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HomeMy WebLinkAboutItem 10d - Water and Sewer Capacity Fee Study DATE: March 18, 2025 TO: Honorable Mayor and City Council FROM: Paul Cranmer, Public Works Services Director By: Carmen Masud, Deputy Public Works Director SUBJECT: AMENDMENT TO THE PROFESSIONAL SERVICES AGREEMENT WITH RAFTELIS FINANCIAL CONSULTANTS, INC. TO INCLUDE A WATER AND SEWER CAPACITY FEE STUDY IN THE AMOUNT OF $19,960 CEQA: Not a Project Recommendation: Approve SUMMARY On July 16, 2024, the City Council authorized and directed the City Manager to execute a Professional Services Agreement (“PSA”) with Raftelis Financial Consultants, Inc., in the amount of $89,977 with a 10% contingency, for the Water and Sewer Cost of Service Study. Due to the number of new developments being proposed in the City, an amendment to the PSA and change order to the purchase order with Raftelis Financial Consultants, Inc. (“Raftelis”) to include a Water and Sewer Capacity Fee Study is necessary. The Water and Sewer Capacity Fee Study will assist the City in developing water and sewer fees based on industry practices and in full compliance with California legal standards, similar to the traffic, recreation, and other development impact fees currently in place. It is recommended that the City Council approve, authorize, and direct the City Manager to execute an amendment to the PSA with Raftelis Financial Consultants, Inc. to include a Water and Sewer Capacity Fee Study in the amount of $19,960. BACKGROUND The City provides water and sewer service to more than 56,000 residents. To determine if water and sewer rate increases are needed to fund ongoing operations and maintenance budgets, as well as the Capital Improvement and Equipment Program, the Public Works Services Department (“PWSD”) requested proposals for a comprehensive Water and Sewer Cost of Service Study. On July 16, 2024, the City Council authorized and directed the City Manager to execute a PSA in the amount of $89,977, with a 10% contingency with Raftelis Financial Consultants, Inc., for the Water and Sewer Cost of Amendment to the Professional Services Agreement Raftelis Financial Consultants, Inc. Water & Sewer Capacity Fee Study March 18, 2025 Page 2 of 3 Service Study. The PSA includes the development of a financial model that will determine how best to recover projected ongoing operational costs and capital improvements to water and sewer infrastructure. The PWSD and Raftelis have been gathering and analyzing data on the City’s water and sanitary sewer operations. The findings of that analysis show that due to the number of new developments being proposed in the City, a Water and Sewer Capacity Fee Study is necessary and should be included as part of the Water and Sewer Cost of Service Study. This work was not included in the original work plan. DISCUSSION As new developments are being proposed, the PWSD must make sure that the City’s water and sewer infrastructure is adequate to meet growth-related needs. Additionally, it is imperative that new developments pay their fair share of costs to build and maintain infrastructure required to handle additional water and wastewater flows. Implementing Water and Sewer Capacity Fees guarantees that the cost of maintaining or expanding the water and sewer system is distributed equitably among all users. Raftelis is currently assisting the City with its Water and Sewer Cost of Service Study and has provided a proposal to include a Water and Sewer Capacity Fee Study as well. The Water and Sewer Capacity Fee Study will assist the City in developing fees that are based on industry practices and in full compliance with California legal standards, as contained in California Government Code Sections 6600-66025. This will include compliance with the requirements of California’s Mitigation Fee Act. Due to the number of new developments being proposed in the City – including large mixed-use projects, the proliferation of accessory dwelling units, and other new housing developments – a Water and Sewer Capacity Fee Study is essential. Similar to Traffic Mitigation Fees, Recreation Impact Fees, or Fire Protection Facilities Fees, a Water and Sewer Capacity Fee would ensure that new developments pay their fair share of any necessary upgrades to the overall system, to maintain adequate capacity as the community continues to expand. The proposed Fee Study would provide a legally defensible and statistically objective methodology for establishing a fee for future water and sewer improvements. While this