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HomeMy WebLinkAboutSpecial Committee ro Recommend Financing to Implement Dist. 3 Construction Programh COUNTY SANITATION DISTRICTS of ORANGE COUNTY, CALIFORNIA April 6, 1973 REPORT OF P.O. BOX 8127 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 (714) 540-2910 (714) 962-2411 TO RECOMMEND FINANCING TO At the direction of the Board, the Committee has met with the staff and financial consultant and reviewed the recommendations contained in the Report on Financing Major Sewerage Improvements. The basic data and information developed and presented in the report was studied. Particular scrutiny has been given the proposed connection fees for commercial and industrial developments, and the recommendations for a general obligation bond issue. Considerable input was obtained from the Committee members, Director Vanderwaal, staff, and the financial consultant. Mr. Bodnar of Stone and Youngberg has submitted a supplement to his report, which is attached herewith. The Committee concurs with the recommendations contained in Mr. Bodnar's supplemental report, summarized as follows: Establish the following recommended connection fees as soon as practicable: Residential Units $250 Commercial & Industrial $50/1000 sq. ft. with $250 minimum Commercial and industrial establishments having a high volume of water discharges will continue to be subject to excess capacity connection charges as provided in the existing Uniform Industrial Use Ordinance. Defer decision re amount of bond issue and timing of election for up to nine months. Current cash flow projections indicate that determination of a general obligation bond issue can be deferred up to the beginning of 1974, pending a decision by EPA regarding the definition of secondary treatment. It should be pointed out that although adoption of the above - recommended connection charges is a step toward meeting the requirements of the new Federal Water Pollution Control Act with respect to user charges, increasesin the schedule of use charges contained in the existing Uniform Industrial Use Ordinance will, in all likelihood, have to be adopted to ensure that the user charges, particularly with respect to the industrial community, conform to this provision of the Act. The Environmental Protection Agency has published regulations which provide, in part, that: "Prior to award of any grant after March 1, 1973, for a project which includes the building and erection of a treatment works, the applicant (a) has adopted or will adopt a system of charges to assure that each recipient of waste treatment service will pay its proportionate share of the costs of operation and maintenance (including replacement); (b) has received firm written commitments satisfactory to the Regional Admiriistrator for the payment to such applicant by the industrial users for their proportionate share of the Federal share of capital costs of the project allocable to the treatment of such industrial wastes to the extent attributable to the Federal share of the cost construction." The EPA is presently drafting guidelines which will set forth the manner and method for compliance with these provisions. The Committee directed the staff to redraft the proposed Sewer Connection Ordinance, incorporating the above -suggested fees and other recommendations of the Committee. In the case of additions to, or alterations of, structures other than residential dwellings that fall within the minimum square footage charge of $250, the Committee suggests a credit be allowed equal to the unused area, up to a period of five years, emanating from the initial connection permit. For property currently developed, but not discharging to the sewer, the Committee also recommends that connection fees be waived for a period of one year. A schedule comparing the proposed charges with those of the other Districts is included herewith. e Robert Root, Chairman Donald L. Fox Jack Green George B. Scott Charles Stevens, Jr. -2- April 65 1973 SCHEDULE OF CURRET�' DISTRICT'S CONNECTION CHARGES Family Dwelling District Unit Charge Other Development* Remarks 1 NONE 2 $250 $50/1000 sq. ft. PROPOSED with $250 minimum 3 $250 $50/1000 sq. ft. PROPOSED with $250 minimum 5 $160 $80/1000 sq. ft. Annually January 1st, with $80 minimum family dwelling escalates $5 and other development escalates $2.50 6 NONE 7 175 single family $437.50/acre Escalates annually on t250 multiple family with $175 minimum July 1st as follows: Single family dwelling 973 200 1974 225 1250 1975 Other development 7 00.00 w 00 min. 1974 562.50 w/ 225 min. 1625-00 1975 w/ 250 min. Note: Additional charges for direct connection to District trunks based on ' front footage charge 11 NONE * Excess capacity connection charges provided for in the Uniform Industrial Use Ordinance for commercial and industrial establishments having a high volume of water discharge also apply in all Districts. f STONE & YOUNGB E-RG MUNICIPAL FINANCING CONSULTANTS, INC. April 3, 1973 Orange County Sanitation District No. 3 Connection Fee and Bond Issue Study Committee P. O; Box 8127 Fountain Valley, California 92708 Gentlemen: Per your directions , we have reviewed our report of March 9, 1973 with the staff as it relates to: (1) suggested connection charges for industrial and com- mercial users, and (2) the suggested principal amount of the proposed bond authorization. From our meeting of March 21 with the Committee, it is our understanding that: (1) The basic rationale for the setting of connection fees on the basis of District costs to provide a unit of trunk sewer and sewage treat- ment -disposal capacity is agreeable to members of the Committee. These unit costs are $65 per 100 gallons of trunk sewer and sewage treatment -disposal capacity. (2) The criteria relative to projected, sewage flows from various types of land use employed by the consulting engineers in designing the trunk sewer syst6m have been approved by the District with its adoption of the master plan trunk sewer program. These projected flows are 1, 550 gpd per acre in low density (1-6 units per acre) residential uses; an average of 4,850 gpd per acre in medium -high density (7 or more units per acre) residential uses; and 3,555 gpd per acre in industrial -commercial uses. (3) The suggested connection fee of $250 per residential unit appears to be reasonable and is agreeable to the Committee. (4) The suggested connection fee of $250 per 5,000 square feet of com- mercial and industrial facility needs further study. It is felt that a connection fee for industrial and commercial uses at this level may have an adverse effect upon future development within the Dis- trict. Secondly, the Committee desires further information as to coordination of an industrial -commercial connection charge with the Districts' Uniform Connection and Use Ordinance. 989 -2300 SUITE 2750 • ONE CALIFORNIA STREET • SAN FRANCISCO. CALIFORNIA 94111 - (415):p1rytip Orange County Sanitation District No. 3 April 3, 1973 Connection Fee and Bond Issue Study Committee Page 2 (5) The suggested principal amount of the bond issue requirement be recon- sidered in view of the uncertainty regarding the extent to which secondary treatment, equivalent to activated sludge, may be required for the Districts' flows; the amount of connection fee revenue that may be realized by District No. 3 and the extent to which this amount of revenue will relieve the District No. 3 projected cash flow defects; and sewage treatment -disposal improvement implementation schedule. This report treats points 4 and 5 listed above. The findings.. con; clusions , and recommendations outlined below are presented as a result of a meeting held on March 28 with the staff. EXISTING UNIFORM CONNECTION AND USE ORDINANCE In April 1970, the joint Organization adopted a Uniform Connection and Use Ordinance which requires dischargers, who place an excessive demand on the Districts' sewerage facilities, to purchase additional capacity. Pertinent sections of this Ordinance include the following: Article 6, Paragraph 6: Prior to commencement of use and upon invoicing by the District, an excess capacity connection charge shall be payable by a user when, during the 12-month period after commencement of use, the peak flow rate may be reasonably expected to exceed 25, 000 gallons per day unless such peak flow rate is a reasonable use as defined in Article 2 of this ordinance. Article 2, Paragraph J : For the purpose of computing excess ca- pacity connection charges, reasonable use is hereby established at 25,000 gallons per day peak flow rate per $100, 000 of assessed valuation. Article 6, Paragraph b: Subject to the provisions hereinabove, .excess capacity connection charges payable shall be computed at the rate of $350 per 1,000 gallons per day of peak flow rate. 6 Orange County Sanitation District No. 3 April 3, 1973 Connection Fee and Bond Issue Study Committee Page 3 ILLUSTRATIVE EXAMPLES OF UNIFORM. CONNECTION AND USE ORDINANCE Two case examples have been prepared by Robert A. Webber, Chief, Industrial and Permit Division, to illustrate the application of the Excess Capacity Con- nection Charge Ordinance. Company A is a government -owned facility which is -:- not subject to ad valorem taxation. Company A was invoiced in June 1972 for $9, 240. Company B is an existing carpet manufacturer that is contemplating an expansion of its operations to include carpet dyeing which would place a very substantial demand on the sewerage facilities.. Allowable Discharge Actual Discharge Company Assessed Value Rate of Flow Rate of Flow A $0.00 0 gallons/day 26,400 gallons/day Computation of Excess Capacity Connection Charge Actual Discharge 26,400 gallons/day Allowable Discharge 0 gallons/day 26,400 gallons/day x $350/1, 000 gallons $9,240.00 B $450, 000.00 113, 000 gallons/day 500,000 gallons/day Computation of Excess Capacity Connection Charge Actual Discharge 500, 000 gallons/day Allowable Discharge 113 , 000 gallons/day 387,000 gallons/day x $350/1, 000 gallons _ $135 ,450.00 EVALUATION OF EXISTING PRACTICE 1. Under the existing Uniform Connection and Use Ordinance, reasonable use is established at 25, 000 gallons per day peak flow rate per $100, 000 'of assessed valuation. Orange County Sanitation District No. 3 Connection Fee and Bond Issue Study Committee April 3, 1973 Page 4 2. Our report of March 9 indicated on page 32 that it is reasonable to as- sume that a typical dwelling unit in low density residential areas (1-6 units per acre) contributes approximately 383 gallons per day to the District's sewerage system. The estimated assessed valuation of typical owner occupied housing units within the District is assumed to be approximately $7, 000. 3. From the above, the following relationships can be identified with respect to Companies A and B cited in the previous section of this report. . Company A Company B a. Actual Discharge 26,400 gpd 500,000 gpd b. •Excess Capacity Charge $ 91240 $135,450 c. District Cost of Providing Sewerage Facilities @ $65/100 gals Capacity $17,160 $325, 000 d. Actual Discharge in Terms of Dwelling Unit Equivalents @ 383 gpd 68.9 1,305.5 e . Connection Charge Revenue District Would Realize from (d) Dwelling Unit Equivalents @ $250 per unit $17, 225 $326, 375 f . Assessed Valuation District would Realize from (d) Dwelling Unit Equivalents @ $7, 000 per unit $482, 300 $9, 138, 500 g . • Property Tax Potential of (d) Dwelling Unit Equivalents @ $7, 000 per unit @ $0.4740 per $100 Assessed Valuation $ 2,286 $43, 316 h . Estimated Property Tax Potential of Company @ Assessed Valuation @ $0.4740 - per $100 Assessed Valuation - $ 21133 Orange County- Sanitation District No. 3 April 3, 1973 Connection Fee and Bond Issue Study Committee Page 5 4. From a comparison of b and c, it appears. from the relationship cited above that the excess capacity charge does not recover the District's cost of providing sewerage facilities, especially in the case of "wet" type of industry. 5. On the basis of relative demand placed'on District sewerage facilities, residential land uses provide significantly greater assessed valuation and prop-, erty ,tax potential compared to industrial uses. Company B, with a discharge of 500,000 gpd, has a relative demand equivalent to 1,305 residential dwelling units. Company B assessed valuation is $450,000 whereas the potenflal assessed valua- tion of 1, 305 residential dwelling units is estimated to be $9, 138, 500. In terms of property tax potential, 1,305 residential dwelling units would provide approxi- mately $43,300, whereas Company B provides a property tax potential of $2,133. CONCLUSIONS AND RECOMMENDATIONS NON-RESIDENTIAL CONNECTION CHARGES 1. In the interest of attempting to achieve optimum equity among potential residential and non-residential users, it is recommended that the suggested method of setting connection charges for non-residential users as outlined in our March 9 report be considered for adoption as a matter of Board policy. 2. The consulting engineers have projected estimated flows from non- residential users at the rate of 3, 555 gpd per acre. The estimated cost of pro- viding sewerage system capacity for this amount of flow is about $2, 300 per acre, or approximately $50 per 1,000 square feet. 3. In administering the suggested non-residential connection charge, it is recommended that the charge be established at the rate of $50 per 1, 000 square feet of facility, with a minimum charge of $250, equivalent to a residential dwelling unit. It is suggested that this charge be applied to non-residential uses which -do not place an inordinate demand upon sewerage facilities. 