Agenda Item No. 9A November 10, Honorable Mayor and City Council Attention: Laura C. Kuhn, City Manager

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1 Agenda Item No. 9A November 10, 2015 TO: FROM: SUBJECT: Honorable Mayor and City Council Attention: Laura C. Kuhn, City Manager Royce W. Cunningham, Director of Utilities RESOLUTION DIRECTING STAFF TO INCLUDE A LOW-INCOME DISCOUNT PROGRAM WITH THE WATER CONSERVATION SURCHARGE AND WATER RATE ADJUSTMENTS IDENTIFIED IN RESOLUTION NO AND PROVIDE PROPERTY OWNERS AND TENANTS RECEIVING WATER SERVICES THROUGH THE CITY OF VACAVILLE PROPER NOTICE AND INSTRUCTION FOR WRITTEN PROTEST TO THE RATE ADJUSTMENTS IN ACCORDANCE WITH STATE PROPOSITION 218 REQUIREMENTS DISCUSSION: Background. On October 13, 2015, the City Council received a presentation from City staff of Water Rate Study 2015, prepared by the utility rate consulting firm Bartle Wells Associates (Bartle Wells). Attachment 1 is the Staff Report from the October 13th City Council meeting. Water Rate Study 2015 was prepared to address several structural, legal and financial issues in the City s Water Operations and Maintenance Fund (Water Fund). The City Council adopted Resolution accepting Water Rate Study 2015, and directed staff to implement the following: Transition the fixed versus variable revenue ratio of the City s water rate structure from a 38% fixed/62% variable ratio to a 50% fixed/50% variable ratio over the 5 year rate study period. Revise Vacaville s current tiered water consumption rate structure to a single water consumption rate to reflect that the volumetric cost to deliver water is the same for all customer classes per the requirements of Proposition 218. Implement a 1-year Water Conservation Surcharge to recover an approximate $2.5 million revenue shortfall due to reduced water sales as a result of State-mandated water conservation measures. Utilize $2 million in Well Rehabilitation Account funds and $3.5 million from revenues generated by rate increases to implement approximately $5.5 million in water supply well improvements to address new Hexavalent Chromium regulations. Implement a 5-year water rate increase of 5.5% per year as recommended by Water Rate Study Council also directed staff to develop a water rate discount program that considers low-income customers, and bring it back to Council for consideration prior to proceeding with the Proposition 218 notice and written protest process. Low-Income Discount. The City currently offers a 15% discount on the water bill for seniors 65 years and older. The 15% senior discount has been in place for a number of years, and there are approximately 1,600 seniors taking advantage of the program, at an annual cost of approximately $150,000. The intent of the senior discount program is to provide utility rate relief for seniors, who are often on a low, fixed income. Public testimony at the October 13, 2015 City Council meeting requested the Council to consider expanding the discount program to include low-income residents who may not be seniors. Other cities in the region offer various types of discounted utility rate programs. Attachment 2 is a table of a survey of discounted rate programs in the region.

