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HomeMy WebLinkAbout6/6/2023 Item 7a & 7b, Floyd - Staff Agenda CorrespondenceCity of San Luis Obispo, Council Memorandum City of San Luis Obispo Council Agenda Correspondence DATE: June 6, 2023 TO: Mayor and Council FROM: Aaron Floyd, Utilities Director VIA: Derek Johnson, City Manager SUBJECT: ITEM 7A AND 7B – CONSIDERATION OF 2023-25 WATER AND SEWER RATES Staff received the following questions, regarding the Consideration of the 2023-25 Water and Sewer Rates. There are also two minor typographical errors that staff wish to clarify following the questions received. The questions are below with staff’s response shown in italics: 1. A significant decrease was noted in both water and sewer reserve funding projected over the next few years in the study documents. See highlighting here from water study, but similar reduction in sewer: Overall, Table 3-2 shows the existing revenue with no rate increases compared to the increasing expenses in the outer years for the purpose of identifying the proposed rate adjustment need. Part of the calculation of overall revenue need comes from maintaining Reserve Levels. In this situation, with Reserve Funding under the Expenses column, it shows a need to add more funds to meet the targeted Reserve Level minimums. The current year’s $287,000 is a payment from revenues needed to retain adequate reserves. As it is only in the $10,000 or less in the outer years, it is showing that the anticipated revenues are meeting expenditures as budgeted, including maintenance of reserves. By comparison, if there was an increasing need to add funds to the Reserves in the future, it would demonstrate that the reven ues proposed were not sufficient to maintain operating expenditures or healthy reserve levels. Agenda Correspondence on Items 7A and 7B Page 2 2. This table is on Agenda Packet Page 311. Where does the “outside funding” come from? For some smaller projects like pipeline replacements, the City pays directly. For larger projects like the WRRF and Pump stations, it’s not feasible to be able to save enough money to pay in cash in the timeframe the infrastructure is needed. For those projects, the City uses “Outside Funding”, which comes from development impact fees (if the project is identified and approved in the impact fee collection study), grants (where possible), and loans (like the WRRF). Staff will raise the suggestion to the City’s rate consultants that it be called “Outside Rates Funding” in future iterations. 3. It was noted that single family and multi-family sewer rates are the same, but we charge a different sewer rate to commercial customers. Yet, staff are proposing different rates for these two types of units when it came to recommended water rates, and even a third rate for commercial water customers. Why would we charge the same sewer rates, no matter what the housing type is, when it comes to sewer, but different rates for water? The main reason that the City charges multi-family water customers a different rate than single family residential has to do with the tiered rate structures in the single family residential. A multi-family housing development is typically served off of just one meter and the rates to individual tenants are usually worked out as part of the rent, if the facilities are not individually metered. Hypothetically, in a 10-unit multi- family building all sharing the same primary water meter, the b ill would likely be around 60 units per month even though individually each of the units would be using only around 6 or so units. This would be a significantly higher bill due to the higher cost for Tier 3 rates (13+ units) in the single-family residential rates. To make this equitable, the rates for multi-family are around the cost per unit that the average user of 6 units per month would pay under the single-family residential rates. There is also a smaller part of this that ties back into the proportionality costs across water and sewer customer classes and strengths of flow among the different sewer user classes. This proportionality will need to be periodically revisited and adjusted to ensure compliance with Proposition218. Agenda Correspondence on Items 7A and 7B Page 3 4. A question about the footnote on this table in the staff report. What are the “investments” referenced here? Also, does the ~$4m difference between the rate revenues generated with the proposed increase and the total revenue requirement get made up completely by the items in the footnote? In other words, we get almost $4m from those three sources: Cal Poly, penalties, and investments? The City hires PFM to manage the City’s cash reserves which are invested via our adopted investment policies and consistent with the Government Code. The overall strategy is Safety Liquidity Yield (SLY) and the framework is restricted following the Orange County investment scandal. The Investment Oversight Committee reviews the progress of the City’s investment portfolio and the Council is copied on a quarterly basis on the status of City investment via a comprehensive report. Revenues from Cal Poly, penalties, and investments contribute to the ~$3.3 million difference shown in the table above. Below is a breakdown of staff's anticipated revenues from non-rate sources in FY2023-24 for the Water Fund: Revenue Source Amount Sales to Cal Poly $1.1 million Recycled Water Sales $1.1 million Grants and Subventions $700,000 Cal Poly Capacity Interest Payments $250,000 Miscellaneous Revenues (includes interest on investments, miscellaneous penalties, credit collections, development review fees, etc.) $200,000 Agenda Correspondence on Items 7A and 7B Page 4 5. The following typographical error was discovered on Packet Page 310 in the Water Rate Study. The sixth bullet point should state 8.5% in FY 2023-24. The correct figures are used in all other materials and most importantly, the Proposition 218 notice is correct. 6. The following typographical error was discovered on Packet Page 384 of the Wastewater Rate Study. The assumed customer growth rate for both water and wastewater are 0.8% per year. The error was limited to only a typographical error and the correct percentage (0.8) was utilized for all calculations within the documents.