HomeMy WebLinkAbout2018-04-03 Finance Committee Agenda PacketFinance Committee
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MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
DURING NORMAL BUSINESS HOURS.
Tuesday, April 3, 2018
Special Meeting
Community Meeting Room
6:00 PM
Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in
the Council Chambers on the Thursday 12 days preceding the meeting.
PUBLIC COMMENT
Members of the public may speak to agendized items. If you wish to address the Committee on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers/Community Meeting Room, and deliver it to the Clerk prior to discussion of the item. You are not
required to give your name on the speaker card in order to speak to the Committee, but it is very helpful.
Call to Order
Oral Communications
Members of the public may speak to any item NOT on the agenda.
Action Items
1. Recommendations on Proposed Fiscal Year 2019 Community
Development Block Grant Funding Allocations (CDBG) and the Draft
Fiscal Year 2019 Annual Action Plan
2. Utilities Advisory Commission Recommendation That the City Council
Adopt: (1) a Resolution Approving the Fiscal Year 2019 Water Utility
Financial Plan; and (2) a Resolution Increasing Water Rates by 4
Percent 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
3. Utilities Advisory Commission Recommend That the City Council
Adopt: (1) a Resolution Approving the Fiscal Year 2019 Wastewater
Collection Financial Plan; and (2) a Resolution Increasing Wastewater
Rates by 11 Percent 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)
2 April 3, 2018
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
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DURING NORMAL BUSINESS HOURS.
Future Meetings and Agendas
Adjournment
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3 April 3, 2018
MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA
PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE.
DURING NORMAL BUSINESS HOURS.
Finance Committee Items Tentatively Scheduled
Meeting
Date
Line
No.
Item Title Referral
Date
4/17/2018
To be
rescheduled
1 Finance Committee review of Survey Results and Recommendation on
Refinement Survey Objectives (late packet distribution) (Public Works &
ASD)
2 Adoption of a Resolution Amending Utility Rate Schedule D-1 (Storm and
Surface Water Drainage) Reflecting a 2.9 Percent Consumer Price Index
Rate Increase to $14.05 Per Month Per Equivalent Residential Unit for
Fiscal Year 2019 (Public Works)
3 Review of Fiscal Year 2018 Second Quarter Financial Status Report of
General and Enterprise Funds (ASD)
5/1/2018 4 No Agenda as of yet
5/15/2018 5 Proposed FY 19 Budget Hearings - Day Meeting - 9am start
5/16/2018 6 Proposed FY 19 Budget Hearings - Day Meeting - 9am start
5/22/2018 7 Proposed FY 19 Budget Wrap-Up - Day Meeting - 1pm start
5/23/2018 8 Proposed FY 19 Budget Wrap-Up - Day Meeting - 9am start
5/30/2018 9 Finance Committee Review of Survey Results and Recommendation on
Placing Measure on Ballot (late packet distribution)
City of Palo Alto (ID # 9027)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/3/2018
City of Palo Alto Page 1
Summary Title: FY 2019 - CDBG Allocations
Title: Recommendations on Proposed Fiscal Year 2019 Community
Development Block Grant Funding Allocations (CDBG) and the Draft Fiscal
Year 2019 Annual Action Plan
From: City Manager
Lead Department: Planning and Community Environment
Recommendation
Staff recommends that the Finance Committee recommend that the City Council take the
following actions:
1. Allocate CDBG funding as recommended in the draft 2019 Action Plan (Attachment B)
and as described in this report, including the contingency plan policies recommended by
the Human Relations Commission (HRC);
2. Authorize the City Manager to execute the Fiscal Year 2018-2019 CDBG application and
2019 Action Plan for CDBG funds, any other necessary documents concerning the
application, and to otherwise bind the City with respect to the applications and
commitment of funds; and
3. Authorize staff to submit the 2019 Action Plan to HUD by the May 15, 2018 deadline.
Executive Summary
The City of Palo Alto receives funds annually from the U.S. Department of Housing and Urban
Development (HUD) as an entitlement city under the Community Development Block Grant
(CDBG) Program. This is the principal Federal program providing localities with grants to devise
innovative neighborhood approaches to assisting persons of low and moderate income. CDBG
federal appropriations for Fiscal Year 2018-2019 have not yet been determined. For budgeting
purposes, City staff has estimated the City’s HUD Entitlement Grant for Fiscal Year 2018 based
on a 10% reduction in funds from Fiscal Year 2017 or $578,296.
HUD requirements include preparation of a five-year strategic plan of action, referred to as a
Consolidated Plan, to address priority housing and community development needs and to set
City of Palo Alto Page 2
goals for attaining identified objectives. An Action Plan is prepared annually to identify specific
projects to be funded in that year that implement the strategies identified in the Consolidated
Plan. Currently, Palo Alto’s CDBG program is guided by the 2015-2020 Consolidated Plan
adopted by Council May 4, 2015. The draft 2019 Action Plan (Attachment B) will be made
available for Public review from March 16, 2018 through April 16, 2018.
The Finance Committee is being asked to review the draft 2019 Action Plan and recommend
funding allocations by continuing last year’s funding strategies with minor modifications
described below. Upon review of the draft plan and funding recommendations, it is requested
that the Finance Committee make recommendations to the City Council. The City Council will
review the recommendations of the Finance Committee at a public hearing scheduled for May
7, 2018. Staff will then submit the Action Plan to HUD in order to meet the May 15, 2018
deadline.
Background
The CDBG program is authorized under Title I of the Housing and Community Development Act
of 1974, as amended. As an entitlement city under the CDBG program, the City of Palo Alto
receives funds annually on a formula grant basis. Palo Alto has historically expended all of its
CDBG funds on projects benefiting low- and very-low-income persons.
HUD regulations require all CDBG funded activities meet one of the three national objectives:
Benefit low-and very-low-income persons;
Aid in the prevention or elimination of slums or blight; or
Meet other community development needs having a particular urgency, or posing a
serious and immediate threat to the health or welfare of the community.
All of the funded projects in Palo Alto meet the first objective of benefiting low-and very-low-
income persons. Palo Alto has five primary CDBG program activity areas in which to allocate
funds: Public Services, Planning and Administration, Economic Development, Housing, and
Public Facilities. Federal regulations limit the amount that can be spent on Planning and
Administration and Public Services. The allocations for Administrative Activities and Public
Services are both proposed to be at the maximum spending cap in Fiscal Year 2018-2019. No
more than 20 percent of the City’s entitlement grant and estimated program income for the
following year can be spent on Administration. It is estimated that $105,745 will be available
for this category for Fiscal Year 2018-2019. Similarly, Federal law places a maximum spending
cap of 15 percent of the grant allocation and 15 percent of any program income received during
the previous fiscal year on Public Services. It is estimated that $87,078 will be available for
Public Service activities for Fiscal Year 2018-2019. Public Service activities include services for
homeless persons, housing and emergency services to low income individuals with disabilities,
and services to victims of domestic violence.
City of Palo Alto Page 3
CDBG federal appropriations for Fiscal Year 2018-2019 have not yet been determined. For
budgeting purposes, City staff has estimated the City’s HUD Entitlement Grant for Fiscal Year
2018-19 based on a 10% reduction in funds from Fiscal Year 2017-2018.
Consolidated Plan
The 2015-2020 Consolidated Plan is a 5-year strategic plan of action that addresses priority
housing and community development needs. It also sets specific goals for attaining identified
objectives. Each year, an Annual Action Plan is prepared to identify specific projects to be
funded to implement the Consolidated Plan. The Consolidated Plan and the Annual Action Plan
updates are required by HUD in order for the City to receive federal funding from programs
such as the CDBG. Currently the CDBG program is guided by the 2015-2020 Consolidated Plan
adopted by Council May 4, 2015. The Consolidated Plan is available on the City website:
https://www.cityofpaloalto.org/civicax/filebank/documents/49948
Action Plan
HUD requires submittal of an Annual Action Plan no later than 45 days prior to the start of the
program year, or May 15th of every year, that identifies the specific projects to be funded to
implement strategies identified in the Consolidated Plan. The 2015-2020 Consolidated Plan is a
five-year strategic plan of action that addresses priority housing and community development
needs.
CDBG Applications
Currently, the CDBG program operates under a two-year funding request cycle. Applications
for Fiscal Years 2017-2018 and 2018-2019 were made available in November 2016. A notice of
CDBG funding availability was published in the Palo Alto Weekly on November 18, 2016 with
completed applications due January 6, 2017. Mandatory pre-proposal conferences were
conducted on December 7, 2016, December 15, 2016 and December 5, 2017 to assist applicants
with program regulations and project eligibility questions.
Since this is the second year of the two year funding cycle, the City will continue funding the
same providers as in FY 2017-18 under the Public Services, Administration and Planning and
Economic Development category. After funding the three categories, there will be $54,471
remaining to allocate to the Housing Rehabilitation category for FY 2018-19. Although a number
of non-profits expressed interest, there were no applications for the Minor Home Repair
Program that comes under the Housing Rehabilitation Category when the first Notice of CDBG
funding availability for a program administrator was published in November 2017. The City staff
reissued a Notice of CDBG funding availability on February 9, 2018 with completed applications
due February 22, 2018 for the Minor Home Repair Program and received one application. The
application is under review and the program is expected to commence in the late spring 2018.
The CDBG applications considered for funding for Fiscal Year 2018-2019 are identified on the
attached chart (Attachment A).
Citizen Participation
City of Palo Alto Page 4
A Citizen Participation Plan is a required component of the CDBG Program. HUD regulations
require CDBG recipient agencies to prepare and implement a plan that provides adequate
opportunity for citizens to participate in an advisory role in the planning, implementation, and
assessment of the CDBG program. On October 18, 2010 the City adopted an amended Citizen
Participation Plan and shifted the CDBG advisory role from a separate Citizens Advisory
Committee to the established Human Relations Commission (HRC). The HRC is uniquely
positioned to understand and consider the needs of low and very low income persons,
members of minority groups, the elderly, persons with disabilities, and residents of
neighborhoods where CDBG activities may be undertaken. In summary, the intention of the
new plan was to provide a collaborative link between the CDBG funding process and the Human
Service Resource Allocation Process (HSRAP)1. A sub-committee, the CDBG Selection
Committee, comprised of staff and three members of the HRC was established to review both
the CDBG and HSRAP funding applications and to provide recommendations to the full
commission.
While both CDBG and HSRAP are operating on a two-year funding cycle, final CDBG funding
recommendations need to be reviewed annually since the budget is contingent upon funding
allocations received from HUD. The CDBG Selection Committee met on February 15, 2018 at
City Hall to discuss the Fiscal Year 2018-2019 CDBG budget and recommended funding amounts
based on the estimated funds available. In addition, the Selection Committee made a
recommendation for a contingency plan for when the actual CDBG allocation is known. The
contingency plan is further described in the Discussion section of the report. The Selection
Committee’s recommendations were presented to the HRC on March 8, 2018 and were
approved unanimously and are reflected in Table 1 below.
Commitment of Funds
HUD regulations require that CDBG funds be expended in a timely manner. Specifically, the
regulatory requirement is that no more than 1.5 times a jurisdiction’s annual entitlement grant
amount remain in the City’s Letter of Credit 60 days prior to the end of the program year. In an
effort to reduce the backlog of unspent CDBG funds, HUD employs monetary sanctions against
jurisdictions that exceed this timeliness requirement. For this reason, all funding applications
are scrutinized to ensure the readiness of the program or project to move forward and expend
funds in a timely manner.
Discussion
Palo Alto’s CDBG program continues to be directed towards expanding and maintaining existing
affordable housing supply, promoting housing opportunities and choices, and providing
supportive services for targeted low-income groups including persons who are homeless,
persons with disabilities, the elderly, and other special needs groups. Moreover, the CDBG
program places a high priority to expand the goal of creating economic opportunities for low-
income persons. All of the proposed projects for CDBG funding for Fiscal Year 2018-2019, as
1 The Human Service Resource Allocation Process (HSRAP) is a grant program open to organizations who deliver
direct services to Palo Alto residents so that they have a safety net of services.
City of Palo Alto Page 5
presented in the draft 2019 Action Plan, address the priority housing and community
development needs identified in the draft Consolidated Plan.
2015-2020 Consolidated Plan Goals
Per HUD requirements, the City is required to prepare a Consolidated Plan every five years. The
2015-2020 plan outlines the following six specific goals:
Affordable Housing: Assist in the creation and preservation of affordable housing for
low income and special needs households.
Homelessness: Support activities to end homelessness.
Community Services: Support activities that provide community services to low income
and special needs households.
Strengthen Neighborhoods: Support activities that strengthen neighborhoods.
Fair Housing: Promote fair housing choice.
Economic Development: Expand economic opportunities for low income households.
Fiscal Year 2018-2019 Funds Available for Allocation
CDBG federal appropriations for Fiscal Year 2018-2019 have not yet been determined. For
budgeting purposes, City staff has estimated the City’s HUD Entitlement Grant for Fiscal Year
2018 based on a 10% reduction in funds from Fiscal Year 2017. Based on the foregoing, the
total amount available for allocation in Fiscal Year 2018-2019 is estimated to be $578,296 as
summarized below:
Table 1: Total Amount Available for Allocation in Fiscal Year 2018-2019
Estimated Fiscal Year 2018-2019 Entitlement Grant $392,678
Reallocated Funds from Previous Years:
City of Palo Alto CDBG Admin (Fiscal Year 2017) $ 2,328
SVILC (Fiscal Year 2017) $ 1
Downtown Streets Inc. (Fiscal Year 2017) $ 8,337
Microenterprise Assistance Program (Fiscal Year 2014) $ 171
Unprogrammed Excess Program Income (Fiscal Year 2016) $38,732
$49,569
Estimated Fiscal Year 2019 Program Income from Palo Alto Housing
Corporation that is generated from loan repayments and rental
income in excess of expenses on specific properties acquired or
rehabilitated with CDBG funds
$136,049
ESTIMATED TOTAL AVAILABLE FOR ALLOCATION $ 578,296
Source: Palo Alto Planning & Community Environment, February 2018
City of Palo Alto Page 6
Of the $578,296 of CDBG funds anticipated to be available, the total amount is proposed to be
used during Fiscal Year 2018-2019, subject to the funding limitations on two funding categories
as shown in Table 2 and 3 below:
Table 2: Maximum Available for Public Services
Estimated Fiscal Year 2018-2019 CDBG Entitlement Grant $392,678
Actual Fiscal Year 2017-2018 Program Income $187,843
Total $580,521
PUBLIC SERVICE CAP (15% OF $580,521) $ 87,078
Source: Palo Alto Planning & Community Environment, February 2018
Table 3: Maximum Available for Planning and Administration
Estimated Fiscal Year 2018-2019 CDBG Entitlement Grant $392,678
Estimated Fiscal Year 2018-2019 Program Income $136,049
Total $528,727
PLANNING AND ADMINISTRATION CAP (20% OF $528,727) $ 105,745
Source: Palo Alto Planning & Community Environment, February 2018
The difference between the funding caps ($87,078 + $105,745) and the amount proposed to be
allocated ($578,296) during Fiscal Year 2018-2019 yields the amount that can used to fund
projects ($385,473) within the other three funding categories: Economic Development,
Housing, and Public Facilities. Additional funding can be made available for these activities if
less is provided for Planning and Administration or Public Services.
Fiscal Year 2018-2019 – Funding Requests and Recommendations
Palo Alto’s CDBG program is operating under a two-year funding cycle. Funding for Fiscal Year
2018-2019 is contingent upon the CDBG allocation, program income, and any available funds
for reallocation. Public Service and Administration Caps have been calculated in accordance
with available funds. All of the agencies remain eligible and meet program goals and objectives.
A list of the submitted applications and the funding recommendations for Fiscal Year 2018-19 is
included in Attachment A.
City of Palo Alto Page 7
Table 4, Fiscal Year 2018-2019 Funding Recommendations, identifies the applications
recommended for funding and the final allocation amounts recommended by the HRC.
Table 4: Fiscal Year 2018-2019 Funding Recommendations
Recommendations Source: Palo Alto Planning & Community Environment, March, 2018
Applicant Agency
Fiscal Year
2018 Final
Allocation
Fiscal Year 2019
Funding Request
HRC
Recommendation
for Fiscal Year
2019
Public Services
Palo Alto Housing Corporation –
SRO Hotels Supportive Services $23,327 $ 49,457 $ 24,023
Catholic Charities of Santa Clara
County –
Long Term Care Ombudsman
$9,327 $ 10,000 $ 10,000
LifeMoves (formerly InnVision Shelter
Network)-
Opportunity Services Center
$37,328 $ 50,000 $ 38,023
YWCA/Support Network –
Domestic Violence Services $10,000 $ 10,000 $ 10,000
Silicon Valley Independent Living
Center –
Housing and Emergency Services
$5,032 $ 5,032 $ 5,032
Subtotal $85,014 $124,489 $ 87,078
Admin/Fair Housing Services
Project Sentinel –
Fair Housing Services $32,012 $ 33,698 $ 32,012
City of Palo Alto -
CDBG Administration $82,460 $ 85,000 $ 73,733
Subtotal $114,472 $118,698 $105,745
Economic Development
Downtown Streets Inc. –
Workforce Development Program $336,400 $336,400 $331,002
Subtotal $336,400 $336,400 $331,002
Housing/Public Facilities Rehabilitation
Minor Home Repair Program $145,529 $100,000 $54,471
Subtotal $145,529 $100,000 $54,471
Grand Total $901,415* $679,587 $578,296
*Includes $220,000 allocation to Opportunity Center Rehab Project for FY 2017-18
City of Palo Alto Page 8
Contingency Plan Recommendation
Because the amount of CDBG funding for Fiscal Year 2018-19 is still unknown, the HRC has
made recommendations for a contingency plan in the case of an increase in funding, as well as
if there is a decrease in funding. It is recommended that the Finance Committee recommend
Council approval of this contingency plan.
In the case of funding increase, the following plan is recommended:
Public Services: Distribute the additional available amount in the public services cap
until an applicant is fully funded. If an applicant reaches the funding amount
requested, any remaining funds will be distributed evenly to other applicants who have
not yet reached the maximum funding amount.
Planning and Administration: Prioritize funding for Project Sentinel, once Project
Sentinel is fully funded, any remaining funds are to be allocated to the City of Palo Alto
for CDBG administration.
Economic Development: Maintain recommended funding levels for the Downtown
Streets Team
Housing/Public Facilities Rehabilitation: Any additional funds will be allocated to the City
of Palo Alto Minor Home Repair program.
In the case of a decrease in funding, the following plan is recommended:
Public Services: Distribute any funding decrease proportionately among the public
service applicants, but maintain a minimum funding allocation of $5,000 for any
applicant.
Planning and Administration: Maintain funding allocation for Project Sentinel, any
decrease in funding will be absorbed by the City of Palo Alto for CDBG administration.
Economic Development: Maintain recommended funding levels for the Downtown
Streets Team
Housing/Public Facilities Rehabilitation: Reduce funding for the City of Palo Alto Minor
Home Repair Program
Timeline
The funding recommendation made by the Finance Committee will be forwarded to the City
Council for review and approval at a public hearing scheduled for May 7, 2018. Subsequently,
the adopted Action Plan will be submitted to HUD by May 15, 2018.
Resource Impact
City of Palo Alto Page 9
Several measures have been taken to ensure there is no General Fund subsidy for the
administration of the CDBG Program. This includes streamlining the program to reduce staffing
needs and revised monitoring guidelines to improve efficiency of the program. Currently, staff
recovery from the CDBG entitlement grant is approximately $65,000. The total staff recovery
from the CDBG entitlement grant proposed for Fiscal Year 2018-2019 is approximately 0.58 full
time equivalency, or approximately $67,006, thus not further substantially impacting the
General Fund. The Senior Housing/CDBG Planner assigned to CDBG works on CDBG
administration for approximately 0.10 FTE and the balance of their time, 0.90 FTE, is spent on
affordable housing. In addition, an hourly Staff Specialist spends 0.48 FTE on CDBG
administration.
Policy Implications
All of the applications recommended for funding in Fiscal Year 2018-2019 are consistent with
the priorities established in the City’s adopted 2015-2020 Consolidated Plan. Moreover, they
are consistent with the housing programs and policies in the adopted Comprehensive Plan.
Environmental Review
For purposes of the National Environmental Policy Act (NEPA) and the California Environmental
Quality Act (CEQA), budgeting in itself is not a project. Prior to commitment or release of funds
for each of the proposed projects, staff will carry out the required environmental reviews or
assessments and certify that the review procedures under CEQA, HUD and NEPA regulations
have been satisfied for each particular project.
Attachments:
Attachment A: FY 2018-19 CDBG Funding Recommendations
Attachment B: FY 2018-19 Draft Annual Action Plan
CITY OF PALO ALTO CDBG APPLICATIONS (FISCAL YEAR 2018)
AGENCY PROGRAM NAME FY 2018 FINAL
ALLOCATIONS FY 2019 REQUEST HRC
RECOMMENDATION
Public Services (15% CAP = $87,078)
Palo Alto Housing Corp. SRO Resident Support $23,327 $49,457 $24,023
Catholic Charities Ombudsman $9,327 $10,000 $10,000
LifeMoves (formerly Inn Vision) Opportunity Center $37,328 $50,000 $38,023
YWCA/Support Network Domestic Violence Services $10,000 $10,000 $10,000
Silicon Valley Independent Living Center Housing and Emergency Services $5,032 $5,032 $5,032
Public Service Total $85,014 $124,489 $87,078
Planning & Administration (20% CAP = $ 105,745)
Project Sentinel Fair Housing Services $32,012 $33,698 $32,012
City of Palo Alto CDBG Administration $82,460 $85,000 $73,733
Planning & Administration Total $114,472 $118,698 $ 105,745
Economic Development
Downtown Streets Workforce Development Program $ 336,400 $336,400 $331,002
Economic Development Total $ 336,400 $336,400 $331,002
Housing/Public Facilities Rehabilitation
City of Palo Alto Minor Home Repair Program $145,529 $100,000 $54,471
Rehab Total $ 145,529 $ 100,000 $54,471
GRAND TOTAL $901,415* $679,587 $ 578,296
*Includes $220,000 allocation to Opportunity Center
Note: This table will be revised after the
scheduled March 8th, 2018 HRC Meeting
Funds Available $ 578,296
Available for Public Service (15% Cap) $ 87,078
Available for Planning/Admin (20% Cap) $ 105,745
Available for Economic Development/Housing $ 385,473
Annual Action Plan
2018
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Annual Action Plan
2018
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Executive Summary
AP-05 Executive Summary - 24 CFR 91.200(c), 91.220(b)
1. Introduction
The Department of Housing & Urban Development (HUD) requires that entitlement jurisdictions
complete a Consolidated Plan every five years. Additionally, entitlement jurisdictions must also submit
an Annual Action Plan. The City’s 2015-2020 Consolidated Plan was approved by Council on May 4,
2015. The five year goals from the Consolidated Plan include:
• Assist in the creation & preservation of affordable housing for low income & special needs
households.
• Support activities to end homelessness.
• Support activities that strengthen neighborhoods through the provision of community services
& public improvements to benefit low income & special needs households.
• Promote fair housing choice.
• Expand economic opportunities for low income households.
The City of Palo Alto is an entitlement jurisdiction that receives federal funding from HUD through the
Community Development Block Grant (CDBG) Program. The purpose of CDBG funding is to help
jurisdictions address their community development needs.
The purpose of CDBG funding is to help jurisdictions address their community development needs.
CDBG grantees are eligible to use the resources they receive for Public Services, Community and
Economic Development, Capital Improvement Projects (CIP) Public Facilities/Infrastructure, and CIP
Housing Rehabilitation. Public Service projects provide social services and/or other direct support to
individuals and households in need of assistance. Community and Economic Development projects are
focused on assisting businesses and organizations with small business loans, façade improvements, and
other initiatives. CIP Public Facilities/Infrastructure projects are those which aim to improve public
facilities and infrastructure. CIP Housing Rehabilitation projects are for housing rehabilitation
improvements of single and multi-unit housing.
An estimated total of $578,296 is available for funding projects & programs during the 2018 Program
Year. The City anticipates receiving $392,678 from the federal CDBG program, approximately $136,049
in program income & $49,569 in reallocated funds from previous years.
Please see Table 1, “Fiscal Year 2019 CDBG Budget” below which summarizes the uses of the funds
proposed during Fiscal Year 2019.
Annual Action Plan
2018
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2. Summarize the objectives and outcomes identified in the Plan
This could be a restatement of items or a table listed elsewhere in the plan or a reference to
another location. It may also contain any essential items from the housing and homeless needs
assessment, the housing market analysis or the strategic plan.
This could be a restatement of items or a table listed elsewhere in the plan or a reference to another
location. It may also contain any essential items from the housing and homeless needs assessment, the
housing market analysis or the strategic plan.
The City is part of the San Francisco Metropolitan Bay Area, located 35 miles south of San Francisco and
14 miles north of San José. The City is located within the County of Santa Clara, borders San Mateo
County, and encompasses an area of approximately 26 square miles, one-third of which consists of open
space. According to Quickfacts data provided by the U.S. Census Bureau
https://www.census.gov/quickfacts/fact/table/paloaltocitycalifornia/PST045216, the City's total
resident population is 67,024. The City has the most educated residents in the country and is one of the
most expensive cities to live in. In Silicon Valley, the City is considered a central economic focal point
and is home to over 7,000 businesses while providing jobs to more than 98,000 people. See Attachment
1 for a summary of the Needs Assessment in the 2015-2020 Consolidated Plan.
3. Evaluation of past performance
This is an evaluation of past performance that helped lead the grantee to choose its goals or
projects.
The City recognizes that the evaluation of past performance is critical to ensure the City and its
sub recipients are implementing activities effectively and that those activities align with the
City’s overall strategies and goals. The performance of programs and systems are evaluated to
ensure the goals and projects are addressing critical needs in the community. Palo Alto has
historically allocated CDBG funds to activities that benefit LMI persons, with a top priority to
increase affordable housing opportunities in the City. However, due to Palo Alto’s expensive
housing market coupled with a decrease in CDBG entitlement funds, it is becoming more
difficult to create opportunities for affordable housing. As such, during this Consolidated
Planning period the City will be focusing on rehabilitating existing affordable housing stock that
is in need of repair.
Planning Staff works closely with sub recipients to leverage resources and create opportunities
for partnership and collaboration. The City’s sub recipients are challenged to think creatively
about working together to address the needs in our community.
Annual Action Plan
2018
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4. Summary of Citizen Participation Process and consultation process
Palo Alto encourages citizen participation through the Action Plan process. This includes
consulting local organizations, holding public meetings, and encouraging public comment
during the public review period. A total of three public hearings have been planned in order to
allow for public input. The City actively reached out to all applicants and posted updates on the
CDBG website. A 30-day comment period from March 16, 2018 through April 16, 2018 gave
citizens an opportunity to offer comments on the draft Action Plan. The draft was posted on
the City’s CDBG website and copies were made available to the public at the Planning and
Community Environment Department at Palo Alto City Hall.
5. Summary of public comments
This could be a brief narrative summary or reference an attached document from the Citizen
Participation section of the Con Plan.
There were no public comments received during the public review period. (To be updated after
the review period ends)
6. Summary of comments or views not accepted and the reasons for not accepting them
The City accepts and responds to all comments that are submitted.
7. Summary
Table 1, Fiscal Year 2019 CDBG Budget, summarized the uses of the funds proposed during
Fiscal Year 2018. Specific funding resources will be utilized based on the opportunities and
constraints of each particular project or program.
Annual Action Plan
2018
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Applicant Agency Budget
Public Services
Palo Alto Housing Corporation - SRO Resident Supportive Services $24,023
Catholic Charities of Santa Clara County – Long Term Care Ombudsman
$10,000
LifeMoves (Formerly InnVision) - Opportunity Center - Drop-In Center $38,023
YWCA/Support Network - Domestic Violence Services $10,000
Silicon Valley Independent Living Center – Housing and Emergency
$5,032
Sub-total $87,078
Planning and Administration
Project Sentinel – Fair Housing Services $32,012
City of Palo Alto Administration $73,733
Sub-total $105,745
Economic Development
Downtown Streets – Workforce Development Program $331,002
Sub-total $331,002
Housing
Minor Home Repair Program – City of Palo Alto $54,471
Sub-total $54,471
Grand Total $578,296
Table 1. Fiscal Year 2019 Budget
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PR-05 Lead & Responsible Agencies – 91.200(b)
1. Agency/entity responsible for preparing/administering the Consolidated Plan
Describe the agency/entity responsible for preparing the Consolidated Plan and those responsible for administration of each grant
program and funding source.
Agency Role Name Department/Agency
Lead Agency PALO ALTO
CDBG Administrator PALO ALTO Planning and Community Environment Department
HOPWA Administrator
HOME Administrator
HOPWA-C Administrator
Table 1 – Responsible Agencies
Narrative (optional)
The City of Palo Alto (City) is the Lead Agency for the United States Department of Housing and Urban Development (HUD) entitlement
programs. The City’s CDBG Coordinator is responsible for the administration of HUD entitlements, which include the Community Development
Block Grant Program (CDBG). By federal law, each jurisdiction is required to submit to HUD a five-year Consolidated Plan and Annual Action
Plans listing priorities and strategies for the use of federal funds.
The Consolidated Plan is a guide for how the City will use its federal funds to meet the housing and community development needs of its
populations. For the 2015-2020 Consolidated Plan process, the City worked collaboratively with the County of Santa Clara (County) and other
entitlement jurisdictions in the County to identify and prioritize housing and housing-related needs across the region, and strategies to meet
those needs. The fiscal year 2018/19 Annual Action Plan represents the fourth year of CDBG funding of the 2015-2020 Consolidated Plan.
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Consolidated Plan Public Contact Information
Erum Maqbool, CDBG Staff Specialist
City of Palo Alto Department of Planning and Community Environment
250 Hamilton Avenue, 5th Floor
Palo Alto, CA 94301
E-mail: erum.maqbool@cityofpaloalto.org
Phone: (650) 329-2660
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AP-10 Consultation – 91.100, 91.200(b), 91.215(l)
1. Introduction
During Fiscal Year 2018-19, the City will continue to work with non-profit organizations to provide
programs and services for low-income households; private industry, including financial and housing
development groups, to encourage the development of affordable housing opportunities regionally and
within the City; and other local jurisdictions, including the County of Santa Clara, in carrying out and
monitoring regional projects in a coordinated and cost-effective manner. The City will provide technical
assistance to the public service agencies it funds with CDBG dollars and will continue to attend the
Regional CDBG/Housing Coordinators meetings.
Provide a concise summary of the jurisdiction’s activities to enhance coordination between
public and assisted housing providers and private and governmental health, mental health
and service agencies (91.215(l))
Describe coordination with the Continuum of Care and efforts to address the needs of
homeless persons (particularly chronically homeless individuals and families, families with
children, veterans, and unaccompanied youth) and persons at risk of homelessness.
The Santa Clara County Continuum of Care (CoC) is a multi-sector group of stakeholders dedicated to
ending and preventing homelessness in the County. The CoC's primary responsibilities are to coordinate
large-scale implementation of efforts to prevent and end homelessness in the County. The CoC is
governed by the Santa Clara CoC Board (CoC Board), which stands as the driving force committed to
supporting and promoting a systems change approach to preventing and ending homelessness in the
County.
The CoC Board is comprised of the same individuals who serve on the Destination: Home Leadership
Board. Destination: Home is a public-private partnership committed to collective impact strategies to
end chronic homelessness, and leads the development of community-wide strategy related to the CoC's
work.
The County's Office of Supportive Housing serves as the Collaborative Applicant for the CoC, and is
responsible for implementing by-laws and protocols that govern the operations of the CoC. The Office of
Supportive Housing is also responsible for ensuring that the CoC meets the requirements outlined under
the Homeless Emergency Assistance and Rapid Transition to Housing Act of 2009 (HEARTH).
In the winter of 2015, Destination: Home and the CoC released a Community Plan to End Homelessness
in Santa Clara County (the Plan), which outlines a roadmap for community-wide efforts to end
homelessness in the County by 2020. The strategies and action steps included in the plan were informed
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by members who participated in a series of community summits designed to address the needs of
homeless populations from April to August 2014. The Plan identifies strategies to address the needs of
homeless persons in the County, including chronically homeless individuals and families, families with
children, veterans, and unaccompanied youth. Additionally, it also intended to address the needs of
persons at risk of homelessness.
The City is represented on the CoC by its Human Services Manager. Members of the CoC meet on a
monthly basis in various work groups to ensure successful implementation components of the Plan
action steps. A Community Plan Implementation Team, which includes members of the CoC and other
community stakeholders, meets quarterly to evaluate progress toward the Plan's goals, identify gaps in
homeless services, establish funding priorities, and pursue an overall systematic approach to address
homelessness.
Describe consultation with the Continuum(s) of Care that serves the jurisdiction's area in
determining how to allocate ESG funds, develop performance standards for and evaluate
outcomes of projects and activities assisted by ESG funds, and develop funding, policies and
procedures for the operation and administration of HMIS
The City of Palo Alto does not receive ESG funds.
