STAFF REPORT
City Council Discussion Item
DATE: May 6, 2024
TO: Honorable Mayor and Council Members
FROM: Brendan Byrd, Public Works Director/City Engineer Aaron Felmlee, Finance Director
THROUGH: Merritt Perry, City Manager
SUBJECT: Presentation of Updated Draft Proposed Water and Wastewater 5-year Rate Adjustments
STAFF RECOMMENDATION:
Receive updated draft recommended water and wastewater 5-year rate adjustments and seek council direction prior to beginning Proposition 218 noticing.
EXECUTIVE SUMMARY:
At the April 15th regular City Council meeting staff presented a draft approach to adjusting water and wastewater user rates over the next five years, beginning July 1, 2024. The initial approach was developed focusing on larger initial year increases, largely to play ‘catch up’ due to the lack of rate adjustments over the past 13 years, with smaller inflationary-level adjustments in the later years.
Among other criteria, the approach focused on maintaining $3- and $5-million dollars in the water and wastewater capital reserve funds, funds that could be used for unforeseen capital improvement needs over the planning timeline. The rate increase percentages presented at the April 15th meeting are shown in the Table below.
Table 1. Proposed rate increases presented at April 15th Council meeting.
Year % Water Increase % Sewer Increase
FY 24/25 60% 40%
FY 25/26 5% 25%
FY 26/27 5% 10%
FY 27/28 3% 3%
FY 28/29 3% 3%
After much discussion on the rates and the financial model assumptions, the Council directed staff to review the proposed rate adjustments and determine if a rate adjustment approach could be developed that distributed the cost increases more evenly over the five year planning timeline.
Based on that direction, the resulting modified proposed rate increase percentages are shown in the Table below.
Discussion Item 3d
Table 2. Updated proposed rate increases.
Year % Water Increase % Sewer Increase
FY 24/25 20% 30%
FY 25/26 20% 22.5%
FY 26/27 20% 22.5%
FY 27/28 15% 10%
FY 28/29 5% 4%
As shown above, while not fully evenly distributed throughout the years, staff were able to spread the cost somewhat evenly through years 1-4. In the fifth year, planned projects have been completed or financed and the capital reserve targets are being met, so there is not a projected need or reason to spread the increases into year 5. To achieve the increases as shown above, staff made the following adjustments to the financial model:
1. Reduce the capital reserve target in water and wastewater from $3- and $5-million to $2- and $4-million, respectively;
2. Defer larger water system capital improvements projects by one year, including the 12th Street, Downtown, and Drake Hill water main replacement projects;
3. Defer the CCF Electrical and Meadow Lane water main replacement projects by two years.
It should be noted that the only mechanism that could be used at this point to further spread out the cost increases would be to further reduce the capital reserve fund target amounts, to remove projects from the City’s Capital Improvement Program (or further delay projects), or to debt-finance more projects. At this time, staff does not recommend any of these approaches.
Shown below are Figures 1 and 2, which depict current-year average and minimum monthly water and wastewater rates, in addition to the rates resulting from the proposed increases in Table 2.
Figure 1. Average and minimum project monthly water bills.
Discussion Item 3d
Figure 2. Average and minimum project monthly wastewater bills.
Table 3 below shows the average total user bill in the current year, and over the next 5 years of the proposed adjustments. Overall, as per the Council’s direction the annual increases are more uniform, and continue further into the planning period.
Table 3. Updated average monthly user bills for water and wastewater.
Year Average Water Bill Average Wastewater
Bill
Average Total Bill
Current $28.74 $47.36 $76.10
FY 24/25 $34.49 $61.57 $96.06
FY 25/26 $41.39 $75.42 $116.81
FY 26/27 $49.66 $92.39 $142.05
FY 27/28 $57.11 $101.63 $158.74
FY 28/29 $59.97 $105.69 $166.66
The other item that staff received direction from the Council on were the proposed increases to the water and wastewater capital connection fees. As presented at the April 15th meeting, staff proposed to adjust both the water and wastewater capital connection fees by the cumulative California Construction Cost Index since 2012, which would have been a 70% increase to connection fees.
Staff also proposed to update the Living Unit Equivalent (LUE) values used by the City in the past, to better align with current American Waterworks Association (AWWA) standards. With the updated direction from Council, staff are now proposing to take the proposed total increase for each connection, and evenly phase in the increase annually over the five year planning period. Tables 4 and 5 below shows the updated proposed connection fees.
Discussion Item 3d
Table 4. Updated proposed annual water system connection fees.
Meter
Size
Current FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29
5/8”
by ¾”
$2,165.00 $2,469.60 $2,774.20 $3,078.80 $3,383.40 $3,688.00 1” $5,542.00 $6,277.40 $7,012.80 $7,748.20 $8,483.60 $9,219.00
1.5” $12,470.00 $13,663.60 $14,857.20 $16,050.80 $17,244.40 $18,438.00 2” $22,170.00 $23,636.20 $25,102.40 $26,568.60 $28,034.80 $29,501.00 3” $49,882.00 $51,706.00 $53,530.00 $55,354.00 $57,178.00 $59,002.00 4” $88,678.00 $89,380.60 $90,083.20 $90,785.80 $91,488.40 $92,191.00 6” $199,526.00 $184,382.00 $184,382.00 $184,382.00 $184,382.00 $184,382.00 Table 5. Updated proposed annual wastewater system connection fees.
