RESOLUTION NO. (CM) BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WATSONVILLE,

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1 CITY COUNCIL 3.F RESOLUTION NO. (CM) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WATSONVILLE APPROVING AGREEMENT BY AND BETWEEN PÁJARO VALLEY WATER MANAGEMENT AGENCY AND THE CITY OF WATSONVILLE REGARDING STATE REVOLVING FUND FINANCING OF THE WATER STORAGE AND PUMP STATION IMPROVEMENTS COMPONENT OF THE WATSONVILLE AREA RECYCLED WATER PROJECT; AND AUTHORIZING AND DIRECTING THE CITY MANAGER TO EXECUTE SAME BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF WATSONVILLE, CALIFORNIA, AS FOLLOWS: 1. That the Agreement by and between Pájaro Valley Water Management Agency and the City of Watsonville regarding State Revolving Fund financing of the Water Storage and Pump Station Improvements Component of the Watsonville Area Recycled Water Project, a copy of which Agreement is attached hereto and incorporated herein by this reference, is fair and equitable and is hereby ratified and approved. 2. That the City Manager be and is hereby authorized and directed to execute such Agreement for and on behalf of the City of Watsonville. ****************************************** Reso No. (CM) Q:\COUNCIL\2016\042616\Agrmt PVWMA Revolving Fund Financing.docx ri 4/21/2016 1:55:29 PM AJS CAM PWU 1

2 AGREEMENT BY AND BETWEEN PAJARO VALLEY WATER MANAGEMENT AGENCY AND CITY OF WATSONVILLE REGARDING STATE REVOLVING FUND FINANCING OF THE WATER STORAGE AND PUMP STATION IMPROVEMENTS OF THE WATSONVILLE AREA RECYCLED WATER PROJECT THIS AGREEMENT is entered into and made effective this day of, 2016 ( Effective Date ), by and between Pajaro Valley Water Management Agency ( PVWMA ) and the City of Watsonville ( City ) (collectively, the Parties ). RECITALS A. WHEREAS, the United States of America, pursuant to Title VI of the federal Water Pollution Control Act as may be amended from time to time ( Federal Act ), requires each State to establish a water pollution control revolving fund to be administered by an instrumentality of the State as a condition to receipt of capitalization grants under the Clean Water Act; and, B. WHEREAS, the State of California ( State ) has established a Clean Water State Revolving Fund ( CWSRF ) pursuant to Chapter 6.5 of Division 7 of the California Water Code ( State Act ) to be used for purposes of the Clean Water Act; and, C. WHEREAS, the State Water Resources Control Board ( State Water Board ) is the state agency authorized to administer the CWSRF and provide financial assistance from the CWSRF to recipients for the construction of eligible projects, as provided in the State Act; and, D. WHEREAS, through the passage of various bond acts, the voters of the State have authorized the State Water Board to make available proceeds of certain tax-exempt bonds ( Bond Proceeds ) for projects meeting certain criteria; and, E. WHEREAS, the State Water Board determines eligibility for financial assistance from the CWSRF, determines a reasonable schedule for financing such projects, ensures compliance with the Federal Act, the State Act and the State GO Bond Act, and establishes the terms and conditions of an applicable financing agreement; and, F. WHEREAS, PVWMA has applied to the State Water Board for financial assistance from the CWSRF for the purpose of financing the construction of new storage and distribution pump station improvements at the Watsonville Area Recycled Water Project ( Project ); and, G. WHEREAS, the Project will be completed in three phases: Phase 1 includes a 1.5 million gallon storage tank and distribution pump improvements, Phase II includes recycled water treatment and filtration improvements, and Phase III includes an additional 0.5 million gallon storage tank; and, H. WHEREAS, City supports PVWMA s application to the State Water Board for financial assistance for construction of the Project; and,

