Morgan Hill City Council
June 26, 2024

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
and subject to any applicable procedural requirements for submitting a proposal for value engineering cost savings.
(B) Disputes. In the event of a dispute over entitlement to or the amount of a change in Contract Time or a change in Contract Price related to extra Citydirected change in the Work, Contractor must perform the Work as directed and may not delay its Work or cease Work pending resolution of the dispute, but must continue to comply with its duty to diligently prosecute the performance and timely completion of the Work, including the Work in dispute. Likewise, in the event that City and Contractor dispute whether a portion or portions of the Work are already required by the Contract Documents or constitute Extra Work, or otherwise dispute the interpretation of any portion(s) of the Contract Documents, Contractor must perform the Work as directed and may not delay its Work or cease Work pending resolution of the dispute, but must continue to comply with its duty to diligently prosecute the performance and timely completion of the Work, including the Work in dispute, as directed by City. If Contractor refuses to perform the Work in dispute, City may, acting in its sole discretion, elect to delete the Work from the Contract and reduce the Contract Price accordingly, and self-perform the Work or direct that the Work be performed by others. Alternatively, City may elect to terminate the Contract for convenience or for cause. Contractor’s sole recourse for an unresolved dispute related to changes in the Work or performance of any Extra Work is to comply with the dispute resolution provisions set forth in Article 12, below.
(C) Extra Work. City may direct Contractor to perform Extra Work related to the Project. Contractor must promptly perform any Extra Work as directed or authorized by City in accordance with the original Contract Documents, even if Contractor and City have not yet reached agreement on adjustments to the Contract Price or Contract Time for such Extra Work. If Contractor believes it is necessary to perform Extra Work due to changed conditions, Contractor must promptly notify the Engineer in writing, specifically identifying the Extra Work and the reason(s) the Contractor believes it is Extra Work. This notification requirement does not constitute a Change Order request pursuant to Section 6.2, below.

Contractor must maintain detailed daily records that itemize the cost of each element of Extra Work, and sufficiently distinguish the direct cost of the Extra Work from the cost of other Work performed. For each day that Contractor performs Extra Work, or Work that Contractor contends is Extra Work, Contractor must submit no later than the following Working Day, a daily report of the Extra Work performed that day and the related costs, together with copies of certified payroll, invoices, and other documentation substantiating the costs (“Extra Work Report”).

The Engineer will make any adjustments to Contractor’s Extra Work Report(s) based on the Engineer’s records of the Work. When an Extra Work Report(s) is agreed on and signed by both City and Contractor, the Extra Work Report(s) will become the basis for payment under a duly authorized and signed Change Order.

Failure to submit the required documentation by close of business on the next

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
Working Day is deemed a full and complete waiver for any change in the Contract Price or Contract Time for any Extra Work performed that day. (D) Minor Changes and RFIs. Minor field changes, including RFI replies from City, that do not affect the Contract Price or Contract Time and that are approved by the Engineer acting within his or her scope of authority, do not require a Change Order. By executing an RFI reply from City, Contractor agrees that it will perform the Work as clarified therein, with no change to the Contract Price or Contract Time.
(E) Remedy for Non-Compliance. Contactor’s failure to promptly comply with a City-directed change is deemed a material breach of the Contract, and in addition to all other remedies available to it, City may, at its sole discretion, hire another contractor or use its own forces to complete the disputed Work at Contractor’s sole expense, and may deduct the cost from the Contract Price.

6.2 Contractor Change Order Requests. Contractor must submit a request or proposal for a change in the Work, compensation for Extra Work, or a change in the Contract Price or Contract Time as a written Change Order request or proposal.
(A) Time for Submission. Any request for a change in the Contract Price or the Contract Time must be submitted in writing to the Engineer within ten calendar days of the date that Contractor first encounters the circumstances, information or conditions giving rise to the Change Order request, even if the total amount of the requested change in the Contract Price or impact on the Contract Time is not yet known at that time. If City requests that Contractor propose the terms of a Change Order, unless otherwise specified in City’s request, Contractor must provide the Engineer with a written proposal for the change in the Contract Price or Contract Time within five working days of receiving City’s request, in a form satisfactory to the Engineer.
(B) Required Contents. Any Change Order request or proposal submitted by Contractor must include a complete breakdown of actual or estimated costs and credits, and must itemize labor, materials, equipment, taxes, insurance, subcontract amounts, and if applicable, Extra Work Reports. Any estimated cost must be updated in writing as soon as the actual amount is known. (C) Required Documentation. All claimed costs must be fully documented, and any related request for an extension of time or delay-related costs must be included at that time and in compliance with the requirements of Article 5 of the General Conditions. Upon request, Contractor must permit City to inspect its original and unaltered bidding records, subcontract agreements, subcontract change orders, purchase orders, invoices, or receipts associated with the claimed costs.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(D) Required Form. Contractor must use City’s form(s) for submitting all Change Order requests or proposals, unless otherwise specified by City. (E) Certification. All Change Order requests must be signed by Contractor and must include the following certification:
“The undersigned Contractor certifies under penalty of perjury that its statements and representations in this Change Order request are true and correct. Contractor warrants that this Change Order request is comprehensive and complete as to the Work or Changes referenced herein, and agrees that any costs, expenses, or time extension requests not included herein are deemed waived.”

6.3 Adjustments to Contract Price. The amount of any increase or decrease in the Contract Price will be determined based on one of the following methods listed below, in the order listed with unit pricing taking precedence over the other methods. Markup applies only to City-authorized time and material Work and does not apply to any other payments to Contractor. For Work items or components that are deleted in their entirety, Contractor will only be entitled to compensation only for those direct, actual, and documented costs (including restocking fees), reasonably incurred before Contractor was notified of the City’s intent to delete the Work, with no markup for overhead, profit, or other indirect costs. (A) Unit Pricing. Amounts previously provided by Contractor in the form of unit prices, either in a bid schedule or in a post-award schedule of values pursuant to Section 8.1 Schedule of Values, will apply to determine the price for the affected Work, to the extent applicable unit prices have previously been provided for that type of Work. No additional markup for overhead, profit, or other indirect costs. will be added to the calculation.
(B) Lump Sum. A mutually agreed upon, all-inclusive lump sum price for the affected Work with no additional markup for overhead, profit, or other indirect costs;
(C) Time and Materials. On a time and materials basis, if and only to the extent compensation on a time and materials basis is expressly authorized by City in advance of Contractor’s performance of the Work and subject to any not-to-exceed limit. Time and materials compensation for increased costs or Extra Work (but not decreased costs or deleted Work), will include allowed markup for overhead, profit, and other indirect costs, and which may include a not-to-exceed limit, calculated as the total of the following sums, the cumulative total of which may not exceed the maximum markup rate of 15%:
(1) All direct labor costs provided by the Contractor, excluding superintendence, project management, or administrative costs plus 15 percent markup;

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(2) All direct material costs provided by the Contractor, including sales tax, plus 15 percent markup;
(3) All direct plant and equipment rental costs provided by the Contractor, plus 15 percent markup;
(4) All direct additional subcontract costs plus ten percent markup for Work performed by Subcontractors; and
(5) Increased bond or insurance premium costs computed at 1.5% percent of total of the previous four sums.

6.4 Unilateral Change Order. If the parties dispute the terms of a proposed Change Order, including disputes over the amount of compensation or extension of time that Contractor has requested, the value of deleted or changed Work, what constitutes Extra Work, or quantities used, City may elect to issue a unilateral Change Order, directing performance of the Work, and authorizing a change in the Contract Price or Contract Time for the adjustment to compensation or time that the City believes is merited. Contractor’s sole recourse to dispute the terms of a unilateral Change Order is to submit a timely Claim pursuant to Article 12, below.

6.5 Non-Compliance Deemed Waiver. Contractor waives its entitlement to any increase in the Contract Price or Contract Time if Contractor fails to fully comply with the provisions of this Article. Contractor will not be paid for unauthorized Extra Work.

Article 7 - General Construction Provisions

7.1 Permits, Fees, Business License, and Taxes.
(A) Permits, Fees, and City Business License. Contractor must obtain and pay for all permits, fees, and licenses required to perform the Work, including a City business license. Contractor must cooperate with and provide notifications to all government agencies with jurisdiction over the Project, as may be required.

Contractor must provide City with copies of all records of permits and permit applications, payment of required fees, and any licenses required for the Work. (B) Taxes. Contractor must pay for all taxes on labor, material, and equipment, except Federal Excise Tax to the extent that City is exempt from Federal Excise Tax.

7.2 Temporary Facilities. Contractor must provide, at Contractor’s sole expense, any and all temporary facilities for the Project, including an onsite staging area for materials and equipment, a field office, sanitary facilities, utilities, storage,

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
scaffolds, barricades, walkways, and any other temporary structure required to safely perform the Work along with any incidental utility services. The location of all temporary facilities must be approved by the City prior to installation. Temporary facilities must be safe and adequate for the intended use, and installed and maintained in accordance with Laws and the Contract Documents. Contractor must fence and screen the Project site and, if applicable, any separate Worksites, including the staging area, and its operation must minimize inconvenience to neighboring properties. Additional provisions pertaining to temporary facilities may be included in the Specifications or Special Conditions. (A) Utilities. Contractor must install and maintain the power, water, sewer, and all other utilities required for the Project site, including the piping, wiring, internet and Wi-Fi connections, and any related equipment necessary to maintain the temporary facilities.
(B) Removal and Repair. Contractor must promptly remove all such temporary facilities when they are no longer needed or upon completion of the Work, whichever comes first. Contractor must promptly repair any damage to City’s property or to other property caused by the installation, use, or removal of the temporary facilities, and must promptly restore the property to its original or intended condition.

7.3 Noninterference and Site Management. Contractor must avoid interfering with City’s use of its property at or adjacent to the Project site, including use of roadways, entrances, parking areas, walkways, and structures. Contractor must also minimize disruption of access to private property in the Project vicinity.

Contractor must coordinate with affected property owners, tenants, and businesses, and maintain some vehicle and pedestrian access to their residences or properties at all times. Temporary access ramps, fencing or other measures must be provided as needed. Before blocking access to a private driveway or parking lot, Contractor must provide effective notice to the affected parties at least 48 hours in advance of the pending closure and allow them to remove vehicles.

Private driveways, residences and parking lots must have access to a roadway during non-Work hours.
(A) Offsite Acquisition. Unless otherwise provided by City, Contractor must acquire, use, and dispose of, at its sole expense, any Worksites, licenses, easements, and temporary facilities necessary to access and perform the Work. (B) Offsite Staging Area and Field Office. If additional space beyond the Project site is needed, such as for the staging area or the field office, Contractor may need to make arrangements with the nearby property owner(s) to secure the space. Before using or occupying any property owned by a third party, Contractor must provide City with a copy of the necessary license agreement, easement, or other written authorization from the property owner, together with a written release

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
from the property owner holding City harmless from any related liability, in a form acceptable to the City Attorney.
(C) Traffic Management. Contractor must provide traffic management and traffic controls as specified in the Contract Documents, as required by Laws, and as otherwise required to ensure public and worker safety, and to avoid interference with public or private operations or the normal flow of vehicular, bicycle, or pedestrian traffic.

7.4 Signs. No signs may be displayed on or about City’s property, except signage which is required by Laws or by the Contract Documents, without City’s prior written approval as to size, design, and location.

7.5 Project Site and Nearby Property Protections.
(A) General. Contractor is responsible at all times, on a 24-hour basis and at its sole cost for protecting the Work, the Project site, and the materials and equipment to be incorporated into the Work until the City has accepted the Project, excluding any exceptions to acceptance, if any. Except as specifically authorized by City, Contractor must confine its operations to the area of the Project site indicated in the Plans and Specifications. Contractor is liable for any damage caused by Contractor or its Subcontractors to the Work, City’s property, the property of adjacent or nearby property owners and the work or personal property of other contractors working for City, including damage related to Contractor’s failure to adequately secure the Work or any Worksite.
(1) Subject to City’s approval, Contractor will provide and install safeguards to protect the Work; any Worksite, including the Project site; City’s real or personal property and the real or personal property of adjacent or nearby property owners, including plant and tree protections.
(2) City wastewater systems may not be interrupted. If the Work disrupts existing sewer facilities, Contractor must immediately notify City and establish a plan, subject to City’s approval, to convey the sewage in closed conduits back into the sanitary sewer system. Sewage must not be permitted to flow in trenches or be covered by backfill. (3) Contractor must remove with due care, and store at City’s request, any objects or material from the Project site that City will salvage or reuse at another location.
(4) If directed by Engineer, Contractor must promptly repair or replace any property damage, as specified by the Engineer. However, acting in its sole discretion, City may elect to have the property damage remedied otherwise, and may deduct the cost to repair or replace the damaged property from payment otherwise due to Contractor.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(5) Contractor will not permit any structure or infrastructure to be loaded in a manner that will damage or endanger the integrity of the structure or infrastructure.
(C) Securing Project Site. After completion of Work each day, Contractor must secure the Project site and, to the extent feasible, make the area reasonably accessible to the public unless City approves otherwise. All excess materials and equipment not protected by approved traffic control devices must be relocated to the staging area or demobilized. Trench spoils must be hauled off the Project site daily and open excavations must be protected with steel plates. Contractor and Subcontractor personnel may not occupy or use the Project site for any purpose during non-Work hours, except as may be provided in the Contract Documents or pursuant to prior written authorization from City.
(C) Unforeseen Conditions. If Contractor encounters facilities, utilities, or other unknown conditions not shown on or reasonably inferable from the Plans or apparent from inspection of the Project site, Contractor must immediately notify the City and promptly submit a Request for Information to obtain further directions from the Engineer. Contractor must avoid taking any action which could cause damage to the facilities or utilities pending further direction from Engineer. The Engineer’s written response will be final and binding on Contractor. If Engineer’s subsequent direction to Contractor affects Contractor’s cost or time to perform the Work, Contractor may submit a Change Order request as set forth in Article 6 above.
(D) Support; Adjacent Properties. Contractor must provide, install, and maintain all shoring, bracing, and underpinning necessary to provide support to City’s property and adjacent properties and improvements thereon. Contractor must provide notifications to adjacent property owners as may be required by Laws. See also Section 7.15 Trenching of Five Feet or More. (E) Notification of Property Damage. Contractor must immediately notify the City of damage to any real or personal property resulting from Work on the Project.

Contractor must immediately provide a written report to City of any such property damage in excess of $500 (based on estimated cost to repair or replace) within 24 hours of the occurrence. The written report must include: (1) the location and nature of the damage, and the owner of the property, if known; (2) the name and address of each employee of Contractor or any Subcontractor involved in the damage; (3) a detailed description of the incident, including precise location, time, and names and contact information for known witnesses; and (4) a police or first responder report, if applicable. If Contractor is required to file an accident report with another government agency, Contractor will provide a copy of the report to City.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024

7.6 Materials and Equipment.
(A) General. Unless otherwise specified, all materials and equipment required for the Work must be new, free from defects, and of the best grade for the intended purpose, and furnished in sufficient quantities to ensure the proper and expeditious performance of the Work. Contractor must employ measures to preserve the specified quality and fitness of the materials and equipment. Unless otherwise specified, all materials and equipment required for the Work are deemed to include all components required for complete installation and intended operation, and must be installed in accordance with the manufacturer’s recommendations or instructions. Contractor is responsible for all shipping, handling, and storage costs associated with the materials and equipment required for the Work. Contractor is responsible for providing security and protecting the Work and all of the required materials, supplies, tools and equipment at Contractor’s sole cost until City has formally accepted the Project as set forth in Section 11.1, Final Completion.

Contractor will not assign, sell, mortgage, or hypothecate any materials or equipment for the Project, or remove any materials or equipment that have been installed or delivered.
(B) City-Provided. If the Work includes installation of materials or equipment to be provided by City, Contractor is solely responsible for the proper examination, handling, storage, and installation in accordance with the Contract Documents.

Contractor must notify City of any defects discovered in City-provided materials or equipment sufficiently in advance of scheduled use or installation to afford adequate time to procure replacement materials or equipment as needed.

Contractor is solely responsible for any loss of or damage to such items which occurs while the items are in Contractor’s custody and control, the cost of which may be offset from the Contract Price and deducted from any payment(s) due to Contractor.
(C) Intellectual Property Rights. Contractor must, at its sole expense, obtain any authorization or license required for use of patented or copyright-protected materials, equipment, devices, or processes that are incorporated into the Work.

Contractor’s indemnity obligations in Article 4 apply to any claimed violation of intellectual property rights in violation of this provision.

7.7 Substitutions.
(A) “Or Equal.” Any Specification designating a material, product, or thing (collectively “item”) or service by specific brand or trade name, followed by the words “or equal,” is intended only to indicate the quality and type of item or service desired, and Contractor may request use of any equal item or service. Unless otherwise stated in the Specifications, any reference to a specific brand or trade name for an item or service that is used solely for the purpose of describing the type of item or service desired, will be deemed to be followed by the words “or equal.” A substitution will only be approved if it is a true “equal” item or service in

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
every aspect of design, function, and quality, as determined by City, including dimensions, weight, maintenance requirements, durability, fit with other elements, and schedule impacts.
(B) Request for Substitution. A post-award request for substitution of an item or service must be submitted in writing to the Engineer for approval in advance, within the applicable time period provided in the Contract Documents. If no time period is specified, the substitution request may be submitted any time within 35 days after the date of award of the Contract, or sufficiently in advance of the time needed to avoid delay of the Work, whichever is earlier. (C) Substantiation. Any available data substantiating the proposed substitute as an equal item or service must be submitted with the written request for substitution. Contractor’s failure to timely provide all necessary substantiation, including any required test results as soon as they are available, is grounds for rejection of the proposed substitution, without further review. (D) Burden of Proving Equality. Contractor has the burden of proving, at Contractor’s sole cost, the equality of the proposed substitution. City has sole discretion to determine whether a proposed substitution is equal, and City’s determination is final.

(E) Approval or Rejection. If the proposed substitution is approved, Contractor is solely responsible for any additional costs or time associated with the substituted item or service. If the proposed substitution is rejected, Contractor must, without delay, install the item or use the service as specified by the City. (F) Contractor’s Obligations. City’s approval of a proposed substitution will not relieve Contractor from any of its obligations under the Contract Documents.

In the event Contractor makes an unauthorized substitution, Contractor will be solely responsible for all resulting cost impacts, including the cost of removal and replacement and the impact to other design elements.

7.8 Testing and Inspection.
(A) General. All materials, equipment, and workmanship used in the Work are subject to inspection and testing by City at all times and locations during construction and/or fabrication and at any Worksite, including at shops and yards as well as at the Project site. All manufacturers’ application or installation instructions must be provided to the Inspector at least ten days prior to the first such application or installation. Contractor must, at all times, make the Work available for testing or inspection. Neither City’s inspection or testing of Work, nor its failure to do so, operate to waive or limit Contractor’s duty to complete the Work in accordance with the Contract Documents.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(B) Scheduling and Notification. Contractor must cooperate with City in coordinating the inspections and testing. Contractor must submit samples of materials, at Contractor’s expense, and schedule all tests required by the Contract Documents in time to avoid any delay to the progress of the Work. Contractor must notify the Engineer no later than noon of the Working Day before any inspection or testing and must provide timely notice to the other necessary parties as specified in the Contract Documents. If Contractor schedules an inspection or test beyond regular Work hours, or on a Saturday, Sunday, or recognized City holiday, Contractor must notify the Engineer at least two Working Days in advance for approval. If approved, Contractor must reimburse City for the cost of the overtime inspection or testing. Such costs, including the City’s hourly costs for required personnel, may be deducted from payments otherwise due to Contractor. (C) Responsibility for Costs. City will bear the initial cost of inspection and testing to be performed by independent consultants retained by City, subject to the following exceptions:
(1) Contractor will be responsible for the costs of any subsequent inspections or tests which are required to substantiate compliance with the Contract Documents, and any associated remediation costs. (2) Contractor will be responsible for inspection costs, at City’s hourly rates, for inspection time lost because the Work is not ready, or Contractor fails to appear for a scheduled inspection.
(3) If any portion of the Work that is subject to inspection or testing is covered or concealed by Contractor prior to the inspection or testing, Contractor will bear the cost of making that portion of the Work available for the inspection or testing required by the Contract Documents, and any associated repair or remediation costs.
(4) Contractor is responsible for properly shoring all compaction test sites deeper than five feet below grade, as required under Section 7.15 below.
(5) Any Work or material that is defective or fails to comply with the requirements of the Contract Documents must be promptly repaired, removed, replaced, or corrected by Contractor, at Contractor’s sole expense, even if that Work or material was previously inspected or included in a progress payment.
(D) Contractor’s Obligations. Contractor is solely responsible for any delay occasioned by remediation of defective or of noncompliant Work or material.

Inspection or testing of the Work does not in any way relieve Contractor of its obligations to perform the Work as specified. Any Work done without the

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
inspection(s) or testing required by the Contract Documents will be subject to rejection by City.
(E) Distant Locations. If required off-site testing or inspection must be conducted at a location more than 100 miles from the Project site, Contractor is solely responsible for the additional travel costs required for testing and/or inspection at such locations.
(F) Final Inspection. The provisions of this Section 7.8 also apply to final inspection under Article 11, Completion and Warranty Provisions.

7.9 Project Site Conditions and Maintenance. Contractor must at all times, on a 24- hour basis and at its sole cost, maintain the Project site and staging and storage areas in clean, neat, and sanitary condition and in compliance with all Laws pertaining to safety, air quality, and dust control. Adequate toilets must be provided, and properly maintained and serviced for all workers on the Project site, located in a suitably secluded area, subject to City’s prior approval. Contractor must also, on a daily basis and at its sole cost, remove and properly dispose of the debris and waste materials from the Project site.
(A) Air Emissions Control. Contractor must not discharge smoke or other air contaminants into the atmosphere in violation of any Laws. Contractor must comply with all Laws, including the California Air Resources Board’s In-Use OffRoad Diesel-Fueled Fleets Regulation (13 CCR § 2449 et seq.). (B) Dust and Debris. Contractor must minimize and confine dust and debris resulting from the Work. Contractor must abate dust nuisance by cleaning, sweeping, and immediately sprinkling with water excavated areas of dirt or other materials prone to cause dust, and within one hour after the Engineer notifies Contractor that an airborne nuisance exists. The Engineer may direct that Contractor provide an approved water-spraying truck for this purpose. If water is used for dust control, Contractor will only use the minimum necessary. Contractor must take all necessary steps to keep wastewater out of streets, gutters, or storm drains. See Section 7.19, Environmental Control. If City determines that the dust control is not adequate, City may have the work done by others and deduct the cost from the Contract Price. Contractor will immediately remove any excess excavated material from the Project site and any dirt deposited on public streets. (C) Clean up. Before discontinuing Work in an area, Contractor must clean the area and remove all rubbish debris and waste along with the construction equipment, tools, machinery, waste, and surplus materials. Contractor must, at all times, minimize and confine dust and debris resulting from construction activities. (1) Except as otherwise specified, all excess Project materials, and the materials removed from existing improvements on the Project site with no salvage value or intended reuse by City, will be Contractor’s property.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(2) Hauling trucks and other vehicles leaving the Project site must be cleaned of exterior mud or dirt before traveling on City streets. Materials and loose debris must be delivered and loaded to prevent dropping materials or debris. Contractor must immediately remove spillage from hauling on any publicly traveled way. Streets affected by Work on the Project must be kept clean by street sweeping.
(D) Disposal. Contractor must dispose of all Project debris and waste materials in a safe and legal manner. Contractor may not burn or bury waste materials on the Project site. Contractor will not allow any dirt, refuse, excavated material, surplus concrete or mortar, or any associated washings, to be disposed of onto streets, into manholes or into the storm drain system.
(E) Completion. At the completion of the Work, Contractor must remove from the Project site all of its equipment, tools, surplus materials, waste materials and debris., presenting a clean and neat appearance. Before demobilizing from the Project site, Contractor must ensure that all surfaces are cleaned, sealed, waxed, or finished as applicable, and that all marks, stains, paint splatters, and the like have been properly removed from the completed Work and the surrounding areas.

Contractor must ensure that all parts of the construction are properly joined with the previously existing and adjacent improvements and conditions. Contractor must provide all cutting, fitting, and patching needed to accomplish that requirement. Contractor must also repair or replace all existing improvements that are damaged or removed during the Work, both on and off the Project site, including curbs, sidewalks, driveways, fences, signs, landscaping, utilities, street surfaces and structures. Repairs and replacements must be at least equal to the previously existing improvements, and the condition, finish and dimensions must match the previously existing improvements. Contractor must restore to original condition all property or items that are not designated for alteration under the Contract Documents and leave each Worksite clean and ready for occupancy or use by City.
(F) Non-Compliance. If Contractor fails to comply with its maintenance and cleanup obligations within two business days following written notification from any City or its representative clean up order, City may, acting in its sole discretion, elect to suspend the Work until the condition(s) is corrected with no increase in the Contract Time or Contract Price, or undertake appropriate cleanup measures without further notice and deduct the cost from any amounts due or to become due to Contractor.

7.10 Instructions and Manuals. Contractor must provide to City three copies each of all instructions and manuals required by the Contract Documents, unless otherwise specified. These must be complete as to drawings, details, parts lists, performance data, and other information that may be required for City to easily maintain and service the materials and equipment installed for this Project.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(A) Submittal Requirements. All manufacturers’ application or installation instructions must be provided to the City at least ten days prior to the first such application. The instructions and manuals, along with any required guarantees, must be delivered to City for review.
(B) Training. Contractor or its Subcontractors must train City’s personnel in the operation and maintenance of any complex equipment or systems as a condition precedent to Final Completion, if required in the Contract Documents.

7.11 As-built Drawings. Contractor and its Subcontractors must prepare and maintain at the Project site a detailed, complete, and accurate as-built set of the Plans which will be used solely for the purpose of recording changes made in any portion of the original Plans in order to create accurate record drawings at the end of the Project. (A) Duty to Update. The as-built drawings must be updated as changes occur, on a daily basis if necessary. City may withhold the estimated cost for City to have the as-built drawings prepared from payments otherwise due to the Contractor, until the as-built drawings are brought up to date to the satisfaction of City. Actual locations to scale must be identified on the as-built drawings for all runs of mechanical and electrical work, including all site utilities, installed underground, in walls, floors, or otherwise concealed. Deviations from the original Plans must be shown in detail. The exact location of all main runs, whether piping, conduit, ductwork, or drain lines, must be shown by dimension and elevation. The location of all buried pipelines, appurtenances, or other improvements must be represented by coordinates and by the horizontal distance from visible above-ground improvements.
(B) Final Completion. Contractor must verify that all changes in the Work are depicted in the as-built drawings and must deliver the complete set of as-built drawings to City for review and acceptance as a condition precedent to Final Completion and Final Payment.

7.12 Existing Utilities.
(A) General. The Work may be performed in developed, urban areas with existing utilities, both above and below ground, including utilities identified in the Contract Documents or in other informational documents or records. Contractor must take due care to locate identified or reasonably identifiable utilities before proceeding with trenching, excavation, or any other activity that could damage or disrupt existing utilities. This may include excavation with small equipment, potholing, or hand excavation, and, if practical, using white paint or other suitable markings to delineate the area to be excavated. Except as otherwise provided herein, Contractor will be responsible for costs resulting from damage to identified or reasonably identifiable utilities due to Contractor’s negligence or failure to comply with the Contract Documents, including the requirements in this Article 7.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(B) Unidentified Utilities. Pursuant to Government Code Section 4215, if, during the performance of the Work, Contractor discovers utility facilities not identified by City in the Contract Documents, Contractor must immediately provide written notice to City and the utility. City assumes responsibility for the timely removal, relocation, or protection of existing main or trunkline utility facilities located on the Project site, if those utilities are not identified in the Contract Documents. Contractor will be compensated in accordance with the provisions of the Contract Documents for the costs of locating, repairing damage not due to Contractor’s failure to exercise reasonable care, and removing or relocating such utility facilities not indicated in the Plans or Specifications with reasonable accuracy, and for equipment on the Project necessarily idled during such work.

Contractor will not be assessed liquidated damages for delay in completion of the Work, to the extent such delay was caused by City’s failure to provide for removal or relocation of the utility facilities.

7.13 Notice of Excavation. Contractor must comply with all applicable requirements in Government Code Section 4216 et seq., which are incorporated by reference herein.

