RANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 12/19/2017 AGENDA HEADING: Regular Business

Transcription

1 RANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 12/19/2017 AGENDA REPORT AGENDA HEADING: Regular Business AGENDA DESCRIPTION: Consideration and possible action to reduce the City s financial subsidy in the maintenance and operation of the Abalone Cove Sewer System. RECOMMENDED COUNCIL ACTION: (1) Receive report and provide direction on possible future actions. FISCAL IMPACT: None Amount Budgeted: FY17-18 Budgeted Expenditures: $223,100 (Acct ) Operations $175,000 (Acct ) Capital FY17-18 Budgeted Revenues: $55,100 (Acct ) Assessments $ (Acct ) Interest Income $208,000 Transfer in from General Fund Tax Rev Additional Appropriation: N/A Account Number(s): See above ORIGINATED BY: Ron Dragoo, PE, Principal Engineer REVIEWED BY: Elias Sassoon, PE, Director of Public Works APPROVED BY: Doug Willmore, City Manager ATTACHED SUPPORTING DOCUMENTS: A. Abalone Cove Sewer Maintenance Fee Study Update (page A-1) BACKGROUND AND DISCUSSION: At the June 20, 2017, City Council meeting, the City Council asked Staff to evaluate the overall operation of the Abalone Cove Sewer System, and to return with options that could potentially aid in reducing the City s on-going subsidy of the system to zero. The Abalone Cove Sewer Maintenance Fee was first introduced at the July 17, 2001, City Council meeting. Ordinance No. 368 amending the Rancho Palos Verdes Municipal Code was adopted August 7, 2001, establishing sewer maintenance fees for the Abalone Cove Sewer System. The maintenance fee was established in accordance with the needs of the new system, which was just then becoming operational. Funding for the eventual replacement of system components was not included in the initial budget, and the August 7, 2001 report indicated that the initial maintenance fee was to 1

2 be subsidized by $19,125 annually to help reduce the cost of maintaining the system to residents. The report further indicates that [the] City Subsidy will be reviewed each year thereafter when the City s Budget is adopted, and may be discontinued, reduced, or otherwise altered as the City Council deems appropriate. The subsidy has continued every year following the initial establishment of the fee without ever being increased by the Consumer Price Index (CPI) factor allowed. Since the beginning of operation of the City-owned/maintained Abalone Cove Sewer System in 2001 (Attachment A, Appendix, Item 1), the system has been maintained, and repairs performed as needed. The system is aging, and repairs/upgrades are needed to minimize the probability of sewer overflows in this system. The cost of implementing these repairs/improvements to the system is increasing the overall cost to operate the system. However, the fees collected through the property owner charges are less than the annual costs of operating and maintaining the system, as previously stated, and the City has subsidized sewer maintenance costs since the maintenance fee was adopted. While the original fee was established to maintain and operate a new system, funds to replace failing components were not included in the original fee schedule. The original fee, upon establishment, was 50% subsidized by the City. The cost of maintenance continues to increase as the cost of maintenance services rise, the system is getting older and system component replacements and upgrades are needed. The State (through an EPA mandate) has put in place operator requirements that were not in place when this system came on line and the fee was originally established. The mandate requires all sewer system operators in California to develop a Sewer System Management Plan (SSMP) detailing the City s maintenance plans to limit the number of Sanitary Sewer Overflows (SSO) to zero. The City s SSMP has been developed and we are currently in compliance in Abalone Cove. However, fines can be imposed for violations of this requirement. To this end, a Sewer Needs Assessment (Attachment A, p. 28), was conducted to determine likely costs to repair/upgrade the system and meet the intent of the State-required SSMP. The Abalone Cove Sewer Maintenance Fee Study Update (Attachment A) provides details on how the subsidy can be reduced to zero while funding the needed repairs/improvements. The fee can be adjusted through the Proposition 218 process, which requires a public protest hearing to be held. A proposed new rate could be approved if a majority of affected property owners did not personally attend the protest hearing and/or submit their protests in writing to the City Council. If a majority of property owners did not protest, a new rate could be put in place. A chart (Attachment A, p. 4) illustrates different subsidy levels that would allow some of the repairs/improvements to be implemented, which could demonstrate the City s good-faith effort to meet the intent of the zero SSO requirement. This chart may be used by the City Council to illustrate how the rates would change if the City continued to subsidize at different levels. 2

3 ALTERNATIVES: Alternatively, the City Council can choose to simply keep the fee at its current rate and forgo the needed repairs/improvements and gradually end the subsidy. However, this would put the City at risk of system failures and violation of the zero SSO requirement, possibly resulting in fines or other enforcement actions against the City. 3

4 ABALONE COVE SEWER MAINTENANCE FEE STUDY UPDATE CITY OF RANCHO PALOS VERDES LOS ANGELES COUNTY, CALIFORNIA A-1

5 Table of Contents CITY OF RANCHO PALOS VERDES EXECUTIVE SUMMARY INTRODUCTION ANNUAL REVENUE REQUIREMENTS Administrative Costs Table 1. Estimate of Annual Administrative Costs Operations, Maintenance and Capital Improvement Costs Table 2. Estimated Annual Revenue Requirements Annual Revenue Requirements by Subsystem Table 3. Summary of the Annual Revenue Requirements by Subsystem SEWER CHARGES AND REVENUE ANALYSIS Rate Zones Existing Annual Rates Table 4. Historical Maximum Sewer Charge Rates by Zone Maximum Annual Revenue Projected Revenue Shortfall Table 5. Estimated Projected Annual Revenue Shortfall Projected Cash Flow Summary Table Year Projected Cash Flow Summary - No Subsidy Subsidy Considerations Subsidy Levels Chart FEE ADOPTION PROCESS Steps to Establishment A-2 TOC Page i

