05-28-2024 City Council Meeting II Minutes Page 1
MINUTES OF THE SECOND REGULAR MEETING OF THE TRINIDAD CITY COUNCIL TUESDAY, MAY 28, 2024 (LIVE/HYBRID)
I. CALL TO ORDER
Mayor Kelly called the live-hybrid meeting to order at 6:00pm. Council members in attendance: Kelly, Tuttle, Breckenridge. West attending by videoconference. Ladwig was absent. City Staff in attendance: City Manager Eli Naffah, City Clerk Gabriel Adams, Project Manager Jennifer Hakenen, Administrative Assistant Anton Souza. Grant Director Becky Price-Hall, Grant Administrator Angela Cather, and City Planner Trever Parker attending by videoconference. Approximately (6) participants were present by video-conference, and (5) were present live at the beginning of the meeting.
II. PLEDGE OF ALLEGIANCE
III. CLOSED SESSION
1. Personnel Exception 54957 - City Manager Performance Evaluation IV. RECONVENE TO OPEN SESSION – no reportable action taken.
V. APPROVAL OF THE AGENDA
Motion (Kelly/Breckenridge) to approve the agenda as submitted. Passed 4-0.
VI. APPROVAL OF MINUTES – No minutes submitted for review.
VII. ITEMS FROM THE FLOOR – No items from the floor presented. (Three (3) minute limit per Speaker unless Council approves request for extended time.) VIII.CONSENT AGENDA
1. Second Reading of Ordinance 2024-01; Adding New Chapter 4 to Title 3 of the Trinidad Municipal Code to Provide Informal Bidding Procedures Under the Uniform Public Construction Cost Accounting Action.
2. Authorize Staff to Develop a Proposal for the Adaptation Planning Grant Program (APGP) to Submit to the State of California Office of Planning and Research (OPR), for Edwards Street and Public Access Resiliency and Adaptation Plan.
Motion (Breckenridge/Tuttle) to approve the consent agenda as submitted. Passed 4-0.
IX. DISCUSSION/ACTION AGENDA ITEMS
1. Discussion/Decision to Appoint Two (2) Councilmember Representatives to Participate in a Government-toGovernment Meeting with the Trinidad Rancheria.
City Manager Naffah explained that per the City’s Government-to-Government Consultation (G2G) Policy, two Council Members can be appointed as an Ad-Hoc Committee for a G2G. The Trinidad Rancheria has requested a G2G regarding the Tribal Harbor Properties and the fee-to-trust status. The request for a meeting was made on May 8, 2024. No specific meeting date was selected yet.
Public comment included:
Jacque Hostler – Trinidad Rancheria Executive Director
The Rancheria tries to hold G2G meetings during Tribal Council meetings, the next being on June 13.
Customarily the Mayor or Mayor Pro-Tem participates, but we’re happy to meet with any members appointed.
Motion (West/Breckenridge) to appoint Tuttle and Kelly to participate in the G2G with the Rancheria as requested. Passed 4-0.
2. Presentation/Discussion/Decision regarding 2024 Water Rate Study City Manager Naffah explained that the City is overdue for a water rate study. This study is being conducted by Rural Community Assistance Corportaion (RCAC), with funding provided by the USDA. Introduced RCAC representative Samantha Ryan.
Ryan explained the services RCAC provides to rural communities. The water rate study findings have resulted in 3 options provided. Comments will be taken today and staff will return on June 11 with responses and/or 05-28-2024 City Council Meeting II Minutes Page 2
revised options. It is industry standard to revise rates every 5 years. The last study was done in 2012, with the last 2.5% CPI increase applied on 2017. Since then inflation has climbed 25%. Operating costs have increased significantly due to the hiring of Coleman Engineering after the loss of the in-house T-3 operator.
The rate study process examines the revenue requirements, cost of service analysis, and develops a rate design. The current status of the water enterprise fun is based on FYE2022. Expenses that year was $688,138.
