HomeMy WebLinkAbout1979-01-15; City Council; 6138; Water Rate AdjustmentCITY OF CARLSBAD
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AGENDA BILL NO. Co J3ti Dept. Hd
DATE: January 15. 1979 C. Atty.
DEPARTMENT: Utilities •& Maintenance ' . C. Mgr.
Subject: WATER RATE ADJUSTMENT
Statement of the Matter
The City adjusted water rates last, effective with the August billing (water sold in July)
of 1977. Since that time wholesale water costs have increased from $104 per acre foot to
$134 per acre foot (about 7$ per water unit or 100 cu. ft.). It is anticipated that there
will be an additional $8-$9 increase over the next six months ($2 SDWA surcharge effectiveJanuary 1 and $6-$7 from CMWD).
Ralph Andersen & Associates reviewed the pricing structure as a part of their work and a
memo report is attached as Exhibit "A". The Director of Utilities & Maintenance has reviewed
the report and has made his recommendations - Exhibit "B". He recommends adjustment of the
"ready-to-serve" charges in accordance with the Andersen Report and recommends a per unit
charge of 47tf for all customers: this is an increase of 4<£ per unit for domestic
customers and 19<£ per unit for the commercial/industrial customer class. Agricultural
customers will continue to receive the Metropolitan Water District rebate if they are
qualified under the MWD rules, as they have in the past.
EXHIBITS:
A. Ralph Andersen & Associates memo, "A Framework for Computing Revised Water Rates",
of September 24, 1979.
B. Director of Utilities & Maintenance memo to the City Manager of January 8, 1980.
C. Proposed Resolution No. loofp
RECOMMENDATIONS:
If Council concurs, approve the staff recommendations contained in Exhibit "B" and
approve Resolution No. <kQ (o-$~~'
Council Action:
1-15-80 Council approved the staff recommendations contained in Exhibit "B"
and adopted Resolution 6065, revising water rates, charges,
billing, and related regulations.
EXHIBIT "A"
RALPH ANDERSEN AND ASSOCIATES
September 24, 1979
TO: Roger Greer, Director of Utilities
FROM: John Shannon
SUBJECT: A Framework For Computing Revised Water Rates
The following presents a framework for computing revised rates for the City's
water utility. In reviewing the recommendations outlined in this memorandum,
the following considerations should be kept in mind:
. While more complex rate structures are possible, this
approach has the advantages of being simple, efficient, and
in keeping with past practice in Carlsbad, and at the same
time assuring a rational and equitable rate structure.
. The recommended rates are designed to generate enough
revenue to meet the water utility's requirements for fiscal
year 1979-80. Should these revenue requirements be ad-
justed, the water rates should be revised accordingly.
1446 ETHAN WAY • SUITE 101 • SACRAMENTO, CALIFORNIA 95825 • (916)929-5575
. As indicated above, the recommended rates are adequate to
cover the estimated water revenue requirements for fiscal
year 1979-80. No allowance has been made to accommodate
inflation in subsequent years. In this regard, the City
may want to consider one or a combination of the following
alternatives for offsetting inflation:
- Automatically pass through any in-
creases in the cost of wholesale water
directly to the consumer. For example,
if the unit water charge for wholesale
water was increased by 7<t, then the
unit cost of water to the City's retail
customer would increase by 7$.
- Adjust the water rate structure annu-
ally to offset the impact of inflation.
- Estimate the probable impact of infla-
tion over the next three to five years
and establish a water rate structure
that is capable of absorbing the infla-
tion.
THE OBJECTIVE OF THE ASSIGNMENT INVOLVED THE DESIGN OF REVISED HATER RATES FOR
THE CITY'S WATER UTILITY
The objective of the assignment involved the design of revised water rates
capable of meeting the revenue requirements to provide for the operation,
maintenance and development of the City's water utility.
THE DESIGN OF REVISED WATER RATES REQUIRED THE COMPLETION OF A NUMBER OF TASKS
The design of revised rates required the completion of a number of tasks
including the:
. Determination of the level of annual revenues, or revenue
requirements to provide for operation, maintenance and
development of the water system.
