Sonoma City Council
August 2, 2023

City of Sonoma / Water Rate Study - DRAFT

5.1.1. Revenue Requirement Determination..............................................................................37

5.1.2. Peaking Factors ...............................................................................................................38

5.1.3. Functionalization of O&M Expenses ................................................................................39

5.1.4. Allocation of O&M Expenses to Cost Causation Components.........................................39

5.1.5. Functionalization of Assets...............................................................................................40

5.1.6. Allocation of Capital Expenses to Cost-Causation Components......................................40

5.1.7. Equivalent Meters.............................................................................................................41

5.1.8. Allocation of Public and Private Fire Protection Costs .....................................................42

5.1.9. Unit Costs of Service........................................................................................................43

6. Rate Design and Derivation ........................................................46

6.1. Proposed Fixed Charges.............................................................................................46

6.2. Volumetric Charge Rates ............................................................................................47

6.2.1. Supply Unit Cost...............................................................................................................48

6.2.2. Base Unit Cost .................................................................................................................49

6.2.3. Peaking Unit Cost.............................................................................................................49

6.2.4. Conservation Unit Cost ....................................................................................................50

6.2.5. Derivation of Proposed FY 2024 Volumetric Charge Rates.............................................51

6.3. Elevation Charge Rate.................................................................................................52

7. Customer Bill Impacts and Neighboring Agency Comparison ...53

7.1. Single-Family Bill Impacts ..........................................................................................53

7.2. Neighboring Agency Comparison..............................................................................53

8. Drought Rates..............................................................................55 Agenda Item #9.2:

City of Sonoma / Water Rate Study - DRAFT
Tables
Table 1-1: Proposed Revenue Adjustments..............................................................................................10 Table 1-2: Proposed Monthly Service Charges Through FY 2028............................................................13 Table 1-3: Proposed Volumetric Charge Rates Through FY 2028............................................................13 Table 1-4: Proposed Elevation Charge Through FY 2028 ........................................................................14 Table 1-5: Drought Surcharge by Percent Usage Reduction ....................................................................15 Table 3-1: Current Water Rates ................................................................................................................18 Table 3-2: Water Accounts by Meter Size.................................................................................................19 Table 3-3: Fire Lines by Connection Size..................................................................................................20 Table 3-4: Water Use by Customer Class and Tier (kgal).........................................................................21 Table 3-5: Zone 2 Projected Usage (kgal).................................................................................................21 Table 3-6: Inflationary Assumptions ..........................................................................................................22 Table 4-1: Projected Fixed Charge Revenues Under Current Rates ........................................................24 Table 4-2: Projected Fire Line Charge Revenue Under Current Rates.....................................................24 Table 4-3: Volumetric Charge Revenue Projections .................................................................................25 Table 4-4: Projected Non-Operating Revenue ..........................................................................................26 Table 4-5: Projected Purchased Water Cost Expenses ............................................................................27 Table 4-6: Projected O&M Expenses ........................................................................................................28 Table 4-7: Projected Capital Improvement Plan Costs Through FY 2028.................................................29 Table 4-8: Existing Debt Service ...............................................................................................................29 Table 4-9: Proposed Revenue Adjustments..............................................................................................30 Table 4-10: Water Utility Cashflow Detail..................................................................................................32 Table 5-1: FY 2024 Revenue Requirement Determination .......................................................................37 Table 5-2: System-wide Peaking Factors and Allocation to Cost-causation Components........................38 Table 5-3: Max Day and Max Hour Capacity Factors by Class.................................................................39 Table 5-4: FY 2024 O&M Expenses by Functional Category....................................................................39 Table 5-5: Allocation of Functionalized O&M Expenses to Cost-Causation Components ........................40 Table 5-6: Current Asset Value by Functional Category ...........................................................................40 Table 5-7: Allocation of Capital Expenses to Cost-Causation Components..............................................41 Table 5-8: Equivalent Meters.....................................................................................................................42 Table 5-9: Equivalent Fire Connections ....................................................................................................43 Table 5-10: Fire Service Share of Peaking Requirements ........................................................................43 Table 5-11: Units of Service ......................................................................................................................44 Table 5-12: Total Adjusted Cost-of-Service Calculation............................................................................44 Table 5-13: Unit Costs of Service..............................................................................................................45 Agenda Item #9.2:

City of Sonoma / Water Rate Study - DRAFT
Table 6-1: Monthly Service Charge Derivation ($/mo) ..............................................................................46 Table 6-2: Private Fire Protection Service Charge Derivation ($/mo) .......................................................47 Table 6-3: Proposed Monthly Service and Fire Line Charges Through FY 2028......................................47 Table 6-4: Groundwater and SCWA Supply Unit Costs ............................................................................48 Table 6-5: SFR Usage by Tier and Source of Supply ...............................................................................49 Table 6-6: Supply Unit Cost for SFR Tiered Rates....................................................................................49 Table 6-7: Derivation of Peaking Unit Costs..............................................................................................50 Table 6-8: Derivation of Conservation Unit Costs .....................................................................................51 Table 6-9: Derivation of FY 2019 Volumetric Charge Rates ($/kgal) ........................................................51 Table 6-10: Proposed Volumetric Charge Rates through FY 2028 ($/kgal)..............................................52 Table 6-11: Proposed Elevation Charge ($/kgal) ......................................................................................52 Table 8-1: Projected Water Demand by Percent Usage Reduction ..........................................................55 Table 8-2: Estimated Cost Savings by Percent Usage Reduction ............................................................56 Table 8-3: Drought Surcharge by Percent Usage Reduction ....................................................................56 Figures
Figure 1-1: Proposed Water Financial Plan...............................................................................................11 Figure 1-2: Proposed Water Financial Plan – Projected Ending Balances ...............................................12 Figure 1-3: Water Capital Funding Sources ..............................................................................................12 Figure 1-4: Single-Family Bill Comparison at Different Usage (kgal/mo) ..................................................14 Figure 1-5: Neighboring Agency Comparison ...........................................................................................15 Figure 4-1: Proposed Operating Financial Plan ........................................................................................33 Figure 4-2: Projected CIP and Funding Sources.......................................................................................34 Figure 4-3: Projected Debt Coverage........................................................................................................34 Figure 4-4: Total Reserve Ending Balance................................................................................................35 Figure 7-1: Single-Family Residential Monthly Bill Impacts.......................................................................53 Figure 7-2: Neighboring Agency Comparison ...........................................................................................54 Appendices
Appendix A: City of Sonoma Service Area
Appendix B: Projected Water Demand by Percent Usage Reduction Agenda Item #9.2:

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City of Sonoma / Water Rate Study – REVISED DRAFT 9

1. Executive Summary

1.1. Background of the Study
In 2023, the City of Sonoma (City) engaged Raftelis Financial Consultants (Raftelis) to conduct a Water Rate Study for the City’s water utility. The study included the development of a ten-year financial plan, a cost-ofservice analysis, and the development of proposed water rates for five years beginning in fiscal year (FY) 20241. This report provides a detailed explanation of the rate setting process and serves as part of the administrative record of the City’s proposed changes to its water rates.

This executive summary describes the rate study process, methodology, and recommendations for the City’s water rates. The City strives to provide high quality, dependable water service to the community while maintaining financial stability, affordability, and adequate levels of investment in infrastructure. The City wishes to establish a five-year schedule of rates that:
• Meet the City’s water enterprise fiscal needs for operation and maintenance (O&M) costs, capital replacement and refurbishment (R&R) costs to maintain the system, reserve goals, and to maintain the financial health of the enterprise, and
• Fairly and equitably recover the costs of providing service and that align with Proposition 218.

1.2. Objectives of the Study
The major objectives of the study include the following:
• Develop a ten-year financial plan for the City’s water utility to ensure financial sufficiency, recover O&M costs, ensure sufficient funding for capital projects, and improve the financial health of the water utility
• Perform a cost-of-service analysis that calculates the cost to serve each customer class • Develop water rates for FY 2024 through FY 2028 that are fair, equitable, and in proportion to the cost of providing service to the City’s water customers • Design drought surcharge rates for times of declared water shortages

1.3. Study Process and Methodology
Raftelis first developed a financial plan for the City, which established the total revenue adjustments2 needed to meet capital investment, operational expenses, and debt service proposed during the study period (FY 2023-FY 2033). Raftelis worked with City staff to refine inputs and provide a recommended financial plan and associated water rates for the City Council’s consideration. After developing the financial plan, Raftelis performed a cost-of-service analysis to determine the water rates.

The water rates presented in this executive summary were developed using cost-of-service principles set forth by the American Water Works Association M1 Manual titled Principles of Water Rates, Fees and Charges 1 The fiscal year begins on July 1 and runs through June 30. For example, FY 2024 is July 1, 2023 through June 30, 2024.
2 Revenue adjustments are defined as additions to gross rate revenues on an annual basis. Actual changes to rates are based on the revenue adjustment, cost-of-service allocations, and rate design.

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City of Sonoma / Water Rate Study – REVISED DRAFT 10
(AWWA M1 Manual). As stated in AWWA M1 Manual, “water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.” Raftelis follows industry standard rate setting methodologies set forth by the AWWA M1 Manual to ensure this study aligns with Proposition 218 requirements and creates rates that do not exceed the proportionate cost of providing water services.

Throughout the report many tables are rounded and may not sum exactly due to extra decimals not shown for ease of reading.

1.4. Results and Recommendations

1.4.1. Proposed Financial Plan
With the assistance of City staff, Raftelis conducted a status quo cash flow analysis to evaluate whether existing water rates adequately fund the City’s various water-related expenses over the ten-year study period.

The analysis projected annual revenues, operation and maintenance expenses, debt service payments, and capital expenditures through FY 2033. Raftelis projects that with no rate increases over the study period, the City will fully deplete its reserves by the end of FY 2030. This projected outcome of depleted reserve funds demonstrates a need for water revenue adjustments now to avoid larger increases later.

Raftelis worked with City staff to develop proposed revenue adjustments over the five-year study period, plus a projection, for informational purposes only, for the last half of the 10-year financial plan (Table 1-1). The proposed water revenue adjustments were selected to ensure the water operating fund has sufficient funds to cover annual expenses and to maintain reserves at or above target levels. The total reserve target includes an operating reserve target of 2 months of annual operating expenses, a capital reserve target of the average of the 5-year capital improvement plan, and a rate stabilization reserve of 15 percent of the annual commodity revenue. The percentages shown in Table 1-1 are the annual changes in rate revenue required to maintain a financially viable water utility and to fully fund planned capital projects.

Table 1-1: Proposed Revenue Adjustments
The following items affect the City’s water utility revenue requirement (i.e., costs) and consequently its water rates. The City’s expenses include O&M expenses, capital expenses, and debt service. • Water Purchase Expense: The City obtains roughly 88 percent of its water supply from the Sonoma County Water Agency (SCWA). The rate set by the SCWA for water sold to the City is expected to increase by approximately 10 percent per year between FY 2024 and FY 2025. Water purchase Effective Date Revenue Adjustment
Dec. 1, 2023 5.0%
July 1, 2024 5.0%
July 1, 2025 5.0%
July 1, 2026 5.0%
July 1, 2027 5.0%
July 1, 2028 4.0%
July 1, 2029 4.0%
July 1, 2030 4.0%
July 1, 2031 4.0%
July 1, 2032 4.0%
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 11
expenses represented approximately 49 percent of the City water utility’s total operating expenses in FY 2022 (most recent year of actuals).
• O&M Expenses: The City’s other O&M expenses are expected to increase at a rate of about

3.5 percent per year.
• Water System Capital Investment: The City anticipates an average of approximately $1.5 million (uninflated) in annual capital expenditures. This capital investment includes replacement of key water system infrastructure, investment in meter system upgrades to automated metering infrastructure, and other capital projects.

Figure 1-1 shows the proposed ten-year financial plan. Status Quo revenue is shown by the red line. Projected revenue is shown by the blue line. Annual expenditures are shown by the columns. Green bars above the Xaxis show the net cash to build up the reserves and green bars below the X-axis show withdrawals from reserves to fund costs. Current rates are neither sufficient to cover annual operating and maintenance expenses nor capital-related expenditures. Therefore, revenue adjustments are required to generate sufficient revenue to cover annual operating and maintenance costs, capital projects, and maintain reserves over the study period.

Figure 1-1: Proposed Water Financial Plan
Figure 1-2 shows projected operating and capital ending balances over the study period relative to the City’s total reserve targets under the proposed financial plan. Even with the planned revenue adjustments, reserves are drawn down each year, reaching the target level by the end of the study period. -$2.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 $
Millio
ns
Operating Fund Financial Plan
O&M Expenses Water Supply Costs Debt Service
PAYGO CIP Surplus/Deficit Rev - Proposed
Rev - Existing Rates
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 12
Figure 1-2: Proposed Water Financial Plan – Projected Ending Balances Figure 1-3 shows the proposed capital improvement plan (inflated dollars) and planned funding source over the study period. The proposed financial plan assumes that all capital projects over the study period will be cash funded through rate revenue.

Figure 1-3: Water Capital Funding Sources
$9.22
$8.78
$8.54
$8.32 $8.13 $7.98
$7.77
$7.51
$7.16
$6.73
$6.31
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 $
Millio
ns
Projected Ending Balance
Water Funds Ending Balance Operating Reserve
Total Reserve Target Capital Reserve
Rate Stabilization
$0.47
$1.70 $1.67
$1.74
$1.79
$1.84
$1.90
$1.95
$2.01
$2.07
$2.14
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 $
Millio
ns
Capital Improvement Plan
PAYGO Annual CIP
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 13

1.4.2. Proposed Water Rates
The City’s water rate structure includes a monthly fixed charge based on meter size, a tiered volumetric rate for single-family customers, and uniform volumetric rates by customer class for all other customer classes.

The City also has a monthly fixed charge for private fire service connections based on the diameter of the fire line. No changes are proposed for the water rate structure.

Table 1-2 shows the current and proposed monthly service charges and monthly fire line charges. These fixed charges are designed to primarily recover costs that are relatively fixed, such as customer service costs, meter servicing and maintenance costs, as well as costs associated with public and private fire protection.

Table 1-2: Proposed Monthly Service Charges Through FY 2028 Table 1-3 presents the current and proposed volumetric charge assessed per thousand gallons (kgal) of water consumed per month. This charge is designed to primarily recover the variable costs associated with operating the water utility, such as the cost of supplying water from SCWA as well as costs for delivering water during average demand conditions, system capacity costs, and conservation-relate costs.

Table 1-3: Proposed Volumetric Charge Rates Through FY 2028 Meter/ Connection
Size Current Charge FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment Monthly Service Charge
5/8" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
3/4" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
1" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
1 1/2" $50.19 $57.86 $60.76 $63.80 $66.99 $70.34
2" $73.86 $87.28 $91.65 $96.24 $101.06 $106.12
3" $136.98 $165.72 $174.01 $182.72 $191.86 $201.46
4" $207.99 $253.97 $266.67 $280.01 $294.02 $308.73
6" $405.24 $499.11 $524.07 $550.28 $577.80 $606.69
Fire Line Charge
2" $0.82 $14.08 $14.79 $15.53 $16.31 $17.13
4" $4.98 $41.28 $43.35 $45.52 $47.80 $50.19
6" $14.41 $103.09 $108.25 $113.67 $119.36 $125.33
8" $30.72 $209.70 $220.19 $231.20 $242.76 $254.90
10" $55.21 $370.06 $388.57 $408.00 $428.40 $449.82
Class Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Charge cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment SFR Tier 1 $6.19 $6.13 $6.44 $6.77 $7.11 $7.47
SFR Tier 2 $8.37 $8.06 $8.47 $8.90 $9.35 $9.82
SFR Tier 3 $9.86 $9.86 $10.36 $10.88 $11.43 $12.01
MFR $8.16 $7.98 $8.38 $8.80 $9.24 $9.71
Comm $7.93 $7.98 $8.38 $8.80 $9.24 $9.71
Municipal $8.16 $8.40 $8.82 $9.27 $9.74 $10.23
Irrigation $8.69 $9.15 $9.61 $10.10 $10.61 $11.15
Construction (Hydrant) (1) $10.74 $14.42 $15.15 $15.91 $16.71 $17.55 (1) Private fire water use is also charged at this rate.

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City of Sonoma / Water Rate Study – REVISED DRAFT 14
Table 1-4 shows the current and proposed elevation charge for Zone 2. This charge is designed to recover the cost of pumping water to customers residing in a higher elevation zone (Zone 2, shown in the City’s Water Master Plan Figure 1-1, and copied in Appendix A). Customers residing inside the lower elevation zones do not pay a surcharge.

Table 1-4: Proposed Elevation Charge Through FY 2028

1.4.3. Typical Bill
Figure 1-4 shows a comparison of single-family water bills at different water usage levels and on a 1-inch meter.

Figure 1-4: Single-Family Bill Comparison at Different Usage (kgal/mo)

1.4.4. Neighboring Agency Comparison
Figure 1-5 shows a comparison of monthly water bills for a single-family customer on a 1-inch meter using

7.5 kgal/mo. The comparison shows current FY 2023 rates and adopted or proposed rates for FY 2024 and FY 2025.

Zone Current Charge FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment Zone 2 $2.40 $3.22 $3.39 $3.56 $3.74 $3.93

2.00 5.00 7.51 9.00
Current Monthly Bill $42.84 $67.95 $89.67 $104.41
Proposed Monthly Bill $45.61 $69.79 $90.89 $105.63
Impacts ($) $2.77 $1.84 $1.22 $1.22
Impacts (%) 6.5% 2.7% 1.4% 1.2%
$0
$20
$40
$60
$80
$100
$120
Single-Family (1") Monthly Water Bill (Average = 7.5 kgal/mo) Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 15
Figure 1-5: Neighboring Agency Comparison

1.4.5. Drought Surcharge
In periods of drought when water sales are reduced, the City will lose revenue and fail to cover its expenses.

Raftelis developed drought surcharges to supplement revenues due to drought by recovering the net revenue loss. The projected losses and revenue shortfall, by reduction level, is shown in Table 1-5.

Table 1-5: Drought Surcharge by Percent Usage Reduction Town of
Windsor
City of
Rohnert
Park
City of
Santa
Rosa
City of
Petaluma
City of
Cotati
City of
Sonoma
North
Marin
WD -
Novato
Valley of
the Moon
WD
Marin
Water
FY 2023 $44.92 $65.73 $78.89 $77.67 $81.20 $89.67 $87.99 $92.89 $97.23 FY 2024 $47.18 $69.01 $81.29 $84.33 $86.05 $90.89 $92.39 $99.38 $119.14 FY 2025 $49.54 $72.46 $84.51 $86.37 $91.21 $95.48 $96.98 $106.34 $137.04 $0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
Single Family, 7.5 kgal/mo, 1" Meter
FY 2024
0 - 10%
Reduction
10 - 20%
Reduction
20 - 30%
Reduction
30 - 40%
Reduction
40 - 50%
Reduction
Projected Potable Variable Revenue $4,549,587 $4,083,190 $3,704,370 $3,193,830 $2,702,152 $2,304,365 Revenue Shortfall ($466,396) ($845,217) ($1,355,756) ($1,847,434) ($2,245,222) Cost Savings $240,116 $443,881 $709,102 $970,338 $1,180,106 Net Revenue Shortfall to be Recovered ($226,280) ($401,336) ($646,654) ($877,096) ($1,065,116) % Revenue Shortfall 6% 11% 20% 32% 46%
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City of Sonoma / Water Rate Study – REVISED DRAFT 16

2. Rate Setting Methodology
This study was conducted using industry-standard principles outlined in the AWWA Manual M1. The process and approach Raftelis utilized in the study to determine water rates is informed by the City’s policy objectives, the current water system and rates, and the legal requirements in California (namely, Proposition 218). The resulting financial plan, cost of service analysis, and rate design process follows five key steps, outlined below, to determine proposed rates that achieve the City’s objectives, meet industry standards, and align with relevant regulations.

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

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

3. Cost-of Service-Analysis: The annual cost of providing water service, or the revenue requirement, is then distributed to customer classes commensurate with their use of and burden on the water system.

A cost-of-service analysis involves the following steps:
a. Functionalize costs – the different components of the revenue requirement are categorized into functions such as supply, transmission/distribution, storage, customer service, etc. b. Allocate to cost causation components – the functionalized costs are then allocated to costcausation components such as supply, base delivery, peaking, etc. c. Develop unit costs – unit costs for each cost-causation component are determined using units of service, such as total use, peaking units, equivalent meters, number of customers, etc., for each component.
d. Distribute cost components – the cost components are allocated to each customer class using the unit costs in proportion to their units of service (demand and burden on the system).

A water cost-of-service analysis also considers both the average water demand and peak demand.

Peaking costs are incurred during periods of peak consumption, most often coinciding with summer water use and irrigation needs. There are additional capacity-related costs associated with designing, constructing, operating, maintaining, and replacing facilities to meet peak demand. Peaking imposes additional costs on a water utility and are used to determine the cost burden on peaking-related facilities.

4. Rate Design: After allocating the revenue requirement to each customer class, the project team designs and calculates rates. Rates do more than simply recover costs; within the legal framework and industry standards, properly designed rates should support and optimize the City’s policy objectives.

Rates also act as a public information tool in communicating these policy objectives to customers.

This process also includes a rate impact analysis and sample customer bill impacts. Additionally, where tiered rates are developed, the project team determines the cost to serve each tier as a sub-class, to ensure a nexus to costs incurred.

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City of Sonoma / Water Rate Study – REVISED DRAFT 17

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

Values shown in report tables and figures are rounded to the digit shown. Therefore, any manual reproduction of the calculations shown may not match the precise results displayed in the report.

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City of Sonoma / Water Rate Study – REVISED DRAFT 18

3. Water System
This section briefly describes the City’s water system and ratepayer base. The City provided customer account and water use data for FY 2021, FY 2022, and partial FY 2023. Raftelis developed a water rate model in Microsoft Excel to project financial and rate calculations over a ten-year study period through FY 2033. The City’s fiscal year spans from July 1 through June 30. Projections in future years were generally made based on actual or budgeted FY 2022 or FY 2023 data using key assumptions outlined below. All assumptions were discussed with, and reviewed by, City staff to ensure that the City’s unique characteristics were incorporated.

Note that most table values shown throughout this report are rounded to the last digit shown and, therefore, may not calculate precisely to the values shown.

3.1. Water System Background
The City provides water services to approximately 4,500 connections that serve residential, commercial, municipal, and irrigation customers as well as private fire lines. Most of the City’s water supply is purchased wholesale from the Sonoma County Water Agency (SCWA). SCWA’s wholesale water rates are projected to increase 10.6 percent between FY 2023 and FY 2024 and another 10 percent between FY 2024 and FY 2025.

The financial plan assumes that SCWA costs will continue to increase by 7.6 percent annually, based on the historical and anticipated increases between FY 2021 and FY 2025. The City supplements its water supply purchases with groundwater produced by seven City-owned wells (not all the wells are currently operational).

The City’s existing rate structure is based on a rate study completed in 2018. The most recent water rate increase went into effect on July 1, 2022 and is shown in Table 3-1.

Table 3-1: Current Water Rates
Charge Type Current Charge Type Current
Monthly Service Charges Volumetric Charges, $/kgal
5/8" $30.46 Residential Volumetric Charges
3/4" $30.46 Tier 1: 0-2 kgal $6.19
1" $30.46 Tier 2: 2 - 7 kgal $8.37
1 1/2" $50.19 Tier 3: > 7kgal $9.86
2" $73.86 Other Classes
3" $136.98 Multi-Family Residential $6.56
4" $207.99 Commercial $6.37
6" $405.24 Municipal $6.56
Fire Line Fixed Charges Irrigation $6.98
2" $0.82 Fire & Hydrant $8.64
4" $4.98 Elevation Charges, $/kgal
6" $14.41 Zone 2 $1.92
8" $30.72
10" $55.21
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City of Sonoma / Water Rate Study – REVISED DRAFT 19

3.2. Number of Accounts and Fire Lines
Table 3-2 shows the actual number of potable water accounts by meter size for FY 2022 and the projected number of accounts through the study period. Based on discussions with City staff, the total number of accounts is projected to increase at 0.5 percent per year. The number of accounts is used to forecast the amount of fixed revenue the City will receive from the monthly meter charge as well as to forecast the annual water use.

Table 3-2: Water Accounts by Meter Size
Table 3-3 shows the number of fire lines by connection size for FY 2023. Raftelis projected the number of fire lines and forecasted the amount of fixed revenue that the City will collect from the fire line fixed charge using the same methods described above for water accounts. For reference: fire lines are private sprinkler connections or hydrants that provide additional fire suppression as a standby service.

Meter Size FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 5/8" 253 252 253 254 256 257
3/4" 2,568 2,554 2,566 2,579 2,591 2,603
1" 1,249 1,256 1,262 1,268 1,274 1,280
1 1/2" 143 144 145 145 146 147
2" 106 106 107 107 108 108
3" 22 22 22 22 22 22
4" 9 9 9 9 9 9
6" 1 1 1 1 1 1
Total 4,351 4,344 4,365 4,385 4,406 4,427
Meter Size FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 5/8" 258 259 260 262 263 264
3/4" 2,616 2,628 2,641 2,653 2,666 2,679
1" 1,286 1,292 1,298 1,305 1,311 1,317
1 1/2" 148 148 149 150 150 151
2" 109 109 110 110 111 111
3" 23 23 23 23 23 23
4" 9 9 9 9 9 9
6" 1 1 1 1 1 1
Total 4,448 4,469 4,491 4,512 4,533 4,555
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City of Sonoma / Water Rate Study – REVISED DRAFT 20
Table 3-3: Fire Lines by Connection Size

3.3. Water Use
Table 3-4 shows actual and forecasted annual water use by customer class and tier based on individual customer consumption data provided by the City and analyzed by Raftelis. Based on discussions with City staff, the forecast presumes a return to pre-Covid demand in FY 2024. Thereafter, increased water use is driven by the increase in customer accounts. A small portion of the total usage shown in Table 3-4 is from customers in Zone 2. Table 3-5 shows the projected Zone 2 usage. (remainder of page intentionally left blank)
Connection Size FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 2" 9 9 9 9 9 9
4" 74 76 76 77 77 78
6" 60 62 62 63 63 63
8" 20 20 20 20 20 20
10" 3 3 3 3 3 3
Total 166 170 171 172 172 173
Connection Size FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 2" 9 9 9 9 9 9
4" 78 78 79 79 80 80
6" 64 64 64 64 65 65
8" 21 21 21 21 21 21
10" 3 3 3 3 3 3
Total 174 175 176 176 177 178
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 21
Table 3-4: Water Use by Customer Class and Tier (kgal)
Table 3-5: Zone 2 Projected Usage (kgal)

3.4. Inflationary Assumptions
Inflationary assumptions shown in Table 3-6 were used to project O&M expenses beyond the FY 2023 budget. To ensure that future costs are reasonably projected, Raftelis worked with the City to generate assumptions regarding inflationary factors including general and salary inflation and water cost inflation. The inflationary factors were then applied to the FY 2023 budgeted cost estimates to develop the FY 2024 and subsequent year estimates.

