HomeMy WebLinkAbout06-06-2017 Item 16 2017 Sewer Fund Review Meeting Date: 6/6/2017
FROM: Carrie Mattingly, Utilities Director
Prepared By: Dave Hix, Wastewater Division Manager
Brigitte Elke, Utilities Business Manager
SUBJECT: 2017 SEWER FUND REVIEW
RECOMMENDATION
1. Review and approve the 2017 Sewer Fund Review; and
2. Conceptually approved the 2017-19 Sewer Fund financials and budget with final action
on June 20, 2017, with the adoption of the City’s 2017-19 Financial Plan.
DISCUSSION
Background
The City of San Luis Obispo’s Sewer Fund (Wastewater Division) is run as an enterprise fund
and its operating, capital, and debt service expenditures are covered by sewer rates and fees. The
Wastewater Division’s financials for the upcoming City budget, including its 2017-19 work
program, are reviewed and approved by the City Council together with the City’s overall budget
with the two-year Financial Plan.
Currently, the Wastewater Division collects service fees from approximately 2.000 commercial
and 13,000 residential accounts. The Division is comprised of five operating programs that
support the different tasks required to provide services that are highly regulated by state and
federal mandates.
Fund Review
This report presents the Sewer Fund’s proposed 2017-18 budget, its
work programs and capital investments. When beginning the budget
process, analysis for the allocation of resources always keeps the
Utilities Department’s core purpose in mind:
“To provide essential services that support the community’s health,
well-being, and quality of life” Utilities Department Strategic Plan
This results in the work program with forecasts and financial positions
for the upcoming two years to:
Deliver protective, reliable wastewater services to the
community.
Provide investments in capital improvement projects to
maintain the community’s wastewater infrastructure assets;
Maintain sufficient working capital and a revenue plan
forecast to position the Sewer Fund to secure favorable
City Wastewater at a
Glance
Programs 5
Employees 38.5
Sewer Lines 138 miles
Pump Stations 9
Sewage Treated Annually
938 million gallons
Recycled Water produced
annually
64.5 million gallons
Water Returned to Creek*
873.5 million gallons
*As a condition of its recycled water
program, the City is required to release
water into the creek to maintain year-
round habitat for endangered species such
as steelhead trout and red-legged frog.
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financing terms for Water Resource Recovery Facility Project in the wastewater
capital program forecast; and
Maintain a positive fiscal position in the Sewer Fund.
The attached 2017 Sewer Fund Review (Attachment A), provides an in-depth look at changes in
financial position, revenue and operational assumptions, an update on major activities and
programs (including capital projects), and incorporates key financial impacts. To arrive at the
proposed budget, the fund analysis takes a look at the past as well as into the future to determine
the financial resources needed to fulfil all obligations based on actual revenues and expenditures.
Revenues
The Wastewater Division utilizes a long-range fund analysis to forecast the fiscal impacts of
capital planning, maintenance and operations in order to smooth rate increases to support
upcoming expenses. The Wastewater Division’s long-term fund analysis determines the revenue
needed to cover expenses and obligations assumptions. Revenues are collected from multiple
sources but approximately 95% are directly tied to sewer service provided to the community. San
Luis Obispo has been experiencing very high development activity over the past few years which
was reflected in the levels of impact fees collected. However, last year as well as in the current
fiscal year, impact fee revenues are coming in much lower than the high of 2014-15. Staff
therefore continues the forecast with conservative assumptions as to this volatile revenue.
Sewer service charges are heavily influenced by the residential cap applied to winter water use.
This approach best characterizes the indoor water use because landscape irrigation is typically
off or very low during the winter months. Each year, staff reviews the December, January, and
February consumption with a consultant to establish the applicable cap for the upcoming fiscal
year.
The chart below indicates the influence of the drought on indoor water use as it continues its
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downward trend for a third consecutive year. It is indicative of the need to look at changing the
way the City charges for wastewater services and review its current rate structure. The fund is
currently healthy and staff recommends leaving rates at 2016-17 levels, despite the anticipated
revenue shortfall of $800,000, in anticipation of the rate structure review currently under way.
The Wastewater Division’s operating and capital budgets are evaluated by looking at past
expenditures and assessing upcoming needs for the infrastructure and the six operating programs.
Operating Expenditures
The operating costs include salaries, benefits, contract services, operating material (including
utilities and chemicals), training, and minor capital. The costs encompass:
● Water Resource Recovery Facility ● Environmental Compliance
● Wastewater Collection ● Water Quality Lab
● Wastewater Administration & Engineering ● Utilities Revenue
Capital Expenditures
The Capital Improvement Project plan addresses the needs of the City’s wastewater
infrastructure and supports its wastewater collection lines, lift and pump stations and the Water
Resource Recovery Facility (WRRF). The WRRF site includes the City’s accredited Water
Annual units used by resident. 1 unit = 748 gallons
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Quality Lab as well as the production of recycled water. The WRRF’s last major upgrade was
completed 23 years ago. Requirements to fulfill the City’s revised National Pollutant Discharge
Elimination System Permit requirements and the capacity for General Plan build-out must now
be addressed. The 2017-22 Capital Plan forecast includes the costs for this $140 million spread
over the years in which the expenditures are anticipated. Contract costs are reimbursed by SRF.
