City Council Meeting — September 26, 2023

408. 408. 408. 408. 408. 408. 408. 408. 408. 408. 408.

Thank you.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Thank you. Good evening, everyone. Happy Tuesday.

We ditched the ties. As we mayors officially decreed on Tuesdays, no ties are necessary.

Recording in progress. City policy. We'll get a vote started with our city clerk pretty soon.

I wanted to welcome you guys tonight. First, I want to start off by reading our mission statement as a city. The mission of the city of Monterey Park is to provide excellent services to enhance the quality of life for our entire community and our land acknowledgement. We would like to acknowledge that the land we inhabit today was once known as the Taumangar, the home of the Gabriolino Tongva people. We show our respect to the Gabriolino Tongva people as well as all indigenous peoples past, present, and future, and honor their labor as original caretakers of this land. We commit to uplifting the Gabriolino Tongva people and invite you to acknowledge the history and join us in caring for this land.

Thank you.

I'm going to go ahead and ask everyone to stand for the flag saloon.

And if you can put your right hand over your heart. Ready? Begin.

I pledge allegiance to the flag of the United States of America

and to the republic for which it stands,

one nation under God, indivisible, with liberty and justice for all.

Thank you. Please take your seats.

City Clerk, if we can do a roll call, please.

Council Member Lo. Present.

Council Member Yu. Here. Council Member Ngo. Present. Mayor Pro Tem Wong. Present.

Mayor Sanchez. Present. We have a quorum. Thank you.

And City Manager and City Attorney, do we have any agenda additions, deletions, changes,

or adoptions?

None from the City Manager's Office.

Nothing from me, Mayor. Okay, thank you so much.

And do we have any public communications?

No speakers.

No speakers. Excellent. So then we'll go ahead and jump into new business.

We have items 1A, resolution approving the memorandum of understanding between the city and the Monterey Park Firefighters Association. Are there any questions about this item from council or comments? Or would anyone like a brief report?

I'm happy to make a motion to adopt the resolution and just wanted to note and appreciate note that this is the final association agreement that we are coming to finalize so appreciate everyone's efforts and particularly human resources and risk management in our council that have been leading the effort to and management that have been leading the effort to negotiate these agreements over the last few months I know this has been more than traditional I we've always had staggered negotiations with our bargaining units for City Hall employees so appreciate the extra effort that had to go in this year with negotiating all of them at the same time and appreciate all the partnership in the sense of accomplishment in terms of working with all of our associations this year coming to terms that are AGREEABLE AND LOOKING FORWARD TO WORKING TOGETHER BETWEEN MANAGEMENT, THE COUNCIL AND OUR STAFF FRUITFULLY IN THE NEXT COMPANY AT LEAST THE NEXT TWO YEARS AND HOPEFULLY FURTHER

THAN THAT.

I'LL MAKE THE MOTION TO APPROVE THE RESOLUTION AS PRESENTED.

SECONDED BY COUNCIL MEMBER YOU. IF WE CAN TAKE A VOTE, PLEASE.

APPROVED UNANIMOUSLY.

Thank you. And I also wanted to echo the Mayor Pro Tem's comments. And actually today, September is September 26 and it's Human Resource Professional Day. So Martha's on online. Thank you for your work in helping making sure. And then everyone in that office to helping make sure that we settled our last MOU with with the firefighters. So thank you. So we'll go ahead and jump to item one B, which is to approve the notice of public hearing for water and sewer rate adjustments and set a public hearing date on December 6th. Is there a report?

Yes.

Good evening, Council, Mr. Mayor, and members of the City Council. We will be going through the presentation.

I think we're all set with everybody on Zoom. Yeah, okay, here we go.

So tonight I'm going to be assisting with the presentation this evening along with Sean Igoe, our Director of Public Works. Our Finance Director, Martha Garcia, isn't feeling too well tonight, so she's going to be on Zoom. She's joining us virtually, so if there's any questions, she'll be available to assist just as needed. Tonight, in addition to Sean and Martha, we have two consultants with us. Rick Simonson, the city's consultant, is from HF&H, and he is also joining us virtually. Rick is the senior vice president and the water and sewer rate task manager. During his 20 years at HF&H, Rick has managed numerous water and sewer rates study projects

and has depth knowledge in the Prop 218 process, compliance, rate structure design, and financing modeling.

In addition, we have Michael Bush, who is also here joining us in person tonight. Michael is the president of Urban Futures which provides financial consulting to municipalities like ours. Michael will be ready to assist with any questions about the option of bond financing later in the presentation.

Next slide, please.

So first I'm going to go through just a brief overview of the presentation tonight.

So first we'll cover the Proposition 218 process.

Then we'll discuss the current condition of the city's infrastructure. We'll provide an overview of the rate-making objectives, considerations, and rate study process. Then we will discuss the sewer rates and water rates. And then lastly, we will provide next steps and an estimated timeline.

Next slide, please.

Proposition 282 requires government agencies and utilities to notify property owners of proposed changes to rates for service. We must allow property owners and utility customers a method to protest vote.

Prop 218 applies to wastewater or sewer and solid waste fee increases.

Please note that tonight we're only discussing water and sewer fee increases. We must also mail a notice 45 days before the public hearing. The public hearing is scheduled for Wednesday, December 6th, sensitively as the staff report indicates. Attachments number four and five of the staff report are the proposed water and sewer notices for reference. And the rate increase may not exceed the cost of service or system maintenance. Tonight, staff is requesting authorization to begin the Prop 218 process by mailing out notices. also please note that the final rate determination can be made and set at the December 6th public hearing meeting if additional analysis is needed or requested by council and with that I'm going to hand it over to Sean Igoe our public works director and he's going to go over our current water and sewer infrastructure

all right good evening Honorable Mayor, Mayor Pro Tem and City Council Sean Igoe public works director I'll be providing a brief overview related to our and water infrastructure. As you can see here, these pictures demonstrate some of the challenges we encounter with our sewer system, including roots, grease, and cracks. In the picture on the left, you can see the consequences of some of these challenges when the sewer system becomes clogged and overflows onto the streets. With approximately 126 miles of sewer main ranging from 8-inch to 15-inch and with some of our infrastructure over 100 years old, we're beginning to see our system show its age. Based on our five-year CIP, we have an anticipated $8.8 million worth of projects, including sewer main replacements and sewer main relining.

Next slide, please.

These first set of pictures demonstrate the challenges we encounter with the water system after we have excavated the water main and isolated the section needing repair. You can also see some similar pipes displayed in front of you, including the larger 12-inch pipe, which is from the Monterey Pass water main, which is currently undergoing emergency work.

Next slide, please.

The next set of pictures highlight what we can encounter when we arrive to our water main break. Water is a powerful force and, as you can see, can cause significant damages. With approximately 137 miles of water main, ranging from 4 inch to 24 inch, about 18 miles of this dates back to the 1920s. Additionally, 67 miles go back to the 40s and 50s. And again, we're beginning to see the age of our infrastructure show. Over the past few years, we have seen an average of 24 main breaks per year. And with that, based on our five-year CIP, we are anticipating $64 million worth of projects for our water system, including water meter replacements, water main replacements, and reservoir reconditioning, to name a few.

With that, I'll pass it along to Rick.

Good evening, Mr. Mayor, City Council. Can you hear me okay?

We can't hear you too well, Rick. Can you try that again, please? Let me turn up my volume, see if that's better. Can you hear me now?

A little bit better. Let's see if there's anything that we could do on our end, potentially.

Can you try it again, Rick?

Yeah, my microphone is at the max. Is this better?

Better. Thank you. Yes, we can hear you now. Wonderful.

And I cannot see the slides. Is that possible to show?

So keep me on track, and I don't know when to say next slide. Wonderful.

So good evening, Mr. Mayor, City Council.

Again, I'm Rick Simonson, Senior Vice President with the HFNH Consultants. Our team has been working with the city over the last year, really analyzing the necessary revenue increases to cover the projected operating and capital costs of both the water and sewer enterprises for the city.

That is, first and foremost, the number one rate-making objective is to make sure your enterprises have revenue sufficiency to cover those costs. That, in turn, develops the necessary proposed rate adjustments that we'll be previewing for you tonight.

In addition to covering those operating capital costs, we need to meet a prudent reserve target for both operating and capital projects moving forward. A private reserve allows you to withstand the day-to-day cash flow and any emergency unexpected cost increases. Thirdly, the rate payer.

I'm seeing things change. Are we still on the same slide? Correct. We're still on the rate making objective slide.

Okay, wonderful. Thank you.

Lastly, ratepayer equity. So once we understand the revenue that needs to be generated, in accordance with Proposition 218, we need to make sure that each customer class pays their proportionate share of expenses.

No customer class can subsidize another.

In addition, within that class, each customer needs to pay their proportionate share,

and again, no one is subsidizing another. Next slide, please.

