REPORT ON CITIZEN
INITIATIVE TO
REPEAL WATER AND
WASTEWATER RATES
GROVERBEACH.ORG
Kristin Eriksson, Assistant City Manager
Robert Lomeli, City Attorney
Nick Szamet, Administrative Services Director
Greg Ray, Public Works Director
Rate Structure Background
GROVERBEACH.ORG
• December 11, 2023 – adoption of Water/Wastewater Rate Structure • Subsequent to Prop 218 Process
• Necessary for increased O&M costs and capital projects • March 2024 – Cost estimate increase for Central Coast Blue Project • April 22, 2024 - Council directed staff to withdraw from CCB project and JPA
• May 13, 2024 – City Council took action to reduce Water Rates to 2021 adopted levels
Initiative Background
GROVERBEACH.ORG
• January 8, 2024 – City received Notice of Intent for Initiative to Repeal Rate Structure
• January 23, 2024 – City Attorney provided Ballot Title & Summary
• March 11, 2024 – Proponents Submitted Petition Signatures • March 14, 2024 – City Clerk Prima Facie Count and Filing with County
• April 25, 2024 – City Clerk Certified the Petition
Initiative Background
GROVERBEACH.ORG
• May 13, 2024 – Council Considered Initiative Options
• Adopt proposed ordinance
• Adopt a resolution to call an election to submit the initiative to the voters
• Direct staff to provide a report within 30 days
Water System Impacts
GROVERBEACH.ORG
• Operations and Maintenance Funding Impacts
• Insufficient revenue to fund water system operations and maintenance beginning in FY 2026-27
• Lack of funding for recommended capital projects
• Options: Deplete reserve funds or reduce operations and maintenance costs
• O & M already reduced significantly due to limited income over the past 20 years • Reduction in water system reserves below required bond coverage • Could subject City to a mandatory rate increase to provide sufficient bond coverage
Water System Impacts
GROVERBEACH.ORG
• System Reliability Impacts
• Water system largely constructed in the 1960s
• Historically major maintenance was deferred due to a lack of sufficient funding
• Replacements and upgrades only occurred after system components failed
• 10-year CIP developed in 2010
• Begin long overdue maintenance and replacement of aging system components • Upsize mains, valves and pumps for existing and future development • Time period modified to 20 years to minimize ratepayer impacts Water System Impacts
GROVERBEACH.ORG
• Reduction in water rates proposed in citizen initiative and approved by the Council in May
• Near total loss of funding for water system capital improvements resulting in further delays of replacements and upgrades • Failures in recent years related to the aging water system components • Higher frequency of water system failures and resulting water service interruptions
• Need for delaying street projects to avoid cutting into freshly paved streets unless Council policy change on pavement cuts
Water System Impacts
GROVERBEACH.ORG
• 5-Year CIP Projects Delayed
• Water Main Zone Valves
• Well Facility Improvements
• 16th Street Booster Station pump and equipment upgrades • Water Meter Replacement Program
• Automated Meter Reading
• Upsizing Water Mains
• Nitrate Plant de-commissioning
• Reservoir Maintenance
Water System Impacts
GROVERBEACH.ORG
• Drought Preparedness and Growth Impacts.
• Loss of revenue would eliminate funding to identify and secure additional water supply
• During extended drought current water supply could be insufficient resulting in a need for severe cutbacks in water use
• Building permits and development projects have been approved but not yet built resulting in additional demand
• Further strains long-term supplies unless additional water secured • City's water demand may exceed its available supply by 2030 even during normal rainfall years
• No supply buffer available to address drought or water system emergencies Sewer System Impacts
GROVERBEACH.ORG
• Operations and Maintenance Funding Impacts
• Insufficient revenue to fund operations and maintenance beginning FY 2024-25
• Options: Deplete reserve funds below recommended values or reduce operations and maintenance costs
• O & M already reduced significantly due to limited income over the past 20 years • Sufficient funds to complete a portion of capacity upgrades to mains for existing and demands from approved development projects • Beyond FY 2024-25 - insufficient funds to complete any proposed capital projects
Sewer System Impacts
GROVERBEACH.ORG
• System Reliability Impacts
• Sewer system largely constructed in the 1960s
• Historically major maintenance was deferred due to a lack of sufficient funding
• Replacements and upgrades only occurred after system components failed
• 10-year CIP developed in 2010
• Begin long overdue maintenance and replacement of aging system components • Upsize mains and pumps for existing and future development • Time period modified to 20 years to minimize ratepayer impacts Sewer System Impacts
GROVERBEACH.ORG
• Reduction in sewer rates proposed in citizen initiative • Total loss of funding for capital improvements beyond FY 2024-25 resulting in further delays
• Failures in recent years related to the aging sewer system components • Higher frequency of sewer system failures and resulting overflows • Need for delaying street projects to avoid cutting into freshly paved streets unless Council policy change on pavement cuts
Sewer System Impacts
GROVERBEACH.ORG
• 5-Year CIP Projects Delayed
• Sewer Upgrade Projects
• Front Street Lift Station Upgrades
• South Oak Park Lift Station Upgrades
• Storm Drain Repair at Railroad Tracks
• Citywide Sewer Lining
• Measure K-14 Phase 17 - delayed for proposed sewer main upgrades Sewer System Impacts
GROVERBEACH.ORG
• Growth Impacts
• Total loss of funding for capital improvements beyond FY 2024-25 • Only a small number of sewer mains can be upgraded with remaining reserve funds
• Development projects resulting in sewer flows in excess of downstream sewer main capacity
• Either construct upgraded sewer mains themselves at a significant cost or delay advancing projects until there is sufficient funding from capital reserves • Will likely create a significant barrier for future development opportunities including both commercial and residential developments
Water Fund - Financial Impacts
GROVERBEACH.ORG
• Initiative impacts to Water Fund not as significant given previous Council action to reduce rates to 2021 rate structure • However, to build sufficient reserves in the Water Fund staff has eliminated planned capital projects except for valve replacement in FY 2024-25.
• Need to pay Pismo Beach for remaining preconstruction costs for Central Coast Blue project.
• 2021 rate structure provides for 4% increases in July 2024 and July 2025 before expiration of rate structure.
• Maintains system in current state without further investments in replacing critical infrastructure.
Wastewater Fund – Financial Impacts
GROVERBEACH.ORG
• Significant impacts to Wastewater Fund from initiative. • Council has maintained December 2023 rate structure for Wastewater Fund to fund critical sewer improvements.
• Initiative would revert to 2% rate increases in July 2024 and July 2025 before expiration of rate structure
• Depletion of revenue capacity of Wastewater Fund with fund insolvency by end of FY 2024-25 unless capital projects were reduced or eliminated.
• All capital expenditures would be eliminated to maintain sufficient reserves.
Additional Considerations - Financial Impacts
GROVERBEACH.ORG
• Ballot initiative financial impacts to both funds:
• The planned ballot initiative would negatively impact future financings as either fund meet coverage ratios required to for debt repayments. • Presently Council has authority to increase rates to December 2023 Rate Study, if needed.
• The total lost revenue capacity across Water and Wastewater is $13.5 million from the ballot initiative.
Possible Council Actions
GROVERBEACH.ORG
• Adopt the proposed ordinance, without alteration, thus reducing both water and wastewater rates to the structure adopted in 2021; or
• Adopt a resolution calling an election to submit the initiative measure to the voters at the next general municipal election on November 5, 2024.
Impartial Analysis
GROVERBEACH.ORG
• In response to City Council direction, the City Attorney has prepared an impartial analysis of the proposed initiative measure and its background.
• The impartial analysis also provides the legal effects of the initiative measure.