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Home My WebLink About04.b. Review draft Position Paper to authorize the General Manager to submit an updated State Revolving Fund (SRF) Loan Application to the State Water Resources Control Board for the Solids Handling Facility Improvements, District Project 7348 Page 1 of 12 Item 4.b. All" BOARD OF DIRECTORS i POSITION PAPER MEETING DATE: JULY 21, 2020 SUBJECT: REVIEW DRAFT POSITION PAPER TO AUTHORIZE THE GENERAL MANAGER TO SUBMITAN UPDATED STATE REVOLVING FUND (SRF) LOAN APPLICATION TO THE STATE WATER RESOURCES CONTROL BOARD FOR THE SOLIDS HANDLING FACILITY IMPROVEMENTS, DISTRICT PROJECT 7348 SUBMITTED BY: INITIATING DEPARTMENT: DANEA GEMMELL, PLANNING AND ENG-PDS-DIVISION MANAGER DEVELOPMENT SERVICES DIVISION MANAGER REVIEWED BY: JEAN-MARC PETIT, DIRECTOR OF ENGINEERING AND TECHNICAL SERVICES ISSUE The Board of Directors' (Board) approval of the Solids Handling Facility Improvements, District Project 7348 (Solids Project) is required to update the SRF loan application. BACKGROUND On December 6, 2018, the Board authorized the General Manager or his designee to be Central San's Authorized Representative in the SRF funding eligibility process for the Solids Project, which is intended to address aging infrastructure, sustainability, and regulatory issues. In June 2019, the State Regional Water Quality Control Board approved the Intended Use Plan (I UP)which put Central San's project on the fundable list with loan proceeds up to $89.625 million. The Solids Project has progressed since the application was initially submitted in December 2018. Central San has received the 90% Design Submittal from Black and Veatch for this complex project and it includes major renovation of the following solids handling processes: • Sludge Blending and Storage • Sludge Dewatering • Multiple Hearth Furnaces (MHF) • Building and MHF Seismic Improvements • Air Pollution Control (Wet Scrubbers) • Ash Handling Improvements I n December 2019, MW H Constructors was given a contract to provide bid services that include review July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 52 of 148 Page 2 of 12 services for constructability, construction cost estimate, bid documents, and assistance with pre- qualifications of contractors and specialized trades. At the Financial Planning Workshop in March 2020, staff updated the Board that the project cost estimate for the Solids Project was likely$130 million. With further review by MW H Constructors and staff adjustments to provide more contingency due to the complexity of the project, project estimates could be much higher.A reliable final budget for the project is not likely to be assured until after the project is bid, probably in Spring 2021. Central San's fiscal year(FY) 2020-21 financial plan is predicated on a larger SRF loan for the Solids Project. Staff presented a need for$120 million in SRF, which includes $112.5 million in the ten-year plan for the construction phase and approximately$7.5 million in reimbursements for final design costs.As such, a revised application and approval by the State Division Finance Assistance (DFA) is necessary. However, with some costs still unknown, staff inquired to the DFA on the ability to increase the SRF further to ensure that the project is constructed if the bids come in higher. Staff was given guidance to submit current estimates and be prepared for partial funding. Therefore, the request for a higher SRF loan with a ceiling of$165.4 million to reserve funds from DFA. There are a number of discussions at the federal level to provide a stimulus program through infrastructure funding. The House of Representatives has passed a$40 billion bill for wastewater infrastructure, which still needs to be passed by the Senate. California's share is estimated at approximately$2.8 billion. Typically, these funds would be allocated through the SRF program and shovel-ready projects would be the priority to receive the funds. ALTERNATIVES/CONSIDERATIONS There are three alternatives for the Board's consideration: 1. Status Quo or maintain funding level of$89.625 million. This is not recommended as the financial plan requires $120 million in SRF for a balanced plan. 2. Update the SRF application for$120 million, which is consistent with the FY 2020-21 Capital Improvement Budget. This is not recommended as the Solids Project may come in higher and Central San would still need to find the additional funding. 