. Distribution of the annual revenue requirements, or costs
of service, to basic cost functions, which in turn allows
further distribution of these costs to customer groups or
classes in accordance with respective class requirements
for service.
. Design of water rates that will, as nearly as practical,
recover from each customer class the respective costs of
providing service.
THE CITY'S CURRENT WATER RATES INCLUDE A READY-TO-SERVE FEE AND A UNIT WATER
CHARGE FOR WATER
The City's water rates now consist of a ready-to-serve fee and a unit charge
for water as follows:
. Ready-To-Serve Fee
The ready-to-serve fee is intended to offset a portion of
the costs associated with maintaining a water system ready
to deliver water to the consumer. The ready-to-serve fees
are based on the size of the customer's meter in recogni-
tion of the City's policy that commercial and agricultural
customers receive a greater benefit from the water system
than do the smaller residential customers, and should pay a
larger proportionate share of the cost. This policy has
resulted in the following fees:
Meter Size Monthly Charge
5/8" $ 3.85
3/4" 4.70
1 " 6.35
1%" 8.00
2 " 13.00
. Unit Hater Charge
The unit water charge is the cost of water per 100 cubic
feet or 748 gallons and is currently 43<£ per unit for the
first 200 units, and 28tf per unit thereafter. The purpose
of the unit water charge is to meet all the remaining costs
of operating, maintaining and developing the water system
once an allowance has been made for miscellaneous revenue
such as interest income.
AN IMPORTANT FIRST STEP IN DESIGNING REVISED HATER RATES IS A DETERMINATION OF
THE REVENUE REQUIREMENTS
As indicated previously, an important first step in designing revised water
rates is to determine how much revenue is required to provide adequate water
service and assure the maintenance, development, and perpetuation of the sys-
tem. This determination is based on the budget or cash requirements of the
water utility and includes the following basic elements:
. Operation and maintenance expenses.
. Debt service requirements (interest, principal, and stipu-
lated reserves).
. Revenue bond coverage requirements.
. Capital outlay (normal plant replacements, extensions, and
improvements).
Based on the above categories and City budget estimates, the revenue require-
ment for fiscal year 1979-80 is $1,724,712 and includes the following:
Maintenance and Operation $1,402,642
Debt Service 180,430
Revenue Bond Coverage Requirement 63,150
Capital Outlay 204,550
(Less Depreciation) (126,000)
TOTAL $1,724,712
THE ANNUAL REVENUE REQUIREMENT HAS BEEN DISTRIBUTED TO THE READY-TO-SERVE FEE
AND UNIT WATER CHARGE
The revenue requirement described above has been distributed to the ready-to-
serve fee and unit water charge as follows:
The Costs Associated With General Administration, Customer
Service. And Meter Repair And Replacement Have Been Alloca-
ted To The Ready-To-Serve Fee
The costs associated with general administration, customer
service, and meter repair and replacement have been alloca-
ted to the ready-to-serve fee. This approach is based on
the assumption that these costs represent services that
must be performed by the City irrespective of how much
water is consumed by systems customers. The costs include
such items as billing and collection, meter reading,
engineering services, and the replacement and repair of
water meters.
- The Costs Associated With General
Administration And Customer Service
Have Been Distributed Equally To All
System Customers
The costs associated with general
administration, and customer service
have been distributed equally to all
system customers. This approach is
based on the assumption that it does
not cost any more to provide these ser-
vices to a commercial or agricultural
customer than it does to a residential
customer and consequently all customers
should share equally in these costs.
A review of the City's proposed budget
for fiscal year 1979-80 reveals that
the costs associated with General
Administration and Customer Service
will total $344,998. If these costs
are distributed equally among all of
the City's 5,807 customers, the monthly
cost to each customer would be $4.95
per month.