6 APPENDIX Table A. Estimate of Annual Operations, Maintenance and Capital Improvement Costs Table B. Projected Maximum Sewer Charge Rates by Zone Table C. Equivalent Residential Units by Zone Table D. Maximum Projected Annual Sewer Charge Revenue by Zone Item 1. Attorney Work Product Item 2. Abalone Cove Sewer Needs Assessment A-3 TOC Page ii

7 EXECUTIVE SUMMARY The City of Rancho Palos Verdes requested that Penco Engineering develop an estimate of the sewer user fees that would be needed to fully fund the annual operation and maintenance cost and needed capital projects costs associated with the Abalone Cove Sewer System. The current sewer rates being levied by the City on parcels with the Abalone Cove area do not cover the annual operating and maintenance costs for the system. In addition, City staff have identified a number of capital projects that are needed to provide residents with a reliable sewer system. This analysis identifies the annual sewer rates that would be needed, by zone, to adequately fund the sewer system based upon the current rate methodology. The highlights of the report are as follows: The City owns the Abalone Cove sewer system, see Attorney Work Product in the Appendix, Item 1. The existing sewer system for Abalone Cove needs capital improvements, see Abalone Cove Sewer Needs Assessment in the Appendix, Item 2. The original fee was established to maintain and operate a new system, funds to replace failing components were not included in the original fee schedule (and City subsidized 50% of the original fee). In addition, the State Water Board has adopted zero tolerance for sanitary sewer overflow (SSO). The proposed Maintenance/Capital Improvements will help to meet the zero SSO mandate. The table below summarizes the estimated Annual Revenue requirements including administrative, operation and Capital Improvement costs for the next five years. Summary of the Annual Revenue Requirements by Subsystem Annual Revenue Requirements Fiscal Year Summary by Subsystem Subsystem Gravity Subsystem Cost Estimate $89,250 $91,928 $94,685 $97,526 $100,452 Force Main Subsystem Cost Estimate $135,565 $123,762 $85,760 $88,333 $90,983 Low Pressure Subsystem Cost Estimate $572,480 $267,569 $275,596 $283,864 $292,380 Totals $797,295 $483,259 $456,042 $469,723 $483,815 A-4 Page 1

8 The sewer system has historically been divided into 4 zones, A, B, C, and D. Below are the historical rates charged each zone for the last five years and the following table, shows the rates for the next five years with just a CPI adjustment. Historical Maximum Sewer Charge Rate by Zone Historical Sewer Charge Zone Maximum Rates Per ERU * A B C D Year and Historical Rates Per ERU Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Source: Abalone Cove Sewer Service Charge Annual Report * Equivalent Residential Unit Projected Maximum Sewer Charge Rates by Zone Projected Sewer Charge Zone Maximum Rates Per ERU A B C D Year and Projected Rates * Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ * Projected rates are equal to the previous years rate plus escalation for inflation at a projected rate of 1.75% A-5 Page 2

9 The table below shows the estimated Revenue Shortfall if the current rates only are increased by the CPI for the next five years. Estimated Projected Annual Revenue Shortfall Projected Revenue Shortfall Cost Estimate Shortfall Fiscal Year Maximum Projected Revenue $59,130 $60,165 $61,218 $62,289 $63,379 Estimate Revenue Required 797, , , , ,815 Cost Estimate Annual Revenue Shortfall ($738,165) ($423,094) ($394,824) ($407,434) ($420,436) Cumulative Cost Estimate Shortfall ($738,165) ($1,161,259) ($1,556,083) ($1,963,517) ($2,383,953) The table below shows the required rates that need to be charged for the system to become revenue neutral within a ten year period as compared to the current rates that are being charged. The City would need to loan funds to the District in the early years. See Table 6 in the report for details. Zone ERU Current Rate $/ERU No Subsidy Rate $/ERU Zone A $ $ Zone B $ $ 2, Zone C $ $ 5, Zone D $ $ 7, A-6 Page 3

10 The chart below illustrates how the rates would change if the City wanted to continue a subsidy at different levels. $/ERU $8, Zone A Subsidy Chart Zone B Zone C Zone D $7, $7, (FY $747.89) $6, $5, $5, $5, (FY $231.59) $4, $3, $4, $3, $2, $2, $1, $0.00 $0.00 $1, $1, $ $ $1, $ $1, $ % 75% 50% 25% 0% SUBSIDY PERCENTAGE $2, (FY $686.93) $ (FY $170.62) At a 25% subsidy, the City would be contributing approximately $133,400/year At a 50% subsidy, the City would be contributing approximately $266,790/year At a 75% subsidy, the City would be contributing approximately $400,000/year A-7 Page 4

11 INTRODUCTION The City of Rancho Palos Verdes (the City ) is responsible for the operation and maintenance of the sewer system in the Abalone Cove area, which consist of grinder pumps on each sewer lateral and a series of lift stations and low pressure force mains, see Attorney Work Product in the Appendix, Item 1. The Abalone Cove Sewer System was constructed by the City in FY to get properties off of septic systems in the landslide area. Because this system does not meet the standards of the Los Angeles County Sewer Maintenance District, the SMD would not accept this portion of the City s sewer system for maintenance. As such, the responsibility for the maintenance and operation of the Abalone Cove Sewer System rest with the City. Since the City is responsible for the maintenance of the Abalone Cove Sewer System, the City levies an annual fee on property owners connected to the Abalone Cove sewer. However, the fees collected are less than the annual costs of operating and maintaining the system, and the City has subsidized sewer maintenance costs for property owners in an effort to bring uniformity to the annual service charges collected by the SMD on other parcels within the City. The original fee was established to maintain and operate a new system, funds to replace failing components were not included in the original fee schedule (and City subsidized 50% of the original fee). In 2012, it was determined that a rate increase of 140%-400% (depending on the zone) would be required to balance expenditures with revenues. At that time, a decision was made not to seek a rate increases for properties served by the Abalone Cove Sewer System. Since that time, annual operation and maintenance costs have continued to increase, and as the system continues to age there is a need to upgrade/replace portions of the system. In addition, the State Water Board has adopted zero tolerance for sanitary sewer overflow (SSO). The proposed Maintenance/Capital Improvements will help to meet the zero SSO mandate. This report reviews the projected future expenses and revenues requirements for the operation and maintenance of the Abalone Cove sewer collection system. Based upon those costs a preliminary Sewer Maintenance Fee has been developed for the Abalone Cove system which would provide the revenue levels needed to cover the on-going operations and capital improvement costs for the system from those parcels that discharge wastewater into the Abalone Cove sewer collection system. A-8 Page 5

