HomeMy WebLinkAboutItem 5e. Authorization to persue Construction Financing for Santa Rosa-Stenner Creek to Highland Pipeline Replacement Project (2001048) Item 5e
Department: Utilities
Cost Center: 6001
For Agenda of: 1/23/2024
Placement: Consent
Estimated Time: N/A
FROM: Aaron Floyd, Utilities Director
Prepared By: Shane Whittington, Utilities Business Manager
SUBJECT: AUTHORIZATION TO PURSUE CONSTRUCTION FINANCING FOR THE
SANTA ROSA – STENNER CREEK TO HIGHLAND 30” PIPELINE
REPLACEMENT PROJECT, PROJECT NO. 2001048
RECOMMENDATION
1. Authorize the City Manager or their designee to pursue and apply for construction
financing for the Santa Rosa - Stenner Creek to Highland 30-inch Pipeline
Replacement Project (Project 2001048) and submit requisite application documents
to the Drinking Water State Revolving Fund (DWSRF), California Infrastructure and
Economic Development (I-Bank), and/or private lenders; and
2. Adopt a Draft Resolution entitled, “A Resolution of the City Council of the City of San
Luis Obispo, California, authorizing the City Manager to apply for Construction
Financing and appointing the Utilities Director as the Authorized Designee to certify
documents for the Santa Rosa – Stenner Creek to Highland 30” Pipeline Project”
authorizing staff to submit financing application documents and designating the City
Manager or their designee to be the authorized representatives to execute any
certificates or documents necessary to apply for financing for this project.
REPORT-IN-BRIEF
The project replaces the existing pipeline, installed in 1964, from the Water Treatment
Plant to Santa Rosa Road. The project is identified in the 2023-25 Financial Plan and 5-
year CIP Plan, with $230,000 identified in fiscal year 2023 -24 for project design, and a
construction cost of $8,230,000 identified in 2025 -26. In order to provide a balanced
approach to funding water infrastructure replacement projects, the Utilities Department is
requesting authorization to apply for loan financing for the construction portion of the
project cost. When establishing recommended 2023 -24 and 2024-25 water rate
increases, the City’s rate consultant identified that this project would require loan
financing in order to not significantly deplete the City’s Water Fund and result in the need
for higher water rate increases.
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Item 5e
The Drinking Water State Revolving Fund (DWSRF), California I nfrastructure and
Economic Development Bank (I-Bank), and private lenders are all being considered as
options for financing this project. Due to the long lead times associated with public
financing like I-Bank and DWSRF, staff are seeking authorization to (1) pursue and apply
for construction financing, and (2) designate the Utilities Director or designee as the
authorized representative on all application materials, prior to budget for this project being
appropriated in the 2025-27 Financial Plan.
Approval of these recommendations is not required by City policy but is required as part
of the application processes for both DWSRF and I-Bank financing. Submittal of a
financing application does not obligate the City to accept a loan. City staff will return to
the City Council for consideration of the future agreement or contract.
POLICY CONTEXT
The recommended action is consistent with the City’s Capital Financing and Debt
Management policy which requires that the City’s debt management practices are “fiscally
prudent, consistent with State and Federal law, and reflective of the most opportune
financing strategies to deliver on the needs and goals of the community and the City
organization.”
In accordance with this policy, the City has set enterprise fund rates at levels needed to
fully cover debt service requirements as well as operations, maintenance, administration,
and capital improvement costs. Debt financing of this project was included in the 2023 -
24 rate increase Council adopted through Resolut ion 11427 and consistent with
Proposition 218.
Capital improvements to City water distribution infrastructure to improve the reliability of
water transmission supports General Plan Water and Wastewater Element Goal A 2.1 to
“ensure a long-term, reliable water supply to meet both current and future water demand
associated with development envisioned by the General Plan.”
DISCUSSION
Background
The water transmission pipeline extending from the Water Treatment Plant to Santa Rosa
Street is not constructed of standard material types or sizes. If a leak occurs, it would be
difficult to repair without putting thousands of residents out of water service and triggering
boil water notices across the eastern side of the City. Installed in 1964 using concrete
cylinder pipe (CCP) material, the pipeline does not meet current seismic standards and
needs replacement within the next five years. The existing approximately 1.7 -mile long,
27-inch CCP will be replaced with a new 30-inch seismic restrained ductile iron pipe for
the distribution of treated water into the Edna Saddle, Foothill, and Downtown services
areas. The new alignment will follow the Environmental Protection Agency (EPA)-
recommended design guidelines for “lifeline services” providing reliable water resource s
during catastrophic events.
