HomeMy WebLinkAbout1980-07-01; City Council; 6284; Sewer construction financing/
AGENDA BILL NO. _ 6 3 f> /
CITY OF CARLSBAD
Initial :
Dept, Head
DATE: _ July 1. 1980 _ C. Attyl
DEPARTMENT: Engineering • C' Mgr'
SUBJECT: SEWER CONSTRUCTION FINANCING "
STATEMENT OF THE MATTER .
Attached is a report analyzing the cash flow needs for Encina Phase
III construction costs and other sewer-related capital projects.
The Report also recommends adjustments in sewer connection fees and"
user charges.
EXHIBIT
Staff Report
RECOMMENDATIONS •
1. Raise the monthly sewer service charge from the present $3.25 to
$5.25. This addition would offset the local share of eligible
Encina upgrading costs only and would g-enerate about $750,000
over three years. At such a time as Encina goes to secondary
treatment, the $2.00 charge could be converted to the operations
fund to pay for increased service costs.
2. Establish a $2000 temporary connection fee for the industrial-
zoned properties in the Palomar Airport service area.
3. Authorize the loan of up to $1 million from the General Fund in
$250,000 increments to meet the cash flow requirements for the
Sewer Construction Fund over the next three years.
Council Action:
7-1-80 Council approved the staff recommendations and directed that documents be
prepared implementing same.
o
MEMORANDUM
TO: ASSISTANT CITY MANAGER/ DEVELOPMENT
FROM: CITY ENGINEER
DATE: June 20, 1980
SUBJECT: SEWER CONSTRUCTION FUND
It has become increasingly apparent that the projected revenues from
sewer connections are not going to be adequate to finance the cash flow
needs for the Phase III Encina Upgrading and Expansion. The following is
a discussion of the cash flow requirements, the projected shortfall and
recommendation to fulfill our obligations.
Proposed Expenditures
For the next three years, the Encina Water Pollution Control Facility
(EWPCF) upgrading and expansion will utilize the majority of monies
expended from the Sewer Construction Fund.
According to the Encina General Manager's June 16, 1980 Cash Flow Report
the Phase III funding requirement from Carlsbad will be as follows:
7/01/79
7/01/80
10/01/80
1/01/81
4/01/81
7/01/81
10/01/81
1/01/82
4/01/82
7/01/82
10/01/82
- 6/30/80
- 9/30/80
- 12/21/80
- 3/31/81
- 6/30/81
- 9/30/81
- 12/31/81
- 3/31/82
- 6/30/82
- 9/30/82
- 12/31/82
$457,523
24,846
628,635
797,989
327,787
308,879
293,709
-0-
-0-
234,553
340,014
Incorporating the estimated Encina cash flow needs into Carlsbad's other
Sewer Construction Fund commitments yields the following four-year sewer
construction budget.
Grove Lawsuit Refund
May Stores Trunk Line
Buena Vista Pump Station
Encina Phase III
Home Plant Pump Station
James Street Sewer
Total Estimated
Expenditures:
1979-80
$ 96,280
41,000
68,000
457,523
1980-81"
1,779,257
59,700
23,600
1981-82 1982-83 Totals
$ —
$ 602,588 574,567
$96,280
41,000
68,000
3,413,935
59,700
23,600
$662,803 $1,862,557 $602,588 $ 574,567 $3,702,515
. -2-
Potential Demand for EDUs
The following known potential demand has been identified for the Encina
sewer service area:
1. Unsuccessful Phase I and Phase II sewer allocation applicants who still
indicate an interest in obtaining permits--- 665 EDUs
2. Subdivisions with approved maps which were caught in the moratorium
CT73-23 Occidental Land--— 190 EDUs
CT74-22 Papagayo 330 EDUs
CT73-24 Covington 300 EDUs
3. Subdivisions with approved tentative maps which were caught in the
moratorium
CT74-16 Standard Pacific (Poinsettia and Lagoon Lane) 460 EDUs
CT74-25 Highland Development (Tanglewood) 264 EDUs
CT76-11, CT77-5, CT75-8 (Tamarack Shores, Pelican Properties,
Canterbury Village)———— 250 EDUs
Total 2359 EDUs
In addition, our records show that 1010.73 EDUs allocated under the Phase II
allocation system are still in the processing.