There are three basic steps for the rate study process. 408. 408. 408. 408. 408. 408. 408. 408. 408. 408. 408. 408. 408. 408. 408. how much revenue is needed from the rates over the next five-year period. And I'll mention Proposition 218 allows an adoption of five years worth of rates maximum. You'll see throughout this presentation, our model and financial projections looked at 10 years. So it was good to have a longer-term outlook to see how things may play out past the initial five-year period but we're looking to adopt rates, of which we're not doing tonight, but with the Prop 218 notice just for the next five-year period. Next is a cost of service, so that each customer class pays their proportionate share. We develop a fixed and a variable charge for each customer class, and then allocate those costs accordingly. Lastly, we'll determine the charges necessary over the next five-year period. as well as previous and built impacts for your average water users. Everybody uses different amounts of water or necessity for sewage differently, but we've shown some built impacts for your average users, as well as some comparisons to neighboring jurisdictions. Next slide, please.

So for tonight, we'll start with the sewer rate study. and after going through the sewer rate study slides,

I will pause and answer any questions that you have.

However, if you do have a question during the presentation of the sewer slides,

please stop me. I'll be happy to answer those as we go along. But I will pause at the end of the sewer before we move on to water.

Next slide, please. And I cannot see the slides anymore, but I have my printout. Oh, there we go. Thank you. So current rates are shown there on the right-hand side. There is a fixed service charge per account, and we have four different customer classes, single-family, multi-family, commercial, and institutional. And those fixed monthly rates are shown there to the right based on the size water meter each of these sewer customers have.

I'll also note that the current rates have been in effect since August of 2019. So we have not had an increase since then.

And actually that August 2019 rate was actually a rollback reduction to rates that were in place August 2017. There is one recommended change two-year rate structure based on the analysis of water use within the city for their single-family and multifamily customers of the approximate amount of water that is being sewered. We look at winter water use, where there's the least amount of irrigation, and we notice single-family and multifamily customers on a per-dwelling unit basis are discharging the same amount, regardless of their meter size. So we are recommending that residential customers, all residential customers, single-family and multifamily, are charged on a per-dwelling unit basis instead of a meter size. We will maintain the commercial industrial weight structure, which is based on meter size. The analysis of winter water use showed varying amounts of water used by each customer within each meter and best approximate what they are truly sewering. Next slide, please.

The first step is understanding the constant need to be covered with the weights.

So what we're showing here is a 10-year outlook, and this bar graph looks at, first, the salaries and benefits to operate the sewer system, and that's depicted in the blue. Next, the general operations, vehicles and equipment, outside services, administrative overhead is depicted there in the operations.

And lastly, the capital needs over the next 10-year period.

We've also included the solid black line, which indicates the revenues at current rates.

So it's easy to see that currently you're just not covering your salaries and operations.

Just below that purple box there on the 22-23, that leaves nothing for the capital projects. So we know some sort of rate increases necessary over the next five-year period to meet your operation and capital needs.

There can be a combination of how we achieve bridging this shortfall, both with rate increases and the use of reserves.

And I'll have a graph in the next couple slides showing how we're utilizing reserves in the first few years and then building them back up. And as Sean mentioned, there are some major capital projects necessary to repair and maintain your current sewer system.

Next slide. Gets into a little more detail of those capital projects.

This is just intended to show that, yes, there is an aggressive capital plan to repair the issues that we're seeing within the system. now bring your attention to the 22 23 budget year

it's about 6.7 million and yet not all those projects can be completed so staff has looked at what their capability will be over the next few years with available staff to get these projects done and to not impact rates too much. Some of those projects will be deferred. Which ones is not yet known, but they'll be deferred until that next 10-year period. So rates are going to generate approximately $3 million a year for these capital projects.

Next slide, please.

please. So what I'm depicting here is on the left-hand side, you can see the necessary increase in total rate revenue that will be necessary over the next five years. That's shaded in the green box. We are looking at substantial increases with the first one occurring January 1 of 2024 and then every July 1 thereafter. What you see on the right-hand side is a depiction of your fund balance over time. So we know we're starting with the healthy reserve coming into 22, 23, and now into 23, 24. However, that's a solid green line with rate increases that are projected or being requested on the left-hand side.

Without any rate increase, that's depicted with the dotted green line.

You can see reserves are quickly depleted in order to meet those O&M and capital needs. Before the end of 2024-2025, the reserves would be completely depleted without some sort of rate increase. I'll turn your attention

and explain the red and blue lines. The red line is a minimum balance we'd like to see in that dip below, and that's based on two months of annual operating expenses based on the best practices of the city's reserve targets,

were both operating reserve, again with that red line, and on top of the red line, additional reserves for capital projects based on 25% of the accumulated depreciation of the system.

So as we're going through the model, working with staff, our goal is to generate sufficient

revenues to stay above that red line, and if at all possible, reach that target within a reasonable time. Next slide, please. So what does that mean to the rates? We are looking for 23-24, some larger percent increases,

but dollar-wise for the single family, the most common size meter, which will be on a per-dwelling unit basis, is increasing just over $5 per month, folLod by the successive uniform percent increases

you see there for 24, 25 through 27, 28.

And again, the multifamily we're recommending going from the per account basis based on the meter size to a per dwelling unit and we'll pay the same per dwelling unit as single family residences.

Next slide, kids.

we always get questions on how you compare to neighboring jurisdictions so what we're depicting here is a few of your neighbors and their rates currently which could be under review just as

yours are that just over five dollar increase for single family residents based on average

water use of 10 100 cubic feet, which is about 748 gallons per

100 cubic foot of water use. You'll see you do increase and leap above peak of river, but stay below the shoes over here in Alhambra.

And the reason we've included water use in the sewer charge, as you can see, some of your neighbors do charge a fixed charge plus a flow base

sewer charge.

People are there and yourselves just have a fixed charge. That's why you see the dark green only. Next slide.

With a multifamily,

again, you have varying sizes of multifamily complexes. The most common is a 10-unit complex. So that's what we've depicted here with average water use of 900 cubic feet. of water per month. So a slight decrease for this customer type with a two inch meter. Again, currently, multifamilies charge on a per meter basis and we're looking to a per dwelling unit basis. So you will see some multifamily bills increasing

and some decreasing as you see here with the 10 unit complex using average water.

Next slide.

Lastly, commercial. Again, you have some neighbors that have a flow-based component,

so we've assumed 5,300 cubic foot of water use, which is the average water use,

mental water use by your commercial customers.

That must change here in the order,

just about a $5 increase to the average commercial customer bill.

so with that that's the end of the sewer section

I'd be happy to entertain any questions

are there any questions or comments from council on the first section

Mayor Protamona

thanks for the slides and the presentation

and the analysis

for, I don't know what page this is, but the sewer revenue requirement projections. So currently, if I'm reading this correctly, we're currently not generating enough revenue to cover our current expenses for sewer?

That is correct.

Where is the, how are we subsidizing there or how are we covering our costs now? Is that just based off of revenue we generated

with the past?

previously in the reserves that you've accumulated were what were we supposed to be doing something

else with the accumulated reserves or was there a capital plan with the last rate increase we had that we didn't complete or where it was just extra money we generated with the increase that we didn't have any specific projects to go to or just looking for additional context on

how the reserve got built up sure so so also this would have been deferred projects

yeah so we're subsidizing these with the projects that weren't completed

and then okay

and then for the I know for the next page plan sewer capital projections right some of it looks like we have done some analysis on our capital needs for sewer are these right the out years beyond the 23 24 I mean it looks my guess in looking at some of these numbers are there's projections but is there have we done an analysis or study on what our actual capital needs are for the next five years or ten years and how realistic are are these numbers and just trying to get sure yeah we so some of these numbers

come from a previous water sewer master plan part of the funding that we're asking for for for these rates and for our spending is gonna be for an updated sewer master plan so in the next couple of years we would be conducting a full study of the sewer system to look at evaluating those projects and increasing those costs.

So how worried or likely is it that once we complete the sewer master plan, we're going to adjust these rates even further?

It's a possibility, but that will be part of our analysis with our sewer master plan to project out for the next 5, 10, maybe 15 or 20 years. So we can always project that out further as part of the next rate study that would come after these rates expire.

Okay.

um study that would come after these rates expire okay um !

and then these are so for my clarity with our sewer revenues generated by just uh a flat monthly charge ! there's no variable rate for sewer right based on water usage

! it's just ! it's ! it's! ! it's! correct!

uh i mean these are all to start off right these are significant

increases being proposed for both sewer and water right 30 plus percent just in the first year with just in the first year with continuing almost double digit increases each of the following years do you know offhand if we hadn't adjusted the rates back down in 2019 when the last five year rate study expired if we had kept at that rate how this compares in terms of the percentage increase you know offhand I'm

I'm just curious. I mean, I assume it would be much smaller. I don't know how much.

