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HomeMy WebLinkAboutAccept the Sewer Service Fund Performance Audit for Fiscal Y Dept. ID Pw 16-048 Page 1 of 2 Meeting Date: 9/6/2016 Approved 7-0 CITY OF HUNTINGTON BEACH REQUEST FOR CITY COUNCIL ACTION MEETING DATE: 9/6/2016 SUBMITTED TO: Honorable Mayor and City Council Members SUBMITTED BY: Fred A. Wilson, City Manager PREPARED BY: Travis K. Hopkins, PE, Director of Public Works SUBJECT: Accept the Sewer Service Fund Performance Audit for Fiscal Year 2015-16 and suspend the annual Consumer Price Index adjustment of the Sewer Service Charges for Fiscal Year 2016-17 Statement of Issue: Section 14.54.060 of the Huntington Beach Municipal Code (HBMC) requires the City Council to establish sewer service charges by ordinance. Chapter 14.55 of the HBMC establishes the formula for modifying the charges and codifies an annual increase based on the Consumer Price Index (CPI) increase available in July. Staff is recommending that the adjustment of charges be suspended for Fiscal Year 2016-17. The Sewer Service Charge Annual Performance Audit is presented to the City Council as required by HBMC Section 14.54.070. Financial Impact: Sewer Service Fund (511) revenue for Fiscal Year 2016-17 is estimated at $10,937,140 if the CPI adjustment is made to the Sewer Service Charge and $10,685,000 if the adjustment is suspended for the fiscal year. Recommended Action: A) Accept the Sewer Service Fund Performance Audit for Fiscal Year 2015-16 as presented; and, B) Suspend the Annual CPI Adjustment of Sewer Service Charges for Fiscal Year 2016-17. Alternative Action(s): 1. Do not accept the Sewer Service Fund Performance Audit and direct staff to make specific modifications. 2. Do not suspend the Sewer Service Charge adjustment by the percentage change in the CPI as noted in HBMC Chapter 14.55. Analysis: The Sewer Service Fund is designated solely for facilities and resources relating to the rehabilitation, replacement, repair and maintenance of City-owned sewers and lift-stations. This is in accordance with California Health and Safety Code Section 5470 and is included as Chapter 14.54 in the HBMC. Section 14.54.070 Annual Program Review of the HBMC requires an annual review and performance audit of the Sewer Service Fund by the Public Works Commission. The audit was presented to the Commission at the July 20, 2016, meeting. Dept. ID Pw 16-048 Page 2 of 2 Meeting Date: 9/6/2016 Per the aforementioned section of the Municipal Code, "the City Council shall receive, at a regularly scheduled meeting, the recommendations of the Public Works Commission concerning fees, rates and charges proposed to be modified or added to the Sewer Service User Charge." In accordance with Section 14.55.030 Annual CPIU Adjustments, each Sewer Service User Charge shall be adjusted to reflect the annual percentage adjustment in the Consumer Price Index for all Urban Consumers (CPIU) in Los Angeles, Orange and Riverside Counties established by the U.S. Bureau of Labor Statistics, available as of July 1, 2016. The CPIU reflects an annual increase of 1.5%. In 2014, the City Council adopted the Sewer Service Fund Reserve Policy. The Reserve Policy requires that $8.25 million be available at the end of the current fiscal year. At this time, the reserves at the end of the current fiscal year are projected to be $21.4 million. The proposed budget for Fiscal Year 2016-17 would increase the surplus by another $1.4 million, but would still be well above the reserve policy of $8.25 million. However, the carry over of Capital Improvement Projects that are underway total approximately $2.5 million, thereby resulting in an estimated fund balance of $20.3 million at the end of Fiscal Year 2016-17. Therefore, staff is not recommending a rate adjustment in Fiscal Year 2016-17. In addition, the design of one replacement sewer lift station and the construction of another are scheduled to take place every year over the next twelve years. These activities and the lining of selected sewer mains