[Corrected March 15] Bids to construct a new water treatment plant for Rancho Murieta have come in at more than $11 million, with the total cost expected to exceed $12 million, double the amount discussed when the Community Services District took the lead on the project last year.
The plant would replace an existing phase of the water treatment plant and expand treatment capacity.
The project went out to bid before funding agreements with developers were finalized. One agreement, the 670 Group financing and services agreement, caps the CSD's share of the cost at $3 million. A second agreement, with developer John Sullivan’s group, isn’t complete yet.
If the agreements are finalized and developers meet their funding commitments, the CSD will finance its $3 million share with $1.5 million from reserves and internal borrowing for $1.5 million to be repaid at 2 percent interest.
Residents are currently paying about $4.75 a month for water treatment plant financing, based on a commitment to fund a $1.5 million rehabilitation of the plant that became part of the CSD share of the cost for a new plant. The draft 2014-2015 budget, presented at the Finance Committee this week, proposes to increase this charge to $6 a month.
Some sticker shock
"Boy, this seems like a whole lot more than I ever anticipated it was going to come out," Director Mike Martel commented after Assistant General Manager Darlene Gillum summarized bids for the water treatment plant at a special board meeting March 7.
The bids were opened Feb. 21. With several bids per division, the total construction costs are $11,344,987 based on the apparent low bids, Gillum said. With soft costs added, the project comes in at about $12 million.
Martel said he was expecting a cost of around $6.5 million. That was a consultant's estimate last year for the CSD to replace its existing 1.5-million-gallon-per-day treatment facility and provide "core" facilities for a treatment capacity up to 6 million gallons per day. It was also the cost for a plant in a design-build plan proposed by developer John Sullivan of Cosumnes River Land LLC last year.
Director Paul Gumbinger responded that the initial cost estimate was "really off.” He added, “The final bid is fairly close to Roebbelen's estimate that we have known for some time.”
The initial estimates prepared by engineering consultant HDR Inc. ranged from about $6 million to $9 million, depending on plant capacity. A CSD press release last September about plans for the plant said, “HDR, Inc. (our Engineer) is providing plant design services which in the next few months will provide detailed plans/specifications for the plant along with a detailed cost estimate. We are also bringing on board a ‘Construction Manager at Risk’, Roebbelen Construction Management Services, Inc., whose specific tasks are to develop an integrated schedule, provide independent cost estimates, develop work packages/contracts for the actual construction effort, conduct the competitive public bid process for the performing trade contractors and manage the construction effort.”
In September, when the board approved the contract with Roebbelen, the cost for the plant was estimated at $7.3 million.
At that time, General Manager Ed Crouse reported that work was continuing with members of the 670 developer group and Sullivan on a financing and services agreement for water and sewer service for their developments, and a draft agreement was expected to come to the board for review and approval in October.
"That agreement may or may not include the Murieta Gardens project, which would be rolled over to a separate (financing and services agreement) with the remaining lands in Rancho Murieta," Crouse said. Murieta Gardens is owned by Cosumnes River Land LLC, part of the group of investors that purchased the Pension Trust Fund's Rancho Murieta holdings in August. Sullivan has been the public face of the group.
"We're all pressing to get it done so that we can proceed with the water plant," said President Jerry Pasek of the financing and services agreement in August. "...Until we get something signed, we really can't get beyond some preliminary stages with the water plant."
In December, two agreements came to the board for approval. One was the final version of the financing and services agreement for the 670 group. The other was a work in progress, a term sheet for a separate agreement for the former PTF property, Rancho North, and the Murieta Gardens hotel project. The board emphasized moving the agreements forward so the water treatment plant project could go out to bid.
Costs for the plant would be based on 4.8-million-gallon core capacity, expandable to 6 million.
The 670 financing and services agreement utilized a $4.1 million letter of credit from South developer Reynen & Bardis for funding, and it capped the CSD share at $3 million for 55 percent of a 3.5 mgd plant capacity.
The deal points for the Rancho North and Murieta Gardens term sheet included a commitment to loan the district funds above $3 million if required. Reimbursement with interest would be due when Phase 2 of the current water treatment plant was decommissioned, Crouse said.
Sullivan addressed the board at the December meeting, saying the cost of plant could exceed $10 million, so there would be "a slight gap" in funding to limit CSD exposure to $3 million. The 4.8 million gallons of core capacity available to the CSD could be expanded to 6 mgd, "which benefits us down the road if we decide to go past the 1.5 million of demand," Sullivan told the board. He said it was viewed as “a fair bargain" and cost-saving for the district and developers.
