FOCUSED MUNICIPAL SERVICE REVIEW

Transcription

1 8/29/2018 FOCUSED MUNICIPAL SERVICE REVIEW City of San Juan Capistrano Water and Wastewater Utilities ORANGE COUNTY LOCAL AGENCY FORMATION COMMISSION

2 TABLE OF CONTENTS I. INTRODUCTION... 1 MSR Background and Determinations... 2 Focused MSR Overview... 4 Governance Alternatives... 7 Affected Agencies Profiles... 8 II. FOCUSED MSR DETERMINATIONS III. PLAN FOR SERVICE..44 IV. MSR Assessments (See Appendices 1 and 2) LIST OF EXHIBITS AND APPENDICES Exhibit 1: City of San Juan Capistrano Vicinity Map...5 Exhibit 2: City of San Juan Capistrano Population Exhibit 3: City of San Juan Capistrano Profile Exhibit 4: City of San Juan Capistrano Sphere of Influence Map Exhibit 5: Moulton Niguel Water District Profile Exhibit 6: Moulton Niguel Water District Sphere of Influence Map Exhibit 7: Santa Margarita Water District Profile Exhibit 8: Santa Margarita Water District Sphere of Influence Map Exhibit 9: South Coast Water District Profile Exhibit 10: South Coast Water District Sphere of Influence Map Appendix 1: Focused MSR Infrastructure Assessment Appendix 2: Focused MSR Fiscal Assessment i P a g e

3 I. INTRODUCTION The City of San Juan Capistrano Focused Municipal Service Review (MSR) contains seven key sections: MSR Background and Determinations, Focused MSR Overview, Governance Alternatives, Affected Agencies Profiles, Focused MSR Determinations, Plan for Service, and the Focused MSR Assessments (Infrastructure and Fiscal). To provide an overview of the MSR s content and organization for the reader, a general description of each section is summarized below: MSR Background and Determinations provides the background on the history and legislative requirements for MSRs and brief discussion of each of the MSR determinations. This section also summarizes the MSR processes conducted by Orange County Local Agency Formation Commission (OC LAFCO) since the early 2000s. Focused MSR Overview provides an overview of the following: 1) application submitted by the City of San Juan Capistrano to explore the potential transfer of its water and wastewater operations and facilities to a public successor agency; and, 2) discussion of the focus study area s location, land use, and population and the history of the City s utility systems. Governance Alternatives provides a discussion of the existing provision of water and wastewater services within the MSR focus area and an overview of the potential governance alternatives that may improve service efficiency in accordance with Government Code Section 56430(b). Affected Agencies Profiles provides operational profiles for the City of San Juan Capistrano (CSJC) and each of the alternative service providers included in the MSR: Moulton Niguel Water District (MNWD), Santa Margarita Water District (SMWD), and South Coast Water District (SCWD). The profiles provide a snapshot of each agency s key services, service area map, and an overview of the governance structure. This section also includes data on each agency s water and wastewater infrastructure system. Focused MSR Determinations includes the written statement of determinations required for MSRs in accordance with Government Code Section This section of the report includes a discussion of the MSR determinations for the CSJC and each of the three alternative service providers reviewed in the focused MSR. 1 P a g e

4 Plan for Service includes the requirements of a plan for service in accordance with Government Code Section and other recommended areas to be addressed by the three alternative service providers relative to the potential annexation of the CSJC s utility systems. Focused MSR Assessments provides in-depth analyses of the CSJC and three alternative service providers in the following areas and are intended to inform OC LAFCO, CSJC and affected agencies as to options regarding transferring of CSJC s systems and services: 1) Infrastructure Assessment (Appendix 1) an assessment of the CSJC s water and wastewater infrastructure systems that is also intended to inform the OC LAFCO and CSJC as to options regarding the transferring of these infrastructure and operations to a public successor agency. This assessment focuses on MSR Determination #3, the present and planned capacity of public facilities and adequacy of public services, including infrastructure needs or deficiencies. 2) Fiscal Assessment (Appendix 2) an assessment of the present fiscal conditions of the CSJC s systems and potential alternative service providers. This assessment focuses on MSR Determination #4, the financial ability of an agency to provide services and MSR Determination #6, accountable and efficient governance structure and operational efficiencies, as related to the potential transfer of the CSJC s utility systems. MSR BACKGROUND AND DETERMINATIONS In 1997, the State Legislature convened a special commission to study and make recommendations to address California s rapidly accelerating growth. The Commission on Local Governance for the 21 st Century focused their energies on ways to empower the already existing County LAFCOs, originally established in One of the major new responsibilities of LAFCOs that came out of the effort of this Commission was to begin conducting regional studies of municipal services (Municipal Service Reviews, or MSRs) every five years. MSRs are a way to assist agencies and residents by: (1) evaluating existing municipal services and relevant alternatives, and (2) identifying any future constraints or challenges that may impact service delivery in the future. 2 P a g e

