HomeMy WebLinkAbout06/14/2011 00 Agenda and Materials 5:•
7
.), Micah Cawley, Mayor
r7,s,./- i • . Kathy Coffey, Assistant Mayor
?`� _ \___�� Yakima Maureen Adkison
- C It Council Dave Edler
® „� ,�.„�° Agenda
Rick Ensey
b Dave Ettl
129 N. 2nd Street,Yakima,WA. 98901 Bill Lover .
Phone: (509) 575 -6000 • Fax (509) 576 -6614 City Manager
Email: ccouncil @ci.yakima.wa.us •, www.ci.yakima.wa.us Richard A. Zais, Jr.
Anyone wishing to address the Council, please fill out the form found on the tables and give it to the City Clerk
YAKIMA CITY COUNCIL
STUDY SESSION
JUNE 14, 2011 — 9:00 — 10:30 A.M.
COUNCIL CHAMBERS — YAKIMA CITY HALL
1. RoII Call
2. Wastewater Rate Study, Wastewater Connection Charge Revision and
Stormwater Rate Study (Please bring binder distributed 6/2/11)
® 3. Audience Comments (10:15 — 10:30 a.m.)
4. Adjournment to June 21, 2011 at 6:00 p.m. for City Council Business
Meeting
411 Yakima
A mcwan
City of Yakima Vision Statement: To create a culturally diverse, economically vibrant, safe, and strongYakima community. 1 11 111!
Adopted March 2008 1994
0 • • City Council Study Session
Transmittal Memo
June 14, 2011
To: Honorable Mayor and Members of the City Council
From: Dick Zais, City Manager •
Chris Waarvick, Public Works Director
Scott Schafer, Wastewater Division Manager
Subject: Wastewater Rate Study, Wastewater Connection Charge Revision, and
Stormwater Rate Study
This memorandum transmits the accompanying Wastewater Rate Study and Wastewater
Connection Charge (WCC) revision conducted by Financial Consulting Solutions Group,
Inc (FCS Group). In addition, this memorandum also addresses the Stormwater Rate
Study conducted by City staff.
Background
The City of Yakima operates Wastewater treatment and collection facilities serving a
population of nearly 120,000 residents and associated business and commercial activity.
The performance criteria for this operation can be found in the National Pollutant
Discharge Elimination System (NPDES) permit issued by the Washington State
Department of Ecology (Ecology) in accord with the provisions found in Public Law 92-
500 and its amendments, otherwise known as the Clean Water Act (CWA). This permit
is renewed every 5 years.
The performance and discharge requirements have grown increasingly more stringent as
anticipated in the framework for environmental protection passed by Congress in 1972.
The Environmental Protection Agency was created at this same time to provide national
oversight and enforcement of the Clean Water Act. Many states, including Washington
State, had their own clean water and environmental statutes in place prior to 1972 and
elected to exercise "primacy" with respect to enforcing the requirements of the "federal"
NPDES permits.
Yakima has had an early and long history with respect to wastewater management. Some
of Yakima's first community debt was incurred to pipe its waste stream away from the
City directly to the Yakima River. Rudimentary treatment processes were followed by
more advanced treatment over the years even prior to PL 92 -500. Today, in response to
needs identified to protect the health and safety of our residents, the Yakima River and
economic development potential, the City manages a facility and collection system with a
replacement value estimated at nearly $500 million. This high value asset, despite
constant maintenance attention, requires periodic replacement. New discharge limits
require additional or different facilities to be constructed in order to achieve permit
compliance. The City's Stormwater and Pretreatment Programs are a result of the roll out
of requirements of the CWA and its amendments. Compliance is not optional nor does
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the Clean Water Act allow expense as a justification for lack of permit compliance. (List
of increasing environmental regulatory mandates has been enclosed within this packet).
The City's Wastewater Division has demonstrated a high standard of performance with
numerous awards for unblemished permit compliance. The staffing to achieve this
performance is at a very conservative level. This rate study examines the adequacy of our
charges, proposes a limited number of policy changes which will affect cost allocations
(subsidies), recommends changes to the connection charge program for ease of
implementation, and puts forth rate recommendations for a series of charges necessary to
comply with the maintenance, program and capital needs of the division.
Presentation of the Rate Study at this time is necessary to allow adequate review,
deliberation, amendment and ultimate adoption of the Study and passage of the resultant
rates for the year 2012 and beyond. -
Wastewater Rate Study
In order to provide an unbiased comprehensive analysis of the Wastewater Division's
financial needs, the City contracted with FCS Group to conduct a rate study over a ten -
year period (2012- 2021). Such services provide the City with an honest in -depth look as
to what proper funding levels are really required to ensure the citizens of Yakima of
wastewater services now, and in the future; while remaining compliant with all of the
federal and state rules and regulations. In addition, both federal and state environmental
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regulators require such an analysis of utility rates not to exceed a two -year time period.