Customer FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 Residential Volumetric Consumption
Tier 1 79,363 78,600 83,309 83,707 84,107 84,509
Tier 2 117,540 110,600 117,226 117,786 118,349 118,915
Tier 3 115,077 107,500 113,940 114,484 115,031 115,581
Other Uniform Volumetric Consumption
Multi-Family 85,973 82,900 87,866 88,286 88,708 89,132
Commercial 69,344 65,900 69,848 70,182 70,517 70,854
Municipal 36,876 32,900 34,871 35,038 35,205 35,373
Irrigation 42,957 41,800 44,304 44,516 44,729 44,943
Construction 780 900 954 959 964 969
Private Fire 309 300 318 320 322 324
Total, kgal 548,220 521,400 552,636 555,278 557,932 560,600 Customer FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 Residential Volumetric Consumption
Tier 1 84,913 85,319 85,727 86,137 86,549 86,963
Tier 2 119,483 120,054 120,628 121,204 121,783 122,365
Tier 3 116,133 116,688 117,246 117,806 118,369 118,935
Other Uniform Volumetric Consumption
Multi-Family 89,558 89,986 90,416 90,848 91,282 91,718
Commercial 71,193 71,533 71,875 72,218 72,563 72,910
Municipal 35,542 35,712 35,883 36,054 36,226 36,399
Irrigation 45,158 45,374 45,591 45,809 46,028 46,248
Construction 974 979 984 989 994 999
Private Fire 326 328 330 332 334 336
Total, kgal 563,280 565,973 568,680 571,397 574,128 576,873 Customer FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 Zone 2, kgal 5,990 5,500 5,829 5,857 5,885 5,913
Customer FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 Zone 2, kgal 5,941 5,969 5,998 6,027 6,056 6,085
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 22
Table 3-6: Inflationary Assumptions
Interest earnings on cash reserves are projected assuming a 1 percent annual interest rate. Revenues from late fees and shutoffs are projected to increase at 0.5 percent per year. Other miscellaneous revenue is forecast to remain flat.

Category FY 2024 FY 2025 FY 2026 FY 2027 FY 2028+
General 3.0% 3.0% 3.0% 3.0% 3.0%
Salary 8.0% 3.0% 3.0% 3.0% 3.0%
Benefits 8.0% 8.0% 8.0% 8.0% 8.0%
Utilities 6.0% 5.0% 4.0% 3.0% 3.0%
Construction 6.0% 5.0% 4.0% 3.0% 3.0%
Insurance 3.0% 3.0% 3.0% 3.0% 3.0%
Professional Services 3.0% 3.0% 3.0% 3.0% 3.0%
Water Purchase Cost * 10.0% 7.6% 7.6% 7.6%
* Using SCWA's planned rate for FY 2024.

Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 23

4. Financial Plan
This section describes the ten-year financial plan. The proposed financial plan is used to determine the overall revenue adjustments and total amount of revenue required from rates. The revenue covers O&M expenses, capital expenses, any debt service, and reserve funding. Revenue adjustments represent the average rate-based revenue increase for the City as a whole; rate changes for individual customers will depend on the cost-ofservice analysis and rate design.

To develop the financial plan, Raftelis projected annual expenses and revenues, existing debt service, modeled reserve balances and transfers between funds, and accounted for planned capital expenditures. This section of the report provides a discussion of projected revenue, O&M expenses, debt service, the capital improvement plan (CIP), reserve funding under existing rates, and the revenue adjustments required to ensure fiscal sustainability. The financial plan starts with current account data and water use as well as current rates to determine if the current rates are adequately meeting the revenue requirements.

4.1. Current Water Rate Revenue
The City’s revenues consist of rate revenues, interest earnings on cash reserves, and other miscellaneous revenues. The rate revenue projections shown below assume that current FY 2023 (Table 3-1) rates are effective throughout the study period; and, therefore, represent estimated revenues in the absence of any rate increase. This status quo scenario provides a baseline from which Raftelis evaluates the need for revenue adjustments.

4.1.1. Calculated Water Rate Revenues
Raftelis projected water rate revenues from fixed meter charges, fire line charges, and volume charges for FY 2023 through FY 2033 based on current FY 2023 water rates, the projected number of water meters, projected private fire connections, and projected water use.

The City collects fixed monthly service revenue from its customers based on meter size. Table 4-1 shows projected fixed meter charge revenues under current rates over the study period. Fixed charge revenues are calculated by meter size in each year as follows based on current FY 2023 water rates (from Table 3 1) and the projected number of water meters (from Table 3 3). The following shows an example calculation for a 3/4" meter. This calculation is repeated for all meter sizes to determine the total fixed charge revenue in each fiscal year throughout the study period.

Annual Fixed Charge Revenue for ¾” meter =
[FY 2023 fixed monthly rate ¾” meter] × [Number of ¾” connections] × [12 Bills per year] Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 24
Table 4-1: Projected Fixed Charge Revenues Under Current Rates Revenues for fire line services under existing rates are calculated similarly to the fixed meter charge. The estimated revenues under current rates are shown in Table 4-2.

Table 4-2: Projected Fire Line Charge Revenue Under Current Rates Table 4-3 shows projected volume charge revenues under current rates over the study period. Volume charge revenues are calculated by customer class and tier in each year based on current FY 2023 water rates and projected water use (Table 3 5). The following shows an example calculation for a commercial customer. This Meter Size FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 5/8" $92,111 $92,550 $92,988 $93,427 $93,866 $94,304
3/4" $933,538 $937,997 $942,493 $946,989 $951,522 $956,054 1" $459,367 $461,579 $463,772 $466,001 $468,231 $470,461 1 1/2" $86,728 $87,150 $87,572 $87,993 $88,415 $88,836
2" $93,950 $94,393 $94,836 $95,279 $95,723 $96,166
3" $36,163 $36,327 $36,491 $36,656 $36,820 $36,985
4" $22,463 $22,463 $22,463 $22,463 $22,463 $22,463
6" $4,863 $4,863 $4,863 $4,863 $4,863 $4,863
Total $1,729,183 $1,737,322 $1,745,478 $1,753,672 $1,761,902 $1,770,131 Meter Size FY 2029 FY 2030 FY 2031 FY 2032 FY 2033
5/8" $94,743 $95,181 $95,620 $96,095 $96,570
3/4" $960,623 $965,229 $969,834 $974,476 $979,118
1" $472,690 $474,957 $477,223 $479,489 $481,792
1 1/2" $89,258 $89,679 $90,101 $90,523 $90,944
2" $96,609 $97,052 $97,495 $97,938 $98,382
3" $37,149 $37,313 $37,478 $37,642 $37,806
4" $22,463 $22,463 $22,463 $22,463 $22,463
6" $4,863 $4,863 $4,863 $4,863 $4,863
Total $1,778,398 $1,786,737 $1,795,077 $1,803,490 $1,811,939 Connection Size FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 2" $89 $89 $89 $89 $89 $89
4" $4,542 $4,566 $4,590 $4,613 $4,637 $4,661
6" $10,721 $10,773 $10,825 $10,877 $10,929 $10,980
8" $7,373 $7,410 $7,447 $7,483 $7,520 $7,557
10" $1,988 $1,988 $1,988 $1,988 $1,988 $1,988
Total $24,712 $24,824 $24,937 $25,050 $25,162 $25,275
Connection Size FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 2" $89 $89 $89 $89 $89
4" $4,685 $4,709 $4,733 $4,757 $4,781
6" $11,032 $11,084 $11,136 $11,188 $11,240
8" $7,594 $7,631 $7,668 $7,705 $7,741
10" $1,988 $1,988 $1,988 $1,988 $1,988
Total $25,388 $25,500 $25,613 $25,726 $25,838
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 25
calculation is repeated for all classes and tiers to determine the total volumetric charge revenue in each fiscal year throughout the Study Period.

Commercial Volume Charge Revenue = [Commercial FY 2023 rate per kgal] × [Commercial Water Use in kgal] Table 4-3: Volumetric Charge Revenue Projections

4.1.2. Non-Operating Revenue
In addition to the rate-based revenue, the water utility also has several sources of non-operating revenue shown below in Table 4-4. Non-operating revenues are based on the City’s FY 2023 budget and are not escalated in subsequent years, with the exception of “Late Fees & Shut-Off” (which is assumed to increase consistent with the projected growth in accounts) and interest revenue, which is estimated beginning in FY 2023 based on estimated beginning fund balances, revenues and expenses, and the assumed interest rate.

Customer FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Residential
Tier 1 $486,534 $515,683 $518,146 $520,622 $523,111 $525,611 Tier 2 $925,722 $981,182 $985,869 $990,581 $995,319 $1,000,073 Tier 3 $1,059,950 $1,123,448 $1,128,812 $1,134,206 $1,139,629 $1,145,071 Multi-Family $676,464 $716,987 $720,414 $723,857 $727,317 $730,793 Commercial $522,587 $553,895 $556,543 $559,200 $561,872 $564,560 Municipal $268,464 $284,547 $285,910 $287,273 $288,644 $290,023 Irrigation $363,242 $385,002 $386,844 $388,695 $390,555 $392,423 Construction $9,666 $10,246 $10,300 $10,353 $10,407 $10,461 Private Fire $3,222 $3,415 $3,437 $3,458 $3,480 $3,501
Zone 2 Surcharge $13,200 $13,990 $14,057 $14,124 $14,191 $14,258 Total $4,329,051 $4,588,394 $4,610,332 $4,632,370 $4,654,524 $4,676,775 Customer FY 2029 FY 2030 FY 2031 FY 2032 FY 2033
Residential
Tier 1 $528,125 $530,650 $533,188 $535,738 $538,301
Tier 2 $1,004,852 $1,009,656 $1,014,477 $1,019,324 $1,024,195 Tier 3 $1,150,544 $1,156,046 $1,161,567 $1,167,118 $1,172,699 Multi-Family $734,286 $737,795 $741,320 $744,861 $748,419 Commercial $567,257 $569,969 $572,689 $575,425 $578,176 Municipal $291,410 $292,805 $294,201 $295,604 $297,016
Irrigation $394,300 $396,186 $398,080 $399,983 $401,895 Construction $10,514 $10,568 $10,622 $10,676 $10,729
Private Fire $3,523 $3,544 $3,566 $3,587 $3,609
Zone 2 Surcharge $14,326 $14,395 $14,465 $14,534 $14,604 Total $4,699,135 $4,721,614 $4,744,174 $4,766,851 $4,789,643 Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 26
Table 4-4: Projected Non-Operating Revenue

4.2. Water Utility Expenses
The City’s water utility expenses include O&M expenses, capital expenses, and debt service payments.

4.2.1. Total Operations and Maintenance Budget

4.2.1.1. Water Purchase Cost
The City obtains most of its water from the SCWA and pays rates established by the SCWA for its wholesale water purchases. The City provided Raftelis with its budgeted SCWA purchased amount for FY 2023 and planned SCWA rates for FY 2024. For FY 2025, the City provided an estimated 10 percent increase to the SCWA rate. For FY 2026 onwards, Raftelis assumed a 7.6 percent annual increase in SCWA wholesale rates based on increases since FY 2021. The forecast assumes that the City obtains about 88 percent of its water from SCWA and the rest from groundwater wells. Costs associated with pumping groundwater from the City’s wells are included in the summary of O&M expenses in the following subsection. Additionally, the study assumes an 8.9 percent water loss factor, which increases the amount of water supply required. This loss factor was generated by comparing the totals of produced and purchased water versus total metered sales over the last four fiscal years. Water supply cost projections for FY 2024 – FY 2033 are calculated by multiplying the amount of water purchased from SCWA by the SCWA wholesale rate and are shown in Table 4-5. The City can purchase a maximum of 3,000 AF per year from SCWA, but the City is currently well below that maximum.

Line Item FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Interest Income $90,849 $90,013 $86,593 $84,277 $82,239 $80,535 Finance Charges $2,665 $2,665 $2,665 $2,665 $2,665 $2,665 Late Fees & Shutoff $32,640 $32,796 $32,953 $33,111 $33,269 $33,428 Change in Account Fees $27,429 $27,429 $27,429 $27,429 $27,429 $27,429 Licenses & Permits $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 Total $154,584 $153,904 $150,641 $148,482 $146,602 $145,058 Line Item FY 2029 FY 2030 FY 2031 FY 2032 FY 2033
Interest Income $78,736 $76,384 $73,356 $69,486 $65,210 Finance Charges $2,665 $2,665 $2,665 $2,665 $2,665
Late Fees & Shutoff $33,588 $33,748 $33,909 $34,071 $34,234 Change in Account Fees $27,429 $27,429 $27,429 $27,429 $27,429 Licenses & Permits $1,000 $1,000 $1,000 $1,000 $1,000
Total $143,418 $141,227 $138,359 $134,652 $130,539
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 27
Table 4-5: Projected Purchased Water Cost Expenses

4.2.1.2. Pass-Through Rates
California Government Code Section 53756 allows for pass-through adjustments for unforeseen increases in wholesale water costs. Based on discussions with City staff, the financial plan assumes that wholesale water rates will increase by 10 percent in FY 2025 and then approximately 7.6 percent per year for the duration of the study period. Should the costs of wholesale water exceed the estimated increase due to drought conditions or for any other reason, the City may choose to pass-through any wholesale water rate increases imposed on the City by SCWA that are greater than the average annual increase already included in the financial plan assumptions.

4.2.1.3. Operating and Maintenance Expenses
The City provided Raftelis with its water utility budget for FY 2023. Raftelis used the escalation percentages shown in Table 3-6 to project expenses for the financial plan. A summary of the City’s projected O&M budget is shown by fiscal year in Table 4-6. Note that water supply costs from Table 4-5 are included in the total O&M shown in Table 4-6.

Line Item FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Water Sales 1,696 1,704 1,712 1,720 1,729
Total Supply Required (1) 1,862 1,871 1,880 1,889 1,898 City Wells 238 238 238 238 238
SCWA 1,624 1,633 1,642 1,651 1,660
SCWA, $/AF $1,348 $1,483 $1,596 $1,717 $1,848
Total SCWA Costs $2,189,291 $2,421,421 $2,620,069 $2,835,011 $3,067,570 Line Item FY 2029 FY 2030 FY 2031 FY 2032 FY 2033
Water Sales 1,737 1,745 1,754 1,762 1,770
Total Supply Required (1) 1,907 1,916 1,925 1,935 1,944 City Wells 238 238 238 238 238
SCWA 1,669 1,678 1,687 1,697 1,706
SCWA, $/AF $1,989 $2,140 $2,303 $2,478 $2,667
Total SCWA Costs $3,319,195 $3,591,455 $3,886,011 $4,204,717 $4,549,554 (1) Inclues water loss.

Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 28
Table 4-6: Projected O&M Expenses

4.2.2. Capital Expenses
Projected capital improvement plan (CIP) costs in the financial plan were provided by City staff through FY 2027. FY 2028 – FY 2033 estimated CIP is based on the average of the prior three years. Individual CIP project costs are shown in Table 4-7 and were escalated 6 percent in FY 2024, 5 percent in FY 2025, 4 percent in FY 2026, and 3 percent per year thereafter, based on recent increases in, and projected estimates of, construction cost inflation.

Line Item FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Salary & Wages $712,877 $769,907 $793,004 $816,794 $841,298 $866,537 Employee Benefits $370,750 $400,410 $432,442 $467,038 $504,401 $544,753 Professional Services $463,135 $496,224 $502,201 $518,043 $534,430 $551,382 Property Services $159,700 $174,266 $183,365 $191,137 $197,359 $203,785 Operations $138,290 $143,521 $148,151 $152,801 $157,456 $162,253 Supplies $194,200 $200,774 $207,022 $213,375 $219,825 $226,470 Water Purchase $2,401,147 $2,189,291 $2,421,421 $2,620,069 $2,835,011 $3,067,570 Capital Assts $15,420 $15,883 $16,359 $16,850 $17,355 $17,876 Internal Service & Capital $231,696 $239,601 $247,463 $255,240 $262,897 $270,784 Transfers $687,026 $687,026 $687,026 $687,026 $687,026 $687,026 Total $5,374,241 $5,316,902 $5,638,454 $5,938,373 $6,257,058 $6,598,436 Line Item FY 2029 FY 2030 FY 2031 FY 2032 FY 2033
Salary & Wages $892,533 $919,309 $946,888 $975,295 $1,004,554 Employee Benefits $588,333 $635,400 $686,232 $741,130 $800,421 Professional Services $568,318 $585,803 $603,854 $622,491 $641,733 Property Services $210,421 $217,275 $224,352 $231,662 $239,211 Operations $167,196 $172,290 $177,539 $182,949 $188,525 Supplies $233,316 $240,370 $247,637 $255,124 $262,838
Water Purchase $3,319,195 $3,591,455 $3,886,011 $4,204,717 $4,549,554 Capital Assts $18,412 $18,965 $19,534 $20,120 $20,723
Internal Service & Capital $278,908 $287,275 $295,893 $304,770 $313,913 Transfers $687,026 $687,026 $687,026 $687,026 $687,026
Total $6,963,659 $7,355,168 $7,774,966 $8,225,284 $8,708,497 Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 29
Table 4-7: Projected Capital Improvement Plan Costs Through FY 2028

4.2.3. Existing Debt Service
The water utility’s outstanding debt service payments related to its 2012 Refunding Water Installment Sale Revenue Bonds issue are shown in Table 4-8. These bonds refinanced a 2001 Bond Issuance used to finance the construction of a water tank project and the installation of water mains and laterals. The debt is expected to be retired in FY 2032.

Table 4-8: Existing Debt Service
The City does not anticipate issuing new debt to pay for capital improvements during the study period.

Line Item FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Urban Water Master Plan & Minor
Water Master Plan Update $0 $0 $0 $86,814 $0 $0
Water Meter System Upgrades
(AMI) $0 $1,696,000 $1,113,000 $578,760 $596,123 $0
Well No. 1 Vault Cover and Air
Exchange Improvements
$125,000 $0 $0 $0 $0 $0
Norrborm Tank Coating Renewal $265,000 $0 $0 $0 $0 $0
Well No. 3 Water Disinfection
Equipment Replacement $45,000 $0 $0 $0 $0 $0
Loval Valley Road & Thorsnberry
Water Valve Box, Frame, Cover, Replacement$32,500 $0 $0 $0 $0 $0 Future Undesignated Projects $0 $0 $556,500 $1,070,706 $1,192,246 $1,842,019 Total $467,500 $1,696,000 $1,669,500 $1,736,280 $1,788,368 $1,842,019 Line Item FY 2029 FY 2030 FY 2031 FY 2032 FY 2033
Future Undesignated Projects $1,897,280 $1,954,198 $2,012,824 $2,073,209 $2,135,405 Total $1,897,280 $1,954,198 $2,012,824 $2,073,209 $2,135,405 Line Item FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 2012 Refunding Water Installment Sale
Principal $85,000 $85,000 $90,000 $90,000 $95,000 $100,000 Interest $36,563 $33,248 $29,835 $26,325 $22,718 $18,915 Total $121,563 $118,248 $119,835 $116,325 $117,718 $118,915 Line Item FY 2029 FY 2030 FY 2031 FY 2032 FY 2033
2012 Refunding Water Installment Sale
Principal $105,000 $105,000 $110,000 $115,000 $0
Interest $14,918 $10,823 $6,630 $2,243 $0
Total $119,918 $115,823 $116,630 $117,243 $0
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 30

4.3. Financial Policies

4.3.1. Debt Coverage Requirements
The City must meet or exceed a debt coverage requirement of 125 percent. Debt coverage is calculated by dividing net operating revenues by total debt service in each fiscal year.

4.3.2. Reserve Policies
The City has the following reserve policies:
• Operating reserve: The operating reserve is used primarily to meet ongoing cash flow requirements.

The City’s operating reserve target level equals two months of O&M expenses, which is used to calculate operating reserve target levels throughout the study period. • Capital reserve: The capital reserve is used to cover any unexpected and unplanned infrastructure repairs and replacements not included in the CIP budget. The City’s capital reserve target level equals the annual average CIP expenditures (averaged over the next five years). The capital reserve target levels do not include any debt funded CIP projects (none anticipated). • Rate stabilization reserve: The rate stabilization reserve is used during periods of short-term revenue shortages due to economic recession, drought, or other causes to alleviate the need to quickly implement substantial rate increases. The current Rate Stabilization Reserve target level is 15 percent of annual volumetric charge revenue.

4.4. Proposed Financial Plan and Revenue Adjustments
The proposed revenue adjustments help ensure adequate revenue to fund operating expenses, capital expenditures, and meet reserve targets. The financial plan modeling assumes the first revenue adjustment occurs on December 1, 2023. The proposed revenue adjustments, along with a gradual drawdown of reserves to target levels, will enable the City to meet operating costs and to execute the CIP. Table 4-9 shows the proposed revenue adjustments for the rate-setting period. Adjustments beyond the 5-year rate setting period are shown for informational purposes only.

Table 4-9: Proposed Revenue Adjustments
Table 4-10 shows the cash flow detail through the study period. Line 16 shows total revenue, which is the sum of revenue from current rates (Line 1), additional rate revenue resulting from the proposed revenue Effective Date Revenue Adjustment
Dec. 1, 2023 5.0%
July 1, 2024 5.0%
July 1, 2025 5.0%
July 1, 2026 5.0%
July 1, 2027 5.0%
July 1, 2028 4.0%
July 1, 2029 4.0%
July 1, 2030 4.0%
July 1, 2031 4.0%
July 1, 2032 4.0%
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 31
adjustments (Line 12), non-operating revenue (Line 14), and estimated interest earnings (Line 15). Line 20 shows net operating revenue, which is calculated by subtracting operating expenses (Line 19) from total revenue (Line 16). Line 22 shows total debt service. Line 23 shows capital expenditures to be funded through rates during the study period. Line 24 is the net cash and equals net operating revenue (Line 20) less the sum of debt (Line 22) and capital (Line 23). A positive value indicates an addition to the reserve balance and a negative value indicates a withdrawal from reserves.

Ending balances for the water utility in Line 26 are determined by summing the starting balance in Line 25 and the net cash change in Line 24. The City provided the starting balance for FY 2023. The ending fund balance is projected to be at or above the target reserve level (Line 27) throughout the study period.

Debt service coverage (Line 28) is calculated by dividing net operating revenue (Line 20) by total debt service (Line 22) and is expected to stay above the minimum coverage requirement of 125 percent over the study period.
(remainder of page intentionally left blank)
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 32
Table 4-10: Water Utility Cashflow Detail
No. FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 1 Revenue Under Existing Rates $6,082,946 $6,350,540 $6,380,747 $6,411,091 $6,441,588 $6,472,182 $6,502,921 $6,533,852 $6,564,864 $6,596,066 $6,627,420 Mo. Effctv. FY First Year Adjustment
2 2024 7 5.0% $185,224 $319,037 $320,555 $322,079 $323,609 $325,146 $326,693 $328,243 $329,803 $331,371 3 2025 12 5.0% $334,989 $336,582 $338,183 $339,790 $341,403 $343,027 $344,655 $346,293 $347,940 4 2026 12 5.0% $353,411 $355,093 $356,779 $358,474 $360,179 $361,888 $363,608 $365,337 5 2027 12 5.0% $372,847 $374,618 $376,397 $378,188 $379,983 $381,789 $383,603 6 2028 12 5.0% $393,349 $395,217 $397,097 $398,982 $400,878 $402,784 7 2029 12 4.0% $331,982 $333,561 $335,145 $336,737 $338,338 8 2030 12 4.0% $346,904 $348,550 $350,207 $351,872
9 2031 12 4.0% $362,492 $364,215 $365,947
10 2032 12 4.0% $378,784 $380,584
11 2033 12 4.0% $395,808
12 Revenue Adjustment Revenue $0 $185,224 $654,027 $1,010,548 $1,388,202 $1,788,145 $2,128,619 $2,485,648 $2,859,938 $3,252,315 $3,663,583 13 Total Sales Revenue $6,082,946 $6,535,764 $7,034,774 $7,421,639 $7,829,790 $8,260,326 $8,631,540 $9,019,500 $9,424,802 $9,848,381 $10,291,003 14 Miscellenous $63,735 $63,891 $64,048 $64,205 $64,363 $64,522 $64,682 $64,843 $65,004 $65,166 $65,329 15 Interest $90,849 $90,013 $86,593 $84,277 $82,239 $80,535 $78,736 $76,384 $73,356 $69,486 $65,210 16 Total Revenue $6,237,530 $6,689,668 $7,185,415 $7,570,122 $7,976,392 $8,405,384 $8,774,959 $9,160,726 $9,563,162 $9,983,032 $10,421,542 Operating Expenses 17 Water Purchase $2,401,147 $2,189,291 $2,421,421 $2,620,069 $2,835,011 $3,067,570 $3,319,195 $3,591,455 $3,886,011 $4,204,717 $4,549,554 18 All Other O&M $2,973,094 $3,127,611 $3,217,034 $3,318,304 $3,422,047 $3,530,866 $3,644,464 $3,763,712 $3,888,956 $4,020,567 $4,158,944 19 Total O&M $5,374,241 $5,316,902 $5,638,454 $5,938,373 $6,257,058 $6,598,436 $6,963,659 $7,355,168 $7,774,966 $8,225,284 $8,708,497 20 Net Operating Revenue $863,289 $1,372,766 $1,546,961 $1,631,749 $1,719,334 $1,806,948 $1,811,300 $1,805,559 $1,788,196 $1,757,748 $1,713,045 Debt
21 Existing Debt $121,563 $118,248 $119,835 $116,325 $117,718 $118,915 $119,918 $115,823 $116,630 $117,243 $0 22 Total Debt Service $121,563 $118,248 $119,835 $116,325 $117,718 $118,915 $119,918 $115,823 $116,630 $117,243 $0 CIP
23 Paygo CIP Spending $467,500 $1,696,000 $1,669,500 $1,736,280 $1,788,368 $1,842,019 $1,897,280 $1,954,198 $2,012,824 $2,073,209 $2,135,405 24 Net Cash Changes $274,226 -$441,482 -$242,374 -$220,856 -$186,752 -$153,986 -$205,898 -$264,462 -$341,259 -$432,703 -$422,361 25 Starting Balance $8,947,767 $9,221,993 $8,780,512 $8,538,137 $8,317,281 $8,130,529 $7,976,543 $7,770,645 $7,506,183 $7,164,924 $6,732,221 26 Ending Balance $9,221,993 $8,780,512 $8,538,137 $8,317,281 $8,130,529 $7,976,543 $7,770,645 $7,506,183 $7,164,924 $6,732,221 $6,309,860 27 Target Reserves $3,554,582 $3,653,204 $3,838,588 $4,001,913 $4,173,218 $4,353,372 $4,469,924 $4,593,370 $4,724,132 $4,862,721 $5,009,650 28 Debt Service Coverage 710% 1161% 1291% 1403% 1461% 1520% 1510% 1559% 1533% 1499% #N/A Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 33
The next four figures display the proposed ten-year financial plan in graphical form. Figure 4-1 illustrates the operating financial plan, which compares existing and proposed revenues with projected expenses. The expenses include O&M, water supply costs, debt service, cash-funded capital projects, and reserve funding.

Expenses are represented by the stacked bars. Total projected revenues at existing and proposed rates are shown by the red and blue lines, respectively. Figure 4-1 shows that projected revenue from existing rates would fail to generate sufficient revenue to fund projected expenses over the study period and clearly demonstrates the need for revenue adjustments.

Figure 4-1: Proposed Operating Financial Plan
Figure 4-2 summarizes projected CIP expenditures (inflated) by funding source. Total CIP expenditures in millions of dollars in each fiscal year are displayed at the top of the stacked bars. No new debt service is proposed during the study period. All capital is anticipated to be funded with cash generated from rates, referred to as PAYGO (or Pay as you go) in the figure.
-$2.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 $
Millio
ns
Operating Fund Financial Plan
O&M Expenses Water Supply Costs Debt Service
PAYGO CIP Surplus/Deficit Rev - Proposed
Rev - Existing Rates
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 34
Figure 4-2: Projected CIP and Funding Sources
Figure 4-3 shows projected debt service coverage in orange versus the minimum required in grey. Figure 4-3 demonstrates that with the proposed annual revenue adjustments, the debt coverage requirement is exceeded throughout the study period. Note that the projected and minimums terminate in FY 2032, the year the existing debt service is anticipated to be retired.

