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Minutes - Board - 2021-11-16 A SANIT��\ /+ moi' ;ter gyp. y o F5 ..RPORA[E % COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS SPECIAL MEETING NOVEMBER 16, 2021 NOTE:THIS HYBRID IN-PERSON AND TELECONFERENCED MEETING WAS CONDUCTED UTILIZING ELECTRONIC MEANS CONSISTENT WITH STATE OF CALIFORNIA ASSEMBLY BILL 361 (Gov. CODE 54953(B)(3)). Members present Arlene Schafer, Art Perry, Bob Ooten, Brett Eckles, Mike Scheafer Members absent None Staff present Scott Carroll (General Manager), Noelani Middenway (District Clerk and Public Information Officer), Kaitlin Tran (Finance Manager), Dyana Bojarski (Administrative Services Manager), Mark Esquer (District Engineer), Gina Terraneo (Management Analyst II) Others present Anthony Elowsky, Robert D. Niehaus, Inc. Ichiko Kido, Robert D. Niehaus, Inc. Meeting called to order at 8:02 A.M. A. OPENING ITEMS Procedural: 1. Call Meeting to Order-President Ooten President Ooten called the meeting to order at 8:02 a.m. COSTA MESA SANITARY DISTRICT PAGE 2 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16,2021 Procedural: 2. Roll Call - (If absences occur, consider whether to deem those absences excused based on facts presented for the absence — such determination shall be the permission required by law.) District Clerk and Public Information Officer, Noelani Middenway, conducted roll call and noted that President Ooten, Vice President Scheafer, Secretary Schafer, Director Perry, and Director Eckles were present. B. PUBLIC COMMENTS Procedural: 1. Public Comments President Ooten opened public comments. Hearing none, he closed public comments. C. DISCUSSION ITEMS Action: 1. Provide Staff Direction Regarding 2021 Wastewater Rate Study Recommendation: That the Board of Directors: 1. Provide staff direction regarding the 2021 Wastewater Rate Study; and 2. Direct staff to bring this item back to the December 20, 2021 Board of Directors meeting to adopt the study and set a public hearing date to comply with Proposition 218 President Ooten introduced the item. General Manager, Scott Carroll, provided report details and stated that the Board conducted its first review of the proposed wastewater rate adjustments on November 9, 2021. He discussed the correlation of wastewater rates to inflation rates and compared the proposed wastewater rates to those of other agencies. He stated that the District has more than doubled the number of wastewater projects in one year than in previous years.He reviewed the reasons for the proposed rate adjustments,which are listed in the staff report, such as, stabilization of rates, liability insurance cost increases, labor cost increases, new equipment for new Wastewater staff, replacement of a forklift, diesel fuel cost increases, capital improvement projects (CIPs) to replace aging infrastructure, and increased IT security and maintenance. He discussed the rate increases of similar agencies, such as the City of Placentia, City of La Palma, and South Coast COSTA MESA SANITARY DISTRICT PAGE 3 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16,2021 Water District. He discussed the suggestions provided by the Citizens Advisory Committee (CAC), which included comparing the District's rates to other Orange County Sanitation District (OCSD) member agencies. He stated that the proposed rate increases are still below average rates. He shared the 2021 Citizen Survey results, which indicate that 42% of customers support raising sewer rates to repair and maintain the sewer system. He stated that the CAC unanimously approved recommending that the Board considers approving the proposed rate adjustments presented in Table 1 of the staff report. Director Perry asked about the cost of a Proposition 218 hearing. Mr. Carroll stated that postage is the primary cost of a Proposition 218 hearing. Director Perry discussed a two-year rate increase rather than a five-year rate increase. He stated that, according to the City of Costa Mesa's data, multi- family properties are overcrowded and asked how this issue will affect the District's rates. Mr. Carroll deferred Director Perry's question to the consultants with Robert D. Niehaus, Inc. (RDN). He stated that the District's proposed rates are based on current housing data. Ichiko Kido of RDN confirmed that the rates for multi-family properties are based on current data. She stated that these rates will increase and that the rates have been adjusted to account for usage projections. Mr. Carroll clarified that Director Perry is wondering if multi-family rates should be higher than proposed. Ms. Kido stated that the proposed multi-family rate increases should be sufficient based on the research. Finance Manager, Kaitlin Tran, stated that the District budgeted $12,000 dollars for a Proposition 218 hearing. Director Perry inquired about the City of Newport Beach's 145% rate increase. COSTA MESA SANITARY DISTRICT PAGE 4 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16,2021 