05-05-2020 - AGENDA ITEM 12 CONSIDERATION OF WEST COVINA CITYWIDE SEWER SERVICE CHARGE - RESOLUTION OF INTENTION TO COLLECT SEWER SERVICE CHARGES ON COUNTY TAX ROLL FOR FY 2020-21 AND SETTING A PUBLIC HEARING DATE ON THE CHARGESAGENDA ITEM NO. 12
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AGENDA STAFF REPORT
City of West Covina I Office of the City Manager
DATE: May 5, 2020
TO: Mayor and City Council
FROM: David Carmany
City Manager
SUBJECT: CONSIDERATION OF WEST COVINA CITYWIDE SEWER SERVICE CHARGE -
RESOLUTION OF INTENTION TO COLLECT SEWER SERVICE CHARGES ON
COUNTY TAX ROLL FOR FY 2020-21 AND SETTING A PUBLIC HEARING DATE ON
THE CHARGES
RECOMMENDATION:
It is recommended that the City Council adopt the following resolution:
RESOLUTION NO.2020-36 — A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST
COVINA, CALIFORNIA, DECLARING ITS INTENTION TO COLLECT SEWER SERVICE CHARGES
ON THE COUNTY TAX ROLL FOR FISCAL YEAR 2020-21 AND SETTING JUNE 169 2020 FOR A
PUBLIC HEARING REGARDING THE CHARGES TO BE SO COLLECTED
BACKGROUND:
From 1968 to 1978, the City of West Covina funded the costs of sewer maintenance and operation through the
Improvement Act of 1911, which provided an ad valorem (according to value) levy used to pay for these costs.
With the passage of Proposition 13, the revenues generated from the 1911 Act were reduced considerably and made
it necessary to find an alternative method of funding sewer maintenance and operation costs. In Fiscal Year
1978-1979, the City Council established the Citywide Sewer Service Charge pursuant to Section 38902 of the
Government Code as that alternative method.
The Sewer Service Charge funds the maintenance and operation of the City's sewer system assuring that lines are
clear and flowing properly. This includes routine video inspections, jetting, and cleaning of sewer lines. The fees
also fund capital improvements including purchase of sewer equipment and rehabilitation/replacement of sewer
mainlines and appurtenances.
The Sewer Service Charge is based on general land use categories: residential and non-residential. A fixed fee is
charged for each dwelling unit for residential property and every 667 square feet of floor area for other types of
non-residential developments. Additionally, properties not connected to the sewer main lines are exempt from the
charge.
DISCUSSION:
State law requires that a specific procedure be followed to collect the Citywide Sewer Service Charge on the annual
property tax bill. The initial step is to adopt a resolution setting a date for a public hearing on the proposed rates
and method of collection. The process requires that a public notice be published in a locally circulated newspaper
announcing the public hearing. Mailing notices to each property owner is only required when the charges are
increased above the current Consumer Price Index (CPI).
Although sewer charges are exempt from voter approval under Proposition 218, if a new or increased sewer charge
is to be imposed (more than the CPI), the City Council must conduct a protest hearing 45 days after mailed notice
to property owners. If more than 50% of the property owners protest against the fees, the fees may not be imposed.
In addition, the property owners are given an opportunity to voice their concerns on the method of collection. The
most efficient and least costly method of collecting the Citywide Sewer Service Charge is to place it on the annual
property tax bill. The Citywide Sewer Service Charge will then be collected at the same time and in the same
manner as the general property taxes. The public hearing to set the rates is currently scheduled for June 16, 2020.
In June 2017, the City Council conducted a protest hearing regarding a proposed increase in the rates for five
years, commencing with a 20% increase for Fiscal Year 2017-2018 and 5% thereafter for four years beginning
Fiscal Year 2018-2019. The City did not receive majority protest against the proposed increase, so the City may
impose the Sewer Service Charge at the maximum proposed level or less until Fiscal Year 2021-2022. The rate
increase is consistent with the previously approved five-year budget and is based on the Sewer System Revenue
Sufficiency Analysis (Analysis) in conjunction with the Sewer System Management Plan (SSMP) as conducted by
Willdan Engineering. As part of the SSMP, Willdan Engineering, in conjunction with the City, identified a series of
sewer capital projects that comprise the Sewer Capital Improvement Program in the total amount of $13,689,100.
