Mar 4 2011

Commentary: Suggestions for Further Review of Undergrounding Problems

Piedmont Civic Association Commentary on Undergrounding Reports from the Audit Subcommittee and the League of Women Voters

To date, the efforts of the Audit SubCommittee and the League of Women Voters have emphasized contract administration analysis.  Information and analysis of undergrounding concerns provides a valuable shared knowledge base to the Council and residents in their upcoming efforts to undertake substantial revisions to City undergrounding policy.  It is hoped both the Audit Subcommittee and LWV will continue their much appreciated efforts, providing analysis and recommendations to the Council and the community on:

  • The use of public funding to facilitate the creation of  private undergrounding districts
  • The loss of 20A public funds
  • The City’s financial stake in approving Districts
  • The potential or perceived impact of a financial stake on the decision-making process
  • The magnitude of 20B projects in comparison to City revenues and reserves
  • Other  undergrounding options:  20C Districts and city-wide undergrounding
  • Chiang analysis:  Does the City become the  “ultimate insurer” of every 20B undergrounding project?
  • Will immediate knowledge and reporting of cost overruns improve the City’s options?
  • Shifting cost risk from the City to private districts
  • Preventing misunderstandings by Staff and/or Council of the nature of City contracts
  • The extent and appropriate use of informal meetings, without formal public notice, between homeowners and city staff
  • Review of additional aspects of past experience
  • Optimum threshold level of support – review, comparison and a specific recommendation
  • Grounding the report upon the Piedmont City Charter

The use of public funding to facilitate the creation of  private undergrounding districts

Current undergrounding policy prohibits the use of “general funds” for pre-formation expenses.  However, this policy has been interpreted to refer only to the City’s General Fund, and to allow the use of 20A public funds (a separate account containing monies received from PG&E for undergrounding major arterial streets) for the benefit private 20B districts.  Use of these public funds has been authorized as follows:

The loss of 20A public funds

City 20A public funds have been lost by private undergrounding districts (detail). See History of Public 20A Losses in Piedmont.  Whether the City should continue to place 20A public funds at risk on behalf of 20B private districts is an issue worthy of consideration in reviewing City undergrounding policy.

20A funds received from PG&E are intended for the undergrounding of major arterial streets, generally.  In Piedmont, an extensive study was conducted prioritizing streets for purposes of 20A funds, with Moraga and Oakland Avenues ranking highest.  (See Resolution 85-85, p.1, p.2, p.3.) The 2007 $460,000 balance in 20A funding (prior to commitments to 20B districts) represented 30% of the estimated Moraga Avenue undergrounding cost and 20% of Oakland’s and accumulates at the rate of $80,000 per year.  (See staff reports p. 1; see staff report p.5.) And public funding might be supplemented with a small amount of private funding from Moraga/Oakland residents, if homeowners desired to underground sooner.  The equities of facilitating private undergrounding of Hampton, Sea View, Glen Alpine and similar infrequently used streets at the expense of undergrounding major arterial avenues where safety issues are present could be revisited by the Audit Subcommittee.

The City’s financial stake in approving Districts

Utilizing public 20A funds for private undergrounding may result in unintended consequences other than the mere loss of the funds.  First, the City’s well-intentioned effort to reduce initial seed money requirements from private districts by $150,000 (50% of pre-formation cost), may be reducing levels of initial support to inappropriate levels, as the money is not coming from homeowners.

Second, this well-intentioned effort to assist the initiation of private districts results in the City acquiring a financial stake in the success of a district.   If a district is not approved, or bonds not issued, the City loses its public 20A funds.  The City becomes, for all practical purposes, a partner in the formation of the district.   This partnership may, in turn, impact its decision-making process – both initially in determining whether a district should be approved, and later in determining how far litigation should be pursued.  The ramifications of having a possible conflict of interest could be explored.

The potential or perceived impact of a financial stake on the decision-making process

The City’s acquisition of a financial stake in the success of 20B private districts has, perhaps coincidentally, coincided with a decline in its threshold for approval.  The expected (or effective) standard for property owner approval has trended from “70%” to  “approximately 7o%” to “two-thirds” (per LWV report) to “60-70%” to “no threshold“, with one public official eventually suggesting no threshold had ever existed above the legal 50% minimum – residents were merely confused.   The perception of a shift in the City Council’s stance – from neutral evaluator of Districts to partner standing shoulder-to-shoulder with District proponents – is a concern of residents which may intensify the discord surrounding current undergrounding projects.  This concern could be addressed by the Audit SubCommittee as part of its review of past experience.

