DATE:
September 22, 2026
CATEGORY:
Consent
DEPT.:
Public Works
TITLE: Addendum No. 14 to Regional Water
Quality Control Plant Basic Agreement
RECOMMENDATION
1. Authorize the City Manager or designee to execute Addendum No. 14 to the Basic Agreement between the cities of Palo Alto, Mountain View, and Los Altos for authorization of:
a) Palo Alto to manage the design, construction, and implementation of the Headworks Project, Outfall Project, and Minor Capital and Emergency Projects (collectively, the “Projects”);
b) Palo Alto to manage the $31 million in costs authorized for the Projects; c) Palo Alto to obtain and administer a line of credit to fund the Projects at the Palo Alto Regional Water Quality Control Plant,
d) Mountain View to provide a cost-share not-to-exceed $11.7 million.
2. Appropriate $2.0 million in the Wastewater Fund within the Public Works Department for the initial cash payment for the projects described in Addendum No. 14. (Five Votes Required)
BACKGROUND
In 1968, the cities of Mountain View and Los Altos retired their wastewater treatment plants and approved a contract with the City of Palo Alto (Basic Agreement between the City of Palo Alto, the City of Mountain View, and the City of Los Altos for the Acquisition, Construction and Maintenance of a Joint Sewer System, also referred to as the Partners Agreement) for a joint wastewater treatment plant at the site of Palo Alto’s existing plant . In addition to providing wastewater treatment services for the cities of Palo Alto, Mountain View, and Los Altos, the Palo Alto Regional Water Quality Control Plant ( RWQCP) provides services to the Town of Los Altos Hills, Stanford University, and the East Palo Alto Sanitary District under separate agreements with the City of Palo Alto.
Per the Basic Agreement, Palo Alto owns and operates the Treatment Plant’s wastewater treatment and disposal facilities and is responsible for managing the operations, maintenance, capital improvements, and finances of the plant. The Basic Agreement is amended as needed to
Addendum No. 14 to Regional Water Quality Control Plant Basic Agreement September 22, 2026
implement and fund major capital projects for the replacement of obsolete or end -of-life equipment.1
ANALYSIS
Palo Alto’s 2012 Long Range Facilities Plan (LRFP) identified over $460 million in capital improvements for the RWQCP, including major projects such as the Secondary Treatment Plant Upgrades, Advanced Water Purification System, and Headworks Facility Replacement. These projects are in various stages of design and construction and are funded through a combination of State Revolving Fund (SRF) loans, grants, debt financing, and partnership agreements. While some of these projects are financed by low-interest loans through the State Revolving Fund, the funds are reimbursements resulting in short-term negative cash balances for Palo Alto.
In addition, Palo Alto is currently updating the LRFP, which will reassess and reprioritize capital improvement needs over the next 50 years, incorporating consideration of updated regulatory requirements, emerging contaminants, and the current condition and performance of existing RWQCP infrastructure. The update will refine project scopes and cost estimates for remaining projects from the 2012 LRFP and identify additional capital improvements necessary to maintain reliable and compliant plant operations.
The LRFP Update is expected to significantly increase the RWQCP’s overall capital needs, highlighting the importance of flexible financing tools . Palo Alto has explored various funding strategies to address their growing project funding needs including:
• State Revolving Fund (SRF) loans administered by the State Water Resources Control Board
• U.S. Environmental Protection Agency Water Infrastructure Finance and Innovation Act (WIFIA) loans
• Utility revenue bonds issued through capital markets
• Line of Credit (LOC)
The selection of the funding source for each project depends on program eligibility (for SRF and WIFIA), prevailing interest rates at the time of the loan or bond issuance, repayment terms, and cash flow needs. Any debt service payments would be shared among all RWQCP partner agencies, with exceptions to partners who do not need financing through amendments to their partner agreements.
1 Historically, the amendments to the Basic Agreement have been referred to as “addenda ,” although the accurate term is amendment. The parties to the Basic Agreement have continued the practice of using the term “addendum” for consistency.
Addendum No. 14 to Regional Water Quality Control Plant Basic Agreement September 22, 2026
Addendum No. 14 authorizes Palo Alto for up to $31 million in total project costs for a portfolio of the short-term capital improvements, including:
1) Headworks Facility Replacement (Design Phase) – $18 million 2) Outfall Improvements (Design and Potential Construction) – $1 million 3) Deferred Minor Capital Projects – $12 million, including:
• Sludge Thickener Rehabilitation
• Ventilation Improvements
• Plant Records Modernization
• Emergency Projects – As needed to support continued plant operations.
These projects address aging infrastructure, improve operational reliability, and ensure continued compliance with regulatory requirements.
FISCAL IMPACT
Capital costs at the RWQCP are allocated based on each partner agency’s fixed contractual capacity rights , unlike operating costs, which vary annually based on usage. Each agency purchased a defined share of the RWQCP’s treatment capacity – measured in million gallons per day (MGD) – and committed to funding its proportional share of capital improvements . The current allocation as shown in Table 1 below.
Table 1: Maximum Flow Capacity Allocation and Cost Share of $31 Million Project Costs
Item Mountain
View
Palo
Alto
Los
Altos
East Palo
Alto
Stanford
University
Los Altos
Hills Total
Flow Capacity Rights
(mgd) 15.1 15.3 3.8 3.06 2.11 0.63 40.00
Allocated Share
(percent) 37.89% 38.16% 9.47% 7.64% 5.26% 1.58% 100.00% (million $) $11.7 $11.8 $2.9 $2.4 $1.6 $0.50 $31
Addendum No. 14 would authorize Palo Alto to facilitate a line of credit for itself and its partner agencies to finance the projects. The City of Mountain View will not participate in the line of credit arrangement because it has sufficient funds in the Wastewater Fund to cover its $11.7 million cost -share obligation. By making its contributions in cash, Mountain View will avoid financing costs associated with the line of credit obligations.
Due to Palo Alto’s projected cash flow needs, upon Council’s approval of the addendum, Mountain View will make an initial $2.0 million cash payment upon execution of Addendum No. 14 by all the partner agencies, and Palo Alto executing a vendor agreement for one of the listed Addendum No. 14 to Regional Water Quality Control Plant Basic Agreement September 22, 2026
projects. Thereafter, Mountain View will pay its respective share of Project Costs through the regular quarterly billing process.
LEVINE ACT
California Government Code Section 84308 (also known as the Levine Act) prohibits city officials from participating in any proceeding involving a “license, permit, or other entitlement for use” if the official has received a campaign contribution exceeding $500 from a party, participant, or agent of a party or participant within the last 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to- play-limits-and-prohibitions.html.
Please see below for information about whether the recommended action for this agenda item is subject to or exempt from the Levine Act.
EXEMPT FROM THE LEVINE ACT
☒ Contract between two or more state or local government agencies
ALTERNATIVES
1. Do not approve Addendum 14 to the Basic Agreement and direct staff to request Palo Alto to consider additional alternatives for funding the Projects.
2. Provide other direction.
PUBLIC NOTICING—Agenda posting.
Prepared by:
Lisa Au
Assistant Public Works Director
Approved by:
Jennifer Ng
Public Works Director
Audrey D. Seymour
Assistant City Manager