Figure 4-3: Projected Debt Coverage
$0.47
$1.70 $1.67
$1.74
$1.79
$1.84
$1.90
$1.95
$2.01
$2.07
$2.14
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FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 $
Millio
ns
Capital Improvement Plan
PAYGO Annual CIP

0.0%
200.0%
400.0%
600.0%
800.0%
1000.0%
1200.0%
1400.0%
1600.0%
1800.0%
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
Debt Service Coverage
Debt Coverage Required Coverage Coverage Alert
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 35
Figure 4-4 displays the water utility’s projected yearly ending balance (blue bars). The total reserve target is the sum of each individual reserve target and is represented by the black line. Individual reserve targets are also shown for the operating reserve (green line), capital reserve (yellow line), and rate stabilization reserve (orange line). Figure 4-4 demonstrates that under the proposed financial plan, the total reserve balance is drawn down over the course of the study period but is projected to remain above target minimums in FY 2033.

Figure 4-4: Total Reserve Ending Balance
$9.22
$8.78
$8.54
$8.32 $8.13 $7.98
$7.77
$7.51
$7.16
$6.73
$6.31
$0.0
$2.0
$4.0
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FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 $
Millio
ns
Projected Ending Balance
Water Funds Ending Balance Operating Reserve
Total Reserve Target Capital Reserve
Rate Stabilization
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 36

5. Cost-of-Service Analysis
The cost-of-service analysis allocates the overall rate revenue requirement to customer classes based on their proportion of use of and burden on the City’s water system. This provides the basis for the development of proposed water rates.

The first step in the cost-of-service analysis is to determine the revenue required from rates. The total revenue requirement is determined in the financial plan and the proposed revenue adjustments in Section 4. The framework and methodology utilized to develop the cost-of-service analysis and to apportion the revenue requirement to each customer class and tier is informed by the processes outlined in the AWWA Manual M1.

After determining a utility’s revenue requirement, the next step in a cost-of-service analysis is to functionalize its O&M costs to the following functional categories:
• Supply - cost of purchasing water from SCWA and supplying groundwater • Pumping and Conveyance – costs associated with pumping and conveying water through the system • Treatment - cost of treating water to drinking water quality • Transmission and Distribution (T&D) - cost associated with pipes, pumps, mains, etc. • Storage - cost associated with storing treated water
• Billing and Collection - costs associated with meter reading and billing • Customer Service – costs associated with customer service • General & Administration - general and administrative costs incurred by the City • Meters - costs associated with meter maintenance and replacement • Conservation – costs incurred for conservation programs, messaging, and rebates • Private Fire Protection – costs associated with private fire protection The functionalization of costs allows for a better allocation of the functionalized costs to cost-causation components. The cost-causation components used in this study are:
• Customer Service: Pertains to costs directly associated with serving customers, irrespective of the amount of water used, and generally include meter reading, bill generation, accounting, customer service, and collection expenses.
• Meter Capacity: Maintenance and capital costs related to water meters and associated services. Costs incurred are generally proportional to the size of the water meter. • Supply Cost: costs related to the purchase of water from SCWA and production of groundwater from City wells.
• Conservation: Costs associated with the City's water conservation efforts, which include general conservation efforts and the extra costs associated with necessary flushing of water mains without discharging water.
• Base: Costs that vary with the total quantity of water demanded within the water system under average conditions. Costs may include O&M expenses for: supply, treatment, pumping, transmission and distribution facilities, and capital costs related to plant investment that are associated with serving customers at a constant, or average, annual rate of use. Base costs are therefore spread over all units of water equally.

Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 37
• Max Day: Different facilities, such as distribution and storage facilities, and the O&M costs associated with those facilities, are designed to meet the peak demands placed on the system by customers.

Peaking costs include the O&M and capital costs associated with meeting peak customer demand in excess of the average annual rate of use or base use requirements. Peaking costs are separated into max day and max hour. Max day pertains to the maximum amount of water used in a single day in a year.
• Max Hour: Peaking costs pertaining to the maximum usage experienced by the system in an hourlong period. • Fire: Costs associated with providing fire protection services. • Elevation: Costs associated with pumping water to customers in higher elevation zones.

5.1. Cost-of-Service Calculations

5.1.1. Revenue Requirement Determination
Table 5-1 shows the net revenue requirement from rates for FY 2024, the test year (Column C, Line 12). The totals shown in Column C are the total O&M and capital revenue requirements that are to be allocated to the cost-causation components. Raftelis calculated the revenue requirement using FY 2024 expenses, which include O&M expenses, rate funded capital expenses, and existing debt service. The rate revenue requirement is adjusted for revenue offsets from other sources and for other adjustments. The total revenue requirement is the amount that fixed and commodity rates are designed to collect.

The total revenue requirement shown in Line 5 is equal to operating expenses (Table 4-6) and capital-related expenses (Table 4-7 and Table 4-8). Revenues from other sources, totaled in Line 8, comprise miscellaneous revenues and interest income (Table 4-4) and reduce the total revenue required from rates. The adjustment for cash (Line 9) is subtracted to account for the withdrawal from reserves to help cover revenue requirements.

The mid-year increase (Line 10) reflects that the FY 2024 revenue adjustment occurs partway through the fiscal year and is used to annualize the rates for an entire fiscal year.

Table 5-1: FY 2024 Revenue Requirement Determination
Line Revenue Requirements Operating Capital Total
No. (A) (B) (C)
Revenue Requirements
1 Water Purchases $2,189,291 $2,189,291
2 Other Operating $3,127,611 $3,127,611
3 Current Debt Service $118,248 $118,248
4 Rate Funded Capital $1,696,000 $1,696,000
5 Total $5,316,902 $1,814,248 $7,131,149
Revenue From Other Sources
6 Non-Operating Revenues -$63,891 -$63,891
7 Interest -$90,013 -$90,013
8 Total -$153,904 $0 -$153,904
Adjustments
9 Adjustment for Cash Balance -$441,482 -$441,482
10 Adjustment for Annualizing Rate Increase $132,303 $132,303 11 Total -$309,179 $0 -$309,179
12 Total Revenue Required $4,853,819 $1,814,248 $6,668,067 Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 38

5.1.2. Peaking Factors
Peaking factors represent the ratio of water moving through the system during the maximum day and maximum hour of water use relative to the water use during an average day within a year. Peaking factors are used to allocate peaking costs (max day and max hour costs) to customer classes. Table 5-2 shows the systemwide peaking factors used to derive the cost component allocation bases for base (average daily demand delivery), max day, and max hour costs. Raftelis utilized max day and max hour factors provided in the City’s 2018 Final Water Master Plan, Section 6.1 and 6.2, in terms of million gallons per day (MGD). Per the Water Master Plan, the average flow amount is 2.08 MGD, the maximum day flow amount is 4.16 MGD (or 2 times average flow), and the maximum hour flow amount is 6.24 MGD (or 3 times average flow). Base costs represent average daily demand during the year, which is normalized to a factor of 1.00 (Column A, Line 1).

The max month factor (Column A, Line 4) is the maximum month usage divided by the average monthly usage using FY 2021 billing data.

Table 5-2: System-wide Peaking Factors and Allocation to Cost-causation Components The allocation bases (Columns B, C, and D) are calculated using the equations outlined below. Columns are represented in these equations as letters and rows are represented as numbers. For example, Column C, Line 2 is shown as C2.

The max day allocations are calculated as follows:

Base = A1 / A2 x 100% = B2
Max Day= 100% - B2 = C2
The peak hour allocations are calculated as follows:

Base = A1 / A3 x 100% = B3
Max Day = (A2 – A1) / A3 x 100% = C3
Peak Hour = 100% - B3 – C3 = D3
The max day and max hour peaking factors for each customer class are shown in Table 5-3. The max month to average month (MM/AM) factor (Column C) is the maximum month usage divided by the average month.

The MM/AM factor (Column C) is multiplied by the ratio of the system-wide max day factor to the systemwide max month factor (2.00/1.52) from Table 5-2 to determine the max day capacity factor (Column D).

The max hour factor (Column E) is the max day factor (Column D) times the ratio of max hour to max day from Table 5-2 (Column A, Line 3 divided by Line 2).

Line Factor System-Wide Base Max Day Max Hour Total
No. (A) (B) (C) (D) (E)
1 Base 1.00 100% 0% 0% 100%
2 Max Day 2.00 50% 50% 0% 100%
3 Max Hour 3.00 33% 33% 33% 100%
4 Max Month 1.52
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 39
Table 5-3: Max Day and Max Hour Capacity Factors by Class

5.1.3. Functionalization of O&M Expenses
With assistance and input from City staff, Raftelis functionalized the water utility’s projected O&M budget for the test year on a line-item basis. Each line item was assigned to one of the functional categories listed at the beginning of Section 5. Table 5-4 shows a summary of the functionalization of the City’s O&M expenses.

Functionalizing O&M expenses allows Raftelis to follow the principles of rate-setting theory in which the end goal is to allocate the City’s O&M expenses to cost-causation components and ultimately to user classes.

Table 5-4: FY 2024 O&M Expenses by Functional Category

5.1.4. Allocation of O&M Expenses to Cost Causation Components After functionalizing expenses, the next step is to allocate the functionalized expenses to cost-causation components. To do so, we use the system-wide peaking factors, which are shown in Table 5-2. Table 5-5 shows the allocation basis for the water utility’s O&M costs. The top row shows the cost-causation components and Column J shows O&M expenses by functional category (from Table 5-4). The allocation basis for each functional category is shown in Column A. Base, max day, and max hour allocations come from Table 5-2. All other functional categories are allocated to cost causation components by Raftelis based on industry norms and input from City staff. The percentages shown in Lines 1-8 in Table 5-5 are multiplied by the total O&M (Column J) for each functional category to determine the dollar amount to be allocated to each cost causation component in Columns B-I, Lines 9-16.

Customer Class Max. Month Avg. Mo. MM/AM Max Day Max Hour (kgal) (kgal)
(A) (B) (C) (D) (E)
Single Family 51,132 33,346 1.53 2.02 3.04
Tier 1 6,925 6,742 1.03 1.36 2.03
Tier 2 14,491 11,553 1.25 1.66 2.48
Tier 3 29,716 15,051 1.97 2.61 3.91
Multi-Family 10,857 8,321 1.30 1.72 2.58
Commercial 7,372 5,662 1.30 1.72 2.58
Municipal 5,340 3,343 1.60 2.11 3.16
Irrigation 9,341 4,392 2.13 2.81 4.21
Hydrant (Construction) 3,662 628 5.84 7.70 11.55
Functional Category O&M Expense, $ O&M Expenses, %
Supply $2,189,291 41.2%
Pumping and Conveyance $89,880 1.7%
Treatment $25,750 0.5%
Transmission and Distribution $301,923 5.7%
Storage $8,240 0.2%
General & Administration $2,434,017 45.8%
Meters $103,000 1.9%
Conservation $164,800 3.1%
Total Test Year O&M $5,316,902 100.0%
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 40
Table 5-5: Allocation of Functionalized O&M Expenses to Cost-Causation Components

5.1.5. Functionalization of Assets
Capital-related costs are allocated based on the assets of the system in recognition of the fact that the assets need to be replaced over time and that capital expenses will, over time, generally match the overall asset base.

This distribution of costs allows the allocation of capital expenses to the cost-causation components previously defined in this section. Raftelis was provided an asset list for the City’s water utility for FY 2022.

Raftelis assigned each listed asset to a functional category and calculated the value of each asset using the replacement cost less depreciation (RCLD) valuation method. Table 5-6 shows a summary of water utility assets by functional category. The capital-related expenses shown in Line 12, Column B of Table 5-1 are allocated to the functional categories using the percent of total assets in Table 5-6.

Table 5-6: Current Asset Value by Functional Category

5.1.6. Allocation of Capital Expenses to Cost-Causation Components Table 5-7 shows the allocation of capital-related expenses to the cost causation components. Lines 1-6 show the allocation bases to each cost-causation component in Columns B-I for the six functional categories for which functionalized assets have been assigned. Column J shows the total capital-related costs allocated to the functional categories, matching the values in Table 5-6.

Line Functional Allocation Customer Meter Conserva- Max Max O&M No. Category Basis Service Capacity Supply tion Base Day Hour Elevation Expense (A) (B) (C) (D) (E) (F) (G) (H) (I) (J)
1 Supply Supply 100.00% $2,189,291
2 Pumping and Conveyance Electricity Costs 77.84% 22.16% $89,880 3 Treatment Base 100.00% $25,750
4 Transmission and Distribution Max Hour 33.33% 33.33% 33.33% $301,923 5 Storage Max Day 50.00% 50.00% $8,240
6 General & Administration Staff Allocation 20.00% 40.00% 40.00% $2,434,017 7 Meters Meter 100.00% $103,000
8 Conservation Conservation 100.00% $164,800
9 Supply $0 $0 $2,189,291 $0 $0 $0 $0 $0 $2,189,291
10 Pumping and Conveyance $0 $0 $69,962 $0 $0 $0 $0 $19,919 $89,880 11 Treatment $0 $0 $0 $0 $25,750 $0 $0 $0 $25,750
12 Transmission and Distribution $0 $0 $0 $0 $100,641 $100,641 $100,641 $0 $301,923 13 Storage $0 $0 $0 $0 $4,120 $4,120 $0 $0 $8,240
14 General & Administration $486,803 $973,607 $0 $0 $973,607 $0 $0 $0 $2,434,017 15 Meters $0 $103,000 $0 $0 $0 $0 $0 $0 $103,000
16 Conservation $0 $0 $0 $164,800 $0 $0 $0 $0 $164,800
17 Total $486,803 $1,076,607 $2,259,253 $164,800 $1,104,118 $104,761 $100,641 $19,919 $5,316,902 O&M Allocation by Cost-Causation Component, %
O&M Allocation by Cost-Causation Component, $
Functional Category Asset Value (RCLD) % of Total Assets Capital-Related Supply $1,853,891 7.8% $142,344
Transmission and Distribution $13,250,287 56.1% $1,017,370 Storage $5,973,137 25.3% $458,623
Meters $117,211 0.5% $9,000
Fire Hydrants $991,590 4.2% $76,135
General & Administration $1,442,759 6.1% $110,776
Total $23,628,875 100% $1,814,248
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 41
Lines 7-12 in Table 5-7 show the allocation of capital-related expenses from current debt service and rate funded CIP to the cost-causation components. This is determined for each cost-causation component by multiplying the dollar amount in Column J, Lines 7-12 by the corresponding total allocation percentage in Lines 1-6. Line 13 is the sum of Lines 7-12.

Table 5-7: Allocation of Capital Expenses to Cost-Causation Components

5.1.7. Equivalent Meters
Equivalent meters (EMs) are used to allocate meter-related costs. Larger meters can impose both greater average and peak demands on the system and are more expensive to install, maintain, and replace than smaller meters. This study uses a hydraulic capacity (capacity) ratio to calculate equivalent meters. The capacity ratio is based on meter hydraulic capacity and is calculated to represent the potential demand on the water system compared to the base meter size. A ratio of hydraulic capacity is calculated by dividing the capacity of a meter at a given size by the base meter capacity using the maximum safe operating flow rates in gallons per minute (gpm). Consistent with previous studies, the base meter used in the study is the 1" meter.

Smaller meters are assigned a ratio of 1.

Table 5-8 shows the meter capacity and capacity ratio for each meter size. The capacity in gpm is based on the safe operating flow rates provided in the AWWA Manual M1. The capacity ratios (Column D) are calculated by dividing the capacity in gpm (Column C) for each meter size (Column A) by the capacity in gpm for the 1" meter (Column C, Line 3). Column E shows the estimated equivalent meters based on the capacity ratio.

Meter counts (Column B) at each size are multiplied by the capacity ratio (Column D) to arrive at the total number of equivalent meters (Column E).

Line Functional Allocation Customer Meter Conserva- Max Max Public Capital No. Category Basis Service Capacity Supply tion Base Day Hour Fire Expense (A) (B) (C) (D) (E) (F) (G) (H) (I) (J)
1 Supply Supply 100.00% $142,344
2 Transmission & Distribution Max Hour 33.33% 33.33% 33.33% $1,017,370 3 Storage Max Day 50.00% 50.00% $458,623
4 General & Administration Staff Allocation 20.00% 40.00% 40.00% $110,776 5 Meters Meter 100.00% $9,000
6 Fire Fire Hydrants 100.00% $76,135
7 Supply $0 $0 $142,344 $0 $0 $0 $0 $0 $142,344
8 Transmission & Distribution $0 $0 $0 $0 $339,123 $339,123 $339,123 $0 $1,017,370 9 Storage $0 $0 $0 $0 $229,312 $229,312 $0 $0 $458,623
10 General & Administration $22,155 $44,311 $0 $0 $44,311 $0 $0 $0 $110,776 11 Meters $0 $9,000 $0 $0 $0 $0 $0 $0 $9,000
12 Fire $0 $0 $0 $0 $0 $0 $0 $76,135 $76,135
13 Total $22,155 $53,310 $142,344 $0 $612,745 $568,435 $339,123 $76,135 $1,814,248 Capital-Related Allocation by Cost-Causation Component, % Capital-Related Allocation by Cost-Causation Component, $ Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 42
Table 5-8: Equivalent Meters

5.1.8. Allocation of Public and Private Fire Protection Costs Water systems provide two types of fire protection: public fire protection for firefighting (i.e., fire hydrants) and private fire protection (i.e., fire lines for private structures with sprinkler systems for fire suppression and private fire hydrants). Raftelis performed a fire demand analysis to determine the share of fire protection costs allocated to public versus private fire protection. The City provided Raftelis with a count of fire hydrants. The number of private fire connections is shown in Table 3-3.

Table 5-9 shows the calculation of equivalent fire demand associated with public hydrants and private fire lines. Each connection size has a fire flow demand factor similar to the hydraulic capacity factor of a water meter. The diameter of the connection (in inches) is raised to the 2.63 power to determine the fire demand factor (Column A).3 Hydrants are presumed to have one 4-inch and two 2-inch openings. The equivalent demand ratio (Column B) takes the relative flow capacity factor at each fire line size divided by the 2-inch flow capacity (Line 1, Column A) to establish each connection on an equivalent basis. The equivalent demand ratio is multiplied by the number of hydrants (Column C) or connections (Column D) at each size and summed to calculate the equivalent number of hydrants (Column C, Line 8) and connections (Column D, Line 8). Line 9 shows the proportional share of equivalent fire connections between public (Column C) and private (Column D).
3 Hazen-Williams equation and AWWA Manual M1
Line Meter Test Year AWWA AWWA Equivalent
No. Size Meters Capacity (gpm) Ratio Meters
(A) (B) (C) (D) (E)
1 5/8" 253 20 1.0 253
2 3/4" 2,566 30 1.0 2,566
3 1" 1,262 50 1.0 1,262
4 1 1/2" 145 100 2.0 289
5 2" 107 160 3.2 341
6 3" 22 320 6.4 141
7 4" 9 500 10.0 90
8 6" 1 1,000 20.0 20
9 8" 0 0 0.0 0
10 4,365 4,963
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 43
Table 5-9: Equivalent Fire Connections
Table 5-10 shows the max day and max hour extra capacity requirements based on fire flow information in the 2018 Final Water Master Plan, Section 7.1. The information in Table 5-9 and Table 5-10 is used to determine the amount of max day and max hour demand due to fire flow. The flow rates (Column A) and durations (Column B) are converted to kgal per day to determine max day and max hour requirements4.

Table 5-10: Fire Service Share of Peaking Requirements

5.1.9. Unit Costs of Service
The end goal of a cost-of-service analysis is to distribute the revenue requirement to each customer class.

Raftelis calculated unit costs for each cost component by assessing the total water demand, meter count, or equivalent service units. Table 5-11 shows the units of service for each customer class. The Max Day Capacity Factor (Column E) and the Max Hour Capacity Factor (Column H) are the demand factors shown in Table 5-3. Max Day Total Capacity (Column F) is the Annual Use (Column D), divided by 365, and multiplied by the Max Day Capacity Factor (Column E). Max Day Extra Capacity (Column G) is the difference between the Max Day Total Capacity (Column F) and the Annual Use (Column D), divided by 365. Max Hour Total Capacity (Column I) is the Annual Use (Column D), divided by 365, and multiplied by the Max Hour Capacity Factor (Column H). Max Hour Extra Capacity (Column J) is the difference between the Max Hour Total Capacity (Column I) and the Max Day Total Capacity (Column F). 4 For example, the residential max day fire flow = A1 * 60 min/hr * B1 * 1kgal/1000gal and the max hour fire flow = A1 * 60 min/hr * 24hr/day * 1kgal/1000gal.

Line
No. Fire LineSize
Relative Flow
Capacity Factor
Equivalent
Demand Ratio
Public Fire
Hydrants
Private Fire
Connections
(A) (B) (C) (D)
1 2" 6.2 1.00 9
2 4" 38.3 6.19 76
3 Hydrant 60.6 9.79 514 0
4 6" 111.3 17.98 62
5 8" 237.2 38.32 20
6 10" 426.6 68.91 3
7 Total 514 171
8 Equivalent No. of Connections 5,030 2,579
9 Proportional Share 66% 34%
No Simultaneous Fires Max Fire Max Day Max Hour
Flow Duration Fire Flow Fire Flow
(A) (B) (C) (D)
(gpm) (hours) (kgal/day) (kgal/day)
1 Residential 1,500 2 180 2,160
2 All Other Land Use Categories 2,000 2 240 2,880
3 Total 420 5,040
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 44
Public fire Max Day Total Capacity is equal to Max Day Fire Flow (Table 5-10, Column C, Line 3) multiplied by public fire’s proportional share of fire connections (Table 5-9, Column C, Line 9). Public fire Max Day Extra Capacity is the same as its total capacity. Public fire Max Hour Total Capacity is equal to Max Hour Fire Flow (Table 5-10, Column D, Line 3) multiplied by public fire’s proportional share of fire connections (Table 5-9, Column C, Line 9). Public fire Max Hour Extra Capacity is its Max Hour Total Capacity less its Max Day Total Capacity. Max day and max hour factors for private fire are calculated similarly using its proportional share of connections (Table 5-9, Column D, Line 9).

Table 5-11: Units of Service
Table 5-12 shows the operating and capital-related revenue requirements allocated to cost components.

Revenue offsets and adjustments from Table 5-1 are subtracted to arrive at the net revenue requirement (prior to adjustments) in Line 5. Line 1 matches Line 17 from Table 5-5. Line 2 matches Line 13 from Table 5-7. As shown in Line 3 of Table 5-12, all revenue offsets (from Column C, Line 8 in Table 5-1) are applied to the Supply cost-causation component. In Line 4, the total Adjustments (from Column C, Line 11 in Table 5-1) are allocated in proportion to the total operating costs in Line 1 of Table 5-12. The total cost of service in Column A, Line 5 is the same as the revenue requirement shown in Column C, Line 12 of Table 5-1.

Table 5-12: Total Adjusted Cost-of-Service Calculation
Public Line Equivalent Annual Capacity Total Extra Capacity Total Extra Fire No Customer Class Acts Bills Meters Use Factor Capacity Capacity Factor Capacity Capacity Protection (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K)
No. No. No. kgal kgal/day kgal/day kgal/day kgal/day Hydrants 1 Single Family 314,475 2 Tier 1 83,309 1.36 309 81 2.03 464 155
3 Tier 2 117,226 1.66 532 211 2.48 798 266
4 Tier 3 113,940 2.61 814 501 3.91 1,220 407
5 Multi-Family 87,866 1.72 415 174 2.58 622 207
6 Commercial 69,848 1.72 329 138 2.58 493 164
7 Municipal 34,871 2.11 201 106 3.16 302 101
8 Irrigation 44,304 2.81 341 219 4.21 511 170
9 Construction 954 7.70 20 18 11.55 30 10
10 Subtotal 4,365 52,374 4,963 552,318 1,447 1,480
11 Public Fire 0 278 278 3,332 3,054 514
12 Private Fire 171 2,050 142 142 1,708 1,566
13 Total Water 4,535 54,424 4,963 552,318 1,867 6,100 514 Max Day Requirements Max Hour Requirements
Line Customer Meter Conserva- Max Max Public Private Elevation No Line Item Total Service Capacity Supply tion Base Day Hour Fire Fire Elevation (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K)
1 Total Operating $5,316,902 $486,803 $1,076,607 $2,259,253 $164,800 $1,104,118 $104,761 $100,641 $0 $0 $19,919 2 Total Capital $1,814,248 $22,155 $53,310 $142,344 $0 $612,745 $568,435 $339,123 $76,135 $0 $0 3 Revenue Offsets -$153,904 $0 $0 -$153,904 $0 $0 $0 $0 $0 $0 $0 4 Adjustments -$309,179 -$28,308 -$62,605 -$131,376 -$9,583 -$64,205 -$6,092 -$5,852 $0 $0 -$1,158 5 Total Prior To Adjustment $6,668,067 $480,651 $1,067,312 $2,116,317 $155,217 $1,652,659 $667,104 $433,912 $76,135 $0 $18,760 Reallocations 6 Public Fire Costs $0 $0 $392,564 $0 $0 $0 -$99,188 -$217,240 -$76,135 $0 $0 7 Private Fire Costs $0 $0 $0 $0 $0 $0 -$50,854 -$111,379 $0 $162,233 $0 8 Total Reallocations $0 $0 $392,564 $0 $0 $0 -$150,042 -$328,620 -$76,135 $162,233 $0 9 Total Adjusted Costs-of-Service $6,668,067 $480,651 $1,459,876 $2,116,317 $155,217 $1,652,659 $517,062 $105,292 $0 $162,233 $18,760 Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 45
The net revenue requirements are further adjusted for public and private fire peaking impacts. Public fire’s proportion of total max day costs (Column G, Line 5) are determined based on the ratio of public fire Max Day Extra Capacity (Table 5-11, Column G, Line 11) to Total System Extra Capacity (Table 5-11, Column G, Line 13). Public fire’s proportion of max hours costs (Column H, Line 6) are determined based on the ratio of public fire Max Day Extra Capacity (Table 5-11, Column J, Line 11) to Total System Extra Capacity (Table 5-11, Column J, Line 13). Line 6 shows that public fire max day and max hour costs, as well as direct public fire costs, are allocated to the meter component since public fire protection is a fixed cost of the system.

Private fire’s share of max day and max hour demand are calculated similarly to public fire. Line 7 of Table 5-12 shows the allocation of private fire peaking costs to the private fire component.

The total adjusted cost of service for the test year is shown in Line 9, which is the sum of Lines 5 and 8. This represents the amount that must be recovered by the City’s fixed charges and volumetric rates in the test year.

The adjusted cost-of-service allocations to each cost-causation component are used to calculate the City’s FY 2024 proposed water rates.

Table 5-13 divides the adjusted cost-of-service (Table 5-12, Line 9) by the respective units of service for each cost component, to determine the unit cost for each component.