Yeah, I don't know off the top of my head, but I do know that it would be Lor. Yeah, we would not be seeing these significant increases.

Okay.

That's all I have for now.

Any other questions or comments for Council? Sean, I just had a quick question because I know when we do rate increases, our concern is always for residents. In that last rate increase that we had, did we have any hardships that were communicated to us by residents about the rate increases and if we had any residents who had trouble paying for those rate increases?

So unfortunately, I wasn't here when that study was done. But typically, if people do have hardships, they can go to finance and they can apply for waivers depending on how their income IS AND THINGS LIKE THAT. BUT I'M NOT AWARE OF WHAT THAT WAS LIKE WHENEVER WE DID THE RACE STUDY BACK THEN.

OKAY. BUT WAIVERS ARE POTENTIALLY AVAILABLE FOR FAMILIES IN CASE THEY FIND IT AS A FINANCIAL

HARDSHIP, SHOULD WE INCREASE RATES? YEAH, THAT WOULD BE A FINANCE-FOCUSED QUESTION, BUT TYPICALLY IT'S GOING TO BE BASED OFF THEIR INCOME. IF WE HAVE AN INCREASE, IT'S GOING TO BE BASED OFF OF THEIR INCOME

AND THAT HARDSHIP. GOOD EVENING, MAYOR. THIS IS MARTHA.

Good evening, Martha.

We do have a program that's called Lifeline, and those that are low income can apply for it,

and then they'll get a discount of the water rates. And it just applies. It's a discount of the water rates, but it applies to their whole invoice, to their whole bill.

And this Lifeline program is run by our city?

Yes, it's run by our city. It's run by the Finance Department. there's also a state program that is still going

on where if they can't pay their bills

they can also apply

and I don't have the name of it off the top of my head right now but it's still going on and they can apply for it and they can get like six months paid

to cover six months if they qualify

okay thank you

And Martha, on the Lifeline program, where do we generate the revenue for the Lifeline subsidy?

The Lifeline program is generated with late fees from the water.

Interest rates and late fees from water.

Are we, the late fees from the billing, that's enough to generate the revenue? Are we oversubscribed, I guess, on the Lifeline rate program, or is that something?

Well, we did an analysis when I first got here three years ago,

and right now it's only a $12 a month or a $12 every two months for account.

So if these rates go and move forward, I can do an analysis to see what the change would be.

So right now we've been able to keep it at the 12, and we haven't had to subsidize it.

And then for, so anyone that, for customers that are income qualified, they have to apply for the Lifeline subsidy?

They have to apply, and then they have to reapply every year.

And then do we do any outreach or education around the Lifeline program?

We did a lot of outreach during when we told everybody that we're going to start charging, we're going to start doing shutoffs.

We did a lot of outreach.

and my staff always tells them when they're coming in to pay a bill or something that they have

if they hear them say that they can't afford it they always tell them that there's a

that program is available to them. Do you know offhand or on your computer how much typically in a month or since we build bimonthly or on an annual basis how much of us how much the Lifeline program actually spends or gives out? I want to say it's under

50,000. It's not a lot.

And Martha, just a follow-up

question. Do we know how many families or households actually take advantage of? Is it like a significant number?

No, we have about 100. About 100 families that take... When we started the

shot-offs again, we got a few more because originally we had about 60.

So we might be... I haven't asked my staff, but I know we were already at the 100, So we might be a little bit higher now.

I see.

Okay, thank you. Any other questions?

Actually, a follow-up. I think perhaps, I think a follow-up, I think you sort of asked.

Martha, so did we see then any steady increases

of people applying for a lifeline program,

especially during the pandemic or even post-pandemic because of inflation or other pressures in the economy?

No, none at all. In fact, CDBG COVID money, the library, Debbie Niblick, I'm sorry, I'm not feeling well.

She ran a program from the library for COVID-19 related hardships.

And we had a program that paid for utilities. And we only had two people, two residents that applied.

So we did not feel any kind of impact due to COVID.

Well, actually, the follow-up question, when we promoted that program, I mean, how did we do outreach to raise awareness?

Was it through Cascades?

Was it when repairs said they couldn't pay? How did we make sure that people were aware of the program to begin with?

There was a lot of outreach from the library.

They did a lot of, I want to say a lot of Zoom meetings or tutorials

and invited the community to come see them.

So there was quite a bit of outreach through social media

for that type of service. Okay.

Mr. Mayor, members of the council, if I may. There's a staff report from March 15th, 2023.

from the finance department, which states as of March 1, 2023,

the finance department had 1,199 single-family and multifamily accounts with past due balances more than 60 days. Total owed was $525,000. For commercial accounts, there were 51 accounts with past due balances for more than 60 days. But to your point, for purposes of this discussion,

for lifeline accounts, low-income households,

there are 34 accounts with past due balances for more than 60 days. The total owed by those accounts was a little over $15,000. And this was when the city started reinstating late fees for water delinquencies. And it was in accordance with state legislation that alLod that to happen.

So a couple of the answers to the questions that were posed,

the city is enrolled in the state's

LIHWAP

and their water utility customers can go to the state website to

apply for the Lifeline program

and that particular staff report had a link for that the program is federally funded and offers a one-time payment to help pass due water

and wastewater bills

hopefully that helps with your discussion

and just you said the aggregate bill is about $1,100 I'm sorry

in total what was the total

the total delinquencies for single family and multi-family accounts for water

march 1st 2023 was 1199 accounts

thank you carl for that info any other questions or comments if i can just add real quick we also

have the lifeline application on our website so people can apply on the finance website to get to

that lifeline application.

And I would just, well, one, for my clarity's sake, Martha, the lifeline program is specifically for the water bill.

Is that right?

It doesn't apply directly to the sewer bill, but obviously they're built together, so may offset the cost for both, but is it specifically only for water, the water bill and water usage?

The lifeline is specifically for water, yes,

but it's in the water sewer and refuse bill, so it kind of, so we just call it the utility discount,

but it is specifically for water.

And we've only needed to utilize late fees generated to cover the costs of the lifeline subsidy over the years? There's no, we've never had to subsidize it with general fund or other potential.

Mr. Mayor, members of the council, we actually cannot subsidize it with the general fund money.

That's prohibited by applicable statute.

So the way that it's subsidized is, as Martha mentioned, with late fees and with interest payments off the LEAF accounts.

But there's specific law on the inability to subsidize it through general taxpayer money.

so we right so for the lifeline if as we increase I know we're getting into some

of the water conversation but as we look at increasing rates for water and sewer one I appreciate that and being reminded that the lifeline rate and lifeline support program exists I would expect probably more people to you'd utilize this program going forward as the rates continue to increase in the years ahead My question on this is really if we need to

find additional revenue

To make sure that this program the lifeline program is robust enough to meet needs in our community What are our options understanding their constitutional limitations for general fund and other subsidies or other? opportunities for revenue to subsidize this.

Although the state is

slowly looking at potential opportunities

to address

subsidies for

income qualified

households for water. I know they've been looking at other

options for how to address this, but

have not yet done so. If we can look at other opportunities or other revenue sources potentially TO GROW THE FUND SO THAT ONE WE CAN OFFER A LARGER SUBSIDY ON A ON FOR THE BILLS GOING FORWARD AND THEN EXPECTING MORE PEOPLE THAT ARE PROBABLY GOING TO NEED THAT ASSISTANCE THE NEED TO GROW THE AMOUNT OF FUNDING THAT'S

AVAILABLE FOR FOR THE LIFELINE SUBSIDY. AND MR. MAYOR

MEMBERS OF THE COUNCIL I HATE WHEN PEOPLE GIVE YOU THE

SPOILER AT THE END BUT PERHAPS IF WE GO TO THE NEXT PART

OF IT WE CAN STAFF CAN ROLL OUT SOME SUGGESTIONS FOR THE next 45 days and with regard that will touch on that very very subject. Thank

you. I guess we're ready for the next part then.

