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)
Adoption resolution declaring the city's intention to revise the sewer service charge and establish procedures for accepting protests pursuant to Article x i d of Section six a of the California Constitution regarding property related fees and charges. Good evening, Madam Mayor. Members of the City Council. City Staff. My name is Aaron Smith. I serve as the city's public works coordinator. Before it tonight is adoption of a resolution to set council's intent to raise the city sewer service charge, according to the procedures set forth in California's Proposition 218. Over the last few months, the city has engaged with Bartle and Wells Associates to conduct a comprehensive review of our sewer fund bottles and bottling wells as a local public finance and consulting firm. They have nearly 50 years experience guiding public agencies in California. The results of their findings are included in Exhibit one to the agenda item, the Sewer Rate Study and Alison Lajovic of Bartle and Wells will actually be presenting a summary of those findings this evening. One last note before Allison's presentation for clarity. The resolution tonight is not authorizing the increase of the super serious charge. It's authorizing city staff to move forward in sending written notice to Alameda property owners announcing the proposed rate increase and the public hearing that's scheduled for April 28th. The resolution tonight also establishes the submission and tabulation of protests for that public hearing. The city council does have the authority to approve the increase in rate subsequent to the public hearing, assuming that there's not a majority protest. So I'll be available for any questions. Following Alison's presentation, I hope that she'll be able to provide you with the content you're seeking. I can answer any programmatic questions afterwards. Thank you. Thank you. Erin. Okay. So the bottom line is that the city of Alameda is under an EPA consent decree. So that's the Environmental Protection Agency consent decree to conduct sewer repairs and replacements and to have funding available for that. Sewer rates and charges must increase. And if funding is not available, sewer rates are not adequate to make those replacements of the sewer system. The city will face fines, civil liabilities and the potential for sewer overflows. So that is why we are here today. No. Yeah. Um. Yes, please. Oh, thank you. Okay. So the city owns and operates a sewer collection system, so that includes pipelines and pump stations that collect and convey wastewater flow to the East Bay Municipal Utility District, regional treatment facilities. So today we're just focusing on almeida's sewer pipelines and pump stations and East Bay Mudd's regional treatment facilities are totally separate from this rate study. So the city has already accomplished a lot of work in upgrading the sewer system. Continue. You've replaced a good number of miles of pipeline, reduce your sewer overflows. But there's a lot more work that's mandated, legally mandated by the Environmental Protection Agency. Three miles of sewer pipeline per year. Pump station replacements and condition assessments. And to fund this significant amount of work, the city relies on sewer rates and charges paid by the residents of this community. And what I found was that the city of Alameda, its current rates and charges are actually low to moderate for the East Bay. So this chart shows the average single family residential monthly sewer bill and Almeida's sewer bill is $23.23 per month, which is significantly lower than Oakland, Albany and Piedmont. And so Berkeley and City are actually lower than City of Berkeley or city of Alameda right now. But siege and El Serino has already adopted rate increases. And City of Berkeley is actually considering a 25% increases potentially that high. So Alameda is is well priced in this area for sewer service. Okay. So you the city last increased rates in 2010, there was a 14%, 14%, 14% and then inflationary cost increases thereafter. And the city also issued sewer bonds in 2012. And those sewer bonds are municipal debt that allows you to fund large repair and replacement projects. Those 14.7 million in projects and we conducted a financial plan for the sewer program as part of our analysis. And we are spending down the sewer bond proceeds first. And as a second priority, we're spending down available cash reserves. So those are past sewer rates and charges that have built up in a fund over time. But over the longer term, we propose to increase the sewer rates by 3% annually, and that's roughly equal to the rate of inflation. So I did some historical research. The Consumer Price Index has averaged around 3%. Pipeline replacement costs are increasing because all the other local agencies are redoing their sewers as well. So it's really on pace with inflation. And those cost increases are needed to fund your EPA consent decree mandated items to keep up with inflation and promote long term financial stability for the Superfund. And the good news is 3%. Equals $0.70 per month. It's only $0.70 increase per month for the average single family residential customer. And so this charges illustrates that the majority of the service base in Alameda is single family and multi-family residential customers. And this chart illustrates the proposed rates comparison to the current rates. So 3% annually for five years, that's the proposed rate of increase and $0.70 per month increase for the first year. And then $0.72, $0.74, 76, 78. And U.S. multifamily. Residential customers pay slightly less. They release less sewer flow on average, so they pay proportionately less. And then commercial customers have a minimum charge and then a flow charge if they release more sewer flow. Thank you. And so the bottom line is, even with the proposed increases, Alameda sewer rates and charges will be