CAS Attachment A and Exhibit 1 to Reso - Sewer Cost of Service Rate Study 2021.pdf

City of Chula Vista, California
Report

Sewer Rate Study

i Rate Study – Final Report
July 21, 2021

TABLE OF CONTENTS
TABLE OF CONTENTS ...................................................................................................................................... i Section 1 – Executive Summary ..................................................................................................................... 1

1.1 Study O verview ....................................................................................................................................... 1

1.2 Financial Pl anning Period ........................................................................................................................ 1

1.3 Financial Management Goals of the City .................... ............................................................................ 2

1.4 Findings and Re commendations ............................................................................................................ 4 Section 2 ‐ Introduction ................................................................................................................................. 7

2.1 Introduction .............................................. .............................................................................................. 7

2.2 Goals and Objectives .............................................................................................................................. 7

2.3 Overview of the Rate Study Process ....................................................................................................... 7

2.4 Organization o f this Report .................................................................................................................... 8

2.5. Relianc e on Data ..................................................................................................................................... 9 Section 3 – Overview of Financial Planning Principles, Processes, and Issues ............................................... 10

3.1 Introduction .............................................. ............................................................................................ 10

3.2 The Revenue Su fficiency Process .......................................................................................................... 10

3.2.1 Determination of the Revenue Requirements ............... .............................................................. 11

3.3 Determination of R evenue Requirements ............................................................................................ 12

3.4 Financial Management Goals of the City .................... .......................................................................... 12

3.4.1 Cash Reser ve Targets .................................................................................................................... 13 Section 4 – Financial Plan Development and Results ................................................................................... 16

4.1 Revenue Sufficiency Analysis .............................. .................................................................................. 16

4.1.1 General Methodology .................................................................................................................. 16

4.1.2 Data Items .............................................. ...................................................................................... 17

4.1.3 FY 2020‐21 Beginning o f Year Cash Balance ................................................................................. 17

4.1.4 Interest Earnings ........................................................................................................................... 18

4.1.5 FY 2020‐21 Ad opted Budget ......................................................................................................... 18

4.1.6 Rate Revenue Projections ............................................................................................................ 18

4.1.7 Regional Wastewater Di sposal Costs/Metro Costs ...................................................................... 19

4.1.8 Capital Improv ements Plan (CIP) .................................................................................................. 19

ii Rate Study – Final Report
July 21, 2021

4.1.9 General Assumptions ................................................................................................................... 20 Section 5 – Conclusions and Recommendations .......................................................................................... 32

5.1 Conclu sions ................................................................................................................................... 32

5.2 Recomme ndations ........................................................................................................................ 32

Appendices:
 Appendix A – Financial Plan Summary
 Appendix B – Reserve Fund Policies
 Appendix C – Cash Balances
 Appendix D – System Growth Estimates
 Appendix E – Interest Earnings Assumptions
 Appendix F – Metro Cost Projections
 Appendix G – Cost Escalation Factors
 Appendix H – ENR 20 Cities Index

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Section 1 – Executive Summary
The City of Chula Vista (City) provides sewer service to a population of approximately 275,000. The City’s sewer enterprise fund is self‐supporting and funds operations and maintenance (O&M) costs, capital projects including routine repair and replacement of aging system components of the sewer system.

Sewer user rate revenue provides stable secure revenue for the utility and is the primary revenue source.

Revenue from sewer user rates cannot be used for any other general or special purpose. The main objective of this study was to develop a ten‐year financial pla n with a focus on the first five years, that evaluated the sufficiency of projected revenue over the ten‐yea r projection period to cover the costs of operating and maintaining the utility. The financial plan includes recommended rate revenue adjustments to ensure continued revenue sufficiency and stability. These are discussed in further detail in the body of this report. The five‐year plan is covered in the balance of t his report while the full ten‐year plan can be found in the appendices.

1.1 Study Overview
The City contracted with Willdan Financial Services (“Willdan”), to complete a sewer rate study comprised of the following objectives:
 Ten‐Year Financial Plan with a Five‐Year Focus: Identify the revenues required by the utility to meet the respective annual costs of operation and system maintenance.  Recommendations for potential rate increases: Identify where adjustments in future rates may be necessary to generate sufficient revenue for system objectives and costs.

1.2 Financial Planning Period
This study develops a 10‐year financial plan but focuses on the current year plus the first 5‐years (fiscal years 2021‐22 through fiscal year 2025‐26), identifying costs s uch as operating expenses (including costs related to the San Diego Metropolitan Wastewater Authority Poin t Loma Treatment Plant), capital improvement costs and debt financing (should future debt be issued). In addition, a broader outlook (fiscal years 2021‐22 through fiscal year 2029‐30) is reviewed and included to ensure appropriate reserve balances are met based on industry standards and the City of Chula Vista’s fiscal policies.

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1.3 Financial Management Goals of the City
The establishment of specific financial management goals of a u tility is a key step in developing financial plans that are consistent in approach, based on sound policies, and that will ensure the financial health of the utility remains strong.  The C ity has established reserve p olicies for the sewer utility to help ensure financial stability as well as the continued ability to provide s e w e r s e r v i c e .   T h e C i t y m a i n t a i n s t h e following sewer utility funds:
 Sewer Services Revenue Fund (Fund 414) – The fund is mainly for operations and maintenance of system assets but can also be used to meet capital and planning needs.  Sewer Facilities Replacement (SFR) (Fund 428) – This fund is for capital projects related to the rehabilitation and replacement of the City’s collection system.  Trunk Sewer Capital Fund (Fund 413) – This fund includes capacity fees paid to the City and represents the cost of buying into the system for new customers or increased flows. The funds are to be used to pay the costs and expenses associated with re pairing or replacing large trunk sewer facilities and to enhance the sewer system. With City Cou ncil’s approval this fund can be used for regional treatment facilities.
 Sewer Income Fund (Fund 411) – R e v e n u e d e p o s i t e d i n t o t h i s f u n d i s u s e d t o p a y f o r l a t e r a l connection infrastructure associated with new connections to the system. New customers pay for the cost of the connection. Revenues collected for this fund cover the City’s cost to construct the public wastewater system for new properties through permit fees .  These costs are calculated separately.  This fund was not included in the study evaluation.  Sewer Development Impact Fee Fund (Sewer DIF) (Fund 430) – These funds cover capital projects triggered by new development, including infill or redevelopment. The revenues and expenses associated with DIF related projects in this fund are DIF funds and are addressed in separate studies and not included in this study.
 Strom Drain Fee (Fund 301) – T h e s e f u n d s a r e u s e d t o o p e r a t e a n d m a i n t a i n t h e C i t y ’ s s t o r m drainage system.  This fund was not included in the study.

Target reserve policies have been identified within individual funds that the City strives to achieve and maintain. The current financial management goals of the City are described below in terms of cash reserve targets. By meeting the cash reserve targets (identified below) the implication is that the revenues and expenses are also balanced.

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Cash Reserve Targets – Sewer Revenue Fund (Fund 414)
In December 2013, City Council approved a reserve policy for th e Sewer Services Revenue Fund or Fund 414, which includes five reserve categories; summarized in Table 1‐1.

Table 1‐1
Summary of Reserve Policy for the Sewer Service Revenue Fund (Fund 414) Reserve Purpose Minimum Balance Maximum Balance
Working Capital
 Manage differences in
revenue and expense
cycles
 90 days of operating
expenses ($9.6
million in 2021)
 125% of minimum
balance ($12.0
million in 2021)
Rate
Stabilization
 Protect against
unforeseen fluctuations
in revenues or expenses
 90 days of operating
expenses ($9.6
million in 2021)
 125% of minimum
balance ($12.0
million in 2021)
Emergency
 Provide funding for
emergency asset
replacement and
insurance deductibles
 5% of operating
expenses ($1.9
million in 2021)
 125% of minimum
balance ($2.4
million in 2021)
Vehicle
Replacement
 Levelize cost impacts of
vehicle replacement
needs
 2% of operating expenses ($779 thousand in
2021)
EPA Permit
Renewal Liability
 Accrue funding for
PLWTP upgrade
(recommended scenario)
 Prior annual transfer target $1.8 million
 Recommended for removal
As of June 30, 2020, Fund 414 had a balance of $48.1 million.

Cash Reserve Targets – Sewer Facilities Replacement (SFR) (Fund 428) As of June 30, 2020, the Sewer Facilities Replacement Fund (Fund 428) or SFR had a balance of $13.6 million. The generally accepted industry standard reserve target for this type of fund is based on the annual revenues with the target collection equal to the annual depreciation of its infrastructure. Revenue equal to annual depreciation helps to ensure that infrastructur e is kept reliable as system components age and can help prevent significant unexpected repairs which can be more costly than routine repair and replacements of aging system components paid for from an adequa tely funded annual capital replacement and rehabilitation reserve. The last rate study set a target for the fund at starting point of 54% of the annual depreciation.

The Sewer Fund depreciation for FY 2019‐20 was $6.5M (per the 2 020 Comprehensive A nnual Financial Report (CAFR) page 46). The revenue collected for this fund in FY 2019‐20 was $2.4 million which represents 36.9% of annual depreciation. This amount falls short both of the goal of matching annual

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depreciation as well as the recommended target from the prior s tudy1. To achieve the target of 54% of annual depreciation the City would have needed to generate $3.7 million in revenues.

Cash Reserve Targets – Trunk Sewer Capital Fund (Fund 413) The Trunk Sewer Capital Fund represents revenues collected and held from the payment of fees to offset the cost to buy into the City of Chula Vista’s sewer system. Th ese funds can be used for enlargement of sewer facilities and planning of area‐wide sewage treatment and/or reclamation systems or facilities. With City Council approval, the money can be used for construction of sewage collection or treatment facilities.

The available cash balance of the Trunk Sewer Capital Fund as o f June 30, 2020 was $64.8 million. Since the fund represents the cost to buy into the sewer system, no cash reserve target exists.

1.4 Findings and Recommendations
In developing the financial plan for the sewer utility, it was determined that if the following recommendations are implemented, the sewer rates charged to customers can remain unchanged for Fiscal Year 2021‐22 followed by m oderate annual increases betwe en 4.5% to 5.5% for the remaining 9 years of the study period (through Fiscal year 2029‐30). The recommendations are:

1. Implement Metro Costs Pass Through – The California Government Code Section 53756 allows for a d j u s t m e n t s t h a t p a s s t h r o u g h t h e i n c r e a s e s a n d d e c r e a s e s i n w holesale charges for sewage treatment.

2. Rescind the Permit Liability Reserve (or EPA Liability Reserve or EPA Reserve) ‐ The implementation of the Metro Costs Pass Through along with other f a c t o r s d e s c r i b e d i n m o r e detail in later sections allow for the removal of the EPA Liability Reserve. The amount of revenue collected to meet this reserve was targeted at $1.8 million bas ed on assumptions from the 2013 Rate Study. Removal of this reserve amount allows for more ava ilable cash and makes possible the stabilization of customer rates.

3. Increase the Allocation of the Service Charge Revenue to SFR Fu nd – The reserve goal of the SFR fund was increased to meet industry standards. The last rate st u d y h a d a g o a l o f m e e t i n g approximately half of the industry reserve standards. Under the revised goal, more money is needed for this fund on an annual basis. Thus, the percent of the service charges going into the

1 City of Chula Vista Sewer Cost-of-Service Rate Study November 2013 Prepared by FCS Group.

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SFR fund from the service charges collected from the customers increases. This also means that less service charge revenue is allocated to Fund 414.

4. Request Council authorize the use of Trunk Sewer Capital Reserve Fund – The Trunk Sewer Capital Reserve Fund can be used for capital expenses of the sewer syst em with City Council approval.

The City is working to keep sewer rates reasonable and fair in compliance with Proposition 218.

In the last two years of the five‐year study FY 2024‐25 and FY 2025‐26, the released reserve amount from the EPA Liability Reserve has been depleted and with expenses outpacing revenues the reserve targets cannot be met without large increases to rates. Thus, it is recommended that with City Council approval, money from Fund 413 be used to pay for regional capital sewer expenses charged by Metro. The result is that less money is needed from Fund 414 to pay for the City of San Diego Metro costs and the fund can maintain the target balances.

As noted in Table 1‐1, the EPA permit reserve is recommended for removal. When this reserve was initially adopted, (with an initial target of $1.8 million) an assumption was made that the City of San Diego would cash fund the capital costs associated with the Point Loma Wastewater Treatment Plant upgrades for secondary treatment. The reserve was intended to offset the City’s share of the upgrade costs. In the time since the reserve was established, the City of San Diego has pr ovided the Participating Agencies (on an annual basis) five‐year projections for the Agencies contributions. In these projections, San Diego is showing their own debt servicing. San Diego’s change in approac h to funding the treatment plant upgrades eliminates the need for the City to maintain a large c ash reserve on hand to pay their one‐time share of capital costs. Instead, the City’s share of the upgrad e costs is budgeted annually in the financial plan. Another reason for eliminating the reserve is that this study recommends a pass‐through adjustment mechanism to account for annual fluctuations in Metro Costs whi ch are beyond the City’s control. The pass through is discussed in more detail later in this report.

It is recommended that the City update the cashflow portion of this study each year. This will help to ensure projected revenue remains on track over time and is suff icient to fund projected expenses going forward. This is important as assumptions made during this ana lysis may change and have a material impact on the analysis. A summary of the projected rate revenue increases, fund goals and cash balances are illustrated in Table 1‐2.

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Table 1‐2
Projected Rate Revenue Increases and Cash Balances
Fiscal Years Ending June 30
Fiscal Year
Sewer Rate
Revenue
Increases
Target
Balance (1)
SSR Fund
414
Actual
Ending
Balance
SSR Fund
414
Target
Revenues
SFR Fund
428
Actual
Revenues
SFR Fund
428
Actual
Ending
Balance
TSC Fund
413
(In Thousands)
2021‐22 0.0% $21,535 $37,661 $7,135 $1,801 $64,837 2022‐23 4.5% 22,055 33,503 7,345 2,306 64,837
2023‐24 5.0% 22,579 30,016 7,563 2,871 64,837
2024‐25 5.0% 23,108 33,721 7,786 3,536 58,837
2025‐26 5.5% 24,324 31,720 8,016 4,303 58,837
(1) It is assumed that in FY 2021‐22 the recommendations are implemented. One recommendation is the removal of the EPA Liability Reserve which is why the actual ending balance for Fund 414 appears to be large compared to the target balance in Fund 414.

It should be noted that the City’s current sewer rates develope d through the cost‐of‐service analysis in the prior report2 appear reasonable and meet the requirements of Proposition 218. A more detailed summary of the rate study is presented in the balance of this report.

2 City of Chula Vista Sewer Cost-of-Service Rate Study November 2013 Prepared by FCS Group.

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Section 2 - Introduction

2.1 Introduction
Willdan Financial Services (“Willdan”) was retained by the City of Chula Vista, California (“City”) to conduct a Sewer Rate and Financial Study (“Rate Study”) for the City’s sewer utility (“Utility”). This report details the results of the Rate Study analysis for the forecast period, from the current year through the next five years, fiscal year (FY) 2021‐22 through FY 2025‐26, the results of which are presented in this Rate Study Report.

The results of the Rate Study include a 10‐year financial plan and suggested rate adjustments designed to provide revenue necessary to over time be sufficient to fund th e ongoing operating, maintenance and capital costs necessary to operate the City’s sewer utility, including the costs of treatment incurred by the City from the San Diego Metropolitan Wastewater Authority, whil e striving to meet the financial requirements and goals set forth by the City for the sewer enterprise fund.

Based on discussion with City staff, this report presents the recommended financial plan and adjustments to meet the City’s objectives.

2.2 Goals and Objectives
The primary goal of the Rate Study was to develop a financial p lan that evaluated the adequacy of the current revenue streams to meet ongoing costs (operations & maintenance and capital), and to maintain industry standard financially prudent cash reserves. More specifically the Rate Study was undertaken to:
 Conduct the analysis in accordance with industry standards cons istent Water Environment Federation (“WEF”) guidelines; and
 Develop a financial plan consistent with industry standards and best practices while recognizing the needs specific to the City.

2.3 Overview of the Rate Study Process
The study involved a determination of the adequacy of system revenues to meet system expenses during the study forecast period. The result of this analysis, known a s the Revenue Sufficiency Analysis, is an assessment of the ability of the existing revenue stream from s ewer service charges (rates) to meet the

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projected financial requirements of the system during the forecast period and, to the extent required, the identification of the magnitude and timing of any required rate adjustments.

2.4 Organization of this Report
This Rate Study presents an overview of the financial planning concepts employed in the development of the analysis contained here. The analysis is followed by a discussion of the data, assumptions and results associated with each component of the analysis. Finally, append ices with detailed schedules are presented for further investigation and insight into the data, assumptions and calculations which drive the results presented in this Rate Study. The report is organized as follows:
• Section 1 – Executive Summary
• Section 2 – Introduction
• Section 3 – Overview of Financial Planning Principles, Proces ses, and Issues • Section 4 – Financial Plan Development and Results
• Section 5 – Conclusions and Recommendations
• Appendix A – Financial Plan Summary
 Appendix B – Reserve Fund Policies
 Appendix C – Cash Balances
 Appendix D – System Growth Estimates
 Appendix E – Interest Earnings Assumptions
 Appendix F – Metro Cost Projections
 Appendix G – Cost Escalation Factors
 Appendix H – ENR 20 Cities Index
The following abbreviations are used throughout this report:

CAFR – Comprehensive Annual Financial Report
CIP – Capital Improvement Plan
ENR CCI – Engineering News Record Construction Cost Index FY – Fiscal Year
DSC – Debt Service Coverage

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Metro – City of San Diego Metropolitan Wastewater
O&M – Operations and Maintenance Expense
PLWTP – Point Loma Wastewater Treatment Plant
PUD – City of San Diego Public Utilities Department
SFR – Sewerage Facility Replacement
USEPA – United States Environmental Protection Agency

2.5. Reliance on Data
During this project, the City (and/or its representatives) provided Willdan with a variety of technical information, including capital cost and demographic data. This data was used by Willdan in the process of developing the financial plans and recommended rate adjustments. Willdan did not independently assess or test for the accuracy of such data, historic or projected, but worked with City staff to better verify and understand the data and its sources and ensure it was incorpora ted appropriately into the analysis. We believe it to be the best available information at the time of the study.

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Section 3 – Overview of Financial Planning
Principles, Processes, and Issues

3.1 Introduction
T h e r a t e s t u d y p r o c e s s f o r t h e s e w e r u t i l i t y b e g i n s w i t h a d e t er m i n a t i o n o f t h e a d e q u a c y o f s y s t e m revenues to meet system expenses during the study forecast period. The result of this analysis, known as the Revenue Sufficiency Analysis, is an assessment of the abili ty of the existing revenue stream to meet the projected financial requirements of the system during the forecast period and, to the extent required, the identification of the magnitude and timing of any required rate adjustments.

3.2 The Revenue Sufficiency Process
In order to determine whether existing rates and charges will g enerate sufficient revenue to meet the fiscal requirements of the sewer utility, a calculation of the annual rate revenue requirements must be completed. A Revenue Sufficiency Analysis compares the sufficie ncy of revenues under existing rates to meet forecasted costs for operations and maintenance expenses (O&M), debt service (if applicable), and capital, as well as the accumulation and maintenance of reasona ble cash reserves. The purpose of the comparison is to determine the adequacy of the existing rates t o recover the utility’s costs. The analysis of the maintenance of the cash reserves includes an examination of the projected reserve balance as compared to the objectives outlined in the City’s reserve policies.

The process employed in the Revenue Sufficiency Analysis involv e s a r i g o r o u s r e v i e w o f o p e r a t i n g , maintenance and capital budgets for the utility, and results in the identification of revenue requirements of the system, such as operating expenses, capital expenses (mi nor and major), transfers in and out, and the maintenance of both restricted and unrestricted reserves at appropriate levels. These revenue requirements are then compared to the total sources of funds av ailable during each year of the forecast period to determine the adequacy of projected revenues to meet projected revenue requirements. To the extent that the existing revenue stream is projected to be insufficient to meet the annual revenue requirements of the system during the projection period, a series of recommended rate revenue increases are calculated which if enacted, would provide revenue sufficient to meet those needs.

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3.2.1 Determination of t he Revenue Requirements
Considerations in Settin g Revenue Requirements
There are a multitude of considerations, ranging from financial and policy, to political to legal that must be analyzed or discussed during the revenue requirements process of a rate analysis. This section provides an overview of the considerations that are reviewed during this process.

Capital Budgeting and Financing
Capital needs are identified in the City’s Sewer Capital Improv ement Plan (CIP) which is updated on an annual basis. As part of its budget and planning process, the City identified capital improvements that are necessary for the continued opera tion of the sewer system. Capi tal improvement projects typically use money from the Sewer Facility Replacement Fund which receives r evenue from a portion of the sewer service charges.

Capital Funding: Debt vs. PAYGO
The selection of the appropriate funding strategy for capital projects is primarily a policy decision between use of cash (“Pay‐as‐you‐go financing” or PAYGO), the issuance of debt, or a combination. PAYGO is the use or build‐up of cash to fund capital improvements. With debt financing, capital improvements are funded with borrowed funds (usually through the issuance of bon ds) with the obligation of repayment, typically with interest, in future years. Development of an opt imal capital financial plan depends on the definition of optimal. Each funding mechanism has a different impact on sewer rates in the short and long run, different net present values, risks, and legal obligations . Due to the borrowing costs associated with debt, cash funding can be cheaper in the end (by not having to incur interest costs on borrowed money); however, debt typically ensures greater generational equity for larger and longer lasting capital projects (by contributing to annual debt payments, new customers who con nect to the system help pay for the infrastructure that was installed prior to their arrival, but still benefits them)3.

The City, as is typical for a public utility, operates its sewer utility on a “cash basis”. Under the “cash basis” approach, revenues and expenses are recognized at the time physical cash is received or paid out.

3 Willdan Financial Services is not advising or recommending any action be taken by the recipient of this information with respect to any prospective, new, or existing municipal financial products or issuance of municipal securities (including with respect to the structure, timing, terms and other similar matters concerning such financial products or issues). The issuance, timing and structure of new debt issues should be evaluated by the City and their financial advisor.

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Revenue requirements are determined for a specified period of t ime (in the case of the City an annual fiscal year), by summing the total anticipated expenses to be p aid out during the fiscal year. Where cash flows and balances are insufficient, the revenue requirements a nalysis recommends the needed additional cash flows to meet all funding goals. The two primary categories of expenses are as follows:
• Operations and Maintenance (O&M) expenses, such as salaries and benefits of City utility personnel, third party costs such as treatment costs billed to the City from the San Diego Metro Wastewater Authority, transfers out, and reserves; and
• Capital expenses, such as the annual capital improvement program.

3.3 Determination of Revenue Requirements
I n o r d e r t o c o m p l e t e t h e r e v e n u e s u f f i c i e n c y p r o c e s s , i t i s f i rst necessary to identify the utility’s costs (revenue requirements).

The process started by identifying the sewer funds, their targe t balances based on best practices and/or the City’s fiscal policies, and their actual balances at the beginning of the projection period. There are five sewer funds and a storm drainage fund, each set up with a different purpose, and which are briefly described above in Section 1.3.

Sewer Funds
 Sewer Services Revenue Fund (Fund 414)
 Sewer Facilities Replacement (SFR) (Fund 428)
 Trunk Sewer Capital Fund (Fund 413)
 Sewer Income Fund (Fund 411) – Not included in this study  Sewer Development Impact Fee Fund (Sewer DIF) (Fund 430) – Not included in this study  Storm Drain Fee Fund (Fund 301) – Not included in this study

3.4 Financial Management Goals of the City
The establishment of specific financial management goals of a u tility is a key step in developing financial plans that are consistent in approach, based on sound policies, and that will ensure the financial health of the utility remains strong. The City has established reserve po licies for the sewer utility to help ensure financial stability as well as the continued ability to provide sewer service. The City maintains the following sewer utility funds:

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 Sewer Service Revenue Fund (Fund 414) – Used to account for a portion of monies collected from the monthly sewer charge and is used for any and all sewer related activities.  Trunk Sewer Capital Reserve Fund (413) – Used to account for sewerage facility participation fees received to develop or modify property which will increase the volume of flow to the City’s sewer system. The funds are to be used to pay the costs and expenses associated with repairing or replacing large trunk sewer facilities to enhance the capacity of the sewer system.  Sewer Replacement Fund (428) – Funded via a portion of the monthly sewer service charge.

Monies in the fund are restricted for the purpose of paying the costs and expenses associated with the upgrade or replacement of sewerage facilities.

3.4.1 Cash Reserve Targets
Cash Reserve Targets – Sewer Revenue Fund (Fund 414)
In December 2013, City Council approved a reserve policy for the Sewer Services Revenue Fund, which is summarized in Table 3‐1. The City’s full reserve policies can be found in Appendix B.

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Table 3‐1
Summary of Reserve Policy for the Sewer Service Revenue Fund (Fund 414) Reserve Purpose Minimum Balance Maximum Balance
Working Capital
 Manage differences in
revenue and expense
cycles
 90 days of operating
expenses ($9.6
million in 2021)
 125% of minimum
balance ($12.0
million in 2021)
Rate Stabilization
 Protect against
unforeseen
fluctuations in
revenues or expenses
 90 days of operating
expenses ($9.6
million in 2021)
 125% of minimum
balance ($12.0
million in 2021)
Emergency
 Provide funding for
emergency asset
replacement and
insurance deductibles
 5% of operating
expenses ($1.9
million in 2021)
 125% of minimum
balance ($2.4
million in 2020)
Vehicle
Replacement
 Levelize cost impacts
of vehicle replacement
needs
 2% of operating expenses ($779 thousand in
2021)
EPA Permit
Renewal Liability
 Accrue funding for
PLWTP upgrade
(recommended
scenario)
 Prior annual transfer target $1.8 million
 Recommended for removal

As of June 30, 2020, Fund 414 had a balance of $48.1 million.

