HomeMy WebLinkAbout2016-04-19 Finance Committee Summary MinutesRegular Meeting
Tuesday, April 19, 2016
Chairperson Filseth called the meeting to order at 7:02 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California.
Present: Filseth (Chair), Holman, Schmid, Wolbach arrived at 7:08 P.M.
Absent:
Oral Communications
Chair Filseth: Good evening everybody and welcome to the April 19 Finance Committee meeting. Before I get to Action Items we have one speaker on the Oral Communications, and that is
Nelson Buchanan. Sir, you have the floor.
Mr. Buchanan: Last night at the Council meeting I pledged to bring an issue to you, the Finance Committee, because all this stems from finances. You know where the dollars are and control
all. I certainly commend you all for trying to keep the balance between fees and services rendered. I for one suggest you can’t raise them high enough, just do what’s in good faith,
but we citizens are enjoying a lot of benefits without necessarily paying for all the things we get. I wanted to talk about the business registry that was presented at the tail end of
the Council meeting last night. You would have to have a microscope to find that report and I only use that as an example. I tried to figure out what is as broad a category that the
business registry represented. I came up with the concept of unfunded assets and I actually googled it to see if I created something, but the truth of the matter is there is a financial
term called “unfunded assets” that is used in private equity particularly, so that’s pretty shadowy. The reason I wanted to talk about the business registry as an example, is that it
is among several things that have been pitched to the citizens as solutions for our neighborhood quality issues. We have been pitched with the business registry, garage technology, the
transportation to management association, new garages, shuttles to Embarcadero Road and paid parking. It finally dawned on me, digging into the business registry report, is that those
are well-intended, but shallow promises, because there is a huge gap between the intent what I think, since Staff sincerely wants to do what the Council sincerely wants to do in the
actual execution on those projects. I happen to have followed the business registry from its very beginning and it was clear to me that it was underfunded, Staff has been handed a hot
potato without the skills and time to fix it, and we have now a business registry which, in my opinion, there is no there there. We met with City Staff so not to embarrass them, try
to say, here’s our understanding of where the business registry is and isn’t, but this is not the night to pick on the business registry. What I would like the Finance Committee to take
on a role somehow given from the City Council, is that things that are promised to be parts of the Swiss watch fine-tuned projects that are going to mesh together and result in a good
neighborhood quality, neighborhood parking. Each of those little gears needs to be properly funded, and I maintain tonight, without taking any more of your time, they are really not
even partially funded. The Transportation Management Association (TMA) has been in process for damned near a year and a half, and there is no budget. I understand the crunch of all the
City activities, but that is another great example that it’s so far behind being operative that it’s not going to produce the results we want. That’s the end of my unfunded asset talk.
Chair Filseth: Thank you very much. We have another speaker on Oral Communications, and that is Rita Vrhel. Welcome Rita.
Rita Vrhel: Good evening. I was here several months ago speaking about the Safety Net Track Watch Program and I am wondering what the status of that is and when that will be coming up
to the Finance Committee for discussion. I looked through the agenda items through now and the end of June and I didn’t see it. I am particularly concerned about the negative press that
the Track Watch Program has gotten recently with the number of three people being arrested, either radio station or news station doing a watch over the guards and noting that some of
them were gone for extended periods of time at some point in the hours, the change in vendor with apparently little notification to residents, or perhaps even the City Council. Also
last year when this was brought up at budget time I believe the goal was that 50 percent of the funds were going to be coming from the Palo Alto School District and I would also like
to know what the status of that is. I know you can’t discuss it tonight, but sometime in the future. Thank you.
Chair Filseth: I think that will come up during the Budget Hearings.
Lalo Perez, Chief Financial Officer: Yes, as the speaker mentioned, we can’t get into the item but we can mention the reference on the schedule. It is part of the Community Services
Department Budget Hearing, and that will be Thursday, May 5.
Chair Filseth: Rita, did you get that?
Rita Vrhel: May 4?
Chair Filseth: May 5.
Mr. Perez: Thursday, May 5.
Chair Filseth: Okay, that does it for Oral Communications, so we will proceed to the first Action Item.
Agenda Items
1. Adoption of a Resolution Amending Utility Rate Schedule D-1 (Storm and Surface Water Drainage) Reflecting a 3.2 Percent Consumer Price Index Rate Increase to $13.03 Per Month Per
Equivalent Residential Unit for Fiscal Year 2017.
Chair Filseth: Resolution amending the Utility Rate Schedule for surface water and storm water drainage.
Joe Teresi, Senior Engineer for Public Works: Good evening. I am Joe Teresi. I am a Senior Engineer in the City’s Public Works Department and I will make a short presentation on the
first item, which is the storm drain rates. As you know, the storm drain rates, unlike the other utility rates, are constrained by a ballot measure that was passed by a majority of property
owners back in 2005, and under the provisions of that measure, the City Council has the discretion to review the rates each year and to increase the rates by the rate of local inflation
or six percent, whichever is less. So, as we have done in past years, we have brought forward an item to increase the rates by 3.2 percent, which was the local increase in the consumer
price index for calendar year 2015 and that equates to an increase for a typical homeowner of about $0.40 per month, it would increase the rate from $12.63 to $13.03 per month for a
typical residential property owner. So that’s our proposal and I am here to answer any questions you might have.
Chair Filseth: Blessedly terse. We actually have one public speaker to this item, Keith Bennett.
Keith Bennett: I have a presentation.
Chair Filseth: Let’s see. How should we do this? Cory has joined us.
Mr. Bennett: I think it is hard to stand and talk into this at the same time, so if I hit all the right buttons here, okay. This presentation is Residential Storm Drain Fees, who uses,
who pays. I understand the existing regulation, but I also understand that the current storm drain regulation comes up for renewal in January next year, 2017 the current regulation sunsets.
So I made a simple analysis of how much water goes into the storm drains from three major sources, streets, residential basement dewatering and R-1 residences. Every piece of information
in this calculation is taken either from the City of Palo Alto information or National Weather Service information. Streets last year contributed about 20.5 million cubic feet of water.
Residential basement dewatering using estimates from Public Works contributed about 18.7 million cubic feet of water. R-1 residences with assuming 2,500 square feet of land, of impervious
material of which about 20 percent gets into the storm drains because the rest goes into the soil or evaporates, if the downspouts go into the ground, which is the case in my house,
contributed about five million cubic feet. So, if we put this together, if we count all of the streets as being the responsibility of the residents, property and streets contributed
about just under 60 percent of the total water that went into the storm drains. Residential basement dewatering based on 14 basements contributed 42 percent. The total money that I calculated
using 16,408, which is the number of individual residences collected for storm drain fees was roughly $2.5 million. Residential dewatering does not require any fee for volume of water
discharged. It requires, instead, an $82-per-month discharge permit, for the maximum of six months is a maximum of $7,000. Therefore, it looks to me like the dewatering for basement
structure is a major user of storm drains, far more than R-1 residences, yet pays no additional assessments. It also looks to me, if we just take the amount of money collected in storm
drain fees from residences and divide that by the amount of water for a single basement dewatering it would have a usage recovery potential of about $74,000 per basement, for a total
of 14 basements is about $1 million-per-year revenue potential. So my question is, wouldn’t the storm drain fund benefit from a volume-based storm drain usage fees from construction
dewatering that incentivizes sustainable practices from the heaviest R-1 residential storm drain users, the top 0.1 percent who are financially capable. That’s all I have.
Chair Filseth: Thank you very much.
Council Member Schmid: Can you send a copy to the clerk.
Chair Filseth: Yeah, can you send a copy?
Mr. Bennett: I did send you people an e-mail. I have revised it slightly and it’s on this presentation.
Council Member Wolbach: It’s the loose file that says .PDF, is it.
Chair Filseth: We have another speaker on this topic, Rita Vrhel.
Rita Vrhel: Next time I’ll turn my cards in earlier. I think Keith’s presentation is really amazing. I was over at 736 Garland today, watching to water go down the storm drain and I
think that it’s fair to charge those people who use any City service their fair share. I think on roads that happens with most cars. Cars that are heavier usually use more gasoline per
mile and, therefore, the gas tax is shifted between higher cars to lower cars, depending on how much they are going to be tearing up the road. That’s a problem with electrical vehicles,
but that’s another story. I ask the Finance Committee to take what Keith has said seriously and I think perhaps the increased storm drain fee might offset some of the enthusiasm for
building basements, and again, I hope that the entire City Council will look at including basements into the floor area ratio, and also requiring all homes with basements, no matter
how many stories the home is, to go through the independent review process and be approved by the City Council. The construction site at 736 Garland is really amazing to behold. It appears
that the edges go almost, if not more than three feet to the next property, and if you have not seen it, I would really encourage you to go over and look at it. I don’t mean to pick
on this property, but there are so many things that make it a unique situation and the basement dewatering history in Palo Alto that I do think it needs to be recognized for what it
is.
Chair Filseth: We don’t have anybody from the Attorney’s Office here? Terence isn’t here?
Female: No, he was scheduled for arbitration all day, so he may still be there.
Chair Filseth: We’ll get him later. Alright, so questions, comments and motions. Council Member Wolbach:
Council Member Wolbach: First, actually just to respond, to thank you to the members of the public who came today to speak, Keith and Rita, my understanding is that further discussions
around basement dewatering and a whole range of issues related to that are going through the Policy and Services Committee. I just wanted to check that where that’s going. I’m hesitant
to duplicate or supersede what’s happening there with actions we might take tonight. So, I am going to be reluctant to follow that advice for this discussion this evening, but as we
started that discussion when I was on the Policy and Services…
Chair Filseth: Well, I think Keith pointed out that we have a financing ordinance in place now, which expires next year, so we’re probably not going to do anything tonight, but next
year that’s an interesting idea.
Council Member Wolbach: That is. I still want to see what happens with the discussions in Policy and Services Committee before committing myself to that. I’m not opposed.
Chair Filseth: To the extent this body discusses it; it should be about rates, not policy.
Council Member Wolbach: I understand. I’m expressing my position at this point. I’m not saying we can’t, I’m just saying it’s my preference that we wait until we hear what Policy and
Services Committee comes up with, but I’m not opposed to us…
Council Member Schmid: Is there a comment from Staff on that?
Brad Eggleston, Assistant Director of Public Works: Just a brief comment, good evening Finance Committee. Brad Eggleston, Assistant Director of Public Works. Yes, it is correct that
we are going back to Policy and Services Committee for further discussions about basement dewatering, and that I would also point out that in the recent discussions that have happened
in the Policy and Services and with City Council, you might recall that we had kind of placed a number of suggested actions into three categories, so actually charging additional fees
on a volumetric basement dewatering is one of the third-phase items that we are scheduled to bring back to Policy and Services in the fall of this year.
Council Member Wolbach: Thank you for clarifying the specifics about that, but this is definitely something we are paying attention to. It’s already essentially on the agenda. My understanding
is that it’s going to another committee, as we just heard confirmed by Staff. It would be my preference that we let that continue, as we have already given direction from the City Council
as a whole body. There is one thing I noted in the Staff Report and I don’t usually like to nit-pick staff reports, but this is something I thought was important enough to mention, so
I offer it as just a gentle note or correction, which was the phrase property owners used essentially synonymously with voters in a couple of places, that property owners approved something,
and it might be going back to property owners in the future. Voters and property owners (inaudible) then diagram, of course, they overlap significantly but almost half the residences
in Palo Alto are rentals and so I just wanted to make sure that we are always thoughtful that not all voters in Palo Alto are property owners and not all property owners are residents
or even voters. So I just wanted a gentle note.
Mr. Teresi: Yeah, actually the Storm Drain Fee is considered under Proposition 218 as a property-related fee, so the ballot measure was actually a ballot-by-mail sent to property owners,
so that is correct.
Council Member Wolbach: Really, okay, interesting.
Mr. Teresi: So people voted on it who weren’t even in Palo Alto. Some of them weren’t even in the country. It’s a ballot-by-mail of property owners.
