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01/26/1982M I N U T E S ADJOURNED MEETING OF THE CITY COUNCIL CITY OF SAN LUIS OBISPO TUESDAY, JANUARY 26, 1982 - 7:00 P.M. COUNCIL HEARING ROOM, CITY HALL, 990 PALM STREET SAN LUIS OBISPO, CALIFORNIA STUDY SESSION ROLL CALL Councilmembers Present: GlennaDeane Dovey, Ron Dunin, Robert Griffin, Allen Settle and Mayor Melanie C. Billig Absent: None City staff Present: Paul Lanspery, Administrative Officer; Pamela Voges, City Clerk; Rudy MuYavez, Finance Director; Dave Romero, Public Services Director; Gerald Peasley, Water & Sewer Consultant 1. WATER AND SEWER RATES (continued from 12 /15/81) The City Council considered the following: A. Continued public hearing to take public comment concerning revision of water service charges, B. Review of previously adopted sewer acreage charges, and C. Consideration of-the development of a City Water Management and Conservation Plan. Paul Lanspery, Administrative Officer, briefly summarized the issues and recommended steps of action concerning utility rate increases. He explained that he did not expect the Council to take any definitive action this evening but allow staff to come back within 60 to 120 days with additional recommendations. He then briefly reviewed the three most important issues he felt needed to be addressed: 1. Water Acreage Fee - In recognition of a capital "Buy -in" Fee he felt some level was essential to the proper financing of the water utility. He would recommend that any changes to the.current acreage fee of $1,160 be a part of the Council's review and approval of the 1982/1983 Water Capital Program. 2. Capital Replacements and Improvements - He explained that implemen- 4. Waste Water - At this time it would appear that the sewer rate increases adopted in November were still valid with the exception of the tation of the reserve policy recommended in the Peasley report would result in a significant rate increase. -He felt that reserved policies needed to be developed in the context of an overall water fund expendi- ture plan. 3. Operation and Maintenance Rate Increase - He recommended Council approve the rate adjustments to the readiness -to -serve charge proposing an increase from 65 cents per cubic hundred feet to 70 cents per 100 cubic feet. 4. Waste Water - At this time it would appear that the sewer rate increases adopted in November were still valid with the exception of the City Council Minutes January 26, 1982 - 7:00 p.m. Page 2 acreage fees and, again, he felt this needed further review and be considered as a part of the five -year capital budget recommendation for the wastewater utility. 5. Water Management and Conservation Plan - He felt the development of a plan to serve as a principle policy position of the City and managing the water utility was necessary and.felt that much of this material already existed in a report prepared by Engineering Science, Inc.,in April of 1977. The first-area of the plan to be developed being the financial management policies. Rudy Muravez, Finance Director, then reviewed background information on the policies establishing the current water rates first introduced in the Engineering- Science Report of April 1977 which established the "commodity- demand" method of cost allocation and developing water rates. The demand portion of the rate was reflected in a "readiness -to- serve" charge and a second "commodity" charge made for all water actually used by a customer. The rates were designed to recover the full cost of operation of the system, including scheduled capital replacements and improvements. This rate philosophy used the enterprise approach, the system being perceived as a private enterprise and subjected to the same conditions of operation as a private company. He felt using this approach was paramount to any review of the water operations. He then outlined for the Council eight basic policy decisions the Council should make with regard to the proposed water rates. He explained the issue of current policy, the recommendation',from the Peasley study, and staff recommendation and input if different from the Peasley study. Those eight items involved: 1) Enterprise method of operations; 2) rates to be on the basis of "readiness -to- serve" charge, plus all consumptions billed at a level "commodity" rate; 3) charge city departments for regular rates for water service; 4) charge Fire Department for mainten- ance of up blic fire hydrants; 5) charge private customers for providing fire protection service on private property; 6) charge Fire Department for revenue loss by providing free service to private monitored fireline; 7) pay the general fund an ' in -lieu amount for franchise tax and lost property tax; and 8) charge new customers an "acreage fee" as a buy -in