very comparable to all the other East Bay municipal utility district feeder sanitation agencies. So there's not even a change in ranking there with the proposed increases. Alameda is proposed to stay between berkeley and Oakland. So as Erin described, the next steps will be to authorize the Proposition 218 process. That's the legal statute that governs how sewer rates can be implemented in California. We would develop and mail a notice to all impacted property owners, and they would have the opportunity to protest the proposed rates. They would also have the opportunity to speak at a public hearing regarding the rates. And if there is a majority protest, then the rates could not be implemented. So those are the conclusions of my study and I'm open to questions. Member Ashcraft Oh, I was just, I'm really going to make a comment because Councilmember Desai and I served on the previous council. We lived through the, the lawsuit and the consent decree and all that. So I am fully aware of the need to do this and ready to move forward. But thank you both to Ms.. Smith and to you for a nice presentations. This. We don't have any speaker steps. So at this point, council, you could do both questions and comments. Thank you. Members, I guess. Thank you. I just looked up my property tax bill to find out my sewer city sewer rates. And so my annual city sewer is 200 7876, which is basically 23.23. As you would indicate on the month end. But the important thing, though, for the public, though, it's really while we're we're talking things on a monthly basis, the 23.23, it's really the annual rate because we're multiplying it by 12. So so I'm paying 278 and then I will subsequently pay 280 795. But I think the key thing, though, and I think it's important. Is that, you know, by increasing it by 3%, as you indicate there. I think 3% is normal inflation, even though right now we're in an extremely low inflation period. But I think 3% is a reasonable rate. So technically, really not even ethnically actually increased. We're not increasing it in real inflation adjusted dollars. We're just it's the same money as increasing it. So we're always paying 278, but it's 278 expressed in future dollars. Right. So. I don't tell anyone that. So, yeah. As a council member, as he Ashcraft said, this is an important decision that we have to that we've made. And, you know, when I look at the rate at which we're increasing it, it's quite reasonable. We are right. I think most people right now are paying 278 or $23 a month, however you want to say it. And as we increase it from one year to the next using a 3% factor, I mean, that's a reasonable increase. So I want to thank you for bringing this. And I. I'm sorry. I'm sorry. But I'm really. Sorry. Thank you, Madam Mayor. It's a quick question on the process and then another one on the sewer system overview. So. The number was like 19,500. So a majority of those 19,500 have to protest in order for this not to go into effect. Correct? 50% plus one. Okay. And then on this, this may be getting into the into the plan. And I apologize. I'm doing that. But so we are the hundred 28 miles minus the 13 that we've already replaced. I mean, how many miles are we going to replace with this new. This new plan and over how long of a time period. Was only 13 miles. In the last five years, the city has replaced probably about somewhere between 35 and 38% of its from original installation. The consent decree requires approximately three miles per year for the next 23 years. Okay, so it's a 23 year project. And this is this is on the property tax bill. It's not like what they do in Oakland where they slap it on the East Bay mud bill. It's stuff. It's dedicated sewer fund. We collect it through the county tax roll, but it's not a tax, but we collect it through county tax rules. So it's two and two payments, two installments per year. And then on the on the plan for the the 23 years, are we going to see that at a future meeting or. Yeah. So the city's near completion of what we're calling a sewer master plan. So we've conditioned assessed our entire system and we've ranked each pipes, essentially assigned a risk score that's based on the consequence and likelihood of failure. We'll be able to lay out which pipes are going to be replaced when during those next 23 years and then be able to coordinate other utility construction projects. Okay. I'll save my questions on that till I. Can elaborate on that. Bob on Public Works Director, essentially, we have to take. It and I'm sorry to interrupt. We have to do 2.6 miles per the consent decree. So the program is really three miles of sewer every single year for the next 23 years that we once we get the condition assessment, the finish up our CCTV, then we're going to rank the pipes well square the pipes. Leaving aside the progress and where we're going to hit first in the primary areas, that's the meat of the consent decree. There's some other ancillary things, but that's really the meat of the thing as far as the work that we have to do, because we transferred the private sewer or lateral ordinance over to the state. So the key is the three miles here. I just want to remind council I take every opportunity to remind everybody about this. The sewers in the city of Alameda are the city's largest asset at $202 million. So it's really an investment in our largest asset. Okay. This is biggest thing we own. The most expensive thing we own are the sewers. And one of my consideration in replacing pipe is we're replacing it. So there's going to be very likely a longer seismic lifetime. Okay. If we have an earthquake, clay tile pipe will not make it. But the type of pipe we're using that welded together as opposed to joints or things like that, that's going to have a much higher probability of survival. Oh, yeah. Well, just briefly, statewide, I was asking that question. I was at a East Bay broadband summit a couple of weeks ago, and