HomeMy WebLinkAbout2020-12-17; Status of Wastewater Funds (Citywide); |Gomez, Paz| Rocha, Laura|To the members of the:
ITY COUNCIL
Date .J. I 1 /Ji) CA r/ cc ✓ ✓
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Council Memorandum
Dec. 17,2020
To:
From:
Via:
Re:
Honorable Mayor Hall and Members of the City Council
Paz Gomez, Deputy City Manager, Public Works
Laura Rocha, Deputy City Manager, Ad ~trative Services
Geoff Patnoe, Assistant City Manager ~
Status of Wastewater Funds (Citywide)
{city of
Carlsbad
Memo ID #2020271
This memorandum provides information regarding the status of Wastewater Funds, which is
relevant to all Council districts.
Background
On Sept. 17, 2019, the City Council approved an updated Sewer Master Plan which added
$63 million over the following 15 years for capital costs to maintain and upgrade the wastewater
system throughout the city. These costs increased the wastewater capital budget from an
average of $8 million per year to $12 million per year. These upgrades are needed to repair aging
assets, extend the useful life of the infrastructure, meet all federal and state regulations and
continue to provide environmentally compliant wastewater services to Carlsbad customers.
In 2019, staff also worked with a consultant on a Cost of Service Study, which included a financial
model and rate analysis. Wastewater rates had been held flat for four years, from 2016 to 2019,
and funds had accumulated in reserve. However, the updated Cost of Service Study and Sewer
Master Plan were necessary to determine the need for future rate increases.
On Nov. 19, 2019, the City Council and Carlsbad Municipal Water District Board of Directors
adopted Resolution Nos. 2019-244 and No. 1624, respectively, which recommended rate
increases for wastewater and water. The recommended rate increases for wastewater were 3%
beginning in January 2020 and an additional 3% beginning in January 2021, and use of 43.3% of
operating reserves and $18.3 million in capital reserves over the next two years to fund capital
improvements, and to draw reserves down to the city standard and smooth rate increases. The
financial model did show higher increases needed in future years.
Discussion
Including the rate increases in 2020 and 2021, wastewater rates remain among the very lowest in
the region. Given current fund balances and spending targets, the Wastewater Fund balances will
only be able to support the City Council-adopted Wastewater Master Plan Capital Improvement
Program {CIP) goals with higher rate increases in the near future. Current estimates of the future
rate increases are from 5% to 10% each year, which will put Carlsbad's rates at mid-range when
Public Works Branch
Utilities Department
5950 El Camino Real I Carlsbad, CA 92008 I 760-438-2722 t
Council Memo -Status of Wastewater Funds (Citywide)
Dec. 17,2020
Page 2
compared with other cities or districts in the region. The table below shows the balance for each
fund as of June 30, 2020:
Wastewater Fund Balances
Fund type Balance on June 30, 2020 Notes
Operations $4.5 million unrestricted The operations reserves are slightly below
the 40% target, which would be about
$7 million. This balance can be increased
over the next five years with rate
increases.
Connection Fees $5.2 million restricted CIP projects totaling $22 million (10
projects) are programmed over the next
15 years. Connection fees are paid by new
development. A shortfall in revenue will
necessitate CIP project delays.
Replacement $28.7 million unrestricted CIP projects totaling $209 million, about
half of which are Encina Wastewater
Authority (EWA) capital projects, are
programmed over the next 15 years.
Higher rate increases will be needed to
support these projects. However, staff is
revisiting the CIP to better schedule the
work that can be accomplished each year,
which will be added to the model.
Sewer Benefit Areas1 $6.5 million restricted Staff is analyzing projects that may be
candidates for use of these funds.
• In addition to the CIP increases, the following realities and unexpected events are
increasing the cost of providing wastewater service:
o Aging infrastructure for both the city and EWA .
o Delayed project implementation resulting in higher construction costs
o Decreasing wastewater volumes associated with water conservation causing
higher treatment costs at EWA due to strength and volume reduction
o EWA's CalPERS retirement liability payoff
o EWA's $95 million of capital requirements for infrastructure over the next 10
years
o Construction projects at Agua Hedionda and Foxes Lift Stations exceeding budget
o Emergency repairs which are not accounted for in the budget
1 Sewer Benefit Areas (SBAs) designate additional fees charged above the general capacity fee to
pay for planned facilities that serve more than one development project in a specific area.
Council Memo -Status of Wastewater Funds (Citywide)
Dec. 17,2020
Page 3
o Expected sanitary sewer overflow fines associated with the April 2020 rain event
and caused by the City of Vista's trunk line backup into Ca rlsbad's lateral sewer
lines
Rate increases will be required to fund the improvements identified in the 2019 Sewer Master
Plan Update and maintain a fully functioning wastewater collection system and treatment
facility. Sustained investment in the city's aging wastewater infrastructure is critical to prevent
sewer spills, protect the health and safety of Carlsbad residents and visitors, and protect the
natural environment including parks and beaches.
Staff plans to update the Cost of Service Study in 2021 in preparation for the next rate increases.
Additionally, the COVID-19 pandemic has caused a shift in wastewater generation and revenue as
people use more water at home and some businesses and restaurants remain closed,
necessitating a reconsideration of how wastewater rates are structured.
Next Steps
Staff is in the process of reexamining the CIP plan and considering which projects may need to be
delayed and which project budgets need to be revisited. As mentioned earlier, staff will also be
updating the Cost of Service Study in 2021. Staff will then return to the City Council with
proposed rate increases, possibly from 5% to 10% each year until the city's rates are closer to
mid-range for the region and can sustain the CIP plan .
cc: Scott Chadwick, City Manager
Celia Brewer, City Attorney
Robby Contreras, Assistant City Attorney
Kevin Branca, Finance Director
Vicki Quiram, Utilities Director
Ryan Green, Assistant Finance Director
Dave Padilla, Engineering Manager