A consultant told the council last week that Seal Beach isn’t covering the debt on three sewer loans. The council also looked at two scenarios for water rates, one that puts off some improvement projects.
The City Council on March 10 held a roughly one-hour-and-43-minute study session on water and sewer finances. The council took no formal action at the meeting.
The council last year put off changing water and sewer rates in response to public objections to the rates proposed at that time.
Background
According to Public Works Director Iris Lee, this was not a subject people think about.
Lee said Seal Beach was founded in 1915 and much of the city’s infrastructure is the same vintage, more than a century old.
She said a lot of the city’s infrastructure was meeting or had passed the end of its useful lifetime.
She said from the spring of last year, Seal Beach has had a series of failures and breaks that caused a loss of production, unbudgeted costs to import water, and expensive emergency repairs. She put the total cost at roughly $1.5 million.
“This is just unexpected usage of funds that, frankly speaking, we don’t have,” Lee said.
She said things are getting more expensive.
“The system doesn’t fix itself,” Lee said.
She said rate studies are complex and the city wants to take a systematic approach.
Following an Orange County Fire Authority Administrative presentation on the importance of water to firefighting, the city’s water rate consultant discussed the finances of the Seal Beach water and sewer systems.
Steve Gagnon, project manager for Raftelis, said the rate study started in June 2023 and was postponed.
Since then, the city had obtained a loan from the Orange County Water District for the Seal Beach Lampson Avenue Well Treatment System. The loan was for $4.4 million. Gagnon said cost for improvement projects had increased because of inflation. He said city staff had created two scenarios for water and sewer services. Scenario 2 delays some capital projects to lower rate increases.
“Inflation has been at its highest rate since 1981,” Gagnon said.
“It’s coming down now but it reached 9 or 10% in Orange County,” he said.
According to Gagnon, Ventura had a recycled water project that was originally expected to cost $375 million. After COVID, the cost increased to $560 million and continued to climb to $672 million,” Gagnon said.
He said inflation was affecting all of his clients in California.
According to Gagnon, two years of rain caused more than half a million dollar decrease in water revenue over two fiscal years.
According to the Raftelis slide presentation, Seal Beach water and sewer revenues are not covering expenses. According to the slide, the city’s revenues are not covering the required debt ratio.
Gagnon said the cost of groundwater, $600 per acre foot, is nearly half the cost of imported water from Orange County. (Gagnon didn’t explain the term acre foot. It refers to enough water to submerge 1 acre of flat land under 1 foot of water.) He said the sewer system has about half a million in debt payments every year and three loans. He said Seal Beach has to collect 1.2 times the amount you owe.
Gagnon said when you set rates, you have to have $600,000 left over after paying expenses.
He confirmed that was for sewer only.
District Five Councilman Nathan Steele asked about the Seal Beach water system.
Gagnon said Seal Beach had some loans, but Seal Beach was currently meeting its debt coverage for the water.
Gagnon went over several water improvement projects, including the Lampson Well treatment system, the lining of the Los Cerritos Wetland Water Main, the Beverly Manor Pump Station, the Navy Reservoir rehab and the larger water infrastructure replacement and compliance program. A slide put the cost of the infrastructure project at $500,000 to $1 million a year.
Water scenarios
Gagnon said there were two scenarios for water rates: Scenario 1 would fund $44 million in water projects. Scenario 2 would “push back” some projects at $34 million.
Staff recommended scenario 1.
“Is it even feasible to do $44 million worth of capital improvements in the time frame that we’re talking about here?” Steele asked.
Lee said it was aggressive but the city had a number of “shovel ready projects” that could be put into the ground quickly.
District Four Councilwoman Patty Senecal asked if the projects had presented in order of priority related to their useful life.
Lee said there were multiple considerations.
District Two Councilman Ben Wong asked how staff arrived at the costs of the projects.
Lee cited as an example having an engineer’s estimate for the Bolsa Chica Well project as a factor in arriving at costs. “Granted with time, cost does increase so we do have to put an inflationary factor into it as well,” Lee said.
“We have gathered industry data to put this together,” Lee said.
Steele wanted to know if Seal Beach was done with the projects officials said they would do in the past “or are we just kicking cans down the road here?”
“There were a lot of external factors associated with their inability to deliver what was promised in the ’21 study,” Lee said.
“First and foremost everybody knows about the pandemic,” Lee said.
According to Lee, back in the 2021 study, Seal Beach was actually going to incur debt at that time so the city could build the projects. “That was not done as well, so we ended up not having the capital to deliver all the projects that we were intending to deliver,” Lee said.
One of the Raftelis slides looked at the water system’s financial outlook without reserve increases or bonds: The slide projected negative cashflow in Fiscal year 2025, 2026, and 2027.
Another slide reported the city needs a 34% increase in sewer reserves to meet the debt for Fiscal Year 2026.
Public comment
Patty Campbell, a Planning Commission member, raised the possibility that Seal Beach might be forced by a lawsuit to accept the sewer connection for the Lampson Avenue residential development in Los Alamitos. (See “Lampson lawsuit?” at sunnews.org.) “Has any of that been factored into your numbers?” Campbell asked.
Lee said the analysis was based on the existing infrastructure.
Michael Thomas, who said he was a Hill resident and a water engineer for the past 25 years, said it was true the city needs to keep up as well as it can with infrastructure. “It really comes down to getting what you want versus what you can get,” Thomas said.
“It’s a constant struggle for us in the infrastructure world,” Thomas said.
“It’s really a political decision,” he said.
He suggested council ask staff to compare increase with neighboring communities.
Thomas said he would have advised the council to increase the rates 10%.
He said if the council approves a 150% raise over three years, it will be hard to get elected again.
Thomas also said that he would use the word “misled,” but people in Seal Beach thought Measure GG (a one-half cent sales tax increase) would help with sewer and water rates. (Readers should know that the sales tax measure goes into effect on April 1.)
“We have to get really creative,” he said.
He also proposed getting rid of the Sunset Aquatic Park.
He said if something happens there, Seal Beach would be “on the hook for that”.
Teresa Miller asked if they had done a study that can emphatically say one project is more important than the other? “Because just saying that it’s old doesn’t make it true that it needs more of a priority over the other list of projects that you had on there,” Miller said, apparenty referring to the Raftelis slide presentation.
“We know for a fact that there’s people paying all different rates around the town for the same privilege of having water in your house,” Miller said.
“Not fair. The fairness part of it has to happen,” Miller said.
She said last year the public asked for a schematic of which pipes are going to which people.
Miller said people who live in multi-unit homes do not pay the same as the single family homes. “So when these increases come up, we are the ones getting hit the hardest every single time,” Miller said.
“It should be a similar cost across the board,” Miller said.
Catherine Showalter said it was her understanding that infrastructure projects would be part of the revenue from the Measure GG sales tax. According to Showalter, now the public was learning that the money was not going to water and sewer infrastructure. “Well, that was a pretty big piece of information that was left off for voters,” Showalter said.
“Yes, you’re going to get bushed back for any rate increase because of this tax increase,” Showalter said.
