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HomeMy WebLinkAboutStaff Report 2411-3772CITY OF PALO ALTO CITY COUNCIL Special Meeting Monday, December 16, 2024 Council Chambers & Hybrid 5:30 PM     Agenda Item     7.Adoption of Resolutions Authorizing an Installment Sale Agreement with the California State Water Resources Control Board for Financing of the Local Advanced Water Purification System Project (WQ-19003); CEQA Status - Addendum to the 2015 Environmental Impact Report for the Palo Alto Recycled Water Project (SCH 2011062037) City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: Public Works Meeting Date: December 16, 2024 Report #:2411-3772 TITLE Adoption of Resolutions Authorizing an Installment Sale Agreement with the California State Water Resources Control Board for Financing of the Local Advanced Water Purification System Project (WQ-19003); CEQA Status - Addendum to the 2015 Environmental Impact Report for the Palo Alto Recycled Water Project (SCH 2011062037) RECOMMENDATION Staff recommends that City Council: 1. Adopt the final closing resolution authorizing an Installment Sale Agreement with the California State Water Resources Control Board in connection with the financing of the design and construction of the Local Advanced Water Purification System Project (WQ- 19003); and 2. Adopt a revised resolution amending the anticipated maximum amount of Local Advanced Water Purification System project expenditures to be reimbursed by proceeds from the Clean Water State Revolving Fund. EXECUTIVE SUMMARY Staff recommends Council adopt the proposed resolutions to finalize financing from the Clean Water State Revolving Fund for the Local Advanced Water Purification System project. The Local Advanced Water Purification System will improve the recycled water quality by reducing the total average concentration of salts from 800 ppm to 450 ± 50 ppm by blending reverse osmosis product water with the existing recycled water. After approving a design contract, City Council approved a Financing Plan for the Project and directed staff to secure financing and to solicit bids for a construction contract and a construction management services contract. BACKGROUND The Regional Water Quality Control Plant (RWQCP) treats wastewater from a total of six communities (Partner Agencies) and also produces approximately 230 million gallons per year of tertiary-treated recycled water for beneficial reuse. On January 25, 2010, City Council approved the Recycled Water Salinity Reduction Policy, including a goal of reducing the recycled water salinity as measured by total dissolved solids (TDS) to under 600 parts per million (ppm).1 In the following years, the City and the other Partner Agencies completed several projects to reduce the infiltration. The repairs reduced the salts entering the RWQCP, but not by enough to reach the target. In 2017, City Council approved the Preliminary Conceptual Design Report for a phased Local Salt Removal Facility (Local Advanced Water Purification System or Local AWPS).2 The Local AWPS will improve the recycled water quality by reducing its average concentration of TDS from 800 ppm to 450 ± 50 ppm by blending reverse osmosis product water with the existing recycled water. The highly treated water will enable the City as well as Mountain View to expand non- potable recycled water use and/or provide a first step toward small-scale direct or indirect potable reuse in the City. In December 2019, the City, Mountain View, and the Santa Clara Valley Water District (Valley Water) signed an Agreement to Advance Resilient Water Reuse Programs in Santa Clara County.3 The Agreement included funding of $16 million from Valley Water that could be put towards finalizing the design and construction of the Local AWPS and in March 2021, the City hired Black & Veatch for the design.4 In October 2023, City Council approved a Financing Plan for the Project and directed staff to secure financing and to solicit bids for a construction contract and a construction management services contract.5 Under the Financing Plan, the City of Mountain View will cover the remaining capital cost aside from federal and local funding. 1 City Council, January 25, 2010; Agenda Item #9, SR #111:10, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=72156 2 City Council, May 16, 2016; Agenda Item #6, SR #6458, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=78649 3 City Council, November 18, 2019; Agenda Item #17, SR #10627, https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2019/id-10627-mini-packet-11182019.pdf?t=60382.02 4 City Council, March 3, 2021; Agenda Item #3, SR #11782, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=2229 5 City Council, October 16, 2023; Agenda Item #10, SR#2308-1863, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82521 In May 2024, City Council approved an application for a Site and Design Review and Design Enhancement Exception to allow construction of this