7.14 Trenching and Excavations of Four Feet or More. As required by Public Contract Code Section 7104, if the Work includes digging trenches or other excavations that extend deeper than four feet below the surface, the provisions in this Section apply to the Work and the Project.
(A) Duty to Notify. Contractor must promptly, and before the following conditions are disturbed, provide written notice to City if Contractor finds any of the following conditions:
(1) Material that Contractor believes may be a hazardous waste, as defined in Section 25117 of the Health and Safety Code, that is required to be removed to a Class I, Class II, or Class III disposal site in accordance with the provisions of existing Laws;
(2) Subsurface or latent physical conditions at the Project site differing from those indicated by information about the Project site made available to bidders prior to the deadline for submitting bids; or
(3) Unknown physical conditions at the Project site of any unusual nature, materially different from those ordinarily encountered and generally recognized as inherent in work of the character required by the Contract Documents.
(B) City Investigation. City will promptly investigate the conditions and if City finds that the conditions materially differ from those indicated, apparent, or reasonably inferred from information about the Project site made available to

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
bidders, or involve hazardous waste, and cause a decrease or increase in Contractor’s cost of, or the time required for, performance of any part of the Work, City will issue a Change Order.
(D) Disputes. In the event that a dispute arises between City and Contractor regarding any of the conditions specified in subsection (B) above, or the terms of a Change Order issued by the City, Contractor will not be excused from completing the Work within the Contract Time, but must proceed with all Work to be performed under the Contract. Contractor will retain any and all rights provided either by the Contract or by Laws which pertain to the resolution of disputes between Contractor and City.

7.15 Trenching of Five Feet or More. As required by Labor Code Section 6705, if the Contract Price exceeds $25,000.00 and the Work includes the excavation of any trench or trenches of five feet or more in depth, a detailed plan must be submitted to City for acceptance in advance of the excavation. The detailed plan must show the design of shoring, bracing, sloping, or other provisions to be made for worker protection from the hazard of caving ground during the excavation. If the plan varies from the shoring system standards, it must be prepared by a California registered civil or structural engineer. Use of a shoring, sloping, or protective system less effective than that required by the Construction Safety Orders is prohibited.

7.16 New Utility Connections. Except as otherwise specified, City will pay connection charges and meter costs for new permanent utilities required by the Contract Documents, if any. Contractor must notify City sufficiently in advance of the time needed to request service from each utility provider so that connections and services are initiated in accordance with the Project schedule.

7.17 Lines and Grades. Contractor is required to use any benchmark provided by the Engineer. Unless otherwise specified in the Contract Documents, Contractor must provide all lines and grades required to execute the Work. Contractor must also provide, preserve, and replace, if necessary, all construction stakes required for the Project. All stakes or marks must be set by a California licensed surveyor or a California registered civil engineer. Contractor must notify the Engineer of any discrepancies found between Contractor’s staking and grading and information provided by the Contract Documents. Upon completion, all Work must conform to the lines, elevations, and grades shown in the Plans, including any changes directed by a Change Order.

7.18 Historic or Archeological Items.
(A) Contractor’s Obligations. Contractor must ensure that all persons performing Work at the Project site are required to immediately notify the Project Manager, upon discovery of any potential historic or archeological items, including historic or prehistoric ruins, a burial ground, archaeological or vertebrate

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
paleontological site, including fossilized footprints or other archeological, paleontological, or historical feature on the Project site (collectively, “Historic or Archeological Items”).
(B) Discovery; Cessation of Work. Upon discovery of any potential Historic or Archeological Items, Work must be stopped within an 85-foot radius of the find and may not resume until authorized in writing by City. If required by City, Contractor must assist in protecting or recovering the Historic or Archeological Items, with any such assistance to be compensated as Extra Work on a time and materials basis under Article 6, Contract Modification. At City’s discretion, a suspension of Work required due to discovery of Historic or Archeological Items may be treated as Excusable Delay pursuant to Article 5 or as a suspension for convenience under Article 13.

7.19 Environmental Control. Contractor must not pollute any drainage course or its tributary inlets with fuels, oils, bitumens, acids, insecticides, herbicides, or other harmful materials. Contractor must prevent the release of any hazardous material or hazardous waste into the soil or groundwater, and prevent the unlawful discharge of pollutants into City’s storm drain system and watercourses as required below. Contractor and its Subcontractors must at all times in the performance of the Work comply with all Laws concerning pollution of waterways. (A) Stormwater Permit. Contractor must comply with all applicable conditions of the State Water Resources Control Board National Pollutant Discharge Elimination System General Permit for Waste Discharge Requirements for Discharges of Stormwater Runoff Associated with Construction Activity (“Stormwater Permit”).
(B) Contractor’s Obligations. If required for the Work, a copy of the Stormwater Permit is on file in City’s principal administrative offices, and Contractor must comply with the same without adjustment of the Contract Price or the Contract Time. Contractor must timely and completely submit required reports and monitoring information required by the conditions of the Stormwater Permit.

Contractor must also comply with all other Laws governing discharge of stormwater, including applicable municipal stormwater management programs.

7.20 Noise Control. Contractor must comply with all applicable noise control Laws.

Noise control requirements apply to all equipment used for the Work or related to the Work, including trucks, transit mixers or transient equipment that may or may not be owned by Contractor.

7.21 Mined Materials. Pursuant to the Surface Mining and Reclamation Act of 1975, Public Resources Code Section 2710 et seq., any purchase of mined materials, such as construction aggregate, sand, gravel, crushed stone, road base, fill materials, and any other mineral materials must originate from a surface mining

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
operation included on the AB 3098 List, which may be accessed online at:
https://www.conservation.ca.gov/smgb/Pages/AB-3098-List.aspx Article 8 - Payment

8.1 Schedule of Values. Prior to submitting its first application for payment, Contractor must prepare and submit to the Project Manager a schedule of values apportioned to the various divisions and phases of the Work, including mobilization and demobilization. If a Bid Schedule was submitted with Contractor’s bid, the amounts in the schedule of values must be consistent with the Bid Schedule. Each line item contained in the schedule of values must be assigned a value such that the total of all items equals the Contract Price. The items must be sufficiently detailed to enable accurate evaluation of the percentage of completion claimed in each application for payment, and the assigned value consistent with any itemized or unit pricing submitted with Contractor’s bid.
(A) Measurements for Unit Price Work. Materials and items of Work to be paid for on the basis of unit pricing will be measured according to the methods specified in the Contract Documents.
(B) Deleted or Reduced Work. Contractor will not be compensated for Work that City has deleted or reduced in scope, except for any labor, material, or equipment costs for such Work that Contractor reasonably incurred before Contractor learned that the Work could be deleted or reduced. Contractor will only be compensated for those actual, direct, and documented costs incurred, and will not be entitled to any mark up for overhead or lost profits.

8.2 Progress Payments. Following the last day of each month, or as otherwise required by the Special Conditions or Specifications, Contractor will submit to Project Manager a monthly application for payment for Work performed during the preceding month based on the estimated value of the Work performed during that preceding month.
(A) Application for Payment. Each application for payment must be itemized to include labor, materials, and equipment incorporated into the Work, and materials and equipment delivered to the Project site, as well as authorized and approved Change Orders. Each payment application must be supported by the unit prices submitted with Contractor’s Bid Schedule and/or schedule of values and any other substantiating data required by the Contract Documents. Each application for payment shall be accompanied by completed “Contract Balance Form,” a copy of which is provided at the end of Article 8. (B) Payment of Undisputed Amounts. City will pay the undisputed amount due within thirty days after Contractor has submitted a complete and accurate payment application, subject to Public Contract Code Section 20104.50. City will

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
deduct a percentage from each progress payment as retention, as set forth in Section 8.5, below, and may deduct or withhold additional amounts as set forth in Section 8.3, below.

8.3 Adjustment of Payment Application. City may adjust or reject the amount requested in a payment application, including application for Final Payment, in whole or in part, if the amount requested is disputed or unsubstantiated. Contractor will be notified in writing of the basis for the modification to the amount requested.

City may also deduct or withhold from payment otherwise due based upon any of the circumstances and amounts listed below. Sums withheld from payment otherwise due will be released when the basis for that withholding has been remedied and no longer exists.
(A) For Contractor’s unexcused failure to perform the Work as required by the Contract Documents, including correction or completion of punch list items. City may withhold or deduct an amount based on the City’s estimated cost to correct or complete the Work.
(B) For loss or damage caused by Contractor or its Subcontractors arising out of or relating to performance of the Work, or any failure to protect the Project site, City may deduct an amount based on the estimated cost to repair or replace. (C) For Contractor’s failure to pay its Subcontractors and suppliers when payment is due. City may withhold an amount equal to the total of past due payments and may opt to pay that amount separately via joint check pursuant to Section 8.6(B), Joint Checks.
(D) For Contractor’s failure to timely correct rejected, nonconforming, or defective Work. City may withhold or deduct an amount based on the City’s estimated cost to correct or complete the Work.
(E) For any unreleased stop notice, City may withhold 125% of the amount claimed.
(F) For Contractor’s failure to submit any required schedule or schedule update in the manner specified or within the time specified in the Contract Documents, City may withhold an amount equal to five percent of the total amount requested until Contractor complies with its schedule submittal obligations. (G) For Contractor’s failure to maintain or submit as-built documents in the manner specified or within the time specified in the Contract Documents, City may withhold or deduct an amount based on the City’s cost to prepare the as-builts. (H) For Work performed without Shop Drawings, that has been accepted by the City when accepted Shop Drawings are required before proceeding with the Work,

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
City may deduct an amount based on the estimated cost to correct unsatisfactory Work or diminution in value.
(I) For fines, payments, or penalties assessed under the Labor Code, City may deduct from payments due to Contractor as required by Laws and as directed by the Division of Labor Standards Enforcement.
(J) For any other costs or charges that may be withheld or deducted from payments to Contractor, as provided in the Contract Documents, including liquidated damages, City may withhold or deduct such amounts from payment otherwise due to Contractor.

8.4 Early Occupancy. Neither City’s payment of progress payments nor its partial or full use or occupancy of the Project constitutes acceptance of any part of the Work.

8.5 Retention. City will retain five percent of the full amount due on each progress payment (i.e., the amount due before any withholding or deductions pursuant to Section 8.3, Adjustment of Payment Application), or the percentage stated in the Notice Inviting Bids, whichever is greater, as retention to ensure full and satisfactory performance of the Work. Contractor is not entitled to any reduction in the rate of withholding at any time, nor to release of any retention before 35 days following City’s acceptance of the Project.
(A) Substitution of Securities. As provided by Public Contract Code Section 22300, Contractor may request in writing that it be allowed, at its sole expense, to substitute securities for the retention withheld by City. Any escrow agreement entered into pursuant to this provision must fully comply with Public Contract Code Section 22300, and will be subject to approval as to form by City’s legal counsel.

If City exercises its right to draw upon such securities in the event of default pursuant to section (7) of the statutory Escrow Agreement for Security Deposits in Lieu of Retention, pursuant to subdivision (g) of Public Contract Code Section 22300 (“Escrow Agreement”), and if Contractor disputes that it is in default, its sole remedy is to comply with the dispute resolution procedures in Article 12 and the provisions therein. It is agreed that for purposes of this paragraph, an event of default includes City’s rights pursuant to these Contract Documents to withhold or deduct sums from retention, including withholding or deduction for liquidated damages, incomplete or defective Work, stop payment notices, or backcharges. It is further agreed that if any individual authorized to give or receive written notice on behalf of a party pursuant to section (10) of the Escrow Agreement are unavailable to give or receive notice on behalf of that party due to separation from employment, retirement, death, or other circumstances, the successor or delegee of the named individual is deemed to be the individual authorized to give or receive notice pursuant to section (10) of the Escrow Agreement. (B) Release of Undisputed Retention. All undisputed retention, less any amounts that may be assessed as liquidated damages, retained for stop notices,

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
or otherwise withheld pursuant to Section 8.3 Adjustment of Payment Application will be released as Final Payment to Contractor no sooner than 35 days following recordation of the notice of completion, and no later than 60 days following acceptance of the Project by City’s governing body or authorized designee pursuant to Section 11.1(C) Acceptance, or, if the Project has not been accepted, no later than 60 days after the Project is otherwise considered complete pursuant to Public Contract Code Section 7107(c).

8.6 Payment to Subcontractors and Suppliers. Each month, Contractor must promptly pay each Subcontractor and supplier the value of the portion of labor, materials, and equipment incorporated into the Work or delivered to the Project site by the Subcontractor or supplier during the preceding month. Such payments must be made in accordance with the requirements of Laws pertaining to such payments, and those of the Contract Documents and applicable subcontract or supplier contract.
(A) Withholding for Stop Notice. Pursuant to Civil Code Section 9358, City will withhold 125% of the amount claimed by an unreleased stop notice, a portion of which may be retained by City for the costs incurred in handling the stop notice claim, including attorneys’ fees and costs, as authorized by law. (B) Joint Checks. City reserves the right, acting in its sole discretion, to issue joint checks made payable to Contractor and a Subcontractor or supplier, if City determines this is necessary to ensure fair and timely payment to Subcontractor or supplier who has provided services or goods for the Project. As a condition to release of payment by a joint check, the joint check payees may be required to execute a joint check agreement in a form provided or approved by the City Attorney’s Office. The joint check payees will be jointly and severally responsible for the allocation and disbursement of funds paid by joint check. Payment by joint check will not be construed to create a contractual relationship between City and a Subcontractor or supplier of any tier beyond the scope of the joint check agreement.

8.7 Final Payment. Contractor’s application for Final Payment must comply with the requirements for submitting an application for a progress payment as stated in Section 8.2, above. Corrections to previous progress payments, including adjustments to estimated quantities for unit priced items, may be included in the Final Payment. If Contractor fails to submit a timely application for Final Payment, City reserves the right to unilaterally process and issue Final Payment without an application from Contractor in order to close out the Project. For the purposes of determining the deadline for Claim submission pursuant to Article 12, the date of Final Payment is deemed to be the date that City acts to release undisputed retention as final payment to Contractor, or otherwise provides written notice to Contractor of Final Payment or that no undisputed funds remain available for Final Payment due to offsetting withholdings or deductions pursuant to Section 8.3, Adjustment of Payment Application. If the amount due from Contractor to City

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
exceeds the amount of Final Payment, City retains the right to recover the balance from Contractor or its sureties.

8.8 Release of Claims. City may, at any time, require that payment of the undisputed portion of any progress payment or Final Payment be contingent upon Contractor furnishing City with a written waiver and release of all claims against City arising from or related to the portion of Work covered by those undisputed amounts, subject to the limitations of Public Contract Code Section 7100. Any disputed amounts may be specifically excluded from the release.

8.9 Warranty of Title. Contractor warrants that title to all work, materials, or equipment incorporated into the Work and included in a request for payment will pass over to City free of any claims, liens, or encumbrances upon payment to Contractor.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024

CONTRACT BALANCE FORM

CITY MULTI FACILITY SOLAR PROJECT
Note: A detailed invoice MUST be attached to this Contract Balance Form.

CONTRACTOR NAME: ____________________________ DATE: ______________________________ MAILING ADDRESS: ______________________________ TELEPHONE NO.: ____________________ ______________________________ FAX NO.: ___________________________ ______________________________ PROJECT NO.: ______________________ INVOICE NO.: _______________________

1. ORIGINAL CONTRACT AMOUNT: $________

2. APPROVED CHANGE ORDERS TOTAL: $________

3. REVISED CONTRACT AMOUNT: (1+2) $________

4. PREVIOUS BALANCE PAID: $________

5. REMAINING BALANCE: (3-4) $________

6. CURRENT PROGRESS PAYMENT DUE: $________
(before retention)

7. 5% RETENTION FROM WORK DONE: (-)$________

8. CURRENT BALANCE DUE: (6-7) $________

9. REMAINING BALANCE OF REVISED
CONTRACT AMOUNT: (5-8) $________
(including retention)

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
Article 9 - Labor Provisions

9.1 Discrimination Prohibited. Discrimination against any prospective or present employee engaged in the Work on grounds of race, color, ancestry, national origin, ethnicity, religion, sex, sexual orientation, age, disability, or marital status is strictly prohibited. Contractor and its Subcontractors are required to comply with all applicable Laws prohibiting discrimination, including the California Fair Employment and Housing Act (Government Code Section 12900 et seq.), Government Code Section 11135, and Labor Code Sections 1735, 1777.5, 1777.6, and 3077.5.

9.2 Labor Code Requirements.
(A) Eight Hour Day. Pursuant to Labor Code Section 1810, eight hours of labor constitute a legal day’s work under this Contract.
(B) Penalty. Pursuant to Labor Code Section 1813, Contractor will forfeit to City as a penalty, the sum of $25.00 for each day during which a worker employed by Contractor or any Subcontractor is required or permitted to work more than eight hours in any one calendar day or more than 40 hours per calendar week, except if such workers are paid overtime under Labor Code Section 1815. (C) Apprentices. Contractor is responsible for compliance with the requirements governing employment and payment of apprentices, as set forth in Labor Code Section 1777.5, which is fully incorporated by reference. (D) Notices. Pursuant to Labor Code Section 1771.4, Contractor is required to post all job site notices prescribed by Laws.

9.3 Prevailing Wages. Each worker performing Work under this Contract that is covered under Labor Code Sections 1720, 1720.3, or 1720.9, including cleanup at the Project site, must be paid at a rate not less than the prevailing wage as defined in Sections 1771 and 1774 of the Labor Code. The prevailing wage rates are available online at http://www.dir.ca.gov/dlsr. Contractor must post a copy of the applicable prevailing rates at the Project site.
(A) Penalties. Pursuant to Labor Code Section 1775, Contractor and any Subcontractor will forfeit to City as a penalty up to $200.00 for each calendar day, or portion of a day, for each worker paid less than the applicable prevailing wage rate. Contractor must also pay each worker the difference between the applicable prevailing wage rate and the amount actually paid to that worker. (B) Federal Requirements. If this Project is subject to federal prevailing wage requirements in addition to California prevailing wage requirements, Contractor and its Subcontractors are required to pay the higher of the currently applicable state or federal prevailing wage rates.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024

9.4 Payroll Records. Contractor must comply with the provisions of Labor Code Sections 1771.4, 1776, and 1812 and all implementing regulations, which are fully incorporated by this reference, including requirements for electronic submission of payroll records to the DIR.
(A) Contractor and Subcontractor Obligations. Contractor and each Subcontractor must keep accurate payroll records, showing the name, address, social security number, work classification, straight time and overtime hours worked each day and week, and the actual per diem wages paid to each journeyman, apprentice, worker, or other employee employed in connection with the Work. Each payroll record must contain or be verified by a written declaration that it is made under penalty of perjury, stating both of the following:
(1) The information contained in the payroll record is true and correct. (2) Contractor or Subcontractor has complied with the requirements of Labor Code Sections 1771, 1811, and 1815 for any Work performed by its employees on the Project.
(B) Certified Record. A certified copy of an employee’s payroll record must be made available for inspection or furnished to the employee or his or her authorized representative on request, to City, or to the Division of Labor Standards Enforcement, to the Division of Apprenticeship Standards of the DIR, and as further required by the Labor Code.
(C) Enforcement. Upon notice of noncompliance with Labor Code Section 1776, Contractor or Subcontractor has ten days in which to comply with the requirements of this section. If Contractor or Subcontractor fails to do so within the ten-day period, Contractor or Subcontractor will forfeit a penalty of $100.00 per day, or portion of a day, for each worker for whom compliance is required, until strict compliance is achieved. Upon request by the Division of Apprenticeship Standards, or the Division of Labor Standards Enforcement, these penalties will be withheld from payments then due to Contractor.

9.5 Labor Compliance. Pursuant to Labor Code Section 1771.4, the Contract for this Project is subject to compliance monitoring and enforcement by the DIR.

9.6 Wage Theft Prevention. Compliance with Wage and Hour Laws: Contractor, and any subcontractor it employs to complete work under this Agreement, shall comply with all applicable federal, state, and local wage and hour laws. Applicable laws may include, but are not limited to, the Federal Fair Labor Standards Act and the California Labor Code.

Final Judgments, Decisions, and Orders: For purposes of this Section, a “final judgment, decision, or order” refers to one for which all appeals have been

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
exhausted or the time to appeal has expired. Relevant investigatory government agencies include: the federal Department of Labor, the California Division of Labor Standards Enforcement, or any other governmental entity or division tasked with the investigation and enforcement of wage and hour laws.

Prior Judgments against Contractor and/or its Subcontractors: BY SIGNING THIS

AGREEMENT, CONTRACTOR AFFIRMS THAT IT HAS DISCLOSED ANY FINAL

JUDGMENTS, DECISIONS OR ORDERS FROM A COURT OR
INVESTIGATORY GOVERNMENT AGENCY FINDING – IN THE FIVE (5) YEARS PRIOR TO EXECUTING THIS AGREEMENT – THAT CONTRACTOR OR ITS

SUBCONTRACTOR(S) HAS VIOLATED ANY APPLICABLE WAGE AND HOUR LAWS. CONTRACTOR FURTHER AFFIRMS THAT IT OR ITS
SUBCONTRACTOR(S) HAS SATISFIED AND COMPLIED WITH – OR HAS

REACHED AGREEMENT WITH THE CITY REGARDING THE MANNER IN WHICH IT WILL SATISFY – ANY SUCH JUDGMENTS, DECISIONS OR ORDERS.

Judgments or Decisions During Term of Contract: If at any time during the term of this Agreement, a court or investigatory government agency issues a final judgment, decision or order finding that Contractor or an subcontractor it employs to perform work under this Agreement has violated any applicable wage and hour law, or Contractor learns of such a judgment, decision, or order that was not previously disclosed, Contractor shall inform the City Attorney, no more than fifteen (15) days after the judgment, decision or order becomes final or of learning of the final judgment, decision or order. Contractor and its subcontractors shall promptly satisfy and comply with any such judgment, decision, or order, and shall provide the City Attorney with documentary evidence of compliance with the final judgment, decision, or order within five (5) days of satisfying the final judgment, decision, or order. The City reserves the right to require Contractor to enter into an agreement with the City regarding the manner in which any such final judgment, decision, or order will be satisfied.

City’s Right to Withhold Payment: Where Contractor or any subcontractor it employs to perform work under this Agreement has been found in violation of any applicable wage and hour law by a final judgment, decision or order of a court or government agency, the City reserves the right to withhold payment to Contractor until such judgment, decision or order has been satisfied in full.

Material Breach: Failure to comply with any part of this Section constitutes a material breach of this Agreement. Such breach may serve as a basis for immediate termination of this Agreement and/or any other remedies available under this Agreement and/or law.

Notice to City Related to Wage Theft Prevention: Notice provided to the City Attorney as required under this Section shall be addressed to: City Attorney, City of Morgan Hill, 17575 Peak Avenue, Morgan Hill, CA 95037. The Notice provisions

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
of this Section are separate from any other notice provisions in this Agreement and, accordingly, only notice provided to the above address satisfies the notice requirements in this Section.

Article 10 - Safety Provisions

10.1 Safety Precautions and Programs. Contractor and its Subcontractors are fully responsible for safety precautions and programs, and for the safety of persons and property in the performance of the Work. Contractor and its Subcontractors must at all times comply with all applicable health and safety Laws and seek to avoid injury, loss, or damage to persons or property by taking reasonable steps to protect its employees and other persons at any Worksite, materials and equipment stored on or off site, and property at or adjacent to any Worksite. (A) Reporting Requirements. Contractor must immediately notify the City of any death, serious injury or illness resulting from Work on the Project. Contractor must immediately provide a written report to City of each recordable accident or injury occurring at any Worksite within 24 hours of the occurrence. The written report must include: (1) the name and address of the injured or deceased person; (2) the name and address of each employee of Contractor or of any Subcontractor involved in the incident; (3) a detailed description of the incident, including precise location, time, and names and contact information for known witnesses; and (4) a police or first responder report, if applicable. If Contractor is required to file an accident report with a government agency, Contractor will provide a copy of the report to City.
(B) Legal Compliance. Contractor’s safety program must comply with the applicable legal and regulatory requirements. Contractor must provide City with copies of all notices required by Laws.
(C) Contractor’s Obligations. Any damage or loss caused by Contractor arising from the Work which is not insured under property insurance must be promptly remedied by Contractor.
(D) Remedies. If City determines, in its sole discretion, that any part of the Work or Project site is unsafe, City may, without assuming responsibility for Contractor’s safety program, require Contractor or its Subcontractor to cease performance of the Work or to take corrective measures to City’s satisfaction. If Contractor fails to promptly take the required corrective measures, City may perform them and deduct the cost from the Contract Price. Contractor agrees it is not entitled to submit a Claim for damages, for an increase in Contract Price, or for a change in Contract Time based on Contractor’s compliance with City’s request for corrective measures pursuant to this provision.

10.2 Hazardous Materials. Unless otherwise specified in the Contract Documents, this Contract does not include the removal, handling, or disturbance of any asbestos

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
or other Hazardous Materials. If Contractor encounters materials on the Project site that Contractor reasonably believes to be asbestos or other Hazardous Materials, and the asbestos or other Hazardous Materials have not been rendered harmless, Contractor may continue Work in unaffected areas reasonably believed to be safe, but must immediately cease work on the area affected and report the condition to City. No asbestos, asbestos-containing products or other Hazardous Materials may be used in performance of the Work.

10.3 Material Safety. Contractor is solely responsible for complying with Section 5194 of Title 8 of the California Code of Regulations, including by providing information to Contractor’s employees about any hazardous chemicals to which they may be exposed in the course of the Work. A hazard communication program and other forms of warning and training about such exposure must be used. Contractor must also maintain Safety Data Sheets (“SDS”) at the Project site, as required by Law, for materials or substances used or consumed in the performance of the Work.

The SDS will be accessible and available to Contractor’s employees, Subcontractors, and City.
(A) Contractor Obligations. Contractor is solely responsible for the proper delivery, handling, use, storage, removal, and disposal of all materials brought to the Project site and/or used in the performance of the Work. Contractor must notify the Engineer if a specified product or material cannot be used safely. (B) Labeling. Contractor must ensure proper labeling on any material brought onto the Project site so that any persons working with or in the vicinity of the material may be informed as to the identity of the material, any potential hazards, and requirements for proper handling, protections, and disposal.

10.4 Hazardous Condition. Contractor is solely responsible for determining whether a hazardous condition exists or is created during the course of the Work, involving a risk of bodily harm to any person or risk of damage to any property. If a hazardous condition exists or is created, Contractor must take all precautions necessary to address the condition and ensure that the Work progresses safely under the circumstances.

Hazardous conditions may result from, but are not limited to, use of specified materials or equipment, the Work location, the Project site condition, the method of construction, or the way any Work must be performed.

10.5 Emergencies. In an emergency affecting the safety or protection of persons, Work, or property at or adjacent to any Worksite, Contractor must take reasonable and prompt actions to prevent damage, injury, or loss, without prior authorization from the City if, under the circumstances, there is inadequate time to seek prior authorization from the City.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
Article 11 - Completion and Warranty Provisions

11.1 Final Completion.
(A) Final Inspection and Punch List. When the Work required by this Contract is fully performed, Contractor must provide written notification to City requesting final inspection. The Engineer will schedule the date and time for final inspection, which must include Contractor’s primary representative for the Project and its superintendent. Based on that inspection, City will prepare a punch list of any items that are incomplete, missing, defective, incorrectly installed, or otherwise not compliant with the Contract Documents The punch list to Contractor will specify the time by which all of the punch list items must be completed or corrected. The punch list may include City’s estimated cost to complete each punch list item if Contractor fails to do so within the specified time. The omission of any noncompliant item from a punch list will not relieve Contractor from fulfilling all requirements of the Contract Documents. Contractor’s failure to complete any punch list item within the time specified in the punch list will not waive or abridge its warranty obligations for any such items that must be completed by the City or by a third party retained by the City due to Contractor’s failure to timely complete any such outstanding item.
(B) Requirements for Final Completion. Final Completion will be achieved upon completion or correction of all punch list items, as verified by City’s further inspection, and upon satisfaction of all other Contract requirements, including any commissioning required under the Contract Documents, and submission of all final submittals, including instructions and manuals as required under Section 7.10, and complete, final as-built drawings as required under Section 7.11, all to City’s satisfaction.
(C) Acceptance. The Project will be considered accepted upon City Council action during a public meeting to accept the Project, unless the Engineer is authorized to accept the Project, in which case the Project will be considered accepted upon the date of the Engineer’s issuance of a written notice of acceptance. In order to avoid delay of Project close out, the City may elect, acting in its sole discretion, to accept the Project as complete subject to exceptions for punch list items that are not completed within the time specified in the punch list. (D) Final Payment and Release of Retention. Final Payment and release of retention, less any sums withheld pursuant to the provisions of the Contract Documents, will not be made sooner than 35 days after recordation of the notice of completion. If Contractor fails to complete all of the punch list items within the specified time, City may withhold up to 150% of City’s estimated cost to complete each of the remaining items from Final Payment and may use the withheld retention to pay for the costs to self-perform the outstanding items or to retain a third party to complete any such outstanding punch list item.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024

11.2 Warranty.
(A) General. Contractor warrants that all materials and equipment will be new unless otherwise specified, of good quality, in conformance with the Contract Documents, and free from defective workmanship and materials. Contractor further warrants that the Work will be free from material defects not intrinsic in the design or materials required in the Contract Documents. Contractor warrants that materials or items incorporated into the Work comply with the requirements and standards in the Contract Documents, including compliance with Laws, and that any Hazardous Materials encountered or used were handled as required by Laws.