12 ANNUAL REVENUE REQUIREMENTS Administrative Costs Table 1 shows the estimated annual administrative costs for Fiscal Years through In deriving the figures, the estimated administrative costs for , as provided annual Abalone Cove Sewer Service Charge Report, were escalated by 3% annually to account for inflation. Table 1 Estimate of Annual Administrative Costs Estimate of Annual Administrative Costs Fiscal Year Account Description City Administration and Overhead $10,609 $10,928 $11,255 $11,593 $11,941 Edison 3,708 3,819 3,934 4,052 4,173 Professional Services 5,253 5,411 5,573 5,740 5,912 County Collection Charge Total Administrative Costs $20,085 $20,688 $21,308 $21,948 $22,606 Source: Abalone Cove Sewer Service Charge Annual Report (plus 3% annual increase for inflation) Operations, Maintenance and Capital Improvement Costs The Abalone Cove Sewer Charge was established to generate revenue in order to pay for administrative costs as discussed above along with costs to operate and maintain the Abalone Cove Sewer System, including costs associated with capital improvement and replacement. The Abalone Cove sewer system is comprised of three types of components or subsystems: Gravity Subsystem Force Main Subsystem Low Pressure Subsystem In estimating the Capital Improvement cost expenditures, the Abalone Cove Sewer Needs Assessment document prepared by City staff was utilized, please see Appendix Item 2 for details. Table B, located in the Appendix, shows the details of the cost estimate of the annual expenditures based upon the recommended maintenance activities and capital expenditures for Fiscal Years through for the Abalone Cove Sewer System. It should be noted that all cost estimates utilize the upper end of cost estimates for planning purposes. A-9 Page 6

13 Table 2 summarizes the annual administrative cost information from Table 1 and the estimated cost information for capital improvements from Table A in the Appendix. Table 2 Estimated Annual Revenue Requirements Estimate Fiscal Year Annual Revenue Requirements Cost Estimate Estimate Estimate Estimate Estimate Estimate Gravity Subsystem Administrative Costs * $20,085 $20,688 $21,308 $21,947 $22,606 Operations and Maintenance 69,165 71,240 73,377 75,578 77,846 Capital Improvement Projects Gravity Subsystem Annual Revenue Required $89,250 $91,928 $94,685 $97,526 $100,452 Force Main Subsystem Operations and Maintenance 36,565 48,662 50,122 51,625 53,174 Capital Improvement Projects 99,000 75,100 35,638 36,707 37,808 Force Main Subsystem Annual Revenue Required $135,565 $123,762 $85,760 $88,333 $90,983 Low Pressure Subsystem Operations and Maintenance 110, , , , ,128 Capital Improvement Projects 462, , , , ,252 Low Pressure Subsystem Annual Revenue Required $572,480 $267,569 $275,596 $283,864 $292,380 Estimated Total Revenue Requirements $797,295 $483,259 $456,042 $469,723 $483,815 * Sewer charge administrative costs from Table 1 are included with gravity subsystem costs since the gravity subsystem costs are shared by all equivalent residential units. A-10 Page 7

14 Annual Revenue Requirements by Subsystem Table 3 summarizes the estimated annual revenue requirements for each of the three subsystems of Abalone Cove for Fiscal Years through Table 3 Summary of the Annual Revenue Requirements by Subsystem Annual Revenue Requirements Fiscal Year Summary by Subsystem Subsystem Gravity Subsystem Cost Estimate $89,250 $91,928 $94,685 $97,526 $100,452 Force Main Subsystem Cost Estimate $135,565 $123,762 $85,760 $88,333 $90,983 Low Pressure Subsystem Cost Estimate $572,480 $267,569 $275,596 $283,864 $292,380 Totals $797,295 $483,259 $456,042 $469,723 $483,815 A-11 Page 8

15 SEWER CHARGE RATE AND REVENUE ANALYSIS CITY OF RANCHO PALOS VERDES Rate Zones A system of zones was developed to identify the specific combination of subsystems used by each contributing parcel. These zones are as follows: Zone A - Gravity Subsystem Only Zone B - Gravity Subsystem and Force Main Subsystem Zone C - Gravity Subsystem and Low Pressure Subsystem Zone D - Gravity Subsystem, Force Main Subsystem and Low Pressure Subsystem Existing Annual Rates Each rate zone has a maximum annual rate. Those rates are the determining factor as to the maximum revenue that can be generated annually from the current sewer service charges. The current rate that can be collected per Equivalent Residential Unit (ERU), can be increased annually based upon the increase in Consumer Price Index for all Urban Consumers (CPI) for the Los Angeles, Riverside and Orange County Areas, not to exceed seven percent (7%). Table 4 provides the historical maximum rate for each of rate zones covering the prior five year period. Table 4 Historical Maximum Sewer Charge Rate by Zone Historical Sewer Charge Zone Maximum Rate Per ERU A B C D Year and Historical Rate Per ERU Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Source: Abalone Cove Sewer Service Charge Annual Report In order to project future maximum annual rates, and thereby future maximum annual revenue to be generated from the current sewer charges, an assumption was made with regard to the rate at which the maximum rates will escalate each year. In reviewing historical CPI data for all Urban Consumers (CPI) for the Los Angeles, Riverside and Orange County Areas, it was found that CPI increased on average by 1.64% per year over the previous five year period and by 1.82% per year over the previous ten year period. Considering this, Table B was prepared and provides the maximum rates for each zone for the next five years utilizing a projected annual CPI rate of 1.75% and is located in the Appendix. A-12 Page 9

