Note: Letter has been updated to reflect changes to proposed rates as ordered by the Board of Directors.

Transcription

1 February 21, 2019 Board of Directors County Sanitation District No. 20 of Los Angeles County Note: Letter has been updated to reflect changes to proposed rates as ordered by the Board of Directors. Dear Directors: Wastewater Revenue Program For Fiscal Years Through The agenda for the February 28, 2019 meeting of the Board of Directors contains an item regarding District s wastewater revenue program. This program requires residential, commercial, and industrial dischargers to pay an annual user charge based upon their use of the Districts sewerage facilities. Residential, commercial, and small industrial dischargers are covered by the service charge program, which collects user charges on the property tax roll. Large industrial dischargers are required to file surcharge statements and to pay their user charge under the industrial wastewater surcharge program. In May 2017, the Board adopted ordinances setting the service charge and industrial wastewater surcharge rates for fiscal years and Because those ordinances are in their final year, the Board must now consider adopting new rates beginning with the fiscal year. In order to implement new rates and continue to collect the service charge on the property tax roll, the Board must take certain actions. Specifically, pursuant to state law, the Board must: (1) order a Service Charge Report be filed with the District Clerk, (2) establish the date, time, and place for a public hearing on the report, and (3) direct the publication of the required notices. The Board should also consider introducing the following ordinances at the same time: an ordinance prescribing the service charge rates and mean loadings and providing for the collection of the service charge on the tax roll, and an ordinance prescribing the industrial wastewater surcharge rates. PROPOSED RATE INCREASES The current service charge rate is $47.92 per month per single-family home ($575 per year). The proposed service charge rates for fiscal years , , , and are $ per month ($ per year), $ per month ($ per year), $ per month ($ per year), and $ per month ($ per year), respectively, an increase of $ per month each year. Multi-family residential units will pay 60% of the singlefamily home rate and condominiums will pay 75% of the single-family home rate. Likewise, commercial and small industrial dischargers will pay in proportion to their use compared to a single-family home. Dischargers with verified low water usage (particularly seniors and retirees) can also qualify for a reduced charge. With an average annual increase of approximately 2.52%, it is recommended that the industrial wastewater surcharge rates be increased by this same percentage over the next four fiscal years.

2 Board of Directors 2 February 21, 2019 BUDGETARY OBJECTIVES AND FINANCIAL PLANNING As an agency, our primary objective is to properly treat all of the wastewater generated in the community and comply with all of the associated regulatory requirements. At the same time, it is vital to recognize that the home and business owners within the community are the ones paying the charges for this service and that all reasonable steps must be taken to keep rates as low as possible. Recently the Board adopted a Financial Reserve Policy setting guidelines for establishing prudent reserves. These reserves mitigate fluctuations in rates; help ensure resources will be available for funding necessary capital projects; and allow us to cope with emergencies without having to implement supplemental rate increases. The financial planning process involves the development of a long-term plan that allows staff to evaluate future monetary needs. In addition to forecasting operating expenses, it includes a 20-year capital improvement plan that identifies capital projects that may be needed to accommodate additional users, to construct upgraded facilities to meet new regulatory standards, and to replace aging infrastructure. The forecast is then used to analyze the long-range impacts and assess the resulting service charge rates. Although forecasts extend out 20 years, it is not recommended that rates be adopted for that entire period. Many things can change in the future and the Board should retain flexibility to adjust the rates as those changes occur. At the same time, it would not make financial sense to only adopt rates in one-year increments as the Districts would have to incur the cost of the Proposition 218 compliance each and every year. Accordingly, a four-year rate package is being recommended. PRELIMINARY BUDGET Shown in the table below is a summary of the projected expenses for each of the next four fiscal years, after taking all of the factors discussed above into consideration. Expenses have been combined into three broad categories: operation and maintenance (O&M), capital, and debt service. Preliminary Budget Expenses ($ millions) O&M $ 12.6 $ 13.2 $ 13.7 $ 14.3 Capital Debt Service Total Expenses $ 24.9 $ 32.3 $ 31.3 $ 25.9 The proposed capital budget shows significant expenditures projected for fiscal years and These expenditures are related to effluent management from the Palmdale Water Reclamation Plant. Because the Antelope Valley is an enclosed basin with no natural outlet to a river or the ocean, all of the effluent must be reused in some manner. Although District No. 20 has been actively working with the City of Palmdale and local water purveyors to expand municipal reuse, the effluent has primarily been used as irrigation water for agricultural crops and city park landscaping. During winter months when water demands are at their lowest, the recycled water is sent to storage reservoirs for use in summer months when irrigation demands are higher.

