Revised – Submitted by MPWMD staff at 3/28/12 workshop. ITEM:		PRESENTATION
4.	(Revised) PRELIMINARY STAFF REPORT ON BUDGET AND COST ALLOCATION ISSUES FOR USER FEE
Meeting Date:			March 28, 2012	Budgeted:	N/A
From:			David J. Stoldt, General Manager	Program/Line Item No:
Prepared By:			David J. Stoldt	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: As discussed in the background section of this staff note, the General Manager has recommended that the District consider shifting the collection mechanism of the User Fee from a percentage of the consumer’s water bill to a direct billing of the property owner based on industry standard allocations of water use related to the type of property, as recommended by the rate consultant. To date, the preliminary discussion has centered on three basic tenets;

1) $3.7 be raised through the new mechanism, because that is the amount budgeted in the most recent three years the User Fee was collected;

2) The amount be left unchanged for at least two years; and

3) The majority of the revenues collected be utilized to support water supply projects.

However, for a number of reasons discussed under “Background” below, the proposed collections will not be sufficient to perform all of the desired capital projects related to water supply and other District activities. Further, the cost of administering the collection mechanism as discussed under Item 3 earlier, could significantly reduce amounts available. Hence, the Board may wish to consider options for increasing revenue available for District activities.

RECOMMENDATION: The General Manager recommends the Board remain at the net target of $3.7 million to be raised from the new collection mechanism. If a direct billing mechanism is to be seriously considered as the eventual collection mechanism to be determined by the Board at its June 12, 2012 meeting, then the Board at this time may wish to instruct the rate consultant to increase the amount to be collected to account for costs of billing and collection, as well as uncollectibles, such that a net amount of $3.7 million would be raised. It is further recommended that the interim mitigation agreement, under which Cal-Am directly pays for 2/3rds of the costs of the Mitigation Program, be left in place until Mitigation Program costs can be reduced or the costs therefore be transitioned.

BACKGROUND: The District’s draft Capital Improvement Plan for the next two fiscal years (Exhibit 4-A) identifies $2,958,644 of project expenditures for FY 2012-13. Of these, $2,848,771 are related to water supply projects and $109,873 are related to the Mitigation Program. The two highest priority projects are completion of Water Project 1 (Aquifer Storage and Recovery Phase 1) and the District’s 50% pay-as-you-go portion of costs of Groundwater Replenishment. The FY 2012-13 estimate for costs related to these two projects is $1,921,715.

Exhibit 4-B shows the effect of the collection of $3.7 million with the new collection mechanism, but assuming no use of reserves and no reimbursement of Mitigation Program expenses by Cal-Am. The highlighted number in the lower portion of the last column shows that the new collection mechanism would yield only $826,322 for water supply capital expenditures – a shortfall relative to the draft Capital Improvement Plan.

The possible solutions to eliminate the shortfall are as follows:

a) Raise more than $3.7 million from the new replacement collection mechanism;

b) Use District reserves;

c) Have Cal-Am continue to pay a portion of the costs of the Mitigation Program;

d) Redirect project expenditures from Mitigation or Conservation programs; and/or

e) Furlough or lay-off employees.

At this time, the District has effectively depleted its reserves as a result of both the FY 2011-12 loss of User Fee collections due to the CPUC decision and a ten-year pattern of subsidizing operations with reserves (see Exhibit 4-D for a ten-year history of district revenues applied to expenditures.)

Redirecting expenditures from Mitigation or Conservation, or furloughs or lay-offs, cannot easily be accommodated without potentially disrupting legally mandated requirements or leaving grant-funded or reimbursed programs unserved.

The simpler solution is to continue to have Cal-Am reimburse the District for Mitigation Program expenses, and then pay the remaining 1/3^rd of Mitigation Program expenses from sources other than the User fee.

This would allow the District to allocate the full $3.7 million to costs directly related to water supply – approximately $2.5 million directly to capital projects as shown in Exhibit 4-C, and the remainder allocable to the staff, supplies, and services related to the water supply, water resources, and water demand functions of the District. For example, in FY2011-12 the District budget for personnel, services, and supplies related to water supply, water resources management, water use permitting, and water conservation totaled $1,618,000.

Certainly, if the CPUC should issue a favorable decision with respect to the award of monies for ASR Phase 1 costs, the District would then be in a position to access some portion, but that remains uncertain as of now. Further, those amounts must first be used to repay advances from the credit line used for ASR capital costs in FY2011-12, the balance of which may be carried over into the next fiscal year, yet ultimately needs to be repaid. A revenue source to pay off this liability has not been identified.

EXHIBITS

4-A (Revised – Submitted at 3/28/12 Workshop) Draft MPWMD Capital Improvement Plan

4-B Preliminary FY 2012/13 Budget Showing Effect of New Collection Mechanism

4-C Preliminary FY 2012/13 Budget Showing Effect of New Collection Mechanism and Continued Cal-Am Reimbursement of Mitigation Program Expenses

4-D Ten-Year History of MPWMD Revenues Applied to Expenditures

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