DATE: March 24, 2025
TO: President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, District Manager
FROM: Nate Cruz, Finance Director
Andrew Brozyna, Public Work Director/City Engineer
Zaheed Danish, Public Works Maintenance Manager
DEPARTMENT: Finance
Public Works
SUBJECT: REVIEW OF PROJECTED WASTEWATER RATES FOR FY
2025-2026 to FY 2029-2030 AND POLICY DIRECTION FOR
RATE NOTIFICATION UNDER PROPOSITION 218 AND AB
2257
RECOMMENDATION
It is recommended that the Estero Municipal Improvement District (EMID) Board of Directors take the following actions by Minute Order:
1. Accept this report regarding Wastewater Rates based upon the attached Draft Wastewater Rate Study Update Results Memo dated March 11, 2025, prepared by Bartle Wells Associates (BWA); and
2. Approve the wastewater rate setting procedures included in this staff report as Attachment 2 – Rate Setting Procedures which incorporate and implement the requirements contained in Proposition 218 and the procedures by which property owners are required to exhaust administrative remedies and record principles as set forth in Government Code section 53759.1 and 53759.2 (AB 2257); and
3. Provide direction on the issuance of a notice to all rate payers under the requirements of Proposition 218 and AB 2257 for a public hearing to be held on June 2, 2025, regarding Wastewater Rates for FY 2025-2026 to FY 2029-2030.
EXECUTIVE SUMMARY
EMID is responsible for its share of operating and maintenance costs that San Mateo (as the lead agency and the contracting party) incurs treating the District’s wastewater, as well as 24% of the capital improvement costs and 12% of program management costs incurred as part of the Clean Water Program (CWP), a 10-year comprehensive capital improvement project initiated in 2014 to replace aging infrastructure and meet regulatory requirements at the Wastewater Treatment Plant (WWTP). The District’s total share of the project is approximately $171.9 million. The District also has operational costs associated with the wastewater enterprise services.
During the last five-year rate cycle, the District increased rates at 14.25% per year in FY 2021 through FY 2023, 3% in FY 2024, and 2% in FY 2025. For the new five-year rate cycle, it is recommended to hold the current rate for FY 2025-2026, and increase the rate by 2% annually in FY 2026-2027 through FY 2029-2030.
BACKGROUND/ANALYSIS
There are approximately 13,984 wastewater accounts serviced by the District. The majority are residential with the remainder consisting of commercial and institutional accounts.
EMID has historically set rates on a “Pay As You Go” basis, meaning that rates are increased only based upon budgeted current operating expenditures in order to meet minimum operations reserve requirements equal to 25% of annual operating expenditures, and $2 million for unanticipated capital expenditures. The WWTP is expected to incur additional costs as discussed in the City Council meeting of March 17, 2025, and the reserves are adequate to support the costs.
The rates that residential wastewater customers pay are based on a fixed charge for the category or type of residential unit (single family, townhouse/duplex, or apartment/condominium). Commercial customers are charged a variable rate based upon the amount of water consumed by their business and the business wastewater strength category.
The operational costs for wastewater treatment services are borne jointly by the District and the City of San Mateo via the San Mateo Wastewater Treatment Plant Joint Exercise of Powers Agreement executed in June 1974. Those costs include recurring operations and maintenance, as well as capital improvement costs.
The City of San Mateo and EMID are expanding the jointly owned WWTP at an estimated cost of about $748 million, of which the District is responsible for approximately $171.9 million. This is in addition to local capital projects for the District’s own wastewater collection system. The wastewater enterprise revenue model is designed to fund collection system capital expenditures through annual transfers from the operating fund to the capital improvement fund of $16,000,000 in FY 2025-2026, $3,500,000 in FY 2026-2027 through FY 2031-2032 and $2,500,000 annually through the remainder of the 15-year term. The details of the capital improvement projects are detailed in other reports in this agenda packet.