4. With respect to "wet industry" which places an inordinate demand on sewerage facilities, it is recommended that the District continue with the ad- ministration of the Districts' Uniform Connection and Use Ordinance as adopted by the Joint Boards in April, 1970. In continuing the use of this Ordinance, it should be realized, however, that Federal and State revenue program require- ments may necessitate revision in this Ordinance as a condition for receiving Federal and State assistance for sewerage projects. In this connection, the Environmental Protection *,Agency published Rules and Regulations in the Orange County. Sanitation District No. 3 April 3, 1973 Connection Fee and Bond Issue Study Committee Page 6 February 28, 1973 Federal Register which provide in part as follows: "#35.925-11 User charge system. That, prior to award of any grant after March 1, 19 73 , for a project which includes the building and erection of a treat- ment works (Step 3) the applicant (a) has adopted or will adopt a system of charges to assure that each recipient of waste treatment service will pay its proportionate shard of the costs of operation and maintenance (including replace- ment); (b) has received firm written commitments satis- factory to the Regional Administrator for the payment to such applicant by the industrial users for their proportionate share of the Federal share of capital costs of the protect allocable to the treatment of such industrial wastes to the extent attri- butable to the Federal share of the cost of construction; and (c) has legal, institutional, managerial, and financial capa- bility to insure adequate construction, operation and main- tenance of treatment works throughout the applicant's juris- diction. Grants awarded prior to March 2, 1973, are subject to #35.83 5-5 requirements in lieu of the above." It is our understanding that detailed Federal guidelines are being drawn to indicate the manner and method for compliance with these provisions of EPA Rules and Regulations. BOND ISSUE REQUIREMENT At our meeting of March 21 with the District staff, data was presented which indicated that the potential bond issue requirement could be significantly less than the $13 million authorization noted in our March 9 report. These data which took into account anticipated revenues of $2.4 million in connection fees, indicated it may be possible to fund the anticipated cash flow deficit with a bond authorization of approximately $9 million. At this date, we have yet to get an indication of sewage treatment requirements from Federal and State authorities, although such information may be forthcoming shortly. In addition, the Director of Finance has indicated that investment income should exceed original estimates somewhat in view of the dramatic in- crease in interest rates bn short term intestments that has been experienced in recent weeks. Orange County Sanitation District No. 3 April 3, 1973 Connection Fee and Bond Issue Study Committee Page 7 In view of the continued uncertainty regarding level of treatment requirements and the level of revenue realized from connection fees, it is recommended that a decision regarding the amount of bond authorization be deferred at this time until additional information is made available to the Districts. In making a decision regarding the amount of bond authorization to seek, it should be borne in mind that an allowance of six to nine months be made for conducting a bond election and sale of authorized bonds. We sincerely hope this information is helpful to members of the Committee in' its deliberations. We are prepared to provide additional information as needed by the Committee to complete its deliberations. Very truly yours, STONE & YOUNGBERG Municipal Financing Consultants, Inc. Ernest B. Bodnar Assistant Vice President EBB:wlb FINANCING MAJOR SEWERAGE IMPROVEMENTS ORANGE COUNTY SANITATION DISTRICT NO. 3 STONE & YOUNGBERG MUNICIPAL FINANCING CONSULTANTS, INC. r FINANCING MAJOR SEWERAGE IMPROVEMENTS ORANGE COUNTY SANITATION DISTRICT NO. 3 BOARD OF DIRECTORS Norman E. Culver, Chairman Garden Grove S.D. Robert Battin Unincorporated Alicita Lewis Stanton Jesse Davis Buena Park Charles Long Los Alamitos Donald L. Fox Brea Derek McWhinney Midway City S . D. Jack Green Huntington Beach Robert E. Root Fullerton Wade Herrin Santa Ana George B. Scott Fountain Valley H. K. Holden Seal Beach Mark Stephenson Anaheim Otto Lacayo Cypress Charles Stevens, Jr. La Habra Cor Vanderwaal La Palma ADMINISTRATIVE STAFF Fred A. Harper General Manager J. Wayne Sylvester C . Arthur Ni s s on Director of Finance General Counsel PROFESSIONAL SERVICES Boyle Engineering & John Carollo Engineers Consulting Engineers Stone & Youngberg Municipal Financing Consultants, Inc. Financing Consultants March 9, 1973 STONE & YOUNGBERG MUNICIPAL FINANCING CONSULTANTS, INC. March 9, 1973 The Honorable Board of Directors Orange County Sanitation District #3 P. O. Box 8127 Fountain Valley, California 92708 Gentlemen: In accordance with your authorization and direction, we have prepared a recommended financing plan for your consideration to implement major sewerage improvement programs which are to be carried out over - the next several years. We have concluded that the estimated maximum cash flow needs to implement the programs can be met from the sale of $13, 000, 000 General Obligation Bonds. This is the amount that would be required should federal and state standards provide for secondary treatment at an equivalent to activated sludge for total district flows. Consulting engineers are of the opinion that federal and state standards will eventually require this level of treatment. Should federal and state standards be set at lower levels, the full amount of authorized bonds need not be sold to implement the program. The recommended financing plan suggests that the Board .of Directors initiate a connection charge as an additional source of revenue to meet district funding. needs and recover the costs of providing excess capacity in facilities to meet future users. The level suggested for your consideration is $250 per dwelling unit. Suggestions are also made regarding commercial and industrial user connection fees. I would like to take this opportunity to express our appreciation to Mr. Fred A. Harper, General Manager, J. Wayne Sylvester, Director of Finance, Mr. Graham Hazlett of the District Staff, Mr. Conrad Hohner, Boyle Engineering, and Mr. Walter Howard, Carollo -Engineers, for their assistance in the completion of this study. 989 - 2300 SUITE 2750 • ONE CALIFORNIA STREET • SAN FRANCISCO. CALIFORNIA 94111 • (415) The Honorable Board of Directors Orange County Sanitation District #3 March 9, 1973 Page Two We are available to provide any further information you need to assist the District in implementing its sewerage program. Yours very truly, STONE & YOUNGBERG Municipal Financing Consultants, Inc. Ernest B. Bodnar Assistant Vice President EBB :ac enclosure I SUMMARY OF FINDINGS AND RECOMMENDATIONS 1. To meet its existing and anticipated future needs, District No. 3 initiated a seven year trunk sewer improvement program which is estimated to cost more than $ 2 9 million over the period 19 71/72 through 19 77/78 . In conjunction with six other Orange County sanitation districts, the District is in the process of upgrading jointly owned sewage treatment works to meet State water quality con- trol standards. The estimated cost of upgrading jointly owned primary treatment t facilities is approximately $21.2 million. The consulting engineers estimate the I cost of activated sludge secondary treatment which eventually will be required by Federal and State standards at approximately $100.8 million. 2. On the basis of the consulting engineers' cost estimates and construction schedules, the Director of Finance has projected funding needs of District No..3 to implement the master plan trunk sewer program; meet its share of esti- mated capital costs of the proposed joint treatment works improvement program; provide for the Dis irict's share of projected operations and maintenance costs; and debt service costs on District bonds. Projected cash flow deficits range from approximately, $4.85 million to $12.5 million dependent upon the level of secondary treatment required of the District to meet Federal and State standards. 3. General obligation bond financing is the most practical and feasible financing alternative available to District No. 3 to implement the master plan trunk sewer and joint treatment works improvement program as scheduled. It is recom- mended that District No. 3 seek authorization of $13 million of general obligation bonds since the consulting engineers are of the opinion that Federal and State standards will eventually require secondary treatment equivalent to activated sludge. 4. Authorization of $13, 000, 000 of general obligation bonds does not mean that the full amount will be issued. Should Federal and State standards provide for secondary treatment at an equivalent less than activated sludge for total Dis- trict flow, facilities could be financed with the issuance of that portion of the authorization needed to complete the - program . 5. Recent development trends within the area served by the District have in- dicated the following: a. A trend toward increased higher density residential types of development in the District. ' b. The potential property tax base provided by single family unit land uses tends to be significantly greater than the potential property tax base provided by a multiple family unit. c. Engineering data indicate average daily flows per dwelling unit in single family residential land uses average about 385 gallons per unit. In high density residential land uses, flows averaged about 256 gallons per day per unit, or approximately two-thirds that of lower density single family land uses. d. Within cities served by District No. 3 , there are significant differences in present users of the District's sewerage facili- ties. Median value of owner occupied housing units ranges from $22, 800 to $34, 700. Population per owner occupied housing units ranges from 2.1 to 4.0. e. Land values within the District have increased significantly in recent years. Land suitable for low density residential devel- opment has increased from approximately $10 , 000 to $12 , 000 per acre in 1960 to current levels of $28, 000 to $30, 000. Land suitable for high density residential development is now valued at approxi- mately $50, 000 per acre. Land suitable for commercial development is now valued at approximately $100, 000 per acre. f. The District's property tax base of $1.259 billion consists of land having an assessed valuation of $480 million (38 percent of total tax base) and improvements on land which is owned and occupied by present property owners having an assessed valuation of $778 million (62 percent of total tax base) . 6. Demands for sewerage services are created by two broad classifications: (1) present users, and (2) potential users (owners of improved or unimproved land not connected to the system but adjacent to it) . A system of assessing and recovering the costs of these benefits must consider the following: a. Equity among present users. b. Equity among potential users. c . Equity between present and potential users. The distribution of costs in relation to complete equity in all cases is highly unlikely. What must be attempted is the achievement of optimum equity in rela- tion to the degree of benefits received by broad categories of present users and potential users within the constraints posed by statutory provisions and practical administrative procedures. 7. On the basis of our analyses, evaluations, and consideration to optimize equity among users and potential users of the District's sewerage system, it is our recommendation that the governing board of District No. 3 consider the use of a sewer connection fee as a new source of revenue. The purpose of the connection fee would be to recover costs of providing facilities in the near future which will have sufficient built-in capacity to serve future users. We also recom- mend that the connection fee be made applicable to connections made to a District owned facility or to any local collector sewer which discharges into the District's sewerage system. 8. As the basis for formulating connection charges, we suggest unit costs of pro- viding trunk sewer and sewage treatment -disposal capacity. We estimate the unit costs of providing such facilities at approximately $645, 000 per million gallons. 9. As the basis for computing connection charge fees, we recommend that the governing board of District No. 3 consider using average anticipated sewage flows from residential land uses which have served as the basis to design master plan trunk sewer facilities in District No. 3. 10. Based on the estimated capital cost of providing sewerage facilities, pro- jected flows from residential land uses, and current land use developments within the District, it is recommended that consideration be given to the estab- lishment of a residential unit connection charge of $250. 11. Commercial and industrial uses were considered in the same manner as resi- dential uses. It is anticipated these uses will provide an average flow of 3,555 gallons per day per acre. At a unit capital cost of $65 for providing 100 gallons of sewerage capacity, the charge would be approximately $2 , 300 per acre. On a square footage basis, the capital cost for sewerage facilities would be approximately $500 per 10,000 square feet of the facility. This rate is sug- gested as a general guide in recognition of the wide variation in types of indus- trial and commercial uses. It is suggested the charge for major types of indus- trial and commercial facilities be administered on the basis of a close study of the capacity requirements, type of discharge, number of employees, and other related factors. 12. Revenue from connection charges under rates suggested in this study could provide as much as $2.4 million on the basis of the December 1972 study of near -term development patterns in the District. - 13. Based on the estimated bond service costs for the $13, 000, 000 of proposed general obligation bonds, estimated connection charge revenues would be more than sufficient to service the bonds. Connection fee revenues in excess of actual bond service requirements could be held in reserve to meet future capital needs, thereby making it possible for the District to reduce the property tax rate levied for the accumulation of capital reserves. CONTENTS Page INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . , 1 EXISTING ORGANIZATION AND FACILITIES . . . . . . . . . . . . . . . 3 Organization and Administration . . . . . . . . . . . . . . . . . . . 3 Existing Sewage Collection Facilities. . . . . . . . . . . . . . . . 3 Existing Sewage Treatment Facilities . . . . . . . . . . . . . . . . . 5 Financing Existing Facilities . . . . . . . . . . . . . . . . . . . . 5 Assessed Valuation and Tax Rates . . . . . . . . . . . . . . . . . . 6 THE PROPOSED SEWERAGE IMPROVEMENT PROGRAM . . . . . . . . . . . 8 Proposed Sewage Collection Facilities . . . . . . . . . . . . 8 Proposed joint Treatment Facilities . . . . . . . . . . . . . . . . . 9 FINANCING ALTERNATIVES AND RECOMMENDED FINANCING PLAN . . . . . 10 Projected Cash Flow Deficits ... . . . . . . . . . . . . . . . . . . 10 Financing Capabilities . . . . . . ... . . . . . . . . . . . . . . . 10 Evaluation of Financing Alternatives . . . . . . . . . . . . . . . . . 13 Recommended Financing Method . . . . . . . . . . . . . . . . . . . 14 Recommended Bond Authorization . . . . . . . . . . . . . . . . . . . 15 Estimated Bond Service Costs . . . . . . . . . . . . . . . . . . . . 15 SOURCES OF REVENUE TO MEET BOND SERVICE COSTS . . . . . . . . . . 18 Recent Development Trends . . . . . . . . . . . . . . . . . . . . . 18 Summary of Findings Relative to Recent Development Trends . . . . . . ,. 23 Beneficiaries and Achieving Equity in Providing Sewerage Services . . . . 25 Alternative Sources of Revenue to Finance Sewerage Improvements . . . . 25 .• Recommended Financing Alternative. . . .. . . . . . , . . . , , . . . 31 Estimated Level of Connection Charges . . , , . , . , , , . . , , , , 34 Estimated Revenue from Connection Charges , , , . , 35 Table 1. Original Cost of Sewage Collection Facilities. . . . 4 Table 2. Original Cost of joint Treatment Facilities . . . . . . . . . . 5 Table 3. Assessed Valuation .. .. ,. .. .. .. .. ti 7 Table 4. Secured Roll Tax Rates . . . . . . 7 . Table 5. Sewage Collection System Elements ... 8 Table 6. Proposed joint Treatment Works . 9 Table 7. Statement of Projected Cash Flow - Assumes Construction of Phase I (46 mgd) Secondary Treatment Only . . . . . . . . . . 11 Table 8. Statement of Projected Cash Flow - Assumes Construction of Three Phases (196 mgd) Secondary Treatment . . . . . . . . . 12 Table 9. Estimated Bond Service . . . . . . . . . . . . . . . . . . 17 Table 10. Building Permits Issued for Dwelling Units . . . . . . . . . . 19 Table 11. 1971 Valuation of Building Permits for Dwelling Units . . . . . 21 Table 12. Estimated Per Capita Cost for Sanitary Sewerage Service in Owner Occupied Housing Units . . ... . . . . . . . . . . .24 Table 13. Connection Charges for Single -Family Units in Various California Communities . . .0 30 Table 14. Trunk Sewer System Cost Elements . . . . . .• . . , 32 Table 15. joint Treatment Works Cost Elements. . . . . . . . . . . . . 