16 Maximum Annual Revenue CITY OF RANCHO PALOS VERDES The maximum revenue that can be generated from sewer charges for each zone is a product of the maximum annual rate times the number of ERU per zone. Table C provides the number of ERU in each of the rate zones and is located in the Appendix. Table D provides the maximum annual revenue that can be generated from sewer charges for each zone based on the projected maximum annual rates from Table B times the number of ERU per zone from Table D and is located in the Appendix. Projected Revenue Shortfall For the next five years and beyond, the projected maximum annual revenue that can be collected from the sewer charge rate is significantly less than the annual revenue required. Table 5 provides a comparison of the annual revenue required from table, versus the projected annual revenue based upon the current rates. Table 5 Estimated Projected Annual Revenue Shortfall Projected Revenue Shortfall Cost Estimate Shortfall Fiscal Year Maximum Projected Revenue $59,130 $60,165 $61,218 $62,289 $63,379 Estimate Revenue Required 797, , , , ,815 Cost Estimate Annual Revenue Shortfall ($738,165) ($423,094) ($394,824) ($407,434) ($420,436) Cumulative Cost Estimate Shortfall ($738,165) ($1,161,259) ($1,556,083) ($1,963,517) ($2,383,953) Projected Cash Flow Summary Based upon the annual maintenance costs and capital expenditures, Table 6 summarizes rates which would be required respectively for the recommended approach described below: Recommended Approach The annual sewer rate would fully fund annual operating and maintenance costs on a pay as you go basis, and be revenue neutral over a 10 year period. The City would need to loan funds to the district in the early years for the completion of the planned capital improvements which would be repaid over a 10 year period. Table 10 shows the annual revenues and expenditures based upon a 10 year repayment schedule. After that period, annual revenues would exceed expenditures beginning in Year 11 once the capital improvement cost have been recovered. This would allow the City to begin building a reserve for future capital expenditures or an emergency reserve fund for repairs to the system in the event of a natural disaster. A-13 Page 10

17 Table 6 10-Year Projected Cash Flow Summary - No Subsidy 10 Year Projected Cash Flow Summary Subsystem and Estimated Revenue Requirements 1 Gravity Subsystem Administrative Costs 2 Operations and Maintenance Capital Improvement Projects Gravity Subsystem Annual Revenue Required Force Main Subsystem Operations and Maintenance Capital Improvement Projects Force Main Subsystem Annual Revenue Required Low Pressure Subsystem Operations and Maintenance Capital Improvement Projects Low Pressure Subsystem Annual Revenue Required Fiscal Year $20,085 $20,688 $21,308 $21,947 $22,606 $23,284 $23,983 $24,702 $25,443 $26,206 69,165 71,240 73,377 75,578 77,846 80,181 82,587 85,064 87,616 90, $89,250 $91,928 $94,685 $97,526 $100,452 $103,465 $106,569 $109,766 $113,059 $116,451 36,565 48,662 50,122 51,625 53,174 54,769 56,413 58,105 59,848 61,644 99,000 75,100 35,638 36,707 37,808 38,943 40,111 41,314 42,554 43,830 $135,565 $123,762 $85,760 $88,333 $90,983 $93,712 $96,523 $99,419 $102,402 $105, , , , , , , , , , , , , , , , , , , , ,794 $572,480 $267,569 $275,596 $283,864 $292,380 $301,152 $310,186 $319,492 $329,077 $338,949 Estimate Revenue Requirements $797,295 $483,259 $456,042 $469,723 $483,815 $498,329 $513,279 $528,677 $544,538 $560,874 Zone and Estimated Revenues Zone ERUs $ / EDU Zone A $ $23,644 $23,644 $23,644 $23,644 $23,644 $23,644 $23,644 $23,644 $23,644 $23,644 Zone B $2, ,274 85,274 85,274 85,274 85,274 85,274 85,274 85,274 85,274 85,274 Zone C $5, , , , , , , , , , ,810 Zone D $7, , , , , , , , , , ,855 Total Estimated Revenue $533,583 $533,583 $533,583 $533,583 $533,583 $533,583 $533,583 $533,583 $533,583 $533,583 Annual Surplus/(Deficit) ($263,712) $50,324 $77,541 $63,860 $49,768 $35,254 $20,304 $4,906 ($10,955) ($27,291) Cumulative Surplus/(Deficit) ($263,712) ($213,388) ($135,847) ($71,987) ($22,218) $13,036 $33,340 $38,245 $27,291 $0 1 Estimated revenue requirements are equal to the average of the low cost estimate and the high cost estimate 2 Sewer charge administrative costs from Table 1 are included with gravity subsystem costs since the gravity subsystem costs are shared by all equivalent residential units. A-14 Page 11

18 Subsidy Consideration A City subsidy of the annual expenditures could be considered for the following reasons: 1. The sewer system helps keep water out of the slide plane which helps minimize movement 2. The City has subsidized maintenance and improvements of the sewer septic system since its inception 3. The 120 Altamira Storm Drain line transmits runoff from Altamira Canyon under Palos Verdes Drive South. This critical piece of infrastructure does not require a great deal of maintenance due to land movement being slowed by the sewer system. 4. Critical safety employees are able to quickly drive through the Abalone Cove because the roadway is moving slowly and does not require frequent repairs - the drivable surface is smoother and affords safer access for safety folks. The chart on the following page shows options for subsidy levels A-15 Page 12

