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HomeMy WebLinkAbout03-16-20 F&A Committee Packet 1 OTAY WATER DISTRICT FINANCE AND ADMINISTRATION COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA BOARDROOM MONDAY March 16, 2020 12:00 P.M. This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA 1. ROLL CALL 2. PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TO SPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JU-RISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA DISCUSSION ITEMS 3. ADOPT RESOLUTION NO. 4378 DESIGNATING SPECIFIC STAFF POSITIONS TO BE AUTHORIZED AS AGENTS TO DEAL WITH THE STATE OF CALIFORNIA, OFFICE OF EMERGENCY SERVICES, ON THE DISTRICT’S BEHALF IN ALL MATTERS PERTAINING TO DISASTER ASSISTANCE (FAKHOURI) [5 minutes] 4. WATER AND SEWER CAPACITY FEE STUDIES UPDATE (KOEPPEN) [10 minutes] 5. ADJOURNMENT BOARD MEMBERS ATTENDING: Mitch Thompson, Chair Mark Robak 2 All items appearing on this agenda, whether or not expressly listed for action, may be delib- erated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the Dis-trict’s website at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attachments are also available through the District Secretary by contacting her at (619) 670-2280. If you have any disability which would require accommodation in order to enable you to par-ticipate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on March 13, 2020 I posted a copy of the foregoing agenda near the regu-lar meeting place of the Board of Directors of Otay Water District, said time being at least 24 hours in advance of the meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on March 13, 2020. /s/ Susan Cruz, District Secretary STAFF REPORT TYPE MEETING:Regular Board MEETING DATE: April 1, 2020 SUBMITTED BY:Eid Fakhouri, Finance Manager PROJECT: DIV. NO.All APPROVED BY: Kevin Koeppen, Assistant Chief Financial Officer Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT:Adopt Resolution No. 4378 Designating Specific Staff Positions to be Authorized as Agents to Deal with the State of California, Office of Emergency Services (Cal OES), on the District’s Behalf in All Matters Pertaining to Disaster Assistance GENERAL MANAGER’S RECOMMENDATION: That the Board adopt Resolution No. 4378 designating specific staff positions to be authorized as agents to deal with the State of California, Office of Emergency Services (Cal OES), on the District’s behalf in all matters pertaining to disaster assistance. COMMITTEE ACTION: See Attachment A. PURPOSE: To authorize District staff in the positions of Safety and Security Specialist, Finance Manager, and Environmental Compliance Specialist, to be the authorized contacts on behalf of the District for all matters pertaining to disaster assistance. AGENDA ITEM 3 2 ANALYSIS: It is important that, in the event of an emergency, the District is able to efficiently coordinate and execute claims with Cal OES and/or FEMA. In the three instances below, the District applied to the Federal Emergency Management Agency (FEMA) and (Cal OES) for disaster assistance to help pay for repairs. FEMA requires all claims to be processed through Cal OES. Cal OES requires the governing body of each agency to formally designate specific agents by position title, to represent the agency in all matters pertaining to their application for disaster assistance. Cal OES will not release any grant money to an agency that has not provided them with a fully executed Designation of Agent(s) Resolution and Cal OES Form 130 (Attachment C). In December 2007, as a part of working with Cal OES to obtain funds for repairs to District property from the October 2007 Harris Fire, the Board passed Resolution No. 4115 to Designate District agents for Disaster Assistance. In April 2011, as a part of working with the Cal OES to obtain funds for repairs to District property from the December 2010 rainstorms, the Board passed Resolution No. 4170 to Designate District agents for Disaster Assistance. In April of 2017, as a part of working with Cal OES to obtain funds for repairs to District property from the January 2017 winter storms, the Board passed Resolution No. 4330 to designate specific staff positions to be authorized as agents to deal with the Cal OES in all matters pertaining to disaster assistance. Cal OES policy mandates that this resolution is only valid for a maximum of three (3) years. The District’s previous resolution, approved in May 2017, will expire in May 2020. The District has identified the following three positions as being both knowledgeable and appropriate for working directly with Cal OES and FEMA: 1) Safety and Security Specialist, 2) Finance Manager, and 3) Environmental Compliance Specialist. These are the same positions that were identified for the previous resolution. This is a universal resolution and is effective for all open and future disasters up to three (3) years following the date of approval below. The three (3) year limit is established by Cal OES and the universal resolution would allow the list of authorized individuals 3 to approve requests for financial assistance in the event of any disaster over the duration of the resolution. FISCAL IMPACT: Joe