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Home My WebLink About06/01/2010, B5 - 2010 SEWER FUND REVIEW council M.-&4Dip June 1,2010 j apenaa Repout CITY OF SAN LUIS 0BISPP0 FROM: Carne Mattingly, Utilities Director �— Prepared By: Kathe Bishop, Senior Administrative Analyst SUBJECT: 2010 SEWER FUND REVIEW RECOMMENDATIONS 1. Review and accept the 2010 annual sewer fund financial review, and 2. Approve the amended Capital Improvement Plan, which eliminates $235,000 for Calle Joaquin Lift Station design phase in 2010-11, based on the revised capital program plan. DISCUSSION This report presents the annual review of the sewer fund. Within the 2010 Sewer Fund Analysis, which forecasts the financial position of the sewer fund through 2017-18, the City is able to: 1. Maintain an ongoing level of capital maintenance projects to maintain the community's wastewater infrastructure assets; 2. Maintain a positive fiscal position in the Sewer Fund, with reduced total revenues in 2010-11 due to the average residential winter water sewer cap at 6-units resulting from a reduction in residential winter water use; 3. Maintain a healthy working capital balance and revenue plan forecast to position the Sewer Fund to secure favorable financing terms for Wastewater Master. Plan Improvements in the wastewater capital program forecast; and, 4. Continue to deliver safe and reliable wastewater services to the community within previously adopted sewer service rates. 2010 Sewer Fund Analysis Report The 2010 Sewer Fund Analysis report, including the details of the process, changes in financial position, assumptions used to complete the analysis, and an update on major activities and programs is attached. The Analysis takes into consideration current economic conditions, the significant ongoing operating expenditure reductions that were implemented July 1, 2009 and proposes additional ongoing operating expenditure reductions to be effective July 1, 2010. The 2010 analysis includes reductions in both operating programs and capital programs delivering the lowest responsible budget, within the previously adopted 2010-11 sewer rates, while ensuring safe and reliable wastewater services to the community. 2010 Sewer Fund Review Page 2 2009-I1 Financial Plan Supplement:2010-11 Budget Operating Program Reductions The operating program reductions are summarized in the Attachment on page 4. The wastewater services operating reductions are ongoing in nature as opposed to a one-time"stop gap"measure. The ongoing wastewater operating reductions result in a savings of$219,800 in 2010-11, which is $22,100 greater than the wastewater program reductions adopted in the 2009-11 Financial Plan in June 2009. The $219,800 savings in 2010-11, including continued annual savings is reflected in the Sewer Fund Change in Financial Condition(Exhibit A.1.) as projected through 2017-18. Operating Program Staffing Allocation Adjustment The infrastructure for the production of recycled water supply is located at the City's Water Reclamation Facility, with daily operations and maintenance performed by Water Reclamation Facility (WRF) staff. Recycled water deliveries began in November 2006 resulting in a modest impact to WRF staff resources which are funded through the Sewer Fund. Water Distribution staff is directly responsible for the distribution portion of the recycled water system. Over the past three years, the recycled water distribution system has expanded to serve an increasing customer base, resulting in a gradually increasing recycled water production level and increasing daily operation demands and maintenance performed by reclamation facility and water distribution staff. Based on an analysis of reclamation facility staff time directly related to the production of recycled water supply, a proportionate share of Water Reclamation Facility staffing costs are charged to the Water Fund beginning in 2010-11, as follows: one Water Reclamation Facility Operator at 0.50 full time equivalent (FTE), one Water Reclamation Facility Maintenance Technician at 0.10 FTE, and the Water Reclamation Facility Supervisor at 0.10 FTE. This 0.70 FTE staffing allocation adjustment results in a $76,600 reduction to the Sewer Fund(reclamation program staffing budget) and a corresponding increase to the Water Fund (source of supply program staffing budget). Capital Improvement Plan Reduction The recommended amendment to the previously approved 2009-11 Capital Improvement Plan (CII') will result in a $235,000 reduction in the wastewater capital budget in 2010-11. The 2010- 11 CIP reduction eliminates $235,000 for the Calle Joaquin Lift Station design phase, based on a revised timeline and phasing of sewer lift stations as recommended in the Airport Area Wastewater Master plan Update. Additional information on the Calle Joaquin Lift Station project is available in the Attachment,on page 11 and Exhibit A.3. Sewer Service Charges Adopted Sewer Service Rates As part of the 2009-1.1 Financial Plan process, in compliance with Proposition 218 requirements, in the spring of 2009 City water and sewer customers were informed of the proposed rate changes for 2009-11. The City received 160 written protests, which included 135 valid protests opposing the recommended two-year sewer rate changes. The City serves approximately 14,400 water and sewer customers, with Prop 218 requiring a majority protest (about 7,201) to stop a 2010 Sewer Fund Review Page 3 sewer rate change from moving forward. In accordance with Prop 218 requirements, in a public hearing on June 11, 2009 the City Council adopted sewer services charges for the City's 2009-11 two year financial planning period. The previously adopted sewer services charges include an 9% increase in 2010-11, effective July 1, 2010. 