Arroyo Grande City Council on Tuesday voted to authorize an interfund loan not to exceed $1,430,000 from the general fund to the Water Enterprise Fund to pay the city's share of Zone 3 contract water billing for fiscal year 2024–25.

City Director of Administrative Services Nicole Valentine told the council the city received the bill on Nov. 1 and that the amount represents a substantial, unplanned obligation for the utility: "On November 1, the city received the fiscal year 24, 25 zone 3 contract water billing for $1,426,491.50," Valentine said.

The charge reflects costs Zone 3 incurred while responding to a federal injunction and related litigation over Lopez Lake operations. Downing and Valentine said a January 2025 preliminary injunction increased downstream releases from roughly 2,000,000 gallons per day to more than 5,000,000 gallons per day, a change that raises operational uncertainties and additional costs for member agencies.

Staff recommended and council approved an interfund loan using the Measure 6 sales tax fund to avoid issuing external debt or immediately raising rates. The proposal sets a 10-year repayment schedule beginning in fiscal year 2029–30 and ties interest to the LAIF market yield; staff said the schedule gives time to complete a rate study and plan adjustments before repayment begins.

Council members pressed staff on oversight and communications. City Manager Downing said the city is not a named party in the federal suit and is constrained in what it can say publicly, but that staff is preparing a dedicated web page with vetted FAQs and messaging to explain the litigation and the city's exposure. "We are not a named party in this lawsuit," Downing said, noting the communications and legal constraints.

The council voted unanimously to adopt a resolution authorizing the loan and appropriating the funds to pay the Zone 3 bill. Council members emphasized this is a stopgap measure and said they expect ongoing true-up bills annually; staff noted another true-up is expected in November 2026 covering July 1–June 30 activity.

Staff listed alternatives considered — immediate rate increases, bank borrowing, GO bonds, and lease revenue bonds — and concluded the interfund loan was the most timely and cost‑effective means to meet the immediate obligation while preserving time to develop longer-term solutions.