As noted in Table 3‐1, the EPA permit reserve is recommended for removal. When this reserve was initially adopted, an assumption was made that the City of San Diego would cash fund the capital costs associated with the Point Loma Wastewater Treatment Plant upgrades for sec ondary treatment. The reserve was intended to offset the City’s share of the upgrade costs. In the time since the reserve was established, the City of San Diego has provided the Participating Agencies (on a n annual basis) with five‐year projections for the Agencies contributions. The City of San Diego’s annual five‐year cost projections to Participating Agencies eliminates the need for the City to maintain a large c ash reserve on hand to pay their one‐time share of capital costs. Instead, the City’s share of the upgrade costs is currently proposed to be budgeted annually in the financial plan. Another reason for eliminating the reserve is that this study recommends a pass‐through to account for fluctuations in Metro Costs. The pass through is discussed in more detail later in this report.

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Revenue equal to annual depreciation helps to ensure that infrastructure is reliable as system components age and can help prevent significant unexpected repairs which c an be more costly than an adequately funded annual capital replacement and rehabilitation. The last rate study set initiated a target for the fund at starting point of 54% of the annual depreciation.

The Sewer Fund depreciation for FY 2019‐20 was $6.5M (per the 2020 CAFR page 45). The revenue collected for this fund in FY 2019‐20 was $2.4 million which represents 36.9% of annual depreciation. To achieve the target of 54% of annual depreciation the City would have needed to generate $3.7 million in revenues.

Cash Reserve Targets – Trunk Sewer Capital Fund (Fund 413) The Trunk Sewer Capital Fund rep resents funds from fees paid to offset the cost to buy into the City’s sewer system and can be used for enlargement of sewer facilities and planning of area‐wide sewage treatment and/or reclamation systems or facilities. With City Council approval, the money can be used for construction of sewage collection or treatment facilities. The cash balance of the Trunk Sewer Capital Fund as of June 30, 2020 was $64. 8 million. Since the fund represents the cost to buy into the sewer system, no cash reserve target exists. The 2014 Wastewater Master Plan included an analysis of the capacity fee; no additional evaluation of this fee was included in this study.

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Section 4 – Financial Plan Development and
Results

4.1 Revenue Sufficiency Analysis
The scope of this study included the development of a sewer fin ancial plan for a 10‐year planning period with a focus on the current year plus a 5‐year planning period encompassing FY 2021‐22 through FY 2025‐

26. While a longer‐range view (10 years) was taken to allow the City to plan for the future, the assumptions made as of the date of this report will change in the future and some of the changes in assumptions may be significant. The City’s sewer utility financials should be reviewed and updated regularly (at a minimum on an annual basis) to make adjustments based on changes in the underlying assumptions on which the financial plan was built.

4.1.1 General Methodology
The City operates its sewer utility on a cash basis as is typic al for a public utility. Under the cash basis approach, revenues and expenses are recognized at the time physical cash is received or paid out.

The primary categories of expenses are as follows:
 Operations and Maintenance;
 Anticipated debt service;
 Targeted reserves; and
 Capital expenses.

It should be noted that one of the City’s primary expenses included in operations and maintenance is the cost to treat wastewater at the City of San Diego Metropolitan Wastewater facilities (Metro). This accounts for approximately 65% of the City’s overall wastewater expenses.

The primary categories of revenue are as follows:
 Sewer Service Charges

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 Capacity Fees4
 Licenses and Permits
 Revenues From Use of Money and Property
In the development of the revenue projections, certain parameters are utilized including growth in customers and flows.

The City’s budget documents are used as the baseline for revenue s a n d e x p e n s e s , w h i c h a r e t h e n projected over a planning horizon. Growth assumptions and prude nt financial planning are fundamental in ensuring adequate rate revenue to promote financial stability.

4.1.2 Data Items
Key data items reviewed, discussed and incorporated into the Revenue Sufficiency Analysis were:
 FY 2020‐21 beginning of year cash balances;
 Interest earnings;
 FY 2020‐21 adopted budgets;
 Rate Revenue projections;
 Regional Wastewater Disposal Costs/Metro Costs
 Capital improvement needs based on City’s plans; and
 General assumptions related to:
 System growth;
 Operations and Maintenance (O&M) Escalation Factors.

A discussion of the use of each of the above data items is presented below.

4.1.3 FY 2020-21 Beginning of Year Cash Balance
To better understand the balance of available funds the City’s utility had on hand to start the forecast period, a review of the cash balance as of the beginning of FY 2020‐21 was conducted and discussed with

4 The capacity fees are paid into the Trunk Sewer Capital Reserve Fund (Fund 413).

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City staff. A summary of the cash balances (cash on hand) associated with the sewer utility enterprise fund for the beginning of FY 2020‐21, as adjusted for use in this analysis, are summarized in Table 4‐1 below.

Table 4‐1
Beginning Cash Balance
Fiscal Year Beginning July 1, 2020
Description Sewer Service
Revenue
Fund (414)
Sewerage
Facility
Replacement
Fund (428)
Trunk Sewer:

Capital
Reserve Fund
(413)
Cash Balance $48,147,276 $13,605,982 $64,836,569
The sewer utility enterprise fund for the end of FY 2019‐20 and therefore the beginning of FY 2020‐21, as adjusted for use in this analysis, is $126,589,827, and is comp rised of the cash balances of Fund 414 – Sewer Service Revenue Fund, Fund 428 – Sewerage Facility Replacement (SFR) Fund and Fund 413 – Trunk Sewer: Capital Reserve Fund. The cash balance of Fund 414 includes the targeted reserves (working capital and rate stabilization, emergency and vehicle replacement) iden tified by City policy and discussed previously. The cash balance in Fund 413 ($64,836,569) is intended to be used for capital projects to enlarge sewer facilities and planning for area wide sewage or w ater reclamation projects and with City Council approval can be used for planning, design, or construct ion of sewage collection or treatment or water reclamation. A further description of cash balances can be found in Appendix C.

4.1.4 Interest Earnings
Through discussions with the City’s finance department a 1.0% i nterest earnings rate was identified as being the appropriate rate to calculate interest earnings on the utility’s cash balance (Appendix E).

4.1.5 FY 2020-21 Adopted Budget
Staff provided Willdan with the FY 2020‐21 Budget, including as sociated line‐item detail. The line‐item budgeted expenses for FY 2020‐21 were used as the basis for the projection of future budgetary line‐items for the remainder of the forecast period. Cost escalation factors were reviewed by staff and were used to project line‐item costs beyond the FY 2020‐21 budget. Those fac tors were applied based on individual line‐item cost classifications.

4.1.6 Rate Revenue Projections
For financial planning purposes the financial plan is projected using FY 2020‐21 budgeted revenues as the starting point. Charges for services were escalated through the study period by system growth and any

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anticipated rate revenue increases. Other revenues were escalated based on system growth while investment earnings fluctuate from year to year based on cash balances and an assumed interest earnings rate of 1.0%.

4.1.7 Regional Wastewater Disposal Costs/Metro Costs
The City of San Diego Public Utilities Department (PUD) in Janu ary 2019, authorized a five‐year financial outlook as a guide to long range planning for their Water and S ewer Revenue Funds (Appendix F). Table

5.4 of the document identifies the PUD’s revenue projections fr o m t h e J o i n t P o w e r ’ s A u t h o r i t y Participating Agencies. The City of Chula Vista’s share represents about 32% of the total cost contribution from all the Participating Agencies. However, PUD’s agreement with Chula Vista obligates the City to pay their percentage of actual costs for service and capital expenses. If projected expenditures associated with the Participating Agencies increase or decrease, this will ulti mately be offset by increased or decreased revenue from the Participating Agencies. Note that Chula Vista’ s cost contribution represents approximately 10% to 12% of the total Metro wastewater expenses.

A p o r t i o n o f t h e M e t r o c o s t s a r e r e l a t e d t o c a p i t a l i n v e s t m e n t of the treatment system. As discussed previously, the City’s Fund 413 with Council approval can be used for the construction of sewage collection or treatment or water reclamation purposes. The financial plan developed for the City projects the need for revenue increases in years 2 through 10 of 4.5% to 5.5% per year and assumes the use of $6 million of Capital Reserve Fund balance in FY 2024‐25. It is recommended t hat rate revenue increases be further evaluated for the next 5‐year period. Without a rate increase, and assuming the current recommendations are implemented with the balance of Fund 413 drawing down over years 6 through 10 of the Financial Plan. These additional drawdowns that would be necessary from Fund 413 would exceed the balance that is projected for the fund; thus, the balance is not adequate to support the continued drawdown.

4.1.8 Capital Improvements Plan (CIP)
The financial plans contained herein do not anticipate any debt funding of the City’s CIP. The CIP was provided in current day dollars and has been escalated for futu re years using a 3‐year compound annual average (2017‐2019) of the Engineering News Record Construction Cost Index (ENR CCI) at an inflationary r a t e o f 2 . 9 5 % ( A p p e n d i x H ) . T h e C I P i n c u r r e n t d a y d o l l a r s f o r FY 2020‐21 through FY 2029‐30 totals $30,370,000. The value of the CIP with the annual inflator appl ied for FY 2020‐21 through FY 2029‐30 totals $36,671,351. A summary table of the CIP (in inflated dol lars) for the FY 2020‐21 through FY 2025‐

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26 forecast period is presented below in Table 4‐2. The project specific CIP is presented in Schedules A‐6, in Appendix A.

Generally accepted industry standard best practices suggest tha t a utility should make an annual investment in its infrastructure equivalent to annual depreciat ion, to ensure aging system components are repaired or replaced on a routine basis, to help minimize b reakdowns or failures of deteriorated and old systems. The Sewer Fund depreciation as identified on page 46 of the FY 2019‐20 CAFR was $6.5 million.

The prior study 5 targeted replacement funding of aging infrastructure at 54% of annual system depreciation expense of $4.0 million by FY 2018‐19 (page 2). The projected Sewer Facilities Replacement (SFR) Fee revenue in FY 2018‐19 was $3.9 million (page 9). This study recommends increasing the amount of the collected revenue going into the SFR Fund from the fees to achieve the annual depreciation funding amount over a 10‐year period, (based on the projections in this study, it is achieved in FY 2029‐30. With the recommendation to increase the sewer services fee paid by t he customer over time, the effect is a compounding of the increased amount portion of those charges for service going into the SFR Fund (Fund 428). It is possible to decrease the percentage of charges for service going into the Sewer Service Revenue Fund because the Trunk Sewer Ca pital Reserve Fund (Fund 413) ca n be used to pay the capital expenses incurred by Metro which are currently being paid from Fund 414.

4.1.9 General Assumptions
In order to develop the financial and rate projections, certain assumptions were made with regard to elements of the revenue sufficiency analysis. A summary of those assumptions is presented below.

5 City of Chula Vista Sewer Cost-of-Service Rate Study November 2013 Prepared by FCS Group Table 4‐2
Capital Improvement Plan (escalated dollars)
Fiscal Years Ending June 30 ($ thousands)
FY 20‐21 21‐22 22‐23 23‐24 24‐25 25‐26
Sewer $2,650 $3,798 $3,404 $3,505 $3,608 $3,715
Note: Values are rounded to the nearest $1,000

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4.1.9.1. System Growth
The City anticipates average annual growth of sewer system cust omers of approximately 1.20% per year through 2024 based on Table 3 in the City’s Chula Vista 2019 An nual Residential Growth Forecast (Appendix D). The model assumes a direct correlation between customer growth and service charge revenue growth. In other words, it is assumed that service char ge revenues will also grow by 1.20% per year. Since a portion of the revenue collected is based on the volume of potable water consumption, water conservation initiatives could result in service charge r evenue not increasing at the same rate as customer growth or it may even decrease. The City should continue to monitor the impact of conservation and adjust revenue projections accordingly. While this study d id project system growth, it did not re‐ evaluate customer classifications or characteristics (assumptions of volume and strength of flow) nor did it project growth to specific customer categories, but rather a pplied general growth assumptions to all customer classes.

4.1.9.2. O&M Escalation Factors
Willdan worked with City staff (finance department) to identify reasonable cost escalation factors to be applied to operations and maintenance expenses in recognition of increasing costs over time.

The City’s finance department identified personnel related cost escalation factors of 2% for salaries, 5% for health insurance/flex benefits and an average of 4% for pen sion benefits. In examining the individual components, the weighted average cost escalation factor is 3%, based on historical line‐item costs projected for the future using the respective escalation factors (the calculation can be found in Appendix G).

The City projects supplies and services costs to increase by 8% in 2021, 7% in 2022 and by 2% per year thereafter.

Utility costs (electricity as an example) are projected to increase at a rate of 5% per year.

Metro costs are projected to inc rease at 6% per year after the FY 2023‐24 cost estimate based on the projected cost increase between FY 2022‐23 and FY 2023‐24.

All other O&M expenses are projected to increase at a rate of 2% per year.

4.1.9.3. Results of the Reve nue Sufficiency Analysis
After a review of the above‐mentioned data elements, the Revenu e Sufficiency Analysis was completed and is presented herein with recommendations incorporated to show the stabilization of sewer funds.

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The first step in the analysis w as to develop the 5‐year financ ial plan for the City’s sewer funds under current operations. Table 4‐3 provides a summary of the current operations from a financial perspective.

Table 4‐3
Fiscal Years Ending June 30 ($ thousands)
Budget Projected
Line 20‐21 21‐22 22‐23 23‐24 24‐25 25‐26
SERVICE REVENUE FUND – FUND 414
Expenditures
1 Operations and Maintenance Expenses (OE)
2   Personnel Services $4,860 $5,005 $5,156 $5,310   $5,470 $5,862 3   Capital (Vehicle Replacement & Other Capital) 1,730 1,764 1,7 99 1,835   1,872 1,910 4   Regional Wastewater Disposal/ Metro Costs 25,595 24,595 25,19 5 25,795   26,394 27,978 5   Other Expenses 6,740 6,876 7,013 7,154 7,297 7,443 6 Total Expenditures 38,925 38,240 39,163 40,094 41,033 43,193 Revenue Under Existing Rates
7    Charges for Service Revenue   $32,520 $32,942 $33,358 $33,699   $ 34,441 $35,199 8    Other Revenue 605 993 945 891 839 781
9 Total Revenue Under Existing Rates 33,125 33,935 34,304 34,590 35,280 35,979 10 Difference Rev. Over/(Under) Exp. (5,800) (4,306) (4, 860) (5,504) (5,753) (7,214) 11 Cash Balance at the Beginning of the Year (1) $48,147 $42,347 $38,041 $33,182 $27,687 $21,925 12 Cash Balance After Rev. Less Exp.    $42,347 $38,041 $33,182 $27,687 $21,925 $14,711 Minimum Reserve Targets (2)
13    Working Capital (90 Days of O&E) $9,598 $9,466 $9,694 $9,924 $10,157 $10,650 14    Rate Stab. (90 Days of O&E) 9, 598 9,466 9,694 9,924 10,157 1 0,650 15    Emergency (5% of O&E) 1,946 1,919 1,966 2,012   2,060 2,160 16    Vehicle Replace, (2% of O&E)   779 768 786 805   824 864 17    EPA Reserve (3) 27,142 30,885 34,629 38,372 42,116 42,116 18 Total Minimum Reserve Targets $49,063 $52,504 $56,770 $61,038   $65,313 $66,440 SEWERAGE FACILITY REPLACEMENT FUND – FUND 428
Expenditures
19   Capital Improvement Program (Escalated) $2,650 $3,798 $3,404 $3,505 $3,608 $3,715 20    Expenses 153 156 159 162 166 166
21 Total Expenditures 2,803 3,954 3,563 3,667   3,774 3,881 Revenue Under Existing Rates
22    Sewer Facility Replacement Charge (4) $1,405 $1,423 $1,441 $1,456   $1,488 $1,521 23    Other Revenues (Interest Earnings) 52 151 132 124 121 125 24 Total Revenue Under Existing Rates 1,457 1,574 1,573 1,580   1,6 09 1,645 25 Difference Rev. Over/(Under) Exp. (1,343) (2,376) (1,987) ( 2,084) (2,162) (2,235) 26 Cash Balance at the Beginning of the Year (1) $13,606 $12,262 $9,886 $7,899   $5,815 $3,653 27 Cash Balance After Rev. Less Exp. $12,262 $9,886 $7,899 $5,815 $3,653 $1,418 28 Annual Depreciation Funding Target (5) $6,930 $7,135 $7,345 $7,563 $7,786 $8,016 (1) Cash balances are from GL032 SSRS Report; Munis Balance sheet report (2) Ongoing annual target, but not an annual contribution. (3) Goal of 20% of 11.69% of Point Loma WWTP Upgrade by 2024/25 (4) Based on prior study projection for FY 2018‐19 escalated in future years for system growth (5) Annual depreciation target is based on FY 2019‐20 CAFR plus annual CIP expenditures (6) Note: Values are rounded to nearest $1,000

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As noted in Table 4‐3, under the current scenario, expenditures in Fund 414 exceed revenues for FY 2020‐ 21 through FY 2024‐25 (see line 10), and as a result, the projected cash balance continues to decline, (see line 12). In comparing the projected end of year cash balance in line 12 with the minimum target reserve balance in line 18, the cash balance falls below minimum target reserves beginning in FY 2020‐21. In examining the financials of Fund 428, the allocation of service charges for facility replacement (line 22) does not meet the annual depreciation funding target (line 28) for any year of the study period.

4.1.9.4. Revenue Sufficiency Analysis
After a review of the abovementioned data elements and the completion of the initial Revenue Sufficiency Analysis, recommendations were developed to achieve a more stabilized sewer fund. As indicated in Table 4‐4 there are rate revenue increases projected for the 5‐year period ending FY 2025‐26 based on the current projections of revenues and expenses. Revenue increases of 4.5% to 5.5% per year are anticipated to be necessary throughout the period. However, as mentioned pr eviously, the assumptions used in the d e v e l o p m e n t o f t h e f i n a n c i a l p l a n h e r e i n w i l l c h a n g e i n t h e f u tu r e , s o t h e C i t y m a y w a n t t o c o n d u c t another comprehensive study in 3 to 5 years to ensure that rate revenue is sufficient to meet ongoing costs.

The City is recommended to review the financial results and cas h balances at least annually and make adjustments as needed to maintain the financial integrity and v iability of the sewer utility. In addition to the revenue increases are proposed through FY 2029‐30 a shift in the allocation of service charge revenue between the sewer operating fund (Fund 414) and the sewerage fa cility replacement fund (Fund 428) is proposed and discussed in greater detail in the balance of this report. The proposed financial plan incorporating non‐rate increase recommendations is presented in Table 4‐5.

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Table 4‐4
Projected Rate Revenue Increases and Cash Balances
Fiscal Years Ending June 30
Fiscal Year
Sewer Rate
Revenue
Increases
Target
Balance (1)
SSR Fund 414
Actual Ending
Balance SSR
Fund 414
Target
Revenues
SFR Fund
428
Actual
Revenues
SFR Fund
428
Actual
Ending
Balance
TSC Fund
413
(In Thousands)
2021‐22 0.0% $21,535 $37,661 $7,135 $1,801 $64,837 2022‐23 4.5% 22,055 33,503 7,345 2,306 64,837
2023‐24 5.0% 22,579 30,016 7,563 2,871 64,837
2024‐25 5.0% 23,108 33,721 7,786 3,536 58,837
2025‐26 5.5% 24,324 31,720 8,016 4,303 58,837
(1) It is assumed that in FY 2021‐22 the recommendations are implemented. One recommendation is the removal of the EPA Liability Reserve which is why the actual ending balance for Fund 414 appears to be large compared to the target balance in Fund 414.

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Table 4‐5
Proposed Financial Plan FY 2019‐20 Through FY 2024‐25
Fiscal Years Ending June 30 ($ thousands)
Budget Projected
Line 20‐21 21‐22 22‐23 23‐24 24‐25 25‐26
Charges for Service Rate Increase (per customer) 0.0% 0.0% 4.5% 5.0% 5.0% 5.5% SERVICE REVENUE FUND – FUND 414
Expenditures
Operations and Maintenance Expenses (OE)
1   Personnel Services $4,860 $5,005 $5,156 $5,310   $5,470 $5,862 3   Capital (Vehicle Replacement & Other Capital) 1,730 1,764 1,7 99 1,835   1,872 1,910 3   Regional Wastewater Disposal/ Metro Costs (1) 25,595 24,595 25,195 25,795   26,394 27,978 4   Other Expenses 6,740 6,876 7,013 7,154 7,297 7,443 5 Total Expenditures 38,925 38,240 39,163 40,094 41,033 43,193 Projected Revenue
6    Charges for Service Revenue   $32,520 $32,564 $34,060 $35,704   $ 37,858 $40,238 7    Other Revenue 605 991 945 904 880 864
8 Total Revenue Under New Rates 33,125 33,555 35,004 36,608 38,73 8 41,192 9 Difference Rev. Over/(Under) Exp. (5,800) (4,686) (4, 159) (3,486) (2,295) (2,001) 10 Transfers in From Fund 413 (2) 0 0 0 0 6,000 0 11 Net Cashflow after Transfers In (5,800) (4,686) (4,159) (3,486) 3,705 (2,001) 12 Cash Balance at the Beginning of the Year (3) $48,147 $42,347 $37,661 $33,503 $30,016 $33,721 13 Cash Balance After Rev. ‐ Exp. + Transfers $42,347 $37,661 $33,503 $30,016 $33,721 $31,720 Minimum Reserve Targets
14    Working Capital (90 Days of OE) $9,598 $9,429 $9,657 $9,886 $10,118 $10,650 15    Rate Stab. (90 Days of OE) 9,598 9,429 9,657 9,886 10,118 10 ,650 16    Emergency (5% of OE) 1,946 1,912 1,958 2,005   2,052 2,160 17    Vehicle Replace, (2% of OE)   779 765 783 802   821 864 18 Total Minimum Reserve Targets $21,921 $21,535 $22,055 $22,579   $23,108 $24,324 SEWERAGE FACILITY REPLACEMENT FUND – FUND 428
Expenditures
19   Capital Improvement Program (Escalated) $3,887 $2,350 $3,798 $3,404 $3,505 $3,715 20    Expenses 150 153 156 159 162 125
21 Total Expenditures 4,037 2,803 3,954 3,563   3,667 4,428 Revenue Under New Rates
22    Sewer Facility Replacement Charge (4) $1,405 $1,801 $2,306 $2,871   $3,536 $4,303 23    Other Revenues (Interest Earnings) 52 151 132 124 121 125 24 Total Revenue Under New Rates 1,457 1,953 2,438 2,995 3,657 4,4 28 25 Difference Rev. Over/(Under) Exp. (1,343) (1,998) (1,122) (669) (114) 547 26 Cash Balance at the Beginning of the Year (1) $13,606 $12,263 $10,265 $9,142   $8,473 $8,359 27 Cash Balance After Rev. Less Exp. $12,263 $10,265 $9,142 $8,473    $8,359 $8,906 28 Annual Depreciation Funding Target $6,930 $7,135 $7,345 $7,563 $7,786 $8,016 (1) Reflects “true up” costs from FY 2018‐19 and forms the basis for future year values (2) Transfers from the Trunk Sewer Capital Reserve (Fund 413) are shown for simplicity.  It will be used to pay the capital portions of Metro expenses directly.
(3) Cash balances are from GL032 SSRS Report; Munis Balance sheet report (4) Allocation of Fund 428 increases annually to match the annual system depreciation by FY 2029‐30 (5) Annual depreciation target is based on FY 2019‐20 CAFR escalated by the annual CIP inflation rate of 2.95% (6) Note: Values are rounded to nearest $1,000

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Table 4‐5 provides a summary of the projected annual revenue re quirements for the sewer utility under the proposed financial plan. As was the case in Table 4‐3, the proposed scenario results in a deficit between anticipated revenues and anticipated expenses (see line 9) of an average of $3.7 million per year between FY 2020‐21 and FY 2025‐26. Following the end of the pri or rate study period in FY 2018‐19, no rate increases were implemented, and budgeted expenditures outpaced revenues. As an example, for the FY 2020‐21 budget, expenditures exceeded revenues by $5.8 million (line 9), with a reliance on the existing cash balance to absorb the deficit between revenues and expenditures.

The annual deficit is less pronounced in the recommended plan (Table 4‐5 line 9) compared to the current scenario (Table 4‐3 line 10) as a result of the recommended rat e revenue increases. The deficit is higher t h a n o t h e r w i s e w o u l d b e a s a r e s u l t o f t h e r e c o m m e n d e d c h a n g e in the allocation of service charge revenue between the Sewer Services Revenue Fund (Fund 414) and the Sewerage Facility Replacement Fund (Fund 428) as described above in Section 4.1.7.4. Table 4 ‐6 illustrates the recommended gradual shift in the allocation of revenues between the Sewer Services Revenue and Sewerage Facility Replacement Funds (Funds 414 and 428).

The current (FY 2020‐21) and proposed (FY 2021‐22 through FY 2025‐26) fees are shown in Table 4‐7. The proposed allocation of charges to the Service Revenue Fund (414) and Sewerage Facility Replacement Fund (Fund 428) respectively are detailed below in Figure 1. Th e change in allocation of charges and in turn revenue, is intended to move closer to meeting the goal of collecting annual revenue equal to annual depreciation (current depreciation escalated by the CIP escalation factor of 2.95% per year) into Fund 428 and is discussed in the following section: Recommendations Base d on the Revenue Sufficiency Analysis.

An examination of line 22 demonstrates a gradual increase in Sewer Facility Replacement Charge revenue towards the target of matching annual depreciation over a ten‐year period.

The decrease in revenue into the Sewer Services Revenue Fund (Fund 414) means more money is needed to meet the minimum reserve target (line 18) in FY 2023‐24 and FY 2024‐25. Since Trunk Sewer Capital Reserve Fund (Fund 413) can be us ed to fund regional capital pr ojects with City Council approval, it is recommended to be used to pay a portion of the capital expenses charged by Metro as shown in line 10.

Although it is shown as a transfer, the amount will be paid directly from Trunk Sewer Capital Reserve Fund (Fund 413) without a formal transfer. With these actions as de scribed in the Recommendations section the adjusted cash balance (line 13) meets the Minimum Reserve Targets (line 18).

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Table 4‐6
Fund Allocation for Sewer Service Charges
Fiscal Years Ending June 30

Budget Projected
19‐20 20‐21 21‐22 22‐23 23‐24 24‐25 25‐26
Sewer Service Revenue Fund 414 96% 96% 95% 94% 93% 91% 90% Sewerage Facility Replacement Fund 428 4% 4% 5% 6% 7% 9% 10% Total 100% 100% 100% 100% 100% 100% 100%
The proposed rates for customers during the five‐year Study period are shown in Table 4‐7. Note that rates may vary if the wholesale wastewater treatment charges change from San Diego and the Metro Pass Through is applied. The fund distribution for the monthly fixed sewer charge in the top half of Table 4‐7 is detailed further in Figure 4.1 below. All of the revenue collected from the volumetric charge goes into the Sewer Service Revenue Fund (Fund 414).