will result in an ongoing Capital Improvement Program of over $3 million per year. These expenditures are projected to reduce the reserves to $8.2 million by Fiscal Year 2023- 24, assuming no rate increases. The Public Works Department is in the process of hiring a consultant to perform a rate analysis on both water and sewer rates. A recommendation to modify rates will be made when the analysis is complete. Environmental Status: Not Applicable Public Works Commission Action At the July 20, 2016 meeting, the Public Works Commission voted 5-0-2 (Scandura, Troxell absent) to recommend to the City Council to approve the report and to suspend the programmed increase to the Sewer Service User Charge for Fiscal Year 2016-17. Strategic Plan Goal: Enhance and maintain infrastructure Attachmentfs): 1. Annual Sewer Service Fund Performance Audit for Fiscal Year 2015-16 City of Huntington Beach Public Works Department Sewer Service Fund Performance Audit Review of Fiscal Year 2015116 Introduction On September 4, 2001 , the Huntington Beach City Council adopted a Sewer Service User Charge and created the Sewer Service Fund. The Sewer Service Fund revenue is designated solely for the rehabilitation, replacement, repair and maintenance of City- owned sewers and lift stations. This is in accordance with the California Health and Safety Code Section 5470, and is included in the ordinance that adds Chapter 14.54 to the Huntinoton Beach Municipal Code. The ordinance established the Huntington Beach Public Works Commission as both the oversight committee and the final appeals board. The Sewer Service Fund shall be subject to an annual review and performance audit by the Public Works Commission. The information presented in this report complies with Section 14.54.070 Annual Program Review. In addition, the City Council shall receive, at a regularly scheduled meeting, the recommendations of the Public Works Commission concerning fees, rates and charges proposed to be modified or added to the sewer service user charge. A public hearing on proposed charges will be held annually in conjunction with the City's annual budget process and hearing. Program Overview ➢ Scheduled maintenance projects and minor emergency repairs will be completed within the allotted budget. ➢ Closed Circuit Television (CCTV) Inspection and cleaning of sewer mains. ➢ Operations and maintenance of the City's 27 sewer lift stations. ➢ Capital improvements including lift station design and construction work and the sewer lining program. ➢ A Sewer Lateral Program was added effective January 3, 2008, and the sewer service charge was adjusted to cover the projected expenses. The program transferred the responsibility to the City for sewer lateral repairs within the City- owned right-of-way. Initially, the cost of the program exceeded the additional revenue generated by the adjustment to the sewer service user charge. Costs for this program have decreased significantly since its inception. July 2016 - 1 - ➢ The City Council adopted a reserve policy for enterprise funds in FY 14/15. The reserve policy for the Sewer Service Funds states that the City will maintain a reserve equal to the sum of the following: o Operations and Maintenance: Thirty-three percent (33%) of the adopted annual budget to ensure adequate working capital for operating expenses. This amount is $2.6 million. o Capital Improvement Program (CIP): One-hundred percent (100%) of the average annual planned Capital Improvement Program for the following five years. This amount is $2.65 million. o Emergency: an amount equal to the estimated cost, as determined by the City Engineer, to replace one sewer lift station. This amount is $3.0 million. o The total reserve would amount to $8.25 million. ➢ The Municipal Code states that the Consumer Price Index for Urban Consumers (CPIU) in Los Angeles, Orange, Riverside Counties established by the Bureau of Labor Statistics that is available July 1 shall be used to calculate adjustments to sewer service rates. Review of Fiscal Year 2015/16 