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HomeMy WebLinkAbout2008-09-17 Packet - Special Joint UVSDCITY OF UKIAH SPECIAL MEETING AGENDA Joint Meeting Between the City Council and Ukiah Valley Sanitation District CIVIC CENTER COUNCIL CHAMBERS 300 Seminary Avenue Ukiah, CA 95482 September 17, 2008 4:30 a.m. ROLL CALL 2. Discussion 8r Potential Action Items a. Receipt of Final Report of the City of Ukiah/Ukiah Valley Sanitation District Joint Ad Hoc Committee and Recommendation on Further Actions by Ukiah City Council b. Discussion and Possible Action Concerning the Modification of the Master Meter Policy Pertaining to Multi-family Residential Units and Mobile Home Parks of More than Four Units or Spaces and the return to Individual Sewer Billing c. Discussion and Possible Direction to Staff Regarding a Recommendation to Perform a Re-analysis of the Sewer Connection Fee d. Discussion and Possible Direction to Staff Regarding Joint Participation in a Public Awareness Program for a Pending Pick-up Program of Unwanted or Expired Pharmaceuticals Being Considered by the Mendocino Solid Waste Management Authority (MSWMA) e. Discussion and Possible Approval of Sharing the Cost of Services Being Provided to the Joint Sewer Ad-Hoc Committee by the County Deputy Chief Executive Officer AUDIENCE COMMENTS ON NON-AGENDA ITEMS The City Council welcomes input from the audience. If there is a matter of business on the agenda that you are interested in, you may address the Council when this matter is considered. If you wish to speak on a matter that is not on this agenda, you may do so at this time. In order for everyone to be heard, please limit your comments to three (3) minutes per person and not more than ten (10) minutes per subject. The Brown Act regulations do not allow action to be taken on audience comments in which the subject is not listed on the agenda. 4. ADJOURNMENT Please be advised that the City needs to be notified 72 hours in advance of a meeting if any specific accommodations or interpreter services are needed in order for you to attend. The City complies with ADA requirements and will attempt to reasonably accommodate individuals with disabilities upon request. Materials related to an item on this Agenda submitted to the City Council after distribution of the agenda packet are available for public inspection at the front counter at the Ukiah Civic Center, 300 Seminary Avenue, Ukiah, CA 95482, during normal business hours, Monday through Friday, 7:30 am to 5:00 pm. I hereby certify under penalty of perjury under the laws of the State of California that the foregoing agenda was posted on the bulletin board at the main entrance of the City of Ukiah City Hall, located at 300 Seminary Avenue, Ukiah, California, not less than 24 hours prior to the meeting set forth on this agenda. Dated this 12th day of September, 2008. Linda Brown, City Clerk ITEM NO.: 2a MEETING DATE: September 17, 2008 (.'itJ nf~7lQSnfi AGENDA SUMMARY REPORT SUBJECT: RECEIPT OF FINAL REPORT OF THE CITY OF UKIAH/UKIAH VALLEY SANITATION DISTRICT JOINT AD HOC COMMITTEE AND RECOMMENDATION ON FURTHER ACTIONS BY UKIAH CITY COUNCIL Background: At a joint meeting of the City Council and Ukiah Valley Sanitation District Board currently scheduled for September 17, 2008, the Ukiah City Council will receive a final report of the Ad Hoc Committee which was organized in February 2008 for the purpose of examining and making recommendations regarding sewer system governance. The relationship between the City of Ukiah and Ukiah Valley Sanitation District, which are each stand alone individually-established governing bodies, was established through a participation agreement entered into more than fifty years ago, and since amended. In the case of the City, wastewater management is one of three utility systems operated as an enterprise activity (meaning it stands on its own for revenues and expenditures). In the case of the Ukiah Valley Sanitation District, the district's sole purpose is to operate a wastewater collection system. Both the City of Ukiah's wastewater collection system and the District's collection system, are fully dependent upon the City owned and operated wastewater treatment plant for the treatment and ultimate disposal of wastewater. Since the wastewater treatment plant was first constructed in the early 1950's, under various versions of a participation agreement, the City through its employees has provided the