Beachem, Chief Financial Officer This specific action does not authorize any spending or the receipt of funds, it only facilitates future interactions to obtain financial assistance. STRATEGIC GOAL: The District ensures its continued financial health through the establishment of proper relief in the case of a natural disaster. LEGAL IMPACT: None. Attachments: Attachment A – Committee Action Attachment B – Resolution No. 4378 Attachment C – Cal OES Form 130 ATTACHMENT A SUBJECT/PROJECT:Adopt Resolution No. 4378 Designating Specific Staff Positions to be Authorized as Agents to Deal with the State of California, Office of Emergency Services (Cal OES), on the District’s Behalf in All Matters Pertaining to Disaster Assistance COMMITTEE ACTION: The Finance, Administration and Communications Committee recommend that the Board adopt Resolution No. 4378 designating specific staff positions to be authorized as agents to deal with the State of California, Office of Emergency Services (Cal OES), on the District’s behalf in all matters pertaining to disaster assistance. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for board approval. This report will be sent to the Board as a committee approved item, or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full board. RESOLUTION NO. 4378 A RESOLUTION OF THE BOARD OF DIRECTORS OF THE OTAY WATER DISTRICT FOR DESIGNATION OF AGENTS TO THE STATE OF CALIFORNIA, OFFICE OF EMERGENCY SERVICES WHEREAS, the Otay Water District Board of Directors have been presented with a “Designation of Applicant’s Agent Resolution” for the Otay Water District, authorizing it’s agent(s) to execute for and on behalf of the District for the purpose of obtaining certain federal financial assistance under P.L. 93-288 as amended by the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, and/or state financial assistance under the California Disaster Assistance Act; and WHEREAS, the Board needs to authorize its agent(s) to provide to the State Office of Emergency Services for all matters pertaining to such state disaster assistance the assurances and agreements required; and WHEREAS, it is in the interest of the District to designate agents; NOW, THEREFORE, BE IT RESOLVED, DETERMINED AND ORDERED by the Board of Directors of the Otay Water District that the following three positions are so designated as Authorized Agents: 1) Safety and Security Specialist; 2) Finance Manager; and 3) Environmental Compliance Specialist. PASSED, APPROVED AND ADOPTED by the Board of Directors of Otay Water District at a board meeting held this 1st day of April 2020, by the following vote: Ayes: Noes: Abstain: Absent: ________________________ President ATTEST: ____________________________ District Secretary STATE OF CALIFORNIA GOVERNOR’S OFFICE OF EMERGENCY SERVICESCal OES 130 Cal OES ID No:______________________ DESIGNATION OF APPLICANT'S AGENT RESOLUTION FOR NON-STATE AGENCIES BE IT RESOLVED BY THE OF THE(Governing Body)(Name of Applicant) THAT ,OR (Title of Authorized Agent) ,OR(Title of Authorized Agent) (Title of Authorized Agent) is hereby authorized to execute for and on behalf of the , a public entity(Name of Applicant)established under the laws of the State of California, this application and to file it with the California Governor’s Office of Emergency Services for the purpose of obtaining certain federal financial assistance under Public Law 93-288 as amended by the Robert T.Stafford Disaster Relief and Emergency Assistance Act of 1988, and/or state financial assistance under the California Disaster Assistance Act. THAT the ________________________________________________, a public entity established under the laws of the State of California,(Name of Applicant)hereby authorizes its agent(s) to provide to the Governor’s Office of Emergency Services for all matters pertaining to such state disaster assistance the assurances and agreements required. Please check the appropriate box below: This is a universal resolution and is effective for all open and future disasters up to three (3) years following the date of approval below. This is a disaster specific resolution and is effective for only disaster number(s) ________________________ Passed and approved this day of , 20 (Name and Title of Governing Body Representative) (Name and Title of Governing Body Representative) (Name and Title of Governing Body Representative) CERTIFICATION I,,duly appointed and of (Name)(Title) ,do hereby certify that the above is a true and correct copy of a(Name of Applicant) Resolution passed and approved by the of the (Governing Body)(Name of Applicant) on the day of , 20 . (Title) Page 1 (Signature) Cal OES 130 (Rev.9/13) STATE OF CALIFORNIA GOVERNOR’S OFFICE OF EMERGENCY SERVICESCal OES 130 -Instructions Cal OES Form 130 Instructions A Designation of Applicant’s Agent Resolution for Non-State Agencies is required of all Applicants to be eligible to receive funding. A new resolution must be submitted if a previously submitted Resolution is older than three (3) years from the last date of approval, is invalid or has not been submitted. When completing the Cal OES Form 130,Applicants should fill in the blanks on page 1. The blanks are to be