Personnel and operating expenditures account for approximately seventy percent (70%) of the Fiscal Year 2015/16 Sewer Service Fund budget and are directed toward preventative and routine maintenance. The budget includes salaries and benefits, sewer line maintenance, CCTV pipeline and lateral inspection, lift station services, manhole upgrades, the sewer lateral program and cost allocation charges to the City's General Fund. The balance of the expense budget is earmarked for capital equipment replacement and capital projects, including slip lining, pipeline rehabilitation, and lift station replacement. In general, the Sewer Maintenance Section of the Utilities Division expends the operating and equipment replacement budgets, and the Engineering Division is responsible for the implementation of capital projects. Lift Stations: Construction of the Trinidad Lift Station was completed this fiscal year. Design of the Edgewater Lift Station was also started this fiscal year. Sewer Linino: A $350,000 10,855 linear feet sewer lining project was completed this year. Maintenance Activities: Totals for various maintenance activities are presented below. CCTV Inspection: The sewer system is inspected through the use of Closed Circuit Television inspection. A contractor was employed during this last fiscal year to video inspect portions of the sewer system's main collection lines located in the City's July 2016 -2- arterial and high traffic volume streets. City crews video inspect the sewer mains located in residential areas and low traffic volume streets. Sewer Line Maintenance ➢ Routine cleaning of 1,884,917 linear feet of sewer pipe. ➢ Removal of 5,700 pounds of debris/grit during routine cleaning. ➢ Cleaned 225 enhanced cleaning areas (areas of sewer line cleaned from two times to twelve times per year) for a total of 489,375 linear feet through June. ➢ The Fats, Oils and Grease (FOG) program has cleaned 10,878 linear feet of sewer line around food service establishments and other areas with high grease concentrations. ➢ Applied root control to 24,114 linear feet of sewer line. ➢ Sewer lateral repair program received and resolved 420 requests for repair to date. ➢ Inspected via Closed Circuit Television (CCTV) 138,603 linear feet of residential sewer lines and arterial mains. ➢ Lined 24-inch sanitary sewer at Beach Boulevard and Pacific Coast Highway. Manhole Maintenance ➢ Cleaned and Inspected 8,707 manholes. ➢ Repaired and recoated 24 manholes. ➢ Sprayed insecticide for roaches in 256 manholes. Sewer Lift Station Maintenance ➢ Inspected 27 lift stations three times a week and cleaned each station every two months. ➢ Cleaned and inspected the 56 check valves at the sewer lift stations every two months. ➢ Replaced 4 check valves. ➢ Replaced 3 gate valves. ➢ Disassembled and rebuilt 11 sewer pumps. ➢ Cleaned 28 sewer lift station wet wells; projected to be 35 by year's end. ➢ Replaced the electrical power transfer switch at Edwards Lift Station. ➢ Recoated three wet wells. ➢ Replaced 3 Cannon emergency electrical plugs. Emergency Response ➢ 0 Public Sanitary Sewer Overflows (SSO) to date, 12 reportable Private Lateral Spill discharges to date. ➢ 307 service requests from the public during business hours. ➢ 72 after hours lift station alarms and failures. ➢ 105 after hours call outs for miscellaneous sewer related problems. ➢ 12 emergency sewer line point repairs. July 2016 -3 - Sewer Lateral Program Under the Sewer Lateral Program, the City assumed responsibility for the repair of all sewer laterals from the City-owned sewer main through the public right-of-way to the private property line. The property owner remains responsible for all costs of repair and maintenance of that portion of the sewer lateral on private property. This program is response driven as all work orders are generated in response to calls from residents and businesses. Expenditures on the Sewer Lateral Program have decreased significantly since the program was initiated in Fiscal Year 2008/09. Staff had previously