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Table 4‐7
Proposed Rates
Fiscal Years Ending June 30
Meter Size
$/Month
20‐21 21‐22 22‐23 23‐24 24‐25 25‐26
Monthly Fixed Service Charge
Single Family $14.53 $14.53 $15.18 $15.94 $16.74 $17.66 All Others
5/8‐inch 14.53 14.53 15.18 15.94 16.74 17.66
¾‐inch 14.53 14.53 15.18 15.94 16.74 17.66
1‐inch 28.49 28.49 29.77 31.26 32.82 34.63
1 ½‐inch 51.77 51.77 54.10 56.80 59.64 62.93
2‐inch 79.68 79.68 83.27 87.43 91.80 96.85
3‐inch 154.15 154.15 161.08 169.14 177.59 187.36
4‐inch 237.91 237.91 248.62 261.05 274.10 289.17
6‐inch 470.61 470.61 491.79 516.38 542.20 572.02
8‐inch 936.01 936.01 978.13 1,027.04 1,078.39 1,137.70 Volume Charge $/HCF (1)
Residential
Single Family $4.26 $4.26 $4.45 $4.67 $4.91 $5.18
Multi‐Family 4.26 4.26 4.45 4.67 4.91 5.18
Mobile Homes 4.26 4.26 4.45 4.67 4.91 5.18
Non‐Residential
Commercial ‐ Low 4.26 4.26 4.45 4.67 4.91 5.18
Commercial – Med 6.02 6.02 6.29 6.61 6.94 7.32
Commercial – High 9.59 9.59 10.02 10.52 11.05 11.66 Special Users Varies Varies Varies Varies Varies Varies (1) HCF – Hundred Cubic Feet
Note – Rate include the Sewer Service Charge and Sewer Facilities Replacement Fee. The rates do not include the Storm Drain Fee.

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While Table 4‐7 presents the proposed rates through FY 2025‐26, Table 4‐8 provides an illustration of the impact to a typical residential monthly bill (assuming 7 HCF of water flow).

Table 4‐8
Residential Monthly Bill impacts
Fiscal Year Monthly Bill
Difference From
Prior Year
2021‐22 $41.37 n/a
2022‐23 43.22 1.85
2023‐24 45.36 2.15
2024‐25 47.67 2.32
2025‐26 50.29 2.62
As noted in Table 4‐8, the typical residential monthly bill ove r the 5‐year period FY 2021‐22 through FY 2025‐26 is projected to increase from $41.37 to $50.29 a total increase over the five‐year study period of $8.93 per month or an average annual increase of $1.79 per mont h. As discussed previously, this study recommends both increases in the City’s service charges to custom e r s as w e l l as a r e al l oc ati on of t h e portion of service charge allocated to Fund 414 and to Fund 28.

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Figure 4‐1 – Existing and Recommended Monthly Fixed Service Charge Sewer Facilities Sewer Facilities Sewer Facilities
Fixed Charge Sewer Service Replacement Fee Sewer Service Replacemen t Fee Sewer Service Replacement Fee per Month Charge (Fund 414) (SFR) (Fund 428) Total Charge (Fund 414 ) (SFR) (Fund 428) Total Charge (Fund 414) (SFR) (Fund 428) Total Single Family $9.43 $5.10 $14.53 $8.94 $5.59 $14.53 $9.23 $5.95 $15.18 All Others
5/8‐inch $9.43 $5.10 $14.53 $8. 94 $5.59 $14.53 $9.23 $5.95 $15.18 3/4‐inch 9.43 5.10 14.53 8. 94 5.59 14.53 9.23 5.95 15.18 1‐inch 15.74 12.75 28.49 14.92 13.57 28.49 18.10 11.68 29.77 1 1/2‐inch 26.27 25.50 51.77 24. 89 26.88 51.77 32.88 21.21 54.10 2‐inch 38.88 40.80 79.68 36.85 42.83 79.68 50.61 32.65 83.27 3‐inch 72.55 81.60 154.15 68.75 85.39 154.15 97.91 63.17 161.08 4‐inch 110.41 127.50 237.91 104. 63 133.28 237.91 151.12 97.49 248.62 6‐inch 215.61 255.00 470.61 204. 33 266.28 470.61 298.93 192.85 491.79 8‐inch 426.00 510.01 936.01 402. 77 533.24 936.01 594.56 383.57 978.13 Sewer Facilities Sewer Facilities Sewer Facilities
Fixed Charge Sewer Service Replacement Fee Sewer Service Replacemen t Fee Sewer Service Replacement Fee per Month Charge (Fund 414) (SFR) (Fund 428) Total Charge (Fund 414 ) (SFR) (Fund 428) Total Charge (Fund 414) (SFR) (Fund 428) Total Single Family $9.58 $6.36 $15.94 $9.94 $6.80 $16.74 $10.36 $7.30 $17.66 All Others
5/8‐inch $9.58 $6.37 $15.94 $9. 94 $6.80 $16.74 $10.36 $7.30 $17.66 3/4‐inch 9.58 6.37 15.94 9. 94 6.80 16.74 10.36 7.30 17.66 1‐inch 18.78 12.48 31.26 19.48 13.34 32.82 20.31 14.32 34.63 1 1/2‐inch 34.12 22.68 56.80 35. 40 24.24 59.64 36.90 26.02 62.93 2‐inch 52.52 34.91 87.43 54.49 37.31 91.80 56.80 40.05 96.85 3‐inch 101.60 67.53 169.14 105.41 72.18 177.59 109.87 77.49 187.36 4‐inch 156.81 104.23 261.05 162. 70 111.40 274.10 169.58 119.59 289.17 6‐inch 310.19 206.18 516.38 321. 83 220.36 542.20 335.45 236.57 572.02 8‐inch 616.96 410.08 1,027.04 640. 11 438.28 1,078.39 667.19 470.51 1,137 .70 NOTE 1: All volume rate revenue is captured in Fund 414 Sewer Service Charge NOTE 2: Storm fees are a separate charge and are not discussed in this report or included in the fee structure Fixed Charges ‐ Existing to FY 2020‐21 Fixed Charges ‐ FY 2021‐2 2 Fixed Charges ‐ FY 2022‐23 Fixed Charges ‐ FY 2023‐24 Fixed Charges ‐ FY 2024‐25 Fixed Charg es ‐ FY 2025‐26

31 | Page

4.1.9.5. Proposition 218 Compliance
In conducting the study, the City’s current sewer rate structure developed through the cost‐of‐service analysis in the prior report 6 appear reasonable and meet the requirements of Proposition 218 . They are based upon relative strengths and flows from specific customer categories in the City of Chula Vista, and the proportional costs of serving those customers based upon these f ac t or s. Th e c u r r en t stu d y r e l i e d upon the assumptions and data of volume of discharge (flow) and strength characteristics as was identified in the prior report. This includes maintaining the existing customer classes:
 Single Family
 Multifamily
 Commercial – Low
 Commercial – Medium
 Commercial ‐ High
It should, however, be noted that the City’s Low‐Income Policy with respect to rates was not evaluated as part of this study or this report.

6 City of Chula Vista Sewer Cost-of-Service Rate Study November 2013 Prepared by FCS Group. The report is available at:
https://www.chulavistaca.gov/departments/public-works/services/sewer/sewer-rate

32 | Page

Section 5 – Conclusions and Recommendations

5.1 Conclusions
The study was comprised of a longer‐term 10‐year financial anal ysis but focused on the shorter‐term 5‐ year period. Based on current assumptions rate revenue increases are projected to be necessary in fiscal year 2021‐22. While no new rate revenue increases are needed in the first year, the analysis described in this report indicates that the City’s existing charges for service revenue alone will not be sufficient to meet the ongoing operations and main tenance expenses on an annual ba sis. Rate increases are projected for years 2 through 10 of the study period, in addition to the use of Trunk Sewer: Capital Reserve Fund (413) funds to pay for some of the regional capital costs billed by Metro. A revised allocation of service charge revenues between the Sewer Service Revenue Fund and the Sewerag e Facility Replace Fund (428), will help to provide the opportunity for rate increases to be phased in over time in smaller increments while still achieving the City’s financial policies rather than the need for more immediate larger increases.

5.2 Recommendations
The following recommendations were incorporated into the propos ed financial plan (Table 4‐5) in order to meet the outlined goals of Funds 414 and 428.

Elimination of the EPA Reserve
As previously discussed in the F inancial Management Goals of th e City section, it is recommended that the City eliminate the current EPA reserve. The assumptions that were made at the time the reserve was established (primarily the City of San Diego’s cash funding of treatment upgrades) have changed. The City of S an Di e g o i s p r oj e c te d t o f i n anc e it s c ap i t al u pg rad e c ost s through borrowing and has factored the financing costs into the Metro Cost projections for the City of Chula Vista and other participating agencies.

The City’s share of upgrade costs is therefore projected to be paid through annual charges assessed by the City of San Diego eliminating the need for a large cash reserve to pay a one‐time lump sum fee for the City’s proportionate share of the upgrades. If the EPA reserve were to remain in place the total minimum reserve target would be significantly higher than is being recommended. The higher reserve would place additional pressure on future rate increases to achieve the higher target reserve.

33 | Page

Allocation of Service Charge Revenue
As identified in the Financial Management Goals of the City sec tion, it is recommended that the City’s Sewer Facility Replacement Charge revenue on an annual basis be at a minimum, equivalent to annual depreciation of system assets. The allocation of service charge revenue to Fund 428 is recommended to increase incrementally over time in order to match annual system depreciation by FY 2029‐30 (the current plan achieves the goal in FY 2029‐30). An adequately funded rep air and replacement program helps to ensure a well‐functioning and more reliable system. An annual r eplacement and rehabilitation program a l s o h e l p s t o m i n i m i z e c o s t l y u n a n t i c i p a t e d m a j o r r e p a i r s . T h e recommended allocation was shown previously in Table 4‐6.

Stabilize Revenues and Expenses
In both Tables 4‐3 and 4‐5, the expenditures of Fund 414 exceed revenues on an annual basis. As noted in Table 4‐5, the difference between revenues and expenditures increases as a result of the updating the a l l o c a t i o n o f s e r v i c e c h a r g e r e v e n u e t o F u n d 4 2 8 t o m e e t i n d u s try standards. While expenses exceed revenues initially, by FY 2029‐30, with the proposed recommenda tions, revenues exceed expenditures while meeting the minimum reserve policies and goals. Revenue increases are currently projected in 9 years of the financial plan, based on current assumptions. As a ssumptions become clearer (for example the direction on Metro funding) a more comprehensive update sho uld be undertaken in the next 3 to 5 years. The ongoing draw down of cash balance requires the use o f additional funds in FY 2024‐25. The Trunk Sewer Capital Fund (Fund 413) had a balance of $64.8 mill ion as of June 30, 2020, which can be u s e d f o r s e w e r t r e a t m e n t o r c o l l e c t i o n c a p i t a l c o s t s w i t h C i t y Council approval. A portion of this cash balance could be used to pay Metro capital costs. If City Counc il approves the use of Fund 413 to pay for the portion of Metro capital costs, the draw down from Fund 414 would be less, allowing the stated goals to meet the reserve targets in later years.

Metro Cost Pass Through
The Metro Costs projections used in the development of the fina ncial plan were provided to the City by the City of San Diego. The City of San Diego Public Utilities Department which operates the Metro facilities, provided projected contributions for the Participating Agencies in January 2019, and an update of the projections at the May 2020 Metro Technical Advisory Committee Meeting. The increases equate to approximately 2.5% per year through FY 2024‐25 and are reflected in the financial plan.

34 | Page

While the financial plan incorporates the best available Metro Cost data as provided by the City of San Diego there is the potential that the actual costs assessed to the City may change in the future. This could be the result of a change in the City of San Diego’s operating costs or a result of a change in flows and strength transmitted by the City to Metro for treatment. Every year the City receives a “true up” of Metro costs based on the projected flows and Metro Costs compared to the actual flows and strength and costs incurred by the City. These costs could be materially different from what was projected in the financial plan, which would have an adverse effect on cashflows and reserves. While the best available information has been incorporated, if actual costs increase or decrease fro m projections, we recommend the implementation of a pass‐through adjustment for the costs to Ci ty customers in order to maintain the financial integrity of the utility. The fixed and volume rates should be increased appropriately, commensurate with the increase or decrease in Metro Costs. As noted previously, a portion of the fixed charge provides funding for the Sewerage Facility Replacement (Fund 428), and this portion of the charge would not change based on Metro costs. California Government C ode Section 53756 allows agencies to authorize automatic adjustments that pass‐through increases or decreases in wholesale wastewater treatment charges when the wholesaler is a public agency (i.e. the City of San Diego). The City of Chula Vista, as the agency implementing the pass through, must initially go through the Proposition 218 process and authorize the pass through which can remain in effect for a maximum of five years. Notice of any adjustment within the approved period shall be given not less t han 30 days before the effective date of the adjustment and follow subdivision (a) of Section 53755 of the California Government Code.

Financial Reviews
It is recommended that the City update the revenue sufficiency analysis portion of this study each year to ensure projected revenue continues to be sufficient to fund pro jected expenses going forward as assumptions made during this analysis may change and have a material impact upon the analysis.

APPENDIX A
Financial Plan
Table 1
Summary of Annual Cash Balance and Target Reserve Policy Line No Description 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Sewer Service Revenue (Fund 414)
1 Balance at the Be ginning of the Fiscal Year $48,147,276 $42,347,015 $37,661,464 $33,502,711 $30,016,240 $33,721,373 $31,720,461 $30,291,340 $29,494,572 $29,394,584 2 Annual Revenues 33,125,000 33,554,797 35,004,444 36,607,538 38,738,118 41,191,977 43,805,391 46,589,104 49,553,261 52,285,598 3 Annual Expenses 38,925,261 38,240,348 39,163,197 40,094,008 41,032,986 43,192,890 45,234,511 47,385,872 49,653,249 52,043,287 4 Transfers In - - - - 6,000,000 - - - - - 5 Policy Tar get Reserve 21,920,787 21,535,078 22,054,781 22,578,968 23,107,754 24,324,105 25,473,846 26,685,387 27,962,261 29,308,213 6 Policy Reserve Maximum 27,206,358 26,727,646 27,372,661 28,023,240 28,679,527 30,189,167 31,616,135 33,119,804 34,704,560 36,375,050 Sewerage Facilities Replacement Fund (Fund 428)
7 Balance at the Be ginning of the Fiscal Year $13,605,982 $12,262,708 $10,264,651 $9,142,391 $8,472,914 $8,359,024 $8,905,985 $10,216,119 $12,403,430 $15,594,800 8 Annual Revenues 1,456,726 1,952,624 2,438,105 2,994,598 3,656,931 4,427,650 5,303,906 6,297,478 7,421,336 9,269,922 9 Annual Expenses 2,800,000 3,950,682 3,560,365 3,664,075 3,770,820 3,880,689 3,993,772 4,110,166 4,229,967 4,174,010 Trunk Sewer Capital Reserve Fund (Fund 413)
10 Balance at the Be ginning of the Fiscal Year $64,836,569 $64,836,569 $64,836,569 $64,836,569 $64,836,569 $58,836,569 $58,836,569 $58,836,569 $58,836,569 $58,836,569 City of Chula Vista, CA
Financial Plan Summary
A-1
Table 2
Projected Operating Results - Sewer Service Revenue Fund (Fund 414) Line Budget Projected
No. Description 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Sources of Funds
1 Beginning-of-Year Cash (1)
$48,147,276 $42,347,015 $37,661,464 $33,502,711 $30,016,240 $33,721,373 $31,720,461 $30,291,340 $29,494,572 $29,394,584 Sewer Utility Related Revenues (Table 3)
2 Charges for Services Revenue - Fund 414 $32,520,000 $32,563,766 $34,059,562 $35,703,782 $37,858,393 $40,328,352 $42,953,089 $45,741,70 7 $48,703,784 $51,271,232 3 Revenues Not From Charges for Services 605,000 991,031 944,882 903,757 879,725 863,626 852,302 847,397 849,476 868,165 4 Total Sewer Utility Related Revenue s $33,125,000 $33,554,797 $35,004,444 $36,607,538 $38,738,118 $41,191,977 $43,805,391 $46,589,104 $49,553,261 52,139,397 $ 5 Total Sewer Revenue s $33,125,000 $33,554,797 $35,004,444 $36,607,538 $38,738,118 $41,191,977 $43,805,391 $46,589,104 $49,553,261 52,285,598 $ Operating Expenses (Table 4)
6 Administration $38,925,261 $38,240,34 8 $39,163,197 $40,094,008 $41,032,986 $43,192,890 $45,234,511 $47,385,87 2 $49,653,249 52,043,28 7$ 7 Total Operating Expenses (OE) $38,925,261 $38,240,348 $39,163,197 $40,094,008 $41,032,986 $43,192,890 $45,234,511 $47,385,872 $49,653,249 52,043,287 $ 8 Net Result of Operation s ($5,800,261) ($4,685,551) ($4,158,753) ($3,486,470) ($2,294,867) ($2,000,912) ($1,429,120) ($796,768) ($99,988) $242,311 Non-Operating Expenses
9 Existing Debt Service 0000000000
10 Other Miscellaneous 0000000000
11 Total Non-Operating Expense s $0 $0 $0 $0 $0 $0 $0 $0 $0 -$ 12 Net Available After Operation s ($5,800,261) ($4,685,551) ($4,158,753) ($3,486,470) ($2,294,867) ($2,000,912) ($1,429,120) ($796,768) ($99,988) $242,311 Other Cash Inflows/(Uses of Funds)
13 New Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
14 Transfers In From Fund 413 - Trunk Sewer: Capital Reserve Fund (2) 0000 6,000,000 00000 15 Total Other Cash Inflows/(Uses of Funds) $0 $0 $0 $0 $6,000,000 $0 $0 $0 $0 $0 16 Net Available After Other Use s ($5,800,261) ($4,685,551) ($4,158,753) ($3,486,470) $3,705,133 ($2,000,912) ($1,429,120) ($796,768) ($99,988) $242,311 17 End-of-Year Cash $42,347,015 $37,661,464 $33,502,711 $30,016,24 0 $33,721,373 $31,720,461 $30,291,34 0 $29,494,572 $29,394,584 $29,636,895 18 Target Cash - Working Capital and Rate Stabilization (180 Days of OE) 19,196,019 18,858,25 4 19,313,358 19,772,388 20,235,445 21,300,603 22,307,430 23,368,375 24,486,534 25,665,183 19 Target Cash - Emergency Reserve (5% of OE) 1,946,263 1,912,017 1,958,160 2,004,700 2,051,649 2,159,64 4 2,261,726 2,369,294 2,482,662 2,602,164 20 Target Cash - Vehicle Replacement Reserve (2% of OE) 778,505 764,80 7 783,264 801,880 820,660 863,858 904,690 947,717 993,065 1,040,86 6 21 Target Cash - Reserve 21,920,787 21,535,078 22,054,781 22,578,96 8 23,107,754 24,324,105 25,473,846 26,685,387 27,962,261 29,308,21 3 Max Cash Reserve - 125% of Working Capital, Rate Stabilization and Emergency Reserves + Vehicle Replacement $27,206,358 $26,727,646 $27,372,661 $28,023,240 $28,679,527 $30,189,167 $31,616,135 $33,119,804 $34,704,560 $36,375,050 City of Chula Vista, CA
Financial Plan Summary
A-2
Table 3
Revenues - Sewer Service Revenue Fund (Fund 414)
Line Budget (1)
Future Year
Escalation Projected (2021 Dollars Escalated for Growth & Revenue Increases) No. Description 2021 Factors 2022 2023 2024 2025 2026 2027 2028 2029 2030

SEWER OPERATING FUND REVENUES
Charges for Services
1 Charges for Services Revenue - Fund 414 $32,520,000 (2) $32,563,766 $34,059,562 $35,703,782 $37,858,393 $40,328,352 $42,953,089 $45,741,707 $48,703,784 $51,271,232 Revenue Other Than Charges for Services
2 Licenses and Permits 40,000 2.00% 40,519 41,031 41,451 42,363 43,295 44,247 45,221 46,215 47,232 3 Use of Money & Property (2) - (3) 378,184 324,283 276,814 238,990 208,794 183,064 163,436 150,468 153,779 4 Reimb CIP Projects - 2.00% - - - - - - - - - 5 Transfers In - Othe r 150,000 2.00% 151,945 153,868 155,440 158,860 162,355 165,927 169,577 173,308 177,121 6O t h e r 415,000 (2) 420,383 425,700 430,052 439,513 449,182 459,064 469,163 479,485 490,034 - - - - - - - - - - Transfers In
7 Transfers In From Fund 413 - Trunk Sewer: Capital Reserve Fund (4) - - - - 6,000,000 - - - - - 8 Total Sewer Operating Fund Revenues 33,125,000 $ $33,554,797 $35,004,444 $36,607,538 $44,738,118 $41,191,977 $43,805,391 $46,589,104 $49,553,261 52,285,598 $ (1) FY 2020-21 values are from Munis Report; Budget to Actuals (GL003) (2) Revenues Other Than Charges for Services are assumed to increase at the rate of growth after FY 2019-20. Growth projections are included in Table 7 (3) Includes Investment Earnings City Pool and Change in Fair Value of Investments. Interest is calculated by applying a 1.0% interest rate to the average beginning and ending (beginning fund balance plus revenues excluding interest less use of funds) annual fund balance (4) A transfer from the Trunk Sewer Capital Reserve Fund (Fund 413) is shown for simplicity. It will be used to pay the capita l portion of the Metro expenses directly.

City of Chula Vista, CA
Financial Plan Summary
A-3
Table 4
Expenses - Sewer Service Revenue Fund (Fund 414)
Line Budget (1)
Future Year
Escalation (2)
Projected (2019 Dollars Escalated for Inflation)
No. Description 2021 Factors 2022 2023 2024 2025 2026 2027 2028 2029 2030

OPERATING EXPENSES
Administration
1 Personnel Services (2)
$4,859,667 3.00% $5,005,457 $5,155,621 $5,310,289 $5,469,598 $5,633,686 $6,038,316 $6,219,465 $6,406,049 $6,598,231 2 Additional Salaries 0 3.00% 0000 228,7570000
3 Supplies and Services 2,986,179 8.00% 3,045,903 3,106,821 3,168,957 3,232,336 3,296,983 3,362,923 3,430,181 3,498,785 3,568,760 4 Regional Wastewater Disposal Metro Costs (3)
23,994,998 6.00% 24,594,873 25,194,748 25,794,623 26,394,498 27,978,168 29,656,858 31,436,269 33,322,446 35,321,792 5 Reconciliation of Re gional Wastewater Disposal Metro Costs 1,600,000 2.38% - - - - - - - - - 6 Other Expenses 75,000 2.00% 76,500 78,030 79,591 81,182 82,806 84,462 86,151 87,874 89,632 7 Capital (Vehicle Replacement & Other Capital) 1,729,547 2.00% 1,764,138 1,799,421 1,835,409 1,872,117 1,909,560 1,947,751 1,986,706 2,026,440 2,066,969 8 Utilities 331 5.00% 348 365 383 402 422 444 466 489 513 9 Internal Services Char ges 316,705 2.00% 323,039 329,500 336,090 342,812 349,668 356,661 363,794 371,070 378,492 10 Transfers Out 3,298,234 2.00% 3,364,199 3,431,483 3,500,112 3,570,115 3,641,517 3,714,347 3,788,634 3,864,407 3,941,695 11 Pro ject Expenditures (Non-CIP and CIP) 64,600 2.00% 65,892 67,210 68,554 69,925 71,324 72,750 74,205 75,689 77,203 12 TOTAL OPERATING EXPENSES $38,925,261 $38,240,348 $39,163, 197 $40,094,008 $41,032,986 $43,192,890 $45,234,511 $47,385,872 $49,653,249 $52,043,287 (1) FY 2020-21 Budget from Munis Report (GL001 FY 2020) (2) Escalation factor for personnel services reflects weighted average escalation factors for salaries, health benefits and pensions as provided by the City's finance department and calculated below (3) Projections for FY 2021 through FY 2025 are based on the City of San Diego low cost projections as summarized in the PUD Wastewater Rate Model May 2020, and can be found in the Metro Technical Advisory Committee meeting minutes for May 2020. Projections beyond FY 2025 assume an annual 6% increase.

