MONTARA SANITARY DISTRICT
CONNECTION CHARGE REVIEW
OCTOBER 1997
BARTLE WELLS ASSOCIATES
Independent Public Finance Advisors
1636 Bush Street
San Francisco CA 94109
Tel. 415/775-3113
Note: At the request of Montara Sanitary District, a copy of
this report is available on the Internet at WWW.MONTARASD.GOV.
Bartle Wells Associates is not responsible for the accuracy of
facts or figures shown in any Internet reproduction of the report.
The official version of this report dated October 17, 1997 was
provided directly to Montara Sanitary District.
October 17, 1997
Board of Directors
Montara Sanitary District
8888 Cabrillo Highway
Montara CA 94037
Attn: George Irving, General Manager
Re: Connection Charge Review
We are pleased to submit this connection charge review. The report
develops an equitable connection charge to finance the expansion
component of Sewer Authority Mid-Coastside's (SAM) treatment plant
expansion and improvement project and other capital facilities.
The treatment plant is under construction to double the capacity
to four million gallons per day and correct deficiencies. The
District had formed an assessment district to pay its share of
costs, but the assessment district was invalidated by the San
Mateo Superior Court. The District's 20 percent share of costs
is being funded from advances made by SAM's other two members,
the City of Half Moon Bay and Granada Sanitary District. The connection
charge developed in this report is intended to repay the advances
made on behalf of the District as connection charge revenues become
available. Connection charge revenue is also intended to fund
new development's share of other District capital facilities.
We appreciate the excellent cooperation received from you; the
Finance Committee, (Directors Thollaug and Ptacek); David Dickson,
SAM's general manager; William Rozar, San Mateo County planning
department; Ed Nute, Nute Engineering; and others. We have enjoyed
working with the District on this important and challenging assignment
and look forward to our continued association on future projects.
Very truly yours,
BARTLE WELLS ASSOCIATES
Thomas E. Gaffney, CIPFA
Principal
Audrey Sherlock, CIPFA
Principal
TABLE OF CONTENTS
Summary and Recommendations
Introduction
Montara Sanitary District
General
Equivalent Residential Units
Sewer Service Charge
Connection Charge
Revenues and Expenses
Capital Improvement Program
SAM Regional Wastewater Treatment Facility
Treatment Plant Improvement Project
Cost Allocation
Funding Agreement and Amendment No. 1
Subsequent Participation in the Project by MSD
Growth Issues and Assumptions
Sewer Moratorium
Water Availability
Other Growth-Related Issues
Estimated Future Growth
Benefit Unit Adjustments
Recommended Connection Charge
Accounting for Connection Fee Funds
Timing of New Connections
Connection Charge Adjustments
LIST OF TABLES
Table 1 - Equivalent Residential Units (ERUs)
Table 2 - Sewer Service Charges
Table 3 - Sewer Connection Charges
Table 4 - Revenues and Expenses
Table 5 - Prior Debt Service
Table 6 - 10-Year Capital Improvement Program
Table 7 - Existing Facilities Cost - MSD Share
Table 8 - SAM Phase II - STP Cost Allocation
Table 9 - SAM Phase II - STP Cost Allocation Comparison
Table 10 - Connection Fee Revenue
Table 11 - Estimated Potential Future ERUs
Table 12 - Estimated Growth Alternatives
Table 13 - Future User's Share of Facilities
Table 14 - Connection Charge Components
SUMMARY AND RECOMMENDATIONS
INTRODUCTION
To provide funds to pay its share of treatment plant
improvements at Sewer Authority Mid-Coastside (SAM) regional wastewater
treatment facility, Montara Sanitary District (MSD) formed Local
Improvement District (LID) No. 92-1. The Superior Court of San
Mateo County invalidated LID No. 92-1 on March 12, 1996, saying
essentially that the undeveloped assessed properties would pay
the entire cost of the improvements which they cannot use and
that the water shortage precludes building on the undeveloped
parcels.
