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    24.    
City Council Regular
Meeting Date: 05/12/2020  

SUBJECT:
PROPOSITION 218 MAJORITY PROTEST PROCESS RELATIVE TO PROPOSED INCREASE TO THE CITY’S WASTEWATER RATES FOR FY 2020-21 THROUGH FY 2024-25
RECOMMENDATION:
  1. Conduct a Public Hearing and receive all written and verbal testimony regarding the proposed fee increases.
     
  2.  Adopt a resolution certifying the protest ballot results entitled:
     
        A.     Resolution for the non-majority protest:  A RESOLUTION OF THE CITY OF CHINO HILLS, DECLARING THE RESULTS OF THE PROCEEDINGS FOR  ADOPTING WASTEWATER CHARGES IN ACCORDANCE WITH ARTICLE XIIID OF THE CALIFORNIA CONSTITUTION; or
               
        B.     Resolution for a majority protest:  A RESOLUTION OF THE CITY OF CHINO HILLS, DECLARING THE RESULTS OF THE PROCEEDINGS FOR THE WASTEWATER CHARGES IN ACCORDANCE WITH ARTICLE XIIID OF THE CALIFORNIA CONSTITUTION
  1. If no majority protest exists, introduce an ordinance setting the wastewater (sewer) rates and charges entitled: AN ORDINANCE OF THE CITY OF CHINO HILLS, SETTING THE AMOUNT OF WASTEWATER RATES AND CHARGES PURSUANT TO HEALTH AND SAFETY CODE §5471 ET SEQ
BACKGROUND/ANALYSIS:
Proposition 218

In November 1996, the California electorate approved Proposition 218 (“the Proposition”) that requires certain procedures be followed with regard to “property-related” fee increases imposed by governmental agencies. Initially, case law indicated that these procedures would not be applicable to solid waste, water or sewer rate increases. However, a 2006 California Supreme Court decision held that the Proposition’s fee increase procedures must be followed for any proposed increases to the City’s solid waste, water or sewer rates. In short, those 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.
 
Just as there initially was some disagreement between lawyers and court decisions regarding which fees were subject to the Proposition, there is currently a disagreement with respect to the protest ballot process. Specifically, there is a disagreement amongst attorneys that represent public agencies (and potentially between the language approved by the voters and some recent legislation) as to whether tenants that pay for fees covered by the Proposition must be afforded the opportunity to protest proposed fee increases. 
 
In 2007, the State Legislature attempted to clarify this issue by passing legislation that, on its face, requires tenants be afforded the opportunity to protest such fee increases.
 
The City Attorney believes the legislation is not consistent with the Proposition and believes it is potentially invalid since the language in the Proposition states that the notice regarding the protest process must be sent to the “record owner” and the owner is the person that has the right to file the protest.  While this requirement took effect on January 1, 2008, there has been no court decision on the inconsistent language and the issue remains uncertain. 
 
Despite the City Attorney’s opinion on this matter, staff and the City Attorney agree that the most conservative approach is to send the protest ballots to the property owners and to tenants if the tenant is the sewer customer. The City is only required to count one protest per parcel.  Accordingly, even if both the owner and tenant file a protest, only one protest shall be counted for purposes of determining whether there is a “majority protest” as described below.
 
The Proposition requires that the City provide all properties receiving the service for which the fee is charged (in this case, sewer) with a minimum of 45 days written notice prior to the City Council holding a public hearing on a proposed rate increase. The property owners and tenants have the ability to “protest” the proposed rate increase until the close of the public hearing. If a majority of the parcels file written protests with the City prior to the close of the public hearing, the Proposition states that the City cannot implement the proposed increase. If a majority of the parcels do not protest the proposed increase, the City Council has the authority to implement the proposed rate increase.
 
The City has received questions and comments in prior years, and recently, regarding what some rate payers consider an unfair majority protest process. This specific process was included in Proposition 218 which was approved as an Amendment to the California Constitution  by  the  California electorate in 1995. This is not a process that was developed by the City. The majority protest process is part of the California Constitution, and it is mandatory that the City adhere to this voter enacted process. For the benefit of the public, set forth below is the specific relevant text from Proposition 218 (bolded in part for emphasis).

“ARTICLE XIII D (ASSESSMENT AND PROPERTY-RELATED FEE REFORM)"
 
SEC. 6.  Property Related Fees and Charges. (a) Procedures for New or Increased Fees and Charges. An agency shall follow the procedures pursuant to this section in imposing or increasing any fee or charge as defined pursuant to this article, including, but not limited to, the following:    
 
(1)     The parcels upon which a fee or charge is proposed for imposition shall be identified. The amount of the fee or charge proposed to be imposed upon each parcel shall be calculated. The agency shall provide written notice by mail of the proposed fee or charge to the record owner of each identified parcel upon which the fee or charge is proposed for imposition, the amount of the fee or charge proposed to be imposed upon each, the basis upon which the amount of the proposed fee or charge was calculated, the reason for the fee or charge, together with the date, time, and location of a public hearing on the proposed fee or charge.
 