Council Member Wolbach: I’m glad I brought that up for clarification then. Thank you for correcting me on that. So would we expect the same would be true if there is a new ballot measure
presented to property owners later this year? Would it be using the same methodology?
Mr. Teresi: Actually the Council would have a choice. Under Prop. 218 there are two methods to approve these kinds of property-related fees. You can, as we did in 2005, do a ballot-by-mail
to property owners in which you need a simple majority approval rate. You also have the option to place the measure before the general public in a General Election, however, that requires
a two-thirds majority approval rate.
Council Member Wolbach: And, just to clarify, if it goes to property owners, that would be those who are property owners and registered voters?
Mr. Teresi: No, all property owners.
Council Member Wolbach: But not necessarily residents, not necessarily a citizen, just whoever owns the property, or even whatever entity, if it’s owned by a corporation?
Mr. Teresi: Correct.
Council Member Wolbach: Interesting. Thank you for clarifying that. I’m glad I asked.
Chair Filseth: Council Member Holman.
Council Member Holman: One quick question of Staff, which is, this schedule at Policy and Services, is there any way to speed that up, because whatever the recommendation that comes
from Policy and Services, if it’s not going there until Fall, it’s not going to precede the decision, it doesn’t sound like it is going to precede the decision by Council on what to
do with storm drain fees for potential ballot measure for instance, speaking about basements.
Mr. Eggleston: I wouldn’t want to commit to that. We can have discussions about that. I would say that currently our focus has been on implementing the new basement dewatering program
elements that we talked about, which are the water truck, watering sites that the City develops, improving these fill stations, spending time talking with engineers and the sites about
the geotechnical studies that are looking at effects, so I think part of the reason that we showed these things being in phases is so we could devote the time to the things that were
coming up first. I would have to go back and look at the schedule in more detail to be able to speak to that.
Council Member Holman: I would just say that I think it would be helpful and advisable if we could step that up.
Mr. Eggleston: One other thing I would say about that, and I would want to consult the City Attorney, but I think that if we were considering… So here with the Blue Ribbon Committee
that’s going to make recommendations on what to do with this property-related fee, it has to do with the property-related fee portion that is subject to Prop. 218. I think that it may
be that if we are considering individual construction sites who are using the storm drain system, that may not be a property-related fee and could potentially be subject to our more
regular municipal fee schedule type of process.
Molly Stump, City Attorney: So this is a complicated area and this is why Staff had allocated this question of appropriate fees for basement dewatering to, I think, the third category
of basement dewatering type policy decisions. Municipal fees generally are cost-of-service or cost-recovery based, and that may not be what the Council is ultimately looking for in terms
of a dewatering type fee. If there are other types of fees we want to explore, we really need to establish a strong evidentiary basis for that and consider that through a cost-of-service
study before we impose it, and there are quite a few complexities here in integrating that time limited significant water discharge from a basement dewatering construction project with
the fees that have traditionally been assessed based in impermeable surface to support the capital projects that will handle that over the life of the time of the fee. So that’s really
a very, very different type of activity and it does need to meet these fairly stringent constitutional standards, so it would need to be looked at.
Council Member Schmid: Question.
Chair Filseth: Go ahead.
Council Member Schmid: I understand that we have an Urban Water Management Plan which needs Council approval before June of 2016, and I believe groundwater is one of the elements of
that, so there will be a Council discussion of this issue. Not necessarily the fee aspect of it, coming up very quickly, I assume within the next month. Is that correct?
Mr. Eggleston: That’s correct.
Female: There is an item on the calendar, yes.
Chair Filseth: I think we had a long and broad discussion about water, and I think the purview of this has to be really, really narrow, which is, are we compliant with Prop. 218 on how
we allocate the cost of the storm drains and the suggestion from Keith has been, maybe what we actually are not allocating enough to people who dewater their basements in terms of the
costs of maintaining the storm drains and that is very, very narrow, so I think we should stick to it.
Council Member Schmid: Yeah, I was just commenting on my colleagues issue that we won’t discuss this until Fall, and actually we will discuss it within the next month.
Chair Filseth: Other questions? Cory.
Council Member Wolbach: Yeah, actually just to follow up on that…
Chair Filseth: Let’s get through this one quick, okay.
Council Member Wolbach: Staff said something. I would like to seek their clarification to make sure I understood before… It sounds like the potential ballot measure that our Blue Ribbon
Committee is working with Staff on, that process could move forward and if we decide to supplementally or separately subsequently add or increase the fees for discharge from basement
dewatering into our storm drains, that we can do that at a later time, and that if it doesn’t make it into the ballot measure, that wouldn’t preclude us from doing it in the future.
I think that was something that it sounded like I heard. I want to make sure that is correct.
Ms. Stump: There certainly are a variety of types of fee bases that could be explored for basement dewatering, and some of them are, as you say, independent of this measure. There may
be, though, others that do require this Prop. 218 process where we may have additional procedural requirements and it wouldn’t be as simple as adding that on at a later date. I don’t
want to leave you with that impression. We are confident that the basis by which the fees are calculated and assessed for these capital improvement projects is sound, irrespective of
the potential for any time-limited significant discharge from a basement dewatering type of situation, but that doesn’t answer your policy concern of wanting to be able to look at enhanced
fees. We certainly can do that, but I don’t want to leave you with the impression that you could add to the storm drain fee without any procedural hurdles over the next year or two years.
There may be some issues there.
Council Member Wolbach: Okay.
Chair Filseth: Council Member Schmid.
Council Member Schmid: I would like to move that we recommend to Council the implementation of the 3.2 percent rate increase.
Council Member Holman: I’ll second that.
MOTION: Council Member Schmid moved, seconded by Council Member Holman to recommend the City Council adopt a Resolution amending Utility Rate Schedule D-1 (Storm and Surface Water Drainage),
to implement a 3.2 percent rate increase consistent with the applicable Consumer Price Index – Urban Consumers, increasing the monthly charge per Equivalent Residential Unit by $0.40,
from $12.63 to $13.03 for Fiscal Year 2017
Chair Filseth: Care to speak to your Motion?
Council Member Schmid: Yeah, I think this is something that was approved by voters in 2005 and what we are looking at tonight is an annual Consumer Price Index (CPI) increase that has
been calculated by Staff and presented to us, so I think it is appropriate to move forward in supporting that. I would just make the case that it would be…I know we need to renew this
fee by June of 2017 if we want it in the future and it would be very helpful when it went to Council that there was an addendum on it explaining all the wonderful things that have been
accomplished with this and that we are fulfilling each of the stated requirements of that. Would that be helpful?
Chair Filseth: Council Member Holman.
Council Member Holman: I think it has been well stated.
Chair Filseth: I actually had a couple of questions I wanted to ask, one actually, I guess. The 3.2 percent Consumer Price Index, the 3.2 percent for the CPI year seems rather high.
Does that include housing costs?
Suzanne Mason, Assistant City Manager: That is the difference in the CPI year. The Bay area between December 14 and December 15, it is the annual year-over-year adjustment and we noted
that in previous conversations that it is from the San Francisco, Oakland, San Jose CMSA.
Chair Filseth: Right. That’s like twice the national average, so why is it so high?
Ms. Mason: (crosstalk)
Ed Shikada, Assistant City Manager: I keep asking the same question.
Council Member Schmid: It does include a rental unit.
Mr. Shikada: It includes (crosstalk)
Chair Filseth: All right, any further questions? Shall we vote on the motion?
MOTION PASSED: 4-0
Chair Filseth: Motion passed unanimously. Thank you very much. Thank you to the public who came to speak to us tonight.
2. Utilities Advisory Committee Recommendation That the City Council Adopt: (1) a Resolution Approving the Fiscal Year 2017 Wastewater Collection Utility Financial Plan; and (2) a Resolution
Increasing Wastewater Collection Rates by Amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6 (Restaurant
Wastewater Collection and Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger).
Chair Filseth: Next item on the Agenda is wastewater.
Eric Keniston, Senior Resource Planner for Utilities: Good evening Council members. Eric Keniston, Resource Planner (inaudible). Tonight we bring before you the proposed Wastewater Collection
Utility Financial Plan and proposed rate changes. We are bringing a 9 percent rate increase proposed. This is the same that we brought to you before at your March meeting. There have
been a few changes (inaudible) quickly that water did come down a little bit, electric has changed, the overall rate change percentage is still about 9 percent. We will be bringing the
gas and electric to you next month and water tonight. Here this year we had a 9 percent rate increase and we are proposing another 9 percent rate increase in Fiscal Year (FY) 2017. As
you can see, over several years revenues have been below expenses barring two years, in 2014 and 2015, we had a budgeting hiatus for Capital Improvement Program (CIP), so we had a surplus
of CIP reserve funds and projects in backlog. We took some time to not budget the new CIP projects, and instead, finish up the ones that were already out there in the hopper. This had
an effect of temporarily helping the reserves, but that’s going to be gone through very quickly in the upcoming years. Things to note here that sometimes cause a bit of confusion, the
cost that you see that is increasing at the top, the blue, is the treatment cost, and the ones below are collection CIP’s in orange, collection operations and a very small debt service.
The wastewater utility is split into two different sections; one, the treatment portion, the treatment side, which deals with everything out at the treatment plant. That site has its
own CIP projects related to the plant, its own operations and maintenance and its own debt service. We see a portion, on the collection side sees a portion of that. Those overall costs
are split between various member agencies, Palo Alto, Mountain View, etc. The CIP and operations and debt service that you see here are related to the mains, the collections and operations
of just the mains within Palo Alto. Here on a finer point, breaking down the actual treatment side of the world, we can see here that we have, as I said, the treatment bar in the blue
on the last one is made up of these components which are operations, debt service and CIP. On the wastewater collection side you can see the affect where back in say 2012, 2013 the bottom
CIP and commitment bar was growing. We had, for those (inaudible) projects, the hiatus in 2014 and spent some of those funds and that did help the Rate Stabilization Fund seen in purple,
but over time we see that that combined rate stabilization and operations section is going to be decreasing rapidly as costs continue to be above revenues. We will use up the Rate Stabilization
Reserves basically by the end of this year, the first part of 2017.
Council Member Holman: Can I ask just a quick question, and it’s a nit-pick, the colors keep changing for the same things, so it makes it a little harder to flip back and forth from
one to the next and track what’s going on, so just for future reference…
Mr. Keniston: Get some unanimity among them.
Council Member Holman: Yes, please.
Mr. Keniston: Thank you, noted.
Jane Ratchye, Assistant Director of Utilities: These are reserves and the other ones were…
Council Member Holman: Yeah, I know. I was looking at this, prior to where, for instance, treatment operations are green on four, but treatment operations were blue on three, so…
Chair Filseth: It looks like treatment operations costs have gone up about 6 percent a year from this chart. Is that about right?
Phil Bobel, Assistant Director of Public Works: That’s right. The overall treatment costs (inaudible)
Chair Filseth: Treatment operations, yeah.
Ed Shikada, Assistant City Manager: And actually just for clarification for Council Member Holman, the blue on three is actually all of the colors on four, so it’s the combination of
the green, the red on this chart, so that breaks out the component costs.
Council Member Wolbach: Thanks for the clarification.
Council Member Holman: So on three it’s treatment, on four it’s treatment operations, and that, do that again.
Mr. Shikada: Operations, debt service and CIP, all of the above that are, the blue that’s on the screen in front of you.
Mr. Keniston: So everything that’s blue here is the entirety of the second wastewater treatment graph. So this is the finer breakout of just that blue section on the previous.
Council Member Holman: Yeah, okay. I got that but it still seemed like…Okay.
Mr. Shikada: It’s hard to track.
Council Member Holman: Yeah.