For the plant expansion and improvements to proceed on schedule
as mandated by the Regional Water Quality Control Board (RWQCB),
SAM's other members (City of Half Moon Bay and Granada Sanitary
District) have entered into an agreement with MSD whereby they
will advance funds to pay MSD's proportionate share of project
costs, referred to as the "MSD advance". These advances
are to be repaid by MSD as funds become available.
MSD employed Bartle Wells Associates, independent public finance
advisors, to review MSD's current connection charge and recommend
an equitable charge for new connections to the system. This report
develops and recommends a connection charge as the major financing
mechanism for repaying the MSD advance. As these charges are collected,
a proportionate share could be applied toward the MSD advance.
MONTARA SANITARY DISTRICT
General
MSD was formed in 1958 to provide sewage collection
and treatment services for the unincorporated areas of Montara
and Moss Beach. MSD is located on the northern California coast,
south of the City of San Francisco. MSD serves an estimated 1990
population of 5,500 in about a 7-square mile area.
In February 1976, MSD, together with the City of Half Moon Bay
(HMB) and Granada Sanitary District (GSD), formed the Sewer Authority
Mid-Coastside, a joint powers authority, for the purpose of providing
collection, treatment and disposal of wastewater. MSD provides
its proportionate share of the operating costs of the Authority.
The District continues to provide collection services within its
boundaries.
Montara Sanitary District received the powers of a county water
district by special legislation adopted by the state in 1991.
District residents voted overwhelmingly in a regular election
to authorize MSD to assume such powers. Upon completion of the
treatment plant expansion expected in November 1998, the District
will have capacity available which will allow additional connections
to the sewer system. To address the concern of an inadequate water
system which is under a state-imposed moratorium, the District
has taken an active role in an attempt to find alternative sources
of water supply for its residents. See the section titled "Water
Availability" for a discussion of water issues.
Equivalent Residential Units
Table 1 summarizes the equivalent residential units
(ERUs) connected to the District's facilities, by type of customer.
An ERU is defined as a user connected to the system and discharging
a wastewater flow equivalent to that of an average residence.
Based on the ERU count, the majority of the District's users (91
percent) are residential.
Sewer Service Charge
Customers pay a rate per hundred cubic feet (hcf) of
water used based on user category, with a minimum annual charge.
Table 2 shows the minimum annual charge currently in effect and
the charge for the prior year. The District's current rates include
a one-time capital surcharge. The surcharge was enacted by the
District for the purpose of paying a portion of the current users'
share of the treatment plant improvements. The remainder of the
current users share is being financed by a 10-year loan. The current
users share of improvements is being financed by a combination
of funds on hand, the sewer service charge surcharge, and a loan.
The District bills and collects its sewer service charges on the
county property tax bills.
Connection Charge
Table 3 shows a history of the District's connection
charges. Beginning in 1991, with the anticipation of assessment
district financing for treatment plant improvements, the District
developed separate connection charges for parcels inside and outside
the assessment district. A third level of connection charge was
established in 1995 for properties with reserved capacity in SAM,
Phase I. Over the years, certain properties paid standby charges
for the right to obtain a connection when plant capacity became
available, thereby assuring connection to the system exclusive
of Phase II treatment plant expansion costs. Since 1991, because
of the District's moratorium on new connections to the system,
no connection charge revenue has been realized.
Revenues and Expenses
Table 4 summarizes 1995/96, and budgeted 1996/97 and
1997/98 revenues and expenses. The District's 1996/97 budget includes
$450,000 collected by the service charge surcharge to be applied
toward the current users' share of facilities rehabilitation.
Prior to that time, MSD paid project development costs from capital
funds on hand.
Table 5 shows debt service principal and interest on the District's
obligations. In 1982, the District borrowed $132,000 from the
Farmers Home Administration (FmHA) with the final payment due
in 2009. To date the District has made about $84,000 of interest
payments. A balance of $85,000 remains unpaid with interest at
5 percent.
In 1987, MSD issued $1,985,000 certificates of participation (COPs)
to finance a variety of sewer system facilities improvements.
