HomeMy WebLinkAbout05/29/2001, 2 - 2001 SEWER FUND REVIEW councitMwi°°°w
Ma 29 2001
AD acEnoa REpoRt I"N.,b. 2
CITY OF SAN LUIS OBISPO
FROM: John Moss, Utilities Directo
Prepared By: Sue Baasch,Administrativalyst
Dave Hix,Wastewater Divi on Manager
SUBJECT: 2001 SEWER FUND REVIEW
CAO RECOMMENDATION
a. Review and accept the 2001 annual sewer fund financial review; and
b. Conceptually approve the proposed operating program change requests and capital
improvement plan requests contained in the preliminary 2001-03 Financial Plan, pending
final budget review and adoption; and
c. Adopt a resolution increasing sewer service charges by three percent (3.0%), effective July 1,
2001, and by three percent (3.0%), effective July 1, 2002.
REPORT IN BRIEF
Consistent with prior projections, the 2001 analysis shows the Sewer Fund will have adequate
revenues-to accomplish the requirements of the City's Wastewater programs as presented in the
preliminary 2001-03 Financial Plan, with minor rate increases of three percent in 2001-02 and
2002-03. This additional revenue allows the fund to remain healthy and able to respond to
increasing regulatory demands and energy costs, as well as support the ongoing wastewater
operations and capital improvement projects. The preliminary 2001-03 Financial Plan reflects
the Utilities Department's ongoing efforts to enhance operations and control expenses.
Operating Budget Highlights
Increasing regulatory demands for increased process control monitoring and facility performance
will no doubt continue to have a large financial impact on the sewer fund. For the first time; a
line item has been included to cover fines associated with the minimum mandatory penalties for
minor effluent violations established by SB 709 (Migden). Additionally, increased funds are
requested for legal and technical representation as Utilities continues negotiations and possible
appeal of the Regional Water Quality Control Board's (RWQCB)proposed wastewater discharge
requirements for the City's NPDES permit. Any new requirements and costs resulting from a
revised NPDES permit will be included in future budgets and fund reviews once negotiations and
appeals are completed.
As a component of our continuing efforts to enhance operations and maximize staffing resources,
Utilities is proposing a new skills-based pay program for the Department. The program will
provide new requirements as well as incentives for employees to achieve greater skills and higher
certifications, and to function at advanced journey levels within their classifications. Employees
Council Agenda Report 2001 Sewer Fund Review J
Page 2
functioning at higher levels of skill are more valuable to the operation and reduce the need to
augment staffing resources in the future.
Capital Improvements highlights
Over the last several years, the Sewer Fund has accomplished significant capital maintenance and
improvement work, as well as proactively planned for future capital improvements. The City has
established annual policy level funding for sewer infrastructure replacement and maintenance.
This allows the City to avoid crisis maintenance and the type of costs that can result from an
aging wastewater infrastructure. Funding to replace and upgrade key wastewater lift stations and
conveyance facilities is included in the preliminary 2001-03 Financial Plan and this fund
analysis.
To continue planning for the future, the preliminary 2001-03 Financial Plan identifies funding to
complete a Water Reclamation Facility(WRF) Master Plan. The WRF Master Plan will provide
needed pre-design detail for improvements to the WRF to address solids handling, capacity, and
expanded treatment requirements. The past Wastewater Master Plan (1986) identified capacity
improvements required at the facility until the year 2006-08, and a review of current flows
indicates that those projections are on target. Estimated funding for facility design is included in
the fourth year of this analysis.
Working Capital Balances
Projected working capital exceeds the policy minimum of 20% of operating expenses. Using
working capital funds in excess of the policy minimums to reduce requested rate increases that
are equivalent to inflation is not recommended for several reasons. First, primary focus should
be given to revenues and expenses with the goal that they match each year. Then, attention
should also be given to the long-range goal of maintaining a working capital balance able to fund
emergency or one-time capital projects. . In the 2001 analysis, projected revenues exceed
expenses in 2001-02 by $26,100; in 2002-03 by 109,100; in 03-04 by$371,400. In 200405, all
of the gain is lost because projected expenses exceed revenues by $867,400, due to debt service.
for the tank farm lift station and a one-time capital expenditure of$1 million for master planning
for WRF improvements.