We're ready for the next part the water rate study. Are the slides up? I cannot

see them. There we go. So let's dive into the water rate study. You'll see a similar format here, so I'll try and touch on the things that may be different here for the water. Currently, you have

a water rate that is in two components. There is a fixed service charge, which is based on the meter size that's delivering water to the customer. It does increase as the meter gets larger as that customer is reserving more capacity in the system. Also, there's a separate consumption charge based on actual water use. And there are two different rates. Single-family residential has a three-tiered rate structure where when you use more water during the billing period, it increases when you hit certain points currently. Up to 600 cubic feet of water used in a monthly basis. You will go to the next tier when you use that seventh unit. All other customers pay the uniform consumption, not subject to a tiered structure. And again, similar to sewer, the current rates have been in effect since July 2019, which reflects a rollback to the 2016 rates. we have one recommendation for revising the rate structure and that is realigning the single

family tier break points that are currently at six and twelve based on the actual demand patterns of your customers we're seeing those break points increase so there's more water at the Lor rate as you move through the tiers. And that's based as the cost of service, AWWA, As the cost of service, AWWA, I'll get into the American Water Works Association methodology for setting breakpoints based on base extra capacity. ! Where the first tier is for average water use, and then the extra capacity you need for peaking in tiers 2 and 3. ! So those breakpoints reflect your current customer demand patterns as required. Next slide please. Again, looking at the revenue requirement, a little bit healthier here on the water. looking at the revenue requirement, a little bit healthier here on the water side. The shortfall isn't as great in the first year. Salaries and benefits, folLod by the water costs. Your operations in green, and then again, capital projects. there in the top box. Current revenue at current rates is just below $15 million per year, so we do have some ground to make up again, and we can utilize reserves as we have in sewer. There are some major capital projects, as you'll see on the next slide. Meter replacement is one of your biggest ticket items on line 12, and a lot of water main replacements to improve those systems and reduce leaking on rows 10 and 11, those replacements. Again, there is a robust capital improvement plan, and not all the work can get done in the first few years. So again, there are some deferred projects that will occur in 25, 26, and beyond that which one of those will be deferred is not yet known as staff works through the details over the next few years. So we're asking the rates to not cover all those costs, but about $5 million per year. Next slide. Again, we're looking at a significant increase coming this July or January 1 of 2024, a 32% increase for water, folLod by a couple 8% to 7, another 8 within this five-year period. Again, we're looking at this fund balance graph, trying to keep the projected fund balance within the red and the blue line. Again, the dotted green line, if we do nothing, reserves will be depleted before the end of the 2024-2025 fiscal year. I'll also mention we have a significant increase again in the first year, and that's imperative because of compounding those, getting those rates in there early so that green line doesn't dip below that red line in fiscal year 26-27. and we begin to build back up to our target there in the last of the 10-year period but again we're looking for rates over the next five-year period and that's why we show this 10-year outlook because if we just look the next five years you'd see we'd be very close to that red line but with hopefully minimal increases in that second five-year period you'll be rebounding and building back up your reserves. Next slide. A little more detail, as I mentioned already, with the cost of service analysis is a bit more involved for the water. Just as with sewer, the rate adjustments for January 1, 2024 will not affect all customers equally. It's not just a uniform percent increase to each rate. Based on our cost of service analysis, which converts those revenue requirements into rates for each specific customer class. And the methodology used widely in the industry is from the American Water Works Association, as I mentioned, the base extra capacity method, which looks at costs for peaking, and those are the types of costs that are in Tier 2, Tier 3. So those that peak and need a larger system, they pay more on a per unit basis. This method allocates costs between the fix and the consumption charges. And this methodology really minimizes the use of discretion. And this follows in line with the recent San Juan Capistrano decision that said the rates need to be proportionate to the costs that are incurred for providing that service to each customer class. The method also used for deriving the rates for tiered water charges. Again, the size of the tiers are based on your actual demand and not on budgets. And we look at your actual demand patterns within your jurisdiction to set those tiers and those breakpoints. Next slide.

Here's a comparison of your current and projected rates. The first year come this January 1, as I mentioned, is not borne equally by each meter size. You'll see a minimal increase on the 5.8 to larger increases as you increase on that meter size.

From that point forward, the rates will increase by the uniform percent change you see in each column through July 1, 2027. Next slide. That was a fixed service charge.

In addition, we do have the commodity or the consumption charge. Again, this is on a per unit basis or 100 cubic feet. Each 100 cubic feet is about 748 gallons.

Turning your attention to the current tiers and the break points, you see tier one to tier two breaks at 6 HCF. And once you use that seventh unit, you pay the tier two rate. And then anything above 13, you pay the tier three rate.

As I mentioned, analyzing your specific customer demand patterns, we're recommending increasing that tier one water from zero to 10 HCAF and not to use that 11th unit to move into tier two. Again, these breakpoints are increasing, however, the rates corresponding to each of those tiers are also increasing and not insignificantly based on the cost of service.

Once the cost of service rates are in place for January 1, 2024, again, each July thereafter will be uniform percent increases to each of the rate categories.

Next slide.

We've got a few slides here just to give some indication of how these recommended rates will impact customers. As I mentioned, every customer uses a different amount of water, and they use a different amount of water during the year, the same customer. So what we've plotted here along the x-axis is the number of units you use HCF per month and the bill for that month on the y-axis. You can see the blue line would be the bill at current rates. The red line are at the cost of service rates for 2024. You see the Lor water use, the lines are fairly close together, so minimal increases when you use less water, which could be during the wintertime. But as the summer comes into play and additional irrigation is necessary, you'll see as you use more water, the difference between the current and the proposed bills will increase. The average resident uses 10 HCF per month, and that's pointed out with that first box and arrow. And then something that's interesting is looking at that 16 HCF breakpoint where the bills will start to see some dramatic increases. That represents only about 13% of bills, so 87% of bills will be 16 HCF or less. Next slide, please.

Looking at your non-single family customers, so all other customers, we've looked at a one-inch meter customer. That's your most common for this category. Again, the Lor amount of water that you use, you'll see a smaller increase, and as your consumption increases during the year, you'll see a greater impact to your bills. Next slide.

In comparison to your neighbors, looking at a single family with a three-quarter inch meter, which is your most common for single family customers, using the average of 10 HCF in a monthly period, you'll see about a $5 increase in that bill. If you use something less, you'll see a little less, and if you use more water than 10 HCF, that increase will be a bit greater.

You don't change your position within your neighbors with that increase.

Next slide, please.

Again, looking at, back one to multifamily. Thank you.

Multifamily, two-inch-meter customer, again, with 10 dwelling units.

Every complex will have a different bill and impact. This is the most representative of most of your multifamily customers

or 10 dwelling unit buildings using average water of 9 HCF per month.

We'll see an increase in their monthly bill if they use the 90 HCF per month.

Really quick on these slides, comparing the current to proposed, the proposed is the proposed 2024 rate?

Yes, that is for the forthcoming year.

Okay.

And I'll point out, you know, this is about almost $150 increase.

That's for the entire complex.

So that is for 10 dwelling units. It's not for each dwelling unit. Next slide.

We are, again, seeing an increase in the commercial.

Your most common customer has a one-inch meter, and the average water use is 53 HCF compared to your neighboring jurisdictions.

You're about in the middle of the pack. The commercial with average water use will see a bit of a bump as well in their monthly bill.

Next slide, please. So we've looked at sewer and water, and the question always becomes, well, what's my total impact? We put together slides because the comparison to neighboring jurisdictions could only look at the forthcoming year and the current rates of your neighbors. We always get the question, well, how does it compare over the next five years, my bill specifically? So, again, we put a few slides together here and your most common customers within each class. So, for single family, having a three-quarter inch meter and using 10 HCF of water in a month. The first year increase, we'll see about a $5 increase and pretty consistent over the next five year period of $5 to $6 per month increase. For sewer, a larger bump in the first couple years and then folLod by Lor increases of $2 to $1 in the outer years. So total impact to their utility bill without solid waste, about $11 increase the first year, and by year five, a $7 per month increase. So looking at multifamily on the next slide, again, a representative two-inch meter customer with 10 dwelling units. You'll see the large bump in 2324 for the water increase, then about $50, $40 per month thereafter. Again, that's for 10 dwelling units. So on a per dwelling unit basis, you divide that by 10. On the sewer side, you'd see, again, in the first couple of years, larger increases of $14 in 2324, and then by 2728 about a $6 increase in total.

Next slide. Looking at a commercial representative customer of a one-inch meter using average of 53 HCF,

we see similar results with the first year's increase

for water about $63 folLod by about $20 increases thereafter.

And this customer with the one-inch meter will see a minimal increase in the sewer charge of $5 the first year and then $14 folLod by $6 and $3 by the $27, $28. So again, bottom line increases to this representative commercial customer about $68 the first year and around $30 thereafter.

Next slide.

so there was a question in developing the rate model with the necessary capital improvements

it is worth looking at potentially debt financing some of those projects that will allow those

project costs to be spread over the term of the payback period of in this case a 30-year term at

4.5% interest. So we had modeled both. What the slide is doing is comparing

if the city elected to debt finance $15 million in capital projects, what that would mean to the rate increases. and capital projects, what that would mean to the rate increases compared to without debt financing, ! which you see at the bottom of the screen.

! So the Prop 218 notice that we're recommending would go out ! With the without debt financing, ! Those are the maximum rates that you can then adopt, and if the council decides before December 6th or in the next couple years to debt finance, you can always do something less later.

do something less later. But what the Prop 218 notice doesn't allow you to do is do rates higher

than those maximum rates within the notice. So our default is to notice

with the proposed rates without debt financing.

