Cotati City Council
Agenda Staff Report
Item type:
To: City Council
Subject: Adoption of Resolution Accepting the Draft Water and Sewer Rate Study and directing staff to proceed with the Proposition 218 Public Noticing Process for Proposed Water and Sewer Rate adjustments and to set a date for the Public Hearing and the Adoption of Rates
Date: April 12, 2022
Written by: Craig Scott, Director of Public Works/City Engineer Recommendation
It is recommended the City Council of the City of Cotati adopt a Resolution accepting the Draft Water and Sewer Rate Study and directing staff to proceed with the Proposition 218 public noticing process for the proposed water and sewer rate adjustments and to set a date for the Public Hearing and Adoption of the Rates.
Background
The City operates water and sewer utilities and provides these services for City residents, businesses and public facilities. The City periodically updates its water and sewer rate study to ensure the rates are sufficient to meet operating and maintenance costs. The rate study describes the analysis performed, presents the financial plans for the utilities, provides the basis and rationale for rate calculations, and summarizes findings and recommendations regarding the water and sewer rates. It is industry practice to update rate studies every 2-3 years to account for changing expenses. The current 5-year rate program is based on a rate study completed in March 2017, and the fifth and last year for the rate adjustment occurred in July 2021. It is now time to update the rate study and establish a new 5-year rate program.
Analysis/Discussion
On December 14, 2021, the City Council authorized the City Manager to execute an agreement with Hildebrand Consulting to prepare ten-year water and sewer system financial plans and fiveyear water and sewer rate programs.
The Draft Water and Sewer Rate Study was completed and is attached to the resolution accompanying this Staff Report. The Study presents each utility’s financial and service obligations for ongoing operation and maintenance, debt service, and capital improvements while maintaining prudent reserves. The Study has been completed concurrently and in coordination with the City’s Fiscal Year 2022/23 budget for the “Enterprise” (aka Utility) funds.
The Study goes further and presents projected expenses, including capital projects, for a ten-year period. The Capital project list in the Study draws from the respective utility master plans with the timing of the planned improvements revised to reflect reduced demands and slower growth than what was projected in the master plans and to moderate their impact on rates where allowable.
The sewer capital project need is being driven at present by the results of recent studies evaluating the condition of the City’s sewer pipelines and projects to reduce infiltration and inflow of groundwater and stormwater. If methodically addressed, the City can space these projects over the next 10 years. However, the City has a number of street repaving projects aligning with sewer repair and replacement project locations, and these sewer projects have now become a priority to avoid digging up newly paved streets.
The Study recommend water and sewer rate adjustments over 5 years as described in the Draft Rate Study. One change from the prior study, completed in 2017, is the omission of Water Shortage Surcharges. The City has not used the surcharges during the current drought, therefore, the current Study does not propose to renew the surcharge. However, drought surcharges are an effective means of protecting the Water Enterprise from the revenue volatility associated with droughts and the City may consider re-establishing Water Shortage Surcharges during the next rate study.
Utility Rate Revision Process
Following the Study’s acceptance by the City Council, staff will begin the required Proposition 218 public noticing process. Proposition 218 requires the City to hold a public hearing on the proposed rate structures to allow for public comment on the proposed rate increases and to provide written notice to each property owner at least 45 days in advance of the hearing. A draft of the required Proposition 218 notice is attached hereto, and the City Attorney’s office will review the final version before issuance.
Once the public hearing has been conducted, the City Council will consider a rate resolution to adopt the proposed rate structures. It may adopt rate adjustments that are equal to or less than the rates presented in the accepted rate study provided that there is no majority protest.
Financial Considerations
The recommended water rate increase for the summer of this year is consistent with the draft FY 22/23 City Budget for the Enterprise Funds. If a lower percentage was adopted, capital projects may be canceled to provide budgetary savings with lower revenue projections. Although water system revenues are marginally sufficient to cover operating and maintenance expenses and debt service obligations, the revenues are insufficient to maintain a prudent Operating Reserve while simultaneously providing adequate funding for the capital program.
The current sewer system revenues are not sufficient to cover operating and maintenance expenses and the operating reserve is used to make up the short-fall and this is not sustainable.
The annual rate adjustments reverse this situation and the enterprise’s revenues are projected to be sufficient to meet expenses after a few years of adjustments. The increasing operating and maintenance costs are primarily driven by the projected increased wastewater treatment costs of the subregional system. Additionally, sufficient capital is needed to address repairing and replacing aging sewer pipelines.
Environmental Issues
The action of approving the Rate Study and initiating the Proposition 218 process does not constitute a project as defined by California Environmental Quality Act Guidelines Section 15378; therefore, no further environmental review is required.
Attachments:
2022 Water/Sewer Rate Study Presentation (PPTX)
Draft Prop 218 Notice 4.8.22 (DOCX)