TO: Members of the Governing Board
FROM: Christopher Silke, District Engineer
REPORT BY: Annamaria Martinez, Assistant Engineer
SUBJECT: Approval of letter and resolution requesting loan from Napa County to the Napa Berryessa Resort Improvement District Administration Budget, and authorization for a promissory note and a budget amendment to increase appropriations for Fiscal Year 2024-25 if Napa County approves the loan.
RECOMMENDATION
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Adopt a Resolution; authorize a letter requesting a loan from the Napa County Board of Supervisors in the amount of $1,160,366 pursuant to Government Code Section 25214.4; authorize the promissory note; and approve a Budget Amendment if Napa County approves the loan. (Fiscal Impact: $160,366 Revenue, Napa Berryessa Resort Improvement District Fund, Not Budgeted, Discretionary)
[4/5 vote required]
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BACKGROUND
The Napa Berryessa Resort Improvement District (NBRID) is a special district of the State of California organized 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, which includes Unit 1 and 2 of the Berryessa Highlands and the Oakridge Estates.
Government Code section 25214.4 authorizes Napa County to loan funds to NBRID with a term of up to three years after the end of the fiscal year in which the loan is made, with a 4/5 vote of the Board of Supervisors. NBRID currently has four active loans from Napa County totaling $3,839,634. The active loans are:
Loan No. 1 for $869,000 which is the result of the consolidation of two smaller loans issued between 2008 and 2012 used to fund capital projects and operations and maintenance activities; Loan No. 5 for $345,634 which is an original loan from 2022 used to supplement funding for a capital project, Loan No. 6 for $1,000,000 which is an original loan from 2023 used to fund operations and maintenance expenses, and Loan No. 7 for $1,625,000 from 2024 which consolidated Loan No.2 (originally a consolidation of three smaller loans issued between 2008 and 2012) and Loan No. 4 (an original loan from 2021 used to fund operation and maintenance).
Not listed above is Loan No. 3, that was issued in 2013 to satisfy the reserve requirements for the water and sewer capital improvement loans issued to NBRID by the USDA Rural Development. 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. 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.
The subject loan that is currently requested as Loan No. 8 is for $1,160,366 and will be used by NBRID to cover operation expenses and two minor capital projects that are necessary to increase operational efficiency at the water and sewer treatment plants and one sewer lift station. If approved, the total outstanding loan balance from Napa County to NBRID will be $5,000,000. $1,000,000 of the requested Loan No. 8 was budgeted during the fiscal year 2024-25 Budget Hearings on June 25, 2024.
As stated, Loan No. 1 and Loan No. 2 (now consolidated with Loan No. 4 in Loan No. 7) were requested between 2008 and 2012 when NBRID was under threat of Administrative Civil Liability (ACL) penalties from the Central Valley Regional Water Quality Control Board for permit violations related to infrastructure and equipment deficiencies. The loans funded capital design, operations and maintenance, and legal expenses related to the ACL. NBRID was ultimately approved for over $11M in capital funding to replace the water and wastewater treatment plants; however, operations and maintenance revenue was insufficient to repay the two loans and also sustain operations without depleting available fund balance.
In 2019, staff drafted a five-year budget for NBRID and recommended to the Board that a Cost of Service Rate 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 Cost of Service Rate Study (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 the District 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 possible status as a disadvantaged community, a small rate increase of approximately 15% was approved to slightly increase revenue while staff pursued a Median Household Income Survey (MHI) to determine funding eligibility for capital projects.
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, the District 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. Loan Nos. 4, 5, and 6 were requested between 2021 and 2023 for this purpose.
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. After Loan No. 6 was issued in May 2023, a second survey began and in April 2024, and the community was determined to be a disadvantaged community 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.
While staff begins funding applications for capital improvements, the operations budget continues to face annual revenue shortfalls. Concurrently, staff is also investigating revenue options to balance the operating budget. To assist with this effort, NBRID once again retained RDN to update the previous financial plan to incorporate new revenue scenarios that will produce a balanced budget. The Agreement was approved by the District Engineer on June 1, 2024 and the update is expected to take several months, after which time, several additional months will be required to pursue whichever revenue option is chosen. For this reason, NBRID will require additional funding to balance the Fiscal Year 2024-25 budget and complete two minor capital projects. The projects include rehabilitation of one sewer lift station with redundant equipment and the replacement of the District’s SCADA monitoring system (required for regulatory reporting) with a more efficient program that will allow for more efficient data collection, control, and remote alarm notifications. Both projects are intended to reduce overtime and service costs.
Requested Actions:
1. Authorization for the Chair to sign the attached letter to the Board of Supervisors requesting a loan of $1,160,366 to be designated as Loan No. 8;
2. Adoption of a Resolution requesting and approving the loan and authorizing the Chair to sign the Promissory Note - contingent upon approval of the loan by the Napa County Board of Supervisors; and
3. Approval of a Budget Amendment by the Governing Board contingent upon approval of the loan by the County to increase appropriations by $160,366 in the FY 2024-25 budget ($1 million of the proposed loan was already included in the budget).
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: |
NBRID needs the loan to cover operational expenses and pay for two capital improvement projects intended to reduce operational costs. |
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Is the general fund affected? |
Yes |
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Future fiscal impact: |
NBRID will repay the loan as required by Government Code section 25214.4. However, NBRID might not have the ability to repay the loan within the statutory period, requiring prompt refinancing of the loan until such time that a rate or tax increase, or increase in the number of customers, or addition of a resort, provides sufficient revenue for repayment. |
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Consequences if not approved: |
Should NBRID not receive the new loan from Napa County, expenses will exceed approved appropriations and NBRID will is expected to end Fiscal Year 2024-25 with a negative fund balance. Future operations will be uncertain as NBRID’s ability to pay vendors for materials and services rendered could be compromised until a rate increase is approved through the Proposition 218 process, a special tax is approved by voters, or additional customers are brought online. |
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