City of San Juan Capistrano Focused MSR Comment Log

Transcription

1 City of San Juan Capistrano Focused MSR On July 11, 2018, OC LAFCO held a study session on the Public Review Draft of the Focused Municipal Service Review (MSR) for the City of San Juan Capistrano Water and Wastewater Utility Systems. The Final Focused MSR will be considered by the Commission at the meeting of September 12, This comment log provides responses to the questions asked by the OC LAFCO Board during the study session, as well as to the comment letters submitted by the South Coast Water District (dated July 10, 2018), Santa Margarita Water District (dated July 10, 2018), Laura Freese (dated July 10, 2018), and Clean Water Now (dated July 10, 2018). Copies of the letters are available on the OC LAFCO website.

2 1 LAFCO Meeting 7/11/18 Appendix 1 Matrix with side by side comparisons Added column describing each district's existing services to SJC in Table 3-19 in Appendix 1. Added matrix of various indicators as attachment to staff report. 2 LAFCO Meeting 7/11/18 Appendix 1 p. 20 First paragraph under Water Source Capacity Clarification on projected water supply and existing water supply The first sentence references projected future water supply sources as shown in Table 1-1. And the reference to imported water is from actual use as reported in the City s Urban Water Management Plan p 3-1. Revised to the following: The City s future water sources are outlined in Table 1-1 (previously shown on page 17) and indicate that the City sources may provide up to 8,688 AFY of water to residents throughout the water service area by 2025, including recycled water. The City s existing water use differs from the projected uses outlined in Table 1-1 as the City continues to rely more heavily on imported water than anticipated. The agreement in place with MWDOC provided the majority of water used for domestic use within the water service area, totaling approximately 64 percent of the City s total water supply in FY While the City completed the GWRP in 2004 and expanded the capacity from 6,727 AFY to 8,340 AFY in 2013, the City s ability to pump groundwater is limited by its agreement with the San Juan Basin Authority, which allows for the extraction of up to 5,800 AFY under Permit LAFCO Meeting 7/11/18 Discussion on local water supplies and long-term planning and projects to supply water locally 4 LAFCO Meeting 7/11/18 Appendix 1 Does the infrastructure assessment identify anomalies in the City s system and do those anomalies indicate either required maintenance or possible breaks? Added summary table of percent of total supply of each agency that is local water supply. Discussion of projects to expand local supply in Appendix 1 on p Added content on additional diversification projects as provided by the districts. Needs for the City's water system are identified in Appendix 1 on pgs , 28-32, and summarized in the recommended determinations on p. 34. Wastewater system needs are identified on pgs and summarized in the recommended determinations on p. 47. Further detail on each system's deficiencies can be found in the referenced engineering reports prepared by the City, including the Sanitary Sewer System Master Plan, Recycled Water Master Plan, the HDR report, the citywide Capital Improvement Plan, and the Water Master Plan Update. 5 LAFCO Meeting 7/11/18 Appendix 1 Provide information regarding hydrology of City's water and wastewater systems. If successor agency has to pump uphill to deliver water, how much pumping does that require? Is that cost more compared to an agency that does not have to pump up hill? No alterations in the pumping pattern are proposed with the transfer of City utilities to a successor agency. The change of organization would not alter flows between the agencies as multiple agreements are already in place to ensure adequate capacity. Existing infrastructure is in place that would just be taken over by another district. In the case of SCWD, although they are lower in elevation, the pumping structure stays the same as it would assume SJC s infrastructure, which was developed to account for the elevation to best service the City. 6 LAFCO Meeting 7/11/18 Appendix 1 p. 70 Expand list of regional efforts that agencies are engaged in as Section specific to shared service efforts added in Appendix 1 on p and shared services expanded in MSR Determination V. 7 LAFCO Meeting 7/11/18 Provide more detail on San Juan Basin Authority Added Determination VII in MSR with discussion of San Juan Basin Authority. 8 LAFCO Meeting 7/11/18 Provide more detail on San Juan Watershed Added Determination VII in MSR with discussion of San Juan Watershed. Page 1 of 31