33 INTRODUCTION Orange County Sanitation District No. 3 provides sewage collection, treat- ment and disposal service to a rapidly developing area of more than 97 square miles in northwestern Orange County. The District's service area includes the Cities of Buena Park, Cypress, La Palma, Los Alamitos, and Stanton; substantial portions of the Cities of Anaheim, Brea, Fountain Valley, Fullerton, Garden Grove, Huntington Beach, La Habra, Seal Beach, and Westminster; and unincorporated areas of Orange County. The population of the District has increased rapidly in recent years from an estimated 50, 000 in 1950 to more than 400, 000 in 19 73. Development within the District has been predominately residential in character; however, a substantial amount - of commercial and industrial development has also taken place. Over the past ten years the District's assessed valuation has grown from $488, 729,500 in 1963/64 to $1,258,979,910 in 1972/73, an increase of nearly 160 percent. It is anticipated that continued growth and development will take place within the District because of its mild climate; the availability of land suitable for further residential, commercial, and industrial development; adequate water supply; excellent highway, air, and rail transportation facilities; and its strat- egic location in the economically diversified southwestern region of the United States centering about Los Angeles, and its bordering Counties of Orange, River- s ide , and Ventura. To meet its existing and anticipated future needs, the District initiated a seven-year trunk sewer improvement program which is estimated to cost more than $29 million over the period 1971/72 through 1977/78. Concurrently, the District, in conjunction with six other Orange County sanitation districts, is in the process of upgrading jointly owned sewage treatment works to meet State water quality control standards. The estimated cost of upgrading jointly owned primary treatment facilities is approximately $21.2 million. With respect to secondary treatment facilities, Federal standards have not been finalized however, indications are that a degree of secondary treatment equivalent to activated sludge will eventually be required. The consulting engineers estimate the cost of activated sludge secondary treatment at approximately $100.8 million. Cash flow projections of anticipated revenues and expenditures prepared by the Director of Finance indicate the major portion of the sewerage improvement program attributable to District No. 3 can be financed from existing revenues, property tax revenues at existing rates, Federal and State construction grants, and other miscellaneous revenues; however, a sizable cash flow deficit is ex- pected to occur in fiscal year 1973/74. The magnitude of the cash flow deficit to implement the trunk sewer program, the District's share of primary sewage -1- treatment facilities, and Stage 1 of secondary sewage treatment facilities is estimated at $5 million. Should Stages 2 and 3 of secondary sewage treatment facilities be required as anticipated by the consulting engineers, the magnitude of the District's cash flow deficit could increase to an estimated $12.5 million. To assist the District, the firm of Stone & Youngberg Municipal Financing Consultants, Inc, was engaged to develop a financing plan to enable the District to complete its program of sewerage system improvements as scheduled through 1977/78. Our findings, conclusions, and recommendations are presented in the accompanying report. -2- EXISTING ORGANIZATION AND FACILITIES ORGANIZATION* AND ADMINISTRATION Orange County Sanitation District No. 3 operates pursuant to provisions of the State of California Health and Safety Code, Sections 4700 et seq. The Dis- trict is one of seven county sanitation districts which provide sewerage service to an area of approximately 320 square miles of northern Orange County. Each of the seven districts are responsible for the construction, operation, and main- tenance of their respective portions of approximately 400 miles of trunk sewers and 27 pumping stations. The seven districts jointly own and provide for the operation and maintenance of two sewage treatment plants, connecting trunks, pumping stations, and two ocean outfall s . The governing board of District No. 3 consists of sixteen members including the mayors of 13 cities, board members of two sanitary districts, and a member of the Orange County Board of Supervisors. The governing board of the seven Orange County Sanitation Districts have formed a Joint Organization pursuant to a joint exercise of powers agreement. The joint Organization is responsible for the construction, operation, and maintenance of joint facilities. Share of own- ership of joint facilities is adjusted among the Districts on an annual basis to meet the respective needs of each District. Operation and maintenance costs of joint facilities are prorated among the Districts on the basis of their propor- tionate share of use. Day-to-day administration, operation, and maintenance of individual District and joint facilities is provided by the joint Administrative Organization through a staff of 165 authorized personnel. Services provided by the Joint Administrative Organization are distributed among the Districts on a cost -accounting basis. EXISTING SEWAGE COLLECTION FACILITIES Elements of District No. 3 sewage collection system and their respective costs are shown in Table 1. Cost data are based on District No. 3 proportionate capacities in the Magnolia and Miller -Holder trunk sewers which are shared with District No. 2 and District No. 11, respectively. The area served by District No. 3 consists of three basins: (1) Westside, (2) Central, and (3) Magnolia. The Westside Basin is served by the Los Alamitos subtrunk. Sewage collected in the Westside Basin is pumped through a force main to the Central Basin's main collector, the Miller -Holder trunk. The south-. western portion of the Central Basin is served by the Newland -Delaware trunk and force main. The Magnolia Basin is served by the Magnolia trunk.. -3- Table 1 Orange County Sanitation District No. 3 Original Cost of Sewage Collection Facilities June 30, 1972 Sewage Collection Facilities: Miller Holder Trunk . . . . . . . . . . . . . . . . $ 8 , 5 3 0 , 72 7 Magnolia Trunk . . . . . . . . . . . . . . . . . . 2,082,663 Los Alamitos Subtrunk . . . . . . . . . . . . . . . 862,031 Westminster Branch Knott Trunk . . . . . . .. . . . . 801, 043 Seal Beach Boulevard Interceptor . . . . . . . . . . 651,314 Hoover -Western Subtrunk . . . . . . . . . . . . . 650,117 Beach Boulevard Relief . . . . . . . . . . . . . . . 529 , 062 Orange -Wester Subtrunk . . . . . . . . . . . . . . 485,429 Newland Delaware Trunk (4 mgd) . . . . . . . . . . 147,625 Artesia Branch . . . . . . . . . . . . . . . . . . . 145,093 Bol sa Avenue Trunk . . . . . . . . . . . . . . . . 84,197 East Imperial Highway Trunk . . . . . . . . . . . . 79,432 Bushard Relief Trunk . . . . . . . . . . . . . . . . 47,715 Orangethrope Trunk . . . . . . . . . . . . . . . . 44,031 Pump Stations and Force Mains: Westside . . . . . , . . . . , . . . . , . . . . 486,893 Newland Street . . . , , , . . . , . . . . . , , . 35,604 Westminster Avenue . . , , , . . . , . . , . . . . 467,865 Seal Beach Boulevard . . . . . . . . . . . . . . . 428,189 Easements and Rights of Way . . . . . . . . . . . . . 236,105 Total Cost . . . . . . . . . . . . . . . . . . .$161795,140 Average District No. 3 Element Capacity Capacity Rights Miller --Holder Trunk . . . . . . . . 45.0 mgd 36.8 mgd Magnolia Trunk . . . . . . . . . . 28.3 mgd 18.3 mgd Newland -Delaware Trunk . . . . . . 4.0 mgd 4.0 mgd Total . . . . . . . . . . . . . 7 7.3 mgd 59.1 mgd -4- Existing average sewage flows through the Miller -Holder and Magnolia Trunk sewers are at full capacity, and on frequent occasions, sewage flows exceed capacity, causing surcharges in sections of the system. EXISTING SEWAGE TREATMENT FACILITIES The joint Treatment Works consist of two sewage treatment plants; two out - fall booster pumping stations; two outfall sewers and interconnecting sewers, power transmission lines, communications cables, and digester gas pipe. Treatment Plant No. 1 has an average primary treatment capacity of 46 mgd plus 15 mgd of secondary treatment capacity. Treatment Plant No. 2 has an average primary treatment capacity of 138 mgd plus 2 mgd of secondary treat- ment facilities. The original cost of joint Treatment Works is shown in Table 2. Table 2 County Sanitation Districts of Orange County Original Cost of joint Treatment Facilities Land and improvements . . . . . . . . . . . . . . . $ 1, 367, 209 Collection facilities . . . . . . . . . . . . . . . 21840,248 Sewage treatment facilities . . . . . . . . . . . . . 16, 326, 049 Sewage disposal facilities . . . . . . . . . . . . . 18, 111,200 General plant and administrative facilities 4, 349 ,111 Other property . 124,071 Work in progre 17,600,000 Estimated Total . . . $60, 717, 888 (i) Includes approximately $12 , 600, 000 under construction plus an estimated $5, 000, 000 needed to complete- such construction. District No. 3 share of joint Treatment Facilities is presently 32.79 percent based on the allocation formula contained in the joint Ownership, Operation, and Construction Agreement among the seven individual Orange County Sanitation Districts. FINANCING EXISTING FACILITIES Existing sewerage facilities of the Orange County Sanitation Districts have been financed principally on a pay-as-you-go basis supplemented by general -5- obligation bond proceeds as needed, joint sewage treatment facilities have been financed on a pay-as-you-go basis with the exception of the original facilities acquired in 1951 through the sale of general obligation bond issues by individual districts. The District No. 3 share of facilities acquired in 1951 amount to $925, 000 (sewage treatment and outfall facilities) and $547, 000 (existing trunk sewers) , or a total of $1, 472 , 000. The sources of District No. 3 funds to ac- quire the 1951 facilities included: general obligation bond proceeds of $1, 364, 000 and $108, 000 of State aid. Presently, $629, 000 of 1951 bonds are outstanding. Sewage collection facilities in District No. 3 have been financed since 1959 by cash reserves ($2, 316, 540) , Federal grants ($916, 600) , and general obligation bond proceeds ($13, 015, 000) , of which $8, 000, 000 are outstanding. The tabulation below summarizes the sources of capital funds used to finance existing District No. 3 sewage collection facilities. Bond proceeds . . .. . . . .$13 , 562 , 000 Cash reserves . . . . . . . 2 , 316 , 540 Federal and State aids . . . . 916,600(i) Total .$16 , 79 5 , 140 (i) Assumes no State aid for acquisition of existing trunk sewer• facilities in 1951. ASSESSED VALUATION AND TAX RATES Since the 195 0' s , Orange County has been one of the most rapidly develop- ing large counties in the nation. Orange County Sanitation District No. 3 has shared in this development. Since 1959/60 the District's assessed valuation has increased 334 percent from $289 , 716 , 350 to $1, 258, 9 79 , 910. The percent- age growth in the District's assessed valuation has moderated in recent years; however, in absolute terms,, it is anticipated that the District will continue to experience substantial growth in its assessed valuation. Table 3 shows the District's assessed valuation over the period 19 68/69 through 19 72/7 3 . The Director of Finance has conservatively estimated that the District's assessed valuation will continue to increase over the next five years at the rate of ap- proximately five percent per year. Table 3 Orange County Sanitation District No. 3 Assessed Valuations Fiscal Year Secured Valuation Unsecured Valuation Total 1968/69 $ 831,222,100 $13,561,550 $ 844,783,650 1969/70 892,018,380 14,992,480 9074010,860 1970/71 1,043,354,530 17,580,050 lj06019341580 1971/72 11090,735,990 16,430,330 11107,166,320 1972/73 1,238,7131790 20,266,120 11258,979,910 The Orange County Sanitation Districts collectively, and Orange County Sanitation District No. 3 individually, have succeeded in financing sizable sewerage improvements as needed on a pay-as-you-go basis with a minimum use of bonds. Relatively few public entities can match this achievement. Tax rate levels, based on the average annual rate of all Districts, have decreased from slightly less than $0.44 in 1964/65 to less than $0.39 in 1972/73. Over the same period, the secured tax rate of District No. 3 fluctuated in the range of $0.3839 to $0.479. In recent- years, the tax rate of District No. 3 has re- mained relatively stable as shown in Table 4. Over the five year period more than 70 percent of the average total tax rate was allocated to the accumulation of reserves for capital outlay with the remainder allocated to operations and bond service. Table 4 Orange County Sanitation District No. 3 Secured Roll Tax Rates Fiscal Year Operating Fund Bond Service Accumulated Capital Outlay Total 1968/69 $0.0652 $0.0881 $0.2661 $0.4194 1969/70 0.0565 0.0791 0.3437 0.4793 1970/71 0.0391 0.0795 0.3555 0.4741 1971/72 0.0773 0.0778 0.3190 0.4741 1972/73 0.0539 0.0631 0.3569 0.4739 Averages $0.0584 $0.0775 $0.3282 $0.4642 Average % of Total 12.6% 16.7% 70.7% 100% WA: THE PROPOSED SEWERAGE IMPROVEMENT PROGRAM The District No. 3 Board has adopted a master plan for trunk sewers prepared by Boyle Engineering, consulting engineers. John Carollo Engineers has prepared preliminary cost estimates for needed improvements to joint treatment facilities over the next five years as part of the development of a master plan. The general scope of these improvements. and their costs, as estimated by the consulting en- gineers are described below. PROPOSED SEWAGE COLLECTION FACILITIES The master plan system of trunk sewer facilities is designed to relieve the presently overloaded Magnolia and Miller -Holder trunk sewers and meet District No. 3 anticipated needs for sewage collection facilities at ultimate development. Future flows were estimated by the consulting engineers on the basis of antici- pated land uses contained in zoning maps and comprehensive general plans of cities lying within the District's service area, field investigations of wastewater flows from representative residential areas, and other empirical sources. Work on the master plan program was begun in 1968/69 and is scheduled for completion by 1977/78. Upon completion the District No. 3 trunk sewer system will have an average capacity of 159.1 mgd. Principal elements of the master plan program needed to complete the system are shown in Table 5. Table 5 Orange County Sanitation District No. 3 Sewage Collection System Elements (i) Estimated Element Cost (ii) Knott Trunk $20, 886, 000 Westside Relief Interceptor . . . . . . . . . 21098,000 Orangethrope Relief Trunk . . . . . . . . . . 1,800, 000 Share of Interplant Interceptor . . . . . . . . . . . . 1,189, 000 Westminster Avenue Force Main . . . . . . . . . . . 660,000 Magnolia Interceptor Enlargement . . . . . . . . . . 216,000 Lampson Interceptor . . . . . . . 32 7, 000 Bolsa, Imperial, Katella, and Crescent Relief Trunk 11275, 000 Other improvements . . . . . . . . . . . . . . . . 558,000 Total . . . . . . . . . . . . . . . . . . $291009, 000 ( i) Needed to complete master plan. -(ii) Estimated by consulting engineers which includes 15 per- cent for engineering, contingencies and administrative costs. PROPOSED JOINT TREATMENT FACILITIES The program to increase and upgrade existing joint treatment works provides for the 36 mgd of additional primary treatment capacity. This would increase primary treatment capacity of the joint works to 220 mgd. The addition of 196 mgd of secondary treatment facilities equivalent to activated sludge has been proposed in three stages by the consulting engineers on the assumption that Federal standards will eventually require this level of secondary treatment. The estimated costs of the proposed joint treatment works are shown in Table 6. Table 6 Orange County Sanitation District No. 3 Proposed joint Treatment Works Element Estimated Cost(i) Primary Treatment - 36 mgd . . . . . . . . . . . . $ 21,2 00, 000 Secondary Treatment Stage One - 46 mgd. . . . . . . . . . . . . 