21 Staff Report - Sewer Collection System to West Valley Sanitation District
DATE: TO: FROM: COUNCIL AGENDA REPORT JUNE 2,2004 MAYOR AND TOWN COUNCIL DEBRA J. FIGONE, TOWN MANAGER · ·MEETING DATE: 6/07/04 ITEM NO. at 1 SUBJECT: DIRECTION REGARDING THE TRANSFER
OF MAINTENANCE RESPONSIBILITIES FOR THE LOS GATOS SEWER COLLECTION SYSTEM FROM THE TOWN OF LOS GATOS TO THE WEST VALLEY SANITATION DISTRICT RECOMMENDATION: Provide direction regarding
the transfer of maintenance responsibilities for the Los Gatos sewer collection system from the Town of Los Gatos to the West Valley Sanitation District. BACKGROUND: , The Town ofLos
Gatos has maintained the Town's public sewer system since 1977, when the Town entered an agreement with the West Valley Sanitation District (District). The District provides complete
wastewater and collection disposal services for the cities of Campbell, Monte Sereno, Saratoga, and unincorporated areas of the County. In L9S Gatos, the District is responsible for
permitting, repairs, construction, inspection, engineering, and collection of all sewer-related fees. A portion ofthe fees collected by the District is used to reimburse the Town for
maintaining the Los Gatos system. The Town's current agreement with the District expires on June 30, 2004. DISCUSSION: Assessment of the Sewer System Operation and Management Since 2001,
the Town and District have been in discussions to re-evaluate the current operational arrangement due to recent action by the San Francisco Bay Regional Water Quality Control Board to
require collection systems to develop Sanitary Sewer Management Plans (SSMPs) and pending regulations from the US Environmental Protection Agency, known 'as Capacity, Management, ill;;!?
\fA. €V4 . PREPARED BY: CURTIS ,#, PAMELA JACOBS Director of Parks and Public Works Assistant Town Manager Reviewed b;: Assistant Town Manager =:.li2Attomey __Clerk
Finance __Community Development Revised: 6/3/04 ' 7:25 am Reformaned: 5/30/02 N:\B&E\COUNCIL REPORTS\6-7-04 WVSD Transition Report,wpd
PAGE 2 MAYORAND TOWN COUNCIL SUBJECT: DIRECTION REGARDING THE TRANSFER OF MAINTENANCE RESPONSIBILITIES FOR THE LOS GATOS SEWER COLLECTION SYSTEM FROM THE TOWN OF LOS GATOS TO THE WEST
VALLEY' SANITAnON DISTRICT June 2, 2004 Operations, and Maintenance (CMOM) requirements. The District retained the firm ofBrown and Caldwell to evaluate options for modifying the arra.ngement
between the Town and the District. In May, 2004, the firm completed an Assessment andAnalysis ofthe Public Sewer System Operation andManagement. The report assessed the current level
and cost ofservices provided by the Town and District and identified potential· additional services a.ri.d costs·· associated with the new regulations. The report evaluated the following
four alternatives for providing maintenance and other services for the Los Gatos system: 1. Town continues. to provide maintenance services and the District prbvides other services.
2. Town takes sole responsibility for Los Gatos sewers. 3. District takes sole responsibil1ty for the entire service area including duties currently provided by the Town. 4. Town takes
sole responsibility for Los Gatos sewers but most of the work is outsourced. District Analysis and Decision At the District's Board meeting held May 19, 2004, the Board adopted alternative
#3, which calls for the District 'to take sole responsibility for the entire serVice area including duties Currently provided by the Town. The Board recommended that the Town and the
District extend their agreement for a period up to one year to develop and implement a transition plan that achieves the transfer of maintenance responsibility to the District. Attachment
1 is the staff report.from the District's general manager, Which recommends the adopted action. The Board's key reasons for adopting alternative #3 are liability issues and the principle.
pf equity ofservice. Attachment 2 is a white paper prepared by the general counsel for the District discussing the liability issue. The concern for the District is that the new regulations
categorically prohibit sanitary sewer overflows (SSOs) and associated penalties for violations can be severe. The District, as the holder of the NPDES perinit, has more exposure regarding
civil liability and regulatory compliance, and the precise delineation ofresponsibilities between the Townand the District would be difficult, if not impossible, to describe in a way
that would appropriately assign liability if the Town were to continue to be responsible for maintenance of the system. The second District concern regards equity of service among an
ofthe cities served by the District. According to the BroWll and Caldwell analysis, Town costs for maintaining Los Gatos sewers are greater than the District's maintenance costs in other
areas. Thus,the District believes that rate payers in the rest ofthe district are subsidizing Town residents. Unless Town costs and/or the level of service to Town residents were lowered,
the District would seek to adQa surcharge tothe Los Gatos sewer use fee under Proposition Proposition 218 rules if the Town continued to provide the maintenance for the system.
PAGE 3 MAYOR AND TOWN COUNCIL SUBJECT: DIRECTION REGARDING THE TRANSFER OF MAINTENANCE RESPONSIBILITIES FOR THE LOS GATOS SEWER COLLECTION SYSTEM FROM THE TOWN OF LOS GATOS TO THE WEST
VALLEY SANITATION DISTRICT June 2, 2004 Town Analysis and Recommendation The Town has been engaged in the ongoing discussion about the operation and management of the sewer system over
the past few years. The Town's sewer crew has demonstrated exemplary service to the Town, providing professional, quality sewer maintenance service and responsive customer service to
Town residents for many years. At the same time, it has. been important to evaluate the current arrangement to determine if it is the most cost-effective and efficient approach, particularly
in light ofthe new regulations. As part of the evaluation, Town staff contributed to and reviewed the Brown and Caldwell report. Town staff shares the Districrl> concerns about liability
and costs. With regard to liability, the Town's continued maintenance of the system does present concerns about increased penalties associated with new regulations calling for lower
tolerances for SSOs. Staff agrees that it would be difficult to delineate responsibilities between the District and the Town to sufficiently mitigate liability concerns. The Brown and
Caldwell report identifies a cost differential between the Town's maintenance costs and those ofthe District. Most ofthe difference is due to economies ofscale related to overhead and
management the District can realize as a single service provider. Although this cqst difference could result in a surcharge for Los Gatos residents, ifLos Gatos were to continue to provide
maintenance, the surcharge is not likely to be a significant amount. Nevertheless, the most cost-effective way to provide the maintenance service in Los Gatos appears to be though a
transfer of this service to the District. A third issue that is important for Los Gatos is compliance with the requirements added pursuant to the new regulations. The requirements for
an SSMP and CMOMs would be challenging for Los Gatos to implement due to the many Town priorities in other areas and to the lack of capacity to focus on this responsibility. The District,
on the other hand, is much better positioned to implement the new requirements which relate to their sole area of expertise and responsibility. Based on the issues of liability, costs,
and compliance with the new regulations, staff recommends that the Town transfer the responsibility for maintenance ofLos Gatos sewers from the Town to the District. It is estimated
that this transfer of responsibility will take about one year to implement; thus, the Town and District would need to extend the agreement that expires on June 30, 2004 until June 30,
2005. During this period, the Town and the District would negotiate and implement a transition plan which would include the following elements: Expertise/Knowledge Transfer -The Los
Gatos crew is intimately familiar with the Los Gatos sewer system and customers. The transition plan would need need to include a method for transferring this information and expertise
to the District to ensure seamless service delivery.