2009-10 Winter Water Use Analysis and 2010.11 Residential Sewer Cap Changes The 2010 sewer rate analysis included a review of all accounts using the most recent 12-month period, including monthly usage data and billed dollar amounts. The winter water use sewer caps established in December 2009, and January and February 2010, are implemented during the first full service period after July 1, 2010, thereby "capping" billable units and associated sewer revenues. The volume/use data is utilized to test the previously approved 2010-11 sewer rates against current usage trends, using sewer caps for 2010-11 to validate or revise the 2010-11 revenue budget. Did the winter water sewer cap chanize? The short answer is, yes. Based on the 2009-10 winter water use, the City's average single family residential (SFR) sewer cap is 6-units for 2010-11. For comparison purposes, the average SFR sewer cap was 7-units in 2009-10 and 2008-09. In 2007-08, with implementation of the residential volume based sewer rate structure, the average SFR sewer cap was 8-units. What are the fiscal impacts for the average residential customer? The average single family residential customer (SFR)sewer cap is lower in 2010-11. As adopted on June 11, 2009, sewer service rates will increase 9% in 2010-11. The following table illustrates the changes to the monthly average single family residential sewer bill with a 6-unit sewer cap in 2010-11, as compared to a 7-unit sewer cap in 2009-10 and 2008-09. The average single family residential customer sewer bill will be about 5% or $2.54 less per month in 2010-11, a positive fiscal impact when compared to 2009-10. In further evaluating the fiscal impact of the 2010-11 average single family residential customer's sewer bill, the average changed from $47.92 in 2008-09, to $52.41 in 2009-10, to $49.87 in 2010-11, resulting in an increase of$1.95 or 4% monthly over a two-year period, when including adopted sewer service rate changes. Average Residential Sewer Customer Monthly Bill Sample With Winter Water Use"Sewer Ca " Fiscal Year: 2008-09 2009-10 2010-11 Fiscal Year. Charges Rates Charges Rates Charges Base Charge: $5.50 $6.00 $ 6.00 $6.55 $6.55 Volume Charge: 42.42 $6.63/unit 46.41 $7.22/unit 43.32 Total $47.92 $52.41 $49.87 The average SFR sewer cap was 7-units in 2008-09 and 2009-10.The average SFR sewer cap is 6-units in 2010-11 While changes to the average residential customer's sewer bill in 2010-11 are positive. It is very important to recognize that while the average residential customer sewer cap is lower in 2010- �3s-3 2010 Sewer Fund Review Page 4 11, individual sewer caps for some customers have increased and other customers have realized a greater reduction in their individual sewer cap than the average residential customer. The illustration above is for the average of all single family residential customers. What are the fiscal impacts to the Sewer Fund revenues for 2010-11? Sewer revenues for sewer service charges in 2010-11 have been revised downward by about $750,000 in 2010-11 (from $13.1 million down to about $12.4 million). Sewer service charge revenues are projected to be 6% lower in 2010-11 due to the reduction in the sewer cap. Of the total revenues from sewer services charges, 70% of the total is from residential accounts with 30% from non-residential accounts. If all other factors remained the same, an additional 6% sewer rate increase or 6% reduction in expenditures, or a combination of both would be required. However, staff is pleased to be able to report that there are positive factors that allow the Sewer Fund to remain in a positive fiscal position. For context, when looking at total sewer fund revenues, the 2010 Sewer Fund Analysis (Attachment, Exhibit A.1) includes total sewer revenues at $13,407,600 in 2010-11 with the lower residential sewer cap (6-units), compared to the total sewer revenues at $13,913,500 in 2010-11 as reflected in the 2009-10 Mid-Year Budget Review (page B-40). Based on the 2010 Analysis, total sewer revenue is reduced by about $500,000 in 2010-11, when compared to the 2009-10 mid-year base. Positive factors, in the 2010 Analysis, that directly offset the 2010-11 revenue decrease include: 1. Total expenditures in the 2010 Analysis are budgeted at $12,303,500, which is a $355,100 reduction compared to the 2009-10 mid-year base of$12,658,600. 2. The 2010-11 beginning of year working capital balance is greater than the 2009-10 mid-year base, by$582,600. This is primarily due to capital expenditure savings returned to working capital in 2009-10, which includes $500,000 from the Tank Farm Gravity Sewer Lift Station and Force Main project representing a project budget saving of 3.5%. What assumptions are used in the sewer revenue forecast? Beyond 2010-11, the sewer service charge revenues are conservatively calculated with the projected sewer service rate change applied to the most recent volume/use and the lower sewer cap. Next year, as part of the 2011 Sewer Fund Analysis and multi-year rate setting process, the sewer rate analysis and forecast will be updated as part of the 2011-13 Financial Plan development process. ATTACHMENT 2010 Sewer Fund Analysis Exhibit A— Updated Financial Schedules A.1. Changes in Financial Position A.2. Assumptions for Fund Projections A.3. Capital Improvement Plan Q U5-- ATTACHMENT 2010 Sewer Fund Analysis June 1, 2010 Prepared by the Utilities Department city of San WIS OBISPO 35-5' Attachment Page 2 city of san Luis owspo 2010 Sewer Fund TABLE OF CONTENTS I. OVERVIEW H. 2009-11 FINANCIAL PLAN SUPPLEMENT: 2010-11 BUDGET A. Summary of Operating Programs B. Operating Program Reductions C. Amended Capital Improvement Plan III. SEWER RATE STRUCTURE AND 2010-11 RATES IV. ASSUMPTIONS A. Revenues B. Expenses C. Debt Service Payments V. MAJOR ACTIVITIES AND PROGRAMS A. 2009-10 Update B. 2010-11 and Forecast EXHIBIT A—FINANCIAL SCHEDULES A.1 Changes in Financial Position A.2 Assumptions for Fund Projections A.3 Capital Improvement Plan Attachment Page 3 �7 city of san tins OBISPO 2010 Sewer Fund Analysis I. OVERVIEW This report presents the financial condition of the Sewer Fund, based on the 2009-11 Financial Plan Supplement: 2010 Budget operating and capital programs, taking into consideration current economic conditions while addressing the identified needs in the Wastewater Master Plan, regulatory requirements, infrastructure maintenance, and adopted City financial policies. II. 2009-11 FINANCIAL PLAN SUPPLEMENT: 2010-11 BUDGET Wastewater Division operating programs are summarized in Table A. The summary of operating programs reflects the net operating program base budget amounts for 2010-11, which includes the operating budget reductions, as further discussed in this report and displayed in Table B. A. Summary of Operating Programs Includes Operating Program Reductions as outlined in Table B. 2010-11 BUDGET Wastewater Collection ltl 1,035,400 Pretreatment 227,300 Water Reclamation Facility 3,211,100 Water Quality Laboratory 482,200 Wastewater Administration/Engineering 553,500 Wastewater Franchise Fees 471,400 TOTAL WASTEWATER SERVICES OPERATING PROGRAMS 5,980,900 Wastewater Collection funds 50%of the Water Customer Service program The 2009-11 two-year financial plan development process included identifying operating cost reduction options to further tighten the ongoing operating program budgets for wastewater service, in an effort to recommend the lowest responsible budget