operation, maintenance and improvement of the waste collection and treatment system for both the City and the Sanitation District and the billing and collection services for both systems. The current agreement does not contemplate or allow the District to perform any of these functions with its own employees, nor does the current agreement provide for itemized cost of services or allocation of costs to the Sanitation District as accounted for separate from those costs of providing services to the whole of the system. Discussion: The recommendations of the Ad Hoc Committee include items that would tend to change the historical relationship of the parties under the participation agreement. Before discussing changes to this Continued on Pa e 2 Recommended Action(s): City Council receive report of the Ad Hoc Committee, both verbal and written, and provide direction to staff. Alternative Council Option(s): N/A Citizens advised: Requested by: Prepared by: Jane Chambers, City Manager Coordinated with: Attachments: Final Report of City of Ukiah/UVSD Joint Ad Hoc Committee f Approved: -~ /tii ~_~ ~'~-l.~t~._ .one Chambers, City Manager Subject: Final Report of City of Ukiah/UVSD Joint Ad Hoc Committee Meeting Date: September 17, 2008 Page 2 of 2 historic relationship, the City Council may want to examine its own goals and objectives for operations of the wastewater collection and treatment system as it is currently owned and operated by the City of Ukiah, as well as the City Council's goals for future development of the Ukiah urban area. After taking steps to affirm its overall objectives for the provision of wastewater services, the City Council could then consider changes to the participation agreement in the context of achieving desired long term outcomes. The City of Ukiah as an organization shares with the Ukiah Valley Sanitation District concerns for how best to provide these essential services to both residents of the City of Ukiah and the urban valley area as a whole, especially in view of the realities of increased State oversight and regulation of wastewater collection and treatment systems, and growing operational costs associated with that regulation. The State Water Resources Control Board's (SWRCB) discharge permit to operate the Waste Water Treatment Plant is issued to the City of Ukiah, not the District, as owner and operator of the plant. The City is solely and legally responsible to meet the discharge permit requirements. The same is true for our sewer collection system and the District is legally responsible to the SWRC64 for their collection system. Another essential factor for the City to consider is management of urban level growth and service demands that take place within the City's sphere of influence and the ability of the City to have impact on such development. Over the course of months that the Ad Hoc Committee has undertaken its work, City staff, specifically the City Manager, Finance Director, and Public Works Director, have worked closely with the administrative staff of the District to answer a number of concerns and questions related to historical practices on the part of the City. These have included accounting and budgeting for the District, as well as more current issues related to the bonding for the wastewater treatment plant expansion and connection fees, rates, and costs associated with that major construction project. With the adoption of the fiscal year 2008/2009 Sewer Division budget, greater clarity of charges to the Ukiah Valley Sanitation District and costs associated and allocated to the District were made. Hopefully these changes address some of the most immediate concerns that have been voiced with regard to equity in the provision of services to the Sanitation District and fairness of cost allocations. Fiscal Impact: Budgeted FY 08/09 ~ New Appropriation ~ Not Applicable ~ Budget Amendment Required Amount Budaeted Source of Funds (title and #) Account Number Addit. Aoorooriation Requested Final Report of the City of Ukiah/Ukiah Valley Sanitation District Joint Ad Hoc Committee August 14, 2008 Committee Organization: The City of Ukiah/Ukiah Valley Sanitation District Joint Ad Hoc Committee was organized in February 2008 by action of the Ukiah City Council and the Ukiah Valley Sanitation District Board of Directors for the purpose of examining and making recommendations regarding sewer system governance. Committee Membership: The following members were