SunnyvaleRTC

April 27, 2004

SUBJECT: Proposed FY 2004/2005 Utility Rates (Continued from April 20, 2004)

As part of our yearly process of reviewing the financial condition of the utility operations, staff recommends that the City Council adopt annual changes in utility rates. As a result of recommendations for FY 2004/2005, monthly costs associated with water, wastewater, and solid waste collection services for an average residential customer would increase by 4.6% overall. This represents monthly increases to the average residential customer of $1.01 for water, $0.94 for wastewater and $1.08 for solid waste collection services, yielding an average monthly residential utility bill of approximately $68.82 at the new rates. The City’s commercial rates will increase by the same overall percentage as residential rates.

Recommended increases are as follows:

Water 5%

Wastewater 5%

Solid Waste 4%

It is important to note that even with the rate changes recommended above, Sunnyvale residents enjoy utility rates that are 42% lower than the average of surrounding communities, (see Attachment 1). This represents annual savings of approximately $346 per household. Commercial customers enjoy rates that are competitive with surrounding communities (see Attachment 2).

Rates would be effective upon adoption of the attached Rate Resolution and appear on utility bills on or after July 1, 2004.

Fiscal Impact

The proposed utility rate changes are necessary to maintain the funds in a sound financial condition. Again, even with the proposed rate changes, Sunnyvale’s utility rates are among the lowest when compared to current rates charged in other cities. Attachment 1 compares Sunnyvale’s proposed rates with current rates in the other cities because information on proposed rates in other cities was unavailable (except where noted) at the time this report was prepared. The same wholesalers provide water in varying percentages to all of the jurisdictions surveyed. Therefore it is likely that the wholesale cost increase will soon be seen in water rate increases by other jurisdictions. This will make the utility bill savings enjoyed by Sunnyvale ratepayers even larger as compared to other local cities.

Public Contact

Public contact is provided via publication and posting of the City Council Agenda. A postcard announcing the date of the Utility Rate Hearing was mailed directly to customers. An ad announcing the hearing was placed in the Sunnyvale Sun the week of April 12. The Economic Development Manager notified various business associations within the City of the availability of this report. Reports to Council are also available in the Sunnyvale Library and on the City’s Website. Once the rates have been adopted, an insert specifying the utility rate changes will be enclosed in every utility bill.

Recommendation

Staff recommends that the City Council adopt the attached resolution establishing the aforementioned water, wastewater, and solid waste collection rates.

Attachments (pdf format)

1. Monthly Utility Bill Comparisons-Single Family Residential
2. Monthly Utility Rate Comparisons-Commercial
3. Proposed Water Supply and Distribution Fund Long Term Financial Plan
4. Water Rate Survey
5. Proposed Wastewater Management Fund Long Term Financial Plan
6. Wastewater Budget Supplement
7. Wastewater Rate Survey
8. Proposed Solid Waste Management Fund Long Term Financial Plan
9. Solid Waste Rate Survey
10. Proposed Resolution

BACKGROUND

Sunnyvale utility rates are based entirely on the City’s costs for operating and maintaining its water, wastewater and solid waste facilities and services. Each of the City’s utilities is operated as an independent enterprise, and all expenses and revenues for each service are accounted for separately. No tax revenues are used to cover the costs of utility services, nor are any revenues from water, wastewater or solid waste fees used to support other City programs or services not related to utilities. It is important to note that the practice of long term planning and the use of a rate stabilization reserve have enabled the City of Sunnyvale to maintain utility rates at the lowest possible level by spreading the effects of anticipated operational and infrastructure costs over 20 years. The rate stabilization reserve enables each of the utility funds to maintain a fairly consistent pattern of rate adjustments over the entire 20 years, minimizing volatile swings in rates which would otherwise occur due to unanticipated increases or decreases in cost in a particular year.