filled in asfollows: Resolution Section: Governing Body: This is the group responsible for appointing and approving the Authorized Agents. Examples include: Board of Directors,City Council,Board of Supervisors,Board of Education, etc. Name of Applicant:The public entity established under the laws of the State of California. Examples include: School District, Office of Education, City, County or Non-profit agency that has applied for the grant, such as: City of San Diego,Sacramento County, Burbank Unified School District, Napa County Office of Education, University Southern California. Authorized Agent: These are the individuals that are authorized by the Governing Body to engage with the Federal Emergency Management Agency and the Governor’s Office of Emergency Services regarding grants applied for by the Applicant. There aretwowaysofcompleting this section: 1.Titles Only: If the Governing Body so chooses,the titles of the Authorized Agents would be entered here,not their names.This allows the document to remain valid (for 3 years)if an Authorized Agent leaves the positionandisreplacedbyanotherindividual in the same title.If “Titles Only”is the chosen method,this document must be accompanied by a cover letter naming the Authorized Agents by name and title. This cover letter canbe completed by any authorized person within the agency and does not require the Governing Body’s signature. 2.Names and Titles: If the Governing Body so chooses, the names and titles of the Authorized Agents would be listed.A new Cal OES Form 130 will be required if any of the Authorized Agents are replaced, leave the positionlisted on the document or their title changes. Governing Body Representative: These are the names and titles of the approving Board Members.Examples include: Chairman of the Board, Director,Superintendent,etc. The names and titles cannot be one of the designated Authorized Agents, and a minimum of two or more approving board members need to be listed. Certification Section: Name and Title: This is the individual that was in attendance and recorded the Resolution creation and approval. Examples include:City Clerk, Secretary to the Board of Directors,County Clerk,etc. This person cannot be one of thedesignated Authorized Agents or Approving Board Member (if a person holds two positions such as City Manager and Secretary to the Board and the City Manager is to be listed as an Authorized Agent, then the same person holding theSecretary position would sign the document as Secretary to the Board (not City Manager) to eliminate “SelfCertification.” Page 2Cal OES 130 (Rev.9/13) 1 STAFF REPORT TYPE MEETING:Regular Board MEETING DATE: April 1, 2020 SUBMITTED BY:Kevin Koeppen, Assistant Chief of Finance PROJECT: DIV. NO.All APPROVED BY: Joseph R. Beachem, Chief Financial Officer Jose Martinez, General Manager SUBJECT:Informational Item Regarding the District’s Water and Sewer Capacity Fee Studies GENERAL MANAGER’S RECOMMENDATION: This is an informational item only. COMMITTEE ACTION: See Attachment A. PURPOSE: To inform the Board of the objectives and status of the current water and sewer capacity fee studies that are being performed by HDR Engineering Inc. BACKGROUND: At the time of connection to a public agency’s utility system, customers are typically charged a capacity fee to “buy in” to the water and wastewater systems. The capacity fee requires new users to pay for their share of the value of the facilities required for providing their water and sewer service. Revenues generated through capacity fees are used to directly offset system expansion costs, repay debt issued for the water system AGENDA ITEM 4 2 expansion, or for renewal and replacement of capital projects. The allocation of the fees to expansion and replacement is based on the District’s buildout percentage. As of this study the District is 69% built out; therefore, 69% of the capacity fee is allocated to the replacement reserve to pay back the District for existing infrastructure. The remaining 31% is allocated to the expansion reserve and is used to fund future expansion projects. Use of capacity fee revenues to offset these capital and debt service costs reduces the amount of revenue required from rates assessed to existing users. Capacity fee revenues, in effect, reimburse the existing users (through lower rates) for the costs they have incurred to provide capacity for new users. The objective of the capacity fee is to ensure growth pays for growth. These fees are reviewed and updated on a periodic basis to ensure equity and accuracy of the fees. Typically, the studies are performed every four to five years, or when there is a significant event affecting the fees. There are three primary reasons for the study being performed at this time. 1.Over the last two years the District has experienced a significant increase in capital improvement project costs. 2.Staff is recommending that the District change its methodology by consolidating the District’s new water supply and capacity fees into a single capacity fee. 3.Since the last sewer capacity fee study the District’s cost share component of the City’s Pure Water Program is more certain. 