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June 14, 1999
Vol. 33, Page 8~
ME~TUTES OF A REGULAR ADJOURNED MEETING
OF THE' PETALUMA CITI' COTNCiL
June 14, 1999
7:00 PM. ROIL CALL
Present: Healy, Torliatt, Cader-Thompson, Hamilton, Maguire, Vice 1Vlayor Keller, Mayor '
Thompson
Absent: None _
FLEDGE GF ALLEGIANCE ~
QATH OF ~FFIGE
The Oath of Office' was administered to Beverly J. Kline as the new City Clerk for the
City of Petaluma.
PIT~LIC COIVIIVIENT
Paul Kilbride, He feels. that the city should provide a place for the homeless to live. He
has suggested the Old Flavors building- and a lot on E. Washington Street .. He would
also like to know where the $3.,000,.000.00 went that COTS received some years ago
for the homeless.
Geoff Cartwright, ~6 Rocca Drive, the Chevron gas station in the area of Denman .Flat
is going to be remodeled to increase the size. He is concerned with the development in
the Denman Flat Area. Several areas are affected by theflooding because of continued.
development. The downtown area is expected to .flood by the- year. 2005. He also
questions the Rainier project which will be built in the middle of the flood platri:
Diane Reilly-Torres, Rainier Avenue, if Rainier is ,going to cost $32.5 million what
funding source will that money come from.
She feels that if the people want Rainier built it should be placed on.the ballot. to let the
people decide. Yes
Counciimember 'Torliatt, clarify,. put it on the ballot with the financing component
behind it so the citizens could tax themselves in order to build it?
Councilmember Healy, do.esn'~t actually recall, talking numbers with Toby (Press
Democrat), but I did refer him to .a new staff report that reflects, the staffls latest
thiriking° on financing options and what the numbers .look like. If you haven't seen. that
you should try to get a copy of it.
Felix Wylie; is concerned with the issue of Councilmember Cader-Thompson decision
to recuse in the matter of the Rainier. He would like this looked .into more thoroughly.
Page 86, Vol. 33
June 14, 1999
1 COUNCIL .COMMENTS
2 Councilmember Caller-Thompson, feels it is a disservice to this community for her to
3 step down. She feels the process with the FPPC is flawed and that she should be sitting
4 at the. dais
5 expressing her opinion, working with her' colleague's on the dialogue and voting on this
6 issue.
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8 Councilmember Keller, spoke with regard to the passing of Marvin Klebe and all the
9 good he has done for this community and the Cinnabar Theater.
10
11 WASTEWATER
12 Fred Stouder, This discussion is to provide the Council and public a status report on
13 the privatization of the wastewater facility plant. Montgomery United Water will make
14 a presentation to Council regarding their proposal.
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16 Don Evenson, Executive Vice President of Montgomery Watson forming Montgomery
17 United Water. Ann Farrell, Technical, and Dan Bishop, Financial Analysts and
18 Economist.
19
20 Don Evenson gave a brief status report starting with July 1996 when the city issued an
21 RFP for the privatization project. In January 1998, the City Council authorized the
22 City Manager to negotiate with Montgomery United Water for the project. It was also
23 clearly known at that time as well as earlier that a public option was needed to be able
24 to make a bench mark comparison between the public and the private project. In
25 September the City Council authorized the Master Plan and that was received in April
26 of this year. During that time not a whole lot went on because the city was busy getting
27 the bench mark for the public project developed and also working on the Effluent
28 Management Plan. We were very active during the March/April period working out
29 and negotiating details of the wastewater agreements. In May the city notified MUW
30 that they also had to include additional storage requirements for the facilities.
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32 Don Evenson brought up five key points for Council.
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34 1. City Council requirement was that their price had to be lower than US Filter's.
