EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: July 26, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Patrick Heisinger, Interim City Manager
SUBJECT: Study Session on the Next Steps following San Mateo LAFCo (SMLAFCo) Municipal Service Review (MSR) Updates for the City of East Palo Alto, East Palo Alto Sanitary District, and West Bay Sanitary District Recommendation
It is recommended that the City Council:
1. Host a Study Session regarding possible next steps following the SMLAFCo MSR;
2. Provide direction on how the City should move forward;
3. Direct staff to take the necessary actions to draft the application to SMLAFCo; and
4. Direct staff to return to the City Council in the Fall with the draft application to SMLAFCo and a resolution, that if adopted, would initiate the Subsidiary District Process.
Background
Since 2019, several members of the City Council, City staff, consultants, and other stakeholders have attempted to collaborate with EPASD to develop solutions that would: 1) facilitate the advancement of City-approved development projects, and 2) ensure that those interested in developing in East Palo Alto are able to obtain the necessary information to make informed decisions. To date, very little tangible progress has been made.
There was one project for which EPASD committed in a written agreement to provide a sewer connection once the development was completed, and then EPASD failed to meet the timelines specified in that agreement. Subsequently, the EPASD has stated it will agree to a revised timeline, dependent upon the receipt of payment from the developer or City; the amount demanded is not based on any agreed-upon calculation.
On October 20, 2020, the City Council directed the City Manager to submit a letter to the SMLAFCo requesting an MSR and Sphere of Influence Update for the EPASD.
On April 5, 2022, SMLAFCo released the circulation Draft MSR and, on April 19, 2022, the City Council received a presentation on the MSR from SMLAFCo Executive Officer Rob Bartoli. On May 3 and June 7, 2022, the City Council directed the Interim City Manager to send the attached letters (Attachment 1) to the SMLAFCo to serve as the City’s official response to the Draft and Final MSR for the City, EPASD, and the West Bay Sanitary District (West Bay). At the June 7, 2022, City Council meeting, Council directed staff to schedule a workshop regarding possible next steps following the SMLAFCo adoption of the MSR. City Council also directed staff to place a study session on a future agenda.
On June 15, 2022, SMLAFCo adopted the final MSR (Attachment 2), determinations and recommendations for each entity, and reaffirmed the spheres of influence for the City, the EPASD, and West Bay. The determinations and recommendations are attached (Attachment 3).
On June 21, 2022, the City Council directed staff to return to with potential options for proceeding toward resolution of this issue.
Please see Attachment 4 for a detailed chronology of all public meetings held to date, as well as the links to the City and SMLAFCo agendas, staff reports, and other ancillary documents to obtain a deeper understanding of these issues.
Analysis
The Final SMLAFCo MSR (Attachment 2) is the product of more than one year of work in preparation, public review, numerous public meetings and written comment. It thoroughly documents the failure of the EPASD to proactively plan for the needs of current residents and resident-serving development. Of particular concern is the fact that the EPASD failure to meet the needs of current and future residents precludes implementation of goals established in the General Plan to improve the fiscal health of the City and quality of life of our residents. These include the City Council and resident established goals of “self-determination, affordable housing, fiscal stability, community participation, equity and justice to become a City that is welcoming of all people regardless of race, ethnicity, language, age, or educational level.” Determinations and recommendations in the MSR pertaining to this study session are as follows:
4-6: Lack of EPASD sewer collection system capacity is an impediment to development in the City. Developers have indicated concerns that the costs to connect are prohibitively expensive and that EPASD has been unwilling to discuss financing options to make connection more feasible. Efforts to-date to resolve this issue have been largely unsuccessful. Constrained development and growth deprives the City and its residents of increased tax revenues to maintain and improve public services, reduces future affordable housing and ability to meet RHNA housing allocations, and limits growth in job opportunities. 4-17: Development projects delayed by lack of sewer infrastructure capacity obstructs the ability to pursue economic development as one means to improve financial conditions and help achieve the City’s fiscal resiliency goals.
4-19: East Palo Alto should consider taking on EPASD as a subsidiary district to enable funding of capital projects to address deficiencies and capacity constraints that encourages development. In order to limit demands on city staff, the City may wish to contract with West Bay Sanitary District for operations and maintenance of the system.
