RANCHO MURIETA, CA (MPG) - A discrepancy between what it would cost the Rancho Murieta Community Service District to replace the community’s aging infrastructure in today’s dollars and what it has in its reserves to pay for it was highlighted when the board met on May 15. 

The alarming data revealing that the current replacement cost would be $191 million when the district has only $12.5 million in reserves came from two sources. The first was a report from a consultant presenting the draft “RMCSD 20 Year Capital Improvement Planning Project.” The second came from a Community Service District administrator during a later budget discussion about the reserves. (See the separate story in this issue about the proposed 2024/25 budget and rate increases.)

To complete the picture, another consultant reviewed funding options for major projects that ranged from raising user rates to applying for low-cost loans.  

Capital improvement plan

Cami Jackson, a civil engineer with Lumos & Associates in El Dorado Hills, summarized the 20-year plan outlining large capital projects and their timelines and costs. It includes seven lift and pump stations, the water treatment and wastewater buildings, six dams and 471,000 linear feet of sewer and water pipes. Jackson said the majority of pipe to be replaced over the next 20 years is asbestos cement pipe that was installed between 1969 and 1988. She also provided a chart listing the needed improvements in five-year intervals. 

Jackson said the total cost to replace the sewer and water systems and to rehabilitate the dams in the current year would be $191 million. However, the total cost to replace the system at the end of its useful life would be $255 million. To meet this future cost, the district should begin saving $17 million a year. Jackson indicated she calculated this figure without considering the existing water and sewer fund reserves.

Regarding the reserves, Director of Finance of Administration Mark Matulich reported that the district currently has $12.5 million in reserves.  But that figure will increase under the proposed 2024/25 budget, which would direct another $2.57 million into the reserves. On the other hand, the staff has recommended spending $3.6 million for capital projects for the next fiscal year, although the board won’t make the final funding decision until the July board meeting. The priority projects include replacing chlorine with bleach at the treatment plants, rehabilitating a sewer lift station and making safety improvements at the Granlee’s Dam forebay.

Jackson said after the district’s engagement of her firm last fall, she collaborated with Plant Operator Travis Bohannon to conduct a multi-day field investigation to produce a summary of all of the above and below-ground water and sewer systems. After working with staff to develop installation dates, they prepared an asset inventory that identifies the age and replacement costs for district facilities at the conclusion of their useful life.

Jackson explained she used a strictly age-based approach for the analysis. The other option would involve a qualitative evaluation of the actual condition of the facilities. 

“The numbers you see in your board packet can seem imposing and rather high. But I want to encourage everyone to consider that this is just an age-based approach,” she said. “As we work with the district to identify areas and specific concerns where we have frequent water main breaks or sewer clogging issues, we will be able to refine the recommendations for improvement so the cost of the plan may go down.”

Jackson said that Operations Director Michael Fritschi recently asked Lumos to add an evaluation of the community’s dams to the plan. She explained that Lumos has dam engineers in its Reno office who evaluated last winter’s inspection records by the state Division of Safety of Dams. Based on the review, they put together a list of recommended maintenance activities and rehabilitation costs for her report. However, she also recommended a geotechnical investigation, which could uncover additional problems with the dams that weren’t listed in her draft report.

Jackson emphasized the importance of the district proactively addressing the replacement cost of Granlee’s Dam, which is more than 100 years old and exhibits a significant transverse crack along with a seepage issue. 

"It's a critical component of the potable water supply system," she said. "None of us want it to fail before we are able to replace it."

Regarding Calero Dam, Jackson noted recent indications of a significant change in the seepage emanating from the pumping station. While it could potentially be attributed to a malfunctioning seepage monitor, she recommended conducting an evaluation to ascertain the cause.

That prompted a question from President Tim Maybee. 

“At any point during this report is there going to be a ray of sunshine for us,” Maybee asked.

Jackson responded by noting that there was a "high chance" the costs could decrease if they evaluated the condition of the sewer and water systems to determine if they could extend their useful life instead of solely relying on the age-based approach.

Later in the meeting, director Martin Pohl asked whether a condition assessment was in her current scope of work. She replied it wasn’t but said Bohannon is “actively performing condition assessments on a couple of key areas within the district that he will be sharing with us.”

Financing options

Following her initial presentation, Jackson introduced economic consultant Catherine Hansford, saying she would talk about capital improvement costs and how districts can manage them. Additionally, Hansford will be tasked with conducting a rate study for the district later this year.

In her rate studies, Hansford examines revenue requirements to ensure that both the sewer and water funds are self-sufficient to cover operational and maintenance costs. She explained that rates cover the rehabilitation and replacement expenses of projects to enhance capacity for existing customers, while connection fees finance the expansion of capacity in rehabilitated assets and new assets intended to serve future customers.

If rates and connection fees fall short of funding essential infrastructure repairs, Hansford said, the district must consider increasing rates and fees to finance the projects directly, seek loans—most likely from sources such as the United States Department of Agriculture or the California State Revolving Fund — pursue grants and explore the creation of alternative financing mechanisms, especially for projects that primarily benefit a specific subset of customers.

Director Linda Butler expressed satisfaction that a large audience (41 people) had attended the meeting that night, though nearly all were present for the discussion about the Integrated Water Master Plan. (Refer to the separate story in this issue about the water discussion).

“We have been saying for three or four years that the infrastructure is falling apart,” Butler said. “While I am not happy about the confirmation, it is helpful to let ratepayers know we are telling the truth.”

Director Randy Jenco asked Hansford if she would return with financing or a fee study to bring the district up to par. Hansford replied that she would start by considering a scenario in which the district would not take out a loan, as it has never done so before.

Jenco said that setting aside $17 million a year for replacement costs wasn’t going to happen. “How do you say, well, this is good enough, and below this, you’re in trouble,” he asked her. “What’s the process then?”

Hansford explained that it would involve a back-and-forth discussion regarding the financial implications.

 "Then you narrow it down to what is absolutely critical within your system that must be addressed," she said.

Inquiring about the sequence of events if the district pursues a loan from the USDA, Pohl asked whether the loan or a rate increase would be initiated first. 

Hansford clarified that the primary consideration would be whether the USDA water and wastewater loan program has received a sufficient allocation from the federal government. “Then we would look at incorporating the USDA loan into the rate model because they will require you to have your rates in place before they finalize the loan,” she said.

Director Stephen Booth inquired about utilizing a bond measure as a financing tool. Hansford responded that a bond would incur "considerably higher costs" compared to a loan.

 She said that obtaining a loan from the state's revolving fund would be the most cost-effective option.

The summary by Lumos and Hansford's PowerPoint presentation are available in the packet for the May 15 board meeting, accessible on the district's website.

Prior studies

The district had previously commissioned two reserve studies by Reserve Associates. The most recent one, conducted in 2021, estimated that the district had only 30% of the reserves necessary to complete repairs in a timely manner for all cost centers, including administration, water, sewer, drainage, and security, but not solid waste. According to the same report, the district required $10.8 million to fully fund water reserves and $10 million for sewer reserves. 

While the Lumos consultant did not delineate replacement costs by sewer, water, or dams in her draft report, the estimated costs would be astronomically higher than those outlined in the 2021 reserve study.

Comments made at the 2021 board meeting indicated that Reserve Associates had also conducted a more limited reserve study for the Community Service District in 2016. However, this study sat on a shelf unused. 

Additionally, previous boards did not adhere to a reserve study policy that was adopted in 2012.