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Home My WebLink About09. Establish new 2-year pilot Septic-to-Sewer Finance Program Page 1 of 13 Item 9. CENTRAL SAN BOARD OF DIRECTORS POSITION PAPER MEETING DATE: FEBRUARY 18, 2021 SUBJECT: ADOPT RESOLUTION NO. 2021-013 ESTABLISHING A NEW TWO-YEAR PILOT SEPTIC-TO-SEWER (S2S) FINANCING PROGRAM EFFECTIVE MARCH 1, 2021 TO ENCOURAGE PROPERTY OWNERS TO ABANDON THEIR SEPTIC TANKS AND CONNECT TO THE SEWER SYSTEM TO PROTECT PUBLIC HEALTH AND THE ENVIRONMENT SUBMITTED BY: INITIATING DEPARTMENT: DANEA GEMMELL, PLANNING AND ENG-PDS-DIVISION MANAGER DEVELOPMENT SERVICES DIVISION MANAGER REVIEWED BY: JEAN-MARC PETIT, DIRECTOR OF ENGINEERING AND TECHNICAL SERVICES PHILIP LEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION Roger S. Bailey General Manager ISSUE Approval of the Board of Directors (Board) is required to change the time of collection of certain fees such as those included in a proposed new installment payment program to expand financing to property owners with nearby sewer mains wishing to convert from septic systems to the public sewer system. BACKGROUND On October 15, 2019, the Engineering & Operations Committee received an update on the success of the Contractual Assessment Districts (CAD) and Alhambra Valley Assessment Districts (AVAD) programs. The Committee suggested that staff develop a plan to revise existing programs to encourage more connections to the public sewer system. Staff proposes expanding the current Residential Capacity Fee Installment (Septic Conversion) program, which allows residential property owners to finance capacity fees. February 18, 2021 Regular Board Meeting Agenda Packet- Page 55 of 147 Page 2 of 13 The Septic Conversion program currently in place helps parcel owners finance capacity fees at 6% interest for a period of 10 years. This program does not cover the costs of constructing laterals or other costs or fees. Whereas the Septic Conversion program assists homeowners with financing capacity fees, the average estimated total cost of septic-to-sewer conversion is around $40,000 with some projects as high as $90,000. Parcel owners faced with prospective high costs may delay conversions longer than is in the best interest of public health. The CAD and AVAD programs currently assist groups of parcel owners in a neighborhood to construct sewer mains. Financing of sewer construction is similar to the Septic Conversion program with a 15-year term for participating property owners in AVADs and a 10-year term for participating property owners in CADs.All promissory notes are recorded against the property and due upon sale of the parcel. Staff proposes a new S2S Financing Program that would allow residents with existing homes on a septic system to finance the following costs: • Construction of the sewer lateral; • Septic abandonment costs; • CAD,AVAD, or reimbursement fees to private installers, and; • Central San capacity fees, application fees, and inspection fees. Financing would be capped at$50,000 per customer with a 15-year term, at an annual interest rate consistent with other Central San customer financing programs, and will be secured by a promissory note. The promissory note will be recorded and will authorize Central San to collect the annual payments on the property tax bill thereby ensuring payment. The promissory note will be due on sale if the property is sold. The pilot S2S Financing Program would end in June 2023. Staff will bring the results of the pilot program back to the Board prior to its expiration to determine if it should continue permanently, be revised, or be discontinued. I nterest rates on customer financing programs have for many years been set at 6%. Given substantial changes in interest rates since that rate was set, staff will be bringing a separate proposal to update this interest rate policy such that for each fiscal year an interest rate would be calculated and published in the fees and charges schedule which would apply to any loan initiated during that fiscal year, for the life of the loan. The rate would be calculated based on the following components: i.A Base Rate consisting of either Central San's Borrowing Cost or Opportunity Cost of Funds: 1. Borrowing Cost: If Central San has borrowed funds, and a portion of those funds have been allocated towards providing loans to customer, that rate shall constitute the base rate. 