Revenue was $331,370. The system lost $356,768. FYE2025 Rate Study budget expects expenses at $637,387, with revenue of $338,000, again losing approximately $299,000.
Water Operating Fund expenses reached a peak in 2023 of over $700,000 due to the high cost of Coleman Engineering to operate the system, along with paying in-house staff in-training. The fund continues to spend at an alarming rate, depleting all the remaining capital improvement funds.
The Capital Improvement Fund includes all assets, installation dates, and life expectancy. A replacement plan is developed to anticipate future expenses. Typically RCAC and State agencies like to see higher amounts of cash to replace specific infrastructure. The City of Trinidad has an aggressive grant program that has successfully achieved funding to replace aging infrastructure, so the cash component in this rate study has been reduced to make the rates more affordable.
RCAC recommends collecting $152,264 from customer rates annually. $761,230 should be collected over the 5- year rate study. Due to affordability, all rate options are aimed at collecting approximately $240,000 total over the 5-year period. Rate Options 2 & 3 use the General Fund gift/loan to accomplish this goal.
The reserve had $1,170,000 as of FYE 2022 audited financials. Over half of the Water Capital Improvement Reserves were used to cover Operating Fund deficits at the end of FYE 2022 and continues to cover any deficits.
Public questions included:
Dwight Miller – Trinidad
How much money is currently left in the reserve? City Clerk Adams explained that June 30, 2023 approximately $277k. By June 30, 2024 the reserve will be depleted.
Aaron Hakenen – Trinidad
The audio tonight is challenging. How many opportunities did the City have to increase the rates since 2017.
Councilmember Breckenridge echoed this question. The report recommends $1.4 million in reserve. At one point the City was very close to the targeted reserve, correct? City Clerk Adams explained that a 2.5% CPI increase was added from 2013-2017, but ended at that point. The prior City Manager attempted a rate increase in 2018, but the Council required it to go out to bid after GHD submitted an estimate for $14,000. The City Manager was unable to accomplish this before his resignation in 2019. Before the new City Manager was able to complete the task, the prior in-house T-3 Operator resigned, then Covid hit in 2020 and made it nearly impossible to predict the budget and financial profile of the system. At this point the water fund cannot afford to wait any longer.
Jacque Hostler – Trinidad Rancheria Executive Director
I’m curious about the explosive cost – expenses – of operating the treatment plant. Please refresh us why it costs over $600k per year to run the Plant. Was there a recruitment process conducted before hiring such an expensive firm to run the system?... or over the last year or so after? Ryan explained that the sharp increase in cost was related to the in-house T-3 Operator resigning, requiring the hiring of the contract firm Coleman Engineering to run the system. The City’s reserve fund was very close to the model standard before operating costs spiked.
City Manager Naffah explained that we tried recruiting but no successful candidates were found. Subsequently, Coleman Engineering tried recruiting, but was unsuccessful as well. Other engineering firms were contacted, but their costs were higher. Water Talent was also contacted, but their operator was too expensive as well.
Ryan explained reserve funding targets. O&M target recommendation is 3 times the expenses during the billing cycle ($119,536). Emergency Reserve is the cost to replace the most critical equipment, such as a well pump ($10,000). Debt reserves (none collected due to no loans). Capital Reserves should be a minimum of an 05-28-2024 City Council Meeting II Minutes Page 3
average annual rehab and replacement budget, based on $12.9 million asset value, so $1.29 million (but not less than $152k.
Rate Options Presented:
1. Base Rate by location, Uniform usage charge, No gift/loan from General Fund, highest rates.
2. Base Rate by location, Uniform usage charge, gift/loan from General Fund, more affordable.
3. Base Rate by meter size, Uniform usage charge, gift/loan from General Fund, Affordable and recommended by RCAC.
RCAC believe costs should be allocated to customers as can reasonably be determined or estimated while respecting the policy preference of the water agency as long as there is a reasonable cost basis. 1) Variable Base Rate (location), 2) AWWA Meter equivalency, 3) Variable Usage Rate (location), and 4) Uniform Usage Rate.