The Costs Associated With Meter Repair
And Replacement Have Been Distributed
According To Meter Size
The costs associated with meter repair
and replacement have been distributed
according to meter size. This approach
is based on the fact that it costs sub-
stantially more to repair or replace a
large commercial meter than it does to
repair or replace a small residential
meter.
Based on the above, each customer would
pay an amount equal to the cost of
repairing or replacing his or her meter
in accordance with the fees listed on
the table on page 9. These fees are
based on estimates by City staff relative
to the frequency and cost of replacing
each size meter, and would generate a
total revenue of $24,913.56.
The Revised Ready-To-Serve Fees Are De-
signed To Offset All The Costs Associa-
ted With General Administration, Customer
Service, And Meter Repair And Replacement
The ready-to-serve fees presented on page
10 are designed to offset all the costs
associated with general administration,
customer service, and meter repairs and
replacement. The fee consists of two com-
ponents and would generate approximately
$370,000 in revenue:
.. The first component is a uniform
amount to be paid by all customers
to offset the costs associated with
general administration and customer
service. As indicated previously,
it is estimated that these costs
will total $344,998 in fiscal year
1979-80 and if these costs are
distributed equally among all of the
City's 5,807 customers, the cost to
each customer would be $4.95 per
month.
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METER REPAIR AND REPLACEMENT COSTS
Number Cost Per Annual Monthly Revenue
Meter Size of Meters Meter Frequency Cost Cost Generated
5/8" 4,463 $ 29.88 10 years $ 2.98 $ .25 $13,299.74
3/4" 572 39.46 10 years 3.95 .33 2,259.40
1 " 385 59.00 10 years 5.90 .49 2,271.50
lh " 180 112.35 10 years 11.24 .94 2,023.20
2 " 192 170.85 10 years 17.09 1.42 3,281.28
3 " 8 175.85 2 years 87.93 7.33 703.44
4 " 3 250.00 2 years 125.00 10.42 375.00
6 " 2 250.00 2 years 125.00 10.42 250.00
8 " 2 450.00 2 years 225.00 18.75 450.00
5,807 $24,913.56
PROPOSED
Ready-To-Serve Fee
Meter Size
5/8"
3/4"
1 "
1% "
2 "
3 "
4 "
6 "
8 "
Number of
Meters
4,463
572
385
180
192
8
3
2
2
5,807
Gen. Admin.
Cust. Service
$ 4.95
4.95
4.95
4.95
4.95
4.95
4.95
4.95
4.95
Meter Main./
Repair
$ .25
.35
.50
.95
1.45
7.35
10.45
10.45
18.75
Total Monthly
Fee
$ 5.20
5.30
5.45
5.90
6.40
12.30
15.40
15.40
23.70
Total Annual
Revenue
$278,491.20
36,379.20
25,179.00
12,744.00
14,745.60
1,180.80
554.40
369.60
284.40
$369,928.20
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.. The second component is an
amount to be paid by each cus-
tomer to offset the costs asso-
ciated with meter replacement
and repairs.
The Remaining Revenue Requirements Have Been Allocated To
The Unit Water Charge And Other Miscellaneous Income
As indicated previously, it is estimated that the revised
ready-to-serve fees will generate approximately $370,000 of
the City's $1,724,712 water revenue requirement. The
remaining balance of $1,354,712 must be raised through the
unit water charge and other miscellaneous income such as
investment earnings and fees and charges. City staff esti-
mate that other miscellaneous income will total approxi-
mately $140,000 in fiscal year 1979-80 leaving a balance of
$1,214,712 to be raised through the unit water charge.
According to City staff, the City will sell approximately
5,000 acre feet (A/F) of water during fiscal year 1979-80.
Therfore, the unit water charge must be adequate to gene-
rate $1,214,712 assuming an annual consumption of 5,000
A/F. Based on the above assumptions, the unit water charge
would be $0.56 per unit (100 CF).