to the existing capital facilities. Upon question by Councilman Griffin as to the definition of capital replacements and improvements:. and whether this included capital replace- ments costs and service enhancement costs, Gerald Peasley.stated that it was only replacement, although sometimes when you are replacing old equipment, you will be replacing it with something different than what you already had, therefore, an improvement. Councilman Dunin stated that he was unfamiliar with any business prac- tice that operated on a full capital replacement approach, which was what this report was saying the City is attempting to do. Mr. Pealsey explained that when parts are replaced, either the customer must be charged or the money must be borrowed to pay for this replacement. Mayor Billig declared'the, public hearing open. Charles Long, motel owner, questioned how much the actual increase would cost the user. Mr. Peasley replied that the recovery cost would be $12 million; the full replacement cost would be $36 million cost. This amounts to the City requiring approximately $952,000 per year. to cover those costs. Leonard Blaser, developer, agreed with staff that their recommended change from 90 cents to 70 cents per 100 cubic feet would be more . equitable. He was opposed to the explanation given with regard to the requirement of $36 million as being the replacement cost figure. He 1 1 LJ City Council Minutes January 26, 1982 - 7:00 p.m. Page 3 felt that in many situations he was being charged twice, both as a user, and as a developer. Gerald Peasley explained that the "buy -in" fee assessed the developer -.and allowed new developments in the city. The "in -tract facilities" are approximately $9 million of this $36 million he was referring to. Stan Bell, 1036 Vista Collado and builder, explained that he had his ' accountant analyze Mr. Peasley's report and basically his accountant states that he was not in support of using the replacement costs to determine "acreage charges" for ten different reasons which he briefly outlined for the Council. He would, therefore; be supportive of the Administrative Officer's recommendation and would urge the Council to look at other criteria i.e, water lines lasting longer than 50 years that staff is basing the replacement costs on. He felt the City of San Luis Obispo was taking a "Rolls Royce" approach; and he would,urge the Council to look at an overall management policy, including water and sewer acreage fees to determine what the.cash requirements are for a five -year period. He would not support another study being conducted but would urge an independent review committee analyze the present report and would urge the Administrative Officer's recommendation. Bob Baker, 900 Del Rio, stated that he had also engaged an accountant to do an impartial analysis of Mr. Peasley's report. That report outlined seven major areas of concern. He emphasized item 2 of the report, which states, the water system seemed to have been operating in a profitable mode for the year's contained in this study up until the budget year 1981 -82. The budget year 1981- 82,saw substantial increases over the prior three years in almost every category of cost. The increases outstriped inflation in most every area. Item 3,of_.Peasley's report recommended a substantial change .-in accounting methods from those previously used with respect to the funding of capital replacements. Although this change is a.major.change in.accounting; it is given very little explanation in either the work papers or the study. If the City were to adopt this recommended method in their current stage of planning, they would be collecting substantial funds for replacement reserves without any overall plan for management or replacement of the water system. The City undoubtedly will be able to find a use for the "unan- ticipated reserves ", however, the reserves should not be accumulated without a management plan for their use. Item 7, the accountant relied heavily on input from the staff in their preparation and their results are not in any way, shape or form an audit. Because the accountant is not preparing an audit, he is not'required-to be independent and relies primarily on information that is supplied by the staff without indepen- dent verification. His accountant felt that the results of the study were what the staff had anticipated since they supplied the information and assumptions. He would also urge the Council's support of the Administrative Officer's recommendation. Walt Ross, 508 Higuera Street, stated that he would support the Council's further study.