At City’s request, Contractor must furnish satisfactory evidence of the quality and type of materials and equipment furnished. Contractor’s warranty does not extend to damage caused by normal wear and tear, or improper use or maintenance. (B) Warranty Period. Contractor’s warranty must guarantee its Work for a period of one year from the date of Project acceptance (the “Warranty Period”), except when a longer guarantee is provided by a supplier or manufacturer or is required by the Specifications or Special Conditions. Contractor must obtain from its Subcontractors, suppliers, and manufacturers any special or extended warranties required by the Contract Documents.
(C) Warranty Documents. As a condition precedent to Final Completion, Contractor must supply City with all warranty and guarantee documents relevant to equipment and materials incorporated into the Work and guaranteed by their suppliers or manufacturers.
(D) Subcontractors. The warranty obligations in the Contract Documents apply to Work performed by Contractor and its Subcontractors, and Contractor expressly agrees to be co-guarantor of such Work.
(E) Contractor’s Obligations. Upon written notice from City to Contractor of any defect in the Work discovered during the Warranty Period, Contractor or its responsible Subcontractor must promptly correct the defective Work at its own cost. Contractor’s obligation to correct defects discovered during the Warranty Period will continue past the expiration of the Warranty Period as to any defects in Work for which Contractor was notified prior to expiration of the Warranty Period.

Work performed during the Warranty Period (“Warranty Work”) will be subject to the warranty provisions in this Section 11.2 for a one-year period that begins upon completion of such Warranty Work to City’s satisfaction. (F) City’s Remedies. If Contractor or its responsible Subcontractor fails to correct defective Work within ten days following notice by City, or sooner, if required by the circumstances, Contractor expressly agrees that City may correct the defects to conform with the Contract Documents at Contractor’s sole expense.

Contractor must reimburse City for its costs in accordance with subsection (H) below.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(G) Emergency Repairs. In cases of emergency where any delay in correcting defective Work could cause harm, loss or damage, City may immediately correct the defects to conform with the Contract Documents at Contractor’s sole expense.

Contractor or its surety must reimburse City for its costs in accordance with subsection (H), below.
(H) Reimbursement. Contractor must reimburse City for its costs to repair under subsections (F) or (G), above, within 30 days following City’s submission of a demand for payment pursuant to this provision. If City is required to initiate legal action to compel Contractor’s compliance with this provision, and City is the prevailing party in such action, Contractor and its surety are solely responsible for all of City’s attorney’s fees and legal costs expended to enforce Contractor’s warranty obligations herein in addition to any and all costs City incurs to correct the defective Work.

11.3 Use Prior to Final Completion. City reserves the right to occupy or make use of the Project, or any portions of the Project, prior to Final Completion if City has determined that the Project or portion of it is in a condition suitable for the proposed occupation or use, and that it is in its best interest to occupy or make use of the Project, or any portions of it, prior to Final Completion. City will notify Contractor in writing of its intent to occupy or make use of the Project or any portions of the Project, pursuant to this provision.
(A) Non-Waiver. Occupation or use of the Project, in whole or in part, prior to Final Completion will not operate as acceptance of the Work or any portion of it, nor will it operate as a waiver of any of City’s rights or Contractor’s duties pursuant to these Contract Documents, and will not affect nor bear on the determination of the time of substantial completion with respect to any statute of repose pertaining to the time for filing an action for construction defect. (B) City’s Responsibility. City will be responsible for the cost of maintenance and repairs due to normal wear and tear with respect to those portions of the Project that are being occupied or used before Final Completion. The Contract Price or the Contract Time may be adjusted pursuant to the applicable provisions of these Contract Documents if, and only to the extent that, any occupation or use under this Section actually adds to Contractor’s cost or time to complete the Work within the Contract Time.

11.4 Substantial Completion. For purposes of determining “substantial completion” with respect to any statute of repose pertaining to the time for filing an action for construction defect, “substantial completion” is deemed to mean the last date that Contractor or any Subcontractor performs Work on the Project prior to City acceptance of the Project, except for warranty work performed under this Article.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
Article 12 - Dispute Resolution

12.1 Claims. This Article applies to and provides the exclusive procedures for any Claim arising from or related to the Contract or performance of the Work. (A) Definition. “Claim” means a separate demand by Contractor, submitted in writing by registered or certified mail with return receipt requested, for a change in the Contract Time, including a time extension or relief from liquidated damages, or a change in the Contract Price when the demand has previously been submitted to City in accordance with the requirements of the Contract Documents, and which has been rejected or disputed by City, in whole or in part. A Claim may also include that portion of a unilateral Change Order that is disputed by the Contractor. (B) Limitations. A Claim may only include the portion of a previously rejected demand that remains in dispute between Contractor and City. With the exception of any dispute regarding the amount of money actually paid to Contractor as Final Payment, Contractor is not entitled to submit a Claim demanding a change in the Contract Time or the Contract Price, which has not previously been submitted to City in full compliance with Article 5 and Article 6, and subsequently rejected in whole or in part by City.
(C) Scope of Article. This Article is intended to provide the exclusive procedures for submission and resolution of Claims of any amount, and applies in addition to the provisions of Public Contract Code Section 9204 and Sections 20104 et seq., which are incorporated herein by this reference. (E) No Work Delay. Notwithstanding the submission of a Claim or any other dispute between the parties related to the Project or the Contract Documents, Contractor must perform the Work and may not delay or cease Work pending resolution of a Claim or other dispute, but must continue to diligently prosecute the performance and timely completion of the Work, including the Work pertaining to a Claim or other dispute.
(E) Informal Resolution. Contractor will make a good faith effort to informally resolve a dispute before initiating a Claim, preferably by face-to-face meeting between authorized representatives of Contractor and City.

12.2 Claims Submission. The following requirements apply to any Claim subject to this Article:
(A) Substantiation. The Claim must be submitted to City in writing, clearly identified as a “Claim” submitted pursuant to this Article 12, and must include all of the documents necessary to substantiate the Claim including the Change Order request that was rejected in whole or in part, and a copy of City’s written rejection that is in dispute. The Claim must clearly identify and describe the dispute, including relevant references to applicable portions of the Contract Documents,

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
and a chronology of relevant events. Any Claim for additional payment must include a complete, itemized breakdown of all known or estimated labor, materials, taxes, insurance, and subcontract, or other costs. Substantiating documentation such as payroll records, receipts, invoices, or the like, must be submitted in support of each component of claimed cost. Any Claim for an extension of time or delay costs must be substantiated with a schedule analysis and narrative depicting and explaining claimed time impacts. Contractor understands that submission of a Claim which has no basis in fact or which Contractor knows to be false may violate the False Claims Act (Government Code Section 12650 et seq.). (B) Claim Format and Content. A Claim must be submitted in the following format:
(1) Provide a cover letter, specifically identifying the submission as a “Claim” submitted under this Article 12 and specifying the requested remedy (e.g., amount of proposed change to Contract Price and/or change to Contract Time).
(2) Provide a summary of each Claim, including underlying facts and the basis for entitlement, and identify each specific demand at issue, including the specific Change Order request (by number and submittal date), and the date of City's rejection of that demand, in whole or in part. (3) Provide a detailed explanation of each issue in dispute. For multiple issues included within a single Claim or for multiple Claims submitted concurrently, separately number and identify each individual issue or Claim and include the following for each separate issue or Claim:
(a) A succinct statement of the matter in dispute, including Contractor’s position and the basis for that position;
(b) Identify and attach all documents that substantiate the Claim, including relevant provisions of the Contract Documents, RFIs, calculations, and schedule analysis (see subsection (A), Substantiation above);
(c) A chronology of relevant events; and
(d) Analysis and basis for claimed changes to Contract Price, Contract Time, or any other remedy requested.
(4) Provide a summary of issues and corresponding claimed damages. If, by the time of the Claim submission deadline (below), the precise amount of the requested change in the Contract Price or Contract Time is not yet known, Contractor must provide a good faith estimate, including the basis

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
for that estimate, and must identify the date by which it is anticipated that the Claim will be updated to provide final amounts.
(5) Include the following certification, executed by Contractor’s authorized representative:
“The undersigned Contractor certifies under penalty of perjury that its statements and representations in this Claim submittal are true and correct.

Contractor warrants that this Claim submittal is comprehensive and complete as to the matters in dispute, and agrees that any costs, expenses, or delay not included herein are deemed waived.
(C) Submission Deadlines.
(1) A Claim disputing rejection of a request for a change in the Contract Time or Contract Price must be submitted within 15 days following the date that City notified Contractor in writing that a request for a change in the Contract Time or Contract Price, duly submitted in compliance with Article 5 and Article 6, has been rejected in whole or in part. A Claim disputing the terms of a unilateral Change Order must be submitted within 15 days following the date of issuance of the unilateral Change Order. These Claim deadlines apply even if Contractor cannot yet quantify the total amount of any requested change in the Contract Time or Contract Price. If the Contractor cannot quantify those amounts, it must submit an estimate of the amounts claimed pending final determination of the requested remedy by Contractor.
(2) With the exception of any dispute regarding the amount of Final Payment, any Claim must be filed on or before the date of Final Payment, or will be deemed waived.
(3) A Claim disputing the amount of Final Payment must be submitted within 15 days of the effective date of Final Payment, under Section 8.7, Final Payment, above.
(4) Strict compliance with these Claim submission deadlines is necessary to ensure that any dispute may be mitigated as soon as possible, and to facilitate cost-efficient administration of the Project. Any Claim that is not submitted within the specified deadlines will be deemed waived by Contractor.

12.3 City’s Response. City will respond within 45 days of receipt of the Claim with a written statement identifying which portion(s) of the Claim are disputed, unless the 45-day period is extended by mutual agreement of City and Contractor or as otherwise allowed under Public Contract Code Section 9204. However, if City determines that the Claim is not adequately substantiated pursuant to Section

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024

12.2(A), Substantiation, City may first request, in writing, within 30 days of receipt of the Claim, any additional documentation supporting the Claim or relating to defenses to the Claim that City may have against the Claim. (A) Additional Information. If additional information is thereafter required, it may be requested and provided upon mutual agreement of City and Contractor. If Contractor’s Claim is based on estimated amounts, Contractor has a continuing duty to update its Claim as soon as possible with information on actual amounts in order to facilitate prompt and fair resolution of the Claim. (B) Non-Waiver. Any failure by City to respond within the times specified above will not be construed as acceptance of the Claim in whole or in part, or as a waiver of any provision of these Contract Documents.

12.4 Meet and Confer. If Contractor disputes City’s written response, or City fails to respond within the specified time, within 15 days of receipt of City’s response, or within 15 days of City’s failure to respond within the applicable 45-day time period, respectively, Contractor may notify City of the dispute in writing sent by registered or certified mail, return receipt requested and demand an informal conference to meet and confer for settlement of the issues in dispute. If Contractor fails to notify City in writing of the dispute, and demand an informal conference to meet and confer, within the specified time, Contractor’s Claim will be deemed waived. (A) Schedule Meet and Confer. Upon receipt of the demand to meet and confer, City will schedule the meet and confer conference to be held within 30 days, or later if needed to ensure the mutual availability of each of the individuals that each party requires to represent its interests at the meet and confer conference.
(B) Location for Meet and Confer. The meet and confer conference will be scheduled at a location at or near City’s principal office. (C) Written Statement After Meet and Confer. Within ten working days after the meet and confer has concluded, City will issue a written statement identifying which portion(s) of the Claim remain in dispute, if any. (D) Submission to Mediation. If the Claim or any portion remains in dispute following the meet and confer conference, within ten working days after the City issues the written statement identifying any portion(s) of the Claim remaining in dispute, the Contractor may identify in writing disputed portion(s) of the Claim, which will be submitted for mediation, as set forth below.

12.5 Mediation and Government Code Claims.
(A) Mediation. Within ten working days after the City issues the written statement identifying any portion(s) of the Claim remaining in dispute, following

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
the meet and confer, City and Contractor will mutually agree to a mediator, as provided under Public Contract Code Section 9204. Mediation will be scheduled to ensure the mutual availability of the selected mediator and all of the individuals that each party requires to represent its interests. If there are multiple Claims in dispute, the parties may agree to schedule the mediation to address all outstanding Claims at the same time. The parties will share the costs of the mediator and mediation fees equally, but each party is otherwise solely and separately responsible for its own costs to prepare for and participate in the mediation, including costs for its legal counsel or any other consultants. (B) Government Code Claims.
(1) Timely presentation of a Government Code Claim is a condition precedent to filing any legal action based on or arising from the Contract.

Compliance with the Claim submission requirements in this Article 12 is a condition precedent to filing a Government Code Claim.
(2) The time for filing a Government Code Claim will be tolled from the time Contractor submits its written Claim pursuant to Section 12.2, above, until the time that Claim is denied in whole or in part at the conclusion of the meet and confer process, including any period of time used by the meet and confer process. However, if the Claim is submitted to mediation, the time for filing a Government Code Claim will be tolled until conclusion of the mediation, including any continuations, if the Claim is not fully resolved by mutual agreement of the parties during the mediation or any continuation of the mediation.

12.6 Tort Claims. This Article does not apply to tort claims and nothing in this Article is intended nor will be construed to change the time periods for filing tort-based Government Code Claims.

12.7 Arbitration. It is expressly agreed, under Code of Civil Procedure Section 1296, that in any arbitration to resolve a dispute relating to this Contract, the arbitrator’s award must be supported by law and substantial evidence.

12.8 Burden of Proof and Limitations. Contractor bears the burden of proving entitlement to and the amount of any claimed damages. Contractor is not entitled to damages calculated on a total cost basis, but must prove actual damages.

Contractor is not entitled to speculative, special, or consequential damages, including home office overhead or any form of overhead not directly incurred at the Project site or any other Worksite; lost profits; loss of productivity; lost opportunity to work on other projects; diminished bonding capacity; increased cost of financing for the Project; extended capital costs; non-availability of labor, material or equipment due to delays; or any other indirect loss arising from the Contract. The Eichleay Formula or similar formula will not be used for any recovery under the Contract. The City will not be directly liable to any Subcontractor or supplier.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024

12.9 Legal Proceedings. In any legal proceeding that involves enforcement of any requirements of the Contract Documents, the finder of fact will receive detailed instructions on the meaning and operation of the Contract Documents, including conditions, limitations of liability, remedies, claim procedures, and other provisions bearing on the defenses and theories of liability. Detailed findings of fact will be requested to verify enforcement of the Contract Documents. All of the City's remedies under the Contract Documents will be construed as cumulative, and not exclusive, and the City reserves all rights to all remedies available under law or equity as to any dispute arising from or relating to the Contract Documents or performance of the Work.

12.10 Other Disputes. The procedures in this Article 12 will apply to any and all disputes or legal actions, in addition to Claims, arising from or related to this Contract, including disputes regarding suspension or early termination of the Contract, unless and only to the extent that compliance with a procedural requirement is expressly and specifically waived by City. Nothing in this Article is intended to delay suspension or termination under Article 13.

Article 13 - Suspension and Termination

13.1 Suspension for Cause. In addition to all other remedies available to City, if Contractor fails to perform or correct Work in accordance with the Contract Documents, including non-compliance with applicable environmental or health and safety Laws, City may immediately order the Work, or any portion of it, suspended until the circumstances giving rise to the suspension have been eliminated to City’s satisfaction.
(A) Notice of Suspension. Upon receipt of City’s written notice to suspend the Work, in whole or in part, except as otherwise specified in the notice of suspension, Contractor and its Subcontractors must promptly stop Work as specified in the notice of suspension; comply with directions for cleaning and securing the Worksite; and protect the completed and in-progress Work and materials.

Contractor is solely responsible for any damages or loss resulting from its failure to adequately secure and protect the Project.
(B) Resumption of Work. Upon receipt of the City’s written notice to resume the suspended Work, in whole or in part, except as otherwise specified in the notice to resume, Contractor and its Subcontractors must promptly re-mobilize and resume the Work as specified; and within ten days from the date of the notice to resume, Contractor must submit a recovery schedule, prepared in accordance with the Contract Documents, showing how Contractor will complete the Work within the Contract Time.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(C) Failure to Comply. Contractor will not be entitled to an increase in Contract Time or Contract Price for a suspension occasioned by Contractor’s failure to comply with the Contract Documents.
(D) No Duty to Suspend. City’s right to suspend the Work will not give rise to a duty to suspend the Work, and City’s failure to suspend the Work will not constitute a defense to Contractor’s failure to comply with the requirements of the Contract Documents.

13.2 Suspension for Convenience. City reserves the right to suspend, delay, or interrupt the performance of the Work in whole or in part, for a period of time determined to be appropriate for City’s convenience. Upon notice by City pursuant to this provision, Contractor must immediately suspend, delay, or interrupt the Work and secure the Project site as directed by City, except for taking measures to protect completed or in progress Work as directed in the suspension notice, and subject to the provisions of Section 13.1(A) and (B), above. If Contractor submits a timely request for a Change Order in compliance with Articles 5 and 6, the Contract Price and the Contract Time will be equitably adjusted by Change Order pursuant to Articles 5 and 6 to reflect the cost and delay impact occasioned by such suspension for convenience except to the extent that any such impacts were caused by Contractor’s failure to comply with the Contract Documents or the terms of the suspension notice or notice to resume. However, Contract Time will only be extended if the suspension causes or will cause unavoidable delay in Final Completion. If Contractor disputes the terms of a Change Order issued for such equitable adjustment due to suspension for convenience, its sole recourse is to comply with the Claim procedures in Article 12.

13.3 Termination for Default. City may declare that Contractor is in default of the Contract for a material breach of or inability to fully, promptly, or satisfactorily perform its obligations under the Contract.
(A) Default. Events giving rise to a declaration of default include Contractor’s refusal or failure to supply sufficient skilled workers, proper materials, or equipment to perform the Work within the Contract Time; Contractor’s refusal or failure to make prompt payment to its employees, Subcontractors, or suppliers or to correct defective Work or damage; Contractor’s failure to comply with the Laws, or orders of any public agency with jurisdiction over the Project; evidence of Contractor’s bankruptcy, insolvency, or lack of financial capacity to complete the Work as required within the Contract Time; suspension, revocation, or expiration and nonrenewal of Contractor’s license or DIR registration; dissolution, liquidation, reorganization, or other major change in Contractor’s organization, ownership, structure or existence as a business entity; unauthorized assignment of Contractor’s rights or duties under the Contract; or any material breach of the Contract requirements.

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
(B) Notice of Default and Opportunity to Cure. Upon City’s declaration that Contractor is in default, due to a material breach of the Contract Documents, if City determines that the default is curable, City will afford Contractor the opportunity to cure the default within ten days of City’s notice of default, or within a period of time reasonably necessary for such cure, including a shorter period of time if applicable. (C) Termination. If Contractor fails to cure the default or fails to expediently take steps reasonably calculated to cure the default within the time period specified in the notice of default, City may issue written notice to Contractor and its performance bond surety of City’s termination of the Contract for default. (D) Waiver. Time being of the essence in the performance of the Work, if Contractor’s surety fails to arrange for completion of the Work in accordance with the Performance Bond, within seven calendar days from the date of the notice of termination, pursuant to paragraph (C), City may immediately make arrangements for the completion of the Work through use of its own forces, by hiring a replacement contractor, or by any other means that City determines advisable under the circumstances. Contractor and its surety will be jointly and severally liable for any additional cost incurred by City to complete the Work following termination, where “additional cost” means all cost in excess of the cost City would have incurred if Contractor had timely completed Work without the default and termination. In addition, City will have the right to immediate possession and use of any materials, supplies, and equipment procured for the Project and located at the Project site or any Worksite on City property for the purposes of completing the remaining Work.
(E) Compensation. Within 30 days of receipt of updated as-builts, all warranties, manuals, instructions, or other required documents for Work installed to date, and delivery to City of all equipment and materials for the Project for which Contractor has already been compensated, Contractor will be compensated for the Work satisfactorily performed in compliance with the Contract Documents up to the effective date of the termination pursuant to the terms of Article 8, Payment, subject to City’s rights to withhold or deduct sums from payment otherwise due pursuant to Section 8.3, and excluding any costs Contractor incurs as a result of the termination, including any cancellation or restocking charges or fees due to third parties. If Contractor disputes the amount of compensation determined by City, its sole recourse is to comply with the Claim Procedures in Article 12, by submitting a Claim no later than 30 days following notice from City of the total compensation to be paid by City.
(F) Wrongful Termination. If Contractor disputes the termination, its sole recourse is to comply with the Claim procedures in Article 12. If a court of competent jurisdiction or an arbitrator later determines that the termination for default was wrongful, the termination will be deemed to be a termination for convenience, and Contractor’s damages will be strictly limited to the compensation provided for termination for convenience, under Section 13.4, below. Contractor

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
waives any claim for any other damages for wrongful termination including special or consequential damages, lost opportunity costs or lost profits, and any award of damages is subject to Section 12.8, Burden of Proof and Limitations.

13.4 Termination for Convenience. City reserves the right, acting in its sole discretion, to terminate all or part of the Contract for convenience upon written notice to Contractor.
(A) Compensation to Contractor. In the event of City’s termination for convenience, Contractor waives any claim for damages, including for loss of anticipated profits from the Project. The following will constitute full and fair compensation to Contractor, and Contractor will not be entitled to any additional claim or compensation.
(1) Completed Work. The value of its Work satisfactorily performed as of the date notice of termination is received, based on Contractor’s schedule of values and unpaid costs for items delivered to the Project site that were fabricated for incorporation in the Work;
(2) Demobilization. Demobilization costs specified in the schedule of values, or if demobilization costs were not provided in a schedule of values pursuant to Section 8.1, then based on actual, reasonable, and fully documented demobilization costs; and
(3) Termination Markup. Five percent of the total value of the Work performed as of the date of notice of termination including reasonable, actual, and documented costs to comply with the direction in the notice of termination for convenience, and demobilization costs, which is deemed to cover all overhead and profit to date.
(B) Disputes. If Contractor disputes the amount of compensation determined by City pursuant to paragraph (A), above, its sole recourse is to comply with the Claim procedures in Article 12, by submitting a Claim no later than 30 days following notice from City of total compensation to be paid by City.

13.5 Actions Upon Termination for Default or Convenience. The following provisions apply to any termination under this Article, whether for default or convenience, and whether in whole or in part.
(A) General. Upon termination, City may immediately enter upon and take possession of the Project and the Work and all tools, equipment, appliances, materials, and supplies procured or fabricated for the Project. Contractor will transfer title to and deliver all completed Work and all Work in progress to City. (B) Submittals. Unless otherwise specified in the notice of termination, Contractor must immediately submit to City all designs, drawings, as-built

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
drawings, Project records, contracts with vendors and Subcontractors, manufacturer warranties, manuals, and other such submittals or Work-related documents required under the terms of the Contract Documents, including incomplete documents or drafts.
(C) Close Out Requirements. Except as otherwise specified in the notice of termination, Contractor must comply with all of the following:
(1) Immediately stop the Work, except for any Work that must be completed pursuant to the notice of termination and comply with City’s instructions for cessation of labor and securing the Project and any other Worksite(s). (2) Comply with City’s instructions to protect the completed Work and materials, using best efforts to minimize further costs. (3) Contractor must not place further orders or enter into new subcontracts for materials, equipment, services or facilities, except as may be necessary to complete any portion of the Work that is not terminated. (4) As directed in the notice, Contractor must assign to City or cancel existing subcontracts that relate to performance of the terminated Work, subject to any prior rights, if any, of the surety for Contractor’s performance bond, and settle all outstanding liabilities and claims, subject to City’s approval.
(5) As directed in the notice, Contractor must use its best efforts to sell any materials, supplies, or equipment intended solely for the terminated Work in a manner and at market rate prices acceptable to City. (D) Payment Upon Termination. Upon completion of all termination obligations, as specified herein and in the notice of termination, Contractor will submit its request for Final Payment, including any amounts due following termination pursuant to this Article 13. Payment will be made in accordance with the provisions of Article 8, based on the portion of the Work satisfactorily completed, including the close out requirements, and consistent with the previously submitted schedule of values and unit pricing, including demobilization costs.

Adjustments to Final Payment may include deductions for the cost of materials, supplies, or equipment retained by Contractor; payments received for sale of any such materials, supplies, or equipment, less re-stocking fees charged; and as otherwise specified in Section 8.3, Adjustment of Payment Application. (E) Continuing Obligations. Regardless of any Contract termination, Contractor’s obligations for portions of the Work already performed will continue and the provisions of the Contract Documents will remain in effect as to any claim, indemnity obligation, warranties, guarantees, submittals of as-built drawings,

CITY MULTI FACILITY SOLAR PROJECT GENERAL CONDITIONS

Version: June 2024
instructions, or manuals, record maintenance, or other such rights and obligations arising prior to the termination date.

Article 14 - Miscellaneous Provisions

14.1 Assignment of Unfair Business Practice Claims. Under Public Contract Code Section 7103.5, Contractor and its Subcontractors agree to assign to City all rights, title, and interest in and to all causes of action it may have under Section 4 of the Clayton Act (15 U.S.C. Section 15) or under the Cartwright Act (Chapter 2 (commencing with Section 16700) of Part 2 of Division 7 of the Business and Professions Code), arising from purchases of goods, services, or materials pursuant to the Contract or any subcontract. This assignment will be effective at the time City tenders Final Payment to Contractor, without further acknowledgement by the parties.

14.2 Provisions Deemed Inserted. Every provision of law required to be inserted in the Contract Documents is deemed to be inserted, and the Contract Documents will be construed and enforced as though such provision has been included. If it is discovered that through mistake or otherwise that any required provision was not inserted, or not correctly inserted, the Contract Documents will be deemed amended accordingly.

14.3 Waiver. City’s waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of the Contract Documents will not be effective unless it is in writing and signed by City. City’s waiver of any breach, failure, right, or remedy will not be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, nor will any waiver constitute a continuing waiver unless specified in writing by City.

14.4 Titles, Headings, and Groupings. The titles and headings used and the groupings of provisions in the Contract Documents are for convenience only and may not be used in the construction or interpretation of the Contract Documents or relied upon for any other purpose.

14.5 Statutory and Regulatory References. With respect to any amendments to any statutes or regulations referenced in these Contract Documents, the reference is deemed to be the version in effect on the date that bids were due.

14.6 Survival. The provisions that survive termination or expiration of this Contract include Contract Section 11, Notice, and subsections 12.1, 12.2, 12.3, 12.4, 12.5, and 12.6 of Section 12, General Provisions; and the following provisions in these General Conditions: Section 2.2(J), Contractor’s Records, Section 2.3(C), Termination, Section 3.7, Ownership, Section 4.2, Indemnity, Article 12, Dispute Resolution, and Section 11.2, Warranty.

END OF GENERAL CONDITIONS

CITY MULTI FACILITY SOLAR PROJECT SPECIAL CONDITIONS

Version: January 2024

SPECIAL CONDITIONS

1. Design Documents & Shop Drawings. Whenever Design Documents and/or Shop Drawings are required by the Contract Documents or by the Engineer, Contractor must submit five (5) prints of each design document and/or shop drawing to the Engineer.
(A) If three (3) prints of the design documents and/or shop drawings are returned to Contractor marked “NO EXCEPTIONS TAKEN,” further revision of the drawings will not be required. If one (1) print of the drawing is returned to Contractor marked “REVISE AND RESUBMIT,” Contractor must revise the design documents and/or shop drawings and resubmit five (5) copies of the revised drawing to the Engineer. City reserves the right to withhold payment due Contractor to cover additional costs of the Engineer’s review beyond the second submission.
(B) Fabrication of an item may not commence before the Engineer has reviewed the pertinent shop drawings and returned copies to Contractor marked either “NO EXCEPTIONS TAKEN” or “MAKE CORRECTIONS NOTED.”
(C) Revisions indicated on the design documents and/or shop drawings are deemed necessary to meet the existing requirements of the Contract Documents and may not be taken as the basis of claims for extra Work.

Contractor is not entitled to claim for damages or extension of time due to any delay resulting from making the required revisions to shop drawings.