Next slide. In the next couple slides, there's a lot of information on here,

But because we did present the rates without the bond funding, which you see on the bottom of the chart, we figured there may be a question of what would the rates look like if we did the bond funding.

And you can see they're slightly Lor, a dollar or two per month in this case, if you debt finance about $15 million in projects.

Next slide. We also looked at the consumption rates with and without bond financing.

Again, without the bond financing, these would be the maximum rates that would be in the Proposition 218 notice.

And if down the line debt financing is an option, you can always adopt rates Lor than what's in the Proposition 218 notice.

Next slide. I think that wraps up.

So let's maybe pause here, and I can answer any questions you have on the water rate study specifically before we jump into next steps.

Mr. Mayor, members of the council, before we move on, we wanted to just pause here for a second. We'll definitely take questions. We did have some infrastructure that we brought in. so Sean was going to just present what was in front of you so that for the benefit of everyone here we understand what we're looking at these are some examples of our infrastructure. Thank you Sean. Good evening again

Honorable Mayor and Mayor Pro Tem and City Council. As I mentioned earlier this pipe here this is our 12 inch pipe this actually comes from Monterey Pass which is currently under

construction right now for under emergency construction order so

this is just to demonstrate some of the damage that can be caused from water Some of these remains you can see the damage that's caused just you know as age happens as infrastructure failures This one here is from West Graves Avenue This one here you can see a typical clamp we put over a main But if you look inside you can actually see a hole that's generated from it from before we made the repair

so

The reason we cut this out was because it failed at another location. So Yes, we'll see some of these things fail, but we'll continue to see these things fail if we don't invest into our infrastructure and Sean

And how old are those pipes? They vary.

So the majority of our pipe comes from pre-50s. So, yeah, we have about 18 miles of pipe that come from the 20s, and then we have probably about 87 miles that come from the 40s, 50s, and 60s.

And does that come from the majority of our current infrastructure? That's over half.

Over half of our pipe is pre-50s, pre-60s.

So over half a century old. Can you show you how long can it come out?

It depends on the type of pipe. So some of this pipe, so this is a steel and cement line, then you have ductile iron and cast iron pipe. They vary sometimes, they'll last anywhere from 50 to 100 years, but it also depends on soil conditions. Water also plays a part in that, so the type of water that comes into our system, if it's more acidic, if it's more alkaline, all those different things come into play, so it's really hard to put a number on it. also Edison whenever they do have underground lines that does play a factor into how it impacts our infrastructure but all those different things we're fortunate that we don't have a lot of rail lines running through our city but again those type of things can have an impact on infrastructure and

another curiosity is that like the average age you're saying some of this is over half a century is that average for most water just to like say neighboring LA which is DWP are you saying that their water infrastructure is also consists of pipes that are over half a century old?

Surrounding cities are going to be very similar to us.

Their growth is going to be very similar to our growth. So we saw a huge increase in the 40s, a significant increase in the 50s, and then it started tapering off after the 60s. So most cities in this area are going to be very, very

similar to us. Any other questions? Council Member Ngo?

What's the cost differential for being proactive and fixing it before it breaks versus having it break? what's the cost to fix it when it breaks?

I can't give you exact dollars, but it's going to be much more significant because we're going to have to come in.

You have overtime.

Typically, unfortunately, these things happen at night. They don't happen during normal working hours like we would hope.

So then we have staff overtime.

We have equipment costs. We have emergency road repairs. There's lots of different factors that play into that. And it depends on the size of the pipe, too. As you get higher in size and the type of the clamps get more expensive,

there's varying factors in that.

Other questions? I do. Council Member Lou? Thank you. I'm kind of jumping around.

But on the slide regarding the revenue adjustment alternative,

in which an alternative to try and minimize the impact,

there is a suggestion of $15 million in debt financing.

Is that $15 million the max, or is that adjustable? Like if the Council decides, you know, let's make it $18 million. And I'm just thinking it out loud, because, again, And I think probably all of us, when we see that first year, it's a 32% or 27%. I mean, that is a big shock to anyone to see such a jump, even if we explain that it's because of deferred maintenance or because we're trying to play catch-up. I'm just curious, like, how do we kind of minimize that shock to our residents when we see this?

So I believe that, and Michael Bush is here with our team, but I believe the $15 million was just a thought, a sample, yes. So if it's determined that council would like us to look at a different bond dollar amount,

we can definitely do that. But this was just as a sample.

Thank you for clarifying.

And again, I think it's important for the public to also know as well. And out of curiosity, let's say we do adopt a type of bond financing. The bond financing, like the interest and the payment, where does that come from into the payment of the interest and and and also paying back the bond

mr. mayor members of the council before mr. Bush gives his very informative presentation

I think tonight what just so that we're clear staff neither staff nor mr. Bush are going to

have all the answers with regard to a bond financed type of rate structure tonight what

What staff is asking for tonight is simply to start the clock, if you will, for the next 45 days.

And during that 45 days, if this is something that the City Council would like to explore along with any other types of revenue sources that might help stabilize the rates being proposed, during those 45 days, those presentations can be made to the City Council and the City

Council can make those policy decisions.

So by the time that the public hearing comes about in December, the Council will be fully informed about what types of options there might be with regard to the rates. And as Rick mentioned during his presentation, so long as your rates are below the rates being proposed tonight for going out for public notice purposes, you can adopt Lor rates.

You simply can't adopt higher rates.

So really what we're looking for is really starting the shot clock, if you will, for these next 45 days, and you can make a determination within those 45 days up to the end of the public hearing about what rates you actually want to impose. So with that sort of outline, Mr. Bush.

Great. Thank you. That was a very good description. The only thing I would add to that is when we were to run scenarios, the debt service costs and interest payments come from water and sewer rate revenues, depending on which entity is responsible. what would drive the rate is your salary, O&M, PAYGO capital, your ability to accumulate additional reserves. But specifically to the bond, you have to have a certain coverage amount above and beyond all that. So let's say you issue a bond that your debt service is $1. The investors want you to have $1.10, for example, in the bank that you collect. So that all drives what that rate would be. And as your city attorney pointed out, we can start running any scenarios in this 45-day period to try and smooth out the rates to see what we could possibly come up with. And depending on your need for capital and your readiness for capital, we'll determine how much you could actually borrow. We certainly don't want to borrow more than you need at one time. There is a, under the IRS rules for taxes and financing, there's a three-year expenditure period for which you get the money and you need to expend it. So it would have to be basically three years' worth of projects would probably be the maximum amount. And in most cases, I think, as your staff has pointed out, that sort of basically just spreads the life of, you know, the financing over the life of the facilities. And I'm not surprised by the age of the pipes. It's pretty common when I'm asked to present like this that that's very common. One little interesting note is my dad was born here in 1943, and I'm not surprised that those are probably the pipes when he was born here. A lot of older communities, the pipes are replaced now are the ones that were put in initially with development, where cities weren't responsible for putting them in. It was developers that were putting them in. So your rates are always playing catch-up to where development first put in place, and you're catching up to replacing them with rates.

So then again, it would be through, you know, like fees would then pay for the financing of the debt then, right? Yeah, you collect it in your annual, in your money. So it would not come from general fund?

No.

Which I know was already mentioned earlier, but I just wanted to clarify,

it would not come from general fund. Okay.

Mr. Mayor, members of the council, that's correct. The general fund money would not be used for this infrastructure. So the bonding and the payment of that debt would be entirely dependent upon the enterprise funds. And as Mr. Bush mentioned, various scenarios can be run,

as we've discovered certainly since 2019 the capital costs of public projects for all projects

really for all development projects construction projects have certainly exceeded the expectations of any engineering estimate that occurred before the pandemic so from that standpoint again as i mentioned we won't have all the answers here tonight and the hope is that the council will give direction in terms of what's desirable, and so it can choose from a host of options in the next 45 days before the public hearing to make a determination of whether or not you want to try to smooth out the rates being proposed over a period of time. But to Mr. Bush's point and to the discussion points by Council Member Lo, the debt will have to be paid out of the enterprise funds, and it's not a general taxpayer burden.

Just to be clear, right, when we're talking about bonding, it'll spread out the rate impacts over longer years, but ultimately will actually cost ratepayers, customers more.

It's just spread out longer, right,

because we're borrowing costs and the interest rates. And we're not seeing that because we're only looking at the next five years.

And, Mr. Mayor, members of the council, I won't pretend to be a finance expert.

I went to law school, so I only have to divide by three and do arithmetic.

