HomeMy WebLinkAboutStaff Report 9678City of Palo Alto (ID # 9678)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 12/4/2018
City of Palo Alto Page 1
Summary T itle: Reimbursement Resolution for Revenue Bonds for the
Regional Water Quality Control Plant
Title: Review of Near Term Capital Projects at the Regional Water Quality
Control Plant and Recommendation to Adopt a Resolution Declaring
Intention to Reimburse Expenditures Related to the Four Capital Projects
From the Proceeds of the Bonds to be Issued by the City for Wastewater
Treatment Fund
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends that the Finance Committee review the near term capital
improvement program for the Regional Water Quality Control Plant and
recommend to the City Council approval of a resolution (Attachment A) declaring
the City’s intention to reimburse expenditures made for related capital
improvement projects from the proceeds of bonds to be issued by the City’s
Regional Water Quality Control Plant (RWQCP),Wastewater Treatment Fund,for
a not-to-exceed amount of $85 million.
Background
The RWQCP, originally constructed in 1934, has undergone several expansions
and upgrades. The RWQCP is now an advanced (tertiary treatment) facility that
provides treatment and disposal of wastewater for Palo Alto, Mountain View, Los
Altos, Los Altos Hills, East Palo Alto Sanitary District, and Stanford University.
A Long Range Facilities Plan (LRFP)was prepared in 2012 to provide a plan for
future capital projects. A Biosolids Facility Plan (BFP)was completed in 2014 to
map the management of biosolids when the sewage sludge incinerators are
decommissioned.In October 17, 2016, Council approved (CMR# 7144) executing a
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loan agreement for low-interest State Revolving Fund loan of $29.7 million to
replace the sewage sludge incinerators at the RWQCP; $4 million of this loan is
expected to be forgiven by the State so the repayment plan is based on a $25.7
million loan.
The City Council, on June 18, 2018, adopted the City’s Capital Budget (CMR#
9229), which included the Wastewater Treatment Fund’s multi-year capital
expenditure plan. Included in this plan were four capital improvement projects
(the “Projects”)which are consistent with the RWQCP’s LRFP.The projects
include: 1) WQ-14002 New Laboratory and Environmental Services Building; 2)
WQ-14003 Primary Sedimentation Tank Rehabilitation; 3) WQ-19000 Outfall Line
Construction; and 4) WQ-19001 Secondary Treatment Upgrades. More detail and
descriptions of the projects are included in Attachment B.
Discussion
At this time, staff anticipates selling two series of tax-exempt Utility Revenue
Bonds around May 2019 and early 2020. Prior to that, staff will be conducting
design and other work on the projects. To pay for certain pre-construction costs
from bond proceeds, it is necessary for the City Council to approve a resolution
declaring the City’s intent to reimburse those expenditures. Prior to seeking the
Council’s approval, staff is first bringing this to the Finance Committee to obtain
its recommendation on the proposed resolution and provide a status
update/briefing on these projects.
The City engaged the services of Woodard and Curran, an engineering firm, to
assist with conceptual designs and preliminary cost estimates which are shown in
the below table. Since these cost estimates are based on conceptual designs and
due to recent escalation of construction costs, staff is seeking a higher not-to-
exceed amount of $85 million for this reimbursement resolution. The Finance
Committee recommendation and Council approval of this reimbursement
resolution is not authorizing the issuance of these bonds. Staff will return to
Council in 2019 and early 2020 with a recommendation for approval to issue
bonds.
City of Palo Alto Page 3
Project Cost Estimate Based on Conceptual Designs as of November 2018:
CIP Project Titles Design Phase
Est. Expense
Construction
Phase Est.
Expense
Total Est.
Project cost
1)WQ-14003 Primary
Sedimentation Tank
Rehabilitation
$800,000 $12,900,000 $13,700,000
2)WQ-14002 New Laboratory
and Environmental Services
Building
$1,800,000 $16,500,000 $18,300,000
3)WQ-19001 Secondary
Treatment Upgrades $2,300,000 $31,300,000 $33,600,000
4)WQ-19000 Outfall Line
Construction $0 $7,400,000 $7,400,000
Total Project Costs $4,900,000 $68,100,000 $73,000,000
Less: Available Funds ($3,400,000)
Total Est. Bond Financing $69,600,000
Timeline
Two series of tax-exempt Utility Revenue Bonds will be issued, around May 2019
and early 2020. The conceptual timeline for the first bond issuance is below.
