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Council authorizes up to $50M low-cost SRF loan for Otay second pipeline phase 3
Summary
The council authorized the mayor to accept a Drinking Water State Revolving Fund loan of up to $50 million for the Otay second pipeline steel replacement (Phase 3) in Bonita, with a 1.9% interest rate, 30‑year repayment and construction targeted to begin in FY26.
San Diego City Council authorized the mayor on May 13 to accept a Drinking Water State Revolving Fund (SRF) loan of up to $50 million to finance the Otay second pipeline steel replacement Project (Phase 3), which runs through Bonita and will install a new 48-inch transmission main.
Finance staff told the council the SRF program offers favorable terms; the current calendar-year loan rate set by the State Water Board is 1.9% and the city anticipates a 30-year repayment term with interest-only payments during construction. Construction is expected to begin in fiscal year 2026 with completion by mid‑FY28. Staff estimated the annual debt service cost would be in the neighborhood of $2.2 million after construction and noted debt-coverage covenants will apply.
Council approved the loan unanimously. Staff said the project is on the State Water Board’s list of fundable projects and that the water system’s existing rate structure supports the proposed loan under the system’s debt-test covenants. Officials said the loan will help maintain water reliability and support broader water-system resilience and planned programs tied to potable reuse and regional supply.