To the extent that more than policy minimum working capital balances are available to the sewer
fund, some one-time capital projects can be paid for without debt financing. This was the case
with the million dollar Laguna Lift Station. As was discussed earlier, the sewer fund will be
funding more master plan improvements to the collection and treatment facilities over the next
few years and not all of these costs are known. Also, if the City is successful in obtaining State
Revolving Funds for these projects, the State will require that the City establish a capital reserve
account for ongoing improvements to the Water Reclamation Facility. This reserve will be in
addition to the policy minimums.
From an historical perspective, the Sewer Fund's relative health is new: for several years, the
fund deferred many ongoing CIP projects because of the significant debt service(annual payment
totals $2,135,700) from the major improvements in the early 1990's. It is only recently that the
fund has been able to meet this debt service payment and fund ongoing system improvements at
6q -a
Council Agenda Report-_2001 Sewer Fund Review
Page 3
the policy level of system replacement every fifty years.
Summary
Long-range planning and projection allows the City to anticipate increased future program costs
and prepare for them through program modifications and minor rate increases over a number of
years. This strategy has served the City well in the past and should allow us to continue to avoid
large rate increases in the future. This strategy is reflected in this 2001-03 Financial Plan and
2001 Sewer fund analysis.,
DISCUSSION
A summary of the recommended Sewer Fund 2001-03 Financial Plan, including a listing of the
recommended significant operating program change requests and key capital improvement
projects, is included in this report in the following section..
2001-03 Financial Plan: Wastewater Operations
Operating Programs 2001-02 2002-03
Administration 496,500 465;800
Collection 581,100' 603,000'
Pretreatment 186,600 196,100
Water Reclamation Facility 2,509,900' 2,618,700'
Total 3,774,100 3,883,600
*Note: Electrical increases have been projected at 150% of historical costs in the Water
Reclamation Facility (WRF) and Wastewater Collection budgets. Normally, the WRF's
electrical costs would be about $330,000 in 2001-02 and $339,900 in 2002-03. Because of the
projected increased costs, an additional $165,000 has been budgeted in 2001-02 (total of
$495,000), and an additional $170,000 in 2002-03 (total of $509,000). In Wastewater
Collection, the increased costs are projected at $14,700 in 2001-02 (total of $45;500) and
$15,700 in 2002-03 (total of$46,900). In summary, the rising cost of electricity will cost the
sewer fund $179,700 in 2001-02 and $185,700 in 2002-03, an amount roughly equivalent to a
one-time rate increase of about two and half percent.
Significant Operating Program Change Requests
Skills Based Pay
Implementing a pilot skills-based pay program (broad banding) in the Utilities Department will
provide incentive and.recognition for employees to achieve higher certifications and function at
advanced journey levels of skills and certification, which, in turn, will allow the department to
achieve maximum use of its personnel resources and maintain minimal staffing levels, will have
projected maximum additional cost of$23,700 in 2001-02 and $49,000 in 2002-03.
2 -�
Council Agenda Report-2001 Sewer Fund Review
Page 4
Increase Office Assistant Position from .5 to.75 FTE
Increasing the hours of the Office Assistant Il from 20 to 30 hours per week to ensure adequate
clerical resources to support the Utilities Department activities will cost$4,500 in 2001-02 and
$4,600 in 2002-03.
Consultant and Legal Services for NPDES Permit Negotiations
Contracting for technical land legal consulting services for negotiation of the Water Reclamation
Facility's revised.National Pollutant Discharge Elimination System (NPDES)Permit will cost
$50,000 for 2001-02 and$20,000 for 2002-03.
Replace Automatic Sampler-Pretreatment
Replacing one automatic portable wastewater sampler for sampling and monitoring water quality
and industrial discharge to the City's wastewater collection system will cost$6,500 in 02-03.
Conversion of temporary Lab Aide to Laboratory Analyst I- WRF
Converting the current half-time temporary Laboratory Aide position to a full time regular
Laboratory Analyst position to meet the increased sampling and analytical demands of the City's
water quality laboratory will cost$31,700 in 2001-02 and an additional $44,600 in 2002-03.