PAGE 4 MAYOR AND TOWN COUNCIL . SUBJECT: DIRECTION REGARDING THE TRANSFER OF MAINTENANCE RESPONSIBILITIES FOR THE LOS GATOS SEWER COLLECTION SYSTEM FROM THE TOWN OF LOS GATOS TO THE
WEST VALLEY SANITATION DISTRICT June 2,2004 Performance Requirements -Los Gatos residents have enjoyed quick, courteous service from the Los Gatos sewer crew. The transition plan should
include assurances that our residents will continue to receive this level of service from the District. Valuation and Transfer ofAssets-In 1977, the Townpaid the District $358,742 to
acquire the underground sewer system-assets. The District and Town would need to determine current value of the system and negotiate an acquisition price. The disposition of �
�Town vehicles 'and equipment purchased with sewer progrllitl funds would also need to be determined. Communication Plan -The transition plan would include a comprehensive communication
plan for informing Los Gatos residents about the transfer, and for ensuring seamless communication once the transfer is completed. In addition to these elements addressed collaboratively
by the Town and the District, the Town would address the transition ofthe sewer crew to otherTown positions during the one-year extension ofthe agreement. Because the sewer crew has
provided other services to the Town, staffwould also identify any additional resources needed to continue providing these non-sewer services and to compensate for any administrative
fees that the will no longer cover following the transition. These may need to be addressed through the Town's budget process next year. IfCouncil concurs with staffs
recommendation, staffwill bring forward to the Council on June 21 51 the extension ofthe agreement between the Town and District, along with a schedule for developing and implementing
the transition plan. CONCLUSION: Efficient and effective maintenance ofthe sewer system is the Town's primary concern. Given the issues regarding liability, costs and compliance with
the new regulations, it appears to be in the best . interest of the community to transfer the responsibility for maintenance of the Los Gatos sewer system to the District. Staffrecommends
that Council direct staff to pursue the transfer and to bring back to the Council an extension to the agreement for a period of one year to allow for the implementation of a transition
plan.. ENVIRONMENTAL ASSESSMENT: Is not a project defined under CEQA, and no further action is required.
PAGE 5. MAYOR AND TOWN COUNCIL SUBJECT: DIRECTION REGARDING THE TRANSFER OF MAINTENANCE RESPONSIBILITIES FOR THE LOS GATOS SEWER COLLECTION SYSTEM FROM THE TOWN OF LOS GATOS TO THE WEST
VALLEY SANITATION DISTRICT June 2,2004 FISCAL IMPACT: The fiscal impact of this action is yet to be determined; however, it is expected that there will be some reimbursement to the Town
for the sewer assets and that there will be costs associated with the loss of the administrative fee received from the District, and potentially with the provision of non-sewer related
services currently provided by the sewer crew. Attachments: 1. Staff report from Robert Reid, General Manager of the West Valley Sanitation District 2. White paper prepared by Charles
Kilian, General Counsel for the West Valley Sanitation District
WEST VALLEY SANITATION DISTRICT MEMORANDUM . DATE: TO: May 12, 2004 Board ofDirectors AGENDA ITEM NO. LJ--S-/I?JO'f FROM: 1-Robert Reid, District General Manager SUBJECT: ALTERNATIVES
ANALYSIS FOR LOS GATOS SEWER OPERAnONS Background At the regular meeting ofApril 14, 2004 staff presented the report prepared by Brown and Caldwell titled Assessment andAnalysis ofPublic
Sewer System Operation and Management for the board's consideration. It was determined at the April 14 meeting that two ofthe four "alternative service models" developed in the consultant's
report were not worth further consideration at this time. The purpose ofthis report is to analyze the significant impacts and differences between the two remaining alternatives andrecommend
a preferred alternative for future long term sewer operationS in Los Gatos. These two alternatives are: Alternative 1) Town would continue to provide maintenance services and the district
provides other services, and Alternative 3) District takes sole responsibility for the entire service area including duties currently provided by theTown. Discussion GENERAL CONSIDERATIONS.
