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HomeMy WebLinkAbout03.e. Adopt Resolution No. 2023- and Guiding Principles Agreement for Development of a Study Related to the Investigation of a Potential Merger between Centra San and Mt. View Sanitary DistrictPage 1 of 9 Item 3.e. DCENTRALSAN MEETING DATE: AUGUST23, 2023 BOARD OF DIRECTORS POSITION PAPER DRAFT SUBJECT: REVIEW DRAFT POSITION PAPER TO ADOPT RESOLUTION NO 2023-_ AND GUIDING PRINCIPLES AGREEMENT FOR DEVELOPMENT OF A STUDY RELATED TO THE INVESTIGATION OF A POTENTIAL MERGER BETWEEN CENTRAL CONTRA COSTA SANITARY DISTRICT (CENTRAL SAN)AND MT. VIEW SANITARY DISTRICT (MVSD) SUBMITTED BY: INITIATING DEPARTMENT: PHILIP LEIBER, DEPUTYGENERAL MANAGER -ADMINISTRATION DANEA GEMMELL, PLANNING AND DEVELOPMENT MANAGER DEPUTY GENERAL MANAGER REVIEWED BY: GREG NORBY, DEPUTY GENERAL MANAGER - OPERATIONS ROGER S. BAILEY, GENERAL MANAGER ISSUE Consider adopting Guiding Principles Agreement to facilitate the development of a study on a potential merger with Mt. View Sanitary District. BACKGROUND In the coming weeks, the Contra Costa County Local Agency Formation Commission (LAFCO) is expected to finalize a Municipal Service Review (MSR) report which is expected to propose a study be conducted to investigate the issues involved with a potential merger of Mt. View Sanitary District (MVSD) and Central San. Such a study would explore the costs, benefits, operational and engineering issues, and other implications of a potential merger. In May 2023, staff brought a memorandum (attached) to the Real Estate, Environmental and Planning (REEP) Committee to discuss this matter. Since that time, staff have worked to develop an initial "guiding principles" document that has been shared with the MVSD General Manager for feedback. The attached document reflects that feedback. Central San's District Counsel recommends adoption of these guiding principles by the respective boards of each agency. A resolution is provided that would effectuate that. It is important to emphasize clearly that this is only an exploratory study. Neither Central San nor MVSD have proposed a merger. A study would examine whether there are net benefits of a merger that would August 23, 2023 REEP Committee Meeting Agenda Packet - Page 36 of 55 Page 2 of 9 accrue to customers and other stakeholders, beyond the costs and potential complications that such a change would entail. ALTERNATIVES/CONSIDERATIONS A different set of guiding principles could be developed. However, these principles are consistent with a collaborative approach to reviewing the issues involved with the concept of a merger, and these principles have been reviewed by the MVSD General Manager. FINANCIAL IMPACTS There are no financial implications for adopting the guiding principles. However, if the initiative progresses, Central San has agreed to pay for the cost of the study mentioned in the guiding principles. The professional services agreement, to the extent it exceeds the General Manager's delegated authority of $200,000, would be brought forward to the Board after a consultant selection process. COMMITTEE RECOMMENDATION The Real Estate, Environmental and Planning Committee reviewed this matter at its meeting on May 18, 2023 and August 23, 2023 and recommended RECOMMENDED BOARD ACTION Adopt proposed Resolution No 2023- and Guiding Principles Agreement for development of a study related to the investigation of a potential merger between Central Contra Costa Sanitary District (Central San) and Mt. View Sanitary District (MVSD) Strategic Plan Tie -In GOAL ONE: Customer and Community Strategy 2 - Promote initiatives to advance affordable and equitable access to services, Strategy 3 - Build neighborhood and industry relations GOAL FOUR: Governance and Fiscal Responsibility Strategy 3 - Maintain financial stability and sustainability GOAL SIX: Infrastructure Reliability Strategy 1 - Manage assets optimally GOAL SEVEN: Innovation and Agility Strategy 3 - Be adaptable, resilient, and responsive ATTACHMENTS: 1. Proposed Resolution and Guiding Principles Agreement 2. Background Material -May 2023 Memorandum to REEP August 23, 2023 REEP Committee Meeting Agenda Packet - Page 37 of 55 Page 3 of 9 ATTACHMENT 1 RESOLUTION NO. 2023- A RESOLUTION OF THE BOARD OF DIRECTORS AUTHORIZING THE EXECUTION OF A GUIDING PRINCIPLES AGREEMENT FOR DEVELOPMENT OF A STUDY RELATED TO THE INVESTIGATION OF A POTENTIAL MERGER OF THE CENTRAL CONTRA COSTA SANITARY DISTRICT AND MT. VIEW SANITARY DISTRICT. WHEREAS, the Central Contra Costa Sanitary District ("Central San") and Mt. View Sanitary District ("MVSD") are a sanitary districts duly organized and existing under and by virtue of the laws of the State of California; and WHEREAS, as of August 23, 2023, the Local Agency Formation Commission (LAFCO) of Contra Costa County is conducting a municipal services review that is expected to result in