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HomeMy WebLinkAboutSewer Service Fund Performance Audit for Fiscal Year 2014-15 Dept. ID 15-052 Page 1 of 2 Meeting Date: 8/17/2015 Approved 7-0 CITY OF HUNTINGTON BEACH REQUEST FOR CITY COUNCIL ACTION MEETING DATE: 8/17/2015 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 2014-15 and suspend the annual Consumer Price Index adjustment of the Sewer Service Charges for Fiscal Year 2015-16 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 2015-16. 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 2015-16 is estimated at $10,937,140 if the CPI adjustment is made to the Sewer Service Charge and $10,830,000 if the adjustment is suspended for the fiscal year. Recommended Action: A) Accept the Sewer Service Fund Performance Audit for Fiscal Year 2014-15 as presented; and, B) Suspend the Annual CPI Adjustment of Sewer Service Charges for Fiscal Year 2015-16. Alternative Action(s): 1. Do not accept the Sewer Service Fund Performance Audit and direct staff to make specific modifications. 2. Direct staff to prepare an Ordinance to amend the Sewer Service Charge by the percentage change in the CPI as noted in HBMC Chapter 14.55 for adoption at a later date. 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 15, 2015, meeting. Per the Municipal Code, the City Council shall receive, at a regularly scheduled meeting, the recommendations of the Public Dept. ID 15-052 Page 2 of 2 Meeting Date: 8/17/2015 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, 2015. The CPIU reflects an annual increase of 1.1%. The estimated reserve for the Sewer Service Fund at the end of the current fiscal year is $23 million, which is above the reserve policy established by the City Council in 2014. If no rate adjustment is enacted, the proposed budget for Fiscal Year 2015/16 would reduce the surplus by $1 million, still be above the established reserve policy even with the carry over of Capital Improvement Projects that are underway. Therefore, Staff is not recommending a rate adjustment in Fiscal Year 2015/16. Environmental Status: Not Applicable Public Works Commission Action The Public Works Commission voted 7-0 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 2015/16. Strategic Plan Goal: Enhance and maintain infrastructure Attachmentfs): 1. Annual Sewer Service Fund Performance Audit for Fiscal Year 2014-15 City of Huntington Beach Public Works Department Sewer Service Fund Performance Audit Review of Fiscal Year 2014115 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 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 2015 - 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 $2.3 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 $4.1 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 $2.1 million. o The total reserve would amount to $8.5 million. ➢ The Municipal Code states that the Consumer Price Index for Urban Consumers (CPIU) that is available July 1 shall be used to calculate adjustments to sewer service rates. Review of Fiscal Year 2014/15 Budget Personnel and operating expenditures account for approximately forty-five percent (45%) of the Fiscal Year 2014/15 Sewer Service Fund budget and are directed toward preventative and routine maintenance. The budget includes salaries and benefits, sewer line maintenance, Closed Circuit Television (CCTV), 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, monitoring of lines, 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. Warner Avenue Gravity Sewer (WAGS): (CC-1370) Construction of the Warner Avenue Gravity Sewer (WAGS) project was completed this fiscal year. This resulted in Lift Station "B" becoming unnecessary and taken out of service. Lift Stations: Construction of the Trinidad Lift Station was awarded and started this year. Design of the Edinger Lift Station was also started this fiscal year. Sewer Linino: A $350,000 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 July 2015 -2- inspect portions of the sewer system's main transmission/collection lines located in the City's arterial and high traffic volume streets. City crews video inspect the residential and low traffic volume streets. Sewer Line Maintenance ➢ Routine cleaning of 1,545,537 linear feet of sewer pipe. ➢ Removal of 6,500 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 489,565 linear feet through June. ➢ Applied root control to 25,000 linear feet of sewer line. ➢ Sewer lateral repair program received 216 requests for repair to date. ➢ Inspected via Closed Circuit Television (CCTV) 558,500 linear feet of residential sewer lines and arterial mains. Sewer Lift Station Maintenance ➢ Inspected 27 lift stations three times a week and cleaned each station every two months. ➢ Cleaned 