HomeMy WebLinkAboutAgenda Packet - Finance & Human Resources Committee - 06/20/2008S
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BUDGET COMMITTEE MEETING
Date: June 20, 2008
Time: 3:00 p.m.
Place: 3654 E. Highland Ave, Suite 12
Highland, CA 92346
1
CALL TO ORDER
PLEDGE OF ALLEGIANCE
1. Public Comments
2. Review proposed 2008/2009 District Budget
3. Review proposed Water and Sewer Rates
ADJOURN
Pursuant to Government Code Section 54954.2(a), any request for a disability - related
modification or accommodation, including auxiliary aids or services, that is sought in order to
participate in the above - agendized public meeting should be directed to the District's
Administrative Manager at (909) 885 -4900 at least 72 hours prior to said meeting,
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MEMORANDUM
TO: BOARD OF DIRECTORS
FROM: ROBERT E. MARTIN, GENERAL MANAGER
SUBJECT: HEADQUARTERS PROJECT — CRITICAL PATH
DATE: JUNE 16, 2008
At our last Board meeting, a discussion took place regarding the actions that have to be
taken by this Board to move the Headquarters project forward into construction. In
essence, the Board requested that a Critical Path summary be prepared. This summary is
as follows:
1) Adopt a budget for the 2008 /2009 fiscal year. This is the critical first step in the
process. The reason for this is that new debt, Certificates of Participation (COP's)
must be issued to pay for the project. The cost of the debt issue (interest
payments) must be included in this new budget.
2) A Rate Hearing must be scheduled and all requirements of Proposition 218 must
be complied with. An increase in water and sewer rates will be required to pay for
these additional debt obligations.
3) While the rate hearing is being scheduled, the District and its financial consultants
Fieldman and Rolapp) must begin work on a "Preliminary Official Statement" for
this new debt issue. This is the official description of the proposed debt issue, a
description of the project and a summary of this District and its finances. As this
process begins, the District will need to be rated by the major credit rating
companies (Standard and Poor and Moodys).
4) Concurrent with these steps are several actions that need to occur related to the
award of a construction contract. Final bidding documents need to be completed
which include plans and specifications, as well as all contract related matters. The
Board has indicated a desire to include a requirement for the winning bidder to
perform a "Value Engineering" analysis on the project before we actually break
ground. Some type of incentive system should be included in the contract for the
development of cost savings ideas.
The Board has also decided to issue an RFP for construction management services
for the project. This process, including the review of proposals and the ultimate
award of a contract, should take place prior to the award of a construction
contract.
5) Following completion of the "Preliminary Official Statement', the Board will
advertise the Headquarters Project for bidding. We have discussed the option of
pre - qualifying a group of general contractors for the actual invitation of a bid. By
this point in time, a construction management firm should be under contract.
6) Following the opening of bids for the project the final sizing of the debt issue will
be performed. This is the final determination of the amount of debt to be issued.
By waiting until construction bids are "in hand ", we issue only the amount of debt
that we actually need.
7) Once the final sizing is completed, the COP issue should be bid and an award
made. This then guarantees that funds will be available for the construction of our
project.
2
8) Following the sale of our COP'S, the construction contract can be signed with our
general engineering contractor and a "notice to proceed" issued.
It is anticipated that the construction of the project will take an estimated 12 -15
months.
REM: jph
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There is no substitute for experience.
June 16, 2008
Mr. Robert E. Martin
General Manager
East Valley Water District
3654 Ii. Highland Avenue, Suite 18
h ghland, CA 92346 -2607
Dear Bob:
li , UA I ., 2008
WMkowermobt
Please find attached for your review two signed consulting services agreements for the issuance of
the District's Certificate of Participation (COPS). Once you have approved please sign both copies
and return one for our files.
Our proposed scope of services is to provide the District with full service financial advisory services
on this transaction. Our fee is contingent and payable at the successful closing of the Bonds.
We appreciate the opportunity to serve as the District's financial advisors and look forward to
working with you again in this capacity.
Sincerely,
FIELDMAN, ROLAPP & ASSOCIATES
Thomas M. DeMars, CIPFA
Principal
FRA106615 v2_O.doc
Project Number 07151
19900 MacArthur Blvd., Suite 1100 • Irvine, CA 92612 • phone: 949.660.7300 + Fax: 949.474.8773 * w .ficldman.com
moo= HELDMAN I ROLAPP
ASSOCIATESe
There is no substitute for experience.
June 16, 2008
Mr. Robert E. Martin
General Manager
East Valley Water District
3654 Ii. Highland Avenue, Suite 18
h ghland, CA 92346 -2607
Dear Bob:
li , UA I ., 2008
WMkowermobt
Please find attached for your review two signed consulting services agreements for the issuance of
the District's Certificate of Participation (COPS). Once you have approved please sign both copies
and return one for our files.
Our proposed scope of services is to provide the District with full service financial advisory services
on this transaction. Our fee is contingent and payable at the successful closing of the Bonds.
We appreciate the opportunity to serve as the District's financial advisors and look forward to
working with you again in this capacity.
Sincerely,
FIELDMAN, ROLAPP & ASSOCIATES
Thomas M. DeMars, CIPFA
Principal
FRA106615 v2_O.doc
Project Number 07151
19900 MacArthur Blvd., Suite 1100 • Irvine, CA 92612 • phone: 949.660.7300 + Fax: 949.474.8773 * w .ficldman.com
PROFESSIONAL SERVICES AGREEMENT
FOR FINANCIAL ADVISOR
This agreement has been entered into this _ day of _, _ by and between the East Valley
Water District, California (the "District ") and Fieldman, Rolapp & Associates, (herein, the
Consultant').
WHEREAS, the District desires independent financial advisory services to be performed in
connection with funding of water and sewer system improvements (herein, the 'Project'); and
WHEREAS, the District desires to retain the professional and technical services of the
Consultant for the purpose of debt issuance and financial planning, (herein, the "Services ").
WHEREAS, the Consultant is well qualified to provide professional financial advice to public
entities such as the District;
NOW, THEREFORE, in consideration of the above recitals and the mutual covenants and
conditions hereinafter set forth, it is agreed as follows:
Section 1 Financial Advisory Services.
As directed by the District, Consultant will provide services in connection with
the funding of water and sewer system improvements as such Services are fully
described in Exhibit A attached to this Agreement. Consultant is engaged in an
expert financial advisory capacity to the District only. It is expressly understood
that the Services rendered hereunder are rendered solely to the East Valley Water
District. Consultant does not undertake any responsibility to review disclosure
documents on behalf of owners or beneficial owners of bonds or debt which may
arise from the Consultants work hereunder.
Section 2 Additional Services.
Services performed for the District by Consultant that are not otherwise
specifically identified in Exhibit A to this Agreement, shall be additional
services. Additional services include, but are not limited to, the following:
2.01 Assisting the District in obtaining enabling legislation or conducting referendum
elections.
2.02 Extraordinary services and extensive computer analysis in the structuring or
planning of any debt issue or financing program.
2.03 The repeat of any element of a service described in Exhibit A to this Agreement
which is made necessary through no fault of Consultant.
2.04 Financial management services, including development of financial policies,
capital improvement plans, economic development planning, credit analysis or
review and such other services that are not ordinarily considered within the scope
of services described in Exhibit A to this Agreement.
EAST VALLEY WATER DISTRICTIFIELDMAN, ROLAPP & ASSOCIATES Page 1
Project No. 07151
2.05 Services rendered in connection with any undertaking of the District relating to a
continuing disclosure agreement entered into in order to comply with Securities
and Exchange Commission Rule 15c2 -12 or other similar rules.
2.06 Services rendered to the District in connection with calculations or determination
of any arbitrage rebate liability to the United States of America arising from
investment activities associated with debt issued to fund the Project.
Section 3 Compensation.
3.01 For Consultant's performance of Services as described in Section 1 of this
Agreement the Consultant's compensation will be as provided in Part 1 of Exhibit
B attached to this Agreement, plus Consultant's expenses incurred in rendering
such Services. Consultant's expenses may include, but are not limited to travel,
telephone /conference calls, postage, courier, database access services, and
printing.
3.02 For Consultant's performance of additional services as described in Section 2 of
this Agreement, the Consultant's compensation will be as provided in Part 2 of
Exhibit B attached to this agreement, plus Consultant's expenses incurred in
rendering such services. Consultant's expenses may include, but are not limited
to travel, telephone /conference calls, postage, courier, database access services
and printing.
3.03 Payment for Consultant's Services rendered pursuant to Section 1 of this
Agreement shall be as provided for in Exhibit B to this Agreement, unless
specified to the contrary elsewhere in this Agreement. The Consultant may
submit monthly invoices for payment for services provided pursuant to Section 2
of this Agreement unless an alternate date or dates have been specifically agreed
to in writing. Unless otherwise specified, payment of Consultant's compensation
and expenses is due thirty (30) days after submission of Consultant's invoice for
services.
3.04 In the event the Services of the Consultant are abandoned prior to completion of
Consultant's work, Consultant shall be compensated for Services performed to
the point of abandonment as if such Services were an additional service pursuant
to Section 2 of this Agreement. An act of abandonment shall be deemed to have
occurred when no action has been taken by the District relative to the services of
the Consultant for a period of three (3) months from the date of the initial
performance of a service, or there has been a written notification to the
Consultant of an abandonment of the Project by the District.
3.05 Consultant fees set forth in this Agreement and Exhibits are guaranteed by
Consultant for a period of twelve (12) months from the date of this Agreement.
Section 4 Personnel.
Consultant has, or will secure, all personnel required to perform the services
under this Agreement. Consultant shall make available other qualified personnel
of the firm as may be required to complete Consultant's services. The District
has the right to approve or disapprove any proposed changes in Consultant's staff
EAST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Page 2
Project No. 07151
providing service to the District. The District and Consultant agree that such
personnel are employees only of Consultant and shall not be considered to be
employees of the District in any way whatsoever.
Section 5 Term of Agreement.
This Agreement shall continue in full force and effect for a period of thirty -six
36) months from the date hereof unless terminated by either parry by not less
than thirty (30) days written notice to the other parry except that the Agreement
shall continue in full force and effect until completion of Consultant's services or
until an abandonment shall have occurred as described in Section 3.04 hereof.
This Agreement may be extended from time to time as agreed by the District and
the Consultant.
Section 6 Modification.
This Agreement contains the entire agreement of the parties. It may be amended
in whole or in part from time to time by mutual consent of the parties. This shall
not prohibit the District and Consultant from entering into separate agreements
for other services.
Section 7 Assignment.
The rights and obligations of the District under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the District.
This agreement may not be assigned by the Consultant without the consent of the
District except for compensation due Consultant.
Section 8 Disclosure.
Consultant does not assume the responsibilities of the District, nor the
responsibilities of the other professionals and vendors representing the District,
in the provision of services and the preparation of the financing documents,
including initial and secondary market disclosure, for financings undertaken by
the District. Information obtained by Consultant and included in any disclosure
documents is, by reason of experience, believed to be accurate; however, such
information is not guaranteed by Consultant.
Section 9 Confidentiality.
The Consultant agrees that all financial, statistical, personal, technical and other
data and information designated by the District as confidential shall be protected
by the Consultant from unauthorized use or disclosure.
Section 10 Indemnification.
The District and Consultant shall each indemnify and hold harmless the other
from and against any and all losses, claims, damages, expenses, including legal
fees for defense, or liabilities, collectively, damages, to which either may be
subjected by reason of the other's acts, errors or omissions, except however,
neither will indemnify the other from or against damages by reason of changed
EAST VALLEY WATER DISTRICTIFIELDMAN, ROLAPP & ASSOCIATES Page 3
Project No. 07151
events and conditions beyond the control of either or errors of judgment
reasonably made.
