City Council Agenda Report
TO: Mayor Clauzel and Members of the City Council
FROM: Fernando Ulloa, Interim City Manager
BY: Mike Willett, Public Works Director
MEETING DATE: December 3, 2024
ITEM NO: 6.8
SUBJECT: Approve Resolution No. 2024-69 of the City Council of the City of Patterson Declaring Intention to Reimburse Expenditures Relating to the WWTP Expansion Phase III Project from the Proceeds of Tax-Exempt Obligations.
RECOMMENDATION
Motion to Approve Resolution No. 2024-69 of the City Council of the City of Patterson Declaring Intention to Reimburse Expenditures Relating to the WWTP Expansion Phase III Project from the Proceeds of Tax-Exempt Obligations.
BACKGROUND
The City of Patterson (City) provides wastewater collection, treatment, and disposal services via the Patterson Wastewater Quality Control Facility (WQCF) for the land within the extents of the city. The existing WQCF receives wastewater from the city as well as Diablo Grande, a residential community approximately eight miles southwest of Patterson. The City’s current estimated population is 25,063 as of 2023, with 7,008 sewer service customers (6,724 residential connections and 284 commercial/industrial connections. Wastewater treated at the WQCF is primarily from residential sources.
The city is considering undertaking a capital improvement project for the City’s public safety center. It is anticipated that long-term financing will be required, and the city will desire to utilize the tax-exempt municipal bond market for the financing.
The latest cost estimate obtained for the Wastewater Treatment Plant Expansion Phase III project totals $20.1 million dollars. The planned expansion will increase its treatment capacity to manage up to 3.7 MGD between the three treatment systems and to maintain effluent quality for future population growth. The expansion will also include the installation of a membrane bioreactor (MBR) superstructure, with a focus on water reuse and recycling. The MBR is an ideal process for recycling municipal wastewater in space limited locations because of its compact size, its ability to produce reusable water and trouble-free operation. As a result of this expansion the city will not yet be able to produce recycled water, however it will be better prepared to do so in the future.
ANALYSIS
In order for bonds to be issued tax-exempt the City needs to comply with certain IRS requirements. The IRS allows a bond issuer to use the proceeds of its bond issuance to reimburse expenditures made prior to the time bonds are issued, but only so long as the City expresses an intent to do so prior to the actual issuance of the bonds.
A reimbursement resolution is necessary to initiate the City’s intentions to use bond proceeds to reimburse itself for costs it actually pays prior to the issuance of bonds. It then can use the bond proceeds to reimburse itself for costs of the project paid up to 60 days prior to the date the resolution is adopted, subject to certain limitations, the main one being: reimbursement (bond issuance) must occur not later than 18 months after the later of (I) the date on which the expenditure is paid, or (ii) the date on which the project is placed in service, but in no event more than 3 years after the expenditure was paid. No reimbursement resolution is required for reimbursement of soft costs (with a 20% limit for soft costs older than 60 days prior to the resolution) or if a developer, rather than the city, is to be reimbursed. The resolution is not required for reimbursement of “soft” costs (e.g., design, environmental review), however, it is good practice to adopt the resolution well in advance of the expenditure of “hard” costs (e.g., construction, utility relocation).
In order to reimburse the proceeds of the proposed tax-exempt bonds, the city has been advised by its bond counsel that the Council should adopt a resolution indicating the City’s intention to obtain reimbursement for costs incurred to date. There is no consequence to the City if bonds are not issued. If the financing does not proceed there is no adverse consequence to having passed the resolution.
The proposed resolution meets the IRS requirement enabling the reimbursement for prior expenditures, if any.
FISCAL IMPACT
The total estimated project cost is $20.1 million. The majority of the funding, 92%, for this project will come from development as expansion will accommodate future growth. The remaining 8% is the City’s share as the upgrades included with the expansion will address current system deficiencies. $18.4 Million from development (CFDs) and $1.6 Million from City funds. To date, the City has funded plant upgrades/SCADA system, and design costs for this project in the amount of $1.8 Million.
The city has identified the following funding sources for this project:
Residential (Villages of Patterson) CFD 2018-1 (Fund 179) = $5 Million (Bond Proceeds) Residential (Baldwin Ranch) CFD 2022-2 (Fund xxx) = $1 Million (Bond Proceeds) West Patterson Business Park CFD 2005-1 (Fund 191) = $14.1 Million (Bond Proceeds) Self Help CFD Pre-Payment = $327,237
Funding Plan Grand Total =$20,427,237 *(Construction, Contingency, and Project Management included)
The City is seeking Council approval of the attached resolution to allow for reimbursement from Bond Proceeds in the amount of $10 Million. This amount would reimburse for costs incurred to date for design and SCADA system improvements. These funds were expensed out of the City’s Sewer CIP funds 606. The City may use some combination of funding as the funding becomes available. The VOP CFD may need to reimburse the other funding sources for this project such that is will contribute up to $12 million towards the wastewater plant expansion as originally intended.