CityCouncil_RegularSession_Attachments_03_21_2023 — Milpitas City Council, March 21, 2023 (part 2 of 3)

INTRODUCTION

This Housing Successor Annual Report (“Report”) addresses the requirements of California Health and Safety Code Section 34176.1(f) regarding the Low and Moderate Income Housing Asset Fund (“LMIHAF”). This Report outlines the financial and housing covenant details of the Milpitas Housing Authority (“Housing Successor”) for 2021-22 (the “Fiscal Year”). The purpose of this Report is to provide the governing body of the Housing Successor an annual report on the housing assets and activities of the Housing Successor under Part 1.85, Division 24 of the California Health and Safety Code, in particular sections 34176 and 34176.1 (“Dissolution Law”).

This report includes discussion o n the deposits to, ending balance of, and expenditures from the LMIHAF. A description of the Housing Successor’s assets, and any transfers of assets to other housing successor agencies are addressed as well. The report also discusses the Housing Successor ’s current projects, acquisitions of any real property since February 1, 2012, or any outstanding obligations. Finally, as required by law, three separate tests are discussed – the income test, senior housing test, and excess surplus test.

The following Report is based upon information prepared by Housing Successor staff and conforms with Sections 1 through 13, of Section 34176.1(f) of the Dissolution Law.

In addition this Report and the former redevelopment agency’s pre -dissolution Implementation Plans a re to be made available to the public on the City’s website. (http://www.ci.milpitas.ca.gov)

I. AMOUNT DEPOSITED INTO LMIHAF

This section provides the total amount of funds deposited into the LMIHAF during the Fiscal Year. Any amounts deposited for item s listed on the Recognized Obligation Payment Schedule (“ROPS”) must be distinguished from the other amounts deposited.

Revenues (amount deposit to the LMIHAF):

Loan repayments $188,350 Rental/lease income $100,509 Interest income $407,911 Total: $696,770

A total of $696,770 was deposited into the LMIHAF during the Fiscal Year. Of the total funds deposited into the LMIHAF, a total of $0 was held for items listed on the ROPS.

II. ENDING BALANCE OF LMIHAF

This section provides a statement of the balance in the LMIHAF as of the close of the Fiscal Year. Any amounts deposited for items listed on the ROPS must be distinguished from the other amounts deposited.

At the close of the Fiscal Year, the ending balance in the LMIHAF was $39,701,911, of which $0 is held for items listed on the ROPS.
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III. DESCRIPTION OF EXPENDITURES FROM LMIHAF

This section provides a description of the expenditures made from the LMIHAF during the Fiscal Year. The expendi tures are to be categorized. There was a total of $ 574,576 expended from the LMIHAF, divided into the following categories:

TABLE 1: DESCRIPTION OF LMIHAF EXPENDITURES
Description of Expenditures Total Expenditures
Maintenance, Monitoring and Administration Expenditures $554,203 Homeless Prevention and Rapid Rehousing Services Expenditures $20,373 Housing Development Expenditures (Total of Next Three Lines) $0 Expenditures on Low Income Units $0
Expenditures on Very Low Income Units $0
Expenditures on Extremely Low Income Units $0
Total LMIHAF Expenditures in Fiscal Year $574,576

IV. STATUTORY VALUE OF ASSETS OWNED BY HOUSING SUCCESSOR

This section provides the statutory value of real property owned by the Housing Successor, the value of loans and grants receivables, and the sum of these two amounts.

TABLE 2: STATUTORY VALUE OF ASSETS OWNED BY HOUSING SUCCESSOR Asset Type Statutory Value of Assets
Loans Receivable $35,258,763
Land held for resale $2,333,018
Total Value of Real Property and Loans Receivable $37,591,781

V. DESCRIPTION OF TRANSFERS
This section describes transfers, if any, to another housing successor agency made in previous fiscal year(s), including whether the funds are unencumbered and the status of projects, if any, for which the transferred LMIHAF will be used. The sole purpose of the transfers must be for the development of transit priority projects, permanent supportive housing, housing for agricultural employees or special needs housing.

The Housing Successor did not make any LMIHAF transfers to other housing successor(s) under Section 34176.1(c)(2) during the Fiscal Year.

VI. PROJECT DESCRIPTIONS

This section describes any project for which the Housing Successo r receives or holds property tax revenue pursuant to the ROPS and the status of that project.

The Housing Successor does not receive or hold property tax revenue pursuant to the ROPS during the Fiscal Year.

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VII. STATUS OF COMPLIANCE WITH SECTION 33334.16

This section provides a status update on compliance with Section 33334.16 for interests in real property acquired by the former redevelopment agency prior to February 1, 2012.

For interests in real property acquired on or after February 1, 2012, provide a status update on the project.

With respect to interests in real property acquired by the former redevelopment agency prior to February 1, 2012, the time period described in Section 33334.16 shall be deemed to have commenced on the date t hat the Department of Finance approved the property as a housing asset in the LMIHAF (August 31, 2012); thus, as to real property acquired by the former redevelopment agency now held by the Housing Successor in the LMIHAF, the Housing Successor must initiate activities consistent with the development of the real property for the purpose for which it was acquired within five years of the date of the DOF approved such property as a housing asset.

The following provides a status update on the real property or properties housing asset(s) that were acquired prior to February 1, 2012 and compliance with five-year period:

TABLE 3: SECTION 33334.16 COMPLIANCE
Address of Property Date of
Acquisition
Deadline to
Initiate
Development
Activity
Status of Housing
Successor Activity
1504, 1556, 1620 S. Main St.
(APN 086-22-
027,028,033,034,041,042)
11/1/2009 8/31/2022 APN 086-22-033,034,041,042
sold to Milpitas Phase I, LP on
April 11, 2018 for the Senior
Lifestyles Development with
48 extremely-low income units
in phase I and 2 combined.
1432-1446 S. Main St.
(APN 083-41-001)
2/28/2011 8/31/2022 The Housing Authority has
determined that it will be
unable to initiate development
of the site for affordable
housing prior to the deadline
to initiate development
activity. The Housing
Authority is preparing to
market the property for sale
pursuant to Section 33334.16,
with the proceeds of sale to
be deposited in the LMIHAF to
be used for the development
of affordable housing
elsewhere in the City.
254 Parc Place Dr.
(APN 086-54-052)
1/27/2011 8/31/2022 Sold to a low-income
homebuyer in January 2023.
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600 S. Abel St. #208
(APN 086-61-177)
5/24/2011 8/31/2022 Sold to a moderate-income
homebuyer in December
2022.

Health and Safety Code Section 33334.16 required former redevelopment agencies to initiate activities, such as zone changes or disposition and development agreements within five years of acquiring a property.

The following provides a status update on the project(s) for property or properties that have been acquired by the Housing Successor using LMIHAF on or after February 1, 2012.

The Housing Successor did not acquire property on or after February 1, 2012.

VIII. DESCRIPTION OF OUTSTANDING OBLIGATIONS UNDER SECTION 33413.

This section describes the outstanding inclusionary housing obligations, if any, under Section 33413 that remained outstanding prior to dissolution of the former redevelopment agency as of February 1, 2012 along with the Housing Succ essor’s progress in meeting those prior obligations, if any, of the former redevelopment agency and how the Housing Successor plans to meet unmet obligations, if any.

The housing successor does not have any obligations to fulfill under Section 33413.

IX. EXTREMELY-LOW INCOME TEST

Section 34176.1(a)(3)(A) requires that the Housing Successor must require at least 30% of the LMIHAF (excluding funds used for maintenance, monitoring and administrative expenses, and homeless prevention/rapid rehousing services) to be expended for development of rental housing affordable to and occupied by households earning 30% or less of the AMI. If the Housing Successor fails to comply with the Extremely-Low Income (ELI) requirement in any five-year report, then the Housing Successor must ensure that at least 50% of the funds expended from the LMIHAF in each subsequent fiscal year be expended for deve lopment of rental housing affordable to and occupied by households earning 30% or less of the AMI until the Housing Successor demonstrates compliance with the Extremely-Low Income requirement.

In fiscal year 2019/2020 the City satisfied the Extremely-Low Income test by expending

86.14% of the LMIHAF over the previous five fiscal years. The City is not required to perform this test in fiscal year 2021/2022. The next five-year Extremely Low-Income test will be required in the Annual Report for fiscal year 2024/2025.

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X. SENIOR HOUSING TEST

This section provides the percentage of units of deed -restricted rental housing restricted to seniors and assisted individually or jointly by the Housing Successor, its former Redevelopment Agency, and the City within the previous 10 years in relation to the aggregate number of units of deed-restricted rental housing assisted individually or jointly by the Housing Successor, its former Redevelopment Agency and the City within the same time period. For this Report the ten-year period reviewed is January 1, 2012 to January 1, 2022.

If the percentage of assisted senior rental housing is more than 50 percent of the total of all assisted rental housing, no additional senior rental housing can be assisted u ntil the percentage falls to 50 percent or less.

TABLE 4: SENIOR HOUSING TEST
Unit Category # of Units
Assisted Senior Rental Units 38
Total Assisted Rental Units 147
Senior Housing Test (%) 25.9%

XI. EXCESS SURPLUS TEST

Excess Surplus is defined in Section 34176.1(d) as an unencumbered amount in the account that exceeds the greater of one million dollars ($1,000,000) or the aggregate amount deposited into the account during the Housing Successor’s preceding four Fiscal Years, whichever is greater. The housing successor is required to encumber the excess surplus amount or transfer that amount to another jurisdiction as provided in Health and Safety Code Section 34176.1(c)(2) within three fiscal years. If not, the excess surplus amount must be transferred to HCD to use pursuant to the Multifamily Housing Program or the Joe Serna, Jr. Farmworker Housing Grant Program.

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The following provides the Excess Surplus test for the 2021/2022 fiscal year:

Test for fiscal year ending
June 30, 2022
Opening fund balance of prior
year $39,768,067
Less: Unavailable Funds:

Loans Receivable ($35,258,763)
Land Held for Resale ($2,333,018)

Unencumbered Fund Balance $2,176,286
Limitation (greater of $1,000,000 or four years deposits).

Aggregate amount deposited for the last four years:
2020-2021 $712,551
2019-2020 $857,421
2018-2019 $1,019,065
2017-2018 $886,290

Total Amount Deposited $3,475,327

Excess Surplus None

This analysis indicates there is no excess surplus as of 6/30/2022.

XII. DESCRIPTION OF OUTSTANDING OBLIGATIONS UNDER SECTION 34176.1(D)(13).

This section provides an inventory of homeownership units assisted by the former Redevelopment agency or the Housing Successor that are subject to covenants or restrictions of to an adopted program that protects the former Redevelopment Agency’s investment of moneys from the Low - and Moderate-Income Housing Fund pursuant to subdivision (f) of Section 33334.3.

This inventory shall include all the following information:

(A) Number of those units:

The number of homeownership units assisted by the former R edevelopment agency is 189.

(B) In the first report pursuant to this subdivision, the number of units lost to the portfolio after February 1, 2012, and the reason or reasons for those losses. For subsequent reports, the number of the units lost to the por tfolio in the last fiscal year and the reason for those losses:

There are no losses of inventory to report from February 1, 2012 to FY 2021/2022.

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(C) Any funds returned to the Housing Successor as part of an adopted program that protects the former Rede velopment agency’s investment of moneys from the Low - and Moderate-Income Housing Fund:

No funds were returned to the Housing Successor.

(D) Whether the Housing Successor has contracted with any outside entity for the management of the units and, if so, the identity of the entity:

The Housing Successor does not contract with any outside entity. 159
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CITY OF MILPITAS

AGENDA REPORT
(AR)

Item Title: Adopt a Resolution Expressing Support for the City’s 2022-2023 Priority Development Area Planning Grant Applications to the Metropolitan Transportation Commission to Prepare a Master Streetscape Plan for Main Street and a Conceptual Parks and Trails Plan for the Innovation District (Staff Contact: Ned Thomas, Planning Director, 408-586-3273; and Jay Lee, Principal Planner, 408-586- 3077)
Category: Consent Calendar-Community Development
Meeting Date: 3/1/2022
Recommendation: Adopt a resolution expressing support for the City’s 2022-2023 Priority Development Area Planning Grant applications to the Metropolitan Transportation Commission to prepare a master streetscape plan for Main Street and a conceptual parks and trails plan for the Innovation District.

Background:

The Milpitas Midtown Specific Plan was originally adopted in 2002 to maximize land use, transportation, and economic opportunities along the City’s historic Main Street and to energize and catalyze mixed-use, transit- oriented development in the Midtown area. Since adoption of the current plan, the community’s vision for this area has not been fully realized. As part of the update process, the Midtown Specific Plan will be renamed the “Milpitas Gateway/Main Street Specific Plan” and provide a new vision and strategic policy framework to guide redevelopment and reinvestment in three focus areas and transform this important gateway into an attractive and vibrant destination for the City and the region.

On September 21, 2021, City Council authorized the City Manager to execute a master funding agreement with the Metropolitan Transportation Commission (MTC) to receive $500,000 in grant funding through the Priority Development Area (PDA) Planning Grant Program and a professional services agreement with Ascent Environmental for consultant services to prepare the Gateway/Main Street Specific Plan (Gateway Plan). Work completed thus far includes a kick-off meeting and site tour, background review, existing conditions assessment, community outreach, and development of alternatives and strategies. City staff anticipates completing the project in early 2024.

Following a robust, multi-year planning process, the City of Milpitas adopted the Milpitas Metro Specific Plan (Metro Plan) on February 7, 2023. The Metro Plan is an update to the Transit Area Specific Plan (TASP), adopted in 2008, and builds upon the original vision and strategy for transforming older industrial areas around the new Milpitas Transit Center into new high-density, mixed-use neighborhoods with direct access to transit.

One of the key strategies is to establish an employment-focused Innovation District to accommodate and facilitate approximately 3 million square feet of new office, research and development, and advanced manufacturing development.

To meet the San Francisco Bay Area’s long-range goals of reduced greenhouse gas emissions and more affordable housing for all, MTC has been offering funding and technical assistance to local jurisdictions through its PDA Planning Program since 2007. Local jurisdictions may apply for a PDA Planning Grant to complete, update, or implement a plan for a locally nominated PDA. On February 23, 2023, City staff submitted two applications for grant funding to prepare the Milpitas Main Street Sense of Place Plan and the Milpitas Innovation District Parks and Trails Master Plan.

Analysis:

The Gateway Plan envisions historic Main Street as an important and vibrant mixed-use corridor that serves as the heart of Milpitas and establishes policies to facilitate this transformation. However, specific improvements 160
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and associated costs need to be identified to implement this vision. Therefore, City staff prepared a scope of work and submitted a PDA Planning Grant application to request $600,000 in funding to complete this work.

The Milpitas Main Street Sense of Place Plan will build on these efforts and the policies of the Gateway Plan by: (1) identifying specific streetscape and transportation improvements along Main Street; (2) creating a Basic Infrastructure Plan (BIP) that details each type of improvement and assigns a priority; and (3) establishing a plan-specific development impact fee to fund the BIP improvements. The goal of the proposed project is to revitalize Main Street into a complete neighborhood with infrastructure and amenities to support mixed-use development along the corridor. The project would also support several policies and programs of the Milpitas 2023-2031 Housing Element by prioritizing investment in transportation, infrastructure, and utility improvements to reduce development barriers and costs.

The Metro Plan establishes a new Innovation District to leverage the opportunity to receive and support higher- intensity employment opportunities following the opening of the Milpitas BART Station in June 2020. The Metro Plan envisions several public improvements east of South Milpitas Boulevard to enhance the recreational amenities and connections in the Innovation District and attract businesses. These improvements include two new parks and a multi-use trail adjacent to Berryessa Creek. The Metro Plan identifies these proposed amenities on a map, but conceptual designs and programming are needed to lay the foundation for constructing these open space facilities in the future. Therefore, City staff submitted another PDA Planning Grant application to request an additional $200,000 in funding for this work. The Milpitas Innovation District Parks and Trail Master Plan will initiate the transformation of the area into a transit-oriented, amenity-rich area by establishing a plan for improving access to recreational amenities and the Milpitas Transit Center for both residents and future employees who desire to use public transit. The scope of work also includes an extensive public engagement process to ensure that the conceptual plan serves the needs of the community.

One of MTC’s criteria for evaluating proposals is local support and MTC is accepting documentation of local support beyond the application deadline. Therefore, City staff requests the City Council adopt a resolution to express support for these two proposals and strengthen the City’s applications for grant funding.

Policy Alternatives:

Alternative 1: Do not express support for the City’s PDA Planning Grant applications to MTC to prepare the Main Street Sense of Place Plan and the Innovation District Parks and Trails Master Plan.

Pros: None.

Cons: Failure to adopt a resolution expressing support for the City’s PDA Planning Grant applications could result in the City not receiving funding from MTC to complete the Main Street Sense of Place Plan and innovation District Parks and Trails Master Plan. Without completing the Main Street Sense of Place Plan, the City would have to prepare a BIP and conduct a nexus study to establish a plan-specific development impact fee out of its own budget. Without completing the Innovation District Parks and Trails Master Plan, the City would have to design the proposed Innovation District parks and trail prior to construction. While the Transit Area Development Impact Fee (TADIF) should cover the cost of these improvements, construction of the proposed parks and trail would be delayed without a conceptual plan in place.

Reason not recommended: Without documentation of local support for the City’s PDA Planning Grant applications, the City’s proposals would be less competitive, and the City would potentially miss out on the opportunity to receive $800,000 in grant funding from MTC. Without the Main Street Sense of Place Plan and Innovation District Parks and Trail Master Plan, implementation of the Gateway Plan and Metro Plan would be limited and delayed. Through MTC’s PDA Planning Grant Program, the City has a unique opportunity to implement several goals and policies of its recently adopted and ongoing long-range planning efforts quickly and efficiently.

Fiscal Impact:

If the City is awarded funding from MTC through the PDA Planning Grant Program, the cost to complete the Main Street Sense of Place Plan and Innovation District Parks and Trail Master Plan would be covered entirely 161
Item # C13.

by grant funding in the amounts of $600,000 and $200,000 respectively, for a total of $800,000. If the City does not receive funding from MTC, the City would not pursue these projects until funding is available.

California Environmental Quality Act:

Not applicable. Submission of a grant application does not constitute a project, in accordance with Section 15378 of the CEQA Guidelines.

Recommendation:

Adopt a resolution expressing support for the City’s 2022-2023 Priority Development Area Planning Grant applications to the Metropolitan Transportation Commission to prepare a master streetscape plan for Main Street and a conceptual parks and trail plan for the Innovation District.

Attachments:

1. Resolution No. 23-XXX

2. PDA Planning Grant Application for the Main Street Sense of Place Plan

3. PDA Planning Grant Application for the Innovation District Parks and Trail Master Plan 162
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1 Resolution No. ___

RESOLUTION NO. 23-___

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MILPITAS EXPRESSING SUPPORT FOR THE CITY’S 2022-2023 PRIORITY DEVELOPMENT

AREA PLANING GRANT APPLICATIONS TO THE METROPOLITAN

TRANSPORTATION COMMISSION TO PREPARE A MASTER STREETSCAPE

PLAN FOR MAIN STREET AND A CONCEPTUAL PARKS AND TRAILS PLAN FOR

THE INNOVATION DISTRICT

WHEREAS, the City of Milpitas, California (the “City”) is a municipal corporation, duly organized under the constitution and laws of the State of California; and

WHEREAS, the Metropolitan Transportation Commission (MTC) is the designated recipient for state and federal funding assigned to the Regional Transportation Planning Agency / Metropolitan Planning Organization of the nine-county San Francisco Bay Area region for the programming of projects; and

WHEREAS, MTC established the One Bay Area Grant (OBAG) program to guide how to best use federal transportation funding to address climate change; and

WHEREAS, the OBAG program dedicates federal transportation funding to regional initiatives including Priority Development Area (PDA) planning and implementation; and

WHEREAS, the City nominated the Transit Area Specific Plan (TASP) and Midtown, and MTC adopted the TASP and Midtown as PDAs; and

WHEREAS, MTC offers funding and technical assistance to local jurisdictions through its PDA Planning Grant Program to meet the Bay Area’s long-range goals of reduced greenhouse gas emissions and more affordable housing for all; and

WHEREAS, on April 6, 2021, the City Council adopted the FY2022 -2026 Capital Improvement Program (CIP), which included the Milpitas Gateway/Main Street Plan (Midtown Specific Plan Update) as Project No. 3437; and

WHEREAS, on September 21, 2021, the City Council authorized the City Manager to execute a professional services agreement with Ascent Environment for consultant services to prepare the Gateway/Main Street Specific Plan (gateway Plan); and

WHEREAS, the Gateway Plan envisions historic Main Street as an important and vibrant mixed- use corridor that serves as the heart of Milpitas and establishes policies to facilitate this transformation; and

WHEREAS, on February 7, 2023 , the City Council adopted the Milpitas Metro Specific Plan (Metro Plan) as an updated to the TASP; and

WHEREAS, the Metro Plan establishes an employment -focused Innovation District to leverage the opportunity to receive and support higher-intensity employment opportunities following the opening of the Milpitas Bay Area Rapid Transit (BART) Station; and

WHEREAS, the Metro Plan identifies several public improvements east of South Milpitas Boulevard to enhance the recreational amenities in the Innovati on District including two new parks and a multi-use trail adjacent to Berryessa Creek; and
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2 Resolution No. ___

WHEREAS, on February 23, 2023, the City submitted two applications to MTC through the PDA Planning Grant Program to request funding for the Milpitas Main Street Sense of Place Plan and the Milpitas Innovation District Parks and Trails Master Plan; and

WHEREAS, the Main Street Sense of Place Plan and the Innovation District Parks and Trails Master Plan would implement several goals and policies of the ongoing Gateway Plan and adopted Metro Plan; and

WHEREAS, the Main Street Sense of Place Plan and the Innovation District Parks and Trails Plan would implement the following 2040 General Plan policies and actions:

 Action LU -2a: Periodically review and maintain the goals, and development standards and guidelines included within Milpitas’s Specific Plan Areas to affirm the unique character and development vision for Special Planning Areas within Milpitas. Specifically, the city should:
o Maintain and implement the Gateway -Main Street Specific Plan goals, policies and development standards and guidelines to create a mixed-use community that includes high- density, transit -oriented housing and a central community ‘gathering place’ while maintaining needed industrial, service and commercial uses. o Maintain and implement the Milpitas Metro Specific Plan (formerly the Transit Area Specific Plan, or “TASP”) area, as an attractive, high density, TOD urban neighborhood with a mix of land uses around the light rail stations and the BART station. Create safe and attractive pedestrian connections so that residents, visitors, and workers will walk, bike, and take transit. Design streets and public spaces to create a lively and attractive street character, and a distinctive identity for each sub-district.  Policy LU 3-1: Support regional efforts that promote higher densities near major transit and travel facilities and reduce regional vehicle miles traveled by supporting active modes of transportation including walking, biking, and public transit. Support local and region al land use decisions that promote safe access to and the use of alternatives to auto transit.  Policy LU 7-3: Encourage the development of new industrial, manufacturing, and business park areas and the redevelopment of existing older or marginal areas with new similar uses, especially those in locations which facilitate efficient multi -modal commute patterns. Use available public financing to provide necessary infrastructure improvements to encourage economic development and revitalization.
 Policy ED 3-4: Focus transportation, telecommunications and utility infrastructure investments in key opportunity areas to achieve service efficiencies and stimulate additional private investment.  Policy PROS 1 -1: Provide a park and recreation system that is equitably dis tributed, safe, accessible, and designed to serve the needs of all residents of the community.  Policy PROS 1 -12: Encourage and support the expansion of an integrated trail network that connects users to neighboring local and regional trail systems and to community amenities such as schools, open space areas, park and recreation facilities, commercial and job centers and residential areas to encourage both recreational and utilitarian travel.

WHEREAS, the Main Street Sense of Place Plan and the Innovation District Parks and Trails Plan would implement the following 2023-2031 Housing Element policies and programs:

1. Policy HE 1.4: Continue to facilitate housing production through implementation of specific plans and overlay zones, including the Milpitas Metro Specific Plan (TASP Update) and Gateway-Main Street Specific Plan (Milpitas Midtown Update). 164
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3 Resolution No. ___

2. Policy HE 3.1: Continually review and right-size development fees on housing development.

Adjust or defer City fees for affordable housing development.

3. Policy HE 3.5: Prioritize investment in transportation, infrastructure, and utility improvements to reduce development barriers and costs for producing affordable housing.

4. Policy HE 6.1: Prioritize higher density, transit-oriented, and mixed-use development and an interconnected network of trails and pedestrian bridges near the Milpitas Transit Center and along transit corridors to reduce reliance on private automobiles and increase transit ridership.

5. Policy HE 9.3: Promote investment in bicycle, transit, and pedestrian facilities to improve mobility choice and safety and to reduce auto-dependency.

6. Program 10: Place-Based Strategies for Neighborhood Improvements

7. Program 18: Non-Residential Affordable Housing Impact Fee

8. Program 20: Specific Plans; and

WHEREAS, one of MTC’s criteria for evaluating proposals is local support and MTC is accepting documentation of local support beyond the application deadline; and

WHEREAS, on March 21, 2023, the City Council held a duly noticed public hearing on the City’s PDA Planning Grant applications, at which time all those in attendance were given the opportunity to speak on the grant applications; and

WHEREAS, the City Council has considered all the written and oral testimony presented at the public hearing in making its decision.

NOW THEREFORE , the City Counci l of the City of Milpitas hereby finds, determines , and resolves as follows:

SECTION 1. Recitals.

The City Council has duly considered the full record before it, which may include but is not limited to such things as the City staff report, testimony by staff and the public, and other materials and evidence submitted or provided to the City Council. Furthermore, the recitals set forth above are found to be true and correct and are incorporated herein by reference.

SECTION 2. City Council Approval

The City Council of the City of Milpitas hereby expresses its support for the City’s 2022 -2023 Priority Development Area Planning Grant applications to the Metropolitan Transportation Commission to prepare a master streetscape plan for Main Street and a conceptual parks and trails plan for the Innovation District.

PASSED AND ADOPTED this 21st day of March 2023, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

ATTEST: APPROVED:

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4 Resolution No. ___

Suzanne Guzzetta, City Clerk Carmen Montano Mayor

APPROVED AS TO FORM:

Michael Mutalipassi, City Attorney
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PRIORITY DEVELOPMENT AREA (PDA) PLANNING GRANT APPLICATION 1 / 5
Q1
Applicant Information
Applicant Project Manager Jay Lee
Job Title Principal Planner
Local Jurisdiction City of Milpitas
County Santa Clara
Email Address [email protected]
Phone Number (408) 586-3077
Q2
Please upload documentation of local support for this
application. This may include: A City Council/Board of Supervisors or Planning Commission resolution
(recommended), or An agenda from a City Council or
Board of Supervisors meeting at which the application was discussed. (To get started, download a template
resolution, template staff report, and template briefing.) Respondent skipped this question
Q3
Applicants may submit documentation after the application due date, but no later than April 15th, 2023. Submit documentation to [email protected] you will be submitting documentation of local support after this application, please indicate the approximate submission date. (Indicate "N/A" if submitting documentation along with application.) March 2023
Q4

1. Name of PDA
Midtown
#11#11

COMPLETECOMPLETE
Collector:Collector: Web Link 1 Web Link 1 (Web Link)(Web Link) Started:Started: Thursday, February 23, 2023 3:20:44 PMThursday, February 23, 2023 3:20:44 PM Last Modified:Last Modified: Thursday, February 23, 2023 3:26:09 PMThursday, February 23, 2023 3:26:09 PM Time Spent:Time Spent: 00:05:2500:05:25
IP Address:IP Address: 50.59.22.250.59.22.2

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PRIORITY DEVELOPMENT AREA (PDA) PLANNING GRANT APPLICATION 2 / 5
Q5

2. Plan or Project Name
Milpitas Main Street Sense of Place Plan
Q6

3. Was this PDA established prior to 2019?
Yes
Q7

4. Will the geographic area included in the project be the same as the existing PDA? (See this map for reference)
No, it will include part, but not all of the PDA
Q8
If "no", please upload a map of the anticipated planning area (hand-drawn or digital formats are both acceptable) Project%20Map.pdf (344.6KB)
Q9

5. What type of Grant are you applying for?
Plan Amendment
Q10

6. Amount Requested (not to exceed $1,200,000 for Plan, $600,000 for Plan Amendment, $200,000 for Plan Implementation)
$600,000
Q11
Optional: Please identify any sources and amounts of
committed or anticipated funding for this project
Respondent skipped this question
Q12

7. All PDA Grants must either: Include all of the required sections shown below; or Integrate previously adopted or concurrent plans and policies for any sections not
included; or Amend or implement an adopted plan that
includes each section. Below, check each section that will be completed, or amended, through this grant. Detailed descriptions of each section, review the minimum grant
requirements available here. Note that section title and organization may differ from those shown below, but must achieve the minimum grant requirements.

Plan Section: Public Realm Standards,
Plan Section: Capital Improvements ,
Plan Section : Implementation ,
Community Assessment
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PRIORITY DEVELOPMENT AREA (PDA) PLANNING GRANT APPLICATION 3 / 5
Q13
If you did not check one or more of the boxes above, please indicate the planning process through which it was, or will be, completed, and provide a link documenting its completion. (250 words max) Plan Section: Development Standards

1. Milpitas Gateway/Main St. Specific Plan (in progress; expected completion in early 2024) – https://www.milpitasmainstreet.org/

2. Milpitas Objective Design Standards for Residential & Mixed-Use Projects (completed in November 2022) – https://www.milpitas.gov/planningdepartment/ods/
Plan Section: Community and Equity – Milpitas Gateway/Main St. Specific Plan Plan Section: Zoning and General Plan Amendments

1. Milpitas Gateway/Main St. Specific Plan

2. Milpitas Comprehensive Zoning Ordinance Update (in progress; Zoning and General Plan Amendments to be completed in early 2024) - https://www.milpitas.gov/_pdfs/council/2023/011723/Attachments.pdf (Item C9) Environmental Document – Milpitas Gateway/Main St. Specific Plan Community Assessment – Milpitas Gateway/Main St. Specific Plan Q14
Please upload a preliminary scope of work and budget. (See here for sample language and template materials.) 2022-2023_PDA_Planning_Grant_Application_SOW_Main%20St.%20Sense%20of%20Place%20Plan_Final.pdf (188.1KB) Q15
Optional: Please upload any additional material you would like to share. None are required, but this may include letters of support, background material and graphics, etc.

Optional%20Attachments.pdf (9.6MB)
Q16

8. Is part, or all, of the PDA within an Equity Priority Community?
No
Q17

9. Will the project implement the Transit Oriented
Communities (TOC) Policy? (Required for PDAs within a
TOC identified on this map; PDAs outside TOCs may opt
in to TOC standards.)
Yes
Q18
If "yes", which TOC standards will be established and/or implemented?
Transit Station Access and Circulation (see pp. 21-22 for requirements)
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PRIORITY DEVELOPMENT AREA (PDA) PLANNING GRANT APPLICATION 4 / 5
Q19

10. Will the project involve rezoning or implement
programs and policies that are part of a Housing Element Update?
Yes,
While the proposed scope of work focuses on public
improvements, a key goal of the project is to revitalize Milpitas’ historic Main Street to support future housing redevelopment and economic revitalization along the
corridor. The project will not only identify streetscape and infrastructure improvements and costs, but also establish a plan-specific development impact fee to fund these much- needed improvements and facilitate housing production in this high-resource yet disinvested area per the Affirmatively Furthering Fair Housing analysis. Main Street alone is home to a significant share of the Housing Element sites
inventory, but its: (1) lack of bicycle, pedestrian, and transit facilities; and (2) deteriorating infrastructure act as major constraints to housing development in the area. As such, the project will implement the following policies and
programs of the Milpitas 2023-2031 Housing Element. 1.

Policy HE 1.4: Continue to facilitate housing production through implementation of specific plans and overlay zones, including the Milpitas Metro Specific Plan (TASP Update) and Gateway-Main Street Specific Plan (Milpitas Midtown Update). 2. Policy HE 3.1: Continually review and right-size development fees on housing development. Adjust or defer City fees for affordable housing development. 3. Policy HE

3.5: Prioritize investment in transportation, infrastructure, and utility improvements to reduce development barriers and costs for producing affordable housing. 4. Policy HE

9.3: Promote investment in bicycle, transit, and pedestrian facilities to improve mobility choice and safety and to reduce auto-dependency. 5. Program 10: Place-Based
Strategies for Neighborhood Improvements. 6. Program 18:

Non-Residential Affordable Housing Impact Fee. 7. Program 20: Specific Plans.

If Yes, please explain (250 words maximum):

Q20

11. Enter the approximate increase in deed-restricted affordable housing units resulting from the project 318
Q21

12. Enter the approximate increase in total housing unit capacity resulting from the project 1,143
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PRIORITY DEVELOPMENT AREA (PDA) PLANNING GRANT APPLICATION 5 / 5
Q22

13. Please upload a document (template available here) explaining how the proposed project will: Advance the protection, preservation and production of affordable housing through existing or new policies, programs, and investments applicable to the PDA Reduce vehicle miles travelled and increase transit ridership through policies, programs, and investments Achieve greater racial equity in the PDA and/or city- or region-wide, including through fair housing policies, programs, and investments (300 words max) 2022-2023_PDA_Planning_Grant_Application_Question_13_Main%20St.%20Sense%20of%20Place%20Plan_Final.pdf (89.2KB)
Q23

14. Which Plan Bay Area 2050 Strategies will this project support? (check all that apply.) To see the full text for these strategies see pp. 4-8 of this .pdf.

