Agenda Item No. 12
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: January 8, 2024 FROM: Matthew Bronson City Manager
PREPARED BY: Gabriel Munoz-Morris, Senior Engineer
Nick Szamet, Administrative Services Director
SUBJECT: Sewer Upgrades Project (CIP 5002) Update
RECOMMENDATION
Receive information on the Sewer Upgrades Project (CIP 5002) and provide direction to staff to readvertise the project.
BACKGROUND
The City’s Sewer Master Plan was last updated in 2019 and identified deficiencies in the City’s existing sewer collection system. Some of the deficiencies identified require upgrades to meet the existing and future demands on the City’s sewer system. Staff prepared a multi-project plan to address the most critical deficiencies for existing and future flows which started with the upgrade of the segments in CIP 5002.
Originally, the project included upgrades to the following segments:
• Manhattan Avenue (from the west end to South 4th Street) • South 4th Street (from Manhattan Avenue to West Grand Avenue) • Rockaway Avenue (from South 4th Street to South 9th Street) • North 8th Street (from West Grand Avenue to Ramona Avenue) • Ramona Avenue (from North 8th Street to North 9th Street) • North 9th Street (from Ramona Avenue to Atlantic City Avenue) The project includes upsizing existing 8”, 10”, and 12” vitrified clay sewer mains to new 10”, 12”, and 18” HDPE sewer mains through a combination of pipe bursting and open-trench construction.
These upgrades provide the necessary capacity in the City’s sewer collection system to eliminate existing deficiencies and meet future demands.
In addition to the upsizing work identified above, staff also identified a potential sewer system extension during the project design phase that could be included in this project as a way of further extending available sewer lines to properties remaining on septic with no option to connect to City sewer. This extension included new 8” PVC sewer mains on Griffin Street (from Calvin Court to Highland Way) and Highland Way (from Griffin Street to approximately 949 Highland Way). This extension project would provide connection availability to seven properties that do not currently have City sewer available. Staff had this sewer extension included in the project scope to reduce construction costs of the sewer extension by having a contractor performing this work in conjunction with the larger sewer upgrade project.
Staff Report: Sewer Upgrades Project (CIP 5002) Re-Bid Page 2 January 8, 2024
Staff solicited bids for the project from the list of pre-qualified contractors on June 22, 2023. Bids were due on July 27, 2023. The original estimated cost for construction for this project was $2.9 million. The low bid received from Specialty Construction Inc. was $4.1 million. When budgeting for a construction contingency of 10% and construction management services, the estimated total project cost is $4.8 million which is significantly beyond the budget for this project. As a result, staff sought Council direction on August 28, 2023 to reject all bids, modify the project, and return to Council with an updated project for re-advertisement.
Project Modifications
Staff performed a bid evaluation and met with contractors and design professionals to better understand the reasoning for the increased costs of construction. The cost of labor, materials, and trucking have greatly increased in the last 12 to 24 months which has impacted prices across the construction industry. Staff reached out to other agencies with recent bid openings and confirmed these increases are industry-wide and do not show signs of reversing. Staff discussed possible scope revisions internally and met with the design firm, MKN, to consider alternatives.
Ultimately, it was recommended that the sewer extension work on Griffin Street and Highland Way and the sewer upgrade work on Rockaway Avenue from South 4th Street to South 8th Street be removed from the project to reduce the project cost. The sewer extension work is not a critical deficiency at this time and can be pursued via a future project. Staff is also working with Regional Water Quality Control Board staff as part of the City’s pending sewer ordinance update to pursue grant funding for sewer extension projects in that area which could completely fund the construction of the sewer extension on Griffin Street and Highland Way. The upgrade work on Rockaway Avenue from 4th Street to 8th Street, while important, can also be removed from this project at this time and pursued during the next phase of sewer mainline upgrades. Delaying the upgrades on these four blocks would still allow the City to come back and perform this utility work ahead of the scheduled Measure K-14 project on Rockaway to avoid cutting into a newly paved street for utility upgrades.
