TO: Board of Supervisors
FROM: Ryan J. Alsop, County Executive Officer
REPORT BY: Jasmine Elo, Management Analyst
SUBJECT: Issuance of loan to Napa Berryessa Resort Improvement District
RECOMMENDATION
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Adopt a Resolution granting a loan from the County in the amount of $1,160,366 to the Napa Berryessa Resort Improvement District in accordance with the promissory note for the purpose of funding 1) ongoing operations of facilities and 2) implementation of two small capital projects, and approve a Budget Amendment to fund the loan to Napa Berryessa Resort Improvement District. (Fiscal Impact: $1,160,366 Expense; General Fund; Not Budgeted; Discretionary)
[4/5 vote required]
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BACKGROUND
NBRID is a special district of the State of California organized in 1965 under the Resort Improvement District Law (Public Resources Code Section 13000 et seq.) for the provision of water and sewer service in an unincorporated portion of the County of Napa. By letter included with this agenda item, NBRID is requesting a loan from the County in the amount of $1,160,366.
Beginning in 1995, the NBRID’s infrastructure suffered significant deterioration due to many components reaching the end of their useful life. In response, staff initiated small-scale rehabilitation projects whenever permissible within the confines of available funding. However, many necessary repairs were beyond the NBRID’s budgetary capacity, and the deficient critical facilities resulted in negative action by the Regional Water Quality Control Board (“Regional Board”).
The decline of the facilities and the mandates imposed by the Regional Board prompted a series of requests for loans from Napa County for various repair and improvement projects between 2008 and 2013. NBRID currently has five active loans from the County totaling $3,839,634.
Further description of each active loan is as follows:
Loan No. 1
On May 7, 2013 two loans were consolidated into a principal amount of $869,000 and issued for a three-year term. This loan has been repaid and renewed for three, three-year cycles, with the fourth renewal occurring in June 2022. Loan No. 1 incorporates the following original loans:
1. On October 14, 2008 a loan for $474,000 was received to pay HydroScience Engineers. It was then NBRID’s intent to sell bonds and repay the County immediately thereafter.
2. On June 29, 2010 a loan for $395,000 was received to cover shortfalls in the FY 2009-10 operating budget and for NBRID improvements.
Loan No. 2 - Consolidated with Loan No. 4 into Loan No. 7. Details below.
Loan No. 3 (defeased)
Special Assessment District 2012-01 was created and approved by property owners to finance the entirety of the USDA loans, but NBRID did not have sufficient reserves to meet USDA loan conditions. The County provided a loan in 2013 totaling $1.1 million to fund the reserve requirements for the water and sewer capital improvement loans issued to NBRID by the USDA Rural Development. By 2022, the payments received from AD 2012-01 were sufficient to meet current annual repayment and total reserve requirements and Loan No. 3 was paid in full.
Loan No. 4 - Consolidated with Loan No. 2 into Loan No. 7. Details below.
Loan No. 5
On October 27, 2022, a loan for $345,634 was received to supplement construction of the Wastewater Pond 2 Slope Stabilization Project. This loan is scheduled to be paid in full by June 30, 2025.
Loan No. 6
On June 6, 2023, a loan for $1,000,000 was received to cover projected operating budget shortfalls while concurrently granting staff time to:
1. Update a Median Household Income Survey to determine eligibility for Federal and State grants for capital projects that will contribute to reduced operating and maintenance costs; and
2. Proceed with measures (i.e., rate adjustment, special tax, other) to bring in enough revenue to balance the budget over the next five years. This loan is scheduled to be paid in full by June 30, 2026.
Loan No. 7
On June 25, 2024, Loan Nos. 2 and 4 were consolidated into a single loan totaling $1,625,000.
Loan No. 2 was originally issued on October 6, 2015 when three prior loans were consolidated for a principal amount of $625,000 and issued for a three-year term. This loan was repaid in FY 2023-24, reissued as part of Loan No. 7 on June 25, 2024, and is now scheduled to be paid in full by June 30, 2027. Loan No. 2 incorporates the following original loans:
1. On May 10, 2011, a loan for $205,000 was received to pay for non-budgeted County costs, including engineering, accounting, Auditor's Office, legal and County Executive Office expenses that were needed for the day-to-day operations of NBRID.
2. On June 5, 2012, a loan for $325,000 was received to pay for legal expenses that exceeded the amount budgeted for the Administrative Civil Liability (ACL) Complaint R5-2011-0590 issued by the Regional Board for wastewater discharge violations that occurred in FY2010-11; professional services expenses related to the contract with Western Water Constructors; and emergency repairs to NBRID’s water distribution system. $45,000 of this loan was sourced from the County Accumulated Capital Outlay Fund.
3. On September 11, 2012 a loan for $95,000 was received to pay for the ACL Complaint R5-2011- 0590 settlement which was not budgeted in FY2012-13.
Loan No. 4 was originally issued on May 18, 2021 for a principal amount of $1,000,000 to cover a projected three-year shortfall in NBRID’s operating budget. The shortfall was projected using budget models prepared for NBRID by Robert D. Niehaus, Inc. (RDN), a consultant retained to complete a five-year rate analysis for NBRID. This loan was repaid in FY 2023-24, reissued as part of Loan No. 7 on June 25, 2024, and is now scheduled to be paid in full by June 30, 2027.
