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Lathrop may sell water allotment to Tracy for $5M

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POSTED May 16, 2013 1:57 a.m.

LATHROP — It’s been a few years since the City of Lathrop financed its way into an additional allotment from the South San Joaquin Irrigation District’s surface water treatment plant.

And now they just don’t need the extra water anymore.

But whether the city elects to cash in on the early investment and clear room in the city budget will be a decision made at a later date. 

Last week city staff pulled an item from the city council agenda that would have sold Lathrop’s allotment to the City of Tracy for $5 million, most of which will be used to pay back the money borrowed to participate in what was then a cutting-edge proposition that aimed to deliver a constant supply of affordable groundwater to member cities.

Originally the city took out a $4.6 million loan to construct the additional capacity, and has since incurred significant interest and annual expenses for a resource that they simply don’t have a pressing need for.  And while they use surface water in combinations with well water, the city has way too much capacity.

According to a report prepared by staff for the council, Lathrop – which is currently in the process of preparing a water master plan – has more capacity and water supply than needed for current or projected near term needs because of changed urban growth and land use projections.

Annual debt service payments alone run the city in the ballpark of $620,000. And the water that the project delivers accounts for only 20 percent of the water used in Lathrop while being responsible for 70 percent of the water used by the City of Tracy.

Even though the sale is technically a loss for Lathrop – having paid more in debt service alone over the last 10 years than they’ll get from the sale price – it’s a number that staff, according to the report, considers “reasonable” when everything is factored into the decision.

If the matter is approved at a future council meeting, the issue will likely be back before the council at least once more in the coming months. The initial debt that was incurred won’t fully be paid off by the sale price – part of the $5 million, if still mutually agreed upon by both communities, will go to pay back a general fund loan – and will have to be refinanced. Those bonds are anticipated to be sold in September of this year.

Because Tracy was one of the original parties in the SSJID surface water treatment project, no piping construction will be needed to get the water to its customers. In essence, the agreement will be to purchase 2 million gallons-a-day of plant capacity at the Nick DeGroot SWTP.

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