- He was primarily concerned with what these rates would do to the real estate values. He felt they would be raising all lots, maybe up to $1,500 per lot; and this has a direct effect on the tax base. The City will collect a very small portion of this. The second point he made was that the new buyer would be paying in essence twice - -the developer cost and replacement reserve. The new person is paying for the old equipment and, therefore, a disproportionate share. Russ Johnson stated that he was opposed to the rate increase as he also did not feel that it was proportionate. Don Smith, stated that he was afraid.that. the City. Government would be in a position of wasting its money by having a large reserve. He would support a "sensitive life -line rate recognizing the difference between winter and summer use." Mayor Billig declared the public hearing closed. City Council Minutes January 26, 1982 - 7:00 p.m. Page 4 Rudy Muravez, Finance Director, then outlined five basic policy issues he would like Council to give direction on: 1. Private Fire Line Service Rates A. Continue to provide a preferential rate. B. Work towards.regular rates. Staff would recommend Option "A ". Upon general'consensus, Council supported Option "A ". (5 -0) 2. Buy -in Fees (Acreage Fee) . A. Should excess.capacity used by new customers be paid for by those customers. B. Should all rate payers bare the cost of maintaining excess capacity. Staff was recommending Option "A ". Councilman Griffin stated that he was.more interested in.the methodology used to obtain the results of "excess use ". He felt that he could be supportive of a new customer paying for it. Councilmembers Dovey, Settle and Dunin also would support Option "2 -A ". Mayor Billig stated that she also could support Option "2 -A" but would like staff to come back with various options. Upon general consensus, Council would support Option "2 -A ". (5 -0) 2A. Design of "buy -in" Fee A. Cost to replace (full). B. Historical (full). C. Partial Recovery. Staff was recommending Options "A" and "B". Councilman Dunin explained that he could not support the new user.paying for all the replacement. Councilman Griffin felt that he could support partial recovery. He would like to see the option outlined by Don Callahan in the Analysis Report submitted by Stan Bell looked at closely with regard to his comment that full recovery was inappropriate. He did feel that some kind of an allocated recovery should be used for a portion of the replacement. Councilwoman Dovey would like staff to look at other similar communities and also look at charges for hillside or elevated properties.. Upon general consensus, Council agreed to go with the partial recovery option with staff to look further at zones and a planned allocation approach. (5 -0) 3. Capital Replacement Reserves A. Replacement Cost of components recovered annually and their expected useful life. B. Pay -as- you -go (cash basis). C. Borrow to replace. 1 1 1 City Council Minutes January 26, 1982 - 7:00 p.m. Page 5 Staff would recommend Option "A ". At this time (see discussion on 3A below) City Council agreed to support Option "A ". 3A. Replacement Program A. Immediate. B. Phased with the Water Management and Conservation Plan. Staff would recommend Option "B ". Councilman Settle stated that he would look at "the replacement costs concept ". Councilman Dunin could not support Option "B ". He would be more suppor- tive to be on a pay -as- you -go basis with increased funds directly earmarked for replacement. Councilwoman Dovey would support replacement costs although she would not preclude borrowing if interest rates were to drop dramatically. Councilman Griffin felt he could support staff recommendations with two additional provisos: 1) Strict limitation of replacement for "major structures" and 2) only support capital replacement program if there was a concurrent strong policy that would preclude the use of those reserves for anything except for replacement. Minor capital replacements should be refunded from current operations. Councilman Settle also agreed with Councilman Griffin's statement. Upon general consensus, Council agreed with Councilman Griffin's remarks. (5 -0) 1 4. Water Utility - Current Funding Needs A. Approve Readiness -to -serve charges proposed and a commodity charge reduced to 70 cents per cubic foot from the proposed 90 (life line) (effective 4 -1, billed 6/1). B. Update other users charges to recover current costs of providing services (implement 4/1). C. Maintain current.rates until Staff recommended Options "A" and "B ". Upon question by Councilwoman Dovey as to whether or not staff had looked into water conservation being worked into this, Mr. Peasley stated that it was built into the rate already. Councilman Dunin questioned if the City would break even this year or if the City was in danger of using reserves. Rudy Muravez, Finance Director, explained that this year the City would break even but would start dipping into reserves by the beginning of fiscal year 1982 -83. Councilman:Griffin stated that with regard to the question of the rates being deferred until the development of a management plan, he would not be opposed if the Council felt strongly to defer this item, although he could support the maintenance and operation portions of it at this time. However, he would suggest a more expansive life -line rate. He also felt the P.U.C. approach was on the stingy side. Councilman Settle could also go.along with the 0 & M rates being established now. City Council Minutes January 26, 1982 - 7:00 p.m. Page 6 Mayor Billig.suggested that staff bring back additional alternatives and look to other communities as to how they have approached this problem. Upon general consensus, Council agreed to consider increasing the operating and maintenance rates at this time with staff to come back with additional options for the remainder. 5. Sewer Acreage Fee A. Repeal and Reevaluate along with water acreage fee. B. Keep $3,800 fee as approved 12/81. Staff would recommend Alternate "A". Councilman Griffin stated that he could approve staff recommendations. Upon general consensus,. it was agreed to go along with staff recommended Option "A ". The Council then discussed those items on the policy decision chart not yet covered: 4. Charge Fire Department for maintenance of public fire hydrants. Rudy Muravez explained that the current policy was that the Fire Depart- ment is charged $3.00 per month per hydrant for maintenance. The Peasley study recommended discontinuance of this charge to be consistent with AB1653 requiring that private companies assume this cost from public agencies. Staff was recommending that the Council go along with the Pealsey recommendation and not charge the-Fire Department for hydrant maintenance. This would save $50,000 a year from the Fire Department budget. Councilman Dunin stated that he was opposed to this recommendation and felt the Fire Department should continue to be charged as other city departments. Councilmembers Settle, Griffin and Dovey agreed with staff recommenda- tions. Upon general consensus, Council agreed to go with staff recommendation to not charge the Fire Department for hydrant maintenance was accepted. (4 -1) 7. Pay the general fund and in -lieu amount for franchise tax and another for lost property tax. Rudy Muravez explained that the water fund currently pays the general fund an in -lieu franchise amount of two percent of revenue and an in -lieu amount for property tax on water fund properties. The Peasley study would assume to continue with this policy. Staff was recommending to continue it based on the enterprise concept. If the water system were privately operated, such payments would be made. Councilman Dunin asked to have the word "in- lieu" defined. Mr. Peasley stated that basically the system would operate as a private utility company. Councilman Dunin felt that this was circumventing Proposition 13 by allowing such a large reserve to be maintained. Councilmembers Settle, Griffin and Dovey could support staff recommen- dation. Upon general consensus, Council agreed to accept staff recommendation. (4 -1) 1 City Council Minutes January 26, 1982 - 7:00 p.m. Page 7 9:15.p.m. City Council adjourned to Closed Session to discuss Personnel Matters. 10:40 p.m. City Council reconvened, all Councilmembers present. There being no further business to come before the Council, Mayor,Billig adjourned the meeting at 10:45 p.m. Pamela Voges, C ty Clerk i APPROVED BY COUNCIL: 2/16/82 M I N U T E S REGULAR MEETING OF THE CITY COUNCIL CITY OF SAN LUIS OBISPO TUESDAY, FEBRUARY 2, 1982 - 7:00 P.M. COUNCIL CHAMBERS, CITY HALL, 990 PALM STREET SAN LUIS OBISPO, CALIFORNIA PLEDGE OF ALLEGIANCE ROLL CALL Councilmembers Present: GlennaDeane Dovey, Ron Dunin, Robert Griffin, Allen Settle and Mayor Melanie C. Billig Absent: None City Staff Present: Paul Lanspery, Administrative Officer; George Thacher, City Attorney; Pamela Voges, City Clerk; Geoff Grote, Legal Assistant; Don Englert, Police Captain; Dave Romero, Public Services Director; Ken Bruce, Senior Planner CONSENT ITEMS C -1 CLAIMS AGAINST THE CITY On motion of Councilman Dunin, seconded by Councilman Griffin, claims against the City for the month of February, 1982, be approved and ordered paid subject to the approval of the CAO. Motion carried, all ayes. C -2 . COUNCIL MINUTES On motion of Councilman Dunin, seconded by Councilman Griffin, the following minutes be approved as amended: January 5, 1982 - 7:00 p.m., January 11, 1982 - 7:00 a.m., January 11, 1982 - 12:10 p.m., January 12, 1982 - 7:00 p.m., January 14, 1982 - 12:10 p.m., January 18, 1982 - 12:10 p.m., January 19, 1982 - 7:00 p.m. Motion carried, all ayes. C -3 CONTRACT PAY ESTIMATES