and associated sewer charges, while ensuring safe and reliable wastewater services to the community. Operating reduction options were identified in the wastewater programs resulting in short-term and long-term service impacts to sewer customers and the community. As outlined in Table B, the operating program reductions for wastewater services approved by the City Council and implemented July 1, 2009 represent an ongoing expenditure savings of$197,700 annually. This action included a reduction of 1.80 full-time equivalent positions representing the sewer fund's proportionate share of three regular benefited positions that were eliminated effective July 1, 2009. Again, as part of the 2009-11 Financial Plan Supplement: 2010-11 Budget development process, Utilities staff identified further operating program reduction options. The outcome of this evaluation results in an additional $22,100 in reductions effective July 1, 2010. The wastewater services operating reductions are ongoing in nature as opposed to a one-time"stop gap"measure. Operating savings total $219,800 in 2010-11, of this total about 70% ($154,600) is staffing 8,5�— Attachment Page 4 related and 30% ($65,200) reflects non-staffing operating saving. The continued annual savings is reflected in the Sewer Fund Change in Financial Condition(Exhibit A.1). B. Operating Program Reductions Regular 2009-10 2010-11 FTE III SAVINGS SAVINGS Operating Reductions Implemented July 1,2009 1. Eliminate Utilities Engineer position-40%share a' 0.40 57,700 57,600 2. Eliminate Laboratory Analyst position-90%share 0.90 57,500 57,400 3. Eliminate Water Customer Service position-50%share(4) 0.50 39,700 39,600 4. Reduce Contract Services for Sewer Map Printing 500 500 5. Reduce Contract Services for Telemetry Repairs 500 500 6. Reduce Radio Maintenance Services 1,500 1,500 7. Reduce Chemicals in Wastewater Collection 6,600 6,900 8. Reduce Contract Services for Manhole Rehabilitation 18,000 18,000 9. Reduce Contract Services for Flow Monitor Calibration 2,000 2,000 10. Reduce Contract Stormwater Sampling in Collections 1,300 1,300 11. Reduce Contract Janitorial Services at the WRF 6,000 6,000 12. Reduce Operating Materials for Lab Steel Toe Boots 1,000 1,000 13. Reduce Operating Materials for Lab Microbial Glassware 5,000 5,000 14. Reduce Operating Materials for Lab Filter Pads 400 400 2009-10 WASTEWATER SERVICES OPERATING REDUCTIONS 1.80 197,700 197,700 Operating Reductions Implemented July 1,2010 15. Reduce Contract Landscape Services at the WRF 18,000 16. Reduce Travel,Meetings&Dues at the Water Quality Lab 1,400 17. Reduce Contract Services in Pretreatment 1,400 18. Reduce Travel,Meetings&Dues in Pretreatment 1,000 19. Reduce Office Supplies in Pretreatment 300 Additional Wastewater Services Operating Reductions 22,100 2010-11 WASTEWATER SERVICES OPERATING SAVINGS 2199800 FrE represents full-time equivalent I`n Engineer position savings is shared 50%water,40%sewer,10%whale rock "n Lab Analyst position savings is shared 90%sewer and 10%water �4'Water Customer Service position savings is shared 50%sewer and 50%water There are no Significant Operating Program Changes for new initiatives or wastewater budget increases requested in the 2009-11 Financial Plan Supplement: 2010-11 Budget. Capital improvement project expenses are forecast based on infrastructure maintenance and repair history, individual project budget estimates and regulatory requirements. Maintaining the wastewater system infrastructure, including major equipment upgrades, ongoing treatment processes, technology, and long-term infrastructure upgrade and replacement planning is critical to providing safe and reliable wastewater services for the community. Attachment Page 5 Based on the current fiscal environment and the continued downturn in the construction industry, the construction bidding climate remains highly competitive. At the same time, based on the current economy and with increased constraints on private financing, the number of construction projects (or jobs) in the community are fewer than in recent years. This combination of factors has the ability to result in less cash flow for individual contractors and the potential for a more volatile bidding climate as we continue forward near the bottom of this economic cycle. At the same time, capital improvements are vital to infrastructure health. Supporting capital investments at this time results in value added to the City, its wastewater customers, the community, and local businesses in construction related services. The 2010-11 sewer capital project plan was previously approved with adoption of the 2009-11 Financial Plan. As proposed in this Analysis, the amended 2010-11 Capital Improvement Plan includes deferring the Calle Joaquin Lift station upgrade. As part of the 2009 Sewer Fund Review, design was approved in the amount of$235,000 in 2010-11, with construction projected at $1.9 million in 2012-13. In the 2010 Analysis, the $235,000 intended for design is eliminated in 2010-11 and reprogrammed in 2016-17. Table D below, displays the amended 2010-11 Capital Improvement Plan, including a revised (reduced) capital forecast for 2011-12 and 2012-13. C. Capital Movement Plan 2010-11 2011-12 2012-13 BUDGET PROPOSED PROPOSED Wastewater Collection Collection System Improvements 1,393,000 1,330,400 1,300,000 Voluntary Lateral Rehabilitation Program 52,000 52,000 52,000 Los Verdes Lift Station-Easement Acquisition 80,000 Fled Replacement: 1/2 Ton Pickup 22,800 WaterRecdmnadon Facility Master Plan Implementation-Design 1,750,000 1,750,000 Disinfection Modifications-Design 600,000 Major Maintenance 160,400 650,000 595,000 Arbrdnisdadon and Fngbwaing E3dericr Painting of 879 Morro Building-50%share 9,000 Total Wastewater Services CU 1,605,400 4,494,200 3,697,000 Shared Cay Information Technology Technology Infrastructure 6,300 20,000 IT Disaster Prevention and Recovery Plan 1,800 Office Application Software Replacement 11,500 SharePoint Enterprise Content Management 3,000 IT Strategic Plan 14,300 Total Share of Technology CIP 69300 36,300 14,300 TOTAL SEWER FUND CAPITAL PROGRAM 1,6119700 4,530,500 3,711,300 1 Attachment Page 6 III. SEWER RATE STRUCTURE AND 2010-11 SEWER RATES Current policies to guide rate structure setting: ■ Comply with legal requirements ■ Encourage conservation ■ Ensure revenue adequacy to fully meet system operating and capital needs ■ Provide equity and fairness between customers ■ Be easy to understand and administer ■ Facilitate ongoing review to maintain rate stability The City Council approved the residential volume based sewer rate structure