work is separate from the Water and Sewer Cost of Service Study, there are many efficiencies that could be achieved by completing these efforts simultaneously using the same firm. ENVIRONMENTAL ANALYSIS The proposed action does not constitute a project under the California Environmental Quality Act (“CEQA”), and it can be seen with certainty that it will have no impact on the environment. Amendment to the Professional Services Agreement Raftelis Financial Consultants, Inc. Water & Sewer Capacity Fee Study March 18, 2025 Page 3 of 3 FISCAL IMPACT Funds in the amount of $175,000 were budgeted in the Fiscal Year 2024-25 Capital Improvement Program for the Water and Sewer Cost of Service Study. On July 16, 2024, the City Council executed a PSA in the amount of $89,977, with a 10% contingency with Raftelis Financial Consultants, Inc., for the Water and Sewer Cost of Service Study. The total cost for the Water and Sewer Capacity Fee Study is $19,960. Sufficient funds are available in the Fiscal Year 2024-25 Capital Improvement Program to include the Water and Sewer Capacity Fee Study. Any fee that is ultimately adopted would provide additional revenues for future water and sewer system improvements. By assigning a fair share allocation to new developments that generate the need for additional capacity, rates for existing customers can remain lower. The proposed Water and Sewer Capacity Fee Study would provide estimates on potential future costs and associated revenues that could be derived from any proposed fee structures. RECOMMENDATION It is recommended that the City Council determine that this action does not constitute a project under the California Environmental Quality Act (“CEQA”); and approve, authorize, and direct the City Manager to execute an amendment to the Professional Services Agreement with Raftelis Financial Consultants, Inc. to include a Water and Sewer Capacity Fee Study in the amount of $19,960. Attachment: Amendment No. 1 to the Professional Services Agreement AMENDMENT NO. 1 TO THE PROFESSIONAL SERVICES AGREEMENT REGARDING WATER AND SEWER RATE STUDY BY AND BETWEEN THE CITY OF ARCAIDA AND RAFTELIS FINANCIAL CONSULTANT, INC. This Amendment No. 1 (“Amendment No. 1”) is hereby entered into this ____ day of ________________, 2025 by and between the City of Arcadia, a municipal corporation of the State of California, and Raftelis Financial Consultant, Inc., a California Corporation, with respect to that certain Professional Services Agreement between the parties dated September 3, 2024 (“Agreement”). The Parties agree as follows: 1. Pursuant to Section 1 of the Agreement, the Scope of Services is hereby amended as set forth in the attached Exhibit “A”. 2. Pursuant to Section 2 of the Agreement, Compensation is hereby amended as set forth in the attached Exhibit “B” to include a Water and Sewer Capacity Fee Study in an amount not to exceed Nineteen Thousand, Nine Hundred Sixty Dollars and No Cents ($19,960.00). 3. All terms and provisions of the Agreement not amended by this Amendment No. 1 are hereby reaffirmed. In witness whereof the Parties have executed this Amendment No. 1 on the date set forth below. CITY OF ARCADIA RAFTELIS FINANCIAL CONSULTANTS, INC. By: By: Dominic Lazzaretto City Manager Title: Dated: Dated: By: ATTEST: Title: Dated: City Clerk APPROVED AS TO FORM: CONCUR: Michael J. Maurer Paul Cranmer City Attorney Public Works Services Director Exhibit “A” Scope of Services The Scope of Services for the Water and Sewer Rate Study are hereby amended to include and incorporate a Water and Sewer Capacity Fee Study. The following new tasks to the Agreement dated September 3, 2024, shall include, but are not limited to the following: Consultant shall consult with City staff to understand how capacity fees are currently assessed and what costs they recover. Based on the understanding gained from this discussion Consultant will develop a proposed approach and provide the City with a comprehensive data request. Consultant will then review all relevant documentation, including the water and sewer engineering master plants, the City’s Urban Water Management Plan, and the City’s rules/regulations for capacity fees. A key decision point in the capacity fee calculation process is the determination of the appropriate methodology to use. There are three industry-standard methods for the calculation of capacity fees: • Buy-In Approach: Appropriate for utilities with existing available infrastructure capacity to meet projected demand • Incremental Approach: Appropriate for utilities with