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Santa Paulans will no longer be paying the second highest sewer rates in the state after a deal to purchase the wastewater treatment plant for $70.8 million is finalized.
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City to finalize wastewater treatment plant deal, citizens to save
February 06, 2015
By Peggy Kelly
Santa Paula News
Santa Paulans will no longer be paying the second highest sewer rates in the state after a deal to purchase the wastewater treatment plant for $70.8 million is finalized.
The City Council unanimously backed the purchase at the February 2 meeting, a move that will save residents hundreds of dollars a year and, depending on the interest rate of municipal bonds used for the purchase could mean a savings as high as $450 annually on residential sewer bills.
Terry Mass of FirstSouthwest, who is handling the bond transaction, told the council at the February 2 meeting that the last time he appeared before the panel was in 2007.
“Here we are again,” said Mass who said the current bond rate is “again a great opportunity,” for financing that was not taken in 2008.
Now, Mass added, Santa Paula customers, “Pay the second highest rate in the state of California... “
At that time the 2008 bond rate was about 4.4 percent but the then-council majority opted to go with private financing for the approximately $62-million wastewater treatment plant.
On a 3-2 vote the council majority agreed to let a partnership formed by PERC Water and Alinda Capital Partners to design, build, operate and finance (DBOF) the facility even though the contract carried an 8.21 percent variable interest rate that had to be borne by ratepayers.
Mayor John Procter was on the council at that time and was the only council member to earlier vote against the city considering using the DBOF process for the plant that would turn the public enterprise over to the private sector at a much higher cost to ratepayers.
Later, Procter was one of two council members who voted against the deal; thereafter, he declined to run for a third term. With the defeat of Ralph Fernandez and Bob Gonzales last year - losses in part attributable to the sewer plant and the spiraling increase in fees - and the elected return of Procter to the panel, he now is the only councilmember that was on the panel at the time the wastewater treatment plant was contracted.
In a interview Saturday Procter said the issue has “come full circle. We’re doing it the way it should have been done to begin with,” although regrettably, “We can’t go back and undo the damage... “
But the deal still must be explained in detail so the public and the council understand all costs, savings and the details related to same said City Councilwoman Ginger Gherardi.
The purchase does not mean the city is off the hook when it comes to ridding treated waters of chlorides.
In September 2013 the city and Santa Paula Water LLC entered into contract-mandated arbitration over the failure of the company to remove the contaminating salts a.k.a. chlorides from wastewater treated at the facility, one of the reasons the state had ordered replacing the city’s aging sewer plant.
A city report noted that removal of chlorides is one of the reasons the city entered into the DBOF agreement with Santa Paula Water, which has claimed it is not responsible for chloride removal that was not specified in the lawsuit. The city countered that the company had agreed to meet state water permit mandates and guidelines that could only be met with chloride removal.
Now, with the purchase of the plant expected to be completed April 30, the city will end arbitration and scramble to find solutions to the chlorides issue which could bring fines until corrected.
The council and City Manager Jaime Fontes discussed not only the purchase of the plant - at $70.8 million a cost $5 million less than the buyout option included in the original contract with Santa Paula Water - but also how the chlorides removal could be funded at least partially with grants, an opportunity not afforded the city with the privately owned wastewater plant.
Mass, the bond consultant noted, “There would be many more opportunities,” for grants and other funding sources for the city, “as with private ownership there is none.”
Fontes was careful to point out that he was not with the city at the time the sewer plant deal was struck by a majority of the council - and over the strong objections of staff, who urged the council to reject the financing and private ownership of the facility - and noted, “Now we’re on the two-yard line... “
“Don’t pass!” joked Procter, alluding to the last minute Super Bowl play that had led to narrow defeat of the Settle Seahawks by the New England Patriots the day before.
Reportedly negotiations on the purchase began in earnest following the November election and escalated in recent weeks.
SouthWestern’s Mass told the council another major savings is the $15 million over decades of property tax the city could have been liable for due to the private profit-making plant sitting on city owned property.
And now, he added, the city can join with other municipalities and “Do things, get grant funding, very low cost loans... “
The council learned it would face an approximately $900,000 cancellation fee to end PERC’s contract to operate the facility.
Procter said, “It’s not a bad idea to keep PERC in the game for four or five years,” while also renegotiating or even rebidding the contract.
Councilman Jim Tovias wanted assurances that the present rate that the city might enjoy for bonds is “3.75 percent, no variable like now?”
When told the figures, Tovias said each household could save as much as $450 annually: “That’s a lot of money... “
Vice Mayor Martin Hernandez noted Santa Paula is a declared disadvantaged community, which could have afforded the city grants with no city match required for wastewater needs.
“One of the things that frustrated me all along,” said Hernandez, “was that it was privately owned, so it tied our hands,” across a spectrum of financing opportunities.
Gherardi said the purchase of the facility, “Is one piece of the puzzle,” but awareness must be a priority for Santa Paula citizens who have been paying the bill.
A chart must “Show the public what their savings will be on their bill, hopefully every month,” and not a quarterly rebate that had been touched upon during the discussions.
She also acknowledged the quick work of staff on closing the deal.
“I realize I asked really tough questions,” Gherardi added, but “I want to make sure we’re doing the correct thing for the public when spending more than $70 million.”
The facility opened in 2010 and residential customers pay a base $77.23 monthly charge; there is also a sewer-processing surcharge of $1.12 per 100 cubic feet.