10/16/2018 Finance Committee –Reimbursement resolution and project
status/briefing
December 2018 City Council –Reimbursement resolution adoption
March 2019 Rating Presentation & Receipt of Rating
April 2019 City Council approves resolution authorizing the issuance
and sale of the first Utility Revenue Bonds
May 2019 Receive bond proceeds from the first series bonds
Resource Impact
It is estimated that the principal amount of the bonds, not including the amount
needed to pay for debt service reserve funds, costs of issuance, and capitalized
interest, will not exceed $85 million. The annual debt service payment depends
upon prevailing interest rates at the time of the bond issuance. The annual debt
service payments will be paid by all the Partners to the Palo Alto RWQCP and will
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be specified in amendments to their Agreements with Palo Alto,which are being
developed.
The impact of the Bonds on expenses from the Wastewater Treatment Enterprise
Fund is shown in Attachment C. This 10 year forecast is for the entire fund, and is
supported by all six Partners of the RWQCP; Palo Alto being responsible for
payment of approximately one-third of the total. Attachment C also shows the
impact on the Debt Service Ratio of establishing the two Bonds. The current Palo
Alto policy is to keep the Debt Service Ratio below 15%; and the Bonds would
cause this amount to be exceeded. Should the Bonds be established, Staff will
return to Council with recommendations on handling the potential increase in the
debt service and related issues.
The impact of executing the two bonds on customer Sewer Rates in Palo Alto is
shown in Attachment D. This 10 year forecast is just for Palo Alto, as opposed to
Attachment C, which is for the entire Wastewater Treatment Enterprise Fund.The
rate increases shown are not being proposed at this time, and the Finance
Committee is not being asked to act on them. In the spring of 2019, other factors
(such as impacts on Reserves) will be considered, and adjustments to rates will be
proposed. Attachment D is designed to isolate and show the increase in rates that
would be caused by increasing expenses and the new debt service.
Environmental Review
The approval of the resolution is not a project approval under the California
Environmental Quality Act (CEQA) and thus is not subject to CEQA review.
Individual capital improvement projects, however, will be reviewed under CEQA
prior to any project approval.
Attachments:
·Attachment A: RESO Declaring Intent to Reimburse Expenditures -WW Revenue Bonds
·Attachment B: CIP Project Description
·Attachment C: WWT FY19-29 estimated expenses and debt ratio
·Attachment D: CPAU FY19-28 Wastewater rate projection - 2018Nov
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Not Yet Approved
Resolution No. _____
Resolution of the Council of the City of Palo Alto
Declaring Intention to Reimburse Expenditures Relating to Four Capital Projects at
the Regional Water Quality Control Plant From the Proceeds of Tax-Exempt Debt
WHEREAS, the City proposes to undertake the capital projects at the Regional Water
Quality Control Plant (the “Plant”) described on Exhibit A hereto (collectively, the “Project”), to
incur tax-exempt debt to finance the Project, and use a portion of the proceeds of such debt to
reimburse expenditures made for the Project prior to the issuance of the debt;
WHEREAS, United States Income Tax Regulations section 1.150-2 provides generally
that proceeds of tax-exempt debt are not deemed to be expended when such proceeds are
used for reimbursement of expenditures made prior to the date of issuance of such debt
unless certain procedures are followed, one of which is a requirement that prior to the
payment of any such expenditure, the issuer declares an intention to reimburse such
expenditure; and
WHEREAS, it is in the public interest and for the public benefit that the City declares its
official intent to reimburse the expenditures referenced herein.
NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE, as
follows:
SECTION 1. The City intends to issue one or more series of debt payable from its
Wastewater Treatment Fund, including, but not limited to revenue bonds, loans and
installment purchase obligations (the “Bonds”) for the purpose of paying the costs of the
Project.
SECTION 2. The City hereby declares that it reasonably expects (i) to pay certain
costs of the Project prior to the date of issuance of the Bonds, and (ii) to use a portion of the
proceeds of the Bonds for reimbursement of expenditures for the Project that are paid before
the date of issuance of the Bonds.