Advance Regional Vision Zero Policy through Street
Design and Reduced Speeds
,
Expand Transportation Demand Management Initiatives,
Modernize and expand parks, trails and recreation
facilities.
,
Build a Complete Streets network,
Other(s) (please specify):

Advance other regional programs and local priorities (T7) Q24

15. Has your jurisdiction formally adopted Vehicle Miles Travelled (VMT) thresholds, screens and mitigations
complaint with Senate Bill 743 (SB 743)?
Yes
Q25
If yes, please provide a link to the applicable City Council or Board of Supervisors resolution. https://www.milpitas.gov/wp-content/uploads/2021/06/Final-VMT-Policy-with-Reso-and-Heat-Maps-1.pdf Q26
If no, on what date will it be adopted?
Respondent skipped this question
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MILPITAS MAIN STREET SENSE OF PLACE PLAN
2 SCOPE OF WORK

MILPITAS MAIN STREET SENSE OF PLACE PLAN
The Gateway/Main St. Specific Plan envisions Main Street as an important and vibrant mixed- use corridor that serves as the heart of Milpitas and establishes policies to facilitate this transformation. The revitalization of Main Street is also one of the key goals and priorities of the City’s Economic Development Strategy adopted in May 2020. To further support these efforts, the Milpitas City Council created an Ad Hoc Main Street Revitalization Subcommittee to lead and direct City staff in implementing this new vision and strategy for the revitalization of historic Main Street. Additionally, the City is currently collaborating with Main Street property owners to explore options for establishing a Property-based Business Improvement District (PBID).

The Milpitas Main Street Sense of Place Plan will build on these efforts and the policies in the Milpitas Gateway/Main Street Specific Plan by: (1) identifying needed streetscape and transportation improvements along Main Street; (2) creating a Basic Infrastructure Plan (BIP) that details each type of improvement and assigns a priority, and; (3) establishing a plan-specific development impact fee to fund the improvements included in the BIP. The goal of the project is to revitalize and transform Main Street into a complete neighborhood with infrastructure and amenities to support high-density, mixed-use development along the corridor. The Main Street Sense of Place Plan will be added to the Gateway/Main Street Specific Plan as a new chapter.

Task 1 – Project Initiation & Management
Tasks include the following activities to initiate and manage the project:
• Project kick-off meeting: Prepare for and facilitate an initial meeting with City staff to review overall project objectives, team member roles, approach, project management and schedule, public outreach, key concerns and other aspects of the project. Prepare a meeting agenda and a meeting summary.
• Project management: Hold biweekly conference calls with City staff and consultant team members and prepare meeting agendas and summaries for each call. Prepare a detailed project schedule.

Task 1 Deliverables:

1.1: Project kick-off meeting agendas and summaries

1.2: Biweekly conference call agendas and summaries

1.3: Project schedule

Task 2 – Existing Conditions Analysis
Tasks include the following reports and activities to better understand the project area:
• Base maps: Prepare base sheets to consist of a compilation of available aerial photos (City and web based), record documents made available by City (lighting, land use zoning designations, ROW, utilities and infrastructure, traffic counts, traffic data, land use, and parcel data (lot size, densities, property owner information, existing tenants and vacancies, tax information, etc.)), and field measurements of key rights-of-way to confirm dimensions.
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MILPITAS MAIN STREET SENSE OF PLACE PLAN
3 • Background materials review: Obtain and review reference information from City for use in preliminary design efforts and prepare a summary memo. Background research shall include the following:
o Conduct a detailed review of the Gateway/Main St. Specific Plan, with particular emphasis on the guidelines for public improvements related to mobility and streetscapes.
o Conduct a detailed review of the Trail, Pedestrian, and Bicycle Master Plan. o Review the previous Midtown Specific Plan.
o Review any existing parking inventory and occupancy data. o Review public right-of-way improvements (approved and/or constructed) for recent and planned private development projects along Main Street. o Review applicable City standard details.
o Review count data and summarized collision history.
• Site reconnaissance: Conduct a complete site review/existing conditions assessment of the Main Street corridor, including, but not limited to, existing streetscape features, sidewalks, pedestrian facilities, transit facilities, bicycle network components, and existing intersection design. Summarize findings graphically within an existing conditions plan.
• Existing conditions report: Proceed to summarize the findings from the above tasks in an existing conditions report. Report shall include summary memo’s and plans prepared in above tasks and serve as a basis for developing project alternatives.

Task 2 Deliverables:

2.1: Digital base map set

2.2: Background materials review memo

2.3: Existing conditions report

Task 3 – Public Engagement
Tasks include the following public engagement activities to understand the community’s needs and desires and inform the development of the conceptual and preferred designs:
• Outreach plan and schedule: Prepare an outreach plan memo that documents decisions, dates, locations, roles and responsibilities to guide the planning and notification of public meetings. Strategies to be considered include but are not limited to mailers, electronic notifications, posters, and social media. For meetings required to be held virtually, discuss how to meet the needs of community members with limited access to internet.

Prepare a project schedule for the City’s review.
• City review meetings: Organize and facilitate four (4) meetings with key City staff to review and receive feedback on deliverables. Revise materials based on City input and prepare agendas, presentations, and meeting summaries.
• Meeting noticing: Prepare meeting notification mailer in digital format for both community meetings to identify date, location, time and include a general description of the meeting agenda. Prepare draft mailer in postcard format for City review and make final version incorporating City comments. Mailers to be suitable for other methods of distribution including email blasts, e-newsletters and the City’s project website. It is assumed the City will print and mail meeting notices.
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MILPITAS MAIN STREET SENSE OF PLACE PLAN
4 • Community meeting: Organize and facilitate one (1) virtual community meeting to receive public feedback on the project. Present the project goals, scope and schedule, background and existing conditions, and preliminary alternatives. Prepare a meeting summary of the feedback received.
• Study sessions: Attend one (1) study session with the Ad Hoc Main Street Revitalization Subcommittee, one (1) study session with the Planning Commission, and one (1) study session with the City Council. Present the project background, results of the public engagement, and plan alternatives. Solicit direction on the preferred alternative.

Task 3 Deliverables:

3.1: Outreach plan memo

3.2: City review meeting summaries

3.3: Meeting notification mailer in digital format for the community meeting

3.4: Community meeting presentation and summary

3.5: Study session presentations and summaries

Task 4 – Preliminary Design
Tasks include the following components:
• Preliminary design alternatives: Develop three (3) alternatives to illustrate design options and variations for the Main Street right-of-way, including the street and sidewalks. Recognizing that streets are interrelated systems, each prototype will illustrate the below areas of interest. The prototype plans will be prepared at no less than 1” = 20’ scale and rendered in color for presentation purposes. Plans will be supplemented with photographs of built projects and materials to better illustrate designs and variations. o Streetscape amenities (lighting, landscaping, and street furnishing): Develop design options for unifying streetscape elements, and where appropriate, site- specific streetscape elements, that would be installed in conjunction with private development projects or as a stand-alone public improvement project, including street trees, street furnishings, pedestrian-scale lighting, planters and planter landscaping, and small public plaza spaces. Prepare a materials palette consisting of images and product specification information for streetscape items. o Intersections and street crossings: Provide options for enhancing intersecting side streets and existing signalized intersections, including crosswalk striping and surface treatments, signage, curb extension details, bulb-out dimensions, curb return radii dimensions, and median modifications.
o Transit facilities: Develop recommendations for enhanced transit facilities (such as upgraded transit shelters and stops) that integrate with other streetscape elements. Explore strategies for reducing transit/bicycle conflicts that could occur with the installation of bicycle facilities along Main Street. Evaluate potential relocation or redesign of bus stops or duck-outs to provide more coherent integration with streetscape improvements.
o Bicycle infrastructure: Provide recommendations for improved bicycle crossings, where intersection streets are part of designated bicycle facilities. Develop a series of street cross sections that will guide the installation of future bicycle facilities.

Up to six (6) typical street cross sections will be prepared at ¼ scale. 174
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MILPITAS MAIN STREET SENSE OF PLACE PLAN
5 • District branding and wayfinding signage: Build upon the Gateway/Main St. Specific Plan district branding work to prepare fabrication-level drawings for branding elements and establish a wayfinding signage program in compliance with the City’s branding guidelines. The wayfinding signage program will identify key destinations, parking locations, and streets.

Task 4 Deliverables:

4.1: Preliminary design alternatives

4.2: District branding materials

4.3: Wayfinding signage program

Task 5 – Draft Plan
This task includes the following plan components:
• Draft Sense of Place Plan: Based on feedback received from City staff, the community, and decision-makers on the preferred alternative, prepare a Draft Sense of Place Plan with the preliminary design components from Task 4 and an implementation and phasing plan for all recommended improvements.
• Basic Infrastructure Plan: Based on the Gateway-Main Street Specific Plan and Draft Sense of Place Plan, prepare a Basic Infrastructure Plan that provides a detailed and comprehensive list of public improvements.
• Cost estimate: Develop budget-level cost estimates for all recommended improvements, including streetscape amenities, intersection enhancements, pedestrian crossings, transit stop upgrades, and bicycle facilities. With input from City maintenance staff, identify improvements that will require increased levels of maintenance and provide an estimate of annual maintenance and operations costs where reasonably obtainable.

Task 5 Deliverables:

5.1: Draft Sense of Place Plan

5.2: Basic Infrastructure Plan

5.3: Cost estimate

Task 6 – Impact Fee Study
This task includes the following activities to develop a comprehensive development impact fee for the Gateway/Main St. Specific Plan area to fund plan-wide public improvements and specific streetscape improvements identified in the Main Street Sense of Place Plan:
• Public improvements cost estimate: The Gateway/Main St. Specific Plan provides policies and high-level recommendations for public improvements in the Specific Plan area but does not provide cost estimates for these improvements. The first step of the impact fee study will be to estimate the cost of all infrastructure improvements in the Specific Plan area.
• Nexus study and impact fee structure: The second step of the impact fee study will be to conduct a nexus study and establish an impact fee to fund improvements in the Gateway/Main St. Specific Plan area including Main Street.

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6 Task 6 Deliverables:

6.1: Public improvements cost estimate

6.2: Nexus study and impact fee structure

Task 7 – Final Plan & Impact Fee Adoption
Revise the Draft Plan following the study sessions and present the Final Plan and Impact Fee to the Ad Hoc Main Street Revitalization Subcommittee, Planning Commission, and City Council for adoption.

Task 7 Deliverables:

7.1: Final Plan and Impact Fee

7.2: Presentations for each meeting

PRELIMINARY SCHEDULE & BUDGET

DELIVERABLE

ESTIMATED

DATE OF

COMPLETION

ESTIMATED
BUDET
Task 1 – Project Initiation & Management 2/2024 – 2/2026 $25,000 Task 2 –Existing Conditions Analysis 2/2024 – 5/2024 $60,000 Task 3 – Public Engagement 5/2024 – 7/2025 $50,000
Task 4 – Preliminary Design 5/2024 – 1/2025 $135,000
Task 5 – Draft Plan 1/2025 – 7/2025 $130,000
Task 6 – Impact Fee Study 7/2025 – 11/2025 $150,000
Task 7 – Final Plan & Impact Fee Adoption 11/2025 – 2/2026 $50,000

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Priority Development Area (PDA) Planning Grants: 2022-23 Call for Projects GRANT APPLICATION QUESTION 13
Please use the space below to explain in 300 words or less how the proposed project will:
• Advance the protection, preservation and production of affordable housing through existing or new policies, programs, and investments applicable to the PDA • Reduce vehicle miles travelled and increase transit ridership through policies, programs, and investments
• Achieve greater racial equity in the PDA and/or city- or region-wide, including through fair housing policies, programs, and investments

The proposed project will advance the production of affordable housing by identifying specific public improvements and establishing a development impact fee to fund these improvements, which will support future investment in housing development along Main Street. The project will prioritize transportation, infrastructure, and utility improvements in this historic area of the City to create an implementable roadmap for removing development barriers and reducing costs for affordable housing production. The Milpitas 2023-2031 Housing Element identifies aging infrastructure as a significant constraint on Main Street. Furthermore, the project will establish the necessary conditions to attract commercial businesses and strengthen the City’s non- residential affordable housing impact fee budget.

The project will reduce vehicle miles traveled and increase transit ridership by laying the groundwork for transforming the Main Street corridor into a complete neighborhood with infrastructure to support pedestrians and bicyclists as well as personal vehicles and transit. At present, Main Street is primarily used and designed for vehicular travel. Although Main Street has bicycle lanes, it accommodates significant volumes of cut-through traffic at relatively high speeds and pedestrian facilities are limited. While the Gateway/Main St. Specific Plan will establish high-level policies and conceptual designs to reimagine Main Street, a detailed streetscape master plan is needed to identify specific improvements and costs. The project will prioritize investment in multimodal transportation facilities and support high-density, mixed-use development to reduce auto-dependency.

The project will achieve greater racial equity by supporting affordable housing production in an area with limited affordable housing development and thereby advancing the City’s Affirmatively Furthering Fair Housing goals. Currently, most of the City’s affordable housing units are within the Milpitas Metro Specific Plan area, but the project will provide the infrastructure and amenities needed to support affordable housing development in the Gateway/Main St. Specific Plan area to improve the City’s affordable housing distribution.

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1. Name of PDA
Transit Area Specific Plan
#10#10

COMPLETECOMPLETE
Collector:Collector: Web Link 1 Web Link 1 (Web Link)(Web Link) Started:Started: Thursday, February 23, 2023 2:13:05 PMThursday, February 23, 2023 2:13:05 PM Last Modified:Last Modified: Thursday, February 23, 2023 3:20:35 PMThursday, February 23, 2023 3:20:35 PM Time Spent:Time Spent: 01:07:2901:07:29
IP Address:IP Address: 50.59.22.250.59.22.2

Page 1 ends

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PRIORITY DEVELOPMENT AREA (PDA) PLANNING GRANT APPLICATION 2 / 5
Q5

2. Plan or Project Name
Innovation District Parks and Trails Master Plan
Q6

3. Was this PDA established prior to 2019?
Yes
Q7

5. What type of Grant are you applying for?
Plan Implementation (Technical Assistance)
Q10

6. Amount Requested (not to exceed $1,200,000 for Plan, $600,000 for Plan Amendment, $200,000 for Plan Implementation)
$200,000
Q11
Optional: Please identify any sources and amounts of
committed or anticipated funding for this project
Respondent skipped this question
Q12

Plan Section: Capital Improvements ,
Plan Section : Implementation ,
Environmental Document ,
Community Engagement
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Item # C13.

1. Milpitas Metro Specific Plan (completed in February 2023) – https://www.milpitas.gov/_pdfs/council/2023/020723/Attachments.pdf (Item 8)

2. Milpitas Objective Design Standards for Residential & Mixed-Use Projects (completed in November 2022) – https://www.milpitas.gov/planningdepartment/ods/
Plan Section: Public Realm Standards – Milpitas Metro Specific Plan Plan Section: Community and Equity – Milpitas Metro Specific Plan Zoning and General Plan Amendment

1. Milpitas Metro Specific Plan

2. Milpitas Comprehensive Zoning Ordinance Update (in progress; Zoning and General Plan Amendments to be completed in early 2024) – https://www.milpitas.gov/_pdfs/council/2023/011723/Attachments.pdf (Item C9) Community Assessment – Milpitas Metro Specific Plan
Q14
Please upload a preliminary scope of work and budget. (See here for sample language and template materials.) 2022-2023_PDA_Planning_Grant_Application_SOW_Innovation%20District%20Park%20Concept_Final.pdf (189.9KB) Q15
Optional: Please upload any additional material you would like to share. None are required, but this may include letters of support, background material and graphics, etc.

Milpitas_ID_Final_Report_12-01-2022_Phases1%2B2.pdf (10.6MB) Q16

8. Is part, or all, of the PDA within an Equity Priority Community?
No
Q17

PRIORITY DEVELOPMENT AREA (PDA) PLANNING GRANT APPLICATION 4 / 5
Q18
If "yes", which TOC standards will be established and/or implemented?
Transit Station Access and Circulation (see pp. 21-22 for requirements)
Q19

10. Will the project involve rezoning or implement
programs and policies that are part of a Housing Element Update?
Yes,
While the proposed scope of work focuses on park and trail improvements, the goal of the project is to initiate the transformation of the Innovation District into a transit- oriented, amenity-rich area. The project will support the City’s effort to allocate resources to rehabilitate and/or replace infrastructure in under resourced neighborhoods with a higher concentration of low-income housing. The Milpitas 2023-2031 Housing Element sites inventory includes 6,831 anticipated units, 1,974 of which will be low-income, in the Metro Specific Plan area. As this significant affordable housing development occurs in the area, it will be important to ensure the City’s low-income population has adequate access to transportation and recreational facilities. The proposed parks and enhanced trail will serve future
affordable housing developments for many years to come.

As such, the project will implement the following policies and programs of the Milpitas 2023-2031 Housing Element.

1. Policy HE 6.1: Prioritize higher density, transit-oriented, and mixed-use development and an interconnected network of trails and pedestrian bridges near the Milpitas Transit Center and along transit corridors to reduce reliance on private automobiles and increase transit ridership. 2. Policy HE 9.3: Promote investment in bicycle, transit, and
pedestrian facilities to improve mobility choice and safety and to reduce auto-dependency. 3. Program 10: Place-
Based Strategies for Neighborhood Improvements.

If Yes, please explain (250 words maximum):

Q20

11. Enter the approximate increase in deed-restricted affordable housing units resulting from the project 96 Q21

12. Enter the approximate increase in total housing unit capacity resulting from the project 638
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PRIORITY DEVELOPMENT AREA (PDA) PLANNING GRANT APPLICATION 5 / 5
Q22

13. Please upload a document (template available here) explaining how the proposed project will: Advance the protection, preservation and production of affordable housing through existing or new policies, programs, and investments applicable to the PDA Reduce vehicle miles travelled and increase transit ridership through policies, programs, and investments Achieve greater racial equity in the PDA and/or city- or region-wide, including through fair housing policies, programs, and investments (300 words max) 2022-2023_PDA_Planning_Grant_Application_Question_13_Innovation%20District%20Park%20Concept_Final.pdf (90.5KB) Q23

14. Which Plan Bay Area 2050 Strategies will this project support? (check all that apply.) To see the full text for these strategies see pp. 4-8 of this .pdf.

Modernize and expand parks, trails and recreation
facilities.
,
Build a Complete Streets network,
Other(s) (please specify):

Advance other regional programs and local priorities (T7) Q24

MILPITAS INNOVATION DISTRICT PARKS & TRAILS MASTER PLAN 1 2022-23 PDA Planning Grant Application:

PRELIMINARY SCOPE OF WORK TEMPLATE

INSTRUCTIONS: If you have already developed a Scope of Work for your grant proposal, you may upload that document as part of your application. If not, this template is intended to provide a resource for developing a Preliminary Scope of Work.
• Describe the task(s) to be supported by the PDA Planning Grant. For guidance on minimum requirements, see Attachment A of the Applicant Guide. • Identify anticipated deliverables related to each task. • Delete any unused tasks in the template.
• Once you have completed the tasks and deliverables portion, fill the preliminary schedule at the end of the document, adding anticipated dates of completion Save and upload the completed template to your PDA application.

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MILPITAS INNOVATION DISTRICT PARKS & TRAILS MASTER PLAN 2 SCOPE OF WORK

MILPITAS INNOVATION DISTRICT PARKS & TRAILS MASTER PLAN Task 1 – Project Management
Tasks include kick-off meeting, monthly project schedule updates prepared in Gantt chart format, consultant contract management, monthly progress meetings attendance followed by meeting summary preparation, peer review for quality assurance and quality control, and utilization of e-Builder project management software for all project management documentation and correspondence.

Task 1 Deliverables:

1.1: Kick-off meeting presentation

1.2: Kick-off meeting summary

1.3: Monthly project schedules

1.4: Monthly meeting summaries

Task 2 – Existing Conditions Analysis
Tasks include the following reports and activities to better understand the project area:
• Document review: Obtain and review all available documents from the City including:
o Record drawings, utility mapping, GIS data, base files, and City standard details and ordinances;
o Milpitas Metro Specific Plan and Innovation District Action Plan; and o Other information deemed critical to the design.
• Topographic survey: Conduct a topographic survey to include existing features and utility locations required to design the project.
• Site investigation: Conduct a site investigation and observe and photo document existing conditions.
• Geotechnical report: Develop a geotechnical report based on a site investigation along with geotechnical observations and testing performed during construction of the adjacent residential development. Perform in-situ percolation tests at two (2) locations within the project site to ascertain subsurface soil conditions.
• Soils report: Collect four (4) discrete soil samples to determine the presence of metals and noxious chemicals. Prepare a soils report summarizing findings for use to determine soil disposal requirements.
• Existing facilities: Analyze existing parks and recreational facilities in the vicinity and conduct a targeted needs assessment.

Task 2 Deliverables:

2.1: Document review summary

2.2: Topographic survey

2.3: Site investigation findings report

2.4: Geotechnical report

2.5: Soils report

2.6: Needs assessment
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MILPITAS INNOVATION DISTRICT PARKS & TRAILS MASTER PLAN 3 Task 3 – Public Engagement
Tasks include the following public engagement activities to understand the community’s needs and desires and inform the development of the conceptual and preferred designs:
• Outreach plan and schedule: Prepare an outreach plan memo that documents decisions, dates, locations, roles and responsibilities to guide the planning and notification of public meetings. Strategies to be considered include but are not limited to mailers, electronic notifications, posters, and social media. For meetings required to be held virtually, discuss how to meet the needs of community members with limited access to internet.

Prepare a project schedule for the City’s review.
• City review meetings: Organize and facilitate four (4) meetings with key City staff to review community meeting roles, logistics, materials, and presentations. Debrief meeting outcome, review public input results, present conceptual designs and estimates, and obtain direction on proceeding with conceptual designs. Revise materials based on City input and prepare final presentations and boards to be presented at community meetings. • Meeting noticing: Prepare meeting notification mailer in digital format for both community meetings to identify date, location, time and include a general description of the meeting agenda. Prepare draft mailer in postcard format for City review and make final version incorporating City comments. Mailers to be suitable for other methods of distribution including email blasts, e-newsletters and the City’s project website. It is assumed the City will print and mail meeting notices.
• Community meetings: Organize and facilitate two (2) community meetings to receive public feedback on the project. At the first virtual meeting, present the project scope, background, process, existing conditions, schedule, and potential park features. At the second in-person meeting, engage the community in an interactive workshop and gather input on conceptual designs and desired park features using polling activities. The layout of the workshop would include various stations spread across the project site. Workshop stations would include a welcome station, project background station, conceptual design presentation and ranking station, and drinks and snacks station. • Study sessions: Attend one (1) study session with the Parks, Recreation, and Cultural Resources Commission and one (1) study session with the City Council. Present the project background, results of the public engagement, and conceptual designs. Solicit direction on the preferred design.
• Online surveys: Prepare online surveys in advance of both community meetings to reach more members of the community. Surveys for the first community meeting will solicit input related to types of park amenities preferred by the community to be included in the conceptual designs. Surveys for the second meeting will solicit community input on the three conceptual design alternatives developed using the input received from community meeting #1. Survey data will be collected, tabulated and summarized for presentation to the community, commission and City Council.

Task 3 Deliverables:

3.1: Outreach plan memo

3.2: City review meeting summaries

3.3: Meeting notification mailers in digital format for both community meetings

3.4: Community meeting materials including final presentations and boards

3.5: Community meeting summaries
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MILPITAS INNOVATION DISTRICT PARKS & TRAILS MASTER PLAN 4 3.6: Study session presentations and summaries

3.7: Online survey results summary

Task 4 – Conceptual Designs
Based on the input received from the community and City staff, prepare three (3) conceptual designs for the park at 1” = 20’ scale. Concepts to be labeled and color rendered. In addition to plan view concepts, prepare three (3) perspective renderings that represent each concept from a viewpoint within the project site to assist the community with visualizing proposed improvements. Provide inspiration imagery for each concept. Prepare preliminary estimate of construction costs for each of the three concepts including contingencies and soft costs.

Task 3 Deliverables:

3.1: Three (3) conceptual park designs

3.2: Three (3) perspective renderings

3.3: Inspiration imagery for each concept

3.4: Preliminary estimate of construction costs for each concept

Task 5 – Preferred Design
Prepare a preferred concept design based on community and city staff input. Prepare updated supplemental images the cost estimate accordingly.

Task 4 Deliverables:

4.1: Preferred concept design

4.2: Updated supplemental images and cost estimate

Task 6 – Public Hearings
Attend one (1) meeting with the Parks, Recreation, and Cultural Resources Commission for recommendation and one (1) meeting with the City Council for approval of the preferred design and next steps through a resolution.

Task 5 Deliverables:

5.1: Presentation for the Parks, Recreation, and Cultural Resources Commission

5.2: Updated presentation for the City Council

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MILPITAS INNOVATION DISTRICT PARKS & TRAILS MASTER PLAN 5 PRELIMINARY SCHEDULE & BUDGET

DELIVERABLE

ESTIMATED

DATE OF

COMPLETION

ESTIMATED
BUDET
Task 1 – Project Management 2/2024 – 8/2025 $15,000
Task 2 – Existing Conditions Analysis 2/2024 – 5/2024 $55,000 Task 3 – Public Engagement 5/2024 – 3/2025 $40,000
Task 4 – Conceptual Designs 5/2024 – 3/2025 $60,000
Task 5 – Preferred Design 3/2025 – 6/2025 $20,000
Task 6 – Public Hearings 6/2025 – 8/2025 $10,000
187
Item # C13.

MILPITAS INNOVATION DISTRICT PARKS & TRAILS MASTER PLAN 6 188
Item # C13.

The proposed project will indirectly facilitate affordable housing production by providing high- quality open space in an underserved area. The recently adopted Milpitas Metro Specific Plan requires 2 acres of publicly accessible parkland per 1,000 residents, which is lower than the typical ratio due to higher density development in the Plan area. These developments often provide open space and recreational facilities that are not publicly accessible. With the significant residential development expected in the Plan area, the Plan identifies the Innovation District as an area of particular need and proposes two new parks to enhance current service levels. Although the Innovation District prioritizes office and R&D development, it allows residential development adjacent to the proposed parks to create a campus-like setting. The proposed parks will serve employees and visitors to the area as well.

The project will also reduce vehicle miles traveled and increase transit ridership by enhancing access to the Milpitas Transit Center and supporting the transformation of the Innovation District into a transit-oriented development area. Innovation District sites east of S. Milpitas Blvd. are difficult to access from the Milpitas Transit Center by walking and bicycling. The MMSP identifies a pedestrian and bicycle overcrossing on S. Milpitas Blvd. over Berryessa Creek to improve access to this future employment area. However, the project will consider trail improvements along Berryessa Creek to provide access further into the area for future employees who desire to use public transit.

Lastly, the project will indirectly promote greater racial equity by ensuring that the MMSP area, which includes many sites in the City’s 2023-2031 Housing Element sites inventory, is a complete neighborhood with adequate access to high-quality parks and public transit. The project will provide a much-needed amenity in an area that will accommodate a significant portion of the City’s future affordable housing development.

189
Item # C13.

CITY OF MILPITAS

AGENDA REPORT
(AR)

Item Title: Accept Commissioner Resignation (Staff Contact: Suzanne Guzzetta, City Clerk, 408-586-3001)
Category: Consent Calendar-Leadership and Support Services Meeting Date: 3/21/2023
Recommendation: Accept the resignation of Abhijit Pandey from the Science, Technology and Innovation Commission and direct the City Clerk to post the notice of unscheduled vacancy.

BACKGROUND:

In accordance with the City of Milpitas Commission By-Laws adopted as Resolution No. 7702, any member or alternate member of a Commission who is no longer available to serve, must submit a resignation in writing by sending a written communication to the Mayor and the City Clerk. The written resignation must then be accepted and confirmed by City Council via action on the consent calendar at a regularly scheduled City Council meeting. Abhijit Pandey submitted a notice of resignation from the Science, Technology, and Innovation Commission on March 16, 2023.

ANALYSIS:

By state law, a Notice of an Unscheduled Vacancy must be posted by the City Clerk to advertise the vacant Commission seat. Final appointment to the board, commission, or committee for the Unscheduled Vacancy shall not be made by the legislative body for at least ten working days after the posting of the notice in the Clerk’s office. The notice of the unscheduled vacancy for the Senior Advisory Commission will be posted Wednesday, March 22, 2023.

FISCAL IMPACT:

There is no fiscal impact associated with this item.

RECOMMENDATION:

Accept the resignation of Abhijit Pandey from the Science, Technology and Innovation Commission and direct the City Clerk to post the notice of unscheduled vacancy.

Attachments:

1. Email from Science, Technology, and Innovation Alternate Commissioner Abhijit Pandey

190
Item # C14.
1 Suzanne Guzzetta
From: [email protected]
Subject: Notice of Resignation
From: Abhijit Pandey
Sent: Thursday, March 16, 2023 10:42 AM
To: Suzanne GuzzeƩa <sguzzeƩ[email protected]>
Cc: Daniel Nam <[email protected]>
Subject: Re: FPPC Annual Statement of Economic Interests (Form 700) Filing is Due on April 3, 2023

CAUTION: This email originated from outside your organizaƟon. Exercise cauƟon when opening aƩachm ents or clicking links.

Hi Suzanne/Daniel,

Please consider this mail my formal resignaƟon from the Science and Technology Commission.

I had already informed other commissioners of my move out of the City of Milpitas.

Thanks for the great opportunity.

Abhijit

191
Item # C14.

CITY OF MILPITAS

AGENDA REPORT
(AR)

Item Title: Conduct a Public Hearing to Consider Protests Against Proposed Water and Recycled Water Rates for FY 2023-24 through FY2027-28 and Introduce Ordinance No. 120.50 (Staff Contact: Christian Di Renzo, Public Works Director, 408-586-2602) Category: Public Hearings-Community Services and Sustainable Infrastructure Meeting Date: 3/21/2022
Recommendation:

1. Open public hearing and receive all written and verbal testimony regarding proposed rate increases

2. Move to close the public hearing following all speakers

3. Receive a summary from the City Clerk of the number of written protests received and the number required for a majority protest

4. City Attorney shall read aloud the title of Ordinance No. 120.50

5. If no majority protest exists, move to waive the first reading beyond the title and introduce Ordinance No. 120.50 to approve updated water and recycled water rates for FY23/24 through FY27/28. Ordinance is entitled: “An Ordinance of the City of Milpitas Amending Chapter 1 of Title VIII of the Milpitas Municipal Code Relating to Water Service Charges.”

BACKGROUND:

The City of Milpitas owns, operates and maintains an extensive network of water system infrastructure (Water System). The Water System consists of 206 miles of pipeline, four pumping stations, five storage reservoirs and pressure valves regulating seven pressure zones delivering on average 11 million gallons of drinking water per day to approximately 16,750 customer accounts. The type and number of c ustomers served are as follows:

Customer Type Approximate Number
Single family residence 12,450
Multi-family residence* 1,950
Mobile Home* 3
Commercial/Industrial/Institutional 950
Irrigation /Recycled Water/Fire 1,400
* Multi-family accounts serve approximately 11,800 units; mobile homes accounts serve approximately 521 units.

The City purchases wholesale drinking water from the San Francisco Public Utilities Commission (SFPUC) and Valley Water (VW). SFPUC water is delivered through the Hetch Hetchy Aqueduct originating in the Sierra Nevada Mountain Range. VW treats raw water from the Sacramento-San Joaquin River Delta, through the State Water and Federal San Felipe Projects. The City’s drinking water is an aggregate of approximately two-thirds from SFPUC and the remaining one-third from VW.

In accordance with State Regulations and Title 4, Chapter 3, Section 4.00 of the Milpitas Municipal Code, the City must review and set water rates and charges to ensure revenues cover all system operation a nd maintenance (“O&M”) costs and all capital improvement program (“CIP”) costs. It is important to note that the costs for water purchases are passed through from the water wholesalers to the Milpitas rate payers.

Additionally, financial reserves for unforeseen events are targeted per the City’s financial reserve policy.

Collection of revenues to offset the appropriate level of expenditures ensure that the Water System is well 192 Item # 15.

maintained and adequately sized. For customers of the Water System, receipt of sufficient revenues ensures that delivered water is safe and reliable.

The analysis and setting of maximum water r ates and charges must occur no less than every five years.

Within these five years, staff annually reviews revenues and expenditures. If revenues and expenditures occur as expected, the maximum authorized rate for the upcoming year will be applied. Alternatively, if revenues and expenditures indicate the authorized upcoming rate is excessive, a lower rate may be applied.

In no circumstances would staff increase rates above the maximum authorized amount without future City Council authorization and in accordance with the provisions of Article XIII D, Section (6)(b) of the California Constitution (commonly referred to as Proposition 218). City Council last adopted a five-year water rate and charge schedule in February of 2019. The first year of charges occurred in April 2019 and again on July 1, 2019, and each July 1st thereafter, through and including July 1, 2022. A new five-year water rate and charge schedule is needed for an effective date beginning July 1, 2023.

In the preparation of proposing FY23/24 to FY27/28 water rates and charges, the City contracted with the financial consulting firm Raftelis to develop a Cost of Service Water Rates Study (Study). The Study is a five- year modeling analysis with inputs of financial projections of revenue requirements, expected expenditures, and in -depth analysis of proposed rates / charges so that revenues fully offset expenditures. City Departments providing input into the Study include Public Works, Finance and the City Manager’s Office.

On December 6, 2022, Council received a draft water rates study and presentation from staff on proposed water rates for FY23/24 through FY27/28. After careful consideration of the information presented by staff, Council directed staff proceed with community engagement on the proposed water rates, which included administering the Proposition 218 majority protest process and setting a public hearing for March 21, 2023.

ANALYSIS:

The Study recommends increases to water rates and charges at an amount necessary to recover projected costs, including cost increases in wholesale water. The rates and charges recommended will ensure the Water System meets or exceeds customer requirements for water quality and quantity, avoids operational deficits and the depletion of reserves and maintains favorable credit ratings to minimize potential future debt services costs.

Operating Costs:

O&M expenses for the Water System include the purchase of wholesale water, staff costs, and costs for services and supplies. Approximately 72% of the City’s O&M expenses are the purchase of wholesale water from SFPUC and VW. Based on forecasts provided by both wholesalers, staff expects annual wholesale water cost increases of 7% to 12% over the next five years. Expected increases in wholesale water costs account for approximately 49% of the proposed five-year rate increases. FY23/24 wholesale water purchases are estimated at $24 million. For the five-year period (FY23/24 to FY27/28) water purchases are estimated to total $137 million.

