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HomeMy WebLinkAboutEVWMD ltr 8-13-24 August 13, 2024 Board President Chance Edmondson Elsinore Valley Municipal Water District Attn: District Secretary PO Box 3000 Lake Elsinore Ca. 92530 Via Email Board President Edmondson, One behalf of the Riverside County Chapter of the Building Industry Association (BIA) I want to thank you and your colleagues providing our industry the necessary time to review your May 29, 2024 Capacity Fee Study. Given the significant changes proposed and the dramatic impact they will have on our industry we appreciate the opportunity to have appropriate time to review the study and related documents. The BIA is submitting this letter regarding our questions and concerns regarding your Capacity Fee Study. We have reviewed the May 29, 2024 Capacity Fee Study (“Study”) prepared by IB Consulting, LLC (“IBC”) for the Elsinore Valley Municipal Water District (“District”). The Study was prepared by IBC to recommend water and wastewater capacity fee adjustments for the District. The Study recommends the water fee be increased by nearly 40% and the wastewater fee be increased by nearly 47%. These are incredibly significant fee increases which are not adequately supported by the Study. The following sets forth items in the Study which we believe need to be explained, adjusted, and/or clarified by IBC and/or the District. We respectfully request that these items be addressed prior to the District considering approval of the Study or implementing the revised water and wastewater capacity fees. POTABLE & RECYCLED WATER FEE 1. Average Daily Demand – Page 6 of the Study states that for water, “the average daily demand of a single-family residence [is] equal to 500 gallons per day.” Based on feedback from the development community, 500 gallons per day (“gpd”) is nearly double the gallons per day needed for a single-family residence based on current development standards and changing state policy guidelines. 2. Allocation of Debt – The Study identifies nine existing debt obligations and indicates that they “are directly related to expansions to serve new development.” In addition, the Study assumes two proposed future bond issuances, for a total of $254 million, that are expected to be issued by 2030. a. 2016A and 2021A Water Revenue Bonds – Based on review of the official statement for these two bond issuances, the outstanding bonds are approximately $38.5 million and $29.5 million, 2 | P a g e respectively. The Study allocates approximately $4 million and $15 million respectively to the various water capital funds. Neither the allocation of the outstanding debt to future development nor the allocation of such amount to the various funds are explained in the Study. Accordingly, it is unclear if an appropriate amount of outstanding principal for these two bond issuances was allocated to future development. We respectfully request the opportunity to review the details of this debt allocation from the District. b. General Fund Loans – The Study indicates that three general fund loans in the combined amount of $10.7 million have been allocated to new development. There is no information provided about the general fund loan amounts, the terms of repayment, the maturity dates, or how the loans were allocated to the various capital funds and new development. It is therefore unclear if the $10.7 million allocated to new development is appropriate. We respectfully request that the loan documents for these three general fund loans be provided by the District for our review. c. WMWD and SRRRA Loans – Similar to the other existing debt, the Study indicates that there are two loans from each of WMWD and SRRRA but provides no information or details on these four loans. The Study allocates an amount of each loan to the water capital funds without explanation of the methodology of such allocation. We respectfully request that loan documents for these loans be provided by the District so that the amount, terms, and debt service schedules related to these loans can be reviewed by our team. We respectfully request that the methodology of allocation to new development and allocation to each capital fund be provided. d. Existing Debt Interest – Table 3 of the Study allocates a portion of the interest on each of these loans to new development. In addition, the interest allocated is said to be discounted to a net present value (“NPV”) based on a discount rate of 2.282%. Without the debt service schedules of each loan, it cannot be determined if the allocation of interest and the NPV are accurate. In the case of the 2016A and 2021A bonds, the NPV of the interest for each capital fund should be the same percentage of total outstanding interest for such fund (unless different bond maturities were allocated to different capital funds). This ratio is the same for the 2021A bonds, but this is not the case for the 2016A bonds. Accordingly, we believe that at least one interest calculation is likely inaccurate. We would respectfully request that all calculation details for all interest components of the water fee be provided by the District for our further review. e. Future Debt Interest – The Study