City of Chula Vista, CA
Financial Plan Summary
A-4
Table 5
Revenues - Sewerage Facility Replacement Fund (Fund 428) Line Budget (1)
Future Year
Escalation Projected (2021 Dollars Escalated for Growth & Revenue Increases) No. Description 2021 Factors 2022 2023 2024 2025 2026 2027 2028 2029 2030 Charges for Services
1 Charges for Services Revenue - Fund 428 $1,405,000 (2) $1,801,238 $2,306,126 $2,870,501 $3,535,669 $4,303,140 $5,169,032 $6,144,045 $7,239,952 $9,047,864 2 Use of Money & Property 51,726 (3) 151,387 131,979 124,097 121,262 124,509 134,874 153,432 181,384 222,057 3 Other Revenue - (4) - - - - - - - - - 4 Total Sewerage Replacement Fee Revenue 1,456,726 1,952,624 2,438,105 2,994,598 3,656,931 4,427,650 5,303,906 6,297,478 7,421,336 9,269,922 (1) FY 2020-21 values are from Munis Report; Budget to Actuals (GL003) (2) Represents SRF component of Charges for Services - 2021 based on allocation to meet a $19 mill fund balance in FY 2025. Al locaton for FY 2021-2 and beyond were adjusted to match annual system depreciation by FY 2028-29
(3) Includes Investment Earnings City Pool and Change in Fair Value of Investments. Interest is calculated by applying a 1.0% interest rate to the average beginning and ending (beginning fund balance plus revenues excluding interest less use of funds) annual fund balance (4) Revenues Other Than Charges for Services are assumed to increase at the rate of growth after FY 2019-20. Growth projections are included in Table 7 City of Chula Vista, CA
Financial Plan Summary
A-5
Table 6
Capital Improvement Plan
Line
No. Description 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Wastewater Identified Projects
1 J Street Junction Box Sewer Study $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 2 Parkside Drive Lift Station Up grades - - - - - - - - - - 3 Sewer Pipe Rehabilitation Pro gram - 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 1,550,000 4 Manhole Inspection Pro gram - 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 5 Sewer Manhole Rehabilitation Pro gram - 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 6 Sewer Access Road Rehabilitation Pro gram - 350,000 350,000 350,000 350,000 350,000 350,000 350,000 350,000 350,000 7 Police Department Sewer Pump Station Relocation - 450,000 - - - - - - - - 8 City Hall Emer gency Storage - - - - - - - - - - 9 Salt Creek Community Pump Station - - - - - - - - - - 10 Salt Creek interceptor Condition Assessment (Portions) - - - - - - - - - - 11 Po ggi Canyon Sewer Improvements on Olympic Parkway at Concord Way - - - - - - - - - - 12 Sewer Pipeline Rehab - - - - - - - - - - 13 A gua Vista Pump Station Upgrades - - - - - - - - - - 14 J Street Sewer Junction Structure Improvement - - - - - - - - - - 15 Ma jor Pump Maintenance or Upgrade (est. 1 PS every 5 years), based on Parkside ($1.5M), Yrs. 5-10 - 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 16 CIP Advanced Plannin g - 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 17 Identified CIP 2,650,000 - - - - - - - - - 17 Total Capital Pro ject Costs $2,650,000 $3,480,000 $3,030,000 $3,030,000 $3,030,000 $3,030,000 $3,030,000 $3,030,000 $3,030,000 $3,030,000 18 Esclation Facto r 0.00% 0.00% 0.00% 2.95% 2.95% 2.95% 2.95% 2.95% 2.95% 2.95% 19 Total Escalated Capital Pro ject Costs $2,650,000 $3,797,682 $3,404,305 $3,504,894 $3,608,455 $3,715,076 $3,824,848 $3,937,863 $4,054,218 $4,174,010 City of Chula Vista, CA
Financial Plan Summary
A-6
Table 7
Projected Growth Rate
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Population 281,344 284,993 288,598 291,548 297,962 304,517 311,217 318,063 325,061 332,212 Increase in Population 4,245 3,649 3,605 2,950 6,414 6,555 6,699 6,847 6,997 7,151 System Growth for Charges for Services Revenues (1) (2)

1.53% 1.30% 1.26% 1.02% 2.20% 2.20% 2.20% 2.20% 2.20% 2.20% (1) System growth is linked to estimated population growth and is assumed to directly translate to revenue growth. In other words a 1% increase in population is assumed to translate to a 1% increase in charges for services revenue. This may change as rates are revised and refined. (2) Growth rates are from the Annual Residential Forecast 2020 - 2024 (Sept 2019) City of Chula Vista, CA
Financial Plan Summary
A-7
APPENDIX B
Reserve Fund Policies
SUBJECT: Se ver Sen ice Re enue Fund Reserve POLICI' EFFECTIVE Polic}. NUAZBER DATE PAGE
220- 04 12/ 17/ li 1 of 4
ADOPTED Bl': 2013- 26 DATED: December 17, 2013
PURPOSE:

Publicentitiesaccumulateandmaintainadequatereserveslevelsto helpensurebothfinancialstabilih andthe abilin to provide coreservicesdurins difficult times. Adequatelyfundedreservesallow for:
1) funding infrastructure replacement, 2) economic uncertainties and other financial hazdships; 3) future debt and capital obligations, 4) cash flow requirements, 6) improved credit ratines, ) unfunded mandatesincluding costl} regulaton requirements.

BACKGROUI' D:

The Cih' s SewerEnterpriseFundsaccountfor specific servicesfunded directly bv feesandchazees usersof the City' s sewers}stem. Thesefundsare intendedto beself-supportingaswell asrestricted and cannot be used for other City services. They account for revenuesand expensesrelated to the City` s seHer proerams; including maintenance and e: pansion of the Cih' s conve} ance svstem and payment of San Diego Metro vastewater treatment costs.

The Sewer Service Revenue Enterprise Fund accounts for revenue collected from monthh seti er servicechaz es for all properties that are connectedto the Cit}' s sewer system. Thesefunds can only be used for se er related operations and maintenance. The primary use of these funds is payment for the City' s annual San Diego Metropolitan Sewer Capacity and to fund maintenanceand operational costs associated ith the sewer collection system.

The Govemment Finance Officers Association ( GFOA), an intemational or anization that promotes the professional financial manaeement of Qovemments for the public interest, recommends maintainina minimum reserve balances. A govemment' s particular situation ma} require levels of reserves sienificantiv in ezcess of their recommended minimum levels. Cities tiith hieher resen e levels are better positioned to protect public services during economic doumturns.

GFOA recommends that in establishing a policy govemine the level of reservesor vorkine capital in enterprise funds; a eovemment should consider a variep of factors, including but not limited to the followin:

The predictability of its revenues and the volatilin of its expendimres ( i.e. hieher levels of reser es may be neededif sienificant revenue sources are subject to unpredictable fluctuations or if operating expenditures are highh olatile.)
Liquidin ( i.e. a disparity bet; een when financial resourcesactualh become available to mal:e paytnents and the average maturih of related liabilities may require that a higher level of resources be maintained).

Designations ( i. e. go emments ma w ish to maintain higher levels oF resen es to compensate for anv portion of available fund balance alreadv desienated for a specific purpose).

Reserve Fund Policies
B-1
5UBJECT: Sewcr Sen ice Revenue Fund Resen e
pOLICY EFFECTIVE
Policy

NUMBER DATE PAGE
220- 04 12/ 17/ 13 2 of 4
ADOPTED BY: 2013- 265 DATED: December 17, 2013
POLICY:

ThisPolicyestablishesfour distinctreserveswithinthe SewerServiceRevenue Fund:

1. Working CapitalandRateStabilizationResene

2. Lmergency Reserve

3. Vehicle Replacement Reserve

4. U.S. Environmental Protection Agency (USEPA) Permit Renewal Liability Reserve Workine Capital and Rate Stabilization Reserve
orkingCapitalandRateStabilizationreservesin theSewerServiceRevenueFundwill berestricted tomaintainingandoperatingthe astewatercollectionsystem andpayingtreatmentchargestoCityof San Dieeo Metropolitan Wastewater (" Metro"). The reserve will be funded from revenues accumulated in the Se ver Service Revenue Fund. It is intended to accommodate any natural variabilityin revenuesande penditures, includin potentialdisruptionsof cashflo vs dueto varied billing methodology, short tenn fluctuations and annual cycles. The reserve will also assist in addressingshortfallswhichmay occurdueto unanticipatedcostincreasesin labor orenergyandother consumption based goods and services, such as wastewater treatment sen ices provided by Metro.

The reserves represent unrestricted resources available for appropriation by the City Council addressingunforeseenneedsfor sewerservices.

TheVVorkingCapitalandRateStabilizationReserveswill assisttheCity in addressingthefollowing items:

Rate Stabilization — the reserveswill allow the Ciry the flexibility to " smooth" rates and phase increasesin over multiple years, which is prudent given the potential variability in the Citys payments to Metro.

Revenue Collection Fluctuations - the resen es will be used to protect the City from natural fluctuations in revenue and e penditure cycles which is prudent given that the City bills customers at different points in time but incurs expenses continuously throughout the year.

Rates of delinquencies— delays in collection of outstanding revenues.

Payroll cycles — the timing of a fixed cashrequirement for payroll, as related to the timing of re enue cycles.

Unanticipated espenses - espenses whose characteristics make accurate estimation difficult, such as increases in wastewater treatment services provided by the City of San Diego, energy costs; labor benefits and other consumption based goods and services.

TheCity shallmaintaina Se er Revenue reserveequivalentto 90daysof operatingexpendituresand a Rate Stabilization reserve equivalent to 90 days of operating expenditures for a minimum combined rotal of 180 days and a masimum reserve balance of 125% of the minimum balance.

Reserve Fund Policies
B-2
SUBJECT: Se rer Sen• ice Re enue Fund Reserve pOLIC1' EFFECTI E Polic} NUNIBER DATE PAGE
22p- 0 12/ 17/ 13 3 of 4
ADOPTED BY: 2013- 26 DATED: December 17, 2013
If funds are appropriated from the Se= er Re enue Workine Capital and Rate Stabilization Resen es, the fundsshouldbereplenishedin thebudsetprocessduring subsequentfiscal }eazsto theminimum reservebalance. If the maanitudeof the eventcaused theSewer RevenueWorking Capitalanda Stabilization Resenes to be less than 30 davs of the operating and maintenancebudget, the Finance Director shall provide the Cih Council with a plan to incrementall replenish the reserves to the 180 da- s minimum resen e balance.

Emereenc Reserve
The Se er Sen ice Re enue Fund Emergency Reser e is necessan to secure funding for insurance deductibles, unforeseen liabilities/litieation and settlement costs related to the Cih` s asteH ater s} stem.

The Cin shall maintain a minimum SeH er Sen ice Re enue Fund Emeraencv Reserve tareet level of of the operating and maintenance budset and a maximum reserve balance of 12% of the minimum balance. If funds areappropriatedfrom the Se er RevenueEmergencyResenes due to unanticipatedneeds; the FinanceDirector shall pro ide the Cin Council + ith a plan to incrementally replenish the reserves to the minimum reserve balance.

Vehicle Renlacement Reserve
The Se ver Service Revenue Fund Vehicle Replacement Resenes represents monies set aside to fund the replacement of aeine ehicles. The allocation is funded from revenues accumulated in the Sewer Sen ice Revenue Fund.

The City shall maintain a minimum Sewer Sen ice Fund Vehicle Replacement Reserve target of 2% of the operatine and maintenance budget This reserve +- ill ensure that ehicles utilized for seH er operations aze replaced as scheduled and available to deplo} as needed.

To achieve a minimum impact to cost of services and rates, funds ill be included in the proposed budeet on an annual basis as identified in the Citv' s Vehicle Replacement schedule. The cost of replacing all the vehides tiill be a eraeed over the lifespan of the esistin2 fleet. This will eeneratea more normalized cost of sen ices by e enl} distributine re enue requirements on a year-to-veazbasis offsetting temporarv cash flo v deficiencies and a oid significant increasesin rates charges to customers in the years the replacement cost aze incurred.

USEPA Permit Renewal Liabiliri Reseme
The Se er Service Re enue Fund USEPA Permit Rene i al Liabiliri Resen e will account for monies set aside to fund the Cin of San Diego n9etropolitan Waste ater costs related to the potential up rade of the Point Loma Waste+ ater Treatment Plant ( PLWTP) or other alternative for secondan treatment.

The resen= e rill be funded from re enues accumulated in the Se er Sen ice Re enue Fund.

Reserve Fund Policies
B-3
SUBJECT: Sewer Sen ice Re enue Fund Resen e
pOLICY EFFECTIVE
Policv NIJMBER DATE PAGE
220- 04 12/ 17/ 13 4 of4
ADOPTED BY: 2013- 265 DATED: December 17, 2013
Metro' s USEPA waiver expires in FY 2015 and may not be renewed. If denied, Mevo would needto develop and implement improvements to achieve secondarytreatment level at PLWTP. Current cost estimates to establish full secondary treatment at PLWTP as well as possible altematives are all significant (>$ 1Billion). As a contributing member to the regional treatment plant, the City of Chula Vista' s share in the cost of any upgrade would be approximately 10 percent for the capital improvements and any increase in the overall treatment cost. It is eapected that Metro will have 10 vears after the eapiration of the USEPA waiver to institute secondary treatment or altemative. This reserve establishesa dedicated fund that will offset a poRion of the City' s share of any obligation related to the PLWTP USEPA waiver. By actively planning for the PLWTP upgrade or alternative. the City will be in a stronger financial position to afford such costs while mitigating impacts to ratepayers.

The Permit Renewal Liabilit} Reserve will be funded through annual contributions with the intent to reach a target balance of 20% of Chula Vista' s share of the upgrade cost by FY 2024/25 ( 10 years after the e piration of the ti aiver). If substantial increases in Metro- related costs occur sooner than ezpected, the City may dra v do n reserve levels prior to FY 2024/25 to manage impacts to ratepayers. To be consistentwith the City"s policy for managingbalancesfor its other utility reserves, if funds are appropriated from the reserve before its intended use, the funds should be replenished in subsequent fiscal years. If the magnitude of the withdrawal is material, the Finance Director shall provide the City Council vith a plan to incrementally replenish the resemes.

If the actual costs for the PLWTP upgrade or altemative are lessthan anticipated, any unspent reserves will be rolledinto the WorkingCapitalandRatestabilizationreserveandutilized to fund City sewer programs, including maintenanceand e pansion of the City' s conveyancesystemandpayment of San Diego Metro wastewater treatment costs.

Reserve Fund Policies
B-4
APPENDIX C
Fund Balances
Fiscal Year 2019‐2020
Fund 411 Fund 413 Fund 414 Fund 428 Notes
Sewer Fund
Trunk Sewer Capital
Reserve Sewer Service
Sewer Facility
Replacement
End of Year Cash Balance 2,231,746$ 64,836,569$ 48,147,276$ 13,605,982$ GL032 GL Actuals ‐ 202000 to 202013
SSRS Report;Munis Balance Sheet
Report
Fund Balances
C-1
APPENDIX D
System Growth Estimates

ANNUAL RESIDENTIAL GROWTH

FORECAST
2020 through 2024

September 2019
System Growth Estimates
D-1
2 INTRODUCTION
As a component of the City of Chula Vista’s (“City”) Growth Management Program, the City’s Development Services Department provides annual residential growth forecasts looking out five years. This year’s growth forecast covers the period from January 2020 through December 2024.

The growth forecast is provided to assist City departments and other service providers in assessing potential impacts that growth may have on maintaining compliance with threshold standards for each of the quality of life threshold topics established in Chula Vista Municipal Code Chapter 19.09,

Growth Management, as listed below:

1. Air Quality and Climate Protection

2. Drainage

3. Fire and Emergency Medical Services

4. Fiscal

5. Libraries

6. Parks and Recreation

7. Police

8. Schools

9. Sewer

10. Traffic

11. Water

The Chula Vista Growth Management Oversight Commission (GMOC) sends out on an annual basis the growth forecast and compliance questionnaires to City departments and service providers, soliciting information regarding past, current, and projected compliance with the quality of life threshold standards for the facilities and services listed above. The responses to the questionnaires form a basis for the GMOC’s annual report, which includes a set of recommendations to the City Council regarding threshold compliance and/or revisions to any of the City’s threshold standards.

Recommendations may include such actions as adding or accelerating capital projects; hiring personnel; changing management practices; or slowing the pace of growth (such as a moratorium).

The City Council ultimately decides what course of action to take.

To prepare the growth forecast, the City requests that developers and builders provide residential projections for projects that have been or are undergoing the entitlement process, and that could potentially be approved and permitted for construction within the next five yea rs. The numbers reflect consideration of the City’s standard entitlement process and permitting time frames, but do not reflect market or other economic conditions outside the City’s control. Therefore, the growth forecast is characterized as follows:

 It does not represent a goal or desired growth rate;
 It represents what may occur given a set of assumptions listed below under “Forecast Methods”;
 It is produced by the City and is not necessarily endorsed by home builders; and  It assumes that market and economic conditions, as well as developer funding and resources, will consistently be synchronized to support the projections. This is a more liberal estimate to assess possible effects to the City’s threshold standards.

System Growth Estimates
D-2
3 As shown in Table A, below, last year’s growth forecast estimated that 2,117 residential building permits would be issued in 2019. However, actual permits issued fell below projections, particularly for single -family units. Overall, permits to date , plus current fourth quarter projected permits are approximately 42% lower than the projections in last year’s Growth Forecast. Permits for single-family units fell more drastically, 72% below the 800 units projected. The majority of building activity in 2019 is occurring in the master planned communities east of Interstate 805.

Table A
Residential
Land Use
Type
2019
Projections
from Previous
Growth
Forecast
2019 Actual and Updated Projection
Difference Actual Permits
Issued 1.1.19
Through

8.22.19 Fourth Quarter
2019
Projections Total %
Single-family 800 149 79 228 -72%
Multi-family 1,317 379 625 1,004 -24%
TOTAL 2,117 528 704 1,232 -42%

FORECAST SUMMARY
In the forecast period covering calendar year 2020 through calendar year 2024, 6,077 residential units are projected to be permitted citywide, with an annual average of 1,2 15 housing units permitted per year (see Figure 1 and Tables 1 and 2). Building activity will continue to be concentrated in the master planned communities east of Interstate 805, with 93% of residential permits to be issued in eastern Chula Vista. Refer to Figure 2 for a map of the anticipated developments in the City during the forecast period.

Table B
Description
Residential Unit Forecast
Five Year (2020-2024) Per Year
No. of Units % of Units No. of Units
Western Chula Vista 406 7% 81
Eastern Chula Vista 5,671 93% 1,134
TOTAL 6,077 100% 1,215

These above developer-provided projections were averaged with the projected 10 -year moving average of permits issued to present a growth forecast that “smooths out” annual fluctuations (Tables 3 and 4). A veraging the citywide developer projections and the 10 -year moving average results in a blended projection of ap proximately 786 permits to be issued in 2020, increasing to 944 in 2024. The data presented in Table 3 provides a historical context for assessing and validating the developer-generated projections contained in Tables 1 and 2.

System Growth Estimates
D-3
4 The following discussion and figures describe the context, conditions and assumptions behind the forecast. It should be noted that this forecast is a planning tool and not a prediction or specific expectation.

FORECAST METHODS
With input from developers, projections are derived by reviewing the status of project entitlements, including estimated project processing schedules for plan reviews, subdivision maps, and building plans.

The forecast is predicated upon the following three assumptions:

1. Public policy regarding development remains unchanged;

2. The housing market remains stable; and

3. Projects follow normal project regulatory processing schedules.

To provide context for the forecasted units to be constructed, the City uses several analyses that illustrate the range of possibilities in which development in the City could proceed. These methods are a combination of simple statistics and market absorption estimates provided by developers with consideration for typical permit progression through the City’s entitlement process.

Table C
Methodology
Five Year (2020-2024)
Residential Unit Forecast
Citywide
Developer Estimates and Permit Process Projection 6,077 Statistical (10-Year Simple Moving Average) Projection 4,741 Blended Projection (Average of Developer and
Statistical Projections)

5,409

Developer Estimates and Permit Process Projection
As part of the Growth Forecast preparation process, the City solicits estimates from developers in the City based on their permitting and construction schedules coupled with their understanding of market absorption conditions. The City then incorporates the status and progression of the units in the entitlement process into the anticipated schedule. In doing so, any unanticipated regulatory impacts to the schedules of planned projects can be accounted for. Typically, this results in some minimal deviations from the developers’ projected schedules. This projection indicates the permitting of a total of 6,077 residential units citywide between 2020 and 2024.

System Growth Estimates
D-4
5 Statistical (10-Year Simple Moving Average) Projection As discussed above, the statistical method for projecting permitted units provides a readily- available estimate for future development accounting for the dynamics of approximately a full market cycle. Each future year’s citywide projected completed units are the average of the citywide completed units for the ten prior years, representing a 10 -year simple moving average for completed dwelling units. This projection indicates the permitting of approximately 4,741 residential units between 2020 and 2024.

As shown on Table 3, the moving average includes data from the preceding 10 years, which includes a period when development was significantly slowed by the national financial crisis and its aftermath. Therefore, although there are some variations year- by-year, the overall five -year projection based on the moving average is approximately 10% lower than developer projections.

Blended Projection
As previously discussed, the statistical and developer projections form the lower and upper bounds of future trends, respectively. For the purposes of this analysis, the mean of these projections (the Blended Projection) is interpreted as the most likely outcome and is used as the forecasted permit activity and population growth. As discussed in the “Statistical (10 -Year Simple Moving Average) Projection” section above, approximately 4,741 total permitted units are projected between 2020 and 2024,
based on the moving average, while 6,077 would be permitted based on developer projections. The average between the 10 -year moving average and developer projections is 5,409 units between 2020 and 2024 . Additional details can be found in Tables 3 and 4, and the light blue lines on Figure 3.

Additional details can be found in Tables 3 and 4, and the light blue lines on Figure 3. Information regarding projected growth in the eastern and western portions of the City is presented in the paragraphs that follow.

Eastern Chula Vista
Most of the City’s growth has been and will continue to be in eastern Chula Vista (see Figure 2) for the next several years. Development is projected to be most active in Otay Ranch Villages 2, 3, 8 West, Planning Area 12, and Millenia through 2024 (see Table 1).

Starting in January 20 20, the remaining capacity for residential units projected to be permitted in eastern Chula Vista is approximately 16,897. If 6,077 units were to be permitted over the next five- year period, then approximately 10,820 units would remain. Assuming the continuation of the annual developer projection of 1,215 permits per year, the City’s residential capacity would be fully built out in approximately nine years after the analysis period of this growth forecast (i.e., 2033) .

However, this is a projection of long -term future growth based on a five -year-projection; this buildout estimate is subject to revision resulting from changes in economic conditions , updated vacancy and occupancy estimates, and/or future revisions to development plans.

System Growth Estimates
D-5
6 Western Chula Vista
Several projects in western Chula Vista are entitled but remain undeveloped, as indicated in Table D, below:

Table D

NAME/ADDRESS NUMBER OF ENTITLED UNITS

MULTI-FAMILY
1262 Third Avenue Apartments 6
201 Third Avenue 23
230 Church Avenue Apartments 29
268 I Street Apartments 6
288 Center Street 29
305 E Street Apartments 52
354 Moss Street Townhomes 16
577 Fourth Avenue Residences 10
Bayfront–Pacifica 450
The Colony Condominiums 162
Flower Street Apartments 18
Fourth Avenue 4-Plex 4
Industrial Townhomes 42
Limon Apartments 3
Urbana (385 & 395 H Street) 135
Villas Nuevos Apartments 4
Vistas Chulitas 9
Vistas Del Mar 71
Woodlawn Avenue Apartments 4
SUBTOTAL 1,073 (99%)

SINGLE-FAMILY
264-276 Palm Avenue Homes 4
635-641 E. Naples Homes 4
Date Street Residences 5
SUBTOTAL 13 (1%)
TOTAL 1,086
The initial phase of d evelopment of the Bayfront –Pacifica units is projected to begin in 20 21. It is assumed that buildout of Pacifica would occur after 2024. However, there is no clear indication when the other projects will move forward.

From
January 1 through August 22, 2019, 19 building permits were issued for accessory dwelling units (ADUs). Approximately 20 ADUs are expected to be permitted each year between 20 20 and 2024.

System Growth Estimates
D-6
7 CONSTRUCTION HISTORY
Residential
Several market cycles, including recessions, have contributed to a broad range in the number of building permits issued each decade since 1980, as indicated in Table E, below:

Table E
Decade Average Number of Building
Permits Issued per Year
1980-1989 990
1990-1999 973
2000-2009 1,885
2010-2019* 913
* Existing permits through August 22, 2019 plus projections for fourth quarter of 2019

The following are notable characteristics of residential construction since the 1980s:
 On an annual basis, the number of building permits issued for housing units in Chula Vista has fluctuated from a low of 195 in 1981 to a high of 3,525 in 2001.  The average number between 1980 and 2018 was 1,188 (see Table 3 and Figure 3).  Between 1984 and 1989, the average number of permits issued each year was 1,431.  There was a ten -year period of at least 1,000 permits issued annually between 1997 and 2006, averaging 2,254 units per year.
 In 2001, 2003 and 2004, the annual permits issued exceeded 3,000.  Between 2007 and 2015, the number of building permits issued each year never exceeded 1,000 per year, due to the lingering effects of the housing and financial crisis.  Between 2016 and 2018, annual permits issued exceeded 1,000 and increased with each successive year.
 The projected number of annual permits for 2019 is 1,035, which is a reduction from previous years.

A significant cause of Chula Vista’s growth was, and continues to be, development of the master planned communities in eastern Chula Vista, including Rancho del Rey, Eastlake, Rolling Hills Ranch, San Miguel Ranch, and Bella Lago, which are mostly built out; and Otay Ranch, which has several thousand more units to be constructed.

System Growth Estimates
D-7
8 Commercial and Industrial
Commercial and industrial development in the City has been significantly outpaced by residential development but characterized by periodic upticks, typically due to the opening of retail centers.

Commercial development in the City has recently accelerated with the development of the Millenia, Freeway Commercial, and Bayfront project areas. Approximately 1,600 hotel rooms are projected to be permitted in 2020 in the Chula Vista Bayfront Master Plan area.

FORECASTED POPULATION
This forecast focuses on the projected number of residential units as the primary indicator to measure future population increases. Western Chula Vista (as evidenced by U.S. Census data) has experienced growth in the form of demographic changes as the average household size increases .

However, such growth is difficult to track on a year- to-year basis and is not reflected in this report’s future population forecast.

The California State Department of Finance (DOF) estimate d that Chula Vista ha d an average of

3.30 persons per household in 2019. Applying this rate to the residential units projected over the next five years using the City’s 10 -year moving average, and assuming a 201 9 year-end population of 277,099 and the 2019 DOF vacancy rate of 5.3 %, Chula Vista can expect a total population of approximately 288,844 persons by the end of 202 4 (see Figure 3, solid red line). Applying the developer’s projections to the same assumptions would result in a projected 2024 population of 294,252. Assuming the Blended Projection, the City’s population would be 291,548 by 2024. This represents an increase of approximately 14 ,450 residents, as compared to the estimated year -end population of 277,099 for 2019.

This is only a rough estimate for planning purposes, as the vacancy rate, persons per unit factors, and the number of actual units completed will vary over time.

