title
ADOPT A RESOLUTION CANCELING AND RESCHEDULING THE MAY 24, 2016 PUBLIC HEARING TO CONSIDER ADOPTION OF PROPOSED WATER RATE INCREASES
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a Resolution to:
1. Cancel the May 24, 2016 Public Hearing to consider adoption of proposed water rate increases, previously set by City Council Resolution 2016-03-29-1506,
2. Authorize and direct the City Manager to schedule a new Public Hearing to consider the adoption of a revised schedule of maximum allowable rates, and
3. Authorize and direct the City Manager to mail notice of the Public Hearing to all record owners of parcels subject to the proposed rate increases as well as tenants who are directly responsible for the payment of water service charges.
It is further recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of the Resolution.
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Summary
The City Council previously adopted Resolution 2016-03-029-1506 to schedule a Public Hearing on May 24, 2016. The Public Hearing was scheduled to consider adoption of increased rates for water service charges. The proposed rate increases were discussed at the Water Advisory Group, Council Water Committee, and multiple City Council meetings. Substantial public comment was received in all of these forums, and three significant concerns emerged: the amount of the overall rate increase, the amount of the rate increase in the first year, and uncertainty regarding the ability of tenants who are responsible for the payment of water service charges to protest the proposed increases.
Staff has worked to address the concerns expressed by Council and the public as part of an ongoing effort to improve efficiencies and lower costs. Because the rates established by Council are the maximum allowable rates and actual rates may be lower as determined during the budget process, staff continued to pursue opportunities to lower costs. Since the original rates were developed, staff has identified a combination of ongoing and one-time savings. These savings will afford a significantly lower rate increase in the first year, distribute rate increases more evenly over the first two years, and lower the overall rate increase.
A comparison of the revised schedule of proposed increases for the maximum allowable rates and the original proposal is provided below.
|
Fiscal Year |
Prior Water Rate Increase |
Updated Water Rate Increase |
|
2016/2017 |
26.0% |
18.5% |
|
2017/2018 |
5.5% |
11.0% |
|
2018/2019 |
3.0% |
3.0% |
|
2019/2020 |
3.0% |
3.0% |
|
2020/2021 |
3.0% |
3.0% |
By the adoption of the proposed Resolution, the City Council will cancel the May 24, 2016 Public Hearing, set by Resolution 2016-03-29-1506, authorize and direct the City Manager to schedule a new Public Hearing for the purpose of considering the adoption of the revised schedule of increases in the rates for the City’s water service charges and to mail a notice of the Public Hearing. The notice of the Public Hearing will be mailed to all record owners of parcels upon which the water service charges are proposed for imposition, and any tenants who are directly responsible for the payment of water service charges (i.e., a billing customer of record who is not a property owner). The notice will include the updated schedule of rates and proposed rate adjustments. The Public Hearing will be scheduled not less than forty-five days after the notice of the rescheduled Public Hearing has been mailed.
DISCUSSION
Background
Water rate studies are periodically necessary for maintaining a sound fiscal base and for providing a framework for responsible management. A water rate study was completed in 2009 in conjunction with the inception of the Delta Water Supply Project (DWSP). Updated water rate studies incorporate changes in revenue and expenses since the last rate study. Current impacts to the water utility’s revenue and expenses include: new water conservation requirements due to the State’s historic drought that resulted in declining revenue; requirements for continued debt service coverage; increased water costs for purchased water; and the need to fund future capital project improvements and ongoing maintenance requirements.
While it was time for a periodic update to the water rate study, the Municipal Utilities Department (MUD) also identified a need to update the water rate study as a result of increasing costs and declining revenues. The water utility purchases approximately 6,000 acre-feet per year from the Stockton East Water District to supplement supplies from DWSP and City wells at a cost of $8.7 million through a water purchase agreement. Purchased water costs from the Stockton East Water District have increased 18.5% in each of the last two fiscal years.
Revenues have also decreased as a result of State mandated water conservation requirements. To address the historic drought, the State of California called for a 25 percent reduction in water use statewide and set specific local targets. The State Water Resources Control Board set the City of Stockton’s water reduction amount at 28 percent, and reduced the conservation target to 26 percent in March 2016. City of Stockton water customers reduced water consumption consistent with the State mandate, and the MUD experienced a revenue reduction of approximately $3 million annually.