5 The Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 requires that LAFCOs review municipal services before updating the spheres of influence and to prepare a written statement of determination with respect to each of the following: 1) Growth and population projections for the affected area. 2) The location and characteristics of any disadvantaged communities within or contiguous to the sphere of influence. 3) Present and planned capacity of public facilities, adequacy of public services, and infrastructure needs or deficiencies related to sewers, municipal and industrial water, and structural fire protection in any disadvantaged, unincorporated communities within or contiguous to the sphere of influence. 4) Financial ability of agencies to provide services. 5) Status of, and opportunities for, shared facilities. 6) Accountability for community service needs, including governmental structure and operational efficiencies. 7) Any other matter related to effective and efficient service delivery, as required by commission policy. To meet these statutory requirements, OC LAFCO has conducted multiple MSRs involving Orange County cities, special districts, the County and other municipal service providers. MSRs for the City of San Juan Capistrano and the three potential alternative service providers (Moulton Niguel Water District, Santa Margarita Water District and South Coast Water District) were conducted as a part of these processes. Information from these past studies, where relevant, were considered in completing this service review. The MSR process does not require OC LAFCO or an affected agency to initiate changes of organization based on service review findings; it only requires that OC LAFCO make determinations regarding the provision of public services per Government Code Section MSRs are not subject to the provisions of the California Environmental Quality Act (CEQA) because they are only feasibility or planning studies for possible future action that OC LAFCO has not approved (Cal. Pub. Res. Code 21150). The ultimate outcome of conducting a service review, however, may result in OC LAFCO updating a single or multiple spheres of influence and may be used in subsequent consideration by the Commission of a proposal for a change of organization or reorganization. 3 P a g e

6 FOCUSED MSR OVERVIEW On August 22, 2016, the City of San Juan Capistrano submitted an application to OC LAFCO requesting an MSR focusing on the potential transfer of the City s water and wastewater facilities and operations to one or more public agencies. In the application, the City acknowledged that this process may involve the potential sale, transfer or lease of the infrastructure and operations. This focused MSR assesses the City s systems and the potential transfer of the systems to one or a combination of the three independent special districts with service boundaries adjacent to the City: Moulton Niguel Water District (MNWD), Santa Margarita Water District (SMWD), and South Coast Water District (SCWD). This report is considered a focused MSR, in that it concentrates on specific municipal services, the water and wastewater utilities of the City of San Juan Capistrano, while performing the review and analysis necessary to make the determinations defined by state law for MSRs under Government Code The review and analysis for this focused MSR required two studies: (1) an infrastructure assessment of the City s and the alternative service providers systems and facilities, and (2) a fiscal assessment of the City s system and the alternative service providers. As specialized technical expertise was required for these analyses, OC LAFCO commissioned independent professional consultants to perform these assessments. On December 13, 2017, after conducting a competitive selection process, the Commission approved agreements with Policy Consulting Associates to perform the infrastructure assessment and Berkson Associates to conduct the fiscal assessment. Those assessments and the associated scopes of work are key components of this report and the assessments are provided as Appendices 1 and 2. STUDY AREA LOCATION, LAND USE AND POPULATION The City of San Juan Capistrano, which was incorporated in 1961, encompasses 14.4 square miles. The City is the site of the oldest settlement in Orange County, the Mission San Juan Capistrano, and is proud of its strong roots in its Spanish, Mexican and early Californian heritage. The area attracts tourists and visitors to its ocean views, historic landmarks and the many cultural events and activities that are sponsored year-round. The City is located in southern Orange County, approximately one-half mile inland from the Pacific Ocean. The City is bordered by the City of San Clemente to the southeast, the City of Dana Point to the southwest, the City of Laguna Niguel to the west, the City of Mission Viejo to the north, and unincorporated area including Ladera Ranch and Rancho Mission Viejo to the northeast. Exhibit 1 provides a vicinity map of the City. 4 P a g e

7 EXHIBIT 1: SAN JUAN CAPISTRANO VICINITY MAP 5 P a g e

8 The land use in the City is primarily residential development and open space with small areas dedicated to commercial, agricultural and public or institutional use. The City s General Plan, which was adopted in 1999 and amended in 2002, defines the various land uses within the City. According to the California Department of Finance projections, the current population of the City of San Juan Capistrano is 36,262. The following chart also provides the City s projected populations from the Center for Demographic Research s Modified 2014 Orange County Projections: EXHIBIT 2: CITY OF SAN JUAN CAPISTRANO POPULATION - CURRENT AND PROJECTED City of San Juan Capistrano 36,262 39,435 39,470 39,562 39,572 HISTORY OF UTILITY SYSTEMS The City s utility has provided domestic and recycled water to the areas within the City s boundaries and a small portion of the City of Dana Point since Prior to that, the service was provided by the Capistrano Valley Water District (CVWD), which operated as a subsidiary district of the City. The merger of the CVWD and the City was approved by OC LAFCO in 1998 and the dissolution of the CVWD was recorded in There are 14 connections within the City s boundaries, on Camino Capistrano, Rancho Capistrano, and Peppertree Bend, where Moulton Niguel Water District provides water services. The utility also currently provides wastewater services throughout the City s incorporated territory. The system was originally constructed in the 1920 s with the bulk of the mains constructed between 1960 and There are areas within the City which are serviced by other agencies. Moulton Niguel Water District serves the areas known as Hidden Creek Estates and the Hamilton Oaks Winery and several connections along Camino Capistrano, Rancho Capistrano, and Peppertree Bend. Additionally, South Coast Water District serves 143 parcels within the city limits, as well as through a connection to the Chiquita Land Outfall for brine disposal. The Infrastructure Assessment in Appendix 1 provides maps and details of the operations and facilities of the City s water and wastewater systems. 6 P a g e