3 9 LAFCO Meeting 7/11/18 Expand discussion on property tax A footnote was added to the reference to CSJC property taxes in the Fiscal Assessment's "Financial Ability" Determination (pg. 4) to describe the source of the dedicated property tax and reference further explanation added in Chapter 2 (pg. 18). Additional text was also added to the Summary Financial Review, Property Tax Revenues first bullet (pg. 7). 10 LAFCO Meeting 7/11/18 Discussion on impacts af annexation to existing ratepayers in annexing district In addition to, and following, the description of potential impacts on existing ratepayers in the Fiscal Assessment's "Accountability" Determination fourth bullet (page 5), an additional bullet was added reading: "Existing district ratepayers could benefit from savings and economies attributable to annexation, depending on the magnitude of potential savings and how those savings are utilized (e.g., whether the savings help to fund CSJC improvements, reduce and equalize rates, or reduce rates for all ratepayers). During a transition period, there may be the need for the successor agency to spend funds to address annexation issues (e.g., absorbing staff, integration of billing and other systems, staff training, etc.). These transition expenditures, and potential expenditures for CSJC capital improvements, could draw on existing district reserves, depending on a funding plan to be prepared and included in a Plan for Service submitted as part of an annexation application. Added identification of impacts to rate payers of both the City and the District to list of items in Plan for Service section of MSR. 11 LAFCO Meeting 7/11/18 Appx. 2 pg. 5 /MSR Expand discussion on voter representation for City customers when annexed to District A sentence has been added to Appendix 2 (pg. 5) third paragraph under Accountability : During transition, an advisory committee comprised of CSJC representatives could provide input into decisions influencing the annexation and integration process. The format for CSJC participation will be delineated in a Plan for Service submitted with an annexation application to LAFCO." Also added identification of format for participation in process to list in Plan for Service section of MSR. 12 SCWD letter, p. 2 MSR, Appendix 1 p. 23, App 1-12, 102 Determination 3, Appendix 1 Recommendations SCWD respectfully disagrees with this conclusive statement, based on the actual key factors presented in Appendix 1 for all 3 agencies, along with how well SCWD aligns with the comprehensive set of criteria established by the City's Utility Commission in July SCWD's outstanding performance and compatibility with the City's systems is noted throughout the report as shown on pages 19, 23, Appendix 1 - p 12, 62, 74, 77, 78, 82, 83, 87, 89, 90, 91, 92, 93, 97, 98, 99, 100, 101, 102, and 103. A recommendation of another agency as the successor agency for the City's utility systems is not a reflection of a deficiency on the part of SCWD. The criteria adopted by the Utility Commission were incorporated into the report; however, other additional criteria were also identified and analyzed. The determination is come to as a result of 1) the City's need for improvements to enhance integrity of its systems, which will require a greater portion of the successor agency's capacity, 2) the finding that larger agencies are generally able to capitalize on greater economies of scale, and 3) based on experience with reorganizations, larger agencies are typically more able to easily absorb a smaller agency with less of an impact on its own services. This finding does not imply that such a reorganization between SCWD and the City is an impossibility, does not preclude SCWD from continuing discussions with the City about the possibility of reorganization, and does not attribute the finding to an inadequacy on the part of the District. No change. Page 2 of 31

4 13 SCWD letter, p. 2 General General SCWD staff provided a number of revisions and corresponding reference documents to properly revise the inaccuracies in this report. These suggested revisions that were not incorporated should be explained further and revised as appropriate. Typical practice for a Technical Review Draft is to make changes to the degree possible where substantiation is available. In the case of this report a voluminous number of comments were received and the authors made every effort to incorporate changes where appropriate or adequate substantiation was provided. A comment log is used to document comments and responses for the Public Review Draft of the MSR. This comment log contains responses to all comment letters received on the 14 SCWD letter, p. 3 MSR, Appendix 2 Determination 4 The summary of key findings under Determination IV on pages 24 through 28 are not analyzed and presented fairly. Once these are revised as suggested below, it will provide adequate foundational information for OC LAFCO. 15 SCWD letter, p. 3 MSR, Appendix 2 MSR pg. 25, Appx. 2 pg. 7 Determination 4-1) Avg. Household Bills 2) Property Tax Revenues The nexus between the agencies' respective property tax contribution to their revenues and resulting household rates (i.e., Summary of Key Findings #1 and #2) is not made clear. Public Review Draft. See responses to specific comments below. The text in the first paragraph of the MSR (pg. 26) 2) Property Tax Revenues under Determination 4 has been revised and a sentence added to note that property taxes reduce the need to generate revenue from rates and charges. The corresponding section in Appendix 2 (pg. 7) has been similarly revised. 16 SCWD letter, p. 3 MSR, Appendix 2 MSR pg. 26, Appx. 2 pg. 8 Determination 4-3) Capital Planning and Expenditures Section #3 is not correct. SCWD provided information about its long term financial forecasts and has provided these forecasts to the public and the SCWD Board at multiple Board meetings. The average forecasted CIP expenditures is also misleading. An agency that is in "catch-up" asset replacement mode could also contribute at a higher contribution rate as a percentage of asset value. The second paragraph of the Alternative Providers section of 3) Capital Planning and Expenditures in Determination IV revised, 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. This text has also been added as a replacement to the 3rd bullet to Appendix 2 (pg. 9) under Capital Planning and Expenditures. The MSR added a sentence to the first paragraph of 3) Capital Planning and Expenditures (pg. 27) to read: "A high ratio may indicate "catch-up" to remedy deferred maintenance." The same edit has been made to Appendix 2 (pg. 8) under Capital Planning and Expenditures. 17 SCWD letter, p. 3 MSR, Appendix 2 MSR pg. 26, Appx. 2 pg SCWD letter, p. 3 MSR, Appendix 2 MSR pg. 27, Appx. 2 pg. 9 Determination 4-4) Outstanding Debt, Coverage, and Financial Capacity Determination 4-5) Pension Obligations Section #4 needs to be more transparent about the actual debt service coverage ratios for each of the 3 agencies, as this (and reserves) is one of the primary financial indicators to evaluate an agency's financial health. Section #5 should be much more detailed and provide a conclusive statement and data to show each the actions taken by each agency to reduce these unfunded pension liabilities. In the MSR the first sentence under 4) Outstanding Debt, Coverage and Financial Capacity, Alternative Providers, has been revised to say: "All of the alternative service providers' debt coverage ratios exceed minimum standards: MNWD (2.4), SCWD (3.3) and SMWD (13.5)." The same edit has been made to Appendix 2 (pg. 10), the second bullet under Outstanding Debt, Coverage and Financial Capacity, first sentence. The MSR paragraph (pg. 28) has been revised under 5) Pension Obligations, Alternative Providers, to say "Pension liabilities vary among the alternative providers, including: MNWD ($17.6 million liability, 74.6% funded), SCWD ($7.8 million liability, 84.3% funded), and SMWD ($27.2 million liability, 68.2% funded)." The same edit has been made in Appendix 2 (pg. 11) to the second bullet under Pension Obligations. Page 3 of 31

