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Home My WebLink About2009-08-31 Packet - Special, Joint UVSDAugust 31, 2009 6:00 p.m. Budget Work Session 1. Roll Call Please be advised that the City needs to be notified 24 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 28th day of August, 2009. JoAnne M. 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O , O C E N O i 0 0 o o 0 rn L co co CL rn rn L d co I-- o C) -co Lo O O N N O N N N CA 0 0 N co N ti city t 1'tukz:ah ITEM NO.: 3 MEETING DATE: AGENDA SUMMARY REPORT August 31, 2009 SUBJECT: DISCUSSION OF FY 2009/2010 WASTEWATER ENTERPRISE BUDGET Background: Staff prepared a draft budget for wastewater operations for fiscal year 2009/2010. Meetings have been held with the UVSD staff, the UVSD Finance Committee, and with the UVSD Board of Directors in June and July to discuss various aspects and elements of the proposed budget. Changes to the budget reflecting these discussions have been made. A City Council workshop was held on August 20th. The August 31 meeting is the first opportunity for both the City Council and the UVSD Board of Directors to hold joint discussions regarding the proposed budget. Discussion: At the UVSD Board meeting held on July 23, 2009, the board indicated they were unwilling to accept some of the elements of the budget as presented to them. They further indicated they expected the joint budget meeting would be their opportunity to make their thinking known to the City Council and to justify and explain their position. They further affirmed their willingness to withhold approval of certain components of the budget if the Council doesn't concur with the changes they propose. At the Council workshop, staff presented their understanding of the UVSD concerns, to the Council. After this joint meeting, staff anticipates preparing a budget document for action during September. Significant components of the proposed budget: 1) Implementation of the Rate Stabilization Funds. During the prior fiscal year, both governing bodies approved the creation of Rate Stabilization Funds. The proposed budget document identifies the funding for those funds as of fiscal year 2008/2009 and further includes utilization of the funds as part of the FY 2009/2010 budget. 2) The UVSD requested inclusion of the entire UVSD operating budget in the Joint Wastewater Operating Fund (#612). Historically, Fund 612 has represented the cost of operating the sewer system providing services to both the City of Ukiah and UVSD. This fund has not represented the administrative costs associated with UVSD. Historically, these costs have been minimal, but have increased significantly with the changes UVSD has made in both staff and board representation. City staff have prepared the budget proposal showing UVSD administrative and operations expenses in the Sanitation District Special Fund (#641). At the July 23rd UVSD Board budget workshop, there was discussion about paying some of the UVSD operating expenses from the Continued on Page 2 Recommended Action(s): Discuss the proposed budget with the UVSD Board of Directors and provide direction to staff for preparation of a final proposed budget for adoption. Alternative Council Option(s): N/A Citizens advised: UVSD Staff Requested by: UVSD; City Manager Prepared by: Gordon Elton, Finance Director; Tim Eriksen, Public Works Director Coordinated with: Jane Chambers, City Manager Attachments: Proposed Wastewater budget Approved: 'J/~ Chambers, City Manager Subject: Joint Wastewater Budget Discussion Meeting Date: August 31, 2009 Page 2 of 2 property tax fund maintained with Mendocino County. The attached document does not reflect this change. 3) In response to discussions and agreements during the FY 2008/2009 budget adoption meetings, Utility department staff created records to identify the proportion of time worked on wastewater activities vs. water activities. This effort was made in response to the request of UVSD that these records be kept. The result of this tracking for FY 2008/2009 showed that 65% of crew time was devoted to wastewater activities. It had previously been agreed by UVSD that a ratio of 50/50 for crew time would be used for the FY 2008/2009, and then the FY 2009/2010 budget would reflect the actual crew experience. The proposed budget implements the 65/35 split for the field crew in the System Maintenance budget (612.3510). This is one of the items the UVSD disagrees with and expects to discuss with the Council. 4) The proposed operating expenses, debt payments, and capital expenditures of $10,333,243 exceed the revenue of $8,224,127 by $2,109,116. The major component of this shortage results from capital project expenditures from revenue accumulated in prior years, of $1,140,000. A second component of the shortage is the increase in the annual bond payment of $784,000. A third component of the shortage is the expenditures in the Sanitation District Special Fund (#641) of $201,290 in excess of revenue. 5) Total Wastewater System revenue decreases by $656,736. This reduction is primarily due to lower interest income. With expenses exceeding income, the amount available for investment will reduce. Additionally, the rate of return on investments is declining from the FY 2008/2009 levels. 6) There is sufficient cash in the wastewater system to fund the expenditures as proposed, however one major obligation limits the opportunity to pay expenses from accumulated balances. When the bonds were sold, a condition of the sale was a rate covenant that says: a) the governing body agrees to set rates at a level which will produce gross revenue equal to the sum of the operating expenses and the debt payment (gross revenue covenant); and b) the governing body agrees to set rates at a level which will produce net income, revenue less operating expenses, equal to 120% of debt payment (net revenue covenant). The budget, as presented, falls short of the gross revenue covenant by $680,116 and falls short of the net revenue covenant by $325,359. 7) The final budget must include a plan for eliminating these shortages. One unanswered potential offset is the role the residual balance in the bond project construction fund may play in the calculation of the coverage required. The bond attorneys are expected to advise on this matter in the near future. If the construction project fund balance, held by the trustee, reduces the amount of debt subject to the coverage requirement, by at least $680,116.00, the coverage requirements will be met. Summary: The proposed budget is presented for the consideration of the City Council and the UVSD Board. In addition to the points the UVSD Board wishes to discuss, the shortfall in meeting the coverage obligation must be resolved in the final budget. Only changes in operating expenses and revenue affect the coverage calculation. Capital expenditures are excluded from the computation. Transfers from the Rate Stabilization Funds affect the Net Revenue Covenant, but do not affect the Gross Revenue Covenant. Fiscal Impact: H Budgeted FY 09/10 17 New Appropriation Fx] Not Applicable Budget Amendment Required Amount Budgeted Source of Funds (title and Account Number Addit. 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District Administrative Ex Years need V ratios and Revenues for ease to be adjusted accord►ng Cost ~Y therefore, the s are to be Included i s incurred by Cit Fund 612 and in Fund 612 set U1/Sp poi are sh red by the policy and repre Funds 641 y and represe two agencies, sent City rate two and 3870 whicht rV SD rate pa Costs incurred payers are agencies, are exclusive Payers have for by the UVS paid from adamant t This ►s contrary District F mally been p to set Sewers hat its ad►ninistrati to the 1995 part ands and are NOT eased to Ystem. For acco expenses b ici included - Agreement shared by the expenses be expensed to Pur a included in the nt and the 641; this will fa~tateed to Fund 6 poses the District District is with reve 41 and refrom Fund paste venue from nue fro Proposes that is ad ses for the accountin property tax reve 612• The g of District 2 be transf m►nistrative proposes nue to District will expenses th erred to Fund to transfer pay for some of its continue at should be ended f aximize the District Nlana District f administrative expenses benefit the gets time ands within F District. that will be expended 614 to F. use of its expended The District re and 641 to The District on City onl quests on capital pay for 25 Y capital protects in thet the City expense whic % of its 3. Cost Acco h will only antis same manner. city staff time Pursuant to p complete records andh 13 of the in connection accounts 1995 Partici maintenance with the A relatin patios Agreement crew greement. Annual to cost and on expenditures Y will maintain verbal e for are bud geted administra ve a Pursuant oration reia ►ty s water based on to or ►mpieme Yed b sYstem and the assumed staff and nted a m Y the City Public Combined se percentages of spreadsheet; this akeshift personnel ti Works Director wer syste time to the Based on Public manual trackin me tracking , the Cit s expended Works Director has g sYstem may sYstem usin y has g Excel on the combined vocalized his exclude administrative non personne reSO sewer resistance accounting requirements system, There is to track adthat estaff because quirements are not include an in ministrative of the q din the indication time Agreement and tracking; in accord t and as reco ante With th l mmended b With the cost 1 Y the Grand Jury, the City needs to implement a comprehensive work order system integrated with its accounting system in order to account for costs as required. 