1.Construction Cost Increases Over the last two fiscal years the District has experienced a significant increase in capital improvement project costs due to inflation. When compared to FY 2019, the FY 2020 CIP budget inflationary increase was approximately $12.5 million or 16%. Through February of 2020, the Board has approved additional CIP budget increases totaling $1.5 million. A component of these increases is an increase in pipeline replacement costs. Since the prior study was performed in 2017, pipeline costs have increased nearly 100% from $30 per inch foot to $57 per inch foot. The impact of this increase on the current and future costs of CIP projects has a material effect on the capacity fee. 3 The following chart shows the historical trend for pipeline costs from 1999 to 2020 for the District as well as other area water and sewer agencies. 2.Capacity and New Water Supply Fee Consolidation Money collected through the new water supply fee is restricted to new water supply projects. While new water supply projects have been identified, the expected timeframe of the projects is long-term and there is uncertainty as to the probability of the projects. Due to the restrictive nature of the new water supply fee and the status of the new water supply projects, there is a risk that the new water supply fund will accumulate restrictive funds that will not be used. Consolidating the fees would eliminate this risk. While capacity fees are still restricted, the pool of projects those funds can be used for is much greater, the timing of the projects is both short and long term, and there is more certainty to the projects overall. Consolidating the new water supply fee provides a benefit to the rate payers by reducing the risk that unrestricted rate revenues will need to be used to fund expansion projects. It also benefits developers by reducing the risk that the District will 4 have a stranded asset as a result of receiving funds from developers that are unable to be utilized. 3.Sewer Pure Water Costs As a member of the regional Metro JPA, the District participates in a cost sharing program with other Metro JPA members. Under this cost sharing the District is responsible for funding its share of the Metro JPA system owned by the City of San Diego, including the Metro JPA related components of the City’s Pure Water Program. Based on information provided by the City, staff estimates the District’s share of the Pure Water Program costs to total approximately $8 million over the next 15 years. Annexation Fees As part of updating the capacity fee, the District’s annexation fee was also examined. The annexation fee is expected to increase minimally, but as both fees are tied to new customers it was appropriate to evaluate these fees as well. An annexation fee is based on all availability fees and property taxes paid by existing users. For water customers it is charged to all properties annexing into the Otay Water District boundaries. For sewer customers it is proposed to be charged to all properties annexing into a sewer ID. This fee compensates the existing users for their past investment in the District’s water and sewer systems. Water customers who are within the District boundaries benefit from the proximity of the water facilities and pay both availability and property taxes even though they may not have a water connection. Neighboring properties just outside the District boundaries likewise have benefited; however, as they have not previously annexed into the District, they have not paid the property tax and availability fees. Capacity Fee Methodology Except for consolidating the new water supply and capacity fees into a single water capacity fee, there are no other recommended changes to the District’s methodology compared to the last study completed in 2017. There are several industry accepted methodologies to use when calculating capacity and annexation fees which are viable under California law. 5 The first capacity fee method is the Combined Capacity Fee, which is what the District currently uses for the water capacity fee. Under this methodology, the cost of the current system plus the cost of all future expansion projects is divided by all customers existing and future. This method is typically used where some capacity is available in parts of the existing system, but new or incremental capacity will need to be built in other parts. This methodology is used in this situation because it results in a capacity fee that reflects the value of existing and planned capacity. The following illustrates the combined fee methodology. Existing and Future Asset Values Existing and Future Equivalent Meters The second is the Incremental Capacity Fee method, where the cost of all future expansion projects is divided by all future customers, which is what the District currently uses for the new water supply fee. This method is typically used when the system has limited or no capacity to serve new development, or in this case where this subset of capacity is limited, and new or incremental facilities are needed to serve new development now and into the future. The following illustrates the components of this calculation. Value of Future Facilities Future Equivalent