allocates over $124 million of interest on proposed future debt to new development. The NPV of this amount is nearly $88 million. Without details of the assumed terms of this proposed debt (e.g., term, interest rate, redemption structure), these amounts cannot be verified. In addition, the Study provides no information about why the proposed debt is in the amount of $254 million. If a lesser amount of debt would be sufficient, the resulting interest component of the water fee would be reduced. In addition, 100% of the future debt is allocated to new development. It is possible that some of this debt should be allocated to existing users, but we cannot determine this because the details of what is being funded by this debt are not provided in the Study. Interest on unissued future debt accounts for more than $3,100 of the proposed water fee for a ¾” meter. We would respectfully request additional information on the proposed future debt from the District to allow for further review of this fee component. 3 | P a g e 3. Temescal Valley Project Participation – There is an amount of $3,634 (“TVP Fee”) per equivalent meter (¾” meter) added to the potable water fee. This fee component is explained on page 18 of the Study as the “TVP Special Tax for FY 2025.” There is Appendix A to the Study which is referenced, but $3,634 is not the special tax for fiscal year 2025. The special tax is approximately $55 per year per single family unit. $3,634 is the 2025 amount established in a 1998 agreement between the District and a specific developer related to funding of the Temescal Valley Project (“TVP”). Per the agreement, the TVP Fee appears to be related to potential reimbursements to the developer that is party to the agreement for unused capacity for which the developer paid through the special taxes of CFD No. 98- 1. Nothing in the Study justifies or explains why the TVP Fee is added to the potable water fee. The Study states that “[It] should be noted that the Temescal Valley Project (TVP) was funded in advance by a Community Facilities District (CFD), which included a special tax schedule for each year of the CFD as security on the bonds. Therefore, the CFD special tax schedule is used for the TVP capital fund (TVP Special Tax).” We do not have the documents related to the debt of CFD 98-1, if there still is outstanding debt, but the TVP Fee does not make sense. If this is supposed to represent a participation in outstanding CFD debt, which may or may not be appropriate, then the TVP Fee amount would go down each year as principal on the debt is paid down. The schedule used however shows the TVP Fee increasing each year and then terminating in 2033. In addition, any project within CFD No. 98-1 has already contributed to the TVP through the CFD and would be making an additional TVP payment. We request that the District provide all documents related to debt of CFD No. 98-1 and explain how the TVP Fee is justified as either a portion of the “Buy-In” component of the fee or the “Incremental Cost” component of the fee. The Study indicates that the fee is the sum of the Buy-In component and the Incremental Cost component but does not indicate that the TVP Fee fits within either of these cost components. 4. Capacity Fee Reserves – Page 12 of the Study shows adjustments made for reserve funds, but it indicates that the Supply Facilities reserve balance is negative and represents an “advancement of funds.” An advancement of funds seems to be another way of saying that this negative balance represents a loan. If that is the case, this amount could already be accounted for in one of the many previously mentioned loans, in which case this amount would be included in the fee calculation twice. We respectfully request additional information from the District on all reserve fund balances so the amounts and application of such funds to the fee calculation can be verified. 5. Recycled Water – The recycled water fee is made up of costs related to the Regional Reclamation Capital Fund as illustrated in Tables 6 and 7 of the Study. As shown in Tables 11 and 13 of the Study, the concluded regional reclamation portion of the potable water fee and the recycled water fee are both $333 per ¾” meter. This is clearly an error and implies that each home with a ¾” meter uses 500 gpd for both potable water and recycled water. Based on the 2050 demand, each meter accounts for an average of just under 10 gpd. Accordingly, the recycled water fee is overstated by a factor of approximately 50. We respectfully request that the District correct this calculation or explain how this calculation is accurate. 