2. Describe Agencies, groups, organizations and others who participated in the process
and describe the jurisdiction’s consultations with housing, social service agencies and other
entities
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Table 2 – Agencies, groups, organizations who participated
1 Agency/Group/Organization Abilities United
Agency/Group/Organization Type Services-Persons with Disabilities
What section of the Plan was addressed by Consultation? Non-Homeless Special Needs
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
2 Agency/Group/Organization Afghan Center
Agency/Group/Organization Type Cultural Organization
What section of the Plan was addressed by Consultation? Needs Assessment and Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
3 Agency/Group/Organization Aging Services Collaborative of Santa Clara
County
Agency/Group/Organization Type Services-Elderly Persons
What section of the Plan was addressed by Consultation? Needs Assessment & Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
4 Agency/Group/Organization California Housing Odd Fellows Foundation
Agency/Group/Organization Type Housing
Services-Children
Community/Family Services Organization
What section of the Plan was addressed by Consultation? Needs Assessment & Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
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5 Agency/Group/Organization Casa de Clara San Jose Catholic Worker
Agency/Group/Organization Type Services-homeless
Services-Health
What section of the Plan was addressed by Consultation? Needs Assessment & Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
6 Agency/Group/Organization Catholic Charities of Santa Clara County
Agency/Group/Organization Type Services-Elderly Persons
What section of the Plan was addressed by Consultation? Needs Assessment & Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
7 Agency/Group/Organization City of Campbell
Agency/Group/Organization Type Other government - Local
What section of the Plan was addressed by Consultation? Strategic Plan and Needs Assessment
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
8 Agency/Group/Organization City of Cupertino
Agency/Group/Organization Type Other government - Local
What section of the Plan was addressed by Consultation? Strategic Plan & Needs Assessment
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
9 Agency/Group/Organization City of Gilroy
Agency/Group/Organization Type Other government - Local
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What section of the Plan was addressed by Consultation? Strategic Plan & Needs Assessment
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
10 Agency/Group/Organization City of Mountain View
Agency/Group/Organization Type Other government - Local
What section of the Plan was addressed by Consultation? Strategic Plan & Needs Assessment
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
11 Agency/Group/Organization Bill Wilson Center
Agency/Group/Organization Type Services-Children
What section of the Plan was addressed by Consultation? Strategic Plan & Needs Assessment
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
12 Agency/Group/Organization City of Palo Alto - Human Relations Commission
Agency/Group/Organization Type Other government - Local
Civic Leaders
What section of the Plan was addressed by Consultation? Needs Assessment & Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
13 Agency/Group/Organization City of San Jose
Agency/Group/Organization Type Other government - Local
What section of the Plan was addressed by Consultation? Needs Assessment and Strategic Plan
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Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
14 Agency/Group/Organization City of Santa Clara
Agency/Group/Organization Type Other government - Local
What section of the Plan was addressed by Consultation? Needs Assessment and Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
15 Agency/Group/Organization City of Sunnyvale
Agency/Group/Organization Type Other government - Local
What section of the Plan was addressed by Consultation? Needs Assessment and Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
16 Agency/Group/Organization Coldwell Banker
Agency/Group/Organization Type Business Leaders
What section of the Plan was addressed by Consultation? Needs Assessment and Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
17 Agency/Group/Organization Community School of Music and Arts
Agency/Group/Organization Type Community Family Services and Organizations
What section of the Plan was addressed by Consultation? Needs Assessment and Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
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18 Agency/Group/Organization Community Services Agency of Mountain View
and Los Altos
Agency/Group/Organization Type Services-Elderly Persons
What section of the Plan was addressed by Consultation? Needs Assessment and Strategic Plan
Briefly describe how the Agency/Group/Organization was consulted. What are the
anticipated outcomes of the consultation or areas for improved coordination?
Agency attended Community Forum as part of
the 2015-2020 Consolidated Plan process.
Identify any Agency Types not consulted and provide rationale for not consulting
There were no agency types that were not consulted during the Consolidated Plan process.
Other local/regional/state/federal planning efforts considered when preparing the Plan
Name of Plan Lead Organization How do the goals of your Strategic Plan overlap with the goals of each plan?
Continuum of Care Regional Continuum of
Care Council
The CoC works to alleviate the impact of homelessness in the community through the
cooperation and collaboration of social service providers. This effort aligns with the
Strategic goal to support activities to end homelessness.
City of Palo Alto
Housing Element
(2015-2023)
City of Palo Alto
The Housing Element serves as a policy guide to help the City meet its existing and
future housing needs. This effort aligns with the Strategic Plan's goal to assist in the
creation and preservation of affordable housing.
2012-2014
Comprehensive HIV
Prevention & Care
Santa Clara County HIV
Planning Council for
Prevention and Care
This plan provides a roadmap for the Santa Clara County HIV Planning Council for
Prevention and Care to provide a comprehensive and compassionate system of HIV
prevention and care services for the County. This effort aligns with the Strategic Plan's
goal to support activities that strengthen neighborhoods through the provision of
community services and public improvements.
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Name of Plan Lead Organization How do the goals of your Strategic Plan overlap with the goals of each plan?
Affordable Housing
Funding Landscape &
Local Best
Cities Association of
Santa Clara County and
Housing Trust Silicon
Valley
This report provides a comparison of the different funding strategies available for
affordable housing in the County, and the best practices for funding new affordable
housing. This effort aligns with the Strategic Plan's goal to assist in the creation and
preservation of affordable housing.
Regional Housing Need
Plan for the San
Francisco B
Association of Bay Area
Governments
This plan analyzes the total regional housing need for the County and all of the Bay
Area. This effort aligns with the Strategic Plan's goal to assist in the creation and
preservation of affordable housing
Community Plan to
End Homelessness in
Santa Clara
Destination: Home
The Community Plan to End Homelessness in the County is a five-year plan to guide
governmental actors, nonprofits, and other community members as they make
decisions about funding, programs, priorities and needs. This effort aligns with the
Strategic Plan's goal to support activities to end homelessness.
Palo Alto's
Infrastructure:
Catching Up, Keeping
U
City of Palo Alto
Infrastructure Blue
Ribbon Plan
This plan details recommendations for infrastructure maintenance and replace, as well
as identifies potential sources of funding. This effort aligns with the Strategic Plan's
goal to support activities that strengthen neighborhoods through the provision of
community services and public improvements.
City of Palo Alto
Comprehensive Plan
(2030)
City of Palo Alto
This plan is the primary tool for guiding future development in Palo Alto. It provides a
guide for long term choices and goals for the City future. This effort aligns with the
Strategic Plan's goal to support activities that strengthen neighborhoods through the
provision of community services and public improvements.
Table 3 – Other local / regional / federal planning efforts
Narrative (optional)
The Entitlement Jurisdictions in Santa Clara County collaborated on preparation of their 2015- 2020 Consolidated Plans. The outreach and the
regional needs assessment for these jurisdictions was a coordinated effort. The CoC and the County were involved in the formation of the
Consolidated Plan and will be integral in its implementation.
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As standard practice, CDBG entitlement jurisdictions from throughout the County hold quarterly meetings known as the CDBG Coordinators
Group. These meetings are often attended by HUD representatives and their purpose is to share information, best practices, new
developments, and federal policy and appropriations updates among the local grantee staff, as well as to offer a convenient forum for HUD to
provide ad-hoc technical assistance related to federal grant management. Meeting agendas cover such topics as projects receiving multi-
jurisdictional funding, performance levels and costs for contracted public services, proposed annual funding plans, HUD program administration
requirements, and other topics of mutual concern.
These quarterly meetings provide the opportunity for the City to consult with other jurisdictions on its proposed use of federal funds for the
upcoming Program Year. The CDBG Coordinators Group meetings are often followed by a Regional Housing Working Group meeting, which is
open to staff of entitlement and non-entitlement jurisdictions. The Working Group provides a forum for jurisdictions to develop coordinated
responses to regional housing challenges.
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AP-12 Participation – 91.105, 91.200(c)
1. Summary of citizen participation process/Efforts made to broaden citizen participation
Summarize citizen participation process and how it impacted goal-setting
On October 18, 2010, the Palo Alto City Council adopted an amended Citizen Participation Plan that utilizes the Human Relations Commission
(HRC), rather than a separate Citizen Advisory Committee, to promote and encourage citizen participation in the planning, implementation and
assessment of the CDBG Program. The HRC is uniquely positioned to understand and consider the needs of low and very low income persons,
members of minority groups, the elderly, persons with disabilities, and residents of neighborhoods where CDBG activities may be
undertaken. Thus far the revisions to the Citizen Participation Plan have promoted a more coordinate and effective response by the City to the
human service needs in the community. A summary of public participation is outlined in Table 5, Citizen Participation Outreach. The Draft Action
Plan was made available for a 30-day comment period to give citizens an opportunity to offer comments. (Revise for final plan)
Citizen Participation Outreach
Sort
Order
Mode of Outreach Target of Outreach Summary of
response/attendance
Summary of
comments received
Summary of comments
not accepted
and reasons
URL (If
applicable)
1 Public Meeting
Non-
targeted/broad
community
The Human Relations
Commission met on
March 8, 2018 to
discuss the FY 18/19
funding allocations.
Representatives from
agencies requesting
CDBG funds for FY
18/19 were present.
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Sort
Order
Mode of Outreach Target of Outreach Summary of
response/attendance
Summary of
comments received
Summary of comments
not accepted
and reasons
URL (If
applicable)
2 Public Meeting
Non-
targeted/broad
community
The Finance
Committee held a
public hearing on April
3, 2018 to discuss the
FY 18/19 funding
allocations
3 Public Meeting
Non-
targeted/broad
community
The City Council held a
public hearing on May
7, 2018 to discuss the
FY 18/19 funding
allocations
4 Newspaper Ad
Non-
targeted/broad
community
A public hearing notice
was published in the
Palo Alto Weekly on
March 16, 2018
There were no
public comments
received on the
draft FY 19 Action
Plan.(Revise for final
plan)
Table 4 – Citizen Participation Outreach
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Expected Resources
AP-15 Expected Resources – 91.220(c)(1,2)
Introduction
In Fiscal Year 2019, Palo Alto will allocate approximately $578,296 to eligible activities that address the needs identified in the Consolidated Plan.
Anticipated Resources
Program Source
of Funds Uses of Funds Expected Amount Available Year 1 Expected
Amount
Available
Remainder
of ConPlan
$
Narrative Description
Annual
Allocation:
$
Program
Income:
$
Prior Year
Resources:
$
Total:
$
CDBG public -
federal
Acquisition
Admin and
Planning
Economic
Development
Housing
Public
Improvements
Public Services 392,678 136,049 49,569 578,296 0
CDBG funds will be used for
improvements in lower income
neighborhoods, and public services that
benefit low income and special needs
households.
Table 5 - Expected Resources – Priority Table
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Explain how federal funds will leverage those additional resources (private, state and local funds), including a description of how
matching requirements will be satisfied
Leverage, in the context of the CDBG and HOME, means bringing other local, state, and federal financial resources to maximize the reach and
impact of the City’s HUD Programs. HUD, like many other federal agencies, encourages the recipients of federal monies to demonstrate that
efforts are being made to strategically leverage additional funds in order to achieve greater results. Leverage is also a way to increase project
efficiencies and benefit from economies of scale that often come with combining sources of funding for similar or expanded scopes. Funds will
be leveraged if financial commitments toward the costs of a project from a source other than the originating HUD program are documented.
The City joined the Santa Clara County's HOME Consortium in 2015. HOME funds can be used to fund eligible affordable housing projects for
acquisition, construction and rehabilitation. Starting in FY 2015-2016 developers of affordable housing projects were eligible to competitively
apply through an annual RFP process directly to the County for HOME funds to help subsidize affordable housing projects in Palo Alto. If the City
receives HOME dollars from its participation in the HOME consortium, the required 25 percent matching funds will be provided from the City’s
Affordable Housing Fund, which is comprised of two sub-funds: the Commercial Housing Fund and the Residential Housing Fund. As of January
2018, the Commercial Housing Fund had an available balance of approximately $6,238,470 and the Residential Housing Fund had an available
balance of $6,968,506. To date, no projects within the City have been funded through the HOME Consortium. Moving forward, the City plans to
increase outreach to developers in the City to provide additional information on the HOME Consortium and available funding.
Other Federal Grant Programs
In addition to the entitlement dollars listed above, the federal government has several other funding programs for community development and
affordable housing activities. These include: the Section 8 Housing Choice Voucher Program, Section 202, Section 811, the Affordable Housing
Program (AHP) through the Federal Home Loan Bank, and others. It should be noted that, in most cases, the City would not be the applicant for
these funding sources as many of these programs offer assistance to affordable housing developers rather than local jurisdictions.
County and Local Housing and Community Development Sources
There are a variety of countywide and local resources that support housing and community development programs. Some of these programs
offer assistance to local affordable housing developers and community organizations while others provide assistance directly to individuals.
These resources are discussed below:
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Palo Alto Commercial Housing Fund: The Commercial Housing fund is used primarily to increase the number of new affordable housing units for
Palo Alto’s work force. It is funded with mitigation fees required from developers of commercial and industrial projects. As of January, 2018 the
Commercial Housing Fund had an available balance of approximately $6,238,470.
Palo Alto Residential Housing Fund: The Residential Housing Fund is funded with mitigation fees provided under Palo Alto's Below Market Rate
(BMR) housing program from residential developers and money from other miscellaneous sources, such as proceeds from the sale or lease of
City property. As of January, 2018 the Residential Housing Fund had an available balance of $6,968,506.
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If appropriate, describe publically owned land or property located within the jurisdiction that
may be used to address the needs identified in the plan
The City has no surplus vacant land that would be available for the development of housing or services.
Sixty-five percent of land in the City is open space.
Discussion
The City of Palo Alto’s (City) Fiscal Year (FY) 2018-2019 Action Plan covers the time period from July 1,
2018 to June 30 2019 (HUD Program Year 2018). The City’s FY 2019 entitlement amount is $392,678.
Additionally, the City estimates approximately $136,049 in program income and an estimated $49,569 in
available uncommitted funds from the prior program year, bringing the total estimated budget for FY
2018-2019 to $578,296.
While U.S. Department of Housing and Urban Development (HUD) allocations are critical, they are not
sufficient to overcome all barriers and address all needs that low income individuals and families face in
attaining self-sufficiency. The City will continue to leverage additional resources to successfully provide
support and services to the populations in need.
Currently, the City is not eligible to receive direct funding under the HOME Investment Partnership Act
(HOME), Emergency Solutions Grant (ESG), or Housing Opportunities.
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Annual Goals and Objectives
AP-20 Annual Goals and Objectives
Goals Summary Information
Sort
Order
Goal Name Start
Year
End
Year
Category Geographic
Area
Needs
Addressed
Funding Goal Outcome Indicator
1 Homelessness 2015 2020 Homeless CDBG:
$62,046
Public service activities for
Low/Moderate Income Housing
Benefit: 431 Households Assisted
2 Affordable
Housing
2015 2020 Affordable Housing CDBG:
$54,471
Homeowner Housing Rehabilitated: 5
Household Housing Unit
3 Strengthen
Neighborhoods
2015 2020 Non-Homeless
Special Needs
Non-Housing
Community
Development
CDBG:
$25,032
Public service activities other than
Low/Moderate Income Housing
Benefit: 291 Persons Assisted
4 Fair Housing 2015 2020 Non-Housing
Community
Development
CDBG:
$32,012
Public service activities other than
Low/Moderate Income Housing
Benefit: 15 Persons Assisted
5 Economic
Development
2015 2020 Non-Housing
Community
Development
CDBG:
$331,002
Jobs created/retained: 30 Jobs
Table 6 – Goals Summary
Goal Descriptions
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1 Goal Name Homelessness
Goal
Description
Support activities to end homeless.
2 Goal Name Affordable Housing
Goal
Description
Assist in the creation and preservation of affordable housing for low income and special needs
households.
3 Goal Name Strengthen Neighborhoods
Goal
Description
Support activities that strengthen neighborhoods through the provision of community services and
public improvements to benefit low income and special needs households
4 Goal Name Fair Housing
Goal
Description
Promote fair housing choice.
5 Goal Name Economic Development
Goal
Description
Expanded economic opportunities for low income households.
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Projects
AP-35 Projects – 91.220(d)
Introduction
The Consolidated Plan goals below represent high priority needs for the City of Palo Alto and serve as
the basis for the strategic actions the City will use to meet these needs. The goals, listed in no particular
order, are:
1. Assist in the creation and preservation of affordable housing for low income and special needs
households.
2. Support activities to end homelessness.
3. Support activities that strengthen neighborhoods through the provision of community services
and public improvements to benefit low income and special needs households.
4. Promote fair housing choice.
5. Expand economic opportunities for low income households.
Projects
# Project Name
1 Silicon Valley Independent Living Center
2 Catholic Charities
3 LifeMoves
4 PAHC Management & Services Corporation
5 YWCA of Silicon Valley
6 Project Sentinel
7 City of Palo Alto
8 Downtown Streets Inc.
9 Minor Home Repair Program
Table 7 - Project Information
1 Project Name Silicon Valley Independent Living Center
Target Area
Goals Supported Strengthen Neighborhoods
Needs Addressed Community Services and Public Improvements
Funding CDBG: $5,032
Description Housing and Emergency Housing Services
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Target Date of
Completion
6/30/2019
Estimate the number
and type of families
that will benefit from
the proposed
activities
15 persons will be assisted.
Location Description Citywide.
Planned Activities Silicon Valley Independent Living Center provides assistance for
individuals with disabilities and their families to transition from
homelessness, health care facilities, unstable or temporary housing to
permanent affordable, accessible, integrated housing with emergency
assistance, security deposits, rent, information, & referral, and other
basic essentials.
2 Project Name Catholic Charities
Target Area
Goals Supported Strengthen Neighborhoods
Needs Addressed Community Services and Public Improvements
Funding CDBG: $10,000
Description Long-Term Care Ombudsman Program
Target Date of
Completion
6/30/2019
Estimate the number
and type of families
that will benefit from
the proposed
activities
236 persons will be assisted.
Location Description Long-term care and skilled nursing facilities throughout the City.
Planned Activities Catholic Charities assists in problem resolution and advocates for the
rights of residents of long term care facilities in Palo Alto. The majority
of the clients assisted are low-income, frail, elderly, and chronically
ill. This program assists these vulnerable, dependent and socially
isolated residents receive the care and placement to which they are
entitled.
Project Name LifeMoves
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3 Target Area
Goals Supported Homelessness
Needs Addressed Homelessness
Funding CDBG: $38,023
Description Opportunity Services Center
Target Date of
Completion
6/30/2019
Estimate the number
and type of families
that will benefit from
the proposed
activities
300 persons will be assisted.
Location Description 33 Encina Way, Palo Alto, CA 94301
Planned Activities LifeMoves provides basic necessities for persons who are homeless or
at-risk of becoming homeless. The Opportunity Services Center is a
comprehensive, one-stop, multi-service, day drop-in center that
provides critical services for homeless Palo Alto residents. Specifically,
the facility provides showers, laundry, clothing, snacks, case
management, and shelter/housing referral services.
4 Project Name PAHC Management & Services Corporation
Target Area
Goals Supported Strengthen Neighborhoods
Needs Addressed Community Services and Public Improvements
Funding CDBG: $24,023
Description SRO Resident Support Services
Target Date of
Completion
6/30/2019
Estimate the number
and type of families
that will benefit from
the proposed
activities
131 persons will be assisted
Location Description 439 Emerson Street and 735 Alma Street Palo Alto, CA 94301
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Planned Activities Palo Alto Housing Corporation will provide counseling and supportive
case management services for low-income residents of single room
occupancy facilities in order to help them maintain housing
stability. Activities include financial counseling, health maintenance,
information and referral, problem solving, employment assistance, crisis
intervention and case management.
5 Project Name YWCA of Silicon Valley
Target Area
Goals Supported Strengthen Neighborhoods
Needs Addressed Community Services and Public Improvements
Funding CDBG: $10,000
Description Domestic Violence Services
Target Date of
Completion
6/30/2019
Estimate the number
and type of families
that will benefit from
the proposed
activities
40 persons will be assisted
Location Description Citywide
Planned Activities Support Network for Battered Women, a Division of YWCA will provide
individuals and families experiencing domestic violence, the program
provides a bilingual domestic violence hotline, an emergency shelter,
crisis counseling, legal assistance, court accompaniment, individual and
group therapy, support groups, children’s therapy groups, preventative
education, safety planning and community referrals.
6 Project Name Project Sentinel
Target Area
Goals Supported Fair Housing
Needs Addressed Fair Housing
Funding CDBG: $32,012
Description Fair Housing Services
Target Date 6/30/2018
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Estimate the number
and type of families
that will benefit from
the proposed
activities
15 persons will be assisted
Location Description Citywide
Planned Activities Project Sentinel will provide community education and outreach
regarding fair housing law and practices, investigation, counseling and
legal referral for victims of housing discrimination, and analyses for City
staff and officials regarding fair housing practices. California and federal
fair housing laws assure specific protected classes the right to be treated
in terms of their individual merits and qualifications in seeking
housing. Unfortunately, some people are not aware of the law or their
rights.
7 Project Name City of Palo Alto
Target Area
Goals Supported Affordable Housing
Homelessness
Strengthen Neighborhoods
Fair Housing
Economic Development
Needs Addressed Affordable Housing
Homelessness
Community Services and Public Improvements
Fair Housing
Economic Development
Funding CDBG: $73,733
Description Planning and Administration
Target Date of
Completion
6/30/2019
Estimate the number
and type of families
that will benefit from
the proposed
activities
The City will provide general administrative support to the CDBG
program.
Location Description Citywide
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Planned Activities Administer the Administrative costs for the overall management,
coordination, and evaluation of the CDBG program, and the project
delivery costs associated with bringing projects to completion.
8 Project Name Downtown Streets Inc.
Target Area
Goals Supported Economic Development
Needs Addressed Economic Development
Funding CDBG: $331,002
Description Workforce Development Program
Target Date of
Completion
6/30/2019
Estimate the number
and type of families
that will benefit from
the proposed
activities
30 jobs will be created for very low income and low income individuals.
Location Description Citywide.
Planned Activities The Workforce Development Program will provide a transition from
unemployment and homelessness to regular employment and housing
through case management, job training, mentoring, housing, and
transportation assistance. Downtown Streets Team will screen and
prepare applicants and will use their community connections to provide
training and job opportunities.
9 Project Name Minor Home Repair Program
Target Area
Goals Supported Strengthen Neighborhoods
Needs Addressed
Funding CDBG: $54,471
Description The Minor Home Repair Program will provide funds to address health
and safety and accessibility concerns for income qualified Palo Alto
homeowners. To participate in the program, a homeowner must be low
income.
Target Date of
Completion
6/30/2019
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Estimate the number
and type of families
that will benefit from
the proposed
activities
5 households will be assisted with minor homeowners
Location Description City wide. Program will be administered by a non-profit partner.
Planned Activities Complete home repairs that address health and safety concerns and
provide accessibility to low income homeowners throughout the City of
Palo Alto.
Describe the reasons for allocation priorities and any obstacles to addressing underserved needs
The City awards CDBG funding to nonprofit agencies to provide public services and housing for low
income and special needs households. The City operates on a two-year grant funding cycle for CDBG
grants.
The City allocates its CDBG funds to projects and programs that will primarily benefit 0-50% AMI
households, the homeless and special needs populations. The allocation of funds is made based on the
needs identified in the 2015-2020 Consolidated Plan.
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AP-50 Geographic Distribution – 91.220(f)
Description of the geographic areas of the entitlement (including areas of low-income and
minority concentration) where assistance will be directed
Not applicable. The City has not established specific target areas to focus the investment of CDBG
funds.
Geographic Distribution
Target Area Percentage of Funds
Table 8 - Geographic Distribution
Rationale for the priorities for allocating investments geographically
Not applicable.
Discussion
See discussion above.
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Affordable Housing
AP-55 Affordable Housing – 91.220(g)
Introduction
Palo Alto has identified affordable housing as the primary objective for the expenditure of CDBG funds
in the Consolidated Plan. The City will continue to allocate funding available to activities and projects
that meet this objective. A detailed discussion of how HUD entitlements will be used to support
affordable housing needs within the City is provided in AP-20, with the number of households to be
assisted itemized by goal.
One Year Goals for the Number of Households to be Supported
Homeless 0
Non-Homeless 0
Special-Needs 0
Total 0
Table 9 - One Year Goals for Affordable Housing by Support Requirement
One Year Goals for the Number of Households Supported Through
Rental Assistance 0
The Production of New Units 0
Rehab of Existing Units 5
Acquisition of Existing Units 0
Total 5
Table 10 - One Year Goals for Affordable Housing by Support Type
Discussion
Please see discussion above.
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AP-60 Public Housing – 91.220(h)
Introduction
The Santa Clara County Housing Authority (SCCHA) assists approximately 17,546 households through the
federal Section 8 Housing Choice Voucher program (Section 8). The Section 8 waiting list contains over
20,000 households (estimated to be a 10-year wait). SCCHA also develops, controls, and manages more
than 2,100 affordable rental housing properties throughout the County. SCCHA’s programs are targeted
toward LMI households and more than 80 percent of their client households are extremely low income
families, seniors, veterans, persons with disabilities, and formerly homeless individuals.
In 2008, SCCHA entered a ten-year agreement with HUD to become a Moving to Work (MTW) agency.
The MTW program is a federal demonstration program that allows greater flexibility to design and
implement more innovative approaches for providing housing assistance.
Additionally, SCCHA has used LIHTC financing to transform and rehabilitate 535 units of public housing
into SCCHA-controlled properties. The agency is an active developer of affordable housing and has
either constructed, rehabilitated, or assisted with the development of more than 30 housing
developments that service a variety of households, including special needs households.
Actions planned during the next year to address the needs to public housing
Not applicable. SCCHA owns and manages four public housing units, which are all located in the City of
Santa Clara.
Actions to encourage public housing residents to become more involved in management and
participate in homeownership
Although the majority of their units have been converted to affordable housing stock, SCCHA is
proactive in incorporating resident input into the agency’s policy-making process. An equitable and
transparent policy-making process that includes the opinions of residents is achieved through the
involvement of two tenant commissioners on the SCCHA board.
SCCHA has been a MTW agency since 2008. In this time the agency has developed 31 MTW activities.
The vast majority of its successful initiatives have been aimed at reducing administrative inefficiencies,
which provides resources for programs aimed at LMI families.
If the PHA is designated as troubled, describe the manner in which financial assistance will be
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provided or other assistance
Not applicable.
Discussion
Please see discussion above.
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AP-65 Homeless and Other Special Needs Activities – 91.220(i)
Introduction
The Santa Clara County region is home to the fourth-largest population of homeless individuals (7,394
single individuals) and the highest percentage of unsheltered homeless of any major city (74 percent of
homeless people sleep in places unfit for human habitation). The homeless assistance program planning
network is governed by the Santa Clara Continuum of Care (CoC), governed by the Destination: Home
Leadership Board, who serves as the CoC Board of Directors. The membership of the CoC is a
collaboration of representatives from local jurisdictions comprised of community-based organizations,
the Housing Authority of Santa Clara, governmental departments, health service agencies, homeless
advocates, consumers, the faith community, and research, policy and planning groups. For many years,
the CoC utilized a homeless services system referred to as the Homeless Management Information
System (HMIS). The HMIS monitored outcomes and performance measures for all the homeless services
agencies funded by the County. Last year, the CoC and service providers transitioned to a new system
referred to as Clarity. The system provides additional tools and resources to assist the CoC and service
providers to track information regarding clients served.
Describe the jurisdictions one-year goals and actions for reducing and ending homelessness
including
Reaching out to homeless persons (especially unsheltered persons) and assessing their
individual needs
In January 2017, a Point in Time (PIT) count was conducted for Santa Clara County by the City of San Jose
in conjunction with the County of Santa Clara. The PIT is an intense survey used to count the number of
homeless living throughout Santa Clara County on the streets, in shelters, safe havens or in transitional
housing, or in areas not meant for human habitation. The survey was conducted by hundreds of
volunteers who asked those living on the streets, as well as the residents of shelters, safe havens and
transitional housing, to respond to questions related to their needs. A portion of the survey addresses
the needs of those surveyed. Palo Alto financially contributed to this effort. The next PIT is scheduled
for January 2019.
Addressing the emergency shelter and transitional housing needs of homeless persons
In addressing the Consolidated Plan and the Continuum of Care strategic plans, Palo Alto will provide
funding for essential services and operations to local emergency shelters and transitional housing
facilities. The facilities provide shelter and services to homeless families with children, single parents
with children, single men and women, victims of domestic violence and sexual abuse, homeless
veterans, and the population living on the street. One example includes the Hotel de Zink rotating
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shelter, which provides overnight shelter to approximately 15 individuals every night.
Helping homeless persons (especially chronically homeless individuals and families, families
with children, veterans and their families, and unaccompanied youth) make the transition to
permanent housing and independent living, including shortening the period of time that
individuals and families experience homelessness, facilitating access for homeless individuals
and families to affordable housing units, and preventing individuals and families who were
recently homeless from becoming homeless again
The City spends part of its CDBG funds and local funds toward a variety of public services to address the
needs of homeless and very low income persons. Services provided include free food, clothing, medical
care, legal assistance, and rental assistance. The City allocates funding to the following homeless service
providers:
CDBG Funded
LifeMoves - Opportunity Services Center $38,023. The Opportunity Services Center facility in Palo Alto
provides a clean, safe environment and resources for low income or homeless persons including bagged
groceries, hot meals, a rotating church shelter program, information and referral, shower and laundry
facilities, case management, and money management (payee) programs, clothing and health services. A
daily hot meal is provided at a different location each day and bagged groceries are distributed daily at
the Downtown Food Closet. The Hotel de Zink rotating church shelter program is housed at a different
location each month.
Downtown Streets Team – Workforce Development Program $331,002. This economic development
program helps motivated graduates of the Downtown Streets Team programs move on to stable
employment. The program includes mentoring, counseling, job readiness, job training, and assistance.
Palo Alto Housing Corporation – SRO Tenant Counseling $24,023. Provides counseling and case-
management services for the low-income residents and prospective residents of single room occupancy
hotels in Palo Alto. Many SRO residents have a history of homelessness and special needs. The program
plays a vital role in helping residents maintain their stability and housing.
City of Palo Alto – Minor Repair Program $54,471. The Minor Repair Program will provide funds to low
income Palo Alto homeowners to address health and safety issues and improve accessibility. To
participate in the program, a homeowner must be low income. A non-profit partner will administer the
program for the City.
Note: Please see "discussion" section for HSRAP Funded homeless service providers.
Helping low-income individuals and families avoid becoming homeless, especially extremely
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low-income individuals and families and those who are: being discharged from publicly
funded institutions and systems of care (such as health care facilities, mental health facilities,
foster care and other youth facilities, and corrections programs and institutions); or, receiving
assistance from public or private agencies that address housing, health, social services,
employment, education, or youth needs.
HSRAP Funded
Abilities United – Disability Services:$44,691. Provides services and activities for adults & children with
mental & physical disabilities.
Adolescent Counseling Services (Outlet Program) -$10,250. Supports the wellbeing of all teens, tweens,
& young adults in Santa Clara & San Mateo Counties.
Community Working Group - $30,000. Support for continued operation & maintenance of the Day
Services Center
Counseling & Support Services for Youth (CASSY) -$35,000. A school-based youth mental health
support program
Downtown Streets Team – Downtown Streets:$74,572. Identifies motivated homeless individuals &
provides them with jobs cleaning & beautifying the downtown area in exchange for housing & food
vouchers. The program includes counseling, coaching & training to help program participants build self-
esteem, confidence & connections in the community.
Dreamcatchers - $23,609. Creates vibrant afterschool classrooms where students learn to thrive.
KARA - $18,565. KARA provides grief support to children, teens, families & adults.
La Comida de California – Hot Meals for The Elderly: $36,372. Daily meal program for the elderly.
LifeMoves – $35,257. A nonprofit committed to ending the cycle of homelessness for families &
individuals in San Mateo & Santa Clara Counties.
May View Health Center – Health Care for Low Income & Homeless Palo Alto residents: $26,990. Basic
primary health care services & health education & referral services for uninsured low-income &
homeless individuals from the Palo Alto area.
Momentum for Mental Health – Homeless Outreach Program: $44,724. Momentum for Mental Health
outreach program provides emergency on-call services to assist local mentally ill homeless persons.
Palo Alto Housing - $20,001. This non-profit agency builds, develops, acquires, & manages low- &
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moderate-income housing in Palo Alto & the San Francisco Bay Area.
PARCA - $10,959. On-site supervision, independent living training & social & recreational activities at the
Page Mill Court assisted living apartment complex
Peninsula HealthCare Connection – Project Downtown Connect: $29,684. Provider of health care
services at the Opportunity Center of Palo Alto. Project Downtown Connect provides Section 8 vouchers
to eligible homeless individuals & families.
SALA – Legal Assistance to Elders: $14,401. Senior Adults Legal Assistance (SALA) provides affordable
legal assistance to elders.
Vista Center for the Blind or Visually Impaired - $26,475. Empowers individuals who are blind or visually
impaired to embrace life to the fullest through evaluation, counseling, education & training.
Youth Community Service - $21,663. Builds life skills & leadership through meaningful service learning
experiences that encourage youth to make purposeful school & life choices.
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AP-75 Barriers to affordable housing – 91.220(j)
Introduction:
The incorporated and unincorporated jurisdictions within the County face barriers to affordable housing
that are common throughout the Bay Area. High on the list is the lack of developable land, which
increases the cost of available lands and increases housing development costs. Local opposition is
another common obstacle as many neighbors have strong reactions to infill and affordable housing
developments. Their opposition is often based on misconceptions, such as a foreseen increase in crime;
erosion of property values; increase in parking and traffic congestion; and overwhelmed schools.
However, to ensure a healthy economy the region must focus on strategies and investment that provide
housing for much of the region’s workforce – for example, sales clerks, secretaries, firefighters, police,
teachers, and health service workers – whose incomes significantly limit their housing choices.
It should be noted that in a constrained housing supply market, when housing developments produce
housing that is relatively affordable, higher income buyers and renters generally outbid lower income
households. A home’s final sale or rental price will typically exceed the projected sales or rental costs.
Public subsidies are often needed to guarantee affordable homes for LMI households.
Actions it planned to remove or ameliorate the negative effects of public policies that serve
as barriers to affordable housing such as land use controls, tax policies affecting land, zoning
ordinances, building codes, fees and charges, growth limitations, and policies affecting the
return on residential investment
Palo Alto is addressing the barriers to affordable housing through the following programs and
ordinances:
Context-Based Design Codes
The City adopted form-based codes in 2006 to ensure and encourage residential development by
following context-based design guidelines to meet increased density needs. The code encourages the
creation of walkable, pedestrian-oriented neighborhoods, following green building design principles,
and increasing density along transit corridors and in mixed-use neighborhoods. The Context-Based
Design Code allows for increased density and mixed-use buildings in a way that enhances neighborhood
character and walkability.
Density Bonus Ordinance
Density bonus provisions are a tool for attracting and assisting developers in constructing affordable
housing. Density bonuses allow a developer to increase the density of a development above what is
allowed under standard zoning regulations and provides regulatory relief in the form of concessions. In
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exchange, a developer provides affordable units in the development.