Table 5-13: Unit Costs of Service
Customer Meter Conserva- Max Max Private
Line Item Service Capacity Supply tion Base Day Hour Fire Elevation Bills EMs/yr kgal kgal kgal kgal/day kgal/day Eq. Cnnct./yr Zone 2 Usage Adjusted Cost of Service $480,651 $1,459,876 $2,116,317 $155,217 $1,652,659 $517,062 $105,292 $162,233 $18,760 Units 54,424 4,963 552,318 552,318 552,318 1,447 1,480 2,579 5,829 Unit Cost, $/unit $8.83 $294.16 $3.83 $0.28 $2.99 $357.24 $71.13 $62.90 $3.22 Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 46

6. Rate Design and Derivation
Rate design is the process by which the cost causation components derived in Line 9 of Table 5-12 are converted into rates and charges that recover those costs. These rates are designed to recover the total cost of service (Table 5-12, Column A, Line 9).

6.1. Proposed Fixed Charges
From the calculations in Table 5-13, the proposed fixed charges are determined for each meter size. Table 6-1 shows the derivation of the monthly service charge. The Customer Service Cost component (Column E) is equal to the unit rate from Table 5-13. As the cost of issuing a bill does not vary by meter size, it remains uniform for all meter sizes. The Meter Capacity Cost component (Column D) is the Meter Capacity unit cost from Table 5-13 divided by 12 months for the 5/8”, 3/4", and 1” meter. For meters larger than 1", this unit rate is multiplied by the Meter Ratio (Column C) to derive the Meter Capacity Cost (Column D) associated with those larger meter sizes. The proposed monthly service charge (Column F) is the sum of Columns D and E and is rounded up to the nearest penny for revenue sufficiency. The Current Charge (Column G) is shown for comparison.

Table 6-1: Monthly Service Charge Derivation ($/mo)
Table 6-2 shows the derivation of the private fire protection service charge. The charge shown in Column E is the unit rate shown for Private Fire in Table 5-13 divided by 12 months multiplied by the Fire Demand Factor (Column C). The total Monthly Fire Protection Charge (Column D) is the sum of Columns D and E, rounded up to the nearest cent. The current monthly charge is shown in Column G for comparison.

Meter
Size
Total
Meters
Meter
Ratio
Meter
Capacity
Customer
Service
Proposed
Charge
Current
Charge
Cost Cost
(A) (B) (C) (D) (E) (F) (G)
5/8" 253 1.00 $24.51 $8.83 $33.35 $30.46
3/4" 2,566 1.00 $24.51 $8.83 $33.35 $30.46
1" 1,262 1.00 $24.51 $8.83 $33.35 $30.46
1 1/2" 145 2.00 $49.03 $8.83 $57.86 $50.19
2" 107 3.20 $78.44 $8.83 $87.28 $73.86
3" 22 6.40 $156.89 $8.83 $165.72 $136.98
4" 9 10.00 $245.13 $8.83 $253.97 $207.99
6" 1 20.00 $490.27 $8.83 $499.11 $405.24
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 47
Table 6-2: Private Fire Protection Service Charge Derivation ($/mo) The proposed five-year monthly service and fire line charges are shown in Table 6-3. The rates for FY 2024 are derived from the cost-of-service analysis and the proposed revenue adjustments from Table 4-9 are used to determine the proposed water rates and charges for FY 2025 to FY 2028 by escalating the rates shown in FY 2024, rounded up to the nearest penny.

Table 6-3: Proposed Monthly Service and Fire Line Charges Through FY 2028

6.2. Volumetric Charge Rates
The following subsection describes the derivation of volumetric charge rates for each customer class and tier.

The volumetric charges are designed to recover the revenue requirements for the following cost causation components, Supply, Base, Max Day and Max Hour (collectively referred to as Peaking), and Conservation.

These four cost-causation components generally vary with the amount of water used and are recovered by dollar per kgal rates. The revenue requirement in FY 2024 for each is shown in Line 9 of Table 5-12. Note that the Peaking revenue requirement is the sum of the Max Day and Max Hour revenue requirements. Units of service for each component are shown in Table 5-13. The remainder of this subsection details the derivation of unit costs by customer class and tier and then the summation of the unit costs of the four cost causation components to determine the proposed volumetric charge rates.

Connection
Size
Number of
Connections
Fire Demand
Factor
Billing
Charge
Private Fire
Protection
Proposed
Charge
Current
Rates
(A) (B) (C) (D) (E) (F) (G)
2" 9 1.00 $8.83 $5.24 $14.08 $0.82
4" 76 6.19 $8.83 $32.45 $41.28 $4.98
6" 62 17.98 $8.83 $94.26 $103.09 $14.41
8" 20 38.32 $8.83 $200.86 $209.70 $30.72
10" 3 68.91 $8.83 $361.22 $370.06 $55.21
Meter/ Connection
Size Current Charge FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment Monthly Service Charge
5/8" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
3/4" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
1" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
1 1/2" $50.19 $57.86 $60.76 $63.80 $66.99 $70.34
2" $73.86 $87.28 $91.65 $96.24 $101.06 $106.12
3" $136.98 $165.72 $174.01 $182.72 $191.86 $201.46
4" $207.99 $253.97 $266.67 $280.01 $294.02 $308.73
6" $405.24 $499.11 $524.07 $550.28 $577.80 $606.69
Fire Line Charge
2" $0.82 $14.08 $14.79 $15.53 $16.31 $17.13
4" $4.98 $41.28 $43.35 $45.52 $47.80 $50.19
6" $14.41 $103.09 $108.25 $113.67 $119.36 $125.33
8" $30.72 $209.70 $220.19 $231.20 $242.76 $254.90
10" $55.21 $370.06 $388.57 $408.00 $428.40 $449.82
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 48

6.2.1. Supply Unit Cost
Supply costs are costs related to the cost of purchasing and producing water. The City has two sources of water, each incurring different supply-related costs, as shown in Table 6-4. Table 6-4 shows the determination of per kgal supply costs for water from the City’s wells and from SCWA. This must be determined to calculate a weighted average supply unit cost for each single-family residential (SFR) tier. Table 6-4 determines the share of water supply obtained from groundwater (“GW” in the table) from City wells in Line 4. This percentage is multiplied by total projected test year SFR usage in Line 5 to determine the amount of groundwater allocated to SFR customers. The Source/Notes column in Lines 8-15 of Table 6-4 provides a description of the determination of SCWA and City groundwater unit supply costs in Lines 16 and 17 respectively.

Table 6-4: Groundwater and SCWA Supply Unit Costs
The supply unit cost varies by tier for SFR customers, who are levied the volumetric charge based on three tiers under the current rate structure. As Tier 1 is designed to apply to essential water usage, it is appropriate that Tier 2 and Tier 3 are allocated a greater proportion of cost recovery of expenses related to the purchase of SCWA water. Therefore, the relatively less expensive City well supply costs are allocated first to SFR Tier 1 water use. All users in the class benefit from this approach of allocating lowest cost water to highest priority use as even high volume SFR water customers must first pass through Tier 1.

Table 6-5 shows the amount of projected test year (FY 2024) SFR water supplies provided by each source of supply. Raftelis analyzed FY 2021, FY 2022, and partial FY 2023 water use data to determine the percentages of SFR projected usage in each tier (Column A). These percentages were multiplied by total projected SFR usage in the test year (Table 6-4, Line 5) to determine test year usage within each tier (Column B). Column C, Line 1 shows that all of the City groundwater supply available to serve SFR customers (Table 6-4, Line 6) is Line Line Item Total Source/Notes
1 SCWA Purchased Water 1,624 AF Table 4-5
2 Well/Groundwater 238 AF Table 4-5
3 Total Purchased/Acquired Water 1,862 AF Line 1 + Line 2 4 GW as percent of total 12.78% Line 2 / Line 3
5 Single Family Usage 314,475 kgals Table 3-4
6 GW To Meet Single Family Demand 40,194 kgals Line 4 x Line 5 7 SCWA To Meet Single Family Demand 274,281 kgals Line 5 - Line 6 8 Total Supply Cost $2,116,317 Table 5-12, Col. D, Line 9 9 Total Consumption 552,318 kgals Table 5-11, Col. D, Line 13 10 Consumption met by GW 70,593 kgals Line 4 x Line 9
11 Consumption met by SCWA Import 481,725 kgals Line 9 - Line 10 12 SCWA Portion of Supply Cost 97% Table 5-5, Col. D, Line 19 / Line 17 13 GW Portion of Supply Cost 3% Table 5-5, Col. D, Line 10 / Line 17 14 SCWA Cost $2,050,782 Line 8 x Line 12
15 GW Cost $65,535 Line 8 x Line 13
16 SCWA Import Cost ($/kgal) $4.26 Line 14 / Line 11
17 Groundwater Cost ($/kgal) $0.93 Line 15 / Line 10
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 49
fully allocated to Tier 1. Column D, Line 1 shows the remaining SFR Tier 1 supply required from SCWA in the test year to satisfy Tier 1 demand. Lines 2 and 3 demonstrate that all projected Tier 2 and 3 demand is required to be met by SCWA supplies.

Table 6-5: SFR Usage by Tier and Source of Supply
Table 6-6 shows the final determination of supply unit costs for each SFR tier. Column A is determined by dividing Column C in Table 6-5 by Column B in Table 6-5. Column B is determined by dividing Column D by Column B (both of Table 6-5). Unit supply costs shown in Columns C and D were determined in Lines 16- 17 of Table 6-4. A weighted average is used to determine the final SFR Supply unit costs in Column E.

Table 6-6: Supply Unit Cost for SFR Tiered Rates
The supply unit cost shown in Table 5-13 represents the unit cost across all users with a uniform volumetric rate structure: Multi-family residential, Commercial, Municipal, Irrigation, and Construction (Hydrant).

6.2.2. Base Unit Cost
The base cost-causation component pertains to the costs to treat and deliver water under average daily demand conditions. Since the base cost-causation component is designed to recover costs incurred to meet average day demands, the base unit cost is uniform for all units of water, regardless of customer class or tier.

The Base unit cost is shown in Table 5-13.

6.2.3. Peaking Unit Cost
The peaking cost-causation component is designed to recover costs incurred to meet customer peak demands in excess of average daily demand. Total peaking costs are comprised of max day and max hour costs. The peaking costs are distributed to each tier using peaking factors derived for each class and tier.

Table 6-7 shows the derivation of peaking unit costs for each customer class and tier. The max day costs (Column A) are the max day unit costs from Table 5-13 apportioned to each customer class by the classes’/tier’s respective max day extra capacity (Table 5-11, Column G). The max hour costs (Column B) are the max hour unit costs from Table 5-13 apportioned to each customer class by the classes’/tier’s respective max hour extra capacity (Table 5-11, Column J). Total Peaking Costs (Column C) are the sum of Columns A and B. Water use (Column D) comes from Table 5-11, Column D. The unit rates (Column E) for each class Line Tier % in Tier Use in Tier GW Use In Tier SCWA Use in Tier (A) (B) (C) (D)
1 Tier 1 26% 83,309 kgals 40,194 kgals 43,115 kgals
2 Tier 2 37% 117,226 kgals 0 kgals 117,226 kgals
3 Tier 3 36% 113,940 kgals 0 kgals 113,940 kgals
Line Tier % Met by GW % Met by SCWA GW Cost SCWA Cost Average Cost (A) (B) (C) (D) (E)
1 Tier 1 48% 52% $0.93 $4.26 $2.65
2 Tier 2 0% 100% $0.93 $4.26 $4.26
3 Tier 3 0% 100% $0.93 $4.26 $4.26
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 50
and tier are the Total Peaking Costs (Column C) divided by the Water Use (Column D). The Totals shown in Columns A and B match the totals shown for max day and max hour, respectively, in Table 5-12.

Table 6-7: Derivation of Peaking Unit Costs

6.2.4. Conservation Unit Cost
The conservation cost-causation component pertains to costs associated with the City’s water conservation efforts, which include general conservation efforts and the extra costs associated with necessary flushing of water mains without discharging water. The conservation unit cost shown in Table 5-13 represents the average unit cost across all users and is applied to the Multi-family residential, Commercial, Municipal, Irrigation, and Construction (Hydrant) customer classes.

SFR conservation costs are calculated based on total class usage and the uniform unit rate from Table 5-13.

Since conservation-related costs are made increasingly necessary because of wasteful and/or inefficient water use, all conservation costs allocated to the SFR customer class are designated to be recovered by Tier 3 (which represents all water use above average water use). All SFR water users, even those with use in Tier 3, benefit from Tier 1 and Tier 2 water being exempted from conservation cost recovery.

Table 6-8 shows the determination of the conservation unit costs for each customer class and tier. Column A is the annual test year water usage from Table 5-11, Column D. Column B shows the conservation unit cost from Table 5-13. The conservation cost for each class and tier (Column C) equals Column A times Column B.

Column D shows the total SFR conservation costs (sum of Lines 1 -3, Column C) being applied to Tier 3 water use only. For the other customer classes, the value in Column D equals Column C. The Unit Cost is shown in Column E and is the cost in Column D divided by the Water Use in Column A.

Class
Max Day Allocated
Costs
Max Hour Allocated
Costs
Total Peaking
Costs
Water Use
(kgal) Unit Rate
(A) (B) (C) (D) (E)
SFR Tier 1 $29,012 $11,006 $40,017 83,309 $0.48
SFR Tier 2 $75,231 $18,912 $94,143 117,226 $0.80
SFR Tier 3 $179,109 $28,933 $208,043 113,940 $1.83
Multifamily $62,111 $14,745 $76,856 87,866 $0.87
Commercial $49,135 $11,697 $60,832 69,848 $0.87
Municipal $37,841 $7,165 $45,006 34,871 $1.29
Irrigation $78,364 $12,118 $90,482 44,304 $2.04
Construction (Hydrant) $6,259 $716 $6,975 954 $7.31
Total $517,062 $105,292
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 51
Table 6-8: Derivation of Conservation Unit Costs

6.2.5. Derivation of Proposed FY 2024 Volumetric Charge Rates To determine proposed FY 2024 volumetric charge rates, the Supply, Base, Peaking, and Conservation unit costs are summed for each customer class and tier. The calculation of FY 2024 volumetric charge rates is shown below in Table 6-9. The total unit cost is rounded up to the nearest penny.

Table 6-9: Derivation of FY 2019 Volumetric Charge Rates ($/kgal) Table 6-10 shows the current FY 2023 and proposed FY 2024 through FY 2028 volumetric charge rates. The FY 2024 rates were determined in Table 6-9. The FY 2024 volumetric charge rates are then increased in each subsequent year by the revenue adjustments shown in Table 4-9 and rounded up to the nearest cent.

Line
No. Class
Water Use
(kgal)
Conservation
Unit Cost
Conservation
Cost Allocation SFR Redistributed Unit Cost
(A) (B) (C) (D) (E)
1 SFR Tier 1 83,309 $0.28 $23,412
2 SFR Tier 2 117,226 $0.28 $32,944
3 SFR Tier 3 113,940 $0.28 $32,020 $88,376 $0.78
4 Multifamily 87,866 $0.28 $24,693 $24,693 $0.28
5 Commercial 69,848 $0.28 $19,629 $19,629 $0.28
6 Municipal 34,871 $0.28 $9,800 $9,800 $0.28
7 Irrigation 44,304 $0.28 $12,451 $12,451 $0.28
8 Construction (Hydrant) 954 $0.28 $268 $268 $0.28
9 Total 552,318 $155,217 $155,217
Class Supply Cost Base Cost Peaking Cost
Conservation
Cost Total Cost
SFR Tier 1 $2.65 $2.99 $0.48 $0.00 $6.13
SFR Tier 2 $4.26 $2.99 $0.80 $0.00 $8.06
SFR Tier 3 $4.26 $2.99 $1.83 $0.78 $9.86
Multi-Family $3.83 $2.99 $0.87 $0.28 $7.98
Commercial $3.83 $2.99 $0.87 $0.28 $7.98
Municipal $3.83 $2.99 $1.29 $0.28 $8.40
Irrigation $3.83 $2.99 $2.04 $0.28 $9.15
Construction (Hydrant) (1) $3.83 $2.99 $7.31 $0.28 $14.42 (1) Private fire water use is also charged at this rate.

Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 52
Table 6-10: Proposed Volumetric Charge Rates through FY 2028 ($/kgal)

6.3. Elevation Charge Rate
The elevation charge rate is designed to recover the revenue requirement associated with the elevation costcausation component. These costs are associated with pumping water to Zone 2, which is at a higher elevation area within the City’s water service area. Only customers in Zone 2 are levied the elevation charge.

Table 6-11 shows the proposed elevation charge for FY 2024 through FY 2028. The proposed FY 2024 charge is equal to the elevation unit cost shown in Table 5-13, rounded up to the nearest penny. This charge is increased in each subsequent year by the revenue adjustments shown in Table 4-9 and are rounded up to the nearest cent.

Table 6-11: Proposed Elevation Charge ($/kgal)
Class Current FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Charge cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment SFR Tier 1 $6.19 $6.13 $6.44 $6.77 $7.11 $7.47
SFR Tier 2 $8.37 $8.06 $8.47 $8.90 $9.35 $9.82
SFR Tier 3 $9.86 $9.86 $10.36 $10.88 $11.43 $12.01
MFR $8.16 $7.98 $8.38 $8.80 $9.24 $9.71
Comm $7.93 $7.98 $8.38 $8.80 $9.24 $9.71
Municipal $8.16 $8.40 $8.82 $9.27 $9.74 $10.23
Irrigation $8.69 $9.15 $9.61 $10.10 $10.61 $11.15
Construction (Hydrant) (1) $10.74 $14.42 $15.15 $15.91 $16.71 $17.55 (1) Private fire water use is also charged at this rate.

Zone Current Charge FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment Zone 2 $2.40 $3.22 $3.39 $3.56 $3.74 $3.93
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 53

7. Customer Bill Impacts and
Neighboring Agency Comparison

7.1. Single-Family Bill Impacts
Figure 7-1 shows calculated monthly water bills (which includes the monthly service charge and volumetric charge) for single-family residential customers in Zones 1 or 3 at various levels of monthly water usage under current FY 2023 rates and proposed FY 2024 rates. The blue bars in Figure 7-1 represent monthly water bills under the current rates. The gold bars show monthly water bills using the proposed FY 2024 rates. The current and proposed monthly bills in Figure 7-1 are calculated assuming a 1-inch meter size. The dollar difference between current and proposed monthly bills at different monthly water use levels is shown in the Impacts ($) row of Figure 7-1. These amounts were selected to give a cross-section of the City’s usage patterns. The first column, at 2 kgal of use, indicates use that is wholly contained within the first tier, the second indicates median residential usage (5 kgal), the third is average usage for all residential customers (7.5 kgal), and the fourth column shows usage at the 75th percentile (75 percent of bills are at or below 9 kgal/mo).

Figure 7-1: Single-Family Residential Monthly Bill Impacts

7.2. Neighboring Agency Comparison
Figure 7-2 shows a comparison of monthly water bills for a single-family customer on a 1-inch meter using

7.5 kgal/month. The comparison shows current FY 2023 rates and adopted or proposed rates for FY 2024 and FY 2025.

2.00 5.00 7.51 9.00
Current Monthly Bill $42.84 $67.95 $89.67 $104.41
Proposed Monthly Bill $45.61 $69.79 $90.89 $105.63
Impacts ($) $2.77 $1.84 $1.22 $1.22
Impacts (%) 6.5% 2.7% 1.4% 1.2%
$0
$20
$40
$60
$80
$100
$120
Single-Family (1") Monthly Water Bill (Average = 7.5 kgal/mo) Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 54
Figure 7-2: Neighboring Agency Comparison
Town of
Windsor
City of
Rohnert
Park
City of
Santa
Rosa
City of
Petaluma
City of
Cotati
City of
Sonoma
North
Marin
WD -
Novato
Valley of
the Moon
WD
Marin
Water
FY 2023 $44.92 $65.73 $78.89 $77.67 $81.20 $89.67 $87.99 $92.89 $97.23 FY 2024 $47.18 $69.01 $81.29 $84.33 $86.05 $90.89 $92.39 $99.38 $119.14 FY 2025 $49.54 $72.46 $84.51 $86.37 $91.21 $95.48 $96.98 $106.34 $137.04 $0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
Single Family, 7.5 kgal/mo, 1" Meter
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 55

8. Drought Rates
As part of the study, Raftelis calculated a demand reduction surcharge (i.e., drought rate or drought surcharge) to recover the revenue shortfall that occurs because of demand reduction during water shortage situations.

A drought surcharge may be imposed during times of a declared drought when a certain level of reduction from the base usage has been mandated. A drought surcharge is charged on each unit of water used and is calculated to recover costs resulting from a loss of volumetric revenue due to reduced water use. The amount of the drought surcharge at different levels of usage reduction is based upon the City’s projected revenue shortfall, adjusted for changes in costs.

To determine the demand reduction surcharge, the first step is to project the water demand reduction for each customer class under different levels of shortage. Table 8-1 shows the projected water demand for each customer class and tier at different levels of reduction. Raftelis analyzed individual customer usage data, assuming that customers using more water are expected to reduce more since they have more discretionary water use. The analysis calculates the increase in commodity rates that need to be applied to all usage, including the SFR tiers, at each percentage reduction in usage. A magnified version of this table is presented in Appendix B. Note that the reduction achieved under each drought stage is lower than the maximum targeted at each level but falls at the upper end of each range.

Table 8-1: Projected Water Demand by Percent Usage Reduction The next step is to estimate the water supply cost savings that result when there is a reduction in demand. For this study, Raftelis presumed that the overall reduction percentage for a stage is met by reducing the amount of water purchases. The variable costs associated with each supply are used to determine the cost savings.

Almost all other costs are fixed and will not vary based on water demand; therefore, no other costs are included in the analysis. Table 8-2 shows the estimated cost savings in the water supply costs for each stage due to the reduction in usage. The total supply assumes an 8.9 percent water loss from the water usage shown in Table 8-1.

Usage Data
(kgal) Monthly Tier Proposed Rates FY 2024 % Reduction
0 - 10%
Reduction % Reduction
10 - 20%
Reduction % Reduction
20 - 30%
Reduction % Reduction
30 - 40%
Reduction % Reduction
40 - 50%
Reduction
Single Family Residential Tier 1 2 $6.13 83,309 -2.0% 81,643 -7.0% 77,477 -10.0% 74,978 -15.0% 70,813 -15.0% 70,813 Tier 2 5 $8.06 117,226 -12.0% 103,159 -25.0% 87,920 -30.0% 82,058 -40.0% 70,336 -45.0% 64,474 Tier 3 7+ $9.86 113,940 -20.0% 91,152 -30.0% 79,758 -50.0% 56,970 -65.0% 39,879 -75.0% 28,485 Subtotal Single Family 314,475 -12% 275,954 -22% 245,155 -32% 214,006 -42% 181,027 -48% 163,772 Multi-Family $7.98 87,866 -5% 83,473 -10.0% 79,079 -30.0% 61,506 -35.0% 57,113 -45.0% 48,326 Commercial $7.98 69,848 -5% 66,356 -10.0% 62,863 -15.0% 59,371 -30.0% 48,894 -45.0% 38,416 Municipal $8.40 34,871 -5% 33,127 -10.0% 31,384 -15.0% 29,640 -30.0% 24,410 -45.0% 19,179 Irrigation $9.15 44,304 -10% 39,874 -20.0% 35,443 -30.0% 31,013 -40.0% 26,582 -50.0% 22,152 Total Non-Single Family 236,889 -6% 222,829 -12% 208,770 -23% 181,530 -34% 156,999 -46% 128,074 Hydrant $14.42 954 0% 954 0% 954 0% 954 0% 954 0% 954 Total Potable Water (kgal) 552,318 499,737 454,879 396,490 338,980 292,800 Total Potable Water (AF) 1,695 1,534 1,396 1,217 1,040 899 % Total Reduction -10% -18% -28% -39% -47% Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 56
Table 8-2: Estimated Cost Savings by Percent Usage Reduction The final step is to calculate the drought surcharge, shown in Table 8-3. First, the projected potable water revenue is calculated by multiplying the demand projections from Table 8-1 for each level of reduction in use and the proposed water rates in FY 2024. The revenue shortfall is determined by comparing this revenue for each reduction level with the FY 2024 revenues. Next, we add the estimated cost savings from Table 8-2 for each reduction level. The net shortfall to be recovered is divided by the projected demand at each reduction level (Table 8-1) to arrive at a uniform dollar increase per unit of water for each reduction level. Table 8-3 shows the proposed surcharge that will be available to impose effective December 1, 2023. For future fiscal years, the “% Revenue Shortfall” percentages shown in Table 8-3 would be applied to the rates in effective at the time the drought rates are implemented.

Table 8-3: Drought Surcharge by Percent Usage Reduction FY 2024
0 - 10%
Reduction
10 - 20%
Reduction
20 - 30%
Reduction
30 - 40%
Reduction
40 - 50%
Reduction

SUPPLY (AF)
Groundwater Wells 238 238 238 238 238 238
Sonoma County Water Agency 1,624 1,446 1,295 1,098 904 749 Total Potable Supply 1,862 1,684 1,533 1,336 1,142 987
VARIABLE COST ($/AF)
Groundwater $294 $294 $294 $294 $294 $294
SCWA $1,348 $1,348 $1,348 $1,348 $1,348 $1,348
TOTAL VARIABLE COSTS $2,259,253 $2,019,137 $1,815,372 $1,550,151 $1,288,915 $1,079,147 TOTAL WATER SUPPLY COSTS $2,259,253 $2,019,137 $1,815,372 $1,550,151 $1,288,915 $1,079,147 Cost Savings $240,116 $443,881 $709,102 $970,338 $1,180,106 FY 2024
0 - 10%
Reduction
10 - 20%
Reduction
20 - 30%
Reduction
30 - 40%
Reduction
40 - 50%
Reduction
Projected Potable Variable Revenue $4,549,587 $4,083,190 $3,704,370 $3,193,830 $2,702,152 $2,304,365 Revenue Shortfall ($466,396) ($845,217) ($1,355,756) ($1,847,434) ($2,245,222) Cost Savings $240,116 $443,881 $709,102 $970,338 $1,180,106 Net Revenue Shortfall to be Recovered ($226,280) ($401,336) ($646,654) ($877,096) ($1,065,116) % Revenue Shortfall 6% 11% 20% 32% 46%
$/kgal Increase - Dec. 1, 2023 $0.46 $0.89 $1.64 $2.59 $3.64 Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 57
APPENDIX A:

City of Sonoma Service Area
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 58
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 59
APPENDIX B:

Projected Water Demand by
Percent Usage Reduction
Agenda Item #9.2:

City of Sonoma / Water Rate Study – REVISED DRAFT 60
Table 8-1: Projected Water Demand by Percent Usage Reduction Usage Data
(kgal) Monthly Tier ProposedRates FY 2024 % Reduction
0 - 10%
Reduction % Reduction
10 - 20%
Reduction % Reduction
20 - 30%
Reduction % Reduction
30 - 40%
Reduction % Reduction
40 - 50%
Reduction
Single Family Residential
Tier 1 2 $6.13 83,309 -2.0% 81,643 -7.0% 77,477 -10.0% 74,978 -15.0% 70,813 -15.0% 70,813 Tier 2 5 $8.06 117,226 -12.0% 103,159 -25.0% 87,920 -30.0% 82,058 -40.0% 70,336 -45.0% 64,474 Tier 3 7+ $9.86 113,940 -20.0% 91,152 -30.0% 79,758 -50.0% 56,970 -65.0% 39,879 -75.0% 28,485 Subtotal Single Family 314,475 -12% 275,954 -22% 245,155 -32% 214,006 -42% 181,027 -48% 163,772 Multi-Family $7.98 87,866 -5% 83,473 -10.0% 79,079 -30.0% 61,506 -35.0% 57,113 -45.0% 48,326 Commercial $7.98 69,848 -5% 66,356 -10.0% 62,863 -15.0% 59,371 -30.0% 48,894 -45.0% 38,416 Municipal $8.40 34,871 -5% 33,127 -10.0% 31,384 -15.0% 29,640 -30.0% 24,410 -45.0% 19,179 Irrigation $9.15 44,304 -10% 39,874 -20.0% 35,443 -30.0% 31,013 -40.0% 26,582 -50.0% 22,152 Total Non-Single Family 236,889 -6% 222,829 -12% 208,770 -23% 181,530 -34% 156,999 -46% 128,074 Hydrant $14.42 954 0% 954 0% 954 0% 954 0% 954 0% 954
Total Potable Water (kgal) 552,318 499,737 454,879 396,490 338,980 292,800 Total Potable Water (AF) 1,695 1,534 1,396 1,217 1,040 899 % Total Reduction -10% -18% -28% -39% -47% Agenda Item #9.2:

City of Sonoma
RESOLUTION # _____ -2023

A RESOLUTION OF THE CITY COUNCIL OF THE

CITY OF SONOMA ADOPTING GUIDELINES FOR THE

SUBMISSION AND TABULATION OF PROTESTS IN RATE

HEARINGS CONDUCTED PURSUANT TO ARTICLE XIII D,
SECTION 6 OF THE CALIFORNIA CONSTITUTION
WHEREAS, article XIII D, section 6 of the California Constitution requires the City Council of the City of Sonoma to consider written protests to certain proposed increases to utility charges; and
WHEREAS, this constitutional provision does not offer specific guidance as to how written protests are submitted, or how the City tabulates protests.