Section 11 Insurance.
11.01 Consultant shall maintain workers' compensation and employer's liability
insurance during the term of this Agreement.
11.02 Consultant, at its own expense, shall obtain and maintain insurance at all times
during the prosecution of this contract. Such insurance must be written with a
Best Guide "A" -rated or higher insurance carrier admitted to write insurance in
the state where the work is located.
11.03 Certificates of insurance naming the District as an additional insured shall be
submitted to the District evidencing the required coverages, limits and locations
of operations to which the insurance applies, and the policies of insurance shall
contain a 30 day notice of cancellation or non - renewal.
11.04 Insurance coverages shall not be less than the following
A. Workers' Compensation
1. State worker's compensation statutory benefits
2. Employer's Liability -policy limits of not less than $1,000,000.
B. Comprehensive General Liability coverage with policy limits of not less than
1,000,000 combined single limit for bodily injury and property damage and
including coverage for the following:
1. Premises operations
2. Contractual liability
3. Products
4. Completed operation
C. Errors and omissions with policy limits of $2,000,000.
iection 12 Permits/Licenses.
The Consultant shall obtain any permits or licenses, as may be required for it to
complete the services required under this Agreement.
iection 13 Binding Effect.
13.01 A waiver or indulgence by the District of a breach of any provision of this
Agreement by the Consultant shall not operate or be construed as a waiver of any
subsequent breach by the Consultant.
13.02 All agreements and covenants contained herein are severable and in the event any
of them shall be held to be invalid by any competent court, this Agreement shall
be interpreted as if such invalid agreements or covenants were not contained
EAST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Page 4
Project No. 07151
herein, and the remaining provisions of this Agreement shall not be affected by
such determination and shall remain in full force and effect. This Agreement
shall not fail because any part or any clause hereof shall be held indefinite or
invalid.
13.03 Each parry hereto represents and warrants that this Agreement has been duly
authorized and executed by it and constitutes its valid and binding agreement,
and that any governmental approvals necessary for the performance of this
Agreement have been obtained.
13.04 The validity, interpretation and construction of this Agreement and of each part
hereof shall be governed by the laws of the State of California. Venue for any
lawsuit concerning this agreement is Orange County, California.
IN WITNESS Whereof, the parties have duly executed this Agreement as of the day and year
first above set forth.
EAST VALLEY WATER DISTRICT
0
Date:
Fieldman, Rolapp & Associates
19900 MacArthur Boulevard, Suite 1100
Irvine, CA 92612
Title:
EA ST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Page 5
Project No. 07151
EXHIBIT A
TO
PROFESSIONAL SERVICES AGREEMENT FOR FINANCIAL ADVISOR
BY AND BETWEEN
THE EAST VALLEY WATER DISTRICT
AND
FIELDMAN, ROLAPP & ASSOCIATES
Scope of Services
A. General Services.
The Consultant shall perform all the duties and services specifically set forth herein and shall
provide such other services as it deems necessary or advisable, or are reasonable and necessary to
accomplish the intent of this Agreement in a manner consistent with the standards and practice of
professional financial advisors prevailing at the time such services are rendered to the District.
The District may, with the concurrence of Consultant, expand this Agreement to include any
additional services not specifically identified within the terms of this Agreement. Any additional
services may be described in an addendum to this Exhibit A and are subject to fees described in
Exhibit B to this Agreement.
B. Debt Issuance Services.
The Consultant shall assume primary responsibility for assisting the District in coordinating the
planning and execution of each debt issue relating to the Project. Insofar as the Consultant is
providing Services which are rendered only to the District, the overall coordination of the
financing shall be such as to minimize the costs of the transaction coincident with maximizing the
District's financing flexibility and capital market access. The Consultant's proposed debt issuance
Services may include, but shall not be limited to, the following:
Establish the Financing Objectives
Develop the Financing Schedule
Monitor the Transaction Process
Review the Official Statement, both preliminary and final
Procure and Coordinate Additional Service Providers
Provide Financial Advice to the District Relating to Financing
Documents
Compute Sizing and Design Structure of the Debt Issue
Plan and Schedule Rating Agency Presentation and Investor Briefings
Conduct Credit Enhancement Procurement and Evaluation
Conduct Market Analysis and Evaluate Timing of Market Entry
Recommend Award of Debt Issuance
Provide Pre - Closing and Closing Assistance
EAST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Exhibit A, Page I
Specifically, Consultant will:
1. Establish the Financing Obiectives
At the onset of the financing transaction process for the Project, the Consultant shall
review the District's financing needs and in conjunction with the District's management,
outline the objectives of the financing transaction to be undertaken and its proposed form.
Unless previously determined, Consultant shall recommend the method of sale of debt
and outline the steps required to achieve efficient market access.
2. Develop the Financing Timetable.
The Consultant shall take the lead role in preparing a schedule and detailed description of
the interconnected responsibilities of each team member and update this schedule, with
refinements, as necessary, as the work progresses.
3. Monitor the Transaction Process.
The Consultant shall have primary responsibility for the successful implementation of the
financing strategy and timetable that is adopted for each debt issue relating to the Project.
The Consultant shall coordinate (and assist, where appropriate) in the preparation of the
legal and disclosure documents and shall monitor the progress of all activities leading to
the sale of debt. The Consultant shall prepare the timetables and work schedules
necessary to achieve this end in a timely, efficient and cost - effective manner and will
coordinate and monitor the activities of all parties engaged in the financing transaction.
4. Review the Official Statement
a. Generally, SEC, MSRB, and GFOA guidelines encourage full disclosure so
that potential investors have sufficient data to analyze each proposed
financing. Upon direction of the District, the Consultant shall take the lead
in preparation of the official statement for each debt issue relating to the
Project to insure that the District's official statement is compiled in a manner
consistent with industry standards, typically including the following matters:
Legal Authority for the Financing
Security for the Financing
Restrictions on Additional Financings
Purpose and Funds for which the Financing is Being Issued
Governmental System
Financial Management System
Revenue Sources: Historic, Current and Projected
Outstanding Financings
Planned Future Financings
Labor Relations and Retirement Systems
Economic Base
Annual Financial Statements
Legal Opinions Regarding Tax Exemption
Such Other Matters as the Context May Require.
EAST VALLEY WATER DISTRICTIFIELDMAN, ROLAPP & ASSOCIATES Exhibit A, Page 2
b. The Consultant shall maintain and update the official statement on its word
processing system until such time as it is near final and suitable for transfer
to the financial printer, in order to minimize the costs of revisions made by
the printer.
5. Procure and Coordinate Additional Service Providers
Should the District desire, the Consultant may act as District's representative in procuring
the services of financial printers for the official statement and related documents, and for
the printing of any securities. In addition, the Consultant may act as the Districts
representative in procuring the services of trustees, paying agents, fiscal agents,
feasibility consultants, redevelopment consultants, or escrow verification agents or other
professionals, if the District directs.
6. Provide Financial Advice to the District Relating to Financing Documents.
Simultaneous with assisting in the preparation of official statements for each debt issue
relating to the Project, the Consultant shall assist the managing underwriters, bond
counsel and/or other legal advisors in the drafting of the respective financing resolutions,
notices and other legal documents. In this regard, the Consultant shall monitor document
preparation for a consistent and accurate presentation of the recommended business terms
and financing structure of each debt issue relating to the Project, it being specifically
understood however that the Consultant's services shall in no manner be construed as the
Consultant engaging in the practice of law.
7. Compute Sizing and Design Structure of Debt Issue
The Consultant shall work with the District's staff to design a financing structure for each
debt issue relating to the Project that is consistent with the District's objectives, that
coordinates each transaction with outstanding issues and that reflects current conditions
in the capital markets.
8. Plan and Schedule Rating Agency Presentation and Investor Briefings.
The Consultant shall develop a plan for presenting the financing program to the rating
agencies and the investor community. The Consultant shall schedule rating agency visits,
if appropriate, to assure the appropriate and most knowledgeable rating agency personnel
are available for the presentation and will develop presentation materials and assist the
District officials in preparing for the presentations.
9. Conduct Credit Enhancement Evaluation and Procurement.
Upon the District's direction, the Consultant will initiate discussions with bond insurers,
letter of credit providers and vendors of other forms of credit enhancements to determine
the availability of and cost benefit of securing financing credit support.
EAST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Exhibit A, Page 3
10. Conduct Market Analvsis and Evaluate Timing of Market Entry.
The Consultant shall provide regular summaries of current municipal market conditions,
trends in the market and how these may favorably or unfavorably affect the District's
proposed financing.
a. Competitive Sales.
For all types of competitive sale of debt, the Consultant shall undertake such
activities as are generally required for sale of securities by competitive bid
including, but not limited to the following:
Review and comment on terms of Notice of Sale Inviting Bids
Provide advice on debt sale scheduling
Provide advice on the use of electronic bidding systems
Coordinate bid opening with the District officials
Verify bids received and make recommendations for acceptance
Provide confirmation of issue sizing, based upon actual bids received,
where appropriate
Coordinate closing arrangements with the successful bidder(s)
b. Negotiated Sales.
In the case of a negotiated sale of debt, the Consultant shall perform a thorough
evaluation of market conditions preceding the negotiation of the terms of the sale
of debt and will assist the District with the negotiation of final issue structure,
interest rates, interest cost, reoffering terms and gross underwriting spread and
provide a recommendation on acceptance or rejection of the offer to purchase the
debt. This assistance and evaluation will focus on the following areas as
determinants of interest cost:
Size of financing
Sources and uses of funds
Terms and maturities of the debt issue
Review of the rating in pricing of the debt issue
Investment of debt issue proceeds
Distribution mix among institutional and retail purchasers
Interest rate, reoffering terms and underwriting discount with comparable
issues
Redemption provisions
11. Recommend Award of Debt Issuance.
Based upon activities outlined in Task 10(a) and 10(b) above, the Consultant will
recommend accepting or rejecting offers to purchase the debt issue. If the District
elects to award the debt issue, the Consultant will instruct all parties and help
facilitate the actions required to formally consummate the award.
EAST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Exhibit A, Page 4
12. Provide Pre - Closing and Closing Activities.
The Consultant shall assist in arranging for the closing of each financing. The
Consultant shall assist counsel in assuming responsibility for such arrangements as
they are required, including arranging for or monitoring the progress of bond
printing, qualification of issues for book -entry status, signing and final delivery of the
securities and settlement of the costs of issuance.
C. Special Financing Services.
The Consultant shall assist the District, as needed, in identifying and procuring special financial
related services that may be needed for any debt issue relating to the Project. Services that may
be required include those listed below:
Feasibility consultants or other consultants required to deliver services relevant to
any debt issue relating to the Project
Credit providers, such as bank, insurance companies and private lenders
At each point where a special service is required, the Consultant shall research and develop a set
of specifications for the desired service, develop a distribution list and supervise the circulation of
the request for proposals.
As part of the process of procuring bank credit facilities, such as letters and lines of credit and
insurance to support the Districts financing programs, the Consultant shall pay particular
attention to the cost - effectiveness and to the relative levels of market acceptance of bond insurers
and both domestic and international banks. The Consultant shall advise the District as to how the
credit rating and investor perception of the potential credit enhancement provider offering such
services will affect the market for the debt issue relating to the Project. In addition, the
Consultant shall evaluate the roll -over or renewal provisions that each such provider is willing to
offer in its agreement with the District to determine which one offers the maximum assurance of
continued availability.