In 2004, the California State Legislature lowered the thresholds required to receive a density bonus and
increased the number of concessions a developer can receive. The City adopted a Density Bonus
Ordinance in January 2014. The density bonus regulations allow for bonuses of 20 to 35 percent,
depending on the amount and type of affordable housing provided. As required by state law, the
regulations also allow for exceptions to applicable zoning and other development standards, to further
encourage development of affordable housing.
Below Market Rate Housing Program
Established in 1974, the City’s BMR Housing Program has been instrumental in the production of
affordable housing by requiring developers to provide a certain percentage of units as BMR in every
approved project of three units or more. The program originally required that for developments on sites
of less than five acres, the developer must provide 15 percent of the total housing units as BMR housing
units. If the site was larger than five acres, the developer was required to provide 20 percent of the units
as BMR housing.
Several court cases have challenged the BMR, or “inclusionary zoning” ordinances in California. Two
factors that have received recent attention by the courts include whether inclusionary housing is
considered rent control, and whether inclusionary housing and related housing mitigation fees are
considered exactions. As a result of ongoing litigation, many cities have suspended or amended the
portions of their inclusionary housing requirements that require affordable units to be included in
market rate rental developments and many cities have turned, instead, to the use of development
impact fees charged on new, market-rate housing and/or commercial development. Known as “Housing
Impact Fees” and “Commercial Linkage Fees,” these fees are based on an assessment of the extent to
which the development of new market-rate housing or commercial uses, respectively, generates
additional demand for affordable housing.
The City recently updated its Commercial and Residential Impact Fee Nexus Studies and adopted two
ordinances to make changes to its BMR program and adopted a new fee structure. The ordinances
became effective on June 19, 2017.
Discussion:
Please see above.
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AP-85 Other Actions – 91.220(k)
Introduction:
This section discusses the City’s efforts in addressing the underserved needs, expanding and preserving
affordable housing, reducing lead-based paint hazards, and developing institutional structure for
delivering housing and community development activities.
Actions planned to address obstacles to meeting underserved needs
The diminishing amount of available funds continues to be an obstacle to addressing the needs of
underserved populations. To address this, the City supplements its CDBG funding with other resources
and funds, including:
• The City’s Human Service Resource Allocation Process (HSRAP) provides approximately
$1,464,146 from the General Fund in support of human services. The HSRAP funds, in
conjunction with the CDBG public service funds, are distributed to local non-profit agencies.
• The Palo Alto Commercial Housing Fund is utilized to increase the number of new affordable
housing units for Palo Alto’s work force. It is funded with mitigation fees required from
developers of commercial and industrial projects.
• The Palo Alto Residential Housing Fund is funded with mitigation fees provided under Palo Alto’s
BMR housing program from residential developers and monies from other miscellaneous
sources, such as proceeds from the sale or lease of City property.
• The City’s Below Market Rate Emergency Fund was authorized in 2002 to provide funding on an
ongoing basis for loans to BMR owners for special assessment loans and for rehabilitation and
preservation of the City’s stock of BMR ownership units.
• HOME Program funds are available on an annual competitive basis through the State of
California HOME program, and the County’s HOME Consortium.
Actions planned to foster and maintain affordable housing
The City will foster and maintain affordable housing by continuing the following programs and
ordinances:
• The Below Market Rate Emergency Fund which provides funding on an ongoing basis for loans
to BMR owners for special assessment loans and for rehabilitation and preservation of the City’s
stock of BMR ownership units.
• The Commercial Housing Fund is utilized to increase the number of new affordable housing
units for Palo Alto’s work force.
• The Residential Housing Fund is used to assist new housing development and/or the acquisition,
rehabilitation or the preservation of existing housing for affordable housing.
• The Density Bonus Ordinance, adopted by the City Council in January 2014, allows for bonuses
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of 20 to 35 percent, depending on the amount and type of affordable housing provided.
The City’s participation in the County's HOME Consortium allows developers of affordable housing
projects in Palo Alto to be eligible to competitively apply through an annual RFP process directly to the
County for HOME funds to help subsidize the
Actions planned to reduce lead-based paint hazards
The City’s housing and CDBG staff provides information and referral to property owners, developers,
and non-profit organizations rehabilitating older housing about lead-based paint (LBP) hazards. Any
house to be rehabilitated with City financial assistance is required to be inspected for the existence of
LBP and LBP hazards. The City provides financial assistance for the abatement of LBP hazards in units
rehabilitated with City funding. The City also requires that contractors are trained and certified in an
effort to decrease the risk of potential use of LBP in new units. All development and rehabilitation
projects must be evaluated according to HUD’s Lead Safe Housing Rule 24 CFR Part 35.
Actions planned to reduce the number of poverty-level families
The City, in its continuing effort to reduce poverty, will prioritize funding agencies that provide direct
assistance to the homeless and those in danger of becoming homeless. In FY 2018-2019, these programs
will include the following:
• Downtown Streets Team is a nonprofit in the City that works to reduce homelessness through a
“work first” model. Downtown Streets Team uses their community connections to provide
training and job opportunities to homeless people, specifically in the downtown area. The
Downtown Streets Team has helped 802 people find housing and 745 find jobs since its
inception in 2005. The Downtown Streets Team has initiatives in Palo Alto, Sunnyvale, San Jose,
and San Rafael.
Actions planned to develop institutional structure
The City is striving to improve intergovernmental and private sector cooperation to synergize efforts and
resources and develop new revenues for community service needs and the production of affordable
housing. Collaborative efforts include:
• Regular quarterly meetings between entitlement jurisdictions at the CDBG Coordinators
Meeting and Regional Housing Working Group.
• Joint jurisdiction Request for Proposals and project review committees
• Coordination on project management for projects funded by multiple jurisdictions
• The established of the HOME Consortium with the county of Santa Clara and the cities of Gilroy
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and Cupertino to provide additional funding opportunities for affordable housing projects.
Recent examples include the effort by the County to create a regional affordable housing fund, using
former redevelopment funds that could be returned to the County to use for affordable housing.
Another effort underway involves the possible use of former redevelopment funds to create a
countywide pool for homeless shelters and transitional housing. These interactions among agencies
generate cohesive discussion and forums for bridging funding and service gaps on a regional scale.
Actions planned to enhance coordination between public and private housing and social
service agencies
The City benefits from region-wide network of housing and community development partners, such as
the County and the CoC. To improve intergovernmental and private sector cooperation, the City will
continue to participate with other local jurisdictions and developers in sharing information and
resources.
In addition to the actions listed above, the City will continue to coordinate with the City’s human
services funding efforts to comprehensively address its community needs.
Discussion:
Please see discussions above.
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Program Specific Requirements
AP-90 Program Specific Requirements – 91.220(l)(1,2,4)
Introduction:
The charts below provide additional information regarding the CDBG program income and other CDBG
program requirements.
Community Development Block Grant Program (CDBG)
Reference 24 CFR 91.220(l)(1)
Projects planned with all CDBG funds expected to be available during the year are identified in the
Projects Table. The following identifies program income that is available for use that is included in
projects to be carried out.
1. The total amount of program income that will have been received before the start of the
next program year and that has not yet been reprogrammed 136,049
2. The amount of proceeds from section 108 loan guarantees that will be used during the
year to address the priority needs and specific objectives identified in the grantee's
strategic plan. 0
3. The amount of surplus funds from urban renewal settlements 0
4. The amount of any grant funds returned to the line of credit for which the planned use
has not been included in a prior statement or plan 0
5. The amount of income from float-funded activities 0
Total Program Income: 136,049
Other CDBG Requirements
1. The amount of urgent need activities 0
2. The estimated percentage of CDBG funds that will be used for activities that
benefit persons of low and moderate income. Overall Benefit - A consecutive
period of one, two or three years may be used to determine that a minimum
overall benefit of 70% of CDBG funds is used to benefit persons of low and
moderate income. Specify the years covered that include this Annual Action Plan. 100.00%
APPENDIX A: PUBLIC COMMENTS RECEIVED
APPENDIX B: PUBLIC HEARING NOTICE
NOTICE OF PUBLIC REVIEW PERIOD AND
PUBLIC HEARINGS ON PALO ALTO’S
COMMUNITY DEVELOPMENT BLOCKGRANT (CDBG) PROGRAM
This is to notify the general public and other interested parties that a 30-day public review period of the
Draft Annual Action Plan for the allocation of Fiscal Year 2019 Community Development Block Grant
(CDBG) funds, will begin on March 16, 2018 and end on April 16, 2018. The Draft Annual Action Plan
describes the activities the City may fund under the 2019 CDBG Program. Collectively these activities
are intended to meet Palo Alto’s affordable housing and community development objectives described
in the 2015-2020 Consolidated Plan.
Copies of the Draft Annual Action Plan will be available on March 16, 2018 at the Department of
Planning and Community Environment, 250 Hamilton Avenue, 5th Floor, Palo Alto, CA 94301, the City’s
website
https://www.cityofpaloalto.org/gov/depts/pln/long_range_planning/community_development_block_g
rant/default.asp or by calling Erum Maqbool, CDBG Staff Specialist, at (650) 329-2660. Interested
parties are encouraged to submit written comments on the proposed Draft Annual Action Plan during
the public review period, or to comment at the public hearings and meetings described below.
PUBLIC HEARINGS AND MEETINGS
The City of Palo Alto Finance Committee will hold a Public Hearing on April 3, 2018 to review the
proposed Fiscal Year 2018 CDBG funding allocations identified in the Draft Annual Action Plan. The
Public Hearing will be held at 7:00 p.m., or as soon as possible thereafter, in City Hall Community
Meeting Room, 250 Hamilton Avenue, Palo Alto.
The Palo Alto City Council will hold a Public Hearing on May 7, 2018 to adopt the Annual Action Plan
and the associated Fiscal Year 2018 CDBG allocations. The Public Hearing will be held at 6:00p.m., or as
soon as possible thereafter, in City Hall Council Chambers, 250 Hamilton Avenue, Palo Alto.
Persons with disabilities who require auxiliary aids or services in using City facilities,
services or programs, or who would like information on the City’s compliance
with the Americans with Disabilities Act (ADA) of 1990, may contact:
ADA Coordinator, City of Palo Alto,
650-329-2550 (Voice)
ada@cityofpaloalto.org
APPENDIX C: GRANTEE SF – 424 & CERTIFICATION
CERTIFICATIONS
In accordance with the applicable statutes and the regulations governing the consolidated plan
regulations, the jurisdiction certifies that:
Affirmatively Further Fair Housing --The jurisdiction will affirmatively further fair housing, which
means it will conduct an analysis of impediments to fair housing choice within the jurisdiction, take
appropriate actions to overcome the effects of any impediments identified through that analysis, and
maintain records reflecting that analysis and actions in this regard.
Anti-displacement and Relocation Plan --It will comply with the acquisition and relocation
requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970,
as amended, and implementing regulations at 49 CFR 24; and it has in effect and is following a
residential antidisplacement and relocation assistance plan required under section 104(d) of the Housing
and Community Development Act of 1974, as amended, in connection with any activity assisted with
funding under the CDBG or HOME programs.
Anti-Lobbying --To the best of the jurisdiction's knowledge and belief:
1.No Federal appropriated funds have been paid or will be paid, by or on behalf of it, to any person
for influencing or attempting to influence an officer or employee of any agency, a Member of
Congress, an officer or employee of Congress, or an employee of a Member of Congress in
connection with the awarding of any Federal contract, the making of any Federal grant, the
making of any Federal loan, the entering into of any cooperative agreement, and the extension,
continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or
cooperative agreement;
2.If any funds other than Federal appropriated funds have been paid or will be paid to any person
for influencing or attempting to influence an officer or employee of any agency, a Member of
Congress, an officer or employee of Congress, or an employee of a Member of Congress in
connection with this Federal contract, grant, loan, or cooperative agreement, it will complete and
submit Standard Form-LLL, "Disclosure Form to Report Lobbying," in accordance with its
instructions; and
3.It will require that the language of paragraph 1 and 2 of this anti-lobbying certification be
included in the award documents for all subawards at all tiers (including subcontracts, subgrants,
and contracts under grants, loans, and cooperative agreements) and that all subrecipients shall
certify and disclose accordingly.
Authority of Jurisdiction --The consolidated plan is authorized under State and local law (as
applicable) and the jurisdiction possesses the legal authority to carry out the programs for which it is
seeking funding, in accordance with applicable HUD regulations.
Consistency with plan -- The housing activities to be undertaken with CDBG, HOME, ESG, and
HOPWA funds are consistent with the strategic plan.
Section 3 --It will comply with section 3 of the Housing and Urban Development Act of 1968, and
implementing regulations at 24 CFR Part 135.
Signature/Authorized Official Date
Specific CDBG Certifications
The Entitlement Community certifies that:
Citizen Participation --It is in full compliance and following a detailed citizen participation plan that
satisfies the requirements of 24 CFR 91.105.
Community Development Plan --Its consolidated housing and community development plan identifies
community development and housing needs and specifies both short-term and long-term community
development objectives that provide decent housing, expand economic opportunities primarily for
persons of low and moderate income. (See CFR 24 570.2 and CFR 24 part 570)
Following a Plan --It is following a current consolidated plan (or Comprehensive Housing Affordability
Strategy) that has been approved by HUD.
Use of Funds --It has complied with the following criteria:
1.Maximum Feasible Priority.With respect to activities expected to be assisted with CDBG funds,
it certifies that it has developed its Action Plan so as to give maximum feasible priority to
activities which benefit low and moderate income families or aid in the prevention or elimination
of slums or blight. The Action Plan may also include activities which the grantee certifies are
designed to meet other community development needs having a particular urgency because
existing conditions pose a serious and immediate threat to the health or welfare of the
community, and other financial resources are not available);
2.Overall Benefit.The aggregate use of CDBG funds including section 108 guaranteed loans
during program year(s) _____ , ______(a period specified by the grantee consisting of one,
two, or three specific consecutive program years), shall principally benefit persons of low and
moderate income in a manner that ensures that at least 70 percent of the amount is expended
for activities that benefit such persons during the designated period;
3.Special Assessments.It will not attempt to recover any capital costs of public improvements
assisted with CDBG funds including Section 108 loan guaranteed funds by assessing any amount
against properties owned and occupied by persons of low and moderate income, including any fee
charged or assessment made as a condition of obtaining access to such public improvements.
However, if CDBG funds are used to pay the proportion of a fee or assessment that relates to
the capital costs of public improvements (assisted in part with CDBG funds) financed from
other revenue sources, an assessment or charge may be made against the property with respect
to the public improvements financed by a source other than CDBG funds.
The jurisdiction will not attempt to recover any capital costs of public improvements assisted
with CDBG funds, including Section 108, unless CDBG funds are used to pay the proportion of
fee or assessment attributable to the capital costs of public improvements financed from other
revenue sources. In this case, an assessment or charge may be made against the property with
respect to the public improvements financed by a source other than CDBG funds. Also, in the
case of properties owned and occupied by moderate-income (not low-income) families, an
assessment or charge may be made against the property for public improvements financed by a
source other than CDBG funds if the jurisdiction certifies that it lacks CDBG funds to cover the
assessment.
Excessive Force --It has adopted and is enforcing:
1. A policy prohibiting the use of excessive force by law enforcement agencies within its
jurisdiction against any individuals engaged in non-violent civil rights demonstrations; and
2. A policy of enforcing applicable State and local laws against physically barring entrance to or
exit from a facility or location which is the subject of such non-violent civil rights
demonstrations within its jurisdiction;
Compliance With Anti-discrimination laws --The grant will be conducted and administered in
conformity with title VI of the Civil Rights Act of 1964 (42 USC 2000d), the Fair Housing Act (42 USC
3601-3619), and implementing regulations.
Lead-Based Paint --Its activities concerning lead-based paint will comply with the requirements of 24
CFR Part 35, subparts A, B, J, K and R;
Compliance with Laws --It will comply with applicable laws.
Signature/Authorized Official Date
Title
APPENDIX TO CERTIFICATIONS
INSTRUCTIONS CONCERNING LOBBYING:
A.Lobbying Certification
This certification is a material representation of fact upon which reliance was placed
when this transaction was made or entered into. Submission of this certification is a
prerequisite for making or entering into this transaction imposed by section 1352, title 31,
U.S. Code. Any person who fails to file the required certification shall be subject to a
civil penalty of not less than $10,000 and not more than $100,000 for each such failure.
City of Palo Alto (ID # 9030)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/3/2018
City of Palo Alto Page 1
Summary Title: FY 2019 Water Financial Plan and Rate Proposals
Title: Utilities Advisory Commission Recommendation that the City Council
Adopt: (1) a Resolution Approving the Fiscal Year 2019 Water Utility Financial
Plan; and (2) a Resolution Increasing Water Rates by 4% 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
From: City Manager
Lead Department: Utilities
RECOMMENDATION
Staff and the Utilities Advisory Commission (UAC) request that the Finance Committee
recommend that the Council:
1. Adopt a resolution (Attachment A) approving the fiscal year (FY) 2019 Water Utility
Financial Plan (Attachment B); and
2. Adopt a resolution (Attachment C) 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).
EXECUTIVE SUMMARY
The FY 2019 Water Utility Financial Plan includes projections of the utility’s costs and revenues
for FY 2018 through FY 2028. Costs are projected to rise by about 4% per year over the next
several years, primarily due to increasing water supply and capital project costs. As a result,
staff projects the need for a 4% water rate increase on July 1, 2018 and 7% rate increases in FY
2020 and FY 2021. The 4% increase in 2018 is needed to raise revenue for rising capital and
operations expenses. Over the longer term, increases are primarily associated with increasing
water supply costs, with some of the increase related to rising capital costs.
The UAC reviewed the Water Financial Plan and Rate Proposals at its meeting on March 7,
City of Palo Alto Page 2
2018. Staff noted that the proposal had not changed from the preliminary rate review brought
to the UAC on February 7, 2018, and the UAC voted unanimously to recommend staff’s
proposal.
BACKGROUND
Every year staff presents the UAC and Finance Committee with Financial Plans for its Electric,
Gas, Water, and Wastewater Collection Utilities and recommends any rate adjustments
required to maintain their financial health. These Financial Plans include a comprehensive
overview of the utility’s operations, both retrospective and prospective, and are intended to be
a reference for UAC and Council members as they review the budget and staff’s rate
recommendations. Each Financial Plan also contains a set of Reserves Management Practices
describing the reserves for each utility and the management practices for those reserves.
DISCUSSION
Staff’s annual assessment of the financial position of the City’s water utility is completed to
ensure adequate revenue to fund operations, in compliance with the cost of service
requirements set forth in the California Constitution (Proposition 218). This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. The
current rate proposals are also based on the cost of service methodology described in the 2012
Palo Alto Water Cost of Service & Rate Study, the 2015 Study update, and the 2015 Drought
Rate memorandum completed by Raftelis Financial Consultants.
Staff proposes to adjust water rates to the levels shown in Tables 1 and 2, below, effective July
1, 2018, to recover costs related to growing capital improvement, operations and maintenance,
and general administrative costs, as discussed below. These changes are projected to increase
the system average water rate by roughly 4%. This includes a smaller increase in water
consumption charges and a larger increase in fixed charges, for an overall increase in residential
customer bills of roughly 3% to 4%.
Concurrently, staff is also evaluating whether it would be appropriate to apply a single fixed
charge to smaller meter sizes, which was an issue raised in the 2017 metering audit. If
implemented, this change would require an update to the utility’s cost of service analysis. The
evaluation will be completed for possible implementation on or before July 1, 2019.
The rate changes proposed for July 1, 2018 are included in the proposed amended rate
schedules in Attachment D, and outlined here in Tables 1 through 3.
Table 1: Water Consumption Charges in $/CCF (Current and Proposed)
Current
(7/1/16)
Proposed
(7/1/17)
Change
$/CCF %
City of Palo Alto Page 3
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 6.66 6.66 - -
Tier 2 Rates 9.18 9.48 0.30 3%
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 7.68 7.80 0.12 2%
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 7.68 7.80 0.12 2%
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 9.08 9.37 0.29 3%
Table 2: Current and Proposed Monthly Service Charges for W-1, W-4, and W-7
Mete
r
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/17)
Residential (W-
1)
Commercial (W-
4)
Irrigation (W-7)
Proposed
(7/1/18)
Residential (W-1)
Commercial (W-
4)
Irrigation (W-7)
$ %
5/8” $16.77 $18.71 $1.94 11.6%
3/4” $22.60 $25.21 $2.61 11.6%
1” $34.26 $38.22 $3.96 11.6%
1 ½” $63.40 $70.73 $7.33 11.6%
2” $98.37 $109.75 $11.38 11.6%
3” $209.11 $233.29 $24.18 11.6%
4” $372.31 $415.36 $43.05 11.6%
6” $762.81 $851.02 $88.21 11.6%
8” $1,403.94 $1,566.29 $162.35 11.6%
10” $2,219.92 $2,476.63 $256.71 11.6%
12” $2,919.34 $3,256.93 $337.59 11.6%
Table 3: Current and Proposed Monthly Service Charges for Fire Services (W-3)
Mete
r
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/17) Proposed
(7/1/18)
$ %
City of Palo Alto Page 4
2” $3.79 $4.23 $0.44 11.6%
4” $23.42 $26.13 $2.71 11.6%
6” $68.03 $75.90 $7.87 11.6%
8” $144.97 $161.73 $16.76 11.6%
10” $260.70 $290.85 $30.15 11.6%
12” $421.11 $469.81 $48.70 11.6%
Bill Impact of Proposed Rate Changes
Table 5 shows the impact of the proposed July 1, 2018 rate changes on residential bills. The
average increase in revenue is projected to be about four percent, but some customers may see
slightly higher or lower increases in their bill due to slight changes in the composition of the
utility’s costs. The change represents about a 12% increase to the distribution portion of the
water rates to recover projected increases in capital projects, such as reservoir and tank
rehabilitations, main replacement projects and meter upgrades, as well as inflationary increases
to operations costs. This is offset by lower water supply costs than were projected by staff
during last year’s forecasting process. Because water consumption increased as the Bay Area
exited the drought last year, the current estimate of the FY 2019 SFPUC W-25 rate (Wholesale
Use with Long-Term Contract) is $4.10/ccf, compared to last year’s projection, which was
$4.37/ccf. The SFPUC will not determine its final wholesale rate until May or June. However, in
order to have the City’s water rates in place for July 1, staff must provide notice to CPAU
customers by the end of April. Should the SFPUC increase rates beyond $4.10/ccf after the
City’s July 1 water rates are adopted, current Operations Reserves should provide sufficient
funds until an adjustment to Palo Alto’s rates can be made next year.
Table 5 shows the impact of the proposed changes.
Table 5: Impact of Proposed Rate Changes on Residential Bills
Usage
(CCF/month)
Bill under
Existing Rates
(7/1/17)
Bill under
Proposed Rates
(7/1/18)
Change
$/mo. %
4 $43.41 $45.35 $1.94 4.5%
(Winter median) 7 $65.91 $68.15 $2.24 3.4%
(Annual median) 9 $84.27 $87.11 $2.84 3.4%
(Summer median) 14 $130.17 $134.51 $4.34 3.3%
25 $231.15 $238.79 $7.64 3.3%
Table 6 shows the impact of the proposed July 1, 2018 rate changes on various representative
commercial customer bills.
City of Palo Alto Page 5
Table 6: Impact of Proposed Rate Changes on Commercial Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/17)
Bill under
Proposed Rates
(7/1/18)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $108.93 $112.31 $3.38 3.1%
(Annual average) 64 $508.29 $517.91 $9.62 1.9%
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 $ 145.12 $ 155.06 $ 9.94 6.9%
(Summer median) 37 $ 399.36 $ 417.42
$
18.06 4.5%
(Winter average) 56 $ 571.88 $ 595.45
$
23.57 4.1%
(Summer average) 199 $
1,870.32 $ 1,935.36
$
65.04 3.5%
FY 2019 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 7 shows the projected rate adjustments over the next five years and their impact on the
annual median residential water bill.
Table 7: Projected Rate Adjustments, FY 2019 to FY 2023
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Water Utility 4% 7% 7% 6% 4%
Estimated Bill Impact ($/mo)* $2.84 $6.10 $6.52 $5.98 $4.23
* estimated impact on median residential water bill, which is currently $84.27.
The largest projected increases in water rates occur between now and FY 2024, with lower
increases afterward. Figures 1 and 2 below illustrate the projected increases in the Water
Utility’s costs between FY 2018 and FY 2024:
City of Palo Alto Page 6
Figure 1: FY 2018 and FY 2024 costs
Figure 2: Percentage of Total Cost Increase From FY 2018 to FY 2024
Attributed to Supply, Capital, and Operations Costs
A major driver for the increase in the water utility’s costs (and therefore rates) over the next
several years is the cost of water. Wholesale water costs are adopted by the SFPUC, and
generally change on an annual basis, but are projected to increase by 3.8% from FY 2018 to FY
2024. The SFPUC is currently engaged in a $4.8 billion Water System Improvement Project
(WSIP), funding of which is 60% complete but is not forecast for final completion until late
2021. Current major projects underway are replacement of Calaveras dam, restoration work to
the Alameda Creek Watershed, and work on regional groundwater storage and recovery. The
SFPUC is forecasting the need for additional Transmission, Supply & Storage and Treatment
system upgrade projects, starting after the WSIP is complete. All future and in-progress
construction work will require bond funding, and the SFPUC’s financial plans show debt service
cost growing by 77% between FY 2018 and FY 2024, and nearly doubling by FY 2028. Initial
City of Palo Alto Page 7
wholesale rate increase projections range from 5% to 7% per year through FY 2024 to cover
increases in debt service cost. In later years (FY 2024 through FY 2028), water supply costs are
projected to rise by about 1.0% percent per year on average, though the later year forecast is
highly uncertain.
Changes in usage due to drought, or recovery from drought, can also make the magnitude of
future increases difficult to predict. The SFPUC’s costs to operate the Regional Water System
are primarily fixed costs, so the water rate charged to wholesale customers like the City of Palo
Alto is highly dependent on usage by all users of the Regional Water System. The City’s FY 2019
Water Utility Financial Plan assumes that, while the drought has ended and usage has started to
increase, based on CPAU’s experience, consumption is not anticipated to return to pre-drought
levels. The SFPUC is currently working on its budget for FY 2019, and the long-range changes to
wholesales costs are subject to change. Staff will reflect those increases in future financial
forecasts, as they become available.
There remains some uncertainty in the forecasts of capital costs for the water utility in coming
years. Water main replacement costs have risen substantially in recent years. The regional and
even national focus on infrastructure improvement has created labor shortages, leading to
higher bids than were seen in the past. Capital cost projections increased by 5.4% from FY 2018
through FY 2024. In part this is because the FY 2018 capital budget, like previous years, was
lower due to main replacement project delays, so the increase in capital costs is more
pronounced. However, the increased costs also are due to the higher construction costs CPAU
has seen in recent capital project bids, as well as large one-time capital costs in FY 2019, FY
2020, and FY 2021 related to reservoir rehabilitation and additional costs required to invest in
an advanced metering infrastructure (AMI). AMI is a foundational technology that will improve
customer experience and enable more effective detection of water leaks. Over the entire
forecast period (through FY 2028), capital costs are projected to rise on average by 4.4%.
Operations costs are projected to increase by 2.1% over the forecast period due to materials
and services cost inflation as well as benefit costs that are increasing faster than inflation.
Higher bid costs and delays in project schedules resulted in a deferment of main replacement
projects in FY 2017, temporarily lowering costs, and greater than anticipated sales post-drought
resulted in higher revenues. These have resulted in the Operations Reserve increasing to the
maximum guideline level, and with surplus reserves available to phase in rate increases
gradually over the forecast period by drawing down reserves.
Water Bill Comparison with Surrounding Cities
Table 8 compares water bills for residential customers to those in surrounding communities as
of February 1, 2018 (under current the City’s current water rates). Palo Alto customers have the
highest monthly bills of the group, although bills for smaller water users are lower than in some
surrounding communities. It is unclear at this time what water rate changes may be
implemented in these communities for FY 2019.
City of Palo Alto Page 8
Table 8: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of February 2018
Palo
Alto
Menlo
Park
Mountain
View Hayward
Redwood
City
Santa
Clara
4 43.41 50.51 37.10 33.20 50.10 22.76
(Winter median) 7 65.91 73.36 57.50 54.62 70.56 39.83
(Annual median) 9 84.27 88.60 71.10 68.90 84.20 51.21
(Summer median) 14 130.17 126.70 105.10 106.51 128.86 79.66
25 231.15 210.50 220.70 199.02 247.97 142.25
*Based on the FY 2013 BAWSCA survey, the fraction of SFPUC as the source of potable
water supply was 100% for Palo Alto, 95% for Menlo Park, 100% for Redwood City, 87%
for Mountain View, 10% for Santa Clara and 100% for Hayward.
Cost Drivers and Cost Containment
Because the City’s water rates are higher than in most of the comparison cities in Table 8
above, it is worth noting the drivers for these costs, as well as the City’s efforts to contain costs.
The primary driver for rising costs in recent years has been the increasing cost of Hetch Hetchy
water due to rehabilitation and seismic strengthening of the one hundred year old system. A
secondary but significant driver has been the rising cost of construction for Palo Alto
infrastructure replacement, as well as the cost the City’s emergency supply system. Other
agencies in the area that buy Hetch Hetchy water have been similarly affected by these trends,
but Palo Alto’s rates remain higher. Some of the key reasons include:
As one of the earliest cities to develop on the Peninsula, Palo Alto has older infrastructure
that requires more spending on replacement. In addition, other cities have allowed more
redevelopment, which means that developers pay fees to upgrade and replace the system
when they create capacity impacts.
Palo Alto’s system is more spread out, with reservoirs and transmission lines running into
the Foothills rather than being more centrally located. This results in higher operational and
capital replacement costs.
Palo Alto’s consumption patterns are different. With larger lot sizes and more irrigation,
Palo Alto residents use more water and are allocated a larger share of costs than residents
in cities with denser development. Some cities also have industrial users that use significant
amounts of water, helping to offset the cost of water to residents.
Even though costs have risen in recent years, they have not risen as much as they would have if
City staff did not make an effort to contain costs. Some examples include:
The City partners with other small utilities to push the SFPUC to control its costs through
the Bay Area Water Supply and Conservation Agency (BAWSCA). These efforts result in real
savings. For example, efforts by BAWSCA recently resulted in $12 million in refunds for
wholesale customers, including Palo Alto. BAWSCA is also beginning an audit of the SFPUC’s
City of Palo Alto Page 9
capital spending, and has strongly advocated to enforce contractual provisions to avoid
improper allocation of costs to wholesale customers.
City staff looks for opportunities to save money operationally, small opportunities that add
up. For example, the City recently creatively rebid its contract for construction material
supply and spoils hauling to go from using a single vendor to multiple vendors that each
specialized in specific materials, realizing nearly $250,000 in savings over three years.
City staff also looks for strategic opportunities to save money. For example, rather than
replacing aging reservoirs “as is,” staff is examining whether there are strategic
opportunities to consolidate or relocate reservoirs to reduce operational and capital costs.
The current climate of high construction costs results in less capital replacement for dollars
invested. Staff will continue to prioritize near-term projects to address immediate needs,
and potentially defer projects where system reliability will not be impacted to ensure full
value is extracted from existing infrastructure.
As reflected in the Utilities Strategic Plan, staff is raising the ongoing attention to effective
use of available resources particularly across Divisions.
Utility consumers also see some long-term cost savings from City-wide efforts to manage
personnel costs.
Changes from Last Year’s Financial Forecast
Table 9 compares current rate projections to those projected in the last two year’s Financial
Plans. As shown, the FY 2019 rate projections are somewhat lower than projected last year.
The cumulative projected increase in rates through FY 2028 is similar to last year’s projections.
Table 9: Projected Water Rate Trajectory for FY 2018 to FY 2027
Projection FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Current
(FY 2019 Financial Plan) 4% 7% 7% 6% 4% 4% 1% 3% 1% 2%
Last year
(FY 2018 Financial Plan) 6% 6% 6% 6% 6% 2% 2% 2% 1% N/A
Two years ago
(FY 2017 Financial Plan) 9% 6% 2% 2% 2% 3% 5% 3% N/A N/A
COMMISSION REVIEW AND RECOMMENDATION
The UAC reviewed this proposal at its March 7, 2018 meeting. After brief discussion the UAC
voted unanimously to recommend the Financial Plan and rate increase as proposed. The
excepted draft minutes from the UAC’s March 7, 2018 meeting can be found here.
TIMELINE
If the Finance Committee supports staff’s recommendation, notification of the rate increases
will be sent to customers as required by Article XIIID of the State Constitution (added by
Proposition 218). The Financial Plans and rate schedules will then go to the City Council with
the FY 2019 budget for adoption, at which time the public hearing required by Article XIIID of
City of Palo Alto Page 10
the State Constitution will be held. If the rate changes are approved, they will become effective
July 1, 2018.
RESOURCE IMPACT
Normal year sales revenues for the Water Utility are projected to increase by roughly 4% ($2.7
million) as a result of these rate increases. See the attached FY 2019 Water Financial Plan for a
more comprehensive overview of projected cost and revenue changes for the next ten years.
POLICY IMPLICATIONS
The proposed water rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans, and were developed using a cost of
service study and methodology consistent with the cost of service requirements of Proposition
218.
ENVIRONMENTAL REVIEW
The Finance Committee’s review and recommendation to Council on the FY 2019 Water
Financial Plans and rate adjustments does not meet the definition of a project requiring
California Environmental Quality Act (CEQA) review under Public Resources Code Section 21065
thus no environmental review is required.
Attachments:
Attachment A: Resolution Adopting FY 2019 Water Financial Plan
Attachment B: FY 2019 Water Financial Plan
Attachment C: Draft Resolution Adopting Water Rates Effective July 1, 2018
Attachment D: Utility Rate Schedules W-1 W-2 W-3 W-4 and W-7
Attachment A
NOT YET APPROVED
180315 jb 6054073
Resolution No. _____
Resolution of the Council of the City of Palo Alto Approving the
Fiscal Year 2019 Water Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) regularly assesses the financial position of
its utilities with the goal of ensuring adequate revenue to fund operations. This includes
making long-term projections of market conditions, the physical condition of the system, and
other factors that could affect utility costs, and setting rates adequate to recover these costs. It
does this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made
part of the Financial Plans.