In 2002 the Board of Directors adopted certain core principles to be included in any future operating agreement between the Town and the district. For the purposes ofthis analysis it
is assumed that one ofthose principles ('uniform performance standards') is inherently equal for either alternative service model under consideration. Although the Brown and Caldwell
report examined current operations and identified a number of performance related deficiencies, it must be assumed that they would be corrected under either alternative. Therefore the
two service options will be compared based primarily on the principles of 'equity of service' arid 'clear delineation ofresponsibilities and liabilities.' In addition, issues concerning
organizational and customer impacts will be discussed in relation to the two service alternatives. It is also intended that this report should be reviewed in conjunction with the white
paper prepared by District Counsel titled General legal issues surrounding Option 1 and Option 3 ofthe Brown and CaldWell Report. EQUITY OF SERVICE. There are two major components included
in the principle of service equity. First is the overall level of service which includes specific objectives such as emergency response time, number of sewer stoppages/overflows per
mile ofpipe, customer complaint response/satisfaction, etc. This type of service equity must be assumed under Alternative 3 whereby the district provides all sewer services throughout
the entire service area including Los Gatos. In order to ensure this type of service equity under Alternative 1 (Town provides sewer system O&M), the agreement would need to stipulate
the targeted ATTACHMENT 1
level ofservice for all identifiable service objectives. Such defined service levels, as well as defmed performance standards, will be required in any case under the pending state and/or
federal regulations for sewer collection systems. Cost of Service. The second major component of service equity is cost of service. The underlying foundation for cost equity is based
on the principle that each user pays their proportional share ofthe overall cost of providing sewage collection, disposal and treatment. Currently all district sewer users within the
same classification (i.e. 'singlefamily residential') pay the same annual sewer service and use charge. Under the 1977 agreement the district paicl the Town for· its cost of maiJ:ltaining
and operating the sewer system. There was'fiothing written in the agreement specifying that Town costs·could not exceed equivalentcosts in the rest ofthe district. For many years it
was assumed that operating costs were approximately equal. However Town Opel1lting costs have increased substantiallyin the past few years. The cost differences the two
agencies are . detailed in the Brown and Caldwell report. Based on current operating costs the Town is being subsidized by rate payers in the rest ofthe district. This situatioll would
need to be rectified in a newoperating agreement for Alternative 1. Again it can be stated that for Alternative 3 cost is a given. . Other Cost Considerations. Certain higher
operating costs for the Town to provide sewer system operations and maintenance are largely unavoidable. Currently the Town sewer maintenance program is based on paying 4 full-time sewer
maintenance workers with.,· some part-time clerical and supervisory personnel costs, equipment and other as well as general administrative overhead. The Town has cross-training
for other Public Works department employees to provide enough personnel to provide 24-hour, 365 per year emergency response service. The Town also requires a certain number
of vehicles and equipment necessary for sewer maintenance. None ofthese costs can be considered excessive, particularly for an equivalent-sized 'stand alone' sewage collection system.
However the district has the advantage ofsize and geographic proximity that would result in the elimination of a number ofduplicative costs under the Alternative} service model. Comparative
cost details are summarized at the e:g.d ofthis report. The district's chief comparative cost advantage is reduced staffing requirements. The district woUld not more than
tWoadditional trained workers to provide full collection system operation and maintenance for Los Gatos. Ullcler Alternative 3, redundancy oftrained maintenance
staff is not an issue and would actually increase for the district as a whole. The district also has a sufficient amount of sewer cleaning equipment to provide Los Gatos coverage as
well. Other district costs, including supervisory and administrative support and general overhead, would not in<;rease with implementation ofAlternative 3. Cost Equity under. Alternative
1. Town staffhas been supportive of efforts to find creative ways to reduce operating costs for sewer system operations. For instance the Town is.willing to utilize the district software
system (GBA Master Series) sewer maintenance scheduling and work order tracldng.Implementing this system in the Town would facilitate development ofunifonn performance
standards and provide 2
continuous feedback on level ofservice objectives. It could also be used to reimburse the Townfor sewer system work based on district-wide full overhead rates for each type of . operation.
While a performance-based reimbursement system would ensure cost equity under an Alternative 1 agreement, it could actually cost the Town more to provide the service than the· amount
reimbursed because of the factors previously discussed. The Town and the district have explored the possibility of sharing major sewer cleaning and/or repair equipment. Both agencies
have some equipment redundancy and underutilization for certain equipment. For instance, the district has recently purchased a new 'continuous power redding' machine which could provide
all the power rodding necessary for the entire district including Los Gatos. The major hurdle for developing a 'time share' arrangement with Los Gatos for this expensive piece ofequipment
is insurance coverage and liability. Our insurance would not cover non-district employees using district equipment. On the other hand, ifthe district was to provide all power rodding
services in Los Gatos it could seriously undermine the intent ofAlternative 1 whereby Los Gatos personnel would continue to provide all sewer maintenance within the Town. To ensure equity
of service under Alternative 1 will require an agreement that stipulates not only performance standards and level of service objectives but uniform reimbursement rates for each type
ofservice that apply throughout the district. The problem for the Town with such an agreement would be the real possibility ofcosts exceeding reimbursement because of inherently higher
overhead. Unless subsidized by the Town's other revenues the only potential solution, without decreasing level of service, would be a surcharge added to the sewer use fee for all Los
Gatos sewer connections. As discussed in the legal white paper this action would require compliance with Proposition 218 procedures. Public perception regarding paying a higher cost
for the same service as residents ofMonte Sereno, for instance, could make it difficult to pass such a measure. RESPONSIBILITIES AND LIABILITIES. . In general terms, the 'clear delineation'
of responsibilities and liabilities applies only to Alternative 1 because all responsibilities and liabilities would ultimately be assumed by . the district under Alternative 3. Therefore
the intent of this section ofthe report is to focus on certain and liability issues under an Alternative 1 agreement. At the same time it is understood that
much ofthe legal implications ofvarious liability issues have already been addressed in the District Counsel's white paper. Responsibility Considerations. The existing
between the Town and the district is not too explicit about enumerating the specific responsibilities of each agency. Over the years this has occasionally resulted in some confusion
and lack of customer satisfaction. For many years recurring wet-weather sewer overflows on Main Street in Los Gatos were considered a Town maintenance problem. Repeated customer complaints
finally resulted in the district undertaking an engineering study ofthe entire basin. The results of that study led ultimately to the complete reconstruction ofthe sewer system in 3
that basin. This'example is related here to underscore the problems that can occur with a division ofresponsibilities coupled with a lack of good COmrtlunication and coordination procedures.
