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HomeMy WebLinkAbout05/27/1997, 1 - 1997 WATER FUND RATE REVIEW council N.;finD� Ma apenaa PEpoin °Mav 27 17 C I T Y O F SAN LU IS O S I S P O FROM: John Moss, Utilities Direct Bill Statler, Finance Direct?v Prepared By: Sue Baasch, Administrative Analyst v�J SUBJECT: 1997 WATER FUND RATE REVIEW CAO RECOMMENDATION 1. Review and discuss the 1997 annual water fund report; 2. Adopt a resolution retaining existing rates for 1997-98; and increasing water service rates by 1.5% effective July 1, 1998; by 2.5% effective July 1,.1999; by 2.5% effective July 1, 2000; and 4.0% effective July 1, 2001; 3. Consider development impact fee analysis and concur with staff recommendation for no change to established charges. REPORT-IN-BRIEF This report presents the annual review of the water fund and requests adoption of rates to set the five year course to paying for the full amount of water established by the City's adopted General Plan. It assumes that 1,200 acre feet of additional water will come from the Water Reuse project (1999) and 2,678 acre feet of additional water will come from the Nacimiento pipeline project (2001). It must be strongly cautioned that while this analysis is based on reasonable and what staff considers conservative assumptions, it does project a number of key variables that will likely change over the course of the next five years. Each year Council will be provided a detailed report on how conditions compare to this original projection. In summary, with more detailed discussion of the assumptions to follow, this analysis shows that by increasing rates by zero percent this year, 1.5 percent in 1998, 2.5 percent in 1999, 2.5 percent in 2000 and four percent in 2001, and receiving development impact fees based on one percent growth, the City will be positioned to pay for the full amount of water required for General Plan buildout. In the short term, this analysis confirms the Water Fund meets the fiscal policies established by the City and can support the recommended operating budgets and capital improvement plan contained in the preliminary 1997-99 Financial Plan. The operating budgets are 3% less than the prior financial plan period, reflecting ongoing and significant efforts to control and reduce costs. As discussed in more detail, the capital improvement plan follows a prudent strategy of ongoing maintenance to ensure infrastructure reliability and reduce emergency expenditures. Council Agenda Report - 1997 Water Fund Rate Review Page 2 DISCUSSION Overview Of the multiple assumptions included in this forecast, three need particular focus and explanation: © Water Supply Assumptions (amount, cost and time-frame for water from Nacimiento and Water Reuse projects) B Capital Improvement Charges (ensuring new development pays appropriate share of costs for development of new water supplies) OO Water Use Assumptions (how will water use change over the five year period) Each of these complex issues has been carefully reviewed and the resulting assumptions are discussed in detail in the following sections. © Water Supply Assumptions This fund analysis is consistent with current Council goals for water supply development by looking to the Water Reuse and Nacimiento projects for the full amount of water to meet the City's General Plan build-out. Capital costs needed to complete the two-phased Water Reuse project (1997-99) and annual expenses for Nacimiento water(2001-02) are included as debt service and operating expenses respectively in the appropriate years. This is the first time the annual water fund analysis has included the full Nacimiento water purchase expenses. (The City's prorata share of Nacimiento project study costs have been included in former fund analyses). Consistent with Council direction, the Salinas Reservoir expansion project has become a backup project should the Nacimiento project not move forward as planned. Staff is recommending finishing the studies phase of the Salinas project to position the City to proceed rapidly with design and construction of the spillway gates for Salinas Reservoir, if and when Council should opt to pursue that option. The proposed rate increases in the Water Fund analysis (reflecting Nacimiento water purchases in the year 2001-02) would be adequate to support the debt service payments for the Salinas project, if the Nacimiento project fails to proceed. Water Reuse. Full development of the Water Reuse project was assumed, as a two phase project,with construction of phase one occurring in fiscal year 1997-98, phase two in 1998-99, and the debt service for each phase beginning the year following construction. Including study, design, environmental mitigation, user site modifications and construction costs, the total project is estimated at $10.6 million. This fund analysis assumes selling bonds to finance $9.4 million of the project costs. The other costs will be paid through the water fund's capital program. The fund analysis assumes a City bond financing at about 6.5%; staff is pursuing a low-interest loan through the State Revolving Loan fund which would reduce the interest costs to about 4%. Nacimiento Pipeline Project. Operating program costs