In order to reduce the impact of initial assessment increase, the working capital balance is allowed to fall below 9
months of operating expenses, targeting a working capital balance of 6 months of operating expenses.
The proposed annual increase to the Sewer Service Charge is from $74.40 to $78.12 (an increase of about 31 cents
per month or $3.72 per year) for residential dwelling units, and per 667 square feet of floor area for commercial
units.
LEGAL REVIEW:
The City Attorney has reviewed and approved the resolution as to form.
OPTIONS:
The City Council has the following options:
1. Following the public hearing, increase assessment rate by 5% based on the Sewer System Revenue
Sufficiency Analysis to increase revenues and stabilize the reserves. Staff is recommending this option.
2. Maintain the assessment rates at their current level; reserves would be depleted sooner and result in the need
to reduce services or subsidize the district with General Funds.
Prepared by: Michael Ackerman, City Engineer
Fiscal Impact
FISCAL IMPACT:
The rates are increasing by 5% from $74.40 to $78.12 per unit per year based upon a five-year rate schedule
approved in Fiscal Year 2017-18. The total proposed sewer rate is projected to generate a total of $3,698,876. In
addition, $210,000 is projected to be received from the pre-existing ad valorem (according to value) and $4,948
from cash balance interest. The total projected revenue is $3,913,324. Including the $2,474,136 balance from the
previous year, the total funds available is $6,387,461.
The preliminary operating budget for Fiscal Year 2020-2021 is $2,277,377. This includes an administration and
overhead charge of $139,901. The administration and overhead costs are derived from support services provided
by various departments including: City Manager's office, City Attorney's office, City Clerk's office, Finance
Department, and Human Resources Department. Support services include, but not limited to payroll, personnel
recruitment, insurance claims, audits, budgets, and purchasing.
The Preliminary Financial Report for Fiscal Year 2020-2021 contains the following components:
1. Budget Summary and Reserve
2. Estimated Revenue Summary
3. Proposed Charge
4. Revised Projected Reserve (Fiscal Year 2019-2020)
There are no legal requirements or formal guidelines for the amount of reserves; however, at least 50% is required
to cover cash flow. A reserve between 100% and 200% is recommended by staff to cover cash flow, future capital
improvement projects, emergencies, and as a benefit it also provides interest income.
Attachments
Attachment No. 1 - 15 Year Rate History
Attachment No. 2 - Preliminary Financial Report for Fiscal Year 2020-2021
Attachment No. 3 - Forecasted Utility Operating Results - Cash Fund Capital Program; Six Months Working
Capital
Attachment No. 4 - Resolution No. 2020-36
CITY COUNCIL GOALS & OBJECTIVES: Enhance City Facilities and Infrastructure
Enhance the City Image and Effectiveness
Respond to the Global COVID-19 Pandemic
Attachment No. 1
West Covina
Citywide Sewer Service Charges
15 Rate History
Unit/Month
UnIVYear
2020-21
$6.51
$78.12
2019-20
$6.20
$74.40
2018-19
$5.91
$70.86
2017-18
$5.62
$67.49
2016-17
$4.69
$56.24
2015-16
$4.61
$55.30
2014-15
$4.59
$55.02
2013-14
$4.54
$54.48
2012-13
$4.44
$53.31
2011-12
$4.36
$52.26
2010-11
$4.19
$50.25
2009-10
$3.81
$45.68
2008-09
$2.76
$33.10
2007-08
$2.34
$28.05
2006-07
$2.16
$25.97
Attachment No. 2
City of West Covina
Citywide Sewer Service Charge
FISCAL YEAR 2020/2021
PRELIMINARY FINANCIAL REPORT
Intent Meeting: May 5, 2020
Public Hearing: June 16, 2020
W WILLDAN
-A/W I L L DA N
BUDGET AND REVENUE SUMMARY
Fiscal tear 2:121/2,1211
Summary
Expenditures
Operating
Totals'
Maintenance
Personnel Services
$999,318
Material and Services
43,989
Professional Services
291,852
Maintenance Contracts
150,195
Utilities
10,000
Vehicles
24,700