Both the :Brown and Caldwell report and the legal white paper discUss the ramifications ofpending 'CMOM' regulations for owner/operators ofpublic sewer systems. For this reason it is
expected that a new agreement based on Alternative I would need to he very explicit in defining responsibilities. In addition to assigning tasks for various aspects of collection system
services to one or the other agency, the agreement would need to specify such things as standard operating procedures for each maintenance activity. Both agencies would need to be responsible
for increased record keeping and increased public outreach as well as defining and tracking performance objectives. A key component of the new regulations is an agency-specific written
'sewer system management plan' or SSMP. The SSMP has eight basic elements including everything from. 'goals' and 'legal' authority' to 'system evaluation and capacity assurance.' Some
elements ofthe SSMP would be identical for both agencies, however other parts would need to be specific for the Town only. In addition to the written SSMP, an annual report ofactual
collection' system performance and an update on SSMP implementation will be required under the new regulations. ' In summary, delineation ofresponsIbilities in an Alternative I-based
agreement would be extremely detailed and very complex. Although utilization ofnew technologies the district's maintenance scheduling software would help to enable better
coordit;uitionand communication between the two agencies, continuing vigilance by both jurisdic#ons would be necessary to ensure regulatory compliance. This could result in some degree
of overlap in services in order to prevent,any gaps from occurring. The agreement would also require updating on a regular basis to include any new regulatory requirements. Finally it
is a a certainty that pending CMOM regulations will add a cost to 'collection system operation even for agencies that are in total compliance. Under an Alternative I agreement the duplicative
SSMP and annual reporting cost will add to the pre-existing duplicative service costs for the Town ofLos Gatos and increase the potential cost equity gap comparative to the rest ofthe
district. LiabilitY Considerations. The legal white paper discusses the liability problems that could arise under an Alternative 1 agreement. Generally, delineation ofresponsibilities,
,as disctlSsed above, , should also be sufficient to setthe limits for liability under a well-written indemnification clause. However District Counsel contends that "the most comprehensive
indemnity clauses cannot address every unforeseen eventuality." This is certainly trUe, but it is also true that the district has to assume risks for 'unforeseen eventualities' every
day as an unavoidable condition inherent in the sewer business. In order to make a case for an an Alternative I agreement it is necessary toexamme what level of liability exposure the
district can accept and determine if an agreement can,be crafted to suit. 4
. I Many ofthe questions that counsel raises concerning assignment ofresponsibilities, whether for pipe ownership, maintenance, or a deteriorating system can be assigned to one or the
other agency in an agreement. Essentially all aspects of the design, construction, repair, maintenance and operation of a pipe network can be analyzed in detail and allocated to a specified
agency as the responsible party. Again as stated in the previous section, it would result in· a very complex agreement. However the liability exposure that is the most problematic in
an Alternative1 agreement is associated with third party lawsuits for potential regulatory compliance violations. Before addressing this issue in more detail a brief overview of what
is currently taking place in California is in order. State and Regional Sewer Regulation and Local Liability. The federal CMOM regulations have been pending for the last five years and
haveyet to be issued. However, as is usually the case with environmental regulations, California is taking the lead and promulgating its own variations ofCMOM around the state. 26 local
agencies in Orange County were issued a joint collection system GWDR permit in 2002. Fast growth coupled With aging infrastructure and resulting sewer overflows led to the first NPDES
permit in California issued for a collection system in the City ofFolsom the same year. A year later the City of San Diego was issued a similar permit; Here in the Bay Area the Regional
Board.has partnered with the Bay Area Clean Water Agencies (BACWA) to develop a standard internet-based sewer overflow reporting system, and develop regional SSMP guidelines. According
to their current schedule the Regional Board will also issue Section 13267 letters to all 106 local agencies that own or operate a sewer collection system in the fall of this year. A
'13267 letter' is a request for information and is very specific in asking for all the details ofeach agency's sewer operations. Non-compliance with the request is not an option. . .
Even more troubling for local sewer agencies are some recent citizen lawsuits that have been filed under the Clean Water Act. The City ofPacific Grove in Monterey County recently settled
such a suit filed by a local environmental group. The suit was filed because the city had experienced what was considered by the plaintiff to be an excessive number ofsewer system overflows.
The consent decree sets a compliance schedule for what is essentially a CMOM-based program. That is a reasonable outcome, except that the city is also required to pay $300,000 for the
plaintiff's attorney fees and costs, as well as a further $250,000 for specified supplemental environmental projects. In the last week of April ofthis year the City of Oakland was also
issued a consent decree based on a similar sewer overflow lawsuit. Given that Section 13267 letters are public information, the potential for these kinds ofcitizen suits could increase
dramatically in the next year or two allover the Bay Area. Limiting District Liability under Alternative Alternative 1. To ensure that the district does not assume unreasonable liability
in an Alternative 1 scenario, the agreement would need. to stipulate the following 'conditions: 1) all sewers within the Town's jurisdiction, except for those specifically built or rehabilitated
by the district, are owned 100 percent by the Town; 2) the Town is fully responsible for the operation and maintenance of all sewers within their jurisdiction, including those built
or rehabilitated by the district; 3) the Town5
is fully responsible for all repairs to sewers within their jurisdiction; 4) the Townis fully responsible for all sewer back-ups, surcharges, stoppages or overflows except for
those caused by a lack of capacity as confrrmed by an.engineering hydraulic analysis;·5) the Town is fully responsible for complying with all existingand future regulations ' affecting
local sewage collection systems; 6)theTown fully indemnifies the district from. all legal actions, suits andjudgIllents brought against the Town for any cause concerning the operation,
maintenance, repair
or regulatory compliance of the sewer system within the Town's jurisdiction; and 7) the Town has the duty to defend the district at its own cost against all legal actions, suits and
judgments concerning the operation, maintenance, repair or regulatory compliance ofthe sewer system within the Town's jurisdiction. Another potential liability consideratioh cOllcerns
marking ·sewer locations when other construction is scheduled in the right-of-way or adjacent to a public sewer main or lateral. Current Underground Service Alert (USA) regulations do
not require the marking ofnonpressurized pipes, howeverthe district responds to all USA.requests within the district, except for the Town, in order to ensure that various construction
activities do not inadvertently cause damage or non-approved repairs made to district sewers. Such' damage can go undetected for a considerable time before a potential problem occurs.
The simplest way to limit the district's liability for underground construction-caused.sewer. damage within the Town is to make ita condition ofthe agreement that the Town will mark
all public sewers according to USA gmdelines and assumes full responsibility for any construction-related damage to the system within their jurisdiction.·' For its part the district
would continueto be design and inspection of sewer improvements, maintaining sufficient capacity for existing and future, sewer users,
televising sewer basins, and scheduling and constructing sewer rehabilitation ·projects for reaches ofpipe that require more than afew point rep$"s. The . would
also need to stipulate that any reach ofpipe identified as needing rehabilitation or. replacement was still the Town's responsibility to maintain in workip.g condition until. the new
construction took place. . Summary of Liability Issues. An can writtellthatlimitS.the district's. liability based on a very detailed allocation ofresponsibilities
between the two agencies and strict indemnification language. -At the same time it is an unavoidable fact that in addition to the ongoing risks and liabilities that are inherent in the
ownership.and operation ofasewer system there are new.and increasing liabilitiesassocia.tedwith both existing environmental'law and emerging regulations. Regardless of strict liability
aJl<:l 'duty to defend' provisions in a new agreement, the district could face risks associated with legal interpretations ofthe fine line between each agency's contractual responsibilities.
