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HomeMy WebLinkAbout2010-06-08 - AGENDA REPORTS - SCV SANDIST CHLORIDE LOAD (2)Agenda Item: CITY OF SANTA CLARITA AGENDA REPORT UNFINISHED BUSINESS City Manager Approval Item to be presented by: DATE: June 8, 2010 Frank Ferry SUBJECT: DIRECTION TO THE SANTA CLARITA VALLEY SANITATION DISTRICT BOARD ON CHLORIDE TOTAL MAXIMUM DAILY LOAD ISSUES AND SANTA CLARITA VALLEY SANITATION DISTRICT BOARD ALTERNATE DESIGNATION DEPARTMENT: City Manager's Office RECOMMENDED ACTION 1. City Council direct the members of the Santa Clarita Valley Sanitation District Board to direct Santa Clarita Valley Sanitation District staff to develop a legislative strategy and potential legal strategy in response to water quality law driving the Chloride Total Maximum Daily Load. 2. Change the alternate for the Santa Clarita Valley Sanitation District Board from Councilmember Bob Kellar to Councilmember Frank Ferry. 3. Other action as recommended by the City Council. BACKGROUND On May 25, 2010, the Santa Clarita Valley Sanitation District (Sanitation District) presented an informational item to the City Council regarding a proposed fee increase for sewer rates. The Sanitation District General Manager Steven Maguin and his staff presented the need for the rate increase partially to deal with increasing operating costs (i.e. biosolids management, etc.) and partially to deal with the initial compliance requirements set forth in the Chloride Total Maximum Daily Load (TMDL). The Chloride TMDL has been established in the Santa Clara River watershed to significantly reduce chlorides to protect the use of the river for irrigation water for chloride sensitive crops, APPROVED' including avocados and strawberries. The Chloride TMDL is established by the Regional Water Quality Control Board (Regional Board) and approved by the State Water Resources Control Board and the Federal Environmental Protection Agency (EPA). The TMDLs are required by both California law and federal law. Policy development and past appeals over time have . increased assessed liability for noncompliance and imposed schedule requirements for compliance with provisions originally established in law. As a result of the Chloride TMDL, the Sanitation District is required to reduce chlorides in the water reclamation plant discharge to a level that requires reverse osmosis or desalination of part of the flow. The technology is expensive. In order to pay for the increased treatment level, the Sanitation District staff asked its Board to approve the Proposition 218 required notice of rate increase to be mailed. As a result of that process, there has been significant concerns from the community about the water quality standards and proposed rate increases. The current two members of the Sanitation District Board requested direction from the larger City Council on this matter. The result was a suggestion of a two-pronged approach. The first prong is to continue with the current work to develop environmental analysis and design specifications, with an intent to maximize cost efficiencies. The second prong includes developing a legislative and potential legal strategy dealing with overall water policies and laws at the state and federal level driving the limits mandating desalination. In addition to the overall two-pronged approach, the City Council discussed changing the City Councilmember alternate designated for the Sanitation District Board from Councilmember Bob Kellar to Councilmember Frank Ferry. This was suggested due to Councilmember Ferry's work as a former Sanitation District Boardmember. During his tenure, he provided leadership to help bring the Sanitation District and Regional Board staff together to continue discussions on this controversial matter. In the spirit of continuity, Councilmember Frank Ferry volunteered to serve - again as an alternate in this complicated matter. ALTERNATIVE ACTIONS Other action as determined by the City Council. FISCAL IMPACT Unknown at this time. ATTACHMENTS Santa Clarita Valley Sanitation District Letter to the City wT1ET 4£CLA lSRIUt; a z t t COUNTY t 4 � (n� T '�'gJ [`�^''S� ,�/�j jam\ ]I Jy�y �y DISTRICTS j�j) T 1 p{_ _y7 - SQL IL. AG ITL'IMI IAG£M NT C O U N 1 1 `—� � " "ITA F I O N ""� ( S 1 R 1 `^J I S OF LOS ANGEt_ES CCICJN7"Y .' VVorkm(w V11111 kc;od, Whifli r, "A 9G601 • %X100 F4tl�i�nc� ;+Adtebs. P. [ijx 4998, Wkhier, CA 90604998 el�.phone: i,562) 6P9;:41 I, FAY: lS62) b99:5422 goo: .v.ocsa.ory City Council City of Santa Clarita Council Members: 1Lf HH -,j R. MACIUIN tn-;i, �<-. r _:xid General ,b1QnQG8/ May 18, 2010 File: 32-00.11-00 Santa Clarita Valley Sanitation District Se► -vice Charge Program The Santa Clarita Valley Sanitation District provides residents and businesses in the City of Santa Clarita and surrounding unincorporated areas with