REPORT TO COUNCIL
SUBJECT
Title
Consider Directing Staff to Defer Utility Rate Adjustments for Water and Solid Waste and Recycling Utilities for one Fiscal Year in Response to the COVID-19 Emergency, and Adopt a Resolution Authorizing the City Manager to Suspend Late Charges and Delinquency Processing Fees for Water, Sewer, and Garbage Collection Services and Extend the Suspension of the Interruption of Water Service, until June 30, 2020.
Report
BACKGROUND
The City operates three municipal utilities (water, sewer, and solid waste and recycling). Each year, as part of the budget process, staff analyzes the current condition of, and long-term outlook for, the City’s utility funds. The results of these analyses lead to proposed adjustments to rates that will generate the revenues necessary to meet planned expenditures, as well as projected rates over each utility’s twenty-year horizon. Sunnyvale utility rates are based entirely on the City’s costs for operating and maintaining its water, sewer, and solid waste facilities and services. Each of the utilities is operated as an independent enterprise and all expenses and revenues for each service are accounted for in separate funds. In fact, state law requires that all fees collected by each utility be used within that utility and are not allowed to be used for unrelated services.
For each utility, the rate increases anticipated for FY 2020/21 in the FY 2019/20 Budget are 3% for the Water Utility, 4% for the Wastewater Utility, and 1% for the Solid Waste and Recycling Utility.
The City bills for each of these utilities on a combined bi-monthly or monthly utility bill to all water, wastewater, and solid waste and recycling customers in the City. Each utility customer receives a regular bill for service. Utility customers also receive a reminder notice, and then a final demand notice notifying them that failure to pay may result in water service interruption. Because the discontinuation of sewer service is both more difficult and would have an immediate and direct impact on the health and safety of the neighboring properties, the City does not discontinue this service due to non-payment. Therefore, active utility customers without water service receive the same notifications until the final written demand that failure to pay will result in collection action being initiated. When a customer receives a reminder notice, a 5% penalty is imposed (SMC section 12.50.050). If a customer reaches the point of final noticing, a $50 Delinquency Processing Fee Utility is assessed, pursuant to the Sunnyvale Fee Schedule, which reflects the cost of preparing and delivering a hand delivered shut-off notice.
EXISTING POLICY
Sunnyvale Municipal Code Chapter 12.50 - Procedures for Processing Delinquent Utility Accounts covers the conditions and procedures for service interruption.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a "project" with the meaning of the California Environmental Quality Act ("CEQA") pursuant to CEQA Guidelines section 15378 (b)(4) in that is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
DISCUSSION
The City, along with the Country, is currently responding to the impacts of the Novel Coronavirus (COVID-19) pandemic. As the situation is changing rapidly, response from the Federal, State and Local governments are also moving quickly. On March 16, 2020 the Santa Clara County Health Officer issued an Order directing all individuals living in the County to shelter at their place of residence except to provide or receive certain essential services and other exceptions. The Order was updated on March 31, 2020 with additional restrictions.
Sunnyvale Community Services is the largest not for profit agency in Sunnyvale that works directly with the Sunnyvale community providing food and economic assistance to community members in need. On Sunday, March 15, Council and Staff received an update from Sunnyvale Community Services (SCS) regarding the demand for their services during this COVID-19 pandemic. The update included a request that the City suspend utility service interruptions for up to 60 days.
On March 17, 2020, the City Council suspended the interruption of water service for up to 60 days. Staff is recommending that the City Council suspend penalties and delinquency processing fees, at the City Manager’s discretion, for up to 90 days, as well as extend the suspension of the interruption of water service for up to an additional 30 days, also at the City Manager’s discretion.
Staff is also recommending that the City defer its usual annual review of utility rates for its Water and Solid Waste utilities. In order to adopt rates in June to be effective July 1, 2020, staff has to mail 45-day notices by the end of April. These two enterprise funds have sufficient reserves to carry the funds for a full year. Staff is not recommending holding the rate increase for sewer rates as there is an active major project underway to provide this essential service, which is being funded through borrowing. Maintaining sufficient funding to cover the anticipated borrowing over the next year is critical to the ongoing success of this project.