Debt Obligations
The Sewer Fund is currently paying debt service on the Tank Farm lift station and force main
project and the WRRF Energy Efficiency project. It is also still paying on the citywide debt for
the dispatch center and the public safety radio upgrade. The latter will be retired at the end of the
2017-19 Financial Plan period and eliminate $40,000 from the annual debt burden.
The fund has been preparing for the WRRF upgrade’s annual debt service on the $140 million
project. The fiscal forecast incorporates the assumed annual debt payment with project financing
through the State’s Revolving Fund. The annual payment is anticipated to be $6,161,600. A
detailed listing of all debt obligations including future assumptions can be found in Attachment
A – Sewer Fund Review.
Total Fund Revenue & Expenditures
Below is a comparison of the Fund’s collected or anticipated revenue and the total expenditures.
In 2016-17, expenditures include carryover of CIP and encumbrances which were not expended
in prior fiscal years. In 2017-18 and 2018-19 the revenue includes proceeds from debt financing
and the corresponding capital expenditure for the Water Resource Recovery Facility project.
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Proposed Sewer Rates
According to its mandate, the Wastewater Division must assess service charges to cover its costs
and guarantee the long-term fiscal health of the fund. Considering the current fiscal standing of
the fund and the pending review of the rate structure, staff recommends leaving the rates at 2016-
17 levels. The Proposition 218 notification released on April 17, 2017, included this
recommendation.
PROPOSED SEWER RATES FOR 2017-18
Basis Current Effective
July 1, 2017
Rate Increase No change
Base Fee $8.57 $8.57
Volume
Charge*
$9.44
per unit
$9.44
per unit
*per unit – 1 unit = 748 gallons
ENVIRONMENTAL REVIEW
Not applicable to this action
ALTERNATIVES
Not applicable to this action
Attachments:
a - 2017 Sewer Fund Review
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SEWER FUND
REVIEW
2017
June 6, 2017 City of San Luis Obispo
Utilities Department
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City of San Luis Obispo 2017 Sewer Fund
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TABLE OF CONTENT
I. OVERVIEW
II. KEY ASSUMPTIONS
III. 2017-19 FINANCIAL PLAN
a. Revenue
i. Sewer Service Charges
ii. Cal Poly
iii. Development Impact Fees
b. Fund Expenditures
i. Operating Programs
ii. Capital Improvement Plan
iii. Debt Service
iv. Fund Summary
IV. MAJOR ACTIVITIES AND PROGRAMS
a. 2016-17 Update
b. 2017-18 and Forecast
V. SEWER RATE SETTING
a. Sewer Rate Structure
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EXHIBIT A – FINANCIAL SCHEDULES
A.1 Fund Analysis
A.2 Assumptions for Fund Projections
A.3 Capital Improvement Plan
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The Business of Wastewater
Environmental regulation, infrastructure funding, climate change and succession planning will dominate the
wastewater business in 2017. Increased regulation continues to drive all aspects of the wastewater division for
the unforeseen future. Treatment, collection system operations, and stormwater face new and likely more
stringent requirements. Low interest funding sources for projects have become increasingly more competitive as
wastewater agencies face deteriorating infrastructure and increased regulations. Climate change will become
progressively more important as shifts in temperature and weather patterns create greater impacts on
wastewater operations. Replacing a generation of clean water professionals may prove to be the most taxing
near term challenge with over 50% of the wastewater division being within 3 years of retirement age.
| Overview
The City of San Luis Obispo’s wastewater services are administered, serviced, and maintained through the
Utilities Department’s Wastewater Division. The financials are recognized as an enterprise fund and all facets of
the operation, maintenance of capital assets, and debt obligations are financed through rates and fees charged
for services.
The Wastewater Division is responsible for:
Operating Program Number of
Employees
Core Function
Wastewater Collection 9 Maintaining 138 miles of sewer mains connecting to
approximately 14,500 sewer laterals, 9 pump
stations, and 2,000 manholes.
Water Resource Recovery Facility 13 Treating 938 million gallons of wastewater annually;
producing 64.5 million gallons of recycled water.
Water Quality Lab 7 Analyzing 136,000 water and wastewater samples
for production of recycled water and discharge to
San Luis Creek for maintenance of wildlife habitat.
Environmental Programs 3 Ensuring regulatory compliance with water quality
requirements and safe discharge to the sanitary
sewer system.
Utilities Revenue 2 Responsible for the accurate and timely collection of
revenues that support the City’s water and
wastewater programs and provides customer
interface for billing questions and service requests
Wastewater Administration and
Engineering
6.5 Oversight of 38.5 employees, capital projects, and
overall fund administration including engineering
and safety.