So I will say this, though, that obviously if you invest in the infrastructure now using $20, $23 as opposed to five years from now, it's going to be in the long run less expensive if you're investing that now, even if you're paying on the debt service, assuming that interest rates come down and what have you. Lots of assumptions that Mr. Bush can go into if you want to hear them all. But based upon my general understanding of things, if you're using $20, $23, those are going to be a lot cheaper than in the future because we don't know what's going to happen in terms of construction, cost increases, O&M increases, all of those types of things. And more than likely, the interest rates are going to go down rather than continuing to go up. So ultimately, the question of being able to refinance the bonds at some point, what have you, all of that will be spread out over a longer period of time. So the anticipated rates that are being proposed tonight have infrastructure costs being invested over a period of five years. But if you were to, say, do all the infrastructure right now by using bond money, that may be less expensive over the long run than it would be otherwise. But that's my understanding of things. And Mr. Bush can correct me if I'm wrong since my economics was one class in college.

I did just interestingly enough I looked recently for another client at the California construction cost index since 2018 and it's gone up 44%. The last three years being almost double digits each year.

Currently this year we're at over 8% just for that space. So what you're referring to is pretty accurate.

The other thing that we've seen is on a PAYGO basis you have this big demand every time you have a big PAYGO project.

So over time, you'll have a big lump sum increase here. Then you'll need a big lump sum increase somewhere else. As you go through the process, I think we can probably, in the next 45 days, start to make some assumptions on that and come back and say,

here's what the total borrowing cost would be, pull out the interest for each one so you can evaluate that, make some assumptions.

There was a question that you actually asked earlier about, but what would happen if the rates were increased? Well, having sat in these shoes before, I asked that question, actually.

And it turned out that if rates would have stayed in place, likely what would have been needed?

I mean, to that point too, right, if we had done, right now we're, I assume the same, right, in terms of my earlier question on the sewer revenue requirements, the water fund is in the same place where we're taking money that we generated, over-generated in the past with the 218 process that was supposed to be meant for capital projects that were essentially just deferring those projects to subsidize operations right now because the rates went back down. Is that an accurate characterization?

I believe that's the case. you're spending down reserves to meet operational expectations that should be

should have gone to projects capital projects right replacing pipe and the treatment plants and all that stuff that would have cost less if we had done it a few years ago as opposed to now and as opposed to a few years from now too

that's correct that's the point of you know and looking at doing projects now as opposed to you know waiting to get revenue in and doing it over time if we do the majority of these projects today those dollars are going to be cheaper especially if

we look at the cost of project increases over time um you know depending on bond rates we the hope

would be is that we're spending less dollars today as opposed to paying more dollars tomorrow

so my question related to the potential bonding and how we meet the needs the capital needs for our water system and sewer system going forward right i know there's a line item in here for both a water and a sewer plan, which ideally would identify the capital needs that we will need to meet in the next five plus years. But right now we don't have, am I correct in saying that we don't have that kind of analysis in place for water to help us determine what amount we should be going after the bond for the next three years for capital projects?

No, we have that analysis. So based off the current projects we have listed in our CIP, we've identified some that would fit within that $15 million that could be done over the next couple of years. Because, again, to the point, if we don't spend that in three years, that's when we start running into issues. So that $15 million would be reasonable for staff to take on to complete projects.

So we already have at least $15 million in capital projects we've identified that if we bonded for that amount, we would be able to deploy that capital very quickly. to projects we've already identified and then the water plan that we would initiate if right it sounds like it's already in the budget this year so hopefully that's getting on the way soon will potentially identify additional capital projects that we may be want maybe want to consider bonding for to also do in the next three years is that an accurate thinking way of thinking about

this we could look at additional bonding that's correct but right now i think the 15 million that we're looking at would be sufficient for our needs for our current identifying

correct and then the water study might identify additional needs because we're

further we're pretty far along in that process we're actually in a good space it's the sewer side that we haven't done the updated master plan but the water master plan we're actually coming to completions we have a lot of those

projects already identified okay thank you and then taking a step or a couple steps back right I remember coming as a resident during the last 218 process on water and sewer rates when i was on the water board and this council was determining how to move ahead on rates and a lot of that the conversation from what i recall was about making sure we could meet our capital needs for the next five years plus do we have a way or can we report out to the community how much of those capital investments actually happened what did we make those investments in? Maybe some success stories

around the last rate

increase that happened and that series of rate increases, the 218, and all the capital products that we were able to successfully deploy based off of that rate increase to help tell the story about how this will make those additional investments?

Yeah, we can definitely look at that. Part of that you're seeing as we talk right now, so the Northeast Water Main projects that all of you authorized, that's currently going on um we're we have that's a multi-phase project um that we're already well in in the works on so we're already seeing a lot of that i'm in the works you see monterey pass unfortunately that's an emergency but that's infrastructure money that we're spending on capital yeah and it would be

great to help put those stories out there in the cascades and the other things as we i assume tonight we'll approve the 45-day shot clock as carl points uh notes it as uh right as people start to get pay a little more attention to this is we send out the noticing requirements for the public hearing the more we can help inform residents about how this will benefit them and how these are necessary infrastructure investments that we need to make in our water and sewer system I think that would be helpful and then anything else to help explain or even the 15 million or so of of current capital projects we've identified what those are and what this rate increase if it moves forward would help to fund in terms of improvements and maintenance that's needed in the community.

Yeah, we can definitely get that.

And then I have some other questions, but I'll let people go away as I try to find them.

Any other questions? Okay. Council Member, you?

I think Michael knows that I will have questions for him. I'm here for you. so curious about what the interest rate situation now i mean put it here at 4.5 do you think that

it will be around 4.5 yeah right now we're still pretty comfortable with it if you had asked me this week i'd probably say it's slightly higher but when we ran this just a few weeks ago that was an actual rate that we got from the market based on the credit that we thought the city would have which we assume would be at least an a a rating for the water system oh okay so

So 30-year rates are still good. It's the short-term rates that aren't good.

So as long as you go out further, you're pretty good. So we're still doing transactions in the mid to high fours right now for 30 years.

Oh, wow. Okay, good. Good to know. And also, since we already have some debts, and will that add on to the stress of the city that we will have a debt ratio?

Well, it'll be a debt burden, but it'll be a debt burden to the enterprise itself,

so it won't have any impact on your general fund rating or anything like that.

Oh, okay. Okay, good. And I think the last questions would be, since on the graph, it's a little bit misleading that, you know, as you can see, obviously, with the bond, it's a lot cheaper, like $27,000, $666,000. And then, but, you know, the next five years, that will be pretty, I would say, pretty high, which is $6,555.

And then, but, the one that without that financing will be $33,000. So it seems like for debt financing, we'll actually increase, prolong the rate increase at the back end rather than the front end. So overall, do you think that, yeah, overall, I know we can save so much in the beginning, but then it will just pay back, need to pay back at the end. So overall, that, yeah, it depends on how, you know, council feels. So it may not be a better off situation.

I would, not a betting man, but I would be willing to bet that your master plan will have rates built into it going forward.

The systems that you've seen up there, I work with all the other cities actually up there except Alhambra.

Every single year they do a rate adjustment just to keep with CPI. So I would caution you be careful with zero rates multiple years in a row. you're going to come back and go, now I need 12%, now I need 14%. And so you're always going to have operational increases, cost of living, CPI increases. So typically, once you get on a plan for modifying rates, the best managed systems,

you know, that manage their expectations and their credit ratings and so forth,

they usually do little CPI increases every year that are, you know, 2% to 4%, depending on what their needs are.

And older communities have different needs at different times.

Some of the benefits that we've actually seen from some that keep going with just a slight annual difference, I think as your public works director pointed out, a lot of these pipes are under the streets, so they want to have capital, so every time they plan to repave a street, they go in there and fix the water line first and then put the street on top of it so you don't have problems with vibrating. It'll start to break the pipes if the streets are maintained but the pipes aren't replaced at the same time. So some of them just have this high-level coordination between all levels of public works, so they can go into the street one time, resurface it,

make sure the pipes are replaced at that point and not come back for a long time. So they keep a little bit of capital for projects like that.

And then I think part of your rate increase, candidly, is to Mr. Wong's point, is you've got to catch up on the capital you've been spending down for operations. You've got to replace it. So you have emergency funds. So you're doing capital projects, creating a new reserve again,

and then building towards the projects you have in the out years. And the $15 million isn't all the projects, as I understand it.

That's just a portion of them. There's still PAYGO that's built into your plan, as you can see.

Okay, good points. And also, I wanted to say that, because compared to the pension obligation bonds, it seems like that one is refinanced because CalPERS charging us a high interest rate. But here, we don't have another one charging us high interest rates. So this is not considered a refinance situation. But I agree with you that, you know, we should have some more fund reserve in case of emergency, in case. So I think the rate is pretty good, too, so far. So, yeah, I will be happy to explore the option.