As a result of declining revenues, the capital improvement program for water projects has been curtailed, and only essential projects were funded or planned for Fiscal Years 2015-16 and 2016-2017. In addition, personnel vacancies in the water utility have been frozen in order to limit expenditures.
The MUD maintains a rate stabilization fund, or reserve account, as a protection against economic uncertainties and unforeseen expenditures. The reserve account has been used to forestall rate increases to this point as revenues have declined. In Fiscal Year 2014-15, $5.6 million from the rate stabilization fund was used to meet operational needs and debt coverage requirements. It is anticipated that another $2.25 million from the rate stabilization fund will be used in Fiscal Year 2015-2016 to meet debt coverage requirements. Going into Fiscal Year 2016-17, the projected rate stabilization balance will be $540,000, and this is minimal protection for economic uncertainties and unforeseen expenditures.
As noted above, the MUD was required to use rate stabilization funds to meet debt coverage requirements. The MUD currently has $244,805,000 in bonds that have financed various water projects, including the Delta Water Supply Project. The bond covenants require a minimum net system revenues (including connection fees) of 115 percent of the annual debt payment, calculated first to senior bonds and then the remaining subordinated bonds. In addition to using the rate stabilization fund, the MUD also had to defease (make early payments) debt obligations in Fiscal Year 2015-16. The early payments lowered the outstanding balance of debt obligations and enabled the MUD to meet debt coverage requirements. Defeasance is only a temporary strategy because it uses available cash to meet future obligations in advance of receiving payments for utility services. The failure to comply with the bond covenants could result in a technical default and downgrade of the water utility’s credit ratings. If left unaddressed, the default could result in an immediate demand for payment of the outstanding debt.
Consequently, the MUD issued a Request for Proposals in February 2015 for an updated water rate study, community outreach and Proposition 218 balloting services to three financial firms with experience in water rate studies - HDR, Inc., Goodwin Consulting Group, and NBS. Only one proposal was received from HDR, Inc. and on July 14, 2015, the City executed an Amendment to Professional Services Master Contract with HDR Engineering, Inc.
Present Situation
After multiple public meetings, the City Council adopted Resolution 2016-03-29-1506 on March 29, 2016, and authorized the City Manager to begin the Proposition 218 Public Notice and Protest Hearing Process and scheduled a Public Hearing for the May 24, 2016 Council Meeting to consider adoption of the proposed maximum allowable water rate increases. Substantial public comment was received in all of the public meetings, and three significant concerns emerged: the amount of the overall rate increase, the amount of the rate increase in the first year, and uncertainty regarding the ability of tenants who are responsible for the payment of water service charges to protest the proposed increases.
Staff has worked to address the concerns expressed by Council and the public as part of an ongoing effort to improve efficiencies and lower costs. Because the rates established by Council are the maximum allowable rates and actual rates may be lower as determined during the budget process, staff continued to pursue opportunities to lower costs. Since the original rates were developed, staff has identified a combination of ongoing and one-time savings. These savings will afford a significantly lower rate increase in the first year, distribute rate increases more evenly over the first two years, and lower the overall rate increase.
To address the amount of the overall increase in the maximum allowable water rate increases, staff has continued to reexamine costs. In March 2016, staff was able to successfully renegotiate commitments for purchased water. The amount of water deliveries from Stockton East Water District have been reduced to 6,000 acre-feet per year, and have in-turn, reduced the Water Utility’s operation and maintenance costs by $1.4 million annually. Combined with other operational savings, the total cost to operate the water service reduced from $28.3 million per year in the original rate study to $25.9 million in this revision.
In response to public concern and Council direction, staff have also identified a strategy to reduce the impact of the 26 percent increase originally proposed for the first year. The MUD has sufficient cash available to perform another defeasance in Fiscal Year 2016-2017. While making early debt payments year after year is not a viable option, the MUD can afford to defease $4.9 million in the upcoming fiscal year. The early payment will lower the required increase in the maximum allowable rate from 26 percent to 18.5 percent and provide a more even rate increase over the first two years.
Proposed water rate transition plans have been updated and are presented below.
|
Fiscal Year |
Prior Water Rate Increase |
Updated Water Rate Increase |
|
2016/2017 |
26.0% |
18.5% |
|
2017/2018 |
5.5% |
11.0% |
|
2018/2019 |
3.0% |
3.0% |
|
2019/2020 |
3.0% |
3.0% |
|
2020/2021 |
3.0% |
3.0% |
The proposed phased rate increase for each water utility customer class are shown on the tables below. For fiscal year 2017, the rates are proposed to take effect beginning August 1, 2016. For the remaining fiscal years, the rates are proposed to take effect July 1 in each of the respective years. Drought surcharges should be adopted based on the need to maintain sufficient revenues for operating and capital needs during water shortages.