2 Currently, the only requirements to qualify for the current senior discount is age, that the residence being billed is the customer s primary residence, and the customer be the party named on the utility bill. While providing relief for seniors, the current discount does not provide relief for any other lowincome customers that are not seniors. Legal opinions subsequent to the court case invalidating tiered rate structures (San Juan Capistrano Taxpayers vs. City of San Juan Capistrano) have determined that discounts for certain customer classes, such as seniors or low-income customers, are allowable as long as the revenue to pay for the discounts does not come from rate revenue. The Water Fund currently receives approximately $280,000 per year in non-rate revenue. The City also receives approximately $120,000 in revenues annually from communication companies for cellular network towers located at several of the City s elevated water storage reservoirs in the hills around Vacaville. The total available revenue for a lowincome discount program is therefore approximately $400,000. One form of low-income rate discount program popular in the region is linked to the California Alternate Rates for Energy Program, or CARE, that PG&E currently offers to low-income natural gas and electricity customers. Several of the utility agencies listed in Attachment 2 use enrollment in the CARE Program as the only qualification for a utility rate discount. Attachment 3 shows the qualifying income requirements for the CARE Program. For a family of four, a total gross annual household income of less than $48,500 would qualify for the CARE Program. Using enrollment in the CARE Program as the only qualifier for receiving a water discount makes administration of a low-income discount program very easy for both the customer and the utility. Enrollment in the CARE Program can be done on-line. If the City of Vacaville is interested in offering a similar program to low income residents, assistance could be provided at one or more of the City s community centers to help interested parties enroll in the CARE Program, thus making them eligible for a discount on their water bill. Staff has received preliminary information from PG&E that there are approximately 8,000 Vacaville residences currently enrolled in the CARE Program, with a 95% penetration rate of eligible customers. Attachment 4 shows the distribution of household income for Vacaville. Approximately 28% of Vacaville households (or about 7,800 residences) make a household income of less than the $48,500 to qualify for the PG&E CARE Program. Although not all of the households meeting these income levels also meet the 4-person household requirement, it is believed the estimate of 7,800 to 8,000 Vacaville residences meeting the income qualifications for the PG&E CARE Program is realistic. Based upon the above assumption, if approximately 8,000 customers meet the CARE Program income requirement, and the average Vacaville water customer has a monthly water bill of $40, a 15% discount would equal $576,000 per year. This would exceed the available funding by a significant amount. Therefore, staff is recommending a low-income water rate discount program requiring enrollment in the PG&E CARE Program, with a fixed monthly low-income discount of $4 per residence (8$ per two-month billing cycle). The $400,000 in available funding could accommodate 8,333 low-income participants. It is imperative that the amount of available funding for the low-income discount program not be exceeded. Therefore, staff proposes if actual costs of the discount program approach the annual funding ceiling, the program should be temporarily suspended for the remainder of the fiscal year, when the program can then be reinstated, possibly by lowering the discount amount. Proposition 218. Proposition 218, otherwise known as the Right to Vote on Taxes Act, was approved by voters in 1996 and requires agencies to submit proposed assessments, charges and user fees to voters or property owners for approval or rejection, prior to creation or later adjustment. In 2006, the California Supreme Court ruled that the provisions of Proposition 218 apply to local water, sewer, or refuse charges (rates). The California Government Code further provides that increases are limited to a maximum 5 years without having to be resubmitted for approval or rejection. Proposition

3 218 requires that an agency must take the following actions before implementing or increasing a utility rate: Send out notices of proposed increases to every affected property owner or tenant responsible for payment of the utility charge. Hold a public hearing on the proposed increases no less than 45 days after notices have been mailed. Allow public testimony at the public hearing regarding the proposed rate increases. Provide opportunity for affected property owners or tenants to vote against the proposed increases by submitting a written protest to the agency on or before the day of the public hearing. Only one written protest is counted per identified parcel, i.e. if the property owner and tenant both submit a written protest, only one protest is counted. All written protests must be submitted to the City prior to the conclusion of the public comment portion of the public hearing, which is scheduled to take place at the City Council meeting of January 12, Written protests must be received from a majority of the properties of record prior to the close of the public hearing. If a majority of written protests are not received, the agency may approve the proposed increases. Staff has prepared a Proposition 218 notice, which will be finalized and mailed out, if the City Council approves moving forward with the public notification and written protest process. Notices will include information about the proposed rate increases and the process for submitting a written protest, as well as contact information for questions and the scheduled dates of a series of community meetings on the proposed rate increases. FISCAL IMPACT: There would be no impact to the General Fund to establish the proposed low-income water rate discount program, other than some City staff time to establish and administer the program. Program funding would come from the sources listed below in the following approximate amounts: Funding Source Amount Property Taxes $ 75,000 Late Fees $ 180,000 Hydro-Power Revenues $ 25,000 Communication Contracts Revenues $ 120,000 Total Approximate Funding $ 400,000 RECOMMENDATION: By simple motion, adopt the subject resolution. ATTACHMENTS: Resolution Action Item Attachment 1: Staff Report from October 13, 2015 Council Meeting (without attachments) Attachment 2: Survey of Regional Discounted Rate Programs Attachment 3: PG&E CARE Program Qualifying Income Requirements Attachment 4: Household Income Distribution for Vacaville

