TO: Members of the Governing Board
FROM: Christopher Silke, District Engineer
REPORT BY: Anna Martinez, Assistant Engineer
SUBJECT: Approval of a Letter Requesting Loan Forgiveness from Napa County
RECOMMENDATION
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Approval of and authorization for the Chair to sign a letter requesting waiver of repayment of loans made by Napa County to Napa Berryessa Resort Improvement District (NBRID) in the amount of $5,000,000 pursuant to Government Code Section 25214.4. (Fiscal Impact: $5,000,000; Napa Berryessa Resort Improvement District Fund; Not Budgeted; Discretionary)
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BACKGROUND
Napa Berryessa Resort Improvement District (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 Napa County.
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, after the closure of the Steele Park Resort began in 2008 resulting in a loss of one-third of the District’s operating revenue, many necessary repairs were beyond NBRID’s budget appropriations capability, and the deficient critical facilities resulted in regulatory permit violations prompting enforcement by the Regional Water Quality Control Board (“Regional Board”) and a sewer connection moratorium.
While several minor user rate increases were approved between 2006 - 2011, due to the large-scale infrastructure improvements needed, funding for capital improvement project (CIP) expenses was not incorporated into rate calculations, nor was a separate reserve fund established for CIP or asset replacement. The lack of funding to support asset and infrastructure renewal resulted in additional systems failures and permit violations. Bonds, loans, and available operations fund balance were used for some of the minor projects associated with remediation of failures.
In 2011 NBRID received a loan of $10,926,938 from the USDA Rural Development Program for three major improvement projects - the Wastewater Storage Capacity Upgrades Projects, the Wastewater Treatment Plant Replacement Project, and the Water Treatment Plant Replacement Project. Additionally, in accordance with the loan agreement for the USDA Improvement Bond, a Depreciation Reserve account was established for replacement of small assets associated with the USDA loans.
The District has used the USDA Depreciation Reserve funds for “timely replacement of short lived assets” associated with the 2011 USDA project, but Operations Fund Balance has supported maintenance and replacement of non-USDA utility assets. After the 2020 LNU Lightning Complex Fire destroyed over 100 utility customer homes in the District, Operations Fund Balance fell to near zero, resulting in the need for additional loans by the County to the District through June 2025.
NBRID has four active loans from the County totaling $5,000,000. Further description of each loan issued by Napa County to NBRID is described below, including those loans that have been consolidated into new loans over the last 5 years. The active loans are Loans 6, 7 (consolidation of Loans 2 and 4), 8, and 9 (consolidation of Loans 1 and 5).
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 four, three-year cycles, with the fourth renewal occurring on May 17, 2022. Loan No. 1 was consolidated with Loan No. 5 into a principal amount of $1,214,634 for a fourth three-year term on May 20, 2025. Loan No. 1 incorporates the following original loans:
a. On October 14, 2008 a loan for $474,000 was received to pay HydroScience Engineers for the design of capital improvements to the water and wastewater facilities. It was NBRID’s intent to sell bonds for the construction of the improvements and repay the County immediately thereafter.
b. On June 29, 2010 a loan for $395,000 was received to cover shortfalls in the fiscal year 2009-10 operating budget and for District improvements.
Loan No. 2
On October 6, 2015 three loans were consolidated for a principal amount of $625,000 and issued for a three-year term. This loan was repaid in fiscal year 2020-21 and renewed and consolidated with Loan No. 4 into a principal amount of $1,625,000 for a fourth three-year term on June 25,2024. Loan No. 2 incorporates the following original loans:
a. 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 the District.
b. 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 fiscal year 2010-11; professional services expenses related to the contract with Western Water Constructors; and emergency repairs to the District’s water distribution system. $45,000 of this loan was sourced from the County Accumulated Capital Outlay Fund.
c. 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 fiscal year 2012-13.
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 the District 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 the District 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
On May 18, 2021 a loan for $1,000,000 was received to cover projected three-year shortfall in the District’s operating budget. The shortfalls were projected using budget models prepared for the District by Robert D. Niehaus, Inc. (RDN), the consultant retained to complete a five-year rate analysis for the District. This loan was repaid in fiscal year 2023-2024 and renewed and consolidated with Loan No. 2 into a principal amount of $1,625,000 for a second three-year term on June 25, 2024.