This, if you decided to go with bond finance, you would have traditional 10-year call provision where you could refinance it. And obviously, as the maturity shrinks, the risk goes with that. And the market could be in a better place at that point where you'd start to reduce the cost. And that would have some impact on long-term rates if you Lored the interest cost of the debt, as it's outstanding. And I think you do have some private placement debt currently in the water that eventually would probably go away. So that will factor into that, too.

So a question for me is, is $15 million the ballpark, or is that conservative, aggressive?

I would say more on the conservative side, mostly because we need to keep in mind that the projects that we add onto our plate, We already have significant capital projects beyond water. We have streets. We have Parkways, we have all those different projects, you know, we're working on playgrounds all those different things need to come into play So I don't want to we can't overload our team to have all these additional projects So we feel that this is going to be the sweet spot for us to take on not only on the engineering side, but on the operation side

Yes, and maybe I'm tripping ahead again. I'm looking at the last page, you know next steps

So from the period from my notice of the mail October 20th to public hearing, I know the mayor pro tem had asked again ways of raising awareness, but I mean what is the city's, what normally would happen in this period? I mean would we continue to have discussion items on the agenda or would we have, I just want to make sure that it's not in the vacuum where it's just sent out and then come December

Number six, people come and they may make basic opinions on assumptions when I think we want to make sure that we are guiding the narrative on this conversation, on this policy issue, a very important policy issue.

So as discussed, the sample notice for water and sewer is in the staff report. It's a sample notice that would be mailed out to all the households. that is giving the notice for the maximum rate. Definitely, yes, the maximum rate would be noticed to the residents and explaining that the public hearing would be on December 6th. In the meantime, we can come back if Council is directing us to do so with bond options or other options for financing and have those discussions in the interim. But the final decision for the actual rate, as long as it's not more than,

it can be a rate Lor than.

But, yes, that is the plan.

Okay.

Other questions? Council Member Dillon?

Just a general comment.

Look, at the end of the day, you've got to spend the $15 million if that's the right number. Because if you don't, it becomes $20 million when you're actually fixing it the same day, tomorrow, or next year. And then it all comes down to sticker shock. I mean, do you want to fix the $15 million from your pocket today, $15 million, which is actually the best deal? So if you don't have the $15 million, because we run a tight budget, then you've got to get financing, debt financing, bond financing, whatever it is. It's going to cost you $18, $19, but spread it over three or four years. So I'm glad we're having this discussion, and I'm glad we're letting our residents know that we're heading into this. This is the 45-day start the clock so that we can all put our head together and figure out what's best and how to best deal with this situation, which has been around forever. But it's at a point where we need to take care of it or else this $15 million becomes a $25 million problem. So I'm glad we have the team working on this. And if you need me to make a motion, we'll start with that.

Okay, thank you. Any other questions or comments?

I echo what Councilor said in terms of wanting to make sure this conversation happens. I think hopefully based off some of my earlier comments, I'm frustrated with the fact that over the last few years we didn't address these needs. And I'm curious and I noted in the staff report that we did the or we initiated the rate study back in 2021. I'm not sure if this got sidelined because of Measure MP or I assume that. but the need for these capital investments in both sewer and water are very clear and have been clear for a while and we right in any in in to echo what councilor go was already saying right we should have been on this and probably

16 rates we would not be in the hole that we're in at this point and so one based off of that if we move forward with this 218 process there's no record right without proactive action the rates at the end of this 218 process right in 2027 2028 would stay at that 27 28 rate unless council took specific action to revert it back to some other level is that right correct the prop

doing team process can be the initial one that we're doing here is for five years. Another one can be done after that, definitely. But definitely noted, we understand that the conversation about rates in general has started previously. Yes, agreed that Measure MP probably put this on the sideline a little bit because consideration of rate increases or sales tax increases conversation could be a lot and we were coming out of a pandemic but definitely noted that proactive approaches to make sure that our rates are keeping up with our operating costs is understandable so definitely noted thank you and then sean i don't i don't know

if you can answer this but uh was there any uh right the state one climate change is going to

effects water supply and all that stuff so our wholesaler and other water sources I don't know if that's been baked into this model law in terms of likely increased water I know there's a inflation adjuster for for some of the costs were but I don't know if there's additional thinking or analysis that can go into what that impact might be so we can bake it into these rates as well if that was done also right the states

impending requirements for per person per day indoor water usage and likely outdoor standards that are going to be hitting the city. If those thresholds are being baked into these rates too as we assume there will be less water usage per household and rate payer and meter going forward into the future years and even the impacts of the drought, last few droughts, right, the state called for significant water consumption reduction and water use conservation. That impacted rates, I assume, and revenue, I assume, relative. I don't know how significantly or not, but if there's any way to bake those kind of assumptions into, or if they were at all, into this model for how we want to set rates going forward.

I will tell you that we did the best that we did with the knowledge that we have today. So to your point, all the different things that we know about today, that's how we built these models. And, you know, we can only predict based off our conversations with our wholesalers and even with Watermaster, whatever those rates are from the water we pull out of the ground, their projected rates, that's what we have to base it off of. We can't predict truly what five years is going to look like, but based off of the information that we were given from all the individuals we talked to, that's how we built these models.

Great. Thank you.

And then for some of the specific capital projects that are in the projections, right, water meter replacements, is that for AMI or is that just replacing the AMR with AMR?

That's an AMI system.

And that's the full estimated cost?

That's the anticipated cost, yes.

And we would expect the total meter replacement to be done by 24, 25?

Yes. That's the goal.

And then do we anticipate any, for something like that, do we also anticipate savings in some way, right, in terms of checking water meters or being able to identify leaks more easily or that there will be savings to some of these investments, right?

There will definitely be more efficiencies with this system. And the ultimate long-term goal is to provide residents with the ability to see what their

consumption is and be notified of leaks whenever they occur.

Perfect. I look forward to hopefully seeing the AMI program kind of roll out throughout the city. It's been something that I have been in conversation with others on for many years. Have we looked at or does this projection include any potential recycled water opportunities in the city?

This projection does not. some of those conversations kind of died off several years ago but they are starting to spark back up a little bit but again that's something that's a wholesaler providing water to us and so those are close conversations will have

to be had with that wholesaler great and I see mr. Hellman back there welcome back to to the city appreciate him coming back to lead our water utility and would encourage us to look at other we well one recycled water opportunities for the city I know and when I was on the water board we were talking trying to get conversations going with central basin in the for in Sangaroo Valley municipal on potentially extending a purple pipe into the city of Monterey Park to deliver water some customers if there are other opportunities to offset our potable water use in the city to help meet state needs going for state mandates going forward I hope that we can explore those and if we need to bake those in the rates in the I think that's something we should look at. And to the extent that we can and should continue to do outreach to our wholesaler and other water agencies to see what they expect in terms of cost and rate increases, sort of the tunnel project, the Delta tunnel goes through, that that would be significant increase to our cost of water going forward. And then the Carson project, the pure water, SoCal project for recycled water potentially would add to a cost to our cost of water, too,

for the wholesaler.

That would trickle down to us. So to the extent we can keep an eye on those likely costs that are coming down to make sure that those are baked into these costs as well and the rates as they need to be adjusted

going forward. Absolutely. That would be helpful.

and then yeah to the earlier conversation on the lifeline in a subsidy for low-income customers that are in need which is I'll reiterate the point for staff to see and to do some analysis and work to see how we can make that program more robust and also to add more resources to do outreach on the availability of that program for customers I'm assuming some of that's done in language I know we did and Martha reported out that we did a lot of outreach when we reinstituted shutoffs for non-payment and right reinstating late fees to the extent that we can continue to do that outreach on a regular kind of interval especially as we start to implement these likely rate increases whatever level they're at I would expect and I'd be surprised if we don't see an increase in requests for subsidies and and a need to address some of these costs because right it's not just the water sewer rates there and go up every other utility and other fees and costs and taxes and everything are going up to so to the extent we can have a program to make sure that Lor low income customers and low-income parts of our community there are need have access to a program because there isn't, unlike for some other utilities, there isn't really a statewide or uniform kind of program for low-income rate assistance for water and sewer rates, especially for water rates. So to the extent that we can provide that, and if we need to look at additional funding sources, when I was on the wholesale water board, we were looking and talked with our cities about how we might be able to how that district might be able to provide a source of funding for potential low income rate assistance programs. That's something to look at. I know the state has been looking at how to create its own fund to help provide for low income rate assistance and low income bill assistance programs for water to the extent that the staff can keep an eye out on legislation that's going to continue to press and move forward on that. Hopefully, let's keep a watch on that as well and see how we can participate and help our customers participate

in those kind of programs.

I know the low-income home water assistance program, LIWAP, came out of some of the federal assistance for cities out of the COVID pandemic over the last few years, but my understanding is a lot of those funds are very limited in one-time funds, especially for bill forgiveness. And so I would want us to make sure we're prepared as these rate increases happen, even if historically, last few years, we haven't seen a lot of need or uptake in our own lifeline program. I would be surprised if there isn't. I think we need to be prepared for more people that need that kind of assistance going forward. How do we make sure that the resources are there so that our existing Lifeline program and the revenue sources that draws on aren't oversubscribed so that we have enough to meet those needs going forward.