2. Opportunity Cost of Funds, consisting of two components: a. The Local Agency I nvestment Fund (LAI F) rate over the most recently available quarter prior to publication of the Central San fees and charges schedule, plus: b. In recognition of the yield curve, a differential consisting of the spread between the 20- year T-Bill and the three-month T-Bill (https://www.treasury.gov/resource-center/data- chart-center/interest-rates/Pages/TextView.aspx?data=yield), plus: ii.An interest rate adder of 0.5% to cover ongoing loan administration costs. February 18, 2021 Regular Board Meeting Agenda Packet- Page 56 of 147 Page 3 of 13 Presently, these components result in an interest rate of 2.74%, calculated as the sum of: i. 2a: LAI F rate 0.84% plus, ii. 2b: Yield curve spread 1.4% plus, iii.Administrative cost adder 0.5%. Total: 2.74% CEQA Staff has concluded that establishing the proposed S2S Financing Program would be categorically exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15061(b)(3) of Central San's CEQA Guidelines, in that the program activity is covered by the common sense exemption that CEQA applies only to projects which have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA. This certainly comes from the limited environmental disturbance produced by a sewer connection and the impact-limiting features of Central San's Standard Specifications. By adopting the proposed ordinance, the Board would make the independent finding that the program is exempt from CEQA. ALTERNATIVES/CONSIDERATIONS 1. Direct staff to revise the proposed program. 2. Withhold or delay approval of the proposed program. FINANCIAL IMPACTS Staff has identified approximately 200 single family residences on septic with an existing sewer main in close proximity. If the S2S Financing Program is extended beyond the pilot phase, total project costs would be approximately$6.9 million. Funding of the S2S Financing Program is available under the CAD Financing Project in the fiscal year(FY) 2020-21 Capital Improvement Budget (CI B)with a $500,000 per year allocation for the first two years. The S2S Financing Program will not result in additional costs to Central San as all loans will be paid by the property owners over the term of the loans. It will encourage property owners currently using septic systems to become sewer system participants and pay the annual sewer service charge in addition to the annual debt service which is collected with the property taxes. Currently, Central San charges 6%for all promissory notes. For the S2S Financing Program, staff recommends an interest rate of 2.74% (as calculated above, and to be updated in the rates and fee schedule for FY 2021-22)to encourage use in the program and to ensure that there is no issue of"gift of public funds". COMMITTEE RECOMMENDATION The Engineering and Operations Committee considered this matter at its February 4, 2020 meeting and recommended Board approval. RECOMMENDED BOARD ACTION Adopt the proposed resolution authorizing a new two-year pilot Septic-to-Sewer Financing Program effective March 1, 2021 to encourage property owners to abandon their septic tanks and connect to the sewer system. February 18, 2021 Regular Board Meeting Agenda Packet- Page 57 of 147 Page 4 of 13 Strategic Plan Tie-In GOAL ONE: Customer and Community Strategy 1—Deliver high-quality customer service GOAL TWO:Environmental Stewardship Strategy 2—Anticipate and prepare for potential regulatory changes GOAL THREE:Fiscal Responsibility Strategy 1—Maintain financial stability and sustainability ATTACHMENTS: 1. Proposed Resolution 2. Presentation February 18, 2021 Regular Board Meeting Agenda Packet- Page 58 of 147 Page 5 of 13 ATTACHMENT 1 RESOLUTION NO. 2021-013 A RESOLUTION OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT TO ESTABLISH A NEW TWO-YEAR PILOT SEPTIC-TO-SEWER (S2S) FINANCING PROGRAM EFFECTIVE MARCH 1, 2021 WHEREAS, Central Contra Costa Sanitary District (Central San) has, over the last several years, identified a prevalent sanitation issue being the need to replace residential septic systems by connection to Central San's collection system; and WHEREAS, it is generally accepted that converting properties in urban and suburban settings from septic tank systems to public sewer service is beneficial to regional water quality; and WHEREAS, this issue is increasing in importance as a result of the failure of existing septic