Title
a. Receive a report on proposed new customer service rates for the Pajaro County Sanitation District wastewater collection system; and
b. Provide direction regarding new customer service rates and implementation schedule for inclusion in Proposition 218 Engineer’s Report.
Report
RECOMMENDATION:
It is recommended that the Board of Supervisors, acting as the Board of Directors for the Pajaro County Sanitation District:
a. Receive a report on proposed new customer service rates for the Pajaro County Sanitation District wastewater collection system; and
b. Provide direction regarding new customer service rates and implementation schedule for inclusion in Proposition 218 Engineer’s Report.
SUMMARY:
To address mounting costs to operate and maintain the Pajaro County Sanitation District (PCSD) wastewater collection system, Public Works, Facilities and Parks Department (PWFP) staff are working within the Proposition 218 process to increase customer sewer rates beginning July 1, 2024. During an August 23, 2023, meeting, the Board of Supervisors approved delaying new rate increases until July 2024, and directed staff establish new rates for all PCSD customers and to evaluate the expected revenue shortfall if the average residential rate increase was limited to approximately $60/month.
DISCUSSION:
Background
The County-Owned PCSD wastewater collection system (System) is in the northern unincorporated area of the County of Monterey. The System serves the communities of Bay Farms, Las Lomas, Pajaro Sunny Mesa, and Pajaro. It includes approximately 16.5 miles of gravity sewer pipe, six pump stations, and approximately 2.4 miles of force sewer main. There are approximately 1,047 sewer connections and 1,768 billing units.
The PCSD System is a collection system only and does not provide wastewater treatment. Instead, collected sewage is pumped to the City of Watsonville (City) wastewater treatment plant (plant). Under an agreement with the City the plant accepts and treats PCSD sewage. The PCSD is charged for its share of the plant’s costs based on its fraction of (1) the plant’s capital improvement costs, and (2) the plant’s operations and maintenance costs based on the total wastewater received by the plant and the strength of the wastewater received. (Wastewater strength refers to the levels of Total Suspended Solids (TSS) and Biological Oxygen Demand (BOD) in the wastewater. High/Low strength wastewater refers to TSS and BOD levels above/below typical domestic wastewater.)
During FY 2022-2023, PWFP implemented several water and sewer infrastructure repair and improvement projects funded with American Rescue Plan Act (ARPA) funds. The projects include approximately $2 million of capital improvements to the PCSD system, including cleaning and repairing sewer lines, manholes, and pump stations. These improvements were completed in June 2023.
During the November 30, 2022, Budget Committee meeting, staff presented alternative customer service rates for the Committee’s consideration. During the meeting it was noted that service rates for the PCSD have not changed since 2007, and costs to operate and maintain the system have increased significantly since then. Items that have the greatest effect on the magnitude of planned rate increases include the following:
• Repayment of existing loans, totaling $1,941,661;
• PCSD capital improvement costs not covered by the current remaining ARPA funds (approximately $2.1 million); and
• The County’s fraction of plant capital improvement and operations costs, the largest single PCSD cost liability.
The Budget Committee recommended that the rate study move forward with a scenario assuming outstanding General Fund loans totaling $1,941,661 would be forgiven, an additional $2.1 million in capital improvement funding, and up to $3.5 million to supplement operating costs would be provided over 5 years.
Currently, the average residential rate for one (1) billing unit in the PCSD is approximately $30 per month. For comparison, current average residential rates for the Chualar CSA-75 sanitary system and the Boronda County Sanitation District (Zone 1) system are approximately $66 and $70 per month, respectively. Near the PCSD, monthly customer service rates within the Salsipuedes Sanitary District and the Freedom County Sanitation District (both located in the unincorporated area of the County of Santa Cruz) are $60.83 and $62.25, respectively. Like the PCSD, sewage collected by both sanitation districts is conveyed to and treated by the plant. Monthly residential rates for the City of Watsonville are currently $53.22.