As expressed in the legal white paper this situation "may put the District andthe Town of Los Gatos on opposite sides ofthe table." There is als() a high probability that the district
may be issued a separate NPDES permit within the next few years. Under an Alternative 1 agreement such a permit "creates an uneasy dichotomy between the control of system and
the ultimate responsibility for how it is maintained." As stated earlier, the district has to assume responsibilities for unforeseen 6
eventualities every day, but the question for both the district.and the Town is how much risk should be taken for known and/or likely eventualities? CUSTOMER IMPACTS. The Brown and Caldwell
report examines several 'implementation issues' for each ofthe alternative service models. One ofthose issues was 'customer convenience' which the consultant interpreted only as "having
a local office to visit to obtain permits." By this definition the consultant concluded there was no difference between Alternatives 1 and 3. However the real customer convenience issues
to be considered when comparing the two service options relate to response to service requests, reliability of service, emergency response procedures, and customer satisfaction with
service provided. It is a fact that residents of Los Gatos give the municipality very high marks for Town-provided services. Also the Town has prided itself on being (nearly) a full
service community with Town staffproviding a broad range ofmunicipal services. Under an Alternative 3 arrangement the district would need to take extra care to reassure Los Gatos sewer
customers that service response and reliability would in no way be diminished. It should also be noted that customers in the other areas served by the district have been very satisfied
with the professionalism and helpfulness ofdistrict staff and the timeliness of service provided. Over the years most ofthe customer problems the district has experienced have been in
Los Gatos and are more often than not the result of confusion concerning agency responsibility. As previously discussed, an Alternative 1 agreement would need to be written carefully
in terms of allocating responsibility and minimizing potential customer dissatisfaction. However it is still possible that future customer problems would occur. Overtime agency personnel
and practices change, and the intent of certain provisions in an agreement are forgotten or interpreted differently. It would require continuing diligence, year in and year out, to ensure
each agency was fully cognizant ofits . responsibilities under an Alternative 1 agreement to minimize customer impacts. ORGANIZATIONAL IMPACTS. The Brown and Caldwell report states that
"Each alternative will require some degree of organizational change for the Town and the District because of shifting responsibilities and CMOM/SSMP practices." The report notes that
Alternative 1 would impact the Town more than the district due to the "small size of its current sewer maintenance staff' and enhancements to existing operations necessary to meet CMOM
standards. This is arguably correct. However in considering Alternative 3, the report ignores the actual organizational impact on the Town, stating that ''the Town would simplify its
organization by eliminating sewer maintenance." Based on the current Town organization chart there are 10 positions (1 vacant) in the classifications of traffic, street and sewer maintenance.
Four ofthese full-time positions are included in the Town's sewer maintenance program and paid for under the existing agreement with the district. Given the area within the Town's jurisdiction
relative to the number ofmaintenance staff, it can be assumed that street and sewer maintenance workers are often used interchangeably based on work priorities. Four maintenance workers
may spend most oftheir work time 7
on sallitary sewers, but it is likely that if funding was cut for these positions under Alternative 3 it would result in some impact on other maintenance functions in the Town. Certainly
Alternative 3 has the most orgallizational impact ofthe two service options under consideration for both agencies. However it can also be said that these impacts are relatively short
term Innafure and would be addressed in a transition plan. Conclusion , Alternative 1,' has the advantage ofthe least organizational impact iII the narrow seIlSe of the term, that is
as applied to current staffing and work assignments in both the Town and the district. In a broader context the orgallizational impact ofthis service option could be substantial for
both agencies. In addition to rileetingthe: challenge ofenhancing servIces to satisfy neW regulatory requirements, the Town is likely tdexperience a funding shortfall due to unavoidably
higher costs compared to equity cost ofservice iIi ,the rest of the district. Imposing a service surcharge for Town sewer,users to correct the shortfall could have further detrimental
impacts for the district as wellas the Town. Strict liability provisions under an Alternative 1 agreement would be onerous for the ToWn in the event ofa third party lawsuit for anything
from property damage claims to Clean Water Act violatioIls. For the district, Alternative 1 demands effort in the short termto develop a new agreement that would ensure
Uniform performance standards, service and cost equity,,'and strict liability provisions, as well as the continuing effort to sustain .all agreement provisions over the long term. At
the same time the continuing division ofresponsibilities coupledwith increasing regulatory risks wouldalways presenJ aliability challenge to the' district. In addition, there remains
the strong likelihood that the district will be issued an NPDES permit for the area within our jurisdiction. This eventuality would place the district in the uncomfortable
position ofbeing the responsible party for permit compliance without the corresponding authority to directly control all sewer operations. , " ) Alternative 3 presents new challenges
for both agencies. It would require a carefully considered transition plan to ensure success. However it has certain long term advantages for the Town as well as the ,district The Town
would be freed from all future liability associated with owning and operating asewer system. The Town would also be released from an increasingly difficult regulatory burden. Alternative
3 woWdallow the districtto stabilize its risk and would ensure future service equity throughout the entire service area. Compliance with CMOMfSSMP standards and any other future wastewater
regulations is unavoidable for the district because wastewater collection and disposal is our sole purpose as a public agency. Based on all available data and considerations for the
future, Alternative 3 is the best service option for the district. District management strongly recommends that the Board ofDirectors support this option for future long terIll sewer
operations in the Town ofLos Gatos. Recommendation 1. After discussion, note and file this report. 2. Adopt AlternatiVe 3 as the preferred service option for further negotiation arid
agreement with the Town of Los Gatos. 8
Comparative Cost Data Overview. A consultant (Lorick Associates) has developed a performance-based work planning and budgeting tool for all operations provided by the district. The inputs
into the program include employee pay rates, equipment costs, materials and supplies, in addition to all infrastructure inventory such as lineal feet of sewer mains, number ofmanholes
