SR - ORD-04-17 - AMEND AND REVISE MASTER SCHEDULE OF FEES AND CHARGES TO ADOPT NEW SANITATION RATES1. SUBJECT
Ordinance No. 04 -17 – An Ordinance of the City Council of the City of Orange Amending and
Revising the Master Schedule of Fees and Charges to Adopt New Sanitation Rates.
2. SUMMARY
The City conducted a study /financial analysis of the sanitation fund to determine appropriately
balanced revenues and expenditures while ensuring a reasonable fund balance for emergency
purposes. This study concludes that sewer rate increases are needed over the next five years based
on rising costs for increased sewer maintenance activities and sewer infrastructure. The study,
conducted by Raftelis Financial Consultants, Inc (RFC), included the development of a capital
charge to fund sewer replacement and rehabilitation through City identified capital projects based
on the City's Sewer Master Plan.
3. RECOMMENDED ACTION
Adopt Ordinance No. 04 -17 for first reading.
4. FISCAL IMPACT
Implementation of the recommended sewer rates will result in total revenues as follows:
Fiscal Year FY 18* FY 19 FY 20 FY 21 FY 22
Effective 9/1/2017 7/1/2018 7/1/2019 7/12020 7/1/2021
Fund 220 (Sanitation -
Sewer Services Component) $3,697,905 $4,574,386 $4,715,508 $4,860,983 $5,010,945
Fund 221 (Sewer Capital) $1,666,667 $2,082,000 $2,125,922 $2,191,826 $2,259,772
(Maximum Revenue)
*The revenue estimates are prorated for FY 18 assuming rate effective 9/1/2017
5. STRATEGIC PLAN GOAL(S)
Provide for a safe community —
b. Provide and maintain infrastructure necessary to ensure the safety of the public.
4. Provide outstanding public service —
b. Provide facilities and services to meet customer expectations.
6. GENERAL PLAN IMPLEMENTATION 77�1
Infrastructure Element Goal 6.0: Ensure water, sewer, and storm drain systems that meet the
needs of residents and businesses.
Policy 1.1: Provide sufficient levels of water, sewer, and storm drain service throughout the
community.
Economic Development Element Goal 6.0: Provide sufficient infrastructure to support
anticipated economic development and growth.
Policy 6.1: Provide public improvements to support commercial, industrial and institutional uses.
7. DISCUSSION and BACKGROUND
Background
The City currently maintains 312 miles of sewer collection pipelines and has approximately 32,794
sewer connections. The sewer pipe age varies from more than 110 years old to less than 5. On
average, it costs approximately $1.8 million per mile to replace an 8 -inch sewer main pipe. In order
to adequately maintain the sewer system, ensuring the system functions properly and prevents
sewage spills, the City needs to develop and regularly update a financial plan for the sanitation
enterprise to meet operation and maintenance costs, and fund necessary capital improvements.
In 2015, the City contracted with RFC to conduct a Sanitation Rate Study (Study). The Study
included a five year financial plan and cost of service analysis as well as development of sanitation
rates. The analysis reviewed the current rate structure in determining needed adjustments for the
next five years. The study includes the following findings:
• The City's sewer service rates only fund the cost for operating, maintaining, and
rehabilitating the sewer system, storm water management, and environmental
compliance as required under the Federal Clean Water Act and the State of California's
Integrated Waste Management Act.
• The rates do not provide adequate funding for Capital Investment.
• The rates have not been adjusted since June 2009. Since that time, costs have continued
to rise but the revenue has not kept pace, especially for the sewer services.
• The fund balance by the end of FY 17 is expected to be $2.3 million. If the rates are
not adjusted, the fund balance by the end of FY 18 is expected to be $1.3 million and
in deficit by about $300,000 by the end of FY 20. If the City programs $1,000,000
funding for needed capital improvements, we would be in the negative by $400,000 by
the end of FY 19. The current rate structure does not provide adequate funding for
needed maintenance and operation, and it does not provide additional funding
necessary to address the deferred capital improvement needs.
Current Rates
Sanitation Service customers currently pay fees for four services: 1.) Street Tree Maintenance; 2.)
Street Sweeping; 3.) Sewer Maintenance; and 4.) Storm Water Management & Environmental
Compliance. The current rates, effective since June 2009, are shown below. Note that Street Tree
Maintenance is a bimonthly fixed charge, while the remaining rates are based on water use in
hundred cubic feet (hcf). For all customer classes, the City currently charges at a per hundred cubic
foot (hcf) volumetric rate of $0.382 / hcf based on the customer's water usage.