4. Internal Budget Transfers In accordance with City Policy, the City Manager may transfer funds between Fund accounts without the approval of the City Council. The District objects to this policy being applied to the Joint Sewer Fund, Fund 612. Pursuant to Paragraph 6.1 of the Participation Agreement (Amendment No. 1), the City shall prepare the proposed budget for the sewer system which must receive approval from both the City Council and the District Board of Directors. As indicated in Paragraph 6.2 of the Agreement, individual line item budget allowances are subject to the Board's acceptance and approval. All proposed budget changes within the Joint Fund must receive advance approval from the UVSD Board. 5. Administration and General Account, Department 3505 of Fund 612 A. Salaries Subaccount 110. The Deputy Public Works Director of Water and Sewer will be charged 50% to Sewer and 50% to Water. This individual has been assigned project management duties for public works projects. When asked how the Sewer Fund will be reimbursed for time spent on other non sewer and water projects, the Public Works Director replied that an adjustment will be made at the end of the year. Unless the City implements an appropriate system of tracking personnel time by tasks, the District objects to the Public Works Director's suggested approach. The allocation of time to be expended on Public Works projects must be budgeted in advance. B. Contractual Services Subaccount 250. What specific contractual services are to be funded with the $100,000 allowance? What justification exists for the proposed expenditure of $200,000 for the SSMP and the Sewer System Master Plan? The District insists that a flow monitoring program be budgeted for and implemented in the 09/10 fiscal year. The Kennedy Engineers Report, the Brown and Caldwell Technical Report on 1/I, and the SSMP all recommend that flow monitoring be performed on the critical locations within the trunk sewer system. The data from flow monitoring is needed to develop a Sewer System Master Plan that has been budgeted at a funding level of $150,000. C. Conference and Training, Subaccount 160. Provide justification for the funding level of $6,000. 6. System Maintenance, Department 3510 of Fund 612, A. Salaries Subaccount 110. The City proposes to fund seven (7) sewer/water attendants at 65% sewer and 35% water; this excludes the two supervisors, the WWTP mechanic for lift station maintenance and the water/sewer service attendant. When asked what sewer maintenance work programs were planned for the sewer system that would justify the proposed crew size, the Public Works Director replied that the work programs would include the primary maintenance 2 activity of line flushing and grease removal and line replacement. The CCTV program is almost complete as reported by the Public Works Director and the main line flushing is performed by a two man crew. How many linear feet of main line are proposed to be replaced? Will force account monetary limits be exceeded? Line replacement is a capital improvement function and not a maintenance function and it is less costly in the long term to have the work performed by Contractors. A crew size of five water/sewer attendants of which three are expensed at 50% water and 50% sewer, and two at 90% sewer and 10% water (line flushing), a supervisor at 50/50, a leadworker at 50/50, a water/sewer service attendant at 20 % sewer and 80% water, and a WWTP mechanic at 10% sewer and 90% water is more than sufficient to perform the required sewer maintenance work. The District will not approve the budget at the level proposed by City staff. The explanation as to reasons for the proposed 65/35 sewer/water split for 09/10 is not acceptable when considering the unjustified percentages of 70% sewer/30% water and 60% sewer/40% water that were used for fiscal years 06/07 and 07/08, respectively. B. Conference and Training, Subaccount 160. Provide justification for the funding level of $5,000. 7. Wastewater Treatment Plant Operation and Maintenance. Department 3580 of Fund 612 A. Salaries Overtime, Subaccount 115. The proposed budget indicates a significant amount of overtime ($46,125). Justification is needed or the amount reduced. B. Contractual Services, Subaccount 250. $50,000 is budgeted for percolation pond hydro-geological Study Phase 2. What were the conclusions of Phase 1? The , UVSD Board approved a budget amendment for Phase 1 with the caveat that a copy of the report be submitted to the District; this has not been done. THE FOLLOWING ISSUES ARE BEING WORKED OUT BETWEEN THE DISTRICT MANAGER AND THE CITY FINANCE DIRECTOR A. Page 1, FUND SUMMARY 1. The 09/10 projected revenue for the District's Fund 650 is shown as $90,000 yet the City staff proposes to transfer $1,400,000 from this fund for the year ending leaving a projected fund balance of $522,682. Even if the interest is credited to the District's new Rate Stabilization Fund, is this projected interest income realistic? 2. A $150,000 Capital Expenditure within Fund 612 is shown. What is this for? 3. Why is there difference between the expenditure for Operations and Maintenance ($2,724,101) different from the sum of $2,609,013 from fund 612 and $111,890 from fund 641 while it is noted that the sum for Salary and 3 BUDGET ISSUES TO BE DISCUSSED WITH THE CITY COUNCIL AT THE JOINT DISTRICT/CITY BUDGET WORKSHOP AUGUST 31, 2009 1. Cost Apportionment Pursuant to Paragraph 1 of the 1995 Participation Agreement, the annual cost apportionment between the District and City of the Operations and Maintenance Expenses is to be based on the ESSU ratio as of March 31 of each year. The Projected Actual Revenues for the 08/09 Fiscal Year and the Projected Revenues for the 09/10 Fiscal Year do not represent the respective ESSU ratios and, therefore, the cost apportionments for these two years need to be adjusted accordingly. 2. District Administrative Expenses are to be Included in Fund 612 Costs incurred by City to set City policy and represent City rate payers are paid from Fund 612 and are shared by the two agencies. Costs incurred by the UVSD to set UVSD policy and represent UVSD rate payers have formally been expensed to Funds 641 and 3870 which are exclusive District Funds and are NOT shared by the two agencies. This is contrary to the 1995 Participation Agreement and the District is adamant that its administrative expenses be included in the O & M expenses for the Sewer System. For accounting purposes, the District proposes that its administrative expenses be expensed to Fund 641 and revenue from 612 be transferred to Fund 641; this will facilitate separate accounting of District expenses that should be funded with revenue from Fund 612. The District will continue to maximize the use of its property tax revenue to pay for some of its administrative expenses. The District proposes to transfer District funds within Fund 614 to Fund 641 to pay for 25% of its District Manager's time that will be expended on capital projects which will only benefit the District. The District requests that the City expense city staff time expended on City only capital projects in the same manner. 3. Cost Accounting Pursuant to Paragraph 13 of the 1995 Participation Agreement, the City will maintain complete records and accounts relating to cost and expenditures made pursuant to or in connection with the Agreement. Annual expenses for administrative staff and maintenance crew personnel are budgeted based on assumed percentages of time to be expended on the City's water system and the combined sewer system. Based on verbal information relayed by the City Public Works Director, the City has implemented a makeshift personnel time tracking system using an Excel spreadsheet; this manual tracking system may exclude administrative staff because the Public Works Director has vocalized his resistance to track administrative time expended on the combined sewer system. There is an indication that equipment and non personnel resources are not included in the tracking. In accordance with the cost accounting requirements of the Agreement and as recommended by the Grand Jury, 1 the City needs to implement a comprehensive work order system integrated with its accounting system in order to account for costs as required. 