Jan 12 2012

EPA Cost Projections Come Down

Consultant's Estimate of EPA Compliance Costs

EPA Compliance May Cost Less than Public Projections and Voter Information Pamphlet Suggest

The cost of new EPA monitoring requirements for sewer replacement work have been projected as worst case and used in Piedmont’s Municipal Tax Review Committee (MTRC) Exhibits, the Voter Information Pamphlet and other public documents.  But cost estimates from the City’s Consultant may be lower than projections due to phased main rehabilitation work and emergency repair work already planned for included in the projections.

The EPA 2011 Cost Impacts prepared by the City’s Consultant , together with conversations with staff, have confirmed that the City Consultant identifies the cost of new EPA requirements as $1.5 million in initial set-up costs (during the first 4 years) and $165,000 in ongoing costs thereafter, as shown in the blue chart.  In addition, a “set aside” account is required for main replacement.

In contrast, setup costs (first 4 years) for EPA compliance  were initially projected by the City at $3 million in various public documents, because they include an additional $460,000 per year “set aside” for mains replacement and emergency repairs.   More importantly, ongoing costs of EPA compliance were projected to range from $300,000 to $600,000 to $1 million annually after the first 4 years.  (See Various Public Documents.)

Projections were provided to the Municipal Tax Review Committee and used as the basis for the need for a new 10-year Sewer Surcharge which increases the existing sewer parcel tax by 50%.  (See Sewer Surcharge article.)  The proposed surcharge would generate new revenues of $10 million over its 10-year life, plus Consumer Price Index (CPI) increases.

Projections May Overstate Consultant’s Report on EPA Compliance Cost Impacts

The cost estimates contained in the Consultant’s report appear to have been used in projections without adjustment:

1.  Main Replacement Costs of $460,000 should not be double-counted:    The EPA will require funds to be set aside and placed in a specially designated account for main replacement.  But the costs are not necessarily additional.  Sewer replacement and emergency repair costs are included in the projections as sewer rehabilitation phases and “general sewer projects”.  These expenditures may be credited toward the required expenditures, either by EPA permission or by structuring phased  main replacement to ensure the set aside amount is spent each year.

The projections show a “worst case” scenario, according to staff:  “The $460,000 listed under the EPA Compliance cost spreadsheet is a separate cost category [in projections] because the EPA wanted to make sure that each agency had budgeted additional funds to continue with “Mains Replacement” and “Emergency Repairs” despite having other budget categories for everyday operating expenses related to maintenance of the system.” Piedmont’s plan for phased rehabilitation with state loans is unique among the many defendant cities dealing with the EPA, and therefore receiving credit for phased work is not specifically dealt with by the orders.

As an example, the second year cost of $961,000 mentioned in the Voter Information Pamphlet, but would be only $541,000 with credit for phased work as mains replacement and/or credit for “general sewer projects” as emergency repairs.

2.  Initial consulting costs of $500,000 do not continue after the first 4 years:  The fact that consulting costs are not anticipated to continue past the initial 4 years was confirmed by staff.

Running out new EPA compliance costs for years at levels of $300,000, $600,000 or $1 million rather than $165,000 adds substantial cost to future projections.  Using the most accurate estimate of future EPA compliance costs would allow decision-makers to make an informed decision.

The EPA 2011 Cost Impacts prepared by the City Consultant – with credit for Main Replacement costs and without including professional consulting costs after 4 years – bring the estimated cost of EPA compliance down:

  • initial costs drop from $3 million to $1.5 million
  • ongoing costs drop from $300,000 – $1 million  to $165,000

A comparison of various projections to Consultant’s Report

*2010-11 actual cost of $400,000 used.

Vactor Truck Not Required by EPA

The above cost estimate from the Consultant’s report (far right column) does not include the purchase of vactor truck because its purchase has not been required by the EPA.  If required, a vactor truck would add a one-time $400,000 to initial costs.

LINKS:  Sewer System Monitoring Plan with Monitoring & Reporting Requirements, Consultant’s Report on Cost Impacts of 2011 Administrative Order & Stipulated Order

LINKS to Related Articles:

Sewer Surcharge – and other Piedmont Parcel Taxes – Not Tax Deductible?
Measure A Surcharge – Arguments For and Against
Piedmont Sewer Fund Runs Short of Money – Why Are There Deficits?

Editor’s Note:  PCA Editors would like to thank City staff for the background information and documentation provided on the sewer fund’s history and future estimated costs.

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