EAST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Exhibit A, Page 5
EXHIBIT B
TO
FINANCIAL ADVISORY SERVICES AGREEMENT
BY AND BETWEEN
EAST VALLEY WATER DISTRICT AND FIELDMAN, ROLAPP & ASSOCIATES
Fees and Expenses
Part 1: Fee for Services
Financial Advisory Services performed pursuant to Section I of this Agreement, and as more
fully described in the Scope of Services set forth in Exhibit A, will be billed for at the amounts set
forth below:
Transaction Size
Hourly Rate
Fees
1 to 2,499,999 23,500
2,500,000 to 4,999,999 32,500
5,000,000 to 9,999,999 36,500
10,000,000 to 14,999,999 42,500
15,000,000 to 19,999,999 48,500
20,000,000 to 29,999,999 54,500
30,000,000 to 39,999,999 62,500
40,000,000 and above to be negotiated
Payment of fees earned by Consultant pursuant to this Part 1 shall be contingent on, and payable
at the closing of the debt issue(s) undertaken to finance the Project.
Part 2: Other Services
Unless agreed to otherwise, financial advisory services performed pursuant to Section 2 of this
Agreement will be billed at the then current hourly rates. The table below reflects the rates in
effect as of the date of execution of this Agreement.
Personnel Hourly Rate
Executive Officers ............................. ............................... 300.00
Principals........................................... ............................... 290.00
Senior Vice President ........................ ............................... 275.00
Vice Presidents .................................. ............................... 225.00
Assistant Vice President .................... ............................... 195.00
SeniorAssociate ................................ ............................... 150.00
Associate............................................ ............................... 125.00
Analyst................................................. 85.00
Administrative Assistants .................... 65.00
Clerical................................................. 35.00
EAST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Exhibit B, Page 1
Expenses
Expenses will be billed for separately and will cover, among other things, travel, lodging,
subsistence, overnight courier, computer, and fax transmission charges. Advances made on
behalf of the District for costs of preparing, printing or distributing disclosure materials or related
matter whether by postal services or electronic means, may also be billed through to the District
upon prior authorization. Additionally, a surcharge of 6% of the net fee amount is added to
verifiable out -of- pocket costs for recovery of costs such as telephone, postage, document
reproduction and the like.
Limiting Terms and Conditions
The above fee is based on completion of work orders within six months of the District's
authorization to proceed, and assumes that the District will provide all necessary information in a
timely manner.
The fee shown above in Part I presumes attendance at up to 6 meetings in the District's offices or
such other location within a 25 -mile radius of the District place of business as the District may
designate. Preparation for, and attendance at Board of Directors meetings on any basis other than
by appointment" may be charged at our normal hourly rates as shown in Part 2, above.
Abandonment
If, once commenced, the services of the Consultant are terminated prior to completion of our final
report for any reason, we are to be reimbursed for professional services and direct expenses
incurred up to the time we receive notification of such termination at the standard hourly rates
shown in Part 2.
EAST VALLEY WATER DISTRICT/FIELDMAN, ROLAPP & ASSOCIATES Exhibit B, Page 2
DRAFT REPORT — FOR DiscussIONPURPOSES ONLY
EAST VALLEY WATER DISTRICT
WATER RATE ANALYSIS
DP,AFT REPORT
A14YZ 2008
LOD East Valley
Water District
MuniFinancial
Corporate Office
27368 Via Industria
Suite 110
Temecula, CA 92590
Tel: (951) 587 -3500
Tel: (800) 755 -ML NI (6864)
Fax: (951)587 -3510
Office Locations
Anaheim, CA
Lancaster, CA
Oakland, CA
www.muni.com
Orlando, FL
Sacramento, CA
Seattle, WA
DRAFTREPORT - FORDISCUSSIONPURPOSES ONLY
TABLE OF CONTENTS
Table of Contents
ExecutiveSummary ............................................................................ ............................... I
Assumptions................................................................................. ............................... 1
Findings........................................................................................ ............................... 2
Recommendations........................................................................ ............................... 2
Chart El: Projections Using Current Rates ................................ ............................... 3
Table El: Proposed Water Rate Schedule ................................... ............................... 4
Chart E2: Projections Using Proposed Rates ............................. ............................... 5
Introduction. ....................................................................................................................... 6
CurrentRates ............................................................................... ............................... o
Table 1: Current Water Rates ...................................................... ............................... 6
CurrentCustomers ....................................................................... ............................... 7
Table 2: Number of Customer Accounts (FY200612007) ........... ............................... 8
Table 3: Monthly Water Consumption by Customer Class (FY 2006/07) .................. 9
Annual Revenue Requirements ........................................................ ............................... 10
10ApproachestoDeterminingRevenueRequirements ................. ...............................
Current and Future Revenue Requirements ............................... ............................... 11
Historical Revenues and Expenses ............................................ ............................... 12
Table 4: Historic Financial Results ............................................ ............................... 12
Future Revenue Requirements ................................................... ............................... 13
Table 5: Capital Improvement Projects ..................................... ............................... 14
Table 6: Estimated Debt Service ................................................ ............................... 16
Water Revenue Requirements .................................................... ............................... 18
Table 7: Water Utility Revenue Requirements ........................... ............................... 19
Allocation of Water Costs ................................................................. ............................... 20
Cost of Service Procedure .......................................................... ............................... 20
Classification of Expenses to Cost Components ....................... ............................... 21
Table 8: Functionalization of Water Utility Revenue Requirements ........................ 22
Table 9: Allocation of Water Utility Revenue Requirements ..... ............................... 23
Developmentof Water Rates ............................................................. ............................... 24
Table 10: Projected Number of Equivalent Meters ................... ............................... 25
Table I1: Projected Water Usage (in HCF) .............................. ............................... 26
Table 12: Calculation of Water Rates ....................................... ............................... 27
Table 13: Proposed Water Rate Schedule ................................. ............................... 28
Conclusion......................................................................................... ............................... 29
DRAFT REPORT- FOR DISCUSSIONPURPOSES ONLY
EXECUTIVE SUMMARY
This study of water rates was conducted for the East Valley Water District (EVWD) to
determine water revenue requirements, costs of services, appropriate, fair and equitable
rates and rate structure, and to maintain the water utility on a financially sound and
stable basis over the next ten fiscal years. The study was conducted using historical and
projected data on operating and non - operating expenses, debt service, and capital
expenditures.
The EVWD retained MuniFinancial to prepare a water rate analysis that will include a
new water rate schedule that meets current and near -term projected system revenue
requirements. For purposes of determining annual revenue requirements as a basis to set
future water rates, we used a projection period of ten years, spanning fiscal years
2008 /2009 through 2017/2018 (the study period).
Assumptions
This section presents the assumptions used in the water rate analysis.
1. The budget for fiscal year ending June 30, 2008 was used as the base year.
2. The beginning operating fund balance for fiscal year 2007/2008 is estimated at
1,320,000.
3. The annual customer growth rate for the system as a whole is assumed to average
one percent (1.0 %) throughout the study period.
4. An inflation factor of six percent (6 %) was used to project all operating
expenses.
5. The water utility currently pays debt service on:
Certificates of Participation - Series 2001
Certificates of Participation - Series 1996
2004 Project Installment Sale Note
Department of Water Resources Construction Loan
2006 Project Installment Sale Note
6. The EVWD current water rate structure consists of fixed monthly meter charge,
a fire standby charge, and a consumption charge.
MuniFinancial East Valley Water District Water Rate Analysis 1
DRAFT REPORT — FOR DISCUSSIONPURPOSES ONLY
Findings
This section presents the findings of the water rate analysis.
1. The water utility's current financial condition is not viable since revenues have
not kept up with rising costs, such as facility repair and maintenance, labor, and
materials.
2. Water purchase costs are expected to significantly increase during the study
period.
3. Due to these increasing expenses, the current revenues are insufficient to finance
the utility's operations.
4. Projections indicate that the utility operating fund balance will become negative
during fiscal year 2010/2011. The deficit will continue to accumulate thereafter
unless water rates are adjusted to meet revenue requirements (see Chart ES1 on
page 3).
5. Existing rates will not adequately fund system replacement and major capital
project needs.
6. Existing rates will not adequately fund recommended reserve fund balances.
Recommendations
Based on the findings of this water rate analysis, we recommend that the EVWD adopt
the following items:
1. The proposed water rate structure (see Table ES -1 on page 4). The rate structure
adequately provides for ongoing costs and debt service and allows for funding of
reserves for unscheduled expenses (see Chart ES -2 on page 5).
2. A policy of targeting an operating fund balance of 90 days of annual operations
and maintenance expenses to ensure that funds are available for emergency
purposes and to mitigate future rate shocks.
3. A policy of setting aside funds annually in a repair & replacement reserve
account to provide for unscheduled system maintenance and rehabilitation.
MuniFinancial East Valley Water District Water Rate Analysis 2
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DRAFT REPORT - FOR DISCUSSIONPURPOSES ONLY
INTRODUCTION
This report documents the results of the water rate study conducted for the East Valley
Water District (EVWD) by MuniFinancial. The primary purpose of this study is to
develop a water rate structure that will adequately fund the annual operations and capital
needs of the water utility.
The rate study incorporates utility revenues, operating expenses, debt service, and capital
expenditures data provided by the EVWD. The objective of the rate study is to develop
rate schedules for the water utility during the five -year study period. The projected rate
schedule is designed to produce revenues for the water utility to pay administrative,
operations, maintenance, capital improvement, and debt service expenditures, in addition
to maintaining fund balances at reasonable levels and within guidelines endorsed by the
American Water Works Association (AWWA).
The results of the rate study are derived from projected financial analyses of the water
utility based upon the budgeted revenues and expenses of fiscal year ending June 30,
2008 (the base year). A ten -year projection of operating results to determine future
revenue requirements was developed for the water utility for the fiscal years ending
June 30, 2008 through 2018 (the study period). The projections also determine the
amounts required to maintain sufficient balances in the Water Utility Fund.
Current Rates
The EVWD current water rate structure consists of fixed monthly meter charge, a fire
standby charge, and a consumption charge. Note that each unit represents one hundred
cubic feet (HCF) of water. Table 1 illustrates the current water rate schedule.
7: C:Grrelnr Warer Hares
MONTHLY WATER RATES
The following rates will be charged for all water furnished by the East Valley
Water District::
METER RATES
1.20 Per 100 Cubic Feet
plus
System Charge
3/4" ............... $8.40 /mo
V .............. $15.70/mo
1 1/2" .............. $33.00 /mo
2" ............... $47.601mo
3" .............. $83.501mo
4" ............ $139.00/mo
6" ............ $270.00 /mo
8" ............ $405.001mo
Initiation of Service Charge: $25.00 /Service Address
FIRE STANDBY CHARGE: Per Inch Diameter per Month $5.60
Temporary Service Charge: $1800.00 deposit plus $1.20 per HCF* of metered
water *HCF - hundred cubic feet
MuniFinancial East Valley Water District Water Rate Analysis 6
DRAFT REPORT - FOR DISCUSSIONPURPOSES ONLY
Current Customers
Table 2 shows the current number of water customer accounts for fiscal year 2006/2007
by meter size. Table 3 depicts the monthly water consumption for fiscal year 2006/2007
for each customer class.
MuniFinancial East Valley Water District Water Rate Analysis
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DRAFT REPORT — FOR DrscussioNPURPOSEs ONLY
ANNUAL REVENUE REQUIREMENTS
The EVWD water utility fund must receive sufficient total revenue to ensure proper
operation and maintenance of the department as well as preserve the financial integrity
of the utility and the fund. Adequacy of water revenues can be measured by comparing
the water system's revenue requirements to be met from the water rates it charges to its
customers.