The Engineer’s review of the design documents and/or shop drawings does not relieve Contractor of responsibility for any errors or omissions contained in the design documents and/or shop drawings nor will such review operate to waive or modify any provision contained in the Contract Documents.

2. Equipment. Contractor must provide and use equipment and plants suitable to produce the quality of Work and materials required by the Contract Documents. Contractor may be required to remove equipment which the Engineer deems unsuitable for the Work. Contractor must ensure that equipment is operated by trained, experienced operators, and at a speed or rate of production not to exceed that recommended by the manufacturer. Any vehicles used to haul materials over existing streets and highways must be equipped with pneumatic tires.

3. Emergency Contact. Prior to the commencement of Work on the Project, Contractor must provide contact information to the Engineer for the person designated by Contractor to respond to any emergency that arises on the Worksite during the course of the Project. That person will be responsible

CITY MULTI FACILITY SOLAR PROJECT SPECIAL CONDITIONS

Version: January 2024
for responding to the Worksite within thirty (30) minutes following notification of an emergency by City’s Police or Fire Department, regardless of the time of day.

4. Authorized Work Days and Hours.
(A) Authorized Work Days. Except as expressly authorized in writing by City, Contractor is limited to performing Work on the Project on the following days of the week, excluding holidays observed by City:

Monday - Friday
(B) Authorized Work Hours. Except as expressly authorized in writing by City, Contractor is limited to performing Work on the Project during the following hours:
7:00am to 5:00pm

5. Pre-Construction Conference. City will designate a date and time for a pre-construction conference with Contractor following Contract execution.

Project administration procedures and coordination between City and Contractor will be discussed, and Contractor must present City with the following information or documents at the meeting for City’s review and acceptance before the Work commences:

5.1 Name, 24-hour contact information, and qualifications of the proposed on-site superintendent;

5.2 List of all key Project personnel and their complete contact information, including email addresses and telephone numbers during regular hours and after hours;

5.3 Staging plans that identify the sequence of the Work, including any phases and alternative sequences or phases, with the goal of minimizing the impacts on residents, businesses, and other operations in the Project vicinity;

5.4 If required, traffic control plans associated with the staging plans that are signed and stamped by a licensed traffic engineer;

5.5 Draft baseline schedule for the Work as required under Section 5.2 of the General Conditions, to be finalized within ten days after City issues the Notice to Proceed;

5.6 Breakdown of lump sum bid items, to be used for determining the value of Work completed for future progress payments to Contractor;

CITY MULTI FACILITY SOLAR PROJECT SPECIAL CONDITIONS

Version: January 2024

5.7 Schedule with list of Project submittals that require City review, and list of the proposed material suppliers;

5.8 Plan for coordination with affected utility owner(s) and compliance with any related permit requirements;

5.9 Videotape and photographs recording the conditions throughout the pre-construction Project site, showing the existing improvements and current condition of the curbs, gutters, sidewalks, signs, landscaping, streetlights, structures near the Project such as building faces, canopies, shades and fences, and any other features within the Project area limits;

5.10 If requested by City, Contractor’s cash flow projections; and

5.11 Any other documents specified in the Special Conditions or Notice of Award.

6. Weather Delay Days. This provision is intended to supplement the requirements of General Conditions Section 5.2 on Schedule Requirements and Section 5.3 on Delays and Extensions of Contract Time. (A) Weather Delay Day. A Weather Delay Day is a Working Day during which Contractor and its forces, including Subcontractors, are unable to perform more than forty percent (40%) of the critical path Work scheduled for that day due to adverse weather conditions which impair the ability to safely or effectively perform the scheduled critical path Work that day.

Adverse weather conditions may include rain, saturated soil, and Worksite clean-up required due to adverse weather. Determination of what constitutes critical path Work scheduled for that day will be based on the most current, City-approved schedule.
(B) Normal Weather Delay Days. Based on historic records for the Project location, Contractor’s schedule should assume the following number of normal Weather Delay Days for each month:

Month # Normal Weather
Delay Days
January 11
February 11
March 10
April 6
May 4
June 2
July 1
August 1

CITY MULTI FACILITY SOLAR PROJECT SPECIAL CONDITIONS

Version: January 2024
September 1
October 4
November 7
December 10
Weather Delay Days which do not occur during a given month based on the number of days allocated for that month (above) do not carry over to another month.

END OF SPECIAL CONDITIONS

Section 2 – Scope of Work Overview 4 Confidential and Proprietary Energy Services Proposal/Scope
Section 1 – Scope of Work Overview

1.1. Energy Conservation Measure (ECM) Summary
For detailed descriptions of the scope of work, please refer to Section 2 – ECM Descriptions and Detailed Scope of Work.

1.1.1. Savings by ECM
The following table depicts cost savings and emissions reductions per proposed ECM.

ECM # ECM Description
Electric
Savings
($/yr)
Emissions
Savings
(mtCO2/yr)

11.01 Install Solar PV System $530,770 302
Total 2 $530,770 302
For comparison, 302 metric tons of Carbon Dioxide (CO2) equivalent to greenhouse gas emissions from:
2 Projected energy reduction and cost avoidance figures are calculated based upon existing building occupancy, operation, and stipulated assumptions of performance. All calculations are based upon industry best practices and methodologies.

71.6 Gasoline-Powered
Vehicles Driven for
One Year
33,870
Gallons of Gasoline
Consumed
331,724
Pounds of Coal
Burned

59.4 Homes' Energy Use
for One Year

Section 2 – Scope of Work Overview 5 Confidential and Proprietary

1.1.2. Savings by Site
The following table displays the description of energy savings per proposed site.

Site Name
Elec
Savings
(kWh/yr)
Elec Cost
Savings
($/yr)
Aquatics Center 354,078 $111,154
Sports Well 149,700 $64,399
City Hall Complex 230,562 $97,046
Community & Cultural Center 288,229 $104,130
Corp Yard 140,802 $53,265
Police HQ 186,282 $56,195
Nordstrom Well 135,565 $44,579
Total 1,482,308 $ 530,770
The projected energy reduction and cost avoidance figures were calculated based upon existing building occupancy, operation, and stipulated assumptions of performance. Legacy utility billing was derived from citygenerated reports and data provided directly by Pacific Gas & Electric (PG&E). All calculations are based on industry best practices and methodologies.

Section 3 – ECM Descriptions & Detailed Scope of Work 6 Confidential and Proprietary

1.2. Clarifications and Exclusions

1.2.1. Clarifications
• Electrical work requiring an electrical shut down shall be installed outside of operational hours of the specific facility impacted. This work will be coordinated with the City to minimize the impact. City shall not unreasonably withhold approval of this work with provision of advance notice. The Morgan Hill Police Department is a 24 hour facility and any shut downs will require a minimum of 2 weeks advance notice. Any scheduled shut down at the Police Department may be cancelled without notice in the event of emergency need.
• SES will work closely with City staff to identify any areas that may require after-hours work. SES will review the project schedule with City staff to ensure mutual agreement is reachedregarding site access and City-approved work in occupied spaces.
• The City shall provide all required static IP addresses and ethernet drops for equipmentwhere applicable and required.
• The City shall provide a laydown and storage area during the construction period. • It is assumed that the electrical circuit breakers and disconnects are working in good order and are fully functional.
• The City shall provide electrical power to operate electrical construction tools andequipment. • It is assumed proper grounding exists for all electrical equipment. • The City will provide our team with two (2) sets of facility keys during the construction period for each facility.

For the Morgan Hill Police Department access to necessary areas will be coordinated through the Police Department.
• Assumed that City will perform all necessary tree work a minimum of 4 weeks prior to the startof installation of carport/shade structure columns. Details of timing will be finalized once a Preliminary Schedule is agreed upon.

1.2.2. Exclusions
• Provision of temporary heating, cooling, fans, and domestic water. • Any repair work for existing systems beyond that which is stated in the project scope of work, or resolving existing code violations. All existing equipment is assumed to be in good working order and meet code. • Fire and life safety system programming or relatedwork. • ADA improvements for carportshade structures.
• Tree removal, trimming or relocation.
• Electric Vehicle Charging stations, infrastructure, installation, or any other requirements related charging infrastructure.
• Hazardous material abatement.

Section 3 – ECM Descriptions & Detailed Scope of Work 7 Confidential and Proprietary Section 2 – ECM Descriptions & Detailed Scope of Work

2.1. Introduction
The following section is a detailed description of each proposed solar PV array. Each description includes the existing and proposed conditions, planned scope of work, and any impacts to operations and/or maintenance.

Solar ECMs
ECM 11.01 – Solar Photovoltaic System (Solar PV)
Existing Conditions and General Intent
The designs of the new solar arrays were developed to offset as much of the City’s overall electricity use and costs from PG&E and Silicon Valley Clean Energy (SVCE) as feasible, taking into consideration the most ideal locations and beneficial use of the systems by the City. Equipment location, identification, and selection is the result of our detailed review of the sites, the City’s building plans, specifications, physical equipment arrangements, and discussions with City staff.

These new solar PV arrays are intended to reduce the annual true-up energy consumption and cost relative to the PG&E and Silicon Valley Clean Energy bills. This will help the City to become less dependent on grid purchased electricity via local power generation and reduce the City's overall carbon footprint.

This project will design, furnish, and install new solar PV carport shade structures at six (6) sites and a shade structure at (1) site. These new systems will bring each site closer to a net zero energy balance relative to the grid-purchased electrical energy.

A separate service agreement with Syserco Energy Solutions, Inc. (SES) will be provided for ongoing monitoring services for the new arrays being installed.

Solar Benefits
The benefit to the City is a reduced electrical need by providing on-site solar production to offset the volume of electrical energy purchased from the grid.

Site Details
Site Name
Nominal
Array Size
(kW_DC)
Mounting
Type
Aquatics Center 225.9 Car Port
Sports Well 97.9 Car Port
City Hall Complex 151.8 Car Port
Community & Cultural Center 186.3 Car Port
Corp Yard 93.1 Car Port
Police HQ 119.0 Car Port
Nordstrom Well 93.1 Shade Structure
Total 967.1
The following images show the proposed location of the solar arrays with blue rectangles and the electrical point of interconnection with a red box.

Section 3 – ECM Descriptions & Detailed Scope of Work 8 Confidential and Proprietary Aquatics Center – 225.9 kW_DC– Car Port
Sports Well – 97.9 kW_DC– Car Port

Section 3 – ECM Descriptions & Detailed Scope of Work 9 Confidential and Proprietary City Hall Complex – 151.8 kW_DC – Car Port
Community & Cultural Center – 186.3 kW_DC– Car Port

Section 3 – ECM Descriptions & Detailed Scope of Work 10 Confidential and Proprietary Corp Yard – 93.1 kW_DC– Car Port
Police HQ – 119.0 kW_DC – Car Port

Section 3 – ECM Descriptions & Detailed Scope of Work 11 Confidential and Proprietary Nordstrom Well – 93.1 kW_DC – Shade Structure

Section 3 – ECM Descriptions & Detailed Scope of Work 12 Confidential and Proprietary Assumed Conditions

1. All field craft labor will comply with prevailing wage requirements, current CaliforniaDepartment of Industrial Relations (DIR), and Federal Investment Tax Credit / Inflation Reduction Act requirements.

2. The City shall provide all IT support required for the installation of solar PV and interface systems for this project.

3. All structural engineering related to the support of equipment as identified is included.All structural work related to the construction of the canopy structure isincluded.

4. All permit drawings required for the execution of the work are included.

5. The City shall provide electrical power to operate electrical construction tools andequipment.

6. Pricing is based on a single-mobilization project, multiple phases or extensions to schedulemay constitute a change in scope and projectschedule.

Customer Furnished/Performed Items

1. All as built drawings or site-specific information available to the City necessary to effectively design, engineer and construct the renewable energy solution including but not limited to past site plans, all existing utilities (including irrigation infrastructure), permits for past work,etc.

2. Water as needed to complete the work. Construction services and, if it is required bythe authority having jurisdiction, to fill any fire safety watertanks.

3. Provide and maintain a suitable good-weather site access road that will accommodateheavy vehicles, deliveries, and service vehicles. SES has determined that existing conditions meet these criteria as of June 19, 2024.

4. Provide mutually acceptable construction staging and storage area(s) adjacent to project sites throughout the construction phase.

5. Provide unrestricted access to the Site during construction Monday through Friday including hours (7:00 am – 5:00 pm). Reasonable access to sites during non-regular hours as needed.

6. Lab of Record (LOR), Inspector of Record (IOR), and specialinspections.

Section 3 – ECM Descriptions & Detailed Scope of Work 13 Confidential and Proprietary Design Phase

1. The solar PV schematic design aims to meet the targeted electrical production outlined in the City approved in this scope of work. The design plans will be based on technical documents developed for each site.It will be based on accurate and detailed modeling of system production and consideration of shading analysis or other site constraints using industry-standard tools. The design plans will include sufficient detail to analyze and discuss critical design decisions and the system layout will only utilize areas identified by the City for use.

2. Design development and complete construction drawings of the solar PV and all ancillary work required for permitting and construction will be provided by SES. Drawings shall fully describe all aspects of the construction work including fencing, directional boring/trenching, excavations, racking and mounting systems, electrical systems, signage, foundations, lighting, Americans with Disabilities Act (ADA) requirements, etc. SES will provide electrical, structural, and all other required California licensed engineers and/or architects (Engineers of Record and Architect of Record) to provide a complete, stamped design set as required to permit and construct a complete energy project submittal for the authority having jurisdiction (AHJ). The electrical construction drawings shall show and include all conduits below and above the finished grade/finish. All plans and specifications must meet the approval of AHJ, the City, the City’s representative, the local Fire Authority, and any other agency deemed as having jurisdiction over this project.

3. All designs shall identify and specify equipment meeting industry standards. Manufacturers and equipment types specified shall have an established background of successful use within similar sized installations.

4. SES shall submit Building Permit Application cover sheet by 6.28.23. This application shall be submitted prior to Notice to Proceed if necessary based on existing design development work.

5. Designs shall replace existing lighting with under canopy lighting providing levels equivalent or exceeding the current lighting levels at the sites.

6. Designs shall ensure no net loss of parking spaces in sites with public parking lots.

7. Designs shall incorporate all existing conditions and existing utilities and be developed to ensure that no additional costs are incurred by the City to alter existing conditions.

8. Designs shall ensure that existing conditions outside the improvements specified in this section are restored to pre-existing conditions.

9. SES shall be responsible for submission of all applicable permits associated with the project. City shall pay directly for City building permit costs. Any non-City permit costs shall be the responsibility of SES.

Section 3 – ECM Descriptions & Detailed Scope of Work 14 Confidential and Proprietary Construction Phase

1. SES will provide and install the following:
a. PV racking
b. PV modules
c. PV inverters
d. Balance of Systemcomponents
e. Attachments/Foundations
f. Data collection and online monitoring system with a five (5) year monitoring service subscription, a five (5) year cellular service plan, and inputs such as irradiance, panel temperature, ambient temperature, and utility grade production. g. Interconnection work includes connection of systemsto utility grid at the main switchboard of each site.

2. SES will provide the utility Interconnection Application (IA), process management, materials,and coordination for inspection from the local utility. The IA process includes a utility application review phase.

3. SES’ project manager will be assigned for the duration of the project through final completion. Regular coordination meetings (via conference calls or on-site visits) will be facilitated by the project manager.

The assigned project manager will create a project schedule with a City representative utilizing project constraints and information revealed during due diligence activities within the design and engineering phase.

The project schedule will include these phases sequentially:
a. Design, engineering, interconnection application phase. b. Permitting phase.
c. Procurementphase.
d. Constructionphase.
e. Commissioningphase.
f. Close-out phase.

4. SES will coordinate with and support scheduled inspectors representing the City, City’s team, and their consultants during design, construction, commissioning, and close-out.

5. SES is responsible for and will address new lighting, soft scape modifications that are required for the installation of the energy projects.

6. All work assumes normal subsurface and digging conditions. The City acknowledges that SES has not yet performed subsurface due diligence or a geotechnical engineering analysis and therefore makes no representation of knowing the impact of the results of the geotechnical study upon the scope, cost, or schedule of the proposed project. If, prior to the completion of the Design Phaseany of the sites are deemed to be infeasible in commercially reasonable discretion of the City after consultation with SES, such site shall be removed from the portfolio and the total Fixed Price shall be adjusted based on the size of the balance of the portfolio through a deductive contract change order.

Section 3 – ECM Descriptions & Detailed Scope of Work 15 Confidential and Proprietary

7. SES shall be responsible for restoring all facilities to existing conditions outside of the improvements specified.

8. SES will perform project commissioning including all associated tasks.

9. Final energy system as-built construction documents clearly conformed with all changes during construction shall be provided.

10. SES will provide a comprehensive set of closeout documents, including O&M manuals for each installed system.

11. SES will conduct training for City staff including orientation to the O&M manuals, systems,and safety procedures.

12. SES will secure laydown and storage facilities at the job site for all racking materials, energy system equipment, and supplies including any requiredsecurity.

13. SES will provide legal toilets and handwashing facilities at job sites.

14. SES will provide a SWPPP (stormwater pollution prevention plan) for each site.

15. SES will perform daily cleanup to “broom clean” conditions.

16. SES will return any disturbed areas to pre-construction conditions including repair of all pavement/concrete, landscape restoration, irrigation restoration, equipment track marks, and scuffs on finished concrete surfaces.

17. SES will provide project closeout, inclusive of obtaining AHJ final inspection and closeout.

18. As needed, SES will provide temporary lighting until under-canopy lighting is fullyoperational.

19. SES shall prepare and provide all necessary material and documentation for the application of the Inflation Reduction Act Tax Credit. City shall be responsible for submitting the final documentation.

Section 3 – ECM Descriptions & Detailed Scope of Work 16 Confidential and Proprietary Exclusions

1. ADA Upgrades.

2. Any upgrades determined after due diligence after Contract Effective Date by the AOR willbe managed through the process laid out in the contractual documents.

3. Engineering, installation, and maintenance of permanent stormwater facilities and features if required, which includes the best management practice mitigations including butnot limited to riprap, basins, inlet structures, and down inlet protections.

4. Multiple mobilizations, accept relating to weather delays and delays caused by SES.

5. Environmental engineering and/or any environmental/biologicalremediation.

6. Floodplain engineering and/or any alterations to site and materials to accommodate floodplains.

7. Service upgrades, electrical service equipment, or new services.

8. Changes to project design and implementation required to accommodate easements and/or rights of way not listed in the scope of work.

9. Environmental assessment, environmental impact reports, testing, and other reports not listed in the scope of work.

10. Any design or engineering related to flood plains and/or FEMA high-hazard floodplains.

11. Relocation and/or removal of any existing utilities (active or abandoned), inclusive ofwater, electricity, communication, data, cable TV, security systems, etc. Relocation and repair of irrigation on association with installation of foundations is not excluded from costs.

12. Hazardous material surveys, testing, and/or monitoring.

13. Removal and/or disposal of any hazardous or contaminatedmaterials.

14. Rock excavation and drilling.

15. Soft soilstabilization.

16. Dewatering drilled foundations and sleeving offoundations.

17. Removal/disposal of pre-existing on-site trash and/or debris (inclusive of encountered underground or excavated trash or debris).

18. Arc Fault Hazard Assessment.

19. Overcurrent Protection Coordination Studies.

20. Lab of Record (LOR), Inspector of Record (IOR), and special inspections.

CITY MULTI FACILITY SOLAR PROJECT Energy Services Proposal/Scope

Section 4 – Project Financials

4.1. Items Included in Project Cost
Project costs include:

1. Engineering audit/project development including the cost for preparation of this proposal.

2. Engineering design

3. Construction/project management and site supervisor services.

4. Installation of equipment as specified in the scope of work:
a. All costs will be paid by SES for the installation of the equipment. This includes costs paid to subcontractors, team member reimbursements, or otherwise as it relates to the installation or system verification of equipment. b. Cost of all equipment, materials, supplies, and equipment incorporated in the scope of work, including costs of transportation thereof. i. Cost or rental chargesincluding transportation and maintenance, of all materials,supplies, equipment, temporary facilities, and hand tools not owned by the workers.
ii. Cost of premiums for all bonds andinsurance.
iii. Demolition cost and cost of removal of alldebris.
iv. Cost of equipment startup, training, system verification, and balancing performed by SES.

5. Mobilization, project development, and engineering fee:
a. Invoices shall be made per the contract, the engineering and mobilization phases shall account for 25% of the total project value. Mobilization costs shall not be paid until after mobilization occurs.

RESOLUTION NO. 24-_____

A RESOLUTION OF THE CITY COUNCIL OF THE CITY

OF MORGAN HILL MAKING FINDINGS ON AN ENERGY

SERVICES CONTRACT FOR AN ENERGY EFFICIENCY

PROJECT REQUIRED UNDER CALIFORNIA
GOVERNMENT CODE SECTION 4217.10 ET SEQ. AND

AUTHORIZING AN ENERGY SERVICES CONTRACT
WHEREAS, California Government Code section 4217.12 permits the City to enter directly into an energy services contract to design and construct energy conservation facilities if the City Council finds at a regularly scheduled public hearing noticed at least two weeks in advance that “the anticipated cost to the public agency for thermal or electrical energy or conservation services provided by the energy conservation facility under the contract will be less than the anticipated marginal cost to the public agency of thermal, electrical, or other energy that would have been consumed by the public agency in the absence of those purchases”; WHEREAS, the City signed a letter of intent with Syserco Energy Solutions, Inc. to evaluate a project to install solar photovoltaic installations at seven City owned facilities; WHEREAS, the project will effectively reduce electrical costs and help reduce greenhouse gas emissions associated with the production of electricity from conventional power plants; WHEREAS, Syserco Energy Solutions has provided the City with analysis showing the benefits of implementing the project, and the analysis is included in the staff report associated with this resolution;
WHEREAS, City staff has determined that the cost of energy after completion of the project will be less than the cost of energy that would have otherwise been without this project, and that therefore, this project can be accomplished under the authority of California Government Code 4217;
WHEREAS, the City proposes to enter into an Energy Services Contract for the design and construction of solar photovoltaic systems at seven locations within the City for compensation not to exceed $7,583,500;
WHEREAS, in accordance with Government Code section 4217.10 et seq., not less than fourteen days before the meeting where this Resolution was considered, the City posted notice of a public hearing at which the City Council would consider this Resolution.

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MORGAN HILL DOES HEREBY FIND, DETERMINE, RESOLVE AND ORDER AS FOLLOWS:

Section 1. Energy Savings Finding (Gov. Code, § 4217.12) In accordance with Section 4217.12, and based on data provided by the energy analysis, the City Council finds that the anticipated cost to the City for electrical energy and conservation services provided by the Energy

City of Morgan Hill
Resolution No. 224-_____

Improvements will be less than the anticipated marginal cost to the City of electrical and other energy that would have been consumed by the City in the absence of the project.

Section 2. Approval of Energy Services Contract. The City Council hereby authorizes the City Manager to enter into the Energy Services Contract with Syserco Energy Solutions, Inc., in accordance with Section 4217.12.

PASSED, APPROVED, AND ADOPTED by the City Council of the City of Morgan Hill at its meeting held on this 26th day of June 2024 by the following vote:

AYES: COUNCIL MEMBERS: None
NOES: COUNCIL MEMBERS: None
ABSTAIN: COUNCIL MEMBERS: None
ABSENT: COUNCIL MEMBERS: None
APPROVED: ATTEST:
___________________________________ _______________________________ MARK TURNER, Mayor MICHELLE BIGELOW, City Clerk
 CERTIFICATION 
I, Michelle Bigelow, City Clerk of the City of Morgan Hill, California, do hereby certify that the foregoing is a true and correct copy of Resolution No. 24-_____ adopted by the City Council at the meeting held on the 26th day of June 2024.

WITNESS MY HAND AND THE SEAL OF THE CITY OF MORGAN HILL.

DATE: _____________________ ___________________________________ MICHELLE BIGELOW, City Clerk

Citywide Solar Projects
Tree Impacts by Location
Civic Center
Community and Cultural Center
Morgan Hill Police Department
10 American Elm Trees
City will attempt to relocate all 10 trees
on site at the Civic Center. If relocation
of any trees fails, new trees shall be
replanted.

Additional tree trimming of other trees
may be required.
3 Ornamental Pear Trees
Trees will be replaced on site with new
trees.

Additional tree trimming of other trees
may be required.
14 Marina Arbutus Trees
1 Oak Tree
Trees will be replaced off site at a City
park with new trees. These trees are
remnant property line trees from prior
to the City owning the gravel lot. For
efficient and effective use of the site
the staff is not recommending they be
replaced on site.

Aquatics Center
Outdoor Sports Center/San Pedro Well
Nordstrom Park/Nordstrom Well
Corporation Yard – No Tree removals
9 Sawtooth Zelkova Trees
City will attempt to relocate all 9 trees
to the adjacent Outdoor Sports Center.

If relocation of any trees fails, new trees
shall be replanted.

Additional tree trimming of other trees
may be required.
4 Eastern Redbud Trees
City will attempt to relocate all 4 trees
to the adjacent Outdoor Sports Center.

If relocation of any trees fails, new trees
shall be replanted.

Additional tree trimming of other trees
may be required.
9 Ornamental Pear Trees
3 London Plane Trees
City will attempt to relocate all 12 trees
to the adjacent Outdoor Sports Center.

If relocation of any trees fails, new trees
shall be replanted.

Additional tree trimming of other trees
may be required.

11 CITY COUNCIL STAFF REPORT
MEETING DATE: June 26, 2024
PREPARED BY:

Matt Mahood, Economic Development Director
APPROVED BY: City Manager

AUTHORIZE THE CITY MANAGER TO ENTER INTO AN AGREEMENT

WITH HOTEL MOHI BY APPELLATION FOR A TRANSIENT

OCCUPANCY TAX AND SALES TAX SHARING AGREEMENT

RECOMMENDATION(S)
Authorize the City Manager to prepare and execute a Transient Occupancy Tax (TOT) and Sales Tax Sharing Agreement for the Hotel MOHI by Appellation project based on the Draft Deal Points as memorialized by KMA.

COUNCIL PRIORITIES, GOALS & STRATEGIES
City Council Ongoing Priorities
Enhancing Public Safety
Maintaining and Enhancing Infrastructure
2024-2025 Strategic Priorities
Fiscal Sustainability
Economic Development and Tourism
Guiding Documents
Economic Blueprint
Morgan Hill 2035 General Plan
REPORT NARRATIVE:

Policy Consideration
Should the City of Morgan Hill provide a Transient Occupancy Tax (TOT) and Sales Tax Sharing Agreement to support the upgrade of the hotel brand and the range of offerings of the Downtown boutique hotel to increase the City's share of TOT and Sales Tax revenue?
Background:

The City of Morgan Hill's 2017 Economic Blueprint identifies tourism as one of four key industries the City should prioritize to further economic development opportunities.

During the 2024 City Council Goal Setting Session, the Council added tourism to the Economic Development Strategic Priority within the City's 2024-25 Sustainable Morgan Hill Strategic Priorities to strengthen the City's focus on supporting efforts that advance the City's goals for tourism.

11 Hotel Inventory & Future Product Development
One of the most substantial impacts the City can have on positively impacting its tourism strategy is to grow and diversify its lodging options both in quality and quantity.

Currently, the City of Morgan Hill does not have a full-service hotel. A full-service hotel is a mid-priced, upscale, or luxury hotel with a wide range of amenities, including (a) restaurant(s), meeting spaces, and, in some cases, exercise rooms, spas, and concierge service. Full-service hotels generally offer food and beverage services, special events, and minimum service levels like valet parking, bell service, and room service. Most of the existing hotel inventory is older and needs re-investment. Currently, the City of Morgan Hill is losing corporate, group, and leisure travelers to nearby cities due to the lack of a full-service hotel or the lack of high-quality and newer hotel products. These travelers often stay at full-service hotels in San Jose, Los Gatos, Palo Alto, or the Monterey Peninsula.

Economic Conditions
Before the COVID-19 pandemic, the City of Morgan Hill hotel industry was experiencing record occupancy and solid average daily revenue (ADR) rates. However, while leisure travel has experienced a significant rebound post-pandemic, the business travel sector, which the City of Morgan Hill and the greater Silicon Valley has historically benefited from, has not rebounded as quickly. More importantly, post-pandemic, the costs of new hotel construction have skyrocketed. The cost of materials, labor, supply chain issues, and high interest rates all make the construction of a new hotel increasingly difficult.