effective July 1, 2007 delivering a sewer rate structure with a base fee and volume charge to reflect the individual customer's usage and associated sewer charges. The volume based sewer rate structure encourages water conservation and achieves fairness and equity among residential customer classes —customers with low use pay less and customers with higher usage pay more. Prior to 2007, the single family residential sewer rate structure was a fixed charge which did not reflect the individual customer's water use and associated demand placed on the wastewater system. With the residential volume based sewer rate structure, the individual customers metered water use during the winter months of December, January and February, when outdoor irrigation should be turned down or off and water use would be most reflective of the demand place on the wastewater system for sewer charges. The water use during the winter months is averaged to establish a winter water"sewer cap". Residential winter water sewer caps are implemented with the first full sewer service period after July 1st. Sewer charges are based on actual water usage up to the customer's winter water sewer cap, which is most reflective of that customer's demand on the wastewater system. The number of active water and sewer customers (accounts) changes daily with service tum-on and tum-offs due to move-in and move-outs. A large volume of account changes directly correlate with the academic schedules at the University and Cuesta College. When a new customer account is activated, single family residential (SFR) accounts start with an 8-unit sewer cap and multi-family residential (MFR) accounts start with a 6-unit sewer cap until the customer establishes their individual sewer cap based on their average winter water use, as established in the winter months of December, January and February. For new accounts the initial 8-unit sewer cap for SFR and 6-unit sewer cap for MFR is based on the customer class average established during the first winter water use period, with implementation of the City's volume based sewer rate structure. The City's sewer rate structure includes a minimum base charge plus a volume fee based on the volume of water used. The following table displays the sewer rate structure with the previously adopted 2010-11 sewer rates. +35,/O Attachment Page 7 2010-11 Monthly Sewer . - TYPE OF ACCOUNT Monthl Rates Base Fee Volume Fee Residential—minimum base charge+volume charge Single family dwelling,including single meter condominiums and townhouses, per dwelling unit. Total monthly fee capped based on $6.55 $7.22/per unit Average Winter Water Use(AWWU) Multi-family dwelling in any duplex,apartment house or rooming house, per account. Accounts without separate irrigation meter. Total monthly fee $6.55 $7.22/per unit capped based on Average Winter Water Use(AWWU). Account with separate irrigation meter: No cap Mobile home or trailer park, per account. Accounts without separate inigation meter. Total monthly fee capped based on Average Winter Water $6.55 $7.22/per unit Use(AWWU). Account with separate irrigation meter. No cap Non-Residential—minimum base charge+volume charge All non-residential accounts, per account $6.55 $7.22/per unit Schools Public or private school,based on per average daily attendance(ADA)at N/A $5.85/ADA the school Each Vehicle Discharging into the City Sewer System $10.26 Minimum base fee includes 1,500 gallons discharge. Volume fee per 100 $170.43 per 100 gallons in excess of initial 1,500 gallons discharged gallons AWWU as established for December,January and February. 1 Unit=748 Gallons IV. ASSUMPTIONS The following provides more detail for the key assumptions in Exhibit A.1. and A.2. to this report, the financial schedules include the Sewer Fund changes in financial position and assumptions for the Sewer Fund projections included in the Analysis. A. Revenues 1. Sales from sewer service charges are based on a sewer rate analysis that includes a review of all 14,200 sewer accounts using the most recent 12-month period, including monthly usage and billed amounts. Monthly usage and billed amounts are compared against actual revenues received for the same period. The data sets are pulled from the City's utility billing software program at the end of the winter water use period, to capture the most recent usage trends and the average winter water usage established by individual residential accounts, and by customer account type.. Historical data for all customer types and the established winter water sewer caps for residential accounts to be implemented in July is used to evaluate revenue stability in the current fiscal year and to forecast usage, and to test the previously adopted sewer rates for revenue adequacy. 2. Sales to Cal Poly are based on effluent flow trends and the 2007 Agreement between the City and the University. This agreement, covering the period beginning July 1, 2007 and extending through June 30, 2012, set the proportion (82%) of the non-residential rate the University pays to account for the University's difference from other customers (prepaid capital share in the wastewater system). Q J Attachment Page 8 3. Development impact fee collection is calculated according to the 2007-08 base year revenues and adjusted by the one percent growth rate and inflation. Annually, this calculation is evaluated and proportionately adjusted due to lower than one percent growth as well as development occurring under maps vested prior to current impact fee establishment. Development in those areas pay only those fees in place at the time of approval plus an annual adjustment based on the consumer price index. As a result of the continued downturn in development activity, development impact fee revenue projections have been revised. Revenues are not projected to reach 2007-08 levels ($361,500) within the seven year forecast through 2017-18. Revenue projections, which may be conservative, assume development impact fees returning to the 2008-09 levels ($171,000) in 2016-17. B. Expenses Total operating and maintenance costs for 2010-11 are based on the approved 2009-11 Financial Plan. Operating and maintenance costs forecasted for 2011-12 through 2013-14 are adjusted assuming an inflation rate of 2.5% annually, which increases to 3.0% annually beginning in 2015-16. The most significant non-staffing operating costs for wastewater services are for electric utility services and chemicals for wastewater collection and treatment processing. Projected electric utility rate increases range from five to eleven percent annually depending on the type of metered