PISMO BEACH CITY COUNCIL and
PISMO BEACH PUBLIC FINANCING AGENCY
STAFF REPORT
Agenda Item #12.B
Meeting Date: May 21, 2024
TITLE:
Central Coast Blue Membership and Related Actions
RECOMMENDATION:
1. Direct staff to prepare and submit a request to the Central Coast Blue Regional Recycled Groundwater Authority (Authority) a formal request that the Pismo Beach Public Financing Agency be admitted as a member agency of the Authority;
2. Appoint the Public Financing Agency Board Vice-Chair as the Agency’s representative to the Authority Board, contingent on approval of the Agency’s membership;
3. Direct staff to work with current Authority staff to request that the Authority Board make a recommendation to the cities of Arroyo Grande and Grover Beach to amend the Joint Exercise of Powers Agreement (Agreement) as follows:
Change the existing water purveyor contributions to reflect a contribution of 100% from the City of Pismo Beach, to reflect the withdrawal of the other city partner agencies;
Remove the provision that prohibits a member agency’s Attorney from serving as the Authority Attorney, in order to allow Pismo Beach’s City Attorney to serve as the Authority Attorney;
4. Direct staff to work with current Authority staff to request that the Authority Board adopt a resolution, contingent upon amendment of the Agreement to add the Pismo Beach Public Financing Agency as a member, appointing the following City of Pismo Beach staff as the new corporate officers of the Authority:
General Manager: City Manager
Authority Attorney: City Attorney
Authority Treasurer: Administrative Services Director Clerk of the Board: City Clerk;
5. Authorize the City Manager, acting as General Manager of the Authority, to execute an amendment to the Agreement providing that the cities of Arroyo Grande and Grover Beach be permitted to withdraw from the Authority as of June 30, 2024, in lieu of the 180-day waiting period prescribed by Section 8.2 of the Agreement;
6. Contingent upon the Authority Board’s actions with respect to the above items, direct staff to return thereafter with a joint meeting agenda item including the following:
Acceptance of the Authority Board’s recommendation for amendments to the Agreement;
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Consideration of an Amendment to the Agreement, to formally effect the changes, including authorization for the City Manager / Executive Director to execute the Amendment;
Consideration of a budget resolution allowing the City of Pismo Beach to reimburse the cities of Arroyo Grande and Grover Beach for the value of their respective shares of the real property held by the Authority;
7. Direct the City Manager / Executive Director to take any further administrative or executive steps necessary to keep the Authority operational during the departure of Arroyo Grande and Grover Beach and the addition of the Agency;
8. Direct staff to coordinate with current Authority staff and City of Grover Beach staff, as needed, to wind down the existing agreements between the Authority and Grover Beach for financial and IT services; and arrange for the transfer of the Authority’s records to Pismo Beach’s control;
9. Direct staff continue to pursue the viability of the Central Coast Blue project on a mid- to long-term basis, exploring any available options.
DISCUSSION:
The City of Pismo Beach is a member of the Central Coast Blue Regional Recycled Water Authority, a Joint Powers Authority (JPA), entered into by the cities of Pismo Beach, Arroyo Grande, and Grover Beach for the purpose of operating and managing the Central Coast Blue regional recycled groundwater project at the conclusion of construction of the facility.
Phase 1 of the project included the construction of an Advanced Treatment Facility, treatment of secondary treated flows from Pismo Beach’s wastewater treatment plant, construction of injections wells and associated transmission lines, and injection of flows from the Advanced Treatment Facility. The project would have created approximately 900 to 1,000 acre-feet of additional water per year.
During the development of the construction plans and specifications, the City of Pismo Beach, as the lead agency for construction of the facility, was notified by the State of California of the loss of $10 million of a previously-promised $15 million grant. This represented approximately a 10% cost impact to the project. The project was one of nine other similar projects that received this notification throughout the state. In addition, the design firm for the City, Water Systems Consulting, provided a revised construction cost estimate that was an increase of approximately 40% over the originally-projected cost, for a revised construction cost estimate of $146 million.
The JPA member agencies met with the design consultant to look at value-engineering options to control and manage costs, as well as pursing alternative construction methodologies, such as Construction-Manager-at-Risk, to further evaluate ways to bring the cost down to a more manageable level. During this process, the City Councils of Council Agenda 5-21-2024 12.B-2
Arroyo Grande and Grover Beach provided direction to their respective staff to begin the process of exiting the JPA (Attachment 1) as well as the Cost Sharing Agreement among JPA members (Attachment 2). While the partner agencies’ exits were unexpected, as the project was scheduled to bid and an award of contract was anticipated in summer 2024, the City remains committed to water resiliency of Pismo Beach.
For almost 10 years, the City of Pismo Beach has sought an additional water source to add to its existing three sources of water (groundwater, Lopez Lake, and State Water Project). During that time, studies and alternative analysis have been conducted to determine the most probable and cost-effective approach to secure a new water source.
An indirect-potable water recycling project, like Central Coast Blue, was and continues to be the most viable option. In addition to providing a new source of developed water, it would also prevent saltwater intrusion into the groundwater basin from which Pismo Beach obtains groundwater.
Therefore, staff recommends that the City continue to pursue the viability of the project on an ongoing basis to explore what options are available for the future. This may include a scaled-down version of the project, a phased approach, or other scenarios as may become available.
It is anticipated that the City will continue to collaborate with Arroyo Grande and Grover Beach, as well as seek partnerships with other agencies, as the region looks to tackle water resiliency and reliability.
