Synopsis: According to the proposed ordinance, property owners will owe $260 a month. This does not include the costs of connecting the sewer. And that's not even the full picture.
On October 26, 2010 the San Luis Obispo County Board of Supervisors passed a resolution introducing an ordinance establishing a mandatory sewer connection requirement and sewer service charges for the Los Osos Wastewater Project. This is a critical milestone subject to a protest of property owners pursuant to Proposition 218. The protest period ends December 14, 2010 at a regular Board of Supervisors meeting. A "townhall meeting" is scheduled for November 29, just days before the end of the protest period.
The rates and charges may be paid monthly or added to the tax rolls and paid semi-annually like the $25,000 per home bonded assessment approved in 2007. The rates and charges include both fixed and variable costs to operate and maintain the wastewater project. The rates and charges for existing properties include $30 million to bridge the financing gap left because vacant and underdeveloped properties are not participating in the wastewater project. They pay nothing and will receive no service. In addition to the monthly equivalent of $130.00 for each residence to repay the $25,000 assessment, $130.00 for rates and charges runs the total monthly to around $260.00 which does not include on-lot costs of connecting to the sewer.
This scenario is a result of decades of delays and the failure to bring vacant and underdeveloped properties into the project on a timely basis so that they could help achieve economies of scale and reduce costs for everyone. It is unclear if or when these properties may receive sewer service.
Adding insult to injury, Los Osos is not only facing high costs for its sewer, but the community will be paying for the facilities long after their useful life. The County of San Luis Obispo has focused on expediency and keeping the monthly payment "lower" opting for inferior financing from the United States Department of Agriculture (USDA). Complicating matters, USDA is not set up to loan this much to a single project so the County has applied for nine separate loans of $9,220,000 each. This is an accounting nightmare and an administrators dream (administrative fees will be charged to the project for monitoring and reporting each loans line item expenses). This "stimulus" money has been pursued by the County for the last year in spite of the fact at 3.25% interest; it is higher than otherwise available financing through the State Revolving Fund loan. For qualifying communities, like Los Osos, State financing offers interest rates at between 1-2%.
The County has incorporated the stimulus loan in the amount of $83 million for the project into their ordinance at the higher interest rate, but over an extended period of 40 years. Analogous to a standard home loan, borrowers who opt for a shorter amortization period—like 15 years—save substantial interest costs over the life of the loan. This shorter term typically carries with it a lower interest rate. In the instant case, for the price of a pizza on a monthly basis, Los Osos could reduce its interest by tens of millions of dollars over the term of the loan. By pursuing incentives with the State, the County could obtain shorter-term financing with reduced interest rates so the project would be paid off between 20-30 years instead of 30-40 years. Another incentive overlooked by the County is the State equivalent of a grant program that is available in the amount of $7.5 million of principal forgiveness. To date the County has not pursued this incentive.
It appears no one at the County is representing the community aggressively to achieve the best available financing package for the wastewater project. At this point, County staff has been unable or unwilling to negotiate better terms due in part to their attitude about Los Osos and the history surrounding the project. Assembly Bill 2701 gave the County control over the project and also provided that the County's credit rating be used to secure financing for the project as the applicant. County staff doesn't appear to have Los Osos' best interest at heart, using terms such as "considering the history," "default" and "un-creditworthy" in negotiating financing for the project.
Security for a loan based on the 2007 assessment vote, is $127 million. The project should borrow this amount from the State at a reduced interest rate with principal forgiveness. All the County has to do is ask—but has not. If successful, it would leave about $35 million, which could be borrowed from USDA at the higher interest rate. With all of the failures over the many years concerning the project, it would a consolation to get this part right. In the alternative Los Osos will be paying for this project much longer than it should.
Property owners are required to file a written protect if they object to the rates and charges ordinance. Prop 218 requires a majority of property owners protest to reject the ordinance.
