REPORT TO THE CITY COUNCIL June 19, 2014 FROM: MARTIN A. QUERIN, PE, Assistant Director Department of Public Utilities - Water Division BY: BROCK D. BUCHE, PE, PLS, Supervising Professional Engineer Department of Public Utilities - Water Division GLENN A. KNAPP, PE, Professional Engineer Department of Public Utilities - Water Division SUBJECT ..Title Actions pertaining to submittal of Applications for Consolidation Incentive Safe Drinking Water State Revolving Fund Low-Interest Loans 1. Adopt a resolution authorizing submittal of an application to the California Department of Public Health for a State Revolving Fund Consolidation Incentive Low Interest Loan in the amount of $240,000,000 for construction of the City of Fresno's 80-million gallon per day Southeast Surface Water Treatment Facility 2. Adopt a resolution authorizing the City of Fresno to submit an application to the California Department of Public Health on behalf of the Orange Center School District for a State Revolving Fund Consolidation Incentive Low Interest Loan in the amount of $3,000,000 for the abandonment of the Orange Center School District water system well, construction of a water utility service pipeline for consolidation with the City of Fresno's water system, and resolution of on-site water quality issues 3. Authorize the Assistant Director of Public Utilities, or his designee, to execute all application documents on behalf of the City of Fresno ..Body RECOMMENDATIONS Staff recommends that City Council: 1. Adopt a resolution authorizing submittal of an application to the California Department of Public Health (CDPH) for a State Revolving Fund (SRF) low interest loan in the amount of $240,000,000 for construction of the City of Fresno's (City's) 80-million gallon per day (MGD) Southeast Surface Water Treatment Facility (SESWTF). 2. Adopt a resolution authorizing the City to submit an application to the CDPH on behalf of the Orange Center School District (OCSD) for a SRF Consolidation Incentive low interest loan in the amount of $3,000,000 for the abandonment of the OCSD water system, construction of a water utility service pipeline for consolidation with the City's water system, and resolution of on-site water quality issues. 3. Authorize the Assistant Director of Public Utilities, or his designee, to execute all application documents on behalf of the City. EXECUTIVE SUMMARY Upon invitation by the CDPH, the City's Department of Public Utilities/Water Division, requests Council to authorize submittal of two funding applications in accordance with SRF "Consolidation Incentive" (CI) guidelines for construction of the City's 80 MGD SESWTF and consolidation of the OCSD water system with the City's water system. Under SRF guidelines, combining these two projects reclassifies the lower (non-fundable) project to the higher priority (fundable) project category. Although City bond rates are anticipated to be somewhere between 5% and 6%, SRF interest rates are typically 50% of the State's average interest rate paid on general obligation bonds, and are estimated to be at or near 2% with an assumed loan term of 20 years. The benefits through submission of these funding applications not only include significant long-term savings for City rate payers, but an avenue for the City to participate in the elimination of water quality health and safety risks to a disadvantaged community. BACKGROUND The Federal Safe Drinking Water Act (SDWA) Amendments of 1996 authorized the creation of a drinking water state revolving fund program. The Safe Drinking Water State Revolving Fund (SDWSRF) program provides financial assistance in the form of federal capitalization grants to states that in turn provide low interest loans and other assistance to a public water system. Program goals include both federal and state legislative intent to provide funding for the construction of technically sound drinking water infrastructure projects which encourage energy efficiency and water conservation measures. In May 2013, pre-applications for the Fall State Fiscal Year 2013-2014 SDWSRF funding cycle became available. On June 27, 2013, the City submitted a pre-application for construction funding for the City's 80 MGD SESWTF. Upon review of pre-application information, the CDPH ranked the project into Category 'M' on the Project Priority List (PPL). Although CDPH funding categories typically range from Category "A" to "O", eligible funding categories for this funding cycle were restricted to Categories "A" to "G"(with Category "A" being the highest health and safety concern). Shortly thereafter, the CDPH presented the opportunity for possible project 're-ranking' to a fundable category through their CI funding program. In short, a public water system (PWS) with a project ranked in a lower PPL category (less serious health concern) that agrees to physically consolidate a disadvantaged PWS with a higher ranked project, could be re-ranked into the same PPL category as the disadvantaged PWS with the higher ranked problem. The OCSD is a K-6 school and has operated its own water system under CDPH Permit Number 03-23-12P-007 since the early 1950's. The school is located at 3530 South Cherry Avenue (within the City's Sphere of Influence), and is currently unable to provide potable water for approximately 410 students and staff. The school is classified as a severely disadvantaged community and has experienced water system contamination issues (lead and total coliform) over the last six years. The school's on-site water well was installed in the early 1950's, later modified in the early 1980's, and has exceeded its useful service life. School students and staff are currently provided bottled water through a separate CDPH program. To meet CI Program requirements, the City would be the lead agency to submit an additional funding application on behalf of the school district that would result in the abandonment of OCSD's existing water system service well, construction of a water utility service pipeline for consolidation with the City's water system, and resolution of on-site water contamination issues. As part of SRF CI Loan requirements, and prior to an executed funding agreement, an extra-territorial water service agreement (ETA) between the City and OCSD will be executed. A draft of the ETA has been reviewed by the City's Attorney's Office and as required, will be submitted with the application documents. On April 8, 2014, the school Board of Trustees approved and signed OCSD Resolution 14-4-8, authorizing the City to submit a funding application on behalf of the school district. Both SESWTF and OCSD application resolutions have been reviewed and approved as to form by the City Attorney's Office. Adoption of these Resolutions authorizing the Water Division to submit the loan applications and identifying the individual authorized to execute agreements is necessary to proceed. ENVIRONMENTAL FINDINGS Authorization to submit an application for a SRF loan is not a "project" for the purposes of California Environmental Quality Act (CEQA), as it is a funding mechanism or other government fiscal activity, and does not involve commitment to any specific project which may result in a potentially significant physical impact on the environment as contemplated by CEQA Guidelines Section 15378(b). LOCAL PREFERENCE Not applicable FISCAL IMPACT There is no impact to the General Fund. The debt service costs for the construction of the SESWTF have been anticipated and were included in the water rate model used to create the four-year utility rate plan and subsequently adopted by City Council on August 15, 2013 (Resolution 2013-143). All future fiscal year budgets will be developed and proposed to ensure that adequate coverage ratios are maintained for all existing and additional debt that is incurred. The SRF interest rates are estimated to be at or near 2% with an assumed loan term of 20 years. This would result it considerable savings in debt costs compared to bond financing which is currently estimated at 5% to 6% over 30 years. Total project funding may be realized over multiple annual funding cycles with intial funding anticipated to be at or near $50,000,000. Attachments: - 80 MGD SESWTF SRF Application Resolution - OCSD SRF Application Resolution