City Manager Naffah explained his rational, using interesting math and tax calculations, justifying his preference for keeping the outside city rate higher.
Aaron Hakenen – Trinidad
I’m not following how Naffah’s calculations account for sales tax revenue generated by residents spending inside city limits? Naffah dove into consumer spending habits and how/where they spend.
Tuttle: We need input from businesses as a significant increase will affect their costs.
Paula Levine – Trinidad area resident/Water Service Customer Is RCAC recommending a rate differential in/out city? Ryan explained that the base rate is expected to cover fixed costs, and making water available at the house.
Ryan explained that the AWWA meter equivalency ratio option that takes into account the capacity calculations relative to cost. This industry standard would expect a 4” meter would be 25 times the cost of a ¾” meter, but that’s not what rate option 3 describes. Staff expressed the increase would be too extreme, so it was not preferred. It is also recommended by RCAC to no longer have different usage rates between inside and outside city limits based on 2015 case law.
Rate Comparison
Inside Rates
Meter Size Current RO#1 RO#2 RO#3
Inside - ¾” 45.23 75.47 59.11 63.44
Inside – 1” 45.23 75.47 59.11 85.03
Inside - 1.5” 45.23 75.47 59.11 120.33
Inside – 4” 45.23 75.47 59.11 602.40
Rate per 100 CF 4.42 7.75 5.85 5.54
Outside Rates
Meter Size Current RO#1 RO#2 RO#3
Outside - ¾” 56.54 94.34 73.89 63.44
Outside – 1” 56.54 94.34 73.89 85.03
Outside - 1.5” 56.54 94.34 73.89 120.33
Outside – 4” 56.54 94.34 73.89 602.40
Rate per 100 CF 5.54 7.75 5.85 5.54
05-28-2024 City Council Meeting II Minutes Page 4
• The monthly bill for the average ¾”
inside residential customer would be
$121.97
• The monthly bill for the average ¾”
outside residential customer would be
$140.84
Rate Option #1
Rate Option #1
Standard Rates
2025 2026 2027 2028 2029
Inside City
Limits
75.47 81.51 88.03 95.07 102.68
Outside City
Limits 94.34 101.88 110.04 118.84 128.35
Rate per
100 CF
7.75 8.37 9.04 9.76 10.64
Percent Increases - Rate Option #1
Standard Rates
2025 2026 2027 2028 2029
Inside City
Limits 67% 8% 8% 8% 8%
Outside City
Limits 67% 8% 8% 8% 8%
Rate per
100 CF 40-75% 8% 8% 8% 8%
Affordability (% MHI)
2025 2026 2027 2028 2029
Inside City
Limits 1.91% 2.06% 2.23% 2.40% 2.61%
Outside
City Limits 2.20% 2.38% 2.57% 2.78% 3.01%
• The monthly bill for the average ¾”
inside residential customer would be
$94.21
• The monthly bill for the average ¾”
outside residential customer would be
$108.99
Rate Option #2
Rate Option #2
Standard Rates
2025 2026 2027 2028 2029
Inside City
Limits
59.11 65.02 71.52 78.68 86.54
Outside City
Limits 73.89 81.28 89.40 98.34 108.18
Rate per
100 CF
5.85 6.44 7.08 7.79 8.56
Percent Increases - Rate Option #2
Standard Rates
2025 2026 2027 2028 2029
Inside City
Limits 31% 10% 10% 10% 10%
Outside City
Limits 31% 10% 10% 10% 10%
Rate per
100 CF 6-32% 10% 10% 10% 10%
Affordability (% MHI)
2025 2026 2027 2028 2029
Inside City
Limits
1.47% 1.62% 1.78% 1.96% 2.16%
Outside
City Limits
1.71% 1.88% 2.06% 2.27% 2.50%
• The monthly bill for the average ¾”
inside residential customer would be
$96.68
• The monthly bill for the average ¾”
outside residential customer would be
$96.68
Rate Option #3 Rate Option #3
Standard Rates
2025 2026 2027 2028 2029
¾” 63.44 69.72 76.72 84.46 93.02
1” 85.03 92.26 101.00 110.91 122.04
1.5” 120.33 131.73 144.71 159.16 175.21
4” 602.40 667.14 735.45 809.73 891.01
Rate/100 CF 5.54 5.93 6.35 6.99 7.71
Affordability (% MHI)
2025 2026 2027 2028 2029
Inside City
Limits
1.51% 1.65% 1.80% 1.98% 2.18%
Outside