4 RESOLUTION NO RESOLUTION DIRECTING STAFF TO INCLUDE A LOW-INCOME DISCOUNT PROGRAM WITH THE WATER CONSERVATION SURCHARGE AND WATER RATE ADJUSTMENTS IDENTIFIED IN RESOLUTION AND PROVIDE PROPERTY OWNERS AND TENANTS RECEIVING WATER SERVICES THROUGH THE CITY OF VACAVILLE PROPER NOTICE AND INSTRUCTION FOR WRITTEN PROTEST TO THE RATE ADJUSTMENTS IN ACCORDANCE WITH STATE PROPOSITION 218 REQUIREMENTS WHEREAS, the City of Vacaville provides water services in conformance with the provisions of the California Government Code and the California Health and Safety Code; and WHEREAS, Ordinance 1431 of the City of Vacaville permits the City Council to modify and adjust water pricing through the adoption of a resolution; and WHEREAS, the cost to operate and maintain the City s water facilities has steadily increased since the City s last adopted water rate increase in 2007, and rehabilitation and improvement projects are needed to address new Chromium 6 water quality regulations and aging water facilities; and WHEREAS, legal and structural imperfections in the City s water rate structure necessitate revisions to meet Proposition 218 requirements and correct imbalances in revenue and expense ratios; and WHEREAS, on October 13, 2015 the City Council adopted Resolution No accepting Water Rate Study 2015 prepared by Bartle Wells Associates; and authorized and directed staff to implement a 5-year rate increase program utilizing the following options and recommendations from Water Rate Study 2015: 1. Transition from a 38% fixed/62% variable apportionment in the water rate structure to a 50% fixed/50% variable apportionment over the 5-year period of the Water Rate Study. 2. Implement a rate structure with a single rate to meet Proposition 218 requirements. 3. Implement a one-year water conservation surcharge to recover a $2.5 million revenue shortfall in FY 2015/16 due to State-mandated water conservation measures. 4. Implement a 5-year rate increase program to generate a 5.5% increase in fixed plus variable revenue in each successive year. 5. Evaluate alternatives for a low-income and/or senior water rate discount program to replace the City s existing 15% senior discount program, and return to the City Council with options for consideration NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Vacaville that staff is authorized and directed to implement a low-income water utility discount program with the 5-year rate increase, replacing the previous senior discount program, utilizing the following: 1. Participants must be enrolled in the PG&E CARE Program to qualify. 2. Qualifying participants will receive a fixed water bill discount of eight dollars ($8) per twomonth billing cycle. 3. Funding from non-water rate revenues in the amount of $400,000 per fiscal year will be reserved for the low-income water rate discount program.

5 4. Once actual program expenditures exceed 90% of the reserved funding, the low-income discount program will be suspended for the remainder of the fiscal year, to be reinstated at the start of the following fiscal year. NOW, THEREFORE, BE IT FURTHER RESOLVED by the City Council of the City of Vacaville that staff is authorized and directed to introduce the proposed water rate adjustments and provide property owners and tenants receiving water services through the City of Vacaville proper notice and instruction for written protest in accordance with Proposition 218. I HEREBY CERTIFY that the forgoing resolution was introduced and passed at a regular meeting of the City Council of the City of Vacaville, held on the 10th day of November, 2015 by the following vote: AYES: NOES: ABSENT: ATTEST: Michelle A. Thornbrugh, City Clerk

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14 Attachment 3 PG&E CARE Program Qualifying Income Requirements

15 Attachment 3 PG&E CARE Program Qualifying Income Requirements

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