for Nacimiento water, projected to begin in fiscal year 2001-02, were calculated using the best available information on project cost received from Carrollo Engineers, the preliminary design engineers for the Nacimiento project, -a Council Agenda Report - 1997 Water Fund Rate Review Page 3 and a worst case step-up scenario of 25%. Step-up represents increased costs to the project participants related to reduced participation in the project or a failure to pay by any project participant. It is currently envisioned that the agreements for Nacimiento water will include a requirement that participants agree to cover up to a 25% step-up. (Note: Nacimiento water costs are shown as operating costs since the City would be one of multiple agencies purchasing water from the County. The County will sell bonds to finance the entire project and the City's annual operating expenses will include repayment of the financing costs as well as operations and maintenance costs.) 0 New Development-Fair Share of Costs Council policy is to set capital improvement charges ("development impact fees") to ensure new development pays it fair share of costs for additional water supplies necessary to serve new development. A review of the currently-adopted water development impact charges was completed (see Exhibit B)to ensure their adequacy to recover appropriate revenues from new development given the water supply strategy now pursued by the City. Each year since the charges were set in 1994, the charges have been increased by inflation. Projected revenues from the impact fees are based on inflationary increases and customer growth at a one percent growth rate. (These projections are then refined based on actual growth—a percentage of one percent—and are also reduced by the amount of the retrofit credit.) The 1994 capital improvement charges analysis assumed additional water would be developed from three sources, Salinas Reservoir expansion, Water Reuse and Nacimiento pipeline project. Council selected the lowest cost scenario and related charge. A copy of the 1994 impact fee analysis is included as Exhibit C to this report. Exhibit B follows the same methodology, updating the water supply assumptions to reflect current direction. In conclusion, it was determined that the current impact fees and annual adjustments are adequate to ensure that new development continues to pay its fair share of the new water supplies needed to serve it. The analysis assumes annual adjustments for inflation and customer growth. This 1997 update (Exhibit B) indicated impact fees should fall within a range of$5,866 to $7,032 per single family residential unit. The range is derived using a constant value of debt service recovery for the water reuse project of$847,800 per year and low and high range capital cost recovery for the Nacimiento project of$1,344,356 and $1,778,192 per year reflecting a range of Nacimiento costs at 5 to 25 % step-up. The costs identified for Nacimiento in this analysis reflect only the capital cost component of the project since only capital costs may be recovered through impact fees. The current impact fee is $6,228 per single family residential unit. Based on the above analysis, no change to the current fee is recommended as it falls comfortably within the range identified -3 Council Agenda Report - 1997 Water Fetid Rate Review Page 4 above. The adequacy of this fee will be reviewed annually as the water supply projects and direction of the City relative to those projects continues to be further refined. 0 Water Use Assumptions Estimated future water use is based on assumptions of population growth rates and per capita water use rates. The 1996 population estimate for the City of San Luis Obispo is 41,943. For this analysis, the rate of customer growth for the five years is assumed to increase by 0.3% for the first year, followed by increases in subsequent years of 0.5%, 0.7%, 1.0% and 1.0%. The actual water use rate for 1996 was 123 gaIIons per capita per day (gpcd). As expected, the City's per capita water use rate has increased each year since the elimination of mandatory water conservation measures, but is still well below the City's adopted planning figure of 145 gpcd. The City should always strive to stay below this upper water use figure, and as water use nears the 140 figure, more intensive education and outreach programs may be warranted. For this reason, the analysis assumes an upper limit of 140 gpcd. The per capita water use for the five year projection is assumed to increase by 3% each year to the upper limit of 140 gpcd. City water use for the 1996 calendar year was 5,791 acre-feet. Based on the assumptions above, projections for fiscal years 1997-98 through 2001-02 are as follows: 5,985 acre-feet, 6,204 acre- feet, 6,438 acre-feet, 6,695 acre-feet, and 6,811 acre-feet. (Note: this is City water use alone. Cal Poly water use is not.included in these figures.) Background This review of the Water Fund is based on actual revenues and expenses for two years (1994-95 to 1995-96) and projected for five years (1996-97 to 2001-02); the preliminary 1997-99 Financial plan recommendations including both operating and capital improvement plan; and identified