The work on North 9th Street must be completed now ahead of Measure K-14 project 2295-17, which includes pavement rehabilitation on North 9th Street and is ready to begin construction in late Spring, 2024, to avoid delays in that paving project’s schedule. The work on Manhattan Avenue and South 4th Street is the most critical for the City’s entire sewer system as those lines carry sewer flows for the majority of the city and are the connection point to the South San Luis Obispo County Sanitation District sewer trunk main which leads to the District’s wastewater treatment plan in Oceano. Upsizing those lines now is critical to provide additional capacity in the City’s system to eliminate existing deficiencies and allow for additional developments to come online in the near future. The work on Rockaway Avenue from 4th Street to 8th Street can be delayed to the next phase of the City’s sewer upgrade project without any immediate impact to the City’s system as long as the segments on Manhattan Avenue and South 4th Street are upgraded now. The removal of the sewer extension work on Griffin Street and Highland Way and sewer upgrade work on Rockaway Avenue (4th Street to 8th Street) will reduce the project construction cost by approximately $1-1.2 million which will allow the City to move forward with the project.
The revised project scope includes upgrades to the following segments:
• Manhattan Avenue (from the west end to South 4th Street) • South 4th Street (from Manhattan Avenue to West Grand Avenue) • Rockaway Avenue (from South 8th Street to South 9th Street) Staff Report: Sewer Upgrades Project (CIP 5002) Re-Bid Page 3 January 8, 2024
• North 8th Street (from West Grand Avenue to Ramona Avenue) • Ramona Avenue (from North 8th Street to North 9th Street) • North 9th Street (from Ramona Avenue to Atlantic City Avenue) Financing
While looking at possible scope revisions for the project, staff met to discuss the most effective way to fund this project when it was re-advertised. The City adopted a new utility rate structure on December 11, 2023 which was based on a rate study performed by a consultant that included the option to finance this project. The estimated life of this project is 50 years and the reduced scope of the project is estimated to cost approximately $3.6 million, including construction cost, construction contingency, and construction management. Due to the longer estimated life and the significant cost of the project, the rate study includes funding to finance the total cost of the project, spreading the cost over time and minimizing the burden on the current rate payers.
Staff has been working with the City’s Municipal Advisor, Albert Peche, along with Renee Vancho of Piper Sandler, and Albert Reyes of Kutak LLP, who are the consultants who assisted in issuance of the City’s Series 2020 Water Bonds. These consultants (the “Financing Team”) are familiar with the current capital needs of the Sewer Enterprise. Factors considered included the amount needed, repayment term, the annual repayment amount, interest rate, and debt service coverage requirement.
After discussion and analysis with the City’s Financing Team, staff determined that a private placement sewer revenue bond funded by sewer rates is an appropriate tool for the Council’s consideration to complete the sewer improvements. The Series 2020 Water Bonds were also sold through a private placement and the Financing Team recommends that this structure and method of sale be used for the Sewer Project.
Staff will be returning to Council on January 22, 2024 to adopt an intent resolution and reimbursement resolution. The Intent Resolution will authorize Staff to begin planning for the issuance of sewer obligations and hire the Financing Team on a contingent basis where compensation is only from the sale of such obligations. The Reimbursement Resolution will allow for the reimbursement of sewer project “hard cost” expenditures prior to 60 days of the adoption of this resolution.
Legal documentation will be brought back to the Council on March 11, 2024 for approval. The list of banks who were invited to bid will be provided, as well as the results of the bids, and the recommended winning bidder, debt service, etc.
The following is a list of activities ending in the close of the bond issuance:
• January 8 Presentation to Council on Project.
• January 22 Adopt Intent and Reimbursement Resolutions. • March 7 Near final legal documents sent to City by authorized representatives. • March 11 City Council Meeting – approval of Issuance Resolution/legal documents. • March 12 Execution of Term Sheet by City and Placement Bank. • March 25 City Council Meeting – award construction contract (Public Works). • March 27 Pre-Closing – Final paperwork prepared and readied for bond issue. • March 28 Closing – Date of issuance for bond sale and proceeds.
Staff Report: Sewer Upgrades Project (CIP 5002) Re-Bid Page 4 January 8, 2024
FISCAL IMPACT
There is no fiscal impact of providing direction to readvertise the project at present. After bids are received for the modified project scope, staff will request authorization to award the project to the lowest bidder.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Receive information on the Sewer System Upgrades Project (CIP 5002) and provide direction to staff to readvertise the project; or
2. Provide staff with alternative direction
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.
Attachments
1. Revised Project Area Map
CIP 5002 Sewer Upgrade Project – Revised Project Area Map Attachment 1