Approaches to Determining Revenue Requirements
In order to develop adequate revenues from a system of water rates, the annual revenue
requirements of the water utility must be determined. There are two commonly accepted
bases for determining annual revenue requirements in order to develop a financially
sound water rate structure. These approaches are the "cash needs" approach and the
utility" approach. Both approaches are endorsed by the AWWA.
The "cash needs" basis is typically used by public water utilities when establishing rates
for their customers. Under this approach, the basic revenue - requirement components
include:
Operating and maintenance (O &NI) expenses
Debt service costs (principal and interest on water utility- related debt
instruments)
Capital expenditures funded directly from current revenues or accruals
on a pay -as- you -go basis
Other elements such as interdepartmental expenses (cost allocation),
in -lieu taxes, and interest earnings (considered as a credit to the
expenses)
The "utility" basis for determining annual revenue requirements is typically used by
regulated investor -owned utilities and regulated municipal utilities. Items normally
included in annual revenue requirements based on this approach include:
Operating and maintenance (O &Ivl) expenses
In -lieu taxes
Depreciation expense
Fair rate of return on the rate base
As the East Valley Water District is a public water agency, we have used the "cash" basis
in this analysis.
hfuniFinancial East Valley Water District Water Rate Analysis 10
D.RAFT.REPORT — FOR DIscussioNPURPOSEs ONLY
Current and Future Revenue Requirements
The annual revenue requirements are derived from maintenance and operations costs,
debt service expenses, and projected capital expense items. Interest earnings, fines and
forfeitures, and other miscellaneous income may offset some of these expenses, but the
majority of the costs should be recovered via customer rates and charges.
The EVWD prepares an annual budget for the water system that itemizes all the
expenditures for each fiscal year. These expenses include personnel costs, maintenance
and operations, equipment repair and replacement, and Capital Improvement Program
CIP) costs. For the study we also established two new reserves and added line items
within the budget analysis to account for the collection of funds in these reserve
accounts. The two reserve funds are as follows:
1. A Repair & Replacement Reserve Collection - to set aside funds for the
replacement of major systems in the EVWD's facilities
2. An Operating Reserve - to ensure that funds are available for emergency
purposes and to mitigate rate shocks
The water system activities included in our analysis were gathered from the EVWD
annual operating budget and audited financial statements.
MuniFinancial East Valley Water District Water Rate Analysis 11
DRAFT REPORT — FOR DISCUSSIONPURPOSES ONLY
Historical Revenues and Expenses
Base year income and expense data for the water system were obtained for fiscal year
2007/2008 using the water system budget for that year, in addition to audited financial
statements for fiscal years 2002 through 2007. The historic financial results of the water
system are shown in Table 4.
Table 4: Historic Financial Results
INCOME BEFORE CONTRIBUTIONS
2007 Actual 2006 Actual 2005 Actual 2004 Actual 2003 Actual 2002 Actual
OPERATING REVENUES
Utility plant dedicated
Water sales 12,928.581.00 11,681,350.00 10,629,544.00
817,741.00
10,369,032.00 9,670,505 9,685,235.00
Bulk sales 182,758.00 125,696.00 225,374.00 221,547.00 175,701.00 232,095.00
Connection charges 425,825.00 266,817.00 326,584.00 181,527.00 301,222.00 264,926.00
Other water services 289,978.00 304.573.00 378,750.00 251,888.00 273,170.00 262585.00
TOTAL OPERATING REVENUES 13,827,142.00 12,378,436.00 11,560,262.00
1,552,381.00
11,023,994.00 10,420,598.00
4,487,143.00
10,444,841.00
OPERATING EXPENSES
2,797,484.00 3,596,609.00 3,385,887.00
Source of Supply 390,124.00 639,948.00 568,306.00 616,986.00 734,001.00 360,827.00
Pumping 3,451,376.00 2,987,709.00 2,839,783.00 2,824,273.00 3,003,996.00 2,748,623.00
Water Treatment 626,770.00 381,846.00 405,668.00 344,407.00 279,918.00 273,029.00
Transmission and Distnbution 766,082.00 695,088.00 682,225.00 571,027.00 574,447.00 587,833.00
Customer Accounts 403,493.00 397,014.00 391,700.00 390,095.00 368,594.00 333,969.00
Administrative and General 3,812,194.00 3,964,444.00 3,924,142.00 3,390,016.00 2,890,789.00 2,488,534.00
OPERATING EXPENSES BEFORE
DEPRECIATION 9,450,039.00 9,066,049.00 8,811,824.00 8,136,804.00 7,851,745.00 6,792,815.00
Depredation 2192,052.00 2040938.00 7977242.00 1764996.00 1,585450.00 1492700.00
TOTAL OPERATING EXPENSES 11,642,091.00 11,106,987.00 10,789,066.00 9,901,800.00 9,437,195.00 8,285,515.00
OPERATING INCOME 2,185,051.00 1,271,449.00 771,186.00 1,122,194.00 983,403.00 2,159,326.00
NON - OPERATING REVENUE
Investment income 323,256.00 208,893.00 144,775.00 58,932.00 205,051.00 539,227.00
Rents 5,000.00 30,000.00 31,221.00 41,722.00
Perchlorate research grant 626,014.00 510,451.00 1,498,040.00
Gain from disposition of fixed assets 15,855.00 1,245,794.00 118,996.00 2,817.00
Miscellaneous 106,269.00 14,144.00 68,434.00 14,760.00 98.337.00 18,489.00
TOTAL NON OPERATING INCOME 445,380.00 1,468,637.00 337,205.00 729,706.00 847,877.00 2,097,478.00
NON - OPERATING EXPENSES
Interest expense 554,914.00 620,130.00 681,134.00 695,616.00 607,321.00 803,530.00
Loss from disposition of fixed assets 15,795.00 57,106.00
Perchlorate research administration 626,014.00 559,936.00 1,498,040.00
Amortization - issuance costs 35,280.00 35.280.00 35,280.00 35,280.00 35,280.00 35,280.00
Amortization expense - lease costs 2,675.00 2,676.00 2,676.00 2,676.00 2,675.00 2,675.00
Loss on lease termination 26,667.00
TOTAL NON - OPERATING EXPENSES 592,869.00 658,086.00 719,090.00 1,375,381.00 1,205,212.00 2,423,298.00
INCOME BEFORE CONTRIBUTIONS 2,037,562.00 2,082,194.00 389,301.00 476,519.00 626,068.00 1.833,506.00
CONTRIBUTIONS
Utility plant dedicated 1,737,873.00 1,151,890.00 717,423.00 1,066,279.00 2,020,846.00 817,741.00
Capacity charges 516,619.00 467,687.00 967.048.00 1,121.038.00 758,770.00 705,190.00
Grant 195,089.00 77,886.00 597,751.00
Locsl Governments 133,648.00 170,890.00
Perchlorate Conference 20035.00 29450.00
TOTAL CONTRIBUTIONS 2,449,581.00 1,697,463.00 2,282,222.00 2,320,965.00 2,970,541.00 1,552,381.00
CHANGE IN NET ASSETS 4,487,143.00 3,779657.00 2,671,523.00 2,797,484.00 3,596,609.00 3,385,887.00
Sour.: East Valley W r Diablo
MuniFinancial East Valley Water District Water Rate Analysis 12
DRAFT REPORT - FOR DIscussioNPURPOSEs ONLY
Future Revenue Requirements
An evaluation of future revenue requirements should focus on four specific areas. These
areas are increases in operating expenses, capital improvement costs, requirements for
debt service, and the maintenance of reserves. The following sections discuss the impact
of these four factors on the water utility revenue requirements.
Operating Expense Projections
For the purpose of determining annual revenue requirements as a basis to set future
water rates, we used a projection period of ten years. During this period (FY 2008/2009
through FY 2017/2018), costs are naturally assumed to increase due to inflationary
pressures. In projecting future expenses, we have used the cost estimates provided by the
EVWD. Per EVWD direction, we are using an expenditure growth rate of six percent
6 %) to project the future costs of the system. This is in line with our experience with
similar -sized utility systems.
Capital Improvement Costs
The EVWD maintains a Capital Improvement Plan (CIP) for the funding of annual
capital projects. The values used in this analysis are based on cost estimates provided by
the EVWD. Construction costs were escalated annually by a factor of 9.07 %, based on
the total weighted average annual percentage change between 2002 and 2007 in the
Producer Price Indices (PPI) for steel and plastic (published by the Bureau of Labor
Statistics). Steel and plastic are the two main construction materials used in the utility's
CIP projects and, as such, the costs of these materials drive the costs of the projects (the
two components were weighted equally in the calculation of the escalation factor). The
specific indices used in the study were the PPI for "iron /steel pipe & tube manufacturing
from purchased steel" and the PPI for "plastic construction products," as it was assumed
that these were representative of the materials used in the utility's construction projects.
Table 5 presents the CIP costs over the ten -year planning period of this study (note that
it is assumed that all CIP costs are operations- related, i.e. not driven by growth, and will
be funded on through the issuance of revenue bonds).
MuniFinancial East Valley Water District Water Rate Analysis 13
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Debt Service
The water utility currently pays debt service on:
Certificates of Participation - Series 2001
Certificates of Participation - Series 1996
2004 Project Installment Sale Note
Department of Water Resources Construction Loan
2006 Project Installment Sale Note
It is assumed that the EVWD will issue new debt to fund all capital improvement
projects listed in Table 5. The total new debt issuance is estimated at $151,250,000 with
an annual debt service payment of $11,718,000 (based on financing $121,755,628 in
construction costs, an interest rate of 6.5 %, an underwriter's discount of 2 %, a cost of
issuance of 1 %, a reserve fund requirement of 10 %, and a 30 -year term with one year of
capitalized interest). These estimates are based on the current interest rate environment
and industry standard costs of issuance figures. Total estimated debt service for the
study period is summarized below in Table Total estimated debt service for the study
period is summarized below in Table 6.
MuniFinancial East Valley Water District Water Rate Analysis 15
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DRAFT.REPORT — FOR DISCUSSIONPURPOSES ONLY
Reserve Funds
Repair & Replacement Reserve Collection Fund We recommend that the EVWD establish a
repair and replacement reserve collection to set aside funds for the construction and
replacement of major systems in the EVWD water facilities. Developing adequate
reserves allows for emergency cash for the system and helps mitigate future rate shocks.
Irlater Operating Fund. The operating fund for the water utility is projected to have a
balance of $1,320,000 as of July 1, 2007, according to the EVWD. We recommend that
the EVWD adopt a policy of maintaining a balance of 90 days of operating expenses in
the operating fund in order to satisfy expense obligations as cash flow fluctuates during
the year. This reserve fund target is within industry standards for similar -sized utility
systems.
MuniFinancial East Valley Water District Water Rate Analysis 17
DRAFT.REPORT — FOR DISCUSSIONPURPOSES ONLY
Water Revenue Requirements
Table 7 presents the ten -year projected revenue requirements for the water utility. This
table includes annual revenues projected to be raised using the current rate structure, the
additional revenue required to meet projected water utility expenditures utilizing rate
increases, the projected operating and non - operating expenses, and fund balance
information based on the revenues generated from rate and fee increases.
Row 3 of this table shows the revenue generated using current rates and fees. We utilized
a population growth factor of one percent (1 0/6) to project operating revenues. Current
rates and fees do not produce enough revenue to maintain a positive operating fund
balance. The section below the current revenues (rows 5 through 17) incorporates the
revenue generated by the proposed rate and fee increases. As the table illustrates, in
order to maintain a positive cumulative fund balance during the study period, total
system revenues must be increased by twenty percent (20 %) in fiscal year 2008/2009;
fifteen percent (15 %) in fiscal year 2009/2010; fifteen percent (15 %) in fiscal year
2010/2011, ten percent (10 %) in fiscal year 2011/2012, ten percent (10 %) fiscal year
2012/2013, and five percent (5 0/6) in fiscal year 2013/2014.