one of the things they talked about was Digg once and also about building a broadband infrastructure. So, I mean, I don't know if three, three miles a year, over 23 years, I mean, who knows what technology will be in 23 years? But I was just wondering if that was something, you know, we would be interested in, in pursuing. But it doesn't seem like it's going to be feasible. It's kind of incremental and it's going to be again, it's going to be based upon the condition assessment of the pipe. So we might be jumping, we might be doing a block here and then moving over to the West End and doing another block over there. It's going to be really based upon. So we're going to be kind of moving around the island. Okay. Well, thank you. Yeah. And I think we need a motion to continue the meeting past 11 p.m.. But second. All those in favor. My motion passes unanimously. Thank you. Any other council member questions? Comments. Got to do this. All right. I did have some questions and I wanted to and also share on page. I believe it's on page eight of the report. It speaks to the history of the rate increases. And according to this report. It said that since 2010, sewer rates had increased by approximately 56% for the city. With the city completing its last rate study in 2010, which included annual rate increases of 14% per year for fiscal years 2011 to fiscal year 2013. So so that's a significantly higher increase that we're speaking to. Yes. In 2010, Red Oak was actually the consulting firm who did that. And at the time, the city was under an administrative order. But the amount of work that was going to be defined under our regulatory orders was not it wasn't defined at that point. So if you you go back to that 2010 rate study, it's actually based on a number of different scenarios, of projected scenarios of what they thought was going to be the workload under our regulatory requirements. The highest scenario that they did was two miles per year of pipeline replacement. Well, here we are now under consent decree and it actually ended up being three years. So hence there's that additional increase needed in this this go round. In addition to the fact that the 2012 sewer bond provided a lump sum of money, the majority of that's going to pump station renovation. And then obviously, we'll kind of soften the impact of this this 3% rate increase as we spend that down in the next couple of years. So what were the rate increases for fiscal year 2011 through 13? They were 14% per year for three years and then it was CPI for the last two OC. And then the CPI you shared earlier was approximately the same 3%. The CPI for those specific years. Do we have that? 2.4% in 2014 and 2.7% in 2015. Okay. So I'd like to share as much as we can with the community. So they're aware that back in 2011, 313 for those 11, 12, 13, those three years, it was a 14% increase per year. And then it was anywhere it was 2.4 and then 2.7% in years 14, 12, 14 and 15. So this is just a little bit higher than the last two years, but significantly less than the the prior three years. On page nine of the study shares that there's going to be a debt service reduction with the sentences that two of the SRF. But this is clean water. Revolving fund loans will be paid off in fiscal year 2018, which will reduce the annual debt service to payments of approximately 900,000 beginning in fiscal year 2019. So there so there will be less expenditures when we get to paying that off. And yet you're still thinking that we'll need the 3% at that point per annum increase. Well, so remember we have will have exhausted the 2012 sewer bond, which right now, you know, we have from when it was issued a three year period to exhaust those funds. So we're making use of those now. Okay. And then and I'm sorry, I don't seem to have the page number, but it says that there's a reduction, a drawdown on the reserves, too. Apparently, the study thinks that there should be a target number for the reserves and that the amount in the reserves has been above that, so that there would be what is best described as a moderate decrease in the amount of reserves. However, it's approximately 50% from 27.4 million to 15 million. And do we expect it then to stay at 15 million for future years once we get there? Are we continuing to draw down? Yeah the target is and it's specified it's a believe a year of capital, 60% of operating and a year of debt service. And that is the best management practices for maintaining a baseline operating fund. And the the 3% would be sufficient to maintain that 15 million. Correct. And again, we're only approving tonight of five years. So borrowing whilst projection is for 20 years. So there's financial stability for those 20 years. But tonight's resolution and the proposition to 18 only dictates that we can increase rates up for a five year period. And how many years before we reach the 15 million draw down? Where is that in this? That's the end of five year period. Okay. So at that point, we've drawn down to half of our reserves. But you're not continuing. Do you have your projection beyond that? We would have to come back in 2019 for this very same process. Okay. So my concern would be. So I'd like to see the numbers that say that in fact. After Year five, do we have to increase the rate significantly above the 3% to not continue drawing down because that just shows a great reduction. To me, a signal even was described as a moderate reduction and I would actually suggest that that's an inappropriate definition or choice because it goes from 27.4 million to 15 million, which is half, almost half of the reserves. So that's a significant drawdown. I don't interpret that as a moderate, and then that's within that five year period. So in the appendix of. Our report, we show all for the full 20 year period. And we show. Basically inflationary increases each year of the 20 years. And at that level of rate, the fund balance would