Each year as part of the budget process, staff analyzes the current condition of and long-term outlook for the Water Supply and Distribution, Wastewater Management and Solid Waste Management Funds. These analyses are referred to as the Long Term Financial Plans. They include a review of available fund balances, state and federal environmental requirements, anticipated capital, infrastructure, and operational requirements, revenues, and a detailed inspection of significant expenditure areas (e.g. the anticipated cost of purchased water, forthcoming regulations related to solid waste disposal and wastewater discharge, etc.). The results of this analysis lead to the increase in revenue requirements (rate recommendations) made to the City Council that will generate the revenues necessary to meet planned expenditures.

The City attempts to keep utility rates as stable as possible while maintaining high quality and efficient services through long-term planning. Only rates are being brought forward at this time. The full expenditure budgets for the water, wastewater and solid waste programs will be subject to Council review and approval as part of the FY 2004/2005 budget process.

EXISTING POLICY

Sunnyvale Municipal Code sections 8.16.120 (Solid Waste), 12.16.020 (Wastewater) and 12.24.010 (Water) authorize the City Council to establish by resolution fees and charges based on cost influencing factors. Policy 7.1B.10c of the General Plan’s Fiscal Sub-Element states that enterprise costs shall be fully offset by user charges and fees derived from enterprise activity.

DISCUSSION

WATER SUPPLY AND DISTRIBUTION FUND

FY 2003/2004 Actual and Planned Rates Compared to FY 2004/2005 Recommendations

Water rates increased by 10% in FY 2003/2004. The FY 2003/2004 Water Supply and Distribution Fund Long Term Financial Plan included a planned increase of 4.0% for FY 2004/2005. The remainder of the rate projections included in last year's Plan are shown at the bottom of the Water Supply and Distribution Fund Long Term Financial Plan (Attachment 3). The proposed rate for FY 2004/2005 is 5%.

Factors Influencing Water Fund Expenditures

The FY 2004/2005 Twenty Year Water Forecast

The first step in setting the revenue requirement for the Water Supply and Distribution Fund is the completion of the Twenty Year Water Forecast. This planning tool is used to develop projections for water purchases for the next twenty years.

Sunnyvale currently receives water from four different sources. Approximately 40% comes from the San Francisco Public Utilities Commission (“SFPUC/Hetch Hetchy”), 48% from the Santa Clara Valley Water District (“SCVWD”), 6% from well water and the remaining 6% from recycled water. Sunnyvale has a separate contract with the SFPUC, in accordance with a Master Contract that SFPUC has with all the suburban agencies who purchase water from the SFPUC. That contract, signed in 1984 for a 25 year period, will expire in 2009. It is expected that a new contract will replace the old one at that time, though the details have yet to be negotiated. The City’s contract with SCVWD was signed in 1981 and is for a period of 70 years.

A significant portion (66.8%) of the Water Fund’s expenditure budget is the cost of purchased water. Currently, the City is paying SFPUC $479 and SCVWD $460 per acre-foot of water. The forecast anticipates a cost for FY 2004/2005 of $503 per acre-foot for SFPUC water (plus $267,336 per year in metering charges) and $495 per acre-foot for water purchased from SCVWD.

The City also receives charges in the form of a pump tax from the SCVWD for pumping ground water from its wells. Costs for wells are also influenced by power costs associated with running the pumps. The projected well water total unit cost (tax plus power) for FY 2004/2005 is $487 per acre foot.

Finally, the City’s Water Pollution Control Plant (“WPCP”) provides recycled water as part of the Water Reclamation Project begun in 1993. Recycled water is wastewater that has been treated to very high standards; recycled water currently provides landscaping water for the Sunnyvale Municipal Golf Course, Baylands Park, Twin Creeks softball complex and several commercial businesses in the Moffet Park commercial/industrial area. The cost for recycled water is borne by both the Water Supply and Distribution Fund and the Wastewater Management Fund. The latter funds a portion of the operation as the Water Pollution Control Plant benefits from the diversion of water from discharge to the San Francisco Bay.