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Item 5e
Previous Council or Advisory Body Action
On June 6, 2023, Council adopted Resolution 11427 and 11429, which approved the
2023-25 Financial Plan, the fiscal year 2023-24 budget, and the proposed water rates for
2023-24 and 2024-25. These documents did three things as it pertains to this project:
1. Appropriated $230,000 for the design and study of the Santa Rosa - Stenner Creek
to Highland 30” Pipeline in fiscal year 2023-24.
2. Forecasted $8,230,000 for the construction and construction management of the
Santa Rosa - Stenner Creek to Highland 30” Pipeline in fiscal year 2025 -26.
3. Approved water rates that included debt financing requirements for this project.
Analysis and Project Timeline
By authorizing staff to pursue construction financing for the Santa Rosa - Stenner Creek
to Highland 30-inch Pipeline Replacement Project before the budget is appropriated in
the 2025-27 Financial Plan, staff will be able to consider financing options with longer
application processes but lower interest rates. This is outlined below.
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Item 5e
In a preliminary analysis, staff considered interest rates, other fees, terms, and debt
covenant requirements in other existing Water Fund debt. Based on this analysis, sta ff
will apply for DWSRF funding if the recommendations in this report are authorized. If the
City is not selected to receive financing from DWSRF, staff will pursue funding through I-
Bank or private capital. Estimates of available financing opportunities are summarized in
the table below.
Staff will continue to explore other financing opportunities related to this project and will
pursue alternative financing if it is more favorable to the City.
Staff will return to Council for approval and adoption of the California Environmental
Quality Act (CEQA) determination for the project, approve plans and specifications,
authorize advertisement and awards of bids, approve financing agreements, and all other
pertinent major project milestones.
Public Engagement
The City conducts an extensive amount of public outreach during the Financial Plan
development process, providing the community with opportunities to give input on future
CIP projects. During project design and construction, staff will ensure that outrea ch
opportunities are provided to impacted stakeholders such as the California Department
of Transportation (Caltrans, California Polytechnic State University (Cal Poly), and City
residents.
Project Implementation Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
DWSRF Application
I-Bank Application
Private Lender Application
Environmental Impact Report
Project Design
Bidding and Award (Construction)
Construction
Forecasted DWSRF agreement execution date (if approved)
Forecasted I-Bank agreement execution date (if approved)
Forecasted private lender agreement execution date (if approved)
Forecasted certification of Environmental Impact Reports
Forecasted completion of project design
Forecasted award of project construction contract
Forecasted construction completion
2023-24 2024-25 2025-26 2026-27
Lender Estimated Interest Rate Term Other Fees
DWSRF 2-2.5%30 years
I-Bank 4-4.5%20 years 1% origination fee
Private Financing 5.5-6%20 years
All estimates were quoted to the City as of August 2023.
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Item 5e
CONCURRENCE
The Finance Department concurs with the recommendations in this report.
ENVIRONMENTAL REVIEW
The scope of the action is limited to the preparation and submittal of a financing
application, which does not commit the City to the execution of an agreement or contract,
nor implementation of the project. Therefore, the recommended action and adoption of
the proposed Resolution is not a "project" under the California Environmental Quality Act
(CEQA), because the action does not involve any commitment to a specific project which
may result in a potentially significant physical impact on the environment, pursuant to Title
14, California Code of Regulations, Section 15378. Staff will return to the City Council for
consideration of the CEQA determination upon completion of the design plans and prior
to implementation of the project.
FISCAL IMPACT
Budgeted: N/A Budget Year: 2025-26
Funding Identified: N/A
Fiscal Analysis:
Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
Water Fund $0 $0 $0 $0
Total $0 $0 $0 $0
There is no fiscal impact associated with this recommended action. Submission of
construction financing applications does not obligate or commit the City to accept loan
agreements from any lender, but allows this phase of the financing process to begin. Staff
will return to Council for approval before entering into any financing agreement. Below is
a summarized estimate of what the loan debt may total if incurred at various interest rates
and terms.