5 19 SCWD letter, p. 3 MSR, Appendix 2 MSR pg. 27, Appx. 2 pg. 10 Determination 4-6) Reserves Section #6 also needs to be transparent to reflect actual Financial Reserves positions for all 3 agencies. The MSR (pg. 28) 6) Reserves has been revised to include: "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.." The following was also added to the text under 6) Reserves, Alternative providers: "All three agencies' unrestricted reserves exceed 100 percent of one year of operating expenditures: MNWD (111%), SCWD 177%, SMWD (107%)." The same edits were made to Appendix 2 (pg. 11) under Reserves. 20 SCWD letter, p. 3 MSR, Appendix 2 Determination 6 Positive and conclusive statements are included throughout the Determinations. This section, however, is missing a corresponding positive statement regarding the potential for greater political representation for the City if consolidated with SCWD. 21 SCWD letter, p. 3 MSR, Appendix 1 Determination 6 Operational Efficiencies, such as Shared services, should be mentioned and discussed here. One such example of this is the partnership by SCWD with SMWD in the San Juan Watershed project. 22 SCWD letter, p. 3 Appendix 1 System Integrity Per the Public Review Draft SCWD ranks the highest in several significant system integrity areas. 23 SCWD letter p. 4 Appendix 1 System Integrity - SSOs 24 SCWD letter p. 4 Appendix 1 Table 3-13, System Integrity - I/I SCWD had requested that the table include the "volume spilled" and "volume of spill recovered" as this would be a fair metric with which to rate all three agencies and compare them to the City of SJC. There is a row entitled "Total Volume of SSO" which does not provide the accurate volume of a sewer spill for one agency as reported to the SWRCB. Please refer to the incomplete Table 3-13 with insufficient reference information. It is irresponsible to include the existing conclusive statements about infiltration and inflow for the 3 agencies without further confirming these numbers with the agency in charge of receiving these flows (ie., SOCWA) and subsequently completing the information tables. No change. The text in Determination VI concludes that "In the case of integration with SCWD, CSJC residents would comprise about 50 percent of the population of the combined areas" and provides comparable information for the other districts. Section specific to shared service efforts added in Appendix 1 on p and expanded in MSR Determination V. The areas in which SCWD excels are noted throughout the report. No change made. "Volume of Spill Recovered" added to the referenced table. Footnote added to clarify source of information for the table was as reported by each district in the original questionnaire and then calculated by the authors. Added text to describe SOCWA's concerns about I/I on the part of all three districts and the City. 25 SCWD letter p. 4 Appendix 2 MSR pg. 27, Appx. 2 pg. 10 Financial SCWD has the highest unrestricted net revenues position of 177% of one year's total operating expenditures (compared to 107% for SMWD and 111% for MNWD). The MSR (pg. 28) 6) Reserves has been revised to include: "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.." The following was also added to the text under 6) Reserves, Alternative providers: "All three agencies' unrestricted reserves exceed 100 percent of one year of operating expenditures: MNWD (111%), SCWD 177%, SMWD (107%)." The same edits were made to Appendix 2 (pg. 11) under Reserves. 26 SCWD letter p. 4 Appendix 2 MSR pg. 26, Appx. 2 pg. 9 Financial SCWD has a very high debt service coverage ratio, significantly above the threshold referenced in the report. In the MSR the first sentence under 4) Outstanding Debt, Coverage and Financial Capacity, Alternative Providers, has been revised to say: "All of the alternative service providers' debt coverage ratios exceed minimum standards: MNWD (2.4), SCWD (3.3) and SMWD (13.5)." The same edit has been made to Appendix 2 (pg. 10), the second bullet under Outstanding Debt, Coverage and Financial Capacity, first sentence. Page 4 of 31

