City Lost Up to $6 Million as a Result of Wastewater Rollback Initiative, Mayor Claims

Petaluma lost as much as $6 million because of last fall’s sewer rollback initiative that delayed the city’s ability to refinance payments on the Ellis Creek Water Recycling plant, according to Mayor Dave Glass.

Glass, a municipal bond trader at Raymond James, estimates that the city is losing about $220,000 a year for the next 20 years and is blaming the citizen-led effort to roll back wastewater rates that he said made banks skittish about lending any money.

As a result, it took the city another nine months to negotiate a loan, meaning it had to settle for a rate that was 1 percent higher than what it could have received in 2010, just as the initiative was being placed before the voters.

“That’s $220,000 a year that was just flushed down the toilet not through any fault of the city council or the community, but because of the naïve people that signed that initiative and put it on the ballot,” Glass said.

Glass made the comment at last week’s council meeting just before the city voted to approve water and wastewater rate increases of about 5 percent starting next month. That's the fifth year of increases the council says are needed to service the $160 million wastewater facility, do maintenance on water pipes around town and building up a cash reserve.

The increases will generate about $1.75 million in additional revenues, according to Remleh Scherzinger, director of Petaluma's Department of Water Resources.

The mayor said that the city had borrowed $22 million from two banks, at an interest rate of less than 1 percent to build Ellis Creek. Around the same time, opponents of wastewater increases, led by former Councilmember and fiscal watchdog Bryant Moynihan, introduced their initiative, with the goal of returning rates to what they were in 2006.

Because of the citizen-led initiative, banks were nervous about not being paid back and increased the interest rate to 12 percent, according to Glass. Finally, the rate was negotiated down to 4 percent, he said.

Part of the mayor’s calculation includes the cost of a lawsuit the city filed against the backers of Measure U, as the initiative was called, to force a change in some of the language in the official ballot pamphlet.

Measure U supporters said that the city raised sewer rates an average of 20 percent a year and had allowed the costs of the Ellis Creek facility to grow from $34 million to $160 million.

The city disagreed, saying that the rate increases averaged 14.3 percent a year. A Sonoma County Superior Court judge agreed with the city, and ordered some portions of the ballot changed.

Measure U was ultimately defeated, although 44 percent of Petaluma residents voted in favor of rolling back wastewater rates.

Asked about Mayor Glass’s comment that the initiative contributed to a significant loss of monies for the city, Moynihan said it was inaccurate.

“The interest the city needed to pay back was the prevailing market interest rate and there is no bank that would have given it to them for 1 percent,” Moynihan said.

“The mayor is suggesting it was the citizens’ initiative that delayed them from refinancing the project, when it fact it was not. They were delayed in their project (Ellis Creek) and lost control of it, which is why the city just had to pay $4 million in claims to Kiewit (the company that built the treatment plant.)

This September, the city reached a settlement with Kiewit Infrastructure West, a Fairfield company that built the wastewater treatment plant over allegations of hundreds of change orders, delays, disruptions and “maladministration” by an engineering group that carried out the work.

Mayor Glass has said that the council did not necessarily agree with the allegations, but made the decision to settle in order to avoid spending more money on legal fees.

Did you support the wastewater rollback initiative? Do you think it contributed to a loss of monies for the city? And what do you think about the ongoing rate increases for water and wastewater?