The Council of the City of Palo Alto hereby RESOLVES as follows:
SECTION 1. The Council hereby adopts the FY 2019 Water Utility Financial Plan.
SECTION 2. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s (CEQA) definition of a project under Public Resources
Code Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
governmental activity which will not cause a direct or indirect physical change in the
environment,, and therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
Attachment A
NOT YET APPROVED
180315 jb 6054073
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
FY 2019 WATER
UTILITY
FINANCIAL PLAN
FY 2019 TO FY 2028
ATTACHMENT B
WATER UTILITY FINANCIAL PLAN
February 2018 2 | Page
FY 2019 WATER UTILITY
FINANCIAL PLAN
FY 2019 TO FY 2028
TABLE OF CONTENTS
Section 1: Definitions and Abbreviations................................................................................ 4
Section 2: Executive Summary and Recommendations ........................................................... 4
Section 2A: Overview of Financial Position .................................................................................. 4
Section 2B: Summary of Proposed Actions .................................................................................. 5
Section 3: Detail of FY 2019 Rate and Reserves Proposals ....................................................... 6
Section 3A: Rate Design ............................................................................................................... 6
Section 3B: Current and Proposed Rates ..................................................................................... 6
Section 3C: Bill Impact of Proposed Rate Changes ...................................................................... 8
Section 3D: Proposed Reserve Transfers ..................................................................................... 9
Section 4: Utility Overview .................................................................................................... 9
Section 4A: Water Utility History ............................................................................................... 10
Section 4B: Customer Base ........................................................................................................ 10
Section 4C: Distribution System ................................................................................................. 11
Section 4D: Cost Structure and Revenue Sources ...................................................................... 11
Section 4E: Reserves Structure ................................................................................................... 12
Section 4F: Competitiveness ...................................................................................................... 12
Section 5: Utility Financial Projections ................................................................................. 13
Section 5A: Load Forecast .......................................................................................................... 13
Section 5B: FY 2012 to FY 2016 Cost and Revenue Trends ........................................................ 14
Section 5C: FY 2017 Results ....................................................................................................... 15
Section 5D: FY 2018 Projections ................................................................................................ 16
Section 5E: FY 2019 – FY 2028 Projections ................................................................................ 16
Section 5F: Risk Assessment and Reserves Adequacy ............................................................... 18
Section 5G: Alternate Scenarios................................................................................................. 19
WATER UTILITY FINANCIAL PLAN
February 2018 3 | Page
Section 5H: Long-Term Outlook ................................................................................................. 19
Section 6: Details and Assumptions ..................................................................................... 19
Section 6A: Water Purchase Costs ............................................................................................. 20
Section 6B: Operations .............................................................................................................. 21
Section 6C: Capital Improvement Program (CIP) ....................................................................... 22
Section 6D: Debt Service ............................................................................................................ 25
Section 6E: Other Revenues ....................................................................................................... 26
Section 6F: Sales Revenues ........................................................................................................ 26
Section 7: Communications Plan .......................................................................................... 27
Appendices ......................................................................................................................... 28
Appendix A: Water Utility Financial Forecast Detail ................................................................. 29
Appendix B: Water Utility Capital Improvement Program (CIP) Detail ..................................... 31
Appendix C: Water Utility Reserves Management Practices ..................................................... 32
Appendix D: Description of Water Utility Operational Activities ............................................... 35
Appendix E: Sample of Water Utility Outreach Communications ............................................. 36
WATER UTILITY FINANCIAL PLAN
February 2018 4 | Page
SECTION 1: DEFINITIONS AND ABBREVIATIONS
BAWSCA Bay Area Water Supply and Conservation Agency
CCF The standard unit of measurement for water delivered to water customers, equal to
one hundred cubic feet, or roughly 748 gallons.
CIP Capital Improvement Program
CPAU City of Palo Alto Utilities Department
O&M Operations and Maintenance
RFC Raftelis Financial Consultants, Inc.
SFPUC San Francisco Public Utilities Commission
SFWD San Francisco Water Department
UAC Utilities Advisory Commission
WSIP The SFPUC’s Water System Improvement Program to seismically strengthen the
transmission lines of the Hetch Hetchy regional water system.
SECTION 2: EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City’s Water Utility for the next ten years. This
Financial Plan provides revenues to cover the costs of operating the utility safely over that time
while adequately investing for the future. It also addresses the financial risks facing the utility
over the short term and long term, and includes measures to mitigate and manage those risks.
SECTION 2A: OVERVIEW OF FINANCIAL POSITION
Staff expect overall costs in the Water Utility to rise by about 2.8% per year from fiscal year (FY)
2018 to 2028. Excluding FY 2017 (which, unlike normal years, did not include a water main
replacement project), most costs are projected to rise by 2-4% annually through the projection
period. Water supply costs, the largest component of the utility’s costs, are projected to rise
nearly 3.7% per year through FY 2024, and at a lower rate in subsequent years, due to a series
of major capital projects on the Hetch Hetchy water system. See Section 6A: Water Purchase
Costs for more information. Capital projects, with several reservoir and tank rehabilitation
projects scheduled for FY 2019 through FY 2021, as well as increases to main replacement
project costs to reflect rising construction costs. More detail on CIP costs is discussed in Section
6C: Capital Improvement Program (CIP) below. Table 1 below shows the costs for the Water
Utility from FY 2017 through FY 2028.
Table 1: Expenses for FY 2017 to FY 2028 (Thousand $’s)
Expenses
($000)
FY
2017
(act.)
FY
2018
(est.)
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Water
Purchases
20,075 22,062 22,611 23,356 24,190 25,318 26,207 27,534 27,680 28,458 28,558 28,659
Operations 15,965 18,627 19,142 19,615 20,088 20,529 20,973 21,364 21,743 22,154 22,430 22,826
Capital
Projects
4,110 8,267 13,695 13,210 16,765 10,709 11,023 11,344 11,675 12,024 12,373 12,737
TOTAL 40,151 48,956 55,449 56,181 61,042 56,556 58,203 60,242 61,098 62,636 63,361 64,222
WATER UTILITY FINANCIAL PLAN
February 2018 5 | Page
This proposed financial plan projects that the Water Utility needs the rate increases shown in
Table 2 to ensure that revenues cover rising costs and reserves remain healthy. While costs are
increasing roughly 3.5% per year through FY 2024, staff projects a need for sales revenue
increases averaging roughly 4.7% per year over that period. This is due to the fact that revenue
is currently slightly below costs and also because little or no increase is expected in non-sales
revenue (e.g. interest, connection fees).
The table also shows rate projections from last year’s Financial Plan. Last year’s plan projected
earlier, generally higher rate increases. However, the delay of FY 2017 water main replacement
projects as well as post-drought sales revenues resulted in an increase in reserves, which
enabled the more gradual increases projected in the current plan. This also means that the Rate
Stabilization Reserve will be drawn down over a longer time frame than projected in last year’s
financial plan.
Table 2: Proposed and Projected Water Rate Changes for FY 2019 to FY 2028
Projection FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Current 4% 7% 7% 6% 4% 4% 1% 3% 1% 2%
Last year 6% 6% 6% 6% 6% 2% 2% 2% 1% N/A
2 years 9% 6% 2% 2% 2% 3% 5% 3% N/A N/A
The Water Utility has a Rate Stabilization Reserve that can be used to smooth rate increases
over several years. This Financial Plan projects that these reserves will be exhausted by the end
of FY 2021. The Water Utility also has a Capital Improvement Program (CIP) Reserve that can be
used to offset one-time unanticipated capital costs. This Financial Plan assumes that the CIP
Reserve will be used for unanticipated capital expenses or returned to the Operations Reserve
by the end of FY 2020. The Water Utility Operations Reserve was above the maximum guideline
level at the end of FY 2017, mainly due to larger than anticipated drought surcharge revenue.
However, these funds will be needed to fund the Water Utility in FY 2018 and FY 2019, bringing
the Operations Reserve within guidelines by FY 2020. Table 3 shows the projected reserve
transfers over the forecast period.
Table 3: Transfers To/(From) Reserves for FY 2018 to FY 2028 ($000)
Reserve FY 2018 FY 2019 FY 2020 to FY 2028
Capital Improvement - - (2,726)
Rate Stabilization - - (4,069)
Operations - - 6,785
SECTION 2B: SUMMARY OF PROPOSED ACTIONS
Staff proposes the following actions for the Water Utility in FY 2019:
1. Increase rates to raise an additional 4% in revenue to fund increases to capital
expenditures and increased operations costs. Section 3B: Current and Proposed Rates
describes this increase in more detail.
WATER UTILITY FINANCIAL PLAN
February 2018 6 | Page
SECTION 3: DETAIL OF FY 2019 RATE AND RESERVES PROPOSALS
SECTION 3A: RATE DESIGN
The Water Utility’s rates are evaluated and implemented in compliance with the cost of service
requirements and procedural rules set forth in the California Constitution under Article 13 (per
Proposition 218). The City structured current rates based on staff’s assessment of the financial
position of the Water Utility, and updated current rates using the methodology from the March
2012 Palo Alto Water Cost of Service & Rate Study by Raftelis Financial Consultants, Inc. (RFC)
(Staff Report 2676), as well as RFC’s 2015 Memorandum: Proposed Water Rates updating the
2012 Study and analyzing drought rates (Staff Report 5951). Staff plans to review and update
this cost of service study in 1 to 2 years, unless any major changes occur to the utility’s
operations or customer base that would necessitate an earlier study. Before conducting any
new cost of service study, staff will review current rates and the scope of the study with the
Utilities Advisory Commission (UAC) and Council to determine the City’s policy priorities.
In 2015 Council adopted a drought surcharge to assist the water utility in recovering its costs
due to decreased revenue resulting from lower water consumption as customers conserved.
With the State declaring the drought over in FY 2017, the drought surcharge was discontinued
as of July 1, 2017.
SECTION 3B: CURRENT AND PROPOSED RATES
The current rates and surcharges were effective on July 1, 2017. Current rates reflect
adjustments in accordance with the results of an updated cost of service study performed by
RFC in 2015. The 2015 study developed the drought surcharges and evaluated the City’s water
rate methodology and structure in light of court decisions interpreting provisions of the State
Constitution applicable to water rates. RFC validated the City’s rate structure, recommending
only minor adjustments to ensure that peaking costs were equitably allocated to each customer
class and residential rate tier.
CPAU has five rate schedules: separately metered residential customers (W-1), commercial and
master-metered multi-family residential customers (W-4), irrigation-only services (W-7),
services to fire sprinkler systems in buildings and private hydrants (W-3), and service to fire
hydrant rental meters used for construction (W-2). All customers pay a monthly service charge
based on the size of their inlet meter. This charge represents meter reading, billing, and other
customer service costs, but also the cost of maintaining the capability to deliver a peak flow for
that customer corresponding to their meter size. All customers are also charged for each CCF
(one hundred cubic feet) of water used. Separately metered residential customers are charged
on a tiered basis, with the first 0.2 CCF per day (6 CCF for a 30 day billing period) charged at the
first tier price per CCF, and all additional units charged a higher tier price per CCF. Commercial
customers pay a uniform price for each CCF used, and a higher price for separately metered
irrigation service.
For July 1, 2018 staff is proposing an increase in rates of approximately four percent. Water
rates are composed of two general types of costs: commodity and distribution. Commodity
WATER UTILITY FINANCIAL PLAN
February 2018 7 | Page
costs are mainly volumetric in nature and charged by the San Francisco Public Utilities
Commission (SFPUC). In late December 2017, the SFPUC provided a preliminary estimate that
their FY 2019 W-25 wholesale rate for agencies with long-term contracts would remain at
$4.10/CCF in FY 2019. The SFPUC will not determine its final rate until May or June. However,
in order to have the City’s water rates in place for July 1, staff must notify customers by the end
of April. Staff is using the SFPUC’s December 2017 estimate in this forecast.
For FY 2018, early indications were that the SFPUC would raise their rates to $4.37/CCF, and
this was what was used in CPAU staff’s rate setting analysis. Since the SFPUC’s actual rate
increase was lower, and FY 2019 indications forecast no change, staff will reduce the
commodity portion of CPAU’s rates accordingly.
Distribution rates cover all the costs to deliver water within the City, such as operations,
maintenance, metering and billing, and capital improvement. Capital improvement costs have
been increasing by about 3.5% annually, are projected to continue rising in the future, and staff
is reflecting these changes in distribution costs. Operations costs are discussed in Section 6B:
Operations, below. The decrease in commodity rates partially offsets the distribution increases,
thus the percentage change differs between volumetric rates and monthly service charges.
Table 4 shows the current and proposed consumption charges.
Table 4: Current and Proposed Water Consumption Charges
Current
(7/1/17)
Proposed
(7/1/18)
Change
$/CCF %
W-1 (Residential) Volumetric Rates ($/CCF)
Tier 1 Rates 6.66 6.66 - -
Tier 2 Rates 9.18 9.48 0.30 3%
W-2 (Construction) Volumetric Rates ($/CCF)
Uniform Rate 7.68 7.80 0.12 2%
W-4 (Commercial) Volumetric Rates ($/CCF)
Uniform Rate 7.68 7.80 0.12 2%
W-7 (Irrigation) Volumetric Rates ($/CCF)
Uniform Rate 9.08 9.37 0.29 3%
Table 5 shows the current and proposed monthly service charges for rate schedules W-1, W-4,
and W-7.
WATER UTILITY FINANCIAL PLAN
February 2018 8 | Page
Table 5: Current and Proposed Monthly Service Charges for W-1, W-4, and W-7
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/17)
Residential (W-1)
Commercial (W-4)
Irrigation (W-7)
Proposed (7/1/18)
Residential (W-1)
Commercial (W-4)
Irrigation (W-7)
$ %
5/8” $16.77 $18.71 $1.94 11.6%
3/4” $22.60 $25.21 $2.61 11.6%
1” $34.26 $38.22 $3.96 11.6%
1 ½” $63.40 $70.73 $7.33 11.6%
2” $98.37 $109.75 $11.38 11.6%
3” $209.11 $233.29 $24.18 11.6%
4” $372.31 $415.36 $43.05 11.6%
6” $762.81 $851.02 $88.21 11.6%
8” $1,403.94 $1,566.29 $162.35 11.6%
10” $2,219.92 $2,476.63 $256.71 11.6%
12” $2,919.34 $3,256.93 $337.59 11.6%
Table 6 shows the current and proposed monthly service charges for rate schedule W-3
Table 6: Current and Proposed Monthly Service Charges for Fire Services (W-3)
Meter
Size
Monthly Service Charge
($/month based on meter size)
Change
Current (7/1/17) Proposed (7/1/18) $ %
2” $3.79 $4.23 $0.44 11.6%
4” $23.42 $26.13 $2.71 11.6%
6” $68.03 $75.90 $7.87 11.6%
8” $144.97 $161.73 $16.76 11.6%
10” $260.70 $290.85 $30.15 11.6%
12” $421.11 $469.81 $48.70 11.6%
SECTION 3C: BILL IMPACT OF PROPOSED RATE CHANGES
Table 7 shows the impact of the proposed July 1, 2018 rate changes on the median residential
bill. The average increase is projected to be about four percent, but some customers may see
slightly higher or lower increases due to slight changes in the composition of the utility’s costs.
WATER UTILITY FINANCIAL PLAN
February 2018 9 | Page
Table 7: Impact of Proposed Water Rate Changes on Residential Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/17)
Bill under
Proposed
Rates (7/1/18)
Change
$/mo. %
4 $43.41 $45.35 $1.94 4.5%
(Winter median) 7 $65.91 $68.15 $2.24 3.4%
(Annual median) 9 $84.27 $87.11 $2.84 3.4%
(Summer median) 14 $130.17 $134.51 $4.34 3.3%
25 $231.15 $238.79 $7.64 3.3%
Table 8 shows the impact of the proposed July 1, 2018 rate changes on various representative
commercial customer bills.
Table 8: Impact of Proposed Water Rate Changes on Commercial Bills
Usage
(CCF/month)
Bill under
Current Rates
(7/1/17)
Bill under
Proposed
Rates
(7/1/18)
Change
$/mo. %
Commercial (W-4) (5/8” meters)
(Annual median) 12 $108.93 $112.31 $3.38 3.1%
(Annual average) 64 $508.29 $517.91 $9.62 1.9%
Irrigation (W-7) (1 ½” meters)
(Winter median) 9 $ 145.12 $ 155.06 $ 9.94 6.9%
(Summer median) 37 $ 399.36 $ 417.42 $ 18.06 4.5%
(Winter average) 56 $ 571.88 $ 595.45 $ 23.57 4.1%
(Summer average) 199 $ 1,870.32 $ 1,935.36 $ 65.04 3.5%
SECTION 3D: PROPOSED RESERVE TRANSFERS
In the FY 2018 Financial Plan, staff proposed transferring $1.87 million from the Rate
Stabilization Reserve to the Operations Reserve in FY 2018. This transfer was not necessary as
increased sales during FY 2017 resulted in larger than expected revenues, largely from the
drought surcharge. The drought surcharge was discontinued at the start of FY 2018. Customer
sales recovery after the drought continues to be more robust than staff’s initial projections.
Section 4E: Reserves Structure and Appendix A: Water Utility Financial Forecast Detail shows
details of reserves levels.
SECTION 4: UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It provides general
background information and helps readers better understand the forecasts in Section 5: Utility
Financial Projections and Section 6: Details and Assumptions.
WATER UTILITY FINANCIAL PLAN
February 2018 10 | Page
SECTION 4A: WATER UTILITY HISTORY
The Water Utility was established on May 9, 1896, two years after the city was incorporated.
Voters of the 750 person community approved a $40,000 bond to buy local, private water
companies who operated one or more shallow wells to serve the nearby residents. The city
grew and the well system expanded until nine wells were in operation in 1932. Palo Alto began
receiving water from the San Francisco Water Department (SFWD) in 1937 to supplement these
sources.
A 1950 engineering report noted, “the capricious alternation of well waters and the San
Francisco Water Department water…has made satisfactory service to the average customer
practically impossible”. By 1950, only eight wells were still in operation. Despite this,
groundwater production increased in the 1950’s leading to lower groundwater tables and water
quality concerns. In 1962, a survey of water softening costs to CPAU customers determined that
CPAU should purchase 100% of its water supply needs from the SFWD. CPAU signed a 20-year
contract with SFWD, and CPAU’s wells were placed in standby condition. The SFWD later
became known as the SFPUC. Since 1962 (except for some very short periods) CPAU’s entire
supply of potable water has come from the SFPUC.
As the city grew, so did the number of mains in the water system. The system of mains
expanded along with the city, while existing sections of the system continued to age. In the
mid-1980s, the number of breaks in cast iron mains installed during the 1940s and earlier
started to accelerate. In FY 1994, to combat deterioration of older sections of the system, CPAU
performed an analysis of cost effective system improvements and increased the rate of main
replacement from one mile per year to three. CPAU began a plan to replace 75 miles of
deficient mains within 25 years.
In 1999, a study of system reliability concluded that major upgrades were needed to the
distribution system to provide adequate water supply during a natural disaster. This ultimately
resulted in the $40 million Emergency Water Supply and Storage Project, completed in 2013,
which involved a new underground reservoir in El Camino Park, the siting and construction of
several emergency supply wells, and the upgrade of several existing wells and the Mayfield
pump station. Upon completion, the city began to focus reliability efforts on its system of water
storage reservoirs and transmission lines in the Foothills.
At the same time that CPAU was evaluating the reliability of its own system, the SFPUC, in
consultation with BAWSCA members, was evaluating the reliability of the Hetch Hetchy water
system, which crosses two major fault lines between the Sierras and the Bay Area. That
evaluation concluded that major upgrades to the system were required. This planning process
culminated in the SFPUC’s $4.8 billion Water System Improvement Project (WSIP), which is
ongoing. The SFPUC continues to evaluate its aging system for other needed infrastructure
improvements.
SECTION 4B: CUSTOMER BASE
CPAU’s Water Utility provides water service to the residents and businesses of Palo Alto, plus a
handful of residential customers not in Palo Alto (Los Altos Hills, primarily). Nearly 20,300
WATER UTILITY FINANCIAL PLAN
February 2018 11 | Page
Figure 1: Cost Structure (FY 2017)
50%
40%
10%
Water Purchases
Operations
Capital
Figure 2: Revenue Structure (FY 2017)
99%
1%
Sales of Water
Other Revenue
customers are connected to the water system, approximately 16,500 (81%) of which are
separately metered residential customers and 3,800 (19%) of which are commercial, master-
metered residential, irrigation and fire service customers.
Judging from seasonal consumption patterns, between 35% and 50% of Palo Alto’s water is
used for irrigation, and that consumption is heavily weather dependent. It also varies
significantly by season. As a result of these two factors, there is significant variability in the
amount of water that is demanded from the system month to month and year to year.
SECTION 4C: DISTRIBUTION SYSTEM
To deliver water to its customers, CPAU owns roughly 233 miles of mains (which transport the
water from the SFPUC meters at the city’s borders to the customer’s service laterals and
meters), eight wells (to be used in emergencies), five water storage reservoirs (also for
emergency purposes) and several tanks used to moderate pressure and deal with peaks in flow
and demand (due to fire suppression, heavy usage times, etc.). These represent the vast
majority of the infrastructure used to distribute water in Palo Alto.
SECTION 4D: COST STRUCTURE AND REVENUE SOURCES
As shown in Figure 1, water purchase
costs accounted for roughly 50% of the
Water Utility’s costs in FY 2017.
Operational costs represented roughly
40%, and capital investment was
responsible for the remaining 10%. These
percentage distributions are projected to
remain similar over the forecast period
with the capital investment increasing to
approximately 20% of the Water Utility’s
costs and operations declining to
approximately 35%.
The Water Utility receives nearly all of its
revenue from sales of water and the
remainder from capacity and connection
fees, interest on reserves, and other
sources. Appendix A: Water Utility
Financial Forecast Detail shows more
detail on the utility’s cost and revenue
structures. Roughly 15% of the utility’s
revenues come from fixed service
charges, though most of its costs are
fixed.
WATER UTILITY FINANCIAL PLAN
February 2018 12 | Page
SECTION 4E: RESERVES STRUCTURE
CPAU maintains six reserves for its Water Utility to manage various types of contingencies. The
descriptions below summarize these reserves; see Appendix C: Water Utility Reserves
Management Practices for more detailed definitions and guidelines for reserve management:
• Reserve for Commitments: A reserve equal to the utility’s outstanding contract
liabilities for the current fiscal year. Most City funds, including the General Fund, have a
Commitments Reserve.
• Reserve for Reappropriations: A reserve for funds dedicated to projects reappropriated
by the City Council, nearly all of which are capital projects. Most City funds, including
the General Fund, have a Reappropriations Reserve.
• Capital Improvement Program (CIP) Reserve: The CIP reserve can be used to
accumulate funds for future expenditure on CIP projects and is anticipated to be empty
unless a major one-time CIP expenditure is expected in future years. This CIP can also
act as a contingency reserve for the CIP. This type of reserve is used in other utility funds
(Electric, Gas, and Wastewater Collection) as well.
• Rate Stabilization Reserve: This reserve is intended to be empty unless the city
anticipates one or more large rate increases in the forecast period. In that case, funds
can be accumulated to spread the impact of those future rate increases across multiple
years. This type of reserve is used in other utility funds (Electric, Gas, and Wastewater
Collection) as well.
• Operations Reserve: This is the primary contingency reserve for the Water Utility, and is
used to manage yearly variances from the budget for operational water supply costs.
This type of reserve is used in other utility funds (Electric, Gas, and Wastewater
Collection) as well.
• Unassigned Reserve: This reserve is for any funds not assigned to the other reserves
and is normally empty.
SECTION 4F: COMPETITIVENESS
Table 9 shows the current water bills for residential customers compared to what they would
be under surrounding communities’ rate schedules. CPAU has the highest monthly bills of the
group, although bills for smaller water users are less than in some surrounding communities.
WATER UTILITY FINANCIAL PLAN
February 2018 13 | Page
Table 9: Residential Monthly Water Bill Comparison
Usage
(CCF/month)
Residential monthly bill comparison ($/month)*
As of January 2018
Palo
Alto
Menlo
Park
Mountain
View Hayward
Redwood
City
Santa
Clara
4 43.41 50.51 37.10 33.20 50.10 22.76
(Winter median) 7 65.91 73.36 57.50 54.62 70.56 39.83
(Annual median) 9 84.27 88.60 71.10 68.90 84.20 51.21
(Summer median) 14 130.17 126.70 105.10 106.51 128.86 79.66
25 231.15 210.50 220.70 199.02 247.97 142.25
* All comparisons use the 5/8” meter size.
SECTION 5: UTILITY FINANCIAL PROJECTIONS
SECTION 5A: LOAD FORECAST
Figure 3 shows 40 years of water consumption history. Average water use has trended
downward over time even as Palo Alto’s population has grown. Significant water use reductions
over the 40-year history were in response to requests to reduce water use in the 1976-77 and
1988-92 drought periods. During these periods, customers invested in efficient equipment and
modified behavior to achieve water reduction goals. Reductions in usage achieved during these
drought periods endured even after those periods. More recently, water sales decreased
substantially during the 2007-2009 recession and during the 2014 - 2017 drought. Usage has
started to recover after the drought, though the level at which usage will finally plateau is
unknown.
Figure 3: Historical Water Consumption
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February 2018 14 | Page
Figure 4 shows the forecast of water consumption through FY 2028, as denoted by the dotted
line.
Figure 4: Forecast Water Consumption
California has until recently been experiencing drought conditions, and the State had mandated
a 24% water use restriction for Palo Alto up until May 2016. Customers continue to conserve,
but water usage has been increasing. Based on patterns experienced in previous droughts and
in recognition of continued state-level calls for conservation, this forecast assumes
consumption will only rebound by 50% of the difference between pre-drought and drought
levels, then resume with the previous trend of decreasing usage over time.
SECTION 5B: FY 2012 TO FY 2016 COST AND REVENUE TRENDS
Figure 5 and the tables in Appendix A: Water Utility Financial Forecast Detail show how costs
have changed during the last five years as well as how staff projects they will change over the
next decade.
The annual expenses for the water utility rose substantially between 2013 and 2017. The
increases were primarily related to water purchase costs, which increased 21% from $16.6
million in FY 2013 to $20.1 million in FY 2017. Section 6A: Water Purchase Costs contains a
more in-depth discussion of water purchase costs. Operations costs have remained fairly steady
since FY 2014, while CIP costs have generally increased but fluctuated down in certain years.
For example, in FY 2013 a new water main replacement project was delayed to permit
completion of a backlog of projects budgeted in prior years. In FY 2017, delays were in part due
WATER UTILITY FINANCIAL PLAN
February 2018 15 | Page
to the rising CIP costs; during that year a water main replacement project that was put out for
bid resulted in very few contractors competing, and project bids that were higher than
budgeted.
Figure 5: Water Utility Expenses, Revenues, and Rate Changes:
Actual Costs through FY 2017 and Projections through FY 2028
SECTION 5C: FY 2017 RESULTS
Actual revenues for FY 2017 were higher than projected ($47.5 million vs. $41.8 million). The
drought was declared over by the Governor during FY 2017, and customers started consuming
more water. Higher sales, along with the drought surcharge in place until the beginning of FY
2018, resulted in higher revenue. The trend of higher connection and capacity fee income
continued during FY 2017. Costs were also lower during FY 2017, mainly due to savings in
operations, administrative fees and some CIP savings, although increased purchase costs from
higher sales offset some of this. Table 10 summarizes the variances from forecast.
Actual Projected
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Table 10: FY 2017, Actual Results vs. Financial Plan Forecast
Net Cost/
(Benefit) (000)
Type of
change
Higher sales revenues $(3,185) Revenue increase
Increased connection and capacity fees, other income (2,453) Revenue increase
Operations and maintenance, general admin costs lower
than expected
(1,634) cost savings
Purchase costs higher than expected 833 cost increase
Net Cost / (Benefit) of Variances $(6,439)
SECTION 5D: FY 2018 PROJECTIONS
Sales levels for FY 2018 were increased based on recent usage trends, and estimated sales
revenues are also estimated to increase by about $4.2 million. Other revenues are also
expected to increase, partially due to the trend of higher connection and capacity fee income,
but also from higher interest income resulting from larger reserve balances. On the expense
side, the most notable change from the FY 2018 budget identified at this time are increases for
CIP expenditures. The effort to rehabilitate mains along University Avenue is anticipated to
have much higher costs than initially projected, and some additional projects were included
after last year’s financial plan was created. Additional expense increases are anticipated from
higher water supply costs associated with higher water sales, as well as some increases to
operations and administrative costs. Table 11 summarizes the changes from last year’s forecast.
Table 11: FY 2018 Change in Projected Results, 2018 Forecast vs 2019 Forecast
Net Cost/ (Benefit)
Type of Change
Higher sales revenues $(4,232) revenue increase
Higher misc. revenues (1,269) revenue increase
Increase in capital projects 4,185 cost increase
Higher operations and purchase budgets 1,233 cost increase
Net Cost / (Benefit) of Variances $(83)
SECTION 5E: FY 2019 – FY 2028 PROJECTIONS
Figure 5 above shows that costs for the Water Utility are increasing through the rest of the
forecast period. Water supply costs are the largest component, and are generally projected to
grow steadily by two to three percent over the coming years. Operations and capital
investment costs are also expected to increase at the same rate of inflation used in the City’s
long-term financial plans (2.5% to 3.0% per year). While future CIP costs have been revised
upwards to reflect the higher construction costs seen in recent projects, there is still
uncertainty with regard to the utility’s future costs for main replacement. See Section 6: Details
and Assumptions for more detail on the costs that make up these projections, as well as the
various assumptions underlying the projections.
As shown in Figure 5, above, staff currently projects revenues to be below expenses for FY 2018
and for the three subsequent years. Revenues exceeded expenses in FY 2017 due to delays in
water main replacement projects, leading to lower annual CIP spending in that year, as well as
drought surcharge revenue that made up for reduced distribution revenue as a result of
drought conservation. As main replacement resumes, the Water Utility requires rate increases
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February 2018 17 | Page
of between 4% and 7% per year through FY 2024 to bring revenues up to match annual
expenses. This forecast assumes the use of the Rate Stabilization Reserve to spread the
increases over multiple years.
Figure 6 below shows reserves trends based on these revenue projections. Staff projects the
Rate Stabilization Reserve to have a zero balance by the end of FY 2021, and the CIP Reserve to
decrease by $2.7 million by the end of FY 2020. Assuming these increases in revenue, staff
expects the Operations Reserve, the main contingency reserve, to remain above the minimum
reserve level and that this reserve will be adequate to meet all identified risks, as discussed in
Section 5F: Risk Assessment and Reserves Adequacy. In addition, the Unassigned reserve
reflects reserve funds in the Operations reserve above the maximum guideline level. With the
expected increase in costs between FY 2018 and FY 2019, these excess reserves will be utilized
quickly and moderate the pace of increases going forward, but must be used before Rate
Stabilization Reserve funds are utilized.
These projections assume that drought restrictions are not re-imposed by the State.
Figure 6: Water Utility Reserves
Actual Reserve Levels for FY 2017 and Projections through FY 2028
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February 2018 18 | Page
SECTION 5F: RISK ASSESSMENT AND RESERVES ADEQUACY
The Water Utility currently has one contingency reserve, the Operations Reserve, and this
Financial Plan maintains reserves within the approved reserve maximum and minimum
guidelines throughout the forecast period, as shown in Figure 7. Funds in excess of the
maximum as of the end of FY 2018 will be recommended to be moved to the Unassigned
Reserve. Operations Reserve exceed the short term risk assessment for the utility.
Figure 7: Operations Reserve Adequacy
Table 12 summarizes the risk assessment calculation for the Water Utility through FY 2023.
Staff used the same methodology for FY 2024 through FY 2028 as well. The risk assessment
includes the revenue shortfall that could accrue due to:
1. Lower than forecasted sales revenue; and
2. An increase of 10% of planned system improvement CIP expenditures for the budget
year.
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Table 12: Water Risk Assessment ($000)
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Total non-commodity revenue $20,597 $22,039 $23,581 $24,760 $25,330
Max. revenue variance, previous ten years 13% 13% 13% 13% 13%
Risk of revenue loss $2,035 $2,178 $2,330 $2,447 $2,503
CIP Budget $13,695 $13,210 $16,765 $10,709 $11,023
CIP Contingency @10% $1,369 $1,321 $1,676 $1,071 $1,102
Total Risk Assessment value $3,405 $3,499 $4,007 $3,517 $3,605
SECTION 5G: ALTERNATE SCENARIOS
No alternative scenarios were considered as part of this financial plan.
SECTION 5H: LONG-TERM OUTLOOK
CPAU has put its Water Utility on strong footing by investing in its distribution system
infrastructure and emergency water facilities over the last 20 years. The Water System Master
Plan, recently completed and under review, will give CPAU a better picture of the long-term
outlook for its infrastructure and will result in a plan for an appropriate schedule for
infrastructure replacement and upgrades. In addition, CPAU’s water supplier, the SFPUC, has
replaced and seismically strengthened its water transmission infrastructure, which will benefit
Palo Alto and all Hetch Hetchy customers over the long term.
The opportunities for CPAU’s Water Utility to obtain additional supplies over the long term may
be in alternative water supplies such as recycled water, groundwater, and water from the Santa
Clara Valley Water District. These alternatives have been analyzed in the past, and will be
analyzed again in an upcoming update to the Water Integrated Resource Plan. Some of these
alternatives may provide cost savings or increased drought protection.
Climate change may begin to present challenges for the Water Utility over the next 20 to 40
years. Availability of water from SFPUC’s Regional Water System may change with changing
seasonal precipitation patterns. Water consumption patterns may change. Consumption could
increase due to drier weather or decrease as customers become even more focused on water
conservation. Droughts may become more frequent. The risk of wildfire in the foothills could
increase, possibly threatening utility infrastructure or placing greater demands on it. Sea level
rise could result in greater exposure of utility infrastructure to saltwater intrusion or the need
to protect infrastructure from inundation, possibly resulting in higher maintenance and
replacement costs. It could also affect the groundwater aquifer that the utility relies on in
emergencies. Any of these could result in increases to the costs of operating the Water Utility.
As part of the Sustainability/Climate Action Plan, CPAU is currently working on a Climate
Change Adaptation Roadmap that will begin to assess some of these risks.