3 I. WHEREAS, the State Water Board proposes to assist in financing the costs of the Project on the basis of PVWMA s application and representations and warranties set forth in Installment Sale Agreement Nos. D , D , and D By and Between PVWMA and the State Water Board, dated February 5, 2016 ( Installment Sale Agreements ), attached hereto as Exhibit A and incorporated herein by reference; and, J. WHEREAS, the Parties have entered into the following agreements with respect to Phase I of the Project and the existing Watsonville Area Recycled Water Project ( System ): (i) March 14, 2006 Agreement By and Between the Pajaro Valley Water Management Agency and the City of Watsonville Regarding Construction Costs and Operation Costs of the Treatment Plant Component of Watsonville Area Recycling Project, and (ii) August 19, 2015 Agreement By and Between the Pajaro Valley Water Management Agency and the City of Watsonville Regarding Construction, Ownership, Operation, Repair, and Maintenance of the Water Storage and Pump Station Improvements Component of the Watsonville Area Recycled Water Project (together, the Watsonville Agreements ); and, K. WHEREAS, the Watsonville Agreements establish that City owns and is responsible for the operation, repair, and maintenance of Phase I of the Project and the System and that PVWMA shall be responsible for the cost of operation, repair, and maintenance of Phase I of the Project and the System; and, L. WHEREAS, the Parties intend to enter into agreements similar to the Watsonville Agreements regarding operation, repair, and maintenance for Phases II and III of the Project; and, M. WHEREAS, certain representations and warranties set forth in the Installment Sale Agreement pertain to the operation, repair, and maintenance of the Project and the System and require City s acknowledgment and consent as owner and operator thereof; NOW, THEREFORE, the Parties hereto, in consideration of the mutual covenants, terms and conditions contained herein, do hereby agree as follows: AGREEMENT 1. Recitals. The Parties acknowledge the accuracy of the foregoing recitals which are incorporated by reference herein and are made a part of this Agreement. 2. Capitalized Terms. Capitalized terms used but not defined in this Agreement shall have the meanings given to them in the Installment Sale Agreements. 3. Covenants. City acknowledges and agrees to the following: a. Project Access. The State Water Board, the Governor of the State, the United States Environmental Protection Agency, the Office of Inspector General, any member of Congress, the President of the United States, or any authorized representative of the foregoing, will have safe and suitable access to the Project at all reasonable times during Project construction and thereafter for the term of the Obligation. Except for a subset of archeological

4 records, the Project records and locations are public records, including but not limited to all of the submissions accompanying the application, all of the documents incorporated by Exhibit A and Exhibit A-FBA of the Installment Sale Agreements, and all reports, disbursement requests, and supporting documentation submitted hereunder and pursuant to the Installment Sale Agreements. b. Continuous Use of Project; Lease or Disposal of Project. City will not abandon, substantially discontinue use of, lease, or dispose of the Project or any significant part or portion thereof during the useful life of the Project without prior written approval of PVWMA and the Division. c. As Needed Reports. City will expeditiously provide, during the term of the Installment Sale Agreements, such reports, data, and information as may be reasonably required by the Division, including but not limited to material necessary or appropriate for evaluation of the SRF Program or to fulfill any reporting requirements of the federal government. d. Ownership and Operation of Project. City shall exclusively own and, except as provided in Section 4.12 of the Installment Sale Agreements, the Parties will operate the Project per the terms of the Watsonville Agreements. e. Private Use and Private Payments. None of the Project is, has been or will be used in the aggregate for any activities that constitute a Private Use. f. No Sale, Lease or Private Operation of the Project. The Project will not be sold or otherwise disposed of, in whole or in part, to any person who is not a Governmental Unit prior to the final maturity date of the Obligation. Except as permitted under Section 4.12 of the Installment Sale Agreements, City will not enter into any contract or arrangement or cause or permit any contract or arrangement to be entered (to the extent of its reasonable control) with persons or entities that are not Governmental Units if that contract or arrangement would confer on such persons or entities any right to use the Project on a basis different from the right of members of the general public. The contracts or arrangements contemplated by the preceding sentence include but are not limited to management contracts, take or pay contracts or put or pay contracts, and capacity guarantee contracts. g. No Disproportionate or Unrelated Use. None of the Project is, has been, or will be used for a Private Use that is unrelated or disproportionate to the governmental use of the Project Funds. h. Management and Service Contracts. As of the date hereof, none of the Project is being used to provide property subject to contracts or other arrangements with persons or entities engaged in a trade or business (other than Governmental Units) that involve the management of property or the provision of services that do not comply with the standards of the