3 Board of Directors 3 February 21, 2019 Due to extreme temperatures during the summer months, problems with the reservoirs liner system have arisen when the reservoir is completely dry. As a result, some water must remain in the reservoirs at all times, limiting their available storage capacity. Additionally, during years with above average amounts of rainfall, agricultural demands are further reduced, placing an added demand on storage capacity. While staff is continuing to investigate other options, the construction of an additional storage reservoir (estimated cost of $10 million) has been included in the projections. If a lower cost alternative does materialize, future budgets will be adjusted accordingly. REVENUES Anticipated revenues for the District include property taxes, contracts, interest, connection fees, and user fees (service charge and industrial wastewater surcharge combined). In setting the user fee rates, two factors must be evaluated: (1) do the total revenues approximate expenses, and (2) do the resulting revenues cause an excessive drawdown on or an accumulation of reserves. Preliminary Budget Revenues ($ millions) Expenses $ 24.9 $ 32.3 $ 31.3 $ 25.9 Property Taxes $ 1.4 $ 1.4 $ 1.4 $ 1.5 Contract/Interest Connection Fees User Fees* Total Revenue $ $ $ $ * Assuming a $ per year increase in user fee rates As seen in the table above, the revenues are projected to slightly exceed the cumulative expenses over the next four years. As seen in the chart below, reserves remain below the targeted levels during the four-year period but rise relatively quickly thereafter back to acceptable levels and then hover around the targeted level in the future. 140% Reserves as a Percentage of Target 120% 100% Target 80% 60% 40% 20% 0% Fiscal Year

4 Board of Directors 4 February 21, 2019 RECOMMENDED RATES Based on the above analysis, it is recommended that the service charge rate be increased by $ per month ($ per year) per single-family home for each of the next four years, resulting in the rates in the following table. For comparison purposes, the statewide average for rate for tertiarylevel treatment facilities in fiscal year (the last year for which data is available) was $49.78 per month ($597 per year). Fiscal Year Service Charge Rate $/Month $/Year $47.92 $ LOW WATER REBATE PROGRAM Because the cost of metering wastewater discharges from individual parcels is impractical and cost prohibitive, discharges are estimated using standard loading factors based on the size and types of facilities located on the parcel. With the on-going efforts by the local community to conserve water and install low-flow plumbing fixtures, many parcels may be discharging at lower rates than is currently estimated. This program allows parcel owners to apply for a reduction in their service charge rate based on their actual water usage. Staff has conducted a concerted public outreach program, including information on the program in our Proposition 218 notices, newspaper advertisements and the Districts website, to ensure that parcel owners are aware of the program. SUMMARY OF REQUIRED ACTIONS In order to implement new rates, the District must comply with the requirements of Proposition 218 and the California Health & Safety Code. The first step is to order a Service Charge Report (copy attached) to be filed with the District Clerk. This report contains a description and the amount of the proposed service charge for each parcel, serving as the initial notification to rate payers that new rates are being considered. It also acts as the starting point for the Proposition 218 process in which individual notices are mailed to every property owner in the District. By law, the notice (sample copy attached) must provide information about the proposed rates and the date, time, and place for a public hearing on those rates. In addition to these minimum requirements, the notice also gives background information about the services being provided, details about a program through which dischargers can save money (the lowwater rebate program), the process for protesting the rates, and a variety of methods by which they can contact District s staff for more information. At the same time the Service Charge Report is filed, the

5 Board of Directors 5 February 21, 2019 Board will be asked to introduce new service charge and industrial wastewater surcharge rate ordinances for the public s review. At least 45 days after the Prop. 218 notices are mailed, the Board must hold a public hearing on the proposed rates. It is recommended that the public hearing be set for May 9, 2019 at 11:30 a.m. at Palmdale City Hall. After the public hearing is closed, the Board will consider adoption of the Service Charge Report in order to ensure collection of the service charge through property tax billing, and adoption of the service charge and industrial wastewater surcharge rate ordinances to ensure the new rates become effective on July 1, During the 45-day noticing period staff will undertake an extensive public outreach program. Staff will hold a number of evening information meetings throughout the region. For members of the public that cannot attend one of these meetings, a video of the same presentation made at the information meetings will be made available on the District s website. In addition, tours of the District s treatment facilities will be conducted for members of the community who have a greater desire to see exactly how their money is being spent. The District s website, in addition to the video presentation, contains a significant amount of information pertaining to the District s finances. The website also provides information on each owner s specific parcel and explains the low-water rebate program and opportunities for reducing their charges. Lastly, the District has a dedicated toll free telephone number with staff available to answer any questions the public may have. Very truly yours, GRH:gc Enclosures Grace Robinson Hyde