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City Should Use 'Water Settlement Funds' to Help Fund City Yards Project, Finance Director Says

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By Jorge Casuso

January 6, 2017 -- Santa Monica's finance director is recommending that the City spend $64 million in "water settlement funds" to complete the City Yards Modernization project, according to a memo sent to the City Council last month.

The December 18 information item from Finance Director Gigi Decavalles-Hughes said $66 million in unrestricted funds remains from four major settlement agreements with companies sued for contaminating the City's water supply.

The City has already used $56 million of the unrestricted settlement funds on non-water related projects, including the new Services Building being constructed behind City Hall and the first phase of the City Yards Modernization project.

The bulk of the settlement funds -- which total $345.9 million -- has been used to satisfy various settlement obligations, including building and operating water treatment facilities and treating groundwater to meet drinking water standards, Decavalles-Hughes said.

The settlement agreements "do not expressly restrict the use of the settlement funds or the timing of the use of the funds," she said.

As a result, the City "has full discretion to utilize the settlement funds for any purposes, as long as the City continues to satisfy the City Settlement Obligations."

In the current biennial budget, the Council approved $50 million in water settlement funds to fund the design and construction of the first phase of the project to modernize the City Yards's aging structures, Decavalles-Hughes said.

"If the City were to bond for this money, the total cost in today's dollars would be approximately $205 million, including interest, rather than $114 million," she said.

"Because annual funds are not available, the City would be required to divert up to $6.9 million per year away from services to pay the debt service."

The major settlements reached between 2003 and 2012 stem from lawsuits filed by the City in 2000 that charged that Shell, ChevronTexaco, ExxonMobil and other companies contaminated the City’s water in West Los Angeles with the gasoline additive Methyl Tertiary-Butyl Ether (MtBE).

The contamination affected five of the City’s 11 wells and led to the loss of much of Santa Monica’s drinking water, forcing the City to import water from the Metropolitan Water District.

While the settlement was a windfall for the City, it also came with the largest legal bill in Santa Monica's history -- $55 million -- paid to attorneys who assisted in the lawsuit ("Santa Monica Agrees to Pay Record $55 Million in Legal Fees," March 13, 2008).

Finance staff will update the Council at its January 9 meeting on the state of the Water Fund, Decavalles-Hughes said.


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