account. Chemicals go out to bid on an annual basis: Chemical contracts for February 2010 through January 2011 are below the 2009-10 contract amount. This analysis assumes a moderate increase in chemical costs beginning in February 2011. Capital expenses are based upon projections to the end of the 2009-10 fiscal year and proposed amendments to the previously approved 2010-11 Capital Improvement Plan budget. The 2010 Sewer Fund Analysis includes, as previously discussed the deferral of the Calle Joaquin Lift Station upgrade project. The revised capital forecast includes a reduction in capital funding levels for Collection System Improvements beginning in 2011-12. Factors driving the lower capital funding level include: (1) the number of .previously approved and funded wastewater projects pending construction and the "production" capacity limitations of Utilities and Public Works staff; (2) current project budget estimates based on recent materials and construction costs are revised downward when compared to previously approved project budget estimates; (3) based on the current available budget in the Wastewater Collection System master account, and; (4) to balance expenditures within previously approved sewer service rates and to deliver sewer rate projections for 2011-13 that remain the same as previously forecasted in the 2010 Sewer Fund Analysis when presented to the City Council on June 11, 2009. C. Debt Service Payments 1. Annual debt service payments of$2,135,600 are to repay the State Revolving Loan Funds received by the City for the collection system improvement ("Relief Sewer Main") and for construction of the Unit 3 and 4 improvements to the Water Reclamation Facility. The collection system improvement final debt service payment ($249,800) will be in September 2011 and the final debt service payment ($1,885,800) for construction of Unit 3 and 4 improvements to the Water Attachment Page 9 Reclamation Facility is scheduled for August 2012, when the State Revolving Loan debt obligation will be met. 2. Debt service for the Sewer Fund's proportionate share of the energy conservation projects is $281,700 in 2010-11. 3. Debt service for the Sewer Fund's proportionate share of the City's Public Safety Communications Center ($32,800) and the Public Safety Radio System Upgrade ($43,200)total $76,000 in 2010-11. 4. Debt service for the Tank Farm Gravity Sewer, Lift Station, and Force Main project financed by the California Infrastructure and Economic Development Bank revolving fund loan is $563,500 in 2010-11. 5. Debt service for the Tank Farm Gravity Sewer, Lift Station, and Force Main project portion financed through the SunTrust private placement is $186,900 in 2010-11. 6. Debt service is currently projected at $3,042,200 annually beginning in 2013-14 for the currently estimated $40,444,000 million construction related services in Master Plan Improvements to upgrade the capacity and treatment of the Water Reclamation Facility. The Analysis assumes pay-as-you-go financing for the estimated $3.5 million design phase, programmed as$1.7 million annually in 2011-13. 7. Debt service is currently projected at $225,700 annually beginning in 2013-14 for the currently estimated $3 million construction phase for Disinfection Modifications that may be required to meet pending regulatory requirements for the removal of Trihalomethanes from the Water Reclamation Facility's effluent. The Analysis includes pay-as-you-go financing for the estimated $600,000 design phase in 2011- 12 and the estimated $500,000 construction management phase in 2013-14. 8. Debt service is currently projected at $382,900 annually beginning in 2015-16 for the currently estimated $3 million construction phase for the planned Buckley Lift Station. Assumptions include pay-as-you-go financing for the estimated easement acquisition ($250,000) and design ($510,000) in 2013-14 and for the estimated. $510,000 construction management phase in 2015-16. 9. Debt service is currently projected at $124,200 annually beginning in 2015-16 for the estimated $1.65 million construction phase for the planned Los Verdes Lift Station. Assumptions include pay-as-you-go financing for the estimated $80,000 easement acquisition in 2011-12, estimated $165,000 design in 2013-14 and the estimated $$165,000 construction management phase in 2015-16. V. MAJOR ACTIVITIES AND PROGRAMS A. 2009-10 Update 1. Tank Farm Gravity Sewer, Lift Station, and Force Main The Tank Farm Gravity Sewer, Lift Station and Force Main project was originally approved by the City Council in 1997. The project included significant work on study, environmental, easement acquisition and design phases over multiple years. The construction phase began in June 2008, with construction completion in July 2009 and total project completion in October 2009. The approved project budget was $12.9 million, with funding sources including $11.9 million in low interest 81s-,13 i Attachment Page 10 loans and $1 million in pay-as-you-go funding from the Sewer Fund. Final project costs total $12.25 million, resulting in a $650,000 project budget savings ($650,000 is equivalent to 5% of the approved project budget). The Tank Farm Lift Station has been fully operational since July 2009 serving existing customers and providing increased available capacity to serve future development. 2. Disinfection Modifications at the Water Reclamation Facility (WRF) The pilot study utilizing chlorine dioxide as an alternative disinfectant that does not create Trihalomethanes (THMs) has been completed with good results. The City's consultant has completed the final report that will provide the basis for design. 3. Regulatory Requirements The City continues to work with the Regional Water Quality Control Board (RWQCB) to address the MUN beneficial use designation for San Luis Obispo Creek. The City's Use Attainability Analysis (UAA) has been completed by the City and submitted to the RWQCB and currently RWQCB staff is analyzing the document. The MUN designation is the driver for stringent discharge limitations in the WRF's permit that meet or exceed drinking water requirements. These limits include nitrates and Trihalomethanes (THMs) and will likely include a host of additional constituents in the future. Currently the WRF's National Pollutant Discharge Elimination System (NPDES) permit has been administratively extended until the outcome of the UAA. Staff will return to Council with alternatives if regulatory efforts cannot be resolved in a satisfactory manner. 