24, 480, 000 Stage Two - 75 mgd. . . . . . 0 36,720, 000 Stage Three - 75 mgd. . . . . . 0 39,600,000 Total. . . . . . . . . . . . . . . . . . . $122, 000, 000 (1) Includes allowances for engineering and incidental costs Upon completion of the proposed joint treatment improvements for 1977/78, the joint treatment works would have a combined primary -secondary capacity of 196 mgd with 24 mgd of primary treatment capacity available for emergency or standby use. ME FINANCING ALTERNATIVES AND RECOMMENDED FINANCING PLAN PROJECTED CASH FLOW DEFICITS On the basis of the consulting engineers' cost estimates and construction schedules, the Director of Finance has projected funding needs of District No. 3 to implement the master plan trunk sewer program; meet its share of estimated capital costs of the proposed joint treatment works improvement program; provide for the District's share of projected operations and maintenance costs; and debt service costs on District bonds. Two projections were made and have been updated. The first, shown in Table 7, indicates District No. 3 would experience a maximum cash flow deficit in 1973/74 of approximately $4.85 million. This projection assumes completion of the master plan trunk sewer program and the first stage (46 mgd) of secondary treatment improvements to the joint treatment works. The second projection, shown in Table 8, indicates that District No. 3 would experience a maximum cash flow deficit in 1974/75 of approximately $12.5 million. This projection assumes completion of the three stages (19 6 mgd) of secondary treatment im- provements to the joint treatment works as well as the master plan trunk sewer program. , In both cash flow projections, revenue projections were made on the same bases, i.e. , property tax revenue on the basis of projected assessed valuations and maintenance of the property tax rate at the 1972/73 level; Federal and State grants-in-aid equivalent to 8 7-1/2 percent of eligible joint treatment works project costs; projected levels of revenue from other sources; and estimated available cash reserves. FINANCING CAPABILITIES A County Sanitation District, pursuant to Section 4700 et seq, of the State Health and Safety Code, is empowered to: 1. Issue general obligation bonds approved by two-thirds of the voters at a bond election. There is no statutory limit on the amount of bonds that may be issued. Such bonds may be payable over a period of not to exceed 40 years and interest rates may not exceed seven percent. -10- Table 7 COUNTY SANITATION DISTRICT NO. 3 STATEMENT OF PROJECTED CASH FLOW ASSUMES CONSTRUCTION OF PHASE I (46 mgd) SECONDARY TREATMENT ONLY FISCAL YEARS 1972/73 THROUGH 1976/77 Description 19 72/73 19 73/74 19 74/75 19 75/76 19 76/77 REVENUE: Tax Revenue (at current tax rate of $ . 4 74 0) . . . . . . . . $ 51661,000 Other Revenue: Federal and State participation joint Works projects . . . . 11799,000 District projects 192,000 Sale of capacity rights . . . . 177, 000 Miscellaneous . . . . . . . . 721, 000 Carry over from previous fiscal year 11, 821, 000 TOTAL FUNDS AVAILABLE. $20, 371, 000 EXPENDITURES: District construction . . . . . . $ 41992,000 Share of joint works construction . 31095,000 Bond retirement and interest . . . 858,000 Share of joint operating . . . . . 792,000 District operating and other expenditures . . . . . . . . . 382,000 TOTAL EXPENDITURES . . . . . $10 ,119 , 000 Carry over to following fiscal year . . $10 , 252 000 $ 51944,000 31007,000 182,000 1,000 220,000 10,252,000 $19,606,000 $11,111,000 4,449,000 827,000 812,000 299,000 $17,498,000 $ 21108,000 $ 6,211,000 61150,000 1,000 150,000 2,108.000 $14,620,000 $ 51722,000 61021,500 797,000 855,000 319,000 $13,714,500 $ 905,500 Less: Necessary reserve for fol- lowing year dry period .8,852,000 6,956,250 4,7084500 Fund Balance (or deficit) , $ 1, 400, 000 ($ 4,848,000) ($ 3 , 803 , 000) $ 61491,000 $ 61783,000 31804,000 566,000 150,000 905,500 $11,916,500 $ 41383,000 21622,000 777,000 11116,000 341,000 $ 9,239,000 $ 21677,500 2,632,500 $ 45,000: 866,000 15,000 1500000 21677,500_ $10 , 491, 500 $ 11675,000 1,002,000 756,000 11158,000 365,000 $ 41956,000 $ 5,535,500 2,908,000 $ 21627,500 Table 8 COUNTY SANITATION DISTRICT NO. 3 STATEMENT OF PROJECTED CASH FLOW ASSUMES CONSTRUCTION OF THREE PHASES (196 mgd) SECONDARY TREATMENT FISCAL YEARS 1972/73 THROUGH 1976/77 Description 1972/73 19 73/74 19 74/75 19 75/76 1976/77 REVENUE: Tax Revenue (at current tax rate of $.4740) . . . . . . $ 516fi11000 Other Revenue: Federal and State participation joint Works projects . . . . 1,799,000 District projects . . . . . . 192 , 000 Sale of capacity rights 177, 000 Miscellaneous . . . . . . . . 721, 000 Carry over from previous fiscal year 11, 821, 000 TOTAL FUNDS AVAILABLE. . . . $20, 371, 000 EXPENDITURES: District construction • • • • . • $ 4,992,000 Share of joint works construction • 31095,000 Bond retirement and interest . . . 858,000 Share of joint operating 792,000 District operating and other expenditures • • . . . . . . 382,000 TOTAL EXPENDITURES • • • . . $10 ,119 , 000 Carry over to following fiscal year $10 , 2 52 , 000 Less: Necessary reserve for fol- lowing year dry period _81987,500 Fund Balance (or deficit) • . . . $ .1, 264, 500 $ 51944,000 $ 61211,000 $ 6,491,000 $ 6,783,000 31007,000 182,000 1,000 220,000 101252,000 $19,606,000 $11,111,000 41720,000 827,000 812,000 299,000 $17, 769 , 000 $ 11837,000 8,683,500 ($ 6,846,500) 6,150,000 1,000 150,000 1,837,000 $14,349,000 $ 5,722,000 9,476,000 79 7, 000 855,000 319,000 $17,169,000 ($ 2,820,000) 9,641,250 ($12 , 461, 250) 10,460,000 566,000 150,000 (2,820,000) $14,847,000 $ 4,383,000 12,487,500 777,000 11116,000 341,000 $19,104,500 ($ 4,257,500) 7,1891000 ($11,446,500) 11,926,000 15,000 150,000 (4,257,500) $14,616,500 $ 11675,000 10,115,000 756,000 1,158,000 365,000 $14,069,000 $ 54.7,500 _ 4,068,500.; ($ 3,521,000) 2 . Issue revenue bonds pursuant to the Revenue Bond Law of 1941 approved by a majority of the voters at a bond election. There are no statutory limits as to the amount of revenue bonds that may be issued; however, from a practical standpoint the amount of rev- enue bonds that may be issued is limited by the project's netrevenue producing capabilities from service charges, connection fees, and other non -property tax revenue. Such bonds may be payable over a period .not to exceed 40 years and interest rates may not exceed seven percent. 3. Issue special assessment bonds pursuant to the Improvement Act of 1911 and the Improvement Bond Act of 1915. 4. Issue promissory notes to meet current expenses of mainten- ance and operation which may mature not later than two years from the date of issuance. The aggregate amount of notes out- standing at any one time may not exceed an amount equal to $ 0.0 7 per $100 of the District's assessed valuation. 5. Levy property taxes, unlimited as to rate or amount, to meet costs of operation, maintenance, bond service, and other authorized purposes. EVALUATION OF FINANCING ALTERNATIVES The District is severely limited in the sources of revenue it may use to meet even the minimum projected cash flow deficit of $4.85 million. Senate Bill 90, adopted by the State Legislature in December 1972 , limits the District's property tax rate for purposes other than general obligation bond service at $0.4108 per $100 assessed valuation (the 1972/73 tax rate of $0.4739 less $0.0631 for bond service) . Senate Bill 90 in effect rules out pay-as-you-go financing as a fi- nancing alternative. The short-term borrowing capabilities of the District are substantial because of its large tax base; however, such short-term borrowing capacity may be used to meet operating and maintenance costs only. The projected maintenance and operating expenditures which could be offset by short-term borrowings would not improve the cash flow position of District No. 3 to the degree needed to meet the projected minimum cash flow deficit of $4.85 million. The magnitude of the proposed improvement program; --the general areawide benefits they provide; and the relatively complex and cumbersome procedures of special assessment proceedings make this method impractical in this instance. -13- Revenue bonds contain the following features: (1) funds for the payment of the bonds are derived solely from those who use the facilities for which the bonds are issued, (2) such bonds are payable solely from the revenues of the project and can never become a lien against real property, and (3) the bonds may be auth- orized by a simple majority vote. The disadvantages of revenue -bonds are: (1) revenues to secure their pay- ment must be at least 25 to 50 percent in excess of actual requirements, (2) a reserve fund must be created as additional security for their payment, thus in- creasing capital requirements, (3) owners of property not using the service pay nothing toward the bonds even though benefit may be received- from the project, (4) the interest rate is usually higher than general obligation bonds, and (5) there is relative inflexibility in the management of the funds of the system. In the absence of a proven record of revenues derived from service charges and other non -property tax sources, revenue bond financing by District No. 3 is impractical and not feasible. RECOMMENDED FINANCING METHOD General obligation bond financing is the most practical and feasible financing alternative available to District No. 3 to implement the master plan trunk sewer and joint treatment works improvement program as scheduled. The general obligation bond is the type of bond most often used by public entities to finance improvements which provide general benefits. This type of bond is ultimately secured by, and payable from, ad valorem taxes levied on all taxable property within the issuing entity. If other revenues are available, they may be applied toward the payment of debt service in lieu of property taxes. General obligation bonds represent the highest type of credit that a public entity can issue and as a result they can normally be sold at lower interest rates com- pared to other types of bonds. General obligation bond authorizations may be divided into series and sold separately to coincide with the need for project funds. Authorized but unsold general obligation bonds create no liability for the District despite the fact that the authorization to sell the bonds is unlimited as to time. The principal ad- vantages of financing by the issuance of general obligation bonds are lower interest costs and greater flexibility in raising funds to meet bond service costs. The two-thirds vote requirement to authorize general obligation bonds may be considered a disadvantage compared to authorization requirements of other types of bonds; however, experience has shown that voters generally approve general obligation bond authorizations when the needs for the project are clear and financing costs are recommended and equitably distributed among beneficiaries. -14- In the event of the failure of a general obligation bond election, it might be possible to finance the programs under recently enacted legislation (Chapter 464 of the 1971 Statutes) which permits an authority created through a joint exercise of powers agreement to finance sewerage facilities with revenue bonds pursuant to the Revenue Bond Law of 1941, approved by the voters within the geographical area served by the authority. This legislation further provides that the authority, to comply with a cease -and -desist order or other action of the appropriate re- gional water quality control board, may issue revenue bonds by ordinance sub- ject to referendum to finance the construction of urgently needed sewerage facili- ties to comply with water quality control plans. The joint authority approach would require the approval of all Orange County Sanitation Districts due to the existing joint ownership of facilities. RECOMMENDED BOND AUTHORIZATION As previously noted, the magnitude of the projected cash flow deficit faced by District No. 3 ranges from $4.85 million to approximately $12.5 million de- pending on the type of secondary treatment facilities that will be required by Federal and State standards. In view of this uncertainty, it is recommended that District No. 3 seek authorization of $13 million of general obligation bonds since the consulting engineers are of the opinion that Federal and State stand- ards will eventually require secondary treatment equivalent to activated sludge. Authorization of this amount of bonds does not mean that the full amount will be issued. Should Federal and State standards provide for secondary treat- ment at an equivalent less than activated sludge for total District flow, facilities could be financed with the issuance of that portion of the authorization needed to complete the program. Upon completion of the program, any authorized but un- issued general obligation bonds could be held in reserve to meet future needs or rescinded by the District No. 3 governing board. ESTIMATED BOND SERVICE COSTS As a fundamental principle, the life of a bond issue should not exceed the useful life of the improvement. State statutes generally try to reflect this by setting maximum limits that bonds may run. The maximum limit of a bond is- sued by the District is 40 years. Generally speaking, the shorter the term of an issue, the better interest rate it will bring; however, a comparatively short term issue would .impose an extremely heavy burden on present users to meet accelerated principal payments. Based 'on the nature of the District No. 3 project, and current conditions in the municipal bond market, it is recommended that the term of the District's bonds not exceed 20 years. -15- To provide the District with maximum flexibility, provision should be made for early redemption of bonds, at the option of the District, after a period of ten to fifteen years from the date bonds are sold. To call bonds ahead of ma- turity, a premium of about one-half of one percent plus one -quarter of one per- cent for each year or fraction of a year between the maturity date and the date of redemption is required. The premium is designed to compensate a bondholder for having his bond called ahead of maturity. If no premium were provided for call ahead of maturity the interest rate bid on the bonds would be higher. The call feature has become especially important in recent years because interest rates on municipal bonds have risen to relatively high levels. By having the ability to call bonds ahead of maturity, the District will, at some future date, be in the position to either refinance the project if lower interest rates prevail or accelerate principal payments if available revenues permit. The actual maturity schedule and bond terms and conditions should be fin- alized at the time the bonds are offered for sale in order to take maximum advan- tage of municipal bond market conditions at that time. Table 9 shows estimated bond service costs for a $13 million general obli- gation bond issue maturing over a 20 year period. For illustrative purposes, these data assume issuance of the bonds in the fall of 1973 and an interest rate estimated at 5.50 percent. The date of the bonds and provisions regarding principal and interest payment dates would be finalized at the time the bond sale was being planned. Estimated annual bond service would average approx- imately $1, 090 , 000 . -16- Table 9 ESTIMATED BOND SERVICE $13 , 000, 000 PRINCIPAL AMOUNT GENERAL OBLIGATION BONDS Year Amount Principal Estimated Estimated Ending Outstanding Payable Interest Bond October 1 Start of Year October 1 at 5.50.