This issue was refunded in 1992 to take advantage of lower interest
rates. Table 5 shows principal and interest paid on the District's
COPs (original issue and refunding) through 1997. The interest
paid amounts to about $1,179,000. During this period MSD repaid
$1,040,000 in principal. Approximately $1,356,000 in principal
and interest comes due in 1998 through 2003, when the certificates
of participation are retired.
The interest paid on the loan and the COPs totaling to $1,263,000
is a component of the connection charge calculation (Table 14).
Capital Improvement Program
Table 6 shows MSD's 10-year capital improvement program
(CIP), beginning in 1996/97. Replacement projects and system repairs
are scheduled over many years. These ongoing projects would continue
beyond 10 years. The 10-year total amounts to about $3.34 million
in 1997 dollars. This amount is included as a component in the
connection charge calculation (Table 14).
The table also shows an allowance for SAM capital improvements.
SAM is currently studying wastewater transport alternatives to
provide for current and future peak flows which include those
from MSD. Many alternatives are being considered, some of which
could assign MSD a capacity share greater than 20 percent because
of non participation by the City of Half Moon Bay. An allowance
of $1,200,000 for MSD's share ($6 million total cost) of a future
intertie pipeline project is included as a component of the connection
charge calculation on Table 14. If the actual costs of the project
differs greatly from this allowance, then the connection charge
calculation should be adjusted as appropriate.
SAM REGIONAL WASTEWATER TREATMENT
SAM was formed by the City of Half Moon Bay, Montara
Sanitary District and Granada Sanitary District for the construction
of facilities for the collection, transmission, treatment, and
disposal of wastewater within the member agencies' respective
boundaries.
SAM's wastewater treatment facility was originally designed for
a treatment capacity of 2.0 million gallon per day (mgd). Original
facilities consisted of an intertie pipeline, pump stations, sewage
treatment plant, and an outfall (sized for 4 mgd). The plant's
capacity was allocated to and paid for by the member agencies
as follows:
HMB 50% (1.0 mgd)
GSD 30% (0.6 mgd)
MSD 20% (0.4 mgd)
The regional wastewater facility is currently under construction
to correct deficiencies and expand capacity from 2.0 mgd to 4.0
mgd.
The plant experienced some violations of the discharge regulations
beginning in about 1990. Then, in July 1995, the Regional Water
Quality Control Board (RWQCB) issued Cease and Desist Order (CDO)
No. 95-150. The CDO requires SAM to satisfy a number of requirements
including a time schedule which mandated start of construction
of the treatment plant improvement project by September 1, 1996
to correct the discharge violations. Construction has begun and
the plant is scheduled for completion in November 1998.
Planning for an expansion of the treatment facility began in the
mid-1980s and the final engineering design was completed in 1993
to increase the plant capacity to 4.0 mgd. It is the intent of
the parties that the participants will share capacity in the expanded
plant in accordance with the percentages shown above and that
each participant will pay its full share of project costs.
Table 7 shows MSD's share of SAM Phase I facilities cost. Certain
Phase I project costs were funded by federal and state grants.
MSD paid for its share of costs from existing reserves and a FmHA
loan. The table also shows MSD's other facilities costs-gravity
sewers, force mains and pump stations, and general plant.
Grant funding regulations restricted the capacity of facilities
eligible for grants. In the case of MSD, only 0.4 mgd of capacity
was eligible. Grant funding did not apply to capacity beyond this
level. If an agency increased the design capacity of a facility
beyond the grant eligible level, then grant funding would be proportionately
reduced.
The availability of previous grants greatly benefits future connections
as many costly facilities are provided at costs well below current
estimates for similar facilities. For example, SAM engineers estimate
that the costs to construct a new 2.0 mgd outfall sewer alone
would likely cost over $15 million. The availability of an existing
outfall with adequate capacity means that no new outfall sewer
needs to be constructed at the full expense of new development.