Understood.

And then I think this is for my clarity or my interest too. So I appreciate that we are, and I think it's really good and helpful, that our rates for water are split between a fixed charge for the meter size and then a variable rate for water consumption because we have fixed charges whether people use no water or a lot of water. There's still pipe that needs to be paid for, maintenance, staffing costs. Those are all fixed charges. How well tied are our current fixed revenue, the meter service revenue? or the meter revenue, is that pretty close, or are we still subsidizing fixed charges based on variable revenue to a large extent?

That would be a great question for Rick. Hopefully Rick can chime in on that one. Absolutely.

So generally speaking, you're generating about 30% of your water rate revenue from the fixed charge. which doesn't you know sound like a lot generally fixed costs are around 60 to 80 percent

but what's not factored in with that 30 percent is the amount of water used during the winter

so your base level of water that's used all year round without the peaking and that

gets you another 30 to 40 percent of revenue just on typical indoor water use.

So your reliable revenue is very close to your fixed costs, if that helps. That's helpful.

And to the extent that we need to, right, the goal, right, should always be to get to a fixed revenue source that is as close to our fixed costs as possible. and to the extent that we need to make adjustments or look at adjustments to our meter charges to do that, I mean, I would encourage us to look at that and maybe that can be part of the water study that we're going to initiate after this. Sean, for metering, a lot of existing multifamily home or multifamily complexes, facilities in the city are still on one meter or one master meter that's shared for multiple customers or households. Do we have a program, are we looking at a program for subsidizing or supporting or encouraging more sub-metering? I know going forward, right, all new development, multifamily new development will have their own submeters or individual meters for tracking their own water usage. I assume they're on, for new developments, they're on the single-family rate structure?

That would be correct, yeah, for new developments.

Yes. For existing developments, though, we have not looked at that, but we can evaluate that.

Yeah. We'd love to see how we can, what programming and services and resources we can provide to help multifamily condos, townhouses, apartments, encourage the use of sub-metering. I understand that there can be some concerns, and I would be concerned too, around some of this in terms of landlords passing on and increasing costs for renters and tenants in some cases. but to the extent we can encourage and look at what other options there are to encourage sub metering and individual households even in multi-family residences to be able to have access to their water use data right it's hard to encourage people to use less water or to conserve water if they don't even know how much water they use

That's all. That's all I got.

I seconded Councilmember Ngo's motion.

Okay.

I just wanted to say a couple things. Sean, first of all, and staff, thank you so much for taking this on. When you brought these pipes down there, I actually wanted to go down and see. You know, my house was built in 1950, so I know some of the pipes that we've replaced look very similar to those. I know they were in our driveway for a while before they got removed. So I know that a lot of our infrastructure in Monterey Park, and not just Monterey Park, but throughout our state and country, is starting to show its age. So one of the questions or one of the thoughts I had was I'm not sure as we move forward, and it's not just going to be piping, but our roads, our bridges, everything within our city is going to start to show its age and might need replacing, updating. I'm not sure if there's any type of federal, state, local, funding legislation that we can encourage some of our representatives to try to push forward. Because I'm assuming that this financial stress, this is causing some financial stress on a lot of municipalities, I'm sure, that have to find ways to finance and pay for and pass

some of the I'm sure that have to find ways to finance and pay for and pass some of this cost over to consumers

! And I know that's a big concern that you probably heard from some of the council members here today ! In terms of making sure that if we are increasing rates that residents can afford it and those

!

that can't you know have an option in terms of financial support through our lifeline program but

!

start I mean but if there's a way we can partner with I don't know more assembly member senator congresswomen have tried to find financial funds that will help the San Gabriel or even the you know the cog that will help the San Gabriel or even the COG and try to figure out ways to kind of ease some of this as we start looking at future capital projects as well. Just some thoughts. And then as we're doing this, I know that you've already heard it, but just keeping in mind some of those residents that can't afford it. I know that when I get like my gas bill or my electric bill, there's always like a flyer in there about, you know, for Lor income residents who might need extra support and usually the applications attached so I'm not sure if that's something we already do when bills are sent out if it's already attached or even a link with information and and I think mayor pro tem won't talk about making sure that that's in multiple languages so that it's accessible to our to our residents we

don't get that yeah and then yeah I think that was that was just that but Thank you so much for taking this on.

I know that a lot of this is needed, but maybe we should pass the pipes around so the council

members can see them as well.

Actually, Mr. Murray, to your point, actually, Sean, out of curiosity, like those pipes, what will happen to them tonight after the council meeting? Are they going to be put on display somewhere, like a city hall? And if so, I actually think it might be a good visual if we put in all of our busy public spaces, Langley Senior Center, the library, city hall. I'm sure you probably have many examples of that, but I think it'd be good to, if anything,

it's a good conversation starter. People walk by and see, what's that? And then, you know, it's a visual of worn out pipes.

It's artifacts from 100 years ago.

But it's artifacts, but it's no use. Right.

But I think that, again, it's always nice to put a visual so that people understand, as opposed to saying it's something abstract about water and it's, you know, leaking somewhere. But I think if they can see something tangible. And so I would just encourage all of our public spaces where we know there's high traffic to have examples like that all over cities so people can see that. And then, again, it may help them think about, you know, why we have such serious water infrastructure needs.

Along with some of these pictures.

Yeah. Sure.

Yeah, we can evaluate some places to put some of this stuff out.

Yeah. We'll stay away from the sewer pipes. We'll just strictly stay with water.

You can put the sewer pipes next to his house. but just make sure they're signed into right to explain what what it is uh people don't think it's just it's construction equipment that was laid out absolutely uh another question sorry a question uh sean that i'm starting to lose as i started talking uh

can i talk on the funding real quick oh go ahead go ahead so funding real quick so we we do have a

lot of different props and measures that we get funding from for various things. We also work on various grant writers to find funding sources. I will tell you, you have a really good public works team and finance team that work together to evaluate how we can complete projects more efficiently. So as we do our roadways, as we do our sidewalks, as we do our water mains, we try to be more efficient. So the current water main project, that was supposed to be repaved earlier. We help that off so we could do the water main project and then pave that over completely so we're not having Patches of things so we do you have a good team here that it really evaluates how we spend our money efficiently And we spend the best ability to actually spread out our dollars

And if I may mr.. Mayor members of the council are public works Division actually started to meet with other local utilities to make sure that reprioritizing with them their projects as well So if we were going to do a repavement program on a street, but let's say another utility was going to need to tear up that street to do improvements, we try to coordinate our efforts so that we're not doing our pavement projects ahead of their infrastructure improvement projects. So coordinating those efforts, too, that's a newer model that we just implemented with this team in our Public Works Division.

That's good to hear.

Yeah, and then Sean so for the water master plan. I forgot what it's called as we go out to that is that are we thinking about

Any kind of proactive

Capital replacement program for pipes or is it mostly going to be Right changing out pipes that we've repaired I mean how I'm trying to get a sense of how much of a proactive stance we can and are able to take on replacing our many many miles of pipes and water mains and infrastructure yeah so we're on the

kind of last leg of our water master plan so that's already been evaluating all of our infrastructure our reservoirs our pipelines um all of our different booster stations all those different components so those that process is kind of kind of at the tail end it's the sewer master plan on the sewer side that will be hopefully coming to you guys in the next couple years to evout the sewer system because that's the one that really hasn't been truly evaluated but the water master plan is really coming to a conclusion soon and that one has already kind of laid out the capital projects that we have listed and then we're going to be hopefully

putting into play into practice and then do you on that point I don't know if you know offhand but do we do you know or do we have a metric for what our pipe replacement kind of lifecycle is or we replacing essentially every mile of pipe every hundred years or at the current rate that we're doing we haven't

evaluated to that level yet. Typically our focus is going to be on our predominant main break areas and then also on age. So if we see the age of our infrastructure trying to fail at certain points, that's when we'll invest into it. And then also another factor that plays into the fire flow. So as we see development going along, we need to increase our pipe size to make sure we have enough fire flow. So there's a couple different components to go into pipe replacement.

Okay. Thank you.

and I know there was a motion made and seconded by

Mayor Potem Wong should we take a vote

approved unanimously

thank you and I know that's the last item before we break into closed session

so we'll go ahead

adjourn at 8.51pm

Mr. Mayor and members of the council we'd be recessing

INTO THE CLOSED SESSION FOR THE REASONS STATED ON THE AGENDA.

THANK YOU.

WE'RE GOING TO COME BACK THEN, RIGHT?

WE'RE GOING TO COME BACK, RIGHT?

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.