4. Airport Area Wastewater Master Plan Update To provide a road map of sewer infrastructure for the western portion of the airport area, staff has completed the Airport Area Wastewater Master Plan Update. Since completion of the 2000 Wastewater Master Plan, boundaries have changed significantly, changing the infrastructure needs in a portion of the Airport Area. The study provides the City and property owners with a defined plan of required infrastructure. B. 2010-11 and Forecast 1. Buckley Lift Station The Airport Area Wastewater Masterplan Update presented to the City Council on February 2, 2010, included the Buckley and Los Verdes lift stations. The attached capital improvement plan forecast includes the Buckley Lift Station with total project costs currently estimated at $6,360,000. Project costs by phase include easement acquisition at $250,000 and design at $510,000 with both phases in 2013- 14. Construction is currently estimated at $5,090,000 and construction management at $510,000 in 2015-16. The Sewer Fund Analysis and rate forecast assumes that the construction component ($5,090,000) will be debt financed, with the remaining $1,270,000 in project costs funded with pay-as-you-go financing. 2. Los Verdes Lift Station The Los Verdes Lift Station as discussed with Council on February 2, 2010 is included in the attached capital improvement plan forecast with total project costs currently estimated at $2,060,000. The easement acquisition is estimated at $80,000 and is currently planned for 2011-12 in an effort to coincide with easement CAttachment Page l l acquisitions on the right-of-way for the City's Los Osos Valley Road and US 101 Improvements project. Design for the Los Verdes Lift Station is projected at $165,000 in 2013-14, with construction currently estimated at $1,650,000 and construction management at $165,000 in 2015-16. The Sewer Fund Analysis and rate forecast assumes that the construction component ($1,650,000) will be debt financed, with the remaining $410,000 in project costs funded with pay-as-you-go financing 3. Calle Joaquin Lift Station Replacement of the Calle Joaquin Lift Station to address maintenance and operations issues and meet future flows is identified in the Wastewater Master Plan. As part of the 2009-11 Financial Plan (Appendix B, Capital Improvement Plan, page 3-119 provides additional project information), the City Council approved $235,000 in 201041 for design, environmental work, and easement acquisition and $1.9 million in 2012-13 for construction. This report includes a recommendation to amend the 2010-11 Budget capital improvement program eliminating the $235,000 in 2010-11, based on a revised timeline and phasing of sewer lift stations based on the recommendations from the Airport Area.Wastewater Master plan Update. The attached capital improvement plan forecast includes the Calle Joaquin Lift station with design projected at $250,000 in 2016-17 and construction and construction management at $1.1 million in 2017-18. This deferred project assumes the construction scope of work is less significant, based on the addition of the Buckley and Los Verdes lift stations. The Sewer Fund Analysis and rate forecast assumes pay-as-you-go financing from the Sewer Fund for design, construction and construction management. 4. Water Reclamation Facility Master Plan Implementation Studies are near completion for the Water Reclamation Facility Master Plan. The City's consultant and staff are working closely to identify the most cost effective and flexible design to meet discharge limitations and reduce maintenance and operations costs. Ultimate design and cost are dependant upon the success of the City's regulatory negotiations relative to San Luis Obispo Creek's MUN de- designation and the WRF's NPDES permit. Current cost estimates for total project cost is $43,944,000, which includes $3.5 million for design, programmed as $1.75 million annually in 2011-13 and $40.4 million for construction and construction management in 2013-14. Additional project information is available in the 2009-11 Financial Plan, Appendix B, Capital Improvement Plan on page 3-128. The Sewer Fund Analysis and rate forecast assumes design at $3.5 million funded with pay-as- you-go financing from the Sewer Fund and construction related services at $40.4 million debt financed—assuming multiple financing sources. 5. Disinfection Modifications at the Water Reclamation Facility (WRF) Design is currently projected at $600,000 in 2011-12, with construction and construction management projected at $3.5 million in 2013-14. The Sewer Fund Analysis and rate forecast includes a total project cost estimated at $4.1 million. Assumptions include design at $600,000 and construction management at $500,000 funded with pay-as-you-go financing ($1.1 million), with construction at $3 million debt financed. &%/� Attachment Page 12 6. Infrastructure Maintenance Industry standard suggests annual infrastructure replacements at two percent of system value(based on a fifty year replacement cycle) for the wastewater collection system. This equates to expenditures of$1,393,000 in 2010-11. Repair and upgrade at major facilities such as the Water Reclamation Facility and lift stations is based on maintenance and repair history as well as depreciated value and overall efficiency. Major maintenance at the Water Reclamation Facility is programmed at $160,400 in 2010-11. Based on carryover funding from 2009-10 and with the additional $160,400 in 2010-11 projects estimated at $395,000 are planned for construction at the Water Reclamation Facility. The most significant maintenance project in 2010-11 at the Water Reclamation Facility is the cleaning, repair and recoating of Clarifier #1. The 2009-11 Financial Plan, Appendix B, Capital Improvement Plan, page 3-133 provides a list of projects. 7. Lateral Program The Voluntary Lateral Rehabilitation Program continues with over 98 applications in 2007-08, 58 applications in 2008-09 and an estimated 60 applications for 2009- 10. Recent participation has remained steady and the Voluntary Lateral Rehabilitation Program has a"carry-over"budget of$101,900 available. Based on this availability of funding and the current level of program participation, funding was previously approved in the amount of $52,000 in 2010-11. The 2009-11 Financial Plan, Appendix B, Capital Improvement Plan, page 3-117 provides background information on the Voluntary Lateral Rehabilitation Program The capital improvement plan forecast will be further evaluated, based on additional information and factors, and updated as part of the 2011-13 Financial Plan development process. Attachment Page 13 EXHIBIT A 2010 SEWER FUND FINANCIAL SCHEDULES p oN •�`� Si -I� O SN°o° OO� p�O pQ• OVI Ob � S O O ^ O� O Q O � , cg� M lc OO0o hn0a0 OOP Attachment a M e = M Exhibit A.1. 