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Item 5e
These debt obligations are estimated from preliminary interest rates quoted to the City
from the identified lenders and early engineer estimates on the cost of the project. They
do not include other fees, indirect administrative costs, or any cost escalations since the
project was first estimated; however, the table above provides an estimated fiscal impact.
ALTERNATIVES
1. Do not adopt the proposed resolution. The resolution is required to submit the
financing application for DWSRF and I-Bank. Should Council choose to not adopt the
Resolution, the City would not be able to apply for these loan programs.
2. Do not authorize staff to pursue construction financing. Construction financing
for this critical infrastructure project has been identified as necessary in order to not
significantly deplete the City’s Water Fund and contribute to higher water rate
increases for City customers. For these reasons, Staff does not recommend this action
alternative.
ATTACHMENTS
A - Draft Resolution to pursue Construction Financing for Project No. 2001048
10-year term 20-year term 30-year term
1.00%8,689,404.90$ 9,121,360.83$ 9,566,909.15$
1.50%8,924,132.84$ 9,587,248.12$ 10,280,715.58$
2.00%9,162,173.24$ 10,066,395.80$ 11,024,065.81$
2.50%9,403,496.21$ 10,558,617.39$ 11,796,299.50$
3.00%9,648,070.69$ 11,063,705.47$ 12,596,655.13$
3.50%9,895,864.58$ 11,581,433.24$ 13,424,281.77$
4.00%10,146,844.72$ 12,111,556.10$ 14,278,251.48$
4.50%10,400,977.03$ 12,653,813.36$ 15,157,571.94$
5.00%10,658,226.52$ 13,207,929.85$ 16,061,199.32$
5.50%10,918,557.36$ 13,773,617.72$ 16,988,050.71$
6.00%11,181,932.96$ 14,350,578.08$ 17,937,016.25$
Debt Financing Scenarios | Santa Rosa - Stenner Creek to Highland 30” Pipeline
Forecasted DWSRF Loan
Forecasted I-Bank Loan
Private Capital Loan
Page 120 of 668
R ______
RESOLUTION NO. _____ (2024 SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, AUTHORIZING THE CITY MANAGER TO
APPLY FOR CONSTRUCTION FINANCING AND APPOINTING THE
UTILITIES DIRECTOR AS THE AUTHORIZED DESIGNEE TO CERTIFY
DOCUMENTS FOR THE SANTA ROSA – STENNER CREEK TO
HIGHLAND 30” PIPELINE PROJECT
WHEREAS, the City of San Luis Obispo has identified critical infrastructure needs,
specifically the construction of the Santa Rosa – Stenner Creek to Highland 30-inch
Pipeline Project; and
WHEREAS, the City Council approved the 2023-25 Financial Plan, which
appropriated $230,000 for the design and study of the Santa Rosa – Stenner Creek to
Highland 30-inch Pipeline Project in fiscal year 2023-24 and forecasted construction in
fiscal year 2025-26 to cost $8,230,000; and
WHEREAS, it is in the best interest of the City and in accordance with the City’s
Capital Financing and Debt Management policies to seek external financing to fund the
construction of said project; and
WHEREAS, it is a requirement of the Drinking Water State Revolving Fund and
the California Infrastructure and Economic Development Bank financing application
processes to include Council resolutions authorizing the submission of application
documents and designating an authorized representative; and
WHEREAS, the City Council acknowledges the necessity of designating an
authorized representative to certify all pertinent documents related to the financing
application process.
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. The City Council hereby authorizes the City Manager or designee to
apply for construction financing for the Santa Rosa – Stenner Creek to Highland 30-inch
Pipeline Project.
SECTION 2. The Utilities Director, or designee, is hereby appointed as the
authorized designee to certify all pertinent documents related to the financing application
process for the Santa Rosa – Stenner Creek to Highland 30-inch Pipeline Project.
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Resolution No. _____ (2024 Series) Page 2
R ______
SECTION 3. The City Council hereby determines that the preparation and
submittal of a financing application is not a “project” as defined by the California
Environmental Quality Act.
Upon motion of Council Member ___________, seconded by Council Member
___________, and on the following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this _____ day of _______________ 20 24.
___________________________
Mayor Erica A. Stewart
ATTEST:
______________________
Teresa Purrington
City Clerk
APPROVED AS TO FORM:
______________________
J. Christine Dietrick
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the
City of San Luis Obispo, California, on ______________________.
___________________________
Teresa Purrington
City Clerk
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