a report that recommends a study be conducted to investigate the issues related to a potential merger of MVSD with Central San; and WHEREAS, in order to expedite the preparation of such a study Central San and MVSD desire to begin the preparations for the retention of a consultant to perform such a merger study; and WHEREAS, the initiation and development of a study will require the cooperation and significant involvement of the staffs of each agency; and WHEREAS, in order to ensure the cooperation and overall success of this effort, the parties wish to develop guiding principles to steer this effort; and WHEREAS, the guiding principles will address the selection, work with, and funding of a consultant to conduct a merger study; and WHEREAS, a proposed Guiding Principles Agreement has been presented to the Board of Directors; and WHEREAS, the Board of Directors desires to authorize the execution of the Guiding Principles Agreement, and further authorize the taking of such other actions as may be necessary and proper in connection with undertaking the study referenced above; NOW, THEREFORE, BE IT RESOLVED THAT: Section 1. Recitals. The foregoing recitals are true and correct, and this Board of Directors so finds and determines. Section 2. Guiding Principles Document. The Guiding Principles Agreement presented in this meeting is hereby approved. The President of the Board of Directors is hereby authorized and directed on behalf of Central San to enter into, execute and deliver the Agreement. August 23, 2023 REEP Committee Meeting Agenda Packet - Page 38 of 55 Page 4 of 9 Central Contra Costa Sanitary District Resolution No. 2023- Page 2 of 3 Section 3. Further Authorization; Ratification of Actions. The President of the Board of Directors, or a designee thereof (Authorized Representative), is authorized and directed to execute and deliver any documents and agreements, which the President or such Authorized Representative may deem necessary to carry out to and comply with the terms and intent of this Resolution. The Secretary of the Board of Directors is hereby authorized to attest to any signature of President or the Authorized Representative on any of the documents and agreements authorized by this Resolution. Section 4. Effective Date. This Resolution shall take effect on the date of adoption hereof. PASSED AND ADOPTED by the Board of Directors of CENTRAL CONTRA COSTA SANITARY DISTRICT on the 7t" day of September, 2023 by the following vote: AYES: Members: NOES: Members: ABSENT: Members: Barbara D. Hockett President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California well] 01921:U9Eel 012191 Katie Young, CIVIC 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 August 23, 2023 REEP Committee Meeting Agenda Packet - Page 39 of 55 Page 5 of 9 Central Contra Costa Sanitary District Resolution No. 2023- Page 3 of 3 Guiding Principles Agreement For the Selection and Work with A Consultant to Identify Issues Related to a Potential Merger Between Central San and Mt. View Sanitary District Preparation for working with a Consultant • Given the scope of the assignment, it is anticipated the work will require multiple disciplines and accordingly, may include sub -consultants. • Joint agreement on the consultant selection process, including the selection of the consultant/sub-consultants. • Joint decision on whether a selection process could get started in some manner in advance of the municipal services review (MSR) report so that work could start expediently when that report is available. • If a request for proposals (RFP) or request for information (RFI) is to be issued to solicit interest of qualified consultants, such documents will be jointly developed • Joint agreement on the scope development (which could be part of the up- front RFP/RFI, or which might preferably be issued in more specific form as a "task order" upon selection of the consultant AND availability of the MSR report with specific requirements). • The work may be structured in phases to facilitate results that are cost- effective, timely, and sufficiently conclusive to inform decision making. Working with the Consultant • Joint development of the scope of work to be issued to the consultant (based on the MSR report and other relevant issues that need to be addressed to the satisfaction of both sides). • Equal sharing of information with both sides by the consultant. • Both sides available at relevant board meetings of the other. • Sharing of information with the consultant and at the same time, the other sanitary agency. Funding of the consultant Central San will fund the initial feasibility study. If there are more in-depth follow-up studies required on particular issues, funding will be further addressed at a later date. August 23, 2023 REEP Committee Meeting Agenda Packet - Page 40 of 55 Attachment 2 Page 6 of 9 Item 4.d. F--1-448�411C-SA May 17, 2023 TO: REAL ESTATE, ENVIRONMENTAL AND PLANNING COMMITTEE FROM: PHI LIP LEI BER, DEPUTY GENERAL MANAGER -ADMINISTRATION DANEA GEMMELL, PLANNING & DEVELOPMENT MANAGER REVIEWED BY: ROGER S. BAILEY, GENERAL MANAGER SUBJECT: DISCUSSION OF THE PENDING LOCALAGENCY FORMATION COMMISSION (LAFCO) MUNICIPAL SERVICES REVIEW (MSR) THAT MAY RAISE THE PROSPECT OF A MERGER BETWEEN CENTRAL SAN AND MT. VIEW SANITARY DISTRICT (MVSD) AND THE NEED FORA STUDY ON THIS ISSUE Issue In the coming months, the Contra Costa County Local Agency Formation Commission (LAFCO) is expected to release a Municipal Service Review (MSR) report that may propose a study to investigate the prospects of a merger of Mt. View Sanitary District (MVSD) and Central San. Such a study would explore the costs, benefits, and operational & engineering implications of a merger. This memorandum provides background on this issue along with discussion of potential next steps. Background MVSD serves a population of approximately 22,000 customers (with approximately 8,000 sewer connections) within Martinez. Central San serves most of central Contra Costa County, including large areas of Martinez, and provides wastewater treatment services to a population nearing 500,000 with 120,000+ parcels. For many years, MVSD sewer service rates have been comparable to Central San's. However, MVSD has recently required significant financial investment to address aging infrastructure, with the rates beginning to diverge. As of Fiscal Year (FY) 2022-23, MVSD's Single Family Residence (SFR) rate of $814 is 18% higher than Central San's S F R rate of $690. MVSD has had a pending proposal to raise its sewer service charge by approximately 9% annually for the next five years. By the end of five years, MVSD's rates would be significantly higher (53%) than Central San's projected rates, a difference of $437 annually. During MVSD Proposition 218 rate increase notification process, several MVSD customers raised questions about whether Central San might be able to collect and treat the wastewater more cost effectively. The LAFCO MSR reports from 2008 and 2014 recommended a financial and operational study to determine whether a merger of the two sanitary districts would be of benefit to customers. To date, no studies have been conducted. A 2023 LAFCO MSR report, scheduled to be released this summer, is anticipated to provide a similar recommendation. With the previous LAFCO recommendations and current community discussions during MVSD rate proposal, there has been public requests that both MVSD and Central San explore the possibility of a beneficial merger. In light of this, Central San staff spoke at the MVSD rate hearing on April 13, 2023, and indicated that Central San would be willing to participate in, and fund a feasibility study to determine whether a merger of the agencies would be in the interests of their August 23, 2023 REEP Committee Meeting Agenda Packet - Page 41 of 55 Page 7 of 9 customers. Staff emphasized that Central San's Board had not taken a position on this matter, and that to do so, it would be necessary to obtain relevant and detailed information on the costs, benefits, and engineering implications of a potential merger. Subsequently, the General Managers (GMs) of Central San and MVSD held a discussion to begin exploring the logistics of a feasibility study, including the retention of third party consultants to assist in this assessment. On May 4, 2023, MVSD held a second meeting on their rate proposal which the MVSD GM recommended that their Board adopt only the first three years of the five-year proposal, with the first two years at the 9% per year level, and the third year based on inflation at that time. The final two years of the five-year proposal would be held and then considered after the completion of a feasibility study. Feasibility Study With regards to such a study, this would require selection of consultants, and consideration of the scope and structuring of a report. A study could be conducted to address the issues involved in a merger in phases, with a first phase addressing some high-level issues such as: • Does a financial analysis indicate benefits to both agency's customers if a merger were to take place? • Understanding any potential liabilities to be accounted for and addressed. • Identifying issues of concern to employees such as differences in benefit programs including Other Post Employment Benefits (OPEB). • What would be a reasonable timeline for such a merger? • What are the technical and engineering issues to be investigated and resolved in a merger? • What integration issues would be expected and how those could be resolved? • Whether a single rate consolidated rate or alternative zonal rates would be appropriate considering the necessary integration costs. If Phase I of the study indicated a merger held promise, the second Phase could provide a more in-depth analysis of