Morgan Hill City Council
September 17, 2025

OPERATION AND MAINTENANCE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 37 of 69 several Policy Memorandums (SOPs) related to the collection system operations. The Agency has also developed Agency specific Standard Operating Procedures for all operations, equipment, and facilities.

The Agency has broken the collection service area into separate sub-basins for zone flushing and ease of recordkeeping. These zones are labeled from A to H, and the line cleaning crews move through these zones over the three (3) year cleaning frequency cycle. The Agency has developed a comprehensive schedule of regular line cleaning. Over the past ten years, the Agency has annually cleaned, on average, approximately 478,000 linear feet (90 miles or 57%) of the system annually.

Cleaning crews operate two (2) flushing units to accomplish cleaning of lines. The historical line cleaning results are shown in Table 1-3. Large diameter pipes 16-inch in diameter or greater are cleaned using service contractors rather than Agency staff.

The line cleaning crew evaluates cleaning results based upon a Standard Sewer Cleaning Results assessment derived from the Agency’s Standard Measures of Observed Results that grades the lines on various factors including degree of debris, FOG, and Root accumulation and pipe condition. Staff places line segments on the higher frequency schedules based upon past cleaning results, history of sewer system spill events, history of cleaning results, video inspections and professional judgment. The current high-frequency maintenance schedule estimates the need for more frequent cleaning of 10.25 miles of collection system lines (6.5% of the collection system). Agency staff have developed a standard procedure for the addition and removal of lines from the high frequency program. This ensures proper cleaning efficiencies and assists the Agency in identifying sewer lines that need high frequency maintenance activities and identifying sewer lines that may need repair or pipe rehabilitation or more aggressive discharger enforcement from the dischargers of fats, oils and grease.

Increased frequencies, or specialty cleaning routines, have been identified to address the approximately 43 miles of the Agency’s collection system mainlines with greater maintenance demands and include increased frequencies for siphons (regular quarterly and biannual inspection and cleaning based upon size and historical operational history), pipes with FOG and heavy root problems (weekly, monthly cleaning, quarterly, semi-annual, and annual), and pipes with minimal slopes (weekly, monthly cleaning, quarterly, semi-annual, and annual).

Manholes are accessed and visually inspected during cleaning operations. The Agency has defined a formal manhole inspection program based upon the NASSCO manhole rating system as part of the regular cleaning operations. All problem-conditions noticed during cleaning are reported and appropriate repairs contracted to service contractors. The Agency has implemented the Cityworks asset management system, which is utilized as the collection system work management system for managing and planning operation and maintenance activities.

The Agency also shares the operations and maintenance responsibilities of the joint truck sewer with the City of Gilroy for the joint trunk sewer line to the SCRWA Treatment Plat according to the assigned capacity ratios defined in the Joint Powers Agreement between the two Agencies. The Morgan Hill portion of the trunk is operated and maintained per Agency Policy Memo O13. Upgrades to the joint trunk line in the past five years have reduced sewer system spills and added redundancy to the joint trunk line. This work was required to address capacity issues, sewer system redundancy, and accommodate growth in the Morgan Hill service area. The Agency has 100% responsibility for the maintenance and repair of the initial 2020 linear feet of joint trunk sewer. Condition assessment of portions of the joint trunk sewer the Agency owns and operates is conducted approximately every 6 years and follows the NASSCO standard rating systems for pipes and manholes. Agency staff maintains a list of known structural deficiencies determined by CCTV. This

OPERATION AND MAINTENANCE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 38 of 69 list is maintained in priority order from the field observations or repairs are made depending upon the nature of the deficiency.

Lateral Maintenance
The Agency has no responsibility for the installation, maintenance, operation, repair or replacement of private sewer upper or lower laterals (PSL) connected to the Agency’s sewer main lines. The Agency may voluntarily report private lateral sewer discharges (PLSD) as they become aware of the overflows. The City Council adopted a new proactive sewer lateral inspection program that became effective on June 1, 2022.

This program requires all residential, commercial, and industrial building private lateral owners to inspect and as needed, repair and replace, laterals on property sales, prior to connecting new construction, and based upon other defined criteria in the lateral ordinance available on the Agency’s website.

System Inspection
Inspections of the Agency’s sewer mains are made using the Agency’s CCTV equipped combination truck with CUES state-of-the-art motorized cameras, and an easement mainline (push) camera. As part of the inspection process, each pipe is evaluated and assigned a condition rating using the NASSCO PACP rating system.

The motorized main line cameras have a complement of tracks, wheel types and sizes to allow it to traverse through pipe of varying slope, conditions, material types, and pipe sizes (from 6 to 15 inches in diameter).

There is one camera type in use: high resolution digital side scanning and pan-and-tilt digital video camera.

The side scanning camera technology utilizes a high-resolution camera to take 180°+ digital photos at four frames/second, while the video camera takes digital videos as the motorized cameras traverse down the pipe. Inspection of difficult access mainlines requires the use of the mainline push camera. Inspection of larger pipe requires the rental of a larger camera, or utilization of consultant services.

The Agency’s mainline CCTV inspection program is performed by grouping mainlinesinto eightsub-drainage basins. This method allows the CCTV crew to limit their travel time as they focus on one geographic area at a time. It is important to inspect the collection system on a regular basis to monitor the condition of pipe and to evaluate the effectiveness of cleaning operations. The Agency’s goal is to CCTV assess the entire collection system approximately every 6 years and rate condition using NASSCO standard rating systems for pipes and manholes.

Pump Station Maintenance
The Agency conductsregular maintenance and operational inspections of its 14 lift stations. Each lift station is checked twice a week, and the engine generators are checked weekly. Once per Month, each of the engine generators are exercised for 30 minutes and the wet wells are washed down and cleaned. The lift station wet wells are pressure washed quarterly. Records of all maintenance activities are maintained in logbooks at each station and in the Cityworks CMMS system. The wet wells are vacuumed annually, and the mechanical and electrical equipment is inspected at each station. The City conducts comprehensive lift station condition assessments on all lift stations every 3 to 5 years utilizing a Pump Station Condition Assessment Checklist.

All liftstationsinclude SCADA monitoring systemsthat automatically page Agency staff if unusual conditions or alarms are registered 24/7. The Utility Supervisor is responsible for all work scheduling and documentation for lift station maintenance. In addition, he/she is to provide training to other collections system staff on the operations of each lift station so that staff are familiar with emergency response

OPERATION AND MAINTENANCE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 39 of 69 procedures at the lift stations in case of emergencies. An outside service contractor specializing in the maintenance of major high voltage electrical equipment is utilized as needed.

The Utilities Department has developed emergency response contingency plans for each of the 14 stations.

These plans include important response information to protect the environment and the public from sewer system spills at any of the lift stations. These contingency plans are placed in each lift station and available at the Maintenance Center. The contingency plans include wet well retention times, overflow containment directions and locations and directions of overflow paths from the stations. These procedures are intended to ensure the maximum protection of the Agency’s very important environmental areas. All emergency response employees will be trained and required to understand these important contingency plans. All training on these plans is provided annually to Agency staff responsible for pump station operations and maintenance.

Each of the 14 lift stations discharge to force mains described below.

Force Main Maintenance
The Agency maintains fourteen (14) separate force mains, one from each lift station. Many of the force mains were installed at the time of the original construction of the associated lift stations. Force main alignments are inspected on an annual basis along with lift station Inspections and documented on a Pump Station Condition Assessment Checklist. Discharge locations are surveyed for possible damage and corrosion from the release of hydrogen sulfide where the force mains discharge to the gravity collection system.

Siphon Maintenance
As noted above, the Agency operates thirty (30) siphons throughout the collection system. The Agency has developed a program to address the condition and maintenance of the siphons now in the collection system.

The program includes regular quarterly and biannual cleaning based upon size and historical operational history.

Cleaning Methods
The Agency utilizes a variety of tools and equipment to perform the required maintenance for mainlines and laterals, depending on the location, expected debris type, and accessibility. The two primary cleaning methods for mainlines are high velocity cleaning (HVC) and power rodding. Performing HVC cleaning requires the use of a Vactor Jetter or Combination (vacuum) unit. HVC trucks are outfitted with a complement of nozzles and cutters that enable the crew to clean a variety of different sizes of pipe as well as remove different types of debris. This method is utilized when truck access is available and where the lines are safe to clean without causing residential backups. Power rodding is performed using the OK Champion continuous rodding truck. This truck is also equipped with a variety of cleaning tools and used in those areas where an HVC truck is unable to access or where a pressurized cleaning method may cause unintentional toilet burping.

For mainlines located in easements inaccessible to either the HVC or continuous rodder, the maintenance crews resort to the use of hand rods or chemical root control. Chemical root control is normally performed by an outside contractor. Whichever cleaning method is used, the estimated quantity and type of debris that wasremoved by the cleaning operation is documented and entered into the CMMS database. This data along with CCTV inspections are later analyzed to confirm the effectiveness of the cleaning operation used and to determine whether the cleaning frequency is appropriate for that particular line.

OPERATION AND MAINTENANCE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 40 of 69 The Agency utilizes chemical root control contractors to addressroot control issues that are identified from the cleaning operations and in areas known to have historical root concerns. Areas with root control issues are aggressively maintained and assessed.

As noted above, the Agency has no responsibility for the installation, maintenance, operation, repair, or replacement of private sewer laterals(PSL) connected to the Agency mains. The City Council adopted a new proactive sewer lateral inspection program that became effective on June 1, 2022. This program requires private lateral owners to inspect and repair sewer laterals based upon defined criteria in the lateral ordinance available on the Agency’s website.

Service Call Procedures
The Agency office is open Monday through Thursday from 7:00 am to 4:00 pm and Fridays 7:00 am to 3:00 pm except for Agency holidays. The Agency directsservice requests through the “SeeClickFix” maintenance services platform web portal (Service Requests - Morgan Hill, CA). All regular business hour service calls are typically received by the administrative staff or the Operations office. If received by the administrative staff, the call is referred directly to the Supervising Lead Worker or Operations Manager. All after-hour calls are automatically routed to the Agency’s on-call field operations staff via an assigned mobile phone. The on-call field operations staff is available 24 hours a day during their on-call period and is furnished with a service truck and equipment to facilitate a timely response. A response time goal for the Agency is to provide a response within 45 minutes forservice calls during work hours and within 60 minutes forservice calls made after hours.

Agency service trucks are adequately equipped to manage sewer line blockages. These trucks also have spill containment devices to prevent minor spills from entering a storm drain inlet or channel. Should the situation require larger equipment and staffing, the on-call person would contact a secondary on-call staff, and any additional staff as needed. The additional staff would obtain the required equipment from the Agency’s storage yard prior to travelling to the emergency site. Documentation of each callout request is recorded in CMMS and assigned a work order.

Should the service call involve Category I spills, the Operations Manager would be contacted to make the necessary notifications to California Office of Emergency Services (CalEMA - OES). For response procedures, reference the Agency’s current Spill Emergency Response Plan (SERP).

Sewer Rehabilitation
The Agency’s Capital Improvement Plan was updated in April 2024 and was developed using a system hydraulic model, asset information including age and condition assessment determined from the Agency’s CCTV inspection program and past maintenance experience. The information gathered during the condition assessment is used to select gravity sewers for repair, rehabilitation, and replacement.

The Agency has incorporated all necessary new improvements into the capital improvement program for the next several years as well as developing the associated additional funding requirements for these necessary improvements. The Capital Improvement Program for the 2035 horizon consists of 11.6 miles of hydraulic capacity improvements and 15.7 miles of rehabilitation improvements. The detailed program is summarized in the City of Morgan Hill Final Wastewater Collection System Master Plan (2024 SMP) Update dated April 2024 with a uniquely coded project ID, description, implementation schedule, construction trigger and cost information. Detailed project sheets for hydraulic capacity improvements are included in 2024 SMP for subsequent design phases. In total, the program implementation costs through 2035 are estimated at approximately $138.1 million dollars, with $80.2 million attributed to existing customers and

OPERATION AND MAINTENANCE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 41 of 69 $57.9 million dollars attributed to future customers. A suggested 10-year expenditure budget is also provided in the 2024 SMP.

Sewer Repair
Isolated main and lateral sewer repairs are completed by Agency staff. Larger projects, identified in the Agency’s 2024 SMP, have been identified using asset information including age and condition assessment determined from the Agency’s CCTV inspection program that evaluated the condition of gravity sewers, and includes PACP condition assessment of each line segment, and past maintenance experience and, may be completed either by Agency staff or outside contractors. The information gathered during the condition assessment is used to select gravity sewers for repair, rehabilitation, and replacement. Larger repair projects are prioritized for completion based on funding and priority for reducing the potential for number and volume of sewage overflows and stoppages.

DESIGN AND PERFORMANCE PROVISIONS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 42 of 69

5. Design and Performance Provisions

5.1. Updated Design Criteria/Construction Standards/Specifications

WDR REQUIREMENTS
Attachment D-5.1 (pg. D-5)
“Updated design criteria, and construction standards and specifications, for the construction, installation, repair, and rehabilitation of existing and proposed system infrastructure components, including but not limited to pipelines, pump stations, and other system appurtenances. If existing design criteria and construction standards are deficient to address the necessary component-specific hydraulic capacity as specified in section 8 (System Evaluation, Capacity Assurance and Capital Improvements) of this Attachment, the procedures must include component-specific evaluation of the design criteria.”

COMPLIANCE
Design and Construction Standards
The Agency has established standards for both new construction and renewal and replacement work associated with the collection system infrastructure. These standards include design standards for pipes, manholes, laterals, materials and placement of pipes and manholes into the Agency’s system. These standards are supported by the sewer section of the standards details. These standards are regularly reviewed and modified as new and innovative construction techniques and materials are approved for use in the Agency’s service area. The last major revisions to the standards and details provide all the details required for improvement plans submitted for approval by the City Public Services Department. Requests for modification or relief from the Agency standards can only be considered and ultimately approved by the Director of Engineering and Utility Services.

The Agency’s design standards address such issues as flow projection, design criteria for hydraulics, minimum pipe diameter, installation depth, pipe material, location, slope, manholes, and pump stations.

The Agency’s standards also address plan preparation requirements, standard easement requirements, requirements for dedicating facilities to the Agency and standard construction details. The current Agency Design Standards are partially based on the “Standard Specifications for Public Works Construction”, also known as the “Greenbook”, published by Public Works Standards, Inc.

The Agency requires that all new or rehabilitated sewersystem improvements to be designed by a registered engineer and approved by the Deputy Director of Utilities and Deputy Director of Engineering before construction and acceptance by the City Council for operation and maintenance.

The Agency’s Wastewater Collection System Design Criteria are administered by the Engineering Division of the Engineering and Utilities Department. The City of Morgan Hill design standards for sanitary sewers are included in Section 3, Sanitary Sewer Design Standards, of their Design Standards and Standard Details for Construction. In addition, the Agency maintains Standard Details for collection system infrastructure. These design and construction standards are maintained on the Agency’s website at: Design Standards and Standard Details for Construction | City of Morgan Hill, CA - Official Website.

DESIGN AND PERFORMANCE PROVISIONS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 43 of 69 Construction standards and acceptance provisions for new and rehabilitated lift stations are established through the design process and are part of the approval of the plans and specifications for the new or rehabilitated lift station.

All private sewer systems and private sewer laterals are required to be designed, installed, inspected, and accepted by the City Building Division and Section 3.8 of the Design Standards and Standard Details S-I through S-III and S-1 through S-3.

The Agency’s Wastewater Collection System Inspection and Testing Criteria for pipelines are defined in Section S-II through S-III of the Standard Details. All testing must be approved by the Agency prior to consideration for acceptance for operation and maintenance by the City Council.

Ongoing Design and Construction standards review, and update efforts ensure that design practices, new construction technology, construction methodology, and construction materials are incorporated. This ongoing work also provides an opportunity to examine whether there is a need for continued reference to the Greenbook.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Are plan checking QA/QC processes helping to ensure adherence to the standards?