* * * * *
Attachment A
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SECTION 3. The principal amount of the Bonds is not expected to exceed
$85,000,000, not including the amount needed to pay for debt service reserve funds, costs of
issuance and capitalized interest.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
City Attorney City Manager
Jones Hall,
A Professional Law Corporation
Director of Public Works
By:
Christopher K. Lynch,
Jones Hall, A Professional Law Corporation
Bond Counsel
Director of Administrative Services
3
EXHIBIT A
Project Description
1. Primary Sedimentation Tank Replacement (PST)
This project is for new protective coatings on each of the four concrete primary sedimentation
tanks and replacement of worn rotating parts. The tanks which remove settled solids and
grease were installed in 1972. The coating ensures that reinforcing steel bars within the
concrete are protected from penetrating corrosive sewer gases and extends the concrete’s life
another 30 years. Without recoating, the concrete will lose its structural integrity, gradually
spalling and harming pumps, pipes, and treatment systems as a result. In a mild seismic event,
weakened concrete could potentially collapse, endangering staff and the treatment system.
2. Laboratory & Environmental Services Building (Lab)
This project is for a new building that will consolidate staff and provide a larger updated lab.
Currently staff is located in four separate aging buildings that also house industrial pumps. An
existing laboratory does not have adequate space for staff, instruments, chemical storage, and
microbiology testing.
3. Secondary Treatment Upgrades (STU)
The existing Secondary Treatment process has two main components: the Fixed Film Reactors
(FFR) and the Activated Sludge (AS) Process. This project includes the reconstruction of the AS
process, rehabilitation of the AS Aeration Basins and the elimination of the FFRs. The AS
Aeration Basins will be subdivided with concrete walls creating different zones where different
pollutants can be treated. A special study was completed in 2017, which proposed a complete
Secondary Treatment process upgrade instead of individual rehabilitation projects (e.g. FFR).
The project will not only reduce organics and ammonia like the existing processes, but will also
reduce total nitrogen, the next pollutant being regulated.
4. Outfall Line (OFL)
This project is to construct a new parallel outfall pipe to convey final plant effluent to San
Francisco Bay. Installation of a new outfall line is needed to address outfall age (built in 1964),
but especially to address the outfall capacity considering all peak wet-weather flow, peak tide,
and future sea level rise scenarios. The existing system lines are inadequate to pass the Plant's
peak wet weather hydraulic flow capacity of 80 million gallons per day under all circumstances
of peak tides, peak wet-weather flows, and future sea level rise scenarios.
Attachment B
Capital Improvement Program Project Description
1.Primary Sedimentation Tank Replacement (PST)
This project is for new protective coatings on each of the four concrete primary sedimentation tanks and
replacement of worn rotating parts. The tanks remove settled solids and grease were installed in 1972.
The coating ensures reinforcing steel bars within the concrete are protected from penetrating corrosive
sewer gases and extends the concrete’s life another 30 years. Without recoating, the concrete will lose its
structural integrity, gradually spalling and harming pumps, pipes, and treatment systems as a result. In a
mild seismic event, weakened concrete could potentially collapse, endangering staff and the treatment
system.
2.Laboratory & Environmental Services Building (Lab)
This project is for a new building that will consolidate staff and provide a larger updated lab. Currently
staff is located in four separate aging buildings that also house industrial pumps. An existing laboratory
does not have adequate space for staff, instruments, chemical storage, and microbiology testing.
3.Secondary Treatment Upgrades (STU)
The existing Secondary Treatment process has two main components; the Fixed Film Reactors (FFR)
and the Activated Sludge (AS) Process. This project includes the reconstruction of the AS process,
rehabilitation of the AS Aeration Basins and the elimination of the FFRs. The AS Aeration Basins will be
subdivided with concrete walls creating different zones where different pollutants can be treated. A
special study was completed in 2017, which proposed a complete Secondary Treatment process upgrade
instead of individual rehabilitation projects (e.g. FFR). The project will not only reduce organics and
ammonia like the existing processes, but will also reduce total nitrogen, the next pollutant being
regulated.
4.Outfall Line (OFL)
This project is to construct a new parallel outfall pipe to convey final plant effluent to San Francisco Bay.
Installation of a new outfall line is needed to address outfall age (built in 1964), but especially to address
the outfall capacity considering all peak wet-weather flow, peak tide, and future sea level rise scenarios.
The existing system lines are inadequate to pass the Plant's peak wet weather hydraulic flow capacity of
80 million gallons per day under all circumstances of peak tides, peak wet-weather flows, and future sea
level rise scenarios.
Estimated Expenses FY2019-FY2029
2019 Bond $18.1M + 2020 Bond $51.5M + 2025 SRF $39M
Attachment C
Palo Alto’s Wastewater Rate Projection
Attachment D