The magnitude of 20B projects in comparison to City revenues and reserves

For a larger city with a population of 50,000 (San Rafael) or 100,000 (Lafayette) or more, $3 million in total cost overruns and litigation expenses may be de minimus compared to revenues and reserves.  For Piedmont, it is not.   The overrun represented over half of its general fund reserve and almost 17% of its annual revenues. Moreover, Piedmont’s general fund reserve has now been depleted.  It is well short of the 2007 Tax Review Committee Report recommended amount of 25%, or $5 million.  Piedmont’s general reserve may conceivably fall below $1 million by the end of this fiscal year, depending on the impact of unbudgeted overtime and pool costs.  The appropriate magnitude of 20B projects and risk  in light of the current level of City reserve funds could be addressed by the Audit Subcommittee.

Other  undergrounding options – – 20C Districts and city-wide undergrounding

One alternative undergrounding option is using 20C private districts.  20C Districts may allow small groups of homeowners to underground privately through PG&E, without City involvement or risk.   Further information would be helpful to ensure residents and Council Members are aware of the full spectrum of undergrounding options.   This would also include an assessment of City-wide undergrounding options, which the Council requested on March 19, 2007.  p. 6.

The Chiang analysis:  does the City become the  “ultimate insurer” of every 20B undergrounding project?

The City’s costs with Valley were not capped, due to the rock clause.  The City’s agreement with PHUAD homeowners, on the other hand, was “not to exceed” the assessment amount and the City could not unilaterally assess homeowners for cost overruns, Acts of God, or any other reason if it ran out of funds.  See staff report. At the same time, the Chiang report points out the City was unable to terminate the project virtually from Day 1 of groundbreaking:  it was financially infeasible.  (At p. 6 and 13.)

This combination of circumstances left the City responsible for cost overruns once Piedmont Hill’s contingency fund was exhausted. The City unwillingly and unwittingly became the “ultimate insurer” of project completion.

If the Chiang analysis is true of 20B districts generally, then the City is forced into the position of “ultimate insurer” – and the City’s general fund placed at risk – with every 20B project.  This risk to general funds would be undertaken without a general election or vote by the residents of Piedmont.  Whether the City may be forced into the role of ultimate insurer in every 20B construction project could clarified by the Audit Subcommittee.

Will immediate knowledge and reporting of cost overruns improve options?

Chiang points out it was the better option, at all times, to complete PHUAD construction work than to halt it – even on Day 1 of construction.  If this is equally true for future districts, then early discovery of cost overruns – even on Day 2 – will not improve the City’s options:  it will still have to complete the project.  It would, therefore, be important to determine whether or not the Chiang analysis applies to 20B projects generally.

Shifting cost risk from the City to private districts

Whether the City can legally shift risk of cost overruns and/or Acts of God to homeowners when undertaking 20B Districts is an unanswered question.  Whether homeowners should knowingly assume these risks is another unanswered question.  For PHUAD, the cost overruns would have amounted to an additional $14, 583 per homeowner, on top of the homeowner’s initial $10-20, 000 assessment.  The Act of God (collapse of Crest Road) represented another $2,000 per homeowner.  These are sizable risks.  Do 20C districts place this risk on PG&E rather than homeowners or the City? Providing information on these questions would give both the Council and residents the knowledge they need to craft a fair, workable undergrounding policy for the future.   

Preventing misunderstandings by Staff and/or Council of the nature of City contracts

Staff has repeatedly represented to Council that undergrounding bids are “firm bids”.  (See minutes p.6minutes p. 4)  The Piedmont Hills contract was not attached to the staff report for the Council’s review prior to approval.  Since that date, Council Member Margaret Fujioka has requested that all contracts be attached to staff reports when submitted to the Council for approval.  However, in addition, the Audit Subcommittee could further clarify, delineate or formalize the role of the City Attorney in contract administration, as well as best practices for identifying contingencies, their magnitude, and how they will be addressed, should they occur.   (This issue may have arisen in the reverse in the Piedmont Pool lease recently:  the City insisted on a $1 million hazards insurance policy requiring a $10,000 premium for an allegedly minimal risk from 1 gallon jugs of chlorine.)

The extent and appropriate use of informal meetings, without formal public notice, between homeowners and city staff

Increased staff activity in district formation after the Dudley project was noted in the Barbieri report, but not delineated.  This activity presumably includes staff participation in multiple informal, private meetings with individuals and select groups of homeowners prior to any noticed public hearings.  This practice was raised as a concern by non-participating homeowners who later discovered they had not been notified of, or missed, these important early discussions with City staff.  Similar governance concerns have arisen in the Moraga Canyon Sports Facilities project where staff reports have referenced numerous meetings between staff and select groups of residents prior to the first noticed public hearing on the project.  The Audit SubCommittee could address this recurring issue.