To effectuate this step, staff recommends that the JPA remain operational upon the exit of the two other city partner agencies, but at a diminished level. This would preserve the option for future partners to join the JPA without having to incur all the startup costs again, and would provide a mechanism to quickly respond to future opportunities as they arise.
The required legislative actions and other next steps to accomplish this goal are outlined below.
Separation of Member Agencies and Addition of New Member Agencies The potential for the separation of member agencies from the JPA and Cost Sharing Agreement was anticipated during the formation of the JPA. As outlined in Section 8.2. of the Joint Exercise of Powers Agreement (JEPA), “ […] any Member Agency may withdraw from the authority by providing the Authority with one hundred eighty (180) days written notice of its intent to withdraw […]”. Therefore, upon notice from the other two city agencies and expiration of the 180-day period, those agencies will be removed from the JPA. This would then leave only Pismo Beach. A JPA, by definition, is a joint exercise of powers, and as such is intended to have multiple parties.
To maintain the existence of the JPA as a separate entity, staff recommends that the City consider adding the Pismo Beach Public Financing Agency (PFA2) as a member of the JPA. In doing so, the City and the PFA2 as separate members would be able to have an operations member and a financing member, as necessary.
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Section 1.1.16 of the JEPA allows for “ […] any other entity added to this Agreement by a subsequent amendment.” Section 8.5 further describes the process to amend the JEPA “ […] by written approval of the governing body of each Member Agency upon recommendation of a majority of the Board of Directors of the Authority.”
While there is no requirement to amend the JEPA in order to remove members, there is a requirement to amend the agreement to add members. Accordingly, staff recommends that the PFA2 request admission into the JPA and that the existing membership effectuate that change prior to the exit of Arroyo Grande and Grover Beach.
Public Financing Agency Board of Directors Actions
In addition to the request for admission of the PFA2 into the JPA, staff recommends the following actions to support such action:
Appoint the Vice-Chair of the PFA2 as its representative to the JPA, upon admittance into the JPA.
Authorize the Executive Director of the PFA2 to execute agreements, amendments, and other actions as necessary.
City Council Actions
Staff recommends that the City Council, as a current member of the JPA, request an amendment to the existing JEPA. The following changes would be included in that request:
1. Allow for a change in composition of the members to add the Pismo Beach Public Financing Agency, while simultaneously removing Arroyo Grande and Grover Beach from the JPA.
2. Change the water purveyor contributions from the existing percentages (39% Pismo Beach, 36% Grover Beach, and 25% Arroyo Grande) to a new contribution of 100% City of Pismo Beach.
3. Modify Section 4.3, which restricts the Attorney for the Authority, who may not be counsel to one of the Member Agencies. Staff recommends that the City’s City Attorney serve as the Authority Attorney.
By allowing the addition of the PFA2, the City can keep the JPA operational without the need to hastily find other partners, and rather be strategic about future opportunities. The removal of the two other city agencies would be consistent with the direction provided by their respective City Councils.
Changing the water purveyor contributions would reflect the city partners’ withdrawal requests. While it was not fully anticipated to have two members withdraw, the potential for dissolution of the JPA was contemplated as it related to the distribution of real property.
In this case, the JPA owns land that was acquired for the project. Upon amendment to the JEPA, the two departing member agencies would need to be made whole for the land acquisition cost, consistent with the existing water purveyor percentages for the acquisitions of the land.
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During the JPA formation, an Attorney for the Authority, as well as General Manager, were both contemplated to ensure that the JPA had its own legal counsel separate and apart from each member agency. However, if the City of Pismo Beach and the PFA2 are the sole members, this provision should be modified because the PFA2 is a legal entity created, controlled, and staffed by the City. In doing so, the JPA would be able to manage and control cost by not requiring a separate attorney, as well as other officer positions.
Utilizing existing staff perform the duties will limit cost, increase efficiency, and ensure responsiveness to the JPA Board. Accordingly, staff is recommending the following appointments, if the JPA amendments are successful:
Attorney: City Attorney
General Manager: City Manager
Treasurer: Administrative Services Director
Clerk of the Board: City Clerk
Staff also recommends that the City Manager be given direction to take necessary steps to remain in the JPA, including execution of amendments, agreements, and other documents. The JPA has minor agreements with Grover Beach for finance and IT services, which services Pismo Beach will start performing as soon as practicable.
Next Steps
The next JPA Board meeting is scheduled for June 3, 2024, which is when it is anticipated that the Board will consider these actions. If the JPA Board recommends these amendments, the three member agencies will then consider acceptance of the amendments at a subsequent meeting. For Pismo Beach, that is anticipated to be June 18, 2024.
Conclusion and Recommendation
Staff recommends that the City Council and Board of the Pismo Beach Public Financing Agency provide direction as detailed in the Recommendation section above.
FISCAL IMPACT:
The fiscal impact of the proposed staff recommendations in this report are contingent upon the decisions of the City Councils of Pismo Beach, Arroyo Grande, and Grover Beach.
The City has directed all work on the design of the project to stop and it only anticipates approving work that is required to pause the project, withdrawal applications, etc. Final invoices are being collected and will be billed and/or credited to the other member agencies as appropriate.
Staff would come back to the Council to appropriate funds based on the Council’s direction.
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ATTACHMENTS:
1. Central Coast Blue JPA Agreement
2. Central Coast Blue Cost-Sharing Agreement
Submitted by: Jorge Garcia, City Manager
City Manager Approval:
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