Council approves bonds for WWTP
purchase, lower rates anticipated

April 10, 2015
Santa Paula News

It took almost exactly seven years but the mayor said the city finally got it right at Monday’s meeting where the City Council authorized issuing $72 million in bonds to buy the long-controversial wastewater treatment plant from the private entity that owns and operates it. 

The original 2008 deal to use the Design-Build-Operate-Finance model for the facility according to the city’s bond consultant resulted in “A very complex and obtuse contract,” with Santa Paula Water LLC.

The bonds are expected to be in place and sold by April 30, the same day the $70.8 million purchase deal closes on the plant.

Initially approved in February, the purchase with bonds estimated to have about a 3.75 percent interest rate means residents will see lower bills; the $62 million plant has required users to cover the 8.21 percent variable rate the facility was initially financed for by the builder.

Also gone is the potential $600,000 annual tax the city could have been accessed for the improvement on its property located southwest of Corporation Road. 

Santa Paula households, among the lowest income in the county, are now paying a base rate of $77 and change for sewer services as well as a $1.12 sewer processing surcharge for every 100 cubic feet of water (about 748 gallons) used, whether it is processed or not.

Owned by Santa Paula Water LLC, the plant was financed by Alinda Capital Partners and built and operated by PERC, which has a $940,000 “break fee” contract cancellation clause and will continue to operate the plant for the time being. The plant can be run by an iPad with minimal staffing and operators — or making the function a city one — will be examined in the future through a bid process.

City Manager Jamie Fontes said the council action was a “milestone” and “monumental decision” on the part of the council that will benefit the ratepayers, now charged one of the highest city rates in the state.

Initial savings to residents is estimated at just over $20 a month, a figure that could go higher with a new operating agreement.

Terry Mass of FirstSouthwest, who is handling the bond transaction, updated the council on the process and noted municipal bond rates are “very favorable … ”

The process sounds simple but was “extremely complicated,” but Councilman Jim Tovias said he had confidence in Mass.

City Attorney John Cotti “Has borne the brunt of negotiations on the other side,” said Mass. 

And it wasn’t easy: “The Design-Build-Operate-Finance agreement,” as written “is a very complex and obtuse contract,” and Mass said, “everyone that looked at this from here to there in the pantheon of important people have said this is a contract that absolutely needs to be gotten rid of.”

The DBOF for the Santa Paula wastewater plant was the first — and likely the last — in California. Design-Build-Operate-Finance was a business model that did not catch on due to the rates that would have to be borne by ratepayers. The Santa Paula facility — approved in April 2008 and online by 2010 — was Alinda’s last remaining water asset after the investment company announced its departure from that line of business in 2012. 

Only Mayor John Procter was on the council when the controversial deal was struck in 2008; the council split 3-2 on the contract after repeated urgings of city staff to stick to conventional financing. The council majority also rejected the staff’s recommendation to contract with a company offering to build the plant for about $22 million less, a reduction in cost later matched by Santa Paula Water.

When the vote on the bonds to finalize the wastewater treatment plant purchase was asked for Procter said, “Absolutely yes … ”

Later he noted, “I waited a long time for this, it’s a great feeling for me.”





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