In addition to the environmental benefits provided by recycled water, the City receives a $115 per acre foot rebate from the SCVWD to encourage its use of recycled water. As recycled water is provided only on the north end of the City, where the majority of water comes from the SFPUC, the rebate, as a practical matter, reduces the unit cost of SFPUC water. The rebate is based upon a contractual agreement between the City and the SCVWD from 1997. The original contract envisioned a 25 year period of rebates, with renewal at 5 year increments. However, SCVWD is considering alternative ways to fund recycled water, and the first renewal was for only 3 years, through fiscal year 2004/2005. SCVWD has expressed an interest in funding more recycled water projects, rather than providing a rebate for water production. Since their proposal is unclear at this time, we are reflecting the economic benefit of recycled water through the rebate rather than reduced expenditures until such time as better information is available. An analysis of the total unit cost of recycled water (including the avoided environmental costs of discharging to the San Francisco Bay) will be performed during FY 2004/2005 as part of a planned Water Cost of Service Study.

Prior to preparing the Twenty Year Water Forecast, staff obtains projections from each of the City's water wholesalers for next year and beyond. These increases are projections and are subject to change, and in fact have a history of changing significantly. As our experience tells us that projections from the SFPUC are unreliable, their projections beyond 2005 have been adjusted by staff to be no less than 6%. Below are the preliminary projections received by staff from our water wholesalers in April.

Fiscal Year SFPUC SCVWD

FY 2004/2005 5.0% 7.6%

FY 2005/2006 6.0% 8.1%

FY 2006/2007 6.0% 6.5%

FY 2007/2008 6.0% 7.9%

FY 2008/2009 12.0% 7.3%

FY 2009/2010 18.0%

FY 2010/2011 12.0%

FY 2011/2012 13.4%

FY 2012/2013 6.0%

FY 2013/2014 6.0%

It should be noted that SFPUC’s rates reflect their ambitious Capital Plan that will be discussed later in the report.

Staff begins the actual preparation of the Twenty Year Water Forecast by looking at the total projected amount of water that will be required for the next twenty year, including demand trends, water conservation, as well as for infill and growth consistent with approved regional projections of population and water usage, including new buildings on vacant land and some redevelopment of existing land.

The FY 2004/2005 water usage projection is based on a recent analysis done by the SFPUC for the purposes of sizing the facilities of their capital improvement plan to ensure they can provide an adequate amount of water for the long term. The growth numbers that were used by the SFPUC’s consultant are numbers provided by the Association of Bay Area Governments (ABAG) and are consistent with other assumptions used by the City for similar purposes. The study also assumes the impact of the Plumbing Code, which requires the implementation of water conservation measures (like low flow toilets) at different milestones in the next ten to twenty years.

The next step in the analysis is to take the last year’s actual water purchases, and compare that to the ABAG/SFPUC projection and adjust the near term estimate. This methodology establishes the basic framework that staff uses to plan purchases from the different sources of water.

Finally, staff looks in detail at each source of water supply. This includes evaluating the associated purchase requirements under the contracts for each wholesale supplier, the unit cost for each source, and the projected need for, and availability of, recycled water to supply those customers. The Forecast is developed using the cheapest source of water available over the period, considering contract limitations, sometimes shifting the emphasis on individual supplies dependent on the factors discussed above.

For the first five years of the Forecast, staff maximizes the use of SFPUC water to maximize the benefit provided by the recycled water rebate. Starting in the seventh year (FY 2010/2011) the Forecast maximizes the use of well water, which is currently the City’s most cost effective source of water. However, the bulk of the water still must come from our wholesale suppliers as the wells are only able to generate a limited amount of acre feet before the power costs drive the unit cost for the water above that which is available from our wholesalers. At this same point, the projected acre feet taken from the SFPUC and SCVWD are essentially flattened for the remainder of the 20 year period with the continued use of well water to ramp up purchases to meet the projected demand in FY 2023/2024.