City operating costs are estimated to increase by 4% annually through FY27/28. This increase includes costs to enhance the City’s cross connection program to ensure compliance with State requirements and for increased support of remote monitoring / control of facilities . Expected increases in City operating costs account for approximately 12% of the proposed five-year increases. FY23/24 estimated operating costs are $10.1 million. For the five -year period (FY23/24 to FY27/28) operating costs are estimated to total $54.6 million.

Capital Improvement Program:

On August 9, 2022, City Council adopted the 2022 Water Master Plan (Plan) that included recommendations for CIP projects through the year 2040. The CIP projects recommended in the Plan were prioritized based on existing conditions, completed asset renewal/replacement studies and completed risk/resiliency 193 Item # 15.

assessments. High priority improvements were recommended for completion within the first five years, medium and low priority improvements were recommended for completion prior to 2040. Current funded CIP projects are being evaluated. Significant CIP projects programmed in the next five years (in 2022 dollars) include:
 Replacement or rehabilitation of assets or facilities. Projects include replacement of aging pipes, valves and improvements to above grade facilities such as pump stations and water tanks. ($16.5 million)
 Detailed condition assessment of Water System ($2.7 million)  Pipeline replacement to improve flow in the system for fire suppression ($6.5 million)  Citywide cross connection survey ($750k)

Due to the cost and impact on rates in FY23/24, some projects programmed in the Plan to begin design and construction in FY23/24 were pushed to FY25/26. Increases in capital spending costs account for approximately 39% to the proposed five -year increases. For the five -year period (FY23/24 to FY27/28) capital costs are estimated to total $32.6 million.

FY22/23 Ending Balance, Reserve Balance &, Capital Surcharge Balance

For FY22/23, the Water Utility Enterprise Fund is projected to have an ending balance of $34 million. $14.8 million of this amount is set aside per targets in the City’s financial reserve policy. The remaining $19.2 million will be used to fund O&M and CIP projects from FY23/24 to FY27/28.

Wholesale water costs are projected to increase faster than proposed customer rates and charges in the first years of the five-year schedule. Costs differences will be absorbed by existing operating surpluses and the rate stabilization reserve. In the later years of the five-year period, accumulating annual rate and charges will substantially catch up with no additional funding needed. With the proposed rate and charge increases of 6.4% annually, the reserve targets in FY27/28 are $20.8 million. Capital reserves for emergencies will be $11.3M (88% of target level), rate stabilization reserves will be $4.9M (68% of target level), pension liability reserve will be $0.8M (no target level) and infrastructure (CIP) reserves will be $5.6M (exceeds target level of "at least $2M"). Total Water Utility Enterprise Fund ending balance will be approximately $22.5 million.

A capital surcharge in customers water bills was implemented in FY16/17. The purpose of this surcharge is to provide funding for capital projects and debt service. Approximately $17.5 million is available in this fund and will be applied to the Plan projects.

Proposed Rates:

The City’s water rate and charge schedules consist of three components, “Fixed Charges," are charged for the meter and system infrastructure, “Volume Charges” are charged per hundred cubic feet (HCF) of metered water use, and the “Capital Surcharge Charges”.

The proposed rate and charge amounts include increases for all three charges. If the proposed rate and charge amounts become effective on July 1, 2023, the bill would increase by approximately $9.19 bi - monthly for FY23/24 for a “typical customer,” which is a single -family residential customer, with a 5/8 -inch water meter and using 14 HCF in a bi-monthly period, as shown below:

Item Current Rates Proposed Maximum Rates
FY23/24
Fixed Meter Charge $34.10 $35.87
Volumetric Charge $6.70 x 14 HCF = $93.80 $7.17 x 14 HCF = $100.38 Capital Surcharge $1.08 x 14 HCF = $15.12 $1.14 x 14 HCF = $15.96 Bi-monthly Bill Amount $143.02 $152.21
Bi-monthly Bill Impact $9.19
194
Item # 15.

The proposed maximum rate and capital surcharge five-year fee schedule for all customers are included in attachment #1.

Rate Subsidy Program:

Water funds collected as penalties and Federal American Rescue Plan Act (ARPA) funds, administered by the City, are available to eligible customers through the Milpitas Assistance Program (MAP). Currently, customers do need to have their own separate water meter to be eligible. All mobile home parks and some multi-family units in the City have one master water meter that serves multiple residents. For these customers, their homeowner association then bills its’ residents for water through homeowner association fees. Staff is investigating how to provide the MAP to these residents.

For eligible residents, the amount of MAP discount varies based on eligibility requirements of four tiers. In FY21/22, the number of enrolled customers for both water and sewer was 211 with an average discount amount for both water and sewer of $22 bi-monthly ($132 annually).

Aside from MAP, public agencies providing water service may implement low-income water rate assistance programs, but rate discounts must be funded from non-rate sources of revenues – e.g., lease revenues and revenues from fines and penalties other than a civil liability imposed for violations of the City’s water conservation program. A household may qualify for Low Income Household Water Assistance Program which is a federally funded program administered through the State of California, Department of Community Services and Development. Information on this program can be found at: www.csd.ca.gov/waterbill.

Proposition 218 Noticing and Community Engagement:

Proposition 218, a state proposition approved by California voters in 1996, added Article XIII D to the California Constitution which requires voter approval prior to the imposition of any new or increased existing tax, assessment or certain user fees. It also requires local agencies imposing any new or any increases in any existing property-related fees and charges to comply with certain procedural requirements prior to their adoption. Water Service fees and charges are subject to these procedural requirements. Pursuant to Article XIII D, section 6, the City is required to hold a public hearing to consider the proposed water service rates, fees, and charges. Additionally, the City is required to provide ratepayers and property owners with a written notice of the proposed rate increases, and the date, time and location of the public hearing on the proposed rate increase. Subdivision (a) of Section 6 of the California Constitution’s Article XIII D requires that 45 days must elapse from the time the notices are mailed until the public hearing on the proposed rate increases.

Any property owner may submit a written protest of the proposed increase. Only one protest per parcel will be counted. If a majority of parcels submit protests, the City cannot adopt the proposed rates.

On January 31, 2023, the required notices were mailed to the record property owners, tenants, and businesses in the City, communicating the proposed rate adjustments. As required by Proposition 218 guidelines, the notice included the location, date and time of the public hearing. There are 20,711 separate parcels in the City; therefore, the City would need to receive 10,357 valid protests (only counting one protest per parcel) to be considered a majority. Property owners may turn in (by mail or hand delivery) protest letters at any time prior to the close of the public hearing. Immediately after the close of the public hearing, staff will complete counting and totaling all protest letters. If there is not a majority protest, the C ouncil can approve the rate adjustments and introduce the ordinance imposing the new water rates.

In an effort to educate the community on the City’s water system and provide information on the proposed rates, City staff held community meetings and workshops on the dates and at the locations listed below:
 February 9, 2023 – Milpitas Community Center Auditorium  February 16, 2023 – Milpitas Community Center Auditorium  February 23, 2023 – Milpitas Chamber of Commerce Meeting

followers), NextDoor (24,000 followers) and Soofa digital display boards located at three City locations, which average 15,000 impressions per campaign/month. A dedicated webpage on the City’s website was established at www.milpitas.gov/watersewer2023, updated regularly and included rates factsheets, links to the rates studies and frequently asked questions. The Proposition 218 notice was translated into Spanish, Vietnamese and Tagalog and posted on the City’s webpa ge. The legal notice of the Public Hearing was published in the Milpitas Post on March 10, 2023, in advance of City Council consideration of these proposed rate adjustments.

POLICY ALTERNATIVE(S):

Alternative 1: Do Not Approve Proposed Water Rate Increases

Pros: The existing water rates would remain in place.

Cons: The water fund would be in violation of the Municipal Code, which requires the water fund be operated as a self-supporting enterprise. The City would not have enough funds to pay for wholesale water and continue to operate and maintain the system, which in turn can jeopardize the City’s ability to meet mandated water quality standards. A delay in adjusting water rates also impacts the City’s ability to fund critical capital improvement projects needed to maintain system reliability and replace/rehabilitate the pipeline infrastructure.

Reason for Not Recommending: Financially, no-action to increase water rates and charges will result in revenues falling below what is needed. This would result in the delay of construction of priority capital improvement projects and an increased risk of customer requirements for water quality and quantity not being met. By FY25/26, operating reserves would fall further below policy targets and the Water System will not generate sufficient revenues to pay for its wholesale water purchases and debt services obligations without impact to the General Fund. All reserves would be depleted by FY26/27 and future credit ratings would be impacted.

FISCAL IMPACT:

If the Proposition 218 majority protest process is concluded without a majority protest and the water rate adjustments are adopted as presented, the new water rate and charges would generate enough revenues for the next five years to meet or exceed customer requirements for water quality and quantity, avoid operational deficits, depletion of reserves and maintains favorable credit ratings to minimize potential future debt services costs.

California Environmental Quality Act (CEQA):

Approval of the recommendation is not an activity defined as a “project” under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines 15061(b)(3) and 15378(b)(4) either because it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment and/or because the action is financial and/or administrative and does not directly impact the environment.

RECOMMENDATION:

1. Open Public Hearing and receive all written and verbal testimony regarding proposed rate increases

2. Move to close the public hearing following all speakers

3. Receive a summary from the City Clerk of the number of written protests received and the number required for a majority protest.

4. City Attorney shall read aloud the title of Ordinance No. 120.50.

5. If no majority protest exists, move to waive the first reading beyond the title and introduce Ordinance No. 120.50 to approve updated water rates for FY23/24 through FY27/28. Ordinance No. 120.50 is entitled: “AN ORDINANCE OF THE CITY OF MILPITAS AMENDING CHAPTER 1 OF TITLE VIII OF THE MILPITAS MUNICIPAL CODE RELATING TO WATER SERVICE CHARGES.”

Attachment(s):

1. Water Proposed Maximum Rate / Charge Fee Schedule

2. Ordinance No. 120.50 for Introduction

3. Final Water Rates Study (March 2023) 196
Item # 15.

4. Proposition 218 Notice

197
Item # 15.

Attachment 1 - Water Proposed Maximum Rate / Charge Fee Schedule

Potable Water Fixed Meter Charges
Bi-monthly $ based on Meter Size | Applies to all customer classifications Meter Size (Inches) Current Rates 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 5/8 $34.10 $35.87 $38.21 $40.70 $43.35 $46.17
3/4 $51.14 $47.03 $50.09 $53.35 $56.82 $60.52
1 $85.24 $69.34 $73.85 $78.66 $83.78 $89.23
1-1/2 $170.48 $125.14 $133.28 $141.95 $151.18 $161.01 2 $272.76 $192.10 $204.59 $217.89 $232.06 $247.15
3 $511.43 $404.13 $430.40 $458.38 $488.18 $519.92
4 $852.38 $716.60 $763.18 $812.79 $865.63 $921.90
6 $1,704.76 $1,464.29 $1,559.47 $1,660.84 $1,768.80 $1,883.78 8 $1,704.76 $3,138.22 $3,342.21 $3,559.46 $3,790.83 $4,037.24 10 $1,704.76 $4,700.56 $5,006.10 $5,331.50 $5,678.05 $6,047.13

Private Fireline
Bi-monthly $ based on Fire Service Line Size | Applies to all customer classifications with a dedicated fireline Line Size (Inches) Current Rates 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 2 $54.55 $54.55 $54.55 $54.55 $54.55 $54.55
3 $102.29 $102.29 $102.29 $102.29 $102.29 $102.29
4 $170.48 $170.48 $170.48 $170.48 $170.48 $170.48
6 $340.95 $340.95 $340.95 $340.95 $340.95 $340.95
8 $340.95 $340.95 $340.95 $340.95 $340.95 $340.95
10 $340.95 $340.95 $340.95 $340.95 $340.95 $340.95

Volumetric Charges
Bi-monthly $ per unit (1 unit = 1 hundred cubic feet = 748 Gallons) Meter Size (Inches) Current Rates 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 Potable $6.70 $7.17 $7.64 $8.14 $8.67 $9.24
Recycled $4.51 $5.41 $5.77 $6.15 $6.55 $6.98
Capital $1.08 $1.14 $1.20 $1.26 $1.33 $1.40

Recycled Water Fixed Meter Charges
Bi-monthly $ based on Meter Size | Applies to all customer classifications Meter Size (Inches) Current Rates 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 5/8 $34.10 $13.54 $14.43 $15.37 $16.37 $17.44
3/4 $51.14 $13.54 $14.43 $15.37 $16.37 $17.44
1 $85.24 $13.54 $14.43 $15.37 $16.37 $17.44
1-1/2 $170.48 $13.54 $14.43 $15.37 $16.37 $17.44
2 $272.76 $13.54 $14.43 $15.37 $16.37 $17.44
3 $511.43 $13.54 $14.43 $15.37 $16.37 $17.44
4 $852.38 $13.54 $14.43 $15.37 $16.37 $17.44
6 $1,704.76 $13.54 $14.43 $15.37 $16.37 $17.44
8 $1,704.76 $13.54 $14.43 $15.37 $16.37 $17.44
10 $1,704.76 $13.54 $14.43 $15.37 $16.37 $17.44

198
Item # 15.

REGULAR

NUMBER: 120.50

TITLE: AN ORDINANCE OF THE CITY OF MILPITAS AMENDING SECTION 6 OF CHAPTER 1,

TITLE VIII OF THE MILPITAS MUNICIPAL CODE RELATING TO WATER SERVICE

CHARGES

HISTORY: This Ordinance was introduced (first reading) by the City Council at its meeting of __________________, upon motion by __________________ and was adopted (second reading) by the City Council at its meeting of_____________, upon motion by __________________. Said Ordinance was duly passed and ordered published in accordance with law by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

ATTEST: APPROVED:

__________________________________ ____________________________ Suzanne Guzzetta, City Clerk Carmen Montano, Mayor

APPROVED AS TO FORM:

__________________________________
Michael Mutalipassi, City Attorney

199
Item # 15.
1 Ordinance No. 120.50
RECITALS AND FINDINGS:

WHEREAS, the provision of potable and recycled water services by the City of Milpitas (“City”) require the City to incur capital, operating, maintenance, replacement, and other costs related to the provision of such services; and

WHEREAS, the City engaged Raftelis to prepare a cost of service analysis and water rate study (the “Rate Study”); and

WHEREAS, as a result of the Rate Study, the City Council has determined that increases in the rates for its water service charges are in the best interests of the City and in keeping with sound business and financial management of the water enterprises; and

WHEREAS, the City Council hereby finds and determines the following with regard to the proposed rate increases to the water service charges:

1. The rate structure for the water service charges has three components: (a) a Water Meter Charge, which is a fixed bimonthly charge determined on the basis of the size of the water meter (in inches) serving a customer’s property and calculated to recover a portion of the City’s fixed costs in providing water service; (b) a Volumetric Charge, which is a uniform rate determined based on customer class, imposed on the basis of the amount of water delivered to a customer in hundreds of cubic feet (“HCF”) and calculated to recover a portion of the City’s fixed and variable costs of providing water service; and (c) a Capital Surcharge imposed on the basis of the amount of water delivered to a customer in HCF and calculated to recover capital costs of the water system; and

2. The rate structure also has a Fire Meter Charge which is: (a) imposed on certain properties requiring a large private fire suppression system, and upon the request of the customer or property owner for the delivery of water to the property for the purpose of fire service protection; and (b) established on the basis of the size of the fire service line (in inches) and calculated to recover the cost of providing water to such properties for private fire service protection; and

WHEREAS, the City hereby finds and determines that in accordance with the provisions of California Constitution Article XIII D, Section 6 (“Article XIII D”):

1. The City identified the parcels upon which the water service charges are proposed to be imposed, and calculated the amount of the water service charges proposed to be imposed on each parcel; and

2. The City caused a written notice to be mailed to the record owners of property upon which the proposed water service charges will be imposed and the customers of each parcel upon which the proposed increases to the water service charges are proposed for imposition, which explained: (a) the amount of the water service charges; (b) the basis on which they were calculated; (c) the reason for the increases; and (d) the date, time, and location of the public hearing on the proposed increases; and

3. On March 21, 2023 (more than 45 days after mailing the notice), the City conducted a public hearing and considered all written protests against the proposed increases to the rates for the water service charges; and

4. At the conclusion of the public hearing, written protests against the proposed increases to the rates for the water service charges were not presented by a majority of property owners of record and customers subject to the proposed water service charges; and

WHEREAS, the adoption of the proposed increases to water service charges are statutorily exempt from the requirements of the California Environmental Quality Act under California Resources Code Section 21080(b)(8).

NOW THEREFORE, the City Council of the City of Milpitas does ordain as follows:

200
Item # 15.
2 Ordinance No. 120.50
SECTION 1. RECORD AND BASIS FOR ACTION

The City Council has duly considered the full record before it, which may include but is not limited to such things as the Rate Study, City staff report, testimony by staff and the public, and other materials and evidence submitted or provided to the City Council. Furthermore, the recitals set forth above are found to be true and correct and are incorporated herein by reference.

SECTION 2. AMENDMENT OF MILPITAS MUNICIPAL CODE VIII-1-6.13 THROUGH VIII-1-6.16

Sections VIII-1-6.13, VIII-1-6.14, VIII-1-6.15 and VIII-6.16 of the Milpitas Municipal Code are hereby amended to read as follows:

VIII-1-6.13 - Quantity Charges

The quantity charges include a volumetric charge and a capital surcharge. The uniform rates for the quantity charges are billed bimonthly and imposed per hundred cubic feet ("HCF") for metered water service. The rates and effective dates for the quantity charges shall be those set forth below.

RATES AND EFFECTIVE DATES FOR QUANTITY CHARGES ($/HCF)
Customer Class
Volumetric
Charge
4/1/2019
Volumetric
Charge
7/1/2019
Volumetric
Charge
7/1/2020
Volumetric
Charge
7/1/2021
Volumetric
Charge
7/1/2022
Capital
Surcharge
4/1/2019
Residential: $5.31 $5.63 $5.97 $6.32 $6.70 $1.08
Commercial/
Industrial/
Institutional/
Construction Meter
$5.31 $5.63 $5.97 $6.32 $6.70 $1.08
Irrigation (potable) $5.31 $5.63 $5.97 $6.32 $6.70 $1.08 City Accounts
(potable) $5.31 $5.63 $5.97 $6.32 $6.70 $1.08
Santa Clara County
(Ed Levin Park)* $4.10 $4.10 $4.10 $4.10 $4.47 NA
Recycled -
Irrigation $3.57 $3.79 $4.01 $4.25 $4.51 NA
Recycled -
Industrial/ Dual
Plumbed/
Construction Water
$3.57 $3.79 $4.01 $4.25 $4.51 NA
City Accounts
(recycled) $3.57 $3.79 $4.01 $4.25 $4.51 NA

The Santa Clara County (Ed Levin Park) rate is established by contract to be equivalent to the San Francisco Public Utilities Commission ("SFPUC") wholesale rate. The FY 2018-19 SFPUC rate is $4.10/HCF and staff will revise to actual rate each fiscal year once SFPUC adopts their wholesale rate.

RATES AND EFFECTIVE DATES FOR QUANTITY CHARGES ($/HCF)
7/1/2022 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027
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Potable $6.70 $7.17 $7.64 $8.14 $8.67 $9.24
Recycled $4.51 $5.41 $5.77 $6.15 $6.55 $6.98
Capital $1.08 $1.14 $1.20 $1.26 $1.33 $1.40

FY = Fiscal Year
1 HCF = One Hundred Cubic Feet = 748 Gallons
VIII-1-6.14 - Bimonthly Water Meter Charges

(a) Water Meter Charges: The rates and the effective dates for the bimonthly water meter charges, determined on the basis of the size of the water meter, shall be as follows:

RATES AND EFFECTIVE DATES FOR WATER METER CHARGES
($/METER SIZE)
Water Meter Size Charge
4/1/2019
Charge
7/1/2019
Charge
7/1/2020
Charge
7/1/2021
Charge
7/1/2022
5/8" $27.01 $28.63 $30.34 $32.17 $34.10
3/4" $40.51 $42.94 $45.52 $48.25 $51.14
1" $67.52 $71.57 $75.86 $80.41 $85.24
1½" $135.03 $143.13 $151.72 $160.83 $170.48
2" $216.05 $229.02 $242.76 $257.32 $272.76
3" $405.10 $429.40 $455.17 $482.48 $511.43
4" $675.16 $715.67 $758.61 $804.13 $852.38
6" and above $1,350.33 $1,431.35 $1,517.23 $1,608.26 $1,704.76

BIMONTHLY WATER METER RATES AND EFFECTIVE DATES FOR POTABLE WATER SERVICE CHARGE
($/SIZE OF WATER METER)

Meter Size
(Inches) 7/1/2022 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 5/8 $34.10 $35.87 $38.21 $40.70 $43.35 $46.17
3/4 $51.14 $47.03 $50.09 $53.35 $56.82 $60.52
1 $85.24 $69.34 $73.85 $78.66 $83.78 $89.23
1-1/2 $170.48 $125.14 $133.28 $141.95 $151.18 $161.01 2 $272.76 $192.10 $204.59 $217.89 $232.06 $247.15
3 $511.43 $404.13 $430.40 $458.38 $488.18 $519.92
4 $852.38 $716.60 $763.18 $812.79 $865.63 $921.90
6 $1,704.76 $1,464.29 $1,559.47 $1,660.84 $1,768.80 $1,883.78 202
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8 $1,704.76 $3,138.22 $3,342.21 $3,559.46 $3,790.83 $4,037.24 10 $1,704.76 $4,700.56 $5,006.10 $5,331.50 $5,678.05 $6,047.13

BIMONTHLY WATER METER RATES AND EFFECTIVE DATES FOR RECYCLED WATER SERVICE CHARGE
($/SIZE OF WATER METER)

Meter Size
(Inches) 7/1/2022 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 5/8 $34.10 $13.54 $14.43 $15.37 $16.37 $17.44
3/4 $51.14 $13.54 $14.43 $15.37 $16.37 $17.44
1 $85.24 $13.54 $14.43 $15.37 $16.37 $17.44
1-1/2 $170.48 $13.54 $14.43 $15.37 $16.37 $17.44
2 $272.76 $13.54 $14.43 $15.37 $16.37 $17.44
3 $511.43 $13.54 $14.43 $15.37 $16.37 $17.44
4 $852.38 $13.54 $14.43 $15.37 $16.37 $17.44
6 $1,704.76 $13.54 $14.43 $15.37 $16.37 $17.44
8 $1,704.76 $13.54 $14.43 $15.37 $16.37 $17.44
10 $1,704.76 $13.54 $14.43 $15.37 $16.37 $17.44

(b) For Temporary Construction Meter Customers, the bimonthly water meter charges shall be equal to the bimonthly water meter charges for three-inch water meters set forth in Section 6.14(a).

No adjustments shall be granted to any water account holder due to variation in the days of service for any bimonthly billing period. Acceptable days of service range from 50 to 69 days per bimonthly billing period.

VIII-1-6.15 - Fire Service Charges

The rates and effective dates for the bimonthly fire service charges, determined on the basis of the size of the fire service, shall be as follows:

RATES AND EFFECTIVE DATES FOR FIRE SERVICE CHARGE
($/SIZE OF FIRE SERVICE LINE)
Fire Service Line
Size
Charge
4/1/2019
Charge
7/1/2019
Charge
7/1/2020
Charge
7/1/2021
Charge
7/1/2022
2" $43.21 $45.80 $48.55 $51.46 $54.55
3" $81.02 $85.88 $91.03 $96.50 $102.29
4" $135.03 $143.13 $151.72 $160.83 $170.48
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6" and above $270.07 $286.27 $303.45 $321.65 $340.95

RATES AND EFFECTIVE DATES FOR FIRE SERVICE CHARGE
($/SIZE OF FIRE SERVICE LINE)

Line Size
(Inches) 7/1/2022 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 2 $54.55 $54.55 $54.55 $54.55 $54.55 $54.55
3 $102.29 $102.29 $102.29 $102.29 $102.29 $102.29
4 $170.48 $170.48 $170.48 $170.48 $170.48 $170.48
6 $340.95 $340.95 $340.95 $340.95 $340.95 $340.95
8 $340.95 $340.95 $340.95 $340.95 $340.95 $340.95
10 $340.95 $340.95 $340.95 $340.95 $340.95 $340.95

Water flowing through fire suppression systems shall be used solely for the purpose of fire protection and testing of such fire protection systems. In the event that water service provided through fire suppression systems is used for purposes other than for fire protection or the testing of such fire protection systems, the quantity charges equal to the quantity charge rates (per HCF) for Commercial/Industrial/Institutional customers shall be imposed.

VIII-1-6.16 - Billing and Effective Dates of Water Rates and Charges Billing. After the Ordinance adopting the charges set forth in this Section goes into effect, customers shall be subject to the water service charges at the rates and on the effective dates set forth in 6.13 (Quantity Charges), 6.14 (Bimonthly Water Meter Charges), and 6.15 (Fire Service Charges), for services provided on or after April 1, 2019, July 1, 2019, July 1, 2020, July 1, 2021, and July 1, 2022 July 1, 2023, July 1, 2024, July 1, 2025, July 1, 2026, and July 1, 2027 respectively. In the absence of amendment of the rates set forth herein or adoption of a new rate ordinance, the rates in effect on July 1, 20227, and set forth herein shall remain in effect until amended or repealed.

SECTION 3. SEVERABILITY
If any section, subsection, subdivision, sentence, clause, phrase, or portion of this Ordinance, or the application thereof to any person or place, is for any reason held to be invalid or unconstitutional by a court of competent jurisdiction, such decision shall not affect the validity of the remainder of this Ordinance. The City Council hereby declares that it would have adopted this Ordinance, and each and every section, subsection, subdivision, sentence, clause, phrase, or portion thereof, irrespective of the fact that any one or more sections, subsections, subdivisions, sentences, clauses, phrases, or portions thereof be declared invalid or unconstitutional, provided, however, that if any decision of a court of competent jurisdiction invalidates the increase of the water service charges set forth in this Ordinance, then the water service charges in effect on the date of adoption shall continue in existence.

SECTION 4. ORDINANCE PREVAILS
To the extent that any other provision of local law relating to the establishment of water charges is inconsistent with this Ordinance, the provisions of this Ordinance shall prevail. This Ordinance shall supersede all other previous City Council resolutions and ordinances that may conflict with, or be contrary to, this Ordinance.

SECTION 5. EFFECTIVE DATE AND POSTING
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This Ordinance shall take effect thirty (30) days from and after the date of its passage. The City Clerk of the City of Milpitas shall cause this Ordinance or a summary thereof to be published in accordance with Section 36933 of the Government Code of the State of California.

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Water and Wastewater Rate Study
Study Report / March 3, 2023
City of
Milpitas, CA
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445 S Figueroa St, Suite 1925
Los Angeles CA 90071

www.raftelis.com

March 3, 2023

Mr. Harris Siddiqui, PE
Principal Engineer
City of Milpitas
455 East Calaveras Boulevard
Milpitas, CA 95035

Subject: Water and Wastewater Rate Study

Dear Mr. Siddiqui,

Raftelis is pleased to provide this Water and Wastewater Study Report to the City of Milpitas. The study's purpose was to develop a five-year proposed water and wastewater rate schedule for the City for Fiscal Year (FY) 2024 through FY 2028 that is fair and equitable.

The study's major goals are to:
» Develop a five-year financial plan to ensure financial sufficiency, meet operating costs, fund the long-term Capital Improvement Plan (CIP) including the projects identified in the Master Plans adopted by the City in June 2022, and maintain prudent reserves.
» Conduct a cost-of-service analysis to ensure a strong nexus between proposed water and wastewater rates and the cost to provide service to customers.

It has been a pleasure working with you, and we thank you and other City staff for the support provided to Raftelis during this study.

Sincerely,

Todd Cristiano
Project Manager
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Table of Contents

1. EXECUTIVE SUMMARY ............................................................................................................................... 1

1.1. Study Overview ................................................................................................................................. 1

1.2. Proposed Water Financial Plan ......................................................................................................... 1

1.3. Proposed Wastewater Financial Plan ............................................................................................... 3

1.4. Bill Impacts and Comparison ............................................................................................................. 6

2. INTRODUCTION ............................................................................................................................................ 8

2.1. Study Overview ................................................................................................................................. 8

3. LEGAL REQUIREMENTS AND RATE SETTING METHODOLOGY .......................................................... 9

3.1. Legal Requirements .......................................................................................................................... 9

3.2. Rate-Setting Methodology ................................................................................................................. 9

4. WATER UTILITY KEY INPUTS AND ASSUMPTIONS .............................................................................. 11

4.1. Available Fund Balance ................................................................................................................... 11

4.2. Current Water Rates ........................................................................................................................ 11

4.3. Financial Assumptions ..................................................................................................................... 12

4.4. Projected Service Connections ....................................................................................................... 12

4.5. Projected Water Use and Supply .................................................................................................... 13

5. WATER FINANCIAL PLAN ......................................................................................................................... 15

5.1. Revenues From Current Rates ....................................................................................................... 15

5.2. Operations and Maintenance Expenses ......................................................................................... 18

5.3. Debt Service .................................................................................................................................... 19

5.4. Capital Improvement Plan ............................................................................................................... 19

5.5. Financial Policies ............................................................................................................................. 20

5.6. Status Quo Financial Plan ............................................................................................................... 21

5.7. Proposed Financial Plan ................................................................................................................. 23

6. WATER COST OF SERVICE ANALYSIS ................................................................................................... 26

6.1. Methodology .................................................................................................................................... 26

6.2. Revenue Requirement..................................................................................................................... 26

6.3. Allocation of Expenses to Rate Components .................................................................................. 27

7. PROPOSED WATER RATES ..................................................................................................................... 29

7.1. Proposed FY 2024 Fixed Meter Charges ........................................................................................ 29

7.2. Proposed FY 2024 Volume Charges .............................................................................................. 30

7.3. Proposed Private Fire Line Charges ............................................................................................... 30

7.4. Proposed Five-Year Rate Schedule ................................................................................................ 30

7.5. Bi-Monthly Bill Impacts .................................................................................................................... 31

8. WASTEWATER UTILITY KEY INPUTS AND ASSUMPTIONS ................................................................. 33

8.1. Available Fund Balance ................................................................................................................... 33

8.2. Current Wastewater Rates .............................................................................................................. 33

8.3. Financial Assumptions ..................................................................................................................... 34

8.4. Projected Service Connections ....................................................................................................... 34

8.5. Projected Wastewater Volumes ...................................................................................................... 35

9. WASTEWATER FINANCIAL PLAN ............................................................................................................ 37

9.1. Revenues From Current Rates ....................................................................................................... 37

9.2. Operations and Maintenance Expenses ......................................................................................... 40

9.3. Capital Improvement Plan ............................................................................................................... 41

9.1. Debt Service .................................................................................................................................... 42 209
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9.2. Financial Policies ............................................................................................................................. 43

9.3. Status Quo Financial Plan ............................................................................................................... 43

9.4. Proposed Financial Plan ................................................................................................................. 46

10. WASTEWATER COST OF SERVICE ANALYSIS...................................................................................... 50

10.1. Methodology .................................................................................................................................... 50

10.2. Units of Service ............................................................................................................................... 50

10.3. Revenue Requirement..................................................................................................................... 52

10.4. Allocation of Expenses to Rate Components .................................................................................. 52

10.1. Customer Class Costs ..................................................................................................................... 54

11. PROPOSED WASTEWATER RATES ........................................................................................................ 56

11.1. Proposed FY 2024 Fixed Meter Charges ........................................................................................ 56

11.2. Proposed FY 2024 Volume Charges .............................................................................................. 57

11.3. Proposed Five-Year Rate Schedule ................................................................................................ 57

11.4. Mobile Home Rate Subsidy ............................................................................................................. 59

12. COMBINED BILL IMPACTS AND BILL COMPARISON ........................................................................... 60

12.1. Causes of Different Rate Changes.................................................................................................. 63

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List of Tables
Table 1-1: Proposed Water Revenue Adjustments ...................................................................................................... 1 Table 1-2: Proposed Five-Year Water Rate Schedule ................................................................................................. 3 Table 1-3: Proposed Wastewater Revenue Adjustments ............................................................................................. 3 Table 1-4: Proposed Five-Year Wastewater Rate Schedule ........................................................................................ 5 Table 4-1: FY 2023 Beginning Fund Balances ........................................................................................................... 11 Table 4-2: Current Water Rate Schedule ................................................................................................................... 12 Table 4-3: Projected Number of Water Meters Under Existing Rate Structure .......................................................... 13 Table 4-4: Projected Water Use Under Existing Rate Structure ................................................................................. 14 Table 4-5: Projected Water Supply Mix ...................................................................................................................... 14 Table 5-1: Projected Fixed Meter Charge Revenues under Current Rates ............................................................... 15 Table 5-2: Projected O&M Volume Charge Revenues Under Current Rates ............................................................ 16 Table 5-3: Projected Capital Charge Revenues Under Current Rates ....................................................................... 17 Table 5-4: Projected Other Revenues ........................................................................................................................ 17 Table 5-5: Summary of Projected Revenues Under Current Rates ........................................................................... 18 Table 5-6: O&M Summary by Department ................................................................................................................. 18 Table 5-7: Water Purchase Cost Detail ...................................................................................................................... 19 Table 5-8: Schedule of Debt Service Payments ......................................................................................................... 19 Table 5-9: Capital Improvement Plan ......................................................................................................................... 20 Table 5-10: Status Quo Operating Financial Plan ...................................................................................................... 21 Table 5-11: Status Quo Capital Financial Plan ........................................................................................................... 22 Table 5-12: Status Quo Financial Plan – Projected Reserves ................................................................................... 23 Table 5-13: Proposed Revenue Adjustments ............................................................................................................. 23 Table 5-14: Proposed Operating Financial Plan ......................................................................................................... 24 Table 5-15: Proposed Capital Financial Plan ............................................................................................................. 24 Table 5-16: Proposed Financial Plan – Projected Ending Balances .......................................................................... 25 Table 6-1: FY 2024 Revenue Required from Rates ................................................................................................... 27 Table 6-2: Allocation of Revenue Requirement .......................................................................................................... 28 Table 7-1: Proposed FY 2024 Fixed Meter Charge Calculation ................................................................................. 29 Table 7-2: Proposed FY 2024 Volume Charge Calculation ........................................................................................ 30 Table 7-3: Fire Line Charges ...................................................................................................................................... 30 Table 7-4: Proposed Five-Year Water Rate Schedule ............................................................................................... 31 Table 7-5: Average Residential Bill Forecast .............................................................................................................. 32 Table 7-6: Residential Bill Impacts at Varying Levels of Water Use........................................................................... 32 Table 8-1: FY 2023 Beginning Fund Balances ........................................................................................................... 33 Table 8-2: Current Wastewater Rate Schedule .......................................................................................................... 34 Table 8-3: Projected Number of Billed ERUs and Commercial Accounts .................................................................. 35 Table 8-4: Projected Wastewater Use ........................................................................................................................ 36 Table 9-1: Projected Fixed Charge Revenues under Current Rates .......................................................................... 38 Table 9-2: Projected Volume Charge Revenues Under Current Rates ...................................................................... 39 Table 9-3: Projected Other Revenues ........................................................................................................................ 40 Table 9-4: Summary of Projected Revenues Under Current Rates ........................................................................... 40 Table 9-5: O&M Summary by Department ................................................................................................................. 41 Table 9-6: Capital Improvement Plan ......................................................................................................................... 42 Table 9-7: Debt Service .............................................................................................................................................. 42 Table 9-8: Status Quo Operating Financial Plan ........................................................................................................ 44 Table 9-9: Status Quo Capital Financial Plan ............................................................................................................. 45 Table 9-10: Status Quo Financial Plan- Projected Ending Balances ......................................................................... 46 Table 9-11: Proposed Revenue Adjustments ............................................................................................................. 46 211
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Table 9-12: Proposed Operating Financial Plan ......................................................................................................... 47 Table 9-13: Proposed Capital Financial Plan ............................................................................................................. 47 Table 9-14: Proposed Financial Plan – Projected Ending Balances .......................................................................... 49 Table 10-1: FY 2024 Wastewater Units of Service ..................................................................................................... 51 Table 10-2: FY 2024 Revenue Required from Wastewater Rates ............................................................................. 52 Table 10-3: Wastewater Revenue Requirement Allocation ........................................................................................ 54 Table 10-4: Customer Class Cost of Service .............................................................................................................. 55 Table 11-1: Proposed FY 2024 Fixed Charge Calculation ......................................................................................... 56 Table 11-2: Proposed FY 2023 Volume Charge Calculation ...................................................................................... 57 Table 11-3: Proposed Five-Year Wastewater Rate Schedule .................................................................................... 58 Table 11-4: Mobile Home Subsidy Option .................................................................................................................. 59 Table 12-1: Combined Bi-Monthly Bill Impact ............................................................................................................. 60

List of Figures
Figure 1-1: Proposed Financial Plan – Projected Ending Balances ............................................................................. 2 Figure 1-2: Proposed Financial Plan – Projected Ending Balances ............................................................................. 4 Figure 1-3: Single Family Residential Water Bill Comparison with Neighboring Agencies .......................................... 6 Figure 1-4: Single Family Residential Wastewater Bill Comparison with Neighboring Agencies ................................. 7 Figure 5-1: Status Quo Financial Plan – Projected Ending Operating and Capital Balances .................................... 22 Figure 5-2: Proposed Financial Plan – Projected Ending Balances ........................................................................... 25 Figure 9-1: Status Quo Financial Plan – Projected Ending Balances ........................................................................ 45 Figure 9-2: Proposed Financial Plan – Projected Ending Balances ........................................................................... 48 Figure 12-1: Single Family Residential Water Bill Comparison with Neighboring Agencies ...................................... 61 Figure 12-2: Single Family Residential Wastewater Bill Comparison with Neighboring Agencies ............................. 62

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1.Executive Summary

1.1.Study Overview
Public water agencies in California typically conduct cost-of-service and rate studies to ensure there is a strong nexus between rates charged to customers and costs incurred to provide service, as required by Proposition 218.

