Arcata OKs $3.5M interfund loan to advance $12M water main replacement project

Arcata — The City Council on April 2 adopted a resolution authorizing an interfund loan of up to $3.5 million from the wastewater fund to the water fund to move forward with a long-delayed steel water-main replacement project.

Finance Director Tabitha Miller told the council that the project's current engineer's estimate was $14.5 million, but bids returned on March 27 came in lower. "The low bid for construction was approximately $10.8 million," Miller said, and staff is projecting a $12 million total project cost after adding pre-purchased equipment and a roughly 7.4% contingency. Staff previously pre-purchased about $400,000 in meters and vaults to lock in prices.

Miller described finance and repayment options: using water-fund reserves would leave the fund with limited working capital; the proposed interfund loan at an estimated interest rate of about 4.25% would be interest-only during construction (about $112,000 for an 18-month interest-only period) and repaid on a 10-year schedule (8.5 years of principal/interest after construction). The total cost of repaying a $3.5M loan at the projected rate would be approximately $4.35M. Staff outlined mitigation options that could reduce immediate rate pressure, including (a) offsetting wastewater rates while increasing water rates so net bills stay roughly constant, (b) using limited general-fund contributions to lower the loan amount, or (c) accelerating meter replacement to register more usage revenue.

Council members asked about bid firmness amid tariff volatility and whether rebidding or phasing the work could produce better prices later. Miller said the current bid is a firm construction bid but noted the project involves old underground infrastructure and contingencies should remain. Multiple public commenters urged phased work and recommended using televising/camera inspection where possible to avoid unnecessarily repaving recently resurfaced streets.

After public comment and deliberation, a council member moved to adopt Resolution No. 245-41 authorizing the interfund loan from the wastewater fund to the water fund in an amount not to exceed $3,500,000. The motion passed by voice vote.

Next steps: If the council authorizes the loan, staff will return on April 16 with a contract award recommendation to the low bidder and continue the rate-study work with financial consultants; any rate increases would follow public hearings and the Prop 218 process as required.

Sources: Tabitha Miller (Finance Director) and council deliberations during the April 2, 2025 Arcata City Council meeting.