Based on workload, 90%of this cost will be allocated to the Sewer Fund and 10%to the Water
Fund.
SB-709 Penalty Funding
Paying fines for discharge violations at the Water Reclamation Facility can potentially cost up to
$51,000 in 2001-02 and $51,000 in 2002-03.
WRF Maintenance Projects
Implementing key minor capital projects at the Water Reclamation Facility to ensure proper
facility and equipment maintenance,prolong service life, and improve overall facility reliability
will cost $92,000 in 2001-02 and$89,500 in 2002-03.
Legislative Advocacy.
Contracting for an additional year with a legislative advocate in Sacramento to assist the City
with permits, grants, special project funding and legislation is $9,500 in 2001-02 (25% of the
total cost of$37,800).
Capital Improvement Plan
The Capital Improvement Plan for the Sewer Fund is shown in Exhibit A.3. Below are brief
descriptions of the major projects.
Vehicle Replacements
Replacing Wastewater Division vehicles to provide adequate and reliable equipment and
transportation for staff will cost $22,000 in 2001-02 and :$160,000 in 2002-03. In 2001-02,
2 — q
Council Agenda Report-2001 Sewer Fund Review
Page 5
Wastewater Collection's 1995 GMC pickup used for standby is recommended for replacement.
In 2002-03, three pickups and a Caterpillar loader used at the Water Reclamation Facility are
recommended for replacement.
System Improvements— Wastewater Collection
Constructing collection system improvements that replace aging and inadequate sewer
infrastructure and ensure uninterrupted wastewater collection and reduce maintenance activities,
will cost $680,000 in 2001-02, $600,000 in 2002-03, and is projected to cost $665,000 in 2003-
04 and $750,000 in 2004-05. This policy level of funding is to meet the goal of total system
replacement every 50 years.
Voluntary Sewer Lateral Rehabilitation Program
Maintaining adequate funding for the Voluntary Sewer Lateral Rehabilitation Program that meets
demand as property owners repair their privately-owned sewer laterals, and, thereby, reduce
infiltration and inflow into the City's wastewater collection system, will cost $75,000 in 2001-02
and$75,000 in 2002-03.
Collection System Master Plan Improvements: Tank Farm Lift Station
Implementing the collection system component of the Wastewater Facilities Master Plan, the
construction of the Tank Fane Lift Station, thus correcting existing deficiencies and providing
adequate infrastructure for areas of town having development potential, is projected to cost $4.5
million in 2003-04. Design funds of$500,000 have previously been approved in the 2000-01
Financial Plan.
Major Water Reclamation Facility Maintenance and Upgrade projects
Continuing the ongoing major maintenance at the Water Reclamation Facility, to ensure proper
function, prolong service life, and maintain high quality treatment processes, will cost $355,000
in 2001-02, $200,000 in 2002-03, and is projected to cost $320,000 in 2003-04 and $320,000 in
2004-05.
Waster Reclamation Facility Master Plan Improvements.
Study and design of improvement projects identified in the draft Wastewater Facilities Master
Plan for the Water Reclamation Facility to correct existing deficiencies and provide additional
facilities necessary to serve existing residents and planned growth within the City will cost
$100,000 in 2002-03 for study, and is projected to cost $1,000,000 in 2004-05 for design.
Rate Review Exhibits
Financial schedules providing detail for the sewer fund analysis are provided in Exhibits A.1
through A.3. These include an analysis showing changes in working capital from 1999-00 to
2004-05; summary of key assumptions by year, and the proposed four-year capital improvement
plan.
Council Agenda Report-2001 Sewer Fund Review
Page 6
Rate Setting Methodology
In determining sewer revenue requirements and setting recommended rates, the following general
methodology is used:
Step 1: Determine Sewer Fund revenue requirements for-
a. Operations and maintenance
b. Capital improvements and replacements
c. Debt service obligations (existing and projected)
Step 2: Subtract from this amount"non-rate revenues"such as:
a. Interest earnings
b. Connection fees and meter sales
c. Revenues from other agencies (Cal Poly)
d. Other service charges (service start-up fees, late charges,etc.)