The City of Milpitas (City) last conducted a cost-of-service study in 2018, which was adopted in February 2019 and established rates through Fiscal Year (FY) 2023. The City engaged Raftelis in 2022 to conduct this Water and Wastewater Rate Study to establish proposed water and wastewater rates over a five-year period from FY 2024 to FY 2028. Note that the proposed rates presented in this study report may not be implemented until formally adopted by the City Council after a public hearing.

The major study objectives are to:
» Develop a five-year financial plan that sufficiently funds the City's operations and maintenance (O&M) expenses, debt service payments, and Capital Improvement Plan (CIP) while adequately funding reserves and meeting debt coverage requirements.
» Conduct a cost-of-service analysis that establishes a clear nexus between the cost to serve customers and the water rates charged to customers, per Proposition 218 requirements. » Review the City's existing water and wastewater rate structures and recommend changes as necessary. » Develop a five-year schedule of water rates that is fair, equitable, and compliant with Proposition 218.

1.2.Proposed Water Financial Plan
Raftelis conducted a status quo cash flow analysis to evaluate whether existing water rates can adequately fund the City’s various expenses over the five-year study period. With the assistance of City staff, annual revenues, O&M expenses, debt service payments, and capital expenditures were projected through FY 2028. Raftelis projects that with no rate increases over the five-year study period, the City will fully deplete its reserves by the end of FY 2027.

This demonstrates a clear need for revenue adjustments (i.e. water rate revenue increases relative to the status quo).

Raftelis worked with City staff to develop the following proposed revenue adjustments over the five-year study period (see Table 1-1). The proposed revenue adjustments were selected to provide financial sufficiency for the City while minimizing impacts to City customers.

Table 1-1: Proposed Water Revenue Adjustments

Key factors influencing the need for proposed revenue adjustments include:
» Planned capital expenditures: Projects scheduled over the next five years total about $34M, including beginning work on the projects identified in the City’s master plan. » Increases in purchased water costs from SFPUC and SCVWD: The City's cost to purchase treated water is expected to increase by an average of 8.6 percent per year over the study period, including a 12 percent increase in 2024.

Line Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Effective Date of Revenue Adjustment July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 2 O&M Revenue Adjustment 4.9% 6.5% 6.5% 6.5% 6.5%
3 Capital Revenue Adjustment 5.0% 5.0% 5.0% 5.0% 5.0%
4 Average Bill Increase - 14 hcf 6.4% 6.4% 6.4% 6.4% 6.4% 214
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Figure 1-1 shows projected ending balances over the study period relative to the City’s operating and total reserve targets under the proposed financial plan. Reserves are drawn down beginning in FY 2026 as work begins on the City’s master plan projects. Although not displayed on the chart below, the City is projected begin covering all expenses (contribute to reserves rather than drawing on them) in FY 2029. The use of reserves over this period will mitigate the impact on ratepayers while still maintaining a healthy fund balance.

Figure 1-1: Proposed Financial Plan – Projected Ending Balances

1.2.1.PROPOSED WATER RATES
Table 1-2 shows the proposed five-year water rate schedule through FY 2028. Proposed FY 2024 rates are calculated based on the results of the cost of service analysis. Overall, FY 2024 O&M rates are designed to collect

4.9 percent more rate revenue than current FY 2023 rates; capital rates will collect 5 percent more. Proposed rates beginning in FY 2025 are calculated by simply increasing the prior year's proposed rates by the proposed annual revenue adjustments.

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Table 1-2: Proposed Five-Year Water Rate Schedule

1.3.Proposed Wastewater Financial Plan
Raftelis also conducted a similar analysis to evaluate whether existing wastewater rates can adequately fund the City’s various expenses over the five-year study period. Raftelis projects that with no rate increases over the five- year study period, the City will fully deplete its reserves by the end of FY 2028. This demonstrates a clear need for revenue adjustments. Raftelis worked with City staff to develop the following proposed revenue adjustments over the five-year study period (see Table 1-3). The proposed revenue adjustments were selected to provide financial sufficiency for the City while minimizing impacts to City customers.

Table 1-3: Proposed Wastewater Revenue Adjustments

Key factors influencing the need for proposed revenue adjustments include:
» San Jose Capital Expenditures: The expense due to the City of San Jose related to capital projects at the wastewater treatment facility is expected to total approximately $36M over the study period, peaking in FY 2025 at approximately $11M.
» Replacement of the Force Main A Pipeline: The large pipeline that conveys all of the City’s wastewater to San Jose is approaching the end of its useful life and is recommended to be replaced to mitigate the risk of catastrophic failure in the near future. This is expected to cost approximately $26M. Raftelis recommends the use of bonds to finance a portion of this project.

Line
Bi-Monthly
Potable Fixed
Charges FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 5/8" 34.10$ 35.87$ 38.21$ 40.70$ 43.35$ 46.17$ 2 3/4" 51.14 47.03 50.09 53.35 56.82 60.52 3 1" 85.24 69.34 73.85 78.66 83.78 89.23 4 1 1/2" 170.48 125.14 133.28 141.95 151.18 161.01 5 2" 272.76 192.10 204.59 217.89 232.06 247.15 6 3" 511.43 404.13 430.40 458.38 488.18 519.92 7 4" 852.38 716.60 763.18 812.79 865.63 921.90 8 6" 1,704.76 1,464.29 1,559.47 1,660.84 1,768.80 1,883.78 9 8" 1,704.76 3,138.22 3,342.21 3,559.46 3,790.83 4,037.24 10 10" 1,704.76 4,700.56 5,006.10 5,331.50 5,678.05 6,047.13 Line Volume Charges FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Potable 6.70$ 7.17$ 7.64$ 8.14$ 8.67$ 9.24$ 2 Recycled 4.51 5.41 5.77 6.15 6.55 6.98 3 Capital 1.08 1.14 1.20 1.26 1.33 1.40 Line Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Effective Date of Revenue Adjustment July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 2 Revenue Adjustment 4.00% 4.00% 4.00% 4.00% 4.00%
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Figure 1-1 shows projected ending balances over the study period relative to the City’s operating and total reserve targets under the proposed financial plan. The City’s substantial reserves are heavily used over the study period to fund capital projects, including San Jose expenses and the Force Main A pipeline in FY 2026.

Figure 1-2: Proposed Financial Plan – Projected Ending Balances

1.3.1.PROPOSED WASTEWATER RATES
Table 1-4 shows the proposed five-year water rate schedule through FY 2028. Proposed FY 2024 rates are calculated based on the results of the cost of service analysis. Overall, FY 2024 O&M rates are designed to collect 4 percent more rate revenue than current FY 2023 rates. Proposed rates beginning in FY 2025 are calculated by simply increasing the prior year's proposed rates by the proposed annual revenue adjustments.

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WATER AND WASTEWATER RATE STUDY 5

Table 1-4: Proposed Five-Year Wastewater Rate Schedule

Line Fixed Charge Schedule FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single-Family 124.14 128.44 133.58 138.93 144.49 150.27 2 Multi-Family 95.34 97.96 101.88 105.96 110.20 114.61 3 Mobile Home 78.28 97.61 101.52 105.59 109.82 114.22 4 Schools/Colleges 27.35 29.25 30.43 31.65 32.92 34.24 5 Motels and Hotels 27.35 29.25 30.43 31.65 32.92 34.24 6 General Office 27.35 29.25 30.43 31.65 32.92 34.24 7 City of Milpitas 27.35 29.25 30.43 31.65 32.92 34.24 8 Service Stations 27.35 29.25 30.43 31.65 32.92 34.24 9 Eat/Drink Establishments 27.35 29.25 30.43 31.65 32.92 34.24 10 Convalescent Hosp/Daycare 27.35 29.25 30.43 31.65 32.92 34.24 11 Personal Services, Laundrys 27.35 29.25 30.43 31.65 32.92 34.24 12 Electrical/Electronics 27.35 29.25 30.43 31.65 32.92 34.24 13 Machinery Manufacture 27.35 29.25 30.43 31.65 32.92 34.24 14 RockTenn (Jefferson Smurfit) 27.35 29.25 30.43 31.65 32.92 34.24 15 T. Marzetti Co. 27.35 29.25 30.43 31.65 32.92 34.24 16 Prudential Overall Supply 27.35 29.25 30.43 31.65 32.92 34.24 17 Evoqua Water Technologies 27.35 29.25 30.43 31.65 32.92 34.24 18 Elmwood Rehabilitation 27.35 29.25 30.43 31.65 32.92 34.24 19 Linear Technology 27.35 29.25 30.43 31.65 32.92 34.24 20 DS Waters of America 27.35 29.25 30.43 31.65 32.92 34.24 21 Magic Tech & Headway Tech 27.35 29.25 30.43 31.65 32.92 34.24 22 Lucky Pure Water 27.35 29.25 30.43 31.65 32.92 34.24 23 Milpitas Materials 27.35 29.25 30.43 31.65 32.92 34.24 24 Union Pacific Railroad 27.35 29.25 30.43 31.65 32.92 34.24 25 Cisco 27.35 29.25 30.43 31.65 32.92 34.24 Line Volume Charge Schedule FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single-Family - - - - 2 Multi-Family - - - - 3 Mobile Home - - - - 4 Schools/Colleges 9.99 11.58 12.04 12.53 13.04 13.57 5 Motels and Hotels 5.75 5.64 5.88 6.12 6.37 6.63 6 General Office 6.84 6.92 7.20 7.49 7.79 8.11 7 City of Milpitas 5.80 5.59 5.82 6.06 6.31 6.57 8 Service Stations 5.70 5.61 5.84 6.08 6.33 6.59 9 Eat/Drink Establishments 9.06 10.88 11.32 11.78 12.26 12.76 10 Convalescent Hosp/Daycare 5.60 5.45 5.67 5.90 6.14 6.39 11 Personal Services, Laundrys 5.31 4.97 5.17 5.38 5.60 5.83 12 Electrical/Electronics 6.72 6.82 7.10 7.39 7.69 8.00 13 Machinery Manufacture 8.43 9.92 10.32 10.74 11.17 11.62 14 RockTenn (Jefferson Smurfit) 10.46 10.79 11.23 11.68 12.15 12.64 15 T. Marzetti Co. 12.09 11.17 11.62 12.09 12.58 13.09 16 Prudential Overall Supply 8.42 9.88 10.28 10.70 11.13 11.58 17 Evoqua Water Technologies 7.06 6.40 6.66 6.93 7.21 7.50 18 Elmwood Rehabilitation 6.69 7.78 8.09 8.42 8.76 9.12 19 Linear Technology 6.88 6.62 6.89 7.17 7.46 7.76 20 DS Waters of America 6.04 5.38 5.61 5.84 6.08 6.33 21 Magic Tech & Headway Tech 7.32 7.73 8.04 8.37 8.71 9.06 22 Lucky Pure Water 5.29 4.95 5.15 5.36 5.58 5.81 23 Milpitas Materials 5.29 4.95 5.15 5.36 5.58 5.81 24 Union Pacific Railroad 7.35 7.85 8.17 8.50 8.84 9.20 25 Cisco 6.72 6.82 7.10 7.39 7.69 8.00 218
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1.4.Bill Impacts and Comparison
Figure 1-3 and Figure 1-4 show comparisons of Single Family Residential bi-monthly bills with neighboring agencies. All bills are representative of a typical residential customer with a 5/8” meter using 14 HCF per bi-monthly billing period (equal to the average residential water use in the City). Note that many of the other agencies shown are either scheduled or expected to implement rate increases in FY 2024, which are not reflected in the graphs.

Many other factors affect rates such as whether or not a water purveyor receives a portion of county property tax revenue, infrastructure age and condition, whether the system has to pump water up to higher elevations, water source, and the willingness of the agency to reinvest in the system to maintain infrastructure.

Figure 1-3: Single Family Residential Water Bill Comparison with Neighboring Agencies

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WATER AND WASTEWATER RATE STUDY 7

Figure 1-4: Single Family Residential Wastewater Bill Comparison with Neighboring Agencies

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2.Introduction

2.1. Study Overview
Public water agencies in California typically perform a cost-of-service analysis to ensure that customers are appropriately charged for water and wastewater service commensurate with the cost to provide service. The City engaged Raftelis in 2022 to conduct this Water and Wastewater Rate Study to establish proposed water and wastewater rates for FY 2024 through FY 2028. Note that proposed rates cannot be implemented until formally adopted by the City Council after a public hearing. Proposition 218 requires that City customers must be mailed a public hearing notice detailing any proposed rate changes no fewer than 45 days before the public hearing.

Study Objectives
The major study objectives are to:
» Develop a five-year financial plan that sufficiently funds the City's operations and maintenance (O&M) expenses, debt service payments, and capital expenditures while adequately funding reserves and meeting debt coverage requirements.
» Conduct a cost of service analysis that establishes a clear nexus between the cost to serve customers and the water rates charged to customers, per Proposition 218 requirements. » Review the City’s existing water and wastewater rate structures and recommend changes as necessary to ensure that proposed rates achieve financial sufficiency while furthering the City’s policy goals of affordability and conservation.
» Develop a five-year schedule of water and wastewater rates that are fair, equitable, and compliant with Proposition 218 requirements.

Reliance on City Provided Data
During this project, the City (and/or its representatives) provided Raftelis with a variety of technical information, including cost and revenue data. Raftelis reviewed the data provided for reasonableness but did not independently assess or test for the accuracy of such data – historic or projected. Raftelis has relied on this data in the formulation of our findings and subsequent recommendations, as well as in the preparation of this report. Raftelis also relied on cost allocation data provided by the City needed to complete the cost of service analysis.

There are often differences between actual and projected data. Some of the assumptions used for projections in this report will not be realized, and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the data or results projected in this report and actual results achieved, and those differences may be material. As a result, Raftelis takes no responsibility for the accuracy of data or projections provided by or prepared on behalf of the City, nor do we have any responsibility for updating this report for events occurring after the date of this report.

In the Study, Raftelis made rate calculations using the best estimates of the City's expected costs, planned capital improvements, and future customer demands. Making such calculations in advance is normal for public water providers because providers need to recover revenue matched to public budgets adopted in advance of their fiscal periods. For this reason, and others, achieving mathematical exactitude in rate calculations is virtually impossible.

Instead, there are methods and techniques available to water providers that promote proportionality between the costs incurred to provide water service and the demand for that service. These methods and techniques are broadly referred to as "cost-of-service principles.”
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3.Legal Requirements and
Rate Setting Methodology

3.1.Legal Requirements
California Constitution - Article XIII D, Section 6 (Proposition 218) Proposition 218, reflected in the California Constitution as Article XIII D, was enacted in 1996 to ensure that rates and fees are reasonable and proportional to the cost of providing service. The principal requirements, as they relate to public water service, are as follows:

1. A property-related charge (such as water rates) imposed by a public agency on a parcel shall not exceed the costs required to provide the property-related service.

1. Revenues derived by the charge shall not be used for any purpose other than that for which the charge was imposed.

2. The amount of the charge imposed upon any parcel shall not exceed the proportional cost of service attributable to the parcel.

3. No charge may be imposed for a service unless that service is actually used or immediately available to the owner of the property.

4. A written notice of the proposed charge shall be mailed to both the customer of record and owner of record of each parcel at least 45 days prior to the public hearing, when the agency considers all written protests against the charge.

As stated in the American Water Works Association's (AWWA) Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices - M1 Seventh Edition (Manual M1), "water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.” Raftelis follows industry-standard rate- setting methodologies set forth by the AWWA Manual M1 to ensure this study meets Proposition 218 requirements and establishes rates that do not exceed the proportionate cost of providing water services on a parcel basis. The methodology in the Manual M1 is a nationally recognized industry rate-making standard that courts have recognized as consistent with Proposition 218.

California Constitution Article X, Section 2
California Constitution Article X, Section 2 mandates that water resources be put to beneficial use and that the waste or unreasonable use of water be prevented through conservation. Section 106 of the Water Code declares that the highest priority use of water is for domestic purposes, with irrigation secondary. Thus, the management of water resources is part of the property-related service provided by public water suppliers to ensure the resource is available over time.

3.2.Rate-Setting Methodology
This study was conducted using industry-standard principles outlined by the AWWA Manual M1 and WEF Manual of Practice No. 27. The process and approach Raftelis utilized in the study to determine water rates is informed by the City’s policy objectives, the current water and wastewater systems and rates, and the legal requirements in California (namely, Proposition 218). The resulting financial plan, cost of service analysis, and rate 222
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design process follows five key steps, outlined below, to determine proposed rates that fulfill the City’s objectives, meet industry standards, and comply with relevant regulations.

1. Financial Plan: The first study step is to develop a multi-year financial plan that projects the City’s revenues, expenses, capital project financing, annual debt service, and reserve funding. The financial plan is used to determine the revenue adjustment, which allows the City to recover adequate revenues to fund expenses and reserves.

2. Revenue Requirement Determination: After completing the financial plan, the rate-making process begins by determining the revenue requirement for the test year, also known as the rate -setting year. The test year for this study is FY 2024. The revenue requirement should sufficiently fund the City’s operating costs, annual debt service (including coverage requirements), capital expenditures, and reserve funding as projected based on the annual budget estimates.

3. Cost of Service Analysis : The annual cost of providing water or wastewater service, or the revenue requirement, is then distributed to customer classes commensurate with their use of and burden on the water system. A cost of service analysis involves the following steps:
» Functionalize costs – the different components of the revenue requirement are categorized into functions such as supply, customer service, etc.
» Allocate to cost causation components – the functionalized costs are then allocated to cost causation components such as volume, bills, equivalent meters, etc. » Develop unit costs – unit costs for each cost causation component are determined using units of service, such as total use, peaking units, equivalent meters, number of customers, etc., for each component.
» Distribute cost components – the cost components are allocated to each customer class using the unit costs in proportion to their demand and burden on the system.

4. Rate Design: After allocating the revenue requirement to each customer class, the project team designs and calculates rates. Rates do more than simply recover costs; within the legal framework and industry standards, properly designed rates should support and optimize the City’s policy objectives. Rates also act as a public information tool in communicating these policy object ives to customers. This process also includes a rate impact analysis and sample customer bill impacts.

5. Administrative Record Preparation and Rate Adoption: The final step in a rate study is to develop the administrative record in conjunction with the rate adoption process. This report serves as the administrative record for this study. The administrative record documents the study results and presents the methodologies, rationale, justifications, and calculations used to determine the proposed rates. A tho rough and methodological administrative record serves two important functions: maintaining defensibility in a stringent legal environment and communicating the rationale for revenue adjustment s and proposed rates to customers and key stakeholders.
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4.Water Utility Key Inputs and
Assumptions

Raftelis developed a rate model in Microsoft Excel to project financial and rate calculations over a five-year study period through FY 2028. The City’s fiscal year spans from July 1 through June 30. Projections in future years were generally made based on FY 2022 or FY 2023 data using key assumptions outlined below. All assumptions were discussed with and reviewed by City staff to ensure that the City’s unique characteristics were incorporated. Note that most table values shown throughout this report are rounded to the last digit shown and may therefore not add precisely to the totals shown.

4.1.Available Fund Balance
Table 4-1 presents the available fund balance as of the end of FY 2022 and beginning of FY 2023. The financial plan presented in this report does not propose to spend any of the Capital Reserve for Emergencies or Rate Stabilization Fund; however, portions of the existing Infrastructure Fund balance will be used for the construction of future capital projects identified in the master plan.

Table 4-1: FY 2023 Beginning Fund Balances

4.2. Current Water Rates
Table 4-2 shows the current adopted rate schedule developed during the prior rate study. Customers are currently subject to two primary charges: 1) bi-monthly Fixed Meter Charges and 2) Volume Charges per hundred cubic feet (HCF)1 of water delivered with separate O&M and Capital rates. Fixed Meter Charges vary based on meter size.

Water used by all potable customers, regardless of customer class, are subject to the same volumetric rates.

Recycled customers have a separate volumetric rate but pay the same fixed charge; these customers do not pay the capital volumetric charge.

1 One HCF equals approximately 748 gallons.

Line Fund Description Balance
Water Utility
1 Capital for Emergencies 8,167,439$
2 Rate Stabilization 4,538,374
3 CALPERS 822,539
4 Infrastructure 17,499,492
5 Total 31,027,844$
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Table 4-2: Current Water Rate Schedule

4.3. Financial Assumptions
Inflationary assumptions were used to project O&M expenses beyond FY 2023. All inflationary factors were reviewed by City staff and are based on historical and anticipated cost increases. For O&M expenses, a general inflation rate of 4 percent is consistent with long-term changes in the Consumer Price Index (CPI) , though recent inflation is above 3 percent. However, projections for imported water supply costs are based on projected wholesale water rate increases, as shown in detail below in Table 5-7. Interest earnings on cash reserves are projected assuming a 1 percent annual interest rate.

4.4. Projected Service Connections
Customer account growth projections are necessary to estimate water demand and rate revenues over the study period. City staff provided Raftelis with the number of water meters and fire lines by connection size for FY 2021; projections from 2021 data are based on forecasted growth rates per the City’s Decision Support System Model (DSS) which was used in the adopted Urban Water Management Plan (2020 UWMP) and 2020 Water Shortage Contingency Plan (2020 WSCP). Table 4-3 shows the projected number of bi-monthly bills issued by customer class and meter size in each year of the study period.

Line FY 2023
Bi-Monthly Fixed Charge ($/period)
1 5/8" 34.10$
2 3/4" 51.14
3 1" 85.24
4 1 1/2" 170.48
5 2" 272.76
6 3" 511.43
7 4" 852.38
8 6" 1,704.76
9 8" 1,704.76
10 10" 1,704.76
Volume Charges ($/hcf)
11 Potable 6.70$
12 Recycled 4.51
13 Capital Charge 1.08
Description
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Table 4-3: Projected Number of Water Meters Under Existing Rate Structure

4.5. Projected Water Use and Supply
City staff provided Raftelis with total annual water use data by customer class for FY 2018 through FY 2021. Raftelis worked closely with City staff to develop water use projections for FY 2024 through FY 2028. Water demand projections depend on two key assumptions: account growth and water demand factor (i.e., water use per account).

Beginning in FY 2021, annual water use was projected at the customer class le vel using an annual water demand growth rate to determine total annual water use. Table 4-4 shows projected water use by customer class over the study period. The water use per account growth rate is forecasted at 0 percent through the study period.

Line Total Potable Bills FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 5/8" 74,878 75,079 75,080 75,081 75,082 75,083 2 3/4" 3,293 3,299 3,300 3,301 3,302 3,303 3 1" 8,003 8,015 8,093 8,171 8,249 8,327 4 1 1/2" 2,776 2,784 2,792 2,799 2,806 2,813 5 2" 3,390 3,405 3,420 3,433 3,446 3,459 6 3" 534 534 534 534 534 534 7 4" 362 363 364 364 364 364 8 6" 173 173 173 173 173 173 9 8" 263 263 263 263 263 263 10 10" 12 12 12 12 12 12 11 12" - - - - - - 12 Total 93,684 93,927 94,031 94,131 94,231 94,331 Line Recycled FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 5/8" - - - - - - 2 3/4" 18 18 18 18 18 18 3 1" 66 66 66 66 66 66 4 1 1/2" 312 312 312 312 312 312 5 2" 858 858 858 858 858 858 6 3" 18 18 18 18 18 18 7 4" 54 54 54 54 54 54 8 6" - - - - - - 9 8" - - - - - - 10 10" - - - - - - 11 12" - - - - - - 12 Total 1,326 1,326 1,326 1,326 1,326 1,326 226
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Table 4-4: Projected Water Use Under Existing Rate Structure

Raftelis calculated projected water purchase volumes from each water source based on direction from City Staff, as shown in Table 4-6. The City purchases treated water from the San Francisco Public Utilities Commission (SFPUC) and Valley Water (VW); recycled water is purchased from South Bay Water Recycling (SBWR).

Table 4-5 shows the water supply mix projected to meet water demand over the study period. Total water use (from Table 4-4) is adjusted to account for estimated water loss resulting from leaks in the water distribution system. Costs to purchase this water are forecasted in Table 5-7.

Table 4-5: Projected Water Supply Mix

Line Customer Class Volume (hcf) FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single Family 1,218,854 1,222,358 1,222,358 1,222,358 1,222,358 1,222,358 2 Duplex 23,466 23,466 23,466 23,466 23,466 23,466 3 Condo/Townhouse 195,512 195,512 195,512 195,512 195,512 195,512 4 Multi-Family 624,235 624,235 643,914 663,594 683,273 702,953 5 Mobile Home 23,361 23,361 23,361 23,361 23,361 23,361 6 SCC/Ed Levin 3,970 3,970 3,970 3,970 3,970 3,970 7 City - Domestic 15,246 15,514 15,781 15,915 16,049 16,182 8 City - Irrigation 107,001 109,710 112,419 113,773 115,128 116,482 9 Commercial 367,078 368,166 369,254 370,342 371,430 372,518 10 Industrial 399,569 400,518 401,466 402,415 403,363 404,312 11 Institutional/Gov/Schools 77,945 79,096 80,248 80,632 81,016 81,400 12 Nonresidential Irrigation 217,184 217,475 217,766 218,201 218,637 219,073 13 Residential Irrigation 158,635 158,635 158,635 159,093 159,551 160,009 14 Recycled 467,686 467,686 467,686 467,686 467,686 467,686 15 Total 3,899,741 3,909,701 3,935,836 3,960,317 3,984,799 4,009,281 Line Wholesale Water Purchases FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Potable Volume Purchased
1 Total Demand 3,432,055 3,442,015 3,468,150 3,492,632 3,517,114 3,541,595 2 Loss% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%
3 Equals: Total Demand (hcf) 3,856,242 3,867,433 3,896,798 3,924,305 3,951,813 3,979,321 Recycled Volume Purchased
4 Total Demand 467,686 467,686 467,686 467,686 467,686 467,686 5 Loss% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%
6 Equals: Total Demand (hcf) 525,490 525,490 525,490 525,490 525,490 525,490 7 SFPUC Minimum Purchase 2,606,052 2,606,052 2,606,052 2,606,052 2,606,052 2,606,052 Water Purchases (hcf)
8 SFPUC 2,606,052 2,606,052 2,606,052 2,606,052 2,606,052 2,606,052 9 SCVWD2 1,250,190 1,261,381 1,290,746 1,318,253 1,345,761 1,373,269 10 SBWR 525,490 525,490 525,490 525,490 525,490 525,490 11 Total 4,381,732 4,392,922 4,422,287 4,449,795 4,477,303 4,504,810 227
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WATER AND WASTEWATER RATE STUDY 15

5. Water Financial Plan

Section 5 details the development of a proposed five-year financial plan for the water utility over the study period.

The following subsections include estimates and projections of annual revenues, O&M expenses, debt service payments, capital expenditures, and reserve funding through FY 2028. The overall purpose of the financial plan is to determine the annual rate revenue needed to achieve sufficient cash flow, maintain adequate reserves, and meet debt coverage requirements.

5.1. Revenues From Current Rates
The City’s revenues consist of rate revenues, interest earnings on cash reserves, and other miscellaneous revenues.

The rate revenue projections shown below assume that current FY 2023 rates are effective throughout the study period and therefore represent estimated revenues in the absence of any rate increase. This status quo scenario provides a baseline from which Raftelis evaluates the need for revenue adjustments (i.e., rate increases).

Calculated Water Rate Revenues
Raftelis projected water rate revenues from Fixed Meter Charges and Volume Charges for FY 2024 through FY 2028 based on current FY 2023 water rates, the projected number of water meters/private fire lines, and projected annual water use.

Table 5-1 shows projected Fixed Meter Charge revenues under current rates over the study period. Fixed Meter Charge revenues are calculated by connection size/type in each year as follows based on current FY 2023 water rates (from Table 4-2), and the projected number of water meters (from Table 4-3).

Annual Fixed Meter Charge Revenue = [ FY 2023 bi-monthly rate] × [Number of connections] × [6 Bills per year]

Table 5-1: Projected Fixed Meter Charge Revenues under Current Rates

Line Customer Class FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single Family 2,797,383$ 2,805,226$ 2,805,226$ 2,805,226$ 2,805,226$ 2,805,226$ 2 Duplex 49,747 49,747 49,747 49,747 49,747 49,747 3 Condo/Townhouse 487,760 487,760 487,760 487,760 487,760 487,760 4 Multi-Family 880,171 880,171 886,564 892,957 899,350 905,743 5 Mobile Home 30,686 30,686 30,686 30,686 30,686 30,686 6 SCC/Ed Levin 10,229 10,229 10,229 10,229 10,229 10,229 7 City - Domestic 55,541 56,240 56,939 57,195 57,451 57,707 8 City - Irrigation 56,359 57,791 59,223 59,939 60,655 61,371 9 Commercial 707,410 709,098 710,786 712,474 714,161 715,849 10 Industrial 489,318 490,307 491,295 492,284 493,273 494,262 11 Institutional/Gov/Schools 132,971 134,369 135,767 136,040 136,313 136,585 12 Nonresidential Irrigation 320,667 321,110 321,553 322,269 322,985 323,701 13 Residential Irrigation 128,983 128,983 128,983 129,426 129,869 130,313 14 Recycled 348,998 348,998 348,998 348,998 348,998 348,998 15 Private Fire 173,053 173,053 173,053 173,053 173,053 173,053 16 Total 6,669,278$ 6,683,769$ 6,696,811$ 6,708,284$ 6,719,757$ 6,731,230$ 228
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Table 5-2 shows projected Volume Charge revenues under current rates over the study period. Volume Charge revenues are calculated by customer class in each year as follows based on current FY 2023 water rates (from Table 4-2) and projected water use (from Table 4-4):

Annual Volume Charge Revenue = [ FY 2023 rate per HCF] × [Annual Water Use in HCF]

Table 5-2: Projected O&M Volume Charge Revenues Under Current Rates

Line Customer Class FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single Family 8,166,319$ 8,189,799$ 8,189,799$ 8,189,799$ 8,189,799$ 8,189,799$ 2 Duplex 157,223 157,223 157,223 157,223 157,223 157,223 3 Condo/Townhouse 1,309,931 1,309,931 1,309,931 1,309,931 1,309,931 1,309,931 4 Multi-Family 4,182,371 4,182,371 4,314,224 4,446,077 4,577,930 4,709,783 5 Mobile Home 156,518 156,518 156,518 156,518 156,518 156,518 6 SCC/Ed Levin* 17,744 21,039 21,992 22,984 24,056 25,167 7 City - Domestic 102,150 103,942 105,734 106,630 107,526 108,422 8 City - Irrigation 716,906 735,056 753,205 762,280 771,355 780,430 9 Commercial 2,459,423 2,466,712 2,474,001 2,481,291 2,488,580 2,495,869 10 Industrial 2,677,112 2,683,467 2,689,823 2,696,178 2,702,533 2,708,888 11 Institutional/Gov/Schools 522,228 529,946 537,664 540,236 542,809 545,381 12 Nonresidential Irrigation 1,455,136 1,457,082 1,459,029 1,461,949 1,464,869 1,467,789 13 Residential Irrigation 1,062,857 1,062,857 1,062,857 1,065,924 1,068,992 1,072,059 14 Recycled 2,109,263 2,109,263 2,109,263 2,109,263 2,109,263 2,109,263 15 Private Fire - - - - - - 16 Total 25,095,182$ 25,165,207$ 25,341,263$ 25,506,283$ 25,671,383$ 25,836,523$ 229
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Table 5-3: Projected Capital Charge Revenues Under Current Rates

Other Revenues
Table 5-4 shows all other revenues. All FY 2023 other revenues are based on the latest information available to City staff and do not correspond directly to the City’s adopted budget . Additional revenues from FY 2023 through FY 2027 were projected by Raftelis. Interest revenue is estimated beginning in FY 2024 based on estimated fund balances and an assumed interest rate. Water rate revenue from Ed Levin Park is set based on contract equal to the forecasted cost of purchasing water from SFPUC. All other revenues are forecasted to remain constant.