19 $/ERU $8, Zone A Subsidy Chart Zone B Zone C Zone D $7, $7, (FY $747.89) $6, $5, $5, $5, (FY $231.59) $4, $3, $4, $3, $2, $2, $1, $0.00 $0.00 $1, $1, $ $ $1, $ $1, $ % 75% 50% 25% 0% SUBSIDY PERCENTAGE $2, (FY $686.93) $ (FY $170.62) At a 25% subsidy, the City would be contributing approximately $133,400/year At a 50% subsidy, the City would be contributing approximately $266,790/year At a 75% subsidy, the City would be contributing approximately $400,000/year A-16 Page 13

20 FEE ADOPTION PROCESS Steps to Establishment The following are the steps for establishing Sewer User Fees: 1. Finalize the parcel database. 2. Fine-tune the Sewer Maintenance User Fee Rates needed to generate the required revenue for the maintenance and operation of the sewer system and sewer capital improvement program. 3. Prepare a draft Rate Analysis Report for review by City staff. 4. After approval of the Rate Analysis Report by the City Council, mail notices to all affected property owners a minimum of 45-days prior to the public hearing. Since any increase in the current sewer user fees must comply with the requirements of Article XIIID, Section 6 of the California Constitution (Proposition 218), if a majority of the owners of property protest the increase in the sewer rate on their property the City cannot impose the increased rates on the parcels served by the Abalone Cove Sewer System. Respectfully submitted: Jeffrey M. Cooper, PE PENCO Engineering, Inc. A-17 Page 14

21 APPENDIX Table A. Estimate of Annual Operations, Maintenance and Capital Improvement Costs Table B. Projected Maximum Sewer Charge Rates by Zone Table C. Equivalent Residential Units by Zone Table D. Maximum Projected Annual Sewer Charge Revenue by Zone Item 1. Attorney Work Product Item 2. Abalone Cove Sewer Needs Assessment A-18 Page 15

22 Table A Estimate of Annual Operations, Maintenance and Capital Improvement Costs Estimate of Annual Fiscal Year Maintenance, Operations and Capital Improvement Costs Gravity Subsystem Estimate Estimate Estimate Estimate Estimate Operations and Maintenance Annual System Maintenance 1 $5,665 $5,835 $6,010 $6,190 $6,376 Gravity Pipelines Video Inspection 2, 3 37,500 38,625 39,784 40,977 42,207 Differential Land Movement Monitoring 2 11,000 11,330 11,670 12,020 12,381 Manhole Inspection and Cleaning 2 15,000 15,450 15,914 16,391 16,883 Operations and Maintenance Subtotal $69,165 $71,240 $73,377 $75,578 $77,846 Capital Improvement Projects $0 $0 $0 $0 $0 Gravity Subsystem Subtotal $69,165 $71,240 $73,377 $75,578 $77,846 Force Main Subsystem Estimate Estimate Estimate Estimate Estimate Operations and Maintenance Annual System Maintenance 1 $36,565 $37,662 $38,792 $39,956 $41,154 GPS Monitoring ,000 11,330 11,670 12,020 Operations and Maintenance Subtotal $36,565 $48,662 $50,122 $51,625 $53,174 Capital Improvement Projects GPS Mapping of Existing System 2 $14,000 $0 $0 $0 $0 Design, Plans and Specifications, Cost Estimates 2 85, Construction Management and Inspection 2, , Above Ground Pipeline Replacement 2, ,600 35,638 36,707 37,808 Braided Stainless Steel Lines , Capital Improvement Projects Subtotal $99,000 $75,100 $35,638 $36,707 $37,808 Force Main Subsystem Subtotal $135,565 $123,762 $85,760 $88,333 $90,983 Low Pressure Subsystem Estimate Estimate Estimate Estimate Estimate Operations and Maintenance Annual System Maintenance 1 $16,480 $16,974 $17,484 $18,008 $18,548 Grinder Pump Maintenance 2 94,000 96,820 99, , ,798 Ongoing Preventative Maintenance ,000 30,900 31,827 32,782 Operations and Maintenance Subtotal $110,480 $143,794 $148,108 $152,551 $157,128 Capital Improvement Projects Grinder Pump Laterals 2 $10,500 $10,815 $11,139 $11,474 $11,818 Grinder Pump Replacement 2, 5 32,000 32,960 33,949 34,967 36,016 New Lift Station Narcissa/Figtree 2, ,000 82,400 84,872 87,418 Additional Lift Station Storage Thyme 2 22, Additional Lift Station Storage Sweetbay East 2 55, Additional Lift Station Storage Sweetbay/Altimura 2 77, Additional Lift Station Storage Abalone Cove 2 98, Convert Thyme and Sweetbay East to 3 Phase Power 2 75, Preventative Maintenance Install Epoxy Coating Lining 2 30, Preventative Maintenance Install SCADA 2, 7 62, Capital Improvement Projects Subtotal $462,000 $123,775 $127,488 $131,313 $135,252 Low Pressure Subsystem Subtotal $572,480 $267,569 $275,596 $283,864 $292,380 Cost Estimate Totals $777,210 $462,571 $434,733 $447,775 $461,209 1 Source: Abalone Cove Sewer Maintenance budgeted costs (including 3% escalation annually for inflation) 2 Source: Abalone Cove Sewer Needs Assessment (including 3% escalation annually for inflation) 3 Video Inspection biannual cost is allocated over two year periods (including 3% escalation annually for inflation) 4 Above Ground Pipeline Replacement cost is allocated over a ten year period (including 3% escalation annually for inflation) 5 Grinder Pump Replacement cost is allocated over a ten year period (including 3% escalation annually for inflation) 6 Lift Station cost is allocated over a ten year period (including 3% escalation annually for inflation) 7 SCADA is the acronymn for Supevisory Control and Data Acquisition A-19 Page 16