high duality wastewater management services while protecting water quality, public health and the environment. The Sanitation District operates a regional wastewater collection system as well as the Saugus and Valencia Water Reclamation Plants, which discharge to the Santa Clara River. Sanitation District staff has prepared a preliminary budget for fiscal year 2010-11, and is proposing service charge increases for each of the next four years. A Service Charge Report for fiscal year 2010-11 must be ordered by the Sanitation District Board of Directors, and provisions made for collection of the service charges on the property tax roll. This action must be taken very soon to allow for charges to be placed on the tax roll by the County Assessor. The recommended rate increases over the next four years will be considered by the Board at a future meeting. As discussed below, the recommended rate increases for the four years will support the continued operation and maintenance of sewers, pumping plants, and water reclamation plants (WRPs) in the most cost-efficient means available. They will also provide for the completion of the facilities planning and design efforts related to a program developed to comply with regulatory requirements regarding the discharge of chloride to the Santa Clara River. The total rate increase proposed over. the four years is $8:09 per month, where approximately half of the increase is for the management and operation of existing facilities and programs and the other half is to support the program to control chlorides. Should the Sanitation District's Board elect to implement the recommended rate package, during the fourth.year future rate increases will be proposed based on the selected project's construction estimates, financing costs, and estimated operational costs. DOC 1579227 Council Members 2 May 18, 2010 Background on the Chloride Problem Both the State's Porter -Cologne Act and the Federal Clean Water Act require that water quality standards be established to protect the entire spectrum of existing and potential beneficial uses supported by water resources. The Los Angeles Regional Water Quality Control Board (Regional Board) is the state regulatory agency charged with protecting water resources in accordance with state and federal law. In 1975, the Regional Board adopted the Water Quality Control Plan for the Los Angeles Region (Basin Plan), which established beneficial uses for the Santa Clara River watershed, including agricultural water supply and groundwater recharge. In 1978, the Regional Board established a 100 milligram per liter (mg/L) standard for chloride for the Santa Clara River which reflected background water quality conditions at that time and was protective of all beneficial uses of the river. Chloride, a naturally occurring element, is one of the two components of common table salt and is present in significant quantities in the local drinking water supply. In fact, the background concentration of chloride in the region's imported drinking water supply, ranging from 40 mg/L to 95 mg/L since 1995, approaches the chloride standard set by the Regional Board. On rare occasions during severe drought conditions, the imported water supply has reached as high as 145 mg/L, exceeding the chloride standard. Additionally, the Santa Clarita Valley groundwater, which makes up about half of the local water supply in the region, is another source of chloride, ranging from 20 to 100 mg/L throughout the Santa Clarita Valley. Commercial, industrial, residential and treatment plant sources in the Sanitation District's service area also add approximately 45 mg/L of chloride to the wastewater that is eventually discharged to the Santa Clara River by at the community's wastewater reclamation plants. Up until recently, a major residential source of chloride added to wastewater came from self -regenerating water softeners, which added as much as 60 mg/L of chloride to the wastewater. The sources of chloride are summarized below. Source CHLORIDE Current Historic Range Estimated Levels (mg/L.) (mg/L) Local Water Supply (imported and groundwater) 20-100 80 Commercial, Residential, industrial & Treatment Plant Sources 45-50 45 Automatic Water Softeners 5-60 5 Chloride in Recycled Water 130 mg/L Chloride cannot be removed in conventional wastewater treatment processes, such as those currently operated at the Sanitation District's WRPs, and is passed through to the Santa Clara River in the treated effluent that is discharged. Treatment plant discharges can affect chloride levels in the river and impact the beneficial uses supported by river, including groundwater resources and downstream agriculture, The Regional Board is responsible for developing and issuing discharge permits under the federal National Pollution Discharge Elimination System (NPDES) program