and number of service connections. Based on actual district operations and experience, each separate work activity is assigned an average daily production rate (ADP), a crew size, and
an annual goal amount or estimated annual work quantity. Using all ofthese inputs the program calculates crew days, total labor days, and all labor, equipment and material costs for
each work activity. Labor costs can be calculated using one oftwo overhead rates. For all work activities conducted by the district the overhead rate is based on 'avoidable cost.' The
avoidable cost overhead rate is considered the standard preferred method for comparative cost analysis, benchmarking, and outsourcing evaluation for the public sector. Estimated District
Costs for Los Gatos Sewer Operations. The projected work plan for comparing district operational costs for Los Gatos inc1tides.20 work activities grouped in eight different 'management
unit areas' (Administration, Rolling Stock, Sewer Main Cleaning, etc.). The projected total of432 labor days for all work activities can be used to derive the actual number of 'Jull
time equivalent' employees needed for the work assignments. The result is 1.66 FTEs. One ofthe advantages of the district's operational budgeting tool is the ability to compare actual
work performance with goal amounts. A good example is 'HVC cleaning' of sewer mains which is the largest single activity category in district operatioIls. The assigned ADP is 5000 lineal
feet for a tWo person crew. Actual district ADP for this activity in the 10 months beginning July1 and ending April 30 is 5214 feet. This kind ofcomparison confIrms that input parameters
are realistic and goals are achievable. Using current district costs and applying the 'avoidable cost multiplier' of220.82 percent to district labor rates, the estimated total cost for
completing all annual work activities in Los Gatos is $191,286. Applying projected cost changes from the district's Proposed Budget for Fiscal Year 2004-05 increases the total cost to
$204,125. This fIgure can be compared directly to the Los Gatos Sanitary Sewer Maintenance Program proposed budget of$543,590. Under an Alternative 1 each Los Gatos
sewer connection would need to pay an average annual surcharge of $28 (plus notifIcation, hearing and tax roll costs) to avoid subsidization, or service" cost inequity, during the coming
fIscal year. Projected operational cost savings under Alternative 3 is $339,465 annually. 9
AGENDA ITEM NO. J S//9jOlf Law Offices of Charles T. Kilian 10320 S. De Anza Boulevard, Suite 1-D. Cupertino. California 95014· Telephone (408) 777-3403/FAX (408) 777-3401 CbMles T.
KiJism Eileen H. Murray White Paper General legal issues surrounding Option 1 and Option 30f the Brown and Caldwell Report: Assessment and Analysis of Public Sewer . System Operation
and Management -April 2004 Summary: This report examines legal issues implicit in Option 1 and Option 3 of the Brown and Caldwell report. Because no actual controversy exists this paper
merely touches on the potential legal questions that may arise. As negotiations proceed, more specific legal issues may evolve, which will be examined in supplemental papers atthe request
ofthe board. At the outset, there is no apparent legal impediment to either of these options. The only obvious restriction to Option 1 is Health &Safety Code § 4742.4, which limits a
long-term contract of this kind to fifty years or less. Background: In 1988, County Sanitation District No.4, formed in 1948 under the provisions of the County Sanitation Act (Health
& Safety Code § 4700 et seq.), became the West Valley Sanitation District of Santa Clara County, a name change that reflected its service area. While over time the original size of the
districtwas reduced by annexations of some of the unincorporated areas into the City of San Jose, the population burgeoned. Currently the West Valley Sanitation District serves a population
of 118,500 and encompasses 18,477 acres. The current wastewater collection . system maintained and operated by the District includes 429 miles of sewers lines. 1 ATTACHMENT 2
. . West Valley Sanitation District provides wastewater and collection and . disposal services for the cities of Campbell, Monte Sereno, los Gatos, most of Saratoga, and the intervening
unincorporated areas of the County. The Town of los Gatos operates its own collection system under an agreement with the District whereby the District reimburses the Town for its sewer
operating and maintenance costs. The agreement betweerl the Town of los Gatos, which dates back to 1977 will expire on June 30, 2004. Recent increases (as high as 65%) in the costs of
sewer maintenance for the Town of los Gatos have triggered a cost analysis study by the District and the Town. With the agreement about to expire, the parties are closely examining the'
cost increase impact on the development of a new long-term operating agreement The governing boards of both the Townpfi.:.osGatos<aod the West Valley Sanitation District are giving thoughtful
consideration as to whether the . Town should continue to retain the maintenance and operational responsibilities or whether they should pass them fully to the West Valley Sanitation
District. Under discussion are the increased costs to los Gatos, possible inequities for other sewer rate payers, and potential liabilities and responsibilities. Inherent in all discussions
regarding a long-term operations agreement are the potential effects of new state and federal regulation. I;fforts to promulgate a federal sanitary sewer overflow (SSO) regulation unde(
the Clean Water Act (CWA) have been ongoing. The U.S. Environmental Protection Agency (EPA) has proposed a draft regulation, which is currently under review. The draft EPA rule contains
four principal components: (1) apr()posed capacity, management, operation and maintenance (CMOM) standard permit .condition for sanitary sewer collection systems (to be in
40 CFR 122.44(e»; (2) the proposed prohibition against discharges from sanitary sewer collection systems (to be codified in 40 CFT 122.44(f); (3) proposed permit requirements for satellite
collection systems (to be codified in 40 CFR 122.38); and (4:) proposed ,stc:lOdard permit conditions for reporting, public and -·publiG' recor9keeping·-for sanitary-sewer-syst
ems·and SSOs.(to be codified in40 CFR 122.44(g». The CMOMstandards appear to be an .attempt to go upstream with regulations that currently only affect dischargers through their NPOESpermits
to reach collectors and others with liability regulation and enforcement that could include fines, civil and possibly criminal prosecution with almost no viable affirmative defenses.
The new regulations will affect West Valley Sanitation District as a collector. If it will affect the Town of los Gatos in .its currently. limited role is unclear. If los Gatos takes
over the entire system and West Valley. Sanitation District de-annexes that portion of the district, los Gatos will become sUbject to the CMOM regulations, liabilities and enforcement
policies. 2
While the final draft of the proposed regulations is yet to be finalized, it is sure to become effective during the term of any long-term agreement entered into by West Valley Sanitation
District and Los Gatos. In anticipation of new federal regulation and, in addition, facing increased costs for sewer services in Los Gatos creating possible inequities for other District
ratepayers, the Town of Los Gatos and the District retained Brown and Caldwell, a consulting firm, to do an analysis of the current sewer operations and to provide options for the future.