254 check valves ➢ Replaced 3 check valves ➢ Replaced 2 gate valves. ➢ Disassembled and rebuilt 8 sewer pumps. ➢ Replaced 5 transducers. ➢ Cleaned 27 sewer wet wells; projected to be 32 by year's end. ➢ Replaced stainless steel electrical panel at New Britain Lift Station. Emergency Response ➢ 2 Public Sanitary Sewer Overflows (SSO) to date, 1 reportable Private Lateral Spill discharge 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. ➢ 6 emergency sewer line point repairs. July 2015 -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 for fiscal year 2013/14. Demand has leveled off over the past three years. Sewer Lateral Expenditures $2,soo,000 $2,000,000 $1500,000 $1,000,000 $500,000 $0 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/1s July 2015 -4- Sewer Service Fund Budget FY2014115 Projected Expenditures Personnel Original Budget Revised Budget* Projected Salaries, Permanent $1 ,962,113 $1,962,113 $1,845,208 Salaries, Temporary $65,000 $65,000 $44,516 Salaries, Overtime $80,000 $80,000 $103,709 Benefits $1,103,930 $1,103,930 $1,034,787 Total Personnel $3,211,043 $3,211,043 $3,028,220 Operating Utilities $110,000 $110,000 $105,865 Equipment and Supplies $355,350 $355,358 $161,736 Repairs and Maintenance $1 ,543,000 $1,543,000 $1,430,862 Conferences and Training $3,000 $3,000 $3,526 Professional Services $500,000 $538,665 $353,297 Rental Expense $3,500 $3,500 $3,326 Interdepartmental Charges $1 ,282,179 $1,282,179 $1,282,179 Expense Allowance $5,800 $5,800 $5,800 Other Expenses $75,000 $75,000 $15,000 Total Operating $3,877,829 $3,916,502 $3,361,592 Capital Equipment $585,480 $585,480 $252,306 Vehicles $588,600 $753,609 $748,077 Total Capital $1,174,080 $1,339,089 $1,000,383 CIP Improvements $2,050,000 $6,632,958 $6,027,908 Total CIP $2,050,000 $6,632,958 $6,027,908 Total $10,312,952 $15,099,592 $13,418,103 *Revised Budget includes funds carried over from prior fiscal year July 2015 -5 - Beginning Balance 10/1/2013 $34,834,188 Actual Revenues FY 13/14 $10,903,501 Actual Expenditures FY 13/14 ($19,969,618) Unreserved Funds Available 10/1/2014 $25,768,071 Beginning Balance 10/1/2014 $25,768,071 Projected Revenues FY 14/15 $11 ,113,142 Proposed Expenditures FY 14/15 _ ($13,418,103) Projected Beginning Balance 10/1/2015 $23,463,110 Revenue Detail Source FY 13/14 FY 14/15 Actual Projected Customer Charges $10,607,679 $10,526,592 Interest $195,883 $25,000 Other $99,939 $561 ,550 Total $10,903,501 $11,113,142 Proposed FY 2015/16 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 , 2015 for the month of May reflects an annual increase of 1 .1%. This percentage adjustment is included as the recommended adjustment to the Sewer Service User Charge effective October 1, 2015, pending a Proposition 218 protest hearing in August. July 2015 -6- The following table shows the 1 .1% 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 $10.8099 townhouses with individual category per meters month Apartment: All apartments, Flat rate for all customers in per unit $8.8693 $8.9669 mobile homes and townhouses category per served by common meters month Regular Flat rate amount per Equivalent per EDU $12.4089 $12.5454 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 $2.3474 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 $3.4526 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 $2.2233 per ADA per year July 2015 -7 - Sewer Service Fund Budget FY 2015116 Proposed Personnel Salaries, Permanent $2,021 ,662 Salaries, Temporary $62,500 Regular Overtime $82,500 Benefits $1,189,953 Total Personnel $3,356,615 Operating Utilities $110,000 Supplies $348,350 Repairs and Maintenance $1,543,000 Conferences and Training $4,000 Professional Services $1,030,000 Rental Expense $3,500 Cost Allocation $1,320,644 Auto Allowance $5,800 Contingency $75,000 Total Operating $4,440,294 Capital Equipment $99,360 Vehicles $806,760 Total Capital $906,120 CIP (new) Lift Station (Edgewater) $2,500,000 Sewer Lining $350,000 Total CIP $2,270,000 TOTAL $11,553,029 Revenue Detail FY 15116 Customer Charges $10,714,000 Other $116,000 Total $10,830,000 July 2015 - 8 - Sewer Service Fund Projected Balance Sheet Beginning Balance 10/1/2015 $23,463,110 Projected Revenues FY 15/16 10,830,000 Proposed Expenditures FY 15/16 ($11,553,029) Projected Beginning Balance 10/1/2016 $22,740,081 Capital Projects FY 2015/16 Lift Stations: Design is planned in 2015 for the Edgewater Lift Station; construction is estimated to begin in the winter of 2016. Design is scheduled for the Slater Lift Station in 2016. Sewer Linino: Sewer lining in the amount of $350,000 is programmed in FY 2015/16. A lining project is bid once a sufficient number of sewer defects are identified as part of the CCTV inspection program. July 2015 -9-