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

5.1.1 Ensure all project plans are approved in accordance with the Agency’s Standard Specifications and Details. Each Project X

5.1.2 Verify design standards and hydraulic model previously completed are adequate and consistent with current
standards of practice.
2025 X

DESIGN AND PERFORMANCE PROVISIONS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 44 of 69

5.2. Procedures and Standards

WDR REQUIREMENTS
Attachment D-5.2 (pg. D-5)
“Procedures, and standards for the inspection and testing of newly constructed, newly installed, repaired, and rehabilitated system pipelines, pumps, and other equipment and appurtenances.”

COMPLIANCE
Standardsfor Inspection and Testing of New and Rehabilitated Facilities Agency engineering staff, and occasionally consultant inspection services, inspect all new construction, repairs, and rehabilitation work. Inspection staff ensure that all construction meets Agency standards and requirements. All new and rehabilitated sewers are cleaned, pressure tested and internally inspected using closed circuit television (CCTV) before acceptance. The Agency’s Wastewater Collection System Inspection and Testing Criteria are defined in Section S-II through S-III of the Standard Details. Flexible pipe is also mandrel tested to verify that it remains fully circular and is absent from any deflection defects. The Agency requiresthat all new and rehabilitated sewers be warranted for a minimum period of one (1) year following final acceptance. Prior to the expiration of the warranty period (and release of warranty bonds), these facilities are visually inspected, CCTV inspected as required, and maintenance records are reviewed to ensure that the facilities are functioning properly. All testing must be approved by the Agency prior to consideration for acceptance for operation and maintenance by the City Council.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Were any design or installation deficienciesfound during warranty inspections? • Are deviationsfrom standard procedures and/orspecs, testing, etc., justified and documented? • Doesthe City stay abreast of industry design standards and technical advances in the industry? • In addition to the City’s Sanitary Sewer Overflow and Backup Response Plan, the City has developed a Disaster Operations Plan (DOP). The DOP provides City employees with information and instruction in the event of a local disaster that impacts the treatment plant, lift stations, metering sites, and other City facilities.

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

5.2.1 Verify inspection procedures are adequate and
consistent with current standards of practice 2017 (10-year cycle) X

5.2.2 Verify design standards and hydraulic model
previously completed are adequate and
consistent with current standards of practice.
2017 (10-year cycle) X

DESIGN AND PERFORMANCE PROVISIONS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 45 of 69

RESILIENCE
Resilience is addressed in Element 5 by:
• Staying abreast of industry trends and standards.
• Performing warranty inspections of newly installed or repaired assets to evaluate design and installation practices.
• Evaluating as-built changesfor trends and areasfor design and performance improvements.

APPENDIX 5 INCLUSIONS
• None

SPILL EMERGENCY RESPONSE PLAN
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 46 of 69

6. Spill Emergency Response Plan

WDR REQUIREMENTS
Attachment D-6 (pg. D-6)
“The Plan must include an up-to-date Spill Emergency Response Plan to ensure prompt detection and response to spills to reduce spill volumes and collect information for prevention of future spills. The Spill Emergency Response Plan must include procedures to:
• Notify primary responders, appropriate local officials, and appropriate regulatory agencies of a spill in a timely manner;
• Notify other potentially affected entities (for example, health agencies, water suppliers, etc.) of spills that potentially affect public health or reach waters of the State; • Comply with the notification, monitoring and reporting requirements of this General Order, State law and regulations, and applicable Regional Water Board Orders; • Ensure that appropriate staff and contractorsimplement the Spill Emergency Response Plan and are appropriately trained;
• Address emergency system operations, traffic control and other necessary response activities;
• Contain a spill and prevent/minimize discharge to waters of the State or any drainage conveyance system;
• Minimize and remediate public health impacts and adverse impacts on beneficial uses of waters of the State;
• Remove sewage from the drainage conveyance system;
• Clean the spill area and drainage conveyance system in a manner that does not inadvertently impact beneficial uses in the receiving waters; • Implement technologies, practices, equipment, and interagency coordination to expedite spill containment and recovery;
• Implement pre-planned coordination and collaboration with storm drain agencies and other utility agencies/departments prior, during, and after a spill event; • Conduct post-spill assessments of spill response activities; • Document and report spill events as required in this General Order; and • Annually, review and assess effectiveness ofthe Spill Emergency Response Plan, and update the Plan as needed.”

SPILL EMERGENCY RESPONSE PLAN
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 47 of 69

COMPLIANCE
The Agency’s Spill Emergency Response Plan (SERP) is a stand-alone document that contains all the key elements necessary for an appropriate Spill response: notification, emergency incident response, reporting, and impact mitigation. The current plan, prepared by Fischer Compliance, LLC, meets the requirements of the State Water Resources Control Board’s reissued Waste Discharge Requirements (Order WQ-2022-0103- DWQ), which became effective on June 5, 2023. Initial training has been provided for the Agency staff and refresher training is conducted annually. A copy of the current SERP is available for viewing at the Agency office upon request and included in Appendix 6.1.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Have staff’sspill response efforts helped to prevent the discharge ofsewage to surface waters? • Do post-spill assessments indicate staff are following the procedures outlined in the SERP? • Is SERP training effective and are trainees demonstrating adequate knowledge and abilities?

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

6.1 Perform SERP training including practice drills. Annually X X

6.2 Review Post Spill Assessmentsto ensure adherence and to indemnify any trends that should be addressed Annually X X

RESILIENCE
Resilience is addressed in Element 6 by:
• Multiple staff are trained to respond to spill events. • Post-spill assessments are conducted to evaluate staff’s adherence to the SERP and to identify areas for improvement.
• Data collection forms are used to direct staff to collect all the required data to be submitted to CIWQS and are designed as a guide to a proper spill event response. • The City employees several different spill volume estimation methods to account for different circumstances.

APPENDIX 6 INCLUSIONS
• 6.1. Spill Emergency Response Plan (SERP), Update 1, 6-29-23

SEWER PIPE BLOCKAGE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 48 of 69

7. Sewer Pipe Blockage Program

WDR REQUIREMENTS
Attachment D-7 (pg. D-7)
“The Sewer System Management Plan must include procedures for the evaluation of the Enrollee’s service area to determine whether a sewer pipe blockage control program is needed to control fats, oils, grease, rags and debris. If the Enrollee determines that a program is not needed, the Enrollee shall provide justification in its Plan for why a program is not needed.

The procedures must include, at minimum:
• An implementation plan and schedule for a public education and outreach program that promotes proper disposal of pipe-blocking substances;
• A plan and schedule for the disposal of pipe-blocking substances generated within the sanitary sewer system service area. This may include a list of acceptable disposal facilities and/or additional facilities needed to adequately dispose of substances generated within a sanitary sewer system service area;
• The legal authority to prohibit discharges to the system and identify measures to prevent spills and blockages.
• Requirements to install grease removal devices (such as traps or interceptors), design standards for the removal devices, maintenance requirements, best management practices requirements, recordkeeping and reporting requirements; • Authority to inspect grease producing facilities, enforcement authorities, and whether the Enrollee has sufficient staff to inspect and enforce the fats, oils, and grease ordinance; • An identification of sanitary sewer system sections subject to fats, oils, and grease blockages and establishment of a cleaning schedule for each section; and • Implementation of source control measures for all sources of fats, oils, and grease reaching the sanitary sewer system for each section identified above.”

COMPLIANCE
The Agency evaluated its collection system and determined that a FOG Control Program is needed based on FOG being a current major spill cause and based on historical occurrence of 0-4 FOG related sewer system spills occurring per year. The Agency must also comply with the regional SCRWA Pretreatment program and Sewer Use Ordinance #2024-01. SCRWA has prepared, implemented, and enforced a FOG Control Program to reduce the amount of these substances discharged to the joint trunk line sanitary sewer since 1993.

Provisions for the inspection of FOG generators, enforcement of FOG related problems and permitting of FOG generators by SCRWA are included in SCWRA Ordinance NO. 2024-01, “An Ordinance of the South County Regional Wastewater Authority Amending the Existing Ordinance 2013-01 to Regulate Sewer Use and Set Uniform Requirements for Discharge into the Wastewater Collection and Treatment System.” The requirements above are addressed in order below:
a. The Agency and SCRWA proactively work to reduce the impacts of FOG from the collection system.

A difficult FOG source to address is the residential FOG component as it typically originates from many households, or a number of unidentifiable multi-family dwellings. The most effective method of addressing this problem is to provide information to the neighborhood, or specific multi-family facility, to raise awareness of the detrimental effects of improper grease disposal. Training and

SEWER PIPE BLOCKAGE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 49 of 69 educational materials are also provided on an as-needed basis to FSEs regarding best management practices (BMP) for grease management based on the findings of the inspection process. This is a very important aspect of facility inspection as new owners, managers, and employees are taught the importance of proper grease management and prevention of FOG related spills. This training is also very useful for changes in kitchen staff and serves as a refresher for staff who are not familiar with FOG BMPs.

The Agency relies on the SCRWA to provide public information and outreach for the FOG Control Program. The Agency enhances SCRWA’s efforts by providing bill-stuffers regarding FOG and FOG controls. These materials are also available at the service counter at the Agency office for distribution to the public.
b. The SCRWA has developed a list of businesses able to accept or haul FOG that is available from the Utilities Division and from the SCRWA Industrial Wastewater Division or Environmental Program Division. Pipe blocking substances collected during Agency maintenance and repair activities are disposed of at the landfill.
c. MHMC 13.20.110 through 13.20.365 provides the Agency authority to issue permits and require inspection, monitoring, and reporting of grease removal devices. The Morgan Hill Municipal Code (MHMC) provides the legal basis and authority for the Agency’s FOG Control Program. As it relates to pipe blocking substances, Title 13, Chapter 20 of the MHMC regulates the disposal of sanitary sewage into the Agency’s sanitary sewer system to protect the proper functioning of the collection system.

Specifically, MHMC 13.20.010 through 13.20.100 provides authority to prevent illicit discharges to the Agency’s Wastewater Collection System and, MHMC 13.20.110 through 13.20.365 provides the Agency authority to issue permits, enforce pre-treatment standards, and implement pre-treatment standards including controls.
d. SCRWA Sewer Use Ordinance #2024-01, Section 3.2 and MHMC 13.20.340, 13.20.350 and 13.20.360 address requirements for grease removal device installation, construction, and maintenance, respectively. In addition, the City has adopted the 2022 California Plumbing Code which also provides authority for grease removal devices.
e. SCRWA and the Agency have identified and permitted over 100 food service establishments (FSEs) in the City of Morgan Hill. MHMC 13.20.070, 13.20.073, and 13.20.076 and SCRWA Ordinance #2024-01, Sec 6 addressesright of entry for inspection and sampling/monitoring. MHMC 13.20.025 and SCRWA Ordinance #2024-01, Sec 1 and 8 address authority to enforce any violation of the Agency’s and SCRWA sewer ordinances. The SCRWA implements and enforces the FOG Control Program in the Agency’s service area and has sufficient staff dedicated to the program. f. Agency operations and maintenance staff have identified specific sewer lines susceptible to grease buildup in in the downtown area where restaurants are located. Once a specific line is identified, the information is provided to SCRWA for investigation and/or enforcement. The Agency’s primary FOG control contribution consists of regular and high frequency cleaning and maintenance of its collection system and portions of the joint trunk line the Agency is responsible for.

The Agency has identified and maintains collection system lines on a high frequency line maintenance list. These lines have experienced grease accumulation in the past and are cleaned on varying frequencies based upon severity. The single largest area for high frequency maintenance is the downtown area with the highest concentration of restaurants. The high frequency program currently lists approximately 10.25 miles of collection system lines (6.5% of the collection system)

SEWER PIPE BLOCKAGE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 50 of 69 that are cleaned on one of the following frequencies: Weekly, Monthly,Quarterly, Semi Annually, or Annually.

Cleaning frequencies depend on the history of stoppages or overflows on a line or from results of regular cleaning results and CCTV following blockages or overflows. g. As noted above, SCRWA and the Agency have identified and permitted over 100 food service establishments (FSEs) in the City of Morgan Hill. These establishments and other identified FOG generators are required to install grease interceptors as noted in d. above.

Sewers that require excessive cleaning or have a history of stoppages or spills caused by FOG are analyzed to determine possible upstream sources of grease. If the suspected FOG source is a permitted FSE, the Agency will follow up with the facility, or facilities, to determine if they are the source of FOG. Based on the results of the inspection(s), the Agency may issue a notice requiring corrective actions. Foul odors that emanate from an improperly maintained or malfunctioning grease interceptor is another issue that the Agency monitors.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Have there been any blockages/spillsfrom any identified problem areas? • Are the debris and other sewage solids collected during cleaning activities being disposed of appropriately?
• Have there been spills due to excessive fats, oil, grease, roots, or non-disposable wipes discovered in the sewer system during the audit period?
• Are there repeat offenders among FSEs?
• Are enforcement trends decreasing?
• Are Source Control and Collection staff included in the plan check process?

IMPLEMENTATION PLAN/SCHEDULE
No Plan Schedule Responsible Party
Dir Eng Sup

7.1 Review/evaluate enforcement and inspection findings and implement changes as necessary.

Annually X X

7.2 Review spill rates and causes and make changesto
maintenance programs, as necessary. Annually X X

RESILIENCE
Resilience is addressed in Element 7 by:
• Inspection of select assets directly downstream of grease producing businesses to ensure source control is effective.
• Residential FOG outreach and education program.
• Performance of regular assessments ofsystem assetsto monitor performance. • QA/QA process for evaluating pipe cleaning effectiveness. • Daily disposal of pipe blocking materials retrieved during maintenance activities.

SEWER PIPE BLOCKAGE PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 51 of 69 APPENDIX 7 INCLUSIONS
• 7.1 Agency Grease Interceptor Installation, Construction, and Maintenance Requirements

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 52 of 69

8. System Evaluation, Capacity Assurance, Capital Improvements

WDR REQUIREMENTS
Attachment D-8 (pg. D-)
“The Plan must include procedures and activities for:
• Routine evaluation and assessment of system conditions; • Capacity assessment and design criteria;.
• Prioritization of corrective actions; and
• A capital improvement plan.”

8.1. System Evaluation and Condition Assessment

WDR REQUIREMENTS
Attachment D-8.1 (pgs. D-7/D-8)
“The Plan must include procedures to:
• Evaluate the sanitary sewer system assets utilizing the best practices and technologies available;
• Identify and justify the amount (percentage) of its system for its condition to be assessed each year;
• Prioritize the condition assessment of system areasthat:
o Hold a high level of environmental consequences if vulnerable to collapse, failure, blockage, capacity issues, or other system deficiencies; o Are located in or within the vicinity of surface waters, steep terrain, high groundwater elevations, and environmentally sensitive areas;
o Are within the vicinity of a receiving water with a bacterial-related impairment on the most current Clean Water Act section 303(d) List.
• Assess the system conditions using visual observations, video surveillance and/or other comparable system inspection method;
• Utilize observations/evidence of system conditions that may contribute to exiting of sewage from the system which can reasonably be expected to discharge into a water of the State; • Maintain documents and recordkeeping of system evaluation and condition assessment inspections and activities; and
• Identify system assets vulnerable to direct and indirect impacts of climate change, including but not limited to: sea level rise; flooding and/or erosion due to increased storm volumes, frequency, and/or intensity; wildfires; and increased power disruptions.”

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 53 of 69

COMPLIANCE
The assessment of a collection system involves every component of the Agency collection system, including pipelines, manholes, and pump stations. The assessment of pipeline conditions is the most significant condition assessment responsibility the Agency has. It is of key importance to regularly perform pipeline condition assessments to initially establish a condition baseline and have the ability to monitor condition changes over time. The condition rating of a pipeline is one of the key parameters used in the Risk Prioritization Model, which in turn is used to help develop the Agency’s CIP.

The Agency has divided their system into eight maintenance zones and field staff inspect the system in a systematic manner, which improves efficiency, allowing the Agency to achieve the goal of properly maintaining the system. Pipes are evaluated and assigned a condition rating utilizing the NASSCO Pipeline Assessment Certification Program (PACP), which is a standardized way of identifying and rating pipe defects.

CCTV inspections are not performed on laterals by the Agency as they are owned by the property owner.

