REPORT TO COUNCIL
SUBJECT
Title
Adopt Resolution for the City of Sunnyvale to Seek Reimbursement for Costs Related to the Water Pollution Control Plant Secondary Treatment and Dewatering Facilities Project to be Included in the City’s Low-Interest Loan from the State Water Resources Control Board
Report
BACKGROUND
The City has embarked on the most significant single public works program in its history, the rebuild of its aged Water Pollution Control Plant (WPCP), which is responsible for the treatment of sewage from all of Sunnyvale and a small area inside the cities of Cupertino and San Jose. Named the “Sunnyvale Cleanwater Program” (Program), current cost estimates for Phases 1-3 of this program are approximately $735 million over twenty years. The Master Plan for the Program was developed as a long-term guide for replacing facilities at the WPCP. The City adopted the Master Plan (RTC No. 16-0663) on August 23, 2016 (Attachment 1).
During Phase 1 of the Program, staff identified that favorable financing was available for the Headworks and Primary Treatment Project through the State of California Clean Water State Revolving Fund (CWSRF). The State Division of Financial Assistance administers the implementation of the State Water Resources Control Board’s financial assistance programs, which include loan and grant funding for construction of municipal sewage and water recycling facilities. The CWSRF Program provides low-interest loans (approximately 2%) for a term of 30 years for water quality improvement projects. In 2016, the City applied for and received a CWSRF loan in the amount of $127 million for the Program’s first phase, the Headworks and Primary Treatment Project. By securing this financing, debt service for the City’s Wastewater Management Fund was reduced by more than $47 million, compared to the default assumption of standard utility revenue bond financing.
In 2018, the Council adopted a financial resolution and reimbursement resolution enabling submittal of an SRF application for the Secondary Treatment and Dewatering Facilities Project (Project), which will augment the City's current secondary treatment process with conventional activated sludge (CAS) facilities and construct a thickening and dewatering facility and support facilities. The City applied for the SRF loan in December 2018 (RTC No. 18-1089, Attachment 3). In June 2021, the City was notified this Project was selected for the fiscal year 2021-2022 CWSRF Fundable List.
In anticipation of rising costs, staff requested a 33% increase in the loan amount, from $216 to $288 million. In May 2022, the City adopted a closing resolution to secure the $288 million CWSRF loan, and it was executed in January 2023 at an annual interest rate of 1.6%. This CWSRF loan finances permitting, design, and construction for the second package in Project 833210 - SCWP Secondary Treatment Improvements-Split Flow CAS Stage 1, as well as some soft costs budgeted under Project 833110 - SCWP Oversight.
The City has subsequently continued to work with the State to increase the size of the loan to respond to increased project costs. After the construction contract was awarded, an additional 12% increase to $322,060,000 was requested, and the State indicated that they would grant this amendment. In January 2024, the City adopted an authorizing resolution as a procedural step to secure the loan amendment. A new State procedure is now requiring an updated reimbursement resolution. This resolution allows for the City to request reimbursement for funds advanced for the Project prior to the issuance of the revolving fund loan. This allows the Project to move forward without delay, while still receiving the benefits of the low interest financing.
It is also important to note that the City issued bonds for improvements to the wastewater system in 2010, which were advance refunded in 2017. As part of that issuance, future state loans were contemplated and can be issued on parity (meaning the new debt will not be senior to the old) with the City’s 2017 Wastewater Refunding Bonds. In 2020, the City secured a Water Infrastructure Finance and Innovation Act (WIFIA) loan, through the U.S. Environmental Protection Agency, for over $220 million at 1.56%. That WIFIA loan, issued on parity, funds up to 49% of the Phase 2 Program. The new CWSRF loan would contribute to the 51% of the Phase 2 costs not covered by the WIFIA loan.
EXISTING POLICY
Council Fiscal Policy 7.1.1, Section 7.11 Enterprise Fund Policies, Subsection I.1b.1: Capital improvements associated with the existing infrastructure of a utility should be primarily funded from two sources: rate revenue and debt financing.
Council Fiscal Policy 7.1.1, Section 7.11 Enterprise Fund Policies, Subsection I.1b.3: Local, state, and federal funding sources, such as grants and contributions, should be pursued for utility-related capital improvement projects consistent with City priorities.
FISCAL IMPACT
Securing this revolving fund loan at its low interest rate will help control overall financing costs for the SCWP. With current market rates for debt in the 4-5% range, utilizing low interest loans in lieu of traditional market debt will reduce costs to the Sunnyvale wastewater rate payers.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the NOVA Workforce Services reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
RECOMMENDATION
Recommendation
Adopt a Resolution seeking reimbursement for costs related to the Water Pollution Control Plant Secondary Treatment and Dewatering Facilities Project to be included in the City’s low-interest loan from the State Water Resources Control Board.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $250 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
A check or “Y” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract
___ Labor or personal employment contract
_Y_ General policy and legislative actions
Staff
Prepared by: Allison Boyer, Assistant City Engineer
Reviewed by: Chip Taylor, Director, Public Works Department
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. RTC No. 16-0663
2. Reimbursement Resolution
3. RTC No. 18-1089