Table 1 -1: Current Sanitation Rates
Proposed Sewer Rates
With the preparation of the Study, the City wishes to establish a fair and equitable proposed rate
structure that:
• Meets the City's fiscal needs in terms of operational expenses and capital investment
to maintain the system.
• Develop fair and equitable rates for all customer classes.
• Are easy for customers to understand and easy for City staff to implement and update
in the future.
• Proportionately allocate the costs of providing service in accordance with California
Constitution article X111 D, section 6 (commonly referred to as Proposition 218).
The Study focuses solely on Sewer Maintenance and Storm Water Management & Environmental
Compliance (Sewer Rate). Staff is recommending the elimination of the street sweeping charge
($0.142 /hcf) from the Sanitation Rate. The service cost for street sweeping will be funded by the
General Fund. The proposed General Fund budget for FY 18 has analyzed this change should the
rate adjustment be approved. The elimination of the street sweeping charge is only proposed with
the approval and implementation of the proposed rate, otherwise the elimination will have a
negative impact of approximately $1.2 million. The current fixed charge for street tree
maintenance will remain unchanged and is not studied by this report. The City's sewer service and
environmental compliance related activities currently represent two of the four components of the
City's Sanitation Service Rates. Only those two components have been studied and referenced in
Table 1 -2 on page 5.
ITEM 3 6/13/17
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Nmgle r amily $3.20 $0.142 $0.112 $0.128
Multi - Family/ $2.88 $0.142 $0.112
Condominium $0.128
Commercial $3.20 $0.142 $0.112 $0.128
To properly perform sewer system maintenance and comply with required regulations, staff
resources will be realigned to meet the maintenance and operational needs. Sewer Service and
Environmental Compliance expenditure /revenue requirements are shown below:
The City proposes to adopt a new sewer rate structure that charges all residential classes a fixed,
bimonthly rate based on average wastewater flow by class, and commercial customers a volumetric
rate based on hundred cubic feet of water consumed in a bimonthly period.
To properly allocate costs to each customer class, RFC estimated the sewer flow for each class.
For Single Family residential customers, RFC assumed that January/February winter water use
approximates indoor water use, which returns to the sewer system, since outdoor irrigation is at its
lowest during the winter. RFC assumed that 100% of water use for the Multi- Family Residential,
Condominium, and Commercial classes returns to the sewer system. This assumes minimal or no
landscape irrigation for these classes. Water use data suggests that outdoor water use for these
classes is minimal since annualized winter use for these classes nearly equals their actual yearly
use, thus their return to sewer factor is nearly 100 %. To summarize, Single Family flow is based
on annualized FY 2015 winter water use, while the remaining classes are based on actual annual
water use in FY 2015.
Table 1 -2: FY 2018 -2022 Sanitation Service Rates
Fiscal Year
FY i
Effective 9/1/2017 7/1/2018 7/1/2019 7/1/2020 7/1/2021
Bimonthly Fixed Rates
Single Family $14.04 $14.47 $14.92 $15.38 $15.85
Multi - Family/ $8.58 $8.84 $9.12 $9.40 $9.69
Condominium
Variable Rate ($/hcf)
Commercial $0.52 $0.54 $0.55 $0.57 $0.59
Table 1 -2 shows the recommended rates for FY 2018 -2022 for all classes. The Maintenance &
Operations (M &O) rates for all classes increases 3.1% annually based on general inflation and
increase in the City's M &O costs, construction cost, and energy cost.
ITEM 4 6/13/17
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1
M &O Expenses
2
Payroll
$2,306,901
$2,376,108
$2,447,392
$2,520,813
$2,596,438
3
Allocations
$880,825
$909,011
$938,099
$968,118
$999,098
4
Maintenance
and Operations
$604,898
$624,255
$644,231
$664,847
$686,122
5
Sewer Video /
Hotspot Repair
$650,000
$670,150
$690,925
$712,343
$734,426
6
Total M &O
Expenses
$4,442,624
$4,579,525
$4,720,647
$4,866,122
$5,016,084
7
Less Interest
Revenue
$5,139
$5,139
$5,139
$5,139
$5,139
The City proposes to adopt a new sewer rate structure that charges all residential classes a fixed,
bimonthly rate based on average wastewater flow by class, and commercial customers a volumetric
rate based on hundred cubic feet of water consumed in a bimonthly period.