Water Capital and Infrastructure Improvement Plan

The City of Sunnyvale owns, operates, and maintains an extensive water supply and distribution system. The water system is a closed network consisting of three pressure zones. There are ten storage reservoirs at five locations in the City with a total capacity of 27.5 million gallons. The distribution network consists of transmission and distribution mains totaling approximately 280 miles in length, with pipe diameters varying from 4 to 30 inches. Some 10,000 valves provide the means to control and isolate sections of water mains as necessary. Within the City’s service area are pocketed areas that receive water from California Water Service Company.

Currently, the City has planned funding for approximately $17 million in capital and infrastructure improvement projects through FY 2023/2024. These include projects to upgrade and establish new water mains, water lines, upgrade the supervisory control system, pumps and pump stations, reservoirs, and other associated infrastructure.

The SFPUC Capital Improvement Program

The SFPUC’s water system is facing substantial capital improvement needs over the next ten to fifteen years. Outside of the City and County of San Francisco, the system services the City of Sunnyvale and 27 other agencies, collectively known as the “suburban users.” In May 2002, the SFPUC approved a $3.6 billion Capital Improvement Program (CIP) and Long Range Financial Plan. In November 2002, the San Francisco voters approved a $1.6 billion bond measure, the largest ever approved in city history, to fund the San Francisco portion of the project. The remaining portion of the CIP is to be funded by the suburban users.

The SFPUC is focused on implementing the CIP. The projected increases in the cost of purchased water from SFPUC are due to capital improvements and related adjustments to the costs associated with program operations. Specifically, our master water sales agreement with the SFPUC stipulates that they cannot add capital improvements to the rate base until the improvements are actually complete. The fact that the projected purchased water rates are climbing is a sign the SFPUC is beginning to implement projects that have been in the planning stages for many years.

The Bay Area Water Supply and Conservation Agency (BAWSCA)

The City of Sunnyvale, along with the 27 other suburban users that purchase water on a wholesale basis from the SFPUC, is a member of the Bay Area Water Supply and Conservation Agency (BAWSCA). In order to address the infrastructure issues with the Hetch Hetchy system, and the SFPUC’s historic lack of action with regards to the repair and maintenance of the system, three bills, passed by the legislature in August of 2002, were signed into law by Governor Davis on September 24, 2002 and became effective on January 1, 2003. The result of those bills was the creation of the San Francisco Bay Area Regional Water System Financing Authority and the Bay Area Water Supply and Conservation Agency. This agency is tasked with representing the interests of the suburban users with the SFPUC and provides for a funding mechanism for the suburban users share of the capital improvement program for the system.

Perchlorate Contamination in Southern Santa Clara County

In January, 2003, the SCVWD released information regarding widespread contamination of groundwater by Perchlorate in southern Santa Clara County, mainly in the City of Morgan Hill and the area around San Martin. Perchlorate is both a natural and a man-made salt primarily used as an oxidizer in solid fuels for rockets and missiles. Other uses include the production of highway safety flares, fireworks, matches, dyes, lubricating oils, air bag inflators, paints, electroplating and medical specialty tests.

The contamination is currently linked to Olin Corporation, a road flare manufacturer formerly located in Morgan Hill. The extent of the contamination is still being determined and the planning of cleanup and treatment efforts, by both the SCVWD and Olin Corporation have begun. This is relevant as a large percentage of this cleanup may be funded by North County (including Sunnyvale) customers of the SCVWD.

For accounting and rate setting purposes, the SCVWD divides its customers into two major groups, South and North County. North County customers currently pay a significantly higher rate for water than South County customers, largely due to the amount of agricultural use that is prevalent in the South County. The result of this, however, is that the North County’s financial position is better than that of South County. The SCVWD is currently entertaining the possibility of the North County “loaning” the South County funds that would be paid back with interest to help with the costs associated with Perchlorate contamination. It remains to be seen what affect this will have on wholesale rates. The City’s current position on this issue with the SCVWD is that, while there is no objection to the concept of loaning the money, the effect on Sunnyvale’s wholesale rates should be negligible over the long term.