6. Incremental Costs – Table 8 on Page 16 of the Study identifies Incremental Costs of $468.4 million but does not provide a source for these costs. We were unable to find the costs in the District Master 4 | P a g e Plan, but Table ES.4 of the Master Plan includes a list of costs for these line items with different amounts under the description of water capacity improvements for future ratepayers. The Master Plan costs total $395.8 million. We respectfully request that the District update the Study based on the Master Plan costs or explain why the Study deviates from the costs shown in Table ES.4 of the Master Plan. 7. Grant Funding – Page 16 of the Study indicates that the District will receive grant funding to offset the costs of two water projects. The Study does not state the anticipated amount of this grant funding but does indicate that only a portion ($5.6M) is allocated to new development to offset the Incremental Cost component of the fee. The Study provides no details about the grant amount or how the amount was allocated to new development. We respectfully request from the District all information related to the grant funding and how the amount allocated to new development was determined. WASTEWATER CAPACITY FEE The wastewater capacity fee calculation is based on the same methodology as the water capacity fee. This includes adding the Buy-In Cost to Incremental Cost to determine the total fee. The wastewater fee comments are similar to the water fee comments and are set forth below. 1. Allocation of Existing Debt – The Study identifies seven existing debt obligations and six proposed future debt obligations which are partially or wholly allocated to new development. The allocation of the 2016A bonds and 2021A bonds to the two wastewater capital funds is not explained or sourced. No details of the five other existing loans are provided to allow a review of how each outstanding amount was allocated to each wastewater capital fund. This includes general fund loans, SRRRA loans, and a RWRF loan. The combined amount of outstanding principal of these loans allocated to the wastewater fee is nearly $46.5 million. We respectfully request from the District all documentation related to each loan and the allocation to each capital fund. Based on only the information in the Study, we are unable to determine if the amounts allocated to future development is appropriate. 2. Future Debt – The Study does contain a footnote on Page 20 describing the assumptions related to four of the six proposed future bond issuances. However, the footnote does not match the text of the Study in the first paragraph of Page 20. The 2024 proposed debt is indicated as $246.3 million in the text while the footnote indicates debt of only $245 million. While the difference is small, correction should be made as this will affect the NPV of interest component of the fee. Since the footnote does not provide information on the proposed 2035 and 2040 debt, the interest on this debt that is allocated to new development cannot be verified. In addition, charging new development for interest on debt proposed to be issued ten to fifteen years into the future is very speculative as things may substantially change such that the proposed debt cannot be issued or is not needed. We respectfully request from the District all documents and assumptions related to all six proposed debt issuances so that the purpose and parameters associated with each debt issuance can be reviewed. 3. Reserves – As with the water fee reserves, there is no source information in the Study related to the reserve amount in each capital fund. Since these reserve funds are used to offset the amount needed for new development, we respectfully request the information related to the amounts in each fund from the District for review. 5 | P a g e 4. Planning Period – The Study identifies the “Planning Period” as the demand required for the next 25 years through fiscal year 2049-2050. It is not entirely clear because of the missing source information and assumptions related to past and future debt obligations, but it appears the costs are being applied only to new development during the Planning Period but should be spread to development that occurs after the Planning Period. For example, if the proposed 2040 debt issuance has a term of 30 years, then the proposed fee for new development during the Planning Period is paying for facilities costs (i.e., interest costs) to be incurred outside of the Planning Period. 5. Incremental Costs – Table 22 of the Study identifies Incremental Costs of nearly $427 million for Regional Increment Costs but does not provide a source for these costs. We were unable to find the costs in the District Sewer Master Plan, but Table ES.7 of the Master Plan includes a list of CIP costs and allocates such costs to existing users and future users. The total CIP cost estimate is $315 million in the Master Plan, and only $167 million of that amount is allocated to future users. The Study charges incremental costs of $260 million more than what is shown in the Master Plan (i.e., $427M vs. $167M). We respectfully request the District update the Study based on the $167 million in the Master Plan or explain why the Study deviates from the costs shown in Table ES.7 of the Master Plan. The Riverside County Chapter of the BIA appreciates the opportunity to provide these comments and looks forward to reviewing the additional information requested in this letter in advance of any final approval of the Capacity Fee Study by EVMWD. We are happy to make our consultants available to discuss these matters in detail with the district team as appropriate. Sincerely, Lou Monville Senior Vice President, Riverside County Chapter Building Industry Association of Southern California