ABOUT US
About us 
Contact Us 
Subscribe 

Search Site

The City Council inched closer to a deal, but farther away from each other during the at times contentious special meeting to finalize the contract to construct the city’s largest public works project ever.

By Peggy Kelly

Santa Paula Times

The City Council inched closer to a deal, but farther away from each other during the at times contentious special meeting to finalize the contract to construct the city’s largest public works project ever. The Council voted 3-2 to pursue alternate financing at the April 28 meeting that could cut the financing cost of the new wastewater treatment plant by as much as $18 million, with the holdouts - Councilmen Dr. Gabino Aguirre and John Procter - voicing concerns that PERC could successfully fulfill the terms of the contract.

City Manager Wally Bobkiewicz said that the city could invest $8 million culled from the utility’s reserve funds and either buy out the plant in five years or even before the end of the construction of the plant, which must be operable in September 2010. The city is under the gun to break ground on the plant by July 15 to meet the mandates of a court decree resulting from years of polluting discharges into the Santa Clara River. In September the city paid more than $400,000 in fines and Attorney General’s Office legal fees, and agreed to apply the balance - about $8 million - to a new plant.

The Council heard from several citizens who questioned the deal with PERC that secured the contract - also on a split 3-2 vote - at the April 15 meeting, when the total cost was $22 million more than competitor Veolia, which has experience in the MBR technology selected by the Council. Both PERC and Veolia offered about the same $58 million price tag for the plant.

The Council split was evident early on after presentations by Project Manager Cliff Finley - who told the Council that with PERC’s smaller footprint less land would have to be acquired by the city - and City Attorney Karl Berger, the latter who noted that negotiation concerns centered on contracting entities, consent judgement/limiting liability, payment in the event of default and municipal financing.

PERC has proposed Santa Paula Water Services LLC that would be the entity the city would contract with, “common with private development,” said Berger. “The concern lies with the guarantor,” which would be National Water, which would become a “wholly owned subsidiary of Alinda” investment fund.

Putting the issue in simple terms, Berger said that if a bank puts bank credit on the line, in the case of bankruptcy the bank’s assets would be utilized. If Alinda goes bankrupt, “this set-up seems to limit Alinda’s liability with an entity that” is unknown and could have other responsibilities for the funds.

“Obviously,” said City Manager Wally Bobkiewicz, “this is problematic, the biggest issue.” Although Alinda has a plan, and Bobkiewicz said that the city had learned in the last hour that Alinda would be coming forward with a bank letter of credit, the issue still needs examination.

Councilman Ray Luna said such actions are “pretty common in development, that banks provide letters of credit to develop property,” and that assets could be retained and held.

That an is issue, but it’s “currently not on the table,” although Bobkiewicz said he expected something more concrete in coming days. “We want to know there’s a ‘there’ there,” and staff must do due diligence to be assured that something is there, said Bobkiewicz.

“It’s disappointing to hear that,” noted Mayor Bob Gonzales.

Aguirre said it was more than disappointing: “I think it is indicative of a company that does not have experience in this area to make up the game plan as they go along,” especially with the amoung of funding involved and the company’s experience. “They’ve never built one of these facilities before” using MBR technology, never been involved in financing same before, and never worked with Alinda, who Aguirre said “is making it up as they go along,” otherwise they would come forward with explicit details. “I’m very disturbed that at the 110th hour they’re adding one more piece,” Aguirre added.

When Alinda was questioned about the formation of National Water and “why not just Alinda,” Bobkiewicz said the reply was tax reasons.

You don’t finalize financing until the deal is done, noted Luna, and Vice Mayor Ralph Fernandez said, “I think this shows they understand the complexity of the project and it’s up to us” to negotiate same; and the process will continue.

Procter said he was “bothered” that such discussions were talking place at the last minute.

Berger said his next biggest concern centered PERC’s proposal to limit liability to the amount of potential penalties mandated by the court for construction delay and their offer of $5 million in insurance, a figure that Berger said could be far short of actual damages that would be shifted to the city. Fernandez asked if the city could obtain more insurance paid either by PERC or the city, and Berger said the issue goes back to whether the guarantor has liability and will take same.

“I don’t think it’s the business of the Council to incur more cost on the ratepayers,” said Aguirre, who noted that at one time PERC had said they were willing to assume all damage, “It’s on the tape.”

Berger said another concern is that PERC is seeking a default termination fee in the event the city terminates the contract for cause, which, in essence, “would make PERC whole without regard to its default,” which if implemented would mean that the “city would be paying the same bill twice.” PERC is also unwilling to add any language regarding municipal financing until the Council gives direction on same, another concern listed by Berger.