Facilities have been depreciated according to their useful life,
and adjusted to the current Engineering News Record Construction
Cost Index (ENR CCI) for San Francisco to arrive at a current
cost basis. These costs are the original facilities component
of the connection charge calculation shown in Table 14.
Treatment Plant Improvement Project
Because of the invalidation of MSD's assessment district,
and the need, nevertheless, to begin construction of the project
as ordered by the RWQCB, Carollo Engineers prepared an engineering
study for SAM to determine the feasibility of constructing the
project in phases. Phase II, Part 1 (underway) enlarges the plant
with a capacity rated at not less than 3.71 mgd dry weather flow.
Phase II, Part 1 allows full expansion capacity allocations to
HMB (1.0 mgd) and GSD (0.6 mgd), and limits MSD to 0.11 mgd of
capacity. Completion of Phase II will construct the necessary
facilities to enlarge the plant to 4.0 mgd, and MSD would receive
its full capacity share.
Table 8 shows treatment plant improvement project costs-Phase
II, Parts I and II. Total costs of the first phase are estimated
at $21,332,000. MSD's share of Part I costs is $4,668,000 (20%).
Part II totals $2,387,000; MSD's share is $781,000 (about 33%).
Because of the delay in construction of Part II due to the inability
of MSD to pay its full share of costs, MSD is obligated to pay
100 percent of the design, engineering and construction management,
accounting for the higher percentage of costs. MSD's total obligation
for Phase II is estimated at $5,449,000.
Cost Allocation
MSD's share of costs are allocated according to benefit
between current and future users. As mentioned earlier in this
report, SAM is under a cease and desist order for discharging
wastewater in violation of effluent limits and bypassing portions
of the treatment system. Therefore, costs associated with system
rehabilitation to correct deficiencies are assigned to current
users, and costs associated with expansion are assigned to future
users. For instance, secondary clarifiers and the anaerobic digestion
system benefit current and future users equally. Therefore, costs
are shared equally on the basis of current design flow and future
design flow. However, the primary clarifiers, aeration basins,
and chlorine contact tanks are necessary for expansion and future
users are allotted 100 percent of these costs. Costs such as design,
engineering, and management are assigned a weighted average of
allocated construction costs (39.6% to current users and 60.4%
to future users). Combining all of the above, current users are
responsible for 34 percent and future users are responsible for
66.1 percent of total Phase II costs of $5,449,000. This amount
is a component of the connection charge calculation (Table 14).
A review of all project components was developed in association
with SAM's general manager to arrive at the cost sharing percentages
shown in Table 8. These allocations were then compared to an independent
allocation prepared by GSD's engineers. These two cost allocation
results are quite close. As Table 9 shows, the difference in MSD's
and GSD's current and future users cost-sharing allocation amounts
to only about 1 percent.
Funding Agreement and Amendment No. 1
The intent of SAM is that each member agency would
fund its portion of the project separately. HMB and GSD formed
assessment districts to finance their portion of the project.
MSD's proceedings to form an assessment district were invalidated
by the San Mateo County Superior Court.
Because of the assessment district invalidation, MSD was unable
to pay its full 20 percent share of project costs. To keep the
project on schedule, an agreement was entered into by SAM and
its member agencies whereby HMB and GSD will advance funds to
pay MSD's share of project costs. HMB and GSD are jointly financing
construction by SAM of Part I of the project.
The funding agreement provides the terms for the advancement of
funds on behalf of MSD and states the conditions for repayment.
Under terms of Amendment No. 1 to the funding agreement, MSD will
contribute $1.3 million toward the Phase II, Part I expansion
costs no later than completion of construction, with $700,000
due by July 1, 1997.
The balance of MSD's 20 percent share of Part I costs is being
advanced by HMB (62.5%) and GSD (37.5%). The aggregate of total
costs advanced plus interest, is called the MSD advance. Under
the funding agreement, payments made by MSD on the MSD advance
will be credited first toward interest and then to principal.