Mr. Carroll stated that their rate increases are for a five-year period. Discussion followed regarding the factors contributing to the need for rate increases. Vice President Scheafer stated that the District must address the contributing factors. He noted that inflation is currently at an all-time high. He inquired about whether inflation rates have been calculated into the proposed rate increases and asked if the current cost of living factors have been included. Ms. Kido stated that the overall inflation rate included in the study was 2.57%. She noted that the study might not include the most current data and that RDN usually applies the 20-year average inflation rate for other factors. She added that the overall inflation factor is about 3.5% for all costs. Vice President Scheafer inquired about construction cost factors. Ms. Kido stated that RDN used seven categories of factors and applied specific escalation factors for different expense items. Vice President Scheafer asked if the District has to consider construction cost factors in CIPs. Ms. Kido confirmed that construction cost factors are accounted for in the study. She noted that there have been extreme increases in the last few years. As a result, she stated that a 5-year average of construction costs was used in the study rather than a 20-year average. Vice President Scheafer inquired about the cities listed in the study for comparison. Mr. Carroll stated that the cities included in the study have their own sewer maintenance system. Vice President Scheafer asked if these cities use their General Fund to account for losses. Mr. Carroll stated that he is unable to speak on behalf of the cities. COSTA MESA SANITARY DISTRICT PAGE 5 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16, 2021 Vice President Scheafer asked if the District is notified about newly built accessory dwelling units (ADUs). District Engineer, Mark Esquer, stated that the Cities of Costa Mesa or Newport Beach will send the building plan requests to the District for plan check. He noted that the District will advise the property owner if a permit is necessary. Vice President Scheafer asked if the property owner receives two sewer charges for the main property and the ADU or if the charges are combined into one. Mr. Esquer stated that ADUs are not included in the assessments currently. He noted that the District and RDN are currently working on an ADU rate. Vice President Scheafer stated that the District will be experiencing a large increase in ADUs based on the California Department of Housing and Community Development (HCD) housing requirements. He suggested that the District should have a separate sewer charge for properties with ADUs. Mr. Carroll referred to the ADU rate listed in the staff report. Vice President Scheafer proposed that the District is not charging enough for ADUs and noted that there could be several residents living in one ADU. Mr.Esquer explained that the square footage of the ADU is used to determine the sewer charge. He stated that the proposed ADU rate is sufficient and based on the average size of ADUs being constructed. He noted that the ADU data was provided by the Cities of Costa Mesa and Newport Beach. Vice President Scheafer asked about the difference between commercial average and high strength. Mr. Carroll stated that commercial high strength refers to restaurants that produce grease. Director Eckles inquired if the staff report removed the comparison data from South Orange County wastewater agencies. COSTA MESA SANITARY DISTRICT PAGE 6 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16,2021 Mr. Carroll confirmed that they have been removed from the report as they are treated by the South Orange County Wastewater Authority rather than OCSD. Director Eckles expressed support for the suggestions provided by the CAC. He recommended utilizing the current staff report and wastewater graph data with the updated information. He expressed agreement with Vice President Scheafer's suggestion for charging a separate sewer rate for ADUs. He requested to assess other potential ADU rates. He discussed Figure 1 of the staff report regarding CPI costs. Ms. Kido stated that RDN used the overall inflation rate to determine the rate for each year of the study. She noted that using the overall inflation factor will provide lower estimates than the actual inflation rate. She added that the proposed rates of the study are the maximum amounts that the Board can approve. Mr. Esquer inquired if the chart with the percentage of inflation of construction costs is included in the presentation. Discussion followed regarding inflation factors for construction. Director Eckles stated that Figure 1 shows about 8% increase annually, however, the proposed rates are about 10% each year. He requested further explanation. Ms. Kido stated that the biggest factors contributing to the proposed increases are CIP costs. She explained that cumulative increases were used to