A consulting attorney told the Council that part of PERC’s explanation is that “they need to know sooner than later,” due to the possible impact on construction deadlines.

City Finance Director John Quinn listed four financing options and impacts on residential rates, and how the city’s purchase of municipal bonds - Quinn noted they were 4.9 percent and insurance and costs would add about 1/2 percent more - and different plant buyout rates would impact same.

Mayor Bob Gonzales questioned the use of development fees and how same could be used to bring costs down.

After more financial questions, Luna objected and brought up a letter that criticized the Council majority decision to contract with PERC written by Procter that had appeared in the county newspaper that day.

Bobkiewicz said that the financing depends on Alinda’s partnership with PERC, and if that unravels - as it might if the city wants to purchase the plant using municipal bonds in October - or they must craft an alternate plan, it would impact the start of construction.

Fernandez said that a city plan to buyout the plant in October using municipal bonds would be “most beneficial to us.”

Several PERC representatives noted that financing has to be agreed upon that also offers them security, and Vice President Steve Owen told the Council that the first conference call had occurred between city, PERC and Alinda attorneys that morning and that the agreement is “moving day by day.” Communications have been delayed due to the company “working tirelessly to make this happen and covering all the bases,” Owen added.

Luna asked PERC if there is any aspect “you can’t meet,” and noted, “You have had to work a little harder. It’s taking you longer because you have to adjust; we’re still negotiating,” and that PERC had been asked to craft a financing plan similar to Veolia’s. “Once again I want some assurance that everything that staff has talked about in regards to liability, in regards to financing and also to the deadlines have been resolved” to finalize the contract May 5 and break ground July 15.

Berger said that although a conference call had been requested for the previous Friday, “they were not available” and that is why it had occurred the morning of the meeting. Berger asked for direction on “some issues, major concerns I have on the contract,” and he expressed doubt that the contract could be finalized in a week.

“My job is not to look at the glass as half full or half empty, but empty... I bring to you what I think the worst scenario can be,” and Berger disputed claims that he has not worked with PERC and Alinda. And, he noted, “I don’t work for PERC and Alinda; I work for the city.”

Bobkiewicz said the city had received a memo from PERC at 6:30 p.m. that contradicted some of their statements. “We heard at 7:45 p.m. that it could be done in a week,” but the letter states if alternate financing is utilized there would be delays in the execution of the contract as well as the construction, and Bobkiewicz said staff is trying to determine what is transpiring.

During public comment Lydia Garcia questioned the costs of the deal and the Council selecting PERC. “I personally believe if you qualified bidders the citizens deserve the lowest cost,” and Ginger Gherardi questioned spending more each month to enhance police and fire services, “rather than on a building that no one, other than the people working there, will see,” referring to comments by some Council members supporting PERC who noted their superior design.

“If it was an attractive public building that people might gather in” it would be different, but Gherardi also questioned legal parameters for the award of the contract. “I ask you to pay not one penny more than absolutely necessary,” noted Gherardi, to meet state requirements and the court decree.

“I ask why a company” with the least experience and higher costs received the contract, said Jess Victoria.

“I still believe Veolia has provided the best value for ratepayers,” said Veolia Vice President Robert Ashfield.

The costs would not justify a plant that would not be “on the tourists’ trail,” said Peter Wright. Andrew Castaneda disagreed, supporting the Council majority and noting that low bids can go up during construction and that PERC’s initial financing plan offered known payments not “subject to change.”

“The first I thing I was going to ask is how pleased I am with the third BAFO (Best and Final Offer)” said Procter. “Not at all,” as the Council was given assurances that PERC and Alinda were going to consider financing with municipal bonds, and their options were offered out of “last minute desperation.”

Veolia had offered conventional financing as well as city financing, and was criticized “because of their creativity to give an option” and they are financially secure enough not to need financing revenues. “The direction to staff was to encourage creativity and get the best deal for Santa Paula,” and Procter suggested Veolia be allowed to enter a counter bid.

The Council majority acted “recklessly giving the contract to someone with higher prices and less experience,” said Aguirre, who noted that from the “very beginning” PERC had assured the city that deadlines would be met, and “here in writing” they stated a change in financing may delay the starting date. After questioning other aspects of the contract, Aguirre said he “finds a hesitancy” on the part of the Council to be in control and he fears the meeting of May 5 will not bring changes.

“At this point, in my mind, there is no incentive for them to negotiate a lower figure,” added Aguirre. “We’re in a bad place; we’re facing deadlines and we give them no incentive,” an issue he believes has always been absent.

