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HomeMy WebLinkAboutX-E-01 PFAS UpdateCity Council Memorandum To:Mayor Fasbender & City Councilmembers From:City Administrator Dan Wietecha Date:October 6, 2025 Item:PFAS Update Council Action Requested: Informational memo, no action requested at this time. Key Updates •Mobilization and construction on the central WTP began in late September 2025,with substantial completion to occur in December 2026. •At present the budget proposal includes a phased approach of 10% each in January and July 2026 and January 2027. This would allow additional time to seek state bonding, grants, and/or direct connection to 3M Cottage Grove; enable phasing in the necessary rate increase; and recognizes the complexity of loan and grant paperwork with the Public Facilities Authority. •We met with Sen. Seeberger to discuss the status of our project, impact on water rates, and options to pursue legislative assistance in the upcoming session. A similar meeting with Rep. Dippel occurred last month. A visit by the House Capital Investment Committee is pending for November 6. Background Information Hastings has PFAS contamination in all six of our municipal wells (specifically PFOA in all six wells and PFOS in two wells). We’ve also found PFOA levels over the EPA’s limit in the future Well #9 site, scheduled to come on line in 2026. The City has completed a Feasibility Study to consider alternatives to mitigate the PFAS. The study recommended construction of three decentralized water treatment plants for PFAS and Nitrate removal. Additionally, our design would enable the interconnect of the Minnesota Veterans Home with the City water system, avoiding the need for it to construct and maintain a WTP for its contaminated well. The general plan is to build one WTP per year for three years. The central WTP was bid in June- July 2025, had contracts approved in August,began construction in late September 2025, and have substantial completion in December 2026. X-E-01 Under current plans, the eastern WTP would bid in 2026, and substantial completion in 2027. Finally, the western WTP would bid 2027, and substantial completion in 2028-2029. These dates are approximate, but the point is that one WTP per year very leaves little room for compliance with the current EPA deadline of April 2029; though, the EPA has indicated its intent to extend the deadline two years. The current construction cost estimate is $70.3M, plus upwards of $1M annually for operation and maintenance. Without any financial assistance, water rates would need to double in three years and triple in five years. The City has been exploring and pursuing multiple opportunities to offset this “budget buster” expense. Even with approximately $23.3M assistance secured to date, water rates would still increase around 150%between 2024 and 2028. Updates Environmental Protection Agency: In March 2023, the EPA announced draft maximum contaminant levels for PFOA and PFOS. The final MCL’s were released April 10, 2024, at 4 parts per trillion for both PFOA and PFOS. This included five of the City’s six wells and the Hastings Veterans Home being over the new MCL’s. According to the EPA, “Systems that detect PFAS above the new standards will have five years to implement solutions that reduce PFAS in their drinking water.” On May 14, 2025, the EPA issued a press release indicating that it was keeping the MCL’s for PFOA and PFOS at 4 ppt and extending the compliance deadline by two years. The actual details are pending a proposed rule this fall which would be finalized in spring 2026. The most notable news for Hastings is that it would extend the compliance deadline by two years from April 2029 to 2031. This could allow us to delay portions of our project in order to pursue additional funding and/or to phase in water rate increases over six years rather than four. There are also reasons to maintain our existing construction schedule. Most importantly, our residents will continue to have contaminated water until all three WTPs are built and operational. Additionally, our current schedule would be completed only four to six months ahead of the original deadline. This is little cushion for any potential delays due to bidding, contractor, supply chain, weather, etc. So the extension could simply give us cushion to manage a large and complex project. And we have been trying to work ahead of other cities; more time could result in more competition for grants and funding. Additionally, deliberate delay would likely mean higher costs for inflation. The EPA announcement also mentioned plans to rescind and reconsider regulations for four specific PFAS. This would not impact Hastings, as the limits for PFOA and PFOS remain at 4 ppt.September 11, 2025, the EPA reconfirmed its regulation of PFOA and PFOS. X-E-01 State Capital Budget –2024:The City submitted PFAS Treatment & Raw Water Lines for consideration in the State’s 2024 Capital Budget due to the budget-busting expense, the fact that the treatment is to remove contamination/pollution caused by others, and the suddenness of new regulations preventing financial planning. The House Capital Investment Committee included Hastings in its tour on November 30, 2023. Sen. Seeberger