Project following the recommendations of the Planning and Transportation Commission (PTC) and the Architectural Review Board (ARB).6 An Invitations for Bids for the Local AWPS was published in November 2024. The State Water Resources Control Board (SWRCB) Division of Financial Assistance administers the Clean Water State Revolving Fund (SRF) program. The SRF program provides low interest financing to agencies for water and wastewater projects. Under this program, eligible projects can apply for loans with interest rates that are approximately half of the State General Obligation rate, resulting in lower project costs and maximizing benefits to ratepayers and partner agencies. The City has previously obtained SRF loans for the following projects: •Palo Alto/Mountain View Recycled Water Pipeline project ($9.0 million, 20-year term, Agreement 07-814-550); •Ultraviolet Disinfection Facility ($8.5 million, 20-year term, Agreement 09-814-550); •Sludge Dewatering and Truck Loadout Facility ($25.7 million, 30-year term, Agreement D16-01034); •Primary Sedimentation Tanks Rehabilitation and Equipment Room Electrical Upgrade Project ($19.4 million, 30-year term, Agreement D20-01009); and •Secondary Treatment Upgrades Project ($193 million, 30-year term, Agreement D2101050) On November 18, 2019, Council approved the adoption of two resolutions to obtain SRF financing for the Local AWPS7: •Resolution 9867 authorizing the City Manager or designee to execute and submit a SRF financial assistance application to the SWRCB on behalf of the RWQCP for the planning, design, and construction of the Local AWPS project, and execute SRF financial assistance agreements and any amendments with the SWRCB.8 •Resolution 9868 designating the amount of the Local AWPS project expenditures to be reimbursed by proceeds from SRF.9 6 City Council, May 13, 2024; Agenda Item #11, SR#2404-2760 https://recordsportal.paloalto.gov/ElectronicFile.aspx?docid=6459&repo=PaloAlto&pdfView=true#page=153 7 City Council, November 18, 2019; Agenda Item 9, SR#10734 https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2019/id-10734-resolutions-for-awps-1-mgd-funding.pdf?t=66756.55 8 City Council Resolution 9867, 2019; https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=54115 9 City Council Resolution 9868, 2019; https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=54116 ANALYSIS Closing Resolution for Installment Sale Agreement The SWRCB completed their review of the City’s loan application for the Local AWPS, and in conjunction with the City Attorney’s Office, prepared the loan document, or Installment Sale Agreement (ISA).10 As authorized under Resolution 9867, the Manager of the RWQCP has signed the ISA on behalf of the City. For the ISA to be executed by the SWRCB, a closing resolution (Attachment A) is required. Execution of the ISA does not obligate the City to borrow funds. The ISA currently provides funding in an amount not to exceed $56,279,960, pending the City’s approval of the construction contract, as well as both parties’ approval and execution of the ISA. This amount is based on the Engineer’s 90% construction estimate (October 2022). The estimated capital cost is $66.8 million based on the project’s revised 100% design (July 2024). The ISA project funding amount may be amended to reflect a higher funding amount following submission of a final budget approval package. The SRF loan interest rate has been locked at 1.7% for a 30-year term. The SRF loan will cover construction, construction contingency, planning, design, capital program administration, and construction management costs. Staff will return to Council with an Amendment to the existing Recycled Water Agreement between Palo Alto and Mountain View with these payment terms. Resolution Amending the Anticipated Maximum Loan Amount Existing Resolution No. 9868 authorized reimbursement of funding with a maximum principal amount of $22 million based on the 2017 preliminary design cost estimate. As reviewed with Council on October 16, 2023, due to increases in construction prices as well as refinement of design elements, the cost estimate of the Local AWPS following the detailed design is significantly higher, and the 100% design project cost estimate is $66.8 million.11 A revised reimbursement resolution is required to align the intended principal amount with the updated 100% cost estimate (Attachment B). Statutory Disclosures Government Code Section 5852.1 requires that certain cost information be disclosed prior to authorizing the issuance of a bond. That statute defines the term “bond” broadly enough so as to likely include the SRF loan financing agreements. The required disclosures are included as Attachment C. 10 California State Water Resources Control Board Construction Installment Sale Agreement for AWPS Project, 2024; https://www.cityofpaloalto.org/files/assets/public/v/2/public-works/rwqcp/california-water-board-state- revolving-fund-agreement-awps.pdf 11 