% Service 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 $13,000,000 12,625,000 12,235,000 11,820,000 11,380,000 10,915,000 10,430,000 91915,000 91370,000 8,795,000 81195,000 71560,000 61885,000 61180,000 51435,000 41645,000 31810,000 21930,000 21005,000 11030,000 $ 375,000 390,000 415,000 440,000 465,000 485,000 515,000 545,000 575*000 600,000 635,000 675,000 705,000 745,000 790,000 835,000 880,000 925,000 975,000 1,030,000 $13,000,000 $ 715,000 694,375 672,925 650,100 625,900 600,325 573,650 545,325 515,350 483,725 450,725 415,800 378,675 339,900 298,925 255,475 209,550 161,150 110,275 56,650 $8,753,800 $ 11090,000 11084,375 11087,925 11090,100 11090,900 11085,325 11088,650 1,09 0,325 11090,350 11083,725 1,085,725 11090,800 11083,675 11084,900 11088,925 11090,475 11089,550 11086,150 11085, 275 1,086,650 $21,753,800 -17- SOURCES OF REVENUE TO MEET BOND SERVICE COSTS Bond service costs on general obligation bonds may be met by any unre- stricted authorized revenue source available to District No. 3. Traditionally, District No. 3 has relied on property taxes to meet the bulk of its revenue re- quirements; however, the governing board of the District is now considering the adoption of a sewer connection fee as an additional source of revenue. The sewer connection fee rates being considered are: $50 per single family dwelling; $12 5 for each unit in a multiple family dwelling building; and $ 5 0 to $ 3 00 for commercial, industrial and other types of facilities depending on the size of the building sewer. Stone & Youngberg has been engaged to study these and other alternative sources of revenue through which the District's sewerage program may be financed in an equitable and feasible manner. RECENT DEVELOPMENT TRENDS Before considering alternative sources of revenue for the implementation of the District No. 3 sewerage program, it .is advisable to discuss recent develop- ment trends within the District which have created needs for sewerage facilities. Table 10 shows the number of building permits issued for dwelling units within cities served by District No. 3 over two periods: (1) 1964 through 19 67 , and (2) 1968 through 1971. These data clearly show an almost complete reversal in building trends. During the period 1964 through 1967, the ratio of single family permits to multiple family permits was more than 2 to 1. During the period 1968 through 1971, the ratio of single family permits to multiple family permits was approximately 2 to 3. The Orange County Planning Commission in its "Progress Report, Volume 8" indicated the following: 1. The price of new housing has increased considerably beyond that of consumer income. Fewer and fewer households are now able to afford new housing than in any other time period since the housing shortage at the end of World War II. 2. Due to the several factors of increased housing costs, a younger population and their accompanying higher rates of mobility, and a general attitude toward fuller utilization of leisure time, the County has experienced a rapid increase in the number of multiple units built and rented since 1960. 3. The impact of these factors should have a considerable effect on future County growth. Increased reliance on multiple units to ova Table 10 Building Permits Issued For Dwelling Units Cities Served By Orange County Sanitation District No. 3 1964 Through 1967 Single Multiple Total Percent Single Percent Multiple City Family Permits Family Permits Permits Family Permits Family Permits Anaheim . . . . . . 1,220 2,979 4,199 29.1% 70.9% Brea . . . . . . . . 1,082 36 11118 96.8 3.2 Buena Park 182 1,080 1,262 14.4 85.6 Cypress . . . . . . 2,833 119 2,952 96.0 4.0 Fountain Valley . . . 4,141 --- 4,141 100.0 0.0 Fullerton . . . . . . 1,249 1,425 2,674 46.7 53.3 Garden Grove . . . . 892 1,358 2,250 39.6 60.4 Huntington Beach 8,494 1,525 10,019 83.4 16.6 La Habra . . . . . . 443 897 1,340 33.1 66.9 La Palma . . . . . . 1,666 3 1,669 99.8 0.2 Los Alamitos 286 251 537 53.3 46.7 Seal Beach . , . . , 1,037 610 11647 62.9 37.1 Stanton. . . , , . . 164 556 720 22.8 77.2 Westminster . . . . 1,159 433 1,592 72.8 27.2 Totals . , . . , 24,848 11,272 36,120 68.8% 31.2% 1968 Through__1971 _.. Single Multiple Total Percent Single Percent Multipl, City Family Permits Family Permits Permits Family Permits Family Permits Anaheim . . . . . . 2,967 10,245 13,212 22.5% 77.5% Brea . . 929 94 1,023 90.8 9.2 Buena Park 224 1,081 1,305 17.2 82.8 Cypress . . . . . . 2,242 1,308 3,550 63.2 36.8 Fountain Valley . . . 3,930 1,733 5,663 - 69.4 30.6 Fullerton . . . . . . 753 3,455 4,208 17.9 82.1 Garden Grove . . . . 271 2,339 .2, 610 10.4 89.6 Huntington Beach . . 5,909 70832 13,741 43.0 57.0 La Habra . . . • . • 146 2,000 2,146 6.8 93.2 La Palma • • • • • • 1,290 404 1,694 76.2 23.8 Los Alamitos . . • • 240 228 468 51.3 48.7 Seal Beach 1,201 1,072 2,273 52.8 47.2 Stanton. . . . . . . 473 1,164 1,637 28.9 71.1 Westminster . . . . 1,294 607 11901 68.1 31.9 Totals . . . . . 21, 869 33,562 55,431 39.5% 60.5% SOURCE: Orange County Progress Reports. -19- satisfy housing needs of County residents will have the effect of considerably raising the County's overall density based on pres- ent building trends. A second feature of recent development trends within the District is gained from data in Table 11. As shown in these data, the value of building permits is- sued for single family units in cities within District No. 3 averaged $ 24, 071 in 1971 as compared with a value of only $11, 213 for multiple family units. The potential property tax base provided by the single family unit therefore tends to be significantly greater than the property tax base provided by a multiple family unit. The possible reason for this is cited by the Orange County Planning Com- mission in its "Progress Report, Volume 8": 1. Because of the high monthly cost of home ownership and the de- clining buyer market, the building trade seems to be responding by increasing the number of relatively low cost condominium units being offered for sale. In 197 0, some 674 units in the $ 2 0, 000 - $ 24, 999 range were offered for sale. While this price range of $ 20, 000 to $ 24,999 is still relatively low in comparison to the pre- vailing median of $ 33 , 800 for single family homes and $ 2 8, 900 for planned unit developments, it is, however, still expensive for many families with children trying to live on incomes below the County . average. This group represents a very large proportion of those seeking shelter. 2. The fact that builders are offering these lower priced condomin- ium and townhouse units in spite of considerable price increases in building costs may indicate that they are feeling the push of an ever -decreasing market for their dwellings and are now producing lower -priced units in order to accommodate the demand. The "Mar- ketability by Price Range" data for Planned Unit Developments tends to confirm that the consumer has been responsive to the availability of these lower -priced units. A third feature of recent development trends within the District is gained from conferences we have conducted with officials of the Orange County Assessor's office. Land values within the District have increased markedly in recent years. The County staff has indicated that in 1960, the value of land suitable for residential and industrial development was approximately $ lb, 000 to $12, 000 per acre. By 1965, the value of similar type land had increased to the $18, 000 - $ 22 , 000 per acre range. In the intervening years since 19 65 , land values have continued to increase to their present levels of approximately $ 28, 000 - $ 30, 000 per acre. With respect to land suitable for high -density residential development, current values* range from $1.00 to $1.40 per square foot, or approximately $50, 000 per acre while land suitable for commercial de- velopment ranges from $ 2. 00 to $ 3. 00 per square foot, or approximately $100, 000 per acre . -20- Table 11 1971 Valuation of Building Permits For Dwelling Units Issued in Cities Served By Orange County Sanitation District No. 3 City _ Number Single Family Value of Permits M Value Per Unit Number Multi -Family Value of Permits M Value Per Unit Anaheim . . . . . . . 950 $ 17,942 $18,886 11346 $14,497 $10,770 Brea. . . . . . 272 6,396 23,515 8 114 14,250 Buena Park . . . . . . 72 1,994 27,694 252 3,945 15,655 Cypress . . . . . . . 499 12,043 24,134 655 7,441 ll,360 Fountain Valley . . . . 1,560 43,610 2 7, 955 48 554 11,542 Fullerton . . . . . . . 244 7,482 30,664 1,273 14,322 11, 251 Garden Grove . . . . . 193 4,271 22,130 675 6,883 10,197 Huntington Beach . . . 1,483 36,363 24,520 2,347 27,504 11,719 La Habra . . . . . . . 62 2,659 42,887 734 6,939 9,454 La Palma . . . . . . . 241 5,043 20,925 404 4,221 10,448 Los Alamitos 9 254 28,222 66 876 13,273 Seat Beach . . . . . . 242 6,566 27,132 60 1, 661 27, 683 Stanton. . . . . . . . 473 6,866 14,516 540 6,029 11,165 Westminster . . . . . 222 51502 24,784 370 3,439 9,p295 Total . 6,522 $156,991 8,778 $98,425 Average . . . . . . . . . . . $24,071 $11,213 M In thousands of dollars. A fourth feature relative to recent developments within the District was also gained from conferences with officials of the Orange County Assessor's office. The staff indicated that the assessed value of improvements tend to be approxi- mately twice the assessed valuation of land on improved property, e.g. , im- proved residential parcels having a total assessed valuation of $7, 000 to $8, 000 had an assessed land value of approximately $2, 500 and an assessed value for improvements of approximately $ 5, 000. This general tendency is confirmed further by an examination of the District No. 3 1972/73 property tax base. The District's tax base of $1.259 billion consists of a valuation of land at $480 million (38 percent), and improvements of $ 778 million (62 percent). It may be concluded from this that the greater portion of the District's tax base is represented by improvements on land which is owned and occupied by present users. Engineering studies of sewage flow from selected land use classifications j within County Sanitation Districts No. 3 and No. 7 have indicated the following: Gallons Gallons Dwelling Flow Per Flow Per Day Units Acre/Day Dwelling Unit Per Acre Single -Family Residential Fullerton (hillside) 216 436 2.0 Garden Grove (level) . . . . . . 1,364 345 4.0 ` Huntington Beach (level) . . . . 1, 587 380 4.2 La Habra .(rolling) . 1,228 380 4.2 Average. . . . 1,1099 385 3.6 - High -Density Residential Tustin (level) . . . . . . . . . 5,793 277 20.8 Tustin (level) . . . . . . . . . 4,1571 212 _ 21.6 Garden Grove (level) (i) ( . � 10,091 278 35.4 Huntington Beach (level) (i} 6,143 277 22.2 Huntington Beach (level) (i} . . . . 5,333 212 25.0 Huntington Beach (level) (i) . 6, 942 277 25.0 Average. . . . . . . . ; 6,479 256 25.0 Industrial Irvine Industrial Complex . . . . 3 , 336 --- --- (i) The actual field measurements. Average flow figures prorated in Tustin measurements. -22- These data indicate: (1) significant differences in the gallons of flow per acre per day between single family residential, high density residential, and industrial land uses; (2) average flows per day per dwelling unit in single family residential areas were approximately 50 percent higher than average flows per day per dwelling unit in high density residential areas. Engineering studies of the relationship between assessed valuation and generated sewage flow of various land use classifications also showed that the assessed valuation per average flow generated for the low density residential development is from between 1.4 to 4.5 times that of the high density residen- tial developments, based on actual measured flow. Using the City of Hunting- ton Beach average assessed valuation figures, this relationship is between 2.0 and 6.3. In District No. 7, this factor is from 3.7 to 4.5 times, based on actual measured flow. When compared with industrial development in District No. 7, the assessed valuation. per average flow generated from low density residential development is between 4.0 to 4.9 times greater, based on actual measured flows. Lastly, data from the 1970 U. S. Census indicate substantial differences in the median value of owner occupied housing units within the cities served by Dis- trict No. 3, andpopulation per owner -occupied dwelling unit as shown in Table 12. SUMMARY OF FINDINGS RELATIVE TO RECENT DEVELOPMENT TRENDS Based on the foregoing analyses the following observations may be made: 1. There appears to be a definite trend toward increased higher density residential types of development in the District. 2, The value of building permits issued in 1971 within cities served by the District averaged $24, 071 for single family units compared with $11, 213 for multiple family units. The potential property tax base provided by single family unit land therefore tends to be significantly greater than the potential property tax base provided by a multiple family unit. 3. Engineering data indicate average daily flows per dwelling unit in single family residential land uses average about 385 gallons per unit. Density of these types of developments aver- aged 3.6 units per acre. In high density residential land uses, flows averaged about 256 gallons per day per unit,, or approximately 2/3 that of lower density single family land uses. On the basis of -23- Tabl e 12 Estimated Per Capita Cost For Sanitary Sewerage Service In Owner Occupied Housing Units Median Value Estimated Population Per Owner Occupied Assessed Owner Occupied City (i) Housing Unit Valuation (ii) Housing Unit Anaheim . . . . . . . $24, 800 $6; 200 3.60 Brea . . . . . . . . . 28,700 7,175 3.70 Buena Park . . . . . . 22,800 5,700 j 4.00 Cypress . . . . . . . 291200 7,300 I 4.00 Fountain Valley . 30,400 7,600 4.00 Fullerton . . . . . . . 26,300 6,575 ! 3.60 Garden Grove . . . . . 23,900 5,975 I 3.80 Huntington Beach . . . 28,700 7,175 3.70 La Habra . . . . . . . 24,900 6,225 3.60 Los Alamitos . . . . . 29,900 7,475 ii 3.80 Seal Beach . . . . . . 34,700 8,675 i 2.10 Stanton . . . . . . . 22,400 5,600 j 3.80 Westminster . . . . . 24, 200 61050 I 3.80 Average . . . . . $26, 992 $6, 748 •3.65 ( i) La Palma not listed. (ii) Assumes assessed valuation based -on 25 percent of median value. valuation of building permits issued in cities served by the District, the potential property tax base provided by single family units is approximately 115 percent greater than the potential property tax base provided by multiple family higher density developments. 4. Within the cities served by District No. 3, there are signifi- cant differences in present users of the District's sewerage facilities. Median value of owner occupied housing units ranges from $22, 800 to $34, 700. Population per owner occupied housing units ranges from 2.1 to 4.0.. 