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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 4110 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 41/ 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 jai 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.