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| Key Assumptions
When preparing a new budget, the Wastewater Division analyzes the fund’s past financial results, upcoming
operational and capital needs, current and future debt obligations, and the financial outlook of the fund 10
years into the future. The financials prepared for the two‐year financial plan follows a “zero based budgeting”
approach, considering each line item and its future need anew. The condition, infrastructure age, and future
capacity needs are driving factors in determining the Capital Project plan presented in this report and influence
the assessment of debt issuance needs. This forms the base for the evaluation of required revenue and the rate
levels needed to support ongoing operation for wastewater collection and treatment.
| 2017‐19 Financial Plan ‐ Revenue
As an enterprise fund, the Wastewater Division finances its operation mainly with rates charged for sewer
services. Additional revenue is collected for impact fees, and sewer account related charges. In accordance with
its mandate, rates need to be sufficient to cover operation, capital asset improvements and maintenance, debt
obligations, and appropriate reserve levels to keep the fund healthy and prepared for unforeseen and future
funding needs.
Revenues are collected from multiple sources which include:
Sewer Service Charges combining a base fee and volumetric charge per unit
Sales to Cal Poly
Development Impact Fees
Industrial User Fees
Misc. Charges such as account set‐up fees, late charges, meter sales, and connection fees.
Investment and Property Revenue
As illustrated below, approximately 95% of the fund’s revenue comes from sewer service charges of which the
base fee amounts to 11% of revenue. Note: the chart does not include proceeds from debt financing.
$‐
$5,000,000
$10,000,000
$15,000,000
$20,000,000
2015‐16 2016‐17 2017‐18 2018‐19
Projected
Sewer Revenue
Investment and Property Revenues Sewer Service Charges
Sewer Base Fee Development Impact Fees
Other Revenue Total Revenue
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Sewer Service Charges: Revenue projections for sewer service charges are based on a sewer rate analysis that
includes a review of all 14,500 sewer accounts (not including dedicated irrigation accounts) using the most recent
12‐month period (ending March 2017), including monthly usage and invoiced amounts. Historical data for all
customer types and the sewer cap for residential accounts are analyzed to evaluate revenue stability in the current
fiscal year, forecast usage, and to test the previously forecasted sewer rates for revenue adequacy in the rate
setting process.
Due to recent drought conditions and water conservation efforts, the winter water use analysis showed a further
reduction of indoor water use from 4.2 units to 3.6 units per month, effectively lowering the sewer cap applicable
for 2017‐18. This reduction will lower the anticipated Wastewater Division revenue by $800,000. The 2017‐18
sewer cap marks a three‐year downward trend in residential indoor water use. Prior fund assessments assumed
a rate increase of three percent to continue preparing the fund for upcoming capital expenses. However, the
downward trend in water use and connected wastewater production indicates that water saving fixtures and
conservation habits require a new approach to assessing sewer revenue and is indicative that current rate models
might no longer be appropriate for adequate revenue collection.
However, over the last 10 years the fund has been prepared for the needed upgrade of the Water Resource
Recovery Facility. Provided current reserve levels and unappropriated working capital, staff recommends
maintaining sewer service rates at 2016‐17 levels while embarking on a rate structure review to consider different
revenue models. This rate structure review was approved by the City Council on April 18, 2017.
Cal Poly: Sewer service charges for Cal Poly are based on effluent flow trends and the 2012 Agreement between
the City and the University. The University had previously prepaid its share for capital improvements for the sewer
system and was therefore receiving a reduced service rate. In 2016‐17, Cal Poly paid 97% of applicable rate, but
will reach and maintain 100% of the non‐residential rate in fiscal year 2017‐18 as the debt has now been retired.
The University did not indicate interest in prepaying its obligation for the WRRF upgrade to receive a reduced
service rate. It is therefore anticipated that the University will pay 100% of the applicable rate into the future.
Development Impact Fees: These fees become due when new development “buys” into the sewer system that
was sized and constructed to accommodate population growth. After the Great Recession, San Luis Obispo
continues to experience a construction boom with unprecedented development activity. However, collection of
the fees has greatly diminished from a 2014‐15 high of $1,161,746 and the fund analysis takes a conservative
approach as to future income levels based on 2016‐17 collection of $540,000 as of April 2017.
