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Crescent City will take out a $651,738 loan from its water fund to complete engineering work on a project to correct storm erosion to the bluff along Pebble Beach Drive.

Councilors authorized the 20-year loan Monday in the hopes that Congress will reimburse the city through a process called Advanced Construction. If Congress doesn’t reimburse Crescent City, however, the loan payments will be an annual expense to the general fund and will “have to come from somewhere,” Finance Director Linda Leaver told Councilors.

“This is only the preliminary engineering phase,” Leaver said of the Pebble Beach Bank Stabilization Project. “This would get us to a shovel-ready project, but right now the construction phase does not have any funding, so we would also need to figure that out once we have the project design complete, and hope Congress allocates the funding for the construction phase as well.”

The project aims to correct erosion created by storms in December 2016 along Pebble Beach Drive from 6th Street, past the Brother Jonathan Lookout to Preston Island. The bluff’s stability has been compromised since the lookout was first constructed in the 1950s, City Manager Eric Wier said in a presentation to the City Council on May 11. However, the December 2016 storm has also contributed to the failure of the street itself, according to Wier.

Nearly all but 3 percent of the project is paid for with disaster relief funding through the Federal Highways Administration, the California Office of Emergency Services and the Del Norte Local Transportation Commission.

At a special meeting May 11, the City Council approved spending $458,000 on a proposal from consultant COWI North America Inc., which will work with local engineer Ward Stover to do the preliminary engineering work for the Pebble Beach project.
However, since COWI’s proposal for the entire project is $1.1 million, Leaver presented the City Council with the possibility of using the Advanced Construction process to make up the $651,738 difference.

Councilors also had the option of starting the project and stopping when the $458,000 ran out, Leaver said. The city could have been responsible for paying back the $458,000 to the granting agencies because the project wasn’t finished, she said.

Another option was to walk away from the project, Leaver said.

“That way we don’t have any borrowing expense, but obviously the downside is the project would not get done,” she said.

The preliminary design of the Pebble Beach Drive bank stabilization project includes studying the environmental conditions, the potential impact on cultural and tribal resources as well as potential erosive forces that will impact the area over time, said COWI consultant Jean Toilliez.

Noting that COWI is working with Del Norte County to stabilize the portion of the Pebble Beach Drive bluff within its jurisdiction, Toilliez said a survey crew conducted a Lidar survey of the area as well as a 3D survey of the county project.

Ward Stover, owner of Stover Engineering, said a drill rig is coming to the area from Portland to conduct the geotechnical studies. There will also be biological studies that have to be done, he said.

“A lot of the botany studies that need to be done have to be done in May, June and July,” Stover told Councilors on May 11. “If we miss that window then we have to wait until next May to get the studies done. That’s required for all of the permitting review.”

On Monday, Leaver told Councilors that through the Advanced Construction process, the city would find a way to pay for the remaining $651,000 portion of the project and ask Congress to apply that amount to the 2016 disaster. If Congress agrees, Crescent City would be reimbursed in about one to two years, she said.

According to Leaver’s staff report, CalTrans suggested paying for the project through the Advanced Construction process.

“We have been told by CalTrans and other counties and agencies that have done Advanced Construction that in their experience it has always be reimbursed,” Leaver told Councilors. “But we cannot guarantee it.”

Leaver recommended borrowing from the city’s water fund to move forward with the Pebble Beach Drive project. The water fund is one of three enterprise funds belonging to Crescent City.

Earlier on Monday, Councilors updated the city’s debt policy to allow for a short-term loan from the sewer fund to the general fund to address a cash flow problem pertaining to a handful of its grant-funded projects which are paid for through reimbursements.

Leaver said she didn’t recommend taking out a 20-year loan from the sewer fund since it’s in a structural deficit. While reserves in the sewer fund are high, she said, planned capital improvement projects to the system will cause them to decrease sharply.

The city’s Lighthouse Shores RV Park is the third of its three enterprise funds. According to Leaver, it doesn’t have the reserves to support a 20-year loan to the general fund.

The water fund, however, is in a better position, Leaver said.

“If Congress does not fund this project and the general fund has to pay back the loan over 20 years, can the water fund afford to wait 20 years for repayment?” she said. “Yes it can, even with the loan not being repaid in fiscal year 2022. The working capital is still fine for the water fund.”

If Congress doesn’t reimburse Crescent City the $651,000 for the Pebble Beach Drive project, Leaver said the recommended terms of the loan would have the city’s general fund pay the interest for the first three years — $13,230 a year.

In the loan’s fourth year through its 20th, the city’s general fund would pay the principal amount, $45,716 a year, Leaver said.
“If Congress funds this, we would just pay off the loan entirely as soon as Congress gave us the funds,” she said.

Leaver also brought up the question of whether the general fund can afford to make those annual loan payments should Congress not reimburse the city. Noting that the COVID-19 pandemic has created an economic crisis Crescent City has begun addressing this fiscal year and will need to address in its 2020-21 budget, Leaver said she and staff will bring quarterly budget updates to Councilors throughout the year and will change its budget assumptions if it has to.

Crescent City also has a  policy to keep at least 25 percent of its general fund revenues in reserves to cover cash flow problems and strategic projects during an economic crisis, Leaver said. If the Pebble Beach Drive stabilization project is considered strategic, it could qualify as an acceptable use of those reserves and the Council would allocate at least 1 percent of its revenues toward building those reserves back up, she said.

Councilors will likely discuss revising the city’s 25 percent reserve policy at a budget workshop next week.

Mayor Pro Tem Heidi Kime said dipping into reserves so they’re below 25 percent made her nervous. She asked Leaver if the city has received any advice from its consultant.

City Manager Eric Wier told her that not only did staff speak with CalTrans representatives about the Advanced Construction phase, they also spoke with Tamera Leighton, executive director of the Del Norte Local Transportation Commission, which has also allocated dollars.

“She feels strongly that this project should move forward,” Wier said. “As far as any guarantees, we don’t have that. And we won’t have that until that money is actually put back into this particular disaster.”

A project that’s ready for construction is in a better position to receive additional grant dollars, Wier said, though he noted that transportation grants are extremely competitive. Wier also mentioned the possibility of economic recovery assistance from the COVID-19 pandemic.

“A lot of times there are additional dollars put toward infrastructure projects,” he said. “We saw that back in 2008 with ARRA funds, the American Reinvestment Recovery Act. (There) could be future opportunities if we put ourselves in the right position. That’s a lot of ifs, a lot of uncertainties, but nevertheless, I do foresee economic recovery involving some sort of infrastructure-type projects.”

Crescent City Mayor Blake Inscore said failing to move forward on the project, despite the potential of having to pay back a 20-year loan, would “send a negative message” to the Local Transportation Commission, CalTrans and the Federal Highways Administration, all of which provided money.

“I’m very hesitant about dipping into those reserves, but I”m even more reticent about missing this opportunity because it won’t come again,” he said. “I’m going to believe that we’re going to recover.”

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