23 Table B Projected Maximum Sewer Charge Rates by Zone Projected Sewer Charge Zone Maximum Rates Per ERU A B C D Year and Projected Rates * Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ Fiscal Year $ $ $ $ * Projected rates are equal to the previous years rate plus escalation for inflation at a projected rate of 1.75% Table C Equivalent Residential Units by Zone Zone and Equivalent Residential Units Zone A Zone C Zone B Zone D Source: Abalone Cove Sewer Service Charge Annual Report Table D Maximum Projected Annual Sewer Charge Revenue by Zone Maximum Projected Revenue by Zone Zone Zone and Projected Revenue Zone A Projection $5,208 $5,299 $5,392 $5,486 $5,582 Zone B Projection 24,463 24,891 25,327 25,770 26,221 Zone C Projection 8,912 9,068 9,227 9,388 9,552 Zone D Projection 20,546 20,906 21,272 21,644 22,023 Maximum Projected Revenue $59,130 $60,165 $61,218 $62,289 $63,379 A-20 Page 17

24 Item 1. Attorney Work Product INTRA-OFFICE MEMORANDUM ATTORNEY WORK PRODUCT TO: FROM: Ron Dragoo, Principal Engineer Anne N. Lanphar; Joshua M. Min DATE: October 9, 2017 RE: Ownership of Abalone Cover Sewer System I. INTRODUCTION The City has asked our office to determine the ownership of the Abalone Cove sewer system based on certain documents sent to our office by Ron Dragoo, the Principal Engineer for the City. In addition to the documents provided, the Successor Agency s Long Range Property Management Plan ( LRPMP ), as well as the subsequent staff reports and agendas associated with the LRPMP, were also reviewed. The land commonly referred to as Abalone Cove Shoreline Park ( Abalone Cove ) was acquired from the County of Los Angeles ( County ) by the Rancho Palos Verdes Redevelopment Agency ( RDA ) through an October 13, 1987 Reimbursement and Settlement Agreement concerning litigation over RDA s redevelopment plan ( Horan Settlement ) among the County, RDA, and the City of Rancho Palos Verdes ( City ). The Horan Settlement also directed the County to issue $10 million in assessment bonds, a portion of the proceeds of which were to be given to the RDA to pay for the construction of landslide abatement improvements in the Abalone Cove area, which included construction of a sanitary sewer system. However, due to delays in the County s issuance / A-21 Page 18

25 Ownership of Abalone Cover Sewer System October 9, 2017 Page 2 ATTORNEY WORK PRODUCT of the bonds until July 1991, the City made several loans to the RDA, some of which went towards the construction of the Abalone Cove sewer system. Despite the fact that the RDA used funds loaned from the City to pay for some of the construction of the sewer system, title to the Abalone Cove land was deeded from the County to the RDA, and the RDA owned and was responsible for the construction of the Abalone Cove sewer system, until the dissolution of the RDA and the transfer of RDA s property to the City as Successor Agency by operation of law. Subsequently, the Successor Agency submitted a LRPMP that included the transfer of Abalone Cove from the Successor Agency to the City. This LRPMP was approved by the Oversight Board of the Successor Agency, as well as the State Department of Finance, and the Abalone Cove property was transferred from the Successor Agency to the City by grant deed on or about February 10, City staff later discovered over 150 easements granted to the former RDA by private property owners specifically for the construction and maintenance of the Abalone Cove sewer system, and determined these easements needed to be assigned to the City as well. In or about September 2015, the Successor Agency s Oversight Board adopted a resolution to amend the Long Range Property Management Plan for the assignment and assumption of these easements to the City. However, the assignment and assumption agreement may have been insufficient to transfer the benefit of these easements to the City. Further review of these easements is ongoing to determine whether they were appurtenant easements, or easements in gross, as appurtenant easements would have / A-22 Page 19

26 Ownership of Abalone Cover Sewer System October 9, 2017 Page 3 ATTORNEY WORK PRODUCT transferred automatically to the City, whereas easements in gross will require the recordation of a deed from the Successor Agency to the City. II. ANALYSIS TIMELINE OF EVENTS An overview of the relevant documents provided shows that title to the Abalone Cove land, and the sewer system, belonged to the RDA Reimbursement and Settlement Agreement (Horan Settlement Agreement) -Section 7 of the Agreement states the County would deliver a deed to the real property, transferring to RDA all of its right, title, and interest to Abalone Cove, together with all improvements, fixtures, easements, and rights appurtenant thereto, in exchange for the consideration of $1.06 million. The City was to pay $545,000 of the consideration, and the RDA was entitled to possession of and title to the Abalone Cove property at the time of the City s $545,000 payment to County. -Section 3 of the Agreement states the total obligation to perform the landslide abatement improvement work was to be RDA s, and that neither the City nor the County had any obligations for the work, except to assure formation of the assessment districts and sale of the bonds. Section 3 also states the work was to be done in accordance with the recommendation of the Abalone Cove Panel of Experts -Part of the landslide abatement improvement work included the construction of the Abalone Cove sewer system. (See section 2.K [ Nothing herein shall be construed as preventing the City from forming an improvement district for the installation of sanitary sewers in all or any portion of the [Abalone Cove] area ]; / A-23 Page 20