Table 5-4: Projected Other Revenues

Table 5-5 shows a summary of projected revenues under current rates over the study period. This represents expected revenues in the absence of any rate increase over the study period.

Line Customer Class FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single Family 1,316,362$ 1,320,147$ 1,320,147$ 1,320,147$ 1,320,147$ 1,320,147$ 2 Duplex 25,343 25,343 25,343 25,343 25,343 25,343 3 Condo/Townhouse 211,153 211,153 211,153 211,153 211,153 211,153 4 Multi-Family 674,173 674,173 695,427 716,681 737,935 759,189 5 Mobile Home 25,230 25,230 25,230 25,230 25,230 25,230 6 SCC/Ed Levin 4,287 4,287 4,287 4,287 4,287 4,287 7 City - Domestic 16,466 16,755 17,044 17,188 17,333 17,477 8 City - Irrigation 115,561 118,487 121,412 122,875 124,338 125,801 9 Commercial 396,444 397,619 398,794 399,969 401,144 402,319 10 Industrial 431,535 432,559 433,583 434,608 435,632 436,657 11 Institutional/Gov/Schools 84,180 85,424 86,668 87,083 87,498 87,912 12 Nonresidential Irrigation 234,559 234,873 235,187 235,657 236,128 236,599 13 Residential Irrigation 171,326 171,326 171,326 171,821 172,315 172,810 14 Recycled - - - - - - 15 Private Fire - - - - - - 16 Total 3,706,620$ 3,717,376$ 3,745,602$ 3,772,042$ 3,798,483$ 3,824,923$ Line Other Revenue Detail FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Operating Fund
1 Interest Income 81,674$ 91,474$ 76,050$ 38,365$ (18,825)$ (97,470)$ 2 Ed Levin Park 17,744 21,039 21,992 22,984 24,056 25,167 3 Private Fire Connections 173,053 173,053 173,053 173,053 173,053 173,053 4 Subtotal 272,472$ 285,566$ 271,094$ 234,402$ 178,284$ 100,750$ Capital Fund
5 Interest Income 174,995$ 192,354$ 174,753$ 173,334$ 107,018$ 62,646$ 6 Development Charges 500,000 300,000 300,000 300,000 300,000 300,000 7 Misc. Other 7,215 7,215 7,215 7,215 7,215 7,215 8 Subtotal 682,210$ 499,569$ 481,968$ 480,549$ 414,233$ 369,861$ 9 Total 954,682$ 785,135$ 753,062$ 714,951$ 592,517$ 470,611$ 230
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18 CITY OF MILPITAS

Table 5-5: Summary of Projected Revenues Under Current Rates

5.2. Operations and Maintenance Expenses
Table 5-6 shows O&M expenses by department over the study period. O&M expenses shown in FY 2023 are from the City’s adopted FY 2023 budget with modifications to the water purchase cost and for addition al employees related to the City’s cross connection control program and SCADA management. All other projections beyond FY 2023 were developed based on inflationary assumptions discussed above.

Table 5-6: O&M Summary by Department

Table 5-7 shows the detailed forecast of water purchase costs. The City purchases as much water as possible from VW while still meeting minimum purchase requirements from SFPUC. Costs include a fixed charge of approximately $120,000 per month and volume rates for each unit of water purchased.

Line Revenue Type FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Operating Fund
1 Fixed Charge 6,496,225$ 6,510,716$ 6,523,758$ 6,535,231$ 6,546,704$ 6,558,177$ 2 Volume Charge 25,077,437 25,144,168 25,319,271 25,483,299 25,647,327 25,811,355 3 Other 272,472 285,634 270,417 232,898 175,872 97,342 4 Subtotal 31,846,134$ 31,940,518$ 32,113,445$ 32,251,428$ 32,369,903$ 32,466,874$ Infrastructure Fund
5 Capital Volume Charge 3,706,620$ 3,717,376$ 3,745,602$ 3,772,042$ 3,798,483$ 3,824,923$ 6 Other 682,210 499,569 481,968 480,549 414,233 369,861 7 Subtotal 4,388,830$ 4,216,945$ 4,227,570$ 4,252,592$ 4,212,716$ 4,194,784$ 8 Total 35,552,753$ 35,657,894$ 35,859,047$ 36,023,470$ 36,168,386$ 36,291,797$ Line O&M Summary FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Administration 898,693$ 934,641$ 972,027$ 1,010,908$ 1,051,344$ 1,093,398$ 2 Utility Engineering 865,791 1,169,798 1,216,590 1,265,253 1,315,863 1,368,498 3 Utility Maintenance 2,381,145 2,476,391 2,575,446 2,678,464 2,785,603 2,897,027 4 Compliance 245,963 255,801 266,033 276,675 287,742 299,251 5 Water Purchases 21,079,197 23,595,942 25,604,553 27,286,825 29,128,667 31,115,101 6 Non-Departmental 1,234,538 1,283,920 1,335,276 1,388,687 1,444,235 1,502,004 7 Finance Administration 8,171 8,498 8,838 9,191 9,559 9,941 8 Fiscal Services 1,103,052 1,147,174 1,193,061 1,240,784 1,290,415 1,342,031 9 City Attorney 9,000 9,360 9,734 10,124 10,529 10,950 10 Transfer to General Fund 2,688,427 2,795,964 2,907,803 3,024,115 3,145,079 3,270,883 11 Total 30,513,977$ 33,677,488$ 36,089,361$ 38,191,025$ 40,469,036$ 42,909,084$ 231
Item # 15.

WATER AND WASTEWATER RATE STUDY 19

Table 5-7: Water Purchase Cost Detail

5.3. Debt Service
Table 5-8 shows the City’s existing debt service obligations associated with its outstanding Series 2019 bonds.

These obligations are secured by a pledge of City revenues. The proposed financial plan assumes that no additional debt will be issued by the City over the study period.

Table 5-8: Schedule of Debt Service Payments

5.4. Capital Improvement Plan
The City’s adopted FY 2023 budget includes approximately $ 1.5M in capital project cost s. The City has also developed a long-term utility master plan that outlines capital project expenditures required through 2040 to address Line Wholesale Water Rates FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Wholesale Volume Rates (hcf)
1 SFPUC3 4.76 5.30 5.54 5.79 6.06 6.34 2 SCVWD3 - Groundwater 4.23 4.82 5.51 5.98 6.50 7.07 3 Groundwater Production Charge 3.96 4.56 5.24 5.72 6.24 6.81 4 Treated water surcharge 0.26 0.26 0.26 0.26 0.26 0.26 5 SBWR 3.72 4.32 5.00 5.48 6.00 6.56 6 Groundwater Production Charge 3.96 4.56 5.24 5.72 6.24 6.81 7 Treated water surcharge (0.24) (0.24) (0.24) (0.24) (0.24) (0.24) Wholesale Water Rate Increases
8 SFPUC3 15.9% 11.2% 4.5% 4.5% 4.5% 4.5%
9 SCVWD3 - Groundwater
10 Groundwater Production Charge 15.0% 15.0% 15.0% 9.1% 9.1% 9.1% 11 Treated water surcharge 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% SBWR
12 Groundwater Production Charge
13 Treated water surcharge 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Wholesale Fixed Charges (Monthly)
14 SFPUC Water Service Monthly Charge 14,022$ 14,022$ 14,022$ 14,022$ 14,022$ 14,022$ 15 BAWSCA Bond Monthly Surcharge 105,472 105,472 105,472 105,472 105,472 105,472 16 Annual Fixed Charge Total 1,433,928 1,433,928 1,433,928 1,433,928 1,433,928 1,433,928 Wholesale Water Total Costs
17 400-910-4424 SF Wholesale Water Purchase 13,838,736$ 15,246,004$ 15,871,456$ 16,522,969$ 17,226,603$ 17,956,298$ 18 400-910-4425 SCVWD Wholesale Water Purchase 5,284,855 6,081,965 7,105,901 7,886,042 8,750,827 9,709,261 19 400-910-4427 Recycled Water Purchase 1,955,606 2,267,974 2,627,196 2,877,814 3,151,237 3,449,543 20 Total 21,079,197 23,595,942 25,604,553 27,286,825 29,128,667 31,115,101 Line Debt Service Forecast FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Series 2019 Debt Service
1 Principal 315,000$ 325,000$ 340,000$ 355,000$ 375,000$ 395,000$ 2 Interest 732,050 719,450 706,450 689,450 671,700 652,950 1 - - - - - - 3 Subtotal: Series 2019 Debt Service 1,047,050$ 1,044,450$ 1,046,450$ 1,044,450$ 1,046,700$ 1,047,950$ 232
Item # 15.

20 CITY OF MILPITAS

current and future system needs. These projects are shown in detail in Table 5-9 and amount to approximately $32M over the next five years. The projects are associated with distribution system reliability, aging infrastructure replacement, fire flow improvements, or system-wide reliability and safety. The capital costs assume an annual capital inflation factor of 6% per year. The final line of Table 5-9 presents the total proposed annual capital spending to be funded from rates and the use of reserves.

Table 5-9: Capital Improvement Plan

5.5. Financial Policies
Utility-specific financial policies must be considered during the financial planning process . Financial policies typically define key financial metrics that an agency strives to meet or exceed.

Required Debt Coverage
The City must meet the minimum coverage requirements on its outstanding debt to ensure that it meets the associated debt covenants. The required debt service coverage ratio (DSCR) is 1.15, which means that the City’s net revenue must amount to at least 1 .15 times annual debt service. Net revenues equal revenues less O&M expenses. Annual debt service includes annual principal and interest payments on all outstanding debt.

Reserve Targets
Prudent fiscal management requires that the City maintain reserve balances to provide sufficient working capital, maintain necessary cash on hand to efficiently award construction contracts , and provide funding during emergencies. The City’s current policy consists of several targets:
» Capital Reserve for Emergencies: The City’s adopted O&M reserve target is 30 percent of annual O&M expenses. This is intended to ensure sufficient working capital during short-term fluctuations in cash flow. » Rate Stabilization Reserve: The target is 16.67 percent of annual operating expenses. » CALPERS Reserve: Twenty percent of any remaining annual surplus after meeting O&M expenses and the reserve targets above are transferred to the CALPERS fund.

Line Capital Project FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Fire Flow Pipeline Improvements - - - 2,754,255 1,340,535 1,471,435 2 Interconnection - Fire Flow - - - - 479,000 - 3 Interconnection - Fire Flow - - - - 479,000 - 4 Interconnection - Fire Flow - - - - 14,000 - 5 Pipeline Condition Assessment - - - 500,000 - - 6 Detailed Facility Condition Assessment - - - 2,240,000 - - 7 Water Meter Test Program - - - 100,000 - - 8 Ongoing Asset Renewal and Replacement - - - 1,684,667 1,684,667 1,684,667 9 Physical Security Updates - Perimeter Fencing - - - 30,000 - - 10 Site Security Protocols - - - 20,000 - - 11 Harden Critical Transmission Mains against Earthquakes - Replace Isolation Valves- - - - - 2,000,000 12 ShakeAlert Participation - - - 85,000 - - 13 Previously Adopted Capital Projects 1,515,000 4,090,000 2,790,000 530,000 1,905,000 - 14 Utility Billing System - 300,000 - - - - 15 Subtotal 1,515,000$ 4,390,000$ 2,790,000$ 7,943,922$ 5,902,202$ 5,156,102$ 16 CIP Inflation Factor 106.00% 112.36% 119.10% 123.87% 128.82% 133.97% 17 Total Proposed Capital Spending 1,605,900$ 4,932,604$ 3,322,935$ 9,839,791$ 7,603,233$ 6,907,789$ 233
Item # 15.

WATER AND WASTEWATER RATE STUDY 21

» Infrastructure Fund: The remaining 80 percent portion of any operating surplus is transferred to the Infrastructure funds to be spent on capital projects in future years.

5.6. Status Quo Financial Plan
In order to evaluate the need for revenue adjustments (i.e. , rate increases), Raftelis first developed a status quo financial plan. The status quo financial plan assumes th at current FY 2023 rates remain unchanged over the study period. Table 5-10 combines projected operating revenues (from Table 5-5), O&M expenses (from Table 5-6), and water purchases (from Table 5-7) to generate cash flow, ending balance, and debt coverage projections under the status quo.

Under the status-quo financial plan, net cash change (revenue less total cash expenses) is negative for most years of the study period and results in a depletion of the Capital Reserve for Emergencies and Rate Stabilization Funds by the end of FY 2027. The status quo financial plan is insufficient to meet the City’s needs. This demonstrates a clear need for revenue adjustments over the study period to increase rate revenues and achieve financial sustainability.

Table 5-10: Status Quo Operating Financial Plan

Line Operating Cash Flow FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Inflows
1 Rate Revenue 31,573,662$ 31,654,884$ 31,843,028$ 32,018,530$ 32,194,031$ 32,369,532$ 2 Other Misc. Revenue 272,472 405,634 395,217 362,690 310,856 237,725 3 Use of Reserves - 1,616,971 3,851,116 5,809,805 7,964,149 10,301,827 4 Total 31,846,134$ 33,677,488$ 36,089,361$ 38,191,025$ 40,469,036$ 42,909,084$ Outflows
5 City O&M 9,434,780$ 10,081,546$ 10,484,808$ 10,904,200$ 11,340,368$ 11,793,983$ 6 Water Purchases 21,079,197 23,595,942 25,604,553 27,286,825 29,128,667 31,115,101 Reserve Contributions
7 Capital for Emergencies 986,754 - - - - - 8 Rate Stabilization 345,403 - - - - - 9 Pension - - - - - - 10 Total 31,846,134$ 33,677,488$ 36,089,361$ 38,191,025$ 40,469,036$ 42,909,084$ 11 Rate Increase 0.0% 0.0% 0.0% 0.0% 0.0%
12 Cumulative Rate Increase 0.0% 0.0% 0.0% 0.0% 0.0%
13 Debt Service Coverage Ratio 4.81 2.01 (0.10) (1.95) (3.98) (6.18) 234
Item # 15.

22 CITY OF MILPITAS

Table 5-11 presents the status quo capital financing plan. The City intends to use the dedicated capital charge, existing fund balance, and other miscellaneous revenues to make debt service payments (from Table 5-8) and finance the completion of its capital plan (from Table 5-9).

Table 5-11: Status Quo Capital Financial Plan

Figure 5-1 shows the City’s projected ending balance s under the status quo. The operating reserve targets are represented by blue line. Projected ending balances are represented by the stacked columns. The City’s total reserves will fall below the operating target in FY 2026, with reserves to be fully depleted by the end of FY 2028.2

Figure 5-1: Status Quo Financial Plan – Projected Ending Operating and Capital Balances

2 This scenario presents negative reserve balances in order to demonstrate the need for rate increases. The City is unable to implement any plan that results in negative reserves. This scenario should not be considered an alternative option.

Line Infrastructure Cash Flow FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Inflows
1 Capital Charge Revenue 3,706,620$ 3,717,376$ 3,745,602$ 3,772,042$ 3,798,483$ 3,824,923$ 2 Developer Fees and Interest 682,210 499,569 481,968 480,549 414,233 369,861 3 Use of Infrastructure Reserves - 1,760,109 141,815 6,631,650 4,437,218 3,760,956 4 Total 4,388,830$ 5,977,054$ 4,369,385$ 10,884,241$ 8,649,933$ 7,955,739$ Outflows
5 Capital Projects 1,605,900$ 4,932,604$ 3,322,935$ 9,839,791$ 7,603,233$ 6,907,789$ 6 Debt Service 1,047,050 1,044,450 1,046,450 1,044,450 1,046,700 1,047,950 7 Contribution to Infrastructure Reserves 1,735,880 - - - - 8 Total 4,388,830$ 5,977,054$ 4,369,385$ 10,884,241$ 8,649,933$ 7,955,739$ 235
Item # 15.

WATER AND WASTEWATER RATE STUDY 23

Table 5-12: Status Quo Financial Plan – Projected Reserves

5.7. Proposed Financial Plan
The status quo financial plan demonstrates that the City must increase its revenues from water rates over the study period in order to adequately fund its operating and capital expenditures, meet required debt coverage, and generate sufficient reserve funding. Raftelis worked closely with City staff to select the proposed annual revenue adjustments shown in Table 5-13. Revenue adjustments represent annual percent age increases in rate revenue relative to how much rate revenue would have been collected under the prior year’s water rates.

Table 5-13: Proposed Revenue Adjustments

Table 5-14 shows the proposed financial plan pro form a. Revenue adjustments over the study period generate significant increases in rate revenues over the study period. This results in positive net operating cash flow and sufficient debt coverage in all years.

Line End of Year Reserves FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Capital for Emergencies 9,154,193$ 7,537,222$ 3,686,106$ (2,123,699)$ (10,087,848)$ (20,389,674)$ 2 Rate Stabilization 4,883,777 4,883,777 4,883,777 4,883,777 4,883,777 4,883,777 3 Pension 822,539 822,539 822,539 822,539 822,539 822,539 4 Infrastructure 19,235,372 17,475,263 17,333,448 10,701,798 6,264,581 2,503,625 5 Total 34,095,880$ 30,718,801$ 26,725,870$ 14,284,415$ 1,883,049$ (12,179,733)$ Line Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Effective Date of Revenue Adjustment July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 2 O&M Revenue Adjustment 4.9% 6.5% 6.5% 6.5% 6.5%
3 Capital Revenue Adjustment 5.0% 5.0% 5.0% 5.0% 5.0%
4 Average Bill Increase - 14 hcf 6.4% 6.4% 6.4% 6.4% 6.4% 236
Item # 15.

24 CITY OF MILPITAS

Table 5-14: Proposed Operating Financial Plan

Table 5-15: Proposed Capital Financial Plan

Line Operating Cash Flow FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Inflows
1 Rate Revenue 31,573,662$ 33,205,973$ 35,574,554$ 38,095,711$ 40,794,317$ 43,682,787$ 2 Other Misc. Revenue 272,472 405,634 410,728 415,671 425,139 439,154 3 Use of Reserves - 65,881 104,080 - - - 4 Total 31,846,134$ 33,677,488$ 36,089,361$ 38,511,383$ 41,219,456$ 44,121,941$ Outflows
5 City O&M 9,434,780$ 10,081,546$ 10,484,808$ 10,904,200$ 11,340,368$ 11,793,983$ 6 Water Purchases 21,079,197 23,595,942 25,604,553 27,286,825 29,128,667 31,115,101 Reserve Contributions
7 Capital for Emergencies 986,754 - - 320,358 750,420 1,212,857 8 Rate Stabilization 345,403 - - - - - 9 Pension - - - - - - 10 Total 31,846,134$ 33,677,488$ 36,089,361$ 38,511,383$ 41,219,456$ 44,121,941$ 11 Rate Increase 4.9% 6.5% 6.5% 6.5% 6.5%
12 Cumulative Rate Increase 4.9% 11.7% 19.0% 26.7% 35.0% 13 Debt Service Coverage Ratio 4.81 3.67 3.85 4.49 5.13 5.82 Line Infrastructure Cash Flow FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Inflows
1 Capital Charge Revenue 3,706,620$ 3,903,245$ 4,129,526$ 4,366,610$ 4,617,079$ 4,881,679$ 2 Developer Fees and Interest 682,210 499,569 483,826 486,266 425,952 389,883 3 Use of Infrastructure Reserves - 1,574,240 - 6,031,365 3,606,902 2,684,177 4 Total 4,388,830$ 5,977,054$ 4,613,352$ 10,884,241$ 8,649,933$ 7,955,739$ Outflows
5 Capital Projects 1,605,900$ 4,932,604$ 3,322,935$ 9,839,791$ 7,603,233$ 6,907,789$ 6 Debt Service 1,047,050 1,044,450 1,046,450 1,044,450 1,046,700 1,047,950 7 Contribution to Infrastructure Reserves 1,735,880 - 243,968 - - - 8 Total 4,388,830$ 5,977,054$ 4,613,352$ 10,884,241$ 8,649,933$ 7,955,739$ 237
Item # 15.

WATER AND WASTEWATER RATE STUDY 25

Figure 5-2 shows the City’s projected ending balance under the proposed financial plan. The light blue line indicates the total target balance of 46.67 percent of O&M. The proposed financial plan will draw heavily on reserves as the master plan is implemented in FY 2026. Although not detailed in this report, projections indicate that the City will be able to cover all operating and capital expenses without the use of reserves beginning in FY 2029.

Figure 5-2: Proposed Financial Plan – Projected Ending Balances

Table 5-16: Proposed Financial Plan – Projected Ending Balances

Line End of Year Reserves FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Capital for Emergencies 9,154,193$ 9,088,312$ 8,984,232$ 9,304,590$ 10,055,010$ 11,267,867$ 2 Rate Stabilization 4,883,777 4,883,777 4,883,777 4,883,777 4,883,777 4,883,777 3 Pension 822,539 822,539 822,539 822,539 822,539 822,539 4 Infrastructure 19,235,372 17,661,132 17,905,099 11,873,735 8,266,833 5,582,656 5 Total 34,095,880$ 32,455,759$ 32,595,647$ 26,884,640$ 24,028,159$ 22,556,839$ 238
Item # 15.

26 CITY OF MILPITAS

6. Water Cost of Service
Analysis

Section 6 details the cost of service (COS) analysis performed for FY 2024. The COS analysis allocates the overall rate revenue requirement to customer cla sses based on their proportion of use of and burden on the City’s water system. This provides the basis for the development of proposed FY 2024 water rates.

6.1. Methodology
The first step in the COS analysis is to determine the revenue required from rates. The total revenue requirement is determined in the financial plan and the proposed revenue adjustments in Section 5. The framework and methodology utilized to develop the COS analysis and to apportion the revenue requirement to each customer class and tier is informed by the processes outlined in the AWWA Manual M1.

COS analyses are tailored specifically to meet the unique needs of each water system. However, there are several distinct steps in every COS analysis to recover costs from customers in an accurate, equitable, and defensible manner:

1. Cost Component Allocation: The revenue requirement is allocated to demand parameters and customer characteristics based on the design and functional parameters that characterize each expense.

2. Unit Cost Development: The revenue requirement for each cost component is divided by the appropriate units of service to determine the unit cost for each rate component.

3. Distribution of Costs to Customer Classes: The unit costs are applied to the units of service from each customer class to allocate the revenue requirement to customers in accordance with their impact on the water system.

4. Rate Design: The costs allocated to each class and the units of service for e ach class are used to develop fixed and volume charges.

6.2. Revenue Requirement
Table 6-1 shows the rate revenue requirement for FY 2024 (also referred to as the test year or rate-setting year). The revenue requirement is split into operating and capital categories which are later allocated to the O&M and capital rates. The expenses (Lines 1-4) are equal to FY 2024 expenses. The miscellaneous revenue (Line 6) includes interest earnings and miscellaneous revenues that are applied as offsets to the final rate revenue requirement. The contribution to reserves adjustment (Line 7) is equal to FY 2024 net cash change and represents the increase in the rate revenue requirement resulting from a n addition to operating reserves and use of infrastructure reserves in FY 2024. All aforementioned values are from the proposed financial plan pro formas (Table 5-14 and Table 5-15). The final rate revenue requirement (Line 8) is calculated as follows:

Total revenue required from rates (Line 8) = Revenue requirements (Line 5) + Other Revenues (Line 6) + Reserves (Line 7)

239
Item # 15.

WATER AND WASTEWATER RATE STUDY 27

Table 6-1: FY 2024 Revenue Required from Rates

6.3. Allocation of Expenses to Rate Components
After determining the revenue requirement, the next step of the COS analysis is to allocate O&M to the various rate components:
» Potable Supply: Part of the potable O&M volume rate intended to directly recover the cost of purchasing and pumping treated water. Although the City purchases water from SFPUC and VW in order to serve different parts of the City, all customers receive the same level of service – potable water delivered on demand – and therefore pay the average cost of purchasing a unit of water from each of these providers. » Recycled Supply: part of the recycled O&M volume rate intended to directly recover the cost of purchasing water.
» Customer: Part of the bi-monthly fixed charge that recovers the cost of providing customer service and billing. These costs are recovered from all customers equally, regardless of their size. » Meter Capacity: part of the bi-monthly fixed charge that recovers costs in proportion to the capacity of the customer meter size in recognition of the fact that customers with larger meters place a higher demand on the water system.

Table 6-2 shows the basis for allocating each O&M expense category to the various rate components. Most expense categories are allocated entirely to the corresponding cost causation component. The allocation basis for functional categories are as follows:

» Electricity: Primarily related to operating pump stations to deliver potable water . This costs scales closely with the quantity of water used.

» Potable and Recycled Water Purchases: Allocated directly to the corresponding cost components for those customers to ensure that the costs are recovered by the customers who use the water.

» Finance Administration and Fiscal Services: These costs are related to customer service, billing, and general financial services. These services are provided to customers equally, regardless of their size or quantity of water used.

Line Description Operating Capital Total
Expenses
1 City O&M 10,081,546$ 10,081,546$
2 Water Purchases 23,595,942 23,595,942
3 Debt Service 1,044,450 1,044,450
4 CIP Projects 4,932,604 4,932,604
5 Subtotal 33,677,488$ 5,977,054$ 39,654,542$
6 Other Revenues (405,634) (499,569) (905,203)$ 7 Contribution to (from) Reserves (65,881)$ (1,574,240)$ (1,640,121)$ 8 Revenue Required from Rates 33,205,973$ 3,903,245$ 37,109,218$ 240
Item # 15.

28 CITY OF MILPITAS

» Utility Engineering, Utility Maintenance, Compliance, and other Non -Departmental: These are primarily allocated to the Meter Capacity rate component. Many engineering and maintenance expenses are related to providing capacity within the system and ensuring reliable service to all customers at all times , regardless of the amount of water used. Recovering these costs on a fixed basis also provides revenue stability for the City. A portion of these expenses (approximately $120,000) are related to maintaining the recycled water distribution system and are therefore allocated to those customers alone.

» Administration, Transfer to General Fund, City Attorney, and Misc. Revenue : These expenses and revenues are primarily allocated to the General rate component, which is reallocated to all other rate components on Line 18 . The SBWR reimbursement of City operating costs related to the recycled water system is fully credited to recycled water customers.

Table 6-2: Allocation of Revenue Requirement

Line Cost Center
FY 2024
Expense
Potable
Volume
Recycled
Volume Customer
Meter
Capacity General Capital
City O&M Expenses
1 Administration 934,641$ 100.0%
2 Utility Engineering 1,169,798 3.3% 96.7%
3 Utility Maintenance 2,476,391 3.3% 96.7%
4 Compliance 255,801 100.0%
5 Non-Departmental 535,114 100.0%
6 Electricity 748,805 100.0%
7 Finance Administration 8,498 100.0%
8 Fiscal Services 1,147,174 100.0%
9 City Attorney 9,360 100.0%
10 Transfer to General Fund 2,795,964 100.0%
11 Subtotal City O&M 10,081,546$
Water Purchases
12 Potable 21,327,968 100.0%
13 Recycled 2,267,974 100.0%
14 Subtotal Water Purchases 23,595,942$
15 Contribution to Reserves (65,881) 100.0%
16 Misc. Revenues (405,634) 29.6% 70.4%
17 Subtotal Operating Expenses 33,205,973$ 22,076,774 2,267,974 1,155,672 4,251,222 3,454,331 - 18 Reallocation of General - 2,563,236 263,324 134,180 493,591 (3,454,331)$ 19 Total Operating Expenses 33,205,973$ 24,640,010$ 2,531,298$ 1,289,852$ 4,744,813$ -$ -$ 20 Capital Expenses 3,903,245 3,903,245
21 Total Units of Service 3,438,046 467,686 95,253 212,590 3,438,046 Units Potable
Volume (hcf)
Recycled
Volume (hcf)
Number of
Bills
5/8" Eq.

Meters
Potable
Volume (hcf)
22 Unit Cost 7.17$ 5.41$ 13.54$ 22.32$ 1.14$ 241
Item # 15.

WATER AND WASTEWATER RATE STUDY 29

7. Proposed Water Rates

Section 7 details the proposed water rate calculations. Proposed FY 2024 rates are calculated directly from the results of the COS allocations (from Section 6). All proposed rates beginning in FY 2025 are calculated by simply increasing the prior year's proposed rate by the annual revenue adjustment (from Table 5-13).

7.1. Proposed FY 2024 Fixed Meter Charges
Table 7-1 shows the detailed calculation of proposed FY 2024 Fixed Meter Charges which are based on Customer and Meter Capacity unit rates. Customer costs do not vary by connection type or size. Therefore, the Customer unit rate, previously derived in Table 6-2, is applied uniformly to all Fixed Meter Charges. However, fixed capacity costs vary by meter size. The flow rate (in gallons per minute) of each meter size, as published by the AWWA, is commonly used as a measure of capacity. Flow rates are converted to ratios which are applied to the base unit cost of $22.32.

For example, the AWWA capacity ratio for a 3/4” meter is 1.5, which is multiplied by $ 22.32 to derive the meter component cost of $ 33.48. The two fixed charge components are added to derive the total proposed bi -monthly potable fixed charge.

The City’s net costs for providing recycled water service only include payments to San Jose based on the amount of water purchased and the City’s administration of billing services for recycled customers. Operational costs the City incurs in the recycled water distribution system are reimbursed by San Jose, as reflected in Table 6-2. Therefore, the fixed charge for recycled customers is simply the Customer componen t in order to recover customer service and billing costs without also recovering the potable O&M costs in the Meters component. Although this results in a significant reduction in the fixed charge for recycled customers, it more closely reflects the City’s cost structure related to recycled water service.

Table 7-1: Proposed FY 2024 Fixed Meter Charge Calculation

Line
Potable Fixed
Charge
Calculation
AWWA
Capacity
(gpm)
AWWA
Capacity
Ratios Customer Meters
Total
Proposed Current % Change % Change
1 5/8" 20 1.00 13.54$ 22.32$ 35.87$ 34.10$ 5.2% 1.77$ 2 3/4" 30 1.50 13.54 33.48 47.03 51.14 -8.0% (4.11) 3 1" 50 2.50 13.54 55.80 69.34 85.24 -18.7% (15.90) 4 1 1/2" 100 5.00 13.54 111.60 125.14 170.48 -26.6% (45.34) 5 2" 160 8.00 13.54 178.55 192.10 272.76 -29.6% (80.66) 6 3" 350 17.50 13.54 390.58 404.13 511.43 -21.0% (107.30) 7 4" 630 31.50 13.54 703.05 716.60 852.38 -15.9% (135.78) 8 6" 1,300 65.00 13.54 1,450.74 1,464.29 1,704.76 -14.1% (240.47) 9 8" 2,800 140.00 13.54 3,124.68 3,138.22 1,704.76 84.1% 1,433.46 10 10" 4,200 210.00 13.54 4,687.02 4,700.56 1,704.76 175.7% 2,995.80 242
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30 CITY OF MILPITAS

7.2. Proposed FY 2024 Volume Charges
Table 7-2 shows the proposed FY 2024 Volume Charges as derived in Table 6-2.

Table 7-2: Proposed FY 2024 Volume Charge Calculation

7.3.Proposed Private Fire Line Charges
Raftelis did not analyze private fire protection costs as part of the cost-of-service analysis. We recommend the City conduct a comprehensive analysis of costs related to providing fire protection and update those fees in the next rate study update.

Table 7-3: Fire Line Charges

7.4. Proposed Five-Year Rate Schedule
Table 7-4 shows the proposed five-year schedule of water rates through FY 2027. Proposed FY 2024 Fixed Meter Charges (see Table 7-1) and Volume Charges (Table 7-2) were calculated in the preceding subsections. All proposed rates beginning in FY 2025 are calculated by increasing the prior year’s proposed rate by the proposed annual revenue adjustment (from Table 5-13). Current FY 2023 water rates (from Table 4-2) are also shown.

Line Rate Proposed Current % Change % Change
1 Potable 7.17$ 6.70$ 7.0% 0.47$ 2 Recycled 5.41 4.51 20.0% 0.90 3 Capital 1.14 1.08 5.1% 0.06 Line Private Fire Charge Proposed
1 5/8" -
2 3/4" -
3 1" -
4 1 1/2" -
5 2" 54.55
6 3" 102.29
7 4" 170.48
8 6" 340.95
9 8" 340.95
10 10" 340.95
11 12" -
243
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WATER AND WASTEWATER RATE STUDY 31

Table 7-4: Proposed Five-Year Water Rate Schedule

7.5. Bi-Monthly Bill Impacts
Table 7-5 shows sample bi-monthly bills for an average residential customer with a 5/8” meter using 14 hcf per bi - monthly billing period. Table 7-6 presents a water bill under current and FY 2024 rates for a similar customer at different water use levels.