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Sonoma that the City shall conduct the protest hearings described in article XIII D, section 6 of the California Constitution as follows:

SECTION 1: Definitions. Unless the context plainly indicates another meaning was intended, the following definitions shall apply in construction of this Resolution.

A. “Parcel” means a County Assessor’s parcel, the owner or occupant of which is subject to the proposed charge at issue in the protest hearing.

B. “Customer of record” means (i) a person whose name appears on the City’s records as a person who has contracted for, or is obligated to pay for, utility services to a particular utility account, or (ii) another person who demonstrates to the reasonable satisfaction of the City Manager or his / her designee that the person is a tenant of real property directly liable to pay the proposed charge.

C. “Record owner” means a person whose name appears on the County Assessor’s latest equalized assessment roll as the owner of a parcel.

D. “Protest hearing” does not mean an election. Nevertheless, the City will maintain the security and integrity of the protests described below at all times, and it will maintain those protests’ confidentiality until they are subject to the disclosure requirements described in Section 7.

Agenda Item #9.2:

SECTION 2: Notice. The City shall provide notice of proposed rates, and of the protest hearing on those proposed rates, at least 45 days prior to the date of the protest hearing. This notice shall be sent via U.S. mail to the following:

A. To the record owner of each identified parcel upon which the rate is proposed for imposition.

B. To the customer of record of each account for which the rate is proposed for imposition.

SECTION 3: Submission of Protests
A. Any record owner or customer of record who is subject to the proposed utility rates may submit a written protest to those proposed rates. The person submitting a written protest may do so by either of the following:

1. Mailing or personally delivering the written protest to the City Clerk at Sonoma City Hall, 1 the Plaza, Sonoma California, 95476.

2. Submitting the written protest in person at the protest hearing.

B. The City shall not accept written protests submitted via fax, email, or any other medium not included above.

C. All written protests, including those mailed to the City, must be received by the end of the protest hearing. Any protest not actually received the close of that hearing, whether or not mailed and postmarked prior to the hearing, shall not be counted.

D. The City welcomes all input from the community at or before the protest hearing on the proposed rates. However, only a properly submitted written protest will count toward the majority protest described below in Section 10.

Oral objections do not qualify.

SECTION 4: Required Contents for Written Protest. A written protest must include all of the following. It will not be counted if any of the required elements outlined below (A through D) are omitted.

A. A statement that it is a protest against the proposed charge that is the subject of the protest hearing.

B. The legibly printed name of the record owner or customer of record who is submitting the protest.

Agenda Item #9.2:

C. The identity, using its assessor’s parcel number or street address of the parcel for which the protest is submitted.

D. An original signature from the record owner or customer of record who is submitting the protest.

SECTION 5: Protest Withdrawal. Any person who submits a protest may withdraw it by submitting to the City Clerk a written request that the protest be withdrawn prior to the close of the protest hearing. The withdrawal request must contain sufficient information to identify the affected parcel and the name of the record owner or customer of record who submitted both the protest and the request to withdraw it.

SECTION 6: Multiple Persons Qualified to Submit a Protest. More than one person may qualify to submit a written protest for a given parcel. For example, there may be more than one record owner, more than one customer of record, or the record owner and customer of record for the parcel may not be the same person. Any such qualified person may submit a protest. However, only one protest will be counted per parcel for purposes of determining whether there is a majority protest.

SECTION 7: Confidentiality and Disclosure of Protests. To protect the privacy rights of record owners and customers of record, the City will keep written protests confidential until tabulation begins following the protest hearing. Once a protest is opened during that tabulation, it becomes a disclosable public record under state law.

SECTION 8: Validity of Protests. The City Clerk shall not accept any protest as valid if he or she determines that any of the following is true:

A. The protest does not include one or more of the required components listed in Section 4 of this Resolution.

B. The required signature is not valid. Whether a signature is valid is entrusted to the reasonable judgment of the City Clerk, who may consult signatures on file with the County Elections Official.

C. The protest has been altered in a way that raises a fair question as to whether the protest actually expresses the intent of a record owner or customer of record to protest the charges.

D. The protest was not received by the City Clerk before the close of the protest hearing on the proposed rates.

Agenda Item #9.2:

E. A request to withdraw the protest was received before the close of the protest hearing on the proposed rates.

SECTION 9: City Clerk’s Decision Final. The City Clerk’s decision that a protest is not valid shall constitute a final action of the City and shall not be subject to any internal appeal.

SECTION 10: Majority Protest. A majority protest exists if valid written protests are submitted with respect to a majority (50% plus one) of the parcels subject to the proposed rates. While the City may inform the public of the number of parcels served by the City when a notice of proposed rates is mailed, the number of parcels with active customer accounts served by the City on the date of the protest hearing shall control to determine whether a majority protest exists.

SECTION 11: Tabulation of Protests. At the conclusion of the protest hearing, the City Clerk shall tabulate all protests received, including those received the protest hearing itself, and shall report the results of that tabulation to the City Council. If the total number of protests received is insufficient to constitute a majority protest, the City Clerk may find the absence of a majority protest without validating the protests received, but may instead deem them all valid without further examination.

SECTION 12: Report of Tabulation. If the City Clerk determines that he or she will require a substantial amount of time to tabulate the protests, such that it would be unreasonable or inconvenient to complete that tabulation immediately following conclusion of the protest hearing, he or she shall so advise the City Council. The City Council may then adjourn the meeting to allow the tabulation to be completed at a later time. If so, the City Council shall declare when and where the tabulation will take place, and the tabulation must occur in a location where interested members of the public may observe it. The City Council shall also declare when and where it will reconvene to receive and act on the City Clerk’s tabulation report.

SECTION 13: REPEAL. The previous procedural Resolution 49-2014 is repealed effective immediately.

Agenda Item #9.2:

SECTION 14: Immediate Effect. This Resolution shall become effective immediately upon adoption.

PASSED AND ADOPTED, at a Regular Meeting of the City Council of the City of Sonoma held on the 2nd day of August 2023, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:
_____________________________
Sandra Lowe
Mayor
ATTEST: APPROVED AS TO FORM:
_____________________________ _____________________________ Rebekah Barr, MMC David J. Ruderman
City Clerk City Attorney
Agenda Item #9.2:

Why am I receiving this notice?
This Notice is being furnished to you pursuant to California Proposition 218, which requires the City of Sonoma to notify property owners of record and water utility customers of proposed increases for water services. This serves as notice that the Sonoma City Council will conduct a Public Hearing at the time, date, and location enclosed to consider recommended adjustments to its water rates.

All those interested are invited to appear at the time and place of the Public Hearing enclosed to give oral or written testimony or to submit written protests regarding the proposed rate adjustments. The City Council will hear and consider oral testimony and written materials submitted regarding proposed rate adjustments at the Public Hearing. The City Council has the authority to adjust the proposed water rate changes in response to oral testimony and written materials submitted for consideration, provided that any adjustments cannot increase rates beyond those listed in this Notice. If adopted, proposed water rate adjustments would become effective on December 1, 2023, with annual rate adjustments on July 1 through 2028.

Why are water rate increases needed?
Water services are funded in large part by the rates customers pay. While the City is dedicated to keeping water rates low by maintaining lean staffing and using reserves when necessary, costs continue to rise.

Similar to higher costs for most consumer goods, our water utility is impacted by rising costs for energy, fuel, equipment, parts, and labor. Per State law, revenues generated from rate increases must only be used to fund the actual costs to operate and maintain the system including infrastructure projects and the cost of debt to finance capital improvement projects.

The majority of our water supply is purchased from the Sonoma County Water Agency (Sonoma Water).

The cost to purchase water from Sonoma Water is expected to increase on average 8.7% annually over the next five years. In addition, the City’s water system is aging and needs upgrades to ensure reliable water service. Therefore, the City is proposing to invest more than $4 million in projects, including water meter system upgrades.

With help from an independent consultant, a rate study was performed to assess the revenue needs for the water utility. The proposed rates are determined based on the projected revenue needed to fund:
• Operations and Maintenance, such as purchasing water, labor, supplies, chemicals, electricity, etc. • Capital, such as large projects to repair/replace pipes and equipment. • Debt Service to pay back loans.
• Reserves to meet minimum debt requirements and fund emergency or unplanned expenses.

How do i protest the proposed rate increases?
You have the right to protest the proposed water rate adjustments. The protest must be in writing, and it must be submitted by either the property owner or a current ratepaying tenant. It must include the property service address and/ or the assessor’s parcel number, the eligible individual’s name (property owner or tenant), a statement to the effect of “I protest the proposed water rates,” and an original signature. Written protests may only be submitted by mail or in-person to the Sonoma City Clerk at the City Clerk’s Office, No. 1 The Plaza, Sonoma CA 95476, or during the Public Hearing on Wednesday, October 4, 2023. All protests must be received by the City Clerk before the conclusion of the Public Hearing. The Clerk will not accept or consider any protest received after the conclusion of the Public Hearing.

Only one written protest per affected property will be counted. Telephone, e-mail, and fax protests will not be accepted. At the Public Hearing on Ocotber 4, 2023, the City Council will accept and consider all written protests and hear all oral comments on the proposed water rate changes. Oral comments will not be counted as protests unless accompanied by a written protest as outlined within this Notice.

At the conclusion of the Public Hearing, the City Council will consider adopting the proposed changes as follows:

1. If fewer than a majority of property owners or ratepayers file a protest, the City Council will consider adjusting water rates as proposed.

2. If a majority of affected property owners or ratepayers protest the proposed water rate adjustments before the conclusion of the Public Hearing, the City is prohibited by law from changing its water rates at this time.

NOTICE OF PUBLIC HEARING

TO CONSIDER PROPOSED WATER

RATE INCREASES
177 First Street West
Sonoma, CA 95476
October 4, 2023
6:00 p.m.

PLEASE TAKE NOTICE THAT the
Sonoma City Council will conduct a
Public Hearing to consider proposed
rates for water services. The costs
incurred by the City to operate, maintain,
repair, and replace infrastructure such
as pipes, pumps, and other essential
facilities continue to increase. The
proposed water rates will ensure that
the water utility collects sufficient
revenue to cover operating and
capital expenses to maintain reliable
service, utilize some cash reserves
to soften revenue adjustments, and
run the water utility efficiently and
consistently with industry standards.

The Cost of Service
Study Report is
available on the
website at www.
sonomacity.org/
water-rate-study
Scan this code to be
taken directly to the
Rate Study webpage.

QUESTIONS?

PUBLIC HEARING
If adopted, the proposed water rates will take effect beginning December 1, 2023. The reasons for the rate adjustments, the basis upon which they were calculated, and the amount of the proposed water rates are described in more detail in the Rate Study Report, which is on file with the City Clerk and available at www.sonomacity.org/water-rate-study.
(707) 938-3332
www.sonomacity.org/
water-rate-study
[email protected]
DRAFT
DRAFT
Agenda Item #9.2:

PROPOSED RATE RECOMMENDATIONS
Proposed Water Rates
The total revenue needs per year result in the proposed water rate adjustments shown in the following tables. Customer rates and charges will differ depending on the type of account (residential, commercial, industrial), meter size, and water use. All customers pay a monthly service charge and a consumption (volumetric) rate. The rates were developed to adhere to state law and to be fair to all customer classes.

Table 1: Proposed Monthly Fixed Service Charges
Table 1 shows the proposed monthly service charge by meter size over the next five years.

Meter
Size
Current
Charge
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
+ 5% + 5% + 5% + 5%
5/8" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
3/4" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
1" $30.46 $33.35 $35.02 $36.78 $38.62 $40.56
1-1/2" $50.19 $57.86 $60.76 $63.80 $66.99 $70.34
2" $73.86 $87.28 $91.65 $96.24 $101.06 $106.12
3" $136.98 $165.72 $174.01 $182.72 $191.86 $201.46
4" $207.99 $253.97 $266.67 $280.01 $294.02 $308.73
6" $405.24 $499.11 $524.07 $550.28 $577.80 $606.69
Table 2: Proposed Monthly Volumetric Rates ($/kgal*)
Table 2 shows current and proposed tier breakpoints for Single Family Residential (SFR) customers. All other classes will pay uniform volumetric rates without tiers.

Class Current
Charge
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
+ 5% + 5% + 5% + 5%
SFR Tier 1 $6.19 $6.13 $6.44 $6.77 $7.11 $7.47
SFR Tier 2 $8.37 $8.06 $8.47 $8.90 $9.35 $9.82
SFR Tier 3 $9.86 $9.86 $10.36 $10.88 $11.43 $12.01
MFR $8.16 $7.98 $8.38 $8.80 $9.24 $9.71
Commercial $7.93 $7.98 $8.38 $8.80 $9.24 $9.71
Municipal $8.16 $8.40 $8.82 $9.27 $9.74 $10.23
Irrigation $8.69 $9.15 $9.61 $10.10 $10.61 $11.15
Construction/
Private Fire $10.74 $14.42 $15.15 $15.91 $16.71 $17.55
SFR Tier I is average low-income-housing water use (0-2 kgal).

SFR Tier II is average use of all residential accounts to cover most of the customers’ needs (3-7 kgal).

SFR Tier III is above average use and pays a higher price to cover conservation and supply costs and to encourage conservation (>7 kgal). *kgal= 1,000 gallons
Table 3: Proposed Monthly Elevation Charges ($/kgal)*
Elevation charges pay for the cost of pumping water to Zone 2, a higher elevation zone northeast of Sonoma outside of the city limits. Zones 1 and 3 are not at higher elevations and therefore do not pay elevation charges.

Zone 2 customers will pay this additional volumetric charge on all tiers of water use.

Class Current
Charge
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
+ 5% + 5% + 5% + 5%
Zone 2 $2.40 $3.22 $3.39 $3.56 $3.74 $3.93
Map of Zone 2 may be viewed here: www.sonomacity.org/water-rate-study *kgal= 1,000 gallons
Table 4: Proposed Monthly Fire Line Charges
Private fire line charges only apply to customers with dedicated fire lines -a separately metered line to supply fire sprinklers. This monthly charge recovers the cost of ensuring water delivery to private fire service connections.

Class Current
Charge
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
+ 5% + 5% + 5% + 5%
2" $0.82 $14.08 $14.79 $15.53 $16.31 $17.13
4" $4.98 $41.28 $43.35 $45.52 $47.80 $50.19
6" $14.41 $103.09 $108.25 $113.67 $119.36 $125.33
8" $30.72 $209.70 $220.19 $231.20 $242.76 $254.90
10" $55.21 $370.06 $388.57 $408.00 $428.40 $449.82

BILL IMPACTS
Table 5: Single Family Residential Monthly Water Bill Impact in FY 2024 (Based on average Single-Family Residence (SFR ) with a 1” meter) Current Monthly Bill Proposed Monthly Bill Change ($) Change (%) $89.67 $90.89 $1.22 1.4%

WHOLESALE WATER PURCHASE COST PASS-THROUGH
The City of Sonoma has no control over the wholesale water charges rendered by Sonoma Water, our regional wholesale agency, and will pass through wholesale water purchase costs to the City of Sonoma water customers. The pass-through amount will not exceed the estimated cost of purchasing water from Sonoma Water. The pass-through charge will be calculated as the projected increase in wholesale water purchase costs divided by annual water use. The pass-through charge will not require a public hearing or any additional action by the Sonoma City Council. At least 30 days before the effective date of the pass-through on or about July 1 of each year beginning in 2024, the City will provide customers with notice of the expected pass-through charge.

DROUGHT COST RECOVERY RATE
The City of Sonoma depends on water sales to fund a complex system that collects, treats, and delivers safe, reliable water to your home or business.

This helps ensure fairness, as customers are charged in large part by how much water they use. When customers are asked to use less, such as during droughts, it leads to lower revenues. Lower revenues are a challenge for the City, as many of the costs associated with building and maintaining a water system are fixed. Based on stages calibrated to drought severity, a Drought Recovery Rate works to offset lost revenues.

In the event that the City Council implements emergency drought stages, temporary drought recovery rates may be assessed in addition to water use rates. The following schedule shows proposed drought recovery percentage increases that would be applied if the City Council declares a drought or water shortage emergency. The percentages shown will be applied to all volumetric rates in place at the time of the drought.

Table 6: Proposed Drought Cost Recovery Rates
Drought Stage 1 2 3 4 5
Drought Reduction in Use Up to
10%
Up to
20%
Up to
30%
Up to
40%
Up to
50%
% Increase on Monthly
Volumetric Rate 6% 11% 20% 32% 46%
California law (Government Code section 53759) provides a 120- day statute of limitations for judicially challenging these rates.

DRAFT
DRAFT
Agenda Item #9.2:

7/26/2023
City of Sonoma
Water Rate Study
Council Meeting - August 2, 2023

Q RAFTELIS
Rate Study Overview
Financial Plan Review
Proposed Rates
Next Steps
Agenda Item #9.2:

Rate Study
Overview
Why Would the City do a Water Rate Study?
- Rates must keep up with the costs to operate the City's water system - The City’s water utility (enterprise fund) is a se|f—fundingenterprise — it is not like other government services (e.g., Police, Fire, Library) that are funded by tax dollars from the General Fund
"
- The water enterprise is funded by customer rate revenue:
> Water rate revenue = 98% of water enterprise revenue
> lt’s a non-profit business
maintain the water system. Q

RAFTELIS
7/26/2023
Agenda Item #9.2:

Key Steps in Conducting a Rate Study
Financial
Planning = Revenue
Requirements
Compare
revenue with
operating costs.
capital costs,
and reserve
requirements
Identify
differences in
costs to serve
each of the
customer classes
Rate Design
Consider level
and structure of
rate design for
each class of
service
Rate Adoption
Documentation,
report, review
by legal counsel
Rate Adoption
— 218
Procedures
Notice to City
customers Public Hearing
Financial Plan
Review
7/26/2023
Agenda Item #9.2:

7/26/2023
All Revenues Go to Operations and Improvement of the
Water System
PercentofExpenses
DebtService,1%
Salaries&Bene?ts,
16%
W WaterPurchases,
36%
CapitalSpending,
M
— 21% \
'
\\ ‘\'‘\
/
. OtherOperating
Expenses,25%
Proposed Financial Plan
EffectiveDate Adjustment Projected Ending Baiance
Dec.1,2023 5.0%
July1,2024 5.0%
July1,2025 5.0%
July1,2026 5.0%
July1,2027 5.0%
July1,2028 4.0%
July1,2030 My 7:2037 4-0% FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 j Water Funds Ending Balance ——Operating Reserve July1'2032 40% -:Total Reserve Target —Capita| Reserve ——Rate Stabilization >-3 ‘Ln. C9
$3.54 $832 $8.]?
5 vC‘U’? Millions Q
Agenda Item #9.2:

Proposed Rates
Proposed Fixed & Private Fire Charge Schedule
Meter/Connection
Size Current Charge FY2024 FY2025 FY2026 FY2027 FY2028
cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment Monthly Service Charge
5/8n
3/4n
7/26/2023
Agenda Item #9.2:

7/26/2023
Proposed Variable & Elevation Rate Schedule
Current FY2024 FY2025 FY2026 FV2027 FY2028 Charge cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment SFRTier 1 $6.19 $6.13 SFRTier 2 $8.37 $8.06 SFRTier 3 $9.86 $9.86 MFR $8.16 $7.98 Comm $7.93 $7.98 Municipal $8.16 $8.40
Irrigation $8.69 $9.15
Construction (Hydrant) (1) $10.74 $14.42
(1) Private ?re water use is also charged at this rate.

Zone Current Charge FY2024 FY2025 FY2026 FY2027 _ FY2028 cost-of-service 5% Adjustment 5% Adjustment 5% Adjustment 5% Adjustment Drought Rates — FY2024
Baseline Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
Customer Class Rate Surcharge Surcharge Surcharge Surcharge Surcharge 6% 11% 20% 32% 46%
Single FamilyResidential
Tier 1 $6.13
Tier 2 $8.06
Tier 3 $9.86
Multi-Family $7.98
Commercial $7.98
Municipal $8.40
Hydrant $14.42
Agenda Item #9.2:

Bill Impacts &
Comparison
Bill Impact
$120 —
$100 ~
$80
$60 -
$40 »
$20
‘ ElProposed Monthly Bill
(9
Sing|e—Family(1") Monthly Water Bill(Average = 7.5 kgal/mo) 7/26/2023
Agenda Item #9.2:

Neighboring Agency Comparison
Single Family, 7.5 kgal/mo, 1" Meter
, North Town of Rtggyngft
cnyof Cityof Marin t::"’:y:n.:1 Marin
Windsor Park Sonoma WD - WD Water Novato
I FY2023 $44.92 $65.73 $89.67 $87.99 $92.89 $97.23
I FY2024 $47.18 $69.01 $90.89 $92.39 $99.38 $119.14
I FY2025 $49.54 $72.46 $95.48 $96.98 $106.34 $137.04
Next Steps
- Seek City Council authorization to prepare and mail out Prop 218 notice
- Staff willprepare and mail the Prop 218 notice
- Public hearing
7/26/2023
Agenda Item #9.2:

Thank you!
Proposition 218
Overview
@
Agenda Item #9.2:

7/26/2023
Proposition 218 Substantive Requirements
Revenues
Revenues
proportional cost of
providing
service
n_J%_,
Proposition 218 Procedural Requirements
I . . \ /in Provide written HO“ a public
“°ti°° hearing
Identify Calculate
parcels g . Agenda Item #9.2:

7/26/2023
Scenario 1: No Revenue Adjustment
Projected Ending Balance
$8.11
$ Millions
FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 Flo
$1.31
1WaterFunds Ending Balance ~——Operating Reserve
1-Total Reserve Target —Capita| Reserve
—-Rate Stabilization
Scenario 1: No Revenue Adjustment
Debt Service Coverage
14o0.0%
1200.0%
1000.0%
800.0%
600.0%
400.0%
200.0%

0.0%
—200.0% FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 29 FY2030 -400.0%
-800.0% —Debt Coverage
‘— =Required Coverage 0 Coverage Alert
Agenda Item #9.2:

7/26/2023
What are Drought Rates?
- Supplementalratesorsurchargesto normalconditionrates
- Temporary
- Availabletowaterproviderduringperiodsofdeclaredshortages,mandatory conservation,orotherwateremergencies
- Subjectto the proceduraland substantiverequirementsofProposition218 - implementedandrescindedat thediscretionofthecitycouncil - Toolto recoverthe netrevenuelossduringtimesofreducedwateruse Drought Rate Implementation
- Droughtrates are subjectto Proposition218
- Noticeddroughtrates are themaximumthatthecouncilcan implement - Councilmaintainsdiscretionto:
implementa lowerdroughtrate
use reservesinlieuofdroughtrates
restrictions) anycombinationoftheabove
Agenda Item #9.2:

City of Sonoma
Agenda Item Summary
Meeting: City Council - 02 Aug 2023
Department
Administration
Staff Contact
David Guhin, City Manager
Agenda Item Title
Adopt a Resolution Approving the City of Sonoma's Response to the Sonoma County Civil Grand Jury Report Titled "City of Sonoma Cemeteries" to the Sonoma County Superior Court and Authorizing the Mayor and City Manager to Sign the Required Response Forms Pursuant to California Penal Code Section 933 and 933.05
Summary
The City of Sonoma owns and manages three cemeteries, Mountain, Valley, and Veterans that comprise the City's Cemetery Enterprise Fund. On June 13, 2023, the Mayor and City Manager were notified that the 2022-23 Sonoma County Civil Grand Jury Report included an investigation and findings titled "City of Sonoma Cemeteries".

The primary job of the Sonoma County Civil Grand Jury (Civil Grand Jury) is to investigate areas within local government where there is potential for operational improvement. This report was the result of a "self-initiated" investigation by the Civil Grand Jury members, who are empaneled for a term of one-year. The Civil Grand Jury Investigation and Report titled "City of Sonoma Cemeteries" outlined the following findings:

F1. The City of Sonoma is seriously remiss in not charging, collecting, reporting, or paying sales tax on tangible items sold through the cemeteries, resulting in a liability for the City.

F2. Responsibility for managing collection and payment of sales tax on cemeteries’ tangible items is not delegated to any staff member or department, which has contributed to the City’s failure to meet its responsibility to report and pay the sales tax obligation.

F3. The cemeteries have been losing money for an undetermined number of years and the operation expenses much be subsidized annually by the Endowment Fund which is not invested to generate adequate income; $50,000 has been transferred for each of the past seven years and presumably will continue, resulting in the eventual depletion of the Endowment Fund.

F4. Sonoma is undercharging for lettering services and ring and vase sets, resulting in financial loss to the Cemetery Enterprise Fund.

F5. The Cemetery Endowment Fund is shrinking since the cemeteries are nearly built out, therefore there are limited opportunities to assess endowment fees. The Fund does not appear to be invested based upon the financial statements.

F6. Recently, the City of Sonoma has had high turnover in several senior management positions. No evidence of a policies and procedures manual exists for any of the cemeteries, nor does the City published information on cemetery fee schedules; all indicating neglect of cemetery operations.

Agenda Item #9.3:

Each Civil Grand Jury Finding must be responded to with a specific format governed by California Penal Code section 933.05(a) that states each Finding shall indicate on of the following:
• The respondent agrees with the finding.
• The respondent disagrees wholly or partially with the finding in which case the response shall specify the portion of the finding that is disputed and shall include an explanation of the reasons therefor.

Additionally, the Civil Grand Jury Report provided five (5) recommendations for operational improvements as listed below (with a reference to the Finding that it relates to):

R1. By July 31, 2023, The City of Sonoma contacts the California Department of Tax and Fee Administration to establish procedures to collect, report and pay sales tax on tangible items sold.