27 Ownership of Abalone Cover Sewer System October 9, 2017 Page 4 ATTORNEY WORK PRODUCT section 2.L [ Nothing herein shall prevent the Abalone Cove Panel of Experts from exercising its independent judgment to order utilization of assessment proceeds for installation of sewers, house connections, sewer district connection charges, or any other sewer-related work to the extent permitted by law ].) 1 -A copy of the actual quitclaim deed conveying the Abalone Cove property to the RDA was not provided to our office RDA Resolution Approving Loan from LA County -The RDA approved the issuance of a promissory note to the County for a $1.45m loan from the County to the RDA so the RDA could construct certain landslide abatement improvements, including a sanitary sewer preliminary study. (See section 2.5.) City Council Resolution Granting to County the Rights to Construct Landslide Improvements -The City Council granted the County the rights-of-way and acquisition, installation, and construction of landslide abatement improvements, including storm drains, water discharge facilities, individual drainage facilities, and sanitary sewers. However, the Resolution specifically stated the RDA was to design, construct, and install the landslide abatement improvements, and the County was to convey the 1 While section 2.J prevents the use of Maintenance Funds (a $1m portion of the bond proceeds to be given to a Joint Powers Maintenance Authority consisting of the City and the RDA) from being used to maintain the sanitary sewers, the RDA could still use the bond proceeds to actually construct the sewer system, pursuant to section 2.K and 2.L / A-24 Page 21

28 Ownership of Abalone Cover Sewer System October 9, 2017 Page 5 ATTORNEY WORK PRODUCT landslide abatement improvements and all easements and rights-of-way acquired in connection therewith to the RDA, or any successor entity thereto upon completion of such improvements RDA Resolution Establishing Assessment Districts and Rights to LA County for Improvements to Abalone Cove -The resolution approved the Agreement for Implementation of Stabilization Report between RDA and the County. Section 3 of the agreement stated the County shall convey the County Improvement District improvements (in the Abalone Cove area) and all easements and rights-of-way acquires in connection therewith to RDA or any successor entity thereto upon completion of such improvements. -A copy of the document actually conveying the improvements, easements, and rights-of-way was not provided to our office RDA Staff Report re Repayment of Advances to RDA from City -Due to delays in the County s issuance of the $10 million in assessment bonds, the City had loaned RDA funds to construct landslide abatement improvements. After the County finally issued the bonds on July 25, 1991, these amounts could finally be repaid City Council Staff Report re Amendment to Project Agreement for Abalone Cove -In 1973, the County had purchased Abalone Cove using a grant from the federal government, where the County entered into a Project Agreement with the State Department of Parks and Recreation, which included such requirements as using / A-25 Page 22

29 Ownership of Abalone Cover Sewer System October 9, 2017 Page 6 ATTORNEY WORK PRODUCT competitive bidding, maintaining the property for public use, etc. In January 1997, the County notified the City that when County transferred Abalone Cove to the RDA in 1988, it was necessary to execute an Amendment to the Project Agreement whereby RDA would assume the obligations of the Project Agreement, but such a document was never executed. -There is some confusion by this staff report s reference to the City instead of the RDA, as while the background section of the staff report acknowledges that the County transferred the Abalone Cove property to the RDA, the Discussion sections repeatedly refers to the City as being the recipient of the Abalone Cove property, and how the City is to sign the Amendment to the Project Agreement assuming the obligations. This confusion is compounded by the fact that the City s letter to the Los Angeles County Department of Beaches and Harbors states that on May 18, 1999, the City Council authorized the Mayor to sign the Amendment. Further, a letter from the State Department of Parks and Recreation addressed to the City s Assistant City Manager states that the City of Rancho Palos Verdes will be the grant recipient of record for the Abalone Cove project. This letter, however, does not mention ownership of the Abalone Cove property City Council Staff Report re Loan Agreement Between City and RDA -This staff report references a loan of $12,000 made from the City to the RDA Abalone Cove Fund in Fiscal Year to complete sewer lateral installations for three properties, prepare as-built plans for the sewer system, and perform / A-26 Page 23

30 Ownership of Abalone Cover Sewer System October 9, 2017 Page 7 ATTORNEY WORK PRODUCT miscellaneous site restoration activities. The report does not state any transfer of ownership of the Abalone Cove property from the RDA to the City City Council Staff Report re Fiscal Year and Consolidated Loan Agreement Between City and RDA -This staff report notes that the Abalone Cove sewer project was completed during Fiscal Year and the system is operational. With the completion of the sewer project, the RDA Abalone Cove Fund is completely depleted Agenda for the Special Meeting of the Oversight Board of the Successor Agency to the RDA -The Long Range Property Management Plan ( LRPMP ) for Abalone Cove notes that the RDA was dissolved on January 31, 2012, and the City elected to become the Successor Agency to the RDA. On February 1, 2012, the property of the former RDA was transferred to the Successor Agency by operation of law. The Plan also notes that title to all parcels comprising Abalone Cove was held by the RDA. -The LRPMP also makes reference to an easement agreement entered into between the City and the RDA on May 3, 2011 which purportedly shows the City has been operating a park on these properties, and which granted to the City an easement in perpetuity on, in, over and across the Abalone Cove property for operation of the City-operated park facilities and related structures; construction, maintenance or repair of public facilities, including but not limited to sewers. -While we do not have a copy of this May 3, 2011 easement agreement, we do have an April 18, 1989 staff report regarding an operational agreement between / A-27 Page 24

