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HomeMy WebLinkAbout03.c. Review a proposed change to the Capacity Fee calculation methodology and a minor revision to the proposed Fiscal Year 2019-20 Capacity Fees presented at the April 23, 2019 Finance Committee meeting Page 1 of 11 Item 3.c. CENTRAL SAN May 21, 2019 TO: FINANCE COMMITTEE FROM: THOMAS BRIGHTBILL, SENIOR ENGINEER REVIEWED BY: DANEA GEMMELL, PLANNING AND DEVELOPMENT SERVICES DIVISION MANAGER PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION JEAN-MARC PETIT, DIRECTOR OF ENGINEERING AND TECHNICAL SERVICES ROGER S. BAILEY GENERAL MANAGER SUBJECT: REVIEW A PROPOSED CHANGE TO THE CAPACITY FEE CALCULATION METHODOLOGYAND A MINOR REVISION TO THE PROPOSED FISCAL YEAR 2019-20 CAPACITY FEES PRESENTED AT THE APRIL 23, 2019 FINANCE COMMITTEE MEETING At the April 23, 2019 Finance Committee meeting, a concern was raised that certain language in the draft Position Paper and proposed ordinance could be interpreted as allowing Capacity Fee revenue to be allocated to the Running Expense Fund, the fund used for operations and maintenance. Following the Committee meeting, the language in question was reviewed with District Counsel along with the relevant sections of the Government Code. Central San's Capacity Fee is calculated using an equity buy-in method where the value of Central San's assets is divided by the number of customers to obtain the fee.As a result of the review and discussion of the specific language in the Government Code, staff and District Counsel are recommending that the Running Expense Fund and Self-I nsurance Fund balances be excluded from the asset value used for the Capacity Fee calculations. The proposed change would reduce the proposed FY 2019-20 Capacity Fee by$187. For the Gravity Zone, the proposed Fiscal Year (FY) 2019-20 Capacity Fee would be $6,589 rather than the $6,776 presented at the April 2019 meeting. FY 2019-20 Capacity Fee revenue would be reduced by approximately$187,000 or about three percent. These proposed changes are reflected in strikeout on the attached. Staff is requesting that the Committee modify its recommendation for Board approval made at the April 23, 2019 meeting to incorporate the above change when this information is presented at the public hearing on June 6, 2019. May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 91 of 399 Page 2 of 11 Stratedc Plan Tie-In GOAL THREE:Be a Fiscally Sound and Effective Water Sector Utility Strategy 1 - Conduct long-range financial planning ATTACHMENTS: 1. Proposed Capacity Fee Ordinance (strikeout) 2. Revised report regarding Capacity Fee Update (strikeout) May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 92 of 399 Page 3 of 11 Attachment 1 ORDINANCE NO. AN ORDINANCE OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT ADOPTING AN UNCODIFIED SCHEDULE OF CAPACITY FEES, RATES AND CHARGES IN ACCORDANCE WITH DISTRICT CODE CHAPTER 6.12 WHEREAS, the Board of Directors (Board) of the Central Contra Costa Sanitary District (Central San) finds that substantial study has been conducted regarding the impacts of planned future development within Central San's service area on existing Central San services and facilities, along with an analysis of new, improved, or expanded Central San facilities and services required or appropriate to serve new users and current users who change the use of their connected buildings and facilities, and said studies have set forth the relationship between the added burden imposed by such users, and the need for an estimated cost of Central San services and facilities occasioned by this added burden; and WHEREAS, these studies were undertaken by Central San staff and culminated in documents that are part of the public record, to wit: the Capital Improvement Budget and Ten-year Capital Improvement Plan contained in the document titled, "Central Contra Costa Sanitary District FY 2018-19 Budget," and the Staff Report on Proposed Capacity Fee Program dated April 15, 2019; and WHEREAS, these studies also included the Wastewater Capacity Fee Review Study dated May 28, 2018 by Black & Veatch which reviewed Central San's methodology and calculations; and WHEREAS, it is reasonable and necessary that all users of Central San's wastewater and household hazardous waste collection, treatment, recycling, reuse and disposal services and facilities, including those temporary users served under Special Discharge Permits, contribute their appropriate portion of the funding for such Central San services and facilities; and WHEREAS, a properly noticed public hearing regarding the proposed Capacity Fee Program revisions was held on June 6, 2019, and proper notice was also given of the availability of the documents noted above for public inspection and review prior to said public hearing; and WHEREAS, Chapter 6.12 of the District Code provides the enabling authority for Central San to implement the proposed uncodified Schedule of Capacity Fees, Rates and Charges; and WHEREAS, the Board finds as follows: 1. Central San has made a substantial investment in assets that will benefit new users. 