During Budget Committee meeting on March 29, 2023, staff recommended rate increases be postponed until July 2024 to allow time for residents and businesses within the Community of Pajaro to recover from last winter’s devastating storms. During an August 23, 2023, Board of Supervisors’ meeting, the Board formally approved postponing rate increases and directed staff to reevaluate rates using the latest operational data and projected cost information from the City, and, if an average residential rate of approximately $60/month was implemented, what General Fund subsidy amount would be required to address the PCSD revenue deficit.
Results
Staff has developed proposed rate increases, beginning in FY 2024-25, based on cost and revenue projections over the next 5 years and three alternative rate scenarios: Scenario 1 contemplates a rate increase of $60/month for the first year with annual increases based on an assumed 4% cost-of-living increase; Scenario 2 also contemplates at $60/month rate increases but assumes an annual increase of $10 month; and finally Scenario 3 contemplates a rate increase with no County subsidy. The results are summarized in Attachment A, which includes four tables: Table 1 presents average residential sewer rates and associated County subsidy, if any, over the next 5 years; and Tables 2 through 4 present cost and revenue projection details for Scenarios 1 through 3, respectively. As shown, to cover projected costs, average residential rates would have to start at $129.46/month.
Estimated capital and operations and maintenance costs for the City’s wastewater treatment facility to treat wastewater collected by the PCSD is summarized on lines 6881A and 6881B in Tables 2 through 4; a breakdown of these costs is presented on Attachment B. Each scenario assumes past loans against the PCSD, totaling $1,941,661 are forgiven. The cost of critical capital improvements of $2.7 million (increased from the $2.1 million discussed during the November 30, 2022, Budget Committee meeting) is included in the rate increase Scenarios ($575,000 over the next 5 years).
Staff is seeking the Board’s direction on the initial (FY 2024-25) sewer rates and rate escalations over next 5 years. Using this information, staff will finalize the Proposition 218 Engineer’s Report and present it to the Board for approval on April 23, 2024. At this time, the Board will consider setting a Proposition 218 protest hearing date (on or about June 11, 2024) during which the proposed new rates and implementation schedule will be formally approved (unless there is a minimum of fifty-one percent (51%) protest vote against the proposed new rates).
OTHER AGENCY INVOLVEMENT:
This matter was presented to the Budget Committee on November 30, 2022, and on March 29, 2023. During the March 29, 2023, Budget Committee Meeting, the Committee discussed postponing implementation of new customer service rates to provide time for the Pajaro community to recover from the March 10, 2023, flood and to allow staff to conduct community meetings after the community had time to recover.
FINANCING:
Proposed new rates presented above assume outstanding General Fund loans totaling $1,941,661 would be forgiven. As shown in Table 1, over the next 5 years, Scenarios 1 and 2 would require General Fund subsidy of $7.86 million and $5.84 million, respectively; if loan forgiveness is included, the required subsidy would increase to $9.8 million and $7.78 million, respectively. The County Administrative Office has not allocated any discretionary revenue to this proposed plan.
BOARD OF SUPERVISORS STRATEGIC INITIATIVES:
The recommendations presented above support the Board of Supervisors Strategic Initiatives presented below by providing the funds necessary to maintain the PCSD infrastructure and thereby enhancing public safety by minimizing sewer overflows.
___ Economic Development
___ Administration
X Health & Human Services
X Infrastructure
X Public Safety
Prepared by: J. Erich Rauber, PE, GE, Senior Civil Engineer
Reviewed by: Enrique Saavedra, PE, Chief of Public Works
Mary Grace Perry, Deputy County Counsel
Jessica Cordiero-Martinez, Finance Manager III
Approved by: Randell Ishii, MS, PE, TE, PTOE, Director of Public Works, Facilities and Parks
The following attachments are on file with the Clerk of the Board:
Attachment A - Alternative Monthly Wastewater Rates
Attachment B - PCSD Share of City of Watsonville Wastewater Treatment Costs