TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Steve S. Charelian, Finance Director
Julie Bondarchuk, Financial Controller
SUBJECT:Title
Discuss Storm Drain Utility Fee Engineer’s Report and Stormwater Fee Survey Results, Approve Storm Drain Utility Fee report, and Consideration of a Resolution to Initiate a Proposition 218 Process, Set Protest Hearing Date to November 7, 2023, and Authorize Mailing of Protest Notices (Finance Director Charelian).
(Estimated Time: 45 Min.)
A) DISCUSS AND PROVIDE DIRECTION
B) ADOPT RESOLUTION NO. 23-0118 TO APPROVE STORM DRAIN UTILITY FEE REPORT, INITIATE A PROPOSITION 218 PROCESS, SET PUBLIC HEARING DATE TO NOVEMBER 7, 2023, AND AUTHORIZE MAILING OF PROTEST NOTICES
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RECOMMENDATION:
Staff recommends that the City Council discuss results of the proposed Stormwater Engineer’s Report and Survey and provide direction on whether to proceed with a Proposition 218 process.
If City Council would like to proceed with a Proposition 218 process, then staff recommends that City Council adopt Resolution No. 23-0118 to:
A) Approve the Storm Drain Utility Fee report;
B) Initiate a Proposition 218 Process;
C) Set Public Hearing Date to November 7, 2023; and
D) Authorize mailing of protest notices.
FISCAL IMPLICATIONS:
The Stormwater Fund operates on a deficit and has required General Fund subsidies since Fiscal Year (FY) 2015-2016. Stormwater fees have not been increased since the program’s inception in 1996 with single-family residences paying a fixed rate of $19.12 annually. Stormwater assessment revenues totaled $388,000 in FY 2022-2023 with estimated operating expenditures totaling $1.07 million, excluding capital projects. With additional Stormwater and Safe Clean Water Program projects looming on the horizon, forecasts indicate that the General Fund will be severely impacted if no action is taken to address the lack of funding.
A Proposition 218 process is required to increase Stormwater fees. If passed, new assessments for the average single-family resident will total approximately $129 and provide about $2.0 million of annual revenue to the Fund during the first year of implementation. Annual Consumer Price Index (CPI) adjustments will be applied to subsequent years ensuring that the fund balance will keep pace with inflationary pressures.
BACKGROUND:
On April 2, 2023, Finance staff presented a report on Revenue Enhancements to the Finance Subcommittee (FSC). The report identified the Stormwater Fund as an enterprise fund that requires attention. Ideally, enterprise funds should be self-sustaining, with incoming revenues covering outgoing costs. However, the Stormwater Fund has been operating at a deficit for many years and has required over $6 million of General Fund subsidies over the past five years. An additional $11.6 million of General Fund subsidies is projected for the next six years with $8.35 million attributed to capital projects. A list of capital projects in the Stormwater Fund is attached to this report.
While it is not unusual for cities to subsidize certain fees or operations, the amount of General Fund subsidies projected for the Stormwater Fund continues to increase annually and has the potential to crowd out funding to General Fund services. Although the General Fund is structurally balanced with reoccurring revenues covering reoccurring expenditures, the transfers out are projected to wipe out the unreserved General Fund balance in the next two years. Services funded by the General Fund may be impacted or the City may have to defer capital projects to balance future budget years. During the meeting, the Finance Subcommittee recommended staff move forward to City Council with a consideration for a Stormwater fee increase and indicated a preference for a Proposition 218 process with mailed ballots that requires a majority vote, as opposed to a measure on the ballot at the next election with requires two-thirds vote to pass.
On May 16, 2023, staff presented a report to City Council on the status of the Stormwater Fund and its effect on the General Fund. The report also highlighted options of proceeding with a Proposition 218 process to raise Stormwater rates or putting a ballot on the November 2024 general election. City Council approved going forward with obtaining an engineer’s report with updated rates and conducting a survey to poll constituent sentiment on a proposed Stormwater fee increase.
DISCUSSION:
The results of an updated engineer’s report and survey are attached for City Council to review and decide on whether to proceed with a fee increase. A brief summary of the results are as follows:
Engineer’s Report
Since the last Stormwater engineer’s report was performed in 2019, there have been changes, including the addition of mandated projects as part of the Safe Clean Water Program. Although grants may cover the construction phases of the projects, it is up to the City to provide maintenance on the infrastructure and equipment so that it continues to function as intended.