System Growth Estimates
D-8

0.0 0.2

0.4 0.6

0.8 1.0
Figure 1 - Residential Building Permits
Actual Issued 2004 - 2019 and Forecast 2020 - 2024
0 500
1000
1500
2000
2500
3000
3500
Eastern Chula Vista
Western Chula Vista
L:\Gabe Files\GMOC\2020\CV Res building permits statistics.pdf.9.1.19 Number
of Units
Actual Forecast
2020 2021 2022 2023 2024 1,654
3,300
1,0731,050
692
829
631728
517
275325
576
1,180
798
658
528
20 176
20 20
170
868
1,610
1,364
1,171
1,777
2004 2005 20062007200820092010 201120122013201420152016201720182019 Thru 8/22/2019
System Growth Estimates
D-9

LIST OF CITYWIDE PROJECTS
City of Chula Vista Boundary
Toll Road
CITY OF CHULA VISTA

COUNTY OF SAN DIEGO
Village
2 Village
1 Village
3 Village
6 Village
7 Village
9 Village
10 Village
8 - EastVillage
8 - West
University
University
Chula VIsta
Elite Athlete
Training Center
Village
11 PA-12
Otay
Ranch
Town
Center
EUC
Millenia
OTAY

LANDFILL
San Miguel
Ranch
Rolling Hills Ranch
Bella
Lago
Eastlake
Greens
805
Sweetwater
Reservoir
San Diego
Bay
L
o
w
e
r
O
t
a
y
L
a
k
e
54 125
5 L St
K St
J St
H St
G St
E St
F St
D St
C St
Naples St
Moss St
Palomar St
Oxsford St
Orange Av
Main St
Hilltop DrFirst Av Second Av
Third Av
Fourth Av Fifth Av
Broadway

E H St

Telegraph Can yon Rd
E Palomar St
Olympic Parkway
Heritage Rd
La Media Rd
Birch Rd
Eastlake Pkwy
Hunte Pkwy
Proctor Valley Rd
Otay Lakes Rd
Bayfront Pacifica
Village 2 - Otay Ranch
Village 3 North - Otay Ranch
Village 4 - Otay Ranch
Village 8 West - Otay Ranch
Village 8 East - Otay Ranch
EUC "Millenia" - Otay Ranch
PA-12 Freeway Commercial - Otay Ranch
L:\Gabe Files\GMOC\2020\Figure 2 - Residential Forecast Development Map.pdf.9.1.19 2 3 4 5
7 8
6 1
2 3
4 5
6 7
8 1
Figure 2 - Residential Development Forecast Map
2020- 2024
System Growth Estimates
D-10
2001, 3,525
2009, 275
2021, 1,786
2024, 888
2024, 288,844
2024,291,548
2024, 294,252
0 50,000
100,000
150,000
200,000
250,000
300,000
350,000
0 200
400
600
800
1000
1200
1400
1600
1800
2000
2200
2400
2600
2800
3000
3200
3400
3600
3800
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Estimated Year-End Population
Annual Units Issued
Figure 3 - Historic and Projected Population Growth
Historic Units 10-yr Avg Projected Units Developers' Projected Units Average of Projected Units Historic Population 10-yr Avg Projected Population Average of Projected Pop. Developers' Projected Pop.

Montgomery
Annex
Note: Population increase assumed to occur at occupancy, which for the purposes of this analysis is assumed to lag issuance by one year. 2019
System Growth Estimates
D-11
0 250
500
750
1000
1250
1500
1750
2000
2250
2500
2750
2013 2014 2015 2016 2017 2018 2019P 2020P 2021P 2022P 2023P Issued Dwelling Units (DUs), Hotel Rooms, or 1,000 Commercial Square Feet Figure 4 - Historic and Projected Units Issued by Land Use Multi-Family (DUs) Single Family (DUs) Commercial/Industrial (1,000 SF) Hotel (Rooms) System Growth Estimates
D-12

SF MF SF MF SF MF SF MF SF MF SF MF SF MF

OTAY RANCH
Village 2 - Baldwin & Sons 21 12 83 180 35 258 50 427 47 350 91 332 306 1,547 Village 2 - HomeFed 0 0 0 0 0 0 62 0 10 0 0 0 72 0
Village 3 - Brookfield Homes (Alley Row Townhomes) 0 0 0 0 0 0 0 0 0 37 0 10 0 47 Village 3 - Brookfield Homes (Haciendas) 0 0 0 0 0 0 0 0 25 0 13 0 38 0 Village 3 - Brookfield Homes (Prado Front Load) 12 0 24 0 0 0 0 0 25 0 19 0 68 0 Village 3 - Lenna Homes (Castellena) 0 0 0 0 0 0 0 0 17 0 6 0 23 0 Village 3 - Lennar Homes (Indigo) 4 0 4 0 0 0 0 0 20 0 6 0 30 0 Village 3 - Lennar Homes (Valencia) 0 0 0 0 0 0 0 0 34 0 10 0 44 0 Village 3 - Shea Homes (Sierra) 8 0 12 0 0 0 0 0 36 0 12 0 60 0 Village 3 - Shea Homes (Seville) 6 0 37 0 0 0 0 0 36 0 12 0 85 0 Village 3 - TBD 0 0 0 0 24 0 20 120 0 0 0 164 44 284
Village 4 - Undetermined 23 25 0 100 0 100 0 27 0 0 0 0 0 227 Village 8 West - HomeFed 0 0 12 128 252 323 218 404 170 220 122 19 774 1,094 Village 8 East - Homefed 0 0 0 0 0 0 0 0 112 0 0 0 112 0 Village 10 - HomeFed 0 0 0 0 0 0 0 0 0 0 0 52 0 52
Planning Area 12 - Baldwin 0 0 0 78 0 618 0 36 0 32 0 0 0 764 Millenia Lot 15 (Vibe) - Lennar 0 92 0 0 0 0 0 0 0 0 0 0 0 0 Millenia Lot 17 (Boulevard) - Lennar 0 12 0 0 0 0 0 0 0 0 0 0 0 0 Millenia Lots 8 & 21 - Ryan Companies 0 480 0 0 0 0 0 0 0 0 0 0 0 0 Millenia (Element & Z) - Shea 0 4 0 0 0 0 0 0 0 0 0 0 0 0 TOTAL BY UNIT TYPE 74 625 172 486 311 1,299 350 1,014 532 639 291 577 1,656 4,015

GRAND TOTAL
ISSUE = Building permits projected to be issued
5-Year Forecast
Table 1

EASTERN CHULA VISTA RESIDENTIAL DEVELOPMENT FORECAST
699 658 1,610 868
2024 2020-20242020
ISSUE
1,134Annual Average
(2020-2024):
5,671
ISSUE
1,364
ISSUE
1,171
2022
ISSUE
2023

ISSUEEASTERN PROJECTS ISSUE ISSUE
2019 4th Q 2021
System Growth Estimates
D-13

SF MF SF MF SF MF SF MF SF MF SF MF SF MF
Bayfront - Pacifica 0 0 0 0 0 156 0 0 0 150 0 0 0 306
Second Accessory Units 5 0 20 0 20 0 20 0 20 0 20 0 100 0 SUB-TOTAL 5 0 20 0 20 156 20 0 20 150 20 0 100 306
TOTAL
ISSUE = Building Permits Projected to be Issued
2024

WESTERN CHULA VISTA RESIDENTIAL DEVELOPMENT FORECAST

PROJECT
2019 4th Q 2020 2023
ISSUE
2021
Table 2
ISSUE
2022
ISSUE
406170176 20

ISSUE ISSUE ISSUEISSUE
2020 - 2024
5-Year Forecast
Annual Average
(2020 - 2024): 81
20 205
System Growth Estimates
D-14
1980 407 374 84,364
1981 195 496 86,597 2.6
1982 232 129 88,023 1.6
1983 479 279 89,370 1.5
1984 1,200 521 91,166 2.0
1985 1,048 1,552 116,325 27.6 2
1986 2,076 1,120 120,285 3.4
1987 1,168 2,490 124,253 3.3
1988 1,413 829 128,028 3.0
1989 1,680 1,321 134,337 4.9
1990 664 1,552 138,262 2.9
1991 747 701 141,015 2.0
1992 560 725 144,466 2.4
1993 435 462 146,525 1.4
1994 700 936 149,791 2.2
1995 833 718 153,164 2.3
1996 914 820 156,148 1.9
1997 1,028 955 162,106 3.8
1998 1,339 1,093 167,103 3.1
1999 2,505 1,715 174,319 4.3
2000 2,618 2,652 181,613 4.2
2001 3,525 3,222 191,220 5.3
2002 2,250 2,923 200,798 5.0
2003 3,143 2,697 208,997 4.1
2004 3,300 3,043 217,512 4.1
2005 1,654 2,525 224,006 3.0
2006 1,180 1,448 227,850 1.7
2007 576 837 231,157 1.5
2008 325 518 234,011 1.2
2009 275 398 244,269 4.4
2010 517 422 245,309 0.4
2011 728 631 250,349 2.1
2012 798 847 255,607 2.1
2013 631 777 259,811 1.6
2014 829 394 261,801 0.8
2015 692 657 263,611 0.7
2016 1,050 607 265,357 0.7
2017 1,073 809 267,503 0.8
2018 1,777 1,319 271,411 1.5
Table 3

HISTORIC AND PROJECTED HOUSING & POPULATION GROWTH
1980 - 2024
-
Units Authorized for
Construction (Issued)
Units Completed
(Final)
Year End Population
Estimate1
Annual Percentage
ChangeCalendar Year

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System Growth Estimates
D-15
Table 3

HISTORIC AND PROJECTED HOUSING & POPULATION GROWTH
1980 - 2024
Units Authorized for
Construction (Issued)
Units Completed
(Final)
Year End Population
Estimate1
Annual Percentage
ChangeCalendar Year
2019 4 1,035 274,644 1.2
2020 786 277,099 0.9
2021 1,358 281,344 1.5
2022 1,168 284,993 1.3
2023 1,154 288,598 1.3
2024 944 291,548 1.0
1,194 1,167 2.2 3
(1) Reflects Department of Finance (DOF) comprehensively revised population figures for the end of the referenced year.

Projected future years reflect the average between developer projections and a rolling average of population growth. (2) Annexation of unincorporated community of Montgomery. (4) Permit data through 8/22/2019; remainder of calendar year projected. Population estimated based on permitted units x 3.30 persons per unit x 0.947 occupancy factor.
(3) The annual average percentage is adjusted for the anomaly of the Montgomery Annexation.

Average, 1980-2018

Page 2 of 2 ends

System Growth Estimates
D-16
2020 678 277,380 893 276,818 786 277,099
2021 1,786 282,961 931 279,727 1,358 281,344
2022 1,384 287,287 951 282,699 1,168 284,993
2023 1,341 291,477 966 285,719 1,154 288,598
2024 888 294,252 1,000 288,844 944 291,548
6,077 4,741 5,409
(2) Units estimated based on 10-year moving average of permitted unit trend.

Calendar Year
Developer Unit Projections1 10-Year Moving Average Unit Projections2
Year-end
Population3
Average of Developer
Projections and 10-Year
Moving Average
Permits Year-end
Population4
TOTAL
Year-end
Population3 PermitsPermits
Table 4

POPULATION GROWTH PROJECTIONS
2020-2024
(3) Year-end population includes the increase in population resulting from development during that year, based on a projected City population of 277,099 for the end of 2019. Annual growth is estimated based on the number of units x 3.30 persons per unit x 0.947 growth factor.
(4) Year-end population is an average of the population based on developer unit projections and 10-year moving average projections. (1) Units estimated based on developer projections.

System Growth Estimates
D-17
Calendar Year Multi-Family Units
Permitted
Single Family Units
Permitted
2013 387 225 162 0
2014 755 107 65 0
2015 420 57 68 0
2016 950 71 240 150
2017 510 563 193 135
2018 1,213 564 458 205
2019P 1,004 228 227 0
2020P 486 192 80 1600
2021P 1,455 331 120 270
2022P 1,014 370 400 0
2023P 789 552 120 250
2024P 577 311 80 152
Annual Average 797 298
Note: (E ) = estimated; (P) = projected
Table 5

HISTORIC/PROJECTED NEW CONSTRUCTION, BY LAND USE
Commercial/
Industrial 1,000
SF Permitted
184
Hotel Rooms
Permitted
230
System Growth Estimates
D-18
APPENDIX E
Interest Earnings Assumptions
1 Kevin Burnett
From: Beth Gentry <[email protected]>
Sent: Thursday, November 21, 2019 6:02 PM
To: Kevin Burnett
Subject: FW: Rate Study - Review of Assumptions from Finance Hi Kevin,

Please use the new interest rate provided by D. Bilby below.

Thank you,
Beth

Beth Gentry P.E., Senior Civil Engineer
City of Chula Vista
Engineering & Capital Projects Department
[email protected]
276 Fourth Avenue
Chula Vista, CA 91910
Office: (619) 476‐2402
Fax: (619) 691‐5171

From: David Bilby <[email protected]>
Sent: Thursday, November 21, 2019 4:55 PM
To: Beth Gentry <[email protected]>; Robert Beamon <[email protected]>; Frank Rivera <[email protected]>; William Valle <[email protected]>; Edward Prendell <[email protected]> Subject: RE: Rate Study ‐ Review of Assumptions from Finance

Hi Beth,

This email is specifically in response to item # 3 requested below.

My new interest earnings forecast for the next 5 years is 1%.

The following factors are included in this projection: the federal reserve has lowered the overnight rate 3 times in the last 6 months with the dot plot showing 2 additional reductions projected in 2020 (this would bring the fed rate to a range of 1‐1.25%); investments from 5 months ago were yielding 3.2%, now they are at 1.7%; probabilities of a recession in the next 18 months have risen over the last 6 months; a high probability exists that the Fed will have to reduce rates further to combat any economic downturns over the next 5 years; 10 year and 30 year treasury bond rates are trading just above historic lows which puts pressure on short term securities; global yields have gone negative in several European and Asian markets over the last 6 months and the president of the United States has voiced his displeasure with our current interest rates and has demanded that we consider negative interest rates also.

Please let me know if you have any questions.

Thanks,

David Bilby, MSBA, CPFO
Director of Finance/Treasurer
Interest Earnings Assumptions
E-1
2 City of Chula Vista
Office (619) 409‐3818

From: Beth Gentry <[email protected]>
Sent: Thursday, November 21, 2019 4:39 PM
To: Robert Beamon <[email protected]>; Frank Rivera <[email protected]>; William Valle <[email protected]>; Edward Prendell <[email protected]>; David Bilby <[email protected]> Subject: Rate Study ‐ Review of Assumptions from Finance

Hi David,

I appreciate your help in reviewing some of the assumptions for the Sewer Rate Study.

I am attaching the information electronically that I provided at the meeting.

In regards to the Item No. 1 on the Fund Balances, I understand that the audited numbers will be available in two weeks. For now, we will use the numbers previously provided by Ed Prendell but will look forward to having the information updated after the audit. But when the audited information is available, please provide the information by fund (similar to the previous email, attached).

For Items 2 through 4, as discussed, the numbers should be appropriate for the 5‐year Rate Study not a snap shot in time. They will be used to project out 10‐years but with the understanding that another rate study will be done to update the 5‐year Study.

For Item No. 2, let me know what you are able to find from Meya regarding the historic delinquency rate.

For Item No. 3, please let me know what the interest assumption be, previous email attached with updated attachment.

For Item No. 4, please review and provide any updates to the previously provided escalation factors, previous email attached.

Thank you in advance for your help.

Beth

Interest Earnings Assumptions
E-2
APPENDIX F
Metro Cost Projections

PUBLIC UTILITIES DEPARTMENT
FISCAL YEAR 2020-2024

FIVE-YEAR FINANCIAL OUTLOOK

Matthew Vespi
Interim Director
Lee Ann Jones-Santos
Assistant Director
Charles Modica
Deputy Director
Mark Gonzalez
Program Manager

JANUARY 2019

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Disclaimer:

The City files its disclosure documents, including official statements, audited financial statements, comprehensive annual financial reports, annual financial information, material event notices, and voluntary disclosures with the Municipal Securities Rule Making Board’s Electronic Municipal Market Access (“EMMA”) system. The PUD Five- Year Financial Outlook is not filed on EMMA and investors should not rely upon the PUD Five-Year Financial Outlook to make any investment decisions. The City will provide the PUD Five-Year Financial Outlook to the rating agencies, its bond insurers and other interested parties, and welcomes and encourages their careful review of this document. Readers are cautioned that the numbers presented in this document are the City’s best estimate for the next five years based on facts and factors currently known to the City and do not represent actual performance. No representation is made by the City that, as of the date this document is read, there is not a material difference between the City’s actual performance as of such date and the financial data presented in the PUD Five-Year Financial Outlook. Certain statements in this document constitute forward -looking statements or statements which may be deemed or construed to be forward -looking statements. Forward-looking statements involve, and are subject to known and unknown risks, uncertainties and other factors which could cause the City's actual results, performance (financial or operating) or achievements to differ materially from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements.

All forward-looking statements herein are expressly qualified in their entirety by the abovementioned cautionary statement. The City disclaims any obligation to update forward-looking statements contained in this document.

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TABLE OF CONTENTS
EXECUTIVE SUMMARY .................................................................................................................................. 1

Overview of the Water and Wastewater System ......................................................................................... 7

WATER SYSTEM ........................................................................................................................................... 10 Water System Revenues ......................................................................................................................... 10 Water Sales ......................................................................................................................................... 10 Water Capacity Charges ...................................................................................................................... 13 Revenue from Use of Property ........................................................................................................... 15 Other Revenue .................................................................................................................................... 15 Water System Expenditures .................................................................................................................... 16 Water Purchases ................................................................................................................................. 16 Personnel Expenditures ...................................................................................................................... 16 Supplies ............................................................................................................................................... 18 Contracts ............................................................................................................................................. 18 Information Technology ...................................................................................................................... 19 Energy & Utilities ................................................................................................................................ 20 Reserve Contributions ......................................................................................................................... 21 Other Expenditures ............................................................................................................................. 22 Water System Capital Improvement Program ........................................................................................ 23

WASTEWATER SYSTEM ............................................................................................................................... 26 Wastewater System Revenues ............................................................................................................... 26 Sewer Service Charges ........................................................................................................................ 26 Wastewater Capacity Charges ............................................................................................................ 28 Other Revenue .................................................................................................................................... 29 Wastewater System Expenditures .......................................................................................................... 31 Personnel Expenditures ...................................................................................................................... 31 Supplies ............................................................................................................................................... 32 Contracts ............................................................................................................................................. 33 Information Technology ...................................................................................................................... 34 Energy & Utilities ................................................................................................................................ 35 Reserve Contributions ......................................................................................................................... 35 Other Expenditures ............................................................................................................................. 36 Wastewater System Capital Improvement Program .............................................................................. 37

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MISSION STATEMENT
To provide reliable water utility services that protect the health of our communities and the environment

VISION STATEMENT
A world-class water utility for a world-class city

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EXECUTIVE SUMMARY
The Public Utilities Department (PUD) Fiscal Year 2020-2024 Five-Year Financial Outlook (PUD Outlook) is provided to guide long-range planning and serve as the framework for the development of the Fiscal Year (FY) 2020 Proposed Budget for the Water and Sewer Revenue Funds. The purpose of this report is to provide an overview of the Public Utilities Department’s long-range needs and to guide programmatic decisions.

The PUD Outlook focuses on the overall fiscal condition of the Water and Wastewater Systems, and assesses impacts to system revenues and expenditures from regional water and wastewater demands. It also lays out a funding strategy to finance major capital investments in water and wastewater system infrastructure and the construction of the Pure Water Program. The PUD Outlook quantifies new costs that are critical to ac complishing PUD’s strategic goals over the next five -year period. These goals include:

Goal 1: Water Supply and Environmental Stewardship
➢ Water supply and conservation
➢ Carbon footprint and energy management
Goal 2: Organization Excellence
➢ Rate structure optimization
➢ Safety
➢ Training and development
➢ Excellent organizational culture
Goal 3: Community Engagement
➢ Stakeholder understanding and support
➢ Customer service strategies
Goal 4: Infrastructure Management
➢ Asset management
➢ Infrastructure investment
The PUD Outlook is not a budget. Its projections are consistent with those in PUD’s bond offering statements, and largely use a budgetary basis. 1 Projected revenues and expenditures in a ny given year of the PUD Outlook may not correspond exactly to those in future Proposed Budgets.

Nevertheless, the PUD Outlook can serve as a planning tool to assist in budget decisions and the allocation of resources to meet PUD’s strategic goals that are critical to providing the community with a high quality and reliable water supply. The PUD Outlook also provides the City Council, key stakeholders, and the public with information in advance of the budget meetings to facilitate an informed discussion during the development of the FY 2020 Budget. 1 Revenues, Operating Expenses, and Capital Expenses in the Outlook use a cash basis. Debt payments are based on a projected debt schedule.

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SUMMARY OF KEY FINANCIAL DATA
This section presents a summary of the PUD FY 2020 through FY 2024 Outlook, and the overall financial condition of the Water and Wastewater System. Summary tables of revenues and operating expenses are provided along with expenses associated with PUD’s Capital Improvement Program (CIP), debt service payments, and reserve contributions. Further detail on CIP expenses and sources of funds for those expenses is also provided.

Additional detail on each line-item in these summaries can be found in the corresponding sections of this report. Revenue projections include differing growth rates for each line -item. Baseline operating expenditures are those expenditures that are sufficient to allow PUD to continue maintaining its existing operations without expanding any operational programs. Critical operating expenditures are those associated with expanded operations for PUD; a significant portion of these critical operating expenditures are associated with Phase One of the Pure Water Program coming online.

Water System
Overall, the PUD Outlook for the Water System forecasts revenue to increase moderately over the next five years, primarily due to projected water rate increases in FY 2020 that have been approved by Council, as well as rate increases and that are expected to be needed in FYs 2021 through 2024 (see section on Water Systems Revenues). Other operating revenues are projected to increase slightly between FY 2020 and FY 2021 due to an increase in cash balances and associated interest earnings, but gradually decline over the following three years based on projected market fluctuations. PUD is projecting the receipt of approximately $11.5 million in Local Resource Program incentives from Metropolitan Water District for developing local water supplies, which accounts for the increase in other revenue in FY 2024.

Baseline operating expenditures are projected to grow modestly over the next five years, but increases in critical operating expenditures are expected as PUD begins operations and maintenance of Phase 1 of the Pure Water Program as reflected in the table 1.1 below. Conversely, capital improvement program expenditures (CIP) begin gradually decreasing starting in FY 2022, as Phase 1 of the Pure Water Program nears completion. Water purchase expenses in FY 2024 decline due to Phase 1 coming on-line.

PUD continues to pursue financing to fund the CIP, including the Pure Water Program , as illustrated on table 1.2 below.

This Section Intentionally Left Blank

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F-6

Fiscal Year
2020
Fiscal Year
2021
Fiscal Year
2022
Fiscal Year
2023
Fiscal Year
2024
Water Sales $598.1 $638.7 $678.4 $719.9 $761.1
Capacity Charges $14.4 $14.4 $14.4 $14.4 $14.4
Revenue from Use of Property $5.8 $5.8 $5.8 $5.8 $5.8
Other Revenue $18.3 $19.3 $18.8 $18.4 $31.8
TOTAL SYSTEM REVENUES $636.6 $678.2 $717.4 $758.5 $813.1 Salaries & Wages $49.0 $49.3 $49.6 $49.4 $49.4
Fringe Benefits $35.9 $36.8 $36.9 $37.0 $37.2
Water Purchases $268.8 $285.3 $299.9 $315.2 $286.4
Other Non-Personnel Expenditures $109.4 $113.6 $117.7 $121.8 $126.2 BASELINE OPERATING EXPENDITURES $463.2 $485.0 $504.1 $523.4 $499.1 CRITICAL OPERATING EXPENDITURES $4.8 $4.5 $22.1 $28.2 $37.0 Contribution to Capital Improvement Program (CIP) $82.4 $61.4 $65.0 $60.6 $61.7 Debt Service $90.6 $103.6 $122.3 $131.9 $148.5
(Use of) / Contributions to Reserves $0.0 $1.0 $4.2 $2.8 $2.6 NON-OPERATING EXPENDITURES $173.0 $165.9 $191.5 $195.3 $212.7 TOTAL EXPENDITURES $641.0 $655.4 $717.7 $746.9 $748.8
Impact to Fund Balance ($4.4) $22.7 ($0.3) $11.7 $64.3
Table 1.1 - Water System Fiscal Year 2020-2024 Financial Outlook Summary of Operating & Maintenance Key Financial Data
($ in Millions)
Fiscal Year
2020
Fiscal Year
2021
Fiscal Year
2022
Fiscal Year
2023
Fiscal Year
2024
Baseline CIP $249.1 $182.7 $149.5 $144.3 $144.0
Pure Water CIP $197.0 $281.5 $204.5 $106.0 $13.0
TOTAL CIP EXPENDITURES $446.1 $464.2 $354.0 $250.3 $157.0

SOURCES OF FUNDS
Commercial Paper / Revenue Bonds $139.0 $111.6 $67.9 $135.0 $88.0 State Revolving Funds $54.0 $54.8 $59.2 $38.7 $7.3
WIFIA $170.7 $236.4 $161.9 $16.0 $0.0
Cash $82.4 $61.4 $65.0 $60.6 $61.7
FINANCING SOURCES $446.1 $464.2 $354.0 $250.3 $157.0
($ in Millions)
Table 1.2 - Water System Fiscal Year 2020-2024 Financial Outlook Summary of Capital Improvement Program Key Financial Data Metro Cost Projections
F-7
Wastewater System
Overall, the PUD Outlook for the Wastewater System forecasts revenue to increase moderately over the next five years, primarily due to projected rate increases related to sewer service charges (see section on Wastewater Systems Revenues). Other operating revenues are projected to increase slightly from FY 2019, primarily due to wastewater system charges to Participating Agencies of the Metropolitan Wastewater System (further described in the PUD Outlook overview below) to reflect anticipated increases in shared costs of Pure Water Program expenses . Additional growth in other revenues is associated with projected increases in pooled investments . The PUD Outlook also anticipates the transfer of funds from the Rate Stabilization Fund to mitigate potential fluctuations in the rates in FYs 2020 through 2024.

Baseline operating expenditures are projected to grow modestly over the next five years, but increases in critical operating expenditures are expected as PUD begins to prepare its operations and maintenance program for Phase 1 of the Pure Water Program as reflected in the table 1.3 below.

Similar to the water system CIP, expenditures in the wastewater CIP begin decreasing in FY 2022, as Phase 1 of the Pure Water Program nears completion.

PUD continues to pursue financing to fund the CIP, including the Pure Water Program, as illustrated on table 1.4 below.