In addition to the joint cost of the WWTP, EMID has operational and maintenance costs related to wastewater, local wastewater collection system operations, and capital improvement projects.
As of June 2020, to fund the anticipated costs of the WWTP CWP improvements, the EMID Board approved 5 years of wastewater rate increases: three 14.25% per year increases in FY 2020-2021 through FY 2022-2023, a 10% wastewater rate increase in FY 2023-2024, and a 2% increase in FY 2024-2025. A mid term rate review analysis showed that the District had adequate financing capacity for projected debt issuances in the next several years and recommended spreading the remaining rate increases out over a longer period. Thus, the EMID Board reduced the 10% increase in FY 2023- 2024 to 3% and implemented the final adopted 2% increase in FY 2024-2025.
For the new five-year rate cycle, it is recommended to hold the FY 2024-2025 rate in FY 2025-2026, and implement 2% annual increases in FY 2026-2027 through FY 2029- 2030. As in previous five-year rate cycles, it is also recommended to continue to review the rates annually to ensure they remain aligned with the cost of service.
Wastewater Rate Impact
Single Family Residential and Multi-Family Residential class customers are billed using a flat rate. Commercial customers are billed at a variable volumetric rate based on water usage and strength classification. Projections for the need for 2% increases are included in Table 10 from the BWA Rate Study Results Memo (Attachment 1).
Water/Wastewater Rate Assistance Program (W/WRAP)
In Rate Year 2020-2021, the District Board approved an assistance program for customers whose income also qualified them for Pacific Gas and Electric Company's California Alternate Rates for Energy (CARE) discount program. The cost to EMID of providing the W/WRAP discount is paid by non-rate sources of revenue such as fines and penalties, to maintain compliance with California Proposition 218. Therefore, water rates are unaffected by the costs of the program.
The cost of the W/WRAP, based on current enrollment of 34 customers, is $6,120 per year for the Wastewater Enterprise. Through the first eight months of FY 2024, revenue from delinquent wastewater payments totaled $27,000, which is sufficient to fund the program. Staff will continue to monitor the funding sources available for the program.
The W/WRAP is authorized by the EMID Board on an annual basis, and authorization to continue the program will be an action item on the agenda with the consideration of rates in June.
Rate Survey
Table 10
City of Foster City / Estero Municipal Improvement District Projected Wastewater Rate Impacts
Current
FY2025 FY2026 FY2027 FY2028 FY2029 FY2030
% Rate Increase 0.00% 2.00% 2.00% 2.00% 2.00%
Residential (flat monthly rate)
Single Family $133.49 $133.49 $136.16 $138.88 $141.66 $144.49 Increase (Decrease) 0.00 2.67 2.72 2.78 2.83
Townhouse/Duplex $112.13 $112.13 $114.37 $116.66 $118.99 $121.37 Increase (Decrease) 0.00 2.24 2.29 2.33 2.38
Apartment/Condominium (Pools w/ Restrooms) $112.13 $112.13 $114.37 $116.66 $118.99 $121.37 Increase (Decrease) 0.00 2.24 2.29 2.33 2.38
Commercial (rate per ccf of water use)
High Strength $24.26 $24.26 $24.75 $25.25 $25.76 $26.28 Increase (Decrease) per ccf 0.00 0.49 0.50 0.51 0.52
Medium/Domestic Strength $8.53 $8.53 $8.70 $8.87 $9.05 $9.23 Increase (Decrease) per ccf 0.00 0.17 0.17 0.18 0.18
Low Strength $5.61 $5.61 $5.72 $5.83 $5.95 $6.07
Increase (Decrease) per ccf 0.00 0.11 0.11 0.12 0.12
Projected - Fiscal Year Ending June 30Projected Rates
A survey of communities along the San Francisco Peninsula was conducted to compare the District’s typical residential wastewater bill with neighboring communities.
The results of the survey are summarized in the Wastewater Rate Survey Comparison Chart that appears as Appendix A in Attachment 1. The average monthly bill among comparator agencies is $122.39. The District’s average rate is $133.49 per month, or about 9% higher than the average.