0 0 0 0 0 0 e o 0 0 0 o e S S O S 0 o e 0 0 0 0 0 0 0 0 0 0 0 0 0 o e �O U vi a0 N �O T �O 00 of N O � a0 a0 n �O 00 N Vl 00 u1 M I� �n Vi �D O N 00 - 00 Q� - n M DD N N a n in h of h ? 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'o' o' 2 L� �� 5. � Z � � m 2r E'is g a 2Q. C3 N rn o. 2 y 2QN ° ;3 o• c� � m e a '�a � a � o.� w` � � �o•3 0. 3 0 � 3 'o' m c r . 'b p o : N CI w ' tiro vo d o e ro N m�m '1 r Q O� .�•� O N W O C O O O O O O O / 7 C C O O O O C O O O O O O O O O m 7 W W � �" �'•' W C O O O O O y N C C O C O O O O O m — vW a a w Aon _ Y9 T T O O O O 00 O1 0 0 0 0 0 0 0 0 0 0 o m C C C O O O O O O O O O O O O A I S N N TJ. 0 0o fnA -o N O O O O rn O O S S m O O O O O O O v � W W � mD X � m Q 0 W j RED FILE 'y ►_ 2TING AGENDA DATE.(48 ITEM #_2S counat memoizan6um _:......:..........:.... E'COUNCIL 12-ODD DIR I C2''e�0610 CTFIN DIR May 27,2010 2rAGkO45'0_C"i'"6'-C'_FIRE CHIEF 113-ATTORNEY ZIPW DIR TO: City Council i CLERK/ORIG 2-POLICE CHF ❑ DEPT HEADS C'IREC DIR i i! P113 _� [�- FROM: Katie Lichtig,City Manager I%-?12c, 11 R UUTT IL SDfDI Carrie Mattingly, Utilities D' for n�4Es r po�c- c,c— e cty .vr�c. SUBJECT: SEWER RATE STRUCTURE — RESIDENTIAL TO COMMERCIAL CONVERSIONS In July 2009, a local business property owner addressed Council, in person and in writing, requesting his property, a residential to commercial conversion, be eligible for the residential sewer cap. The owner stated the present sewer rate structure is inequitable for the older homes that had been converted into offices and that "sewer rates are not volume based, as all water usage, even for landscaping, is being double-charged as if it were being used for sewage." He indicated it would be cost-prohibitive for him to install an irrigation meter. Council requested staff to look into this issue and report back during the 2010 Sewer Fund review. To provide long-term improvements to sewer customer service, the City performed a multi-year study and comprehensive analysis which recommended a volume based sewer rate structure. City Council adopted the new rate structure which became effective July 1, 2007. As a result of the community process that preceded this decision, Council had priority ranked water and sewer rate structure goals and objectives as follows: 1. Comply with legal requirements RECEIVED 2. Encourage conservation 3. Ensure revenue adequacy to fully meet system operating and capital needs MAY 2 7 2010 4. Provide equity and fairness between customers 5. Be easy to understand and administer SLO CITY CLERK 6. Facilitate ongoing review to maintain rate stability Acknowledging no rate structure is perfect, with the Council's priorities in mind the consultant created a volume based sewer rate structure that is easy to understand and administer while still allocating costs as equitably as possible. Because the volume-based sewer rate was to be based on the amount of water used, there was concern over equity for residential properties that, at times, can use a significant amount of water for outside uses. Unlike commercial properties,residential properties, due to cross contamination concerns with the potable water system,may not install separate irrigation water meters. In order to compensate for this, a residential sewer cap was established based on the average volume of water used during a three-month period during the winter months. Staff has analyzed the concerned property owner's sewer use charges using both the prior flat rate and the new volume-based sewer rate structures. For the 11 months between July 2008 and June 2009 he would have been charged$645.15 with the flat rate structure instead of the$326.02 Council Memorandum-Sewer Rate Structure—Residential to Commercial Conversions Page 2 that the property was billed using the commercial volume-based rate. The volume-based sewer rate structure has effectively reduced his sewer use charges by about 50 percent. Additionally, the Council has authorized the Utility Billing Adjustment Committee to resolve disputes over utility billing issues. The owner was scheduled to meet with the Committee, but had to cancel his meeting and has been unable to reschedule as of this date. Staff has concern with and does not recommend creating a special category of commercial user in the rate structure. This new category conflicts with many of the adopted sewer rate structure goals and objectives. Below is a list of staff's concerns with a new rate category and its conflict with the City's current rate structure policies: I. Council rate structure priority number two is to encourage conservation. If existing commercial properties choose not to install irrigation meters, planting a drought tolerant landscape is a viable alternative to reduce and potentially eliminate outdoor water use. 2. Creating a rate structure with special categories or exceptions is more complicated than the current design. There are multiple reasons why certain categories of commercial sewer users could be charged differently — no rate structure perfectly addresses all situations. Council rate structure priority number three is rates are easy to understand and administer.The current rate structure was designed with this priority in mind. 3. Current City databases do not track residential units that have been converted to commercial uses either through utility billing, business licensing, or other. Once the property changes to commercial,with currently available technology,the information that the property is a residential conversion to commercial is not available electronically. While our databases are about to go through an upgrade, a significant investment of staff resources to create this database would be required either by canvassing neighborhoods or going through individual property files. 4. Sewer caps "reset" each time a residential account turns over. How changes in tenants or intensification of uses in the commercial properties would be addressed is an issue of equity. For example: if a converted commercial property were vacant during the winter water use period setting the sewer cap and subsequently leased in the spring, but still under the same property owner or management company that pays the water bills, the potential for under collection of sewer rates is high. The risk of this happening with a residential unit is low in comparison. 