65B - PROPOSED WATER AND SEWER RATE ADJ

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City of Santa Ana, CA principal and interest expense on bonded debt, and capital improvement requirements are considered. Annual projections of customers, water use, revenues, and expenditures have been made using historical data for the next five years. SCOPE OF WORK Black & Veatch was retained by the City to develop a multi -year financial plan, conduct a cost of service analysis and design rates for both of its enterprises. The results of a study of the projected revenues, revenue requirements, costs of service, and rates for water service are presented herein. For purposes of this report, the study period is the five fiscal years beginning July 1, 2014 and ending June 30, 2019. Based on Proposition 218, agencies may not set rates in excess of 5 -year increments. Unless otherwise noted, references in this report to a specific year are for the City's year ending June 30. To avoid confusion between calendar and fiscal years, the term FY refers to the year beginning July 1 and ending June 30. Black & Veatch has projected revenues and revenue requirements for the study period based on a review of historical factors and the each enterprise's operating and capital budgets and financial policies. The study of revenue requirements recognizes projected operation and maintenance (0 &M) expense, establishment and /or maintenance of reserve funds, and capital financing requirements. Capital financing requirements include payments on outstanding bond issues as well as capital improvement expenditures met from annual revenues and available reserve funds. The Water Enterprise's cost of service used the American Water Works Association (AWWA) Manual M1. This allocation methodology produces cost of service allocations recognizing the projected customer service requirements for the City. Proposed rates are designed in accordance with allocated cost of service and local policy considerations. The extent to which the existing rate structure recovers revenues from customer classes in accordance with cost of service allocations is also evaluated. OVERVIEW OF LEGAL AND INDUSTRY BEST PRACTICES FOR COST -OF- SERVICE STUDIES Rate - setting procedures in California require that agencies responsible for imposing property- related charges must demonstrate a nexus between the cost of providing services and the services or benefits received. The state of California considers water and wastewater services as property - related fees and as such, subject to state constitutional and statutory requirements. Presented in the next few sections are brief summaries of the relevant laws governing the Study. Proposition 13 Government Code Section §50076, adopted in 1979 provides that "special taxes shall not include any fee which does not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged." Proposition 218 California voters approved Proposition 218 in November 1996. This voter - approved initiative added Articles XIIIC and D to the California Constitution. Article MID Section 2(e), is a definition of a "fee ". Essentially, as defined by Proposition 218, a fee is "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including a userfee or charge for a property related service ". Until 2006, sewer charges were BLACK & VEATCH I Introduction 15 65B -27