Interest accrues on the advance from dates of payment by HMB and
GSD to SAM at an interest rate of 6.8373 percent (calculated on
the weighted average of HMB's and GSD's bonds and other debt financing
costs), with simple interest calculated annually on June 30. The
funding agreement contains no payment schedule. It is the intent
of all participants that MSD will make a best effort attempt to
repay the advance as funds become available from connection charge
revenue.
Subsequent Participation in the Project by MSD
Additional capacity in the plant may be purchased,
if available, in minimum increments of 0.02 mgd at a cost of about
$12,000 per ERU (about $1.1 million for 0.02 mgd). These payments
are not proportional to plant costs per unit of flow. They were
established to generate funds for the repayment of the MSD advance.
The MSD advance and other costs of expanding the SAM treatment
plant should be shared proportionately by all future connections.
Connection charges should not vary depending on which component
of flow capacity a new customer would use. When the advance has
been repaid, MSD's flow allocation will include all plant capacity
in excess of 3.6 mgd, not to exceed 0.8 mgd (20% of total plant
capacity of 4.0 mgd). Part II project construction costs are to
be shared 50/30/20 among the SAM member agencies, except that
MSD will pay all engineering and related expenses.
GROWTH ISSUES AND ASSUMPTIONS
Sewer Moratorium
SAM commissioned a study prepared by Carollo Engineers
in March 1991 which indicated that any additional total suspended
solids and bio-chemical oxygen demand loading beyond that which
is currently received would increase the risk of plant failure
to an unacceptable level. In addition, MSD had reached its treatment
capacity flow limitation of 0.4 mgd. Therefore, in April 1991,
the District imposed a moratorium on the issuance of new sewer
connection permits.
Water Availability
Citizens Utilities Company of California (CUCC) Montara
District provides water service to the area. The Montara District
includes the unincorporated communities of Montara, Moss Beach,
Marine View, Farallon City, and adjacent areas.
CUCC has been under a State of California, Department of Health
Services moratorium since the mid-1980s. Citizens water system
is substandard and in need of major repairs. Deficiencies include
the need for additional wells and pumping systems, additional
storage, extensive water main replacement, necessary filtration
repairs and other related renovations. Because of the state-imposed
moratorium, CUCC is not allowed any additional connections to
the system.
CUCC commissioned Montgomery Watson to prepare a 1996 Water System
Master Plan Update of its 1993 Water System Master Plan for the
Montara District. This update reassessed the existing water system
facilities for meeting fire flow needs, reevaluated potential
sources of additional water, and verified necessary improvements.
To increase water supply capacity, the report recommends rehabilitating
two existing wells and developing a new well.
When the wastewater treatment plant expansion is complete, capacity
will be available to allow new connections to the system. However,
a property owner will not be able to connect to the wastewater
system unless an additional source of water supply has been developed.
No prohibition on well drilling exists if the property owner can
meet setback and other requirements as listed in the following
section.
About 100 properties within the District have wells. To provide
an adequate municipal water supply for its property owners and
eliminate the further need of wells, MSD is taking an active role
in finding an additional water supply. MSD entered into an agreement
with the State of California Department of Water Resources to
conduct a water supply study. MSD and the state each contributed
$50,000 toward the cost of the study which is being conducted
by DWR staff. CUCC declined to participate in the study. The purpose
of the study is to identify the most cost-effective sources of
additional water supply. This report is due to be completed in
February 1998.
Well Drilling: A homeowner wishing to drill a well on his
property must first apply to the county for a permit and meet
the following minimum setbacks and requirements:
The county has established rules regarding the issuance of a well
drilling permit. The following requirements must be met prior
to permit issuance and during construction.
Other Growth-Related Issues
Bartle Wells Associates has relied on growth and planning
information developed and supplied by others. We reviewed available
growth-related documents and met with county planning staff, District
engineers, and District officials to estimate future development
within the District. The following summarizes existing relevant
information regarding future development within MSD.
Local Coastal Program: In late 1980, the County Board of
Supervisors and the California Coastal Commission approved San
Mateo County's Local Coastal Program (LCP). In April 1981, the
county assumed responsibility for implementing the State Coastal
Act in the unincorporated areas of San Mateo County, including
issuance of coastal development permits. Amendments to the program
have been issued periodically.