R2. By December 31, 2023, The City of Sonoma conducts a thorough analysis of the systems, processes, and procedures related to cemeteries, to include the current software program used. The Grand Jury is ware that the City of Sonoma has cited their intention, in their fiscal year (2022-23) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in the Fund, and we encourage the City to include an operational analysis as well. (F1, F2, F3, F4, F7) R3. By December 31, 2023, the City of Sonoma develops a policies and procedures manual for the operations of the Cemetery Program. (F1, F2, F4, F5, F7) R4. By December 31, 2023, the City of Sonoma designates a manager to oversee the cemetery day-to-day operations. (F2)
R5. By December 31, 2023, the City of Sonoma conducts a thorough review of the Cemetery Endowment Fund. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022-23) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in that fund and the Grand Jury recommends that the Endowment Fund is included in that analysis. (F3, F5) Each Civil Grand Jury Recommendation must be responded to with a specific format governed by California Penal Code section 933.05(b) that states each Recommendation shall indicate one of the following:
• The recommendation has been implemented, with a summary regarding the implemented action.
• The recommendation has not been implemented, but will be implemented in the future, with a timeframe for implementation.
• The recommendation requires further analysis with an explanation and the scope and parameters of an analysis or study, and timeframe for the matter to be prepared for discussion by the officer or head of the agency or department applicable. This timeframe shall not exceed six months from the date of publication of the Civil Grand Jury Report. • The recommendation will not be implemented because it is not warranted or is not reasonable, with an explanation therefor.

Agenda Item #9.3:

Responses to both the Findings and the Recommendations are attached.

Recommended Council Action
Adopt a Resolution Approving the City of Sonoma's Response to the Sonoma County Civil Grand Jury Report Titled "City of Sonoma Cemeteries" to the Sonoma County Superior Court and Authorizing the Mayor and City Manager to Sign the Required Response Forms Pursuant to California Penal Code Section 933 and 933.05
Alternative Actions
If the City Council decides not to respond to the Grand Jury Report Recommendations the City will be non-compliant with the requirements of the California Penal Code.

Financial Impact
There is no financial impact to this action.

Environmental Review Status
Environmental Impact Report
Negative Declaration
Exempt
Not Applicable
Approved/Certified
No Action Required
Action Requested
Attachments
Resolution - Grand Jury Response
Exhibit A - Response to GJ Report Form - Mayor
Exhibit B - Response to GJ Report Form - City Manager
Response to Grand Jury Recommendations
Civil Grand Jury Response PPT
2022-23 Civil Grand Jury Report
Agenda Item #9.3:

City of Sonoma
RESOLUTION # _____- 2023

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SONOMA APPROVING THE

CITY OF SONOMA RESPONSE TO THE SONOMA COUNTY CIVIL GRAND JURY REPORT TITLED “CITY OF SONOMA CEMETERIES” TO THE SONOMA COUNTY SUPERIOR

COURT AND AUTHORIZING THE MAYOR AND CITY MANAGER TO SIGN THE REQUIRED

RESPONSE FORMS
WHEREAS, on June 13, 2023, the Sonoma County Civil Grand Jury presented their 2022-23 Final Consolidated Grand Jury Report to the City of Sonoma; and WHEREAS, the 2022-23 Final Consolidated Grand Jury Report included a report titled “City of Sonoma Cemeteries”; and
WHEREAS, per California Penal Code Sections 933 and 933.05, the Grand Jury requires that the City of Sonoma respond to seven findings and five recommendations in “City of Sonoma Cemeteries”; and
WHEREAS, responses are requested to be submitted to the Sonoma County Superior Court no more than 60 days after the date of the Grand Jury Report.

NOW, THEREFORE, BE IT RESOLVED that the City Council approves the City of Sonoma responses to the Sonoma County Civil Grand Jury Report titled “City of Sonoma Cemeteries”; and
BE IT FURTHER RESOLVED that the City Council authorizes the Mayor and City Manager to sign the required forms attached as Exhibit A and Exhibit B PASSED AND ADOPTED, at a Regular meeting of the City of Sonoma City Council on this 2nd day of August 2023 by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:
________________________________
Sandra Lowe, Mayor
ATTEST:
________________________________
Rebekah Barr, MMC, City Clerk
Agenda Item #9.3:

EXHIBIT A
Revised June 2022 Response to GJ Report Form
Response to Grand Jury Report Form
Report Title: City of Sonoma Cemeteries
Report Date: June 18, 2023
Response by: Sandra Lowe Title: Mayor
Agency/Department Name: City of Sonoma – City Council
FINDINGS:

F1, F2, F3, F4, F5, F7
I (we) agree with the findings numbered: ______F3, F4_________ I (we) disagree wholly or partially with the findings numbered: ____F1, F2, F5, F6, F7__ (Attach a statement specifying any portions of the findings that are disputed with an explanation of the reasons.)
RECOMMENDATIONS:

R1, R2, R3, R4, R5
• Recommendations numbered: _R1________ have been implemented. (Attach a summary describing the implemented actions.)
• Recommendations numbered: __R2, R3, R4, R5____ have not yet been implemented, but will be implemented in the future.
(Attach a timeframe for the implementation.)
• Recommendations numbered: ________________________________ require(s) further analysis.
(Attach an explanation and the scope and parameters of an analysis or study, and a timeframe for the matter to be prepared for discussion by the officer or director of the agency or department being investigated or reviewed, including the governing body of the public agency when applicable. This timeframe shall not exceed six months from the date of publication of the Grand Jury report.)
• Recommendations numbered: _______________________________ will not be implemented because they are not warranted or are not reasonable. (Attach an explanation.)
Date: Signed:

Number of pages attached:
(See attached PC Civil Grand Jury Response Requirements) Agenda Item #9.3:

EXHIBIT B
Revised June 2022 Response to GJ Report Form
Response to Grand Jury Report Form
Report Title: City of Sonoma Cemeteries
Report Date: June 18, 2023
Response by: David Guhin Title: City Manager
Agency/Department Name: City of Sonoma – City Manager
FINDINGS:

F1, F2, F3, F4, F5, F7
I (we) agree with the findings numbered: ______F3, F4_________ I (we) disagree wholly or partially with the findings numbered: ____F1, F2, F5, F6, F7__ (Attach a statement specifying any portions of the findings that are disputed with an explanation of the reasons.)
RECOMMENDATIONS:

R1, R2, R3, R4, R5
• Recommendations numbered: _R1________ have been implemented. (Attach a summary describing the implemented actions.)
• Recommendations numbered: __R2, R3, R4, R5____ have not yet been implemented, but will be implemented in the future.
(Attach a timeframe for the implementation.)
• Recommendations numbered: ________________________________ require(s) further analysis.
(Attach an explanation and the scope and parameters of an analysis or study, and a timeframe for the matter to be prepared for discussion by the officer or director of the agency or department being investigated or reviewed, including the governing body of the public agency when applicable. This timeframe shall not exceed six months from the date of publication of the Grand Jury report.)
• Recommendations numbered: _______________________________ will not be implemented because they are not warranted or are not reasonable. (Attach an explanation.)
Date: Signed:

Number of pages attached:
(See attached PC Civil Grand Jury Response Requirements) Agenda Item #9.3:

RESPONSE TO GRAND JURY FINDINGS
F1. The City of Sonoma is seriously remiss in not charging, collecting, reporting, or paying sales tax on tangible items sold through the cemeteries, resulting in a liability for the City.

Response: We disagree partially with the finding, see response to R1.

F2. Responsibility for managing collection and payment of sales tax on cemeteries’ tangible items is not delegated to any staff member or department, which has contributed to the City’s failure to meet its responsibility to report and pay the sales tax obligation.

Response: We disagree partially with the finding, see response to R1.

F3. The cemeteries have been losing money for an undetermined number of years and the operation expenses must be subsidized annually by the Endowment Fund which is not invested to generate adequate income; $50,000 has been transferred for each of the past seven years and presumably will continue, resulting in the eventual depletion of the Endowment Fund.

Response: We agree with the finding.

F4. Sonoma is undercharging for lettering services and ring and vase sets, resulting in financial loss to the Cemetery Enterprise Fund.

Response: We agree with the finding.

F5. The Cemetery Endowment Fund is shrinking since the cemeteries are nearly built out, therefore there are limited opportunities to assess endowment fees. The Fund does not appear to be invested based upon the financial statements.

Response: We disagree partially with the finding.

Based on the November 2022 City of Sonoma Cemeteries Planning Study by EDA Land Planning, there is room for increasing capacity in all three City-owned cemeteries to generate additional revenue and increase the endowment fund. Further evaluation of the finances and investment strategy will help to assess the full extent of growth and revenue that can be anticipated.

F6. Recently, the City of Sonoma has had high turnover in several senior management positions. No evidence of a policies and procedures manual exists for any of the cemeteries, nor does the City publish information on cemetery fee schedules; all indicating neglect of cemetery operations.

Response: We disagree partially with the finding.

Some procedures have been developed for sales and the process of working with customers.

Additional policies and procedures are needed and will be developed as mentioned in response to R3.

F7. The cemetery invoice forms do not have a line item for calculating sales tax for tangible items therefore, the accounting software program used by Sonoma does not report on their sales tax liability, resulting in failure to chare, collect, report, or pay sales tax to the CDTFA.

Response: We disagree partially with the finding, see response to R1.

Agenda Item #9.3:

RESPONSE TO GRAND JURY RECOMMENDATIONS
R1. By July 31, 2023, The City of Sonoma contacts the California Department of Tax and Fee Administration to establish procedures to collect, report and pay sales tax on tangible items sold at the cemeteries (F1).

Response: This recommendation has been implemented as follows.

The City of Sonoma examined financial transactions from the Cemetery Enterprise to determine if sales tax is being handled in accordance with California Department of Tax and Fee Administration (CDTFA) regulations.

The three cemeteries operated by the City of Sonoma provide space for interment of remains but, with minor exception, do not engage in the sale of tangible products used in funeral services. The City does not provide items such as caskets or grave markers but may provide associated goods and services, such as the provision of engraving or the addition of a ring and vase set to an existing memorial marker.

Sales and Use Tax Regulation 1505 makes a distinction between funeral directors as retailers and as consumers. An example from that section is included in the recent Grand Jury report. In this example, the funeral director, acting as a retailer, charges the customer sales tax on tangible items, such as the casket in the sample invoice, at the point of sale. In this case, the funeral director would purchase the casket under a seller permit and would not pay sales tax upon purchase from a wholesaler but would collect it at the time of sale to the purchaser of cemetery goods. The City does not act as a retailer and, as mentioned previously, does not sell caskets or other major items associated with burial, as these items are provided by the cemetery’s customers. The City provides interment services, as can be seen by the price list.

The City’s cemetery operation acts as a consumer of tangible, taxable products in the provision of cemetery services. As a consumer, the City should pay the sales tax liability when it purchases items but does not collect sales tax from its customers. To validate our understanding that the City is a consumer of goods in the provision of services, the Interim Finance Director contacted the Santa Rosa branch of the CDTFA on July 17, 2023. The representative confirmed that remitting sales tax when the City purchases taxable items is allowable. Alternatively, the City could obtain a sellers permit and act as a retailer, foregoing tax on items purchased and collecting and remitting sales tax at the point of sale to customers of the City cemeteries, but this would be a more cumbersome process.

To determine if sales & use tax are being paid by the City, we examined the trial balance for the fiscal year ended June 30, 2023. A trial balance provides a detailed list of all financial transactions in a period. We examined 21 invoices from 18 vendors who provide goods and services to the cemetery.

The only vendors excluded were clearly not providers of tangible goods, such as the wireless provider.

Invoices from three of the vendors examined indicated that sales & use tax was not being collected.

All other invoices charged sales tax on the invoice.

The first vendor provides items that affix to memorial markers, such as ceramic opals surfaced with a picture of the deceased. This vendor is a wholesaler of cemetery products and does not ordinarily charge sales tax to its clients, as they are primarily retailers. However, the vendor agreed to apply sales tax to future purchases by the City.

Agenda Item #9.3:

The second vendor is a provider of vaults and liners for use in the cemeteries. These materials are often purchased and installed when interment spaces are being created, often in advance of sale to customers. The vendor of these material is not willing to add sales tax at point of sale, however, the City identifies unpaid use tax on items held in the Public Works inventory and remits this use tax to the CDTFA following the end of each calendar year. Items purchased from this vendor will be treated in the same manner as these inventory items and use tax will be remitted to the state, annually.

The third vendor identified engraves and appoints existing monuments. As an example, when a preneed customer is interred in a niche, this vendor will create a template and provide engraving and, if requested, a ring and vase set on the memorial. Engraving is addressed by the CDTFA and appears to be taxable if added to a new memorial, but not to an existing memorial. An existing marker is an addition to real property and the engraving is not taxable, according to an opinion provided in a 1995 letter ruling from the State Board of Equalization (available on the CDTFA website). Conversely, if the City purchased a new monument with engraving, that engraving would be considered part of the new property, and therefore would be taxable. The additional engraving service provided to the City does not appear to be taxable, as engraving is added to existing real property. However, ring and vase sets and other tangible property are taxable. The vendor was notified to treat the City as a retail customer and add sales tax to tangible property, if applicable.

The City of Sonoma Finance staff will continue to monitor transactions for cemetery operations to ensure sales taxes are properly remitted. The Interim Finance Director also discussed retroactive treatment of sales and use taxes not remitted for taxable items procured from the vendors previously discussed. Following advice from the CDTFA, the City will amend use tax submissions for the previous three calendar years (CY 2020 -22) to correct those deficiencies.

R2. By December 31, 2023, The City of Sonoma conducts a thorough analysis of the systems, processes, and procedures related to cemeteries, to include the current software program used. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022-23) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in the Fund, and we encourage the City to include an operational analysis as well. (F1, F2, F3, F4, F7) Response: This recommendation has been partially implemented and remaining implementation will occur as outline below.

The City of Sonoma Cemeteries Monument Services Fee Form was updated in July 2023 to reflect the current actual costs incurred by the City for engraving services, Ring & Vase Sets, and Photographs.

The revised form is in use for all service inquiries for the City Cemeteries.

On July 18, 2023 City staff and EDA Land Planning met to determine next steps based on findings included in the November 2022 City of Sonoma Cemeteries Planning Study including a financial analysis and development of a strategy to address the Cemetery Fund deficit. A proposed scope of work is being drafted and this analysis will be complete prior to December 31, 2023.

Agenda Item #9.3:

R3. By December 31, 2023, the City of Sonoma develops a policies and procedures manual for the operations of the Cemetery Program. (F1, F2, F4, F5, F7)
Response: The recommendation has not yet been implemented but will be implemented in the future.

The City of Sonoma staff will be updating existing and developing additional policies and procedures for operations of the Cemeteries by December 31, 2023.

R4. By December 31, 2023, the City of Sonoma designates a manager to oversee the cemetery day-to day operations. (F2)
Response: This recommendation has been implemented as follows.

The City Manager has delegated the Cemetery Manager duties to the Assistant to the City Manager in the interim while an analysis of the program, budget and revenue projections are evaluated. Based on the outcome of this analysis, a recommendation to establish a new position dedicated to Cemetery Management will be brought to the City Council for consideration by December 31, 2023.

R5. By December 31, 2023, the City of Sonoma conducts a thorough review of the Cemetery Endowment Fund. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022- 23) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in that fund and the Grand Jury recommends that the Endowment Fund is included in that analysis. (F3, F5)
Response: The recommendation has not yet been implemented but will be implemented in the future.

On July 18, 2023 City staff and EDA Land Planning met to determine next steps based on findings included in the November 2022 City of Sonoma Cemeteries Planning Study including a financial analysis and development of a strategy to address the Cemetery Fund deficit. A proposed scope of work, including evaluation of the Endowment Fund, has been requested for consideration and this analysis will be complete prior to December 31, 2023.

Agenda Item #9.3:

Agenda Item #9.3:

Agenda Item #9.3:

Agenda Item #9.3:

Agenda Item #9.3:

Agenda Item #9.3:

Agenda Item #9.3:

13 REQUESTED ACTION
Adopt a Resolution Approving the City of Sonoma Response to the Sonoma County Civil Grand Jury Report Titled "City of Sonoma Cemeteries" to the Sonoma County Superior Court and Authorizing the Mayor and City Manager to Sign the Required Response Forms Pursuant to California Penal Code Section 933 and 933.05.

City of Sonoma - Civil Grand Jury Response - August 2, 2023 7/28/2023
13 7
Agenda Item #9.3:

City of Sonoma Cemeteries 1
City of Sonoma Cemeteries
Don’t Bury Your Problems

SUMMARY
The City of Sonoma (Sonoma or City) owns and manages three cemeteries, Mountain, Valley, and Veterans as the Cemetery Enterprise Fund. An enterprise fund operates like a business and is expected to be self-supporting and not subsidized by government funds. The public is eligible to purchase land, tangible items and services from the cemeteries and the City is expected to maintain the cemeteries using revenue from the sales of tangible items and services, crypts, niches, burial plots, and their associated endowment fees. There are no in-ground burial plots available to purchase at any of the cemeteries, only niches and crypts. The tangible items sold by the cemeteries are burial liners, precast concrete bases for markers, ring and vase sets, plastic vases, and niche or crypt porcelain memorial photos. Endowment fees are charged at the time of purchase of a plot, niche, or crypt and are held in the Cemetery Endowment Fund to ensure that income will always be available for maintenance and upkeep of the cemetery. The City Council sets the rates for endowment fees.

This investigation was self-initiated by the 2022-2023 Civil Grand Jury. Early in the investigation it became evident that there are several serious problems facing the Cemetery Program in addition to uncollected sales tax and undercharging of services.

The Grand Jury investigation determined that the City of Sonoma is not assessing, reporting, collecting, or paying sales tax on cemetery tangible items (e.g., burial liners, bronze ring and vase sets, concrete bases for markers, and memorial photographs for niche plates) sold to the public. Additionally, we found that one of the tangible items sold most frequently is the ring and vase set. The cemeteries have been charging less than wholesale cost for this item since 2019. In the matter of undercharging for cemetery services, the Grand Jury determined that the most common service offered, lettering services for crypt and niche plates, is undercharged by $2 per character.

The Grand Jury has determined that the Cemetery Enterprise Fund is losing money due, in part, to numerous management problems. There is no dedicated manager of operations, only a .15 Full-time Equivalent (FTE) Human Resources Manager allocated for oversight of administrative activities. The Cemetery Program does not have a policies and procedures manual or training program. We could find no evidence of regular audits of finances or performance reviews for staff. In the absence of annual pricing reviews of wholesale costs for items sold at the cemeteries; items are being sold at prices less than their cost which leads to a loss of revenue.

There appears to be no marketing plan in place including no schedule of fees on the City website nor printed materials available to the public.

There have been two studies of the Cemetery Program in the past 18 years, one in 2005 (RJM report) and one in 2022 (Goodnoe report). Both studies emphasized the need to manage the operations more efficiently and called for: a dedicated manager for the program, an upgrade to the financial software to improve record-keeping and sales management, upgrading marketing materials, creating a dedicated website, and implementing operational training for staff. The Grand Jury found that the cemeteries do not have focused resources as outlined in these Agenda Item #9.3:

City of Sonoma Cemeteries 2
studies and recommends that the City conduct a thorough operational and financial analysis of the Cemetery Program, including the Endowment Fund.

The Grand Jury is recommending that the City of Sonoma rectify their sales tax problem by contacting the California Department of Tax and Fee Administration (CDTFA) immediately. In addition to this, the City should conduct a thorough financial and operational analysis of the Cemetery Program.

The Cemetery Endowment Fund was established in 1974 to ensure that funds will always be available to maintain the cemetery properties, even after all interment spaces are sold. When a plot, niche, or crypt is sold, endowment fees are collected. The current Cemetery Endowment Fund balance is approximately $750,000 and $50,000 is transferred annually from the fund to the Cemetery Enterprise Fund to cover the costs of maintenance. As the cemeteries have been built out and now only sell a limited number of crypts and niches that are subject to endowment fees, the diminishing Endowment Fund is a serious issue. With the limited ability to collect fees for the Endowment Fund, it will eventually be depleted.

In addition to diminishing endowment fees, the Endowment Fund, that is supposed to be invested to generate interest income for the maintenance of the cemeteries, does not show any investment income. The Grand Jury recommends that the City conduct a thorough review of the Endowment Fund, its requirements as established as well as its investment.

GLOSSARY
• CDTFA: California Department of Tax and Fee Administration, state agency collecting sales tax from retail businesses.
• Crypt: Type of burial chamber, usually made of stone or concrete, that is used to store the remains of the deceased. It is typically located underground and is often sealed with a heavy stone lid.
• Endowment Fund: Endowment fees are placed in trust by cemeteries to generate income to cover cemetery maintenance in perpetuity.
• Enterprise Fund: A self-supporting government fund that sells goods and services to the public for a fee.
• FTE: Full-time Equivalent. When an employee has a 40-hour workweek, they are a 1.0 FTE. If an employee’s position is allocated equally between two departments, it is expressed as .50 FTE to one department and .50 FTE to another. • Interment: The place where a person is laid to rest permanently whether buried or cremated.
• Liners: A concrete reinforced container for a casket to prevent ground from caving in over time.
• Niche: Small space, usually in a wall, where an urn containing cremated remains can be placed.
• Ring and vase set: Bronze ring and vase, usually inscribed.

Agenda Item #9.3:

City of Sonoma Cemeteries 3
• Tangible Items: Personal property that can be seen, weighed, measured, felt, or touched.

BACKGROUND
Sonoma’s Cemetery Program operates as the Cemetery Enterprise Fund. Cemeteries were transitioned to an enterprise fund sometime in the 1990s. Enterprise funds are supposed to be self-sustaining from the sale of burial plots, niches, crypts, tangible items, and services sold. In 1974, an endowment fund was established for the perpetual care of the cemeteries’ grounds.

The three cemetery properties are maintained by the Public Works Department. There is one administrative assistant who works .50 FTE for the cemeteries and .50 FTE for the City Council.

The administrative assistant interfaces with the public, taking pre-need orders, writing up sales receipts and interfacing with the vendors who provide tangible items and services to the cemeteries. It must be noted that the City’s job description for the position of administrative assistant states that the staff person “receives general supervision from a department manager” however, there is no department manager for the cemeteries. Rather, the Human Resources Manager is assigned the responsibility for overseeing administrative activities of the cemeteries with .15 FTE.

When the Grand Jury requested a copy of a policies and procedures manual for the cemeteries, we were provided with a 47-page compilation of copied documents. There are no dates on any of these pages, and it appears that they are very outdated as the examples provided of actual sales receipts are all dated 2010. None of these sales receipt forms have changed since then; they do not have line items for assessing sales tax. This evidence suggests that the City has not assessed, collected, or paid sales tax for at least 13 years and presumably longer. Further, Sonoma’s most recent State, Local, and District Sales and Use Tax Return submitted to the CDTFA for 2022 reflects that the cemeteries collected payments for many sales of tangible items and services, but did not assess, collect, report, or remit any sales tax on tangible items for that year. Another document references the procedures for selling burial plots; the RJM report from 2005 lists 122 burial plots available for sale. That inventory was exhausted many years ago. Clearly, the Cemetery Program has not developed a comprehensive policies and procedures manual that is updated when procedures or costs change.

METHODOLOGY
This investigation was self-initiated by the Civil Grand Jury. From the onset of this investigation, the Grand Jury struggled to secure interviews with the staff associated with the Cemetery Program. The position of city manager has been in flux for several years and during this investigation, there have been three different acting or interim city managers. This April, the City hired a new permanent city manager.

The Grand Jury ultimately interviewed four people from the City: three staff members and a member of the City Council. The City provided most of the documents we requested: Budget Book for 2021-2022, two studies of the cemeteries (2005 and 2022), copies of sales receipts and purchase invoices, a June 30, 2018, audit report of the City’s finances, and a CDTFA sales tax return for 2022. In response to our request for the Cemetery Program policies and procedures manual, we received 47 pages of sample forms dated 2010, cemetery maps and Agenda Item #9.3:

City of Sonoma Cemeteries 4
instructional pages with strikeouts and handwritten notations; presumably these pages have provided direction to the administrative assistant.

The Grand Jury researched California cemeteries and cemetery districts to determine if any of the Sonoma cemeteries are exempt from sales tax and determined that they are not, confirmed by the CDTFA. The CDTFA clearly describes the recommended practice for invoicing cemetery sales to separate services from tangible items that are subject to sales tax. It provides a sample invoice that itemizes the sale by taxable and nontaxable items as well as fees.

Source: CDTFA sample invoice, Regulation 1505

DISCUSSION
The Mountain Cemetery is 60 acres and was built in 1841. This cemetery has historic significance as early settlers of the area are buried there, dating back to when General Mariano Vallejo founded the town of Sonoma in 1844. The Veterans’ Cemetery is only one acre and was acquired in 1960. The Valley Cemetery was founded in 1835 and was originally two acres. It expanded in 1960 to include another two acres that are referred to as the Valley Annex.

The cemeteries provide tangible items such as liners, ring and vase sets, concrete bases for markers, and memorial photographs for niche plates. Under the CDTFA regulations all tangible items that are sold at cemeteries are subject to sales tax.

The Grand Jury found that the Cemetery Program has several serious problems. It is limited in its ability to sell goods and services due to the scarcity of available plots, crypts, and niches. In 1974 the Cemetery Endowment Fund was established to provide perpetual care of the cemeteries’ grounds. Endowment funds, held in escrow, are invested to ensure that there will be adequate monies for maintenance of interment, entombment, and inurnment sites. With a steady decrease in cemetery revenues and inadequate return on the invested endowment funds, the City Council approved, in 2016, the transfer of $50,000 from the Cemetery Endowment Fund to the Cemetery Enterprise Fund. The city manager recommends the Funeral director's invoice to client:

Charges: Amount:

Maple Casket (t) 2,895.00
Additional Copies of Life Tribute DVD (t) ($25/ea. x 10) 250.00 Total of Items Subject to Tax $3,145.00
Traditional Chapel Burial Package $4,945.00
Fees for Cash Advance items: Amount:

County filing fee 12.00
Certified copy of Death Certificate 21.00
Organist 225.00
Total Fees $258.00
Total Nontaxable $5,203.00
Total Taxable $3,145.00
Sales Tax ($3,145.00) x 8.25% 259.46
Grand Total $8,607.46
(t) = Tangible personal property
Agenda Item #9.3:

City of Sonoma Cemeteries 5
amount, and the City Council approves it. Every year since 2016, $50,000 has been transferred.

Prior to 2016, budgets do not reference the Cemetery Endowment Fund. At this rate, if the cemeteries do not improve revenues, the Endowment Fund will eventually be depleted. The California Funeral and Cemetery Bureau site provides this citation that highlights the importance of generating endowment care fees and sales revenue to support the maintenance of the cemetery.
(g) The amount collected by the cemetery in endowment care fees under Health and Safety Code Section 8738 shall be reconsidered annually by the cemetery based upon current and projected maintenance expenditures, and adjusted as necessary to ensure that sufficient funds are available to perform the maintenance required by their rules and regulations as described in subdivision (a) or subdivision (b) of this Section if subdivision (a) is not applicable.

The Problem of Unheeded Analyses of Cemetery Operations Twice in the past 18 years, the City has contracted for studies of the cemeteries. In 2005, the RJM Design Group (RJM) was engaged by the Public Works Department to analyze the financial and operational practices of the cemeteries and make recommendations for an action plan.

They conducted a three-month study, City of Sonoma Action Plan for City Cemeteries, and reported the pros and cons of the Cemetery Program in July 2005:

Pros Cons
Reasonable maintenance budget exists Not enough interment products Provides a service to the community Not enough variety of products Cemeteries are historic resources Inadequate Endowment Fund RJM’s action plan identified four options for the cemeteries at that time:

1. Terminate cemetery options as a business center and perform only maintenance.

2. Sell the cemeteries to a private operator.

3. Terminate operations and sell the undeveloped property.

4. Continue providing services in such a way that lessens the financial burden on the City’s general fund.

The fourth option was presented as the suggested alternative with the focus primarily on increasing burial options. Cemetery operations were mentioned as part of the plan to increase services, including the appointment of a cemetery manager and adequate staff for both operations and maintenance of facilities.

