CITY COUNCIL STAFF REPORT
Meeting Date: July 17, 2023
TO: THE HONORABLE MAYOR AND CITY COUNCILMEMBERS
SUBJECT: PUBLIC HEARING AND IF NO MAJORITY PROTEST IS FILED ADOPT RESOLUTION NO.__ -23 APPROVING INCREASES TO
WATER SERVICE CHARGES FOR THE DIABLO VISTA WATER
SYSTEM
SYNOPSIS
The purpose of this item is for the City Council to conduct a public hearing to consider adopting increases to the rates for water service charges within the Diablo Vista Water System (DVWS).
The usage fee rate has not increased since 2004-05, and it is necessary to increase rates to address increases in operating costs and to fund needed capital improvements identified in a 10- year forecast.
Staff and the DVWS Advisory Committee recommend Council conduct a public hearing to review the proposed increase to Water Rate fees for the DVWS.
DISCUSSION
Background
In 1950, the Diablo Vista Water District was formed to provide untreated canal water for irrigation purposes to 475 homes bounded roughly by Oak Park Boulevard, the Contra Costa canal, Boyd Road and Patterson Boulevard, known locally in Pleasant Hill as "Poet's Corner." Each of the lots are similar in size and use. In the 1960’s, the Diablo Vista Water District merged with the City of Pleasant Hill (“City”) and became the Diablo Vista Water System (DVWS). With the merger, the City maintains title to the former district property in trust for the benefit of property owners within the DVWS boundaries (Ordinance No. 87). A Diablo Vista Water Advisory Committee (Advisory Committee) was formed in order to administer and ensure the continued operation and maintenance of water service. The Committee reports to the City Council with matters relating to the water system. Under Pleasant Hill Municipal Code section 13.20.030, the City Council establishes service charges for these water users by resolution.
In 1983, the City Council authorized the first usage fee in the amount of $36 per customer. Prior to 1983, only the revenue collected from the secured property tax supported the operation of the DVWS. This fee was authorized to supplement the secured property tax for the ongoing operations and maintenance of the system. Due to the rise in operating costs, in 1988, the Council authorized a second increase to $72, and in 2004, this operating fee was increased to $150 per customer, and a new capital improvement fee in the amount of $135 per customer was also approved, to be utilized for capital improvement projects that upgrade the system.
Funding
The DVWS currently is managed by two funds:
Fund 81 (Operational Fund): The operational fund manages the daily operating expenses of the system, including the purchase of raw water, personnel services, administration, and the repair and maintenance of the system.
Fund 82 (Capital Improvement Fund): The capital improvement fund is used for capital projects to upgrade the pump station, water transmission lines, and lateral service connections.
The DVWS is subsidized by two sources:
Secured Property Tax: The County reimburses to the City a nine percent portion of the one percent property tax collected from within the DVWS boundaries. Historically, the secured property tax revenue has been used to fund both Operating and Capital expenses as there are no restrictions on this revenue source. The Finance Department allocates the secured property tax into Fund 81 (Operational Fund).
Usage Fee: Since 1983 each property owner/customer has paid a usage fee to support the operation and maintenance of the DVWS. The current annual usage fee is $285 per household. Its distribution is restricted: $150 per household or $70,500 per year is applied to Fund 81, while $135 per household or $63,450 per year is applied to Fund 82 Operations
Operating expenses include the purchase of raw water, personnel services, administration, repair and maintenance. While the cost for personnel and administration has increased moderately over the years, the cost to purchase water has increased significantly by 77% over the last eighteen years, from $1.379 per 1,000 gallons in 2004, to $2.44 per 1,000 gallons in 2022. The cost for maintenance fluctuates annually due to the uncertainty of needed and emergency repairs.
Capital
To date, the available capital funding has allowed the Advisory Committee to complete one Capital Improvement project every five years, despite the advanced age of the system. Since 2006, only approximately 25% of the existing system has been upgraded. The most recent Capital Improvement Project, the DVWS 12” Main Rehabilitation Phase 2 Project, which was completed in March 2023, had a total project cost (design, inspection and construction) of $667,700. This project, combined with the Phase 1 project completed in 2017, rehabilitated approximately 1,200 linear feet of the existing 12” main distribution line, a necessary project for the long term viability of the system. The Phase 2 project was funded from six years of combined Fund 82 savings ($380,700), and available secured property tax funds ($287,000). At the end of FY22/23, the Capital Improvement Project had a cash fund balance of approximately $12,735.