assumptions for future City growth, inflation and water demand patterns. Financial schedules providing detail for the water fund analysis are provided in Exhibits A 1 through A.3. An update on the appropriateness of current water impact fees is included as Exhibit B. It is based on the methodology established in 1994 as part of the Urban Water Management Plan-Exhibit C. Financial Plan policies require the City to annually review the financial needs of the water fund and to adjust fees and rate structures as necessary. Fees and rates are to be set at levels to recover the total cost of providing water services, including operations and maintenance, capital outlay, and debt service. The rate review is to be conducted within the framework of the following 1988 Council-approved objectives: ■ Comply with legal requirements ■ Ensure revenue adequacy to fully meet system operating and capital needs ■ Encourage conservation Council Agenda Report - 1997 Water Fund Rate Review Page 5 ■ Provide equity and fairness between classes of customers ■ Result in rate structures that are easy to understand by our customers and easy to administer ■ Provide for ongoing review in order to facilitate rate stability Rate Setting Methodology In determining water revenue requirements and setting recommended rates, the following general methodology is used: Step 1: Determine Water Fund revenue requirements for: ■ Operations and maintenance ■ Capital improvements and replacements ■ Debt service obligations (existing and projected) Step 2: Subtract from this amount "non-rate revenues" such as: ■ Interest earnings ■ Connection fees and meter sales ■ Revenues from other agencies (Cal Poly) ■ Other service charges(service start-up fees, late charges, etc.) Step 3: Identify water rate requirements: ■ Revenue needed to be generated from water rates is the difference between water revenue requirements(Step 1) and "non-rate" revenues (Step 2). Step 4. Determine new rates: ■ Model the rate base(consumption and customer account assumptions) against the existing rate structure and rate requirements identified in Step 3. Because this analysis is performed over a multi-year period, other factors are considered, such as fund balance available to support capital projects, debt service requirements, and minimum fund balance policy. Capital Improvement Plan Capital improvements for the water system are a critical component of Utilities' expenditures. The consequences of inadequate capital replacement of aging infrastructure can be catastrophic failure, high cost emergency repair, loss of service and potential fines from regulatory agencies. To ensure adequate capital replacement of infrastructure, staff has recommended and Council has adopted a 2%replacement strategy. This is based on a goal of infrastructure replacement on a 50-year cycle, generally considered to be the useful life of most water infrastructure. Following this strategy allows us to systematically attain our capital improvement goals, while avoiding significant rate increases associated with system failure or"catch-up" CIP. �-s Council Agenda Report - 1997 Water Fund Rate Review Page 6 For the water system improvements, this strategy results in a goal of$1.5 million per year of pipeline replacement (current requests are at the $1 million level) and treatment plant maintenance of$100,000 per year. (Vehicles are replaced as part of the water fund's CIP, on a schedule adopted in the Fleet Management Policy.) These levels of expenditures will be further refined in the facility-specific CIP management plans which Utilities is developing. These plans are aimed at ensuring sound and adequate CIP planning and programs. They should identify consistent annual expenditures and avoid any one-time revenue shortfalls associated with a piling up of Capital improvement projects in any one financial plan. Other projects included in the Water CIP, not considered part of this ongoing infrastructure replacement, are the source of supply and related mitigation projects; the replacement of the major transmission main from the Cal Poly entrance to Reservoir 2; the downtown sprinkler lateral rebates; and a proportionate share of projects originating in other departments. Debt Service Requirements Debt service for the Water Fund is currently at $1,433,900. Over the five year period, this amount is modified by increases from debt-financing the water reuse project and decreases from the maturing of Whale Rock Series A and B bonds. By 2001-02, total debt service is $2,076,700. The year to year changes are detailed in Exhibit A.2 -Assumptions. Related to debt service is the 125% revenue coverage requirement. The water bonds carry the legal requirement that annual water revenues, excluding development impact revenue and less annual operating and maintenance expenditures, must exceed debt service expenditures by 125%. The year to year percentage of compliance is shown on the Assumptions page. In 2001-02, when Nacimiento operating expenses are paid, this percentage becomes a factor in the Water Fund's revenue needs. Fund Balance Recommendations Fund balance exceeds the 20% of operating expense requirements. Using this fund balance to reduce projected rate