6 27 SCWD letter p. 4 Appendix 2 MSR pg. 27, Appx. 2 pg. 9 Financial SCWD is the only agency that paid down $5 million, or 45%, on unfunded pension liability, which is now a $7.8 million unfunded liability (compared to $17.6 million for MNWD and $27.2 million for SMWD). The MSR paragraph (pg. 28) has been revised under 5) Pension Obligations, Alternative Providers, to say "Pension liabilities vary among the alternative providers, including: MNWD ($17.6 million liability, 74.6% funded), SCWD ($7.8 million liability, 84.3% funded), and SMWD ($27.2 million liability, 68.2% funded)." The same edit has been made in Appendix 2 (pg. 11) to the second bullet under 28 SCWD letter p. 4 Appendix 2 Financial It appears that the recommendation of the Public Review Draft is based primarily on "economies of scale." SCWD offers significant economies of scale as well; when considering key financial indicators and significant staffing including groundwater production and treatment plant staff. 29 SCWD letter p. 4 Appendix 1 p 100 Ability to Consolidate 30 SCWD letter p. 4 Appendix 1 p 87 Ability to Consolidate SCWD has the only LAFCO reorganization experience of this type and magnitude (two prior OC LAFCO reorganizations) and which has successfully consolidated with a service area of the same size in the past. SCWD successfully retained employees from these prior reorganizations, with a number of these employees still at (or retired from) SCWD. 31 SCWD letter p. 4 MSR/Appendix 1 Determination 3 SCWD is the only agency (other than the City of San Juan Capistrano) that owns and operates a Groundwater Recovery treatment facility and associated groundwater well in the San Juan Basin. These operations are conducted with 100% in-house, trained SCWD staff. Would like the statement to be made clearer in Determination 3 that SCWD is the only potential successor agency with this experience. 32 SCWD letter p. 4 MSR/Appendix 1 Determination 3 SCWD has highly trained and certified groundwater recovery staff. Would like the statement to be made clearer in Determination 3 that SCWD is the only potential successor agency with this experience. 33 SCWD letter p. 5 Appendix 1 Regional Partnerships and Reliability SCWD is the sole agency in the planning effort of the Doheny Ocean Desalination Project. The Draft EIR for the project is currently in the 60-day comment period (ending August 6, 2018.) SMWD has expressed interest in partnering for 1 MGD. Pension Obligations. A recommendation of another agency as the successor agency for the City's utility systems is not a reflection of a deficiency on the part of SCWD. The determination is come to as a result of 1) the City's need for improvements to enhance integrity of its systems, which will require a greater portion of the successor agency's capacity, 2) the finding that larger agencies are generally able to capitalize on greater economies of scale, and 3) based on experience with reorganizations, larger agencies are typically more able to easily absorb a smaller agency with less of an impact on its own services. This finding does not imply that such a reorganization between SCWD and the City is an impossibility, does not preclude SCWD from continuing discussions with the City about the possibility of reorganization, and does not attribute the finding to an inadequacy on the part of the District. No change. SCWD's experience with reorganizations is noted on p Information added regarding the size of each agency by number of connections served at the time of reorganization. Added SCWD's past history of staff retention after consolidation to p 87. This information is included on p. 13, 57, 59, 74, 85, and 105 of Appendix 1. No additions necessary to Appendix 1. SCWD experience is also noted in MSR Determination III. No change made. This information is included on p. 13, 57, 59, 74, 85, and 105 of Appendix 1. No additions necessary to Appendix 1. SCWD experience is also noted in MSR Determination III. No change made. The project is mentioned on p. 12, 81, 83, 102 and 105. Additional detail as to status and specifics of SMWD interest added to description on p. 80 of Appendix 1. Information revised in Determination III. 34 SCWD letter p. 5 Appendix 1 Regional Partnerships and Reliability SMWD is leading the effort in advancing the San Juan Watershed project, a groundwater recovery and storage effort emphasizing storm water capture through rubber dam facilities in Phase 1. SCWD Board of Directors have committed to a 20% partnership in this project. SCWD's participation in the San Juan Watershed project is mentioned on p 20, 81, 83, and 103. Added to Determination VII in MSR. Page 5 of 31

7 35 SCWD letter p. 5 Appendix 1 Additional Factors that May Favor Two Like-Sized Agencies SCWD is the closest in proximity to the City of San Juan Capistrano with Water and Wastewater operational headquarters less than 1/2 mile from CSJC. 36 SCWD letter p. 5 Appendix 2 Additional Factors that May Favor Two Like-Sized Agencies 37 SCWD letter p. 5 Appendix 2 Additional Factors that May Favor Two Like-Sized Agencies 38 SCWD letter p. 5 Appendix 1 Additional Factors that May Favor Two Like-Sized Agencies Reorganization with SCWD could provide the residents of the City of San Juan Capistrano with 50% representation of elected officials. A commitment to ratepayer transparency as the only agency of those studied with Board Meetings live-streamed and video recorded. Due to the current SCWD staff size, SCWD would be in the best position to retain CSJC. 39 SCWD letter p. 5 Appendix 1 14 Overall content in the Recommendations section of Appendix 1 should be revised due to inadequate justification. "Both MNWD and SMWD appear to be well positioned to take on this project of further District-City water and wastewater integration analysis and potential reorganization." Mentioned in Appendix 1 on p. 12, 62, and 105 and included in Determination III in MSR. No changes made. No change. The text in Determination VI concludes that "In the case of integration with SCWD, CSJC residents would comprise about 50 percent of the population of the combined areas" and provides comparable information for the other districts. Comment acknowledged. Information about live streaming added to discussion of transparency on p 52. Added SCWD's past history of staff retention after consolidation to p 87. SCWD's outstanding performance and compatibility with the City's systems is noted throughout the report as shown on pages 19, 23, Appendix 1 - p 12, 62, 74, 77, 78, 82, 83, 87, 89, 90, 91, 92, 93, 97, 98, 99, 100, 101, 102, and 103. A recommendation of another agency as the successor agency for the City's utility systems is not a reflection of a deficiency on the part of SCWD. The criteria adopted by the Utility Commission were incorporated into the report; however, other additional criteria were also identified and analyzed. The determination is come to as a result of 1) the City's need for improvements to enhance integrity of its systems, which will require a greater portion of the successor agency's capacity, 2) the finding that larger agencies are generally able to capitalize on greater economies of scale, and 3) based on experience with reorganizations, larger agencies are typically more able to easily absorb a smaller agency with less of an impact on its own services. This finding does not imply that such a reorganization between SCWD and the City is an impossibility, does not preclude SCWD from continuing discussions with the City about the possibility of reorganization, and does not attribute the finding to an inadequacy on the part of the District. No change. Page 6 of 31

