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SR-505-001-01-01 # , , . . II-B ~UN 13M 605-a?/-d-tO/ Santa Monica, California GS:SES:BG:ME Council Meeting: June 13, 1989 TO: Mayor and City Council FROM: city Staff SUBJECT: Report on Wastewater Fund Status and Recommendation to Approve a Wastewater Rate Increase INTRODUCTION This report discusses the reasons for rapidly increasing costs of collection, treatment and disposal of Santa Monica wastewater over the next five years and recommends a financing plan to fund these costs. :e~CKGROUND City wastewater user rates were last revised on November 24, 1987. staff advised the City council in 1987 that additional rate increases would be required in the near future due to impending cost increases resulting from the very significant improvements at the Hyperion Sewer Treatment Facility. As projected, costs related to wastewater treatment and disposal have continued to increase dramatically. The Hyperion Treatment Facility is owned by the city of Los Angeles and its subscribing agencies. The city of Santa Monica contracts with the City of Los Angeles for sewer treatment and disposal services, as do several other area cities and agencies. Due to Federal Clean Water Act requirements, the City of Los Angeles (and 1 11-8 JUN 1 3 1989 ,/ . . the subscribing agencies) are in the process of improving the treatment facilities to provide full secondary treatment for all wastewater. Also, a waste-to-energy facility which, when operable, will incinerate sewage sludge is being constructed. As a contract agency with the City of Los Angeles, Santa Monica is required to pay its pro-rata share (2.6%) of all costs associated with the increased operating and maintenance (O&M) costs and capital improvement costs at the Hyperion Treatment Plant. FIVE-YEAR PROJECTION OF FUTURE WASTEWATER FUND EXPENDITURES The most current proj ecti ons for Santa Monica's share of the Hyperion O&M and capital improvement costs as prepared by the city of Los Angeles are presented below: CITY OF LOS ANGELES 5 YEAR ESTIMATED COST PROJECTION FOR SANTA MONICA'S SHARE OF HYPERION COSTS YEAR O&M CAPITAL 1989-90 1990-91 1991-92 1992-93 1993-94 3/346,000 5,015,000 4,350,000 4,360,000 4,616,000 7,656,000 6,471,000 6,001,000 5,158,000 7,444,000 TOTAL $21,687,000 $32,730,000 The average annual O&M expenditures over the five year period from 1982-83 to 1986-87 was $583,000. projected O&M costs for the next five years average 744% more than the past annual average. Similarly, capital improvement costs have increased significantly. In addition to these estimated O&M and capital improvement costs, 2 . . it may be necessary to negotiate with the City of Los Angeles for additional sewage flow capacity rights. Current estimates indicate that the cost for each additional one million gallons per day of capacity may range between $4,000,000 and $6,000,000. The City of Santa Monica may have to purchase additional capacity depending on: 1) the amount of future development in Santa Monica; 2) interpretation of present capacity rights; and 3) adoption and success of the proposed plumbing fixture retrofit program. Presented below is a chart which indicates how the Wastewater Fund balance would be affected by these increased costs, if the rates were not increased. 3 . . 5-YEAR WASTEWATER FUND BALANCE PROJECTION ASSUMING NO RATE INCREASE FY90 FY91 FY92 FY93 FY94 Beg. Fund Bal. $345,399' (8,132,518) (17,567,441) (24,907,186) (31,728,842) Revenues 2 5,752,944 5,752,944 5,752,944 5,752,944 5,752,944 LESS: City's O&M 1,726,761 1,830,367* 1,940,189* 2,056,600* 2,179,996* City's CIP 1,502,100 1,871,500 801,500 1,000,000** 1,000,000** Hyperion O&M 3 5,015,000 4,350,000 4,360,000 4,616,000 3,346,000 Hyperion CIP 7,656,000 6,471,000 6,001,000 5,158,000 7,444,000 End. Fund Bal. (8,132,518) (17,567,441) (24,907,186) (31,728,842) (41,215,894) *Includes a 6% adjustment for general inflation. **City's capital costs for FY93 and FY94 are estimates. ALTERNATIVE FINANCING STRATEGIES There are two feasible means by which wastewater revenues can be raised to pay these increased costs. These alternatives entail: 1) increasing the current wastewater fees, the Ifpay as you go" method: or 2) using bond financing to pay for the Hyperion capital improvement costs in combination with lesser increases in the wastewater fees. staff estimates that financing the obligations lstaff has indicated in the City's proposed budget for FY89- 90 that the Wastewater Fund will have a fund balance of $2,709,984. The balance shown above takes into account additional Hyperion CIP and O&M charges which had not been billed at the time of budget preparation. 