For City Council Meeting March 26, 2024
TO: Honorable Mayor and City Council
FROM: David N. Carmany, City Manager
AUTHOR(S): Arron Brown, Assistant City Manager
Stephen Dopudja, P.E., Interim Utilities Manager
Toyasha Sebbag, Assistant to the City Manager
...Title
Consideration of Resolutions Authorizing Revenue Stabilization Transfer to the Water and Wastewater Concession Agreement Trust Accounts.
RECOMMENDATION:
It is recommended that the City Council and Rialto Utility Authority Board:
1. Adopt City Resolution No. 8196 authorizing the transfer of $5.3 million from the City’s Unrestricted General Fund Reserve to the Water Utility Fund Trust Account for the purpose of rate stabilization and $1.5 million from the Rialto Utility Authority’s Wastewater Reserve Fund to the Wastewater Utility Fund’s Trust Account for debt service coverage;
2. Adopt RUA Resolution No. 08-30 authorizing the transfer of $5.3 million from the City’s Unrestricted General Fund Reserve to the Water Utility Fund Trust Account for the purpose of rate stabilization and $1.5 million from the Rialto Utility Authority’s Wastewater Reserve Fund to the Wastewater Utility Fund’s Trust Account for debt service coverage;
3. Structure the General Fund Reserve transfer to the Water Utility Fund Trust Account as a loan with a term of 10 years;
4. Structure the interest rate on the General Fund Reserve transfer to the Water Utility Fund Trust Account loan equivalent to the rate of return earned by the City on funds invested in the Local Agency Investment Fund; and
5. Authorize the City Manager to execute all documents.
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BACKGROUND:
The City of Rialto (City) provides water and wastewater services to residences and businesses within City limits. The City provides these services through the Rialto Utility Authority (RUA). The City’s water service area is generally located within the central portion of the City between Baseline Road and I-10 and includes approximately 12,000 water service connections. The wastewater service area is comprised of the entire City limits with additional service connections outside the City limits in portions of Fontana and Bloomington. The wastewater system includes approximately 21,000 service connections.
In 2012, the City/RUA Board adopted resolutions approving a Concession Agreement with Rialto Water Services (RWS). The Concession Agreement outsourced the operations and maintenance of the City’s water and wastewater enterprise for a term of thirty (30) years.
Per the Concession Agreement, the City/RUA must provide sufficient funding through rates or other sources to provide for operations, debt service, uninsured losses, maintenance of specified reserves, and the coverage requirement of 17.7 percent for water and 15.0 percent for wastewater. The coverage requirement is calculated under terms specified to ensure resources would be ample to meet obligations as a condition of obtaining financing for the utility at the commencement of the Concession Agreement. Resources in excess of requirements are returned to City/RUA after the end of each fiscal year only to be placed back into the Water and Wastewater Trust Accounts.
Projections for the remainder of fiscal year 2023-2024 and budgets for fiscal year 2024-2025 indicate that revenue from rates and other sources will not be sufficient to provide for expenditures and coverage.
In instances when current rates are not sufficient to provide the amount required, the City/RUA may maintain compliance with its obligations by making deposits into the Concession Trust Accounts from sources other than rates. Such deposits are made to the water and wastewater rate stabilization accounts.
ANALYSIS/DISCUSSION
For fiscal year 2023-2024, as part of the budget approval process, the City Council/RUA Board authorized $3,184,210 from the Water Fund and $2,166,296 from the Wastewater Fund to be transferred into water and wastewater trust accounts to provide for the continued operation of the RUA on a sound financial basis. At the end of each fiscal year, if there is more cash in the trust accounts than is necessary to meet the Concession Agreement financial performance criteria, then the excess cash is returned to RUA, which is often used to meet the next year’s rate stabilization coverage amount.
On February 27, 2024, staff was notified by RWS that due to a projected revenue shortfall, the City/RUA must transfer an additional $5.3 million to provide for water cash flow shortage for the remainder of the fiscal year 2023-2024 and fiscal year 2024-2025. And $1.5 million to provide for Concession Agreement coverage requirements for the wastewater fund for the remainder of the fiscal year 2023-2024 and fiscal year 2024-2025 by March 31, 2024.
The fiscal year 2024-2025 water and wastewater rate stabilization projections incorporate a proposed rate adjustment set to take effect on January 1, 2025. The assessment of surplus cash that could potentially be returned to the RUA will be established as part of the Water and Wastewater Rate Study. At present, the table above identifies a projected surplus that may be returned to the RUA, it's important to note that for water and wastewater, these funds might be allocated to fulfill the rate stabilization requirements for fiscal year 2025-2026. However, until the completion of the Water and Wastewater Rate study, staff is unable to determine the exact surplus that will be returned to the RUA.
ENVIRONMENTAL IMPACT
Pursuant to Section 15378 of the California Environmental Quality Act, the proposed request is not a project. A ‘Project’ means the whole of an action, which has the potential for resulting in either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment. A project does not include the creation of government funding mechanisms or other government fiscal activities that do not involve any commitment to any specific project, which may result in a potentially significant physical impact on the environment or organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment.
GENERAL PLAN CONSISTENCY
This action is consistent with Guiding Principle 3 in the General Plan:
Our City government will lead by example, and will operate in an open, transparent, and responsive manner that meets the needs of the citizens and is a good place to do business.
LEGAL REVIEW
The City Attorney's Office has reviewed the resolutions and approved them as to form.
FINANCIAL IMPACT
To remain in compliance with all contractual and credit requirements of the Concession Agreement, the City/RUA must transfer an additional $5.3 million to provide for water cash flow shortage for the remainder of the fiscal year 2023-2024 and fiscal year 2024-2025, and $1.5 million to provide for Concession Agreement coverage requirements for the wastewater fund for the remainder of the fiscal year 2023-2024 and fiscal year 2024-2025 by March 31, 2024.
Water Fund (5670)
The City’s General Fund has approximately $13.3 million in unrestricted balance available to be transferred into the Water Utility Fund Trust Account. This transfer will serve as a loan, allowing the Water Utility Fund to access additional financial resources for rate stabilization purposes and maintain consistent water rates for customers over the loan term.
The transfer will be structured as a loan with a term of 10 years.
The interest rate on the loan will be equivalent to the rate of return earned by the City on funds invested in the Local Agency Investment Fund (LAIF) and the repayment will be structured to align with the fund's cash flow and financial obligations.
Wastewater Fund (5660)
The wastewater fund has approximately $18 million as of fiscal year 2023-2024 in reserves. The money available in the wastewater reserve fund is sufficient to transfer $1.5 into the Concession Agreement Trust account to meet coverage requirements for the remainder of the fiscal year 2023-2024 and fiscal year 2024-2025 by March 31, 2024.