Agenda Item No. 8
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: February 24, 2025 FROM: Matthew Bronson, City Manager
PREPARED BY: Greg Ray, Public Works Director/City Engineer Nick Szamet, Administrative Services Director
SUBJECT: Sewer System Update
RECOMMENDATION
Receive an update on the status of the City’s sewer system including capital project needs and provide input and direction to staff.
BACKGROUND
The City’s sewer collection system consists of over 35 miles of gravity sewer mains, ranging from 6-inch to 12-inch in size, and three sewer pump stations. The majority of the sewer system was constructed between 1965 and 1966 as a result of a citywide sewer assessment district, making the system approximately 60 years old. Prior to construction of a City sewer system, properties in Grover Beach generally utilized private septic tank systems. Most properties in the city today are connected to City sewer except for numerous properties south of Farroll Road which remain largely served by private septic system though many of these properties will eventually connect to City sewer with the sewer ordinance adopted in February 2024.
In 1965, when the population was approximately 3,600 residents, the sewer mains were sized to adequately handle the estimated sewer flows at the time (0.29 million gallons per day or MGD) and accommodate future growth. The City has since added additional segments of sewer mains and pump stations to accommodate new development and to extend sewer service to areas south of Farroll Road. As part of operations and maintenance, the City has repaired mains and sewer manholes as they have failed and has made necessary repairs to existing sewer pump stations.
Sewer System Master Plans and Recommended Upgrades
In 2006, the City hired Garing, Taylor and Associates to prepare a comprehensive Sewer Master Plan and provide recommendations for repairs and upgrades. At that time, the City’s population had grown to 13,248 residents with an estimated sewer flow of 1.06 MGD and many of the sewer mains built in the 1960s were at or near capacity. The 2006 Master Plan recommended upgrades to numerous sewer mains and proposed eliminating three sewer pump stations by constructing a new gravity main south of Farroll Road. The estimated cost of the recommended improvements was $1,465,000.
Between 2006 and 2018, the City completed some of the recommended improvements and constructed a sewer main south of Farroll Road, thereby eliminating three of the City’s six sewer pump stations. Grover Beach voters in 2014 approved Measure K-14, a bond measure to rehabilitate local streets, and subsequently in 2015 the Council prioritized street projects to ensure that sewer main upgrades recommended in the 2006 Master Plan were completed prior to street improvements. The Council has reiterated this policy direction to staff since then.
Staff Report: Sewer System Update Page 2
February 24, 2025
In 2018, the City hired MKN and Associates to prepare an updated Sewer Master Plan. MKN and Associates developed a computerized model of the City's sewer system and input current measured flows as well as estimated future flows based on population growth predictions to determine the need for system upgrades and evaluate new development’s fair share of recommended system upgrades. In 2018, the City's population was 13,560 residents with an average daily sewer flow measured at 730,016 MGD. The drop in average daily sewer flow compared to 2006 is likely related to water conservation measures enacted by the City as well as the difference between estimated flows in 2006 and measured flows in 2018. According to the 2018 Master Plan, average daily sewer flows are projected to increase to 1.13 MGD by 2050.
The 2018 Master Plan identified $7,123,000 in recommended operational and system upgrades, including $4,563,000 for addressing flow and operational deficiencies in the existing system and $2,560,000 for addressing estimated future flows. Attachment 1 is a summary of the 2018 estimated costs for recommended improvements. Attachments 2, 3 and 4 are exhibits from the Sewer Master Plan showing the locations of recommended sewer main and pump station upgrades related to existing flow deficiencies, future flow deficiencies, and future alternative flow deficiencies which are a result of anticipated septic system conversions south of Farroll Road.
Sewer System Capital Improvement Program
The City’s current Capital Improvement Program (CIP) related to the sewer system is based on recommendations in the 2018 Sewer Master Plan though the timing and prioritization of projects has been modified to account for changes in development since 2018. As an example, sewer main improvements in South 4th Street, North 9th Street and Atlantic City Avenue identified as project EX-GSCIP-5 were originally a lower-level priority, but development of the hotel at 950 El Camino Real requires that deficiencies related to existing sewer flows on impacted sewer mains along with impacts from the new hotel be addressed as a priority. Staff would note that the developer of the hotel property is paying its respective share of this project cost as part of the Development Impact Fees for this development as is done with other developments.