escalate rates, which resulted in an increased total of 30%. She noted that rates are calculated utilizing compounded factors. Director Eckles thanked Ms. Kido for the explanation. He stated that the construction inflation rate of 9% has been decreasing. He inquired about liability insurance increases. Vice President Scheafer stated that the biggest influences on liability insurance are the unavailability of property insurance and cyber insurance COSTA MESA SANITARY DISTRICT PAGE 7 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16,2021 coverage. He noted that an agency's experience modification factor (E-mod) affects its workers' compensation rates. Director Eckles inquired if the District has discussed the proposed increased rates for commercial properties with the local business community. Mr. Carroll stated that the District has not consulted with the local business community. Director Eckles inquired if multi-family properties will receive a 100% increase over the next five years. Director Perry confirmed that those properties' rates will increase by 100%. Director Eckles inquired about the 100% increase. IMs. Kido discussed household size and per person usage. She stated that per person usage should not be different between single family and multi-family residents. She noted that the per person usage amount is about 55 gallons per day. Vice President Scheafer stated that singly family residents tend to be older than multi-family residents. Discussion followed regarding wastewater usage. Secretary Scheafer asked if the District has a record of the number of mobile homes. Mr. Carroll confirmed that the District has a record of mobile homes serviced by the District. Secretary Schafer asked about ADUs built in mobile home parks. Vice President Scheafer stated that ADUs cannot be built in mobile home parks because those residents do not own the land. Ms. Kido stated that ADUs are usually attached to single family properties. She noted that the 1.25 household size for ADUs is derived from the District's COSTA MESA SANITARY DISTRICT PAGE 8 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16,2021 Master Plan. She added that the City of Newport Beach's household size for ADUs is between 1 and 1.5. Discussion followed regarding housing. Vice President Scheafer inquired if ADUs are considered high average customers. Ms. Kido stated that the District's Master Plan is a better resource for determining sewer rates. President Ooten expressed interest in learning more about ADU sewer rates. He noted that some ADUs may have four to five residents. He stated that the current trends indicate more multi-family developments than single-family properties. He stated that most of the older properties in Costa Mesa have space to develop an ADU, but some areas do not have space like the Mesa Verde neighborhood. He added that the staff report shows that the present estimate of cost is based on an assumption of cleaning the sewer system from 12 to 18 months. He inquired if there is a policy that establishes an 18-month cleaning cycle. Mr. Carroll stated that there is no written policy regarding the District's sewer cleaning cycle. He noted that an 18-month cleaning cycle is one of the District's standard operating procedures. President Ooten expressed support for having a 12-month cleaning cycle as a District goal but indicated that it is not appropriate to hire two additional staff members and equipment to achieve it. He recommended keeping the 18-month cleaning cycle and discussed hiring one additional staff member to cover any personnel shortages and purchasing one additional cleaning truck to cover any deficiencies from the existing equipment.ment. He stated that � he would support an 8+% rate increase. Mr. Carroll stated that hiring two additional staff members would be prudent for coverage.He noted that the District currently has six wastewater workers with five available for on-call duties. He added that the workers experience high burnout from being on-call. He stated that at least two staff workers are required for pump station maintenance for safety precautions. He shared that he planned on discussing staffing at a later Board meeting COSTA MESA SANITARY DISTRICT PAGE 9 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16,2021 due to his concerns regarding employee burnout. He noted that finding contractors to backfill is a difficult process and that most contractors are not available on short notice. He added that additional staff will help the District achieve its goal of zero sanitary sewer overflows (SSO) and provide sufficient support and coverage. President Ooten added that, historically, there have been many years in which the District had zero SSOs. Mr. Carroll clarified that the District has only had one year with zero SSOs. President Ooten discussed the SSO goals of other local agencies. He stated that he does not find it necessary to hire two staff members to ensure zero SSOs. He discussed the Environmental