Many hotel projects have seen their construction costs increase 30 to 40 percent, making it difficult for projects to secure lines of credit and bank financing. At least three (3) very high-profile, well-financed developers have delayed plans to build new fullservice hotels in Cupertino and Santa Clara until the economic conditions improve. To support hotel development, in 2022, the City created a Hotel Incentive Policy (HIP) that allows the City to use hotel revenue to incentivize new hotel development and/or upgrade existing hotels to more upscale brands. The HIP offersfor a hotel rebate program for up to 50% of the costs associated with offsite/public improvements such as roadways, sidewalks, utility undergrounding, and other offsite improvements required for a new hotel in a greenfield development. During the development of the HIP, the City Council encouraged City staff to pursue full-service hotel development. The opportunity with Appellation furthers the Council's direction and provides for the development of a full-service luxury hotel brand.

Hotel MOHI Project History and Status
In 2016, Downtown Boutique Hotel developer and owner Frank Leal (Developer) received a Design Permit and a Conditional Use Permit approval from the Planning Commission for a 60-room Downtown Hotel. The approvals included a new 67,940 square foot, four-story building with restaurants, bars, retail, banquet hall, and a hotel lobby with guest rooms, services including valet parking and amenities. The Conditional Use Permit allows for an outdoor green event space, banquet rooms, and ancillary prep kitchens with one main kitchen to serve the hotel. The hotel also included a pool with an outdoor lounge area. The City Council approved the project on May 18, 2016, and construction commenced in March 2019.

11 In March 2020, the COVID-19 pandemic halted construction and decimated the hospitality and lodging industries. The project, which completed all underground and utility work and two floors of foundation work, became a popular pop-up restaurant while the developer pursued additional construction financing. To complete the project, the developer requested the addition of a partial fifth story to gain an additional thirteen (13) new guest rooms.

On November 15, 2022, the City Council approved a Zoning Map Amendment allowing for the additional 5th floor. As a condition of approval, the City required the developer to enter into a Memorandum of Understanding (MOU) to further define the parties' expectations, parameters, and project timeline moving forward, including commencement of construction and completion of the hotel rooms. To date, the conditions of the MOU have been met, and the project is back under construction. It is important to note that the hotel and restaurant project, initially budgeted to cost $16 million in 2016, went up to $40 million by 2022 and is now expected to cost over $75 million. This represents an increase of over 87% in total development costs since 2022.

Due to the current economic environment, the rising costs of construction, and the state of the capital markets – the subject property is at risk of meeting the levels of investment metrics required to successfully achieve full capitalization and completion of development.

Opportunity
While the construction costs have increased significantly, the developer is committed to meeting the terms of the MOU and completing the hotel rooms by December 2025. The purpose of this staff report is to present the City Council with a unique opportunity to partner with the developer to attract the investment and partnership of a hotel and restaurant brand that will elevate the Downtown hotel, increase projected TOT and Sales Tax revenue, and cement the City's place branding as a tourist destination.

For several years, the City's Economic Development team has been pursuing brands that would increase the City's profile on the culinary and hospitality front. Charlie Palmer is one of these brands. Charlie Palmer is an American chef, hospitality entrepreneur, hotelier, and author. He is best known for Aureole, his flagship restaurant in New York City, which earned 13 Michelin stars and two James Beard awards. Chef Palmer is credited with having earned over 20 Michelin stars. Charlie Palmer and Christopher Hunsberger are co-founders of Appellation Hospitality. Chef Palmer and Mr.

Hunsberger started working together on their first hotel 20 years ago and, after five dozen hotels, have launched the Appellation Hospitality brand, which is focused on culinary excellence with access to world-class artisans and offering an accessible luxury experience with a sense of place and community.

There is a unique opportunity to support the union of Hotel MOHI with Appellation Hospitality to upgrade the Downtown Boutique Hotel offerings with an upgrade in brand and recognition with a world-renowned chef, create a state-of-the-art restaurant in Downtown Morgan Hill, and upgrade the lodging experience. The developer has negotiated with Charlie Palmer and the Appellation Hospitality Group and has

11 collectively identified a unique opportunity to re-brand and upgrade Hotel MOHI to Hotel MOHI by Appellation. The new hotel development group has approached the City with the opportunity to support this project that will benefit the City in name recognition, revenue, and amenities. The project requires financial assistance in the form of a TOT and Sales Tax Sharing Agreement to support the increased costs--some of which are directly associated with the upgrade and build-out required by the Appellation Hospitality group. To evaluate the opportunity, the City engaged the services of Keyser Marston Associates, Inc. (KMA), a financial consultancy firm.

Hotel MOHI by Appellation Scope

1. An approximately 76-room boutique hotel (assumes 3 more rooms than currently designed);

2. Food and beverage service areas totaling approximately 14,000 square feet of gross building area (GBA);

3. Event space totaling approximately 11,000 square feet of GBA;

4. An approximately 2,100 square foot spa; and

5. A swimming pool and pool deck area.

Project Review
KMA was asked to identify the project financial gap, projected revenues from the upgraded hotel and restaurant, and a financial package that secured increased financial gain by the City while limiting its financial risks. KMA performed the following tasks as part of the project analysis:

1. Reviewed the development plans for the Proposed Project;

2. Prepared a comparative cost analysis for constructing the proposed development scope versus the cost associated with constructing a typical limited-service hotel;

3. Compiled market data to assist in projecting the achievable room rates; and

4. Prepared a 15-year projection of the transient occupancy tax (TOT) and sales tax revenues that could potentially be generated by the Proposed Project under current market and financial conditions.

KMA Financial Analysis
The KMA financial analysis showed that the hotel, as a limited-service hotel, has a gap of approximately $3 million. The Hotel MOHI by Appellation shows a total project gap of approximately $9 million. The estimated development costs of the project are $75.75 million. These development costs include the previous investment of nearly $20 million.

The analysis assumes an increased hotel room rate from $170 per night for a limitedservice hotel to $296 per night for the proposed luxury boutique hotel. The rates are projected to increase at a 3% average annual rate. The commercial operation of the Proposed Project assumes revenue that ranges between $600 to $950 per square foot of areas associated with the food and beverage, meeting and event space, and spa.

Financial Assistance
Based on those assumptions, KMA is recommending that the following assistance package be provided by the City:

1. The City's assistance to the Proposed Project will be measured in terms of the TOT

11 and sales tax revenues generated by the Proposed Project.

2. The City's assistance will be provided for a 15-year term, commencing in the first year of the Proposed Project’s operation.

3. Before any funds are distributed to the Proposed Project, the City will receive the following share of the TOT and sales tax revenues generated by the Proposed Project:
a. A $282,000 base will be applied in the first year of the Proposed Project’s operation; and
b. The base will be increased by 3% annually.

4. During the 15-year term, the City assistance will be structured as follows:
a. An amount equal to 100% of the TOT and sales tax revenue generated by the Proposed Project above the base level will be provided to the Proposed Project each year until the Proposed Project has received $6 million measured in net present value terms.
b. After the developer receives $6 million in assistance in net present value terms, the City assistance will be reduced to 50% of the TOT and sales tax revenue generated above the base level until the end of the 15th year of the Proposed Project’s operation.

5. In the event the developer defaults on any of the development scope and/or operational standards imposed by the City assistance agreement, and that default is not cured within a defined time period, the City assistance payments to the Proposed Project will terminate.

Economic Impact
The KMA analysis shows the economic benefit of partnering to secure the delivery of the Hotel MOHI by Appellation project. The benefits include:

1. Increase in TOT and Sales Tax generation;

2. A lifestyle luxury hotel that receives a rating of four stars or greater;

3. A Charlie Palmer restaurant;

4. Commercial and event spaces that are compatible with a luxury lifestyle hotel; and

5. Increased brand recognition
Ultimately, delivering a full-service hotel and high-end restaurant in Downtown Morgan Hill would be transformative for the City and business community, especially the Downtown district. In addition to the direct financial impact described above, the subject property would also directly contribute to a broader multiplier effect of economic growth in the City of Morgan Hill and elevate the City’s overall appeal and reputation as a destination market. The addition of Morgan Hill’s premier hotel offering and the association with Appellation Hotels and celebrated restauranteur and hotelier Charlie Palmer will undoubtedly be a defining moment for the City of Morgan Hill.

Conclusion
TOT and Sales Tax sharing agreements can help improve a project's viability. Many local jurisdictions have used these types of agreements to ensure a project is completed, and it is financially viable during its multiple-year start-up period. The City of Morgan Hill has used Sales Tax rebate programs to help attract and assist in developing several businesses, including Target, The Ford Store Morgan Hill, Honda of Morgan Hill, and Morgan Hill Chrysler Dodge, Ram & Jeep. These businesses have

11 ultimately exceeded the anticipated Sales Tax revenue generation and positively contributed to the City's General Fund.

The City developed a Hotel Incentive Program to support construction and upgrade of existing hotels. The opportunity to partner with Appellation Hospitality and deliver a fullservice hotel is consistent with the previous direction of the City Council. The proposed financial package by KMA limits the City's financial risk while supporting a project that will be catalytic for Morgan Hill. KMA's recommended TOT and Sales Tax Sharing Agreement secures an enhanced revenue of $82,000 annually (above the previously anticipated $200,000) plus a 3% annual increase capped at 15 years with a reduced share of 50% split above base after $6 million. The financial assistance package will cease if the project defaults on the development scope and/or operational standards of a four-star hotel.

Staff recommends the City Council authorize the City Manager to execute a Transient Occupancy Tax (TOT) and Sales Tax Sharing Agreement for the Hotel MOHI by Appellation project based on the attached Draft Deal Points parameters.

COMMUNITY ENGAGEMENT:

This report serves to inform the community of the proposed agreement.

ALTERNATIVE ACTIONS:

Alternatively, the City Council could decide to provide an alternative incentive or no incentive for the project.

PRIOR CITY COUNCIL AND COMMISSION ACTIONS:

In 2016, the developer received a Design Permit and a Conditional Use Permit approval from the Planning Commission for a new 60-room Downtown Hotel. The project was approved by the City Council on May 18, 2016, and construction commenced on March 2019.

In August 2022, to encourage new hotel investment and reinvestment, the City Council adopted a Hotel Incentive Strategy & Program (HIP). The intent of the HIP was to provide rebate incentives to encourage the construction of new hotel development and the rehabilitation and upgrade of existing hotels.

On December 7, 2022, the City Council adopted Ordinance No. 2339, approving a Zoning Map Amendment for a Planned Development Combining District on the site, to allow for the additional 5th floor.

FISCAL AND RESOURCE IMPACT:

The proposed TOT and Sales Tax Sharing Agreement poses no financial risks to the City and secures added revenue of $82,000 annually above previous projections. If the project meets its financial targets, the City anticipates increasing the TOT and Sales Tax revenue from the project.

11 CEQA (California Environmental Quality Act):

Not a Project as a governmental fiscal activity.

2406005.MH:KHH Page 1
16036.026.001

DRAFT DEAL POINTS

PROPOSED HOTEL MOHI BY APPELLATION
JUNE 12, 2024

CONSTRUCTION AND OPERATIONAL STANDARDS

1. A Scope of Development will be included in the City of Morgan Hill (City) assistance agreement. The “Project” will be required to consist of the following uses:
a. An approximately 76 room boutique hotel;
b. Food and beverage service areas totaling approximately 14,000 square feet of gross building area;
c. Event and meeting space totaling approximately 11,000 square feet of gross building area;
d. An approximately 2,100 square foot spa; and
e. A swimming pool and pool deck area.

2. The hotel must meet and maintain the quality standards associated with a four star or above lifestyle luxury hotel. A list of comparable hotel brands shall be identified as part of the agreement between the City and the development team.

3. One restaurant within the Project must meet and maintain the scope, construction quality, and operational standards associated with a Charlie Palmer restaurant. A list of comparable restaurant brands shall be identified as part of the agreement between the City and the development team.

4. The balance of the commercial and event space uses shall be developed and operated as typically provided within four star and above lifestyle luxury hotels.

Proposed Deal Points: MoHI Hotel by Appellation Page 2
2406005.MH:KHH / 16036.026.001 June 12, 2024

FINANCIAL REQUIREMENTS

1. A Schedule of Performance will be included in the City assistance agreement that establishes a timeframe by which the development team must provide evidence of sufficient debt and equity contributions to fund 100% of the Project’s estimated development costs.

2. To verify that the proposed assistance package is warranted, upon completion of construction, the City shall have the right to review the actual costs incurred to construct the Project.

PROPOSED PUBLIC ASSISTANCE PACKAGE
The fundamental terms of the proposed assistance package can be described as follows:

1. The City will provide assistance to the Project that is measured in terms of the transient occupancy tax (TOT) and sales tax revenues generated by the Project.

2. The City assistance will be provided over a maximum 15 year term, commencing in the first year of the Project’s operation.

3. Prior to any funds being distributed to the Project, the City will receive the following share of the TOT and sales tax revenues generated by the Project:
a. A $282,000 base will be applied in the first year of the Project’s operation; and b. The base will be increased by 3% annually.

4. During the 15-year term the City assistance will be structured as follows:
a. An amount equal to 100% of the TOT and sales tax revenue generated by the Project above the base level will be provided to the Project each year until the Project has received $6 million measured in net present value terms. 1 b. In the event $6 million in assistance is provided prior to the end of the 15th year of the Project’s operation, the City assistance will be reduced to 50% of the TOT and sales tax revenue generated by the Project above the base level until the end of the 15th year of the Project’s operation.
1 The discount rate will be set at 6.5%.

Proposed Deal Points: MoHI Hotel by Appellation Page 3
2406005.MH:KHH / 16036.026.001 June 12, 2024

DEFAULT
In the event the Project defaults on any of the development scope and/or operational standards imposed by the City assistance agreement, and that default is not cured within a defined time period, the City assistance payments to the Project will terminate.

777 SOUTH FIGUEROA STREET, SUITE 2555  LOS ANGELES, CALIFORNIA 90017  PHONE 213.622.8095 2406010.MH:KHH
WWW.KEYSERMARSTON.COM 16036.026.001
ADVISORS IN:

Real Estate
Affordable Housing
Economic Development

BERKELEY
Debbie M. Kern
David Doezema

LOS ANGELES
Kathleen H. Head
Kevin E. Engstrom
Julie L. Romey
Tim R. Bretz

SAN DIEGO
Paul C. Marra
Linnie A. Gavino

EMERITUS
A. Jerry Keyser
Timothy C. Kelly

MEMORANDUM
At your request, Keyser Marston Associates, Inc. (KMA) evaluated the financial characteristics of the Hotel MoHi by Appellation proposed to be developed by the Léal Group with management to be provided by Appellation Hotels (Developer). The development site is located at 17490 Monterey Road (Site), and the proposed development scope (Proposed Project) can be described as follows:

1. An approximately 76 room boutique hotel;

2. Food and beverage service areas totaling approximately 14,000 square feet of gross building area (GBA);

3. Event space totaling approximately 11,000 square feet of GBA;

4. An approximately 2,100 square foot spa; and

5. A swimming pool and pool deck area.

The purpose of the KMA analysis is to assist the City of Morgan Hill (City) in creating a financial assistance package for the Proposed Project. The objective is to limit the assistance to the premium costs associated with developing the Proposed Project versus the cost to construct a typical limited service hotel.

To: Edith Ramirez,
Assistant City Manager, Development Services
City of Morgan Hill
From: Kathleen Head
Date: June 19, 2024
Subject: Hotel MoHi by Appellation: Financial Analysis

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 2
2406010.MH:KHH
16036.026.001
As part of preparing this analysis KMA undertook the following tasks:

1. Reviewed the development plans for the Proposed Project;

2. Prepared a comparative cost analysis for constructing the proposed development scope versus the cost associated with constructing a typical limited service hotel;

3. Compiled market data to assist in projecting the achievable room rates; and

4. Prepared a 15-year projection of the transient occupancy tax (TOT) and sales tax revenues that could potentially be generated by the Proposed Project under current market and financial conditions.

EXECUTIVE SUMMARY
The City’s objective is to set the assistance package at the incremental difference between the financial gaps associated with the Proposed Project and a typical limited service hotel.

The result of the comparative analysis can be summarized as follows:

1. The Proposed Project demonstrates an approximately $9 million gap between the estimated development costs and the projected value upon completion.

2. A limited service hotel is estimated to generate an approximately $ 3 million gap.

Another City objective is to eliminate the financial risk to the City of providing assistance to the Proposed Project. To that end, the proposed assistance package is limited amounts equal to the TOT and sales tax revenues generated by the Proposed Project above a base that would be received by the City before any funds are provided to the Developer.

Based on those assumptions, KMA is recommending that the following assistance package be provided by the City:

1. The City assistance to the Proposed Project will be measured in terms of the TOT and sales tax revenues generated by the Proposed Project.

2. The City assistance will be provided for a 15 year term, commencing in the first year of the Proposed Project’s operation.

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 3
2406010.MH:KHH
16036.026.001

3. Prior to any funds being distributed to the Proposed Project, the City will receive the following share of the TOT and sales tax revenues generated by the Proposed Project:
a. A $282,000 base will be applied in the first year of the Proposed Project’s operation; and
b. The base will be increased by 3% annually.

4. During the 15-year term the City assistance will be structured as follows:
a. An amount equal to 100% of the TOT and sales tax revenue generated by the Proposed Project above the base level will be provided to the Proposed Project each year until the Proposed Project has received $6 million measured in net present value terms.1
b. After $6 million in assistance in net present value terms is received by the Developer, the City assistance will be reduced to 50% of the TOT and sales tax revenue generated above the base level until the end of the 15th year of the Proposed Project’s operation.

5. In the event the Developer defaults on any of the development scope and/or operational standards imposed by the City assistance agreement, and that default is not cured within a defined time period, the City assistance payments to the Proposed Project will terminate.

FINANCIAL ANALYSIS
The following analysis summarizes the KMA financial analysis based on the current market and financial conditions. Basic assumptions are that the Proposed Project will meet and maintain the quality standards associated with:

1. A lifestyle luxury hotel that receives a rating of four stars or greater;

2. A Charlie Palmer Steak restaurant; and
1 The discount rate will be set at 6.5%.

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 4
2406010.MH:KHH
16036.026.001

3. Commercial and event spaces that are compatible with a lifestyle luxury hotel.

The KMA analysis is organized as follows:

Appendices
Appendix A: Pro Forma Analysis: Hotel Component – Proposed Project Appendix B: Pro Forma Analysis: Restaurant Component – Proposed Project Appendix C: Pro Forma Analysis: Limited Service Hotel
Appendix D: Proposed Assistance Package
The following pro forma analysis tables are used in each of the analyses:

Pro Forma Analysis Tables
Table 1: Pro Forma Analysis: Hotel Component – Proposed Project Table 2: Pro Forma Analysis: Restaurant Component – Proposed Project Table 3: Pro Forma Analysis: Limited Service Hotel
Financial Analysis: Proposed Project
The financial analysis of the Proposed Project is presented in Appendices A and B. The purpose of separating the components is to identify both the impacts associated with a four star lifestyle luxury hotel and a restaurant of the caliber of Charlie Palmer Steak restaurants.

HOTEL COMPONENT (APPENDIX A)
Estimated Development Costs
Approximately 80% of the property acquisition costs are allocated to the hotel component of the Proposed Project. The costs are estimated at $23.60 per square foot of the allocated land area, which equates to approximately $11,700 per room.

Based on the proposed premium quality level of the hotel component the unique direct costs are estimated as follows:

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 5
2406010.MH:KHH
16036.026.001

1. The building costs are estimated at $400,000 per room.

2. The furniture, fixtures and equipment (FF&E) allowances are set as follows:
a. The hotel FF&E allowance is set at $48,000 per room; and b. The meeting and event space FF&E allowance is set at $135 per square foot of net leasable area (NLA).

The total development costs are estimated as follows:

Estimated Development Costs
Hotel Component: Proposed Project
Total Per Room
Property Acquisition Costs $893,000 $11,700
Direct Costs 41,170,000 541,700
Indirect Costs 8,349,000 109,900
Financing Costs 4,856,000 63,900
Total Development Costs $55,268,000 $727,200
Estimated Stabilized Net Operating Income 2
The revenues estimated to be achieved by the hotel upon reaching stabilized occupancy are estimated as follows:

1. The room sales revenues are based on an average daily rate of $296 and a 75% average occupancy rate.

2. The food and beverage; meeting and event space; and spa revenues are estimated at approximately $97,000 per room per year.

3. Other revenues are estimated at approximately $19,000 per room per year. 2 The stabilized revenues and expenses are presented in 2024 dollars.

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 6
2406010.MH:KHH
16036.026.001
Based on the preceding estimates, total sales revenues are estimated at approximately $15 million per year. The estimated stabilized net operating income is presented in the following table:

Estimated Stabilized Net Operating Income
Hotel Component: Proposed Project
Total Sales Revenue $15,021,000
Expenses
Department Expenses 43% of Total Sales $6,439,000
Undistributed Expenses 20% of Total Sales 2,972,000
Management Fees 4% of Total Sales 601,000
Fixed Expenses 8.5% of Total Sales 1,280,000
Total Expenses $11,292,000
Estimated Stabilized Net Operating Income $3,729,000
Estimated Gross Profit 25%
Estimated Financial Gap
The fundamental premise of this analysis is that under current market and financial conditions developers, lenders and investors will require a threshold stabilized return in the range of 8%. This is measured as a percentage of the estimated total development costs. Based on this assumption, the financial gap for the hotel component of the Proposed Project is estimated in the following table:

Estimated Financial Gap
Hotel Component: Proposed Project
Estimated Supportable Investment $46,613,000
Estimated Development Costs 55,268,000
Estimated Financial Gap $8,655,000

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 7
2406010.MH:KHH
16036.026.001

RESTAURANT COMPONENT (APPENDIX B)
Estimated Development Costs
Approximately 20% of the property acquisition costs are allocated to the restaurant component of the Proposed Project. The costs are estimated at $23.60 per square foot of the allocated land area.

Based on the proposed premium quality level of the restaurant component the unique direct costs are estimated as follows:

1. The building costs are estimated at $530 per square foot of GBA.

2. The FF&E allowance is set at $520 per square foot of the restaurant NLA.

The total development costs are estimated as follows:

Estimated Development Costs
Restaurant Component: Proposed Project
Total
Per Square Foot
of GBA
Property Acquisition Costs $230,000 $16
Direct Costs 15,822,000 1,068
Indirect Costs 2,635,000 178
Financing Costs 1,795,000 121
Total Development Costs $20,482,000 $1,383
Estimated Stabilized Net Operating Income
The assumptions applied to estimate the stabilized net operating income for the restaurant component are presented in the following table:

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 8
2406010.MH:KHH
16036.026.001
Estimated Stabilized Net Operating Income
Restaurant Component: Proposed Project
Total Sales Revenue $11,923,000
Expenses
Department Expenses 66% of Total Sales $7,876,000
Undistributed Expenses 11% of Total Sales 1,311,000
Management Fees 4% of Total Sales 477,000
Fixed Expenses 6% of Total Sales 667,000
Total Expenses $10,331,000
Estimated Stabilized Net Operating Income $1,592,000
Estimated Gross Profit 13%
Estimated Financial Gap
As discussed previously, the threshold stabilized return on total development costs is set at 8%. Based on this assumption, the financial gap for the restaurant component of the Proposed Project is estimated in the following table:

Estimated Financial Gap
Restaurant Component: Proposed Project
Estimated Supportable Investment $19,900,000
Estimated Development Costs 20,482,000
Estimated Financial Gap $582,000

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 9
2406010.MH:KHH
16036.026.001
Financial Analysis: Limited Service Hotel (Appendix C)

ESTIMATED DEVELOPMENT COSTS
The total development costs for the limited service hotel are estimated as follows:

Estimated Development Costs
Limited Service Hotel
Total Per Room
Property Acquisition Costs $1,124,000 $14,800
Direct Costs 17,309,000 227,800
Indirect Costs 2,456,000 32,300
Financing Costs 1,604,000 21,100
Total Development Costs $22,493,000 $296,000
Estimated Stabilized Net Operating Income
The revenues estimated to be achieved by the hotel upon reaching stabilized occupancy are estimated as follows:

1. The room sales revenues are based on an average daily rate of $170 and a 70% average occupancy rate.

2. Other revenues are estimated at approximately $8,200 per room per year.

Based on the preceding estimates, total sales revenues are estimated at approximately $3.9 million per year. The estimated stabilized net operating income is presented in the following table:

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 10
2406010.MH:KHH
16036.026.001
Estimated Stabilized Net Operating Income
Limited Service Hotel
Total Sales Revenue $3,927,000
Expenses
Department Expenses 27% of Total Sales $1,051,000
Undistributed Expenses 21% of Total Sales 824,000
Management Fees 3% of Total Sales 118,000
Fixed Expenses 10% of Total Sales 395,000
Total Expenses $2,388,000
Estimated Stabilized Net Operating Income $1,539,000
Estimated Gross Profit 39%
Estimated Financial Gap
As discussed previously, the threshold stabilized return on total development costs is set at 8%. Based on this assumption, the financial gap associated with the limited service hotel is estimated in the following table:

Estimated Financial Gap
Limited Service Hotel
Estimated Supportable Investment $19,238,000
Estimated Development Costs 22,493,000
Estimated Financial Gap $3,255,000
Pro Forma Analysis Summary
The results of the KMA pro forma analyses are summarized in the following table:

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 11
2406010.MH:KHH
16036.026.001

PROPOSED ASSISTANCE PACKAGE (APPENDIX D)
TOT and Sales Tax Projections
To assist in creating the proposed assistance package, KMA projected TOT and sales tax revenues for the Proposed Project based on a conservative set of assumptions. These assumptions can be described as follows:

HOTEL TOT REVENUES

1. The average daily room rate, in 2024 dollars, is projected at $296 per night.

2. The hotel is projected to reach stabilized occupancy in the fourth year of operation.

The ramp up is projected as follows:
a. Year 1: 35% occupancy
b. Year 2: 70% occupancy
c. Year 3: 75% occupancy
I. Proposed Project
Hotel
Component
Restaurant
Component TOTAL
A. Estimated Development Costs
Property Acquisition $893,000 $230,000 $1,123,000
Direct Costs 41,170,000 15,822,000 56,992,000
Indirect Costs 8,349,000 2,635,000 10,984,000
Financing Costs 4,856,000 1,795,000 6,651,000
Estimated Development Costs $55,268,000 $20,482,000 $75,750,000 B. Estimated Supportable Investment
Estimated Stabilized Net Operating Income $3,729,000 $1,592,000 $5,321,000 Threshold Stabilized Return 8.0% 8.0% 8.0%
Estimated Supportable Investment $46,612,500 $19,900,000 $66,512,500 C. Estimated Financial Gap - Proposed Project $8,655,500 $582,000 $9,237,500 II. Estimated Financial Gap - Limited Service Hotel $3,255,000 III. Proposed Assistance in Present Value Terms $5,982,500

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 12
2406010.MH:KHH
16036.026.001

3. Room rates are projected to increase at an average rate of 3% annually following stabilization.

SALES TAX REVENUES

1. In 2024 dollars the stabilized taxable sales revenues are estimated to range from approximately $600 to $950 per square foot of leasable area for the various commercial uses in the Proposed Project.

2. The food and beverage; meeting and event space; and spa space are projected to reach full stabilization in the third year of operation. The ramp up is projected as follows:
a. Year 1: 33% of stabilized performance
b. Year 2: 67% of stabilized performance
c. Year 3: 100% of stabilized performance

3. Sales revenues are projected to increase at an average rate of 3% annually following stabilization.

Proposed Assistance Package Terms

1. The base assistance amount is set at $6 million. This represents the incremental difference between the financial gaps associated with the Proposed Project and a typical limited service hotel.

2. The City expects to receive a fixed amount of the TOT and sales tax revenue before any public funds are provided to the Developer. This base amount is set at $282,000 per year plus a 3% annual escalation factor.

3. Based on the preceding assumptions, KMA projects that it will take 15 years for sufficient revenues to be generated to provide the Proposed Project with $6 million in assistance in net present value terms.

4. Recognizing that the Proposed Project demonstrates a total financial gap of approximately $9 million, the assistance is proposed to be structured as follows:

Edith Ramirez, City of Morgan Hill June 19, 2024
Hotel MoHi by Appellation: Financial Analysis Page 13
2406010.MH:KHH
16036.026.001
a. An amount equal to 100% of the TOT and sales tax revenue generated above the base level will be provided to the Proposed Project each year until the Proposed Project has received $6 million in net present value terms. b. After $6 million in assistance in net present value terms is generated, the City assistance will be reduced to an amount equal to 50% of the TOT and sales tax revenue above the base until the end of the 15th year of the Proposed Project’s operation.

5. In the event the Developer defaults on any of the development scope and/or operational standards imposed by the City assistance agreement, and that default is not cured within a defined time period, the City assistance payments to the Proposed Project will terminate.

