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Federal loan for new Morro Bay sewer plant could reduce ratepayers’ costs

Morro Bay's aging wastewater treatment plant was built in 1953 and is well past its planned lifespan. The Coastal Commission has ruled that the plant must be moved inland away from the coast.
Morro Bay's aging wastewater treatment plant was built in 1953 and is well past its planned lifespan. The Coastal Commission has ruled that the plant must be moved inland away from the coast. The Tribune

Morro Bay is still wrangling over where to build its new sewage treatment and water recycling plant, but the city learned this week that it has been selected to apply for a federal $82 million, low-interest loan from the U.S. Environmental Protection Agency.

The EPA announced Wednesday that Morro Bay is one of 12 cities nationwide that have been invited to apply for the competitive new federal Water Infrastructure Finance and Innovation Act (WIFIA) loan. Three other proposed California projects in San Diego, San Francisco and Orange County also received invites.

“I am very happy at the prospect of this loan,” said Councilman Robert “Red” Davis. “$82 million from EPA would greatly reduce the amount we need to borrow from (the State Revolving Fund) or other sources.”

It could also lower ratepayer costs, which have been estimated at either $207 per month or $241 per month for the current project proposed at South Bay Boulevard, depending on whether the city were to build a water reclamation facility along with a treatment plant in its first phase at South Bay Boulevard.

The city, however, is now reconsidering whether it could build a cheaper facility at its existing plant site on Atascadero Road near the ocean, though that idea could present environmental regulatory challenges.

I am very happy at the prospect of this loan. $82 million from EPA would greatly reduce the amount we need to borrow from (State Revolving Fund) or other sources.

Robert “Red” Davis, Morro Bay city council

WIFIA is the first federal credit program for water infrastructure at the EPA. It was signed into law in 2014 and “aims to accelerate investment in our nation’s water infrastructure by providing long-term, low-cost supplemental credit assistance for regionally and nationally significant projects,” according to an EPA statement.

The EPA interest rate would be based on U.S. Treasury rates at that time the agency expects to close the loan in 2018. For a 35-year loan that closed today, the interest rate would be 2. 7 percent, said Rob Livick, the city engineer.

Selected projects have 365 days from the date of their invitation to submit their application. Morro Bay’s City Council will need to specify a project site and project to receive the loan, and the EPA will conduct a detailed financial and engineering review of the project.

“I think it is a positive response impact to the project from the federal government, and we look forward to working with EPA as we move forward to refine Morro Bay’s project,” Livick said.

The council has selected a preferred site near the intersection of South Bay Boulevard and Highway 1 for a $167 million wastewater treatment plant and water reclamation facility.

Based on community concerns, the council opted in April to delay the water reclamation facility and focus on an initial wastewater treatment plant, lowering the initial cost to between $123 million and $136 million, depending on the quality of wastewater treatment.

The rest of the project could be funded through State Revolving Fund financing (another low-interest loan program) or with conventional municipal bonds (higher interest), Livick said. Additionally, once the project description is completed the city will aggressively pursue grants.

Last week, the council voted unanimously for a two-month pause on the planned project to direct staff to engage the California Coastal Commission and the Central Coast Regional Water Quality Control Board (RWQCB) on the feasibility of building the treatment and reclamation plants at or near the existing treatment plant site on Atascadero Road, which could save the city about $40 million from the South Bay Boulevard site.

The council also directed staff to calculate costs for building both plants at two alternative sites — the Righetti property north of Highway 41 just west of Rancho Colina Recreational Vehicle Park, and the Giannini property near Hillcrest Drive and Little Morro Creek Road, east of Highway 1.

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