REPORT TO COUNCIL
SUBJECT
Title
Adopt Resolution Enabling the City Manager to Execute and Deliver an Installment Sale Agreement, for up to $50,000,000 in Clean Water State Revolving Funds, Between the City of Sunnyvale and the State Water Resources Control Board, and to Execute All Implementing Documents for Financial Assistance in Connection with the City’s Water Pollution Control Plant Upgrade Project
Report
BACKGROUND
The City has embarked on the most significant single public works program in its history: the rebuild of its aging Water Pollution Control Plant (“WPCP”), which is responsible for treating sewage from all of Sunnyvale and a small area within the Cities of Cupertino and San Jose. The WPCP Master Plan was developed as a long-term guide for replacing facilities at the WPCP and was adopted by the City Council on August 23, 2016 (see RTC No. 16-0663). Named the “Sunnyvale Cleanwater Program” (“Program”), current cost estimates for all phases of this program are approximately $1.3 billion over twenty years.
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”).
Currently, the Program is progressing through Phase 2 and implementing several projects, including construction of the Existing Plant Rehabilitation Project (Project), which will rehabilitate the WPCP’s existing secondary, tertiary, and disinfection facilities to provide reliable treatment for the remainder of their planned service life, including the integration of the existing plant control system.
The Council adopted a resolution enabling the submittal of the CWSRF application. The City initially applied for the CWSRF for the Project first in December 2020 and again in December 2021 (see RTC No. 20-0952). In June 2024, the City was notified that the Project was selected for the Fiscal Year 2024/25 CWSRF Fundable List. To secure this financing, Council must adopt a closing resolution, which is further described below.
EXISTING POLICY
Council Fiscal Policy 7.11 Enterprise Fund Policies, 1.1b.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 7.11 Enterprise Fund Policies, 1.1b.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.
ENVIRONMENTAL REVIEW
On August 23, 2016, the City Council certified the Program Environmental Impact Report (PEIR) for the Sunnyvale Water Pollution Control Plant Master Plan (SCH #2015062037) (Master Plan PEIR) (RTC No. 16-0663). On August 10, 2021, the City Council accepted an Addendum to the PEIR that encompassed the work to be performed (RTC No. 21-0756) that will be funded by the SRF loan. Therefore, no additional environmental review is needed.
DISCUSSION
Execution of the State of California Clean Water State Revolving Fund Loan
The State Division of Financial Assistance administers the implementation of the State Water Resources Control Board’s (“State Water Board”) financial assistance programs, which include loan and grant funding for the construction of municipal sewage and water recycling facilities. The CWSRF Program offers low-interest loans (approximately 2%) with a 30-year term for water quality improvement projects. In 2016, the City applied for and received a CWSRF loan for the Program’s first phase, the Headworks and Primary Treatment Project. In 2023, the City received a second CWSRF loan for the Secondary Treatment and Dewatering Facilities Project. In 2024, the City was notified that it had been selected for a third CWSRF loan for the Existing Plant Rehabilitation Project.
This new CWSRF loan would finance a portion of the construction and supplant approved Wastewater Management funds for Project 833150 -SCWP Existing Plant Rehabilitation - Split Flow. This project is also partially funded by the City’s Water Infrastructure Finance and Innovation Act (WIFIA) loan, administered through the U.S. Environmental Protection Agency.
To execute the loan, the City must submit a closing resolution adopted by the City Council. This resolution approves the Installment Sale Agreement (“Financing Agreement”) on file with the State Water Board and Office of the City Manager and authorizes and directs the City Manager to execute and deliver the Financing Agreement. A draft of the Financing Agreement is attached hereto as Attachment 2.
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 the WIFIA loan of over $220 million. That WIFIA loan, issued on parity, funds 49% amongst a trio of the Program’s projects (833150 - SCWP Existing Plant Rehabilitation - Split Flow, 833210 - Secondary Treatment & Thickening/Dewatering - CAS Stage 1, and 833240 - Cleanwater Center). The new CWSRF loan would contribute to the remaining costs of Project 833150 -SCWP Existing Plant Rehabilitation - Split Flow not covered by the WIFIA loan.
FISCAL IMPACT
With their low interest rates and low transaction costs, CWSRF loans are a very efficient financing option for qualifying projects. With current market rates for highly rated municipal debt in the 4% range, this opportunity to secure low-interest financing instead of accumulating cash or utilizing more expensive debt options will save interest and financing costs for Sunnyvale’s ratepayers, help control overall SCWP financing costs, and help to moderate future rate increases. An estimated annual debt service amount of $2.75 million beginning in FY 2027/28 has been incorporated into Wastewater Management Fund 20-year financial plan as part of the FY 2025/26 Recommended Budget. The CWSRF loan versus a traditional revenue bond is estimated to result in savings of over $20 million.
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 City Hall 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.
ALTERNATIVES
1. Adopt Resolution Authorizing the City Manager to Execute and Deliver an Installment Sale Agreement, for up to $50,000,000 in Clean Water State Revolving Funds, Between the City of Sunnyvale and the State Water Resources Control Board, and to Execute All Implementing Documents for Financial Assistance in Connection with the City’s Water Pollution Control Plant Upgrade Project.
2. Do not adopt the Resolution and direct staff to use an alternative financing mechanism.
RECOMMENDATION
Recommendation
Alternative 1: Adopt Resolution authorizing the City Manager to execute and deliver an Installment Sale Agreement, for up to $50,000,000 in Clean Water State Revolving Funds, between the City of Sunnyvale and the State Water Resources Control Board, and to execute all implementing documents for financial assistance in connection with the City’s Water Pollution Control Plant Upgrade Project.
Justification
JUSTIFICATION FOR RECOMMENDATION
This loan benefits ratepayers by allowing the City to borrow money at a much lower rate than a tax-exempt borrowing in the current market. Construction of Project 833150 - SCWP Existing Plant Rehabilitation - Split Flow is underway, independent of the alternative chosen. Because WIFIA partially finances this project, the work is already compliant with federal funding requirements such as American Iron and Steel; it will incur no changes or additional costs as a result of a CWSRF loan.
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 $500 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
An “X” 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
___ Contract under $50,000 or non-fiscal
_X_ Contract between public agencies
___ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Marlon Quiambao, Assistant City Engineer, Public Works
Reviewed by: Dennis Ng, Interim Assistant Director, Public Works
Reviewed by: Chip Taylor, Director, Public Works
Reviewed by: Matt Paulin, Director, Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. Closing Resolution
2. Draft Construction Installment Sale Agreement