for discharges from wastewater treatment plants, industrial facilities, stormwater collection systems, and other point source facilities. The Regional Board adopted NPDES discharge permits in 1989 for the Saugus and Valencia WRPs that included effluent limits for chloride (100 mg/L) that would meet the standard. However, these limits were unattainable with the existing treatment system. The Sanitation District challenged these discharge limits, and the facility modifications they would necessitate, from their time of imposition, based on the Council Members 3 May 18, 2010 scientific uncertainty related to the level needed to protect crops irrigated with river water. Regional Board drought policies in the 1990's temporarily exempted the Sanitation District from needing to comply with these effluent limits, and provided the Sanitation District higher interim effluent chloride limits. In 1997, the Regional Board adopted a Basin Plan amendment that permanently relaxed chloride standards for all other watersheds, with the exception of the Calleguas Creek watershed and Santa Clara River watershed, which includes the Santa Clarita Valley. These two watersheds were excluded due to concerns from the Ventura County agricultural community that a higher standard would not protect salt - sensitive agriculture. The Regional Board provided an extension of the interim limits through January 2001, and commissioned Regional Board staff to work with affected stakeholders to develop an appropriate standard for chloride. The Sanitation District staff subsequently reviewed various studies and proposed a relaxation of the standard to 143 mg/L, At a December 2000 hearing, the Regional Board considered revising the standard to 143 mg/L, but, due to opposition from the Ventura County agricultural community, the Regional Board rejected the proposed standard. The Federal Clean Water Act also requires states to identify waterbodies that do not meet water quality standards and are not supporting their beneficial uses. Each state must submit an updated list, called the 303(d) List, to the U.S. Environmental Protection Agency every two years for approval. In addition, the law requires states to develop control plans, called Total Maximum Daily Loads (TMDLs), to address impaired waters. A TMDL is the maximum amount a water body can receive of a specific chemical constituent, and the limits allocated to individual dischargers to attain and maintain water quality standards for the impaired water body. In 2002, the Regional Board adopted the Upper Santa Clara River Chloride TMDL (2002 TMDL), establishing allowable chloride concentrations in the effluent discharged from the Sanitation District's Valencia and Saugus WRPs to meet the chloride standard at 100 mg/L for the Santa Clara River. As adopted, the effluent chloride limits established in the 2002 TMDL would have required the construction of large-scale advanced treatment and brine disposal facilities costing well over $500 million. Because of this enormous cost, the Sanitation District appealed the 2002 TMDL to the State Water Resources Control Board (State Board), and conducted scientific studies to challenge the standard, and ultimately negotiated a revised TMDL adopted in May 2004 (2004 TMDL, which required compliance by May 2018. Under the 2004 TMDL, the Sanitation District participated with multiple interested parties in a series of collaborative studies under the control of the Regional Board to reassess the appropriateness of the standard and whether it could be revised to reduce the cost of compliance while still fully protecting the Santa Clara River. In August 2006, after completion of the agricultural use chloride study, a literature review overseen by the Regional Board and evaluated by an independent technical advisors panel that found that the protective chloride level for salt -sensitive agriculture to be 100-117 mg/L, the Regional Board shortened the implementation schedule by 2 years to May 2016 (2006 TMDL), finding that the additional studies were not required, during a hearing conducted in the City of Santa Clarita's council chambers. Although some local agencies, including the Sanitation District and the City of Santa Clarita, strongly opposed this action, the Regional Board approved the revisions under intense pressure from the Ventura County interests, including the agricultural community. In 2007, the State Board approved the Regional Board's 2006 TMDL revised schedule under similar intense pressure from Ventura County stakeholders, in spite of opposition from the Sanitation District and the City of Santa Clarita. A brief summary of the chronology related to chloride standards is presented below. Council Members Year Chronoloj!v of Chloride Standard in Santa Clarita Valley 1975 • Regional Board adopts Basin Plan 1978 • Regional