and Rep. Hudella indicated support and introduced SF 3161 and HF 3115. The House Capital Investment Committee held a hearing on HF 3115 on April 15, 2024. The legislative session ended May 20, 2024, without passage of a bonding bill. State Capital Budget –2025:In October 2024, we met with Sen. Pappas, Chair of the Senate Capital Investment Committee, to provide an update on our project and funding needs. The City Council approved a resolution of support on December 2, 2024 and a new state application has been submitted. Clean and safe drinking water was identified as the City Council’s number one legislative priority during its workshop on November 16, 2024. With recent approval of a $3M Emerging Contaminants Grant, we were able to reduce the amount of this bonding request to $16.6M for the eastern WTP. Late in the legislative session, we updated our project and financial information with Minnesota Management and Budget (MMB) to reflect matching expenditures by the City and potentially separating the Veterans Home interconnection from the financial calculation. Both Sen. Seeberger and Rep. Dippel have indicated strong support for our project. Rep. Dippel has prepared four bills: one seeking to designate Hastings as eligible for funding through the East Metro’s 2018 3M Settlement and one seeking funding through the Clean Water Fund of the Legacy Fund. The other two seek to fund the remaining $16.6M costs for the Eastern WTP, one through the capital budget and the other as a general cash appropriation; Sen. Seeberger has signed on to these two. On February 27, we had a hearing with the House Capital Investment Committee on the capital budget request (HF1192). On March 13, we met Senate Majority Leader Murphy, Senators Pappas (Chair of Senate Capital Investment Committee) and Seeberger, and staff to review water rates, grants, East Metro 3M Settlement funds, financial aspects, and construction schedule of our project. On May 9, we met again with Representative Franson (Co-Chair of House Capital Investment Committee) and Representative Dippel. During special session, the legislature adopted a state budget and bonding bill that focused on state projects. State Capital Budget –2026:In June, we submitted two applications to keep our options open for consideration in the 2026 session: the eastern and western WTPs.We are requesting that a visit to Hastings be included in any State Bonding Tours this fall. In August-September, we met X-E-01 with Sen. Seeberger and with Rep. Dippel to discuss the status of our project, impact on water rates, and options to pursue legislative assistance.It is vitally important to have support from both of our legislators and that they work together.The House Capital Investment Committee will include Hastings in its tour on November 6, 2025. Congressionally Directed Spending / Community Project Funding: In April 2024, we submitted requests of Senator Klobuchar, Senator Smith, and Representative Craig for $10.3M (50%) of the eastern WTP. This amount is higher than typically funded. All three advanced our request to their respective Appropriations Committees; however, it was not approved through the Senate Appropriations Committee. As it worked through “mark up” by the House Appropriations Committee, it was proposed at a little over $1M. In the end, in mid- March, Congress adopted a continuing resolution that funded no Community Project Funding. In April 2025, we submitted a new application for $10.8M (50%) the western WTP.Sen. Klobuchar has submitted our project to the Senate Appropriations Committee for consideration for Congressionally Directed Spending. Please note that the Congressional offices coordinate in order to submit as many Minnesota projects as possible, so we do have support of Sen. Smith and Congresswoman Craig even though submitted by one office. In late August, the draft legislation reported by the House Appropriations Committee includes $1.1M for the project. This is one step in the process and does not guarantee funding. PPL/IUP: In 2023, the City submitted the project for the State’s Drinking Water Revolving Fund Project Priority List (PPL). On May 1, 2024, we re-submitted to correct errors and to recognize new EPA regulations of MCLs for PFAS, which will result in our ranking at or near the top of the list. Additionally, we submitted the first two phases of the project for the Intended Use Plan (IUP) in June 2024. In May 2025, we submitted the western WTP for the IUP. The Public Facilities Authority has listed the eastern WTP is ranked #2 and central WTP appears ranked tied at #13 on the PPL and both projects are in the “fundable –emerging contaminants” category. Both projects are scheduled to receive $3M Emerging Contaminants Grant ($6M total). During our April 7 workshop, the City Council discussed utilizing the Drinking Water Revolving Fund to the balance (estimated at $5M to $8M) of the central WTP. Using the low-interest DWRF was calculated to save about $1M in interest over the next 20 years. Application for the PFA loan was approved by City Council on May 5; the application was submitted May 22. Additionally, we submitted updates for the IUP applications for the eastern and western WTPs to match construction schedule; this