The LCP Section 1.22 a. allows 125 residential building permits
annually in the mid-coast including MSD and GSD. The purpose of
this limitation on residences, other than affordable housing,
is to insure that schools and other public works are not overburdened
by rapid residential growth. If the Board of Supervisors finds
that water, wastewater, schools, and other public works have sufficient
capacity to accommodate additional growth, LCP Section 1.22 b.
allows that up to 200 building permits may be granted. Since the
origination of the LCP, the Board exercised its right to grant
200 building permits in one year because of demand. The LCP does
not allocate units based on district boundary; they are allocated
on a first-come, first-served basis. The annual 125 permit allowance
is not a constraint on growth because of the generally low growth
in the area.
Priority Land Use:
Building Permits: San Mateo County issues building permits
in unincorporated areas. This information was reviewed to determine
if any growth trends could be developed to project future growth.
>From 1987 through 1991 about 30 residential building permits and
5 second unit permits were issued by the county for Montara/Moss
Beach. This is an annual average of 5 residential permits and
1 second unit permit. During the same period GSD averaged 24 single-family
residential (SRF) building permits and almost 2 second units annually.
GSD has available sewer capacity in SAM and water service from
the Coastside County Water District and is, therefore, not under
any building moratoriums.
Beginning in 1992, the county consolidated its building permit
statistics on a mid-coast basis (combining Montara/Moss Beach
and El Granada.) For the period 1992 to 1996 the county issued
167 SFR permits, for an average of 33 per year in the entire mid-coast
area. Most if not all of these permits were in El Granada.
Prior to 1987, building permits issued for plumbing, electrical,
mechanical, etc., as well as new construction, were all listed
as generic "building permits". Therefore, data for new
housing permits prior to 1987 is not available in a useful form.
County staff is of the opinion that between 50 and 100 building
permits were issued annually for the mid-coast area in the early
1980s.
Building permit information is not useful for estimating future
connections because moratoriums on growth have been in effect
during the recent period and building records are inconclusive.
Connection Fee Revenue: Table 10 shows connection fees
collected by the District from 1982 through 1990-the last year
the District collected any connection fee revenue. The year 1981
was not included because the records did not show any connection
fees. The revenue is divided by the connection fee shown in Table
3 to arrive at estimated ERUs. This resulted in an average of
25 ERUs added per year.
This revenue information is not believed to be a reliable indication
of ERUs added to the system because other revenues may have been
included. Due to the length of time that has passed, it would
be very difficult to verify if, and what, other revenues have
been included in this category.
Buildable Lots: Various projections have developed counts
of potential future new connections including such information
as usable parcels, appraised parcels, lot consolidations and splits,
and second units. Such a method identified lots in the urban service
area for inclusion in LID No. 92-1. However, the Superior Court
invalidated the assessment district because the parcels had no
foreseeable benefit due to lack of water.
The number of usable parcels is a useful measurement for estimating
the maximum number of potential future ERUs. A Nute Engineering
report dated January 1990 developed a dwelling unit count and
compared it to a previous dwelling unit projection by Brian, Kangas
and Foulk. BKF identified 404 usable parcels for buildout of the
District compared to Nute's 443.
Estimated Future Growth
Twenty years is a reasonable planning period for growth
and development. Any growth beyond such a term would be virtually
impossible to predict. In addition, future project requirements
may likely require an entirely new approach to District financing.
Most SAM equipment facilities have projected lives between 12
and 25 years. For these reasons, any growth beyond 20 years would
likely be required to fund additional facilities not included
in this report.
In 1994, Nute Engineering, as assessment engineer for LID 92-1,
updated their previous work and assigned 605 "benefit units"
to parcels within the improvement district. The boundaries of
the improvement district included all parcels within MSD and within
the Urban Rural Boundary which didn't have treatment plant capacity.
This includes unimproved parcels and improved parcels on septic
tanks.