In 2007, the City Council conducted a study session on the action plan that arose from the RJM Master Plan. At a City Council meeting, the council reviewed proposed plans and programs for operation of the cemeteries. RJM gave a PowerPoint presentation refresher on the plan that focused on several goals to implement option four:
• Recover costs.
• Increase the endowment.
• Invest in modest construction improvements.

Agenda Item #9.3:

City of Sonoma Cemeteries 6
• Implement a marketing campaign.
• Increase the number of products.
• Assess pricing annually to assure correct economics.
• Conduct an outside review of conditions biannually to ensure operations are reviewed, recommendations are working, and adjustments can be made as needed.

It is unclear if the City attempted to implement any of the proposed actions for option four, or any other of the options, after this study session. The City appears to have shifted towards retaining the cemeteries and recently sought further analysis on how to improve revenues. In 2022, the City Council contracted with Jack Goodnoe of Cemetery Planning and Design to conduct a planning study, City of Sonoma Cemeteries Planning Study, of the operations and facilities to identify opportunities for increasing inventory of burial options. Recommendations focused on shifting towards cremation and other interment options due to the lack of space at the cemeteries. The report did not include a financial analysis or analysis of cemetery operations, however, it did call out action items to improve cemetery operations:
• Create separate cemetery department with full-time staff. • Upgrade cemetery software to fully digitize record-keeping and sales contract management.
• Upgrade marketing materials and develop new brochures/handouts for cemetery office. • Develop an independent website for cemeteries.
• Establish training programs for inventory options, services, software and recordkeeping, and operational details of each cemetery.

At the time of the Grand Jury investigation of the cemeteries, none of these action items have been implemented, however the City of Sonoma 2022-2023 Budget Book lists the fiscal year goals: “Complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in the Fund.”
Maintenance of the cemetery properties is under the direction of the Public Works Department. Financial responsibilities are under the city manager’s office and the finance department. The final responsibility of the cemetery operations, in the past, has fallen to the city manager. We were told that there is no policies and procedures manual for the cemeteries.

During this investigation several individuals have served as acting or interim city manager and there appears to be a lack of organizational memory regarding cemetery operations.

The Grand Jury discovered, early in its investigation, that sales tax was not being assessed and that tangible items and services were being charged at prices less than their cost from vendors.

The cemeteries provide:
• Niches and crypts.
• Porcelain memorial photos.
• Burial services.
• Burial liners.

Agenda Item #9.3:

City of Sonoma Cemeteries 7
• Precast concretes bases.
• Bronze rings and vase sets and plastic vases.
• Etched and bronze emblems.
• Stone engraving.

Some of these are taxable and others are not. Items that are taxable are burial liners, precast concrete bases for markers, vases with or without rings, and niche or crypt porcelain memorial photos. To process the orders for services, the City includes a flat administrative fee of $75.

Sonoma assesses different burial fee rates for city, county, and out-of-county customers. None of the aforementioned information is provided to the public on the City’s website or by a published schedule of fees.

In researching sales tax collection and undercharging for tangible items, we found that the organizational memory has been significantly weakened by the reassignment of staff to positions that are frequently vacated by termination or resignation. The Cemetery Program staff, one person working part time, does not report directly to a manager overseeing cemetery operations. Oversight of operations, including sales, sales tax, pricing, forms, brochures, and website information appears to be nonexistent.

In reviewing the two cemetery studies from 2005 and 2022, the Grand Jury determined that the City of Sonoma has been unable to implement any of the options or actions to effect an improvement in the financial stability of the Cemetery Enterprise Fund or the Endowment Fund. Considering the operations and management problems encountered in this investigation, both funds would be best served if the operations are improved before investing general funds to develop new burial options.

The Problem of Unassessed Sales Tax
Seeking information on the Sonoma cemeteries and the items and services they sell to the public; we were unable to locate any information on the website as the link to the cemetery brochure is a dead-end page. No staff member was able to produce a printed cemetery fee schedule. The Grand Jury interviewed several witnesses with direct knowledge of and responsibility for some of the operations of the cemeteries, specifically, sales, purchases, and accounting. The Grand Jury reviewed sales receipts as well as invoices from vendors who sell items and services to Sonoma for their cemeteries. City budgets and financial records were examined to understand the financial status and commitments of the cemeteries. Documents from the CDTFA were reviewed to better understand the tax obligations of the cemeteries as they pertained to their role as funeral and memorial dealers.

In reviewing many cemetery invoices from 2021 to present, we did not find any reference to taxable or nontaxable line items, nor was there a line item for sales tax. In reviewing Sonoma’s most recent State, Local, and District Sales and Use Tax Return submitted to the CDTFA for 2022, the Grand Jury learned that the cemeteries collected payments for many sales of tangible items and services, but did not assess, collect, report, or remit any sales tax on tangible items for that year.

Agenda Item #9.3:

City of Sonoma Cemeteries 8
In our interviews with two City employees, we were told by one person that sales tax was built into the sales price whereas another employee stated that it is reported under Use Tax on the CDTFA return. Neither explanation could be verified. Neither explanation is the correct procedure for selling and reporting tangible items.

The Problem of Price Discrepancies
Business enterprises must make a profit on tangible items and services sold. This requires that pricing is set at a markup over the cost from a vendor to ensure that there is a profit.

The Grand Jury reviewed the cemetery sales invoices and the prices charged for the items they purchase from vendors. We also reviewed the invoices from the vendors with the prices charged to the cemeteries and we discovered major discrepancies in pricing of both a tangible item and a service:
• The City has been charging $175 for a ring and vase set since 2019, however, the vendor has raised its price twice since then, to $200 in 2021 and more recently to $250 in 2022. • The City has been charging $13 per character for inscription on a crypt or niche plate, whereas the vendor has been charging $15 per character. o To calculate the value of undercharging $2 per character, we estimate an average of 30 characters per plate which is $60 lost plus the revenue lost on each sale had it been marked up for retail sale.

An enterprise fund is expected to set their fee schedule to generate revenues that assist in sustaining the operations. Charging customers less than cost for these items and services must, presumably, be a gross oversight and unintentional.

The Problem of a Diminishing Endowment Fund
In 1974, the Endowment Fund was established for the perpetual care of the cemeteries’ grounds. The California Health and Safety Code, Section 8736 states:

Ultimately, the intent of endowment care is to ensure privately-owned cemeteries are properly maintained, even after they have sold all of their interment spaces. State law defines endowment care as the following:

Endowment care is a provision for the discharge of a duty due from the persons contributing to the persons interred and to be interred in the cemetery and a provision for the benefit and protection of the public by preserving and keeping cemeteries from becoming unkept and places of reproach and desolation in the communities in which they are situated.

As the cemeteries have been built out and only sell crypts and niches that are assessed with endowment fees, the diminishing Endowment Fund is an issue. If the Endowment Fund is depleted, the City of Sonoma will have to assume all operations and maintenance expenses.

According to the RJM report in 2005, “endowment fees at the time of purchasing a plot or niche should, when invested by the Fund, generate enough interest to pay for ongoing maintenance, replacements, and permanent care needs for all cemetery physical improvement.” At that time, RJM estimated that the necessary amount for the Endowment Fund should be $10,000,000, Agenda Item #9.3:

City of Sonoma Cemeteries 9
and assuming a 3% return on the invested funds, the interest would provide $300,000 for perpetual care and maintenance. In reviewing the general ledger for 2021-2022, the Grand Jury could find only one item reporting interest income for the Endowment Fund, in the amount of $120. A staff member confirmed that this amount is related to the interest on the fund’s investment. The balance of the fund is approximately $750,000 and at this insignificant rate of return, the fund is not sustainable for the future.

In 2016, the City began reporting the transfer of funds from the Endowment Fund to the Cemetery Operations Fund. According to staff, previous budgets did not reference the Cemetery Endowment Fund. This has continued every fiscal year since then. The city manager, with council approval, sets the annual amount to be transferred each fiscal year. As seen in the table below, each year $50,000 has been transferred from the Endowment Fund to the Cemetery Fund.

Source: City of Sonoma Operating and Capital Budget Fiscal Year 2022-23 RJM conducted an inventory of burial options at the cemeteries and determined that inventory was inadequate to ensure future care and maintenance. As shown below, a total of 653 interment sites were available in 2005, and that number has decreased significantly after 13 years. This lack of inventory, combined with the inadequate return on the Endowment Fund investment, puts the future of the cemeteries at risk.

Agenda Item #9.3:

City of Sonoma Cemeteries 10
Source: City of Sonoma Action Plan for City Cemeteries, RJM Design Group, Inc., 2005

CONCLUSION
The Grand Jury examined numerous documents and compared vendor invoices to the sales receipts issued to people who purchased tangible items and services sold by the cemeteries.

The Grand Jury found that no sales tax was charged on any of the supplied invoices for tangible items. The only fees indicated on City of Sonoma sales invoices are a flat administrative service charge. The CDTFA states that tangible products sold are subject to sales tax. After reviewing Sonoma’s financial reports created by their software program, it does not appear that the City charges, reports, or remits sales tax for tangible cemetery sales.

Sonoma has three cemeteries that are not self-sustaining. The Endowment Fund has been financially supplementing the cemeteries since 2016. The general response from staff to questions regarding the cemeteries indicated that they are a service for the public and thus not there to make a large profit. This sentiment is admirable, but the reality is that maintenance costs have risen without an increase in fees. This lack of attention to accounting, pricing, and marketing has contributed to the need to subsidize the cemeteries from the Endowment Fund.

Once this fund is depleted, the cemeteries’ maintenance will have to be subsidized by Sonoma and its taxpayers.

FINDINGS
The Sonoma County Civil Grand Jury determined that:

F1. The City of Sonoma is seriously remiss in not charging, collecting, reporting, or paying sales tax on tangible items sold through the cemeteries, resulting in a liability for the City.

F2. Responsibility for managing collection and payment of sales tax on cemeteries’ tangible items is not delegated to any staff member or department, which has contributed to the City’s failure to meet its responsibility to report and pay the sales tax obligation.

Agenda Item #9.3:

City of Sonoma Cemeteries 11
F3. The cemeteries have been losing money for an undetermined number of years and the operating expenses must be subsidized annually by the Endowment Fund which is not invested to generate adequate income; $50,000 has been transferred for each of the past seven years and presumably will continue, resulting in the eventual depletion of the Endowment Fund.

F4. Sonoma is undercharging for lettering services and ring and vase sets, resulting in financial loss to the Cemetery Enterprise Fund.

F5. The Cemetery Endowment Fund is shrinking since the cemeteries are nearly built out, therefore there are limited opportunities to assess endowment fees. The Fund does not appear to be invested based upon the financial statements.

F6. Recently, the City of Sonoma has had high turnover in several senior management positions. No evidence of a policies and procedures manual exists for any of the cemeteries, nor does the City published information on cemetery fee schedules; all indicating neglect of cemetery operations.

F7. The cemetery invoice forms do not have a line item for calculating sales tax for tangible items therefore, the accounting software program used by Sonoma does not report on their sales tax liability, resulting in failure to charge, collect, report, or pay sales tax to the CDTFA.

RECOMMENDATIONS
The Sonoma County Civil Grand Jury recommends that:

R1. By July 31, 2023, The City of Sonoma contacts the California Department of Tax and Fee Administration to establish procedures to collect, report, and pay sales tax on tangible items sold at the cemeteries. (F1)
R2. By December 31, 2023, The City of Sonoma conducts a thorough analysis of the systems, processes, and procedures related to cemeteries, to include the current software program used. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022-2023) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in the Fund, and we encourage the City to include an operational analysis as well. (F1, F2, F3, F4, F7) R3. By December 31, 2023, the City of Sonoma develops a policies and procedures manual for the operations of the Cemetery Program. (F1, F2, F4, F5, F7) R4. By December 31, 2023, the City of Sonoma designates a manager to oversee the cemetery day-to-day operations. (F2)
R5. By December 31, 2023, the City of Sonoma conducts a thorough review of the Cemetery Endowment Fund. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022-2023) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in that fund and the Grand Jury recommends that the Endowment fund is included in that analysis. (F3, F5) Agenda Item #9.3:

City of Sonoma Cemeteries 12

REQUIRED RESPONSES
Pursuant to Penal Code §§ 933 and 933.05 the Grand Jury requires responses as follows:
• City Council of the City of Sonoma (R1 through R5)
The governing bodies indicated above should be aware that their comments and responses must be conducted subject to the notice, agenda, and open meeting requirements of the Brown Act.

INVITED RESPONSES
• City Manager of the City of Sonoma (R1 through R5)

BIBLIOGRAPHY
Cemetery Maintenance Standards: § 2333.g, California Code of Regulations https://www.cfb.ca.gov/forms_pubs/2017endowcarefund.pdf Cemetery and Funeral Bureau
City of Sonoma Cemeteries web page
https://www.sonomacity.org/departments/cemeteries/
City of Sonoma Operating and Capital Budget Fiscal Year 2022-23 https://storage.googleapis.com/proudcity/sonomaca/uploads/2022/09/BudgetBook-2022-23-08.08.22.pdf Goodnoe Cemetery Planning and Design Report, 2022
https://www.sonomacity.org/documents/sonoma-cemeteries-planning-study-2022/ Preparing for the afterlife: Sonoma plans for Veterans, Valley, Mountain cemetery, https://www.sonomanews.com/article/news/preparing-for-the-afterlife-the-citysplan-for-its-cemeteries/ Sonoma Index-Tribune, https://www.sonomanews.com
Regulation 1505. Funeral Directors
California Department of Tax and Fee,
https://www.cdtfa.ca.gov/lawguides/vol1/sutr/1505.html
Regulation 1572.Memorial Dealers
California Department of Tax and Fee Administration,
https://www.cdtfa.ca.gov/lawguides/vol1/sutr/1572.html
Regulation 1572.350.0004 Adding Second Inscription
California Department of Tax and Fee Administration,
https://www.cdtfa.ca.gov/lawguides/vol2/suta/350-0000-all.html RJM Design Group Report, City of Sonoma Action Plan for Cemeteries, 2005 https://www.sonomacity.org/documents/sonoma-cemeteries-action-plan-2005/ Agenda Item #9.3:

City of Sonoma Cemeteries 13

DISCLAIMER
This report was issued by the Civil Grand Jury, with the exception of a juror who has a conflict of interest with the jurisdiction in this report. This juror was excluded from all parts of the investigation, including interviews, deliberations, and the writing and approval of the report.

Reports issued by the Civil Grand Jury do not identify individuals interviewed. Penal Code Section 929 requires that reports of the Grand Jury not contain the name of any person or facts leading to the identity of any person who provides information to the Civil Grand Jury.

Agenda Item #9.3:

City of Sonoma
RESOLUTION # _____- 2023

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SONOMA APPROVING THE

CITY OF SONOMA RESPONSE TO THE SONOMA COUNTY CIVIL GRAND JURY REPORT TITLED “CITY OF SONOMA CEMETERIES” TO THE SONOMA COUNTY SUPERIOR

COURT AND AUTHORIZING THE MAYOR AND CITY MANAGER TO SIGN THE REQUIRED

RESPONSE FORMS
WHEREAS, on June 13, 2023, the Sonoma County Civil Grand Jury presented their 2022-23 Final Consolidated Grand Jury Report to the City of Sonoma; and WHEREAS, the 2022-23 Final Consolidated Grand Jury Report included a report titled “City of Sonoma Cemeteries”; and
WHEREAS, per California Penal Code Sections 933 and 933.05, the Grand Jury requires that the City of Sonoma respond to seven findings and five recommendations in “City of Sonoma Cemeteries”; and
WHEREAS, responses are requested to be submitted to the Sonoma County Superior Court no more than 60 days after the date of the Grand Jury Report.

NOW, THEREFORE, BE IT RESOLVED that the City Council approves the City of Sonoma responses to the Sonoma County Civil Grand Jury Report titled “City of Sonoma Cemeteries”; and
BE IT FURTHER RESOLVED that the City Council authorizes the Mayor and City Manager to sign the required forms attached as Exhibit A and Exhibit B PASSED AND ADOPTED, at a Regular meeting of the City of Sonoma City Council on this 2nd day of August 2023 by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:
________________________________
Sandra Lowe, Mayor
ATTEST:
________________________________
Rebekah Barr, MMC, City Clerk
Agenda Item #9.3:

EXHIBIT A
Revised June 2022 Response to GJ Report Form
Response to Grand Jury Report Form
Report Title: City of Sonoma Cemeteries
Report Date: June 18, 2023
Response by: Sandra Lowe Title: Mayor
Agency/Department Name: City of Sonoma – City Council
FINDINGS:

F1, F2, F3, F4, F5, F7
I (we) agree with the findings numbered: ______F3, F4_________ I (we) disagree wholly or partially with the findings numbered: ____F1, F2, F5, F6, F7__ (Attach a statement specifying any portions of the findings that are disputed with an explanation of the reasons.)
RECOMMENDATIONS:

R1, R2, R3, R4, R5
• Recommendations numbered: _R1________ have been implemented. (Attach a summary describing the implemented actions.)
• Recommendations numbered: __R2, R3, R4, R5____ have not yet been implemented, but will be implemented in the future.
(Attach a timeframe for the implementation.)
• Recommendations numbered: ________________________________ require(s) further analysis.
(Attach an explanation and the scope and parameters of an analysis or study, and a timeframe for the matter to be prepared for discussion by the officer or director of the agency or department being investigated or reviewed, including the governing body of the public agency when applicable. This timeframe shall not exceed six months from the date of publication of the Grand Jury report.)
• Recommendations numbered: _______________________________ will not be implemented because they are not warranted or are not reasonable. (Attach an explanation.)
Date: Signed:

Number of pages attached:
(See attached PC Civil Grand Jury Response Requirements) Agenda Item #9.3:

EXHIBIT B
Revised June 2022 Response to GJ Report Form
Response to Grand Jury Report Form
Report Title: City of Sonoma Cemeteries
Report Date: June 18, 2023
Response by: David Guhin Title: City Manager
Agency/Department Name: City of Sonoma – City Manager
FINDINGS:

F1, F2, F3, F4, F5, F7
I (we) agree with the findings numbered: ______F3, F4_________ I (we) disagree wholly or partially with the findings numbered: ____F1, F2, F5, F6, F7__ (Attach a statement specifying any portions of the findings that are disputed with an explanation of the reasons.)
RECOMMENDATIONS:

R1, R2, R3, R4, R5
• Recommendations numbered: _R1________ have been implemented. (Attach a summary describing the implemented actions.)
• Recommendations numbered: __R2, R3, R4, R5____ have not yet been implemented, but will be implemented in the future.
(Attach a timeframe for the implementation.)
• Recommendations numbered: ________________________________ require(s) further analysis.
(Attach an explanation and the scope and parameters of an analysis or study, and a timeframe for the matter to be prepared for discussion by the officer or director of the agency or department being investigated or reviewed, including the governing body of the public agency when applicable. This timeframe shall not exceed six months from the date of publication of the Grand Jury report.)
• Recommendations numbered: _______________________________ will not be implemented because they are not warranted or are not reasonable. (Attach an explanation.)
Date: Signed:

Number of pages attached:
(See attached PC Civil Grand Jury Response Requirements) Agenda Item #9.3:

RESPONSE TO GRAND JURY FINDINGS
F1. The City of Sonoma is seriously remiss in not charging, collecting, reporting, or paying sales tax on tangible items sold through the cemeteries, resulting in a liability for the City.

Response: We disagree partially with the finding, see response to R1.

F2. Responsibility for managing collection and payment of sales tax on cemeteries’ tangible items is not delegated to any staff member or department, which has contributed to the City’s failure to meet its responsibility to report and pay the sales tax obligation.

Response: We disagree partially with the finding, see response to R1.

F3. The cemeteries have been losing money for an undetermined number of years and the operation expenses must be subsidized annually by the Endowment Fund which is not invested to generate adequate income; $50,000 has been transferred for each of the past seven years and presumably will continue, resulting in the eventual depletion of the Endowment Fund.

Response: We agree with the finding.

F4. Sonoma is undercharging for lettering services and ring and vase sets, resulting in financial loss to the Cemetery Enterprise Fund.

Response: We agree with the finding.

F5. The Cemetery Endowment Fund is shrinking since the cemeteries are nearly built out, therefore there are limited opportunities to assess endowment fees. The Fund does not appear to be invested based upon the financial statements.

Response: We disagree partially with the finding.

Based on the November 2022 City of Sonoma Cemeteries Planning Study by EDA Land Planning, there is room for increasing capacity in all three City-owned cemeteries to generate additional revenue and increase the endowment fund. Further evaluation of the finances and investment strategy will help to assess the full extent of growth and revenue that can be anticipated.

F6. Recently, the City of Sonoma has had high turnover in several senior management positions. No evidence of a policies and procedures manual exists for any of the cemeteries, nor does the City publish information on cemetery fee schedules; all indicating neglect of cemetery operations.

Response: We disagree partially with the finding.

Some procedures have been developed for sales and the process of working with customers.

Additional policies and procedures are needed and will be developed as mentioned in response to R3.

F7. The cemetery invoice forms do not have a line item for calculating sales tax for tangible items therefore, the accounting software program used by Sonoma does not report on their sales tax liability, resulting in failure to chare, collect, report, or pay sales tax to the CDTFA.

Response: We disagree partially with the finding, see response to R1.

Agenda Item #9.3:

RESPONSE TO GRAND JURY RECOMMENDATIONS
R1. By July 31, 2023, The City of Sonoma contacts the California Department of Tax and Fee Administration to establish procedures to collect, report and pay sales tax on tangible items sold at the cemeteries (F1).

Response: This recommendation has been implemented as follows.

The City of Sonoma examined financial transactions from the Cemetery Enterprise to determine if sales tax is being handled in accordance with California Department of Tax and Fee Administration (CDTFA) regulations.

The three cemeteries operated by the City of Sonoma provide space for interment of remains but, with minor exception, do not engage in the sale of tangible products used in funeral services. The City does not provide items such as caskets or grave markers but may provide associated goods and services, such as the provision of engraving or the addition of a ring and vase set to an existing memorial marker.

Sales and Use Tax Regulation 1505 makes a distinction between funeral directors as retailers and as consumers. An example from that section is included in the recent Grand Jury report. In this example, the funeral director, acting as a retailer, charges the customer sales tax on tangible items, such as the casket in the sample invoice, at the point of sale. In this case, the funeral director would purchase the casket under a seller permit and would not pay sales tax upon purchase from a wholesaler but would collect it at the time of sale to the purchaser of cemetery goods. The City does not act as a retailer and, as mentioned previously, does not sell caskets or other major items associated with burial, as these items are provided by the cemetery’s customers. The City provides interment services, as can be seen by the price list.

The City’s cemetery operation acts as a consumer of tangible, taxable products in the provision of cemetery services. As a consumer, the City should pay the sales tax liability when it purchases items but does not collect sales tax from its customers. To validate our understanding that the City is a consumer of goods in the provision of services, the Interim Finance Director contacted the Santa Rosa branch of the CDTFA on July 17, 2023. The representative confirmed that remitting sales tax when the City purchases taxable items is allowable. Alternatively, the City could obtain a sellers permit and act as a retailer, foregoing tax on items purchased and collecting and remitting sales tax at the point of sale to customers of the City cemeteries, but this would be a more cumbersome process.

To determine if sales & use tax are being paid by the City, we examined the trial balance for the fiscal year ended June 30, 2023. A trial balance provides a detailed list of all financial transactions in a period. We examined 21 invoices from 18 vendors who provide goods and services to the cemetery.

The only vendors excluded were clearly not providers of tangible goods, such as the wireless provider.

Invoices from three of the vendors examined indicated that sales & use tax was not being collected.

All other invoices charged sales tax on the invoice.

The first vendor provides items that affix to memorial markers, such as ceramic opals surfaced with a picture of the deceased. This vendor is a wholesaler of cemetery products and does not ordinarily charge sales tax to its clients, as they are primarily retailers. However, the vendor agreed to apply sales tax to future purchases by the City.

Agenda Item #9.3:

The second vendor is a provider of vaults and liners for use in the cemeteries. These materials are often purchased and installed when interment spaces are being created, often in advance of sale to customers. The vendor of these material is not willing to add sales tax at point of sale, however, the City identifies unpaid use tax on items held in the Public Works inventory and remits this use tax to the CDTFA following the end of each calendar year. Items purchased from this vendor will be treated in the same manner as these inventory items and use tax will be remitted to the state, annually.

The third vendor identified engraves and appoints existing monuments. As an example, when a preneed customer is interred in a niche, this vendor will create a template and provide engraving and, if requested, a ring and vase set on the memorial. Engraving is addressed by the CDTFA and appears to be taxable if added to a new memorial, but not to an existing memorial. An existing marker is an addition to real property and the engraving is not taxable, according to an opinion provided in a 1995 letter ruling from the State Board of Equalization (available on the CDTFA website). Conversely, if the City purchased a new monument with engraving, that engraving would be considered part of the new property, and therefore would be taxable. The additional engraving service provided to the City does not appear to be taxable, as engraving is added to existing real property. However, ring and vase sets and other tangible property are taxable. The vendor was notified to treat the City as a retail customer and add sales tax to tangible property, if applicable.

The City of Sonoma Finance staff will continue to monitor transactions for cemetery operations to ensure sales taxes are properly remitted. The Interim Finance Director also discussed retroactive treatment of sales and use taxes not remitted for taxable items procured from the vendors previously discussed. Following advice from the CDTFA, the City will amend use tax submissions for the previous three calendar years (CY 2020 -22) to correct those deficiencies.

R2. By December 31, 2023, The City of Sonoma conducts a thorough analysis of the systems, processes, and procedures related to cemeteries, to include the current software program used. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022-23) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in the Fund, and we encourage the City to include an operational analysis as well. (F1, F2, F3, F4, F7) Response: This recommendation has been partially implemented and remaining implementation will occur as outline below.

The City of Sonoma Cemeteries Monument Services Fee Form was updated in July 2023 to reflect the current actual costs incurred by the City for engraving services, Ring & Vase Sets, and Photographs.

The revised form is in use for all service inquiries for the City Cemeteries.

On July 18, 2023 City staff and EDA Land Planning met to determine next steps based on findings included in the November 2022 City of Sonoma Cemeteries Planning Study including a financial analysis and development of a strategy to address the Cemetery Fund deficit. A proposed scope of work is being drafted and this analysis will be complete prior to December 31, 2023.

Agenda Item #9.3:

R3. By December 31, 2023, the City of Sonoma develops a policies and procedures manual for the operations of the Cemetery Program. (F1, F2, F4, F5, F7)
Response: The recommendation has not yet been implemented but will be implemented in the future.

The City of Sonoma staff will be updating existing and developing additional policies and procedures for operations of the Cemeteries by December 31, 2023.

R4. By December 31, 2023, the City of Sonoma designates a manager to oversee the cemetery day-to day operations. (F2)
Response: This recommendation has been implemented as follows.

The City Manager has delegated the Cemetery Manager duties to the Assistant to the City Manager in the interim while an analysis of the program, budget and revenue projections are evaluated. Based on the outcome of this analysis, a recommendation to establish a new position dedicated to Cemetery Management will be brought to the City Council for consideration by December 31, 2023.