SECTION 6: DETAILS AND ASSUMPTIONS
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February 2018 20 | Page
SECTION 6A: WATER PURCHASE COSTS
CPAU purchases all of the potable water supplies from the SFPUC, which owns and operates the
Hetch Hetchy Regional Water System. CPAU is one of several agencies that purchase water
from the SFPUC, all of whom are members of the Bay Area Water Supply and Conservation
Agency (BAWSCA). Palo Alto uses roughly 7% of the water delivered by the SFPUC to BAWSCA
member agencies.
The Hetch Hetchy Regional Water System begins with a system of reservoirs and tunnels in the
high Sierra in Yosemite County and water is transported by a gravity-fed pipeline to the Bay
Area. Currently, the SFPUC is in the midst of a $4.8 billion bond-financed capital improvement
program (the Water System Improvement Program, or WSIP) to seismically retrofit the facilities
that transport water to the Bay Area. As of September 2017, nearly 60% of the program (by
dollar value) had been completed, while 40% was under construction.1 This has resulted in
large increases in the annual debt service costs assigned to wholesale customers like Palo Alto.
The wholesale customer debt service share of the WSIP is increasing from $53 million in FY
2010 to over $200 million in FY 2020. As a result, the SFPUC’s wholesale water rate has already
increased from $1.43 per CCF in FY 2009 to $4.10 per CCF in FY 2018, and is forecasted to
increase to over nearly $6.00 per CCF by FY 2023 (these projections are subject to change based
on future SFPUC budget estimates). Figure 8 shows the SFPUC’s actual wholesale water rate
since FY 2009 and a projection through FY 2027. Note that the wholesale water rate decreased
in FY 2014, but the apparent rate decrease is due to a part of the debt being directly paid by the
BAWSCA agencies. This cost is paid in addition to the wholesale water rate and adds about
$0.35 to $0.45 per CCF to the wholesale rate.
The SFPUC’s water rate projections show a less steeply increasing rate trajectory after all of the
debt for the WSIP has been issued. Still, debt service costs are projected to nearly double
between FY 2019 and FY 2028. Parts of SFPUC’s system not included in the WSIP will also need
rehabilitation after the WSIP is completed, and some of these projects are already included in
the SFPUC’s rate projections, such as additional Transmission, Supply & Storage and Treatment
system upgrade projects, slated to start after the WSIP ends. The SFPUC is also conducting
condition assessments of other “up-country” facilities, located in the Sierras, in the coming
years. Current estimates are that $1.8 billion will be needed between FY 2019 and FY 2028 for
these non-WSIP projects, but if these assessments identify other facilities that need
replacement, it may result in additional rate increases as new debt is issued to finance the
projects. For comparison, the WSIP was $4.8 billion.
In December 2017, the SFPUC provided an early estimate for FY 2019 wholesale water rates to
remain at $4.10 per CCF. Staff has yet to receive a new estimate, but there is much uncertainty
surrounding continued lower water usage by the BAWSCA agencies. While drought restrictions
ended in May 2016, customers’ behavior changes are showing a steady increase during the dry
winter of 2018.
1 First Quarter FY 2017-18 WSIP Regional Quarterly Report, http://www.sfwater.org/index.aspx?page=307
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February 2018 21 | Page
As the drought ended in FY 2017 and sales have started increasing, if that trend continues in
upcoming years, rate projections may level out. However, if snow and rain do not materialize in
future years further calls for restricted usage may reoccur.
Figure 8: Historical and Projected SFPUC Wholesale Water Rate
SECTION 6B: OPERATIONS
CPAU’s Water Utility operations include the following activities:
• Administration, a category that includes charges allocated to the Water Utility for
administrative services provided by the General Fund and for Utilities Department
administration, as well as debt service and other transfers. Additional detail on Water
Utility debt service is provided in Section 6D: Debt Service
• Customer Service
• Engineering work for maintenance activities (as opposed to capital activities)
• Operations and Maintenance of the distribution system; and
• Resource Management
Appendix D: Description of Water Utility Operational Activities includes detailed descriptions of
the work associated with each of these activities.
From FY 2013 to FY 2017 Operations costs (excluding debt service, rent, and transfers)
increased 3.5% per year on average (see Figure 9). Operations costs were the main driver. Debt
service costs increased by $2.4 million per year as a result of a bond issued to finance the
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February 2018 22 | Page
Emergency Water Supply and Storage Project. Transfers have varied from year to year, but are
expected to remain relatively low and stable through the forecast period.
Staff project inflationary increases for Operations costs with underlying assumptions for salary
and benefit costs, consumer price index, and other cost projections that match the City’s
long-range financial forecast.
Figure 9: Historical and Projected Operational Costs
SECTION 6C: CAPITAL IMPROVEMENT PROGRAM (CIP)
The Water Utility’s CIP consists of the following types of projects:
• One time projects, or large, non-recurring replacement of system assets (such as
reservoir rehabilitation).
• Water main replacement, which represents the ongoing replacement of aging water
mains, and sometimes the services associated with those mains.
• Ongoing projects, which represent the cost of replacing aging and under-recording
meters and degraded boxes and covers, minor replacements of various types of
distribution system equipment, and the cost of capitalized tools and equipment.
• Customer connections, which represents the cost when the Water Utility installs new
services or upgrades existing services at a customer’s request in response to
Actual
Projected
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February 2018 23 | Page
development or redevelopment. CPAU charges a fee to these customers to cover the
cost of these projects.
Table 13 shows the FY 2018 projected budget and the five year CIP spending plan, although
these figures are preliminary pending budget discussions starting in May. The ‘committed’
column represents funds committed to contracts for which work has not yet been completed or
invoices paid.
Table 13: Budgeted Water Utility CIP Spending ($000)
The water main replacement program funds the replacement of deteriorating water mains. The
water system consists of over 236 miles of mains, approximately 2,000 fire hydrants, and over
20,000 metered service connections spanning 9 pressure zones over a 26 square mile service
area. CPAU utilizes an asset management database in conjunction with hydraulic modeling
software to prioritize capital improvements. CPAU selects mains for replacement by
researching the maintenance history of the system and identifying those that are undersized,
corroded, and subject to recurring breaks. CPAU uses a scoring system based on criticality in
order to prioritize which mains to replace first, and coordinates with the Public Works street
maintenance program to avoid cutting into newly repaved streets. CPAU replaces
approximately 3 miles of main per year, or 1.3% of the system.
Costs for the water main replacement program are increasing for a variety of reasons:
• Fire Code regulations now mandate fire sprinklers for new residential units. To
accommodate increased fire flows, new main replacement projects require larger
diameter pipe.
• CPAU has switched to high-density polyethylene (HDPE) for its mains. Installation costs
for this material are slightly higher, though lifecycle costs are lower, and the material
performs better. Joints in distribution mains are the most likely place for failure, and
sections of HDPE pipe can be fused together rather than connected with fittings. In the
long run, this will reduce losses and maintenance costs.
• To take full advantage of HDPE’s fusibility, CPAU is now replacing the services along
with the water mains with new HDPE services. In the past, the existing services were
reconnected, regardless of the material. This new practice costs more in the short run,
but will provide long term benefits.
• Lastly, costs have escalated after the recession. The regional and even national focus
on infrastructure improvement has created labor shortages in the construction market,
leading to higher bids than were seen in the past.
Project Category
Current
Budget*
Spending,
Curr. Yr
Remain.
Budget**Committed FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
One Time Projects 6,123 (606) 5,516 3,578 2,200 2,200 2,200 - -
Water Main Replacement 10,637 (1,387) 9,251 4,780 7,685 6,454 6,647 6,847 7,055
Ongoing Projects 3,086 (518) 2,568 749 2,025 1,982 2,039 2,099 2,161
Customer Connections 773 (373) 401 72 732 754 777 800 824
TOTAL 20,619 (2,884) 17,736 9,180 12,642 11,389 11,663 9,746 10,040
*Includes unspent funds from previous years carried forward or reappropriated into the current fiscal year
**Equal to CIP Reserves (Reserve for Reappropriations + Reserve for Commitments).
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February 2018 24 | Page
These factors have created some uncertainty in future water main replacement costs. As bids
for new projects, such as upgrades to University Avenue, have consistently come in higher over
the last few years, future main replacement project budgets have been increased from prior
year’s estimates to reflect expected bid estimates. If the cost of water main replacement
continues to rise at its current levels, budgets may need to be revised further. However, CPAU
is nearing the end of a long term water main replacement program initiated in 1993 to replace
the oldest and most degraded parts of the system. Roughly 25% of the system has been
replaced, and the rate of water leaks has decreased 50%. CPAU initiated a master planning
process in FY 2015 that was completed in 2016 to evaluate the current state of the distribution
system and determine the necessary rate of main replacement in future years. Currently the
replacement rate of about 1.3% of the system each year is an 80-year replacement cycle.
In last year’s financial forecast, staff projected a two year delay in new main replacement
projects. However, some of these delayed projects are now moving forward. The University
Avenue Business District project is progressing, and may require a budget increase of $3 million
in FY 2018 to continue. However, there still could be delays due to rising construction costs and
also the ongoing issue with keeping and maintaining qualified staff to design and work on
projects. The Water CIP estimates assume the resumption of annual main replacement
projects, starting in FY 2019. Staff assumes capital investment cost increases in 2024 and
beyond of approximately 3% annually.
Included in the one-time project budget is seismic water system upgrades and/or replacement
for the Corte Madera, Park, Boronda and Dahl reservoirs to improve earthquake resistance.
This work will improve protection from water loss at these reservoirs in a seismic event. If an
earthquake caused a significant water leak, this could lead to loss of water for firefighting, loss
of water storage for drinking, property damage from flooding or mudslides, and environmental
damages. Staff estimates this work will cost $2 million each year for three years beginning in FY
2019. In FY 2021, as part of the Electric fund CIP plan, there is an initiative to move meters to an
Advanced Metering Infrastructure, or AMI, to allow for more advanced monitoring, metering
and billing of the electric usage. This AMI network, however, can also be used to read water
and gas meters as well, and thus the plan to transition all Utility meters to the AMI platform.
Staff has included an additional $1.5 million in FY 2019 and FY 2020 for preparatory work and
meter testing, and $4.16 million for general meter replacement costs in FY2021.
One project not included in this forecast is the seismic strengthening of a large water
transmission line in the foothills. Staff has engaged a consultant to investigate alternatives for
this project. The consultant is analyzing an alternative that involves installing a valve and hose
system that could be used to bypass breaks in the line while they are repaired after an
earthquake. This is a relatively low cost alternative that would not substantially affect the
financial forecast. The study is not finalized yet, however, and if it is determined that the entire
pipeline needs to be replaced, it could cost between $15 million and $20 million, which would
likely require bond financing and would substantially affect the financial forecast.
Ongoing Projects and Customer Connections are projected to cost approximately $2.8 million in
FY 2019 and increase by an average of 2% per year through the end of the forecast period.
Actual expenses for these projects fluctuate annually depending on how many defective meters
are discovered and replaced during routine maintenance, as well as how much development
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February 2018 25 | Page
and redevelopment is going on that prompts the replacement or upgrade of water services. It is
worth noting that property owners pay a fee for water service replacement or expansion during
redevelopment, so when the number of projects go up (meaning higher costs for this activity),
so does fee revenue.
Aside from customer connections, the CIP plan for FY 2019 to FY 2023 is funded by revenue
from utility rates and capacity fees. Appendix B: Water Utility Capital Improvement Program
(CIP) Detail shows the details of the plan.
SECTION 6D: DEBT SERVICE
The Water Utility’s annual debt service is roughly $3.2 million per year. This is related to two
bond issuances, one requiring payments through 2026, the other through 2035. CPAU is in
compliance with all covenants on both bonds.
The first bond is the 2009 Water Revenue Bond, Series A, issued for $35 million to finance
construction of the Emergency Water Supply and Storage project (the El Camino Reservoir, new
wells, rehabilitation of existing wells and tanks, etc.) and to be retired by 2035. As part of the
‘Build America’ bond program, there is an interest payment subsidy from the Federal
Government of 35%. There is always the possibility that the federal government will choose to
stop payment on this subsidy. The automatic federal spending cuts under the Budget Control
Act (BCA) of 2011 have already reduced the subsidy by $50,000 per year, and if planned cuts
through 2021 proceed without amendment, staff estimates that the subsidy would be reduced
by over $200,000 per year by 2021. The Bipartisan Budget Act of 2013, which relieved some of
the discretionary spending cuts in the 2011 BCA, did not affect automatic cuts to the subsidy,
and actually extended the automatic cuts through 2023.
The second bond issuance is the 2011 Utility Revenue Refunding Bond, Series A, which is to be
retired in 2026. This $17.2 million issuance refinanced an earlier Water and Gas Utility bond
issuance, the 2002 Utility Revenue Bonds, Series A, which was issued to finance various capital
improvements for both systems. The Water Utility’s share of the issuance was roughly $7.8
million.
Table 14 shows the cost of debt service for the Water Utility’s share of these bond issuances for
the financial forecast period:
Table 14: Water Utility Debt Service ($000)
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025
2009 Water Revenue Bonds,
Series A (net of grants)
2,066 2,081 2,097 2,114 2,132 2,151 2,151 2,151
2011 Utility Revenue Bonds,
Series A
656 654 654 656 657 658 658 658
Both the 2009 and 2011 Bonds include the following covenants: 1) net revenues plus Available
Reserves shall at least equal 125% of the maximum annual debt service, and 2) Available
Reserves shall be at least 5 times the maximum annual debt service. Note that “Available
Reserves,” as defined for both bonds, include the reserves for the Gas and Electric systems, not
WATER UTILITY FINANCIAL PLAN
February 2018 26 | Page
just the Water system. This Financial Plan maintains compliance with these covenants
throughout the forecast period, as shown in Appendix A: Water Utility Financial Forecast Detail.
The net revenues (but not the reserves) of the Water Utility are also pledged for one other
bond as shown in Table 15 below, even though the Water Utility is not responsible for the debt
service payments. The Water Utility’s reserves or net revenues would only be called upon if the
responsible utilities are unable to make their debt service payments. Staff does not currently
foresee this occurring. Requirements of the California Constitution require that any amounts
advanced from one utility to pay debt service for another utility must be repaid by the
borrowing fund.
Table 15: Other Issuances Secured by the Water Utility’s Revenues or Reserves
Bond Issuance Responsible
Utilities
Annual Debt
Service ($000)
Secured by Water Utility’s:
Net Revenues Reserves
1995 Series A Utility
Revenue Bonds Storm Drain $680 Yes No
SECTION 6E: OTHER REVENUES
The Water Utility receives most of its revenues from sales of water. The next largest source is
connection and capacity fees, which in FY 2017 represented 58% of revenue from sources other
than water sales. The remainder consisted of a variety of miscellaneous charges, transfers and
interest income.
Revenues from connection and capacity fees have more than doubled since FY 2009.
Connection fees are charged to new developments that need new or replacement service
connections, while capacity fees are charged to development that put additional demands on
the water distribution system. Revenue from these sources decreased slightly during the
recession, but has increased substantially since then. Staff is forecasting lower revenue from
these sources in subsequent years, but has increased connection fees that are expected to
offset these reductions to some extent.
Other revenue sources are projected to stay stable through the forecast period, though interest
income always fluctuates depending on changes in interest rates. Some uncertainty also exists
related to the Federal government’s commitment to continuing to pay the interest subsidy on
the Build America Bonds.
SECTION 6F: SALES REVENUES
Staff based the sales revenue projections on the load forecast in Section 5A: Load Forecast and
the projected rate changes shown in Figure 5. Except where stated otherwise, these load
forecasts are based on normal precipitation. Precipitation can vary substantially, and this can
affect revenues substantially. In dry years customers use more water, increasing revenues, and
in wet years they use less. One factor that is difficult to predict is customer usage recovery
post-drought. Usage will continue to rise until customers reach their level of desired
consumption. Where this new ‘normal’ level plateaus at, and the speed with which it reaches
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level, is difficult to predict. Staff will continue to monitor these patterns and adjust projections
accordingly.
SECTION 7: COMMUNICATIONS PLAN
In FY 2019, communications will continue to focus on water utility rate increases, including the
reasons why and how rates may change contingent upon varying precipitation levels.
Additionally, we will focus on how infrastructure costs and rising rates from our wholesale
water supplier, the San Francisco Public Utilities Commission, increases CPAU costs and must be
recovered through rate increases. Rates communications will include a substantial update to
information on a webpage dedicated to Utilities rates, “breaking news” on the Utility home
webpage, discussion in the Proposition 218 rate adjustment notice, bill insert and frequent
educational updates to internal and external stakeholders (customer service, marketing, City
Manager’s Office, UAC, City Council, business and residential customers). Other
communications vehicles will include financial plans, presentations to UAC, Finance Committee,
City Council and any media coverage as a result of the rate increases. CPAU will continue its
outreach about continuing to make water conservation a way of life, regardless of drought or
rain conditions. Messaging will reinforce the importance of water use efficiency, and that
although rates are increasing, efficient usage should mean that a customer should not see a
significant increase in water utility costs on their bills.
Water conservation outreach will promote water use efficiency rebates, incentives and easy
water-saving behaviors through bill inserts, web updates, email newsletters, videos for the web
and television, presentations to customer groups and the use of social media. To keep
customers apprised of the status and accomplishments of CIP projects, a network of project
web pages are maintained. Traffic is driven to the website via ads in publications, newspaper
inserts, and through the comprehensive portfolio of outreach strategies as outlined above.
Safety topics are also emphasized year-round. For all utility outreach, while print materials and
website pages still feature prominently, CPAU is placing more emphasis on digital advertising
content, direct mail, community safety/emergency preparation events and presentations.
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APPENDICES
Appendix A: Water Utility Financial Forecast Detail
Appendix B: Water Utility Capital Improvement Program (CIP) Detail
Appendix C: Water Utility Reserves Management Practices
Appendix D: Description of Water Utility Operational Activities
Appendix E: Sample of Water Utility Outreach Communications
APPENDIX A: WATER UTILITY FINANCIAL FORECAST DETAIL
1 FISCAL YEAR FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
2
3 WATER SUPPLY
4 Purchases 5,532,947 5,507,153 4,671,433 4,127,085 4,172,038 4,852,150 4,986,189 4,926,355 4,867,238 4,808,832 4,751,126 4,694,112 4,637,783 4,582,129 4,527,144 4,472,818
5 Sales 5,097,392 5,047,148 4,433,016 3,858,825 3,852,185 4,580,430 4,706,962 4,650,479 4,594,673 4,539,537 4,485,063 4,431,242 4,378,067 4,325,530 4,273,624 4,222,340
6
7 BILL AND RATE CHANGES
8 Variable Charge (Supply)11%-16%25%22%9%7%-6%5%5%6%5%7%2%4%2%2%
9 Variable Charge (Distribution)17%30%-16%10%5%-1%13%8%9%6%3%2%1%3%1%2%
10 Service Charge (Distribution)75%9%0%-10%3%0%12%7%7%5%2%1%1%2%2%4%
11 Change in System Average Rate 22%8%0%11%7%2%4%7%7%6%4%4%1%3%1%2%
12 Change in Average Residential Bill 21%7%-1%17%4%-2%3%5%5%5%3%3%1%2%2%3%
13
14 STARTING RESERVES
15 Reappropriations (Non-CIP)- - - - - - - - - - - - - - - -
16 Commitments (Non-CIP)714,000 2,000 347,000 347,000 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273
17 Restricted for Debt Service 3,225,000 3,225,000 3,331,000 3,316,000 3,299,194 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000
18 Emergency Plant Replacement 1,000,000 1,000,000 1,000,000 - - - - - - - - - - - - -
19 Capital Reserve - - - 4,000,000 2,726,096 2,726,096 2,726,096 2,726,096 - - - - - - - -
20 Rate Stabilization Reserve 7,996,000 17,272,000 20,133,000 6,567,000 1,877,437 4,069,000 4,069,000 4,069,000 4,069,000 - - - - - - -
21 Operations Reserve - - - 11,663,836 14,606,828 12,734,948 13,741,000 12,896,930 11,728,634 9,937,852 11,244,928 12,473,900 13,253,905 13,498,028 13,525,556 13,122,780
22 Unassigned - - - - - 7,056,052 4,986,007 - - - - - - - - -
23 TOTAL STARTING RESERVES 12,935,000 21,499,000 24,811,000 25,893,836 22,686,828 30,023,369 28,959,376 23,129,299 19,234,907 13,375,125 14,682,201 15,911,173 16,691,178 16,935,301 16,962,829 16,560,053
24
25 REVENUES
26 Net Sales 36,647,924 39,029,262 33,654,549 36,136,644 41,657,382 43,189,169 45,946,518 48,550,827 51,381,619 53,992,359 55,490,378 56,986,955 57,211,828 58,435,519 58,630,830 59,331,362
27 Other Revenues and Transfers In 6,811,461 4,053,920 7,504,848 3,258,936 5,829,851 4,702,923 3,671,998 3,735,314 3,800,902 3,870,756 3,942,093 4,034,793 4,129,947 4,227,619 4,327,878 4,430,793
28 TOTAL REVENUES 43,459,385 43,083,182 41,159,397 39,395,579 47,487,233 47,892,092 49,618,516 52,286,141 55,182,521 57,863,115 59,432,471 61,021,747 61,341,775 62,663,138 62,958,709 63,762,155
29
30 EXPENSES
31 Water Purchases 16,605,351 15,705,288 15,669,935 17,626,020 20,075,322 22,061,917 22,611,475 23,355,859 24,190,148 25,318,382 26,207,075 27,533,642 27,680,356 28,458,072 28,558,184 28,658,677
32 Operating Expenses 679.9%2.9%5.8%-54.7%158.5%
33 Administration
34 Allocated Charges 2,422,880 2,366,077 2,342,985 2,953,291 3,151,373 2,438,768 2,490,375 2,540,960 2,597,475 2,657,609 2,719,082 2,773,765 2,829,463 2,911,318 2,966,458 3,034,716
35 Rent 1,911,963 2,192,454 2,249,457 1,803,087 1,720,711 2,931,563 3,092,799 3,120,634 3,148,720 3,177,058 3,208,829 3,240,917 3,273,326 3,306,059 3,339,120 3,372,511
36 Debt Service 3,219,165 3,220,208 3,218,869 3,222,606 3,219,316 3,222,669 3,220,858 3,220,638 3,222,843 3,223,563 3,224,553 3,224,553 3,224,553 3,224,553 3,224,553 3,224,553
37 Transfers and Other Adjustments 2,241,793 335,808 63,612 (377,200) (256,608) 391,302 399,129 407,111 415,253 423,558 432,030 432,030 432,030 432,030 432,030 432,030
38 Subtotal, Administration 9,795,801 8,114,546 7,874,923 7,601,785 7,834,792 8,984,302 9,203,160 9,289,342 9,384,290 9,481,788 9,584,493 9,671,264 9,759,372 9,873,960 9,962,160 10,063,809
39 Resource Management 557,910 570,040 488,331 592,744 868,038 1,089,530 1,121,904 1,163,283 1,204,080 1,241,610 1,278,957 1,312,198 1,344,159 1,378,016 1,399,695 1,432,650
40 Operations and Mtc 4,944,064 4,986,274 5,283,426 5,038,570 5,290,549 6,426,788 6,623,269 6,878,570 7,128,663 7,356,594 7,583,011 7,784,574 7,977,523 8,175,463 8,301,450 8,497,350
41 Engineering (Operating)338,659 381,502 358,128 282,472 355,852 397,451 409,827 426,073 441,926 456,290 470,543 483,234 495,348 507,516 515,230 527,406
42 Customer Service 1,584,759 1,677,926 1,821,447 2,076,559 1,616,008 2,193,588 2,262,089 2,352,159 2,439,994 2,519,510 2,598,397 2,668,637 2,735,657 2,802,749 2,845,252 2,912,511
43 Allowance for Unspent Budget - - - - - (464,458) (477,834) (494,626) (511,325) (526,854) (542,343) (556,130) (569,447) (583,993) (593,360) (607,300)
44 Subtotal, Operating Expenses 17,221,192 15,730,288 15,826,254 15,592,128 15,965,239 18,627,201 19,142,414 19,614,801 20,087,627 20,528,938 20,973,059 21,363,777 21,742,612 22,153,711 22,430,426 22,826,428
45 Capital Program Contribution 1,068,841 8,335,605 8,580,372 9,082,021 4,110,131 8,266,967 13,694,704 13,209,873 16,764,528 10,708,718 11,023,365 11,344,323 11,674,684 12,023,827 12,372,875 12,736,548
46 TOTAL EXPENSES 34,895,385 39,771,182 40,076,561 42,300,170 40,150,692 48,956,085 55,448,593 56,180,534 61,042,304 56,556,039 58,203,499 60,241,742 61,097,652 62,635,610 63,361,485 64,221,653
47 9.04
48 ENDING RESERVES
49 Reappropriations (Non-CIP)- - - - - - - - - - - - - - - -
50 Commitments (Non-CIP)2,000 347,000 347,000 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273 177,273
51 Restricted for Debt Service 3,225,000 3,331,000 3,316,000 3,299,194 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000 3,260,000
52 Emergency Plant Replacement 1,000,000 1,000,000 - - - - - - - - - - - - - -
53 Capital Reserve - - 4,000,000 2,726,096 2,726,096 2,726,096 2,726,096 - - - - - - - - -
54 Rate Stabilization Reserve 17,272,000 20,133,000 6,567,000 1,877,437 4,069,000 4,069,000 4,069,000 4,069,000 - - - - - - - -
55 Operations Reserve - - 11,663,836 14,606,828 12,734,948 13,741,000 12,896,930 11,728,634 9,937,852 11,244,928 12,473,900 13,253,905 13,498,028 13,525,556 13,122,780 12,663,281
56 Unassigned - - - - 7,056,052 4,986,007 - - - - - - - - - -
57 TOTAL ENDING RESERVES 21,499,000 24,811,000 25,893,836 22,686,828 30,023,369 28,959,376 23,129,299 19,234,907 13,375,125 14,682,201 15,911,173 16,691,178 16,935,301 16,962,829 16,560,053 16,100,554
58
59 OPERATIONS RESERVE
60 Min (60 days of non-capital expenses)- - 5,230,611 5,145,323 6,320,551 7,015,601 7,197,171 7,403,859 7,625,531 7,890,478 8,116,649 8,398,943 8,485,334 8,680,756 8,742,700 8,824,316
61 Target (90 days of non-capital expenses)- - 9,395,240 8,698,557 9,527,750 10,378,300 10,847,792 11,159,004 11,493,609 11,893,618 12,235,541 12,668,887 12,808,565 13,116,527 13,219,432 13,354,222
62 Max (120 days of non-capital expenses)- - 13,559,870 12,251,790 12,734,948 13,741,000 14,498,412 14,914,150 15,361,686 15,896,759 16,354,432 16,938,832 17,131,796 17,552,298 17,696,164 17,884,127
63 Risk Assessment Value 2,481,768 2,677,436 2,229,786 2,645,469 3,404,677 3,498,658 4,006,561 3,517,485 3,605,222 3,662,346 3,720,662 3,806,640 3,893,630 4,036,251
64
65 DEBT SERVICE COVERAGE RATIO
66 Net Revenues (125% of Debt Service)951%876%878%931%1020%1163%1196%1234%1274%1322%1363%1416%1433%1470%1481%1497%
67 Available Reserves (5x Debt Service)*5.7 6.6 6.9 6.0 8.3 7.9 6.1 4.9 3.1 3.5 3.9 4.1 4.2 4.2 4.1 3.9
Appendix A (continued)
1 FISCAL YEAR FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
2
3 REVENUES
4 Net Sales 84%91%82%92%88%90%93%93%93%93%93%93%93%93%93%93%
5 Other Revenues and Transfers In 16%9%18%8%12%10%7%7%7%7%7%7%7%7%7%7%
6 TOTAL REVENUES 100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%
7
8 EXPENSES
9 Water Purchases 48%39%39%42%50%45%41%42%40%45%45%46%45%45%45%45%
10 Operating Expenses
11 Administration
12 Allocated Charges 7%6%6%7%8%5%4%5%4%5%5%5%5%5%5%5%
13 Rent 5%6%6%4%4%6%6%6%5%6%6%5%5%5%5%5%
14 Debt Service 9%8%8%8%8%7%6%6%5%6%6%5%5%5%5%5%
15 Transfers and Other Adjustments 6%1%0%-1%-1%1%1%1%1%1%1%1%1%1%1%1%
16 Subtotal, Administration 28%20%20%18%20%18%17%17%15%17%16%16%16%16%16%16%
17 Resource Management 2%1%1%1%2%2%2%2%2%2%2%2%2%2%2%2%
18 Operations and Mtc 14%13%13%12%13%13%12%12%12%13%13%13%13%13%13%13%
19 Engineering (Operating)1%1%1%1%1%1%1%1%1%1%1%1%1%1%1%1%
20 Customer Service 5%4%5%5%4%4%4%4%4%4%4%4%4%4%4%5%
21 Allowance for Unspent Budget 0%0%0%0%0%-1%-1%-1%-1%-1%-1%-1%-1%-1%-1%-1%
22 Subtotal, Operating Expenses 49%40%39%37%40%38%35%35%33%36%36%35%36%35%35%36%
23 Capital Program Contribution 3%21%21%21%10%17%25%24%27%19%19%19%19%19%20%20%
24 TOTAL EXPENSES 100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%100%
25
26 RISK ASSESSMENT DETAIL
27 Distribution Revenue Variance 1,623,731 1,769,234 1,818,772 1,818,772 2,035,206 2,177,671 2,330,108 2,446,613 2,502,885 2,527,914 2,553,193 2,604,257 2,656,342 2,762,596
28 10% CIP Program Contingency 858,037 908,202 411,013 826,697 1,369,470 1,320,987 1,676,453 1,070,872 1,102,337 1,134,432 1,167,468 1,202,383 1,237,287 1,273,655
29 Total Risk Asssessment Value 2,481,768 2,677,436 2,229,786 2,645,469 3,404,677 3,498,658 4,006,561 3,517,485 3,605,222 3,662,346 3,720,662 3,806,640 3,893,630 4,036,251
30 Projected Operations Reserve 11,663,836 14,606,828 12,734,948 13,741,000 12,896,930 11,728,634 9,937,852 11,244,928 12,473,900 13,253,905 13,498,028 13,525,556 13,122,780 12,663,281
31 Operations Reserve, % of Risk Value 470%546%571%519%379%335%248%320%346%362%363%355%337%314%
32
33 OPERATIONS RESERVE
34 Min (60 days of non-capital expenses)- - 5,230,611 5,145,323 6,320,551 7,015,601 7,197,171 7,403,859 7,625,531 7,890,478 8,116,649 8,398,943 8,485,334 8,680,756 8,742,700 8,824,316
35 Target (90 days of non-capital expenses)- - 9,395,240 8,698,557 9,527,750 10,378,300 10,847,792 11,159,004 11,493,609 11,893,618 12,235,541 12,668,887 12,808,565 13,116,527 13,219,432 13,354,222
36 Max (120 days of non-capital expenses)- - 13,559,870 12,251,790 12,734,948 13,741,000 14,498,412 14,914,150 15,361,686 15,896,759 16,354,432 16,938,832 17,131,796 17,552,298 17,696,164 17,884,127
37 Risk Assessment Value 2,481,768 2,677,436 2,229,786 2,645,469 3,404,677 3,498,658 4,006,561 3,517,485 3,605,222 3,662,346 3,720,662 3,806,640 3,893,630 4,036,251
38
39 DEBT SERVICE COVERAGE RATIO
40 Net Revenues (125% of Debt Service)951%876%878%931%1020%1163%1196%1234%1274%1322%1363%1416%1433%1470%1481%1497%
41 Available Reserves (5x Debt Service)*5.7 6.6 6.9 6.0 8.3 7.9 6.1 4.9 3.1 3.5 3.9 4.1 4.2 4.2 4.1 3.9
42 *For the purposes of debt covenants, the unrestricted reserves of other utilities may be counted toward the available reserves for meeting this measure. A ratio below 5x means that this utility is relying on the reserves of other utilities to meet its debt covenants.