The private sewer laterals are also not currently required to be rated using the Lateral Assessment and Certification Program (LACP) which is the lateral counterpart to PACP. Inspection of laterals are only performed on property sales and as part of the PSSCS program when defects or obstructions are found following lateral inspection on property resale, routine cleaning or permit inspections. Laterals with significant defects are brought to the attention of the Environmental Services Division where they are further analyzed and subsequent enforcement of repairs is required by the private property owner with ownership of the lateral.

The Agency has defined a formal manhole inspection program based upon the NASSCO manhole rating system as part of the regular cleaning operations. Manhole inspection and rating results are documented in the Agency’s CMMS.

Pump stations are routinely inspected twice weekly. Every three to five years a more thorough inspection is performed where pumps are pulled and evaluated. The resulting maintenance and repair activities are completed in a prioritized order. Station and component lifecycle status are continuously monitored and documented.

The Agency determined a CCTV inspection and cleaning frequency for the entire collection system of a minimum of every thirty-six (36) months ensures proper collection system is appropriate for theirsystem as it allows them to effectively keep abreast of system performance. Deficiencies are identified and corrective actions are implemented which has led to a reduction in spill events over the past years. In addition, the Agency maintains an aggressive two to three-year cleaning cycle, which means each line segment will be cleaned at least once between inspection cycles, further reducing the likelihood of a spill.

The consequence of failure factors in the Agency’s Risk Model is higher for the portions of the collection system that are in areasthat hold a high level of environmental consequence such as close vicinity to surface water and protected wetlands and other sensitive areas.

Ten (10) Smart Cover level monitors and other flow monitoring devices are utilized to monitor flow conditions, pipe performance, and infiltration.

The Agency has identified all sewage conveyance facilities within 100’ of surface water, such as aerial creek crossings, siphons, parallel conveyance pipes and/or water adjacent facilities and has evaluated conditions that might lead to exfiltration. Evaluations consider evidence of cracks, separated joints, infiltration, and likelihood of pipe failure due to excessive surface water flows.

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 54 of 69 The Agency, historically and currently, documents all inspection and maintenance activities in their CMMS for the purposes of maintaining information of maintenance and inspection efforts, evaluating system performance, and making maintenance and corrective action decisions today and into the future.

Agency has identified areas susceptible to ground movement and has implemented monitoring measures.

The Agency has identified shallow underground facilities, which are periodically monitored for evidence of erosion caused by intense rain events and flooding. Pump stations could be affected by wildfires, and the Agency maintains emergency generators and pumpsto manage pump station flowsin the event of a station failure.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Has the City maintained its schedule for routine O&M and is data being reviewed in a timely manner?
 CCTV Gravity Mains
 Laterals
 Manholes
 Pump Stations
• Are inspection efforts discovering deficienciesin a timely manner? • Are maintenance and inspection activities being properly documented?

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

8.1.1 Review/evaluate enforcement and inspection findings and implement changes as necessary.

Annually X X

8.1.2 Review spill rates and causes and make changesto
maintenance programs, as necessary. Annually X X

8.1.3 Hold meeting to discuss any issues that may result from climate changes Annually X X X

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 55 of 69

8.2. Capacity Assessment and Design Criteria

WDR REQUIREMENTS
Attachment D-8.2 (pgs. D-8/D-9)
“The Plan must include procedures to identify system components that are experiencing or contributing to spills caused by hydraulic deficiency and/or limited capacity, including procedures to identify the appropriate hydraulic capacity of key system elements for:
• Dry-weather peak flow conditions that cause or contributes to spill events; • The appropriate design storm(s) or wet weather events that causes or contributes to spill events.
• The capacity of key system components; and
• Identify the major sources that contribute to the peak flows associated with sewer spills.

The capacity assessment must consider:
• Data from existing system condition assessments, system inspections, system audits, spill history, and other available information;
• Capacity of flood-prone systems subject to increased infiltration and inflow, under normal local and regional storm conditions;
• Capacity of systemssubject to increased infiltration and inflow due to larger and/or higherintensity storm events as a result of climate change; • Increases of erosive forces in canyons and streams near underground and above-ground system components due to larger and/or higher-intensity storm events; • Capacity of majorsystem elementsto accommodate dry weather peak flow conditions, and updated design storm and wet weather events; and
• Necessary redundancy in pumping and storage capacities.”

COMPLIANCE
The Agency completed Sewer System Master Plans (Plan) in January 2002, the fall of 2018, August of 2019, and the most recent Plan update in April 2024. The most recent Plan includes a program for capacity enhancements through the planning horizon year of 2035. The objectives of the Plan update are:
• Confirm sewersystem design and planning criteria;
• Evaluate the capacity of the then existing sewer collection system; • Summarize deficiencies and propose necessary improvementsto enhance reliability; • Recommend improvementsforfuture growth; and
• Prepare capital improvement program through 2035.

The updated 2024 Sewer System Master Plan was prepared by AKEL Engineering Group, Inc. The Plan is intended to serve as a tool for planning and phasing the construction of future sewer system infrastructure forthe projected build out of the City of Morgan Hill. The Plan substantially updated both the capacity needs of the collection system assets and the renewal and replacement of existing facilities. In addition, it projects updates to all sewer system planning documents every five years. The goal is to have the Plan and SSMP on the same update schedule since one informs the other. The updated 2024 Sewer System Master Plan is incorporated into this SSMP by reference.

The capacity-related design criteria, including base wastewater flow and peaking factors, included a hypothetical ten (10) year, 24-hour design storm across the service area resulting in an increase in system

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 56 of 69 I/I. Dry weather flows were estimated by applying land use coefficients against the general plan areas and then adding the results of the design flow defined here. These criteria resulted in an anticipated wet weather peak flow from the Agency’s system in 2035 of 15.2 MGD. Dry weather peak flow from the Agency’s system for the same period were estimated at 7.3 MGD.

In addition, the Plan developed and adopted Agency design criteria for gravity sewer lines and lift stations.

The City prepares an annual five-year list of capital improvement projects that includes projects to address wastewater collection system capacity issues. Engineering Staff prioritize and select the projects to be included on the annual list. All capacity related projects identified in the Plan are contained in Five-year Renewal and Replacement Budget Supplements
The Agency’s Capital Improvement Program Budget is included in the 2024 SMP. The Agency’s capacity enhancement projects list includes any capacity-related improvement projects, and this list will be revised, as necessary, based upon future condition assessments and maintenance results.

The Agency ensures that its collection system is properly designed and any new or rehabilitation work conforms to design capacity standards. These design standards are more conservative than the hydraulic analysis criteria and include a requirement that sewers be designed to flow at, d/D=0.7, with a minimum velocity of 2.0 feet per second, minimum slope of 0.002, and maximum velocity of 10 feet per second. The 2024 SMP specifies performance and design criteria of:
• Existing Small Pipes(6”-10”)
o Max. d/D=0.92 at PDWF
o Hydraulic Grade Line (HGL) at least 3 feet below the manhole ground elevation.at PDWF • Proposed Small Pipes (6”-10”)
• Max. d/D=0.50 at PDWF
• Hydraulic Grade Line (HGL) at least 3 feet below the manhole ground elevation.at PDWF • Existing Large Pipe (> 12”)
o Max. d/D=0.92 at PDWF
o Hydraulic Grade Line (HGL) at least 3 feet below the manhole ground elevation.at PDWF • Proposed Large Pipe (> 12”)
o Max. d/D=0.75 at PDWF
o Hydraulic Grade Line (HGL) at least 3 feet below the manhole ground elevation.at PDWF The Agency is continuously monitoring system performance compared to suggested hydraulic model performance. The current hydraulic model design storm is a 10-year, 24-hour storm associated with approximately 4.33 inches of rain in the Agency’s service area.

The Agency embarked on an effort to reduce infiltration and inflow (I/I) into the sewer collection system through storm water system upgrades. The Agency anticipates a 95% reduction of I/I and sewer system surcharging once storm system upgrades in theirservice area are completed based on reduced I/I observed as these upgrades have been implemented.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Number of capacity-related spills orsurcharge condition during the audit period. • Hasthere been any changes to zoning designations(residential, commercial, industrial)?

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 57 of 69

IMPLEMENTATION PLAN/SCHEDULE
No Plan Schedule Responsible Party
Dir Eng Sup

8.2.1 Monitor/Evaluate significant rain
events to see if they exceed the design
storm in the hydraulic model.

Each significant rain evet X X

8.2.2 Identify and monitor flood-prone
areassusceptible to erosion from rain
events
After each significantrain event X X

8.2.3 Monitor flows in each basin and
update the hydraulic model
Per Engineering Department
schedule X

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 58 of 69

8.3. Prioritization of Corrective Action

WDR REQUIREMENTS
Attachment D-8.3 (pg. D-9)
“The findings of the condition assessments and capacity assessments must be used to prioritize corrective actions. Prioritization must consider the severity of the consequences of potential spills.”

COMPLIANCE
The determination of repair priority for long term CIP projects can be very challenging due to the complexity in analyzing all the various factors affecting the pipeline’s risk of failure. The Agency has developed a riskbased prioritization model (Risk Model) to provide a more objective approach to CIP project prioritization and help aid in developing its CIP rehabilitation project plans through 2035. It should be noted that the development of a CIP project and its prioritization do not solely rely upon the results of the Risk Model, but must also take into consideration other significant factors such as project timing, budget allocation, resource availability, coordination with municipal projects, etc.

Since the completion of the 2017 Wastewater Collection System Master Plan, the Agency has developed a comprehensive sewer Rehabilitation and Replacement (R&R) program to address aging infrastructure. This program was developed from condition and risk analyses documented in the following studies:
• 2021 Sanitary Sewer System Asset Management Plan. This plan defines appropriate Likelihood of Failure (LoF) and Consequence of Failure (CoF) criteria for wastewater facilities and includes a risk assessment of the collection system. A decision tree is used to recommend prioritized R&R improvements with capital cost estimates.
• 2021 Joint Trunk Pipeline Condition Assessment Report. This report was completed in coordination with the City of Gilroy and documents’ condition defects in the existing Joint Trunk system. Thisreport is also used to recommend prioritized rehabilitation improvements with capital cost estimates.

The City currently maintains a list of known structural deficiencies and continues to implement R&R improvements on an annual basis. The R&R program is supported by routine CCTV inspections, lift station condition assessments and annual capital projects that target high risk infrastructure.

It should be noted that the CCTV inspections follow the NASSCO rating system established for pipelines, manholes and laterals. Additionally, the City’s Private Sewer Lateral Inspection Ordinance also requires residents to inspect old service laterals and repair deficiencies before sale or re-modeling of properties.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Hasthe City adhered to itssystem evaluation/condition assessmentschedule? • Has the City adhered to its prioritization/corrective procedures for sewer repair and capacity improvement projects?
• Have projects been completed before deficiencies caused failures?

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 59 of 69

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

8.3.1 Utilize all available data for prioritizing corrective actions considering severity and consequences of
potential spills.

Each CIP Update X X

8.3.2 Maintain documents and recordkeeping ofsystem
evaluation and condition assessment inspections
and activities.

Continuously X X

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 60 of 69

8.4. Capital Improvement Plan

WDR REQUIREMENTS
Attachment D-8.4 (pg. D-9)
“The capital improvement plan must include the following items:
• Project schedules include completion dates for all portions of the capital improvement program;
• Internal and external project funding sources for each project; and • Joint coordination between operation and maintenance staff, and engineering staff/consultants during planning, design, and construction of capital improvement projects; and InterCity coordination with other impacted utility agencies.”

COMPLIANCE
The Capital Improvement Program consists of both hydraulic capacity and rehabilitation improvements for the 2035 horizon. The wastewater infrastructure unit costs and contingencies established for the Capital Improvement Program are presented in the Agency’s 2024 SMP and were developed for master planning purposes. The unit costs were benchmarked using a 20-City average Engineering News Record Construction Cost Index of 13,532, reflecting a date of April 2024.

The current detailed CIP program is summarized in Appendix 9.1 on Table 9.2 from the 2024 SMP with a uniquely coded project ID, description, implementation schedule and cost information. Detailed project sheets for hydraulic capacity improvements are included in Appendix D of the 2024 SMP for subsequent design phases. The capital costs estimate includes a 30 percent contingency allowance to account for unforeseen events and unknown field conditions, and an additional 30 percent to account for project related costs such as engineering design and construction management.

In total, the Capital Improvement Program consists of 11.6 miles of hydraulic capacity improvements and

15.7 miles of rehabilitation improvements. The implementation costs are estimated at approximately $138.1 million dollars, with $80.2 million attributed to the existing customers and $57.9 million dollars attributed to future customers. A suggested 10-year expenditure budget is also provided in the 2024 SMP.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Hasthe City’s capital improvement plan schedule been adhered to?

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

8.4.1 Hold regular coordination meetings, with all
parties, to help keep the projects on track and
resolve issues that may arise in a timely manner.

Annually X X

8.4.2 Forschedules that are not kept, justify and
document the reason
Each Delayed
Project X

SYSTEM EVALUATION, CAPACITY ASSURANCE, CAPITAL IMPROVEMENTS © 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 61 of 69

RESILIENCE
Resilience is addressed in Element 8 by:
• Annual review of the Capital Improvement Plan by all appropriate individuals including Management, Engineering, and Operations during budget preparation.

APPENDIX 8 INCLUSIONS
• 8.1 Capital Improvement Program Projects Summary

MONITORING, MEASUREMENT, AND PROGRAM MODIFICATIONS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 62 of 69

9. Monitoring, Measurement, and Program Modifications

WDR REQUIREMENTS
Attachment D-9 (pg. D-9)
“The Plan must include an Adaptive Management section that addresses Plan-implementation effectiveness and the steps for necessary Plan improvement, including:
• Maintaining relevant information, including audit findings, to establish and prioritize appropriate Plan activities;
• Monitoring the implementation and measuring the effectiveness of each Plan element; • Assessing the success of the preventive operation and maintenance activities:
• Updating Plan procedures and activities, as appropriate, based on results of monitoring and performance evaluations; and
• Identifying and illustrating spill trends, including spill frequency, locations, and estimated volumes.”

COMPLIANCE
The Agency will evaluate the performance of its wastewater collection system regularly using the performance measures identified in this Element. The Agency will update the data and analysis at the time of the evaluation. The Agency may use other performance measures in its evaluation. The Agency will prioritize its actions and initiate changes to this SSMP, its operations and maintenance practices, and any related programs based on the results of the evaluation.

The above requirements are addressed in order below:
a. The Agency maintains accurate and relevant inspection and maintenance records for the collection system. Much of the documentation today is maintained electronically in the Agency’s CMMS, which allows for ease of access and analysis. This helps Agency staff to make sound decisions and prioritize activities when dealing with the routine and the unexpected. b. Monitoring of the Agency’s SSMP focuses on each element in terms of its implementation and effectiveness. Monitoring the implementation of SSMP elements would achieve the following goals:
• Stated objectives of each element are valid and achievable. • Tasks cited in each element lead to reaching these objectives. • Tasks are being implemented.
• Responsibility for implementation isidentified.

By establishing specific performance indicators for each element, an assessment can be made to determine the degree of success achieved. The SSMP has been designed to include key performance indicators (KPIs) for each element, which are used to measure effectiveness. c. The Agency Assesses the success of maintenance and operation activities by ensuing activities are being performed as expected, monitoring actual outcomes compared to intended outcomes, as well as monitoring spill trends.
d. The Agency is committed to continuous improvement and monitors and evaluates performance of work programs and SSMP elements to ensure intended outcomes are achieved while looking for areas for improvement. The Agency utilizes the CIWQS collection system operational reports and

MONITORING, MEASUREMENT, AND PROGRAM MODIFICATIONS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 63 of 69 has assessed historical baseline performance and sewer system spill trends for gravity mains, lift stations, and force mains in their sewer system. These baseline performance measures are utilized to evaluate the Agency’s sewer system performance regularly. Although the SWRCB requires that the SSMP be updated every six years, the SSMP should be considered as a dynamic document and may require updating on a more frequent basis. Routine changes to administrative information, notwithstanding, minor changes will likely be required to addressimprovementsidentified through the SSMP Audit or through modifications required as conditions change.