Step 3: Identify sewer rate requirements:
a. Revenue needed to be generated from sewer rates is the difference between sewer
revenue requirements (Step 1) and"non-rate"revenues(Step 2).
Step 4: Determine new rates:
a. 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
working capital available to support capital projects, debt service requirements, and minimum
working capital policy.
Summary of Key Assumptions
The following is a summary of key assumptions for expenditures and revenues:
a. Operations and maintenance costs are based on the preliminary 2001-03 Financial Plan with
an inflation rate of 3%thereafter.
b. Sewer customer growth rate is projected at 1%.
c.. Sales to Cal Poly are based on historic use and the 1998 Agreement with Cal Poly. This
agreement set the proportion (71%) of the commercial rate the University pays to account for
the University's difference from other customers (ownership percentage in the collection
system and at the Water Reclamation Facility).
d. Capital improvement charges (development impact fees) are estimated based on inflation and
customer growth assumptions. This analysis assumes a varying percentage collection of these
—l0
Council Agenda Report 2001 Sewer Fund Review
Page 7
fees (see Exhibit A-2). Development occurring under maps vested prior to impact fee
establishment pays only those fees in place at the time of approval.
e. Annual debt service payments of$2,135,500 are to repay the State Revolving Loan Funds
received by the City for the construction of the Unit 3 and 4 improvements to the Water
Reclamation Facility and collection system improvement("Relief Sewer Main").
f. Annual debt service is increased by $450,000 in 2004-05 to pay for the $4.5 million Tank
Farm Lift Station project.
g. CUPA inspection revenues are based upon the recently adopted comprehensive fee analysis
that concluded that the Sewer Fund's portion of program revenues would be about $84,000 a
year, increased by cost of living thereafter. Half of this amount ($40,000) is projected for the
2000-01 to reflect the six months of revenues since fee adoption.
FISCAL IMPACT
In July 2001, the recommended sewer rate increase of three percent establishes monthly sewer
service charges of$24.50 for single-family dwellings, an increase of$0.71 per month over the
2000 single-family charges. In July 2002, the recommended sewer rate increase of three percent
establishes monthly sewer service charges of$25.24 for single-family dwellings, an increase of
$0.74 from the 2001 charges.
OTHER ISSUES
Monthly Utility Billing
One significant issue that continues to confront our rate payers is the magnitude of the City's
current bi-monthly utility bills. During consideration of the draft Water Shortage Contingency
Plan in July of 2000, Council authorized staff to review options for reducing the impact of utility
bills on our customers by moving to a monthly billing cycle.
Staff has completed extensive research and analysis of various ways to complete both meter
reading and utility billing. We have compared our cost to provide these.services to that of
private contractors such as the California Water Service Company and Southern California Gas
Company and have found our per unit cost to provide these services is very competitive. With
the analysis demonstrating that the City can and does provide these services competitively, the
issue can now focus more specifically on whether it is reasonable and appropriate to move to
monthly billing,rather than how the services should be provided.
The negative perceptions surrounding the size of our bi-monthly bills are likely to become more
severe as citizens pay higher energy bills this summer. The recently proposed addition of a storm
water utility fee to the City's water and sewer bills will exacerbate the situation and provides
even more incentive to move to a monthly billing cycle. Staff plans to return to Council this fall
with a complete report on the monthly utility billing analysis and ayeview of options for Council
consideration.
2 -' /
Council Agenda Report -2001 Sewer Fund Review
Page 8
Impact Fees
An analysis of revised impact fees for both water and sewer is currently underway and should be
coming to Council within the next few months. The development of the draft Water and
Wastewater Facilities Master Plans, completed in conjunction with the Airport Area Specific
Plan, has provided the information necessary to identify the costs of facilities required to
accommodate growth within the General Plan. Consistent with City policy that new
development pays its share of the infrastructure required to serve it, the updated development
impact fees (citywide and possibly area-specific) should be completed soon for Council review
and adoption.
While revised impact fees may have some impact (positive) on the overall revenues of the funds,
the magnitude of that impact is dependent upon a number of factors such as the amount and
extent of development occurring in the City and the level of cost recovery adopted by the
Council. The current fund analysis does not include any projections for revenues from impact
fees beyond those projected at the currently adopted rates.