increases would be premature at this time until more is certain about the timing and implementation of the next major water supply project, and before the results and recommendations from the water master plan have been reviewed and approved. Surplus fund balance is appropriately used to pay for one-time capital expenditures, such as the major transmission main being replaced ($3.5 million), and to buffer fluctuations in revenue due to demand and weather variability. The Water Master Plan is being developed in conjunction with Airport Area Specific Plan. It will identify system improvements necessary to meet full General Plan build-out projections. The Plan will also identify other water system deficiencies and provide recommendations, cost estimates, and a phasing strategy for system improvements. The Plan is expected to take up to two years to complete and should recommend a number of improvements which are likely to be costly to implement. h Council Agenda Report - 1997 Water Fund Rate Review Page 7 Following the completion of the Water Master Plan, staff will return to Council with a thorough discussion of appropriate levels of fund balance for the Water Fund and recommendations for setting a revised fund balance policy, if necessary. Summary of Key Assumptions Based upon the assumptions in Exhibit A.2 and the factors discussed above, the financial position projections indicate that water rates require an increase of 0% in 1997-98 and project a 1.5% in 1998-99; 2.5% in 1999-00; 2.5%in 2000-01; and 4.0%in 2001-02. The following is a summary of key assumptions for expenditures and revenues: ■ Operations and maintenance costs are based on the 1997-99 budget with an inflation rate of 3% thereafter. ■ A total of$285,000 of additional budget for the Salinas Reservoir Expansion Project was included in the recommended capital improvement plan. This pays for the additional studies necessary to move forward with the ownership transfer of the facilities to a local agency. They also include the costs associated with the City's requested time extension for our water rights permit. The costs for design($715,000), biological mitigation ($6,250,000), and construction($8,000,000) have not been included. ■ Debt-financing and repayment costs reflect issuing bonds in 1997-98 for phase one of the Water Reuse project($6,350,000); and in 1998-99 for phase two of Water Reuse ($3,070,000). Debt service for the 1997-98 debt financing ($571,500) begins in 1998-99;. increased in 1998-99 for phase two ($276,300). Total debt service related to Water Reuse- $847,800. ■ Sales to other agencies are reduced in 1997-98 because Cuesta College is projected to receive its water from the State Water Project beginning 1997 and will no longer be purchasing water from the City. This reduces Water Fund revenue by about $90,000. Due to its equity contribution in January, Cal Poly's rates are fixed at a proportion of the commercial rate, and will increase proportionately as other customers. ■ Water customer growth rate is projected at .3%in 1997-98; .5% in 1998-99; .7% in 1999- 00; 1.0% in 2000-01; and 1.0% in 2001-02. ■ Debt service existing in 1997-98 is reduced by approximately $155,000 in 1999-00, when the 1959 Whale Rock Series A bonds mature. Debt service is further reduced by additional $50,000 in 2000-01 when the 1960 Whale Rock Series B bonds mature. ■ Connection and meter charges, and account set-up fees are projected to increase according to the rate of inflation. /- 07 Council Agenda Report - 1997 Water Fund Rate Review Page 8 CONCLUSION The fund analysis shows that with modest rate increases of 1 to 4% over the next five years, we can meet our water supply goals as well as all other operating and capital program needs. This analysis, relative to the impact of water supply projects on the revenue requirements, will be reviewed each year as information relative to cost and other assumptions changes. By beginning to position ourselves now, we can avoid significant rate impacts in the future associated with our water supply projects ATTACHMENT Resolution adopting Water Service Charges EXHIBITS A. Water Fund Rate Review 1. Changes in fund balance 2. Assumptions for fund projections 3. Capital improvement plan B. 1997 Capital Improvement Charge Analysis C. 1994 Capital Improvement Charge Analysis 1� ATTACHMENT RESOLUTION NO. (1997 SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO ESTABLISHING WATER SERVICE RATES WHEREAS, it is the policy of the City of San Luis Obispo to review enterprise fund fees and rates on an ongoing basis and to adjust them as required to ensure that they remain equitable and adequate to fully cover the cost of providing services; and WHEREAS, a comprehensive analysis of water fund operating, capital and debt service needs has been performed for fiscal years 1997-98 through 2001-02 with the goal of ensuring the Water Fund's ability to pay for the full amount of water established by the City's adopted General Plan; and WHEREAS,the Council has reviewed the water service rates necessary to meet system operating, capital and debt service requirements. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of San Luis Obispo hereby declares as follows: SECTION 1. Resolution No. 8420 (1995 Series) is hereby rescinded. SECTION 2. The rates set forth in Exhibit A are hereby adopted,which retain rates from July 1, 1996; and set new rates effective July 1, 1998; July 1, 1999; July 1, 2000; July 1, 2001. On motion of , seconded by and on the following roll call vote: AYES: NOES: ABSENT: The foregoing Resolution was adopted on this day of , 1997. ATTEST: Mayor Allen Settle City Clerk Bonnie Gawf APPROVED AS TO FORM: City Attorney Jeffrey Jorgensen i-9 EXHIBIT A RATES FOR WATER SERVICE Monthly water service charges per hundred cubic feet of water (ccf) used per dwelling unit for accounts classified as residential by the director of finance and per account for all other users, are as follows: Commodity Charges Per CCF 1 Ias . . Effective July- 14996: i de City. Outside"Crty Construction Meters 1 ccf $ 2.75 $ 5.50 In excess of 1 ccf thereafter $179.50 $359.00 All Others 1 to 5 ccf $ 2.75 $ 5.50 More than 5 ccf $ 3.45 $ 6.90 Commodity Charges Per CCF L 17 ve Jul' 1 Inside C` ity Outside C Effech. a.. Y; , 1998.;. � ....... itY � '� '� ;;.'�'�. Construction Meters 1 ccf $ 2.79 $ 5.58 In excess of 1 ccf thereafter $182.19 $364.38 All Others 1 to 5 ccf $ 2.79 $ 5.58 More than 5 ccf $ 3.50 $ 7.00 Exhibit A: Water Rates Page 2 Commodity Charges Per CCF EffectiveJuly�I ,1999.. Inside Crty Outside City Construction Meters 1 ccf $ 2.86 $ 5.72 In excess of 1 ccf thereafter $186.75 $373.50 All Others 1 to 5 ccf $ 2.86 $ 5.72 More than 5 ccf $ 3.59 $ 7.18 Commodity Charges Per CCF Effective Julya; 2000 Inside City Outside City' Construction Meters 1 ccf $ 2.93 $ 5.86 In excess of 1 ccf thereafter $191..42 $382.84 All Others 1 to 5 ccf $ 2.93 $ 5.86 More than 5 ccf $ 3.68 $ 7.36 Exhibit A: Water Rates Page 3 Commodity Charges Per CCF Effective July_l,2001 Inside City Outside City Construction Meters 1 ccf $ 3.05 $ 6.10 In excess of 1 ccf thereafter $199.08 $398.16 All Others 1 to 5 ccf $ 3.05 $ 6.10 More than 5 ccf $ 3.83 $ 7.66 � �a Exhibit A.1 O O O ...o O O O O O O' O O O O O O O O O` O O 0 0 0 0 0 0 0 0 0 O O O O .�„'y ,;,.:. 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O O Cl O Cl O O O O O O O O O O 0000 o O O o 0 0 0 o O o 0 W %%6�:,A�.`4,. O O O O O OMOOO O co CA O N O O N O O O O O Ln O to to O O O M O et to coO v � N M 'I7 N N -r A N !!F:r-:: co T r Qf to 69. O .. '' LLYn CL =kr;- cn ZLLJ at:&: m m E m y CDm y mc"6 E 0)C W '':" C 0 Q R y 0 0 n m tib'''��.: 0 a to �. t0 G.m+ cc m c D °' CD °�' ° c Co 0 (� x h ca v c o c E �` m 3 �° c 3 n c a m E IL :e w 7.'. W m O .N m V m N L E y e O y > N � COD- r c`na coo c`a >W J s:v;g:: O m m o U T m o c o m C m co Q <'x w' 0 cn o n y m W y ca °' c Y d r m rn E C. O #i O 0 Z = a y Z` N cy C to d o a v'i m rn 0U tim Om cam Em ommc`c CL n ► � m` o � `m 'm = E °'' coa) 0 Qo tccmioa Q 7 - E cam. m nrn — m e OL v m ` U ennco 00- ALL CD >, w> Im— ii0U Exhibit B 1997 CAPITAL IMPROVEMENT CHARGES Development Impact Fee Analysis Based on the growth assumptions of the General Plan, and placed in terms of Equivalent Dwelling Units(EDU's) of 251 EDU's per year, as previously identified in the Urban Water Management Plan, revised values for water supply project costs, based on today's best information, were applied to derive revised impact fees. Capital costs for the Water Reuse project were projected at $706 per acre foot, with a total yield of 1200 acre feet per year, provided an annual debt service cost of$847,800 per year. Capital costs for the Nacimiento project of$502 to $664 per acre foot, representing a range of 5 to 25 % step-up, and a projected requested entitlement of 2,678 acre feet per year, provided an annual capital cost component for Nacimiento of$1,344,356 to $1,778,192. Based on the proportion of benefit between existing and new users previously identified in the Urban Water Management Plan of 32.5%to existing users and 67.5% to new development, total annual cost recovery required from new development would range from$1,472,415 to $1,756,254. Divide these values by 251 EDU's per year and impact fees of$5,866 to $7,032 per SFDU would be required. A breakdown of the above analysis is provided in the following table. Water Su omponent Analysis TOW V. etr 1:' Detscit`3 3,87$:acre leer 'x ear Water Reuse Yield 1,200 acre feet per year from Nacimiento 2,678 acre feet ear Annual Capital Cost Component Analysis Acre+foot cost w ': Axcc!'aut cosi: - Water Reuse $697 $697 Nacimiento 5% $502 1 Al2%st u $664 Total Projected Annual Cost Water Reuse 1200 afy $847,800 $847,800 Nacimiento 2,678 afy A 5%step-up $1,344,400 25%a $1,778,200 . Tat�tl gnuuai Gast $2'12,204:: S2 66 fl60 Allocationo Cost to New Development Total Annual Supply Cost $2,192,200 $2,626,000 New Development Share 67.5% $1,479,700 1 $19772 600 Cost er SFDU Lots; Fr:€ New Development Total Share $1,479,700 $1,772,600 Cost per SFDU 251/vr $5,895 $7,062 Current Adopted Impact Fee Charge Per Single Family Dwelling Unit $6,22811 /-/4 Exhibit C WATER DEVELOPMENT IMPACT FEES Appendix VII OVERVIEW The purpose of this Appendix is to set forth an approach for funding water system improvements that is consistent with the City's policy that new development pay its fair share of the cost of building the facilities necessary