APPENDIX A

PRO FORMA ANALYSIS

HOTEL COMPONENT - PROPOSED PROJECT

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Proposed Hotel Page 1 of 14

APPENDIX A - TABLE 1
I. Property Acquisition 1 37,845 Sf of Land $23.60 /Sf of Land $893,000 II. Direct Costs
Site Improvements 1 37,845 Sf of Land $27.00 /Sf of Land $1,022,000 Building Costs 2 76 Hotel Rooms $400,000 /Room 30,400,000 Hotel FF&E 2 76 Hotel Rooms $48,000 /Room 3,648,000
Event Space FF&E 7,730 Sf of NLA $135 Sf of NLA 1,044,000 Contractor Costs 14.0% Other Direct Costs 5,056,000
Total Direct Costs 76 Hotel Rooms $541,700 /Room $41,170,000 III. Indirect Costs
Architecture, Engineering & Consulting 5.5% Direct Costs $2,264,000 Public Permits & Fees 3 14,811 Sf of GBA $12.80 /Sf of GBA 190,000 Taxes, Insurance, Legal & Accounting 2.5% Direct Costs 1,029,000 Marketing 14,811 Sf of GBA $10.00 /Sf of GBA 148,000
Hotel Pre-Opening & Working Capital 2 76 Hotel Rooms $25,000 /Room 1,900,000 Developer Fee / General & Administrative 5.0% Direct Costs 2,059,000 Soft Cost Contingency Allowance 10% Other Indirect Costs 759,000 Total Indirect Costs 76 Hotel Rooms $109,900 /Room $8,349,000 IV. Financing Costs
Interest During Construction
Land 4 $893,000 Loan Amount 7.0% Interest $125,000
Construction Costs 5 $54,375,000 Loan Amount 7.0% Interest 3,806,000 Loan Origination Fees
Construction Loan 6 $54,375,000 Loan Amount 1.00 Points 544,000 Permanent Loan 7 $38,063,000 Loan Amount 1.00 Points 381,000 Total Financing Costs 76 Hotel Rooms $63,900 /Room $4,856,000 V. Total Construction Costs 76 Hotel Rooms $715,500 /Room $54,375,000 Total Development Costs 76 Hotel Rooms $727,200 /Room $55,268,000 1 Based on the Developer's estimates. The land area is allocated on a pro rata basis between the Hotel Component and the Restaurant Component. 2 Based on the Developer's estimates.
3 Based on the Developer's estimates. City staff should verify the accuracy of the estimates. 4 Based on a 24-month development period with a 100% average outstanding balance. 5 Based on 100% of the estimated construction costs. Assumes a 24-month development period with a 50% average outstanding balance. 6 Based on 100% of the estimated constuction costs.
7 Based on 70% of the estimated construction costs.

ESTIMATED DEVELOPMENT COSTS

HOTEL COMPONENT

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Proposed Hotel Page 2 of 14

APPENDIX A - TABLE 2

ESTIMATED STABILIZED NET OPERATING INCOME

HOTEL COMPONENT

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
I. Sales Revenues
Room Sales 1 $296 /Room 76 Hotel Rooms $6,158,000
Food & Beverage
In-Room Dining & Poolside/Pool Bar $44 /Occupied Room 911,000 Meeting & Event Space 7,730 Sf of NLA $615 /Sf of NLA 4,755,000 Spa 2,100 Sf of NLA $826 /Sf of NLA 1,736,000
Parking 2 83% of Total Estimated Valet Parking Revenues 536,000 Resort Fee $25 /Occupied Room 520,000
Miscellaneous Revenue 2.4% Sales Revenues 366,000
Other Revenue 0.3% Sales Revenues 39,000
Total Sales Revenues $15,021,000
II. Department Expenses
Hotel Rooms 25.3% Department Sales $1,558,000
In-Room Dining & Poolside/Pool Bar 62.0% Department Sales 565,000 Meeting & Event Space 53.3% Department Sales 2,534,000
Spa 72.5% Department Sales 1,259,000
Parking 55.0% Department Sales 295,000
Miscellaneous Revenue 27.5% Department Sales 143,000
Other Revenue 23.2% Department Sales 85,000
Total Department Expenses $6,439,000
III. Undistributed Expenses 3
General & Administrative 7.0% Sales Revenues $1,056,000 Information & Technology 1.3% Sales Revenues 201,000
Sales & Marketing 6.2% Sales Revenues 937,000
Property Operations & Maintenance 3.0% Sales Revenues 448,000 Utilities 2.2% Sales Revenues 330,000
Total Undistributed Expenses $2,972,000
IV. Management Fees 4.0% Sales Revenues $601,000
V. Fixed Expenses
Property Taxes 1.1% Value $5,980 /Room $454,000
Insurance 1.5% Sales Revenues 225,000
FF&E Replacement Reserves 4.0% Sales Revenues 601,000
Total Fixed Expenses $1,280,000
VI. Estimated Stabilized Net Operating Income 25% Total Sales Revenues $3,729,000 1 Assumes a 75% average occupancy rate.
2 Based on the Developer's allocation of total value parking revenue among the proposed uses. 3 Based on a weighted average allocation of the hotel and food & beverage cost components of the project.

Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Proposed Hotel Page 3 of 14

APPENDIX A - TABLE 3

ESTIMATED FINANCIAL GAP

HOTEL COMPONENT

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
I. Estimated Stabilized Net Operating Income $3,729,000 II. Threshold Stabilized Return on Total Development Costs 8.0% III. Estimated Supportable Investment $46,613,000
IV. Estimated Development Costs $55,268,000
V. Estimated Financial Gap 1 $8,655,000
1 The estimated return on total development cost if no assistance is provided is 6.7%. This is equal to Estimated Stabilized Net Operating Income divided by Estimated Development Costs.

See APPENDIX A - TABLE 2
See APPENDIX A - TABLE 1
Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Proposed Hotel Page 4 of 14

MORGAN HILL, CALIFORNIA

APPENDIX B

PRO FORMA ANALYSIS

RESTAURANT COMPONENT - PROPOSED PROJECT

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION
Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Proposed Restaurants Page 5 of 14

APPENDIX B - TABLE 1
I. Property Acquisition 1 9,766 Sf of Land $23.60 /Sf of Land $230,000 II. Direct Costs
Site Improvements 1 9,766 Sf of Land $27.00 /Sf of Land $264,000 Building Costs 2 14,811 Sf of GBA $530 /Sf of GBA 7,850,000 Restaurant FF&E 2 11,086 Sf of NLA $520 /Sf of NLA 5,765,000 Contractor Costs 14.0% Other Direct Costs 1,943,000
Total Direct Costs 14,811 Sf of GBA $1,068 /Sf of GBA $15,822,000 III. Indirect Costs
Architecture, Engineering & Consulting 5.5% Direct Costs $870,000 Public Permits & Fees 3 14,811 Sf of GBA $12.80 /Sf of GBA 190,000 Taxes, Insurance, Legal & Accounting 2.5% Direct Costs 396,000 Marketing 14,811 Sf of GBA $10.00 /Sf of GBA 148,000
Developer Fee / General & Administrative 5.0% Direct Costs 791,000 Soft Cost Contingency Allowance 10% Other Indirect Costs 240,000 Total Indirect Costs 14,811 Sf of GBA $178 /Sf of GBA $2,635,000 IV. Financing Costs
Interest During Construction
Land 4 $230,000 Loan Amount 7.0% Interest $32,000
Construction Costs 5 $20,252,000 Loan Amount 7.0% Interest 1,418,000 Loan Origination Fees
Construction Loan 6 $20,252,000 Loan Amount 1.00 Points 203,000 Permanent Loan 7 $14,176,000 Loan Amount 1.00 Points 142,000 Total Financing Costs 14,811 Sf of GBA $121 /Sf of GBA $1,795,000 V. Total Construction Costs 14,811 Sf of GBA $1,367 /Sf of GBA $20,252,000 Total Development Costs 14,811 Sf of GBA $1,383 /Sf of GBA $20,482,000 1 Based on the Developer's estimates. The land area is allocated on a pro rata basis between the Hotel Component and the Restaurant Component. 2 Based on the Developer's estimates.
3 Based on the Developer's estimates. City staff should verify the accuracy of the estimates. 4 Based on a 24-month development period with a 100% average outstanding balance. 5 Based on 100% of the estimated construction costs. Assumes a 24-month development period with a 50% average outstanding balance. 6 Based on 100% of the estimated constuction costs.
7 Based on 70% of the estimated construction costs.

ESTIMATED DEVELOPMENT COSTS

RESTAURANT COMPONENT

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Proposed Restaurants Page 6 of 14

APPENDIX B - TABLE 2

ESTIMATED STABILIZED NET OPERATING INCOME

RESTAURANT COMPONENT

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
I. Sales Revenues
Restaurant Revenue 11,086 Sf of NLA $1,066 /Sf of NLA $11,813,000 Parking 1 17% of Total Estimated Valet Parking Revenues 110,000 Total Sales Revenues $11,923,000
II. Department Expenses
Promenade Bar & Café 62.0% Department Sales $1,809,000
Flower Shop Lounge / Flex Space Concept 53.3% Department Sales 1,229,000 Signature CP Restaurant 72.5% Department Sales 4,777,000 Parking 55.0% Department Sales 61,000
Total Department Expenses $7,876,000
III. Undistributed Expenses
General & Administrative 4.1% Sales Revenues $489,000
Information & Technology 1.4% Sales Revenues 167,000
Sales & Marketing 3.5% Sales Revenues 417,000
Property Operations & Maintenance 0.8% Sales Revenues 95,000 Utilities 1.2% Sales Revenues 143,000
Total Undistributed Expenses $1,311,000
IV. Management Fees 4.0% Sales Revenues $477,000
V. Fixed Expenses
Property Taxes 1.1% Value $10 /Sf of GBA $11,000
Insurance 1.5% Sales Revenues 179,000
FF&E Replacement Reserves 4.0% Sales Revenues 477,000
Total Fixed Expenses $667,000
VI. Estimated Stabilized Net Operating Income 13% Total Sales Revenues $1,592,000 1 Based on the Developer's allocation of total value parking revenue among the proposed uses.

Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Proposed Restaurants Page 7 of 14

APPENDIX B - TABLE 3

ESTIMATED FINANCIAL GAP

RESTAURANT COMPONENT

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
I. Estimated Stabilized Net Operating Income $1,592,000 II. Threshold Stabilized Return on Total Development Costs 8.0% III. Estimated Supportable Investment $19,900,000
IV. Estimated Development Costs $20,482,000
V. Estimated Financial Gap 1 $582,000
1 The estimated return on total development cost if no assistance is provided is 7.8%. This is equal to Estimated Stabilized Net Operating Income divided by Estimated Development Costs.

See APPENDIX B - TABLE 2
See APPENDIX B - TABLE 1
Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Proposed Restaurants Page 8 of 14

MORGAN HILL, CALIFORNIA

APPENDIX C

PRO FORMA ANALYSIS

LIMITED SERVICE HOTEL

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION
Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Ltd Svc Hotel Page 9 of 14

APPENDIX C - TABLE 1
I. Property Acquisition 47,611 Sf of Land $23.60 /Sf of Land $1,124,000 II. Direct Costs
Site Improvements 47,611 Sf of Land $27.00 /Sf of Land $1,285,000 Building Costs 76 Hotel Rooms $185,000 /Room 14,060,000 Hotel FF&E 76 Hotel Rooms $15,000 /Room 1,140,000
Contractor Costs 5.0% Other Direct Costs 824,000
Total Direct Costs 76 Hotel Rooms $227,800 /Room $17,309,000 III. Indirect Costs
Architecture, Engineering & Consulting 5.0% Direct Costs $865,000 Public Permits & Fees 1 14,811 Sf of GBA $12.80 /Sf of GBA 190,000 Taxes, Insurance, Legal & Accounting 2.5% Direct Costs 433,000 Marketing 14,811 Sf of GBA $5.00 /Sf of GBA 74,000
Hotel Pre-Opening & Working Capital 76 Hotel Rooms $2,000 /Room 152,000 Developer Fee / General & Administrative 3.0% Direct Costs 519,000 Soft Cost Contingency Allowance 10% Other Indirect Costs 223,000 Total Indirect Costs 76 Hotel Rooms $32,300 /Room $2,456,000 IV. Financing Costs
Interest During Construction
Land 2 $1,124,000 Loan Amount 7.0% Interest $118,000
Construction Costs 3 $21,369,000 Loan Amount 7.0% Interest 1,122,000 Loan Origination Fees
Construction Loan 4 $21,369,000 Loan Amount 1.00 Points 214,000 Permanent Loan 5 $14,958,000 Loan Amount 1.00 Points 150,000 Total Financing Costs 76 Hotel Rooms $21,100 /Room $1,604,000 V. Total Construction Costs 76 Hotel Rooms $281,200 /Room $21,369,000 Total Development Costs 76 Hotel Rooms $296,000 /Room $22,493,000 1 Based on the Developer's estimates. City staff should verify the accuracy of the estimates. 2 Based on a 18-month development period with a 100% average outstanding balance. 3 Based on 100% of the estimated construction costs. Assumes a 18-month development period with a 50% average outstanding balance. 4 Based on 100% of the estimated constuction costs.
5 Based on 70% of the estimated construction costs.

ESTIMATED DEVELOPMENT COSTS

LIMITED SERVICE HOTEL

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Ltd Svc Hotel Page 10 of 14

APPENDIX C - TABLE 2

ESTIMATED STABILIZED NET OPERATING INCOME

LIMITED SERVICE HOTEL

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
I. Sales Revenues
Room Sales 1 $170 /Room 76 Hotel Rooms $3,301,000
Parking 2 36% of Total Estimated Valet Parking Revenues 233,000 Miscellaneous Revenue 10.0% Sales Revenues 393,000
Total Sales Revenues $3,927,000
II. Department Expenses
Hotel Rooms 25.0% Department Sales $825,000
Parking 55.0% Department Sales 128,000
Miscellaneous Revenue 25.0% Department Sales 98,000
Total Department Expenses $1,051,000
III. Undistributed Expenses
General & Administrative 5.0% Sales Revenues $196,000
Franchise Fee 5.0% Sales Revenues 196,000
Sales & Marketing 5.0% Sales Revenues 196,000
Property Operations & Maintenance 3.0% Sales Revenues 118,000 Utilities 3.0% Sales Revenues 118,000
Total Undistributed Expenses $824,000
IV. Management Fees 3.0% Sales Revenues $118,000
V. Fixed Expenses
Property Taxes 1.1% Value $2,360 /Room $179,000
Insurance 1.5% Sales Revenues 59,000
FF&E Replacement Reserves 4.0% Sales Revenues 157,000
Total Fixed Expenses $395,000
VI. Estimated Stabilized Net Operating Income 39% Total Sales Revenues $1,539,000 1 Assumes a 70% average occupancy rate.
2 Based on the Developer's allocation of total value parking revenue among the uses being proposed for development.

Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Ltd Svc Hotel Page 11 of 14

APPENDIX C - TABLE 3

ESTIMATED FINANCIAL GAP

LIMITED SERVICE HOTEL

FINANCIAL ANALYSIS

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
I. Estimated Stabilized Net Operating Income $1,539,000 II. Threshold Stabilized Return on Total Development Costs 8.0% III. Estimated Supportable Investment $19,238,000
IV. Estimated Development Costs $22,493,000
V. Estimated Financial Gap 1 $3,255,000
1 See APPENDIX C - TABLE 2
See APPENDIX C - TABLE 1
The estimated return on total development cost if no assistance is provided is 6.8%. This is equal to Estimated Stabilized Net Operating Income divided by Estimated Development Costs.

Prepared by: Keyser Marston Associates, Inc.

File name: 6 19 24 PF Analysis; Pf Ltd Svc Hotel Page 12 of 14

APPENDIX D

PROPOSED ASSISTANCE PACKAGE

HOTEL MOHI BY APPELLATION

FINANCIAL ANALYSIS

MORGAN HILL, CALIFORNIA
Prepared by: Keyser Marston Associates, Inc.

File Name: 6 19 24 PF Analysis; GF Page 13 of 14

APPENDIX D

PROPOSED ASSISTANCE PACKAGE

HOTEL MOHI BY APPELLATION

MORGAN HILL, CALIFORNIA
Year TOT
Hotel Food, Event
& Spa Restaurant
Total Sales Tax
Revenue
Total TOT + Sales
Tax Revenue Annual Rebate
1 2 $316,134 $26,825 $38,993 $65,818 $381,952 $99,952
2 651,237 56,096 81,543 137,639 788,876 498,416
3 718,687 86,237 125,357 211,594 930,280 631,107
4 740,247 88,824 129,118 217,942 958,189 650,040
5 762,455 91,489 132,991 224,480 986,935 669,541
6 785,328 94,234 136,981 231,214 1,016,543 689,627
7 808,888 97,061 141,090 238,151 1,047,039 710,316
8 833,155 99,972 145,323 245,295 1,078,450 731,626
9 858,149 102,972 149,683 252,654 1,110,804 753,574
10 883,894 106,061 154,173 260,234 1,144,128 776,182
11 910,411 109,243 158,798 268,041 1,178,451 799,467
12 937,723 112,520 163,562 276,082 1,213,805 823,451
13 965,855 115,895 168,469 284,365 1,250,219 848,155
14 994,830 119,372 173,523 292,896 1,287,726 873,599
15 1,024,675 122,953 178,729 301,682 1,326,358 899,807
Years 1 - 15
Total $12,191,667 $1,429,753 $2,078,334 $3,508,087 $15,699,754 $10,454,860 NPV 3 $7,250,000 $840,000 $1,221,000 $2,061,000 $9,311,000 $6,135,000 1 Based on 100% of the Total TOT + Sales Tax Revenue generated annually above a base of $282,000 escalated at 3% annually. 2 Based on the first year of operation.
3 Based on a 6.5% Discount Rate.

Sales Tax Revenue
Prepared by: Keyser Marston Associates, Inc.

File Name: 6 19 24 PF Analysis; GF Page 14 of 14

From: Christina Turner
To: Michelle Bigelow
Subject: Wednesday, June 26, 2024 City Council Meeting Questions Supplement for Item 11 - AUTHORIZE THE CITY MANAGER TO ENTER INTO AN AGREEMENT WITH

HOTEL MOHI BY APPELLATION FOR A TRANSIENT OCCUPANCY TAX AND SALES TAX SHARING

AGREEMENT
Date: Monday, June 24, 2024
Staff Report: In the event the developer defaults on any of the development scope and/or operational standards imposed by the City assistance agreement, and that default is not cured within a defined time period, the City assistance payments to the Proposed Project will terminate.

Question: Could you explain further, what do you mean defined time period? What will happen to the proposed project if terminated?
Response: The final Agreement will establish the framework to cure defaults of the Agreement. The developer would lose access to any TOT or sales tax share if the Agreement terminated.

Staff Report: TOT and Sales Tax sharing agreements can help improve a project's viability. Many local jurisdictions have used these types of agreements to ensure a project is completed, and it is financially viable during its multiple-year start-up period.

Question: Could you name a few?
Response: The following is a brief list of California cities that have implemented TOT rebate programs: Anaheim, Cathedral City, Dublin, Fountain Valley, Hollister, Los Angeles, Palm Springs, Placerville, and Santa Ana.

From: Christina Turner
To: CityClerk
Subject: FW: [EXTERNAL] Public Comment for June 26th City Council Meeting, Agenda Item #11 - Assistance Package for MOHI hotel
Date: Tuesday, June 25, 2024 12:24:45 PM
Please supplement.

From: Matt Mahood <[email protected]>
Sent: Tuesday, June 25, 2024 10:44 AM
To: Joe Baranowski <[email protected]>
Cc: Christina Turner <[email protected]>; CityClerk <[email protected]> Subject: FW: [EXTERNAL] Public Comment for June 26th City Council Meeting, Agenda Item #11 - Assistance Package for MOHI hotel
Good Morning Joe.

The team has provided answers to your questions below in red italics below.

Sincerely,
Matt
From: Joe Baranowski <[email protected]>
Sent: Monday, June 24, 2024 9:33 AM
To: Edith Ramirez <[email protected]>; Matt Mahood <[email protected]>
Cc: Yvonne Martinez Beltran <[email protected]>; Rene Spring <[email protected]>; Christina Turner <[email protected]>; Michelle Bigelow <[email protected]>; Marilyn Librers <[email protected]>; Mark Turner <[email protected]>; CC Public Comment <[email protected]>
Subject: [EXTERNAL] Public Comment for June 26th City Council Meeting, Agenda Item #11 - Assistance Package for MOHI hotel
Re.AGREEMENT WITH HOTEL MOHI BY APPELLATION FOR A TRANSIENT OCCUPANCY TAX AND SALES TAX SHARING AGREEMENT:

Hi Matt and Edith,
I have a few questions regarding the proposed City (Public) Assistance Package:

On November 16, 2022 the City Council approved a zoning amendment to add the planned development combining district and a design permit amemdment to allow for a 5th floor for the MOHI hotel.

The Staff Report said:

"While Leal Vineyard Inc. is now prepared to move forward with completion of the hotel, another challenge has surfaced. The lodging industry has been one of the hardest industries hit by the pandemic.

Today, hotels continue to operate at lower than normal occupancy levels and financing continues to be challenging for hotel projects, especially boutique hotels. The Economic Development Division has researched financing options to assist the Downtown boutique hotel and now understands hotel investors are seeking a minimum of 90-rooms to be considered operationally functional. The Conditional Use Permit and Design Permit approved in April of 2016 included a new 67,940 square foot, fourstory building with restaurants, bars, banquet halls, retail, and hotel lobby with 60-guest rooms with valet services. The completion of the base of the hotel limits the design capabilities to expand the hotel in gaining more rooms. The owner/developer has secured a short-term bridge loan that will allow the construction of the hotel to resume if there is additional guest rooms added."
The staff report also noted that:
"In April of 2016, the Planning Commission reviewed and approved a Design Permit and a Conditional Use Permit for a new Downtown Hotel.

The approvals included a new 67,940 square, four-story building with restaurants, bars, retail, banquet halls(s), and hotel lobby with guest rooms, services including valet parking and amenities. The Conditional Use Permit allows for an outdoor green event space, conference/meeting rooms, banquet rooms, and ancillary prep kitchens with one main kitchen to serve the hotel. The hotel also included a pool with outdoor living / lounge area. The project was approved by the City Council on May 18, 2016."
The developer submitted updated Building Plans at the November 2022 approval meeting. Those plans included
a market hall, hotel bar, market hall patio, hotel bar patio, large flex space, small flex space, floral, bar, sushi bar, kitchen, service/expo, amenity pool deck, bar, banquet hall, and kitchen / BOH areas.

As part of any Planned Development approval, the applicant must commit to including a design element of "substantial public benefit" that is something otherwise not required by the zoning permit definition. The developer committed to providing a Valet Service for any downtown visitor.

Q1: Has there ever been a time from 2016 to November 2022, when the MOHI Hotel (or equivalent under other names) was represented to the Planning Commission, the City Council or the residents of Morgan Hill as a Limited-Service Hotel project?

No. The project has always been represented as a full-service hotel.

However, the current MOU states that non-essential hotel amenities (restaurant, bar, meeting rooms, etc.) should not be completed prior to the completion of the hotel rooms. The proposed revenue sharing agreement should allow the developer to secure the funding needed to complete the majority of the project, including non-essential amenities simultaneously instead of in a longer, phased approach.

Q2: Has Morgan Hill ever entered into a Sales Tax Sharing Agreement with an auto dealership after the shell of the showroom or service buildings were under construction or already complete?
The City previously entered into a Sales Tax Sharing agreement with an existing and successful business, extending an existing Sales Tax Sharing Agreement for 10 years with The Ford Store Morgan Hill in 2013.

The staff report notes that:
"The estimated development costs of the project are $75.75 million. These development costs include the previous investment of nearly $20 million." (Note: 'project' in the above sentence means the MOHI by Appellation project.)
Q3: a) Did MH Staff ask KMA or any other financial consultant to review the project schedule, milestones, and probable terms and conditions the developer will have to meet in order to secure the ~$55M needed to complete the Project?
KMA was contracted to evaluate the opportunity, identify the financial gap, ascertain projected revenues from an upgraded hotel and restaurant, develop a financial package that supports the project completion, and limit the City’s financial risk. Additional performance measures will be included in the final contract, including a schedule of performance. b) Was there any risk analysis done? Yes, KMA reviewed the projects financial analysis to determine the accuracy and the level of support the project would need to be financially viable. The assistance is structured in a manner that limits the City’s risk.
c) If the Project experiences 10% cost overrun is the staff prepared to ask the city council to approve another $5.5M in City Assistance or does the staff believe the risk factors associated with Covid-19, supply chain, inflation, material availability, worker availability, etc., but excluding force majeure or pandemic risks, are now well known and the developer, if provided with the proposed City (Public) Assistance, has the ability to complete the Project even in the event that required capital exceeds the updated estimate for a luxury, boutique, full-service hotel rebranded from the original luxury, boutique, full service MOHI hotel?

The proposed financial package allows the project to move forward with limited financial risk to the City. The financial package expects to provide up to $6 million in support. However, should the project exceed revenue projections, it allows for the project to capture additional revenue within the 15-year term to support any additional capital investment needed.

Q4. Does the $282,000 base at the expected MOHI by Appellation room rate of $296 per night effectively mean the developer will receive 100% of TOT for every room above a 31.2% occupancy level up to $6M net present value then 50% of TOT for every room above a 31.2% occupancy level for the full 15-year term of the City Assistance package, even when excluding any sales tax from the restaurant or other on-site retail? Yes. If we understand your calculations correctly and based on the current projections. However, actual room rates and occupancy levels will impact the percentages. Appendix D outlines the rebate levels in detail. (Note: depending on the increase in room rate a unique luxury downtown hotel is able to realize vs the 3% annual increase in the 'base' level, the effective ~31% occupancy level may go up or down.)
Q5. The KMS financial analysis of the Assistance Package shows the developer would receive a total of $10.45M in TOT and Sales Tax rebates from the City (public) over the 15-year term. Is that correct? That is correct.

Q6. Has staff established any quantitative metrics to measure, track, and periodically report to the city council and to the public whether the stated Public Benefit of the City (Public) Assistance package including broader multiplier effect of economic growth, transformative for the City and business community, especially the Downtown district, and cementing the City's place branding as a tourist destination are being achieved assuming the developer receives the public assistance being proposed? The City will continue to track Sales Tax and TOT revenue in the Downtown district and throughout the City.

Thank you for your anticipated reply. I am sure the unique opportunity which staff, KMA, and the developer has identified will be approved by the City Council and as a resident of Morgan Hill I am already looking forward to December 2025 and the defining moment for Morgan Hill the opening of MOHI by Appellation will undoubtedly be.

Joe Baranowski

WARNING: This message is from an external user. Confidential information such as social security numbers, credit card numbers, bank routing numbers, gift card numbers, wire transfer information and other personally identifiable information should not be transmitted to this user. For question, please contact the Morgan Hill IT Department by opening a new helpdesk request online or call 408-909-0055.

From: Joe Baranowski
To: Christina Turner; Edith Ramirez; Matt Mahood
Cc: Rene Spring; Yvonne Martinez Beltran; Marilyn Librers; Mark Turner; Michelle Bigelow; CC Public Comment; Dat Nguyen; Donald Larkin; Chris Ghione; Planning_Commission Subject: [EXTERNAL] Not Tax Adverse; Trust Starved
Date: Tuesday, June 25, 2024 8:40:51 AM
Staff,
In November 2022, the MH economic development staff and the developer of MOHI, a boutique, luxury, full-service hotel, came before the City Council because they “now understand hotel investors are seeking a minimum of 90-rooms to be considered operationally functional.”
A Zoning Amendment "allowing the addition of a partial fifth-story to gain 11 guest rooms, plus the conversion of the gym to two additional guest rooms (13-total)" was required because "the partial fifth-story exceeds the Downtown height standards and levels/stories allowed within the Downtown Specific Plan" The requested amendment was approved, giving full leeway for the staff and the applicant to figure out the most basic details of the required substantial public benefit element (valet parking for all was proposed) later.

On Friday June 21st you released the agenda for the July 26th City Council meeting. Lo and behold, the economic development team and the developer are coming back to the City Council after having come to another ‘understanding’: investors expect a return on their investment which is consistent with foreseeable economic and financial conditions in the United States.

Specifically, the latest understanding assumes that investors need to have confidence that a proposed project can deliver net operating income of at least 8% of total development costs. Apparently, when the developer gained City approval to add a fifth floor and secured a short-term bridge loan that allowed construction of the hotel to resume, nobody considered how the hotel would be completed. Until now.