To properly allocate costs to each customer class, RFC estimated the sewer flow for each class.
For Single Family residential customers, RFC assumed that January/February winter water use
approximates indoor water use, which returns to the sewer system, since outdoor irrigation is at its
lowest during the winter. RFC assumed that 100% of water use for the Multi- Family Residential,
Condominium, and Commercial classes returns to the sewer system. This assumes minimal or no
landscape irrigation for these classes. Water use data suggests that outdoor water use for these
classes is minimal since annualized winter use for these classes nearly equals their actual yearly
use, thus their return to sewer factor is nearly 100 %. To summarize, Single Family flow is based
on annualized FY 2015 winter water use, while the remaining classes are based on actual annual
water use in FY 2015.
Table 1 -2: FY 2018 -2022 Sanitation Service Rates
Fiscal Year
FY i
Effective 9/1/2017 7/1/2018 7/1/2019 7/1/2020 7/1/2021
Bimonthly Fixed Rates
Single Family $14.04 $14.47 $14.92 $15.38 $15.85
Multi - Family/ $8.58 $8.84 $9.12 $9.40 $9.69
Condominium
Variable Rate ($/hcf)
Commercial $0.52 $0.54 $0.55 $0.57 $0.59
Table 1 -2 shows the recommended rates for FY 2018 -2022 for all classes. The Maintenance &
Operations (M &O) rates for all classes increases 3.1% annually based on general inflation and
increase in the City's M &O costs, construction cost, and energy cost.
Capital Rate
The City is proposing to implement a capital rate and charge, separate from the service charges,
which will fund sewer replacement and rehabilitation through City identified capital projects that
are necessary to replace and upgrade the sewer system. The capital rate is developed utilizing the
City's Sewer Master Plan. The Sewer Master Plan prepared by Stantec Consulting, Inc. in August
2012 estimated $64,361,000 in proposed capital improvement projects. These projects include
sewer main replacement to replace the aging sewer infrastructure, pipes that are broken or
damaged, and pipeline capacity improvements.
The estimated $64 million in capital improvements projects recommended by the sewer master
plan addresses about 27.3 miles of sewer main. Those 27.3 miles of sewer represents about 9% of
the sewer facilities that are either currently exceeding their useful life or are hydraulically or
structurally deficient. In the next 20 years, an additional 65 miles of sewer main will reach the end
of its useful life.
For the past 10 years, an average of roughly $500,000 /year has been spent on hotspots and to
replace aged and damaged sewer mains. There is currently no dedicated funding for the $64 million
recommended capital improvements. Capital improvements should no longer be deferred as those
cost will only escalate with time and without funding. Also, infrastructure improvements on streets
cannot be planned and coordinated with sewer projects to avoid digging up streets after they have
been resurfaced. Staff is recommending a 30 year capital improvement program and depending on
City Council's direction, a maximum of $2 million revenue can be generated to fund those
improvements.
The capital rates also increase annually in line with an assumed construction inflation of 3.1 %.
The capital rates and charges shown in Table 1 -3, assume a maximum $2 million capital program.
City Council may choose to implement a lower capital program and the rates would fall in
proportion to capital spending. For instance, the rate would be cut in half if a $1 million capital
program is implemented.
Table 1 -3: FY 2018 -2022 Capital Rates ($/HCF)
Fiscal Year I FY 2018 1 FY 2019 FY 2
1
Effective 9/1/2017 7/1/2018 7/1/2019 7/l/2020 7/l/2021
Bimonthly Fixed Rates
Single Family $6.33 $6.53 $6.73 $6.94 $7.15
Multi - Family/ $3.87 $3.99 $4.11 $4,24 $4.37
Condominium
Variable Rate ($/hcf)
Commercial $0.24 $0.24 $0.25 $0.26 $0.27
Bill Comparisons (bimonthly based on average use)
The charts provided below illustrate a current average bimonthly bill compared to the average bill
for the proposed rate adjustment.
Bill Impact by Class witbo t Capital Charge
Bill lawaact by Class with $1 N illion Capital Charge
Single Family
Multi - Family/
Condominium*
$16.19 $23.57
$9.76 $15.33
$7.38 45.6%
$5.57 57.1%
Commercial $56.68 $106.4 $49.72 87.7%
*Impacts may vary based on average use of class
The total bill includes the Street Tree Maintenance charge of $3.20 1unit for SFR and
$2.88 1unit for Multi - Family /Condominium
Conclusion
The City is dedicated to keeping rates low by maintaining efficient operations and maintenance.
