City Finals $62M State Loan

Written by Estero Bay News

July 2, 2021

One of the last pieces of the financing puzzle for the Morro Bay sewer project has been finalized and the City is poised to fund the project through to the finish line, almost.

The Council approved borrowing up to $85 million from the State Water Resources Control Board’s State Revolving Fund (SRF) loan program. The City would also roll into the new loan a previous $10 million planning loan it got from the state water board several years ago, also for the WRF Project.
City Manager Scott Collins told Estero Bay News that they anticipate borrowing $61-$62 million more from the SRF program, on top of the previous $10 million leaving some wiggle room. The interest rate with the SRF loan is pegged at 0.9%.

The City also borrowed $62 million from the Federal EPA’s “Water Infrastructure Finance and Innovation Act” or WIFIA, which came in at 0.83% interest. So for the second time, the City has borrowed money at extremely low interest rates saving millions in interest costs on the eventual payoff.
Under the SRF loan, the project funding amount is listed at $66 million, and the City also got a $5 million grant from the State water board it doesn’t have to pay back.

The SRF documents list the “Estimated Reasonable Project Costs” at over $138.6 million. However, the City’s latest cost estimate is $144 million.
Back in Summer 2018 when the ratepayers voted on new water-sewer rate hikes, the project costs were at $126 million, a figure that didn’t hold up for long, once contracts started being let.

All the loans and grants total up to $139 million, so the City at this point, would seem to be $5 million short with its financing.
However, the original financing scheme anticipated using over $20 million in “cash” raised through the City water and sewer rates, so that shortfall is already built into the rates.

Collins said if they do come up short, they can use the cash or go back to the water board and amend the loan amount at the same low interest rate.
Either way “Savings would hold up in that scenario,” he said.

The anticipated completion date is listed as Aug. 31, 2023 and the water board expects to get the final disbursement request from the City in March 2024. The loan is a reimbursement-type of loan, meaning the City has to cover construction costs and then bill the SRF program, a procedure that always has some lag time.

The City will work with Bartle Wells Assoc., the consultant that put together the original financing scheme “to explore a cost-effective means of managing cash flow for the remainder of this project’s construction,” Collins’ report said.
The SRF documents peg the final deadline to pay off the loan as Aug. 31, 2053.

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