City Limits
1.51% 1.65% 1.80% 1.98% 2.18%
Percent Increases - Rate Option #3
Standard Rates
2025 2026 2027 2028 2029
¾” 12-40% 10% 10% 10% 10%
1” 50-88% 9% 9% 10% 10%
1.5” 113-166% 9% 10% 10% 10%
4” 184-255% 11% 10% 10% 10%
Rate/100 CF 0-25% 7% 7% 10% 10%
05-28-2024 City Council Meeting II Minutes Page 5
AFFORDABILITY
Ryan explained that affordability is a measurement based on the Mean Household Income. If your system is above
1.5% it’s a medium risk. Above 2.5% is high risk. Once the system reached a specific number of points accumulated relative to affordability, the system is considered high risk and will be approached for consolidation.
Naffah explained that the intent was the increases to be gradual over the next 5-years, with Council expected to reevaluate rates prior to the fifth year.
Adams noted the high-risk affordability rates include the General Fund gift (and loan) but still do not rebuild the capital reserve fund.
Ryan presented the budget for each rate option.
Rate Option 1 has a net loss to cash ($468k) but a net gain to capital reserve of approximately $243k. No gift/loan from General Fund.
Kelly: How confident are we that the contracted services rate will go down to $62k next fiscal year? How can we lose cash flow, but gain in reserves? Rate Option 1 & 3, Inside vs. outside rates are not the trend, and I can’t come up with a good argument for doing it. Rate Option 3 is a big increase for the businesses and Rancheria.
Naffah noted confidence that it will be higher, but over time, however, he expects to budget up to $5k for Coleman Engineering services each month. Also, regarding inside/outside, I showed justification that mostly taxes that should benefit city residents are now being used to support the water fund. Further, equalizing rates removes the attractiveness of annexation (opinion).
Ryan explained that included in the budget is funding capital reserves. It includes an O&M reserve to build up to the recommendation in 10 years. The net loss or gain is how much you’re underfunding the reserves, but covering your annual O&M.
Rate Option 2 stays under the 2.5% affordability inside city limits, but outside city limits will reach that in 2029.
Rates stay relatively low due to inside/outside differential (with outside paying more of the increase). Includes gift/loan from General Fund.
Tuttle: I’d love to see a tiered system to encourage conservation, or a rebate/credit system to reward conservation.
Ryan noted that the State Water Board would agree with you, but case law argues that tiered rates are not justifiable, yet. Currently, however, it’s not recommended. Proposition 218 requires significant, financial justification to determine rate differentials or tiered systems. Annexation desirability is not justifiable.
Public comment included:
Bryce Kenny – Trinidad
I’ve been listening with great interest to everything said tonight. I researched Prop 218 for several hours. The more I learn, the more I believe that our onsultant is guiding you appropriately on the tiered rate structure concept. Tiered rates are problematic. The City bears the burden of justification, in great detail. The City is the only agency that has to take $550k of general funds and forego the benefits of those funds. There’s no easy way out. We need to get our act together and find a T-3 Operator to get out of this jam. When I first heard the contractor’s $30k/month figure, I couldn’t believe it, and I protested. We need to find a way out of it. The system has to pay for itself. There’s going to be a lot of pain involved, but I think our consultant should be listened to very carefully.