2. For Central San to continue an adequate level of service to all users, maintenance of existing facilities' capacity and construction of additional facilities' capacity in the future is required. May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 93 of 399 Page 4 of 11 Central Contra Costa Sanitary District Ordinance No. Page 2 of 3 3. The purpose of the Capacity Fee Program is to equalize the investment in Central San's assets among current and new users, thus ensuring that new users pay their fair share for facilities' capacity and services. 4. The current Sewer Construction Fund balance and future Capacity Fee revenue will be allocated to: • Life-cycle replacement, renovation, upgrading and improvements to maintain existing capacity in Central San's facilities; • Addition to and expansion of facilities where needed or required to meet legal and regulatory requirements; • Equitable adjustment of contributions among current, new and contractual users; and • New users' buy-in-to-all-assets of Central San including facilities and the balances in the Sewer Construction Fund.-. Semler GORStri GtiOR F Unrl Golf IRG UraRGe F Rd 5. There is a strong and reasonable relationship between the actual added burden imposed by new users and the proposed capacity fees, rates and charges. 6. The proposed fees, rates and charges are exempt from the California Environmental Quality Act (CEQA) per section 6.12.020 of the District Code. NOW, THEREFORE, the Board of the Central San does ordain as follows: Section 1 (To be Uncodified) The "Schedule of Capacity Fees, Rates and Charges" as set forth in full in Exhibit "A" to this Ordinance, which exhibit is incorporated in full herein by this reference, is hereby adopted in uncodified form pursuant to the provisions of District Code Section 6.12.020. As of the effective date of this Ordinance, Capacity Fees shall be charged at such rates and for such categories of users as set forth in said Schedule, and shall remain in effect until amended or replaced by ordinance. Section 2 All ordinances and parts of ordinances in conflict with the provisions of this Ordinance are repealed. The provisions of this Ordinance, insofar as they are substantially the same as existing provisions relating to the same subject matter shall be construed as restatements and continuations thereof and not as new enactments. To the extent this Ordinance or any portion or section of this Ordinance is determined invalid or unconstitutional, such portions of Ordinance No. 301 shall remain in effect and such rates and charges due thereunder for any categories of users shall remain due and payable as if those portions of Ordinance No. 301 had not been repealed. With respect, however, to violations, rights accrued, liabilities accrued, or appeals taken, prior to the effective date of this Ordinance, under any chapter, ordinance, or part of an May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 94 of 399 Page 5 of 11 Central Contra Costa Sanitary District Ordinance No. Page 3 of 3 ordinance, such chapter, ordinance or part of an ordinance shall be deemed to remain in full force for the purpose of sustaining any proper suit, action, or other proceedings, with respect to any such violation, right, liability or appeal. Section 3 This Ordinance shall be a general regulation of Central San and shall be published once in the Contra Costa Times and San Ramon Valley Times, newspapers of general circulation within Central San, and shall be effective on July 1, 2019. PASSED AND ADOPTED this 6th day of June, 2019, by the Board of Directors of the Central Contra Costa Sanitary District by the following vote: AYES: Members: NOES: Members: ABSENT: Members: David R. Williams President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California COUNTERSIGNED: Katie Young Secretary of the District Central Contra Costa Sanitary District County of Contra Costa, State of California Approved as to form: Kenton L. Alm, Esq. Counsel for the District May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 95 of 399 Page 6 of 11 Attachment 2 CENTRAL CONTRA COSTA SANITARY DISTRICT Report Regarding the