The City contracted with the engineering firm, Harris & Associates, to provide an updated rate analysis. The firm obtained the City’s current Stormwater budget and five-year capital improvement plan to calculate an updated rate. Rather than a fixed rate for all single-family residences, the proposed rate would be based on the impervious square footage of a property. Since Los Angeles County already has a defensible methodology and exemption program, the City would use the same impervious square footage data that Los Angeles County uses for Measure W.
The rate calculated by Harris & Associates to fund current operations and capital projects is set at 0.04602 cents per impervious square foot. This rate would set the average single-family residential fee at approximately $129 annually. Approximately $2.0 million of annual revenue would be generated from the proposed rate to cover operations and build up reserves to fund capital infrastructure and maintenance. The proposed measure would also provide for an annual CPI adjustment.
Survey
The City engaged the firm True North to conduct a statistically valid survey to poll constituent sentiment towards a potential Stormwater measure. Responses from the poll of 423 property owners indicated 59-62% support of the measure.
True North reached out to property owners by email, text, or telephone calls. The property owners were selected based on stratified random sampling using fee categories, partisanship, and sub-geographies. A sample ballot was tested three times, with 62% support on the initial first test, 60% support on the second test after supporting arguments, and 59% support on the final test after opposing arguments. Overall, the survey indicated that there would be positive support for a Stormwater measure.
Next Steps
After considering the result of the engineer’s report and survey, City Council can consider accepting the engineer’s report and proceeding with a Proposition 218 process or placing a measure in the upcoming general election in November 2024.
If City Council decides to proceed with a Proposition 218 process, the proposed timeline is as follows:
|
Date |
Action |
|
September 5, 2023 |
Approve Engineer’s Report |
|
|
Adopt Resolution to: |
|
|
Proceed with a Proposition 218 process |
|
|
Set Public Hearing for November 7, 2023 |
|
|
Authorize Mailing of Protest Notices |
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|
|
|
|
|
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September 22, 2023 |
Mail Property Owner Protest Notices |
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At least 45 days prior to Protest Hearing |
|
November 7, 2023 |
Public Hearing and Protest Tabulation |
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If more than 50% protest received, the fee fails. |
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If majority protest is not received: |
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Set Public Hearing for January 2, 2024 |
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Authorize Mailing of Ballots |
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November 17, 2023 |
Property Owner Ballot Mailing |
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At least 45 days prior to Public Hearing |
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December 14, 2023 |
Publish 1st Notice of Intent to Collect |
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At least 14 days before Public Hearing |
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December 21, 2023 |
Publish 2nd Notice of Intent to Collect |
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At least 5 days after publishing 1st notice |
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January 2, 2024 |
Public Hearing and Ballot Tabulation |
|
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Must receive at least 50% approval of cast ballots to pass |
A Proposition 218 process would require majority support of ballots cast to pass. If City Council decides to proceed with this route, then the earliest that the rates can be effective is in FY 2024-2025.
POLICY ALTERNATIVES:
1. The Stormwater measure can be placed on the November 2024 general election. However, this option will require two-thirds voter approval of ballots cast to pass. Additionally, with the timing of when rates need to be submitted to LA County, the earliest the rates can be effective is for FY 2025-2026.
2. City Council can decline to pursue a Stormwater fee increase. Based on forecasts in the Proposed Operating Budget presented to City Council on May 2, 2023, service levels may be impacted or the City may have to defer capital projects to balance future budgets if no action is taken to make Stormwater operations more self-sustainable.
CONCLUSION:
Finance Subcommittee and staff recommends proceeding with a Proposition 218 process.
PUBLIC OUTREACH:
Upon City Council deciding to proceed with a Proposition 218 process, the Finance department, the Communications team, and Legal will develop a plan and distribute information material to constituents.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Resolution No. 23-0118
2. Stormwater Fee Survey Summary Report
3. Storm Drain Utility Fee Engineer’s Report
4. Stormwater Capital Projects
5. PowerPoint Presentation