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EXHIBIT "B"
80-02
January 8, 1980
MEMORANDUM
TO: City Manager
FROM: Director of Utilities & Maintenance
SUBJECT: Water Rate Adjustment
I have reviewed the memo report from Ralph Andersen & Associates entitled "A Frame-
work for Computing Revised Water Rates". The basic information for his memo report
was developed during his work on the feasibility of the CMWD consolidation.
The Consultant developed the rate using the following parameters:
1. All customer classes pay their fair share.
2. Annual revenues meet annual costs.
3. Revenues will meet all legal requirements of the various bond issues.
The rate is composed of two elements, as described below:
I Ready-To-Serve
A. The ready-to-serve fee is popularly known as a "stand-by" fee. This portion
of the fee is discussed in some detail on pages 6-9 of the basic report.
The proposed revised rate schedule is on page 10 of the report and is shown
in the table below for comparison with our current rate schedule:
Meter
Size
5/8"
3/4"
1"
IV
2"
3"
4"
6"
8"
Current
$ 3.85
4.70
6.35
8.00
13.00
19.25
38.10
56.65
81.00
Proposed
$ 5.20
5.30
5.45
5.90
6.40
12.30
15.40
15.40
23.70
Amount of
Change
+ $ 1.35
+ .60
.90
2.10
6.60
- 6.90
- 22.70
- 41.25
- 60.00
% of
Change
+ 35%
+ 13
- 15
- 26
- 51
- 32
- 59
- 73
- 71
CHART #1
The ready-to-serve charges were last adjusted in the rate schedule approved
in October 1972 and have not been increased in subsequent adjustments.
Although a 35% increase for the 5/8" meter may be considered substantial,
it is far below the percentage indicators such as inflation or Consumer
Price Index since 1972. The fact that larger meter sizes are recommended
City Manager - 2 - January 8, 1980
for reduction indicates that larger volume users have been paying more than
their fair share of customer service costs. I do recommend accepting the
Consultant's recommendation relating to the ready-to-serve charges.
II Per Unit Charge
The per unit charge develops revenues that offsets costs most closely associated
with the volume of water consumed. The largest part of this charge is the
wholesale cost of water (November 1979 basic cost was $134/acre foot or approxi-
mately 31(£ per unit). This will probably go to the range of $142-$144/acre foot
within the next six months due to increased surcharges from CMWD and SDCWA.
The per unit charge also develops revenues to offset the costs of normal 0 & M
costs, debt service and capital outlay. The water fund would be in "balance" if
total revenues matched total costs; however, as a condition of our revenue bond
issue there is a requirement that rates be set so as to provide a "profit" of
35% of the "Debt Service Requirement" or approximately $63,000. Past accounting
practices have put this $63,000 into reserves or it has been allocated to
"retained earnings". I am of the opinion that reserves and retained earnings
are at a sufficient level and that it is no longer necessary to plan to increase
them. Accordingly, I am recommending that future capital improvements be funded
from reserves rather than charge them to current year's earnings. Thus the
revenue requirements for the future would be based on the minimum legal require-
ment (legal as set by our bond conditions) as follows:
0 & M Costs
Debt Service
Revenue Bond Coverage ($63,000)
Thus, our revenue requirement for FY79-80 (page 5 of the Andersen memo) would
appear:
Operations & Maintenance $1,402,642
Debt Service 180,430
Revenue Bond Coverage 63,150
Depreciation (126,000)
$1,520,222
Our anticipated revenue by source based on the Consultant's rationale would be
as follows:
Revised Ready-To-Serve Fees $ 370,000
Other Income (Interest, Reimbursable) 140,000
$ 510,000
$1,520,222 - $510,000 = $1,010,222
Thus, $1,010,222 would be required to be raised from the water rate. Sales
this year are projected at 5200 acre feet based on the first five months of
usage.
$1,010,222 = 45, -t
5200 X 436 ^ per U
City Manager - 3 -January 8, 1980
Thus, a standard rate of 45<£ per unit for all categories of customers would
maintain the water fund in balance. In anticipation of future price increases,
it is considered prudent to add about 2<£ more per unit or set the charge at 47(£
per unit.