NBRID residents agreed to a rate increase (~12%) effective December 1, 2021. While the additional revenue received as part of this rate increase did help NBRID’s financial situation, the additional revenue received was not sufficient to cover prior expected and future anticipated annual deficits, and NBRID has not been able to build enough budgetary reserves to fund operations, maintenance, and small capital projects intended to reduce operating costs.
In 2019, NBRID staff drafted a five-year budget and recommended to their Governing Board that a Cost of Service Rate Study (Study) of NBRID’s current water and sewer rate structure be conducted to confirm projected budgetary deficiencies and recommend a sustainable rate for water and sewer operations. Robert D. Niehaus, Inc. (RDN) of Santa Barabara, CA was selected through a competitive proposal process to complete the study beginning in January 2020.
The Study concluded in mid-August 2020 just before the 2020 LNU Lightning Complex Fire destroyed over 100 homes and damaged infrastructure critical to the operation of the water and wastewater facilities. The fire nullified the results of the Study by negating the assumptions used for account growth and water use that were used to finalize sustainable water and sewer rates. Through contract amendment, RDN revised the financial plan for NBRID in 2021 and determined a sustainable rate increase of over 100% of current rates. Due to the uncertainty surrounding the development of a resort at the Steele Canyon Recreation Area - which could directly impact community growth - and the community’s potential to be classified as a Disadvantaged Community (DAC), a small rate increase of approximately 15% was approved to slightly increase revenue while staff pursued a Median Household Income Survey (MHI) that would determine funding eligibility for capital projects - especially if the community was determined to be a DAC.
The reduction in the number of active water and sewer accounts after the fire, a high number of active water and sewer accounts missing or with delayed water sewer user charge payments, increased expenditures related to equipment malfunctions or failure, water and sewer treatment plant process challenges, and additional overtime from the operations contractor to address the noted operations issues, NBRID has experienced an annual operating deficit of over $300,000 since Fiscal Year 2020-21 and loan proceeds have been required to balance the budget in each successive fiscal year.
Between 2021 and 2024 NBRID staff retained Rural Community Assistance Corp to conduct two separate Income Surveys. NBRID did not meet eligibility requirements for capital funding for the first survey conducted in 2021. A second survey began in July 2023 with the final report issued in April 2024. Based on the results of the second survey, the community was determined to be a DAC with a median household income of $62,000, meaning NBRID is eligible to apply for up to $8M in both Drinking Water and Clean Water Project Funding Programs.
The subject of today’s action, Loan No. 8 in the amount of $1,160,366, is necessary to enable NBRID to continue operation of the water and wastewater facilities in the face of annual revenue shortfalls that are expected to continue until a combination of revenue building alternatives can be approved and funding for capital projects is received. To this end, NBRID staff will begin drafting funding applications for various capital improvements projects and will continue to investigate revenue options to balance the operating budget, including working with RDN again to update the previous financial plan to incorporate new revenue scenarios that will produce a balanced budget. The Agreement for financial plan work was approved by the District Engineer on June 1, 2024 and the update is expected to take a minimum of three months with implementation of any revenue building scenarios taking an additional three to four months to attempt, and awards for capital projects can take several years to receive a funding agreement. Due to these long lead times, NBRID will require the additional funding afforded by a Loan No. 8 to balance the Fiscal Year 2024-25 budget and to complete two minor capital projects at the water and wastewater treatment facilities. The proposed projects include rehabilitation of one sewer lift station with redundant equipment and the replacement of the SCADA monitoring system (required for regulatory reporting) with a modern program that will allow for more efficient data collection, control, and remote alarm notifications. Both projects are intended to reduce overtime and service costs over time.
Requested Actions:
1. Adoption of a Resolution granting a loan from the County to NBRID for the purpose of providing supplemental funding of ongoing operations of NBRID’s facilities and some minor capital improvements, in accordance with the new promissory note in the amount of $1,160,366, to be known as Loan No. 8 and to become due on June 30, 2028, and;
2. Approve the related Budget Amendment to fund the loan and transfer the funds to NBRID.
FISCAL & STRATEGIC PLAN IMPACT
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Is there a Fiscal Impact? |
Yes |
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Is it currently budgeted? |
No |
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Is it Mandatory or Discretionary? |
Discretionary |
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Discretionary Justification: |
Pursuant to Government Code Section 25214.4, the Board of Supervisors may loan any available funds of the county to a county service area to pay for any lawful expenses of the county service area. |
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Is the general fund affected? |
Yes |
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Future fiscal impact: |
As required by Government Code Section 25214.4, NBRID will repay the loan within three years from the end of the fiscal year in which the loan was issued. |
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Consequences if not approved: |
NBRID will not have sufficient revenue to cover expenses at the end of the fiscal year and will deplete available fund balance, potentially compromising NBRID’s ability to pay for other critical operating, maintenance, and small capital project expenses. |
ENVIRONMENTAL IMPACT
ENVIRONMENTAL DETERMINATION: The proposed action is not a project as defined by 14 California Code of Regulations 15378 (State CEQA Guidelines) and therefore CEQA is not applicable.