Many people have expressed concerns about the increase in utility rates and have asked questions ranging from what gives the City the authority to set and collect fees for handling water, wastewater, solid waste and recycling to asking how each council member will vote.

In this post, I attempt to set forth the roles of the City Council, the City staff, and the property owners or utility account holders impacted by the utility rate increase proposal and to answer several questions and concerns I’ve heard.

The utility rates support both ongoing operations as well as infrastructure renovation.

Wastewater rates support replacements of pipes, pump stations, and the Water Pollution Control Plant renovation.  Water rates support water distribution renovations to water tanks, pipes, pumps, valves and more. Solid waste rates support the collection, recycling and disposal of solid waste generated within the City of Sunnyvale, including the new FoodCycle program.

 

Water, wastewater, and solid waste and recycling are considered one of the essential front line services cities provide as part of their “police authority” as established in the Constitution of the State of California.

However, several amendments to the state Constitution allow for a majority of property owners to protest increases to fees for services such as water, sewer and trash collection.

The City’s Authority

This authority that gives the City the right to set and collect fees for these property-related services is set forth in the California Constitution, which reads “A county or city may make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws.”  Prior to Proposition 13 in 1978, voter approval was not required for taxes, charges or fees. There were several gaps for definitions in the Constitution, so several voter-approved amendments have further refined policy relating to local fees and taxes.

• Proposition 13 (1978): 2⁄3 voter approval required for “special taxes” and property tax otherwise limited to 1% of assessed valuation;
• Proposition 62 (1984): majority voter approval required for “general taxes” in general law cities and counties; and
• Proposition 218 (1996): majority vote approval required for “general taxes” in general law and charter cities and counties; property-owner approval required for assessments and property-related fees and charges.
• Proposition 26 (2010): a constitutional amendment that introduces, for the first time, a definition of what constitutes a local tax. This means that the local government would need to obtain a majority approval of the voters if the revenues are to be used for general governmental purposes, or a two-thirds voter approval if the revenues are to be used for a particular purpose. In contrast, a fee may be adopted by a majority vote of the city council. Utility rates for water and wastewater are excepted from Proposition 26 because Proposition 218 already sets forth approval requirements.

Proposition 218 approval requirements

Fees for services such as water, sewer and trash collection are subject to property owner majority protest.

Each year, cities and public agencies throughout California conduct proceedings pursuant to Article XIII D, Section 6(a)1 of the California Constitution with respect to their fees for water service, sewer service, refuse collection, and other property-related services.

The Article XIII D, Section 6(a) process for imposing a new property-related fee or increasing the rate of an existing property-related fee has three formally required components:

1. Notice
2. Hearing
3. Protest

The notices were mailed out and are posted on the City’s website.

The City Manager and Mayor have organized several study sessions and council items related to water supply and fee increases for June 6th. At 5 p.m., representatives from the Santa Clara Valley Water District and the Bay Area Water Supply and Conservation Agency will be speaking about Water Supply Issues and Drought Update (Item 17-0416). During the regular meeting, Item 3 is a time for the public to comment on the item Annual Review of Proposed Fees and Charges for Fiscal Year 2017/18 (17-0530). (See the meeting agenda for more details.)

The Council hearing decision is set for June 20th as part of the City Council meeting. The procedure I expect for this hearing is as follows:

1. Mayor announces hearing.
2. Staff gives report.
3. Clerk (or staff) announces both the number of “writings purporting to be protests” that have so far been received as well as the threshold at which a majority protest exists.
4. Public testimony
5. Mayor does a “last call” for protests and closes public testimony.
6. Clerk announces the final number of protests and whether a majority protest exists. (We have about 29,000 water account owners in Sunnyvale)
7. City Council discusses item.
8. If there is no majority protest, the legislative body may (but is not required to) adopt the fee.

Where it is clear that the number of protests received is substantially less than the threshold for a majority protest, it is a common practice for the Clerk to proceed as if all protests are valid, announce the number of protests received, and announce that there is no majority protest without determining the validity of the protests. If the tabulation of protests is complicated either by the sheer number of protests, the need to check the validity of protests, or (where the agency has not been opening protests as they come in) the need to open the protests, it is common for agencies to continue consideration of the matter to a later date after closing public testimony. Such a continuance gives the Clerk an opportunity to tabulate protests after the meeting (preferably in an announced public location).

The manner of protest is set forth in the proposed rate sheet in the call-out box labeled “Protest Process”.

Role of City Council

In considering the rate hike in a public meeting after hearing the staff report and all public testimony, the Council members will consider the proposed rate hike in light of the City’s role as having the police power to protect the public health, safety and welfare of its residents.

