ITEM 1: DECOMMITMENT OF STATE REVOLVING FUND LOANS FOR THE CONSTRUCTION OF RANKIN STREET PUMP STATION AND SOUTHEAST WATER POLLUTION CONTROL PLANT IMPROVEMENTS, CONTRACTS "4" AND "5", AND, THE CONSTRUCTION OF ISLAIS CREEK TRANSPORT AND STORAGE FACILITIES, CONTRACTS "B" AND "E", CITY AND COUNTY OF SAN FRANCISCO, PROJECT NOS. C-06-4025-252, 260, 420 AND 451

DISCUSSION: On February 20, 1997, the State Water Resources Control Board (SWRCB) committed $50 million of State Revolving Funds (SRF) to the City and County of San Francisco (City) for the construction of Rankin Street Pump Station and Southeast Water Pollution Control Plant Improvements, Contracts "4" & "5" and Islais Creek Transport and Storage Facilities, Contracts "B" & "E". In a letter of December 23, 1997, the City stated that "Unfortunately, unbeknownst to us, during Charter reform the section which gave authority to request and accept loans was inadvertently dropped" (Attachment 1). As a result, the City has been unable to sign loan contracts for the $50 million commitment with the SWRCB. It is understood that the City is not ready to sign new loan contracts until the voters in San Francisco have amended the City Charter and have given that authority back to the City. A vote is scheduled for June 1998 ballot. These projects have already been constructed and funded by other means.

Currently, there is $4.7 million available in the SRF Account for Federal Fiscal Year (FFY) 1998. There are six agencies (Attachment 2) that anticipate that their projects will go to construction before October 1, 1998, the date that FFY 1999 funds become available from the US Environmental Protection Agency. The construction costs for these six projects are estimated at roughly $90 million. There is inadequate funding to start construction for these projects in the current FFY. The alternatives are as follows:

Alternative 1 -- reallocate the $50 million from the Islais Creek projects to the projects which are ready to start construction and recommit the funding to the Islais Creek projects when the City is ready to sign loan contracts and funds become available;

Alternative 2 -- reallocate the $50 million from the Islais Creek projects to the projects which are ready to start construction and do not recommit funding for the Islais Creek projects which were constructed;

Alternative 3 -- continue with the funding commitment for the Islais Creek projects until July 1998 and reconsider the funding commitment thereafter; and

Alternative 4 -- do nothing

Alternative 1 -- provides the best use of SRF funds. It allows the projects ready to start construction to proceed instead of waiting for the FFY 1999 funds. The City can regain the $50 million recommitment from the SWRCB when the voters approve their new Charter provisions. The net gain is time. Many of these wastewater treatment facilities can be constructed sooner and the water quality of the effluent from these treatment facilities can be improved sooner. At the same time, there will be a monetary loss of roughly $633,000 to the City (this estimate is calculated based on the assumption that the City regains the authority in June 1998 and pays an extra interest at 3.8 percent for four months on $50 million bond funds until the SWRCB recommits the loan funds in October 1998). The City has completed the construction of the Islais Creek projects with local bond funds to meet the Regional Water Quality Control Board requirements instead of waiting for SRF funding.

Alternative 2 -- is similar to alternative 1 in the use of SRF funds. However, there is significant financial impact to the City. The interest rate on the bonds used by the City to finance the construction of the Islais Creek projects is at 6.6 percent and the current SRF loan interest rate is at 2.8 percent. The difference in interest rate is 3.8 percent. The extra interest cost on a $50 million loan is estimated at $1,275,000 per year. Using the present worth factor of 11.85 (based on interest rate = 5.6 percent and n = 20), the financial cost due to the difference in interest rates is roughly $15.1 million in present worth value for the life of the loan.

Alternative 3 -- does nothing until July 1998. In this case, the SRF money is not being used efficiently and effectively until then. The water quality of the effluents from some of these six treatment facilities will not be improved until the improvements to these treatment facilities are made with the available funding starting in October 1998 and will probably miss this construction season.

Alternative 4 -- does nothing until the voters have approved the new Charter provisions. This Alternative is similar to Alternative 3 except that the inefficient and ineffective use of SRF money will continue until the voters have approved the new Charter provision. It is possible that the voters may not approve the new Charter in 1998.

The City has asked that the SWRCB not decommit the funds, but hold them until the voters have approved the new Charter provisions which will be submitted to the voters in June 1998.

POLICY ISSUE: Should the SWRCB rescind the preliminary loan commitment?

RWQCB IMPACT: None

FISCAL IMPACT: This decommitment of funding will make $50 million of SRF funds available immediately to fund other eligible SRF projects ready to proceed with construction.

STAFF RECOMMENDATION: That the SWRCB adopt a resolution decommitting SRF loan funds as follows: Rankin Street Pump Station and Southeast Water Pollution Control Plant Improvements, Contract "4", Project No. C-06-4025-252; Rankin Street Pump Station and Southeast Water Pollution Control Plant Improvements, Contract "5", Project No. C-06-4025-260; Islais Creek Transport and Storage Facilities, Contract "B", Project No. C-06-4025-420; and Islais Creek Transport and Storage Facilities, Contract "E", Project No. C-06-4025-451; and recommit the loan funds when loan monies are available and the City is able to sign loan contracts.

[Attachments not available electronically but can be obtained by calling Patrick Lam at (916) 227-4569,]

DRAFT March 23, 1998

WHEREAS:

1. There are six projects that are scheduled to go to construction this Summer and not enough State Revolving Funds are available;

2. On February 20, 1997, the State Water Resources Control Board (SWRCB) committed $50 million of State Revolving Funds (SRF) to the City and County of San Francisco (City) for the construction of Rankin Street Pump Station and Southeast Water Pollution Control Plant Improvements, Contracts "4" & "5" and Islais Creek Transport and Storage Facilities, Contracts "B" & "E";

3. The section which gave the City officials the authority to request and accept loans was inadvertently dropped while the City Charter was being reformed;

4. The City has been unable to sign loan contracts for the $50 million commitment with the SWRCB; and

5. The City will not be ready to sign new loan contracts until the voters in San Francisco have amended the City Charter and have given that authority back to the City.

THEREFORE BE IT RESOLVED THAT:

The State Water Resources Control Board rescinds the preliminary loan commitment of $50 million made to the City and County of San Francisco in Resolution No. 97-010, and makes the funds available for only projects that are ready to start construction by September 30, 1998. The SWRCB will recommit the loan funding when the City is ready to sign loan contracts if funds are available.

The undersigned, Administrative Assistant to the Board, does hereby certify that the foregoing is a full, true, and correct copy of a resolution duly and regularly adopted at a meeting of the State Water Resources Control Board held on April 16, 1998.

Maureen Marché

Administrative Assistant to the Board