Total operating expenses are shown in row 30, net income is presented in row 51, and
the ending operating fund balance is detailed near the bottom of the table in row 57.
Row 59 shows the targeted operating fund balance, which is the minimum amount of
funds the EVWD should maintain in its operating fund to address any emergency
requirements that may arise for the water utility.
MuniFinancial East Valley Water District Water Rate Analysis 18
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ALLOCATION OF WATER COSTS
In Bighorn- Desert View Water Agency v Verjil, the California Supreme Court held water
agency's rates were subject to repeal by initiative pursuant to Section 3 of Article XIIIC
of the California Constitution. Because of the Bighorn decision, water rates in California
are now considered property- related fees, therefore the substantive and procedural
requirements of California Constitution Articles XIIIC and XIIID (Proposition 218)
apply to water rate setting. Section 6 of Article XIIID states:
The amount of a fee or charge imposed upon any parcel or person as an incident of
property ownership shall not exceed the proportional cost of the service attributable to
The parcel.
This utility rate study was performed to allocate the costs of providing service to users
in order to ensure that rates are equitable and not unduly discriminatory, thereby
satisfying the Proposition 218 requirements. The total cost of serving each customer
class is determined by distributing each of the utility cost components among the user
classes based upon the respective service requirements of each customer class.
Therefore, a true cost of service rate study enables a water utility to adopt rates based on
the true costs to each user class. The purposes of this water utility cost of service study
include:
Proportional allocation of the costs of service to users.
Derivation of unit costs to support the development of water rates.
Cost of Service Procedure
To design equitable water rates, it is necessary to allocate costs among the various
customer classes commensurate with the cost of providing service. Revenue
requirements are allocated to customer functional characteristics in the first step of a
three -step process and then distributed to customers proportionate to their share of
each of the functional characteristics. The second step of the allocation process
classifies operating and non - operating expenses to the cost components of water costs
and customer costs. Water costs are those that are associated with the consumption of
water by users. Customer costs vary with the number of customers served by the system,
or number of equivalent meters connected to the system. The final step of the process
translates these costs of service into water rates.
NluniFinancial East Valley Water District Water Rate Analysis 20
DRAFTREPORT —FOR DISCUSSIONPURPOSES ONLY
Classification of Expenses to Cost Components
Operating -- and-- non- operating---expenses— axe -- allocated — directly-- to- -funtrional —cost-
components to distribute the costs to the various user classes. Table 8 presents the
allocation of each expense component based on its functional category of water or
customer -based costs. Customer costs are costs that occur regardless of the amount of
water used, such as customer service or administrative costs. We recommend that
customer costs be covered by the customer's monthly meter charge. Water costs are
usage -based costs, such as water supply, pumping, treatment, and transmission and
distribution costs, and are addressed by the customer's monthly consumption charge.
Table 9 presents the allocation of the revenue requirements calculated for each year of
the study period into their customer and water components. This allocation is based on
the functionalization percentages calculated in Table S.
MuniFinancial East Valley Water District Water Rate Analysis 21
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DRAFT REPORT — FOR DISCUSSIONPURPOSES ONLY
Table 9: Allocation of Water Utility Revenue Requirements
Water C- osts - -- - -- Customer Costs—
Base Extra- Capacity Customer Billing /Admin Meters & Services
Functionalization Factors 79.4% 1.0% 17.4% 2.2%
Sources: East Valley Water District; ManlFlnandal.
Customer Costs
Customer Billing /Admin Meters & Services
Water Costs
2,956,832 $
Base Extra- Capacity
FY 08/09 $ 13,505,026 167,285
FY 09110 15,686,088 194,302
FY 10111 18,219,391 225,681
FY 11/12 20,241,743 250,732
FY 12/13 22,488,577 278,563
FY 13114 23,849,136 295,416
FY 14115 24,087,627 298,371
FY 15/16 24,328,503 301,354
FY 16/17 24,571,788 304,368
FY 17118 24,817,506 307,412
Sources: East Valley Water District; ManlFlnandal.
Customer Costs
Customer Billing /Admin Meters & Services Total
2,956,832 $ 372,066 17,001,209
3,434,360 432,154 19,746,904
3,989,010 501,947 22,936,029
4,431,790 557,663 25,481,928
4,923,718 619,564 28,310,422
5,221,603 657,047 30,023,203
5,273,819 663,618 30,323,435
5,326,558 670,254 30,626,669
5,379,823 676,956 30,932,936
5,433,621 683,726 31,242,265
YluniFinancial East Valley Water District Water Rate Analysis 23
DRAFT REPORT — FOR DISCUSSIONPURPOSES ONLY
GEVELOPM ENT 0FFWATER RATES
Following the distribution of the revenue requirements to the classification factors, these
requirements are used in the development of new water rates. The water costs are
accounted for through each customer's monthly consumption charge. Customer costs are
allocated based on the number of equivalent meter ratios within the entire system.
Table 10 illustrates the projected number of equivalent meters for each year of the study
period. Equivalent meter factors represent the burden each user group places upon the
water utility as measured by at-, equivalent meter index. This index should reflect the level
of service to each customer group based on their potential commodity demand (the
index used in the study was obtained from the AWWA M1 Manual). The total number of
equivalent meters was used in determining the monthly meter charges shown in Table 12.
Table 11 illustrates the projected water consumption in hundred cubic feet (HCF) by
customer class for the study period. The total consumption for each year was used in
determining the commodity charges shown in Table 12.
The proposed water rates are designed to increase the water system's revenue in order to
meet rising operating costs, to enhance the financial condition of the water utility, and to
provide funds for needed rehabilitation of the water system infrastructure. The proposed
rates are expected to recover all of the customer and water costs of the system.
Table 12 illustrates the calculation of the proposed water rates. The baseline (5/8" and
3/4' meter charge is calculated by dividing all customer costs of the water system by
the total number of equivalent meters. The monthly meter charge for all other meter
sizes are calculated by multiplying the baseline meter charge by each meter size's
respective meter - equivalent ratio. The consumption charge is calculated by dividing the
water- related costs by the estimated total water consumption for the water system. The
resulting water rate schedule is illustrated in Table 13.
MuniFinancial East Valley Water District Water Rate Analysis 24
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DRAFT REPORT — FOR DiscussIONPURPOSEs ONLY
CONCLUSION
The proposed water rate schedule is based on the EVWD projected revenue
requirements over the next ten fiscal years. The proposed rates are designed to generate
additional water revenues to promote revenue adequacy throughout the ten fiscal year
planning period. In addition, the rates were designed to satisfy Proposition 218
regulations.
We recommend that the EVWD adopt the proposed rate structure to ensure that the
water system has a stable cash flow stream in order to provide for ongoing costs and
debt service and allow for the funding of reserves for unscheduled expenses. We also
recommend setting a policy of targeting an operating fund balance of 90 days of annual
operations and maintenance expenses to ensure that funds are available for emergency
purposes and to mitigate future rate shocks. Finally, we recommend setting a policy of
collecting funds annually in a reserve account to provide for future system repairs and
replacement.
MuniFinancial East Valley Water District Water Rate Analysis 29
Draft Report — For Discussion Purposes Only
EAST VALLEY WATER DISTRICT
SEWER RATE ANALYSIS
DRAFT REPORT
May 28, 2008
East Valley
Water district
MuniFinancial
Corporate Office:
27368 Via Industria
Suite 110
Temecula, CA 92590
Tel: (951) 587 -3500
Tel: (800) 755 -MUNI (6864)
Fax: (951) 587 -3510
Office Locations:
Anaheim, CA
Lancaster, CA
Oakland, CA
www.muni.com
Sacramento, CA
Orlando, FL
Memphis, TN
Draft Report — For Discussion Purposes Only
TABLE OF CONTENTS
TABLEOF CONTENTS ............................................................................. ............................... i
EXECUTIVESUMMARY .......................................................................... ............................... I
1Assumptions................................................................................. ...............................
Findings........................................................................................ ............................... 2
Recommendations........................................................................ ............................... 2
Chart El: Projections Using Current Rates ................................ ............................... 3
Table El: Proposed Sewer Rate Schedule ................................... ............................... 4
Chart E2: Projections Using Proposed Rates ............................. ............................... 5
INTRODUCTION..................................................................................... ............................... 6
CurrentRates ............................................................................... ............................... 6
Table 1: Current Sewer Rates ...................................................... ............................... 7
CurrentCustomers ....................................................................... ............................... 8
Table 2: Number of Sewer Connections (FY 2006/ 2007) ............ ............................... 8
Table 3: Estimated Annual Sewer Discharge by Customer Class (FY200612007) ... 9
Annual Revenue Requirements .......................................................... .............................10
Approaches to Determining Revenue Requirements ................. ............................... 10
Current and Future Revenue Requirements ............................... ............................... 11
Historical Revenues and Expenses ............................................ ............................... 11
Table 4: Historic Financial Results ........................................... ............................... 12
Future Revenue Requirements .............
Revenue Requirements Analysis .........
Table 5: Revenue Requirements...........
ALLOCATION OFSEWER COSTS .................................. ...............................
Cost of Service Procedure .................................. ...............................
Cost Classification Methodology ....................... ...............................
Table 6: Functionalization of Sewer Utility Revenue Requirements
Table 7: Loading and Unit Rate Calculations ... ...............................
Table 8: Allocation Factors ............................... ...............................
Table 9: Required Revenue Allocations ............. ...............................
DEVELOPMENT OF SEWER RATES ................... ...............................
Projected Number of Connections and Sewer Discharge......
Table 10: Projected Number of Connections .........................
Table H: Projected Sewer Discharge (HCF) .......................
Sewer Rate Calculations ......................... ...............................
Table 12: Proposed Sewer Rate Schedule
CONCLUSION
ZMuniFnancial
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16
17
17
18
19
20
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22
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25
26
27
28
29
30
Draft Report — For Discussion Purposes Only
EXEcirrIVE SUMMARY
This study of sewer rates was conducted for the East Valley Water District (EVWD) to
determine sewer revenue requirements, costs of services, appropriate, fair and equitable rates
and rate structure, and to maintain the sewer utility on a financially sound and stable basis
over the next ten fiscal years. The study was conducted using historical and projected data
on operating and non - operating expenses, debt service, and capital expenditures.
The EVWD retained MuniFinancial to prepare a sewer rate analysis that will include a new
sewer rate schedule that meets current and near -term projected system revenue
requirements. For purposes of determining annual revenue requirements as a basis to set
future sewer rates, we used a projection period of ten years, spanning fiscal years 2008/2009
through 2017/2018 (the study period).
Assumptions
This section presents the assumptions used in the sewer rate analysis.
1. The budget for fiscal year ending June 30, 2008 was used as the base year.
2. The beginning operating fund balance for fiscal year 2007/2008 is estimated at
880,000.
3. The annual customer growth rate for the system as a whole is assumed to average
one percent (1.0 %) throughout the study period.
4. An inflation factor of four percent (4 %) was used to project all operating expenses.
5. The EVWD's current sewer rate structure consists of a monthly fixed charge per
equivalent dwelling unit for residential customers and a volumetric rate per hundred
cubic feet (HCF) of water based on type of use in one of two areas (West of City
Creek or East of City Creek) for commercial users.
rfiMuniFnandal
Draft Report — For Discussion Purposes Oniy
Findings
This section presents the findings of the sewer rate analysis.
