MARCH 12, 2005 BUDGET POLICY ISSUE MARCH 12, 2005 BUDGET POLICY ISSUE

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: DIRECTOR OF PUBLIC WORKS

DATE: MARCH 12, 2005

SUBJECT: BUDGET POLICY ISSUE

ABALONE COVE SEWER SYSTEM

RECOMMENDATIONS

Request staff to include a $10,700 subsidy for the FY 05 – 06 operating budget for the Abalone Cove Sewer System.

BACKGROUND

Construction of the Abalone Cove sewer system was completed in June 2001. To provide funding for the operation and maintenance of the system the City Council established the Abalone Cove Sewer Maintenance Fee for users of the system. The City Council annually conducts a public hearing at which time current and projected year's costs are reviewed and rates are set for the ensuing fiscal year. Fees paid by users of the system depend upon the amount of sewer discharge generated by the user, as well as what elements of the system serve the user.

When the Abalone Cove Sewer Service Maintenance Fee was established, the City Council agreed to subsidize sewer operations in an effort to reduce fees to property owners and to help bring uniformity of fees. Based upon City Council direction the subsidy was initially established at $35,000 for FY 01 – 02 and FY 02 – 03. The subsidy was reduced to $17,500 in FY 03 – 04, and further reduced to $10,700 for FY 04 – 05.

There was discussion by the City Council in May 2004 to eliminate the subsidy, however, based on the recommendation of staff the City Council voted to continue the subsidy. Staff recommendation was based upon concern that if an effort was made to establish new rates based on the elimination of the City subsidy, the process may need to be repeated very soon thereafter based upon a need to increase the overall maintenance budget. Because the cost of the ballot process is significant, $10,000, staff recommended that the best approach was to defer the ballot process until staff had more confidence in total maintenance costs at which time both the issue of eliminating the subsidy and the total maintenance budget can be addressed.

DISCUSSION

At this time staff believes a district budget of $52,000 will be adequate for operations and maintenance. A history of district costs, City subsidy, and fees is as follows:


Year

Maintenance Budget

City Subsidy

Fees Collected

Area A Fee

Area B Fee

Area C Fee

Area C Fee

FY 01 – 02

$ 57,000

$ 35,000

$ 22,000

$ 119

$ 209

$ 130

$ 220

FY 02 – 03

$ 57,000

$ 35,000

$ 22,000

$ 119

$ 209

$ 130

$ 220

FY 03 – 04

$ 52,000

$ 17,500

$ 34,500

$ 127

$373

$ 173

$ 418

FY 04 – 05

$ 52,000

$10,700

$ 41,300

$127

$ 373

$ 173

$ 418

Option One

FY 05 - 06

$52,000

$10,700

$ 41,300

$127

$ 373

$ 173

$ 418

Option Two

FY 05 - 06

$52,000

$ 0

$52,000

$209

$ 454

$367

$613

The ordinance that establishes fees also establishes a maximum fee for each zone. The City Council may increase fees up to the maximum fees established at a noticed Public Hearing. If the subsidy is eliminated for FY 05 – 06 the calculated rates will exceed the maximum rates as follows:

Zone

Maximum FY 05 -06 rate

FY 05 -06 rate with no subsidy

Current Fee

A

$129.46

$ 208.49

$ 127

B

$521.25

$ 454.20

$ 373

C

$ 175.73

$ 367.39

$ 173

D

$ 567.50

$ 613.10

$ 418

In accordance with the provisions of Proposition 218, to establish fees in excess of the maximum, notices must be mailed to system users with instructions that if they oppose the fee increase they should return their notice to the City Clerk. The City Council then conducts a public hearing at which time opposition ballots are counted. The new fee may only be established if the ballots of opposition total less than 50%. A cost estimate to conduct such a ballot process is $10,000. Based upon the fact that a Proposition 218 vote will cost nearly as much as the subsidy, and the fact that there is no assurance the increase will be passed, staff recommends that the subsidy be continued.

CONCLUSIONS

Adopting the staff recommendation will result in a subsidy of $10,700 being included in the budget for the Abalone Cove Sewer Maintenance District.

ALTERNATIVE ACTION

Eliminate the subsidy, and request staff to conduct a Preposition 218 vote for the new higher rates as listed above. It is noted that any reduction in subsidy will require a Proposition 218 vote.

Submitted,

Dean E. Allison

Director of Public Works

Reviewed by,

Les Evans

City Manager