4. Internal Bud-get Transfers In accordance with City Policy, the City Manager may transfer funds between Fund accounts without the approval of the City Council. The District objects to this policy being applied to the Joint Sewer Fund, Fund 612. Pursuant to Paragraph 6.1 of the Participation Agreement (Amendment No. 1), the City shall prepare the proposed budget for the sewer system which must receive approval from both the City Council and the District Board of Directors. As indicated in Paragraph 6.2 of the Agreement, individual line item budget allowances are subject to the Board's acceptance and approval. All proposed budget changes within the Joint Fund must receive advance approval from the UVSD Board. 5. Administration and General Account, Department 3505 of Fund 612 A. Salaries Subaccount 110. The Deputy Public Works Director of Water and Sewer will be charged 50% to Sewer and 50% to Water. This individual has been assigned project management duties for public works projects. When asked how the Sewer Fund will be reimbursed for time spent on other non sewer and water projects, the Public Works Director replied that an adjustment will be made at the end of the year. Unless the City implements an appropriate system of tracking personnel time by tasks, the District objects to the Public Works Director's suggested approach. The allocation of time to be expended on Public Works projects must be budgeted in advance. B. Contractual Services Subaccount 250. What specific contractual services are to be funded with the $100,000 allowance? What justification exists for the proposed expenditure of $200,000 for the SSMP and the Sewer System Master Plan? The District insists that a flow monitoring program be budgeted for and implemented in the 09/10 fiscal year. The Kennedy Engineers Report, the Brown and Caldwell Technical Report on 1/I, and the SSMP all recommend that flow monitoring be performed on the critical locations within the trunk sewer system. The data from flow monitoring is needed to develop a Sewer System Master Plan that has been budgeted at a funding level of $150,000. C. Conference and Training, Subaccount 160. Provide justification for the funding level of $6,000. 6. System Maintenance, Department 3510 of Fund 612, A. Salaries Subaccount 110. The City proposes to fund seven (7) sewer/water attendants at 65% sewer and 35% water; this excludes the two supervisors, the WWTP mechanic for lift station maintenance and the water/sewer service attendant. When asked what sewer maintenance work programs were planned for the sewer system that would justify the proposed crew size, the Public Works Director replied that the work programs would include the primary maintenance 2 activity of line flushing and grease removal and line replacement. The CCTV program is almost complete as reported by the Public Works Director and the main line flushing is performed by a two man crew. How many linear feet of main line are proposed to be replaced? Will force account monetary limits be exceeded? Line replacement is a capital improvement function and not a maintenance function and it is less costly in the long term to have the work performed by Contractors. A crew size of five water/sewer attendants of which three are expensed at 50% water and 50% sewer, and two at 90% sewer and 10% water (line flushing), a supervisor at 50/50, a leadworker at 50/50, a water/sewer service attendant at 20 % sewer and 80% water, and a WWTP mechanic at 10% sewer and 90% water is more than sufficient to perform the required sewer maintenance work. The District will not approve the budget at the level proposed by City staff. The explanation as to reasons for the proposed 65/35 sewer/water split for 09/10 is not acceptable when considering the unjustified percentages of 70% sewer/30% water and 60% sewer/40% water that were used for fiscal years 06/07 and 07/08, respectively. B. Conference and Training, Subaccount 160. Provide justification for the funding level of $5,000. 7. Wastewater Treatment Plant Operation and Maintenance, Department 3580 of Fund 612 A. Salaries Overtime, Subaccount 115. The proposed budget indicates a significant amount of overtime ($46,125). Justification is needed or the amount reduced. B. Contractual Services, Subaccount 250. $50,000 is budgeted for percolation pond hydro-geological Study Phase 2. What were the conclusions of Phase 1? The UVSD Board approved a budget amendment for Phase 1 with the caveat.that a copy of the report be submitted to the District; this has not been done. THE FOLLOWING ISSUES ARE BEING WORKED OUT BETWEEN THE DISTRICT MANAGER AND THE CITY FINANCE DIRECTOR A. Page 1, FUND SUMMARY 1. The 09/10 projected revenue for the District's Fund 650 is shown as $90,000 yet the City staff proposes to transfer $1,400,000 from this fund for the year ending leaving a projected fund balance of $522,682. Even if the interest is credited.to the District's new Rate Stabilization Fund, is this projected interest income realistic? 2. A $150,000 Capital Expenditure within Fund 612 is shown. What is this for? 3. Why is there difference between the expenditure for Operations and Maintenance ($2,724,101) different from the sum of $2,609,013 from fund 612 and $111,890 from fund 641 while it is noted that the sum for Salary and 3 Employee Benefits within funds 612 and 641 equal the total of $1,6640,942 shown on the Summary? B. Pages 18 and 19, Fund 614 1. Please provide an explanation to the Ending Funding Balance Detail. There are no substantial expenditures for Recycling, System Maintenance or Emergencies to justify the fund balance ending numbers??? The Fund balance needs to be apportioned between District and City. C. General 1. Delinquent Sewer Accounts. The City needs to keep UVSD informed about delinquent payers so as District may institute other options for collection such as placing the delinquent amounts on the tax bill. The District Board requests a committed date for receipt of the information. 2. Insufficient Contributions to Fund 614. Budgeted expenses affect the contribution 3. Latency in releasing final budget vs actual figures makes it impossible for UVSD to audit budget figures until nine months after close of fiscal year. This does not allow sufficient time to provide input into the next year's budget process. 4. The 08/09 FY Budget for account 690, Department 3505, Fund 612, was $5,000; recent expense reports indicate expenses up to $94,755. What's this about? 4 activity of line flushing and grease removal and line replacement. The CCTV program is almost complete as reported by the Public Works Director and the main line flushing is performed by a two man crew. How many linear feet of main line are proposed to be replaced? Will force account monetary limits be exceeded? Line replacement is a capital improvement function and not a maintenance function and it is less costly in the long term to have the work performed by Contractors. A crew size of five water/sewer attendants of which three are expensed at 50% water and 50% sewer, and two at 90% sewer and 10% water (line flushing), a supervisor at 50/50, a leadworker at 50/50, a water/sewer service attendant at 20 % sewer and 80% water, and a WWTP mechanic at 10% sewer and 90% water is more than sufficient to perform the required sewer maintenance work. The District will not approve the budget at the level proposed by City staff. The explanation as to reasons for the proposed 65/35 sewer/water split for 09/10 is not acceptable when considering the unjustified percentages of 70% sewer/30% water and 60% sewer/40% water that were used for fiscal years 06/07 and 07/08, respectively. B. Conference and Training, Subaccount 160. Provide justification for the funding level of $5,000. 7. Wastewater Treatment Plant Operation and Maintenance, Department 3580 of Fund 612 A. Salaries Overtime, Subaccount 115. The proposed budget indicates a significant amount of overtime ($46,125). Justification is needed or the amount reduced. B. Contractual Services, Subaccount 250. $50,000 is budgeted for percolation pond hydro-geological Study Phase 2. What were the conclusions of Phase 1? The UVSD Board approved a budget amendment for Phase 1 with the caveat.that a copy of the report be submitted to the District; this has not been done. THE FOLLOWING ISSUES ARE BEING WORKED OUT BETWEEN THE DISTRICT MANAGER AND THE CITY FINANCE DIRECTOR A. Page 1, FUND SUMMARY 1. The 09/10 projected revenue for the District's Fund 650 is shown as $90,000 yet the City staff proposes to transfer $1,400,000 from this fund for the year ending leaving a projected fund balance of $522,682. Even if the interest is credited to the District's new Rate Stabilization Fund, is this projected interest income realistic? 