MENLO PARK, Calif. — Sacramento’s sanitation district may be forced by California to spend more than $2 billion to raise its wastewater purification standards to comply with more stringent environmental rules.
Officials at the Sacramento Regional County Sanitation District estimate the pollution-control project will require them to turn to the bond market for a portion of the funds and triple current residential ratepayer fees. The project, which is nearly four times larger than any previously undertaken by the district, comes as the area is dealing with falling home prices and historically high unemployment rates.
The state’s Central Valley Regional Water Quality Control Board released a draft discharge permit last week that would require the district to tackle its largest infrastructure projects ever to filter wastewater. Officials said the cost of implementing the permit would significantly raise costs for customers in and around the state’s capital city.
“Our very high-level analysis shows that it will probably [cost] $2.1 billion to comply with the permit in the next 10 years,” said Marcia Maurer, the district’s chief financial officer. “It is safe to say we will probably have to issue some bonds to pay for this.”
Maurer said the district, which has around $1.4 billion in outstanding debt, would be unlikely to sell new bonds related to the project for four to five years. She would not comment on how much of the upgrade would be paid for by bonds.
The district’s largest project to this point cost around $565 million, according to Maurer.
The state control board issues a new permit every five years allowing the district to discharge water. The permit demands the district meet new filtration rules for discharges into the Sacramento River and downstream waters of the Sacramento-San Joaquin Delta to control pollution.
The Sacramento sanitation district is the single largest source of wastewater being discharged into the delta.
The district must meet the board’s 10-year deadline, but may challenge the permit in court. The permit still needs to be adopted by the board in early December and there is a public comment period.
Environmentalists have complained the district’s treatment plant is one of the few that has not been upgraded to eliminate or reduce levels of ammonia and other pollutants entering the river, which some believe affects the food chain for fish.
U.S. Sen. Dianne Feinstein, D-Calif., has urged the control board to work with the district to reduce or eliminate its ammonia discharges. “This review is critical to achieving co-equal goals of ecosystem restoration and water supply reliability for the delta and all of California,” she said in a letter earlier this year.
The district estimates that the cost of installing the enhancements needed to remove the ammonia will cause residential ratepayer fees to jump 200% to around $60, from the current $19.75 a month. Fees to connect new homes to the sewer system could rise more than 300% to $35,000 from the current $7,450.
Maurer said the district has around 570,000 equivalent single-family homes.
“These increases in new development impact fees would add considerable costs to overall construction expenses that would be passed along to new homebuyers and business owners,” the district said.
The project could exacerbate the difficult economic climate in Sacramento County, where falling property values have cut the 2010 tax roll by slightly less than $200 million. The county’s entire tax roll shrank by almost $3 billion, according to county assessor Ken Stieger.
Meanwhile, the district will sell $100 million in new debt around Sept. 23 to refund older bonds. The lead underwriter is JPMorgan, co-senior is Wedbush Securities and the co-manager is Morgan Stanley. Bond counsel is Orrick, Herrington & Sutcliffe LLP, while the financial adviser is Montague DeRose and Associates. Maurer said the new issue should save the district around $8 million.
