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City Faces $53 Million Funding Gap for Water Projects

Bob Kronovetrealty
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By Jorge Casuso

March 22, 2021 -- A year after Santa Monica doubled its water rates in an effort to become water self sufficient, the projects to make that happen face a $53 million funding gap due to the coronavirus shutdown.

To bridge the gap, the City Council on Tuesday is expected to authorize the City Manager to seek up to $84.5 million in federal credit assistance.

As an alternative, City staff -- which had already secured $20 million in grants and $75 million in low-interest loans -- is exploring issuing a revenue bond.

"Even with the successful pursuit of grants and loans," staff wrote in its report to the Council, "a funding gap of approximately $53 million for water self-sufficiency projects exists as a result of impacts of the COVID-19 pandemic."

The looming gap is due to declining revenues in the Water and Wastewater Funds, a "potential supply chain issue that may increase the project cost" and the transfer of $24 million to help fill a more than $130 million gap due to the coronavirus shutdown.

Santa Monica is one of 55 cities nationwide invited to apply for the the U.S. EPA’s Water Infrastructure Finance and Innovation Act (WIFIA) loan, which would carry a current interest rate of about 1.9 percent, staff said.

The WIFIA loan would "help the City accelerate future capital improvement projects while minimizing the burden on future water rates by spreading repayment of the investment over the life of the loan," staff said.

The loan requires a $100,000 application fee which would be applied towards the credit processing fee of $300,000 if the maximum $84.5 million loan is approved.

The City also would pay outside consultants -- The Ferguson Group, Public Resources Advisory Group (financial advisers) and Orrick, Herrington & Sutcliffe (Bond Counsel) -- up to $325,000 to help secure the loan.

The consultants would also be retained if the City chooses to issue a revenue bond, staff said.

The water sufficiency project the funds would bankroll would "support an overall water infrastructure that works together to achieve the Council’s goals of water self-sufficiency," staff said.

The projects also would protect Santa Monica Bay from urban runoff and stormwater pollution, create a "drought resilient water supply" for Santa Monica and provide "local cost control of Santa Monica’s water supply."

The search for funding comes some 14 months after the City Council approved new water rates last January that doubled the existing rates over five years ("City Council Doubles Water Rates," January 30, 2020).

Under the new rate structure -- which affects some 93,000 residents and 2,700 businesses -- water and sewer bills increase an average of 17 percent each year over the next five years.

City officials said that even with the "substantial" increase Santa Monica's rates remain among the lowest in the region because half of its water comes from 10 wells the City bought a century ago.

The 2018 Sustainable Water Master Plan Update (SWMP) adopted by the Council is expected to start paying off in 2029, six years after the projects are scheduled to be completed in 2023, staff said.

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