2. A $150,000 Capital Expenditure within Fund 612 is shown. What is this for? 3. Why is there difference between the expenditure for Operations and Maintenance ($2,724,101) different from the sum of $2,609,013 from fund 612 and $111,890 from fund 641 while it is noted that the sum for Salary and 3 Employee Benefits within funds 612 and 641 equal the total of $1,6640,942 shown on the Summary? B. Pages 18 and 19, Fund 614 1. Please provide an explanation to the Ending Funding Balance Detail. There are no substantial expenditures for Recycling, System Maintenance or Emergencies to justify the fund balance ending numbers??? The Fund balance needs to be apportioned between District and City. C. General 1. Delinquent Sewer Accounts. The City needs to keep UVSD informed about delinquent payers so as District may institute other options for collection such as placing the delinquent amounts on the tax bill. The District Board requests a committed date for receipt of the information. 2. Insufficient Contributions to Fund 614. Budgeted expenses affect the contribution 3. Latency in releasing final budget vs actual figures makes it impossible for UVSD to audit budget figures until nine months after close of fiscal year. This does not allow sufficient time to provide input into the next year's budget process. 4. The 08/09 FY Budget for account 690, Department 3505, Fund 612, was $5,000; recent expense reports indicate expenses up to $94,755. 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(D ;a > o 0 C) o 70 r -4 70 Z C O z z OC3 n -•i fR O 110 IC" IA fA fA IfA i M w lJl Cl b9 GO Ch t i4 ; 1r y umr.~~ ' 0o C7`O NO~'D t ~ S ~ v°x0° ° 0 °o N ~l l t;M ~ J r J N ~7 ry~ 11 ( 4~ 4 t..:~£1t!t \Y ® V, ~ ~ , p UI N CO) D n W C n ' N --1 N C m CO) fN yf W N N CO) Z . Q3 ''~1' ; o ~ p C Z Jt f 's C t CO) s 00 CO) c C tD p C C N A N GY d ~ ~ A~ s'i' o tW C C 1 a N j rn 00 00 s. Nay C O O co CA X W W tQ0 ll 0 0-1 VA SUMMARY OF AGREEMENTS BETWEEN CITY OF UKIAHE AND UKIAHf VALLEY SANITATION DISTRICT By David J. Rapport, City Attorney City of Ukiah Jane 15, 2006 1. Introduction: Two agreements govern the relationship between the City and the Sanitation District as follows: A. Participation Agreement between the City of Ukiah and Ukiah Valley Sanitation District, dated July 19, 1995 ("Participation Agreement") 2004; and 1. Amendment No. I to Participation Agreement, dated March 24, 1999 2. Amendment No. 2 to Participation Agreement, dated December 15, B. Financing Agreement, dated January 2006. 11. IlistorY: Participation. Agreement incorporated and revised a series of agreements, commencing with the original contract, dated June 29, 1955, and four supplemental agreements revising the original agreement, which were entered- between July 7, 1958 and February 6, 1985. 11. Suminary of Current Agreements: A. Participation Agreement. 1. Provides for the operation of the entire sewer system, serving both the City and the Sanitation District (treatment plant, City trunk sewer and collection system, District collection system) as a single system with the total costs of operating that single system apportioned between the City and the Sanitation District "based on the ratio of City to District sewer service units for each year of operation." Cost apportionment to be adjusted annually at the beginning of each fiscal year. The City is the paying and receiving agent for all District operation and. maintenance funds. (Para. 1.) As a practical matter revenues reflect ESSUs. Accordingly, the City has not formally adjusted the apportionment each year. It has been assumed that the ratio of revenues between the District and the City equals the ratio of ESSUs between the City-and the District. 2. The City is required to operate, maintain and repair District's sewage collection system as part of the City's collection system and shall maintain that unified system in good repair and shall make all. required repairs within a reasonable time. The City is required to construct sewer laterals, when. required, from the nearest sewer main to the property line and to inspect lines constructed by subdividers to insure compliance with District standards. (Para. 9.) 4. City maintenance, operation and repair of District facilities to be performed in accordance with District rules. (Para. 10.) 5. District is required to establish fees and charges of sufficient amount to reimburse City for its actual cost of issuing permits and conducting inspections. The City is required to maintain an accounting of permit issuance and inspection costs so that District Board can review its fees, at least, annually. (Para. 12.) 6. The City is required to maintain complete records and accounts related to costs and expenditures made pursuant to the Agreement and of all revenues it collects. (Para. 13.) 7. Requires City to maintain liability insurance to cover both the City and the District. (Para. 2.) 8. The City has title to and control of the sewer treatment plant. (Para. 3.) 9. To carry out purposes of agreement, District Board and City Council to meet jointly at least once each year. (Para. 6.) 9. Term of the agreement is 30 years, ending on July 19, 2025. Either party may terminate the agreement on five years advance written notice. (Para. 7.) But see Section 5 of the Financing Agreement, which prohibits either party from terminating Participation Agreement, while 2006 revenue bonds are outstanding, unless the District (1) enters a separate Installment Sales Agreement with Association of Bay Area Governments or (2) deposits with the City its share of the installment payments required to repay the outstanding balance on the bonds. B. Amendment No. 1. Amended paras. 1 and 6 of the Participation Agreement. 1. The amendment to paragraph 1 requires a separate agreement with respect to a sewer system expense that is not covered by an expense category contained in any sewer system budget approved for any fiscal year through the 199711998 fiscal year, if the expense is either of two types: (1) a capital expense in excess of $1.00,000 other than one for repair or replacement of existing facilities or equipment: or (2) a charge that can be lawfully unposed by one party but not the other (for example, a charge the City can impose in the City but one the District cannot impose in the District). 2. Paragraph 6 was amended to require joint approval of the sewer system budget by the City Council and the District Board, during the annual. joint meeting. The amendment also provides a procedure for resolving a dispute between the City Council and the District Board over a budget item. Pending resolution, the disputed item or items shall either be excluded from the approved budget or included, subject to conditions acceptable to both parties. C. Amendment No. 2. An agreement covering the 2006 wastewater treatment plant upgrade and expansion project (a capital expense in. excess of $100,000, other than for the repair or replacement of existing facilities, not covered by an existing budget category). 1. The agreement covers: (1) allocation between the City and the District of new connections to the sewer system (measured in equivalent sewer service units ("ESSUs") during the period before the upgrade and expansion project is complete; (2) the allocation of ESSL1s resulting from the project; (3) the allocation of project costs for the increased capacity portion of the project; (4) the allocation of costs for the upgrade/rehabilitation portion of the project; and (5) other matters. 2. Allocation of capacity available before completion of the project: 938 ESSUs to the District; 442 to the City. Provision is made for renegotiating the allocation if one party uses up its allocation before the other party has. (Para. L l 3. Allocation of increased capacity resulting from the project: 65% to the District; 35% to the City. This allocation is subject to the same review and opportunity for adjustment as under paragraph 1.1 for the allocation of capacity available prior to completion of the project. (Para. 1.2.) 4. Allocation of costs for the increased capacity portion of the project. This portion of project cost is paid by connection fees. The costs are allocated in the same percentages as are the ESSUs: 65% to the District; 35% to the City. An annual review of the allocation is required to determine whether actual new connections are in line with estimates, and to consider any changes in organization, such as annexations or detachments. The parties meet jointly to conduct the review and .nay adjust the allocation based on the review. (Para. 2. 1.) 5. Allocation of costs for the upgrade/rehabilitation portion of the project. These costs are paid by monthly service fees, and are allocated pursuant to paragraph I of the Participation Agreement based on the ratio of City and District ESSUs to be adjusted annually. 