The recently completed study offered four possible scenarios for providing sewer services in Los Gatos: 1) Los Gatos would continue to provide maintenance services and the District would
provide other services. 2) Los Gatos would take sole responsibility for Los Gatos sewers. 3) The District would take sole responsibility for the entire service area including duties
currently provided by Los Gatos. 4) Los Gatos would take sole responsibility for its sewers sewers butmost of the work would be outsourced. These options were reviewed at the Districtboard
meeting on April 14, 2004. At that time it was determined that the Town of Los Gatos preferred Option 1 or Option 3. Originally, this office was enlisted to examine the legal ramifications
of each of the four options offered by Brown and Caldwell. At this time we will consider the legal and jurisdictional issues in regards to Option 1 and Option 3. Legal analysis: Option
1: Los Gatos woul'(j continue to provide maintenance services and the District would provide other services. Option 1 closely resembles the current relationship between Los Gatos and
the District. Health and Safety Code § 4742 authorizes the District to join with other districts, cities or government agencies in the purchase, ownership, use, construction, maintenance
or operation of a sewerage system either within or without the District. Pursuant to this statute, Los Gatos and the District entered into a loosely drawn agreement in 1977 for the operation
and maintenance of the los Gatos sewers. In 1991 the agreement was amended to add changes in procedures regarding the Town sewer system operation, funding of sewer extensions and replacement,
and staffing at each agency. In 2001 the agreement was extended and amended. At this time a mutual indemnification clause was added to the agreement. Further, according to the 2001 agreement,
in light of fact that, "pursuant to the Federal Clean Water Act, the United States Environmental Protection Agency is in the process of promulgating new regulation for the operation
of public sanitary sewer systems" and because Town and District intended to "analyze current and projected costs of sewer service 3
I and determine how best to provide Town sewer users with the most costeffective service after said regulations are in effect" the agreement was extended to finally terminate on July
1, 2004. This is the state of the Agreement today. Effect of New Federal and State Regulations As previously stated, the anticipated new regulations for the operation of public sanitary
sewer systems have not yet been promulgated except in draft . form. However, the draft federal sanitary sewer overflow (SSO) regUlation does outline the Environmental Protection Agency's
position with regard to SSOs, which would be categorically prohibited and could only be excused through the exercise of "enforcement discretion" (in emergency·situations when there is
no feasible alternative to the overflow) or on the basis of an extremely limited "'affirmative defense" (when caused by severe natural conditions such as hurricanes, tsunamis and earthquakes).
According to a "white paper" released by the Association of Metropolitan Sewerage Agenci.es (AMSA), in the draft the EPA claims that the prohibition would be a "technology-based limitation"
based on Clean Water Act § 301 (b), which prohibits discharges except in compliance with the Act. The EPA notes that certain provisions in the construction grant regulation
require grantees to assure proper and efficient operation and . maintenance of treatment works and their associated collection systems. (See Draft ssa Rule preamble at 64, citing 40
CFR 35.925-10; 35.935-12; 35.2106; and 35.2206.) The EPA states that its legal basis for regUlating satellite collection systems "derives from the definition of 'publicly owned treatment
works'" which, according to CWA § 212(2)(A) includes "any devices and systems used in .the storage, treatment, recycling and reclamation of municipal sewage or industrial wastes of a
liqUid nature including... intercepting sewers, outfall sewers, sewage collection systems " The AMSA white paper states that EPA's intention is that the CMOM provisions in the Draft
ssa Rule would be implemented throughout the entire publicly owned treatment works, which is "defined to include the POTW treatment plant and collection system." While the EPA draft
is under fire as a flawed document, it is clear thatthe intent is that new regUlations, whenever they are promulgated, will reach CIS far as possible to include every agency with an
interest in a publicly owned treatment works. Even though the EPA regulations are still in draft form, the State of California is moving ahead with CMOM-based regulations for all collection
agencies·. New California regulations, already promulgated in southern California, may be statewide as early as the Fall of 2004. At this time, the California regulations are considered
guidelines with some reporting requirements. No permits are being issued at this time. the legal implications of the new state regulations are not currently ascertainable,
it is expected that in the very near future they will be more comprehensive and more restrictive than they are today. 4
With this in mind, the effect ofthe proposed regulations on both the Town of Los Gatos and West Valley Sanitation District is of crucial importance when considering a long-term operational
agreement for sewer service. It is imperative that any new agreement between Los Gatos and the District provide the strictest delineation of duties and responsibilities and the broadest
protections for each agency. Alternative 1 offered by Brown and Caldwell has suggested that Los Gatos' normal maintenance duties be expanded to include repairs normally performed by
sewer maintenance crews and outsourced to local contractors. According to Brown and Caldwell, 'With this modification of work, the responsibility and liability of SSOs could be more
easily delineated with the Town responsible for all dry weather SSOs/stoppages and wet weather SSOs related to roots, grease, and other problems except flow. The District would be responsible
for ensuring hydraulic capacity in the collection system." A precise delineation of responsibilities will help identify SSOs and prevent both agencies from getting caught up in a morass
of State and Federal reporting, recordkeeping, penalties and fingerpointing. Federal penalties for violation of the Clean Water Act can be severe. Section 309 of the Act sets out the
factors for determining the appropriate type and amount of penalty for violations. 33 U.S.C. § 1319. Criminal, civil, or administrative penalties may be imposed. Each day of a violation
is considered a separate offense for the purpose of assessing penalties. Civil and criminal penalties are imposed in civil enforcement proceedings in United States District Court for
the district in which the defendant is located or resides oris doing business. 33 U.S.C. § 1319(b). Criminal penalties may be sought for negligent or knowing violations, or violations
that consist of knowing endangerment. 33 U.S.C. § 1319(c). Under the Clean Water Act, simple negligence can subject one to criminal penalties. See United States v. Hanousek, 176 F. 3d
1116 (9th Cir. 1999), cert. denied 528 U.S. 1102 (2000). Criminal penalties range from fines of up to $50,000 per day and imprisonment terms of up to 15 years. In theory, corporate officers
can be held personally liable for criminal.acts _committed _by_subordinates without their knowledge. (California Land Use and Planning Law, 24th Ed., Daniel J. Curtin at 188.) Civil
and penalties are equally onerous with fines reaching a maximum of $27,500 per day for each violation. A Surcharge to Balance Inequities Los Gatos has had