By complying with this, participation in funding acquisition programs remains a viable
option for the City.
The City of Yakima's Wastewater Treatment Plant (WWTP) dates back to 1936. The
infrastructure is aging and in desperate need of repair and upgrades to comply with health
and environmental mandates. As the infrastructure ages and the useful life of the
installed equipment (pumps, valves, clarifiers, segment of pipes, etc.) begin to fail, it
becomes more imperative for municipalities to engage in "Asset Management." The life
expectancy of such equipment needs to be tracked and replaced prior to failures to avoid
major catastrophes that could directly affect the community. Reinvesting back into the
infrastructure to ensure current and future services of wastewater is a priority. The 2004
Facility Plan identified and prioritized the processes in need of attention. Many of these
projects have since been completed with additional required improvements being
implemented. Wastewater staff is currently updating its Facility Plan to incorporate
many regulatory and environmental issues not identified within the 2004 Facility Plan.
Construction costs will impact our ability to finance all of the capital improvements
projects (CIP). Over ninety percent (90 %) of the projects identified since the 2004
Facility Plan are mandated renewal or regulatory projects as outlined in our NPDES
permit with Ecology. The updated Facility Plan will also address new regulatory and
environmental issues on the horizon. New issues include the Total Maximum Daily Load
(TMDL) Study to be conducted by Ecology on the Yakima River to reduce the loading of
both phosphorous and nitrogen. Another issue is the Gap -to -Gap Levee Set Back Project.
This project will have a direct impact on the City's ability to continue discharging up to
13 million gallons of treated effluent to the river each day. Staff continues its due
diligence in addressing different alternatives and a comprehensive approach to both of
these issues.
To assist in meeting regulatory requirements, the 2011 budget approved by City Council •
included $12,000,000 in funding through the acquisition of a combination of bonds
and /or loans. An existing major bond will expire later this year, unlocking debt service
capacity for about half the $12,000,000 in revenue bond or loans approved for the 2011
WWTP budget. When the existing bond is paid off, a new bond will be immediately
secured with the first payments due in 2012. Additional funding to this new bond will be
required as previously stated. In total, the Wastewater Division is looking to increase its
debt service by approximately $400,000 per year without the need for a rate increase.
However, to maintain pace with all the other regulatory compliance issues identified over
the next ten years, rates ultimately need to be increased. Should rates not be increased,
the only alternative would be to significantly increase the Division's debt service;
reducing its available cash and cash transfers in order to meet regulatory mandates; thus
avoiding penalties and potential third party lawsuits. The current debt service is
approximately 19% of the Division's current budget; with the maximum allowed to be
25 %.
Projects identified through 2021 were originally estimated at over $81,000,000.
Currently, both the domestic and industrial waste streams are commingled and treated
0 together increasing treatment costs and tying up capacity for future development. When
industries of "high strength" discharge to the WWTP, the result is a significant organic
loading to the WWTP. This directly impacts how effectively and /or efficiently the plant
can treat the process wastewater and . limits the available capacity for future growth.
To help defer operational and capital project costs, the Wastewater Division decided . to
treat high strength wastewater from local industrial fruit processors utilizing an anaerobic
bio- reactor at the WWTP. By separating the high strength industrial loading from the
rest of the domestic sanitary sewer, significant capacity is immediately restored for future
users, while being able to treat both processes far . more cost effectively. Conveniently,
Yakima has a separate industrial waste (IW) pipeline that can serve high strength
industrial dischargers. With the installation of additional IW collection pipes, existing
high strength users can be connected and treated by the anaerobic bio- reactor. Separating
the industrial waste from domestic wastes remains strategic to the overall savings and
deferment of approximately $10,000,000 in operational and capital costs over the next
ten -years as previously identified in the 2004 Facility Plan reducing the overall cost to
$71,000,000.
It should be noted, that the $71,000,000 in capital improvements over the next ten -year
period does not include costs associated with any unanticipated emergency repairs that
could reside in the million - dollar range, or even the upcoming regulatory issues of the
TMDL study and the Gap -to -Gap Levee Setback Project. Both such projects are
411 projected to be multi - million dollar projects and will definitely cause a significant
financial impact to the WWTP over the next 5 to 10 years. A conservative estimate of
these costs could be $30 to 60 million dollars over the estimated $71,000,000 cost for
maintaining compliance to current regulations.
