City Council

Agenda Item

Staff Supplemental Report

TO:      Commissioner Dan Saltzman

THROUGH:  The Bureau of Environmental Services

FROM:    Dean Marriott

DATE:    May 22, 2003

RE:  RESOLUTION - Retroactive Stormwater Credits

Requested Placement Date:  June 4, 2003

RECOMMENDATION

Adopt the proposed resolution directing the Bureau of Environmental Services to provide retroactive credits to eligible ratepayers once the Bureau implements the Clean River Incentive and Discount Program. The retroactive credits are limited to the 12-month period preceding the start of the discount program and shall be calculated in the same manner as stormwater discounts.

BACKGROUND

On April 6, 2000, Council adopted Resolution No. 35876, directing several utility rate reform initiatives including the provision of stormwater discounts for ratepayers who maintain private stormwater management facilities; and

On December 13, 2000, Council adopted Ordinance No. 175160, establishing the Clean River Incentive and Discount Program, delaying its implementation due to difficulties with the City’s utility billing system and committing to consider retroactive stormwater credits once the discount program was implemented; and

In September 2002, the City launched a program to replace the utility billing system. The replacement project may not be completed until July 2005 and stormwater discounts may not be implemented until July 2006.

During the past six months Council has received increased contacts from ratepayers who anticipate being eligible for stormwater discounts and are demanding that discounts be calculated back to January 1, 2001 when the discount program was originally expected to begin.

Commissioner Saltzman asked the Bureau to prepare a report on retroactive stormwater credits for consideration by Council during a public hearing on May 7, 2003. The Bureau prepared the report, notified nearly 4,700 interested ratepayers, published newspaper notices, provided information on City web pages, and conducted a public meeting on April 29, 2003. Council conducted the public hearing on May 7, and concluded its deliberations with an agreement to support a 12-month retroactive credit to be offered to eligible ratepayers when the discount program is implemented. The resolution provides a formal vehicle for expressing Council’s May 7 consensus.

FINANCIAL IMPACT

The proposal impacts all stormwater ratepayers regardless of class. Ratepayers who maintain and operate private stormwater management facilities, and qualify for stormwater discounts under the Clean River Incentive and Discount Program will receive a one-time-only credit worth as much as 35% of the stormwater management charges paid during the 12-month period immediately preceding the start of the discount program, and a discount of as much as 35% of basic stormwater charges beginning with the first year of the program. Ineligible ratepayers will pay the full stormwater charge.

The Bureau estimates stormwater discounts to exceed $9 million and retroactive credits to approach $7.8 million in

FY 06-07. If financed by stormwater rates, Council will need to approve a 38% increase for FY 06-07. The financial impact of retroactive credits should be limited to one or two fiscal years if Council limits eligibility for retroactive credits to ratepayers who apply during the first year of the discount program. Otherwise the financial impacts could extend indefinitely.

The Bureau does not expect to implement the Clean River Incentive and Discount Program until July 2006, after the City has installed a new utility billing system and completed a 12-month transition period. The Bureau expects to budget the start-up of the discount program in FY 05-06 and the full impacts of the program in FY 06-07.

LEGAL ISSUES

The Bureau does not anticipate any legal issues associated with the offer of retroactive stormwater credits so long as the credits are calculated in the same manner as stormwater discounts as provided by the Clean River Incentive and Discount Program. The Bureau will seek a final legal determination of the discount program and retroactive credits once the Bureau has completed a functional review of the program with the vendor of the new utility billing system. The functional and legal reviews will take place at least six months prior to the start of the discount program.

CONTROVERSIAL ISSUES

Representatives of several business associations expressed concerns about the rate increases that may be required to pay for stormwater discounts and retroactive credits. They noted that the 35% limit on stormwater discounts is significantly greater than the estimate 9% of the stormwater utility costs that are considered variable and susceptible to savings caused by private stormwater management facilities. They questioned whether the discount program and retroactive credits can be supported on a cost-of-service basis, a claim that may call into question the method used by the City to set stormwater rates.

Rate reform advocates and ratepayers who consider themselves eligible for stormwater discounts demanded that Council provide retroactive credits calculated from January 1, 2001. They argued that Council should honor its original commitment to start the stormwater discount program on that date. They stated that they should not be penalized for the failings of the utility billing system, and argued that they had been paying excessive stormwater charges to the benefit of ratepayers who do not have private stormwater facilities. They suggested that Council should use resources from the General Fund or other sources to pay for retroactive credits.

Commissioners Sten and Leonard have expressed an interest in reconsidering the Clean River Incentive and Discount Program. They would like Council to replace the program with an automatic 35% discount granted to all ratepayers that are note served by storm sewer systems, and relaxed stormwater discount eligibility standards for all other ratepayers. The Bureau estimates that such changes will increase the costs of discounts in FY 06-07 from $9 to $12 million, increase the installment for retroactive credits from $2.6 to $3.7 million and increase stormwater rates by 50% on July 1, 2006. Council will consider the requirements of the discount program at an informal work session in the fall of 2003.

LINK TO CURRENT CITY POLICIES

The Clean River Incentive and Discount Program is substantially linked to City environmental policies contained in the Stormwater Management Manual and the River Renaissance program. The discount program is substantially consistent with federally mandated environmental policies and regulations contained in the Clean Water Act, Safe Drinking Water Act and Endangered Species Act.

CITIZEN PARTICIPATION

Prior to the May 7 public hearing, the Bureau notified nearly 4,700 interested ratepayers, published 4 newspaper notices, provided information on City web pages, and conducted a public meeting on April 29, 2003.

PUBLIC INVOLVEMENT:

If public involvement activities will be part of this project or contract, who will provide those services? Have you consulted with ONI about providing those services and if they are not the provider, please explain? What is the budget for those services and how are the funds allocated (budget allocation for the Bureau, ONI and/or consultant staff)?

The Bureau will implement a comprehensive marketing program prior to and during the start of the Clean River Incentive and Discount Program. The marketing program will involve ONI as well as a substantial number of community service organizations, neighborhood and business associations and social service agencies. The Bureau does not expect to begin the marketing effort until six months prior to the start of the discount program.

OTHER GOVERNMENT PARTICIPATION

The Bureau does not anticipate participation or involvement of other governments.