City Council, October 16, 2023; Agenda Item #10, SR#2308-1863, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=82521 FISCAL/RESOURCE IMPACT Funding for the Local AWPS will be provided through contributions from the City of Mountain View, Valley Water, and U.S. Bureau of Reclamation (USBR) as well as the SRF loan.12,13 Table #1: Summary of Available External Funding (based on 100% design contract documents) Item/Funding Source Amount Valley Water Funding1 $17,000,000 US Bureau of Reclamation Grant $12,867,875 Remaining Capital Cost to be Paid by Mountain View (partially covered by SRF Loan)$37,000,000 TOTAL $66,867,875 1.Valley Water Funding original amount was $16,000,000; with annual interest accrued, the amount is estimated at $17,000,000 as of January 2024. An amendment to the Contract No. C059999 between the City of Palo Alto and the City of Mountain View (Recycled Water Agreement) is being prepared to address, among other things, the responsibility for the costs of implementing the Local AWPS. The current proposal is for repayment of the SRF loan to be allocated to Mountain View. Staff will return to Council at a future date for approval of the amendment to the Recycled Water Agreement. This amendment will include the project’s capital cost contributions from Mountain View including cash contributions to minimize cashflow issues, adoption of recycled water production costs, and staffing costs to administer the program. If the amendment to the Recycled Water Agreement is not approved, the City will not execute a construction contract for the Local AWPS nor request disbursements from the SRF loan. Once bids are received and evaluated in February 2025, if the price is higher than anticipated, staff will discuss with the City of Mountain View staff and seek approval from the Mountain View City Council to receive the remaining funds prior to bringing a construction contract for City Council’s approval. STAKEHOLDER ENGAGEMENT In addition to the study sessions and regular meetings with City Council noted above, staff held predesign and design workshops with project partners (Mountain View and Valley Water) to obtain stakeholder feedback throughout the process. In parallel, staff has provided updates on the project through Joint Recycled Water Meetings with Palo Alto Council Members, Mountain View Council Members, and Valley Water Board Members. The staff report for the May 13, 2024, Council meeting describes the full stakeholder engagement process.14 12 City Council, November 18, 2019; Agenda Item #17, SR #10627, https://www.cityofpaloalto.org/files/assets/public/v/1/agendas-minutes-reports/reports/city-manager-reports- cmrs/year-archive/2019/id-10627-mini-packet-11182019.pdf?t=60382.02 13 City Council, April 4, 2022; Agenda Item #11, SR#14090, https://recordsportal.paloalto.gov/Weblink/DocView.aspx?id=81811 14 City Council, May 13, 2024; Agenda Item #11, SR#2404-2760 https://recordsportal.paloalto.gov/ElectronicFile.aspx?docid=6459&repo=PaloAlto&pdfView=true#page=153 ENVIRONMENTAL REVIEW 15, 16 A Notice of Determination for the City of Palo Alto Recycled Water Project was filed on October 1, 2015. The Local AWPS was identified as a potential mitigation measure in the previously adopted EIR. 17 ATTACHMENTS APPROVED BY: 15 City Council Resolution 9548; 2015; https://www.cityofpaloalto.org/files/assets/public/v/1/city- clerk/resolutions/reso-9548.pdf 16 City Council Resolution 9549; 2015; https://www.cityofpaloalto.org/files/assets/public/v/1/city- clerk/resolutions/reso-9549.pdf 17 City Council, November 18, 2019; Agenda Item #17, SR #10627, 1 202011001 DRAFT Resolution No. Resolution of the Council of the City of Palo Alto Authorizing an Installment Sale Agreement with the California State Water Resources Control Board in Connection with the Financing of an Advanced Water Purification System (AWPS) Project at the Regional Water Quality Control Plant, Establishing One or More Pledged Sources of Revenue for Repayment of Funding, and Taking Certain Other Actions Relating Thereto R E C I T A L S A. The City of Palo Alto (the “City”) wishes to finance the costs of constructing and/or reconstructing certain public facilities and improvements relating to its water and wastewater system, including certain treatment facilities, pipelines and other infrastructure at the Regional Water Quality Control Plant (the “Project”). B. The City intends to finance the construction and/or reconstruction of the Project or portions of the Project with moneys (“Project Funds”) provided by the State of California, acting by and through the State Water Resources Control Board (the “State Water Board”). C. The City previously adopted Resolution No. 9630 authorizing an application for financial assistance to the State Water Board and Resolution No. 9868 as amended by Resolution No. XXXX declaring its intention to use a portion of the Project Funds to reimburse certain capital expenditures made prior to the receipt of