9 GOVERNANCE ALTERNATIVES Government Code Section 56430(b) provides that the Commission may assess various alternatives for improving efficiency and affordability of infrastructure and service delivery within and contiguous to the sphere of influence, including the consolidation of governmental agencies. Over the past several months, OC LAFCO staff and the two independent consultants, Policy Consulting Associates and Berkson Associates, have worked with the representatives of the key stakeholders (City of San Juan Capistrano, Moulton Niguel Water District, Santa Margarita Water District, and South Coast Water District) to gather the data and information necessary to prepare the MSR. The following summarizes agency positions and interests related to the San Juan Capistrano s Water and Wastewater Utilities: The City of San Juan Capistrano, the current service provider, is considered the status quo alternative. However, the City filed an application expressing an interest to divest itself of the responsibilities and liabilities of the water and wastewater utilities. In the application, the City specified that the potential transfer be to another public agency. MNWD was identified by the City in its application as a potential successor agency for these services. The agency staff participated in the analysis process by attending the initial group stakeholder meetings, responding to data questionnaires from the consultants, providing clarifying information to the consultants through phone conversations and correspondence, and attending meetings with OC LAFCO staff and the consultants to review the administrative draft report. The agency is reviewed in this report as an alternative service provider. SMWD was identified by the City in its application as a potential successor agency for these services. The agency staff participated in the analysis process by attending the initial group stakeholder meetings, responding to data questionnaires from the consultants, providing clarifying information to the consultants through phone conversations and correspondence, and attending meetings with OC LAFCO staff and the consultants to review the administrative draft report and the district s comment letter. The agency is reviewed in this report as an alternative service provider. SCWD was identified by the City in its application as a potential successor agency for these services. The agency staff participated in the analysis process by attending the initial group stakeholder meetings, responding to data questionnaires from the consultants, providing clarifying information to the consultants through phone conversations and correspondence, 7 P a g e

10 and attending meetings with OC LAFCO staff and the consultants to review the administrative draft report and the district s comment letter. The agency is reviewed in this report as an alternative service provider. Irvine Ranch Water District (IRWD) was identified by the City in its application as a potential alternative provider for these services. The IRWD staff participated in the initial group stakeholder meetings; however, in a letter dated December 19, 2016, IRWD informed OC LAFCO that it was not interested in being considered as a potential service provider for water or wastewater service to the City. AFFECTED AGENCIES PROFILES The following governmental entities are the affected agencies reviewed in this focused MSR: The City of San Juan Capistrano Moulton Niguel Water District Santa Margarita Water District South Coast Water District The agency profiles, together with the sphere of influence maps, are provided as Exhibits 3 through P a g e

11 CITY OF SAN JUAN CAPISTRANO (CSJC) EXHIBIT 3: CITY OF SAN JUAN CAPISTRANO PROFILE General Information Agency Type General Law City Address Paseo Adelanto, San Juan Capistrano, CA Date Incorporated 1961 Key Services Administration, Planning & Zoning, Building & Safety, Code Enforcement, Public Works, Water, Wastewater, Parks and Recreation, Fire (Orange County Fire Authority), Police (Orange County Sheriff), Animal Control (County of Orange), and Library (County of Orange). Service Area Location Square Miles 14.4 Land Uses South Orange County, bordered by the City of San Clemente to the southeast, the City of Dana Point to the southwest, the City of Laguna Niguel to the west, the City of Mission Viejo to the north, and unincorporated area including Ladera Ranch and Rancho Mission Viejo to the northeast. Primarily residential; also includes commercial, industrial, institutional and open space uses. Population Served 36,262 (State Department of Finance, 2017) Last MSR/SOI Review 2/3/2013 Water Utility Connections Domestic: 11,572 Recycled: 70 Water Distributed Wastewater Utility Connections 9,590 Miles of Lines 125 Domestic: 5.44 million gallons per day Recycled: 0.27 million gallons per day Average Flows 2.18 million gallons per day Governance Governing Body Five-member City Council; District voting was adopted in 2016 and after 2018 the City will be completely voting by district. Meetings Website Agency Contact First and Third Tuesdays of every month at 5:00 p.m. City Hall, Paseo Adelanto, San Juan Capistrano Benjamin Siegel, City Manager 9 P a g e

12 EXHIBIT 4: CITY OF SAN JUAN CAPISTRANO SPHERE OF INFLUENCE MAP 10 P a g e

13 MOULTON NIGUEL WATER DISTRICT (MNWD) EXHIBIT 5: MOULTON NIGUEL WATER DISTRICT PROFILE General Information Agency Type Independent Special District Address La Paz Road, Laguna Niguel, CA Principal Act California Water District Law, Division 13 of the Water Code of the State of California, commencing with Section Date Formed 1960 Key Services Water and recycled water distribution and wastewater collection. Service Area Location Serving the cities Aliso Viejo, Laguna Niguel, and portions of Laguna Hills, Mission Viejo, Dana Point, and San Juan Capistrano. Square Miles 37 Land Uses Primarily residential; also includes commercial, industrial, institutional and open space uses. Population Served 173,280 (Annual Report to the Drinking Water Program 2016) Last MSR/SOI Review 2/13/2013 Water Service Connections Domestic: 54,075 Recycled: 1,307 Water Distributed Domestic: million gallons per day Recycled: 5.75 million gallons per day Wastewater Service Connections 51,200 Miles of Lines 540 Average Flows 9.44 million gallons per day Governance Governing Body Seven-member Board of Directors elected at-large to serve fouryear terms. Meetings Third Thursday of every month at 6:00 p.m. MNWD Main Office Board Room La Paz Rd, Laguna Niguel, CA Website Agency Contact Joone Lopez, General Manager 11 P a g e