Meter Size Current FY 24/25 FY 25/26 FY 26/27 FY 27/28 FY 28/29 5/8” by ¾” $4,445 $5,070 $5,695 $6,321 $6,946 $7,571
Cost/Additional
Fixture Unit $318 $363 $407 $452 $496 $541
With this updated analysis, staff are seeking concurrence or further comments from the Council on how to move forward. If the Council concurs with the updated approach, staff would proceed to have Jacobs update and finalize the Rate Study, and produce the informational mailers that will be sent to residents and property owners as per the prop 218 process. With concurrence from the Council, staff believes that the mailers could be issued by mid-May, and staff could conduct the 218 hearing on July 1st. Should the Council have further comment requiring revisions to the proposed rate adjustments, the prop 218 hearing process would be further delayed into the coming fiscal year.
RECOMMENDED COUNCIL ACTION:
1. Receive staff presentation and review Council questions with staff
2. Open Public Comment
3. Close Public Comment
4. Provide direction to staff to finalize the Water and Wastewater rate study with updated rate increase structure and perform the prop 218 process Discussion Item 3e
STAFF REPORT
City Council Discussion Item
DATE: May 2, 2024
TO: Honorable Mayor and City Council Members
FROM: Merritt Perry, City Manager
SUBJECT: Review and Provide Direction to Staff Regarding the Transaction and Use Tax Measure Ballot Title and Ballot Question
STAFF RECOMMENDATION:
Staff recommends that the Council review options for the ballot summary for the proposed transaction and use tax measure and provide direction.
EXECUTIVE SUMMARY:
At the regular meeting of the City Council on April 15, 2024, the Council reviewed a draft ordinance that, if submitted by the Council to and approved by the voters at the November 2024 general election, would authorize an increase in the City’s existing transaction and use tax from 0.75% to 1.5%. The Council also reviewed a draft resolution that, if adopted by the Council at a future meeting, would formally propose the ordinance to the voters and request that the election be consolidated with the County administered general election.
As part of the Resolution, the Council must determine the title of the measure and the question that will appear on the ballot.
The Council has some discretion in drafting a ballot title and question provided that the following requirements are met:
1. The ballot questions shall be in the following form: “Shall the measure [stating the nature thereof] be adopted?”
2. The statement of the measure shall be a true and impartial synopsis of the purpose of the proposed measure and shall be in language that is neither argumentative nor likely to create prejudice for or against the measure.
3. If the proposed measure imposes a tax or raises the rate of a tax, the ballot shall include in the statement of the measure to be voted on the amount of money to be raised annually and the rate and duration of the tax to be levied.
4. The ballot question may not exceed 75 words.
For background, the following were approved by the Council for Measure E (2016) and Measure G (2020):
Measure E:
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Ballot Question: To protect and maintain essential City services, including increasing and restoring police officers and programs, repairing aging/deteriorating streets and potholes, parks maintenance, and programs for youth and seniors, shall the City of Fortuna establish a 3/4¢ sales tax, sun setting in 8 years providing approximately $1,200,000 annually, requiring independent annual financial audits and a Community Oversight Committee, with all funds remaining in Fortuna? Measure G:
Ballot Question: Shall the measure to extend the current ¾¢ transaction and use tax for an additional 8 years beyond the March 31, 2025 expiration date to provide approximately $1,400,000 annually to fund, maintain and improve essential services, including police services; nuisance abatement; streets, sidewalks, and drainage; parks maintenance; and programs for youth and seniors; and requiring independent annual financial audits and a community oversight committee, with all funds remaining in Fortuna, be adopted?
The following are proposed options for the Council to review and provide direction to staff. With the Council’s input and direction, staff will incorporate into the resolution to be adopted at a regular meeting.
Option A: (69 words)
Essential Services Supplemental Funding Measure
Shall the measure increasing the existing transaction and use tax to 1.5% through March 31, 2033 (unless sooner repealed), to provide an additional $1.8 million in annual revenue for essential services, including police services; nuisance abatement; streets, sidewalks, and drainage; park acquisition; and programs for youth and seniors; and requiring an independent audit, and community oversight by the Measure E Committee, with all funds remaining in Fortuna, be adopted? Yes
No
Option B: (69 words)
Essential Services Supplemental Funding Measure
To improve and maintain essential services, including police services; nuisance abatement; streets, sidewalks, and drainage; park acquisition; and programs for youth and seniors; shall the measure increasing the existing transaction and use tax to 1.5% through March 31, 2033 (unless sooner repealed), providing an additional $1.8 million in revenue, requiring an independent audit, and community oversight by the Measure E Committee, with all funds remaining in Fortuna, be adopted? Yes
No
Discussion Item 3e
RECOMMENDED COUNCIL ACTION:
1. Receive staff presentation and review Council questions with staff;
2. Receive public comment; and
3. Review the draft ballot questions and provide direction to staff as appropriate.