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Home My WebLink About0341.095TO: nOM: DATE: Sl1B,JECT: City of Palo Alto City Manager's Report HONORABLE Crn' Cot!NCIL CI1Y MANAGER DEPARTMENT: Cily Manager July 6. lll95 CMR:341:95 AssemNy Bil318 Regardinal Municipal Water and Power Utility Rates -SIlltus Report The proposed II1aIe legislation As,;embly Bill 318 has had the poIentlal fur significant impad on !he City of Palo Alto. This staff report presents I brief update on tlle status of AD 318. Tbe bill willl1O! go forward in the Stale Senale this year. This is an information report. No CooltC!l action is required. POIJCV WPUC.A.TIQNS Assembly Bill 31 g is a direct cballenge to t1'.e City'. charlet authority, being OIl intrusion into the City'11ocaI rate setting authority and !he ability of the City to transfer utilities revenue to !he General Fund. The City Council adopted Resolurion No. 7513 on June 12, 1995 expressing its strong opposition to AD 318 (CMR:300:95). At that lime, AD 318 had passed the State Assembly. The bill was double referred 10 tlle Senate Local Government Committee and !he Senate Agrlcu1turc and Water Resoorces Committee. Th<: eou"",] <f>reCled !hat the City should continue to vigorously work for the defeat of AD 318. The City's .from to defeat the bill in !he Assembly had been n llSuccessful despite the active assistance of the City's represenlative, Assemblyman Byron She,. IndependenUy. as weD IS in conjunction .. ill> the League of California Cities. the CaIifucnia MIl..,;QpaI Utilities Association and the Northern California Powe, Agency. City Poaol,.,J .' . J .~.-. -::-. - officials including the Mayor and memben ol!he City Council conta<:led!he bill's aulhor, Assemi>lym8ll Richard Katz, Palo Aho', representative in !he Senate Senator Tom Campbell. and memben of !he Senate Locol Government Committee 10 explain why chi. Ieplation should not be enac1ed. A facl·sheeI explaining wbat AB 318 would mean 10 Polo Abo was prepared and widely distributed (see attachment.) Several groups affiliated witlt Falo Aho in some nanner =J>OI'dcd will! equal coocem and oornmunicated 10 tbe Senale !heir opposition 10 AS 318; che&e included the l'ala Abo Peace Officers' Association, the Service Employees InIerna1iona1 Union (SElU) Local 11S, the lnternatioml Association ol Fire Fighters (lAFF) LocaI131~, and the Palo Aho R.ecreation Foundation. The Palo Aha Unified School Dis!ricI Board ol Education also voted 10 oppose AB 31 g. Similar expressions ol orposition arose from cities with municipal .!lulie. throughout the stale. The Senate Local Government Committee bad scheduled AB 318 fur hearing 00 Wednesday, July S. The Committee announced on Friday, June 30, thallhe bill would not be beard and, instead, bad been made I tw~)'ear bill. The bill is eligible 10 be heard in 1anuary 1996; if that does not occur, it will <fie. USC,,) ,IMPACT The equity lraDSfer from the utiliI)' fund. 10 !he (Jeneral Fund fur fiscal year 1995-96 is an6cipaIed III be $1().79 million. Assembly Bill 318 requires !lull the ClIy must reduce the 1rar.Sfer by 20 percell! eaell year over live years, with • proportionate reduction in utiliI)' ndcs. The ell)' is laking !he pos;tiou thai, since Palo Abo', voters .pecifi<iny approved UIiliIics IIansfers in 1950 when tbe City Cbarler was adopIed. Palo Allo sbO\lId be exempt from the pnwisions of AB 31 S. F,NVIRONMENTAI. ASSFSSMF,NT NlA ATf"CHMFNfS p"",Sboet: Assembly Bill318,1une 14, 1995 PREP AR.ED BY: V>Cci R.udin. Assi CITY MANAGER. APPROVAL: Il!IO ~ Manager · i~ " . ' .. ~ .I.' .. OffICe 01 !he City Mana~ City 01 Palo Mo ASSEMBLY BILL 318 (Katz) Water and Power Rates FACT SHEET Jrel4.1ro5 What !he bill does. Assembly Bin 316 would res!rid f/1e ability 01 cities 10 Iransfer Ic.onds . t"om !heir wat .... and power utilities 10 !he general fund and would presctX>e !he types 01 direct and ndirect CGSlS !hel can be incIoded in !he rales. As amended (611195}, !he bill '--provides thall'le restri<:Iions on !he transfer 01 "surplus" flxlds 10 !he genera! fund do no! apply i: v.iIhin I'le las! 50 years. fl3 city has had an election in which Ihe V<l!ers approved !he 1rMSf .... 0I~; Of. -.whi<1 \we! years oIenaclmentol AS 318, \he Cllyha. an election i'1 Which h vo!8lS approve tie lransfer o(/urods. If ne ither of Ihesa occurs, !hen f/1e Clly must reduce 1he transf .... by 20 percent each year <J\'er ~ve years, with a proportionate reduction in utility rales. How the bill would affecl Polo Alto. The Palo Ana City CharIer gives Ihe City Counc~ authority 10 eslabr.sh rales for a~ (evenue producing uUlities owned, eonlrolled, or operated by I'le City. The cr.arter Iur1l:ler provides Jor!he p!.Kposes and prioritized Ofder in which h utilities revenues shan be used. The au1hority granted by !he Charter incIv<ies Iransf .... s 10 tie general fund. W only after an expenses and a prudenI reserve ~.Jnd are paid AHhough Palo Mo's volers speciflCa!ly approved uUlities Ii"" .. !",. in 1 SSO when !he City Charter was adopted, AS 318 is so pc><>1y dralled ".al \here i. a risl< utilrues \ransfers <:auld be chanenged nonetheless. Palo Mo's city-<MTled gas. eT6dric and waler utilities are each self·support]ng operauOf1S flat render se"lices on a user charge basis 10 resiOents and busir.esses located in Palo Mo. The eIecIric. gas and water Ulds an pay i'oe general fuod a return on equity lransfer. This transfer is a return on !he lniUa! investment Ily !he City's general fund [Le., !he laxpal'ers} for staru"ll up these enle<p<ises and ;s compensation Jor the ri$~,S associaled wf!h operating utility systems. This is no! unlike !he eli,idends paid 10 Ihe stockholders of private inveslor-owned pubf<: uUliUes. Palo Mo's utility £ales have oonsisten!ly been maimained at a level equivalent 10 Of Joo<;er \han !he £ales charged by regulated privalely-¢'olflled utilities. Transfers from !he water, electric and gas funds 10 tie general tund are based on !he approved rate of return fa< comparable public uti'rues wilhin \he stale. The equity lransfer from the utility funds to the general fund foe fiscal year 1995-96 is an1icipated 10 be S111.79 ... 1lion Prohibiting the transfer of mesa utility revenues 10 the City's general fUnd would amount to a 13.5 percent reduction In the City's '.-. ~ , . , , _.m()(e • , . Otrtee of !he City M~ City of Palo AIIo -.;;.; -.. o -,..- . . ", -.. . ": ........ ~ . - .-.~ operating and capital budgets. A cut 0( this magnitOOe wllllea-.e vlI\uany no City ~ lrimpalred.lncluding public safety, community seNlces, pobnc worlls and plamlng. Assembly Bm 316 would interfere with Ihe City's abllity 10 determine what expenses consUMe 8 proper basis 10( establishing rales for utility services. By restricting !he pu"pO$e5 for which rev8N.leS can be encumbered. Ihe bin ~ I><impe< long-range p!aming and proper levels of ~Iity mainle.1anGe. hJs leading 10 an eventual degradation or service. Oppos!t!on 10 AS 318. Assembly Bi~ 31 B is an ....-x:cnstituflOna! fiIrI.'Sion by \he state no dla!1ered city rate setting authority. The irropacts on \he Palo Mo ~t ... ou!cl be <levastaiing. The reoenI amendments, which phase in Ihe reductions 0( rales and lransIers. 60 not lT161<e !he bill acceplable. Actions by \he slate and lederal government in recert years have placed greater demar>Cl5 on lOCal govenvnenlS whJla severeiy restricling \he revenue sources avanable 10 t'1em. There is no way ir.al cities can ~e for Ihe r.acm dane by AS 31 e withe<.( reducing semces 10 t'1elr communities. PaloMo residents are Ihe owners. as weD ss Ihe customers. of !heir utilities. Their relUm on !heir inves!menl comes in!l1e form of good QUanty utiliUes, at very reasonable rales, and \he munlclpaI seffoOes made possible by \he utility enlerprises which they own. Passage of AS 318 wooId deprive PaTo Mo o(!he benefits of utilities ownership. Status of AS 318. Assembly Bm 318 was appr9ved by !he Assembly local Govemmert Committee (6-1) and barely passed Ihe Assembly on June I, 1995 (ayes-44. noes-12, not voting-24.) The bit has been clolbIe referred 10 Ihe SenaTe Local Goverrvnenl Committee and Ihe Senate Agriculture and Waler Resources Committee. See "lIached sheellOr Committee members and addresses. For furttler Wormation, contact: VICci Rud"!I\ Asslslanllo h> City Manager. 4151329-2512. Q( Ariel Calome, City AJf.omey, 41 S/32S--2171. Additional resources: leag.Je of Car~omja Crues, 9161658-8200 Canrornia M\ricipal UtHiUes Association. 9161441-1733 Ncrilem Calif",,"a Pow ... Agency. 9161781-3636 2 . '. • ::0 ••