14 EXHIBIT 6: MNWD SPHERE OF INFLUENCE MAP 12 P a g e

15 SANTA MARGARITA WATER DISTRICT (SMWD) EXHIBIT 7: SANTA MARGARITA WATER DISTRICT PROFILE General Information Agency Type Independent Special District Address Antonio Parkway, Rancho Santa Margarita, CA Principal Act California Water District Law, Division 13 of the Water Code of the State of California, commencing with Section Date Formed 1964 Key Services Water and recycled water distribution and wastewater collection; operates advanced treatment facilities. Service Area Location General Date Formed Residential; Serving portions of the cities of Mission Viejo and Rancho Santa Margarita, San Clemente/Talega, and the communities of Las Flores, Coto de Caza, Ladera Ranch, Rancho Mission Viejo Sendero/Esencia. Square Miles 97.9 Land Uses Primarily residential; also includes commercial, industrial, institutional and open space uses. Population Served 165,000 (SMWD website - Last MSR/SOI Review 2/13/2013 Water Service Connections Domestic: 54,214 Recycled: 1,534 Water Distributed Domestic: million gallons per day Recycled: 7.28 million gallons per day Wastewater Service Connections 51,269 Miles of Lines 630 Average Flows million gallons per day Governance Governing Body Five-member Board of Directors elected at-large to serve four-year terms. Meetings First Wednesday of every month at 7:00 p.m. and Second Friday after first Wednesday at 7:30 p.m. SMWD District Office Board Room Antonio Parkway, Rancho Santa Margarita, CA Website Agency Contact Dan Ferons, General Manager 13 P a g e

16 PEXHIBIT 8: SMWD SPHERE OF INFLUENCE MAP 14 P a g e

17 SOUTH COAST WATER DISTRICT (SCWD) EXHIBIT 9: SOUTH COAST WATER DISTRICT PROFILE General Information Agency Type Independent Special District Address West Street, Laguna Beach, CA Principal Act California Water District Law, Division 13 of the Water Code of the State of California, commencing with Section Date Formed 1932 (Consolidated in 1999) Key Services Service Area Location Square Miles 8.3 Water and recycled water distribution and wastewater collection; operates advanced treatment facilities. Serving Dana Point, South Laguna, portions of San Clemente and San Juan Capistrano. Land Uses Primarily residential; also includes commercial, industrial and institutional uses. Population Served 35,000 (SWRCB Sanitary Survey, 2016) Last MSR/SOI Review 2/13/2013 Water Service Connections Domestic: 12,360 Recycled: 192 Water Distributed Domestic: 4.55 million gallons per day Recycled: 0.74 million gallons per day Wastewater Service Connections 17,801 Miles of Lines 140 Average Flows Governance Governing Body Meetings 2.96 million gallons per day Five-member Board of Directors elected at-large to serve four-year terms. Second and Fourth Thursday of every month: Second Thursday Meeting at 6:30 p.m. City of Dana Point Council Chambers at Golden Lantern, Dana Point, CA Website Agency Contact Fourth Thursday Meeting at 6:00 p.m. District Administrative Office, West Street, Laguna Beach, CA Rick Shintaku, Acting General Manager 15 P a g e

18 EXHIBIT 10: SOUTH COAST WATER DISTRICT SPHERE OF INFLUENCE MAP 16 P a g e

19 II. FOCUSED MSR DETERMINATIONS The potential transfer of the City of San Juan Capistrano s water and wastewater utility systems to a public agency would require an agency sphere of influence review and update and annexation. In order to update an agency sphere of influence, the Commission, in accordance with Government Code Section 56430, is required to conduct a municipal service review and prepare a written statement of determinations for the MSR focus area. The statement of determinations for each of the agencies discussed in this focused MSR report is presented below. DETERMINATION I GROWTH AND POPULATION PROJECTIONS FOR THE AFFECTED AREA. According to data provided by the California Department of Finance, the current population of the City of San Juan Capistrano is 36,262. The expected growth within the City will be modest over the next 15 years, increasing by 3,310 residents by 2035, according to the California State University, Fullerton, Center for Demographic Research. The MNWD and SCWD service territories are largely built out and SMWD is expected to serve approximately 35,000 more people by The following chart includes both city and agency service populations for agencies discussed in this focused MSR report. OC LAFCO noted no issues related to population growth for the focused area. J MSR Focused Area Population Agency Current 2035 San Juan Capistrano 36,262 39,572 Moulton Niguel WD 173, ,539 Santa Margarita WD 165, ,000 South Coast WD 35,000 37,495 Focused Area Population 17 P a g e