The indicators that the Agency utilizes to measure the performance of its wastewater collection system and the effectiveness of its SSMP are:
• Total number ofsewersystem spills.
• Number of sewer system spills for each cause (roots, grease debris, pipe failure, capacity, liftstation failures, and other).
• Portion of sewage recovered compared to total volume spilled; and • Volume ofspilled sewage discharged into Waters of the State. • Private Lateral Sewage Overflows – number and volumes • Cleaning and CCTV annual performance results
• FOG program activities and FSE permitting performance. e. The Agency monitors spill trends, at a minimum every three years during required audits, utilizing the CMMS database, inspection records, and CIWQS data. These resources are helpful in planning and programing work, and adjusting as needed, enabling the Agency to be adaptive and capitalize on lessons learned.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Are SSMP Elements being periodically evaluated for effectiveness? • Are work activities and spill events being documented? • Has a plan and schedule been established to address audit findings/deficiencies from the last audit?
• Is Trend Analysis being performed on spill causes?
• Have work programs been assessed and updated as necessary?

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

9.1 Assess work programsto ensure
outcomes are as intended Annually X X

9.2 Ensure updatesto work programs and
the SSMP based on assessments. As Needed X X

9.3 Monitor and evaluate spill trends.

Document efforts. Annually X X

MONITORING, MEASUREMENT, AND PROGRAM MODIFICATIONS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 64 of 69

RESILIENCE
Resilience is addressed in Element 9 by:
• Development of key performance indicatorsto measure effectiveness of the SSMP. • Performing periodic reviews of the SSMP to help ensure it is being properly implemented. • Developing and adhering to a timeline to correct deficiencies found during the audit process. • Periodically evaluating work programsto help ensure effectiveness.

APPENDIX 9 INCLUSIONS
• None

INTERNAL AUDITS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 65 of 69

10. Internal Audits

WDR REQUIREMENTS
Attachment D-10 (pg. D-10)
“The Plan shall include internal audit procedures, appropriate to the size and performance of the system, for the Enrollee to comply with section 5.4 (Sewer System Management Plan Audits) of this General Order.”

COMPLIANCE
The Agency’s current SSMP audit is expected to be completed by September 2025 and will be appended to this SSMP update when completed. Moving forward, the Agency will complete audits every three (3) years.

The objective of the audit is to evaluate compliance, implementation and effectiveness of the SSMP.

The SSMP includes a description of how the Agency will comply with the requirements of each Element. The audit review includes an evaluation to determine if compliance has been met. As needed, the SSMP is updated based on the results of the routine audits.

Implementation is evaluated by determining if the agency is executing the SSMP as stated.

Effectiveness is evaluated by using key performance indicators, which have been developed specifically for each element.

An additional evaluation is performed to comply with Specifications 5.6 addressing resilience. Resilience indicators have been developed for each element, and they serve to demonstrate how resilience is built into the SSMP and inspection, maintenance and spill response activities.

Any deficiencies discovered through the audit process are noted and a plan and schedule to implement corrective measures are established.

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Have audits been performed as required?
• Have the audits assessed compliance, implementation, and effectiveness? • Have deficiencies been identified?
• Has a plan and schedule to rectify the deficiencies been established?

INTERNAL AUDITS
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 66 of 69

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

10.1 Schedule audits in advance of due dates to
ensure adequate time to complete. Agency has
6 months to complete the audit from the end
of the audit period.

Begin end of audit
period X X

10.2 Ensure a plan and schedule is developed to
address deficiencies.

Once the Audit is
completed X X

RESILIENCE
Resilience is addressed in Element 10 by:
• Periodically evaluating key performance indicators during the audit period to assess effectiveness and make corrections, if necessary, prior to the audit. • Evaluating previous auditsto ensure deficiencies have been rectified. • Scheduling the audit due dates and completing the audit on time.

APPENDIX 10 INCLUSIONS
• None

COMMUNICATION PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 67 of 69

11. Communication Program

WDR REQUIREMENTS
Attachment D-11 (pg. D-10)
“The Plan must include procedures for the Enrollee to communicate with:
• The public for:
o Spills and discharges resulting in closures of public areas, or that enter a source of drinking water; and
o The development, implementation, and update of its Plan, including opportunities for public input to Plan implementation and updates.
• Owners/operators of systems that connect into the Enrollee’s system, including satellite systems, for:
o System operation, maintenance, and capital improvement-related activities.”

COMPLIANCE
a. As specified in the Agency’s SERP, when the Agency experiences a spill, it is standard procedure to secure the affected area and keep the public away. This is generally done using barricades, cones, and caution tape. Should the Agency experience a spill that may require closure of public areas or enter a source drinking of water,signs will be immediately placed indicating the issue and providing contact information. Staff will remain on site to provide an additionalsafety factor until appropriate authorities respond and direct otherwise. In all cases, the Agency will follow the advice of higher authorities, such as the local environmental health department and other regulatory authorities. b. There are several opportunitiesforstakeholders and the public to participate and provide input into the development and update of the Agency SSMP. During itsinitial developmentstage, as with each SSMP Audit and update of the SSMP, the SSMP and related documents are presented to the Agency Board for review and acceptance. As previously noted, SSMP Audits were historically performed every two years and re-certification and acceptance of updated SSMPs was required every five years. Moving forward, the Agency will follow the requirements of the revised WDRs and perform SSMP Audits every three years and re-certification and acceptance of updated SSMPs every six years. In addition to the extensive initial development process, to date there have been five updates and re-certifications of the SSMP that have been presented to the Board.

Prior to each Board Meeting, these documents are included in Board Agenda packet which are readily available for review on the Agency’s website. The SSMP is posted on the Agency’s website, which provides the public several ways to contact the Agency, via the “Contact Us” feature. c. The Agency does not currently have satellite systems.

COMMUNICATION PROGRAM
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 68 of 69

EFFECTIVENESS
The City utilizesthe following Key Performance Indicatorsfor measuring effectiveness of this Element:
• Does the City place all SSMP action items on the agenda for regular counsel/board meetings? • Does the City have signage, or other means, readily available to notify the public of environmental or public risk factors related to a sewage spill?
• Does the City perform outreach to residential customers?

IMPLEMENTATION PLAN/SCHEDULE
No. Plan Schedule Responsible Party
Dir Eng Sup

11.1 Ensure the Board of Directors approves the SSMP per schedule Every 6 years X X

11.2 Ensure the SSMP is posted on the Agency Website and the link functions properly. Annually X X

11.3 Ensure Sewage Spill Warning signs are readily available to communicate with the public when necessary Annually X

RESILIENCE
Resilience is addressed in Element 11 by:
• Use the SSMP as a tool to communicate to the public how the City is managing the system. • Maintain a consistent presence in the service area by attending community events or issuing periodic newsletters or other communications to the public. • Make it clear and easy for the public to contact the City.

APPENDIX 11 INCLUSIONS
• None

APPENDICIES
© 2025 Fischer Compliance, LLC. All rights reserved. SSMP licensed for City of Morgan Hill use only. Page 69 of 69 List of Appendices
APPENDIX 1 • None
APPENDIX 2 • None
APPENDIX 3 • 3.1 Grant of Easement Template
APPENDIX 4
• 4.1. Major Sewer System Equipment Inventory
• 4.2. Critical Sewer System Replacement PartsInventory APPENDIX 5 • None
APPENDIX 6 • 6.1. Spill Emergency Response Plan (SERP), Update 1, 6-29-23 APPENDIX 7
• 7.1 Agency Grease Interceptor Installation, Construction, and Maintenance Requirements
APPENDIX 8 • 8.1. Capital Improvement Program Projects Summary APPENDIX 9 • None
APPENDIX 10 • None
APPENDIX 11 • None

City Council
Meeting Minutes
Mark Turner - Mayor
Marilyn Librers - Mayor Pro Tem
Soraida Iwanaga - Council Member
Yvonne Martínez Beltrán - Council Member
Miriam Vega - Council Member
Wednesday, September 3, 2025
6:00 p.m.

Council Chamber Building
17555 Peak Avenue, Morgan Hill, CA 95037

CALL TO ORDER
Mayor Turner called the City Council meeting to order at 6:00 p.m.

ROLL CALL ATTENDANCE
City Clerk Bigelow called the roll.

PRESENT Mark Turner, Marilyn Librers, Soraida Iwanaga, Miriam Vega ABSENT Yvonne Martinez Beltran

DECLARATION OF POSTING AGENDA
City Clerk Bigelow declared the posting of the agenda.

SILENT INVOCATION

PLEDGE OF ALLEGIANCE

PROCLAMATIONS
Proclaiming September as National Preparedness Month

September 3, 2025
2 Proclaiming September as Childhood Cancer Awareness Month Proclaiming October 1, 2025 as Clean Air Day

CITY COUNCIL REPORTS
Council Member Iwanaga shared that over the last few weeks she has been focusing on learning more about how the City operates and about some of the projects taking place in and around town. She also attended an event that supports communities that are underserved.

CITY MANAGER'S REPORT
City Manager Turner announced that Morgan Hill has officially opened the new Butterfield Fire Station. The all-electric, solar-powered facility enhances emergency response, while adding critical staffing for the City’s growing emergency call volume.

She thanked the Morgan Hill Fire Department and City teammates, Yat Cho and Chris Ghione, for outstanding project management!
She then presented the City Manager's Recognition Report, highlighting new, promoted, and retiring teammates.

Teammate Recognitions

CITY ATTORNEY'S REPORT
None.

OTHER REPORTS
None.

PUBLIC COMMENT
Public comment opened at 6:16 p.m. With no requests to speak, the public comment was closed.

ADOPTION OF AGENDA
MOTION:

Adopting the agenda as posted.

RESULT: Passed
MOVER: Council Member Vega
SECONDER: Mayor Pro Tem Librers

September 3, 2025
3 AYES: Mayor Turner, Mayor Pro Tem Librers, Council Member Iwanaga, Council Member Vega
NAYS: None
ABSTAIN: None
ABSENT: Council Member Martinez Beltran

CONSENT CALENDAR
Items appearing on the Consent Calendar are considered routine and may be approved by one motion. Pursuant to City Council Policies and Procedures (CP 97-01), any member of the Council or public may request to have an item removed from the Consent Calendar for comment and action.

Public comment opened at 6:18 p.m.

Doug Muirhead was called to speak.

With no further requests to speak, public comment period was closed.

MOTION:

Approving consent calendar items 1 through 5.

RESULT: Passed
MOVER: Council Member Vega
SECONDER: Council Member Iwanaga
AYES: Mayor Turner, Mayor Pro Tem Librers, Council Member Iwanaga, Council Member Vega
NAYS: None
ABSTAIN: None
ABSENT: Council Member Martinez Beltran

1. APPROVE AGREEMENT WITH THE COUNTY OF SANTA CLARA FOR THE 2024 EMERGENCY MANAGEMENT PERFORMANCE GRANT (EMPG)
FUNDS
Recommendation:

1. Authorize the City Manager to execute and administer the Agreement with the County of Santa Clara for the 2024 Emergency Management Performance Grant; and

2. Adopt resolution amending the Fiscal Year 2025-26 Budget to recognize revenue and appropriate related expenditures, in the amount of $13,250 from the General Fund.

September 3, 2025
4 2. APPROVE AMENDMENTS TO ENGINEERING-RELATED CONSULTANT

AGREEMENTS FOR CAPITAL IMPROVEMENT PROGRAM PROJECT

DESIGN, TOPOGRAPHIC SURVEY AND CONSTRUCTION STAKING

SERVICES
Recommendation:

Approve and authorize the City Manager to execute and administer four engineering-related consultant amendments:

1. First Amendment to Harris and Associates, Inc. to increase the amount from $519,000 to $919,000;

2. First Amendment to Associated Engineering-Surveying Service, Inc. doing business as Hanna-Brunetti to increase the amount from $144,000 to $544,000;

3. First Amendment to Ruggeri-Jensen-Azar (RJA) to increase the amount from $39,000 to $439,000; and

4. First Amendment to MNS Engineers, Inc. to increase the amount from $39,000 to $439,000.

3. APPROVE THE MEMORANDUM OF UNDERSTANDING FOR

PARTICIPATION IN THE MULTI-JURISDICTIONAL COMPOSTING

EDUCATION PROGRAM
Recommendation:

1. Authorize the City Manager to execute, administer and make minor modifications with the approval of the City Attorney to the Memorandum of Understanding for the Multi-Jurisdictional Composting Education Program; and

2. Adopt resolution amending the FY2025-26 Budget to appropriate an additional $116,893 to the City’s Countywide Solid Waste Program (Fund 246).

4. APPROVE THE AUGUST 20, 2025 AND AUGUST 27, 2025 CITY COUNCIL

MEETING MINUTES
Recommendation:

Approve the August 20, 2025 and August 27, 2025 City Council Meeting Minutes.

5. AWARD EAGLE VIEW WELL #1 DEVELOPMENT PROJECT CONTRACT TO ZIM INDUSTRIES, INC. IN THE AMOUNT OF $797,364
Recommendation:

September 3, 2025
5 1. Approve the Eagle View Well #1 Development Project plans and specifications;

2. Award contract to Zim Industries, Inc. for the Eagle View Well #1 Development Project in the amount of $797,364; and

3. Authorize expenditures of construction contingency not to exceed $79,736.

PUBLIC HEARINGS

6. ZA2024-0001/EA2024-0009: DEWITT-WEST HILLS CHURCH: REQUEST FOR A PLANNED DEVELOPMENT WITH MASTER PLAN OF A 5.75-ACRE

PARCEL FOR THE REMODEL AND EXPANSION OF AN EXISTING
RELIGIOUS FACILITY. THE PLAN INCLUDES DEMOLITION OF THE

TEMPORARY CLASSROOM FACILITIES AND THE CONSTRUCTION OF

PERMANENT CLASSROOM FACILITIES, AND THE REMODEL AND

EXPANSION OF THE EXISTING SANCTUARY WITH ASSOCIATED SITE

IMPROVEMENTS
Recommendation:

1. Open/Close the public hearing;

2. Adopt a Resolution approving a Negative Declaration for the West Hills Community Church Planned Development with Master Plan;

3. Waive the first and second reading of the ordinance for a Zoning Amendment to create a Planned Development with a Master Plan; and

4. Introduce the ordinance.

Senior Planner Brown and Development Services Director Carman provided a presentation and report.

The public hearing opened at 6:28 p.m. The following people were called to speak:

David Fredrick
Cindy Chacon
Patrick McCoy
Laurie Beasley
Jenann Nakamura
Lucas Shellhammer
Rachel Medeiros
Irving Tamura
Patty Trapp
With no further requests to speak, the public hearing was closed.

MOTION:

Adopting the resolution.

September 3, 2025
6 RESULT: Passed
MOVER: Mayor Pro Tem Librers
SECONDER: Council Member Vega
AYES: Mayor Turner, Mayor Pro Tem Librers, Council Member Iwanaga, Council Member Vega
NAYS: None
ABSTAIN: None
ABSENT: Council Member Martinez Beltran
MOTION:

Waiving the first and second reading of the ordinance.

RESULT: Passed
MOVER: Council Member Iwanaga
SECONDER: Council Member Vega
AYES: Mayor Turner, Mayor Pro Tem Librers, Council Member Iwanaga, Council Member Vega
NAYS: None
ABSTAIN: None
ABSENT: Council Member Martinez Beltran
MOTION:

Introducing the ordinance.

RESULT: Passed
MOVER: Council Member Vega
SECONDER: Mayor Pro Tem Librers
AYES: Mayor Turner, Mayor Pro Tem Librers, Council Member Iwanaga, Council Member Vega
NAYS: None
ABSTAIN: None
ABSENT: Council Member Martinez Beltran
The meeting recessed at 6:50 p.m. and reconvened at 6:55 p.m.

September 3, 2025
7 OTHER BUSINESS

7. APPOINT VOTING DELEGATES FOR THE 2025 CALCITIES (LEAGUE)

ANNUAL CONFERENCE
Recommendation:

1. Appoint a voting delegate and up to two alternate voting delegates to the CalCities Annual Conference; and

2. Direct staff to complete and forward the voting delegate form to CalCities.

City Clerk Bigelow provided the report.