The City has not adjusted the sewer rate since June 2009 even though the costs associated with
providing wastewater collection service as well as maintaining sewer facilities continue to rise.
The City is proposing rate adjustments in order to sufficiently fund the increasing costs of
operating, maintaining, and rehabilitating the sewer system. The City's cost to provide sewer and
environmental compliance services include: (1) operations and maintenance; (2) repair and
rehabilitation of the system; and (3) storm water management and environmental compliance.
Pursuant to Proposition 218, all property owners received mailed notices outlining the proposed
rates and protest hearing process. As required, 36,572 notices were postmarked and mailed to
property owners 45 days prior to the sanitation rate hearing. Part of the public hearing process
will include a report of the written protests received from property owners to determine if a
majority of property owners are protesting against the proposed sewer rates. If a majority of the
property owners who received a notice file a protest, the sewer rate increases cannot be imposed.
A majority protest would be 18,287 written protests and that's based upon the 36,572 notices
ITEM 6 6/13/17
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Multi - Family/
Condominium* $9.76 $11.46 $1.70 17.5%
Commercial $56.68 $76.00 $19.32 34.1%
Multi - Family/
Condominium* $9.76 $13.40 $3.64 37.3%
Commercial $56.68 $89.60 $32.92 58.1%
Bill 1nip act lay Class with $2 Million Calaital Charge
mailed out. The City Clerk's office will provide a report of the number of protest letters received
at the public hearing.
The Sewer rate increase notice offered property owners and rate payers the opportunity to call for
additional information, review the study report on the City's Public Works Department web site
(posted May 25, 2017), and outlined the written protest process. As of the end of May, there have
been less than twenty calls regarding sewer rates, most of which were asking specific questions.
The City Clerk's Office has received fourteen written protests as of June 6.
The Finance Utility Billing Division will implement these rates and utility bills will be prorated
during the initial 60 -day billing cycle to reflect actual rates after the rate adjustments.
8. ATTACHMENTS
• Ordinance No. 04 -17
• Sewer Rate Notice
• Sewer Rate Study
ITEM 7 6/13/17
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ORDINANCE NO. 04-17
AN ORDINANCE OF THE CITY COUNCIL OF THE
CITY OF ORANGE AMENDING AND REVISING
THE MASTER SCHEDULE OF FEES AND
CHARGES RELATING TO SEWER RATES
WHEREAS, on June 13, 2017, a hearing was held before the City Council to consider
the rates charged by the City in connection with provision of sewer service; and
WHEREAS, on April 25, 2017, the notice required by the majority protest procedures
set forth in Article 131), Section 6 of the California Constitution was mailed to all owners of
record to announce the hearing date and proposed sewer rate adjustment; and
WHEREAS, the notice of the time and the place of the hearing was published in a
newspaper of general circulation on May 18 and
WHEREAS, a sanitation rate study was prepared by Raftelis Financial Consultants,
Inc., a consultant selected by the City because of its expertise in preparing sanitation rate
studies on behalf of municipalities; and
WHEREAS, the written protests received do not constitute a majority of the property
owners of the identified parcels upon which the sewer rates will be charged; and
WHEREAS, the City Council has determined that the sewer services rates do not exceed
the estimated reasonable cost of providing sewer service and that such rates should be amended
and included in the City's Master Schedule of Fees and Charges; and
NOW, THEREFORE, the City Council of the City of Orange does ordain as follows: 1.
The Master Schedule of fees and Charges is hereby amended to include Attachment "A"
(Sewer Rates)
2. The City Council finds that the rates and fees set forth in Attachment "A" do not
exceed the City's estimated reasonable costs of providing the respective goods,
facilities and services for which the rates and fees are charged.
3. The sewer rates and fees include multi -year rate adjustments effective September 1
2017 and thereafter July 1 for 2018, 2019, 2020, and 2021.
4. If any rates, fee, or charges set forth in this Ordinance or the application thereof to
any person or circumstances is held to be unconstitutional or otherwise invalid by any
competent jurisdiction, such invalidity shall not affect any other rate, fee, or charge,
or application thereof, which can be implemented without the invalid rate, fee, or
charge, or application thereof, and to this end the rates, fees, and charges of this
Ordinance are declared to be severable.