Recommended FY 2004/2005 Water Rate Increase

The Proposed Water Supply and Distribution Fund Long Term Financial Plan (Attachment 3) reflects the recommendation that water charges increase by 5% for FY 2004/2005. This is 1% higher than the rate projected last year for FY 2004/2005. This higher rate reflects an approximate 11% increase in costs of water purchased from our wholesale suppliers.

Projections for the remainder of the Long Term Financial Plan are included on the bottom of Attachment 3.

The Water Rate Survey is presented as Attachment 4. As shown in Attachment 1, Monthly Utility Bill Comparisons-Single Family Residential, the City’s residential water rate remains below average when compared with neighboring cities.

WASTEWATER MANAGEMENT FUND

FY 2003/2004 Actual and Planned Rates Compared to FY 2004/2005 Recommendations

Wastewater rates increased by 7% in FY 2003/2004. The FY 2003/2004 Wastewater Management Fund Long Term Financial Plan included a planned increase of 5% for FY 2004/2005. The remainder of the rate projections included in last year's Plan are shown at the bottom of the Wastewater Management Fund Long Term Financial Plan (Attachment 5). The proposed rate for FY 2004/2005 remains unchanged at 5%.

Factors Influencing Wastewater Management Fund Expenditures

The City of Sunnyvale owns and operates an extensive system for management of wastewater (sewage) within city limits and in a small area outside the city in Northern Cupertino (known as the Rancho Rinconada Service Area). The system includes approximately 327 miles of sewer pipes and a 29.5 million gallon per day ("MGD") Grade V Water Pollution Control Plant. Operations include the purveyance of sewage to the treatment plant, wastewater treatment, recycled water production, industrial discharge inspection and enforcement, and many other services related to wastewater.

Infrastructure maintenance and replacement has been, and remains, the largest issue for the Wastewater Management Fund. The Long Term Financial Plan reflects large infrastructure expenditures on projects that are underway in the early years of the plan. These projects were largely funded by revenues from the Water and Wastewater Revenue Bonds, Series 2001.

Wastewater is also a heavily regulated industry. The constantly changing and tightening requirements on wastewater treatment continue to be an issue in the program, although there were no significant changes for the coming Fiscal Year.

Portions of the treatment plant and collection system are approaching 50 years in age. Staff has made significant progress in the past year identifying projects for the future and working to isolate the cost and life span of various pieces of infrastructure, both at the treatment plant and in the collection system. As they are identified, projects are incorporated into a long-term infrastructure replacement plan which will then drive the financing of the projects and ensure that all wastewater collection and treatment processes are maintained in working order. Potential funding sources are being explored with the goal of minimizing the impact of infrastructure renovation and replacement on rate payers.

Service to Maintain, Repair, and Replace Private Sewer Laterals, and Install Clean-outs on Private Sewer Laterals

For the FY 2003/2004 Utility Rate setting process, staff identified reductions to the wastewater program. One of these reductions was the service to maintain, repair, and replace private sewer laterals, and install clean-outs on private sewer laterals. Per Council direction from the March 10, 2004 meeting, staff has included the restoration of the sewer lateral service as a budget supplement for consideration with this year’s proposed utility rates. (See Attachment 6)

Public Works staff estimates that, if this service is restored, they would respond to approximately 900 – 1000 sewer lateral related calls each year and that this projection would increase over time as the city’s sewer system ages. This work is only offered and performed on properties where sewer laterals have impact street trees.

The FY 2003/2004 total reduction for this service was $274,182. The reduction eliminated 5,193 utility worker hours (equivalent to three positions), and 157 miscellaneous hours for other positions working on the delivery of this service. In addition, the program eliminated approximately $64,400 in purchased goods and services. The supplement seeks to return $333,912. The difference in cost has three principal components:

The majority of the original cut was salary and benefit related expense. The increased cost reflects the projected increases in salary expenses for FY 2004/2005.

