TO: Mayor and City Council
FROM: Philippe Eskandar, City Manager
BY: Hillary Guirola-Leon , Finance Director
DATE: March 28, 2025
SUBJECT: AUTHORIZATION TO PUBLISH THE PUBLIC HEARING
NOTICE TO CONSIDER PROPOSED ESTABLISHMENT OF
SEWER SERVICE RATES, AND ADOPT RESOLUTION R-25-
09 TO ESTABLISH RATE SETTING PROCEDURES IN
COMPLIANCE WITH PROPOSITION 218 AND ASSEMBLY
BILL 2257
STRATEGIC PLAN CRITICAL SUCCESS FACTORS
Fiscally Responsible and Transparent City Government
Safe Community
Well-Maintained Infrastructure
BACKGROUND
The City of San Marino operates a 50-mile long municipal sewer collection system and is responsible for collecting wastewater (sewage) and conveying it to the Los Angeles County Sanitation District for treatment. Proper maintenance and capital investment are essential for the system’s continued operation, health, and safety.
In 2019, the City completed a Sewer System Master Plan (SSMP) and a Wastewater Collection System Condition Assessment (WCSCA), which identified over $36 million in needed sewer capital investments over the next 10 years. However, these capital improvements are currently unfunded.
Unlike most agencies, the City does not charge customers for the use of the sewer system. Historically, the wastewater collection system expenditures have been funded by the General Fund. Based on research conducted by staff, Gretchen Shepherd Romey, Mayor
Tony Chou, Vice Mayor
Hunter Chang, Council Member
John Chou, Council Member
Calvin Lo, Council Member
San Marino remains the only City in the region who funds, operates, and maintains their sewer system in this manner. Most sewer systems are selffunded enterprises funded through customer rate revenue.
Based on latest projections, the General Fund is facing significant budgetary challenges ahead with projected operating deficits and is no longer a sustainable funding source for the long-term sewer utility needs. Achieving a financial self-sustaining Sewer system will ensure there is enough funding available to continue making necessary improvements.
On November 13, 2024, Council approved a contract with Raftelis to conduct a Sewer Rate Study aimed at creating a sustainable financial model. Having an independent third party perform the sewer rate study ensures an unbiased, objective analysis of costs and needs, to develop a funding rate structure.
On February 12, 2025, the City Council considered a priority initiative entitled “Financially Self-Sustaining Sewer System.” This initiative is focused on ensuring the long-term financial viability and functionality of the City’s sewer system. The priority initiative was put before the community through the priority initiative survey and was generally categorized as a higher priority by survey participants. The initiative was then considered again by the City Council on March 12, 2025 at which time the Council was supportive of moving the initiative forward in the budget preparation process.
On February 13, 2025, Raftelis presented the initial Sewer Rate model to staff and City Finance Liaisons providing an opportunity for questions and discussion of the financial model. The three funding scenarios presented are based on a percentage of funded capital improvement Plan (CIP).
The three funding scenarios for the City Council’s consideration are 100% CIP, 75% CIP, and 50% CIP. Staff is seeking direction from Council regarding which funding scenario to use for the Sewer Rate Study. It is important to note that should the City Council move forward with any funding scenario other than the 100% level, a deficit will continue to exist in the City’s ability to fund the necessary sewer repairs outlined in the SSMP. At this time, there is no alternative, structural funding source that would making up the difference if the Council pursued a funding scenario less than 100% and the remaining necessary annual work would be deferred until such time an appropriate balance was accrued.
The Sewer Rate Study will serve as the basis for complying with the City’s obligations to justify the amount of the proposed sewer rate in accordance with Proposition 218. Under Proposition 218, the City is required to justify the amount of the sewer rates so that they do not exceed the City’s proportionate cost of providing the sewer service to each customer.
Proposition 218 also requires the City to follow particular procedural requirements including mailing a public hearing notice to all property owner customers subject to the proposed sewer rates, with the notice being mailed at least 45 days prior to the hearing. During the hearing (tentatively scheduled for June 27, 2025), the Council will consider all public comments prior to taking action to consider approval of the proposed rates. Additionally, each property owner will have a right to submit a written protest to the City to challenge the rates. The City Council will have the authority to consider approval of the proposed sewer rates only if there is not a “majority protest” from property owners. There would be a majority protest if the number of written protests from owners challenging the rates exceeds more than onehalf (50% +1) of the parcels served by the City.