continue to be at the minimum operating recommended target that we developed, which was the 60% of annual operating cost plus one year pipeline replacement expenditure, plus the annual debt service payments. So we have forecast over the 20 years and maintain that level of reserve. Fiscal year 2015 is a higher than normal reserve year because you do have all that bond funding still sitting in an account and you're legally required to spend that on projects. So that's a normal flow of funds to reduce that bond funding. The first two years, fiscal year 15 and 16 also have very high costs for the pump station replacements. So it's about 5.2, 5.3 million, and the remaining years don't have that. So it's a high capital expenditure in the first few years which will draw down funds and then will maintain a healthy level of funds. For the next 17 years. So is there somewhere within this document or that we're approving that provides that because this is my concern really is come five years, someone else will be standing in front of us with some new numbers. So where is the protection to the consumer here? Yeah, I don't think we'll legally per proposition to 18. We're not authorized to. Council's not authorized to commit the rate to anything beyond five years. So as much as I think this can lay out for in five years, when we do another rate study that will relook at this that can say, well, this was the plan at the time was to continue this 3%. But beyond that, I don't think there's anything legally we can do to bind the council in five years to a subsequent rate increase. So I wasn't speaking to that. I was speaking to the target of maintaining the reserves at the 15 million for that that that's clearly set but spoken to somewhere in the document because that's that's what you're saying. Correct. And we can can we can put that as like a financial policy related to the sewer fund. We could codify that as some administrative policy for our sewer fund. That that's how it operates. I should ask the attorney that. So that's but it would seem like that could be a policy. So I would appreciate that because that was a huge reduction in the reserves, however, that could come back. I want to be able to continue my discussion at this point. Please. Thank you. And finally, finally, when you did your comparative rates, the example for Piedmont was on a property that was 5000 to 10000 square footage, which is , I think, above our average. And did Piedmont have a rate for of residences that are below 5000. Because I think that is more apples to apples in Alameda. Most of our lots I don't think are 5000 to 10000. Yeah, there's a lower rate for Piedmont residents who are lower than that square footage that we could. So I think that should actually be substituted here so that we see what that rate is and that should what would be what we should be comparing. There are not very many lots in I think the average and maybe staff knows, but I would think the average lot is less than 5000. And so since Piedmont has that lower rate, I'd like to substitute that for the rate that's here. And then I notice also the rate for Oakland includes a wasteful of 4055 gallons per month. And did you know is that what the average is for Alameda? Waste the flow because that's. So that's. Yes. Because that's when you look at how you chose which numbers to use for our for comparison we had footnotes that spoke to Oakland's rate was based on this rate weighs for 4055 gallons and I don't know if that is the average. And again, I think it's important that we're comparing apples to apples on our comparative on the comparison. So each agency sets its typical residential rate based on the average flow or that service area. So each agency is a little bit different on how they define what a single family home is. So that's the most common rate charged for. Okay. Yeah. Okay. I don't know if that translates to Alameda, though. So each single family home, regardless, we don't actually if you're a single family home to be, we don't actually look at your water usage. It's assumed that you're going to use a certain amount and you charge the $23.23. I believe that the city of Oakland does it the same. It's an assumption of what's called an equivalent dwelling unit. So we assume that each equivalent dwelling unit is going to use a certain amount of water and that 23, 23 is a sign it's for commercial where we actually start getting into flow based rates, where we will get East Bay MUDs, water data and it is calculated based on that. So I think comparing a single family unit in Oakland to a single family unit in Alameda to a single family unit in Albany is apples to apples. However, in regards to Piedmont, it sounds like there is a lower rate that could be used, so I'd appreciate substituting that. Yeah, Piedmont whole structure is a little bit more unique than the rest. It's actually part of a tax over there, and I can't speak to the specifics of it, but certainly we can update the statistics. So it's more comparable to what we're presenting here for Alameda tonight. I appreciate that. Thank you. Member Ashcraft. Thank you. Um, I, I think the the salient point about what we're being asked to vote on tonight is really contained in the first sentence of the staff report. The city is required by state law and city policy to collect revenues sufficient to cover the costs of operating the sewer facilities. And because of this lawsuit that we've just come out of and the consent decree under which we're operating, we must fund these certain minimum improvements to the sewer facilities over the next 20 years. But we can only go out in five year increments legally under Prop 218 to do it. While I appreciate all the work that's gone into this, and I think you both did a very nice job. I'm satisfied with the information that's laid out in your tables and your charts. I'm less concerned about how Oakland or Piedmont does their billing, because