Consultant KMA estimates that a 76-room, luxury, boutique, full-service hotel in downtown MH with a restaurant backed not only by the original developer but by a world-renowned chef and the Appellation Hospitality Group will be able to realize annual Net Operating Income of ~$5.32M.

With an understanding that investors will demand an 8% return, MOHI rebranded as MOHI by Appellation, would only support an investment of ~$5.32M / 8% = $66.5M leaving a ‘GAP’ of ~$9M to the estimated development cost of ~$75.5M.

While the staff report leaves the consequences of ‘the City’ not filling the GAP unspecified, the implication of “the subject property is at risk of meeting the levels of investment metrics required to successfully achieve full capitalization and completion of development” is unmistakable. So, a Financial Assistance Package wrapped in a comparison between a never-imagined limited-service hotel and what the entire community has come to know as MOHI has been hatched.

KMA estimates the net result of the Financial Assistance Package will be that over

the first 15-years of operation, MOHI by Appellation owners/investors will receive at least $10.45M in TOT and sales tax rebates that would otherwise be deposited in the City’s General Fund and the residents of Morgan Hill will realize a ‘leftover’ public revenue benefit of $5.24M
You expect the City Council to approve that Financial Assistance Package ~72 working hours after first releasing it to the public. For MOHI.

I think staff can ramrod literally anything through the current City Council and you might have just as well scheduled the MOHI by Appellation vote for the consent calendar.

However, when voters in Morgan Hill are given an opportunity to be the ultimate decision-makers, stakeholders have more than 72-hours to engage with the community and are not limited to three-minute sound bites. You have implied that past attempts by the City to convince voters to approve additional revenue measures have failed because residents are “tax adverse”. Other ballot measures the City supported not related to tax increases have also failed by wide margins.I believe this proposal, coming as five floors of exposed concrete and wood framing are nearing completion, to ‘share’ public revenue in a way that the City rebates ~68% of total hotel (TOT) plus sales taxes from a project the community has great interest in, while making it a certaintly that a vote will take place before most residents even know about the proposal, is one more example among many other ‘opportunity of a lifetime’ decisions pushed by staff and approved by council that points to the actual problem the City has with getting voter approval.

Residents aren’t tax adverse; they are trust starved.

Joe Baranowski
WARNING: This message is from an external user. Confidential information such as social security numbers, credit card numbers, bank routing numbers, gift card numbers, wire transfer information and other personally identifiable information should not be transmitted to this user. For question, please contact the Morgan Hill IT Department by opening a new helpdesk request online or call 408-909-0055.

Paramit Corporation
18735 Madrone Parkway
Morgan Hill, CA 95037
USA
T +1 408 782 5600
F +1 408 782 9991
www.paramit.com
[email protected]
June 24, 2024
Mayor Mark Turner
Mayor Pro Tem Marilyn Lieber
Councilmember Gino Borgioli
Councilmember Yvonne Martinez-Beltran
Councilmember Rene Spring
City of Morgan Hill
17575 Peak Avenue
Morgan Hill, CA 95037
Subject: Authorization for City Manager to Enter into an Agreement with Hotel MOHI by Appellation
Dear Mayor Turner, Mayor Pro Tem Lieber, and Council Members, We, Paramit, A Tecan Group Company, are writing to express our strong support for Agenda Item #11 at the upcoming City Council meeting scheduled for June 26, 2024. This item concerns the authorization for the City Manager to prepare and execute a Transient Occupancy Tax (TOT) and Sales Tax Sharing Agreement for the Hotel MOHI by Appellation project.

As part of the City of Morgan Hill's strategy to enhance its economic development through tourism, the rebranding of Hotel MOHI to Hotel MOHI by Appellation is a pivotal move towards establishing our city as a premier tourist destination. This initiative not only promises to elevate the project's caliber but also to attract top-tier talent, including a world-renowned chef, thus creating a four-star hotel appealing to both business and leisure travelers. The enhanced facility is expected to draw more visitors to our downtown area, bolstering support for local businesses.

The financial implications of this project are particularly compelling. The increase in Transient Occupancy Tax and Sales Tax generated will directly benefit the General Fund, which underwrites critical city services including Police and Fire, along with other community amenities. The projected rise in tax revenue underscores the project’s potential to substantially bolster our city’s financial health.

Additional considerations for the Council's approval include:
• The TOT and Sales Tax sharing agreements are essential for enhancing the project's financial feasibility.
• Such financial assistance aligns seamlessly with the goals of the City's Auto and Hotel Incentive Program.
• This is a common practice among cities seeking to attract large-scale projects that promise significant economic benefits.

Paramit Corporation
18735 Madrone Parkway
Morgan Hill, CA 95037
USA
T +1 408 782 5600
F +1 408 782 9991
www.paramit.com
[email protected]
• The inclusion of a Charlie Palmer restaurant will notably advance Morgan Hill's culinary prestige.
• The project is expected to be transformative for Morgan Hill’s tourism identity, supporting not only the hotel but also the broader business community. • It will attract a broader range of activities including meetings, and conferences, further enriching our city’s tourism assets.

Given these substantial benefits, we urge the City Council to approve the authorization for the City Manager to move forward with this agreement as outlined in the Draft Deal Points by KMA.

Thank you for considering this pivotal opportunity for our community. We appreciate your support and leadership as we continue to advance Morgan Hill’s economic and cultural development.

Sincerely,
Andrea Leslie
Vice President of Human Resources, America
Paramit, A Tecan Group Company

HOTEL MOHI BY APPELLATION
June 26, 2024 1

BACKGROUND
2 • Tourism is a key economic development
strategy
• City needs more lodging options
• City is losing corporate and leisure hotel
bookings
• Last hotel was developed in 2016
• 2022 City approved a Hotel Incentive Policy

HOTEL MOHI HISTORY
3 2016 – 60 Room Boutique Hotel Approved
2019 – Hotel Construction began
2020 – COVID-19 Pandemic—Construction halted
2020 – MOHI Social Pop-up Restaurant
2022 – City approves 13 more rooms and MOU
2022 – City approves Hotel Incentive Policy (HIP)
2024 – Hotel MOHI by Appellation Opportunity

HOTEL CHALLENGES
4 Difficult economic environment
• Rising cost of construction & materials
• Cost of capital
• COVID-19 pandemic impact on lodging & hospitality
Project costs have gone up
• 2016 – Project budgeted to cost $16 million
• 2022 – Project budgeted to cost $40 million
• 2024 – Project now expected to cost $76 million

OPPORTUNITY
5 • Charlie Palmer - American chef, entrepreneur, hotelier, author, credited with 20 Michelin stars
• Co-founder of Appellation Hospitality focused on culinary excellence, luxury experience with a sense of place &
community
• Projects in Healdsburg, Lodi, Pacific Grove, Petaluma, and Sun Valley

BENEFITS
6 • Rebrand project to Hotel MOHI by Appellation
• Upgrade project (quality of amenities)
• Attract a world-renowned chef
• 4-Star Hotel
• Attract leisure travel
• Retain corporate travel
• Attract weddings and conference events
• Increased TOT and Sales Tax Revenue
• Support new Fine Art Gallery and other businesses
• Creates a tourism asset

THE PROJECT
7 • 76 rooms (assumes 3 more rooms than currently
designed)
• 14,000 SF of Food and Beverage areas
• 11,000 SF of Event space
• 2,100 SF Spa
• Swimming pool and pool deck

FINANCIAL ANALYSIS
8 City staff engaged Keyser Marston Associates (KMA) to:
• Evaluate the opportunity
• Identify the financial gap
• Ascertain projected revenues from upgraded hotel and
restaurant
• Develop a financial package that supports project completion • Limit the City’s financial risk

• Current project cost estimated at $75.8 million
• The project’s financials support a $66.5 million
investment of debt and equity.
• Total project feasibility gap is $9.3 million
• Proposed project would yield $182,000 in TOT and
Sales Tax annually above City’s previous estimates

FINDINGS
9

Should the City Council consider a TOT
and Sales Tax Sharing Agreement to
support this project?

POLICY QUESTION
10  Feasibility gap is approximately: $9.3 Million
 Added benefit: $182,000 Annually
What should be the structure of a
financial package?

• City shares TOT and Sales Tax
• City receives a base of $282,000 plus 3% annual
increase
• City caps assistance at 15 years
• City reduces assistance after project achieves $6 million in rebates (NPV)

PROPOSED FINANCIAL

ASSISTANCE PACKAGE
11

• The Base is established by splitting the City’s original projected annual revenue before Appellation and current projected annual revenue with the addition of the Appellation partnership • Proposed Base: $282,000 plus annual 3% increases
• Project receives 100% of TOT and Sales Tax above the base, up to $6 million (NPV)
• If the project achieves $6 million in rebates (NPV), the project only receives 50% of TOT and Sales Tax above the base for the remainder of the term

PROPOSED FINANCIAL
ASSISTANCE PACKAGE (cont.)
12 Hotel MOHI
Budgeted
Hotel MOHI by
Appellation Proposed Base
$200,000 $382,000 $282,000

 Closing project’s feasibility gap
 Increasing the City’s projected revenue by $82,000
annually
 Limiting the City’s financial risk
 Providing financial assistance only after the project generates TOT and Sales Tax above established
base
 Potentially lowers financial assistance over time

FINANCIAL ASSISTANCE

GUIDING PRINCIPLES
13

• TOT and Sales Tax sharing agreement improves the project's viability
• Financial assistance is consistent with City’s Auto Incentive and Hotel Incentive Policy goals
• Common industry practice
• Redesigned project creates a lifestyle luxury hotel
• Charlie Palmer restaurant will further establish the City’s culinary reputation
• Project will be transformational for Morgan Hill’s tourism brand • Project will support other businesses and other hotels

CONCLUSION
14

Authorize the City Manager to prepare and execute a
Transient Occupancy Tax (TOT) and Sales Tax
Sharing Agreement for the Hotel MOHI by Appellation
project based on the draft deal points memorialized by
KMA.

STAFF RECOMMENDATION
15

Questions?

12 CITY COUNCIL STAFF REPORT
MEETING DATE: June 26, 2024
PREPARED BY:

Dat Nguyen, Finance Director
APPROVED BY: City Manager

RECEIVE WASTEWATER RATE STUDY REPORT, ADOPT

RESOLUTION DECLARING INTENT TO IMPLEMENT NEW
WASTEWATER RATES AND COMMENCING PROPOSITION 218
NOTICES, AND SET AUGUST 28, 2024, AS THE DATE FOR A PUBLIC

HEARING

RECOMMENDATION(S)

1. Receive Wastewater Rate Study report;

2. Consider implementing an alternative rate structure of a 100% fixed wastewater rate charge for residential customers and/or an additional wastewater meter account charge for those residential customers with detached Accessory Dwelling Units (ADU);

3. Adopt resolution declaring intent to adjust wastewater rates and authorizing the commencement of Proposition 218 noticing; and

4. Set August 28, 2024, as the date for the Public Hearing and adoption of new wastewater rates.

COUNCIL PRIORITIES, GOALS & STRATEGIES
City Council Ongoing Priorities
Maintaining and Enhancing Infrastructure
Preserving and Cultivating Public Trust
2024-2025 Strategic Priorities
Fiscal Sustainability
Guiding Documents
Wastewater System Master Plan
REPORT NARRATIVE:

POLICY CONSIDERATIONS:

Should the City Council consider adopting an alternative rate structure of a 100% fixed wastewater rate charge for residential customers? Additionally, should the City Council consider implementing an additional wastewater meter charge for those residential customers with Accessory Dwelling Units (ADUs)?

12 BACKGROUND:

The City owns and operates the Wastewater Collection System within the Engineering and Utilities Department. The system collects wastewater from residences and businesses throughout the City and delivers the wastewater for treatment to the South County Regional Wastewater Facility.

Day-to-day operations of the system are managed by City staff while relying on consultants and contractors to provide expertise in the areas of planning, detailed engineering, and capital projects. Additionally, the City of Morgan Hill jointly owns and operates the Treatment Plant with the City of Gilroy through a joint power authority.

Funding for the Wastewater System and Treatment Plant comes from two primary sources: rates charged to users of the system and developer impact fees. Rates are used to fund the ongoing operations of the Wastewater System and the Treatment Plant. Rates also fund capital projects which repair or replace existing components of the system. Impact fees are used for capital projects that increase capacity, expand the system, and/or construct new system components. Impact fees are charged to developers to ensure that ratepayers are not paying for costs associated with new development.

Residential customers pay a monthly sewer service charge consisting of a base fee associated with the meter size and a usage fee. The residential sewer usage fee is based on the average measured volume of water usage for the three lowest consecutive months between November and April of each year. The sewer charge for commercial and other nonresidential customers consists of a base rate plus a usage fee based on the measured volume of water usage. Currently, the sewer revenues from monthly customer bill payments are comprised of about 40% fixed and 60% variable, while the costs to provide the services are mainly fixed. It is recommended that in the proposed current rate structures, the rates for residential to be made up of 50% fixed charges and 50% variable (consumption) charges, similar to water.

Unlike private utility companies that benefit financially from increased rates associated with increased costs, the City strives to maintain low rates to support its residents and businesses. However, significant improvements to the City's aging wastewater infrastructure will be necessary in the near future. The City's system includes some pipe sections that are over 90 years old. As the system ages or is damaged by natural changes in the environment (such as tree roots), the sewer pipes begin allowing rainwater and groundwater to enter the wastewater system. During extremely wet conditions, this infiltration can cause the wastewater system to be overwhelmed and spill. To ensure the safety of residents and to meet the requirements established by the State of California and regulatory agencies, the City must continue to repair these issues.

On May 15, 2024, the City Council approved a Wastewater System Master Plan for future repairs and improvements to the City's wastewater system. The Master Plan identified $57.9 million in expansion and capacity-related improvement projects (impact fee funded) and $80.2 million in improvements necessary to repair the City's existing

12 system (ratepayer-funded). City staff have determined the impact fee funded projects can likely be funded through the projected impact fees and/or financed through bonding against future impact fees and user fees. However, staff still identified a significant shortage in funding to make the legally required repairs and improvements to the existing system. This, along with the ratepayers' share of the new trunk line, the end of the current 5-year rate adjustment approved in 2019, and the new debt service payments for potential new debt issuance, were the primary factors in moving forward with a rate study and proposed adjustments to the current rates (link to the 2024 Wastewater Rate Study).

Alternative Fixed Rate Structure
As part of this rate study, staff also asked the consultant to develop an alternative rate structure consistent with other jurisdictions of a 100% fixed wastewater rate charge for single- and multifamily customers. In this alternative structure, single-family residential charges are based on account, and multifamily residential customer charges are per dwelling unit. The rate structure for nonresidential customers remains unchanged. The benefits of adopting the alternative rate structure include simplifying the billing process, and providing residential customers with a known fixed monthly amount.

Additional Meter Account Wastewater Charges for Detached ADUs There are currently about 50 detached ADUs in the City and the numbers are expected to increase as the State continues to pass new ADU laws lifting restrictions and making it easier and more affordable to build Accessory Dwelling Units. In order to equitably share the cost of providing the wastewater service, staff is recommending the City Council consider implementing additional meter account charges for those residential customers with a detached ADU. If implemented under the current rate structure, a fixed monthly charge of $38.90 per detached ADU would generate additional revenue of approximately $23,000/year. Under the alternative fixed rate structure, a single-family residential unit with a detached ADU would be charged as two multifamily residential units at a monthly fixed rate of $70.13 for each unit, which would generate additional revenue of approximately $41,000/year.

Lift Station Charge
Staff recommends continuing to assess the Lift Station Charge to benefit customers, as established during the 2015 rate study, and continuing the established annual adjustment rate, which is similar to the overall rate adjustments.

Low-Income Subsidy Recommendation
To help alleviate the financial impact of the proposed rate increase, and to assist Morgan Hill low-income and low-income senior residents, Council approved the wastewater subsidy with the approval of the 2019 rate study. Staff recommends extending the subsidy throughout the financial plan with an annual increase similar to the overall rate adjustments of the system.

Recommended
Wastewater Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028

12 Subsidy
Amount $14.17 $15.45 $16.84 $18.18 $19.64 $21.21
% N/A 9% 9% 8% 8% 8%
Proposition 218
In order to implement the fee adjustments, the City is required to follow Proposition 218 majority protest proceedings. Proposition 218 requires specific procedures to be followed with regard to property-related fee increases. The California Constitution requires local governments to give mailed notice of any property-related proposed fee changes at least 45 days before holding a public hearing where the City Council may adopt or reject the changes. Those opposed to the proposed rate adjustments can submit written protests to the City. If a majority (50% plus 1) of customers oppose the proposed rate adjustments, City Council cannot implement the proposed increases. See attachments 1-4 with the rate structures alternatives and average cost per customer.

Staff recommends alternative fixed rate structure with additional meter account charges for detached ADUs (Attachment 4).

A dedicated email address, [email protected], has been setup for customers to submit any Proposition 218 comments electronically. This dedicated email address is for customers to submit comments and/or inquiries about the proposed wastewater rate adjustments, but they will not be counted as written protest. Written protests can only be submitted by mail or in person. Staff anticipates August 28, 2024, as a tentative date for the City Council to hold a public hearing to review Proposition 218 comments and adopt the rate increases with a service period beginning October 1, 2024.

COMMUNITY ENGAGEMENT:

This staff report serves to inform the community of the wastewater rate study. On June 14, 2024, an email blast was sent to community members on the City’s electronic distribution list of the wastewater rate study report and June 26, 2024 meeting.

ALTERNATIVE ACTIONS:

City Council could elect not to adopt the resolution of intent or could approve a lower rate adjustment than presented.

PRIOR CITY COUNCIL AND COMMISSION ACTIONS:

On May 15, 2024, the City Council adopted the Wastewater System Master Plan.

FISCAL AND RESOURCE IMPACT:

The fiscal impact of preparing this report is included in the staff’s annual workplan. The cost for the wastewater rate study, was budgeted in the Wastewater Operations Fund (640) in the current fiscal year.

If the Proposition 218 majority protest process is concluded without majority protest, and the wastewater rate adjustments are adopted as presented, the new rate increases

12 could generate an average of $4.7 million annually, for the next five years, to assist in recovery of costs to provide and maintain infrastructure and services. In addition, the cost of Proposition 218 mailing will be borne by the Wastewater Operations Fund (640).

Those costs are projected to be $20,000.

CEQA (California Environmental Quality Act):

Not a Project.

Organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment.

Proposition 218 Notification
Notice of Public Hearing
On Wastewater Rate Adjustments
17555 PEAK AVENUE
MORGAN HILL, CA 95037-4128
WWW.MORGANHILL.CA.GOV

Hearing Date and Time: August 28, 2024, at 6:00 pm or as soon thereafter as possible Hearing Location: City Council Chambers • 17555 Peak Avenue • Morgan Hill, CA 95037-4128 The City of Morgan Hill is proposing a five-year wastewater rate program adjustment for all customers. The proposal will be considered by the City Council at a Public Hearing on August 28, 2024. If approved, the wastewater rate adjustments will commence with the service period which contains October 1, 2024, and adjusted annually thereafter. You are receiving this notification in compliance with California Constitution Article XIII D Section 6 (Proposition 218) requirements that all impacted property owners are mailed notice of proposed rate changes at least 45 days prior to a public hearing.

In addition, Section 53755 of the Government Code authorizes that notices be mailed to customers who are billed for the service. Proposition 218 also establishes a protest process for the public to follow if they wish to oppose the proposed rates.

BASIS OF PROPOSED RATES
The City is required by State law and City policy to collect revenues sufficient to cover the costs of operating the wastewater system. These revenues allow the City to protect public health and safely and reliably convey and treat wastewater. Costs that must be recovered through rate revenue include electricity, equipment, supplies and services, wastewater treatment, debt service, and salaries and benefits. Additionally, revenues generated from wastewater rates would be used to finance the repair and renovation of aging wastewater infrastructure and maintain reserve funds. The rates proposed herein were developed through a Wastewater Rate Study designed to meet all legal requirements and fairly and equitably recover the required revenue from all customer classes. The Rate Study is available for review at https://www.morganhill.ca.gov/DocumentCenter/View/49150/2024-Sewer-Rate-Study-PDF.

WHAT DO WASTEWATER RATES FUND?
The City provides wastewater utility services to residential and commercial customers. All revenue generated from customer wastewater bills is used to pay for the ongoing operation, maintenance, repair and replacement of the existing wastewater systems. The cost of system expansions, to serve new development, is recovered through connection or impact fees imposed on the developer requesting City services. By State law, the City may not collect more revenue than is necessary to recover the costs of providing services.

WHY IS THE RATE ADJUSTMENT NEEDED?
Unlike private utility companies that benefit financially from increased rates associated with increased costs, the City strives to maintain low rates to support its residents and businesses. However, significant improvements to the City’s aging wastewater infrastructure are necessary soon. The City’s system includes certain pipe sections that are over 90 years old. As the system ages and is damaged by natural changes in the environment (such as tree roots) the sewer pipes begin allowing rainwater and groundwater to enter the wastewater system. During extremely wet conditions this infiltration can cause the wastewater system to be overwhelmed and spill. To ensure the safety of residents and to meet the requirements of the State of California, the City must repair these issues. The capital projects associated with the repair of the aging system require appropriate funding, which results in an increase to the wastewater rates. Additionally, rates are periodically adjusted to keep up with the rising cost of operating and maintaining the collection system and the cost of wastewater treatment.

The City plans to utilize municipal bonds to cover some of the City’s existing wastewater infrastructure improvements.

Financing allows the costs to be spread out over 20-30 years, reducing the immediate impact to rates. The City balanced the levels of financing and rate adjustments necessary to provide for moderate rate increases, while keeping debt at a manageable level.

Attachment 1 - Current Rate Structure

PROPOSED WASTEWATER RATES
The City currently charges residential and non-residential customers a monthly fixed wastewater charge based on meter size. In addition to a fixed monthly charge, residential customers pay a variable charge (volumetric charge) of $5.74 per unit of baseline water use for wastewater service, with a minimum volume of 2. Variable charges for residential customers are determined by the average monthly water usage for the three lowest consecutive months in the period between November and April of each year. As a general rule, a household’s average monthly water use for the months of November through April provides a reasonable baseline estimate of the wastewater produced by the household each month of the year. Commercial and industrial customers are billed according to the volume of flow and strength of their wastewater discharges. The proposed wastewater rate charges for the next five years are presented in detail on Table 1: Proposed Wastewater Rate Adjustment Schedule 2024-2028, below.

Table 1: Proposed Wastewater Rate Adjustment Schedule 2024-2028.

LIFT STATION SERVICE CHARGES
Due to Morgan Hill’s varying topography, additional infrastructure is required to provide wastewater services to residents living at different elevations within the City. Lift station charges based on the cost of service to operate and replace this additional infrastructure will be charged to those residents living in the areas requiring the use of the additional infrastructure. Proposed lift station service charges are included on Table 2: Proposed Lift Station Service Charge. Maps Sewer Rate Schedule
Current
Rates
Proposed Rates
10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028

9.00% 9.00% 8.00% 8.00% 8.00%
Monthly Fixed Charges:

Residential (5/8-1 inch meters) $27.05 $38.90 $42.40 $45.79 $49.46 $53.41 All Other Customers:
5/8 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40
3/4 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40
1 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40

1.5 inch $101.27 $139.52 $152.08 $164.24 $177.38 $191.57 2 inch $161.24 $218.98 $238.68 $257.78 $278.40 $300.67
3 inch $351.26 $470.73 $513.10 $554.15 $598.48 $646.36
4 inch $630.93 $841.27 $916.98 $990.34 $1,069.57 $1,155.13 6 inch $1,400.38 $1,860.72 $2,028.18 $2,190.43 $2,365.67 $2,554.92 8 inch $2,163.33 $2,871.55 $3,129.99 $3,380.39 $3,650.82 $3,942.89 10 inch $2,704.16 $3,589.02 $3,912.04 $4,225.00 $4,563.00 $4,928.04 Monthly Volumetric Charges:

Single-Family
(Applied to Avg. Winter Water Use)
Multi-Family
(Applied to Avg. Winter Water Use)
Commercial Charge
(Applied to Monthly Water Use):

Commercial 1
Commercial 2
Commercial 3
Commercial 4
Commercial 5
Commercial 6
$5.74 $5.18 $5.64 $6.10 $6.58 $7.11
$5.74 $5.18 $5.64 $6.10 $6.58 $7.11
$5.49 $7.51 $8.18 $8.84 $9.54 $10.31
$6.42 $8.32 $9.06 $9.79 $10.57 $11.42
$7.81 $9.68 $10.55 $11.39 $12.30 $13.29
$8.86 $12.03 $13.12 $14.17 $15.30 $16.52
$10.52 $19.44 $21.19 $22.88 $24.71 $26.69
$17.56 $32.26 $35.17 $37.98 $41.02 $44.30

that allow customers to determine if they fall within an area serviced by lift stations are available for review at https://www.morganhill.ca.gov/DocumentCenter/View/24457/Customer-Sewer-Lift-Zone-Map?bidId= Table 2: Proposed Lift Station Service Charge per Account Lift Station Service Charge (As Applicable)
Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
$11.23 $12.24 $13.34 $14.41 $ 15.56 $ 16.81
Total Percent Increase N/A 9% 9% 8% 8% 8%

IMPACT TO WASTEWATER CHARGE ON THE BILL
If approved, wastewater rate increases would commence with the service period which contains October 1, 2024, and adjust annually for service periods containing July 1 thereafter.

The total amount of a customer’s wastewater charge will depend on the amount of water used between the months of November and April. For an average single-family residence (7 units of wastewater), the wastewater charge on the utility bill will increase as shown below.

Table 3: Average Monthly Single-Family Residence Wastewater Charge (7 units) Under Proposed Rates
Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
Wastewater $67.23 $75.16 $81.88 $88.49 $95.52 $103.18
Total Percent Increase N/A 9% 9% 8% 8% 8%

HOW TO PROTEST THE PROPOSED RATE ADJUSTMENTS
As the owner or customer of record of a parcel subject to the imposition of the proposed rate adjustments, you may submit a written protest against the proposed rate changes. If the City receives written protests against proposed wastewater rates by a majority of the affected property owners or tenants or utility customers on record prior to the end of the hearing, the Council will not approve the change. Only one written protest will be counted per identified parcel.

You have the right to withdraw a written protest that you previously submitted prior to the conclusion of the public hearing. The City Council will count all written protests received (not postmarked) prior to the conclusion of the public hearing. The City Council will not count written protests submitted after the conclusion of the public hearing.

A written protest must include (1) your name; (2) identification of the parcel by address or assessor’s parcel number; (3) whether you are the owner of the parcel or the person receiving the service for which the fee is charged; and (4) your statement of the specific rate changes for which you protest the increase in the fee; and (5) your original signature. Written protests will not be accepted by e-mail or by fax. Verbal protests will not be counted. Written protests may be submitted by mail or in person to:

City of Morgan Hill
Attn: Rate Protest
17575 Peak Avenue
Morgan Hill, CA 95037-4128
For more information, visit https://www.morganhill.ca.gov/DocumentCenter/View/49150/2024-Sewer-Rate-Study-PDF This material is available in alternative formats upon request to accommodate persons with disabilities or non-English speakers. To order information in an alternative format, or to arrange for a sign language or oral interpreter at the August 28, 2024, hearing, please call or email the Clerk’s office by 5 pm on Thursday, August 15, 2024.

City Clerk: (408) 779-7259, [email protected]

Proposition 218 Notification
Notice of Public Hearing
On Wastewater Rate Adjustments
17555 PEAK AVENUE
MORGAN HILL, CA 95037-4128
WWW.MORGANHILL.CA.GOV

Hearing Date and Time: August 28, 2024, at 6:00 pm or as soon thereafter as possible Hearing Location: City Council Chambers • 17555 Peak Avenue • Morgan Hill, CA 95037-4128 The City of Morgan Hill is proposing a five-year wastewater rate program adjustment for all customers. The proposal will be considered by the City Council at a Public Hearing on August 28, 2024. If approved, the wastewater rate adjustments will commence with the service period which contains October 1, 2024, and adjusted annually thereafter. You are receiving this notification in compliance with California Constitution Article XIII D Section 6 (Proposition 218) requirements that all impacted property owners are mailed notice of proposed rate changes at least 45 days prior to a public hearing.

In addition, Section 53755 of the Government Code authorizes that notices be mailed to customers who are billed for the service. Proposition 218 also establishes a protest process for the public to follow if they wish to oppose the proposed rates.