Board establishes 100 mg/L chloride standard 1989 • Regional Board sets WW permit limits at 100 mg/L 1990's . Regional Board drought policies provide interim chloride limits 1997 • Regional Board revises chloride standard except in Santa Clarita Valley and Ventura County, due to Ventura County agricultural concerns. Sanitation District studies support proposal to revise standard to 143 mg/L 2000 • Sanitation District effort to revise standard to 143 mg/L fails 2002 • Regional Board adopts TMDL with 100 mg/L standard 2003 • Sanitation District appeals TMDL to State Board 2004 • Regional Board re -adopts TMDL with 100 mg/L standard, revised implementation schedule to 2018, and special studies 2006 • Regional Board re -adopts TMDL shortening implementation schedule by two years to 2016 2007 • Sanitation District appeals 2006 TMDL to State Board but State Board approves shortened implementation schedule May 18, 2010 Concurrent with work related to the collaborative studies initiated in 2004 under Regional Board oversight, Sanitation District staff evaluated the impact of self -regenerating water softeners in the Sanitation District and concluded that approximately one third of the overall chloride loading to the WRPs could be eliminated through the removal of these units. Based on that assessment, the community took the initiative to pass Measure S in 2008 to discontinue the use of self -regenerating water softeners, saving over $70 million in new project facility costs. Prior to 2006, the Sanitation District believed that the removal of self -regenerating water softeners, in conjunction with adequate drought relief sought from the Regional Board, would be enough to comply with the TMDL. Although the self -regenerating water softener ban made major,strides in lowering chloride levels in the treatment plant discharge, absent the adequate drought relief mentioned above, it alone was not sufficient to bring the plants into compliance. Full compliance, without the need for advanced treatment, would have required significantly higher chloride limits during drought conditions, which the Sanitation District fought so hard to get, but that the Regional Board did not grant. The Sanitation District explored other options, such as recycling all of the treatment plant effluent produced to avoid discharge to the river, and addressing water quality at the source by fixing the State 'N Council Members 5 May 18, 2010 Water Project's delta conveyance facilities. Recycling of all the treatment plant effluent produced by the Sanitation District would leave the river substantially drier and adversely affect the environmental and social value of the river to the community, and would likely not be permitted by the Regional Board and California Department of Fish and Game. Further, recycling all treatment plant effluent is not seen as a viable option because there is not. enough demand for recycled water all of the time, particularly during cold and rainy winter weather to eliminate completely the need to discharge to the river. With respect to fixing the State Water Project's delta conveyance facilities, there is no guarantee as to the timing or that completion of the long -proposed peripheral canal would sufficiently reduce chloride levels in the Santa Clarita Valley's imported water. Such results cannot realistically be expected in a timely manner to allow the Sanitation District to comply with the discharge limits. Alternative Compliance Plan After the State Board's 2007 decision affirmed the Regional Board's shortened implementation schedule and the protective level for salt -sensitive agriculture of 100-117 mg/L, and after consideration of numerous options in an effort to considerably lower project costs, an alternative approach (the Alternative Compliance Plan) to managing chlorides in the Santa Clara River and underlying groundwater basins was developed. The Alternative Compliance Plan depended on revised chloride standards being issued by the Regional Board. The Alternative Compliance Plan utilizes a watershed -based approach to managing chloride in Santa Clara River and underlying groundwater basins. Rather than constructing costly and energy intensive large-scale advanced treatment, the Alternative Compliance Plan included self -regenerating water softener removals (achieved by Santa Clarita Valley residents), small-scale advanced treatment, and facilities to remove salt buildup associated with the Sanitation District's discharge in an impacted groundwater basin in eastern Ventura County. Due to the project's green, watershed -based approach and the development of stakeholder support, the Regional Board proved willing to conditionally revise the chloride standards, contingent upon the Alternative Compliance Plan project being undertaken. Implementation of the Alternative Compliance