8 40 SCWD letter p. 5 Appendix 1 Despite the acknowledgement that SCWD was able to double its size in the past with a significant merger, due to it being two smaller agencies, the following conclusion is made: "The existing size of the City and SCWD exponentially increases the amount of effort that would be required for reorganization. An agency with a larger size of operations, that is already capitalizing on economies of scale, may have a greater capability to integrate the City's operations into its own, which would make it a more suitable successor agency." SCWD's outstanding performance and compatibility with the City's systems is noted throughout the report as shown on pages 19, 23, Appendix 1 - p 12, 62, 74, 77, 78, 82, 83, 87, 89, 90, 91, 92, 93, 97, 98, 99, 100, 101, 102, and A recommendation of another agency as the successor agency for the City's utility systems is not a reflection of a deficiency on the part of SCWD. The criteria adopted by the Utility Commission were incorporated into the report; however, other additional criteria were also identified and analyzed. The determination is come to as a result of 1) the City's need for improvements to enhance integrity of its systems, which will require a greater portion of the successor agency's capacity, 2) the finding that larger agencies are generally able to capitalize on greater economies of scale, and 3) based on experience with reorganizations, larger agencies are typically more able to easily absorb a smaller agency with less of an impact on its own services. This finding does not imply that such a reorganization between SCWD and the City is an impossibility, does not preclude SCWD from continuing discussions with the City about the possibility of reorganization, and does not attribute the finding to an inadequacy on the part of the District. No change. 41 SCWD letter p. 5 Appendix 1 SCWD takes exception to Table 3-6 on Customer Complaints and related conclusive statements regarding the 3 agencies. SMWD and SCWD provided information on "Pressure Issues" (which in the case of both water districts is the issue that warrants the highest number of complaints). Water Pressure issues are a common complaint at all water districts though the complaint usually stems from the customer's side of the system and no the District's side of the system. It is doubtful that any single agency does not have any pressure issues to report. 42 SCWD letter p. 5 Appendix 1 A complaint of "illness (waterborne)" is a substantial complaint which must be reported to State Agencies, including disclosure of all details of the complaint. 43 SCWD Attachment 2 - Just the Facts,, p 6 44 SCWD Attachment 2 - Just the Facts,, p 7 Appendix 1 85 Table 3-6 Customer service complaints regarding pressure issues are inconsistent between the agencies. Appendix 1 94 Table 3-12 Would like total volume of spills and total volume recovered to be added. Also would like the total number of spills to be adjusted to reflect only those under the jurisdiction of SCWD. The number of complaints in Table 3-8 is as reported by each agency in its 2016 report to the Division of Drinking Water. MNWD confirmed that there were no complaints in that year regarding pressure that were considered the responsibility of the agency. While SMWD and SCWD reported pressure complaints, both districts reported that none of these complaints were considered the responsibility of the district as the issues were on private property. Removed pressure complaints from Table 3-8. Added clarification. The number of complaints in Table 3-8 is as reported by each agency in its 2016 report to the Division of Drinking Water. MNWD confirmed that there were no complaints in that year regarding pressure that were considered the responsibility of the agency. While SMWD and SCWD reported pressure complaints, both districts reported that none of these complaints were considered the responsibility of the district as the issues were on private property. Removed pressure complaints from Table 3-8. "Volume of Spill Recovered" added to the referenced table. 45 SCWD Attachment 2 - Just the Facts,, p 7 Appendix 1 87 Breaks and leaks Not reporting the same metrics regarding mains breaks and leaks. Deleted line in table regarding number of breaks and leaks. 46 SCWD Attachment 2 - Just the Facts,, p 8 Appendix 1 p 12 and 99 LAFCO Experience Discrepancy on degree of LAFCO reorganization experience between two pages. Corrected statement on p 103 to show that SCWD has the most extensive LAFCO reorganization experience. Page 7 of 31

9 47 SCWD Attachment 2 - Just Appendix 1 95 Table 3-13, System Table does not follow SOCWA presentation. The peaking factor is, for the purpose of this report, defined as the ratio of peak the Facts,, p 8 Integrity - I/I day wet weather flows to average daily flows. Peaking factors can vary based on the time frame used to determine peak wet weather flows. This report makes use of the peak day wet weather flow, which is the total volume of flows for a 24-hour period when a peak event has occurred. All three districts provided information regarding their respective peak day wet weather flows and average daily flows for each of the wastewater treatment plants that they utilize. Based on the data provided, the peaking factors were calculated and are shown in Table In addition to the peak day flows provided by each of the agencies, SOCWA also provided instantaneous peak flow for a 15-minute time frame for each of its three plants Regional, JB Latham, and Coastal. The peaking factors calculated based on the instantaneous peak flows show an accentuated level of I/I for each of the districts and the City. However, as this information was not available for all plants, and to maintain consistency for comparison purposes, the peak day wet weather flow was chosen as an easily provided timeframe for which wastewater meters would generally be tracked and the data maintained. Content regarding SOCWA's concerns about I/I during wet weather events added on pg SCWD Attachment 2 - Just the Facts,, p 9 49 SCWD Attachment 2 - Just the Facts,, p 9 Appendix 1 Table 3-15 Annual Percentages Cleaned in 2016 and 2017 does not match the number of years that the entire system is inspected by CCTV. Appendix 1 SCWD reorganized before; kept employees and still have them today, or they have retired from SCWD The amount of the collection system that is inspected may vary in any given year. The table only shows the amount inspected in 2016 and 2017 and the time period within which the entire system is generally inspected. Changed to Entire system CCTV inspection goal to clarify. Added SCWD's past history of staff retention after consolidation to p SCWD Attachment 2 - Just the Facts,, p 9 Appendix 1 SCWD takes customers input into decisions, such as Recycled Water Bottleneck Project and daily social media updates Added content to p SCWD Attachment 2 - Just the Facts,, p 9 52 SCWD Attachment 2 - Just the Facts,, p 9 Appendix 1 Appendix 1 SCWD performed its own Water Reliability Study and then went one step further with a Water Reliability Working Group that met seven times SCWD can tackle large projects - $100 million tunnel project funded by 1.7% SFR loan District staff presenting project at national conferences Quarterly Tunnel Community Meetings taking community mitigation efforts into consideration, such as use of an electric crane Added sentence on p. 82 to reflect SCWD's efforts. There is not an appropriate place in the report to include this information as similar information has not been included for the other agencies. No change made. Page 8 of 31