Review of additional aspects of past experience

Other important aspects of past experience could be addressed for all prior undergrounding districts, such as:

  • Level of homeowner support
  • 20A public funds provided, the reason, and the outcome
  • Threshold stated compared to the threshold applied to each district
  • Level of staff participation
  • Magnitude of project compared to City reserves
  • Amount of contingency fund

Optimum threshold level of support – review, comparison and a specific recommendation

City ordinance provides a street may not be closed for a few hours if more than 30% of property owners object.  Yet, if those same 30% of residents object to paying a $10-20,000 assessment for undergrounding, the Council may ignore them.  A comparison of these threshold levels for various actions would be helpful.  Given the extensive time and effort the Audit Subcommittee has invested in reviewing undergrounding administration, history, comparable cities, and options, a specific recommendation to the Council on the optimum threshold level of support for undergrounding may be appropriate, as well.

Grounding the report upon the Piedmont City Charter

The Piedmont City Charter is the governing law of Piedmont and has been in place since Piedmont became a Charter City in 1907.   The Charter, as amended 2008, can be found on the City website. It is the law and provides the framework for policies and actions of the City Council.

Review and discussion of relevant portions of the City Charter and how they may prescribe the roles, authority and limit the actions of city officials would be helpful.  Pertinent sections may include:

Section 2.04 GENERAL POWERS AND DUTIES “All powers of the City shall be vested in the City Council as the legislative body, except as provided by law or this Charter.  The Council shall provide for the exercise of these powers and for the performance of all duties and obligations imposed on the City by law.” (Emphasis added).

“Section 2.08 MAYOR”  “The mayor shall preside at meetings of the Council, shall be recognized as head of the City government for all ceremonial purposes and by the Governor for the purposes of military law, but shall have no administrative duties.” (Emphasis added).

“Section 3.03 CITY ADMINISTRATOR – “(4)  Shall see that all laws, provisions of this Charter and acts of the Council, subject to enforcement by him/her or by officers subject to his/her supervision, are faithfully executed.” . . .”(8) Shall keep the Council fully advised as to the financial condition and future needs of the City and make recommendations to the Council concerning the affairs of the City.” (Emphasis added).

“Section 3.05  CITY CLERK “-“The City Council shall appoint an officer of the City who shall have the title of city clerk.  The city clerk shall give notice of Council meetings to its members and  the public, keep the minutes of its proceedings and perform such other duties are assigned by this Charter or by the Council.” (Emphasis added).

Section 3.06  CITY ATTORNEY “(1)  Represent and advise the Council and all City officers in all matters of law pertaining to their offices: (4)  Approve the form of all contracts made by and all bonds given to the City, endorsing approval thereon in writing;” . . . ” The Council shall have control of all legal business and proceedings and may employ other attorneys to take charge of any litigation or matter or to assist the city attorney therein.”  (Emphasis added).

‘Section 3.10 DEPARTMENT OF PUBLIC WORKS “There shall be a department of public works headed by a director of public works. This department shall have charge of the maintenance and repair of all City streets, sewers and storm sewers, and any other related activities as assigned by the City Council.” (Emphasis added).

“Section 3.11 CITY ENGINEER – There shall be a city engineer who shall have supervision over all matters of an engineering character as required by State law, or as assigned by the City Council.  At the time of appointment, this officer shall have been a practicing civil engineer for a period of at least five (5) years, and licensed in the State of California.”

Section 4.11 CONTRACT WORK “All contracts shall be drawn under the supervision of the city attorney.” (Emphasis added).

Section 4.14   BOND DEBT LIMIT “No bonded indebtedness which shall constitute a general obligation of the City may be created unless authorized by the affirmative votes of a majority of the electors voting on such proposition at any election at which the question is submitted to the electors and unless in full compliance with the provisions of the State Constitution, other State laws and this Charter.”

Section 9.06 CHARTER ENFORCEMENT – “The provisions of the Charter shall be enforced, with violations punishable in the manner provided by State law and by City Ordinance.”


Highlights of the 3 Audit Subcommittee Reports

Piedmont League of Women Voters’ Report

Link:  Kawaichi complete draft report – 11 pages

Link:  Chiang compelete draft report – 21 pages

Link:  Barbieri complete draft report – 5 pages

Prior Related Article: Piedmont’s Flawed Construction Bid Process

Prior Related Article:  The ABCs of Undergrounding


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