Table 1.3 - Wastewater System Fiscal Year 2020-2024 Financial Outlook Summary of Operating & Maintenance Key Financial Data
($ in Millions)
Fiscal Year
2020
Fiscal Year
2021
Fiscal Year
2022
Fiscal Year
2023
Fiscal Year
2024
Sewer Service Charges $271.4 $280.2 $295.0 $310.5 $328.4 Capacity Charges $16.3 $17.5 $17.5 $17.5 $17.5
Other Revenue $103.7 $107.6 $109.8 $113.3 $118.6
TOTAL SYSTEM REVENUES $391.4 $405.3 $422.3 $441.3 $464.5 Salaries & Wages $58.3 $58.9 $58.9 $58.9 $58.8
Fringe Benefits $42.2 $43.1 $43.3 $43.4 $43.6
Other Non-Personnel Expenditures $134.8 $140.2 $145.0 $149.8 $155.1 BASELINE EXPENDITURES $235.3 $242.2 $247.2 $252.1 $257.5 CRITICAL OPERATING EXPENDITURES $6.3 $7.0 $21.3 $23.1 $29.8 Contributions to Capital Improvement Program (CIP) $66.8 $97.1 $96.4 $34.3 $20.0 Debt Service $106.1 $105.3 $113.6 $124.0 $118.9
(Use of) / Contributions to Reserves (1) ($5.0) ($5.0) ($11.7) ($13.7) $2.3 NON-OPERATING EXPENDITURES $168.0 $197.4 $198.2 $144.6 $141.1 TOTAL EXPENDITURES $409.5 $446.6 $466.7 $419.8 $428.4
Impact to Fund Balance ($18.2) ($41.3) ($44.5) $21.5 $36.1 (1) Reflects use of Rate Stabilization Reserve to mitigate potential flucuations in rates and contributions to the Operating Reserve.

Metro Cost Projections
F-8

This Section Intentionally Left Blank

Fiscal Year
2020
Fiscal Year
2021
Fiscal Year
2022
Fiscal Year
2023
Fiscal Year
2024
Baseline CIP $167.7 $125.5 $142.8 $128.4 $120.1
Pure Water CIP $190.0 $220.2 $124.5 $38.4 $5.9
TOTAL CIP EXPENDITURES $357.7 $345.7 $267.2 $166.8 $126.0

SOURCES OF FUNDS
Revenue Bonds $0.0 $0.0 $145.0 $116.0 $90.0
State Revolving Funds $262.2 $232.6 $9.9 $0.6 $0.0
Capacity Fees $16.0 $16.0 $16.0 $16.0 $16.0
Grants $12.7 $0.0 $0.0 $0.0 $0.0
Cash $66.8 $97.1 $96.4 $34.3 $20.0
FINANCING SOURCES $357.7 $345.7 $267.2 $166.8 $126.0
Table 1.4 - Wastewater System Fiscal Year 2020-2024 Financial Outlook Summary of Capital Improvement Program Key Financial Data ($ in Millions)
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Report Outline
The PUD Outlook is organized into two main sections: Water System and Wastewater System . The water system is comprised of the Water Utility Fund and the wastewater system is comprised of the Metropolitan and Municipal Sewer Funds, collectively known as the “Sewer Revenue Fund”.

The PUD Outlook provides a brief overview of the water and wastewater system s and the impacts of the Pure Water Program. Each section also provides a discussion of baseline projections for revenues and expenditures , and upcoming critical operational expenditures that will require additional resources. Projected Capital Improvement Program (CIP) needs and financing options are also discussed.

The Water System and Wastewater System sections of the PUD Outlook include projections for the next five years of ongoing revenues and expenditures, as displayed in Table 1.1 – Water System Fund Fiscal Year 2020 -2024 Financial Outlook , and Table 1.3 Wastewater System Fiscal Year 2020 -2024 Financial Outlook, respectively. ‘Baseline’ projections include expenditure adjustments necessary to support current service levels provided by PUD. Actual FY 2018 unaudited expenditures serve as the starting point for non-personnel baseline projections unless otherwise noted; personnel expenditure projections use the FY 2019 Adopted Budget as a starting point. As noted earlier, Outlook projections in any given year may not correspond exactly to the revenues and expenditures in future Proposed Budgets.

Critical Operating Expenditures are largely associated with implementation of the Pure Water Program, but also include expenditures that have been preliminarily identified as necessary in meeting core water and wastewater service levels and PUD’s strategic goals. They are discussed within each expenditure category. All expenditures discussed in this report will be further refined during the FY 2020 budget development process.

This Section Intentionally Left Blank

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Overview of the Water and Wastewater System
The City of San Diego is a major metropolis and is ranked the eight h largest City in the United States and the second largest city in California. The City’s total population is estimated at 1.4 million. The City’s climate is semiarid with cycles of multi -year droughts. Average rainfall does not provide adequate local water supplies for the City, and is supplemented with water imported from outside the region.

The City’s water and wastewater systems are maintained and operated by the City’s Public Utilities Department. The City provides water to not only the City of San Diego but to the cities of Del M ar, Coronado and Imperial Beach, primarily from two water sources: (1) local supplies, which provide on average 10 - 15% of water needs, and (2) the San Diego County Water Authority (CWA), which provides 85 - 90% of water needs. The City’s water system extends over 404 square miles, with average potable water deliveries of 155 million gallons per day (mgd), or 174,000 acre -feet per year (AFY). PUD’s extensive raw water system includes nine reservoirs, which capture local runoff from rainfall and store purchased imported water that is sent to the City’s three water treatment plants for treatment and distribution. Based on statistics provided by the San Diego Association of Governments (SANDAG), the City’s population is projected to increase by 22% over the next 2 0 years. PUD expects that this projected growth will increase demand for potable water by 18% to 22%, depending on the variables of future weather and conservation level assumptions.

The City’s wastewater syste m owns and operates wastewater treatment plants that serve the City as well as other the agencies of other cities and districts outside San Diego City boundaries (Participating Agencies). The wastewater system serves over 2.2 million customers by providing wastewater collection, treatment, and disposal services. The wastewater system processes an average of 156 million gallons of sewage daily via a vast network of facilities which include an extensive collection system, regional wastewater treatment, cogeneration, and a biosolids production center. The wastewater system is comprised of two subsystems, the Municipal Sub-System and the Metropolitan Sub-System. The Municipal Sub-System is a municipal sewage collection system for the City’s residents and consists of all elements required for the collection and conveyance of wastewater gener ated by the service area, which currently consists of more than 275,000 accounts. The Metropolitan Sub - System is a regional sewage treatment and disposal system that serves the City and twelve other Participating Agencies near the City. The wastewater system covers approximately 450 square miles, including most of the City, and stretches from Del Mar and Poway to the north, Alpine and Lakeside to the east, and San Ysidro to the south . The communities and agencies served by the wastewater system form the third largest metropolitan area in the State, surpassed only by the Los Angeles and San Francisco metropolitan areas. The Point Loma Wastewater Treatment Plant serves as a regional treatment facility handling sanitary waste from both Muni and Metro customers. Additionally, the wastewater system operates and maintains two water reclamation plants (North City and South Bay), and a solids management facility (Metropolitan Biosolids Center).

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Regional Water Supply
In any given year, the City will use local water supplies to meet 10 - 15% of demand, and relies on imported water from the County Water Authority (CWA) to meet the other 85 - 90% of demand. The CWA is a wholesale water agency that provided approximately 400,000 AF of imported and desalinated water to its member agencies in Fiscal Year 2018, including 155,000 AF supplied to PUD.

CWA currently acquires the majority of its water from three main sources: conserved water from the Imperial Irrigation District, water from the Metropolitan Water District (MWD), and desalinated water.

MWD obtains its water from the Colorado River through the United States Bureau of Reclamation, and from northern California vi a the State Water Project through the California Department of W ater Resources (DWR). MWD is one of 29 public wat er agencies that have long -term contracts for water service from DWR , and it is the largest agency in terms of the number of people it se rves (approximately 19 million). The CWA is MWD’s largest customer, responsible on average for 19.5% of MWD’s annual revenues. Both CWA and MWD are developing storage and additional supplies, such as water transfers, to augment their imported water.

PUD also maintains a recycled water s ystem that supplies a portion of the San Diego region . That system is supplied by two water reclamation plants – the North City Water Reclamation Plant (NCWRP) and South Bay Water Reclamation Plant (SBWRP). The City supplies recycled water to retail customers and to three wholesale customers: the City of Poway, the Olivenhain Municipal Water District, and the Otay Water District. Recycled water usage is seasonal and is primarily used for irrigation. Customers also use the water for dust suppression or soil compaction at construction sites, in cooling towers, ornamental fountains, and for office building toilet and urinal flushing (dual plumbing).

Participating Agencies
Pursuant to the Regional Wastewater Disposal Agreement , t he Metropolitan Sub -System provides “wholesale” treatment and disposal services, including some sewage transportation , to the cities of Chula Vista, Coronado, Del Mar, El Cajon, Imperial Beach, La Mesa, National City and Poway, the Lemon Grove Sanitation District, the Otay Water Dis trict, the Padre Dam Municipal Water District, and the County of San Diego (on behalf of Winter Gardens Sewer Maintenance District and the Alpine Lakeside and Spring Val ley Sanitation Districts). These cities and districts are collectively referred to as t he “Participating Agencies”.

The Regional Wastewater Disposal Agreement requires the Participating Agencies to pay their respective share of planning, design and construction of Metropolitan Sub-System facilities, as well as costs relating to the operatio n and maintenance of the Metropolitan Sub -System. Since Fiscal Year 2011, these aggregate costs have consistently constituted approximately 33% of the total Metropolitan Sub-System costs. Between Fiscal Years 2014 and 2018, the d epartment received, on average, approximately $65 million in System Revenues per fiscal year from the Participating Agencies.

Pure Water Program
The Pure Water Program will provide a safe, secure, and sustainable local drinking water supply for San Diego. Advanced water purification technology will be used to produce potable water from recycled water. The City and its regional partners face significant issues with water su pply and Metro Cost Projections
F-12
wastewater treat ment. The region’s reliance on imported water causes the water supply to be vulnerable to shortages and susceptible to price increases beyond the control of PUD.

The Pure Water Program is a 20 -year (2015 -2035) multi -phased water and wastewater capital improvement program that is expected, upon full implementation by the end of calendar year 2035, to create 83 mgd of locally controlled water , which will provide one -third of the City’s total potable water needs. The Pure Water Progr am will divert treated water from the Point Loma Wastewater Treatment Plant’s outfalls and recycle a valuable and limited resource that is currently discharged to the ocean. Phase 1 of the program is expected to produce 30 mgd of purified drinking water by February 2024. This will allow the City to reduce the amount of water purchased in FY 2024 and beyond.

In 2010, the City received a renewal of the Modified Permit for the Point Loma Plant and agreed to identify opportunities to maximize recycling wastewa ter for potable and non -potable uses. That permit expired in July 2015 and was administratively continued while the regulatory agencies completed work on the renewal application. In 2017 the Environmental Protection Agency ( EPA), in conjunction with the California Regional Water Quality Control Board (RWQCB), issued the final approval renewing the Modified Permit (5th Renewal) and a waiver from secondary treatment standards for another five years. The permit took effect October 1 , 2017 and expires on September 30, 2022. The 5th Renewal was based on compliance with Clean Water Act requirements, progress of the Pure Water Program, and a reduction in permitted emissions from the previous permit level. The Pure Water Program is designed to reduce discharge into the ocean from the Point Loma Plant while providing a new local source of potable water for the City. It is anticipated that continuation of the Pure Water Program will be reflected in future permits , which will eliminate the ne ed for the City to make over $1.8 billion in upgrades to the Point Loma Plant that would otherwise be necessary.

Phase 1 of the Pure Water Program includes the construction of the North City Pure Water Facility and the expansion of the existing North City Water Reclamation Plant. The designs for the North City Pure Water Phase 1 Projects are complete , and in November 2018 the City Council authorized PUD begin advertising for construction. Future phases include the potential expansion of the South Bay Water Reclamation Plant, as well as proposed Central Area facilities that would include both reclamation and purified water facilities.

Phase 1 is estimated to cost approximately $1.48 billion. The Water and Wastewater Funds will share in these expenditures a ccording to a cost allocation based on completed design and engineering studies. Based on the cost allocation between the water and wastewater systems, approximately $865 million is allocated to the Water Utility Fund and approximately $612 million is allocated to the Sewer Revenue.

Phase 1 costs extends through FY 2024; water rates for Fiscal Year 2021 and beyond were not part of the 2016 Rate Case (discussed below). Projected Pure Water Program expenditures for both the Water and Sewer Utility Funds will be dependent on future rates, and PUD anticipates that additional rate capacity from each Fund will be necessary after Fiscal Year 2020.

Metro Cost Projections
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WATER SYSTEM
This section discusses baseline revenue and expenditure projections, upcoming critical operational expenditures, projected capital improvement program needs and financing options for the next five years for the Water Utility Fund.

Water System Revenues
The primary revenue sources of the Water Utility Fund are generated from water sales, capacity fees, interest earnings, and rental income. This section discuss es each revenue category , and includes a description of revenue source s, projected growth rates, and a discussion of future revenue streams and how they impact the Water Utility Fund.

Water Sales
Background. The majority of Water Utility Fund revenue is generated from water sales : water sales revenue makes up approximately 94% of the Water Utility Fund’s total revenue. City utility bills include water and sewer charges and storm drain fees, but only receipts from water sales are revenues to the Water Utility Fund. The water comp onent is comprised of two parts: a fixed monthly service charge and a commodity charge that is based on the volume of water used. The fixed service charge is determined by the size of a customer’s meter, which provides an approximation of the amount of water the customer could have delivered to the customer’s property.

The commodity charge is determined using a set rate based upon each hundred cubic feet ( HCF) of water consumed. The City has a tiered commodity charge structure for single family residential (SFR) customers that is broken down by water usage within each rate block. The remaining retail customers – multi-family residential (MFR), Non-Residential, Temporary Construction and Irrigation – are billed under a uniform commodity charge for their respective customer classification.

Cost of Service Study. The PUD last conducted a Cost of Service ( COS) analysis in 2015 , which produced a five-year rate case (the 2016 Rate Case). The 2016 Rate Case was based on comprehensive forecasted annual operations and maintenance costs, capital costs expenditures including the Pure Water Program, and purchased water costs from CWA that become effective in January during each fiscal year. The 2016 Rate Case covered Fiscal Years 2016 through 2020 and was approved by the City Council in November 2015. The rate case included projected rate increases of 9.8% on January 1, 2016, 6.4% on July 1, 2016, 6.4% on July 1, 2017, 5.0% on July 1, 2018 and 7.0% on July 1, 2019.2 The City is in the preliminary stages of reviewing the rate impacts of revenues and expenditures that are projected to begin in Fiscal Year 2021. The City has engaged Raftelis Financial Consultants, Inc. to assist in the preparation of the COS analysis. The analysis and Proposition 218 process are expected to be undertaken and completed in Fiscal Year 2020. New rates would be prop osed to become effective in Fiscal Year 2021. This Outlook assumes preliminary water rate increases of 6.9% in FY 2021, 6.4% in FY 2022, 6.3% in FY 2023, and 6.0% in FY 2024 as detailed on Figure 2.1 below. Actual 2 These projected rate increases included both PUD’s costs as well as increases in CWA water rates. The approved 2016 Rate Case allowed PUD to pass through CWA rate increases up of up to 7.0% each year. Projected and actual CWA rate increases were lower than this 7.0% maximum, though CWA rate increases in FY 2017 and FY 2018 were higher than they were projected to be in the 2016 Rate Case. Actual CWA pass-through costs through FY 2019 are reflected on Figure 2.1 below.

Metro Cost Projections
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rate increase will be determined through a cost of service study and presented to the City Council for review and approval.

CWA rate increase impacts to the City were projected to be 2.5% in Fiscal Year 2019, and 3.0% in Fiscal Year 2020. Because actual CWA pass through increases are lower than the projections for those years, PUD only passes through the actual CWA costs to its ratepayers. The actual pass through impacts are shown in Figure 2.1 below. The CWA pass through impact for Fiscal Year 2020 is currently projected to be 2.1%.

Figure 2.1 – Water Service Charge Rate Increases.

As discussed above, a portion of the projected rate adjustments are attributable to CWA pass-through costs. The remaining 4% is associated with increased PUD operating and capital costs. Roughly half of those need s – and half (2%) of the projected rate adjustments – are associated with capital and operational expenditures necessary for Phase 1 of Pure Water.

Over the Outlook period, $806.1 million, or 48%, of Water Fund CIP needs are attributed to the Pure Water program (see “Water System Capital Improvement Program” section). $80.4 million, or 83%, of Critical Operating Expenditures are attributed to Pure Water program needs. Non-Pure Water Critical Operating Expenditures and increases in baseline expenditures tot al $104.0 million (see “Water System Expenditures” section).

* The 2016 Rate Case projected an increase of 7.00% for FY 2020, but Public Utilities is only projecting a 6.1% increase based on CWA pass-through costs and Water System costs. ** Projected rates for FY 2021-2024 are preliminary projections that include forecasts for CWA pass-through costs, Water System Needs, and revenue necessary to comply with debt service covenants. Detailed forecasts and projections will be prepared in a full cost of service study.

5.30% 4.26% 4.26%

0.55%

4.50%

2.97% 2.67%

1.60%

4.00% 4.00% 4.00% 4.00% 4.00%

2.10% 2.90% 2.40% 2.30% 2.00%

9.80%

7.23% 6.93%

2.15%

6.10% 6.90% 6.40% 6.30% 6.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020* FY 2021 FY 2022 FY 2023 FY 2024 Approved / Projected Water Rate Increases
Water System Costs CWA Pass-Through Costs
Projected Water System Cost** Projected CWA Pass-Through Costs** Metro Cost Projections
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The following table displays the existing water rates for FY 2019.

Forecast. The following table presents FY 2018 actuals, year-end projection s for FY 2019 and the forecast for FY 2020 through FY 2024 for revenue from water sales. The FY 2019 projection includes the rate increase of 2.15 % that went into effect August 1, 2018 . The growth rates as shown in table

2.3 reflect overall revenue growth, and not actual water rate increases which were presented in Figure

2.1. Additionally, the financial projections in Table 2.3 below assume the proposed rate increases shown in Figure 2.1.

Economic Trends. Although PUD continues to promote water conservation, the demand for water within the City’s service area is projected to increase as the population continues to grow and development expands. According to the City’s 2015 Urban Water Management Plan (2015 UWMP), single-family residential water use is projected to increase by 39 percent over the period of 2020 to Table 2.2 - Fiscal Year 2019 Water Rates
(Effective August 1, 2018)
Service Charge ($/month) Commodity Charge ($/HCF)
Meter Rate Customer Class Rate
5/8" $24.74 Single Family1
3/4" $24.74 Tier 1 (0-4 HCF) $4.95
1" $32.77 Tier 2 (5-12 HCF) $5.54

1.5" $51.13 Tier 3 (13-18 HCF) $7.92
2" $74.07 Tier 4 (19+ HCF) $11.13
3" $127.98 Multi Family $5.99
4" $204.83 Non-Residential2 $5.84
6" $395.23 Construction $6.75
8" $624.62 Irrigation $6.64
10" $893.02
12" $1,656.92
16" $2,880.76

1. Bi-Monthly Tiers = 2 x Monthly Tiers.

2. Non-Residential customers include Commercial, Industrial, and Outside City.

Table 2.3 - Water Sales Revenue Five-Year Forecast
($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Potable Water
Growth Rate N/A 2.7% 6.2% 6.9% 6.3% 6.2% 5.8%
Projection $538.6 $550.4 $584.6 $625.2 $664.9 $706.3 $747.5 Other Water Sales(1)
Growth Rate N/A 2.4% 4.1% 0.4% 0.4% 0.4% 0.0%
Projection $12.6 $12.9 $13.4 $13.5 $13.5 $13.6 $13.6
(1) Revenue figures for "Other Water Sales" include recycled water sales revenue figures.

Metro Cost Projections
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2040. Multifamily residential water use is forecasted to increase at 69 percent over the projection period of 2020 to 2040.

The City’s Pure Water Program is expected to be crucial in meeting the City’s water demands and to reduce the impact of increases in the cost of imported water purchased from CWA. Over the past ten years, CWA’s water prices have more than doubled.

Sensitivity Analysis. While these projections represent PUD’s best estimate of water sales revenues throughout the PUD Outlook period, actual results will depend on the factors discussed above.

Assuming the above rates, declines o r increases in water demand of just 1% can impact water sales revenue by approximately $4.5 million. The impact in revenue from potential rate increases ranges from $ 5.7 to $6.5 million for each percent added or subtracted from projected rate increases depending on the year in which rates are adjusted . Adjustments to projected rates in earlier years would compound this amount.

Note that these factors may also impact each other: declines in water demand may necessitate larger rate increases, while increases in demand may partial ly offset the need for rate increases. The Department is also currently in the process of evaluating potential alternative water rate structures and expects to bring a report summarizing those alternatives to the City Council in early 2019.

Water Capacity Charges
Background. Capacity charges are development fees imposed on permits for new or expanded water connections, and are based on an estimate of the increase in water consumption as measured by equivalent dwelling units (EDUs). Capacity charge proceeds are used to construct, improve and expand the Water System to accommodate the additional business of such added dwellings or commercial or industrial units.

Pursuant to State law, capacity charges can be used only to pay costs associated with ca pital expansion, bonds, contracts, or other indebtedness of the Water System related to expansion.

Because capacity charges are primarily collected on the issuance of new construction permits within the City, revenues obtained from such charges vary based upon construction permitting activity.

In February 2007, the City Council and Mayor approved increasing the capacity charge by 19.5% to $3,047 per EDU, which was estimated to provide full cost recovery for Water System expansion projects. The City will be undertaking a cost of service study to review existing capacity charge rates in calendar year 2019.

Forecast. The following table presents average capacity charge revenue received between FY 2014 to FY 2018 , FY 2019 Budget, and the forecast for FY 2020 through FY 2024. This revenue source represents 2.4 percent of the Water System’s overall revenue receipts.

Table 2.5 - Capacity Charges Five-Year Forecast
($ in Millions)
FY 2014-2018
Average
FY 2019
Budget FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate 0.0% 0.0% 4.0% 0.0% 0.0% 0.0% 0.0%
Projection $15.5 $12.1 $14.4 $14.4 $14.4 $14.4 $14.4
Metro Cost Projections
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Projected revenues for capacity charges use conservative growth estimates based on historical spending trends from FY 2014 through FY 2018 as shown in Figure 2.6 below. Average capacity fee revenue between FY 2014 and FY 2018 was approximately $15.5 million. Water capacity charges in FY 2019 were budgeted historically low and will be adjusted to reflect historical and projected revenue trends in the FY 2020 budget. Capacity charge revenue is conservatively projected at $14.4 million for FY 2020 through FY 2024.

Economic Trends. As previously mentioned, water capacity charges are primarily based on new water connections related to new construction, and are directly influenced by population growth and residential and commercial development. The current population for the City of San Diego is 1.4 million. San Diego's population grew by approximately seven perce nt between the 2000 Census and the 2010 Census , for an aggregate increase of 84,00 0. As population continues to increase in the region, the demand for new single and multi -family housing is also expected to increase in order to meet population demands. Table 2.7 presents projected regional population and housing growth for the next 50 years.

According to SANDAG, multi-family units will make up over half of the new housing that will need to be built over the next 30 years. As a result, SANDAG forecasts that 40 percent of the total units in the region will be multi-family by 2030. These trends are reflected in the City’s experiences: multi-family units approved and permitted in 2018 were up 150 percent in 2018, while single-family units permitted increased by 47 percent. Similarly, PUD saw significant increases in capacity charge revenues in FY $14.6 $15.8 $14.5 $15.3
$17.5
$12.1
$14.4 $14.4 $14.4 $14.4 $14.4
$0.0
$3.0
$6.0
$9.0
$12.0
$15.0
$18.0
$21.0
$24.0
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
FY 2020
FY 2021
FY 2022
FY 2023
FY 2024
$ in millions
Figure 2.6 - Water Capacity Charge Revenue Forecast
Capacity Charge Revenues Linear (Capacity Charge Revenues) Table 2.7 - Preliminary 2050 Regional Growth Forecast
2000 2020 2030 2040 2050 % Change
2000-2050
Population 1,223,400 1,542,324 1,690,232 1,819,810 1,947,184 49% Housing 469,689 577,416 629,694 675,928 722,718 44% Jobs (incl. military) 777,600 874,678 928,189 982,476 1,042,649 26% Metro Cost Projections
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2018 - approximately 15% above FY 2017 amounts - largely related to residential developments .

Though FY 2018 experienced a n increase in building permits associated with multi and single -family units, the California Association of Realtors (C.A.R) is forecasting a modest decline in single family units due to a combination of high home prices and eroding affordability. Likewise, multi-family housing is expected to continuing growing until it reaches a peak in 2019 and then to level off as multi -family units under construction near completion. As a result, water capacity charge revenue is projected to remain flat for the next five years.

Revenue from Use of Property
Revenue from Use of Property includes revenues from non-agricultural lease of land, such as the San Diego Zoo Safari Park; storage by private companies on utility-owned lands; agricultural leases of land in San Pasqual Valley; and telecom leases for cell towers on utility-owned properties.

The following table presents average revenue received from use of pro perty between FY 2014 to FY 2018, FY 2019 year-end projections, and forecasted revenue for FY 2020 through FY 2024. This revenue source represents 0.8 percent of the Water Utilities overall revenue receipts.

Revenues in this category can vary slightly each year as new lease agreements are entered into while other lease agreements expire. Overall, revenue in this category has declined slightly since FY 2014, and has remained relatively flat at $5.8 million sinc e FY 2016. As a result, $5.8 million in Revenues from Use of Property is projected throughout the PUD Outlook period.

Other Revenue
The Other Revenue category includes refunds or reimbursements from private parties for damages to utility-owned equipment, buildings, or fire hydrants; refunds from vendors; reimbursements from services provided to other City departments / funds, receipts from the sale of recycled materials o r equipment (paper, computers, metal); grant revenue, and interest earnings on pooled investments.

The following table presents FY 2018 actuals, the FY 2019 year-end projection and forecasted revenue for FY 2020 through FY 2024. This revenue source represents 2.0 percent of the Water Utilities overall revenue receipts.