Analysis of System
Historically, the DVWS’s replacement program has used one-time conditions coupled with the Advisory Board’s knowledge to identify and prioritize improvements. This approach has been very effective in identifying projects to address existing weaknesses in the system; however, it does not consider other factors that may impact the overall condition and future pipeline performance. It also does not address the systems long term needs.
In 2022, the City hired Fracta, an expert in existing waterline system analysis, to perform an independent study of the DVWS, to determine the overall viability of the system, and to identify the capital investments required to maintain reliable water service throughout the pipeline system.
This study incorporated advanced asset management techniques to extend the useful life of the existing infrastructure by utilizing a risk assessment to identify and prioritize projects in a proposed Ten Year Capital Improvement Program. This risk assessment considered other factors than those identified above to identify and prioritize needed improvements, and pipes at the highest risk were identified as prioritized projects. At the request of the Advisory Board, a peer review of Fracta’s final report was performed by the Contra Costa Water District, who confirmed Fracta’s findings.
Analysis
The DVWS consists, in general, of: a pump station; approximately 27,000 linear feet of water transmission lines, and 245 lateral service connections. The transmission lines are cast iron, galvanized, asbestos cement and some upgraded PVC pipes. Some lateral service connections have been upgraded, the remainder galvanized pipe laterals need to be replaced. The system is over 70 years old and some infrastructure elements have exceeded their useful life.
While the secured property tax has increased over the years, these additional funds are needed for the current operational costs of the system. If the system is to continue to be functional in the future, increasing investments to ensure a long term Capital Improvement Plan and an appropriate funding source are necessary to provide reliable service to the DVWS customers. Staff has estimated that a complete system overhaul would cost approximately $13.4 million. Staff has identified a smaller and more practicable 10 year Capital Improvement project list of $1.78 million.
Proposed Increase
Currently, the 470 residents served by DVWS pay a flat rate of $285 per year for irrigation water from April to December. The $285 fee is comprised of a $150 usage fee and a $135 capital improvement fee. The usage fee funds Fund 81, the DVWS Operating Fund and covers a portion of normal DVWS operating expenses. The balance of the operating funds are comprised of secured property tax funds. The capital improvement fee funds Fund 82, the DVWS Capital Fund and finances future DVWS improvements to the water distribution system. If available, secured property tax funds may augment the Capital Improvement Funds.
In order to increase the water service fee accordingly, staff has separated the fee into two:
Operating Fund: Contra Costa Water District (CCWD) Pass Though Adjustment: for operation expenses
Capital Improvement Fee: for upgrades to the existing infrastructure Operating Fund
While the usage fee has not increased since 2004-05 tax year, the DVWS’s operating costs have increased. In 2004, the total annual operating expenses for DVWS was $165,967 ($70,500 usage fee, $95,467 secured property tax). In FY 2022-23, the total annual operating expenses for DVWS was $265,959 ($70,500 usage fee, $195,459 secured property tax).
Although the secured property tax revenue has increased 65.8% over the last 20 years ($92,467 was collected in FY2003/04, FY22/23 revenue from secured property tax was $270,719.), these funds are needed to offset the increased operating costs for raw water, electricity, personnel and the ongoing maintenance of the system. There has been more than a 62% increase in operating costs, which include water, utilities, maintenance and personnel, since 2004, with costs expected to continue to rise annually. Water continues to be the DVWS’s largest expenditure, currently 2/3’s of the overall operating costs.
The DVWS purchases water from CCWD, which has adopted increases in the water rates that it imposes on DVWS for 2023. The CCWD Charge increased from approximately $2.44 per 1,000 gallons of water in 2022 to $2.59 per 1,000 gallons of water, or $0.15/1,000 gallons of water in 2023.
