Title
Adoption of Resolution Declaring the City's Intention 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. (Public Works 602)
Body
To: Honorable Mayor and Members of the City Council
From: John Russo, City Manager
Recommendation to Adopt a Resolution Declaring the City's Intention 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
BACKGROUND
The City of Alameda (City) collects sewage generated by Alameda residents and businesses and conveys it via a network of sewer pipes, pump stations, and lift stations to the East Bay Municipal Utility District (EBMUD) for treatment. Many of the City's sewers were installed in the early to mid-20th century and now show signs of deterioration such as loose joints, cracks, and breaks. The City, by design, has separate sanitary sewer and storm water drainage systems. Infiltration and inflow (I/I) is stormwater 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 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 the EPA against each of the municipal entities that operate sewer collection systems discharging to the EBMUD system. The City 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 wet weather flows would be carried out by the Satellites.
Negotiations ensued, and the EPA, Department of Justice, SWRCB and the Regional Water Quality Control Board (RWQCB) entered into a Stipulated Order with EBMUD and the Satellites separately requiring detailed maintenance and sewer rehabilitation work to address the influx of stormwater into the sewer collection systems during wet weather events. The Stipulated Orders remained binding until a final remediation program was codified in the Final Consent Decree for Case Nos. C09-00186 and 09-05684.
DISCUSSION
The City is required by State law and City policy to collect revenues sufficient to cover the costs of operating the sewer facilities. These revenues allow the City to safely and reliably convey sewage generated by residents and businesses, and protect human health. Costs recovered through the rate revenue include salaries and benefits for sewer facilities staff, contractual services, materials, equipment, supplies, and infrastructure rehabilitation. In addition, revenues generated from the sewer rates are used to pay off debt incurred in the process of building the capital improvement projects mandated by the Final Consent Decree.
In accordance with the Final Consent Decree, the City is required to complete certain minimum improvements to its sewer facilities over the next 20 years. To comply with these requirements, the City must improve operations and maintenance protocol; upgrade pump and lift stations; and rehabilitate sewer mains and manholes that have reached the end of their useful life. In addition, the City must implement its Sewer System Management Plan, approved by the City Council in October 21, 2014, which consists of source control, capacity assurance, emergency response, and program evaluation.
In the summer of 2014, the City entered into a contract with Bartle Wells Associates (BWA) to conduct a comprehensive sewer financial plan and rate study. The City last conducted a sewer rate review in 2010 that recommended rate increases through Fiscal Year 2013. For FY14/FY15, sewer rates were increased by the annual change in the Consumer Price Index (CPI). BWA evaluated sewer funding needs and revenue sources and recommends an annual three percent increase in the sewer service charge for the next five years. Their analysis was predicated on rates being adequate to:
· Cash fund sewer pipeline replacements and other capital improvements
· Maintain reasonable and adequate operating and capital reserves
· Meet or exceed debt coverage requirements
· Mitigate impacts on the ratepayers
BWA developed a 20-year cash flow projection to determine annual revenue requirements and projected sewer rate increases. In regard to reserves, the City has about $6.75 million in remaining proceeds from the 2012 Sewer Revenue Bond. The BWA cash flow projection assumes that the bond proceeds will be spent down over the next two years to fund pipeline replacements and that the City will fund cost increases through a combination of spending down a portion of the operating reserves while phasing in rate increases. BWA recommends that the City maintain reserves equal to sixty percent of operating and plus one year of pipeline replacement expenditure and one year of debt service. The recommended reserve is equal to about $8.5 million in FY15. The complete Sewer Rate Study by BWA is included as Exhibit 1.
Proposition 218 and Protest Procedures: Proposition 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. In accordance with Proposition 218, when increasing sewer service charges the City must first provide written notice by mail to all property owners which the sewer service charge will be imposed upon and conduct a public hearing no sooner than 45 days following the written notice.
In addition, the City Council must adopt a resolution establishing Guidelines for the Submission and Tabulation of Protests (see Exhibit 2). In accordance with the Proposition 218 requirements 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 sufficient number of written protests, the City Council cannot approve the sewer service charge. Otherwise, a four/fifths vote by the City Council is required for this sewer service charge increase to pass.
Pending the City Council's adoption tonight of a "Resolution Declaring the City's Intention 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 City will send property owners a written notice announcing the proposed sewer service charge increase and the date of the scheduled public hearing. Protest procedures and reference to where the complete "Guidelines for the Submission and Tabulation of Protests" will be included. The mailed notice will be printed in English, Chinese and Spanish. In addition, the notice will be posted on the City website so that the content will be available in ten additional languages through use of the Google translator.
FINANCIAL IMPACT
An annual increase of three percent to the sewer service charge each year for the next five years will ensure funding for ongoing operations and maintenance, 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.
RECOMMENDATION
Adopt a resolution declaring the City's intention 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.
Robert G. Haun, Public Works Director
By,
Erin Smith, Public Works Coordinator
Financial Impact section reviewed,
Juelle Ann Boyer, Interim Finance Director
Exhibits:
1. Sewer Rate Study
2. Guidelines for the Submission and Tabulation of Protests
cc: Kevin Kearney, City Auditor
Kevin Kennedy, City Treasurer