20 DETERMINATION II THE LOCATION AND CHARACTERISTICS OF ANY DISADVANTAGED UNINCORPORATED COMMUNITIES WITHIN OR CONTIGUOUS TO THE SPHERE OF INFLUENCE OC LAFCO confirmed that there are no disadvantaged unincorporated communities (DUCs) 1 within or contiguous to the spheres of influence of any of the affected agencies discussed in this focused MSR. Therefore, no issues related to DUCs were noted. However, in its Housing Element, the City recognizes that, according to the Comprehensive Housing Affordability Strategy prepared by the US Department of Housing and Urban Development, more than 11 percent of the City s total households are classified as extremely low income (0-30% of average monthly income (AMI)), another 11 percent of the City s total households are classified as very low income (31-50% of AMI), and 16 percent are classified as low income (51%- 80% of AMI). 2 In its Housing Element, the City identifies programs to meet the housing needs of residents of all income levels. DETERMINATION III PRESENT AND PLANNED CAPACITY OF PUBLIC FACILITIES, ADEQUACY OF PUBLIC SERVICES, AND INFRASTRUCTURE NEEDS OR DEFICIENCIES INCLUDING NEEDS OR DEFICIENCIES RELATED TO SEWERS, MUNICIPAL AND INDUSTRIAL WATER, AND STRUCTURAL FIRE PROTECTION IN ANY DISADVANTAGED, UNINCORPORATED COMMUNITIES WITHIN OR CONTIGUOUS TO THE SPHERE OF INFLUENCE. A central component of this focused MSR includes an infrastructure assessment prepared by Policy Consulting Associates. In general, the infrastructure assessment finds that each of the three potential successor agencies (MNWD, SMWD, and SCWD) efficiently provide water and wastewater services to their respective service populations. Any recommendation of an agency as the successor agency for the City s water and wastewater systems is not a reflection of a deficiency on the part of the other districts. A summary of the assessment s findings relative to this 1 The term disadvantaged unincorporated community (DUC) is defined as a fringe, island, or legacy community in an unincorporated territory in which the median household income is 80 percent or less than the statewide median household income. US Census data was used from the American Communities Survey, Five-Year Estimates. 2 City of San Juan Capistrano, Housing Element, adopted 1/21/14 and revised 9/19/17, page P a g e

21 determination for each of the agencies discussed in the focused MSR follows. CITY OF SAN JUAN CAPISTRANO (CSJC) The assessment found the following for the City of San Juan Capistrano s water and wastewater systems: Water: While CSJC s domestic water system has sufficient infrastructure capacity to adequately serve all existing connections, insufficient fire flow to meet fire code requirements at several locations is a capacity concern. While the recycled water system has sufficient system capacity within the system to provide services to existing connections, the CSJC is operating under recycled water supply constraints and must blend the recycled water with groundwater in order to serve all customers. As a result of the shift from reliance on importing to pumping local groundwater, the CSJC now has more flexibility with its water sources to shift resources as needed. Therefore, it can be determined that the CSJC sources of domestic water supply are acceptable to serve current and future population projections, as well as weather a three-year drought. Expansion of the recycled water system will be necessary to meet future demands; however, any plans for expansion of the recycled water system will be dependent upon availability of funding, such as grant funds, and availability of a reliable recycled supply. Generally, the CSJC meets standards defined for adequately operated water systems with regard to distribution system integrity, drinking water quality, degree of water reserves for emergency purposes, and preventative maintenance practices. Improvements to the system should be made to ensure adequate fire flows throughout the system. Additionally, the CSJC should implement a tracking system of response times to customer reports of issues and the number and type of complaints related to water services. The CSJC has appropriately identified and planned for its water related capital improvement needs in the Recycled Water Master Plan, the HDR report, and the citywide Capital Improvement Plan; however, capital planning does not assure that adequate funding is allocated to fund all necessary projects. 19 P a g e

22 There are indications of deferred maintenance in the City s water system. The most significant infrastructure needs for the system are improvements to the joint regional water supply, pump station component replacements and line realignment, and relocation of two segments of pipeline. Additionally, approximately 14.5 percent of the domestic distribution system is beyond its useful life standard as defined by the CSJC, approximately 88 percent of the pump stations' mechanical and electrical equipment have exceeded their useful age, and nearly all of the reservoirs exceed useful life ranges. The CSJC has identified 30 miles of pipeline that is in need of replacement over the next 20 years. Wastewater: The CSJC s wastewater system has sufficient collection system capacity and treatment capacity to serve existing and anticipated projected demand. The CSJC s wastewater services are considered to be adequate based on the low rate of sanitary sewer overflows, high regulatory compliance, and preventative maintenance practices. Improvements are necessary to mitigate the City s high rate of infiltration and inflow. In the next 10 years, approximately 12 percent of all of CSJC s pipes will require renewal and 11 percent of all manholes will require minor renewals. CSJC is also responsible for a share of capital improvements at the SOCWA Jay B. Latham Treatment Facility. Full details of each area noted above are referenced in the infrastructure assessment report. MOULTON NIGUEL WATER DISTRICT (MNWD) The Moulton Niguel Water District encompasses approximately 37 square miles, serving 173,280 in population. With most of its service area nearly built out, the District operates over 700 miles of domestic water distribution pipelines and 30 pump stations. The District s recycled water system consists of 150 miles of distribution pipelines and 13 pump stations. The District owns and maintains approximately 540 miles of wastewater pipelines and 19 lift stations. MNWD has planned for its water and wastewater infrastructure through: the Urban Water Management 20 P a g e

