HomeMy WebLinkAboutStaff Report 395-05
CMR:395:05 Page 1 of 3
TO: HONORABLE CITY COUNCIL
ATTENTION: FINANCE COMMITTEE
FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE: NOVEMBER 1, 2005 CMR: 395:05
SUBJECT: PRE-PAYMENT OF STORM DRAINAGE FEES FOR CITY
PROPERTIES WITHIN THE GENERAL FUND
This is an information report and no Council action is required.
BACKGROUND
The purpose of this report is to inform Council that provisions for the pre-payment of storm
drainage fees for City properties will be included in the General Fund 2006-07 Proposed Budget.
The City’s storm drain capital improvement, maintenance and water quality protection programs
are funded through the Storm Drainage Fund, an enterprise fund established by Council in 1989.
Revenue is generated by a Storm Drainage Fee, which is collected through monthly City utility
bills. The prior monthly fee of $4.25 per Equivalent Residential Unit (ERU) had not been
increased since 1994 and was insufficient to cover the program’s operating costs.
On March 7, 2005, Council adopted a resolution calling a special mail ballot proceeding to allow
owners of parcels subject to the Storm Drainage Fee increase to vote on whether the fee should
be increased from $4.25 to $10.00 per Equivalent Residential Unit (ERU) (CMR:163:05). The
votes were tabulated on April 26, 2005, with the fee increase winning the approval of a majority
of property owners (58%). On May 9, 2005, Council approved a resolution amending Utility
Rate Schedules D-1 (Storm and Surface Water Drainage) and C-4 (Residential Rate Assistance
Program) in order to enact the Storm Drainage Fee increase and the other elements of the
approved ballot measure (CMR:244:05). The new rate for the Storm Drainage Fee of $10.00 per
month per ERU took effect on June 1, 2005. In addition to the rate increase, the elements of the
approved ballot measure included: 1) modification of the Storm Drainage Fee rate structure for
single-family properties from a flat rate to a three-tier rate structure based upon parcel size, 2)
addition of the Storm Drainage Fee to the list of eligible charges under the existing Rate
Assistance Program (RAP), and 3) pre-payment of the Storm Drainage Fees attributable to City-
owned properties for a period of twelve years, in order to accelerate the construction of the
proposed storm drain capital improvements.
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DISCUSSION
Following approval of the Storm Drainage Fee increase, staff developed the following detailed
pre-payment plan for review by the Finance Committee. First, it was determined that the pre-
payment mechanism should only apply to City-owned properties in the General Fund, since it is
not permissible to collect money in advance from the enterprise funds. This results in a lower
pre-payment amount than originally contemplated, but will still provide sufficient funding to
significantly accelerate the storm drain capital improvement program. Secondly, as endorsed by
Council in September 2004, the advance payment of Storm Drainage Fees is to be spread during
the first three years of the capital improvement program (CMR 393:04). As the initial element of
the pre-payment plan, the 2005-06 Adopted Budget includes a $534,000 transfer from the
General Fund to the Storm Drainage Fund. This transfer, combined with the additional revenue
generated from the fee increase, has allowed design work on the following projects to begin in
2005-06:
CIP Number Project Title
Total
Funding
2005-10
SD-06101
Storm Drain System Replacement and Rehabilitation
funded annually for design & construction.
2,578,000
SD-06102
San Francisquito Creek Storm Water Pump Station
Planning/Design: FY 05/06 & 06/07
Construction: FY 07/08
4,724,920
SD-06103
Extend Gailen/Bibbits Storm Drain Outfall to Adobe Pump Station
Design: FY 05/06
Construction: 06/07
691,460
SD-06104
Connect Clara Drive Storm Drains to Matadero Pump Station
Design: FY 05/06
Construction: FY 06/07
958,480
SD-06105
Innovative Storm Drain Improvements
Grant program funded annually.
635,400
Based on the area of impervious surface on City-owned General Fund properties, the General
Fund is currently assessed a collective Storm Drainage Fee equivalent to 1,916.4 ERUs.
Advance assessment of the fees payable throughout the 12-year capital improvement
implementation period is expected to yield approximately $2.76 million [1,916.4 ERUs x $10.00
per month per ERU x 12 months x 12 years = $2.76 million]. The advance payment is scheduled
to be made over three years as follows:
Fiscal Year
2005-06 534,000
2006-07 1,142,000
2007-08 1,084,000
Total $2,760,000
The pre-payments in 2006-07 and 2007-08, along with the revenue generated from the fee
increase to residents and businesses, will allow for the accelerated implementation of high-
priority storm drain improvements to continue, as summarized in the project matrix above.
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RESOURCE IMPACT
Implementation of the pre-payment plan would have the following financial impacts:
• In prior budget years, the General Fund was required to provide supplemental funding to
the Storm Drainage Fund in order to maintain ongoing service levels for storm drain
maintenance and storm water quality protection programs. As part of the pre-payment
plan, the General Fund transfers will continue for the fiscal years 2005-06 through 2007-
08. After 2007-08, the General Fund pre-payments to the Storm Drainage Fund will be
complete, and therefore, the General Fund transfers to the Storm Drainage Fund will no
longer be necessary for the remainder of the 12-year capital improvement implementation
period. The proposed pre-payment of fees will reduce the Budget Stabilization Reserve
(BSR) and affect the potential surplus contribution to the Infrastructure Reserve (IR).
Since Council policy is to target the BSR at 18.5 percent of operating expenses, a
contribution to the IR in each year of pre-payment may not be likely. This impact should
be offset in future years as the General Fund would experience a reduction in costs due to
the elimination of the operating transfer.
• There is a potential opportunity cost for the pre-payment plan. Should the City’s return
on its portfolio exceed the rate of inflation on the fee increase, the General Fund may
forego interest income by paying the Storm Drainage Fees in advance. This amount
depends on the rate of inflation and interest rates. Staff believes the importance of
beginning an enhanced storm drain program outweighs this potential opportunity cost.
• The 2006-07 Proposed Budget will include a transfer of $1,142,000 from the General
Fund to the Storm Drainage Fund in accordance with the pre-payment plan. This transfer
will result in an additional $608,000 cost to the General Fund over the existing ongoing
$534,000 transfer already included in the 2006-07 in-concept budget.
ENVIRONMENTAL REVIEW
This is an information report and is not a project for the purposes of the California
Environmental Quality Act.
PREPARED BY:
DALE WONG
Senior Financial Analyst
DEPARTMENT HEAD APPROVAL:
CARL YEATS
Director, Administrative Services
CITY MANAGER APPROVAL:
FRANK BENEST
City Manager