BOARD AGENDA MEMORANDUM
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: Title
Receive an Update on the Pure Water Silicon Valley Project and Adopt a Resolution Authorizing the Execution and Delivery of Agreement Relating to the Proposed San Jose Purified Water Project and Certain Acts in Connection Therewith.
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RECOMMENDATION: Recommendation
Receive an update on the Pure Water Silicon Valley Project and Adopt the Resolution AUTHORIZING THE EXECUTION AND DELIVERY OF AGREEMENT RELATING TO THE PROPOSED SAN JOSE PURIFIED WATER PROJECT AND CERTAIN ACTS IN CONNECTION THEREWITH.
Body
SUMMARY:
Background
Santa Clara Valley Water District (Valley Water) is currently working towards a Direct Potable Reuse (DPR) facility on San José-Santa Clara Regional Wastewater Facility (RWF) property adjacent to the Silicon Valley Advanced Water Purification Center (SVAWPC). Ahead of that full-scale DPR project, Valley Water will develop a DPR pilot facility and learning center (DPR Demonstration Facility) on an expanded footprint consisting of property on and adjacent to the existing site being leased from the City of San José. The Pure Water Silicon Valley (PWSV), also known as the San José Purified Water Project (SJPWP), has been added to Valley Water’s Capital Improvement Program and rate projections (the “Project”).
Using source water provided by the RWF, Valley Water intends to deliver up to 24,000 acre-feet per year (AFY) of purified water from the PWSV to its customers. Valley Water’s customers include both public and private retailers. Since Valley Water’s PWSV will rely on source water from the RWF, the City of San José asked questions relating to any impact of the PWSV's operation on the tax-exempt status of the debt issued for the RWF. Valley Water has concerns related to the cost implications if tax-exempt financing cannot be utilized for the Project. To address these concerns, staff collaborated with bond/tax counsel, as well as the City of San José, to develop a strategy to resolve the tax issues through a Private Letter Ruling Request (PLR) with the Internal Revenue Service (IRS). Generally, PLRs are written statements issued to taxpayers that interpret and apply tax laws to a set of facts presented by the taxpayer. PLRs can be used when a taxpayer wants confirmation that a prospective transaction is unlikely to result in a tax law violation.
The delivery of water will likely occur by blending purified water with raw water and distributing it, along with the raw water, to treatment plants and for groundwater recharge, however, the purified water could also be served to customers directly. Valley Water staff have made significant progress in 2025 on the PWSV project, including:
• Developing an option agreement and amended institutional agreements to allow the demonstration facility to be developed. The option agreement was approved by the Board and the councils of the cities of San José and Santa Clara in June 2025 and is currently being executed.
• Release of a Request for Proposal (RFP) for design services for the demonstration facility/learning center.
• Continued development of an Exclusive Negotiation Agreement with the City of San José to reserve land for the future full-scale facility.
• Continued development of a charter to provide a framework for agreements for the full-scale facility.
• Initiated development of a grant-funded feasibility study to make the Project eligible for future construction grant funding.
• Continued negotiations with the State’s Division of Drinking Water to develop a regulatory roadmap for permitting the full-scale facility through the development of needed validation studies for the demonstration facility, and successful completion of one Independent Advisory Panel.
• Establishment of a Technical Advisory Group (TAG) for the learning center.
In May 2025, the Valley Water Board of Directors authorized the issuance of water system revenue bonds to finance certain costs associated with Phase 1 of the PWSV in an amount not to exceed $100 million (Revenue Bonds) and submit a PLR request to the IRS to address the tax issues for the project.
In June 2025, Valley Water submitted the PLR request to the IRS, which was prepared by Valley Water’s bond/tax counsel, and incorporated input from the City of San José. The IRS requested additional clarifications in the subsequent months of 2025, and staff worked diligently to respond promptly.
As part of the PLR process, in January 2026, Valley Water received a request from the IRS to provide a Board Resolution confirming that Valley Water will comply with the covenants described in the Resolution (Attachment 1) as one requirement for the bonds, if issued, to be tax-exempt. Board approval of the Resolution is required by the IRS before it will issue the final PLR to Valley Water. Approval of the Resolution does not obligate Valley Water to issue bonds for the Project, the timing of which will be determined by the Project’s planning and design process.
ENVIRONMENTAL JUSTICE IMPACT:
There is no environmental justice impacts associated with this item. This action is unlikely to or will not result in disproportionate impacts on any specific communities relative to the general population from the implementation of this item.
FINANCIAL IMPACT:
Staff anticipate material cost savings associated with issuing tax-exempt bonds to finance the Project. Based on market conditions as of January 6, 2026, staff anticipate interest cost savings of $30.6 million for every $100 million of Bonds issued to finance the Project, compared to issuing taxable bonds, over the life of the bonds. The actual cost savings will vary depending on market conditions and the amount financed at the time of each future bond issuance for the Project.
CEQA:
Section 15378 of the California Environmental Quality Act (“CEQA”) Guidelines defines a “project” as the whole of an action, which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. This recommended action falls under Section 15378 (b) and consists of the creation of government funding mechanisms or other government fiscal activities which do not involve any commitment to any specific project which may result in a potentially significant impact on the environment; therefore, it does not constitute a project under CEQA.
While Valley Water has not yet completed its review and approval in accordance with CEQA for the Project, adoption of this Resolution to authorize execution of the agreements and documents referred to in this Resolution and implementation of actions necessary to accomplish the intention of this Resolution do not commit Valley Water to a definite course of action with regard to the Project and do not limit Valley Water in exercising any discretion following CEQA review of the Project, including (i) considering other feasible alternatives and mitigation measures to avoid or minimize project impacts, (ii) making modifications deemed necessary to reduce project impacts, or (iii) determining not to proceed with one or more component of the Project. The Project and all related components will undergo a separate CEQA review.
ATTACHMENTS:
Attachment 1: Resolution
UNCLASSIFIED MANAGER: Manager
Kirsten Struve, 408-630-3138