Rate Option 3 ends up with a net gain loss in reserve, but a positive cash balance. With meter size differential, larger customers bear the burden of the increase. Affordability remains below 2.5% MHI during the rate period. $300k gift included. Reserve shortfall, but cash positive ($240k).
Trinidad will fall on the higher end of water cost in the region, next to Westhaven with any of the proposed rates.
Paula Levine – Trinidad Area Resident/Water Customer
Outside city residents have always paid more. Equal rates bring more revenue to the system. It is more equitable to equalize the rates. We have been paying more for 50 years. Water is a basic need. 05-28-2024 City Council Meeting II Minutes Page 6
Jacque Hostler – Trinidad Rancheria Executive Director
Rate 3 would be a severe hardship to the Casino. The Rancheria through Indian Health Services (IHS) grant funding has contributed much of the water infrastructure. We can talk more about this at the next G2G meeting. The Rancheria is still moving forward with the Humboldt Bay Municipal Water connection request.
Ryan explained the AWWA meter size option criteria/justification. Larger mains = higher flow, higher cost. Arcata and Eureka water costs for 4” meter sizes are significantly more than the proposed rate for 4” meter with Rate 3.
City Grant Director Becky Price-Hall noted that the costs for contracted services presented in the draft rate study budget is very low for 2025. What happens if there is no change that year, which is how it’s looking so far. The track record established is not good. We continue to budget low and spend much more since the operating status is not changing.
Ryan explained that if more is spent, the net cash flow would decrease. Every year you should be monitoring rates and revenue and if necessary, conduct a new rate study.
Dwight Miller – Trinidad
Inequity in fees with Option 3 needs to be tweeked. We want to preserve affordability for businesses and be good neighbors with the Rancheria. Combination of 2 and 3 should be discussed. Finding a T-3 seems like a very significant challenge. We need to look at ways of being less vulnerable when maintaining our small system. This budget assumes good, consistent staffing. Our local communities pay less. Will they continue to pay less. Will we have lower rates if we get water from HBMWD? Council has made a decision to maintain our own system, but can we really afford it with all the vulnerabilities? Also concerned with loans and gifts of General Funds. Will we be able to pay it back?
Naffah noted that the $250k loan would be determined by the Council with no interest, and whether or not to pay it back.
Steve Madrone – County Supervisor/Trinidad Area Resident Arcata/Eureka are on HBMWD. What is not projected is the water loss from leaky pipes. You need to fix the leaks and replace your tanks. Wisest thing the Council did was to get the current grant to do both.
Council comments included:
Tuttle: How will the Rancheria’s exit from the City’s system moving on to HBMWD, affect the City’s system and rates? Ryan noted that when (or before) that occurs the City will have to do another rate study.
Kelly: The idea of points accruing when cost is too high make us a target for consolidation to make water more affordable for customers. It’s unfortunate that high inflation without rate increases have to occur at the same time.
Unhappy that the reserve has been burned for high cost of consultant services. People are not happy with us. We have a fiscal responsibility to deal with this. Good thing we had a reserve, but we need to get this under control.
Would like to see a combination of 2 and 3.
Naffah suggested 2 and 3 seem reasonable, with 2 being most stable and equitable.
Ryan explained the next steps being to finalize the rate study by June 11 and ask the Council to select a rate option.
The Prop 218 process would begin following adoption, leading to implementation of the rates at the first rate cycle following the 45 day comment window.
Kelly: We have three models in front of us. If we want something different, we need to be clear because new model design will delay the process. I asked in/out paying the same, no meter equivalency ratio. The answer was no. Am I missing something?
Ryan noted that RCAC’s rate model will have a different meter equivalency ratio built in. If we change that, it will take time to calculate a third model. RCAC typically recommends 70% base rate and 30% usage for stability.
Trinidad’s models figure 65% to 35% ratio. Too much paid for usage threatens fixed costs such as equipment and personnel costs. Usage covers variable costs associated with treatment, distribution, and power, etc.