Benefit units were assigned to usable parcels on the basis of
one benefit unit for the capacity required to serve one single
family dwelling or equivalent. Benefit unit assignments were based
on the following general criteria:
Benefit Unit Adjustments
To develop the maximum potential growth (but not necessarily
the most likely growth), the benefit unit assignments developed
by the assessment engineer require modification to include additional
units not counted during a reasonable assessment spread. The following
adjustments and additions as shown on Table 12 are used to adapt
the benefit unit assignments to a potential full build out growth
level:
Table 11 shows an estimate of the theoretical potential future
ERUs developed from a count of potentially available buildable
parcels. While these lot subdivisions are in existence, small
lot size and especially the unavailability of a new water supply
would preclude any level of development close to the theoretical
potential. Even if an adequate water supply was available, the
history of development in the area suggests that buildout is unlikely
to ever occur, let alone within 20 years. Many adjacent small
lots may never be developed even if water is available. Additionally,
although the county may grant a permit to build a house on a 2,500
square foot lot, it is not assured that a lot of this size could
accommodate a well due to set-back requirements. However unlikely
the possibility, the information on Table 11 provides an estimate
of the upper limit of new development. A reasonable estimate of
new development will be some reduced share of the potential.
Based on all of the foregoing information and assumptions, Table
11 shows a total of 1,117 potential ERUs within the District.
This is nearly twice the 605 benefit units assigned for LID 92-1
and which was invalidated because of the lack of an adequate water
supply. Realistically, no one can expect this level of growth
to occur in the foreseeable future.
The estimate of future growth should reflect reasonable assumptions
based on available information. Overestimating the number of future
new units would jeopardize the District's ability to finance its
share of the treatment plant expansion and other District capital
expenses. On the other hand, underestimating the number of future
new units would penalize those actually connecting.
Table 12 shows several alternative growth scenarios that are more
probable than the full potential growth. Given the lack of water,
the most likely development possibility is the Corado affordable
housing plan plus some additional units that could drill wells,
but not including Farallon Vista which requires water. The latest
Corado development planning shows a total of 158 units rather
than the full potential 218. Therefore the foreseeable development
alternative indicates 233 future ERUs. While this is the most
likely growth alternative, a connection charge based on this level
of development would overcharge those able to connect.
A connection charge calculation needs to include some level of
the potential development because the facilities have additional
capacity. Buildout levels of 40 percent and 60 percent are shown
on the table. Both of these scenarios would require a future water
supply. A 60 percent buildout would result in an average annual
growth of 38 ERUs. This is well above historic levels even before
the moratoriums. But if the Corado development is excluded, annual
new development would average 30 ERUs. This level is closer to
longer term growth rates at El Granada with its available water
supply.
The 60 percent buildout scenario is a reasonable compromise between
actual foreseeable development and full potential development.
This report recommends a connection fee based on new growth totaling
757 ERUs through the 20-year planning period.
The above growth estimate is based on the latest development planning
by Corado which shows a total development of 158 units. If the
development actually plans for and pays connection fees for a
significantly greater or lesser number of units than 158, then
the growth used to develop the connection charge may be adjusted
and the connection charge recalculated.
Table 13 shows that the 757 future ERUs will comprise 26.7 percent
of the total ERUs served by the District. The current 2,073 ERUs
represent the remaining 73.3 percent. Costs relating to existing
facilities would be shared on this percentage basis.
RECOMMENDED CONNECTION CHARGE
A connection charge based on a reasonable growth allowance,
the latest engineering cost estimates for new and future facilities,
and District historical financial information is a key element
for the District to finance capital projects. Revenues from connection
charges would be available to pay the proportionate cost share
of system improvements and to pay for expansions. State law precludes
the use of such revenues to pay any portion of operation and maintenance
expenses.
State law (Government Code Section 66000ff) also requires that
a reasonable relationship exist between the amount of a connection
charge and the cost of the associated public facility. Future
users must be treated in a consistent manner and funds collected
must be used for capital purposes.
