Las Gallinas sewer district plans sale of bonds for lab project

The Las Gallinas Valley Sanitary District could be selling up to $25 million in tax-exempt bonds to finance the construction of a new multipurpose lab building and corporation yard.

The move would enable the San Rafael agency to stash a majority of its designated capital reserves for future use. It also buys the district time to develop a financial plan for its total capital improvements program, which envisions around $150 million in outlays through 2030.

The board governing the district authorized staff to start the process on Nov. 6.

“The board wants to make sure that the district remains strong in its ability to finance as needed, as well as maintaining enough reserves to have on hand for smaller projects or emergency action that’s required,” said Dale McDonald, administrative services director of the district.

The sanitary district serves about 32,000 customers in northern San Rafael and manages about 105 miles of collection lines. The district has been planning to update its headquarters at 300 Smith Ranch Road for about a decade.

Initially, the proposal called for a single building standing three stories and covering about 15,000 square feet. The proposal included a control room for the wastewater treatment plant, a laboratory, administrative offices, conference rooms and a classroom on the top floor that would be made available for public use. A new corporation yard and a one-story carport maintenance building were also part of the project.

Estimates in 2023 came in above the $30 million that the district had budgeted, prompting the district to change course. McDonald said it was critical that the district modernize its lab as soon as possible to meet regulatory compliance, and therefore the project was split into three phases.

The multipurpose lab building, estimated at about $19 million, is one. In addition to a modern lab, the structure will include a boardroom and education center within a two-story building of about 11,000 square feet.

The relocation of the corporation yard for $6 million is the second project. A $15.5 million construction of the treatment plant operations center is the final project.

The capital reserve balance is just shy of $11 million, making up 84% of total reserve balance of more than $13 million, according to the district.

About $9 million of capital reserves was slated to go toward the multipurpose lab construction over the next three years. Another $500,000 was earmarked for the corporation yard project and over $300,000 to cover design expenses that came in over budget.

The district has a list of more than 70 capital improvements planned for the next five years, including pump station improvements, as well as replacement or rehabilitation of clarifiers, pipes and other infrastructure.

The district always planned to issue bonds to finance its headquarters project. Right now, the district has the opportunity to package the multipurpose building and corporation yard projects within a single bond issuance to capitalize on market pricing, McDonald said.

This month’s action authorized a contract with Stradling Yocca Carlson and Rauth to serve as bond counsel to lead the process.

Working with the consultants, staff are looking at 30-year bond options. They expect to determine in January whether to do a competitive or negotiated bond. The execution of the bond is expected to be presented for approval in February, McDonald said.

The district approved a rate increase plan in 2023 that authorized a maximum increase of 10% annually through the 2026-27 fiscal year to support its capital improvements blitz. For fiscal year 2025-26, the sewer charge is $1,492 annually per household, which brings in about $22 million in revenue annually. The final increase will see the rate go up to $1,641 on July 1.

Whether the district will need to consider another rate increase plan to keep up with capital expenses will be determined in 2027, officials said.

Crystal Yezman, vice chair of the district board, said the multipurpose lab building is a good project with public benefit. Nonprofits and other agencies could use the center for meeting space. It will also serve as a destination for educational field trips, she said, where students could learn about the district’s 385-acre reclamation area, which includes a 20-acre freshwater marsh pond, 40 acres of storage ponds, a 10-acre saltwater marsh, 20 acres of irrigated landscaping and 200 acres of irrigated pasture.

“When you have something you’re building that’s going to last 50 to 100 years, you want to spread out that cost so you don’t burden the current ratepayers with the whole expense — bonds spread out the investment over multiple generations,” Yezman said. “To the extent that this is one big project, it is a good use of bond sales, and our capital reserve fund could be used for those smaller projects.”