budgeted for the Sewer Lateral Program based on the expenditures in the first two years of the program. However, following reductions in calls after the first three fiscal years of the program, staff reduced the budget. Demand had leveled off from 2011/12 to 2014/15, but has seen an uptick this fiscal year. Sewer Lateral Expenditures $2,500,000 $2,00©,000 $1,500,000 $1,Doo,000 $500,000 $0 IL 2D08/09 20D9/10 201D/11 2D11/12 2012/13 2013/14 2014/15 2D15/16 July 2016 -4- FY2015116 Projected Expenditures Personnel Original Budget Revised Budget* Projected Salaries, Permanent $2,021 ,662 $1,961,662 $1 ,705,567 Salaries, Temporary $62,500 $62,500 $41 ,839 Salaries, Overtime $82,500 $82,500 $140,399 Benefits $1,189,954 $1,189,954 $1,032,685 Total Personnel $3,356,615 $3,296,615 $2,920,489 Operating Utilities $110,000 $110,000 $105,000 Equipment and Supplies $348,350 $350,730 $250,000 Repairs and Maintenance $1,543,000 $1,549,342 $1 ,450,000 Conferences and Training $4,000 $4,000 $2,000 Professional Services $1,030,000 $1,168,974 $410,000 Rental Expense $3,500 $3,500 $6,000 Interdepartmental Charges $1,320,644 $1,320,644 $1,320,644 Expense Allowance $5,800 $5,800 $3,000 Other Expenses $75,000 $75,347 $15,000 Total Operating $4,440,294 $4,588,337 $3,561,644 Capital Equipment $99,360 $305,664 $253,649 Vehicles $806,760 $806,760 $782,866 Total Capital $906,090 $1,112,364 $1,036,515 CIP Improvements $2,270,000 $4,535,573 $1,996,767 Total CIP $2,270,000 $4,535,573 $1,996,767 Total $10,973,029 $13,532,949 $9,515,415 *Revised Budget includes funds carried over from prior fiscal year July 2016 -5 - FY2015116 Projected Revenues Source FY 14/15 FY 15/16 Actual Projected Customer Charges $10,643,525 $10,758,620 Interest $242,297 $25,000 Other $594,700 $106,000 Total $11,480,522 $10,889,620 Projected FY 2015116 Balance Beginning Balance 10/1/2015 $19,766,074 Projected Revenues FY 15/16 10,889,620 Proposed Expenditures FY 15/16 ($9,515,415) Projected Beginning Balance 10/1/2016 $21,140,279 Proposed FY 2016/17 Budget Sewer Service User Charge Adjustments In accordance with Section 14.55.030 Annual CPIU Adjustments, each Sewer Service User Charge shall be adjusted to reflect the annual percentage adjustment in Consumer Price Index for all Urban Consumers (CPIU) in Los Angeles, Orange and Riverside Counties established by the U.S. Bureau of Labor Statistics and available as of July 1 of each year. The purpose for annual adjustment of the rates is to ensure that the revenues continue to fully fund the needs of the program. To accommodate the billing system, all service charge rates are calculated to four decimal places, and charged on a daily factor. The daily factor converts the monthly charge based on a 365-day year. This is a modification from the initially adopted rate schedule. The customer's bill reflects a charge based on the number of days between meter readings. A resolution was adopted by the City Council to authorize the daily rate methodology. The percentage adjustment in the CPIU available as of July 1 , 2016 for the month of May reflects an annual increase of 1 .5%. This percentage adjustment is included as the recommended adjustment to the Sewer Service User Charge effective October 1 , 2016. July 2016 -6- The following table shows the 1 .5% increase. For purposes of comparison, the rates represent a monthly charge. Effect of CPI Adjustment on Current Sewer Service Charge Current With CPI Customer Category Charge Type Unit Charge Increase Residential: Single-family & Flat rate for all customers in per unit $10.6923 $10.8527 townhouses with individual category per meters month Apartment: All apartments, Flat rate for all customers in per unit $8.8693 $9.0023 mobile homes and townhouses category per served by common meters month Regular Flat rate amount per Equivalent per EDU $12.4089 $12.5950 Commercial/Industrial: Most Dwelling Unit (EDU). EDU per businesses, including private refers to either (1) the capacity of month schools a customer's water meter in comparison to a standard 3/4 inch