1. Expenses are expected to significantly increase during the study period.
2. Due to these increasing expenses, the current revenues are insufficient to finance the
utility's operations.
3. Projections indicate that the utility operating fund balance will become negative
during fiscal year 2008 /2009. The deficit will continue to accumulate thereafter
unless sewer rates are adjusted to meet revenue requirements (see Chart ES1 on page
3).
Recommendations
Based on the findings of this sewer rate analysis, we recommend that the EVWD adopt the
following items:
1. The proposed sewer rate structure (see Table ES -1 on page 4). The rate structure
adequately provides for ongoing costs and allows for funding of reserves for
unscheduled expenses (see Chart ES -2 on page 5).
2. A policy of targeting an operating fund balance of 90 days of annual operations and
maintenance expenses to ensure that funds are available for emergency purposes and
to mitigate future rate shocks.
3. A policy of setting aside funds annually in a repair & replacement reserve account to
provide for unscheduled system maintenance and rehabilitation.
MMuniFinancial
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Draft Report — For Discussion Purposes Only
INTRODUCTION
This report documents the results of the sewer rate study conducted for the East Valley
Water District (EVWD) by MuniFinancial. The primary purpose of this study is to develop a
sewer rate structure that will adequately fund the annual operations of the sewer utility.
The rate study has used utility revenues, operating expenses, debt service, and capital
expenditures data provided by the EVWD. The objective of the rate study is to develop a
rate schedule for the sewer utility during the ten -year study period. The projected rate
schedule is designed to produce revenues for the sewer utility to pay administrative,
operations, maintenance, capital improvement, and debt service expenditures, in addition to
maintaining fund balances at reasonable operating levels and within guidelines endorsed by
the American Water Works Association (AW WA).
The results of the rate study are derived from projected financial analyses of the sewer utility
based upon the budgeted revenues and expenses of the fiscal year ending June 30, 2008 (the
base year). A ten -year projection of operating results to determine future revenue
requirements was developed for the sewer utility for the fiscal years ending June 30, 2009
through 2018 (the study period). The projections also determine the amounts required to
maintain sufficient balances in the sewer utility's operating fund.
Current Rates
The EVWD's current sewer rate structure consists of a monthly fixed charge per equivalent
dwelling unit for residential customers and a volumetric rate per hundred cubic feet (HCF)
of water based on type of use in one of two areas (West of City Creek or East of City Creek)
for commercial users. Table 1 illustrates the current sewer rate schedule.
aj jMuniFnancial
Draft Report - For Discussion Purposes Only
Table 9: Current Sewer Rates
JlMuniFnancial
West of City
Creek
East of City
Creek
Residential * 24.25 26.25
Commercial
Multi Family 1.32 HCF 1.41 HCF
Commercial, Retail 2.19 HCF 2.28 HCF
Restaurant 2.33 HCF 2.42 HCF
Laundromat 1.64 HCF 1.73 HCF
Dry Cleaners 2.19 HCF 2.28 HCF
School, Church 1.11 HCF 1.20 HCF
Government, Municipal 1.81 HCF 1.90 HCF
Hospital, Convalescent 1.33 HCF 1.42 HCF
Hotel 2.33 HCF 2.42 HCF
Office Bldg, Motel 1.81 HCF 1.90 HCF
Auto Repair 1.66 HCF 1.75 HCF
Car Wash 1.66 HCF 1.75 HCF
plus a flat charge of $2.00 per month
Per EDU- Equivalent Dwelling Unit
Hundred Cubic Feet
Rates for the hotel categories are based on hotels with restaurants. Hotels Motels without
restaurants fit in the Office Building /Motel category on this table.
JlMuniFnancial
Draft Report — For Discussion Purposes Only
Current Customers
Table 2 shows the current number of sewer connections for fiscal year 2006/2007 by
customer class. Table 3 depicts the estimated annual sewer discharge for fiscal year
2006/2007 for each customer class.
Table 2: Number of Sewer
Connections (FY 200612007)
Customer Class FY 2006 -2007
Residential 19,812
Commercial:
Multi Family 604
Commercial, Retail 456
Restaurant 89
Laundromat 8
Dry Cleaners 4
School, Church 99
Government, Municipal 11
Hospital, Convalescent 18
Hotel
Office Bldg, Motel 28
Auto Repair 50
Car Wash 7
EV W D 30
Total 21,216
Sources: East Valley Water District; MuniFinancial
SMuniFinancial 8
Draft Report — For Discussion Purposes Only
Table 3; Estimated Annual
Sewer Discharge by Customer
Class (FY 200612007)
Customer Class FY 2006 -2007
Residential 5,914,002
Commercial:
Multi Family 1,474,380
Commercial, Retail 361,091
Restaurant 52,305
Laundromat 27,054
Dry Cleaners 1,752
School, Church 250,876
Government, Municipal 12,440
Hospital, Convalescent 41,834
Hotel
Office Bldg, Motel 22,950
Auto Repair 10,629
Car Wash 7,034
EV W D 2,107,457
Total 10,283,804
Sources: East Valley Water District; MuniFinancial
MmuniFinancial
Draft Report — For Discussion Purposes Only
Annual Revenue Requirements
The FVWD sewer utility fund must receive sufficient total revenue to ensure proper
operation and maintenance of the utility as well as preserve the financial integrity of the
utility and the fund. Adequacy of sewer revenues can be measured by comparing the sewer
system's revenue requirements to be met from the sewer rates it charges to its customers.
Approaches to Determining Revenue Requirements
In order to develop adequate revenues from a system of sewer rates, the annual revenue
requirements of the sewer utility must be determined. There are two commonly accepted
bases for determining annual revenue requirements in order to develop a financially sound
sewer rate structure. These approaches are the "cash needs" approach and the "utility"
approach. Both approaches are endorsed by the AW WA.
The "cash needs" basis is typically used by public sewer utilities when establishing rates for
their customers. Under this approach, the basic revenue - requirement components include:
Operating and maintenance (O&M) expenses
Debt service costs (principal and interest on sewer utility- related debt
instruments)
Capital expenditures funded directly from current revenues or accruals on a
pay -as- you -go basis
Other elements such as interdepartmental expenses (cost allocation) and interest
earnings (considered as a credit to the expenses)
The "utility" basis for determining annual revenue requirements is typically used by regulated
investor -owned utilities and regulated municipal utilities. Items normally included in annual
revenue requirements based on this approach include:
Operating and maintenance (O &Ivl) expenses
Depreciation expense
Fair rate of return on the rate base
As the Fast Valley Water District is a public sewer agency, we have used the "cash" basis in
this analysis.
MuniFinancial 10
Draft Report — For Discussion Purposes Only
Current and Future Revenue Requirements
The annual revenue requirements are derived from maintenance and operations costs, debt
service expenses, and required fund balances. Interest earnings, fines and forfeitures, and
other miscellaneous income may offset some of these expenses, but the majority of the costs
should be recovered via customer rates and charges.
The sewer utility prepares an annual budget that itemizes all the expenditures for each fiscal
year. These expenses include personnel costs, maintenance and operations, and equipment
repair and replacement, and Capital Improvement Program (CIP) costs, if applicable.
For the study we also established two new reserves and added line items within the budget
analysis to account for the collection of funds in these reserve accounts. The two reserve
funds are as follows:
1. A Repair & Replacement Reserve Collection - to set aside funds for the
replacement of major systems in the EVWD facilities
2. An Operating Reserve - to ensure that funds are available for emergency
purposes and to mitigate rate shocks
The sewer system activities included in our analysis were gathered from the EVWD annual
operating budget and audited financial statements.
Historical Revenues and Expenses
Base vear income and expense data for the sewer utility were obtained for fiscal year
2007/2008 using the sewer utility budget for that year, in addition to audited financial
statements for fiscal years 2003 through 2007. This analysis is not a restatement of the
EVWD audits or budgets, but does rely heavily on these data sources. The historic financial
results of the sewer system are shown in Table 4
ISMuniFnancial t
Draft Report — For Discussion Purposes Only
Table 4: Historic Financial Results
Sewage Treatment $ 5,607,172.00 $ 5,473,390.00 S 5,288,212.00 $ 4,771,339.00 $ 4,557,909.00 S 4,495,040.00
Administrative and General
2007 2006 2005 2001 2003 2002
OPERATING REVENUES
500,774.00 473,534.00 459,908.00 437,403.00 405,440.00 376,515.00
Smvbe Charges 8,139,61 7733,908.00 7,423,533.00 6,622,688.0 6,085,516 6,001,710.00
Othersewerservices 11,087.00 9,746.00 106,325.00 44,062.00 S 18,082.00 S 23,534.00
Total Operating Revenues 8,150,687.00 7,743,654.00 7,529,858.00 6,666,650.00 6,103,598.00 6,025,244.00
OPERATING EXPENSES
29,099.00 30,773.00 26,801.00 34,127.00 24,581.00 23,927.00
Sewage Collection:
Salaries and wages 204,108.00 197,368.00 182,815.00 155,583.0 S 156,260.00 169,240.00
Uncolleclible accounts 6,067.00 1,472.0 3,321.00 3,254.0 1,842.00 2,357.00
Operating supplies 41,924.00 68,350.00 37,875.00 29,052.00 32,743.0 31,233.00
Repairs and maintenance S 125,820.0 68,981.00 88,496.00 60,353.00 72,055.00 S 73,383.0
Equipment maintenance and supplies
377,919.00 S 336,171.00 312,507.00 248,242.00 262,900.00 276,213.00
Sewage Treatment $ 5,607,172.00 $ 5,473,390.00 S 5,288,212.00 $ 4,771,339.00 $ 4,557,909.00 S 4,495,040.00
Administrative and General
Selena. and wages 500,774.00 473,534.00 459,908.00 437,403.00 405,440.00 376,515.00
Taxes and benefits 350,595.0 305,852.00 282,197.00 209,063.00 172,023.00 98,171.00
Uliiilms 34,906.0 33,230.00 45,022.00 32,924.00 40,665.00 36,143.00
Outside services 147,478.00 181,642.00 110,536.00 118,551.00 67,200.0 72,938.00
Legal and accounting 29,099.00 30,773.00 26,801.00 34,127.00 24,581.00 23,927.00
D'Bectofsfaes 18,224.00 S 47,053.00 19,609.00 23,238.00 25,362.00 23,094.00
Insurance 115,654.00 201,340.0 165,253.00 142,749.00 115,469.00 176,030.00
Office supplies and expense 107,715.0 62,527.00 65,766.00 76,142.00 61,888.00 61,599.00
Meetings. seminars, and bevel 51,789.00 45,858.00 32,801.00 41,596.00 21,357.00 36,383.00
Equipment maintenance and supplies 29,903.0 25,606.00 40,017.00 28,789.00 33,783.00 30,166.0
Vehicle and equipment 19,585.00 26,328.00 43,160.00 33,754.00 38,616.00 39,219.00
Regulatory fees 6,655.0D 1,891.00 8,162.00 735.00 415.00 90.00
D'e:asterlemergeneyexpense 1,193.00 2,263.00 62,704.00 1,265.00 150.00
Dues and subscriptions 16,263.00 12,830.00 14,990.00 16,600.00 9,083.00 7,615.00
General plant maintenance 15,436.00 13,001.00 12,244.00 13,219.00 12,486.00 24,094.00
Rent 39,764.00 37,330.00 33,360.00 4,920.00 8,051.00
Bank seance charges 13,781.00 11,154.00 13,570.00 6,826.00 4,640.00 2,852.00
Miscellaneous expenses 30.IX1 9.00 222.00 294.00 224.00 244.00
1,498,844.00 1,512,221.00 1,436,322.00 1,222,195.00 1,033,230.00 1,017,281.00
OPERATING EXPENSES BEFORE DEPRECIATION 7,483,935.00 7,321,782.0 7,037,041.00 6.241,776.00 5,854,039.00 5.788,534.00
Depreciation 622,778.00 S 612,865.00 S 582,150.00 568,463.00 560,912.00 532,155.00
Total Operating Expenses 8,106,713.0 7,934,647.00 7,619,19100 6,810,239.00 6,414,951.00 6,320,68900
Operating Income 43,974.00 190,993.00) 89,333.00) 143,589.00) 311,353.00) S (295,445.00)
NON-0PERATING REVENUE (EXPENSES)
Investment income 216,464.00 132,344.0 97,290.00 41,318.00 102,433.00 71,030.00
Penates and shut off charges 34219.00 S 37,246.00 26,013.00 26,332.00 20,927.00
Miscellaneous 14.00) 143.00) 73.0) 53.00) 16.00) 22.00)
Gain from disposition of fixed assets 12,287.00 661,533.00 S 115,044.00 255.00) 41, 960.00 BMW
Total NOn- Operating income (Expenses) S 262.956.00 830,980.00 238,274.00 67,342.00 165,304.00 71,81
Income Before Contributions 306,930.0 639,987.00 148,94100 76,247.00) 146,049.00) 223,559.00)
CONTRIBUTIONS
Utility plant dedicated 9,17,525.00 1,188,740.00 592,857.00 605,561.0 747,525.00 656,600.00
Cspacityclenges 133,309.00 145,886.00 266,059.00 278,872.00 361,619.00 145,454.00
1,080,834.00 1.334,626.00 858,916.00 884,433.00 1,108,944.00 602,054.00
CHANGE IN NET ASSETS 5 1 367 704 00 197481300 5100795].00 S 806188.00 S %2895.00 5 578,495.00
Sou¢e: East valley Water District
Future Revenue Requirements
An evaluation of future revenue requirements should focus on three specific areas. These
areas are increases in operating expenses, requirements for debt service, and the maintenance
of reserves in the operating fund. The following sections discuss the impact of these factors
on the sewer utility revenue requirements.
