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    30.    
City Council Regular
Meeting Date: 02/11/2020  

SUBJECT:
PROPOSED SEWER RATE INCREASES
RECOMMENDATION:
  1. Authorize the execution of a one-year agreement with four one-year renewal options with Koppel & Gruber Public Finance to provide Proposition 218 noticing services in an amount not to exceed $95,055.
     
  2. Adopt a resolution entitled: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, CALIFORNIA, ADOPTING A BUDGET AMENDMENT FOR FISCAL YEAR 2019-20 INCREASING THE SEWER FUND BUDGET BY $31,685 FOR THE PROPOSITION 218 NOTICING SERVICES
     
  3. Approve the attached Proposition 218 Notice of Proposed Sewer Rate Increases and Protest Ballot and direct staff to administer the Proposition 218 majority protest ballot process and send out the notice of the proposed rates and protest ballots to all property owners and current customers of sewer services in accordance with Resolution No. 2015R-43 (attached).
     
  4. Set a Public Hearing on May 12, 2020, for the City Council’s consideration of the proposed sewer rate increases.
BACKGROUND/ANALYSIS:
Sewer Rate Adjustments
  
The Inland Empire Utilities Agency (IEUA) provides sewage treatment for seven regional contracting agencies, including the City of Chino Hills. The current sewer rates are the result of an action taken by the IEUA Board of Directors in 2015. The rates were adjusted in 2015 to $15.89, in 2016 to $17.14, in 2017 to $18.39, in 2018 to $19.59 and in 2019 to $20.00, which is the current rate. These charges were passed on to the homeowners and businesses connected to the sewer system.

In January 2019, IEUA contracted with Carollo Engineers, Inc. (Carollo) to conduct an update of the rate study performed in 2015. The scope of the study included a review and evaluation of the Wastewater, Water Resources, and Recycled Water Programs. The original intent of the study was to adopt new rates for the next five years, but staff recommended the pursuit of more in-depth flow and loads study for updating the Equivalent Dwelling Unit (EDU) rate assumption. As a result, IEUA only adopted two-year rates until the required study is complete. 
 
At the November 20, 2019, IEUA Board of Directors meeting, the board approved a two-year rate plan (FY 2020/21 through FY 2021/22) for sewage treatment charges from the current fee of $20.00 to $20.60 effective July 1, 2020, and $21.22 effective July 1, 2021, which is a 3% increase each year over the two years. A Proposition 218 process is required to authorize the City of Chino Hills to pass these IEUA cost increases on to customers.

To avoid another costly Proposition 218 process, City staff is recommending the adoption of rates that reflect a 10% increase for FY 22/23 through FY 24/25 to ensure the Proposition 218 process covers the rates IEUA will adopt in the future. Only the IEUA Board approved rates will be passed through to our residents for the next five years assuming the Proposition 218 election passes. In the event it fails, the City will need to absorb these increases. The increases are reflected in the table below.
 
Effective Date Monthly EDU Rate % Increase
Current Rate $20.00 N/A
July 1, 2020 $20.60 3%
July 1, 2021 $21.22 3%
July 1, 2022 $23.34 10%
July 1, 2023 $25.67 10%
July 1, 2024 $28.24 10%

Proposition 218
  
Proposition 218, (California Constitution Articles XIII C and D), which was passed by the voters in November 1996 and became an Amendment to the California Constitution, requires that the City follow certain procedures with regard to sewer rate increases. The City must provide written notice to the affected property owner of record and may include tenants that are billed by the City for sewer services. Sewer rate increases are subject to a "majority protest" process that provides that if a majority of the parcels in the City protest the proposed rate increase, the City cannot impose the increase. The City currently provides sewer service to approximately 20,550 parcels and so it must receive approximately 10,276 or more protests from property owners to prevent the City from imposing a rate increase. There are situations where there may be multiple protests sent out regarding one parcel. For example, when there is more than one property owner or when there is a property owner and a tenant that is the sewer customer, only one protest will be counted per parcel.

Each time the City goes through the required Proposition 218 process, there are property owners and/or utility customers that allege that the City is using an inappropriate process regarding the protest ballot process. This is not accurate. The City strictly adheres to the voter approved process that was drafted by the Howard Jarvis Taxpayer Association and is set forth in Proposition 218.

The most current assessor's parcel roll from the San Bernardino County Assessor's office will be utilized for a direct mailing of the notice and ballot to each parcel owner. Additionally, to the extent a tenant rather than a property owner is the sewer customer, a notice and ballot will be sent to the tenant utilizing the sewer billing address that the City has on file. The notice states the date of the Public Hearing, May 12, 2020, at 7:00 p.m. The property owners and tenants have the ability to "protest" the proposed rate increase until the close of the public hearing. However, only one protest vote per parcel will be accepted. If a majority of the parcels file written protests with the City prior to the close of the public hearing, Proposition 218 states that the City cannot implement the proposed increase.

Proposition 218 requires that the City provide all properties receiving the service for which the fee is charged with a minimum of 45 days written notice prior to Council holding a public hearing on a proposed rate increase. If a majority of the parcels do not protest the proposed increase, the Council has the authority to implement the proposed rate increase. Proposition 218 also requires the notices be mailed by first class mail.  If approved by Council, the notices and ballots will be mailed on March 27, 2020, and the 45 day requirement will begin.

Professional Services
   
On January 3, 2020, the City issued a Request for Proposals (RFP) for Proposition 218 Noticing services. On January 22, 2020, two proposals were received and evaluated by City staff based on their qualifications and experience, understanding of the project, ability to perform the services and proposed cost. Koppel & Gruber Public Finance (K & G) received the highest ranking, so staff checked their references and received positive feedback. Staff is recommending the use of K & G to assist staff in conducting a Proposition 218 majority protest process, prepare and mail the notices, as well as count the ballots. The not to exceed amount of $95,055 is to cover the City’s next three rate increases. The cost of the sewer rate increase Proposition 218 noticing totals $31,685, which will include K & G's services of $11,875 and $19,810 to cover the estimated printing and mailing costs (including postage) which K & G will also oversee. K & G has assisted the City with previous Proposition 218 proceedings, the most recent being in February 2018 for the water rate increase. Staff determined that K & G continues to be the most qualified consulting firm to prepare and conduct the Proposition 218 proceedings.

The tentative timetable for the proceedings is shown below: 
 
March 27, 2020 Mail notices and protest forms to residents and ratepayers
March 28 - May 11, 2020          45 days requirement prior to public hearing
May 12, 2020 Public Hearing Date and Protest Tabulation; 1st Reading of Ordinance
May 26, 2020 2nd Reading of Ordinance
May 27 - June 25, 2020       30-Day requirement
June 25, 2020 30-Day requirement ends
July 1, 2020 Rates become effective
ENVIRONMENTAL (CEQA) REVIEW:
The subject activity is statutorily exempt from review under CEQA as rates, tolls, fares, and charges pursuant to Section 15273 of the CEQA Guidelines because it relates to the establishment, modification, structuring, restructuring, or approval of rates.
FISCAL IMPACT:
The proposed budget amendment will increase the expenditure budget in the Sewer Fund by $31,685 in FY 19/20 and decrease the projected ending fund balance by $31,685. Future contract costs will be budgeted for in the appropriate fiscal year.  There is no impact on the General Fund with this item.
REVIEWED BY OTHERS:
This agenda item has been reviewed by the City Attorney.
 
Attachments
Agreement - Koppel & Gruber Public Finance
Budget Resolution
Exhibit No. 1 - Budget Amendment
Public Notice of Proposed Increase
Protest Ballot Sample
Resolution 2015R-43

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