ITEM 16:CONSIDERATION OF APPROVAL OF A RESOLUTION TO PROVIDE STATE REVOLVING FUND (SRF) LOANS TO THE CITY OF SAN DIEGO (CITY) FOR CONSTRUCTION OF WASTEWATER TREATMENT PROJECTS

DISCUSSION: The City has received preliminary loan commitments totaling $86.557 million in local match SRF loans from the State Water Resources Control Board (SWRCB). The commitments were for three projects and five loan contracts. The three projects are: (1) the Point Loma Digesters 7 & 8 and Gas System Upgrade, SRF Loan No. C-06-4383-110, for $10.9 million, Resolution No. 97-079 dated September 18, 1997; (2) the Point Loma Central Boiler Facility and Piping Gallery Upgrades, SRF Loan No. C-06-4245-110, for $8.021 million, Resolution No. 97-104 dated November 18, 1997; and (3) the South Bay Water Reclamation Plant, SRF Nos. C-06-4119-310, 410, & 510, (three contracts totaling $67.636 million), Resolution No. 97-105 dated November 18, 1997. All projects are under construction.

In April of 1998, the City informed the Division of Clean Water Programs (Division) that its Charter prevented it from entering into the SWRCB’s standard SRF loan contract without voter approval and proposed that the SWRCB use the SRF loan funds allocated to the City to purchase Certificates of Participation in an installment purchase agreement between the City and the Public Facilities Financing Authority of the City.

On January 21, 1999, the SWRCB denied the City’s request, but agreed to reserve the funds previously committed for City projects, contingent on the City placing the matter of acceptance of a SRF loan on a ballot for the voters in June and to reschedule consideration of the matter at its July 1999 Workshop and Meeting. The City has requested that the matter be considered instead at the June 17, 1999, SWRCB meeting.

The City has decided that it will not place the matter on a ballot but that changes to the SWRCB’s standard loan contract will allow the City to accept the SRF loan without voter approval.

Those changes are:

1.  Specification that the SRF loan is subordinate to existing debt. Although the standard SRF loan contract does not specifically address this issue, it is understood that SRF loans can be subordinated to existing debt.

2.  The City can sell future debt which is higher in priority than the SRF loan if it maintains an A rating by at least two nationally recognized rating agencies on the senior debt, maintains 1.1 coverage, and accepts a local match loan. The SWRCB previously approved this request in Resolution No. 97-028.

3.  The security for repayment of the loan will be the City’s Net System Revenues from its wastewater system. The Division has reviewed this security and approved it as a valid "dedicated source of repayment" as required by the Federal Clean Water Act. The Division has accepted similar sources from other loan recipients.

4.  The SWRCB may take action in court directly against the City to compel it to set and collect rates sufficient to pay, and to pay over to the SWRCB the amount due under the loan contract.

5.  No prepayment penalty is due if the City repays the loan before final payment is due on the loan. The SWRCB does not currently assess prepayment penalties for early repayment of SRF loans.

POLICY ISSUE: Should the SWRCB adopt the proposed resolution?

RWQCB IMPACT: San Diego Regional Water Quality Control Board. SRF funding would not be available to the City if the SWRCB decides not to approve the SRF loan contract language as amended. The City is currently in compliance with its discharge requirements, but would eventually be in noncompliance and/or in violation of its requirements due to flow increases caused by population growth if these projects are not built.

FISCAL IMPACT: The SWRCB has already approved preliminary loan commitments of $86.557 million for the City’s projects as described above. There will be no new fiscal impact to the SRF account due to the adoption of this proposal.

STAFF RECOMMENDATION: That the SWRCB adopt a resolution approving the proposed contract language.

WHEREAS:

1.  The State Water Resources Control Board (SWRCB) has approved $86.557 million in local match (formerly referred to as zero-interest) loans for three projects for the City of San Diego (City) to upgrade and expand its wastewater treatment system. These projects include five loan contracts;

2.  The City’s charter prevents it from entering into the SWRCB’s standard loan contract without seeking voter approval;

3.  The City does not wish to seek voter approval, but is proposing changes to the SWRCB’s standard loan contract which will eliminate the need for voter approval;

4.  The changes to the State Revolving Fund (SRF) loan contract would:

• specify that the SRF loan is subordinate to existing City debt,
• authorize the City to sell future debt secured by "Net System Revenues" of its wastewater system which is senior to the SRF loan in exchange for the City accepting local match loans, maintaining an "A" or better rating on the senior debt and maintaining 1.1 coverage for the SRF loan,
• approve the City’s "Net System Revenues" of its wastewater system as the dedicated source for repayment of the SRF loan,
• authorize the SWRCB to take action in court directly against the City in the event of a default in making repayments under the loan contract, and
• provide that no prepayment penalty will be assessed if the City repays all or part of full amount due under the loan at any time before final payment is due; and

THEREFORE BE IT RESOLVED:

That the State Water Resources Control Board:

1.  Continues its commitment to provide SRF loans to the City of San Diego as set forth in Resolution Nos. 97-028, 97-079, 97-104, and 97-105; and

2.  Approves modifications to the SRF loan contracts for the City of San Diego as provided by this resolution.
 

The undersigned, Administrative Assistant to the Board, does hereby certify that the foregoing is a full, true, and correct copy of a resolution duly and regularly adopted at a meeting of the State Water Resources Control Board held on June 17, 1999.
 

Maureen Marché
Administrative Assistant to the Board