Operating Expense Projections
For purposes of determining annual revenue requirements as a basis to set future sewer
rates, we used a study period of ten years. During this period MY 2008/2009 through FY
MMuniFinancial 12
Draft Report — For Discussion Purposes Only
2017/2018), costs are naturally assumed to increase due to inflationary pressures. In
projecting future expenses, we have used the cost estimates provided by the EVWD. Per
EVWD direction, we ate using an expenditure growth rate of four percent (4 %) to project
the fixture costs of the system. This is in line with our experience with similar -sized utility
systems.
IMuniFnancial 15
Draft Report — For Discussion Purposes Only
Debt Service
The sewer utility currently is paying debt service on the 2004 Project Installment Sale Note
2004 Headquarters /Infrastructure Project). The portion funded by the sewer utility equals
approximately $253,000 per year. There are no new debt issuances currently planned during
the study period for the sewer utility.
MMuniFinancial 14
Draft Report — For Discussion Purposes Only
Reserve Funds
Repair & Replacement Reserve Collection Fund. We recommend that the EVWD establish a repair
and replacement reserve collection to set aside funds for the construction and replacement
of major systems in the EVWD sewer facilities. Developing adequate reserves allows for
emergency cash for the system and helps mitigate future rate shocks.
Sewer Operating Fund. The operating fund for the sewer utility is projected to have a balance
of $1,320,000 as of July 1, 2007, according to the EVWD. We recommend that the EVWD
adopt a policy of maintaining a balance of 90 days of operating expenses in the operating
fund in order to satisfy expense obligations as cash flow fluctuates during the year. This
reserve fund target is within industry standards for similar -sized utility systems.
Revenue Requirements Analysis
Table 5 presents the ten -year projected revenue requirements for the sewer utility. This table
includes annual revenues projected to be raised using the current rate structure, the
additional revenue required to meet projected sewer utility expenditures utilizing rate
increases, the projected operating and non - operating expenses, and fund balance
information based on the revenues generated from rate and fee increases.
Row 4 of this table shows the revenue generated using current rates and fees. We utilized a
population growth factor of one percent (1 %) to project operating revenues. Current rates
and fees do not produce enough revenue to maintain a positive operating fund balance. The
section below the current revenues (rows 5 through 17) incorporates the revenue generated
by the proposed rate and fee increases. As the table illustrates, in order to maintain a positive
cumulative fund balance during the study period, total system revenues must be increased by
ten percent (10 %) in fiscal years 2008/2009 and 2009/2010.
Total operating expenses are shown in row 29, net income is presented in row 46, and the
ending operating fund balance is detailed near the bottom of the table in row 52. Row 54
shows the targeted operating fund balance, which is the minimum amount of funds the
EVWD should maintain in its operating fund to address any emergency requirements that
may arise for the sewer utility.
MMuniFnancial 15
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Draft Report — For Discussion Purposes Only
AiLLOCATION OF SEWER COSTS
Sewer rates in California are considered property- related fees and are, consequently, subject
to repeal by initiative pursuant to Section 3 of Article XIIIC of the California Constitution.
Furthermore, the substantive and procedural requirements of California Constitution
Articles XIIIC and XIIID (Proposition 218) apply to sewer rate setting. Section 6 of Article
XIIID states:
The amount of a fee or charge imposed upon any parcel orperson as an incident ofpropery
ownership shall not exceed the proportional cost of the service attributable to the parcel.
This utility rate study was performed to allocate the costs of providing service to users in
order to ensure that rates are equitable and not unduly discriminatory, thereby satisfying the
Proposition 218 requirements. The total cost of serving each customer class is determined by
distributing each of the utility cost components among the user classes based upon the
respective service requirements of each customer class. Therefore, a true cost of service rate
study enables a sewer utility to adopt rates based on the true costs to each user class. The
purposes of this sewer utility cost of service study include:
Proportional allocation of the costs of service to users.
Derivation of unit costs to support the development of sewer rates.
Cost of Service Procedure
A cost of service analysis converts enterprise - related financing documents to costs incurred
by user classes for which rates can be developed. The cost of service study for the EV WD is
performed in three basic steps.
The first step is called functionalization, which categorizes cost data in terms of functions
performed by a sewer utility system. The functions identified in this study include operating
costs, capital projects to be funded by rates, debt service, and reserve requirements.
The second step classifies operating and non - operating expenses of the utility to the cost
components of flow and strength of sewer effluent. The cost components are defined as
follows:
Flow Costs: Volume or flow related costs vary with the discharge of
sewer by users over a specified period of time, typically a year.
Strength Costs: Strength costs vary with the quality of sewer discharged
as measured by the biochemical oxygen demand (BOD) and suspended
solids (SS) content of the discharged sewage.
The final step in this analysis allocates costs of service to each customer class. This step is
accomplished through the development of volume and strength related allocation factors for
each customer class.
MMuniFinancial 17
Draft Report — For Discussion Purposes Only
Cost Classification Methodology
For compliance with State and proposition 218 guidelines, a sewer utility is required to
utilize a cost allocation approach that fairly allocates costs among customer classes. This is
accomplished by allocating costs into the treatment parameters of flow and strength. These
costs are to be allocated in proportion to the percentage that each cost parameter represents.
When divided by the sewer loadings of each user class, unit costs of service are obtained. All
costs incurred by a sewer utility system can be allocated to one or more cost parameters. The
allocation of each cost item between flow, BOD, and SS is based on industry standards of
treatment parameter data. Tables 6 and 7 present the functionalization and loading
calculations, respectively, used to determine the allocation factors (shown in Table 8). The
required revenue allocations for each customer class are shown below in Table 9 for each
year of the study period.
JEMuniFnancial 18
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Draft Report - For Discussion Purposes Only
Table &: Allocation Factors
Sources: East Valley Water District; MuniFinancial
MuniFinancial
21
Flow Factors
Class Flow Factor BOO Factor SS FactorCustomer
Residential 57.51% 61.86% 66.78%
Commercial:
Multi Family 14.34% 15.42% 16.65%
Commercial, Retail 3.51% 2.83% 3.06%
Restaurant 0.51% 2.74% 1.77%
Laundromat 0.26% 0.21% 0.17%
Dry Cleaners 0.02% 0.01% 0.01%
School, Church 2.44% 1.71% 1.42%
Government, Municipal 0.12% 0.08% 0.06%
Hospital, Convalescent 0.41% 0.55% 0.24%
Hotel 0.00% 0.00% 0.00%
Office Bldg, Motel 0.22% 0.16% 0.10%
Auto Repair 0.10% 0.10% 0.17%
Car Wash 0.07% 0.01% 0.06%
EVWD 20.49% 14.33% 9.52%
Functionalization Factors
Flow Factor BOD Factor SS Factor
FYE 2009 to 2013 AVG 33.30% 33.35% 33.35%
Allocation Factors
Customer Class Flow Factor BOD Factor SS Factor
Residential 19.15% 20.63% 22.27%
Commercial:
Multi Family 4.77% 5.14% 5.550%
Commercial, Retail 1.17% 0.94% 1.02%
Restaurant 0.17% 0.91% 0.59%
Laundromat 0.09% 0.07% 0.06%
Dry Cleaners 0.01% 0.00% 0.00%
School, Church 0.81% 0.57% 0.47%
Government, Municipal 0.04% 0.03% 0.02%
Hospital, Convalescent 0.14% 0.18% 0.08%
Hotel 0.00% 0.00% 0.00%
Office Bldg, Motel 0.07% 0.05% 0.03%
Auto Repair 0.03% 0.03% 0.06%
Car Wash 0.02% 0.00% 0.02%
EVWD 6.82% 4.78% 3.17%
Sources: East Valley Water District; MuniFinancial
MuniFinancial
21
Draft Report - For Discussion Purposes Only
Table 9: Required Revenue Allocations
FY 2009 -2010
FY 2008 -2009
BOO Factor SS Faces Total
Flow Factor SOD Factor SS Factor Total
liesidential 1,857.886 $ 2.001.316 S 2,160.602 $ 6,019,803
Commercal:
M.W Family 514,590 554.316 598,435
Multi Family 463.1T 498,934 538.615 1,500)57
Commercial. Retail 113,437 91,646 0.940 304,022
Restaurant 16,432 86501 57,327 162,259
Laundmmat 8,499 6,866 SAW 20.801
Dry Cleaners 550 445 480 1,475
School, Church 78,813 55,183 45,827 179,823
Government, Municipal 3,908 2,736 1,818 8,462
Hospital, Convalescent 13,142 17,696 7,642 36480
Hold
5,608
Office Bldg, Motel 7,210 5,048 3,354 15,612
Auld Repair 3,339 3,237 5.436 12.013
Car Wash 2.210 238 1.927 4,375
BV WD 662.056 463,560 307,973 1433,591
Total S 3.230,661 3 3,235.407 $ 3,235.407 $ 9,701,474
FY 2009 -2010
EMun!Fnanciai 22
Flow Factor BOO Factor SS Faces Total
Residential 2,064,111 $ 2223,462 Y 2400429 $ 6,688.02
Commercial:
Total
Residential S