2This figure does not match the revenue amount in the Proposed FY89-90 Budget as the Proposed Budget used an estimated rate increase assumption based on information available at that time. 3This figure is $154,000 less than the amount presented in the 1989-90 Proposed Budget due to corrections in the estimate received from the city of Los Angeles. 4 . e of the Wastewater Fund over the next five years solely through wastewater fees would require a rate increase of 180%. since a rate increase of this magnitude could place a financial hardship on many of the system users, staff recommends financing through the combination of rate increases and a bond issuance. INCREASE IN WASTEWATER RATES/SALE OF BONDS This proposed alternative consists of the sale of approximately $41. 3 million4 in revenue bonds to finance capital improvement costs associated with the Hyperion Treatment Plant for the period of FY89 - FY94. Wastewater rates would be increased by 81% on July 1, 1989, and will need to be increased an additional 20% on July 1, 1990. These rate increases are necessary to finance Hyperion O&M costs as well as Santa Monica's own operating and capital improvements costs and the annual debt service payment associated with the bond issuance. Below is a five year fund balance projection based on the sale of $41.3 million in bonds and increases in the current wastewater fees in the amounts described above; i.e. 81%, effective July l, 1989 and 20%, effective July 1, 1990: 4Includes 5-year Hyperion CIP costs ($32,730,000); FY88-89 Hyperion CIP costs ($2,226,000); and additional funds to provide for issuance costs and the required bond fund reserve. 5 e . 5-YEAR WASTEWATER FUND BALANCE PROJECTION WITH RATE INCREASES/SALE OF BONDS FY90 FY91 FY92 FY93 FY94 Beg. Fund Bal. ) 2,638,002 2,369,703 3,726,582 4,758,550 2,571,399 Revenues 9,796,464 11,603,568 11,603,568 11,603,568 11,603,568 LESS: City's O&M 1,726,761 1,830,367* 1,940,189* 2,056,600* 2,179,996* City'S CIP 1,502,100 1,871,500 801,500 1,000,000** 1,000,000** Hyperion O&M 3,346,000 5,015,000 4,350,000 4,360,000 4,616,000 Hyperion CIP N/A6 NjA N/A N/A N/A Debt Service 7 3,155,000 3,155,000 3,155,000 3,155,000 3,155,000 End. Fund Bal. 2,638,002 2,369,703 3,726,582 4,758,550 5,411,114 *Includes a 6% adjustment for general inflation. **City's capital costs for FY93 and FY94 are estimates. By issuing bonds, the City can payoff the Hyperion capital improvement costs over a 20 year period. This allows the city to better control future rate increase needs, thereby lessening the potential financial burden on system users. This alternative results in a fund balance which complies with established bond 5 Beginning fund balance is increased in this alternative as staff proposes to include the 1988-89 Hyperion Capital Improvrnents charge ($2,226,000) in the proposed bond issuance. 6There is no Hyperion capital improvements charge as the costs are paid by the bond revenues. 7This amount represents the annual debt service which would be owed for the next 20 years. 6 . . covenant requirements.8 The fund balance will be available to meet the following future financial demands: 1. To pay for costs associated with capital system replacement needs within the city of Santa Monica; 2. To cover contingencies in the Hyperion proj ect during the five year period; and/or 3. To finance all or part of the Hyperion capital improvement costs which are expected to be levied in the period beyond the 5 year planning period. Presently, staff is investigating various financing options, including joining with other agencies. A financial consultant will be retained to review these options. Staff will evaluate the findings of the consultant and will recommend the best bonding option to the City Council at a later date. However, for purposes of the financial projections in this report, it was assumed the city would sell its own revenue bonds at current market rates. COST