Costs for purchased goods and services have been increased to reflect the City's budgetary inflation factor.

The supplement includes $38,545 in fleet rental costs for equipment related to providing this service, that were not included in the original reduction but were reduced later in the budget process as part of the Fleet Management 15% reduction process.

This service is shown on the Wastewater Utility Fund Long Term Financial Plan (Attachment 5) as a budget supplement line item. The supplement provides the base number that must be added back to the Wastewater Management Program in order to restore this service. Staff is recommending approval of this budget supplement and has included the cost in calculating the proposed rates. The total cost of the supplement is approximately 2% of the projected FY 2004/2005 wastewater revenue requirement. If the supplement is not approved, the rates will be reduced by 2% or $0.38 per month for a single family residential customer.

The Wastewater Rate Survey is presented in Attachment 6. All other surveyed cities are served by either the San Jose or the Palo Alto treatment plants, which are under similar regulatory requirements as Sunnyvale. As shown in Attachment 1, Monthly Utility Bill Comparisons-Single Family Residential, the City’s residential wastewater rate is significantly less than average when compared with neighboring cities.

Recommended FY 2004/2005 Wastewater Rate Increase

The Proposed Wastewater Management Fund Long Term Financial Plan (Attachment 5) reflects the recommendation that wastewater charges increase by 5% for FY 2004/2005. This is the same as projected last year for FY 2004/2005.

Projections for the remainder of the Long Term Financial Plan are included on the bottom of Attachment 5.

The Wastewater Rate Survey is presented as Attachment 7. As shown in Attachment 1, Monthly Utility Bill Comparisons - Single Family Residential, the City's wastewater rate remains below average when compared with neighboring cities.

SOLID WASTE MANAGEMENT FUND

FY 2003/2004 Actual and Planned Rates Compared to FY 2004/2005 Recommendations

Solid Waste rates increased by 4% in FY 2003/2004. The FY 2003/2004 Solid Waste Management Fund Long Term Financial Plan included a planned increase of 4.5% for FY 2004/2005. The remainder of the rate projections included in last year's Plan are shown at the bottom of the Solid Waste Management Fund Long Term Financial Plan (Attachment 8). The proposed rate increase for FY 2004/2005 is 4%.

Factors Influencing Solid Waste Fund Expenditures

Solid Waste Collection, Transfer, and Disposal

Sunnyvale’s solid waste system is comprised of three primary operations. Solid waste collection is performed under contract with the City by Bay Counties Waste Services, doing business as Specialty Solid Waste and Recycling ("Specialty"). Solid waste transfer is carried out at the Sunnyvale Materials Recovery and Transfer Station (SMaRT Station^®) by GreenTeam/Zanker company. And Sunnyvale’s solid waste is disposed of at the Kirby Canyon Landfill in San Jose, which is operated by Waste Management.

In budgeting for municipal solid waste management expenses, the most significant factor driving revenues and expenses are tons of solid waste collected, transferred, and disposed. Much like the analysis of purchased water costs in the Water Supply and Distribution fund, staff begins preparation of the Solid Waste Long Term Financial Plan by projecting the amount of material that is anticipated to be delivered to the SMaRT Station.

Staff first sets a base tonnage, and then projects tonnage through the first 10 years of the plan. For forecasting purposes, staff has separately projected residential versus commercial/industrial tons. Residential projections are based on new housing forecasts from the Department of Community Development and are expected to remain relatively flat. The commercial/industrial forecast is based on the 8-year economic cycle of tonnage that is reflected in historical data for the Solid Waste Fund. These projections closely reflect the same economic cycle that has been used to forecast the City's sales tax, property tax, and construction-related fees and reflect the economic sensitivity of solid waste revenues.

Revised tonnage projections for FY 2004/2005 have remained fairly flat from last year’s anticipated projections, dropping only 2% from 108,163 tons to 105,903 tons currently projected. As mention earlier, tons ramp up to 109,746 in FY 2007/2008 and then decrease in the following years, trending the economic cycle.