10 53 SMWD letter MSR/Appendix 1 Determination 3 The report is inconsistent in its use of language to describe adequacy to serve. On Page 22 for example in the first bullet the report uses the phrase "appears to have the operational capacity " in reference to SMWD's profile. Relative to another applicant, it is declarative in stating that the other system "has the operational capacity..." without a definition, rationale, or other explanation for the difference. For this review and based on the data provided in the report all agencies have documented the water and wastewater capacity and, therefore, the discussion should be consistent - all agencies either "have the capacity" or all agencies, based on the data provided, "appear to have the capacity." Removed the word "appears" for consistency. 54 SMWD letter MSR/Appendix 1 Determination 3 All agencies are exploring options involving diversifying water supply, some more rigorously than others. SMWD provided its strategic planning information on a number of projects such as groundwater recharge in partnership with SCWD and the City, potable reuse of recycled water through research with UCI, development of additional groundwater supplies, expansion of the recycled water supply with additional storage, regional development of storage, and importation of underutilized water supplies. The report does not credit the District for its efforts as it does other agencies. In fact, SMWD has a long history of making use of groundwater and is in current partnerships with Rancho Mission Viejo and others on groundwater projects. SMWD's diversification efforts are summarized on pgs and 106 of Appendix 1. Similar to the other districts, these efforts are summarized for conciseness. Recognition of all agency's to diversify noted in Determination III of the MSR. Added additional diversification efforts of SMWD on p of Appendix SMWD letter MSR/Appendix 1 Determination 3 The report highlights "high customer satisfaction " as a positive for one agency, but omits any reference to customer satisfaction for the others. In fact, SMWD can demonstrate customer satisfaction by receiving an over 80% approval rating by its customers through the District's biennial customer surveys. 56 SMWD letter MSR/Appendix 1 Determination 3 The report evidently bases its conclusions on customer satisfaction as it relates to the volume of customer complaints which is recited in the report by LAFCO consultants in which customer complaints are presented without a consistent metric. The consultant's report characterizes as complaints for both SCWD and SMWD reported pressure check requests by customers while noting in the text that MNWD had similar requests, but not characterizing those requests as complaints. SMWD is very proactive in engaging with our customers. This high level of communication is a positive; a keystone to our successful public outreach strategy. For the purposes of defining customer satisfaction, the Division of Drinking Water s Annual Sanitary Survey was used as a consistent and structured source of customer complaints for each of the districts. While every data source will have nuances, this is the most consistent and reliable source of complaints amongst the districts being reviewed. While each of the districts may have completed similar customer surveys, the surveys differ between the agencies making the information not comparable between the agencies. The individual accomplishments of all three districts are praised throughout the report. Determination III of MSR notes customer satisfaction rates of all agencies demonstrate responsiveness. The number of complaints in Table 3-8 is as reported by each agency in its 2016 report to the Division of Drinking Water. MNWD confirmed that there were no complaints in that year regarding pressure that were considered the responsibility of the agency. While SMWD and SCWD reported pressure complaints, both districts reported that none of these complaints were considered the responsibility of the district as the issues were on private property. Removed pressure complaints from Table 3-8. Page 9 of 31

11 57 SMWD letter MSR/Appendix 1 Determination 3 In addition, the Consultant's report assigns as SMWD complaints questions about water hardness and general water quality questions. These are very typical of the region and all agencies receive these, particularly those that are almost or entirely reliant on imported water purchased from MET through MWDOC. The region usually receives the majority of its water from the Colorado River which is high in dissolved solids resulting in hard water. This is not indicative of a complaint of the service provided by SMWD since we do not have control over the type of water we receive; rather it is usually an inquiry as to solutions the homeowner may be able to implement. Since SMWD is the only agency under consideration which has a certified water and wastewater laboratory, we are equipped to address general water quality questions. As mentioned in the comment, all three of the agencies are impacted by hard water issues and are affected by related complaints and questions. Added a footnote to Table 3-8 to clarify source of hardness. 58 SMWD letter MSR/Appendix 1 Determination 3 As referenced earlier, SMWD has received high customer satisfaction ratings of over 80% over the last six years as evidenced in biennial polling efforts. With this in mind, SMWD should be rated as having a high customer satisfaction rating demonstrating it is a highly responsive agency. Instead neither SMWD's nor SCWD's customer satisfaction ratings merit a mention while MNWD is lauded without showing a basis in fact. For the purposes of defining customer satisfaction, the Division of Drinking Water s Annual Sanitary Survey was used as a consistent and structured source of customer complaints for each of the districts. While every data source will have nuances, this is the most consistent and reliable source of complaints amongst the districts being reviewed. While each of the districts may have completed similar customer surveys, the surveys differ between the agencies making the information not comparable between the agencies. The individual accomplishments of all three districts are praised throughout the report. Determination III of MSR notes customer satisfaction rates of all agencies demonstrate responsiveness. 59 SMWD letter MSR Determination 4 Consultant's report acknowledges that the City's customers will benefit from economies of scale that "one" of the special districts will offer when, in fact, economies of scale would be achieved by any of the three applicants. "Determination IV states: ""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 and administrative staff."" No change. The comment may be referring to Determination III which states that "The [infrastructure] 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 latter sentence does not limit the potential for economies of scale to a single service provider. No change is made. 60 SMWD letter MSR/Appendix 2 MSR pg. 24, Appx. 2 pg. 7 Determination 4 We believe it is important to note that each agency's rates are highly dependent on a number of local conditions, such as topography, age of the system, offsetting tax revenues, etc. Moreover, for the City's ratepayers, the largest determinant of their future rates, if annexed by one of the special districts, will be that district's ability to innovate, understand where efficiencies can be achieved, and catch up on deferred maintenance in a cost-effective manner. Comment acknowledged. In the MSR (pg. 25) a sentence has been added under the first paragraph of 1) Average Household Bills to say: "Each agency's rates are highly dependent on a number of local conditions such as topography, age of the system, and offsetting property tax revenues." The same edit has been made to Appendix 2 (pg. 7) under Average Household Bills. Page 10 of 31