35 That has been accomplished by omitting a duplicate amount in property taxes, by once
36 they received a Class B sludge they would pass those costs on and lower rates to the
37 city. So what MLT~V did was to take risk of the sludge classification and put the lower
38 cost in the bid ,price and lastly revised the energy cost because the original calculations
39 had estimated more energy than was really going to be needed in the project and so we
40 lowered those energy costs and from that we ended up with a net present value of our
41 project as submitted back in early 1997 that was about $1 million dollars lower than US
42 Filter's bid price.
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44 2. N1LTW's project meets all the city requirements. Some of the project requirements
45 have changed since the original project bids were submitted. The original project was
June 14, 1999
Vol: 33, Page 87
1 based on hawing a storage reservoir for all reclaimed water, that project was dropped.
2 The city had' requested several, changes in N1U- 'AI's project relating to flow metering,
3 odor control and.' wet. weather storage and they have accorrunodated those changes.
4 NICTW has included a pipeline to the Petaluma -River directly from the treatment plant
~ so the effluent that went to the river would not. have to go through the ponds as
6 mentioned. earlier. The City may ask us to .include a total of 1100 acre feet of storage
7 so we added some additional .facilities to do that and we allowed some of those
8 facilities to go offthe original site that we were constrained to
9
10 in the original bid. The result is, our project changes a little bit since the original bid
11 price in 1997.
12
13 The influent comes in from the right, goes through the. lieadworks, then goes into the
14 treatment plant process which is sized .at 14 mgd. Anything in excess pf that will go
15 into temporary storage until the flow recedes and then goes back into the treatment.
16 process, where it goes through 'the extended aerction system then it :goes through the
17 clarifiers. Then it is filtered and we've used UV Disinfection. The treated effluent at
18 this point during the winter would go to the river, during tFie summer it would go to
19 reuse. Water that for whatever reason couldn't be discharged to the river or reused
20 would be temporarily stored in the ponds as treated effluent and we have also allowed
21 provisions that hopefully that some point in the future the project would have some
22 wetlands for an additional treatment. and disposal alternative. Here's the site of the
23 revised storage plan. You can see That the effluent storage: uses up 8 ponds and we
24 have added a couple of additional ponds to the west. The treatment facilities. would be
25 in the two upper most ponds that are located along Lakeville Highway (Gray property)..
26 Before they go 'into the headworks there would be wet weather storage .provi'd`ed in this
27 pond and then the treatment facilities would b.e located in the bottom of the pond
28 closest to the road.. Largely you wouldn't be able to see tc3 much. of it from the road
29 mainly because it would be submerged at the bottom of the pond. From. an effluent
30 disposal point of view this map or drawing illustrates how the water would be disposed
31 of that would. be effluent coming out of the secondary and tertiary treatment plants
32 through a pipeline down to the location 'where the. existing outfall to the. river is.
33 During the summer time it would go to the reclamation pipeline which then comes up
34 in this direction or it could continue over and go to the dernonstration wetlands.. Any
35 unused water either that wouldn't be discharged or' used by reclamation would go into
36 these ponds and be stored. as treated effluent which would be suitable for wild like
37 habitat it would be filtered; disinfected treated effluent. The key .features, of this
38 treatment process is that it will. produce effluent that is much better than the current
39 NPDES permit requirements. The project is designed to produce what we refer to as a
40 10-10 effluent which. refers to the concentration of suspended solids :and- BOD: I
41 believe the current permit requirements. for the city is 45 and. 30. We will. use ultra
42 violet light for Disinfection. During the winter time the filtered disinfected effluent.
43 would go directly to the Petaluma river, During the summer time the: effluent would'
44 meet all the requirements both current and any requirements that we know of that are
45 currently proposed for Title 22 requirements for unrestricted reuse. As I .mentioned
Page 88, Vol. 33
June 14, 199.9
1 earlier the ponds are used to store treated water they are not part of the treatment
2 process itself. The stored treated effluent could then be if required in the future if reuse
3 requirements. changed it could simply be refiltered and go through the filtration before
4 reuse and it could also be used for wetlands discharge and treatment.
5
6 3. MUW's privatized project can be placed in operation sooner than a public project.