Key Considerations for the City Council
Staff has identified key issues and considerations for City Council review and discussion, prior to providing staff with direction on how to proceed. The concerns articulated in the MSR demonstrate current and potential future impacts to the City in the following areas • Core function, including the City’s ability to implement the General Plan; • Customer service, and the benefit of providing a single point of contact for all utilities;
• Transparency and accountability, for example – the need for publicly accessible and posted documents and information, such as budgets, audited financial statements, project data, and agendas, in compliance with Brown Act requirements; • Governance, since the City Council is a governing body elected by vote of the residents of East Palo Alto, and is reflective of the City’s demographics and culture, with broader authority; and
• The City’s ability to continue securing Federal, State, County, and other grants to advance important infrastructure projects. (In 2021-22, $30M in grant have been secured, and $120M since 2010).
Options for City Council Consideration
With the SMLAFCo adoption of the MSR, the City may now consider a number of options for determining a path forward, as detailed in Table 1 below:
TABLE 1
OPTIONS IN RESPONSE TO SMLAFCO ADOPTION OF MSR
Option Rationale
1. No change;
maintain status
quo.
EPASD would remain as the entity responsible for providing sanitation services to residents of East Palo Alto and portions of Menlo Park.
Staff Recommendation: Staff does not recommend this
approach because it does not provide for a clear path of how the situation will be resolved.
2. EPASD decides
to dissolve and
cease
operations,
which would
require the City
to partner with
another entity to
provide
sanitation
services.
EPASD could work with the City to dissolve the District on its initiative.
Staff Recommendation: Staff would be open to discussing or negotiating with EPASD regarding how this process could be done amicably. For example, the EPASD Board of Directors could become a City Council advisory committee for a period of time to help with the transition.
3. City could pursue
establishment of
EPASD as a
Subsidiary
District
The process for establishing a subsidiary district is contained is Government Code Sections 56000 and 57000. Attachment 5
details the subsidiary district process and a shorter summary is provided in the “Subsidiary District Process.” section, below.
Staff Recommendation: Staff recommends that the City
Council select this option and initiate the process of
establishing EPASD as a Subsidiary District. Alternatively, if the City and EPASD can agree to partner to implement Option 2, then the City could cease pursuit of action. Staff would recommend the City cease this option if an enforceable
agreement related to Option 2 is agreed upon.
Subsidiary District Process
The process for establishing a subsidiary district is contained is Government Code Sections 56000 and 57000. Attachment 5 details the subsidiary district process, which is summarized below.
1. Initiation
The City of East Palo Alto, as potential successor agency, could initiate the proposal to establish a subsidiary district by resolution of the City Council. The resolution would include a completed LAFCo application, plan for providing service, and 5-year operating budget. This would necessitate contracting with a firm or individuals who could prepare the 5-year operating budget and Plan for Service. The Plan for Service would include the alternative of contracting with West Bay Sanitary District or a private contracting firm to operate the system. Preparation of the application packet for City Council adoption would be completed in approximately 30 to 45 days.
The cost of developing this plan and budget should be born by the Sanitary District as all benefit is for their customers. Staff thus proposes that should the Council approve this process, the cost be initially covered by the General Fund but with the intention that if the City takes over the Sanitary District, the cost of the plan would be recovered from EPASD reserves.
2. Processing of the Application
Immediately after receiving an application, the executive officer must provide mailed notice that the application has been received to EPASD and other affected agencies and school districts. Within 30 days of receipt of the resolution of application, LAFCo must determine if the application is complete and either issue a notice of incomplete application or a certificate filing of complete application. (Before the application can be certified as complete, the Board of Supervisors must adopt a resolution transferring property tax of the EPASD to the subsidiary district upon formation).
3. Hearing and Notification
Once the application is determined to be complete and following the issuance of the certificate of filing, LAFCo must set the proposal for hearing and give published, posted, and mailed notice at least 21 days prior. The date of the hearing shall be not more than 90 days after issuance of the certificate of filing or after the application is deemed to have been accepted, whichever is earlier.