WATER UTILITY FINANCIAL PLAN
February, 2017 31 | Page
APPENDIX B: WATER UTILITY CAPITAL IMPROVEMENT PROGRAM (CIP) DETAIL
Project #Project Name
Reappropriated / Carried
Forward from Previous
Years
Current Year
Funding
Proposed Budget
Amendments
Spending, Current
Year
Remaining in CIP
Reserve Fund Commitments FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
ONE TIME PROJECTS
WS-07000 Regulation Station Imp.776,358 196,054 - - 972,412 624,149 - - - - -
WS-07001 Water Recycling Facilities - 395,649 - - 395,649 - - - - - -
WS-08001 Water Reservoir Coating 1,130,852 - - (152,532) 978,320 621,825 - - - - -
WS-09000 Seismic Water System 2,495,234 1,128,594 - (453,807) 3,170,021 2,332,347 2,000,000 2,000,000 2,000,000 - -
WS-15004 Water System Master Plan 16 - - - 16 16 - - - - -
WS-19000 Mayfield Reservoir - - - - - - 200,000 200,000 200,000 - -
Subtotal, One-time Projects 4,402,460 1,720,297 - (606,339) 5,516,418 3,578,337 2,200,000 2,200,000 2,200,000 - -
WATER MAIN REPLACEMENT PROGRAM
WS-11000 WMR-Project 25 381,939 - - - 381,939 - - - - - -
WS-12001 WMR- Project 26 5,410,048 1,143,000 3,027,320 (1,386,803) 8,193,565 4,780,180 600,000 - - - -
WS-13001 WMR - Project 27 80,000 595,000 - - 675,000 - 6,500,000 - - - -
WS-14001 WMR - Project 28 - - - - - - 585,107 5,851,070 - - -
WS-15002 WMR - Project 29 - - - - - - - 602,660 6,026,602 - -
WS-16001 WMR - Project 30 - - - - - - - - 620,740 6,207,400 -
WS-19001 WMR - Project 31 - - - - - - - - - 639,362 6,396,320
WS-20000 WMR - Project 32 - - - - - - 658,820
Subtotal, Water Main Replacement Prog.5,871,987 1,738,000 3,027,320 (1,386,803) 9,250,504 4,780,180 7,685,107 6,453,730 6,647,342 6,846,762 7,055,140
ONGOING PROJECTS
WS-80014 Services/Hydrants 11,158 412,000 - (231,440) 191,718 30,534 424,360 437,091 450,204 463,710 477,621
WS-80015 Water Meters - 565,000 - (87,733) 477,267 - 500,000 515,000 530,450 546,364 562,755
WS-02014 W-G-W Utility GIS Data 148,826 402,628 - (43,526) 507,928 405,300 442,890 456,177 469,862 483,958 498,477
WS-13002 Equipment/Tools - 50,000 - - 50,000 - 50,000 50,000 50,000 50,000 50,000
WS-11003 Dist. Sys. Improvements 863,136 247,000 - (128,810) 981,326 126,122 354,000 261,620 269,469 277,553 285,880
WS-11004 Supply Sys. Improvements 139,213 247,000 - (26,493) 359,720 187,227 254,000 261,620 269,469 277,553 285,880
Subtotal, Ongoing Projects 1,162,333 1,923,628 - (518,002) 2,567,959 749,183 2,025,250 1,981,508 2,039,454 2,099,138 2,160,613
CUSTOMER CONNECTIONS (FEE FUNDED)
WS-80013 Water System Extensions 62,665 710,700 - (372,686) 400,679 71,918 732,021 753,981 776,601 799,899 823,896
Subtotal, Customer Connections 62,665 710,700 - (372,686) 400,679 71,918 732,021 753,981 776,601 799,899 823,896
GRAND TOTAL 11,499,445 6,092,625 3,027,320 (2,883,830)17,735,560 9,179,618 12,642,378 11,389,219 11,663,397 9,745,799 10,039,649
Funding Sources
Connection/Capacity Fees 902,280 - 929,348 957,228 985,946 1,015,524 1,045,990
Other Utility Funds (Asset Mgmt, GIS Systems)268,418 - 295,260 304,118 313,242 322,640 332,320
Water Service Hydrant Replacement 1,224,608 1,261,346 1,299,188 1,338,164 1,378,310
Utility Rates 4,921,927 3,027,320 10,193,162 8,866,527 9,065,021 7,069,471 7,283,029
CIP-RELATED RESERVES DETAIL
6/30/2017
(Actual)
6/30/2018
(Unaudited)
Reappropriations (excl. Bond Funded)1,292,081 8,555,942
Commitments (excl. Bond Funded)10,207,364 9,179,618
WATER UTILITY FINANCIAL PLAN
February, 2017 32 | Page
APPENDIX C: WATER UTILITY RESERVES MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Water Utility
Financial Plan:
Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal
years covered by the Financial Plan. For example, for the Water Utility Financial Plan
delivered in conjunction with the FY 2015 budget, FY 2015 to FY 2021 is the Financial
Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers
to the Utility’s Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net
Assets as the difference between its assets and liabilities.
d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital
assets (net of related debt) or restricted for debt service or other restricted purposes.
Section 2. Reserves
The Water Utility’s Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 3 (Reserve for Commitments)
b) For operating and capital budgets re-appropriated from previous years, as described in
Section 4 (Reserve for Re-appropriations)
c) For cash flow management and contingencies related to the Water Utility’s Capital
Improvement Program (CIP), as described in Section 5 (CIP Reserve)
d) For rate stabilization, as described in Section 6 (Rate Stabilization Reserve)
e) For operating contingencies, as described in Section 7 (Operations Reserve)
f) Any funds not included in the other reserves will be considered Unassigned Reserves
and shall be returned to ratepayers or assigned a specific purpose as described in
Section 8 (Unassigned Reserves).
Section 3. Reserve for Commitments
At the end of each fiscal year the Reserve for Commitments will be set to an amount equal
to the total remaining spending authority for all contracts in force for the Water Utility at
that time.
Section 4. Reserve for Re-appropriations
At the end of each fiscal year the Reserve for Re-appropriations will be set to an amount
equal to the amount of all remaining capital and non-capital budgets, if any, that will be re-
appropriated to the following fiscal year in accordance with Palo Alto Municipal Code
Section 2.28.090.
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February, 2017 33 | Page
Section 5. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for
capital contingencies. Staff will manage the CIP Reserve according to the following
practices:
a) The following guideline levels are set forth for the CIP Reserve. These guideline levels
are calculated for each fiscal year of the Financial Planning Period based on the levels of
CIP expense budgeted for that year.
Minimum Level 12 months of budgeted CIP expense
Maximum Level 24 months of budgeted CIP expense
b) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and
the Reserve for Commitments when funds are added or removed from to that reserve
as a result of a change in contractual commitments related to CIP projects. Any other
additions to or withdrawals from the CIP reserve require Council action.
c) Minimum Level:
i) Funds held in the Reserve for Commitments may be counted as part of the CIP
Reserve for the purpose of determining compliance with the CIP Reserve minimum
guideline level.
ii) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present
a plan to the City Council to replenish the reserve. The plan shall be delivered by the
end of the following fiscal year, and shall, at a minimum, result in the reserve
reaching its minimum level by the end of the next fiscal year. For example, if the CIP
Reserve is below its minimum level at the end of FY 2017, staff must present a plan
by June 30, 2018 to return the reserve to its minimum level by June 30, 2019. In
addition, staff may present, and the Council may adopt, an alternative plan that
takes longer than one year to replenish the reserve, or that does so in a shorter
period of time.
d) Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds
may be added to this reserve. If there are funds in this reserve in excess of the
maximum level staff must propose to transfer these funds to another reserve or return
them to ratepayers in the next Financial Plan. Staff may also seek City Council to
approve holding funds in this reserve in excess of the maximum level if they are held for
a specific future purpose related to the CIP.
Section 6. Rate Stabilization Reserve
Funds may be added to the Rate Stabilization Reserve by action of the City Council and
held to manage the trajectory of future year rate increases. Withdrawal of funds from
the Rate Stabilization Reserve requires Council action. If there are funds in the Rate
Stabilization Reserve at the end of any fiscal year, any subsequent Water Utility
Financial Plan must result in the withdrawal of all funds from this Reserve by the end of
the next Financial Planning Period.
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February, 2017 34 | Page
Section 7. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. Any portion of the Water Utility’s Fund Balance not included in the reserves
described in Section 3-Section 6 above will be included in the Operations Reserve unless this
reserve has reached its maximum level as set forth in Section 7(d) below. Staff will manage
the Operations Reserve according to the following practices:
a) The following guideline levels are set forth for the Operations Reserve. These guideline
levels are calculated for each fiscal year of the Financial Planning Period based on the
levels of Operations and Maintenance (O&M) and commodity expense forecasted for
that year in the Financial Plan.
Minimum Level 60 days of O&M and commodity expense
Target Level 90 days of O&M and commodity expense
Maximum Level 120 days of O&M and commodity expense
b) Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations
Reserve are lower than the minimum level set forth above, staff shall present a plan to
the City Council to replenish the reserve. The plan shall be delivered within six months
of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its
minimum level by the end of the following fiscal year. For example, if the Operations
Reserve is below its minimum level at the end of FY 2014, staff must present a plan by
December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In
addition, staff may present, and the Council may adopt, an alternative plan that takes
longer than one year to replenish the reserve.
c) Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower
than the target level, any Financial Plan created for the Water Utility shall be designed
to return the Operations Reserve to its target level within four years.
d) Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no
funds may be added to this reserve. Any further increase in the Water Utility’s Fund
Balance shall be automatically included in the Unassigned Reserve described in Section
8, below.
Section 8. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the Water
Utility’s Fund Balance will be held in the Unassigned Reserve. If there are any funds in the
Unassigned Reserve at the end of any fiscal year, the next Financial Plan presented to the
City Council must include a plan to assign them to a specific purpose or return them to the
Water Utility ratepayers by the end of the first fiscal year of the next Financial Planning
Period. For example, if there were funds in the Unassigned Reserves at the end of FY 2015,
and the next Financial Planning Period is FY 2016 through FY 2021, the Financial Plan shall
include a plan to return or assign any funds in the Unassigned Reserve by the end of
FY 2016. Staff may present an alternative plan that retains these funds or returns them over
a longer period of time.
WATER UTILITY FINANCIAL PLAN
February, 2017 35 | Page
APPENDIX D: DESCRIPTION OF WATER UTILITY OPERATIONAL ACTIVITIES
This appendix describes the activities associated with the various operational activities referred
to in Section 6B: Operations of this Financial Plan.
Administration: Accounting, purchasing, legal, and other administrative functions provided by
the City’s General Fund staff, as well as shared communications services, CPAU administrative
overhead, and billing system maintenance costs. This category also includes Water Utility debt
service and rent paid to the General Fund for the land associated with reservoirs and various
other facilities.
Customer Service: This category includes the Water Utility’s share of the call center, meter
reading, collections, and billing support functions. Billing support encompasses staff time
associated with bill investigations and quality control on certain aspects of the billing process. It
does not include maintenance of the billing system itself, which is included in Administration.
This category also includes CPAU’s key account representatives, who work with large
commercial customers who have more complex requirements for their water services.
Engineering (Operating): The Water Utility’s engineers focus primarily on the CIP, but a small
portion of their time is spent assisting with distribution system maintenance.
Operations and Maintenance: This category includes the costs of a variety of distribution
system maintenance activities, including:
• investigating reports of damaged mains or services and performing emergency repairs;
• testing and operating valves;
• monitoring water quality and reservoir levels;
• monitoring the status of the different pressure zones;
• flushing water at hydrants and other closed end points of the system;
• building and replacing water services for new or redeveloped buildings; and
• testing and replacing meters to ensure accurate sales metering.
This category also includes a variety of functions the utility shares with other City utilities,
including:
• the Field Services team (which does field research of various customer service issues);
• the Cathodic Protection team (which monitors and maintains the systems that prevent
corrosion in metal tanks and reservoirs); and
• the General Services team (which manages and maintains equipment, paves and
restores streets after gas, water, or sewer main replacements, and provides welding
services)
Resource Management: This category includes water procurement, contract management,
water resource planning, interaction with BAWSCA, the SFPUC, and the SCVWD, and tracking of
legislation and regulation related to the water industry.
February, 2017 36 | Page
APPENDIX E: SAMPLE OF WATER UTILITY OUTREACH COMMUNICATIONS
Attachment C
180308 jb 6054082 1
Resolution No. _____
Resolution of the Council of the City of Palo Alto Increasing Water Rates by
4% 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)
R E C I T A L S
A. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of the
City of Palo Alto may by resolution adopt rules and regulations governing utility services, fees and
charges.
B. On , 2018, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
C. As required by Article XIII D, Section 6 of the California Constitution and applicable
law, notice of the 2018 public hearing was mailed to all City of Palo Alto
Utilities water customers by , 2018.
D. The City Clerk has tabulated the total number of written protests presented by the
close of the public hearing, and determined that it was less than fifty percent (50%) of the total
number of customers and property owners subject to the proposed water rate amendments,
therefore a majority protest does not exist against the proposal.
The Council of the City of Palo Alto hereby RESOLVES as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule W-1 (General Residential Water Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-1, as amended, shall become effective July 1, 2018.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule W-2 (Water Service from Fire Hydrants) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-2, as amended, shall become effective July 1, 2018.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule W-3 (Fire Service Connections) is hereby amended to read as attached and incorporated.
Utility Rate Schedule W-3, as amended, shall become effective July 1, 2018.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule W-4 (Residential Master-Metered and General Non-Residential Water Service) is hereby
amended to read as attached and incorporated. Utility Rate Schedule W-4, as amended, shall become
effective July 1, 2018.
SECTION 5. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule W-7 (Non-Residential Irrigation Water Service) is hereby amended to read as attached and
incorporated. Utility Rate Schedule W-7, as amended, shall become effective July 1, 2018.
SECTION 6. The City Council finds as follows:
Attachment C
180308 jb 6054082 2
a. Revenues derived from the water rates approved by this resolution do not exceed the
funds required to provide water service.
b. Revenues derived from the water rates approved by this resolution shall not be used
for any purpose other than providing water service, and the purposes set forth in Article VII, Section 2,
of the Charter of the City of Palo Alto.
c. The amount of the water rates imposed upon any parcel or person as an incident of
property ownership shall not exceed the proportional cost of the water service attributable to the
parcel.
SECTION 7. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor that are
not provided to those not charged, and do not exceed the reasonable costs to the City of providing
the service or product.
SECTION 8. The Council finds that the adoption of this resolution changing water rates
to meet operating expenses, purchase supplies and materials, meet financial reserve needs and
obtain funds for capital improvements necessary to maintain service is not subject to the California
Environmental Quality Act (CEQA), pursuant to California Public Resources Code Sec. 21080(b)(8) and
Title 14 of the California Code of Regulations Sec. 15273(a). After reviewing the staff report and all
attachments presented to Council, the Council incorporates these documents herein and finds that
sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA
exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
____________________________ City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
_____________________________ Assistant City Attorney City Manager
_____________________________
Director of Utilities
____________________________
Director of Administrative Services
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-1 Effective 7-1-20187
dated 7-1-20176 Sheet No W-1-1
A. APPLICABILITY:
This schedule applies to all separately metered single -family residential dwellings receiving Wwater
Sservices from the City of Palo Alto Utilities.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwater Sservices.
C. RATES:
Per Meter
Monthly Service Charge: Per Month
For 5/8-inch meter ..................................................................................................... $ 16.7718.71
For 3/4 inch meter ..................................................................................................... 22.6025.21
For 1 inch meter ........................................................................................................ 34.2638.22
For 1 1/2 inch meter .................................................................................................. 63.4070.73
For 2-inch meter ........................................................................................................ 98.37109.75
For 3-inch meter ........................................................................................................ 209.11233.29
For 4-inch meter ........................................................................................................ 372.31415.36
For 6-inch meter ........................................................................................................ 762.81851.02
For 8-inch meter ........................................................................................................1,403.94566.29
For 10-inch meter ......................................................................................................2,219.92476.63
For 12-inch meter .......................................................................................................32,919.34256.93
Commodity Rate: (To be added to Service Charge and applicable to all pressure zones.)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Tier 1 usage ........................................................................................................................ $6.66
Tier 2 usage (All usage over 100% of Tier 1) ........................................................................ 9.4818
ATTACHMENT D
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-2 Effective 7-1-20187
dated 7-1-20176 Sheet No W-1-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable cCommodity Rrate for Tier 1 and
Tier 2 Wwater usage when the City Council has determined that a Wwater reduction level is in effect
for the City as described in Section D.3. The drought surcharges in the table below are measured in
dollars per hundred cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Tier 1 0.20 0.43 0.64
Tier 2 0.58 1.21 1.85
Temporary Service – Developers
Temporary unmetered service to residential
subdivision developers, per connection ........................................................................ $6.00
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Ccustomer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Calculation of Usage Tiers
Tier 1 Wwater usage shall be calculated and billed based upon a level of 0.2 ccf per day
rounded to the nearest whole ccf, based on Mmeter reading days of Sservice. As an
example, for a 30 day bill, the Tier 1 level would be 0 through 6 ccf. For further
discussion of bill calculation and proration, refer to Rule and Regulation 11.
GENERAL RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-1-3 Effective 7-1-20187
dated 7-1-20176 Sheet No W-1-3
3. Drought Surcharge
During period of Wwater shortage or restrictions on local Wwater use, the City Council
may, by resolution, declare the need for citywide Wwater conservation at the 10/15%,
20% or 25% level. While such a resolution is in effect, a drought surcharge will apply.
The purpose of the dDrought sSurcharge is to recover revenues lost as a result of reduced
consumption.
{End}
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-1 Effective 7-1-20187
dated 7-1-20167 Sheet No W-2-1
A. APPLICABILITY:
This schedule applies to all Wwater taken from fire hydrants for construction, maintenance, and
other uses in conformance with provisions of a Hydrant Meter Permit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwater Sservices.
C. RATES:
1. Monthly Service Charge.
METER SIZE
5/8 inch ........................................................................................................................... 50.00
3 inch ........................................................................................................................... 125.00
2. Commodity Rate: (per hundred cubic feet) ................................................................ $7.687.80
3. Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable CCommodity Rrate when the
City Council has determined that a Wwater reduction level is in effect for the City as described
in Section D.5. The drought surcharges in the table below are measured in dollars per hundred
cubic feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
1. Monthly charges shall include the applicable monthly Sservice Ccharge in addition to usage billed
at the commodity rate.
2. Any person or company applicant using a hydrant without first obtaining a valid Hydrant Meter
Permit or any permittee using a hydrant without a Hydrant Meter Permit shall pay a fee of $50.00
WATER SERVICE FROM FIRE HYDRANTS
UTILITY RATE SCHEDULE W-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-2-2 Effective 7-1-20187
dated 7-1-20167 Sheet No W-2-2
for each day of such use in addition to all other costs and fees provided in this schedule. A hydrant
permit may be denied or revoked for failure to pay such fee.
3. A Mmeter deposit of $750.00 may be charged any applicant for a Hydrant Meter Permit as a
prerequisite to the issuance of a permit and Mmeter(s). A charge of $50.00 per day will be added
for delinquent return of hydrant Mmeters. A fee will be charged for any Mmeter returned with
missing or damaged parts.
4. Any person or company using a fire hydrant improperly or without a permit, or who draws Wwater
from a hydrant without a Mmeter installed and properly recording usage shall, in addition to all
other applicable charges be subject to criminal prosecution pursuant to the Palo Alto Municipal
Code.
5. During period of Wwater shortage or restrictions on local Wwater use, the City Council may, by
resolution, declare the need for citywide Wwater conservation at the 10/15%, 20% or 25% level.
While such a resolution is in effect, a drought surcharge will apply. The purpose of the dDrought
sSurcharge is to recover revenues lost as a result of reduced consumption.
{End}
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-1 Effective 7-1-20186
dated 97-1-20165 Sheet No W-3-1
A. APPLICABILITY:
This schedule applies to all public fire hydrants and private fire Sservice connections.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwater Sservices.
C. RATES:
1. Monthly Service Charges
Public Fire Hydrant .................................................................................................... $5.00
Private Fire Service:
2-inch connection .......................................................................................................$3.794.23
4-inch connection .......................................................................................................23.4226.13
6-inch connection ....................................................................................................... 68.0375.90
8-inch connection .......................................................................................................144.97161.73
10-inch connection .....................................................................................................260.70290.85
12-inch connection .....................................................................................................421.11469.81
2. Commodity (To be added to Service Charge unless Wwater is used for fire extinguishing
or testing purposes.)
Per Hundred Cubic Feet
All water usage........................................................................................................... $10.00
D. SPECIAL NOTES:
1. Service under this schedule may be discontinued if Wwater is used for any purpose other
than fire extinguishing or testing and repairing the fire extinguishing facilities. Using
hydrants and fire Sservices for other purposes is illegal and will be subject to the
commodity charge as noted above, fines, and criminal prosecution pursuant to the Palo
Alto Municipal Code.
2. For a combination Wwater and fire Sservice, the general Wwater Sservice schedule shall
apply.
FIRE SERVICE CONNECTIONS
UTILITY RATE SCHEDULE W-3
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-3-2 Effective 7-1-20186
dated 97-1-20165 Sheet No W-3-2
3. Utilities Rule and Regulation No. 21 provides additional information on Automatic Fire
Services.
4. Repairs and testing of fire extinguishing facilities are not considered unauthorized use of
Wwater if records and documentation are supplied by the Ccustomer.
{End}
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-1 Effective 7-1-20178
dated 7-1-20176 Sheet No W-4-1
A. APPLICABILITY:
This schedule applies to Water Services to non-residential buildings, and multi-family residential
dwellings served through a Master-Meter. water service in the City of Palo Alto and its distribution
area. This schedule is also applicable to multi-family residential customers served through a master
meter.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwater Sservices.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 16.7718.71
For 3/4-inch meter .................................................................................... 22.6025.21
For 1-inch meter .................................................................................... 34.2638.22
For 1 ½-inch meter .................................................................................... 63.4070.73
For 2-inch meter .................................................................................... 98.37109.75
For 3-inch meter .................................................................................... 209.11233.29
For 4-inch meter .................................................................................... 372.31415.36
For 6-inch meter .................................................................................... 762.81851.02
For 8-inch meter ....................................................................................1,403.94566.29
For 10-inch meter ....................................................................................2,219.92476.63
For 12-inch meter ....................................................................................32,919.34256.93
Commodity Rates: (to be added to Service Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per ccf ............................................................................................................ $ 7.687.80
RESIDENTIAL MASTER-METERED AND
GENERAL NON-RESIDENTIAL WATER SERVICE
UTILITY RATE SCHEDULE W-4
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-4-2 Effective 7-1-20178
dated 7-1-20176 Sheet No W-4-2
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable Ccommodity Rrate when the City
Council has determined that a Wwater reduction level is in effect for the City as described in
Section D.2. The drought surcharges in the table below are measured in dollars per hundred cubic
feet (ccf).
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.26 0.53 0.77
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Ccustomer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Drought Surcharge
During period of Wwater shortage or restrictions on local Wwater use, the City Council
may, by resolution, declare the need for citywide Wwater conservation at the 10/15%,
20% or 25% level. While such a resolution is in effect, a drought surcharge will apply.
The purpose of the Ddrought sSurcharge is to recover revenues lost as a result of reduced
consumption.
{End}
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-1 Effective 7-1-20187
dated 7-1-20176 Sheet No W-7-1
A. APPLICABILITY:
This schedule applies to non-residential Wwater Wservice supplying dedicated irrigation Mmeters in
the City of Palo Alto and its distribution area.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwater Sservices.
C. RATES:
Per Meter
Monthly Service Charge Per Month
For 5/8-inch meter .................................................................................... $ 16.7718.71
For 3/4-inch meter .................................................................................... 22.6025.21
For 1-inch meter .................................................................................... 34.2638.22
For 1 1/2 inch meter .................................................................................... 63.4070.73
For 2-inch meter .................................................................................... 98.37109.75
For 3-inch meter .................................................................................... 209.11233.29
For 4-inch meter .................................................................................... 372.31415.36
For 6-inch meter .................................................................................... 762.81851.02
For 8-inch meter ....................................................................................1,403.94566.29
For 10-inch meter ....................................................................................2,219.92476.63
For 12-inch meter ....................................................................................32,919.34256.93
Commodity Rates: (to be added to Service Charge)
Per Hundred Cubic Feet (ccf)
Per Month All Pressure Zones
Per ccf ............................................................................................................ $ 9.089.37
Drought Surcharges (deactivated):
A drought surcharge will be added to the Customer’s applicable cCommodity Rrate when the City
Council has determined that a Wwater reduction level is in effect for the City as described in Section
D.2. The drought surcharges in the table below are measured in dollars per hundred cubic feet (ccf).
NON-RESIDENTIAL IRRIGATION WATER SERVICE
UTILITY RATE SCHEDULE W-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No W-7-2 Effective 7-1-20187
dated 7-1-20176 Sheet No W-7-2
Water Usage
Reduction level Level 1 (10/15%) Level 2 (20%) Level 3 (25%)
Surcharge 0.53 1.25 2.02
D. SPECIAL NOTES:
1. Calculation of Cost Components
The actual bill amount is calculated based on the applicable rates in Section C above and
adjusted for any applicable discounts, surcharges and/or taxes. On a Ccustomer’s bill
statement, the bill amount may be broken down into appropriate components as
calculated under Section C.
2. Drought Surcharge
During period of Wwater shortage or restrictions on local Wwater use, the City Council
may, by resolution, declare the need for citywide Wwater conservation at the 10/15%,
20% or 25% level. While such a resolution is in effect, a drought surcharge will apply.
The purpose of the Ddrought Ssurcharge is to recover revenues lost as a result of reduced
consumption.
{End}
City of Palo Alto (ID # 9016)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/3/2018
City of Palo Alto Page 1
Summary Title: FY 2019 Wastewater Financial Plan and Rate Proposals
Title: Utilities Advisory Commission Recommend that the City Council Adopt:
(1) a Resolution Approving the Fiscal Year 2019 Wastewater Collection
Financial Plan; and (2) a Resolution Increasing Wastewater Rates by 11
Percent 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)
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission (UAC) request that the Finance Committee
recommend that the Council:
1. Adopt a resolution (Attachment A) approving the fiscal year (FY) 2019 Wastewater
Collection Financial Plan (Attachment B); and
2. Adopt a resolution (Attachment C) 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) (Attachment D).
Executive Summary
The FY 2019 Wastewater Collection Utility Financial Plan includes projections of the utility’s
costs and revenues through FY 2028. The Financial Plan projects costs to rise substantially for
the next several years due primarily to increasing treatment costs related to capital
improvements and increasing operational costs at the Regional Water Quality Control Plant
(RWQCP), as well as increasing collection system capital costs.
Staff’s initial proposal to the UAC was for a 10% rate increase. The proposal projected that
reserves would drop below the minimum guideline level for a period of two years with a 10%
City of Palo Alto Page 2
rate increase. Staff included an alternate proposal in the Financial Plan, also based on the
methodology outlined in the 2011 cost of service study, which projected keeping reserves
above the minimum guideline level and increasing rates 11%. The UAC recommended (6 to 1)
the alternate 11% proposal rather than the original 10% proposed by staff. Staff concurs with
the UAC’s recommendation, and recommends an 11% wastewater rate increase in FY 2019.
Future rate increases are projected to range from 6 to 12% annually through FY 2022. Staff
project rates for FY 2023 and beyond to increase by 3% to 4%.
Background
Every year staff presents the UAC and Finance Committee with Financial Plans for its Electric,
Gas, Water, and Wastewater Collection Utilities and recommends any rate adjustments
required to maintain their financial health. These Financial Plans include a comprehensive
overview of the utility’s operations, both retrospective and prospective, and are intended to be
a reference for UAC and Council members as they review the budget and staff’s rate
recommendations. Each Financial Plan also contains a set of Reserves Management Practices
describing the reserves for each utility and the management practices for those reserves.
Discussion
Staff completes an annual assessment of the financial position of the City’s wastewater
collection utility to ensure adequate revenue to fund operations, in compliance with the cost of
service requirements set forth in the California Constitution (Proposition 218). This includes
making long-term projections of market conditions, the physical condition of the system, and
other factors that could affect utility costs, and setting rates adequate to recover these costs.
The current rate proposals are also based on the methodology described in the 2011
Wastewater Collection Utility cost of Service and Rate Study completed by Utility Financial
Solutions (Staff Report 1399).
Proposed Actions for FY 2019
1. Increase wastewater rates by 11% for 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). This reflects the UAC recommendation
to propose the Alternative Scenario 1 from the FY 2019 Wastewater Financial Plan.
2. Transfer the remaining $342,000 from the Rate Stabilization Reserve to the Operations
Reserve.
The FY 2019 Wastewater Collection Financial Plan (Attachment B) describes these proposed
actions in more detail. The transfer will enable staff to maintain Operations Reserve levels
while spreading the required rate increases for the wastewater collection utility over several
years.
Staff proposes to adjust wastewater rates as shown in Table 1 below, effective July 1, 2018. The
adjustments will increase the system average rate by roughly 11%. There were no wastewater
City of Palo Alto Page 3
rate adjustments in FY 2018. These rate changes are included in the amended rate schedules
provided as Attachment D.
Table 1: Current and Proposed Wastewater Collection Charges
Current
(7/1/2016)
Proposed
(7/1/2018)
Change
$/mo. %
Monthly Service and Minimum Charges ($/month)
S-1 (Residential) Service
charge
$34.83 $38.66 $3.83 11%
S-2 (Commercial),
S-6 (Restaurant)
Minimum 34.83 38.66 3.83 11%
Quantity Rates
S-1 (Residential) N/A N/A N/A - -
S-2 (Commercial) $/CCF 6.71 7.45 0.74 11%
S-6 (Restaurant) $/CCF 10.38 11.52 1.14 11%
S-7 (Industrial) $/CCF 3.08 3.42 0.34 11%
(1) Monthly charges for S-1 are fixed monthly charges, and those for S-2 and S-6
are minimum monthly charges.
(2) Currently there are no customers on the S-7 rate schedule; however, CPAU
continues to maintain it in case there is a need for the rate schedule in the
future.
FY 2019 Financial Plan’s Projected Rate Adjustments for the Next Five Fiscal Years
Table 2 shows the projected rate adjustments and their impact on a residential wastewater bill,
based upon Alternative Scenario 1 as shown in the Wastewater Financial Plan:
Table 2: Projected Rate Adjustments and Residential Bill Impact, FY 2019 to FY 2023
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Wastewater Utility 11% 12% 10% 6% 4%
Estimated Bill Impact for
Residential Customers ($/mo) $3.83 $4.64 $4.33 $2.86 $2.02
The main drivers for the increase in the Wastewater Collection Utility’s costs (and therefore
rates) over the next several years are the costs for wastewater treatment, which are projected
to increase by 6% to 7% per year as the City makes several upgrades to the Regional Water
Quality Control Plant. The treatment plant’s major project, started in FY 2018, is making
progress constructing the Sludge Dewatering and Truck Loadout Facility, which will allow (in
about 2019) the retirement of the Plant’s two sewage sludge incinerators that have been in
operation since 1972. Future projects include secondary treatment upgrades as well as
replacement of the headworks facility. In addition, capital improvement costs for the
wastewater collection system are increasing in FY 2019. Construction costs for main
replacement projects are projected to be around 30% higher than they were in FY 2016, the last
City of Palo Alto Page 4
year an annual main replacement project was budgeted. After FY 2019, Operating and CIP costs
are projected to rise roughly 2%-4% annually.
Figure 1 and 2 below illustrate the increase in the Wastewater Collection Utility’s costs. The
figures use FY 2016 as a comparison year because FY 2017 and FY 2018 are atypical years, due
to one-time cost savings related to delayed main replacement projects.
Figure 1: FY 2016 and FY 2022 costs
Figure 2: Percentage of Total Cost Increase From FY 2016 to FY 2022 Attributed to Treatment,
Capital, and Operations Costs
Figure 1 and 2 show that two thirds of the increase from FY 2016 to FY 2022 is due to treatment
cost increases. The remaining third is due to increases in operations and capital costs.
Wastewater main replacement costs have risen substantially in recent years, and the water,
electric and gas utilities have also seen similar increases. Because bids for projects have
continued to come in higher than historical prices, staff re-evaluated the cost of future projects
and revalued them based on current bid indications. As a result, projected costs for main
replacement projects have risen by $1 to $2 million from prior forecasts.
City of Palo Alto Page 5
Wastewater Bill Comparison with Surrounding Cities
The annual sewer bill for a Palo Alto resident is $418 under current rates, 33% lower than the
average neighboring community. Table 3 shows the monthly sewer bills for residential
customers compared to what they would be in surrounding communities.
Table 3: Residential Monthly Sewer Bill Comparison (based on rates as of February 1, 2018)
Palo Alto
Neighboring Communities Neighboring
Community
Average
Menlo
Park
Redwood
City
Mountain
View Los Altos
Santa
Clara Hayward
34.83 89.33 76.68 37.75 36.27 41.65 31.29 52.16
If Council adopts the proposed wastewater rate change, and assuming other agencies do not
change their sewer rates, Palo Alto’s rates would be 27% lower than the average neighboring
community. Staff has no information at this time as to whether or when the surrounding
communities are planning wastewater rate changes. However, as most agencies are also
requiring renovations to their respective treatment plants, staff assumes increases at other
agencies will occur. Note that as partners in the RWQCP, Mountain View and Los Altos will be
affected by the same treatment cost increases as Palo Alto.
Changes from Prior Financial Forecasts
Staff has projected the need for ongoing wastewater rate increases, starting in FY 2019, for
several years. Table 4 compares current rate projections to those projected in the last two
year’s Financial Plans. As shown, the FY 2019 rate projections are higher than was projected
last year. The FY 2019 projections reflect current information available regarding the cost of
capital improvements both in Palo Alto’s streets as well as at the Regional Water Quality
Control Plant.
Table 4: Projected Wastewater Rate Changes for FY 2019 to FY 2028
Projection FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
UAC/Staff Amended
Proposal
(FY 2019 Financial Plan,
Alternative Scenario 1)
11% 12% 10% 6% 4% 3% 3% 3% 3% 3%
Original Proposal
(FY 2019 Financial Plan) 10% 11% 11% 9% 4% 3% 3% 3% 3% 3%
Last year
(FY 2018 Financial Plan) 7% 7% 7% 7% 7% 5% 5% 4% 3% N/A
Two years ago
(FY 2017 Financial Plan) 9% 7% 6% 4% 4% 4% 4% 4% N/A N/A
Commission Review and Recommendation
City of Palo Alto Page 6
The UAC reviewed this proposal at its March 7, 2018 meeting. Several commissioners voiced
concern that the Operations Reserve was projected to drop below the minimum guideline level
under staff’s proposed 10% increase. Staff noted that the 10% proposal was a measured
approach to starting double digit rate increases, but also understood the reserve issue.
Because of this, staff had included an Alternative Scenario 1 in the Financial Plan which
projected keeping reserves above minimum, starting with an 11% rate increase in FY 2019. The
UAC discussed this 11% alternative compared to staff’s 10% proposal and, noting that the
relative increase for a residential customer under the alternative was $0.35/month more than
staff’s proposal), voted to recommend the Alternative Scenario 1 instead (6 to 1 in favor of the
motion, Commissioner Ballantine dissenting). Staff’s opinion was to take the UAC’s
recommended rate action forward to the Finance Committee and City Council. The excerpted
draft minutes from the UAC’s March 7, 2018 meeting can be found on the City’s website,
located here.
Timeline
If the Finance Committee supports the proposed rate adjustments, staff will send notification of
the potential rate increases to customers as required by Article XIIID of the State Constitution
(added by Proposition 218). The City Council will consider the proposed Financial Plans and
amended rate schedules with the FY 2019 budget, at which time the public hearing required by
Article XIIID of the State Constitution will be held.
Resource Impact
Staff projected normal year revenues for the Wastewater Collection Utility to increase by
roughly 10% ($1.6 million) in FY 2019 as a result of the proposed rate increases. The Alternative
Scenario 1, as recommended by the UAC, would increase revenues by 11% ($1.76 million). See
the FY 2019 Wastewater Collection Utility Financial Plan (Attachment B) for a more
comprehensive overview of projected cost and revenue changes for the next ten years.