7 The first 6 months would be spent doing preliminary work. Then have about a 10
8 month period where we would meet all the conditions precedent which are listed in the
9 agreement. We would then go into a 22 month design/build phase. In approximately
10 November of the year 2002 the plant would be in operation. The first 14-15 months of
11 the public project is
12 spent in planning and procurement then they go into about an 18 month phase of design
13 and bidding and then a 3 year construction period.
14
15 4. MUW's privatized project costs are lower than the public project due to revised
16 calculations. The result of that was so the two projects were comparable and the city
17 could make an apple to apple comparison on a cost basis. The total capital for the
18 public project .to build is $68.2 million dollars which would be funded by debt service
19 from the city. The estimate of MUW's prig°ately built project capital cost are
20 approximately $54 million dollars. That comes from savings in construction,
21 acquisition of land, smaller allowances. and because the bond size is smaller so there is
22 less bond .requirements. And $48 million would be financed by debt private placement
23 and equity from the two partners of about $5.4 million. The difference in capital costs
24 is just under $15 million dollars.
25 We also looked at the project cost over the entire life of the project including all the
26 operation and maintenance cost. The public project. ended up with a net present value
27 of $98.3 million dollars. The capital costs for the privatized project is lower. The
28 operation maintenance costs are about the same, the private project is slightly less.
29 Shown as a separate item are approximately $3.9 million dollars in property taxes paid
30 to Sonoma County because it is a privately owned facility. There may be some way to
31 mitigate that $3.9 million dollars and pass those cost savings on to the city. One way
32 would be for the city to work out an agreement with the County to get those
3~ reimbursed because their not collecting those costs now. A second alternative maybe
34 for the city to annex the property into the city so there wouldn't be any,pro.perty taxes.
35 S'o the difference on a net present value which is a .life time cost of the project is
36 somewhere bettiveen $5.5 and $9.5 million dollars.
37
38 5. MUW has offered the city a number of implementation options that would further
39 reduce the cost from the base project that was originally offered.
40 Montgomery United Water would own the facility, they would get all the benefits of
41 depreciation, pass those on in terms of lower rates to the city and do it with private
42 financing. The second option is the same private ownership, but have Montgomery
43, United Water apply for an allocation and private activity bonds which are tax exempt
44 and again that savings would be passed on to the city. The last three alternatives are
45 would be that the city becomes the. tax owner which means that because of certain
46 requirements that would be placed in the agreement, Montgomery would loose all of its
June 14, 1999
Vol. 33, Page 89
1 tax benefits and in essence default. to the city as the tax owner not the legal owner, but
2 the tax owner as far as IRS is concerned. We looked at three options there, (1) is with
3 the city being technically the tax owner and private financing. the (2) is where the city is
4 the tax owner and we again get private activity bonds and Tower the cost and (3') option
5 is where we provide in the contract an option .for the city if' we fail. to get tax exempt
6 funding that the city could then finance the project using its. own: tax exempt bonding
7 capability.
9 At the end of the 30 year contract there would be a negotiated purchase: price of the,
10 facilities which by requirements would have to be at the fair market value: The first
11 option number 1 is the same thing except Montgomery United Water. would get some.
12 ~ tax exempt bonds, we would lose some depreciation, because when. you get ;private
13 activity bonds your only allowed straight line- depreciation. That lowers the cost to
14 about $90 million dollars. The last two options are designed to meet some of the city's
15 requirements to have more control during the design construction. and operation
16 process acid to have a, guaranteed purchase price at the end of the 30 year period. The
17 one in that category which is option 2 is where the city is the tax owner, but we
18 financed it with taxable bonds so we get no depreciation,. but the city is .guaranteed that
19 they can purchase it for $1.00 at the end of the 30 year period. That's the worst of all
20 alternatives,. it's actually higher than the public project. because the city gets none of thee.
21 benefits of that' depreciation and gets all th`e costs of the higher taxable financing, I
22 want to point. out that in early negotiations we are centered on differences and.