The vast majority of sanitation agencies in California require
that future users pay the costs of facilities required to serve
them. The alternative to collecting fees from new development
is raising charges to current sewer users, which is not equitable.
Connection charges are the fairest and easiest method of collecting
funds for system betterments, improvements, and expansions. Charges
are collected during construction as a new customer connects to
and begins to use the system. A connection charge should represent
a user's share of the current value of all existing and future
facilities.
Consistent with current District policy (and with the policy of
most water and wastewater agencies in California), connection
charges for wastewater are uniform throughout the District's service
area. Connection charges should also be uniform over time and
generally reflect an average cost of system components shared
by all new users. Connection charges should be adjusted from time
to time based on new facility requirements and revisions to capital
improvement programs. Annual adjustments based on changes in construction
price factors are also needed to maintain a current dollar parity.
Table 14 shows the connection charge components and the allocation
of costs to future users. The connection charge computation allows
future users to pay their share of the replacement value of the
District's existing facilities, plus their share of the new SAM
facilities. A connection charge of $12,780 per ERU is recommended.
The 757 future ERUs connecting to the system as developed previously
have been used to compute the connection fee shown in Table 14.
The 757 future users share with the 2,073 current users the costs
applicable to original facilities, the MSD and SAM capital improvement
programs, and COP interest. A total of 609 future users share
costs for the treatment plant expansion because certain future
users are eligible for reserved SAM Phase 1 capacity and aren't
subject to the plant expansion component of the connection charge
as explained previously. Following is an explanation of the connection
charge components:
Existing Facilities: The cost of MSD's share of original
SAM facilities and other District facilities was calculated in
Table 7. A 26.7 percent share of these costs (based on the number
of future ERUs to current ERUs) have been allocated to future
users and become a component of the connection charge.
Capital Improvement Program: A 26.7 percent share of the
District's 10-year capital improvement program are allocated to
future users. Likewise, a 26.7 percent share of MSD's intertie
pipeline project is allocated to future users. This project is
not a part of the SAM Phase II improvements.
Debt Interest: A 26.7 percent share of past debt service
interest has been allocated to future users.
SAM Phase II (Part I and Part II): Table 8 calculated the
treatment plant project costs allocated to current and future
users. Future users share (66.1 percent) amounts to $3,602,000
and is another component of the connection charge.
Accounting for Connection Fee Funds
The government code requires that fees collected in
connection with new development must be deposited in a separate
fund or account to avoid commingling and that they be expended
only for the purposes for which they were collected. Any interest
income earned by moneys in such a fund or account must also be
deposited in that account and be expended only for the purpose
for which the fee was originally collected. When the District
begins to receive connection fee income, the District should follow
the then-current government code requirements for connection fee
fund accounting.
Timing of New Connections
It is impossible to accurately predict the timing of
new connections to the system. For Montara, the biggest unknown
is the availability of an additional water source. Because of
the moratorium on new connections, a pent-up demand probably exists,
but the water supply issue may never be resolved. For these reasons
the District may never be able to fully repay the MSD advances.
If, however, an adequate water supply is developed and growth
does occur, then the District may be able to repay the entire
MSD advance.
Connection Charge Adjustments
To maintain a cost parity in current dollar terms,
the connection charge should be adjusted annually to reflect changes
in capital costs as well as the added interest for the MSD advance.
Original facilities costs and the capital improvements program
should be adjusted up or down annually in accordance with the
change in the ENR CCI for San Francisco. Debt interest should
be increased by the amount of interest paid during the year. The
SAM Phase II expansion component should be annually increased
by 6.873 percent which is the interest rate applied to the MSD
advance.
In addition to the above annual adjustments, the connection charge
should be adjusted as new information becomes available. If the
Corado development is increased significantly, the charge could
be recalculated to include more units using the facilities. As
soon as SAM develops a capital improvement program, the District
may want to include consideration of those facilities in the connection
charge determination. Also, when a final alternative for the intertie
pipeline project is selected and when any other projects have
been identified, the District may include this new information
in a recalculation of the connection charge.