Since the start of the Measure P campaign and even before, Sue Greenwald has been arguing that the city was not eligible for low interest lows due to the fact that they had opted for a DBO (design-build-operate) with a private operator, and such operations are ineligible for state revolving funds.
In her April 27 op-ed with Mark Siegler, they wrote, “We expect no major water cost relief from the touted water project cost reductions. The reductions are exaggerated; some, like the low-interest state loans, are not likely to materialize because the City Council chose to privatize the operations…”
She would expound more fully on May 11, “The statement that Measure P could cause us to lose low-interest state loan opportunities is also false. The city likely has lost its low-interest state loan possibility because the City Council made a poor choice by opting for a no-bid contract with a multinational company and the associated privatization of the operations. State law prohibits giving low-interest state loans to projects with privatized operations.”
“So yes, we have probably lost our low-interest state loans, and yes, that could cost the city more than $100 million if The Enterprise’s cost information is correct. “
The city has vehemently denied this information, however, the Vanguard learned this weekend that Sue Greenwald is correct here and if the city does not get special legislation passed, the failure to be eligible for state revolving loans could cost the city millions.
A well-placed source told the Vanguard that the council opted to do a DBO despite warnings that the state prohibits low cost financing for private operations. That source indicated that there is legislation that would get this loophole in the law fixed, but there are no guarantees, and some people we spoke to believe that the legislation is dead while others believe it is a done deal.
The bottom line is if that legislation does not pass, the financing costs will be far more than any saving generated from going to DBO rather than the DB route.
When the Vanguard spoke with City Utilities General Manager Herb Niederberger on Monday, he denied this was an issue.
Mr. Niederberger indicated that Woodland got SRF (State Revolving Fund) Funding for their portion of the project, “So I don’t think there’s a state prohibition on low-cost financing.”
“The prohibition that Ms. Greenwald likes to hang her hat on is a prohibition against using state financing for private operations,” he explained. “But there is no prohibition on federal money being used for a design-build-operate.”
If this were the case, he argued, “then Woodland wouldn’t have gotten low interest financing for their portion of the project. They got the loan that we were looking for originally.”
He said that after Measure P is hashed out, the city will reapply for funding. He also said that, regardless of whether the city is eligible, they are correcting language in Government Code Section 5956. He argued it would be self-correcting “in a matter of weeks.”
“If State Revolving Fund Funding was not allowed on a DBO, how did Woodland get their financing?” he asked.
The answer to that question, according to Woodland City Manager Paul Navazio, who, as the former Interim City Manager and Finance Director of Davis, is familiar with both cities’ situations, has to do with the constituent base in Woodland’s water supply that is not present in Davis’ water supply.
“Because specifically of the nitrate levels in the ground water wells in Woodland, which are generally not the deep aquifer variety, so we had higher nitrate levels in our water sampling,” he said. This made Woodland eligible to apply and qualify for SRF funding under the Safe Drinking Water Act funds.
Davis had nitrate issues in the past, but dealt with them through the digging of a number of deep water wells. He said, “The bottom line is that Davis is not eligible for funding under the Clean Water Act SRF.”
Paul Navazio’s information is consistent with the information the Vanguard received this weekend, that Woodland was in a different circumstance than Davis with regard to that set of low interest loans.
The Vanguard checked with both Herb Niederberger as well as our source on the pending legislation, which now appears to be the only chance Davis has to get the low interest loans and save millions on the water project. However, neither had the information on the legislation at hand.
Our source indicated that, while all of the debate over the rates made for interesting reading over the past week, it amounts to “rearranging the deck chairs.” The financing issue could have a far greater impact overall on rates.
Sue Greenwald did not respond to the Vanguard’s inquiry for additional information. However, while she indicated publicly perhaps a $100 million impact, our source suggests more modestly a $50 million impact, enough to increase rates by as much as 25 to 35% over the next 30 years.
—David M. Greenwald reporting