23 agreements of the base line case in which we were trying i:o find the, lowest cost and
24 option 2 in which the city got the .guaranteed price. and the- control, but because `we lose
25 all the tax depreciation benefits the cost goes up. The third option is the'same except
26 where we get tax exempt financing ~by getting ari allocation of private activity bonds
27 from the state and' that drops the cost to $96 million and ahe last one is where the city
28 would exercise the option that if we .failed to get those tax exempt. bonds the city would
29 have the option to finance the project at the completion of construction and become the
30 actual owner of the plant byrefinancing it or basically financing it they would purchase
31 it from us for our invested cost and; that's estimated at about $52,8 million. dollars. The
32 net present value of that option is about X85 million dollars, clearly the Lowest of all in
33 comparison. to the public project in which you have the city as a tax owner: There is no
34 purchase price acid the estimated cost is $98.3 million.
35
36 Counclmember Healy, It is my understanding that for the base case down through
37 option 3; the purchase price represents the price that the city would be paying in 'the
38 year 30, but for option 4'it's~the price that will' be paid after year 1?
3'9
40 Don Everson:. After the plant goes into operation in the first year and the city is'
41 satisfied with the operation.
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43 Fred Stouder; .negotiations ar.e still ~ on going with regard to -the agreement: One
44 agreement is the larigua~ge they feel is necessary in order for base line options one, and
45 the latter agreement is the one the'city feels niost'seeure about at this point.. The city
Page 90, Vol. 33
June 14, 1999
1' asked MUW to cost it out. The city's concern was from the public stand point the
2 security and oversight that we were discussing at that point was necessary in the
3 contract language. 1V .NW's response was, that it would end up jeopardizing their tax
4 positron acid will cost the city more.
5
6 MUW may in fact have satisfied all those conditions, that's their call based on option
7 one. And then it's a question of whether that satisfies both our legal administrative and
8 policy issues regarding security and the same of course with options 2, 3 and 4. There
9 are issues there that needs to be gone through.
10
11 Councilmember Keller, to clarify the purchase price fair market value on base and
12 option one, those would be determined at the end of 30 years? The $52.8 million on
13 option 4 is that in 1999, or is that at the 30 year term?
14
15 Don Evenson, that would be the cost at the end of the first year of operation of the new
16 . treatment plant which would be in the year 2003.
17
18 Councilmember Keller, does payment of that effect the ownership rights that you have?
19
20 Don Evenson, at that point the city would own the plant. They would purchase the
21 plant from us after it has been in operation and their satisfied with the operation.
22
23 Fred Stouder, we can exercise an option to purchase as the design build turnkey option
24 to purchase based upon the requirements that could be built into the agreement that tax
25 exempt financing is unable to be achieved or other thresholds that could be built into.an
26 agreement that would trigger the city's opportunity to purchase.
27
28 Don Evenson, this would be the net present value if you exercise that option.
29
30 Councilmember Maguire, on the net present value of option 4 does that include the
31 city's next 29 years of 0&M costs?
32
33 Don. Evenson, Yes. In this case it's really a .loss of tax ownership on MUW's part and
34 so by default you could almost say the city must be if we're not. We're concerned. that
35 the IRS would rule that MUW can't have accelerated depreciation because we don't
36 really own it. It's really in installments they owe to the city that's disguised as a
37 privatized project, that they would interpret the contract that way. So they would take
38 away from us who owns the plant all of the depreciation benefits.
39
40 Councilmember Maguire, basically you would have laid out the money, you would be
41 operating it, you would own it in the definition of the term, but the IRS would say you
42 don't own it even though you've got the keys and title. They'd be saying that no that's
43 an installment plan to the city.
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45 Fred Stouder, this was another issue that in the middle of discussions we were
46 concerned and maybe it's over simplification and to some degree it is that one could
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June 14, 1999
Vol. 33, Page 91
argue that we pass on the ownership of the: plant to a private entity to Montgomery
United Water, we finance it or at .least parfially finance: it and through the rate payers
and then at the end of 30 years we pay for it twice by buying it on a fair market value.