BASIS OF PROPOSED RATES
The City is required by State law and City policy to collect revenues sufficient to cover the costs of operating the wastewater system. These revenues allow the City to protect public health and safely and reliably convey and treat wastewater. Costs that must be recovered through rate revenue include electricity, equipment, supplies and services, wastewater treatment, debt service, and salaries and benefits. Additionally, revenues generated from wastewater rates would be used to finance the repair and renovation of aging wastewater infrastructure and maintain reserve funds. The rates proposed herein were developed through a Wastewater Rate Study designed to meet all legal requirements and fairly and equitably recover the required revenue from all customer classes. The Rate Study is available for review at https://www.morganhill.ca.gov/DocumentCenter/View/49150/2024-Sewer-Rate-Study-PDF.

WHAT DO WASTEWATER RATES FUND?
The City provides wastewater utility services to residential and commercial customers. All revenue generated from customer wastewater bills is used to pay for the ongoing operation, maintenance, repair and replacement of the existing wastewater systems. The cost of system expansions, to serve new development, is recovered through connection or impact fees imposed on the developer requesting City services. By State law, the City may not collect more revenue than is necessary to recover the costs of providing services.

WHY IS THE RATE ADJUSTMENT NEEDED?
Unlike private utility companies that benefit financially from increased rates associated with increased costs, the City strives to maintain low rates to support its residents and businesses. However, significant improvements to the City’s aging wastewater infrastructure are necessary soon. The City’s system includes certain pipe sections that are over 90 years old. As the system ages and is damaged by natural changes in the environment (such as tree roots) the sewer pipes begin allowing rainwater and groundwater to enter the wastewater system. During extremely wet conditions this infiltration can cause the wastewater system to be overwhelmed and spill. To ensure the safety of residents and to meet the requirements of the State of California, the City must repair these issues. The capital projects associated with the repair of the aging system require appropriate funding, which results in an increase to the wastewater rates. Additionally, rates are periodically adjusted to keep up with the rising cost of operating and maintaining the collection system and the cost of wastewater treatment.

The City plans to utilize municipal bonds to cover some of the City’s existing wastewater infrastructure improvements.

Financing allows the costs to be spread out over 20-30 years, reducing the immediate impact to rates. The City balanced the levels of financing and rate adjustments necessary to provide for moderate rate increases, while keeping debt at a manageable level.

Attachment 2 - Alternative Fixed Rate Structure

PROPOSED WASTEWATER RATES
The City currently charges residential and non-residential customers a monthly fixed wastewater charge based on meter size. In addition to a fixed monthly charge, residential customers pay a variable charge (volumetric charge) of $5.74 per unit of baseline water use for wastewater service, with a minimum volume of 2. Variable charges for residential customers are determined by the average monthly water usage for the three lowest consecutive months in the period between November and April of each year. An alternative Fixed rate structure is proposed that will simplify the billing process for residential customers. The City is proposing an alternative rate structure of a 100% fixed wastewater rate charge for both single-family and multi-family residential customers. In this alternative structure, single-family residential charges are based on account and multi-family residential customers charges are per dwelling unit. The rate structure for nonresidential customers remains unchanged. The proposed alternative rate structure is shown in Table 1 Proposed Wastewater Rate Adjustment Schedule 2024-2028, below.

Table 1: Proposed Wastewater Rate Adjustment Schedule 2024-2028.

LIFT STATION SERVICE CHARGES
Due to Morgan Hill’s varying topography, additional infrastructure is required to provide wastewater services to residents living at different elevations within the City. Lift station charges based on the cost of service to operate and replace this additional infrastructure will be charged to those residents living in the areas requiring the use of the additional infrastructure. Proposed lift station service charges are included on Table 2: Proposed Lift Station Service Charge. Maps that allow customers to determine if they fall within an area serviced by lift stations are available for review at https://www.morganhill.ca.gov/DocumentCenter/View/24457/Customer-Sewer-Lift-Zone-Map?bidId= Sewer Rate Schedule
Current
Rates
Proposed Rates
10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028

9.00% 9.00% 8.00% 8.00% 8.00%
Monthly Fixed Charges:

Single-Family Residential (100% Fixed Charge) N/A $71.89 $78.37 $84.63 $91.41 $98.72 Multi-Family Residential (100% Fixed, per DU) N/A $70.13 $76.44 $82.56 $89.16 $96.30 All Other Customers:
5/8 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40
3/4 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40
1 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40

1.5 inch $101.27 $139.52 $152.08 $164.24 $177.38 $191.57 2 inch $161.24 $218.98 $238.68 $257.78 $278.40 $300.67
3 inch $351.26 $470.73 $513.10 $554.15 $598.48 $646.36
4 inch $630.93 $841.27 $916.98 $990.34 $1,069.57 $1,155.13 6 inch $1,400.38 $1,860.72 $2,028.18 $2,190.43 $2,365.67 $2,554.92 8 inch $2,163.33 $2,871.55 $3,129.99 $3,380.39 $3,650.82 $3,942.89 10 inch $2,704.16 $3,589.02 $3,912.04 $4,225.00 $4,563.00 $4,928.04 Monthly Volumetric Charges:

Commercial Charge
(Applied to Monthly Water Use):

Commercial 1
Commercial 2
Commercial 3
Commercial 4
Commercial 5
Commercial 6
$5.49 $7.51 $8.18 $8.84 $9.54 $10.31
$6.42 $8.32 $9.06 $9.79 $10.57 $11.42
$7.81 $9.68 $10.55 $11.39 $12.30 $13.29
$8.86 $12.03 $13.12 $14.17 $15.30 $16.52
$10.52 $19.44 $21.19 $22.88 $24.71 $26.69
$17.56 $32.26 $35.17 $37.98 $41.02 $44.30 Page 439 of 478

Table 2: Proposed Lift Station Service Charge
Lift Station Service Charge (As Applicable)
Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
$11.23 $12.24 $13.34 $14.41 $ 15.56 $ 16.81
Total Percent Increase N/A 9% 9% 8% 8% 8%

IMPACT TO WASTEWATER CHARGE ON THE BILL
If approved, wastewater rate increases would commence with the service period which contains October 1, 2024, and adjust annually for service periods containing July 1 thereafter.

The total amount of customer’s wastewater charge will be fixed and for a single-family residence the wastewater charge on the utility bill will change as shown below.

Table 3: Average Monthly Single-Family Residence Wastewater Charge Under Proposed Rates
Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
Wastewater N/A $71.89 $78.37 $84.63 $91.41 $98.72
Total Percent Increase N/A 9% 9% 8% 8% 8%

HOW TO PROTEST THE PROPOSED RATE ADJUSTMENTS
As the owner or customer of record of a parcel subject to the imposition of the proposed rate adjustments, you may submit a written protest against the proposed rate changes. If the City receives written protests against proposed wastewater rates by a majority of the affected property owners or tenants or utility customers on record prior to the end of the hearing, the Council will not approve the change. Only one written protest will be counted per identified parcel.

You have the right to withdraw a written protest that you previously submitted prior to the conclusion of the public hearing. The City Council will count all written protests received (not postmarked) prior to the conclusion of the public hearing. The City Council will not count written protests submitted after the conclusion of the public hearing.

A written protest must include (1) your name; (2) identification of the parcel by address or assessor’s parcel number; (3) whether you are the owner of the parcel or the person receiving the service for which the fee is charged; and (4) your statement of the specific rate changes for which you protest the increase in the fee; and (5) your original signature. Written protests will not be accepted by e-mail or by fax. Verbal protests will not be counted. Written protests may be submitted by mail or in person to:

City of Morgan Hill
Attn: Rate Protest
17575 Peak Avenue
Morgan Hill, CA 95037-4128
For more information, visit https://www.morganhill.ca.gov/DocumentCenter/View/49150/2024-Sewer-Rate-Study-PDF This material is available in alternative formats upon request to accommodate persons with disabilities or non-English speakers. To order information in an alternative format, or to arrange for a sign language or oral interpreter at the August 28, 2024, hearing, please call or email the Clerk’s office by 5 pm on Thursday, August 15, 2024.

City Clerk: (408) 779-7259, [email protected]

Proposition 218 Notification
Notice of Public Hearing
On Wastewater Rate Adjustments
17555 PEAK AVENUE
MORGAN HILL, CA 95037-4128
WWW.MORGANHILL.CA.GOV

Hearing Date and Time: August 28, 2024, at 6:00 pm or as soon thereafter as possible Hearing Location: City Council Chambers • 17555 Peak Avenue • Morgan Hill, CA 95037-4128 The City of Morgan Hill is proposing a five-year wastewater rate program adjustment for all customers. The proposal will be considered by the City Council at a Public Hearing on August 28, 2024. If approved, the wastewater rate adjustments will commence with the service period which contains October 1, 2024, and adjusted annually thereafter. You are receiving this notification in compliance with California Constitution Article XIII D Section 6 (Proposition 218) requirements that all impacted property owners are mailed notice of proposed rate changes at least 45 days prior to a public hearing.

In addition, Section 53755 of the Government Code authorizes that notices be mailed to customers who are billed for the service. Proposition 218 also establishes a protest process for the public to follow if they wish to oppose the proposed rates.

BASIS OF PROPOSED RATES
The City is required by State law and City policy to collect revenues sufficient to cover the costs of operating the wastewater system. These revenues allow the City to protect public health and safely and reliably convey and treat wastewater. Costs that must be recovered through rate revenue include electricity, equipment, supplies and services, wastewater treatment, debt service, and salaries and benefits. Additionally, revenues generated from wastewater rates would be used to finance the repair and renovation of aging wastewater infrastructure and maintain reserve funds. The rates proposed herein were developed through a Wastewater Rate Study designed to meet all legal requirements and fairly and equitably recover the required revenue from all customer classes. The Rate Study is available for review at https://www.morganhill.ca.gov/DocumentCenter/View/49150/2024-Sewer-Rate-Study-PDF.

WHAT DO WASTEWATER RATES FUND?
The City provides wastewater utility services to residential and commercial customers. All revenue generated from customer wastewater bills is used to pay for the ongoing operation, maintenance, repair and replacement of the existing wastewater systems. The cost of system expansions, to serve new development, is recovered through connection or impact fees imposed on the developer requesting City services. By State law, the City may not collect more revenue than is necessary to recover the costs of providing services.

WHY IS THE RATE ADJUSTMENT NEEDED?
Unlike private utility companies that benefit financially from increased rates associated with increased costs, the City strives to maintain low rates to support its residents and businesses. However, significant improvements to the City’s aging wastewater infrastructure are necessary soon. The City’s system includes certain pipe sections that are over 90 years old. As the system ages and is damaged by natural changes in the environment (such as tree roots) the sewer pipes begin allowing rainwater and groundwater to enter the wastewater system. During extremely wet conditions this infiltration can cause the wastewater system to be overwhelmed and spill. To ensure the safety of residents and to meet the requirements of the State of California, the City must repair these issues. The capital projects associated with the repair of the aging system require appropriate funding, which results in an increase to the wastewater rates. Additionally, rates are periodically adjusted to keep up with the rising cost of operating and maintaining the collection system and the cost of wastewater treatment.

The City plans to utilize municipal bonds to cover some of the City’s existing wastewater infrastructure improvements.

Financing allows the costs to be spread out over 20-30 years, reducing the immediate impact to rates. The City balanced the levels of financing and rate adjustments necessary to provide for moderate rate increases, while keeping debt at a manageable level.

Attachment 3 - Current Rate Structure with ADU

PROPOSED WASTEWATER RATES
The City currently charges residential and non-residential customers a monthly fixed wastewater charge based on meter size. In addition to a fixed monthly charge, residential customers pay a variable charge (volumetric charge) of $5.74 per unit of baseline water use for wastewater service, with a minimum volume of 2. Variable charges for residential customers are determined by the average monthly water usage for the three lowest consecutive months in the period between November and April of each year. As a general rule, a household’s average monthly water use for the months of November through April provides a reasonable baseline estimate of the wastewater produced by the household each month of the year. Commercial and industrial customers are billed according to the volume of flow and strength of their wastewater discharges. The proposed wastewater rate charges for the next five years are presented in detail on Table 1: Proposed Wastewater Rate Adjustment Schedule 2024-2028, below.

Table 1: Proposed Wastewater Rate Adjustment Schedule 2024-2028.

DETACHED ACCESSORY DWELLING UNIT (ADU)
Residential properties with a detached Accessory Dwelling Unit (ADU) will be classified as multi-family residential and will be charged with additional monthly fixed charges for each detached ADU.

LIFT STATION SERVICE CHARGES
Due to Morgan Hill’s varying topography, additional infrastructure is required to provide wastewater services to residents living at different elevations within the City. Lift station charges based on the cost of service to operate and replace this Sewer Rate Schedule
Current
Rates
Proposed Rates
10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028

9.00% 9.00% 8.00% 8.00% 8.00%
Monthly Fixed Charges:

Residential (5/8-1 inch meters) $27.05 $38.90 $42.40 $45.79 $49.46 $53.41 All Other Customers:
5/8 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40
3/4 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40
1 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40

1.5 inch $101.27 $139.52 $152.08 $164.24 $177.38 $191.57 2 inch $161.24 $218.98 $238.68 $257.78 $278.40 $300.67
3 inch $351.26 $470.73 $513.10 $554.15 $598.48 $646.36
4 inch $630.93 $841.27 $916.98 $990.34 $1,069.57 $1,155.13 6 inch $1,400.38 $1,860.72 $2,028.18 $2,190.43 $2,365.67 $2,554.92 8 inch $2,163.33 $2,871.55 $3,129.99 $3,380.39 $3,650.82 $3,942.89 10 inch $2,704.16 $3,589.02 $3,912.04 $4,225.00 $4,563.00 $4,928.04 Monthly Volumetric Charges:

Single-Family
(Applied to Avg. Winter Water Use)
Multi-Family
(Applied to Avg. Winter Water Use)
Commercial Charge
(Applied to Monthly Water Use):

Commercial 1
Commercial 2
Commercial 3
Commercial 4
Commercial 5
Commercial 6
$5.74 $5.18 $5.64 $6.10 $6.58 $7.11
$5.74 $5.18 $5.64 $6.10 $6.58 $7.11
$5.49 $7.51 $8.18 $8.84 $9.54 $10.31
$6.42 $8.32 $9.06 $9.79 $10.57 $11.42
$7.81 $9.68 $10.55 $11.39 $12.30 $13.29
$8.86 $12.03 $13.12 $14.17 $15.30 $16.52
$10.52 $19.44 $21.19 $22.88 $24.71 $26.69
$17.56 $32.26 $35.17 $37.98 $41.02 $44.30

additional infrastructure will be charged to those residents living in the areas requiring the use of the additional infrastructure. Proposed lift station service charges are included on Table 2: Proposed Lift Station Service Charge. Maps that allow customers to determine if they fall within an area serviced by lift stations are available for review at https://www.morganhill.ca.gov/DocumentCenter/View/24457/Customer-Sewer-Lift-Zone-Map?bidId= Table 2: Proposed Lift Station Service Charge per Account Lift Station Service Charge (As Applicable)
Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
$11.23 $12.24 $13.34 $14.41 $ 15.56 $ 16.81
Total Percent Increase N/A 9% 9% 8% 8% 8%

IMPACT TO WASTEWATER CHARGE ON THE BILL
If approved, wastewater rate increases would commence with the service period which contains October 1, 2024, and adjust annually for service periods containing July 1 thereafter.

The total amount of a customer’s wastewater charge will depend on the amount of water used between the months of November and April. For an average single-family residence (7 units of wastewater), the wastewater charge on the utility bill will increase as shown below.

Table 3: Average Monthly Single-Family Residence Wastewater Charge (7 units) Under Proposed Rates
Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
Wastewater $67.23 $75.16 $81.88 $88.49 $95.52 $103.18
Total Percent Increase N/A 9% 9% 8% 8% 8%

HOW TO PROTEST THE PROPOSED RATE ADJUSTMENTS
As the owner or customer of record of a parcel subject to the imposition of the proposed rate adjustments, you may submit a written protest against the proposed rate changes. If the City receives written protests against proposed wastewater rates by a majority of the affected property owners or tenants or utility customers on record prior to the end of the hearing, the Council will not approve the change. Only one written protest will be counted per identified parcel.

You have the right to withdraw a written protest that you previously submitted prior to the conclusion of the public hearing. The City Council will count all written protests received (not postmarked) prior to the conclusion of the public hearing. The City Council will not count written protests submitted after the conclusion of the public hearing.

A written protest must include (1) your name; (2) identification of the parcel by address or assessor’s parcel number; (3) whether you are the owner of the parcel or the person receiving the service for which the fee is charged; and (4) your statement of the specific rate changes for which you protest the increase in the fee; and (5) your original signature. Written protests will not be accepted by e-mail or by fax. Verbal protests will not be counted. Written protests may be submitted by mail or in person to:

City of Morgan Hill
Attn: Rate Protest
17575 Peak Avenue
Morgan Hill, CA 95037-4128
For more information, visit https://www.morganhill.ca.gov/DocumentCenter/View/49150/2024-Sewer-Rate-Study-PDF This material is available in alternative formats upon request to accommodate persons with disabilities or non-English speakers. To order information in an alternative format, or to arrange for a sign language or oral interpreter at the August 28, 2024, hearing, please call or email the Clerk’s office by 5 pm on Thursday, August 15, 2024.

City Clerk: (408) 779-7259, [email protected]

Proposition 218 Notification
Notice of Public Hearing
On Wastewater Rate Adjustments
17555 PEAK AVENUE
MORGAN HILL, CA 95037-4128
WWW.MORGANHILL.CA.GOV

Hearing Date and Time: August 28, 2024, at 6:00 pm or as soon thereafter as possible Hearing Location: City Council Chambers • 17555 Peak Avenue • Morgan Hill, CA 95037-4128 The City of Morgan Hill is proposing a five-year wastewater rate program adjustment for all customers. The proposal will be considered by the City Council at a Public Hearing on August 28, 2024. If approved, the wastewater rate adjustments will commence with the service period which contains October 1, 2024, and adjusted annually thereafter. You are receiving this notification in compliance with California Constitution Article XIII D Section 6 (Proposition 218) requirements that all impacted property owners are mailed notice of proposed rate changes at least 45 days prior to a public hearing.

In addition, Section 53755 of the Government Code authorizes that notices be mailed to customers who are billed for the service. Proposition 218 also establishes a protest process for the public to follow if they wish to oppose the proposed rates.

BASIS OF PROPOSED RATES
The City is required by State law and City policy to collect revenues sufficient to cover the costs of operating the wastewater system. These revenues allow the City to protect public health and safely and reliably convey and treat wastewater. Costs that must be recovered through rate revenue include electricity, equipment, supplies and services, wastewater treatment, debt service, and salaries and benefits. Additionally, revenues generated from wastewater rates would be used to finance the repair and renovation of aging wastewater infrastructure and maintain reserve funds. The rates proposed herein were developed through a Wastewater Rate Study designed to meet all legal requirements and fairly and equitably recover the required revenue from all customer classes. The Rate Study is available for review at https://www.morganhill.ca.gov/DocumentCenter/View/49150/2024-Sewer-Rate-Study-PDF.

WHAT DO WASTEWATER RATES FUND?
The City provides wastewater utility services to residential and commercial customers. All revenue generated from customer wastewater bills is used to pay for the ongoing operation, maintenance, repair and replacement of the existing wastewater systems. The cost of system expansions, to serve new development, is recovered through connection or impact fees imposed on the developer requesting City services. By State law, the City may not collect more revenue than is necessary to recover the costs of providing services.

WHY IS THE RATE ADJUSTMENT NEEDED?
Unlike private utility companies that benefit financially from increased rates associated with increased costs, the City strives to maintain low rates to support its residents and businesses. However, significant improvements to the City’s aging wastewater infrastructure are necessary soon. The City’s system includes certain pipe sections that are over 90 years old. As the system ages and is damaged by natural changes in the environment (such as tree roots) the sewer pipes begin allowing rainwater and groundwater to enter the wastewater system. During extremely wet conditions this infiltration can cause the wastewater system to be overwhelmed and spill. To ensure the safety of residents and to meet the requirements of the State of California, the City must repair these issues. The capital projects associated with the repair of the aging system require appropriate funding, which results in an increase to the wastewater rates. Additionally, rates are periodically adjusted to keep up with the rising cost of operating and maintaining the collection system and the cost of wastewater treatment.

The City plans to utilize municipal bonds to cover some of the City’s existing wastewater infrastructure improvements.

Financing allows the costs to be spread out over 20-30 years, reducing the immediate impact to rates. The City balanced the levels of financing and rate adjustments necessary to provide for moderate rate increases, while keeping debt at a manageable level.

Attachment 4 - Alternative Fixed Rate Structure with ADU

PROPOSED WASTEWATER RATES
The City currently charges residential and non-residential customers a monthly fixed wastewater charge based on meter size. In addition to a fixed monthly charge, residential customers pay a variable charge (volumetric charge) of $5.74 per unit of baseline water use for wastewater service, with a minimum volume of 2. Variable charges for residential customers are determined by the average monthly water usage for the three lowest consecutive months in the period between November and April of each year. An alternative Fixed rate structure is proposed that will simplify the billing process for residential customers. The City is proposing an alternative rate structure of a 100% fixed wastewater rate charge for both single-family and multi-family residential customers. In this alternative structure, single-family residential charges are based on account and multi-family residential customers charges are per dwelling unit. The rate structure for nonresidential customers remains unchanged. The proposed alternative rate structure is shown in Table 1 Proposed Wastewater Rate Adjustment Schedule 2024-2028, below.

Table 1: Proposed Wastewater Rate Adjustment Schedule 2024-2028.

DETACHED ACCESSORY DWELLING UNIT (ADU)
Residential properties with a detached Accessory Dwelling Unit (ADU) will be classified as multi-family residential and will be charged with additional monthly fixed charges of per Dwelling Unit for each detached ADU.

LIFT STATION SERVICE CHARGES
Due to Morgan Hill’s varying topography, additional infrastructure is required to provide wastewater services to residents living at different elevations within the City. Lift station charges based on the cost of service to operate and replace this additional infrastructure will be charged to those residents living in the areas requiring the use of the additional infrastructure. Proposed lift station service charges are included on Table 2: Proposed Lift Station Service Charge. Maps Sewer Rate Schedule
Current
Rates
Proposed Rates
10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028

9.00% 9.00% 8.00% 8.00% 8.00%
Monthly Fixed Charges:

Single-Family Residential (100% Fixed Charge) N/A $71.89 $78.37 $84.63 $91.41 $98.72 Multi-Family Residential (100% Fixed, per DU) N/A $70.13 $76.44 $82.56 $89.16 $96.30 All Other Customers:
5/8 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40
3/4 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40
1 inch $27.05 $38.89 $42.39 $45.78 $49.45 $53.40

1.5 inch $101.27 $139.52 $152.08 $164.24 $177.38 $191.57 2 inch $161.24 $218.98 $238.68 $257.78 $278.40 $300.67
3 inch $351.26 $470.73 $513.10 $554.15 $598.48 $646.36
4 inch $630.93 $841.27 $916.98 $990.34 $1,069.57 $1,155.13 6 inch $1,400.38 $1,860.72 $2,028.18 $2,190.43 $2,365.67 $2,554.92 8 inch $2,163.33 $2,871.55 $3,129.99 $3,380.39 $3,650.82 $3,942.89 10 inch $2,704.16 $3,589.02 $3,912.04 $4,225.00 $4,563.00 $4,928.04 Monthly Volumetric Charges:

Commercial Charge
(Applied to Monthly Water Use):

Commercial 1
Commercial 2
Commercial 3
Commercial 4
Commercial 5
Commercial 6
$5.49 $7.51 $8.18 $8.84 $9.54 $10.31
$6.42 $8.32 $9.06 $9.79 $10.57 $11.42
$7.81 $9.68 $10.55 $11.39 $12.30 $13.29
$8.86 $12.03 $13.12 $14.17 $15.30 $16.52
$10.52 $19.44 $21.19 $22.88 $24.71 $26.69
$17.56 $32.26 $35.17 $37.98 $41.02 $44.30

that allow customers to determine if they fall within an area serviced by lift stations are available for review at https://www.morganhill.ca.gov/DocumentCenter/View/24457/Customer-Sewer-Lift-Zone-Map?bidId= Table 2: Proposed Lift Station Service Charge per Account Lift Station Service Charge (As Applicable)
Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
$11.23 $12.24 $13.34 $14.41 $ 15.56 $ 16.81
Total Percent Increase N/A 9% 9% 8% 8% 8%

IMPACT TO WASTEWATER CHARGE ON THE BILL
If approved, wastewater rate increases would commence with the service period which contains October 1, 2024, and adjust annually for service periods containing July 1 thereafter.

The total amount of customer’s wastewater charge will be fixed and for a single-family residence the wastewater charge on the utility bill will change as shown below.

Table 3: Average Monthly Single-Family Residence Wastewater Charge Under Proposed Rates
Current 10/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028
Wastewater N/A $71.89 $78.37 $84.63 $91.41 $98.72
Total Percent Increase N/A 9% 9% 8% 8% 8%

HOW TO PROTEST THE PROPOSED RATE ADJUSTMENTS
As the owner or customer of record of a parcel subject to the imposition of the proposed rate adjustments, you may submit a written protest against the proposed rate changes. If the City receives written protests against proposed wastewater rates by a majority of the affected property owners or tenants or utility customers on record prior to the end of the hearing, the Council will not approve the change. Only one written protest will be counted per identified parcel.

You have the right to withdraw a written protest that you previously submitted prior to the conclusion of the public hearing. The City Council will count all written protests received (not postmarked) prior to the conclusion of the public hearing. The City Council will not count written protests submitted after the conclusion of the public hearing.

A written protest must include (1) your name; (2) identification of the parcel by address or assessor’s parcel number; (3) whether you are the owner of the parcel or the person receiving the service for which the fee is charged; and (4) your statement of the specific rate changes for which you protest the increase in the fee; and (5) your original signature. Written protests will not be accepted by e-mail or by fax. Verbal protests will not be counted. Written protests may be submitted by mail or in person to:

City of Morgan Hill
Attn: Rate Protest
17575 Peak Avenue
Morgan Hill, CA 95037-4128
For more information, visit https://www.morganhill.ca.gov/DocumentCenter/View/49150/2024-Sewer-Rate-Study-PDF This material is available in alternative formats upon request to accommodate persons with disabilities or non-English speakers. To order information in an alternative format, or to arrange for a sign language or oral interpreter at the August 28, 2024, hearing, please call or email the Clerk’s office by 5 pm on Thursday, August 15, 2024.

City Clerk: (408) 779-7259, [email protected]

RESOLUTION NO.

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MORGAN

HILL DECLARING ITS INTENTION TO ADJUST WASTEWATER

RATES AND SETTING THE TIME AND PLACE FOR A PROPOSITION
218 PUBLIC HEARING AND AUTHORIZING THE CITY MANAGER OR
DESIGNEE TO PROVIDE NOTICE IN COMPLIANCE WITH STATEMANDATED TIMING REQUIREMENTS WHEREAS, the City of Morgan Hill has identified ongoing operational and capital needs associated with the City’s wastewater utility system; and WHEREAS, in order to fund the identified wastewater system’s operational and capital costs, it will be necessary to adjust the City’s current wastewater rates; and WHEREAS, on November 5, 1996, California voters approved Proposition 218, requiring specific procedures be followed with regard to “property-related” fee increases, including the need to provide written notice at least 45 days in advance of a public hearing; and WHEREAS, on July 24, 2006, the California Supreme Court confirmed that charges for water, wastewater (sewer), and solid waste services are subject to Proposition 218 procedures (Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal. 4th 205); and WHEREAS, on April 20, 2015, the California Court of Appeal ruled that water rate surcharges and by analogy wastewater surcharges may be charged as long as they are based upon the actual cost of service to the ratepayers receiving the surcharge. (Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493); and WHEREAS, the City Council believes it is in the public interest to and desires to proceed through the requisite processes pursuant to the provisions of Proposition 218 in order to consider adjustments to the City of Morgan Hill's fees, rates and charges related to its wastewater system.

NOW, THEREFORE THE CITY COUNCIL OF THE CITY OF MORGAN HILL DOES RESOLVE AS FOLLOWS:

1. A Proposition 218 Public Hearing is hereby set and will be held before the City Council on August 28, 2024 in order for the City Council to consider adjustments to the City’s wastewater service fees, rates and/or charges; and

2. The City Manager, or designee, is hereby authorized and directed to cause a notice of Public Hearing that provides details related to adjustments to the specific wastewater service fees, rates and/or charges being proposed to be mailed no later than July 13, 2024, in a manner that complies with applicable laws, including without limitation, the Statemandated minimum 45-day required notice under Proposition 218.

PASSED, APPROVED AND ADOPTED by the City Council of the City of Morgan Hill at its regular meeting held on this 26th day of June, 2024 by the following vote: