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2015-03-23 City Council Agenda Packet
CITY OF PALO ALTO CITY COUNCIL MARCH 23, 2015 Special Meeting Council Chambers 6:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday preceding the meeting. 1 March 23, 2015 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. PUBLIC COMMENT Members of the public may speak to agendized items; up to three minutes per speaker, to be determined by the presiding officer. If you wish to address the Council 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, and deliver it to the City 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 Council, but it is very helpful. TIME ESTIMATES Time estimates are provided as part of the Council's effort to manage its time at Council meetings. Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. To ensure participation in a particular item, we suggest arriving at the beginning of the meeting and remaining until the item is called. HEARINGS REQUIRED BY LAW Applications and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and up to three minutes for concluding remarks after other members of the public have spoken. Call to Order Special Orders of the Day 6:00-6:10 PM 1. Presentation to Development Services Department Regarding Recognition of Achievement by the International Standards Organization (ISO) for its Administering of the Building Codes Attaining the Highest Standards for Structural Safety Study Session 6:10-7:10 PM 2. Update on the Santa Clara Valley Water District’s Collection of All of its State Water Project Costs via Property Taxes Instead of Water Rates 2 March 23, 2015 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. Agenda Changes, Additions and Deletions City Manager Comments 7:10-7:20 PM Oral Communications 7:20-7:35 PM Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. Minutes Approval 7:35-7:40 PM January 26, 2015 January 31, 2015 February 2, 2015 Consent Calendar 7:40-7:45 PM Items will be voted on in one motion unless removed from the calendar by three Council Members. 3. Approval of Two 3-Year Contracts for a Computer and Data Center Data Storage or 'Cloud Backup' Solution Totaling $618,991: 1) Exucom Contract Number C15156183 in the Amount of up to $327,121 for Data Center Backup; 2) Code42 Contract Number C151566312 in the Amount of $291,870 for Computer and Laptop Backup 4. Adoption of a Resolution Authorizing Public Works Department to Submit a Function Classification Request to Caltrans to Expand the Number of Streets Eligible for Resurfacing Work Using Federal or State Grant Funding 5. Approval of Amendment Number Seven to the City’s Lease Agreement with McCandless Limited, LLC., For Office Space at 1005 and 1007 Elwell Court, Palo Alto 6. Approval of Amendment Number One to Contract C14153010 with Arnold Mammarella Architecture and Consulting to Increase the Contract by $400,000 for an Amount Not to Exceed $784,999 for On- Call Planning Services Needed to Support Implementation of the City's Individual Review Program 7. Request for Procedural Change - Present the Results of the Animal Services Audit to the Finance Committee Rather Than to the Policy and Services Committee 3 March 23, 2015 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. 8. Approval of a Wastewater Enterprise Fund Contract with Precision Engineering, Inc. In the Amount of $7,405,730 for Sanitary Sewer Rehabilitation Projects 24, 25, and 26 in University South, Professorville and Old Palo Alto Neighborhoods Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 7:45-9:15 PM 9. Discussion and Direction to Staff Regarding Establishment of an Office/R&D Annual Growth Limit (Continued from March 2, 2015) 9:15-10:30 PM 10. Approval of a Residential Curbside Compost Collection Program and Adopting a Budget Amendment Ordinance for $387,000 for the Purchase of Kitchen Buckets and New Outreach Materials Inter-Governmental Legislative Affairs Council Member Questions, Comments and Announcements Members of the public may not speak to the item(s) Closed Session 10:30-11:00 PM Public Comments: Members of the public may speak to the Closed Session item(s); three minutes per speaker. 11. CONFERENCE WITH CITY ATTORNEY-Potential Initiation of Litigation (1 Matter) Santa Clara Valley Water District funding of State Water Project obligation through property tax levy Govt. Code Section 54956.9(d)(4) Adjournment AMERICANS WITH DISABILITY ACT (ADA) 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 (650) 329-2550 (Voice) 24 hours in advance. 4 March 23, 2015 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. Additional Information Schedule of Meetings Schedule of Meetings Tentative Agenda Tentative Agenda Informational Report City of Palo Alto Utilities Quarterly Update for the Second Quarter of Fiscal Year 2015 Board and Commission Recruitment Flyer Public Letters to Council Set 1 Set 2 City of Palo Alto (ID # 5596) City Council Staff Report Report Type: Study Session Meeting Date: 3/23/2015 City of Palo Alto Page 1 Summary Title: Santa Clara Valley Water District Property Tax Issue Title: Update on the Santa Clara Valley Water District’s Collection of All of its State Water Project Costs via Property Taxes Instead of Water Rates From: City Manager Lead Department: Utilities Recommendation Staff is providing this update on the Santa Clara Valley Water District’s (SCVWD, or District) practice of collecting of all of its State Water Project (SWP) costs via property taxes, instead of water rates, for the Council’s information and as background for the study session on this topic. No action is requested. Summary For over 40 years, property owners in Palo Alto have paid, via their property tax bills, for the District’s SWP costs. However, the City of Palo Alto Utilities (CPAU) receives no water from the District or the SWP. Instead, the City receives all of its potable water supplies from the San Francisco Public Utilities Commission (SFPUC). CPAU’s water costs have risen significantly in recent years to pay for the substantial costs for upgrading the SFPUC’s regional water system. Yet the District has chosen to recover all of its SWP costs from Santa Clara County property taxes instead of from District water users. Staff has raised the issue with the District several times over the past several years, but the District has continued to collect all of its SWP costs from property taxes, instead of through water rates paid by those who use District water. Background The City of Palo Alto purchases all of its potable water from the SFPUC and has five connections to SFPUC’s regional water delivery system. The City also owns emergency standby groundwater wells to meet system demands during a local or regional emergency. Over the last several years, the City refurbished five existing wells and drilled three new wells as part of our comprehensive emergency water supply and storage project. The wells are able to meet a portion of system demands during any emergency. If the City, or any person or business in Palo City of Palo Alto Page 2 Alto, pumps groundwater (the District claims that there are over 250 private wells in Palo Alto), they would pay the District for that water, at the rate set by the District. Historically, the City pumped groundwater to meet potable demands until the time the City contracted with San Francisco for water deliveries, beginning in 1938. Figure 1 below illustrates the historical distribution of groundwater use compared to use of SFPUC supplies in the City. The City no longer relies on groundwater and has long term water delivery contracts with the SFPUC. Figure 1: Palo Alto’s Historical Water Purchases The District is the main water resources agency for Santa Clara County. It acts not only as the county's water wholesaler, but also as its flood protection agency and is the steward for its streams and creeks, underground aquifers and district-built reservoirs. Despite the fact the City has independently secured long-term water supplies with the SFPUC, the City works with the District on numerous water supply, flood protection, and other issues of interest to the City and the District. The City is represented on the SCVWD Board of Directors, District 7 (Gary Kremen, Board Chair), and participates directly on the District’s Water Commission, the Retailers Committee, the Flood Control and Watershed Advisory Committee, and the Recycled Water Sub-Committee. City of Palo Alto Page 3 The City does not purchase any water from the District (except for very small amounts when testing its wells, or if the wells are used in an emergency). As mentioned above, City residents or businesses with wells pay the District for any groundwater pumped. However, whether or not City residents or businesses pump groundwater, all City property owners make payments to the District through their property tax assessments. Currently, the District collects the following payments through property taxes: Clean Safe Creeks – A special parcel tax approved by the voters in 2000 to pay for a 15- year program which will provide additional flood protection and other benefits to the county. This tax was set to sunset in 2016, but an extension to 2028 was approved by the county’s voters in 2012. The amount charged to a residence is based on the area of the parcel and the land use category of the parcel (i.e. single family residence, commercial and industrial, rural, etc.) Flood Control charge – A benefit assessment (the amount differs by flood control zone) to pay for debt service associated with past debt issuances for flood protection projects. The benefit assessments will sunset in 2030, with the exception of the Uvas Llagas flood control zone which sunsets in 2013. The amount charged to a residence is based on the area of the parcel and the land use category of the parcel. (SWP charge – An ad valorem tax to pay for the District’s annual contractual obligations to the State of California associated with the SWP. The 1% county-wide ad valorem tax – A general tax available for any lawful District purpose. In FY 2014, the District received about $68.4 million from this tax, of which $5.1 million was directed to the Water Utility, $5.7 million to the General Fund, and $57.6 million to flood protection. Overall, in FY 2014, the District collected $27 million in property taxes for the Water Utility Enterprise out of total revenues of $188 million; property tax revenue accounted for 14.4% of the District’s FY 2014 Water Utility Enterprise revenue. According to the District’s FY 2014 financial statements, $21.9 million of the property taxes collected is for the SWP. This memo discusses the City’s concerns with the District’s longstanding and inequitable practice of collecting 100% of its SWP costs via property taxes, rather than via water rates. SFPUC vs. SCVWD Water Rates When the costs for SFPUC’s $4.6 billion Water System Improvement Program started to be reflected in its wholesale water rates, SFPUC rates began to increase in comparison to District rates. SFPUC’s wholesale water rates for FY 2015 are $1,425 per acre-foot (AF) while SCVWD’s FY 2015 water charges are $847/AF for treated water and $747/AF for groundwater. Current rate projections show the wholesale rate divergence continuing into the next ten years. Figure 2 below shows the actual and projected wholesale water rates for the SFPUC and the District. City of Palo Alto Page 4 Figure 2: SFPUC and SCVWD Wholesale Rates – Actual to FY 2015 and Projections Beyond Discussion One of the District’s sources of water is the State Water Project, operated by the California Department of Water Resources (CDWR). The District can collect the costs associated with its long-term contract with CDWR for deliveries from the SWP system through water rates, but has chosen to collect 100% of its SWP obligation via property taxes. Staff estimates the District collects over $1.6 million per year from Palo Alto property owners. In June 2010, Utilities staff met with District staff to discuss the fact that since the City purchases all its potable water supplies from the SFPUC, Palo Alto property owners’ SWP tax payments to the District are used to offset water rates charged to other District water customers. Palo Alto taxpayers receive no direct benefit for the taxes they pay. In August 2011, the City Manager sent a memorandum to the City Council advising them of the issue (Attachment 1). The memo outlines Palo Alto’s concerns regarding: 1) The District’s practice of using property tax collections to offset District water charges; 2) the divergence in SCVWD and SFPUC wholesale water prices; and 3) the potential increase in SWP costs related to “Delta tunnels” being contemplated by the State which will further increase Palo Alto property tax collections. City of Palo Alto Page 5 In a meeting in June 2011, the District discussed its prior practice of providing an “In–County Credit” for those agencies that partially or completely relied upon SFPUC supplies. Palo Alto received the credit for 20 years until the District ended the policy in 1984. SCVWD CEO Beau Goldie committed to evaluate the reinstatement of the In-County Credit in a July 2011 letter. Subsequently, the SCVWD Board of Directors was notified of the intent to evaluate a successor crediting mechanism. In meetings and letters, the District has stated that the City’s residents and businesses benefit from property tax payments for the SWP water because the SWP supplies provide the District with flexibility in managing the county’s groundwater by introducing imported water to the county and using it to recharge groundwater, reducing the likelihood of ground surface subsidence and saltwater intrusion in the county, and ensuring that groundwater supplies are available for emergencies. If imported water supplies benefit the county, then so does the City’s use of SFPUC water. However, while Palo Alto property taxpayers help lower the cost of District water, the entities that purchase District water do not help lower Palo Alto’s SFPUC costs. In May 2014, the SCVWD Board of Directors unanimously agreed to continue the practice of collecting the SWP costs via property taxes for FY 2015. In July 2014, the SCVWD Board of Directors discussed the SWP tax issue (see Attachment 2, the SCVWD Board memo) and requested to have a study session in November 2014 for further discussion. During the November 2014 race for the SCVWD Board of Directors seat for District 7, which includes Palo Alto, the SWP tax issue was raised again (see Attachment 3). The District’s study session, originally scheduled for November 18, was rescheduled for December 16 so that Gary Kremen, the new Board Member for District 7, could participate. In advance of the meeting, letters were sent to the SCVWD Board by Palo Alto’s City Manager (Attachment 4) and the Purissima Hills Water District (PHWD) General Manager (Attachment 5). Palo Alto’s letter asked the District to “correct its practice of relying on property taxpayers to meet 100% of its SWP obligations.” PHWD’s letter requested “that SCVWD eliminate the SWP tax on our constituents, or in the alternative credit to PHWD 100% of the SWP tax levied on our constituents.” The December 16, 2014 SCVWD Board Agenda item (Attachment 6) for the study session included three discussion topics: 1) a review of the District’s Taxing and Pricing Policy; 2) an overview of the SWP Tax; and 3) a review of SFPUC water management issues. At the meeting, the Board discussed the issue generally but declined to change the practice or even to set a date for a final policy decision. The January 13, 2015 SCVWD Board Agenda item (Attachment 7) on setting the FY 2016 groundwater production charge shows that District staff assumed that SWP costs would City of Palo Alto Page 6 continue to be collected 100% via property taxes for the foreseeable future. The Board took no action with respect to that position at the meeting. On February 10, 2015, the City Manager sent a letter to the SCVWD Board (Attachment 8) that made two fundamental requests: “First, the Board should develop and adopt Groundwater Production Rates that will allow it to abandon the untenable 100% property tax approach this year, and replace it with meaningful movement towards a more equitable funding structure. “Second, the Board should calendar a further discussion intended to establish a longer term sustainability policy reflecting how much, if any, of the SWP costs are appropriate to raise through property taxes. Once an appropriate target is determined, the District may need to adopt a multi-year program that allows it to reach this level in a reasonable time.” At its meeting on February 10, 2015, the District Board considered the issue of groundwater production charges (see Attachment 9). The staff memorandum prepared for the District Board includes a summary of concerns raised by Purissima Hills Water District (Purissima Hills) and the City of Palo Alto regarding the collection of the SWP tax. The memorandum explains Purissima‘s concerns that every year the SCVWD intentionally delays the decision on whether to levy the SWP tax until after the District’s water charges have been approved, leaving the District Board no choice but to continue to rely on the SWP tax. The District’s staff memorandum further states that continuation of the practice to rely on the SWP tax to pay for 100% of SWP contractual obligations comports with the District Board’s direction provided at the December 16, 2014 meeting. A number of speakers representing various retail customers, including the City of Santa Clara, Purissima Hills Water District, and Palo Alto provided public comments at the District’s February 10 meeting. The District Board deliberated over the latest analysis provided by District staff and concluded that, for the purpose of finalizing the District’s upcoming Proposition 218 water rate increase notices, the maximum groundwater production charges should reflect an increase of 31.5% for North County (which includes Palo Alto) and 13.8% for South County. This maximum rate increase is based on District staff’s updated worst-case drought scenario, and includes an additional revenue requirement of $3 million. The action taken by the District Board stipulated that the $3 million additional revenue requirement would be used for a recycled water project in Palo Alto. Staff (including the City Attorney’s office and the City Manager’s office) continues to work with District staff on the SWP issues while the District prepares its FY 2015 budget and wholesale water rate proposals. Most recently, on February 25, 2015, Mayor Holman and City Manager Keene hosted District Board Members and staff to discuss the ongoing drought, the District’s water supply projects and the SWP tax. This is an annual meeting with the District. Attendees City of Palo Alto Page 7 included the City Attorney and Utilities Director, as well as Chair Kremen, Director Estremera, and the District’s executive management staff. The City again encouraged the District to change its SWP tax collection practice, to ensure that District water users bear the costs of the project from which they benefit. The District again pressed for increased “partnership” with the City. From the District’s perspective, a change in the property tax collection creates some challenges for the district county-wide. This explains the District’s pursuit of alternatives, rather than effecting the fundamental policy change of ceasing charging Palo Alto taxpayers (and some others) for SWP costs. As the City pointed out at the February 25th meeting, paying the City for a portion of the City’s recycled water project fails to fix the District’s inequitable SWP taxation practices. It does nothing to make City property taxpayers whole in exchange for the years they have paid for the District’s SWP costs while using no SWP water. Nor does it assist Purissima Hills and other North County tax payers who have similarly covered the District’s SWP costs. The City stated that the appropriate mechanism to recover SWP costs is through the District’s rates. Commission Review The Utilities Advisory Commission (UAC) received an informational report on this item at its February 4, 2015 meeting. SCVWD staff attended and made a brief presentation. The UAC expressed surprise and concern that property taxes paid by Palo Alto residents and business subsidized the District’s water rates since the City does not get District water supplies. Draft minutes from the UAC’s meeting are provided as Attachment 10. Attachments: Attachment 1: Memorandum to Palo Alto City Council dated September 8, 2011 with its attachments (PDF) Attachment 2: SCVWD Board Agenda Memo Subject: "State Water Project (SWP) Tax Discussion" dated July 8, 2014 (PDF) Attachment 3: Daily Post Article dated August 9, 2014 (PDF) Attachment 4: Letter from City Manager Keene to SCVWD Board of Directors dated November 14, 2014 (PDF) Attachment 5: Letter from Purissima Hills Water District General Manager Walters to SCVWD Board of Directors dated November 18, 2014 (PDF) Attachment 6: SCVWD Board Agenda Memo Subject: "Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy" dated Dec. 16, 2014 (continued from Nov. 18) (PDF) Attachment 7: SCVWD Board Agenda Memo Subject: "Preliminary Fiscal Year (FY) 2015- 16 Groundwater Production Charges Analysis" dated January 13, 2015 (PDF) Attachment 8: Letter from City Manager Keene to SCVWD Board of Directors dated February 10, 2015 (PDF) Attachment 9: SCVWD Board Agenda Memo Subject: "Update on Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis" (PDF) Attachment 10: Excerpted Draft UAC Minutes of February 4, 2015 meeting (PDF) MEMORANDUM From: James Keene, City Manager To: City Council Members Date: September 8, 2011 Subject: Potential Reinstatement of “In County Credit” from Santa Clara Valley Water District to San Francisco Public Utilities Commission Water Customers EXECUTIVE SUMMARY The price of water from the City’s wholesale water supplier, the San Francisco Public Utilities Commission (SFPUC), has doubled since 2008 and is expected to almost double again by 2018. Meanwhile, the other water wholesale agency in the county, the SCVWD collects property taxes from Palo Alto residents and business. These payments partially offset its water costs so that its water rates can be lower. After staff brought this issue to the attention of the SCVWD, proposals to address it are being developed. Staff is monitoring the progress on this issue and will report back when appropriate. Please let me know if you want more discussion on this matter at this time. BACKGROUND Despite the fact the City does not purchase any water from the Santa Clara Valley Water District (SCVWD), the SCVWD collects the following payments from Palo Alto residents and business through property taxes: 1.Clean Safe Creeks – A special parcel tax approved by the voters in 2000 to pay for a 15-year program which will provide additional flood protection and other benefits to the county. The amount charged per parcel is based on the area and land use category of the parcel (i.e. single family residence, commercial and industrial, rural,etc.). 2.Flood Control Charge – A benefit assessment (the amount differs by flood control zone) to pay for debt service associated with past debt issuances for flood protection projects. The benefits assessments will sunset in 2030 with the exception of the Uvas/Llagas flood control zone, which sunsets in 2013. The amount charged per parcel is based on the area and land use category of the parcel. 3.State Water Project Charge – An ad valorem tax (based on the value of the assessed property) to pay for the contractual obligations associated with imported water from the State Water Project. 4.The 1% County-wide Ad Valorem Tax – A general tax available for any lawful SCVWD purpose. There are 4 legacy collections that existed prior to Proposition 13 (1978) that form the portion of the 1% ad valorem tax that is distributed to the SCVWD. In total, the SCVWD receives about $56M per year from this tax, of which roughly $4M is directed to its Water Utility, $4.5M to its General Fund, and $47M to its Watersheds Division. This memo discusses the issues surrounding property tax payments attributable to the SCVWD Water Enterprise – specifically item number 3 above. Property tax payments related to SCVWD’s Watershed Enterprise are not addressed here. ATTACHMENT 1 City Council Members September 8, 2011 Page 2 DISCUSSION One of the SCVWD’s sources of water is the State Water Project (SWP). The SCVWD has a long-term contract with the Department of Water Resources for deliveries from the SWP system. As part of that long-term obligation, the SCVWD can collect SWP costs via water rates, though the SCVWD has the authority to collect funding shortfalls through property taxes. However, the SCVWD’s past practice has been to collect the SWP obligation almost entirely via the property tax mechanism. Palo Alto business and residents contribute a proportional annual amount to the SWP costs based on assessed property values in Palo Alto. Due to fluctuating property values and other factors, Utilities staff estimates the SCVWD collects $1.2 - $1.4 million per year from Palo Alto property owners. This revenue source directly offsets the costs for those entities in the county that purchase water (treated water and/or groundwater) from the SCVWD. In June 2010, Utilities staff met with SCVWD staff to discuss the disconnect between the fact that the City is a SFPUC water customer and the ad valorem property tax collections in Palo Alto are used by the SCVWD to offset costs for SCVWD water customers. As you know, the cost of SFPUC water is rising dramatically, is currently more costly than SCVWD water, and is projected to increase much more over the next five years. In March 2011, Valerie Fong, Utilities Director, sent a letter to SCVWD CEO Beau Goldie (Attachment A) outlining the City’s concerns over the inequities of the current property tax collection mechanism. In June 2011, Utilities staff met again with SCVWD staff to discuss areas of concern, including: 1. The general practice of using Palo Alto property tax collections to offset SCVWD water charges (this is a discretionary action by the SCVWD board, which could, instead, choose to collect more (or all) of the SWP costs from water rates); 2. The recent price divergence between SCVWD and SFPUC wholesale water and the fact that property tax collections from Palo Alto residents and businesses help to hold SCVWD water prices down, while Palo Alto pays for the higher priced SFPUC water; and 3. Indications that the SCVWD may try to collect a portion of new, Delta-related conveyance costs via the property tax mechanism. During the meeting, the SCVWD revealed its prior practice of providing an “In–County Credit” for those agencies that partially or completely relied upon SFPUC supplies (Attachment B). Historical data reveals Palo Alto did receive the credit from the 1960’s until the SCVWD officially ended the policy in 1984. In July 2011, the Utilities Department received a letter from CEO Beau Goldie in response to the March 2011 letter (Attachment C). The letter officially recognized the SFPUC credit and provided a commitment on the part of the SCVWD to evaluate the reinstatement of the In-County Credit. In September 2011, the SCVWD notified the SCVWD Board of Directors of the intent to evaluate a successor crediting mechanism in September 2011 (Attachment D). NEXT STEPS Staff supports either eliminating the ad valorem property tax collection in Palo Alto or the implementation of some other mechanism that provides a tangible credit against SWP property taxes that are collected in Palo Alto. Staff will work with the SCVWD and the other water agencies in the County to reach agreement on an appropriate mechanism for the In-County Credit or other alternative. Staff is actively involved in the resolution of this issue and will report progress, as appropriate. City Council Members September 8, 2011 Page 3 ATTACHMENTS A. March 2011 letter from Valerie Fong to Beau Goldie B. SCVWD Resolution 79-87 C. July 2011 letter from Beau Goldie to Valerie O. Fong D. Excerpted SCVWD CEO Bulletin, September 13, 2011 cc: Val Fong – Director, Utilities Molly Stump – City Attorney Lalo Perez – Director, Administrative Services Divisions Administration Director' B Office 650.329.2277 650.321.0651 lax Public Relations 650.329.2656 March 16, 2011 Mr. Beau Goldie Chief Executive Officer Santa Clara Valley Water Dislrict 5750 Almaden Expressway San Jose, CA 95118-3686 Dear Mr. Goldie; Qiyof PaloAlt() Utilities Department During the FY 20 II groundwater and treated water rate setting process, staff from the City of Palo Alto noted that the Santa Clara Valley Water District (SCVWD) relies on non operating revenues from a dedicated property tax levy to fund State Water Project (SWP) costs. This tax levy pays for the water supply from the SWP that forms a part of the SCVWD's supply portfolio. 650.321.0651 lax . . . In June 2010, staff from Palo Alto held a conference call WIth members of Cru;tomer Support SeTVIC€Syour staffl to ensure Palo Alto's understanding of the process for collecting C~storner Service Cent€r S WP payments was complete. During the call, your staff confrrmed that the ~~~:~i~:;~~ lax SCVWD collects SWP costs through a countywide property tax levy. Credit and Collection Furthermore, businesses and residents in Palo Alto contribute a proportional 6S0.o29.2333 share of this total corresponding to the assessed property values in Palo Alto 650.617.3142 fax relative to the rest of the County. Due to fluctuating property values and the Utility Marketing Services variability of the SWP revenue requirement, we estimate the cost to taxpayers 650.329.2241 in Palo Alto for the last several years ranged from approximately $1.4 to $1:6 650.617.3140 fax million per year. Fiber Optics 6.00.329.2241 650.617.3140 fax Engineering Electric 650.566.4500 650.566.4536 fax Water-Gas-Wastewater 650.566.4501 650.566.4536 fax Resource Management 650.329.2689 650.326.1507 fax Operations Electric 650.496.6934 650.493.8427 fax Water-Gas-Wastewater 650.496.6982 6.00.496.6924 lax It is our understanding this funding mechanism has been in place since the inception of the Bums Porter Act that authorized the building of the SWP delivery system. For over 40 years, Palo Alto's residents and businesses have made these payments. In addition to the discussion regarding the SWP collection process, SCVWD staff discussed the operation of the water delivery system and the indirect benefits to Palo Alto related to the SWP payments, including: • Decrea~cd subsidence due to groundwater overdraft; • Decreased likelihood of saltwater intrusion due to overdraft; • Increased economic growth in neighboring areas that take delivery of SWP water; and • An alternative supply of water available during droughts. I Jim Fiedler, Amy Fowler, .... d Darin Taylor , For example. in FY 09-10 the SCVWD was authorized ta collect $19 million far thi' purpose (SCVWD Resolution 09-40) P.O. Box 10250 Palo A1tc, CA 94303 Prlllted with soy·hafled inlc!; !Ip lUO% recycled Pl'pN plUlX"!!');£d withol!t ch1"ri.(le Mr. Beau Goldie March 16,2011 Page 2 Palo Alto does not dispute the fact that the mUltiple supply sources in the County provide the flexibility to conjunctively manage water resources to achieve the above mentioned goals. However, this perspective applies equally to both the SCVWD and Palo Alto. In fact, Palo Alto's complete reliance on its San Francisco Public Utilities Commission (SFPUC) supply relieves the SCVWD of the obligation to build facilities to meet the water supply needs in Palo Alto, allows for the re-allocation of Palo Alto's share of SWP water for another agency's use, reduces the risk of land subsidence and saltwater intrusion, contributes to economic gro¥lth in the region, and ha5 contributed to the recharge of the groundwater basin for everyone's benefit during normal and dry years. Nevertheless, Palo Alto's taxpayers help lower the cost of water for those entities that purchase SCVWD supply, but those entities that purchase SCVWD supply do not make any contribution to help lower Palo Alto's water supply costs. Following the discussion with your staff, Palo Alto reviewed the origins of the Bums-Porter Act and the contracts the SWP cllstomers have with the Department of Water Resources (DWR) as the operating entity of the SWP. Based on this review, it appears the contracts for most SWP customers contain language that indicates the intent that they should exhaust all fea5ible collection alternatives prior to the imposition of a property tax levy to collect SWP payments. Specifically, Section 34 of the contrdce contains the following terminology: 34. OBLIGATION OF DISTRICT TO LEVY TAXES AND ASSESSMENTS. (aJ If in any year the District fails or is unable to raise sufficient jundv by other means, the governing body of the District shall upon wriuen notice from the State levy upon all property in the District not exempt from taxation, a tax or Assessment sufficient to provide for all payments under this contract then due or to become due within that year. Palo Alto is not specifically questioning the SCVWD's right to collect property taxes. However, the practice of relying on property taxes to pay for SWP water should become a secondary collection methodology that supports a primary collection methodology embedded in the ground and treated water charges. This approach is more consistent with the language in the DWR contract, and also appears to be contemplated in the original Burns Porter Act. , Consolidated Contract through Amendment No. 23, 5128103 Mr. Beau Goldie March 16,2011 Page 3 Finally, it is important to work together to find a solution to this issue, especially as discussions regarding new Bay-Delta conveyance gain traction. It is our understanding the SCVWD is contemplating several methods to collect increased SWP costs related to any ncw convcyance, including relying on the current property tax methodology. Like the SCV\VD, the SFPUC will likely be expected to pay its proportional share of any solution to this broad and complex issue. It is troubling to imagine a situation where the citizens and businesses of Palo Alto might bear a disproportionate share of the burden by paying both via property taxes and SFPUC rates. Please feel free to contact me directly at Valerie.Fongiil\CityofPaloAlto.org or (650) 329-2277 if you would like to discuss potcntial next steps. Regards, /lkkrf~ V aIe~ie ~{!Jhng Utilities Director cc: James Keene, City Manager Karen Holman, City of Palo Alto SCVWD Commissioner Jane Ratchye, Assistant Director -Resource Management Nicolas Procos, Senior Resource Planner I l i RESOLUTION NO. 79-87 pJOVIDING FOR WATER IMPORTATION L' TAX CREDITS AND R:PEALING PRIOR RESOLUTION THEREON ~~EREAS, the DistTiCl Resolution of November 23~ 1964 established (in tax credit to be paid age cies importing water supplies, which credit was ~, '.1':-determined upon a basis now not available by reason of passage of "Proposition 13'1 . and 1 , : i . i mpert to be I.) '.J , of Hetch Hetchy water of t e: -City .and County 'of-San ',Francisco int:d ·Santa. Clara County; WHEREAS> the DistricraCknOWICdges a district'-wide benefi t from importat ion NOW, THEREFORE, it i 1 hereby resolved by the Board of Directors of SantCl Clara Valley Water Distri1t as follows: FIRST: Starting wit~ fiscal year 1979-80 and tontinuing in each fis~al year thereafter until ame~dment or cessation by this Board, the District will make a unit payment to ea4h designated agency for each acre-foot of Hetc::h Hetchy water such agency imports into Santa Clara Valley Water District in amounts IDld in the manner hereinafter $pecified. A. The unit payment will he $7.50 peT acre-foot for 1979-80 and 1980-81 fiscal yeaTS. For subsequent years such unit paymenI I will be fixed hy jfuTIher resolution of this Board. B. Paymen ts to a derignated agency wi 11 be ma.de by .'[he Dist ri ct 1 n January and July ! of each year for the Herch lIetchy wa'ter imported by such agency d~ring the previous six-month period upon receipt by the Dis~rict bf'copies of receipted invoic~s supplied such • 1 , agency by. the. Ci fY and County of San Francis co for Hetch Het chy water dellverles. c. Designated agcncles are: , City of Mil~itas City of Santa Clar~ City of Pal AI~o Purissima Hills Coun~y Water District City of San Jos e Sta.n ford Uni veTS i ty City of Mourtain Vj ew Ci ty of Sunnyva 1 e SECOND: The Re501utAon of the District Board adopted November 23, 1964 on the subject of import ta~ credits is hereby repealed. PASSED AND ADOPTED J ~he Board of Director> of Sa.nta Clara Valley Water District this 16th ~ay of October, 1979, by the fol1m.;ring vote; AYES: NOES: I M. E. DI UlLE.A., P. T, fERRARO, J. L lEN\}.l~lt Directors L. PERAljJA A. T. PFElrrffi, C. RUSH, R. 1". SAf'f"" Direc~ors A.T. ffeiffer I ABSENT: Directors R.T. tapp I I SANTA CLARA VALLEY WATER DISTRICT ATTEST: SUSAN A. EKSTRA~D I TOTAL P.02 Week of August 19 – 25, 2011 CEO Bulletin Page 2 of 5 INSIDE THIS ISSUE Evaluation of "In-County Credit" to Acknowledge Value of Reliable Hetch-Hetchy Imported Water to Santa Clara County (EL-9.7: Other) Staff is currently evaluating the potential basis for reinstitution of an "in-county credit" to retail water agencies in Santa Clara County that are customers of the San Francisco Public Utility Commission’s (SFPUC’s) Hetch-Hetchy Project. Deliveries from the Hetch-Hetchy Project augment Santa Clara County’s water supplies and help sustain groundwater levels in the Santa Clara Valley area. In 1963, when the District made the decision to enter into a contract with the State of California for imported water from the State Water Project, the District also acknowledged the benefit of imported water from the SFPUC. Accordingly, through agreements and by Board resolutions, credits to retail water agencies were provided to assist them in the purchase of water provided by SFPUC. Credits were offered from fiscal year 1963-1964 to fiscal year 1983-1984, when they were discontinued by Board Resolution 81-44. Recently the City of Palo Alto Water Utility staff raised concerns about rising Hetch-Hetchy Project costs due to the SFPUC’s adopted 38.4% rate increase, and about ongoing implementation of the State Water Project tax in Santa Clara County used to fund the District’s State Water Project obligations. Both sources of imported water are vital to help maintain the groundwater basin in Santa Clara County and prevent the return of land surface subsidence. Staff met with Director Schmidt on July 28, 2011, to provide a briefing on recent communications with the City of Palo Alto. For further information, please contact Joan Maher at (408) 265-2600, extension 2073. Permanente Creek Flood Protection Project Update (EL-9.7: Other) Staff has recently completed a revised hydrology and hydraulic analysis for the Permanente Creek Project (Project). This analysis shows that two alternatives remain available to meet the Project objectives. These alternatives include the following project elements: Alternative 1: Flood detention ponds in Rancho San Antonio County Park and McKelvey Park; floodwalls, levees, and floodproofing downstream of Hwy 101; channel widening for Permanente Creek upstream to confluence with Hale Creek; channel widening for Hale Creek from Permanente Creek to Rosita Avenue; a new diversion structure; and a flood catchment pipe along Cuesta Drive. This alternative would protect more than 2,400 parcels and cost approximately $33 million, averaging $13,750 per parcel. Alternative 2 would be identical to alternative 1 except that in place of the Cuesta Drive flood catchment pipe, a flood detention facility would be built in the Cuesta Annex with inlet and outlet pipes to Permanente Creek. The new proposed Cuesta Annex detention facility is approximately 10 feet shallower than the previous proposal. This alternative would protect approximately 3,000 parcels and cost approximately $40 million, averaging $13,333 per parcel. The next step is preparation of a subsequent Draft Environmental Impact Report (EIR) showing the changes made to the proposed project since the certification of the Project’s original EIR in FC 1025 (09-20-13) Meeting Date: 7/8/14 Agenda Item: Unclassified Manager: J. Fiedler Extension: 2736 Director(s): All BOARD AGENDA MEMO SUBJECT: State Water Project (SWP) Tax Discussion RECOMMENDATION: Consider information provided by staff and provide policy direction as necessary. SUMMARY: Since Fiscal Year (FY) 1979-80, the District has levied a tax called the State Water Project Tax to pay its State Water Project contractual obligations associated with importing water from the State Water Project. The purpose of this agenda memo is to provide the Board with an overview of the State Water Project Tax including background, history, and other specifics. Background The State Water Project is a conveyance system that includes a series of 21 dams and reservoirs, 5 power plants, and 16 pumping plants from Lake Oroville in Northern California to Lake Perris in Southern California. The South Bay Aqueduct is a 40 mile branch that conveys water to Santa Clara County from the Sacramento-San Joaquin Delta. It is managed by the California Department of Water Resources (DWR). The District entered into a contract with DWR in 1961 to import water into Santa Clara County through the State Water Project and is one of 29 State Water Project contractors. Article 34 of the District’s State Water Project contract obligates the District to levy a tax upon all property in the District not exempt from taxation if other funding sources are insufficient. This decision rests within the discretion of the Board. In addition, section 11652 of the Water Code provides that districts with water contracts “shall whenever necessary, levy upon all property in the state agency not exempt from taxation, a tax or assessment sufficient to provide for all payments under the contract…” Currently, there are not sufficient other funding sources to pay for the costs of the State Water Project. The State Water Project Tax is an “override tax”, which means that it is a tax in excess of the one-percent cap imposed by Proposition 13 to pay for voter-approved indebtedness. State voters approved the Burns-Porter Act in 1960, which included financing the state water project facilities in part with state bonds. The District implemented the State Water Project Tax in FY 1979-80 after passage of Prop 13 reduced the District’s “5 cent” property tax revenues by 58%. The State Water Project tax is restricted to paying for State Water Project contractual obligations and cannot be used for any other purpose. This tax is collected county-wide and makes up about 10% of water utility revenue for FY 2014-15. For many years the Board has adopted resolutions affirming its intent to rely on the State Water Project tax to pay for 100% of Page 1 of 5 ATTACHMENT 2 SUBJECT: State Water Project (SWP) Tax Discussion (7/8/14) State Water Project contractual obligations (See attachment 2 for Resolution 14-55 adopted by the Board on May 13, 2014 regarding collection of the State Water Project Tax in FY 2014-15). Benefits of State Water Project Water The importation of State Water Project water provides several benefits to Santa Clara County (County) including: • Provides additional water supply • Prevents subsidence due to groundwater overdraft • Prevents saltwater intrusion due to groundwater overdraft • Increases economic growth in the county due to the availability of State Water Project water There are two retail customers (the City of Palo Alto and Purissima Hills Water District) in the County that do not pump groundwater or receive District treated water but instead rely 100% on imported Hetch Hetchy Water for primary water supply. However, in addition to the benefits mentioned above, both the City of Palo Alto and Purissima Hills Water District receive the benefit of the availability of an emergency water supply source as a result of SWP water availability. In addition to the 8 wells used by the City of Palo Alto for emergency back-up, there are over 250 wells within the City used by private property owners as a source of supply. The boundary of Purissima Hills Water District falls outside of North County Zone W-2. Purissima Hills Water District has one monitoring well and possibly other active wells. Both the City of Palo Alto and Purissima Hills Water District benefit from the SFPUC intertie. The District and SFPUC have an agreement in place which states that “the intertie will allow potable water to be supplied in either direction during an emergency or planned critical work on facilities which would otherwise be difficult to remove from service without the availability of an alternate water source.” The intertie allows SFPUC customers in northern Santa Clara County to receive and benefit from treated water (State Water Project water) from the District, just as the intertie allows the District access to SFPUC water. Over the last 3 years the District has supplied water to SFPUC on 4 occasions, some for a few days in duration, while others for a couple of months. During the recent Rim Fire, the District was contacted by SFPUC and agreed to stand ready to supply water to SFPUC Customers should the need arise. History In 1961, the 5-cent tax was established to help fund the water importation program. In 1963 the Board established a policy to provide an “in-county credit” to those agencies that received Hetch Hetchy water in recognition of the benefits provided by the imported Hetch Hetchy water. The County tax office provided the credit to the appropriate agencies based on information provided by the District. With the passage of Proposition 13 in 1978, the District no longer received ad valorem taxes as originally established but instead received a portion of the 1% ad valorem tax, which resulted in a roughly 58% decrease in tax revenue in FY 1978-79. With the passage of Proposition 13, it was no longer possible to determine the “in-county credit” based on the Page 2 of 5 SUBJECT: State Water Project (SWP) Tax Discussion (7/8/14) historical formula. Consequently, the Board developed an alternative method to continue providing the in-county credit directly from the District to the following agencies: Milpitas, Mountain View, Palo Alto, Purissima Hills Water District, San Jose, Santa Clara, Stanford University, and Sunnyvale. The alternative methodology was a unit rebate rate of $7.50/AF of Hetch Hetchy water imported into the county. In July 1979, in response to the impact of the passage of Proposition 13, the Board initiated the State Water Project override tax to pay for State Water Project imported water contractual obligations. In 1981, the Board adopted resolution 81-44 which declared that the in-county credit would be phased out. The rationale was that since SFPUC water and the District’s treated water were roughly the same price, the Board could no longer justify providing a credit for water that those agencies had an economic incentive to take anyway. By 1984 the in-county credit was eliminated. In July 2000, a portion of the Water Utility ad valorem taxes (the former 5-cent tax) was reprogrammed to flood protection and became the key revenue source for the Watershed Stream Stewardship Fund. State Water Project Tax in the South County The South County Zone W-5 was established in 1987 with the merger of the Gavilan Water District, which occurred about 7 years after the State Water Project tax was initiated. The South County financial model was established that year to include a credit for the State Water Project tax collected in the South County because the South County Zone W-5 does not receive State Water Project imported water. This practice continues today and is reflected in the cost of service analysis for South County. The cost of State Water Project imported water is allocated 100% to the North County Zone W-2 and 0% to the South County Zone W-5, while 94% of SWP tax revenue is collected in North County Zone W-2 and 6% is collected in South County Zone W-5. South County receives “credit” from North County for the 6% of tax collected in South County. Accordingly, the SWP tax fund accounts for 100% of SWP tax revenues and costs. State Water Project Tax for FY 15 and Beyond The Board adopted a resolution to collect the State Water Project tax in the amount of $21 million for FY 2014-15. This equates to roughly $36.00 per year on the property tax bill for the average single family residence in Santa Clara County. As reported to the Board during the last budget cycle, if the tax were not levied the impact of lost revenue equates to $100/AF in terms of the North County M&I groundwater production charge, $25/AF in terms of the South County M&I groundwater production charge, and $575,000 in terms of the Open Space Credit. The FY 2014-15 Budget includes a small amount for participation in the Bay Delta Conservation Plan (BDCP). Going forward, BDCP costs are projected to escalate and are estimated at $228 million between FY 2014-15 and FY 2023-24. Staff financial modeling assumes that BDCP costs associated with conveyance of State Water Project supply (approximately 65 million out of the $228 million ten year total) would be paid for by the State Water Project tax. Consequently, the State Water Project tax for average single family residence would increase from $36/yr to $60/yr by FY 2023-24. Page 3 of 5 SUBJECT: State Water Project (SWP) Tax Discussion (7/8/14) Other Agency Reliance on the State Water Project Tax State Water Project contractor’s reliance on the State Water Project tax collected within their respective jurisdiction varies from 0% to 100%. The following agencies rely on the State Water Project tax to pay for 100% of their agency’s State Water Project contractual obligations: • Antelope Valley East Kern Water Agency • Coachella Valley Water District • San Bernardino Valley Municiapl Water District • Castaic Lake Water Agency Agencies that rely on the State Water Project tax to pay for less than 100% of their agency’s State Water Project contractual obligations include: • Metropolitan Water District (8-10%) • Kern County Water District (10-14%) • Mojave Water Agency (84%) • Zone 7 (50%) Agencies such as Tulare Lake Basin Water Storage District do not utilize the State Water Project tax for paying their State Water Project contractual obligations. Policy Questions for Board Consideration There are broad Board policies that address the need for adequate financial planning, but no specific policy regarding the degree of reliance on the State Water Project tax. The Board considers staff reports and presentations, including projected groundwater production charges, to determine to what extent the State Water Project tax should cover the District’s State Water Project contractual obligations. The Board’s Pricing Policy (Resolution 99-21) recognizes the need to keep State Water Project Tax funding separate, and that State Water Project tax monies “are not available to the common fund.” Some policy questions for Board consideration include: 1. Should the District continue reliance on State Water Project tax to pay 100% or less of State Water Project contractual obligations? 2. Should the District continue current practices regarding how State Water Project revenues and costs are accounted for in South County? 3. Should the District consider development of an overall water management policy that includes the maximization of imported Hetch Hetchy water? Page 4 of 5 SUBJECT: State Water Project (SWP) Tax Discussion (7/8/14) FINANCIAL IMPACT: Depending on direction provided by the Board, there could be a future financial impact to the District. CEQA: This is not a project under CEQA. ATTACHMENTS: 1. Power Point presentation 2. Resolution 14-55 Page 5 of 5 THIS PAGE IS INTENTIONALLY LEFT BLANK Attachment 1 Page 1 of 14 State Water project Tax Discussion July 8, 2014 Attachment 1 Page 2 of 14 Topics 1.Background 2.Benefits of SWP Water 3.History 4.South County SWP Tax 5.SWP Tax for FY 15 and Beyond 6.Board Policy related to the SWP tax 7.Board Policy Questions Attachment 1 Page 3 of 14 Background What is the State Water Project? •A conveyance system that includes a series of 21 dams and reservoirs, 5 power plants, 16 pumping plants from Lake Oroville in Northern California to Lake Perris in Southern California •South Bay Aqueduct is a 40 mile branch that conveys water to Santa Clara County from the Sacramento-San Joaquin Delta •Managed by the California Department of Water Resources (DWR) •SCVWD entered into contract with DWR in 1961 for water supply •SCVWD is one of 29 state water contractors •The contract obligates SCVWD to levy a tax if other funding sources are insufficient •Each year the Board sets the SWP tax amount by resolution •Water Code section 11652 also obligates SCVWD to levy a tax to ensure sufficient payment of the water contract when necessary Attachment 1 Page 4 of 14 Background What is the State Water Project (SWP) Tax? •Override tax – a tax in excess of the one-percent cap imposed to pay voter-approved indebtedness •State voters approved the State Water Project and its financing with state bonds in 1960 (Burns-Porter Act) •Implemented by SCVWD in FY 1979-80 after passage of Prop 13 reduced the District’s “5 cent” property tax revenues by 58% •SWP tax is collected county-wide •SCVWD relies on the tax to pay for 100% of State Water Project contractual obligations •SWP Tax can only be used to pay for State Water Project contractual obligations •SWP tax accounts for 10% of Water Utility revenue for FY 15 Attachment 1 Page 5 of 14 Background: Breakdown of FY 15 WU Revenue Budget FY 15 budgeted Water Utility revenue plus Open Space Credit transfer = $203M 10% or $21M of Water Utility Revenue comes from the SWP tax $81.0M, 40% Groundwater $88.1M, 43% Treated Water $1.6M, 1% $4.7M, 2% $21.0M, 10% $0.5M, 0% $4.2M, 2% $1.9M, 1% SCVWD Water Utility Revenue Sources FY 15 Groundwater Production Charges Treated Water Charges Surface/Recycled Water Charges 1% Ad Valorem Property Taxes State Water Project Tax Interest Earnings Reimbursements & Other OSC Transfer Attachment 1 Page 6 of 14 Benefits of SWP water What are the benefits of importing SWP water into the County? •Provide additional water supply •Prevent subsidence due to groundwater overdraft •Prevent saltwater intrusion due to groundwater overdraft •Increased economic growth in the County due to the availability of SWP water What are the other benefits to customers who receive 100% Hetch Hetchy Water (i.e. Palo Alto & Purissima Hills)? •Emergency supply: groundwater for Palo Alto •Emergency supply: SFPUC intertie for Palo Alto and Purissima Hills Attachment 1 Page 7 of 14 Pre 1961 – Several cities contract with SFPUC for Hetch-Hetchy (HH) water supply July 1961 – 5-cent county-wide tax established to start water importation program Nov. 1961 – SCVWD contracts with DWR for State Water Project (SWP) water March 1963 – Board establishes policy for in-county credit to agencies that receive HH water June 1963 – Residents in Zone W-1 approve $42M bond for in-county distribution & treatment facilities to optimally use SWP imported water. Paid for by W-1 debt service tax. July 1964 – Groundwater production charges are established June 1978 – Proposition 13 passes. District no longer receives ad valorem taxes as established, but instead receives a portion of the 1% ad valorem tax (~60% reduction). July 1979 – The SWP override tax is first levied to pay for SWP contract obligations June 1981 – Board adopts resolution 81-44 declaring that in-county credit is no longer justified June 1984 – In-county credit is phased out July 2000 – A portion of Water Utility ad valorem taxes are reprogrammed to Watersheds History Attachment 1 Page 8 of 14 Water Utility Zones •Zones W1, W3, W4 & W6 are obsolete property tax zones •Zones W2 & W5 are zones of benefit for groundwater charges Attachment 1 Page 9 of 14 SWP Tax in South County •SWP tax collected county-wide beginning July 1979 •South County Zone W-5 formed in 1987 with Gavilan Water District merger •Since 1987, SWP tax collected in South County has been “credited” against water charges •South County Zone W-5 does not directly receive SWP water •SWP cost allocated 100% to North County, 0% to South County •SWP revenue collected 94% in North County, 6% in South County •South County receives “credit” from North County for 6% of tax collected in South County •SWP tax fund accounts for 100% of SWP Tax revenues and costs Attachment 1 Page 10 of 14 State Water Project Tax for FY 2015 Board adopted SWP tax collection of $21M for FY 2015 The SWP tax bill for the average single family residence will remain the same at roughly $36.00/year Assumes $500K average assessed value If FY 15 SWP tax were not approved, another funding source would be needed, impact equates to: •$100/AF in terms of North County M&I groundwater production charge •$25/AF in terms of South County M&I groundwater production charge •$575,000 in terms of Open space credit Attachment 1 Page 11 of 14 BDCP Costs Projection and SWP Tax Analysis assumes costs associated with conveyance of State Water Project supply would be paid for by SWP tax SWP tax for average single family residence would increase from $36/yr to $60/yr by FY 24 High Deliveries, 90% Participation, 50/50 SWP/CVP Cost Split Scenario North South $K CVP SWP Total Cost/mo*Cost/mo* FY 15 307 120 427 $0.05 $0.03 FY 16 312 122 434 $0.05 $0.03 FY 17 400 157 557 $0.09 $0.03 FY 18 14,536 5,816 20,352 $2.94 $1.38 FY 19 14,631 5,853 20,484 $2.94 $1.38 FY 20 14,636 5,855 20,491 $2.94 $1.38 FY 21 24,917 9,970 34,887 $5.05 $2.38 FY 22 24,922 9,972 34,894 $5.05 $2.38 FY 23 34,243 13,703 47,946 $6.93 $3.27 FY 24 34,248 13,705 47,953 $6.93 $3.27 10 Yr Subtotal 163,152 65,273 228,425 * CVP and SWP impacts in terms of cost per month for average household Attachment 1 Page 12 of 14 Board Policies related to SWP Tax •EL -4.3: “A BAO shall include credible projection of revenues and expenses, separation of capital and operational items, cash flow, and disclosure of planning assumptions.” •Resolution 99-21: “Some revenues such as certain property taxes are specifically designated for debt service and the fixed costs of the State Water Project, and are not available to the common fund.” •SCVWD practice is to rely on the SWP tax to pay for 100% of SWP contract obligations Attachment 1 Page 13 of 14 Do other SWP contractors rely on SWP tax? 100% reliance on SWP tax •Antelope Valley East Kern Water Agency •Coachella Valley Water District •San Bernardino Valley Municipal Water District •Castaic Lake Water Agency Less than 100% reliance on SWP tax •Metropolitan Water District (8-10%) •Kern County Water District (10-14%) •Mojave Water Agency (84%) •Zone 7 (50%) No reliance on SWP tax •Tulare Lake Basin Water Storage District Attachment 1 Page 14 of 14 Policy Questions for the Board •Should District continue to rely on SWP tax to pay 100% of SWP contractual obligations? •If not, what other sources of funding should the District seek? •Should District continue current practices regarding accounting for State Water Project related revenues and costs in South County? •Should District consider development of an overall water management policy that includes the maximization of imported Hetch Hetchy water? Attachment 2 Page 1 of 2 Attachment 2 Page 2 of 2 ATTACHMENT 3 OFFICE OF THE CITY MA NAGE R CrTY OF 25O H.miltonPALO pa ro arto, cAALTO 6 s o.32 e.23 e2 November 1,4,2074 Aveoug, 7th Floot 94!Ol Tony Estremera, Director District 5, Board Chair Brian Schmidt, Director District 7, Vice Chair Dennis Kennedy, Director District 1 Barbara Keegan, Director District 2 Richard Santos, Director District 3 Linda Lezotte, Director District 4 Nai Hsueh, Director District 5 SCVWD Board of Directors 5750 Almaden Expressway San Jose, CA 95118 Dear SCVWD Board Members: On behalf of the City Council, I am pleased to see that the District discussed the State Water Project (SWP) tax allocation at your July 8, 2014 Board meeting and will do so again on November 18. The District's allocation of 100% of its SWP costs to property taxpayers instead of water ratepayers is of particular concern to the City of Palo Alto. This is of course because City residents receive no SWP water, yet Palo Alto taxpayers contribute approximately S1.5 million annually toward the District's SWP costs, and have contributed S19-525 million over the last 30 years. The City raised this issue with the District over 4 years ago, but the District has continued to collect 100% of its SWP costs from taxpayers, while allocating none of SWP costs to ratepayers. We thank you for discussing the issue and encourage the Board to take this opportunity to make a meaningful and equitable change to the District's current practice. At this point, it is important to build upon and correct a few statements made at the July 8, 2014 meeting and in the accompanying staff memorandums for the July 8 and November 18 meetings: 1. District staff statement that all County residents, even those who receive no SWP water, benefit from the District's participation in the SWP is incomplete and potentially misleading. CityOfPaloAlto.org Prlnted with soy-brsad inhi on IOO* rtcyclod papa. paocessad without chlorine ATTACHMENT 4 7. SCVWD Board November 14,2014 Page 2 First, the statement ignores the key benefit and primary purpose of the SWP: the provision of water. The District's Water Utility Taxing and Pricing Policy requires the District to "charge recipients for benefits received." Palo Alto receives zero SWP water. This should be the starting place for any discussion of cost allocation for the SWP. Second, as to any potential secondary benefits, such as avoiding subsidence and saltwater intrusion and general economic development, the District ignores similar and offsetting benefits that other users receive as a result of the City's use of 100% Hetch Hetchy water and the San Francisco Public Utilities Commission (SFPUC) intertie connecting the two systems. Palo Alto agrees that having multiple water supply sources in the County provides the District with the flexibility to effectively manage water resources. But Palo Alto's total reliance on its SFPUC supply provides comparable, if not superior, benefits to the District and other users: it relieves the District of the obligation to build facilities to manage water supply in Palo Alto, and it allows the District to reallocate SWP water elsewhere in the County, reducing the risk of subsidence and saltwater intrusion, recharging groundwater, and contributing to economic growth. Contrary to statements made by the District's General Counsel at the July 8, 2014 meeting and a memorandum prepared for the November L8th meeting, the District is not "required to tax" to pay its SWP costs. The District has the authority to fund its SWP costs in a variety of ways, including through rates charged to water users. ln fact, according to the District's contract with the State Department of Water Resources, the Water Code, and the Burns-Porter Act, property taxes are intended to be a secondary collection method that provides assurance to bond holders that debts will be paid in years when other funding sources are insufficient to meet SWP costs. Staff's July Sth and November 18th presentations provide helpful information about how some other state water contractors recover their SWP costs. The District is one of 27 SWP customers; several collect their SWP costs entirely or primarily from retail water sales, not taxes. ln fact, the two agencies that take approximately 70% of all SWP water - Metropolitan Water District (MWD) and Kern County Water Agency - collect only 8-L4% of their SWP costs through taxes, and the rest through water rates. The Alameda County Water District relies on taxes to pay for 50% of its SWP obligation. The Metropolitan Water District's SWP cost allocation practice is illustrative. MWD collects only 8-7O% of its SWP obligation from taxpayers. At the July 8th Board meeting, the District's outside counsel noted that this was due to legislation directing MWD to cap the taxpayer contribution. While that is true, the legislation was largely an outcome of a 3. SCVWD Board November 14,2014 Page 3 lawsuit the City of Los Angeles filed against MWD in 1975. Los Angeles argued that because it received little SWP water, MWD'S practice of collecting the majority of its SWP costs from Los Angeles taxpayers violated the law. The parties settled the suit in 1980, when MWD adopted a "proportionate use" cost sharing formula, under which water sales revenues paid operating expenses and an increasing share of MWD's capital costs. Taxpayers'share of MWD's SWP costs decreased as water sales increased. At the July 8th Board meeting, several Board members discussed what voters intended when they approved the Burns-Porter Act in 1960, authorizing the issuance of state bonds to finance construction of the SWP. The Burns-Porter Act ballot materials informed voters that the SWP would not burden taxpayers. Voters were told that the system would pay for itself through the sale of SWP water and power. Contrary to statements made at the District's July 8th meeting, voters did not expect to be taxed even if they received no SWP water. The District's funding practices demonstrate awareness that it is inappropriate to charge taxpayers for a water system they do not use. Until 1984, the Hetch Hetchy water users (Milpitas, Mountain View, Palo Alto, Purissima Hills, San Jose Municipal Water Company, Santa Clara, Stanford University, and Sunnyvale) received an "in-county credit" in recognition of the fact that they used little or no SWP water. While the District ended the credit in 1984, it continues to credit South County taxpayers, who also receive no SWP water, for the 6% of the District's SWP costs they contribute via property taxes. During the July 8th Board meeting, the City's water conservation programs were mentioned. lt is true that the City and the District have a longstanding partnership administering a variety of water conservation rebates and programs. ln fact, the City has a Memorandum of Understanding with the District, in effect since at least 2002, under which both parties fund and administer ten different water conservation programs for City water customers. Program costs are shared equitably; the District does not cover 100% of these costs. The City of Palo Alto greatly values its relationship with the District, and appreciates the District's partnership on water-related issues like flood protection and conservation. The City wants that to continue. At the same time, the District should correct its practice of relying on property taxpayers to meet LOO% of its SWP obligations. This is particularly important during a time when District staff is forecasting significant increases to SWP costs, even before the state embarks on an ambitious plan to build water conveyance tunnels through the Delta that could increase the current tax collection even further. Doing this would be fair to County taxpayers who receive no SWP water, and consistent with state law and promises made to voters when the SWP was approved. 4. 5. 6. SCVWD Board November 14,2014 Page 4 Once again, on behalf of the City, we thank you for discussing the issue, and look forward to continued dialogue and to crafting a mutually beneficial solution. Please have Beau Goldie contact me or my staff if we may assist in any way. Sincerely,rffi0 Mayor and City Council Beau Goldie, CEO, Santa Clara Valley Water District Stan Yamamoto, District's General Counsel Molly Stump, City Attorney Val Fong, Director Utilities ATTACHMENT 5 Page 1 of 9 FC 1025 (09-20-13) Meeting Date: 11/18/14 Agenda Item: Unclassified Manager: J. Fiedler Extension: 2736 Director(s): All BOARD AGENDA MEMO SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy RECOMMENDATION: Consider information provided by staff and provide policy direction as necessary. SUMMARY: On July 8, 2014, staff provided an overview of the State Water Project (SWP) Tax including background, history and other specifics. The Board requested to have a workstudy session in the November 2014 timeframe to delve deeper into the issue and to hear feedback from stakeholders. In addition, during the Board’s Policy Review in July, 2014 the Board requested a review of the District’s Water Utility Taxing and Pricing Policy. At the September 23, 2014 Board meeting the District Counsel was requested to return on this date with responses to specific questions raised with respect to the levy of ad valorem override taxes to pay State Water project costs. A memorandum providing responses to those questions is attached (See Attachment 1). Finally, at the September 23, 2014 Board meeting, the Board agreed to broaden the workstudy session to include issues related to the management of San Francisco Public Utilities Commission (SFPUC) water in Santa Clara County, given the close relationship to issues related to the State Water Project tax. The workstudy session is divided into three main topics of discussion: 1.A review of the Water District’s Taxing and Pricing Policy 2.An overview of the State Water Project Tax 3.A review of SFPUC water management issues Taxing and Pricing Policy Review Before discussing the Taxing and Pricing Policy, it is necessary to understand the authorizations and requirements of the District Act as it relates to water supply management. Section 4 of the District Act authorizes the District to provide comprehensive water management for all beneficial District Act ATTACHMENT 6 SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy (11/18/14) Page 2 of 9 uses. Section 26.7 authorizes the District to collect groundwater production charges to be set once per year with the option to do a mid-year adjustment. There are several requirements associated with setting the groundwater production charges. An annual report referred to as the “Report on Protection and Augmentation of Water Supplies (PAWS)” must be filed with the Clerk of the Board on or before the first Tuesday in April. This report must include the staff recommended groundwater production charges in each zone for the upcoming fiscal year, and the supporting analysis. A public hearing must be held on or before the fourth Tuesday in April. For each zone of benefit, groundwater production charges must be fixed and uniform per acre-foot for agricultural water and fixed and uniform per acre- foot for all water other than agricultural water. Under the District Act, Section 26.3, groundwater production charges are to be used for the following purposes: 1. Pay for construction, operation and maintenance of imported water facilities 2. Pay for imported water purchases 3. Pay for constructing, maintaining and operating facilities which will conserve or distribute water including facilities for groundwater recharge, surface distribution, and purification and treatment 4. Pay for debt incurred for purposes 1, 2 and 3 The Board may establish zones of benefit in accordance with the District Act. The objective of establishing various groundwater charge zones is to recover costs for the benefits resulting from District activities within that zone. As provided for in the annual report on the Protection and Augmentation of Water Supplies (PAWS), staff describes those benefits and costs which are apportioned to zones by customer class. The groundwater production charge reflects the benefit of District activities to protect and augment groundwater supplies and is applied to water extracted from the groundwater basin in Zones W-2 and W-5. Zone W-2 encompasses the Santa Clara groundwater subbasin north of Metcalf Road or the North County. Zone W-5 includes both the Coyote subbasin and Llagas subbasin from Metcalf Road south to the Pajaro River or South County. Board governance policies further guide staff in the effort to provide comprehensive water management. Board Ends Policy E-2 says “there is a reliable, clean water supply for current and future generations.” This policy is further broken down into the following objectives: Key Board Governance Policies • E-2.1: “Current and future water supply for municipalities, industries, agriculture and the environment is reliable.” • E-2.2: “Raw water transmission and distribution assets are managed to ensure efficiency and reliability.” • E-2.3: “Reliable high quality drinking water is delivered.” Executive Limitations support associated good business practices. EL-4 says that “Financial planning for any fiscal year shall be aligned with the Board’s Ends, not risk fiscal jeopardy, and be derived from a multi-year plan.” Further, EL-6 states that “the BAOs shall protect and adequately maintain corporate assets.” SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy (11/18/14) Page 3 of 9 The Water Utility taxing and pricing policy, Resolution 99-21 (Attachment 3), guides staff in the development of the overall structure of water charges. The general approach is to charge the recipients of the various benefits for the benefits received from the District’s comprehensive water management program. Taxing and Pricing Policy The policy is based on several key concepts: • Water Sources and Water Facilities Pooling: Both contribute to common benefit of users within a zone regardless of cost. • Water Resources Management: Taxing and pricing structures developed to achieve the effective utilization of water resources for present and future populations • Revenue Pooling: In general, revenues are collected in a common fund and not designated for specific costs with the exception of the State Water Project Tax revenues which are not available to the common fund The general framework of the policy includes two zones of benefit, Zone W-2 in the North County and Zone W-5 in the South County. The Board has the ability to create new zones or superimpose new zones over existing zones. There are two major charges, a basic user charge, which is equal to the groundwater production charge, and the treated water surcharge. The policy allows for the implementation of specific charges for specific benefits. There are two water user categories, which are agricultural water users and non-agricultural, or municipal and industrial (M&I) water users. The policy allows for subsidies to optimize use of available or future water resources. Finally the policy places the following limitations on staff: • The rate structure can be implemented only by Board resolution • The Agricultural groundwater charge is limited to 10% of the non-agricultural charge • Staff is authorized to prepare property tax collection resolutions for Board consideration State Water Project Tax The State Water Project is a conveyance system that includes a series of 21 dams and reservoirs, 5 power plants, and 16 pumping plants from Lake Oroville in Northern California to Lake Perris in Southern California. The South Bay Aqueduct is a 40 mile branch that conveys water to three agencies from the Sacramento-San Joaquin Delta including Zone 7 Water Agency, Alameda County Water District, and the Santa Clara Valley Water District. It is managed by the California Department of Water Resources (DWR). The District entered into a contract with DWR in 1961 to import water into Santa Clara County through the State Water Project and is one of 29 State Water Project contractors. Article 34 of the District’s State Water Project contract obligates the District to levy a tax upon all property in the District not exempt from taxation if other funding sources are insufficient. This decision rests within the discretion of the Board. In addition, section 11652 of the Water Code provides that districts with water contracts “shall whenever necessary, levy upon all property in the state agency not exempt from taxation, a tax or assessment sufficient to provide for all payments under the contract…” Currently, there are not sufficient other funding sources to pay for the costs of the State Water Project. Background SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy (11/18/14) Page 4 of 9 State voters approved the Burns-Porter Act in 1960, which included financing the state water project facilities in part with state bonds. The District implemented the State Water Project Tax in FY 1979-80 after passage of Prop 13 reduced the District’s “5 cent” property tax revenues by 58%. The State Water Project Tax is an “override tax”, which means that it is a tax in excess of the one-percent cap imposed by Proposition 13 to pay for voter-approved indebtedness. The State Water Project tax is restricted to paying for State Water Project contractual obligations and cannot be used for any other purpose. This tax is collected county-wide and makes up about 10% of water utility revenue for FY 2014-15. For many years the Board has adopted resolutions affirming its intent to rely on the State Water Project tax to pay for 100% of State Water Project contractual obligations (See Attachment 4 for Resolution 14-55 adopted by the Board on May 13, 2014 regarding collection of the State Water Project Tax in FY 2014-15). The importation of State Water Project water provides several benefits to Santa Clara County (County) including: Benefits of State Water Project Water • Provides additional water supply • Prevents subsidence due to groundwater overdraft • Prevents saltwater intrusion due to groundwater overdraft • Supports economic growth in the county due to the availability of State Water Project water There are two retail customers (the City of Palo Alto and Purissima Hills Water District) in the County that do not pump groundwater or receive District treated water but instead rely 100% on imported Hetch Hetchy water for primary water supply. However, in addition to the benefits mentioned above, both the City of Palo Alto and Purissima Hills Water District receive the benefit of the availability of an emergency water supply source as a result of SWP water availability. In addition to the 8 wells used by the City of Palo Alto for emergency back-up, there are over 250 wells within the City used by private property owners as a source of supply. The boundary of Purissima Hills Water District falls outside of North County Zone W-2. Purissima Hills Water District has one monitoring well and possibly other active wells. Both the City of Palo Alto and Purissima Hills Water District benefit from the District/SFPUC intertie. The District and SFPUC have an agreement in place which states that “the intertie will allow potable water to be supplied in either direction during an emergency or planned critical work on facilities which would otherwise be difficult to remove from service without the availability of an alternate water source.” The intertie allows SFPUC customers in northern Santa Clara County to receive and benefit from treated water (State Water Project water) from the District, just as the intertie allows the District access to SFPUC water. Over the last 3 years the District has supplied water to SFPUC on 4 occasions, some for a few days in duration, while others for a couple of months. During the recent Rim Fire, the District was requested by SFPUC and agreed to stand ready to supply water to SFPUC customers should the need arise. SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy (11/18/14) Page 5 of 9 In 1961, the 5-cent tax was established to help fund the water importation program. In 1963, as part of a compromise which enabled the passage of a $42M bond measure in Zone W-1 to begin construction of the in-county distribution system including the first water treatment plant (Rinconada), the Board established a policy to provide an “in-county credit” to those agencies that received Hetch Hetchy water in recognition of the benefits provided by the imported Hetch Hetchy water. The County tax office provided the credit to the appropriate agencies based on information provided by the District. With the passage of Proposition 13 in 1978, the District no longer received ad valorem taxes as originally established but instead received a portion of the 1% ad valorem tax, which resulted in a roughly 58% decrease in tax revenue in FY 1978-79. With the passage of Proposition 13, it was no longer possible to determine the “in-county credit” based on the historical formula. Consequently, the Board developed an alternative method to continue providing the in-county credit directly from the District to the following agencies: Milpitas, Mountain View, Palo Alto, Purissima Hills Water District, San Jose, Santa Clara, Stanford University, and Sunnyvale. The alternative methodology was a unit rebate rate of $7.50/AF of Hetch Hetchy water imported into the county. History In July 1979, in response to the impact of the passage of Proposition 13, the Board initiated the State Water Project override tax to pay for State Water Project imported water contractual obligations. In 1981, the Board adopted resolution 81-44 which declared that the in-county credit would be phased out. The rationale was that since SFPUC water and the District’s treated water were roughly the same price, the Board could no longer justify providing a credit for water that those agencies had an economic incentive to take anyway. By 1984 the in-county credit was eliminated. In July 2000, a portion of the Water Utility ad valorem taxes (the former 5-cent tax) was reprogrammed to flood protection and became the key revenue source for the Watershed Stream Stewardship Fund. The South County Zone W-5 was established in 1987 with the merger of the Gavilan Water District, which occurred about 7 years after the State Water Project tax was initiated. The South County financial model was established that year to include a credit for the State Water Project tax collected in the South County because the South County Zone W-5 does not receive State Water Project imported water. This practice continues today and is reflected in the cost of service analysis for South County. The cost of State Water Project imported water is allocated 100% to the North County Zone W-2 and 0% to the South County Zone W-5, while 94% of SWP tax revenue is collected in North County Zone W-2 and 6% is collected in South County Zone W-5. South County receives “credit” from North County for the 6% of tax collected in South County. Accordingly, the SWP tax fund accounts for 100% of SWP tax revenues and costs. State Water Project Tax in the South County The Board adopted a resolution to collect the State Water Project tax in the amount of $21 million for FY 2014-15. This equates to roughly $36.00 per year on the property tax bill for the average single family residence in Santa Clara County. As reported to the Board during the last budget cycle, if the tax were not levied the impact of lost revenue equates to $100/AF in terms of the North County M&I groundwater production charge, $25/AF in terms of the South County M&I groundwater production charge, and $575,000 in terms of the Open Space Credit. State Water Project Tax for FY 15 and Beyond SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy (11/18/14) Page 6 of 9 The FY 2014-15 Budget includes a small amount for participation in the Bay Delta Conservation Plan (BDCP). Going forward, BDCP costs are projected to escalate over the next 10 years and are estimated at $228 million between FY 2014-15 and FY 2023-24. Staff financial modeling assumes that BDCP costs associated with conveyance of State Water Project supply (approximately $65 million out of the $228 million ten year total) would be paid for by the State Water Project tax. Consequently, the State Water Project tax for average single family residence would increase from $36/yr to $60/yr by FY 2023-24 (approximately 6% per year). State Water Project contractor’s reliance on the State Water Project tax collected within their respective jurisdiction varies from 0% to 100%. The following agencies rely on the State Water Project tax to pay for 100% of their agency’s State Water Project contractual obligations: Other Agency Reliance on the State Water Project Tax • Antelope Valley East Kern Water Agency • Coachella Valley Water District • San Bernardino Valley Municiapl Water District • Castaic Lake Water Agency Agencies that rely on the State Water Project tax to pay for less than 100% of their agency’s State Water Project contractual obligations include: • Metropolitan Water District (8-10%) – based on legislative cap • Kern County Water Agency (10-14%) – Remainder, or 86% to 90% of SWP costs are billed directly to member units • Mojave Water Agency (84%) – current practice is that variable SWP costs are paid by water rates, and fixed SWP costs are paid by the SWP tax • Zone 7 (50%) - current practice is that variable SWP costs are paid by water rates, and fixed SWP costs are paid by the SWP tax Agencies such as Tulare Lake Basin Water Storage District do not utilize the State Water Project tax for paying their State Water Project contractual obligations. SFPUC Water Management Review SFPUC serves wholesale and retail customers in San Francisco, San Mateo, Alameda, and Santa Clara Counties. About 15 percent, or between 55,000 acre-feet per year (AFY) and 60,000 AFY, of the water supply in Santa Clara County is from the SFPUC. The SFPUC has water supply contracts with eight customers in Santa Clara County – the Cities of Milpitas, Mountain View, Palo Alto, San Jose, Santa Clara, and Sunnyvale; Purissima Hills Water District; and Stanford University. Except for San Jose and Santa Clara, SFPUC customers have Individual Supply Guarantees (ISGs), which guarantee access to certain minimum quantities of water. The water supply contracts between SFPUC and San Jose and Santa Clara are SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy (11/18/14) Page 7 of 9 temporary and interruptible. San Francisco can issue a five-year notice of supply interruption or reduction to San Jose and Santa Clara if wholesale demands on the SFPUC Regional Water System are projected to exceed 184 million gallons per day (MGD) in 2018. SFPUC is scheduled to decide whether to make San Jose and Santa Clara permanent customers by December 31, 2018. In addition to the contractual relationship between SFPUC and customers in the county, SFPUC and the District have an agreement for operations and maintenance of the intertie in Milpitas. The intertie improves system reliability for SFPUC, the District, and our customers. The total of ISGs for SFPUC customers in Santa Clara County is almost 64,000 AFY, which is in excess of total current and projected demands. However, individual customers’ demands and their ISGs do not match up. Milpitas, Mountain View, Palo Alto, and Sunnyvale demands are below their ISG, in part due to demands and in part due to the availability of lower cost District supplies. Purissima Hills Water District and Stanford demands exceed their ISGs and San Jose and Santa Clara do not have ISGs. As long as SFPUC’s systemwide wholesale customer demands in the system are below 184 MGD in normal years, customers can take additional water to meet their demands, subject to operational constraints and contractual limits on the place of SFPUC water use. Deliveries can be reduced in droughts and other water supply shortages. The District’s 2012 Water Supply and Infrastructure Master Plan (Water Supply Master Plan) assumes long-term average SFPUC deliveries of 62,000 AFY to the county and that San Jose and Santa Clara become permanent SFPUC customers. If these assumptions are inaccurate, the District would need to develop additional supplies and/or water conservation measures on top of the water recycling and water conservation goals in the Water Supply Master Plan. SFPUC is currently evaluating water supply options for meeting long-term demands, making San Jose and Santa Clara permanent customers, and improving drought supply reliability. In addition, Bay Area Water Supply and Conservation Agency (BAWSCA), which represents SFPUC’s systemwide wholesale customers including those in Santa Clara County, is developing a long-term strategy for addressing their member agencies’ water supply needs. These planning efforts are complementary and provide an opportunity to look at new partnerships and SFPUC water management options in Santa Clara County. Interests in SFPUC water management in Santa Clara County that have been expressed by some water retailers and other stakeholders include reducing costs by using lower cost District supplies instead of SFPUC supplies, increasing access to District treated water supplies to improve reliability and/or reduce costs, improving water supply and infrastructure reliability, maintaining ISGs and other provisions in the contracts between SFPUC and its wholesale customers, and reducing State Water Project taxes. Some of the options for SFPUC water management in Santa Clara County include: • Operations Agreement: The District could enter into agreement with SFPUC and its customers in Santa Clara County to be the operating entity for SFPUC supplies in the county. Each customer would retain its ISG, but the District would have more access to SFPUC supplies in the county and more flexibility in source selection. However, SFPUC customers might be reluctant to reduce their independence regarding SFPUC supplies and negotiations could re-open provisions in their water supply agreements with SFPUC. SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy (11/18/14) Page 8 of 9 • Joint Development of New Supplies: The District could partner with SFPUC to develop new supplies, so that SFPUC can justify making San Jose and Santa Clara permanent customers with ISGs. These new supplies could include potable reuse and would need to be in addition to the new supplies identified in the Water Supply Master Plan. Depending on their type, the new supplies could improve drought supply reliability in the county and, perhaps, throughout the SFPUC system. • Incentives to Common Customers: The District could offer financial incentives to SFPUC customers in the county to encourage them to use higher-cost SFPUC supplies, which is allowed under District Act Section 5.14. Currently, the difference between SFPUC supplies and District treated water supplies is about $429/AF. Over the next 10- years, the maximum difference in costs is projected to be $634/AF in FY 2019. Additional analysis would be necessary to evaluate the appropriate level of incentive, as well as the costs and benefits for the zone(s) of benefit. • West Side Intertie: Some customers have expressed an interest in an intertie between the District’s treated water system on the west side of the county and the SFPUC Regional Water System. The intertie could provide redundancy on the west side of the District’s treated water system, improve system reliability, and provide access to treated water for Palo Alto and, perhaps, Purissima Hills. • Water Transfers and/or Banking: The District and SFPUC could partner on water transfer and/or banking agreements. The SFPUC service area includes parts of Stanislaus and San Joaquin Counties, so there may be opportunities that would not be available to the District alone. Likewise, partnering with the District may provide new opportunities to the SFPUC. • Combination: Different water management options could be combined to maximize benefits. For example, water transfers and/or banking agreements could be more useful when combined with the West Side Intertie, since the intertie could be used to convey water for banking in Santa Clara County. Staff has identified the following criteria for evaluating SFPUC water management options: • Secures long-term average SFPUC supplies of at least 62,000 AFY in Santa Clara County • Secures permanent contracts for San Jose and Santa Clara • Provides for individual customer demands • Improves drought reliability • Meets customer interests • Is coordinated with SFPUC and BAWSCA efforts • Is cost-effective SUBJECT: Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy (11/18/14) Page 9 of 9 Staff will continue discussions with SFPUC, BAWSCA, and retailers on water management options. Any pertinent Board direction will be incorporated into those discussions. Policy Questions for Board Consideration There are broad Board policies that address the need for adequate financial planning, but no specific policy regarding the degree of reliance on the State Water Project tax. The Board considers staff reports and presentations, including projected groundwater production charges, to determine to what extent the State Water Project tax should cover the District’s State Water Project contractual obligations. The Board’s Pricing Policy (Resolution 99-21) recognizes the need to keep State Water Project Tax funding separate, and that State Water Project tax monies “are not available to the common fund.” Some policy questions for Board consideration include: 1. Should the District continue reliance on State Water Project tax to pay 100% or less of State Water Project contractual obligations? 2. Should the District continue current practices regarding how State Water Project revenues and costs are accounted for in South County? 3. Should the District consider development of an overall water management policy that includes the maximization of imported Hetch Hetchy water for the benefit of the County? 4. Are changes warranted to the Taxing and Pricing Policy or Board Governance Policies? FINANCIAL IMPACT: Depending on direction provided by the Board, there could be a future financial impact to the District and rate payers. CEQA: This is not a project under CEQA. ATTACHMENTS: 1. District Counsel Memorandum 2. Power Point presentation 3. Resolution 99-21 4. Resolution 14-55 THIS PAGE INTENTIONALLY LEFT BLANK THIS PAGE INTENTIONALLY LEFT BLANK Attachment 2 Page 1 of 26 Water Management, Financial Incentives, and Override Tax to Pay for State Water Project Costs Workstudy November 18, 2014 Attachment 2 Page 2 of 26 Purpose of Workstudy •Continue 7/8/14 discussion on State Water Project Tax •Broaden discussion to include: •SFPUC water management issues and, •Review of the District’s Water Utility Taxing and Pricing Policy •Hear feedback from stakeholders Attachment 2 Page 3 of 26 Topics 1.Pricing Policy Review •District Act •Board Policies •Water Utility Taxing and Pricing Policy 2.State Water Project Tax •Background •History •SWP Tax for FY 15 and Beyond 3.SFPUC Water Management Review •Water Management Options 4.Board Policy Questions Attachment 2 Page 4 of 26 •Authorizes District “to provide comprehensive water management for all beneficial uses…” [Section 4] •Authorizes Board to collect groundwater production charges to be set once per year [Section 26.7] •Option to do mid-year adjustment (added in 1992) •Also authorizes levy of taxes or assessments [Section 5] •Requires publication of Annual Report on Protection and Augmentation of Water Supplies (PAWS) [Section 26.5] •Requires public hearing [Section 26.6] •Surface, Treated & Recycled water rates can be set separately •Requires establishment of zones of benefit [Section 26.2] District Act Authorizations and Requirements Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 5 of 26 Water Utility Zones •Zones W1, W3, W4 & W6 are obsolete property tax zones •Zones W2 & W5 are zones of benefit for groundwater charges Attachment 2 Page 6 of 26 District Act Section 26.3: Defines purposes of groundwater production charges that can be imposed on a zone of benefit 1.Pay for construction, operation and maintenance of imported water facilities 2.Pay for imported water purchases 3.Pay for constructing, maintaining and operating facilities which will conserve or distribute water including facilities for groundwater recharge, surface distribution, and purification and treatment 4.Pay for debt incurred for purposes 1, 2 and 3 District Act Defines Uses for Groundwater Charges Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 7 of 26 Key Board Policies related to the Water Utility E-2: “There is a reliable, clean water supply for current and future generations.” •E-2.1: “Current and future water supply for municipalities, industries, agriculture and the environment is reliable.” •E-2.2: “Raw water transmission and distribution assets are managed to ensure efficiency and reliability.” •E-2.3: “Reliable high quality drinking water is delivered.” EL-4: “Financial planning for any fiscal year shall be aligned with the Board’s Ends, not risk fiscal jeopardy, and be derived from a multi-year plan.” EL-6: “The BAOs shall protect and adequately maintain corporate assets.” Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 8 of 26 General approach: •Charge recipients for benefits received Taxing and Pricing Concepts: •Water Sources and Water Facilities Pooling: Both contribute to common benefit of users within a zone regardless of cost. •Water Resources Management: Taxing and pricing structures developed to achieve the effective utilization of water resources for present and future populations •Revenue Pooling: In general, revenues are collected in a common fund and not designated for specific costs •State Water Project Tax revenues not available to the common fund Breakdown of Water Utility Taxing & Pricing Policy Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 9 of 26 General Framework: •Two Zones of Benefit •W-2: North County •W-5: South County •Ability to create new zones or superimpose new zone over existing zones •Two Major Charges •Basic User Charge (equal to the Groundwater Production Charge) •Treated Water Surcharge (Contract & Non-contract) •Ability to implement a specific charge for specific benefits •Two User Categories •Municipal & Industrial (M&I) •Agricultural •Ability to provide incentives/subsidies to optimize available resources Breakdown of Water Utility Taxing & Pricing Policy Cont. Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 10 of 26 Executive and Staff Limitations: •Rate structure implemented only by Board resolution •Agricultural groundwater charge limited to 10% of M&I charge •Staff authorized to prepare property tax collection resolutions for Board consideration Breakdown of Water Utility Taxing & Pricing Policy Cont. Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 11 of 26 Topics 1.Pricing Policy Review •District Act •Board Policies •Water Utility Taxing and Pricing Policy 2.State Water Project Tax •Background •History •SWP Tax for FY 15 and Beyond 3.SFPUC Water Management Review •Water Management Options 4.Board Policy Questions Attachment 2 Page 12 of 26 SWP Background What is the State Water Project? •A conveyance system that includes a series of 21 dams and reservoirs, 5 power plants, 16 pumping plants from Lake Oroville in Northern California to Lake Perris in Southern California •South Bay Aqueduct is a 40 mile branch that conveys water to Santa Clara County from the Sacramento-San Joaquin Delta •Managed by the California Department of Water Resources (DWR) •SCVWD entered into contract with DWR in 1961 for water supply •SCVWD is one of 29 state water contractors •The contract obligates SCVWD to levy a tax if other funding sources are insufficient •Each year the Board sets the SWP tax amount by resolution •Water Code section 11652 also obligates SCVWD to levy a tax to ensure sufficient payment of the water contract when necessary Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 13 of 26 SWP Background What is the State Water Project (SWP) Tax? •Override tax – a tax in excess of the one-percent cap imposed to pay voter-approved indebtedness •State voters approved the State Water Project and its financing with state bonds in 1960 (Burns-Porter Act) •Tax implemented by SCVWD in FY 1979-80 after passage of Prop 13 reduced the District’s “5 cent” property tax revenues by 58% •SWP tax is collected county-wide •SCVWD relies on the tax to pay for 100% of State Water Project contractual obligations •SWP Tax can only be used to pay for State Water Project contractual obligations •SWP tax accounts for 10% of Water Utility revenue for FY 15 Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 14 of 26 Breakdown of FY 15 WU Revenue Budget •FY 15 budgeted Water Utility revenue plus Open Space Credit transfer = $203M •10% or $21M of Water Utility Revenue comes from the SWP tax $81.0M, 40% Groundwater $88.1M, 43% Treated Water $1.6M, 1% $4.7M, 2% $21.0M, 10% $0.5M, 0% $4.2M, 2% $1.9M, 1% SCVWD Water Utility Revenue Sources FY 15 Groundwater Production Charges Treated Water Charges Surface/Recycled Water Charges 1% Ad Valorem Property Taxes State Water Project Tax Interest Earnings Reimbursements & Other OSC Transfer Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 15 of 26 Pre 1961 – Several cities contract with SFPUC for Hetch-Hetchy (HH) water supply July 1961 – 5-cent county-wide tax established to start water importation program Nov. 1961 – SCVWD contracts with DWR for State Water Project (SWP) water March 1963 – Board establishes policy for in-county credit to agencies that receive HH water June 1963 – Residents in Zone W-1 approve $42M bond for in-county distribution & treatment facilities to optimally use SWP imported water. Paid for by W-1 debt service tax. July 1964 – Groundwater production charges are established June 1978 – Proposition 13 passes. District no longer receives ad valorem taxes as established, but instead receives a portion of the 1% ad valorem tax (~60% reduction). July 1979 – The SWP override tax is first levied to pay for SWP contract obligations June 1981 – Board adopts resolution 81-44 declaring that in-county credit is no longer justified June 1984 – In-county credit is phased out July 2000 – A portion of Water Utility ad valorem taxes are reprogrammed to Watersheds History Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 16 of 26 SWP Tax in South County •SWP tax collected county-wide beginning July 1979 •South County Zone W-5 formed in 1987 with Gavilan Water District merger •Since 1987, SWP tax collected in South County has been “credited” against water charges •South County Zone W-5 does not directly receive SWP water •SWP cost allocated 100% to North County, 0% to South County •SWP revenue collected 94% in North County, 6% in South County •South County receives “credit” from North County for 6% of tax collected in South County •SWP tax fund accounts for 100% of SWP Tax revenues and costs Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 17 of 26 State Water Project Tax for FY 2015 •Board adopted same SWP tax collection ($21M) for FY 2015 as for FY 2014 •The SWP tax bill for the average single family residence will remain the same at roughly $36.00/year •Assumes $535K average assessed value If FY 15 SWP tax were not approved, another funding source would be needed, impact equates to: •$100/AF in terms of North County M&I groundwater production charge •$25/AF in terms of South County M&I groundwater production charge •$575,000 in terms of Open space credit Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 18 of 26 High Deliveries, 90% Participation, 50/50 SWP/CVP Cost Split Scenario $K North South CVP SWP Total Cost/mo*Cost/mo* FY 15 307 120 427 $0.05 $0.03 FY 16 312 122 434 $0.05 $0.03 FY 17 400 157 557 $0.09 $0.03 FY 18 14,536 5,816 20,352 $2.94 $1.38 FY 19 14,631 5,853 20,484 $2.94 $1.38 FY 20 14,636 5,855 20,491 $2.94 $1.38 FY 21 24,917 9,970 34,887 $5.05 $2.38 FY 22 24,922 9,972 34,894 $5.05 $2.38 FY 23 34,243 13,703 47,946 $6.93 $3.27 FY 24 34,248 13,705 47,953 $6.93 $3.27 10 Yr Subtotal 163,152 65,273 228,425 * Cost per month for average household including CVP and SWP impacts BDCP Costs Projection and SWP Tax •Analysis assumes costs associated with conveyance of State Water Project supply would be paid for by SWP tax •SWP tax for average single family residence would increase from $36/yr to $60/yr by FY 24 Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 19 of 26 Do other SWP contractors rely on SWP tax? 100% reliance on SWP tax •SCVWD •Antelope Valley East Kern Water Agency •Coachella Valley Water District •San Bernardino Valley Municipal Water District •Castaic Lake Water Agency Less than 100% reliance on SWP tax •Metropolitan Water District (8-10%) •Kern County Water Agency (10-14%) •Mojave Water Agency (84%) •Zone 7 (50%) No reliance on SWP tax •Tulare Lake Basin Water Storage District Pricing Policy SWP Tax SFPUC Water Management Policy Questions Current practice = variable SWP costs paid by rates, fixed SWP costs paid by SWP tax Based on legislative cap Remainder of SWP costs billed directly to member units Attachment 2 Page 20 of 26 Topics 1.Pricing Policy Review •District Act •Board Policies •Water Utility Taxing and Pricing Policy 2.State Water Project Tax •Background •History •SWP Tax for FY 15 and Beyond 3.SFPUC Water Management Review •Water Management Options 4.Board Policy Questions Attachment 2 Page 21 of 26 SFPUC Water Supply in Santa Clara County •About 15 percent of countywide supply •Eight retailers along San Francisco Bay receive some or all of their supply through contracts with SFPUC •Cities of San Jose and Santa Clara have interruptible contracts •SFPUC scheduled to make decisions about long-term supply availability in 2018 •Milpitas Intertie improves reliability for SFPUC, District, and customers Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 22 of 26 SFPUC Contract Amounts and Demands1 Customer Individual Supply Guarantee (AFY) Minimum Purchase Required (AFY) 2014 Usage (Jan –Sept) (AF) 2035 Demand 2035 Excess or (Shortage) Milpitas 10,338 5,982 4,795 9,856 482 Mountain View 15,075 10,002 7,086 12,645 2,430 Palo Alto 19,118 None 9,431 15,086 4,032 Purissima Hills 1,814 None 1,497 2,060 (246) San Jose None None 3,982 5,040 (5,040) Santa Clara None None 1,543 5,040 (5,040) Stanford 3,394 None 1,607 3,447 (53) Sunnyvale 14,090 10,002 6,352 10,002 4,088 Totals 63,829 25,985 36,293 63,176 653 1 From BAWSCA Long-Term Reliable Water Supply Strategy, Phase IIA Final Report, Volume II (July 2012), and SFPUC Purchase Data Attachment 2 Page 23 of 26 Water Management Goals •SCVWD Goals •Long-term average deliveries of 62,000 AFY •San Jose and Santa Clara become permanent SFPUC customers •Increase water recycling and conservation •SFPUC Goals1 •Meet long-term demands •Make San Jose and Santa Clara permanent customers •Improve drought supply reliability Pricing Policy SWP Tax SFPUC Water Management Policy Questions 1SFPUC Staff Memo regarding Draft Outline of Water Supply Strategy presented to the SFPUC on October 8, 2013 Attachment 2 Page 24 of 26 Water Management Options Option Discussion Operations Agreement SCVWD would enter into an agreement with SFPUC and it customers in Santa Clara County to be the operating entity for SFPUC supplies Joint development of new supplies SCVWD and SFPUC would partner on the development of new supplies, such as potable reuse, to support making SJ/SC permanent customers and improving drought reliability Incentives to common customers Incentives could encourage use of SFPUC supplies in Santa Clara County West Side Intertie Intertie would provide redundancy, improve system reliability, and access to treated water Water transfers and/or banking agreements SCVWD and SFPUC could partner on water transfers and/or banking agreement for long- term and/or drought needs Combination Combination of two or more options Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 25 of 26 Water Management Strategy Needs •Secures long-term average SFPUC supplies of 62,000 AFY •Secures San Jose and Santa Clara supplies •Provides for individual customer demands •Improves drought reliability •Meets common customer interests •Coordinated with SFPUC and BAWSCA •Is cost-effective Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 2 Page 26 of 26 Policy Questions for the Board •Should District continue to rely on SWP tax to pay 100% of SWP contractual obligations? •Should District continue current practices regarding accounting for State Water Project related revenues and costs in South County? •Should District consider development of an overall water management policy that includes the maximization of imported Hetch Hetchy water for the benefit of the County? •Are changes warranted to the Taxing and Pricing Policy or Board Governance Policies? Pricing Policy SWP Tax SFPUC Water Management Policy Questions Attachment 4 Page 1 of 2 Attachment 4 Page 2 of 2 c. r v or PALO ALTO OFFICE OF THE CITY MANAG ER 250 Hamilton Avenue, 7th Floor Palo Alto. CA 94301 650.329.2392 November 14, 2014 Tony Estremera, Director District 6, Board Chair Brian Schmidt, Director District 7, Vice Chair Dennis Kennedy, Director District 1 Barbara Keegan, Director District 2 Richard Santos, Director District 3 Linda LeZotte, Director District 4 Nai Hsueh, Director District 5 SCVWD Board of Directors 5750 Almaden Expressway San Jose, CA 95118 Dear SCVWD Board Members: Handout 4.2-a 11/18/14 On behalf of the City Council, I am pleased to see that the District discussed the State Water Project (SWP) tax allocation at your July 8, 2014 Board meeting and will do so again on November 18. The District's allocation of 100% of its SWP costs to property taxpayers instead of water ratepayers is of particular concern to the City of Palo Alto. This is of course because City residents receive no SWP water, yet Palo Alto taxpayers contribute approximately $1.5 million annually toward the District's SWP costs, and have contributed $19-$25 million over the last 30 years. The City raised this issue with the District over 4 years ago, but the District has continued to collect 100% of its SWP costs from taxpayers, while allocating none of SWP costs to ratepayers. We thank you for discussing the issue and encourage the Board to take this opportunity to make a meaningful and equitable change to the District's current practice. At this point, it is important to build upon and correct a few statements made at the July 8, 2014 meeting and in the accompanying staff memorandums for the July 8 and November 18 meetings: 1. District staff statement that all County residents, even those who receive no SWP water, benefit from the District's participation in the SWP is incomplete and potentially misleading. C it y Of Pal oA lto .o rg Printed with soy-besed inks on 100 '!1. recycled p aper proc<?ssed without chlorine. SCVWD Board November 14, 2014 Page 2 First, the statement ignores the key benefit and primary purpose of the SWP: the provision of water. The District's Water Utility Taxing and Pricing Policy requires the District to "charge recipients for benefits received." Palo Alto receives zero SWP water. This should be the starting place for any discussion of cost allocation for the SWP. Second, as to any potential secondary benefits, such as avoiding subsidence and saltwater intrusion and general economic development, the District ignores similar and offsetting benefits that other users receive as a result of the City's use of 100% Hetch Hetchy water and the San Francisco Public Utilities Commission (SFPUC) intertie connecting the two systems. Palo Alto agrees that having multiple water supply sources in the County provides the District with the flexibility to effectively manage water resources. But Palo Alto's total reliance on its SFPUC supply provides comparable, if not superior, benefits to the District and other users: it relieves the District of the obligation to build facilities to manage water supply in Palo Alto, and it allows the District to reallocate SWP water elsewhere in the County, reducing the risk of subsidence and saltwater intrusion, recharging groundwater, and contributing to economic growth. 2. Contrary to statements made by the District's General Counsel at the July 8, 2014 meeting and a memorandum prepared for the November 181h meeting, the District is not "required to tax" to pay its SWP costs. The District has the authority to fund its SWP costs in a variety of ways, including through rates charged to water users. In fact, according to the District's contract with the State Department of Water Resources, the Water Code, and the Burns-Porter Act, property taxes are intended to be a secondary collection method that provides assurance to bond holders that debts will be paid in years when other funding sources are insufficient to meet SWP costs. 3. Staff's July 8th and November 18th presentations provide helpful information about how some other state water contractors recover their SWP costs. The District is one of 27 SWP customers; several collect their SWP costs entirely or primarily from retail water sales, not taxes. In fact, the two agencies that take approximately 70% of all SWP water - Metropolitan Water District (MWD) and Kern County Water Agency -collect only 8-14% of their SWP costs through taxes, and the rest through water rates. The Alameda County Water District relies on taxes to pay for 50% of its SWP obligation. The Metropolitan Water District's SWP cost allocation practice is illustrative. MWD collects only 8-10% of its SWP obligation from taxpayers. At the July gth Board meeting, the District's outside counsel noted that this was due to legislation directing MWD to cap the taxpayer contri bution. While that is true, the legislation was largely an outcome of a SCVWD Board November 14, 2014 Page 3 lawsuit the City of Los Angeles filed against MWD in 1975. Los Angeles argued that because it received little SWP water, MWD's practice of collecting the majority of its SWP costs from Los Angeles taxpayers violated the law. The parties settled the suit in 1930, when MWD adopted a "proportionate use" cost sharing formula, under which water sales revenues paid operating expenses and an increasing share of MWD's capital costs. Taxpayers' share of MWD's SWP costs decreased as water sales increased. 4. At the July 3th Board meeting, several Board members discussed what voters intended when they approved the Burns-Porter Act in 1960, authorizing the issuance of state bonds to finance construction of the SWP. The Burns-Porter Act ballot materials informed voters that the SWP would not burden taxpayers. Voters were told that the system would pay for itself through the sale of SWP water and power. Contrary to statements made at the District's July 3th meeting, voters did not expect to be taxed even if they received no SWP water. 5. The District's funding practices demonstrate awareness that it is inappropriate to charge taxpayers for a water system they do not use. Until 1934, the Hetch Hetchy water users (Milpitas, Mountain View, Palo Alto, Purissima Hills, San Jose Municipal Water Company, Santa Clara, Stanford University, and Sunnyvale) received an "in-county credit" in recognition of the fact that they used little or no SWP water. While the District ended the credit in 1934, it continues to credit South County taxpayers, who also receive no SWP water, for the 6% of the District's SWP costs they contribute via property taxes. 6. During the July 3th Board meeting, the City's water conservation programs were mentioned. It is true that the City and the District have a longstanding partnership administering a variety of water conservation rebates and programs. In fact, the City has a Memorandum of Understanding with the District, in effect since at least 2002, under which both parties fund and administer ten different water conservation programs for City water customers. Program costs are shared equitably; the District does not cover 100% of these costs. The City of Palo Alto greatly values its relationship with the District, and appreciates the District's partnership on water-related issues like flood protection and conservation. The City wants that to continue. At the same time, the District should correct its practice of relying on property taxpayers to meet 100% of its SWP obligations. This is particularly important during a time when District staff is forecasting significant increases to SWP costs, even before the state embarks on an ambitious plan to build water conveyance tunnels through the Delta that could increase the current tax collection even further. Doing this would be fair to County taxpayers who receive no SWP water, and consistent with state law and promises made to voters when the SWP was approved. SCVWD Board November 14, 2014 Page 4 Once again, on behalf of the City, we thank you for discussing the issue, and look forward to continued dialogue and to crafting a mutually beneficial solution. Please have Beau Goldie contact me or my staff if we may assist in any way. Sincerely, cc: Mayor and City Council Beau Goldie, CEO, Santa Clara Valley Water District Stan Yamamoto, District's General Counsel Molly Stump, City Attorney Val Fong, Director Utilities FC 1025 (09-20-13) Meeting Date:1/13/15 Agenda Item: Unclassified Manager:J. Fiedler Extension:2736 Director(s):All BOARD AGENDA MEMO SUBJECT:Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis RECOMMENDATION: Discuss and provide direction on the preliminary FY 2015-16 Groundwater Production Charge analysis prepared by staff. SUMMARY: Staff has prepared the preliminary FY 2015–16 groundwater production charge analysis for Board review. The analysis includes a range of water use projections, a summary of drought response costs, a discussion of changes to the capital cost projection, and anticipated future Bay Delta Conservation Plan costs.Staff has developed three preliminary FY 16 groundwater production charge scenarios, which are all higher than the prior year projection due primarily to responding to the drought. The scenarios vary depending on the severity of the drought and District response in the coming year.At this time, staff is leaning toward recommending a more optimistic scenario, which would include considering the possibility of a mid-year rate adjustment if the drought impacts worsen during the year.Staff has identified the “Drought Component” of the groundwater production charge scenarios per direction received at the December 9, 2014 Board meeting. Staff is seeking Board input to incorporate into the development of the groundwater production charge recommendation on the following topics: The preliminary groundwater production charge scenarios Use of the State Water Project Tax Use of the Open Space Credit The concept of a “Drought Reserve” Any other feedback from the Board The groundwater production charge recommendation will be detailed in the Annual Report on the Protection and Augmentation of Water Supplies that is planned to be filed with the Clerk of the Board on February 27,2015. The public hearing on groundwater production charges is scheduled to open on April 14,2015. It is anticipated that the Board would set the FY 2015–16 groundwater production charges by May 12,2015,that would become effective on July 1, 2015. The District protects and augments water supplies for the health, welfare and safety of the community. County-wide, groundwater replenished by the District makes up, on average, two- thirds of the groundwater used by residents, retailers and businesses. The District replenishes the groundwater basins with local water and purchased water imported from the Sierra Nevada Page 1 of 4 4.2 ATTACHMENT 7 SUBJECT:Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis (01/13/15) mountains. The activities undertaken by the District to acquire, monitor, recharge, and protect the water supply in support of the Silicon Valley economy are funded, in part, through groundwater production charges. The FY 2015–16 groundwater production charge and surface water charge setting process will be conducted consistent with the District Act, Proposition 218’s requirements for property- related fees for water services (although the applicability of those requirements is an issue now pending in the courts), and Board resolutions 99-21, 12-10, and 12-11. See attachments 2-4. Water Use Assumptions FY 2014–15 year-to-date water usage is about 14% lower than the same month of the prior year for county-wide water use and about 10.5% lower for District-managed water use (District- managed water use excludes Hetch Hetchy,and San Jose Water Company owned water supplies).For purposes of the preliminary analysis, staff has prepared three water usage scenarios for FY 2015-16 based on projected water usage. The first,more optimistic scenario assumes District-managed water use of 250,000 AF which represents a 12.6% reduction versus calendar year 2013. The second scenario assumes 245,000 AF or a 14.3%reduction, and the worst case scenario assumes 230,000 AF or 19.5% reduction versus calendar year 2013.Staff will work closely with the water retailers in the next couple of months to further assess the water usage forecast and modify if necessary. Groundwater Production Charge Projections Staff has prepared three preliminary groundwater production charge projections for Board review. The first (Option 1) is based on a 12.6% water use reduction versus calendar year 2013, and reflects a 17.8% increase in the North County M&I groundwater production charge and 9.1% in the South County for FY 2015-16. This projection is higher than prior year primarily due to increased drought-related operations costs (e.g., $13M for incremental purchases of imported water, $5M for a Semitropic water bank take, and $5M for enhanced conservation programs) and a lower water usage assumption (e.g., 250,000 AF assumed for FY 2015-16 versus 260,000 AF assumed in the prior year projection), which translates to lower revenue.The drought driven component of the increase under this scenario is 7.0% of the 17.8% for North County, and 4.7% of the 9.1% for South County. The draft FY 16-20 Capital Improvement Plan (CIP)is higher than the prior year CIP due to: The addition of the Vasona Pumping Plant Upgrades project ($21.7M) to replace pumps that are in poor condition, A $37.3M projected cost increase to the Rinconada Water Treatment Plant Reliability Upgrade due to scope refinements, A $24.5M projected cost increase to the Almaden Dam Seismic Retrofit project to raise the dam crest, lengthen the spillway, and perform an Environmental Impact Report (EIR). These CIP increases impact the North County Zone W-2 only and drive 1.0% of the 17.8% increase under this scenario.The overall impact of this scenario to the average household would be an increase of $4.58 per month in North County and $1.00 per month in South County. The second scenario (Option 2) is based on a 14.3% water use reduction versus calendar year 2013 (e.g., 245,000 AF water usage) and reflects a 26.5% increase in the North County M&I groundwater production charge and 11.0% for South County. This scenario includes the $23M Page 2 of 4 SUBJECT:Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis (01/13/15) of drought related operations costs under Option 1 plus an additional $9M for imported water purchases.The overall impact of this scenario to the average household would be an increase of $6.81 per month in North County and $1.20 per month in South County. The third scenario is based on a 19.5% water use reduction versus calendar year 2013 (e.g., 230,000 AF water usage) and reflects a 37.2% increase in the North County M&I groundwater production charge and 12.5%for South County. This scenario includes the $32M of drought related operations costs under Options 1 & 2 plus an additional $7M for the reverse flow project. The overall impact of this scenario to the average household would be an increase of $9.57 per month in North County and $1.38 per month in South County. The prior year projection reflected a 9.8% increase in the North County M&I groundwater production charge, 4.4% for South County M&I, and 4.4% for the agricultural groundwater production charge for FY 2015-16. Staff anticipate no changes to the contract treated water surcharge and the non-contract treated water surcharge for FY 2015-16. Other Assumptions The preliminary analysis assumes the continued practice of relying on the State Water Project (SWP)Tax to pay for 100% of the State Water Project contractual obligations.Pursuant to Water Code Section 11652, the District, whenever necessary, is required to levy on all property in its jurisdiction not exempt from taxation, a tax sufficient to provide for all payments under its SWP contract with the California Department of Water Resources (DWR). The District is anticipating a $7M increase in SWP costs for FY 2015-16 driven by corrections to past DWR under-collections, and increased costs due to South Bay Aqueduct (SBA)reliability projects. Accordingly, the SWP tax for the average household would increase by roughly $9 per year (from $36 per year to $45 per year), if discretionary funds are not available and allocated to fund SWP contract costs.Note that this anticipated increase is not related to the Bay Delta Conservation Plan (BDCP). The preliminary analysis also assumes the continued practice to set the South County agricultural groundwater production charge at 6% of the non-agricultural charge.The preliminary groundwater production charge scenarios do not include unfunded capital projects, additional operations cost needs identified by staff, or additional costs associated with the potential acceleration of recycled water expansion. Efforts to Minimize Rate impacts To minimize the FY 16 rate increase, the capital cost projections (and associated project schedules) have been shifted out and extended by one year for the Anderson, Calero and Guadalupe Dam Seismic Retrofit projects. In addition, the cost projection for the Rinconada Water Treatment Plant Reliability Improvement project has been shifted out over the 5 year construction period without impacting schedule. Staff will continue to look for both capital and operations cost reductions as the rate setting process continues over the next few months. Cost reduction opportunities are more difficult to come by given the cost saving achievements over the past few years, including the elimination of 122 positions District-wide since 2008. Drought Reserve Concept An idea that is not included in the preliminary analysis, but that is being considered by staff is the establishment of a new Drought Reserve. This reserve would be set aside specifically for use during drought emergencies and would complement the Supplemental Water Supply Reserve (which can be utilized at any time). The purpose of this reserve would be to help minimize rate impacts and fluctuation during the next drought. While it would be difficult to justify a higher increase for FY 2015-16 to establish this reserve, one approach might be to utilize Page 3 of 4 SUBJECT:Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis (01/13/15) unspent FY 2015-16 drought response cost budget,if applicable,to seed this reserve for FY 2016-17. Staff could put additional thought to this concept upon Board direction. FINANCIAL IMPACT: This preliminary analysis of the groundwater production charges does not have any direct financial impact,however, the adopted groundwater production charges will affect the future finances of the Water Utility Enterprise. CEQA: CEQA Guidelines Section 15273: CEQA does not apply to establishment or modification of water rates. ATTACHMENTS: Attachment 1, Power Point presentation Attachment 2, District Resolution 99-21 (Pricing Policy) Attachment 3, District Resolution 12-10 Attachment 4, District Resolution 12-11 Page 4 of 4 12/30/2014 Attachment 1 Page 1of 14 Preliminary FY 16 Groundwater Production Charge Analysis January 13, 2015 Page 1 of 27 Presentation Outline 1.Water Use 2.Financial Analysis Prior Year Groundwater Production Charge Projection Current Cost ProjectionCurrent Cost Projection Preliminary Groundwater Production Charge Projection FY 16 Analysis and Assumptions 3.Schedule 4.Discussion/Wrap up Page 2 of 27 12/30/2014 Attachment 1 Page 2of 14 District Managed Water Usage 300 350 Actuals FY 14Estimate Projection WetSpring WetSpring Drought/Recession 278KAF285KAF 304KAF302KAF 274KAF273KAF 287KAF278KAF285KAF 304KAF302KAF 274KAF273KAF 287KAF 260KAF > 100 150 200 250 266KAF250KAF251KAF 260KAF 19.5% reduction 12.6%reduction 250KAF266KAF250KAF251KAF260KAF 255KAF 260KAF > 14.3%reduction Page 3 of 27 0 50 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Treated Water $150 $50 $50NoncontractTWsurcharge($/AF)$50 $150 Treated Water Non contractTWsurcharge($/AF)$100$100 $75$60$50 Water Usage Scenarios by Zone Water Usage scenarios relative to Calendar Year 2013 210 220 230 240 250 NorthCountyWater Usage 12.6%Scen 14.3%Scen 19.5%Scen 150 160 170 180 190 200 36 South County M&I Water Usage Page 4 of 2720 22 24 26 28 30 32 34 12.6%Scen 14.3%Scen 19.5%Scen 12/30/2014 Attachment 1 Page 3of 14 SCVWD Water Utility Revenue Sources FY 15 ($ Millions) Groundwater Production Charges Treated Water Charges Surface/Recycled Water Charges Breakdown of FY 15 Water Utility Revenue Budget Treated Water Charges, $88 , 44% Surface/Recycled Water Charges, $2 , 1% 1% Ad Valorem Property Taxes, $5 ,2% State Water Project Tax, $21 , 10% InterestEarnings $1 0% 1% Ad Valorem Property Taxes State Water Project Tax Interest Earnings Reimbursements & Other OSC Transfer Page 5 of 27 Groundwater Production Charges,$81 , 40% InterestEarnings,$1, 0% Reimbursements & Other,$4 ,2% OSC Transfer, $2 , 1% FY 15 budgeted Water Utility revenue plus Open Space Credit transfer =$203M 6.8% or $13.8M of Water Utility Revenue comes from South County Presentation Outline 1.Water Use 2.Financial Analysis Prior Year Groundwater Production Charge Projection Current Cost Projection Preliminary Groundwater Production Charge Projection FY 16 Analysis and Assumptions 3.Schedule 4.Discussion/Wrap up Page 6 of 27 12/30/2014 Attachment 1 Page 4of 14 Financial Analysis: Prior (April 2014) Groundwater Production Charge Projection 1600 1800 2000 Groundwater ProductionCharges for Municipal &Industrial Uses NorthCounty (ZoneW 2) SFPUCTreatedWater 680 747 820 901 990 1087 1193 1293 1368 1445 1524 520 520 520 569 622600 800 1000 1200 1400 1600 SouthCounty(ZoneW5) (ZoneW 2) AdoptedTWSurcharge Page 7 of 27 305 319 333 348 363 379 396 413 431 450 470405420435475520520520 200 215 230 255 275 275 275 285 295 0 200 400 FiscalYear SouthCountyAgricultural GroundwaterProductionCharge Financial Analysis: Preliminary Cost Projection 500 600 503 452 454 433 100 200 300 400 Capital DebtService SupportSvcs WaterTreatmentandT&D E 2.3 RawWaterT&DE2.2 235 337 287 342 411 378 400 433425 Page 8 of 27 100 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 FiscalYear SourceofSupplyE2.1 12/30/2014 Attachment 1 Page 5of 14 Financial Analysis: Preliminary FY 16 CIP $200 $250 $300 FY16 20CIP FY15 19CIP $0 $50 $100 $150 $200 Page 9 of 27 RWTP Reliability Improvement Project funding redistributed over 5 year construction period $37.3M cost increase (16.7%) for RWTP Reliability Improvement due to scope refinements Anderson, Calero& Guadalupe Dams Seismic Projects extended one year to reduce near term rate impact $24.5M cost increase (69.6%) Almaden Dam Seismic retrofit (ratise dam crest, lengthen spillway, EIR) Added $21.7M for VasonaPumping Plant Upgrade (pumps need replacement) FY16 FY17FY18 FY19 FY20 FY21 FY22 FY23 FY24 Financial Analysis: Preliminary Outstanding Debt Projection Water Utility $1,000 $1,200 956 961 1007 991 964 922 $200 $400 $600 $800 265 320 445 531 653 846 Page 10 of 27 $0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Fiscal Year Commercial Paper StateRevolving Fund Loan Long Term COP's 12/30/2014 Attachment 1 Page 6of 14 Financial Analysis: BDCP Costs included in Preliminary Analysis High Deliveries,90%Participation,50/50 SWP/CVP CostSplitScenario North South $K CVP SWP Total Cost/mo*Cost/mo* FY16 312 122 434 $0.05 $0.03 FY17 400 157 557 $0 09 $0 03 To Be Paid by water charges FY17 400 157 557 $0.09 $0.03 FY18 14,536 5,816 20,352 $2.94 $1.38 FY19 14,631 5,853 20,484 $2.94 $1.38 FY20 14,636 5,855 20,491 $2.94 $1.38 FY21 24,917 9,970 34,887 $5.05 $2.38 FY22 24,922 9,972 34,894 $5.05 $2.38 FY23 34,243 13,703 47,946 $6.93 $3.27 FY24 34,248 13,705 47,953 $6.93 $3.27 FY25 40,687 16,273 56,960 $8.23 $3.86 Page 11 of 27 Preliminary Analysis assumes costs associated with conveyance of State Water Project supply would be paid for by SWP tax SWP tax for average single family residence would increase from $36/yr to $64/yr by FY 25 ,,,$$ 10 Yr Subtotal 203,532 81,426 284,958 *CVP and SWP impacts interms ofcostper monthfor average household To Be Paid by SWP tax Financial Analysis: Drought Response Cost Projection Cost Projection ($M) Option Cost Description AF FY 16 FY 17 FY 18 FY 19 FY 20 (1) Water AcquisitionAgrmts ~14,000AF7.7 6.9 7.1 7.4 7.6 Si i W k 30 000A 0SemitropicWaterTake~30,000AF5.0 Spot Mkt Purchase?5.0 Enhanced Conservation N/A 5.0 Subtotal Option 122.7 6.9 7.1 7.4 7.6 (2)Spot Mkt Purchase?9.0 (3)Reverse Flow Project 7.0 Total 38 7 69 71 74 76 Page 12 of 27 Total 38.7 6.9 7.1 7.4 7.6 Option 1=12.6%wateruse reduction Vs CY 2013,includes $22.7M droughtresponse costs Option 2=14.3%wateruse reduction Vs CY 2013,includes $31.7M droughtresponse costs Option 3=19.5%wateruse reduction Vs CY 2013,includes $38.7M droughtresponse costs 12/30/2014 Attachment 1 Page 7of 14 Financial Analysis: Preliminary Groundwater Production Charge Projection Option (1)Option (2)Option (3) PriorYr 12.6%Water14.3%Water19.5%Water FY 15 FY16 Use Rdctn Use Rdctn*Use Rdctn** Water Usage (KAF)260 260 250 245 230 OperationCosts($K)145,323 148,571 181,871 190,871 190,871 + $144/AF or 16.3% + $13/AF or 3.7% Mid year Mid year + $322/AF or 36.5% + $24/AF or 6.8% Drought Component 7.0% 4.7% Capital Costs ($K)122,149 141,510 76,302 76,302 83,302 GROUNDWATER CHARGES Zone W2 M&I GW Charge($/AF)747 820 880 945 1025 Zone W2 annual%increase 9.8%17.8%26.5%37.2% Zone W5 M&I GW Charge($/AF)319 333 348 354 359 Zone W5 annual%increase 4.4%9.1%11.0%12.5% Debt Service Coverage 281 281 180 179 182 Page 13 of 27 * Assumes incremental $9M Operations Costs for imported water purchases ** Assumes incremental $7M Capital Costs for Reverse Flow project Debt Service Coverage 2.81 2.81 1.80 1.79 1.82 Op&Cap Reserve ($K)33,270 30,379 35,597 34,604 35,463 SupplementalWater Reserve($K)9,862 10,807 10,262 10,262 10,262 Financial Analysis: Preliminary Groundwater Production Charge Projection GWProductionCharge NorthCounty South County Increase Components Opt(1)Opt(2)Opt(3)Opt(1)Opt(2)Opt(3) FY 16PlannedIncrease 9.8%9.8%9.8%4.4%4.4%4.4% DroughtComponent 7.0%15.7%26.4%4.7%6.6%8.1% CIPIncrease Component 1.0%1.0%1.0%0.0%0.0%0.0% Total %Increase 17.8%26.5%37.2%9.1%11.0%12.5% Monthly Bill Increase* FY 16PlannedIncrease $2.51 $2.51 $2.51 $0.48 $0.48 $0.48 DroughtComponent $1.83 $4.06 $6.82 $0.52 $0.72 $0.90 CIPIncrease Component $0.24 $0.24 $0.24 $0.00 $0.00 $0.00 Total Increase $4 58 $6 81 $9 57 $1 00 $1 20 $1 38 Page 14 of 27 Total Increase $4.58 $6.81 $9.57 $1.00 $1.20 $1.38 *Impact ofGroundwaterProduction Charge increase options on monthlywaterbill for the average household basedon 1,500cubicfeetofwaterusage 12/30/2014 Attachment 1 Page 8of 14 Financial Analysis: Preliminary Groundwater Production Charge Projections Option (1) Adj Bgt 12.6%WaterUse Reduction 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20 No. County (W-2) M&I GWP charge ($/AF)$747 $880 $967 $1,062 $1,165 $1,279 Y-Y Growth%9.9%17.8%9.9%9.8%9.7%9.8% So. County(W-5)M&I GWP charge ($/AF)$319 $348 $364 $380 $397 $415 (2) y()g($)$319 $348 $364 $380 $397 $415 Y-Y Growth%4.6%9.1%4.6%4.4%4.5%4.5% Adj Bgt 14.3%WaterUse Reduction 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20 No. County (W-2) M&I GWP charge ($/AF)$747 $945 $1,016 $1,095 $1,182 $1,275 Y-Y Growth%9.9%26.5%7.5%7.8%7.9%7.9% So. County (W-5) M&I GWP charge ($/AF)$319 $354 $370 $386 $403 $421 Y-Y Growth%4.6%11.0%4.5%4.3%4.4%4.5% Page 15 of 27 (3) Adj Bgt 19.5%WaterUse Reduction 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20 No. County (W-2) M&I GWP charge ($/AF)$747 $1,025 $1,084 $1,147 $1,213 $1,284 Y-Y Growth%9.9%37.2%5.8%5.8%5.8%5.9% So. County (W-5) M&I GWP charge ($/AF)$319 $359 $376 $393 $411 $430 Y-Y Growth%4.6%12.5%4.7%4.5%4.6%4.6% Financial Analysis: Preliminary Groundwater Production Charge Projections (Option 1) 1800 2000 Groundwater Production ChargesforMunicipal &IndustrialUses 12.6%WaterUseReductionScenario SFPUCTreatedWater 747 880 967 1062 1165 1279 1383 1458 1535 1614 1695 569 622 680 747600 800 1000 1200 1400 1600 Adopted NorthCounty(ZoneW 2) TWSurcharge Page 16 of 27 319 348 364 380 397 415 434 454 475 497 519 405 420 435 475 520 520 520 569 200 215 230 255 275 275 275 285 295 305 319 0 200 400 FiscalYear SouthCounty (ZoneW5)Adopted 12/30/2014 Attachment 1 Page 9of 14 Key Capital project funding FY 16 thru FY 25 Rinconada Reliability Improvement ($194.3M) Calero & Guadalupe Dams Seismic Retrofit ($88.2M) Anderson Dam Seismic Retrofit ($192.6M) $67M (34% of total $198.8M project) to be reimbursed by Safe Clean Water Measure Almaden Dam Improvements ($52.3M) Vasona Pumping Plant Upgrade ($21.7M) Three Creek HCP Page 17 of 27 Clean Water Measure Water Supply Infr. Mstr Plan –Potable Reuse ($123.9M placeholder) Three Creek HCP Implementation Fund ($145.1M placeholder) Financial Analysis: Unfunded Capital Project Name Estimated Total Cost ($M) Dam Seismic Stability at Chesbro and Uvas 89.5 SCADA Small Capital Improvements –Water Treatment 18SCADA Small Capital Improvements Water Treatment 18 Coyote Pumping Plant ASD Replacement 16 SCADA Small Capital Improvements –RW Trans & Dist 6 Land Rights –South County Recycled Water PL 6 SCADA Small Capital Improvements –Source of Supply 5 Santa Clara Tunnel Leakage and Pacheco Conduit Dewater 3 Fleet and Facility Annex Improvements 3 Total 146 5 Page 18 of 27 Total 146.5 12/30/2014 Attachment 1 Page 10 of 14 Presentation Outline 1.Water Use 2.Financial Analysis Prior Year Groundwater Production Charge Projection Current Year Cost Projection Preliminary Groundwater Production Charge Projection FY 16 Analysis and Assumptions 3.Schedule 4.Discussion/Wrap up Page 19 of 27 Financial Analysis: FY 16 Analysis and Assumptions Cost Increase Drivers $36.5M increase driven by:$22.7M for Drought Response Costs$7.0M for SWP costs$07M f RWTP G’l Mit Cltt Total Water Utility Adptd. Bdgt Projected ($K)2014-15 2015-16 Variance OtiOPjt $145 323 $181 871 $36548 $0.7M for RWTP Gen’l Maint Consultants$0.6M for recharge ops & maint increase related to railroad crossing issue $7.5M increase driven by:Planned debt issuance Operations + Oper Projects $145,323 $181,871 $36,548 Year to year Growth %25.1% Debt Service $21,394 $28,864 $7,470 Capital $124,099 $76,303 ($47,796) South County Operations + Oper Projects 14,281 18,202 3,922 Page 20 of 27 $76.3M Capital Cost driven by:$10.1M Penitencia Force main$8.9M South County RecWater $8.9M Rinconadaupgrade$8.2M CVP capital payments$6.3M Anderson/Other Dam Seismic$4.9M Fluoridation$4.5M 5 Year Pipeline Rehab Year to year Growth %27.5% Capital Cost Recovery 3,608 3,597 (11) 12/30/2014 Attachment 1 Page 11 of 14 FY 2015 FY 2016 Other Charges Budget Projection Contract TW Surcharge ($/AF)$100 00 $100 00 Financial Analysis: FY 16 Analysis and Assumptions Contract TW Surcharge ($/AF)$100.00 $100.00 Non-contract TW Surcharge ($/AF)$150.00 $150.00 Surface Water Master Charge ($/AF) $18.60 $22.60 SWP Tax Revenue $21M $26M Cost per average household $36/Yr $45/Yr Page 21 of 27 Cost per average household $36/Yr $45/Yr 1% Ad Valorem Taxes Revenue $4.72M $5.34M$5.17M* *Latest FY 15 1% Ad valorem Tax estimate based on Assessor’s office guidance Financial Analysis: Open Space Credit (OSC) Projection (Option 1) 11 000 12,000 13,000 14,000 15,000 16,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 $1.1M increase Page 22 of 27 1,000 FiscalYear South County Property Taxes TransferNorth County 1%PropTaxes TransferGeneralFund1%Prop Taxes TransferWatershedsPropertyTaxes 12/30/2014 Attachment 1 Page 12 of 14 Concept: Establish reserve for next drought emergency Similar to Governor’s Rainy Day Fund concept Financial Analysis: Drought Reserve Discussion Complement to Supplemental Water Supply Reserve Only used during drought emergency Purpose/Funding: Minimize rate impacts during next drought Seed with unspent FY 16 drought response cost budget (if applicable) Funded by rate increases over time during non-drought years Page 23 of 27 Funded by rate increases over time during non drought years Next Steps: Discuss with stakeholders Develop policy draft Presentation Outline 1.Water Use 2.Financial Analysis Prior Year Groundwater Production Charge Projection Current Year Cost ProjectionCurrent Year Cost Projection Groundwater Production Charge Projection FY 15 Analysis and Assumptions 3.Schedule 4.Discussion/Wrap up Page 24 of 27 12/30/2014 Attachment 1 Page 13 of 14 ?13 Board meeting:preliminary groundwater production charge analysis,CIP workstudy session January 2015 Schedule ?21 Water Retailers meeting:preliminary groundwater productionchargeanalysis ?28 Water Commission meeting:preliminary groundwater production charge analysis February Page 25 of 27 ?10 Board meeting:set date of public hearing ?10 Board meeting:review draft CIP,Budget development update(2nd pass update) ?27 File Report and mail well owners notice:Protection andAugmentationofWaterSupplies(PAWS)Report ?TBD Water Retailers Meeting:Groundwater charge recommendationdiscussion(tentative date) ?24 Board meeting:Budget development update (3rd pass update) March April 2015 Schedule ?06 Agricultural Advisory meeting:Groundwater charge recommendationdiscussion ?07 Landscape Advisory meeting:Groundwater charge recommendationdiscussion(tentative date) ?14 Board meeting:Open public hearing on groundwatercharges ?22 Water Commission meeting:Groundwater charge recommendationdiscussion(tentativedate) ?TBD Board meeting:South Countypublic hearing on groundwater charges l bl h h p Page 26 of 27 ?28 Board meeting:Close public hearing on groundwater charges ?28 30 Board meeting:Budget work study session ?1Board Meetings:Budget work studysessions ?12 Adopt budget,groundwater productioncharges &CIP May 12/30/2014 Attachment 1 Page 14 of 14 Questions or Comments? Page 27 of 27 ATTACHMENT 8 Sonia Oaro Valle!:! Water District A' FC 1025 (09-20-13) u Meeting Date: Agenda Item: Unclassified Manager: Extension: Director(s): BOARD AGENDA MEMO 2/10/15 2.2 J. Fielder 2736 All SUBJECT: Update on Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis RECOMMENDATION: Consider committee and stakeholder feedback as directed by the Board, and new information provided by staff, and provide policy direction as necessary. SUMMARY: On January 13, 2015, staff presented the preliminary FY 2015-16 groundwater production charge analysis for Board review, which included three scenarios that are all higher than the prior year projection due primarily to responding to the drought. The table below summarizes the three scenarios for each zone of benefit in terms of percentage increase for FY 2015-16 relative to the FY 2014-15 municipal and industrial (M&I) groundwater production charges: GW Production Charge I North County South County I Increase Components Seen (1) Seen (2) Seen (3) Seen (1) Seen (2) Seen (3) FY 16 Planned Increase 9.8% 9.8% 9.8% 4.4% 4.4% 4.4% Drought Component 7.0% 15.7% 26.4% 4.7% 6.6% 8.1% CIP Increase Component 1.0% 1.0% 1.0% 0.0% 0.0% 0.0% Total% Increase 17.8% 26.5% 37.2% 9.1% 11.0% 12.5% Monthly Bill Increase• FY 16 Planned Increase $2.51 $2.51 $2.51 $0.48 $0.48 $0.48 Drought Component $1.83 $4.06 $6.82 $0.52 $0.72 $0.90 CIP Increase Component $0.24 $0.24 $0.24 $0.00 $0.00 $0.00 Total Increase $4.58 $6.81 $9.57 $1.00 $1.20 $1.38 *Impact of Groundwater Production Charge increase options on monthly water bill for the average household based on 1,500 cubic feet of water usage Staff presented the preliminary analysis to several stakeholder groups. Brief summaries of their feedback follow. Page 1of4 ATTACHMENT 9 SUBJECT: Update on Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis (2/10/15) Water Commission Staff presented the preliminary analysis to the Water Commission on January 28, 2015. The Commissioners expressed support for the drought emergency reserve and acknowledged how important water is to the livelihood of the residents in Santa Clara County. They expressed support for the District's efforts to ensure water supply reliability in the future including support for recycled water expansion and potentially desalination. One Commissioner noted that "we can't have collapses" in the groundwater supply. They encouraged the District to continue to prepare for the next drought after the current drought is over. One Commissioner expressed support for Scenario 2 while another expressed Scenario 1 might not be so bad. Another Commissioner encouraged the District to consider the farmer and their livelihood as they are unlikely to be able to reduce water as much as non-agricultural water consumers. Finally the Commissioners were sensitive to the public perception that an increase in water rates might be viewed as a "punishment" for conserving, and they encouraged the District to educate the public regarding the need to conserve now or it will be worse in the future. Agricultural Advisory Committee Staff presented the preliminary groundwater production charge analysis to the Agricultural Advisory Committee on February 2, 2015. The Committee expressed support for the District's efforts to navigate the drought and for the concept of a drought emergency reserve. Water Retailers Staff presented the preliminary groundwater production charge analysis to the water retailers on January 21, 2015. Given time constraints and the Retailers Finance subcommittee meeting scheduled for January 30, the comments were brief. One retailer questioned the need for the drought emergency reserve given the existing supplemental water supply reserve. Another retailer reminded staff that the higher the proposed increase for FY 2015-16, the higher the risk of a protest under Proposition 218. Another retailer expressed the desire for the District to narrow the range of scenarios in order to help the retailers with their own rate planning efforts. On January 30, 2015 the Retailers Finance Subcommittee met to further discuss the preliminary analysis. At that time, staff provided updated versions of the three scenarios based on refinements to the financial modeling that will be explained later in this agenda memo. The discussion focused on the largest potential increase scenario for FY 16 (Scenario 3) given the Board's direction at the January 13, 2015 meeting. Retailer comments are summarized as follows: • Concern that a large increase for FY 16 will cause a loss of momentum in terms of conservation behavior, due to the potential perception that more conservation equates to larger rate iAcreases. Concern that a large increase is not palatable, although some retailers expressed that a large increase is justifiable. Desire that the District communicate aggressively to the public regarding the need for a large increase so that the retailers don't bear the brunt of potential negative end customer reactions. • Recognition that there is not a lot of low hanging fruit in terms of ability to postpone or eliminate projects from the capital program. • General dislike for the idea of a mid-year increase due to the disruption it would cause retailer finances, however a smaller increase effective July 1 plus a mid-year increase Page 2 of 4 SUBJECT: Update on Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis (2/10/15) that is planned now, as part of the current rate setting process, might be more palatable than one large increase effective at the beginning of the fiscal year. Updates to Preliminary Groundwater Production Charge Analysis As mentioned during the staff presentation of the preliminary groundwater production charge analysis to the Board on January 13, 2015, the numbers shown at that time were preliminary and subject to change. The tables below show the updated analysis in terms of percentage increase for FY 2015-16 relative to the FY 2014-15 municipal and industrial (M&I) groundwater production charges, and the associated impact on a monthly water bill for an average household: GW Production Charge I Median Hydrology I Dry Hydrology Increase Components Seen (1) Seen (2) Seen (3) North Countl£ FY 16 Planned Increase 9.8% 9.8% 9.8% Drought Component 1.6% 8.3% 18.4% CIP Increase Component 1.0% 1.0% 1.0% Total % Increase 12.4% 19.1% 29.2% South County FY 16 Planned Increase 4.4% 4.4% 4.4% Drought Component 5.9% 7.8% 9.4% CIP Increase Component 0.0% 0.0% 0.0% Total % Increase 10.3% 12.2% 13.8% I North County South County Monthly Bill Increase* Seen (1) Seen (2) Seen (3) Seen (1) Seen (2) Seen (3) FY 16 Planned Increase $2.51 $2.51 $2.51 $0.48 $0.48 $0.48 Drought Component $0.45 $1.91 $4.76 $0.66 $0.86 $1.04 CIP Increase Component $0.24 $0.24 $0.24 $0.00 $0.00 $0.00 Total Increase $3.20 $4.66 $7.51 $1.14 $1.34 $1.52 *Impact of Groundwater Production Charge increase options on monthly water bill for the average household based on 1,500 cubic feet of water usage The updates for North County Zone W-2 were: • Reduced the variable rate debt component of the FY 2015-16 debt service cost estimate to align with recent trends in variable interest rates, which slightly reduced the projected increase for all scenarios. Assumed that the FY 2015-16 planned debt issuance would occur during the middle of the fiscal year such that the Water Utility would incur a half year's worth of debt service cost as opposed to a full year, which reduced the projected increase for all scenarios. Page 3 of 4 SUBJECT: Update on Preliminary Fiscal Year (FY) 2015-16 Groundwater Production Charges Analysis (2/10/15) The updates for South County Zone W-5 were: Slightly reduced the South County municipal and industrial water usage projection for FY 2015-16 because conservation savings in South County for July through December 2014 (17.1%) have exceeded the savings for North County (13.6%) over the same period. Updated the Open Space Credit projection formula which had the effect of reducing the amount of open space credit that the South County Zone W-5 would receive in the future, and at the same time slightly increasing the groundwater production charge projection in the future. This updated analysis was presented to the Water Retailers Finance Subcommittee on January 30, 2015. In addition, staff explained the connection between the groundwater production charge scenarios and the 2015 Water Supply Outlook Scenarios. Simply put, Scenarios 1 and 2 align with a median hydrology year for 2015 and Scenario 3 aligns with a dry hydrology year for 2015. Other Stakeholder Feedback The Purissima Hills Water District and the City of Palo Alto have raised concerns regarding the perceived inequities associated with the collection of the State Water Project (SWP) Tax. The Purissima Hills Water District has also raised concerns regarding the sequencing of events during the rate setting process alleging that the District intentionally schedules the decision on whether to levy the SWP tax after the water charges have been set, such that the Board has no choice but to rely on the SWP tax. It should be noted that the rate setting process always includes advance opportunity for the Board to provide direction on the assumptions used by staff to develop the preliminary as well as the recommended water charges. The preliminary groundwater production charge analysis currently assumes a continuation of the practice to rely on the SWP tax to pay for 100% of SWP contractual obligations as directed by the Board at the December 16, 2014 board meeting. FINANCIAL IMPACT: The preliminary analysis of the groundwater production charges does not have any direct financial impact, however, the adopted groundwater production charges will affect the future finances of the Water Utility Enterprise. CEQA: CEQA Guidelines Section 15273: CEQA does not apply to establishment or modification of water rates. ATTACHMENTS: None Page 4 of 4 EXCERPTED DRAFT MINUTES OF THE FEBRUARY 4, 2015 UTILITIES ADVISORY COMMISSION MEETING ITEM 3: DISCUSSION: Update on the Santa Clara Valley Water District’s Collection of all of its State Water Project Costs via Property Taxes Instead of Water Rates Public Comment Gary Kremen, Chair of the Santa Clara Valley Water District (SCVWD), but speaking as a Palo Alto resident tonight, stated that Palo Alto property owners pay three components to the SCVWD on their property tax bills: for Clean Safe Creeks, for flood control, and for the State Water Project (SWP). It is the SWP component for which the property owners do not get any benefit. He noted that, since the City does not pump any groundwater, it gets no benefit from the SWP property tax collections. He said that the northern part of the county pays a larger part of the SWP tax than its population share—14% of the county population but pay 25% of the SWP tax. He encourage the City to keep all options on the table and that the SCVWD staff has some ideas, including supporting an expansion of the City’s recycled water system. Steve Jordan, Board member of the Purissima Hills Water District (PHWD), stated that his service area’s property owners also share the "joy" of paying the SWP tax and receiving no benefit. He said they are looking forward to working with Palo Alto City staff on this issue. He said that the PHWD asked the District for additional water in the past and was told that there is no water for them. So, he concluded that they too have been paying the taxes for years, but actually have received no water as a benefit of all these costs. He also noted that the District prepares its rate changes each year after assuming that the Board will decide that SWP should be collected entirely from property taxes. The Board makes the formal determination after the rates have been set. Brian Schmidt, former SCVWD Board member, stated that he also has publicly raised the SWP issue in the past. He stated that the City does get some benefit from the District and that the goal should not create a wall between the City and the SCVWD. He noted that the City can indeed pump groundwater if it so chooses, and that SCVWD actions make that possible. In addition, the City could get a benefit from the SCVWD for developing its recycled water project. He suggested that the City try to balance out the costs between conservation dollars received and property tax dollars spent. Chair Foster asked Mr. Schmidt how much it costs the District for water conservation programs. Schmidt did not know. Chair Foster asked if the City could decide to use SCVWD water now. ATTACHMENT 10 Schmidt said that the regional intertie in Milpitas could be used for the City to get water from the SCVWD. Schmidt added that the City should work with others and gain allies. Commissioner Cook asked why the City used to get a credit for Hetch Hetchy water, but doesn't now. Schmidt said that the credit was eliminated when the price of water from the SFPUC and SCVWD was the same. Jim Fiedler, SCVWD’s Chief Operating Officer, stated that the SCVWD would welcome having a contract with the SFPUC and have asked the SFPUC about that. Fiedler said that the SCVWD provided the City about $160,000 per year for conservation programs. Chair Foster said that City property owners pay the SCVWD about $1.6 million in SWP tax charges. Fiedler said that the intertie has been used by both the SFPUC and SCVWD when needed for reliability. Fiedler stated that the groundwater extraction fee would be paid for any groundwater pumped. Fiedler delivered a presentation on the SWP tax. He said that state voters approved the SWP in 1960 and the SCVWD recovers 100% of its SWP costs via property taxes as decided by the Board annually. He said that the City of Palo Alto has experienced, or has the potential to experience, land surface subsidence of up to 5 feet and other parts of the County have experienced 13 feet of land surface subsidence, which was finally halted when imported water and groundwater management practices were introduced by the SCVWD. He stated that the SCVWD strongly supports recycled water, which could be taken advantage of by Palo Alto. He added that the SCVWD recently completed an advanced water purification plant that can treat wastewater to potable water quality for reuse, potentially including direct potable reuse in the future. Commissioner Cook commented that the idea of paying the tax without receiving any tangible benefits is outrageous. He asked if the City can get water from the SCVWD directly via a pipeline. Fiedler responded that in emergencies, SCVWD water has been provided to SFPUC customers via the Milpitas interconnection. Fiedler added that, if groundwater was used, it would essentially be getting SCVWD water. Commissioner Cook stated that by not pumping, the City is not contributing to groundwater levels falling that could contribute to land surface subsidence. Fiedler confirmed that, but noted that the City is relying on the District for making sure that groundwater is available for the City in emergencies. Council Member Scharff added that the City is saving the SCVWD lots of money since it does not draw on groundwater, but if it did, it would cause the SCVWD to recharge the aquifer, costing it money. Commissioner Cook commented that the City takes great pains to comply with the cost of service requirements for setting water rates, but this constraint doesn't seem to exist for the situation of paying property taxes, but not getting any water for it. Commissioner Cook asked how the SCVWD can conform to these Proposition 218 requirements. Fiedler stated that the Board follows all Prop. 218 requirements and the Board has the authority to make a decision on how much of the SWP costs to collect via property taxes. Chair Foster asked if the SCVWD is amenable to contributing to the City's recycled water project. Fiedler said that the SCVWD is very interested in expanding recycled water and noted that the Board has sent a letter to Palo Alto’s mayor to begin such discussions. Chair Foster suggested that the SCVWD make a specific proposal for how much it would support the recycled water project. Commissioner Eglash asked Mr. Fiedler to explain, assuming the City stopped paying the tax, what benefits would the City not get from the SCVWD. Fiedler said that the Board has not entertained that idea. He added that if the SCVWD did not pay the SWP costs (a contractual obligation), it would not get the SWP water. Chair Foster said that the UAC may want to agendize this topic again in the future. He said that there may be a legal aspect of this topic as well. Council Member Scharff informed the UAC that the Council may have a closed session on this item in the future. City of Palo Alto (ID # 5193) City Council Staff Report Report Type: Consent Calendar Meeting Date: 3/23/2015 City of Palo Alto Page 1 Summary Title: Client and Data Center Cloud Backup Title: Approval of Two 3-Year Contracts for a Computer and Data Center Data Storage or 'Cloud Backup' Solution Totaling $618,991: 1) Exucom Contract Number C15156183 in the Amount of up to $327,121 for Data Center Backup; 2) Code42 Contract Number C151566312 in the Amount of $291,870 for Computer and Laptop Backup From: City Manager Lead Department: IT Department Recommendation: Staff recommends that Council adopt the following motions: Approve and authorize the City Manager or a designee to execute the attached data center backup solution contract with Exucom for one year at $104,324 with the option to renew services for two additional years, in the amount of up to $72,798 for year two, and up to $95,478 for year three. Approve a 20% contingency of $20,865 in addition to the contract amount for the first year with Exucom. Approve a 20% contingency for year two in the amount of $14,560, and year three in the amount of $19,096. Approve and authorize the City Manager or a designee to execute the attached client end-point backup solution contract with Code 42, Inc. for one year at $94,025 with the option to renew two additional years, in the amount of $74,600 for year two, and $74,600 for year three. Approve a 20% contingency of $18,805 in addition to the contract amount for the first year with Code 42. Approve a 20% contingency for year two in the amount of $14,920, and year three in the amount of $14,920. Executive Summary City of Palo Alto Page 2 The motivation for this project is the absence of data storage backup at the client level (laptops and desktops) for City staff, and for reliable, off-site back-up on many of the City’s core systems. The City’s current technology backup solutions are inadequate, difficult to use and support, and pose a significant existing risk to data recovery storage options. Background The City of Palo Alto's Information Technology organization identified a need to implement data backup solutions for both server infrastructure and City Staff desktop computers and laptops. The absence of these capabilities represents a high degree of risk of data loss. This risk was not prioritized historically and is now being addressed as part of the 3-year IT strategy roadmap. Increasing the urgency is the rapid migration of most City staff to laptop computers. This will be complete in FY16 and as a result, the probability of laptop damage, loss, and theft has increased. In alignment with the Information Technology’s “Cloud-First” strategy, vendors with ‘cloud- based’ data backup solutions were sought. This approach to computing enables the City to use solutions that require far less maintenance, are inherently more reliable and lower cost over the long term. Discussion A request for proposal (RFP) for the ‘cloud-based’ data backup solutions was issued on 9/22/2014. An evaluation team of staff from the Information Technology department evaluated the proposals from 6 vendors. The criteria used were: function and features; cloud computing; integration; system compatibility; scalability. Below is a summary of the proposals: Vendor Solution RFP Cost Proposal, Year 1 Armada Backup Services Corporation Armada ONE System $262,080 Code42 Crashplan Enterprise Endpoint Backup $238,800 Dasher Technologies, Inc. HP Data Protector $298,080 Datalink Datalink Managed Services $584,448 Exucom Evault $114,225-$256,185 (5 options) Vmware VMware Mirage Not provided by vendor The evaluation team short-listed the vendors and invited Exucom, Code42 and Armada to provide demonstrations of their systems. Staff found that, when they were taking into consideration all criteria, Exucom was found to have the best ‘cloud-based’ data backup solution for the City’s server infrastructure, and Code42 was found to have the best ‘cloud- based’ solution for computers and laptops. City of Palo Alto Page 3 In the case of Exucom data center backup, the migration of the organization to Microsoft Office 365 Online and other Software-as-a-Service solutions may result in lower cloud-based storage requirements over years two and three and beyond. The upper storage amount costs described in this report are educated estimates only because until backups begin and the regular backup routines are established, some uncertainties will remain around data compression results, archiving options, and advantages garnered with moving more City capabilities to software-as- a-service options. Resource Impact Funds for the first year of these contracts were budgeted in the Technology Fund as part of the Fiscal Year 2015 Adopted Operating Budget under the project title “Information Backup and Storage Solution.” The year two and year three costs of these contracts will be included in the development of the Technology Fund budget for Fiscal Years 2016 and 2017 respectively. Policy Implications This agreement is consistent with existing City policy. Environmental Review This request for funding is not subject to CEQA. Attachments: Attachment A: C15156183_ExucomSystems V3 (DOCX) Attachment B: C151566312_Code42 MSA (PDF) Professional Services Rev. Feb. 2014 1 CITY OF PALO ALTO CONTRACT NO. C15156183 AGREEMENT BETWEEN THE CITY OF PALO ALTO AND EXUCOM SYSTEMS, INC. FOR PRODUCT AND PROFESSIONAL SERVICES This Agreement is entered into on this 16th day of March, 2015, (“Agreement”) by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CITY”), and EXUCOM SYSTEMS,INC., an Illinois corporation, located at 410 Hassell Road, Suite 410, Hoffman Estates, IL 60169 ("CONSULTANT"). RECITALS The following recitals are a substantive portion of this Agreement. A. CITY intends to provide hybrid cloud storage services (“Project”) and desires to engage a consultant to provide these services in connection with the Project (“Services”). B. CONSULTANT has represented that it has the necessary professional expertise, qualifications, and capability, and all required licenses and/or certifications to provide the Services. C. CITY in reliance on these representations desires to engage CONSULTANT to provide the Services as more fully described in Exhibit “A”, attached to and made a part of this Agreement. D. City understands and agrees to the applicable product specific terms and conditions as more fully described in Exhibit “D,E,F”, attached to and made part of this Agreement. NOW, THEREFORE, in consideration of the recitals, covenants, terms, and conditions, in this Agreement, the parties agree: AGREEMENT SECTION 1. SCOPE OF SERVICES. CONSULTANT shall perform the Services described in Exhibit “A” titled “Scope of Services” in accordance with the terms and conditions contained in this Agreement. The performance of all Services shall be to the reasonable satisfaction of CITY. SECTION 2. TERM. The term of this Agreement shall be from March 16, 2015 through April 30, 2018 unless terminated earlier pursuant to Section 19 of this Agreement. SECTION 3. SCHEDULE OF PERFORMANCE. Time is of the essence in the performance of Services under this Agreement. CONSULTANT shall complete the Services within the term of this Agreement. Any Services for which times for performance are not specified in this Professional Services Rev. Feb. 2014 2 Agreement shall be commenced and completed by CONSULTANT in a reasonably prompt and timely manner based upon the circumstances and direction communicated to the CONSULTANT. CITY’s agreement to extend the term or the schedule for performance shall not preclude recovery of damages for delay if the extension is required due to the fault of CONSULTANT. SECTION 4. NOT TO EXCEED COMPENSATION. The compensation to be paid to CONSULTANT for performance of the Services described in Exhibit “A”, including both payment for professional services and reimbursable expenses, shall not exceed Two Hundred Seventy Two Thousand Seven Hundred Ninety Eight Dollars and Eighty Cents ($272,598.80). Additional Services, if any, shall be authorized in accordance with and subject to the provisions of Exhibit “B”. CONSULTANT shall not receive any compensation for Additional Services performed without the prior written authorization of CITY. Additional Services shall mean any work that is determined by CITY to be necessary for the proper completion of the Project, but which is not included within the Scope of Services described in Exhibit “A”. SECTION 5. INVOICES. (a) Capital Expenses (onsite product and services):In order to request payment, CONSULTANT shall submit invoices in FULL for completed services and/or successfully delivered hardware/software. (b) In order to request payment, CONSULTANT shall submit monthly invoices to the CITY describing the services performed and the applicable charges (including, if applicable, identification of personnel who performed the services, hours worked, hourly rates, and reimbursable expenses), based upon the CONSULTANT’s billing rates (set forth in Exhibit “B-1”). If applicable, the invoice shall also describe the percentage of completion of each task. The information in CONSULTANT’s payment requests shall be subject to verification by CITY. CONSULTANT shall send all invoices to the City’s project manager at the address specified in Section 12 below. The City will process and pay invoices within thirty (30) days of receipt. SECTION 6. QUALIFICATIONS/STANDARD OF CARE. All of the Services shall be performed by CONSULTANT or under CONSULTANT’s supervision. CONSULTANT represents that it possesses the professional and technical personnel necessary to perform the Services required by this Agreement and that the personnel have sufficient skill and experience to perform the Services assigned to them. CONSULTANT represents that it, its employees and subconsultants, if permitted, have and shall maintain during the term of this Agreement all licenses, permits, qualifications, insurance and approvals of whatever nature that are legally required to perform the Services. All of the services to be furnished by CONSULTANT under this agreement shall meet the professional standard and quality that prevail among professionals in the same discipline and of similar knowledge and skill engaged in related work throughout California under the same or similar circumstances. SECTION 7. COMPLIANCE WITH LAWS. CONSULTANT shall keep itself informed of Professional Services Rev. Feb. 2014 3 and in compliance with all federal, state and local laws, ordinances, regulations, and orders that may affect in any manner the Project or the performance of the Services or those engaged to perform Services under this Agreement. CONSULTANT shall procure all permits and licenses, pay all charges and fees, and give all notices required by law in the performance of the Services. SECTION 8. ERRORS/OMISSIONS. CONSULTANT shall correct, at no cost to CITY, any and all errors, omissions, or ambiguities in the work product submitted to CITY, provided CITY gives notice to CONSULTANT. If CONSULTANT has prepared plans and specifications or other design documents to construct the Project, CONSULTANT shall be obligated to correct any and all errors, omissions or ambiguities discovered prior to and during the course of construction of the Project. SECTION 9. INDEPENDENT CONTRACTOR. It is understood and agreed that in performing the Services under this Agreement CONSULTANT, and any person employed by or contracted with CONSULTANT to furnish labor and/or materials under this Agreement, shall act as and be an independent contractor and not an agent or employee of the CITY. SECTION 10. ASSIGNMENT. The parties agree that the expertise and experience of CONSULTANT are material considerations for this Agreement. CONSULTANT shall not assign or transfer any interest in this Agreement nor the performance of any of CONSULTANT’s obligations hereunder without the prior written consent of the city manager. Consent to one assignment will not be deemed to be consent to any subsequent assignment. Any assignment made without the approval of the city manager will be void. SECTION 11. SUBCONTRACTING. Notwithstanding Section 11 above, CITY agrees that subconsultants may be used to complete the Services. The subconsultants authorized by CITY to perform work on this Project are: Seagate Technology CONSULTANT shall be responsible for directing the work of any subconsultants and for any compensation due to subconsultants. CITY assumes no responsibility whatsoever concerning compensation. CONSULTANT shall be fully responsible to CITY for all acts and omissions of a subconsultant. CONSULTANT shall change or add subconsultants only with the prior approval of the city manager or his designee. SECTION 12. PROJECT MANAGEMENT. CONSULTANT will assign Scott Ashouri as the person to have supervisory responsibility for the performance, progress, and execution of the Services and Gil Bertin as the project manager to represent CONSULTANT during the day- to-day work on the Project. If circumstances cause the substitution of the project director, project coordinator, or any other key personnel for any reason, the appointment of a substitute project director and the assignment of any key new or replacement personnel will be subject to the prior written approval of the CITY’s project manager. CONSULTANT, at CITY’s request, shall Professional Services Rev. Feb. 2014 3 promptly remove personnel who CITY finds do not perform the Services in an acceptable manner, are uncooperative, or present a threat to the adequate or timely completion of the Project or a threat to the safety of persons or property. The City’s project manager is Chris Caravalho, Information Technology Division, Palo Alto, CA 94303. The project manager will be CONSULTANT’s point of contact with respect to performance, progress and execution of the Services. The CITY may designate an alternate project manager from time to time. SECTION 13. OWNERSHIP OF MATERIALS. Upon delivery, all custom developed work product, including without limitation, all writings, drawings, plans, reports, specifications, calculations, documents, other materials and copyright interests developed under this Agreement shall be and remain the exclusive property of CITY without restriction or limitation upon their use. CONSULTANT agrees that all copyrights which arise from creation of the work pursuant to this Agreement shall be vested in CITY, and CONSULTANT waives and relinquishes all claims to copyright or other intellectual property rights in favor of the CITY. Neither CONSULTANT nor its contractors, if any, shall make any of such materials available to any individual or organization without the prior written approval of the City Manager or designee. CONSULTANT makes no representation of the suitability of the work product for use in or application to circumstances not contemplated by the scope of work. SECTION 14. AUDITS. CONSULTANT will permit CITY to audit, at any reasonable time during the term of this Agreement and for three (3) years thereafter, CONSULTANT’s records pertaining to matters covered by this Agreement. CONSULTANT further agrees to maintain and retain such records for at least three (3) years after the expiration or earlier termination of this Agreement. SECTION 15. WAIVERS. The waiver by either party of any breach or violation of any covenant, term, condition or provision of this Agreement, or of the provisions of any ordinance or law, will not be deemed to be a waiver of any other term, covenant, condition, provisions, ordinance or law, or of any subsequent breach or violation of the same or of any other term, covenant, condition, provision, ordinance or law. SECTION 16. INSURANCE. 16.1. CONSULTANT, at its sole cost and expense, shall obtain and maintain, in full force and effect during the term of this Agreement, the insurance coverage described in Exhibit "D". CONSULTANT and its contractors, if any, shall obtain a policy endorsement naming CITY as an additional insured under any general liability or automobile policy or policies. 16.2. All insurance coverage required hereunder shall be provided through carriers with AM Best’s Key Rating Guide ratings of A-:VII or higher which are licensed or authorized to transact insurance business in the State of California. Any and all contractors of CONSULTANT retained to perform Services under this Agreement will obtain and maintain, in full force and effect during the term of this Agreement, identical insurance coverage, naming Professional Services Rev. Feb. 2014 5 CITY as an additional insured under such policies as required above. 16.3. Certificates evidencing such insurance shall be filed with CITY concurrently with the execution of this Agreement. The certificates will be subject to the approval of CITY’s Risk Manager and will contain an endorsement stating that the insurance is primary coverage and will not be canceled, or materially reduced in coverage or limits, by the insurer except after filing with the Purchasing Manager thirty (30) days' prior written notice of the cancellation or modification. If the insurer cancels or modifies the insurance and provides less than thirty (30) days’ notice to CONSULTANT, CONSULTANT shall provide the Purchasing Manager written notice of the cancellation or modification within two (2) business days of the CONSULTANT’s receipt of such notice. CONSULTANT shall be responsible for ensuring that current certificates evidencing the insurance are provided to CITY’s Purchasing Manager during the entire term of this Agreement. 16.4. The procuring of such required policy or policies of insurance will not be construed to limit CONSULTANT's liability hereunder nor to fulfill the indemnification provisions of this Agreement. Notwithstanding the policy or policies of insurance, CONSULTANT will be obligated for the full and total amount of any damage, injury, or loss caused by or directly arising as a result of the Services performed under this Agreement, including such damage, injury, or loss arising after the Agreement is terminated or the term has expired. SECTION 17. NOTICES. All notices hereunder will be given in writing and mailed, postage prepaid, by certified mail, addressed as follows: To CITY: Office of the City Clerk City of Palo Alto Post Office Box 10250 Palo Alto, CA 94303 With a copy to the Purchasing Manager To CONSULTANT: Attention of the project director at the address of CONSULTANT recited above SECTION 18. CONFLICT OF INTEREST. 18.1. In accepting this Agreement, CONSULTANT covenants that it presently has no interest, and will not acquire any interest, direct or indirect, financial or otherwise, which would conflict in any manner or degree with the performance of the Services. 18.2. CONSULTANT further covenants that, in the performance of this Agreement, it will not employ subconsultants, contractors or persons having such an interest. Professional Services Rev. Feb. 2014 6 CONSULTANT certifies that no person who has or will have any financial interest under this Agreement is an officer or employee of CITY; this provision will be interpreted in accordance with the applicable provisions of the Palo Alto Municipal Code and the Government Code of the State of California. 18.3. If the Project Manager determines that CONSULTANT is a “Consultant” as that term is defined by the Regulations of the Fair Political Practices Commission, CONSULTANT shall be required and agrees to file the appropriate financial disclosure documents required by the Palo Alto Municipal Code and the Political Reform Act. SECTION 19. NONDISCRIMINATION. As set forth in Palo Alto Municipal Code section 2.30.510, CONSULTANT certifies that in the performance of this Agreement, it shall not discriminate in the employment of any person because of the race, skin color, gender, age, religion, disability, national origin, ancestry, sexual orientation, housing status, marital status, familial status, weight or height of such person. CONSULTANT acknowledges that it has read and understands the provisions of Section 2.30.510 of the Palo Alto Municipal Code relating to Nondiscrimination Requirements and the penalties for violation thereof, and agrees to meet all requirements of Section 2.30.510 pertaining to nondiscrimination in employment. SECTION 20. ENVIRONMENTALLY PREFERRED PURCHASING AND ZERO WASTE REQUIREMENTS. CONSULTANT shall comply with the City’s Environmentally Preferred Purchasing policies which are available at the City’s Purchasing Department, incorporated by reference and may be amended from time to time. CONSULTANT shall comply with waste reduction, reuse, recycling and disposal requirements of the City’s Zero Waste Program. Zero Waste best practices include first minimizing and reducing waste; second, reusing waste and third, recycling or composting waste. In particular, Consultant shall comply with the following zero waste requirements: All printed materials provided by Consultant to City generated from a personal computer and printer including but not limited to, proposals, quotes, invoices, reports, and public education materials, shall be double-sided and printed on a minimum of 30% or greater post-consumer content paper, unless otherwise approved by the City’s Project Manager. Any submitted materials printed by a professional printing company shall be a minimum of 30% or greater post- consumer material and printed with vegetable based inks. Goods purchased by Consultant on behalf of the City shall be purchased in accordance with the City’s Environmental Purchasing Policy including but not limited to Extended Producer Responsibility requirements for products and packaging. A copy of this policy is on file at the Purchasing Office. Reusable/returnable pallets shall be taken back by the Consultant, at no additional cost to the City, for reuse or recycling. Consultant shall provide documentation from the facility accepting the pallets to verify that pallets are not being disposed. SECTION 21. MISCELLANEOUS PROVISIONS. 21.1. This Agreement will be governed by the laws of the State of California. Professional Services Rev. Feb. 2014 7 21.2. In the event that an action is brought, the parties agree that trial of such action will be vested exclusively in the state courts of California in the County of Santa Clara, State of California. 21.3. The prevailing party in any action brought to enforce the provisions of this Agreement may recover its reasonable costs and attorneys' fees expended in connection with that action. The prevailing party shall be entitled to recover an amount equal to the fair market value of legal services provided by attorneys employed by it as well as any attorneys’ fees paid to third parties. 21.4. This document represents the entire and integrated agreement between the parties and supersedes all prior negotiations, representations, and contracts, either written or oral. This document may be amended only by a written instrument, which is signed by the parties. 21.5. The covenants, terms, conditions and provisions of this Agreement will apply to, and will bind, the heirs, successors, executors, administrators, assignees, and consultants of the parties. 21.6. If a court of competent jurisdiction finds or rules that any provision of this Agreement or any amendment thereto is void or unenforceable, the unaffected provisions of this Agreement and any amendments thereto will remain in full force and effect. 21.7. All exhibits referred to in this Agreement and any addenda, appendices, attachments, and schedules to this Agreement which, from time to time, may be referred to in any duly executed amendment hereto are by such reference incorporated in this Agreement and will be deemed to be a part of this Agreement. 21.8 If, pursuant to this contract with CONSULTANT, City shares with CONSULTANT personal information as defined in California Civil Code section 1798.81.5(d) about a California resident (“Personal Information”), CONSULTANT shall maintain reasonable and appropriate security procedures to protect that Personal Information, and shall inform City immediately upon learning that there has been a breach in the security of the system or in the security of the Personal Information. CONSULTANT shall not use Personal Information for direct marketing purposes without City’s express written consent. 21.9 All unchecked boxes do not apply to this agreement. // // // Professional Services Rev. Feb. 2014 8 21.10 The individuals executing this Agreement represent and warrant that they have the legal capacity and authority to do so on behalf of their respective legal entities. 21.11 This Agreement may be signed in multiple counterparts, which shall, when executed by all the parties, constitute a single binding agreement. SECTION 22. NON-APPROPRIATION 22.1. This Agreement is subject to the fiscal provisions of the Charter of the City of Palo Alto and the Palo Alto Municipal Code. This Agreement will terminate without any penalty (a) at the end of any fiscal year in the event that funds are not appropriated for the following fiscal year, or (b) at any time within a fiscal year in the event that funds are only appropriated for a portion of the fiscal year and funds for this Agreement are no longer available. This section shall take precedence in the event of a conflict with any other covenant, term, condition, or provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have by their duly authorized representatives executed this Agreement on the date first above written. CITY OF PALO ALTO City Manager APPROVED AS TO FORM: Senior Asst. City Attorney EXUCOM SYSTEMS, INC. Attachments: EXHIBIT “A”: SCOPE OF WORK EXHIBIT “B”: COMPENSATION EXHIBIT “B-1”: SCHEDULE OF RATES EXHIBIT “C”: INSURANCE REQUIREMENTS EXHIBIT “D”: PRODUCT TERMS AND CONDITIONS EXHIBIT “E”: SUPPORT AND MAINTENANCE EXHIBIT “F”: DEFINITIONS Professional Services Rev. Feb. 2014 11 EXHIBIT “A” SCOPE OF SERVICES City of Palo Alto Order #: <####> Last Revision by: Gil A. Bertin Seagate 2/5/15 Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 3 Contents 1. INTRODUCTION .................................................................................................................................................................. 4 1.1 STATEMENT OF CONFIDENTIALITY ..................................................................................................................................... 4 1.2 PURPOSE OF THIS DOCUMENT .......................................................................................................................................... 4 2. PROJECT TEAM CONTACT LIST ...................................................................................................................................... 5 3. PROJECT OVERVIEW ........................................................................................................................................................ 6 3.1 PROJECT DETAILS ........................................................................................................................................................... 6 4. PROJECT ASSUMPTIONS ................................................................................................................................................. 7 5. PROJECT SCOPE ............................................................................................................................................................... 8 5.1 OVERVIEW ...................................................................................................................................................................... 8 5.2 DATA PROTECTION & BACKUP PLANNING .......................................................................................................................... 8 5.3 INSTALLATION, CONFIGURATION & DATA SEEDING .............................................................................................................. 9 5.4 TRAINING ..................................................................................................................................................................... 10 6. PROJECT SCHEDULE ...................................................................................................................................................... 12 7. PROJECT CHECKLIST ..................................................................................................................................................... 13 8. PRICING ............................................................................................................................................................................ 14 9. SIGNATURES .................................................................................................................................................................... 15 APPENDIX A ............................................................................................................................................................................ 17 APPENDIX B - CHANGE ORDER PROCESS .......................................................................................................................... 11 Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 4 1. Introduction 1.1 Statement of Confidentiality The descriptive materials and related information in this Statement of Work contain information that is confidential and proprietary to Seagate. This information is submitted with the express understanding that it will be held in strict confidence and will not be disclosed, duplicated, or used, in whole or in part, for any purpose other than evaluation of this Statement of Work. 1.2 Purpose of this Document This Statement of Work describes the work to be performed by Seagate during the implementation requested by the City of Palo Alto This document covers the following items: Contact List: roles and responsibilities Project Overview: Provides project details, timelines, deliverables, assumptions, and specific responsibilities associated with the project Assumptions – Assumptions associated with the scope of this project Project scope, tasks, and deliverables Project checklist Pricing Signatures Appendix A: Environmental Assessment Forms (EAFs) Appendix B: Change Order process and form Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 5 2. Project Team Contact List City of Palo Alto Team Name Title Direct Line Mobile E-mail Seagate Team Name Title Direct Line Mobile E-mail PSC Professional Services Consultant ###-###-#### ###-###-#### PSC@Seagate.com Gil A. Bertin Professional Services Manager 201-500-5250 201-500-5250 Gil.Bertin@Seagate.com TAM Territory Account Representative/Manager ###-###-#### ###-###-#### TAM@Seagate.com Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 6 3. Project Overview 3.1 Project Details Seagate Professional Services, in conjunction with The City of Palo Alto >, will develop a strategy, set goals, and implement a solution to meet the requirements of The City of Palo Alto. The project will be divided into the following phases: Data protection and backup planning, Seagate installation and seeding (Director, CentralControl, and Agents), Training, and On-going support and management Seagate’s Professional Services consultants will use our proven methodology to implement the project on time, within budget and to the requirements specified in this plan. The activities associated with your implementation are defined below in Figure 1. Figure 1 - Implementation Roadmap Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 7 4. Project Assumptions There are mission critical assumptions that impact the performance of Seagate’s resources and the overall deployment of the Seagate solution. The Services, pricing, and delivery schedule for this project are based upon the following assumptions: The City of Palo Alto will provide the technical resources (as needed) to successfully implement the solution. Design sessions will be held via conference calls. Any additional changes outside the scope of this document can be accommodated through the change-order process and will be scoped and priced accordingly. The City of Palo Alto makes decisions, particularly those affecting project direction, on a timely basis. The City of Palo Alto provides a reasonable environment and infrastructure to support the project and team, including hardware, ancillary software, networks, and a secure workspace. The Statement of Work only includes the installation, configuration, and deployment of the deliverables described below. If the onsite engagement is rescheduled within two weeks of the schedule noted in section 6 of this document, a reschedule fee may be applied. Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 8 5. Project Scope 5.1 Overview In most cases an Seagate Professional Services consultant will be onsite for implementation activities. Once the onsite implementation activities have been completed, your Professional Services consultant will walk you through a backup and restore procedure and request your signature accepting that the activities in this statement of work have been completed to your satisfaction. Should any issues arise during installation that cannot be resolved while onsite, a support ticket will be created for you and escalated within Seagate Technical Support. 5.2 Data Protection & Backup Planning We begin the project with a planning meeting where The City of Palo Alto sponsor(s) and the Seagate installation specialist articulate project goals and expectations. During the meeting we will define business requirements, risks, assumptions, and any other considerations. The planning effort ends with the development of the Seagate Data Protection and Backup Plan. Data Protection & Backup Planning Tasks Deliverables Resources/Roles Seagate: 1. Schedule project design meeting(s). 2. Facilitate project design session(s). 3. Identify The City of Palo Alto business requirements. 4. Define Seagate configuration elements. 5. Schedule the project implementation. 6. Develop and review Seagate Data Protection and Backup Plan. The City of Palo Alto : 1. Participate in project design meeting(s). 2. Allocate resources for the project. 3. Review and commit to project schedule. 4. Approve configuration elements. 1. Seagate Data Protection and Backup Plan: - Project Scope - Project Resources - Solution Design - Configuration Details - Training Plan - On-going Management Requirements Seagate: 1. Sr. Installation Consultant. 2. Escalation Contact. The City of Palo Alto : 1. Project Manager. 2. Technical Resource(s). Assumptions: 1. The client will have the proper resources available to assist Seagate in the business design process. Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 9 5.3 Installation, Configuration & Data Seeding Upon completion of the Seagate Data Protection and Backup Plan, an Seagate Consultant will complete the installation and training activities. This process typically takes between two and three days depending on the number of Agents, bandwidth, and solution design. Once each of the components is installed, the Seagate Consultant will assist the client in the seeding process. If the seeding process cannot be done over-the-wire due to server size or limited bandwidth, Seagate can rent external media to The City of Palo Alto for a set fee. Installation, Configuration & Seeding Tasks Deliverables Resources/Roles Seagate: 1. Install Agents (approx 100 servers and up to 10TB). 2. Configure/fine-tune Director on Vault. 3. Install associated Plug-ins. 4. Tune antivirus (if necessary). 5. Install and configure EVault CentralControl. 6. Test Agent configuration. 7. Create and schedule back-up tasks based on the Data Protection and Backup plan. 8. Kick-off seeding (typically overnight). 9. Perform test backups and restores. 10. Validate backups and restores. 11. Obtain customer acceptance. 12. Transition to Support. The City of Palo Alto : 1. Verification of telephone/digital services/T1 connection 2. Installation and verification of operation for all equipment not supplied by Seagate but required for installation (e.g. CSU/DSU, router, hub, switch, etc.) 3. IT contact to work with Seagate on the installation process. 1. Director and Agents properly configured and operational. 2. Successful seeding and Delta back-ups. 3. Successful restores. Seagate: 1. Senior Consultant. 2. Escalation contact. The City of Palo Alto : 1. Project Manager 2. Technical Resource(s). Assumptions: 1. Seagate will back-up the servers specified in the latest Environmental Assessment Form (EAF) – Please see Appendix A. If there are additional changes to the scope of the EAF, Seagate will determine the impact of the change in terms of effort, schedules (timeline), and project cost. 2. The City of Palo Alto will provide access to the servers specified in the latest EAF. 3. External media provided by Seagate is not included in this statement of work. Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 10 5.4 Training Once the solution design is deployed, your Professional Services Consultant will walk you through the different components of the product and Agents/Plug-ins. This training is hands-on and is not meant to be a comprehensive training course that covers all aspects of the product and Plug-ins. Should you desire further training, Seagate offers different training programs that can be discussed with your Account Representative or your Professional Services Consultant. Assumptions: 1. The customer will dedicate the appropriate amount of time for the training activities. 2. The Exucom organization and it channel partner Seagate will provide training to the technical staff here at the City of Palo Alto via hands-on training and documentation to be delivered via Data Protection Plan. Training will include the installation and support with an overall understanding of backup/recovery methods. Training Tasks Deliverables Resources/Roles Seagate: 1. Train The City of Palo Alto on Agent/Plug-in installation. 2. Train The City of Palo Alto on EVault Director. 3. Train The City of Palo Alto on backup/restoration process. 4. Provide and walk through the management procedures as outlined in the Data Protection and Backup Plan. The City of Palo Alto : 1. Supply necessary individual(s) for the training process. 1. Trained personnel. Seagate: 1. Installation Specialist. 2. Escalation Contact. The City of Palo Alto : 1. Project Manager. 2. Technical Resource(s). Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 11 Seagate Professional Services Order #: <####> www.Segate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 12 6. Project Schedule The implementation is scheduled to begin on <project date>. The timeline presented below is a preliminary onsite effort estimate based on the above high-level scope and on our prior experience implementing Seagate in similar client engagements. Please note that the actual implementation timeline may vary. Project Plan Schedule Tasks Roles Start Date Finish Date Days Introduction Call Seagate TBD TBD 1 day Design and Planning Call Seagate TBD TBD 1 day Hardware Preparation (Rack, Power and Network) The City of Palo Alto TBD TBD 1 day Install EVault Software Seagate TBD TBD 2 days Configure Backup Tasks Seagate TBD TBD 2 days Verification and Testing Seagate TBD TBD 3 days Project Management Seagate Ongoing Ongoing Ongoing Transition to Support Group Seagate At Project Completion At Project Completion At Project Completion Assumptions: 1. Two weeks’ notice is required to reschedule the onsite engagement. 2. If the onsite effort is rescheduled within two weeks, a reschedule fee of $1,500 may be applied to the implementation costs. 3. Depending on the size of data, seeding may be in process after the onsite effort. 4. After the project completion, signed Statement of Work, we will transition your account to support Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 13 7. Project Checklist The following checklist represents the standard task/activities that the Seagate Professional Services Consultant should accomplish as part of the implementation effort: Project Checklist / X 1 Data protection and back-up planning 2 Director installation and configuration 3 Agent/Plug-in installation and configuration 4 CentralControl installation and configuration 5 Agent registration 6 Set up and configure backup tasks 7 Schedule tasks 8 Data seeding complete or in-process 9 Delta back-ups are operational 10 Backup and restore testing 11 Training Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 14 8. Pricing Our pricing for the scope of services described in this Statement of Work are based upon our standard rates exclusive of travel and living expenses. Travel and living expenses will be billed as incurred. The professional pricing estimated in this Statement of Work are based on the following: SKU Activity 020-254-051 Custom Consulting Notes: 1. This quote does not include out of pocket expenses, which will be billed as incurred. 2. The cost of external media does not include freight, duties, and/or taxes. For Internal Use Only – Billing Details Partner Name Division (Direct/Alliance/Services) Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 15 9. Signatures Completion Criteria Seagate will have satisfied its obligations to Customer under this Statement of Work when the tasks listed under Seagate Responsibilities are completed. Customer Signature Customer, by signing below, indicates that the Statement of Work has been read and the terms outlined within have been accepted. Any questions concerning Seagate responsibilities and the work to be done should be directed to the Seagate representative before signing. Customer Representative – Print Name The City of Palo Alto - Signature Date Seagate Representative – Print Name Seagate - Signature Date Customer Acceptance: By signing below, the customer agrees that the installation was successful, and that the activities described in the Statement of Work have been successfully completed. Customer Representative – Print Name The City of Palo Alto - Signature Date Seagate Representative – Print Name Seagate - Signature Date ** Please sign and fax the complete document to 801.758.1060 ** ** Please PDF this signature page back to the Professional Services Consultant ** Seagate Professional Services Order #: <####> www.Seagate.com Copyright © 2015 Seagate Technology LLC All rights reserved. 16 Seagate Professional Services Order #: <####> www.Seagate.comCopyright © 2015 Seagate Technology LLC All rights reserved. 17 Appendix A Seagate Professional Services Order #: <####> Professional Services Rev. Feb. 2014 11 C:\users\jweathe\appdata\local\temp\minutetraq\paloaltocityca@paloaltocityca.iqm2.com\work\attachments\13339.docx Appendix B - Change Order Process Any additional changes can be accommodated through the change-order process and will be scoped and priced accordingly. In order to ensure an on-time and on-budget project launch for The City of Palo Alto , this document has established implementation procedures that will be covered as part of the project. Any requirements not identified and documented in the Scope of Work will not be included in this engagement. Should such a requirement be identified, a change order will be required to include additional effort to the Project. As part of the change order process, Seagate will determine the impact of the change order on both schedules (timeline) and project cost. Before incorporating the change order, The City of Palo Alto will agree to any impact on the project schedule and cost in writing via Seagate’s change-order form. A sample change-order form is provided here. Change-Order Form The City of Palo Alto Change Order #: Date: Name of Project Seagate Project Manager New Requirement (include description): Work Duration: Impact on Project Timeline: Impact on Project Cost: Approvals: The City of Palo Alto Seagate By: _____________________________ By: _____________________________ Name: __________________________ Name: __________________________ Title: ___________________________ Title: ___________________________ Date: ___________________________ Date: ___________________________ Seagate Professional Services Order #: <####> Professional Services Rev. Feb. 2014 12 C:\users\jweathe\appdata\local\temp\minutetraq\paloaltocityca@paloaltocityca.iqm2.com\work\attachments\13339.docx Seagate Professional Services Order #: <####> Professional Services Rev. Feb. 2014 1 C:\users\jweathe\appdata\local\temp\minutetraq\paloaltocityca@paloaltocityca.iqm2.com\work\attachments\13339.docx Seagate Professional Services Order #: <####> Professional Services Rev. Feb. 2014 14 C:\users\jweathe\appdata\local\temp\minutetraq\paloaltocityca@paloaltocityca.iqm2.com\work\attachments\13339.docx EXHIBIT “B” COMPENSATION The CITY agrees to compensate the CONSULTANT for professional services performed in accordance with the terms and conditions of this Agreement, and as set forth in the budget schedule below. Compensation shall be calculated based on the hourly rate schedule attached as exhibit B-1 up to the not to exceed budget amount for each task set forth below. The compensation to be paid to CONSULTANT under this Agreement for all services described in Exhibit “A” (“Scope of Services”),associated order form and reimbursable expenses shall not exceed $272,598.80. CONSULTANT agrees to complete all Basic Services, including reimbursable expenses, within this amount. CONSULTANT shall perform the tasks and categories of work as outlined and budgeted below. The CITY’s project manager may approve in writing the transfer of budget amounts between any of the tasks or categories listed below provided the total compensation for Basic Services, including reimbursable expenses. Cycle Baseline Offsite Recovery Services TOTAL First Year $57,523.60 $46,800.00 $104,323.60 Second Year $4,757.60 $68,040.00 $72,797.60 Third Year $4,757.60 $90,720.00 $95,477.60 Total(s) $67,038.80 $205,560.00 $272,598.80 REIMBURSABLE EXPENSES The administrative, overhead, secretarial time or secretarial overtime, word processing, photocopying, in-house printing, insurance and other ordinary business expenses are included within the scope of payment for services and are not reimbursable expenses. CITY shall reimburse CONSULTANT for the following reimbursable expenses at cost. Expenses for which CONSULTANT shall be reimbursed are: $0. A. Travel outside the San Francisco Bay area, including transportation and meals, will be reimbursed at actual cost subject to the City of Palo Alto’s policy for reimbursement of travel and meal expenses for City of Palo Alto employees. B. Long distance telephone service charges, cellular phone service charges, facsimile transmission and postage charges are reimbursable at actual cost. All requests for payment of expenses shall be accompanied by appropriate backup information. Any expense anticipated to be more than $272,598.80 shall be approved in advance by the CITY’s project manager. Order Form Seagate Professional Services Order #: <####> Professional Services Rev. Feb. 2014 15 C:\users\jweathe\appdata\local\temp\minutetraq\paloaltocityca@paloaltocityca.iqm2.com\work\attachments\13339.docx ADDITIONAL SERVICES The CONSULTANT shall provide additional services only by advanced, written authorization from the CITY. The CONSULTANT, at the CITY’s project manager’s request, shall submit a detailed written proposal including a description of the scope of services, schedule, level of effort, and CONSULTANT’s proposed maximum compensation, including reimbursable expense, for such services based on the rates set forth in Exhibit C-1. The additional services scope, schedule and maximum compensation shall be negotiated and agreed to in writing by the CITY’s project manager and CONSULTANT prior to commencement of the services. Payment for additional services is subject to all requirements and restrictions in this Agreement Seagate Professional Services Order #: <####> Professional Services Rev. Feb. 2014 16 C:\users\jweathe\appdata\local\temp\minutetraq\paloaltocityca@paloaltocityca.iqm2.com\work\attachments\13339.docx Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 18 EXHIBIT “B-1” RATE SCHEDULE Offsite Replication Services Description Price Offsite Replication Service ORS Tiered Capacity, per TB/month for 1 - 4 TB, protected footprint, if purchased capacity exceeded, contracted tier adjusted based on actual usage, 1 YR term $415.00 Offsite Replication Service ORS Tiered Capacity, per TB/ month for 5 - 9 TB, protected footprint, if purchased capacity exceeded, contracted tier adjusted based on actual usage, 1 YR term $365.00 Offsite Replication Service ORS Tiered Capacity, per TB/ month for 10 - 14 TB, protected footprint, if purchased capacity exceeded, contracted tier adjusted based on actual usage, 1 YR term $325.00 Offsite Replication Service ORS Tiered Capacity, per TB/ month for 15 - 24 TB, protected footprint, if purchased capacity exceeded, contracted tier adjusted based on actual usage, 1 YR term $315.00 Remote Professional Services T&M Rate Schedule: Skill Rate Standard $225.00 Advanced (implementation engineer) $255.00 Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 19 Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 20 EXHIBIT “C” INSURANCE REQUIREMENTS CONTRACTORS TO THE CITY OF PALO ALTO (CITY), AT THEIR SOLE EXPENSE, SHALL FOR THE TERM OF THE CONTRACT OBTAIN AND MAINTAIN INSURANCE IN THE AMOUNTS FOR THE COVERAGE SPECIFIED BELOW, AFFORDED BY COMPANIES WITH AM BEST’S KEY RATING OF A-:VII, OR HIGHER, LICENSED OR AUTHORIZED TO TRANSACT INSURANCE BUSINESS IN THE STATE OF CALIFORNIA. AWARD IS CONTINGENT ON COMPLIANCE WITH CITY’S INSURANCE REQUIREMENTS, AS SPECIFIED, BELOW: REQUIRED TYPE OF COVERAGE REQUIREMENT MINIMUM LIMITS EACH OCCURRENCE AGGREGATE YES YES WORKER’S COMPENSATION EMPLOYER’S LIABILITY STATUTORY STATUTORY YES GENERAL LIABILITY, INCLUDING PERSONAL INJURY, BROAD FORM PROPERTY DAMAGE BLANKET CONTRACTUAL, AND FIRE LEGAL LIABILITY BODILY INJURY PROPERTY DAMAGE BODILY INJURY & PROPERTY DAMAGE COMBINED. $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 YES AUTOMOBILE LIABILITY, INCLUDING ALL OWNED, HIRED, NON-OWNED BODILY INJURY - EACH PERSON - EACH OCCURRENCE PROPERTY DAMAGE BODILY INJURY AND PROPERTY DAMAGE, COMBINED $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 YES PROFESSIONAL LIABILITY, INCLUDING, ERRORS AND OMISSIONS, MALPRACTICE (WHEN APPLICABLE), AND NEGLIGENT PERFORMANCE ALL DAMAGES $1,000,000 YES THE CITY OF PALO ALTO IS TO BE NAMED AS AN ADDITIONAL INSURED: CONTRACTOR, AT ITS SOLE COST AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND EFFECT THROUGHOUT THE ENTIRE TERM OF ANY RESULTANT AGREEMENT, THE INSURANCE COVERAGE HEREIN DESCRIBED, INSURING NOT ONLY CONTRACTOR AND ITS SUBCONSULTANTS, IF ANY, BUT ALSO, WITH THE EXCEPTION OF WORKERS’ COMPENSATION, EMPLOYER’S LIABILITY AND PROFESSIONAL INSURANCE, NAMING AS ADDITIONAL INSUREDS CITY, ITS COUNCIL MEMBERS, OFFICERS, AGENTS, AND EMPLOYEES. I. INSURANCE COVERAGE MUST INCLUDE: A. A PROVISION FOR A WRITTEN THIRTY (30) DAY ADVANCE NOTICE TO CITY OF CHANGE IN COVERAGE OR OF COVERAGE CANCELLATION; AND B. A CONTRACTUAL LIABILITY ENDORSEMENT PROVIDING INSURANCE COVERAGE FOR CONTRACTOR’S AGREEMENT TO INDEMNIFY CITY. C. DEDUCTIBLE AMOUNTS IN EXCESS OF $5,000 REQUIRE CITY’S PRIOR APPROVAL. II. CONTACTOR MUST SUBMIT CERTIFICATES(S) OF INSURANCE EVIDENCING REQUIRED COVERAGE. III. ENDORSEMENT PROVISIONS, WITH RESPECT TO THE INSURANCE AFFORDED TO “ADDITIONAL INSUREDS” A. PRIMARY COVERAGE WITH RESPECT TO CLAIMS ARISING OUT OF THE OPERATIONS OF THE NAMED INSURED, INSURANCE AS AFFORDED BY THIS POLICY IS PRIMARY AND IS NOT ADDITIONAL TO OR CONTRIBUTING WITH ANY OTHER INSURANCE CARRIED BY OR FOR THE BENEFIT OF THE ADDITIONAL INSUREDS. B. CROSS LIABILITY THE NAMING OF MORE THAN ONE PERSON, FIRM, OR CORPORATION AS INSUREDS UNDER THE POLICY Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 21 SHALL NOT, FOR THAT REASON ALONE, EXTINGUISH ANY RIGHTS OF THE INSURED AGAINST ANOTHER, BUT THIS ENDORSEMENT, AND THE NAMING OF MULTIPLE INSUREDS, SHALL NOT INCREASE THE TOTAL LIABILITY OF THE COMPANY UNDER THIS POLICY. C. NOTICE OF CANCELLATION 1. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR ANY REASON OTHER THAN THE NON-PAYMENT OF PREMIUM, THE CONSULTANT SHALL PROVIDE CITY AT LEAST A THIRTY (30) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION. 2. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR THE NON- PAYMENT OF PREMIUM, THE ISSUING COMPANY SHALL PROVIDE CITY AT LEAST A TEN (10) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION. NOTICES SHALL BE EMAILED OR MAILED TO: PURCHASING AND CONTRACT ADMINISTRATION CITY OF PALO ALTO P.O. BOX 10250 PALO ALTO, CA 94303. EMAIL: InsuranceCerts@CityofPaloAlto.org Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 18 EXHIBIT “D” Product Specific Terms and Conditions All products and services (“Products” as further defined in Exhibit C) sold or licensed by Exucom Systems (here-in “Seller”) are subject to these Product Terms and Conditions (the “Product Terms”). Capitalized terms used in these Product Terms are defined in Exhibit G. To purchase or license Products from Seller, Customer must sign and deliver to Seller an Order Form, which incorporates these Product Terms by reference. Collectively, the Order Form and these Product Terms comprise the binding Agreement for purchase or license of the Products. 1. ACCEPTANCE. The Order Form and these Product Terms are controlling and any additional or inconsistent terms and conditions in any acknowledgement, purchase order, or other documents proposed or provided by Customer are expressly rejected. 2. PRODUCT SPECIFIC TERMS AND CONDITIONS. Terms and conditions applicable to the specific Products, including individual Product elements when sold as part of a Product bundle, are set forth below. Customer warrants and represents that it has completed the environmental assessment form completely and accurately. Customer understands that Seller will rely on this information in recommending the Products needed to support Customer’s computing environment and agrees that that while Seller may recommend a Product configuration, Customer is responsible for determining the Products actually purchased. Customer also understands and agrees that to the extent the information included on the environmental assessment form is inaccurate or incomplete or Customer desires a higher level of performance, Customer may need to purchase additional Products. 2.1 APPLIANCES AND HARDWARE (a) Appliance Hardware Purchase and Appliance Software License. Subject to the terms and conditions of this Agreement, upon acceptance by Seller of an Order Form, Customer hereby purchases the Appliance Hardware from Seller. The Appliance Hardware will be pre-configured by EVault to include the Appliance Software. Subject to the terms and conditions of this Agreement, EVault grants to Customer a non-exclusive, non-transferable license to use the Appliance Software only on the Appliance Hardware on which it was originally installed solely for Customer’s internal business purposes and in accordance with the Documentation and the limitations set forth in the applicable Order Form. The Appliance Software is licensed on a perpetual basis. Customer may make up to two (2) copies of the Appliance Software solely for backup or archival purposes except where a recovery image of the Appliance Software is included on the Appliance. EVault Appliances are licensed for a single copy of the EVault Director Software to be used only on that specific Appliance. The license key for the Appliance Software is to be used only for activation of a single Appliance and may not be used to activate EVault Director Software on any other hardware system. Except as expressly authorized by EVault in writing, only EVault’s Enterprise Backup with Replication Software can be purchased or used in combination with EVault’s Plug-n-Protect Appliances within the same Customer. Capacity Based Software Products and A La Carte Software Products may not be purchased or used within the same Customer, regardless of location. EVault Applications Bundles Software, EVault Software Agents, EVault System Restore (ESR) Software, EVault Replication Software and EVault Satellite Software can be used throughout a Customer’s location regardless of whether the Customer is using Capacity or A La Carte versions of the Software. (b) Hardware Purchase. Subject to the terms and conditions of this Agreement, upon acceptance by Seller of an Order Form, Customer hereby purchases the Hardware from Seller. 2.2 EVault Offsite Replication Service. (a) Required Licensed Software. During the term of the EVault Offsite Replication Service, Customer must license and use the EVault software in its local environment, including the active, local vault that is backed up to the Passive Vault in the EVault cloud, and purchase Support Services for such Licensed Software. Customer shall install all Maintenance Releases for the Licensed Software in a timely manner. The Licensed Software and Support Services are subject to a separate fee. (b) Customer Obligations. Only a single active, local vault can be replicated to a single Passive Vault. All data replicated to the Passive Vault must be encrypted by Customer using the encryption feature in the EVault software. Customer is responsible for setup of the network connections at the Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 19 location of the local, active vault required to support replication activities and maintaining sufficient available bandwidth as needed to allow ongoing replication of Customer Data. Customer must seed its data to the Passive (ORS) Vault in the EVault cloud either over the wire or, if EVault determines that Customer does not have sufficient bandwidth to complete the seeding within an acceptable amount of time, via a Transfer Appliance. If a Transfer Appliance is required, Customer shall pay that fee for such service as set forth in the applicable Order Form. Customer must open their firewall to inbound traffic on ports 2547 and 12547, from the external IP address of the ORS Vault to the external IP address of the active vault, to enable EVault to monitor replication. Customer must open their firewall to inbound and outbound traffic on ports 807 and 2546, from the external IP address of the ORS Vault to the external IP address of the active vault, to enable failover to the ORS Vault if the Customer’s primary vault fails. (c) EVault Responsibilities. EVault is responsible for managing the ORS Vault, including configuration of the system in accordance with EVault’s best practices, maintaining the server hardware, operating system, and storage, scheduling and monitoring of optimization processes, and setup and monitoring of the replication process. EVault will provide the customer with daily reporting summarizing the status of the active vault’s replication to the EVault cloud. 3. DELIVERY, INSTALLATION AND SUPPORT 3.1 DELIVERY (a) Licensed Software. Following acceptance of the applicable Order Form, Seller will provide Customer with the software key(s) necessary to download and use the Licensed Software. The Licensed Software is deemed to be delivered upon Customer’s receipt of the software key(s). (b) Appliances and Hardware. Seller shall deliver the Appliance or Hardware to Customer as soon as practicable following acceptance of an Order Form unless another delivery date is set forth in the Order Form or the parties agree otherwise in writing. Shipping fees are not included in the price of the Hardware or Appliance and are the responsibility of Customer. Delivery will be Ex Works, the premises of Seller or its supplier, as such term is defined by Incoterms 2000. Title to the Hardware, including Appliance Hardware, and risk of loss and damage will pass to Customer when Seller or its supplier delivers the Hardware to the carrier selected by Customer. If Customer is leasing the Appliance Hardware from EVault, title to the Appliance Hardware will remain with EVault at all times. (c) Services. Delivery of Subscription Services, Other Services, Hosting Services, Software Managed Services and Support Services will begin on the Service Effective Date. Professional Services are deemed to be delivered upon completion by EVault of the services. All Products are deemed accepted upon delivery. 3.2 SUPPORT SERVICES. (a) Licensed Software and Services. Support Services are either included as a part of the Product Fee or will be provided by Seller subject to a separate Fee. If Customer is entitled to receive Support Services directly from EVault, EVault will provide maintenance and support services to Customer as set forth in Exhibit B. For Products licensed or sold by a Channel Partner, Support Services shall be provided by the Channel Partner on terms and conditions generally equivalent to Exhibit F. Customer must purchase Support Services for at least one (1) year for each license of Licensed Software purchased either alone or on an Appliance. If Customer purchases multiple licenses and maintains Support Services for any one license, Customer must purchase Support Services for all such Licensed Software. Customer may not copy and/or use a license key provided for one valid Product on another Product for which Support Services have not been purchased. If Customer does not continuously maintain Support Services with respect to any Licensed Software or Appliance, EVault reserves the right to charge Customer a reinstatement fee to resume such Support Services. (b) Hardware. Customer, at its option, may purchase a maintenance package for any Hardware, including Appliance Hardware, from the Hardware manufacturer. Customer understands and agrees that Seller and Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 20 its suppliers shall have no maintenance, support or warranty responsibilities with respect to Hardware, except for support with respect to an Appliance if specifically set forth in the Order Form. 4. FEES AND PAYMENT 4.1 FEES. Customer shall pay to Seller the applicable license, subscription, hosting, support, purchase price and other fees (if any) for those Products purchased or licensed by Customer, as set forth in the applicable Order Form or Statement of Work (collectively, “Fees”). Fees for additional services, including, without limitation, data seeding, data restoration and data deletion may also apply. In addition, Customer shall reimburse EVault for any expenses incurred in the performance of Professional Services on condition that any single expense or group of related expenses exceeding five-hundred dollars ($500.00) will require Customer’s prior written approval. Except as specifically set forth in this Agreement, all Fees are non-refundable. 4.2 CREDIT. Acceptance of any Order Form by Seller and the applicability of Seller’s standard payment terms are subject to Seller’s review of Customer’s credit history and rating. Notwithstanding anything to the contrary in this Agreement, if a Customer’s credit history and/or ratings do not meet Seller’s acceptance criteria, Customer may be required to make deposits and/or up-front payments on orders until an acceptable credit history is established. 4.3 PAYMENT. Payments due under this Agreement shall be made in U.S. currency in the amounts and at the times set forth in the applicable Order Form or Statement of Work or, if not indicated therein, within thirty (30) days of the date of invoice. If it is Customer’s standard business practice to issue purchase orders prior to payment of invoices, then Customer will ensure that a purchase order accompanies each Order Form submitted to Seller. If Customer fails to timely pay any amount when due, Customer shall pay, in addition, interest at the rate of one and one half percent (1½%) per month, but not to exceed the maximum allowed by law, on such delinquent amount. 4.4 TAXES. All Fees are exclusive of any sales, value-added, foreign withholding or other government taxes, duties, fees, excises, or tariffs imposed on the production, storage, licensing, sale, transportation, import, export or use of the Products or performance of any services (collectively, “Taxes”). Customer is responsible for and, if applicable, will reimburse Seller within thirty (30) days of request for all such Taxes and any related penalties, except for taxes imposed on Seller’s net income. 5. OWNERSHIP AND RESTRICTIONS 5.1 TITLE. Customer acknowledges and agrees that, as between EVault and Customer, title to and ownership of the Products (excluding any Hardware purchased by Customer) and Systems, including all corrections, enhancements, or other modifications to the Licensed Software, whether made by EVault, Seller or any third party, and all Intellectual Property Rights therein, are and will at all times be deemed the sole and exclusive property of EVault or its suppliers, as applicable. All rights not expressly granted to Customer in this Agreement are reserved by EVault. 5.2 PROPRIETARY RIGHTS NOTICES. Customer shall not delete, alter, cover, or distort any copyright, trademark, or other proprietary rights notice placed by EVault on or in the Products and shall ensure that all such notices are reproduced on all copies thereof. 5.3 RESTRICTIONS ON USE. Customer acknowledges that the Licensed Software and its structure, organization and Source Code constitute valuable trade secrets of EVault or its suppliers. Accordingly, Customer will not, directly or indirectly, do any of the following: (a) modify, adapt, alter, translate, or create derivative works from the Licensed Software or use the Licensed Software for application development purposes; (b) merge the Licensed Software with other software; (c) sublicense, lease, rent, loan, distribute, sell or otherwise transfer or make available the Licensed Software or Products to any third party except as specifically permitted by this Agreement; (d) reverse engineer, decompile, disassemble, or otherwise attempt to derive the source code for the Licensed Software or evaluate the Licensed Software in order to develop a competitive product; (e) use the Licensed Software or Products to process data or provide any service bureau activity for any third party; (f) otherwise use the Licensed Software except as expressly allowed under this Agreement; (g) violate any local, state, federal or foreign law, treaty, regulation or convention applicable to Customer in connection with its Users’ use of the Licensed Software; (h) willfully tamper with the security of any of the Systems or tamper with other customer accounts of EVault; (i) attempt to access data on the System not belonging to or intended for Customer; (j) attempt to probe, scan or test the System or to breach the security or authentication Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 21 measures without proper authorization; (k) willfully render any part of the Systems unusable; or (l) publish or disclose to third parties any evaluation of the Licensed Software without EVault’s prior written consent. 5.4 THIRD PARTY SOFTWARE. Notwithstanding anything to the contrary contained in this Agreement, any Third Party Software included in the Licensed Software, Appliance Software or licensed as a stand alone product is subject to the terms and conditions of any end user license agreement or additional terms accompanying such software and/or posted on EVault’s website. If the Licensed Software includes Microsoft Corporation’s WinPE software and related utility programs (“WinPE”), Customer may only use WinPE as a boot, diagnostic, disaster recovery, setup, restoration, emergency services, installation, test and/or configuration utilities program and not as a general purpose operating system product. CUSTOMER UNDERSTANDS THAT WINPE CONTAINS A SECURITY FEATURE THAT WILL CAUSE THE COMPUTER SYSTEM TO REBOOT WITHOUT PRIOR NOTIFICATION TO THE END-USER AFTER TWENTY-FOUR (24) HOURS OF CONTINUOUS USE. To the maximum extent permitted by applicable law, neither Microsoft Corporation nor any of its affiliates shall be liable to Customer for any claims or amounts relating to WinPE or other Microsoft software licensed pursuant to this Agreement. Further, Microsoft Corporation and its affiliates will not provide Customer with any customer support for WinPE or other Microsoft software licensed pursuant to this Agreement. 5.5 CUSTOMER’S DATA. Customer agrees that it is solely responsible for the content of all communications it makes while using Customer’s account and all Customer Data it processes using the Subscription Services or Other Services. Customer agrees that Users will not use the Subscription Services or Other Services to communicate any message or material that (a) is known, or reasonably should be known, to be libelous, harmful to minors, obscene or constitutes pornography; (b) is known, or reasonably should be known, to infringe the copyrights, patents, trade secrets, trademarks, trade names or other proprietary rights of a third party or is otherwise unlawful; or (c) would otherwise give rise to civil liability, or that constitutes or encourages conduct that could constitute a criminal offence, under any applicable law or regulation. Customer is solely responsible for the collection, accuracy, currency, quality, legality, completeness and use of Customer Data that is processed using the Products, stored on the System, or disclosed to or used by Customer or Users in connection with the Licensed Software. 5.6 AUTHORIZATION TO RELEASE DATA. Notwithstanding anything to the contrary contained in this Agreement, if Customer requests EVault to provide assurances to any governmental agency, regulatory organization or similar institution (collectively, “Regulatory Agencies”) regarding the services provided by EVault, Customer authorizes EVault to furnish to such Regulatory Agencies all data, e-mail and other records stored by Customer on EVault servers or routed through EVault exchange servers. Further, Customer authorizes EVault to provide to the Regulatory Agencies assurances that EVault will comply with any requests for data belonging to Customer received from a Regulatory Agency. Customer agrees to indemnify and hold harmless EVault from and against any and all claims relating to or arising from EVault’s compliance with this provision or release of such data. 5.7 PASSWORDS. Users will access the Subscription Services and Other Services via the Internet by means of a specific account and passwords provided by Seller. Seller will issue to Customer, or will authorize Customer to issue, a password (each, a “Password”) for each User authorized to use the Subscription Services and Other Services using Customer’s account. Seller encourages Customer to change the Passwords issued by Seller. In addition, Customer will designate its own key for the encryption of Customer Data; if Customer loses its encryption key, it may not be able to access its data. Customer is solely responsible for the confidentiality and use of its Passwords, encryption key and the Customer account. In no event will Seller or its suppliers be liable for any loss of Customer Data or other claims to the extent the same arose from unauthorized access to the Customer’s account by obtaining a Password or encryption key caused by a negligent or an intentional act or omission of Customer. 6. CONFIDENTIALITY 6.1 OBLIGATIONS. Each party acknowledges that, in the course of the performance of this Agreement, it may obtain the Confidential Information of the other party. Confidential Information disclosed pursuant to this Agreement will be subject to the terms of this Agreement during the Term and for two (2) years following termination or expiration of this Agreement, except for Customer Data, which will be subject to the terms of this Agreement indefinitely. Recipient shall take all reasonable steps to prevent the Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 22 unauthorized disclosure of and maintain the confidentiality of the Confidential Information of Discloser. Recipient shall not disclose the Confidential Information of Discloser to any employees or third parties except to employees (including independent contractors), subsidiaries and consultants of Recipient who have at least an equivalent confidentiality obligation to Recipient and who have a need to know such Confidential Information on condition that Recipient shall be liable for any breach by such individual or entity. However, the parties acknowledge and agree that, notwithstanding such measures taken to prevent unauthorized disclosure, use of or connection to the Internet provides the opportunity for unauthorized third parties to circumvent such precautions and illegally gain access to Confidential Information. Accordingly, Recipient cannot and does not (and nothing in this Section 6.1 or this Agreement is intended to) guarantee the privacy, security or authenticity of any information so transmitted over or stored in any system connected to the Internet. The Confidential Information disclosed by Discloser may only be used by Recipient as necessary to perform its obligations or exercise its rights under this Agreement. 6.2 EXCEPTIONS. The obligations set forth herein will not apply to any information that: (a) is or becomes generally available to the public or within the industry to which the information relates other than as a result of a breach of this Agreement; (b) was known to Recipient prior to receipt from Discloser, provided such prior knowledge can be substantiated by documentary evidence antedating the disclosure by Discloser; (c) is disclosed to Recipient by a third party (other than employees or agents of either party) which in making such information available to Recipient, is not in violation of any obligation of confidentiality to Discloser; or (d) is independently developed by Recipient, provided such independent development can be substantiated by documentary evidence. A disclosure of Confidential Information (i) in response to a valid order by a court or other governmental body, or (ii) otherwise required by law, will not be considered to be a breach of this Agreement or a waiver of confidentiality for other purposes; provided, however, that Recipient will provide prompt written notice thereof to Discloser to enable Discloser to seek a protective order or otherwise prevent such disclosure. 7. SECURITY AND ENCRYPTION. EVault has adopted a written security policy that includes administrative, technical and physical safeguards that are intended to protect Customer’s Confidential Information from unauthorized access and use. In addition, EVault and Customer understand and agree to the terms and conditions set forth in the Privacy and Security Addendum located at www.EVault.com and incorporated herein by reference. However, Customer shall encrypt, using the encryption feature provided in the Products, all Customer Data that it transmits to EVault, including, without limitation, data transferred over the Internet or via a Transfer Appliance or other media. 8. LIMITED WARRANTIES AND DISCLAIMERS 8.1 ASSUMPTION OF RESPONSIBILITY. Customer assumes all responsibility for the selection of, use of and results obtained from the Products. All warranties, express or implied, extend solely to Customer and not to any third parties. 8.2 LICENSED SOFTWARE. Seller warrants to Customer that for a period of thirty (30) days following the date of delivery (the “Warranty Period”), the Licensed Software, under normal use and if installed properly on hardware appropriate for use therewith, shall perform substantially in accordance with the Documentation. For any breach of this warranty during the Warranty Period and to the extent not otherwise covered by a maintenance agreement between Seller and Customer, Customer’s sole and exclusive remedy and Seller’s sole and exclusive liability, will be for Seller to use reasonable efforts to correct promptly any documents, reproducible errors and defects to make the Licensed Software operate as warranted. SELLER PROVIDES THIRD PARTY SOFTWARE AND MICROSOFT SOFTWARE “AS IS” WITHOUT WARRANTIES OF ANY KIND, ALTHOUGH THE THIRD PARTY SUPPLIERS OF SUCH SOFTWARE MAY PROVIDE THEIR OWN WARRANTIES DIRECTLY TO CUSTOMER. 8.3 SUBSCRIPTION SERVICES AND OTHER SERVICES WARRANTY. Seller warrants to Customer that the Subscription Services and Other Services, under normal use, will perform substantially in accordance with the Documentation. For any breach of this warranty and to the extent not otherwise covered by Support Services, Customer’s sole and exclusive remedy and Seller’s sole and exclusive liability, will be for Seller to use reasonable efforts to correct promptly any documents, reproducible errors and defects to make the Subscription Services or Other Services operate as warranted and if after a reasonable number of attempts, Seller is unable to provide the Subscription Services or Other Services in compliance with the warranty, Customer may terminate the Subscription Service or Other Service, as Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 23 applicable. Any claim under this warranty must be made within thirty (30) days after delivery of the non- compliant services. 8.4 SUPPORT SERVICES, HOSTING SERVICES, SOFTWARE MANAGED SERVICES AND PROFESSIONAL SERVICES WARRANTY. Seller warrants to Customer that the Support Services, Hosting Services, Software Managed Services and Professional Services will be of professional quality conforming to generally accepted industry standards and practices. For any breach of this warranty, Customer’s sole and exclusive remedy and Seller’s sole and exclusive liability, will be for Seller to re- perform the services and if after a reasonable number of attempts, Seller is unable to provide the services in compliance with the warranty, Customer may terminate the affected services and if applicable, the Subscription Services or Other Services to which the affected Support Services apply. Any claim under this warranty must be made within thirty (30) days after delivery of the non-compliant services. 8.5. HARDWARE. WITH RESPECT TO THE HARDWARE, SELLER WILL TRANSFER, PASS ALONG AND UPON THE REQUEST OF CUSTOMER ASSERT FOR THE BENEFIT OF CUSTOMER, AT CUSTOMER’S COST AND EXPENSE, ANY WARRANTIES OF THE MANUFACTURER OR OTHER COMMITMENTS OR OBLIGATIONS OF THE MANUFACTURER. 8.6 DISCLAIMER. EXCEPT AS EXPRESSLY WARRANTED IN THIS SECTION 8, THE PRODUCTS ARE PROVIDED “AS IS,” WITHOUT ANY WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, NON INFRINGEMENT OR NON MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY, CUSTOM, TRADE, QUIET ENJOYMENT, ACCURACY OF INFORMATIONAL CONTENT OR RESULTS, OR SYSTEM INTEGRATION, OR ANY WARRANTIES OR CONDITIONS ARISING UNDER ANY OTHER LEGAL REQUIREMENT. SELLER MAKES NO WARRANTY THAT THE LICENSED SOFTWARE WILL RUN PROPERLY ON ALL HARDWARE, THAT THE LICENSED SOFTWARE, SUBSCRIPTION SERVICES OR OTHER PRODUCTS WILL MEET THE NEEDS OR REQUIREMENTS OF CUSTOMER OR ITS USERS OR WILL OPERATE IN THE COMBINATIONS THAT MAY BE SELECTED FOR USE BY CUSTOMER OR ITS USERS, THAT THE LICENSED SOFTWARE OR SUBSCRIPTION SERVICES WILL BE UNINTERRUPTED OR ERROR FREE, OR THAT ALL ERRORS WILL BE CORRECTED. 9. INDEMNIFICATION 9.1 BY EVAULT. For Products licensed or sold directly by EVault to Customer, subject to Sections 9.3 and 9.4 below, EVault shall defend any Claim brought against Customer or its Indemnified Parties by any third party alleging that the Products (excluding Third Party Software and Hardware) infringe, misappropriate or violate that party’s patent rights, trademark rights, copyright rights or rights under trade secret laws, each as recognized in the United States, and shall pay all damages and costs awarded against Customer and its Indemnified Parties, by judgment or in settlement, in connection with such a Claim as well as any costs incurred by Customer in response to a request by EVault to assist with the defense of the Claim. EVault will have no responsibility or liability for such Claims to the extent such Claim is based upon: (a) any use of any part of the Products after notification to discontinue use; (b) modifications of the Products not made or authorized by EVault; (c) use of the Products in combination with any products or services not supplied by EVault; (d) Third Party Software; (e) Hardware; or (f) any use in violation of this Agreement or misuse or unauthorized use of the Products. Customer understands and agrees that EVault has no control over the particular conditions or circumstances under which Customer uses the Products and that EVault shall not incur any liability as a result thereof. 9.2 BY CUSTOMER. Subject to Section 9.3 below, Customer shall defend any Claim brought against EVault or its Indemnified Parties by any third party arising from or related to Customer’s: (a) violations of law or regulations in connection with the use of the Products; (b) actual or alleged infringement of a third party’s Intellectual Property Rights (except to the extent such infringement is covered by EVault’s indemnification obligations as set forth in Section 9.1 above); (c) failure to encrypt Customer Data; or (d) business operations. Customer shall pay all damages and costs awarded against EVault and its Indemnified Parties, by judgment or in settlement, in connection with such a Claim as well as any costs incurred by EVault in response to a request by Customer to assist with the defense of the Claim. 9.3 CONDITIONS. Each party’s indemnification obligations are contingent upon the indemnifying party Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 24 receiving: (a) prompt written notice of the Claim; (b) all reasonably necessary assistance, information and authority to defend the claim and perform its obligations under this Section; and (c) sole control of the defense and settlement of such claim and all associated negotiations. The indemnifying party agrees not to settle any claim, action, suit or proceeding for which it is indemnifying the other in a manner that would impose additional obligations on the other party without first consulting the other and obtaining its consent thereto (which shall not be unreasonably withheld or delayed); however, such consent shall not be required where the settlement results in the full and unconditional release of all claims against and obligations of the indemnified party. An indemnified party may, at its option and expense, participate in the defense or settlement of any Claim, provided that the indemnifying party retains control over the defense or settlement thereof. 9.4 EVAULT’S OBLIGATION FOR INFRINGEMENT INDEMNITY. If an infringement claim within the scope of Section 9.1 is made or appears likely to be made, Customer agrees that EVault may, in its sole discretion and at its expense: (a) enable Customer to continue to use the affected portions of the Products; or (b) replace or modify the Products so that it is non-infringing and substantially equivalent in function to the allegedly infringing Products. If EVault determines that none of these alternatives is reasonably available, then EVault may terminate this Agreement in whole or with respect to the affected portions of the Products. In such case, with respect to any perpetual license for Licensed Software, EVault shall refund to Customer the license fees paid by Customer for the affected Licensed Software less a reasonable allowance for the period of time Customer has used the Licensed Software. 9.5 ENTIRE OBLIGATION. THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS SECTION 9 ARE EACH PARTY’S ENTIRE OBLIGATION AND LIABILITY FROM OR RELATED TO THIS AGREEMENT REGARDING THIRD PARTY CLAIMS. 10. LIMITATION OF LIABILITY 10.1 WAIVER OF CONSEQUENTIAL DAMAGES. EXCEPT FOR A BREACH OF THE CONFIDENTIALITY PROVISIONS UNDER SECTION 6, IN NO EVENT WILL EITHER PARTY OR SELLER’S SUPPLIERS BE LIABLE FOR: (a) THIRD PARTY CLAIMS OR LIABILITIES OTHER THAN THOSE IDENTIFIED IN SECTION 9; OR (b) ANY SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OR DAMAGE TO DATA, INACCURACY OF DATA, LOSS OF ANTICIPATED REVENUE OR PROFITS, WORK STOPPAGE OR IMPAIRMENT OF OTHER ASSETS OR LOSS OF GOOD WILL, WHETHER OR NOT FORESEEABLE AND WHETHER OR NOT A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF THE ESSENTIAL PURPOSE OF THIS AGREEMENT OR ANY LIMITED REMEDY HEREUNDER. 10.2 CAP ON LIABILITY. EXCEPT FOR A BREACH OF THE CONFIDENTIALITY PROVISIONS UNDER SECTION 6, IN NO EVENT WILL SELLER’S OR ITS SUPPLIERS’ TOTAL LIABILITY ARISING OUT OF OR IN CONNECTION WITH THE PRODUCTS AND THIS AGREEMENT EXCEED (a) WITH RESPECT TO LICENSED SOFTWARE, THE PRO RATA PORTION, BASED ON A THREE-YEAR STRAIGHTLINE DEPRECIATION OF THE ACTUAL AMOUNT OF LICENSE FEES PAID TO SELLER FOR THE AFFECTED LICENSED SOFTWARE; (b) WITH RESPECT TO SUBSCRIPTION SERVICES, HOSTING SERVICES AND SOFTWARE MANAGED SERVICES, THE FEES PAID BY CUSTOMER FOR THE APPLICABLE SERVICE DURING THE THREE (3) MONTH PERIOD IMMEDIATELY PRECEEDING THE DATE ON WHICH THE EVENT GIVING RISE TO THE CLAIM OCCURRED; (c) WITH RESPECT TO CDR SERVICES, THE FEES PAID BY CUSTOMER FOR SUCH SERVICE DURING THE TWELVE (12) MONTH PERIOD IMMEDIATEY PRECEDING THE DATE ON WHICH THE EVENT GIVING RISE TO THE CLAIM OCCURRED; (d) WITH RESPECT TO HARDWARE, EXCLUDING APPLIANCE HARDWARE, THE PURCHASE PRICE PAID BY CUSTOMER FOR THE HARDWARE GIVING RISE TO THE CLAIM; (e) WITH RESPECT TO AN APPLIANCE, THE APPLIANCE FEES PAID BY CUSTOMER DURING THE TWELVE (12) MONTH PERIOD IMMEDIATELY PRECEEDING THE DATE ON WHICH THE EVENT GIVING RISE TO THE CLAIM OCCURRED; AND (f) WITH RESPECT TO PROFESSIONAL SERVICES, THE FEES PAID BY CUSTOMER UNDER THE APPLICABLE STATEMENT OF WORK, NOTWITHSTANDING ANY FAILURE OF THE ESSENTIAL PURPOSE Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 25 OF THIS AGREEMENT OR ANY LIMITED REMEDY HEREUNDER. 10.3 DISCLAIMER. THE FOREGOING LIMITATIONS APPLY TO ALL CAUSES OF ACTION IN THE AGGREGATE, INCLUDING WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF WARRANTY, INDEMNIFICATION, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATION AND OTHER TORTS, AND STATUTORY CLAIMS. EACH OF THE PARTIES ACKNOWLEDGES THAT IT UNDERSTANDS THE LEGAL AND ECONOMIC RAMIFICATIONS OF THE FOREGOING LIMITATIONS, AND THAT THE FOREGOING LIMITATIONS ALLOCATE THE VARIOUS RISKS BETWEEN THE PARTIES AND FORM AN ESSENTIAL PART OF THE AGREEMENT OF THE PARTIES. 11. TERM AND TERMINATION 11.1 TERM. This Agreement will be effective as of the date set forth in the Order Form. The term of the service Products will commence upon the Service Effective Date and will continue for the period set forth in the applicable Order Form (subject to the renewal terms set forth in this Agreement) and/or Statements of Work (“Term”), unless earlier terminated in accordance with the provisions of this Agreement. Upon expiration of the initial term and any renewal term of the Subscription Services, Other Services, Hosting Services or Software Managed Services, the term will automatically renew on a month-to-month basis unless either party notifies the other of its intention not to renew at least thirty (30) days prior to the renewal date. Upon expiration of the initial term and any renewal term of the Support Services, the term will automatically renew for a one year term unless either party notifies the other of its intention not to renew at least thirty (30) days prior to the renewal date. 11.2 TERMINATION. Either party may terminate this Agreement, a Statement of Work and all licenses and services provided hereunder upon written notice: (a) if the other party materially breaches this Agreement and fails to cure such breach within thirty (30) days after receiving written notice from the non-breaching party; (b) if the other party files a petition for bankruptcy, insolvency or reorganization under any bankruptcy law or is adjudicated bankrupt; (c) if a petition in bankruptcy is filed against the other party and such petition is not dismissed within sixty (60) days of the filing date; (d) if the other party becomes insolvent or makes an assignment for the benefit of its creditors pursuant to any bankruptcy or insolvency law; or (e) if a receiver is appointed for the other party or its business. In addition, Seller may suspend Customer’s access to Customer Data or Support Services or terminate this Agreement and/or a Statement of Work, effective immediately, if Customer fails to pay any portion of the Fees when due within ten (10) days after receiving written notice from Seller that payment is past due. Fees will continue to accrue during any such suspension. Additional termination rights are set forth in Section 8 above. 11.3 TERMINATION FEE. With respect to any Subscription Service, Other Service, Hosting Services or Software Managed Services, in addition to those termination rights set forth in Section 11.2 above, Customer may terminate such service for convenience upon thirty (30) days written notice to Seller and by immediately paying a termination fee equal to (a) the monthly subscription fee in effect for the term at the time that Seller receives the termination notice, multiplied by (b) the number of months remaining in the current term. 11.4 OBLIGATIONS UPON TERMINATION. Upon the termination or expiration of this Agreement: (a) Customer shall promptly pay in full all outstanding payments to Seller (but in any event, no later than ten (10) days following the date on which termination or expiration is effective); (b) all licenses granted hereunder (if any) will immediately terminate and Customer shall immediately cease all use of the related Products (except Hardware, including Appliance Hardware, purchased and paid for by Customer); (c) Customer shall remove all copies (or permits Seller to remove all copies, if applicable) of the Licensed Software (including Appliance Software except the operating system) from its computer systems and shall return or destroy, at EVault’s option, all such copies; and (d) the receiving party shall promptly return all Confidential Information (except Customer Data) of the disclosing party in its possession or control. With respect to (c) and (d) of the preceding sentence, Customer shall certify to Seller in writing within ten (10) days of the date on which termination or expiration is effective that it has made no other copies, or has completely destroyed all copies, including backup or archive copies, of the Licensed Software or any portion thereof, and that no copies of any portion of the Licensed Software are in existence on any network, system, or equipment ever owned or used by Customer. With respect to Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 26 Customer Data maintained on an EVault System, on or before termination or expiration of the services, upon Customer’s request and payment of the applicable fees, EVault will export the Customer Data to a mobile device and return such data to Customer. In the alternative, Customer may request, in writing, that EVault delete all Customer Data maintained on an EVault System. Customer understands and agrees that following termination or expiration of the services, EVault may delete all of the Customer Data from its Systems and will have no liability for such action. The expiration or termination of this Agreement does not relieve either party of any obligations that have accrued on or before the effective date of the termination or expiration. 11.5 SURVIVAL. The following Sections will survive the termination or expiration of this Agreement: 4 through 12, and any other provisions of this Agreement that by reasonable interpretation are intended by the parties to survive the termination or expiration of this Agreement. 12. GENERAL 12.1 ENTIRE AGREEMENT. This Agreement, including the Order Form and these Product Terms, constitutes the entire agreement between the parties and supersedes all previous and contemporaneous agreements, understandings and arrangements with respect to the subject matter hereof, whether oral or written. This Agreement may be amended or supplemented only by a writing that refers explicitly to this Agreement and that is signed by both parties. The titles and headings herein are for reference purposes only and will not in any manner limit the construction of this Agreement, which will be considered as a whole. 12.2 WAIVER. No term or provision hereof will be considered waived by either party, and no breach excused by either party, unless such waiver or consent is in writing signed on behalf of the party against whom the waiver is asserted. No consent by either party to, or waiver of, a breach by either party, whether express or implied, will constitute a consent to, waiver of, or excuse of any other, different, or subsequent breach by either party. 12.3 SEVERABILITY. If any provision of this Agreement is held to be invalid or unenforceable for any reason, the remaining provisions will continue in full force without being impaired or invalidated in any way. The parties agree that any invalid provision will be deemed to be restated so as to be enforceable to the maximum extent permissible under law consistent with the original intent and economic terms of the invalid provision. 12.4 ASSIGNMENT. Neither party will indirectly or directly transfer or assign any rights under this Agreement, in whole or part, without the prior written consent of the other party. Notwithstanding the foregoing, either party may, without the prior written consent of the other party, assign this Agreement to a subsidiary or affiliated entity as part of a divestiture, corporate reorganization or consolidation or to another party in connection with a merger, acquisition, or sale of substantially all assets or stock to which this Agreement relates, provided the successor agrees in writing to assume all of the assigning party’s obligations hereunder. Any assignments contrary to this Section 12.4 will be void. Subject to the foregoing, this Agreement will bind and inure to the benefit of the parties and their respective successors and permitted assigns. Notwithstanding the foregoing, all or certain portions of the Products sold or licensed under this Agreement may be provided by a subsidiary of EVault or subcontractor. EVault agrees that it will be responsible for its subsidiaries and subcontractors and their performance under this Agreement. 12.5 COMPLIANCE WITH LAWS. Each party shall be responsible for its own compliance with laws, regulations and other legal requirements applicable to the conduct of its business and this Agreement and agrees to comply with all such laws, regulations and other legal requirements. 12.6 INTERNATIONAL TRADE COMPLIANCE. The Products, including any Third Party Software, are subject to the customs and export control laws and regulations of the United States and any country in which the products are manufactured, received or used. Further, under U.S. law, the Products may not be sold, leased or otherwise transferred to restricted countries, or used by a restricted end-user or an end-user engaged in activities related to weapons of mass destruction including, without limitation, activities related to designing, developing, producing or using nuclear weapons, materials, or facilities, missiles or supporting missile projects, or chemical or biological weapons. Customer will comply with these laws Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 27 and regulations and shall ensure that any person to which Customer requests EVault to route Product directly has been made aware of the associated export controls. 12.7 FORCE MAJEURE. Except for Customer’s payment obligations for Products, neither party will be liable for any failure or delay in performance under this Agreement which might be due in whole or in part, directly or indirectly, to any contingency, delay, failure, or cause of, any nature beyond the reasonable control of such party, including, without limitation, fire, earthquake, storm, flood, power outage, strike, war, act of terrorism, law, export control regulation, instructions of government authorities or judgment of a court (not arising out of breach by such party of this Agreement). If, however, a party’s performance is prevented for thirty (30) days or more, then the other party will be entitled to terminate this Agreement on written notice to the party suffering the force majeure at any time prior to resumption of performance by the party suffering the force majeure. 12.8 GOVERNING LAW. This Agreement will be governed by and construed under the laws of the United States and the State of California as applied to agreements entered into and to be performed entirely within California between California residents. This Agreement will be deemed to have been made and entered into in Santa Clara, California. The parties agree that the United Nations Convention on Contracts for the International Sale of Goods will not apply to this Agreement. 12.9 DISPUTE RESOLUTION AND JURISDICTION. The parties will attempt to resolve any dispute relating to this Agreement by good faith negotiation between business principals for ten (10) business days. Thereafter, the parties will submit their dispute to mediation before an agreed mediator from Judicial Arbitration and Mediation Services (“JAMS”) or its successor, to be scheduled within ten (10) business days. The parties will conduct all mediations at a JAMS facility in Santa Clara County, California, USA, to whose jurisdiction the parties consent, and will bear their own costs. Neither party may commence a civil action with respect to the matters submitted to mediation until after completing mediation. The parties hereby submit to the exclusive jurisdiction of, and waive any venue objections against, the United States District Court for the Northern District of California, San Francisco Branch and the Superior and Municipal Courts of the State of California, Santa Clara County, in any litigation arising out of or in connection with this Agreement. Notwithstanding the foregoing, a party will have the right at any time to seek a temporary or permanent injunction or other equitable remedy or relief in any court having subject matter jurisdiction anywhere in the world. 12.10 NOTICES. All notices, consents and approvals under this Agreement must be delivered in writing by e-mail, by courier, by overnight mail service or by certified or registered mail, (postage prepaid and return receipt requested) to the other party at the address for Customer set forth in the Order Form Either party may change its address by giving written notice of the new address to the other party in writing. Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 18 EXHIBIT “E” Support and Maintenance SUPPORT AND MAINTENANCE SERVICES 1. UPDATES. Seller will make available to Customer when and if available, and within a reasonable time after publication, one (1) copy of each Maintenance Release, New Version, and any associated Documentation for each copy of the Licensed Software licensed by Customer; provided, however, that New Versions for Third Party Software and Microsoft Software are not included but may be purchased separately for an additional fee. Any license keys provided may be used only with the specific Licensed Software/Appliance for which it is issued and may not be used for unlicensed Products or Products for which Customer has not purchased Support Service. 2. SUPPORT. 2.1 Support Services. (a) Generally. Standard support of Products includes: (i) assistance related to questions on the installation and operational use of the Licensed Software and services; (ii) assistance in identifying and verifying the causes of suspected errors in the Licensed Software and services; (iii) providing workarounds for identified errors or malfunctions in the Licensed Software, where reasonably available to EVault; and (iv) access to EVault’s Customer Service Portal. (b) Appliances. Standard support of Appliance Software is as set forth in Section 2.1(a) of this Exhibit B; provided, however, that if Appliance Software includes an operating system, support and maintenance may be provided through EVault or the Appliance Hardware manufacturer, as applicable. Standard support of Appliance Hardware includes: (i) assistance relating to questions on the installation and operational use of the Appliance Hardware; (ii) identification of hardware related issues; and (iii) a warm hand off to the hardware manufacturer, which is responsible for providing support for all hardware related issues in accordance with the terms of such hardware manufacturer’s support terms and conditions. 2.2 Availability. Support Services will be available 24x7x365. 2.3 Methods of Support. Support Services will be available via web submission, e-mail and telephone. 2.4 Error Correction. EVault shall use commercially reasonable efforts to correct any reproducible error in the Licensed Software in accordance with the following schedules. Upon identification of any error, Customer shall notify EVault of such error and provide EVault with enough information to allow EVault to reproduce the error. Notwithstanding anything to the contrary in this Agreement, EVault shall have no obligation to correct all errors in the Licensed Software. PRIORITY LEVELS OF SUPPORT REQUESTS. Each support request will be assigned a priority in accordance with the following guidelines: Priority Level Definition Examples Critical Severe problem impacting the customer’s business operations Production system crash or hang Disaster Recovery Vault down Critical restore failure Corrupt data index Appliance does not start High Production system adversely impacted. Performance of job function degraded, severely limited, or is incorrect and unavailable. License activation failed Backups failing 2+ times Restore failures Medium Non-critical questions, problems or defects. Performance of job function is largely unaffected. License key expiration Backup failing for first Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 19 time Configuration or installation questions Low Informational Questions on product use Requests for documentation Requests for features ERROR CORRECTION TARGET TIMES. EVault shall use commercially reasonable efforts to correct any reproducible error in the Licensed Software with a level of effort commensurate with the severity of the error in the following time frames: Priority Level Initial Response Status Updates Workaround / Fix Target Solution Critical 1 hour Every 4 hours¹ Continuous effort²until workaround or emergency Hot Fix³is created Workaround or Hot Fix, if required. Use commercially reasonable effort to include fix in next release for general distribution High 2 hours Every 8 hours 2 business days / 5 business days Workaround or Hot Fix, if required. Use commercially reasonable effort to include fix in next release for general distribution Medium 4 hours Every day 5 business days / 10 business days Use commercially reasonable effort to include fix in next release for general distribution Low Within 1 business day Every two days N/A N/A 2.5 Limitations. EVault shall not be responsible for correcting any errors not reproducible by EVault on the unmodified Licensed Software or errors caused by any of the following: (a) Customer’s failure to implement all Maintenance Releases or New Versions issued by EVault; (b) changes to Customer’s operating system or environment that adversely affect the Licensed Software; (c) any alterations of or additions to the Licensed Software or services made by parties other than EVault; (d) use of the Licensed Software or services in a manner for which it was not designed; (e) accident, negligence, or misuse of the Licensed Software; or (f) use of the Licensed Software on a CPU other than the designated CPU(s) for the Licensed Software at issue. EVault shall only be obligated to support a particular version of the Licensed Software for a period of one (1) year from the date of commercial release of such version or through six (6) months following the date of commercial release of the subsequent Licensed Software version (Maintenance Release or New Version), whichever is longer. 2.6 Training and Consulting Services. Upon request of Customer, Seller can provide training and/or consulting services for an additional fee and subject to the signing of a Statement of Work describing such services. Support for any earlier versions of the Licensed Software or for errors not covered under this Addendum will be provided only in accordance with a Statement of Work. 3. CUSTOMER RESPONSIBILITIES. Customer shall ensure that only persons properly trained in the operation and usage of the Licensed Software will utilize the Support Services. Customer’s Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 20 principal contacts for support services are set forth in the Order Form. Upon request, Customer shall allow the use of on-line diagnostics of the Licensed Software during error diagnosis. Footnote: ¹ Exception – for data restores, notification will occur at the beginning and end of the restore process. ² Commercially reasonable effort will be used. ³A Hot Fix is a single use emergency patch that fixes a customer’s issue. Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 18 EXHIBIT “F” DEFINITIONS “Additional Software” means software that is added to the EDPM Appliance after installation of the original image and that supports the functions of the EVault Software for Microsoft System Center Data Protection Manager. “Agent Software” means that Licensed Software identified as agent software on EVault’s price list. “Agreement” means the Order Form and these Product Terms. “Appliance” means an appliance that is comprised of the Appliance Hardware and Appliance Software, as set forth in the applicable Order Form. “Appliance Fees” means the Purchase Price, any monthly fees and any support fees, as well as any other related fees (including without limitation license fees for additional Licensed Software and related support), set forth in the applicable Order Form. “Appliance Hardware” means that server and storage Hardware that is pre-configured to include the Appliance Software. “Appliance Software” means the Licensed Software, operating system and any other software set forth in the applicable Order Form that is preloaded or otherwise installed onto the Appliance Hardware by EVault. “CDR Service” means the EVault Cloud Disaster Recovery Service. “Change Request” means a written request to change the terms or scope of a Statement of Work. “Channel Partner” means an EVault distributor or reseller through which the Products are licensed or sold. “Claim” means a claim, suit or other similar proceeding. “Confidential Information” means (a) any confidential, proprietary or trade secret information of the disclosing party (“Discloser”) that if in tangible form is marked as confidential, secret or with a comparable legend or if disclosed orally or visually is identified as confidential at the time of disclosure; and (b) discussions relating to such information. Discloser shall use reasonable efforts to mark its confidential information in tangible form as confidential; however, tangible information that does not bear such a legend and the discussions relating thereto, will be protected hereunder as Confidential Information if the receiving party (“Recipient”) knew or should have reasonably known under the circumstances that the information is confidential. Customer Data is deemed to be Confidential Information. “Covered Equipment” means that equipment listed on the applicable DR Schedule. “Covered Site” means that location listed on the applicable Order Form where the Covered Equipment is located for which Customer may use the CDR Services. “Customer Data” means any data, information and other materials generated by the Users’ use of the Licensed Software and that is stored by EVault as a part of the Subscription Services or Other Services. “Deliverables” means any deliverables provided to Customer pursuant to a Statement of Work. “Desktop Functions” means consumer or business tasks or processes performed by a computer or computing device including email, word processing, spreadsheets, database, network/Internet browsing, scheduling and personal finance. “Disaster” means any unplanned event or condition that renders Customer unable to use the Covered Equipment for its intended computer processing and related business production purposes. “Documentation” means the then-current, generally available, written instructions, user guides, and user manuals for the Products, if applicable, whether in electronic, paper or other equivalent form, provided by EVault and in connection with any updates, modifications and improvements to the Products, regardless of form or media. “DR Schedule” means the description of Covered Equipment at the Covered Site for which the Customer may use the CDR Services. “EDPM Appliance” means that Appliance known as the EVault Software for Microsoft System Center Data Protection Manager Appliance. “End-User Client Software” means that Licensed Software licensed to Customer to install and use on servers and Users’ computers that are being backed up, as indicated in the applicable Documentation, Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 19 including, without limitation, Agent Software, Plug-in Software and EVault ProMail Software. “EVault Archive” means a Subscription Service that provides archiving capabilities. “EVault Endpoint Protection Service” means a Subscription Service that provides off-site automated data protection and recovery for laptop and desktop devices. “EVault ProMail Service” means a Subscription Service that provides capture, archiving and management of e-mail and instant messages using the EVault ProMail Software. “EVault ProMail Software” means that Licensed Software known as the EVault ProMail software. “EVault Quick Ship Module” means that Appliance that is used to transport Customer Data from EVault to Customer or Customer to EVault. “EVault Cloud Backup Service” means a Subscription Service that provides off-site automated data protection and recovery using Licensed Software. “Executable Code” means the fully compiled version of a software program that can be executed by a computer and used by an end user without further compilation. “Fees” has the meaning set forth in Section 4.1 of these Product Terms. “High Risk Use” means a use where failure or fault of any kind of the Product could lead to death or serious bodily injury of any person or to severe physical or environmental damage including, without limitation, aircraft or other modes of human transportation, nuclear or chemical facilities or medical devices. “Hardware” means computer servers and/or other data storage appliances either sold alone or as a part of an Appliance. “Hosting Services” means those hosting services, including space, power and bandwidth, including, without limitation, hosting services for the EVault Plug-n-Protect appliance. “Indemnified Parties” means the officers, directors, employees and agents of the party seeking indemnification. “Intellectual Property Rights” means, collectively, all worldwide intellectual property rights in and to any works of authorship, moral rights, copyrights, trademarks, service marks, patents, designs, trade secrets and algorithms. “Licensed Software” means the machine-readable, object-code version of EVault’s proprietary software, including all related Documentation and any modified, updated or enhanced versions and recovery images of the program that Seller may provide to Customer. Licensed Software does not include any Third Party Software offered under a third party license agreement, but it may include Third Party Software sublicensed to Customer by Seller subject to the terms of this Agreement. “Maintenance Release” means a Licensed Software release containing error corrections or minor enhancements, in Executable Code form, that is made commercially available by EVault and generally indicated by a change to the digit to the right of the first decimal point or a change in the digit to the right of the second decimal point (e.g., a change from version x.x.x to x.y.x or a change from version x.x.x to x.x.y) and any corrections and updates to the associated Documentation. “New Version” means a Licensed Software release containing major new enhancements, features or functionality, in Executable Code form, that is made commercially available by EVault and generally indicated by a change in the digit to the left of the first decimal point (i.e., a change from version x.x.x to y.x.x) and the associated Documentation. “Order Form” means the ordering documents, in a form specified by EVault, that is signed and submitted by Customer to Seller. “Other Services” means those subscription services provided by Seller, other than the Subscription Services, including, without limitation, the CDR Service. “Passive Vault” means that virtual, dedicated environment provided on EVault’s System to which Customer replicates its active, local vault under the EVault Offsite Replication Service. “Plug-in Software” means that Licensed Software identified as a software plug-in on EVault’s price list. “Premium Data Transfer Services” means those services that provide for the transfer of data via an Appliance, including, without limitation, the QuickShip DAS, QuickShip Vault, Data Recovery DAS, Data Recovery Vault, Seeding DAS and Seeding Vault. “Product Terms” means these Product Terms and Conditions – All Other Products and Services (excluding the EVault Cloud Backup Service SBE). Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 20 “Products” means one or more of the following products or services purchased by Customer as set forth in an Order Form: Subscription Services, license to use Licensed Software, Software Managed Services, Hosting Services, Support Services, Professional Services, Hardware and Appliances. “Professional Services” means implementation, training, installation and data recovery, migration and restoration services and other professional services provided by Seller to Customer, but specifically excluding Subscription Services, Support Services, Software Managed Services and Hosting Services. “Project Coordinator” means that project coordinator, designated by Customer, in connection with Professional Services. “Purchase Price” means the one-time purchase price for the Appliance, as set forth in the applicable Order Form. “Regulatory Agencies” has the meaning set forth in Section 5.6 of these Product Terms. “Seller” means EVault, if the Products are purchased or licensed by Customer directly from EVault, and Channel Partner, if the Products are purchased or licensed by Customer from a Channel Partner. “Server Environment” means that hardware and operating system combination for which Customer licenses the Server Software. “Server Software” means that Licensed Software for installation and use on a Server Environment, as indicated in the applicable Documentation. “Service Effective Date” means (a) with respect to Subscription Services, Other Services, Hosting Services and Software Managed Services, the date upon which EVault notifies Customer by e-mail or otherwise that installation is complete or the service is operational; and (b) with respect to Support Services, the date the related Licensed Software is delivered. “Software Managed Services” means delivery and management of equipment, applications and/or systems relating to the use of Licensed Software. “Source Code” means the human-readable version of a software program than can be compiled into Executable Code. “Statement of Work” means a statement of work signed by the parties pursuant to which EVault provides Professional Services to Customer. “Subscription Services” means the provision of access over the Internet to the functionality of the Licensed Software running on the EVault System including the EVault Cloud Backup Service, the EVault Managed Service, the EVault Endpoint Protection Service, the EVault ProMail Service, EVault Archive, EVault Storage Cloud Data Protection Service for NetApp and the EVault Offsite Replication Service. “Support Fees” means those fees for the purchase, extension or renewal of Support Services, as set forth in the applicable Order Form. “Support Services” means maintenance and technical support services provided by EVault or its Channel Partner for Products, but specifically excluding Software Managed Services, Hosting Services and Professional Services. “System” means the computer hardware and software (including, without limitation, the Licensed Software and other software applications, software interfaces, operating system and databases), data storage and all other resources (including, without limitation) telecommunications equipment) used by EVault to make Licensed Software and Customer’s data available to, and usable by, Customer via the Internet, which may be located at third party data centers and public cloud infrastructures that are utilized by EVault under contract. “Taxes” has the meaning set forth in Section 4.4 of these Product Terms. “Term” has the meaning set forth in Section 11.1 of these Product Terms. “Third Party Software” means any software, licensed as a stand alone product or as a part of another software, that is not owned by EVault or its subsidiaries. “Transfer Appliance” means an Appliance leased or purchased by Customer as a part of the Premium Data Transfer Services. “Users” means Customer’s employees, contractors and agents. “Warm Site” has the meaning set forth in Section 3.1 on Exhibit A of these Product Terms. “WinPE” has the meaning set forth in Section 5.4 of these Product Terms. Seagate Professional Services Order #: <####> Professional Services Rev Feb. 2014 21 Order Form 2400 Hassell Rd Suite 410 Hoffman Estates, IL 60169 Date: March 16, 2015 Salesperson Job Shipping Method Shipping Terms Delivery Date Payment Terms Due Date Scott Ashouri City of Palo Alto Standard TBD Net 30 March 16th 2015 Qty Item # Description Unit Price Line Total 1 E-018-191-266 Plug-n-Protect PnP2400 7G & SW Licensing. 24 TB $39,216.00 $39,216.00 1 E-018-191-012 3 year manufacturer's warranty PnP2400 7G Included Included 1 E-022-260-290 24TB (PnP2400 7G - Appliance) Support & Maintenance $4,757.60 $4,757.60 1 E-049-195-004 Standard Shipping Cost for PnP2400 7G $250.00 $250.00 1 E-020-254-051 24TB (PnP2400 7G) Remote Implementation & PM Services $13,300.00 $13,300.00 1 E-014-145-206 Offsite Replication Service ORS Tiered Capacity, per TB/month for 1 - 4 TB, protected footprint, if purchased capacity exceeded, contracted tier adjusted based on actual usage, 1 YR term $415.00/TB/ Month $1,660.00/Month Capital Expense Subtotal $57,523.60 Est. Monthly Recurring Subtotal $1,660.00 1 Version dated: 2015.03.03 MASTER SERVICES AGREEMENT This Master Services Agreement (“Agreement”) is entered into as of March 5, 2015 (“Effective Date”), by and between the City of Palo Alto, a California chartered municipal corporation, with a mailing address of P.O. Box 10250, Palo Alto, CA 94303 (“Customer”), and Code 42 Software, Inc., a Delaware corporation, located at One Main Street SE, Suite 400, Minneapolis MN 55414 (“Code42”). Customer and Code42 are each sometimes referred to herein as “Party” and collectively as the “Parties”. 1. DEFINITIONS “Authorized Users” means Customer’s employees, administrators and other designated third parties such as agents, consultants, contractors as well as Customer Invitee(s). “Code42 Subscription Services” means the products and services made available to and purchased by Customer pursuant to this Agreement on a subscription basis and as identified on each Quote; specifically, one or more of the following: Public Cloud storage, Private Cloud storage, Managed Private Cloud storage and Monitoring, Support, and access to the Software and Master Server. “Code42 Indemnitees” shall have the meaning designated in Section 9.2 below. “Confidential Information” shall have the meaning designated in Section 7.2 below. “Customer Data” means any electronic data or information backed-up by Customer (or its Authorized Users) or accessed by Customer (or its Authorized Users or Customer Invitee(s)), in connection with Customer’s use of the Code42 Subscription Services. “Customer Indemnitees” shall have the meaning designated in Section 9.1 below. “Customer Invitee(s)” means any individual or entity that (a) Customer enables to use the Code 42 Subscription Services to access Customer Data, and (b) is not otherwise an Authorized User with a User ID. “Device” means a computer, tablet, smartphone, or any other electronic device used to access and use the Code42 Subscription Services. “Disclosing Party” shall have the meaning designated in Section 7.2 below. “Documentation” means the written, published information accessible via http://support.code42.com, as updated from time to time. “Exhibit” means any exhibit referenced herein and attached hereto. “Fees” mean the fees charged by Code42 for the Code42 Subscription Services, Hardware, and/or Professional Services identified on each Quote and, unless otherwise stated in the Quote or SOW, invoiced upon commencement of the Subscription Term. The term “Fees” also includes applicable taxes, duties, and shipping fees, which will be invoiced by Code42 and may be in addition to amounts stated in the Quote or SOW. All Fees are nonrefundable unless otherwise noted hereunder. “Hardware” means the third party electronic components, boards, peripherals, and equipment that make up a computer system that are purchased by Customer hereunder. “Licensed Use” shall have the meaning designated in Section 3.2 below. “Malicious Code” means any viruses, worms, spyware, poison pills, time bombs, backdoors, drop dead dates or other destructive or disabling devices that are intended to do harm and that are within the Software upon its delivery to Customer. “Managed Appliance” means the Hardware in Customer’s Managed Private Cloud for which Monitoring is performed by Code42. “Managed Private Cloud” means the on premises backup storage services and Managed Appliances located within Customer’s firewall. “Master Server” means the server on which the server Software is installed for user authentication and authorization, storage of encryption keys, and centralized policy management, and, at Customer’s election, it must be located in either the Public Cloud (on Code42 servers), a Private Cloud (on Customer hardware), or a Managed Private Cloud (on Managed Appliances). “Monitoring” means the remote web-based monitoring of the Managed Appliances by Code42. Monitoring does not include the authentication or verification of Customer Invitees. 2 “Open Source Software” means computer software with its source code made available with a license to which the copyright holder provides the rights to study, change and distribute the software to anyone and for any purpose. “Private Cloud” means the hardware procured separately by Customer for on premises storage located within Customer’s firewall. “Professional Services” means the implementation and training services as identified on each Quote, or as made available by Code42 to Customer pursuant to a SOW referencing this Agreement. “Public Cloud” means the cloud-based off premises backup storage services provided by Code42 on Code42’s servers. “Quote” means a written order or purchase document pursuant to which Code42 agrees to provide and Customer agrees to purchase specific Code42 Subscription Services and/or Professional Services. “Receiving Party” shall have the meaning designated in Section 7.2 below. “Software” means the Code42 CrashPlan PROe and/or SharePlan® application software and Code42 platform software in object code format, licensed on a subscription basis as part of Code42 Subscription Services, and as specified on each Quote. “Statement of Work” or “SOW” means a document that is signed by both Parties, references this Agreement, and describes the Code42 Professional Services to be performed by Code42. Each SOW shall describe the Parties’ performance obligations and any assumptions or contingencies associated with the implementation of the Software. “Subscription Term” shall mean the period of time identified on each Quote, for which Code42 has committed to provide, and Customer has committed to pay for, the Code42 Subscription Services, which period of time shall be no less than twelve (12) months. “Support” means the support and maintenance services performed by Code42’s Customer Champion Team related to the Software and Hardware, descriptions of which are accessible via http://support.code42.com/Administrator/Support. Support does not include the authentication or verification of Customer Invitee(s). 2. ORDERING AND SCOPE 2.1 Ordering Code42 Subscription Services and Professional Services. The Parties may execute one or more Quotes or SOWs related to the sale and purchase of Code42 Subscription Services and Professional Services. A Quote will generally include an itemized list of the Code42 Subscription Services and Professional Services, as well as the Subscription Terms for such services. A Quote is issued by Code42 and must be signed by Customer; however, Customer’s signature is not required if Customer issues a purchase order in response to receipt of the Quote. Any Quote dated on or after the Effective Date shall be governed by this Agreement regardless of any pre-printed legal terms on such Quote, and by this reference is incorporated herein. The initial SOW is set forth within the attached and incorporated Exhibit D to this Agreement, and the initial Quote is set forth within the attached and incorporated Exhibit E. 2.2 Public Cloud. To the extent that Customer has ordered Public Cloud storage, the terms of Exhibit A, attached hereto, shall apply. Code42, as a condition precedent to providing Public Cloud storage services, shall have provided the information required by the Customer’s information security manager and otherwise comply with the Customer’s information security requirements, policy and procedures. 2.3 Managed Private Cloud. To the extent that Customer has purchased: (a) Software, (b) Hardware used as Managed Appliance(s); and (c) Support and Monitoring, Code42 shall Support the Managed Appliance as part of the Code42 Subscription Services, as further described in http://support.code42.com/Terms_And_Conditions/Managed_Private _Cloud_Terms_And_Conditions. 2.4 Support. Support related to the Software is included with the purchase of a Software license during the Subscription Term. Support related to the Hardware, including Monitoring services, are sold separately in connection with the Managed Appliances. Code42 may update its Support obligations under this Agreement, from time to time, so long as the functionality and service level agreements purchased by Customer are not materially diminished. 2.5 Future Functionality. Customer acknowledges that any purchase of Code42 Subscription Services hereunder is not contingent upon (a) the delivery of any new or modified functionality or features that are not available to Code42’s customers as of the Effective Date, or (b) any oral or written public comments, statements or representations made by Code42 regarding any such new or modified future functionality or features. 3. USE OF THE CODE42 SUBSCRIPTION SERVICES AND PROPRIETARY RIGHTS 3.1 Subscription Services. The Code42 Subscription Services are purchased by Customer as subscriptions during the Subscription Term specified in each Quote. Additional Code42 Subscription Services may be added during a Subscription Term as described in Section 2.1. 3.2 Licensed Use. Subject to the terms and conditions of this Agreement, Code42 hereby grants during each Subscription Term, and Customer hereby accepts, solely for its internal use, a worldwide, non-exclusive, non-transferrable (except in accordance with Section 11.6), enterprise-wide, right and license to use, copy, load, run, have run, and display the Software in object code form only (collectively the “Licensed Use”). The Licensed Use shall also include the 3 right, subject to the license conditions and restrictions set forth herein, to: (i) use the Code42 Subscription Services by the number of Authorized Users identified on each Quote; and (ii) use the Software on up to four (4) Devices per Authorized User. Upon Customer’s request (directed to renewals@code42.com), Code42 will provide Customer with a maximum of fifty (50) additional licenses of the applicable Software, at no additional charge and subject to the terms of this Agreement (including Section 3.3), for use during the Subscription Term in non-production environments for the sole purposes of training, development, testing, quality assurance, sandbox, archival, document retention, validation, backup and/or disaster recovery. 3.3 License Restrictions. Except as required by any third party software license applicable to the Software, Customer shall not: (i) access or use any portion of the Software or Code42 Subscription Services, except as expressly licensed to Customer; (ii) disassemble, decompile or otherwise reverse engineer all or any portion of the Software; (iii) use the Software or Code42 Subscription Services for any unlawful purposes; (iv) export the Software or Documentation, or allow access to the Code42 Subscription Services, in violation of applicable laws or regulations; (v) except as permitted in this Agreement, sublicense, relicense, distribute, disclose, rent or lease the Software, Code42 Subscription Services or Documentation, or any portion thereof, for third party use; or (vi) modify, adapt or use the Software to develop any software application, whether intended for resale or otherwise, which uses the Software in whole or in part. 3.4 Customer Feedback. Customer hereby grants to Code42 an irrevocable, non-exclusive, perpetual, royalty-free, transferrable license, with right to sublicense, to use and incorporate into the Software any suggestion, enhancement, request, recommendation, correction or other feedback provided by Customer or its Authorized Users relating to the use of the Software and the Code42 Subscription Services. 3.5 Customer Responsibilities. In addition to any Customer responsibilities and related requirements noted in this Agreement, a Quote or a SOW, Customer is responsible for all actions of its Authorized Users while accessing and using the Code42 Subscription Services and Software, including without limitation, use of user names, passwords or other login credentials of Customer. Customer shall use commercially reasonable efforts to prevent unauthorized access to, or use of, the Code42 Subscription Services and shall notify Code42 promptly of any unauthorized use of which it becomes aware. Customer is responsible for the accuracy, quality, integrity, legality, reliability and appropriateness of all Customer Data in connection with Customer’s use of the Code42 Subscription Services. CUSTOMER IS RESPONSIBLE FOR AUTHENTICATION AND VERIFICATION OF ALL CUSTOMER INVITEE(S). Customer shall, at its expense: (i) maintain its technology so as to enable Code42 to gain remote access to the Software for diagnostic, error correction, and otherwise to perform Code42’s obligations hereunder; (ii) cooperate with Code42 in identifying the cause of any claimed failure of the Code42 Subscription Services to substantially conform to or perform substantially in accordance with the Documentation or the Agreement; and (iii) allow Code42 reasonably free remote and, as needed, on-site access to the Software, Managed Appliances and Customer’s associated equipment for the purpose of performing Support. CRASHPLAN SOFTWARE IS NOT DESIGNED FOR ARCHIVAL STORAGE (I.E., ONLY ONE COPY OF CUSTOMER DATA); AS A RESULT, CUSTOMER IS RESPONSIBLE FOR MAINTAINING THE PRIMARY COPY OF ITS CUSTOMER DATA. 3.6 Reservation of Rights. Subject to the limited rights expressly granted hereunder, Code42 and/or its licensors reserve all right, title and interest in the Software, the Code42 Subscription Services and Documentation, including all related intellectual property rights. Further, no implied licenses are granted to Customer other than as expressly set forth herein. 4. DELIVERY AND TITLE 4.1 Delivery. Code42 shall timely deliver the Hardware purchased and/or the Software licensed by Customer to Customer either at the “ship to” location or an electronic destination, as specified on the applicable Quote (or, if not specified on the Quote, as otherwise designated by Customer). Code42 Subscription Services may require activation via a license key, which will require an Internet connection to complete activation. 4.2 Title. Unless otherwise specified in the Quote or elsewhere in this Agreement, all deliveries of Hardware purchased hereunder are EXW shipper’s dock (INCOTERMS 2010), and title to said Hardware shall pass to Customer upon delivery of the Hardware to the carrier. Unless expressly stated otherwise in this Agreement, Code42 retains all title in, and interest to, the Software. 5. PAYMENT 5.1 Fees. Customer shall pay all Fees within thirty (30) days of Customer’s receipt of invoice. Code42 reserves the right to suspend any Code42 Subscription Services, Professional Services, or shipment of Hardware until such amounts are paid in full. 5.2 Disputed Invoiced Amounts. Customer shall provide Code42 with detailed written notice of any amount(s) Customer reasonably disputes within thirty (30) days receipt of invoice for said amount(s) at issue. Code42 will not exercise its rights under Section 5.1 above if Customer has, in good faith, disputed an invoice and is diligently trying to resolve the dispute. Customer’s failure to provide Code42 with 4 notice of any disputed invoiced amount(s) shall be deemed to be Customer’s acceptance of the contents of such invoice. 5.3 Taxes. Customer shall be responsible for the payment of all applicable taxes, customs fees, courier or shipping fees, and duties properly due and payable related to the Code42 Subscription Services, Hardware, and Professional Services, with the exception of taxes imposed on the income of Code42. 5.4 Currency. All invoices and payments shall be in United States Dollars. 6. REPRESENTATIONS AND WARRANTIES 6.1 Software Performance Limited Warranty. Code42 represents and warrants that the Software will not contain Malicious Code and the Software will substantially conform in all material respects to, and perform substantially in accordance with, the Documentation during the applicable Subscription Term. Code42’s warranty obligations under this Section 6.1 are conditioned upon: (i) Customer providing Code42 with a detailed written notice of any claimed breach of the warranty within thirty (30) days of occurrence of the alleged breach; (ii) Customer allowing Code42 the ability to remotely prevent access to and/or use of the Software in the event that Code42 becomes aware of unauthorized access to or use of the Software by any third party using any user name, password or other login credentials of Customer; and (iii) such breach is not, in Code42’s reasonable opinion, a result of (a) any modification of or damage to the Software or its operating environment by any party other than Code42 or a party acting under Code42’s control or direction, or (b) Customer's failure to operate the Software as reasonably intended in accordance with the Documentation. Further, in no event shall Code42 be in breach of the warranty set forth in this Section 6.1 if, at the time any Malicious Code was introduced into the Software, Code42 employed commercially reasonable measures, consistent with the standards of Code42’s industry, to detect such Malicious Code in order to prevent its introduction into the Software. For any breach of the foregoing warranty and without limiting the other warranties expressly stated in this Section 6, Customer’s sole and exclusive remedy shall be as follows: (1) Code42 will endeavor to repair or replace the non- conforming Software within thirty (30) days, or such longer period as the Parties may mutually agree, such that the Software conforms to the foregoing warranty; or (2) if Code42 is unable to repair or replace the non-conforming Software within such period so that the Software conforms to the foregoing warranty, either Party may terminate the Quote that is the subject of the breach, and, provided Customer has discontinued using the Software, Code42 shall refund, on a pro-rata basis, all applicable prepaid Fees for the non- conforming Software during the then-current Subscription Term starting from the date Code42 receives notice of the breach in accordance with this Section 6.1. 6.2 Professional Services Warranty. All employees of Code42 performing Professional Services hereunder will have the requisite skill and training to perform Code42’s obligations in a good and workmanlike manner consistent with professional standards in Code42’s industry. Customer’s sole and exclusive remedy for any breach of the foregoing warranty shall be Code42’s re-performance of the non- conforming Professional Services one time or, at Code42’s option, a refund of all prepaid Fees paid by Customer for the applicable non-conforming Professional Services. Code42’s warranty obligations under this Section 6.2 are conditioned upon Customer providing Code42 with a detailed written notice of any claimed breach of the warranty within thirty (30) days of occurrence of the alleged breach. 6.3 Open Source Software. The Software includes certain Open Source Software. Open Source Software is governed solely by the applicable open source licensing terms, if any, and is provided “AS IS”. Code42 provides no warranty related to any Open Source Software or any applicable Open Source Software licensing terms, which may include, but is not limited to, GNU’s General Public License (GPL); Lesser/Library GPL (LGPL), the Artistic License, the Mozilla Public License, or the Common Public License. 6.4 Customer Warranties. Customer represents and warrants that (a) its (and the Authorized Users’ and Customer Invitees’) access to and collection, use, relocation, storage and disposition of Customer Data shall comply with all applicable data privacy laws; (b) it will take the appropriate actions necessary to authenticate and verify each Customer Invitee; and (c) Customer (and not Code42) is responsible for any disclosure of Customer’s Confidential Information to Customer Invitees. 6.5 Mutual Representations and Warranties. Each Party represents and warrants to the other that: (i) it is duly organized, validly existing and in good standing under the laws of the state of its incorporation or formation; (ii) it has the right and full power and authority to enter into this Agreement; (iii) it will comply, at all times, with all applicable federal, state, county, and local laws, orders, rules, ordinances, regulations, and codes; and (iv) when on the other Party’s physical premises, it will comply with the other Party’s communicated policies in relation to its conduct at such premises. 6.6 Disclaimer. Code42 shall have no liability under this Agreement in the event Customer relocates any Managed Appliance and, as a result, the Code42 Subscription Services fail to perform in accordance with the applicable Documentation. Code42 reserves the right to charge Customer, and Customer agrees to pay, Code42’s then-current time and materials rates for the time Code42 spends determining that an alleged problem does not in fact constitute a breach of the warranties identified in this Section 6 as well as time spent remediating the problem. 5 EXCEPT FOR THE WARRANTIES SET FORTH IN THIS SECTION 6, EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER WARRANTIES OF ANY NATURE WHATSOEVER, WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE, NON-INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE. CODE42 DOES NOT WARRANT THAT THE SOFTWARE, HARDWARE, OR CODE42 SUBSCRIPTION SERVICES WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THE OPERATION THEREOF WILL BE UNINTERRUPTED OR ERROR FREE. 7. SECURITY; CONFIDENTIAL INFORMATION 7.1 Security. With respect to the handling of Customer Data, Customer and Code42 agree to the terms of the Security Addendum attached hereto as Exhibit B for the CrashPlan Software and Exhibit C for the SharePlan Software. Outside of its use of the Code42 Subscription Services subject to Exhibits B and C, Customer shall not deliver to Code42 any unencrypted Customer Data for testing, training, or any other purpose whatsoever; failure to comply with this prohibition shall constitute a material breach of this Agreement. 7.2 Confidential Information. It is expected that one Party or its representatives (collectively, the “Disclosing Party”) may disclose to the other Party or its representatives (collectively, the “Receiving Party”) certain information which may be considered confidential and/or trade secret information (“Confidential Information”). Confidential Information shall include the following information, subject to Section 7.3 below related to disclosures required by applicable law: (i) regarding the Software, Hardware, Professional Services, and Code42 Subscription Services, including information about Code42’s vendors and subcontractors; (ii) about the terms and conditions of this Agreement, including pricing terms or discounts; (iii) that is clearly and conspicuously marked as “confidential” or with a similar designation at time of disclosure; (iv) that is identified as confidential and/or proprietary before, during, or promptly after presentation or communication; and (v) that should be reasonably understood to be confidential or proprietary to the Disclosing Party, given the nature of the information and the context in which disclosed. 7.3 Exceptions. Confidential Information shall not include information which: (i) is or becomes public knowledge through no fault of the Receiving Party; (ii) was in the Receiving Party’s possession before receipt from the Disclosing Party; (iii) is rightfully received by the Receiving Party from a third party without any duty of confidentiality; (iv) is disclosed by the Disclosing Party without a duty of confidentiality to third party(ies); (v) is independently developed by the Receiving Party; or (vi) is disclosed with the prior written approval of the Disclosing Party. Confidential Information of Disclosing Party may be disclosed in response to a valid court order, as required by applicable law, including, without limitation, the California Public Records Act, or other legal process, only to the extent required by such order, law or process and, if allowed by law or regulatory body, only after the Receiving Party has promptly given the Disclosing Party written notice of such court order or other legal process and the opportunity for the Disclosing Party to seek a protective order or confidential treatment of such Confidential Information. 7.4 Ownership and Control. Except as otherwise specified herein or in any Quote, Statement of Work, Exhibit or Schedule thereto, the Disclosing Party shall retain all intellectual property rights in any Confidential Information disclosed to the other Party. Each Party agrees, both during the term of the Agreement and for a period of two (2) years after termination or expiration of the Agreement, to hold Confidential Information of the other Party in confidence and to protect the disclosed Confidential Information by using the same degree of care to prevent the unauthorized use, dissemination or publication of the Confidential Information as it uses to protect its own Confidential Information of a like nature, but in no event with less than reasonable care. Each Party agrees (a) not to make Confidential Information of the other Party available in any form to any third party except as required to exercise the licenses granted in the Agreement (or as otherwise expressly permitted herein); and (b) not to use Confidential Information of the other Party for any purpose other than for the Licensed Use of the Software or for fulfilling its obligations under the Agreement. The Parties agree to (i) restrict disclosure of the Confidential Information to those who have a “need to know” (including Code42’s disclosure to those of its affiliates, vendors, and subcontractors that have a need to know in order to assist Code42 in its fulfillment of obligations hereunder); and (ii) take all reasonable steps to ensure that Confidential Information is not disclosed or distributed in violation of the provisions of the Agreement. Further, the Parties agree that its breach of any obligation herein may cause irreparable damage to the other Party and that the other Party shall be entitled to seek equitable remedies, in addition to other remedies hereunder or at law, in the event of such breach. 7.5 Destruction of Confidential Information. Upon the written request of the Disclosing Party following termination or expiration of this Agreement, the Receiving Party shall, to the extent commercially practicable, destroy the Disclosing Party’s Confidential Information and, at the Disclosing Party’s request, certify the same. The foregoing shall not require the Receiving Party to destroy Confidential Information that it is required to maintain (a) by law or court order or other legal process (including litigation preservation holds); or (b) pursuant to its backup or archival policies or document retention procedures. 8. TERM AND TERMINATION 8.1 Term of Agreement. The term of this Agreement shall begin on the Effective Date and continue for a period of three years, unless otherwise terminated or extended as provided in this Section 8. 6 8.2 Subscription Term(s). Each individual Quote will terminate at the end of the Subscription Term identified therein, unless earlier terminated as provided in this Section 8. 8.3 Effect of Termination or Expiration. If a Quote is still in effect at the time of expiration of this Agreement, then the terms and conditions contained in this Agreement and the relevant Quote(s) or SOW(s) (including all licenses granted by Code42 thereunder) shall continue to govern the outstanding Quote until the later of (a) the end of the applicable Subscription Term for that Quote or (b) the end of the complementary period referenced in Section 8.6 (if applicable). However, if the Agreement is terminated prior to its natural expiration, then all outstanding Quotes, SOWs and/or purchase documents (and all licenses granted by Code42 thereunder) shall immediately terminate as of the Agreement termination date, unless otherwise agreed by the Parties in writing. Unless otherwise stated in this Agreement, Customer shall not be entitled to a refund of any prepaid Fees upon termination or expiration. 8.4 Termination for Cause; Suspension for Delayed Payment. Upon written notice, the non-breaching Party may terminate this Agreement if the other Party is in material breach of this Agreement and fails to cure such breach within 30 days of the non-breaching Party providing written notice of the breach. A Party may also terminate this Agreement immediately upon written notice if the other Party: (a) is liquidated, dissolved, or adjudged to be in a state of bankruptcy or receivership; (b) is insolvent, unable to pay its debts as they become due, makes an assignment for the benefit of creditors or takes advantage of any law for the benefit of debtors; or (c) ceases to conduct business for any reason on an ongoing basis, leaving no successor in interest. Code42 may, without liability, immediately suspend or terminate any or all Quotes, SOWs or purchase document issued hereunder if any Fees owing under this Agreement are past due. 8.5 Survival. Any provision of this Agreement that expressly, by implication or necessity, contemplates performance or observance subsequent to the termination or expiration of this Agreement will survive termination or expiration of the Agreement and will continue in full force and effect, including any outstanding payment obligations. Notwithstanding the foregoing, all licenses granted hereunder shall terminate pursuant to Section 8.3 above. 8.6 Customer Data Post Expiration or Termination. Code42 recommends that Customer download all Customer Data before expiration or termination of the applicable Subscription Term. Code42’s general practice is to maintain Customer Data for approximately thirty days following the end of the Subscription Term (if Customer has elected the Public Cloud). To ensure its ability to retrieve Customer Data via use of the Software after the Subscription Term has ended, Customer must notify Code42 via email (directed to renewals@code42.com) prior to the end of the Subscription Term, in which event (a) Code42 will enable Customer’s access to the Software for a maximum of thirty days following the end of the Subscription Term (at no additional cost to Customer) for the sole purpose of enabling Customer’s retrieval of its Customer Data, and (b) Customer’s use of the Software during such complementary period is subject to the terms and conditions of this Agreement. Subject to the foregoing, Customer acknowledges that Code42 is not responsible for the availability or accessibility of Customer Data following the end of the Subscription Term. 9. INDEMNITY 9.1 Indemnity Obligations of Code42. Code42 agrees to indemnify, hold harmless and defend Customer and its Authorized Users, directors, officers, employees and agents (collectively “Customer Indemnitees”) from and against all losses, liabilities, damages, claims and expenses of any third party unaffiliated with either Party to this Agreement, including Customer Indemnitees’ reasonable attorneys’ fees and court costs, arising out of or relating to any claim alleging that Customer’s Licensed Use of the Software infringes or violates any U.S. patent, copyright, trade secret, proprietary, or other intellectual property right of any third party. Code42’s obligations under this Section 9.1 are conditioned upon: (a) Customer promptly notifying Code42 in writing of any such claim, provided any failure to provide such prompt notice shall only alter Code42’s obligations to the extent Code42 is materially prejudiced thereby; (b) Customer’s cooperation with Code42 in all reasonable respects in connection with the investigation and defense of any such claim; and (c) Code42 having sole control of the defense of any action on any such claim and all negotiations for its settlement or compromise, provided any final settlement shall require Customer’s consent (which shall not be unreasonably withheld) if the final settlement or compromise does not provide for the unconditional and full release of the Customer Indemnitees or if the final settlement or compromise requires the specific performance of Customer Indemnitees. Should Customer’s Licensed Use of the Software become, or in Code42’s opinion be likely to become, the subject of such a claim described in the first sentence of this Section 9.1, Customer will permit Code42, at Code42’s option and expense, either to: (1) procure for Customer the right to continue its Licensed Use of the Software related to the infringement allegation; (2) replace or modify the Software related to the infringement allegation so that Customer’s Licensed Use of the Software related to the infringement allegation no longer infringes or violates the intellectual property rights of any third party, provided such replaced or modified Software at issue provides at least equivalent functionality and comparable performance characteristics; or (3) terminate this Agreement, accept the return of the Software related to the infringement allegation, and grant to Customer a refund, on a pro-rata basis, of all applicable prepaid Fees for Software related to the infringement allegation during the applicable Subscription Term. In all events, Customer shall have the right to participate in the defense of any such suit or proceeding through counsel of its own choosing at Customer’s own cost. Notwithstanding any provision herein to the contrary, Code42 shall have no obligation or liability to 7 Customer to the extent any such third party claim of infringement or other violation of any intellectual property right of any such third party is caused by the unlicensed use of the Software by Customer, any modification of the Software by Customer or for Customer by any party other than Code42 or a party acting under Code42’s control or direction, or any use of the Software other than as reasonably intended in accordance with the Documentation. 9.2 Indemnity Obligations of Customer. Customer agrees to indemnify, hold harmless and defend Code42 and its directors, officers, employees and agents (collectively “Code42 Indemnitees”) from and against all losses, liabilities, damages, claims and expenses of any third party unaffiliated with either Party to this Agreement, including the Code42 Indemnitees’ reasonable attorneys’ fees and court costs, arising out of or relating to any claim by any third party alleging that Customer has breached any of its obligations as set forth in Sections 3 and 6.4 of this Agreement, provided that: (i) Code42 promptly notifies Customer in writing of any such claim, provided any failure to provide such prompt notice shall only alter Customer’s obligations hereunder to the extent Customer is materially prejudiced thereby; (ii) Code42 cooperates with Customer in all reasonable respects in connection with the investigation and defense of any such claim; and (iii) Customer shall have sole control of the defense of any action on any such claim and all negotiations for its settlement or compromise, provided any final settlement shall require Code42’s consent (which shall not be unreasonably withheld) if the final settlement or compromise does not provide for the unconditional and full release of the Code42 Indemnitees or if the final settlement or compromise requires the specific performance of Code42 Indemnitees. In all events, Code42 shall have the right to participate in the defense of any such suit or proceeding through counsel of its own choosing at Code42’s own cost. 10. LIMITATION OF LIABILITY 10.1 EXCLUSION OF CONSEQUENTIAL AND RELATED DAMAGES. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER AN ACTION IS IN CONTRACT OR TORT AND REGARDLESS OF THE THEORY OF LIABILITY, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHER CODE42 SHALL NOT BE LIABLE FOR: (A) ERROR OR INTERRUPTION OF USE OR FOR LOSS OR INACCURACY OR CORRUPTION OF CUSTOMER DATA; (B) COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR TECHNOLOGY; (C) LOSS OF BUSINESS; OR (D) FOR ANY MATTER BEYOND CODE42’S REASONABLE CONTROL, EVEN IF CODE42 HAS BEEN ADVISED OF THE POSSIBILITY OF ANY OF THE FOREGOING LOSSES OR DAMAGES. 10.2 LIMITATION OF LIABILITY. IN NO INSTANCE SHALL EITHER PARTY’S LIABILITY TO THE OTHER PARTY FOR DIRECT DAMAGES UNDER THIS AGREEMENT (WHETHER IN CONTRACT OR TORT OR OTHERWISE) EXCEED THE FEES PAID BY CUSTOMER FOR THE CODE42 SUBSCRIPTION SERVICES DURING THE TWELVE (12) MONTHS IMMEDIATELY PRECEDING THE DATE THE DAMAGED PARTY NOTIFIES THE OTHER PARTY IN WRITING OF THE CLAIM FOR DIRECT DAMAGES. NEITHER PARTY MAY INSTITUTE AN ACTION IN ANY FORM ARISING OUT OF NOR IN CONNECTION WITH THIS AGREEMENT MORE THAN TWO (2) YEARS AFTER THE CAUSE OF ACTION HAS ARISEN. THE ABOVE LIMITATIONS WILL NOT LIMIT CUSTOMER’S PAYMENT OBLIGATIONS UNDER SECTION 5 ABOVE. 11. GENERAL 11.1 Relationship of the Parties. Code42 and Customer acknowledge that they operate independent of each other. Nothing in this Agreement shall be deemed or construed to create a joint venture, partnership, agency, or employee/employer relationship between the Parties for any purpose, including, but not limited to, taxes or employee benefits. Each Party will be solely responsible for the payment of all taxes and insurance for its employees and business operations. 11.2 Subcontractors. Code42 agrees that it shall be solely responsible for all acts and omissions of its subcontractors to the same extent Code42 would be responsible if committed directly by Code42. 11.3 Headings. The various Section headings of this Agreement are inserted only for convenience of reference and are not intended, nor shall they be construed to modify, define, limit or expand the intent of the Parties. 11.4 Amendment. This Agreement may not be amended or modified except by a written instrument signed by authorized representatives of both Parties. Notwithstanding the foregoing, Code42 retains the right to revise Code42 policies referenced herein at any time, so long as the revisions are reasonable and consistent with industry practices, legal requirements or the requirements of any third party suppliers. 11.5 Severability. If any provision of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court of competent jurisdiction finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision shall be deemed written, construed, and enforced as so limited. 11.6 Assignment. Neither Party may assign this Agreement, without the prior written consent of the other, except that either Party may assign this Agreement to its affiliated entity or to any successor or assign that has acquired all, or substantially all, of the assigning Party’s business by means of merger, stock purchase, asset purchase, or otherwise. 8 Any assignment or attempted assignment in violation of this Agreement shall be null and void. 11.7 No Third Party Beneficiaries. Subject to Section 11.6, this Agreement is binding upon, and inures solely to the benefit of, the Parties hereto and their respective permitted successors and assigns; there are no third party beneficiaries to this Agreement. 11.8 Notice. All notices under this Agreement shall: (a) be in writing and shall be addressed to the other Party at the mailing address set forth below, with a copy of any such notice being emailed to the email address set forth below on the same day that the notice is mailed, and (b) be deemed to have been received by the other Party two business days after it is mailed by first class mail, return receipt requested, or recognized overnight courier. Either Party may provide the other with notice of a change in mailing address or email address pursuant to the requirements of this Section 11.8, in which case the mailing address or email address, as applicable, for that Party will be deemed to have been amended. The mailing addresses and email addresses of the Parties are as follows: Code 42 Software, Inc. One Main Street SE Suite 400 Minneapolis, MN 55414 Attn: General Counsel Email address: legal@code42.com City of Palo Alto Office of the City Clerk Post Office Box 10250 Palo Alto, CA 94303 Attn: c/o Chief Procurement Officer Email address: john.montenero@cityofpaloalto.org 11.9 Remedies Not Exclusive. Unless expressly stated otherwise, the remedies in this Agreement shall not be exclusive of any other remedy either Party may have against the other Party at any time, and shall not limit either Party’s ability to seek other remedies available under law or in equity. Unless expressly stated otherwise, remedies shall be cumulative and there shall be no obligation to exercise a particular remedy. 11.10 Waiver of Contractual Right. The failure of either Party to enforce any provision of this Agreement shall not be construed as a waiver or limitation of that Party’s right to subsequently enforce and compel strict compliance with every provision of this Agreement. 11.11 Applicable Law and Dispute Resolution. Any questions, claims, disputes or litigation arising from or related to the making, performance or alleged breach of this Agreement, or to any available remedies hereunder, (a “dispute”), shall be governed by the laws of the State of California, without regard to its choice of law principles. All disputes shall be resolved as follows: (i) upon receipt of written notice of dispute (the “dispute notice”), by in-person negotiation between business representatives of the Parties who have authority to fully resolve the dispute; (ii) if within sixty (60) days of receipt of the dispute notice the dispute has not been fully resolved, then the Parties shall conduct a confidential mediation using a mediator, rules and at a location mutually acceptable to the Parties (with the cost of mediation equally shared); and (iii) if the dispute is not resolved in accordance with provisions (i) or (ii) of this Section 11.11, then either Party may commence litigation. The 1980 United Nations Convention on Contracts for the International Sale of Goods, any state’s enactment of the Uniform Computer Information Transactions Act, and the United Nations Convention on the Limitation Period in the International Sale of Goods, and any subsequent revisions thereto, do not apply to this Agreement. 11.12 Entire Agreement. Together with all Exhibits, Quotes and SOWs referenced herein, this Agreement sets forth the entire understanding of the Parties with respect to the subject matter of this Agreement, and supersedes any and all prior oral and written understandings, quotations, communications and agreements with respect to its subject matter. Customer and Code42 agree that any and all Exhibits, Quotes, SOWs or other purchase documents are incorporated herein by this reference. Notwithstanding any provisions to the contrary, pre-printed terms and conditions on any purchase order or other documents from Customer shall not become part of this Agreement, the Quote, or the SOW and shall be of no force or effect. In the event of possible conflict or inconsistency between documents, the conflict or inconsistency shall be resolved by giving precedence in the following order: (1) the terms of this Agreement; (2) Exhibits (excluding Quotes) hereto; (3) Quotes; and (4) all other SOWs or other purchase documents. In the event that the Parties have entered into a Business Association Agreement (“BAA”) in relation to protected health information, the Parties intend for both the Agreement and the BAA to be binding upon them. 11.13 Insurance. Each Party shall maintain insurance of a type and in amounts which a prudent entity engaged in the business as contemplated in this Agreement would maintain, including without limitation: (a) commercial general liability insurance in the amount of at least $2,000,000 general aggregate and at least $1,000,000 per occurrence, with coverage including personal and advertising injury and products and/or completed operations; (b) automobile liability insurance in the amount of at least $1,000,000 per occurrence combined single limit; (c) umbrella liability and/or excess liability coverage of at least $5,000,000 per occurrence and at least $5,000,000 in the aggregate; (d) workers compensation insurance for its employees that is consistent with statutory limits; and (e) cyber risk liability insurance coverage in the amount of at least $5,000,000. Each Party shall promptly supply the other Party with a copy of its certificate of insurance, if requested by such other Party. 11.14 Reference. Notwithstanding any other terms to the contrary contained herein, Customer grants Code42 the right 9 to use Customer’s name or logo in customer lists and marketing materials to communicate that Customer utilizes Code42’s solutions. If Code42 intends to disclose information about Customer’s purchase(s) (such as dollar amount of sale, project timelines, or project objectives) in conjunction with use of Customer’s name or logo then, Code42 will obtain Customer’s prior written or email approval. 11.15 Force Majeure. Neither Party shall be liable to the other Party for any failure or delay in the performance of its obligations hereunder on account of strikes, terrorist activity, shortages, riots, insurrection, fires, floods, power outages, storms, cybercrime, explosions, war, governmental action, labor conditions, earthquakes, terrorism, supplier bankruptcy or default, failure, delay or interruption by third parties, including without limitation, communications providers, or any other cause which is beyond either Party’s reasonable control. 11.16 Counterparts; Scanned Copies. This Agreement and any related Quotes, SOWs, or amendments may be executed in one or more counterparts with the same effect as if the Parties had signed the same document; all counterparts will be construed together and will constitute one agreement. The Parties may transmit their signatures via facsimile or scanned PDF or other electronic means with the same effect as if the Parties had provided each other with original signatures. 10 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly-authorized representatives on the Effective Date as set forth above. Approved as to form ____________________________ Senior Asst. City Attorney CITY OF PALO ALTO By: (Signature) (Printed Name) Its: (Title) CODE 42 SOFTWARE, INC. By: (Signature) (Printed Name) Its: (Title) 11 EXHIBIT A PUBLIC CLOUD STORAGE ADDENDUM Purchase of Public Cloud Storage. If elected, Public Cloud storage is provided by Code42 as part of the Code42 Subscription Services. If cloud storage utilizing the Public Cloud is not initially included as part of the Code42 Subscription Services, Customer may later elect to purchase storage on the Public Cloud independently on a standalone basis pursuant to a separate Quote. Code42 may terminate Public Cloud storage as of the end of any applicable Subscription Term. Versioning. Versioning standards may be configured by Customer in accordance with the Documentation. Service Level Target. Code42 will use commercially reasonable efforts to achieve availability of 99.5% in each calendar month of the Subscription Term in which Public Cloud storage services have been purchased by Customer (“Service Level Target”), subject to the exceptions identified in this addendum. "Availability" means the Public Cloud storage and retrieval functionality of the Software is operational and is available to Customer. Service Credits. In the event Code42 does not achieve the Service Level Target, then Customer’s sole and exclusive remedy shall be eligibility for the service credits set forth within the following table (“Service Credits”). In no event shall Service Credits exceed 5% of fees applicable to the Public Cloud (apportioned on a monthly basis) in any given calendar month, in the aggregate. Availability Service Credit for One Month 99.5% - 100.0% None 99.0% - 99.49% 2% of annual Public Cloud Fees / 12 98.5% - 98.99% 3% of annual Public Cloud Fees / 12 Less than 98.5% 5% of annual Public Cloud Fees / 12 Exceptions. Service Credits shall not apply to the extent that the failure to achieve Availability is due to (i) circumstances that are subject to causes that are beyond Code42’s reasonable control; (ii) scheduled Support maintenance and system upgrades; (iii) Customer’s misuse of the Code42 Subscription Services including without limitation any use of the Software other than as reasonably intended in accordance with the Documentation; (iv) Customer’s failure to implement a Software update, if Customer purchased an on premises Master Server; or (v) actions or inactions by Customer, its Authorized Users, or any third party outside of Code42’s direction or control. Requests for Service Credits. Requests for Service Credits must be submitted to Code42 in writing, with sufficient detail documenting the circumstances Customer believes merit a Service Credit award, within ten (10) business days following the end of the calendar month for which Service Credits are requested. Requests that are not submitted within ten (10) business days following the end of the calendar month will not be honored; in such case, any accrued Service Credits shall be forfeited. Service Credits may be applied to monthly measurements either in the month they are provided to Customer or in the following month. 12 EXHIBIT B SECURITY ADDENDUM FOR CRASHPLAN SOFTWARE Security Levels. Customer must elect one of three security levels for its Authorized Users: Security Level One: 448-bit encryption + User ID Security Level Two: 448-bit encryption + User ID + private password Security Level Three: 448-bit encryption + User ID + Customer-provided 448-bit encryption key As a condition to using the Code42 Subscription Services, each Authorized User of the Code42 Subscription Services will be required to register and select a password and user name ("User ID"). Customer will provide accurate and complete registration information and will update Customer registration information, as necessary, to keep it current. Customer should not (i) select or use as a User ID the name of another person with the intent to impersonate that person; or (ii) use as a User ID a name subject to any rights of a person other than such user without appropriate authorization. Encryption Standards. The Software uses industry standard, strong encryption algorithms to encrypt Customer’s files and secure Customer Data that Customer backs-up with the Code42 Subscription Services prior to any transmission from the Device where the Customer Data resides. Customer Data remains encrypted at Code42’s Public Cloud secure data centers or within Customer’s Private Cloud or Managed Private Cloud, as elected by Customer. Only Customer can decrypt and view its unencrypted Customer Data, unless Customer (a) provides another party with its passwords and encryption keys; or (b) allows its Authorized Users to utilize the CrashPlan Software’s “web restore” feature, which would cause unencrypted Customer Data to exist for an undetermined period of time within Code42’s Public Cloud or within Customer’s Private Cloud or Managed Private Cloud, as elected by Customer. WITH RESPECT TO PROTECTED OR REGULATED DATA (INCLUDING, BUT NOT LIMITED TO, PERSONAL HEALTH INFORMATION, PERSONABLY IDENTIFIABLE INFORMATION, OR FINANCIAL DATA), UNDER NO CIRCUMSTANCES SHALL CUSTOMER (A) PLACE SUCH CUSTOMER DATA IN UNENCRYPTED FORM ON ANY SYSTEM RUNNING THE SOFTWARE OR (B) DELIVER SUCH CUSTOMER DATA TO CODE42 FOR TESTING, TRAINING OR OTHER PURPOSES. IF CUSTOMER DOES HAVE PROTECTED OR REGULATED DATA THAT IS BACKED UP USING THE SOFTWARE, CUSTOMER MUST ELECT SECURITY LEVEL TWO, WHICH REQUIRES EACH AUTHORIZED USER TO HAVE A LOGIN PASSWORD AND PRIVATE DATA PASSWORD. Safekeeping of Encryption Keys. Customer shall be responsible for securing each Customer account, encryption keys, passwords and files. To decrypt Customer Data, Customer needs its passwords and encryption keys. Without these, neither Customer, nor any other party, is able to decrypt Customer Data. The encryption keys are secured and escrowed on Code42 servers in the Public Cloud or within Customer’s Private Cloud or Managed Private Cloud, as elected by Customer. If Customer elects Security Level Two, the login user names and private passwords will be required before decrypting Customer Data. IF CUSTOMER USES SECURITY LEVEL TWO OR SECURITY LEVEL THREE (I.E., PRIVATE ENCRYPTION KEYS AND PASSWORDS), THEN CUSTOMER (A) IS RESPONSIBLE FOR PROTECTING SUCH ENCRYPTION KEYS AND PASSWORDS; (B) SHALL NOT SHARE THE ENCRYPTION KEYS AND PASSWORDS WITH CODE42 OR CODE42’S SUBCONTRACTORS; AND (C) ACKNOWLEDGES THAT IF IT LOSES ITS PRIVATE ENCRYPTION KEYS AND/OR PASSWORDS, NEITHER CUSTOMER NOR CODE42 CAN RECOVER THE CUSTOMER DATA. Code42 Security. Code42 shall (i) use commercially reasonable efforts to maintain appropriate technical and organizational measures to protect any Customer Data against unauthorized or unlawful transfer, processing or alteration and against accidental access, loss, damage, processing, use, transfer or destruction; (ii) use commercially reasonable efforts to provide reliable and secure systems operated by or on behalf of Code42 that process such data and information in connection with this Agreement; (iii) promptly notify Customer in writing of any (a) breach of the security of any such systems that may have resulted in the compromise of such data and information, or (b) other unauthorized access to or use of such data and information or Code42’s reasonable belief that such access or use may have occurred; and (iv) cooperate with Customer with respect to any such breach or unauthorized access or use. Information Collected via the Internet. Code42 Software may automatically use the Internet to search for updates, such as, but not limited to, bug fixes and security updates, for the Code42 Subscription Services. Such updates may install automatically as part of the Public Cloud. The Software may also contact Code42 to verify the status of any Code42 Subscription Services and to confirm authorized Licensed Use. Devices with installed Software may also be tracked by Code42 (such as via Internet Protocol address) to locate where that Device is located so that Customer and its Authorized Users can locate their Devices. Termination. Code42 may, without liability, suspend or terminate any or all Code42 Subscription Services to some or all of its Authorized Users: (a) following a possible or actual security breach or cyber-attack on Code42; (b) in order to protect Code42’s network; (c) if required by a governmental entity or law enforcement agency; (d) if an Authorized User is using a Device that is defective or illegal; (e) if an Authorized User’s Device is causing technical or other problems to Code42’s environment; or (f) upon the effective date of termination or expiration of a Quote or the Agreement. 13 EXHIBIT C SECURITY ADDENDUM FOR SHAREPLAN SOFTWARE As a condition to using the Code42 Subscription Services, each Authorized User of the Code42 Subscription Services will be required to register and select a password and user name ("User ID"). Customer will provide accurate and complete registration information and will update Customer registration information, as necessary, to keep it current. Customer should not (i) select or use as a User ID the name of another person with the intent to impersonate that person; or (ii) use as a User ID a name subject to any rights of a person other than such user without appropriate authorization. Encryption Standards. The Software uses industry standard, 256-bit AES and 128-bit SSL encryption algorithms to encrypt Customer’s files and secure Customer Data that Customer shares or synchronizes with the Code42 Subscription Services prior to any transmission from the Device where the Customer Data resides. Customer Data remains encrypted using 256-bit AES encryption algorithms at Code42’s Public Cloud secure data centers or within Customer’s Private Cloud or Managed Private Cloud, as elected by Customer, until such time as the Customer Data is downloaded to a Device, at which time the Customer Data is decrypted in memory on the Master Server before being downloaded using the Software. Only Customer can decrypt and view its unencrypted Customer Data, unless Customer (a) provides another party with its passwords and encryption keys; or (b) allows its Authorized Users to utilize the SharePlan Software’s “link share” feature, which causes any Customer Data contained within the link to be decrypted in an unauthorized form and then made accessible to a Customer Invitee. WITH RESPECT TO PROTECTED OR REGULATED DATA (INCLUDING, BUT NOT LIMITED TO, PERSONAL HEALTH INFORMATION, PERSONABLY IDENTIFIABLE INFORMATION, OR FINANCIAL DATA), UNDER NO CIRCUMSTANCES SHALL CUSTOMER (A) SHARE SUCH CUSTOMER DATA WITH A CUSTOMER INVITEE USING THE SHAREPLAN SOFTWARE UNLESS CUSTOMER HAS ADEQUATE CONTRACTUAL AND POLICY CONTROLS IN PLACE; OR (B) DELIVER SUCH CUSTOMER DATA TO CODE42 FOR TESTING, TRAINING OR OTHER PURPOSES. Safekeeping of Encryption Keys. Customer shall be responsible for securing each Customer account, encryption keys, passwords and files. To decrypt Customer Data, Customer needs its encryption keys. Without these, Customer is unable to decrypt Customer Data. The encryption keys are secured and escrowed on Code42 servers in the Public Cloud or within Customer’s Private Cloud or Managed Private Cloud, as elected by Customer. IF CUSTOMER USES PRIVATE ENCRYPTION KEYS, THEN CUSTOMER (A) IS RESPONSIBLE FOR PROTECTING SUCH ENCRYPTION KEYS; (B) SHALL NOT SHARE THE ENCRYPTION KEYS WITH CODE42 OR CODE42’S SUBCONTRACTORS; AND (C) CUSTOMER ACKNOWLEDGES THAT IF IT LOSES ITS PRIVATE ENCRYPTION KEYS, NEITHER CUSTOMER NOR CODE42 CAN RECOVER THE CUSTOMER DATA. Customer Invitees. Customer is responsible for verifying the identity, integrity, and security of Customer Invitees prior to adding them as Authorized Users. Customer acknowledges and agrees that Code42 shall not be responsible for the disclosure of Customer’s non-public or regulated information as a result of Customer providing Customer Invitees with access to the Customer Data. Code42 Security. Code42 shall (i) use commercially reasonable efforts to maintain appropriate technical and organizational measures to protect any Customer Data against unauthorized or unlawful transfer, processing or alteration and against accidental access, loss, damage, processing, use, transfer or destruction; (ii) use commercially reasonable efforts to provide reliable and secure systems operated by or on behalf of Code42 that process such data and information in connection with this Agreement; (iii) promptly notify Customer in writing of any (a) breach of the security of any such systems that may have resulted in the compromise of such data and information, or (b) other unauthorized access to or use of such data and information or Code42’s reasonable belief that such access or use may have occurred; and (iv) cooperate with Customer with respect to any such breach or unauthorized access or use. Information Collected via the Internet. Code42 Software may automatically use the Internet to search for updates, such as, but not limited to, bug fixes and security updates, for the Code42 Subscription Services. Such updates may install automatically as part of the Public Cloud. The Software may also contact Code42 to verify the status of any Code42 Subscription Services and to confirm authorized Licensed Use. Devices with installed Software may also be tracked by Code42 (such as via Internet Protocol address) to locate where that Device is located so that Customer and its Authorized Users can locate their Devices. Termination. Code42 may, without liability, suspend or terminate any or all Code42 Subscription Services to some or all of its Authorized Users: (a) following a possible or actual security breach or cyber-attack on Code42; (b) in order to protect Code42’s network; (c) if required by a governmental entity or law enforcement agency; (d) if an Authorized User is using a Device that is defective or illegal; (e) if an Authorized User’s Device is causing technical or other problems to Code42’s environment; or (f) upon the effective date of the termination or expiration of a Quote or the Agreement. Professional Services Rev. Feb. 2014 1 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx EXHIBIT D CITY OF PALO ALTO CONTRACT NO. C15156312 STATEMENT OF WORK RECITALS The following recitals are a substantive portion of this SOW. A. CITY and CONSULTANT are parties to a Master Services Agreement, dated March 5, 2015 (the “Agreement”), which contemplates CITY’s acquisition of goods and services, including data backup software licenses and related goods and services, via CITY’s acceptance of CONSULTANT’s sales quote(s) and via the parties’ agreement to statement(s) of work. B. Via a sales quote (Quote # 0068000000tlzL6AAI-16927), attached as Exhibit E to the Agreement, CITY has licensed Software (as defined in the Agreement) and purchased related goods and services, the purpose of which is to receive Data Backup and Cloud Services (“Project”), and City also desires to engage a consultant to provide Professional Services (as defined in the Agreement) related to the implementation of Code42 Subscription Services and Hardware in connection with the Project (“Services”). C. CONSULTANT has represented that it has the necessary professional expertise, qualifications, and capability, and all required licenses and/or certifications to provide the Services. D. CITY in reliance on these representations desires to engage CONSULTANT to provide the Services as more fully described in Exhibit “A”, attached to and made a part of this SOW. NOW, THEREFORE, in consideration of the recitals, covenants, terms, and conditions, in this SOW, the parties agree: AGREEMENT SECTION 1. SCOPE OF SERVICES. CONSULTANT shall perform the Services described in Exhibit “A” in accordance with the terms and conditions contained in this SOW. The performance of all Services shall be to the reasonable satisfaction of CITY. SECTION 2. TERM. The term of this SOW shall be from March 5, 2015 through completion of the Services unless terminated earlier pursuant to Section 19 of this SOW, and it shall be co- terminous with the Agreement. Professional Services Rev. Feb. 2014 1 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx SECTION 3. SCHEDULE OF PERFORMANCE. Time is of the essence in the performance of Services under this SOW. CONSULTANT shall complete the Services within the term of this SOW and in accordance with the schedule set forth in Exhibit “B”, attached to and made a part of this SOW. If no schedule is identified within Exhibit “B,” then CONSULTANT shall complete the Services within the schedule mutually agreed upon by CONSULTANT and CITY. Any Services for which times for performance are not specified in this SOW (other otherwise mutually agreed upon) shall be commenced and completed by CONSULTANT in a reasonably prompt and timely manner based upon the circumstances. CITY’s agreement to extend the term or the schedule for performance shall not preclude recovery of damages for delay if the extension is required due to the fault of CONSULTANT. SECTION 4. NOT TO EXCEED COMPENSATION. The compensation to be paid to CONSULTANT for performance of the Services described in Exhibit “A” to this SOW, including both payment for Professional Services and reimbursable expenses, shall not exceed Nine Thousand Dollars ($9,000.00) plus any applicable taxes. Additional Services, if any, shall be authorized in accordance with and subject to the provisions of Exhibit “C” to this SOW. CONSULTANT shall not receive any compensation for Additional Services performed without the prior written authorization of CITY. Additional Services shall mean any work that is determined by CITY to be necessary for the proper completion of the Project, but which is not included within the Scope of Services described in Exhibit “A”. SECTION 5. INVOICES. In order to request payment, CONSULTANT shall submit an invoice to the CITY describing the services to be performed and the applicable charges. The information in CONSULTANT’s payment requests shall be subject to verification by CITY, subject to Section 5.2 of the Agreement. CONSULTANT shall send all invoices to the City’s project manager at the address specified in Section 13 below. The City will process and pay invoices subject to Section 5 of the Agreement. SECTION 6. QUALIFICATIONS/STANDARD OF CARE. All of the Services shall be performed by CONSULTANT or under CONSULTANT’s supervision. CONSULTANT represents that it possesses the professional and technical personnel necessary to perform the Services required by this SOW and that the personnel have sufficient skill and experience to perform the Services assigned to them. CONSULTANT represents that it, its employees and subconsultants, if permitted, have and shall maintain during the term of this SOW all licenses, permits, qualifications, insurance and approvals of whatever nature that are legally required to perform the Services. All of the Services to be furnished by CONSULTANT under this SOW shall meet the professional standard and quality that prevail among professionals in the same discipline and of similar knowledge and skill engaged in related work throughout California under the same or similar circumstances. SECTION 7. COMPLIANCE WITH LAWS. CONSULTANT shall keep itself informed of and in compliance with all federal, state and local laws, ordinances, regulations, and orders that may affect in any manner the Project or the performance of the Services or those engaged to perform Services under this SOW. CONSULTANT shall procure all permits and licenses, pay all charges and fees, and give all notices required by law in the performance of the Services. Professional Services Rev. Feb. 2014 3 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx SECTION 8. ERRORS/OMISSIONS. Section 6.2 of the Agreement applies with respect to issues related to the Services performed hereunder. This obligation shall survive termination of the SOW. SECTION 9. COST ESTIMATES. If this SOW pertains to the design of a public works project, CONSULTANT shall submit estimates of probable construction costs at each phase of design submittal. If the total estimated construction cost at any submittal exceeds ten percent (10%) of the CITY’s stated construction budget, CONSULTANT shall make recommendations to the CITY for aligning the PROJECT design with the budget, incorporate CITY approved recommendations, and revise the design to meet the Project budget, at no additional cost to CITY. SECTION 10. INDEPENDENT CONTRACTOR. It is understood and agreed that in performing the Services under this SOW CONSULTANT, and any person employed by or contracted with CONSULTANT to furnish labor and/or materials under this SOW, shall act as and be an independent contractor and not an agent or employee of the CITY. SECTION 11. ASSIGNMENT. The parties agree to the terms of Section 11.6 of the Agreement. SECTION 12. SUBCONTRACTING. CONSULTANT shall not subcontract any portion of the Services to be performed under this SOW without the prior written authorization of the city manager or designee. CONSULTANT shall be responsible for directing the work of any subconsultants and for any compensation due to subconsultants. CITY assumes no responsibility whatsoever concerning compensation. CONSULTANT shall be fully responsible to CITY for all acts and omissions of a subconsultant. CONSULTANT shall change or add subconsultants only with the prior approval of the city manager or his designee. SECTION 13. PROJECT MANAGEMENT. CONSULTANT will assign Andy Hohman as the person who has supervisory responsibility for the performance, progress, and execution of the Services and Tim Bailey as the project manager to represent CONSULTANT during the day- to-day work on the Project. If circumstances cause the substitution of the project director, project coordinator, or any other key personnel for any reason, CONSULTANT will notify the CITY in writing (email sufficing) of the appointment of a substitute project director. CONSULTANT, at Professional Services Rev. Feb. 2014 3 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx CITY’s request, shall promptly remove personnel who CITY finds do not perform the Services in an acceptable manner, are uncooperative, or present a threat to the adequate or timely completion of the Project or a threat to the safety of persons or property, it being understood that any time schedules set forth herein or agreed upon by the parties shall be reasonably adjusted if and to the extent needed for CONSULTANT to replace such removed personnel. The City’s project manager is Lisa Bolger, Information Technology Division, Palo Alto, CA 94303, Telephone: (650) 329-2654. The project manager will be CONSULTANT’s point of contact with respect to performance, progress and execution of the Services. The CITY may designate an alternate project manager from time to time. SECTION 14. INTENTIONALLY OMITTED. SECTION 15. AUDITS. CONSULTANT WILL PERMIT CITY TO AUDIT, AT ANY REASONABLE TIME DURING THE TERM OF THIS SOW AND FOR ONE (1) YEAR THEREAFTER AND AT A LOCATION DESIGNATED BY CONSULTANT, CONSULTANT’S RECORDS PERTAINING TO MATTERS COVERED BY THIS SOW. CONSULTANT FURTHER AGREES TO MAINTAIN AND RETAIN SUCH RECORDS FOR AT LEAST ONE (1) YEAR AFTER THE EXPIRATION OR EARLIER TERMINATION OF THIS SOW. SECTION 16. INDEMNITY. The parties agree to the indemnification provisions set forth in Section 9 of the Agreement. SECTION 17. WAIVERS. The waiver by either party of any breach or violation of any covenant, term, condition or provision of this SOW, or of the provisions of any ordinance or law, will not be deemed to be a waiver of any other term, covenant, condition, provisions, ordinance or law, or of any subsequent breach or violation of the same or of any other term, covenant, condition, provision, ordinance or law. SECTION 18. INSURANCE. 18.1. CONSULTANT, AT ITS SOLE COST AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND EFFECT DURING THE TERM OF THIS SOW, THE INSURANCE COVERAGE DESCRIBED IN EXHIBIT "D". CONSULTANT AND ITS CONTRACTORS, IF ANY, SHALL OBTAIN A POLICY ENDORSEMENT NAMING CITY AS AN ADDITIONAL INSURED UNDER ANY GENERAL LIABILITY OR AUTOMOBILE POLICY OR POLICIES. 18.2. All insurance coverage required hereunder shall be provided through carriers with AM Best’s Key Rating Guide ratings of A-:VII or higher which are licensed or authorized to transact insurance business in the State of California. Any and all contractors of CONSULTANT retained to perform Services under this SOW will obtain and maintain, in full Professional Services Rev. Feb. 2014 5 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx force and effect during the term of this SOW, identical insurance coverage, naming CITY as an additional insured under such policies as required above. 18.3. Certificates evidencing such insurance shall be filed with CITY concurrently with the execution of this SOW. The certificates will be subject to the approval of CITY’s Risk Manager and will contain an endorsement stating that the insurance is primary coverage and will not be canceled, or materially reduced in coverage or limits, by the insurer except after filing with the Purchasing Manager thirty (30) days' prior written notice of the cancellation or modification. If the insurer cancels or modifies the insurance and provides less than thirty (30) days’ notice to CONSULTANT, CONSULTANT shall provide the Purchasing Manager written notice of the cancellation or modification within two (2) business days of the CONSULTANT’s receipt of such notice. CONSULTANT shall be responsible for ensuring that current certificates evidencing the insurance are provided to CITY’s Purchasing Manager during the entire term of this SOW. 18.4. The procuring of such required policy or policies of insurance will not be construed to limit CONSULTANT's liability hereunder nor to fulfill the indemnification provisions of this SOW. CONSULTANT’s insurance coverage (or lack thereof) shall not affect CONSULTANT’s obligations pursuant to the Agreement and this SOW. SECTION 19. TERMINATION OR SUSPENSION OF SOW OR SERVICES. 19.1. The City Manager may suspend the performance of the Services, in whole or in part, or terminate this SOW, with or without cause, by giving ten (10) days prior written notice thereof to CONSULTANT. Upon receipt of such notice, CONSULTANT will immediately discontinue its performance of the Services. 19.2. CONSULTANT may terminate this SOW or suspend its performance of the Services by giving thirty (30) days prior written notice thereof to CITY, but only in the event of a substantial failure of performance by CITY. 19.3. Upon such suspension or termination by CITY, CONSULTANT will be paid for the Services rendered or materials delivered to CITY in accordance with the scope of Services on or before the effective date (i.e., 10 days after giving notice) of suspension or termination; provided, however, if this SOW is suspended or terminated on account of a default by CONSULTANT, CITY will be obligated to compensate CONSULTANT only for that portion of CONSULTANT’s Services which are of direct and immediate benefit to CITY as such determination may be made by the City Manager acting in the reasonable exercise of his/her discretion. The following Sections will survive any expiration or termination of this SOW: 14, 15, 16, 19.3, 20, and 25. 19.4. No payment, partial payment, acceptance, or partial acceptance by CITY will operate as a waiver on the part of CITY of any of its rights under this SOW. SECTION 20. NOTICES. 6 All notices hereunder will be given in writing and provided pursuant to Section 11.8 of the Agreement. SECTION 21. CONFLICT OF INTEREST. 21.1. In accepting this SOW, CONSULTANT covenants that it presently has no interest, and will not acquire any interest, direct or indirect, financial or otherwise, which would conflict in any manner or degree with the performance of the Services. 21.2. CONSULTANT further covenants that, in the performance of this SOW, it will not employ subconsultants, contractors or persons having such an interest. CONSULTANT certifies that no person who has or will have any financial interest under this SOW is an officer or employee of CITY; this provision will be interpreted in accordance with the applicable provisions of the Palo Alto Municipal Code and the Government Code of the State of California. 21.3. If the Project Manager determines that CONSULTANT is a “Consultant” as that term is defined by the Regulations of the Fair Political Practices Commission, CONSULTANT shall be required and agrees to file the appropriate financial disclosure documents required by the Palo Alto Municipal Code and the Political Reform Act. SECTION 22. NONDISCRIMINATION. As set forth in Palo Alto Municipal Code section 2.30.510, CONSULTANT certifies that in the performance of this SOW, it shall not discriminate in the employment of any person because of the race, skin color, gender, age, religion, disability, national origin, ancestry, sexual orientation, housing status, marital status, familial status, weight or height of such person. CONSULTANT acknowledges that it has read and understands the provisions of Section 2.30.510 of the Palo Alto Municipal Code relating to Nondiscrimination Requirements and the penalties for violation thereof, and agrees to meet all requirements of Section 2.30.510 pertaining to nondiscrimination in employment. SECTION 23. ENVIRONMENTALLY PREFERRED PURCHASING AND ZERO WASTE REQUIREMENTS. CONSULTANT shall comply with the City’s Environmentally Preferred Purchasing policies which are available at the City’s Purchasing Department, incorporated by reference and may be amended from time to time. CONSULTANT shall comply with waste reduction, reuse, recycling and disposal requirements of the City’s Zero Waste Program. Zero Waste best practices include first minimizing and reducing waste; second, reusing waste and third, recycling or composting waste. In particular, Consultant shall comply with the following zero waste requirements: All printed materials provided by Consultant to City generated from a personal computer and printer including but not limited to, proposals, quotes, invoices, reports, and public education materials, shall be double-sided and printed on a minimum of 30% or greater post-consumer content paper, unless otherwise approved by the City’s Project Manager. Any submitted materials printed by a professional printing company shall be a minimum of 30% or greater post- consumer material and printed with vegetable based inks. Goods purchased by Consultant on behalf of the City shall be purchased in accordance with the City’s Environmental Purchasing Policy including but not Professional Services Rev. Feb. 2014 7 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx limited to Extended Producer Responsibility requirements for products and packaging. A copy of this policy is on file at the Purchasing Office. Reusable/returnable pallets shall be taken back by the Consultant, at no additional cost to the City, for reuse or recycling. Consultant shall provide documentation from the facility accepting the pallets to verify that pallets are not being disposed. SECTION 24. NON-APPROPRIATION 24.1. This SOW is subject to the fiscal provisions of the Charter of the City of Palo Alto and the Palo Alto Municipal Code. This SOW will terminate without any penalty (a) at the end of any fiscal year in the event that funds are not appropriated for the following fiscal year, or (b) at any time within a fiscal year in the event that funds are only appropriated for a portion of the fiscal year and funds for this SOW are no longer available. This section shall take precedence in the event of a conflict with any other covenant, term, condition, or provision of this SOW or the Agreement. SECTION 25. MISCELLANEOUS PROVISIONS. 25.1. This SOW will be governed by the laws of the State of California. 25.2. This document is subject to the Agreement and, with such Agreement and any finalized Quotes thereunder, represents the entire and integrated agreement between the parties and supersedes all prior negotiations, representations, and contracts, either written or oral. This document may be amended only by a written instrument, which is signed by the parties. 25.3. The covenants, terms, conditions and provisions of this SOW will apply to, and will bind, the heirs, successors, executors, administrators, assignees, and consultants of the parties. 25.4. If a court of competent jurisdiction finds or rules that any provision of this SOW or any amendment thereto is void or unenforceable, the unaffected provisions of this SOW and any amendments thereto will remain in full force and effect. 25.5. All exhibits referred to in this SOW and any addenda, appendices, attachments, and schedules to this SOW which, from time to time, may be referred to in any duly executed amendment hereto are by such reference incorporated in this SOW and will be deemed to be a part of this SOW. 25.6 If, pursuant to this SOW with CONSULTANT, City shares with CONSULTANT personal information as defined in California Civil Code section 1798.81.5(d) about a California resident (“Personal Information”), CONSULTANT shall maintain reasonable and appropriate security procedures to protect that Personal Information, and shall inform City immediately upon learning that there has been a breach in the security of the system or in the security of the Personal Information. CONSULTANT shall not use Personal Information for direct marketing purposes without City’s express written consent. 8 Attachments to SOW: EXHIBIT “A”: SCOPE OF SERVICES EXHIBIT “B”: SCHEDULE OF PERFORMANCE EXHIBIT “C”: COMPENSATION EXHIBIT “D”: INSURANCE REQUIREMENTS Professional Services Rev. Feb. 2014 11 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx EXHIBIT “A” SCOPE OF SERVICES As used in this Exhibit “A,” Consultant is referred to as “Code42.” Other defined terms used within this Exhibit “A” shall have the meaning given to them in the SOW and the Agreement. Code42’s Professional Services will include: Implementation: Code42 will provide onsite or remote technical support for the installation, configuration and validation testing of the Hardware (as defined in the Agreement) and in the release and deployment of the Software. Code42 will provide recommendations to the City regarding the Software and its features, based upon the City’s requirements and strategic goals. The installation plan will be a coordinated effort with both Code42 and the City’s IT Management team agreeing to the timelines, which will take place after 3/16/2015. Training (ACE CAMP 1): The training courses will provide participants with the essential knowledge to enable the Server administration to configure and manage the Baseline PRO212M Appliance configuration or, if required, any additional Hardware that City may purchase from Code42. The training will include hands-on exercises, reinforcing the planning sessions to ensure a through understanding of the backup and recovery concepts, the functionality of the Software and related services. The training course will be designed for system administration of backing up the server based data within the City of Palo Alto Data Center. The training will provide a comprehensive understanding of Code42's PROe ENDPOINT Backup Product Crashplan in order to oversee the release of the product, deployment of the backup solution and the ongoing maintenance of the EndPoint Backup system. This course will take place for two consecutive days (on dates mutually agreed upon by Code42 and City) for three City attendees; the training will take place at Code42’s headquarters in Minnesota or as otherwise mutually agreed upon by the parties. City is responsible for its personnel’s expenses for any travel, lodging, meals and the like that said personnel incur in relation to their attendance at training(s). 12 EXHIBIT “B” SCHEDULE OF PERFORMANCE CONSULTANT shall perform the Services so as to complete each milestone within the number of days/weeks mutually agreed upon by the parties. 14 EXHIBIT “C” COMPENSATION The CITY agrees to compensate the CONSULTANT for Professional Services performed in accordance with the terms and conditions of the Agreement, and as set forth in the budget schedule below. The compensation to be paid to CONSULTANT under this Agreement for all services described in Exhibit “A” (“Basic Services”) and reimbursable expenses shall not exceed $9,000.00. CONSULTANT agrees to complete all Basic Services, including reimbursable expenses, within this amount. In the event CITY authorizes any Additional Services, the compensation shall be mutually agreed upon by CONSULTANT and CITY. Any work performed or expenses incurred for which payment would result in a total exceeding the maximum amount of compensation set forth herein shall be at no cost to the CITY. CONSULTANT shall perform the tasks and categories of work as outlined and budgeted below. The CITY’s project manager may approve in writing (email sufficing) the transfer of budget amounts between any of the tasks or categories listed below provided the total compensation for Basic Services, including reimbursable expenses, does not exceed $9,000.00. Professional Services Rev. Feb. 2014 15 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx SERVICES NOT TO EXCEED AMOUNT Task 1 $9,000.00 (Professional Services) Cloud Set Up ($1,500) Directory Services Integration ($1,000) Custom Installers ($1,000) On-Site Appliance Set Up ($5,500) Task 2 $0 (ACE Camp 1 Training – 3 Attendees) Sub-total Basic Services $9,000.00 Reimbursable Expenses $0 Total Basic Services and Reimbursable expenses $9,000.00 Applicable Taxes TBD Maximum Total Compensation $9,000.00 (plus any applicable taxes) REIMBURSABLE EXPENSES The administrative, overhead, secretarial time or secretarial overtime, word processing, photocopying, in-house printing, insurance and other ordinary business expenses are included within the scope of payment for services and are not reimbursable expenses. CITY shall reimburse CONSULTANT for the following reimbursable expenses at cost. Expenses for which CONSULTANT shall be reimbursed are: N/A 16 ADDITIONAL SERVICES The CONSULTANT shall provide additional Services only by advanced, written authorization from the CITY. The CONSULTANT, at the CITY’s project manager’s request, shall submit a detailed written Quote or SOW, including a description of the scope of services, schedule, level of effort, and CONSULTANT’s proposed maximum compensation, including reimbursable expense, for such Services. The additional services scope, schedule and maximum compensation shall be negotiated and agreed to in writing by the CITY’s project manager and CONSULTANT prior to commencement of the Services. Payment for additional services is subject to all requirements and restrictions in the Agreement. Professional Services Rev. Feb. 2014 17 H:\Contract Management\Data Center Cloud\C151566312_Code42 MSA.docx EXHIBIT “D” INSURANCE REQUIREMENTS CONTRACTORS TO THE CITY OF PALO ALTO (CITY), AT THEIR SOLE EXPENSE, SHALL FOR THE TERM OF THE CONTRACT OBTAIN AND MAINTAIN INSURANCE IN THE AMOUNTS FOR THE COVERAGE SPECIFIED BELOW, AFFORDED BY COMPANIES WITH AM BEST’S KEY RATING OF A-:VII, OR HIGHER, LICENSED OR AUTHORIZED TO TRANSACT INSURANCE BUSINESS IN THE STATE OF CALIFORNIA. AWARD IS CONTINGENT ON COMPLIANCE WITH CITY’S INSURANCE REQUIREMENTS, AS SPECIFIED, BELOW: REQUIRE D TYPE OF COVERAGE REQUIREMENT MINIMUM LIMITS EACH OCCURRENCE AGGREGATE YES YES WORKER’S COMPENSATION EMPLOYER’S LIABILITY STATUTORY STATUTORY YES GENERAL LIABILITY, INCLUDING PERSONAL INJURY, BROAD FORM PROPERTY DAMAGE BLANKET CONTRACTUAL, AND FIRE LEGAL LIABILITY BODILY INJURY PROPERTY DAMAGE BODILY INJURY & PROPERTY DAMAGE COMBINED. $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 YES AUTOMOBILE LIABILITY, INCLUDING ALL OWNED, HIRED, NON-OWNED BODILY INJURY - EACH PERSON - EACH OCCURRENCE PROPERTY DAMAGE BODILY INJURY AND PROPERTY DAMAGE, COMBINED $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 YES PROFESSIONAL LIABILITY, INCLUDING, ERRORS AND OMISSIONS ALL DAMAGES $1,000,000 YES THE CITY OF PALO ALTO IS TO BE NAMED AS AN ADDITIONAL INSURED: CONTRACTOR, AT ITS SOLE COST AND EXPENSE, SHALL OBTAIN AND MAINTAIN, IN FULL FORCE AND EFFECT THROUGHOUT THE ENTIRE TERM OF ANY RESULTANT AGREEMENT, THE INSURANCE COVERAGE HEREIN DESCRIBED, INSURING NOT ONLY CONTRACTOR AND ITS SUBCONSULTANTS, IF ANY, BUT ALSO, WITH THE EXCEPTION OF WORKERS’ COMPENSATION, EMPLOYER’S LIABILITY AND PROFESSIONAL INSURANCE, NAMING AS ADDITIONAL INSUREDS CITY, ITS COUNCIL MEMBERS, OFFICERS, AGENTS, AND EMPLOYEES. I. INSURANCE COVERAGE MUST INCLUDE: A. A PROVISION FOR A WRITTEN THIRTY (30) DAY ADVANCE NOTICE TO CITY OF CHANGE IN COVERAGE OR OF COVERAGE CANCELLATION; AND B. DEDUCTIBLE AMOUNTS IN EXCESS OF $5,000 REQUIRE CITY’S PRIOR APPROVAL. II. CONTACTOR MUST SUBMIT CERTIFICATES(S) OF INSURANCE EVIDENCING REQUIRED COVERAGE. III. ENDORSEMENT PROVISIONS, WITH RESPECT TO THE INSURANCE AFFORDED TO “ADDITIONAL INSUREDS” A. PRIMARY COVERAGE WITH RESPECT TO CLAIMS ARISING OUT OF THE OPERATIONS OF THE NAMED INSURED AND WITH LIMITED EXCEPTIONS, INSURANCE AS AFFORDED BY THIS POLICY IS PRIMARY AND IS NOT ADDITIONAL TO OR CONTRIBUTING WITH ANY OTHER INSURANCE CARRIED BY OR FOR THE BENEFIT OF THE ADDITIONAL INSUREDS. 18 B. CROSS LIABILITY THE NAMING OF MORE THAN ONE PERSON, FIRM, OR CORPORATION AS INSUREDS UNDER THE POLICY SHALL NOT, FOR THAT REASON ALONE, EXTINGUISH ANY RIGHTS OF THE INSURED AGAINST ANOTHER, BUT THIS ENDORSEMENT, AND THE NAMING OF MULTIPLE INSUREDS, SHALL NOT INCREASE THE TOTAL LIABILITY OF THE COMPANY UNDER THIS POLICY. C. NOTICE OF CANCELLATION 1. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR ANY REASON OTHER THAN THE NON-PAYMENT OF PREMIUM, THE CONSULTANT SHALL PROVIDE CITY AT LEAST A THIRTY (30) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION. 2. IF THE POLICY IS CANCELED BEFORE ITS EXPIRATION DATE FOR THE NON-PAYMENT OF PREMIUM, THE ISSUING COMPANY SHALL PROVIDE CITY AT LEAST A TEN (10) DAY WRITTEN NOTICE BEFORE THE EFFECTIVE DATE OF CANCELLATION. NOTICES SHALL BE EMAILED OR MAILED TO: PURCHASING AND CONTRACT ADMINISTRATION CITY OF PALO ALTO P.O. BOX 10250 PALO ALTO, CA 94303. EMAIL: InsuranceCerts@CityofPaloAlto.org City of Palo Alto (ID # 5597) City Council Staff Report Report Type: Consent Calendar Meeting Date: 3/23/2015 City of Palo Alto Page 1 Summary Title: Resolution - Caltrans Functional Classification Change Title: Adoption of a Resolution Authorizing Public Works Department to Submit a Function Classification Request to Caltrans to Expand the Number of Streets Eligible for Resurfacing Work Using Federal or State Grant Funding From: City Manager Lead Department: Public Works Recommendation Staff recommends that Council adopt the attached resolution (Attachment A) to authorize the Public Works Department to submit a functional classification change request to Caltrans in order to expand the number of City streets that are eligible for resurfacing work using funding from federal or state grants. Background The Public Works Engineering Services Division manages roadway construction contracts for concrete repair, preventive maintenance, street repaving and street reconstruction of various city streets on an annual basis. The candidate streets are surveyed biennially by Public Works Engineering Services staff and then scored by a computerized pavement maintenance management system. Since 2011, the average Pavement Condition Index (PCI) score has increased from 72 to 78 due to additional project budget and aggressively seeking grant funding. Staff expects to achieve a citywide average PCI of 85 by 2019. In 2004, Public Works Engineering staff worked with the Planning & Community Environment Department’s (PCE) Transportation Division to compile a detailed list of streets that needed functional classification modifications. At that time, the Metropolitan Transportation Commission (MTC) approved and adopted the proposed changes and the City’s Pavement Management and Maintenance System (PMMS) was updated to include the updated functional classifications. In City of Palo Alto Page 2 2009, another round of reclassification took place which was submitted and approved by MTC. Street classifications were recently reviewed again, and appropriate classification changes were subsequently approved by MTC (Attachment B). Since this phase of the process is ministerial and there are no practical impacts by reclassifying street types, there has been no Council action required for these changes. The Valley Transportation Authority (VTA) released a call-for-projects for the One Bay Area Grant Program (OBAG) on November 5, 2012 with project proposals due March 5, 2013. The OBAG program has two elements, a Countywide Guaranteed Fund element and a Competitive Complete Streets element. The Street Resurfacing and Streetscape project was submitted in response to the Countywide Guaranteed Fund on March 5, 2013. Palo Alto’s share in the Countywide Guaranteed Fund is $956,000. The OBAG-guaranteed funding will be used in the FY 2015 Street Resurfacing Program. Streets planned for repaving using these OBAG funds are Arastradero Road, Hillview Avenue, and Laguna Avenue. Discussion OBAG grant funding can only be used for arterial or collector roads. An arterial street is defined as one that provides the highest level of service at the greatest speed for the longest uninterrupted distance, with some degree of access control. A collector street provides a less highly developed level of service at a lower speed for shorter distances by collecting traffic from local roads and connecting them with arterials. Local streets consist of all roads not defined as arterials or collectors and primarily provide access to land with little or no through movement. There are no defined limits for traffic volume or posted speed for any of the road classifications. The Federal Highway Administration provides State Transportation Program (STP) funds which are allocated only for the Federal-Aid Highways. This designation includes arterials and collectors but excludes rural minor collectors, and all local roads. By properly classifying the City’s roads, more streets will be eligible for rehabilitation work funded through federal grants. The functional reclassification street list was developed jointly with the PCE’s Transportation Division and Public Works Engineering Services Division and includes all changes City of Palo Alto Page 3 since 2004. The current usage of each individual street was considered when evaluating the need for a classification. The street reclassification process is a two-step process, the first being the Highway Performance Monitoring System (HPMS) update, which has been completed and the second and remaining step is the Functional Classification Update through Caltrans which requires a resolution (Attachment A). Currently Laguna Avenue, included in the 2015 project, is classified as a local road. However, by definition it is actually a minor collector. As noted above, in order for it to be resurfaced using this grant funding it must be listed as either a collector or arterial street. This resolution will allow City staff to complete the process of reclassifying Laguna Avenue, along with all other streets approved by MTC over the past 10 years (see attached list, Exhibit B). Resource Impact There is no immediate resource impact however this resolution will expand the list of streets that are eligible for state or federal grant funding. Policy Implications Federal funds require that the City comply with the Caltrans Local Assistance project delivery policies and procedures. The Public Works Department has implemented several projects in recent years using federal grant funds and staff is familiar with the procedures, schedule, timing and reporting requirements. Environmental Review Adoption of this resolution to seek a streets and roads classification change is not considered a project under the California Environmental Quality Act (CEQA), so no environmental review is required. Attachments: A: Resolution (PDF) B - MTC Letter (PDF) NOT YET APPROVED 1 150309 mf 00710565 Resolution No. ______ Resolution of the Council of the City of Palo Alto Approving the City’s Submittal of a Functional Classification Change for Local Streets to the State of California, Department of Transportation The Council of the City of Palo Alto RESOLVES, as follows: SECTION 1. California incorporated cities are responsible for initiating requests for changes to the functional classification of streets and roads under their jurisdictions. SECTION 2. The City of Palo Alto receives State and Federal road improvement and maintenance funding based on street and road designation. SECTION 3. The Functional Classification Change, as set forth in the attached Exhibits A and B, has been reviewed by the City staff and considered by the City Council. SECTION 4. The Council finds that it is in the City’s interest and the public’s interest in the health, safety and welfare of the community to seek a functional classification change for the streets set forth in Exhibits A and B. SECTION 5. The Council hereby authorizes the City Manager or his designee, the Director of Public Works, to complete and submit the Functional Classification Change request to the State of California, Department of Transportation. // // // 2 150309 mf 00710565 SECTION 6. The submission of the requested functional classification change for the local streets in Palo Alto does not constitute a “project” under the California Environmental Quality Act or the CEQA Guidelines; therefore, no environmental assessment is required. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: __________________________ _____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ _____________________________ Senior Asst. 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35003400 3200 2200 2200 2500 2800 1100 3200 3400 3700 3700 600 4100 2000 1900 600 2500 3900 300 400 3600 3600 27002600 3900 3200 1700 3300 2600 2700 2800 3100 3200 2200 2200 2000 2200 2000 2200 200 400 600 800 2900 2900 3700 800 3300 1200 2400 900 1000 1100 2600 1800 3800 700 600 2200 2000 400 3100 800 900 700 3000 1000 1500 400 2300 1000 1300 600 800 700 2700 3000 2800 3200 4100 2100 3400 3700 3100 37001000 10001100 400 4200400 400 400 400 42004200 4200 1100 310031003200 3200 3100 31003200 3200 1100 1100 11001100 1100 800 800 1100 800 3300 3400 4300400 400 400 35003400 MoanaCourt Wallis Ct Donald Drive Encina Grande Drive Cereza Drive Los Robles Avenue Villa Vera Verdosa Drive Campana Drive Solana Drive Georgia Ave Ynigo Way Driscoll Ct ngArthur'Maybell Way Maybell Avenue Frandon Ct Florales Drive Georgia Avenue Amaranta Avenue Amaranta Ct MirandaGreen Foothill Expressway Ki sCourt Terman Drive Baker Avenue Vista Avenue Wisteria Ln Pena Ct Coulombe Drive Cherry Oaks Pl Pomona Avenue Arastradero Road Abel Avenue Clemo Avenue Villa Real El Camino Way Curtner Avenue Ventura Avenue Maclane Emerson Street Ventura Ct Park Boulevard Magnolia Dr South El Camino Real Cypress Lane GlenbrookD Fairmede Avenue Arastradero RoadIrven Court Los Palos Cir LosPalosPl Maybell Avenue Alta Mesa Ave Kelly Way Los Palos Avenue Suzanne Drive Suzanne Drive rive El Camino Real Suzanne CtLorabelle Ct McKellar Lane El Camino Way James Road Maclane Second Street Wilkie Way Camino CtWest Meadow Drive Thain Way Barclay Ct Victoria Place Interdale Way West Charleston RoadTennessee LaneWilkie Way Carolina Lane Tennessee Lane Park Boulevard Wilkie Ct Davenport Way Alma Street Roosev Monroe Drive Wilkie Way Whitclem PlWhitclem Drive Duluth Circle Edlee Avenue Dinah's Court Cesano Court Monroe DriveMiller Avenue Whitclem Wy Whitclem Ct Ferne Avenue Ben Lomond Drive Fairfield Court Ferne Avenue Ponce DriveHemlockCourt Ferne Court Alma Street Monroe Drive San Antonio Avenue NitaAvenue Ruthelma Avenue Darlington Ct Charleston Road LundyLane Newberry Ct Park Boulevard George Hood Ln Alma Street eltCircle LinderoDrive Wright Place StarrKingCircle Shasta Drive Mackay DriveDiablo Court Scripps Avenue Scripps Court Nelson Drive Tioga Court Creekside Drive Greenmeadow Way Ben Lomond Drive Parkside Drive Dixon Place Ely Place Dake Avenue Ferne Avenue San Antonio Court (Private) ChristopherCourt CalcaterraPlace Ely Place Ely Place Adobe PlaceNelson Court ByronStreetKeats CourtMiddlefield Road Duncan Place Carlson Court Duncan Place Mumford Place Charleston Road San Antonio Avenue East Meadow Drive Emerson Street Court BryantStreet RooseveltCircle RamonaStreet CarlsonCircleRedwoodCircleSouth Leghorn Street Montrose AvenueMaplewood Charleston Ct Charleston Road Seminole Way Sutherland Drive Nelson Drive El Capitan Place Fabian Street Loma Verde Avenue Bryson Avenue Midtown Court Cowper Street Gary Court Waverley Street South Court Bryant Street Ramona Street Alma Street Coastland Drive Colorado Avenue Byron Street Middlefield Road Gaspar Court Moreno A v e n u e Coastland Drive El Carmelo Avenue RosewoodD Campesino Avenue Dymond Ct Martinsen Ct Ramona Street Bryant Street Towle Way Towle Place Wellsbury Ct AvalonCourt FlowersLane Mackall Way Loma Verde Avenue KiplingStreet Cowper Street South Court Waverley Street El Verano Avenue Wellsbury Way LaMiddlefield Road St Claire Drive Alger Drive Ashton Avenue St Michael Drive St Michael Drive Maureen Avenue Cowper Court Rambow Drive East Meadow Drive Ashton Court Murdoch Drive CowperStreet Murdoch Ct St Michael Court MayCourt Mayview Avenue Middlefield Road Ensign Way Bibbits DriveGailen Ct Gailen Avenue Grove Avenue San Antonio Avenue Commercial Street Industrial Avenue Bibbits Drive Charleston Road Fabian Way T East Meadow Drive Grove Avenue Christine Drive Corina Way Ross RoadCorina Way Louis Road Nathan Way Transport Street Ortega CourtEast Meadow Drive yneCourt alisman Loma Verde Avenue Allen Court Ross Court Loma Verde Pl Ames Avenue Richardson Court Holly Oak Drive Ames Avenue CorkOakWay Middlefield Road Ames Ct Ames Avenue Ross Road Rorke Way RorkeWay Stone Lane Toyon Place Torreya Court Lupine Avenue Thornwood Drive DriftwoodDrive Talisman Drive Arbutus Avenue Ross Road Louis Road Aspen Way Evergreen Drive East Meadow Drive Corporation Way Elwell Court Janice Way East Meadow Circle East Meadow Circle GreerRoad Bayshore Freeway rive Ellsworth Place San Carlos Court Wintergreen Way SutterAvenue Sutter Avenue Clara Drive Price CourtStern Avenue Colorado Avenue Randers Ct Ross Road Sycamore Drive Sevyson Ct Stelling Drive Ross Road David Avenue MurrayWay Stelling Drive Stelling Ct ManchesterCourt Kenneth Drive ThomasDrive GreerRoad Stockton Place Vernon Terrace Louis Road Janice Way Thomas Drive Kenneth Drive Loma Verde Avenue CliftonCourt ElbridgeWay Clara Drive BautistaCourtStockton Place Morris Drive Maddux Drive Piers Ct Louis Road Moraga Ct Old Page Mill Road Deer Creek Road CoyoteHillRoad Hillview Avenue Porter Drive Hillview Avenue Hanover Street Foothill Expressway Arastradero Road Miranda Avenue Stanford Avenue Amherst Street Columbia Street Bowdoin Street Dartmouth Street Hanover Street College Avenue California Avenue Hanover Street Ramos Way (Private) Page Mill Road Hansen Way Hanover Street Old Adobe Road Old Trace Court Arastradero Road Miranda Avenue MockingbirdLane OldTraceRoad Manuela Way RobbRoad Manuela Court Mesa Avenue Oak Hill Avenue Manuela Avenue Miranda Avenue Laguna Ct Barron Avenue Josina Avenue Kendall Avenue Tippawingo St Julie CtMatadero Avenue Ilima Way Ilima Court Laguna Oaks Pl Carlitos Ct La Calle Laguna Avenue ElCerrit Paradise Way Roble Ridge (Private) LaMataWay Chimalus Drive Matadero Avenue oRoad Paul AvenueKendall AvenueWhitsell Avenue Barron Avenue Los Robles Avenue Laguna Way ShaunaLane La Para Avenue San Jude Avenue El Centro Street Timlott La Jennifer Way Magnolia Dr North La Donna Avenue LosRoblesAvenue Rinc Manzana Lane onCircle MesaCourt Crosby Pl Georgia Avenue Hubbartt Drive Willmar Drive Donald Drive Arastradero Road Foothill Expressway Miranda Avenue La Para AvenueSan Jude Avenue Magnolia Drive Military Way Arbol Drive Orme Street Fernando Avenue Matadero Avenue Lambert Avenue Hansen Way El Camino Real Margarita Avenue Matadero Avenue Wilton Avenue Oxford Avenue Harvard Street California Avenue Wellesley Street Princeton Street Oberlin Street Cornell Street Cambridge Avenue College Avenue Williams Street Yale Street Staunton CourtOxford AvenueEl Camino Real Churchill Avenue Park Boulevard Park Avenue Escobita Avenue Churchill Avenue Sequoia Avenue Mariposa Avenue Castilleja Avenue Miramonte Avenue Madrono Avenue Portola AvenueManzanita Avenue Coleridge Avenue Leland Avenue Stanford AvenueBirch Street Ash Street Lowell Avenue Alma StreetTennyson Avenue Grant Avenue Sheridan Avenue Jacaranda Lane El Camino Real Sherman Avenue Ash Street Page Mill Road Mimosa Lane Chestnut Avenue Portage Avenue Pepper Avenue Olive Avenue Acacia Avenue Emerson Street Park Boulevard Orinda StreetBirch Street Ash Street Page Mill Road Ash Street Park Boulevard College Avenue Cambridge Avenue New Mayfield LaneBirch Street California Avenue Park BoulevardNogal Lane Rinconada Avenue Santa Rita Avenue Park Boulevard Seale Avenue Washington Avenue Santa Rita Avenue WaverleyStree Bryant Street High Street Emerson Street Colorado Avenue Street Emerson Street Ramona Street Bryant Street South Court El Dorado Avenue Alma Street Alma Street HighStreet t Emerson Waverley Oaks Washington Avenue Bryant Street South Court Waverley Street Emerson Street Nevada Avenue North California Avenue Santa Rita Avenue Ramona Street High Street North California Avenue Oregon Expressway Marion Avenue Ramona Street Colorado Avenue Waverley Street Kipling Street South Court Cowper Street Anton Court Nevada Avenue Tasso StreetTasso Street Oregon Avenue Marion Pl Webster Street Middlefield Road Ross Road Warren Way El Cajon Way Embarcadero Road Primrose Way Iris Way Tulip LaneTulip Lane Garland Drive Louis Road Greer Road Morton Street Greer Road Hamilton Avenue Hilbar Lane Alannah Ct Edge Rhodes Drive Marshall Drive Fieldin Moreno Avenue MarshallDrive Dennis Drive Agnes Way Oregon AvenueBlair Court Santa Ana Street Elsinore DriveElsinore Court El Cajon Way Greer Road North California Avenue gDrive Colorado Avenue Sycamore Drive Amarillo Avenue VanAukenCircle Bruce Drive Colonial Lane Moreno Avenue Celia Drive Burnham Way Greer Road Indian Drive Elmdale Pl C Tanland Drive Moreno Avenue Amarillo Avenue West Bayshore Road Sandra Place Clara Drive Colorado Avenue Greer Road Colorado Avenue Simkins Court Otterson CtHiggins Place Lawrence Lane Maddux Drive Genevieve Ct MetroCircle MoffettCircle Greer Road East Bayshore Road ardinalWay Santa Catalina Street ArrowheadWayAztec Way Chabot TerraceOregon Avenue Carmel Drive SierraCourt StFrancisDrive West Bayshore Road Tanland Drive East Bayshore Road woodDrive Edgewood Drive WildwoodLane Ivy Lane East Bayshore Road St Francis Drive Wildwood Lane Watson Court Laura Lane Sandal wood Ct O'Brine Lane (Private) Embarcadero Road FaberPlace Embarcadero Road Geng Road Embarcadero Way Embarcadero Road Sand Hill Road Quarry Road Welch Road Arboretum Road Quarry Road Sand Hill Road Homer Avenue Lane 8 West Medical Foundation Way Lane 7 West Lane 7 East Embarcadero Road Encina Avenue El Camino Real Urban Lane Wells Avenue Forest Avenue High Street Emerson Street Channing Avenue Alma StreetAlma StreetPaloAltoA El Camino Real venue Mitchell Lane Hawthorne Avenue Everett Avenue Lytton Avenue Lane 15 E High Street Alma Street Bryant Street Lane 6 E Lane 11 W Lane 21 High Street Gilman Street Hamilton Avenue University Avenue Bryant Court Lane 30 Florence Street Kipling Street Tasso Street Cowper Street Ruthven Avenue Hawthorne Avenue Lane 33 PaloAltoAvenue Everett Avenue Poe Street Waverley Street Tasso Street Cowper Street Palo Alto Avenue Webster Street Everett Court Lytton Avenue Byron Street Fulton Street Middlefield Road Churchill Avenue Lowell Avenue Seale Avenue Tennyson Avenue Melville Avenue Cowper Street Tasso Street Webster Street Byron Street North California Avenue Coleridge Avenue Waverley Street Bryant Street Emerson Street Kellogg Avenue Kingsley Avenue Portal Place Ross Road Oregon Avenue Garland Drive Lane A West Lane B West Lane B East Lane D West Lane 59 East Whitman Court Kellogg Avenue Embarcadero Road Kingsley Avenue Lincoln Avenue Addison Avenue Lincoln Avenue Forest Avenue Downing Lane Homer Avenue Lane D East Lane 39 Lane 56 Hamilton Avenue Webster Street Waverley Street Kipling Street Bryant Street Ramona Street Addison Avenue Scott Street Byron Street Palo Hale Street Seneca Street Lytton Avenue Guinda StreetPaloAltoAvenue Fulton Street Middlefield Road Forest Avenue Webster Street Kellogg Avenue Middlefield Road Byron Street Webster Street Cowper Street Tasso Street Cowper Street Addison Avenue Lincoln Avenue Boyce Avenue Forest Avenue Hamilton Avenue Homer Avenue Guinda Street Middlefield Road Channing Avenue AltoAvenueChaucer Street Chaucer Street University Avenue Channing Avenue Addison Avenue Lincoln Avenue Regent Pl Guinda Street Lincoln Avenue Fulton Street Melville Avenue Byron Street Kingsley Avenue Melville Avenue Hamilton Avenue Hamilton Court Forest Avenue Forest Ct Marlowe Street Maple Street Palm Street Somerset Pl Pitman Avenue Fife Avenue Forest AvenueDana Avenue Lincoln AvenueUniversity Avenue Coleridge Avenue Lowell Avenue Fulton Street Cowper Street Tennyson Avenue Seale Avenue Northampton Drive West Greenwich Pl Middlefield Road Newell Road Guinda Street East Greenwich Pl Southampton Drive Webster Street Kirby Pl Kent PlaceTevis Pl Martin Avenue Center Drive Harriet Street Wilson Street Cedar Street Harker AvenueGreenwood Avenue Hutchinson Avenue Channing Avenue Hopkins Avenue Embarcadero Road Ashby Drive Dana AvenueHamilton Avenue Pitman Avenue Southwood Drive WestCrescentDrive CrescentDrive University Avenue Center Drive EastCrescen Arcadia Place Louisa Court Newell Pl Sharon Ct Erstwild Court Walter Hays Drive Walnut DriveNewell Road Parkinson Avenue Pine Street Mark Twain Street Louis Road Barbara Drive Primrose Way Iris Way Embarcadero RoadWalter Hays Drive Lois LaneJordan Pl Lois Lane Heather Lane Bret Harte Street Stanley Way De Soto Drive De Soto Drive Alester Avenue Walter Hays Drive Channing Avenue Iris Way tDrive Dana Avenue Hamilton Avenue Newell Road Kings Lane EdgewoodDrive Island Drive Jefferson Drive JacksonDrive Patricia Lane Madison Way EdgewoodDrive Ramona Street Addison Avenue Channing Avenue Waverley Street Tennyson Avenue Seale Avenue Middlefield Road Byron Street Webster Street Marion Avenue Welch Road Sedro Lane Peral Lane McGregor Way Monroe Drive Silva Avenue Silva Court Miller Court Briarwood Way Driscoll Place Paulsen Ln Community Lane Lane 15 E Court Madeline Ct Arroyo Ct David Ct Green Ct Oregon Expressway Oregon Expressway Sheridan Avenue Page Mill Road Page Mill Road Foothill Expressway Miranda Avenue Foothill Expressway Miranda AvenueFoothill Expressway Cerrito Way Emerson Street Miranda Avenue Lane 20 WLane 20 E Oregon Expressway University Avenue Jacob's Ct CalTrain ROW CalTrain ROW CalTrain ROW CalTrain ROW Emerson Street Waverley Street Kipling Street Clark Way Durand Way Sandhill RoadSwain Way Clark Way Mosher Way Charles Marx Way Orchard Lane Vineyard Lane Oak Road Sand Hill Road Sand Hill Road Sand Hill Road El Camino Real Hillview Avenue Arastradero Road Lane 66 Bryant Street Ramona Street Blake Wilbur Drive West Charleston Road Bayshore Freeway Bayshore Freeway Bayshore FreewayWest Bayshore Road East Bayshore Road East Bayshore Road East Bayshore Road West Bayshore Road East Bayshore RoadBayshore FreewayBayshore FreewayFabian Way Bayshore FreewayBayshore Freeway Palo Road Shopping Center Way Shopping Center Way Shopping Center Way London Plane Way Plum Lane Sweet Olive Way Pear Lane Lane 66 La Selva Drive Grove Ct Miranda Court Stanford Avenue Lane 12 W Lane 5 E Lasuen Street Serra Mall Escondido Road Olmsted Road Phillips Road Pistache Place Santa Ynez Street Lane B Lane C El Dorado Avenue Oak Creek Drive Clara Drive Bellview Dr Everett Avenue Homer Avenue La Calle SAN ANTONIO AVENUE Matadero Ave Colorado Pl Los Robles Avenue Timlott Ct Vista Villa PaloAltoAvenue Lane La Donna Avenue Cass Way Kenneth Drive Fabian Way Page Mill Road Middlefield RoadChristine Drive Louis Road Charleston Road Bayshore FreewayBayshore Freeway Chimalus Drive Hanover Street Community Lane Greenwood Avenue Harker Avenue Parkinson Avenue AvenueMaplewood Pl Mackay Drive Santa Teresa Lane Byron Street Varian Way Arastradero Rd Quail Dr Quail Dr Paloma Dr Paloma Dr Trinity Ln Heron Wy Feather LnStanislaus Ln Tuolumne Ln Plover Ln Sandpiper Ln Curlew Ln Mallard LnEgret Ln Klamath Ln Deodar StAlder LnSpruce Ln Rickey's Ln Juniper Way Rickey's Wy Rickey's Wy Rickey's Wy Juniper Lane Emerson Street Boronda Lane Tahoe Lane Lake Avenue Donner Lane Almanor Lane Fallen Leaf Street Berryessa Street Cashel St Noble StHettinger Ln Pratt Ln Emma Court Galvez Mall Federation Way Abrams Court Allardice Way Alta Road Alvarado Ct Alvarado Row Angell Court Arguello Way Arguello Way Avery Mall Ayrshire Farm Lane Barnes Court Bonair Siding Bowdoin Street Cabrillo Avenue Cabrillo Avenue Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Campus Drive Capistrano Way Casanueva Place Cathcart Way Cedro Way Cedro Way Churchill Mall Comstock Circle Aboretum Road Aboretum Road Blackwelder Court Campus Drive Cathcart Way Constanzo Street Cooksey Lane Coronado Avenue Cottrell Way Cottrell Way Cowell Ln Crothers Way Dolores Street Dolores Street Dudley Lane Duena Street Electioneer Road Escondido Mall Escondido Mall Escondido Road Escondido Road Escondido Road Esplanada Way Estudillo Road Fremont Road Frenchmans Road Frenchmans Road Galvez Mall Alvarado Row Galvez Street Galvez Street Galvez Street Gerona Road Gerona RoadEl Escarpado Gerona Road Hoskins Court Hulme Court Jenkins Court Junipero Serra Boulevard Junipero Serra Boulevard Junipero Serra Boulevard Junipero Serra Boulevard Knight Way Lagunita Drive Lane L Lane W Lasuen Mall Lasuen Mall Lasuen Mall Lasuen Street Lathrop Drive Lathrop Drive Lathrop Place Lathrop Drive Links Road Links Road Lomita Drive Lomita Drive Lomita Drive Lomita Drive Lomita Drive Lomita Court Lomita Mall Los Arboles Avenue Masters Mall Mayfield Avenue Mayfield Avenue Mayfield Avenue Mayfield Avenue Mayfield Avenue Mayfield Avenue McFarland Court Mears Court Mears Court Memorial Way Mirada AvenueMirada Avenue Museum Way N Service Road N Tolman Ln Nelson MallNelson Road North-South Axis Oberlin StComstock Circle Escondido Mall Olmsted Road Olmsted Road Olmsted Road Olmsted Road Olmsted Road Palm Drive Palm Drive Pampas Lane Panama Mall Panama Mall Panama Street Panama Street Pearce Mitchell Pl Peter Coutts Circle Peter Coutts Road Peter Coutts Road Pine Hill Court Pine Hill Road Quarry Extension Quarry Road Quillen Ct Raimundo Way Raimundo Way Raimundo Way Roble Drive Rosse LaneRoth Way Roth Way Roth Way Running Farm Lane Ryan Court S Service Road S Tolman Ln Salvatierra Street Salvatierra St Salvatierra Walk Samuel Morris Wy San Francisco TerraceSan Francisco Court San Juan St San Juan St San Rafael Pl Santa Fe Avenue Santa Maria Avenue Santa Teresa Street Santa Teresa Street Santa Ynez Street Searsville Road Sequoia Wy Serra Mall Serra Street Serra Street Serra Street Sonoma Terrace Stanford Avenue Stanford Avenue Stock Farm Road Thoburn Court Tolman Drive Valdez Place Valparaiso Street Vernier Place Via Ortega Via PalouVia Pueblo Mall Welch Road Wellesley St Wilbur Way Wing Place Yale St Alma Street Alma Street Alma Street Alma Street Alma Street Hawthorne Avenue Lytton Avenue Loop Road Loop Road North Yard Road Pep Ring Road Pep Ring Road Pep Ring Road Alpine Access Road Nathan Abbott Way Sam McDonald Road Sam McDonald Mall Vista Lane Bowdoin Lane Arguello Way Governors Avenue Governors Avenue Governors Avenue S Governors Lane Pasteur Drive Lagunita Drive Alma Village LaneAlma Village Circle Reservoir Road Reservoir Road Reservoir Road Ranch Road Ryan Lane O'Connor Lane Gene Ct Brassinga Ct Cole Ct Birch Street Arboretum Road Welch Road Pasteur Drive Pasteur Drive This map is a product of the City of Palo Alto GIS This document is a graphic representation only of best available sources. Legend Local Roads - 7 abc Proposed Minor Collector - 6 abc Proposed Major Collector - 5 abc Proposed Minor Arterial - 4 abc Proposed Principal Arterial - 3 0'4383' Ci t y o f P a l o A l t o Pr o p o s e d C R S M a p CITY O F PALO A L TO I N C O R P O R ATE D C ALIFOR N IA P a l o A l t oT h e C i t y o f A P RIL 16 1894 The City of Palo Alto assumes no responsibility for any errors. ©1989 to 2015 City of Palo Alto mnicols, 2015-03-11 11:39:40Proposed CRS Map 2 26 15 (\\cc-maps\gis$\gis\admin\Personal\Pavement.mdb) Exhibit B #Street From To Prior Functional Classification New Functional Classification 1 Arastradero Road Portola Valley City Limit Los Altos Hills City Limit Local Major Collector 2 Arastradero Road Los Altos Hills City limit Foothill Expressway Minor Arterial Other Principal Arterial 3 Arastradero Road Foothill Expressway El Camino Real Minor Arterial Other Principal Arterial 4 Amaranta Avenue Los Robles Avenue Maybell Avenue Local Minor Collector 5 Laguna Avenue Matadero Avenue Los Robles Avenue Local Major Collector 6 Matadero Avenue El Camino Real Laguna Avenue Local Major Collector 7 Barron Avenue El Camino Real Laguna Avenue Local Minor Collector 8 Los Robles Avenue El Camino Real Laguna Avenue Local Major Collector 9 Sand Hill Road El Camino Real Arboretum Road Local Other Principal Arterial 10 Sand Hill Road Arboretum Road Menlo Park City Limit Minor Arterial Other Principal Arterial 11 Stanford Avenue El Camino Real Amherst Street Local Minor Collector 12 Colorado Avenue Alma Street Cowper Street Local Major Collector 13 Colorado Avenue Cowper Street Middlefield Road Local Major Collector 14 High Street Lytton Avenue Homer Avenue Local Minor Collector 15 North California Avenue Alma Street Middlefield Road Local Major Collector 16 North California Avenue Middlefield Road Embarcadero Road Local Minor Collector 17 Louis Road Embarcadero Road Oregon Expressway Local Major Collector 18 Louis Road Oregon Expressway Colorado Avenue Local Major Collector 19 Louis Road Colorado Avenue East Meadow Drive Local Major Collector 20 Louis Road East Meadow Drive East Charleston Rd Local Major Collector 21 Chaucer Street Hamilton Avenue Menlo Park City Limit Local Major Collector 22 Quarry Road El Camino Real Welch Road Major Collector Other Principal Arterial 23 Newell Road Embarcadero Road North California Avenue Local Minor Collector 24 Embarcadero Road West Bayshore Road Harbor Road Major Collector Minor Arterial 25 University Avenue El Camino Real East Palo Alto City limit Minor Arterial Other Principal Arterial 26 University Circle University Avenue University Avenue Local Major Collector 27 Lytton Avenue Alma Street Guinda Stret Major Collector Minor Arterial 28 Hamilton Avenue Alma Street Guinda Stret Major Collector Minor Arterial 29 Waverley Street Lytton Avenue Embarcadero Road Local Minor Collector 30 Waverley Street Embarcadero Road Oregon Expressway Local Minor Collector 31 Waverley Street Oregon Expressway East Meadow Drive Local Minor Collector 32 Greer Road Channing Avenue Embarcadero Road Local Minor Collector 33 Greer Road Embarcadero Road Loma Verde Avenue Local Minor Collector 34 Middlefield Road Menlo Park City Limit Embarcadero Road Minor Arterial Other Principal Arterial 35 Middlefield Road Embarcadero Road Oregon Expressway Minor Arterial Other Principal Arterial 36 Middlefield Road Oregon Expressway Mountain View City limit Minor Arterial Other Principal Arterial February 20, 2015 Jean Finney Deputy District Director Caltrans District 4 Office of System and Regional Planning P.O. Box 23660 Oakland, CA 94623-0660 Attention: Dick Fahey RE: Functional Classification Change Request Dear Ms. Finney: This letter is in regards to the Functional Classification changes requested by the City of Palo Alto. MTC, as the regional MPO and RTPA, concurs with the changes of functional classification for the street segments as shown on the Functional Classification Change Request Form. If you have any questions regarding this matter, do not hesitate to contact me at (510) 817-5772 or by email at tromell@mtc.ca.gov. Theresa Romell Principal Regional Streets & Roads Program cc: Murdo Nicholson, City of Palo Alto S:\Project\Pavement Management\Projects\Functional Classifications\2015 FC\Palo Alto\ City of Palo Alto (ID # 5599) City Council Staff Report Report Type: Consent Calendar Meeting Date: 3/23/2015 City of Palo Alto Page 1 Summary Title: Amendment to the Lease at 1005 and 1007 Elwell Court Title: Approval of Amendment Number Seven to the City’s Lease Agreement with McCandless Limited, LLC., For Office Space at 1005 and 1007 Elwell Court, Palo Alto. From: City Manager Lead Department: Administrative Services RECOMMENDATION Staff recommends that the Council approve and authorize the City Manager or his designee to execute the attached Amendment to renew the lease for 1005 and 1007 Elwell Court. The Amendment Number Seven (7) will extend the current lease agreement for an additional three (3) years with an option to further extend the term for an additional three (3) years. EXECUTIVE SUMMARY City of Palo Alto currently leases from McCANDLESS LIMITED, LLC, a California limited liability company (Landlord”) approximately nine thousand two hundred two (9,202) square feet of space located at 1007 Elwell Court, Palo Alto, California (the “1007 Premises”) and approximately six thousand nine hundred fifty-five (6,955) square feet located at 1005 Elwell Court, Palo Alto, California (the “1005 Premises”), for a total area of 16,157 square feet of office space pursuant to that certain lease dated as of July 31, 1998. In the past ten years, the Lease agreement has been amended several times to add more years to the term of the lease and to modify the square footage of the Premises. The current lease will expire on August 31, 2015 therefore, the lease term needs to be extended to accommodate the continuation of use by the Utilities Department Engineering staff. The new lease amendment will extend the lease term for an additional three years and will grant the City an option to extend the term for an additional three years on August 31, 2021. BACKGROUND On July 31, 1998, the City entered into a 10-year lease with McCandless Limited for 9,202 square feet of office space at 1007 Elwell Court. The purpose of the lease was to provide space for the relocation of the Utilities Engineering staff to address the over-crowded conditions in City of Palo Alto Page 2 the Civic Center as described in CMR: 204:98. Since that time, the Council has approved several amendments to add additional footage and to modify the lease to house the additional staff required for the Fiber to the Home, the Dark Fiber and map updating projects. The Utilities Department has been using the office space at the premises for its engineering and operation projects. DISCUSSION A. DESCRIPTION The 1007 Premises and the 1005 Premises are located in a building commonly known as 1001- 1007 Elwell Court, Palo Alto, California (the “Project”). The existing square footage of the premises used by the Utilities Department is 16,157 square feet. Specifically, it provides office space for field inspectors and their equipment, a library for utilities system documentation and plan review, engineering training stations, and conference rooms. The City currently pays $1.70 per square foot for rent, the new lease rate will begin at $3.00 per square foot triple net and it will increase by 2.5% per year. The cost is included in the current Utilities budget, shared between the Electric, Fiber, Water, Gas, and Wastewater Collection funds. Staff is requesting a three-year lease extension at this time because ultimately staff is interested in relocating Utilities Engineering staff to a City owned property (non-existent at this point).. Staff estimates that if a new site is acquired and developed, it will take at least three years to construct and develop a new office space for Utilities Engineering staff at the new location. This three-year lease extension should allow enough time to determine if the City will proceed with the construction and development of a new utilities facility. B. Basic Rent The City to pay monthly basic rent for the seventh extended term starting at $3.00 per square foot with annual CPI increase of 2.5% as set forth below: Period Rent Monthly Rent Annual September 1, 2015 – August 31, 2016 $48,471.00 $581,652 September 1, 2016 – August 31, 2017 $49,682.78 $596,193 September 1, 2017 – August 31, 2018 $50,924.84 $611,098 C. Common Area Charges (CAM) CAM charges were approximately $0.45 cents per square foot totaling about $88,000 for Fiscal Year 2014. D. Option to Extend the Lease Term If City exercises the option to extend the lease after the date of August 31, 2018, the rental rate will be based on the comparable market office space rent in the San Francisco Peninsula Area. City of Palo Alto Page 3 RESOURCE IMPACT The annual estimated cost of the extended three year lease term for the rent expense is $1,788,943. The common area maintenance charges for calendar year 2014 were about $88,000. Utilities Department will request additional funding in the amount of $200,000 in the FY 2016 base budget for the rent increase and be offset with reductions in the following Operations Reserve funds for Electric ($96,000), Gas ($38,000), Water ($38,000), and Wastewater Collection ($28,000). POLICY IMPLICATIONS This recommendation is consistent with existing City policies and supports the Utilities Strategic Plan. ENVIRONMENTAL REVIEW Extending the lease for office space is exempt from the requirements of the California Environmental Quality Act. Attachments: Attachment A: Seventh Amendment to Lease - 1005 and 1007 Elwell Court (DOC) Attachment A MCJE\30288\911894.1 -1- SEVENTH AMENDMENT TO STANDARD INDUSTRIAL LEASE THIS SEVENTH AMENDMENT TO STANDARD INDUSTRIAL LEASE (hereinafter “Seventh Amendment”) is made this ____ day of __________, 2015, by and between McCANDLESS LIMITED, LLC, a California limited liability company (Landlord”) and THE CITY OF PALO ALTO, a California municipal corporation (“Tenant”). RECITALS This Seventh Amendment is made with reference to the following facts: A. Tenant currently leases from Landlord approximately nine thousand two hundred two (9,202) square feet of space located at 1007 Elwell Court, Palo Alto, California (the “1007 Premises”) and approximately six thousand nine hundred fifty-five (6,955) square feet located at 1005 Elwell Court, Palo Alto, California (the “1005 Premises”), (for a total area of 16,157 square feet) of pursuant to that certain lease dated as of July 31, 1998, that certain Amendment to Standard Industrial Lease dated as of April 1, 2003, that certain Second Amendment to Standard Industrial Lease dated as of March 16, 2005, that certain Third Amendment to Standard Industrial Lease dated as of September 20, 2005, that certain Fourth Amendment to Standard Industrial Lease dated as of June 6, 2006, that certain Fifth Amendment to Standard Industrial Lease dated as of May 16, 2007 (“Fifth Amendment”) and that certain Sixth Amendment to Standard Industrial Lease dated as of August 30, 2013 (“Sixth Amendment”) (collectively, the “Lease”). The 1007 Premises and the 1005 Premises are located in a building commonly known as 1001-1007 Elwell Court, Palo Alto, California (the “Project”). B. Tenant wishes to extend the term of the Lease by three years with an option to further extend the term by an additional three years. C. Landlord is willing to so amend the Lease subject to the terms and conditions set forth in this Seventh Amendment. ACCORDINGLY, in consideration of the above Recitals and the mutual covenants and agreements contained herein and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: MCJE\30288\911894.1 -2- 1. Incorporation of Recitals and Exhibits. The above Recitals are true and accurate and the Recitals are incorporated herein by reference. 2. Term. Commencing September 1, 2015, the term of the Lease respecting the Premises shall be extended for three (3) additional years until August 31, 2018. The period commencing September 1, 2015 and ending on August 31, 2018 shall be referred to herein as the Sixth Extended Term 3. Security Deposit. Landlord currently holds a cash security deposit provided by Tenant in the amount of Seven Thousand One Hundred and Fifteen Dollars ($7,115) and no further deposit shall be required. 4. Basic Rent. Landlord and Tenant hereby agree that monthly basic rent for the seventh extended term shall be at $3.00 per square foot with annual CPI increase of 2.5% as set forth below: September 1, 2015 – August 31, 2016 $48,471.00 September 1, 2016 – August 31, 2017 $49,682.78 September 1, 2017 – August 31, 2018 $50,924.84 5. Brokers. Each party represents that it has not had any dealings with any real estate broker, finder or other person with respect to this Amendment, and that there are no leasing commissions to be paid by Landlord or Tenant in connection with this transaction. Each party hereto shall hold harmless the other party from all damages, loss or liability resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom such party has dealt, or purportedly has dealt, in connection with this transaction. 6. Warranty of Authority: Each signatory to this Seventh Amendment represents that he or she possesses full authority to exercise this Seventh Amendment and to bind the entity on whose behalf such signatory is signing. 7. Capitalized Terms. Except as expressly provided in this Seventh Amendment, all capitalized terms used in this Seventh Amendment shall possess the same meaning ascribed to that term in the Lease. 8. Conflicts. In the event of any conflict between the Lease on the one hand and this Seventh Amendment on the other, the terms of this Seventh Amendment shall govern and control. MCJE\30288\911894.1 -3- 9. Counterparts. This Seventh Amendment may be executed in identical facsimile or e-mailed .pdf counterparts, each of which shall be deemed an original and all of which shall constitute one and the same legally binding instrument. IN WITNESS WHEREOF, the parties hereto have executed this Seventh Amendment. LANDLORD: TENANT: McCANDLESS LIMITED, LLC, a California limited liability company THE CITY OF PALO ALTO, a California municipal corporation By: Name: _______________________ Its: __________________________ By: City Manager Approved as to form: By: City Attorney By: Director of Utilities By: Director of Administrative Services City of Palo Alto (ID # 5577) City Council Staff Report Report Type: Consent Calendar Meeting Date: 3/23/2015 City of Palo Alto Page 1 Summary Title: Amendment of Arnold Mammarella Architecture and Consulting Contract Title: Approval of Amendment Number One to Contract C14153010 with Arnold Mammarella Architecture and Consulting to Increase the Contract by $400,000 for an Amount Not to Exceed $784,999 for On-Call Planning Services Needed to Support Implementation of the City's Individual Review Program From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that the City Council authorize the City Manager or his designee to amend Contract C14153010 with Mammarella Architecture and Consulting to increase the contract limit by $400,000 for a total amount not to exceed $784,999. Executive Summary The Planning and Community Environment Department (PCE) uses consultants to support aspects of the Individual Review program. The City uses consultants with architectural expertise to review special projects and to backfill during peak construction cycles. The contract with Arnold Mammarella Architecture and Consulting is reaching its limit and will be exhausted soon if not amended. Background PCE has historically maintained contracts with several consultants to provide various on-call planning services. In recent years, the department has relied on on-call service providers to work on special projects requiring particular areas of expertise or to address increases in workload. The Individual Review program, which involves the review of two story residences, is one area where staff has been able to leverage their time by using consultants with the required expertise. Due to unexpected staff shortages, the department’s reliance on these consultants has increased and the contract will soon reach capacity. Applicants are charged fees, as found in the Municipal Fee Schedule, which are established to cover the cost of staff and contractor work on Individual Review projects. These fees are currently being reexamined City of Palo Alto Page 2 as part of a comprehensive PCE user fee study. Discussion Following a competitive solicitation and selection process, Council approved five on-call environmental and four on-call planning consulting contracts in February, 2014 (Staff Report 4018). The on-call planning consultation contracts are with: Arnold Mammarella Architecture and Consulting; The Planning Center/DCE; Dudek; and, Metropolitan Planning Group. On-call planning consultants are used as project managers to manage applications for planning entitlements or as independent technical consultants. Although the contracts are for a period of three years, the department took a cautious approach, limiting contract capacity to modest amounts. This provided the department an opportunity to see which consultant would work best with current workload needs without overextending the City’s contracts. When consultant assistance is needed, consultants are chosen from the contracted group based upon their experience, specific expertise, availability, and cost per activity or project. Mammarella Architecture and Consulting has a particular expertise in Individual Review. Due to unanticipated staff shortages and workload, the department needs additional contract support immediately. Based on the types of work and the consultant’s experience in these areas, Mammarella Architecture and Consulting is most suited to provide Individual Review support needed by the department at this time. The amount of assistance needed will exceed the contract limit unless this contract is amended. Staff requests Council’s authorization to amend the contract accordingly. Resource Impact Sufficient funding is available within the Planning and Community Environment department’s Fiscal Year 2015 Adopted Operating Budget through Salary Savings due to vacancies and other sources, to fund the increase to the contract. At the current rate of utilization, amending the contract to $784,999 will provide enough capacity to cover the department’s needs through June, 2016. Environmental Review The proposed action is not a project requiring review pursuant to the California Environmental Quality Act (CEQA). Attachments: Attachment A: Contract Amendment No. 1 to C14153010 (PDF) CITY OF PALO ALTO OFFICE OF THE CITY AUDITOR March 23, 2015 The Honorable City Council Palo Alto, California Request for Procedural Change - Present the Results of the Animal Services Audit to the Finance Committee Rather Than to the Policy and Services Committee Recommendation Staff recommends that the City Council refer presentation of the Animal Services Audit to the Finance Committee. Background In October 2014, Council adopted changes to Section 2.08.130 of the Palo Alto Municipal Code that now require the Office of the City Auditor to present all completed performance audits to the Policy and Services Committee. The Office of the City Auditor is currently conducting an audit of the Animal Services Division to evaluate and compare best practices for providing animal services, to determine if Animal Services receives all revenues to which it is entitled, and to determine if improvements can be made in operations to allow the program to break even with the cost of services provided. The Office of the City Auditor is also conducting a resident and user survey to evaluate the opinions of services provided by Animal Services. The audit will include the results of this survey. On December 2, 2014, the Finance Committee heard discussion of a Colleagues Memo regarding Animal Services. The Finance Committee accepted the City Manager’s recommendation to defer the item to a meeting after April 2015 to allow the City Auditor to publish the results of the Animal Services audit and for the City Manager’s Office to continue to engage stakeholders and interest groups of the Animal Services Division with a consulting firm. The Office of the City Auditor recommends that the results of the audit be presented to the Finance Committee rather than the Policy and Services Committee. This change would provide continuity in discussion because the Finance Committee will be hearing the results of the ongoing work that the City Manager’s Office is doing with stakeholders and interest groups of the Animal Services Division. Hearing both the audit results and the results of the City Manager’s work with stakeholders will provide continuity and facilitate the decision-making process regarding the future of the Animal Services Division. Page 2 Respectfully submitted, Harriet Richardson City Auditor Department Head: Harriet Richardson, City Auditor Page 3 City of Palo Alto (ID # 5502) City Council Staff Report Report Type: Consent Calendar Meeting Date: 3/23/2015 City of Palo Alto Page 1 Summary Title: Sanitary Sewer Rehabilitation 24/25/26 Title: Approval of a Wastewater Enterprise Fund Contract with Precision Engineering, Inc. In the Amount of $7,405,730 for Sanitary Sewer Rehabilitation Projects 24, 25, and 26 in University South, Professorville and Old Palo Alto Neighborhoods From: City Manager Lead Department: Utilities Recommendation Staff recommends that Council approve and authorize the City Manager or his designee to execute the attached contract with Precision Engineering, Inc. (Attachment A) in a not to exceed amount of $6,732,482 for the Capital Improvement Program (CIP) WC-11000, WC- 12001 and WC-13001 (Sanitary Sewer Rehabilitation (SSR) Project 24, 25 and 26). Staff also recommends that Council approve and authorize the City Manager or his designee to negotiate and execute one or more change orders to the contract with Precision Engineering, Inc. for related additional but unforeseen work, which may develop during the project, the total value of which shall not exceed 10% of the contract, or $673,248. The total contract award authority is for $7,405,730. Executive Summary Bid Name/Number Sanitary Sewer Rehabilitation Project, CIP WC-11000, WC-12001 and WC-13001, IFB Number 157516 Proposed Length of Project 555 calendar days Number of Bids Mailed to Contractors 0 (electronic documents were available in CPA website) Number of Bids Mailed to Builder’s Exchanges 0 Total Days to Respond to Bid 35 Pre-Bid Meeting? Yes (Mandatory) Number of Company Attendees at Pre-Bid Meeting 9 City of Palo Alto Page 2 Number of Bids Received: 5 Bid Price Range $6,732,482 - $8,238,000 *Bid summary provided in Attachment B. Staff has reviewed the submitted bids and recommends that the bid of $6,732,482 submitted by Precision Engineering, Inc. be accepted and that Precision Engineering, Inc. be declared the lowest responsible bidder. The bid is approximately 2 percent below the staff engineer's estimate of $6,903,338. The bids received are consistent with the current state of the economy. The engineer’s estimated price was very close to the bids received because it was based on recent pricing trends for similar projects. The change order amount of $673,248, which equals 10 percent of the total contract, is requested for additional unforeseen work that may develop during the project. Staff confirmed with the Contractor's State License Board that the contractor has an active license on file. Staff checked references supplied by the contractor for previous work performed and found no significant complaints. In addition to this, Precision Engineering, Inc has contracted with the City in the past on Utilities Department projects, and has demonstrated the knowledge and ability needed to complete this project on schedule and within budget. Background This project is part of the Utilities Department plan to address areas that were identified in Wastewater Capital Improvement Project 17 (Cleaning and Video Inspection of the Collection System) as needing rehabilitation. The planned areas were prioritized based on system maintenance needs, the 2004 Wastewater Master Plan, the Public Works street paving program, and the goals of the Sanitary Sewer Management Plan. Staff also coordinated this project with other underground work to minimize interference with other contractors and their schedules. Bids were originally solicated for SSR 24/25 in August 2014. At that time the City received five (5) bids, all of which were at least 20 percent above the engineer’s estimate. In September 2014, the City rejected all bids because the bids exceeded the project budget. Following the rejection of the bids, the work scope was reduced in order to stay within the project budget. SSR 24/25/26 was rebid in December 2014 and five (5) bids were received. The lowest bid received was from Precision Engineering, Inc. which was two (2) percent below the engineer’s estimate. Discussion The work to be performed under the contract is for replacement and/or rehabilitation of approximately 42,398 linear feet of sanitary sewer mains of various sizes and installation of 121 sewer manholes. In addition, 779 existing sewer service laterals and cleanouts will be replaced with new 4” High Density Polyethylene (HDPE) service laterals and cleanouts. All new service laterals will be installed from the new sewer main (usually located in the street) to the new sewer cleanouts (located in the City’s right-of-way, usually in a planting strip or behind the City of Palo Alto Page 3 sidewalk). Any landscaping that may be removed as part of the work will be restored in kind when construction is completed. No work will be done on private property as part of the new sewer service lateral installation. The project is primarily located in the University South, Professorville and Old Palo Alto areas of the City along with some additional minor work in non-contiguous areas of Midtown and Duveneck/St. Francis. Project locations are shown on Attachment C. The City will provide written notification to all affected property occupants prior to the start of construction. The Contractor will also provide written notification of the work to all abutting property occupants at least 7 days and 24 hours prior to commencement of work at their specific locations. In order to minimize disruption during the extended period of construction, work will, in general, only be performed from 8:00 AM to 5:00 PM, Monday through Friday and no construction work will be allowed during the two week period between the Christmas and New Year’s holidays. Construction work on Alma Street, Embarcadero Road, Middlefield Road and Channing Avenue will only be permitted between 9:00 AM and 4:00 PM. In addition, all rehabilitation work that is to be done within the Palo Alto High School easement (located between Alma Street between Kingsley and Melville) will be completed when school is not in session. The construction period for each location will vary depending on the extents of work to be done. In general, residents/business can expect construction in their area lasting a minimum of one month. Resource Impact Funds for this contract ($6,732,482) including contingency amounts ($673,248) are available in the Wastewater Capital Improvement Program Sanitary Sewer Rehabilitation (SSR) Projects 24 (WC-11000), 25 (WC-12001) and 26 (WC-13001). WC-11000 and WC-12001 will each fund thirty (30) percent of the project budget, or $2,221,719 ($4,443,438 total). WC-13001 will fund forty (40) percent of the project budget, or $2,962,292 The size of this project significantly exceeds the City’s in-house construction resources making it necessary to contract out the work. Policy Implications The approval of this contract is consistent with existing City policies including the Council approved Utilities Strategic Plan-Strategic Objectives: BP1. Ensure a reliable supply of utility resources, BP2. Operate the utility systems safely, and BP3. Replace infrastructure before the end of its useful life. Environmental Review This project is categorically exempt from California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines 15301 (repair, maintenance of existing facilities) and 15302 (replacement or reconstruction of existing facilities). Attachments: Attachment A: Contract (PDF) Attachment B: Bid Summary (PDF) City of Palo Alto Page 4 Attachment C: Site Location Map (PDF) CONSTRUCTION CONTRACT Contract No. C15157516 City of Palo Alto Sanitary Sewer Rehabilitation 24 25 26 Project Invitation for Bid (IFB) Package 1 Rev. January 2014 CONSTRUCTION CONTRACT ATTACHMENT A CONSTRUCTION CONTRACT TABLE OF CONTENTS SECTION 1 INCORPORATION OF RECITALS AND DEFINITIONS. ......................................................... 