23 Plan, capital improvement programs, and other local policies. The infrastructure assessment identifies MNWD as one of the potential agencies to assume the CSJC s water and wastewater systems. Relative to this determination, the assessment cites the following key factors to support MNWD as a potential successor agency: As a larger agency, MNWD has the operational capacity to take on additional systems and population based on its system size, water reserves, and the management of the adequate and reliable condition of the District s current system. MNWD is exploring options involving diversifying water supply which may result in a more reliable water supply and economies of scale for City residents. MNWD makes use of remote meter reading technology for efficiency, which could benefit city residents by lowering costs and increasing access to water use data. MNWD s customer satisfaction rate demonstrates that it is a responsive agency. MNWD has detailed adopted policies for its governance and operations. MNWD currently provides water and wastewater services within a portion of the City of San Juan Capistrano, as well as delivers imported and recycled water to the City. The transfer of the City s utility systems to MNWD would require an application and plan for service for a sphere of influence amendment and annexation to the District. In accordance with Government Code Section 56653, the plan for service shall generally include the level range and financing of services, an indication of upgrades to sewer and water facilities and when services can feasibly be extended. Specific and additional components of a plan for service for the transfer are included in a separate section (Plan for Service) of this review. Additionally, OC LAFCO may impose terms and conditions as part of any change of organization or reorganization. 21 P a g e

24 SANTA MARGARITA WATER DISTRICT (SMWD) The Santa Margarita Water District encompasses approximately 62,674 acres, serving 165,000 in population. Expected to grow to 200,000 customers served by 2035, the District owns and operates 626 miles of potable water mains, 34 storage tanks, 21 pump stations, and other facilities. The District s recycled water system includes 129 miles of main, eight storage tanks, two open reservoirs, and 14 pump stations. The District owns and operates 630 miles of sewer lines, 21 lift stations, two wastewater treatment plants with advanced water treatment for recycling, and capacity in three reclamation plants. SMWD also operates two water reclamation plants on behalf of other agencies and four urban return flow water recovery facilities. SMWD has planned for its water and wastewater infrastructure through: the Urban Water Management Plan, capital improvement programs, and other local policies. The infrastructure assessment identifies SMWD as one of the potential agencies to assume the CSJC s utility systems. Relative to this determination, the assessment cites the following key factors to support SMWD as a potential successor agency: As a larger agency, SMWD has the operational capacity to take on additional systems and population based on its system size, water reserves, and the management of the adequate and reliable condition of the District s current system. SMWD is exploring options involving diversifying water supply, which may result in a more reliable water supply and economies of scale for City residents. SMWD shares a common interest with the City regarding groundwater and the City s Groundwater Recovery Plant (GWRP). SMWD s groundwater recharge project could utilize and maximize the GWRP s capacity to process added groundwater, which may lessen the City s reliance on imported water. SMWD s customer satisfaction rate demonstrates that it is a responsive agency. SMWD currently provides the following services to the City: delivery of imported and recycled water, meter reading, and emergency services. 22 P a g e

25 The transfer of the City s utility systems to SMWD would require an application and plan for service for a sphere of influence amendment and annexation to the District. In accordance with Government Code Section 56653, the plan for service shall generally include the level range and financing of services, an indication of upgrades to sewer and water facilities and when services can feasibly be extended. Specific and additional components of a plan for service for the transfer are included in a separate section (Plan for Service) of this review. Additionally, OC LAFCO may impose terms and conditions as part of any change of organization or reorganization. SOUTH COAST WATER DISTRICT (SCWD) The South Coast Water District encompasses approximately 10 square miles, serving 35,000 in population. Largely built-out, the District s water distribution system is comprised of 158 miles of pipe, 13 reservoirs, nine pump stations, and a groundwater recovery facility. The District s recycled water system includes 20 miles of pipe, three pump stations, two reservoirs, and a wastewater treatment and reclamation facility. The District owns and maintains 140 miles of sewer lines, 13 lift stations, three miles of force mains, and a two-mile interceptor line. The District s long-term capital budget is based on 100-year projections for future rehabilitation and replacement of the system and proposes a combination of capital reserves and bond financing to finance the long-term infrastructure needs of the system. The infrastructure assessment notes the following key factors relative to this determination and SCWD s assuming of the City s utility systems: SCWD s system is similar to the City s utility system in the types of systems (water, recycled water, groundwater and wastewater), size of operations, and population served. SCWD is exploring options to diversify its water supply, which may result in a more reliable water supply and economies of scale for City residents. SCWD has experience in operating wells and groundwater treatment facilities. SCWD s operational headquarters close proximity to the City may allow for faster response times to complaints and emergencies. 23 P a g e

26 SCWD s customer satisfaction rate demonstrates that it is a responsive agency. SCWD currently operates the Joint Regional Water Supply System, which delivers MWDSC imported water over 30 miles to the City and MNWD. SCWD provides wastewater services within a portion of the City and receives the City s wastewater into its collection system. SCWD sees the potential of mutual benefits for the District and the City, as the sole agency leading the proposed Doheny Ocean Desalination Project, which may lessen the region s reliance on imported water. However, the infrastructure assessment also notes that transferring of the City s utility systems would immediately double the size of SCWD and may have an effect on the District s resource capacity to accommodate the City s water and wastewater system, which requires maintenance to improve its integrity. The assessment further notes that economies of scale and greater capability to integrate the City s system may be better realized through an agency with a larger size of operations. The transfer of the City s utility systems to SCWD would require an application and plan for service for a sphere of influence amendment and annexation to the District. In accordance with Government Code Section 56653, the plan for service shall generally include the level range and financing of services, an indication of upgrades to sewer and water facilities and when services can feasibly be extended. Specific and additional components of a plan for service for the transfer are included in a separate section (Plan for Service) of this review. Additionally, OC LAFCO may impose terms and conditions as part of any change of organization or reorganization. DETERMINATION IV FINANCIAL ABILITY OF AGENCIES TO PROVIDE SERVICES. A central component of this focused MSR includes a fiscal assessment prepared by Berkson Associates. The assessment notes that current issues such as: the drought, water supply, conservation efforts, governmental regulations, retirement liabilities and catastrophic events, may each present future uncertainties for the City s water and wastewater utility 24 P a g e