Table 2.8 - Revenue from Use of Property Five-Year Forecast ($ in Millions)
FY 2014-2018
Average
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A N/A 3.6% 0.0% 0.0% 0.0% 0.0%
Projection $5.8 $5.6 $5.8 $5.8 $5.8 $5.8 $5.8
Metro Cost Projections
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Other revenue in FY 2020 is projected to increase by 26.2% from FY2019 primarily due to an increase in unrestricted balances and associated interest earnings. Interest earning s are projected to slightly increase between FY 2020 and FY 2021 , and then gradually decline over the next three years based on projected fluctuations in the market. However, the Department is projecting to receive approximately $11.5 million in Local Resource Program incentives from Metropolitan Water District for developing local water supplies, which accounts for the increase in revenue in FY 2024.

WATER SYSTEM EXPENDITURES
Water Utility Fund expenditures are comprised of both personnel and non -personnel expenditures including debt service and other non -discretionary payments. The largest single expenditure of the Water Utility Fund is for water purchases, representing approximately 50 percent of 2018 actual expenditures. These expenditures are therefore discussed separately. The following sections discuss in detail each expenditure category and include a description of the category, projected growth rates, and a discussion of critical strategic expenditures.

Water Purchases
The City currently i mports approximately 85 -90% of its water through the CWA. Water purchases contribute to the largest expense in the Water Utility Fund and make up approximately 50 percent of the Water Utility Fund’s expenditure budget. CWA charges a volumetric rate that in cludes both a commodity rate and a transportation rate. In addition to the volumetric charges the City pays for imported water, both CWA and MWD also levy fixed charges on their member agencies.

The following table presents projected cost s for purchasing water from CWA , and assumes that 5 percent of demand will be met with local water supplies in FY 2019, and 10 percent for FY 2020 through FY 2024.3 The decrease in growth rates beginning in FY 2021 reflects a decline in CWA’s projected pass through. Though the projected rate remains constant through FY 2024, the cost and amount of water purchased declines in FY 2024 as Phase 1 of the Pure Water Program is expected to be on line and providing 30 mgd of water by February 2024.

Personnel Expenditures
Personnel expenditures include salaries and wages and fringe benefits. Salaries and wages are comprised of regular salaries and wages, special pay, overtime, step increases, and vacation pay in lieu. Fringe benefits include pension payments or Actuarially Determined Contribution (ADC), flexible benefits, retiree health or Other Post-Employment Benefits (OPEB), workers’ compensation, 3 Rainfall in water year 2018 (October 1, 2017 – September 30, 2018) totaled 3.34 inches, 7 inches below San Diego’s historical average of 10.34 inches, and in FY 2019 the Department projects supplying only 5% of its water demand from local sources. Fiscal Years 2020 and thereafter assume more normal rainfall.

Table 3.1 - Water Purchases - Baseline Expenditures
($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Projection $230.7 $269.2 $268.8 $285.3 $299.9 $315.2 $286.4 Acre Feet Purchased 161,348 185,081 174,326 174,614 174,900 175,183 141,864 Metro Cost Projections
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Supplemental Pension Savings Plan (SPSP), and other fringe benefits. The FY 2019 Adopted Budget for Water Fund salaries and wages was $46.6 million and included 784.18 full-time equivalents (FTE).

The following table displays the FY 2019 through FY 2024 personnel expenditure projections by category.

Adjustments within the salary and wages category incorporate only those expenditures associated with staff included in the FY 2019 Adopted Budget. Position adds identified for FY 2020 -2024 to support critical expenditures are discussed below. Personnel expenditures are projected to increase through the PUD Outlook period primarily due to general salary and special pay increases, retiree healthcare benefits or OPEB, pension payments or ADC, and workers’ compensation expenditure increases. The PUD Outlook does not project for any impact of future MOUs with REOs, and therefore salary and wages forecasts are fixed to the last negotiated amounts. The City of San Diego Fiscal Year 2020-2024 Five-Year Financial Outlook for the General Fund includes a m ore detailed discussion of the various personnel expenditure components including projection methodologies and assumptions.

Critical Operating Expenditures

Table 3.3 above identifies additional personnel expenditures, including fringe benefits, for the addition of staff to support enhancements to the Customer Services Office Program, expansion of the Pure Water Program, expansion of Enterprise Asset Management ( EAM), and improvements to procurement processes. The PUD Outlook also identifies the transfer of 3.50 full -time equivalents from the Water Utility Fund to the General Fund beginning in FY 2020 to support the facilities maintenance consolidation efforts.

The identified funding needs for t he Pure Water Program are for the operation and maintenance of new and expanding Pure Water facilities and staffing needs. A total of 45.00 full -time equivalent positions are anticipated to be required by Pure Water in FY 2023. Because most of the position Table 3.2 - Personnel Expenditures - Baseline Expenditures ($ in Millions)
FY 2018
Actuals
FY 2019
Budget FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Salary & Wages Projection $43.2 $46.6 $49.0 $49.3 $49.6 $49.4 $49.4 Fringe Benefits Projection $34.6 $34.2 $35.9 $36.8 $36.9 $37.0 $37.2 Table 3.3 - Critical Strategic Expenditures - Personnel Request FTE/Exp FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Customer Services Office FTE 4.00 4.00 4.00 4.00 4.00 Program Support Expense $311,918 $311,918 $311,918 $311,918 $311,918 Pure Water Program FTE 3.00 7.00 44.50 45.00 45.00 Support Expense 296,911 624,407 5,678,266 5,706,387 5,706,387 Facilities Maintenance FTE (3.50) (3.50) (3.50) (3.50) (3.50) Consolidation Expense (270,029) (270,029) (270,029) (270,029) (270,029) EAM Support FTE 0.47 0.47 0.47 0.47 0.47 Expense 47,521 47,521 47,521 47,521 47,521 Supply Chain Warehouse FTE 1.88 1.88 1.88 1.88 1.88 Staffing Expense 220,165 220,165 220,165 220,165 220,165 Total FTE 5.85 9.85 47.35 47.85 47.85 Total Expense $606,485 $933,981 $5,987,840 $6,015,961 $6,015,961 Metro Cost Projections
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classifications identified by the D epartment’s consultant do not yet exist within the City , projected salary costs were based on industry estimates.

Supplies
The Supplies category includes costs for chemicals, water meters, pipe fittings, asphalt road materials, machine parts, and low value assets. The following table displays FY 2018 actuals and FY 2019 through FY 2024 projections for the Supplies category.

The Supplies category includes various components. Each component has a different growth rate.

Growth rates for each category are based on historical analysis and include other adjustments based on known and antic ipated events. As a result, the 2.9 percent growth rate that was applied to the Supplies category for FY 2020 through FY 2024 represents a weighted growth rate that was calculated after applying the corresponding growth rate for each component.

Critical Operating Expenditures

Table 3.5 above identifies increased expenditures associated with the expansion of the Pure Water Program. These expenditures will be necessary as Pure Water facilities come online , and include chemical costs, consumables, pumps, and other materials necessary for o peration and maintenance of facilities and equipment.

Contracts
Contracts are a non -personnel expense category that include the cost of contractual services, professional consultant fees, general government services billing, City services billings, flee t vehicle usage and assignment fees, rental expenses, security services, and other contractual expenses. The table below displays PUD’s FY 2018 actuals and FY 2019 through FY 2024 projections for the Contracts category.

Table 3.5 - Critical Strategic Expenditures - Supplies
Request FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Pure Water Program Expansion - $25,000 $4,961,096 $7,218,534 $10,462,192 Total Expense - $25,000 $4,961,096 $7,218,534 $10,462,192 Metro Cost Projections
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The Contracts category includes various components that each has different applicable growth rates.

Growth rates for each category are based on historical analysis and other adjustments based on known and anticipated events. As a result, the growth rate fo r the Contracts category represents a weighted growth rate that was calculated after applying the corresponding growth rate for each component.

Critical Operating Expenditures

Table 3.7 above identifies increased contractual expenditures associa ted with Phase 1 of the Pure Water Program, and the Water Infrastructure Finance Innovation Act (WIFIA loan annual service fee, as well as expenditures necessary for pump inspections and maintenance, Morena Reservoir outlet tower improvements, consulting services for financial review of the water services cost of service study.

Information Technology
The Information Technology category includes both discretionary expense s and non -discretionary allocations to the Water Utility Fund. The Information Technology categ ory includes the costs related to hardware and software maintenance, help desk support, and other information technology (IT) services. Table 3.8 below displays the FY 2018 actuals and FY 2019 through FY 2024 projections for the Information Technology category.

The projections include estimates of IT costs related to desktop support, networks, data -centers, applications, and systems critical to water treatment plant operations for FY 2019 through FY 2024 .

All other base IT costs are inflated by the California Consumer Price Index.

Table 3.7 - Critical Strategic Expenditures - Contracts Request FTE/Exp FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Pure Water Program Expense $45,000 $150,000 $663,000 $1,612,200 $3,702,900 Expansion
WIFIA Loan Service Expense 25,000 25,000 25,000 25,000 7,500 Fee
Pump Inspection and Expense 500,000 - - - - Maintenance Program
Morena Outlet Tower Expense 550,000 200,000 - - - Safety Improvements
Cost of Service Study Expense 42,000 - - 300,000 387,887 Consulting Services
Total Expense $1,162,000 $375,000 $688,000 $1,937,200 $4,098,287 Table 3.8 - Information Technology - Baseline Expenditures ($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A 8.9% 7.3% 6.4% 1.9% 0.3% 2.5%
Projection $5.7 $6.2 $6.6 $7.0 $7.2 $7.2 $7.4
Metro Cost Projections
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Critical Operating Expenditures

The Supervisory Control and Data Acquisition (SCADA) Water Distribution System monitors the water distribution facilities and detects and rectifies equipment malfunctions and operation problems.

SCADA funding displayed above reflects upgrades needed to implement the next generation of SCADA in an enterprise environment. This is critical to ensuring that water treatment plant operations, public health and regulatory compliance are protected from any system vulnerabilities in older SCADA systems. Other major critical operating expenditures identified are PC replacements; the Treatment Plant Processing System, which is critical to managing and monitoring Water Treatment Plants; EAM Tracking software for costs associated with future maintenance and enhancements of the system, and Laboratory Information Management System (LIMS) which provides tracking and report ing of chemical and biological tests for compliance.

Energy & Utilities
The Energy and Utilities category includes the Water Fund’s costs for electricity, water services, fuel, and other utility and energy expenses. The following table displays FY 2018 actuals, and FY 2019 through FY 2024 projections for the Energy and Utilities category.

The Energy and Utilities category includes various costs. Each cost component has a different applicable rate. Growth rates for energy are based on the Annual Energy Outlook 2018 report prepared by the U.S. Energy Information Administration.

Water rates are determined by the Public Utilities Department approved by City Council and reflect the growth rates for potable water sales as presented in Table 2.3 – Water Sales Five -Year Forecast.

As a result, the growth rate for the Energy and Utilities category represents a weighted growth rate that was calculated after applying the corresponding growth rate for each component.

Table 3.9 - Critical Strategic Expenditures - Information Technology Request FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
LIMS Implementation $182,900 $108,125 $108,125 $108,125 $108,125 EAM Tracking Software 141,000 141,000 235,000 235,000 235,000 IT Infrastructure Network and Cloud Services 121,050 121,050 31,050 31,050 31,050 IT Roadmap - Modernization of Legacy Systems 180,000 180,000 180,000 180,000 180,000 PC Refresh - - - 675,000 - SCADA Water Distribution System 1,011,827 1,024,727 955,727 955,727 955,727 Treatment Plant Processing System 735,200 447,200 947,200 497,200 497,200 Total Expense $2,371,977 $2,022,102 $2,457,102 $2,682,102 $2,007,102 Table 3.10 - Energy & Utilities - Baseline Expenditures ($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A 0.7% 3.2% 4.1% 3.9% 3.6% 3.9%
Projection $13.5 $13.3 $13.7 $14.3 $14.9 $15.4 $16.0
Metro Cost Projections
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Critical Operating Expenditures

Table 3.11 above identifies increased energy and utility expenditures associated with the expansion of the Pure Water Program. These expenditures are necessary as new and expanding Pure Water facilities come online and include increased electricity, water, and natural gas expenditures necessary for the daily operation of facilities.

Reserve Contributions
The City has established accounts within the Water Utility Fund for four reserve funds: The Emergency Operating Reserve (Operating Reserve), the Secondary Purchase Reserve, the Rate Stabilization Fund Reserve (Rate Stabilization Fund), and the Emergency Capi tal Reserve (Capital Reserve). The Department maintain these reserve funds in accordance with the City’s reserve policy (the City Reserve Policy). As of June 30, 2018, the Water Utility Fund had estimated total reserves of approximately $130.5 million.

Table 3.12 below details reserve targets and projected f unding levels. Reserves are projected to be fully funded throughout the PUD Outlook period. The Water Fund Rate Stabilization Reserve Fund is funded above targeted levels; it can be used to provide one -time operating revenue to offset or mitigate the need for sudden or dramatic rate increases. This Outlook does not project use of the Water Fund Rate Stabilization Reserve over its period, but the potential to use the Rate Stabilization Reserve Fund does exist, and will be evaluated as part of the Cost of Service Study that will be prepared in 2019.

Table 3.11 - Critical Strategic Expenditures - Energy & Utilities Request FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Pure Water Program Expansion - - $7,111,526 $9,956,136 $14,223,052 Total Expense - - $7,111,526 $9,956,136 $14,223,052 Metro Cost Projections
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Other Expenditures
Expenses included in this category are transfers out to other funds, capital expenses, estate taxes, and other miscellaneous expenditures. Debt service obligations, including bond, commercial p aper, state revolving fund (SRF) loan and WIFIA payments, are excluded from this category and are discussed in the Water System Capital Improvement Program section of this report. The following table displays FY 2018 actuals and FY 2019 through FY 2024 pro jections for the Other Expenditures category.

Significant one -time expenditures identified and included in FY 2018 actuals include a one -time transfer to the Department’s newly established inventory fund and a one -time transfer of funds to reflect accounting corrections associated with the Stadium Wetland Mitigation Fund.

Critical Operating Expenditures

The table above identifies increased expenditures associated with the expansion of the Pure Water Program and the Van Nuys Canyon water main protection project. Pure Water Program expenditures include new laboratory equipment necessary for sampling analysis in support of the expanding program.

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Table 3.13 - Other Expenditures - Baseline Expenditures ($ in Millions)
FY 2018
Actuals1
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Projection1 $3.4 $1.5 $1.5 $1.5 $1.5 $1.5 $1.5

1. Figures exclude debt service payments on bonds, commercial paper, and state revolving fund (SRF) loans, and Water Infrastructure Innovation Act (WIFIA).

Table 3.14 - Critical Strategic Expenditures - Other Expenditures Request FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Pure Water Program Expansion $155,000 $678,000 $892,800 $350,000 $150,000 Van Nuys Canyon Water Main Protection Project 500,000 500,000 - - - Total Expense $655,000 $1,178,000 $892,800 $350,000 $150,000 Metro Cost Projections
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Water System Capital Improvement Program
The Water Sys tem CIP is established to address current and future system needs in a cost -effective manner. The program’s principal drivers are:
• implementation of the Pure Water Program;
• improving infrastructure to reduce pipeline breaks and emergency repairs; • improving process technology;
• expansion of the Water System to accommodate growth; and • compliance with the Federal Safe Drinking Water Act and the Division of Drinking Water (DDW) Compliance Order.

Infrastructure improvements generally consist of water tr eatment plants, pipelines, reservoirs and pump stations, projects related to anticipated growth within the City’s service area, and projects required by or related to applicable State and Federal regulations and orders.

The following table shows categories of projects with the estimated cost of expenditures contained in the CIP for the period of Fiscal Years 2020 through 2024.

Table 4.1 - Summary of Projected CIP Projects(1)(2)(3)
FY 2020 through FY 2024
Water CIP Projects FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 TOTAL (7) Pure Water Program (4) $197.0 $281.5 $204.5 $106.0 $17.1 $806.1 Transmission Pipelines $67.2 $55.7 $62.3 $63.7 $42.3 $291.3 Pipelines $64.3 $71.3 $36.8 $33.8 $46.4 $252.7
Storage Facilities (5) $9.4 $33.1 $38.3 $30.2 $35.0 $146.0 Water Treatment Plants $18.3 $6.5 $0.5 $0.3 $0.0 $25.6
Pump Stations $7.5 $2.7 $8.6 $7.9 $9.1 $35.8
SDG&E Relocation Advance (6) $48.2 $0.0 $0.0 $0.0 $0.0 $48.2 Ground Water Projects $0.5 $2.6 $0.0 $0.4 $1.2 $4.7
Recycled Water $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Miscellaneous Projects (7) $33.6 $10.6 $2.9 $8.0 $5.9 $61.1 Total (8) $446.1 $464.2 $354.0 $250.3 $157.0 $1,671.6
($ in Millions)
(8) Figures may not add to total due to independent rounding. (1) Projections as of March 2018 for the Water System Baseline CIP and October 2018 for the Pure Water Program. (2) Amounts reflect the aggregate costs of all CIP projects required to satisfy the DDW Compliance Order as well as projects related thereto or necessary for the operation thereof. It is the Department’s expectation that the final awarding of cast iron distribution line replacement will be completed by Calendar Year 2021, thus fulfilling the requirements of the compliance order. For Fiscal Years 2020 through 2024, approximately 4% of the capital program is mandated by the DDW.
(3) The projected amounts in Fiscal Year 2020 and onward reflect an annual inflation rate of 3.1% due to anticipated increases in construction costs over time and the expected execution of the CIP.
(4) Projections are based on expected completion of the Pure Water Project Phase 1 by the end of February 2024 and include only the portion of the Pure Water Program attributable to the Water System.
(5) Storage Facilities include treated and untreated water reservoirs. (7) Miscellaneous Projects include water security projects, solar projects, and the AMI Program. (6) Funding for the SDGE Relocation Advance in Fiscal Year 2020 will be provided by the Fiscal Year 2019 unallocated Fund Balance.

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Capital Improvement Financing Plan
Table 4.2 below describes the projected sources of funds to finance the Water System CIP for Fiscal Years 2020 through 2024.

As shown in Table 4.2, the PUD anticipates incurring approximately $65 8.0 million of additional debt obligations in Fiscal Years 2020 through 2024 for the Water System CIP and $683.0 million of additional obligations in Fiscal Years 2020 through 2024 for the Pure Water CIP. Capacity fees and cash are anticipated to fund an additional $331.0 million.

The City anticipates to financ e the costs of certain projects in the Water System Baseline CIP in the approximate amount of $2 14.1 million through SRF loans. This includes approximately $17 million from existing SRF loans for which the City has already applied and $204 million from loan s for which the City plans to apply. The proceeds from additional SRF loans will provide funding in Fiscal Years 2020 through 2024. SRF loans are one of the least expensive sources of financing available to the City.

If the City is not awarded the additional SRF loans projected over this PUD Outlook period, it will have to evaluate using other financing sources that carry higher interest rates – potentially impacting water rates – and/or postponing various CIP projects.

The City anticipates financing approximately $443.5 million of the Baseline Water System CIP through a combination of revenue bonds and commercial paper. It is expected that $14.4 million in funding for the Water System CIP per year will come from capacity fees in FYs 2020 through 2024. Any remaining costs of the Water System Baseline CIP are anticipated to be paid on a pay-as-you-go-basis.

The Department anticipates financing up to $614 million of the Pure Water Project through the WIFIA Loan which will provide funding in Fiscal Years 2019 through 2023. The remainder of the projects for Phase 1 of the Pure Water Program are expected to be financed through revenue bonds, commercial Table 4.2 - Sources of Funds for the Water Capital Improvement Program(1) FY 2020 through FY 2024
Source of Funds FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 TOTAL Pure Water CIP
Commercial Paper/Revenue Bonds $0.0 $0.0 $0.0 $85.0 $13.0 $98.0 WIFIA Loan (2) $170.7 $236.4 $161.9 $16.0 $0.0 $585.0
Cash $26.3 $45.1 $42.6 $5.0 $4.1 $123.1
Total $197.0 $281.5 $204.5 $106.0 $17.1 $806.1
Baseline CIP
Commercial Paper/Revenue Bonds $139.0 $111.6 $67.9 $50.0 $75.1 $443.6 SRF Loans (3) $54.0 $54.8 $59.2 $38.7 $7.3 $214.1
Capacity Fees/Cash $56.1 $16.3 $22.3 $55.6 $57.5 $207.8 Total $249.1 $182.7 $149.5 $144.3 $139.9 $865.5
Total Funding $446.1 $464.2 $354.0 $250.3 $157.0 $1,671.6 ($ in Millions)
(3) Includes proceeds from existing SRF loans (approximately $17 million), and additional proceeds through Fiscal Year 2023 (approximately $204 million) for SRF loans to be entered into.
(1) Projects are based on expected completion of the Pure Water Project by the end of February 2024. (2) Assumes periodic draw on the WIFIA Loan. Instead of drawing on the WIFIA Loan, the City could also utilize bridge financing instruments (commercial paper notes and/or bond anticipation notes) for some or all of the construction expenses during this period.

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paper, and cash, which includes a State funding allocation of $30 million that is anticipated to be allocated across both Water and Sewer funds in FY 2020.

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Metro Cost Projections
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WASTEWATER SYSTEM
This section discusses baseline revenue and expenditure projections, upcoming critical operational expenditures, projected capital improvement program needs and financing options for the next five years for the Wastewater System . The Wastewater System is comprised of the Metropolitan and Municipal Utility Funds, collectively known as the “Sewer Revenue Funds”. All revenue and expenditure projections, including CIP are presented as “Sewer Revenue Funds” in the following sections.

Wastewater System Revenues
The following section provides details of revenue projections for the Wastewater System Sewer Revenue Fund s FY 2020 -2024 Five -Year Financial Outlook. The primary revenue sources of the Wastewater System are generated from sewer service charges, capacity fees, interest earnings from the investments of available funds, and revenues from the Participating Agencie s. This section will discuss in detail each revenue category and will include a description of the revenue source, projected growth rates, and a discussion of future revenue streams and how it impacts the Wastewater System.

Sewer Service Charges
The Department manages and operates the Sewer System with funds derived primarily from service charges that are deposited in the Sewer Revenue Funds and are used for the operation, maintenance and capital improvement of the Metropolitan Sub-System and the Municipal Sub-System.

The City establishes fees based upon the costs incurred by the City to collect, treat and discharge wastewater and pay for required capital improvements.

Sewer service charges are based on the characteristics of the wastewater discharged b y each sewer user. All sewer users are charged based upon the amount of flow, solids and organic material which they discharge into the Sewer System. As sewage discharge is not metered, water consumption is used to approximate each customer’s sewage flow.

Sewer service charge revenues are comprised of two parts: a base fee and a sewer service charge (flow charge). The base fee is a fixed monthly service fee charged to all customers to recover certain fixed and indirect costs. Since the indirect costs are common to all users, the costs are shared equally by all user meters. The flow charge is based on the amount (flow) and strength of the wastewater discharged to the sewer system, and incorporates allowances for system return that differs by customer c lass. This adjustment factor recognizes that not all water consumed discharges to the wastewater system. The flow charge for both Single Family Residential (SFR) and Multi Family Residential (MFR) customers include a 95% return to sewer, while Commercial /Industrial (C/I) customers average a 73% return to sewer and vary depending on the type of business. Additionally, the flow charge for SFR customers is based on the least amount of water used during the previous winter and includes a water usage cap of 20 HCF.

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Table 5.1 below displays the existing sewer rates for FY 2019.

Forecast. The following table shows the budget and year-end projection for FY 2019 and the forecast for FY 2020 through FY 2024 for revenue from sewer service charges. This revenue source represents approximately 65 percent of the Sewer Revenue Funds overall revenue receipts. The forecast assumes a 0.25 percent increase in accounts and reflects projected rate increases beginning in FY 2021 through FY 2024.

Discussion. The Department last presented a wastewater rate case in 2006 (the 2006 Rate Case). The 2006 Rate Case covered four years and was based on comprehensive forecasted annual operation s and maintenance costs including capital costs expenditures. The 2006 Rate Case covered Fiscal Years 2007 through 201 0 and was approved by the City Council in February 2007. The rate case included rate increases of 8.75% on May 1, 2007, 8.75% on May 1, 2008, 7.00% on May 1, 2009, and 7.00% May 1, 2010.

In May of 2018, The department conducted a FY 2018 Wastewater Financial Plan Study and Cost of Service Review Report (the Study) prepared by Raftelis Financial Consultants, Inc. (Raftelis). The objectives of the study were to review current wastewater rate s and the cost of providing service to determine if rates need to increase or be adjusted based on revenue requirements and /or updated flow characteristics. The Study reviewed and developed a financial plan for the wastewater system to ensure financial sufficiency, meet operation and maintenance (O&M) costs, and ensure sufficient funding for capital improvements.

Based on the Study, Raftelis found that existing wastewater revenues were sufficient and additional rate adjustments are n ot necessary to meet operating fund requirements for FY 2019 and FY 2020 .

Table 5.2 - Sewer Service Charge Five-Year Forecast
($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A -1.4% 0.25% 3.26% 5.26% 5.25% 5.78%
Projection $274.6 $270.7 $271.4 $280.2 $295.0 $310.5 $328.4 Metro Cost Projections
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However, construction of Phase 1 of the Pure Water Program is expected to begin in FY 2020 and projected rate increases are anticipated to be necessary to fund the Pure Water Program beyond FY 2020 in addition to the baseline CIP.

Accordingly, this PUD Outlook assumes preliminary wastewater rate increases of 3% in FY 2021, 5% in FY 2022 and 2023, and 5.5% in FY 2024. Actual rate increase will be determined through a cost of service study and presented to the City Council for review. For more details on projected financing for the CIP, refer the Wastewater Capital Improvement program section of this report.

Sensitivity Analysis. While these projections represent PUD’s best estimate of wastewater revenues throughout the PUD Outlook period, actual results will depend on the factors discussed above. The impact in revenue from potential rate increases ranges from $2.8 to $ 3.2 million for each percent added or subtracted from projected rate increases depending on the year in which sewer service charges are adjusted. Adjustments to projected rates in earlier years would compound this amount.

Wastewater Capacity Charges
Background. Capacity charges are development fees imposed on permits for new or expanded wastewater connections, and are based on an estimate of the increase in wastewater consumption as measured by equivalent dwelling units . Capacity charge proceeds are used to construct, improve and expand the Wastewater System to accommodate the additional business of such added dwellings or commercial or industrial units.