5. Land values within the District have increased significantly, in recent years. Land suitable for low density residential development has increased from approximately $10, 000 - $12, 000 -24- per acre in 1960 to current levels of $ 28, 000 - $ 30, 000. Land suitable for high density residential development is now valued at approximately $50, 000 per acre. Land suitable for commercial de- velopment is now valued at approximately $100, 000 per acre. 6. The District's property tax base of $1.259 billion consists of land having an assessed valuation of $480 million (38 per- cent of total tax base) and improvements on land which is owned and occupied by present property owners having an assessed valu- ation of $ 778 million (62 percent of total tax base) . BENEFICIARIES AND ACHIEVING EQUITY IN PROVIDING SEWERAGE SERVICES Demands for sewerage services are created by two broad classifications: (1) present users, and (2) potential users (owners of improved or unimproved land not connected to the system but adjacent to it) . A system of assessing and recovering the costs of these benefits must consider the following: 1. Equity among present users. 2. Equity among potential users. 3. Equity between present and potential users. .• The distribution of costs in relation to complete equity in all cases is highly unlikely. What must be attempted is the achievement of optimum equity in relation to the degree of benefits received by broad categories of present users and potential users within the constraints posed by statutory provisions and practical administrative procedures. ALTERNATIVE SOURCES OF REVENUE TO FINANCE SEWERAGE IMPROVEMENTS In their attempts to resolve the problems of achieving optimum equity in assessing and recovering the costs of sewerage systems from beneficiaries, special districts and cities have employed four basic sources of revenue: (1) property taxes, (2) service charges, (3) standby charges, and (4) con- nection fees. A description and evaluation of each of these sources as they relate to the circumstances faced in District No. 3 are presented below. -25- Property Taxes . Traditionally, ad valorem property taxes have been used very widely by cities and special districts to finance sewerage services. This source is a reliable and substantial provider of revenue as well as being relatively easy to administer and collect. Because of its ad valorem nature, it is capable of generating revenue from both users and potential users (owners of improved or unimproved land which are not connected to the system but are adjacent to it) . From the standpoint of achieving optimum equity, this source does . have several disadvantages. Revenue derived from users varies according to the assessed valuation of their respective properties. Estimated variances in the assessed valuation of users are rather wide among typical residential users within the District as shown in Table 12, as well as potential residential users based on the average valuation of building permits issued for single-family dwelling units and higher density residential developments shown in Table 11. Revenue generated by ad valorem property taxes upon various categories of land use do not coincide with the demands placed upon the system. Engin- eering studies completed for the District have shown, based on actual measured flow, that the assessed valuation per average flow in low density residential developments is from between 1.4 to 4.5 times that of high density residential development. In District No. 7 this factor is from 3.7 to 4.5 times based on actual measured flow. There is also some question in the ability of ad valorem taxes to gen- erate appropriate revenue from potential users in amounts sufficient to offset unused benefits received. As noted earlier, land suitable for residential de- velopment has increased in value from approximately $10 , 0 0 0 to $ 3 0 , 0 0 0 per acre in Orange County since 1960. Based on the District's property tax rate, and assuming such land was assessed at 25 percent of market value, a potential user would have paid approximately $250 per acre to support unused sewerage services over the period from 1960 to 1972. It is questionable that this amount of generated revenue per acre over the twelve --year period .is appropriate in re- lation to the induced benefits provided since the availability of public utility services are a major factor in adding value to a property. Finally, the use of ad valorem property taxes to service the proposed $13, 000, 000 bond issue needed to complete the District's scheduled improvement program must be considered. Local funding requirements of District No. 3 for the proposed sewerage program amount to approximately $ 3 3 , 451, 0 0 0 ($ 2 8 , 451, 0 0 0 to complete the master trunk sewer program and $5, 000, 000 for its prorated share of joint treatment facility improvements) . The major portion of District No. 3 "local funding requirements is avail- able in cash reserves, and anticipated revenues from property taxes to be re- ceived during the period of construction. The facilities being constructed are -26- designed to meet trunk sewer needs based on ultimate development when antici- pated flows will reach 159.1 mgd. In effect, substantial capacity is being built into master trunk sewers to meet future needs. With respect to joint treatment facilities, the same is the case in that considerable excess capacity is being built into facilities to meet future user needs. It was previously noted that approximately 62 percent of the District's property tax base consists of improvements upon land. This portion of the Dis- trict's tax base is essentially provided by present users of the system which have provided, and will provide in the immediate future, the major portion of funding requirements to complete the sewerage program which contains consid- erable excess capacity to meet needs of potential users (owners of improved or unimproved land not connected but adjacent to the sewerage system) . Service Charges. The use of service charges as a major source of funds to meet costs connected with sewerage services has become so widespread in recent years that it deserves special discussion. The basic rationale for the establishment of fair and equitable charges for sewage disposal service has generally been based on the principle that total annual revenue requirements should be met by contributions from beneficiaries in amounts that are as directly proportionate as possible to the cost of providing the service. In establishing charges for sewage disposal service, distributions should be made relative to beneficiaries both by type and extent of benefit re- ceived. Every property in a community receives some measure of benefit from sewage disposal service. Compared with undeveloped properties (non -users) , the benefits to developed property (users) are more direct; nevertheless, values of undeveloped properties and the potential for property development are en- hanced by the availability of public sewage disposal service. Public sewage disposal service provides both individual user and broad public health benefits. The extent to which costs are to be borne by individual users and the community at large (which includes users and non -users) is a fundamental consideration in establishing fair and equitable charges for this service. Users may make normal or excessive demands on sewage disposal facilities and operating revenues. Extraordinary volumes and/or strengths of industrial and commercial wastes affect capital and operating costs of pipe- lines and treatment facilities. As recently as 1930, only 24 public entities reported* the use of sewer charges; however, a dramatic increase occurred following World War II.- A de- tailed study of the International City Management Association in the 1970 Mu- nicipal Year Book indicated the large majority (86 percent) of the cities providing both sanitary sewage collection and treatment use a service charge. -2 7- Sewer service charges have proven to be dependable revenue producers with which to equate the charge for service to benefits received by the user. Bases used to establish sewer service charges include: (1) flat rates, (2) water consumption, and (3) metered sewage. The principal advantage of the flat rate charge is its simplicity and ease of administration, particularly in a community where water use or sewage discharge is not metered; however, this approach does not apportion costs equitably to users who place unequal service demands on the system. Metered water consumption is a practical and relatively fair basis for establishing sewer service charges. From the standpoint of administration, ease of collection and reliability of yield, a service charge based on metered water consumption is highly desirable; however, it too has inequities, because all metered water used is not discharged into the sewerage system and no allowance is made to recover costs of processing high strength sewage discharged by some users into the system. Sewer service charges based on the quantity and characteristics of sewage handled are the most accurate and equitable measure of relative demand placed on the system by each user. Unfortunately, the lack of inexpensive sewage meters is one factor limiting widespread use of this method throughout a community except in known cases of individual users who generate extraordinary volumes and strengths of sewage. Of the three bases, metered water consumption appears to be the most practical basis on which to establish sewer service charges to users that do not discharge extra- ordinary volumes and strengths of sewage into the sytem. The exclusive use of service charges to meet the costs of providing sewerage service has many desirable features; however, there are problems of optimizing equity with their use. Service charges are imposed on present users. Non -users and potential users who may connect to the system contribute nothing to support the system from which they receive indirect benefits. Accordingly, many entities use property taxes in combination with service charges. Secondly, the use of sewer service charges in District No. 3 would be difficult to admin- ister since the District is not a water supplier. Within the District there are approximately ten municipal water distributors and more than 200 smaller mutual distributors according to the Orange County Health Department. Establishment and administration of an equitable service charge on the basis of water consumption would be a most difficult problem. Similar problems would be encountered if a flat rate sewer service charge were to be imposed on properties within the District. An initial inventory of all parcels to determine use would be necessary followed by the annual updating of the inventory to as- sure all properties connected to the system were being charged. �'O Standby Charges. This method has been employed by a number of special districts in California to recover from unimproved land the costs of providing ex- cess capacity in sewerage systems designed to serve future users. The standby charge is usually at a flat rate imposed on an acreage basis. Such a method is one way in which it would be possible to generate revenue to offset the costs of benefits received by unimproved land. Difficulty of administration and high costs of initiating a standby charge, similar to those of instituting flat rate sewer ser- vice charges,would be encountered in the case of District No. 3. Connection Charges. The previously referred to study of the International City Management Association as detailed in the 1970 Municipal Year Book cov- ered the use of connection fees by public sewerage entities. This study indicated: 1. In addition to the sewer service charge, a common source of rev- enue for sanitary sewer systems is the connection or tap charge. Of those cities reporting, 972 or 77%, indicated that they levy a connection (tap) charge. The percentage of cities utilizing such a charge varied from a low of 63% in cities of 250,000 to 500, 000, to a high of 86% in cities under 5,000 population. 2. Some of the more common ways in which connection (tap) charges are computed include a flat charge, actual cost, and lot frontage. By far the most common method is the flat charge utilized by 70% of the cities reporting; this method is particularly popular with the s smaller cities. The actual cost method is utilized by 11% of the re- porting cities. The frontage method was utilized more frequently by cities of 100, 000 to 250, 000, cities in the West, and central cities. 3. The median connection (tap) charge for a single-family residence in those cities reporting use of such a charge varied from $50 in cities under 5,000 to $100 for cities over 250, 000. With the excep- tion of cities of 100, 000 to 250, 000 population, the median tap charge generally decreased as population decreased, .was higher in the Northeast and West, and was considerably higher in both central and suburban cities than independent cities. The data shown in Table 13 indicates the level of single-family unit connection charges in California cities and entities as reported in this study. There is .a wide variance in the cost of connection fees imposed by California cities cited in this study. Minimal charges of under $50 are usually designed to cover only the cost of inspecting the connection as it is made; however, in a majority of the areas the fees run from $100 to several hundred dollars and are designed to re- cover a major portion of the cost of having provided facilities to serve future users. -29- Table 13 CONNECTION CHARGES FOR SINGLE-FAMILY UNITS IN VARIOUS CALIFORNIA COMMUNITIES Per Unit Basis Single Family Unit Per Unit Basis Single Family Unit Redding. . . . . . . . $600 Ojai. . . . . . . . . . $100 Chico . . . . . . . . 500 Sunnyvale . . . . . . . 95 San Francisco . 500. Fullerton. . . . . . . . 95 Madera . . . . . . . . 450 Los Altos . . . . . . . 95 Hanford. . . . . . . . 375 San Luis Obispo . . . . 95 Los Angeles . 368 Crescent City 90 Pleasanton . . . . . . 355 Watsonville • • • • • • 90 Livermore . . . . . . . 318 Delano • • • • • • • • 90 San Jose . . . . . . . 300 Orange • • • • • • • • 75 Concord . . . . . . . 300 Santa Clara CSD #4 . . . 75 Baldwin Park . . . . . 300 La Verne . . . . . . . . 75 Barstow. . . . . . . . 300 Lodi . . . . . . . . . 75 Valley Community S.D. .. 300 Needles . . . . . . . . 75 Arcata . . . . . . . . 300 Redlands. . . . . . . . 75 Auburn . . . . . . . . 300 Selma . . . . . . . .. . 75 Davis . . . . . . . . 275 North San Mateo 75 San Diego . . . . . . 265 Tracy . . . . . . . . . 75 Monterey . . . . . . . 250 Hayward . . . . . . . . 65 Vacaville . . . . . . . 250 Chino . . . . . . . . . 65 Redlands . . . . . . . 225 San Carlos . . . . . . . 60 Eureka . . . . . . . . 200 Berkeley . . . . . . . . 60 Hermosa Beach . . . . 200 Huntington Beach . . . . 60 . San Clemente . . . . . 200 El Cajon . . . . . . . . 50 Oroville . . . . . . . 200 Carlsbad. . . . . . . . 50 Palo Alto . . . . . . . 200 El Ce ntro . . . . . . . 50 _ Santa Clara . . . . . . 195 Sanger. . . . . . . . . 50 Pacifica . . . . . . . 185 Brisbane . . . . . . . . 50 Menlo Park S. D. 163 Hemet . . . . . . . . . 45 Norwalk • 150 Glendale. . . . . . . . .38 Fontana . . . . . . . 150 La Mesa . . . . . . . . 25 Marysville . . . . . . 150 Coalinga . . . . . . . 25 Modesto . . . . . . . 150 Piedmont . . _ . . . . . 25 Corte Madera . . . . . 150 Monterey Park . . . . . 17 Escondido -125 Chula Vista 15 Merced . . . . 125 Newport Beach . . . . . 15 Millbrae . . . 125 Coachella • • . • • • 15 San Jacinto . . . . . . 125 Stockton • • • • • • • • 12 Larkspur . . . . . . . 125 Los Gatos . . . . . . . 12 Pinole . . . . . . . . 125 Montclair . . . . . . . 11 Sacramento . . . . . . 120 Culver City . . . . . . 11 Riverside . . . . . . . 110 Morro Bay . . . . . . . 8 Oxnard . . . . . . . . 10Q Monrovia . . . . . . . 7 Mantica . . . . . . . 100 Glendora. 5 Colton . . . • • . . . 100 Huntington Park. 5 Signal Hill . . . . . . 100 Gonzales. . . . . . . . 