Other subdivisions with approved tentative maps caught in the moratorium
which may be of interest to the Council are: -.
CT73-29 Carrillo Estates (Palomar service area) 253 EDUs
CT74-4 Quail Ridge (LCH service area) 234 EDUs
CT74-14 Templin Heights (LCH service area) 108 EDUs
CT76-15 Palisades Point (LCH service area) 86 EDUs
Projected Revenues
The Sewer Construction Fund balance on July 1, 1979 was $1,193,883. In the
next three fiscal years, we will have to generate $2,508,632. During the
first 11 months of fiscal year 1979-80 the City shows revenues of only
$61,500 from sewer connection permits. There are 1010.73 EDUs allocated
under the Phase II system which are in some stage of developmental processing
presently. About 50% of these EDUs should be utilized within the next six
months. Of the remaining 50%, about 25% or so will probably withdraw for
financial or other reasons and the remaining 25% (Pea Soup Anderson primarily)
are a year or more away from construction.
The Sewer Construction Fund can realistically be expected to generate the
following sewer permit revenues:
1979-80 $ 100,000 100 EDUs
1980-81 700,000 700 EDUs
1981-82 1,000,000 1000 EDUs
1982-83 1,000.000 1000 EDUs
$2,800,000 2800 EDUs
The total EDUs available for purchase over the next three years include
1010.73 EDUs from the Phase II allocation and about 1800 from the Encina
rerating. The 1260 EDUs which must be made available to the Grove Development
will generate a maximum of $232,500. This amount is not included in the
revenue analysis.
c
' ' ' • -3-" ' '
Revenues Versus Expenditures
Fiscal Balance
Year Revenues Expenditures (Deficit^
1978-79 $ — $ — $1,193,883
1979-80 100,000 662,803 631,080
1980-81 700,000 1,862,557 (531,477)
1981-82 1,000,000 602,588 (134,065)
1982-83 1,000,000 574,567 291,368
It appears that during the later months of fiscal year 1980-81 the City will
incur a deficit of approximately one-half million dollars in the Sewer
Construction Fund.
Encina Phase III Cos_ts_
According to the Brown and Caldwell "Financial Plan and Revenue Program"
for the Encina Phase III Englargement and Upgrading of September, 1979,
Carlsbad's share of the project is $3,167,000. On June 16, 1980, the Encina
General Manager revised this cost estimate to $3,399,778.
Brown and Caldwell;s September, 1979 report described Carlsbad's local share
of Phase III as follows:
Local share of eligible upgrading costs $ 957,000
Local share of ineligible upgrading costs 1,439,000
Local share of eligible enlargement Costs 252,000
Local share of ineligible enlargement costs 519,000
The State has declared that $5,781 million (Carlsbad's share is $1,439
million) of proposed upgrading costs are excessive and should be borne by
the agencies without grant assistance. The Design Engineer insists that
only $1.512 million (Carlsbad's share would be about $376,000) of the upgrad-
ing costs should be declared ineligible. Obviously, the resolution of the
argument in the Engineer's favor is worth over one million dollars to Carlsbad.
Carlsbad's share of eligible upgrading costs (amount left over after Feds pay
75% and State pays^2..5%J5is going to be about $957,000. The percentage of
this cost which relates to the existing capacity at Encina should be borne by
present sewer users rather than being passed on to developers. Seventy-five
percent of the upgrading work is required to bring the existing treatment plant
up to the secondary treatment levels mandated by Federal regulations. There-
fore, the City should attempt to raise $750,000 from present users prior to
completion of Phase III. This can be accomplished by raising the sewer user
fee by $2 per EDU and applying it to the Sewer Construction Fund.
Sewer Connection Fees
Sewer connection fees are presently $1,000 per EDU. These revenues go to the
Sewer Construction Fund which is used to finance the costs of expanding treat-
ment facilities and installing new collector and transmission facilities as
more capacity is required.
