[Brief version published April 26] Community Services District staff is working with developer John Sullivan to try to reach agreement on the water needed for his hotel project after a design-build proposal for a water treatment plant was ruled out by CSD. Sullivan, a Murietan, had proposed to design and build the plant -- instead of the usual competitive bidding process -- but board President Jerry Pasek told a recent workshop on the project that bidding is required under state law.
Undaunted by the setback for their design-build plan, representatives of Sullivan's Cosumnes River Land company proposed another approach to get water for the hotel project. The developer proposed paying $175,000 for a design to upgrade and expand the existing plant. In return, the developer wants the CSD to supply water for the hotel and extended-stay project from existing water treatment capacity. Sullivan calculated the project would require 19 units of water, while CSD General Manager Ed Crouse estimated 30 units. A unit is 750 gallons of water use per day.
Sullivan says the CSD has sufficient system capacity to grant him the water. The CSD disagrees, saying a new water treatment plant is needed. Sullivan also says he's owed the water because his development property, which he purchased a year ago, paid into an improvement district for years under a previous owner.
The April 26 workshop, which lasted four hours, included a discussion of water treatment technology, a history of Rancho Murieta's water treatment facilities, options for funding and constructing infrastructure, explanations of bond districts, shortfall agreements and letters of credit, rehabbing the existing plant versus upgrading it, treatment capacity, and conflicting views about what developments have paid their fair share for treated water.
Consultants, lawyers, former CSD directors and Sullivan addressed the group, and more than a half-dozen neighbors spoke. Several commented that they don't want existing residents to assume costs for new development, and a few others, as the meeting went on, used words like "confusing" and "overwhelming" to describe the onslaught of information. About three dozen people attended the session, many of them with business connections to the development.
About three dozen people -- many of them connected with a development project -- attended a four-hour workshop at the Community Services District on April 26.
Resident Ted Hart, who has repeatedly urged the CSD board to provide water for the hotel project, said, "This thing needs to be handled as expeditiously and as fast as it can be. … The board understands this completely. The community needs to understand that you just can't sit here."
Janis Eckard, a resident who's weighed in on water and development issues over the past decade, said, "From everything we've seen up until this time, it's always been there's no capacity. … If we have a super hot day with a high water usage and then we have a large fire, are we going to have the water? That scares me to death."
At the end of the four-hour session, Crouse volunteered to work with Sullivan to see if they could find agreement on providing water for Sullivan’s project in time for the May 15 board meeting. Crouse said staff would look into sizing a new water treatment plant that would replace the first phase of the existing plant built in 1974 and provide additional capacity.
Pasek said there are three issues -- starting the design document, reaching final agreement with Sullivan on whether water can be available and developing a financial plan for the plant’s replacement and expansion.
"There is no absolute, drop-dead timeframe that we have to upgrade the plant if we so choose," Crouse said. "Our replacement schedule replacement life is four more years. … We're still operating. We're not in any imminent failure. … The only reason why we're moving down this path is we had the original design-build proposal that obligated us to pay $3 million. If that's off the table right now and we can reach accommodation with John on (water service) for his hotel, then there is no absolute drop-dead that we have to do something tomorrow or the next day."
Sullivan's $6.6 million design-build proposal would have committed the CSD to pay more than $4 million in a lease-back arrangement. The CSD would also have been responsible for permits, inspections and other items, although there was no cost estimate in the plan for those expenses. The only other source of funding in the plan was $3.3 million from a bond district on the South or the letter of credit South developers provided as a guarantee of payment.
At the workshop, Crouse said the existing plant can be upgraded with membrane technology and expanded to provide additional capacity. "But when it gets down to that plant expansion, what we're going to pay for is only 900 units, which is the 1.5-million-gallon capacity of Plant 1. … Should we upsize some of the facilities and have (developers) reimburse us later so that they can install membranes -- "
"The answer to that is, hell, yes, you'd want to do that," Pasek interrupted.
"But on whose nickel?" Crouse said.
"You build the 10-car garage and you figure out who pays for garages four, five, six, seven, eight, nine and 10 because we only need three cars' worth," said Pasek. "…And then they supply the cars when and if they need them."
When the Improvements Committee met with a consultant for the plant design last week, Crouse described the task as figuring out what membrane system capacity the footprint of the existing water treatment plant could accommodate.
"Then the CSD would be obligated to build their 1.5 (million gallons per day) capacity replacement for Plant 1," Crouse said. "And then anything above that, should we decide to upsize the piping, controls, basins, anything else, we would fund that effort, but seek reimbursement later when the future developers come in so that they could buy into the plant capacity.…" The developers would be able to add components to satisfy the needs of their projects.
Pasek said, "The basic way I was looking at it is if it's embedded in concrete or would be a bitch to add later, put it in now for the max case."
Sullivan, who participated in the committee meeting, said it was important to get moving on the project as fast as possible because construction costs are increasing. But he added that residents would be "dramatically overpaying" by building the 1.5 mgd plant instead of using Mello-Roos funds to construct a plant with double the capacity.
In 2009, the CSD looked into replacing the existing plant on its own after the recession brought development to a halt. The membrane filter upgrade for the existing plant was supposed to be installed as part of a developer-financed expansion of the plant to serve their projects.
With the cost to rebuild the plant estimated at $6.5 million at that time, the CSD opted to budget $1.5 million to rehabilitate the plant instead. "We’re hopeful that eventually development will turn, and there may be an opportunity to partner with the developer," Crouse said in 2010. "… If we commit to spending $6.5 million, then that money is probably off the table as far as our discussions with the developers."
The new water treatment plant has proven to be an elusive goal for the CSD. The next phase of Rancho Murieta development -- Murieta Gardens, South subdivisions Lakeview and Riverview, and the Retreats and the Residences of Murieta Hills on the North -- has county conditions of approval that do not allow construction until the new water plant is online.
CSD policy states the district's current commitments to provide treated water exhaust the capacity of existing facilities and new commitments will only be made if there is a completed water treatment facility with sufficient capacity. "Under no circumstances shall the District directly finance water treatment facilities to serve development that the District is not previously committed to serve," the policy adopted in 2004 reads.
As the 670 Group, developers have negotiated collectively with the CSD for a financing and services agreement that would guarantee water and sewer service for their developments and provide reimbursement for expenditures that benefitted the North.
In the present economic climate, the $1.5 million the CSD budgeted for the water treatment plant rehab became its fair share for the water treatment plant rebuild and expansion. When the developers said they needed CSD to step up its commitment, they settled on a 50/50 sharing of the cost, with a maximum of $3 million for the CSD portion, Crouse said in a recent interview. The cap is intended to get the developers to move forward sooner rather than later, Crouse said.
Sullivan says he will not enter into the financing and services agreement and he has presented the CSD with a separate services and fees agreement. "This idea that the FSA is a cure-all solution to who's going to pay for what is absolute fantasy," Sullivan told the CSD board in March.