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A developer’s proposal to build a water treatment plant and lease the facility back to the Community Services District is scheduled to be examined at a public meeting this month, but John Sullivan of Cosumnes River Land LLC is moving ahead with his plans. On Thursday, he will appear at the CSD Improvements Committee with a proposal to update the plant design.

Sullivan first offered his plan publicly at the March CSD meeting, saying the idea for building the facility grew out of a conversation with board president Jerry Pasek. Sullivan said they were trying to address his claim that he is owed water for his development and the CSD’s claim that there isn’t any water available until a treatment plant is funded by developers and built.

When asked Tuesday about Sullivan's comment, Pasek said, “What I suggested to John was to throw out some alternatives as to how he believed it could get done, so that it moves forward in a prompt fashion.

"I can see, and everybody else can see, a fairly healthy increase in construction activity. ... If that happens, inflation will strike and you won’t have a water plant that comes in for $6 million, it will be $12 million, and the residents will be stuck because you waited. ... It’s an improvement to an existing water plant as well as an expansion.”

John Sullivan

Developer John Sullivan addresses the CSD board at the March meeting.

Sullivan’s plan calls for retrofitting the oldest phase of the water treatment plant with a membrane filtration system and more than doubling its capacity to 3.17 million gallons per day.

“We’ll guarantee the project not to exceed $6.6 million (in cost),” Sullivan told the board. Half the funding would come from Community Facilities District #1, which was formed 20 years ago, in part, to fund a water treatment plant to serve the South. The CSD is responsible for funding the other half of the plant capacity, which would serve the CSD's current customers.

Sullivan’s proposal calls for the CSD to lease the equipment for 15 years at a cost of about $23,000 a month, plus use taxes, in exchange for the CSD granting immediate water service to Sullivan’s development, the Murieta Gardens hotel project. At the end of 15 years, the CSD could purchase the equipment for $300,000, bringing the district’s lease and purchase costs to more than $4 million.

The board invited the community to send in questions about Sullivan's proposal to be answered at a workshop scheduled for 2 p.m. April 26 at the CSD Building.

General Manager Ed Crouse said Tuesday that the CSD has received about 60 questions for Sullivan, most of which were submitted by the CSD board and staff members. Crouse said Sullivan is reworking his plan to answer questions that range from "the credibility and capability of the group building the plant, to the financial side, to the technical side, to the service side and the number of units. So it goes everywhere.”

Historically, the CSD's position has been that developers must pay in full for infrastructure and facilities their developments use, and work on these facilities doesn't begin until funding is in place. This has been accomplished through agreements between the developers and the CSD and bond districts.

That’s a “crazy system” in the current economy, Pasek said in Tuesday’s interview. He said there are no longer big developers with that kind of money.

In a February board memo and presentation, Crouse said the CSD’s plan is to have a group of developments called the 670 group -- representing the Lakeview, Riverview, Residences East and West, Retreats and Sullivan’s Murieta Gardens projects -- fund expansion of Water Treatment Plant #1 to accommodate the needs of their developments. The expansion would update the treatment process used at the plant.

The CSD is negotiating a financing and services agreement with the 670 Group -- named for the amount of water their developments would use -- that would provide a guarantee of water and sewer service for their developments and also identify the reimbursement amount that the North benefiting properties have to pay to either South developer Reynen & Bardis or the CSD since the South developers put up money in the early 1990s for projects that benefited North development to some extent. "It was for upsizing facilities for a full build-out scenario," Crouse explained.

Community Facilities District #1, the Mello Roos district, was formed to pay for infrastructure for the South developments and a separate funding mechanism was put in place to pay for infrastructure that benefited other development. "The bondholders on the South couldn't be saddled with paying for those facilities, so that's why the district forced (South developer) Winncrest to put up a letter of credit and then agreed to seek reimbursement from future developers," Crouse has said.

Despite the housing market crash, the financing arrangement applies to the South developer's successors, and CSD legal advisors have told the district the letters of credit are not subject to bankruptcy proceedings, Crouse said.

Projects that provided some benefit for the North include the wastewater treatment plant expansion, the Van Vleck water tank, an ambulance for Fire Station 59 and rehabilitation of the Yellow Bridge, which carries CSD water and sewer pipes.

"The remaining item that hasn't been built is the water treatment plant," Crouse said.

Sullivan has balked at participating in the CSD’s financing and services agreement. Instead, he is offering the CSD his own services and fees proposal.

Sullivan maintains his development is entitled to water and sewer service because the property was part of the 1986 assessment district, Improvement District #1, and he has pressured the CSD to issue a commitment to serve the Murieta Gardens hotel project. Sullivan, a longtime Murietan and former CSD director, is also leading an effort to purchase the Pension Trust Fund’s undeveloped land in Rancho Murieta.

Information about Improvement District #1 that appears in a binder of documents Sullivan has provided to board members and others shows that $11.3 million of the $19 million in proceeds was slated for acquisitions.

"What a lot of people fail to grasp is up until 1986 all the facilities out here were owned and built by RMPI, meaning the Pension Trust Fund, and when developer Jack Anderson bought Rancho Murieta lock, stock and barrel from the Pension Trust Fund, he acquired all of the infrastructure," Crouse said in an interview. The bond district financed CSD's purchase of the facilities.

The CSD was formed in 1982 to provide local control, and Improvement District #1 was its coming of age. Improvement District #1 was "about acquiring the district facilities, it's about providing service to existing lots, it's about relocating a wastewater treatment plant ... to comply with new Regional Board requirements that were given to us in '81," Crouse said.

Crouse gave an overview of the bond districts at a county meeting in 2005, saying the CSD has sponsored two bond districts, but "the district does not assume any responsibility for the debt. It is entirely placed on the property."

He said the bond district formed in 1986 assessed undeveloped North properties, all of Rancho Murieta South and undeveloped commercial and industrial property for $19 million in infrastructure costs. This financed the construction of the second phase of the water treatment plant and the wastewater treatment plant. Although these projects benefited existing residents in Units 1 through 4, the burden of payment was placed on the owner of the undeveloped land and future homeowners. The bonds for this district have been paid off.

The 1992 community facilities district generated $12.8 million to pay for infrastructure projects on the South “as well as full build-out capacity for a variety of water and wastewater” projects, including the expansion of the wastewater treatment plant, Crouse said. South developers made up a shortfall of $6.6 million with a letter of credit. The bonds will be paid off in 2015.

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