5 -30- RECOMMENDED FINANCING ALTERNATIVE* On the basis of the foregoing analyses, evaluations, and considerations to optimize equity among users and potential users of the District's sewerage system, it is our recommendation that the governing board of District No. 3 consider the use of a sewer connection fee as a new source of revenue. The purpose of the connection fee would be to recover costs of providing facilities in the near future which will have sufficient built-in capacity to serve future users. We further recommend that the connection fee be made applicable to connections made to a District owned facility or to any local collector sewer which discharges into the District's sewerage system. As the basis for formulating the connection charge, we suggest that it be based on the unit costs of providing trunk sewer capacity and sewage treatment and disposal capacity. In this report we have reviewed with the District staff the extensive cost data relative to existing facilities. We have used these data, along with the projected costs of providing new facilities to arrive at an esti- mated unit cost of providing sewerage services. The estimated unit costs de- rived take into account net cost of facilities, after allowances for Federal and State aid received, or anticipated to be received. The results of these studies are shown in Tables 14 and 15. These data indicate that the cost of providing one million gallons of trunk sewer capacity in the existing and master plan system that a capital cost of approximately $ 3 79 , 400 is required based on an ultimate system capacity of 189. 1 mgd. With respect to sewage treatment and disposal, these- studies indicate a capital cost of approximately $265, 500 per one million gallons of capacity is required. As the basis for computing connection charge fees, we recommend that the governing board of District No. 3 consider using average anticipated sewage flows from residential and other than residential land uses which have served as the basis to design master plan trunk sewer facilities in District No. 3. Criteria for your consideration are as follows: Low density residential (1-6 units per acre) .1550 gpd per acre Medium -high density residential (7 or more units per acre) . 4850 gpd per acre(i) Other than residential (commercial or in- dustrial). . . . . . . . . . . . . . .3555 gpd per acre(ii) ( i) Average of medium density and high density residential land use flows. (ii) Average of commercial and industrial land use flows. With respect to establishment of connection charges for low density resi- dential development, it is believed that 4 units per acre should be used as a -31- Table 14 ORANGE COUNTY SANITATION DISTRICT NO. 3 TRUNK SEWER SYSTEM COST ELEMENTS Cost Element Cost Original Cost of existing facilities (Table 1) . . . . . . . . . $16 , 79 5 , 140 Bond Interest 1951 Issue prorated @ 40% of total . . . . . . . . . . . . 257,285 1958 Issue, Series A . . . . . . . . . . . . . . . . . . 6,252,413 1958 Issue, Series B . . . . . . . . . . . . . . . . . . 2,089,613 Estimated Cost to complete master plan facilities (Table 2) 1 28,451,000 Estimated interest on new bonds prorated @ 85% of total (Table 9) (ii) . . . . . . . . . . . . . . . . . . . . . 7,440, 730 Subtotal . . . . . . . . . . . . . . . . . . . . . $ 61, 2 8 6 , 181 Less: Federal aid received . . . . . . . . . . . . . . . . 916,600 Net Cost . . . . . . . . . . . . . . . . . . . . $60, 369 , 581 Cost Per Million Gallons Average Capacity(iii) . . . . . . . . $ 379,444 ( i) $29, 009 , 000 less $558, 000 work in progress included in Table 1 original cost of trunk sewer system. ( ii) Total District No. 3 funding to complete master trunk sewer plan ($28,451,000) and its prorata share of joinir treatment works ($5,000,900) is approximately $33,451,900. Of total funding requirements, some 85 percent, or $28, 451, 000 is attributable to the trunk sewer program. (iii) Based on average capacity (159 mgd) of system. guide. This is based on data which indicates the overall average population per owner -occupied housing unit in cities served by the District is 3.65 per unit. Consulting engineers have indicated that flows into- the joint treatment works are at the rate of approximately 105 gallons per capita per day. On this basis, it is reasonable to assume that a typical dwelling unit contributes approximately 383 gallons per day to the system. At this rate, the design parameter of 1550 gpd per acre provides for 4 units. 1550 gpd per acre = 4.047 units 383 gpd per unit -32- Table 15 ORANGE COUNTY SANITATION DISTRICTS JOINT TREATMENT WORKS COST ELEMENTS Cost Per Cost Element Cost Capacity MGD Capacity Land and improvements (Table 2) . . . . . . . . . . $ 1,367,209 410 mgd Outfall facilities (Table 2) . . . . . . . . . . . . . 18 ,111, 2 00 410 mgd Subtotal . . . . ... . . . . . . . . . . $19,478,409 Less Federal -State aid . . . . . . . . . . . . . . 3,218,033 Net Cost . . . . . . . . . . ... . . . . . $16,260,376 $ 39,664 Existing and proposed primary treatment Existing primary treatment facilities (Table 2) . . $41, 2 39 , 479 184 mgd Proposed primary treatment facilities (Table 6) . . . 21., 2001000 36 mgd Subtotal . . . . . . . . . . . . . . . . . $ 62 , 439 , 479 220 mgd Less Federal -State aid for existing facilities . . 16, 661, 967 Less Federal -State aid for proposed facilities . . . . 18,550,000 Net Cost Primary Treatment Facilities $2 7 , 22 7, 512 220 mgd $12 3 , 761 Proposed secondary treatment facilities (Table 6) . $100,800,000 196 mgd Interest on proposed bonds @ 15% of total (Table 9) 1,313,030 Subtotal . . . . . . . . . . . . . . . . . . $102 ,113 , 030 Less anticipated Federal -State aid . . . . . . . . 88r200,000 Net Cost Secondary Treatment . . . . . . . . $ 13, 913, 030 196 mgd $ 70,984 State revenue program depreciation accrual. . $ 6 , 09 0 , 000 196 mgd $ 31,071 Total Net Cost Per MGD Capacity. . . . . . . . . . . . . . . . . . . . .$265,480 is With reference to medium high density residential uses, we noted that med- ium density parameters used allowed for 7-16 residential units per acre, while the high density parameter allowed for 17 or more units per acre. Engineering studies of flows for high density residential land uses indicated average densi- ties of approximately 25 units. It is suggested that the medium between 7 .and 25 units, or 16 units per acre be used for these categories. It is suggested that uses other than residential be based on area of facility. ESTIMATED LEVEL OF CONNECTION CHARGES Previously cited unit costs for one million gallons capacity of sewerage fa- cilities totaled approximately $644, 900. On the basis of 100 gallons, unit costs for providing sewerage facilities would be approximately $65. Estimated flows per residential unit average approximately 383 gallons per day. On this basis, it is recommended that consideration be given to the establishment of the sewer connection fee for residential units at the rate of $250. We noted engineering studies indicated lower per unit flows in higher den- sity residential uses. Flows from these units were approximately two-thirds those of low density. areas. We have considered the question of whether or not a rate lower than $250 per unit should be applied to medium high density resid- ential uses. We also were cognizant of the fact that higher density residential uses do not provide as great a potential tax base as low density residential uses. fi On these bases, we recommend that the proposed $250 connection fee for resid- ential uses apply to all units. Commercial and industrial uses were considered in the same manner as res- idential uses. It is anticipated these uses will provide an average flow of 3555 gallons per day per acre. At a unit capital cost of $ 65 for providing 100 gallons of sewerage capacity, the charge would be approximately $2, 300 per acre. On a square footage basis, the capital cost for sewerage facilities would be ap- proximately $500 per 10,000 square feet of the facility. This rate is suggested as a general guide in recognition of the wide variation in types of industrial and commercial uses. It is suggested the charge for major types of industrial and commercial facilities be administered on the basis of a close study of the capacity requirements, type of discharge, number of employees, and other re- lated factors. -34- ESTIMATED REVENUE FROM CONNECTION CHARGES In December 1972, studies were completed relative to the possible revenue which ' may be derived from connection charges at various levels. That study concluded that revenue from connection charges at the rate of $ 50 for a single family dwelling unit and $125 for a multiple family dwelling unit would average about $740,000,. based on 12-year average building per- mits data. On the same bases used in the December 1972 study, it is estimated that revenue from connection charges under the rates suggested in this study would be approximately $ 2 ,10 0 , 00 0 . From industrial and commer- cial users, it is estimated that connection charge revenue may be approxi- mately $330, 000 assuming 337 units at the rate of $1, 000 per 20,000 square feet of building area. Based on the estimated bond service costs for the $13,000,000 of proposed general obligation bonds, estimated connection charge revenues would be more than sufficient to service the bonds. Connection fee revenues in excess of actual bond service requirements could be held in reserve to meet future capital needs, thereby making it possible for the District to reduce the property tax rate levied for the accumulation of capital reserves. -35- COUNTY SANITATION DISTRICTS of ORANGE COUNTY, CALIFORNIA March 30, 1973 TO: SPECIAL COMMITTEE TO Robert Root, Chairman ✓Charles Stevens, Jr. -15'onald L. Fox hack Green /George B. Scott RE: Meeting - 5:00 p.m., Wednesday, April 4 P.O. BOX 8127 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 (714) 540-2910 (714) 962-2411 Chairman Root has asked us to advise you that the next meeting of the Committee will be at the above hour and date. A light dinner will be served during the course of the meetin The staff has met with Mr. Ernest Bodnar of Stone and Youngberg, the Districts' Financial Consultant, and reviewed the basic data and information developed with regard to the recommended connection fees for commercial and industrial developments, and the anticipated cash flows in connection with the feasibility of a general obligation bond issue. Mr. Bodnar will review his recommendations at the April 4th meeting, which are summarized as follows: Establish the following recommended connection fees as soon as practicable: Residential Units $250 Commercial & Industrial $50/1000 sq. ft. with $250 minimum Commercial and industrial establishments having a high volume of water discharges will continue to be subject to excess capacity connection charges as provided in the existing Uniform Industrial Use Ordinance. Defer decision re amount of bond issue and timing of election for up to nine months, pending determination by EPA regarding joint works treatment requirements. Chairman Root has asked Director Vanderwaal to attend the meeting, who has developed several detailed connection charge revenue funding projections that will be of interest to the Committee. Fred A. Harper General Manager FAH:j cc: Director Vanderwaal Chairman Culver, District No. 3 Chairman Smith, District No. 2,/ March 28, 1973 Mr. Erne;A D. BoOnar, Aes+,i tant Cite President Stone •,°; "ounEberva One Cali.fornla Street, Suite ^75C San "-rancisco, California 94111 Aq per our meeting on March 27, 1973, I am forwardlnL7, the material on Exce.— Capacity Connection Chargee which y.)u may incorporate into your recommenlations to the Special Committee stulyin;, connection ehar�,es. Plea,e feel free to mo•'ify the encloned material a: you leter- mine nece•:a.aary for greater continuity in your report. Should you have any ad(litional question:; on the material enciooe-!, plea--e Io not hesitate to call. Robert A. Webber Chief of In°uatrial an,4 Permit Division RAW: Im fine..', o,-3ure COUNTY SANITATION DISTRICTS . of ORANGE COUNTY, CALIFORNIA P.O. BOX 8127 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 (714) 540-2910 (714) 962-2411 EXCESS CAPACITY CONNECTION CHARGES AS PER DISTRICTS' UNIFORM CONNECTION AND USE ORDINANCE To assure that dischargers exerting an 'excessive demand on the Districts' sewerage facilities pay their proportional share, the Districts' Uniform Connection and Use Ordinance adopted by the Joint Boards in April, 1970, requires such dischargers to purchase that additional trunk and plant capacity. These charges are referred to as Excess Capacity Connection Charges and are defined in the Uniform Connection and Use Ordinance as such. Article 6, Paragraph 6: Prior to commencement of use and upon invoicing by -the District, an excess capacity connection charge shall be pay- able bya user when, during the 12-month period after commencement of use, the peak flow rate may be reasonably expected to exceed 25,000 gallons per day unless such peak flow rate is a reasonable use as defined in Article 2 of this ordinance. Article 2, Paragraph j: For the purpose of computing excess capacity connection charges, reasonable use is hereby established at 25,)00 gallons per day peak flow rate per $100,OCu of assessed valuation. Article 6, Paragraph b: Subject to the provi- sions hereina ove, excess capacity connection charges payable shall be computed at the rate of $350 per 1,000 gallons per day of peak flow rate. The following are examples of the application of Excess Capacity Connection Charges on two operations within the Districts. Company A, invoiced in June,*1972, for $9,240.00, is a government owned facility and is not subject to ad valorem taxation. Company B. an existing carpet manufacturer contem- plating expanding their operation to include carpet dyeing with a substantial demand on the Districts' facilities. 4 - COMPANY A ASSESSED VALUE $0.00 ALLOWABLE DISCHARGE ACTUAL DISCHARGE RATE OF FLOW 0 gallons/day RATE OF FLOW 26,400 gallons/day Computation of Excess Capacity Connection Charge Actual Discharge 26,400 gallons/day Allowable Discharge 0 gallons/day 26,400 gallons/day x $350/1,000 gallons _ $9;240.00 B $450,000.00 1132000 gallons/day 5002000 gallons/day Computation of Excess Capacity Connection Charge Actual Discharge 500,000 gallons/day Allowable Discharge 113,000 gallons day 387,000 gallons/day x $350/1,000 gallons $1352450.00. ��� ■emu i i me � 1 P11,44 i �IS , ; _en span NINE R - oil 11 milli I mill -IN 1p1m1jmI I I I I INS I 11 m Ell in �i� IIIE iO"�Se m i ■ COUNTY SANITATION DISTRICTS of ORANGE COUNTY. CALIFORNIA i March 16, 1973 TO: SPECIAL TO RECOMMEND Robert Root, Chairman Charles Stevens, Jr. Donald L. Fox Jack Green George B. Scott RE: Meeting - 5:00 p.m., Wednesday, March 21st P.O. BOX 8127 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 (714) 540-2910 (714) 962-241I Chairman Root has asked us to advise you that he has scheduled the first meeting of the committee at the above hour and date immediately preceding the 7:00 p.m., District No. 2 meeting. A light dinner will be served during the course of the committee meeting. The committee will meet with the Districts' staff and Mr. Bodnar, of Stone and Youngberg, to develop an effective construction financing program in accordance with the March 15th instructions to the committee from the Board,_ C../?:,447 41 �t Fred A. Harper i General Manager FAH:j Enclosures COUNTY SANITATION DISTRICTS of ORANGE COUNTY, CALIFORNIA P.O. BOX 8127 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 (714) 540-2910 (714) 962-2411 ' SPECIAL COMMITTEE TO RECOMMEND FINANCING TO IMPLEMENT THE DISTRICT NO. 3 CONSTRUCTION PROGRAM Appoin ed 3-15-73 Home Phone Business Phone Robert Root, Chairman 3230 Santa Monica Avenue Fullerton 871-2761 525-0231 Charles Stevens, Jr. 1420 Rockinghorse Lane La Habra 691--6004 *588-8223 Donald L. Fox . 