27 systems. This determination highlights the findings of the fiscal assessment s discussion of the conditions and resources of the CSJC and each of the alternative service providers relative to: 1) average household bills, 2) property tax revenues, 3) capital planning and expenditures, 4) outstanding debt, coverage and financial capacity, 5) pension obligations, 6) reserves, and 7) employees, salaries and benefits. In general, the fiscal assessment finds that the alternative service providers noted in this MSR, particularly MNWD and SMWD, are generally in a better position than CSJC to address water/wastewater financing needs, if the CSJC system is annexed. The two larger alternative service providers, MNWD and SMWD, are likely to realize economies of scale and service improvement to CSJC without significantly expanding existing planning, operations, and administrative staff. Resulting efficiencies could help to improve funding of reserves and capital improvements needed by the CSJC system. The magnitude of these savings was not analyzed as part of this work and may be studied further by the potential successor agency or agencies. Below is a summary of the key findings for the City and the alternative providers relative to this determination: 1) Average Household Bills Lower rates and utility bills benefit residents and provide capacity to finance improvements. Low rates of alternative service providers improve the potential to annex CSJC without significant impacts on ratepayers of the alternative provider. Each agency's rates are highly dependent on a number of local conditions such as topography, age of the system, and offsetting of costs by property tax revenues. Average bills also depend on individual household demand and conservation. CITY OF SAN JUAN CAPISTRANO (CSJC) CSJC average household water and wastewater charges are estimated at $146 monthly per household, partly influenced by the lack of significant property tax available to cover fixed costs, unlike the alternative service providers. MOULTON NIGUEL WATER DISTRICT (MNWD) MNWD's average household water and wastewater charges are estimated to be $79, partly the result of its property tax revenues reducing the need for rate revenue. 25 P a g e

28 SANTA MARGARITA WATER DISTRICT (SMWD) SMWD's average household water and wastewater charges are estimated at $99 monthly. SOUTH COAST WATER DISTRICT (SCWD) SCWD's average monthly bills are estimated at $134 monthly ($168 monthly after penalties). 2) Property Tax Revenue A strong property tax revenue base (each agency s share of the 1% general levy) reduces utility rates and improves a district's ability to address financial needs without significant ratepayer burdens. Property taxes reduce the need to generate revenue from rates and charges. Property tax revenue can be used for any purpose, unless allocated to specific purposes by the district. However, it is noted that if legislative efforts succeed to reduce property tax revenues to special districts, funding of districts operations and capital improvements may be adversely affected. CITY OF SAN JUAN CAPISTRANO (CSJC) CSJC receives approximately $1.06 million of property tax annually, or about 4 percent of total water enterprise revenues. It is likely that any of the City s property tax received on behalf of the former Capistrano Valley Water District and allocated to utility debt and lease obligations would be transferred to an annexing agency. However, further legal review is necessary to verify constraints, if any, on the allocation and use of this property tax. MOULTON NIGUEL WATER DISTRICT (MNWD) MNWD receives approximately $27.6 million of property tax revenue, or 30 percent of total revenues. SANTA MARGARITA WATER DISTRICT (SMWD) SMWD receives approximately $7.5 million of property tax revenue, or 9 percent of total revenues. SOUTH COAST WATER DISTRICT (SCWD) SCWD receives approximately $4.4 million of property tax revenue, or 12 percent of total revenues. 26 P a g e

29 3) Capital Planning and Expenditures Capital expenditures should keep pace with system depreciation. Low expenditures may reflect either a relatively new system, or inadequate system replacement. A high ratio may indicate catch-up to remedy deferred maintenance. CITY OF SAN JUAN CAPISTRANO (CSJC) CSJC has appropriately identified needed improvements, including replacement of aging system components, in its current CIP; however, improvements are funded annually on a "pay as you go" basis with minimal reserves available for future needs. The CSJC budget notes that the water and sewer capital replacement programs will require additional funding from water and sewer ratepayers to meet the capital improvement needs of the City's water and sewer system. The City could require at least eight years of positive and growing cash flows in order to build its reserves to recommended levels while also funding capital improvements. ALTERNATIVE PROVIDERS (MNWD, SMWD, AND SCWD) All of the alternative service providers have Capital Improvement Programs extending four years to ten years into the future. MNWD's average expenditures represent about ten percent of MNWD's net asset value of their assets; SMWD average expenditures represent about 2 percent of the District s net asset value of its assets; and SCWD s average expenditures represent about 7 percent of the net asset value of the District s assets. Additionally, all districts undertake long-term financial planning and forecasting which can be found in agenda reports and budget documents posted on district websites. MNWD prepares a separate financial forecast document that is easily accessible on their website. 4) Outstanding Debt, Coverage, and Financial Capacity Debt capacity provides the ability to fund capital improvements and amortize the costs over time, minimizing impacts on rates. CITY OF SAN JUAN CAPISTRANO (CSJC) CSJC's debt coverage ratio currently exceeds the minimum required for its debt. In prior years its coverage was inadequate, and its credit rating was downgraded (e.g., to S&P 'A-'), reducing debt capacity by requiring greater revenues to pay higher interest rates. In 2017, Fitch affirmed its A rating. 27 P a g e

