Bay News Morro Bay News

Rates to Jump 28%  With New Sewer

By Neil Farrell

Morro Bay’s proposed new sewer project has a new cost estimate, and residents now have a better idea of how much the rates will go up, as the City of Morro Bay sets the dates for a vote by ratepayers to see if they’re willing to pay for it all.

At a public workshop held June 23 in the Community Center, about 75 residents gathered to get information from the City’s new project team and see for themselves if the charges being proposed are indeed “reasonable,” as a Blue Ribbon Commission of citizens tasked with reviewing the project has concluded.

The City’s newest cost estimate is now down to $126 million, as overall costs for a new treatment plant and water recycling facilities.

City staff said a residential property owner using 5 units of water a month would pay $191 a month, or about $2,300 a year and more than $68,000 over 30 years. The proposed new rates amount to a 28% increase ($41) over the current rate structure.

Use just one water unit a month and the bill will still be $162, according to the City’s information. Use a lot of water, like 10 units in a month, and your bill would be a whopping $233 per month.

But this is all still considerably less than the $249 a month (for 5 units) the City was proposing in 2017 when its project cost estimates topped $167 million.

Contacted June 29, City Manager, Scott Collins said the rate hike for commercial customers would be comparable to the residential increase or about 28%. But commercial rates depend more heavily on volume of water used and on the type of business. It’s projected that commercial users would pay 30% of the total costs and 70% for residential customers.

Collins, explained at the workshop that the costs have dropped as the City has better defined its project, and after awarding a design-build construction contract for the treatment plant at a maximum price of $69 million by Black & Veatch/Filanc who were the winning bidders.

Exact costs for the conveyance system to pipe the waste from Atascadero Road, where the gravity-fed collection system comes together, to the new plant above the terminus of South Bay Boulevard, plus the wastewater recycling system, are still inexact, but they have some good estimates from the design work being done now.

Also, the decommissioning and demolition of the old plant on Atascadero Road was removed from the project. That will add about $1.5 million to the City’s total (this overall cost would be shared with Cayucos Sanitary District).

As it’s being presented, the new rates call for a $41 “surcharge” for the new sewer/recycling facilities, on top of the current rates, which were increased starting in 2015 to pay for a new plant, and to cover repairs and improvements to both the water and sewer systems, as identified in previous management plans.

The 2015 rates had built-in increases every year for five years with an increase this past July 1 and again in July 2019. Under that schedule the rate for a user of five units a month would be $150 starting in July 2019.

According to a pie chart provided by the City Finance Director, the City plans to borrow $60.17 million from the federal government’s “Water Infrastructure Finance & Innovation Act” or WIFIA loan program; use a $10.3 million State Revolving Fund (SRF) loan — which the City has already secured but hasn’t tapped yet; $22.78 million in cash collected through the sewer bills and $4.84 million in water fund cash; and then sell some $24.7 million worth of municipal bonds.

However, the City hopes to be able to further tap the SRF program for up to $29 million more (at an interest rate of about 2%), which would cut the necessity of selling so many bonds, which carry the highest repayment interest rate (4.5% to 5%, according to Collins) in the financing scheme.

The SRF loan program has about $1 billion to spend, but about $6 billion in requests for funding, according to the City’s rate setting consultant, Alex Handlers of Bartle & Wells Associates, who calculated the proposed new rates.

City Finance Director Jennifer Calloway said the WIFIA program only allows borrowing 49% of a project’s total cost (at 3.5%, over 35 years), explaining why the initial $82 million loan offer has dropped to $61 million.

Also, WIFIA is requiring innovative solutions, and the water-recycling portion of the project is what got the City’s application noticed, as just one of 12 nationwide accepted for the program.

There is still some uncertainty about the recycling part, as hydrogeological testing is underway. It must be determined how much water the shallow basin can handle, and how long it will take for injected wastewater to travel through the ground to the new wells.

The City’s project now calls for tertiary treatment of the wastewater, plus advanced micro-filtering/purification, and then piping the effluent to somewhere off Little Morro Creek Road for injection into the ground.

New extraction wells will have to be dug on the west side of Hwy 1 to extract the water again, where it would then be sent to the existing reverse osmosis, desalination plant on Atascadero Road for treatment along with water from the wells at Lila Keiser Park. The water would then be piped to the Kings Street tank farm across town, before being pumped to residents and businesses.

And what happens if the water basin proves inadequate for the task of recycling the City’s wastewater? There’s been no other option disclosed at this time.

As the project breaks down at this point the treatment plant will cost $62.9 million for construction, $8.4 million in “soft costs” (i.e. review and permitting); and $3.1 million for reserves for a total of $74.4 million.

The conveyance system to get the effluent to the new plant and unusable discharge back to the old site is $21.08 million for construction; $2.8 million soft costs; and $2.34 million for reserves. The total financed amount (covered by the rates) tops $117.74 million, plus the $5.15 million already spent since March 2013, for a total of $125.9 million, according to information in a June 28 staff report, and the fourth different total cost figure the City has put out in recent weeks.

How the rates were broken out in yet another City chart were: $123 million for the sewer project, $6.8 million for repairs to the existing sewer collection system, $5.1 million for repairs and improvements to the water system, and an undisclosed amount for operations and maintenance.

Those system repairs and improvements are spelled out in yet another City plan, the so-called “One Water Plan.”

The Blue Ribbon Commission’s report sides with the City on the rates, concluding, “Based on the information provided to the Commission for analysis at the time of this report, the Commission considers the City’s rate proposal to be reasonable.”

So now it all this comes down to the Prop. 218 vote.

City Manager Collins said the project team will return to the city council on July 10 with a rate schedule that “front loads” the costs for the new project, i.e. charges the full $41 (28%) increase in the first year, instead of phasing it in.

The Council also wants to set the payments on a monthly billing basis instead of putting the charges on property tax bills, and Collins said they were told to go ahead with applying for the WIFIA loan and paying of a $25,000 filing fee.

Collins said the Prop. 218, 45-day voting period would start when they mail out notices, likely to be July 11. The public hearing comes at the end of that time period, possibly Aug. 28.

Collins said it was “important that it’s clear what it is,” with regards to the notices that will be mailed out. They plan a separate mailer but must make sure it isn’t easily discarded as junk mail, he added. They will also send out reminders during the voting period.

And residents won’t have to use the sample ballot they’ll be getting and can use a hand-written note, so long as it contains the pertinent information, like name, assessor’s parcel number, date, a statement of protest, and a signature that indicates the signer knows what they’re doing and is the eligible person to represent the property.

The pre-printed protest ballots are just a convenience, Collins said. Protest votes have to be turned in to the City Clerk in City Hall or delivered by hand at the public hearing in August.

Opponents of the project will have to get 50-percent plus one vote against the proposed rates to defeat the City, otherwise the rates are automatically adopted, and the project — the uncertainty of the recycling scheme aside — will essentially be a done deal.

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