Mr. Keniston: Point well taken. So basically reiterating everything that we said earlier, it’s a 9 percent rate increase that we are proposing on residential build that equates to $2.88
per month. In future years we are looking at 9 and 10 percent rate increases. One thing that we have noticed, a small change in just short term is that because we are in a drought and
less wastewater is flowing to the treatment plant, we have noticed an increase in concentration of what is received at the treatment plant. Because of that it has taken a little bit
more chemicals to break those down, so there have been some cost increases related to that, and I guess as long as the drought continues we might continue to see those needs for additional
chemicals.
Chair Filseth: Really. It seems like it would be the same amount of pollutants, just less water.
Mr. Keniston: The concentration goes up (inaudible).
Chair Filseth: The concentration would go up, but the total modality of what you’re trying to filter out should…
Mr. Bobel: I’ll give you an example. The integration (crosstalk) that we’ve run into, Phil Bobel, and Jamie can chime in on this because he spent a ton of time on it. So as the concentration
has gone up, one of the things that has gone up is ammonia, and that’s affected us because the concentration of ammonia, when it goes up and if the alkalinity doesn’t go up, then when
the bacteria break it down, they produce more acid. So we have a more acidic wastewater in our system, and what we’ve had to do is add a buffer, a base to counteract that acidity, so
as you know, pH is a concentration-based thing, so as the ammonia has increased the acidity has increased and we have had to counteract it by adding a new chemical that we didn’t have
to use to add. So that’s our primary example so far, but other things are going to hit us like that too.
Chair Filseth: So you wouldn’t use that chemical if it were more diluted?
Mr. Bobel: No, we didn’t have to use it previously.
Chair Filseth: So it’s nonlinear.
Mr. Bobel: So this is a new increase for us. But you know, given that we have gotten into this area of increases at the treatment plant, is it easy for you to toggle over to those other
slides we talked about. I just wanted to make the point that we have, can you go to the other one first, so there is a number of new projects we are going to have, so when we project
to the future we then projected a larger increase for the treatment plant, slightly, still only 6 percent, but as we look to the future there is going to be debt service, a new debt
service requirement so if you look carefully at that chart that Eric showed, you see a step function under debt service slightly going up. It is even going to get greater off the chart,
and the reason is, and this slide shows some of the major things that we have to redo at the sewerage treatment plant. Virtually all of it is now 45 years old and frankly, it is sort
of falling apart. We would love to get Council members out to see this. Usually when people give tours we show them sort of the good stuff, but I think it is time that we short of showed
you the bad stuff.
Chair Filseth: Sign me up, I’ll come.
Mr. Bobel: Okay, good. On top of these projects which we had scheduled to deal with some of these problems that you can see visually, what hit us in 2015, can you show that next slide
Eric, so what hit us was some unanticipated problems. Again, not to go over each of them, but you can see in the middle upper, how a 42 inch pipe just burst out of its position and came
out of its straps and that wouldn’t have happened when this was new, so what is starting to happen is a deterioration. You can see a leak in the middle, a large leak in our 72 inch line,
you see flooding in the lower left hand from an incident that occurred in 2015. You see, on the lower, this bubbling strange-looking thing is a major leak in our 54 inch outfall line,
that’s right at the airport. So we are going to have a bunch of sort of unanticipated costs now that really, for the first time I think in 2015, we started to see these major things
go wrong and it’s had two impacts on us. One, it has diverted us from these other projects that we knew we had to do, but now something breaks and all of a sudden you are diverted on
to having to do something. So I just wanted to point that out that sometimes a picture is worth a thousand words to let you see what we are now contending with in a greater than 45 year-old
plant.
Chair Filseth: Yeah, thank you. And so the costs that you are anticipating those primarily show up in the debt service?
Mr. Bobel: Yeah.
Chair Filseth: Because it’s capital.
Mr. Bobel: Yeah, it primarily shows up in debt service, but then when we get hit with these unanticipated problems we have to take them out of our short-term, what we call CIP Projects,
the $2.5 million we spend each year which we used to sort of spend on getting ahead of the curve. Now we are having to spend it on just keeping up and not catching up.
Chair Filseth: And the debt for this, are those CIP’s?
Lalo Perez, Chief Financial Officer: No, there are some State loans.
Mr. Bobel: That’s a State revolving fund they call it, so it’s low interest. It’s a 1.6 now Jamie?
Male: 1.7. (crosstalk)
Mr. Bobel: 1.7, a great interest rate. The problem is you do have to pay it back.
Council Member Holman: Phil, you can never leave. I’ll sign up for a tour too, and you might recall too, you should let Sid know. Remember how Sid…
Mr. Bobel: Oh, yes, yes, when you guys took the tour.
Chair Filseth: Eric, please proceed.
Mr. Keniston: So the rate increases that we are bringing to you tonight, the 9 percent, the same that we told you last year, in future years we are expecting that it’s going to be slightly
higher than what we guessed in the past, not by much hopefully, so in the 9 to 10 percent range. With this though, we are going to be taking reserves right down near the minimum level
for probably about two years. The one thing on the operations reserve is that the difference between minimum and the risk assessment level, there is not a whole lot of wiggle room in
this particular fund with regard to reserves, so it is one of the ones where we have to be a little more cautious in where we go with this one. The proposed changes that we are doing
are 9 percent rate increases across the board for everybody, so that is, as I said, a $2.88 per month increase for residential customers. The Utilities Advisory Commission asked us to
work up two alternative scenarios, trying to see what would the affect be on rates if we were to do a, if we were to try to keep the operations reserve at the minimum level and try to
squeak by with the smallest rate increase as possible for about five years, and then another one where we try to actually get reserves to the target level and keep them there. On the
minimum reserve level, as you can see, we can do a smaller increase in Fiscal Year (FY) ’17, but what that would mean in FY ’18 would be something closer to 19 percent and, granted the
rate increases will get small after that, but it just doesn’t seem very palatable at this point. Similarly, moving on to targets, to get it to target would require a 16 percent rate
increase right up front and then 9 percent next year, again not necessarily palatable. So our recommendation to you tonight is to adopt a resolution approving the FY 2017, sorry about
this, Wastewater Utility Financial Plan, and to adopt a resolution increasing wastewater rates by amending rate schedules S-1, S-2, S-6 and S-7. Where we would go from here, we have
Electric and Gas financial plans, actually we went to the Utilities Advisory Commission (UAC) last week. Water and wastewater plans are here tonight. The Prop 218 notices, if you approve
what’s going on here tonight, would go out next week. We have to send those out and give customers 45 days’ notice prior to the Council meeting. Next month we will be bringing to you
the electric and gas financial plans, and then all of the rates would be heard on June, I believe the second week of June, June 13.
Chair Filseth: Thank you very much. As we have no speakers from the public on this topic, we will proceed to questions and comments from the Committee. Greg.
Council Member Schmid: I noted in the minutes of the UAC there was some intense discussion about rates of growth and understanding what those prices would be, and a lot of reference
to the table and Appendix A on Page 24, Packet Page 42, and I can understand where people could get lost in this, because it appears that in 2014/2015 there were some just major shifts
in fundamental accounting that took place, but if you look at the years before that, from 2011 to 2013 and the years after 2017, you do get into more normal patterns. Your explanation
about the treatment issue is an important one that we can anticipate that, so if you go back to the expenses forecast on Packet Page 22, Page 4 of the Report, where it appears, although
we have substantial capital investment taking place in the treatment plant, that the share of treatment costs stays relatively stable over the entire period. The big fall takes place
in capital projects. Those, I assume, are things that we take care of in the City in getting the wastewater to the plant. Now is that true, that there is a fairly dramatic change in
the share of spending on our capital projects?
Mr. Keniston: For the collection site?
Council Member Schmid: Well, this is, I assume, the budget for the whole thing, isn’t it? And it would be in the collection.
Mr. Shikada: It is collection.
Mr. Keniston: I’m not sure I would call it a dramatic shift though, in terms of the funding for the capital projects, relatively steady, although again, significant figures.
Council Member Schmid: Well, the share goes from 25 percent in the actuals of 2015 to 20 percent in 2026, so it does imply a fairly significant shift, and it’s a shift in, you know,
are we taking care that this is going to be working for us. Are we under investing in the things that, you know, every resident and every business cares about?
Mr. Shikada: So I know for the CIP that we have projected are the estimates that we have received from the engineering side, at least for the next five years. After that we escalate
it by the rate of growth, but yeah, I mean, at this point it looks to be growing by about $100,000 a year, or closer to $200,000 a year, seems to be the pattern of growth going out.
Council Member Schmid: Yeah, the growth rate seems to be half of the rest.
Mr. Shikada: I mean, it could end up being, you know, anything beyond five years will, you know, we are just letting the escalation run, but it’s possible. (crosstalk)
Council Member Schmid: As you say, the same is taking place in those early years too. The share going to the CIP, our internal CIP seems to be going down.
Ms. Ratchye: This is Jane Ratchye, Assistant Director of Utilities. I think that the share of the total expenses is becoming smaller on CIP because the share of the total cost for treatment
is increasing because that piece is increasing 6 percent per year, and the other ones aren’t increasing at that same rate.
Chair Filseth: That’s the treatment operations piece?
Ms. Ratchye: The whole bar, which is operations, CIP and debt service at the treatment plant that we pay our share of.
Council Member Schmid: But it does say, at least on this table, that the operations is growing faster than the treatment operations.
Mr. Shikada: It’s definitely true that the treatment operations is the largest portion of the treatment overall, and is growing at that roughly 6 percent. (crosstalk)
Council Member Schmid: So our costs outside of…
(crosstalk)
Mr. Bobel: This chart is (crosstalk) is wastewater collection system (inaudible)
Chair Filseth: You can see it (inaudible) right, this is growing at 6 percent a year.
Council Member Schmid: That didn’t coincide with this. I’m not sure what the relationship is between that and this. What is table number one and how does it coincide with the (crosstalk).
Ms. Ratchye: This Table Number 1 is the slide that you see right now, which is Slide Number 3, and then if we go to Slide Number 4, that is just the blue part of Slide 3.
Council Member Schmid: Okay, can we go back to three. Yeah, part of the measurement of change, if you use 2014/2015 any actuals that you have and that’s where it starts here, gives a
very confusing picture, so I don’t know what happened. As it says, if you look at that Appendix A chart, those three years just are confusing. It’s very hard to understand what’s taking
place there. I don’t know if I have any suggestions. Maybe you can get a base period of five years before 2014, and say what our base expenditures were and then (inaudible). That might
be more helpful in showing what’s taking place.
Chair Filseth: Keep going. You’re on one of the questions I was going to ask. (crosstalk). How come treatment operations has grown 6 percent a year. I mean, you look at that and go,
you know, is the shift between capital investment and sort of day-to-day operations, is that changing over time and we are under investing it or am I reading something into that? So
how come operations has gone up 6 percent a year?
Mr. Bobel: Jamie, do you want to offer something?
Mr. Ratchye: Operations for the treatment side or (crosstalk)
James Allen, Manager of the Water Quality Control Plant: This is the last 10 years of actual expenses for the Wastewater Treatment Plant, the entire fund. The entire fund has increased
5.2 percent over the last 10 years. The primary overall driver in terms of nominal value is salary and benefits, which has gone up 4.2 and allocated charges 3.4, electricity and gas
has gone up 3.7 percent, non-CIP related contract services about 4 percent or 3.6, supplies and materials like oil, chemicals, not chemicals, excuse me, oil, wastewater treatment plant
equipment, they have gone up about two percent, but in the last four or five years you can see a bigger because this equipment is getting much older, like Phil talked about, replacing
it is getting more and more expensive. The debt service would have been flat, but in 2012 you see a big jump when we added our UV disinfection facility, the total of the amount of debt
service is about $1.3 million right now. The unbonded ongoing CIP, that varies. You can see leaner years and fatter years, recently it has been a little bit more.
Council Member Schmid: I think that might have been the question that I had. That is, when you take 2015 and look into the future, that unbonded, ongoing CIP becomes smaller.
Mr. Allen: That grows on an inflation index. It has been growing about 2.6 percent a year. Our partners have a cap on that, that’s why we need to do debt service projects to do the major
reinvestment in the plant, but there are sometimes timing issues as to when we get to spend that appropriation.