806 Alder Street Brea .529-2497 632-3051 Jack Green 6812 Auburn Drive Huntington Beach 842-8276 325-5519 Palm Springs ueorge B. Scott 16675 Spruce Circle Fountain valley 839-1675 532-7559 • a - / & Y0UN(-.'x1-]3ERG- Agenda Item NoSTONE 3 MUNICIPAL FINANCING CO-KISULTANTS. INC. March 9, 1973 The Honorable Board of Directors Orange County Sanitation District 101r-3 P. O. Box'8127 Fountain Valley, California 92708 Gentlemen: . In accordance with your authorization and direction, we have prepared a recommended financing plan for your consideration to implement major sewerage improvement programs which are to be carried out over the next several years . We have concluded that the estimated maximum cash flow needs to implement -the programs can be met from the sale of $13 , 000 , 000 General Obligation Bonds. This is the amount that would be required should federal and state standards provide for secondary treatment at an equivalent to activated sludge for total district flows. Consulting engineers are of the opinion that federal and state standards will eventually require this level of treatment. Should federal and state standards be set at lower levels, the full 'amount of authorized bonds need not be sold to implement the program. • The recommended financing plan suggests that the Board of Directors initiate a connection charge as an additional source of revenue to meet district funding needs and recover the costs of providing excess capacity in facilities to meet future users. The level suggested for your consideration is $250 per dwelling unit. Suggestions are also made regarding commercial and industrial user connection fees. I would like to take this opportunity to express our appreciation to Mr. Fred A. Harper, General Manager, J. Wayne Sylvester, Director of. Finance, Mr. Graham Hazlett of the District Staff, Mr. Conrad Hohner, Boyle Engineering, and Mr. Walter Howard, Carollo Engineers, for their assistance in the completion of this study. 9S9 - 23�0 SUITE 2750 - ONE CALIFORNIA STREET - SAN FRANCISCO. CALIFORNIA 94111 - (415);p i t ' • The Honorable Board of Directors March 9, 1973 Orange County Sanitation District 3 Page Two • We are available to provide any further information you need to assist the District in implementing its sewerage program. Yours very truly, STONE & YOUNGBERG Municipal Financing Consultants, Inc. iiJ�Ci�/� �J r�/ ✓1'VI Ri'✓ Ernest B . Bodnar Assistant Vice President EBB:ac enclosure SUMMARY OF FINDINGS AND RECOMMENDATIONS 1. To- meet its existing and anticipated future .needs, District No. 3 initiated a seven-year trunk sewer improvement program which is estimated to cost more than $29 million over the period 1971/72 through 1977/78. In conjunction with sir. other Orange County sanitation districts, the Dis- trict in the process of upgrading jointly owned sewage treatment works to meet State water .quality control standards. Tize estimated cost of up- grading jointly ov. ned primary treatment facilities is approximately $ 21.2 million. The consulting engineers estimate the cost of activated sludge secondary treatment which eventually will be required by Federal . and State standards at approximately $100.8 million. 2. On the basis of the consulting engineers` cost estimates 'and construction schedules, the Director of Finance has projected funding needs of Dis- trict No. 3 to implement the master plan trunk sewer program; meet its share of estimated capital costs of the proposed joint treatment works im- provement program; provide for the District's share of projected operations and maintenance costs; and debt service costs on- District bonds. Projec- ted cash flow Deficits range from approximately $4.85 million to $12.5 million dependent upon the level of secondary treatment required of the District to meet Federal and State standards. 3: General obligation bond financing is the most practical and feasible finan-- sing alternative available to District No. 3 to implement the master plan trunk sewer and joint treatment works improvement program as scheduled. It is recommended that District No. 3 seek authorization of $13 million of general obligation bonds since the consulting engineers are of the opinion that Federal and State standards will eventually require secondary treatment equivalent to activated sludge. 4. Authorization of $13, 000, 000 of general obligation, bonds does not mean that -the full amount will be issued. Should Federal and State standards provide for secondary treatment at an equivalent less than activated sludge for total District flow, facilities could be financed with the issu- ance of that portion of the authorization needed to complete the program. 5.' Recent development trends within the area served by the District have indicated the following: A trend toward increased higher density residential types of development in the District. The potential property tax base provided by single family unit land uses tends to be significantly greater than the potential property tax base provided by a multiple family unit. Engineering data indicate average daily flows per dwelling unit in single family residential land uses average about 385 gallons per unit. In high density residential lard uses, flows averaged about 256 gallons per day per unit, or approximately 2/3 that of lower density single family land uses. Within cities served by District No. 3, there are significant differences in present users of the District's sewerage facilities. median value of owner occupied housing units ranges from $22, 800 to $34, 700 . Population per owner occupied housing units ranges from 2.1 to 4.0 . Land values within the District have increased significantly in recent years. Land suitable for low density residential develop- ment has increased from approximately $10 , 000 - $12, 000 per acre in 1960 to current levels of $28, 000 - $30 j,000. . Land suitable for high density residential development is now valued at approxi- mately $ 50 , 000 per acre.. Land * suitable for commercial develop- ment is, now valued at approxi�iately $100, 000 per acre. The District's property tax base of $1.259 billion consists of land having ail a55essed valUdLion of $480 million (38 percent of total tax base) and improvements on land which is owned and occupied by present property owners having an assessed valuation of $778 million (f 2 percent of total tax base) . 6. Demands for sewerage services are created by two broad classifications: (1) present users, and (2) potential users (owners of improved or unim- proved land not connected to the system but adjacent to it) . A system of assessing and recovering the costs of these benefits .must consider the following: 1. Equity among present users 2. Equity among potential users. 3. Equity between present and potential users. r The -distribution of costs in relation to complete equity in all cases is highly unlikely. What must be attempted is the achievement of optimum equity in relation to the degree of benefits received by broad categories of present users and potential users within the constraints posed by statutory provisions and practical administrative procedures. 7. On the basis of our analyses,. --evaluations, and considerations to - optimize equity among users and potential users of the District's sewer- age system, it is .our recommendation that the governing board of Dis- trict No. 3 consider the use of a server connection fee as a new source of -revenue. The purpose of the connection fee would be to recover costs of providing facilities in the near future which will have sufficient built- in capacity to serve future users. We also recommend that the connection fee be made applicable to connections made to a District owned facility or to any local collecto sewer which discharges into the District's sewer- age system. 8. As the basis for formulating connection charges, we suggest: unit costs of providing trunk sewer and sewage treatment -disposal capacity. We esti- mate . the unit costs of providing such facilities at approximately $ 645 , 000 per million gallons. - 9. As the basis for computing connection charge fees, we recommend that the governing board of District No. 3 consider using average 'anticipated sew- age flows from residential land uses which have served 'as the basis to design master plan trunk sewer facilities in District No. 3. 10. Based on the estimated capital cost of providing sewerage facilities, pro- jected flows from residential land uses, and current land use develop- ments within the Mstrict, if is recommended that consideration by g?ven to the establishment of a residential unit. connection charge of $250. 11. -Commercial and industrial uses were considered in the same manner as residential. uses. It is anticipated these uses will provide an average flow of 3555 gallons per day per acre. At a unit, capital lost of $65 for providing 100 gallons of sewerage capacity, the charge would be approximately 4 2, 300 per acr,�. On a square footage basis, the capital cost for sewerage facilities would be approximately $500 per 10,000 square feet of the facility. This rate is suggested as a general guide in recog- nition of the wide variation in types of industrial ,and commercial uses. It iD suggested the charge for major types of industrial and commercial facilities be administered on the basis of a close study of the capacity requirements., type of. discharge, number of employees, and other related factors. - 12. Revenue from connection charges under rates suggested in this study could provide 'as much as $2.4. million on the basis of the December 1972 study.of near -term development patterns in the District. 13. Based on the estimated bond service costs for the $13, 000, 000 of pro- posed general. obligation bonds, estimated connection charge revenues would be more than sufficient to service the bonds. . Connection fee 0 d • revenues in excess of actual bond service requ?remmts could be held in reserve to meet future capital needs', thereby making it possible for the District to reduce the property tajx rate levied for the accumulation of capital reserves. r COUNTY SANITATION DISTRICTS of ORANGE COUNTY, CALIFORNIA P.O. BOX 8127 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 (714) 540-2910 (714) 962-2411 SPECIAL COMMITTEE TO RECOMMEND FINANCING TO IMPLEMENT THE DISTRICT NO. 3 CONSTRUCTION PROGRAM (—Appointed 3- 5-73 Home Phone Business Phone Robert Root, Chairman 3230 Santa Monica Avenue Fullerton 871-2761 525-0231 Charles Stevens, Jr. 14-20 Rockinghorse Lane La Habra 691-6004 *588-8223 Donald L. Fox . 806 Alder Street Brea 529-2497 . 632-3051 Jack Green 6812 Auburn Drive Huntington Beach 842-8276 325-5519 Palm Springs ueorge B. bcozz 16675 Spruce Circle Fountain valley 839-i675 532-7559 Table 7 COUNTY SANITATION DISTRICT NO. 3 STATEMENT OF PROJ 7%'TED CASH FLOW A.S,SUMES CONSTRUCTION OF PHASE I 46 mgd) SECONDARY TREATMENT ONLY FISCAL YEARS 1972/73 THROUGH 1976/77 Description 1972/73 1973/74 1974/75 1975/76 1976/77 REVENUE: Tax Revenue (at current tax rate of $.47e0). . . . . . . . $ 5,661,000 Other Rovenue: Federal and State participation Joint Works projects . . . . 1,799,000 District projects . . . . . . 192,000 Sale of capacity rights . . 177,000 Miscellaneous . . . . 721,000 Carry over from previous fiscal year 11, 821, 000 TOTAL FUNDS AVAILABLE. . . . $20,371,000 EXPENDITURES: Disirict construction, . . . . . . $ 4;992,000 Snare of joint works construction . 3,095,000 Bond retirement and interest 858,000 Share of joint operating . . 792,000 District operating and other expenditures. . . . . . . . . 382,000 TOTAL EXPENDITURES . . . . . $10 , 119 , 000 Carry over to following fiscal year $10 , 252, 000 Less: Necessary reserve for fol- . lowing year dry period . . . 8,852,000 $ 5,944,000 3,007,000 182,000 1,000 . 220,000 1_0,252,000 $19,606,000 $11,111,000 4,449,000 827,000 812,000 299,000 $17,498,000 $ 2,108,000 6,956,250 $ 6,211,000 6,150,000 1,000 150,000 2,108,000 $14,620,000 $ 5,722,000 6,021,500 797,000 855,000 319,000 $13,714,500 $ 6,491,000 3,804,000 566,000 150,000 905,500 $11,916,500 $ 4,383,000 2,622,000 777,000 1,116,000 341,000 $ 9,239,000 $ 905,500 $ 2,677,500 4,708,500 2,632,500 $ 6,783,000 866,000 15,000 -150,000 2.677,500 $10,491,500 $ 1,675,000 1,002,000 756,000 1,158,000 •365,000 $ 4,956,000, $ 5,535,500 2,908,000 Fund Balance (or deficit) . . . . $ 1,400,000 ($ 4,848,000) ($ 3,803,000) $ 45,000 $ 2,627,500 Table 8 COUNTY SANITATION DISTRICT NO. 3 STATEMENT OF PROTECTED CASH FLOW ASSUMES CONSTRUCTION OF THREE PHASES (196 mgd) SECONDARY TREATMENT FISCAL YEARS 1972/73 THROUGH 1976/77 Description 1972/73 1973/74 1974/75 1975/76 1976/77 REVENUE: ' Tax Revenue (at current tax rate of$.4740). • • • • • • • $ 5,661,000 $ 5,944,000 $ 6,211,000 Other Revenue: Federal and State participation Joint Works projects . . . . 1,799,000 3,007,000 6,150,000 District projects . . . • . . 192,000 182,000 --- Sale of capacity rights • . . • 177,000 1,000 1,000 Miscellaneous. . 721,000 220,000 150,000 Carry over from previous fiscal year 11, 821, 000 10,252,000 1,837,000 $ 6,491,000 10,460,000 566,000 150,000 (2,820,000) TOTAL FUNDS AVAILABLE. . . • $20,371,000 $19,606,000 $14,349,000 $14,847,000 EXPENDITURES: District construction . . . . . . $ 4,992,000 Share of joint works construction . 3,095,000 Bond retirement and interest . . . 858,000 Share of joint operating . . . . • 792,000 District operating and other expenditures• • • • • • • • • 382,000 TOTAL EXPENDITURES • • • • • $10,119,000 Carry over to following fiscal year . . $10,252,000 Less: Necessary reserve for fol- lowing year dry period . . . Fund Balance (or deficit). . . 8,987,500 $11,111,000 4,720,000 827,000 1312,000 299,000 $17,769,000 $ 1,1337,000 8,1383,500 $ 1,264,500 ($ 6,346,500) $ 5,722,000 9,4.76,000 797,000 855;000 319,000 $17,169,000 ($ 2,820,000) 9,641,250 ($12,461,250) $ 4,383,000 12,487,500 777,000 1,116,000 341,000 $19,104,500 ($ 4,257,500) 7,189,000 ($1,1, 446 , 500) $ 6,783,000 11,926,000 15,000 150,000 (4,257,500) $14,616,500 $ 1,675,000 10,115,000 756,000 1,158,000 365,000 $14,069,000 $ 547,500 4,068,500 ($ 3,521,000) COUNTY SANITATION DISTRICT NO. 3 REVISED -SCHEDULE OF DISTRICT CONSTRUCTION PROJECTS. Project Total 1972/73 . 1973/74 1974/75 1975/76 1976/77 1977/7a Convert Westside Pump Sta. to Lift Sta, $ 15.3,000 $ 152000 Additional Pumps at Seal Beach Blvd. Pump Station 32S2000 5,000 $ 115,000 $ 2054,.,000 Contribution to Interplant Interceptor. 101892000 101890000 Knott Interceptor - Reaches 1, 2 & 3 60128,000 323000000 20828,000 Bolsa Relief Trunk 393,000 2910000 102,000 Imperial Relief Interceptor SS00000 S500000 Rehabilitation of Waste Water Disposal Sewer & Pump Station 1500000 15,000 13S,000 Westside Relief Interceptor - Reaches 27, ' 28, and 29 10160,000 - 1;160,000 . Knott Interceptor - Reach 4 327620000 1350000 326272000 Westside Relief Interceptor - Reaches 2S and 26 938,000 4690000 $ 4691,000 Knott Interceptor - Reaches 5 and 6 422000000 2;100,000 20100,000 Katella Relief Interceptor 1560000 78,000 $ 780000 Knott Interceptor - Reaches 7 and 8 6,100,000 300S00000 300500000 Orangethorpe Relief Trunk - Reaches 1S, 16, and 16A 12800,000 900,000 9000000 Westminster Ave. Force Main (2nd Unit) 660,000 3300000 3302000 Crescent Relief Trunk - Reach 14 215'000 21SO000 Magnolia Inter. Englargement - Reach 30 216:000 $216,000 Lampson Inter. - Reaches 11 and 12 3270000 • 327,000 Other Small Projects 16,7,00� 429000 25,000 252000 _,25,000 25,000 25,000 $28,4S1,000 $4,9920000 $11,111,000 $5,722,000 $4,3830000- $1,675,000 $568,000 m _�. ± � I;�, 1 I � I ' I I 1 � I -' AOL1 ►J (&+ r /. 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