Plan would involve a number of watershed stakeholders including the Sanitation District and all water utilities from Los Angeles and Ventura Counties along the river, who entered into partnership through a Memorandum of Understanding (MOU) approved by the Sanitation District Board in October 2008. In December 2008, the Regional Board adopted higher chloride limits based on the results of those collaborative studies, that were contingent upon the implementation of the Alternative Compliance Plan, but shortened the compliance schedule to 2015. The revision to the 2006 TMDL provided regulatory relief to reduce the cost of compliance from over $500 million to $250 million. One element of the Alternative Compliance Plan which was common to all compliance strategies considered has already been implemented. The community should be commended for approving Measure S (the 2008 ballot initiative to discontinue the use of self -regenerating water softeners) and taking out its self -regenerating water softeners, as this action saved the Sanitation District service area over $70 million in facility costs. Although some advanced treatment facilities will still be required, discontinuing the use of self -regenerating water softeners was an important factor in obtaining Regional Board approval of the revised standards and minimizing rate impacts to the Sanitation District's ratepayers. A service charge rate package necessary to support implementation of the estimated $250 million Alternative Compliance Plan was presented to the Board in 2009. The staff recommendation at that time was to increase rates over a seven-year period to support the continued operation and maintenance of existing facilities and programs along with the construction, debt service on financing options, and Council Members 6 May 18, 2010 increased operations and maintenance (O&M) costs for the project. Due to the large rate increases proposed and the short timeframe to implement the rate structure, the Board opted to not approve the recommended rate package. The Board directed staff to reopen discussions with the Regional Board to achieve some form of additional regulatory relief, and to continue to pursue grant funding opportunities to reduce the project cost and impact on the ratepayers. Over the past year, in response to Board direction, Sanitation District's staff and the Regional Board have been discussing a.phased approach to the construction of required facilities that would spread project costs over a longer time. This approach has the advantage of minimizing the impact to ratepayers and allows additional time to solicit grant funding; however, this approach is contingent on the Regional Board approving (1) a significant extension of the compliance schedule and (2) further revision of the downstream chloride standard during drought conditions, which would result in additional cost savings of approximately $41 million. This revision, if granted by the Regional Board, would reduce the cost of the Alternative Compliance Plan to approximately $209 million. The combination of schedule relief and chloride standard revision, if approved by the Regional Board, together with some level of grant funding assistance, would result in the significantly smaller rate increase currently proposed than was proposed last year. A comparison of estimated service charge rates needed for the original and revised Alternative Compliance Plan implementation, as well as the project needed to comply with the original standard (large scale advance treatment) is shown in the figure below. 120.00 100.00 Sanitation District's Rate Increase Scenarios m A 0 w 60.00 rn A Z U v U Z 40.00 a W 20.00 0.00 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21122 22/23 23/24 24/25 25/26 Fiscal Year III Council Members 7 May 18, 2010 Implementation of the ACP The Sanitation District staff is proposing implementation of a revised Alternative Compliance Plan in two phases, with final compliance to be achieved in 2022, pending approval by the Regional Board. While still very expensive at $209 million, the revised Alternative Compliance Plan project is expected to save, by 2022, over $700 per single-family home (SFH) per year compared to the cost of the project that would have been required to meet the original state requirement and $100 per SFH per year compared to the cost of the original Alternative Compliance Plan proposed in 2009. Over the next four years, if the Board approves the required rates the Sanitation District will complete facilities planning efforts and begin design of the Phase I advanced treatment facilities at a cost of $14 million. Under the proposed two -phased approach, Phase I construction will be completed in fiscal year 2016-17 and Phase 1I design and construction will be completed in fiscal year 2021-22. Although expenditures