Finally, there was a significant number of questions and concerns expressed by the public regarding who had the right to voice support for or protest the proposed increase in maximum allowable rates. The original notice of Public Hearing was addressed to record owners of properties subject to the proposed rate increases, and concerns were raised regarding confusion over the ability of tenants who are also responsible for the payment of water service charges to protest. It was the City’s intent to allow up to one protest per parcel, regardless of whether it was filed by the record owner or responsible tenant. After consulting with the City Attorney’s Office and outside counsel, it was determined that reissuing a new notice and rescheduling the Public Hearing was the best course of action considering the developments mentioned above.
While a rate increase is still required to meet the fixed cost of operating the water service provided by the MUD, the additional savings, early payment of debt and reissuing of the notice of Public Hearing will address the major concerns raised by the public and direction given by Council to the greatest extent possible. The MUD staff will continue to reexamine costs, and there will be flexibility under the revised maximum allowable rates for Council to approve lower rates should additional savings be identified.
The City of Stockton Municipal Utilities Department conducted two community meetings at Seifert Community Center and Merlo Gymnasium; and will conduct two additional public information sessions at Arnold Rue Community Center and again at Seifert Community Center to provide this updated rate increase and Proposition 218 process information. The Merlo Gymnasium community meeting will be held on May 9, 2016, and this most recent information will be provided.
By approving the Resolution, the City Council will authorize and direct the City Manager to issue a new Proposition 218 Notice for the rescheduled Public Hearing to all property owners and utility customers of each identified parcel upon which the charges are proposed for imposition and to schedule a Public Hearing no less than 45 days from the mailing of the Proposition 218 Notice of Public Hearing to consider adoption of the proposed water rate increases.
FINANCIAL SUMMARY
The cost for printing and mailing the ballots/notices shall be paid from the water utility fund. Sufficient funds are available in the following account to cover costs:
421-4210-572 Water Resources Administration
There is no impact to the General Fund, or any other unrestricted fund, from this action.
The following pages contain tables that provide a comparison of the present and proposed water rates.
|
Table 1 Present & Proposed Single Family Water Rates |
|
|
Present Rates |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Fixed Charge |
|
5/8" |
$18.94 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
3/4" |
22.25 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" |
29.24 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" & less |
N/A |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2" |
42.17 |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2" |
54.49 |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3" |
96.36 |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4" |
138.53 |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6" |
228.20 |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8" |
330.87 |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10" |
412.91 |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12" |
581.32 |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Consumption Charge |
|
All Usage |
$1.67 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
0 - 15 CCF |
N/A |
$2.00 |
$2.23 |
$2.31 |
$2.39 |
$2.47 |
|
15 + CCF |
N/A |
2.39 |
2.66 |
2.76 |
2.86 |
2.95 |
|
Table 2 Present & Proposed Multi-Family Water Rates |
|
|
Present Rates |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Fixed Charge |
|
5/8" |
$18.94 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
3/4" |
22.25 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" |
29.24 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" & less |
N/A |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2" |
42.17 |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2" |
54.49 |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3" |
96.36 |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4" |
