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Solvang council hears financing options for $18.5M wastewater upgrade, weighing USDA loan against bonds and bank loans
Summary
City staff and financial consultants outlined four funding paths for an 18.5 million wastewater treatment plant upgrade — private bank placement, public bond offerings, a USDA 40‑year loan (with a possible $1M grant) and blended scenarios — and urged further rate study work before a decision. Council emphasized affordability, term length and potential regional buy‑ins.
City staff and consultants presented council members with a comparison of financing options for a long‑planned wastewater treatment plant upgrade estimated at $18.5 million.
Utility Director Jose Acasta told the council the project is at roughly 50% design and that staff is nearing a USDA loan application; NHA Advisors consultant Eric Scriven laid out four high‑level funding approaches: a private bank placement (shorter term, faster execution), a public bond offering (longer term with more issuance overhead), the USDA 40‑year loan (longest term and historically low rates, here quoted at about 4.75%), and a blended scenario that applies an assumed $1 million grant to reduce annual payments. Scriven used net revenues, coverage ratios (typically 110–125%), and reserve levels to show the city’s borrowing capacity and the tradeoffs among annual payment, upfront costs and total long‑term interest paid.
Scriven said the city’s most recent audited net revenue (fiscal 2025) shows roughly $1 million in net revenues, providing debt capacity far short of the $18.5 million project if the city were to rely on bonding alone. The presentation compared annual payments across options — roughly $1.7M for a 20‑year private placement, about $1.33M for a 30‑year public bond, and roughly $1.1M annually for a USDA 40‑year loan — and noted that longer terms reduce annual pressure on rates but increase total interest over time.
Council members pushed on several policy points: whether the USDA grant is exclusive to USDA financing (staff said that point needed clarification with USDA), how prepayment and rate resets work under USDA terms, and how potential buy‑ins from neighboring communities (discussed as a 10% buy‑in example) might alter the city’s rate burden. One council member framed the generational equity argument in favor of longer terms — spreading cost over the asset’s useful life — while another emphasized the material difference shorter terms would make for current ratepayers (the presentation’s rough math showed a $600,000 annual difference in payments translating to about $300 per customer per year given the city’s ~2,000 connections).
Staff emphasized there was no recommendation to pick a financing route tonight and that a formal cost‑of‑service/rate study that will incorporate updated fiscal 2026–27 projections is the next step. The consultant and staff estimated construction would begin in the second quarter of the next year (subject to procurement timelines) with completion in mid‑2029, and they said detailed project cost and rate impacts would be revisited as design advances toward 90%.
What’s next: staff will proceed with the city’s rate‑study procurement and return to council with a full cost‑of‑service analysis and refined financing scenarios before any final financing decision.