to serve it. In this analysis,impact fees are the recommended method for achieving this financing goal. On an"equivalent dwelling unit"basis,the proposed fees for water supply projects range from$5,243 to$12,568, with a mid—range cost of$7,245. This cost range results from the variablity in the cost of sources that may be developed in meeting the City's long—term water supply needs as well as cost ranges for each specific project. Given these potential cost variances,this analysis presents water supply development costs in three cost ranges:low, middle,and high. Upon adoption of the Urban Water Management Plan,it is recommended that the water supply portion of the City's water impact fee be initially set at the"mid—range"level($7,245). As water supply projects and related costs become better known,fee amounts can be modified as appropriate. In addition to water supply costs,the City's existing water impact fee also includes a component for the cost of water treatment facilities. This analysis addresses this component of the water impact fee using the same methodology for apportioning costs between existing users and new development as used in determining the supply portion. Based on these two components and the equivalent dwelling unit concept,this analysis concludes with recommended water impact fees for residential and non—residential users. SUMMARY OF THE FINANCING METHODOLOGY There are six basic steps in developing recommended water impact fees: A. Determine water supply needs and allocate them between existing users and new development based on: 1. projected water demand at General Plan build—out 2. reserve requirements 3. loss of supply capacity in reservoirs due to siltation B. Identify source of supply solutions that will meet the City's needs over the next 30 years C. Determine the costs of developing these additional water supplies on an annual basis D. Allocate these costs between existing users and new development E. Develop appropriate funding strategies in financing new water supply projects 1. development impact fees for costs related to new development 2. general purpose rate increases for costs related to existing users F. Set water impact fees for both supply and treatment facilities attributable to new development for residential and non—residential users based on"equivalent dwelling units" KEY ASSUMPTIONS The accompanying schedules detail the recommended funding strategy based on the following key assumptions: General Plan • build—out population of 56,000 • 1%annual growth rate • new development must pay its fair share of the facility costs necessary to serve it . Water Supply and Demand • demand based on 145 gallons per day per capita;this reflects both residential and non—residential uses • current safe annual yield of 7,735 acre feet • reliability reserve of 2,000 acre feet annually and siltation allowance of 500 acre feet annually • specific water sources are not allocated between existing users and new development based on the City's multi—source water policy VII-2 's./07 Aynendix VII Step A NEW WATER SUPPLY PROJECTIONS The following three tables outline the City's additional water supply requirements and allocates them between existing users and new development on a prorata basis. As set forth in this analysis,the City needs to develop a safe annual yield of an additional 3,861 acre feet(af)annually;of this amount, 1,255 of(32.5%)is attributable to existing users and 2,606 of(673%)is attributable to new development. These three tables: p Project demand based on a per capita planning ratio of 145 gallons per dayper capita for existing users and new development ® Determine new wa ter supply req uirements based on:current safe annual yields;projected demand based on per capita planning ratios;reserve requirements;and siltation allowance p Allocatenewwater supply req uirementsbetween eAstingusers and newdevelopment Pro ected Demand Based on Per Ca ita Pla Ratio Table A2 Ann ual AF Qa 145 gal per day Percent P ulation erica ices ofaotal{ Eaosting users - 43,415 7,052 775% New development 12,585 2044 225% 56,000 9 096 100.0% Total New Water Su I Re airemeats Table A2 9,095 Required safe annual yield Current safe annual yield 7,735 Additional safe annual yield required based on per capita plaaaingratio 1,361 Reliability reserve 2,000 Siltation allowance 500 Total 3,861 Allocation of New SuppIv Requirements Between EzQstin Users and New Development Table A3 E�asting l... see Worcs Users Develo':iYient Total; New supplies based on per capita planning ratio (a) (683 2,044 1,361 Reliability reserve (b) 1,551 449 2,000 Siltation allowance 388 112, 500 Total 1255 2,6061 3 861 Percent 32S% 675% 100.0% a-) Crcdit allocated to existing development based on current safe annual yield in excess of current demand(7775af vs 7052at) b) Reliability and siltation reserve allocated to existing users based on their ratio to total projected demand(7759e) Step B SOURCE OF SUPPLY SOLUTIONS The following identifies three combined sources in meeting the City's additional supply requirements. As plans for individual projects go forward and further environmental,engineering and financial studies are completed,the actual composition of supply