appointed to the Ad Hoc Committee by the Ukiah City Council and Ukiah Valley Sanitation District Board of Directors: Doug Crane (Chair), John McCowen (Vice Chair), Ernie Wipf, Howard Egan, Jim Ronco, John Graff, Mike Johnson, Matt Froneberger, Clifford Paulin, Steve Scalmanini, and Butch Carpenter. The following citizens and staff also participated in Ad Hoc Committee Meetings: Lee Howard, Dennis Scoles, Frank Michael, Pat Thompson, Paul Cayler, Rick Kennedy, and Tim Ericksen. On July 24, 2008, the Ad Hoc Committee appointed a subcommittee of Clifford Paulin and Jim Ronco to review and recommend to the full committee a draft final report. On August 14, 2008, the Ad Hoc Committee completed its review of subcommittee recommendations (See Pages 3 and 4), and authorized preparation of Final Committee Report. Committee Mission: The Committee adopted the following Mission Statement to guide its activities: "The purpose of the Sewer Ad Hoc Committee is to research and make recommendations regarding the organization, administrative stmcture and governance of the wastewater collection and treatment system, which is jointly operated and separately owned by the City of Ukiah and the Ukiah Valley Sanitation District. The Committee will work toward developing sound management recommendations based on data. The mission of the Committee will be to research and develop recommendations for the best sewer service organization to serve the citizens of the community. The Committee will operate as an open public forum that encourages constructive dialog and respectful discourse in order to achieve balanced solutions that are economically feasible, protective of the environment, and beneficial to the rate payers. In addition, the Sewer Ad Hoc Committee will review and comment on the Ukiah Valley Sanitation District's proposed General Manager position. The Committee's recommendations will be presented to the Ukiah City Council and the Page 1 of 4 Ukiah Valley Sanitation District Board of Directors with a goal of August 15, 2008." Committee Meetings: The Committee met regularly on the first and third Thursday evening at 5:30pm in the County Administration Center (501 Low Gap Road) Conference Room C. Meeting were typically 120 minutes. Meeting agendas were published and posted at the County Administration Center and the Ukiah Civic Center. Detail meeting minutes were kept and approved by the Committee. An email list serve of all Committee members, and interested staff and citizens was maintained to distribute Committee documents. Committee Methods and Research: In order to methodically and systematically uncover and discuss all issues related to sewer system governance, the Ad Committee first conducted a workshop with City of Ukiah Wastewater Collection and Treatment staff. The Ad Committee then conducted a structured brainstorming and categorization exercise. The question posed was as follows: "What are the Sewer System Challenges? This exercise identified a list of 58 ideas where the sewer system faced challenges. From this list of 58, the Ad Committee then placed each idea in one of five categories: 1) Infrastructure; 2) Governance; 3) Operations and Maintenance; 4) Finance; and 5) Regulation. The list of Governance issues were identified as follows: 1) Complex system 2) One system / 2 governing boards 3) Long range goals for growth 4) Lack of consistency 5) Deferred maintenance 6) Accountability & transparency 7) Communications 8) Consolidations 9) Complete overhaul of management ] 0) Participation agreement needs revision 11) Agreement by both political bodies 12) City/district overlap areas 13) Duplication of admin/mgmt l4) Recruitment & retention of qualified employees l5) Inconsistent political will 16) Systematic review of system maintenance 17) Lack of district staff 18) Right of way fund held by City for District 19) No proactive work; crisis management (i.e. no time for proactive work due to preoccupation with constant reactive work 20) Inconsistent & inappropriate representation on BoS (e.g. District 3 or 4 Supervisor Representing the San. District that is in Districts 1 & 2) Page 2 of 4 The Ad Committee defined what "Good Governance" meant. Using resources available on the Internet, the Ad Committee agreed that the term "Good Governance" has eight major characteristics. It is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive, and follows the rules of law. The Ad Committee then assigned each of the