30 ALTERNATIVE PROVIDERS (MNWD, SMWD, AND SCWD) All of the alternative service providers' debt coverage ratios exceed minimum standards: MNWD (2.4), SMWD (13.5) and SCWD (3.3). Each of the potential providers should be able to provide adequate coverage for existing CSJC utility debt that may be assumed by an alternative service provider, assuming CSJC property tax and other revenues required for debt payment are transferred to the new provider along with the debt. MNWD, SMWD, and SCWD have a strong financial rating (e.g., S&P 'AA+'). 5) Pension Obligations Pension obligations are likely to increase in future years, reducing revenues available for services and/or requiring rate increases. Unfunded liabilities increase the potential for future cost increases. CITY OF SAN JUAN CAPISTRANO (CSJC) CSJC's pension liability is 69 percent funded for all City employees; additional analysis will be required to determine liabilities attributable to any employees transferred as a result of an annexation. ALTERNATIVE PROVIDERS (MNWD, SMWD, AND SCWD) Pension liabilities vary among the alternative providers, including: MNWD ($17.6 million liability, 74.6% funded), SMWD ($27.2 million liability, 68.2% funded), and SCWD ($7.8 million liability, 84.3% funded). 6) Reserves Adequate reserves are essential to rate stability, and to meeting debt obligations while minimizing interest rates. Reserves also are necessary to assure funding of needed major repairs and infrastructure replacement, and for dealing with contingencies. CITY OF SAN JUAN CAPISTRANO (CSJC) CSJC reserves currently are inadequate and do not meet CSJC targets. ALTERNATIVE PROVIDERS (MNWD, SMWD, AND SCWD) All three alternative providers maintain reserves adequate to absorb the CSJC system and maintain reserves for the larger system. All three agencies' unrestricted reserves exceed 100 percent of one year of 28 P a g e

31 operating expenditures: MNWD (111%), SMWD (107%), SCWD (177%). Any proposed use of reserves to fund transition or other costs associated with the transfer of the CSJC system should be described in the District s Plan for Service. 7) Employees, Salaries and Benefits CITY OF SAN JUAN CAPISTRANO (CSJC) AND ALTERNATIVE SERVICE PROVIDERS (MNWD, SMWD AND SCWD) CSJC utility employees total 26 positions (approximately 20 operational positions), although some of their time is shared with non-utility departments. This is the fewest number of employees compared to all of the alternative service providers. The feasibility of retaining current CSJC utility staff following an annexation depends on the alternative service providers willingness, as well as collective bargaining agreements, and other agency rules and policies. DETERMINATION V STATUS OF, AND OPPORTUNITIES FOR, SHARED FACILITIES. The following is a list of shared opportunities and facilities and agreements involving the City s utility systems and MNWD, SMWD, and SCWD: South Orange County Wastewater Authority (SOCWA) the CSJC, MNWD, SMWD, and SCWD are participating members and there are various SOCWA agreements. San Juan Basin Authority (SJBA) the CSJC, MNWD, SMWD, and SCWD are participating members and there are various SJBA agreements including agreements with SMWD to provide financial and accounting services for the SJBA and with SCWD to provide well maintenance, data logging and well reading services. CSJC agreement with San Juan Hills Golf Club to provide irrigation water supplemented with domestic water. Recycled Water Purchase Agreement between the CSJC and MNWD. Licenses for wastewater system interconnections between CSJC and MNWD. Agreement for water interconnections between CSJC and MNWD. Agreement for sewer services by the City to approximately four parcels within MNWD s service area. 29 P a g e

32 Water purchase agreement from MNWD by the CSJC. Emergency water interconnection agreements between CSJC and SCWD. Emergency water interconnection agreement between CSJC and SMWD. Emergency water interconnection between CSJC and City of San Clemente. A joint exercise of powers agreement to operate and maintain the joint transmission facilities. Capacity agreements for the Allen-McColloch Pipeline. Agreements for service between MNWD and the CSJC for Hidden Creek Estates and the Hamilton Oaks Winery. Contract for Meter Reading Services between CSJC and SMWD. Agreement for Capacity in SMWD's Upper Chiquita Reservoir. South County Pipeline Operation and Maintenance Agreement. Service Connection No. 4 Agreement with SMWD. Settlement agreement between CSJC, SJBA, and San Juan Hills Golf Club. SMWD provides emergency response services to CSJC and MNWD has provided emergency response services to CSJC. CSJC is currently in discussions with SMWD for formal agreement for the following services: cleaning, video, and inspection of its wastewater system. SCWD provides wastewater services to 143 parcels within the CSJC. SCWD provides maintenance services for the CSJC storm drain system. Agreement for SCWD to operate the Joint Regional Water Supply System (JRWSS) providing water to CSJC and MNWD. MNWD established a smart water meter network that may provide CSJC with the ability to easily convert from manual meters to smart meters. The majority of the agreements involve the CSJC and the three districts addressed in this focused MSR and will need to be addressed as part of the process to transfer the CSJC utility systems. Additional shared services opportunities, facilities and agreements identified by the districts include: MNWD led the creation of the California Data Collaborative, which focuses on compiling water industry data and developing standards for that data. This work enables better collaboration, helps public agencies make informed decisions and facilitates leading research and private sector volunteer work. MNWD organized a working group, including five local cities, the County of Orange, and local non-governmental environmental organizations to disseminate lessons learned in urban runoff reduction and evaluate the impact of new strategies to reduce irrigation over-watering. SMWD provides operational services by contract for the Rancho Mission 30 P a g e