ATTACHMENT
Resolution No. Establishing Sewer Service Rates
EXHIBITS
A. Sewer Fund Review
1. Changes in financial position
2. Assumptions for fund projections
3. Capital improvement plan
ATTACHMENT
RESOLUTION NO. (2001 Series)
A RESOLUTION OF THE COUNCIL
OF THE CITY OF SAN LUIS OBISPO
ESTABLISHING SEWER 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 sewer fund operating, capital and debt-service
needs has been performed for fiscal years 1999-00 through 2004-05; and
WHEREAS, the Council has reviewed the sewer service rates necessary to meet system
operating, capital and debt service requirements.
NOW,THEREFORE,BE IT RESOLVED by the Council of the City of San Luis Obispo as
follows:
SECTION 1. Resolution No. 8935 (1999 Series)is.hereby rescinded, effective July 1,
2001.
SECTION 2. The rates set forth in the exhibit are hereby adopted, establishing rates for
July 1, 2001 and July 1, 2002.
Upon motion of seconded by , and on the
following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this day of , 2001.
ATTEST: Mayor Allen Settle
Lee Price, City Clerk
APPROVED AS TO FORM:
*Glrose /City Attorney
— 1
EXHIBIT to Resolution No. (Series 2001)
MONTHLY SEWER SERVICE RATES
...._
Effective Date
. • of A2002ccount July 1, 2001
Single family dwelling, including single
meter condominiums and townhouses $24.50 $25.24
Multi-family dwelling in any duplex,
apartment house or rooming house, per 19.30 19.88
each dwelling unit
Mobile home or trailer park, pet each 14.56 15.00
dwelling unit
Public, private, or parochial school,
average daily attendance at.the school 2.76 2.84
All other accounts
Minimum charge 24.50 25.24
Additional charge for every 100 cubic 2.87 2.96
feet in excess of 500 cubic of
metered water consumption
Each vehicle discharging sewer into City
system
Minimum charge 80.74 83.16 .
Additional charge per 100 gallons in 4.85 5.00
excess of 1500 gallons discharged
1 Exhibit A.1
i
C p O O O O O O O O 0 0 0 0 0 0 O O O O
0 0 o c c c c o o c c c O c O O o
M Vl 00 0 m N O N O 1 cpl
0 V vt in
6J w % eq O 00 N ni O C/ vi O vi O %0 00 Vl
N Do h N Q Q N w O -e -- 00 00 wn
M �O N �O D\ � 00 O M Q 00 00 N Q
p'! r 00 'V' h N N O\ V N .+
C O O O O O O O O 0 0 0 0 0 0 O O O O O
O O O O O O O O 0 0 0 0 0 0 O O O O O
8 Q V I 0 Q N Im O N T O 00 O O = O V
a0 O �D O DD C;O Vi R O O N
N •p O a0 a0 Q N V1 OV �D a0 M 00 O O 1� 00
RFr M e+t N Q O a0 00 V1 ••• vl h v1 M O� N
r. 00 Q Vl N N vr v N
'p L O O O O O O O O 0 0 0 0 0 0 O O O O O
9 O O O O O O O O 0 0 0 0 0 0 O O O O O
3 �Q O O m 1` a c O �D %C N O 1, ON O O ON O
M Q � O�00 N e+1 rl 1z W h 1` 7 O� .:.i
N O M N M C — 0O0 000 r.M M � v 0 000 T
1- 00 M Q ^ N 1-
a O O O O O O O O 0 0 0 0 0 0 O O O O O O
T O O O O O O O O 0 0 0 0 0 0 O O O O O
w. W Q00 o ON N N r, Q'ON m N Vi O ^ \O Vy
00 00 00 O M O\ ON r� 7 O'% M m b N r O
N 00 N M 00 r- 00 Y — — 00 r O0
O O O O p O O O O 0 0 0 0 0 0 O O O O O
V un O O O O O 000 O 0 0 0 0 0 0 O O O O O
N Q O O a 00 h C h %R O�r% N M M Nc Q 00
Qa Q Vf O kn00 O 00 N V1 b N � Y N N 7 O W
Z 00 Q V O M I� �o O\ v M M N Q Q V M !`
N %O N N v1 N 1- O %O 00 `-' M � t
VI ...