Operational Costs
BWA projections for operations and maintenance costs assume 4.0% annual increases in personnel costs, and an allowance for additional staff positions that may be needed over the 5-year term to support wastewater enterprise projects subject to Council approval. Annual increases of 2.5% in all other costs have been assumed to keep revenues in line with operating expenses.
Table 4 below summarizes the operating expenses of the enterprise. Projected operating expenses are expected to increase over the next five years by about 6% annually. Projections of the District’s fair share of WWTP operating and maintenance (O&M) costs assume a District flow rate to the WWTP of 21%.
Public Hearing Notification
As identified in the second Recommended Action, staff has prepared the Rate Setting Procedures (Attachment 2) to document the process that EMID will follow leading up to and during the public hearing to consider approval of the updated wastewater rates.
Those Rate Setting Procedures are summarized below.
In past rate setting years, EMID has followed the provisions of Proposition 218 to provide rate payers with information regarding the public hearing to set rates.
Proposition 218, approved in 1996, established a process for public notification when
increasing property related fees or charges, including water and wastewater rates. The notification requires a minimum 45-day period for review and opportunity to protest in writing prior to the close of the public hearing. If written protests are received by a majority of affected parcels prior to the close of the public hearing, then the rate change may not be implemented.
In addition to ongoing compliance with the requirements of Proposition 218, the Rate Setting Procedures also incorporate the optional requirements under AB 2257(Government Code sections 53759.1 and 53759.2, effective January 1, 2025, AB 2257). Under AB 2257, EMID is authorized to establish a supplemental process intended to provide an opportunity for property owners to submit a written objection regarding a new or increased wastewater rate to EMID's attention early in the rate consideration process. Accordingly, this provides an opportunity for EMID to address or resolve any objections before the EMID Board makes a final decision on whether to adopt a proposed rate pursuant to Proposition 218. Unlike written protests under Proposition 218, written objections under AB 2257 must specify the grounds for alleging the proposed rates do not comply with Proposition 218, among other requirements.
Since written objections are required to provide more detail and be submitted earlier than written protests, written objections will also serve as written protests; however, written protests will not serve as written objections.
Instituting AB 2257 prohibits a person or entity from bringing a judicial action or proceeding alleging noncompliance with Proposition 218 (Article XIII D of the California Constitution) for those wastewater rates, unless that person or entity has timely submitted to EMID a written objection to that rate that specifies the grounds for alleging noncompliance with Proposition 218.
Based on the Boards’ direction, staff will prepare a notice that will be mailed to all ratepayers on or before March 31, 2025, in compliance with the provisions of Proposition 218 and AB 2257. Written objections must be received by EMID by May 15, 2025. EMID staff will consider each timely written objection and provide a written response that will be published with the agenda for the public hearing of June 2, 2025.
Written protests must be received by the close of the public hearing.
A public hearing on and adoption of the proposed rates will be agendized for the June 2, 2025 EMID Board of Directors regular meeting in conjunction with the FY 2025-2026 Annual Budget Public Hearing. If adopted, the new rates will become effective July 1, 2025. It the opinion of District staff that conservative assumptions have been employed in the creation of the attached rate models and that the rates proposed herein are the maximum rates that would be recommended. At the public hearing, the EMID Board would have the option to adopt rates equal to or lower than what is noticed to rate payers under Proposition 218, but it may not increase the rates above what is noticed.
CEQA
Not Applicable
FISCAL IMPACT
There is no impact to receiving this report. Further, wastewater collection service costs in Foster City are covered by the rates paid by the users as described in this staff report and its attachment. The costs of these services do not impact the City budget or the General Fund.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Innovation and Sustainability
ATTACHMENTS:
Attachment 1 – Bartle Wells Associates Wastewater Rate Study Update Results Memo dated March 11, 2025
Attachment 2 – Rate Setting Procedures