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HomeMy WebLinkAboutUtilities 2007-02-06 Item 3D - Contract Amendment - Sewage Disposal with Metropolitan King CountyPB:ad attachment (P:alice \UC 020607 Sewage Disposal Agreement INFORMATION MEMO To: Mayor Mullet From: Public Works Directo Date: February 1, 2007 Subject: Amendment to the Sewage Disposal Agreement between All Suburban Agencies and Metropolitan King County ISSUE King County has sent an amendment to the sewage disposal agreement to the Mayor. BACKGROUND Attachment III.D. The essence of amending the sewage disposal agreement between Tukwila and King County involves the need not only to extend the existing contract but also to make changes in how the County does their bonding, rates, and capacity charges. Staff will provide some insight as to the feedback being received from other agencies and from the Metropolitan Water Pollution Abatement Advisory Committee (MWPAAC). RECOMMENDATION Information. 13 Ron Sims King County Executive 701 Fifth Avenue, Suite 3210 Seattle, WA 98104 206 -296 -4040 Fax 206- 296 -0194 TTY Relay: 711 www.metrokc.gov November 21, 2006 The Honorable Steve Mullet Mayor, City of Tukwila 600 Minkler Boulevard Tukwila, WA 98188 Dear Mayor Mullet: The City of Tukwila and King County are parties to a long term agreement for sewage disposal. This agreement is in most respects identical to the agreements that King County has with the 33 cities and sewer districts it serves in addition to your city. By the terms of these agreements, sewage collection systems owned and operated by individual cities and sewer districts deliver sewage and industrial waste to King County's sewage conveyance facilities that, in turn, convey that wastewater to the county's wastewater treatment plants. These agreements govern the service relationship between the cities and districts and the county. Since the agreements describe the manner in which cities and districts pay King County for sewage treatment service, they have provided important security for the long term debt that has financed the county's regional wastewater treatment system. Maintaining the highest bond ratings and most favorable financing terms are extremely important as we move forward with wastewater system improvements that will continue to protect public health and water quality. Over the next five years King County will issue more than $1 billion in bonds to finance the major facility elements of the Regional Wastewater Service Plan (RWSP). The RWSP was adopted by the King County Council in 1999, after years of extensive public review. Implementation of that plan will ensure that sewage treatment capacity continues to be available to treat sewage from your city as well as the rest of our fast growing region. I am enclosing for execution by the City of Tukwila three original copies of an amendment to the existing sewage disposal agreement between the city and King County. The same amendment is being distributed to the other cities and sewer districts the county serves. This amendment is designed to strengthen King County's financial security as it moves forward with the financing of the sewage conveyance and treatment facilities included in the RWSP. It also incorporates a regionally promulgated principle regarding the cost of growth and ensures King County is an Equal Opportunity /Affirmative Action Employer and complies with the Americans with Disabilities Act FIznu The Honorable Steve Mullet November 21, 2006 Page 2 that any future amendments to individual .agreements are made available to all agencies. More specifically, the amendment would: 1) extend the agreement term from 2036 to 2056 (allowing 35 to 40 year debt to be secured by the agreements); 2) permit the county to enact out of cycle sewer rate increases in emergency situations; 3) obligate the local sewer agencies (cities and districts) to agree to any future amendment regarding the terms for sewage disposal and payment that may be proposed by the county and agreed to by those agencies representing, in total, not less than 90 percent of the ratepayer base and 90 percent of the agencies; 4) memorialize in the agreements the regionally promulgated principle that the sewage treatment capacity charge will be set at a level that, when combined with the monthly sewer rate paid by new customers, will ensure that new customers will pay for 95 percent of the cost of the facilities necessary to serve them; and 5) make any future agreement amendments with individual cities and districts available to all cities and districts. As indicated above, King County provides sewage treatment and disposal service to 34 cities and special districts through agreements with those parties. The basic provisions of those agreements are identical. They obligate the cities and districts to deliver to the county all sewage and industrial waste they collect, obligate the county to accept the sewage and industrial waste delivered to its facilities by the cities and districts, and establish the details of paying for treatment and disposal service. Extending the agreement term will help secure the wastewater program's planned long term debt. The term of most agreements expires in 2036. The county has typically issued bonds with 35 to 40 year terms. This matches debt terms with projected life of the assets being financed. Because of the 2036 agreement expiration date, 2001 was the last year that the county issued 35 year bonds. When shorter term bonds are issued the repayment of the principle is compressed into fewer years. This increases the county's monthly sewer rate and sewage treatment capacity charge. The sewer rate and capacity charge impact of issuing less than 35 year bonds since 2001 has not been great, but that will now change. The next three years entail the highest borrowing levels of RWSP implementation. The recently adopted monthly sewer rate for 2007, which is also projected for 2008, includes a $.28 cent impact for shorter term bonds in those years. The capacity charge starting in 2008 will need to be $3.00 higher than if 35 year bonds are issued in those years. 