FISCAL IMPACT
Late payment penalties and delinquency processing fees totaled approximately $500,000 in FY 2018/19 and are relatively steady, increasing generally with rates. As the Delinquency Processing Fees cover the cost of noticing and interruption, there will be some cost savings. However, as these are largely staff costs, the cost won’t go away, it will just be spread over the entire rate base. Staff has recently implemented a pilot to have a delivery company perform the noticing in partnership with our bill print vendor. As such, this cost will be reduced if noticing is not done.
With regards to rate deferral, the FY 2019/20 Budget includes projections of the ending reserves for next fiscal year (FY 2020/21) for each affected enterprise. The impact of rate deferment on each fund is as follows:
Water Supply and Distribution Fund
|
FY 2020/21 Projected Service Fee Revenue |
1% of Revenue |
Impact of deferral (3%) |
FY 2020/21 Projected Rate Stabilization Fund Balance |
Revised Rate Stabilization Reserve Balance |
|
$56,819,623 |
$568,196 |
$1,704,589 |
$20,535,953 |
$18,831,364 |
Wastewater Management Fund
|
FY 2020/21 Projected Service Fee Revenue |
1% of Revenue |
Impact of deferral (4%) |
FY 2020/21 Projected Rate Stabilization Fund Balance |
Revised Rate Stabilization Reserve Balance |
|
$4,601,516 |
$446,015 |
$1,784,061 |
$28,403,216 |
$26,619,155 |
Solid Waste Management Fund
|
FY 2020/21 Projected Service Fee Revenue |
1% of Revenue |
Impact of deferral (1%) |
FY 2020/21 Projected Rate Stabilization Fund Balance |
Revised Rate Stabilization Reserve Balance |
|
$50,984,394 |
$509,844 |
$509,844 |
$12,130,123 |
$11,620,279 |
The most significant impact from a risk perspective (ability to weather a downturn) is on the Solid Waste Management Fund, which would be left with approximately 23% of annual service revenue in its stabilization reserve.
Traditionally water revenues have been the most elastic and do dip sharply during periods of economic downturn, very wet years, or very dry years. Although there is some risk, it is likely that even with these potentially reduced levels, sufficient time would be allowed to adjust spending and future rates to replenish the reserves.
Deferring the adjustment for the Wastewater Management Enterprise Fund would be problematic in several ways. Given the large capital expenditures underway, and the City’s efforts to fund further upcoming expenditures through federal loans, maintaining growth in revenues to cover the debt needed is critical. A change in the fiscal health of the Wastewater Management Fund could affect the cost of borrowing, which would be detrimental to rate payers in the long term. In addition, the system has capital needs on the collection system that are being funded by current revenues.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City's official-notice bulletin board outside City Hall, Sunnyvale Public Library and Department of Public Safety; and by making the agenda and report available at the Office of the City Manager and on the City's website.
ALTERNATIVES
1. Direct Staff to defer utility rate adjustments for Water and Solid Waste and Recycling Utilities for one Fiscal Year.
2. Adopt a Resolution Authorizing the City Manager to Suspend Late Charges and Delinquency Processing Fees for Water, Wastewater, and Garbage Collection Services, and Extend the Suspension of the Interruption of Water Service, until June 30, 2020.
3. Take other action as directed by Council.
STAFF RECOMMENDATION
Recommendation
Staff recommends Alternatives 1 and 2: (1) Direct Staff to Defer Utility Rate Adjustments for Water and Solid Waste and Recycling Utilities for one Fiscal Year and (2) Adopt a Resolution Authorizing the City Manager to Suspend Late Charges and Delinquency Processing Fees for Water, Sewer, and Garbage Collection Services, and Extend the Suspension of the Interruption of Water Service, until June 30, 2020.
Staff
Prepared by: Tim Kirby, Director of Finance
Reviewed by: Teri Silva, Assistant City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. Resolution