identified sewer system govemance issues to at least one of the eight major characteristics. Through this systematic and structured approach the Ad Committee fully discussed all identified governance issues. Committee Approach to Governance Recommendations: The Ad Committee had wide ranging discussions on how the sewer system may be reorganized to achieve good governance. The one overriding comment that was repeated is that the City of Ukiah and the Ukiah Valley Sanitation District "cannot afford a divorce", therefore a practical and workable solution must be derived under the existing structure and intergovernmental agreements. There was discussion of a complete system overhaul to include one elected sanitation board of directors controlling and operating the entire system. This solution was viewed to have numerous advantages, however this solution was dismissed due to the unlikely outcome of deep seated vested interests agreeing to such a dramatic system overhaul, as well as the structure of the current bond finance arrangements for the upgraded and improved wastewater treatment plant. The Ad Committee examined the idea of forming a joint powers authority (JPA), however this idea was dismissed based on the present governance arrangements under the current Participation Agreements are not that dissimilar from a potential JPA, and that a JPA would be an additional layer of bureaucracy. In the end, the Ad Hoc Committee's recommendations for good governance improvements focused on areas where the current Participation Agreements may be improved to provide greater clarity and accountability. Committee Recommendations: The Ad Hoc Committee recommends that the Ukiah City Council and Ukiah Valley Board of Directors should consider revision of the July 1995 Participation Agreement to add language, which: Section 1: / Sets forth a systematic review and audit of all Equivalent Sewer Service Units (ESSU's). / Establishes a system of cost allocations for the collection system based on actual annual costs for repair and maintenance within District and City areas. Section 3: / Clarifies that certain trunk lines are under District ownership. / Allows future expansion at District cost of the City's wastewater treatment plant to service existing development and growth within the District. / Allows future expansion of District's trunk lines to service existing development and growth within the City. Page 3 of 4 Section 5: / The City and District develop a policy to determine when annexation of existing development is appropriate. Investigate the utilization of package or pre-treatment facilities to service newly annexed areas. Section 6: / Requires more frequent CitylDistrict Joint Meetings than the presently prescribed once per year. Section 9: / Defines the terms "good repair" and "reasonable period of time". / Provides for District alternatives if the City does not provide repairs or construct new sewer lateral extensions. Section 10: / Provides for District alternative if the City does not enforce District rules or ordinances. Section 12: / Maintains a rate system that funds the depreciation of system value over time. / Implement and maintain a data collection system. Section 13: / Provides for an accounting system that uses work orders for all system maintenance and repair in order that actual expenses between the District and City may be known, and a more accurate cost allocation method established. / Provides for a system of equipment and vehicle ownership wherein the City and District are charged a reasonable rate for equipment and vehicles used in the actual operation and maintenance of the collection system. New Section: / Grants the District proportional rights to recycled water when produced at the wastewater treatment plant. Additional Committee Recommendation Not To Be Included In The Participation Agreement: District and City should review their rate structures. Page 4 of 4 Item No. UKIAH VALLEY SANITATION DISTRICT AGENDA SUMMARY REPORT FOR THE JOINT MEETING BETWEEN THE UKIAH VALLEY SANITATION DISTRICT AND THE UKIAH CITY COUNCIL SEPTEMBER 17, 2008 DISCUSSION AND POSSIBLE ACTION CONCERNING THE MODIFICATION OF THE MASTER METER POLICY PERTAINING TO MULTIFAMILY RESIDENTIAL UNITS AND MOBILE HOME PARKS OF MORE THAN 4 UNITS OR SPACES AND THE RETURN TO INDIVIDUAL SEWER BILLING. SUMMARY As requested by Mayor/Director Crane and as directed by the District Board, this matter is being submitted for joint