REPORT TO COUNCIL
SUBJECT
Title
Action to Approve a Resolution of Intention to Reimburse Expenditures from the Proceeds of Tax-Exempt Financing for Capital Improvements at the San José-Santa Clara Regional Wastewater Facility (RWF)
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
The San José-Santa Clara Regional Wastewater Facility (RWF) treats an average of 110 million gallons per day (mgd) of wastewater for the cities of San José, Santa Clara, and five tributary agencies in the South Bay Area. The City of Santa Clara (City) is a co-owner of the facility with the City of San José, who is a majority owner and is responsible for the operations, management, and administration of the facility. The RWF was built in 1956 and, in 1959, the City signed an agreement to gain an ownership stake of approximately 20% in the RWF. The operations and maintenance (O&M) and capital improvement program (CIP) costs are shared based on the ownership percentage, as well as allocated in appropriate shares to the tributary agencies. As a co-owner, Santa Clara (along with San Jose and the tributary agencies) is represented on the Treatment Plant Advisory Committee (TPAC), which advises San José and its Council on the operations and administration of the facility. The City’s share of RWF related expenditures are paid for by the Santa Clara sewer customers.
San José is rebuilding and modernizing the RWF through a CIP program that is based on the 2013 Plant Master Plan which was approved by TPAC. This plan outlined 114 capital improvement projects, totaling approximately $2 billion. In the past five years, the City has spent over $161 million on RWF capital costs. The City’s share over the next five years totals approximately $77.1 million, including $13.8 million this fiscal year (2022/23) and $15.0 million next fiscal year (2023/24).
DISCUSSION
On May 26, 2020, Council approved Resolution No. 20-8849 authorizing an installment sale financing in an amount not to exceed $50 million to provide interim financing for a portion of the City’s share of RWF-related capital costs. The City only issued $20 million of the $50 million authorized, mainly due to delays in the CIP as a result of the COVID-19 pandemic. The installment sale agreement was issued as variable rate debt with a final maturity of July 1, 2024.
The Water & Sewer Rate Studies for fiscal years 2021/22 and 2022/23 were performed by Black and Veatch (Consultant) as part of the rate setting processes. The Consultant and the City’s Finance Department (Finance) recommendation is the refinancing of the $20 million outstanding installment sale agreement and the issuance of up to an additional $30 million in fixed-rate debt to pay for a portion of the City’s future RWF-related CIP costs. The issuance of debt will allow the City to maintain adequate reserves and keep rates low, while meeting its obligations to the RWF’s CIP. The Water & Sewer Utilities Department plans to issue this debt, through a competitive bidding process, in approximately June of 2023. Staff will work with bond counsel and the City’s Financial Advisor to determine the most efficient financing structure.
Federal regulations generally require an issuer of debt to adopt a declaration of official intent to use the proceeds of tax-exempt debt to reimburse the issuer for capital expenditures made before the debt is issued. Staff seeks approval of the enclosed resolution in order to comply with these requirements. The resolution declares the City’s intention to reimburse RWF-related CIP expenditures using the debt proceeds once the debt is issued. This will allow the City to continue to meet its obligations to San José during the competitive debt procurement process. Staff will return to Council to seek final approval to issue the debt and enter into financing agreements.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
FISCAL IMPACT
This action itself does not have a fiscal impact beyond the cost of staff time. However, the approval of this resolution does ensure that the RWF-related CIP costs are, ultimately, financed by the issued debt. Financing these costs is a part of the ongoing strategy of the City to maintain reasonable and equitable sewer rates.
COORDINATION
This report was coordinated with the Finance Department and the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Approve the Resolution of Intention to Reimburse Expenditures From the Proceeds of Tax-Exempt Financing for Capital Improvements at the San José-Santa Clara Regional Wastewater Facility (RWF)
Staff
Reviewed by: Gary Welling, Director, Water & Sewer Utilities
Approved by: Office of the City Manager
ATTACHMENTS
1. Proposed Resolution Declaring Intention to Reimburse Expenditures