Line
Bi-Monthly
Potable Fixed
Charges
Number of
Accounts FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 5/8" 12,513 34.10$ 35.87$ 38.21$ 40.70$ 43.35$ 46.17$ 2 3/4" 550 51.14 47.03 50.09 53.35 56.82 60.52 3 1" 1,336 85.24 69.34 73.85 78.66 83.78 89.23 4 1 1/2" 464 170.48 125.14 133.28 141.95 151.18 161.01 5 2" 568 272.76 192.10 204.59 217.89 232.06 247.15 6 3" 89 511.43 404.13 430.40 458.38 488.18 519.92 7 4" 61 852.38 716.60 763.18 812.79 865.63 921.90 8 6" 29 1,704.76 1,464.29 1,559.47 1,660.84 1,768.80 1,883.78 9 8" 44 1,704.76 3,138.22 3,342.21 3,559.46 3,790.83 4,037.24 10 10" 2 1,704.76 4,700.56 5,006.10 5,331.50 5,678.05 6,047.13 Line
Bi-Monthly
Recycled Fixed
Charges
Number of
Accounts FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 5/8" - 34.10$ 13.54$ 14.43$ 15.37$ 16.37$ 17.44$ 2 3/4" 3 51.14 13.54 14.43 15.37 16.37 17.44 3 1" 11 85.24 13.54 14.43 15.37 16.37 17.44 4 1 1/2" 52 170.48 13.54 14.43 15.37 16.37 17.44 5 2" 143 272.76 13.54 14.43 15.37 16.37 17.44 6 3" 3 511.43 13.54 14.43 15.37 16.37 17.44 7 4" 9 852.38 13.54 14.43 15.37 16.37 17.44 8 6" - 1,704.76 13.54 14.43 15.37 16.37 17.44 9 8" - 1,704.76 13.54 14.43 15.37 16.37 17.44 10 10" - 1,704.76 13.54 14.43 15.37 16.37 17.44 Line Volume Charges FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Potable 6.70$ 7.17$ 7.64$ 8.14$ 8.67$ 9.24$ 2 Recycled 4.51 5.41 5.77 6.15 6.55 6.98 3 Capital 1.08 1.14 1.20 1.26 1.33 1.40 244
Item # 15.

32 CITY OF MILPITAS

Table 7-5: Average Residential Bill Forecast

Table 7-6: Residential Bill Impacts at Varying Levels of Water Use

Line Typical Bill - 14 hcf FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Water Charges
1 Fixed Charge 34.10$ 35.87$ 38.21$ 40.70$ 43.35$ 46.17$ 2 Volume Charge 93.80 100.38 106.96 113.96 121.38 129.36 3 Capital Charge 15.12 15.96 16.80 17.64 18.62 19.60 4 Subtotal 143.02$ 152.21$ 161.97$ 172.30$ 183.35$ 195.13$ 5 Percent Change 6.4% 6.4% 6.4% 6.4% 6.4%
Current
Use Bill Bill $ Change % Change
0 34.10$ 35.87$ 1.77$ 5.2%
1 41.88 44.18 2.30 5.5%
2 49.66 52.49 2.83 5.7%
3 57.44 60.80 3.36 5.8%
4 65.22 69.11 3.89 6.0%
5 73.00 77.42 4.42 6.1%
6 80.78 85.73 4.95 6.1%
7 88.56 94.04 5.48 6.2%
8 96.34 102.35 6.01 6.2%
9 104.12 110.66 6.54 6.3%
10 111.90 118.97 7.07 6.3%
11 119.68 127.28 7.60 6.4%
12 127.46 135.59 8.13 6.4%
13 135.24 143.90 8.66 6.4%
14 143.02 152.21 9.19 6.4%
15 150.80 160.52 9.72 6.4%
16 158.58 168.83 10.25 6.5%
17 166.36 177.14 10.78 6.5%
18 174.14 185.45 11.31 6.5%
19 181.92 193.76 11.84 6.5%
20 189.70 202.07 12.37 6.5%
21 197.48 210.38 12.90 6.5%
22 205.26 218.69 13.43 6.5%
23 213.04 227.00 13.96 6.6%
24 220.82 235.31 14.49 6.6%
25 228.60 243.62 15.02 6.6%
Proposed Rates
245
Item # 15.

WATER AND WASTEWATER RATE STUDY 33

8.Wastewater Utility Key
Inputs and Assumptions

Raftelis developed a rate model in Microsoft Excel to project financial and rate calculations over a five-year study period through FY 2028. The City’s fiscal year spans from July 1 through June 30. Projections in future years were generally made based on estimated FY 2023 data using key assumptions outlined below. All assumptions were discussed with and reviewed by City staff to ensure that the City’s unique characteristics were incorporated. Note that most table values shown throughout this report are rounded to the last digit shown and may therefore not add precisely to the totals shown.

8.1.Available Fund Balance
Table 8-1 presents the available fund balance as of the end of FY 2022 and beginning of FY 2023. The financial plan presented in this report does not propose to spend any of the Capital Reserve for Emergencies or Rate Stabilization Fund; however, a significant portion of the existing Infrastructure Fund balance will be used for the construction of future capital projects identified in the master plan, particularly the Force Main A project in FY 2026.

Table 8-1: FY 2023 Beginning Fund Balances

8.2. Current Wastewater Rates
Table 8-2 shows the current adopted rate schedule developed during the prior rate study. Customers are currently subject to two primary charges: 1) bi-monthly Fixed Charges and 2) Volume Charges per hundred cubic feet (HCF)3 of water delivered. Fixed charges for the residential classes (Single Family, Multi-Family, and Mobile Homes) are charged per ERU4. Fixed charges for the commercial classes are levied on a per account basis. Only commercial customers are subject to a volumetric charge based on water use; this rate varies between classes depending on the unique wastewater quality characteristics of each class.

3 One HCF equals approximately 748 gallons.
4 ERU = Equivalent Residential Unit. One dwelling unit, such as a home, apartment, or condominium is one ERU.

Line Fund Description Balance
Wastewater Utility
1 Capital Reserve for Emergencies 3,143,350$
2 Rate Stabilization 2,095,986
3 CALPERS 3,164,653
4 Infrastructure 34,541,175
5 Total 42,945,164$
246
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34 CITY OF MILPITAS

Table 8-2: Current Wastewater Rate Schedule

8.3. Financial Assumptions
Inflationary assumptions were used to project O&M expenses beyond FY 2023. All inflationary factors were reviewed by City staff and are based on historical and anticipated cost increases. For O&M expenses, a general inflation rate of 4 percent is consistent with long-term changes in the Consumer Price Index (CPI) and near term inflation forecasts from the Federal Reserve Bank of Philadelphia, though recent inflation is above this amount.

Interest earnings on cash reserves are projected assuming a 1 percent annual interest rate.

8.4. Projected Service Connections
Customer account growth projections are necessary to estimate water demand and rate revenues over the study period. City staff provided Raftelis with the number of ERUs and commercial accounts for FY 2023; projections from 2023 data are based on forecasted growth rates detailed in the City’s METRO plan. Table 8-3 shows the projected number of units by customer class in FY 2023 and each year of the study period.

Line Customer Class Fixed Charge Volume Charge
1 Single-Family 124.14$ -$
2 Multi-Family 95.34 -
3 Mobile Home 78.28 -
4 Schools/Colleges 27.35 9.99
5 Motels and Hotels 27.35 5.75
6 General Office 27.35 6.84
7 City of Milpitas 27.35 5.80
8 Service Stations 27.35 5.70
9 Eat/Drink Establishments 27.35 9.06
10 Convalescent Hosp/Daycare 27.35 5.60
11 Personal Services, Laundrys 27.35 5.31
12 Electrical/Electronics 27.35 6.72
13 Machinery Manufacture 27.35 8.43
14 RockTenn (Jefferson Smurfit) 27.35 10.46 15 T. Marzetti Co. 27.35 12.09
16 Prudential Overall Supply 27.35 8.42
17 Evoqua Water Technologies 27.35 7.06
18 Elmwood Rehabilitation 27.35 6.69
19 Linear Technology 27.35 6.88
20 DS Waters of America 27.35 6.04
21 Magic Tech & Headway Tech 27.35 7.32
22 Lucky Pure Water 27.35 5.29
23 Milpitas Materials 27.35 5.29
24 Union Pacific Railroad 27.35 7.35
25 Cisco 27.35 6.72
247
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WATER AND WASTEWATER RATE STUDY 35

Table 8-3: Projected Number of Billed ERUs and Commercial Accounts

8.5. Projected Wastewater Volumes
City staff provided Raftelis with projected total annual wastewater use data by customer class for FY 2023. Raftelis worked closely with City staff to develop water use projections for FY 2024 through FY 2028. Demand projections depend on two key assumptions: account growth and water demand factor (i.e., water use per account). Beginning in FY 2023, annual water use was projected at the customer class level using an annual water demand growth rate to determine total annual water use. Billable wastewater volumes for commercial customers are based on water use with a return factor applied. Volumes for the residential classes in this Table are not used for revenue calculations, but are used below in the cost of service analysis. Table 8-4 shows projected water use by customer class over the study period. The wastewater use per account growth rate is forecasted at 0 percent through the study period.

Line Customer Class FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single-Family 75,240 75,459 75,678 75,813 75,949 76,084 2 Multi-Family 70,248 72,904 75,704 78,504 81,304 84,104 3 Mobile Home 3,126 3,126 3,126 3,126 3,126 3,126 4 Schools/Colleges 402 414 425 433 440 447 5 Motels and Hotels 156 157 157 158 158 159 6 General Office 2,226 2,234 2,242 2,251 2,259 2,268 7 City of Milpitas 228 235 241 245 250 254 8 Service Stations 252 253 254 255 256 257 9 Eat/Drink Establishments 1,026 1,030 1,033 1,037 1,041 1,045 10 Convalescent Hosp/Daycare 144 144 144 144 144 144 11 Personal Services, Laundrys 348 348 348 348 348 348 12 Electrical/Electronics 612 614 616 619 621 624 13 Machinery Manufacture 84 84 85 85 85 86 14 RockTenn (Jefferson Smurfit) 6 6 6 6 6 6 15 T. Marzetti Co. 12 12 12 12 12 12 16 Prudential Overall Supply 12 12 12 12 12 12 17 Evoqua Water Technologies (Siemens Water Tech) 12 12 12 12 12 12 18 Elmwood Rehabilitation 30 30 30 30 30 30 19 Linear Technology 36 36 36 36 36 36 20 DS Waters of America 12 12 12 12 12 12 21 Magic Tech & Headway Tech 12 12 12 12 12 12 22 Lucky Pure Water 6 6 6 6 6 6 23 Milpitas Materials 6 6 6 6 6 6 24 Union Pacific Railroad 12 12 12 12 12 12 25 Cisco 30 30 30 30 30 30 26 Total 154,278 157,187 160,239 163,203 166,167 169,131 248
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36 CITY OF MILPITAS

Table 8-4: Projected Wastewater Use

Line Customer Class Volume FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single-Family 1,107,882 1,111,104 1,114,326 1,116,321 1,118,315 1,120,310 2 Multi-Family 825,451 856,655 889,556 922,457 955,359 988,260 3 Mobile Home 35,875 35,875 35,875 35,875 35,875 35,875 4 Schools/Colleges 17,572 18,084 18,596 18,913 19,230 19,546 5 Motels and Hotels 74,758 75,029 75,300 75,590 75,880 76,170 6 General Office 121,612 122,054 122,495 122,966 123,438 123,910 7 City of Milpitas 11,997 12,347 12,696 12,912 13,129 13,345 8 Service Stations 16,558 16,618 16,678 16,742 16,807 16,871 9 Eat/Drink Establishments 128,268 128,734 129,199 129,696 130,194 130,691 10 Convalescent Hosp/Daycare 14,960 14,960 14,960 14,960 14,960 14,960 11 Personal Services, Laundrys 23,340 23,340 23,340 23,340 23,340 23,340 12 Electrical/Electronics 108,597 108,991 109,385 109,806 110,227 110,648 13 Machinery Manufacture 3,685 3,698 3,711 3,726 3,740 3,754 14 RockTenn (Jefferson Smurfit) 4,271 4,271 4,271 4,271 4,271 4,271 15 T. Marzetti Co. 19,850 19,850 19,850 19,850 19,850 19,850 16 Prudential Overall Supply 10,354 10,354 10,354 10,354 10,354 10,354 17 Evoqua Water Technologies 30,363 30,363 30,363 30,363 30,363 30,363 18 Elmwood Rehabilitation 64,490 64,490 64,490 64,490 64,490 64,490 19 Linear Technology 71,587 71,587 71,587 71,587 71,587 71,587 20 DS Waters of America 609 609 609 609 609 609 21 Magic Tech & Headway Tech 38,085 38,085 38,085 38,085 38,085 38,085 22 Lucky Pure Water 838 838 838 838 838 838 23 Milpitas Materials 74 74 74 74 74 74 24 Union Pacific Railroad 1,254 1,254 1,254 1,254 1,254 1,254 25 Cisco 53,232 53,232 53,232 53,232 53,232 53,232 26 Total 2,785,561 2,822,493 2,861,123 2,898,310 2,935,498 2,972,686 249
Item # 15.

WATER AND WASTEWATER RATE STUDY 37

9. Wastewater Financial Plan

Section 9 details the development of a proposed five -year financial plan for the wastewater utility over the study period. The following subsections include estimates and projections of annual revenues, O&M expenses, debt service payments, capital expenditures, and reserve funding through FY 2028. The overall purpose of the financial plan is to determine the annual rate revenue needed to achieve sufficient cash flow, maintain adequate reserves, and meet debt coverage requirements.

9.1. Revenues From Current Rates
The City’s revenues consist of rate revenues, interest earnings on cash reserves, and other miscellaneous revenues.

Calculated Wastewater Rate Revenues
Raftelis projected wastewater rate revenues from Fixed ERU Charges and Volume Charges for FY 2024 through FY 2028 based on current FY 2023 rates, the projected number of ERUs and accounts, and projected annual wastewater use.

Table 9-1 shows projected Fixed Charge revenues under current rates over the study period. Fixed Charge revenues are calculated by customer class in ea ch year as follows based on current FY 2023 rates (from Table 8-2), the projected number of ERUs and accounts (from Table 8-3).

Annual Fixed Charge Revenue = [ FY 2023 bi-monthly rate] × [Number of units] × [6 Bills per year]

250
Item # 15.

38 CITY OF MILPITAS

Table 9-1: Projected Fixed Charge Revenues under Current Rates

Line Customer Class FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single-Family 9,340,294$ 9,367,460$ 9,394,626$ 9,411,442$ 9,428,259$ 9,445,075$ 2 Multi-Family 6,697,444 6,950,622 7,217,574 7,484,526 7,751,478 8,018,430 3 Mobile Home 244,703 244,703 244,703 244,703 244,703 244,703 4 Schools/Colleges 10,995 11,315 11,635 11,833 12,032 12,230 5 Motels and Hotels 4,267 4,282 4,298 4,314 4,331 4,347 6 General Office 60,881 61,102 61,323 61,559 61,795 62,031 7 City of Milpitas 6,236 6,417 6,599 6,711 6,824 6,936 8 Service Stations 6,892 6,917 6,942 6,969 6,996 7,022 9 Eat/Drink Establishments 28,061 28,163 28,265 28,374 28,482 28,591 10 Convalescent Hosp/Daycare 3,938 3,938 3,938 3,938 3,938 3,938 11 Personal Services, Laundrys 9,518 9,518 9,518 9,518 9,518 9,518 12 Electrical/Electronics 16,738 16,799 16,860 16,925 16,989 17,054 13 Machinery Manufacture 2,297 2,306 2,314 2,323 2,332 2,341 14 RockTenn (Jefferson Smurfit) 164 164 164 164 164 164 15 T. Marzetti Co. 328 328 328 328 328 328 16 Prudential Overall Supply 328 328 328 328 328 328 17 Evoqua Water Technologies (Siemens Water Tech) 328 328 328 328 328 328 18 Elmwood Rehabilitation 821 821 821 821 821 821 19 Linear Technology 985 985 985 985 985 985 20 DS Waters of America 328 328 328 328 328 328 21 Magic Tech & Headway Tech 328 328 328 328 328 328 22 Lucky Pure Water 164 164 164 164 164 164 23 Milpitas Materials 164 164 164 164 164 164 24 Union Pacific Railroad 328 328 328 328 328 328 25 Cisco 821 821 821 821 821 821 26 Total 16,437,352$ 16,718,629$ 17,013,681$ 17,298,222$ 17,582,763$ 17,867,305$ 251
Item # 15.

WATER AND WASTEWATER RATE STUDY 39

Table 9-2 shows projected Volume Charge revenues under current rates over the study period. Volume Charge revenues are calculated by customer class in each year as follows based on current FY 2023 wastewater rates (from Table 8-2) and projected wastewater use (from Table 8-4):

Annual Volume Charge Revenue = [ FY 2023 rate per HCF] × [Annual Wastewater Use in HCF]

Table 9-2: Projected Volume Charge Revenues Under Current Rates

Other Revenues
Table 9-3 shows all other revenues. All FY 2023 other revenues are based on the latest information available to City staff and do not correspond direct ly to the City’s adopted budget. Additional revenues from FY 2023 through FY 2027 were projected by Raftelis. Interest revenue is estimated beginning in FY 2024 based on estimated fund balances and an assumed interest rate. All other revenues are forecasted to remain constant.

Line Customer Class FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Single-Family -$ -$ -$ -$ -$ -$ 2 Multi-Family - - - - - - 3 Mobile Home - - - - - - 4 Schools/Colleges 175,549 180,661 185,774 188,938 192,103 195,268 5 Motels and Hotels 429,856 431,415 432,974 434,641 436,308 437,975 6 General Office 831,829 834,846 837,864 841,090 844,316 847,541 7 City of Milpitas 69,584 71,610 73,636 74,891 76,145 77,400 8 Service Stations 94,381 94,723 95,066 95,432 95,798 96,164 9 Eat/Drink Establishments 1,162,110 1,166,326 1,170,541 1,175,048 1,179,555 1,184,061 10 Convalescent Hosp/Daycare 83,774 83,774 83,774 83,774 83,774 83,774 11 Personal Services, Laundrys 123,937 123,937 123,937 123,937 123,937 123,937 12 Electrical/Electronics 729,772 732,419 735,066 737,896 740,727 743,557 13 Machinery Manufacture 31,060 31,173 31,286 31,406 31,527 31,647 14 RockTenn (Jefferson Smurfit) 44,677 44,677 44,677 44,677 44,677 44,677 15 T. Marzetti Co. 239,984 239,984 239,984 239,984 239,984 239,984 16 Prudential Overall Supply 87,178 87,178 87,178 87,178 87,178 87,178 17 Evoqua Water Technologies (Siemens Water Tech) 214,363 214,363 214,363 214,363 214,363 214,363 18 Elmwood Rehabilitation 431,438 431,438 431,438 431,438 431,438 431,438 19 Linear Technology 492,516 492,516 492,516 492,516 492,516 492,516 20 DS Waters of America 3,679 3,679 3,679 3,679 3,679 3,679 21 Magic Tech & Headway Tech 278,785 278,785 278,785 278,785 278,785 278,785 22 Lucky Pure Water 4,433 4,433 4,433 4,433 4,433 4,433 23 Milpitas Materials 390 390 390 390 390 390 24 Union Pacific Railroad 9,218 9,218 9,218 9,218 9,218 9,218 25 Cisco 357,718 357,718 357,718 357,718 357,718 357,718 26 Total 5,896,229$ 5,915,263$ 5,934,297$ 5,951,432$ 5,968,567$ 5,985,702$ 252
Item # 15.

40 CITY OF MILPITAS

Table 9-3: Projected Other Revenues

Table 9-4 shows a summary of projected revenues under current rates over the study period. This represents expected revenues in the absence of any rate increase over the study period.

Table 9-4: Summary of Projected Revenues Under Current Rates

9.2. Operations and Maintenance Expenses
Table 9-5 shows O&M expenses by department over the study period. O&M expenses shown in FY 2023 are from the City’s adopted FY 2023 budget with modifications to the wastewater treatment cost based on the latest information from the City of San Jose, the wastewater treatment provider for the City of Milpitas as well as the addition of personnel related to SCADA operation. All projections beyond FY 2023 were developed based on inflationary assumptions above.

Line Other Revenue Detail FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Operating Fund
1 Interest Income 102,932 69,132 71,576 74,094 76,644 84,713 2 Subtotal 102,932$ 69,132$ 71,576$ 74,094$ 76,644$ 84,713$ Infrastructure Fund
3 Interest Income 450,000$ 314,099$ 271,880$ 162,733$ (7,199)$ (49,374)$ 4 Development Fees 750,000 250,000 250,000 250,000 250,000 250,000 5 Subtotal 1,200,000$ 564,099$ 521,880$ 412,733$ 242,801$ 200,626$ 6 Total 1,302,932$ 633,232$ 593,456$ 486,827$ 319,445$ 285,339$ Line Revenue Type FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Operating Fund
1 Fixed Charge 16,437,352$ 16,718,629$ 17,013,681$ 17,298,222$ 17,582,763$ 17,867,305$ 2 Volume Charge 5,896,229 5,915,263 5,934,297 5,951,432 5,968,567 5,985,702 3 Other 102,932 69,132 71,576 74,094 76,644 84,713 4 Subtotal 22,436,512$ 22,703,024$ 23,019,554$ 23,323,748$ 23,627,974$ 23,937,719$ Infrastructure Fund
5 Other 1,200,000$ 564,099$ 521,880$ 412,733$ 242,801$ 200,626$ 6 Subtotal 1,200,000$ 564,099$ 521,880$ 412,733$ 242,801$ 200,626$ 7 Total 23,636,512$ 23,267,123$ 23,541,434$ 23,736,481$ 23,870,775$ 24,138,345$ 253
Item # 15.

WATER AND WASTEWATER RATE STUDY 41

Table 9-5: O&M Summary by Department

9.3. Capital Improvement Plan
The City’s adopted FY 2023 budget includes approximately $600 thousand in capital project costs. The City has also developed a long-term utility master plan that outlines capital project expenditures required through 2040 to address current and future system needs.

Capital costs related to improvements at the regional wastewater treatment plant are also included in the City’s CIP.

San Jose provided a forecast of capital expenses; these are expected to peak at approximately $11M in FY 2025 before decreasing to historical levels of $2-3M per year.

A significant driver of the City’s proposed rate increases is the replacement of Force Main A. The Force Main A (FMA) is a 50-year steel pipeline which conveys sewage flows from the City to the San Jose treatment facility. The pipeline is one of two critical pipelines connected to the Main Lift Sewer Pump Station from which all Milpitas sewage flows are pumped. The pipe crosse s Coyote Creek after it leaves the pump station and runs through an easement on City of San Jose property, to the treatment plant. The pipeline is in a corrosive environment and is approaching the end of its useful life. Staff recommends that this pipeline be replaced as soon as possible. The study assumes that this project, totaling $26 million, will be completed in FY 2026.

These projects are shown in detail in Table 9-6 and amount to approximately $80M over the study period. The final line presents the total proposed annual capital spending.

Line O&M Summary FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Administration 1,625,083$ 1,690,087$ 1,757,690$ 1,827,998$ 1,901,118$ 1,977,162$ 2 Utility Engineering 480,513 519,108 559,248 581,618 604,882 629,078 3 Utility Maintenance 1,583,788 1,647,140 1,713,025 1,781,546 1,852,808 1,926,921 4 Compliance 191,878 199,553 207,535 215,836 224,470 233,449 5 Wastewater Treatment 6,997,426 7,277,323 7,568,416 7,871,153 8,185,999 8,513,439 6 Non-Departmental 1,124,227 1,169,196 1,215,964 1,264,602 1,315,187 1,367,794 7 Finance Administration 24,778 25,769 26,800 27,872 28,987 30,146 8 Fiscal Services 686,527 713,988 742,547 772,249 803,139 835,265 9 City Attorney - - - - - - 10 Transfer to General Fund 1,444,869 1,502,664 1,562,770 1,625,281 1,690,292 1,757,904 11 Total 14,159,089$ 14,744,828$ 15,353,996$ 15,968,156$ 16,606,882$ 17,271,157$ 254
Item # 15.

42 CITY OF MILPITAS

Table 9-6: Capital Improvement Plan

9.1.Debt Service
Table 9-7 shows the City’s existing debt service obligations associated with its outstanding Series 2017 and Series 2019 bonds. These obligations are secured by a pledge of City revenues. The proposed financial plan assumes that the City will issue a $20M bond in FY 2026 to finance the replacement of Force Main A. Debt service for this future bond was provided by the City’s financial advisor, assuming a 20 year repayment period and 7% interest rate5.

Table 9-7: Debt Service

5 Raftelis also conducted a sensitivity analysis to compare the impact of varying interest rates, bond terms, and project costs. The impact on rates over the full period of changes in financing assumptions is minimal; differences in actual debt service financing assumptions when issued will require only small changes, if any, to the proposed rates.

Line Capital Project FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Sanitary Sewer Pipeline Improvements -$ -$ -$ 995,743$ 1,417,288$ 2,912,640$ 2 Ongoing Sanitary Sewer CCTV - 200,000 100,000 100,000 - - 3 CCTV Improvements - 333,333 333,333 333,333 333,333 333,333 4 Forcemain A Design - - 939,400 - - - 5 Forcemain A Construction - - - 25,160,600 - - 6 San Jose Capital 6,655,953 6,836,915 11,329,085 6,379,020 3,009,097 2,519,945 7 Previously Adopted Capital Projects 579,000 350,000 250,000 250,000 250,000 - 8 Utility Billing System 300,000
9 Subtotal 7,234,953$ 8,020,248$ 12,951,818$ 33,218,696$ 5,009,718$ 5,765,918$ 10 CIP Inflation Factor 106.00% 112.36% 119.10% 123.87% 128.82% 133.97% 11 Total Proposed Capital Spending 7,669,050$ 9,011,551$ 15,425,823$ 41,146,559$ 6,453,534$ 7,724,780$ Line Debt Service Forecast FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Existing Debt - Series 2017
1 Principal 515,000$ 535,000$ 560,000$ 590,000$ 615,000$ 2 Interest 124,950 101,625 74,250 45,500 15,375 1 - - - - - - 3 Subtotal: Existing Debt - Series 2017 639,950$ 636,625$ 634,250$ 635,500$ 630,375$ -$ Existing Debt - Series 2019
4 Principal 505,000$ 535,000$ 560,000$ 585,000$ 615,000$ 645,000$ 5 Interest 1,286,325 1,260,325 1,232,950 1,204,325 1,174,325 1,142,825 1 - - - - - - 6 Subtotal: Existing Debt - Series 2019 1,791,325$ 1,795,325$ 1,792,950$ 1,789,325$ 1,789,325$ 1,787,825$ 7 Total Existing Debt 2,431,275$ 2,431,950$ 2,427,200$ 2,424,825$ 2,419,700$ 1,787,825$ 8 Proposed Debt Service -$ -$ -$ -$ 1,302,904$ 1,884,550$ 9 Total Debt Service 2,431,275$ 2,431,950$ 2,427,200$ 2,424,825$ 3,722,604$ 3,672,375$ 255
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WATER AND WASTEWATER RATE STUDY 43

9.2. Financial Policies
Utility-specific financial policies must be considered during the financial planning process. Financial policies typically define key financial metrics that an agency strives to meet or exceed.

Reserve Targets
Prudent fiscal management requires that the City maintain reserve balances to provide sufficient working capital, maintain necessary cash on hand to efficiently award construction contracts , and provide funding during emergencies. The City’s current policy consists of several targets:
» Capital Reserve for Emergencies: The City’s adopted O&M reserve target is 25 percent of annual O&M expenses. This is intended to ensure sufficient working capital during short-term fluctuations in cash flow. » Rate Stabilization Reserve: The target is 16.67 percent of annual operating expenses. » CALPERS Reserve: Twenty percent of any remaining annual surplus after meeting O&M expenses and the reserve targets above are transferred to the CALPERS fund. » Infrastructure Fund: The remaining 80 percent portion of any operating surplus is transferred to the Infrastructure funds to be spent on capital projects in future years.

9.3. Status Quo Financial Plan
In order to evaluate the need for revenue adjustments (i.e. , rate increases), Raftelis first developed a status quo financial plan. The status quo financial plan assumes that current FY 2023 rates remain unchanged over the study period.

Table 9-8 combines projected operating revenues (from Table 9-4), and O&M expenses (from Table 9-5), and debt service (from Table 9-7) to generate cash flow, ending balance, and debt coverage projections under the status quo.

Under the status-quo financial plan, net cash change (revenue less total cash expenses) is negative for most years of the study period and results in a near complete depletion of the City’s reserves in Capital Reserve for Emergencies, Rate Stabilization, and Infrastructure Funds by the end of FY 2027. The status quo financial plan is insufficient to meet the City’s needs. This demonstrates a clear need for revenue adjustments over the study period to increase rate revenues and achieve financial sustainability.
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Table 9-8: Status Quo Operating Financial Plan

Table 5-11 presents the proposed capital financing plan in the status quo scenario. The use of bond proceeds is reflected on Line 3, but rate revenues are insufficient to fund remaining capital expenses.

Line Operating Cash Flow FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Inflows
1 Rate Revenue 22,333,580$ 22,633,892$ 22,947,978$ 23,249,654$ 23,551,330$ 23,853,006$ 2 Other Misc. Revenue 102,932 69,132 71,576 74,094 76,644 84,713 3 Total 22,436,512$ 22,703,024$ 23,019,554$ 23,323,748$ 23,627,974$ 23,937,719$ Outflows
4 City O&M 7,161,663$ 7,467,505$ 7,785,580$ 8,097,003$ 8,420,883$ 8,757,718$ 5 Wastewater Treatment 6,997,426 7,277,323 7,568,416 7,871,153 8,185,999 8,513,439 6 Debt Service 2,431,275 2,431,950 2,427,200 2,424,825 3,722,604 3,672,375 Reserve Contributions
7 Capital for Emergencies 1,004,241 146,603 151,105 152,946 484,126 153,512 8 Rate Stabilization 669,628 97,755 100,756 101,985 322,815 102,361 9 Pension 834,456 1,056,378 997,299 935,167 498,309 547,663 10 Transfer to Infrastructure 3,337,823 4,225,510 3,989,198 3,740,670 1,993,237 2,190,651 11 Total 22,436,512$ 22,703,024$ 23,019,554$ 23,323,748$ 23,627,974$ 23,937,719$ 12 Rate Increase 0.0% 0.0% 0.0% 0.0% 0.0%
13 Cumulative Rate Increase 0.0% 0.0% 0.0% 0.0% 0.0%
14 Debt Service Coverage Ratio 3.40 3.27 3.16 3.03 1.89 1.82 257
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WATER AND WASTEWATER RATE STUDY 45

Table 9-9: Status Quo Capital Financial Plan

Figure 9-1 shows the City’s projected ending balances under the status qu o. The operating reserve targets are represented by blue line. Projected ending balances are represented by the stacked columns. The City’s total reserves will fall below the operating target in FY 2026, with reserves to be fully depleted by the end of FY 2028.6 Figure 9-1: Status Quo Financial Plan – Projected Ending Balances

6 This scenario presents negative reserve balances in order to demonstrate the need for rate increases. The City is unable to implement any plan that results in negative reserves. This scenario should not be considered an alternative option.

Line Infrastructure Cash Flow FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Inflows
1 Transfer from Operating 3,337,823$ 4,225,510$ 3,989,198$ 3,740,670$ 1,993,237$ 2,190,651$ 2 Developer Fees and Interest 1,200,000 564,099 521,880 412,733 242,801 200,626 3 Bond Proceeds - - - 20,000,000 - - 4 Use of Infrastructure Reserves 3,131,227 4,221,941 10,914,745 16,993,157 4,217,496 5,333,502 5 Total 7,669,050$ 9,011,551$ 15,425,823$ 41,146,559$ 6,453,534$ 7,724,780$ Outflows
7 Capital Projects 7,669,050$ 9,011,551$ 15,425,823$ 41,146,559$ 6,453,534$ 7,724,780$ 8 Total 7,669,050$ 9,011,551$ 15,425,823$ 41,146,559$ 6,453,534$ 7,724,780$ 9 Ending Balance 31,409,948$ 27,188,007$ 16,273,262$ (719,895)$ (4,937,391)$ (10,270,893)$ 258
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Table 9-10: Status Quo Financial Plan- Projected Ending Balances

9.4. Proposed Financial Plan
The status quo financial plan demonstrates that the City must increase its revenues from water rates over the study period in order to adequately fund its operating and capital expenditures, meet required debt coverage, and generate sufficient reserve funding. Raftelis worked closely with City staff to select the proposed annual revenue adjustments shown in Table 9-11. Revenue adjustments represent annual percentage increases in rate revenue relative to how much rate revenue would have been collected under the prior year’s wastewater rates.

Table 9-11: Proposed Revenue Adjustments

Table 9-12 shows the proposed financial plan pro forma. This combines projected revenues, O&M expenses, debt service, capital expenditures, and reserve targets to generate cash flow, ending balance, and debt coverage projections under the proposed financial plan. Revenue adjustments over the study period generate significant increases in rate revenues over the study period. This results in positive net operating cash flow and sufficient debt coverage in all years.