R5. By December 31, 2023, the City of Sonoma conducts a thorough review of the Cemetery Endowment Fund. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022- 23) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in that fund and the Grand Jury recommends that the Endowment Fund is included in that analysis. (F3, F5)
Response: The recommendation has not yet been implemented but will be implemented in the future.

On July 18, 2023 City staff and EDA Land Planning met to determine next steps based on findings included in the November 2022 City of Sonoma Cemeteries Planning Study including a financial analysis and development of a strategy to address the Cemetery Fund deficit. A proposed scope of work, including evaluation of the Endowment Fund, has been requested for consideration and this analysis will be complete prior to December 31, 2023.

Agenda Item #9.3:

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Agenda Item #9.3:

Agenda Item #9.3:

Agenda Item #9.3:

13 REQUESTED ACTION
Adopt a Resolution Approving the City of Sonoma Response to the Sonoma County Civil Grand Jury Report Titled "City of Sonoma Cemeteries" to the Sonoma County Superior Court and Authorizing the Mayor and City Manager to Sign the Required Response Forms Pursuant to California Penal Code Section 933 and 933.05.

City of Sonoma - Civil Grand Jury Response - August 2, 2023 7/28/2023
13 7
Agenda Item #9.3:

City of Sonoma Cemeteries 1
City of Sonoma Cemeteries
Don’t Bury Your Problems

SUMMARY
The City of Sonoma (Sonoma or City) owns and manages three cemeteries, Mountain, Valley, and Veterans as the Cemetery Enterprise Fund. An enterprise fund operates like a business and is expected to be self-supporting and not subsidized by government funds. The public is eligible to purchase land, tangible items and services from the cemeteries and the City is expected to maintain the cemeteries using revenue from the sales of tangible items and services, crypts, niches, burial plots, and their associated endowment fees. There are no in-ground burial plots available to purchase at any of the cemeteries, only niches and crypts. The tangible items sold by the cemeteries are burial liners, precast concrete bases for markers, ring and vase sets, plastic vases, and niche or crypt porcelain memorial photos. Endowment fees are charged at the time of purchase of a plot, niche, or crypt and are held in the Cemetery Endowment Fund to ensure that income will always be available for maintenance and upkeep of the cemetery. The City Council sets the rates for endowment fees.

This investigation was self-initiated by the 2022-2023 Civil Grand Jury. Early in the investigation it became evident that there are several serious problems facing the Cemetery Program in addition to uncollected sales tax and undercharging of services.

The Grand Jury investigation determined that the City of Sonoma is not assessing, reporting, collecting, or paying sales tax on cemetery tangible items (e.g., burial liners, bronze ring and vase sets, concrete bases for markers, and memorial photographs for niche plates) sold to the public. Additionally, we found that one of the tangible items sold most frequently is the ring and vase set. The cemeteries have been charging less than wholesale cost for this item since 2019. In the matter of undercharging for cemetery services, the Grand Jury determined that the most common service offered, lettering services for crypt and niche plates, is undercharged by $2 per character.

The Grand Jury has determined that the Cemetery Enterprise Fund is losing money due, in part, to numerous management problems. There is no dedicated manager of operations, only a .15 Full-time Equivalent (FTE) Human Resources Manager allocated for oversight of administrative activities. The Cemetery Program does not have a policies and procedures manual or training program. We could find no evidence of regular audits of finances or performance reviews for staff. In the absence of annual pricing reviews of wholesale costs for items sold at the cemeteries; items are being sold at prices less than their cost which leads to a loss of revenue.

There appears to be no marketing plan in place including no schedule of fees on the City website nor printed materials available to the public.

There have been two studies of the Cemetery Program in the past 18 years, one in 2005 (RJM report) and one in 2022 (Goodnoe report). Both studies emphasized the need to manage the operations more efficiently and called for: a dedicated manager for the program, an upgrade to the financial software to improve record-keeping and sales management, upgrading marketing materials, creating a dedicated website, and implementing operational training for staff. The Grand Jury found that the cemeteries do not have focused resources as outlined in these Agenda Item #9.3:

City of Sonoma Cemeteries 2
studies and recommends that the City conduct a thorough operational and financial analysis of the Cemetery Program, including the Endowment Fund.

The Grand Jury is recommending that the City of Sonoma rectify their sales tax problem by contacting the California Department of Tax and Fee Administration (CDTFA) immediately. In addition to this, the City should conduct a thorough financial and operational analysis of the Cemetery Program.

The Cemetery Endowment Fund was established in 1974 to ensure that funds will always be available to maintain the cemetery properties, even after all interment spaces are sold. When a plot, niche, or crypt is sold, endowment fees are collected. The current Cemetery Endowment Fund balance is approximately $750,000 and $50,000 is transferred annually from the fund to the Cemetery Enterprise Fund to cover the costs of maintenance. As the cemeteries have been built out and now only sell a limited number of crypts and niches that are subject to endowment fees, the diminishing Endowment Fund is a serious issue. With the limited ability to collect fees for the Endowment Fund, it will eventually be depleted.

In addition to diminishing endowment fees, the Endowment Fund, that is supposed to be invested to generate interest income for the maintenance of the cemeteries, does not show any investment income. The Grand Jury recommends that the City conduct a thorough review of the Endowment Fund, its requirements as established as well as its investment.

GLOSSARY
• CDTFA: California Department of Tax and Fee Administration, state agency collecting sales tax from retail businesses.
• Crypt: Type of burial chamber, usually made of stone or concrete, that is used to store the remains of the deceased. It is typically located underground and is often sealed with a heavy stone lid.
• Endowment Fund: Endowment fees are placed in trust by cemeteries to generate income to cover cemetery maintenance in perpetuity.
• Enterprise Fund: A self-supporting government fund that sells goods and services to the public for a fee.
• FTE: Full-time Equivalent. When an employee has a 40-hour workweek, they are a 1.0 FTE. If an employee’s position is allocated equally between two departments, it is expressed as .50 FTE to one department and .50 FTE to another. • Interment: The place where a person is laid to rest permanently whether buried or cremated.
• Liners: A concrete reinforced container for a casket to prevent ground from caving in over time.
• Niche: Small space, usually in a wall, where an urn containing cremated remains can be placed.
• Ring and vase set: Bronze ring and vase, usually inscribed.

Agenda Item #9.3:

City of Sonoma Cemeteries 3
• Tangible Items: Personal property that can be seen, weighed, measured, felt, or touched.

BACKGROUND
Sonoma’s Cemetery Program operates as the Cemetery Enterprise Fund. Cemeteries were transitioned to an enterprise fund sometime in the 1990s. Enterprise funds are supposed to be self-sustaining from the sale of burial plots, niches, crypts, tangible items, and services sold. In 1974, an endowment fund was established for the perpetual care of the cemeteries’ grounds.

The three cemetery properties are maintained by the Public Works Department. There is one administrative assistant who works .50 FTE for the cemeteries and .50 FTE for the City Council.

The administrative assistant interfaces with the public, taking pre-need orders, writing up sales receipts and interfacing with the vendors who provide tangible items and services to the cemeteries. It must be noted that the City’s job description for the position of administrative assistant states that the staff person “receives general supervision from a department manager” however, there is no department manager for the cemeteries. Rather, the Human Resources Manager is assigned the responsibility for overseeing administrative activities of the cemeteries with .15 FTE.

When the Grand Jury requested a copy of a policies and procedures manual for the cemeteries, we were provided with a 47-page compilation of copied documents. There are no dates on any of these pages, and it appears that they are very outdated as the examples provided of actual sales receipts are all dated 2010. None of these sales receipt forms have changed since then; they do not have line items for assessing sales tax. This evidence suggests that the City has not assessed, collected, or paid sales tax for at least 13 years and presumably longer. Further, Sonoma’s most recent State, Local, and District Sales and Use Tax Return submitted to the CDTFA for 2022 reflects that the cemeteries collected payments for many sales of tangible items and services, but did not assess, collect, report, or remit any sales tax on tangible items for that year. Another document references the procedures for selling burial plots; the RJM report from 2005 lists 122 burial plots available for sale. That inventory was exhausted many years ago. Clearly, the Cemetery Program has not developed a comprehensive policies and procedures manual that is updated when procedures or costs change.

METHODOLOGY
This investigation was self-initiated by the Civil Grand Jury. From the onset of this investigation, the Grand Jury struggled to secure interviews with the staff associated with the Cemetery Program. The position of city manager has been in flux for several years and during this investigation, there have been three different acting or interim city managers. This April, the City hired a new permanent city manager.

The Grand Jury ultimately interviewed four people from the City: three staff members and a member of the City Council. The City provided most of the documents we requested: Budget Book for 2021-2022, two studies of the cemeteries (2005 and 2022), copies of sales receipts and purchase invoices, a June 30, 2018, audit report of the City’s finances, and a CDTFA sales tax return for 2022. In response to our request for the Cemetery Program policies and procedures manual, we received 47 pages of sample forms dated 2010, cemetery maps and Agenda Item #9.3:

City of Sonoma Cemeteries 4
instructional pages with strikeouts and handwritten notations; presumably these pages have provided direction to the administrative assistant.

The Grand Jury researched California cemeteries and cemetery districts to determine if any of the Sonoma cemeteries are exempt from sales tax and determined that they are not, confirmed by the CDTFA. The CDTFA clearly describes the recommended practice for invoicing cemetery sales to separate services from tangible items that are subject to sales tax. It provides a sample invoice that itemizes the sale by taxable and nontaxable items as well as fees.

Source: CDTFA sample invoice, Regulation 1505

DISCUSSION
The Mountain Cemetery is 60 acres and was built in 1841. This cemetery has historic significance as early settlers of the area are buried there, dating back to when General Mariano Vallejo founded the town of Sonoma in 1844. The Veterans’ Cemetery is only one acre and was acquired in 1960. The Valley Cemetery was founded in 1835 and was originally two acres. It expanded in 1960 to include another two acres that are referred to as the Valley Annex.

The cemeteries provide tangible items such as liners, ring and vase sets, concrete bases for markers, and memorial photographs for niche plates. Under the CDTFA regulations all tangible items that are sold at cemeteries are subject to sales tax.

The Grand Jury found that the Cemetery Program has several serious problems. It is limited in its ability to sell goods and services due to the scarcity of available plots, crypts, and niches. In 1974 the Cemetery Endowment Fund was established to provide perpetual care of the cemeteries’ grounds. Endowment funds, held in escrow, are invested to ensure that there will be adequate monies for maintenance of interment, entombment, and inurnment sites. With a steady decrease in cemetery revenues and inadequate return on the invested endowment funds, the City Council approved, in 2016, the transfer of $50,000 from the Cemetery Endowment Fund to the Cemetery Enterprise Fund. The city manager recommends the Funeral director's invoice to client:

Charges: Amount:

Maple Casket (t) 2,895.00
Additional Copies of Life Tribute DVD (t) ($25/ea. x 10) 250.00 Total of Items Subject to Tax $3,145.00
Traditional Chapel Burial Package $4,945.00
Fees for Cash Advance items: Amount:

County filing fee 12.00
Certified copy of Death Certificate 21.00
Organist 225.00
Total Fees $258.00
Total Nontaxable $5,203.00
Total Taxable $3,145.00
Sales Tax ($3,145.00) x 8.25% 259.46
Grand Total $8,607.46
(t) = Tangible personal property
Agenda Item #9.3:

City of Sonoma Cemeteries 5
amount, and the City Council approves it. Every year since 2016, $50,000 has been transferred.

Prior to 2016, budgets do not reference the Cemetery Endowment Fund. At this rate, if the cemeteries do not improve revenues, the Endowment Fund will eventually be depleted. The California Funeral and Cemetery Bureau site provides this citation that highlights the importance of generating endowment care fees and sales revenue to support the maintenance of the cemetery.
(g) The amount collected by the cemetery in endowment care fees under Health and Safety Code Section 8738 shall be reconsidered annually by the cemetery based upon current and projected maintenance expenditures, and adjusted as necessary to ensure that sufficient funds are available to perform the maintenance required by their rules and regulations as described in subdivision (a) or subdivision (b) of this Section if subdivision (a) is not applicable.

The Problem of Unheeded Analyses of Cemetery Operations Twice in the past 18 years, the City has contracted for studies of the cemeteries. In 2005, the RJM Design Group (RJM) was engaged by the Public Works Department to analyze the financial and operational practices of the cemeteries and make recommendations for an action plan.

They conducted a three-month study, City of Sonoma Action Plan for City Cemeteries, and reported the pros and cons of the Cemetery Program in July 2005:

Pros Cons
Reasonable maintenance budget exists Not enough interment products Provides a service to the community Not enough variety of products Cemeteries are historic resources Inadequate Endowment Fund RJM’s action plan identified four options for the cemeteries at that time:

1. Terminate cemetery options as a business center and perform only maintenance.

2. Sell the cemeteries to a private operator.

3. Terminate operations and sell the undeveloped property.

4. Continue providing services in such a way that lessens the financial burden on the City’s general fund.

The fourth option was presented as the suggested alternative with the focus primarily on increasing burial options. Cemetery operations were mentioned as part of the plan to increase services, including the appointment of a cemetery manager and adequate staff for both operations and maintenance of facilities.

In 2007, the City Council conducted a study session on the action plan that arose from the RJM Master Plan. At a City Council meeting, the council reviewed proposed plans and programs for operation of the cemeteries. RJM gave a PowerPoint presentation refresher on the plan that focused on several goals to implement option four:
• Recover costs.
• Increase the endowment.
• Invest in modest construction improvements.

Agenda Item #9.3:

City of Sonoma Cemeteries 6
• Implement a marketing campaign.
• Increase the number of products.
• Assess pricing annually to assure correct economics.
• Conduct an outside review of conditions biannually to ensure operations are reviewed, recommendations are working, and adjustments can be made as needed.

It is unclear if the City attempted to implement any of the proposed actions for option four, or any other of the options, after this study session. The City appears to have shifted towards retaining the cemeteries and recently sought further analysis on how to improve revenues. In 2022, the City Council contracted with Jack Goodnoe of Cemetery Planning and Design to conduct a planning study, City of Sonoma Cemeteries Planning Study, of the operations and facilities to identify opportunities for increasing inventory of burial options. Recommendations focused on shifting towards cremation and other interment options due to the lack of space at the cemeteries. The report did not include a financial analysis or analysis of cemetery operations, however, it did call out action items to improve cemetery operations:
• Create separate cemetery department with full-time staff. • Upgrade cemetery software to fully digitize record-keeping and sales contract management.
• Upgrade marketing materials and develop new brochures/handouts for cemetery office. • Develop an independent website for cemeteries.
• Establish training programs for inventory options, services, software and recordkeeping, and operational details of each cemetery.

At the time of the Grand Jury investigation of the cemeteries, none of these action items have been implemented, however the City of Sonoma 2022-2023 Budget Book lists the fiscal year goals: “Complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in the Fund.”
Maintenance of the cemetery properties is under the direction of the Public Works Department. Financial responsibilities are under the city manager’s office and the finance department. The final responsibility of the cemetery operations, in the past, has fallen to the city manager. We were told that there is no policies and procedures manual for the cemeteries.

During this investigation several individuals have served as acting or interim city manager and there appears to be a lack of organizational memory regarding cemetery operations.

The Grand Jury discovered, early in its investigation, that sales tax was not being assessed and that tangible items and services were being charged at prices less than their cost from vendors.

The cemeteries provide:
• Niches and crypts.
• Porcelain memorial photos.
• Burial services.
• Burial liners.

Agenda Item #9.3:

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• Precast concretes bases.
• Bronze rings and vase sets and plastic vases.
• Etched and bronze emblems.
• Stone engraving.

Some of these are taxable and others are not. Items that are taxable are burial liners, precast concrete bases for markers, vases with or without rings, and niche or crypt porcelain memorial photos. To process the orders for services, the City includes a flat administrative fee of $75.

Sonoma assesses different burial fee rates for city, county, and out-of-county customers. None of the aforementioned information is provided to the public on the City’s website or by a published schedule of fees.

In researching sales tax collection and undercharging for tangible items, we found that the organizational memory has been significantly weakened by the reassignment of staff to positions that are frequently vacated by termination or resignation. The Cemetery Program staff, one person working part time, does not report directly to a manager overseeing cemetery operations. Oversight of operations, including sales, sales tax, pricing, forms, brochures, and website information appears to be nonexistent.

In reviewing the two cemetery studies from 2005 and 2022, the Grand Jury determined that the City of Sonoma has been unable to implement any of the options or actions to effect an improvement in the financial stability of the Cemetery Enterprise Fund or the Endowment Fund. Considering the operations and management problems encountered in this investigation, both funds would be best served if the operations are improved before investing general funds to develop new burial options.

The Problem of Unassessed Sales Tax
Seeking information on the Sonoma cemeteries and the items and services they sell to the public; we were unable to locate any information on the website as the link to the cemetery brochure is a dead-end page. No staff member was able to produce a printed cemetery fee schedule. The Grand Jury interviewed several witnesses with direct knowledge of and responsibility for some of the operations of the cemeteries, specifically, sales, purchases, and accounting. The Grand Jury reviewed sales receipts as well as invoices from vendors who sell items and services to Sonoma for their cemeteries. City budgets and financial records were examined to understand the financial status and commitments of the cemeteries. Documents from the CDTFA were reviewed to better understand the tax obligations of the cemeteries as they pertained to their role as funeral and memorial dealers.

In reviewing many cemetery invoices from 2021 to present, we did not find any reference to taxable or nontaxable line items, nor was there a line item for sales tax. In reviewing Sonoma’s most recent State, Local, and District Sales and Use Tax Return submitted to the CDTFA for 2022, the Grand Jury learned that the cemeteries collected payments for many sales of tangible items and services, but did not assess, collect, report, or remit any sales tax on tangible items for that year.

Agenda Item #9.3:

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In our interviews with two City employees, we were told by one person that sales tax was built into the sales price whereas another employee stated that it is reported under Use Tax on the CDTFA return. Neither explanation could be verified. Neither explanation is the correct procedure for selling and reporting tangible items.

The Problem of Price Discrepancies
Business enterprises must make a profit on tangible items and services sold. This requires that pricing is set at a markup over the cost from a vendor to ensure that there is a profit.

The Grand Jury reviewed the cemetery sales invoices and the prices charged for the items they purchase from vendors. We also reviewed the invoices from the vendors with the prices charged to the cemeteries and we discovered major discrepancies in pricing of both a tangible item and a service:
• The City has been charging $175 for a ring and vase set since 2019, however, the vendor has raised its price twice since then, to $200 in 2021 and more recently to $250 in 2022. • The City has been charging $13 per character for inscription on a crypt or niche plate, whereas the vendor has been charging $15 per character. o To calculate the value of undercharging $2 per character, we estimate an average of 30 characters per plate which is $60 lost plus the revenue lost on each sale had it been marked up for retail sale.

An enterprise fund is expected to set their fee schedule to generate revenues that assist in sustaining the operations. Charging customers less than cost for these items and services must, presumably, be a gross oversight and unintentional.

The Problem of a Diminishing Endowment Fund
In 1974, the Endowment Fund was established for the perpetual care of the cemeteries’ grounds. The California Health and Safety Code, Section 8736 states:

Ultimately, the intent of endowment care is to ensure privately-owned cemeteries are properly maintained, even after they have sold all of their interment spaces. State law defines endowment care as the following:

Endowment care is a provision for the discharge of a duty due from the persons contributing to the persons interred and to be interred in the cemetery and a provision for the benefit and protection of the public by preserving and keeping cemeteries from becoming unkept and places of reproach and desolation in the communities in which they are situated.

As the cemeteries have been built out and only sell crypts and niches that are assessed with endowment fees, the diminishing Endowment Fund is an issue. If the Endowment Fund is depleted, the City of Sonoma will have to assume all operations and maintenance expenses.

According to the RJM report in 2005, “endowment fees at the time of purchasing a plot or niche should, when invested by the Fund, generate enough interest to pay for ongoing maintenance, replacements, and permanent care needs for all cemetery physical improvement.” At that time, RJM estimated that the necessary amount for the Endowment Fund should be $10,000,000, Agenda Item #9.3:

City of Sonoma Cemeteries 9
and assuming a 3% return on the invested funds, the interest would provide $300,000 for perpetual care and maintenance. In reviewing the general ledger for 2021-2022, the Grand Jury could find only one item reporting interest income for the Endowment Fund, in the amount of $120. A staff member confirmed that this amount is related to the interest on the fund’s investment. The balance of the fund is approximately $750,000 and at this insignificant rate of return, the fund is not sustainable for the future.

In 2016, the City began reporting the transfer of funds from the Endowment Fund to the Cemetery Operations Fund. According to staff, previous budgets did not reference the Cemetery Endowment Fund. This has continued every fiscal year since then. The city manager, with council approval, sets the annual amount to be transferred each fiscal year. As seen in the table below, each year $50,000 has been transferred from the Endowment Fund to the Cemetery Fund.

Source: City of Sonoma Operating and Capital Budget Fiscal Year 2022-23 RJM conducted an inventory of burial options at the cemeteries and determined that inventory was inadequate to ensure future care and maintenance. As shown below, a total of 653 interment sites were available in 2005, and that number has decreased significantly after 13 years. This lack of inventory, combined with the inadequate return on the Endowment Fund investment, puts the future of the cemeteries at risk.

Agenda Item #9.3:

City of Sonoma Cemeteries 10
Source: City of Sonoma Action Plan for City Cemeteries, RJM Design Group, Inc., 2005

CONCLUSION
The Grand Jury examined numerous documents and compared vendor invoices to the sales receipts issued to people who purchased tangible items and services sold by the cemeteries.

The Grand Jury found that no sales tax was charged on any of the supplied invoices for tangible items. The only fees indicated on City of Sonoma sales invoices are a flat administrative service charge. The CDTFA states that tangible products sold are subject to sales tax. After reviewing Sonoma’s financial reports created by their software program, it does not appear that the City charges, reports, or remits sales tax for tangible cemetery sales.

Sonoma has three cemeteries that are not self-sustaining. The Endowment Fund has been financially supplementing the cemeteries since 2016. The general response from staff to questions regarding the cemeteries indicated that they are a service for the public and thus not there to make a large profit. This sentiment is admirable, but the reality is that maintenance costs have risen without an increase in fees. This lack of attention to accounting, pricing, and marketing has contributed to the need to subsidize the cemeteries from the Endowment Fund.

Once this fund is depleted, the cemeteries’ maintenance will have to be subsidized by Sonoma and its taxpayers.

FINDINGS
The Sonoma County Civil Grand Jury determined that:

F1. The City of Sonoma is seriously remiss in not charging, collecting, reporting, or paying sales tax on tangible items sold through the cemeteries, resulting in a liability for the City.

F2. Responsibility for managing collection and payment of sales tax on cemeteries’ tangible items is not delegated to any staff member or department, which has contributed to the City’s failure to meet its responsibility to report and pay the sales tax obligation.

Agenda Item #9.3:

City of Sonoma Cemeteries 11
F3. The cemeteries have been losing money for an undetermined number of years and the operating expenses must be subsidized annually by the Endowment Fund which is not invested to generate adequate income; $50,000 has been transferred for each of the past seven years and presumably will continue, resulting in the eventual depletion of the Endowment Fund.

F4. Sonoma is undercharging for lettering services and ring and vase sets, resulting in financial loss to the Cemetery Enterprise Fund.

F5. The Cemetery Endowment Fund is shrinking since the cemeteries are nearly built out, therefore there are limited opportunities to assess endowment fees. The Fund does not appear to be invested based upon the financial statements.

F6. Recently, the City of Sonoma has had high turnover in several senior management positions. No evidence of a policies and procedures manual exists for any of the cemeteries, nor does the City published information on cemetery fee schedules; all indicating neglect of cemetery operations.

F7. The cemetery invoice forms do not have a line item for calculating sales tax for tangible items therefore, the accounting software program used by Sonoma does not report on their sales tax liability, resulting in failure to charge, collect, report, or pay sales tax to the CDTFA.

RECOMMENDATIONS
The Sonoma County Civil Grand Jury recommends that:

R1. By July 31, 2023, The City of Sonoma contacts the California Department of Tax and Fee Administration to establish procedures to collect, report, and pay sales tax on tangible items sold at the cemeteries. (F1)
R2. By December 31, 2023, The City of Sonoma conducts a thorough analysis of the systems, processes, and procedures related to cemeteries, to include the current software program used. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022-2023) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in the Fund, and we encourage the City to include an operational analysis as well. (F1, F2, F3, F4, F7) R3. By December 31, 2023, the City of Sonoma develops a policies and procedures manual for the operations of the Cemetery Program. (F1, F2, F4, F5, F7) R4. By December 31, 2023, the City of Sonoma designates a manager to oversee the cemetery day-to-day operations. (F2)
R5. By December 31, 2023, the City of Sonoma conducts a thorough review of the Cemetery Endowment Fund. The Grand Jury is aware that the City of Sonoma has cited their intention, in their fiscal year (2022-2023) goals, to complete a financial analysis of the Cemetery Fund and develop a plan for resolution of the deficit in that fund and the Grand Jury recommends that the Endowment fund is included in that analysis. (F3, F5) Agenda Item #9.3:

City of Sonoma Cemeteries 12

REQUIRED RESPONSES
Pursuant to Penal Code §§ 933 and 933.05 the Grand Jury requires responses as follows:
• City Council of the City of Sonoma (R1 through R5)
The governing bodies indicated above should be aware that their comments and responses must be conducted subject to the notice, agenda, and open meeting requirements of the Brown Act.

INVITED RESPONSES
• City Manager of the City of Sonoma (R1 through R5)

BIBLIOGRAPHY
Cemetery Maintenance Standards: § 2333.g, California Code of Regulations https://www.cfb.ca.gov/forms_pubs/2017endowcarefund.pdf Cemetery and Funeral Bureau
City of Sonoma Cemeteries web page
https://www.sonomacity.org/departments/cemeteries/
City of Sonoma Operating and Capital Budget Fiscal Year 2022-23 https://storage.googleapis.com/proudcity/sonomaca/uploads/2022/09/BudgetBook-2022-23-08.08.22.pdf Goodnoe Cemetery Planning and Design Report, 2022
https://www.sonomacity.org/documents/sonoma-cemeteries-planning-study-2022/ Preparing for the afterlife: Sonoma plans for Veterans, Valley, Mountain cemetery, https://www.sonomanews.com/article/news/preparing-for-the-afterlife-the-citysplan-for-its-cemeteries/ Sonoma Index-Tribune, https://www.sonomanews.com
Regulation 1505. Funeral Directors
California Department of Tax and Fee,
https://www.cdtfa.ca.gov/lawguides/vol1/sutr/1505.html
Regulation 1572.Memorial Dealers
California Department of Tax and Fee Administration,
https://www.cdtfa.ca.gov/lawguides/vol1/sutr/1572.html
Regulation 1572.350.0004 Adding Second Inscription
California Department of Tax and Fee Administration,
https://www.cdtfa.ca.gov/lawguides/vol2/suta/350-0000-all.html RJM Design Group Report, City of Sonoma Action Plan for Cemeteries, 2005 https://www.sonomacity.org/documents/sonoma-cemeteries-action-plan-2005/ Agenda Item #9.3:

City of Sonoma Cemeteries 13

DISCLAIMER
This report was issued by the Civil Grand Jury, with the exception of a juror who has a conflict of interest with the jurisdiction in this report. This juror was excluded from all parts of the investigation, including interviews, deliberations, and the writing and approval of the report.

Reports issued by the Civil Grand Jury do not identify individuals interviewed. Penal Code Section 929 requires that reports of the Grand Jury not contain the name of any person or facts leading to the identity of any person who provides information to the Civil Grand Jury.

Agenda Item #9.3: