Title
Public Hearing to Consider Introduction of Ordinance Revising the City’s Sewer Service Charges. (Public Works 501)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
The City of Alameda (City) owns and operates a sewer collection system. Sewer service charges are viewed as property-related fees and are subject to specific requirements of the California Constitution Article XIII D Section 6(a), commonly referred to as Proposition 218 (Prop 218). The fees must only cover expenses to provide service to the customer assessed, including salaries and benefits, contractual services, materials, equipment and infrastructure rehabilitation. Prop 218 allows a multi-year schedule of fee increases for up to five years and requires an increase in the fee(s) to be approved by the customers under a protest-ballot procedure, where all affected property owners are notified and given the opportunity to protest the increase in writing or at a public hearing. A majority protest prohibits the increase.
In September 2024, staff contracted with NBS to conduct a sewer financial plan and rate study (Exhibit 1). Based on an evaluation of sewer funding needs and revenue sources, the report recommends an annual 3% rate revenue increase through Fiscal Year (FY) 2030. A comparison of monthly sewer service charges with regional agencies shows that City rates are at the low end and are projected to remain low over the next five years with the proposed rate increase. On April 1, 2025, City Council approved the Sewer Rate Study and adopted a resolution declaring the City’s intent to revise the sewer service charge. The resolution also established procedures for accepting protests pursuant to Article XIID, Section 6 (a) of the California Constitution Regarding Property-Related Fees and Charges. On April 14, 2025, NBS mailed 19,243 properties written notice, in accordance with Prop 218, announcing the proposed sewer service charge increase, the date of this Public Hearing, and the protest procedures.
If the City receives a majority written protests from affected properties, City Council cannot approve the sewer service charge. Otherwise, a three/fifths vote by the City Council is required to introduce the Ordinance Revising the City’s Sewer Service Charges.
BACKGROUND
The City collects sewage generated by Alameda residents and businesses and conveys it via a network of sewer pipes and lift stations to the East Bay Municipal Utility District (EBMUD) for regional conveyance and treatment. Many of the City's sewers were installed in the early to mid-20th century and show signs of deterioration such as loose joints, cracks, and breaks. The City, through intentional design, has separate sanitary sewer and storm water drainage systems. Infiltration and inflow (I/I) is storm water that should enter the storm drainage system but instead enters the sewer system through these cracks and other defects in the sewer pipes. I/I causes excessive sanitary flows during wet weather events that can exceed both local conveyance and regional treatment capacity.
In the 1980s, EBMUD constructed three wet weather facilities (WWFs), with regulatory approval, to handle the increased sanitary flow during large storm events. However, in 2007, EBMUD's discharge permit for the WWFs was remanded by the State Water Resources Control Board (SWRCB) based on the Environmental Protection Agency (EPA) ruling that the discharges do not meet secondary treatment standards and therefore, are in violation of the Clean Water Act. In 2009, the EPA filed a complaint against EBMUD for the continued use of the WWFs. The EBMUD lawsuit was followed by a separate suit by EPA against each of the municipal entities that operate sewer collection systems discharging to the EBMUD system. Alameda was named in the second lawsuit, along with the other dischargers including Albany, Berkeley, Emeryville, Oakland, Piedmont, and Stege Sanitary District (collectively, the Satellites). The EPA case against the Satellites was legally based on allegations of "unpermitted" discharges or sanitary sewer overflows (SSOs) from their systems. However, the primary objective was not related to SSO enforcement, but rather to ensure that an aggressive program to reduce I/I and the use of WWFs would be carried out by the Satellites.
Negotiations ensued, and the EPA, Department of Justice, SWRCB and the Regional Water Board entered into Final Consent Decree for Case Nos. C09-00186 and 09-05684 (Consent Decree) with the defendants, including the City, with a 23-year term commencing in 2014.
Based upon the capital and operational work requirements in the Consent Decree, the City conducted a sewer rate study and on May 19, 2015, held a public hearing and adopted 3% annual increases in the sewer service charge for FY 2016 through FY 2020. A subsequent sewer rate study was conducted in 2020 and on June 16, 2020, City Council held a public hearing and approved the continuation of the 3% annual increase in sewer service charges for FY 2020-21 through FY 2024-25.
Consent Decree compliance is assessed annually for each agency based on the performance of specified work. The City has met or surpassed all Consent Decree requirements to date, including the rehabilitation of nearly 34 miles of sewer main and associated manholes and lower laterals. This work focuses on pipes which are likely to fail first and with greatest consequence as determined by the pipe rating model in the City’s Sewer Master Plan. The prioritized rehabilitation plan balances annual Consent Decree work requirements (2.6 miles/per year), anticipated revenue/budget, and expected construction costs based on pipe diameter and other constructability factors. To date, the Sewer Master Plan has provided the right guidance.
In addition to the annual assessment of work requirements, the Consent Decree has a check-in for each Wet Weather Facility (years 2022 and 2030) to determine whether the work being performed is actually reducing I/I and wet weather flows to those facilities such that they will no longer discharge by the end of the Consent Decree term. If a WWF fails the specified benchmark at the check-in, a Performance Evaluation Plan and Work Plan Revision Process is required for contributing tributary agencies to that WWF. The City’s wastewater flow is tied to two of the three WWFs: San Antonio Creek and Oakport, as are the cities of Oakland and Piedmont. Both WWFs passed the check-in benchmark in 2022, confirming the pipeline replacement work is working to reduce wet weather flows in the system.
DISCUSSION
On April 1, 2025, City Council approved a Sewer Rate Study (Exhibit 1) and adopted a resolution declaring the City’s intent to revise the sewer service charge and establish procedures for accepting protests pursuant to Article XIID, Section 6 (a) of the California Constitution Regarding Property-Related Fees and Charges. The guidelines adopted for the submission and tabulation of protests are included as Exhibit 2.
The Sewer Rate Study assessed sewer funding needs and revenue sources and recommended an annual 3% revenue increase for the sewer service charge for the next five years. The analysis was based on the rates being adequate to:
o Cash fund sewer pipeline replacements and other capital improvements
o Maintain reasonable and adequate operating and capital reserves
o Meet or exceed debt coverage requirements
o Mitigate impacts on the ratepayers
The table below shows the current and proposed rates.
|
Customer Class |
Current FY 2024/25 |
Proposed Monthly Sewer Rates |
|
|
|
FY 2025/26 |
FY 2026/27 |
FY 2027/28 |
FY 2028/29 |
FY 2029/30 |
|
% Increase in Rate Revenue |
3.00% |
3.00% |
3.00% |
3.00% |
3.00% |
|
Single Family ($/month) |
$31.22 |
$31.95 |
$32.91 |
$33.90 |
$34.92 |
$35.97 |
|
Multi-Family ($/month) |
$28.13 |
$27.77 |
$28.61 |
$29.47 |
$30.35 |
$31.26 |
|
Commercial |
|
|
|
|
|
|
|
Fixed Rate ($/month)1 |
$28.13 |
$29.50 |
$30.39 |
$31.30 |
$32.24 |
$33.21 |
|
Flow Based Rate2 |
$3.86 |
$4.01 |
$4.13 |
$4.25 |
$4.38 |
$4.51 |
1 Includes first 730 cubic feet of water
2 Per hundred cubic feet of water
In preparing the cost-of-service study, NBS prepared rates for each customer class based on their sewer characteristics and in accordance with industry standards. NBS allocated costs to three characteristic categories: Flow, Capacity, and Customer Costs.
• Flow-related costs were distributed to customer classes based on their projected wastewater volumes.
• Capacity-related costs were allocated according to the number of Equivalent Dwelling Units (EDUs) in each class.
• Customer-related costs were assigned based on the number of accounts in each class.
The total cost for each class-calculated by adding these three components-served as the foundation for the proposed rates. Since the previous rate study conducted five years ago, the proportions of wastewater volumes, EDUs, and account counts have shifted. As a result, user charges for FY 2025-26 do not increase uniformly across customer classes. Notably, the Multi-Family customer class will see a rate decrease. However, total rate revenue for FY 2025-26 will rise by 3%. Following this "true-up" year, rates will increase uniformly by 3% annually.
As shown in the bill comparison below, even with the proposed 3% annual rate revenue increase in FY 2025-26, the monthly sewer service charge for single family residences in Alameda remains low compared to the sewer bills of other East Bay agencies that discharge to EBMUD.
On April 14, 2025, NBS mailed 19,243 property owners a written notice, in accordance with Prop 218, announcing the proposed sewer service charge increase, the date of this Public Hearing, and the protest procedures. A copy of the notice is contained in Exhibit 3. The written notice provided more than required 45-day advanced notice of the Public Hearing and was printed in English, Chinese and Spanish.
Proposition 218 and Protest Procedures: Prop 218, also known as the "Right to Vote on Taxes Act”, was approved by California voters in 1996. The Act, which added Article XIlIC and XIIID to the California Constitution, provides a methodology for voters to repeal or reduce taxes, assessments, fees, and charges though the initiative process; reiterates the requirements for voter approval for local "special" and "general" taxes; and imposes restrictions and requirements on real property assessments and certain types of fees.
Prop 218 states that for sewer service charge increases, the City Council has the authority to approve the sewer service charge unless the City receives written protests opposing the proposed sewer service charge by a majority of the affected property owners. If the City receives a majority of written protests, City Council cannot approve the sewer service charge. Otherwise, a three/fifths vote by the City Council is required to introduce the Ordinance Revising the City’s Sewer Service Charges. If approved, a second reading of the ordinance will be brought to City Council on June 17, 2025.
ALTERNATIVES
• Approve the introduction of the ordinance revising the City’s sewer service charges.
• Do not approve the introduction of the ordinance and keep sewer service charges at the FY 2025 rate. At this rate, revenues will be insufficient to fund operations, sewer pipeline replacements and meet debt coverage requirements.
FINANCIAL IMPACT
An annual increase of 3% to the sewer service charge for the next five years will fund ongoing operations and maintenance costs, provide adequate cash reserves, and comply with the Consent Decree mandates. Failure to increase the sewer service charge could lead to the City’s use of General Fund reserves to cover costs necessary to avoid strict EPA penalties for non-compliance.
If approved, the rate change would phase in annually beginning July 1, 2025, and be billed annually on the property tax roll. To be considered for the 2025 tax rolls, the City must provide any notifications on rates to the County by August 10, 2025. There is no impact to the General Fund.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Section 18-4.3 of the Alameda Municipal Code (AMC) and Section 5471 of the California Health & Safety Code permit the City Council of the City of Alameda to set the City’s sewer service charges.
The City’s Strategic Plan project TIE21 is to rehabilitate 8 miles of sewer pipes.
ENVIRONMENTAL REVIEW
This action does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required.
CLIMATE IMPACT
This will not have a direct effect on the climate. However, sewer system maintenance is essential to overall environmental health and resilience in the community and the region.
RECOMMENDATION
Introduce an ordinance revising the City’s sewer service charges.
Respectfully submitted,
Erin Smith, Public Works Director
Financial Impact section reviewed,
Ross McCarthy, Finance Director
Exhibits:
1. Sewer Rate Study, February 2025
2. Adopted Guidelines for the Submission and Tabulation of Protests
3. Prop 218 Notification