15 /6 The Honorable Steve Mullet November 21, 2006 Page 3 It is a priority of mine to maximize the security for King County's wastewater debt and maintain the highest possible bond ratings, one of which was recently increased. I continue to work with bond counsel, the county's financial advisors, and rating agencies to refine our approach to securing wastewater debt and obtaining the most favorable interest rates and debt terms for wastewater system ratepayers. Our foremost security for that debt has been the sewage disposal agreements and financial prudence requires that they now be extended. I would note also that long term interest rates dropped significantly at the beginning of this decade and continue to be favorable. The Suburban Cities Association (SCA) on July 19, 2006, adopted a position supporting agreements that allow the county full flexibility as to the financing of upcoming capital improvements at the county's standard bond term. The formally adopted SCA positions are attached. Amending the sewer rate provision of the agreements is necessary so that the county can implement out of cycle rate increases in emergency situations, such as the electrical energy crises in 2001. The agreements currently provide only one opportunity per year to set rates. In 2001, electrical energy costs skyrocketed and ended up costing $9.4 million more than the $7.4 million that had been projected when the 2001 sewer rate was adopted. This unexpected increase occurred in the context of an operating budget of $78.5 million. Employment of a somewhat esoteric accounting procedure allowed King County to avoid violation of its bond covenants, which require a margin of excess revenue over debt service costs after operating costs are paid, but this experience demonstrated the need for greater flexibility in the agreements regarding rate setting. Analysts for the bond rating agencies have noticed this lack of flexibility, which this amendment provision has been designed to correct. The text of this specific amendment provision conforms to input received from the cities and districts, both directly and through the Metropolitan Water Pollution Abatement Advisory Committee (MWPAAC), which consists of representatives from the region's cities and sewer districts. Changing the unanimous concurrence feature for future amendments is desirable so that one or two small local agencies are not able to veto agreement changes desired by those agencies representing an overwhelming majority of the ratepayer base. A consequence of the way that the original agreements were structured was that all cities and districts would have to agree to any agreement changes that deal with the distribution of the wastewater utility's costs and development and collection of the county sewer rate. The enclosed amendment would replace this feature with a supermajority provision, a version of which is already included in 12 of the agreements. Except for the 12 cities and districts whose agreements already contain an earlier version of the currently proposed supermajority provision, a single small agency could block changes in the sewer rate structure desired by all other agencies. Over half of the cities and districts the county serves individually constitute less than one percent of the county's sewer ratepayer base. The Honorable Steve Mullet November 21, 2006 Page 4 The text of this specific amendment provision also conforms to input from MWPAAC. Incorporating the `growth pays for 95% of growth" principle ensures that new customers will pay for the cost of the facilities being constructed to serve them. The primary mechanism for implementing this principle is the county's sewage treatment capacity charge for new sewer customers. A few cities and districts, most notably the City of Seattle, have proposed that the detailed methodology used to calculate that charge be included in the extended agreements. This would effectively "lock in" the detailed methodology for fifty years. The SCA, as articulated in its July 19, 2006 position paper, does not agree with Seattle's proposal. The SCA position is identical to mine. The opportunity to refine or amend the detailed policies governing the capacity charge needs to remain under the purview of the King County Council acting on recommendations of the Regional Water Quality Committee (RWQC). This amendment incorporates the underlying principle for the capacity charge into the agreements, but preserves the opportunity for review and recommendations regarding those detailed policies by a diverse cross -cut of the local governments in King County. Suburban cities, as expressed in the attached position paper of their association, support inclusion of the basic "growth pays for growth" principle, and oppose the inclusion of detailed methodology. The enclosed proposed amendment aligns with the SCA position. Making any future amendments with individual local agencies available to all agencies is a basic fairness provision that ensures that cities and districts executing their amendments later in this process won't get special considerations not available to all. This provision was proposed by the City of Auburn. (No prospective amendments would, in any event, be able to contradict or undermine previously executed agreements and amendments.) The county's proposed amendments to the agreements have been discussed now for several years. King County's proposal to modify the agreements was first presented to the MWPAAC in November of 2001. MWPAAC has over the last four years provided input on the county's proposed changes that have been incorporated into this amendment. MWPAAC has focused primarily, however, on aspects of the sewer service arrangement not related to debt security— the primary purpose of the current amendment effort. The proposed agreement changes were discussed with the Regional Water Quality Committee on March 12, 2002, and again on June 14, 2006. They have also been discussed in detail with the City of Seattle, which represents 42 percent of the county's sewer ratepayer base. They were also very recently examined by the SCA. As indicated above, the SCA formally adopted positions related to the amendments on July 19, 2006. The King County Council initially authorized amendment of the agreements by ordinance adopted in 2004. The amendment provisions presented in the enclosed documents include text refinements requested by the cities and districts since that time. I have therefore transmitted an updated ordinance for the County Council's consideration. I expect action on that ordinance before the