expected issues including but not limited to: What additional treatment is needed to get water at the required level to the MVSD wetland? What are the costs to build a pipeline to/from MVSD'S existing facility to the Central San treatment plant. Considering the above, what is a realistic refined timeline by which to effectuate an integration of operations. Potential Benefits to each District A potential merger could offer the following benefits: Central San: Over an extended period of time, the rates paid by MVSD customers would be expected to exceed the incremental cost of treating the MVSD wastewater, thus allowing for a contribution toward Central San's fixed costs, thus benefiting Central San's existing customers. Central San might be able to use its facilities or help minimize the infrastructure upgrades and costs to lower the proposed fees. Thus, allowing for a better return on investment for both Districts. MVSD: MVSD customers could likely pay lower rates than if the agency were to remain independent and proceed with the five years of rate adjustments at 9% annually or future increases above Central San's rates. August 23, 2023 REEP Committee Meeting Agenda Packet - Page 42 of 55 Page 8 of 9 Some very preliminary calculations performed by Central San staff are supportive of the above prospective benefits, although a far more detailed analysis is warranted to ensure all relevant factors have been fully considered, and that assumptions on costs are accurate and realistic. An independent and experienced consultant could assess these issues in an objective manner. It should be emphasized that: (1) this informational memorandum is providing only very preliminary information and that no merger is proposed at this time; (2) if a merger is warranted it would take significant time to complete, and will have several formal steps along the way; (3) if a merger were to take place, it would be approached so that important stakeholders such as the employees of MVSD are not adversely impacted. Specifically, it would be expected that MVSD's employees would have continued employment, and that any duplication of functions would be handled through natural attrition from turnover retirements and other voluntary departures. Workplan/Next Steps I n a MVSD Board report dated May 4, 2023, the MVSD GM indicated that a study could commence after LAFCO concludes the finalized Wastewater MSR (expected in October 2023). This timing preference was also emphasized in a May 10, 2023 letter to LAFCO (and Central San) with a request that LAFCO prioritizes the completion of the MSR. The vocal community group urging a merger between Central San and MVSD have requested urgency in starting a feasibility study. The MVSD GM also indicated support for the development of an Memorandum of Understanding (MOU) to guide the development of a feasibility study. To those ends, the following steps can be considered. 1. Working with MVSD to establish guiding principles leading to and for the development of the feasibility study. 2. Given the time that may be involved prior to the commencement of work on the feasibility study, and in recognition of the community's desire for progress, beginning the selection process for a consultant to perform the feasibility study could commence prior to the availability of the MSR. Alternative approaches include working with consultants who are already contracted with either Central San or MVSD, or new consultants to be selected through either an informal solicitation, or an RFP process. For Central San, if the work with a particular consultant is to exceed $100,000, a formal RFP process would likely be required. 3. Both agencies agreeing to a study scope and phasing. 4. Obtaining Central San Board approval for the funding of a study to the extent it exceeds the General Manager's authority of $200,000. Central San has committed to work cooperatively with MVSD in the development of the feasibility study, and will be checking in on the timeline for release of the LAFCO MSR, as well as holding additional discussions with MVSD in preparation for a study. This memorandum is provided to inform the Board of these developments, and in order to provide for an initial discussion regarding the topic. No Board action is requested at this time. August 23, 2023 REEP Committee Meeting Agenda Packet - Page 43 of 55 Page 9 of 9 Strategic Plan re -In GOAL ONE: Customer and Community Strategy 2 - Promote initiatives to advance affordable and equitable access to services, Strategy 3 - Build neighborhood and industry relations GOAL FOUR: Governance and Fiscal Responsibility Strategy 3 - Maintain financial stability and sustainability GOAL SIX: Infrastructure Reliability Strategy 1 - Manage assets optimally GOAL SEVEN: Innovation and Agility Strategy 3 - Be adaptable, resilient, and responsive August 23, 2023 REEP Committee Meeting Agenda Packet - Page 44 of 55