Morro Bay City Council agreed to amend its low-interest loan from the State, deferring the start of repayment, changing completion dates and freeing up millions for the eventual demolition of the old sewer treatment plant on Atascadero Road.
The item on the June 25 council agenda asked to give the public works director authority to amend the State Revolving Fund (SRF) loan in several ways. The amendment on the loan agreement with the State Water Resources Control Board “for a needed extension of the Construction Completion Date and SRF loan repayment dates, as well as providing for additional budget for WWTP [Waste Water Treatment Plant] decommissioning and demolition.” The report adds that the City had until June 30 to approve the amendment.
The added borrowing, at 0.9% interest, is for $25.1 million breaks down as $6.05M for the new Water Reclamation Facility; $4.78M for remaining components for recycling the wastewater; $4.54M towards demolition of the old plant on Atascadero Road; and, $5.79M for contingencies, including any construction change orders that might occur.
Borrowing this money puts off some of the repayment pain the loan will induce.
“Financing through the Loan Amendment,” reads the report on the matter, “will defer the 37-month deferral of debt service payments and would increase available cash and reserves in the Water and Sewer Funds by the equivalent amount. This would defer the need to increase water and sewer rates in the short-term.
“However, it would also commit the City to 30 years of additional debt service at 0.9% interest rate and a payment of up to approximately $806,000 depending on the final loan amount, the availability of grant funding, and debt service calculations.”
This recent action is the culmination of an effort that started in August 2022, when the Council authorized applying for the amendment. The idea was to take advantage of the low interest rate on the loan.
The initial requests made by the City have been negotiated back and forth with the State, and came back a bit different than what had been proposed.
The loan amendment pushes the official “completion date” for the project to September 2026, “which based on current schedules offers the City enough time to complete the remaining components of the WRF program. The current project deadline passed on August 31, 2023, which SRF has waived for the time being.”
The work on the added conveyance system and the new treatment plant are done, however, the City has yet to complete the recycling portion of its project, which was used to secure the State and Federal Government’s USDA to make low-interest loans for the project.
The City is working now on this aspect of the project, hiring a consultant to site and design injection wells so the wastewater can be injected into the Morro Creek underground basin.
The amendment puts off the start-up of loan repayment from next month to September 2027, according to the report. This would allow the City to use whatever cash it’s getting through rates to be used for other water and sewer system needs, of which there are many, and also means the City won’t try to raise rates for “at least one year.”
Tapping the SRF Loan would reimburse the City some $16.2M that it already paid to its contractors, making that amount available for other needs and could also mean not having to raise rates again.
The $4.5M going to the demolition of the old plant means they won’t have to use cash or the federal loan, which has a higher interest rate.
The City had also borrowed $10M from the State Water Board prior to construction, calling it a planning loan. That loan would have started repayment in August, but it too will now start repayment in September 2027. That planning loan had a 1.7% interest rate, and the amendment dropped it down to 0.9% to match the other loan and stretched out the loan from 10 years to 30 years.
The report points out that the City doesn’t have to use all of the $21M with the amendment and the staff plans to return to the council sometime in the future with a whole new “funding and financing strategy.”
With all this finance talk, readers might wonder how much the WRF project cost them?
According to a chart included with the report, the City had a total funding amount of $154.77M. This breaks down as $66.6M in the original SRF construction loan; $21.17M with the construction loan amendment; $10.3M in the SRF planning loan; $61.7M in the federal Loan (WIFIA program), and subtracting $5M the City got for planning in the form of a grant that doesn’t have to be repaid.
So far they’ve spent $134.4M — $66.6M original SRF loan; $16.23M with the loan amendment; $10.3M planning loan; and $46.25M from WIFIA.
According to the chart the City stills has $15.44M available form the WIFIA loan and $4.93M from the SRF loan amendment (for the demolition).
It should be noted that the Cayucos Sanitary District and the City are partners in the old sewer plant and property, so that agency will also be involved to some degree with the demolition and eventual disposition of the property, which has been cited as a good spot for visitor serving uses, as it sits across the street from Morro Strand State Beach.
Indeed, one of the driving forces behind moving the new treatment plant from the old site was the redevelopment potential of the sizable parcel so close to the beach.
But given the coastal hazards identified by the Coastal Commission as justification for forcing the moving of the plant, concerns ab0ut tsunamis, sea level rise and flooding from Morro Creek, should follow the property, no matter what project might be proposed in the future.