sources is hlcely to vary. This specific combination of supply sources has been initially evaluated as it is likely to be the least costly combination of sources based on information available at this time. Safe Annual Yields SA from Conceptual Source of SuF!Plz Solutions Table B AFSAY:< Salinas Reservoir expansion(1650 of say less 100 acre feet for County WW District No 6) 1,550 Water reclamation distribution system 1,000 Nacimiento pipeline 1311 Total .3,861 VII-33 Annendix VII Step C COST OF NEW WATER SUPPLIES This schedule develops annualized costs for the new water supply sources. Based on the variability of supply combinations and cost ranges associated with each one,three cost estimates are developed:low,middle,and high. The annual costs for each supply project have been developed as follows: Salinas Reservoir The low and mid—range cost estimates are based on projected debt service requirements for a 30 year bond issue with a project cost ranging from$8.0 to$9.8 million. There is no"high"cost range for this project,as the more expensive option would be to develop the 1,550 acre feet that would result from this project through the Nacimiento pipeline project instead Water Reclamation Distribution System The cost ranges are based on estimated debt service requirements on a 30 year bond issue for a project costing between$4.0 to$8.0 million based on the estimates provided in the draft EIR for this project. Nacimiento Pipeline Cost ranges for the Nacimiento pipeline project are not based on differing construction cost estimates,but on differing assumptions regarding the apportionment of cost components(supply vs treatment— capital vs operations&maintenance). These different apportionment approaches are reflected in the"low,middle,or high" cost ranges summarized as follows based on preliminary annual cost per acre foot information developed by the County's engineering consultants for this project,Boyle Engineering. Table C 1 SuPp1Y . i ehne Treatment Total:: Facilities (annual debt service) 522 113 635 Operations&Maintenance O&M 302 63 365 Total $824 $176 $1000 • 'Lowcost range"is based on the facility cost of the pipelhre($522peracre foot) • 'Middle cost range"is based on the facility cost of the pipeline and treatment plant($635 per acre foot) • "High cost range"is based on total fac&tyand O&M costs($1,000 per acre foot) Conservation Although the direct effect of an aggressive conservation program is to lower demand requirements,its costs are treated as a"supply"project since it reduces the amount of new water supplies that would otherwise have to be developed. Cost ranges for conservation have been based on the analysis presented in Appendix V of this plan. SummaKE of Annual Costs for New Water Supplies Tabic C2 "C ost. e Low :> : : Middle fit Salinas Reservoir expansion 640,000 784,000 Water reclamation distribution system 320,000 480,000 640,000 Nacimiento pipeline 684,300 832,500 2,861,000 Conservation 305,100 597,400 117 400 Total $1,949,400 $2,693,900 $4 673 400 Step D ALLOCATION OF COSTS BETWEEN EXISTING USERS AND NEW DEVELOPMENT The following schedule allocates the costs of developing new supplies between existing users and new development based on the apportionment of costs developed in Table A.3: Table D Percent Cos :..R an e of Total Low Mtddle I Existing users 32.5% 633,5001 875,500 1,518,800 New development 67.57a 1,315,9001 1818 400 3,154,600 TOTAL 100.0% $1,949,400 $2,693,900 $4,673,400 Vii-4 Anuendix VII Step E FUNDING STRATEGIES The following schedules identify separate strategies for funding the.costs of new water supplies for existing users and new development. O New Development The use of impact fees is the primary method identified in this analysis for funding the portion of new water supplies related to new development. Several steps are involved in setting impact fees at appropriate levels: • Iden*"equivalent Impact fees are attributable to residential as well as non—residential uses. The dwelling units"(ED U"s) concept of equivalent dwelling units is a useful one in allocating costs between different types of uses by establishing a"common denominator"based on a single family residential dwelling. As set forth in the summary below,residential EDU's are based on existing single and mulit—family units and 1990 Census data for population per household. Based on 18,300 total dwelling units,this results in 16,340 exisiting residential EDU's. • Project annual Based on 16,340 existing residential EDU's,annual increases are projected at 1% increasesin per the City's General Plan growth management policies. This results in an residential ED U's increase of 163 residential EDU's per year over the next 30 years. • Project annual Non—residential uses currently account for 35%of total water consumption;the increases in non— annual growth in non—residential EDU's is projected proportionately,resulting in residential ED U's an additional 88 EDU's annually,for a total increase in EDU's per year of 251. The following table summarizes projected annual increases in equivalent dwelling units: . Annual Growth in E uivaleat Dwellin Units ED U's Table E1 Exutmg Pop Per' SFR : AnnualEDU;; .... Units Household` utvalent:4 BDU's ;Growth:. i% Single