will significantly increase after the next four years, financing strategies discussed below will moderate the required rate increases. Other Significant Budpetary Expenditures In order to slow the pace of rate increases, the Sanitation District has in the past borrowed money from the Capital Improvement Fund (CIF), which is funded by connection fees paid by new users connecting to the sanitary sewer system to pay for fixture expansion, for operation of the existing facilities and to fund, in part, the collaborative studies conducted under Regional Board oversight for the 2004 TMDL. The Sanitation District must include in the rate increase a component to pay back the money borrowed from the CIF to ensure we are able to meet the needs of the community in the future. As previously indicated, approximately half of the proposed sewer service charge rate increase is for the managernent and operation of existing facilities and programs. Over the next four fiscal years, significant budgetary expenditures will be incurred related to on-going capital programs including relief sewers, biosolids management, and operations and maintenance (O&M) .expenses. These items are discussed below. The on-going capital program includes the completion of an upgrade of the power distribution system at Valencia WRP, including the replacement of the emergency generator. These improvements, with projected expenditures of approximately $2.2 million in fiscal year 2010-I1, will help to ensure operational performance in the event of a power outage. Additionally, an upgrade to the steam boiler system to provide heating for the digesters at the Valencia WRP will be completed this year, with $850,000 of projected costs occurring in fiscal year 2010-11. Work on relief of' the Castaic Trunk Sewer will be completed in fiscal year 2010-11. The remaining work on the sewer line, which is being funded using connection fees deposited in the CIF, has an estimated cost of $1.5 million. Construction of a redundant force main at the Castaic Pumping Plant as mandated by EPA to ensure reliability will cost $3 million in fiscal year 2010-11. A siphon under the Santa Clara River as part of the Sanitation District's Main Relief Trunk Sewer, Section IA Extension, will be completed in fiscal year 2010-11 at a remaining cost of $1 million. The siphon will replace a temporary pump station and force main that was attached to an existing railroad bridge after the previous sewer was damaged following heavy winter storms. Of the total estimated cost of $10 million for the siphon, approximately $800,000 was funded through an EPA grant. Council Members 8 May 18, 2010 In addition, the management of biosolids, the solid material removed from wastewater and stabilized at WRPs, continues to be an ever more important and costly part of the treatment process. Currently, biosolids from the Saugus and Valencia WRPs are hauled to remote locations for reuse on agricultural lands. This practice has the benefit of reclaiming and restoring depleted agricultural lands. With increasingly more stringent regulatory requirements and local county ordinances limiting lower cost biosolids management options, the cost of developing new management alternatives and transporting biosolids to acceptable land application sites has risen steadily. The overall impact has been a 40% increase in biosolids management costs over the past five years. Costs for the portion of the management and operation of existing facilities and programs related to actual facility O&M have risen approximately 5.5% in the last year at the WRPs. This increase is partly due to a significant amount of scheduled equipment repair and rehabilitation work in fiscal year 2010-11, expenditures that would not be expected every year. In addition, the Sanitation District is now committed to performing annual groundwater monitoring as part of studies to assess chloride levels in useable aquifers. These studies will add approximately $600,000 to O&M in fiscal year 2010-11, and as much as $500,000 per year thereafter. However, projected 2010-I1 O&M costs related to the base operations of the WRPs (i.e. fuel, chemicals, utilities, supplies, salaries, etc.) have been reduced through operational cutbacks to fiscal year 2009-10 budget levels (i.e. no increase). The proposed rate increase for fiscal year 2010-11 discussed later is required to support these additional O&M expenses and to provide the necessary debt service coverage as required by the Sanitation District's bond covenants. Financing Strategy The Sanitation District's strategy to finance large capital expenditures, such as the revised Alternative Compliance Plan discussed above, centers on minimizing service charge rate increases through long-term financing options such as State Revolving Fund loans and the issuance of bonds. These debt