5 Treasury Regulations and Revenue Procedure 97-13, as modified by IRS Notice Except to the extent the Parties have received an opinion of counsel expert in the issuance of state and local government bonds the interest on which is excluded from gross income under Section 103 of the Code ( Nationally-Recognized Bond Counsel ) and satisfactory to the State Water Board and the Bank to the contrary, the Parties will not enter into any management or service contracts with any person or entity that is not a Governmental Unit for services to be provided with respect to the Project except with respect to contracts that meet the following requirements: (i) the compensation is reasonable for the services rendered; (ii) the compensation is not based, in whole or in part, on a share of net profits from the operation of the Project; (iii) the term of the contract, including all renewal options, does not exceed five (5) years; and (iv) all of the compensation for services for each annual period during the term of the contract is based on a periodic fixed fee or all of the compensation for services is based on a stated amount, a periodic capitation fee, a capitation fee, a per unit fee, or combination of the preceding. The compensation for services may be all, or may include, a percentage of gross revenues, adjusted gross revenues, or expenses of the facility (but not both revenues and expenses). A capitation fee is a fixed periodic amount for each person for whom the service provider assumes the responsibility to provide all needed services for a specified period so long as the quantity and type of services actually provided to covered persons vary substantially, e.g., a fixed dollar amount payable per month to a service provider for each member of a plan for whom the provider agrees to provide all needed services for a specified period. A capitation fee may include a variable component of up to twenty percent (20%) of the total capitation fee designed to protect the service provider against risks such as catastrophic loss. i. No Disposition of Financed Property. City will not sell or otherwise dispose of any portion of the Project, in whole or in part, prior to the final maturity date of the Obligation. j. Change in Use of the Project. City will use the Project solely as set forth in the Installment Sale Agreements for the entire stated term to maturity of the Obligation. k. Operation and Maintenance; Insurance. i. City will properly staff, operate, and maintain the Project and the System during its useful life in accordance with all applicable state and federal laws, rules, and regulations. ii. City will procure and maintain insurance for the Project and the System with responsible insurers, or as part of the City s self-insurance program, in such amounts and against such risks (including damage to or destruction of the Project or the System) as are usually covered in connection with systems similar to the System. PVWMA shall pay the City on a quarterly basis for the cost of procuring and maintaining such insurance including the cost to City of any increase in self-insured retention required or incurred to comply with this requirement.

6 iii. City shall not be required to maintain a discrete self-insured retention fund for the Project. Any discrete self-insured retention fund for the Project shall be solely the responsibility of PVWMA. PVWMA shall be solely responsible to City for any additional cost attributable to the City creating or maintaining a self-insured retention for this Project. iv. In the event any damage to or destruction of the Project or the System caused by the perils covered by such insurance or self-insurance program, the net proceeds thereof to extent they exist shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Project or the System. The City shall work with PVWMA to begin such reconstruction, repair or replacement as expeditiously as possible, at no cost to City, however City shall in such case pay out of available net proceeds all costs and expenses in connection with such reconstruction, repair or replacement, insofar as net proceeds are available, so that the same shall be completed and the Project and the System shall be free and clear of all claims and liens. 4. No Third Party Beneficiaries. This Agreement is for the exclusive benefit and convenience of the Parties hereto. Nothing contained herein shall be construed as granting, vesting, creating or conferring any right of action or any other right or benefit upon any person other than the Parties. IN WITNESS WHEREOF, the Parties hereto have signed this Agreement effective as of the date set forth above. PAJARO VALLEY WATER MANAGEMENT AGENCY MARY BANNISTER, General Manager CITY OF WATSONVILLE CHARLES A. MONTOYA, City Manager