Capacity Fee Update , 2019 INTRODUCTION Central Contra Costa Sanitary District (Central San) charges a Capacity Fee when properties are first connected to our public sewer or when there is an expansion or change of use for non-residential properties. Each year this fee is updated based on changes to the value of our assets and the number of Central San's customers. This memo summarizes the basis for the Capacity Fee and presents the calculations for the updated fee. BACKGROUND The total value of Central San's existing assets (approximately $1.9 billion) is much greater than the value of any future facilities expansion needed to accommodate future customers. While Central San's FY 2018-19 Budget lists over $800 million in projects over the next 10 years, most of these projects are for renovation, regulatory compliance, replacement or upgrading of facilities to maintain capacity for both current and prospective customers. Central San believes that our facilities generally have adequate capacity to serve both existing and future customers. The Water Environment Federation's (WEF) Manual of Practice 27, Financing and Charges for Wastewater Systems defines several methods for calculating System Development Charges such as Central San's Capacity Fee. Central San uses the Equity Buy-in method and has used this methodology since 2001. Under this approach, new customers are charged at the same equity position as existing customers which is appropriate based on the level of assets, expansion, and capacity described above. California Senate Bill 1760, enacted in September 1998, defines Capacity Charges for water and sewer agencies in Section 66013 of the California Government Code. The equity buy-in method defined by WEF and used by Central San conforms to the requirements contained in Section 66013. Central San's Capacity Fee methodology and calculations were reviewed by Black & Veatch in the fall of 2017. Their March 2, 2018, report titled Wastewater Capacity Fee Review Study made the following findings: • The equity-buy-in methodology used by Central San is appropriate. • Central San's use of Replacement Cost Less Depreciation (RCLD) is appropriate. • The exclusion of contributed assets from the calculation is appropriate to avoid double recovery of assets. • The use of different service zones for gravity and pumped zones is appropriate. May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 96 of 399 Page 7 of 11 Capacity Fee Update Report Page 2 May 1, 2019 CALCULATION APPROACH The Capacity Fee is adjusted each year to reflect the changes in the value of Central San's assets. It is calculated using the equity buy-in approach which divides the value of Central San's assets by the current number of Residential Unit Equivalents (RUEs) to determine the fee. The calculated value of Central San's assets is determined as follows: • Land: The current value of investments in real property is estimated based on the opportunity value of like cash investments deposited in Central San's temporary investments at the time of each purchase and held at interest to the present, rather than by attempting to determine actual market value. • Facilities: The current value of investments in physical facilities is estimated by escalating each year's facilities expenditures based on the change in the Engineering News Record Construction Cost Index for the San Francisco Bay Area (ENR CCI-SF) and then applying straight-line depreciation using the life cycles in Table 3 with no salvage value. Note that a category for "Mains (Renovation Program)" is included in the current value of facilities for determination of Capacity Fees. This category accounts for Central San's significant investment since 1988 in life-cycle replacement and renovation of sewers 10-inches in diameter and smaller. This work renews capacity in these smaller sewers for the benefit of both existing and new connectors and reduces future maintenance costs. • Fund Balance: Prior fiscal year ending balance for the Sewer Construction Fund, less the principal value of Central San's outstanding debt, is used. The inclusion of the Running Expense and Self Insurance Funds was reviewed by staff and District Counsel who determined that it was no longer appropriate to include those two items in the fee calculation. Contributed assets are generally not included in the calculation in order to avoid double recovery of costs, as described in Manual of Practice 27. After estimating the current value for an asset category, the component of the Capacity Fee attributable to that category is calculated by dividing current value by the current number of