The term sheet calls for the Cosumnes River Land and Rancho Murieta Properties to pay their fair share of costs based on a treatment capacity of 4.8 mgd, “plus up to an additional eight percent of the core costs ... subject to reimbursement by the District, for future water system capacity and expansion....”
Pasek, Gumbinger, Gillum and Crouse are the negotiating team for the term sheet and the final financing and services agreement with the landowner group represented by Sullivan.
"This term sheet requires the landowners to post a letter of credit for their amount plus the advance funds beyond $3 million," Crouse said at the December board meeting. Crouse said the term sheet would only be in effect until Feb. 1 since the water treatment plant bid was expected in mid-February.
The term sheet reads, “The Letter(s) of Credit shall be provided to the District by the time the WTP projected bid opening date (currently anticipated to be February 1, 2014). Any adjustment to the Letter(s) necessary based on the final (guaranteed maximum budget) shall be provided to the District before District’s issuing a notice to proceed. ... This Term Sheet will be replaced with a binding Fee and Services Agreement no later than February 1, 2014.”
The term sheet and the 670 financing and services agreement were approved in separate votes at the December board meeting.
After the term sheet was signed and the developers paid $180,000, the CSD issued 30 provisional will-serve letters for the Murieta Gardens hotel project.
The project is currently going through the county approval process. The environmental impact report for the project was recently released. The executive summary can be seen here and planning documents for the project can be viewed here.
The project is expected to go to the Planning Commission next month and to the Sacramento County Board of Supervisors for final action in late May, Crouse said at the CSD Finance Committee this week.
In recent months, grading work has been done under permit at the site, which is located across from Murieta Plaza.
The Murieta Gardens plan, a mix of commercial and residential projects, received county approval in 2011. The plan was amended to include the hotel and extended stay facilities, requiring new county approval, after Cosumnes River Land purchased the 53-acre property in 2012.
Plant funding status
By the Feb. 21 bids opening, the financing and services agreement for the 670 group hadn’t been signed yet, and the separate agreement between the CSD and Sullivan’s group wasn’t in place.
The Reynen & Bardis letter of credit and the CSD’s $3 million share provide about $7 million for the plant, leaving Sullivan’s group to come up with $5 million.
The final landowner signature for the 670 financing and services agreement was received this week, according to Gillum. The CSD was waiting to sign the agreement until all the signatures were in place.
The CSD is continuing to negotiate with the Sullivan group, although the deadline for replacing the term sheet with a binding agreement has passed. Nobody's saying the term sheet has expired and is off the table, Gillum said.
"There's no question that it is more (than expected). They are scrambling,” Gumbinger said of Sullivan’s group at last week’s meeting. “That's why the meeting on Tuesday is to look at other ways that they can finance their portion, because it's to their advantage if they want to get the hotel and the extended stay units, they need to look at ways to make that happen without increasing our share of the costs."
Martel said he thought the hotel was separate from the water treatment plant agreement. "I thought we voted to give them EDUs without expansion of the plant," he said.
"The 30 EDUs are provisional EDUs, meaning that there's still an obligation by the hotel to build a permanent treatment plant for that 30 EDUs,” Crouse said. “So even though they paid for the 30 EDUs, they're provisional will-serves that will become final when the permanent capacity is built."
Martel responded, "I don't ever remember voting on a conditional resolution. What I remember voting is we all agreed we liked the hotel idea, we said there was capacity."
Gillum said while there was no intent to take back the EDUs, the term sheet says the developers will move forward with CSD to get the treatment plant online. "They got the 30 EDUs for the hotel, they paid their $180,000, all with the understanding that all parties are going to move forward and try to get this plant online. So it's not like we gave them the 30 EDUs and they can wait 20 years. That's why it's provisional," Gillum explained.
"The whole thing is you cannot enter into a contract to build the water treatment plant unless you have both the FSAs signed and the funds there," Gumbinger said.
Although most of the 40-minute session March 7 was given over to the water treatment plant costs and funding, the special meeting wasn’t about awarding a contract. The meeting was called after the low bidder for the site work asked to withdraw the bid because of a $50,000 clerical error. There were only two bidders and the second one was about $300,000 higher.
The three directors present -- Betty Ferraro, Martel and Gumbinger -- voted unanimously to withdraw the low bid, reject both bids, and rebid that portion of the project.
There are no plans to rebid the entire project. The bids are in effect for 60 days, until April 20. But relying on that timeframe gets into the construction schedule and lead times on General Electric equipment for the plant, Gillum said. If the plant isn’t completed by May 2015, it could trigger the need for temporary water filtration and create other backend problems, she said.