TO:	HONORABLE MAYOR CITY COUNCIL	FROM:	Richard Doyle City Attorney
SUBJECT:	Ordinance Relating to Municipal Water System Potable Water Revenue, Expenditures, Rates and Charges	DATE:	May 22, 2003

RECOMMENDATION

Approval of an ordinance amending Chapter 4.80 of Title 4 of the San José Municipal Code by repealing Part 3 relating to the Alviso Water Service Area Extension and Improvement Fund and amending Part 12 relating to the Consolidated Water Utility Fund, and amending Chapter 15.08 of Title 15 of the of the San José Municipal Code to add a new Part 2.5 relating to rates and charges for potable water service.

BACKGROUND

On May 6, 2003, this Office was directed by Council to draft an ordinance that would limit revenue transfers from the Municipal Water System to the General Fund, beginning in fiscal year 2004-05; provide for certain reserve funds to be established for the Municipal Water System; and establish a process for rate increases, including advance notification of rate increases.

ANALYSIS

Chapter 4.80 of the San José Municipal Code creates and governs various City funds, including the Alviso Water Service Area Extension and Improvement Fund and the Consolidated Water Utility Fund. Because these two funds are no longer separately administered, the proposed ordinance creates one new Consolidated Potable Water Utility Fund.

Currently, subsection C of Section 4.80.620 of the Code expressly allows funds to be transferred from the Consolidated Utility Fund and imposes no restriction on such transfers. In accordance with Council direction, the proposed ordinance limits transfers to the general fund to 11% of system revenue, beginning FY 2004-05, and to 8% of system revenue beginning FY 2005-06.

Current Code Sections 4.80.170 and 4.80.630 govern expenditure of potable water system revenue. The Code does not currently expressly authorize the establishment of reserve funds. Per Council direction, the proposed ordinance directs the establishment of appropriate reserve funds, including a capital reserve equal to 7% of revenue and a rate stabilization fund equal to 5% of revenue. The revised Code also limits expenditures "costs" to direct costs; and insures that payment to the City for "overhead" is subject to above-referenced transfer limit.

Chapter 15.08 of the Code pertains to service provided by the Municipal Water System. The Code does not currently establish a process for rate increases. The proposed ordinance codifies the current process of having Council approve all rate increases by the adoption of a resolution. The proposed ordinance also mandates advance written notice of any rate increase, by the publication of notice in the newspaper, and by bill inserts if a bill is due to be mailed between the date the increase is proposed and the date for Council consideration of the increase. Because billing is currently bi-monthly, mandating notice by bill insert could mean waiting more than 60 days to impose a rate increase, even if costs were escalating more quickly. The published notice is proposed as a reasonable alternative where targeted notice is not feasible.

CONCLUSION

It is recommended that the Council approve the proposed ordinance amending Chapter 4.80 of Title 4 of the San José Municipal Code by repealing Part 3 relating to the Alviso Water Service Area Extension and Improvement Fund and amending Part 12 relating to the Consolidated Water Utility Fund, and amending Chapter 15.08 of Title 15 of the of the San José Municipal Code to add a new Part 2.5 relating to rates and charges for potable water service.

A copy of the proposed ordinance is attached hereto for convenient reference.

COORDINATION

This memorandum and the proposed ordinance were coordinated with the Department of Environmental Services and the Manager's Budget Office.

Richard Doyle

City Attorney

Mollie Dent

Sr. Deputy City Attorney

Attachment

cc: Rabia Chaudhry, Council Assistant, District 8