Proposed Extension of Bay Counties Waste Services Contract to 2018

On November 11, 2003, the City Council reviewed a proposed extension to the Bay Counties Waste Services ("Specialty") contract. Council adopted alternatives to approve the extension of the depreciation for Specialty’s trucks and equipment and directed the City Manager to negotiate and return to Council a contract amendment with Bay Counties Waste Services that accepted Specialty’s proposal to extend the term of the contract. Council also directed that depreciation of trucks and equipment be lengthened to 10 years, with the City to realize 50% of the resulting savings, and required Specialty to submit its operations to a detailed performance review by a consultant to be selected by the City. In addition, the Council required that Specialty pay 50% of the cost of the performance review and make changes to its operations that are identified by the review and approved by the City and incorporate City-desired changes to the contract in the areas of service standards, assignment, and remedies.

The proposed FY 2004/2005 solid waste utility rates include the effects of this council action. The proposed extension of truck and equipment depreciation manifests itself as a savings in the yearly contractor payment. Based on information provided by Specialty, the Long Term Financial Plan also anticipates the receipt of $1,043,830 in one time accrued depreciation savings from Specialty in FY 2004/2005.

Debris Box Rates Adjusted to Cost of Service

The refuse collection rates are intended to capture the cost of providing each service. Cost of Service rates were first established in 1993 following the development of a Cost of Service computer model. Because the underlying costs change over time, the model is updated periodically. Full updates were performed in 1997 and 2002. In between full updates, improvements to specific areas of the model have been performed in order to fine tune the model and improve its accuracy.

Since the 2002 update, staff has worked with Hilton, Farnkopf, and Hobson (HFH) to fine tune the part of the model that determines rates for debris box service. The effort updated the information on the amount of debris box material that is recycled at the SMaRT Station. It also updated the model’s data regarding the number of debris box “pulls” billed to various customer groups to reflect changes in how the City and its customers use the debris boxes.

The results of the changes show that collection rates for debris box services should be lowered to reflect lower costs of service. The exact rate of decrease varies depending on the size (cubic yards) of the box, but the rates will typically be 9-10% lower than they would have been after the 4% overall increase recommend in this report. For example, the FY 2004/05 rate for a typical “dump and return” charge for a 30 cubic yard debris box is recommended as $690.42 rather than $766.95.

After adjustment for the overall rate increases adopted by Council the revised rates for debris box service will be approximately 9-10% less than they would have been otherwise. Debris box service handles significantly less waste and generates less revenue than the residential and commercial services. Thus, staff anticipates that a combination of increased business and revenue likely to result from lower rates, the net impact overall fund revenues will be mitigated. The entire rate model is scheduled to be studied and updated by the Solid Waste Cost of Service Study funded in FY 2006/2007.

Attachment 9 shows the comparative rate position of Sunnyvale and other cities for various levels of solid waste collection service. Attachment 1 (Monthly Utility Bill Comparisons, Single Family Residential) demonstrates that Sunnyvale’s rates remain among the lowest in the area. It is important to remember when comparing surveyed agencies that many do not have garbage rates based on the cost of service to each class of customer, frequently reducing actual rates to residential customers by having higher rates for commercial and industrial customers. Additionally, in Santa Clara, a significant percentage of the cost of yard waste collection is supported by Santa Clara’s General Fund.

Rent for the SMaRT Station

As part of the Six Point Plan used during last year’s budget process, it was identified that there were potential new revenues in the form of rent from the Solid Waste Management Fund, to the General fund for the use of the land the SMaRT Station occupies. The SMaRT Station is located on a parcel of land also occupied by the landfill that records indicate was originally purchased by the City with the intent of establishing a park. The facility resides on 9.5 acres of land (413,820 square feet). The facility serves two main purposes: 1) A refuse transfer facility designed to take refuse from the Partner Cities and transfer it via long haul truck to the Kirby Canyon Landfill in San Jose. 2) As a recycling facility that accepts both curbside recyclables from the Partner Cities and recovers recyclables from the waste stream of each Partner City.