12 61 SMWD letter MSR/Appendix 2 Determination 4 With respect to the disparity in property tax revenue between the agencies, it is important to emphasize the State of California has regularly considered efforts to eliminate, reduce, or borrow The text in the first paragraph of Section 2) Property Tax Revenues under Determination IV states: "However, it is noted that if legislative efforts succeed to reduce property tax revenues to special districts, funding of districts operations the property tax revenue received by special districts. SMWD has and capital improvements may be adversely affected." No change. planned for the impact if the agency were to lose that revenue. 62 SMWD letter MSR/Appendix 2 MSR pg. 25, Appx. 2 pg SMWD letter MSR/Appendix 2 MSR pg. 26, Appx. 2 pg. 8 Determination 4 Determination 4 Additionally, while the tax revenue allocation is a benefit to existing customers within an agency's immediate service area, it is not clear in the discussion whether the revenue can be used to support the operation of the City's utility should it be annexed. Percentage of asset value is not a reliable indicator of capital replacement expenditures because asset value is a depreciated amount. A district with older facilities that have been greatly depreciated will naturally spend a higher percentage. SMWD has a newer system that has a higher asset value and as a new system does not require as much expenditure. The text in the first paragraph of Section 2) Property Tax Revenues under Determination IV has been revised and a sentence added to note that "Property tax revenue can be used for any purpose, unless allocated to specific purposes by the district. Under the City section, a sentence was added to note that 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 property tax." The corresponding section in Appendix 2 (pg. 8) and review of City property taxes (pg. 20) has been similarly revised. The MSR (pg. 27) added a sentence to the first paragraph of 3) Capital Planning and Expenditures to read: "A high ratio may indicate "catch-up" to remedy deferred maintenance." The same edit has been made to Appendix 2 (pg. 9) under Capital Planning and Expenditures. 64 SMWD letter MSR/Appendix 2 MSR pg. 26, Appx. 2 pg. 8 Determination 4 Despite the implication in the Consultant's report, all the agencies prepare long range financial forecasts throughout the course of the year. This is a basic requirement of any public water agency. SMWD projects capital and operating in its bond issues, its budget process, and its strategic planning process. The second paragraph of the Alternative Providers section of 3) Capital Planning and Expenditures in Determination IV revised, 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. This text has also been added as a replacement to the 3rd bullet to Appendix 2 (pg. 9) under Capital Planning and Expenditures. 65 SMWD letter MSR/Appendix 2 Determination 4 It should also be noted that pension obligations are only a portion of the retirement benefits discussed. The analysis should include other applicable retiree benefits such as health insurance, as newly required under GASB Rule #75. SMWD increased its retiree pension benefits in the past instead of offering retiree medical, while other agencies have additional non-pension obligations for post-retirement benefits. The Fiscal Assessment describes OPEB obligations, if any, in the respective chapters for each agency. A summary of OPEB obligations was added to the Appendix 2 Executive Summary. 66 SMWD letter MSR/Appendix 2 MSR pg. 26, Appx. 2 pg. 9 Determination 4 Consultant's report acknowledges that each agency has the financial and bond coverage capacity necessary to assume the City's utility debt and operations. It appears that there is somewhat of a misunderstanding of the different types of bonds, the resulting bond coverage ratios, and the bond rating assigned to rate revenue backed debt and property assessment backed debt. In the MSR the first sentence under 4) Outstanding Debt, Coverage and Financial Capacity, Alternative Providers, has been revised to say: "All of the alternative service providers' debt coverage ratios exceed minimum standards: MNWD (2.4), SCWD (3.3) and SMWD (13.5)." The same edit has been made to Appendix 2 (pg. 10), the second bullet under Outstanding Debt, Coverage and Financial Capacity, first sentence. Page 11 of 31

