TO: Governing Board of the Napa Berryessa Resort Improvement District
FROM: Christopher Silke, District Engineer
REPORT BY: Annamaria Martinez, Assistant Engineer
SUBJECT: Adoption of a Resolution Noticing Intent to Increase Water and Sewer User Rates
RECOMMENDATION
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District Engineer requests adoption of a resolution noticing intent to increase water and sewer rates, setting a public hearing for November 2, 2021, at 9:20 A.M. and authorizing mailing of notice of the proposed rate adjustments and the public hearing.
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EXECUTIVE SUMMARY
The District Engineer of the Napa Berryessa Resort Improvement District (District) requests the Governing Board of the District (Board) to adopt a resolution noticing intent to increase water and sewer rates, setting a public hearing and authorizing mailing of notice of the proposed rate adjustments and the public hearing. This action is the first step of the Proposition 218 process to increase water and sewer rates. The rate increase is necessary to contribute towards funding water and wastewater/sewer system operations and maintenance expenses incurred by the District.
PROCEDURAL REQUIREMENTS
1. Staff reports
2. Public comments
3. Motion, second, discussion and vote on the item
FISCAL & STRATEGIC PLAN IMPACT
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Is there a Fiscal Impact? |
Yes |
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Is it currently budgeted? |
No |
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Where is it budgeted? |
The proposed rates would only impact the Napa Berryessa Resort Improvement District operations budget (Org: 5240000). |
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Is it Mandatory or Discretionary? |
Discretionary |
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Discretionary Justification: |
The District is facing a substantial revenue decline following the August 2020 LNU Lightning Complex fire. Additional revenue is necessary for operational expenses. |
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Is the general fund affected? |
No |
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Future fiscal impact: |
The proposed rate increase was calculated to provide additional revenue that, in conjunction with the District’s available fund balance, will cover projected expenditures until such time as the potential for resort development near the community can be established. |
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Consequences if not approved: |
The revenue shortfall needed to cover the cost of operational expenses will require a greater infusion from available fund balance, leaving the District with less reserves for potential emergencies and possible depletion of available cash within several years. |
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County Strategic Plan pillar addressed: |
Healthy, Safe, and Welcoming Place to Live, Work, and Visit |
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Additional Information |
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ENVIRONMENTAL IMPACT
ENVIRONMENTAL DETERMINATION:
The setting of a public hearing and mailing of notices is not subject to CEQA pursuant to CEQA Guidelines section 15060(c) because the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment. The proposed rate increases are statutorily exempt pursuant to CEQA Guidelines section 15273, as the approval of rates by a public agency for the purpose of:
1. Meet operation expenses, including employee wage rates and fringe benefits,
2. Purchase or leasing supplies, equipment, or materials, and
3. Obtain funds for capital projects, necessary to maintain service within existing service areas.
BACKGROUND AND DISCUSSION
During creation of the Fiscal Year (FY) 2019-20 operating budget, District staff performed a preliminary analysis of final budgets dating back six (6) years, and used the data from the analysis to create a five-year projection through FY 2024-25. The purpose of the exercise was to determine if the existing user rate schedule, last updated in FY 2010-11, was sufficient to maintain the operations budget through the projection period. The analysis indicated that rates were not able to accommodate operations and maintenance expenses.
Staff presented the analysis to the Board on October 8, 2019, and direction was given to retain a consultant to complete a Cost of Service Study (COSS) and Rate Setting Analysis - a tool used to apportion the revenue needed to operate and maintain a utility among the users of the utility in a manner that reflects the cost of providing services to their customers, thereby establishing user rates.
The District issued a Request for Proposals after the Board meeting, and Robert D. Niehaus, Inc (RDN) of Santa Barbara, CA was retained in March 2020 to conduct the COSS for the District. The Final Draft of the COSS, completed just prior to the destructive Hennessey Fire in August 2020, demonstrated that a substantial deficiency exists within the District’s budget, and water and sewer rates are insufficient to balance the current budget as well as future budgets over their five-year study period and beyond. RDN included a brief post-fire budget analysis to conclude their work on the COSS, including a preliminary post-fire rate requirement scenario to balance the budget with the caveat that additional budget analysis was necessary to finalize projections and recreate the rates necessary to balance the budget with a reduced customer base.
During the development of the suggested post-fire budget analysis, Napa County entered into negotiations with Sun Communities for development of concessions at the Steele Canyon Resort area. This site used to be a significant user of the water and wastewater services of the District, and any future resort development at the site will also be served by the District. If negotiations are successful, the development of a resort at the Steele Canyon location will lead to significantly increased water and sewer user rate revenue, making it difficult to arrive at accurate and fair rate calculations for customers of the District. The potential of development of new or replacement homes in the Berryessa Highlands subdivision also impacts the ability to calculate water and sewer rates in the near-term.
RATE ADJUSTMENT PROPOSAL
Due to the variables described above, it is difficult to calculate a fully burdened and fair rate adjustment with certainty. Instead, with the help of RDN, District staff created a rate model scenario that would provide increased funding for operations while concurrently utilizing available fund balance to balance the budget at end of each fiscal year until the uncertainty surrounding future concessions and residential development within Berryessa Highlands can be addressed. The calculated rate adjustment schedule, along with the impact to rate payers for the scenario is included as Attachment B. The revenue that will be generated by the proposed water and sewer rate adjustments is still less than the actual cost to provide water and sewer service to District customers, with the difference being provided through loans from Napa County’s General Fund.
All of this information was presented to the Board at its August 17, 2021 meeting. After the meeting, staff scheduled two community meetings with stakeholders of the District’s water and wastewater systems including an in-person meeting held within the community on August 24 and a remote meeting on August 25. Both meetings included a presentation by staff outlining the budgetary concerns facing the District and the proposed adjustment for this rate increase.
The District budget and expense trends will continue to be closely monitored, and the cost of service recalculated as additional information becomes known.
ACTIONS REQUESTED TODAY
The District Engineer requests that the Board adopt a resolution noticing its intent to increase water and sewer rates, authorize staff to mail notices informing customers of the proposed rate adjustments and Proposition 218 procedures for protesting the proposed rates, and setting a public hearing for November 2, 2021, at 9:20 A.M. to consider adopting the proposed rates.