on the application form (Attachment A) are required to be adopted by the Council pursuant to the policy for implementing the CWSRF and stipulated in the Financial Security Package. The first resolution authorizes a City representative to execute a financial agreement and any amendments and to make other certifications. The second resolution dedicates and pledges net revenues of the Wastewater Utility Enterprise Fund as a source of revenue for the repayment of any and all financing. In addition, the City’s pledge will constitute a lien in favor of the State Water Resources Control Board on such funds and revenues as long as the financing agreements are outstanding. The City will commit to maintaining funds and revenues at levels sufficient to meet its obligations under the financing agreements. The third resolution is for reimbursement of capital expenditures incurred prior to approval of the Financial Assistance Application by the State Water Board. The first two resolutions are consistent with Council’s prior authorizations, and the third resolution for reimbursement of capital expenditures is new and provides the ability to fund prior expenditures through the CWSRF if those prior expenditures were financed at a higher rate. Staff recommends that Council approve three new resolutions to accompany the revised Financial Assistance Application.
DISCUSSION
Background
In 1987, the Federal Clean Water Act (CWA), the primary federal law governing water pollution, provided for the creation of the Clean Water State Revolving Fund Program to provide various types of assistance for the planning, design, and construction of publicly-owned wastewater treatment works and water recycling facilities. The funding can also be used to implement programs to control pollution from storm water drainage and estuary clean-up programs. In 1988, the State Water Resources Control Board adopted the Clean Water State Revolving Fund Policy, and it was most recently updated in 2015.
Proposition 1, the Water Quality, Supply and Infrastructure Improvement Act of 2014, authorized $7.545 billion in general obligation bonds for watershed protection projects including wastewater projects. Each year the State Water Resources Control Board adopts an Intended Use Plan as required by federal statutes and regulations to establish the State Water Board’s business plan for the CWSRF for State Fiscal Year 2015/16. A Revised Draft of the 2017-18 Intended Use Plan is currently available.
On July 10, 2012, by Motion 2012-07-10-1503, Council authorized the issuance of a Professional Services Request for Proposals to complete the engineering design and environmental analysis of the CIEMP projects; and, authorized the City Manager to apply to the State Water Resources Control Board for the CWSRF project financing.
On November 15, 2016, by Motion 2016-11-15-1503, Council authorized the award of a Progressive Design-Build Project contract in the amount of $5,349,000 for the planning and design of the RWCF Modifications Project, which is currently in its initial planning and design phase. A contract amendment for the construction phase is expected in 2018. Approval of the contract amendment for the construction phase will require Council approval. The project implements wastewater treatment facility upgrades identified in the 2011 CIEMP. The improvements will also comply with new wastewater treatment requirements contained in the National Pollution Discharge Elimination System (NPDES) Permit issued in 2014 by the California Regional Water Quality Control Board, Central Valley Region.
The anticipated budget for the planning, design, and construction of wastewater treatment facility upgrades, as identified in the 2015-20 Capital Improvement Plan, is approximately $150,000,000.
Resolutions 2015-12-15-1204-01 and 2015-12-15-1204-02, authorized the City Manager as the designated representative to apply for and execute a financial agreement, and to make other certifications and pledging wastewater revenues as a source of revenue for the repayment. A Financial Assistance Application for the planning and design of the Modifications Project was submitted in 2016 to the CWSRF Program. The City was informed by State Board staff that the project ranked relatively low, and funding was unlikely. A subsequent meeting with State Board staff was held to better understand the funding priorities and scoring. Based on the additional information it is recommended that the City submit a new application for the planning, design and construction phase of the project. The new application will highlight the green infrastructure components (energy efficiency) and other project elements to gain a higher score and improve the chance for funding approval.
Resolutions 2015-12-15-1204-01 and 2015-12-15-02, submitted with the previous planning and design application appear not to be limited to planning and design; however, there is some risk that the application may be deemed incomplete without new resolutions accompanying the revised application for planning, design, and construction of the RWCF Modifications Project.
Present Situation
Concurrent with the planning and design work under the Progressive Design-Build Project, the Municipal Utilities Department is in the process of submitting a Financial Assistance Application to fund the planning, design, and construction of the entire project through the CWSRF Program.
The CWSRF Program is a viable source of funding for the project. If awarded, the City could secure a low-interest loan to defer upfront costs to one year after construction completion. Furthermore, although the financial assistance is for funding through the construction phase of the project, the cost for planning and design may be eligible for reimbursement. There is no maximum funding limit.
Staff recommends the submission of a Financial Assistance Application to the CWSRF Program with the updated resolutions. These resolutions are necessary to complete the application process to establish funding eligibility. Should financing through the CWSRF Program be unavailable, construction could be funded through the issuance of wastewater revenue bonds.
FINANCIAL SUMMARY
There is no fee that the City of Stockton must submit for this application. If funding is approved through the CWSRF Loan Fund, the Wastewater Fund (437) account(s) would be used to receive funding and disperse expenses associated with the construction of the Regional Wastewater Control Facility Project.
The Wastewater Enterprise Fund revenues are currently adequate to fund the ongoing planning and design expenses of the RWCF Modifications Project. There is no impact to the General Fund, or any other restricted fund, from this action. Future Council action would be necessary to amend the existing Design Build contract to include construction costs.
Attachment A - Clean Water State Revolving Fund Application Form