Fuel and Oil
15,617
Property& Liability Insurance
146,098
Total Maintenance
$1,681,769
Engineering & Incidental
Personnel Services
383,553
Materials & Services
10,330
Consultant Services
23,767
Property & Liability Insurance
5,272
Administration & Overhead
139,901
Total Engineering & Incidental
562,823
Community Enhancement
Personnel Services
32,785
Total Community Enhancement
32,785
Total Operating Budget
$2,277,377
Capital Improvement
Total Capital Budget
0
Total Operating and Capital Budget
$2,277,377
Contingency and Reserves
Cash Flow Reserves
1,138,689
Contingency
2,971,395
Total Contingency and Reserves
4,110,083
Revenues
Assessment Income (Total Balance to Levy) $3,698,376
Property Tax Revenue (Ad Valorem) 210,000
Interest 4,948
Total Projected Revenue $3,913,324
Projected Fund Balance (6/30/20) 2,474,136
Total Funds Available $6,387,461
'Totals may not foot due to rounding
2020-2021 City of West Covina -Citywide Sewer Service Charge Page 1
W"W I LLDAN
PROPOSED ASSESSMENT RATE
In Fiscal Year (FY) 2017-18, the Citywide Sewer Service Charge (the "Sewer Service
Charge") rate was increased by 20% and is proposed to increase by 5% thereafter for
four (4) years. For FY 2020-21, the rate will increase from $74.40 to $78.12 per unit, for
an increase of approximately 31 cents per month or $3.72 per year. The following table
shows proposed rate increases:
$67.49 $70.86 $74.40 $78.12 $82.02
Residential 1 DU = 1 unit
Commercial 667 s ft = 1 unit
Notice of said increases were sent to landowners in FY 2017-18 in accordance with the
provisions of Proposition 218 indicating the proposed rates and the date of public hearing.
The City of West Covina (the "City") did not receive majority protest against the proposed
increase, the City may now impose the Sewer Service Charge at the maximum proposed
level or less.
REVISED PROJECTED RESERVE
Fund Balance (as of 6/30/19) $ 3,637,426
Projected Revenue for FY2019-20 3,520,992
Appropriations (Operating & Capital) for FY2019-20 (4,684,281)
Projected Fund Balance (as of 6130120) $ 2,474,137
PRELIMINARY SEWER CHARGE ROLL
The FY 2020-21 preliminary sewer charge roll is voluminous, has been submitted to the
City Clerk, and is hereby included by reference.
2020-2021 City of West Covina -Citywide Sewer Service Charge Page 2
Attachment No.3
Forecasted Utility Operating Results - Cash Fund Capital
Program; 6-months
Worldng Capital
Increase at:
5%
5%
0%
0%
0%
Revenue from Special Assessments/Sewer Service Charges
Total Revenue
$3,698,376
$3,883,295
$3,883,295
$3,883,295
$3,883,295
Other Non Assessment Revenue (1)
Other Operating Revenue
210,000
210,000
210,000
210,000
210,000
Interest Earnings
4,948
8,220
11,777
15,249
18,632
$3,913,324
$4,101,515
$4,105,072
$4,108,544
$4,111,927
Total Operating Revenue
Expenditures
Operating Expenses (2)
(2,277,377)
(2,322,925)
(2,369,384)
(2,416,771)
(2,465,107)
Net Operating Revenue
$1,635,947
$1,778,590
$1,735,689
$1,691,773
$1,646,821
Debt Service
Existing Rev. Bond Debt Service
0
0
0
0
0
New Rev. Bond Debt Service
0
0
0
0
0
Total Bond Debt for Coverage
0
0
0
0
0
Net Cash Flow
Net Operating Revenue (restated)
$1,635,947
$1,778,590
$1,735,689
$1,691,773
$1,646,821
Less Cash Funded Capital
0
(1,512,700)
(1,612,400)
(1,765,500)
(1,378,400)
$1,635,947
$265,890
$123,289
($73,727)
$268,421
Net Cash Flow
Fund Balances
Operating Fund
$2,474,136
$4,110,083
$4,375,974
$4,499,262
$4,425,535
Net Cash Flow
1,635,947
265,890
123,289
(73,727)
268,421
$4,110,083
$4,375,974
$4,499,262
$4,425,535
$4,693,956
Ending Balance
Capital Program Funding
Annual Capital Needs
$0
$1,512,700
$1,612,400
$1,765,500
$1,378,400
Furling Sources:
Operating Fund (Cash Funding)
0
1,512,700
1,612,400
1,765,500
1,378,400
New Debt
0
0
0
0
0
Total Capital Funding
$0
$1,512,700
$1,612,400
$1,765,500
$1,378,400
(1) Property Tax Revenue; Ad Val—
(2) 2% increase in operating expenses due to inflation.