31 Ownership of Abalone Cover Sewer System October 9, 2017 Page 8 ATTORNEY WORK PRODUCT the RDA and the City, which states that the City will operate the park and the parking facilities, but that RDA would still own the property. Further, while this LRPMP states the May 3, 2011 easement agreement references City-operated park facilities including sewers, it does not reference the ownership of such sewers. Reviewing the May 3, 2011 easement agreement could give more insight Agenda Packet re Abalone Cove Sewer System Easements -The staff report, and the attached proposed resolution, notes that the Oversight Board of the Successor Agency ( SA ) approved the LRPMP on or about September 18, 2013 by adopting Resolution No Subsequently, the California State Department of Finance approved it as well through a letter dated April 25, The plan included the conveyance of Abalone Cove from the SA to the City. -Additionally, the Report notes that the staff had been investigating certain easements across private properties that were conveyed to the RDA so the RDA could construct the Abalone Cove sewer system Staff Report re Assignment and Assumption Agreement Between SA and City -The staff report recommends the city council approve an assignment and assumption agreement between the SA and the City, whereby the easements granted to the former RDA for the construction of the Abalone Cove sewer system are assigned to and assumed by the City. The report is accompanied by an extensive spreadsheet listing all of these easements, specifically stating the purpose was for access to or construction of a sewer system / A-28 Page 25

32 Ownership of Abalone Cover Sewer System October 9, 2017 Page 9 ATTORNEY WORK PRODUCT Agenda Packet re Conveyance of Abalone Cove to City -The agenda packet shows the Oversight Board of the SA approved Resolution No. OB authorizing conveyance of Governmental Use Property (which includes Abalone Cove) to the City Agenda Packet re Assignment and Assumption Agreement Between SA and City -The packet shows the Oversight Board of the SA adopted Resolution No. OB approving amendments to the LRPMP and the execution and delivery of the assignment and assumption agreement between SA and the City regarding the easements once held by the former RDA for the construction of the Abalone Cove Sewer System. III. CONCLUSION Despite the confusion concerning the Amendment to the Project Agreement, all other records provided to our office indicate that title to Abalone Cove, and ownership and construction of the Abalone Cove sewer system, belonged to the RDA. Specifically, The documents confirm that the sewer system would have been conveyed to the RDA by the County after the County had finished constructing its improvements to the sewer system. The LRPMP also confirms that title to the Abalone Cove property was held by the RDA, and that all property of the RDA was transferred to the Successor Agency by operation of law on February 1, / A-29 Page 26

33 Ownership of Abalone Cover Sewer System October 9, 2017 Page 10 ATTORNEY WORK PRODUCT The LRPMP s reference to a May 3, 2011 easement agreement that describes the sewers as City-operated, while not definitively stating the City owns the sewer system, does create some ambivalence as to the former RDA s ownership of the sewer system. Review of this May 3, 2011 easement agreement may provide more insight. However, this confusion is mooted by the staff reports and agendas regarding the LRPMP s treatment of the Abalone Cove property, including the sewer system, as they show that the LRPMP s transfer of the entirety of Abalone Cove to the City was approved by the SA s Oversight Board, and the State Department of Finance. Finally, while the City was assigned numerous easements once belonging to the former RDA for the construction of the Abalone Cove sewer system, further review of these easements is necessary and ongoing to determine if the easements were automatically transferred to the City, or if the SA must execute a deed transferring the easements to the City / A-30 Page 27

34 Item 2. Abalone Cove Sewer Needs Assessment System Summary The Abalone Cove Sewer System was designed with consideration given to land movement associated with a landslide. In general the system appears to be a relatively good designed system with operational issues associated with any aging sewer system. The following assessment is to identify the issues that require attention, however this assessment does not extend to land movement and erosion. Most of the components of the Abalone Cove Sewer System pipes, manholes, pump stations electrical components, grinder pumps, low-pressure lateral lines, etc. are located in easements on private property. Grinder pumps and the lateral lines that convey waste to the shared waste lines are located on private property within easements, when the system was installed. Property owner modifications to landscaping or other improvements may have caused these lateral lines to be moved outside of their easements. The remainder of the waste collected by the entire system is carried in pipes located in easements. The primary conveyance pipe enters the public right of way, at the western edge of Wayfarers Chapel, and continues across and along Palos Verdes Drive South to the Ab Cove pump station. From there waste is pumped to the Sanitation Districts of Los Angeles. The system was brought on-line (became operational) in 2001 which is when the City Council established the annual maintenance fee for the system which is used to perform required maintenance on the system. Pipelines Several different systems exist within the Abalone Cove Sewer System including lift stations that use pumps connected to force mains which carry waste through pressurized cast iron pipes. Galvanized metal pipes carry low pressure waste from grinder pumps to the gravity system. Stainless steel lines connect the galvanized pipes to polyethylene plastic pipe to allow movement between the ridged galvanized pipes in the landslide. Polyethylene plastic pipes are used to carry waste from the grinder pumps to the low pressure galvanized pipe. The gravity pipes carry waste downhill and collect waste directly from some homes, force mains, galvanized pipes and are accessible through manholes. Approximately 2,505 feet of force mains are included in the system. Cast iron pipes (CIP - CL 52) are used in varying in sizes from 3 inches to 6 inches in the force main system. The galvanized metal pipes vary in size from 2 inches to 3 inches and account for approximately 12,815 feet of the low pressure system. Approximately 35, 10 foot long braided stainless steel connectors are located between the galvanized pipes to allow for landslide movement The approximate length of the remainder of the low pressure system piping uses Polyethylene Plastic Pipes (PE) varying in size from 1.25 inches to 4 inches is approximately 6,800 feet. Approximately 19,000 feet of polyvinylchloride pipe (PVC) was installed to convey gravity flows. The system operates in this hilly area of the city using lift stations to transmit the waste with high powered lifting pumps to the gravity portion of the system. The low pressure grinder pumps transmit waste to the galvanized system or to a manhole. The grinder pumps lift waste from homes through PE to a manhole or to the galvanized metal pipes where the waste is routed (using braided stainless steel connecters to allow movement in the ridged galvanized pipe system) to the gravity system. Above Ground Pipelines: Some above ground pipes have required maintenance recently due to land movement and age. Specifically some of the galvanized pressure lines, which run above ground, are showing noticeable exterior corrosion and have been replaced. A visual inspection of these pipes has A-31 Page 28