Meters The third capacity fee method is called the Buy-in Fee, where the cost of the current system, including the excess capacity, is divided by the existing customers. This method is typically used when the existing system has enough capacity to serve new development now and into the future. This fee is charged to all new customers and reflects the value of how much existing customers have paid for the current system. The current sewer annexation fee uses this method and therefore, is essentially a sewer buy-in capacity fee. The calculation is illustrated below. Existing Asset Value Existing Equivalent Meters 6 Asset Valuation: There are two ways to value the existing facilities and assets. The first valuation methodology is reproduction cost. This method uses the original cost of existing facilities adjusted for inflation. The second valuation methodology is replacement cost or what it would cost today to build the same functional infrastructure which means it may not be identical in construction methods or materials, but it performs the same function. Staff and the consultant’s recommendation is to use replacement cost using depreciated value as the basis for valuation of water and sewer pipelines. Reproduction cost using depreciated value is recommended for all other assets such as reservoirs and pump stations. The reproduction cost is used for all other assets as they are built on a much less regular basis and there is not sufficient data available to determine a defensible current replacement value. This study’s recommendation is to continue to use the Combined Capacity Fee methodology for the calculation of the water capacity fee. Preliminary Results Based on the preliminary results of the capacity fee study, staff is anticipating the water capacity fee will increase by approximately 30%, compared to the current combined total water and capacity fee. The sewer capacity fee is anticipated to increase 50% compared to the current sewer capacity fee. District Staff surveyed the regional water agencies and found three agencies that had completed recent capacity fee studies. •Santa Fe completed a capacity fee study in 2018 and is implementing a three-year phase-in of the capacity fee results. Santa Fe’s ¾ inch meter capacity fee will increase from $7,057 in 2018 to $17,636 in 2021. The increase was due to significant capital improvement programs which have increased asset values compared to the previous study completed in 2007. •Vallecitos Water District updated its capacity fees in September 2019 resulting in a 1.8% increase in water capacity fees to $7,896 per EDU, and a 30.3% increase in sewer capacity fees to $12,986 per EDU. The Vallecitos 7 Water District’s study used capital cost values that were based on 2015 capital cost estimates inflated by ENR. These increases were not phased in but were implemented at one time. When compared to the Otay Water District’s study, this methodology does not account for the significant actual cost increases the Otay Water District has experienced in FY 2019 and FY 2020. •Ramona Water District updated its capacity fees in July of 2019. Ramona has four zonal capacity fees, under which the capacity fee is based on the specific infrastructure needs of that zone. As part of the latest study, Ramona modified the structuring for two of the zones. The two zones that were comparable increased 7.2% and 7.6%, respectively, to $14,040 and $14,740 per EDU. The remaining two new fees are the “Zones w/Storage Needs”, which is $10,706 per EDU, and “All Other Zones”, which is $8,740 per EDU. The difference in the various fees is largely due to additional storage needs based on pressure zone. These increases were not phased in but were implemented at one time. The replacement cost values in the study were based on 2017 dollars, which do not account for the significant actual cost increases Otay Water District has experienced in FY 2019 and FY 2020. Timeline Following is a timeline of events for implementing the capacity fee: •April 1, 2020 – Informational item regarding the capacity fee brought to the full Board. •April (TBD) – District meetings with the BIA, the SCEDC, and local developers to review the results of the study. •June 3, 2020 - Staff to bring the completed capacity fee study to the Board for approval. •July 1, 2020 – New capacity fee effective. FISCAL IMPACT: Joseph R. Beachem, Chief Financial Officer As an informational item, this report does not have a fiscal impact. 8 STRATEGIC GOAL: To ensure that the costs of service are born by responsible parties. This revenue source will help the District meet its fiscal responsibility to its ratepayers. LEGAL IMPACT: None. General Manager Attachments: A)Committee Action Form 9 ATTACHMENT A SUBJECT/PROJECT:Informational Item Regarding the District’s Water and Sewer Capacity Fee Studies COMMITTEE ACTION: This is an informational item only. NOTE: The “Committee Action” is written in anticipation of the Committee moving the item forward for board approval. This report will be sent to the Board as a committee approved item or modified to reflect any discussion or changes as directed from the committee prior to presentation to the full board.