Line End of Year Reserves FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Capital for Emergencies 4,147,591$ 4,294,194$ 4,445,299$ 4,598,245$ 5,082,371$ 5,235,883$ 2 Rate Stabilization 2,765,614 2,863,369 2,964,125 3,066,110 3,388,925 3,491,287 3 Pension 3,999,109 5,055,486 6,052,786 6,987,953 7,486,262 8,033,925 4 Infrastructure 31,409,948 27,188,007 16,273,262 (719,895) (4,937,391) (10,270,893) 5 Total 42,322,262$ 39,401,057$ 29,735,472$ 13,932,413$ 11,020,168$ 6,490,202$ Line Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Effective Date of Revenue Adjustment July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 2 Revenue Adjustment 4.00% 4.00% 4.00% 4.00% 4.00%
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Table 9-12: Proposed Operating Financial Plan

Table 9-13: Proposed Capital Financial Plan

Line Operating Cash Flow FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Inflows
1 Rate Revenue 22,333,580$ 23,539,248$ 24,820,533$ 26,152,699$ 27,551,725$ 29,020,829$ 2 Other Misc. Revenue 102,932 69,132 71,576 74,094 76,644 84,713 3 Total 22,436,512$ 23,608,380$ 24,892,109$ 26,226,793$ 27,628,369$ 29,105,542$ Outflows
4 City O&M 7,161,663$ 7,467,505$ 7,785,580$ 8,097,003$ 8,420,883$ 8,757,718$ 5 Wastewater Treatment 6,997,426 7,277,323 7,568,416 7,871,153 8,185,999 8,513,439 6 Debt Service 2,431,275 2,431,950 2,427,200 2,424,825 3,722,604 3,672,375 Reserve Contributions
7 Capital for Emergencies 1,004,241 146,603 151,105 152,946 484,126 153,512 8 Rate Stabilization 669,628 97,755 100,756 101,985 322,815 102,361 9 Pension 834,456 1,237,449 1,371,810 1,515,776 1,298,388 1,581,227 10 Transfer to Infrastructure 3,337,823 4,949,795 5,487,242 6,063,105 5,193,553 6,324,910 11 Total 22,436,512$ 23,608,380$ 24,892,109$ 26,226,793$ 27,628,369$ 29,105,542$ 12 Rate Increase 4.0% 4.0% 4.0% 4.0% 4.0%
13 Cumulative Rate Increase 4.0% 8.2% 12.5% 17.0% 21.7% 14 Debt Service Coverage Ratio 3.40 3.64 3.93 4.23 2.96 3.22 260
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48 CITY OF MILPITAS

Figure 5-2 shows the City’s projected ending balance under the proposed financial plan. The light blue line indicates the total target balance of 41.67 percent of O&M. The proposed financial plan will draw heavily on reserves as the master plan is implemented in FY 2026. Although not detailed in this report, projections indicate that the City will be able to cover all operating and capital expenses without the use of reserves beginning in FY 2029.

Figure 9-2: Proposed Financial Plan – Projected Ending Balances

Line Infrastructure Cash Flow FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Inflows
1 Transfer from Operating 3,337,823$ 4,949,795$ 5,487,242$ 6,063,105$ 5,193,553$ 6,324,910$ 2 Developer Fees and Interest 1,200,000 564,099 529,123 435,028 288,544 278,830 3 Bond Proceeds - - - 20,000,000 - - 4 Use of Infrastructure Reserves 3,131,227 3,497,657 9,409,458 14,648,425 971,437 1,121,040 5 Total 7,669,050$ 9,011,551$ 15,425,823$ 41,146,559$ 6,453,534$ 7,724,780$ Outflows
7 Capital Projects 7,669,050$ 9,011,551$ 15,425,823$ 41,146,559$ 6,453,534$ 7,724,780$ 8 Total 7,669,050$ 9,011,551$ 15,425,823$ 41,146,559$ 6,453,534$ 7,724,780$ 9 Ending Balance 31,409,948$ 27,912,291$ 18,502,833$ 3,854,408$ 2,882,971$ 1,761,931$ 261
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WATER AND WASTEWATER RATE STUDY 49

Table 9-14: Proposed Financial Plan – Projected Ending Balances

50 CITY OF MILPITAS

10.Wastewater Cost of Service
Analysis

Section 6 details the cost of service (COS) analysis performed for FY 2024. The COS analysis allocates the overall rate revenue requirement to customer classes based on their proportion of use of and burden on the City’s water system. This provides the basis for the development of proposed FY 2024 water rates.

10.1. Methodology
The first step in the COS analysis is to determine the revenue required from rates. The total revenue requirement is determined in the financial plan and the proposed revenue adjustments in Section 9. The framework and methodology utilized to develop the COS analysis and to apportion the revenue requirement to each customer class and tier is informed by the processes outlined in the WEF Manual of Practice No. 27.

COS analyses are tailored specifically to meet the unique needs of each wastewater system. However , there are several distinct steps in every COS analysis to recover costs from customers in an accurate, equitable, and defensible manner:

1. Cost component allocation: Costs are allocated to demand parameters and customer characteristics based on the design and functional parameter the characterize each expense

2. Unit cost development: The revenue requirement for each cost causation component is divided by the appropriate units of service to determine the unit cost for each rate component

3. Distribution of Costs to Customer Classes : The unit costs are applied to the units of service from each customer class to allocate the revenue requirement to customers in accordance with their impact on the wastewater system

4. Rate Design: The costs allocated to each class and the units of service for each class are used to develop fixed and volume charges.

10.2.Units of Service
Table 10-1 summarizes the forecasted units of service for each wastewater class. ERUs, bills, and commercial volumes are from the latest available City billing data. Pollutant strengths for BOD, TSS, and NH3 as well as the estimate of days active are from estimates provided by San Jose. The pollutant units used to allocate costs are pounds per day, calculated using the contributed volume estimate and pollutant concentration for each class to estimate total annual pounds and dividing by the number of days active.

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Table 10-1: FY 2024 Wastewater Units of Service

Line Units of Service Days HCF Gallons / Day
Strength
(mg/l)
Pounds /
Year
Pounds /
Day
Strength
(mg/l)
Pounds /
Year
Pounds /
Day
Strength
(mg/l)
Pounds /
Year
Pounds /
Day ERUs Bills
1 Single-Family 365 1,107,882 2,270,556 250.00 1,729,040 4,737 250.00 1,729,040 4,737 35.00 242,066 663 75,459 74,644 2 Multi-Family 365 825,451 1,691,726 250.00 1,288,258 3,529 250.00 1,288,258 3,529 35.00 180,356 494 72,904 11,315 3 Mobile Home 365 35,875 73,524 250.00 55,989 153 250.00 55,989 153 35.00 7,838 21 3,126 18 4 Schools/Colleges 176 18,084 76,863 130.00 14,676 83 100.00 11,289 64 30.00 3,387 19 414 414 5 Motels and Hotels 365 75,029 153,768 310.00 145,198 398 121.00 56,674 155 7.00 3,279 9 157 157 6 General Office 261 122,054 349,818 130.00 99,053 380 80.00 60,955 234 11.00 8,381 32 2,234 2,234 7 City of Milpitas 323 12,347 28,594 130.00 10,020 31 80.00 6,166 19 11.00 848 3 235 235 8 Service Stations 365 16,618 34,058 180.00 18,674 51 280.00 29,048 80 - - - 253 253 9 Eat/Drink Establishments 365 128,734 263,834 1,250.00 1,004,554 2,752 560.00 450,040 1,233 10.00 8,036 22 1,030 1,030 10 Convalescent Hosp/Daycare 365 14,960 30,659 230.00 21,479 59 85.00 7,938 22 15.00 1,401 4 144 144 11 Personal Services, Laundrys 365 23,340 47,835 150.00 21,856 60 110.00 16,028 44 5.00 729 2 348 348 12 Electrical/Electronics 261 108,991 312,379 30.00 20,412 78 15.00 10,206 39 30.00 20,412 78 614 614 13 Machinery Manufacture 261 3,698 10,598 290.00 6,695 26 550.00 12,697 49 - - - 84 84 14 RockTenn (Jefferson Smurfit) 365 4,271 8,754 1,746.71 46,574 128 39.68 1,058 3 17.10 456 1 6 6 15 T. Marzetti Co. 313 19,850 47,440 1,555.25 192,721 616 31.16 3,861 12 0.41 51 0 12 12 16 Prudential Overall Supply 261 10,354 29,675 583.25 37,698 144 269.23 17,402 67 1.52 98 0 12 12 17 Evoqua Water Technologies 261 30,363 87,023 28.93 5,484 21 148.62 28,170 108 1.19 226 1 12 12 18 Elmwood Rehabilitation 365 64,490 132,170 507.05 204,134 559 341.68 137,557 377 25.39 10,222 28 30 30 19 Linear Technology 261 71,587 205,174 17.72 7,919 30 25.03 11,186 43 25.22 11,271 43 36 36 20 DS Waters of America 261 609 1,746 1.58 6 0 1.68 6 0 0.01 0 0 12 12 21 Magic Tech & Headway Tech 261 38,085 109,156 449.42 106,852 409 4.83 1,148 4 1.63 388 1 12 12 22 Lucky Pure Water 365 838 1,717 130.00 680 2 80.00 418 1 11.00 58 0 6 6 23 Milpitas Materials 365 74 151 130.00 60 0 80.00 37 0 11.00 5 0 6 6 24 Union Pacific Railroad 261 1,254 3,595 180.00 1,409 5 280.00 2,192 8 - - - 12 12 25 Cisco 261 53,232 152,568 30.00 9,969 38 15.00 4,985 19 30.00 9,969 38 30 30 26 Total 2,788,067 6,123,381 5,049,408 14,291 3,942,349 11,001 509,475 1,462 157,187 91,675 Volume CustomerNH3TSSBOD
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10.3. Revenue Requirement
Table 10-2 shows the rate revenue requirement for FY 2024 (also referred to as the test year or rate-setting year). The revenue requirement is split into operating and capital categories which are later allocated based on O&M expenses and capital assets, respectively. The expenses (Lines 1-4) are equal to FY 2024 expenses. The miscellaneous revenue (Line 6) includes interest earnings and miscellaneous revenues that are applied as offsets to the f inal rate revenue requirement. The contribution to reserves adjustment (Line 7) is equal to FY 2024 net cash change and represents the increase in the rate revenue requirement resulting from an addition to operating reserves and use of infrastructure reserves in FY 2024. All aforementioned values are from the proposed financial plan pro forma (

Table 9-8). The final rate revenue requirement (Line 8) is calculated as follows:

Total revenue required from rates (Line 8) = Revenue requirements (Line 5) + Other Revenues (Line 6) + Reserves (Line 7)

Table 10-2: FY 2024 Revenue Required from Wastewater Rates

10.4. Allocation of Expenses to Rate Components
After determining the revenue requirement, the next step of the COS analysis is to allocate O&M to the various rate components:
» Volume: Part of the potable O&M volume rate intended to recover costs associated with the quantity of contributed wastewater.

Line Description Operating Capital Total
Expenses
1 City O&M 7,467,505$ 7,467,505$
2 Wastewater Treatment 7,277,323 7,277,323
3 Debt Service 2,431,950 2,431,950
4 Rate Funded Capital 4,949,795 4,949,795
5 Subtotal 14,744,828$ 7,381,745$ 22,126,572$
6 Other Revenues (69,132)$ (69,132)$
7 Contribution to (from) Reserves 1,481,807$ 1,481,807$ 8 Revenue Required from Rates 16,157,503$ 7,381,745$ 23,539,248$ 265
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WATER AND WASTEWATER RATE STUDY 53

» BOD, TSS, and NH3: Recognizes the costs related to treating wastewater that vary with the level of pollutants in the water.
» ERUs: Costs that should be recovered by all customers equally in the bi-monthly fixed charge. An ERU is a single home, apartment, or commercial account – in the multifamily and mobile home classes, there are many ERUs per account.
» Customer: Part of the bi-monthly fixed charge that recovers the cost of providing customer service and billing. These costs are recovered from all customer accounts equally, regardless of their wastewater contributions or ERUs.

Table 10-3 shows the basis for allocating each O&M expense category to the various rate components. Most expense categories are allocated entirely to the corresponding cost causation component. The allocation basis for functional categories are as follows:

» Electricity: Primarily related to operating lift stations to convey wastewater. This costs scales closely with the quantity of wastewater contributed to the system.

» Wastewater Treatment O&M : Allocated directly to the corresponding volume and pollutant cost components in proportion to San Jose’s revenue requirement assigned to the City.

» Wastewater Treatment Capital: The City pays for a portion of San Jose’s capital costs based on a fixed capacity allocation rather than actual annual use. This capacity is approximately 2.5 times greater than the actual flow requirements of the City. Raftelis has allocated the costs associated with this unused capacity to the ERU cost component to be recovered from all customers equally. The remaining capital expense is allocated to the volume and pollutant components in the same proportion as the wastewater O&M expense, which corresponds to actual use patterns.

» Debt Service: The Series 2017 bonds are allocated according to the functional use of the Series 2006 bonds as determined by the City during the 2018 rate study. The Series 2019 bonds were issued in order to finance improvements at the San Jose reg ional wastewater treatment plant; therefore, this cost is allocated in the same way as the San Jose capital expense discussed above.

» Finance Administration and Fiscal Services: These costs are related to customer service, billing, and general financial services.

» Utility Engineering, Utility Maintenance, Compliance, City Capital, Contributions to Reserves, and other Non-Departmental: These are allocated to the Volume rate component. Many engineering, maintenance, and capital expenses are related to the size of the customer and their use of the wastewater system.

» Administration, Transfer to General Fund, City Attorney , and Misc. Revenue : These expenses and revenues are allocated to the General cost component, which is reallocated to all other rate components on Line 22.

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Table 10-3: Wastewater Revenue Requirement Allocation

10.1.Customer Class Costs
Unit costs developed in Line 25 of Table 10-3 are used to distribute costs to each customer class based on their contributed wastewater volume, strength loadings, and ERUs. The Unit Costs are multiplied by the service units to derive the cost to each class for each cost component. The final columns of this table compare the proposed cost of service revenue from each class and the revenue from each class if all rates were increased by the same percentage amount. Note that the weighted average percent change is equal to the 4 percent rate adjustment determined in the financial plan above.

Line Cost Center FY 2024 Volume BOD TSS NH3 ERUs Customer General City O&M Expenses
1 Administration 1,690,087$ 100.0%
2 Utility Engineering 519,108 100.0%
3 Utility Maintenance 1,647,140 100.0%
4 Compliance 199,553 100.0%
5 Non-Departmental 859,196 100.0%
6 Electricity 310,000 100.0%
7 Finance Administration 25,769 100.0%
8 Fiscal Services 713,988 100.0%
9 City Attorney - 100.0%
10 Transfer to General Fund 1,502,664 100.0%
11 Subtotal City O&M 7,467,505$
12 Wastewater Treatment 7,277,323$ 33.3% 24.7% 21.4% 20.5% Debt Service
13 Series 2017 636,625$ 69.7% 13.5% 7.3% 9.5%
14 Series 2019 1,795,325 17.3% 12.9% 11.2% 10.7% 48.0% 15 Subtotal Debt Service 2,431,950$
Capital
16 San Jose Capital 3,875,286$ 17.3% 12.9% 11.2% 10.7% 48.0% 17 City Capital 1,074,509 100.0%
19 Subtotal Capital 4,949,795$
18 Contribution to Reserves 1,481,807 100.0%
20 Misc. Revenues (69,132) 100.0%
21 Subtotal Expenses 23,539,248$ 9,945,137$ 2,612,009$ 2,240,114$ 2,158,860$ 2,719,753$ 739,757$ 3,123,618$ 22 Reallocation of General 1,521,619$ 399,641$ 342,740$ 330,308$ 416,126$ 113,184$ (3,123,618)$ 23 Total Expenses 11,466,756$ 3,011,650$ 2,582,854$ 2,489,168$ 3,135,878$ 852,941$ -$ 24 Total Units of Service 6,123,381 14,291.05 11,000.73 1,461.51 157,187 91,675 25 Unit Cost 1.87$ 210.74$ 234.79$ 1,703.15$ 19.95$ 9.30$ 267
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WATER AND WASTEWATER RATE STUDY 55

Table 10-4: Customer Class Cost of Service

Line Volume BOD TSS NH3 ERUs Bills
Total
Proposed
Revenue
Revenue at
Current
Rates
%
Change $ Change
1 Single-Family 4,251,886 998,280 1,112,220 1,129,518 1,505,407 694,484 9,691,795 9,367,460 3.5% 324,335 2 Multi-Family 3,167,958 743,790 828,683 841,571 1,454,429 105,274 7,141,705 6,950,622 2.7% 191,083 3 Mobile Home 137,682 32,326 36,015 36,575 62,364 167 305,129 244,703 24.7% 60,425 4 Schools/Colleges 143,935 17,573 15,060 32,774 8,253 3,849 221,446 191,976 15.4% 29,469 5 Motels and Hotels 287,949 83,832 36,456 15,299 3,123 1,457 428,116 435,697 -1.7% (7,581) 6 General Office 655,075 79,977 54,834 54,692 44,570 20,786 909,934 895,948 1.6% 13,986 7 City of Milpitas 53,546 6,537 4,482 4,471 4,681 2,183 75,900 78,027 -2.7% (2,128) 8 Service Stations 63,778 10,781 18,685 - 5,046 2,353 100,643 101,641 -1.0% (997) 9 Eat/Drink Establishments 494,060 579,990 289,492 37,499 20,543 9,580 1,431,166 1,194,489 19.8% 236,677 10 Convalescent Hosp/Daycare 57,413 12,401 5,106 6,536 2,873 1,340 85,670 87,712 -2.3% (2,043) 11 Personal Services, Laundrys 89,576 12,619 10,310 3,399 6,943 3,238 126,085 133,454 -5.5% (7,370) 12 Electrical/Electronics 584,967 16,481 9,181 133,197 12,254 5,715 761,794 749,218 1.7% 12,576 13 Machinery Manufacture 19,847 5,405 11,422 - 1,682 784 39,140 33,479 16.9% 5,661 14 RockTenn (Jefferson Smurfit) 16,392 26,890 681 2,128 120 56 46,266 44,841 3.2% 1,425 15 T. Marzetti Co. 88,837 129,755 2,896 276 239 112 222,116 240,313 -7.6% (18,197) 16 Prudential Overall Supply 55,569 30,438 15,654 641 239 112 102,654 87,506 17.3% 15,148 17 Evoqua Water Technologies 162,962 4,428 25,341 1,472 239 112 194,554 214,691 -9.4% (20,137) 18 Elmwood Rehabilitation 247,503 117,859 88,485 47,697 599 279 502,421 432,259 16.2% 70,162 19 Linear Technology 384,213 6,394 10,062 73,546 718 335 475,269 493,500 -3.7% (18,231) 20 DS Waters of America 3,269 5 6 0 239 112 3,631 4,007 -9.4% (376) 21 Magic Tech & Headway Tech 204,408 86,274 1,033 2,529 239 112 294,595 279,113 5.5% 15,483 22 Lucky Pure Water 3,216 393 269 268 120 56 4,322 4,597 -6.0% (275) 23 Milpitas Materials 283 35 24 24 120 56 540 554 -2.5% (14) 24 Union Pacific Railroad 6,731 1,138 1,972 - 239 112 10,192 9,547 6.8% 646 25 Cisco 285,701 8,049 4,484 65,054 599 279 364,167 358,539 1.6% 5,628 26 Total 11,466,756$ 3,011,650$ 2,582,854$ 2,489,168$ 3,135,878$ 852,941$ 23,539,248$ 22,633,892$ 4.0% 905,356 Customer Class Cost of
Service
268
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56 CITY OF MILPITAS

11. Proposed Wastewater
Rates

Section 11 details the proposed water rate calculations. Proposed FY 2024 rates are calculated directly from the results of the COS allocations (from Section 10). All proposed rates beginning in FY 2025 are calculated by simply increasing the prior year's proposed rate by the annual revenue adjustment (from Table 9-11).

11.1. Proposed FY 2024 Fixed Meter Charges
Table 11-1 shows the detailed calculation of proposed FY 2024 Fixed Charges . The charge for the single family, multifamily, and mobile home classes recover the entire revenue requirement for these classes shown on Lines 1 to 3 of Table 10-4; these customers will not pay a volumetric charge. The rate is calculated by dividing the total cost by the number of billed bi-monthly ERUs.

Table 11-1: Proposed FY 2024 Fixed Charge Calculation

Line
Customer
Class Fixed
Charge Cost Bills / ERUs
Proposed
Rate Current Rate % Change $ Change
1 Single-Family 9,691,795$ 75,459 128.44$ 124.14$ 3.5% $4.30 2 Multi-Family 7,141,705 72,904 97.96 95.34 2.7% 2.62 3 Mobile Home 305,129 3,126 97.61 78.28 24.7% 19.33 4 Schools/Colleges 12,103 414 29.25 27.35 7.0% 1.90 5 Motels and Hotels 4,580 157 29.25 27.35 7.0% 1.90 6 General Office 65,356 2,234 29.25 27.35 7.0% 1.90 7 City of Milpitas 6,864 235 29.25 27.35 7.0% 1.90 8 Service Stations 7,399 253 29.25 27.35 7.0% 1.90 9 Eat/Drink Establishments 30,123 1,030 29.25 27.35 7.0% 1.90 10 Convalescent Hosp/Daycare 4,213 144 29.25 27.35 7.0% 1.90 11 Personal Services, Laundrys 10,180 348 29.25 27.35 7.0% 1.90 12 Electrical/Electronics 17,968 614 29.25 27.35 7.0% 1.90 13 Machinery Manufacture 2,466 84 29.25 27.35 7.0% 1.90 14 RockTenn (Jefferson Smurfit) 176 6 29.25 27.35 7.0% 1.90 15 T. Marzetti Co. 351 12 29.25 27.35 7.0% 1.90 16 Prudential Overall Supply 351 12 29.25 27.35 7.0% 1.90 17 Evoqua Water Technologies (Siemens Water Tech) 351 12 29.25 27.35 7.0% 1.90 18 Elmwood Rehabilitation 878 30 29.25 27.35 7.0% 1.90 19 Linear Technology 1,053 36 29.25 27.35 7.0% 1.90 20 DS Waters of America 351 12 29.25 27.35 7.0% 1.90 21 Magic Tech & Headway Tech 351 12 29.25 27.35 7.0% 1.90 22 Lucky Pure Water 176 6 29.25 27.35 7.0% 1.90 23 Milpitas Materials 176 6 29.25 27.35 7.0% 1.90 24 Union Pacific Railroad 351 12 29.25 27.35 7.0% 1.90 25 Cisco 878 30 29.25 27.35 7.0% 1.90 269
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WATER AND WASTEWATER RATE STUDY 57

11.2. Proposed FY 2024 Volume Charges
Table 7-2 shows the proposed FY 2024 Volume Charges. The costs for commercial classes are the sum of the volume and pollutant rate components shown in Table 10-4. This cost is divided by the amount of billable wastewater as previously shown in Table 10-1.

Table 11-2: Proposed FY 2023 Volume Charge Calculation

11.3. Proposed Five-Year Rate Schedule
Table 11-3 shows the proposed five-year schedule of water rates through FY 2027. Proposed FY 2024 Fixed Charges were calculated in the preceding subsections. All proposed rates beginning in FY 2025 are calculated by increasing the prior year’s proposed rate by the proposed annual revenue adjustment (from Table 9-11). Current FY 2023 wastewater rates (from Table 8-2) are also shown.

Line
Volume Charge
Calculation Cost Volume (hcf)
Proposed
Rate Current Rate % Change $ Change
1 Single-Family
2 Multi-Family
3 Mobile Home
4 Schools/Colleges 209,343$ 18,084 11.58$ 9.99$ 15.9% $1.59 5 Motels and Hotels 423,536 75,029 5.64 5.75 -1.8% (0.11) 6 General Office 844,579 122,054 6.92 6.84 1.2% 0.08 7 City of Milpitas 69,036 12,347 5.59 5.80 -3.6% (0.21) 8 Service Stations 93,245 16,618 5.61 5.70 -1.6% (0.09) 9 Eat/Drink Establishments 1,401,042 128,734 10.88 9.06 20.1% 1.82 10 Convalescent Hosp/Daycare 81,457 14,960 5.45 5.60 -2.8% (0.15) 11 Personal Services, Laundrys 115,904 23,340 4.97 5.31 -6.5% (0.34) 12 Electrical/Electronics 743,826 108,991 6.82 6.72 1.6% 0.10 13 Machinery Manufacture 36,674 3,698 9.92 8.43 17.6% 1.49 14 RockTenn (Jefferson Smurfit) 46,091 4,271 10.79 10.46 3.2% 0.33 15 T. Marzetti Co. 221,765 19,850 11.17 12.09 -7.6% (0.92) 16 Prudential Overall Supply 102,303 10,354 9.88 8.42 17.3% 1.46 17 Evoqua Water Technologies 194,202 30,363 6.40 7.06 -9.4% (0.66) 18 Elmwood Rehabilitation 501,544 64,490 7.78 6.69 16.2% 1.09 19 Linear Technology 474,216 71,587 6.62 6.88 -3.7% (0.26) 20 DS Waters of America 3,280 609 5.38 6.04 -10.8% (0.66) 21 Magic Tech & Headway Tech 294,244 38,085 7.73 7.32 5.5% 0.41 22 Lucky Pure Water 4,146 838 4.95 5.29 -6.5% (0.34) 23 Milpitas Materials 364 74 4.95 5.29 -6.5% (0.34) 24 Union Pacific Railroad 9,841 1,254 7.85 7.35 6.8% 0.50 25 Cisco 363,289 53,232 6.82 6.72 1.6% 0.10 270
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58 CITY OF MILPITAS

Table 11-3: Proposed Five-Year Wastewater Rate Schedule

WATER AND WASTEWATER RATE STUDY 59

11.4.Mobile Home Rate Subsidy
Following the completion of the 2018 rate study, the City determined that the proposed rates for mobile home customers would increase too sharply and implemented a transfer of funds from outside the utility in order to reduce the rate for these customers. The mobile home rate proposed above in Table 11-3 represents the full cost of service requirement for this class. If the City chose to do so, it could continue to provide a subsidy to these customers. Increasing the mobile home rate by 7.85% per year from FY 2024 to FY 2028 would bring these rates into alignment with the class cost of service requirement in FY 2028, as shown in Table 11-4. The total subsidy over the study period is approximately $109 thousand7.

Table 11-4: Mobile Home Subsidy Option

7 Raftelis prepared this calculation at the request of the City and do not endorse this approach. We recommend the City adopt cost of service rates to ensure equity between customer classes, maintain compliance with generally accepted rate setting principles, and Proposition 218.

Line Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Subsidized Rate 78.28$ 84.42$ 91.05$ 98.20$ 105.91$ 114.22$ 2 % Rate Increase 7.85% 7.85% 7.85% 7.85% 7.85%
3 Revenue Recovered 244,703$ 263,911$ 284,627$ 306,969$ 331,065$ 357,052$ 4 COS Requirement 305,129$ 317,352$ 330,074$ 343,297$ 357,052$ 5 Annual Subsidy 41,217 32,724 23,105 12,233 - 6 Cumulative Subsidy 41,217 73,942 97,047 109,280 109,280$ 272
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60 CITY OF MILPITAS

12.Combined Bill Impacts and
Bill Comparison

Table 12-1 shows a combined bi-monthly bill for a single-family residential customer with a 5/8” meter using 14 hcf of water per billing period. The average annual increase to the total bill is approximately 5.3 percent per year.

Table 12-1: Combined Bi-Monthly Bill Impact

Figure 12-2 shows a comparison of sample Single Family Residential bi-monthly water bills with several nearby utilities, and Figure 12-2 provides a comparison of wastewater bills. All bills are calculated based on a 5/8-inch or 3/4-inch water meter size and bi-monthly water use of 14 HCF. Note that many of the other agencies shown are either scheduled or expected to implement rate increases in FY 2024. Many factors affect the cost of providing water or wastewater service by the agency. Some of these factors include:

1. Tax revenue – some agencies receive tax revenue substantially lowering the revenue required from rates,

2. Water sources – agencies who buy more imported water usually pay more for water compared to purveyors who pump groundwater,

3. Wastewater treatment– agencies could operate their own wastewater treatment facilities or send wastewater to an outside wholesale service provider,

4. Topography – hilly agencies will incur costs to pump wastewater compared to agencies with flat topography,

5. System reinvestment – deferred investment in rehabilitation projects will keep rates low compared to agencies are investing in their system,

6. Age – newer systems are often in better shape than older systems and require less repair,

7. Size – smaller systems often have a higher cost per customer since they lack economies of scale.

WATER AND WASTEWATER RATE STUDY 61

Figure 12-1: Single Family Residential Water Bill Comparison with Neighboring Agencies

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62 CITY OF MILPITAS

Figure 12-2: Single Family Residential Wastewater Bill Comparison with Neighboring Agencies

275
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WATER AND WASTEWATER RATE STUDY 63

12.1.Causes of Different Rate Changes
It is common in a cost of service study to have significantly different rate impacts for different customer classes.

Although it is difficult to precisely quantify differences between rate calculations from previous studies to this current study, there are a few general factors that contribute to the differential impacts, particularly for wastewater rates:

1. Updated units of service: the contributed volumes and pollutant strengths have been updated since the 2018 study. This is particularly important for the individually monitored commercial customers whose strengths are continuously monitored. The units of service for each class as a proportion of the whole customer base are used to determine the proportion of the total costs.

2. Changes in expenses: the structure of the City’s expenses are significantly different in 2023 than in 2018.

For example, the San Jose capital expense is over three times larger than previously, resulting in a higher proportion of total City costs allocated to the pollutant components. This disproportionately affects customers with a higher than average estimated strength, all of which are commercial customers.

3. Updated methodology: Although the approach to calculating the previous rates was valid and justifiable, Raftelis believes that making several changes to the allocation process results in rates with a closer link to actual costs. These changes include the allocation of customer service and billing costs to customer accounts rather than ERUs, treating all City O&M expenses similarly rather than allocating a portion of them on a fixed ERU basis, and adjusting the recovery of the excess capacity portion of the San Jose capital expense.

Additionally, Raftelis updated the calculation of the potable water fixed charge. Previous rates did not include a customer service component that is the same for all customers. Instead, all costs identified as being reasonable to recover in the fixed charge were scaled according to meter size. Raftelis believes that recognizing this component more closely links the rates to the City’s true cost structure. The realignment of costs resulted in a 5/8” charge that is similar to the current charge and a decrease for many customers with a larger meter sizes. The notable exception is 8” and 10” meter charges, which increased significantly; the current structure does not have a dedicated charge for these meter sizes and simply applies the 6” meter charge to these customers. The updated methodology recognizes the additional capacity required by the larger meters and scales the meter component accordingly. 276
Item # 15.

CITY OF MILPITAS

NOTICE OF PUBLIC HEARING FOR PROPOSED RATE INCREASES TO WATER, RECYCLED WATER,

AND WASTEWATER SERVICES CHARGES
NOTICE IS HEREBY GIVEN that the Milpitas City Council, in accordance with Proposition 218, will hold a public hearing in the City Council Chamber at City Hall, 455 E. Calaveras. Blvd, Milpitas and via teleconference/Zoom webinar on Tuesday, March 21, 2023, starting at or soon after 7:00 p.m. on the following:

PROPOSED RATE INCREASES TO WATER, RECYCLED WATER, AND WASTEWATER SERVICES CHARGES: The City Council will conduct a public hearing to receive written protests to the proposed rate increases to the water, recycled water, and wastewater service charges. The City is proposing to increase rates for its water and wastewater service charges based on its most recent rate models and cost of service studies conducted by an independent rate consultant. The proposed increases to the rates would occur annually over a five-year period. Charges for a typical single-family water and wastewater customer would increase annually by approximately 6.4% and 4% respectively on July 1, 2023, through and including July 1, 2027.

NOTICE IS FURTHER GIVEN, pursuant to CA Government Code §65009, that any legal challenge of this matter in court may be limited to only those issues raised at the public hearing described in this notice, or in written correspondence delivered to the City Council at or prior to this hearing.

INTERESTED PERSONS MAY provide public comments during the public hearing in person or virtually through the Zoom webinar. Those wishing to participate virtually are asked to register in advance using the link that will be located on the agenda. Additional procedures will be detailed in the published meeting agenda; and any updated information will be posted to the City’s website at www.milpitas.gov. Written comments may be submitted prior to the public hearing by emailing the City Clerk at [email protected]. Please be advised that written comments will not be read during the meeting. Written comments will be digitally distributed to the City Council if received on the public hearing date by 5:00 p.m. and will be part of the meeting’s public record.

UNDER PROPOSITION 218, property owners or tenants responsible for payment of water and sewer rates may submit a written protest to the proposed rate changes. Protests submitted by e-mail or facsimile, as well as oral protests, will not be counted towards a “majority protest.” Only one protest per parcel is permitted and all written protests will be verified. Written protests may be mailed to the City of Milpitas, Attention: City Clerk, 455 E. Calaveras Blvd., Milpitas, CA, 95035. To be counted, a protest must be in writing and must include the Assessor’s Parcel Number(s) or street address(es) of the parcels for which protests are submitted along with an original signature prior to the close of the public hearing on Tuesday, March 21, 2023.

For more information regarding the proposed water and wastewater rate increases, please visit www.milpitas.gov/watersewer2023.

Suzanne Guzzetta
City Clerk
03/10/2023
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HOURS OF OPERATION
Milpitas
(669) 306-7671
597 E. Calaveras Blvd.

Milpitas Town Center
Milpitas, CA 95035
FRIDAY, MARCH 10, 2023 507 MILPITAS POST 13
Newspaper : Milpitas Post Advertiser : CITY OF MILPITAS - RETAIL Issue Date : 03/10/2023 Ad Number : 6734680
277
Item # 15.

CITY OF MILPITAS

AGENDA REPORT
(AR)

Item Title: Conduct a Public Hearing to Consider Protests Against Proposed Sewer Rates for FY23/24 through FY27/28 and Introduce Ordinance No. 208.55 (Staff Contact:

Christian Di Renzo, Public Works Director, 408-586-2602; and Lauren Lai, Director of Finance, 408-586-3111)
Category: Public Hearings-Community Services and Sustainable Infrastructure Meeting Date: 3/21/2022
Recommendation:

1. Open Public Hearing and receive all written and verbal testimony regarding proposed rate increases

2. Move to close the public hearing following all speakers

3. Receive a summary from the City Clerk of the number of written protests received and the number required for a majority protest

4. City Attorney shall read aloud the title of Ordinance No. 208.55

5. If no majority protest exists, move to waive the first reading beyond the title and introduce Ordinance No. 208.55 to approve updated sewer rates for FY23/24 through FY27/28. Ordinance No. 208.55 is entitled: “An Ordinance of the City of Milpitas Amending Chapter 2 of Title VIII of The Milpitas Municipal Code Relating to Sewer Service Charges.”

