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, and
Recommendation to Set a Public Hearing on June 16, 2020 to Consider Adoption of New Sewer Service Charges. (Public Works 602)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The City of Alameda (City) owns and operates 128 miles of sewer collection system and 32 pump stations. Sewer service charges are viewed as property-related fees and are subject to specific requirements of the California Constitution Article XIII D § 6(a), commonly referred to as Proposition (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, and a majority protest prohibits the increase.
On May 19, 2015, the City held a public hearing to consider 3% annual increases in the sewer service charge for Fiscal Year (FY) 2016 through FY2020, with the final passage of the ordinance on June 2, 2015. In October 2019, staff contracted with Bartle Wells Associates (BWA) 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 increase of 3% to the sewer service charges through FY2025, as shown in the table below. A comparison of monthly sewer service charges with regional agencies shows that City rates are on the low end and are projected to remain low over the next five years.
To proceed with the recommended rate adjustments, the City Council must adopt a resolution declaring the City’s intention to revise the sewer service charge and establish Guidelines for the Submission and Tabulation of Protests (Exhibit 2). Subsequently, staff will send property owners a written notice announcing the proposed sewer service charge increase and the date of the scheduled public hearing. In accordance with the Prop 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.
BACKGROUND
The City collects sewage generated by Alameda residents and businesses, and conveys it via a network of sewer pipes, pump stations, and lift stations to East Bay Municipal Utility District (EBMUD) for 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, 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 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 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 with the EPA, Department of Justice, SWRCB and the Regional Water Quality Control Board (RWQCB), ending in 2014 as a Final Consent Decree for Case Nos. C09-00186 and 09-05684, which specifies maintenance and sewer rehabilitation work for each of the agencies for the 23-year term of the decree.
The City is required to rehabilitate 2.6 miles of sewer main per year, including the associated manholes and lower laterals, and renovate its pumping facilities. The City is also required to address areas of the public system designated as high priority for I/I reduction through Regional Technical Support Program. In addition to these capital demands, the Consent Decree includes operation and maintenance (O&M) work consistent with the City’s Sewer System Management Plan, approved by the City Council in October 21, 2014. O&M activities include cleaning, condition assessment, source control, capacity assurance, emergency response, and program evaluation.
Consent Decree compliance is assessed annually for each agency based on the performance of specified work. In addition, to evaluate whether the work being performed is actually reducing wet weather flows such that the WWFs no longer discharge, the Consent Decree also has a check-in for each facility at 2022 and 2030 where flow levels are assessed. If a WWF fails the specified benchmark, a Performance Evaluation Plan and Work Plan Revision Process is required for the contributing tributary agencies to that WWF. The City’s wastewater flow is tied to two of the three WWFs: San Antonio and Oakport facilities, as are the cities of Oakland and Piedmont.
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 associated with two outstanding Clean Water State Revolving Fund (SRF) loans and the 2012 Sewer Revenue Bond
In 2015, the City last conducted a sewer rate review, held a public hearing, and adopted the recommended 3% annual rate increase through FY2020. This past fall, the City entered into a contract with BWA to conduct a comprehensive sewer financial plan and rate study (Exhibit 1). BWA evaluated sewer funding needs and revenue sources, and anticipating reserves equal to 60% of operating costs, one year of pipeline replacement costs and one year of debt service ($12.2 million), recommends an annual 3% increase in the sewer service charges for each of 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 ten-year cash flow projection to determine annual revenue requirements and project sewer rates. The operating and capital improvement costs included in this projection are based upon current work requirements in the Consent Decree. If, at the 2022 WWF check-in for San Antonio Creek and/or Oakport, revised work requirements are incorporated into the Consent Decree, additional expenses will be incorporated into the next rate analysis scheduled for FY2025.
A comparison of monthly sewer service charges with regional agencies shows that City rates are on the low end and are projected to remain low over the next five years. The rates shown in the table below only include sewer collection. EBMUD charges a separate fee for treatment. As of July 1, 2019, the monthly EBMUD charge for a single family home ranges from $14.53 to $25.96 based on water usage.
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 through 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 Prop 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 Prop 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 of the proposed resolution, staff will send property owners a written notice announcing the proposed sewer service charge increase and agendize June 16, 2020, as the scheduled public hearing. Protest procedures and instructions on how to complete a protest will be set out in the “Guidelines for the Submission and Tabulation of Protests”. 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.
ALTERNATIVES
1. Provide direction to amend the Sewer Rate Study.
2. Provide staff with other direction.
FINANCIAL IMPACT
An annual increase of 3% 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.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This complies with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378 (b)(4) of the CEQA Guidelines, because it involves governmental fiscal activities (approving funding mechanisms), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
CLIMATE IMPACTS
The City’s sewer rehabilitation program seeks to limit public health impacts associated with SSOs, improve reliability and safety, and build resiliency. By both rehabilitating sewer pipe to reduce the excessive flows into the sanitary sewer system and updating pump stations for increased reliability, the sewer system is better prepared for the higher rainfall and groundwater associated with climate change.
RECOMMENDATION
Adopt a resolution declaring the City’s intention to revise the sewer service charge, establish procedures for accepting protests pursuant to Article XIID, Section 6(a) of the California Constitution regarding property-related fees and charges, and set a public hearing on June 16, 2020 to consider adoption of new sewer service charges.
CITY MANAGER RECOMMENDATION
The City Manager recommends adoption of the resolution declaring the City’s intention to revise the sewer service charge and to set a public hearing on June 16, 2020.
Respectfully submitted,
Liam Garland, Public Works Director
By,
Erin Smith, Deputy Public Works Director
Financial Impact section reviewed,
Nancy Bronstein, Human Resources Director/Interim Finance Director
Exhibits:
1. Sewer Rate Study
2. Guidelines - Submission and Tabulation of Protests
cc: Eric Levitt, City Manager