(2)     The agency shall conduct a public hearing upon the proposed fee or charge not less than 45 days after mailing the notice of the proposed fee or charge to the record owners of each identified parcel upon which the fee or charge is proposed for imposition.  At the public hearing, the agency shall consider all protests against the proposed fee or charge. If written protests against the proposed fee or charge are presented by a majority of owners of the identified parcels, the agency shall not impose the fee or charge.”
  
After careful consideration of the information presented by staff to the City Council at the February 11, 2020, City Council meeting, the Council directed staff to administer the Proposition 218 majority protest process and set a public hearing on May 12, 2020.
 
On March 27, 2020, the required notice and protest ballot were mailed to the record owners and tenants of each parcel in the City and to customers outside the City that are also receiving sewer services provided by the City. Attached are copies of the Public Notice (Attachment A) and Protest Ballot (Attachment B) that were mailed. 
 
There are 22,119 unique parcels in the City, which notices and protest forms were mailed to. Accordingly, the City will need to receive 11,060 valid protests (again, only counting one protest per parcel) for there to be a majority protest under Proposition 218 that would preclude the Council from adopting the proposed rate increases. If there is not a majority protest, the Council can, by a 2/3 vote of the body (4 Council Members) introduce and adopt the ordinance imposing the new sewer fees.
 
Property owners and tenants may turn in (by mail or hand delivery) protest ballots at any time prior to the close of the public hearing. At the public hearing, the Council will be presented with a resolution for purposes of certifying the results of the protest process.
 
Immediately after the close of the public hearing, staff will complete counting and totaling all protest ballots. If no majority protest exists, it is recommended that City Council adopt a resolution declaring the results of the proceedings for adopting the proposed wastewater rate increases as well as introduce an ordinance to set the wastewater rates for FY 2020-21 through FY 2024-25.

Wastewater Charges
 
Sewer Rates
 
The Inland Empire Utilities Agency (IEUA) provides wastewater 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 wastewater 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. Since then, the outbreak of the COVID-19 pandemic occurred and has significantly altered the economy. In an effort to mitigate the fiscal impact to their ratepayers, and address concerns already raised by Chino Hills and some of their member agencies, IEUA staff prepared an evaluation for the Board to consider a deferral on the effective date for the monthly wastewater EDU rate adopted in November 2019 for fiscal year 2020/21. At the May 6, 2020, IEUA Board of Directors meeting, the Board adopted a resolution to maintain the current rate unchanged in FY 2020/21, and implement the $21.22 rate as adopted for FY 2021/22 effective July 1, 2021.
 
Staff recommends that the City Council adopt the sewer rate structure as illustrated in the table below. No increase is proposed for FY 2020/21 reflecting the IEUA Board's decision to defer the July 1, 2020 increase. Staff recommends the authorization of a $1.22 increase effective July 1, 2021. Additionally, to avoid another costly Proposition 218 process, City staff is recommending the adoption of rates that reflect a 10% increase for FY 2022/23 through FY 2024/25 to ensure the Prop 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, or the City Council elects to defer the July 1, 2021 rate increase, the City will need to absorb these increases as described in the Fiscal Impact section of this report. The proposed increases are reflected in the table below.
 
Effective Date Monthly EDU Rate % Increase
Current Rate $20.00 N/A
July 1, 2020 $20.00 0%
July 1, 2021 $21.22 6.1%
July 1, 2022 $23.34 10%
July 1, 2023 $25.67 10%
July 1, 2024 $28.24 10%
ENVIRONMENTAL (CEQA) REVIEW:
This proposed action is exempt from review under the California Environmental Quality Act (California Public Resources Code §§ 21000, et seq.; “CEQA”) and CEQA regulations (14 California Code Regulations §§15000, et. seq.) because it establishes rules and procedures to implement government funding mechanisms: does not involve any commitment to a specific project which could result in a potentially significant physical impact on the environment; and constitutes an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. Accordingly, this action does not constitute a “project” that requires environmental review (see specifically 14 CCR § 15378(b)(4-5)).
FISCAL IMPACT:
The recommendation to increase sewer rates will continue the policy of pass-through of the wastewater treatment costs to customers. If the rate increases are not adopted by the City Council, the General Fund will have to pay the cost increase of approximately $323,800 for FY 2021/22. While the rates allow for an increase of up to 10% in each of the last three years, the total cost to the General Fund if IEUA implements only a 3% increase each year would be approximately $2.3 million from FY 2020/21 through FY 2024/25.








 
REVIEWED BY OTHERS:
This item has been reviewed by the City Attorney.
Attachments
Resolution - Non-Majority Protest
Resolution - Majority Protest
Ordinance
Exhibit A - Wastewater Charges
Attachment A - Public Notice
Attachment B - Protest Ballot Sample
PDF PowerPoint Presentation

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