ATTACHMENT NO.4
RESOLUTION NO.2020-36
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
WEST COVINA, CALIFORNIA, DECLARING ITS INTENTION
TO COLLECT SEWER SERVICE CHARGES ON THE COUNTY
TAX ROLL FOR FISCAL YEAR 2020-21 AND SETTING JUNE 16,
2020 FOR A PUBLIC HEARING REGARDING THE CHARGES
TO BE SO COLLECTED
WHEREAS, on June 26, 1978, in accordance with Section 38902 of the California
Government Code, the City Council adopted Resolution No. 5726, establishing a sewer service
charge exclusively for sewer operation, maintenance, and capital costs. The City collects the
sewer service charge as part of the property tax roll, and
WHEREAS, on April 27, 1987, the City Council adopted Resolution No. 8019,
amending Resolution No. 5726 to adjust the schedule of charges so that the fees collected bear a
reasonable relationship to the cost of providing the services; and
WHEREAS, on June 6, 2017, the City Council adopted Resolution No. 2017-55,
adopting a five-year schedule of annual sewer service charges for Fiscal Years 2017-18, 2018-
19, 2019-20, 2020-21, and 2021-22; and
WHEREAS, the five-year schedule was adopted following proceedings conducted
pursuant to Article XM D, Section 6(a) of the California Constitution, which was added to the
California Constitution in 1996 as part of Proposition 218; and
WHEREAS, a report has been filed with the City Clerk containing a description of each
parcel of real property receiving sewer services and the amount of the charge for each parcel for
the year, computed in conformity with the charges adopted by the City Council (the `Report');
and
WHEREAS, the City Council desires to initiate proceedings to collect the sewer service
charges on the property tax roll for Fiscal Year 2020-21.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF WEST COVINA,
CALIFORNIA DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. Pursuant to Health and Safety Code section 5471 and other applicable law,
the City Council intends to collect its sewer service charges for Fiscal Year 2020-21 at the
following rate:
Rate: $78.12 per unit
Residential: One dwelling unit equals one unit
Commercial: 667 sq. ft. of floor area equals one unit
SECTION 2. As authorized by Health and Safety Code section 5473 or other applicable
law, the City Council elects to have the City's sewer service charges collected on the tax roll in
the same manner, and by the same persons, and at the same time as, together with and not
separately from, the City's general taxes.
SECTION 3. On June 16, 2020, at 7:00 p.m in the City Council Chambers located at
1444 West Garvey Avenue South in the City of West Covina, or electronically if the City
Council Chambers remain closed due to the COVID-19 pandemic, the City Council will conduct
a public hearing on the Report (the "Hearing'). At the Hearing, the City Council will hear and
consider all objections or protests, if any, to the Report.
SECTION 4. The City Clerk shall give notice of said Hearing in the time, form, and
manner as required by law.
SECTION 5. The City Clerk shall certify to the adoption of this resolution and shall
enter the same in the book of original resolutions and it shall become effective immediately.
APPROVED AND ADOPTED this 5th day of May, 2020.
Tony Wu
Mayor
APPROVED AS FORM ATTEST
Thomas P. Duarte Lisa Sherrick
City Attorney Assistant City Clerk
I, LISA SHERRICK, ASSISTANT CITY CLERK of the City of West Covina,
California, do hereby certify that the foregoing Resokrtion No. 2020-36 was duly adopted by the
City Council of the City of West Covina, California, at a regular meeting thereof held on the 5th
day of May, 2020, by the following vote of the City Council:
AYES:
NOES:
ABSENT:
ABSTAIN:
Lisa Sherrick
Assistant City Clerk