Staff wants lower interest on $44M, 30-year state loan

In an effort to avoid raising sewer rates to offset a $563,000 deficit, city officials will try to renegotiate the terms of the $44 million state loan that paid for the upgrade to Crescent City's wastewater treatment plant.

Officials hope negotiating a loan modification with the state will reduce the city's annual interest rate, said Finance Director Emily Boyd. Crescent City currently pays more than $1 million per year in interest costs on the loan, which extends through 2040.

"What we've said to them is we'd like to reduce that interest rate to 1.7 percent or possibly even lower," Boyd said. "Reducing the interest rate will save us millions of dollars over the life of the loan. This is a 30-year loan, we have 27 years to pay on it."

"You know Susan Mayer, who has been here and has proved her worth to the city," Boyd said. "It will be very important for us to keep on, to continue the investment you've made in her, to use her skill and abilities to guide this project and get it to its successful conclusion."

Under the original $29,715 contract, Willdan was asked to update a sewer and water rate model developed in 2008.

Council members unanimously approved a change to the contract the city has with Willdan Financial, which was hired in March to conduct a five-year sewer rate analysis. The Temecula-based firm will develop a 30-year sewer rate model that city staff can use in its efforts to lower the loan's interest rates. The amended contract will cost the city an additional $26,000 for the sewer study.

The Council also unanimously approved a $7,500 contract with Susan Mayer, who filled in as finance director during Willdan's initial sewer rate analysis in the summer.

But the scope of the study changed due to a couple of favorable developments impacting the 2012-13 sewer budget, one of which was receiving $350,000 in one-time funds.

The city also discovered that $533,000 of a $935,000 Proposition 50 grant it received in 2007 could be used for sewer projects that have been completed and paid for, Public Works Director Eric Wier said. The other $400,000 will pay for a new screening system at the sewer plant.

"This can be viewed as one-time revenue to the sewer fund," he said. "If we didn't receive the Prop 50 grant money we would have to come up with the money somehow to pay for that project and we wouldn't be reimbursed."

Willdan will also be asked to look into changing the sewer rate structure from a flat rate to a consumption-based rate, Wier said.

Willdan conducted the analysis that contributed to the Council's Nov. 12 decision to raise water rates. According to Wier, Willdan went over budget on the study by about $25,000. The company has agreed to absorb $20,000 of that, and the city will pay Willdan an additional $5,000 for the water study, he said.

At the end of a staff presentation Monday night, Councilwoman Kelly Schellong said she didn't understand how Willdan could conduct a 30-year study for $26,000 when its budget for the five-year water rate study overran by $25,000. She said staff should keep better track of Willdan's progress throughout its new contract.

Schellong asked if the city could afford to hire Mayer as a consultant when it already has a new finance director. She also expressed misgivings about the state requiring a 30-year rate model, saying a 10-year plan that had to be updated every decade over the life of the loan would make more sense.

"It took us a good year and a half to two years of having (the sewer plant) in operation for us to get a good handle on what those costs really look like," she said. "For us to put a 30-year plan into place seems like a waste of dollars for us and a waste of time down the road."

In other matters, the Council unanimously approved a $263,972 contract with Franklin Miller Inc. to provide the equipment for the upgraded screening system at the sewer plant.

The Council authorized a $19,900 contract in November with Kennedy Jenks Consulting to select and procure the equipment. City staff will seek bids to install the system starting Jan. 14.

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