COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Department of Public Works

DATE:

August 28, 2003

BOARD MEETING DATE:

September 9, 2003

TO:

Honorable Board of Supervisors

FROM:

Neil R. Cullen, Director of Public Works

SUBJECT:

Loan to Finance the Construction of a New Well and Proposed Increase in the Water Rates - County Service Area No. 11 - Pescadero Area

Recommendation

1.

Adopt a resolution authorizing an increase in the rates in County Service Area No. 11 (CSA11) of up to 30% to finance the construction of a new well; and

2.

If your Board approves of the rate increase as described above, then adopt a resolution authorizing the President of the Board to execute an agreement on behalf of both the County and CSA11 that provides a General Fund loan in an amount up to $165,000 to help finance the construction of a new well (4/5ths vote required).

Previous Board Action

1.

Created CSA11 in 1988 as an entity to provide water for the Community of Pescadero.

2.

Constructed water system improvements in 1991-1992 pursuant to Chapter 27 of the Municipal Improvement Act of 1911.

3.

Established rates for water services in 1992.

4.

Authorized submittal of an Application for Federal Assistance to the United States Department of Agriculture (USDA) for a combination grant and loan to help fund the construction of a new well for CSA11.

5.

Approved the Initial Study and Negative Declaration for the construction of the new well.

Key Facts

1.

A consultant's analysis of the long-term reliability of CSA11's existing wells conducted in 2001 concluded that:

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based on the current pumping rate, the existing wells could fail due to lack of water in 8 to 15 years.

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installation of a new deeper well in the vicinity of the existing wells would extend the life of the CSA11 water supply to at least 38 years.

2.

USDA has notified us that they have approved a $135,000 grant to help fund construction of a new well under the Federal Water and Waste Disposal Loan and Grant Program.

3.

One of the conditions of the grant is our providing evidence that $165,000 is available from other sources to finance the remaining cost of the well (i.e. total cost of the well is estimated at $300,000).

4.

We notified all the rate payers in CSA11 by separate letter that water rates could increase by as much as 30% (10% this year and 20% once final costs are known) if a loan was approved to help finance the new well.

5.

We received only one response from a rate payer at the writing of this report. The rate payer supports the construction of a new well and does not object to the proposed rate increases.

Discussion

It was estimated that the well that serves CSA11 would provide water for 25 years when it was drilled in 1992. We retained a consultant in April 2001 to assess the long-term reliability of the well and the consultant concluded that based on the current pumping rate the existing wells will fail in 8 to 15 years. The consultant has recommended installation of a new well drilled in the vicinity of the existing wells, and estimates the new well would extend the life of CSA11's water supply for an additional 38 years.

USDA has informed us that CSA11 qualifies for a grant of $135,000 and requires that we provide assurances that the balance of the estimated cost is available to CSA11. We are recommending that the assurance be in the form of a loan from the County's General Fund, which will be repaid from water service charges levied by CSA11. We believe that this is an equitable proposal as CSA11 avoids the costs associated with obtaining private financing, and the General Fund receives interest on its reserves.

Vision Statement

We believe our recommendation is consistent with Shared Commitment to "responsive, effective and collaborative government", and goal Number 20, "government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain" because failing to develop a new well would place the Pescadero community in jeopardy of not having a safe, healthful supply of potable water.

Fiscal Impact

The project is proposed to be financed with $135,000 from the grant from the USDA and the $165,000 loan from the General Fund. USDA requires the loan rate to not exceed five percent (5%) and be for a term of not less then 40 years. However, we are not precluded from accelerating the payments to the General Fund if revenues in CSA11 exceeds expenses.

The current water rates in CSA11 are $20/month plus $1.25 per unit of water. One unit of water is approximately 748 gallons. We are proposing to raise the rates to $22 per month and $1.38 per unit of water effective with the next billing cycle, and then have a second rate increase to raise the rates to approximately $26 per month and $1.63 per unit of water, after construction is completed and final loan amount is determined. Other charges and deposits would also be increased by approximately ten percent (10%) at this time.

We are also recommending that the buy in charge - the charge for an approved new connection into the system - be increased to $8,000 for 3/4-inch connection and $10,000 for 1-1/2-inch connection and that the buy in charges also be increased annually to reflect increases in the construction cost index as reported in the Engineering News Record. These rates have not been adjusted since October 1992.

An average water bill will increase from $33 to $36.30 per month for the ten percent (10%) increase, and to approximately $43 per month for the additional 20% increase.

Forms of resolutions and an agreement have been approved by County Counsel.

There is no long-term impact to the General Fund.

We have sent a copy of this report to the rate payers in CSA11 and have notified them of the date when your Board is tentatively scheduled to consider our recommendations.