also includes an application for the Emerging Contaminants Grant toward the western WTP. The new state budget includes some state funds to augment the ECG program, but the budget language is different and doesn’t have the same formula limit as the federal funds. The PFA X-E-01 financing for the central WTP was updated to reflect $3M federal-funded Emerging Contaminants Grant, $2M state-funded Emerging Contaminants Grant, and $5M low-interest loan (reduced from previously planned $8.4M). The financing agreement was approved August 18. We have inquired of the PFA and confirmed that we do not meet income eligibility criteria to have all or a portion of the loan converted to a grant. The eastern WTP has also been identified as fundable with the federal funds, and we recently applied for the western WTP. In August we were told that the state funds will likely be available for the eastern WTP in 2026. Water Rates: With budget planning for 2025 (including workshops on June 3, June 17, and September 3, 2024), we discussed potential water rate increases, phasing, and timing. During the preliminary budget planning, we anticipated a 37.3% increase in water rates for 2025. During our October 21, 2024, meeting, following Co-Trustee approval of 3M Settlement Funds for Well #5, the City Council supported a two-step water rate increase in 2025, with a 10% increase effective January 1, 2025, and a second increase to be determined effective July 1, 2025. On an average residence using 15,000 gallons per quarter, the January increase would be about $4 per quarter. City Council approved the January increase on December 16, 2024. Additional increases are expected to coincide with construction of each of the three WTPs. Even with approximately $23.3M assistance secured to date, water rates would still increase around 150%between 2024 and 2028. The City Council had workshop April 7 to discuss financing the City’s portion of the central WTP. On May 5, the City Council approved an additional 10% water rate increase effective July 1. This covered our projected gap as well as provided some cushion for uncertainty. This increases was communicated to our residents and businesses through mailings, newsletters, and social media. Early budget planning estimated a 37.2% water rate increase for 2026. This can be reduced due to the federal and state Emerging Contaminants Grants for the central WTP, construction bids for the central WTP, and holding the construction schedule for the eastern WTP until summer 2026. At present the budget proposal includes a phased approach of 10% each in January and July 2026 and January 2027. This would allow additional time to seek state bonding, grants, and/or direct connection to 3M Cottage Grove; enable phasing in the necessary rate increase;and recognizes the complexity of loan and grant paperwork with the Public Facilities Authority. 3M Settlement: The 2018 Settlement Agreement provides grant money for drinking water projects “in the East Metropolitan Area.” It is not limited to any specifically named cities or townships and does not require a direct connection to one of the 3M disposal sites. Similarly, Minnesota’s Conceptual Drinking Water Supply Plan does not require a direct connection to one X-E-01 of the disposal sites. However, the State’s Co-Trustees (MPCA and DNR) have stated that a direct connection should be required and has previously excluded Hastings from funding under the Settlement Agreement. Although we disagree with the Co-Trustees’ interpretation, we value our relationship with them and have endeavored to not have this disagreement come between our mutual efforts. The MPCA has been helpful in conducting Phase I and II environmental site assessments, requesting 3M to conduct additional investigation of its disposal site and hydraulic modeling in the Hastings area, and has awarded a planning and design grant for Hastings to begin design engineering for the treatment plants. Additionally, the 2007 Consent Order does require a direct connection to one of the East Metro disposal sites. This is extra important since the Co-Trustees have acknowledged that the Settlement Funds will run out in state fiscal year 2027 (calendar year 2026) as they cover currently proposed East Metro projects, so they will be transitioning to the Consent Order in the next couple years. In early March, an email from the Co-Trustees indicated that 3M questions whether East Metro projects have been “reasonable and necessary” under the Settlement Agreement, objects to transitioning to the Consent Order, and has initiated mediation for dispute resolution. To date, the environmental studies have resulted in several lines of evidence of a connection of Well #5 to the 3M Cottage Grove site, specifically: updated Minnesota Geological Survey mapping of a fault in the bedrock, presence of HQ115/TFSI in Well #5, and additional water composition and PFOA chemical analyses. In October 2024, the Co-Trustees agreed that there is a connection between Well #5 and the 3M Cottage Grove site and that the costs associated with Well #5 (to be treated with the central WTP) would be eligible for funding under the 2018 Settlement Agreement. At the time, we estimate the costs associated with Well #5 to