Additionally, plant staff is embarking on a study to evaluate the condition and expected remaining useful life of existing plant infrastructure. This study will identify optimum replacement timeframes for various plant facilities, as well as evaluating the benefits of changing how the plant might operate in the future.  It may be more cost-effective to replace complete systems rather than a one to one replacement of existing equipment or components.  This study is anticipated to be completed during FY 04-05. Staff will take the results of this study, and review the condition of the City’s wastewater infrastructure during this year’s project process with the goal of identifying the quantity and magnitude of projects that will need to occur over the next 20 to 40 years.

EXISTING POLICY

Fiscal Sub Element Goal 7.1B states “Maintain sound financial practices which meet all applicable standards and direct the City’s financial resources toward meeting the City’s long term goals.”

Fiscal Sub Element Goal 7.1C states “Provide a framework for the wise and prudent use of debt.”

Sanitary Sewer Sub Element Goal 3.3B states “Continue to operate and maintain the wastewater collection system so that all sewage and industrial wastes generated within the City are collected and conveyed under safe and sanitary conditions to the Water Pollution Control Plant.”

Sanitary Sewer Sub Element Goal 3.3C states “Continue to operate and maintain the Water Pollution Control Plant, using cost effective methods, so that all sewage and industrial wastes generated within the City receive sufficient treatment to meet the effluent discharge and receiving water standards of regulatory agencies.”

DISCUSSION

The attached report titled “Status Report on Wastewater Infrastructure Projects and Use of Proceeds from Water and Wastewater Revenue Bonds Series 2001,” (Attachment A) is written to provide Council an update on the rehabilitation and replacement of wastewater infrastructure and an update on the use of the proceeds from the Bonds.

Staff’s experience over past several years has confirmed that, it is more difficult to accurately estimate the cost of rehabilitation and repair work for existing facilities than to estimate costs for new facilities. Rehabilitation of an existing facility involves additional work, including review of as-built drawings to determine the presence of other utilities and structures that may not be visible but may conflict with the desired configuration of the rehabilitation.  More in-depth inspection of facilities to determine the extent of corrosion may be required to assess how much rehabilitation is needed.  Such complicating factors may increase the project cost estimate above what was estimated at the planning phase.

The estimates for individual project costs included in the original bond proposal were based on preliminary analyses. Estimates for some projects have turned out to be too low, while others, such as the Borregas sewer line project that is also currently before the Council for approval, have excess funding.

As a result, staff is recommending through the attached report and Fiscal Impact section of this Report to Council,  that adjustment and redistribution of project budgets be made to more closely align the budgets with current cost estimates.  It may be necessary to make changes in the future to project budgets, and staff will return to Council if and when additional changes are required.

FISCAL IMPACT

The City has a large number of wastewater collection and treatment system projects underway (See Attachment B).  These are all projects that are funded in the adopted FY 2004/2005 budget. 

Current funding for wastewater projects is provided from two sources, wastewater rate revenues, and proceeds from the Water and Wastewater Revenue Bonds Series 2001.  The Bonds are written so that flexibility in project funding is provided as long as the funding is used for projects that are capital or infrastructure in nature.  This has allowed the opportunity to modify, make additions to, or add projects as necessary.  Funding for long-term infrastructure will need to continue to be done with a combination of rate revenue and some other form of financing.  For example, another bond issue or state and federal loans or grants might be used.

Staff has been applying proceeds from the Bonds to wastewater capital and infrastructure projects on an as expended basis.  Of the original $12,536,848 in proceeds, $2,464,939 has been spent, leaving $10,071,909 in unspent proceeds.  

Budget Modification #6

Staff is proposing the modification of several wastewater project budgets to conform to current projected costs.  In order to modify the budgets for the affected wastewater projects, Council must first approve the carry over of the remaining FY 2003/2004 project budgets, as identified in Table 1 of Attachment C.

To complete the Budget Modification, Council must then approve the re-appropriation of funds to the various projects outlined in Table 2 of Attachment C.  Table 2 lists the wastewater capital improvement projects that staff recommends for modification.  The table shows the existing budget for the individual projects, the FY 2003/2004 carryover amount, the proposed increase or decrease in budget based on the most recently available cost information, a revised estimate (the proposed new project budget), and any relevant comments. 

Through this Budget Modification, staff is recommending the redistribution of funds among projects to meet the current needs of each project.  The modifications to each project are for FY 2004/2005 project budgets only.  Some of these projects have additional budgeted funds in future years, and others are simply design projects, or only provide enough funds to begin replacement of a system.  It is likely that projects of this nature will result in requests for additional funding in the future.  For example, the Digester Lids Renovation project only has funds to design and plan the renovation of the lids.  Once this stage is completed, staff will have a clearer understanding as to what will be required to complete the project.  This knowledge will likely result in a request for significant additional funding to complete the renovation of the digester lids.

This Budget Modification will result in an overall surplus of $1,148,212.  Staff is proposing that this be returned to Resource Allocation Plan Reserve of the Wastewater Management fund for re-appropriation in the upcoming CIP budget cycle. 

Conclusion

It is prudent at this time to reallocate existing wastewater infrastructure management resources between approved capital improvement projects, in order to ensure the success of the infrastructure program and the bond financing program.

PUBLIC CONTACT

Public contact was made through posting of the Council agenda on the City's official notice bulletin board, posting of the agenda and report on the City's web page, publication of the Council agenda in the San Jose Mercury News, and the availability of the report in the Library and the City Clerk's Office.

ALTERNATIVES

1.      Accept the Wastewater Infrastructure Projects and Bond Program Status Report and approve Budget Mod #6.

2.      Do not approve any changes to Wastewater Management CIP and leave existing project budgets in place.

RECOMMENDATION

Staff recommends Alternative #1: Accept the Wastewater Infrastructure Projects and Bond Program Status Report and approve Budget Mod #6.

Prepared by:

Lorrie B. Gervin
Environmental Division Manager

Reviewed by:

Marvin A. Rose
Director of Public Works

Mary Bradley
Director Finance

Approved by:

Amy Chan
City Manager

ATTACHMENTS

A.     FY 2003/2004 Project Budgets Carryovers and Proposed Changes to FY 2004/2005 Capital and Infrastructure Project Budgets. (.doc format)
B.      FY 04-05 Adopted CIP Budget (pdf format)
C.     FY 2003/2004 Project Budgets Carryovers and Proposed Changes to FY 2004/2005 Capital and Infrastructure Project Budgets. (.doc format)