Council Member Schmid: Yeah, it looks like ’13, ’14 and ’15 particularly.
Mr. Allen: Yeah, we were catching up. See, there were some leaner years there is ’10, ’11 and ’12. General expenses, those are Permit Fees, it’s more minor, but they have been, the regulators
have been increasing our fees, then miscellaneous stuff, not really worth mentioning. But overall, 4 to 5 percent but then for forecasting you want to be a little bit stronger so we
went instead of 5 percent, looking at 6 percent forecast for our major CIP’s we thought was reasonable. It is 1 percent more for forecasting. If we don’t end up realizing that, then
obviously the reserves, they can adjust future ratings.
Chair Filseth: For the CIP.
Mr. Allen: For the sewer rate increase.
Chair Filseth: But the CIP’s aren’t in the green bar.
Mr. Allen: That’s in that red bar, yeah, that’s anywhere from $0.5 to 2 million in more debt service.
Chair Filseth: So the green bar is going up six percent a year, right, but as I look at this there is not anything that has gone up six percent a year except for the general expense
which, as you say, is small, so how do those…
Mr. Allen: It was a forecast rate. Historical has been about five percent, forecasting with more major capital work to be done.
Chair Filseth: So you think a bunch of these are going, you are forecasting a bunch of these are going to go up faster than…
Mr. Allen: Yeah, our capital budget is about $3 million. The sewer fund’s capital budget just for Palo Alto is, what $5 or six million, so this is a major facility. We need to be investing
more into the infrastructure.
Chair Filseth: So if I look at this chart, if you take out debt service and CIP, it looks like the biggest part is the salary and benefit.
Mr. Allen: Total dollar value, yeah.
Chair Filseth: So you are projecting this out, so should we interpret from that that salary and benefits are projected to increase six percent a year?
Council Member Schmid: That’s only for the treatment plant.
Chair Filseth: But the treatment operations…
Council Member Schmid: This is the salary?
Mr. Allen: I think you guys use the linear six percent for the whole fund.
(crosstalk)
Mr. Bobel: What we did in giving numbers to Eric to avoid becoming too (inaudible), is our suggestion was to use six percent going out and that’s what he did in slide number three, so
that was what we thought was a good bet in given all those sort of problems I just showed you, that that isn’t covered necessarily by capital expenses. We are going to have to just take
that as it comes out of Emergency Operations Expense, so that was our estimate was that it was going to grow by six percent. We didn’t estimate that the, so that’s an overall number.
That’s the blue bars on this chart. We said the blue is going to go up by six percent a year. That was our forecast.
Chair Filseth: I worry that we are starting to veer, and I’m probably leading the veering, off topic here, which is the rates. When this comes back in May in budgeting, can we have some
granularity on this?
Mr. Perez: You will, because you will see the whole budget for both funds, for all funds.
Chair Filseth: I had one other question, which is, it goes back to if we do a Section 115, you correctly pointed out that there is an unfunded liability for the General Fund and there
is an unfunded liability for the Enterprise Funds, right, so if we do a Section 115 and some of that, I mean, how do we do that relative to the General Fund and the Enterprise Funds?
Do we have one 115 for the General Fund and a different one for the Enterprise Funds? How do we do that, and also, how does that get funded, because, are we going to have to consider
that in our rate projections going forward?
Mr. Perez: Right. So let me answer your question, yes, we can have subaccounts. We have learned that in discussions with at least one of the potential trust holders, so we can have a
trust account, a subaccount for each Enterprise Fund to make it very clean and clear. So we would not propose to do something immediately, because we need to let this settle, but each
fund would have to be reviewed in terms of the impact for what proportional increase we would want to recommend, and since we can have subaccounts it can be at different levels. It doesn’t
have to be the same because one fund may not be at the same level as another, so we will come up with some options and recommendations later on.
Chair Filseth: Okay, but you’re anticipation is that if we proceed down this path and our results are good and we like the direction it is going, and so forth, is that at some point
utility rates, wastewater treatment rates and the other rates, somewhere on the expenses will be, there will be a section that this much went into a 115.
Mr. Perez: Exactly.
Council Member Schmid: Could I have a follow up to our discussion?
Chair Filseth: Yeah, I’m done.
Council Member Schmid: On the slide up there then, my original case was that orange group which represents collection and CIP is growing at a slower rate than the blue, which is our
funding of the treatment plant, and it could be growing half the rate. Is that about right, three percent, two percent? Okay, and is there any danger to our basic infrastructure? Are
we underfunded, our basic infrastructure, despite eight percent increases in rates?
Ms. Ratchye: I’m not worried about it in terms of its becoming a smaller part of the total budget, but I do need to remind you that in a little over 20 years ago, Council dramatically
increased capital funding in all the funds, and we did a big 20-year CIP plan, and so those are nearing their end and we are redoing those. I think the water, the new Water Master Plan
to try to determine what’s the proper funding level for CIP from hereon, because we’ve spent the last 20 years getting rid of the worst and replacing the worst pipes in all the funds,
and so we are kind of that point now in wastewater, and we need to look ahead and I think we are in the process of creating a new long-term CIP funding plan to answer that question,
and that isn’t done yet. So we haven’t determined if the level of CIP funding is too low or too high, so we are in that study right now, so we are kind of assuming that it’s about right,
our past funding is about right, and will continue.
Council Member Schmid: I agree 100 percent that if you look back over the last 20 years, we have done a wonderful job of maintaining our capital infrastructure and I think it is just
that sort of perverse couple of years in there, 2014, 2015, that something happened, and as you see the long-term growth, I think we are getting back to a stable investment and I just
want to make sure it’s what we need. We haven’t updated that long-term.
Mr. Keniston: I should add that in 2014/2015 we actually did CIP work during that time, it’s just that we had reserves in such a large amount and a backlog of projects, and so we were
doing the work, we were just taking down that CIP reserve that was hanging out there.
Ms. Ratchye: We weren’t having any new funding.
Mr. Keniston: No new funding.
Mr. Bobel: Can I just add a thought. Phil Bobel. Since you have raised the question, “is this adequate”, albeit you were talking about the wastewater collection system, I would say that
those treatment costs, it probably isn’t adequate. We’ve estimated, you know, in our long-range facilities plan that you guys saw a couple of years ago that we were looking at between
$200,000 and $300,000 million needed to rebuild it, and that all isn’t plugged into here, so we have spaced it out over a much greater time frame, thinking that our partners are just
not going to be able to tolerate increases that are much larger than about six percent a year, but I would have to say, just so you know, we are falling behind and what you saw in those
photographs in 2015 is evidence that we are falling behind, so I don’t want you to think that that six percent increase on treatment is keeping up. It’s not. It’s falling further behind,
but we did not feel we could ask our partners to incur greater costs. In fact, one of our partners, the East Palo Alto Sanitary District, has delayed signing the agreement for this next
step. We are going back to them for the third time this next month to try to convince them to sign onto this agreement. There is going to be… that blue, remember, is just one-third of
our costs. The other two-thirds is our partners, and we have to get them to agree to this too, and I wanted to make sure you didn’t think that blue is really our judgement of what is
adequate. It’s not.
Council Member Schmid: I guess my point is to make sure that the orange is maintained, but I guess it is striking that we have a top line at nine percent, nine percent, ten percent,
nine percent increases, and as you said, that might not be enough (inaudible).
Ms. Ratchye: Just as a reminder, that first line we did last July.
Chair Filseth: Thank you for that. We worry about exactly the same thing. That’s part of the reason that we’re sort of like persnickety on this kind of stuff, is the fear that we are
falling behind.
Mr. Bobel: We are falling behind. There is no question about that.
Chair Filseth: I mean, the pool of money is not as big as we would all like.
Council Member Schmid: I have to admit I was just reading a book on Roman history and they drained downed, the heart of the city was built 2,300 years ago but they are still using it.
Mr. Bobel: And we have some facilities like that too. (crosstalk), but then you get this other stuff, the metal stuff.
Chair Filseth: Are we ready for motions?
Council Member Holman: I just have one quick question. So you mentioned one partner needed (inaudible) go to the others for greater than six percent. Did that conversation happen, or
is that supposition or?
Mr. Bobel: It’s more than supposition because we talked to them frequently about, we have been warning them for years that the rate of expenditure is going to have to increase, and so
we have been testing the water, so nobody has said to us, “if this increase is greater than six percent we won’t pay it,” so it’s not any adopted threshold. I’m just kind of giving you
a sense that it’s what we think, year after year.
Chair Filseth: The problem is you have a highly constrained problem here, right, and if they are only paying this much and we are only spending this much and we are falling behind, on
the other hand we could be spending this much but if they are not going to pay this much then it’s going to have to get subsidized from somewhere, and so forth, and so there aren’t that
many options here.
Mr. Bobel: And the big picture, for those of you who are younger than I am, which is all of you, (crosstalk) just a reminder that when most of this treatment plant got built in 1970,
it was built with 75 percent Federal money and 12.5 percent State money, a grant, not a payback situation but a grant, so we built this plant with money from somebody else and nobody
ever foresaw that it was going to get old, it’s going to get 45 years old, it’s going to have to get rebuilt and that’s going to cost $300,000. It’s just not been planned for, to be
honest. We are lucky we have low interest money, but that’s not the same as a grant.
Chair Filseth: Low-interest money is still debt.
Council Member Wolbach: Remind me, in our infrastructure plan that was started with a Blue Ribbon Commission several years ago, how much was this stuff included?
Mr. Bobel: That was only General Fund.
Council Member Wolbach: That was only General Fund, that’s right.
Mr. Bobel: They didn’t, consciously they decided not to, and we guided them in that direction as too complicated for them.
Council Member Wolbach: Okay.
Chair Filseth: Motions?
Council Member Schmid: I will move the Staff recommendations.
Chair Filseth: Second.
MOTION: Council Member Schmid moved, seconded by Chair Filseth to recommend the City Council:
Adopt a Resolution approving the Fiscal Year (FY) 2017 Wastewater Collection Financial Plan; and
Adopt a Resolution increasing Wastewater Rates by amending Rate Schedules S-1 (Residential Wastewater Collection and Disposal), S-2 (Commercial Wastewater Collection and Disposal), S-6
(Restaurant Wastewater Collection and Disposal) and S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger)
Chair Filseth: Care to speak to your Motion?
Council Member Schmid: Well, it’s important, I guess that we take (inaudible) and monitor it over time, but it does seem that we have had good discussions about this in getting us to
this point and we need to move ahead and as you did look at the options, it was clear that we picked the best one.
Chair Filseth: This is mostly stuff that we’ve seen before, so there aren’t a lot of surprises here. One thing that I hope comes out, I hope that the budgeting process this year, will
not sort of sweep the deferred maintenance stuff under the rug. I mean, if it’s a problem then it’s a problem, but we should put some sunlight on it. We may or may not fund it, but at
least we should know about it. All in favor.
MOTION PASSED: 4-0
Chair Filseth: Motion passed unanimously.
3. Utilities Advisory Committee Recommendation That the City Council Adopt: (1) a Resolution Approving the Fiscal Year 2017 Water Utility Financial Plan; and (2) a Resolution Increasing
Water Rates by Amending Rate Schedules W-1 (General Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service Connections), W-4 (Residential Master-Metered
and General Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water Service).
Chair Filseth: Next up is Water Utility, okay.