5 1.1 Recitals. ................................................................................................................................................... 5 1.2 Definitions. ............................................................................................................................................ 5 SECTION 2 THE PROJECT. .................................................................................................................... 5 SECTION 3 THE CONTRACT DOCUMENTS. ......................................................................................... 5 SECTION 4 CONTRACTOR’S DUTY. ...................................................................................................... 6 SECTION 5 PROJECT TEAM. ................................................................................................................. 7 6.1 Time Is of Essence. .............................................................................................................................. 7 6.2 Commencement of Work. ................................................................................................................ 7 6.3 Contract Time. ...................................................................................................................................... 7 6.4 Liquidated Damages. .......................................................................................................................... 7 6.4.1 Other Remedies. ....................................................................................................... 7 6.5 Adjustments to Contract Time. ....................................................................................................... 8 SECTION 7 COMPENSATION TO CONTRACTOR. ................................................................................ 8 7.1 Contract Sum. ....................................................................................................................................... 8 7.2 Full Compensation. ............................................................................................................................. 8 SECTION 8 STANDARD OF CARE. ........................................................................................................ 8 SECTION 9 INDEMNIFICATION. ........................................................................................................... 8 9.1 Hold Harmless. ..................................................................................................................................... 8 9.2 Survival. .................................................................................................................................................. 9 SECTION 10 NONDISCRIMINATION. ................................................................................................... 9 SECTION 11 INSURANCE AND BONDS. ............................................................................................... 9 SECTION 12 PROHIBITION AGAINST TRANSFERS............................................................................... 9 SECTION 13 NOTICES ……………………………………………………………………………………………………………………. 10 13.1 Method of Notice ………………………………………………………………………………………………………………10 13.2 Notice Recipents ……………………………………………………………………………………………………………….10 13.3 Change of Address. ........................................................................................................................... 10 SECTION 14 DEFAULT. ......................................................................................................................... 11 Invitation for Bid (IFB) Package 2 Rev. January 2014 CONSTRUCTION CONTRACT 14.1 Notice of Default. .............................................................................................................................. 11 14.2 Opportunity to Cure Default. ........................................................................................................ 11 SECTION 15 CITY'S RIGHTS AND REMEDIES. ...................................................................................... 11 15.1 Remedies Upon Default. ................................................................................................................. 11 15.1.1 Delete Certain Services. .......................................................................................... 11 15.1.2 Perform and Withhold. ........................................................................................... 11 15.1.3 Suspend The Construction Contract. .................................................................... 11 15.1.5 Invoke the Performance Bond. ............................................................................. 12 15.1.6 Additional Provisions. ............................................................................................. 12 15.2 Delays by Sureties. ............................................................................................................................ 12 15.3 Damages to City. ................................................................................................................................ 12 15.3.1 For Contractor's Default. ........................................................................................ 12 15.3.2 Compensation for Losses. ...................................................................................... 12 15.4 Suspension by City ............................................................................................................................ 13 15.4.1 Suspension for Convenience. .......................................................................................... 13 15.5 Termination Without Cause. ......................................................................................................... 13 15.5.1 Compensation. ......................................................................................................... 13 15.5.2 Subcontractors. ........................................................................................................ 14 15.6 Contractor’s Duties Upon Termination. ..................................................................................... 14 SECTION 16 CONTRACTOR'S RIGHTS AND REMEDIES. ...................................................................... 14 16.1 Contractor’s Remedies. ................................................................................................................... 14 16.1.1 For Work Stoppage. ................................................................................................. 15 16.1.2 For City's Non-Payment. ......................................................................................... 15 16.2 Damages to Contractor. .................................................................................................................. 15 SECTION 17 ACCOUNTING RECORDS. ................................................................................................ 15 17.1 Financial Management and City Access. ................................................................................... 15 17.2 Compliance with City Requests. ................................................................................................... 15 SECTION 18 INDEPENDENT PARTIES. ................................................................................................. 15 SECTION 19 NUISANCE. ...................................................................................................................... 16 SECTION 20 PERMITS AND LICENSES. ................................................................................................ 16 SECTION 21 WAIVER. .......................................................................................................................... 16 SECTION 22 GOVERNING LAW AND VENUE....................................................................................... 16 Invitation for Bid (IFB) Package 3 Rev. January 2014 CONSTRUCTION CONTRACT SECTION 23 COMPLETE AGREEMENT. ................................................................................................ 16 SECTION 24 SURVIVAL OF CONTRACT. ............................................................................................... 16 SECTION 25 PREVAILING WAGES. ...................................................................................................... 16 SECTION 26 NON APPROPRIATION. ................................................................................................... 17 SECTION 27 AUTHORITY. .................................................................................................................... 17 SECTION 28 COUNTERPARTS .............................................................................................................. 17 SECTION 29 SEVERABILITY. ................................................................................................................. 17 SECTION 30 STATUTORY AND REGULATORY REFERENCES . ............................................................. 17 SECTION 31 WORKERS’ COMPENSATION CERTIFICATION. ................................................................ 17 Invitation for Bid (IFB) Package 4 Rev. January 2014 CONSTRUCTION CONTRACT CONSTRUCTION CONTRACT THIS CONSTRUCTION CONTRACT entered into on March 16, 2015 (“Execution Date”) by and between the CITY OF PALO ALTO, a California chartered municipal corporation ("City"), and PRECISION ENGINEERING, INC. ("Contractor"), is made with reference to the following: R E C I T A L S: A. City is a municipal corporation duly organized and validly existing under the laws of the State of California with the power to carry on its business as it is now being conducted under the statutes of the State of California and the Charter of City. B. Contractor is a corporation duly organized and in good standing in the State of California, Contractor’s License Number 880266. Contractor represents that it is duly licensed by the State of California and has the background, knowledge, experience and expertise to perform the obligations set forth in this Construction Contract. C. On December 18, 2014, City issued an Invitation for Bids (IFB) to contractors for the Sanitary Sewer Rehabilitation Project 24, 25, 26 (“Project”). In response to the IFB, Contractor submitted a Bid. D. City and Contractor desire to enter into this Construction Contract for the Project, and other services as identified in the Contract Documents for the Project upon the following terms and conditions. NOW THEREFORE, in consideration of the mutual promises and undertakings hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is mutually agreed by and between the undersigned parties as follows: SECTION 1 INCORPORATION OF RECITALS AND DEFINITIONS. 1.1 Recitals. All of the recitals are incorporated herein by reference. 1.2 Definitions. Capitalized terms shall have the meanings set forth in this Construction Contract and/or in the General Conditions. If there is a conflict between the definitions in this Construction Contract and in the General Conditions, the definitions in this Construction Contract shall prevail. SECTION 2 THE PROJECT. The Project is the Sanitary Sewer Rehabilitation 24, 25, 26 Project located in Palo Alto, CA. ("Project"). SECTION 3 THE CONTRACT DOCUMENTS. 3.1 List of Documents. The Contract Documents (sometimes collectively referred to as “Agreement” or “Bid Documents”) consist of the following documents which are on file with the Purchasing Division and are hereby incorporated by reference. 1) Change Orders Invitation for Bid (IFB) Package 5 Rev. January 2014 CONSTRUCTION CONTRACT 2) Field Orders 3) Contract 4) Bidding Addenda 5) Special Provisions 6) General Conditions 7) Project Plans and Drawings 8) Technical Specifications 9) Instructions to Bidders 10) Invitation for Bids 11) Contractor's Bid/Non-Collusion Affidavit 12) Reports listed in the Contract Documents 13) Public Works Department’s Standard Drawings and Specifications (most current version at time of Bid) 14) Utilities Department’s Water, Gas, Wastewater, Electric Utilities Standards (most current version at time of Bid) 15) City of Palo Alto Traffic Control Requirements 16) City of Palo Alto Truck Route Map and Regulations 17) Notice Inviting Pre-Qualification Statements, Pre-Qualification Statement, and Pre- Qualification Checklist (if applicable) 18) Performance and Payment Bonds 3.2 Order of Precedence. For the purposes of construing, interpreting and resolving inconsistencies between and among the provisions of this Contract, the Contract Documents shall have the order of precedence as set forth in the preceding section. If a claimed inconsistency cannot be resolved through the order of precedence, the City shall have the sole power to decide which document or provision shall govern as may be in the best interests of the City. SECTION 4 CONTRACTOR’S DUTY. Contractor agrees to perform all of the Work required for the Project, as specified in the Contract Documents, all of which are fully incorporated herein. Contractor shall provide, furnish, and supply all things necessary and incidental for the timely performance and completion of the Work, including, but not limited to, provision of all necessary labor, materials, equipment, transportation, and utilities, unless Invitation for Bid (IFB) Package 6 Rev. January 2014 CONSTRUCTION CONTRACT otherwise specified in the Contract Documents. Contractor also agrees to use its best efforts to complete the Work in a professional and expeditious manner and to meet or exceed the performance standards required by the Contract Documents. SECTION 5 PROJECT TEAM. In addition to Contractor, City has retained, or may retain, consultants and contractors to provide professional and technical consultation for the design and construction of the Project. The Contract requires that Contractor operate efficiently, effectively and cooperatively with City as well as all other members of the Project Team and other contractors retained by City to construct other portions of the Project. SECTION 6 TIME OF COMPLETION. 6.1 Time Is of Essence. Time is of the essence with respect to all time limits set forth in the Contract Documents. 6.2 Commencement of Work. Contractor shall commence the Work on the date specified in City’s Notice to Proceed. 6.3 Contract Time. Work hereunder shall begin on the date specified on the City’s Notice to Proceed and shall be completed within 555 calendar days after the commencement date specified in City’s Notice to Proceed. By executing this Construction Contract, Contractor expressly waives any claim for delayed early completion. 6.4 Liquidated Damages. Pursuant to Government Code Section 53069.85, if Contractor fails to achieve Substantial Completion of the entire Work within the Contract Time, including any approved extensions thereto, City may assess liquidated damages on a daily basis for each day of Unexcused Delay in achieving Substantial Completion, based on the amount of Five Hundred dollars ($500.00) per day, or as otherwise specified in the Special Provisions. Liquidated damages may also be separately assessed for failure to meet milestones specified elsewhere in the Contract Documents, regardless of impact on the time for achieving Substantial Completion. The assessment of liquidated damages is not a penalty but considered to be a reasonable estimate of the amount of damages City will suffer by delay in completion of the Work. The City is entitled to setoff the amount of liquidated damages assessed against any payments otherwise due to Contractor, including, but not limited to, setoff against release of retention. If the total amount of liquidated damages assessed exceeds the amount of unreleased retention, City is entitled to recover the balance from Contractor or its sureties. Occupancy or use of the Project in whole or in part prior to Substantial Completion, shall not operate as a waiver of City’s right to assess liquidated damages. 6.4.1 Other Remedies. City is entitled to any and all available legal and equitable remedies City may have where City’s Losses are caused by any reason other than Contractor’s failure to achieve Substantial Completion of the entire Work within the Contract Time. Invitation for Bid (IFB) Package 7 Rev. January 2014 CONSTRUCTION CONTRACT 6.5 Adjustments to Contract Time. The Contract Time may only be adjusted for time extensions approved by City and memorialized in a Change Order approved in accordance with the requirements of the Contract Documents. SECTION 7 COMPENSATION TO CONTRACTOR. 7.1 Contract Sum. Contractor shall be compensated for satisfactory completion of the Work in compliance with the Contract Documents the Contract Sum of Six Million Seven Hundred Thirty-Two Thousand Four Hundred Eighty Two Dollars ($6,732,482.00). [This amount includes the Base Bid and Additive Alternates] 7.2 Full Compensation. The Contract Sum shall be full compensation to Contractor for all Work provided by Contractor and, except as otherwise expressly permitted by the terms of the Contract Documents, shall cover all Losses arising out of the nature of the Work or from the acts of the elements or any unforeseen difficulties or obstructions which may arise or be encountered in performance of the Work until its Acceptance by City, all risks connected with the Work, and any and all expenses incurred due to suspension or discontinuance of the Work, except as expressly provided herein. The Contract Sum may only be adjusted for Change Orders approved in accordance with the requirements of the Contract Documents. SECTION 8 STANDARD OF CARE. Contractor agrees that the Work shall be performed by qualified, experienced and well-supervised personnel. All services performed in connection with this Construction Contract shall be performed in a manner consistent with the standard of care under California law applicable to those who specialize in providing such services for projects of the type, scope and complexity of the Project. SECTION 9 INDEMNIFICATION. 9.1 Hold Harmless. To the fullest extent allowed by law, Contractor will defend, indemnify, and hold harmless City, its City Council, boards and commissions, officers, agents, employees, representatives and volunteers (hereinafter individually referred to as an “Indemnitee” and collectively referred to as "Indemnitees"), through legal counsel acceptable to City, from and against any and liability, loss, damage, claims, expenses (including, without limitation, attorney fees, expert witness fees, paralegal fees, and fees and costs of litigation or arbitration) (collectively, “Liability”) of every nature arising out of or in connection with the acts or omissions of Contractor, its employees, Subcontractors, representatives, or agents, in performing the Work or its failure to comply with any of its obligations under the Contract, except such Liability caused by the active negligence, sole negligence, or willful misconduct of an Indemnitee. Contractor shall pay City for any costs City incurs to enforce this provision. Except as provided in Section 9.2 below, nothing in the Contract Documents shall be construed to give rise to any implied right of indemnity in favor of Contractor against City or any other Indemnitee. Invitation for Bid (IFB) Package 8 Rev. January 2014 CONSTRUCTION CONTRACT Pursuant to Public Contract Code Section 9201, City shall timely notify Contractor upon receipt of any third-party claim relating to the Contract. 9.2 Survival. The provisions of Section 9 shall survive the termination of this Construction Contract. SECTION 10 NONDISCRIMINATION. As set forth in Palo Alto Municipal Code section 2.30.510, Contractor certifies that in the performance of this Agreement, it shall not discriminate in the employment of any person because of the race, skin color, gender, age, religion, disability, national origin, ancestry, sexual orientation, housing status, marital status, familial status, weight or height of such person. Contractor acknowledges that it has read and understands the provisions of Section 2.30.510 of the Palo Alto Municipal Code relating to Nondiscrimination Requirements and the penalties for violation thereof, and will comply with all requirements of Section 2.30.510 pertaining to nondiscrimination in employment. SECTION 11 INSURANCE AND BONDS. Within ten (10) business days following issuance of the Notice of Award, Contractor shall provide City with evidence that it has obtained insurance and shall submit Performance and Payment Bonds satisfying all requirements in Article 11 of the General Conditions. SECTION 12 PROHIBITION AGAINST TRANSFERS. City is entering into this Construction Contract in reliance upon the stated experience and qualifications of the Contractor and its Subcontractors set forth in Contractor’s Bid. Accordingly, Contractor shall not assign, hypothecate or transfer this Construction Contract or any interest therein directly or indirectly, by operation of law or otherwise without the prior written consent of City. Any assignment, hypothecation or transfer without said consent shall be null and void, and shall be deemed a substantial breach of contract and grounds for default in addition to any other legal or equitable remedy available to the City. The sale, assignment, transfer or other disposition of any of the issued and outstanding capital stock of Contractor or of any general partner or joint venturer or syndicate member of Contractor, if the Contractor is a partnership or joint venture or syndicate or co-tenancy shall result in changing the control of Contractor, shall be construed as an assignment of this Construction Contract. Control means more than fifty percent (50%) of the voting power of the corporation or other entity. SECTION 13 NOTICES. 13.1 Method of Notice. All notices, demands, requests or approvals to be given under this Construction Contract shall be given in writing and shall be deemed served on the earlier of the following: (i) On the date delivered if delivered personally; (ii) On the third business day after the deposit thereof in the United States mail, postage prepaid, and addressed as hereinafter provided; (iii) On the date sent if sent by facsimile transmission; (iv) On the date sent if delivered by electronic mail; or (v) On the date it is accepted or rejected if sent by certified mail. Invitation for Bid (IFB) Package 9 Rev. January 2014 CONSTRUCTION CONTRACT 13.2 Notice Recipients. All notices, demands or requests (including, without limitation, Change Order Requests and Claims) from Contractor to City shall include the Project name and the number of this Construction Contract and shall be addressed to City at: To City: City of Palo Alto City Clerk 250 Hamilton Avenue P.O. Box 10250 Palo Alto, CA 94303 Copy to: City of Palo Alto Public Works Administration 250 Hamilton Avenue Palo Alto, CA 94301 Attn: OR City of Palo Alto Utilities Engineering 250 Hamilton Avenue Palo Alto, CA 94301 Attn: Jennifer Cioffi In addition, copies of all Claims by Contractor under this Construction Contract shall be provided to the following: Palo Alto City Attorney’s Office 250 Hamilton Avenue P.O. Box 10250 Palo Alto, California 94303 All Claims shall be delivered personally or sent by certified mail. All notices, demands, requests or approvals from City to Contractor shall be addressed to: Precision Engineering Inc. Attn: Finbar Brody 1939 Newcomb Avenue San Francisco, CA 94124 13.3 Change of Address. In advance of any change of address, Contractor shall notify City of the change of address in writing. Each party may, by written notice only, add, delete or replace any individuals to whom and addresses to which notice shall be provided. Invitation for Bid (IFB) Package 10 Rev. January 2014 CONSTRUCTION CONTRACT SECTION 14 DEFAULT. 14.1 Notice of Default. In the event that City determines, in its sole discretion, that Contractor has failed or refused to perform any of the obligations set forth in the Contract Documents, or is in breach of any provision of the Contract Documents, City may give written notice of default to Contractor in the manner specified for the giving of notices in the Construction Contract, with a copy to Contractor’s performance bond surety. 14.2 Opportunity to Cure Default. Except for emergencies, Contractor shall cure any default in performance of its obligations under the Contract Documents within two (2) Days (or such shorter time as City may reasonably require) after receipt of written notice. However, if the breach cannot be reasonably cured within such time, Contractor will commence to cure the breach within two (2) Days (or such shorter time as City may reasonably require) and will diligently and continuously prosecute such cure to completion within a reasonable time, which shall in no event be later than ten (10) Days after receipt of such written notice. SECTION 15 CITY'S RIGHTS AND REMEDIES. 15.1 Remedies Upon Default. If Contractor fails to cure any default of this Construction Contract within the time period set forth above in Section 14, then City may pursue any remedies available under law or equity, including, without limitation, the following: 15.1.1 Delete Certain Services. City may, without terminating the Construction Contract, delete certain portions of the Work, reserving to itself all rights to Losses related thereto. 15.1.2 Perform and Withhold. City may, without terminating the Construction Contract, engage others to perform the Work or portion of the Work that has not been adequately performed by Contractor and withhold the cost thereof to City from future payments to Contractor, reserving to itself all rights to Losses related thereto. 15.1.3 Suspend The Construction Contract. City may, without terminating the Construction Contract and reserving to itself all rights to Losses related thereto, suspend all or any portion of this Construction Contract for as long a period of time as City determines, in its sole discretion, appropriate, in which event City shall have no obligation to adjust the Contract Sum or Contract Time, and shall have no liability to Contractor for damages if City directs Contractor to resume Work. 15.1.4 Terminate the Construction Contract for Default. City shall have the right to terminate this Construction Contract, in whole or in part, upon the failure of Contractor to promptly cure any default as required by Section 14. City’s election to terminate the Construction Contract for default shall be communicated by giving Contractor a written notice of termination in the manner specified for the giving of notices in the Construction Contract. Any notice of termination given to Contractor by City shall be effective immediately, unless otherwise provided therein. Invitation for Bid (IFB) Package 11 Rev. January 2014 CONSTRUCTION CONTRACT 15.1.5 Invoke the Performance Bond. City may, with or without terminating the Construction Contract and reserving to itself all rights to Losses related thereto, exercise its rights under the Performance Bond. 15.1.6 Additional Provisions. All of City’s rights and remedies under this Construction Contract are cumulative, and shall be in addition to those rights and remedies available in law or in equity. Designation in the Contract Documents of certain breaches as material shall not waive the City’s authority to designate other breaches as material nor limit City’s right to terminate the Construction Contract, or prevent the City from terminating the Agreement for breaches that are not material. City’s determination of whether there has been noncompliance with the Construction Contract so as to warrant exercise by City of its rights and remedies for default under the Construction Contract, shall be binding on all parties. No termination or action taken by City after such termination shall prejudice any other rights or remedies of City provided by law or equity or by the Contract Documents upon such termination; and City may proceed against Contractor to recover all liquidated damages and Losses suffered by City. 15.2 Delays by Sureties. Time being of the essence in the performance of the Work, if Contractor’s surety fails to arrange for completion of the Work in accordance with the Performance Bond, within seven (7) calendar days from the date of the notice of termination, Contractor’s surety shall be deemed to have waived its right to complete the Work under the Contract, and City may immediately make arrangements for the completion of the Work through use of its own forces, by hiring a replacement contractor, or by any other means that City determines advisable under the circumstances. Contractor and its surety shall be jointly and severally liable for any additional cost incurred by City to complete the Work following termination. In addition, City shall have the right to use any materials, supplies, and equipment belonging to Contractor and located at the Worksite for the purposes of completing the remaining Work. 15.3 Damages to City. 15.3.1 For Contractor's Default. City will be entitled to recovery of all Losses under law or equity in the event of Contractor’s default under the Contract Documents. 15.3.2 Compensation for Losses. In the event that City's Losses arise from Contractor’s default under the Contract Documents, City shall be entitled to deduct the cost of such Losses from monies otherwise payable to Contractor. If the Losses incurred by City exceed the amount payable, Contractor shall be liable to City for the difference and shall promptly remit same to City. Invitation for Bid (IFB) Package 12 Rev. January 2014 CONSTRUCTION CONTRACT 15.4 Suspension by City 15.4.1 Suspension for Convenience. City may, at any time and from time to time, without cause, order Contractor, in writing, to suspend, delay, or interrupt the Work in whole or in part for such period of time, up to an aggregate of fifty percent (50%) of the Contract Time. The order shall be specifically identified as a Suspension Order by City. Upon receipt of a Suspension Order, Contractor shall, at City’s expense, comply with the order and take all reasonable steps to minimize costs allocable to the Work covered by the Suspension Order. During the Suspension or extension of the Suspension, if any, City shall either cancel the Suspension Order or, by Change Order, delete the Work covered by the Suspension Order. If a Suspension Order is canceled or expires, Contractor shall resume and continue with the Work. A Change Order will be issued to cover any adjustments of the Contract Sum or the Contract Time necessarily caused by such suspension. A Suspension Order shall not be the exclusive method for City to stop the Work. 15.4.2 Suspension for Cause. In addition to all other remedies available to City, if Contractor fails to perform or correct work in accordance with the Contract Documents, City may immediately order the Work, or any portion thereof, suspended until the cause for the suspension has been eliminated to City’s satisfaction. Contractor shall not be entitled to an increase in Contract Time or Contract Price for a suspension occasioned by Contractor’s failure to comply with the Contract Documents. City’s right to suspend the Work shall not give rise to a duty to suspend the Work, and City’s failure to suspend the Work shall not constitute a defense to Contractor’s failure to comply with the requirements of the Contract Documents. 15.5 Termination Without Cause. City may, at its sole discretion and without cause, terminate this Construction Contract in part or in whole upon written notice to Contractor. Upon receipt of such notice, Contractor shall, at City’s expense, comply with the notice and take all reasonable steps to minimize costs to close out and demobilize. The compensation allowed under this Paragraph 15.5 shall be the Contractor’s sole and exclusive compensation for such termination and Contractor waives any claim for other compensation or Losses, including, but not limited to, loss of anticipated profits, loss of revenue, lost opportunity, or other consequential, direct, indirect or incidental damages of any kind resulting from termination without cause. Termination pursuant to this provision does not relieve Contractor or its sureties from any of their obligations for Losses arising from or related to the Work performed by Contractor. 15.5.1 Compensation. Following such termination and within forty-five (45) Days after receipt of a billing from Contractor seeking payment of sums authorized by this Paragraph 15.5.1, City shall pay the following to Contractor as Contractor’s sole compensation for performance of the Work : .1 For Work Performed. The amount of the Contract Sum allocable to the portion of the Work properly performed by Contractor as of the date of termination, less sums previously paid to Contractor. .2 For Close-out Costs. Reasonable costs of Contractor and its Subcontractors: (i) Demobilizing and (ii) Administering the close-out of its participation in the Project (including, without limitation, all billing and accounting functions, not including attorney or expert fees) for a period of no longer than thirty (30) Days after receipt of the notice of termination. Invitation for Bid (IFB) Package 13 Rev. January 2014 CONSTRUCTION CONTRACT .3 For Fabricated Items. Previously unpaid cost of any items delivered to the Project Site which were fabricated for subsequent incorporation in the Work. .4 Profit Allowance. An allowance for profit calculated as four percent (4%) of the sum of the above items, provided Contractor can prove a likelihood that it would have made a profit if the Construction Contract had not been terminated. 15.5.2 Subcontractors. Contractor shall include provisions in all of its subcontracts, purchase orders and other contracts permitting termination for convenience by Contractor on terms that are consistent with this Construction Contract and that afford no greater rights of recovery against Contractor than are afforded to Contractor against City under this Section. 15.6 Contractor’s Duties Upon Termination. Upon receipt of a notice of termination for default or for convenience, Contractor shall, unless the notice directs otherwise, do the following: (i) Immediately discontinue the Work to the extent specified in the notice; (ii) Place no further orders or subcontracts for materials, equipment, services or facilities, except as may be necessary for completion of such portion of the Work that is not discontinued; (iii) Provide to City a description in writing, no later than fifteen (15) days after receipt of the notice of termination, of all subcontracts, purchase orders and contracts that are outstanding, including, without limitation, the terms of the original price, any changes, payments, balance owing, the status of the portion of the Work covered and a copy of the subcontract, purchase order or contract and any written changes, amendments or modifications thereto, together with such other information as City may determine necessary in order to decide whether to accept assignment of or request Contractor to terminate the subcontract, purchase order or contract; (iv) Promptly assign to City those subcontracts, purchase orders or contracts, or portions thereof, that City elects to accept by assignment and cancel, on the most favorable terms reasonably possible, all subcontracts, purchase orders or contracts, or portions thereof, that City does not elect to accept by assignment; and (v) Thereafter do only such Work as may be necessary to preserve and protect Work already in progress and to protect materials, plants, and equipment on the Project Site or in transit thereto. Upon termination, whether for cause or for convenience, the provisions of the Contract Documents remain in effect as to any Claim, indemnity obligation, warranties, guarantees, submittals of as-built drawings, instructions, or manuals, or other such rights and obligations arising prior to the termination date. SECTION 16 CONTRACTOR'S RIGHTS AND REMEDIES. 16.1 Contractor’s Remedies. Contractor may terminate this Construction Contract only upon the occurrence of one of the following: Invitation for Bid (IFB) Package 14 Rev. January 2014 CONSTRUCTION CONTRACT 16.1.1 For Work Stoppage. The Work is stopped for sixty (60) consecutive Days, through no act or fault of Contractor, any Subcontractor, or any employee or agent of Contractor or any Subcontractor, due to issuance of an order of a court or other public authority other than City having jurisdiction or due to an act of government, such as a declaration of a national emergency making material unavailable. This provision shall not apply to any work stoppage resulting from the City’s issuance of a suspension notice issued either for cause or for convenience. 16.1.2 For City's Non-Payment. If City does not make pay Contractor undisputed sums within ninety (90) Days after receipt of notice from Contractor, Contractor may terminate the Construction Contract (30) days following a second notice to City of Contractor’s intention to terminate the Construction Contract. 16.2 Damages to Contractor. In the event of termination for cause by Contractor, City shall pay Contractor the sums provided for in Paragraph 15.5.1 above. Contractor agrees to accept such sums as its sole and exclusive compensation and agrees to waive any claim for other compensation or Losses, including, but not limited to, loss of anticipated profits, loss of revenue, lost opportunity, or other consequential, direct, indirect and incidental damages, of any kind. SECTION 17 ACCOUNTING RECORDS. 17.1 Financial Management and City Access. Contractor shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Construction Contract in accordance with generally accepted accounting principles and practices. City and City's accountants during normal business hours, may inspect, audit and copy Contractor's records, books, estimates, take-offs, cost reports, ledgers, schedules, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Project. Contractor shall retain these documents for a period of three (3) years after the later of (i) Final Payment or (ii) final resolution of all Contract Disputes and other disputes, or (iii) for such longer period as may be required by law. 17.2 Compliance with City Requests. Contractor's compliance with any request by City pursuant to this Section 17 shall be a condition precedent to filing or maintenance of any legal action or proceeding by Contractor against City and to Contractor's right to receive further payments under the Contract Documents. City many enforce Contractor’s obligation to provide access to City of its business and other records referred to in Section 17.1 for inspection or copying by issuance of a writ or a provisional or permanent mandatory injunction by a court of competent jurisdiction based on affidavits submitted to such court, without the necessity of oral testimony. SECTION 18 INDEPENDENT PARTIES. Each party is acting in its independent capacity and not as agents, employees, partners, or joint ventures’ of the other party. City, its officers or employees shall have no control over the conduct of Contractor or its respective agents, employees, subconsultants, or subcontractors, except as herein set forth. Invitation for Bid (IFB) Package 15 Rev. January 2014 CONSTRUCTION CONTRACT SECTION 19 NUISANCE. Contractor shall not maintain, commit, nor permit the maintenance or commission of any nuisance in connection in the performance of services under this Construction Contract. SECTION 20 PERMITS AND LICENSES. Except as otherwise provided in the Special Provisions and Technical Specifications, The Contractor shall provide, procure and pay for all licenses, permits, and fees, required by the City or other government jurisdictions or agencies necessary to carry out and complete the Work. Payment of all costs and expenses for such licenses, permits, and fees shall be included in one or more Bid items. No other compensation shall be paid to the Contractor for these items or for delays caused by non-City inspectors or conditions set forth in the licenses or permits issued by other agencies. SECTION 21 WAIVER. A waiver by either party of any breach of any term, covenant, or condition contained herein shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant, or condition contained herein, whether of the same or a different character. SECTION 22 GOVERNING LAW AND VENUE. This Construction Contract shall be construed in accordance with and governed by the laws of the State of California, and venue shall be in a court of competent jurisdiction in the County of Santa Clara, and no other place. SECTION 23 COMPLETE AGREEMENT. This Agreement represents the entire and integrated agreement between the parties and supersedes all prior negotiations, representations, and contracts, either written or oral. This Agreement may be amended only by a written instrument, which is signed by the parties. SECTION 24 SURVIVAL OF CONTRACT. The provisions of the Construction Contract which by their nature survive termination of the Construction Contract or Final Completion, including, without limitation, all warranties, indemnities, payment obligations, and City’s right to audit Contractor’s books and records, shall remain in full force and effect after Final Completion or any termination of the Construction Contract. SECTION 25 PREVAILING WAGES. This Project is not subject to prevailing wages. The Contractor is not required to pay prevailing wages in the performance and implementation of the Project, because the City, pursuant to its authority as a chartered city, has adopted Resolution No. 5981 exempting the City from prevailing wages. The City invokes the exemption from the state prevailing wage requirement for this Project and declares that the Invitation for Bid (IFB) Package 16 Rev. January 2014 CONSTRUCTION CONTRACT Project is funded one hundred percent (100%) by the City of Palo Alto. This Project remains subject to all other applicable provisions of the California Labor Code and regulations promulgated thereunder. Or The Contractor is required to pay general prevailing wages as defined in Subchapter 3, Title 8 of the California Code of Regulations and Section 16000 et seq. and Section 1773.1 of the California Labor Code. Pursuant to the provisions of Section 1773 of the Labor Code of the State of California, the City Council has obtained the general prevailing rate of per diem wages and the general rate for holiday and overtime work in this locality for each craft, classification, or type of worker needed to execute the contract for this Project from the Director of the Department of Industrial Relations. Copies of these rates may be obtained at the Purchasing Office of the City of Palo Alto. Contractor shall provide a copy of prevailing wage rates to any staff or subcontractor hired, and shall pay the adopted prevailing wage rates as a minimum. Contractor shall comply with the provisions of Sections 1775, 1776, 1777.5, 1810, and 1813 of the Labor Code. SECTION 26 NON APPROPRIATION. This Agreement is subject to the fiscal provisions of the Charter of the City of Palo Alto and the Palo Alto Municipal Code. This Agreement will terminate without any penalty (a) at the end of any fiscal year in the event that the City does not appropriate funds for the following fiscal year for this event, or (b) at any time within a fiscal year in the event that funds are only appropriated for a portion of the fiscal year and funds for this Construction Contract are no longer available. This section shall take precedence in the event of a conflict with any other covenant, term, condition, or provision of this Agreement. SECTION 27 AUTHORITY. The individuals executing this Agreement represent and warrant that they have the legal capacity and authority to do so on behalf of their respective legal entities. SECTION 28 COUNTERPARTS This Agreement may be signed in multiple counterparts, which shall, when executed by all the parties, constitute a single binding agreement. SECTION 29 SEVERABILITY. In case a provision of this Construction Contract is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected. SECTION 30 STATUTORY AND REGULATORY REFERENCES. With respect to any amendments to any statutes or regulations referenced in these Contract Documents, the reference is deemed to be the version in effect on the date that the Contract was awarded by City, unless otherwise required by law. SECTION 31 WORKERS’ COMPENSATION CERTIFICATION. Pursuant to Labor Code Section 1861, by signing this Contract, Contractor certifies as follows: “I am aware of the provisions of Section 3700 of the Labor Code which require every employer to be insured against Invitation for Bid (IFB) Package 17 Rev. January 2014 CONSTRUCTION CONTRACT liability for workers’ compensation or to undertake self-insurance in accordance with the provisions of that code, and I will comply with such provisions before commencing the performance of the Work on this Contract.” IN WITNESS WHEREOF, the parties have caused this Construction Contract to be executed the date and year first above written. CITY OF PALO ALTO ____________________________ City Manager APPROVED AS TO FORM: ____________________________ Senior Deputy City Attorney PRECISION ENGINEERING, INC. By:___________________________ Name:________________________ Title:__________________________ Date: _________________________ Invitation for Bid (IFB) Package 18 Rev. January 2014 CONSTRUCTION CONTRACT CITY OF PALO ALTO BID SUMMARY Attachment B SANITARY SEWER REHABILITATION PROJECT 24/25/26; IFB 157516 Bid Date: 1/20/15 Item Quantity Unit Description Unit Extended Unit Extended Unit Extended Unit Extended Unit Extended Unit Extended No.Price ($) Price ($) Price ($) Price ($) Price ($) Price ($) Price ($) Price ($) Price ($) Price ($) Price ($) Price ($) BASE BID 11 LS Design, install and remove sheeting, shoring, bracing & other excavation supports.$41,596.00 $41,596.00 $178,000.00 $178,000.00 $156,000.00 $156,000.00 $500,000.00 $500,000.00 $618,000.00 $618,000.00 $40,000.00 $40,000.00 21 LSRecycle asphalt, concrete and soil.$16,638.00 $16,638.00 $40,000.00 $40,000.00 $24,000.00 $24,000.00 $10,000.00 $10,000.00 $10,152.00 $10,152.00 $16,000.00 $16,000.00 3 31,039 LF Replace existing 6-inch or 8-inch VCP with 8-inch HDPE pipe by pipe-bursting method.$70.00 $2,172,730.00 $95.00 $2,948,705.00 $89.00 $2,762,471.00 $100.00 $3,103,900.00 $100.00 $3,103,900.00 $82.00 $2,545,198.00 4 8,071 LF Replace existing 8-inch,10-inch, or 12-inch VCP with 10- inch HDPE pipe by pipe-bursting method.$100.00 $807,100.00 $105.00 $847,455.00 $91.00 $734,461.00 $105.00 $847,455.00 $120.00 $968,520.00 $100.00 $807,100.00 5 460 LF Replace existing 10-inch VCP with 12-inch HDPE pipe by pipe-bursting method.$125.00 $57,500.00 $120.00 $55,200.00 $111.00 $51,060.00 $150.00 $69,000.00 $180.00 $82,800.00 $125.00 $57,500.00 6 857 LF Replace existing 12-inch or 15-inch VCP with 14-inch HDPE pipe by pipe-bursting method.$130.00 $111,410.00 $150.00 $128,550.00 $113.00 $96,841.00 $225.00 $192,825.00 $200.00 $171,400.00 $130.00 $111,410.00 7 915 LF Replace existing 6-inch or 8-inch VCP with 8-inch HDPE pipe by open trench method.$230.00 $210,450.00 $300.00 $274,500.00 $171.00 $156,465.00 $125.00 $114,375.00 $275.00 $251,625.00 $230.00 $210,450.00 874 LF Replace existing 8-inch VCP with 10-inch HDPE pipe by open trench method.$235.00 $17,390.00 $310.00 $22,940.00 $291.00 $21,534.00 $150.00 $11,100.00 $350.00 $25,900.00 $235.00 $17,390.00 9 139 LF Replace existing 12-inch VCP with 14-inch HDPE pipe by open trench method.$245.00 $34,055.00 $330.00 $45,870.00 $311.00 $43,229.00 $250.00 $34,750.00 $400.00 $55,600.00 $245.00 $34,055.00 10 205 LF Rehabilitate existing 12-inch VCP or DIP using CIPP method.$72.00 $14,760.00 $75.00 $15,375.00 $80.00 $16,400.00 $75.00 $15,375.00 $80.00 $16,400.00 $77.00 $15,785.00 11 638 LF Rehabilitate existing 18-inch VCP or DIP using CIPP method.$128.00 $81,664.00 $95.00 $60,610.00 $100.00 $63,800.00 $95.00 $60,610.00 $115.00 $73,370.00 $96.00 $61,248.00 12 448 EA Replace existing 4-inch sewer lateral by pipe-bursting method.$1,300.00 $582,400.00 $1,250.00 $560,000.00 $1,794.00 $803,712.00 $700.00 $313,600.00 $500.00 $224,000.00 $1,600.00 $716,800.00 13 283 EA gy method.$3,000.00 $849,000.00 $2,100.00 $594,300.00 $2,155.00 $609,865.00 $700.00 $198,100.00 $1,500.00 $424,500.00 $2,500.00 $707,500.00 14 28 EA Replace existing 4-inch ACP sewer lateral by open trench method.$3,000.00 $84,000.00 $2,100.00 $58,800.00 $2,255.00 $63,140.00 $700.00 $19,600.00 $2,000.00 $56,000.00 $2,500.00 $70,000.00 15 3 EA Replace existing 6-inch sewer lateral by pipe-bursting method.$1,400.00 $4,200.00 $1,400.00 $4,200.00 $1,894.00 $5,682.00 $700.00 $2,100.00 $1,000.00 $3,000.00 $1,700.00 $5,100.00 16 8 EA gy method.$5,000.00 $40,000.00 $2,400.00 $19,200.00 $2,615.00 $20,920.00 $700.00 $5,600.00 $2,800.00 $22,400.00 $2,600.00 $20,800.00 17 9 EA Replace existing 6-inch ACP sewer lateral by open trench method.$3,000.00 $27,000.00 $2,400.00 $21,600.00 $2,715.00 $24,435.00 $700.00 $6,300.00 $3,200.00 $28,800.00 $2,600.00 $23,400.00 18 100 EA Reconnect existing 4-inch lateral to new sewer main.$1,100.00 $110,000.00 $500.00 $50,000.00 $1,519.00 $151,900.00 $100.00 $10,000.00 $700.00 $70,000.00 $1,100.00 $110,000.00 19 2 EA Reconnect existing 6-inch lateral to new sewer main.$1,200.00 $2,400.00 $600.00 $1,200.00 $1,619.00 $3,238.00 $100.00 $200.00 $1,000.00 $2,000.00 $1,200.00 $2,400.00 20 10 EA Abandon lateral. $500.00 $5,000.00 $100.00 $1,000.00 $219.00 $2,190.00 $50.00 $500.00 $200.00 $2,000.00 $500.00 $5,000.00 21 304 EA Install new and/or replace existing 4-inch cleanout with two- way sanitary sewer cleanout. $200.00 $60,800.00 $600.00 $182,400.00 $721.00 $219,184.00 $200.00 $60,800.00 $300.00 $91,200.00 $200.00 $60,800.00 22 455 EA Install new and/or replace existing 4-inch cleanout with one- way sanitary sewer cleanout.$150.00 $68,250.00 $400.00 $182,000.00 $621.00 $282,555.00 $200.00 $91,000.00 $250.00 $113,750.00 $150.00 $68,250.00 23 8 EA Install new and/or replace existing 6-inch cleanout with two- way sanitary sewer cleanout.$250.00 $2,000.00 $1,300.00 $10,400.00 $861.00 $6,888.00 $200.00 $1,600.00 $600.00 $4,800.00 $250.00 $2,000.00 24 12 EA Install new and/or replace existing 6-inch cleanout with one- way sanitary sewer cleanout.$200.00 $2,400.00 $1,000.00 $12,000.00 $761.00 $9,132.00 $200.00 $2,400.00 $500.00 $6,000.00 $200.00 $2,400.00 25 11 EA Install new 48-inch manhole.$5,000.00 $55,000.00 $4,500.00 $49,500.00 $2,075.00 $22,825.00 $3,500.00 $38,500.00 $7,000.00 $77,000.00 $5,000.00 $55,000.00 26 90 EA Remove existing manhole and replace with new 48-inch manhole.$5,000.00 $450,000.00 $4,500.00 $405,000.00 $2,085.00 $187,650.00 $3,500.00 $315,000.00 $7,500.00 $675,000.00 $5,000.00 $450,000.00 27 20 EA Remove existing lamphole or flush inlet and replace with new 48-inch manhole. $5,000.00 $100,000.00 $4,500.00 $90,000.00 $2,095.00 $41,900.00 $3,500.00 $70,000.00 $7,500.00 $150,000.00 $5,000.00 $100,000.00 28 2 EA Remove existing lamphole or flush inlet.$100.00 $200.00 $500.00 $1,000.00 $1,111.00 $2,222.00 $500.00 $1,000.00 $500.00 $1,000.00 $100.00 $200.00 29 6 EA Abandon existing manhole. $500.00 $3,000.00 $500.00 $3,000.00 $2,091.00 $12,546.00 $1,500.00 $9,000.00 $1,000.00 $6,000.00 $200.00 $1,200.00 30 2 EA Replace drop connection sanitary sewer manhole $1,000.00 $2,000.00 $6,500.00 $13,000.00 $3,633.00 $7,266.00 $200.00 $400.00 $2,000.00 $4,000.00 $1,000.00 $2,000.00 31 48 EA Provide stub-out and connection to existing main. $1,500.00 $72,000.00 $200.00 $9,600.00 $683.00 $32,784.00 $100.00 $4,800.00 $500.00 $24,000.00 $1,500.00 $72,000.00 32 42,398 LF Cleaning & video inspection of mains. $2.00 $84,796.00 $2.00 $84,796.00 $2.00 $84,796.00 $0.50 $21,199.00 $2.00 $84,796.00 $2.00 $84,796.00 33 694 LF Slurry fill abandoned mains. $3.00 $2,082.00 $7.00 $4,858.00 $3.00 $2,082.00 $50.00 $34,700.00 $10.00 $6,940.00 $5.00 $3,470.00 34 1 EA Chemical grout spot repairs.$4,000.00 $4,000.00 $8,000.00 $8,000.00 $1,885.00 $1,885.00 $300.00 $300.00 $5,000.00 $5,000.00 $3,000.00 $3,000.00 35 5 EA Spot Repair. $4,800.00 $24,000.00 $4,000.00 $20,000.00 $7,595.00 $37,975.00 $5,000.00 $25,000.00 $8,000.00 $40,000.00 $4,800.00 $24,000.00 36 5 CY ACP storage and disposal. $200.00 $1,000.00 $500.00 $2,500.00 $889.00 $4,445.00 $50.00 $250.00 $500.00 $2,500.00 $200.00 $1,000.00 37 1 LS Perform GPS survey. $33,277.00 $33,277.00 $100,000.00 $100,000.00 $20,000.00 $20,000.00 $36,000.00 $36,000.00 $20,000.00 $20,000.00 $32,000.00 $32,000.00 Total of Base Bid (Items 1 through 37 only, with all applicable taxes included) $6,234,098.00 $7,105,559.00 $6,787,478.00 $6,227,339.00 $7,522,353.00 $6,539,252.00 Ranger Pipelines Inc.BID SUMMARY Engineer's Estimate yy Inc. Pacific Trenchless Inc. Precision Engineering Inc. KJ Woods Construction Inc. B: ADD ALTERNATE BID 38 1,445 LF Replace existing 6-inch or 8-inch VCP with 8-inch HDPE pipe by pipe-bursting method.$70.00 $101,150.00 $100.00 $144,500.00 $79.00 $114,155.00 $100.00 $144,500.00 $100.00 $144,500.00 $82.00 $118,490.00 39 921 LF Replace existing 8-inch VCP with 10-inch HDPE pipe by pipe-bursting method.$100.00 $92,100.00 $110.00 $101,310.00 $89.00 $81,969.00 $105.00 $96,705.00 $120.00 $110,520.00 $100.00 $92,100.00 40 822 LF Replace existing 6-inch or 8-inch VCP with 8-inch HDPE pipe by open trench method.$230.00 $189,060.00 $300.00 $246,600.00 $155.00 $127,410.00 $125.00 $102,750.00 $260.00 $213,720.00 $230.00 $189,060.00 41 198 LF Replace existing 8-inch VCP with 10-inch HDPE pipe by open trench method.$235.00 $46,530.00 $310.00 $61,380.00 $165.00 $32,670.00 $150.00 $29,700.00 $280.00 $55,440.00 $235.00 $46,530.00 42 797 LF Alternate - Rehabilitate existing 6-inch VCP using CIPP method.$24.00 $19,128.00 $35.00 $27,895.00 $40.00 $31,880.00 $35.00 $27,895.00 $35.00 $27,895.00 $40.00 $31,880.00 43 34 EA Replace existing 4-inch sewer lateral by pipe-bursting method.$1,300.00 $44,200.00 $1,250.00 $42,500.00 $719.00 $24,446.00 $700.00 $23,800.00 $500.00 $17,000.00 $1,600.00 $54,400.00 44 30 EA gy method.$3,000.00 $90,000.00 $2,100.00 $63,000.00 $1,719.00 $51,570.00 $700.00 $21,000.00 $1,500.00 $45,000.00 $2,500.00 $75,000.00 45 2 EA Replace existing 4-inch ACP sewer lateral by open trench method.$3,000.00 $6,000.00 $2,100.00 $4,200.00 $1,889.00 $3,778.00 $700.00 $1,400.00 $2,000.00 $4,000.00 $2,500.00 $5,000.00 46 8 EA Reconnect existing 4-inch lateral to new sewer main.$1,100.00 $8,800.00 $500.00 $4,000.00 $559.00 $4,472.00 $100.00 $800.00 $800.00 $6,400.00 $1,100.00 $8,800.00 47 26 EA Install new and/or replace existing 4-inch cleanout with two- way sanitary sewer cleanout. $200.00 $5,200.00 $600.00 $15,600.00 $749.00 $19,474.00 $200.00 $5,200.00 $300.00 $7,800.00 $200.00 $5,200.00 48 40 EA Install new and/or replace existing 4-inch cleanout with one- way sanitary sewer cleanout.$150.00 $6,000.00 $400.00 $16,000.00 $619.00 $24,760.00 $200.00 $8,000.00 $250.00 $10,000.00 $150.00 $6,000.00 49 7 EA Remove existing manhole and replace with new 48-inch manhole.$5,000.00 $35,000.00 $4,500.00 $31,500.00 $2,175.00 $15,225.00 $3,500.00 $24,500.00 $5,000.00 $35,000.00 $5,000.00 $35,000.00 50 2 EA Remove existing lamphole or flush inlet and replace with new 48-inch manhole. $5,000.00 $10,000.00 $4,500.00 $9,000.00 $2,275.00 $4,550.00 $3,500.00 $7,000.00 $5,000.00 $10,000.00 $5,000.00 $10,000.00 51 2 EA Provide stub-out and connection to existing main $1,500.00 $3,000.00 $200.00 $400.00 $699.00 $1,398.00 $100.00 $200.00 $800.00 $1,600.00 $1,500.00 $3,000.00 52 3,386 LF Cleaning & video inspection of mains $2.00 $6,772.00 $2.00 $6,772.00 $2.00 $6,772.00 $0.50 $1,693.00 $2.00 $6,772.00 $2.00 $6,772.00 53 1 EA Spot repair $4,800.00 $4,800.00 $4,000.00 $4,000.00 $5,578.00 $5,578.00 $5,000.00 $5,000.00 $8,000.00 $8,000.00 $4,800.00 $4,800.00 54 10 TON Disposal of excavated soils at Class 1 landfill $100.00 $1,000.00 $100.00 $1,000.00 $310.00 $3,100.00 $300.00 $3,000.00 $800.00 $8,000.00 $100.00 $1,000.00 55 10 TON Disposal of excavated soils at Class 2 landfill $50.00 $500.00 $200.00 $2,000.00 $210.00 $2,100.00 $200.00 $2,000.00 $400.00 $4,000.00 $50.00 $500.00 Total of Add Alternate Bid (Items 38 through 55 only, with all applicable taxes included) $669,240.00 $781,657.00 $555,307.00 $505,143.00 $715,647.00 $693,532.00 Grand Total - Base Bid and Add Alternate Bid (items 01 through 55, with all applicable taxes incl.) $6,903,338.00 $7,887,216.00 $7,342,785.00 $6,732,482.00 $8,238,000.00 $7,232,784.00 City of Palo Alto (ID # 5621) City Council Staff Report Report Type: Action Items Meeting Date: 3/23/2015 Summary Title: Establishment of an Office/R&D Annual Growth Limit - continued from 3/2 Title: Discussion and Direction to Staff Regarding Establishment of an Office/R&D Annual Growth Limit (Continued from March 2, 2015) From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that the City Council discuss its objectives and issues associated with establishment of an annual limit on office/R&D development, and provide direction to staff regarding next steps which may include: 1. Identifying alternative approaches or annual limits on office/R&D development that can be further defined and evaluated as part of the Comprehensive Plan Update process; and/or 2. Identifying zoning changes or requirements that can be considered for adoption on an interim basis until an annual limit or alternative approach to addressing the pace of office/R&D development can be adopted concurrent with the Comprehensive Plan Update. Executive Summary This item was discussed before the City Council on February 9th and March 2nd at which time it was continued to March 23, 2015 to permit further Council discussion and direction to staff. The staff report from March 2nd is attached. Separately, staff will also be returning to Council for further discussion of the Council’s March 2nd request to act promptly to prevent the conversion of ground floor retail and services while a City-wide retail strategy is being developed. Discussion As described in the March 2nd staff report, designing and implementing an annual cap on office/R&D to meter the pace of development is relatively complex and will require careful City of Palo Alto Page 1 study and dialog with the community. As a result, if the Council wishes to pursue an annual cap or some variation of this approach, staff’s recommendation is that it be considered in the context of the Comprehensive Plan Update and implemented via amendments to the Comprehensive Plan and the Municipal Code when the Comprehensive Plan Update is adopted. If the Council wishes to slow the pace of office/R&D development in the interim period while the Comprehensive Plan Update is being prepared, staff recommends that the Council consider alternative approaches to an annual cap, and we are available to elaborate on options identified in our March 2nd staff report or to provide additional options for the Council’s consideration if desired. Attachments: Attachment A: Council Report of March 2, 2015, ID# 5565 (PDF) Attachment B: Public Correspondence Received At Places from March 2, 2015 to Current (PDF) City of Palo Alto Page 2 City of Palo Alto (ID # 5565) City Council Staff Report Report Type: Action Items Meeting Date: 3/2/2015 Summary Title: Establishment of an Office/R&D Annual Growth Limit - continuation Title: Discussion and Direction to Staff Regarding Establishment of an Office/R&D Annual Growth Limit (Continued from February 9, 2015) From: City Manager Lead Department: Planning and Community Environment Recommendation Staff recommends that the City Council discuss its objectives and issues associated with establishment of an annual limit on office/R&D development, and provide direction to staff regarding next steps which may include: 1. identifying alternative approaches or annual limits on office/R&D development that can be further defined and evaluated as part of the Comprehensive Plan Update process, for example: a. an annual limit of 35,000 or 50,000 net new square feet of office/R&D per year, with a competitive process for project approvals each year that applications exceed the limit; and/or b. slowing the pace of office/R&D development by imposing a more robust impact fee program. 2. Identifying zoning changes or requirements that can be considered for adoption on an interim basis until an annual limit or alternative approach to addressing the pace of office/R&D development can be adopted concurrent with the Comprehensive Plan Update. For example: a. requiring on-site parking, funding for a transportation management association, or other approaches to address traffic and parking demand associated with development; or b. a temporary reduction in allowable office densities (floor area ratio or FAR). Executive Summary One of the intriguing policy ideas that came up during the Comprehensive Plan workshops in the summer of 2014 was the idea that the City should somehow moderate or meter the pace of City of Palo Alto Page 1 non-residential development. The idea was to manage growth by having an annual limit on office development, rather than by relying on an overall multi-year cumulative “cap” on non- residential square footage like the one that the current Comprehensive Plan establishes for the Downtown (Program L-8) and the City (Policy L-8). This idea was advanced by staff as a concept worthy of exploration during the Comprehensive Plan Update. Then on December 8, 2014, the City Council directed staff to schedule a Council work session to give them an opportunity to consider and discuss the idea further. Tonight’s work session responds to this directive and this staff report focuses on a couple of big-picture questions, which could guide the Council’s discussion; Specifically: What are the objectives of establishing an annual limit program, and are there various ways those objectives could be met? What issues would have to be resolved to establish such a program? In addition, staff expects that the City Council will wish to discuss potential interim measures that can be pursued until an annual limit (or alternative approach) can be adopted. These interim measures could include new requirements for office/R&D development proposals (e.g. on-site parking, transportation management association funding, or a reduction in FAR unless affordable housing is included as part of a mixed use development.) Supporting information includes a memo (first prepared for the December 8, 2014 Council meeting) summarizing annual limit programs in three other jurisdictions, and another memo describing two datasets that are available to inform the Council’s discussion about the annual rate of office/R&D development over time. (See Attachments A and B) Background Please see Attachment A for background information regarding other jurisdictions with some form of annual growth limit on non-residential development. Attachment A also discusses the potential timing for establishment of an annual limit, and outlines some of the issues that would have to be resolved to put a limit in place. Please see Attachment B for background information regarding datasets available to characterize the pace of non-residential development over time in Palo Alto, as well as the sum total of pending (“pipeline”) development applications; It’s also important to recognize that increases in employment, which are credited with creating additional traffic and parking demand, are not directly proportional to new development of office/R&D. This is because there are other types of non-residential development that generate jobs (as explained in Attachment B) and, more importantly, the number of employees per square foot of existing building space fluctuates over time based on the economic climate and the demand for office space. The true relationship between jobs and square footage in Palo Alto will not be fully understood until the business registry is in place for one or two City of Palo Alto Page 2 business cycles. As noted in Attachment B, the City has approved significant medical uses which will come on line, related mostly to the Stanford Hospital Project, and have impacts in the coming years, although this report does not propose or discuss limits on such uses. This report also does not propose or discuss limits on housing development as such regulations can be legally problematic and staff was not directed to pursue these. Discussion Development and establishment of a growth management program with annual development restrictions will require careful consideration of program objectives, pros/cons, as well as the issues and mechanics of the program. Some initial thoughts on these topics are provided below for the Council’s consideration; What are the objectives of establishing an annual limit program, and are there various ways those objectives could be met? Attendees at the Comprehensive Plan workshops last summer expressed some frustration that the current Comprehensive Plan’s approach to growth management (i;e; an overall “cap” on non-residential development) has been ineffective at moderating the pace of growth and development in the robust economic recovery following the “great recession;” Based on this frustration and an examination of growth management strategies in use elsewhere in California, attendees suggested planning scenarios with a growth management program that moderated or metered the rate of development rather than the overall amount. This focus on the rate of development had its genesis in the impacts associated with increased employment in the City as experienced by Palo Alto residents. Impacts include traffic congestion/delay, parking demand, increased housing costs, and more. Additionally, an annual limit can be response to the ups and downs of the business cycle. Thus, the objective of an annual limit program would be to moderate the rate of non- residential development so as to reduce the rate of employment growth, reduce related impacts and allow for effective mitigation of residual impacts. Establishing an annual limit program could also ensure that the development approved under the program meets stringent requirements related to “good” planning and design, public benefit, etc., etc. Program objectives could be met by establishing an annual limit on square footage such as the one in San Francisco and Walnut Creek, or by establishing a limit on net new auto trips such as the one in Santa Monica. (All three examples are cited in Attachment A). Alternatively, this objective could be met by establishing new, stringent requirements on development, and/or by increasing the cost of development to better compensate for its impacts, for example by significantly adjusting housing and transportation impact City of Palo Alto Page 3 fees. (In theory, once the business registry is in place, the City could also consider ways to directly regulate new employment, but staff would need to do some additional research into the legal and implementation issues associated with this approach, as well as any comparable programs in other jurisdictions.) What issues would have to be resolved to establish such a program? As indicated in Attachment A, there are quite a number of issues that would need to be resolved if the City Council wished to adopt an annual limit on office/R&D development, not least of which would be to decide what the limit should be, and what procedures should be used to implement the limit on an annual basis. Staff has provided some initial thoughts on each below. What should the annual limit be? The data in Attachment B has been provided to inform this discussion and show that the rate of non-residential development in Palo Alto has varied over time. Specifically, if the Congestion Management Program (CMP) data is used, the annual rate of office/R&D development has been around 34,000 square feet per year if you look at the period from 2001-2015, about 67,000 square feet per year if you look at the period from 2008-2015, and about -2,800 square feet per year if you look at the period from 2001 to 2007 (because non-residential space was removed and replaced with housing in this period). The CMP data set separates office/R&D from other non-residential uses, including retail and medical office, and thus may provide a better basis for this discussion than the monitoring data which was initially presented in the August 29, 2014 Existing Conditions Report. (The August data set, which has been updated in Attachment B, presents the combined non-residential square footage within nine planning areas that are a legacy of the 1989 Citywide Study.) What should be the process and criteria for receiving and considering applications? Attachment A provides some explanation of the approaches in Walnut Creek, which uses a first-come-first served staff-implemented approach, and San Francisco, which has relied on their Planning Commission to decide between competing proposals using specific criteria in times when pending applications have exceeded the available allocation of square footage. Should there be a geographic component to the program? The City has historically monitored and regulated downtown Palo Alto separately from the rest of the City and should consider whether this continues to be a valuable practice. Should some areas of the City or types/sizes of projects be exempt? Walnut Creek exempts a business park where they would like development to occur from their program. Palo Alto does not have a comparable area where development is desired and where that development would not cause the impacts that the annual develop limit is intended to address. Nonetheless, the idea of exempting areas that are some distance City of Palo Alto Page 4 from residential areas could be explored further. Also, the idea of exempting small projects (less than 5,000 square feet?) could be explored as a way to protect the City’s reputation for supporting innovation and start-up businesses. Further, limited exemptions for vacant properties or highly under-utilized properties might be necessary in order to avoid legal challenges. Should unused allocations roll forward for some period of time? If the allocations were to roll forward indefinitely (as in San Francisco), there may be concerns as to whether the program objectives had been addressed. However, if unused allocations roll forward for at least several years (as in Walnut Creek), it would serve to level-out volatile economic upswings and downturns. How would applications already in the “pipeline” be handled? This would depend on how and when an annual limit is established and will require careful consideration. How would the City ensure continued conformance with the Permit Streamlining Act? We can look to San Francisco and Walnut Creek as models. In San Francisco, completed applications that did not receive an allocation under the annual limit are either continued to the next allocation period or denied, depending on the wishes of the applicant. What changes would be needed to the City’s Comprehensive Plan and zoning? Please see the Policy Implications section below for a brief overview. What would the potential impacts and benefits of the program be? As noted in the Timeline section below, conceptual approach(s) developed by the City Council will be reviewed to determine their potential fiscal and environmental impacts and benefits to the extent feasible. Timeline Adoption of an annual limit on office/R&D development would require considerable discussion and deliberations by the City Council and is likely to be controversial, requiring significant outreach to stakeholders and the community at large. Stanford University has already pointed out how the annual rate of development in the Research Park has fluctuated dramatically over time, and that opportunities would have been lost to Stanford and Palo Alto if an annual limit had constrained development in certain years. Because of the potential for controversy and the need for ample community input, staff assumes that the City Council would like to explore a couple of different approaches/annual limits, and that these would be defined in the first few months of 2015 and evaluated as part of the Comprehenisve Plan Update process. Next steps in the Comprehensive Plan Update process include a community “summit” in May 2015, preparation of a program-level environmental analysis (Draft EIR) and a fiscal study that can be used to inform community City of Palo Alto Page 5 discussions and decision making. The current schedule calls for completion and adoption of the Comprehensive Plan Update and concurrent zoning changes in the first part of 2016. Given this timeline, staff expects that the City Council will wish to discuss potential interim measures (such as those suggested earlier in this report) that can be pursued until an annual limit (or alternative approach) can be adopted. Resource Impact As noted above, adoption of an annual limit on office/R&D development would require considerable discussion and deliberations by the City Council. These deliberations in turn would require considerable staff support and analysis. Also, if a growth management program with an annual limit on office/R&D development is ultimately adopted, implementation of the program each year will require considerable staff time and time on the City Council’s agenda; The City may also wish to contract with a third party to conduct an independent review of competing proposals that seek an allocation under the annual limit. Larger fiscal impacts of a growth management program will have to be assessed carefully. At a minimum, the assessment will have to consider likely reductions in permit revenues and impact fees, potential longterm impacts to the City’s tax revenues and expenses, and a qualitative discussion of the impact on the City’s overall economic “climate;” The extent and nature of fiscal impacts will, of course, depend on the approach(es) that the City Council elects to consider, and the analysis can potentially be combined with a fiscal study of other policy choices inherent in the Comprehensive Plan Update. Planning staff is currently working with staff in the Administrative Services Department to define the scope of this study, which will have to look at expected revenues from commercial and residential property taxes, sales taxes and other sources, as well as the cost of services over time. Preparation of some kind of interim ordinance for the City Council’s consideration and adoption for the period during which an annual office/R&D limit (or other approach) is being analyzed, is potentially time consuming and resource intensive. Thus it may affect delivery of other priorities. Policy Implications If the City adopts a growth management program with an annual limit on office/R&D development, the program would effectively implement Comprensive Plan Policy B-1: “Use a variety of planning and regulatory tools, including growth limits, to ensure that business change is compatible with the needs of Palo Alto neighborhoods.” Nonetheless, it is likely that a new growth management program would require an amendment to the Comprehensive Plan as well as the City’s Municipal Code; The Comprehensive Plan amendment would likely modify or replace policies and programs that establish an overall “cap” on non-residential development in the Downtown (Program L-8) and the Citywide planning areas identified on Comprehensive Plan Map L-6 (Policy L-8), and would also have to City of Palo Alto Page 6 consider compatibility with policies like Policy B-9: “Encourage new businesses that meet the business and economic goals to locate in Palo Alto.” The Municipal Code amendment would have to establish the procedures and standards associated with the new growth management program. Environmental Review This work session is intended for City Council discussion and direction to staff. No final action will be taken and thus no review is required under the California Environmental Quality Act (CEQA). If the Council elects to proceed with establishment of an annual limit or another growth management program at some time in the future, that decision (in the form of implementing policies and regulations) will require CEQA review. Adoption of an interim ordinance or other temporary zoning requirement may also require environmental review depending on the duration and scope of the changes. The level and complexity of environmental review will depend on the nature of the program(s) and its potential to directly or indirectly stimulate a particular kind of development or focus development in a specific area. For example, limiting the development of office/R&D in Palo Alto could stimulate housing development if property owners see that as a way to increase the value of their property. Also, the City would have to consider whether limiting the development of office/R&D development in Palo Alto could focus additonal office/R&D development in adjacent communities.1 Attachments: Attachment A: Memorandum Regarding Annual Limit on Office/R&D (PDF) Attachment B: Comp. Plan Memo on Growth Trends (PDF) Attachment C: Documents Received "At Places" at the January 26, 2015 City Council meeting (PDF) Attachment D: Correspondence (PDF) 1 While CEQA does not require a lead agency to speculate where specfic impacts cannot be reasonably anticipated, the City would have to at least consider this question. City of Palo Alto Page 7 Attachment A CITY OF PALO ALTO MEMORANDUM TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER & DIRECTOR OF PLANNING & COMMUNITY ENVIRONMENT AGENDA DATE: December 8, 2014 ID#: 5286 SUBJECT: COMPREHENSIVE PLAN UPDATE & ZONING CHANGES: ANNUAL LIMIT ON OFFICE/R&D DEVELOPMENT At the November 3, 2014 City Council meeting, a Councilmember asked whether the suggested Council work session regarding establishment of an annual limit on office/R&D could consider adoption of an annual limit as an interim ordinance. Subsequently, the same Councilmember also asked staff to provide information regarding other jurisdictions with annual office limits immediately, rather than as preparation for the January work session. This memo responds to both questions/requests and will be supplemented by additional staff analysis and a staff recommendation in advance of the January work session. Specifically, staff and the City Council will have to explore a number of issues when considering establishment of an annual limit on office/R&D development. At a minimum, these include the following: (1) what the annual limit should be; (2) what the process and criteria for receiving and considering applications should be (i.e. should applications be considered in the order received, or based on some criteria establishing preferences; what should those criteria be?); (3) whether there should be a geographic component to the program; (4) whether some areas of the City or types/sizes of projects should be exempt; (5) whether unused allocations should roll forward for some period of time; (6) how to handle applications already in the “pipeline-” (7) how to ensure continued conformance with the Permit Streamlining Act; (8) necessary changes to the City’s Comprehensive Plan and zoning; and (9) potential impacts and benefits. CAN THE COUNCIL CONSIDER AN ANNUAL OFFICE CAP AS AN INTERIM ORDINANCE? The short answer is yes, the Council could consider adoption of an annual cap on office/R&D development under the provision in State law (Government Code Section 65858) which allows cities to temporarily prohibit any uses that may be in conflict with a contemplated general plan, specific plan, or zoning proposal that the city is studying or intends to study within a reasonable time. To enact an interim ordinance, a 4/5 vote (8 votes) would be required, and the City Council would have to make legislative findings that there is a current and immediate threat to the public health, safety, or welfare, and that the approval of additional development would result in that threat to public health, safety, or welfare. An interim ordinance is effective for 45 days, after which it may be extended, but in no instance may it be in effect for over two years. An interim ordinance does not require review by the Planning and Transportation Commission and many are exempt from review under the California Environmental Quality Act (CEQA). This is because interim ordinances are temporary and many, in practice, perpetuate the status quo. To the extent this is not the case, additional review may be required. It should be noted again, however, that there are many complexities that would need to be resolved to establish an annual office limit, suggesting that considerable time and effort will be involved. Whether it’s adopted as an interim ordinance or concurrent with the Comprehensive Plan Update, an annual limit is also likely to cause concern by property owners in areas zoned for commercial use, resulting in the need for extended outreach, public hearings, and etc. Stanford University has already voiced its concerns about the effect that an annual office limit could have on the Research Park. WHAT OTHER JURISDICTIONS HAVE AN ANNUAL OFFICE CAP? Earlier this year, the City’s Comprehensive Plan consultants, Placeworks, gathered information regarding a number of growth management systems used by California jurisdictions to meter the amount or pace of non-residential development. They identified communities that, like Palo Alto, have some kind of cap on non-residential development (for example Cupertino), as well as communities that have attempted to cap residential development (for example Pleasanton). Page 2 December 2, 2014 Memo RE: Annual Limit on Office/R&D Placeworks identified Walnut Creek and Santa Monica as two jurisdictions that have implemented programs to govern the pace of non-residential development, and these programs are summarized below, along with the program in place in San Francisco. These three examples are presented for background information only, and are not intended as a recommendation to adopt one or more of these strategies. As the Placeworks staff observed, any program adopted in Palo Alto would need a high degree of customization to fit its unique local conditions. In addition, if a program is developed for Palo Alto, it would require careful legal analysis to ensure that it can operate effectively in tandem with the State’s Permit Streamlining Act and withstand legal challenge. Walnut Creek Walnut Creek has regulated commercial growth since 1985, when voters approved Measure H, a growth-control initiative that would have limited or prevented non-residential development until traffic congestion at major intersections improved. Measure H was a reaction to resident concerns about traffic and the construction in the late 1970s and early 1980s, when a number of large commercial office buildings in downtown Walnut Creek, primarily around the Walnut Creek BART station. A major local landowner sued the City, and the case eventually went to the California Supreme Court. In 1990, the Court ruled that Measure H was invalid because it functioned as a zoning ordinance but conflicted with the City’s adopted General Plan, which called for Walnut Creek to be a regional job and retail center. Although Measure H was invalidated, the City continued to regulate the amount of commercial and residential development allowed each year, acknowledging the residents’ desire to meter growth in Walnut Creek. In 1993, the City Council adopted a Growth Limitation Program that limited new commercial growth to 75,000 square feet per year, metered in increments of 150,000 square feet every 2 years, and was adopted for 10 years. The program helped the City to limit growth to 620,000 square feet of new commercial development in the first 10 years (1993-2003), and was extended through 2015 in the City’s 2005 General Plan Update. The Growth Limitation Program excludes the Shadelands Yes. The Walnut Creek Growth Management Program includes a cap of 75,000 commercial square feet/year metered in 2-year increments. Therefore allocations for 150,000 square feet of commercial development are available in each two year cycle. The cap is set in the General Plan (which incorporated an earlier Growth Limitation Program from the 1990s). It is enforced by the Planning Division. Staff tracks available allocation and a building permit cannot be issued unless an allocation is available. If the building permit is allowed to expire prior to construction, the allocation is revoked and returns to the pool. Unused allocations from one cycle are rolled over to the next cycle. Project applicants get credit for any existing commercial SF that would be demolished with construction of their project. 2. Does the system include a competitive point system pitting projects against each other? Are any categories of project exempted (e.g. certain type of industry, projects under 10k sf)? How much flexibility is there? There is no “beauty contest” type competition. Allocations are awarded on a first-come, first-served basis when the project planner deems a project application complete. Development in the Shadelands Business Park on the eastern edge of the City and specific types of Community Facilities are exempt from the Growth Management Program. Additionally, the Planning Manager can grant exemptions to larger, more complex projects so that their allocation can be reserved for longer than the 12-month period for which allocations are usually reserved. The system had a fair degree of flexibility built in – not in the cap, but rather in how it is calculated and implemented. Calculating the cap in 2-year increments of up to 150,000 sf offers some flexibility; as does carrying forward the unused allocation. In addition, the system allows project applicants to reserve allocations as soon as their application is deemed complete, with the possibility of having that reservation extended at the discretion of the Planning Manager for larger, more complex projects. Santa Monica Goal T19 in the Santa Monica Land Use and Circulation Element (LUCE) of the Santa Monica General Plan (adopted in 2010) is to “Create an integrated transportation and land use program that seeks to limit total peak period vehicle trips with a Santa Monica origin or destination to 2009 levels.” This goal is also known as the “No Net New Evening Peak Period Vehicle Trips” goal. The LUCE focuses not only on reducing vehicle trips, but also on encourage walking, bicycling and transit use, creating pedestrian-oriented neighborhoods, and reducing greenhouse gas emissions. The LUCE foresees the creation of a multi-modal transportation system and “identifies local strategies to manage trips, treating the entire City as an integrated Page 4 December 2, 2014 Memo RE: Annual Limit on Office/R&D transportation management system with aggressive requirements for trip reduction, transit enhancements, pedestrian and bike improvements, and shared parking. Transportation demand management (TDM) programs that reduce automobile travel demand and incentivize alternative modes such as carpool, vanpools, and shuttles, walking, bicycling, and shared parking are all encouraged.”2 The LUCE calls for the City to manage new trips from new development and reduce trips from existing major employers. New trips must be offset through the development of new transportation infrastructure providing alternatives to automobile travel, including public transit, bicycling, ridesharing, and walking. The LUCE also contains a list of transportation policies, projects, and programs that are necessary to accommodate projected growth with no net increase in PM peak hour vehicle trips through 2030. The LUCE identifies the establishment of fees as a tool to manage vehicle trips and increase alternative transportation options. The LUCE states that “New projects will be required to minimize the trips they generate and contribute fees to mitigate their new trips.” However, the LUCE also states that “To achieve the No Net New Trips goal, developers cannot be expected to have every project generate zero trips by itself;” rather, developers will pay mitigation fees that will fund capital improvement projects citywide, such that the net impact of each development project ultimately is zero. Fees will be used for improvements that benefit the City’s transportation system overall, such as additional buses to increase frequency, improved walking routes and new bike lanes.”3 The provision that the City as a whole will achieve no net new trips by 2030, but that individual projects will not be required to generate no net new trips, has created some confusion and concern among Santa Monica residents as the LUCE is implemented. 1. Does the system include an annual limit on non-residential approvals? If so, how is that set? Changed? Enforced? No. Santa Monica’s growth management program resembles a performance measure, rather than an annual limit, and the City is still developing the zoning ordinance that will implement the program set forth in its General Plan. 2 City of Santa Monica, Transportation Impact Fee Nexus Study (Final), April 2012. Page 1-3. Available online at http://www.smgov.net/uploadedFiles/Departments/PCD/Transportation/Developers/Santa-Monica-Nexus- Study.pdf 3 City of Santa Monica, Land Use and Circulation Element, July 2010. Page 4.0-12. Available online at http://www.smgov.net/uploadedFiles/Departments/PCD/Plans/General-Plan/Land-Use-and-Circulation- Element.pdf Page 5 December 2, 2014 Memo RE: Annual Limit on Office/R&D 2. Does the system include a competitive point system pitting projects against each other? Are any categories of project exempted (e.g. certain type of industry, projects under 10k sf)? How much flexibility is there? It does not appear that Santa Monica envisions projects competing against each other for allocations. Instead, projects that cannot achieve the “No Net New Trips” goal on their own can pay into a fund for investments that will offset their trips. San Francisco San Francisco’s Downtown Plan dates from 1985 and included the City’s first annual cap on office development, which was intended as a temporary measure. This original office cap was modified and extended by the voters when Proposition M was adopted in 1986. The annual growth limit is codified in Section 320-25 of the City’s Zoning Code and from time to time, the City’s Planning Commission has adopted implementing policies and procedures. 1. Does the system include an annual limit on approvals? If so, how is that set? Changed? Enforced? San Francisco has two office caps, one for small projects and one for larger ones. The “small” cap is 75,000 square feet per year and applies to projects between 25,000 and 50,000 square feet. The “large” cap is 875,000 square feet per year and applies to projects over 50,000 square feet. The two annual office limits were set by the voters and cannot be changed except with voter approval, although the Planning Commission has been able to adopt implementing policies and procedures as needed. Unused allocations roll forward indefinitely, and the annual cap has only been a constraint on development in periods like the dot com boom, when new office development proposals exceeded the available allocation. In the current tech boom, San Francisco is once again in this situation and the Planning Department has started discussions about policies and procedures to implement the annual limit. 2. Does the system include a competitive point system pitting projects against each other? Are there any categories of project exempted (e.g. certain type of industry, projects under 10k sf)? How much flexibility is there? Prop M itself did not include a competitive system, but the City Planning Commission has had to establish procedures to compare and select among projects when the number of projects exceed the available allocation. For example, in the 1990s, the City conducted a “beauty contest” in which large office projects competed with each other for the annual allocation. Each application was subject to analysis and environmental Page 6 December 2, 2014 Memo RE: Annual Limit on Office/R&D review, and the Planning Commission compared the projects to each other before approving one or more. Applicants whose projects were not approved had the choice to either request continuance to the next evaluation period, or to have their projects denied. The Planning Department has recently begun discussing implementation of a revised competitive process, which is expected to focus on “good planning” issues such as proximity to transit and housing displacement rather than aesthetics or public benefits. In fact, Prop M prohibits the City from considering monetary contributions in any competition, by stating that “Payments, other than those provided for under applicable ordinances, which may be made to a transit or housing fund of the City, shall not be considered.” Office projects less than 25,000 square feet are exempted from San Francisco’s annual limit, as are City projects. State, Federal, Port, and Redevelopment Agency projects are not exempt, and reduce the allocation available for private development projects. Page 7 December 2, 2014 Memo RE: Annual Limit on Office/R&D Attachment B - CITY OF PALO ALTO MEMORANDUM TO: HILLARY GITELMAN, Director, Planning & Community Environment FROM: ROLAND RIVERA, Land Use Analyst DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT AGENDA DATE: January 26, 2015 ID#: 5404 SUBJECT: Background information and data sets associated with establishment of an annual limit on office/R&D development. Per your request, the following data analysis describes the data sets regarding non-residential development that are available to inform discussions of an “annual limit” on office/R&D. The analysis presents two data sets: one grew out of Policy L-8 of our current Comprehensive Plan and the other derives from Santa Clara County’s Congestion Management Program (CMP). Key element of the approved work program for the Comprehensive Plan Update involve establishing baseline conditions utilizing new development data and identifying a realistic growth rate for development through 2030. Understanding the details and some of the limitations of the Commercial Growth Limit specified in the Comprehensive Plan Policy L-8 data set may be useful in both endeavors. Another, more straightforward, data set is derived from the City’s annual report to the Santa Clara County Valley Transportation Authority (VTA). The CMP’s Annual Land Use Monitoring Report requires that Member Agencies provide the VTA with information on all development projects approved/entitled during the fiscal year. Please review the following background information and summaries on the data sets and let me know if you have any questions. Thank you. 1989 Citywide Study and the Comprehensive Plan Policy L-8 Data A Citywide Study adopted in 1989 was an important summation of the numerous planning studies that were undertaken by the City in the 1980's. The focus of these studies was to address non-residential development and ways to improve the provision of housing and the jobs/housing imbalance. At the time, the City was experiencing commercial growth but residential growth was very limited. The 1989 Citywide Study divided the City's non-residential areas into nine analysis areas (1989 Citywide Study Area Map), which were subsequently adopted as Map L-6 in the current Comprehensive Plan. The development potential for Palo Alto identified in the Citywide Study was 3,257,900 square feet; however, that development potential did not include some Planned Community zones and public facilities such as City Offices and the Veteran's Administration Hospital, which were termed “not- monitored areas.” In 1996, the City Council asked the Policy and Services Committee to study the issue of Citywide non- residential development "limit" for the nine analysis areas and determine how to incorporate thelimit into the Comprehensive Plan. On April 1996, the City Council approved the Policy and Services Committee's recommendation to include the Citywide Study's overall future development square footage within Policy L-8 and Program L-7 into the Comprehensive Plan. POLICY L-8: Maintain a limit of 3,257,900 square feet of new non-residential development for the nine planning areas evaluated in the 1989 Citywide Land Use and Transportation Study, with the understanding that the City Council may make modifications for specific properties that allow modest additional growth. Such additional growth will count towards the 3,257,900 maximum. PROGRAM L-7: Establish a system to monitor the rate of non-residential development and traffic conditions related to both residential and non-residential development at key intersections including those identified in the 1989 Citywide Study and additional intersections identified in the Comprehensive Plan EIR. If the rate of growth reaches the point where the citywide development maximum might be reached, the City will reevaluate development policies and regulations. Policy L-8 aims to "Maintain a limit of 3,257,900 square feet of new non-residential development for the nine planning areas evaluated in the 1989 Citywide Land Use and Transportation Study," and Program L- 7 implements Policy L-8 by establishing a system to monitor the rate of non-residential development in the areas identified in the 1989 Citywide Land Use and Transportation study. Importantly, Program L-7 calls for monitoring non-residential development within the nine planning area boundaries but does not distinguish between the different types of non-residential development within those areas. Attachment A presents the annual monitoring data for all types of non-residential development collected pursuant to Program L-7 from 1989 to the present and total square footages are shown below. In both cases, the non-residential square footage is net floor area and does not include floor area that replaces demolished floor area.1 Table 1, Non-Residential Development Potential in the Nine Planning Areas per Policy L-8 Development Potential per Comprehensive Plan Policy L-8 Net square feet increase 1989 to December 2014 for the nine planning areas* Remaining in Growth Monitoring Development Potential 3,257,900 1,400,367 1,857,533 *Non-Residential net change in square feet based on Planning Entitlements from 1989 -2014. Data excludes Mayfield Development Agreement Projects which demolishes approximately 323k of non-residential square feet and replaces 300k of demolished square feet into Stanford Research Park Source: Planning and Community Environment, December 22, 2014 As shown in Attachment A, when non-residential development projects currently in the entitlement process (“pipeline projects”) are included, an additional 139,524 non-residential square feet could be entitled or approved within the nine planning areas, affecting the totals as shown below. Table 2, Non-Residential Development Potential in the Nine Planning Areas per Policy L-8 with “Pipeline Projects” Development Potential After Citywide Study Net square feet increase 1989 to December 2014 for the nine planning areas including Pipeline Projects* Remaining in Growth Monitoring Development Potential 3,257,900 1,539,891 1,718,009 *Non-Residential net change in square feet based on Planning Entitlements from 1989 -2014 and current pipeline projects. Data excludes Mayfield Development Agreement Projects which demolishes approximately 323k of non-residential square feet and replaces 300k of demolished square feet into Stanford Research Park. Source: Planning and Community Environment, December 22, 2014 As noted before, there are areas within the nine planning areas that are considered “not monitored” including some Planned Community zones and public facilities. Approvals within the “not monitored” areas currently amount to approximately 1million square feet which includes expansion of the Veterans Administration Hospital, Palo Alto Medical Foundation, Stanford Cancer Research Center and other facilities identified as “not monitored” in Map L-6. One of these “not monitored” areas includes the Stanford University Medical Center (SUMC) facility. On June 6, 2011, Council amended Policy L-8 to include language exempting the Medical Center’s expansion from the policy and amended Map L-6 to expand the “not-monitored” area to be coterminous with the boundaries of the “Hospital District” zoning district. The 1.3 million square feet entitled SUMC expansion is not reflected in Attachment A or 1 Attachment A is an updated version of the Table 8-3 in the August 29, 2014 Existing Conditions Report. An error has been corrected in data for years 2001, 2008, 2012, and 2013 and “pipeline” information has been updated as described further later in this memo. Table 8-3 of the Existing Conditions Report because build-out and occupancy is expected in the future. If it had been included, the 1.3 million square feet SUMC expansion would be listed as ‘not-monitored’ in the year 2011, when the development agreement was approved. Assuming all pipeline projects are entitled, the net square feet increase within the last 27 years (1989- 2015) could be approximately 1.5 million square feet or an average annual increase of approximately 57,000 square feet per year. The following table details average annual non-residential growth within the nine planning areas. Table 3: Annual Average Non-Residential Growth within the Nine Planning Areas per Policy L-8 Years Total Non-Residential net square feet increase Average Annual Growth (total/# of years) 1989 – 2015 1,539,891 57,033 1989 – 2007 721,074 37,951 2008 – 2015 818,817 102,352 Source: Planning and Community Environment, December 22, 2014 Projects converting non-residential to residential uses, such as 901 San Antonio Ave, 901 and 1101 East Meadow Blvd, Hyatt Rickey’s (4219 El Camino Real), contributed to the significantly lower non- residential development from 1998-2007. Policy L-8, Program L-7, and Attachment A can inform discussions regarding the amount and pace of non-residential development, but there are significant limitations to the data which should be understood. First, as noted above, Policy L-8 and the monitoring program do not distinguish between various types of non-residential development, so the square footages presented include retail and medical offices as well as general office/R&D. Secondly, monitoring is limited to the nine planning areas as defined by Map L-6, and the City increasingly has seen some development outside of these areas. For example, the project at 441 Page Mill Road which will be considered by the City Council in January, falls outside of the nine planning areas and thus is not included in the “pipeline” numbers presented here. Source: Planning and Community Environment, December 22, 2014 The CMP dataset can inform the discussions regarding non-residential development, and does not have some of the disadvantages of the Policy L-8 data described above. The CMP dataset contains citywide development information, and is collected by fiscal year as opposed to calendar year. But it does provide useful information about different non-residential land use categories. Table 5, below summarizes the key points of the Policy L-8 and the CMP datasets. Table 5: Summary of Policy L-8 and CMP Datasets Policy L-8 Dataset CMP Dataset Timeline 1989-2014 plus 2015 pipeline projects FY 2001-FY 2014 plus 2015 pipeline projects Geography Nine Planning Areas as shown on Map L-6 Citywide Non-Residential Land Use Categories Total of all Non-Residential square footage Contains information on Different Non-Residential Land Use Categories (e.g. retail, office/R&D, Hotel, etc) Exemptions Areas within the nine planning areas that are considered “not monitored” including some Planned Community zones and public facilities. None Source: Planning and Community Environment, December 22, 2014 "U U B D I N F O U # 20 1 3 M o n i t o r i n g a n d C o n f o r m a n c e Ex h i b i t 4 Pa g e 1 o f 1 AN N U A L L A N D - U S E M O N I T O R I N G S U M M A R Y Me m b e r A g e n c y : Ci t y o f P a l o A l t o Mo n i t o r i n g P e r i o d : 07 / 0 1 / 1 2 - 0 6 / 3 0 / 1 3 1 2 3 4 5 TA Z * L- U NU M B E R O F D W E L L I N G U N I T S NU M B E R O F CO M M E R C I A L / I N D U S T R I A L SQ U A R E F E E T NU M B E R O F A C R E S (Z o n i n g C h a n g e O n l y ) 3a 3b 3 c 4a 4 b 4 c 5a 5 b 5 c Nu m b e r Cl a s s Ap p r o v e d Re m o v e d Ne t A d d e d Ap p r o v e d Re m o v e d Ne t A d d e d Ap p r o v e d Re m o v e d Ne t A d d e d 42 9 C3 12 7 , 0 6 3 22 8 , 9 8 6 -1 0 1 , 9 2 3 43 1 C5 19 , 9 6 0 0 19 , 9 6 0 43 1 R2 2 0 2 43 7 C5 14 , 5 6 7 4, 5 8 8 9, 9 7 9 44 3 P3 31 3 5 3 24 6 7 8 66 7 5 45 8 C5 0 67 , 0 0 0 -6 7 , 0 0 0 45 8 M2 11 6 , 0 0 0 0 11 6 , 0 0 0 46 5 C3 0 1. 5 7 -1 . 5 7 46 5 P2 1. 5 7 0 1. 5 7 46 5 P2 51 , 9 4 8 0 51 , 9 4 8 46 6 R2 3 3 0 49 9 P1 2, 3 1 9 0 2, 3 1 9 51 4 M1 5, 6 7 2 1, 9 4 1 3, 7 3 1 51 7 R1 0 0. 6 2 -0 . 6 2 51 7 C2 3, 2 5 0 2, 5 2 2 72 8 0. 6 2 0 0. 6 2 52 0 C5 0 3, 2 0 0 -3 , 2 0 0 52 0 C6 22 , 9 5 7 0 22 , 9 5 7 52 2 C5 27 7 5 0 27 7 5 52 2 R1 1 0 1 52 7 P1 4, 1 3 2 0 4, 1 3 2 53 5 P2 0 50 , 0 0 0 -5 0 , 0 0 0 53 5 C6 50 , 0 0 0 0 50 , 0 0 0 CM P A n n u a l M o n i t o r i n g C o n f o r m a n c e R e q u i r e m e n t s Ju n e 2 0 1 3 Attachment D - Betten, Zariah From: ilyanep@gmail.com on behalf of Ilya Nepomnyashchiy <ilya@ilyanep.com> Sent: Monday, February 09, 2015 5:09 PM To: Council, City Subject: Comment on Agenda Item To the Palo Alto City Council: My name is Ilya Nepomnyashchiy, and I currently work in Downtown Palo Alto. I'm writing to comment on tonight's meeting agenda item #11, the action items discussed in staff report ID #5518. I would like to support approaches similar to that proposed by Palo Alto Forward. It seems that the desire of all residents and employees in Palo Alto is to reduce traffic, reduce the parking strain, reduce our environmental impact and preserve the beautiful neighborhood feeling that we all know and love in downtown. Unfortunately, a hard cap on new office space is not properly aligning incentives for these desires to be realized. Office space is more profitable for developers than, say, residential space, so a cap on office space development will simply ensure that office space is built at exactly the cap every year. Under such a cap, no consideration will be made as to where the employees in those new offices will be living or how they will be traveling to work. They will likely have to drive, causing traffic downtown, and park, causing a parking strain. However, this is a wonderful opportunity to align incentives and build a Palo Alto of the future. Instead of hard caps, we should use established or new metrics that measure new trips to these new offices. A new office space construction should either be able to show a reasonable amount of residential space included for the number of workers who will work there (either in the same building as a mixed-use development or nearby). This way, the neighborhood can continue to welcome new workers and new innovators while also giving them a place to live, rather than driving them to surrounding neighborhoods and even as far as Gilroy. As someone who is currently priced out of Palo Alto and forced to live in Mountain View, I strongly feel that this plan would ensure that new residences are commensurate with new office production, whereas a hard cap would not. Thank you for your time, Ilya Nepomnyashchiy 1 Betten, Zariah From: Drenner, Kellie <kellie.drenner@sap.com> Sent: Monday, February 09, 2015 5:42 PM To: Council, City; Clerk, City; Holman, Karen; Keene, James; Gitelman, Hillary Subject: 2/9/15 - City of Palo Alto Council Meeting - Comments Attachments: SAP_Annual Growth Limit (3).pdf Dear Mayor Holman and the Members of the City Council: Please find attached comments in response to Agenda Item 11 – Discussion and Direction to Staff Regarding Establishment of an Office/R&D Annual Growth Limit. If you have any questions, do not hesitate to reach out to me. Best regards, Kellie Drenner Kellie Drenner Silicon Valley Marketing and Community Engagement SAP C – 408‐612‐9348 E – kellie.drenner@sap.com Follow SAP Silicon Valley on Twitter 1 SAP America 3410 Hillview Avenue Palo Alto, CA 94304 T +1 650.849.4000 F +1 650.849.4200 www.sap.com February 9, 2015 Mayor Holman and Members of the City Council City of Palo Alto 250 Hamilton Ave Palo Alto, CA 94301 RE: The Establishment of an Office/R&D Annual Growth Limit Dear Mayor Holman and the Members of the City Council: SAP has become aware of the discussion this evening about an annual growth limit and we want to write to express that we are concerned. While SAP does not have imminent plans to add square footage, this tool for controlling growth in the Research Park would have detrimental impacts by eliminating the predictability and certainty around how projects are handled in the Stanford Research Park. Until now, we have understood how to work within the existing zoning in our efforts to modernize our Palo Alto facilities when we have undertaken such efforts. SAP is highly motivated by the principles of sustainability, and so, we often invest in our real estate in order to improve our facilities' sustainable features. Having certainly that we can grow to accommodate such efforts or expand our Palo Alto presence is essential for our success in this City. Flexibility is critical if SAP and our fellow Research Park companies are to remain competitive and thriving here in Palo Alto. We respectfully request that you reconsider the proposed annual growth limits. Thank you for taking our point of view into account. Please feel free to discuss our concerns with us further. Sincerely, Dwain Christensen Head of Facilities – Bay Area Region Director of Workplace Strategies Global Facility Management - Americas SAP America – Palo Alto T: +1 650-320-3074 F: +1 650-433-5203 Betten, Zariah From: Alusic, Lorin <lorin.alusic@hp.com> Sent: Monday, February 09, 2015 3:46 PM To: Holman, Karen; Council, City Cc: Clerk, City; Keene, James; Gitelman, Hillary; jcunneen@calstrat.com Subject: HP Comments - 2/9/15 Agenda Item #11 - Office/R&D Growth Limits Attachments: HP_Comments_PA_Holman_OfficeGrowthLimits_2015_LH.pdf Dear Mayor Holman and Members of the City Council: Thank you for the opportunity to provide HP’s comments on the proposed office/R&D annual growth limit. Please find HP’s comments attached. While discussing the issue at tonight’s City Council meeting, please consider HP’s concerns. Should you have any questions about our comments or concerns, do not hesitate to contact me directly. Lorin Alusic Director, Western Region State and Local Government Relations Corporate Affairs lorin.alusic@hp.com M +1 202-256-9198 O +1 650-857-6099 Hewlett-Packard Company 3000 Hanover St. Palo Alto, CA 94304 USA 1 From: Hamilton Hitchings To: Council, City Cc: Keene, James Subject: Office Building Zoning Follow-on Thoughts Date: Tuesday, February 10, 2015 10:18:42 AM Dear City Council Members, Thank you for a thoughtful and productive dicussion on limiting office building development last night. I spoke strongly in favor of limiting office building development and enforcing zoning codes. After listening to everyone speak I have the following additional thoughts: 1. Exempt Stanford Research Park or at most make their zoning based on car trips per day. Most of the residents concerns including mine are primarily about downtown University and California areas and to a lesser extent the El Camino corridor. 2. Make a different limit for large office buildings and a separate one for small offices and businesses in order to help small businesses. 3. I worry that a 35,000 to 45,000 square foot limit per year for Palo Alto is still much too high, especially for large office buildings. 4. Tech job growth is limited by housing (not the ability to site office buildings) according to an economist who spoke recently at Palo Alto Forward 5. Prevent retail to office conversions somehow 6. I would strongly prefer a beauty contest over first come first serve for choosing office buildings as that would increase the quality of projects, something that has been sorely lacking. 7. Beauty contest criteria could be scorecarded according to the following criteria: * Whether they conform to ALL zoning rules * Their parking and traffic impacts * Their architectual appearance (so far very lacking in newer large projects. Note, the architectual review board, in my humble opinion, is currently failing the residents when approving these large, ugly, impactful office building projects). * Are they mixed use (especially if they provide apartments or space for small businesses) Hamilton Hitchings 212 Heather Lane, Palo Alto Duveneck Neighborhood 1-650-862-9657 (mobile) Betten, Zariah From: Rock, Steve Sent: Tuesday, February 10, 2015 10:56 AM To: Council, City Subject: cost/benefit office buildings Dear Folks, I was at the Office Building study session last night and did not speak. Some people stated that there were more monetary costs to the city (for services) for an office building than income from the taxes it produced. I think there are important additions to that. 1)SCHOOLS: While the city may have costs, (fire, police, road repair, etc.) the school district has no additional costs and lots of benefits in terms of taxes. In making your decisions it is very important to consider the impact on the school district. When I moved to Palo Alto 38 years ago it was claimed that the schools were excellent because of money from all the industry in Palo Alto. (That was before Prop 13, see below). So because of the jobs/housing imbalance Palo Alto had more school money per pupil. 2) PROP 13 altered the ratio between property tax from business/residential from 0.6/0.4 to 0.4/0.6 statewide. I don't know the numbers in Palo Alto. I read fairly recently that many businesses were able to grandfather their property tax back to 1978 levels by various real estate scams of keeping nominal ownership in the hands of the original owners or their descendents while the actual users of the property changed. Thus adjacent land was taxed at a very different rate. a) If you decide to limit office development, one consideration of where it is done should include where the taxes will be the greatest. b) Palo Alto should lobby the state to repeal Prop 13 regarding property tax on business property. RESIDENTIAL DEVELOPMENT At the meeting, several people spoke about building housing instead of commercial buildings. However, the original "rebellion" against development a year or so ago, involved senior HOUSING. Residential development creates traffic problems also as people leave their homes to go to work/school. It also decreases the amount of money per pupil in the school coffers. -Steve Stephen Rock 3872 Nathan Way Palo Alto CA 94303 ser84@columbia.edu 1 1 Betten, Zariah Subject:FW: Please enact office space cap ASAP From: Anne Gregory [mailto:tankgirl58@sbcglobal.net] Sent: Wednesday, March 11, 2015 3:25 PM To: Council, City; Anne Gregory Subject: Please enact office space cap ASAP Dear Mayor Holman and Palo Alto City Council Members: First, thank you for your service to our city. As an longtime HOA board member, I know that the minimal pay you receive doesn't compensate for the amount of time you spend overseeing Palo Alto's complex affairs. I am writing in support of the proposed cap on office space. We need it badly. I watched the televised City Council meeting on March 3rd and l listened to and evaluated all of the arguments pro and con. I was disappointed when the Council was unable to come to a decision. I agree with Council Member Filseth: we need to stop digging the hole deeper. We can't allow continued exacerbation of the jobs to residents ratio problem and expect to hang on to any quality of life. I would like to see a moratorium on new office space, but I realize that some flexibility is required for the renovation of existing spaces. I also agree with Mayor Holman that a cap is needed in order to measure how well the new traffic and parking mitigation measures are working; otherwise the city is trying to hit a moving target. New jobs really need to be sited in San Jose, not Palo Alto. I'm sure you are aware that San Jose has the opposite problem - not enough jobs for it's residents. San Jose has Caltrain, Amtrak, Light Rail and will soon have BART. Palo Alto only has Caltrain, whose trains are frequently standing room only. Despite calling ourselves a city, one with an enviable international reputation, we are still a small suburban town of sixty five thousand residents that is being overwhelmed with the negative repercussions of too much growth, too fast. I own a condo near the intersection of Loma Verde Avenue and Middlefield Road, at the southern edge of Midtown. When I bought the property in 1999, my primary criteria was a location on a quiet residential street. Loma Verde has experienced tremendous growth in traffic in the last few years which has had a very negative effect on my quality of life in the areas of traffic, parking, pollution, litter, noise, crime and bicycle and pedestrian safety. I attribute this growth in traffic to three things: the City allowed a 100 unit condo complex to be built at West Bayshore and Loma Verde Ave, effectively doubling the density of Loma Verde Ave practically over night. I don't believe there is any mass transit close to this complex. the sleepy coffee shop on at Middlefield and Loma Verde became a Philz Coffee, which is now a destination for non residents and residents alike. In addition to bringing greatly increased traffic to Loma Verde, safety has been compromised: my neighbor's son was hit by car exiting Philz Coffee while riding his bike, I have been nearly hit while driving, bicycling and walking by Philz Coffee patrons constantly and suddenly U-turning while searching for parking. Also these patrons often park in the bike lane (right under the no parking signs) while they are getting their Philz fix. I commute by bicycle to my job at Palo Alto Medical Foundation but I can certainly see why most people wouldn't want to risk cycling given the increasingly dangerous traffic environment. the citywide increase in traffic and congestion leading to Loma Verde Ave becoming a main east west artery instead of a nice quiet residential street. This results in a big increase in noise and air pollution. I have to use a noise machine and ear plugs to get to sleep and my husband's asthma is bad all the time now. The net result is that I now feel as if I'm living in any big city with all of the attendant big city problems and not in a nice quiet residential neighborhood. I mention these issues to demonstrate that the problems Palo Alto is experiencing are not at all limited to Downtown or California Street; they are citywide and destroying the quality of life in residential neighborhoods. If the Council is not willing or able to enact a cap, I suspect there are many residents including myself who are more than willing to participate in a Measure D style campaign to do just that. 2 Thank you for listening and please enact an office space cap as soon as possible. Sincerely yours, Anne Gregory Treasurer, Loma Verde Village HOA City of Palo Alto (ID # 5558) City Council Staff Report Report Type: Action Items Meeting Date: 3/23/2015 City of Palo Alto Page 1 Council Priority: Environmental Sustainability Summary Title: Approval of a Residential Curbside Compostable Collection Program Title: Approval of a Residential Curbside Compost Collection Program and Adopting a Budget Amendment Ordinance for $387,000 for the Purchase of Kitchen Buckets and New Outreach Materials From: City Manager Lead Department: Public Works Recommendation Staff recommends that Council: 1.Approve a new residential curbside collection and composting program of food scraps commingled with yard trimmings in the green carts, effective July 1, 2015; and 2.Adopt the attached Budget Amendment Ordinance in the amount of $387,000 to fund the purchase of kitchen buckets and outreach materials that are needed as part of the implementation of the new residential curbside compost collection program. Executive Summary The implementation of the GreenWaste Contract in 2009 added several zero waste programs that boosted the City’s diversion rate (from landfills) from 62% in 2008 to approximately 78% in 2013. While this diversion rate is one of the highest in the state, it has not increased as desired over the past few years to help the City meet its Zero Waste Goal by 2021. The next big step in the City’s efforts to attain its zero waste goals is getting food scraps out of the landfill, as they make up 50% of residential garbage – over 5,000 tons landfilled annually. City of Palo Alto Page 2 Staff proposes to start residential curbside compost (e.g., food scraps and food soiled paper) collection in July 2015. The new program will allow residents to place loose food scraps and food soiled paper directly into the ‘green’, yard trimmings cart. Residents will also be given a kitchen bucket to store a few days’ worth of food scraps in the house before depositing it in the green cart. This program will reduce community greenhouse gas emissions by over 1,140 metric tons of CO2 equivalent each year. The program will incur annual (net) cost increases of approximately $532,000 to compost and/or anaerobically digest food scraps commingled with yard trimmings. The resulting increase in costs to residents would be approximately 6.1% (about a $2.63 per month increase for a 32 gallon-sized garbage service). Staff is also requesting a one-time Budget Amendment Ordinance (BAO) for $387,000 to fund the purchase of the kitchen buckets and print new program outreach materials. Finance Committee Discussion On March 3, 2015, this new residential curbside compost collection program was presented to the Finance Committee for discussion. The Finance Committee did not take formal action on this new program (nor were they asked to); however, the Finance Committee members were quite supportive of it. A related preliminary new residential rate structure was also presented to the Finance Committee on March 3. The Committee requested that when the FY 2016 rates return to Finance (expected to be on April 7, 2015), several options be presented, not just one set of rates. Background In 2005, the disposal of recyclable and compostable materials in landfills represented 10% of the greenhouse gas emissions for the entire Palo Alto community. That year, Council adopted a policy to achieve Zero Waste by 2021. In 2007, a Zero Waste Operational Plan (ZWOP) was developed that identified specific actions necessary to achieve zero waste. One of the key actions called for the collection of compostable materials (food scraps and food soiled paper). With the inception of the GreenWaste contract in 2009, the City began the collection of commercial compostables (e.g., food scraps, food soiled paper, and compostable plastics). Over 11,000 tons of commercial waste annually has been diverted from landfills and composted. City of Palo Alto Page 3 Unfortunately, due to operational and cost constraints, residential curbside compost collection was not implemented at that time. Most residents dispose of their food scraps and food spoiled paper, about 5,000 tons per year, in the garbage to be landfilled. Some food is sent down the drain through kitchen sink grinders to be removed and incinerated at the Palo Alto Regional Water Quality Control Plant – a process that consumes energy and wastes water. About 10% of Palo Alto resident’s compost at home, which is the best environmental option? Curbside collection of food scraps and food soiled paper is a widespread and successful practice throughout the Bay Area. Staff has worked to identify the best curbside collection method for these compostable materials. In April 2013, the City implemented a year-long Two Cart Collection Pilot Program in the Greenmeadow neighborhood that eliminated the black (garbage) carts. Residents were asked to change two behaviors: first, place food scraps into compostable bags and then into the green carts combined with yard trimmings; second, residents were to bag any remaining garbage and place it in the blue recycling carts. Both of the carts (blue and green) were collected weekly and sorted at a materials recovery facility (MRF). The Two Cart Collection Pilot Program confirmed that the two-cart collection system is a good method to increase diversion of food scraps and additional recyclables from landfills. However, the method of separation in the pilot was complicated, as residents were required to: 1) Separate food scraps from yard trimmings using compostable bags; and 2) Separate garbage from recyclable materials using plastic bags. Because of these complexities that led to confusion by residents in the pilot area, Staff is not recommending a citywide roll-out of the two-cart collection system at this time. Staff is recommending a simpler option where residents can place their food scraps bagged or loose in the green carts, as is described below. Discussion New Residential Curbside Compost Collection Program Staff is recommending the city-wide collection of residential compostable materials, which include food scraps (bagged or loose) and food soiled paper, commingled in the green carts with yard trimmings. Commingling the food scraps with yard trimmings is the simplest way to recover this material, divert it from the landfill, and produce valuable compost. Many cities throughout the Bay Area City of Palo Alto Page 4 have been collecting and composting commingled residential food scraps with yard trimmings for several years. There are several regional composting facilities that are permitted to compost commingled food scraps and yard trimmings. The food scraps collection program will likely divert and recover over half (or approximately 3,000 tons per year) of the food scraps in the residential garbage. In addition, a curbside food scraps collection program that allows for the loose placement of food scraps in the green yard trimmings cart is consistent with the City’s commercial compostable materials collection program. No longer will school children sort one way at school (part of the commercial program) and then another at home (part of the residential program for single family residents). The improved consistency between the residential and commercial programs will improve outreach opportunities and effectiveness. The proposed program also will be consistent with the other Bay Area communities, including Menlo Park, San Francisco, San Mateo, Redwood City, Atherton, Berkeley, and Oakland. If this program is approved, Staff will purchase kitchen buckets and distribute them to all single-family residences within the City. Residents can use the buckets to temporarily keep food scraps indoors (the two-gallon buckets typically hold around two to three days’ worth of food scraps) until the material is emptied into the green yard trimmings carts. The program allows for all food scraps to be composted and placed directly into the green cart in a variety of options: loose, in a compostable bag (paper or plastic), in a paper carton (e.g., milk, juice, ice cream), or any other compostable container. The acceptable compostable items include but are not limited to: spoiled food, inedible food scraps (e.g., banana peels, apple cores), meat, bones, egg shells, compostable plastics and food soiled paper (e.g., paper towels, used tissues, paper plates, paper cups, and paper cartons). Larger compostable food scraps like pizza boxes or paper cartons also can be placed directly into the green carts. Diapers, pet waste and feminine hygiene products would not be allowed in the green carts and should continue to be placed in the black garbage carts. Multifamily dwellings with five or more units that subscribe to commercial refuse service have had the opportunity to have food scrap collection since 2009. The combined materials in the green carts will be collected by GreenWaste of Palo Alto and transported to the Sunnyvale Material and Recovery Transfer (SMaRT) Station for consolidation or directly hauled to a regional processing City of Palo Alto Page 5 facility for processing and composting. The regional composting facility could either be: 1) Z-Best Composting Facility near Gilroy (a sister company of GreenWaste of Palo Alto); 2) Zero Waste Energy Development Company (ZWED) (also a sister company of GreenWaste) in San Jose; 3) Newby Island Composting Facility operated by Republic Services in Milpitas; or 4) Harvest-Lathrop Composting Facility (a sister company to Harvest Power) located outside Lathrop. Connection to Home/Backyard Composting The residential curbside collection of food scraps does not reduce the need or importance of home/backyard composting. Home composting is a great option for many residents to recover most food scraps. Home composting helps to reduce collection costs and lower greenhouse gas emissions and also provides a “closed-loop” for the food scraps. It is estimated that 10% of Palo Alto household’s compost at home. In 2014 Staff implemented an expanded home composting campaign to increase participation citywide. The expanded campaign has been a focused outreach and incentive-based campaign that has augmented and added emphasis to the City’s traditional, ongoing, multi-partner program for home composting, water conservation, and pollution prevention. The expanded campaign’s goal has been to raise awareness about the benefits of home composting while increasing the number of people composting at home and using compost in the yard/garden. Also, the expanded campaign has aligned with California’s drought as it encourages home composting by highlighting compost’s water-saving properties, and through incentives such as the City providing free home composting bins to Palo Alto residents. In 2014, 159 residents attended 15 composting workshops where Staff gave away 82 backyard compost bins. Home composting will continue to be an important City waste diversion program complementing residential curbside food scrap collection, but it will not work for everyone and will not be able to accept all of types of compostables, as described below. Surveys conducted in 2014 indicated that two-thirds of residents actively chose not to have backyard compost. Residents cited time constraints and not gardening as the main reasons. Many do not have space available for home composting, or perceive home composting as smelly and an activity that can attract rodents, flies or other bugs to their home. In addition, some types of food scraps and yard trimmings should not be placed into a home compost feedstock including various vegetation seeds, meat, bones, dairy products and fats. With the proposed curbside Residential Food Scraps Collection Program, this type of City of Palo Alto Page 6 food waste can be placed in the green cart and commercially composted. Home composting and curbside food scrap collection complement each other by providing a complete solution to maximize the environmental benefit for all household organics. Timeline Residential Food Scraps Collection Implementation Schedule Task Schedule Finance Committee discussion March 2015 Council approval March 2015 Develop outreach and training materials April – June 2015 Hold community training sessions June – July 2015 Run advertising Late June 2015 – June 2016 Distribute kitchen pails Late June 2015 Begin collection July 1, 2015 Resources Implemening a new residential food scraps collection program will generate ongoing costs of approximately $532,000 per year, beginning in FY 2016. This is equivalent to an approximate 6.1% rate increase for residential customers with 32-gallon garbage cart service or an average monthly increase of approximately $2.53 per month for all residential customers. These ongoing costs will be incorporated into future residential rates. An initial investment of $387,000 will be needed in FY 2015 to purchase kitchen buckets and provide the outreach and training materials needed for this new program’s implementation. Outreach and training materials will include cart tags, program brochures, stickers for collection carts, stickers for the kitchen buckets, how-to video, and informational postcards with program information. Four community meetings have been scheduled to orient the public at the beginning of the roll-out of this new program. Community Meetings Wednesday, June 24, 2015. 7:00 p.m. Lucie Stern Community Room Saturday, June 27, 2015. 10:00 a.m. Cubberley Room H1 Tuesday, July 7, 2015. 7:00 p.m. Lucie Stern Community Room City of Palo Alto Page 7 Saturday, July 11, 2015. 10:00 a.m. Cubberley Room H1 Resource Impact Staff also requests that the Council approve a $387,000 Budget Amendment Ordinance in the Refuse Fund to be offset by a reduction to the ending fund reserves. The funding would be used for the purchase of kitchen buckets, outreach, and advertising, as outlined below in order to prepare Palo Alto residents for the July 2015 implementation of this program. One-Time FY 2015 Costs – Residential Food Scraps Collection Program Item One Time Costs Purchase kitchen pails for each residence (18,000 at $6.00 per bucket) $108,000 Outreach and training materials design, development, printing and distribution costs $239,000 Print and online ads and other advertisement costs $40,000 Total One Time Costs $387,000 City of Palo Alto Page 8 Policy Implications The collection of food scraps is consistent with the City’s Zero Waste Operational Plan and Climate Protection Plan both adopted in 2007 to provide for the collection and diversion of all compostable materials. The increased discount for commercial compostable service will help the City achieve its zero waste goals by 2021. Environmental Review GHG Savings Diverting and composting the expected recoverable amount of 3,000 tons of residential food scraps per year would save over 1,140 metric tons of CO2e emissions per year that contribute to global climate change. CEQA Collecting residential food scraps within the existing green carts and composting this material is consistent with the baseline three cart collection services that was studied in the Initial Study-Mitigated Negative Declaration adopted by Council with the GreenWaste Contract award in 2008 (CMR 416:08). In addition, this new food scraps program is designed to reduce the impacts to the environment by reducing the amount of greenhouse gas generated and by maximizing the recovery of compostable materials generated within the City. There will be negligible transportation related impacts from modifications to existing compostable collection routes. Attachments: A - Residential Food Scraps BAO (DOCX) Attachment A 1 Revised December 08, 2014 5238/eb Ordinance No. XXXX ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR FISCAL YEAR 2015 TO PROVIDE ADDITIONAL APPROPRIATION OF $387,000 IN THE REFUSE FUND FOR THE RESIDENTIAL FOOD SCRAPS PROGRAM. The Council of the City of Palo Alto does ordain as follows: SECTION 1. A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on June 16, 2014 did adopt a budget for Fiscal Year 2015; and B. Staff is recommending a new residential food scraps collection and composting program that would be implemented July 1, 2015 as part of the City’s efforts to meet its goal of zero waste to landfills by 2021; and C. Food scraps comprise nearly fifty percent of the material found in single-family residential garbage in Palo Alto. Currently, these food scraps can only be disposed in garbage cans. Other residents send food scraps down the drain, which is not recommended due to additional water usage and the potential for sewer blockages. Neither of these methods is appropriate for meat, cheeses, eggs, or other foods high in protein or oil; and D. In April 2013, the City implemented a year-long Two Cart Pilot Program in the Green Meadow neighborhood that eliminated garbage carts completely and redirected food scraps to compostable bags and into the yard trimming cart. Residents in the pilot were asked to bag any remaining garbage and place it in the recycling carts; and E. While the Two Cart Pilot Program did increase diversion of food scraps and additional recyclables from the landfills, staff is not recommending a citywide roll-out of the two-cart collection system at this time, as many participants felt that the program was too complicated. City intends to continue the pilot for calendar year 2015; and F. Under the new program, the city-wide collection of residential food scraps would be commingled with yard trimmings. There are several regional composting facilities that are permitting compost being commingled with food scraps and yard trimmings. The food scraps collection program will likely divert and recover over half of the food scraps in the residential garbage, which is equivalent to a four percent increase in the City’s overall diversion rate; and G. An initial investment of $387,000 will be needed to purchase kitchen pails and provide the outreach and training materials needed for implementation. Outreach and training materials will include cart tags, program brochures, stickers for collection carts, stickers for the kitchen pails, how-to-video, and informational postcards with program Attachment A 2 Revised December 08, 2014 5238/eb information. The annual net costs associated with the new residential food scraps collection and composting program are currently anticipated to be $532,000, and are expected to be recovered through an increase in the single-family residential refuse rate pending City Council approval as part of the Fiscal Year 2016 budget process. SECTION 2. Therefore, the sum of Three Hundred Eighty Seven Thousand Dollars ($387,000) is hereby appropriated in the Refuse Fund for the residential food scraps program, offset by a corresponding reduction to the ending fund balance ($387,000). SECTION 3. As provided in Section 2.04.330 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. SECTION 4. The Council of the City of Palo Alto hereby finds that this is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. INTRODUCED AND PASSED: Enter Date Here AYES: NOES: ABSENT: ABSTENTIONS: NOT PARTICIPATING: ATTEST: ____________________________ ____________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ____________________________ ____________________________ Senior Assistant City Attorney City Manager ____________________________ Director of Administrative Services ____________________________ Director of Public Works