existing infrastructure capacity constraints that must construct significant new infrastructure to meet projected demand • Hybrid Approach: Appropriate for utilities with some available existing infrastructure capacity but also a need to construct new infrastructure to meet projected demand The capacity fees we develop will be based on industry practices and in full compliance with California legal standards as contained in California Government Code Sections 6600 - 66025. This will include compliance with the requirements of California’s Mitigation Fee Act and general legal principles related to impact fees. Under California law, “fees,” as opposed to “taxes,” can be adopted without the two-thirds vote of the public as required by Proposition 13. The State of California Mitigation Fee Act, also known as AB 1600 and codified in Sections 66000-66025 of the California Government Code, establishes a requirement for “nexus” in the Buy-In Method The buy-in approach is most suitable when the current utility system has excess capacity to accommodate growth. It is also the most common methodology. The buy-in approach rests on the premise that new customers are entitled to service at the same “price or cost” as existing customers. However, existing customers have already developed the facilities that will serve new customers, including the costs associated with financing those services. Under the buy-in approach, new customers pay an amount equal to the net investment (accounting for depreciation) already made by existing customers, based on the value of the utility. The value is normally established using the cost approach of replacement cost less depreciation. There are two variations of the buy-in approach: the system buy-in and the equity buy-in. For the system buy-in, the system value is divided by the ultimate system demand to determine the proposed capacity fee. For the equity buy-in, the system value is divided by the current demand. Incremental Method The incremental method is a forward-looking calculation and can be used when substantial new investment in capital facilities is required to serve new customers. Stated simply, it is the value of the new facilities divided by the total capacity of the new facilities. Hybrid Method A hybrid approach can be used when new customers will use both current excess capacity in existing facilities and new facilities. Mathematically, it is the weighted average of the buy-in method and the incremental method. establishment of a development fee. The nexus requirements are that: 1) a development fee is directly related to the impacts of the development and 2) the fee is roughly proportional to the cost of serving the project. Task 1: Water Capacity Fee Study Determination of the Calculation Methodology Raftelis will provide information to the City on the industry standard capacity fee calculation methodologies (mentioned above) and work with the City to choose the appropriate methodology to be used in the City’s water capacity fee study. Valuation of Water Infrastructure Informed by the chosen calculation methodology, Raftelis will develop a water capacity fee model that reflects either, or both, of the following: • Existing Infrastructure: An infrastructure valuation for each major existing functional component of the water system. For existing assets, the valuation will be based on “replacement cost less deprecation” (RCLD). The replacement cost will be developed using the construction cost inflation factors published in the Engineering News-Record (ENR CCI). The value of growth-related infrastructure will be based on present value as expressed in 2024 dollars. If the City’s fixed asset subsidiary ledger does not contain an adequate level of information to develop a replacement cost estimate using these construction cost inflation factors (for example, inadequate information on the function performed by major assets), then an alternative valuation method will be selected in consultation with City staff. • Planned Infrastructure Expansion: The present value of projected water growth- related infrastructure expenditures contained in the City’s current capital improvement plans. As part of the infrastructure valuation process, outstanding debt principal used to finance existing system water infrastructure will be subtracted from the RCLD valuation. Accumulated cash reserves will be added to the RCLD valuation. Determination of Customer Demand For the Buy-In Method, Raftelis will estimate the number of equivalent residential units (ERU) currently served by the