6. Miscellaneous: a. Each party agrees to establish connection fees and monthly service fees which are sufficient to pay its share of project costs. b. Each party agrees to manage the sewer system to comply with the Waste Discharge; NPDES permit for the wastewater treatment plant and the sewer system and with applicable provisions of state and federal law. If added costs, including legal fees or court judgments, result from either party failing to comply with this obligation, the party which fails to comply pays those added costs from its revenues. "Those are not shared costs apportioned pursuant to paragraph I of the Participation Agreement. D. Financing Agreement. Required because bonds financing wastewater treatment plant upgrade/expansion were issued by the Association of Bay Area Governments ("Authority") based on an Installment Sales Agreement between the Authority and the City, but secured by a pledge of the net revenues of the combined City/ District sewer system. Under the Installment Sales Agreement; the Authority sells project improvements to the City and the City agrees to make Installment Payments to the Authority in. an amount equal to the Authority obligation to repay the bonds. Under the Financing Agreement, the City and the District agree as follows: 1. The Installment Payments are apportioned between the City and the District as provided in paragraph I of the Participation Agreement. (Section 1.) 2. The District must maintain rates, fees and charges sufficient to yield net revenues (being gross revenues less expenses apportioned to District under paragraph I of the Participation. Agreement) which are, at least, equal to 120% of the District's share of Installment Payments. The City is required to collect these revenues and apply them to the payment of Installment Payments. (Section 2.) The City is obligated to comply with this same 120% "coverage ratio" by the Installment Sales Agreement. 3. Section 3 authorizes, but does not require, the creation of a Rate Stabilization Fund, which is a fund created by the District into which it may deposit revenues from any lawful source. It may withdraw money from the fund at any time to stabilize rates or charges. 4. The District is prohibited from incurring any additional debt having a priority over the District's payment of Installment Payments or which is secured on a parity with those payments. (Section 4.) 5. The District is required to cooperate with the bond insurer in accordance with the Bond Insurance Policy. (Section 6.) 4 PARTICIPATION AGREEMENT BETWEEN THE CITY OF UKIAH AND THE UKIAH VALLEY SANITATION AGREEMENT ./y V f THIS AGREEMENT is made this IRI*J`' day of _ LIV , 1995, between the-CITY OF UKIAH, California, hereinafterr referred to as "CITY"," and the UKIAH VALLEY SANITATION DISTRICT, hereinafter referred to as "DISTRICT." PREMISES The Ukiah Valley Sanitation District was duly created and formed by the Board of Supervisors of Mendocino County on July 6, 1954, for the purpose of providing sewage facilities.for the unincorporated areas,suburban to the City of Ukiah. The City of Ukiah has need for continuing operation of the sewage.disposal facilities to satisfy the present and future sewage. disposal requirements of its inhabitants, and Both CITY and-DISTRICT have determined that present and future needs will best be served through the operation of joint facilities and that these facilities will best serve the interests of the City of Ukiah and the Ukiah Valley Sanitation District and the inhabitants thereof. AGREEMENT CITY . and COUNTY agree as. follows : 1. The annual costs for treatment, including maintenance, operation, expansion, upgrading, administration, insurance and financial services of the entire sewer system (treatment plant, trunk sewer, and collection system) shall be apportioned between the CITY and DISTRICT each year based upon the ratio of CITY to DISTRICT sewer service units for each year of operation. For the purpose of this Agreement, one sewer unit is defined as being a single unit of sewer discharge having characteristics of flow, B.O.D. and suspended solids equivalent to that generated and discharged by a typical single family residential unit. CITY shall be the paying and receiving agent for all DISTRICT operation and maintenance funds. Cost apportionment between CITY and DISTRICT as described above shall be adjusted annually at the beginning of each fiscal year of'operation based upon the ratio of CITY to DISTRICT equivalent sewer service units on record as of March 31 each year. 2. CITY shall obtain and maintain liability and property loss insurance coverage in the sum of $5,000,000 to protect DISTRICT and CITY against claims or-losses, naming both DISTRICT -l- and CITY as insured parties. -Nothing in this paragraph or this Agreement is intended to have the effect of making either party, or its ofticials, agents or employees liable for the torts, contracts or other obligations or debts of the other; provided, however, that DISTRICT's insurance shall cover CITY employees for claims arising out of such CITY employees performance of-services under this Agreement. 3. The title, management and control of the sewer treatment plant and any additions or changes to it shall remain in CITY. CITY shall maintain said plant and furnish personnel for the maintenance, operation and control of said plant. CITY; shall also service an ra,ptain the trunk lines and collectirro_n~xnes. 4. CITY will not contract with any person, firm, or corporation outside DISTRICT's boundaries-,for treatment of sewage, for said persons, firms, or corporations without the consent of DISTRICT. 5.- DISTRICT will not contract with any person, firm, or corporation outside DISTRICT's boundaries for treatment of sewage for said persons, firms, or corporations without the consent of CITY. 6. To carry out the purpose of this Agreement, the Board of Directors of DISTRICT and the City Counci.l'of CITY shall meet together at such times and places as they shall agree, but in any event at-least once a year beginning with the effective date of this Agreement. 7. The term of this Agreement shall be thirty (30) years. CITY or DISTRICT may cancel this Agreement by giving the other party five (5) years advance written notice. S. CITY or DISTRICT may connect the sewage collector mains and house laterals which have or may hereafter be constructed by the other, at points mutually agreeable to the City Engineer or other representative of CITY and to the District Engineer or other representative of DISTRICT. 9. -CITY shall operate, maintain and repair DISTRICT's sewage collet i _svs. , z c u an a erals `ziz gt-ruced whin the DISTRICT as part of its sewer collection system. CITY shall maintain the system in good repair, and shall make all required repairs within a reasonable period of time. As part of its obligation under this Agreement, CITY shall construct all required sewer laterals, for new connections from the nearest main to the property line. If a subdivider'is required to install sewer lines as'a condition of the subdivision's approval, CITY shall be required to inspect the construction of those lines to insure compliance with DISTRICT standards, but CITY shall not be required to construct the limes or contract for their. construction. -2- 10. CITY shall provide such maintenance, o era-t-i= and repair in accordance with the rules, rec{ulations and ordinances oTRICT applicable thereto as DISTRICT may from time to time adopt. 11. DISTRICT will establish by ordinance or resolution, as appropriate, suchirules u1a4-3ons as are necessary for the orderly administration of DISTRICT's system. These rules an regulatxans s a ncluda the use of the public sewers and drains, the installation of sew-- lines and connections in buldings, the ns allation of sewer latera s an public sewer mains and the extension of these, the discharge of waters and wastes into the public sewer system, and sewer ees and charges, inc u ng:cannec aon fees, service fees, and capac t arges. 12. DISTRICT will establish such fees and charges as will be sufficient to reimburse CITY for its actual costs of issuance of permits and cost of inspection. CITY shall maintain full and complete accounting records on such services, which will allow the review of such charges 'not less than once each year so they may at all times reflect such actual costs. 