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Public Hearing to Consider Introduction of Ordinance Revising the City's Sewer Service Charges. (Public Works 602)
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To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Interim City Manager
Re: Hold a Public Hearing and Introduce an Ordinance Revising the City's Sewer Service Charge
BACKGROUND
The City of Alameda (Alameda) 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, 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 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. 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 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 a Stipulated Order with EBMUD and the Satellites separately requiring detailed maintenance and sewer rehabilitation work to address the influx of storm water 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
Alameda is required by State law and City policy to collect revenues sufficient to cover the costs of operating the sewer facilities. These revenues allow Alameda to safely and reliably convey sewage generated by residents and businesses, and to 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, Alameda is required to complete certain minimum improvements to its sewer facilities over the next 20 years. To comply with these requirements, Alameda must improve operations and maintenance protocol; upgrade pump and lift stations; and rehabilitate sewer mains and manholes that have reached their useful life. In addition, Alameda must implement its Sewer System Management Plan, approved by the City Council on October 21, 2014, which consists of source control, capacity assurance, emergency response, and program evaluation.
In the summer of 2014, Alameda entered into a contract with Bartle Wells Associates (BWA) to conduct a comprehensive sewer financial plan and rate study. Alameda last conducted a sewer rate review in 2010 that recommended rate increases through FY 2012-13. For FY 2013-14 and FY 2014-15, 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 3.0 % increase in the sewer service charge for the next five years. Exhibit 1 contains the recommended sewer fee adjustment table. The BWA 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; and
· Mitigate impacts on the ratepayers.
BWA developed a twenty-year cash flow projection to determine annual revenue requirements and to project sewer rate increases. In regards to reserves, Alameda has approximately $6.75 million remaining from the 2012 Sewer Revenue Bond, which must be expended within five years of issuance. The BWA cash flow projection assumes that the additional expense of the pipeline replacements will be funded by:
· Using the remaining bond proceeds over the next two years;
· Spending down a portion of the operating reserves, which are currently higher than recommended; and
· Phased in rate increases of 3% annually.
BWA recommends that Alameda maintain reserves equal to 60% of operating costs plus one year of pipeline replacement expenditure and one year of debt service. The recommended reserve is equal to approximately $8.5 million in FY 2015-16.
The complete Sewer Rate Study by Bartle and Wells is attached as Exhibit 2.
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.
On February 2, 2015, the City Council adopted a Resolution declaring the City's Intention to revise the Sewer Service Charge Establishing Procedures for Accepting Protests Pursuant to Article XIID, Section 6 (a) of the California Constitution Regarding Property-Related Fees and Charges. On March 31, 2015, City staff mailed property owners a written notice, in accordance with Proposition 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 advanced notice of the Public Hearing than the 45 days required by Proposition 218. The mailed notice was printed in English, Chinese and Spanish and a copy was posted on the City's website so that the content was available in 10 additional languages through use of the Google translator.
Proposition 218 states that for sewer service charge increases, the City Council has the authority to approve the sewer service charge unless Alameda 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. A significant number of written protests was not received. Therefore, a four/fifths vote by the City Council is required for this sewer service charge increase to pass.
FINANCIAL IMPACT
BWA recommend an annual increase of 3.0% to the sewer service charge for the next five years to fund ongoing operations and maintenance costs, provide adequate cash reserves and comply with the Consent Decree mandates. If the sewer service charge is not increased, insufficient revenue could lead to Alameda's use of General Fund reserves to cover sewer program costs so as to avoid strict EPA penalties for non-compliance.
If approved, the rate change would phase in annually beginning July 1, 2015, and be billed annually on the property tax roll. To be considered for the 2015 tax rolls, the City must provide any notifications on rates to the County by August 10, 2015. There is no impact to the General Fund.
ENVIRONMENTAL REVIEW
In accordance with the California Environmental Quality Act (CEQA), this project is Categorically Exempt under the CEQA Guidelines section 15301, Maintenance of Existing Facilities.
RECOMMENDATION
Introduce an ordinance revising the City's sewer service charge.
Respectfully submitted,
Liam Garland, Interim Public Works Director
By,
Erin Smith, Interim Deputy Public Works Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Recommended Sewer Fee Adjustment Table
2. Sewer Rate Study
3. Proposition 218 Notice of Public Hearing on Proposed Sewer Service Charge Increase