City’s existing water system. The number of ERUs will reflect the number of equivalent connections of the appropriate meter size (e.g., 3/4”) calculated for the City’s water system using your current meter technologies and associated maximum meter flow rates. For the Incremental Method, Raftelis will project the number of future ERUs that can be served by planned growth-related infrastructure additions. This estimate will be based on residential customer household density and GPCD water usage. As part of this process, Raftelis will analyze billing data for existing customers, consult your current Urban Water Management Plan, and the most recent engineering master plan. Calculation of the Water Capacity Fee Based on the work completed in the above subtasks, Raftelis will calculate the following: • The baseline water capacity fee expressed on a $/ERU basis (e.g., for a 3/4” equivalent connection) • A water capacity fee assessment schedule for each water meter size served by the City’s water system Task 2: Sewer Capacity Fee Study The process used to calculate the sewer capacity fees will be similar to that used for the water capacity fee. Raftelis will work with the City to determine the basis which is appropriate for the sewer capacity fee study. At present, Raftelis assumes the City will wish to use ERUs as the basis for calculating sewer capacity fees. However, other metrics may be used. Determination of the Calculation Methodology Raftelis will work with City staff to determine the appropriate methodology for the sewer capacity fee study (i.e., Buy-In, Incremental, Hybrid). Valuation of Sewer Infrastructure The RCLD of sewer infrastructure will be calculated using the following key inputs: • Existing and planned future sewer infrastructure directly owned by the City • Existing and planned future sewer infrastructure shared with the Los Angeles County Sanitation Districts As part of the infrastructure valuation process, outstanding debt principal used to finance existing system sewer infrastructure will be subtracted from the RCLD valuation. Accumulated cash reserves will be added to the RCLD valuation. Determination of Customer Demand Pending discussions with City staff, ERUs will be calculated based on the chosen ERU basis. Calculation of the Sewer Capacity Fee Based on the work completed in in the above sub-tasks, Raftelis will calculate the following: • The sewer capacity fee expressed in a baseline $/ERU basis Task 3: Comprehensive Reports Raftelis will complete a comprehensive report discussing the assumptions, calculation methodologies, and recommended water and wastewater capacity fees calculated in Tasks 2 and 3 above. Proposed Project Team The Raftelis project team will consist of the same personnel who are currently assigned to the City’s Water and Sewer Rate Study: • Sudhir Pardiwala, Project Director • John Wright, Project Manager • Katelyn Milius, Lead Consultant • Nick Kennedy, Staff Consultant Exhibit “B” Schedule of Charges/Payments Consultant will invoice City on a monthly cycle. Consultant will include with each invoice a detailed progress report that indicates the amount of budget spent on each task. Consultant will inform the City regarding any out-of-scope being performed by Consultant. This is a time-and- materials contract. Compensation shall be based on time and materials spent in accordance with the following tasks, not to exceed the total Amended compensation listed below: The schedule of prices is attached as attachment “A” to this Exhibit “B.” Water and Sewer Capacity Fee Study - $19,960.00 Total Compensation (for additional study) - $19,960.00 The total compensation shall not exceed the total listed without written authorization in accordance with Section 2 (b) of the Agreement dated September 3, 2024. The project timeline is attached as attachment “A” to this Exhibit “B.” Attachment “A” to Exhibit “B” Tasks Web Meetings Hours Total Fees & Expenses SP JW SC/KM Admin Total Task 1: Water Capacity Fee 1 1 6 18 1 26 $6,640 Task 2: Wastewater Capacity Fee 1 1 4 16 21 $5,410 Task 43: Comprehensive Report 1 1 6 24 31 $7,910 Total Meetings / Hours 3 3 16 58 1 78 Hourly Billing Rate $400 $320 $220 $100 Total Professional Fees $1,200 $5,120 $12,760 $100 $19,180 SP = Sudhir Pardiwala, Project Director JW = John Wright, Project Manager Katelyn Milius, Lead Consultant Admin = Raftelis Administration Total Fees $19,180 Total Expenses $780 Total Fees & Expenses $19,960 Proposed Project Schedule Proposed schedule is completion of the study in three months from the notice to proceed.