13. CITY will maintain complete records and accounts relating to casts and expenditures made pursuant to or in connection with this ,agreement, and of. all sewer service revenues which it may have collected. The parties hereto have set their signatures below. CITY of UKIAH UKIAH VALLEY SANITATION DISTRICT By sy $.Myodr Chairperson ATTES /w I. /L/,~7 Cit Clerk Clerk of the and -3- f~ ~~emen No. ~9 1 Amendment No. I to the Participation Agreement between The City of Ukiah and the Ukiah Valley Sanitation District - This Amendment No. 1 amends the Participation Agreement between the City of Ukiah and the Ukiah Halley Sanitation District dated July 19, 1995 to reflect the following changes: Paragraph 1 shall read as follows: The annual costs for treatment, including maintenance, operation, administration, repair and replacement, expansion, upgrading, debt service, insurance and financial services of the entire sewer system (treatment plant, trunk sewer and collection system) shall be apportioned between the CITY and DISTRICT each year based upon the ratio of CITY to DISTRICT sewer service units for each year of operation. Expense categories not included in a approved budget prior to the 1997198 fiscal year must be authorized by a separate written agreement approved by both the CITY and DISTRICT, such an agreement shall be required if any expense (1) is a capital expenditure in excess of $100,000, other than for repair or replacement-of existing facilities or equipment, or (2) involves a charge that can be lawfully imposed in either the City or the unincorporated area but not in both the City and the unincorporated area. For the purpose of this agreement, one sewer unit is defined as being a single unit of sewer discharge having characteristics of flow, B.O.D. and suspended solids equivalent to that generated and discharged by a typical single family residential unit CITY shall be the paying and receiving agent for all DISTRICT operation and maintenance funds. Cost apportionment between CITY and DISTRICT as described above shell be adjusted annually at the beginning of each fiscal year of-operation based upon the ratio of CITY to DISTRICT equivalent sewer service units on. record as of March 31 each year. Paragraph 6 shall read as follows: To carry out the purpose of this Agreement, the Board of Directors of.the District and the City. Council of the City of Ukiah shall meet together at such times and places as they shall agree, but in any event at least once a year, prior to the commencement. of the fiscal year (July 1 -June 30) for, among other purposes, approval of the annual budget for the sewer system operations. 6.1 The CITY shall prepare the proposed budget for the sewer system which must receive approval from both the City Council and the Ukiah Valley Sanitation District Board of Directors. 6.2 If the City Council and the Board of Directors fail to agree on any item or items in the proposed budget, they shall appoint a committee consisting of one representative from each body to review the disputed items and make a recommendation for approval by both bodies. If the City Council and. Ukiah Valley Sanitation District Board fail to reach agreement on one or more of the disputed items f within a period of sixty days (60) from the date of the their joint meeting ("disputed budget item(s)), the dispute shall be resolved as provided in subsection 6.3. 6.3 Disputed budget item(s) shall be resolved as follows: 6.3.1 The disputed item(s) shall be excluded from the budget or included under conditions acceptable to both parties until the dispute is resolved as provided herein. . 6.3.2 Either the City Council or the Ukiah Valley Sanitation District Board of Directors may request resolution as provided in this subparagraph 6.3, ;if the parties have failed to reach agreement on a disputed budget item as provided in subparagraph 6.2, by providing the other party with a Notice of Dispute Resolution. Said Notice shall identify the Disputed Budget Item or items which is to be submitted for resolution, the proposed remedy of the dispute, and the name, address, and phone number of the party's nominee to the Disputed Resolution Hearing Panel. 6.3.3 Within ten (10) days of receiving notice initiating dispute resolution, the party receiving notice shall submit the name, address, and phone number of its nominee of the Hearing Panel to the other party. Within ten (10) days thereafter, the two nominees shall meet and/or consult and select a third panel member, which shall complete the formation of the Hearing Panel, Each party and its nominee shalt endeavor to appoint members of the Panel who have expertise in the subject matter of the dispute. Within ten (10) days of the Notice of Dispute Resolution, the parties may agree to a single arbitrator as a less costly alternative to the Hearing Panel. All references to the Hearing Panel shall include a single arbitrator, if the parties so agree.. 6.3.4 The Hearing Panel shall establish such rules of procedure as it deems necessary to resolve the dispute provided that such rules must provide for a hearing at which each party may be represented by legal counsel and at which each party. is entitled to present written and oral evidence and legal argument in support of its position. The Panel must hold the hearing and issue its written decision within forty-five (45) days from the date the third panel member is selected and agrees in writing to serve on the Panel. The decision of the Hearing Panel shall be reported to the parties who, within thirty (30) days of the date notice of the decision is given, must each meet and vote to accept or reject the decision. 6.3.5 Each party must act in good faith in considering the decision and should accept the decision unless the decision is contrary to law, clearly erroneous or in direct conflict with written ordinances or policies adopted by the party before the dispute arose. The decision shall be deemed approved by a party; unless within thirty (30) days of the date notice of the decision is given to a party, that party notifies the other party that it has rejected the decision. 'If either party rejects the Hearing Panel's decision, the disputed budget item shall be deemed disapproved and excluded from the budget. If the Hearing Panel recommends approval of a disputed budget item on conditions acceptable to the CITY and the DISTRICT rejects the decision, the CITY shall have the right to terminate this agreement by giving the DISTRICT one hundred eighty (180) days prior written notice of said termination; provided it provides that notice within sixty (60) days of the date the DISTRICT gives notice that it rejected the decision of the Hearing Panel. This Amendment.No.1 is made this 4#1 day of 1999, and the parties hereto have set their signatures below. CITY OF UKIAH B Jim aston, Mayor 17E ST: CITY CLERK UKIAH L 1 D TRICT By Mic e e ba , airperson CLERK OF THE BOARD ~ xmowiENT-L. •AMENDiVMNT NO.2 'TO PARTICIPATION AGREEMENT I3ETVVEEN CITY OF UIGAId AND UKIA H VALLEY SANITATION. DISTRICT This Agreement is entered an, L5 , 2004 ("Effective'Date"), in Ukiah, California, between the City of Ukiah ("City"),, a general law municipal corporation, and the Ukiah Valley Sanitation District ("District"), a special district. The City and the District m_ay be referred to herein as a "Party," or collectively as "the Patties." RECITALS: 1. The Parties entered a Participation Agreement on July 19, 1995, under which (1)' they share the cost and use of a wastewater treatment plant owned and operated by the City, and (2) the City operates and maintains the sewer mains, laterals and related facilities owned by the District. 2. On July 19, 1995, the Parties entered an-Amendment No. 1 to the Participation Agreement. That agreement affirms that the annual costs for the entire sewer system (treatment plant, trunk sewer and collection system of the City and the District), including maintenance, operation, administration, repair and replacement, upgrading, debt service, insurance and financial services are allocated between the City and the District based upon the ratio of City and District sewer service units for each year of operation. ".Sewer service unit" is defined in the Participation Agreement and is referred to herein as "Sewer service unit" or "ESSU'." 3. - Amendment No. 1 also requires_ a separate written agreement between the City and the .District for expense categories not included in an approved budget for the sewer system, prior to the 199711998 fiscal year, if the .expense is a capital expense in excess of $100,000 other than a repair or replacement of existing facilities or equipment. 4. The wastewater treatment plant is at Or near its capacity to treat and. discharge treated wastewater in compliance with its Waste Discharge(N TPDES Pen-nit from the North Coast Regional Water Quality' Control Board ("NCRWQCB"). 5. Using pre-treatment methods, recommended by Brown and Caldwell, Environmental Engineers and Consultants, on an interim basis only, the City has increased the treatment capacity S:\'u%kC-RNTS04\S&N-DA2vP-N2REV 17- i 6.DOC December 8, 2004 Pale 1 of 5 of its sewage treatment plant by a total of 1388 Equivalent Sewer service units ("ESSUs"), assuming that availability of these ESSUs is not affected by any orders or determinations by the NCWRQCB or any other administrative or judicial body with jurisdiction over the City's sewer discharges. 