4. Reconsideration
Any person or affected agency may file a written request with LAFCO requesting amendments to or reconsideration of the resolution. The request must state new or different facts that were not available at the time that LAFCo approved the application. The person or agency must file the written request within 30 days of the adoption of the initial or superseding resolution.
5. Protest Hearing
Within 35 days of the Commission’s resolution approving the subsidiary district and following the 30-day reconsideration period, LAFCO shall set a time and date for a protest hearing and give the required published and mailed notice. The hearing must be held at least 21 days, but no more than 60 days, after notice has been given. Registered voters from within the sanitary district boundaries are eligible to submit written protest.
6. Election
Upon conclusion of the protest hearing, the Executive Officer, as delegated by the Commission, must adopt a resolution either finding that there is less than 25% written registered voter protest and order the subsidiary district established or, if there is more than 25% written registered voter protest, ask the County elections officer to place the question of establishing the District as a subsidiary district of the City on the ballot. In order for the subsidiary district to be established, the measure must pass by simple majority. Registered voters from within the sanitary district boundaries are eligible to vote. The Commission would then adopt a resolution either establishing the subsidiary district or terminating proceedings based on the election outcome.
7. Effective Date
Unless the application requests an effective date such as the first of the month following the Commission’s resolution ordering establishment of the subsidiary district, the effective date is the date the Executive Officer records the Certificate of Completion.
8. Time Frame
The estimated time to complete the process from the time an application is submitted to LAFCo to the time of the completed protest hearing or protest hearing and election is 8 to 11 months.
9. Effective of Establishment of Subsidiary District
On and after the effective date of an order establishing a subsidiary district of a city, the City Council shall be designated as, and empowered to act as, ex officio of the board of directors of the district. The district shall continue in existence with all the powers, rights, duties, obligations, and functions provided for by the principal act, except for any provisions relating to the selection or removal of the members of the board of directors of the district.
The City becomes successor to all assets and liabilities and the district’s budget is distinct from the City budget and all revenues and expenditures are segregated for the purpose of sewer capital, operations, and maintenance.
Key Elements of the SMLAFCo Application
The City must prepare two key documents prior to submission of the SMLAFCo application: 1) a 5-year operating budget, and 2) a Capital Improvement Plan of EPASD’s infrastructure.
SMLAFCo will utilize these documents to evaluate whether the City has the capacity and resources to adequality provide sanitation services to the residents of East Palo Alto and portions of Menlo Park (either via contract or directly). It is estimated the costs associated with preparing the 5-year operating budget and the Capital Improvement Plan may be up to $60,000.
If the City Council provides direction to move forward, staff would utilize one of the City’s oncall consultants to complete the necessary tasks. On-call consulting agreements are already budgeted for so staff is not seeking additional budget authority at this time.
Study Session on July 26, 2022
At the Study Session on July 26, 2022, City staff will provide an overview of options outlined in Table 1, above. In addition, Rob Bartoli, SMLAFCo Executive Officer, will outline the process of establishing EPASD as a subsidiary of the City.
Fiscal Impact
An application to SMLAFCo would include the items in Table 2:
TABLE 2
COSTS ASSOCIATED WITH SMLAFCO APPLICATION ELEMENTS
Item Estimated Cost
Consultants to prepare the SMLAFCo application (5-year budget and Capital Improvement Plan)
$60,000
SMLAFCo fees to process the application $15,000
There would be additional costs if the subsidiary district process required an election.
Public Notice
The public was provided notice by making the agenda and report available on the City’s website and on a bulletin board located at City Hall: 2415 University Avenue, East Palo Alto.
Environmental
The action being considered does not constitute a “Project” within the meaning of the California Environmental Quality Act (CEQA), pursuant to CEQA Guideline section 15378 (b)(5), in that it is a government administrative activity that will not result in direct or indirect changes in the environment.
The process of establishing a subsidiary district is exempt from CEQA pursuant to Guideline Section 15320(b), Class 20 because establishment of the EPASD of a subsidiary district would not alter the geographic area in which sanitary sewer services are provided.
Attachments
1. City Letters to SMLAFCo dated May 5, 2022, and June 13, 2022
2. Final Municipal Services Review
3. Final Determinations of the Municipal Services Review
4. Detailed Chronology of City Council meetings and actions
5. Detailed Subsidiary District Process