Due to the rate study conducted by FCS Group, a ten -year review of the Wastewater
Division's regulatory requirements for both the WWTP and the sanitary sewer collection
system indicates funding is needed for approximately $71,000,000. FCS Group also
identified the need to eliminate the 25% subsidy of the Pretreatment Program currently
being provided from wastewater user rates. This will require a change of philosophy as
this has been a long standing policy implemented by City Council. Based on regulatory
requirements, replacement costs, and current funding levels, FCS Group is proposing an
annual rate increase of 5.1% for the next eight - years, followed by a 3.0% and 0%
respectively in the final two years of the ten -year period to provide the Wastewater
Division with proper funding levels.
Staff recommends that the rates be set for the next three years (2012, 2013, and 2014)
based on FCS Group's recommendation. Prior to 2014, the Wastewater Division's
financial needs will be required to be re- evaluated to take into consideration any changes
due to possible operational savings and /or any changes with regulatory obligations.
Deferment of adequate rate increases will only serve to significantly increase the
financial needs and immediate costs of the City's largest asset; while placing the entire
infrastructure in immediate jeopardy. Having an appropriate rate structure and available
funding to support the maintenance, repair, and replacement of the infrastructure is
crucial in protecting public health and promoting economic development.
Wastewater Connection Charge Revision
The City is authorized by Title 35 RCW to acquire, construct, own, operate, and provide
financing for waterworks and systems of sewerage, and to establish rates, fees, and
charges. As such, the City calculates and collects wastewater connection charges
(WCCs) for new construction projects which are allocated to the new customers in
accordance with §7.58 of the YMC. WCCs are required to properly finance the
operation, growth and replacement of both the infrastructure of the collection system and
the wastewater treatment plant. Council has had a long standing policy that existing
ratepayers pay for capital improvements driven by regulations, renewal, and safety while
minimizing its subsidy for growth.
A clear, concise methodology for calculating the City's WCCs is needed for the
Wastewater Division. The WCC process should be easily administered, transparent and
predictable by prospective users. We know the current methodology is overly complex,
burdensome, and extremely difficult for prospective investors to understand or rely upon
and are frequently questioned by the contractors and/or developers. FCS Group clearly
determined early in the study that the City's current process is far too complicated as
compared to other municipalities. The City's wastewater system serves as an engine to
our local economy. Unfortunately these difficulties can serve to limit the interest of
developers to our community.
It is therefore the goal and desire of the Wastewater Division to simplify the entire WCC
process; allowing multiple benefits for the City and prospective investors. Simplifying
the process will not compromise the financial needs of the sanitary collection system or
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the wastewater treatment plant. Many other municipalities utilizing a simpler process
have found much success.
The proposed methodology for calculating wastewater connection charges will be based
on water meter size or treatment demand. The use of zones will be simplified to "Inside
City" and "Outside City."
Enclosed within this packet is the current methodology for calculating the WCC, current
Ordinance 7.58, and proposed draft language addressing the revisions to the WCC
process.
Stormwater Rate Study
The Stormwater Rate Study was conducted by City staff to ensure proper funding levels
exist in meeting water quality regulations pertaining to both the Stormwater and
Underground Injection Control (UIC) Programs. Such activities include the stringent
obligations and requirements for the collection, transportation, and treatment of surface
water in accordance with the Stormwater Program, as well as implementing the mandated
responsibilities and regulations in the protection of groundwater with the UIC Program.
Since its inception, the City's Stormwater Program has been under the directive of both
the Regional Stormwater Policy Group (RSPG) and the City Council for "minimal
compliance." This simply means achieving compliance with the stormwater permit
requirements while being minimally funded. However, past City Council approval has
allowed the City to address very specific areas of localized flooding and safety hazards.
Currently, the rate of $43 per equivalent residential unit (ERU) is being assessed.
The Eastern Washington Phase II Municipal Stormwater Permit with the Department of
Ecology (Ecology) is set to expire on February 15, 2012. Ecology has already indicated
an approximate 6 -month delay in renewing the next five -year stormwater permit for years
2012 -2017. As a partner of the RSPG, the City's efforts along with the other partners
have been coordinated under an Inter - Governmental Local Agreement (ILA) for
stormwater compliance activities in accordance with the stormwater permit. An
extension of the current ILA for Years 4 and 5 was necessary due to the delay in permit
issuance.
It is our recommendation due to the delay in the issuance of the second stormwater
permit by Ecology for years 2012 - 2017 and its unknown compliance requirements, that
the current rate of $43 per ERU also be assessed for 2012. Transfers to Stormwater
Capital Fund 442 will be significantly reduced to absorb the increased costs of fuel and
materials and to maintain minimal compliance with both the NPDES Permit (as
requirements ramp up) and UIC regulations, including mandates of increased
housekeeping, UIC assessment, project review, inspection, and the mandated
enforcement elements, as well as fund a continued effort to address flooding and safety
issues per Councils previous directive.