6. In addition to expanding its treatment capacity, many of the structures and treatment processes within the treatment plant have exceeded-their useful design life and need to be replaced or rehabilitated. 7. The City has obtained a preliminary design from Brown and Caldwell for two related projects: (1) a project to increase the capacity of the wastewater treatment plant to permit .additional new connections in both the District and the City ("the Capacit' Project'); and (2) a project to rehabilitate and upgrade the wastewater treatment plant ("the Upgrade/Rehabilitation Project"), collectively, "the Project." The engineer's cost estimates for the projects area approximately $21,000,000 for the Capacity Project and $42,000,000 for the Upgrade/Rehabilitation Project, fora combined Project cost of $63,000,000. The City'currently estimates that both projects will be completed in 2008.. Many factors could affect the estimated completion date, and the Parties acknowledge that this is an estimate only. 8. The Parties estimate that upon its completion, the Capacity Project will increase the wastewater treatment plant's capacity by an additional 2400 ESSU's ("Increased Capacity"), . including the number made available temporarily as described in Recital. Number 5, above. 9.'Allocating the costs, of the Capacity Project and the upgrade portion of the Upgrade/Rehabilitation Project requires a separate written agreement under Amendment No. 1, because those portions of the projects will involve- expense categories not included•in an approved • budget for the sewer system prior to the 1997/1998 fiscal year, which are capital expenses in excess of $100,004 other than a repair cir replacement; of existing facilities or equipment. Accordingly, the Parties require this Amendment No. 2 to allocate the available ESSU's and to share the cost of the Project. AGREEMENT: NOW, THEREFORE, in consideration of the above-recited facts and the terms and conditions as stated below, the Parties agree as follows: 1. Allocation of ESSU's Prior to Completion of Project and of Increased Capacity after Project'C,ompletion. 1.1 ESSU"s During Interim. Period. The ESSU's made available through the use of the pre-treatlent process recommended by Brown and Caldwell shall be allocated as follows' 938 to the District; 442 to the City. Ii either party uses its remaining connections before the other party, it inay give the other party written notice that it requests negotiations to share the other party's- remaining connections. Not later than fifteen (15) days after such notice has been given, the SAMA GRMTS041ZANDAYMN1 2REV11-15.DOC Dece c her 9, 2"v04 I age 2 of l Parties shall meet and negotiate the sharing of the, remaining connections. The Parties axe not required to agree to share the remaining"connections, but each party shall' carefully.consider the interests and concerns of the other party arid make a good faith effort to accommodate them, while still protecting its own governmental interests. 1.2 The Increased Capacity. The Increased Capacity shall be allocated as follows:. 65% to the District; 35% to the City. This allocation of Increased Capacity shall be subject to the same review and-apportunity for adjustment as is provided for the allocation of Capacity Project costs under Section 2.1 of this Agreement. 2. Allocation of the Project Costs. All of the costs of the Project ("Projecf Costs"), including, but not limited to, planning, engineering, design, *design, review, administration, construction, legal and financing (including fees, financial services, transaction costs and debt service) shall be allocated between the City and the District as follows; 2.1. The Capacity Project. 356/o'of the Project Costs. of the Capacity Project shall be paid by the City and 65% of those Project Costs shall be paid by the District. This allocation of Capacity Project Costs is based -on an estimate of the number of new Sewer service units that will be needed in the City and in the District through the year 2020. The allocation of-these costs shall. be reviewed anAually by the Parties to insure that the cost sharing reflects the actual proportion of new connections in the City and the District. Each year, commencing twelve months after the completion. of the Project, the Pariies shall-meet to conduct this review, faking into account'the' number of new service connections- within each party during the previous twelve months, the total number of new connections within each party's jurisdiction since the Effective Date, the likely number of new connections in the next one, three and five year time periods, any changes in organization, including annexations or detachments; which may have occurred, and any other facts or conditions the Parties consider relevant. Based upon this review, the Parties may adjust the allocation of these costs between them. 2.2. The Urrprade/R.ehabilitation Project: The Project Costs of the Upgrade/Rehabilitation Project shall be allocated between the City and the District based upon the ratio of City and District ESSUs for each year of operation, commencing in the year when Project Costs are first incurred, as provided in the Participation Agreement. Consistent with the Participation .Agreement, these allocations shall be calculated each year at the same time and in the same manner as other costs'allocated under Section. 1 of the Participation Agreement. 2.3. Rate Setting to Recover Costs. Each party agrees to establish rates (connection fees and sewer service fees) which are sufficient to pay its share of Project Costs as apportioned pursuant to this Agreement. 3. Compliance with waste discharge/NPDES requirements. Each party in its management of its sewer system agrees to cc, nply with the Waste Discharge/NPDES permits issued to the City-for the operation of the waste water treatment plant and sewer system and with applicable provisions of state and federal law, which regulate discharges to the waters of the State S:iL1AGRMTSO4\SANDANMN2RF-V 2 1-1 b.DOC D ccmber 9, 2004 ~ of California and the United States, including the Porter Cologne Water Quality Act and the Clean Water Act; provided, however, that the legal and other costs of defending a citizen suit or other enforcement action and any settlement or judgment shall be an expense of the entire sewer system, subject to apportionment under the Participation Agreement. Such costs shall not be appord9ried and shall be allocated to .one Party, if .he other Party gives that Party written notice of actions it must take to avoid such a violation and that Party fails to take such action within the time provided in the notice. 4. Notice. Whenever written notice is required or permitted by this Agreement, the Participation Agreement, Amendment No, 1, or any future atnendment5 to the Participation' Agreement, it shall be deemed given when actually received, if delivered by personal delivezy, fax, registered or certified mail or overnight courier, or 48 hours after deposit in the United States Mail with proper first class postage affixed thereto, when addressed-or sent as follows: , CITY OF UKIAH - Attention: City Manager Ukiah Civic Center 300 Seminary Avenue Ukiah, CA. 95482 FAX: 463-620 UKIAH VALLEY SANITATION DISTRICT .Attention: Chairman County of Mendocino County Administration Center 501 Low Gap Road Ukiah, CA. 95482 FAX: 463-4245 5.. Effect on Participation Agreement. This 'Amendment No. 2 constitutes a second amendment to the Participation Agreement, and is not intended to alter the terms of the Participation Agreement and AddendumNo, 1, except as expressly.provided herein. Collectively, the Participation Agreement, Amendment No. 1 and this Amendment No. 2 ("the Agreements") contain the entire agreement between the City and the District concerning the wastewater treatment plant and the City's operation of the sdwer systems ir1 the City and the District, Together, these agreements supercede and replace any other statements, agreements, or understandings between the Parties concerning-this' subject matter. The Participation Agreement, including Amendment No. I and this Amendment No. 2 may be modified only by a written agreement approved by the governing bodies of the Parties and executed by an authorized officer of:.each Party. 6. Duplicate Originals. Two or more copies of this Amendment No. 2 may be executed by the Parties. Each such copy, bearing the original signatures of the Parties, shall be considered an original agreement, admissible in any,adrninistsafave or judicial proceedings as evidence of the agreement between the Parties. 