Protection Agency and the State's requirements for waste discharge goals. Director Eckles suggested a two-year rate increase that aligns with the District's budget cycle with the costs of a Proposition 218 hearing included. He noted that the current market has skewed heavily due to the COVID-19 pandemic and inflation rates.He expressed support for a 5-8%rate increase. Secretary Schafer inquired about ADUs and their potential effects on sewer rates and maintenance. Mr. Esquer stated that he does not know the current amount of ADUs within the District's service area. He estimated that about 200-300 ADUs are built each year. Secretary Schafer stated that she would like to discuss District staff's inputs regarding ADUs. Director Perry suggested a two-year rate increase rather than a 5-year rate increase. He stated that the Fairview Developmental Center may have up to 1,400 units added, which could affect the current sewer rate. Vice President Scheafer asked if the District has incorporated the Metro West Project that has 1,600 units into the sewer rate study. He inquired if the District can apply for any grants to help fund its 15 projects and if the Ductile COSTA MESA SANITARY DISTRICT PAGE 10 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16, 2021 Iron Pipe Rehabilitation project will qualify for funding under the new infrastructure bill. I Mr. Carroll stated that he does not recommend delaying the Ductile Iron Pipe Rehabilitation project. He noted that the federal funds will not be available in time to be applied to the project. Vice President Scheafer stated that the District may receive some funding from the infrastructure bill, but it will not affect the proposed rate cycle. He discussed Figure 1 of the staff report and compared sewer rates for multi- family properties, commercial, and single-family properties. Mr. Carroll stated that the rates for each type of property are fair and equitable. He noted that the District staff can reexamine the proposed ADU rates. Discussion followed regarding fair and equitable rates. Ms. Kido stated that if a 5% rate increase is approved, then the rate increase should apply to every customer class. She noted that, in the cost-of-service analysis, RDN determined the percentage of costs that need to be recovered from each customer class. Director Perry stated that the proposed commercial rate is not raised by 5%. He commented that the commercial rate appears to be a better deal. Vice President Scheafer clarified that he does not support subsidizing single- family properties. He stated that the District should have raised the sewer rates in previous years. Mr. Carroll stated that the District did not want to raise solid waste and wastewater rates simultaneously. He noted that the COVID-19 pandemic was an unforeseen circumstance that delayed increasing sewer rates. Vice President Scheafer expressed support for exploring a two-year rate increase. Mr. Carroll stated that District staff will present a proposed two-year rate increase at the December Study Session. He shared that the South Coast COSTA MESA SANITARY DISTRICT PAGE 11 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16,2021 Water District has done a two-year rate increase while other wastewater agencies and cities have done a five-year rate increase. Director Perry inquired about the timeline for a Proposition 218 hearing. Mr. Carroll stated that a Proposition 218 hearing requires a 45-day notice. He recommended scheduling the hearing at the Board meeting for February 2022. Director Eckles requested to review more options for rate increases. President Ooten stated that the District will have more information on ADUs in the next two years. He recommended applying for a grant for the Elden Force Main project. He added that the economic impact from the COVID-19 pandemic will likely decrease as well as the costs of products and materials. He noted that the South Coast Water District aligned their rate increase with their two-year budget. He suggested investigating alternative ways to decrease staffs overtime commitment and burnout rate and developing a policy for a wastewater system cleaning timeline (12-month vs. 18-month). He mentioned solid waste rates, which the Board agreed to assess every five years. He stated that the District's sewer system has significant sewer repairs which should be strongly represented in the budget. He discussed the 2021 Citizen Survey results and the process of a Proposition 218 hearing.He noted that he does not oppose a 9.9% rate increase but would prefer to review a lower amount. There was no further discussion. D. CLOSING ITEMS Procedural: 1. Oral Communications &Director Comments There were no additional comments by the Board. Procedural: 2. Adjournment President Ooten adjourned the meeting at 9:14 a.m. COSTA MESA SANITARY DISTRICT PAGE 12 MINUTES OF THE BOARD OF DIRECTORS SPECIAL MEETING HELD NOVEMBER 16, 2021 IP '.1' ./ ILAZJ ( ists Arlene Schafer Bob Ooten Secretary President