discussion, consideration and possible action by the District Board of Directors and the Ukiah City Council. As a result of public comment and interest, the District Board has been considering the merits of revising the master meter policy as that policy pertains to multifamily residential complexes and mobile home parks of more than four units or spaces to allow for individual tenant sewer billings. Currently, under the master meter policy, the owners of apartment complexes and mobile home parks or the individual who has applied for and is responsible for the water bill for the particular property is issued and is responsible for the sewer bill. The property owner or property manager subsequently invoices the tenants for sewer service either separately or as part of the rent. DISCUSSION On August 27, 2008, the District Manager submitted a recommendation to the District Board that the master meter policy as it pertains to the referenced customer classification not be modified to allow the issuance of sewer bills to the tenants. The basis of the recommendation is presented in the attached Agenda Summary Report to the District Board and dated August 27, 2008. As requested by Supervisor/Director Delbar and as directed by the District Board, the District Manager was directed to return to the Board with (1) current and historical data pertaining to delinquent sewer billings and (2) a model agreement between the District and a Property Owner making the property owner responsible for paying their tenants delinquent sewer bills should the District allow the property owner an option of receiving either a composite or individual tenant sewer billing. Delinquent Sewer Billings The Aged Accounts Receivables for UVSD as of 1/31/08 indicate that: 1. $92,342.37 delinquent over 90 days 2. $17,879.04 delinquent between 61 and 90 days The Aged Accounts Receivables for UVSD as of 2/29/08 indicate that: 1. $96,524.76 delinquent over 90 days 2. $18,410.39 delinquent between 61 and 90 days The Consumer Accounts Receivable-Bad Debts for UVSD dated 3/5/08 indicate $180,964.88 in bad debt The Debtor Status Report Prepared for the City of Ukiah by Credit Bureau of Ukiah, Inc. dated 5/19/08 (appears to be District customers based on listed addresses) indicate that $143,204.70 of bad debt has been referred to them for collection and that $97,766.63 remains to be collected. Oldest date of account in arrears is 1998. Based on the service address provided in the listing, it appears that the majority of the delinquent payments are tenants of apartments. Regarding the model agreement in support of an elective sewer billing program, County Counsel is in the process of crafting a draft document. F[SCAL IMPACT If the current master meter policy as it pertains to sewer billings for multifamily residential units and mobile home parks of more than 4 units or spaces is modified to require individual billings to the tenants of the referenced complexes, it is anticipated that delinquent accounts will increase and revenue needed by the District to support the maintenance, operation, and debt service of the Sewer Collection and Treatment System will be reduced. RECOMMENDED ACTIONS Jointly discuss and consider the issues and provide direction to staff. The District Manager continues to recommend that the current master meter policy not be revised to permit individual sewer billings. ALTERNATIVE ACTIONS Please refer to other options as provided in the attached ASR to the District Board dated August 27, 2008 ATTACHMENTS Agenda Summary Report to the UVSD Board dated August 27, 2008. Rick Kennedy, PE, UVSD District Manager 2 Item No. UKIAH VALLEY SANITATION DISTRICT AGENDA SUMMARY REPORT FOR THE JOINT MEETING BETWEEN THE UKIAH VALLEY SANITATION DISTRICT AND THE UKIAH CITY COUNCIL SEPTEMBER 17, 2008 DISCUSSION AND POSSIBLE APPROVAL OF SHARING THE COST OF SERVICES BEING PROVIDED TO THE JOINT SEWER AD HOC COMMITTEE BY THE COUNTY DEPUTY CHIEF EXECUTIVE OFFICER AND POSSIBLE APPROVAL OF BUDGET AMENDMENT TO FUND 612 SUMMARY Submitted for joint consideration and approval by the Board of Directors and the City Council, is a request from the District Board that the expenses incurred for services provided to the Joint Sewer Ad Hoc Committee by the Deputy CEO (Paul Cayler) be jointly shared by the District and City and expensed to the Joint Sewer Fund 612. As reported by the Deputy CEO, 15.5 hours were expended assisting the Joint Sewer Ad Hoc Committee