The news comes in advance of a March 1st City Council meeting on the subject. City officials have said they very much want to hear from the business community on this issue.
The City proposes to keep commercial customers on a rate structure that is entirely driven by the amount of sewage produced, while residents will convert over time to a combination fixed cost/volume-based plan, starting at 20% fixed and 80% volume in 2021-22 and moving to a 40%-60% split over time. Commercial customers will see an overall rate hike in 2020-21, then hold rates steady for five years.
The vast majority of sewer service revenue – 82 percent – comes from residential customers, with restaurants making up the bulk of commercial sewer revenue at 5.1%, followed by offices at 3 percent.
In recent years, SASM has been implementing its Wastewater Treatment Plant Master Plan (WWTP), a 30-year roadmap for SASM’s efforts to plan for expected new legal requirements, to protect it from flooding due to 100-year flood events and sea level rise, to deal with aging infrastructure, to prepare for its future growth needs, to incorporate sustainability initiatives and to reduce the impact of the plant’s odor on its neighbors.
As part of that master plan, the treatment plant, built in 1954 and significantly expanded in 1984, is currently getting $30 million in capital improvements within a five-year window, and another $30 million over the following 25 years. In addition to those needs, and because a 2012 EPA-mandated video survey of 12.6 miles of the system found it laden with a variety of defects, including cracks, holes, blockages and tree root intrusion, the sewer system required ongoing maintenance and system-wide upgrades across the city’s 59 miles of sewer pipes.
In addition, operating costs rose by $419,000 between 2017-18 and 2020-21, a 32% jump, and they will continue to increase in each of the next five years by 14 percent, City officials said. Meanwhile, SASM’s revenue needs jumped by $858,000, or 25%, from 2017-18 to 2020-21, and will continue to increase by 13% over the next five years.
Because of those factors, the sewer system’s revenue requirements increased dramatically over the past four years, City officials said, from $2 million in 2012 to $6 million in 2016 to $10 million in 2020.
The first was Prop. 218, a state law approved by voters in 1996 that mandates that municipalities set rates to match the actual cost of providing the service. City officials said that mandate gave it no wiggle room on rates for commercial customers in the midst of a pandemic. The second was the fact that the City had not done a “cost of service analysis,” which most municipalities do every five years, in nine years, City officials said. Such analyses typically cause a redistribution of rates to align with current revenue needs and usage.
The impact of the proposed changes will be felt by all sewer customers, both residential and commercial, but local restaurants take a considerable hit under the proposed rate increases.
For instance, a restaurant that paid $13,660 in 2016-17 now faces a proposed rate of $20,880, while a larger restaurant that paid $27,200 in 2016-17 will see a proposed rate of $41,560.
The lone silver lining doesn’t provide much solace: the portion of next year’s sewer rate charges for restaurants that are based on volume produced will be lower because of the significant downturn in business with the massive decline in over long stretches of time in 2020-21.
A Longstanding Topic of Conversation
During that process, the City applied higher rates based on the “strength factor” of the water discharged by different types of businesses, with restaurants paying a higher rate than retail shops and offices, for instance. That shift led many restaurants to see huge spikes in their sewer fees, which are applied to property tax bills and primarily passed on to tenant restaurants. For example, one downtown restaurant saw its sewer fees jump from $4,000 in 2007-2008 to $11,000 in 2014-15.
At the forums, restaurant and property owners argued that the City hadn’t taken into consideration two factors: 1) that restaurants have gotten decidedly more efficient with their discharge via composting, highly efficient dishwashing machines and the use of grease traps and 2) that restaurants serve thousands of meals per week, thus vastly reducing the amount of discharge from homes throughout Mill Valley.
The Chamber forums yielded a compromise whereby the City’s sewer rate consultant recommended reducing restaurants’ “strength factor” associated with the type of sewage being processed while maintaining the volume-based calculation. In English: The City reduced the multiplier associated with the type of sewage restaurants produced but maintained the flow-based calculation.
But that “strength factor” is just one of three components when it comes to how much customers pay for sewer service. The other is the rate itself, which goes up for 2020-21 and stays steady for the subsequent five years. And then there is the “flow,” i.e. how much volume of sewage a home or business produces. Because business plummeted in 2020 and continues to do so in 2021 due to the pandemic, the sewage volume associated with most businesses will likely go down.
When presented with a trio of options for how best to proceed given all of the complexities above, the Chamber successfully lobbied a City subcommittee to leave in place the aforementioned current approach to commercial users, namely, a volume-driven rate plan, as opposed to asking businesses, primarily restaurants, to cover additional fixed costs. That position was base dn the fact that commercial users represent only 18% of the population, have very different effluent strengths and volumes than resident users and have to manage the volatility of seasonal demands and other factors outside of their control, such as Covid-19 closures.
This is obviously a ton of information to digest. We welcome your feedback, and we've scheduled a Zoom call with City officials to discuss your concerns and have your questions addressed. Restaurant owners will receive Zoom call details via email.
See the full sewer rate update presentation here.