Policy Implications
The proposed wastewater rate adjustments are consistent with Council-adopted Reserve
Management Practices that are part of the Financial Plans. Staff developed the wastewater
rate adjustments using a cost of service study and methodology that is consistent with the cost
of service requirements of Proposition 218.
Environmental Review
The UAC’s review and recommendation to Council on the proposed FY 2019 Wastewater
Collection Financial Plan and rate adjustments do not meet the definition of a project, pursuant
to Section 21065 of the California Environmental Quality Act, thus no environmental review is
required.
Attachments:
Attachment A: Resolution Approving FY 2019 Wastewater Utility Financial Plan
Attachment B: Wastewater Collection Financial Plan 2019
Attachment C: Resolution Amending Wastewater Rates 2019
City of Palo Alto Page 7
Attachment D: Amended Rate Schedules S-1, S-2, S-6 and S-7
Attachment A
NOT YET APPROVED
180315 jb 6054066
Resolution No. ____
Resolution of the Council of the City of Palo Alto Approving the Fiscal
Year 2019 Wastewater Collection Utility Financial Plan
R E C I T A L S
A. Each year the City of Palo Alto (“City”) assesses the financial position of its
utilities with the goal of ensuring adequate revenue to fund operations. This includes making
long-term projections of market conditions, the physical condition of the system, and other
factors that could affect utility costs, and setting rates adequate to recover these costs. It does
this with the goal of providing safe, reliable, and sustainable utility services at competitive
rates. The City adopts Financial Plans to summarize these projections.
B. The City uses reserves to protect against contingencies and to manage other
aspects of its operations, and regularly assesses the adequacy of these reserves and the
management practices governing their operation. The status of utility reserves and their
management practices are included in Reserves Management Practices attached to and made a
part of the Financial Plans.
The Council of the City of Palo Alto does hereby RESOLVE as follows:
SECTION 1. The Council hereby approves the FY 2019 Wastewater Utility Financial
Plan.
SECTION 2. The Council hereby approves the transfer of $342,000in FY 2019 from the
Rate Stabilization Reserve to the Operations Reserve, as described in the FY 2019 Wastewater
Utility Financial Plan approved via this resolution.
SECTION 3. The Council finds that the adoption of this resolution does not meet the
California Environmental Quality Act’s definition of a project under Public Resources Code
Section 21065 and CEQA Guidelines Section 15378(b)(5), because it is an administrative
/ /
/ /
/ /
/ /
Attachment A
NOT YET APPROVED
180315 jb 6054066
governmental activity which will not cause a direct or indirect physical change in the
environment, and therefore, no environmental review is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
FY 2019 WASTEWATER
COLLECTION UTILITY
FINANCIAL PLAN
FY 2019 TO FY 2028
ATTACHMENT B
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 8 2 | P a g e
FY 2019 WASTEWATER COLLECTION
UTILITY FINANCIAL PLAN
FY 2019 TO FY 2028
TABLE OF CONTENTS
Section 1: Definitions and Abbreviations................................................................................ 4
Section 2: Executive Summary and Recommendations ........................................................... 4
Section 2A: Overview of Financial Position .................................................................................. 4
Section 2B: Summary of Proposed Actions .................................................................................. 5
Section 3: Detail of FY 2018 Rate and Reserves Proposals ....................................................... 6
Section 3A: Rate Design ............................................................................................................... 6
Section 3B: Current and Proposed Rates ..................................................................................... 6
Section 3C: Bill Impact of Proposed Changes .............................................................................. 7
Section 3D: Proposed Reserve Transfers ..................................................................................... 7
Section 4: Utility Overview .................................................................................................... 8
Section 4A: Wastewater Utility History ....................................................................................... 8
Section 4B: Customer base .......................................................................................................... 9
Section 4C: Collection System ...................................................................................................... 9
Section 4D: Cost Structure and Revenue Sources ...................................................................... 10
Section 4E: Reserves Structure ................................................................................................... 10
Section 4F: Competitiveness ...................................................................................................... 11
Section 5: Utility Financial Projections ................................................................................. 12
Section 5A: FY 2013 to FY 2017 Cost and Revenue Trends ........................................................ 12
Section 5B: FY 2017 Results ....................................................................................................... 13
Section 5C: FY 2018 Projections ................................................................................................. 13
Section 5D: FY 2019 – FY 2028 Projections ................................................................................ 13
Section 5E: Risk Assessment and Reserves Adequacy ............................................................... 15
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Section 5F: Alternate Scenarios ................................................................................................. 16
Section 5G: Long-Term Outlook ................................................................................................. 18
Section 6: Details and Assumptions ..................................................................................... 18
Section 6A: Wastewater Treatment Costs ................................................................................. 18
Section 6B: Operations .............................................................................................................. 19
Section 6C: Capital Improvement Program (CIP) ....................................................................... 19
Section 6D: Debt Service ............................................................................................................ 21
Section 6E: Other Revenues ....................................................................................................... 23
Section 7: Communications Plan .......................................................................................... 23
Appendices ......................................................................................................................... 24
Appendix A: Wastewater Collection Financial Forecast Detail .................................................. 25
Appendix B: Wastewater Collection Utility Capital Improvement Program (CIP) Detail .......... 27
Appendix C: Wastewater Collection Utility Reserves Management Practices .......................... 28
Appendix D: Map (CPA Wastewater Collection System - Sewer Mains Replaced or
Rehabilitated since 1990) .......................................................................................................... 31
Appendix E: Sample of Wastewater Collection Outreach Materials ......................................... 32
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SECTION 1: DEFINITIONS AND ABBREVIATIONS
CCF The standard unit of measurement for water delivered to water customers, equal to
one hundred cubic feet, or roughly 748 gallons. When water usage is used to assess
wastewater charges for commercial customers, it is measured in CCF.
CIP Capital Improvement Program
CPAU City of Palo Alto Utilities Department
FOG Fats, oils, and grease. When flushed into the sewer system, these materials
accumulate in parts of the sewer system and create blockages.
O&M Operations and Maintenance
RWQCP Regional Water Quality Control Plant, the wastewater treatment plant owned and
operated by the City of Palo Alto that serves Palo Alto and several surrounding
communities.
UAC Utilities Advisory Commission
SECTION 2: EXECUTIVE SUMMARY AND RECOMMENDATIONS
This document presents a Financial Plan for the City of Palo Alto’s Wastewater Collection Utility
for the next ten years. The Financial Plan provides revenues to cover the costs of operating the
utility safely over that time while adequately investing for the future. It also addresses the
financial risks facing the utility over the short term and long term, and includes measures to
mitigate and manage those risks.
SECTION 2A: OVERVIEW OF FINANCIAL POSITION
Overall costs in the Wastewater Collection Utility are expected to rise by an average of
approximately 6.9% per year from fiscal year (FY) 2018 to FY 2028. Wastewater treatment costs
are projected to rise by an average of approximately 6.6% annually and collection system CIP
costs are projected to rise substantially by FY 2019 as new sewer main replacement projects
begin. While CPAU aims to complete one main replacement project each year, no project was
budgeted for FY 2017 and FY 2018 to allow staff to complete previous year projects that had
been delayed. After FY 2019, staff project CIP costs to rise at approximately 1.5% annually
through the projection period. Table 1 below shows the costs for the Wastewater Collection
Utility.
Table 1: Expenses for FY 2017 to FY 2028
Expenses
($000)
FY
2017
(act.)
FY
2018
(est.)
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Treatment
Costs
8,391 10,418 10,798 11,846 12,888 13,571 14,005 14,692 15,676 16,083 16,453 16,914
Operations 5,536 5,923 6,086 6,270 6,455 6,629 6,803 6,828 6,979 7,143 7,250 7,407
Capital
Projects
1,332 2,955 6,629 5,936 6,133 6,296 6,486 6,681 6,882 7,088 7,302 7,521
TOTAL 15,258 19,296 23,513 24,051 25,476 26,497 27,294 28,201 29,536 30,315 31,005 31,842
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 8 5 | P a g e
The increase in CIP expenses also reflects higher contract bid prices for underground
construction. Going forward, to ensure that revenues cover rising costs and reserves remain
healthy, the financial plan includes the proposed and projected rate changes shown in Table 2.
The table also shows rate projections from last year’s Financial Plan. Last year’s plan projected
lower increases through FY 2028 because of lower treatment cost projections and lower capital
budget estimates.
Staff originally proposed a 10% rate increase for FY 2019 at the March 7, 2018 UAC meeting.
The UAC voted instead to recommend an 11% increase (Alternative Scenario 1 from the FY
2019 Wastewater Financial Plan to the UAC, Section 5F: Alternate Scenarios), in order to avoid
causing the Operations Reserve to drop below the minimum guidelines. Staff concurred with
the recommendation. This financial plan has been updated to reflect the 11% proposal.
Table 2: Proposed / Projected Wastewater Collection Rate Trajectory for FY 2019 to FY 2028
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
FY
2025
FY
2026
FY
2027
FY
2028
Current Plan 11% 12% 10% 6% 4% 3% 3% 3% 3% 1%
FY 2018 Plan 7% 7% 7% 7% 7% 5% 5% 4% 3% N/A
The Wastewater Collection Utility has a small balance in its Rate Stabilization Reserve. This
reserve is used to phase in rate increases over multiple years to reduce rate impacts to
customers. The FY 2018 Financial Plan projected a transfer from the Rate Stabilization Reserve
would not be needed until 2020. However, this Financial Plan anticipates that transfer in FY
2019. The Operations Reserve was above its target level in FY 2017, but will decline in FY 2019
through 2021, going below the minimum guideline levels in FY 2020 and going back above the
reserve minimum in FY 2023 (see more detail in Figure 5).
Table 3: Transfers To/(From) Reserves for FY 2018 to FY 2028 ($000)
Reserve FY 2018 FY 2019 FY 2020 to FY 2028
CIP Reserve - - (978)
Rate Stabilization - (342) -
Operations - 342 978
Unassigned - - -
SECTION 2B: SUMMARY OF PROPOSED ACTIONS
Staff proposes the following actions for the Wastewater Collection Utility in FY 2019:
1.Increase rates by 11%, primarily reflecting increases to capital expenditures. This is
described in more detail in Section 3B: Current and Proposed Rates.
2.Transfer $342,000 from the Rate Stabilization Reserve to the Operations Reserve in FY
2019.
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SECTION 3: DETAIL OF FY 2018 RATE AND RESERVES PROPOSALS
SECTION ERROR! REFERENCE SOURCE NOT FOUND.A: RATE DESIGN
The Wastewater Collection Utility’s rates are evaluated and implemented in compliance with
the cost of service requirements and procedural rules set forth in the California Constitution
(Proposition 218). Current rates were structured based on staff’s annual assessment of the
wastewater utility’s financial position, as well as the methodology from the January 2011
Wastewater Collection Utility Cost of Service & Rate Study completed by Utility Financial
Solutions (Staff Report 1399). Staff plans to review and update this cost of service study in FY
2019. Before conducting any new cost of service study, staff will review current rates and the
scope of the study with the Utilities Advisory Commission (UAC) and Council to determine the
City’s policy priorities.
SECTION ERROR! REFERENCE SOURCE NOT FOUND.B: CURRENT AND PROPOSED
RATES
The current rates were adopted July 1, 2016, when the City increased sewer rates by 9%.
CPAU has three sewer rate schedules: one for residents (S-1), one for commercial customers
(S-2), and a special schedule for restaurants (S-6), which discharge higher than average amounts
of grease and oil and, therefore, have a greater impact on the sewer system. Residential
customers are billed a monthly service charge, while commercial customers are billed based on
their winter month water usage (previous January through March). This closely approximates
non-irrigation water consumption, which represents actual sewer use. Restaurant customers are
billed monthly based on water usage. CPAU also maintains a rate schedule for industrial
dischargers (S-7), but there are currently no customers required to be on this rate schedule.
CPAU proposes an 11% rate increase in FY 2019 in order to fund upcoming capital projects and
operations costs. Table 4, below, summarizes the current and proposed rates for all customer
classes. Section 4F: Competitiveness discusses comparisons with neighboring communities.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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Table 4: Current Sewer Rates
Current
(as of 7/1/2016)
Proposed
(effective 7/1/2018
Monthly Service and Minimum Charges ($/month)
S-1 (Residential) Service charge $34.83 $38.66
S-2 (Commercial),
S-6 (Restaurant)
Minimum 34.83 38.66
Quantity Rates: based on winter water usage (average
for January - March bill period)
S-2 (Commercial) $/CCF 6.71 7.45
S-6 (Restaurant) $/CCF 10.38 11.52
S-7 (Industrial) $/CCF 3.08 3.42
SECTION ERROR! REFERENCE SOURCE NOT FOUND.C: BILL IMPACT OF PROPOSED
CHANGES
Table 45 below shows the impact of the proposed July 1, 2018 rate changes:
Table 5: Impact of Proposed Sewer Changes
Current
(as of
7/1/2016)
Proposed
(effective
7/1/2018)
Change
$/mo. %
Residential $34.83 $38.66 $3.83 11%
General Commercial (14 CCF) 93.94 104.30 10.36 11%
Restaurant (56 CCF) 581.28 645.12 63.84 11%
SECTION ERROR! REFERENCE SOURCE NOT FOUND.C: PROPOSED RESERVE
TRANSFERS
In the FY 2017 Financial Plan, staff recommended a $1.95 million transfer from the Rate
Stabilization Reserve in FY 2016. This left a small amount, $342,000, which was originally to be
transferred in FY 2017 to bring the Rate Stabilization Reserve balance to zero.
However, because new main replacement projects were deferred in FY 2017 and FY 2018,
resulting in one-time cost savings, the Operation Reserve ended above the maximum guideline
level, and the transfer was not needed. Staff anticipates it will need to transfer the remaining
$342,000 in FY 2019. In addition, staff will propose transferring the remaining $978,000 from
the CIP Reserve to the Operation Reserve in FY 2020.
These transfers are included in the financial projections in this Financial Plan, and will enable
CPAU to maintain adequate Operations Reserve levels while moderating the pace of increase in
Wastewater Collection rates. Appendix A: Wastewater Collection Financial Forecast Detail
shows the impact of these transfers on reserves levels.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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SECTION 4: UTILITY OVERVIEW
This section provides an overview of the utility and its operations. It is intended as general
background information and to help readers better understand the forecasts in later sections.
SECTION 4A: WASTEWATER UTILITY HISTORY
The Wastewater Utility commenced operation in 1899 to serve Palo Alto and Stanford. In its
first three decades the system grew to 60 miles of sewers. Raw sewage was discharged into
Mayfield Slough at the edge of the Bay. In the 1930s, at the behest of the State Department of
Health, Palo Alto built the South Bay’s first wastewater treatment plant. At that time the sewer
system served 20,500 Stanford and Palo Alto residents and a cannery. The plant was upgraded
twice in the 1940s and 1950s to increase capacity.1 At the same time, the postwar population
and industrial boom in the 1950s required rapid expansion of the sewer system. In the first half
of the 1960s Palo Alto’s area doubled, as did wastewater flows, overwhelming the capacity of
several of the utility’s “trunk lines,” which are the largest diameter main sewer lines carrying
wastewater to the treatment plant. This prompted the City, in 1965, to perform the first of its
sewer master plans to identify needed capacity improvements. At that point the Wastewater
Utility’s system comprised more than 150 miles of sewer mains.2
In 1968 the City signed agreements with the Cities of Mountain View and Los Altos to build a
new regional treatment plant, the RWQCP, which is still in operation today. Since 1940 the City
had been providing treatment services to the East Palo Alto Sanitary District through an existing
agreement, and was also serving Stanford University by transporting wastewater across the
City’s sewer system to the treatment plant. Both of these organizations became partners in the
RWQCP as well. At the same time the Town of Los Altos Hills became the sixth partner as it
signed an agreement with the City to connect the Town’s sewer system to the City’s sewer
system to carry wastewater to the new RWQCP. The current agreements for the RWQCP
extend through 2035.3
In the 1980s the City directed increased attention to the condition of its sewer system,
performing a series of studies of groundwater inflow and infiltration into the system. The
studies found high rates of infiltration, estimating that as much as 40% of the water going to
the RWQCP from Palo Alto’s system was groundwater and stormwater rather than
wastewater.4 In some parts of Palo Alto the land surface had subsided due to groundwater
pumping by the water utility, and though that practice had ceased many years earlier as the
water utility switched to the Hetch Hetchy Regional Water System, parts of the city had already
subsided two to five feet. This subsidence had damaged several parts of the sewer collection
system, leading to reduced slopes for sewer mains that caused reductions in capacity. In
1 Long Range Facilities Plan for the Regional Water Quality Control Plant, August 2012, Carollo Engineers, pp 2-1
through 2-2
2 Wastewater Collection and Storm Drainage, 1965, Brown and Caldwell Consulting Engineers, pp 4, 6-7, 143
3 Long Range Facilities Plan for the Regional Water Quality Control Plant, August 2012, Carollo Engineers, pg 2-2
4 Wastewater Collection System Master Plan – Capacity Assessment, January 2004, MWH Americas, Inc., pg ES-2
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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response to these studies the City commenced an accelerated sewer system rehabilitation
program.5 At that point the sewer system comprised over 190 miles of mains.6
A Master Plan study in 1988 recommended a variety of capacity expansions, and in the 1990s
the City completed about half of them. However, a 2004 Master Plan update found that the
accelerated sewer rehabilitation plan started in the early 1990s had substantially reduced
infiltration, easing the capacity problems that had led the to the recommended capacity
increases in the 1988 study. Several of the outstanding projects were canceled and replaced
with a different set of projects.7 At the same time the City updated its hydraulic model and
developed greater capacity to do system planning in house.
SECTION 4B: CUSTOMER BASE
The City of Palo Alto’s Wastewater Collection Utility provides sewer service to the residents and
businesses of Palo Alto. It is distinct from the Wastewater Treatment Utility, which provides
treatment services for surrounding communities in addition to Palo Alto. Nearly 22,500
customers are connected to the sewer system, approximately 20,650 (92%) of which are
residential and 1,850 (8%) of which are non-residential. Residential customers pay a flat fee for
service. Non-residential customers are billed for sewer service based on their metered winter
water usage. There is relatively little variability in revenues for this utility.
SECTION 4C: COLLECTION SYSTEM
The Wastewater Collection Utility delivers all the wastewater it collects to the Regional Water
Quality Control Plant (RWQCP) operated by the City of Palo Alto under a partnership agreement
with several surrounding communities. Palo Alto is responsible for 35% to 40% of the
wastewater sent to the RWQCP. This Financial Plan does not describe the cost of running the
RWQCP in detail as this cost is contained in the Wastewater Treatment Utility; however since
these costs are a major driver of CPAU’s sewer rates, Section 6A: Wastewater Treatment Costs
provides some discussion of future trends in treatment costs. Treatment costs make up nearly
half of the Wastewater Collection Utility’s expenses as shown in Table 1 above.
To collect wastewater from its customers and deliver it to the RWQCP, CPAU owns roughly
18,140 sewer laterals (which collect wastewater from customers’ plumbing systems) and 217
miles of sewer mains (which transport the waste to the treatment plant). These laterals and
mains, along with the associated manholes and cleanouts, represent the vast majority of
infrastructure used to collect wastewater in Palo Alto. CPAU conducts a sewer rehabilitation
and replacement program to replace mains over time as they deteriorate or to increase
capacity. For more discussion of this program, see Section 6C: Capital Improvement Program
(CIP). CIP expense accounts for roughly a quarter of the utility’s expenditures.
In addition to its CIP, CPAU performs various maintenance activities on the sewer system.
These include inspecting and repairing sewer laterals, responding to sewer overflows, regularly
5 CMR 183:90, Infrastructure Review and Update, March 1, 1990
6 Master Plan of the Wastewater Collection System, December 1988, Camp Dresser & McKee, Inc., pg 1-2
7 Wastewater Collection System Master Plan – Capacity Assessment, January 2004, MWH Americas, Inc., pg ES-3
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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cleaning sections of the system heavily impacted by fats, oils, and grease (FOG), and building
and replacing sewer laterals for new or redeveloped buildings. The utility also shares the costs
of other operational activities (such as customer service, billing, equipment maintenance, and
street restoration) with the City’s other utilities. These maintenance and operations expenses,
as well as associated administration, debt service, rent, and other costs, make up approximately
another quarter of the utility’s expenses.
SECTION 4D: COST STRUCTURE AND REVENUE SOURCES
In FY 2017, treatment costs represented slightly more than half of the Wastewater Collection
Utility’s costs (54%), and Operations costs represented nearly a third (37%), while Capital
spending was relatively low (9%). Figure 1 shows these expenditures. The utility’s revenue in FY
2017, shown in Figure 2, came primarily from sewer charges (92%), with the remainder coming
mainly from capacity and connection fees and other sources (8%).
Figure 1: Cost Structure (FY 2017) Figure 2: Revenue Structure (FY 2017)
SECTION 4E: RESERVES STRUCTURE
CPAU maintains six reserves for its Wastewater Collection Utility to manage various types of
contingencies. Below is a summary of these reserves and Appendix C: Wastewater Collection
Utility Reserves Management Practices provides more detailed definitions and guidelines for
reserve management:
Reserve for Commitments: A reserve equal to the utility’s outstanding contract
liabilities for the current fiscal year. Most City funds, including the General Fund, have a
Commitments Reserve.
Reserve for Reappropriations: A reserve for funds dedicated to projects reappropriated
by the City Council, nearly all of which are capital projects. Most City funds, including
the General Fund, have a Reappropriations Reserve.
Capital Improvement Program (CIP) Reserve: The CIP reserve can be used to
accumulate funds for future expenditure on CIP projects and is anticipated to be empty
unless a major one-time CIP expenditure is expected in future years. It also acts as a
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 8 11 | P a g e
contingency reserve for the CIP. This type of reserve is used in other utility funds
(Electric, Gas, and Water) as well.
Rate Stabilization Reserve: This reserve is intended to be empty unless one or more
large rate increases are anticipated in the forecast period. In that case, funds can be
accumulated to spread the impact of those future rate increases across multiple years.
This type of reserve is used in other utility funds (Electric, Gas, and Water) as well.
Operations Reserve: This is the primary contingency reserve for the Wastewater
Collection Utility, and is used to manage yearly variances from budget for operational
costs. This type of reserve is used in other utility funds (Electric, Gas, and Water) as well.
Unassigned Reserve: This reserve is for any funds not assigned to the other reserves
and is normally empty.
SECTION 4F: COMPETITIVENESS
Table 6 shows the monthly sewer bills for residential customers compared to what they would
be in surrounding communities. The annual sewer bill for a Palo Alto customer is $418 under
current rates, 33% lower than the average neighboring community. Palo Alto has the second
lowest bill of the group.
Table 6: Residential Monthly Equivalent Sewer Bill Comparison ($)
Palo Alto
Neighboring Communities Neighboring
Community
Average
Menlo
Park
Redwood
City
Mountain
View Los Altos
Santa
Clara Hayward
34.83 89.33 76.68 37.75 36.27 41.65 31.29 52.16
Based on rates as of February 2018
Table 7 compares the sewer bills for two classes of commercial customers to what they would
be under surrounding communities’ rate schedules. Note that other communities often have
specific rates for industrial customers that discharge high intensity wastewater, such as food
processors or chemical or electronics manufacturers, but Palo Alto does not currently have any
customers that require these special rates. Palo Alto is less competitive with surrounding cities
with regards to commercial sewer rates, but is not the most expensive jurisdiction in all cases.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
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Table 7: Commercial Monthly Sewer Bill Comparison ($)
Palo Alto
Neighboring Communities Neighboring
Community
Average
Menlo
Park
Redwood
City
Mountain
View Los Altos
Santa
Clara Hayward
General
Commercial
93.94 133.84 101.22 69.16 50.76 65.94 71.12 82.01
Restaurant 581.28 815.36 969.36 539.84 137.70 590.24 514.64 594.52
Based on rates as of February 2018
SECTION 5: UTILITY FINANCIAL PROJECTIONS
SECTION 5A: FY 2013 TO FY 2017 COST AND REVENUE TRENDS
Figure 3 shows the Wastewater Collection Utility’s actual expenses and revenues for the past
five years and projections through FY 2028. Collections operations expenses have fluctuated
but on average have grown around 2% per year. Wastewater collection capital investment
fluctuated greatly during this time period: FY 2014 saw a reduction in investment mainly due to
delayed main replacement projects, and FY 2015 and 2016 saw increased capital investment as
those capital projects were completed. Treatment operations costs and capital expense stayed
relatively flat during this timeframe.
Since the revenue for this utility is very stable, revenue changes closely follow rate changes. The
other large revenue item of note is the continued connection and capacity fees from new
construction. These fees have grown dramatically between FY 2010 and FY 2015 and then
plateaued.
Figure 3: Wastewater Collection Utility Expenses, Revenues and Rate Changes
Actual Costs through FY 2017 and Projections through FY 2028
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SECTION 5B: FY 2017 RESULTS
Actual revenues for FY 2017 were lower than forecast revenues ($18.4 million actual vs. $19.0
million projected). Total FY 2017 expenses were $15.3 million compared to projections of $17
million in the FY 2018 Financial Plan. Table 8 summarizes the variances from forecast.
Table 8: FY 2017, Actual Results vs. Financial Plan Forecast ($000)
Net Cost/
(Benefit)
Type of
Change
Wastewater treatment costs lower than forecast $(1,464) Cost decrease
Sales revenues higher than forecast $(121) Revenue increase
Interest, Connection, capacity fees and other revenues $723 Revenue decrease
Operations, capital and other cost decreases $(245) Cost decrease
Net Cost / (Benefit) of Variances $(1,108)
SECTION 5C: FY 2018 PROJECTIONS
This year staff is estimating higher costs for FY 2018. Capital Improvement costs increased by
around $0.8 million for main replacement project design costs not included in last year’s
projections. Another contributing factor is staff projects higher treatment costs due to
increasing capital and operations costs at the RWQCP. Additionally, actual revenues from
connection and capacity fees and interest were lower than projected in FY 2017; for this reason
staff projects less revenue from these sources in FY 2019. Table 9 summarizes the variances
from the prior forecast.
Table 9: FY 2018, Updated Projections vs. Financial Plan Forecast ($000)
Net Cost/
(Benefit)
Type of
Change
Wastewater treatment cost increases $486 Cost increase
Higher Capital Improvement and Operations costs $1,197 Cost increase
Reduced Revenues $478 Revenue decrease
Net Cost / (Benefit) of Variances $2,162
SECTION 5D: FY 2019 – FY 2028 PROJECTIONS
As shown in Figure 3 above (and, in more detail, in Appendix A: Wastewater Collection Financial
Forecast Detail), the Wastewater Collection Utility’s total costs are projected to increase by
roughly 5.3% per year on average for FY 2018 through FY 2028. The majority of this increase is
due to projected capital cost increases for treatment as well as collection. The treatment plant
itself is facing the need for major upgrades in coming years, due to aging equipment and
changing environmental regulations. The costs of the plant are shared among member
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agencies, with members expected to see average cost increases of around 5% per year over the
forecast horizon. As noted previously, capital expenses were lower than usual in FY 2017 and
FY 2018 as sewer main replacement projects were delayed to enable staff to complete previous
year projects, but regular annual main replacement will resume in FY 2019. However,
underground construction costs for all utilities have increased significantly. This means that the
FY 2019 capital budget for a main replacement project is 30.7% higher than in FY 2016, which
was the most recent “normal” year in the CIP program (a year when an annual sewer main
replacement project was budgeted). This increase in construction costs is a partial contributor
to future year rate increases. After FY 2019, staff expects overall collection system capital costs
to increase on average by 1.3% for FY 2020 through 2028.
The red line in Figure 3 shows revenue levels and the figure shows that there have been several
years where costs exceeded revenues. This trend is projected to continue every year from 2018
through 2021. This will result in a fairly rapid reduction of reserves. Staff projects annual rate
increases of 11% to 12% in the near term, decreasing in later years, are required to keep
reserves from dropping below minimum reserve guidelines. Figure 4 below shows the relative
drop in reserves through FY 2021, which begin to recover starting in FY 2022.
Figure 4: Wastewater Collection Reserves Projections
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SECTION 5E: RISK ASSESSMENT AND RESERVES ADEQUACY
The Wastewater Collection Utility currently has one contingency reserve, the Operations
Reserve. This Financial Plan results in the Operations Reserve nearing the minimum guideline
level, but reaching the Target level by the end of the forecast period. Alternative plans could
result in reserves being higher, but these would result in larger rate increases. Similarly, lower
rate increases would result in lower reserves, at times below the minimum guidelines, for a
longer period. Figure 5 below shows the proposed Staff plan.
Figure 5: Operations Reserve Adequacy
Staff performs an annual assessment of risks for the Wastewater Collection Utility. For this
evaluation, staff estimates the revenue shortfall due to:
1.the maximum observed budget-to-actual variance in one year during the past five years;
2.an increase of 10% in system improvement CIP expenditures for the year; and
3.an increase of 10% in treatment costs.
Table 10 summarizes the risk assessment calculation for the Wastewater Collection Utility
through FY 2023. The Operations Reserve is projected to be adequate to manage these levels
of risk over the entire forecast period.
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Table 10: Wastewater Collection Risk Assessment
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Total Revenue ($000) 18,988 21,259 23,401 24,840 25,854
Max. Historical Budget-to-Actual variance 4% 4% 4% 4% 4%
Budget-to-Actual Risk ($000) 760 850 936 994 1,034
System Rehabilitation CIP Budget ($000) 6,211 5,505 5,690 5,840 6,015
CIP Contingency @10% ($000) 621 551 569 584 602
Treatment Budget ($000) 10,798 11,846 12,888 13,571 14,005
Treatment Cost Contingency @10% ($000) 1,080 1,185 1,289 1,357 1,401
Total risk assessment value ($000) 2,460 2,585 2,794 2,935 3,036
Projected Operations Reserve Level ($000) 3,461 3,503 3,269 3,373 3,884
SECTION 5F: ALTERNATE SCENARIOS
When utilizing a combination of reserves and rate changes, many possible alternatives exist.
Alternative scenario 1 explores a revised set of rate increases that brings reserves below the
minimum guideline level for three years (this 10% proposal was originally brought to the UAC
on March 7, 2018, and the UAC instead recommended the current 11% proposal). Table 11
below shows the rate increases associated with the 11% scenario and Figure 6 show the
reserves dropping below the minimum guideline level.
Table 11: Alternative Scenario 1 – Reserves Below Minimum Guideline
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Current Plan 11% 12% 10% 6% 4%
Alternative 10% 11% 11% 9% 4%
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Figure 6: Alternative Scenario 1 – Reserves Below Minimum Guideline
Similarly, another possible alternative would be to try and keep rate increases below 10%. In
alternative scenario 2, a series of 9% rate increases from FY 2019 to FY 2024 would result in
reserves nearly going to zero in FY 2022. While useful for purposes of illustration, this is not a
course Staff would recommend. Figure 7 below shows the impact of alternative scenario 2 on
reserves.
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Figure 7: Alternative Scenario 2 – Keep Rate Increases Below 10%
SECTION 5G: LONG-TERM OUTLOOK
In the longer term (5 to 35 years) the primary factor that could lead to increased costs for the
Wastewater Collection Utility are major upgrades at the RWQCP, a share of which will be
allocated to the utility as part of treatment costs. These upgrades includes replacement or
rehabilitation of the parts of the facility that pump raw sewage to the main treatment works
(the headworks), separate out primary sludge (the primary settling tank), process sludge (the
bio-solids facility), and treat wastewater (the fixed film reactors). Upgrades to the laboratories
and operational buildings are planned as well. In addition, the 72-inch regional trunk sewer line
flowing into the plant needs to be evaluated and rehabilitated.
SECTION 6: DETAILS AND ASSUMPTIONS
SECTION 6A: WASTEWATER TREATMENT COSTS
Treatment expenses represent the Wastewater Collection Utility’s share of the costs of
operating the RWQCP. Per the partnership agreements between Palo Alto and its partner
agencies, these charges are assessed based on a formula that takes into account the total
amount of wastewater delivered, the amount of organic material in it, its ammonia content,
and the total suspended solids it is carrying. The Wastewater Collection Utility’s assessed share
of the RWQCP’s revenue requirement fluctuates in the 38% to 40% range. Mountain View is
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the other large agency served by the RWQCP (39% of the revenue requirement for FY 2014)
with the smaller agencies (Stanford, Los Altos, East Palo Alto, and Los Altos Hills) making up the
remainder of the flow to the treatment plant.
Based on detailed project cost projections provided by RWQCP staff, treatment costs are likely
to continue to increase by roughly 5% per year through at least 2030. Wastewater Treatment
Fund costs are increasing due to rising salary and benefit costs as well as the attendant
allocated charges for centralized city services needed to support wastewater treatment fund
operations. Additional expenses include increased water and air permitting fees from the
Regional Water Quality Control Board and the Bay Area Air Quality Management District.
Commodity and utility rates to operate the facility are also increasing with the largest increases
in FY 2019 for electrical, water, gas, and storm rates. Chemical expenses, needed to adjust
water quality and meet permit requirements, are also increasing modestly per the latest
chemical market conditions and procurement contract conditions.
Capital projects, parts, and materials are increasing at about 3% per year to keep up with
ongoing replacement of aging equipment. Larger increases to capital expenses are expected to
begin in FY 2020 in the form of new debt service for major projects to implement the Plant’s
capital program. The Plant’s major project in FY 2018 will be making progress constructing the
Sludge Dewatering and Truck Loadout Facility, which will allow (in about 2019) the retirement
of the Plant’s two sewage sludge incinerators that have been in operation since 1972.
SECTION 6B: OPERATIONS
Operations costs include the Customer Service, Distribution Operations, Engineering, and
Allocated Charges categories in Appendix A: Wastewater Collection Financial Forecast Detail.
Debt service, rent, and transfers are also included in this category. Customer Service costs are
primarily related to the call center and collections on delinquent accounts. The Distribution
Operations category includes preventative and corrective maintenance on sewer mains and
laterals, investigation of sewer overflows, regular cleaning of heavily impacted sections of the
sewer system, and services shared with other utilities (such as street restoration and
equipment maintenance). Allocated Charges include the costs of accounting, purchasing, legal,
and other administrative functions provided by the City’s General Fund staff, as well as shared
communications services and Utilities Department administrative overhead and billing system
maintenance costs.