Mayor Kelly noted that the Council will be asked to vote on an option at the June 11 meeting. 05-28-2024 City Council Meeting II Minutes Page 7
3. Continued Discussion/Presentation regarding FY2024-2025 2025 Budget Preparation City Clerk Adams provided a budget overview in advance of the upcoming June 11 final draft. The presentation consisted of the following information:
• Budget Structure
• Revenue Sources
o General Fund
o Supplemental Revenues
• General Fund Reserve (Total fund balance $2.27 million) • General Fund Expenses
o Admin
o Public Works
o Police
o Fire
• 2024-2025 Budget Goals and Highlights for the General Fund, Public Safety, and Public Works o Staff Development and personnel structure improvement o Continued website development
o Refine Public Works staff structure and integrate with Water Department o Continued support of library, Museum, Chamber, Land Trust o Maintain critical services
o Continued progress on General Plan
o HCSO Contract / Animal Control Renewal
o Pacific Coast Security Services
o Staffing split with Water Department and Integration
o Maintain Trails and Public Buildings
o Improve Tennis Court surface
o Provide support during 2024 construction
• General Fund Reserve balance growth since 2019
• Staffing Plan
• Water Fund
o Budget Misses
o Targeted Goals and Highlights
§ Maintained T-3 Licensed Treatment Plant Operator as per State Law and continue to supply safe and reliable drinking water to all 325 customers. § Continue training and retaining vested, licensed drinking water operators. § Strategize exit plan from costly contracted Plant Operation by finding reliable in-house operators.
§ Conclude rate study and implement new rates September 01, 2025. § Continued Luffenholtz Creek Flow monitoring.
§ Budget for distribution line leak monitoring.
§ Freeze spending on any project that does not involve immediate delivery safe and reliable drinking water to the customers, or a current grant project in-progress until the budget is stabilized.
§ Provide daily staff support to large scale grant funded infrastructure projects slated for construction in 2024-2025.
o Reserve Fund depleted by FYE June 30, 2024.
• State-Level Budget Indicators
• Grants in progress
• Next Steps – Prepare final draft of all funds/revenues with summary for adoption June 11, 2024.
Council comments included:
Kelly: It’s a great strategy to have a T-2 bench. We need to have a recruitment strategy in place to find a T-3 Operator. I don’t believe we have done enough to fill that position, and I will continue to stand behind this opinion.
Naffah explained that as long as we can keep Coleman Engineering at $10k or less per month we should be ok. 05-28-2024 City Council Meeting II Minutes Page 8
Public comment included:
Steve Madrone – County Supervisor/Trinidad Area Resident Balancing budgets require decreasing expenditures. T-3 Operator makes you stuck. Westhaven CSD only requires T-2 because they’re only pulling water out of deeper springs. If you could get to a place where you only need T-2, you’d save a ton of money. I’ve been studying the Franciscan springs in the upper Luffenholtz Creek watershed for 25 years. Danny Hagens did an analysis of the amount of water stored in the Luffenholtz terrace in 2019, estimating more than 25% of what’s stored in Ruth Lake reservoir. It’s in the ground, not influenced by evaporation, and there are at least a dozen springs in the area. Find a way to get grants for spring analysis, once and for all. The power generated from gravity flow will help run the plant for free by producing energy all winter long. This is based on my thesis work. I’m willing to stake my professional reputation on the fact that this is feasible. Money is available through the State Water Board. $50-75k will be enough to prove feasibility.
Paula Levine – Trinidad Area Resident
If this is such a great idea, why didn’t we pursue it 3-5 years ago? Presentation item only. Staff will return with a final draft budget on June 11 for discussion.
FUTURE AGENDA ITEMS
- Community Survey results.
- Ongoing Trails Update.
- Humboldt Bay Municipal Water District Connection Consideration - Final Budget
ADJOURNMENT: 9:55pm
Submitted by: Approved by:
_____________________________ _____________________________ Gabriel Adams Cheryl Kelly
Trinidad City Clerk Mayor