In addition to the procedural requirements under Proposition 218, staff recommends that the Council adopt Resolution No. R-25-09 establishing Sewer Service Charge Rate Setting Procedures which implements new law (“AB 2257,” Government Code Sections 53759.1 and 53759.2). Those recommended procedures document compliance with both Proposition 218 and AB 2257. If authorized by Council, under AB 2257, property owners will also have an opportunity to submit a “written objection” (in addition to the “written protest”) within 45 days after the public hearing notice is mailed.
Unlike a “written protest” (for which the property owner need only identify an opposition to the rates), a “written objection” must document a substantive provision under Proposition 218 that the proposed rates are claimed to violate, with facts to support the claim, and the City has an obligation to provide a substantive written response to each timely written objection. The benefit to the City in adopting the supplemental procedures under AB 2257 is that any person who intends to legally challenge the proposed sewer rates in court would be required to first submit a timely written objection, and the City will have an opportunity to consider and respond to the objection (including a potential modification to the proposed sewer rates) prior to approving the rates.
DISCUSSION
The rate structure in the Sewer rate study is calculated using Sewer Units (SU) based on Los Angeles County Sanitation Districts (LACSD) flow estimates. The charges would be levied yearly on the county tax rolls.
One SU represents the typical wastewater flow from a single-family home.
This means a single-family home is assigned 1 SU, while larger properties— such as restaurants and large institutions—that generate more wastewater are assigned additional SUs to reflect their higher usage of the sewer system.
Table 1 below shows the annual charge per SU for the next 5-years by funding scenario. The rate revenue generated would be restricted and could only be used for sewer utility operations and capital improvement projects. This rate revenue would provide a funding source for Sewer improvements.
Table 1- FY 2026 Annual Charge per Sewer unit (SU) by Funding Scenario Funding
Scenario- 100%
CIP
Funding
Scenario75% CIP
Funding
Scenario- 50%
CIP
Annual Charge
PER SU $ 984 $ 756 $ 522
Staff is seeking direction on the funding scenario to use for the Sewer Rate study and authorization to proceed with the Proposition 218 notification and public hearing process in connection with the proposed sewer charges.
Alternative Rate Structure
During the Priority Initiatives presentation on March 12, 2025, staff received feedback from the City Council to explore the possibility of an alternative rate structure. Charging a single-family home a flat rate or by Sewer Unit (SU) is very common especially for cities that only collect sewage and send it to a regional treatment plant. Raftelis, the City‘s subject matter experts, know of no client/city that uses square footage to charge for sewer.
The alternative rate structure and shown on table 2 below would involve a hybrid methodology combining Sewer Units (SU) and square footage. Under this model:
• Commercial Customers: Charges would be based on Sewer Units (SU) as different businesses have varying wastewater flow requirements per sq. ft. For example, a restaurant has a higher sewer discharge per sq. ft. than a store.
• Residential Customers: Sewer charges would be calculated based on the square footage of the home. Using the latest County records, the square footage of each residential property would be determined, and the charge would be applied based on this size.
Table 2 below outlines the rate by funding scenario for both commercial and residential customers under this alternative approach.
Table 2- Alternative Rate Structure
Funding
Scenario100% CIP
Funding
Scenario75% CIP
Funding
Scenario50% CIP
Commercial
Annual Charge
PER SU
$
984
$
756
$
522
Average Home
Square feet
Funding
Scenario100% CIP
Funding
Scenario75% CIP
Funding
Scenario50% CIP
Single Family Residential
1,500
$
491
$
377
$
261
2,000
$
655
$
503
$
347
2,500
$
819
$
629
$
434
3,005
$
984
$
756
$
522
3,500
$
1,146
$
881
$
608
4,000
$
1,310
$
1,006
$
695
FISCAL IMPACT & PROCUREMENT REVIEW
The financial impacts of implementing the Proposition 218 process consist of an estimated $6,500 for the preparation, printing, and mailing of notices.
Sewer rates, if implemented, would generate revenue that can fund over $36 million in needed sewer capital investments over the next 10 years. Achieving a self-sustaining sewer utility would ensure General fund revenues are spent on general operations.
LEGAL REVIEW
The City Attorney's office has reviewed and approved as to form.
RECOMMENDATION
Staff recommends that the City Council:
(1) Provide direction on the funding scenario to be used for the Sewer Rate Study;
(2) Adopt the Resolution to approve the Sewer Service Charge Rate Setting Procedures; and
(3) Authorize staff to mail and post the Public Hearing Notice for June 27, 2025, to consider approval of the proposed sewer service charges.
ATTACHMENTS
1. Resolution No. R-25-09
2. Exhibit A- Sewer Service Charge Rate Setting Procedures