COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Department of Public Works

DATE:

May 4, 2007

BOARD MEETING DATE:

May 15, 2007

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

James C. Porter, Director of Public Works

SUBJECT:

Process to Set Sewer Service Rates and Charges

RECOMMENDATION:

Approve a sewer service rate setting process that is based on the assumption that each district is expected to be self-sufficient and to meet its own financial responsibilities.

VISION ALIGNMENT:

Commitment: Preserve and provide people access to our natural environment.

Goal 14: Important natural resources are preserved and enhanced through environmental stewardship.

Commitment: Responsive, effective and collaborative government.

Goal 22: County and local governments effectively communicate, collaborate and develop strategic approaches to issues affecting the entire County of San Mateo.

BACKGROUND:

Your Board sets the sewer rates and charges for the ten sewer and sanitation districts in San Mateo County. As the governing body of those districts, the Board is responsible for the financial health and regulatory compliance of each district. For 2006/2007, your Board adopted rates sufficient to cover the operating costs for nine of the ten districts. The Crystal Springs County Sanitation District submitted a majority protest, so rates in that district were held flat and are insufficient to cover operating expenses this year.

Sewer charges generally include three components: operations and maintenance (O&M), capital improvement projects, and sewage treatment. Each district is responsible for the cost of O&M and sewage treatment within the district, and for all capital improvements within their system. Also, the ten county sewer districts rely on other agencies to transport and treat their wastewater, so they pay a proportionate share of both the O&M and capital costs of their downstream agencies.

DISCUSSION:

The Department has analyzed the costs and revenues for each of the ten districts. For the nine districts with a fund balance, staff is developing two rate options for the next five fiscal years.

Ø

The pay as you go approach requires district property owners to cover 100% of their share of O&M and capital project cost in the year the expenses are incurred. The district fund balance is used to minimize fluctuations in rates from year to year, but a minimum fund balance is maintained for unexpected costs such as emergency repairs. This option avoids interest charges from loans to the district. Rates tend to be higher in early years to pay for the financial obligations of the district, but increase relatively modestly in later years. This method can create a hardship for some property owners in years when there is a significant increase to meet the district’s financial requirements.

Ø

Phased increases create charges that steadily increase at a rate that allows the districts to meet their financial obligations over time. This method provides for lower sewer service fees in early years that do not fully fund the district’s financial requirements. The difference in costs is funded from the fund balance, which is reduced in early years, but is replenished in future years by higher rates in the “out” years.

For Crystal Springs, which has no fund balance, a current $1,000,000 loan from the County, and about $770,000 of additional debt, staff is developing four rate options:

Ø

pay as you go approach with no additional County loans,

Ø

phased increases with an additional County loan of $1,357,000,

Ø

phased increases with an additional $1,357,000 loan with no district capital improvement projects performed for 10 years, and

Ø

setting a lower rate than the previous three options funded by the additional loan.

The fourth option provides some additional revenue to the district with no district capital projects but will allow us to operate the district and pay debt. This option presents the greatest amount of risk in that the district will be deferring needed capital projects and collecting very limited funds which may be fully exhausted in the event of an emergency. We are also proposing a one-year rate adjustment. Staff intends to recommend creating a new committee with members of the Crystal Springs district to work collaboratively over the next year to discuss overall district management options and their resulting impacts on future rates.

As part of the sewer rate adoption process, the Department is conducting a comprehensive community outreach effort. In early May, all district property owners received an informational brochure on sewer district operations and management. In mid-May, they will receive a second letter that explains the expenses and rate options for their district. A copy of the first mailing is attached in Exhibit A. A copy of the second letter will be provided to the Board as soon as it is available. The Department will provide written responses in the form of a FAQ sheet to all comments submitted via email and by letter. The Public Works Department addresses for both types of submissions are included in the mailing about the rates.

The Department will consider the property owners comments from the community meetings and then develop recommended rates. On June 5, 2007, your board will consider setting the date and time for the public hearing to set the rates and charges. An official Proposition 218 notice with the recommended rates will be mailed to all district residents on June 8, 2007 subject to Board approval. To meet the timeline for getting the charges on the tax bills, we recommend that the hearing be held July 24, 2007.

FISCAL IMPACT:

There is no fiscal impact associated with approving a process for the setting of the sewer service rates and charges. However, one option that we are offering the Crystal Springs County Sanitation District is a general fund loan, which if supported, would impact the general fund cash flow.