138.53 |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6" |
228.20 |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8" |
330.87 |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10" |
412.91 |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12" |
581.32 |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Consumption Charge |
|
All Usage |
$1.67 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
Winter |
N/A |
$1.70 |
$1.90 |
$1.97 |
$2.04 |
$2.11 |
|
Summer |
N/A |
1.85 |
2.07 |
2.14 |
2.22 |
2.30 |
|
Table 3 Present & Proposed Non Residential[1] Water Rates |
|
|
Present Rates |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Fixed Charge |
|
5/8" |
$18.94 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
3/4" |
22.25 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" |
29.24 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" & less |
N/A |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2" |
42.17 |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2" |
54.49 |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3" |
96.36 |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4" |
138.53 |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6" |
228.20 |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8" |
330.87 |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10" |
412.91 |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12" |
581.32 |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Consumption Charge |
|
All Usage |
$1.67 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
Winter |
N/A |
$1.70 |
$1.90 |
$1.97 |
$2.04 |
$2.11 |
|
Summer |
N/A |
1.98 |
2.21 |
2.29 |
2.38 |
2.46 |
[1] - Non Residential class includes commercial, industrial, and institutional customers
|
Table 4 Present & Proposed Irrigation Water Rates |
|
|
Present Rates |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Fixed Charge |
|
5/8" |
$18.94 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
3/4" |
22.25 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" |
29.24 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
1" & less |
N/A |
$28.00 |
$31.00 |
$31.95 |
$32.90 |
$33.90 |
|
1 1/2" |
42.17 |
56.00 |
62.00 |
63.90 |
65.80 |
67.80 |
|
2" |
54.49 |
89.60 |
99.20 |
102.24 |
105.28 |
108.48 |
|
3" |
96.36 |
168.00 |
186.00 |
191.70 |
197.40 |
203.40 |
|
4" |
138.53 |
280.00 |
310.00 |
319.50 |
329.00 |
339.00 |
|
6" |
228.20 |
560.00 |
620.00 |
639.00 |
658.00 |
678.00 |
|
8" |
330.87 |
896.00 |
992.00 |
1,022.40 |
1,052.80 |
1,084.80 |
|
10" |
412.91 |
1,288.00 |
1,426.00 |
1,469.70 |
1,513.40 |
1,559.40 |
|
12" |
581.32 |
1,890.00 |
2,092.50 |
2,156.63 |
2,220.75 |
2,288.25 |
|
Consumption Charge |
|
All Usage |
$1.67 |
N/A |
N/A |
N/A |
N/A |
N/A |
|
Winter |
N/A |
$1.78 |
$1.99 |
$2.06 |
$2.13 |
$2.20 |
|
Summer |
N/A |
2.26 |
2.53 |
2.62 |
2.70 |
2.79 |
In addition, a drought rate surcharge will be a part of the updated rate structure. The purpose of the drought surcharge is to maintain sufficient revenues during times of reduced consumption. The drought surcharge will be levied in accordance to the stage of water conservation savings - 10%, 20%, 30%, 40% or 50%, as established by the City Council.
The drought surcharges are as follows:
Table 5 Proposed Drought Rate Surcharges
|
|
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
FY 2021 |
|
Single Family |
|
|
|
|
|
|
Stage 1 |
$0.23 |
$0.27 |
$0.28 |
$0.29 |
$0.30 |
|
Stage 2 |
0.53 |
0.60 |
0.62 |
0.64 |
0.66 |
|
Stage 3 |
0.90 |
1.03 |
1.07 |
1.11 |
1.15 |
|
Stage 4 |
1.40 |
1.60 |
1.66 |
1.72 |
1.78 |
|
Stage 5 |
2.10 |
2.40 |
2.49 |
2.58 |
2.66 |
|
Multi-Family |
|
|
|
|
|
|
Stage 1 |
$0.20 |
$0.22 |
$0.23 |
$0.24 |
$0.25 |
|
Stage 2 |
0.44 |
0.50 |
0.52 |
0.54 |
0.56 |
|
Stage 3 |
0.76 |
0.86 |
0.89 |
0.92 |
0.95 |
|
Stage 4 |
1.18 |
1.33 |
1.38 |
1.43 |
1.48 |
|
Stage 5 |
1.77 |
2.00 |
2.07 |
2.15 |
2.23 |
|
Non Residential |
|
|
|
|
|
|
Stage 1 |
$0.21 |
$0.23 |
$0.24 |
$0.25 |
$0.26 |
|
Stage 2 |
0.46 |
0.52 |
0.54 |
0.56 |
0.58 |
|
Stage 3 |
0.79 |
0.90 |
0.93 |
0.97 |
1.00 |
|
Stage 4 |
1.23 |
1.40 |
1.45 |
1.50 |
1.55 |
|
Stage 5 |
1.85 |
2.10 |
2.18 |
2.26 |
2.34 |
|
Irrigation |
|
|
|
|
|
|
Stage 1 |
$0.23 |
$0.26 |
$0.27 |
$0.28 |
$0.29 |
|
Stage 2 |
0.52 |
0.59 |
0.61 |
0.63 |
0.65 |
|
Stage 3 |
0.90 |
1.02 |
1.06 |
1.10 |
1.14 |
|
Stage 4 |
1.39 |
1.58 |
1.64 |
1.70 |
1.76 |
|
Stage 5 |
2.09 |
2.38 |
2.47 |
2.56 |
2.65 |