M.W Family 514,590 554.316 598,435 1,667,341
Commercial. Retail 126.028 101.818 109,922 337,769
Restaurant 18,266 98,324 6&690 180270
Laundromat 9,442 7,629 6.840 23,116
Orycleaners 611 494 533 1,639
School, Church 87,561 61,308 50,914 199.763
Government, Municipal 4,342 3.040 2,020 9,402
Hospital, Convalescent 14,601 19,660 8,490 42,751
Hotel
499 539
fficeO Big, Motel 8,010 5,608 3.726 17,345
Auto Repair 3,710 3,597 6,040 13,346
Car Wash 2,455 264 2.141 4,861
EMD 735547 515,015 342,157 1,592,720
Total 3,589,264 $ 3,594.537 Y 3594537 $ 10,778.338
EMun!Fnanciai 22
FY 2010 -2011
Flow Factor BOO Factor SS Factor Total
Residential S 2,084,753 S 2,245,696 S 2,424,433 6,754,882
Commercial: Multi Family 519736 559,859 604,419 1.684,014
Commercial, Retail 127,289 102,837 111,021 341,147
Restaurant 18,438 99.308 64.327 182,073
Laundromat 9,537 7,705 6.100 23,342
Dry Cleaners 6i8 499 539 1.655
School, Church 88.437 81,922 51423 201,781
Government, Municipal 4,385 3,070 2.040 9,496
Hospital. Convaleacent 14,747 19,857 8,575 43,179
HotelOffice Bldg. Motel 8.090 5,665 3,763 17,518
Amo Repair 3.747 3,632 6,100 13.480
Car Wean 2480 267 2,163 4,909
E D 742,902 520166 30.5,579 1.608,647
Focal 3,625,157 S 3,630,482 S 3,639482 10.886,121
FY 2011 -2012
Flow Factor GOD Factor SS Factor Total
Residentlal 2.105.600 S 2,268,153 S 2,418,677 6.22.430
Commemiai: Multi Family 524,933 565458 610,463 1709854
Commercial, Retail 128,562 103,665 112,132 3 'lass
Restaurant 18,622 100301 64,970 183,893
I.aundromal 9.632 7,782 6,161 23,575
Dry Cleaners 624 504 544 1,672
School, Church 89,321 62,541 51,937 203,799
Government, Municipal 4,429 3.101 2.060 9,591
Hospital, Convalescent 14,894 20,055 8,661 43,610
HotelOffice Bldg, Motel 8,171 5,721 3,801 17,693
Auto Repair 3784 3,669 6.161 13,614
Car Wash 2,504 270 2164 4,958
EW 750,331 525,367 349,035 1,624,734
Total 3,681,409 E 3,666787 E 3,666,787 10,994,982
EMun!Fnanciai 22
Draft Report — For Discussion Purposes Only
Table 9: Required Revenue Allocations (Continued)
Residen0alCommercial: Multi FamilyCommercial, Retail
Rests uantLaundromat
Dry CleanersSchool. Church
Covomrent Municipal
Hospital. Convalescent
HotelOffice BMg. Motel
Auto 12epair
Car Wash
E D
Total
FY 2015.2016
Flow Fedor BOD Factor SS Factor Total
2,191,0% $ 2.360.249 $ 2.548.103 S 7.099,448
546.247
FY 2012 -2013
FY 2013 -2014
108.082
19,379
Flow Factor SOD Factor SS Factor Total
IYedd.rd.1 2.126,656 $ 2.290.835 S 2,473,164 $ 6,890.655
forrmercial:
2,147,923 $ 2,313,743 $ 2A97.896 E
Multi Family 530,182 571,113 616,568 1,]1],883
Commercial, Retail 129,847 104,904 113253 348.004
Restaurant 18.809 101,304 65,620 185,732
Liumtmmat 9,729 7.860 6,223 23,811
Dry Cleaners 630 509 549 1,689
School, Church 90,214 63.166 52,457 205,837
Goverment+ Municipal 4,473 3.132 2,081 9,686
Hcep4al Convalescent 15,043 20,256 8,747 44.047
HotelOffice Bldg, Metal 8.253 5 ,778 3,839 17,870
Auto Repair 3,822 3,706 6,223 13,751
Car Wash 2.529 272 2,208 5.008
E D 757.835 530.621 352,525 1,640,981
rota] 3.698,023 E 3.703,455 S 3,703.455 E 11.104.932
Residen0alCommercial: Multi FamilyCommercial, Retail
Rests uantLaundromat
Dry CleanersSchool. Church
Covomrent Municipal
Hospital. Convalescent
HotelOffice BMg. Motel
Auto 12epair
Car Wash
E D
Total
FY 2015.2016
Flow Fedor BOD Factor SS Factor Total
2,191,0% $ 2.360.249 $ 2.548.103 S 7.099,448
546.247 588.418
FY 2013 -2014
108.082
19,379 104,373
10.023 8,098
Fbw Fader SOD Factor SS Factor
65.080
Total
ResWendal 2,147,923 $ 2,313,743 $ 2A97.896 E 6.959,561
Commem il:
Multi Family 53$484 576,824 622.734 1,735.041
Commercial, Retail 131,146 105,953 114.385 351,484
Restaurant 18,997 102,317 66,276 187,590
Laundromat 9.826 7,938 6,285 24,049
Dry Cleaners 636 514 555 1705
School, Church 91.116 63.798 52,981 207,895
Go.marr nil Municipal 4.518 3,163 2,102 9,783
Hospital, Convaloscanl 15,194 20,458 8,835 44,487
HotelMIce Bldg, Motel 8.335 5,836 3.877 18.049
Auto Repair 3,860 3,743 6.285 13.868
Car Wash 2.555 275 2,228 5,058
EMD 765,413 535,927 366,050 1657,391
Total 3,735,003 S 3.740.489 S 3,740,489 11,215,982
FY201b2015
Flow Factor SOD Factor SS Factor Total
Residential E 2.169.402 $ 2.336.880 3 2,522.875 7.029,157
Commerdat. Multi Family 540,839 582.592 628,961 1,752.392
Commercial Retail 132,457 107,012 115.529 354,998
Restadmim 19,187 103.340 66,939 189,466
taundmmat 9.924 8,018 6.348 24,289
Ory Cleaners 643 519 561 1722
School, Church 92.028 64,436 53.511 209,974
Government, Municipal 4.563 3,195 2,123 9.881
Hospital, Convalescent 15,346 20,663 8,923 44,932
HotelCMce Bldg, Motel 8,419 5,895 3,916 18,229
Auto Repair 3.899 3.780 6.348 14.027
Car Wain 2,580 278 2,250 5,109
EVYVD 773,067 641,286 359,611 1,673,965
Total S 3,772,353 $ 3,777,894 S 3,777,894 11,328,141
Residen0alCommercial: Multi FamilyCommercial, Retail
Rests uantLaundromat
Dry CleanersSchool. Church
Covomrent Municipal
Hospital. Convalescent
HotelOffice BMg. Motel
Auto 12epair
Car Wash
E D
Total
FY 2015.2016
Flow Fedor BOD Factor SS Factor Total
2,191,0% $ 2.360.249 $ 2.548.103 S 7.099,448
546.247 588.418
133,782 108.082
19,379 104,373
10.023 8,098
649 524
92.948 65.080
4,609 3,227
15.4% 20,870
635.250 1,769,916
116.685 358,548
67.608 191,360
6.411 24.532
566 1,740
54.046 212.074
21144 9.980
9,012 45,381
8,503 5,954 3,955 18.412
3,938 3.818 6.411 14,167
2,606 281 2,273 5,160
780,798 546.899 363,207 1,690.704
3.810,077 $ 3.815,673 $ 3,815.673 $ 11,441,423
amuniFinanciaf
23
Draft Report - For Discussion Purposes Only
Table 9: Reauired Revenue Allocations_(Continued
EMuniFinancial P4
IY201 &2017
Fbw Factor BOD Factor SS Fedor Total
RGodeatial 2,213,007 $ 2.383,852 $ 2.573,584 4]0.443
Commerdal: Multi Family 551,710 594,302 641,603 1,787,615
Commercial, Retail 135,119 109,163 117,851
Restaurant 19,572 105,417 68,284
193274
1932]4
Laundromat 10,124 8,179 6,475 24,7
Dry Cleaners 656 530 572 175] 57
93,655 65,259 54,58] 214,195
Gmamemem,MGovemmanh 4,655 3,259 2,165
mleecoal
Hosptlal. Convalescent 15,854 21,078 9.102 tS.M45.835
NOWOBioa Bldg, Motel 8,588 6.013 3,995 18,596
Auto Repair 3.9]7 3,856 6,476 14.309
Car Wash 2.632 284 2,296 5,211
EWID 788606 552.166 366.839 1,707,611
Total S 3,848.1]7 $ 3,853,830 $ 3,853,830 11,555,837
FY 2017 -2018
Fbw Factor BOO Factor SS Factor Total
Residential 2235,137 $ 2,407,690 $ 2,599.320 212,14]
Commercial: Multi Family 557,227 600,245 648,019 1,805,491
Commercial, Retail 136,471 110,255 119,030 365755
Restaurant 19,768 10,471 68.967 195,207
Laundromat 10225 8,261 6.540 25,025
Dry Cleaners 662 535 578 1,775
School, Church 9,816 66.388 55,132 216.337
Govemment. Municipal 4,702 3.292 2,187 10.181
Hospeal. COnvabscent 15,811 21,289 9,193 46.293
Hotel01fice Bldg, Motel 8.674 6,073 4,035 18.]82
Auto Itepair 4,017 3,895 6,540 14,452
Car Wash 2,656 286 2.319 5,263
EWJO 796,492 557,688 370,508 1,]24,68]
Total 3,885.659 $ 3,892,366 $ 3.892.368 11,671,395
Sources: East Valley Water DiaMet: MuNFnancial
EMuniFinancial P4
Draft Report — For Discussion Purposes Only
DEVELOPMENT OF SEWER RATES
Based on the analysis conducted for the sewer utility in this rate study, a rate schedule has
been developed which, if implemented by the EVWD, should generate enough revenue to
cover estimated expenses and maintain the desired sewer fund balances depicted in Table 5.
Projected Number of Connections and Sewer Discharge
Tables 10 and 11 show the projected number of sewer connections and the projected
amount of discharge for each customer class, respectively. Note that the number of
connections and discharge for each customer class were projected using a growth factor of
one percent (1 %).
ImMuniFinanciai 25
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Draft Report — For Discussion Purposes Only
Sewer Rate Calculations
The required revenue from the residential customer class (shown in Table 9) are first divided
by the number of residential connections and then divided by twelve (12) to calculate the
monthly residential rates. The rates for the commercial customer classes are determined by
dividing the required revenue of each class (shown in Table 9) by the corresponding amount
of projected discharge of each class.
The proposed Sewer Rate Schedule is shown below in Table 12 (note that the residential
rates shown in the table are per customer, while the commercial rates are per 100 cubic feet
monthly consumption of water for sewage flow purposes).
IMMuniFnancial 28
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Draft Report —Tor Discussion Purposes Only
CONCLUSION
The proposed sewer rate schedule is based on the EVWD projected revenue requirements
over the next ten fiscal years. The proposed rates are designed to generate additional sewer
revenues to promote revenue adequacy throughout the ten fiscal year planning period. In
addition, the rates were designed to satisfy Proposition 218 regulations.
We recommend that the EVWD adopt the proposed rate structure to ensure that the sewer
system has a stable cash flow stream in order to provide for ongoing costs and debt service
and allow for the funding of reserves for unscheduled expenses. We also recommend setting
a policy of targeting an operating fund balance of 90 days of annual operations and
maintenance expenses to ensure that funds are available for emergency purposes and to
mitigate future rate shocks. Finally, we recommend setting a policy of collecting funds
annually in a reserve account to provide for future system repairs and replacement.
IMMuniFinancial
30