'l. No Third Party Beneficiaries. Unless otherwise agreed in bond indentures or other agreements or documents prepared in connectidn with financing the Project, which documents have been approved by the governing bodies of.the Parties and signed by authorized S; tMAGRMTS0ASAIN AIEN9REV11-i6.DCc December 9, 2004 Page 4 of representatives of the Parties, the.Pazties_intend this ;agreement fof'.thi .sole',benefit of the Parties and do not intend to confer any'rights under the Agreements or any right to enforce the Agreements on any person.:or.entity who is, not ,a Party. WHEREFORE, the Parties have entered this Agreement on the Effective Date. CITY OF UKIAH By Candace Horsley, City Manager ATIZ Marie Ulvila, City Clerk Approved as to form: Davi " apport, i°Attorney UKIAH VALLEY SANITATION DISTRICT MT L DELBAR Chairman" Approved as to form.: t~1~,, . -,per) H. Peter Klein, Coun counsel ATTEST: Kristi Furman, Clerk of the rd Mendocino .County Hof SWWRM S,is3tAGRNITS04\SANDAMEN2PX-V 11-I G.DOC December 9, 2004 Pale 5 of FINANCING AGREEMENT This FINANCING AGREEMENT (this "Agreement"), dated as of :-,March 2, 2006, is between the CITY OF UKIAH, a municipal corporation and general law city duly organized and existing under the laws of the State of California (the "City"), and the UKIAH VALLEY SANITATION DISTRICT, a county sanitation district duly organized and existing under the Sanitation District Act of the State of California (the "District"). BACKGROUND: 1. The City owns a wastewater treatment plant and a system for the collection and disposal of wastewater within the City, including sewer mains, laterals and related facilities. The District owns a system for the collection and transmission of wastewater within the District, including sewer mains, laterals and related facilities, and the District system delivers wastewater collected within the service area of the District to the City's wastewater treatment plant for treatment and disposal. 2. The City and the District have previously entered into a Participation Agreement dated July 19, 1995, as amended by Amendment No. 1 and Amendment No. 2, thereto (as so amended, the "Participation Agreement'), under which the City operates and maintains, as a unified system, the wastewater treatment plant, the District's collection and transmission system and the City's system for the collection and disposal of wastewater (the "Wastewater System"). 3. Under the Participation Agreement, the costs of improving, operating and maintaining the Wastewater System are apportioned between the City and the District each year in accordance with procedures and methodology set forth therein. 4. The City is proceeding at this time to finance improvements to the wastewater treatment plant (the "Project"), and the District has agreed that it will establish rates and charges for the use of the District's portion of the Wastewater System which are sufficient to enable the District to pay its share of the costs of such improvements as apportioned under the Participation Agreement. 5. In order to provide financing for the Project, the Association of Bay Area Governments (the "Authority") will issue its 2006 Water and Wastewater Revenue Bonds, Series =k, in the aggregate principal amount of $76.060._000 {the "Authority Bonds"), and the Authority and the City will enter into an Installment Sale Agreement dated as of =s ,;w - _Ivtarch.. f, 2006 (the "Installment Sale Agreement"), under which the City agrees to repay debt service on the Authority Bonds through the payment of semiannual installment payments (the "Installment Payments"). 6. The City and the District wish to enter into this Agreement for the purpose of securing the portion of the financing costs which are allocable to the District in accordance with the Participation Agreement, in the same manner in which the City's allocable share of such financing costs is secured under the Installment Sale Agreement. AGREEMENT: In consideration of the foregoing and the material covenants hereinafter contained, the City and the District formally covenant, agree and bind themselves as follows: SECTION 1. Allocable Share of Payments. A portion of the Installment Payments shall be apportioned to the District under and in accordance with the procedures and methodology set forth in the Participation Agreement. Such portion is herein referred to as the "District Payments." SECTION 2. Rates and Charges. The District will fix, prescribe and revise rates, connection fees and other fees and charges for the services and facilities furnished by the District's portion of the Wastewater System during each fiscal year of the District, which are at least sufficient, after making allowances for contingencies and error in the estimates, to yield net revenues (being total revenues less all other costs apportioned to the District under the Participation Agreement for the operation, maintenance and repair of the District's portion of the Wastewater System) which are at least equal to 120% of the aggregate amount of District Payments for such fiscal year. All such revenues will be collected by the City in accordance with the Participation Agreement, and the City will apply such revenues to pay the District Payments on behalf of the District. For purpose of this covenant, transfers from a Rate Stabilization Fund in any fiscal year under Section 3 will be included in the net revenues for such fiscal year. SECTION 3. Rate Stabilization Fund. The District has the right at any time to establish a Rate Stabilization Fund to be held by it or by the City and administered in accordance with this Section 3, for the purpose of stabilizing the rates and charges imposed by the District with respect to the Wastewater System. From time to time the District may deposit amounts in the Rate Stabilization Fund, from any source of legally available funds, as the District may determine. The District may, but is not be required to, withdraw from any amounts on deposit in the Rate Stabilization Fund and transfer such amounts to the City in any fiscal year for the purpose of paying any portion of the District Payments coming due and payable in such fiscal year. Amounts on deposit in a Rate Stabilization Fund are not pledged to and do not secure the District Payments. All interest or other earnings on deposits in the Rate Stabilization Fund will be retained therein or, at the option of the District, be applied for any other lawful purposes. The District may at any time withdraw any or all amounts on deposit in the Rate Stabilization Fund and apply such amounts for any other lawful purposes of the District. SECTION 4. Additional Debt, The District may not issue or incur any additional bonds or other obligations having any priority in payment out of the revenues levied hereunder over the District Payments, or which are secured on a parity with the District Payments. SECTION 5, Participation Agreement to Remain in Effect. So long as the Authority Bonds remain outstanding, the City and the District shall not cancel the Participation Agreement under Section 7 thereof, or permit the Participation Agreement to terminate in accordance with its terms, unless the District first either (a) enters into an agreement with the Authority containing terms and provisions which are substantially similar to the terms and provisions of the Installment Sale Agreement, or (b) deposits with the City an amount which is sufficient to prepay its allocable share of the Installment Payments as such share is determined in accordance with Section 1. -2- SECTION 6. Information to Bond Insurer. The District shall cooperate with X.L Gars tal_.n.,:,~suran n 1nc., as insurer of the Authority Bonds (the "Bond Insurer") in all regards as may be required to comply with the terms and provisions of the Bond Insurance Policy relating to the Authority Bonds, and as required to enable the Trustee to receive payments under the Bond Insurance Policy. The District shall provide such information to the Bond Insurer from time to time as the Bond Insurer may reasonably request in writing. SECTION 7. Governing-Law. This Agreement is construed in accordance with and governed by the laws of the State of California. SECTION 8. Binding Effect. This Agreement inures to the benefit of and is binding on the Authority, the City, the District, the Bond Insurer and their respective successors and assigns, subject to the limitations contained herein. The Authority and the Bond Insurer are hereby made third party beneficiaries of this Agreement and are entitled to the benefits of this Agreement with the same force and effect as_ if the Authority and the Bond Insurer were each a party hereto. IN WITNESS WHEREOF, the City and the District have caused this Agreement to be executed in their respective names by their duly authorized officers, all as of the date first above written. CITY OF UKIAH ATTEST: By By Mayor UKIAH VALLEY SANITATION DISTRICT By Chairman ATTEST: By Clerk of the Board City Clerk -3-