Eric Keniston, Senior Resource Planner for Utilities: Moving on to the Water Utility, here tonight we are bringing forth to you a six percent proposed rate increase. As I mentioned earlier,
this is a change where that is a reduction from what we brought you the last time. We were showing you a nine last month. The reason for this is that when we first made the nine percent
rate increase recommendation, that was based on the early rate guesstimate from the California Public Utilities Commission (CPUC). After we brought that to you, then they dramatically
lowered their projection, so we came up with six. Of course, after we came up with the six, then they turned around and raised it a little bit. For them it’s always a little bit of a
moving target. I guess they have up until June to finally make their decision as to what their fund will be. We are still okay with the six percent as we are showing here. (crosstalk)
Right now we’re okay with this. In the future if they turn around and they raise the rate tremendously, we can always, we may come back in the future and recommend just making the San
Francisco Public Utilities Commission (SFPUC) rate a pass-through charge that would take another round of Prop. 218 noticing to customers, but at that point we would just say that the
rate as it stands, the wholesale rate from SFPUC is what you will see on your bill. We will come to that when we get there. Cost projections, again, as you see here, it is pretty much
the same story in most of our funds, where expenses have been higher than our revenues, so we have been using rate stabilization reserves to get by. We had a similar case here in FY
2013 where you can see the capital investment, we had a temporary budgeting hiatus to take care of projects already in the hopper and use up some of those CIP reserve funds. Probably
the items to note, if you are looking forward in operation’s costs, you see some little bumps there. We do have some additional one-time things. I’m sorry, I’m losing my train of thought.
We have six percent in this year and then two nine percent rate increases for next year that will, hopefully, bring us back up. I guess one of the things that are the biggest danger
in the water side is that we are in a drought, and so as long as sales continue to be lower, that’s less revenue that we get coming in and if water supply costs go up by more, if capital
investment, with capital investment there is like one-time large charges, then that’s just going to eat into reserves. Those future rate increases might be higher than what we are showing
you here. So based upon sales projections that we have today, hoping that the drought stabilizes and usage stabilizes at this level and starts progressing back up again over the next
few years. We don’t ever project that it is going to recover to what it was before the drought started, because that, in Palo Alto has just never happened to date. If it comes back at
about half, you know, about 50 percent recovery rate is about what we expect, but the longer the drought goes on that’s just longer that we stay in that trough. You can see here what
I was talking about. We had the CIP reserves were sitting out there high and we used some of those rate stabilization reserve, got that bump in FY’13,FY’14, we broke the reserve up in
FY’16, FY’15, so we have a small capital reserve. We took a lot of those commitments and moved it over there. Those were funds that were sitting out there not used. We moved it into
the capital reserve. The operations reserve, as you see, has continued to dwindle down. The rate stabilization reserve will be essentially gone by FY 2017. We are hoping not to eat too
far into the operations reserve, but we are planning this year we will be pulling about $4 million from the capital reserve and moving that in just to help stabilize the operations reserve.
One of the things, because we are continuing with this drought and because at this point in time the State does not look like they are going to lift their mandatory reduction order,
we are proposing that we continue with the drought surcharge and that’s currently at a 20 percent reduction level. If the drought ceases Council can deactivate that surcharge, but for
right now we are just going to be continuing with that. And as I said earlier, right now we are not recommending doing a pass-through of the SFPUC commodity rate. There was a lot on
the plate this year, so we just thought it would be good not to do that one this go-round, but is probably something that we will be looking at either next year, or if they come back
and raise the rates more on us, then we can come back and bring that proposal to you again.
Council Member Holman: So when are they going to have any notion of whether, I mean they won’t know because we don’t know what the weather will be this next year. They are talking about
La Nina I think next year. Isn’t that what they are talking about next year? And so I don’t think they have made any final evaluation or statement about where this year’s rains have
taken us in terms of drought, of course.
Jane Ratchye, Assistant Director for Utilities: Are you talking about the State or San Francisco.
Council Member Holman: The State, and then SFPUC I presume would like…
Ms. Ratchye: Well, the San Francisco system we have gotten our statement, which they are required to give us under the contract, and they are in fairly good position. It has a lot to
do with how much water savings there’s been over the past couple of years. They are going to have quite a bit in storage at the end of this year, they think, even if it’s dry from here
on. But the State, we are still under the mandatory 24 percent which they extended through October and then the State board is going to meet in early May and potentially change that.
And if they change it at all, they will probably reduce it a little bit, that mandatory restriction, and so San Francisco has never called for any kind of mandatory reductions. We are
still waiting for that, so we expect to hear something in early May when the State Board talks about that. At that point they will have very good information about what exactly the snow
pack and how much is in the reservoirs. There’s not going to be really much rain beyond then, so we expect to hear within a month.
Council Member Holman: Okay, thanks.
Mr. Keniston: So coming in, our projected rate increases last time we were here last year, we projected that we would need an eight percent rate increase this year. We have dropped that
down and trying to do a six percent this time around. For future years, we have increased our projections from eights, so they will probably be closer to nines. Again, the lower notes
that the longer the drought lasts, the more uncertainly is wrapped around those future forecast numbers, but we are hoping that things improve and we don’t need to do higher rate increases
or go into double digits. With the rate increases that were shown and the projected load to date, the operations reserve is staying fairly healthy. We are hoping to be ending in all
years, we are not going to hit minimum. We should be staying relatively above. Where also the minimum reserve level is well above the risk assessment level, so we do have some cushioning
in this fund. The rate increase we are proposing and bringing to you tonight is a six percent rate increase for generally all. Just the way the tier breakdowns work, the higher bands,
that tier doesn’t change quite as much, so it drops down, it is roughly a six percent rate increase for all customers, a five to six percent rate increase. Here again, we asked to do
some alternative scenarios. Keeping the minimum, we could technically speaking do a zero rate increase this year, and we would still be within the guideline levels within FY’16,FY’17,
but FY’18 would require an 18 percent rate increase plus there is the uncertainty of what could happen, so we just didn’t feel this was the proper thing to do. Going to target, again
because right now the reserves are sitting fairly healthy, we could do a three percent rate increase, but to keep things at target would require a very large rate increase in FY’18,
so again, not a proposal we are going for. I mean, to speak on this, there is always a benefit, the larger rate increase that you do upfront you can see you’re rate increases are all
relative small, but at that point in time you are basically just increasing things at the rate of inflation, barring that other major costs don’t through a monkey wrench into that.
Chair Filseth: I think we shouldn’t try to second guess UAC on policy, right, as much as we can avoid it. In general, financing things out of reserves sort of sweeps a problem under
the rug so nobody sees it, but doesn’t mean the problem is not there, right, so defer a little bit to the UAC on how they want to do that, but it wouldn’t be my choice.
Mr. Keniston: And in going back to the earlier thing, as I have shown, that revenues have been habitually below expenses and we had a change in our reserve policies. We did a re-evaluation
of how much was in reserves and how much was an adequate amount of reserves, so we found ourselves in the situation where we could bring that down somewhat and use that, but, you know,
we have now hit the bottom point in pretty much all of these. We have seen this point coming. We knew this year would be the year of rate increases across the board, so, unfortunately,
I am sitting here and I’m the one having to bring it to you. So with that recommendation, we request that you recommend that the Council adopt a resolution approving the FY2017 Water
Utility Financial Plan and adopt a resolution increasing the water rate schedule by amending rate schedules W-1, I won’t go through all the long names, W-1, W-2, W-3, W-4 and W-7 and
the timeline fractions are the same here as it was for wastewater.
Chair Filseth: Thank you. Questions and comments. Greg.
Council Member Schmid: I guess I just want to focus on the long-term outlook and you mentioned that you do have an Urban Water Management Plan on your list.
Ed Shikada, Assistant City Manager: Coming to Council, yes.
Council Member Schmid: Is that an arena where the long-term outlook will be discussed?
Mr. Shikada: To a certain extent. I think Jane may be best to elaborate on the elements of the Urban Water Master Plan. I think the components are largely prescribed by State law so
it’s somewhat a perfunctory document.
Council Member Schmid: I have noted in our Comprehensive (Comp) Plan discussions when they start talking about water, they quote as gospel the 2011 Water Management Plan, so it seems
to me it is not perfunctory, that this is our opportunity to have a strategy, a water strategy on how it relates to our sustainability and to our land use, etc. Is that an accurate statement?
Ms. Ratchye: Did you have more to add?
Mr. Shikada: Go ahead.
Ms. Ratchye: I think Director Shikada is right, it is a plan that has a lot of required elements and it has a required timeline and the part that, one thing that it has to be is consistent
with the General Plan as far as identifying water supplies to meet whatever growth trajectory there is. That has to be in there, but as you know, we have a lot of supply assurance from
San Francisco, so that is not an issue really for us. This comes into play if there is going to be…
Council Member Schmid: But we might not after 2018.
Ms. Ratchye: I don’t think so.
Council Member Schmid: There is a current limitation on our supply and that will be renegotiated.
Ms. Ratchye: But the long-term perpetual supply assurance survives the term of the contract. It is in perpetuity, so that interim supply limitation piece is really to figure out, are
we going to add San Jose and Santa Clara as permanent customers or not, but that doesn’t necessarily have to impact, and it won’t impact the long-term supply assurance for somebody like
us. But what… this plan comes into play, it came into play one time before when Stanford’s Hospital was such a big project it required a water supply assessment, and we had to… In that
plan we said the 2010 Urban Water Management Plan and did not accommodate that water usage and so we had to do a special study for that, or a special analysis. But the answer to your
question about long-term water supply planning and looking at all the different water supplies, including groundwater, is something that we are doing as a separate planning process,
and it’s not going to be in the 2015 Urban Water Management Plan. It is going to be in our Water Integrated Resource Plan that we are conducting now and all those… That evaluation will
go through the UAC and everybody, to the Council. We are just simply not ready for those things.
Council Member Schmid: What is the timeline on that?
Ms. Ratchye: We are doing that right now. We are going to try to get that done at least started through the process by the end of this year, and that will be where we actually look at
groundwater and all the other things, all the other different kinds of recycled water and things like that. That’s going to be part of that. So that won’t, all those things are mentioned
in the Urban Water Management Plan. The Urban Water Management Plan, that 2015, actually went to the UAC, was that last week.
Council Member Schmid: Yeah, I guess I’m concerned that our Comprehensive Plan, Draft Environmental Impact Report (DEIR) and our Sustainability and Climate Action Plan (S-CAP) which
are pushing towards some critical decision that is being made, don’t meet that timeframe and they are using the language from the 2011 Urban Water Management Plan, and that does not
seem appropriate. That’s before the 4 year drought started, so what are you suggesting for our Comp Plan?
Ms. Ratchye: You know, I can’t speak to how it relates to the Comp Plan and what the Comp Plan is pointing to. Ed, do you know anything about that?
Mr. Shikada: Only, I think from a long-term planning perspective that the Comp Plan establishes policies, conservation obviously being a key component of that. The nature of the leapfrogging
plans between the Water Management, the Urban Water Management Plan and the Comp Plan is, I think, somewhat systemic, so I don’t necessarily see the specific concern in having the Comp
Plan preceding and, again, parallel efforts that are upcoming, including, I can’t remember what it is called that we are working on with the district, the Groundwater Management Plan.
Ms. Ratchye: The strategic plan?
Mr. Shikada: Yes. So we have multiple planning exercises that are proceeding again on something of a leapfrogging basis that are looking at similar and related issues and will be doing
so for the foreseeable future.
Council Member Schmid: Okay, let me ask two other questions on the long-term. The SFPUC is in the middle. One of the things we are paying for is the (inaudible) System Improvement Program,
part of their billions of dollars and the intention of that, or the hope of that is to increase the flow of water and the implication now is that there will not be extra supplies coming
down, and that seems to be reinforced by the reports from the 4 year drought. The water and temperature in the Southern Sierras will not support an increase in their basic water supply.
Ms. Ratchye: Right, the (inaudible) was really never intended to increase water supply. It is primarily a seismic upgrade of the system. They had two projects in there. One was increasing
the, or raising Calaveras Dam in East Bay up to its historic height, because it had to be drawn down for dam safety. The same thing with Crystal Springs up the peninsula, and that was
just going back to its historic height too, which had been down also for the same dam safety reason. Those were the only aspects and they were small ones of water supply improvement
that were part of the (inaudible). Everything else was seismic upgrade, and so there really wasn’t an expectation for that. Now if you’re asking for, what are the long-term implications
of climate change on excess or availability of water of the San Francisco system, that’s kind of a different question, and also nothing in the (inaudible) really addressed that.