It isn't quite that simple and you could. also argue that at the end ofthe 30 years. it may
not have a useful life other than all the reinvestments that you would have to do the last
10 years. or along the way. So it's not a simple. issue.; but it was because of that
discussion and our concern in. negotiations that led. to these others: What. if we, why
can't you get the plant, or why is-there an option. to purchase after design build.
Don, the fair market value of course is what a willing buyer would pay to a willing
seller and of course in this: case there's only one buyer so it puts a whore different
perspective on what the .fair market value is.
Councilmember Keller, on option 4 if the city purchases the plant after 1 year of
operation does That undercut the argument that this is a private facility and undercut all
of the normal requirements for bidding out a public project?
Don Evenson, the way we:have proposed it based on legal advice we indicated that this
would be an acceptable procedure, that it would go ahead as a privatized project under
the
assumption that you could get tax exempt financing and if we fail to do that the city can
then exercise it's option to get exempt financing....
Fred Stouder, in that ease obviously we would want the second agreement in you
packet refined and acceptable with the assumption that option 4 still is privatized
ownership, but there is a threshold where the city could exercise a purchase...
Councilmember Keller; what would' be the incentive at that point for NIt7tiV to get the
financing.: that they want and not hit the. fall back position..: If you agree on option 4
then your almost guaranteeing that your :going to take. the fall. back position.
Don Evenson, AlI we can do is make. the application to the state and it's the state
decision who gets i~ihat amount of private activity bonds for what purpose.
Fred Stouder, I assume the city would: either exercise legally or indirectly approve of
that tax exempt financing within our jurisdiction and that raises another issue..
.Mayor Thompson, how long would it take to determine if you would be able to get tax
exempt financing?
Don Evenson, 'they are .made annually and so the key is to get your request in towards
the end of each calendar year or fiscal year and 'then the allocations are made at the
beginning of the year. As I understand it in this. case it would be to get the application
in-and you might know by Jariuary or February if you got the allocation either for the
year 2000 or 2001 which is about when construction would start.
Page 92, Vol. 33
June 14, 1999
1 The actual contract is not signed until all the conditions are met. which is when
2 construction actually starts. That is when the final agreement is signed and by then you
3 would know whether your going to get tax exempt financing or go back to the base
4 agreement which is the base project. That's the fall back not option the fall back to
5 option 4 is the base project rather than option 3.
6
7 Councilmember Healy okay then the allocation your talking about is for the city to get
8 an allocation to do tax exempt financing? V
9
10 Don Evenson, No, MUW would make the application .for tax exempt financing and if
11 we did not get it then we would be back to using taxable bonds under the base case.
12
13 Fred Stouder, and then if they failed to get it we could exercise the option to purchase
14 it under option 4 and we would use obviously tax exempt financing and other state or
15 federal funding.
16
17 Councilmember Healy, then do we have to go through a similar allocation process?
18
19 Fred Stouder, No we can finance it through. revenue bonds, but there's also process's
20 where we could Qet the lower interest rate loans. We're actually on a list for that
21 potential, but when we say tax exempt financing the city issues revenue bonds based on
22 the rates so we would not be going for $52 million dollars to a state agency or federal
23 agency.
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25 Councilmember Healy, just to reiterate if we chose option 3 and that didn't come
26 through then we have the choice of either going for our own tax exempt or going back
27 to the base case.
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29 Councilmember Maguire, In your packet to Fred dated June 4, page 6, your talking
30 about the comparison between your revised project to get an apples to apples
31 comparison and you stated that this then is not a bid price that you've given us, that a
32 bid price would take a considerable amount of effort and time. Can you give us an idea
33 of how long and how much.