I know that in Alameda, our pipes are of a certain vintage. They're old, and we've been doing a great job going around. You've probably seen the crews out in the street and we're, you know, using cameras and all this to see the condition. But we need to make sure that we're doing these repairs in a timely manner or we're going to end up in another lawsuit again and we're going to end up spending even more money on litigation costs and fines. So I think this is fairly straightforward, and I don't know that that any council decisions are really needed to say, you know, offer a different way of looking at the different rates in Piedmont. I'm not sure that the council as a whole is really suggesting that. So anyway. Oh, and did we do that? We did do the vote to go past 11. Okay. All right. Member Ashcraft, I appreciate the comment. One other unique factor for Alameda is how flat we are. We have 34 pump stations that are a significant capital investment that those that live in Oakland and others that have are blessed with gravity don't have to incur those costs. So I'd like to I'm sorry, I'd like to speak to member Ashcroft's comments. I raised the issue because there is a chart on page 17 in this presentation that does refer to Piedmont and with a footnote that the service charges for flat lots, size 5000 to 10000. If there is a dollar amount that is more accurate, that is more similar to Alameda, I think it is appropriate to substitute that so that we are being clear with our residents. And so so this point, Vice Mayor. I think people need to understand that the lawsuit and the consent decree were because our pipes were spilling sewage instead of sending it to the the treatment center. And we do have to do this. I think it's been pointed out that we have pump stations that are big ticket items that we've bonded for and we paying for in this early end, which accounts for the drop down of the fund balance is really not a reserve. It's the fund balance, correct? So with that being said, we have no choice regardless of what our comparables do. But to fund this project. So I move that we adopt the resolution as presented and get the process going so that we can have the hearings, so we can get public input, so that we can meet our requirements to provide sewer service and to meet the mandate of the consent decree. I second this in regards to discussion. So will this be this presentation will be shared with the public? Correct. So I would request that that charter in regards to Piedmont be modified. Where does the council where is the council on that? Are you making a motion? No. Well, I'd like to know you apparently have concerns about modifying the chart to be accurate. So I'm hoping that other council members are agreeable to making that modification. I can speak for myself. I know, I said. I think we have all the information we need before us in the charts, in the tables, in the footnotes. And I think we need to move forward. So I appreciate that. That's why I was asking if the other council members have a problem with that presentation being modified before it goes. So it's accurate for the residents. My come on that topic, my comment would be, you know, any additional information is not going to hurt. I think what Mayor Spencer is getting at is just make sure that we're characterizing this as accurately as possible. Okay. You know, get the additional information on Piedmont, from my perspective. But in terms of the larger picture, my perspective is also that. As you know, the 3% that you're programing coming for the next five years, that's a reasonable increase. The reality is that council and the public really bit the bullet in 2011, 2012 and 2013 by doing the 14% increase just between those 14, 14, 14, accumulative, 42% increase. But now we're doing over a five year period, cumulative 15%. My caution would only be that sometimes it sounds too good to be true. I mean, if someone had to bite the bullet at 14% before, you know. You don't have to. Don't feel like you have to soft pedal the information. And I know you don't. You're not. But no. Because if the if the increase has to be higher than 3% and let us know. But but if that's your level best that that you think that that's what it is then then okay then I could live with that. And I realized that, you know, part of what? What? Feeds into the 3% increase is the fact that we're drawing down on the reserve. Had we not had a reserve and the amount that we've have it would have had it would have increased annual increases would have been would have had to be more than 3%. So. But by the same token, I realize that that reserve, though, exists because. We've accumulated dollars for this purpose in which we have not expended well. So it's not a real reserve in the sense that, for example, when we talk about our general fund balance. So. But but I think, you know, the additional information that Mayor Spencer is is asking for, I think it's. Sure, you know, let's let's gather it. But by the same token, I do think, though, that what's been presented here is reasonable. Well, then, Brody. I guess I'm not convinced that there's something inaccurate in the original report, so. That's kind of where I am. And I think, you know, get back to the vice mayor's point again. You know, it's about the big picture. It's about something we're obligated to do. Let's not lose sight of that. And in and spend a lot of time arguing about whether, you know, one person's interpretation of what a certain rate is versus another person's interpretation. Well, I don't do sewer rate studies as a living, so I guess I have to put a lot of trust in. And the folks like you that do it. Vice Mayor. I just called for the question. All those in favor. I. Passes unanimously. Thank you. Thank you. Six F recommendations approved joining in participating in the United States Department of Transportation's Mayor's Challenge for Safer People. Safer City.