meter, or (2) the number of tenant units that receive water service through the water meter, whichever is greater High-Consumption Flat rate per hundred cubic feet per CCF $2.3219 $2.3567 Commercial/Industrial: (CCF) of estimated sewer per year Businesses with high water discharge consumption relative to their meter size Public Schools: All public K-8 Flat rate per student per year High $3.4150 $3.4662 and high school districts with with a different rate per student School schools in the City for K-8 and for high schools per ADA per year ADA - Average Daily Attendance K-8 $2.1991 $2.2321 per ADA per year July 2016 -7 - FY 2016117 Proposed Budget Personnel Salaries, Permanent $2,198,299 Salaries, Temporary $55,450 Regular Overtime $82,500 Benefits $1,339,318 Total Personnel $3,675,568 Operating Utilities $110,000 Supplies $348,350 Repairs and Maintenance $1,621 ,000 Conferences and Training $4,000 Professional Services $260,000 Rental Expense $3,500 Cost Allocation $1,670,961 Auto Allowance $5,800 Contingency $75,000 Total Operating $4,098,611 Capital Equipment $99,360 Vehicles $806,760 Total Capital $906,120 CIP (new) Lift Station (Edgewater) $1,000,000 Sewer Lining $450,000 Residential Zone Maintenance $80,000 Total CIP $1,530,000 TOTAL $9,294,179 FY 16117 Proposed Revenue Customer Charges $10,650,000 Other $35,000 Total $10,685,000 July 2016 - 8 - FY 16117 Projected Balance Projected Beginning Balance 10/1/2016 $21,140,279 Projected Revenues FY 16/17 10,685,000 Proposed Expenditures FY 16/17 ($9,294,179) Projected Beginning Balance 10/1/2017 $22,531,100 FY2016117 Capital Projects Lift Stations: Construction is planned for the Edgewater Lift Station in Spring 2017. Design is scheduled for the Slater Lift Station, with construction planned in 2018. Sewer Linino: Sewer lining in the amount of $350,000 is programmed in FY 2016/17. A lining project is bid once a sufficient number of sewer defects are identified as part of the CCTV inspection program. July 2016 9- S7W7Fj S7RVIC7 ANNUAI City of Huntington Beach City Council Meeting September 6, 2016 Introduction Sewer Service Charge adopted September 2001 Sewer Service Fund designated for operation , maintenance & capital rehabilitation o Annual program review is required o Public Works Commission , acting as the oversight committee, recommended suspending the rate adjustment at their July 20 , 2016 regular meeting o City Council holds annual hearing to review recommendations of the Public Works Commission on rates as part of the budget process Reserve Policy Operations and Maintenance : 33% of annual budget, $2 . 6 million Capital Improvement Program : Average of 5-year Capital Improvement Program , $2 . 65 million Emergency : Estimated cost to replace a sewer lift station , $3 . 0 million Total : $8 . 25 million Fund Balance Summary Beginning Balance 10/1 /15 $ 19 , 7665074 Projected Revenues 15/16 $ 1058895620 Projected Expenditures 15/16 Projected Balance 10/1 /16 $2151405279 Proposed Revenues 16/17 $ 1056855000 Proposed Expenditures 16/17 Projected Balance 10/1 /17 $2255315100 Future Sewer Needs Replace One Sewer Lift Station Annually at an Estimated Cost of $2 . 5 million o $350 , 000 Annually in Sewer Sliplining o Assume 2% Annual Increase in Operating Costs Fund Balance Will be Reduced to the Reserve Policy Level over 10 Years Alternative Sewer Charges - Rate modification based on CPIU available as of July 1 is +1.5% Category Current + 1 . 5% Single Family (per month) $ 10 . 69 $ 10 . 85 Multi - Family (per unit/month) $ 8 . 87 $ 9 . 00 Commercial/ Industrial (per month) $ 12 .41 $ 12 . 60 Alternative Sewer Charges Category Current + 1 . 5% High Consumption Commercial/Industrial $2.32 $2.36 (Per 100 Cubic Feet of Water) Schools (perADA/year) High School $3.42 $3.47 K-8 $2.20 $2.23 Recommended Action Accept Sewer Service Fund Performance Audit for Fiscal Year 2015- 16 Recommend Council suspend the Annual CPI Adjustment of Sewer Service Charges for Fiscal Year 2016- 17 SEWE7Z SEFIVIC7 17UND ANNUAL 777� FCRMANCFM AUDIT seP,em�, s. 2016