Currently, the City’s General Fund receives no revenue from the Solid Waste Management Fund’s use of this land, even though the Solid Waste Fund receives a benefit for its use. The City Property Administrator did a sampling of assessed land values in the Moffet Park area, which is adjacent to the subject property. The seventeen assessed values located on Java Dr. and Caribbean Dr averaged $25.74 per square foot. The land value of the SMaRT Station would be somewhat depressed on the open market due to its proximity to the closed Sunnyvale Landfill, the Raisch concrete and asphalt recycling facility and the Sunnyvale Water Pollution Control Plant.

Taking into consideration the poor location and impacts of the adjacent facilities, and the fact that Sunnyvale rate payers account for only approximately half of the facility’s solid waste through-put, staff is recommending, with the FY 2004/2005 Solid Waste Rates, that the General Fund be reimbursed by the Solid Waste Fund $11.25 per square foot for the use of the land for a total transfer of $333,602. This transfer is reflected for the full 20 years of the plan, adjusted for inflation.

Recommended FY 2004/2005 Solid Waste Rate Increase

The Proposed Solid Waste Management Fund Long Term Financial Plan (Attachment 8) reflects the recommendation that Solid Waste charges increase by 4% overall for FY 2004/2005. This is lower than the 4.5% increase projected for FY 2004/2005 last year.

Projections for the remainder of the Long Term Financial Plan are included on the bottom of Attachment 8.

The Solid Waste Rate Survey is presented as Attachment 9. As shown in Attachment 1, Monthly Utility Bill Comparisons – Single Family Residential, the City’s residential solid waste rate remains below average when compared with neighboring cities.

MUNICIPAL UTILITIES INFRASTRUCTURE FEE

The City charges a franchise fee to the private utilities that operate in the City for the purposes of covering the impacts from the utility’s operations on city infrastructure. A franchise fee is also charged to Specialty Solid Waste and Recycling. As part of last year’s budget process, staff identified the potential to collect a Utilities Infrastructure Fee from the City owned utilities for their impact on General Fund assets. The Department of Finance has hired a consultant to perform a study on the impact of the City’s wet utilities (Water, Wastewater) to determine the impact of these operations on the City’s street infrastructure. The completion of the study (which is anticipated in the next four months) will provide recommendations on how to allocate reimbursements to the City’s General Fund that will meet the legal requirements associated with implementing a fee of this nature.

Staff has programmed $664,124 a year into the long term financial plans for water and wastewater. This estimate is split in half between the two funds and reflects the transfers that may result from this study. These transfers are reflected for the full 20 years of the plans, adjusted for inflation.

Fiscal Impact

Conclusion

The proposed utility rate changes, which reflect the cost of operations, are recommended in order to continue to maintain high quality service, meet the obligations of state and federal environmental requirements, and maintain the funds in a sound financial condition.

PUBLIC CONTACT

Public contact is provided via publication and posting of the City Council Agenda. A utility bill postcard announcing the date of the Utility Rate Hearing was mailed directly to customers. An ad announcing the hearing was placed in the Sunnyvale Sun the week of April 12. The Economic Development Manager notified various business associations within the City of the availability of this report.

Reports to Council are also available in the Sunnyvale Library and on the City’s Website. Once the rates have been adopted, an insert specifying the utility rate changes will be enclosed in every utility bill.

ALTERNATIVES

1. Adopt the attached resolution establishing the aforementioned water, wastewater, and solid waste collection rates with the proposed cost reductions and corresponding changes to service levels.

2. Adopt rates other than those proposed.

RECOMMENDATION

Staff recommends adoption of Alternative 1.

Prepared by:

Timothy J. Kirby
Revenue Systems Supervisor

Reviewed by:

Mary J. Bradley
Director of Finance

Reviewed by:

Marvin A. Rose
Director of Public Works

Approved by:

Amy Chan
City Manager