In 2023, the City received bids for construction of CIP Project 5002, which corresponds with a portion of Master Plan project EX-GSCIP-5 and all of Master Plan projects EX-GSCIP-6 and FGSCIP-3. The lowest bid received was $4,106,446 which was higher than expected with construction cost increases. Using this cost as the basis and assuming roughly 2% annual inflation from 2023 to 2028 (the middle year of the five-year Capital Improvement Program), the estimated total cost of improvements identified in the Master Plan has now increased to $15,600,000. Approximately $400,000 of these improvements have been completed, which brings the total CIP cost estimate to approximately $15,000,000.
Attachment 5 shows the recommended CIP based on the 2018 Sewer Master Plan for the next five years. The primary goal of these CIP improvements is to correct existing sewer main deficiencies in areas downstream of new construction and to complete sewer main work ahead of improvements to local streets as part of the Measure K-14 Street Rehabilitation Program.
Attachment 6 is a map showing recommended CIP improvements on future streets that are part of the Measure K-14 program. Given the need to complete numerous improvements well ahead of the ability of sewer rate revenue to fund these improvements directly, staff recommends completing several of these improvements at the same time by issuing a revenue bond. Bond financing has been recommended by the City’s financial advisor given the City’s strong credit rating similar to the water revenue bond issued in 2020 for water system improvements. The recommended projects that would be part of a sewer bond are identified in blue with projects to be funded by reserves identified in purple.
Staff Report: Sewer System Update Page 3
February 24, 2025
Sewer System Funding Needs
Attachment 7 is an initial estimate of sewer system funding needs in the Sewer Enterprise Fund including estimated operation and maintenance costs and capital improvement expenditures for the current FY 2024-25. Staff has assumed no additional capital project expenditures beyond FY 2024-25 given revenue limitations from passage of Measure G-24 which repealed sewer rates approved by the Council in December 2023 to the previous rates established in 2021. The row labeled “Target Reserves” is based on the City's current reserve policy for the Wastewater Fund which includes six months of operating expenses plus $500,000 for unforeseen capital expenses.
This policy mirrors best practices in utility fund management. The row labeled “Above (below) Target” shows the impact of the rates assuming no capital improvement projects are completed over this five-year period.
Even without expending funds on needed capital projects, this initial estimate projects that the Sewer Enterprise Fund will fall below target reserve levels by FY 2028-29. Under the 2021 rate structure, one additional rate increase of 2% is scheduled to take effect July 1, 2025 but revenues generated by this increase will not provide sufficient funding to implement the capital program outlined in Attachment 5. The current rate structure leads to diminished reserves and lack of funding for needed infrastructure improvements, which would impact both the existing and future sewer system and does not maintain fiscal solvency for the Sewer Fund. The inability to make these future improvements to the City’s sewer system could have significant impacts on community health and safety needs and further delay implementation of Measure K-14 projects.
Given these issues with the existing 2021 rate structure, staff has worked with the City’s utility rate consultant Tuckfield and Associates following passage of Measure G-24 to carry out a new sewer rate study including a new rate structure that addresses current and future sewer system needs. This rate study will be completed over the next month and as part of this agenda item, staff is seeking Council direction to present the results of the rate study to the Council on March 24 along with the Proposition 218 noticing process for a new rate structure.
FISCAL IMPACT
There are no immediate fiscal impacts associated with this update. However, pending Council direction, staff will present the results of a new sewer rate study on March 24 which would include additional information on related fiscal impacts. This agenda item would include a comprehensive financial plan for the sewer system and address potential grant funding available for sewer projects such as Community Development Block Grant funding.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Receive an update on the status of the City’s sewer system including capital project needs and provide input and direction to staff; or
2. Provide alternative direction to staff.
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.
Staff Report: Sewer System Update Page 4
February 24, 2025
Attachments
1. Table 9-3: Sewer Master Plan Cost Summary
2. Figure 9.1: CIP Projects for Existing System Deficiencies
3. Figure 9.2: CIP Projects for Future System Deficiencies
4. Figure 9.3: CIP Projects for Future Alternative System Deficiencies
5. Sewer System Capital Expenditure Recommendations
6. Map of Sewer Projects on Measure K-14 Streets
7. Initial Wastewater Financial Plan
Attachment 1
Attachment 2
Attachment 3
Attachment 4
Attachment 5
Attachment 6
Attachment 7