customers as shown below. The number of customers is determined by calculating the number of RUEs. Value of Assets Equity Buy-in Fee = ---------------------------------------- Number of Customers (RUEs) May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 97 of 399 Page 8 of 11 Capacity Fee Update Report Page 3 May 1, 2019 RECOMMENDED CAPACITY FEE Staff recommends that the Board adopt Capacity Fees for FY 2019-20 by applying the valuation approach and facilities life cycles described above. The updated fees are: Fee Category Current Proposed % Change Gravity Service $6,700 per RUE $6,589 per RUE -1.7% Pumping Service $8,336 per RUE $8,175 per RUE -1.9% The recommended fee calculation approach is a rational, practical, equitable and defensible method to determine the financial burden of new connections. A breakdown of the proposed Capacity Fees by asset category is presented in Table 1. Table 2 shows a comparison of the proposed Capacity Fees to the fees charged by neighboring agencies. The service life assumptions for each asset category are included in Table 3. Attached Supporting Documents: 1. Table 1— Capacity Fees Calculation 2. Table 2— Comparison of Capacity Fees 3. Table 3—Average Useful Service Life May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 98 of 399 CENTRAL CONTRA COSTA SANITARY DISTRICT Report Regarding Capacity Fee Update Table 1-Capacity Fees Calculation-FY 2019-20 (Buy-in to all assets. Values through 06/30/2018) Value per FY 2018- Asset Category Asset Value' RUE 19 Value Change Change (S/RUE) per RUE ($) N Land $52,137,295 $307 $301 $6 2.0% Facilities Treatment Plant/Outfall (45% @ 100 yrs+20% @ 75 yrs+35% @ 30 yrs) $361,745,206 $2,133 $2,095 $38 1.8% Recycled Water Facilities(75% @ 50 yrs+25% @ 30 yrs) $19,401,020 $114 $110 $4 3.6% Collection System Trunks and Interceptors(30% @ 150 yrs+70% @ 100 yrs) $337,298,965 $1,989 $2,005 ($16) -0.8% Contributed Mains(100% @ 75 yrs) $658,442,000 not included District Renovated Mains(100% @ 100 yrs) $228,168,726 $1,345 $1,256 $89 7.1% Pumping Stations(45% @ 100 yrs+20% @ 75 yrs+35% @ 30 yrs) $79,846,047 $1,586 3 $1,636 ($50) -3.1% General Improvements(Buildings, Equipment,etc.) $65,874,643 $388 $395 ($7) -1.8% (50% @ 50 yrs+35% @ 25 yrs+ 15% @ 10 yrs) Major Repairs(100% @ 10 yrs) $12,092,555 $71 $69 $2 2.9% Sewer Construction Fund Balance (net of outstanding debt) $41,006,302 $242 $209 $33 15.8% Running Expense Fund & Debt Service Fund Balances $25,461,157 not included $225 ($225) -100.0% Self Insurance Fund Balance $6,280,047 not included $35 ($35) -100.0% TOTAL VALUE: $1,887,753,964 Capacity Fee-Gravity Service $1,149,465,916 $6,589 $6,700 ($111) -1.7% Capacity Fee-Pumped Service $1,229,311,964 $8,175 4 $8,336 ($161) -1.9% 169,595 Total Residential Unit Equivalents(RUES) 50,356 Pumped Zone RUES Notes: 1. Original cost escalated to current dollars less depreciation except land which is original cost escalated by opportunity cost 2.Asset value divided by total RUES unless otherwise noted 3. Pumped component equals asset value divided by pumped zone RUES 4. Gravity Service Capacity Fee plus pumped component 5/1/2019 May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 99 of 399 Page 10 of 11 CENTRAL CONTRA COSTA SANITARY DISTRICT Report Regarding Capacity Fee Update Table 2 — Comparison of Capacity Fees AGENCY CAPACITY FEE Dublin San Ramon Services District $15,533 Mt View Sanitary District $9,330 Current CCCSD Pumped Zone $8,336 Proposed CCCSD Pumped Zone $8,175 Antioch (Delta Diablo Sanitation District for Treatment) $7,704 West County Wastewater District $7,082 Current CCCSD Gravity Zone $6,700 Proposed CCCSD Gravity Zone $6,589 Concord $5,043 Pittsburg (Delta Diablo Sanitation District for Treatment) $4,358 Bay Point(Delta Diablo Sanitation District for Treatment) $3,940 Based on publicly available data as of April 15, 2019 May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 100 of 399 Page 11 of 11 CENTRAL CONTRA COSTA SANITARY DISTRICT Report Regarding the Capacity Fee Update Table 3 - Average Useful Service Life Gravity Sewers Interceptors 150 years Trunks 100 years Mains (Renovated by District) 100 years Treatment Plant & Pumping Station Facilities Tanks/Foundations 100 years Buildings 75 years Mechanical, Electrical & Control Equipment 30 years Recycled Water Facilities Pipelines 50 years Mechanical, Electrical & Control Equipment 30 years General Improvements Buildings 50 years Mechanical/Electrical Equipment and Furnishings 25 years Vehicles and other Equipment 10 years Major Repairs/Replacements 10 years May 21, 2019 Regular FINANCE Committee Meeting Agenda Packet- Page 101 of 399