3. Update the SRF application for$165.4 million to reserve up to this amount for the Solids Project. The total loan amount would be finalized after the project has bid and may be a partial amount of this request, depending upon how much funding DFA has available. Staff recommends this option to reserve as much funding as necessary with the lowest rates and terms. The Board may delay or decline to approve the project. If these renovations are not constructed, the conditions of the equipment will continue to decline, resulting in multiple maintenance issues and permit violations.Additionally, the project could miss the chance to be eligible for additional funding. Alternative funding sources are also possible for the project, including funding directly through Central San's rate revenues, or through the issuance of revenue bonds instead of SRF loans. Neither is optimal. Funding directly from rate revenues would (1) require rate increases beyond the levels previously conveyed to the Board in Central San's financial plan; and, (2) not optimally balance the funding of a long lived asset with the asset's useful life, raising concerns about intergenerational equity. FINANCIAL IMPACTS SRF loans have favorable financial benefits to Central San, especially compared to traditional bonds. Debt service starts one year after completion of construction, though interest is accrued as Central San makes draws. In addition, the SRF interest rate is currently 1.4%, which is calculated based on one-half of the most recent General Obligation (GO) Bond Rate at the time of funding approval. There is an additional 0.25% discount, for utilizing a 20-year term instead of the standard 30-year term, which provides for a net July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 53 of 148 Page 3 of 12 interest rate of 1.15%. Central San's FY 2020-21 financial plan assumes $141 million in SRF loan proceeds are needed to fully fund the $902 million in Capital Projects over the next 10 years. The plan presented in April 2020 assumed that two SRF loans would be necessary; the Solids Project was forecast at$120 million and the Filter Plant 1 B Improvement Project forecast a need for$21 million. COMMITTEE RECOMMENDATION This Finance Committee reviewed this item at its July 21, 2020 meeting and recommended RECOMMENDED BOARD ACTION Authorize the General Manager to update the SRF loan application and the associated reimbursement resolution for funds up to $165.4 million for the Solids Project, or provide other direction to staff for funding the Project. Strategic Plan Tie-In GOAL THREE:Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability, Strategy 2—Ensure integrity and transparency in financial management GOAL FIVE:Infrastructure Reliability Strategy 2—Execute long-term capital renewal and replacement program ATTACHMENTS: 1. Proposed Resolution 2. Presentation July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 54 of 148 Page 4 of 12 Attachment 1 RESOLUTION NO. 2020- A RESOLUTION OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT FOR THE SOLIDS HANDLING FACILITY IMPROVEMENTS PROJECT (DISTRICT PROJECT 7348) STATE REVOLVING FUND REIMBURSEMENT WHEREAS, the Central Contra Costa Sanitary District (the "Agency") 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 WHEREAS, the Agency 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 WHEREAS, 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 WHEREAS, prior to either the issuance of the Obligations or the approval by the State Water Board of the Project Funds the Agency desires to incur certain capital expenditures (the "Expenditures") with respect to the Project from available moneys of the Agency; and WHEREAS, the Agency has determined 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 to reimburse the Agency for the Expenditures from the proceeds of the Obligations. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Central Contra Costa Sanitary District (the "Agency") that: 1. The Agency 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; and 2. The reasonably expected maximum principal amount of the Project Funds is $165,400,000; and 3. This resolution is being adopted no later than 60 days after the date on which the Agency will expend moneys for the construction portion of the Project costs to be reimbursed with Project Funds; and July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 55 of 148 Page 5 of 12 Central Contra Costa Sanitary District Resolution No. 2020- Page 2 of 2 4. Each Agency expenditure will be of a type properly chargeable to a capital account under general federal income tax principles; and 5. To the best of our knowledge, this Agency is not aware of the previous adoption of official intents by the Agency that has been made as a matter of course for the purpose of reimbursing expenditures and for which tax-exempt obligations have not been issued; and 6. This resolution is adopted as official intent of the Agency 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; and 7. All the recitals in this Resolution are true and correct and this Agency so finds, determines and represents. PASSED AND ADOPTED this 6th day of August, 2020, by the Board of Directors of Central Contra Costa Sanitary District by the following vote: AYES: Members: NOES: Members: ABSENT: Members: Michael R. McGill President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California COUNTERSIGNED: Katie Young Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California Approved as to form: Kenton L. Alm, Esq. Counsel for the District July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 56 of 148 Page 6 of 12 ATTACHMENT 2 UPDATE OF SOLIDS PROJECT SRF LOAN APPLICATION � Danea Gemmell Planning & Development Services Division Manager Finance Committee July 21, 2020 I BACKGROUND - DECEMBER 6, 2018 MEETING Board Approved for Solids Handling Facility Improvements (Solids Project): • Approval to submit State Revolving Fund (SRF) loan application • General Manager is the authorized representative for Central San for planning, design, and construction for financing agreements • CEQA approval • Resolution to pledge revenues for repayment • Reimbursement resolution July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 57 of 148 1 Page 7of12 Page 8 of 12 CLEAN WATER SRF 2020 UPDATE Application Summary Application Status #of Applications Requested Amount(M) Currently on Fundable List 60 $5,631 (Rollovers from FY 2019-20) Small Disadvantaged Community Projects 105 $296 (Automatically Eligible for Funding) Projects Subject to Scoring 66 $1,869 Projects not subject to Scoring(Not 10 $182 requesting Placement on Fundable List) Total 241 $7,978 Intended Use Plan adopted June 16,2020 • Updated lending capacity for Clean Water SRF loans is$586 million(M)per year going forward • Approved five projects scoring 14 and above with$303 M estimated loan amount • Clear backlog of rollover projects(Central San is in this category) ' s POTENTIAL FEDERAL STIMULUS FUNDING Per 6/29/20 Water Environment Federation Smart Brief The water sector's most relevant news SIGN UP-SHARE TODAY'S NEWS House poised to OK$1.5T Moving Forward Act this week The House of Representatives this week will likely pass the$1.5 trillion Moving Forward Act,which would direct$494 billion to environmentally friendly transportation,$40 billion to wastewater infrastructure and$25 billion to drinking water.The House Rules Committee is meeting today to consider 367 proposed amendments. California share is estimated at 2.8 billion or 7%, per California Association of Sanitation Agencies estimates Funds routed through SRF for dispersal require shovel- ready projects ' 6 July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 59 of 148 3 Page 9 of 12 CENTRAL SAN SRF APPLICATION UPDATE GETTING TO SHOVEL-READY STATUS ❑ General Application — Submit revised SRF Amount ❑ Technical Application — Environmental Approved; 90% Plans & Specifications submitted; Central San to answer State Questions and submit revised Project Report (expected July 30, 2020) ❑ Financial Application — Submit revised SRF Amount ❑ Legal Application — State to contact Jones Hall (Central San Legal Bond Counsel) for review of Agreement before sending Initial Agreement for Signature I � SOLIDS PROJECT SRF BUDGET SUBMITTED IN DECEMBER 2018 Requested SRF Total Project Funding CostsA Facilities Planning $2,415,000 $2,415,000 B Facilities Design $9,000,000 $9,000,000 C Construction Management $8,626,542 $8,626,542 D Value Engineering $500,000 $500,000 E Administration-Central San $3,500,000 $3,500,000 F Facilities Construction Total $77,070,305 $77,070,305 G Contingency $3,928,515 $3,928,515 H Pre-Purchase Materials I Land and Right-of-Way J Other Costs-Shop Drawings $500,000 I8 CFNTPAISAN July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 60 of 148 4 Page 10 of 12 PROPOSED SRF REQUEST UP TO $165.4 MILLION ACTUAL TOTAL DEPENDS ON PROJECT BID TotalNot Eligible for Eligible for SRF Updated SRF M.%- Funding Requesi, costs -Project A Facilities Planning • $2,040,000 r W $0 $2,040,000 B Facilities Design $3,000,000 $5,605,000 � $350,000 $8,955,000 C1 Construction Management $12,400,000 $12,400,000 C2 Construction Management- ESDC $5,200,000 $5,200,000 D Value Engineering $500,000 $0 $500,000 E Administration-Central San $2,700,000 $1,500,000 $5,800,000 $10,000,000 F Facilities Construction** $107,000,000 $107,000,000 G Contingency $16,050,000 $16,050,000 H Pre-Purchase Materials I Land and Right-of-Way J1 Other Costs-Shop Drawings $460,000 $460,000 J2 Other Costs-Sludge Hauling $10,000,000 $10,000,000 J3 Other Costs-Air Permit Testing $500,000 $500,000 Prior,xpen itures **eased on MWH Constructors Analysis 9 MAJOR CHANGES TO BUDGET ESTIMATE SINCE 2018 SRF SUBMITTAL 1 Facilities Construction $30.0 From 5%-15%Contingency $12.2 Sludge Hauling during Construction $10.0 Construction Management $9.0 Administration $6.5 Total Increase ■ (In million dollars) 49-1 ki' 10 July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 61 of 148 5 Page 11 of 12 SCHEDULE FOR SOLIDS PROJECT SRF Construction expected to last up Year 2020 Year 2021 to 4 Years;Debt Service starts 1- Year After July Aug Oct Jan Feb-May June (2021 uly 2020 2020 2020 2021 2021 2021 Updated State Start Bidding SRF Initial Bid/Award Notice To Submit SRF SRF Reviews Pre_ Agreement Proceed to Final Application Legal/ Qualifications Signed Contractors Agreement Financial for Documents to Documents Construction Reimburse RECOMMENDATION • Approve updated $165.4 million ceiling amount for SRF loan application and associated submittals • Approve updated Reimbursement Resolution 1z July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 62 of 148 6 Page 12 of 12 QUESTIONS ' 13 rGOTIMITIM M. July 21, 2020 Regular FINANCE Committee Meeting Agenda Packet- Page 63 of 148 7