34
35 Don Evenson, MLIW estimated the cost between $100,000 - $200,.000. Our price is
36 based on the base of it which is the bid from the original'at $80 nullion dollars or so
37 and that's firm, What we had to do is estimate an additional $14-$15 million dollars
38 that was added to the project and we did that in more traditional cost estimating
39 procedures. We're confident in the numbers, but we didn't do the engineering design
40 like we would for a real design build.
41
42 Councilmember Healy,. What is the comparison between NlUW's design facility and the
43 one proposed by Brown and Caldwell for the publicly owned alternative.
44
45 Don Evenson, MUW is not familiar tivith that particular process because it's not a
46 traditional process in the treatment sense. They will be filtering it just like we will be
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June 14, 1999
Vol. 33, Page 93
filtering it so I would assume the turbidity and suspended solid 'levels would probably
be similar. MV`V's method of Disinfection is a little different,. it is UV and they have
hypro-chloride. How the BOD will come off of their treatment process we don't
know. We do know that MLJW's process which is a proven process wifh a lot of
experience that we'll be able to manage and control it to achieve at least a
concentration of at least 10 milligrams per liter of BOD which is probably better than
the Petaluma river.
Councilmember Healy, Is the wetlands part of your project or is that something that
could be.added later?
Don Evenson, we're recommending that be added at a later time because tliat would-be
another way of getting: additional treatment and disposal and actually save money
because it would reduce the cost in the amount of storage that would be needed during
the winter time.
Councilmember Healy, is the demonstration wetlands included in your cost?
Don Evenson, No.
Councilmember Healy; Do you have an idea what range: that would be?
Ann, the demonstration wetlands has always been a feature of any of the projects. It's
also going; to be added on to the B&C project.. It was one ol'the so called public works
project. So by definition it's not included in our price or B&C's. B&~ has, prices for
their treatment wetlands which are different from the demonstration wetlands.
Don Evenson, typically those types of projects aren't very :expensive because :t''s a
matter of getting the flow distributed throughout the wetlands and getting the we'"Hands
developed,
Councilmember Keller, in your pricing is~ there ;any accounting for either an O&NI .or
Capital Sinking Fund and at what kind of rate?
Don Evenson, yes, MUW went through and looked at each. piece of equipment in the
whole treatment process. Each one. of there was given a i;tseful wife :and there. was a
Sinking Fund development so that would be automatically replaced and that's included
in the 0&M cost.
Councilmember Cader-Thompson, 'how many people would you expect to staff a plant
like this?
Don Evenson, I believe the stafl=ing estimate is around 12.
Page 94, Val. 33 June l4, 1999
1 Public Speakers
2
3 John Barella, 496 Jasmine Lane, supports 1VIUW's proposal for the wastewater plant.
4
5 Hank Flum, What if the effluent doesn't meet specification? Who would be
6 responsible for the engineering and the additional construction costs? What if the costs
7 of building the plant were way over the contractors estimate? Would the purchase
8 price remain the same as offered.? Would that be a firm price? And I don't know how
9 important the time-line would be, what if the plant didn't get built in the prescribed.
10 project time, what impact would it have on this city?
11
12 Councilmember Keller, I hope we get clarification on the pricing, Section 4.2.1.12 on
13 page 30 indicates that additional geotechnical investigations would be necessary, but at
14 least under the base case in option 1 if there's anything new that's found those costs
15 would be reflected by revised prices. What level of geotechnical investigations have
16 gone on at the site? Do you have sufficient certainty for site conditions that you can
17 say, "we're going to build what we have and we know what it's going to cost", in other
18 words, what play does this clause have?
19
20 Don Evenson, we would conduct the required geotechnical information that was
21 required in order to make sure there wasn't any thing like hazardous materials that
22 would be found at the site that would invalidate the assumptions that were made going
23 into it. It basically applies to hazardous materials not what the soil strength are or the
24 compaction requirements.
25 -
26 Man, spoke about being homeless and how aggressive the police are in this town
27 compared to South East Missouri.
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34 E. Clarlt Thompson, Mayor
35 ATTEST:
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39 Paulette Lyon, Deputy Clerk