13 67 SMWD letter MSR/Appendix 1 Determination 5 The listing in this area is of existing obligations and agreements; it does not include the ongoing shared opportunities. For example, SMWD is expanding its recycled water system with the construction of Trampas Canyon Recycled Water Seasonal Storage Reservoir and this facility provides greater opportunity to meet the City's future recycled demands. In addition, the ongoing work to recharge the San Juan Basin and develop adaptive management alternatives being done by SMWD, the City and SCWD is a shared opportunity to enhance reliability. This would allow more of the groundwater that is being used to supplement the City's recycled water system to be processed by the groundwater treatment facility and put to a higher and better use of potable water. The addition of these types of opportunities are important to provide a regional perspective and ability to think collaboratively and for the overall good of the agencies. Section specific to shared service efforts added in Appendix 1 on p and expanded in MSR Determination V. 68 SMWD letter MSR/Appendix 1 Determination 5 SMWD has a history of development of regional opportunities including joint operation of facilities, development of regional water supply, regional storage, and shared services. Our approach is to determine what project makes the best engineering and operational sense and then reach out to the other agencies to collaborate in development. 69 SMWD letter MSR/Appendix 1 Determination 7 The report does not include any discussion about other matters related to effective and efficient delivery. We are recommending the Commission consider the San Juan Watershed and management of the overall basin. The City and SCWD are actively pumping groundwater in the basin and SMWD has been an active participant in the development of the adaptive management plan and optimization of the basin. This is very important to the City's overall reliability plan and is also a part of the SCWD and SMWD reliability plan. Included Determination VII in MSR with discussion of San Juan Basin Authority and San Juan Watershed. Included Determination VII in MSR with discussion of San Juan Basin Authority and San Juan Watershed. 70 SMWD, Detailed 71 SMWD, Detailed 72 SMWD, Detailed 73 SMWD, Detailed 74 SMWD, Detailed 75 SMWD, Detailed 76 SMWD, Detailed Appendix 2 42 Recycled water accounts for 27% of SMWD's total water supply. No change. The Fiscal Assessment is utilizing the information contained in the Infrastructure Assessment that indicates 25% based on the data utilized in the Assessment. MSR 2 First paragraph, add Governance Alternatives. Revised. MSR 2 Third bullet, add "of" after discussion. Revised. MSR 5 Check formatting LAFCO reviewed formatting and consistency for its standard use of fonts, tables, etc. for final document MSR 6 Check fonts on map legend and formatting. LAFCO reviewed formatting and consistency for its standard use of fonts, tables, etc. for final document MSR 10 Revise last MSR date format to match other exhibits, i.e The date format is 2013 on this page. No change. MSR 12 Revise last MSR date format to match other exhibits, i.e The date format is 2013 on this page. No change. Page 12 of 31

14 77 SMWD, Detailed MSR 12 Remove extra space in Governing Board discussion before "large" LAFCO reviewed formatting and consistency for its standard use of fonts, tables, etc. for final document 78 SMWD, Detailed MSR 14 Revise address to Rancho Santa Margarita instead of Las Flores. Revised. 79 SMWD, Detailed MSR 21 Elsewhere in the report, MNWD population is identified as 173,000. Revised. 80 SMWD, Detailed MSR 30 SMWD's second Board meeting is the second Friday after the first Revised. Wednesday of the month. 81 SMWD, Detailed MSR i Governance Page No. should start on 7 not 8. Revised. 82 SMWD, Detailed MSR i Exhibit 11 should be 10. Revised. 83 SMWD, Detailed Appendix 1 15 Check numbers, tables indicate 9 reservoirs, 9 pump stations and Revised for consistency in numbers. 6 wells. 84 SMWD, Detailed Appendix 1 19 Last sentence of fourth paragraph is difficult to understand, Revised. consider: During the period of June 2015 thru April 2017, the City reduced the water demand by 20% compared to its 2013 baseline water demand in response to water restrictions imposed by the drought conditions and mandatory restriction implemented by the State. 85 SMWD, Detailed Appendix 1 19 Last sentence on page, consider changing to average demand Revised. was approximately 765 AFY less SMWD, Detailed Appendix 1 20 Last paragraph, second line, consider changing the wording to Revised. supplies instead of resources. 87 SMWD, Detailed Appendix 1 22 First paragraph, page 15 says seven wells. Revised. 88 SMWD, Detailed Appendix 1 22 Table 1-4 shows nine operational pump stations, page 15 says there are 8. Revised. 89 SMWD, Detailed 90 SMWD, Detailed 91 SMWD, Detailed 92 SMWD, Detailed 93 SMWD, Detailed 94 SMWD, Detailed 95 SMWD, Detailed 96 SMWD, Detailed 97 SMWD, Detailed Appendix 1 24 First sentence under recycled water, consider revising to: In 1989, Revised. the City developed a non-domestic system that was converted to the recycled water system. Appendix 1 25 Second line change then to than. Revised. Appendix 1 26 For consistency put pipeline in linear feet instead of miles, same as potable pipeline. Revised. Appendix 1 27 Figure 1-2, change recycled water service area to recycled water Revised. system. Appendix 1 28 In the first paragraph, after redundancy add "as" Revised. Appendix 1 34 Second bullet, revise, blends recycled water with groundwater Revised. "and imported water." Appendix 1 37 First paragraph, change six to four based on table 2-1. Revised. Appendix 1 38 The LAFCO report notes wastewater at 2.18 MGD, this 2.61? (Exhibit 3) 2.18 MGD is specific to 2017, while 2.61 MGD is the average for the period from 2010 to No change. Appendix 1 41 Check population Projected population is as reported in the City's SMP and is used to generate estimated future demand to determine system capital needs. Difference in population projections depending on planning document is shown in Appendix 1 on p. 8. No change. Page 13 of 31