Council Member Wolbach: We talked about that last night, though.
Council Member Schmid: Okay, one of the issues coming out of that was, back at Page 97 it mentioned a large border transmission line in the foothills. Also on Packet Page 93 there is
an issue of rehabilitation not included in the (inaudible). I assume (inaudible) which very possibly could need some major work. So that is not taken into account here, is it?
Ms. Ratchye: The cost for water supply here are from the 10-year forecast that San Francisco has given us, and I’m not sure if they included what could be a substantial cost for fixing
the mountain tunnel, that whole project. I sort of assumed it was in there, because most of the debt has already been, for the (inaudible), they are getting near the end of that project.
Council Member Schmid: Right, but it did not include that.
Ms. Ratchye: Not for that (crosstalk)
Council Member Schmid: So it sounds like we are in the same place we are in the wastewater. You know, we saw a picture of all the things that needed to be redone, which were not necessarily
included and the SFPUC might be in the same position of having things that are not included and they will be in there, so our rate increases of 12, 6, 9 may not be the full extent. Okay,
that’s what makes this evening a tough… Those are my questions then.
Chair Filseth: So, motions.
Council Member Holman: I move Staff recommendations.
Chair Filseth: Second? I’ll second.
MOTION: Council Member Holman moved, seconded by Chair Filseth to recommend the City Council:
Adopt a Resolution approving the Fiscal Year (FY) 2017 Water Utility Financial Plan; and
Adopt a Resolution increasing Water Rates by amending Rate Schedules W-1 (General Residential Water Service), W-2 (Water Service from Fire Hydrants), W-3 (Fire Service Connections),
W-4 (Residential Master-Metered and General Non-Residential Water Service), and W-7 (Non-Residential Irrigation Water Service).
Chair Filseth: All in favor?
MOTION PASSED: 4-0
Chair Filseth: Motion passes unanimously.
4. Finance Committee Discussion and Recommendation That Council Adopt (as Part of the Fiscal Year 2017 Annual Budget) a Resolution Amending the Refuse Rates for Fiscal Year 2017 to Cover
Program Costs for Both the Residential and Commercial Sectors and to Provide a Reduced Cost for Commercial Compost Collection.
Ron Arp, Solid Waste Manager: Good evening Council Members. Ron Arp, Solid Waste Manager and I brought Matt Krupp, our Environmental Manager, who is working on the rates here. We have
a brief presentation on our refuse rate recommendations. So this line summarizes our rate recommendations. We are proposing residential refuse rates to be increased nine percent, commercial
refuse rates to be a combination. Solid waste rates would be increased by five percent, compost or commercial food scraps-related material would be reduced by approximately seven percent.
Other changes in the rate schedule that we are recommending now is to consolidate commercial rates into one combined rate schedule, add some new recycling and composting ordinance-related
fees and a couple of new fees for litter and overflowing containers. This slide shows what services are included in the refuse budget. The solid waste, of course garbage/construction
and demolition(C&D), that sort of thing, collection, processing and transportation to a landfill and disposal is about half of the fund expenses. Recycling and composting combined is
about another $10 million per year and that’s collection, processing and ultimate disposition of the material. The landfill, that’s the Palo Alto landfill, post closure, maintenance,
monitoring and reporting as well as deferred rent and interest, is service in there. Household hazardous waste and street sweeting are the last two items. This slide focuses on the residential
rate recommendation. A little over a year ago we had a consultant prepare a cost-of-services study and they came to the conclusion that the residential revenues do not cover the residential-related
costs. About a year ago we came to the Finance Committee with a three-year plan that you see here that would increase the majority of the residential customers would need to be adjusted
28 percent over a three-year period to balance the revenues and expenses. Just a note that we had not raised rates in Fiscal Year ’13 and ’14 and we actually had a slight decrease in
rates in Fiscal Year ’15 due to a cost-savings plan on our street sweeping program. Just a note on this one, 86 percent of the residents are in those first two categories, a 20-gallon
service and a 32-gallon service, meaning that raising the rates nine percent the second year, 2017, would result in a $2 to $ per month increase in 86 percent of the customers. This
slide focuses on the commercial rates. Just a note, it’s been a very long time since the commercial sector had any rate increase, since October 2010, and again we are recommending the
garbage and C&D, construction and demolition debris, be increased five percent, composting would also be decreased by seven percent as I mentioned earlier. Basically we think those two
moves would neutralize themselves. There would be net zero revenue within that sector.
Council Member Wolbach: And we're talking commercial here.
Mr. Arp: Yes, commercial. So the way that works, we are implementing a new recycling and composting ordinance and as the customers receive the new service and they start sorting properly,
they are going to be shifting their waste, hopefully, from the garbage can, the more expensive garbage can, to the less expensive green service or compost service. The compost service
with this decrease and the garbage increase would be set at a 20 percent discount compared to garbage rates. Other changes to the commercial rates schedule or changes to the commercial
rate schedule is we would propose consolidating our commercial rates into one combined rate and what that means is we have two schedules now. We have, it’s called R-2 and R-3. One is
for carts mainly, one is for bins. What happens is if you have a customer who has a bin and a cart it throws our billing system into…I gives us some problems and basically as get some
billing errors, so what we would like to do is combine it into one combined service that we are designating RC Service, so that’s all that is.
Council Member Holman: Which would be what, a bin or a cart?
Mr. Arp: It would be a combination. It could be (crosstalk). Yeah, because some people may have a 1 cubic yard bin and maybe a cart that has compost service, so they have two fees, so
this would be a combined rate schedule.
Council Member Holman: Okay.
Mr. Bobel: It’s a back office thing, not a..
Council Member Holman: No an in-the-field thing, yeah, okay.
Mr. Arp: So again, we implemented this recycling and composting ordinance for many customers on April 1. Along with that we do have some fees that we are proposing in here, mainly for
flagrant contamination in the recycling cart and the compost cart. There are a couple of new fees for litter and overflowing containers, minor amounts. One’s a non-broken down box fee.
It’s a pretty minor fee, but the non-broken down boxes are probably responsible for 80 or 90 percent of the overflowing containers downtown. That really is the majority of, we think,
the problem out there. This slide shows the rate increases and the resulting new revenue from that. Of course, residential we are looking at a nine percent rate increase, however, we
are only showing about a little over six percent, we are only conservatively looking at that, and the reason is we had a nine percent in Fiscal Year ’16 and we had, as we rolled out
this new food scraps, residential food scraps program and 10% of each service decided to go down to a smaller cart size, which is a good thing for zero waste, but we didn’t recognize
that full nine percent, so we are not sure what’s going to happen. We’re not sure if people are going to continue to shift down as they sort properly, sort better, so conservatively
we are not putting in the full nine percent that we are going to recognize, but we are going to watch that. Again, the commercial rates would kind of neutralize themselves as people
shift over from the more expensive garbage to the less expensive compost. Then C&D which is kind of a subsector in the commercial sector, is highly volatile and based on the economy.
If the economy keeps going the way it’s going, we would recognize $180,000, so a total of about $780,000, which is about a 2.5 percent increase for the refuse fund revenue. That’s a
final slide, just to let you know our procedure. Our schedule would be the same as the Utility Schedule, the Prop 218 notices and the other Council decisions.
Chair Filseth: I remember when we looked at this last year, there was an issue that the mix of revenues from commercial to residential didn’t match the mix of costs from residential
to commercial, and that was part of the reason that some adjustment, some level setting was necessary. How close are we to being sort of at the right place?
Mr. Arp: Okay, if we go back to this slide here, this is kind of highlighting the 2017, so our original goal was 28 percent over three years, so that would be that projected 2018 kind
of the columns to the right of the red box. You know, it is kind of a target. We are not sure that it is going to exactly level out in 2018. We can’t say it’s going to level out. In
fact, if we see massive shifts down in cart size, then we may not get there in accordance with this plan.
Phil Bobel, Assistant Director of Public Works: Just to cut to his question, we think we are about one-third of the way there. We have implemented one of three years of this new rate
structure, and it may not work out. We are just kind of warning you, but on the other hand, we are one-third.
Chair Filseth: But the goal is to be three years. I can’t shift down to a smaller cart. I’ve already got the smallest cart.
Mr. Arp: We haven’t talked about that a little bit.
Council Member Holman: I think a lot of us can go to a tote at this point in time.
Chair Filseth: Thank you. Questions? Council Member Holman.
Council Member Holman: So I am going to sound like a broken record here, but we just last night talked about the S-CAP and so, of course, I see C&D on here and I’ve said before I think
language and words matter so we refer to C&D as C&D debris and so specifically what is in this C&D category?
Mr. Arp: It’s just construction debris. It’s mostly recyclable, it’s brick, it’s concrete, it’s really wood waste. It’s anything you would get basically from demolishing a building.
Council Member Holman: So here’s my question, why isn’t C&D carved out separately and why isn’t the cost going up 20 percent, to pick a number, to encourage people to salvage and reuse
instead of demolish and create waste?
Mr. Arp: That’s a good question and we do have, we have been already looking into the C&D ordinance and the green building ordinances and we are going to look into that in terms of salvage,
that is going to take a little bit of research to do that. As far as your question on the costs, we think the costs are fairly well balanced right now, you know, in terms of the fees
compared to the costs to Green Waste and for the City to pay Green Waste, to haul that away to their facility, the Anchor Road facility and be recycled, so…(crosstalk)
Council Member Holman: I know there’s a cost of service, as Molly is like leaning forward, I know there is a cost of service related to this and I don’t suppose you could add an incentive
or disincentive to this, but it does disturb me, though, that we have had, and Molly’s heard this many times, it’s like we’ve had a C&D ordinance for nine years and I have sent an e-mail
to Jim and Gil last week about a house in my neighborhood that got demolished and the whole thing was just smashed, so you have perfectly good wood, clear, hard redwood, that is being
splintered up and sent off to be maybe recycled, or if it’s like mushed up with other stuff, maybe it’s just going to go to landfill, and I can’t tell you how disturbing that is. Especially
when we are looking at an S-CAP last night and we continue to just like turn a blind eye to it. I know there is a cost of service to that, so that’s one thing.
Mr. Bobel: Let me answer. I’m sorry I didn’t mean…
Council Member Holman: That’s okay, if you have something to say to that. (inaudible)
Mr. Bobel: We did hear you last night.
Council Member Holman: Well you heard me for, what, how many years?
Mr. Bobel: We’re getting serious.
Council Member Holman: Except you haven’t heard me. Somebody hasn’t.
Mr. Bobel: We did put in the S-CAP, Gil didn’t slow down enough to answer your question more fully, but if you look back at that S-CAP you’ll see that one of, I think it was three or
five, we had five, I think it was, main activities for ourselves over our chief goal, and one of them is definitely C&D. We recognize that that’s where we’ve got to make some major progress
looking forward.
Council Member Holman: So I did not hone in on this last night, but, because I wasn’t going to get that fine grained, but if you look at the language associated with the salvage and
you look at the language associated with other things in there, the language is very wimpy, in know. In some of the other things it’s like, incentivize and you know, I can’t remember
the exact words, but like incentivize and a bit of a… And you get down to salvage and it’s like, it wasn’t consider, but it was like, sort of like encourage, something like that. There
was no strong language associated with this. We need to just get off it. I’m sorry, but it really does just annoy the heck out of me. We have an ordinance for so long.
Mr. Bobel: Yeah, well, we don’t know exactly what to do and that’s why you didn’t see more definitive language in there, but let me assure you that that is sort of the next thing on
our list. The organics have been where we have been for the last couple of years because the organics lead to greenhouse gases and some of the major fraction of what’s still in the garbage.
Now we are starting to see some major progress on the organics. We’ve got our residential composting program in place as of July 1 last year. We’ve got our new compost ordinance for
the business community kicking in as of, just kicked in as of April 1, so we are probably going to spend another six months with most of our Staff resources devoted to getting those
organics where they belong, and then after that it is the next major priority.