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 was due June 30, 2025 and repaid and renewed for a three-year cycle. Loan No. 5 was consolidated with Loan No. 1 into a principal amount of $1,214,634 for a second three-year term on May 20, 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, Loans No. 2 and No. 4 were consolidated into a principal amount of $1,625,000 and issued for a three- year term. This loan is scheduled to be paid in full by June 30, 2027.
Loan No. 8
On July 23, 2024, a loan for $1,160,366 was received to cover projected operation expenses and two minor capital improvement projects that were necessary to increase operational efficiency at the water and sewer treatment plants and one sewer lift station. This loan is scheduled to be paid in full by June 30, 2028.
Loan No. 9
On May 20 2025, Loans No. 1 and 5 were consolidated into a principal amount of $1,214,634 and issued for a three- year term. This loan is scheduled to be paid in full by June 30, 2028.
The District was certified as an economically disadvantaged community in April 2024 with the average monthly water and sewer bill and assessment collections totaling 6% of the median household income, exceeding Environmental Protection Agency's (EPA’s) guidelines of household affordability of 3%. In January 2026, eligible voters in the District approved a 10-year Special Tax (Measure A) of $1,560 per parcel annually which will better position the District to qualify for grant funding by balancing the water and sewer operations budget. With the addition of the tax, payments to the District for water and sewer services will reach 9% of the median household income. The special tax proceeds will also be available to fund minor capital improvements as the District moves forward with funding applications for project planning, design, and construction of major capital improvement projects needed for both the water and sewer systems.
While a balanced budget is crucial to meet eligibility requirements from State and Federal funding opportunities, based on prior applications, the District cannot qualify for the grant funds that would remedy the District's infrastructure problems and potential for Regional Water Quality Control Board (RWQCB) or Division of Drinking Water (DDW) actions so long as its budget reflects the County loans. The only way to repay the County loans would be to increase water and sewer rates further, which would exacerbate an already severe economic hardship to District residents.
Government Code section 25214.4 authorizes the Board of Supervisors to waive repayment of these loans if it finds that repayment would result in an economic or fiscal hardship to the property owners or residents in the District. NBRID staff believes that a waiver of repayment of the outstanding loans is necessary to better position the District for grant funding to conduct the necessary capital improvements without additional financial contributions from property owners and customers. Without loan forgiveness, NBRID will not have the funding available to conduct necessary improvements. NBRID will experience an increased likelihood of non-compliance with regulatory agencies as infrastructure and equipment continue to age and ultimately fail if assets are not renewed; additionally, customers and property owners will then be asked to fund the necessary improvements, increasing their water and sewer payments further above the EPA’s affordable rate calculations.
Requested Actions:
1. Authorize submission of the attached letter to the Board of Supervisors requesting forgiveness of all outstanding loans totaling $5,000,000 plus accrued interest, pursuant to Government Code section 25214.4.
2. Authorize the Auditor-Controller to make the necessary budgetary amendments and accounting transactions to clear the outstanding loan liability with a corresponding revenue for the forgiveness in the amount of $5,000,000 plus accrued interest (non-cash transaction).
FISCAL IMPACT
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Is there a Fiscal Impact? |
Yes |
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Is it currently budgeted? |
No |
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Where is it budgeted? |
Not Budgeted |
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Is it Mandatory or Discretionary? |
Discretionary |
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Discretionary Justification: |
NBRID is an economically disadvantaged community that, the recent passage of Measure A (a special water and sewer tax) on January 20, 2026, now pays some of the highest water and sewer rates/charges in the state - above the EPA’s estimated affordable rates. Government Code Section 25214.4 authorizes the Board of Supervisors to waive repayment of these loans with a 4/5 vote if it finds that repayment would result in an economic or fiscal hardship to the property owners or residents in the District. While Measure A is projected to resolve the NBRID’s annual operations budget deficit, adoption of a resolution waiving the repayment of the loan is also necessary for the District to be eligible for grants or principal forgiveness loans from state and/or federal programs to make necessary repairs and upgrades to their facilities. |
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Is the general fund affected? |
Yes |
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Future fiscal impact: |
NBRID will no longer incur interest expense on the outstanding loans and will not have outstanding debt. |
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Consequences if not approved: |
By having outstanding debt, NBRID will not be eligibility for grant funding from State and/or Federal capital improvement programs; additional rate hikes would be necessary to repay County loan principal and interest creating a greater financial burden on utility customers. |
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Additional Information |
Strategic Initiative: Build Health, Connected Communities |
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.