systems due to age of existing septic systems in the area; and WHEREAS, in order to replace failing septic systems with connections to the public sewers, extension of sewer service connections and payment sewer connection fees are required; and WHEREAS, the cost and complexity of undertaking a sewer main extension may prevent a homeowner from connecting to the public sewer system, thus perpetuating an ongoing health and environmental problem; and WHEREAS, a septic-to sewer financing program would further Central San's mission to protect public health and the environment by encouraging the elimination of septic tanks within its boundaries, thus improving regional water quality; and WHEREAS, staff has analyzed the setup and administration costs for such a program, including direct costs, staff labor, overhead and interest; and WHEREAS, the Board of Directors finds that it is necessary to assess administrative charges to those customers who participate in the program for recovery of costs. NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of Central San, as follows: THAT a two-year pilot program called Septic-to-Sewer (S2S) Financing Program for encouraging property owners to abandon their septic tanks and connect to the sewer system is hereby approved; and THAT staff is directed to implement the pilot S2S Financing Program for a two-year period effective March 1, 2021 under the following conditions: February 18, 2021 Regular Board Meeting Agenda Packet- Page 59 of 147 Page 6 of 13 Central Contra Costa Sanitary District Resolution No. 2021-013 Page 2of3 1. Only residential properties being converted from use of private septic tank systems to public sewer service shall be eligible to participate in the program; and 2. As a condition of participation in the program, a user must execute a promissory note and enter into a recordable Memorandum of Agreement; and 3. If a property owner elects to participate in the program, the fees that would otherwise be due at the time of Central San's issuance of a permit to connect to the public sewer will be financed by Central San over a 15-year period at the interest rate established for the S2S Financing Program in the Schedule of Environmental and Development-Related Rates and Charges; and 4. Annual installment payments due under the S2S Financing Program shall be collected on the Contra Costa County Property Tax Roll; and 5. The Board of Directors hereby delegates responsibility for executing and recording program documents to the General Manager or his designee; and 6. Application, inspection, Capacity and Contractual Assessment District (CAD) and Alhambra Valley Assessment District (AVAD) fees, as well as private reimbursement, side sewer construction and septic abandonment costs may be financed over 15 years in annual payments at variable Local Agency Investment Fund plus one percent, with a not-to-exceed rate of six percent; and 7. Unless extended by the Board of Directors, the S2S Financing Program will terminate on June 30, 2023. BE IT FURTHER RESOLVED THAT the Board of Directors finds that the application fees for participation in the S2S Financing Program included in the current Schedule of Environmental and Development-Related Rates and Charges are appropriate and reasonable administrative charges for recovery of Central San's program costs; and THAT the Board of Directors finds that this action is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to 15061(b)(3) of Central San's CEQA Guidelines, in that the program activity is covered by the common sense exemption that CEQA applies only to projects which have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA. This certainly comes from the limited environmental disturbance produced by a sewer connection and the impact-limiting features of Central San's Standard Specifications. February 18, 2021 Regular Board Meeting Agenda Packet- Page 60 of 147 Page 7 of 13 Central Contra Costa Sanitary District Resolution No. 2021-013 Page 3 of 3 PASSED AND ADOPTED this 18th day of February 2021, by the Board of Directors of Central San by the following votes: AYES: Members: NOES: Members: ABSENT: Members: Tad J. Pilecki 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 February 18, 2021 Regular Board Meeting Agenda Packet- Page 61 of 147 Page 8 of 13 ATTACHMENT 2 PROPOSED SEPTIC-TO-SEWER FINANCING PROGRAM Danea Gemmell _ Planning & Development Services