The present transmission and treatment system adequately handles present devel-
opment. Any increases in treatment plant capacity or transmission facilities
should be funded by new development. Accordingly, sewer connection fees should
offset the costs of future facilities.
The Council is considering allocating an "advance" on the Encina Phase III
capacity through a rerating. Prior to authorizing the "advance" connection
fees should be adjusted to insure that new development pays its fair share
of the cost of the new capacity. A June 16, 1980 report by the Encina
General Manager indicates a cost to Carlsbad of approximately $3,399,778
for 1.13 MGD. Deducting $750,000 for upgrading the existing treatment facil-
ity leaves $2.650 million to be borne by new development.
Assuming 246 gallons for each EDU, the Phase III expansion will cost about
$600 per EDU.
In a memorandum to the City Manager dated April 9, 1979, the Public Works
Administrator estimated a cost of $800,000 per year to meet the transmission
facility needs of the City for the Encina plant. Using a ~\2% escalation
factor, the cost over the next ten years is $1,350,000 or about $300 for
each connection.
The connection fees charged by nearby agencies are:
San Marcos $2400
Vista 1000
Oceanside 500, $875, $1000 (depending on district)
Encinitas 726
Leucadia 600 (under revision)
The present fee of $1000 seems adequate to cover the City's projected costs
for sewer construction.
Palomar Airport Service Area
The Council has approved three sewer service areas to be managed by the City.
The connection fee for the Encina service area has been set at $1000 for
each EDU. The Lake Calavera Hills service area fee is dependent upon the
actual cost of construction of the LCH facility. The Palomar Airport service
area connection fee will also depend on,the costs of construction of proposed
facilities. The Council has indicated that certain industrial-zoned pro-
perties in the Palomar Airport service area will be permitted to connect to
the Encina treatment plant on a temporary basis. These temporary connections
will be required to pay a connection fee based on the estimated cost of
construction of the Palomar Airport facility. According to the "Preliminary
Project Report" for the Palomar facility, the cost per EDU of the first 1.0 MGD
phase will be about $1,900. This figure includes land, effluent disposal line
and reclamation facilities. Based on the $1,900 estimate, a temporary
connection fee of $2,000 would seem reasonable.
Alternatives for Financing the Sewer Construction Fund Cash Flow Shortage
It appears almost certain that the City will experience a shortfall in Sewer
Construction Fund cash-flow needs during the Encina Phase III construction
period. The alternatives for financing the shortfall appear to be as follows:
1. Interfund Loans
A. General Fund - The CIP has a $4 million obligated reserve that
could be tapped for a $1 - 1.5 million loan. The main impact of
such a loan would be a possible delay in the Capital Improvement
Program.
-5-
B. Revenue Sharing - This fund is more restrictive because of time
constraints within which funds must be obligated. However,
adequate funds for short-term loans are available.
C. Water Fund - This fund also has certain restrictions, but short-
term loans would be feasible.
2. Revenue Bonds
There are several types of bonds which could be issued and retired by
sewer connection fee revenues. Disadvantages would be the uncertainty
of the bond market/interest rate at any time and the difficulty of
setting up a payment schedule based on sewer connection fees. Possible
bonding methods include:
A. 1941 Act voted Revenue Bonds
B. 1933 Act non-voted Revenue Bonds
C. Non-profit Corporation Bonds
D. Joint Powers Authority Bonds
3. Raise Fees
A. Sewer connection fees could be raised to offset anticipated inflation.
B. Sewer user charges could be raised so that present users would bear
a larger portion of the upgrading costs (an additional $1.439 million
could be considered).
C. Add a "ready-to-serve" charge to the monthly service charge.
Recommendati ons
1. Raise the monthly sewer service charge from the present $3.25 to $5.25.
This addition would offser the local share of eligible Encina upgrading
costs only and would generate about $750,000 over three years. At such
a time as Encina goes to secondary treatment, the $2.00 charge could be
connected to the operations fund to pay for increased sewer costs.
2. Establish a $2000 temporary connection fee for the industrial-zoned pro-
perties in the Palomar Airport service area.
3. Authorize the loan of up to $1 million from the General Fund in $250,000
increments to meet the cash flow requirements for the Sewer Construction
Fund over the next three years.
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