EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: October 4, 2022
TO: Honorable Mayor and Members of the City Council
VIA: Patrick Heisinger, Interim City Manager
BY: Patrick Heisinger, Interim City Manager
SUBJECT: Consideration of Applying to SMLAFCo to Request the East Palo Alto Sanitary District (EPASD) become a Subsidiary District of the City of East Palo Alto Recommendation
It is recommended that the City Council adopt Resolution of Application authorizing:
1. Submission of an application to the San Mateo Local Agency Formation Commission (SMLAFCo) requesting that the Commission take proceedings to establish the East Palo Alto Sanitary District (EPASD) as a subsidiary district of the City; and Expending up to $15,000 from the City’s General Fund Reserve for processing fees.
Background
On July 26, 2022, after a study session on the next steps following SMLAFCo’s adoption of the Municipal Service Review (MSR) for the City of East Palo Alto (City), EPASD, and West Bay Sanitary District, the City Council directed staff to take the necessary actions to draft the application to SMLAFCo and return to the City Council with the draft application and a resolution that, if adopted, would initiate the subsidiary district process. This action was one of the recommendations in the SMLAFCo MSR and the culmination of fifteen (15) public meetings held by the City and SMLAFCo, as well as four intergovermental committee meetings held by the City and EPASD over a two-year period. Please see Attachment 2 for more information and links to meeting documentation (or agendas?) and relevant reports.
The purpose of this staff report is to provide the City Council with information necessary to consider the recommended actions.
Analysis
Subsidiary District Criteria
The EPASD is an independent special district formed in 1939 pursuant to the Sanitary District Act of 1923 (Health & Safety Code §6420) to provide sewer services to increased development in what is now the City of East Palo Alto and portions of City of Menlo Park. The Cortese-KnoxHertzberg Local Government Reorganization Act of 2000 (Government Code Sections 56000 and 57000) (CKH) governs the reorganization of cities and special districts. CKH includes provisions for establishing an independent special district as a subsidiary district of a City, :
"Subsidiary district" means a district in which a city council is designated as, and empowered to act as, the ex officio board of directors of the district. An independent special district can be established as a subsidiary district of a City if either the entire territory of the district is within city boundaries or a portion or portions of the territory of the district are within the city boundaries as long as the territory within the city is at least 70 percent or more of the district land area and contains 70 percent or more of the number of registered voters who reside within the district as shown on the voters' register in the office of the county clerk or registrar of voters. (Section 57105) Both of these criteria are met in the case of EPASD and the City.
On and after the effective date of an order establishing a district as a subsidiary district of a city, the city council shall be designated as, and empowered to act as, ex officio 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. (Section 57534)
While it would be governed by the city council, the district would continue to exist as separate entity and all assets and liabilities, revenues and expenditures would be segregated for the purpose of sanitary sewer service.
Subsidiary District Process
CKH establishes a process for applying to the SMLAFCo to establish EPASD as a subsidiary district of the City. The process requires a resolution of application, application form, and plan for service that includes detailed information regarding how services will be provided and funded, as well as processing fees. In summary, once the application is submitted, the SMLAFCo notifies affected agencies, publishes notice of the hearing at which the SMLAFCo considers the Executive Officer’s report, as well as oral and written comments. If approved, the SMLAFCo schedules a protest hearing at which the SMLAFCo may receive written protest from landowners or voters with the EPASD boundaries. At the conclusion of the hearing, CKH requires that the SMLAFCo take one of the following actions: a) if less than 25% protest from either registered voters or landowners, order the establishment of the subsidiary district; b) if 25% or more of either registered voters or landowners submit valid written protest, the matter must be placed on the ballot and pass by simple majority of registered voters residing in EPASD boundaries.
Subsidiary District Application Materials
SMLAFCo application materials include the Resolution of Application, SMLAFCo application, Plan for Providing Services and SMLAFCo Fees. The following summarizes the Resolution of Application and SMLAFCo application. The Plan for Providing Service is discussed in greater detail as it represents recommended system improvements, revenue and expenses, funding sources and impact on sewer service charges if the subsidiary district is established. Staff prepared the Resolution, complete with two exhibits:
• Exhibit A - SMLAFCo Application
• Exhibit B - Plan for Providing Service
Resolution of Application
The attached Resolution of Application (Attachment 1) includes a request that SMLAFCo initiate and conduct proceedings to establish the EPASD as a subsidiary district of the City and directs that the City Manager is authorized to make necessary amendments to the Application and Plan for Providing Service as necessary in course of the SMLAFCo process.
Application to Establish EPASD as a Subsidiary District of the City The completed application responds to requests for information from SMLAFCo concerning the stated reason for the application, land area of the district, land use in the territory and California Environmental Quality Act findings.
The stated reason is as follows: The reason for the proposal is to transfer governance and operation of sanitary sewer service to the City of East Palo Alto in the form of a subsidiary district to provide for more efficient operation and coordinated planning of sewer service, infrastructure and capacity to accommodate planned growth and to improve transparency, accountability and environmental health to meet the current and future needs of all District ratepayers.
The CEQA finding is as follows: The LAFCo application is exempt from the California Environmental Quality Act (CEQA) under Section 15320 of State CEQA Guidelines because it consists of establishment of a subsidiary district, which does not change the geographical area in which previously existing powers are exercised.
Presentation to the City Council on October 4, 2022
The City’s consultant, Freyer and Laureta, who has extensive experience working for EPASD will present the plan for providing service, 5-Year Operating/Capital Improvement Plan as well as other information that if accepted by the City Council, will be included in the City’s application to SMLAFCo. Freyer and Laureta will present this information to the City Council on October 4, 2022.
Please see the comprehensive report completed by Freyer and Laureta, which is Attachment 3, titled “Sanitary Sewer Capital Improvement and Operation Plan.” Please note, data in the Plan for Providing Service are based on publicly available documents such as the MSR, EPASD budget, audit, master plans, and rate studies. The EPASD is in the process of televising the sewer system and the completion of televising will further inform recommended system improvements.
Next Steps – Subsidiary District Process
The process for establishing a subsidiary district is contained is Government Code Sections 56000 and 57000. Attachment 4 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.
Fiscal Impact
The City would accrue costs if this process advances. For example, SMLAFCo fees that are based on actual cost (estimated between $12,000 to $15,000); estimated election costs (if required) have yet to be calculated by the Elections Office, and State Board of Equalization filing fees of $300. Staff can provide the City Council with an update on potential costs when more information is known.
Staff’s recommendation includes authority for the Interim City Manager to spend up to $15,000 from the City’s General Fund Reserve on fees that may be required by SMLAFCo.
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 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
A. Resolution w Exhibits A and B
B. City Council Actions to Date
C. Report by Freyer & Laureta
D. Detailed Subsidiary Process