“They know if it’s not started on a certain date” the city could face fines, and “to avoid those fines we need to sign on the dotted line. I’m very concerned,” said Aguirre, “about the direction we’ve taken and the situation we find ourselves in.”

Luna objected, and noted that rates have come down during negotiations; and Bobkiewicz said they have under three of the four financing options. “In regards to” Aguirre’s statements about lack of experience, Luna said PERC has constructed 21 plants; although they do not use MBR technology, their plants, “like Mayor Gonzales said months ago, are off the shelf.”

Several major factors that Luna said are beneficial to the community influenced his decision, and for the television cameras he displayed the city’s existing plant, noting that the Council had ordered a stop to the conventional plant when it was at 60 percent design. “This is a plant from PERC,” and as Luna held it up for the camera he noted that, “granted, a speaker said it’s not going to be a tourist attraction, but I beg to differ... this plant here would bring engineers from all over the world; we will be the host to all those professional engineers” and gain the approval of those who live nearby.

Luna again questioned PERC representatives and asked for assurances that they would comply with the city’s contract sticking points, which were given. The PERC plant is superior and the city will save money, he added.

“We need to protect the city and I think we’re close,” said Fernandez. Veolia’s proposal offered financial risk according to the consultant’s report that noted that bond rates vary, and “We continue to get a better deal” as negotiations progress.

“I am very concerned about the divisiveness of the Council; we need to come together and stop this name calling,” Fernandez said. And staff must “come back down and say this is a business deal and get the best deal for the city.” Fernandez said he strives to get the best deal with the lowest risks for the city, and is confident that the issues will be resolved by the May 5 meeting.

The concerns expressed by the city are his concerns, said Gonzales, who noted that if the plant had been built 10 years or even five years ago the costs would be less. “The reality is this is the hand we’re dealt” and, he noted, resolution must be reached.

Fernandez made the motion to go with the option to buyout the plant in October using municipal bonds. After more discussion, Fernandez urged that city staff negotiate with PERC to reach an agreement.

Negotiation can be done till a person is “blue in the face,” but Berger said the goal is a contract that can be signed off on.

After more discussion, Fernandez went through the list of seven issues in the motion and said he sought change, including language to have Berger “work with PERC and Alinda to resolve the issue of sufficient assets,” and an agreement that works towards retention of same. “I want a bit of negotiation in there, not a one-sided negotiated,” which would also apply to the issue of PERC liability to pay all damages associated with deadlines and not just penalties.

“Include damages that are their fault or the city’s fault,” said Luna. The deadlines are wholly related to construction and design and there would be no fault on the part of the city, noted Berger. Luna said he wanted clarification that PERC would only be liable for damages incurred through their fault, as delays not under their control could occur.

Fernandez was questioned by Berger on wording on several other motion components, and Aguirre asked that deadlines be set for the submittal of material, as “I want to be able to look at it and be comfortable with all the information I need to make a decision that night,” a remark that kicked off objections from several Councilmen. Bobkiewicz said that ideally all information would be finalized by Friday in order to allow weekend work on staff reports.

“We’ve been at it for months... at this point it’s time to call in the chickens and get it done,” said Aguirre. “We don’t want to finance another financing strategy” at the benefit of the vendor, as “when we do that it puts our community at risk.”

Procter said language regarding “working with” PERC in the motion would dilute negotiations regarding “red flags he brought up... these are the things our hired professional told us should be absolute requirements,” and the proposed language in the motion sends a message that such issues are “negotiable” when they are not.

After more comments, Luna said Procter’s suggestion to reconsider Veolia is misguided and that the company wanted to “use a larger footprint, that’s millions of dollars right there,” and that the bid lacked electrical consumption costs.

Bobkiewicz said such costs were included in the Veolia bid. “Show it to me,” said Luna. “We can,” noted Bobkiewicz. “Pull it out,” Luna snapped, but Gonzales urged order and a return to business.

Aguirre said the reworded motion is a “waste of time... if we negotiate with a company we have to take the gloves off. Saying we’ll work with you on this and work with you on that,” goals will not be accomplished.

The motion on the reworded motion passed 3-2, and failed 3-2 to accept an offer from Veolia. “It’s not appropriate at this time,” said Fernandez. “If things fall apart” it can be reconsidered. “I have some concerns we’re not negotiating in good faith.” And “muddying the waters,” he added, is not appropriate.

Procter noted that Veolia has offered the best deal all along, but Fernandez disagreed, noting that the statement is “false and wishful thinking.... I don’t agree that Veolia had a better deal,” and there were a “lot of black holes down that path.”

“I invite Santa Paulans to stay tuned” as the Council, said Aguirre, decides their future.