Project Funds from available moneys of the City in connection with the Project. D. The City and the State Water Board now desire to approve a Construction Installment Sale Agreement (the “2024 Installment Sale Agreement”), for the purpose of providing the terms relating to the distribution and repayment by the City of the Project Funds and relating to the City’s payment of certain installment payments. E. Section 603(d)(1)(C) of the Federal Clean Water Act Amendments require each financing recipient to establish one or more pledged sources of revenue for Clean Water State Revolving Fund (CWSRF) financial assistance. F. Under the 2024 Installment Sale Agreement, the installment payments payable by the City will be secured by a pledge of and payable from Net Revenues (as defined in the 2024 Installment Sale Agreement) of the City’s Wastewater Treatment enterprise and Wastewater Collection enterprise, on a parity basis with the City’s obligation to pay installment payments under five outstanding agreements with the State Water Board: i. an Installment Sale Agreement No. D2101050 (the “2022 Agreement”), by and 2 202011001 between the City and the State Water Board, executed by the City on April 29, 2022 and the State Water Board on May 9, 2022, along with an amendment of the 2022 Agreement executed by the City on August 16, 2024 and the State Water Board on August 26, 2024; ii. an Installment Sale Agreement No. SWRCB0000000000D2001009 (the “2021 Agreement”), by and between the City and the State Water Board, executed by the City on June 2, 2021 and the State Water Board on July 12, 2021, along with amendments of the 2021 Agreement executed on November 8, 2022 and June 10, 2024 ; iii. an Installment Sale Agreement No. D16-01034, dated as of March 20, 2017 (the “2017 Agreement”), by and between the City and the State Water Board, along with an amendment of the 2017 Agreement executed by the City on September 7, 2017 and the State Water Board on September 13, 2017; iv. a Project Finance Agreement No. 09-814-550, by and between the City and the State Water Board (the “2009 Agreement”), along with an amendment of the 2009 Agreement executed by the City on April 17, 2017 and the State Water Board on June 12, 2017; and v. a Project Finance Agreement No. 07-814,550-0, between the City and the State Water Board (the “2007 Agreement”), along with an amendment of the 2007 Agreement executed by the City on April 17, 2017 and the State Water Board on June 12, 2017. NOW, THEREFORE, the Council of the City of Palo Alto hereby RESOLVES as follows: SECTION 1. Each of the above recitals is true and correct and is adopted by the Council of the City of Palo Alto. SECTION 2. The City approves the Project Funds in an amount not to exceed $67 million at an interest rate of 1.7% . SECTION 3. The 2024 Installment Sale Agreement, a copy of which is attached as Exhibit A, is hereby approved in substantially the form thereof with such changes as may be approved by the City Manager, the Director of Public Works or any designee of the City Manager or the Director of Public Works (each an “Authorized Officer”). Execution by an Authorized Officer of the 2024 Installment Sale Agreement shall constitute conclusive evidence of such Authorized Officer’s approval of all such changes. Each of the Authorized Officers is hereby authorized, together or alone, to execute and deliver the 2024 Installment Sale Agreement. The City Clerk is hereby authorized to attest to the Authorized Officer's signature. 3 202011001 SECTION 4. The covenants set forth in the 2024 Installment Sale Agreement to be executed in accordance with Section 3 above are hereby approved, shall be deemed to be covenants of the legislative body of the City, and shall be complied with by the City and its officers. SECTION 5. The City hereby pledges Net Revenues (as defined in the 2024 Installment Sale Agreement) of its Wastewater Treatment enterprise and Wastewater Collection enterprise fund to the payment of amounts owed under the 2024 Installment Sale Agreement on a parity basis with the City’s obligation to pay installment payments under five outstanding agreements with the State Water Board as set forth in Recital F above. The pledged source of revenue shall remain in effect until such financing is fully discharged unless modification or change of such dedication is approved in writing by the State Water Board. SECTION 6. Each Authorized Officer and the other officers and staff of the City responsible for the fiscal affairs of the City are hereby authorized and directed to take any actions and execute and deliver any and all documents and certificates as are necessary to accomplish and to consummate the transactions contemplated by the 2024 Installment Sale Agreement. SECTION 7. On September 21, 2015, the City approved an Environmental Impact Report pursuant to the provision of the California Environmental Quality Act (CEQA) and on September 29, 2015 filed a notice of determination that construction of the AWPS will not have a significant effect on the environment. 