LL
w
LU O O O O O O O O 0 0 0 0 0 0 O O O O
O O O O O O O O 0 0 0 0 0 0 O O O
pj kO Q Q Q T M Q W CO Q
. N O r b D\ N O
W 0 O O C4 Q M N Q r- N N Q 00 Q 0o M
IA M Vl N Q I� I� V1 O� V1 0o N
Y/
Z
C`
V/ -
O
IL
a
b
Z a c s >, o�Q U u ° c
d ° y -_ > y o y a o d 04 E
c o
E o. o N ° u c c aGn
>+ — C7 aEi c a� a u s m tv
c ; eo m y E Z 2 > C o o a c y c L o
W e a d s E u m ti w a C .�° 6` A c .9 a u X ? _ ` O
Z c Q 10
00
d 7 rn c •a c � c E' a V F o < c a 'ca m
N Cc1 V "O ¢ yr. U U
Q v > a. U _ C� �� La O 'o ; a E rn ¢O F. uv c c
2 a .c b a� UD n Y Y
V a w S Wm 3 3
2 -ll
( ) FExhibit A.2
0 0
4 -0 LOo 0 0 CDo a �
O Cl) fh O O �°.7 M P O e+l 00
r L r ^ 04 C7 W
N N ffl Fn L.)
O O
cqori o o ao � o � a
0 cn co O O o f0 O
0
N NV3 4000 qr
Gn W)
f6
r
CL
m
O 0
Q m o c R r o N m C
Ld
O jcn 0
&0 C7 viN O " m m
N m N r O7 'It E
N
O
m
N
O m
W O
r
c
O O O
cm
4 m L \ o co r o N N b a.
OV
G r O LO M N M LO 00 T
N m N O 09. fba6�9 m
V) EA O co
Z c n
`O o m
r U E
m
U
'o
0
W a
N m
O m ca y
d U
'fl m
CL m O ED
m co
C
O m U V
C
tJ) d O
LL m N m .L.. m
li (A r cx m — N 000 W 30 m C N.
W m c0 m wO V7 f9 to O O a
m J O LL m 0) a £ «'
W c — m V C C O O o m c"o m
o > > o m a
U) m v N c h o 5 '8 E
V ccts CO CD
v y
O > J m m N m N L' E. O) C C 2)
W U O € l6 E m U O ON) 0) m O).0 m
CO) m (D co
c LLc U g U c m(D Ecoi w CC) m.o
Z Z5c C7 m w R a) I"m m E
m 2 m a
C13 v —
F ~ > m o.oTyo ° m >
O m E N 7 'O ; y 2
U U rcx m �m m m m a
O m m U E c I
d' co :° cmQ � � oE
'w ` a A dv/ f0 m .m.� 2 m m an d C LL
Q O v o cmn U m co
;2
C� -- Exhibit A.3
0 0 0 O. 0 0 0 C
_ 0 0 0 0 0 0 0 0
nm0oCO M in CODm0 P.M
Cw
o CD
Vis} 000 00 0l
0L6 CT L6 C5 CT ol
ON COO M.
i
C qr, O O O
++. CD CD a
M. 000 00 O:
V O
Cm ED LO)- N,M
Z ® O 00CD C) 000
7 CO N Cl O O O O O
LL CD m 0 O � 00000 009 -
- N CO N r:
W r.
WCO ®R 0cCD
O O o'
'Q'r O O O O o.
W 3 Q NO CO L N
C4 Non
r,
0
LL t
Z N
J
J E m �'
a ~:
O E
Z E O
C CWC E .`
ccG
N a) C Ca
�) 'a a. d
Ca
O O V/ Ca '\ 4). i
_ CD
O C1 a)
c .0 D y
V ..
� a O c�i > - U) � LL c°1iaci �
..
() 0 rn m
IL p m 0 c. C ana
t Co i C
J ... E E
(h Q (D lL
V U a) Y E
a) 1p t Ccm
0 CO
2-13