Revised Rate Impacts
A comparison of "before" and "after" caused by this adjustment is portrayed below:
1. Residential Customer (20 units/mo. 5/8" meter)
Old Rate
Structure
New Rate
Structure $ Change
14.60 $ 2.15$ 12.45 $
2. Commercial Customer (1000 units/mo. 2" meter)
Old Rate
Structure
New Rate
Structure $ Change
$ 324.00 $ 476.40 $ 152.40
3. Commercial Customer (7500 units/mo. 8" meter)
Old Rate New Rate
Structure Structure $ Change
$2,211.00 $3,548.70 $1,337.70
4. Agricultural Customer (1000 units/mo. 3" meter)
Old Rate New Rate
Structure Structure $ Change
$ 374.25 $ 407.30 $ 33.05
Change
17.2%
Change
47.0%
Change
60.0%
Change
15%
Recommendations
1. It is recommended that the ready-to-serve charges be revised in accordance
with the Consultant's recommendations.
2. It is recommended that a per unit charge of 47<£ be approved for all customer
classes.
3. It is recommended that the rates be effective with the April bills.
GB* W. GREER
Director of Utilities & Maintenance
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EXHIBIT "C1
RESOLUTION NO. 6065
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF CARLSBAD REVISING WATER RATES,
CHARGES, BILLING, AND RELATED REGULATIONS
WHEREAS, Section 14.04.030 of the Carlsbad Municipal Code empowers the
City Council to, from time to time, by resolution, adopt rules and
regulations for the operation and maintenance of the Water Department of the
City, and for furnishing water to users, and empowers the Council to, by
resolution, modify rates, charges and penalties respecting water service.
NOW, THEREFORE, BE IT RESOLVED that the hereinafter stated
regulations respecting water rates, charges, billing, and related
regulations shall become immediately effective upon passage of this
resolution.
I. Generally. The schedules of rates, 'compensations, charges and
minimum charges as set out in this resolution are fixed and established as
the rates, compensations, charges and minimum charges to be charged and
collected by the City for domestic water and water service, except as
otherwise specifically provided.
II. Water Charges.
(a) There shall be a separate monthly water standby charge for
each consumer; provided that there shall be only one
monthly standby charge for each equivalent dwelling unit,
each agricultural and industrial consumer, and each
institutional consumer as follows:
For a 5/8" meter $ 5.20
For a 3/4" meter $ 5.30
For a 1 " meter $ 5.45
For a 1-1/2" meter $ 5.90
For a 2 " meter $ 6.40
For a 3 " meter $ 12.30
For a 4 " meter $ 15.40
For a 6 " meter $ 15.40
For a 8 " meter $ 23.70
X
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1 (1) When one meter serves multiple dwelling
units or multiple equivalent dwelling
2 units, the first unit shall pay the unit
rate based on the above schedule and all
3 other units shall pay the 5/8" meter rate.
4 (2) In the event no water is used through the
meter, or the property becomes vacant, the
5 monthly stand-by charge will be charged to
and paid by the owner thereof or the
6 applicant for service.
7 (b) The rate to be charged for water supplied through meters
is as follows:
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All consumers 47<£/100 cu. ft.
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(c) All agricultural consumers who meet the Metropolitan Water
10 District Southern California requirements for agricultural
consumers receive a pro-rata share of the agricultural
11 rebate the City receives monthly from the Carlsbad
Municipal Water District.
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(d) There shall be a charge of five dollars per month for all
13 water connections supplying non-metered water for fire
sprinkler purposes. All maintenance or repairs to fire
14 service systems from the water main to the shutoff valve
shall be paid for by the consumer and shall be charged on
15 the regular water billing. All fire service systems shall
be equipped with a meter by-pass which shall be paid for
16 and installed at the consumer's expense. In the event
water is served through the fire service system, the City
17 Water Department and the Fire Department shall estimate
the amount of water used and the regular charge therefore
18 shall be put on customer's bill and shall be paid by
consumer.