with the taking and publishing of minutes and the publishing and posting of agendas at a cost of $919.15. It is requested that a budget amendment in the amount of $919.15 be made to account 612.3505.250 of Fund 612, that the authorized expenditure limit for the account be increased accordingly from funds within the unobligated Fund Balance of Fund 612 and that the District be reimbursed $919.15. DISCUSSION By joint action of the District Board of Directors and the Ukiah City Council on February 6, 2008, the formation of the Joint Ad Hoc Committee (the Joint Committee) was authorized for the purpose of examining and making recommendations regarding sewer system governance. Paul Cayler, Deputy CEO, provided minute taking, minute publishing and the posting of agenda's for the Joint Committee's meetings as requested. From March 3, 2008 to June 23, 2008, Mr. Cayler expended 15.5 hours in providing the requested services to the Joint Committee as shown on the attached time log and at a cost of $919.15. On August 27, 2008, the CEO's claim for various services provided to the District including the effort provided to the Joint Committee was submitted to the District Board for payment approval. The District Board approved the total payment of $5,915.18 but the District Board noted that it was not appropriate to charge the District's Fund 3870 for the expenses related to the services provided to the Joint Committee since the Joint Committee was exercising its duty pursuant to joint directives from the District Board and the City Council. Although the District Board approved the payment and authorized the expense of the entire claim to Fund 3870 so as not to delay payment to the County, the District Board directed the District Manager to seek reimbursement for the expenses related to the services provided to the Joint Committee. FISCAL IMPACT Expenses related to services being provided to the Joint Committee were not budgeted within the Joint Sewer Fund 612. [t is recommended that the referenced Joint Committee expense be charged to account 612.3505.250.000, Contractual Services. The authorized funding limit for this account is not sufficient to cover the expense of $919.15 and it is recommended that the funding limit for account 612.3505.250.000 be increased by re- assigning an equal amount of funds from the unobligated fund balance of Fund 612; the Projected Fund Balance Ending for Fund 612 would be reduced by $919.15. RECOMMENDED ACTIONS 1. Approve the budget amendment request to account 612.3505.250.000 in the amount of $919.15, said funds to be taken from the unobligated fund balance of Fund 612. 2. Direct the Finance Director to issue a check in the amount $919.15 to the Ukiah Valley Sanitation District. The District Manager is directed to deposit the funds in the District's Fund 3870. ALTERNATIVE ACTIONS Provide other direction to staff ATTACHMENTS 1. Claim from the County Executive Office and Time Log 2. Agenda Summary Report to the District Board for the meeting of August 27, 2008 Rick Kennedy, PE, UVSD District Manager 2 Item No. UKIAH VALLEY SANITATION DISTRICT AGENDA SUMMARY REPORT FOR THE JOINT MEETING BETWEEN THE UKIAH VALLEY SANITATION DISTRICT AND THE UKIAH CITY COUNCIL SEPTEMBER 17, 2008 DISCUSSION AND POSSIBLE DIRECTION TO STAFF REAGARDING JOINT PARTICIPATION IN A PUBLIC AWARNESS PROGRAM FOR A PENDING PICKUP PROGRAM OF UNWANTED OR EXPIRED PHARMACEUTICALS BEING CONSIDERED BY THE MENDOCINO SOLID WATE MANAGEMENT AUTHORITY (MSWMA) SUMMARY Submitted for joint consideration and action by the District Board of Directors and the Ukiah City Council, is a recommendation from the District Board that the District and the City participate jointly in some manner and/or at some financial level in a public awareness program related to a pending pickup program of unwanted or expired pharmaceuticals (the Program) being developed by the Executive Director of MSWMA as authorized by the MSWMA Board. The participation in the public awareness program could consist of authorizing a bill insert announcing the Program. However, the bill insert program would exclude District ratepayers residing outside the City limits since the utility bill to these customers are not consolidated and the sewer bill is in a postcard format. DISCUSSION On August 27, 2008, the District Manager submitted to the District Board a request that the District participate in a public awareness effort for a pickup program of unwanted or