Public comment opened at 6:57 p.m. With no requests to speak, the public comment was closed.

MOTION:

Appointing Mayor Pro Tem Librers as the primary voting delegate and Council Members Vega and Iwanaga as alternates.

RESULT: Passed
MOVER: Mayor Turner
SECONDER: Council Member Iwanaga
AYES: Mayor Turner, Mayor Pro Tem Librers, Council Member Iwanaga, Council Member Vega
NAYS: None
ABSTAIN: None
ABSENT: Council Member Martinez Beltran

8. PROVIDE DIRECTION TO STAFF ON PROPOSED FUTURE COUNCIL

INITIATED AGENDA ITEM
Recommendation:

Determine if the majority of the City Council wants the following item agendized at a future meeting for discussion:

Implement regulations to address the growing presence of pop-up and street vendors in the City.

City Manager Turner provided the report.

Public comment opened at 7:00 p.m. With no requests to speak, the public comment was closed.

MOTION:

Directing staff to agendize the item for future discussion.

September 3, 2025
8 RESULT: Passed
MOVER: Council Member Vega
SECONDER: Council Member Iwanaga
AYES: Mayor Turner, Mayor Pro Tem Librers, Council Member Iwanaga, Council Member Vega
NAYS: None
ABSTAIN: None
ABSENT: Council Member Martinez Beltran

FUTURE COUNCIL INITIATED AGENDA ITEMS
None.

ADJOURNMENT
There being no further business, Mayor Turner adjourned the meeting at 7:01 p.m.

Minutes Prepared by:

Michelle Bigelow, City Clerk

5 CITY COUNCIL STAFF REPORT
MEETING DATE: September 17, 2025
PREPARED BY:

Maria Angeles, Senior Civil Engineer
APPROVED BY: City Manager

APPROVE A REIMBURSEMENT AGREEMENT WITH EDEN HOUSING,
INC. FOR OUT-OF-TRACT UNDERGROUNDING OF OVERHEAD
UTILITIES SOUTH OF THE MAGNOLIAS PROJECT (17965 MONTEREY ROAD)

RECOMMENDATION(S)

1. Approve a Reimbursement Agreement with Eden Housing, Inc. for The Magnolias Project; and

2. Authorize the City Manager to execute the Reimbursement Agreement.

COUNCIL PRIORITIES, GOALS & STRATEGIES
Guiding Documents
Morgan Hill 2035 General Plan
REPORT NARRATIVE:

The Magnolias Project is a 66-unit, multi-family affordable apartment development located at 17965 Monterey Road with Assessor's Parcel Number (APN) 764-12-006 (see Attachment 1). As part of the project's conditions of approval, the developer, Eden Housing, Inc. is required to underground the overhead utilities along the project's frontage on the west side of Monterey Road. Additionally, the City has requested that the developer extend the southerly limits of the undergrounding work beyond the project frontage a distance of approximately 110 feet to eliminate the remaining short section of overhead lines just south of the project boundary. This work is considered "out-of-tract" and, therefore, not the responsibility of the project. However, the developer has agreed to perform the "out-of-tract" undergrounding work with the understanding that the City will reimburse the developer for the cost of this improvement.

Partnering with the Developer to complete this additional undergrounding work is a cost effective way for the City to achieve additional undergrounding for the City. Should the City work to underground lines on its own, it would see additional costs in design, construction, and staff time. The City has dedicated undergrounding funds available for only the purpose of undergrounding utility lines.

The total estimated cost for the design, contract, and construction cost of the out-of-tract

5 undergrounding work along Monterey Road is $140,580.27. The total maximum reimbursement amount is $140,580.27. The estimated cost of the undergrounding work has been reviewed and deemed complete. Therefore, staff recommends that the City enter into a Reimbursement Agreement (Attachment 2) with the developer, Eden Housing, Inc., for a reimbursement amount not to exceed $140,580.27 to cover the construction cost of undergrounding overhead utilities on Monterey Road beyond the project's frontage.

COMMUNITY ENGAGEMENT:

Inform
This staff report serves to inform the public of a development project which will partner with the City to contribute to the undergrounding of overhead utilities. Undergrounding of overhead utility lines increases safety and reduces the potential of electrical fires that can occur with overhead utility lines.

ALTERNATIVE ACTIONS:

The City Council could decide not to approve the Reimbursement Agreement. This decision will result in the existing overhead utility lines south of the project to remain overhead and the removal of the out-of-tract undergrounding improvement from the scope of The Magnolias Project.

PRIOR CITY COUNCIL AND COMMISSION ACTIONS:

There are no prior City Council and Commission actions related to this Reimbursement Agreement.

FISCAL AND RESOURCE IMPACT:

The maximum reimbursement amount of $140,580.27 for out-of tract undergrounding of overhead utilities will be funded from the City's Undergrounding Fund (350) and allocated in the FY 2025/26 Capital Improvement Program.

CEQA (California Environmental Quality Act):

Categorical Exemption
The project is categorically exempt from the California Environmental Quality Act Section 15332 – In-Fill.

N:\PROJECTS\DEVELOP\PWPR 2024-0013 Monterey Rd - Magnolias - Improvement Plans\Reimbursement Agreement for Undergrounding\FINAL Reimbursement Agreement_Magnolias_09-11-2025.docx

R E I M B U R S E M E N T A G R E E M E N T

THE MAGNOLIAS
EDEN HOUSING, INC.

THIS AGREEMENT is made this day of , 2025, by the
CITY OF MORGAN HILL, a municipal corporation ("CITY"), and EDEN HOUSING, INC., a California Nonprofit Corporation ("DEVELOPER").

RECITALS
The following recitals are a substantive part of this Agreement:

1. This Agreement is entered into pursuant to City Council approval on September 17, 2025.

2. CITY desires the DEVELOPER to furnish out-of-tract undergrounding of the existing overhead utilities along the west side of Monterey Road, from the southern property line of the residential development named “The Magnolias Project” (with address of 17965 Monterey Road and Assessor’s Parcel Number (APN) 764-12-006) all the way to the terminus of the existing overhead utilities at the existing utility pole fronting the adjacent property to the south with address 17945 Monterey Road and APN 764-12-007.

3. DEVELOPER agrees, at its own cost and expense, to install these improvements ("IMPROVEMENTS").

4. DEVELOPER requests that CITY reimburse it for the cost to be incurred for the IMPROVEMENTS.

AGREEMENT
THE PARTIES MUTUALLY AGREE AS FOLLOWS:

1. Term of Agreement. This Agreement covers services to be rendered from the date of building permit issuance for the project until such time as the amount or portion for reimbursement has been paid to DEVELOPER or its designee. This Agreement shall terminate upon full reimbursement.

2. Scope of Project. The project scope consists of the design and construction of undergrounding overhead utilities along the west side of Monterey Road.

3. IMPROVEMENTS TO BE PROVIDED. IMPROVEMENTS to be performed by DEVELOPER consist of the following: Undergrounding approximately 110 feet of existing

N:\PROJECTS\DEVELOP\PWPR 2024-0013 Monterey Rd - Magnolias - Improvement Plans\Reimbursement Agreement for Undergrounding\FINAL Reimbursement Agreement_Magnolias_09-11-2025.docx
overhead utility lines (power and telecommunications) along the west side of Monterey Road with the amount listed on the attached Exhibit A. DEVELOPER has not commenced the construction of the IMPROVEMENTS.

4. Compensation. DEVELOPER will expend the following approximate amount in construction of IMPROVEMENTS:

4.1 Amount. Not to exceed One hundred forty thousand five hundred eighty and 27/100 dollars ($140,580.27).

4.2 Portion to be Reimbursed. Not to exceed One hundred forty thousand five hundred eighty and 27/100 dollars ($140,580.27).

4.3 Payment. CITY shall reimburse DEVELOPER upon completion of the improvements to CITY’s satisfaction.

4.4 Records of Expenses. DEVELOPER shall keep records in which complete and correct entries are made of all construction costs, including overhead, related to IMPROVEMENTS. These records shall be made available to CITY upon request.

4.5 Termination. CITY and DEVELOPER shall have the right to terminate this Agreement, without cause, by giving not less than thirty (30) days written notice of termination as provided in Paragraph 12 below.

5. Assignment of Payments.

5.1 Payment Stream. DEVELOPER may assign the payments upon written instruction to CITY as provided in Paragraph 12 below. CITY shall have no liability whatsoever for failure to follow these instructions or for any claim by any entity for the funds or for their assignment.

6. Non-Liability of Officials and Employees of the CITY. No official or employee of CITY shall be personally liable for any default or liability under this Agreement.

7. Non-Discrimination. DEVELOPER covenants there shall be no discrimination based upon race, color, creed, religion, gender, marital status, age, disability, sexual orientation, national origin, or ancestry, in any activity pursuant to this Agreement.

8. Independent Contractor. It is agreed to that DEVELOPER shall act and be an independent contractor and not an agent or employee of CITY.

9. Compliance with Law. DEVELOPER shall comply with all applicable laws, ordinances, codes, and regulations of the federal, state, and local government.

10. Conflict of Interest and Reporting. DEVELOPER shall at all times avoid conflict of interest

N:\PROJECTS\DEVELOP\PWPR 2024-0013 Monterey Rd - Magnolias - Improvement Plans\Reimbursement Agreement for Undergrounding\FINAL Reimbursement Agreement_Magnolias_09-11-2025.docx
or appearance of conflict of interest in performance of this Agreement.

11. Notices. All notices shall be personally delivered or mailed, via first class mail to the below listed addresses. These addresses shall be used for delivery of service of process. Notices shall be effective five (5) days after date of mailing, or upon date of personal delivery. a. Address of DEVELOPER is as follows:

Eden Housing, Inc.
22645 Grand Street
Hayward, CA 94541
b. Address of CITY is as follows: With a copy to:

Public Services Director City Clerk
City of Morgan Hill City of Morgan Hill
17555 Peak Avenue 17555 Peak Avenue
Morgan Hill, CA 95037 Morgan Hill, CA 95037

12. Licenses, Permits and Fees. DEVELOPER shall obtain a City of Morgan Hill Business License, all permits, and licenses as may be required by this Agreement.

13. Time of Essence. Time is of the essence in the performance of this Agreement.

14. Limitations Upon Subcontracting and Assignment. Neither this Agreement nor any portion shall be assigned by DEVELOPER without prior written consent of CITY.

15. Authority to Execute. The persons executing this Agreement on behalf of the parties warrant that they are duly authorized to execute this Agreement.

16. Indemnification. DEVELOPER agrees to protect, and hold harmless CITY and its elective or appointive boards, officers, agents, and employees from any and all claims, liabilities, expenses, or damages of any nature, including attorneys' fees, for injury or death of any person, or damage to property, or interference with use of property, arising out of, or in any way connected with performance of the Agreement by DEVELOPER, DEVELOPER'S agents, officers, employees, subcontractors, or independent contractors hired by DEVELOPER. The only exception to DEVELOPER'S responsibility to protect, defend, and hold harmless CITY, is due to the sole negligence of CITY. This hold harmless agreement shall apply to all liability regardless of whether any insurance policies are applicable. The policy limits do not act as a limitation upon the amount of indemnification to be provided by DEVELOPER.

17. Modification. This Agreement constitutes the entire agreement between the parties and supersedes any previous agreements, oral or written. This Agreement may be modified or provisions waived only by subsequent mutual written agreement executed by CITY and DEVELOPER.

18. California Law. This Agreement shall be construed in accordance with the laws of the State of California. Any action commenced about this Agreement shall be filed in the central branch of the

N:\PROJECTS\DEVELOP\PWPR 2024-0013 Monterey Rd - Magnolias - Improvement Plans\Reimbursement Agreement for Undergrounding\FINAL Reimbursement Agreement_Magnolias_09-11-2025.docx
Santa Clara County Superior Court.

19. Interpretation. This Agreement shall be interpreted as though prepared by both parties.

20. Preservation of Agreement. Should any provision of this Agreement be found invalid or unenforceable, the decision affected only the provision interpreted, and all remaining provisions shall remain enforceable.

IN WITNESS THEREOF, these parties have executed this Agreement on the day and year shown below.

CITY OF MORGAN HILL "DEVELOPER"
EDEN HOUSING, INC.

By: ____________________________ By: _________________________________ Christina J. Turner, City Manager
Date: ____________ Date: ____________
ATTEST: APPROVED AS TO FORM:
________________________________ _____________________________________ Michelle Bigelow, City Clerk Donald A Larkin, City Attorney Date: ____________ Date: ____________

N:\PROJECTS\DEVELOP\PWPR 2024-0013 Monterey Rd - Magnolias - Improvement Plans\Reimbursement Agreement for Undergrounding\FINAL Reimbursement Agreement_Magnolias_09-11-2025.docx
Exhibit A
Reimbursement Amount for Undergrounding Overhead Utilities Cost

1. Underground Overhead Utility Beyond Project Frontage Joint trenching work beyond the project frontage on the south side of the property $88,506.00
Low-voltage joint trenching work on the south side of the property $49,407.60

2. Portion of Consultant’s Cost
Portion of Joint Trench Design Cost $2,666.67
Total Reimbursement Cost $140,580.27

6 CITY COUNCIL STAFF REPORT
MEETING DATE: September 17, 2025
PREPARED BY:

Donald Larkin, City Attorney
APPROVED BY: City Manager
APPROVE SETTLEMENT AGREEMENT WITH HIGH STREET NO. CAL.

DEVELOPMENT, INC. (TRAMMEL CROW RESIDENTIAL) REGARDING

BUILDER'S REMEDY PROJECT AT COCHRANE ROAD AND DE PAUL
DRIVE (APNS 728-31-017, -019)

RECOMMENDATION(S)
Authorize the City Manager to execute a settlement agreement with High Street No.

Cal. Development, Inc. to allow the developer to apply for a modified Builder's Remedy project.

COUNCIL PRIORITIES, GOALS & STRATEGIES
2024-2025 Strategic Priorities
Affordable Housing and Homelessness
Economic Development and Tourism
REPORT NARRATIVE:

BACKGROUND:

High Street No. Cal. Development, Inc. (High Street) currently has a complete Builder's Remedy application for a 171-unit project on approximately 20.56 acres of the commercial site (Commercial Highway and Commercial Office) located at the corner of Cochrane Road and De Paul Drive. The parties dispute whether the Builder's Remedy applies to the project. However, given the uncertainty, high litigation costs, and financial risk to the City, the City and High Street wish to avoid litigation and settle any dispute.

The current project application is for 98 single-family units and 73 townhome-style condominiums.

On June 4, 2025, the City Council unanimously authorized the City Attorney and Development Services Department to negotiate a settlement agreement under the following terms:

1. High Street will convey 7.8 acres of the property zoned for Commercial Highway uses to a commercial developer to develop uses consistent with the zoning designation.

2. High Street will amend its application to remove the 73 townhome-style condominiums and will convey the 4.7 acres of land where those units would

6 have been located to the City, along with a portion of the required detention basin. This 4.7-acre property will be used to advance the City's Affirmatively Furthering Fair Housing goals as required under its Housing Element, as well as a commercial component that will support economic development goals as part of a mixed-use project.

3. High Street will pay an affordable housing ln-lieu fee totaling approximately $5.42 million.

4. High Street will make an economic contribution to the City of $500,000. The $500,000 contribution will be used to facilitate the development of the affordable housing site.

5. High Street may build up to 105 single-family homes on the remaining acreage not identified for commercial uses and not conveyed to the City.

The attached Settlement Agreement incorporates the terms approved by the City Council. Should the Council not approve the settlement agreement, the City will continue to process High Street's existing development application, but will lose the opportunity to create a mixed-use project that advances the City's affordable housing and economic development goals. Additionally, the City would lose the $500,000 contribution and the commitment to build a commercial project on the northernmost 7.8 acres.

COMMUNITY ENGAGEMENT:

A project page with details of the current development application can be found on the City's website at https://www.morganhill.ca.gov/2612/Cochrane-DePaul-High-Street-NoCal-Devel ALTERNATIVE ACTIONS:

The City Council could choose not to approve the Settlement Agreement. In that case, High Street would continue to seek approval of the current application. Due to the potential high cost and changes in the law related to Builder's Remedy, staff does not recommend litigation.

PRIOR CITY COUNCIL AND COMMISSION ACTIONS:

On June 4, 2025, City Council directed staff to negotiate a settlement agreement under the terms described herein.

FISCAL AND RESOURCE IMPACT:

Approval of the Settlement Agreement would have a positive fiscal impact by creating an opportunity for economic development and through direct financial benefits.

CEQA (California Environmental Quality Act):

Not a Project

6 The settlement agreement is not a project that could have an impact on the environment. Under the terms of the agreement, the proposed development project will need to comply with CEQA prior to approval.

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb
4926-1308-4249 v2

SETTLEMENT AGREEMENT
This Settlement Agreement (“Agreement”) is made and entered into on _____, 2025, by and between TC Morgan Hill Venture, LLC, a Delaware limited liability company, through its affiliate and project applicant High Street No. Cal. Development, Inc. a Delaware corporation (collectively, “High Street”), and the City of Morgan Hill, a California municipal corporation (“City”). High Street and the City are sometimes singularly or collectively referred to herein as a “Party” or the “Parties.”

RECITALS
A. High Street seeks to construct a residential housing project and associated amenities (“Project”) pursuant to SB 330 at a 20.56 gross-acre site located at Cochrane Road and De Paul Drive (APNs 728-31-017, -019) in Morgan Hill, California (“Property”).

B. The Property is currently vacant and zoned as “Highway Commercial and Administrative Office” and designated as “Commercial/Industrial” in the General Plan Land Use Element Map and allows for multifamily housing projects to be developed at the Property pursuant to State Law. In addition, the Property is not used for agriculture and does not contain any known development constraints. The Property is close to and maintains good access to Highway 101.

C. The City agrees and acknowledges the Project as agreed to under this Agreement provides certain economic, legal, social, technological and other benefits to the City of Morgan Hill including the provision of low-income affordable housing and other community benefits as provided in this Agreement.

D. On October 10, 2023, High Street submitted the Project Preliminary Application (PRE2023-0010) pursuant to Government Code section 65941.1, invoking Government Code section 65589.5(d)(5), which is the portion of the Housing Accountability Act (“HAA”) referred to as the Builder’s Remedy. The Preliminary Application provided that the Project would consist of 151 for sale residential units.

E. On April 1-2, 2024, High Street filed its formal development application for the Project pursuant to SB 330, identifying 98 single family homes and 73 townhomes, with 20% of the units (35 total) set aside for lower income households (“Formal Application”). High Street separately filed a lot line adjustment (“LLA”) application to create an approximately

7.8248-acre parcel for potential commercial/retail development (“Commercial Site”) located on real property immediately to the north of the Property.

F. On May 25, 2024, High Street resubmitted the Formal Application. On June 24, 2024, the City deemed the Formal Application complete. The Formal Application and the LLA application are currently being processed by the City. The site plan proposed by the Formal Application and LLA is depicted in Exhibit A attached hereto.

G. The Parties dispute whether the Builder’s Remedy applies to the Project.

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb -2-
4926-1308-4249 v2
H. Mindful of the delay, expense, and uncertainty of litigation, the Parties now desire to compromise and settle on the terms and conditions stated below.

TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the covenants, promises, and provisions set forth herein, the Parties agree as follows:

CITY’S COMMITMENTS AND OBLIGATIONS

1. Waiver of Builder’s Remedy. The City agrees to waive any objection regarding the applicability of the Builder’s Remedy to the Project. As such, the City shall process the Project as a Builder’s Remedy project, including the plans and documents submitted to the City therewith, and acknowledges and agrees that, except as provided herein, the Zoning Ordinance and General Plan land use designation do not apply to the Project. City’s obligations to apply the Builder’s Remedy shall survive despite any changes to the Project resulting from the terms of this Agreement, including submittal of the Revised Formal Application defined below.

2. Processing of Revised Project. The City hereby agrees that it shall expedite processing of the Project as revised pursuant to this Agreement (“Revised Project”) and shall ensure that the Revised Project is heard by the Planning Commission prior to March/April 2026.

Should CEQA review require City Council consideration and decision, the Project shall be heard by City Council no later than 30 days after completion of the Final EIR and conform with SB330 meeting limits. Developer may elect, in its sole discretion, to terminate this Agreement and proceed with its original Formal Application should the City be unable to make a determination on the Project by June 2026.

3. CEQA Review. Where possible, the Project’s CEQA review will tier off all relevant prior CEQA analyses. On July 27, 2016, the City Council certified an environmental impact report (EIR) for the Morgan Hill 2035 General Plan. The EIR for the General Plan was prepared as a program EIR under the provisions of Section 15168 of the State CEQA Guidelines.

In May 2020, a Draft EIR was prepared for the Morgan Hill Technology Center Mixed-Use Project, which included the Property. The development project analyzed by the 2020 Draft EIR included approximately 50,000 square feet of commercial uses and up to 319 residential units (239 townhomes and 80 single-family detached units), in addition to the light industrial units that were subsequently approved on the approximately 30 acres located immediately south of the Property.

Although the CEQA review for the Morgan Hill Technology Center Mixed-Use Project did not result in a certified Final EIR, the Parties intend to rely on the analyses performed for the Draft EIR wherever feasible.
a. The City and High Street acknowledge that any technical studies included in the City’s objective standards and checklists will be completed prior to consideration by the Planning Commission for design review, and that certain measures may be required under the Mitigation Monitoring and Reporting Program for the City’s General Plan Environmental Impact Report.

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb -3-
4926-1308-4249 v2
b. The City and High Street acknowledge that with regard to traffic impacts, the 2035 General Plan Environmental Impact Report’s mitigation measures do not relate to the Project beyond a general reference to new projects paying traffic impact fees or a fair share contribution to mitigate regional traffic impacts. (GP EIR, Executive Summary, p. 1-21.) High Street nevertheless directly constructed offsite improvements, including the installation of a new turn pocket and signal improvements at the Cochrane Road/De Paul Drive intersection, lane widening on Half Road, and various improvements on De Paul Drive, in relation to its development of its industrial project on approximately 30 acres directly south of the Property (City Reso. Nos. 21-04, 21-05). The City agrees that future tenancies of that industrial project that are permitted uses are deemed to not generate traffic impacts that would require traffic analyses, further CEQA review, or further discretionary approvals for those tenancies regardless of any potential traffic impacts caused by the Project as revised herein. c. The City and High Street acknowledge that with regard to VMT impacts, the VMT per Capita (Morgan Hill Threshold) has been determined to be unmitigable for the entirety of the east side of Hwy 101 in Morgan Hill.

Said VMT impacts shall not result in the payment of additional fees or costs or the implementation of nonmonetary obligations upon High Street beyond those included in any mitigation measure.

4. Impact Fees. The City agrees to use the Impact Fee Schedule in effect in as of the October 10, 2023 submission of the Project’s Preliminary Application (attached as Exhibit B to this Agreement). This fee schedule will be used to calculate the project’s impact fees (“Impact Fees”). High Street’s payment of the Impact Fees is governed by Government Code section 66007.

5. Inclusionary Housing Ordinance: The City of Morgan Hill’s Inclusionary Housing Ordinance (IHO) requires residential developments to provide affordable housing. High Street will meet the IHO with an in-lieu fee in accordance with Chapter 14. 08 of the Morgan Hill Municipal Code. The in-lieu fee will help the City advance the City’s Housing Element.

HIGH STREET’S DEVELOPMENT

6. Development of Commercial Site. Upon City’s approval of the LLA, High Street shall use commercially reasonable efforts to convey the ±7.8248-acre Commercial Site for the potential development of retail uses, likely anchored by a grocery store use.

7. Detention Basin. High Street shall provide approximately 2.2-acre feet of detention basin storage from within the planned detention basin area (approximately 0.43 acres at 5 feet deep) for storm water detention to serve the Land Conveyance area. The detention basin is also designed to also serve the Property, the hospital facility across the street, the Cochrane Tech Center industrial project to the south., and if sufficient capacity is available, future projects to the north of the basin to Cochrane Road. The detention basin may be modified during the entitlement and permitting process as needed, provided the minimal storage capacity is maintained. The basin will remain under ownership of High Street, which will grant to the City a storm drain easement

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb -4-
4926-1308-4249 v2
and access easement to the detention basin for maintenance purposes. All properties benefitting from the detention basin shall provide a fair share contribution toward maintenance of the detention basin and shall separately fund any modifications to the detention basin.

8. Land Conveyance. High Street shall convey to the City 4.719 acres of land that had been designated for development of townhomes under the Formal Application. This land conveyance shall take place within 30 days after final City approval of the Project and the expiration of all applicable administrative appeal deadlines and statutes of limitations. The City shall use the dedicated land to construct affordable housing units in a mixed-use or other project.

The number of units to be constructed provides the City with the opportunity to exceed the number of units that would otherwise be required under the City’s Inclusionary Housing Ordinance (Chapter 14.04) in connection with the Residential Development described in Section 7. The housing type should be consistent with the City’s Affirmatively Furthering Fair Housing goals.

9. Residential Development. High Street shall develop up to 105 market rate single family homes on the remaining 15.84-acre residential site. Upon issuance of the first certificate of occupancy, High Street shall pay the City an in lieu fee in the amount of $23.18 per square foot of the livable square footage of the single family residential development to fully satisfy any City inclusionary housing requirements applicable to the Project. The development scenario described in Sections 5-7 above is depicted in Exhibit C.

10. Economic Contribution. Upon issuance of the first certificate of occupancy for the residential development referenced in Section 7 above, High Street shall contribute to the City $500,000 to the Housing Fund to help facilitate development of the 4.719 -acre parcel for affordable housing.

11. Objective Design Standards. High Street shall not be required to comply with Zoning Code requirements, but will use best efforts to comply with the City’s objective design standards.

12. Scope of Planning Commission Review. If discretionary permit applications are not filed for the Commercial Site prior to the Planning Commission meeting regarding the Project, then the Planning Commission’s review shall be limited to the residential development Project and shall not be delayed by the status of the Commercial Site’s applications.

13. Health and Safety. High Street shall comply with Morgan Hill Municipal Code, Title 15, including the City’s Building Code provisions, as they relate to the physical health and safety of the public.

MISCELLANEOUS

14. Revised Application. Upon execution of this Agreement, High Street shall submit a Revised Formal Application consistent with the terms of this Agreement.

15. Casualty. The City acknowledges and agrees that the City’s approval of this Settlement Agreement and approval of Project, including the Revised Formal Application, shall constitute a vested right to develop and maintain the Project as proposed in the Revised Formal Application. In the event of unforeseen casualty or change in law, Developer shall have the right

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb -5-
4926-1308-4249 v2
to rebuild or reconstruct the Project in a form and manner substantially as approved by City pursuant to this Settlement Agreement and approval of Project, including the Revised Formal Application.

16. Notices. All notices must be in writing and be addressed to the affected Party at the addresses set forth below. Notices shall be: (a) delivered by in-person service to the addresses set forth below, in which case they will be deemed delivered on the date of delivery, as evidenced by the written report of the courier service, or (b) sent by certified mail, return receipt requested, in which case they will be deemed delivered five (5) business days after deposit in the United States mail. Any Party may change its address or the name and address of its attorneys by giving notice in compliance with this Agreement. Notice of a change will be effective only upon receipt.

Notice given on behalf of a Party by any attorney purporting to represent a Party will constitute notice by the Party if the attorney is, in fact, authorized to represent the Party. All Notices shall also be provided to the other Party via e-mail, however, delivery via e-mail shall not constitute notice for purposes of this Section.

If to CITY:

City Manager
City of Morgan Hill
17575 Peak Avenue
Morgan Hill, CA 95037
Email: [email protected]
With a copy to:

Donald Larkin
City Attorney
City of Morgan Hill
17575 Peak Avenue
Morgan Hill, CA 95037
Email: [email protected] and [email protected] If to HIGH STREET:

High Street No. Cal. Development, Inc.

Attn: Adam Voelker and Brian Pianca
415 Mission St – 45th Floor
San Francisco, CA 94105
Email: [email protected] and [email protected] With a copy to:

Allen Matkins Leck Gamble Mallory & Natsis LLP
Attn: David H. Blackwell, Esq.
3 Embarcadero Center, 12th Floor
San Francisco, CA 94111
Email: [email protected]

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb -6-
4926-1308-4249 v2

17. No Admission of Liability. This Agreement is not an admission of liability or fault on the part of either Party.

18. Legal Fees and Costs. Each Party shall bear its own legal fees and costs resulting from the preparation, negotiation, and execution of this Agreement. If any action or proceeding arises from or relates to this Agreement, the prevailing party shall be entitled to recover its out-ofpocket costs, reasonable attorney’s fees, and costs of attorneys (including in-house counsel fees) and experts against the non-prevailing Party, in addition to all other relief to which that Party may be entitled.

19. Right to Cure. If any Party believes that another Party’s performance is in default of that Party’s obligations under this Agreement, the accusing Party shall provide written notice to the defaulting Party of the alleged default (“Default Notice”); offer to meet and confer in a good faith effort to resolve the issue; and provide the defaulting Party thirty (30) days to cure the alleged default commencing at the time of receipt of the Default Notice. A Default Notice shall specify in reasonable detail the nature of the alleged default and, where appropriate, the manner in which the alleged default satisfactorily may be cured.

20. Remedies on Default. Upon the happening of any uncured default, the nondefaulting party may exercise those remedies available to it pursuant to law or equity, including without limitation specific performance and expectation damages.

21. Entire Agreement; Amendments. This Agreement contains the entire agreement between the Parties and supersedes any prior written or oral agreements between them concerning the subject matters contained herein. No supplement, modification, or amendment to this Agreement shall be binding unless executed in writing by all Parties hereto.

22. Waiver. The waiver of any provision or term of this Agreement shall not be deemed a waiver of any other provision or term of this Agreement. The mere passage of time, or failure to act upon a default, shall not be deemed a waiver of any provision or term of this Agreement.

23. Execution. The Parties warrant that, in executing this Agreement, they do so with full knowledge of the rights and obligations that they may have and that they have received independent legal advice with respect to the matters contained in the Agreement.

24. Joint Negotiation. This Agreement is the product of joint negotiations between the Parties and shall not be construed against any of the Parties.

25. Interpretation. Specific provisions of this Agreement will take precedence over conflicting general provisions.

26. California Law. This Agreement will be construed in accordance with the laws of the State of California.

27. Authority of Signatories. The individuals executing this Agreement represent and warrant that they have the authority to sign on behalf of the respective Party for which they have executed this Agreement.

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb -7-
4926-1308-4249 v2

28. Effective Date. This Agreement will be effective upon the date of execution of the Agreement by all Parties.

29. Counterparts. This Agreement may be executed in counterparts. For purposes of this Agreement, an electronically transmitted signature shall be considered as the equivalent of a wet-ink signature and shall be fully binding.

30. Materiality; Severability. The parties agree and stipulate that each and every recital contained in the preamble and every term and condition contained in this Agreement is material, and that each and every recital, term, and condition may be reasonably accomplished within the time limitations and in the manner set forth in this Agreement. Failure of any party to perform any one provision hereof shall be the basis for issuance of a Default Notice pursuant to Section 15. If any provision of this Agreement is determined to be invalid or unenforceable, the remainder shall be construed as valid and enforced so as to effectuate the intention of the Parties at the time the settlement was entered into.

31. Assignment, Successors and Assigns. This Agreement may not be assigned without the written consent of the other Party. If properly assigned, this Agreement will bind and inure to the benefit of the agents, assigns, and successors-in-interest of each Party.

Notwithstanding the foregoing, the rights under this Agreement shall extend to the developer and/or operator of the commercial portion of the Project with regard to that portion of the Project.

32. Time is of the Essence. Time is of the essence of each and every provision of this Agreement.

33. Additional Documents. The Parties agree to prepare and deliver such further documents and instruments, and shall take such other actions, as may be reasonably required or appropriate to evidence or carry out the intent and purposes of this Agreement. [SIGNATURES ON FOLLOWING PAGE]

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb -8-
4926-1308-4249 v2
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date written below.

High Street No. Cal. Development, Inc., a Delaware Corporation By: _________________________________
Title: _________
Date: _________________________________
City of Morgan Hill, a municipal corporation
By: _________________________________
Christina Turner
Title: City Manager
Date: ___________________________________
APPROVED AS TO FORM:

DONALD LARKIN
City Attorney
By: ___________________________________
City Attorney
Date: ___________________________________

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb

EXHIBIT A
-1-
4926-1308-4249 v2

EXHIBIT A

ORIGINAL SITE PLAN
https://morganhill.ca.gov/DocumentCenter/View/51924/Civil-Detailed-Plans-PDF

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb

EXHIBIT B
-1-
4926-1308-4249 v2

EXHIBIT B
IMPACT FEES – EXAMPLE ONLY

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb

EXHIBIT B
-2-
4926-1308-4249 v2

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb

EXHIBIT B
-3-
4926-1308-4249 v2

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb

EXHIBIT B
-4-
4926-1308-4249 v2

4928-6610-4839.13
378172.00023/9-12-25/dhb/dhb

EXHIBIT C
-1-
4926-1308-4249 v2

EXHIBIT C

7 CITY COUNCIL STAFF REPORT
MEETING DATE: September 17, 2025
PREPARED BY:

Dat Nguyen, Finance Director
Monica Delgado, Budget Manager
APPROVED BY: City Manager

FISCAL SUSTAINABILITY UPDATE

RECOMMENDATION(S)

1. Review and reaffirm budget principles; and

2. Provide direction to continue considering options for additional revenue, such as a local tax measure, alongside continued efforts to strengthen our Economic Development strategies; and

3. Receive direction from Council regarding specific programs to review or further evaluate.

COUNCIL PRIORITIES, GOALS & STRATEGIES
City Council Ongoing Priorities
Preserving and Cultivating Public Trust
2024-2025 Strategic Priorities
Fiscal Sustainability
Community Engagement
REPORT NARRATIVE:

Background
As we complete the mid-cycle budget review and begin planning for the next biennial budget cycle, it is important to reflect on the City’s fiscal outlook. While General Fund reserves remain above the minimum policy goal, expenses continue to outpace revenue growth. If left unaddressed, this trend will eventually push reserves below the minimum threshold. Conservative spending practices, higher-than-forecasted revenues, and temporary federal stimulus support, such as the American Rescue Plan Act (ARPA), have allowed the City to push this budgetary decline to future years. However, the City cannot sustainably spend more than it brings in.

The City’s Fiscal Year 2025–26 adopted budget totals $256.0 million. Of this amount, $63.8 million is allocated to General Fund expenditures. The General Fund is the City’s primary operating fund, paying for most day-to-day services that residents see and use, such as police, fire, parks, and general administration. Unlike special revenue funds, which are legally restricted for specific purposes, the majority of the General Fund is

7 discretionary, meaning the City Council decides how to allocate it, based on Community needs and priorities. Currently, approximately 78% of the General Fund is allocated to Public Safety (Police and Fire), 8% to General Government and Administrative Support, 3% to Recreation and Community Services, and the remainder to Parks, Streets, Infrastructure, and other programs.

It is important to note that while the City is not in immediate fiscal distress, to maintain critical services at current levels over the long term, the City will need to identify additional, ongoing revenues or make thoughtful adjustments to align expenses with available resources.

At this juncture, staff seeks Council and Community input on whether the City’s existing budget principles remain valid (link to Budget Principles). We are requesting Council’s input on whether staff should continue exploring additional revenue options, such as a local tax measure, alongside continued efforts to strengthen our economic development strategies. Staff also seeks direction on whether there are specific programs the Council wishes to review or evaluate further as part of this process. A comprehensive PowerPoint presentation is included with this report.

Financial Landscape
The City’s preliminary General Fund reserve currently stands at 44%, well above the minimum reserve goal of 15%. The City has strategically used this strong reserve to enhance services to the Community, including staffing the new fire station and hiring additional police officers. Additionally, this high reserve balance provides the City with time to address its structural deficit as the post-pandemic revenue surge begins to fade and no longer keeps pace with rising costs, compounded by heightened economic conditions such as high interest rates and elevated inflation.

Morgan Hill continues to be recognized for its strong financial management and safe and well-maintained community. The City holds a AAA issuer credit rating from Standard & Poor’s, reflecting its disciplined fiscal practices. Streets are well-maintained, with a current Pavement Condition Index (PCI) of 74 compared to the statewide average PCI of 66 (2021 California Statewide Local Streets and Roads Needs Assessment) and Bay Area PCI average of 67 (Metropolitan Transportation Commission’s 2023 Assessment). The City’s recreation program operates with one of the highest cost recovery rates in the region, reducing General Fund subsidy while delivering high-quality services. At the same time, Morgan Hill remains one of the safest communities in Santa Clara County, underscoring the effectiveness of public safety investments.

The City’s ability to provide public safety services, maintain safe roads, and offer youth, senior, and recreational services depends on sustained General Fund revenue growth, which is primarily derived from property taxes, sales taxes, recreation services, and hotel transient occupancy taxes.

The City has proactively taken steps to strengthen fiscal sustainability and expand its revenue base, including updating the Transient Occupancy Tax, establishing a Tourism

7 Business Improvement District, and creating a Downtown Property-Based Improvement District. These measures have either contributed additional revenue or reduced expenses to support City's goals.

Analysis
Morgan Hill collects the least amount of taxes per capita than any other city in Santa Clara County. Unlike most cities in Santa Clara County, Morgan Hill does not levy local revenue measures such as a Utility Users Tax or a local Sales Tax. This limits the City’s ability to sustain essential services, invest in infrastructure, and maintain sufficient General Fund reserves. The ongoing structural gap between revenues and expenses is approximately $4 million. Again, this economic outlook is not new, and the City Council has been discussing this long-term budgetary challenge for many years. To date, the City has managed to sustain operations through disciplined management, measured spending, and strong economic development practices. However, at some point, the City must generate new revenue sources to avoid service reductions, depletion of General Fund reserves, or implement other undesirable cost-saving measures.

In practical terms, if new revenues are not identified, the City may need to carefully consider how to balance service levels with available resources. This could affect areas such as public safety staffing, 911 response times, maintenance of parks and streets, and programming for youth and seniors. These programs are fundamental to the safety, quality of life, and well-being of our Community.

Conversely, with new and sustainable revenues, the City can preserve essential services, maintain strong public safety, continue investing in parks and infrastructure, and protect programs for youth, seniors, and other vulnerable populations and continue to protect the Community’s quality of life. Stable funding would also provide flexibility to respond to changing Community needs, unplanned expenditures associated with policy and budgetary decisions by Regional, State, or Federal organizations, and ensure that Morgan Hill remains a safe, vibrant, and well-maintained city for all residents.

Multiple government bodies across Santa Clara County are advancing tax measures that will appear before voters in upcoming election cycles. These overlapping and competing measures may impact voter sentiment and the City’s ability to successfully pursue its own revenue measure.
• On August 7, 2025, the Santa Clara County Board of Supervisors unanimously voted to place a special sales tax measure on the November 4, 2025, ballot, proposing a 0.625% increase for five years to offset major reductions in federal Medicaid funding.
• Looking ahead to November 2026, the Bay Area regional transit funding measure (authorized under Senate Bill 63) will appear before voters, proposing a half-cent regional sales tax to stabilize transit service and operations. The Santa Clara Valley Transportation Authority (VTA) has opted into this effort, with an estimated $264 million in annual revenues dedicated to local service improvements. • The Santa Clara Valley Open Space Authority, which currently collects $24 per

7 parcel under Measure T (approved in 2020), is considering placing a new or revised parcel tax measure before voters in 2026 to secure continued funding.

Together, these overlapping measures highlight both the scale of revenue needs across the County and the potential challenge of voter fatigue should the City pursue its own measure in the same timeframe.

Proposed Regional Tax Measures
Measure Type of Tax Election DateEst. Annual
Revenue (Santa
Clara)
Duration Primary Purpose
Santa Clara
County Sales
Tax
Sales tax
(0.625%)
Nov 2025 $330M
(countywide)
5 years Replace projected
losses in federal
funding
Bay Area
Regional
Transit (SB
63)
Regional
sales tax
(0.5%)
Nov 2026 $264M (to VTA) Up to 14
yrs
Stabilize transit
funding, improve
service
Open Space
Authority
(OSA)
Parcel tax
($24/parcel)
Approved
2020; future
2026 possible
~$12M Ongoing Land
conservation,
trails, habitat
protection
Morgan Hill Revenue Measure Options
Staff has identified a range of potential revenue options the City could consider to address the projected deficit. These include a general or special sales tax, a general or special Utility Users Tax (UUT), increases to the Transient Occupancy Tax (TOT), a parcel tax, Lighting/Landscape Assessment District, Community Facilities District, and a business license tax. Each option carries different voter approval thresholds, revenue potential, and timing considerations. For example, general taxes require a simple majority vote, while special taxes (such as a public safety sales tax) require two-thirds approval. The cost for placing a measure on a general election ballot (e.g., November 2026 or 2028) is approximately $60,000; whereas on a primary election ballot (e.g., June 2026) the cost ranges from $60,000 to $100,000.

To meet election requirements, the City Council would need to take action by early August 2026 in order to place a measure on the November 2026 ballot. For the November 2028 election, Council action would be required by early August 2028. In practice, sufficient lead time, typically several months prior, is needed to engage residents, gather feedback and maximize understanding and garner support, conduct polling, draft and finalize the measure language, and prepare all materials for submission to the Santa Clara County Registrar of Voters. The timing of any Citysponsored measure will need to be carefully evaluated in light of other countywide initiatives to avoid voter fatigue and maximize chances of success.

Evaluating these options openly with the Community will allow residents to weigh which

7 path forward they are most willing to support. The key message is that a modest new revenue stream could prevent deep cuts to the services residents rely on every day.

Economic Development
To support the City’s long-term economic and fiscal sustainability, Morgan Hill’s Economic Blueprint establishes a strategic framework for fostering economic prosperity.

This program leverages land use planning, policy development, and targeted strategic actions to promote business growth, attract new investments, and retain existing enterprises.

The Economic Blueprint identifies both short and long-term objectives that guide the City’s approach to economic development, with a focus on sectors that are key to Morgan Hill’s growth and community character. These focus areas include Healthcare, Retail, Tourism, and Innovation and Manufacturing, reflecting the City’s commitment to a diversified and resilient economic base. Through targeted outreach, and supportive policies, the City aims to foster an environment conducive to business expansion and new development.

As a result of this focused approach, Morgan Hill has successfully attracted over 2 million square feet of industrial and commercial development, as well as hundreds of millions of dollars in investment in Downtown and throughout the Community. These developments not only enhance the City’s economic vitality but also generate ongoing and future revenues that support core municipal services and infrastructure improvements.

The City’s Economic Development’s efforts directly impact the City’s General Fund.

Staff works to support policies, programs and land-use decisions that attract business investment that positively impact the City’s sales tax, property tax, and transient occupancy tax revenues.

Looking ahead, the City continues to explore opportunities to expand the local tax base, promote entrepreneurship, and strengthen partnerships with regional organizations, developers, and Community stakeholders. By aligning economic development initiatives with the City’s broader fiscal strategies and quality-of-life objectives, Morgan Hill seeks to ensure that growth directly benefits residents while maintaining financial sustainability.

Service Prioritization
In the absence of an additional ongoing revenue stream, the City must evaluate which services to maintain and which to reduce or eliminate. As noted above, almost 80% of the City’s discretionary expenditures are allocated to police and fire. It will be nearly impossible to make a material budget impact without affecting these core public safety services. If reductions are required, the following service areas would need to be evaluated:
• Public Safety (Police and Fire): Potential service impacts may include longer emergency response times, reduced staffing levels (sworn and non-sworn),

7 decreased investigative capacity, and limits on proactive policing, fire prevention, and Community engagement programs.
• Recreation and Community Services: Reductions may take the form of scaledback programming for youth and seniors, shortened operating hours for non-feebased facilities like the Senior Center and Teen Center, reduced volunteer coordination support, reduced Commission support, and/or lower levels of support for Community partnerships.
• Parks, Streets, and Infrastructure: Cuts may result in deferred maintenance, reduced landscaping and park upkeep, slower response to street and facility repairs, and decreased investment in long-term infrastructure sustainability. • General Government and Administration: While lean staffing already limits capacity in these areas, further reductions could delay service delivery, reduce customer service responsiveness, and hinder the City’s ability to implement Council initiatives and pursue grant funding opportunities. Decreased funding for Community Promotions would result in fewer Community events.

Service prioritization must balance fiscal realities with Community expectations.

Reductions to non-core services may be insufficient to fully close the projected budget gap, while reductions to public safety services, although impactful, may undermine the Community’s priority for public safety.

In addition to these direct service reductions, the City may also need to consider shortterm stopgap strategies, such as targeted hiring freezes, furloughs, compensation adjustments, vendor contract renegotiations, deferral of planned investments, and/or strategic use of trust funds, before resorting to long-term structural cuts. These potential approaches are described in greater detail in the Strategies for Potential Future Consideration section below.

As directed by the City Council during the mid-cycle budget review in June 2025, and leading into the development of the City’s next biennial budget, staff will conduct a series of Community engagement workshops. These workshops will provide residents with an opportunity to share their perspectives, identify their service priorities, and participate directly in shaping the City’s fiscal strategies. This process reflects the City’s commitment to transparency, accountability, and collaborative decision-making, ensuring that future budget choices are guided not only by financial necessity but also by the values and priorities of the Community.

Fiscal Sustainability Measures Taken
The City has proactively implemented a number of initiatives to ensure fiscal sustainability, including:
• Updated Development Services fee schedule for cost recovery • Continued conservative spending
• Planning solar project to save approximately $0.5 million per year • Strategically freezing certain vacant positions
• Fully funded Other Post Employment Benefits (OPEB) Plan

7 • About $8.2 million allocated to the GF Unfunded Needs since FY20-21:
• $2.6 million to Street CIP
• $2.5 million to Pension/OPEB
• $1.8 million for Public Safety Equipment
• $1.3 million for Park Maintenance
Strategies for Potential Future Consideration
If the City is unable to secure an additional ongoing revenue stream, the range of potential strategies includes both short-term stopgap measures and longer-term structural impacts. While the City may first look to reduce overall spending in ways that avoid immediate service reductions, those approaches are not sustainable indefinitely and could ultimately give way to deeper cuts in core services.

Short-Term
Short-term stopgap strategies can provide temporary budget relief while limiting immediate service reductions, but they carry risks such as lower staff morale, recruitment and retention challenges, and deferred maintenance. Examples include:
• Targeted Hiring Freezes: Delaying or suspending the filling of vacant positions. • Furloughs or Reduced Work Hours: Implementing temporary unpaid leave or reduced work schedules.
• Compensation Adjustments: Across-the-board pay reductions or renegotiated labor agreements.
• Vendor Contract Renegotiations: Reevaluating service contracts with vendors for cost savings.
• Deferral of Planned Investments: Postponing operational initiatives, equipment purchases, or facility upgrades.
• Strategic Use of Trust Funds: Temporarily drawing from the City’s OPEB and Pension Section 115 Trusts to smooth near-term budget shortfalls, with the understanding that this approach reduces reserves intended for long-term obligations.

Long-Term
If structural imbalances persist and short-term strategies are exhausted, the City will ultimately need to consider more direct service reductions, including in the prioritized areas of Public Safety, Recreation and Community Services, Parks, Streets, and Infrastructure, and General Government and Administration.

Taken together, these strategies underscore the critical need to identify sustainable revenue and economic development solutions. Short-term stopgaps may help bridge temporary gaps, but they cannot substitute for long-term fiscal sustainability.