mechanisms will spread the payment of project costs over a long period of time; 20 years for state loans, and 30 years for bonds. The debt service that would be associated with the revised Alternative Compliance Plan will not impact the service charge rates during the next four-year period. The Sanitation District is also pursuing state grant funds through the Department of Water Resources Integrated Regional Water Management program and federal grant monies through congressional appropriations that could offset the project costs by as much as $10 million. The Sanitation District's long-term budget projections are based on assumptions (i.e. Regional Board drought condition chloride standard relief and approval of a longer implementation schedule, and successful procurement of grants) that have dramatically reduced the overall project cost and spread that cost over a longer period of time. Even with the financing discussed above, the system costs including debt service must be paid from service charges. Based on our best estimates for the revised Alternative Compliance Plan, the service charge rate projections indicate that rates must steadily increase over the next thirteen -year period to approximately $49 per sewage unit per month in fiscal year 2022-23. It is important to note that any increase in project cost or shortening of the assumed implementation schedule, or an inability to secure grants, would significantly increase the service charge rates needed and/or reduce the timeframe available to raise rates. Approximately 73% ($23.75 per month) of the long term projected increase will go toward debt service and operating expenses associated with the revised Alternative Compliance Plan, while inflation and other miscellaneous capital upgrades will contribute approximately 27% ($8.75 per month) of the increase. The impact of the revised Alternative Compliance Plan on the long-term rate projections is more significant than the projected impact over the next four years due to future debt service and operating expenses associated with the project. / o Council Members 9 May 18, 2010 Proposed Rate Increases In an effort to minimize the impact to ratepayers as much as possible in the current economic climate, it is proposed the rate of increase be based on reasonably uniform percentage increases from year to year. This means that the dollar amount of the proposed increase will be lower in the earlier years (e.g. $1.92 per month in the first year) and gradually increase each year thereafter (e.g. $3.33 per month in the thirteenth year). Accordingly, the recommended service charge rates for a single-family home for the first four years are as follows: Current Proposed Proposed Proposed Proposed 2009-10 2010-11 2011-12 2012-13 2013-14 Existing Facilities ($/Month) $16.58 $18.50 $19.17 $19.83 $20.50 ACP Facilities ($/Month) $ - $ - $ 1.33 2.75 4.17 Total (S/Month) $16.58 $18.50 $20.50 $22.58 $24.67 Apartments and condominiums pay a lower rate. Single-family homes and apartments with low water usage (normally fixed income or retired households) can qualify for a reduced charge. The attached Table 1 illustrates that, even with the proposed increase for fiscal year 2010-11, the Sanitation District's service charge rate remains significantly lower than current rates for other comparable sewerage agencies in the Santa Clara River Valley and other communities in the area. At this time, the recommendation is for only four years of service charge rate increases, even though the implementation of the revised Alternative Compliance Plan will require rate increases over a thirteen -year period. The future rates will be more accurately determined in the fourth year once construction bids are received and all funding sources needed for the full implementation of the revised Alternative Compliance Plan are better known. It is important to note that the proposed financing strategy, which attempts to address very high cost regulatory requirements in a severely impacted economy, carries some risk to the Sanitation District. The financing assumptions rely heavily on borrowing from the CIF, not only in the near term, but later in the project implementation as well. As the only source of cash reserves during this time frame, the Sanitation District's ability to address emergencies, unforeseen increases in operating costs, or future additional regulatory requirements without additional significant rate increases could be impacted. Additionally, the ability to fund expansion -related facilities with CIF monies may be compromised during this time. While a strategy of minimizing rates is desirable for the ratepayers, it has the unintended impact of minimizing debt service coverage, which could result in a lower bond rating — and a higher interest rate on bonds. Council Members 10 May 18, 2010 Connection