5. There would be an unknown fiscal impact on the overall sewer rates in the community as the number of these converted properties is not known. Should Council choose to create a special category for commercial properties converted from residential, extensive work would be required to analyze the impacts, run rate scenarios, and incorporate the new category into the rate model. This work would require the assistance of a consultant. Staff will be presenting the 2010 Sewer Fund review on June 1, 2010 as Business Item 5 and will be prepared to discuss this issue further should Council desire. RED FILE T •. MEETING AGENDA DATEjOA ITEM -- council mcmoizan6um .!'COUNCIL CYCDD D R I Cl'81�0li*4im6� C7-FIN DIR I May 27,2010 f ErA40'Cf#M"-1T-FIRE CHIEF I fi IrATTORNEY arpw DIR Z CLERK/ORIG Q POLICE CHF TO: City Council :` 17 DEPT HEADS rAEC DIR FROM: Katie Lichtig,City Manager mLML DIRmr"PI Dim i Carrie Mattingly,Utilities D' nYav rune's � j CITI SUBJECT: SEWER RATE STRUCTURE —. RESIDENTIAL TO COMMERCCAAlf CONVERSIONS In July 2009, a local business property owner addressed Council, in person and in writing, requesting his property, a residential to commercial conversion, be eligible for the residential sewer cap. The owner stated the present sewer rate structure is inequitable for the older homes that had been converted into offices and that "sewer rates are not volume based, as all water usage, even for landscaping, is being double-charged as if it were being used for sewage." He indicated it would be cost-prohibitive for him to install an irrigation meter. Council requested staff to look into this issue and report back during the 2010 Sewer Fund review. j To provide long term improvements to sewer customer service,the City performed a multi-year study and comprehensive analysis which recommended a volume based sewer rate structure. City Council adopted the new rate structure which became effective July 1, 2007. As a result of the community process that preceded this decision, Council had priority ranked water and sewer { rate structure goals and objectives as follows: 1. Comply with legal requirements RECEIVED 2. Encourage conservation 3. Ensure revenue adequacy to fully meet system operating and capital.needs MAY 2 7 2010 4. Provide equity and faimess between customers 5. Be easy to understand and administer SLO CITY CLERK 6. Facilitate ongoing review to maintain rate stability t Acknowledging.no rate structure is perfect,with the Council's priorities in mind the consultant � created a volume based sewer rate structure that is easy to understand and administer while still 4 allocating costs as equitably as possible. Because the volume-based sewer rate was to be based on the amount of water used, there was concern over equity for residential properties that, at times,can use a significant amount of water for outside uses. Unlike commercial properties,residential properties,due to cross contamination 1 concerns with the potable water system,may not install separate irrigation water meters. In order to compensate for this, a residential sewer cap was established based on the average volume of water used during a three-month period during the winter months. Staff has analyzed the concerned property owner's sewer use charges using both the prior flat a rate and the new volume-based sewer rate structures. For the 11 months between July 2008 and June 2009 he would have been charged$645.15 with the flat rate structure instead of the$326.02 i F M Council Memorandum-Sewer Rate Structure—Residential to Commercial Conversions Page 2 that the property was billed using the commercial volume-based rate. The volume-based sewer rate structure has effectively reduced his sewer use charges by about 50 percent. i Additionally, the Council has authorized the Utility Billing Adjustment Committee to resolve 1, disputes over utility billing issues. The owner was scheduled to meet with the Committee, but i had to cancel his meeting and has been unable to reschedule as of this date. {{ Staff has concern with and does not recommend creating a special category of commercial user 1 in the rate structure. This new category conflicts with many of the adopted sewer rate structure goals and objectives. Below is a list of staff's concerns with a new rate category and its conflict with the City's current rate structure policies: 1. Council rate structure priority number two is to encourage conservation. If existing commercial properties choose not to install irrigation meters,planting a drought tolerant landscape is a viable alternative to reduce and potentially eliminate outdoor water use. t 2. Creating a rate structure with special categories or exceptions is more complicated than j the current design. There are multiple reasons why certain categories of commercial sewer users could be charged differently — no rate stricture perfectly addresses all situations. Council rate structure priority number three is rates are easy to understand and administer.The current rate structure was designed with this priority in mind. 3. Current City databases do not track residential units that have been converted to commercial uses either through utility billing, business licensing, or other. Once the property changes to commercial,with currently available technology,the information that the property is a residential conversion to commercial is not available electronically. While our databases are about to go through an upgrade, a significant investment of staff resources to create this database would be required either by canvassing neighborhoods or going through individual property files. 4. Sewer caps"reset"each time a residential account turns over. How changes in tenants or intensification of uses in the commercial properties would be addressed is an issue of equity. For example: if a converted commercial property were vacant during the winter water use period setting the sewer cap and subsequently leased in the spring, but still under the same property owner or management company that pays the water bills, the potential for under collection of sewer rates is high. The risk of this happening with a residential unit is low in comparison. 5. There would be an unknown fiscal impact on the overall sewer rates in the community as the number of these converted properties is not known. Should Council choose to create a special category for commercial properties converted from residential, extensive work would be required to analyze the impacts, run rate scenarios, and incorporate the new category into the rate model.This work would require the assistance of a consultant. Staff will be presenting the 2010 Sewer Fund review on June 1,2010 as Business Item 5 and will be prepared to discuss this issue further should Council desire. Y" _rw