IMPACT TO SYSTEM USERS The following table illustrates the projected rate increases to average system users. Type of service Current Avg. Monthly Rate Monthly Rate After Recommended Rate Increase Residential 6-Unit Apt. Commercial (15,000 sq.ft) Restaurant (75 seats) $ 6.14 55.28 52.65 307.13 $ 11.11 100.06 95.30 555.91 8Bond covenants require that enough pledged revenues be generated each year so that after all O&M costs have been paid for that year, there is $1.25 in pledged revenues remaining for every $1 in debt service owed. 7 . . A comparison of wastewater rates in other cities contracting with the City of Los Angeles for sewage disposal is presented below: 6-unit 15,000 Sq.Ft 75 Seat City Home Apt. Commercial Restaurant Santa Monica $11.11 $100.06 $ 95.30 $555.91 Beverly Hills 12.04 67.90 117.00 689.00 Burbank 8.24 51. 00 51. 75 950.00 Los Angeles 10.43 60.76 52.08 303.80 Glendale 5.46 53.10 48.00 398.00 Note: Rates for Beverly Hills and Glendale do not reflect likely rate increases in the near future. BUDGET/FINANCIAL IMPACT At this time, staff is proposing that the Council adopt the 81% rate increase, effective July 1, 1989. Approval of the remaining 20% rate increase will be deferred until spring, 1990 to ensure that the second increase will make the revenue stream consistent wi th bond debt service requirements. Additional wastewater fee revenue to be derived from this rate increase would be approximately $4,043,520 in FY1989-90. RECOMMENDATION It is recommended that the City Council: 1. Direct staff to return to council with bonding option recommendations within 90 days; and 2. Adopt the attached resolution increasing wastewater fees, effective July 1, 1989. Prepared by: stanley E. Scholl, Director of General Services 8 Agenda Item :If BE~~RE DISTRIBUTION ~~K CONTENT f:ISTRIBUTION OF RESOLUTION #: f, Councll !>1eetlng Date ~.5./J 7' #- L5 /YO '7 -- () OF ALL FOR CI LERK'S ACTION ORDINANCE 4 Introduced Was lt amended? Adopted: ALWAYS PUBLISH ADOPTED ORDINANCES Cross out Attorney.s approval vorE: Afflrmatlve: Negatlve: Abstaln: Absent: PROOF VOTES WITH ANOTHER PERSON BEFORE ANYTHING DISTRIBUTION: ORIGINAL to he signed, sealed and flied in Vault, . NEWSPAPER PUBLICATION (Date: ) Department orlglnating staff report( Laurle Lleberman) Ordlnances only for Attorney ( Claudla Thompson) 2 Management Services Lynne Barrette ORDINANCES O~LY 1 Agency mentioned ln document or staff report (certlfled? ) SubJect flle (agenda packet) 1 Counter flle 1 Others: (Revlew Alrport Audltorlum BUl.ldlng Dept. for departments who need to know). Parklng Auth. / Personnel Plann1.ng Poll.ce Purchaslng Recr/Parks Transportatlon C/ED Flnance General Servo Ll.brary Manager Treasurer Flre ~~ L- SEND POUR COPIES OF ALL ORDINANCES TO: CODED SYSTEMS 4 l20 Maln Street Avon, New Jersey 07717 SEND FOUR COPIES OF ALL ORDINANCES TO: 4 Debra Myr1ck Santa Monlca Munlclpal Court 1725 Maln Street, Room 118 Santa Monlca, CA 90401 Total Coples 3' . . RESOLUTION NO* 7B24(CCS) (CITY COUNCIL SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA INCREASING THE SEWER SERVICE CHARGE WHEREAS, section 7143B(C) of the Santa Monica Municipal Code provides that the city Council may establish the sewer service charge by resolution; and WHEREAS, the joint powers agreement between the Clty of Santa Monica and the city of Los Angeles for the transportation, treatment and disposal of sewage requ~res that the City of Santa Monica pay certain capital improvement charges related to improvements at the Hyperion Wastewater Treatment Plant and certain operational and maintenance charges related to operation and maintenance at the Hyperion Wastewater Treatment Plant: and WHEREAS, the proposed capital improvement charges and operation and maintnance charges for the Hyperion Wastewater Treatment Plan result in a projected deficit for the Wastewater Fund in Fiscal Year 1989-90, NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES RESOLVE AS FOLLOWS: SECTION 1. Effective July 1, 1989, the sewer service charge shall be $1*59 per billing unit* SECTION 2. That utility bills which overlap the effective date in section 1 of this Resolution shall have the sewer service charge, where applicable, prorated over the period as though the sewer use were equivalent on each day of the billing 9 ~ period. . . of this resolution, and thenceforth and thereafter the same shall SECTICN 3. The City Clerk shall certify to the adoption be in full force and effect. APPROVED AS TO FORM: ~ )oV\. ..............."'r"- f . y~ ROBERT M. MYERS City Attorney 10 t . e , 1 Adopted and approved this 13th day of June, 1989. Oe-z )~~ u Mayor I hereby certify that the foregoing Resolution No. 7824(CCS) was duly adopted by the City Council of the City of Santa Monica at a meeting thereof held on June 13, 1989 by the following council vote: Ayes: councilmembers: Abdo, Finkel, Genser, Katz, Jennings, Reed, Mayor Zane Noes: Counci1memhers: None Abstain: Councilmemhers: None Absent: councilmembers: None ATTEST: L~ ~ City Cl~k .. . . 5CC;-- oO/-o/~ O( CITY OF SANTA MONICA INTER-DEPARTMENT MEMORANDUM DATE: November 25, 1987 TO: Councilmember Finkel FROM: Donna Betancourt SUBJECT: PARTIAL TRANSCRIPT OF SEWER USE FEE INCREASE Per your request, attached is a transcript of Councilmember Reed's remarks following her motion to approve the staff recommendation increasing sewer use fees (Item 11-A on llJ24/87). Attachment cc: Mayor and Councilmembers . . . Item ll-A: Revision of sewer use fees ll/24/87 Reed: The motion will be to approve the resolution that's attached revising the fees, deleting the capital projects as shown in the staff report, increasing the revenue budget, authorizing staff to go forward to prepare the ordinance for the developments over 80,000 sq. feet, having the sewage reduction plan, and directing the city Manager to initiate the study to evaluate other alternatives to deal with the additional sewage treatment. Reed: I think it's important that we do this, recognizing that our water bill payers, which are mostly our property owners in this community who will see these increases, many of them are not paying any attention to what we are doing and will be upset when they get these increases. I think the staff should give careful consideration to a better explanatory notice than the last two they sent out in the water bills, when they made these increases, even if that means going to a larger envelope for one time only. Because I think it's really important to communicate the kind of baseline situation that we as a region are faced with and what we're trying to address for our own responsibilities and for the ultimate health of the ocean, which is our western shore. So the people who get angry about paying the fee are going to have to understand clearly that we are simply paying our own share of the necessary improvements to the sewage processing systelm of which we are a part. In addition, I think the staff should give - 1 - . . serious consideration to devising a method whereby we could have some sort of a per-dwelling unit assessed on the occupant of the unit cost, which reflects in some way some portion of the cost of dealing with the sewage costs of this community. I personally think it's crazy to continue to pass these costs through on master bills that go to property owners when the occupants of the units are the people generating the sewage; they are the people using the vast volumes of water that go down the drains of this community and they have absolutely no relationship at present with the costs of processing the sewage or, for that matter, with the costs of the fresh water that they're using. I think that, as a city which has a large number of apartment units, we need to think about how we can better communicate with our residents what the societal costs are and what the real dollar costs are in these very practical situations which they never think about--nobody ever thinks about it, they just flush, and shower, and leave their apartments and their houses. They don't think about these things, they don't worry about them, it's there, it works, they don't worry about it. We need to get people to be a little bit more conscious of this, and sometimes getting people to think about these issues means charging them some money for them so that they will in fact value them more and think about them more, and I think the staff needs to give real serious consideration to that, charging the users directly in some way. Maybe not for everything, but some sort of a fee that will get the users to recognize their part in this whole system. - la -