Contra Costa Water District Pass (CCWD) Through Adjustment This year, for the first time, the Advisory Board is proposing to pass through to customers the CCWD 2023 increase in the water rate. This cost is $19.15 per user, and was established by taking the average of three years of water usage and multiplying it by $0.15/1,000 gallons/470 users. In addition, the Advisory Board is proposing passing through to its customers in the DVWS service area any future increases in the CCWD water charges that CCWD imposes on DVWS for a five-year period beginning April 1, 2024 and any time thereafter through and including April 1, 2028. The funds generated by this increase will be allocated to the Operating Fund to help offset the rising cost of water.
Staff has projected revenues and operating expenditures through 2032, which includes a 3% increase per year for secured property tax projections. In order to continue to effectively operate the system, by FY 2032/33 the existing customer fee of $150, plus all the projected secured property tax, plus the CCWD pass through water rate increase will be completely required to operate the system. There will be no additional funds to augment the Capital Improvement Program. The analysis is included as Exhibit ”A”.
Capital Improvement Fund:
The system has been operational since 1950, and capital improvements will be required in the near future to maintain reliable system functionality. As operating costs rise, there will be less, if any, secured property tax funds to augment the Capital Improvement Fund. Therefore, it is necessary to increase the usage fee and allocate the funds to Fund 82, the Capital Improvement Fund. The attached project list (Exhibit ”B”) identifies the desired infrastructure needs /upgrades and priority for the next 10 years.
The proposed increase would be $125, or a flat fee of $410 per year. The increase would result in an additional $58,750, bringing the total annual revenue flowing to Fund 82 to $122,200. This will almost double the funds allocated to the Capital Improvement Fund, providing necessary funding for needed infrastructure preventative maintenance. Staff will work with the Finance Department to review revenue projections for secured property tax, and continue to allocate any available funds to the Capital Improvement Fund as required to fund future Capital Improvement Projects.
The Advisory Committee and staff recommend that the fees, revenues and expenses be reviewed every five years. This will allow the DVWS to maintain a reliable system and have sufficient reserve and cash flow to remain operational in the future, as well as provide for the long term Capital Improvement Projects.
The Advisory Committee, in an effort to reduce the impact of the increased Usage Fee, recommends that the $125 fee be collected over a two-year period in increments starting in 2023.
The combined fee per year is recommended as follows:
July 1, 2023 $75
July 1, 2024 $125 ($75 +50)
FISCAL IMPACT
There is no direct fiscal impact on the General Fund associated with adopting the Advisory Boards recommendations. Under the current flat rate of $285 paid by 470 customers (since 5 property owners have opted out of water service), the DVWS collects approximately $133,950 in revenue. Under the proposed flat rate of $410, the DVWS would collect approximately $192,700 in revenue (or a $58,750 increase) to the Capital Improvement Fund. In addition, the 2023 CCWD rate increase of $0.15/1,000 gallons of water will be passed thru to the customer, for an additional $19.15/customer to be applied to the Operating Fund. Any CCWD future increase would also be annually adjusted each April 1, beginning April 1, 2024, to pass through actual cost increases by CCWD for the purchase of water.
PUBLIC CONTACT
Public contact was made through posting of the City Council agenda on the City’s official notice bulletin board, at the Pleasant Hill Senior Center and at the Pleasant Hill Police Department. The agenda and staff report are posted on the City’s web page.
RECOMMENDED CITY COUNCIL ACTION
Conduct public hearing on whether to adopt increases to the rates for untreated irrigation water from DVWS, and receive and consider input from the public. If no majority protest is filed, adopt Resolution.
ALTERNATIVES TO RECOMMENDED ACTION
The City Council may consider not passing through the annual CCWD water rate increase; a reduced capital improvement fee; and/or no capital improvement fee increase; and provide direction to staff.
ATTACHMENT(S):
Proposition 218 Public Hearing Notice
Proposed Resolution
Exhibit A – 10 Year Projected Operating Revenues and Expenses Exhibit B – 10 Year Capital Improvement Plan
Prepared by: Ann James, Public Works Manager
Reviewed by: Janet Coleson, City Attorney
Approved by: Scott Vermillion, Acting City Manager