Fees Conmection fee monies are collected from new users of the sewerage system and those expanding their discharge to pay for expansion -related portions of the capital facilities. The Board periodically approves connection fee rate increases to ensure that the monies collected through the connection fee program reflect the cost of incrementally expanding the sewerage system. Last year, staff proposed three years of connection fee rate increases based on the identified future expansion -related capital projects and the incremental cost of construction to accommodate new dischargers. The proposed increases at that time would have taken the connection fee rate from $3,300 per single family home in fiscal year 2008-09 to $4,500 in fiscal year 2009-10, and ultimately to $4,980 in fiscal year 2011-12. In response to business community input at that time related to the poor economy and the importance of keeping commercial business ventures viable in the City of Santa Clarita, the Board agreed to adopt a $500 increase in the connection fee rate for fiscal year 2009-10 only and delayed the effective date of the increase to January 1, 2010, While acknowledging that connection fee rates would ultimately need to be increased to the frill cost of incremental expansion, the Board directed staff to return in a year with a proposal for a more gradual phased increase over time. Based on current construction costs, it is recommended that connection fee rate be increased to $5,500 over a four-year period. The recommended connection fee rates for a new single-family home are as follows: Current Proposed Proposed Proposed Proposed 2009-10 2010-11 2011-12 2012-13 2013-14 $3,800 $4,300 $4,800 $5,200 $5,500 Alternatives for the Sanitation District Board Due to the size of the rate increases needed to allow the Sanitation District to comply with the revised chloride standards through implementation of the Alternative Compliance Plan, there has been substantial community resistance to adoption of the rates necessary to implement the project. Suggestions have been made to "just say no" or to fight the chloride standards, which are perceived to be unjustified. There are at least three clear options before the Board at this time: Implement the currently proposed 4 -year rate increase to support ongoing programs and complete planning, design and implementation of the Alternative Compliance Plan. 2. Implement an alternate rate proposal increase to support ongoing programs and to fund a legal challenge to the TMDL adopted by the Regional Board. 3. implement an alternate rate proposal increase to support ongoing programs and take no action to challenge the TMDL adopted by the Regional Board. Due to the potential legal issues, it is more appropriate for Sanitation District staff and legal counsel to discuss these options with the Board at a future Board Meeting in closed session. Council Members I I Next Steps for Sanitation District Board May 18, 2010 Should the Board decide to allow public notice of the proposed sewer service charge rate increase at the May 27, 2010 meeting held at 6:30 pm in the Santa Clarita City Council Chambers, the Board must order the Service Charge Report for the Santa Clarita Valley Sanitation District to be received and filed, establish a date, time, and place for a public hearing on the Service Charge Report and the collection of the service charge on the property tax roll, and order publication of required public notices (i.e. Prop 218 notices). The public will have opportunity to provide comments on the proposed service charge, its continued collection on the property tax roll, the proposed industrial wastewater surcharge rates, and the proposed connection fee rates at the May 27, 2010 meeting prior to the Board action ordering the report, during the forty five day public comment period, and at the public hearing on the Service Charge Report to be set by the Board. Very truly yours, Stephen R. Maguin SRM:ew Table 1 Service Charge Rates Of Comparable Sewerage Agencies ($ per month per single-family home) r Proposed Service Charge Rate Current Rate F2010-IIT2011-12 1 2012-13 2013-14 Community Santa Clarita 16-58 18.50a 20.50' $22.58 ' $24.67 a San. District N/A' I N/A' N/A' i N/A' Ventura 25.00 Lancaster 25.83 30.00 N/A' N/Ab N/Ab Palmdale 27.16 31.75 N/A' N/A b N/A' Glendale 33.70N/Ab i N/Ab N/Ab N/A' City of Los3524 35.24` N/A' N/A' b N/A Angeles Ojai 52.07 N/A' N/A' N/Ab N/A" Santa Paula i 59.39 N/Ab N/Ab N/A' N/A' Fillmore - 80.00 98.00` 102.00` N/A')N/Ab The Sanitation District also receives $5.26 per month of ad valorem (property) taxes. The County Department of Public Works charges $3,38 per month for local sewer maintenance. b Future rates are unknown for these agencies, but rates should be as high as they are currently. Projected rate, based on staff discussions. /5