6. Approve subsidy program for Mobile Home Park customer class

BACKGROUND:

The City of Milpitas owns, operates and maintains an extensive network of sewer system infrastructure (Sewer System). The Sewer System consists of 175 miles of pipeline and two pumping stations, which conveys an average rate of 6 -7 million gallons per day (MGD) to the San Jose/Santa Clara Regional Wastewater Facility (RWF). The Sewer System serves approximately 15,350 customer accounts. The type and number of customers served are as follows:

Customer Type Approximate Number
Single family residence 12,450
Multi-family residence* 1,950
Mobile Home* 3
Commercial/Industrial/Institutional 950
* Multi-family accounts serve approximately 11,800 units, mobile homes accounts serve approximately 521 units.

The Sewer System discharges to the Regional Wastewater Facility (“ RWF”) operated by the City of San Jose. At the RWF, the discharge is treated and either released to the San Francisco Bay or recycled for industrial and irrigation purposes. The cost to customers of the Sewer System for treatment at the RWF is determined by a master agreement between the City and the RWF. Per the agreement, the City of San Jose bills the City of Milpitas for the treatment cost plus a share of the capital cost. Treatment costs are based on the annual volume of wastewater received by the RWF whil e capital costs are based on the treatment capacity that the City owns. The City has rights to discharge 14.25 MGD. This is approximately 8.5 percent of the total RWF treatment capacity of 167 MGD.

In accordance with State Regulations and Title 4, Chapter 3, Section 4.00 of the Milpitas Municipal Code, the City must review and set sewer rates and charges to ensure revenues cover all system operation and maintenance (“O&M”) costs and all capital improvement program (“CIP”) costs. It is important to note that the 278
Item # 16.

costs for the treatment of sewage are passed through from the City of San Jose to Milpitas rate payers.

Additionally, financial reserves for unforeseen events are targeted per the City’s financial reserve policy.

Collection of revenues to offset the appropriate level of expenditures to ensure that the Sewer System is well maintained and adequately sized. For customers of the Sewer System, receipt of sufficient revenues ensures that system operation is efficient and reliable.

The analysis and setting of maximum sewer rates and charges must occur no less than every five years.

In no circumstances would staff increase rates above the maximum authorized amount without future City Council authorization and in accordance with the provisions of Article XIII D, Section (6)(b) of the California Constitution (commonly referred to as Proposition 218). City Council last adopted a five-year sewer rate and charge schedule in February of 2019. The first year of charges occurred in April 2019 and again on July 1, 2019 and each July 1st thereafter, through and including July 1, 2022. A new five-year sewer rate and charge schedule is needed for an effective date beginning July 1, 2023.

In the preparation of proposing FY23/24 to FY27/28 sewer rates and charges, the City contracted with the financial consulting firm Raftelis to develop a Cost of Service Sewer Rates Study (Study). The Study is a five- year modeling analysis with inputs of financial projections of revenue requirements, expected expenditures, and in-depth analysis of proposed rates / charges so that revenues fully offset expenditures.

On December 6, 2022, Council received a draft sewer rates study and presentation from staff on proposed sewer rates for FY23/24 through FY27/28. After careful consideration of the information presented by staff, Council directed staff proceed with community engagement on the proposed sewer rates, which included administering the Proposition 218 majority protest process and setting a public hearing for March 21, 2023.

ANALYSIS:

The Study recommends increases to sewer rates and charges at an amount necessary to recover projected costs, including City of San Jose’s pass-through cost increases for treatment at the RWF and to maintain target reserve funds per City policy. The rates and charges recommended will ensure the Sewer System meets or exceeds customer requirements for reliable service, avoids operational deficits and the depletion of reserves and maintains favorable credit ratings to minimize potential future debt services costs.

Operating Costs:

O&M expenses for the Sewer System include O&M payments to RWF for treatment, staff costs and costs for services and supplies. Approximately 50% of the City’s O&M expenses are pass-through RWF treatment payments to the City of San Jose. Expected increases at the RWF for treatment and capital costs account for approximately 16% of the proposed five-year rate increases. Per the City of San Jose, FY23/24 RWF treatment costs are estimated at $7.3 million. For the five-year period (FY23/24 to FY27/28), the City of San Jose total RWF treatment costs amount to $39.4 million.

City operating costs are estimated to increase by 4% annually through FY27/28. This increase includes costs for support of remote monitoring / control of facilities. FY23/24 estimated operating costs are approximately $7.5 million. Expected increases in City operating costs account for approximately 14% to the proposed five- year increases. For the five-year period (FY23/24 to FY27/28) operating costs are estimated to total $40.5 million.

Capital Improvement Program:

On August 9, 2022, City Council adopted the 2022 Sewer Master Plan (Plan) which included recommendations for CIP projects through the year 2040. The CIP projects recommended in the Plan were prioritized based on existing conditions, completed asset renewal/replacement studies and completed risk/resiliency 279 Item # 16.

assessments. High priority improvements were recommended for completion within the first five years, medium and low priority improvements are recommended for completion prior to 2040. Significant CIP projects programmed in the next five years (in 2022 dollars) include:

 Replacement or rehabilitation for assets or facilities. Projects include replacement of aging pipes, and appurtenances ($6.4 million)
 Pipeline replacement and pump station improvements of Force Main A (FMA) ($26.1 million)  Detailed condition assessment of Sewer System (CCTV) ($2.1 million)

Due to the cost and impact on rates in FY23/24, some projects programmed in the Plan to begin design and construction in FY23/24 are recommended to be delayed to FY25/26. Increases in capital spending costs, including debt services, account for approximately 70% to the proposed five -year increases. For the five - year period (FY23/24 to FY27/28) City capital costs are estimated to total $34.6 million. The City’s share of capital costs for the RWF estimated by and passed through from City of San Jose for the same five-year period amounts to $30.1 million.

FMA is a 50 -year-old 30-inch diameter steel pipeline that conveys flows from the City to the RWF. The pipeline is one of two critical pipelines connected to the Main Lift Sewer Pump Station from which all discharges from the City are pumped. From the station, FMA crosses under Coyote Creek, through an easement on City of San Jose property under sludge drying beds and then ends at the RWF. The pipeline is in a corrosive environment and is approaching the end of its useful life. Due to these factors, Staff developed two options for the replacement of FMA.

Consistent with City Council discussion as part of the approval of the Sewer Master Plan, the recommended option is the design of FMA starting in FY24/25 and construction in FY25/26. This scenario estimates PAYGO funding of $6.1 million and financing of $20 million. The estimated cost of FMA’s design and construction costs are preliminary and may change as design is completed and future bidding conditions.

FY22/23 Ending Balance & Reserve Balance:

For FY22/23, the Sewer Utility Enterprise Fund is projected to have a total ending reserve balance of $42.3 million. $11 million of this amount is set aside per targets in the City’s financial reserve policy. The remaining $31.3 million will be used to fund the RWF costs, City O&M and CIP projects (including FMA), from FY23/24 to FY27/28.

City costs to the RWF for treatment and O&M and CIP are a significant portion of total expenditures (approximately $70 million from FY23/24 to FY27/28). Current and future estimated operating surpluses and existing reserves in the Infrastructure Fund can fund these costs. In FY23/24, the City’s expenditures for O&M and CIP are projected to exceed existing revenues. With the proposed rate and charge increase of 4% annually and issuance of debt in the amount of $20 million for FMA, the reserve targets in FY27/28 are $19.7 million.

Capital reserve for emergencies will be $5.2M (100% of target level), rate stabilization reserves will be $3.5M (100% of target level), pension liability reserves will be $11M (no target level) and infrastructure (CIP) reserves will be $1.8M (90% of target level of “at least $2M"). Total Sewer Utility Enterprise Fund ending balance will be $21.5 million.

Proposed Rates:

The City’s sewer rate and charge schedules allocate cost to different customer classifications equitably to their use of the Sewer System. Just as current rates and charges are collected, the proposed rate and charges distribute costs to volume, strength (determines how much treatment is required) and customer billing requirements.

Sewer System customers include both residential and non-residential customers. Residential customers include single-family, multi-family residential and mobile home parks. Non-Residential customers include all other commercial/industrial/institutional including offices, hotels, restaurants, schools and manufacturing. 280 Item # 16.

The proposed rates and charges include a volumetric rate and a flat-fee charge to collect revenues sufficient to pay for expenditures necessary to operate the system, complete capital projects and pay for treatment.

Residential:

Sewer rates for residential accounts are based on a fixed charge. All accounts within each of the three residential categories pay the same rate regardless of the amount of sewer discharged into the sewer system. The rate is based on how the City is charged by RWF assuming an average daily rate of discharge.

Non-Residential:

Sewer rates for non-residential customers include a fixed charge and a volumetric charge. The bi -monthly bills are based on contributed sewage flow, which is determined by multiplying metered water use per hundred cubic feet (1ccf=748 gallons) by a return factor of 90%. Volumetric rates for non -residential customers vary and are determined by how the City is charged by RWF for each customer type.

The proposed rate and charge amounts include increases for all reside ntial and non-residential customers for both fixed and volumetric charges. If the proposed rate and charge amounts become effective on July 1, 2023, the bill for residential customers, in a bi-monthly period (typical customer), will increase in FY23/24 by the amounts as shown below:

Residential Customer Class Current Bi-monthly
Bill
Proposed
Bi-monthly Bill
FY23/24
Bi-monthly Bill
Impact
Single-Family Residential $124.14 $128.44 $4.30
Multi-Family Residential $95.34 $97.96 $2.62
Mobile Home Park $78.28 (Subsidized) $97.61* $19.33
*Mobile home rate without subsidy.

As part of the 2019 rate setting process, City Council authorized a mobile home subsidy averaging $18.43 per bill and $222,000 cumulative total subsidy from FY18/19 to FY22/23. Based on how the City is charged by RWF for mobile homes, if the current subsidy was to end, the bi-monthly charge to mobile home customers would increase 24.7% (an additional $19.33 bi-monthly) to a total of $97.61.

To avoid a large increase to mobile home customers, a cumulative FY23/24 to FY27/28 subsidy totaling $109,481 from utility late fees is recommended. To achieve this, a series of 7.9% increases is proposed that would result in a bi-monthly increase of $6.15 in FY23/24 increasing to $8.29 in FY27/28.

Mobile Homes (Bi-
monthly)
FY22/23
(current
rate)

FY23/24

FY24/25

FY25/26

FY26/27

FY27/28
Subsidized Rate $78.28 $84.42 $91.05 $98.20 $105.91 $114.22 * Rate Increase - 7.9% 7.9% 7.9% 7.9% 7.9%
$ Change $6.14 $6.63 $7.15 $7.71 $8.31
Cumulative Subsidy
Amount - $41,285 $74,073 $97,224 $109,481 $109,481
*Mobile home rates and charges will approximate multi-family rates and charges.

The proposed maximum rate and charge five-year fee schedule for all customers are included in attachment #1.

Rate Subsidy Program:

Sewer funds collected as fees and penalties and American Rescue Plan Act (ARPA) funds, administered by the City, are available to eligible customers through the Milpitas Assistance Program (MAP). Currently, customers do need to have their own separate water meter to be eligible. All mobile home parks and some multi-family units in the City have one master water meter that serves multiple residents. For these 281 Item # 16.

customers, their homeowner association then bills its’ residents for sewer through homeowner association fees. Staff is investigating how to provide the MAP to these residents.

For eligible residents, the amount of discount varies based on eligibility requirements of four tiers. In FY21/22, the number of enrolled customers for both wat er and sewer was 211. Average discount amount for both water and sewer was $22 bi-monthly ($132 annually).

Aside from MAP, public agencies providing sewer service may implement low-income sewer rate assistance programs, but rate discounts must be funded from non-rate sources of revenues.

Proposition 218 Noticing and Community Engagement:

Proposition 218, a state proposition approved by California voters in 1996, added Article XIII D to the California Constitution which requires voter approval prior to the imposition of any new or increased existing tax, assessment or certain user fees. It also requires local agencies imposing any new or any increases in any existing property-related fees and charges to comply with certain procedural requirements prior to their adoption. Sewer Service fees and charges are subject to these procedural requirements. Pursuant to Article XIII D, section 6, the City is required to hold a public hearing to consider the proposed sewer service rates, fees, and charges. Additionally, the City is required to provide ratepayers and property owners with a written notice of the proposed rate increases, and the date, time and location of the public hearing on the proposed rate increase. Subdivision (a) of Section 6 of the California Constitution’s Article XIII D requires that 45 days must elapse from the time the notices are mailed until the public hearing on the proposed rate increases.

On January 31, 2023, the required notices were mailed to the record property owners, tenants, and businesses in the City, communicating the proposed r ate adjustments. As required by Proposition 218 guidelines, the notice included the location, date and time of the public hearing. There are 20,711 separate parcels in the City; therefore, the City would need to receive 10,357 valid protests (only counting one protest per parcel) to be considered a majority. Property owners may turn in (by mail or hand delivery) protest letters at any time prior to the close of the public hearing. Immediately after the close of the public hearing, staff will complete counti ng and totaling all protest letters. If there is not a majority protest, the Council can approve the rate adjustments and introduce the ordinance imposing the new sewer rates.

In an effort to educate the community on the City’s sewer system and provide information on the proposed rates, City staff held community meetings and workshops on the dates and at the locations listed below:
 February 9, 2023 – Milpitas Community Center Auditorium  February 16, 2023 – Milpitas Community Center Auditorium  February 23, 2023 – Milpitas Chamber of Commerce Meeting

The outreach plan also included disseminating information through various digital and printed communication channels including, Milpitas Matters (e -newsletters) and Connected (printed newsletter), which reaches approximately 24,000 residential mailboxes, F acebook (4,500 followers), Twitter (2,000 followers), NextDoor (24,000 followers) and Soofa digital display boards located at three City locations, which average 15,000 impressions per campaign/month. A dedicated webpage on the City’s website was established at www.milpitas.gov/watersewer2023, updated regularly and included rates factsheets, links to the rates studies and frequently asked questions. The Proposition 218 notice was translated into Spanish, Vietnamese and Tagalog and posted on the City’s webpa ge. The legal notice of the Public Hearing was published in the Milpitas Post on March 10, 2023, in advance of City Council consideration of these proposed rate adjustments.

POLICY ALTERNATIVE(S):

Alternative 1: Do Not Approve Proposed Sewer Rate Increases

Pros: The existing sewer rates would remain in place. 282 Item # 16.

Cons: The sewer fund would be in violation of the Municipal Code, which requires the sewer fund be operated as a self-supporting enterprise. This in turn will adversely impact future credit ratings for external financing needed to fund the City’s share of the capital program at the RWF, due in July 2023. A delay in adjusting sewer rates also impacts the City’s ability to fund critical capital improvement projects needed to maintain system reliability and replace/rehabilitate the pipeline infrastructure.

Reason for Not Recommending: Financially, no-action to increase sewer rates and charges will result in revenues falling below what is needed. This would result in the delay of construction of priority capital improvement projects, such as FMA. Delaying FMA would further extend its risk for failure. Additionally, customer requirements for reliable service would not be met. By FY25/26, operating reserves would fall below policy level and the Sewer System will not generate sufficient revenues after the City pays RWF obligations, without impact to the General Fund. Subsidy of mobile homes would not be recommended. All reserves would be depleted by FY26/27 and future credit ratings would be impacted.

FISCAL IMPACT:

If the Proposition 218 majority protest process is concluded without a majority protest and the sewer rate adjustments are adopted as presented, the new sewer rate and charges would generate enough revenues for the next five years to meet or exceed customer requirements for reliable service, avoid operational deficits, depletion of reserves and maintains favorable credit ratings to minimize potential future debt services costs. A total late fee (Fund 109) utility subsidy in the amount of $109,481 will be needed to supplement mobile home customers from FY23/24 to FY 26/27.

California Environmental Quality Act (CEQA):

RECOMMENDATION:

1. Open Public Hearing and receive all written and verbal testimony regarding proposed rate increases

2. Move to close the public hearing following all speakers

3. Receive a summary from the City Clerk of the number of written protests received and the number required for a majority protest.

4. City Attorney shall read aloud the title of Ordinance No. 208.55.

5. If no majority protest exists, move to waive the first reading beyond the title and introduce Ordinance No. 208.55 to approve updated sewer rates for FY23/24 through FY27/28. Ordinance No. 208. 55 is entitled: “AN ORDINANCE OF THE CITY OF MILPITAS AMENDING CHAPTER 2 OF TITLE VIII OF THE MILPITAS MUNICIPAL CODE RELATING TO SEWER SERVICE CHARGES.”

6. Approve subsidy program for Mobile Home Park customer class.

Attachment(s):

1. Sewer Proposed Maximum Rate / Charge Fee Schedule

2. Ordinance No. 208.55 for Introduction (1st Reading)

3. Final Sewer Rates Study (March 2023)

4. Proposition 218 Notice

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Item # 16.

Attachment 1 - Sewer Proposed Maximum Rate / Charge Fee Schedule

Service Charges
Current Rates 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 Residential ($ per Dwelling Unit)
Single Family $124.14 $128.44 $133.58 $138.93 $144.49 $150.27 Multi-Family $95.34 $97.96 $101.88 $105.96 $110.20 $114.61 Mobile Home $78.28 $84.42 $91.05 $98.20 $105.91 $114.22 Institutional ($ per unit = 1 hundred cubic feet = 748 gallons) Schools/Colleges $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Commercial ($ per unit = 1 hundred cubic feet = 748 gallons) Motels/Hotels $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 General Office $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 City of Milpitas $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Service Stations $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Eat/Drink Establishments $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Convalescent Hosp/Daycare $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Personal Services, Laundries $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Electrical/Electronic $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Machinery Manufacture $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Monitored Sites ($ per unit = 1 hundred cubic feet = 748 gallons) Rocktenn (Jefferson Smurfit) $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 T. Marzetti Co. $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Prudential Overall Supply $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Evoqua Water Technologies $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Elmwood Rehabilitation $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Linear Technology $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 DS Waters of America $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Magic Tech & Headway Tech $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Non-Monitored Sites ($ per unit = 1 hundred cubic feet = 748 gallons) Lucky Pure Water $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Milpitas Materials $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Union Pacific Railroad $27.35 $29.25 $30.43 $31.65 $32.92 $34.24 Cisco $27.35 $29.25 $30.43 $31.65 $32.92 $34.24
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Item # 16.

Volumetric Charges
Current Rates 7/1/2023
7/1/20
24 7/1/202
5 7/1/20
26 7/1/2027
Residential ($ per Dwelling Unit)
Single Family
Not Applicable Multi-Family
Mobile Home
Institutional ($ per unit = 1 hundred cubic feet = 748 gallons) Schools/Colleges $9.99 $11.58 $12.04 $12.53 $13.04 $13.57 Commercial ($ per unit = 1 hundred cubic feet = 748 gallons) Motels/Hotels $5.75 $5.64 $5.88 $6.12 $6.37 $6.63
General Office $6.84 $6.92 $7.20 $7.49 $7.79 $8.11 City of Milpitas $5.80 $5.59 $5.82 $6.06 $6.31 $6.57 Service Stations $5.70 $5.61 $5.84 $6.08 $6.33 $6.59 Eat/Drink
Establishments $9.06 $10.88 $11.32 $11.78 $12.26 $12.76 Convalescent
Hosp/Daycare $5.60 $5.45 $5.67 $5.90 $6.14 $6.39
Personal Services,
Laundries $5.31 $4.97 $5.17 $5.38 $5.60 $5.83
Electrical/Electronic $6.72 $6.82 $7.10 $7.39 $7.69 $8.00 Machinery
Manufacture $8.43 $9.92 $10.32 $10.74 $11.17 $11.62 Monitored Sites ($ per unit = 1 hundred cubic feet = 748 gallons) Rocktenn (Jefferson
Smurfit) $10.46 $10.79 $11.23 $11.68 $12.15 $12.64 T. Marzetti Co. $12.09 $11.17 $11.62 $12.09 $12.58 $13.09 Prudential Overall
Supply $8.42 $9.88 $10.28 $10.70 $11.13 $11.58
Evoqua Water
Technologies $7.06 $6.40 $6.66 $6.93 $7.21 $7.50
Elmwood
Rehabilitation $6.69 $7.78 $8.09 $8.42 $8.76 $9.12 Linear Technology $6.88 $6.62 $6.89 $7.17 $7.46 $7.76 DS Waters of
America $6.04 $5.38 $5.61 $5.84 $6.08 $6.33
Magic Tech &
Headway Tech $7.32 $7.73 $8.04 $8.37 $8.71 $9.06
Non-Monitored Sites ($ per unit = 1 hundred cubic feet = 748 gallons) Lucky Pure Water $5.29 $4.95 $5.15 $5.36 $5.58 $5.81 Milpitas Materials $5.29 $4.95 $5.15 $5.36 $5.58 $5.81 Union Pacific
Railroad $7.35 $7.85 $8.17 $8.50 $8.84 $9.20
Cisco $6.72 $6.82 $7.10 $7.39 $7.69 $8.00
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Item # 16.

REGULAR
NUMBER: 208.55
TITLE: AN ORDINANCE OF THE CITY OF MILPITAS AMENDING SECTION 6 OF CHAPTER 2,

TITLE VIII OF THE MILPITAS MUNICIPAL CODE RELATING TO SEWER SERVICE

CHARGES
HISTORY: This Ordinance was introduced (first reading) by the City Council at its meeting of ___________________, upon motion by ___________________ and was adopted (second reading) by the City Council at its meeting of ____________, upon motion by ___________________. Said Ordinance was duly passed and ordered published in accordance with law by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

ATTEST: APPROVED:

________________________________ _________________________ Suzanne Guzzetta, City Clerk Carmen Montano, Mayor

APPROVED AS TO FORM:

________________________________
Michael Mutalipassi, City Attorney

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Item # 16.
1 Ordinance No. 208.55

RECITALS AND FINDINGS:

WHEREAS, the sewage collection and treatment services of the City of Milpitas (“City”) require the City to incur capital, operating, maintenance, replacement, treatment, and other costs related to providing such services; and

WHEREAS, the City engaged Raftelis to prepare a cost of service analysis and sewer rate study (the “Rate Study”); and

WHEREAS, as a result of the Rate Study, the City Council has determined that increases in the rates for its sewer service charges are in the best interests of the City and in keeping with sound business and financial management of the sewer enterprises do not exceed the cost of providing such services; and

WHEREAS, the proposed rates are determined based on customer class, including residential, commercial, monitored sites, non-monitored sites, and institutional customers, which classes are determined based on common sewage characteristics, including flow and strength of sewage and patterns and levels of demands placed on the sewer system, and

WHEREAS, the proposed rates for residential customers include a flat rate, determined based on the number of dwelling units, and the proposed rates for non-residential customers include both a uniform fixed flat fee, and a variable charge measured by hundred cubic feet (HCF) of metered water consumption, which varies based on the particular property type; and

WHEREAS, as a result of the Rate Study, the City Council has determined that a subsidy of the sewer service charge is necessary for Mobile home parks, in order to offset some of the sewer service charge resulting from realigning the flow for the mobile home parks with the flow values recommended in San Jose’s 2015 Residential Flow Study, and such subsidy shall be paid by the City’s general fund from legal available funds; and

WHEREAS, the City hereby finds and determines that in accordance with the provisions of California Constitution article XIII D, section 6 (“Article XIII D”):

1. The City identified the parcels upon which the sewer service charges are proposed to be imposed, and calculated the amount of the sewer service charges proposed to be imposed on each parcel; and

2. The City caused a written notice to be mailed to the record owners of property upon which the proposed sewer service charges will be imposed and the customers of each parcel upon which the proposed increases to the sewer service charges are proposed for imposition, which explained: (a) the amount of the sewer service charges; (b) the basis on which they were calculated; (c) the reason for the increases; and (d) the date, time, and location of the public hearing on the proposed increases; and

4. At the conclusion of the public hearing, written protests against the proposed increases to the rates for the sewer service charges were not presented by a majority of property owners of record and customers subject to the proposed water service charges; and

WHEREAS, the adoption of the proposed increases to sewer service charges is statutorily exempt from the requirements of the California Environmental Quality Act under California Resources Code Section 21080 (b)(8).

NOW THEREFORE, the City Council of the City of Milpitas does ordain as follows:

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Item # 16.
2 Ordinance No. 208.55

SECTION 1. RECORD AND BASIS FOR ACTION

SECTION 2. AMENDMENT OF MILPITAS MUNICIPAL CODE VIII-2-6.01

Section VIII-2-6.01 of the Milpitas Municipal Code is hereby amended to read as follows:

VIII-2-6.01 - Sewer Service Charges
The charges for sewer service shall be as set forth below and are limited to the actual cost of providing sewer service. The rates and effective dates for the sewer charges shall be those set forth below.

The following amounts shall be assessed upon each premise maintaining a sewer connection with the City's sewage system.
(a) Residential - Bimonthly for Each Dwelling Unit.

Category Sewer Charge
4/1/2019
Sewer Charge
7/1/2019
Sewer Charge
7/1/2020
Sewer Charge
7/1/2021
Sewer
Charge
7/1/2022

Single-family $97.60 $102.52 $111.07 $118.34 $124.14 Multi-family $74.96 $78.73 $85.30 $90.88 $95.34
Mobile home
parks $61.61 $64.70 $70.08 $74.66 $78.28

Category Sewer Charge
7/1/2022
Sewer Charge
7/1/2023
Sewer Charge
7/1/2024
Sewer Charge
7/1/2025
Sewer Charge
7/1/2026
Sewer Charge
7/1/2027
Single Family $124.14 $128.44 $133.58 $138.93 $144.49 $150.27 Multi-Family $95.34 $97.96 $101.88 $105.96 $110.20 $114.61 Mobile Home $78.28 $84.42 $91.05 $98.20 $105.91 $114.22

(b) Commercial, Industrial and Miscellaneous Premises. (1) Flat Rate: For non-residential accounts, there shall be a flat rate assessed every billing cycle during which normal billing takes place, regardless of the amount of sewage discharged. The Flat Rates and effective 288
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3 Ordinance No. 208.55

dates for the sewer charges shall be those set forth below to defray billing and sewer system administration costs.

4/1/2019 7/1/2019 7/1/2020 7/1/2021 7/1/2022
Flat Rate $24.30 $25.03 $25.78 $26.55 $27.35

7/1/2022 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027
Flat Rate $27.35 $29.25 $30.43 $31.65 $32.92 $34.24

(2) Quantity and Strength Charges: For each commercial, industrial, or miscellaneous premises, a charge for each 100 cubic feet of water used per billing cycle shall be charged as follows:

Category 4/1/2019
Rate
7/1/2019 Rate 7/1/2020
Rate
7/1/2021
Rate
7/1/2022
Rate
Motels, hotels & senior
citizen housing
developments
$4.36 $4.58 $4.97 $5.37 $5.75
General offices, banks,
government offices,
general merchandise,
retail, and shopping
centers; building,
hardware, and gardening
material facilities;
amusement centers, and
theaters
$4.67 $5.44 $5.67 $6.14 $6.84
City of Milpitas $4.18 $4.61 $4.91 $5.31 $5.80
Service stations, repair
shops, and car washes $4.34 $4.54 $4.93 $5.32 $5.70 Eating and drinking
establishments $7.49 $7.49 $8.11 $8.73 $9.06
Convalescent hospitals,
day care centers and
health service facilities
$4.23 $4.46 $4.84 $5.23 $5.60
Personal services -
laundry, barber/beauty
shops, cleaners
$3.95 $4.23 $4.56 $4.92 $5.31
Electrical and electronics
design, fabrication,
assembly and storage
facilities
$4.59 $5.35 $5.58 $6.04 $6.72
Metal fabrication,
machinery, and tool
fabrication facilities
$6.08 $6.70 $7.12 $7.70 $8.43
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RockTenn (Jefferson
Smurfit Corporation*) $8.35 $8.35 $9.39 $10.11 $10.46 T. Marzetti Co.* $9.16 $9.63 $10.65 $11.48 $12.09
Prudential Overall
Supply $6.70 $6.70 $7.08 $7.66 $8.42
Siemens Water
(previously US Filter) $4.91 $5.61 $5.87 $6.36 $7.06 Elmwood Rehabilitation
center $5.49 $5.49 $5.89 $6.35 $6.69
Linear Technology
Corporation $4.59 $5.47 $5.71 $6.18 $6.88
DS Water $4.59 $4.80 $4.92 $5.34 $6.04
Headway Technology
Corporation $4.62 $5.82 $6.07 $6.57 $7.32
Lucky Pure Water* $3.94 $4.21 $4.54 $4.91 $5.29
Milpitas Materials* $3.94 $4.21 $4.54 $4.91 $5.29
Union Pacific Railroad $5.11 $5.84 $6.12 $6.63 $7.35 Cisco* $4.59 $5.35 $5.58 $6.04 $6.72
Lifescan $4.59 $5.35 $5.58 $6.04 $6.72
Schools, colleges and
churches $6.31 $7.94 $8.05 $8.73 $9.99
Category 7/1/2023
Rate
7/1/2023
Rate
7/1/2024
Rate
7/1/2025
Rate
7/1/2026
Rate
7/1/2027
Rate
Schools/Colleges $9.99 $11.58 $12.04 $12.53 $13.04 $13.57 Motels/Hotels $5.75 $5.64 $5.88 $6.12 $6.37 $6.63
General Office $6.84 $6.92 $7.20 $7.49 $7.79 $8.11
City of Milpitas $5.80 $5.59 $5.82 $6.06 $6.31 $6.57
Service Stations $5.70 $5.61 $5.84 $6.08 $6.33 $6.59
Eat/Drink
Establishments $9.06 $10.88 $11.32 $11.78 $12.26 $12.76 Convalescent
Hosp/Daycare $5.60 $5.45 $5.67 $5.90 $6.14 $6.39
Personal Services,
Laundries $5.31 $4.97 $5.17 $5.38 $5.60 $5.83
Electrical/Electronic $6.72 $6.82 $7.10 $7.39 $7.69 $8.00 Machinery
Manufacture $8.43 $9.92 $10.32 $10.74 $11.17 $11.62
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5 Ordinance No. 208.55

Rocktenn (Jefferson
Smurfit*) $10.46 $10.79 $11.23 $11.68 $12.15 $12.64
T. Marzetti Co. * $12.09 $11.17 $11.62 $12.09 $12.58 $13.09 Prudential Overall
Supply $8.42 $9.88 $10.28 $10.70 $11.13 $11.58
Evoqua Water
Technologies $7.06 $6.40 $6.66 $6.93 $7.21 $7.50
Elmwood
Rehabilitation $6.69 $7.78 $8.09 $8.42 $8.76 $9.12
Linear Technology $6.88 $6.62 $6.89 $7.17 $7.46 $7.76
DS Waters of America $6.04 $5.38 $5.61 $5.84 $6.08 $6.33 Magic Tech &
Headway Tech $7.32 $7.73 $8.04 $8.37 $8.71 $9.06
Lucky Pure Water* $5.29 $4.95 $5.15 $5.36 $5.58 $5.81
Milpitas Materials* $5.29 $4.95 $5.15 $5.36 $5.58 $5.81 Union Pacific Railroad $7.35 $7.85 $8.17 $8.50 $8.84 $9.20 Cisco* $6.72 $6.82 $7.10 $7.39 $7.69 $8.00

*These industrial customers are subject to sewer charge adjustments based on their sewer volumes, as indicated in their sewer flow adjustment agreements.
(3) City of San Jose for properties known as North McCarthy Properties: $555.00 bimonthly for any discharge up to 75,000 gallons per day (maximum flow). Excess flow charge of $100.00 for each 1,000 gallons per day in excess of the maximum flow or part thereof.
(c) Purpose of Charge. The purpose of the sewer service charges stated herein is to defray the City's cost for operation and maintenance of the City's facilities, capital improvement costs, the City's proportionate share of costs at the San Jose-Santa Clara Water Pollution Control Plant and the debt service related thereto, and other costs related to the provision of sewage collection and treatment. (d) Billing. After the ordinance adopting the charges set forth herein goes into effect, customers shall be subject to the sewer service charges set forth in 6.01, for services provided on or after April 1, 2019, July 1, 2019, July 1, 2020, July 1, 2021, and July 1, 2022 respectively on or after July 1, 2023, July 1, 2024, July 1, 2025, July 1, 2026, and July 1, 2027 respectively. In the absence of amendment of the rates set forth herein or adoption of a new rate ordinance, the rates in effect on July 1, 20272, and set forth herein shall remain in effect until amended or repealed.

SECTION 3. SEVERABILITY

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6 Ordinance No. 208.55

The provisions of this Ordinance are separable, and the invalidity of any phrase, clause, provision or part shall not affect the validity of the remainder.

SECTION 4. ORDINANCE PREVAILS

To the extent that any other provision of local law relating to the establishment of sewer service charges is inconsistent with this Ordinance, the provisions of this Ordinance shall prevail. This Ordinance shall supersede all other previous City Council resolutions and ordinances that may conflict with, or be contrary to, this Ordinance.

SECTION 5. EFFECTIVE DATE AND POSTING

This Ordinance shall take effect thirty (30) days from and after the date of its passage. The City Clerk of the City of Milpitas shall cause this Ordinance or a summary thereof to be published in accordance with Section 36933 of the Government Code of the State of California.

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Item # 16.

Water and Wastewater Rate Study
Study Report / March 3, 2023
City of
Milpitas, CA
293
Item # 16.

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Item # 16.

445 S Figueroa St, Suite 1925
Los Angeles CA 90071

www.raftelis.com

March 3, 2023

Mr. Harris Siddiqui, PE
Principal Engineer
City of Milpitas
455 East Calaveras Boulevard
Milpitas, CA 95035

Subject: Water and Wastewater Rate Study

Dear Mr. Siddiqui,

It has been a pleasure working with you, and we thank you and other City staff for the support provided to Raftelis during this study.

Sincerely,

Todd Cristiano
Project Manager
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Item # 16.