4 202011001 INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: Assistant City Attorney City Manager Director of Public Works Director of Administrative Services Resolution No. Resolution of the Council of the City of Palo Alto Authorizing the Reimbursement of Funding for the Advanced Water Purification System (AWPS) 1 MGD Project from the State Water Resource Control Board R E C I T A L S A. The City of Palo Alto (the “City”) desires to finance the costs of constructing and/or reconstructing certain public facilities and improvements relating to its water and wastewater system, including certain treatment facilities, pipelines and other infrastructure (the "Project"); and B. The City intends to finance the construction and/or reconstruction of the Project or portions of the Project with moneys ("Project Funds") provided by the State of California, acting by and through the State Water Resources Control Board (State Water Board); and C. The State Water Board may fund the Project Funds with proceeds from the sale of obligations the interest upon which is excluded from gross income for federal income tax purposes (the "Obligations"); and D. Prior to either the issuance of the Obligations or the approval by the State Water Board of the Project Funds the City desires to incur certain capital expenditures (the "Expenditures") with respect to the Project from available moneys of the City; and E. The City has determined that those moneys to be advanced on and after the date hereof to pay the Expenditures are available only for a temporary period and it is necessary for the State Water Board to reimburse the City for the Expenditures from the proceeds of the Obligations. F. On November 18, 2019, the City Council adopted Resolution No. 9868 authorizing reimbursement of funding for the AWPS 1 MGD Project with a reasonably expected maximum principal amount of $22 million. G. The estimated capital cost for the AWPS 1 MGD Project is $66.8 million based on the project’s revised 100% design. H. The City now wishes to amend Resolution No. 9868 and adopt this Resolution increasing the reasonably expected maximum principal amount to $66.8 million. NOW, THEREFORE, the Council of the City of Palo Alto RESOLVES as follows: SECTION 1. The City hereby states its intention and reasonably expects to reimburse Expenditures paid prior to the issuance of the Obligations or the approval by the State Water Board of the Project Funds. SECTION 2. The City hereby amends Resolution NO. 9868 to increase the reasonably expected maximum principal amount of the Project Funds to $66.8 million. SECTION 3. This resolution is being adopted no later than 60 days after the date on which the City will expend moneys for the construction portion of the Project costs to be reimbursed with Project Funds. SECTION 4. Each City expenditure will be of a type properly chargeable to a capital account under general federal income tax principles. SECTION 5. To the best of our knowledge, the City is not aware of the previous adoption of official intents by the City that have been made as a matter of course for the purpose of reimbursing expenditures and for which tax-exempt obligations have not been issued. SECTION 6. This resolution is adopted as official intent of the City in order to comply with Treasury Regulation §1.150-2 and any other regulations of the Internal Revenue Service relating to the qualification for reimbursement of Project costs. SECTION 7. All the recitals in this Resolution are true and correct and this City so finds, determines and represents. SECTION 8. The Council finds that its authorization of funding reimbursement does not constitute a project requiring review under the California Environmental Quality Act (CEQA) or CEQA Guidelines. This action does not meet the definition of a project under Public Resources Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative governmental activity which will not cause a direct or indirect physical change in the environment. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk Mayor APPROVED AS TO FORM: APPROVED: Senior Deputy City Attorney City Manager Director of Public Works ATTACHMENT C 1. True Interest Cost of the 2024 Installment Sale Agreement: 1.7% 2. Finance charge of the 2024 Installment Sale Agreement, being the sum of all fees and charges paid to third parties: $0 3. Amount of Project Funds expected to be received by the City under the 2024 Installment Sale Agreement, net of proceeds for finance charges in (2) above and net of capitalized interest (if any) and reserves (if any) paid or funded with the Project Funds: $56,279,960. 4. Total payment amount for the Project Funds under the 2024 Installment Sale Agreement, being the sum of (a) installment payments to final maturity ($72,312,876), plus (b) any financing costs not paid from proceeds of the Project Funds ($0): $72,312,876.