As with water capacity charges , wastewater capacity charges can be applied only for the purpose of paying costs associated with capital expansion, bonds, contracts, or other indebtedness of the Wastewater System related to expansion. Because capacity charges are primarily collected on new construction within the City, revenues obtained from such charg es vary based upon construction activity.

In February 2007, the City Council and Mayor approved rais ing the capacity charge to $4,124 per Equivalent Dwelling Unit (“EDU”), which was estimated to provide for full cost recovery for Wastewater System expansion projects. The City will be undertaking a cost of service study in FY 2020 to review existing capacity rates.

Forecast. The following table presents wastewater capacity charge revenue received between FY 2014 to FY 2018, FY 2019 Budget and the forecast for FY 2020 through FY 2024 for revenue from sewer capacity charges. T his revenue source represents 5 percent of the Wastewater System’s overall revenue receipts.

Projected revenues for wastewater capacity charges use conservative growt h estimates based on spending trends from FY 2014 through FY 2018 as shown in Figure 1 below and projected construction FY 2014-2018
Average
FY 2019
Budget FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A N/A 7.4% 0% 0% 0% -2.9%
Projection $19.9 $16.3 $17.5 $17.5 $17.5 $17.5 $17.0
Table 5.3- Capacity Charges Five-Year Forecast
($ in Millions)
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permitting activity. Average wastewater capacity fee rev enue between FY 2014 and FY 2018 was approximately $19.9 million. However, due to a projected decrease in the housing market beginning in FY 2020 , wastewater capacity charge revenue was conservat ively adjusted downward. The wastewater capacity charge budget for FY 2019 has been budgeted historically low and may be adjusted to reflect historical and projected revenue trends in the FY 2020 budget.

Economic Trends. As previously mentioned, wastewater capacity charges are primarily based on new wastewater connections related to new construction and are directly influenced by population growth and residential and commercial development. As discussed in the Water Capacity Charges section of this report, San Diego's population has grown by approximately seven percent between the 2000 Census and the 2010 Census for an aggregate increase of 84,000. As population continues to increase in the region, the demand for new single and multi-family housing is also expected to increase in order to meet population demands. For a more detailed discussion on population and housing growth, refer to the Water Capacity Charges section of this report.

Other Revenue
The primary component of the Other Revenue category is revenues received from Participati ng Agencies for sewer system charges . These represent 70.1 percent of FY 2018 revenues in the Other Revenue category. The Other Revenue category also includes revenue received from the Water Utility Fund pertaining to the sales of reclaimed water, interest on pooled investments, reimbursements from services provided to other City departments / funds, grants revenue, and other miscellaneous revenues.

The following table displays the FY 2019 through FY 2024 projections for the Other Revenue category. $20.30 $21.80
$18.40 $19.60 $19.50 $19.50
$17.50 $17.50 $17.50 $17.50 $17.00
$0.0
$3.0
$6.0
$9.0
$12.0
$15.0
$18.0
$21.0
$24.0
$27.0
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
FY 2020
FY 2021
FY 2022
FY 2023
FY 2024
$ in millions
Figure 5.1 - Sewer Capacity Charge Revenue Forecast
Capacity Charge Revenues Linear (Capacity Charge Revenues) Metro Cost Projections
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No growth rate is applied to the Other Revenue category for the PUD Outlook period. However, revenues are projected to increase from FY 2020 through FY 2024 based on historical analysis and other adjustments made on known and anticipated events. The projec ted increases primarily consist of sewer system charges to Participating Agencies to reflect anticipated increases in shared costs of Pure Water Program expenses, and projected increases in pooled investments. Per their agreement with the City, Participating Agencies pay their actual costs for service and capital expenses; if projected expenditures associated with the Participating Agencies increase or decrease, this will ultimately be offset by increased or decreased revenue from the Participating Agencie s.

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Table 5.4 - Other Revenue Five-Year Forecast
($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Participating Agencies
Growth Rate N/A 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Projection $70.1 $75.0 $80.0 $85.0 $90.0 $95.0 $100.0
Other Revenue
Growth Rate N/A 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Projection $28.7 $17.5 $23.7 $22.6 $19.8 $18.3 $18.6
Metro Cost Projections
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WASTEWATER SYSTEM EXPENDITURES
The Wastewater System expenditures are comprised of both personnel and non -personnel expenditures including debt service and other non-discretionary payments. The following sections will discuss in detail each expenditure category and will include a description of the expenditure, projected growth rates, and a discussion of critical strategic expenditures.

Personnel Expenditures
Personnel expenditures includes the salaries and wages category as well as fringe benefits category.

The salaries and wages category is comprised of regular salaries and wages, special pays, overtime, step increases, and vacation pay in lieu, whereas the fringe benefits category includ es pension payments or Actuarially Determined Contribution (ADC), flexible benefits, retiree health or Other Post- Employment Benefits (OPEB), workers’ compensation, Supplemental Pension Savings Plan (SPSP), and other fringe benefits. The FY 2019 Adopted Budget for the Sewer Funds salaries and wages was $55.3 million and included 871.74 full-time equivalents (FTE). The following table displays the FY 2019 through FY 2024 personnel expenditure projections by category.

Adjustments within the salary and wages category incorporate only those expenditures associated with staff included in the FY 201 9 Adopted Budget. Position additions identified for FY 2020 -2024 to support critical strategic expenditures are discussed below. Personnel expenditures are proje cted to increase through the Outlook period primarily due to general salary and special pay increases, retiree healthcare benefits or OPEB, pension payments or ADC, and workers’ compensation expenditure increases. The PUD Outlook does not project for any impact of future MOUs with REOs, and therefore salary and wages forecasts are fixed to the last negotiated amounts.

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Table 5.5 - Personnel Expenditures - Baseline Expenditures ($ in Millions)
FY 2018
Actuals
FY 2019
Budget FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Salary & Wages Projection $49.8 $55.3 $58.3 $58.9 $58.9 $58.9 $58.8 Fringe Benefits Projection $39.0 $40.2 $42.2 $43.1 $43.3 $43.4 $43.6 Metro Cost Projections
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Critical Strategic Expenditures

Table 5.6 above identifies increased personnel expenditures, including fringe benefits, for the addition of staff to support enhancements to the Cu stomer Services Office Program , expansion of inventory asset management ( EAM), and improvements to procurement processes. The PUD Outlook also identifies the transfer of 4.50 full-time equivalents from the Water Utility Fund to the General Fund beginning in FY 2020 to support the facilities maintenance consolidation efforts.

The identified funding needs for the Pure Water Program are for the operation and maintenance of new and expanding Pure Water facilities and staffing needs. A total of 13 .00 full -time equivalent positions were identified to be required by FY 202 2. Because these position classifications identified by the Department’s consultant do not yet exist within the City , projected salary costs were based on industry estimates.

Supplies
The Supplies category includes costs for chemicals, machine parts, electrical materials, laboratory supplies, and pipe fittings . The following table displays the FY 2019 through FY 2024 projections for the Supplies category.

The Supplies category includes various costs. Each cost component has a different applicable rate.

Growth r ates for each category are based on historical analysis, and other adjustments made on known and anticip ated events. As a result, the growth rate for the Supplies category represents a weighted growth rate that was calculated after applying the correspondi ng growth rate for each component.

Table 5.6 - Critical Strategic Expenditures - Personnel Request FTE/Exp FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Customer Services Office Program FTE 4.00 4.00 4.00 4.00 4.00 Support Expense $311,918 $311,918 $311,918 $311,918 $311,918 Facilities Maintenance Consolidation FTE (4.50) (4.50) (4.50) (4.50) (4.50) Expense (347,676) (347,676) (347,676) (347,676) (347,676) EAM Support FTE 0.53 0.53 0.53 0.53 0.53 Expense 53,588 53,588 53,588 53,588 53,588 Supply Chain Warehouse Staffing FTE 2.12 2.12 2.12 2.12 2.12 Expense 248,271 248,271 248,271 248,271 248,271 Pure Water Program Expansion FTE - - 13.00 13.00 13.00 Expense - - 1,636,751 1,636,751 1,636,751 Total FTE 2.15 2.15 15.15 15.15 15.15 Total Expense $266,101 $266,101 $1,902,851 $1,902,851 $1,902,851 Table 5.7 - Supplies - Baseline Expenditures
($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A 5.1% 3.7% 3.7% 3.7% 3.7% 3.7%
Projection $23.6 $24.8 $25.7 $26.6 $27.6 $28.6 $29.7
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Critical Strategic Expenditures

Table 5.8 identifies increased expenditures associated with the expansion of the Pure Water Program.

These expenditures are necessary as new and expanding Pure Water facilities come online and include chemical costs, consumables, repair and replacement parts for eq uipment, and other materials necessary for operation and maintenance of facilities and equipment.

Contracts
Contracts are a non -personnel expense category that includes the cost of professional consultant fees, general government services billing, City services billings, fleet vehicle usage and assignment fees, contractual services, other contractual expenses . The following table displays the FY 2019 through FY 2024 projections for the Contracts category.

The Contracts category includes various costs. Each cost component has a different applicable rate.

Growth rates for each category are based on historical analysis, and other adjustments made on known and anticipated events. As a result, the growth rate fo r the Contracts category represents a weighted growth rate that was calculated after applying the corresponding growth rate for each component.

Critical Strategic Expenditures

Table 5.8 - Critical Strategic Expenditures - Supplies
Request FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Pure Water Program Expansion 10,000 $5,000 $3,027,235 $4,327,993 $6,049,470 Total Expense 10,000 $5,000 $3,027,235 $4,327,993 $6,049,470 Table 5.9 - Contracts - Baseline Expenditures
($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A 3.5% 3.5% 3.5% 3.6% 3.6% 3.6%
Projection $75.7 $74.4 $77.1 $79.8 $82.7 $85.6 $88.7
Table 5.10 - Critical Strategic Expenditures - Contracts Request FTE/Exp FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Pure Water Program Expense -$ -$ $3,060,560 $5,549,460 $8,442,569 Expansion
Digester Cleanings Expense 2,550,000 - 3,300,000 - 1,100,000 Participating Agencies - Expense - 3,600,000 4,000,000 3,000,000 3,000,000 True-Up Payments
Cost of Service Study Consulting Expense - - - 300,000 377,881 Services
Hale Avenue Resource Expense (600,000.00) (600,000.00) (600,000.00) (600,000.00) (600,000.00) Recovery Facility Payment
Total Expense $1,950,000 $3,000,000 $9,760,560 $8,249,460 $12,320,450 Metro Cost Projections
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The table above identifies increased contractual expenditures associated with Phase 1 of the Pure Water Program, various wastewater digester cleanings, true-up payments to Participating Agencies for their proportionate costs of the sewer system, and consulting services for financial review of the water services cost of service study . The PUD Outlook also identifies expenditure reductions of $600,000 beginning FY 2020 for contractual costs associated with Hale Avenue Resource Recovery Facility due to the completion of the project.

Information Technology
The Information Technology category includes both discretionary expense and non -discretionary allocations to the Sewer Revenue Funds . The Information Technology category includes the costs related to hardware and software maintenance, help desk support, and other information technology (IT) services. Table 5.11 below displays the FY 2019 through FY 2024 projections for the Information Technology category.

The projections include estimates of IT costs related to desktop support, networks, data -centers, applications, and systems critical to wastewater treatment plant operations for FY 2019 through FY 2024, and all other base IT costs are inflated by the California Consumer Price Index.

Critical Strategic Expenditures

Table 5.12 above identifies critical needs associated with maintaining and improving existing hardware and software. The expenditures identified in Table 5.12 primarily consist of costs associated with COMNET system support . COMNET serves as a communication network that utilizes a process control system to coordinate operations at different wastewater locations such as Point Loma Wastewater Treatment Plant, North City Reclamation Plant, and bio solid centers and pump station s.

Other critical operating expenditures identified are PC replacements; funding to retire/modernize legacy systems (IT Roadmap) and for general IT needs/enhancements; EAM Tracking software for Table 5.11 - Information Technology - Baseline Expenditures ($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A 11.3% 7.7% 11.1% 2.2% 1.0% 2.7%
Projection $7.3 $8.1 $8.7 $9.7 $9.9 $10.0 $10.3
Table 5.12 - Critical Strategic Expenditures - Information Technology Request FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
LIMS Implementation $182,900 $108,125 $108,125 $108,125 $108,125 EAM Tracking Software 159,000 159,000 265,000 265,000 265,000 IT Infrastructure Network and Cloud 147,950 147,950 37,950 37,950 37,950 Services
IT Roadmap - Modernization of Legacy 220,000 220,000 220,000 220,000 220,000 Systems
PC Refresh - - - 825,000 - COMNET System Support 2,920,437 2,716,333 2,716,333 2,716,333 2,716,333 IT Run the Business & Enhancements 359,890 359,890 359,890 359,890 359,890 Total Expense $3,990,177 $3,711,298 $3,707,298 $4,532,298 $3,707,298 Metro Cost Projections
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costs associated with future maintenance and enhancements of the system, and Laboratory Information Management System (LIMS) which provides tracking and reporting of chemical and biological tests for compliance.

Energy & Utilities
The Energy and Utilities category includes the Water Fund’s costs for electricity, wa ter services, fuel, and other utility and energy expenses. The following table displays the FY 2019 through FY 2024 projections for the Energy and Utilities category.

The Energy and Utilities category includes various costs. Each cost component has a dif ferent applicable rate. Growth rates for each category are based on the Annual Energy Outlook 2018 report prepared by the U.S. Energy Information Administration with the exception of sewer service charges, which are based on the 2006 cost of service study and projected rates. As a result, the growth rate for the Energy and Utilities category represents a weighted growth rate that was calculated after applying the corresponding growth rate for each component.

Critical Strategic Expenditures

Table 5.14 above identifies increased energy and utility expenditures associated with the expansion of the Pure Water Program. These expenditures are necessary as new and expanding Pure Water facilities co me online and include expenditures for the Morena pump statio n, North City Water Reclamation Plant, and Metro Biosolids Center facilities.

Reserve Contributions
The City has established accounts within the Sewer Revenue Fund for three reserve funds: The Emergency Operati ng Reserve (Operating Reserve) , the Rate Stabilization Fund Reserve (Rate Stabilization Fund), and the Emergency Capital Reserve (Capital Reserve). The Department operates these reserve funds in accordance with the City’s reserve policy (the City Reserve Policy). As of June 30, 2018, the Sewer Revenue Fund had estimated total reserves of approximately $114.5 million.

Table 5.15 below details reserve targets and projected fund levels. Reserves are projected to be fully funded throughout the Outlook period. The Sewer Fund’s Rate Stabili zation Reserve Fund is funded above targeted levels; it can be used to provide one -time operating revenue to offset or mitigate the need for sudden or dramatic rate increases. This PUD Outlook does project use of the Sewer Fund’s Table 5.13 - Energy & Utilities - Baseline Expenditures ($ in Millions)
FY 2018
Actuals
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A 2.0% 2.8% 3.5% 3.5% 3.3% 3.7%
Projection $19.9 $20.3 $20.9 $21.6 $22.4 $23.1 $24.0
Table 5.14 - Critical Strategic Expenditures - Energy & Utilities Request FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Pure Water Program Expansion - - $2,897,397 $4,093,075 $5,794,794 Total Expense - - $2,897,397 $4,093,075 $5,794,794 Metro Cost Projections
F-39
Rate Stabilization Reserve in FY 2020 ($5 million), FY 2021 ($5 million), FY 2022 ($15 million) and FY 2023 ($15 million) to absorb increasing costs. Actual use of the Rate Stabilization Reserve Fund will be evaluated as part of future Cost of Service Studies.

Other Expenditures
Expenses included in this category are transfers out to other funds, capital expenses, and other miscellaneous expenditures. Debt service obligations, including bond and state revolving fund (SRF) loan payments, are excluded from this category and are disc ussed in detail within the W astewater System Capital Improvement Program section of this report. The following table displays the FY 2019 through FY 2024 projections for the Other Expenditures category.

Significant one-time expenditures identified and included in the FY 2018 actuals include $2.0 million in expenditures for a one-time transfer to the department’s newly established inventory fund as part of the EAM project.

Critical Strategic Expenditures

The table above identifies increased expenditures associated with the expansion of the Pure Water Program. These expenditures include new laboratory equipment necessary for sampling analysis in support of the expanding program.

Table 5.15 - Reserve Target Levels
($ in Millions)
FY 2019
Projection
Fiscal Year
2020
Fiscal Year
2021
Fiscal Year
2022
Fiscal Year
2023
Fiscal Year
2024
Operating Reserve Target ($) $47.8 $46.4 $47.9 $51.6 $52.9 $55.2 Operating Reserve Level ($) $48.3 $48.3 $48.3 $51.6 $52.9 $55.2 Rate Stabilization Fund Target ($) $18.0 $17.3 $17.6 $18.3 $19.3 $20.3 Rate Stabilization Fund Level ($) $75.3 $70.3 $65.3 $50.3 $35.3 $35.3 Capital Reserve Target ($) $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 Capital Reserve Level ($) $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 Table 5.16 - Other Expenditures - Baseline Expenditures ($ in Millions)
FY 2018
Actuals(1)
FY 2019
Projection FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Growth Rate N/A 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Projection(1) $4.3 $2.5 $2.5 $2.5 $2.5 $2.5 $2.5
(1) Figures exclude debt service and state revolving fund (SRF) loan expenditure payments.

Table 5.17 - Critical Strategic Expenditures - Other Expenditures Request FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Pure Water Program Expansion $65,000 - - $17,000 - Total Expense $65,000 - - $17,000 - Metro Cost Projections
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Wastewater System Capital Improvement Program
The Wastewater System CIP is established to address current and future system needs in a cost - effective manner. While operation and maintenance expenditures support day-to-day operations, the Wastewater System Capital Improvement Program (CIP) supports the infrastructure for reliable wastewater collection, treatment and replacement of existing wastewater assets. As a result, PUD has developed a long -term CIP that identifies future facility needs. Furthermore, in order to improve its aging infrastructure, the City works towards the replacement and rehabilitation of 45 miles of sewer pipeline each year. The Wastewater System’s CIP for this Outlook period includes improvements to the Wastewater System infrastructure, as well as Phase 1 of the multi-year Pure Water Program.

The following table shows categories of projects with the estimated cost of expenditures contained in the CIP for the period of Fiscal Years 2020 through 2024.

This Section Intentionally Left Blank

Wastewater CIP Projects FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Total Pure Water Program (3) $190.0 $220.2 $124.5 $38.4 $5.9 $579.0 Trunk Sewers $14.3 $32.4 $48.7 $37.9 $24.6 $157.9
Muni Pump Station $0.3 $0.6 $7.6 $12.5 $29.9 $50.9
Sewer Pipelines $57.8 $45.5 $63.1 $57.1 $54.7 $278.2
Miscellaneous Projects $8.5 $3.2 $0.5 $4.1 $1.2 $17.5
SDG&E Relocation $33.6 $0.0 $0.0 $0.0 $0.0 $33.6
Sewer Treatment Plants $28.3 $32.5 $19.0 $8.3 $1.5 $89.7 Large Sewer Pump Station $24.8 $11.3 $3.8 $8.4 $8.2 $56.6 Total (4) $357.7 $345.7 $267.2 $166.8 $126.0 $1,263.4
(2) The projected amounts in Fiscal Years 2019 and onward reflect an annual inflation rate of 3.1% due to anticipated increases in construction costs over time and the expected execution of the CIP. (3) Projections are based on expected completion of the Pure Water Project by the end of February 2024 and include only the portion of the Pure Water Program attributable to the Wastewater System. (4) Figures may not add to total due to independent rounding.

Table 5.18 - Summary of Projected CIP Projects (1) (2)
FY 2020 through FY 2024
($ in Millions)
(1) Projections as of March 2018 for the Wastewater System Baseline CIP and October 2018 for the Pure Water Program.

Metro Cost Projections
F-41
The Capital Improvement Financing Plan
Table 5.19 below describes the projected sources of funds to finance the Wastewater System CIP for Fiscal Years 2020 through 2024.

The Department anticipates financing up to $464 million for Wastewater’s portion of the Pure Water Project through low-interest State Revolving Fund (SRF) loans which will provide funding in Fiscal Years 2020 through 2022. The remainder of the costs for Phase 1 of the Pure Water Program are expected to be financed through revenue bond financing (short -term and /or long -term), and cash, which includes a State funding allocation of $30 million that will be allocated to both Water and Wastewater fund costs. The State funding allocation is anticipated to be available for encumbrance or expenditure through June 30, 2021.

As noted in the discussion of the Water System CIP, SRF loans are one of the least expensive sources of financing available to the City. Financing from anticipated SRF loans represents a significant portion of funding for the Wastewater System CIP, and is anticipated to provide the majority of funding for Wastewater’s Pure Water expenses. If the City is not awarded the SRF loans projected over this Outlook period, it will need to seek financing sources that carry higher interest rates. Such financing sources could impact projected sewer service charge increases.

The City has existing SRF loans which will be used to finance approximately $41 million of Wastewater System Baseline CIP in Fiscal Years 2020 through 2023. Additionally, the City anticipates financing approximately $318 million of the Wastewater System Baseline CIP through revenue bonds in Fiscal Years 2022 through 2024. It is expected that $16 million in funding for Wastewater System CIP will come from capacity fees in Fiscal Years 2020 thr ough 2024. Any remaining costs of the Wastewater System Baseline CIP will be paid on a pay -as-you-go-basis. Projected funding for Wastewater’s Pure Water and Baseline CIP is supported in Fiscal Years 2020 and 2021 by currently approved Wastewater rates, and by projected rates for Fiscal Years 2022 through 2024.

Table 5.19 - Sources of Funds for the Wastewater Capital Improvement Program(1) FY 2020 through FY 2024
Source of Funds FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 TOTAL Pure Water CIP
Revenue Bond Financing $0.0 $0.0 $25.0 $8.0 $0.0 $33.0
State Grants $12.7 $0.0 $0.0 $0.0 $0.0 $12.7
SRF $239.9 $218.6 $5.7 $0.0 $0.0 $464.2
Cash (62.6) (2) $1.6 $93.8 $30.4 $5.9 $69.1
Total $190.0 $220.2 $124.5 $38.4 $5.9 $579.0
Baseline CIP
Revenue Bond Financing $0.0 $0.0 $120.0 $108.0 $90.0 $318.0 SRF Loans (3) $22.3 $14.0 $4.2 $0.6 $0.0 $41.0
Capacity Fees/Cash $145.4 $111.5 $18.6 $19.9 $30.1 $325.4 Total $167.7 $125.5 $142.8 $128.4 $120.1 $684.5
Total Funding $357.7 $345.7 $267.2 $166.8 $126.0 $1,263.4 (3) Includes proceeds from existing SRF loans (approximately $41 million), and additional proceeds through Fiscal Year 2024 (approximately $464 million) for SRF loans to be entered into.
($ in Millions)
(1) Projects are based on expected completion of the Pure Water Project by the end of February 2024. (2) The negative amount in the FY 2020 Cash line is offsetting SRF proceeds for prior year Pure Water expenditures Metro Cost Projections
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APPENDIX G
Cost Escalation Factors
General Cost Escalators
Non‐Public Safety
These are the cost escalators included in the City's Long‐term Financial Plan. The City does not have drafted policies for cost escalators.

Expenditure categories FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 Personnel Costs Notes:

Salaries 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Assumes a 2% Increase beginning in FY2020 for all groups throughout forecast period Health Insurance/Flex benefits 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Assumes a 5% Miscellaneous Increase in Flex benefits Pension
Normal Costs (Personnel) 1.8% 9.8% 2.8% 2.7% 2.8% 2.7%
Projections based on 6/30/17 CalPERs Valuation Report. See Pension tab for calculations.

Unfunded Accrued Liability (UAL) 13.9% 8.5% 8.9% 6.8% 3.6% 4.9% Projections based on 6/30/17 CalPERs Valuation Report. See Pension tab for calculations.

Supplies and Services
Operating Supplies 8.0% 8.0% 7.0% 2.0% 2.0% 2.0%
Assumes large increases in FY2020 to FY2022 related to increase in hourly wages.

Contracts 8.0% 8.0% 7.0% 2.0% 2.0% 2.0% Assumes large increases in FY2020 to FY2022 related to increase in hourly wages.

IT Expenses 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Assumes a 2.0% increase per year, similar to assumption for Internal Service Funds.

Utilities
Energy & Utilities 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Assumes a 5.0% increase per year.

Capital
Equipment (Capital not CIP)
Miscellaneous
Assumes a 2.0% increase per year.

Other Expenses 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Cost Escalation Factors
G-1
CY_ORIGINAL_BUD 2021 2022 2023 2024 2025
Salaries 3,042,707.00 3,103,561 3,165,632 3,228,945 3,293,524 3,359,394 Health Insurance 735,443.00 772,215 810,826 851,367 893,936 938,632 pensions 1,218,578.00 1,338,266 1,375,068 1,412,883 1,451,737 1,491,660 Total 4,996,728.00 5,214,042.35 5,351,526.67 5,493,194.83 5,639,196.51 5,789,686.47 Percent Change ‐ All Costs 4.35% 2.64% 2.65% 2.66% 2.67% Salaries Escalation 2% 2% 2% 2% 2%
Health Insurance Escalation 5% 5% 5% 5% 5%
Pension Escalation 9.8% 2.8% 2.7% 2.8% 2.7%
Cost Escalation Factors
G-2
APPENDIX H
ENR 20‐Cities Index
Cost Indices: ENR - 20 City
Annual Average
Year
Construction
Cost Index
2000 6,221
2001 6,342
2002 6,538
2003 6,695
2004 7,115
2005 7,446
2006 7,751 3 Yea
r 2.95% Compound Average
2007 7,967 Annual Change
2008 8,310
2009 8,570 5 Yea
r 3.20% Compound Average
2010 8,799 Annual Change
2011 9,070
2012 9,308 10 Yea
r 2.90% Compound Average
2013 9,547 Annual Change
2014 9,806
2015 10,035
2016 10,338
2017 10,737
2018 11,062
2019 11,381 11/1/2019
ENR Cost Indexes % Change
ENR 20 Cities Index
H-1

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Chula Vista City CouncilApril 26, 2022

Chula Vista City Council
April 26, 2022