“The police power is not confined to elimination of filth, stench and unhealthy places. It is ample to lay out zones where family values, youth values, and the blessings of quiet seclusion and clean air make the area a sanctuary for people.” —  Village of Belle Terre v. Boraas, (1974) 416 U.S. 1, the U.S. Supreme Court

When Council members weigh the rate hike, we are to take into account the reasonableness of the utility rate for the general welfare. We will examine and consider whether the fees, charges, and rates are reasonable, fair and equitable, whether they proportionately represent of the
costs incurred by the City of Sunnyvale in improving infrastructure for water and wastewater.

Article XIII D, Section 6(b) of the Constitution sets forth substantive requirements for property-related fees such as water, wastewater and solid waste management. Specifically, Section 6(b) provides that a fee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following requirements:

1. Revenues derived from the fee or charge shall not exceed the funds required to
   provide the property related service.
2. Revenues derived from the fee or charge shall not be used for any purpose other
   than that for which the fee or charge was imposed.
3. 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.
4. No fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. …
5. No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services, where the service is available to the public at large in substantially the same manner as it is to property owners…

Furthermore, Proposition 218 provides that “in any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this article.”

The utility rates are considered fees imposed as a condition of development to defray all or part of the cost of public facilities related to a development project.

For such fees to be valid, Council will consider whether there is a reasonable relationship between the fee’s use and type of project; and between the need for the public facility and the type of development project on which the fee is imposed.

 

The equity question

Aside from the question of whether infrastructure projects funded by the rate increase will serve the general welfare, questions of fairness have come up. The equity question for this fee increase for many concerned community members boils down whether commercial property owners are bearing an equitable share of the cost of infrastructure improvements compared with residential property owners (or utility-account holders).

For me, comparing the two will require some study and consideration. Both the City’s current utility rate sheet and the proposed rate sheet list the rates for residential and commercial users.

New developments pay special development fees called “Connection Fees” that are calculated based on an individual development’s incremental impact on the respective system. The income from connection fees has been declining in the three fiscal years: two years ago, it was 7% of overall revenue for the Wastewater Management Fund. This year, it’s 1.5%. Next year, it’s only 0.7% of fund income.  When I’m able to find the breakdown of service fee income by singe-family residential, multifamily and commercial utility fee users, for these funds, I’ll post the information.

As my understanding and methods for comparing the commercial rates with the residential rates, I’ll update this section of the post with my findings in advance of the June 20th hearing.

The general welfare question

Both the water and wastewater systems are fifty years or more years old.  This is a common issue faced around the country as our infrastructure ages.  Federal investment in revitalizing our public infrastructure is not on the immediate horizon, leaving cities little choice but to look for local funding and state loans in the interest of making our city a sanctuary for people.

As my research into where the funding sources come from for the infrastructure improvements, I’ll update this section post with pie charts or links to additional information as my research warrants.

One thing that is clear is that our current facilities are not adequate to meet the requirements of environmental laws regarding discharges into the Bay. Furthermore, it was clear to me that the older pipes get, the harder it is to keep rust and corrosion under control.

Matters of financial management

The Enterprise Funds section of the FY17/18 budget describes the three funds seeking the rate increases.

In the Water Supply and Distribution Fund section, it is noteworthy that the supplier are expected to increase rates significantly over the next 10 years. Water suppliers are seeking additional revenue to make up for lost sales due to water conservation.

The Wastewater Management Fund section describes the status of our existing treatment facilities. The narrative section also explains that the City will evenutally issuing bonds to fund the renovation of the water treatment facility, which will leave our city with a great deal of debt service.

The Solid Waste Management Fund section says the City needs to increase the rates to help meet our City’s Zero Waste goal of diverting 75% of our solid waste from landfills to other uses. Doing so will save nearly $900K per year (although it’s not clear if that’s the savings from 75% diversion rate by 2020 or the 90% diversion rate by 2030).

What’s missing?

During my review of the budget, I did not notice very many line entries where our city receives federal funding. This was not the case when our infrastructure was originally built. The federal government back then helped cities build municipalities with clean air and clean water that make the area a sanctuary for people.

 Source documents

Understanding the Basics of Municipal Revenues in California: Cities, Counties and Special Districts by the Institute for Local Government, 2016 Update.

Proposition 26: An Executive Summary for The Layperson by Patrick Whitnell on the Western City Blog

Proposition 26 Implementation Guide by the League of California Cities

Drafting Property-Related Fee Notices by the League of California Cities