end of the year. 17 18 The Honorable Steve Mullet November 21, 2006 Page 5 The city's timely attention to this matter is in the best interest of all of King County's sewer ratepayers. Execution of this proposed agreement amendment within the coming months will enhance King County's ability to secure the most favorable financing terms before undertaking the major borrowings planned for the next five years. Please return all three copies of the amendment to Bob Hirsch, King County Wastewater Treatment Division, KSC -NR -0501, 201 South Jackson Street, Seattle, WA 98104 after they are signed. Please leave the date space on the first page blank. A fully executed copy will be returned to the district after the documents are signed by the county. For further information please contact Pam Bissonnette, Director of the King County Department of Natural Resources and Parks (DNRP), at 206 263 -6500, or Bob Hirsch, Government Relations Administrator in the Wastewater Treatment Division of DNRP, at 206 684 -1266. ms King County Executive Enclosures cc: Jim Morror, Public Works Director, City of Tukwila Pat Brodin, MWPAAC Representative, City of Tukwila Pam Bissonnette, Director, Department of Natural Resources and Parks (DNRP) Bob Hirsch, Government Relations Administrator, Wastewater Treatment Division, DNRP CITY OF TUKWILA KING COUNTY AMENDMENT TO AGREEMENT FOR SEWAGE DISPOSAL THIS AGREEMENT made as of the day of 2006 between the City of Tukwila, a municipal corporation of the State of Washington (hereinafter referred to as "the City and King County, a political subdivision of the State of Washington (hereinafter referred to as "the County"); WITNESSETH: WHEREAS, the City and the County have entered into a long term agreement for sewage disposal dated October 1, 1966 as amended and previously extended (hereinafter referred to as the "Basic Agreement and the County has proposed certain changes to, and a second extension of, the Basic Agreement; and WHEREAS, the extension of the Basic Agreement will ensure that the County is able toobtain the most favorable bond fmancing terms for necessary improvements to the region's wastewater treatment system and will therefore ensure the lowest possible sewer rates and sewage treatment capacity charges for the system's ratepayers, and WHEREAS, the City concurs that said proposed changes and extension are in the best interest of the parties and the citizens of the Metropolitan Area; NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: Section 1. Amendment of Basic Agreement— Section 5.3. Section 5.3 of the Basic Agreement is hereby amended by adding the following new subparagraph d). "d) An additional charge may be made to recover unforeseen costs to operate and maintain the metropolitan sewerage system or meet debt requirements if the county executive declares and the county council by a supermajority vote (two thirds of members) finds that an emergency exists and the system cannot be adequately maintained, and debt requirements or debt REFERENCE COPY /9 20 policies met, without such additional charge. The additional charge shall then be effective no earlier than the first day of the fourth month following the emergency declaration described in this subparagraph 3.d) and shall be billed and collected in the same manner as the monthly rate referenced in subparagraph 3.c). The additional charge described in this paragraph 3.d) may be incorporated into the next rate setting cycle but will otherwise terminate within twelve months of the date approved. The additional charge described in this subparagraph 3.d) shall not be made until and unless it also conforms to the sewage disposal agreements with all remaining Participants." Section 2. Amendment of Basic Agreement— Section 5.4. Section 5.4 of the Basic Agreement is hereby amended to read as follows: "4. The County -may shall impose a charge or charges (hereinafter the capacity charge) directly on the future customers of a Participant for purposes of paying for capacity in Metropolitan Sewerage Facilities. The proceeds of said the capacity charge shall be used only for capital expenditures or defeasance of outstanding revenue bonds prior to maturity. The capacity charge shall be set at a level to ensure that. in combination with the monthly sewer rate described in subsection 3 above. 95% of the costs incurred to provide the wastewater conveyance. treatment and biosolids capacity to serve new customers are recovered from new customers. The City shall, at the County's request, provide such information regarding new Residential Customers and Residential Customer Equivalents as may be reasonable and appropriate for purposes of implementing the capacity charge." Section 3. Amendment of the Basic Agreement —New Section 18. A new Section 18 is added to the Basic Agreement as follows: "Section 18. Future Amendments. The City agrees to amend and hereby concurs in any amendment to this agreement which incorporates any changes in the terms for sewage disposal and payment therefor as may be proposed by the County and agreed to by those Participants that shall represent, in total, not less than 90% of the residential customers and residential customer equivalents then served by the Metropolitan Sewerage System and 90% of the Participants." Section 4. Amendment of Basic Agreements with other Participants. If the Basic Agreements with any other Participants are amended or otherwise modified to include terms, conditions, or provisions not included in this amendment, the City shall have the option of incorporating said terms, conditions or provisions into its Basic Agreement. The County shall then expedite and approve any amendments to the Basic Agreement as may be necessary and appropriate for such purpose. Section 5. Extension of Basic Agreement. The Agreement for Sewage Disposal between the City of Tukwila and King County dated October 1, 1966, as amended, is hereby extended for a period of twenty years and shall continue in full force and effect until July 1, 2056. The agreement dated October 1, 1966, as subsequently amended and extended shall constitute the entire Agreement for Sewage Disposal between the parties. IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first written above; said agreement to be effective upon execution. City of Tukwila King County Bv Bv Title Title Attest: Attest: 2!