Operations costs are projected to increase by 2.7% per year, on average, over the forecast
period. Underlying these projections are salary and benefit, consumer price index, and other
cost projections used in the City’s long-range financial forecast.
SECTION 6C: CAPITAL IMPROVEMENT PROGRAM (CIP)
The Wastewater Collection Utility’s CIP consists of the following programs:
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The Sanitary Sewer Replacement/Rehabilitation (SSR) Program, under which the
Wastewater Collection Utility replaces aging sewer mains.
Customer Connections, which covers the cost when the Wastewater Collection Utility
installs new laterals or upgrades existing laterals at a customer’s request in response to
development or redevelopment. CPAU charges a fee to these customers to cover the
cost of these projects.
Ongoing Projects, which covers the cost of replacing deteriorated manholes and sewer
laterals, as well as the cost of capitalized tools and equipment.
The Sanitary Sewer Replacement and Rehabilitation Program funds the replacement of
deteriorating sewer mains to increase capacity or improve pipe condition in various parts of the
sewer system. The sewer system consists of over 217 miles of mains, and CPAU uses a variety
of tools to establish which sections are in need of replacement. The 2004 Master Plan study
identified wastewater mains with capacity deficiency and they have been corrected in past CIP
projects. For condition assessment, maintenance statistics (such as records of the location and
number of sewer overflows on the system) and videotape of sewer mains from a past video
inspection of sewer main project or during regular cleaning can reveal areas with deteriorating
pipe. CPAU uses a structural rating system to grade the pipe defects. The video-inspection
data and maintenance records are used to plan and prioritize sewer main replacement and
rehabilitation.
Utilities also coordinates with the Public Works street maintenance program to avoid cutting
into newly repaved streets. A major goal of the replacement program is to minimize sewer
overflow and reduce groundwater and rainwater infiltration. As mains deteriorate they begin
to allow roots into the pipe joints to create blockages, permitting groundwater and rainwater to
infiltrate the system. Some level of infiltration is expected on any sewer system, but if there is
too much, the combined flow of wastewater and groundwater/rainwater can overwhelm the
capacity of various parts of the sewer system. Reducing infiltration can reduce the need to
expand the system to accommodate increased flow, as well as reducing unnecessary amounts
of water to be treated at the treatment plant. To achieve this goal, deteriorating mains are
either rehabilitated with a plastic lining or replaced with new HDPE pipe. Staff has been
replacing/rehabilitating the mains as needed according to their condition. In addition,
Wastewater Operations’ routine maintenance continues to stay on schedule to minimize sewer
overflows.
Over the last few years, main replacement costs have been increasing for utilities due to
economic activity in the Bay Area causing construction cost inflation. It is likely that this trend
will continue in the short term.
This increase in cost is a partial reason for a one year delay in projects. Staff deferred its FY
2018 replacement project because all Field Inspectors were busy providing inspection services
for one water and two previous wastewater construction projects. Several Engineers were also
focusing on designing, coordinating amongst all departments, and setting up the contract for
the complicated Upgrade Downtown project. However, Utilities Engineering has been
consistently replacing aging sewer mains since the early 90’s. The proactive replacement
program keeps the collection system in good condition. Between 1990 and 2017, 67 miles or
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31% of the collection system has been replaced or rehabilitated (the red-colored lines shown in
the attached map in Appendix D: Map (CPA Wastewater Collection System - Sewer Mains
Replaced or Rehabilitated since 1990). This is an average of approximately 13,530 feet (~2.6
miles), or 1.2% of the system, of sewer main being replaced or rehabilitated per year. Given
sewer main expected lifetimes, this is a sustainable replacement rate.
In many cases, annual projects get combined together to save administrative time/cost and to
make the project more attractive for contractors to bid. The most recent Sanitary Sewer
Replacement (SSR) projects SSR 24/25/26 and SSR 27 were substantially completed in April of
2017. Staff is currently working on re-evaluating and re-prioritizing the scope of future projects
based on the structural rating system and available budget. Part of the assessment is to
evaluate whether a slightly reduced replacement rate would jeopardize the integrity of the
system, since large portions of the mains that have not been replaced or rehabilitated are
located in sub-divisions that were developed between 1950 and 1970.
Customer Connections costs are projected to increase steadily by around 3% each year through
the end of the forecast period. Actual expenses for these projects fluctuate annually depending
on how many defective laterals and manholes are discovered during routine maintenance, as
well as how much development and redevelopment is going on that prompts the replacement
or upgrade of sewer laterals. It is worth noting that property owners pay a fee for sewer lateral
replacement or expansion during redevelopment, so when the number of projects increases, so
does fee revenue.
Table 12 displays projected CIP spending for the 5-year financial forecast period.
Table 12: Projected CIP Spending
Aside from Customer Connections, the CIP plan for FY 2019 to FY 2023 is funded by sewer rates
and capacity fees. Appendix B: Wastewater Collection Utility Capital Improvement Program
(CIP) Detail shows the details of the plan.
SECTION 6D: DEBT SERVICE
The Wastewater Collection Utility currently pays its share of one bond issuance, the 1999 Utility
Revenue Bonds, Series A, which is due to be retired in 2024. This $17.7 million issuance
refinanced various earlier Storm Drain, Wastewater Treatment, and Wastewater Collection
Utility bond issuances. The Wastewater Collection Utility’s share of the issuance was roughly
$1.9 million. This amount represented the second refinancing of the remaining principal of a
1990 bond issuance, which itself was a refinancing of a 1985 issuance that financed a variety of
improvements to the sewer system. The cost of debt service for the Wastewater Collection
Project Category
Current
Budget*
Spending,
Curr. Yr
Remain.
Budget**Committed FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Sewer Rehab/Augmentation 2,665 (960) 1,704 1,416 4,800 4,520 4,675 4,796 4,939
Ongoing Projects 1,626 (290) 1,336 535 959 985 1,015 1,043 1,073
Customer Connections 458 (136) 321 54 418 431 443 457 470
TOTAL 4,748 (1,386) 3,362 2,005 6,176 5,936 6,133 6,296 6,483
*Includes unspent funds from previous years carried forward or reappropriated into the current fiscal year
**Equal to CIP Reserves (Reserve for Reappropriations + Reserve for Commitments).
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Utility’s share of this bond issuance for the financial forecast period is roughly $128,000 per
year as shown in Table 13 below.
Table 13: Wastewater Collection Utility Debt Service ($000)
FY
2019
FY
2020
FY
2021
FY
2022
FY
2023
FY
2024
1999 Utility Revenue Bonds, Series A 128 128 129 129 129 0
The 1999 Utility Revenue Bonds include two covenants stating that 1) the Wastewater
Collection Utility will maintain a debt coverage ratio of 125% of debt service, and 2) that the
City will maintain “Available Reserves”8 equal to five times the annual debt service. The current
financial plan maintains compliance with both covenants throughout the forecast period. Table
14, below, shows compliance with the first covenant. Due to the small size of the annual debt
service payment for these bonds, the Wastewater Collection Utility’s Operations Reserve alone
more than satisfies the second covenant at more than 30 times annual debt service throughout
the forecast period.
Table 14: Debt Service Coverage Ratio ($000)
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Revenues 17,167 18,978 21,249 23,391 24,830 25,844
Expenses (Excl. CIP
and Debt Service)
14,214 14,320 15,531 16,732 17,560 18,024
Net Revenues 2,952 4,658 5,718 6,658 7,270 7,819
Debt Service 128 128 128 129 129 129
Coverage Ratio 2299% 3633% 4477% 5179% 5632% 6049%
The Wastewater Collection Utility’s reserves (but not its net revenues) are also considered
security for the Storm Drain and Wastewater Treatment Utilities’ shares of the debt service on
the 1999 bonds. Throughout the term of the bonds there remains a small risk that the
Wastewater Collection Utility’s reserves could be called upon to make a debt service payment
on behalf of one of those utilities if it cannot meet its debt service obligations. Staff does not
foresee this occurring based on the current financial condition of those utilities. If the
Wastewater Collection Utility’s reserves were used this way, any amounts advanced would
have to be repaid by the borrowing utility.
One other bond series is secured by the net revenues (but not the reserves) of the Wastewater
Collection Utility. The 1995 Series A Utility Revenue Bonds issued for the Storm Drain utility
were secured by the net revenues of the City’s “Enterprise,” which was defined as the City’s
water, gas, wastewater, storm drain, and electric utilities, and are senior to the 1999 bonds
referenced above. Debt service payments of roughly $680,000 per year are made on the 1995
Series A bonds by the City’s Storm Drain Utility, and staff does not currently foresee any risk of
that utility being unable to make payment.
8 Available Reserves as defined in the 1999 Utility Revenue Bonds included reserves for the Water, Wastewater
Treatment, Wastewater Collection, Refuse, Storm Drain, Electric, and Gas Utilities
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SECTION 6E: OTHER REVENUES
The utility has seen substantial increases in connection and capacity fee revenues in recent
years. These fees are imposed to cover the cost of installing new service lines and the
customer’s impact on the overall system capacity. These are assumed to continue, albeit
slightly reduced from current levels. Income from interest and transfers in are projected to
remain steady through the forecast horizon.
SECTION 7: COMMUNICATIONS PLAN
The FY 2019 Wastewater Collection Utility communications strategy covers three primary areas:
rates, maintenance and operations, and safety. Communication about wastewater rate
adjustments will highlight the important infrastructure and operations upgrades that are
occurring at the Regional Water Quality Control Plant to improve wastewater collection utility
services. To keep customers apprised of the status and accomplishments of CIP projects, a
network of project web pages are maintained and updated as needed. Traffic is driven to the
website via ads in newspapers and local publications, utility bill inserts, social media and email
newsletters.
An important communications topic for the wastewater utility is avoiding sewer back-ups due
to FOG (fats, oil and grease) and trash being dumped down drains and toilets. Safety topics are
emphasized year-round. Staff continues its outreach goal of educating customers about the
utility’s gas-sewer line cross-bore inspection program, including the importance of calling
Utilities prior to clearing sewer lines in the event of a sewer back-up.
Promotional activity about wastewater utility maintenance and safety operations includes use
of bill inserts, ads in local print publications, website pages, email newsletters and social
media. While print materials and website pages feature prominently, CPAU is increasing the
outreach emphasis on more direct communication with customers, including through use of
social media, email newsletters, digital ads and videos, including featuring actual staff who
work in the Wastewater division. Staff is also attending more community safety/emergency
preparation events and neighborhood meetings.
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APPENDICES
Appendix A: Wastewater Collection Financial Forecast Detail
Appendix B: Wastewater Collection Utility Capital Improvement Program (CIP) Detail
Appendix C: Wastewater Collection Utility Reserves Management Practices
Appendix E: Map (CPA Wastewater Collection System - Sewer Mains Replaced or Rehabilitated
since 1990)
Appendix E: Sample of Wastewater Collection Outreach Materials
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APPENDIX A: WASTEWATER COLLECTION FINANCIAL FORECAST DETAIL
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($'000)
Actual Actual Actual Actual Actual
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
1
2 % CHANGE IN RETAIL RATE 5%0%0%9%9%0%11%12%10%6%4%4%4%4%3%1%
3 PROJECTED CHANGE IN RETAIL SALES REVENUE 715 - - 1,352 1,416 - 1,889 2,288 2,135 1,409 996 1,036 1,077 1,120 874 300
4
5 RETAIL SALES REVENUE 15,019 14,588 14,658 15,648 17,126 17,167 18,978 21,249 23,391 24,830 25,844 26,878 27,953 29,072 29,956 30,280
6 CONNECTION AND CAPACITY FEES 1,609 1,703 1,392 794 1,047 906 918 930 943 957 970 985 999 1,014 1,030 1,045
7 OTHER / TRANSFERS IN 545 361 753 321 355 291 261 324 291 261 324 291 261 324 291 261
8 INTEREST (211) 339 315 475 (88) 328 287 212 217 153 152 161 164 180 199 210
9 TOTAL SOURCES OF FUNDS 16,963 16,991 17,119 17,238 18,441 18,692 20,444 22,715 24,842 26,201 27,290 28,314 29,378 30,590 31,476 31,797
10
11 PURCHASES/CHARGES OF UTILITIES (TREATMENT)8,314 6,863 8,589 8,770 8,391 10,418 10,798 11,846 12,888 13,571 14,005 14,692 15,676 16,083 16,453 16,914
12 ALLOCATED CHARGES (CIP&OPERATING)1,926 2,359 1,062 1,900 1,477 1,612 1,645 1,676 1,711 1,749 1,788 1,823 1,859 1,913 1,950 1,995
CUSTOMER SERVICE 1 133 (324) (22) 345 358 371 389 406 421 435 448 461 471 477 489
13 DISTRIBUTION OPERATIONS 2,617 2,570 2,646 2,635 2,759 2,859 2,950 3,071 3,188 3,295 3,400 3,494 3,583 3,670 3,724 3,812
ENGINEERING (OPERATING)271 310 319 347 292 302 311 323 335 346 357 366 376 385 391 400
14 DEBT SERVICE 128 129 51 47 43 128 128 128 129 129 129 - - - - -
15 RENT 110 217 223 293 300 317 334 337 340 343 347 350 354 357 361 364
16 OTHER/ TRANSFERS OUT 147 241 108 230 320 346 346 346 346 346 346 346 346 346 346 346
17 CAPITAL IMPROVEMENT FUNDING 4,094 989 3,477 4,985 1,332 2,955 6,629 5,936 6,133 6,296 6,486 6,681 6,882 7,088 7,302 7,521
ALLOWANCE FOR UNSPENT CAPITAL FUNDS - - - - - (400) (400) (400) (400) (515) (515) (515) (515) (515) (515)
18 TOTAL USES OF FUNDS 17,610 13,811 16,150 19,184 15,259 19,296 23,113 23,651 25,076 26,097 26,779 27,686 29,021 29,800 30,490 31,327
19
20 INTO / (OUT OF) RESERVES (647) 3,180 969 (1,946) 3,182 (605) (2,669) (936) (235) 104 511 628 356 790 986 469
21
24 ENDING COMMITMENTS & REAPPROPRIATIONS 11,228 8,312 8,291 11,088 1,922 1,922 1,922 1,922 1,922 1,922 1,922 1,922 1,922 1,922 1,922 1,922
23 ENDING PLANT REPLACEMENT RESERVE 1,000 - - - - - - - - - - - - - - -
ENDING CIP RESERVE - - 2,551 978 978 978 978 - - - - - - - - -
22 ENDING RATE STABILIZATION RESERVE 4,104 4,556 4,292 342 342 342 - - - - - - - - - -
ENDING OPERATIONS RESERVE - 3,728 2,431 3,211 6,393 5,788 3,461 3,503 3,269 3,373 3,884 4,512 4,868 5,658 6,644 7,113
25 UNASSIGNED RESERVES - - - - - - - - - - - - - - - -
26 RISK ASSESSMENT VALUE 2,736 2,230 2,722 1,814 1,618 1,984 2,460 2,585 2,794 2,935 3,036 3,164 3,324 3,429 3,521 3,601
27
28 OPERATIONS RESERVE GUIDELINES
29 MIN (60 DAYS TREATMENT/O&M EXP)2,253 1,915 2,083 2,224 2,305 2,686 2,775 2,978 3,180 3,321 3,421 3,538 3,724 3,818 3,896 3,998
TARGET (105 DAYS TREATMENT/O&M EXP)1,831 3,352 3,646 3,891 4,034 4,701 4,857 5,211 5,565 5,811 5,986 6,191 6,517 6,681 6,819 6,996
30 MAX (150 DAYS TREATMENT/O&M EXP)4,506 4,788 5,208 5,559 5,762 6,715 6,939 7,445 7,949 8,301 8,551 8,844 9,310 9,545 9,741 9,995
31
City of Palo Alto
Wastewater Collection
Fiscal Year
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APPENDIX B: WASTEWATER COLLECTION UTILITY CAPITAL IMPROVEMENT PROGRAM (CIP) DETAIL
Project #Project Name
Reappropriated /
Carried Forward from
Previous Years
Current Year
Funding
Proposed
Budget
Amendments
Spending,
Current Year
Remaining in
CIP Reserve
Fund Commitments FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
SEWER SYSTEM REHABILITATION AND AUGMENTATION (SSR/A) PROGRAM
WC-07004 SSR/A - Project 20 - - - - - - - - - - -
WC-08012 SSR/A - Project 21 - - - - - - - - - - -
WC-09001 SSR/A - Project 22 - - - - - - - - - - -
WC-10002 SSR/A - Project 23 - - - - - - - - - - -
WC-11000 SSR/A - Project 24 250,609 - - (121,353) 129,256 94,404 - - - - -
WC-12001 SSR/A - Project 25 468,772 - - (262,897) 205,875 186,531 - - - - -
WC-13001 SSR/A - Project 26 428,130 - - (166,536) 261,594 518,475 - - - - -
WC-14001 SSR/A - Project 27 717,106 97,440 - (409,505) 405,041 616,220 - - - - -
WC-15001 SSR/A - Project 28 - 702,600 - - 702,600 - 4,390,000 - - - -
WC-16001 SSR/A - Project 29 - - - - - 409,849 4,098,490 - - -
WC-17001 SSR/A - Project 30 - - - - - - - 421,684 4,209,845 - -
WC-19001 SSR/A - Project 31 - - - - - - - - 465,185 4,348,150 -
WC-20000 SSR/A - Project 32 - - - - - - - - - 448,249 4,477,495
WC-21000 SSR/A - Project 33 - - - - - - - - - - 461,696
Subtotal, Sewer Rehab./Augmentation 1,864,617 800,040 - (960,291) 1,704,366 1,415,630 4,799,849 4,520,174 4,675,030 4,796,399 4,939,191
ONGOING PROJECTS
WC-13002 Fusion & Gen. Equip./Tools 22,854 50,000 - - 72,854 22,854 50,000 50,000 50,000 50,000 50,000
WC-15002 WW System Improvements 5,452 246,000 - - 251,452 185,453 253,000 260,000 269,000 276,875 285,181
WC-99013 Sewer / Manhole Rehab.664,965 636,540 - (289,730) 1,011,775 326,662 655,636 675,305 695,564 716,431 737,924
Subtotal, Ongoing Projects 693,271 932,540 - (289,730) 1,336,081 534,969 958,636 985,305 1,014,564 1,043,306 1,073,105
CUSTOMER CONNECTIONS (FEE FUNDED)
WC-80020 Sewer System Extensions 51,900 405,820 - (136,328) 321,392 54,418 417,995 430,534 443,450 456,754 470,457
Subtotal, Customer Connections 51,900 405,820 - (136,328) 321,392 54,418 417,995 430,534 443,450 456,754 470,457
GRAND TOTAL 2,609,788 2,138,400 - (1,386,349) 3,361,839 2,005,017 6,176,480 5,936,013 6,133,044 6,296,459 6,482,754
Funding Sources
Connection/Capacity Fees 405,820 - 417,995 430,534 443,450 456,754 470,457
Funded by Rates and Other Revenue 1,732,580 - 5,758,485 5,505,479 5,689,594 5,839,705 6,012,297
CIP-RELATED RESERVES DETAIL 6/30/2017
6/30/2018
(Unaudited)
Reappropriations 159,316 1,356,822
Commitments 2,450,472 2,005,017
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 8 28 | P a g e
APPENDIX C: WASTEWATER COLLECTION UTILITY RESERVES
MANAGEMENT PRACTICES
The following reserves management practices shall be used when developing the Wastewater
Collection Utility Financial Plan:
Section 1. Definitions
a) “Financial Planning Period” – The Financial Planning Period is the range of future fiscal
years covered by the Financial Plan. For example, if the Financial Plan delivered in
conjunction with the FY 2015 budget includes projections for FY 2015 to FY 2019, FY
2015 to FY 2019 would be the Financial Planning Period.
b) “Fund Balance” – As used in these Reserves Management Practices, Fund Balance refers
to the Utility’s Unrestricted Net Assets.
c) “Net Assets” - The Government Accounting Standards Board defines a Utility’s Net
Assets as the difference between its assets and liabilities.
d) “Unrestricted Net Assets” - The portion of the Utility’s Net Assets not invested in capital
assets (net of related debt) or restricted for debt service or other restricted purposes.
Section 2. Reserves
The Wastewater Collection Utility’s Fund Balance is reserved for the following purposes:
a) For existing contracts, as described in Section 3 (Reserve for Commitments)
b) For operating and capital budgets re-appropriated from previous years, as described in
Section 4 (Reserve for Re-appropriations)
c) For cash flow management and contingencies related to the Wastewater Collection
Utility’s Capital Improvement Program (CIP), as described in Section 5 (CIP Reserve)
d) For rate stabilization, as described in Section 6 (Rate Stabilization Reserve)
e) For operating contingencies, as described in Section 7 (Operations Reserve)
f) Any funds not included in the other reserves will be considered Unassigned Reserves
and shall be returned to ratepayers or assigned a specific purpose as described in
Section 8 (Unassigned Reserves).
Section 3. Reserve for Commitments
At the end of each fiscal year the Reserve for Commitments will be set to an amount equal
to the total remaining spending authority for all contracts in force for the Wastewater
Collection Utility at that time.
Section 4. Reserve for Re-appropriations
At the end of each fiscal year the Reserve for Re-appropriations will be set to an amount
equal to the amount of all remaining capital and non-capital budgets, if any, that will be re-
appropriated to the following fiscal year in accordance with Palo Alto Municipal Code
Section 2.28.090.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 8 29 | P a g e
Section 5. CIP Reserve
The CIP Reserve is used to manage cash flow for capital projects and acts as a reserve for
capital contingencies. Staff will manage the CIP Reserve according to the following
practices:
a) The following guideline levels are set forth for the CIP Reserve. These guideline levels
are calculated for each fiscal year of the Financial Planning Period based on the levels of
CIP expense budgeted for that year.
Minimum Level 12 months of budgeted CIP expense
Maximum Level 24 months of budgeted CIP expense
b) Changes in Reserves: Staff is authorized to transfer funds between the CIP Reserve and
the Reserve for Commitments when funds are added or removed from to that reserve
as a result of a change in contractual commitments related to CIP projects. Any other
additions to or withdrawals from the CIP reserve require Council action.
c) Minimum Level:
i) Funds held in the Reserve for Commitments may be counted as part of the CIP
Reserve for the purpose of determining compliance with the CIP Reserve minimum
guideline level.
ii) If, at the end of any fiscal year, the minimum guideline is not met, staff shall present
a plan to the City Council to replenish the reserve. The plan shall be delivered by the
end of the following fiscal year, and shall, at a minimum, result in the reserve
reaching its minimum level by the end of the next fiscal year. For example, if the CIP
Reserve is below its minimum level at the end of FY 2017, staff must present a plan
by June 30, 2018 to return the reserve to its minimum level by June 30, 2019. In
addition, staff may present, and the Council may adopt, an alternative plan that
takes longer than one year to replenish the reserve, or that does so in a shorter
period of time.
d) Maximum Level: If, at any time, the CIP Reserve reaches its maximum level, no funds
may be added to this reserve. If there are funds in this reserve in excess of the
maximum level staff must propose to transfer these funds to another reserve or return
them to ratepayers in the next Financial Plan. Staff may also seek City Council to
approve holding funds in this reserve in excess of the maximum level if they are held for
a specific future purpose related to the CIP.
Section 6. Rate Stabilization Reserve
Funds may be added to the Rate Stabilization Reserve by action of the City Council and held
to manage the trajectory of future year rate increases. Withdrawal of funds from the Rate
Stabilization Reserve requires Council action. If there are funds in the Rate Stabilization
Reserve at the end of any fiscal year, any subsequent Wastewater Collection Utility
Financial Plan must result in the withdrawal of all funds from this Reserve by the end of the
Financial Planning Period.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 8 30 | P a g e
Section 7. Operations Reserve
The Operations Reserve is used to manage normal variations in costs and as a reserve for
contingencies. Any portion of the Wastewater Collection Utility’s Fund Balance not
included in the reserves described in Section 3-Section 6 above will be included in the
Operations Reserve unless this reserve has reached its maximum level as set forth in Section
7(d) below. Staff will manage the Operations Reserve according to the following practices:
a)The following guideline levels are set forth for the Operations Reserve. These guideline
levels are calculated for each fiscal year of the Financial Planning Period based on the
levels of Operations and Maintenance (O&M) and commodity expense forecasted for
that year in the Financial Plan.
Minimum Level 60 days of O&M and commodity expense
Target Level 105 days of O&M and commodity expense
Maximum Level 150 days of O&M and commodity expense
b)Minimum Level: If, at the end of any fiscal year, the funds remaining in the Operations
Reserve are lower than the minimum level set forth above, staff shall present a plan to
the City Council to replenish the reserve. The plan shall be delivered within six months
of the end of the fiscal year, and shall, at a minimum, result in the reserve reaching its
minimum level by the end of the following fiscal year. For example, if the Operations
Reserve is below its minimum level at the end of FY 2014, staff must present a plan by
December 31, 2014 to return the reserve to its minimum level by June 30, 2015. In
addition, staff may present, and the Council may adopt, an alternative plan that takes
longer than one year to replenish the reserve.
c)Target Level: If, at the end of any fiscal year, the Operations Reserve is higher or lower
than the target level, any Financial Plan created for the Wastewater Collection Utility
shall be designed to return the Operations Reserve to its target level within four years.
d)Maximum Level: If, at any time, the Operations Reserve reaches its maximum level, no
funds may be added to this reserve. Any further increase in the Wastewater Collection
Utility’s Fund Balance shall be automatically included in the Unassigned Reserve
described in Section 8, below.
Section 8. Unassigned Reserve
If the Operations Reserve reaches its maximum level, any further additions to the
Wastewater Collection Utility’s Fund Balance will be held in the Unassigned Reserve. If
there are any funds in the Unassigned Reserve at the end of any fiscal year, the next
Financial Plan presented to the City Council must include a plan to assign them to a specific
purpose or return them to the Wastewater Collection Utility ratepayers by the end of the
first fiscal year of the next Financial Planning Period. For example, if there were funds in the
Unassigned Reserves at the end of FY 2015, and the next Financial Planning Period is
FY 2016 through FY 2020, the Financial Plan shall include a plan to return or assign any
funds in the Unassigned Reserve by the end of FY 2016. Staff may present an alternative
plan that retains these funds or returns them over a longer period of time.
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 8 31 | P a g e
APPENDIX D: MAP (CPA WASTEWATER COLLECTION SYSTEM - SEWER
MAINS REPLACED OR REHABILITATED SINCE 1990)
WASTEWATER COLLECTION UTILITY FINANCIAL PLAN
F e b r u a r y 2 0 1 8 32 | P a g e
APPENDIX E: SAMPLE OF WASTEWATER COLLECTION OUTREACH
MATERIALS
Not Yet Approved
180312 jb 6054068
Resolution No. _____
Resolution of the Council of the City of Palo Alto Increasing Wastewater
Rates by 10% 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)
R E C I T A L S
A. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the Council of
the City of Palo Alto may by resolution adopt rules and regulations governing utility services,
fees and charges.
B. On April 3, 2018, the City Council held a full and fair public hearing regarding the
proposed rate increase and considered all protests against the proposals.
C. As required by Article XIII D, Section 6 of the California Constitution and
applicable law, notice of the Utilities wastewater customers by ____________, 2018 public
hearing was mailed to all City of Palo Alto ___________, 2018.
D. The City Clerk has tabulated the total number of written protests presented by
the close of the public hearing, and determined that it was less than fifty percent (50%) of the
total number of customers and property owners subject to the proposed wastewater rate
amendments, therefore a majority protest does not exist against the proposal.
The Council of the City of Palo Alto hereby RESOLVES as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-1 (Residential Wastewater Collection and Disposal) is hereby amended to read as
attached and incorporated. Utility Rate Schedule S-1, as amended, shall become effective July
1, 2018.
SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-2 (Commercial Wastewater Collection and Disposal) is hereby amended to read as
attached and incorporated. Utility Rate Schedule S-2, as amended, shall become effective July
1, 2018.
SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-6 (Restaurant Wastewater Collection and Disposal) is hereby amended to read as
attached and incorporated. Utility Rate Schedule S-6, as amended, shall become effective July
1, 2018.
SECTION 4. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate
Schedule S-7 (Commercial Wastewater Collection and Disposal – Industrial Discharger) is hereby
amended to read as attached and incorporated. Utility Rate Schedule S-7, as amended, shall
become effective July 1, 2018.
Not Yet Approved
180312 jb 6054068
SECTION 5. The Council finds that the revenue derived from the wastewater rates
approved by this resolution do not exceed the funds required to provide wastewater service,
and the revenue derived from the adoption of this resolution shall be used only for the
purposes set forth in Article VII, Section 2, of the Charter of the City of Palo Alto.
SECTION 6. The Council finds that the fees and charges adopted by this resolution are
charges imposed for a specific government service or product provided directly to the payor
that are not provided to those not charged, and do not exceed the reasonable costs to the City
of providing the service or product.
SECTION 7. The Council finds that the adoption of this resolution changing wastewater
collection rates to meet operating expenses, purchase supplies and materials, meet financial
reserve needs and obtain funds for capital improvements necessary to maintain service is not
subject to the California Environmental Quality Act (CEQA), pursuant to California Public
Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec.
15273(a). After reviewing the staff report and all attachments presented to Council, the Council
incorporates these documents herein and finds that sufficient evidence has been presented
setting forth with specificity the basis for this claim of CEQA exemption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ __________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Assistant City Attorney City Manager
____________________________
Director of Utilities
____________________________
Director of Administrative Services
RESIDENTIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-1-1 Effective 7-1-20186
dated 7-1-20165 Sheet No S-1-1
A. APPLICABILITY:
This schedule applies to each Ooccupied Domesticresidential Ddwelling unit.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwastewater Sservice.
C. RATES:
Per Month
Each Occupied Ddomestic Ddwelling unit ............................................................................
$34.8338.31
D. SPECIAL NOTES:
1. Any dwelling unit being individually served by a Wwater, Ggas, or Eelectric mMeter will be
considered continuously occupied.
2.For two or more Ooccupied Domestic Ddwelling units served by one Wwater Mmeter, the
monthly wWastewater charge will be calculated by multiplying the current wWastewater rate
by the number of dwelling units.
3.Each developed separate lot shall have a separate service lateral to a sanitary main or
manhole.
{End}
ATTACHMENT D
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-2
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-2-1 Effective 7-1-20186
dated 7-1-20165 Sheet No S-2-1
A. APPLICABILITY:
This schedule applies to all commercial establishments other than those served under Utility Rate
Schedule S-1 (Residential Wastewater Collection and Disposal), Rate Schedule S-6 (Restaurant
Wastewater Collection and Disposal) or Rate Schedule S-7 (Commercial Establishments
Wastewater Disposal – Industrial Discharger).
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwastewater Sservices.
C. RATES:
1. Minimum Charge per connection per month .............................................................$34.8338.31
2.Quantity Rates, per 100 cubic feet (See Section D.1) .............................................$6.717.38
D. SPECIAL NOTES:
1. The monthly charge for the quantity rate set forth in Section C.2 of this rate schedule will
be based upon the average Wwater usage for the months of January, February and March,
and applied in the following July. If a Wwater Mmeter is identified as exclusively
serving irrigation landscaping, such Mmeter will be exempted from Wwastewater charge
calculations. Customers without an applicable usage history will be charged at the
minimum monthly charge until such time as such usage may reasonably be established by
the City of Palo Alto Utilities Department.
2.The City of Palo Alto Utilities Department may require Wwastewater Mmetering
facilities, in which case Sservice will be governed by terms of a special agreement
between the City and the Customer.
{End}
RESTAURANT WASTEWATER COLLECTION AND DISPOSAL
UTILITY RATE SCHEDULE S-6
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-6-1 Effective 7-1-20186
dated 7-1-20165 Sheet No S-6-1
A. APPLICABILITY:
This schedule applies to all restaurants.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwastewater Sservices.
C. RATES:
1. Minimum charge per connection per month ......................................................... $34.8338.31
2.Quantity Rates, per 100 cubic feet of monthly metered Wwater usage ..................... $
10.3811.42
D. SPECIAL NOTES:
1.The City of Palo Alto Utilities Department may require Wwastewater Mmetering facilities,
in which case Sservice will be governed by terms of a special agreement between the City
and the Customer.
{End}
COMMERCIAL WASTEWATER COLLECTION AND DISPOSAL –INDUSTRIAL DISCHARGER
UTILITY RATE SCHEDULE S-7
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Supersedes Sheet No S-7-1 Effective 7-1-20186
dated 7-1-20165 Sheet No S-7-1
A. APPLICABILITY:
This schedule applies to any establishment requiring sampling of industrial discharges in excess
of 25,000 gallons per day, or special discharge monitoring, as defined in Rule and Regulation 23,
Section D.
B. TERRITORY:
This schedule applies everywhere the City of Palo Alto provides Wwastewater Sservices.
C. RATES:
1. Collection System Operation, Maintenance, and Infiltration Inflow:
$1.942.13 per 100 cubic feet of metered water use.
2.Advanced Waste Treatment Operations and Maintenance Charge:
$1.141.26 per 100 cubic feet of metered water use
3. $ 247.56 per 1000 pounds (lbs) of COD (Chemical Oxygen Demand)
4. $ 596.62 per 1000 lbs of SS (Suspended Solids)
5. $ 3,983.85 per 1000 lbs of NH3 (Ammonia)
6. $ 14,781.25 per 1000 lbs of toxics (chromium, copper, cyanide, lead, nickel, silver, and zinc)
D. SPECIAL NOTES:
1.Water usage will be determined as defined in Rule and Regulation 23, Section D. If a
Wwater Mmeter is identified as exclusively serving irrigation landscaping, such Mmeter
will be exempted from Wwastewater charge calculations.
2.The City of Palo Alto Utilities Department may require Wwastewater Mmetering
facilities, in which case Sservice will be governed by terms of a special agreement
between the City of Palo Alto and the Customer.
3.Charges for large discharges will be determined on the basis of sampling as outlined in
Utilities Rule and Regulation 23, Section D. However, for purposes of arriving at an
accurate flow estimate, discharge Mmeters, if installed, can be utilized to measure
outflow for billing purposes. Annual charges will be determined and allocated monthly
for billing purposes.
{End}