significant cost increases over the past few years that exceed the costs for services in the rest of the District. It has been recommended that the Los Gatos users pay for their proportional
share of District provided costs and all of the Town's maintenance costs. This would be accomplished with a surcharge for Los Gatos customers. A surcharge of this nature is, arguably,
a property related fee subject to the Proposition 218 5
. .... . .... I • procedures for the imposition of such fees. NotablY,requiririg notice and a public hearing. It has been a District policy to treat all users iri similar circumstances
the same. Los Gatos users may object to a surcharge because the service they receive is the sarneservice that any other resident in the district receives. Without the surcharge for Los
Gatos users the increased cost would be spread districtwide, and District customers outside the Los Gatos service area would, in effect, subsidize the Los Gatos system. No solution other
than the surcharge has been presented for balancing this inequity ofcosts. Responsibility for Civil Liahility Civil liabilities for a failing systern may result in lawsuitS claiming
causes of action for negligence or other tO$ or claims of inverse condemnation. The Government Code states, 'Whenever any public entities enter into an agreement, they are jointly and
severally liable upon any liability Which is . imposed by any law other than this chapter upon anyone of the entities orupon any entity created by an agreement for injury caused by a
negligent or wrongful act or omission occurring in the performance of such agreement." Government Code § 895.2 However, there is some protection offered by Government Code § 895.4 which
states that, "As a part of any.agreement, the pUblic entities may provide.for .contribution or incjemnification by any or all of the public entities that are parties to the agreement
upon'any liability arising out of the performance of the. '..••.... agreement." Pursuant to this section, the 2001 Amendmentto the agreement between'Los Gatos and the District added
a mutual indemnification clause to the' agreement for the first time... Delineation of responsibilities and duties will helg insure that; if and when the need arises, indemnification
is appropriately applied. Nevertheless, even the most precise division of responsibilities and the most comprehensive indemnity clauses cannot address every unforeseen eventuality. Given
the physical state of the system, even the agencies themselves may be challenged to ascribe responsibility. If, for instance, a .leak should occur causing damages to property owners,
will the follOWing questions be answerable? Who owned the pipe? Who was.responsible for maintenance? Is . it leaking because the system is antiquated? Was someone negligent, careless
or did the pipe just wear out? The District, as the holder of the NPDESpelTIlit, has·more exposure regarding
both civil liability and regUlatory compliance. The Brown and Caldwell recommendation for the delineation of duties separates the District from the day-6
to-day maintenance duties. At first glance this appe'ars to offer some insulation to the District for possible CMOM violations and penalties. In fact, it creates an uneasy dichotomy
between the control of the system maintenance and the ultimate responsibility for how it is maintained. This disconnection. could be remedied in the agreement by giving the District
oversight of the system, a remedy that, in tum, defeats the objective of the separation of duties. ' Option 3: The District would take sole responsibility for the entire service area
including duties currently provided by Los Gatos. Under this option the existing agreement between Los Gatos and the District would not be renewed· or extended and Los Gatos would no
longer perform collection system maintenance. Transfer of Assets The District is authorized to accept the transfer of the Los Gatos collection system by the Health &Safety Code which
states, "The district may acquire by gift, purchase, condemnation, or otherwise, in the name of the district, district, and own, control, manage, and dispose of any interest in real
or personal property necessary or convenient for the construction, maintenance, and operation of a sewerage system and sewage disposal or treatment plant. ..." (Health & Safety Code
§ 4740.) Under Option 3 the District would take ownership of the entire sewer system including the portion of the system now belonging to the Town of Los Gatos. As cited above, adding
this portion to the District's system can be 'accomplished in several ways, most commonly by purchase or gift. Valuation of the system is complicated by the fact that some of the system
___ is _over fifty years old and much of.the system is inadequately mapped. It must be determined whether or not some of the system is depreciated out and has no value at all. Due to
the age of the system, the District, if purchasing the system, may wish to require some period of warranty, to insure the system's fitness for its ordinary purpose. A warranty would
protect the District in the event event that, soon after the transfer, the system failed. However, it would be unusual to warrant the system if it is gifted to the District. Transfer
of the system would include transfer of all rights-of-way and all easements, which would be recorded to the benefit of the District. If the agencies cannot reach an agreement on either
Option 1 or Option 3, or some variation thereof, the District can, with some preparation, pursue Option 7
3 by initiating an action in eminent domain.' (CCP § However, tha(is a discussion for another day. Regulatory compliance and civil liability The District, as owner,
operator and manager, would accept responsibility for compliance withCMOM and other state and Federal regulations fOr the entire Los Gatos sewer system just as it does in the rest of
the district. .. . If the District had ownership of the entire Los Gatos sewer system, the District would accept liability for any claims ·forinjury or damages arising out of or caused
by District's sewer maintenance in Los Gatos. Conclusion: While there is no legal impediment that prevents either of the options discussed herein, Option 1 has more potential for legal
issues,some remedial, some more challenging. Even a very carefully.drafted agreement will not anticipate every unforeseeable legal issue, some of which may put the District and the Town
of Los Gatos on opposite sides of the table. ' Along term agreement entered into at this time will be finaliZed _priodotfte actual enactment of crucial Federal regulations that may affect
the the parties. The drafters ofthe agreement can speculate on what the finai':' fe;· regulations will be and try to tailor the agreement to cover all contingenCies.
Prior to drafting theagreement the District and the Town of Los Gatos will have to address the conundrums of the surcharge and the delineaticm ot-dutles. If, under Option 3, the District
assumesownerSl1ip oHl1eentireseWer system,it also assumes all the liability for a system with several unkn0y/fls. Parts of the existing Los Gatos system. is antiquated and in poor repair.SofTle
of the system is unmapped. Easements to be verified, corrected or renegotiated..... - ,.._.. .' The District may also need'additional
staff and-equipment immediately upon taking on·Los Gatos' 12,300 connections. However, for the District these problems are not insurmountable: The . District routinely deals with similar
problems in the rest of the district. With over 50 years of sanitation district management experience, the District is eminently qualified to take CJver the Los Gatos system' ... 8