Next Steps
To align financial planning with Community priorities and provide the City Council with

7 the necessary information to make informed decisions, staff has developed the following tentative timeline:
• Evaluate the Need for Community Outreach Consultant: September 2025 – March 2026
• Implement Budget Simulation Tools: September 2025 – November 2025 • Conduct Community Workshops: November 2025 – June 2026 • Council Goal Setting: February 2026
• Budget Development: February 2026 – June 2026
This timeline will allow for early and meaningful Community engagement, structured analysis of potential service trade-offs, and alignment with Council goals. The process will culminate in the preparation of the City’s next biennial budget, ensuring that decisions are both fiscally responsible and reflective of Community priorities.

The City’s current General Fund forecast shows reserves projected at 22% by FY28, above the minimum reserve goal of 15%, providing time to work collaboratively with the Community to evaluate priorities, potential service adjustments, and revenue options before any critical decisions need to be made.

Morgan Hill enters this process from a position of strength. The City maintains a AAA issuer credit rating from Standard & Poor’s, a PCI of 74 that reflects well-maintained streets, a recreation program with one of the highest cost recovery rates in the region, and a track record as one of the safest communities in Santa Clara County. These achievements demonstrate the City’s commitment to sound financial management, high-quality services, and community well-being.

Building on this strong foundation, the City’s priority is to preserve fiscal health, protect essential services, and continue to deliver the safe, vibrant, and well-maintained community that residents expect and deserve. While securing new revenues is one possible tool, the City will also continue to pursue cost efficiencies, prudent financial management, and strategic partnerships to maintain long-term fiscal sustainability.

COMMUNITY ENGAGEMENT:

Involve
On June 4 and June 18, 2025, the City Council conducted the Mid-Cycle Budget Review and provided direction to review service priorities, evaluate potential revenue measures, and conduct Community engagement.

ALTERNATIVE ACTIONS:

The City Council may choose to provide alternate direction to City staff on any next

7 steps.

PRIOR CITY COUNCIL AND COMMISSION ACTIONS:

This is the continuation of the Fiscal Sustainability Update and reviewing service priorities, evaluating potential revenue measures, and conducting Community engagement.

FISCAL AND RESOURCE IMPACT:

This update is part of the City's workplan.

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.

Fiscal Sustainability Update
September 17, 2025

Staff Recommendations

1. Review and reaffirm budget principles.

2. Provide direction to continue considering options for additional revenue, such as a local tax measure,
alongside continued efforts to strengthen our Economic
Development strategies.

3. Receive direction from Council regarding specific
programs to review or further evaluate in preparation for the next budget cycle.

Biennial Budget Process
January - February
1 st Year
City Council Goal Setting
Workshop
February – April
Budget Development
April
Recommended Budget
Made Available to the Public
May
Budget Workshop
June
Public Hearing and Budget
Adoption
June – January
Monthly Budget Update
Check-In and Financial
Reporting
February
2 nd Year
City Council Goal Setting
Workshop
February – June
In-depth Budget Review Process
Mid-Cycle Update (Yr. 2)
Budget Adjustments, as needed

Budget Principles
The City Council has adopted the following principles to guide the Sustainable Budget Strategy:
• Critical services should be maintained to the greatest extent possible. • Resources should be allocated to the highest priority services. • No City services or functions should be exempt from evaluation. • “Across the Board” approaches shall be avoided because they are not aligned with the Council’s and Community’s priorities.
• Reductions in service should position the City to take advantage of economic recovery. • Budget reductions should be ongoing and not simply “one time only.” • Council should commit to support employees during the transition, and assist those who may be adversely impacted.

Budget Principles (cont’d)
• Employees and their recognized bargaining units should be actively involved in developing options and implementing the transition.
• The City should continue to invest in building organizational capacity by supporting training and employee development.
• Community wide tax resources should be allocated first to support community wide services. • Special services designed for only a few should be paid for by user charges and fees. • Administrative and operational efficiencies should be maximized before pursuing new tax revenue.

Budget Principles (cont’d)
• Reserves and one-time revenues should be used first to invest in capital outlay items that could reduce long range operating costs and, thereafter, fund transition expenses. • New services should not be added nor existing services expanded unless they are highly valued by the Community and there is a willingness to pay for them.
• There should be regular monitoring of financial performance and opportunities to make mid-course corrections as warranted.
• City policies that may inhibit economic development, especially new retail development, should be reviewed regularly and modified.

Background
• Planning for next Biennial Budget
• General Fund reserves remain above the minimum policy goal • Expenses are outpacing revenue
• Conservative spending, higher revenues, and ARPA stimulus delayed fiscal decline • Rising costs (inflation, interest rates, economic uncertainty) outpacing revenues

Background (cont’d)
• Adopted Biennial Operating Budget (FY2024-25 and FY2025-26) with reserves level at 15% by FY29-30
• No cost-of-living adjustments (COLA) after FY25-26
• Reduced Excess ERAF revenue and potential liability of about $2.4 million ($1.0 million set-aside), pending State Controller’s Office audit lawsuit • Identified the need for revenue growth
• Strategic use of reserves to support high priority services, including staffing of the 3rd fire station and addition of 2 Police Officer positions

Background (cont’d)
Actual Preliminary Amended Forecast Forecast Forecast Forecast 23-24 24-25 25-26 26-27 27-28 28-29 29-30
0%
10%
20%
30%
40%
50%
60%
55%
44%
35%
28%
22%
17%
14%
Fund Balance Minimum Level 15% of Revenues Fund Balance Goal 25% of Revenues Updated GF Forecast at 8-20-2025

Major Funds: Non-Discretionary
Development
Services Fund
• Provides planning, building and engineering services
Special Revenue
Funds
• Provides Housing and Environmental Services
Capital Project Funds
• Funds infrastructure related projects for streets, parks, storm drainage and public facilities
Enterprise Funds
• Provides for Water and Wastewater Utilities’ Operations and Infrastructure Improvements

Major Funds: Discretionary &
Non-Discretionary
General Fund
• Public Safety
• Recreation and Community Services
• Parks, Streets and Infrastructure
• General Government and Administration

General Fund Summary
12 FY 2025-26
• Adopted Budget: $256.0 million
• General Fund: $63.8 million
General Fund Discretionary Budget
• Net of restricted revenues $45.2 million (excludes service fees, grants, program donations, etc.)
• 78% Public Safety (Police and Fire)
• 8% General Government and Administration
• 3% Recreation and Community Services
• Remaining 11% Parks, Streets, Economic Development, Code Compliance, Community Funding, Infrastructure Planning, and other programs

General Fund Total Revenues
$63.8 million
13 $ 36.7
$ 9.5 57%
15%
$ 3.4
5%
$ 3.4
5%
$ 2.8
4%
$ 5.1
8%
$ 1.0
2%
$ 1.9
3%
Taxes Current Services Franchise Fees
Transfers Rentals & Interest Income Use of Reserves
Budget Savings Other

General Fund Total Expenditures
$63.8 million
14 $ 36.6
57% $ 6.3
10%
$ 9.9
16%
$ 6.2
10%
$ 1.1
2%
$ 3.7
6%
Police & Fire Admin & General Support
Recreation & Community Services Street & Park Maint./CIP Economic Development Other

General Fund Discretionary
Expenditures
$45.2 million
15 $ 35.4
78%
$ 3.7
8%
$ 1.4
3%
$ 1.9
4%
$ 1.1
2%
$ 1.7
4%
Police & Fire Admin & General Support
Recreation & Community Services Street & Park Maint./CIP Economic Development Other

Current Financial Landscape
16 • Current General Fund reserve at 44%
• Projected General Fund reserve at 22% by FY28, above minimum goal 15% • City holds AAA issuer credit rating by S&P
• Pavement Condition Index (PCI) of 74
• Recreation has one of the highest cost recovery rates and continues to improve

Current Financial Landscape
(cont’d)
17 • One of the safest communities in the County
• While budget challenges are not new, heightened by economic conditions • Ability to maintain robust services requires sustained General Fund revenue growth

General Fund Unfunded Needs
• Police - $1.75 million (on-going)
o To fund additional 7 officers
• Fire - $5 million (one-time)
o To replace two engines and one ladder truck ($1.8 million set aside)
• Public Services - $2.3 million (on-going)
o To maintain streets, parks, storm drain systems, pedestrian safety improvements, and infrastructure repair and replacement o In addition, approximately $4.4 million in one-time funding needed for sidewalk capital repairs
Above does not account for all future staffing to keep pace with population.

Proposed Regional Tax Measures
Measure Type of Tax Election Date Est. Annual
Revenue
Duration Primary Purpose
Santa Clara
County Sales Tax
Sales tax
(0.625%)
Nov 2025 $330M
(countywide)
5 years Replace
projected losses
in federal
funding
Bay Area
Regional Transit
(SB 63)
Regional sales
tax (0.5%)
Nov 2026 $264M (to VTA) Up to 14 years Stabilize transit funding, improve
service
Open Space
Authority (OSA)
Parcel tax
($24/parcel)
Approved 2020;
future 2026
possible
$12M Ongoing Land
conservation,
trails, habitat
protection

Tax Revenue Per Capita
FY 2023-24
Morgan Hill
Gilroy
Los Altos Hills
San Jose
Campbell
Milpitas
Saratoga*
Sunnyvale
Los Altos
Santa Clara
Mountain View
Los Gatos*
Monte Sereno*
Cupertino*
Palo Alto
$ -
$ 500
$ 1,000
$ 1,500
$ 2,000
$ 2,500
*Property tax amount includes Santa Clara County Central Fire District FY24-25

Why are we the lowest?!?!
Additional local taxes:
• Sales Tax
o Campbell, Los Gatos, Milpitas, and San Jose
• Utility User Tax
o Sunnyvale, Cupertino, Mountain View, Los Altos,
Gilroy, Palo Alto, and San Jose
• Low Property Tax (Prop 13 Base Year)

General or Special Sales Tax
• General Tax, 50% + 1 majority
approval
• Special Tax, 2/3 approval
• High volatility, economy
dependent
• Rate: 0.25%
• Projected additional annual
revenue: $2.9 million
City Add’l Rate Revenue
Campbell 0.75% $10.5M
Los Gatos 0.125% $0.8M
Milpitas 0.25% $7.0M
San Jose 0.25% $38.0M

General or Special Utility User Tax
(UUT)
• General Tax, 50% + 1 majority
approval
• Special Tax, 2/3 approval
• Potential Rate: 5%, Phase-In
• About 150 cities in CA have
UUT
• Projected additional annual
revenue: $5.2 million
City Tax Rate Revenue
Sunnyvale 2.0% $10.8M
Cupertino 2.4% $3.9M
Mountain View 3.0% $7.6M
Los Altos 3.5% $3.2M
Gilroy 5.0% $6.6M
Palo Alto 5.0% $19.0M
San Jose 5.0% $152.1M

Transient Occupancy Tax (TOT)
• General Tax, 50% + 1 majority approval
• Projected additional annual revenue: $230K/year for
each additional 1% increase
• Last increase from 10% to 11% approved by voters in
November 2018

Parcel Tax
• Special Tax, 2/3 approval
• Projected additional annual revenue: $100 per parcel per year would raise additional $1.4 million/year

Landscape/Lighting Assessment
District (LAD)
• Governed by the Landscape and Lighting Act of 1972
and subject to Proposition 218
• No majority protest in weighted ballots
• Projected additional annual revenue: equally $100 per parcel per year would raise additional $1.4 million/year

Community Facilities District
(CFD)
• Governed by Mello-Roos Community Facilities Act of
1982
• Broader than LAD (infrastructure and services)
• 2/3 registered voters' approval (if 12 or more)
• Projected additional annual revenue: equally $100 per parcel per year would raise additional $1.4 million/year

Business License Tax
• General Tax, 50% + 1 majority approval
• Projected additional annual revenue: depending on
structure
• 100% increase from existing structure would only raise additional $200K/year

Business License Tax (cont’d)
• Fees are for cost-of-service recovery
• Compare with surrounding cities
Business Type Morgan Hill Gilroy San Jose
Home based $20  $177 $220
Commercial/Industrial
(100 employees/$1
million sales)
$608 (per employee)  $521 (gross receipts) $4,654 (employee)

Revenue Measure Options Recap
Revenue Option Estimated Annual
Revenue Considerations
General or Special Sales Tax  $2.9 million (1/4 cent) General: 50%+1 voter approval Special: 2/3 approval
General or Special Utility Users Tax  $5.2 million (at 5%) General: 50%+1 voter approval Special: 2/3 approval
Transient Occupancy Tax  $230K for every 1% increase 50%+1 voter approval Parcel Tax  $1.4 million (flat $100/parcel) 2/3 voter approval LAD  $1.4 million (flat $100/parcel) No majority protest CFD $1.4 million (flat $100/parcel) 2/3 voter approval
Business License Tax  $200K if double from existing 50%+1 voter approval

Deadline for Measure to be on the
Ballot
• Due to County’s Registrar Office
• Primary election: Mid January; for June 2026,
ranging from $60,000 to $100,000
• General election: Early August (e.g., August 2026 or
August 2028), approximately $60,000
• Several months needed to start the process for
Community outreach, drafting resolutions, legal review, formatting, and submission of arguments or materials

Economic Development Forward Looking Strategies
• Attract Revenue-Generating Users (Hotel, Auto, and
Retail)
• Support Tenanting of Industrial Buildings
• Assist Projects Through Entitlement and Construction
(Fee Agreements, Ombudsman Services)
• Modernize Zoning and Municipal Code (Condit/Laurel
PUDs, Entertainment Permit)
• Business Assistance Services (PBID, TBID, Economic
Mobility, Small Business Support)

Service Prioritization
• Without additional revenue, it is nearly impossible to make a material impact without affecting core services:
o Public Safety (Police and Fire): longer emergency
response, reduced staffing, decreased investigative
capacity, and limits on proactive policing, fire prevention, and community engagement programs
o Recreation and Community Services: scaled-back
programming for youth and seniors, shortened operating
hours for non-fee-based facilities (Senior Center and
Teen Center), reduced volunteer coordination support,
reduced Commission support, and/or lower levels of
support for community partnerships

Service Prioritization (cont’d)
• Parks, Street, and Infrastructure: Deferred maintenance, reduced landscaping and parks upkeep, slower response to street and facility repairs, decreased investment in long-term infrastructure sustainability
• General Government and Administration: Delayed service delivery, reduction in customer service responsiveness, hinder ability to implement Council initiatives and pursue grant funding opportunities, and decreased funding for
Community Promotions

Steps Taken
• Economic Development Blueprint - adopted in 2017 and
re-affirmed in 2024, a long-term guide to land-use, policies, and strategies to support prosperity and quality of life • Revenue Growth - increased the Transient Occupancy Tax (TOT), created a Tourism and Business Improvement
District (TBID), established a Downtown Property-Based
Improvement District (PBID), Updated Development
Services Fee Schedule
• Business Development - modernized zoning rules to
remove barriers, and actively recruited new businesses to Morgan Hill

Steps Taken (cont’d)
• Continued Conservative Spending – helps protect
reserves
• Cost Savings – continued conservative spending,
strategically freezing vacant positions, and new solar
project to save about $0.5 million per year
• Future Obligations – Set-aside $8.2 million since FY20-21 to address unfunded general fund needs
o $2.6 million to Street CIP
o $2.5 million to Pension/OPEB
o $1.8 million for Public Safety Equipment
o $1.3 million for Park Maintenance Page 288 of 292
Strategies for Potential Future
Consideration
• Nearly impossible to make a material impact without
affecting core services
• Short-term strategies for potential future consideration (with no new revenue source):
• Long-Term strategies for potential future consideration – Direct Service Reductions
o Targeted Hiring Freezes
o Furlough or Reduced Work
Hours
o Compensation Adjustments
o Vendor Contract Renegotiations
o Deferral of Planned Investments
o Strategic Use of Trust Funds

Next Steps
Evaluate the
Need for
Consultant
September
2025 –
March 2026
Budget
Simulation Tool
Implementation
September
– November
2025
Community
Workshops
November
2025 – June
2026
Council Goal
Setting
February
2026
Budget
Development
February –
June 2026

Staff Recommendations

1. Review and reaffirm budget principles.

2. Provide direction to continue considering options for additional revenue, such as a local tax measure,
alongside continued efforts to strengthen our Economic
Development strategies.

3. Receive direction from Council regarding specific
programs to review or further evaluate in preparation for the next budget cycle.

Questions?