63 64 66 50 44
2012‐13 2013‐14 2014‐15 2015‐16 2016‐17
$341,902 $1,161,746 $675,489 $376,000 $300,000
2013‐14 2014‐15 2015‐16 2016‐17 2017‐18
DEVELOPMENT IMPACT FEES
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Revenue Summary with revised 2016‐17 budget and Financial Plan Assumption for 2017‐19
Revenues Budget Projected
2016‐17 2017‐18 2018‐19
Investment and Property
Revenues $ 50,000 $ 50,000 0% $ 50,000 0%
Sewer Service Charges $ 13,675,000 $ 13,675,000 0% $ 14,085,250 3%
Sewer Base Fee $ 1,491,100 $ 1,501,464 1% $ 1,557,100 4%
Development Impact Fees $ 400,000 $ 300,000 ‐25% $ 300,000 0%
Other Revenue $ 329,100 $ 458,000 39% $ 468,071 2%
Proceeds from Debt Financing $ ‐ $ 19,500,000 $ 56,500,000
Total Revenue $ 15,945,200 $ 35,484,464 15% $ 72,960,421 9%
*increased based on an addition of 100 water meters in the system.
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| FUND EXPENDITURES
| Operating Programs
The Wastewater Division’s five operating program costs are summarized below. The summary of operating
programs reflects the net operating program budget amounts for 2017‐19. A rigorous and thorough review of
operating costs and trends was conducted in development of the proposed budget in collaboration with all
program supervisors to derive the budget necessary to meet regulatory requirements and continue to provide
protective, reliable wastewater services to the community.
Operating and Maintenance Expenses
The operating budgets for the Sewer Fund programs include staffing, benefits, and operational expenses needed
to operate the various systems involved in providing wastewater services to the community.
The most significant non‐staffing operating costs for wastewater services are for:
chemicals for wastewater treatment;
electric utility services for wastewater collection and resource recovery, and;
cost for General Government paid to the General Fund.
1. Chemicals go out to bid on an annual basis with chemical contracts running from February 1 through January
31. For budget development purposes, any potential changes to treatment processes are evaluated and dosage
amounts for chemicals calculated. The measured chemical quantity is used to develop the budget. In the two‐
$‐
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
Expenditures 2016‐17 Expenditures 2017‐18 Expenditures 2018‐19
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year 2017‐19 Financial Plan, chemical costs are projected at $780,000 in 2017‐18 and $803,400 in 2018‐19.
2. Electric utility rate assumptions, as provided by PG&E, include a rate increase of 5% for the both years of the
Financial Plan for commercial and industrial accounts. However, the Energy Efficiency project the City
completed in collaboration with PG&E is showing the desired effects and energy cost is coming in lower than
previous years. Forecasted expenditures have therefore been stagnant at $600,000.
3. The cost for General Government is assessed with the City’s annual cost allocation plan and will be reflected
as a transfer between the Sewer and the General Funds.
Expenditures Projected
2016‐17 2017‐18 2018‐19
Wastewater Admin $ 1,369,905 $ 823,258 ‐40% $ 883,953 7%
Wastewater Collection $ 1,093,495 $ 1,126,925 3% $ 1,147,450 2%
Environmental Compliance $ 281,281 $ 265,608 ‐6% $ 281,847 6%
Water Resource Recovery $ 3,738,593 $ 3,812,256 2% $ 3,902,540 2%
Utilities Revenue $ ‐ $ 509,532 ‐ $ 523,510 3%
Water Quality Lab $ 889,545 $ 780,277 ‐12% $ 803,775 3%
Sewer Customer Service $ 503,636 ‐ ‐ ‐ ‐
$ 7,876,455 $ 7,317,857 ‐7% $ 7,543,075 3%
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| Capital Improvement Plan
The City of San Luis Obispo Wastewater Division services, maintains, and upgrades a complex infrastructure
including a Water Resource Recovery Facility, 138 miles of sewer lines, 9 pump stations, and 2,000 manholes.
Capital expenses are forecast based on infrastructure maintenance and repair history, individual project budget
estimates, regulatory requirements, and projected changes in community demographics. Maintaining the
wastewater system infrastructure, including major equipment upgrades, ongoing treatment processes, State
regulations, changing technology, and planning for long‐term infrastructure upgrade and replacement is essential
to providing protective and reliable wastewater services for the community.
Table C displays the proposed five‐year Capital Improvement Plan for wastewater services. The proposed Sewer
Fund capital plan includes the beginning of the upgrade of the Water Resource Recovery Facility which is offset
by proceeds from debt financing shown under the revenue tables. The project is needed due to the age of the
facility, the new state and federally mandated requirements for effluent under the City’s National Pollutant
Discharge System Permit and the needed capacity increase to accommodate General Plan build‐out.
The total cost for infrastructure maintenance and improvements is estimated at $22,061,023 in 2017‐18 and
$58,255,380 in 2018‐19.
Capital Improvement Plan Project Expenses
Project budget estimates in the capital plan forecast assume a moderate increase in material costs over time (e.g.,
price per foot of pipe). The 2017‐22 five‐year CIP program continues investments in maintaining the City’s
infrastructure.
It is anticipated the actual cost of completing capital projects will vary from the budgeted cost estimate. These
cost estimates are generally conservative; therefore, it is expected those projects listed for each year will be
completed. Should the bidding climate change dramatically, and costs increase above those estimated, project
timelines will be amended.
$4,090,873
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| Debt Service
The Sewer Fund’s debt obligations had previously been paid down in anticipation of two projects described in
paragraph 4 and 5. The following is a summary of the current debt payments the fund must secure within its
annual budget.
1. Debt service for the Sewer Fund’s proportionate share of the City’s Public Safety Communications
Center is $32,400 in 2017‐18 and $32,300 in 2018‐19 with a final payment in 2039. In addition, the
Sewer Fund’s share of the Public Safety Radio System Upgrade is $41,800 in 2017‐18 and $41,300
in 2018‐19 with 2018‐19 being the final year for this debt obligation.
2. 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 $557,500 in 2017‐
18 and $556,500 in 2018‐19. This debt will expire in 2037‐38.
3. Debt service for the Tank Farm Gravity Sewer, Lift Station, and Force Main project portion financed
through the SunTrust private placement is $183,700 in 2017‐18 and $182,700 in 2018‐19
4. Debt service for the WRRF Energy Efficiency Project is $618,400 in 2017‐18 and $618,200 in 2018‐
19. This is a 15‐year debt agreement with final payment in 2028‐29.
5. Debt service for the WRRF upgrade project is currently projected at $6,161,600 annually beginning
in 2021‐22 based on a total project cost currently estimated at $140 million. In 2019‐20 and 2020‐
21, the fund will hold $3,080,800 each year to secure the required final payment to be held in
reserve. This project is scheduled to be financed through the State Revolving Fund with a term of
30 years.
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| Fund Summary
The fiscal condition of the Sewer Fund is currently sound and will remain so over the next five years. However,
the long‐range forecast paints a different picture. Reduced revenues due to the recent drought and the resultant
compounding impacts along with significant capital infrastructure needs, require a re‐evaluation in how to do
business long‐term. The long‐term fund analysis also incorporates the debt financing for the WRRF Upgrade
which assumes the first full debt payments in 2021‐22.
|
Total Expenditure by Category and Function
Expenditure by Category
2016‐17 2017‐18 2018‐19
Budget* Budget Budget
Salaries & Benefits $ 4,378,890 $ 4,317,323 ‐1% $ 4,474,321 4%
Operating Expenditures $ 3,497,565 $ 3,000,534 ‐14% $ 3,068,754 2%
Capital Outlay $ 21,366,383 $ 22,061,023 3% $ 58,255,380 164%
Debt Service $ 1,435,589 $ 1,433,709 0% $ 1,431,006 0%
Transfers Out $ 2,081,360 $ 2,494,262 20% $ 2,631,998 6%
Total $ 32,759,788 $ 33,306,851 2% $ 69,861,459 110%
*as approved at mid‐year
$‐
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
2015‐16 2016‐17 2017‐18 2018‐19
Revenue & Expenditures
Revenue Expenditure
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Expenditure by Function
2016‐17 2017‐18 2018‐19
Budget Budget Budget
General Government $ 2,155,530 $ 2,568,448 19% $ 2,705,621 5%
Wastewater Collection $ 12,233,582 $ 4,410,586 ‐64% $ 3,488,657 ‐21%
Environmental Compliance $ 281,281 $ 265,608 ‐6% $ 281,847 6%
Water Resource Recovery $ 14,959,338 $ 23,930,619 60% $61,080,717 155%
Utilities Revenue $ ‐ $ 509,532 ‐ $ 523,510 3%
Water Quality Lab $ 889,545 $ 780,277 ‐12% $ 803,775
Sewer Customer Service $ 503,636 $ ‐ ‐ $ ‐ ‐
Wastewater Administration $ 1,736,874 $ 841,781 ‐52% $ 977,333 16%
$ 32,759,788 $ 33,306,851 2% $ 69,861,459 210%
3%
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| MAJOR ACTIVITIES AND PROGRAMS
2016‐17 Update
1. Regulatory Requirements
After meetings and discussions with the City’s water quality consultant and the Central Coast Water Board
(CCWB), a reasonable National Pollutant Discharge Elimination System (NPDES) was negotiated.
The WRRF’s NPDES permit was adopted by the CCWB on September 25, 2014 and became effective
December 1, 2014. The requirements set forth in this permit significantly drive the design of the WRRF
upgrade. In April of 2017 bids for the membrane equipment came in within budget, which will facilitate
the next series of design milestones needed for construction of the upgrade project.
2. Wastewater Collection System Infrastructure Renewal Strategy
The 2015 Wastewater Collection System Infrastructure Renewal Strategy’s high priority project list is
constantly being updated as projects progress in the design and construction phase. The list includes the
railroad crossings near Jennifer Street, Taft Street, and Johnson Avenue. The Jennifer Street sewer railroad
crossing is currently in construction, and scheduled for completion in late 2017. Other important projects
completed in 2016 included the Grove Street sewer main replacement project, and the Madonna Road
sewer lift station replacement.
3. Sewer Lift Station Telemetry
Replacement of the sewer lift station telemetry equipment located on top of South Hills were completed
in 2016, which will augment the reliability of communications to remote lift station locations. Additional
replacements to the lift station’s communication radios for Margarita, Calle Joaquin, and Foothill are
schedule in 2017‐18 as part of the maintenance program.
2017‐18 and Forecast
1. Calle Joaquin Lift Station
Design, environmental work and land acquisition is scheduled to be completed in the fall of 2017 with
bidding to begin in the winter. Construction should begin in the spring of 2018. This lift station
replacement project includes a new siphon under San Luis Obispo Creek, a gravity sewer line under
Highway 101, a new lift station with emergency power and updated controls. The forcemain component
has already been completed. Construction costs are estimated to be $4.5 million.
2. Water Resource Recovery Facility Upgrade
Design work entered the 60% phase in February with 100% design and bidding documents scheduled to
be complete in the first quarter of 2018. The Water Resource Recovery facility will meet all regulatory
requirements, required future capacity as identified in the General Plan, replace aged infrastructure,
maximize recycled water production and while being an asset to the community. Staff will continue to
focus on the triple bottom line for its facility upgrade, continue pilot testing of various technologies, and
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explore alternatives. Construction is anticipated to begin in 2018 with a 2022 completion date. Total
project costs are currently estimated at $140 million, including $7.5 million for environmental studies and
design services, $5.7 for program management, and $137.8 million for construction and construction
management related services.
3. Infrastructure Maintenance
Ongoing pipeline replacement for the wastewater collection system and equipment replacement and
process maintenance at the WRRF are required to ensure the efficient and compliant conveyance and
treatment of wastewater. To avoid costly failures or excessive maintenance before replacement, these
projects were identified, evaluated, and prioritized. Sewerline replacement projects over the five‐year
capital forecast (2017‐19 thru 2021‐22) total $6.5 million or about $1.3 million per year. WRRF Major
Maintenance will be minimized during the construction of the upgrade, but will resume in 2022‐23.
4. Margarita, and Foothill Lift Stations
These smaller, aging lift stations have reached the end of their useful lifespan, and will require
replacement. Margarita lift station will be re‐advertised for bids with construction anticipated to begin in
the spring of 2018. The project bids received in 2016 showed in increase in construction costs, which
required value engineering of the improvements to be closer to the budget amounts. Foothill is at 30%
design and will require additional design because of the siting issues. The City and the Madonna Inn are
working in partnership for the replacement of the Madonna Lift Station and transfer of ownership. The
lift stations are planned to be replaced over three years with prefabricated units to accommodate space
restrictions and reduce costs and maintenance. The capital forecast currently assumes $3.8 million to
replace Margarita and Foothill lift station at approximately $1.9 million per station, with Margarita and
Foothill lift stations replacement schedules in 2017‐18 and 2021‐22 respectively.
5. Buckley and Airport Lift Stations
Identified in the Airport Area Wastewater Master Plan Update, the Buckley lift station has been scheduled
for construction to correspond with the predicted development. A feasibility study for the Airport lift
station will completed in 2018 to incorporate the proposed service areas near Fiero Lane that are currently
planned for annexation The Buckley Lift Station is tentatively planned for design in 2018‐19 and
construction in 2019‐20, as part of the San Luis Ranch project’s infrastructure improvement plans. The
Airport Lift station construction is currently outside of the five‐year financial forecast.
The capital improvement plan forecast will be continually adjusted as additional information becomes available
while the projects move toward construction.
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| SEWER RATE SETTING
Sewer Rate Structure
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 efficient water use 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.
Current policies to guide rate structure setting:
1. Revenue Stability and Predictability
2. Stability and Predictability of Rates
3. Simple and Easy to Understand and Administer
4. Fair Allocation of Total Cost
5. Discourage Wasteful Use
With the residential volume‐based sewer rate structure, the individual customer’s metered water use during the
winter months of December, January, and February was determined to be most reflective of the demand placed
on the wastewater system for sewer charges. The water use during the winter months, when outdoor irrigation
should be turned down or off, is averaged to establish a “sewer cap”. Residential sewer caps are implemented
with the first full sewer service period after July 1. Sewer charges are based on actual water used up to the
customer’s sewer cap.
Based on the fund analysis, trends, and current unreserved working capital levels, staff recommends to leave
2017‐18 rates unaltered and revisit rates once the rate structure study has concluded.
PROPOSED SEWER RATES FOR 2017‐18
Rate Basis Current July 1, 2018
Rate Increase No change
Base Fee $8.57 $8.57
Volume Charge $9.44 per unit $9.44 per unit
1 unit – 748 gallons
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A.1
SEWER FUND ANALYSIS
2017-18 2018-19 2019-20 2020-21 2021-222016-17 Budget
(Current)Budget Budget Budget Budget Budget
REVENUES BY TYPE
Sewer Service Charges 12,800,000$ 12,800,000$ 13,184,000$ 13,579,520$ 13,986,906$ 14,406,513$
Base Fee Revenue*1,491,100$ 1,501,464$ 1,557,100$ 1,614,724$ 1,674,403$ 1,736,210$
Cal Poly Sales 875,000$ 875,000$ 901,250$ 928,288$ 956,136$ 984,820$
Development Impact Fees 400,000$ 300,000$ 300,000$ 300,000$ 300,000$ 300,000$
Industrial User Charges 81,600$ 85,000$ 85,000$ 85,000$ 85,000$ 85,000$
Investment & Property Revenue 50,000$ 50,000$ 50,000$ 50,000$ 50,000$ 50,000$
Proceeds from Debt Financing -$ 19,500,000$ 56,500,000$ 35,000,000$ 29,000,000$
Miscellaneous *247,500$ 373,000$ 383,071$ 390,732$ 398,547$ 406,518$
TOTAL 15,945,200$ 35,484,464$ 72,960,421$ 51,948,264$ 46,450,992$ 17,969,061$
EXPENDITURE BY CATEGORY
Salaries & Benefits 4,378,890$ 4,317,323$ 4,474,321$ 4,638,290$ 4,816,674$ 4,963,645$
Operating Expenditures 3,497,565$ 3,000,534$ 3,068,754$ 3,114,785$ 3,161,507$ 3,208,930$
Capital Outlay 21,366,383$ 22,061,023$ 58,255,380$ 37,447,876$ 30,910,260$ 4,090,873$
Debt Service 1,435,589$ 1,433,709$ 1,431,006$ 4,468,004$ 4,470,107$ 7,548,013$
Transfers Out 2,081,360$ 2,494,262$ 2,631,999$ #2,350,653$ #2,395,545$ 2,441,334$
TOTAL 32,759,788$ 33,306,851$ 69,861,459$ 52,019,607$ 45,754,093$ 22,252,795$
EXPENDITURE BY FUNCTION
General Government 2,155,530$ 2,568,448$ 2,705,621$ 2,382,861$ 2,427,597$ 2,473,587$
Wastewater Collection 12,233,582$ 4,410,586$ 3,488,657$ 3,990,557$ 3,681,969$ 6,001,884$
Environmental Compliance 281,281$ 265,608$ 281,847$ 325,943$ 300,763$ 309,028$
Water Resource Recovery 14,959,338$ 23,930,619$ 61,080,717$ 42,979,345$ 36,989,582$ 11,031,207$
Utilities Revenue -$ 509,532$ 523,510$ 535,112$ 547,428$ 558,455$
Water Quality Lab 889,545$ 780,277$ 803,775$ 827,969$ 853,980$ 876,174$
Sewer Customer Service 503,636$ -$ -$ -$ -$ -$
Wastewater Administration 1,736,874$ 841,781$ 977,333$ 977,821$ 952,774$ 1,002,460$
TOTAL 32,759,788$ 33,306,851$ 69,861,459$ #52,019,607$ #45,754,093$ #22,252,795$
CHANGES IN FINANCIAL POSITION
Working Capital - Beginning 28,917,309$ 12,102,721$ 14,280,334$ 17,379,296$ 17,307,952$ 18,004,851$
Revenues over (under) Expenditures (16,814,588)$ 2,177,613$ 3,098,962$ (71,344)$ 696,899$ (4,283,735)$
Working Capital - Year End 12,102,721$ 14,280,334$ 17,379,296$ 17,307,952$ 18,004,851$ 13,721,116$
Operating Reserve 1,991,563$ 1,962,424$ 2,035,015$ 2,020,746$ 2,074,745$ 2,122,782$
Rate Stabilization 683,750$ 683,750$ 704,263$ 725,390$ 747,152$ 769,567$
Unreserved Working Capital - Year End 9,427,408$ 11,634,160$ 14,640,019$ 14,561,816$ 15,182,954$ 10,828,768$
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A.2
FUND ANALYSIS ASSUMPTIONS
Categorie 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Cost Inflators
MCI 2.7%2%2%2%2%2%
CCI 3.9%
CPI 3.1%
PPI 1.3%
PG&E 5%5%
Salary Increases 2.5 2.5 2.5 2.5
Rate Increases
Base Fee $8.57$ 8.57$ 8.83$ 9.09$ 9.36$ 9.65$
Base Fee %3.0%3.0%3.0%3.0%3.0%3.0%
Volumetric 3.0%0.0%3.0%3.0%3.0%3.0%
Estimated # of meters 14,500 14,600 14,700 14,800 14,900 15,000
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A.3
CAPITAL IMPROVEMENT PROJECTS
2017-18 2018-19 2019-20 2020-21 2021-22
Budget Budget Budget Budget Budget
WASTEWATER COLLECTION
PROJECTS
Santa Barbara, Osos Trench/Pipe Bursting
Design 60,000$
Construction 780,000$
Construction Management 70,000$
Walnut, Morro, etc cured in place
Design 17,000$
Construction 170,000$
Construction Management 17,000$
Albert, Slack, etc cured in place
Design 38,000$
Construction 380,000$
Construction Management 38,000$
Foothill, etc trench & pipe bursting
Design 10,000$
Construction 100,000$
Construction Management 10,000$
Murray, Chorro, Meinecke, etc trench/sewer repl
Design 37,000$
Construction 370,000$
Construction Management 37,000$
Westmont, Cerro Romaldo, etc trench/pipe bursting
Design 110,000$
Construction 1,100,000$
Construction Management 110,000$
Verde, Luneta, etc trench/pipe bursting 110,000$
Design 1,160,000$
Construction 110,000$
Construction Management
Johnson, Buchon, etc trench & pipe bursting
Design 135,000$
Construction 1,350,000$
Construction Management 135,000$
Foothill Chorro Project
Study 60,000$
Design
Construction
Construction Management
Inflow/Infiltration Reduction 200,000$ 200,000$ 200,000$ 200,000$ 200,000$
Trench Repair 25,000$ 25,000$ 25,000$ 25,000$ 25,000$
Raise Manholes 25,000$ 25,000$ 25,000$ 25,000$ 25,000$
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A.3
CAPITAL IMPROVEMENT PROJECTS
2017-18 2018-19 2019-20 2020-21 2021-22
Budget Budget Budget Budget Budget
WASTEWATER COLLECTION
PROJECTS
Meinecke to Murray Easement 30,000$
Marsh/Higuera/California
Laguna Lift Station Coating Project
Construction Management
Madonna Lift Station
Design
Margarita Lift Station
Easement Acquisition
Design
Construction
Construction Management
Airport Lift Station
Study
Construction
SCADA Upgrade Integration
IT
Telemetry System Improvements 100,000$ 38,000$
Cityworks Upgrade
FLEET
Hydro-Cleaner 410,000$
Portable Generators
CCTV Van
1 1/2 ton service truck
Portable Sewage Pump
Trailer, Portable Concrete Mixer 25,000$
Caterpillar Mini Escavator 70,000$
TOTAL 2,542,500$ 1,602,000$ 2,070,000$ 1,720,000$ 4,010,000$
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A.3
CAPITAL IMPROVEMENT PROJECTS
2017-18 2018-19 2019-20 2020-21 2021-22
Budget Budget Budget Budget Budget
WATER RESOURCE RECOVERY FACILITY
PROJECTS
Major Maintenance
Influent Pump Replacement
WRRF Energy Efficiency
Design
Construction
WRRF Upgrade
Study/Environmental
Program Management 1,500,000$
Design
ammendment to CH2M
Construction 15,000,000$ 50,000,000$ 30,000,000$ 24,000,000$
Construction Management 3,000,000$ 6,500,000$ 5,000,000$ 5,000,000$
Aeration Blower
IT
iFix Replacement 250,000$
HachWims 30,000$
MP2 Replacement
FLEET
Utility Trucks (3)
Sedan
Compact Pick-up 36,000$
Club Cars-Electric 60,000$
Dump truck 150,000$
Forklift 55,000$
TOTAL 19,500,000$ 56,560,000$ 35,280,000$ 29,186,000$ 55,000$
2017-18 2018-19 2019-20 2020-21 2021-22
Budget Budget Budget Budget Budget
ENVIRONMENTAL COMPLIANCE
FLEET
Prius 35,000$
TOTAL 35,000$
WATER QUALITY LAB
TOTAL -$
2017-18 2018-19 2019-20 2020-21 2021-22
Budget Budget Budget Budget Budget
ADMINISTRATION
Projects
879 Morro Refurbishment
HVAC 3,600$ 21,600$
Fleet
Prius 35,000$
Control System Trucks
General Assumption for Future Planning
TOTAL 3,600$ 21,600$ 35,000$ -$ -$
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A.3
2017-18 2018-19 2019-20 2020-21 2021-22
Budget Budget Budget Budget Budget
Department-Wide Cost
South Hills Radio Site Upgrade & Radio Enhancement 14,923$ 10,775$
Radio Receiver Site at Fire Station
Wireless System Citywide 5,739$
Server Operating System 4,260$
VoIP 15,789$
UB System Upgrade
Network Firewalls 8,918$
Virtual Private Network Replacment 18,958$
Network Switch Infrastructure Repl.
Radio Handhelds Repl.
Tait Radio System 42,960$
MS Office Replacement 13,700$
VM Infrastructure
UPS Battery Replacement 4,345$ 4,345$
TOTAL 14,923$ 71,780$ 27,876$ 4,260$ 25,873$
COMPLETED PROJECTS
Available Balance
GRAND TOTAL - SEWER FUND 22,061,023$ 58,255,380$ 37,447,876$ 30,910,260$ 4,090,873$
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