expired pharmaceuticals being considered by MSWMA. The program is being developed to coincide with the ongoing National Public Awareness Program for the Proper Disposal of Pharmaceuticals. The attached Agenda Summary Report for the Board meeting of August 27, 2008 provides further details. FISCAL IMPACT If the District Board and City Council elected to participate in a commercial advertizing program, the cost for a half page, one time ad in the local newspaper would cost approximately $1100. The cost for a one page bill insert with the consolidated utility bill would be dependent upon the cost of copying and of the amount of labor expended for stuffing the envelopes. Assuming there are 2000 sewer accounts within the District and outside the City Limits, the cost for just the first class postage would be $840.00 RECOMMENDED ACTIONS Jointly agree to participate in a public awareness program announcing the MSWMA Pickup Program of Unwanted or Expired Pharmaceuticals after the Program is finalized and implemented. Decide on the level of participation. Level of participation may include all or some of the following actions/courses: 1. Direct staff to prepare/process bill insert announcing the program 1 2. Authorize the expenditure of $1100.00 from fund 612 for placement of a commercial ad in the local newspaper and direct staff to prepare a budget amendment. 3. Authorize the expenditure of Fund 612 monies for mailing via first class mail a notice of the program to District ratepayers not receiving consolidated utility bills and direct staff to prepare a budget amendment 4. Direct Staff to place the Notice of the Program on the City's Website. S. Direct staff to make a request to the County for the placement of the Notice of the Program on the County's Website. ALTERNATIVE ACTIONS Provide other direction to staff 1. Agenda Summary Report to the UVSD Board dated August 27, 2008. 2. Announcement from US Fish and Wildlife Service regarding Initiative to Focus on Environmental and Public Health Impacts of Improper Disposal of Pharmaceuticals Rick Kennedy, PE, UVSD District Manager 2 Item No. UKIAH VALLEY SANITATION DISTRICT AGENDA SUMMARY REPORT FOR THE JOINT MEETING BETWEEN THE UKIAH VALLEY SANITATION DISTRICT AND THE UKIAH CITY COUNCIL SEPTEMBER 17, 2008 DISCUSSION AND POSSIBLE DIRECTION TO STAFF REGARDING A RECOMMENDATION TO PERFORM A RE-ANALYSIS OF THE SEWER CONNECTION FEE SUMMARY On August 27, 2008, the District Manager submitted a recommendation to the District Board that a review and re-analysis of the sewer connection fee be performed. Based on discussions with the City Finance Director and follow-up calculations, the District Manager had concerns that the current fee amount for the sewer connection fee may not generate sufficient revenue to payoff the remaining debt service related to the expansion component of the Wastewater Treatment Plant (WWTP). The District Manager further recommended to the Board that they submit a request to the City that a Financial Consultant be hired to perform a review and re-analysis of the sewer connection fee. As requested by Mayor/Director Crane and as directed by the District Board, this matter is being submitted for joint discussion, consideration and possible action by the District Board of Directors and the Ukiah City Council. DISCUSSION The annual debt payments of principal and interest for the expansion component of the Wastewater Treatment Plant Upgrade and Expansion Project are $638,000 and $344,000 for the District and City, respectively. These payments are to be made until 2036 requiring 27 annual payments totaling $17,226,000 for the District and $9,288,000 for the City. As of the August 20, 2008 ESSU Accounting Report, there remains 978 and 620 ESSUs to be allocated within the District and City, respectively. Of the ESSUs that have been allocated within the District, there are approximately 372 ESSUs that have been allocated via Will Serve Letters or Conditional Will Serve Letters and not paid for. These allocated and unpaid ESSUs are assigned to RCHDC Lakewood Homes Subdivision (62), Ukiah Land Mixed Use Project (210), and Ukiah Land Multifamily Project (100). Combining the allocated and unpaid ESSUs with the remaining unallocated ESSUs for the District, there are 1350 ESSUs for which payment will be received in the future. Attached to this Agenda Summary Report as Attachment 1, is the "Report on Sewer Connection Fee' prepared by Bartle Wells Associates (BWA) and dated December 26, 2005 (the Report). As indicated on page 4 of the Report, there are two parts to the Sewer Connection fee. The first part of the fee is the "Buy-in Portion" and it has been determined to be $1,426 per ESSU based on an estimated System Evaluation of $15,207,000. The second part is the "Marginal Portion" which represents the cost to add the capacity to the WWTP. The "Marginal Portion' of the connection fee was calculated to be $9,485 per ESSU based on the estimated costs of the Project which are shown on page 3 of the Report. With 1350 ESSUs remaining to be allocated and remaining to be paid within the District, $12,804,750 will be generated from the "Marginal Portion" of the fee. As stated above, the District will make 27 annual payments totaling $17,226,000 and subtracting the anticipated remaining revenue potential of $12,804,750, interest income of $4,421,250 from the Fund Balance within the District's Capital Fund, Fund 650, is needed. The "Buy-in Portion" of the connection fee will generate anticipated revenue of $1,925,100 for the remaining 1350 ESSUs to be allocated and/or paid for within the District. As indicated in the 8 Exhibits attached to this Agenda Summary Report as Attachment 2, timing of ESSU allocation and payment is critical. As can been seen from comparing Exhibits 1 and 2, a difference of 6 years in the remaining period within which the ESSUs maybe allocated can mean a 2036 Ending Fund Balance of $3,429,990 for a period of 17 years versus a Fund Balance of $43,199 for a period of 23 years. Under the assumed parameters of Exhibit 1, an additional $1,504,890 is realized in the Fund Balance over the amount needed for the "Buy-in Portion" ($1,925,100). Under the parameters for exhibit 2, a deficit of $1,881,901 in the "Buy-in Portion' is created. Attached to this Agenda Summary Report as Attachment 3 are ESSU Accounting Reports dated August 20, 2008 and August 20, 2007 and the ESSU Statistics Report for March 2008 and March 2007. In comparing the two ESSU Statistics Report, it can be seen that 7 ESSUs were allocated/paid during the one year period for the District. In comparing the August ESSU Accounting Reports, it is noted that 114 ESSUs were allocated but of this total, 100 ESSUs were recently allocated to the Ukiah Land Multifamily Project. Payment for these 100 ESSUs may not be forthcoming until 2009. The District must "sell" 58.5 ESSUs per year to make the annual debt service payment for the expansion. But as shown from the results of the Exhibits, a positive fund balance is needed to create investment income which is needed to retire the debt. With the downturn in the housing industry, we can expect to sell limited ESSUs. The District Manager is recommending that the services of a Financial Consultant be obtained to create various financial scenarios that represent the financial market and to develop worst case financial situations that could occur and to provide recommendations that, if implemented, could correct potential shortfalls. FISCAL IMPACT The downturn in the housing construction has reduced the need for new sewer connections creating a reduction in the Fund Balance of the District's Capital Improvement Fund, Fund 650. To offset the annual debt service payment of $638,000, 58.5 ESSUs must be allocated and payment received per year. As indicated in the approved 08/09 budget, the connection fee receipt for 07/08 is projected to be $162,867 (equal to 15 ESSUs). It is anticipated that the downturn in housing starts will continue during the new fiscal year. It is imperative that the assumptions utilized in the Connection Fee Study be reviewed and new analyses be performed and, if necessary, revisions be made to the amount of the connection fee. RECOMMENDED ACTIONS Direct staff to acquire the services of a Financial Consultant as soon as possible for the purpose of reviewing the assumptions made in the BWA Connection Fee Report, to perform analyses for various financial conditions and ESSU allocation and payment timing, and to make recommendations for remedial measures. ALTERNATIVE ACTIONS Provide other direction to staff ATTACHMENTS 1. Report on Sewer Connection Fees prepared by Bartle Wells Associates and dated December 26, 2005. 2. Exhibits 1 through 8 with differing ESSU allocation timing 3. ESSU Accounting Reports for August 2008 and 2007 and ESSU Statistics Report for March 2008 and 2007 Rick Kennedy, PE, UVSD District Manager 3