be about $15M. In November 2024, we submitted our first application for Settlement funds to cover the cost of land purchase and business relocation necessary for the central WTP. The City Council approved the grant agreement at its January 21 meeting, approximately $1.4M. In May 2025, we submitted the application for Settlement funds to cover construction costs allocated to Well #5.The grant agreement for the Settlement funds for the construction costs allocated to Well #5 is on the August 4 agenda, approximately $13.7M. This agreement also includes provisions for reimbursement of costs allocated to Wells #3 and #7 if later determined to be eligible for Settlement funds. Between the two grant agreements, the total from the East Metro 3M Settlement Fund is approximately $15.1M. In the meantime, the environmental investigations will continue as planned by the MPCA to determine connection and eligibility for the City’s other wells. X-E-01 Central Water Treatment Plant: During our October 21, 2024, meeting, the City Council agreed to flip the sequence of the construction schedule: proceed with the central WTP in 2025 and delay the eastern WTP until 2026. Proceeding with the WTP that has significant outside funding has two major advantages. 1) It would mean a smaller water rate increase for our residents and businesses. 2) It gives us additional time to seek state bonding, grants, and/or direct connection to 3M Cottage Grove before proceeding with the other WTPs. At our November 18, 2024, meeting, the City Council approved a purchase agreement for 1292 North Frontage Road as the site for the central WTP. This location is in a non-residential area, is located next door to the existing nitrates treatment facility and ground storage reservoir, and has lower incremental costs than other sites. Additionally, timing and ability to proceed without delay were important considerations. In January, a Phase I environmental review was conducted and found record of a 2005 petroleum spill at the site. In February, a Phase II environmental assessment was approved to determine the extent of potential contamination. The Phase II did not identify impacts that require further actions or additional investigation. A construction contingency plan was included in the bidding documents for the project in case previously unidentified contamination is encountered during construction. Closing on the property occurred April 18. The businesses at this site (Carbone’s Pizza and Stacy’s Stars) have been given a required 90-day notice that they will need to vacate the property by June 30. On April 7, City Council approved a lease-back agreement for management of the property during the interim. SRF Consulting has been assisting with business relocation analysis for the two businesses. Under state law, some costs associated with the relocation of these businesses will be borne by the project. Both have indicated strong interest in continued operations in Hastings. As design reached 60%, we continued to meet with MPCA staff to ascertain elements of the project attributable to Well #5 and eligible for funding through the East Metro 3M Settlement. In May 2025, we submitted the application for Settlement funds to cover construction costs allocated to Well #5. The City Council approved plans and specifications, and the central WTP was bid in June 2025 as two projects: the raw water main connecting Well #7 and the WTP itself. Mobilization and construction began in late September 2025,with substantial completion to occur in December 2026. X-E-01 On March 25, we held a public presentation about the central WTP and raw water lines for neighboring residents and businesses to learn about project scope and schedule. This also proved a good opportunity for them to give feedback on the upcoming project. A copy of this presentation, as well as other updates, have been posted on the City website to maintain public transparency. During our April 7 workshop, City Council discussed several financial aspects for the central WTP. During the workshop, City Council favored pulling the nitrates treatment from central WTP. If we build the “footprint” to provide space in the building to later add the treatment system, we can cut $3.1M from the project cost. The nitrate levels in these wells (3, 5, and 7) are at levels that require monitoring, and we currently do partial treatment on wells 3 and 5, but are not in imminent need for nitrates treatment now. On the other hand, note that the eastern WTP does not have the same latitude for the nitrates treatment, as those wells are much closer and occasionally exceeding the threshold. The grant agreement for the Settlement funds for the construction costs allocated to Well #5 was approved on the August 4, for approximately $13.7M. The PFA loan agreement, including the two Emerging Contaminants grants, was approved on August 18, for approximately $10M. Bid opening for the raw water mains from Well #7 was on June 25; bids were competitive. Bid opening for the central WTP itself was July 24; bids were very competitive. Both were approved on August 18. Construction is beginning in September. Financial Impact: Not applicable Committee Discussion: Not applicable Attachments: Not applicable X-E-01