family residential(SFR) 8,500 2.7 1.0 8,500 '85 Multi—familiv residential 9.8001 2.1 0.8 7,840 78 Total residential 163 Total non—residential @ 35% of total water use 1 88 Total estimated annual growth in equivalent dwelling units 251 The next step in determining impact fees is to match the annual cost requirements for water supply improvements related to new development(Step D)with the estimated annual growth in EDU's: Water Supply Im act Fee Requirement Table E2 ............................. An nuaY Cost . SFR Fee @` Re uirement 251::EDIJ's: Low Cost Range $1,315,900 $5,243 Middle Cost Range 1,818,400 7,245 High Cost Ran e 3 154 6001 568 This analysis results in an EDU impact fee ranging from$5,243 to$12,568,with a mid—point of$7,245. This compares with the current impact fee for supply purposes (exclusive of the treatment plant portion)of$2,416. A summary of proposed fees based on mid—range costs including both supply and treatment components for residential and non—residential users is provided at the end of this Appendix. A Existing Users The balance of the cost of developing new water supplies that is attributable to existing users must be financed through general purpose water rates. The following summarizes projected rate increases necessary to do so: VII-5 -ad Armendix V11 Proiected Increases in General Purpose Water Rates Table E-3 .............................................................................................................. I. *RatAnn e. ............ ....... ... . . . . .......... e uirement Inc ease' . .......... .................. %. ......... Low Cost Range $633,500 7.7% Middle Cost Range 875,500 10.6% FE zh Cost Range 1,518,800 18.4% • Based on projected rate base revenues aFS8,254000m 1996-97perJune 6,1994 warerrate and (assumes am cs 2 0%consamdon As reflected above,funding the portion of water supply improvements related to existing users will require general purpose rate increases ranging from about 8%to 18%,with a mid-range estimate of about 11%. The following summarizes the cost impact of these potential increases on the"average"single family residential customer: Impact on "Average"Shigle Family Customer Average mon ddy bill Ca)10 billing units per mon th -pro jacted rates in 1996-97 Table F-4 ..................... .....: ...................... ......... ...... ... .... Without allocated share of source of supply projects $28.46 Low Cost Range 30.65 2.19 Middle Cost Range 31.48 3.02 High Cost Range 33.70 5.24 Step F RECOMMENDED WATER DEVELOPMENT IMPACT FEES As noted above,water development impact fees are composed of two components:supply and treatment facilities related to servicing new development. Using the same methodolgY used in developing the supply portion of the water impact fee,the following identifies the treatment facilities portion of the recommended fee: Annual Water Treatment Facility Costs Attributable to Ne w De velopmen t Table F.1 • Annual debt service requirements for water treatment improvements curently under construction $752,000 • Portion attributable to new development(22.5%) 169,000 • Cost per EDU @ 251 EDU's annually ........ Based on the portion of"mid-range"cost of water supply improvements as well as debt service requirements for improvements to the City's water treatment plant currently underway that are attributable to new development,the following impact fees are recommended for residential and non-residential uses: Recommended Water Impact Fee Schedule Table F-2 .................. ...... .. EDU .... ..................... .......................... NT........................ Residential Single family residential 1.0 $7,918 Duplex,townhouse,condominium or apartment 0.8 6,334 Mobile home 0.6 4,751 Non-residential based on meter size 5/8 or 3/4 inches 1.0 7,918 1 inch 2.0 15,836 11/2 inches 4.0 31,672 2 inches 6.4 50,675 3 inches 14.0 110,851 4 inches 22.0 174,194 1 6 inches 1 45.01 356,307 1 Residential equiWencles are based on 1990 Census o ulatioa erhousehold data Single family residential 2.7 Duplex,townhouse,condominium or apartment 2.2 Mobile home 1.7 V11-6 An ndix VII ADDENDUM After approving the Urban Water Management Plan on November 15, 1994,the Council adopted amended water impact fees in accordance with plan policy that new development pay its fair share of the costs of building the facilities necesary to serve it. Section 2.6.3 of the plan specifically calls for setting impact fees at sufficient levels for this purpose. In adopting amended water impact fees,the Council decided to set them at the"low cost range"rather than the "mid cost range". This resulted in Council approval of the following fee schedule rather than the one presented in Table F.2 on page VII-6: Water Impact Fee Schedule Effective February 1 1995 Table F.3 Equivalent - Im act Fees DwelIinLY Units Current Feb 1,1295 Residential Single family residential 1.0 $2,777 $5,916 Duplex,townhouse,condominium or apartment 0.8 2,221 4,733 Mobile home 0.6 1,666 3,550 Non—residential based on meter size 5/8 or 3/4 inches 1.0 2,777 5,916 1 inch 2.0 5,554 11,832. 1112 inches 4.0 11,108 23,664 2 inches 6.4 17,773 37,862 3 inches 14.0 38,878 82,824 4 inches 22.0 61,053 130,152 6 inches 45.0 124,965 266,220 VII-7