Council Member Holman: I’ll be off Council by the time…
Mr. Bobel: But, you know, we…
Council Member Holman: Hopefully not, but I’m not encouraged. I mean, I have such great admiration for you, but I just generally speaking I’m just…
Matthew Krupp, Environmental Control Program Manager: Honorable Council Members, Matt Krupp, Public Works. I just wanted to add, our programs, we’ve been focusing on, you know, there
are the three R’s of the solid waste industry, reduce, reuse and recycle, and our programs primarily have been focused on the recycle end of the that spectrum.
Council Member Holman: It’s at the bottom of the (crosstalk)
Mr. Krupp: Exactly, and so as these programs have been instituted and matured, we realize there is a tremendous opportunity to take more advantage or put our energies now into the reuse
side of the equation, and that’s where this program is moving, to put our energies there and the construction and demolition portion of that should, in fact, you’re right, the words
are lending themselves to that idea of construction/demolition, not deconstruction and reuse of the products, and so I think it is really basic to our understanding of it, to really
think about what we are calling this material and to try to identify better ways to use it. So we are going to work with our partners in the Development Center and in Planning to find,
to identify ways that we can better implement this for our community, to realize greenhouse gas savings and reuse really good materials, because it is a shame when you see good quality
materials go to the, either get chopped up and produced into something of lesser value or get land filled. We don’t want to see that either.
Council Member Holman: So just a quick aside here, but in talking with other Staff, it just, there is not really a good understanding of what salvage is. It’s like, don’t understand
that doors can be used for other things and windows can be used for other things, in addition to being reused in buildings, so there is just totally not a good understanding and committees
that work on this stuff are not manned with people who do that and understand, so that’s my point. So two questions more about this, so C&D, if it’s lumped in with solid waste, garbage
and C&D and it sort of is in some places and in other places it is a little bit more broken out, is C&D actually going to be tracked separately? I just want to make sure it’s not going
to be lumped.
Mr. Arp: C&D tonnage are tracked very carefully.
Council Member Holman: Okay, and then why is it that C&D, garbage and solid waste for commercial rates, why is it, just help me understand better why residential refuse rates, the increase
is so much greater, because?
Mr. Arp: Yeah, that’s a good question and it’s because the cost-of-services study said that the residential sector was pretty far behind and its revenues did not cover the costs, so
we have to… Over three years our plan was to get it up so the revenues would be about 28 percent higher to cover the costs in three years.
Council Member Holman: Okay, and I think one last question, after you have heard me beat and harp on the other thing. So I brought up before, I wasn’t here last year when this came up,
but I have mentioned previously I think in this committee about, yeah, I’m sure actually, about the possibility that has been discussed about both on the residential side, but certainly
on the commercial side of being able to, you know, share bins, which would save a lot and incentivize a lot. And just a quick story here, is like, in my neighborhood there are people
who put their carts out every week religiously thinking that they are supposed to, and I open the lid because I just do that sometimes, and there is just nothing in there. There is like
a little… And, you know, there is no reason not to share those, or go down to a tote. And I see the same thing with commercial, it’s like there are those that are overflowing, which
I’m glad to see there is a penalty built in here, but there are others that could be, you know, cleaning up our alleys by having fewer receptacles. Is there any progress on those discussions?
I know from, some of the downtown people have had conversations about that.
Mr. Arp: Yeah, I’ll speak to the commercial side and maybe Matt can speak to the residential side. So the commercial side, it has not always been our focus to have Green Waste work on
the customers to combine service and one of the reasons why is it was a, it’s kind of a billing nightmare at times, when you have so many people sharing one bin, but lately, at least
certainly since I have been Solid Waste Manager, so the last three years, we have actually focused Green Waste on combining service. Every opportunity that they get, they work with the
customers to combine service. So we have made some small progress downtown over the last six months or so to reduce the number of containers and do more sharing. More can be done and
we will keep working on that because that’s got to be our focus, and then maybe on the residential side…
Council Member Holman: And that’s led by Green Waste, not by Staff in combination with Green Waste?
Mr. Arp: It’s Staff, we give Green Waste direction on that and focus, but Green Waste, they’re the ones who set up these accounts, they are the ones who talk to their environmental outreach
and accountant. They talk to every customer and they have to determine the percent that each entity pays for that one, you know, if they combine it into one bin, so that’s kind of a
complicated service. Green Waste keeps that data base. They have a more complete billing data base. You know, there are two sets of data bases and our Systems and Applications and Data
Procession (SAP) database is much simpler, so Green Waste is the one that sets that up, but we have given them direction and whether it’s a lot of effort or not, they are going to need
to really work on that.
Council Member Holman: Okay, good. Thanks.
Mr. Krupp: On the residential side, first off, there would be nothing precluding residents from voluntarily sharing carts; however, we still are required by our ordinance to charge residents
to have at least the minimum service for garbage, which covers their service for recycling and compost. That aside, what we found, we recently went around, our Staff went around and
lid-flipped, I don’t know if any of you saw us wandering around early in the morning going through the neighborhoods. We went to over 2200 houses, covered every single neighborhood in
Palo Alto, every route run every day, to get a sample of what’s going on in the City. Really, to check to see how people are doing on the curbside composting program and on the recycling
program, so we looked at everybody’s cart. Residents were very friendly about it. It turns out it’s good to have a vest when you’re there, so people know you’re not just, you know, looking
for something crazy. But what’s interesting is that on our compost carts, which are the biggest carts, generally a residential customer is going to have a 96-gallon compost cart, the
green cart, a 64-gallon recycling cart, and as Ron said, about 85 percent of the residents have either a 32 or a 20-gallon cart and they are about split evenly now, with a few more with
a 32-gallon. On the compost side, what we find is that it’s either very full or nearly empty, depending on what they’re putting in there, so if you’re just putting in food scraps they’re
almost empty, and if you’re putting in food scraps and yard trimmings they generally are very full. So they were about 50 percent full on average, which is like the, if you looked at
the standard deviation it would be very far out. About 50 percent of the residents were using the home composting program too, so that was good news. That actually exceeds kind of our
expectations, so we could have a more detailed report on that which we plan to present to either this committee or another committee. I don’t want to belabor it.
Mr. Bobel: On consolidation.
Mr. Krupp: Right, Phil always says I’m a little bit long-winded. The main point I wanted to say though, is on the carts what we found in the garbage cart and the recycling cart is that
people generally use about 70 percent of the capacity in those carts. We believe that if people were sorting totally properly on their garbage, that they could even further reduce the
size of that, so if we had an 11-gallon cart or something like that, maybe that would be possible. But by and large, there is not a whole lot of extra room in the recycling cart as they
stand today and in the garbage cart people are using again around 70 percent of that capacity. So sharing may or may not work, just because people need the space.
Council Member Holman: There is a component that you haven’t mentioned there, and this is my last thing, there is a component you haven’t mentioned there which is, like, it sounds like
maybe, Chair Filseth said, I put my garbage cart out maybe once a month, so I don’t know if you took a count of like which carts aren’t there.
Mr. Krupp: Right, we did also.
Council Member Holman: Recycling too, it’s like it goes out maybe once a month, maybe once every three weeks.
Mr. Krupp: Yeah, we did look at the actual set outs and people by and large do put out there recycling and their garbage carts. Those are more consistently out. It was about 80 percent
for both of those, and about 70 percent for the green carts, for the compost carts, so we are getting a pretty good set-out rate overall. But, yeah, it is something that we have looked
at and we know that people are producing less and less garbage and if we did have a larger recycling cart, then there might be some other opportunities there, but it’s a good question
and it’s something that we can continue to look at to see if there are opportunities in the future to save on costs, because every time that the truck goes by, that’s a cost direct to
us.
Mr. Bobel: So we are working on that angle. We had the pilot in Greenmeadow, where we tried to go down to just two containers, save, rather than three trucks running around, having two
trucks running around. We decided, you know, that wasn’t ready for prime time quite yet, but I mean, that’s a goal to see if we can cut down on the number of trucks running around. Right
now we don’t see how to, that this sharing would get us to that goal, because even if you share the trucks got to run around even if he has to make half as many stops, he’s still got,
so you don’t completely get the savings. So we are mostly trying to think ahead to, how can we eliminate a whole truck from running around. How could we just have two things instead
of three for them to pick up? We brainstorm that about every week, you know, how can we do this. But that’s where we’re really going to get the big hit in terms of savings, if we can
have two entities instead of three.
Mr. Krupp: I just wanted to add on that sharing of green carts, at least with condos, that they would have single family service so they would have their own garbage cart and their own
recycling, but they didn’t actually have any yard trimmings before, we’ve found that we have been successful in implementing shared compost service for those, sort-of shared condo areas
where they had single-family service, so there are places where it has been implemented successfully.
Council Member Holman: Thank you for both being on track and moving off track.
Chair Filseth: Council Member Wolbach.
Council Member Wolbach: So, I just, remind me, when somebody pays for, when I pay for say a 20-gallon, a small garbage can, we get what size recycling bin with that?
Mr. Krupp: You actually can get pretty much any size recycling bin. Our standard that we issue is a 64-gallon recycling cart, but you can get a 96 and you could also get a 32, that’s
the smallest size that we offer for recycling.
Council Member Wolbach: And if somebody wanted to get two recycling bins, how much do we charge extra?
Mr. Krupp: We don’t, no, you could actually get, I’m afraid to say this on the record, you could get three free of charge.
Council Member Wolbach: As part of (crosstalk) You still have to get one garbage can, right?
Mr. Krupp: Yes. So you always have to have at least subscribe to garbage service, but, you know…
Council Member Wolbach: So that’s the garbage entry and then you get up to three recycling bins up to the largest size?
Mr. Krupp: Right.
Council Member Wolbach: And on the compost side?
Mr. Krupp: It’s the same.
Council Member Wolbach: Up to three compost bins up to the largest size? Okay, thank you for confirming that.
Council Member Holman: I thought…
Council Member Wolbach: It’s kind of the opposite direction from the line of questioning that Commissioner Holman was going.
Council Member Holman: So my garbage can is a 20 and I could have sworn, I mean I’ve set beside each other, my recycling bin is the same size.
Council Member Wolbach: But you could get a bigger one.
Mr. Krupp: Oh, she’s got a 32. There you go.
Council Member Holman: It’s a 20.
Mr. Krupp: Yeah, some of the, there are different size or physical forms that the 20-gallon carts take, so our new 20-gallon carts are a little skinnier than the old.
Council Member Holman: You’re talking the recycling?
Mr. Krupp: Right. The old recycling carts, if you have a 32 recycling cart and you could have a 32-gallon cart for garbage that had an insert put in?
Council Member Holman: (crosstalk)
Mr. Krupp: Well, it’s possible that you have a rare 20-gallon recycling cart, so I didn’t know that we had any out on the street.
Council Member Holman: Side-by-side, they are the same size.
Mr. Krupp: If you do and you like it, that’s great. We can get you a bigger one if you want.
Council Member Holman: No I don’t’ want a bigger one.
Mr. Krupp: That is interesting. We do have 20-gallon green compost carts, but those are special.
Chair Filseth: Did you get hijacked here?
Council Member Wolbach: No, just to comment on that, I think that’s important actually, and we should not be afraid to say that on the record, because this is more a policy issue than
a finance issue, but that we want people to recycle. We want people to use compost. We don’t want people to fill up landfill, and so…Finance side, of course, we want people to pay for
everything, every penny we can, but for the convenience for residents, I appreciate that as for the quality of life for residents and also for our sustainability goals, that makes sense.
Thank you for conveying that.
Chair Filseth: Greg.
Council Member Schmid: I can’t resist asking, when you looked under all those lids, is the public doing a pretty good job of putting the right thing in the right place?