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III. Payment of Bills. All water bills are due and payable at the
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City Hall of the City of Carlsbad upon presentation and are delinquent if not
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paid by the 15th of the month following the billing.
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IV. Units Within Multiple Dwellings, Allowing Cooking. In addition to
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other charges established by this resolution, a fee shall be paid to the City
24 for each individual living unit contained in any motor court, motel, hotel, or
25 rooming house, or other transient type habitat where cooking is allowed in the
26 amount of 70i£ per month.
27 V. Meter Reading - Water Districts. For convenience in the reading of
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meters and preparation of water bills, the department is expressly
authorized to divide the City into districts. These districts may, from time
to time, be revised or changed as necessary or desirable, in order to
equalize the work of reading meters and billing, The meters in each district
so established shall be read and water bills based on such meter readings,
shall be prepared and mailed to the consumers in each district on approxi-
mately the same day of each and every billing cycle, except when Saturdays,
Sundays and legal holidays intervene.
VI- Bills - Mailing. Unless the applicant for water service directs
otherwise, all bills will be mailed to the premises where water service is
furnished.
VII. Change of Ownership or Occupancy - Notification. It shall be the
duty of every person signing an application for water delivery and of every
owner of property to which water is delivered to notify the Water Department
of any change in the ownership or occupancy of the premises to which the
water is to be furnished at least two days prior to such change. Every
applicant shall be liable for the water furnished and metered in accordance
with the application until the Water Department receives written notice to
cancel same and shut off the water, when the applicant's liability shall
cease except as to water previous to such notice. Every owner of property is
liable for water furnished to any premises he has rented in the event the
tenant does not pay the water bill. Water service shall not be given any
consumer upon change of address until all delinquent charges owed by the
consumer at a former place of residence or business shall be paid.
VIII. New Accounts - Charge for Establishing Service. A three dollar
and thirty cents charge will be made by the department for establishing
service records and turning on the water supply when requested by the consumer
incident to the opening of a new account.
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IX. Units Within Multiple Dwelling.. Jfo^Mlowing Cooking. In addition
to any other charges and fees as contained in this resolution, a fee of one
dollar- per month shall be paid to .the City for each five, roans in any hotel,
rooming house, or motel, or other transient type habitat, in which no cooking
is allowed.
X. Nonpayment - Service Discontinuance. In the event that any
consumer shall be delinquent in the payment of his water bill, and such
delinquency shall continue for a period of ten days, the City shall have the
right to discontinue water service to the premises of such delinquent
consumer, and water shall not again be supplied to him or to the premises
until all delinquent water bills, plus the penalties thereon, and reconnection
charges, have been paid. Such notice and pre-termination hearing as required
by law shall be given prior to discontinuance of service.
XI. Restoring Service After Discontinuance. Procedures for restoring
service after delinquency period. If water service is cut off or dis-
continued for failure to pay delinquent bills, such service may again be
established only in the event the consumer or the applicant for service at
such place pays all delinquent bills, charges and penalties, and makes such
cash deposit as may be required by the Water Department.
When an owner or consumer has been delinquent in his water bills in
succession or three times in any one calendar year, he shall be required to
deposit a sum equal to an average two months' water bill upon such premises
and pays, in addition thereto, the sum of eight dollars and twenty-five cents
for turning on the water supply. Thereupon and not otherwise will water
service again be made or established to the premises where the water bill has
been delinquent.
XII. The Rates and Charges established by this resolution shall on
their effective day supersede the rates established by Resolution No. 5127.
PASSED, APPROVED AND ADOPTED, by the City Council of the City of
Carlsbad at a regular meeting of the City Council held on the 15th day
3 of tl3.ji.uary > 1980, by the following vote, to wit:
4 AYES: Councilmen Packard, Skotnicki, Anear, Lewis and
Councilwoman Casler
5 NOES: N0ne
6 ABSENT: None
7 / ^ //
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RONALD C. PACKARD, Mayor
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ATTEST:
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13 ALETHA L. RAUTENKRANZ, City Clerk
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