Division Manager February 18, 2021 Board Meeting 1 SEPTIC-TO-SEWER (S2S) CONVERSION FINANCING PROGRAM • April 16, 2020 Board meeting for consideration and deferred until a future date due to COVID-19 Quarantine. • Discussion included whether consideration of a lateral financing program should be included. • September 1, 2020 Engineering & Operations Committee requested S2S to come back to the Board as a future item. CFNTPAI SAN Iz February 18, 2021 Regular Board Meeting Agenda Packet- Page 62 of 147 1 Page 9 of 13 BACKGROUND October 15, 2019 Engineering & Operations Committee "The Committee suggested that staff propose a plan, or look at what is needed, to revise the existing program to protect public health by encouraging property owners to convert their septic tanks and connect to the sewer system." OUR MISSION : PROTECT HEALTH AND THE ENVIRONMENT Septic systems near creeks and high-water table areas can T contaminate nearby areas. In times of flooding, toilets may not flush properly and water may back up into floor drains. �f1A��kA111�11 County ordinance requires connection to sewer mains where: 420-6.402(c)The sanitary sewer or any building or exterior drainage facility connected thereto is located within 200 feet of the structure.(Ords.2018-25§3,81-30 §1,74-67§3,1440§1). ' a February 18, 2021 Regular Board Meeting Agenda Packet- Page 63 of 147 2 Page 10 of 13 HISTORICAL ACTIVITY Septic Conversion Lateral Replacement Permits Pipe-bursting Permits 1 33 505 1 27 396 1 38 386 1 28 403 1 61 506 1 1 17 284 Partial Year:January through September ProgramsCurrent Financing Fiscal Year(FY) FY 2019-20 2019-20 Alhambra Valley Assessment $954,665 $179,049 Districts(AVAD) Contractual Assessment $394,662 $78,653 Districts(CAD) Septic Conversion $128,627 $22,446 5 CENTPAL SAN S2S FINANCING PROGRAM DETAILS • Approximately 200 Single Family Residences on septic with existing sewer main in close proximity • Total project costs estimated at $6.9 million • Average year of home construction: 1959 • Average project cost: $39,124 • Maximum project cost estimated: $87,132 • Financing secured by property • Propose $0.5 million in FY 2020-21 in Capital Improvement Budget (CIB) on first come, first served basis with option for additional funds in FY 2021-22 46 ' 6 CFNTPAISAN February 18, 2021 Regular Board Meeting Agenda Packet- Page 64 of 147 3 Page 11 of 13 S2S ITEMS ELIGIBLE FOR FINANCING Current Proposed • Capacity Fee • Capacity Fee • CAD assessments at time of • CAD & AVAD Fees formation • Miscellaneous Fees* • AVAD Fee • Application & Inspection Fees • Miscellaneous Fees* • Reimbursement Fee *Includes Annexation Fee, Promissory Note • Side Sewer Construction** Fee &Sewer Service Charge • Septic Abandonment** ** Paid to third party Contractors CENTRAL SAN S2S ITEMS ELIGIBLE FOR FINANCING Current Proposed • Capacity Fee • Capacity Fee • CAD assessments at time of • CAD &AVAD Fees formation • Miscellaneous Fees* • AVAD Fee • Application & Inspection Fees • Miscellaneous Fees* • Reimbursement Fee • Side Sewer Construction** f • Septic Abandonment** • Paid to third party contractors CFNTPAI SAN February 18, 2021 Regular Board Meeting Agenda Packet- Page 65 of 147 4 Page 12 of 13 SEPTIC CONVERSION CONSTRUCTION COST EXAMPLE Application Fee&Inspection $2,315 _ Capacity Fee(Gravity&Pump Zone) $8,175 r AVAD Fee* $22,950 Miscellaneous Fees&Sewer Service $1,658 Charge Construct Side Sewer(Lateral) $7,000 Abandonment of Septic Tank $3,000 Total Eligible for Financing �• Financing Options Example: Payment House Built in 1910 15 3,608 FY 2019-20 Property Tax:$5,011 Year Term Local Agency $ Investment Funn Zillow Estimate:$666,800 Investment (LAIF)+1% (assume current LAT rate of 1.5%) Construct 100-foot lateral ' *Alternately,could be CADS or reimbursement fees y CENTPAL SAN RECOMMENDATION • Approve a new Capital Project Program for FY 2020-21 to help finance S2S program • $500,000 funding for first two years of program per year • Financing cap of $50,000 per customer • Financing terms of 15 years with annual rate of 2.74% to encourage participation and ensure no "gift of public funds" • Customer provides three contractor proposals and signs a promissory note which will be secured by the parcel CFNTPAISAN February 18, 2021 Regular Board Meeting Agenda Packet- Page 66 of 147 5 Page 13 of 13 QUESTIONS CFNTPAt SAN February 18, 2021 Regular Board Meeting Agenda Packet- Page 67 of 147 6