Mr. Krupp: I would say yes. The Palo Alto residents actually do a fabulous job of recycling, so we found our recycling was relatively contaminant free by and large, and the garbage,
we didn’t look too hard in the garbage, to be honest with you, because it could get pretty gross, but the recycling tended to be pretty free of garbage too. We know from our waste characterization
back in 2011 that there are still a lot of recyclables, a lot of paper, still in the garbage itself, so we know that is still out there and we’re planning to do another waste characterization,
probably not this coming fiscal year, but the next fiscal year.
Council Member Schmid: I often find myself standing there…
Mr. Arp: Yeah, the one thing we know for sure is that people are still having a challenge in composting what we call soiled paper or food soiled paper, there is a little bit of a leap
that has to be made psychologically to be able to do that. To say, I have a Kleenex or I should say tissue and not use the brand name, that you sneezed in and then that’s okay to put
into the green cart. For a lot of people that feels wrong because it’s not something you would put in your home compost necessarily, so having people make the leap is important. We are
actually starting a campaign to increase awareness about food soiled paper, soiled paper and dairy, meat and bones, that those can go into the green cart and be composted in our curbside
program.
Mr. Bobel: Maybe I’ll just add that we’ll have a report later, but it looks like the first year that we’ve started this residential food scraps program, we’re on pace to get pretty close
to 2,000 tons diverted out of the garbage to the green carts.
Council Member Schmid: That would be very helpful.
Mr. Bobel: It’s really a great success story by Palo Alto, for the first year of these kinds of programs to have this kind of success.
Council Member Schmid: Let me ask just one simple finance question. Let’s see if we can get a little success here. On your Slide Three, the one up there, the landfill gets $3.8 million.
That’s well over 10 percent. That’s a good amount. And I know since we closed the landfill in 2011 there is a total of like $25 million that we are, the refuse fund is paying the City
for the park while not using it. It seems to me that some of that money could be used to help Phil, to do a little landscaping as part of the park and put a few trees in and maybe in
five years or so they can take them out if they had to, but with that $3.8 million per year, it seems reasonable.
Mr. Arp: So maybe I can just speak to what’s in the $3.8 million. The maintenance and monitoring and a portion of it, the post-closure maintenance we call it, is about $1 point something
and deferred rent, as we call it, what you’re talking about, was rent that was deferred from before 2011, and the schedule is about, we’re at about $2.1 or $2.2 million dollars now.
This schedule ends at about 2021. So, of course, that money goes to the General Fund and I can’t speak to where to direct that.
Council Member Schmid: There also is a rebuilding of the reserves, which were run down a little bit while that landfill was kept open.
Mr. Arp: Yeah, that’s correct. We’re trying to rebuild the reserves.
Council Member Schmid: So it is a bit expense. It just seems to me there is…
Mr. Arp: I think you may know this, that we had this so-called interim parks plan for (inaudible) which is about $250,000 that we did carve two years ago out of the CIP, the General
Fund CIP Fund, and so they are just going out to bid now on that and we hope to be installing those plants. You know, we’re going to spend a couple hundred thousand dollars out there,
and a large part of that is going to be on plantings. People weren’t wild about trees, Greg. We had a lot of sort of anti-tree people that were sort of vocal.
Council Member Schmid: The grass is finally growing there. It actually looks like a park.
Council Member Holman: With the wild mustard out there right now, it’s like…
Male: It’s at least 8 to 10 feet tall.
Council Member Holman: It’s amazing.
Council Member Wolbach: I just actually had one more question, if I could.
Chair Filseth: Yes please.
Council Member Wolbach: Earlier you used the phrase, I believe it was, “flagrant contamination”. I was hoping you could explain what you meant by that, and what the penalty was for that.
Was that on the commercial side, residential or both?
Mr. Arp: The commercial side, and what I mean by flagrant is this recycling and composting ordinance, we’re not looking at charging fees. It’s heavily set, at least for the first year,
on education and outreach, but if there are customers before the year is up that are just not sorting at all, somebody throwing bricks in the compost bin, or something like that, eventually
we can get to the point where we are charging fees on them and the fees are pretty minor. No very minor fees that we are talking about, like the, well I don’t have the rates right here,
but basically it’s the difference between, it’s basically charging those out, the blue cart and the green cart out at the garbage rate.
Council Member Wolbach: People who toss garbage that it’s really obvious that you charge them like a garbage cart.
Mr. Arp: Like a garbage cart, because you have to take it and you have to manage it.
Council Member Wolbach: This is commercial side only, right? So it would be you the business just co-opted your own blue or green bin and made it a garbage can, we’re going to charge
appropriately for that.
Mr. Arp: That’s exactly right, and those are the incremental rates that we put in there.
Mr. Bobel: And we used the word flagrant because we don’t have a quantitative way to describe this. We toyed around, what should we say, it’s 10 percent, should we say it’s 20 percent,
let the person in the field figure it out. It’s on the ilk. And remember, too, the thing about the word flagrant is, we’re going to be noticing people first, so flagrant would also go
to if we noticed you two or three times and you’re still doing it, so it’s both a number of times and an amount sort of, judgement.
Council Member Wolbach: Okay, I appreciate that because I just wanted to make sure that we are not, we talk a lot about retail preservation, small business and restaurant preservation,
you know, helping those kinds of businesses out, in particular and I wanted to make sure we were… It sounds like we are using an appropriate process to be fair to those businesses and
give them a chance to get it right if they mess up.
Mr. Bobel: We’ll give them many chances.
Chair Filseth: Before we proceed to motions, can I ask one question here real quickly, which is, our refuse rates are somewhat higher than neighboring cities and the comment here is
that, well they generally offer fewer services. What kind of services are we talking about, with Menlo Park for example?
Mr. Arp: Well.
Chair Filseth: Which is half our refuse rate?
Mr. Arp: Well, certainly we looked at this stuff, especially when we were going through our street sweeping cost-saving plan, and we sweep more than any other cities and we also, we
have a better household hazardous fleet services, so those are included. I don’t know about Menlo Park. The household hazardous waste program, sometimes with some communities, are not
funded from the refuse fund. Street sweeping, sometimes that, then again, I don’t remember on Menlo Park, but sometimes that’s budgeted in different funds also. Those are usually, and
if you look at, I know like Sunnyvale, Mountain View, they do like every-other-week collection on some of their carts and we do those weekly.
Mr. Krupp: One other quick note on the difference between our services here versus Menlo Park, is that all of our garbage does go to the Smart Station in Sunnyvale to recover recyclables
that are in the garbage, whereas their garbage would go straight to the landfill, so that’s an extra cost that we realize in our program. And in Palo Alto for our recycling program,
we actually accept more materials than nearly every other program in the Bay area, the most notable of those being film plastic, which no other program wants to touch, but we’re willing
to work with that and we get a good capture rate because we can take that material.
Mr. Bobel: Another point would be, that landfill cost, that $3.8 million, more than 10 percent, so you could call that a service, maybe a little bit of a stretch, but we did keep our
landfill open much longer, and part of that was because residents wanted it. Residents liked the fact that they could just drive a couple of miles and get rid of anything, and we’re
paying that deferred rent, as you know, so that’s more than 10 percent right there that other communities don’t have.
Council Member Holman: On other just quick comment. So you don’t have to respond to this now, just something that has occurred to me during this conversation is, back to C&D for just
a moment, is rather than charging a higher rate for C&D, is like, have an allowance, an allocation for any demolition site, commercial being different than residential, is allotted however
much C&D debris and then anything over that, then there is a penalty to be paid, and that could also encourage salvage and reuse.
Mr. Bobel: The other thing I think we have to look at is just, it wouldn’t run afoul of Prop 218 to just require certain things. We could require that wood framing be sorted, you know.
And then the next step is the cost, but we can add regulatory requirements to preserve the environment without running afoul of 218. So if we kind of stay away from the cost side and
just focus on the activity, and that’s one thing we intend to look at too, how can we beef up the ordinance to have reasonable requirements that we don’t now?
Chair Filseth: Okay. Motions.
Council Member Schmid: I move the Staff Report.
Council Member Wolbach: Second.
MOTION: Council Member Schmid moved, seconded by Council Member Wolbach to recommend the City Council adopt (as part of the Fiscal Year 2017 Annual Budget) a Resolution amending Utility
Rate Schedule R-1 (Residential Refuse Rates), and reorganizing Utility Rate Scheduled R-2 and R-3 (Commercial Refuse Rates) into a new Utility Rate Schedule designated “R-C” (Commercial
Refuse Rates).
Chair Filseth: All in favor? Sorry, speak to your Motion.
Council Member Schmid: If I could just make a comment, it wasn’t until I came tonight and had your presentation that I saw the breakdown between residential and commercial and I did
spend some time looking through the report saying, why are residential rates moving higher than commercial? It would be good to just have a paragraph that in response to the report last
year, that commercial was being overcharged, you know, we are approving these rates. That would be very helpful.
Mr. Bobel: We’ll try to do that. I have to tell you that, you know, the person in the back here advises against making this real explosive and triggering action on somebody’s part. (crosstalk)
Yeah, I’m just saying we don’t (inaudible).
Council Member Schmid: Okay.
Chair Filseth: Care to speak to your second?
Council Member Wolbach: No.
Chair Filseth: With that, all in favor?
MOTION PASSED: 4-0
Chair Filseth: Thank you.
Mr. Bobel: We get to tell people in other parts of the area how our Council is pushing us to do more. That’s an enviable position to be in. It’s the kind of stuff that helps us do what
we have to do. We appreciate that. I think we can really do some good work on this stuff. Room to grow.
Council Member Holman: Thank you.
Chair Filseth: Thanks for staying late.
Future Meetings and Agendas
Chair Filseth: Upcoming meetings and agendas, I see a full schedule for the month of May.
Lalo Perez, Chief Financial Officer: Yes, I have once again, revised this.
Council Member Schmid: Now all this is overtime, right?
Mr. Perez: You know, it’s funny you mentioned that because the budget team has been working late nights for a couple of months, (inaudible) and weekends. We were here this weekend, we
were putting a lot of editing on Suzanne and Jim to finalize. We go to the printer, hopefully, by Thursday morning and have it back and ready for you on Monday night at the Council.
So then we start with May 3 and you see through June 13. A couple of little changes that we made, we moved the Library and Community Services from the 10th to the 5th, but I think all
of you are here so it doesn’t really impact anybody. Then I got word that we may have a change in the location for the 23rd, which is the budget wrap-up. I will confirm that with you
once we have a confirmation of the location. Other than that, it’s the same agenda you’ve seen before.
Council Member Wolbach: I just noted that for the one that we were sent home and the one here, that it looks like you’ve confirmed that the 19th is no longer something we need to hold,
and can clear it off of our schedules, so the 19th is not going to happen, and it looks also the 20th, you combined the 13th and the 20th. Here they were separate. One was public hearing
budget and the second one was public hearing adoption?
Mr. Perez: Oh, for the Council, yes.
Council Member Wolbach: For the full Council, and it looks like we skipped the 20th and just included that with the 13th?
Mr. Perez: Yes, thank you for that. Good catches. The last couple of years, since Jim arrived, we have had two budget meetings at the Council, but we looked up the calendars, the agendas
are jammed and in order to try to accommodate everything that we have, we are going to do it in one evening, which prior to Jim’s arrival we used to do it that way. So it’s one meeting
with the Council.
Council Member Holman: Are we starting at 3?
Suzanne Mason, Assistant City Manager: I mean, it’s still a meeting.
Mr. Perez: Yeah, there is still a meeting. We would have to reprioritize and get the Council agenda items and I think that’s one of the drivers for the 23rd location change, because
there are so many items for planning, but the calendar is jammed. Yes, thank you for that.
Council Member Wolbach: Thank you for clarifying those changes.
Chair Filseth: Okay, what are we going to do with all our spare time? In that case, I guess we’re adjourned.
ADJOURNMENT: The meeting was adjourned at 9:26 P.M.
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Finance Committee
Transcript: April 19, 2016
FINANCE COMMITTEE
TRANSCRIPT
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