ITEM:		PRESENTATION
3.	REVIEW COSTS AND METHODS FOR ALTERNATIVE USER FEE COLLECTION
Meeting Date:			March 28, 2012	Budgeted:	N/A
From:			David J. Stoldt, General Manager	Program/	Personnel and Services & Supplies
				Line Item No.:
Prepared By:			Suresh Prasad	Cost Estimate:	Vary Based on Option
General Counsel Review: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: Currently, the District is unable to collect its User Fee as a pass-through charge on California American Water Company (“Cal-Am”) monthly water bill. The District must find an alternative method to bill and collect its User Fee. At the February 23, 2012 Board Meeting, the Board approved a contract to hire consultant to develop a rate study which will provide support for the Proposition 218 hearing process and provide public documentation and support for the allocation of District costs to parcels. The Consultant will allocate water usage by parcel type and category, using industry accepted usage factors and meter sizes, and assigning the fee based on type of property. After the completion of the rate study and acceptance by the Board, the District will be required to either direct bill the property owners and customers or levy the charges through the Monterey County Assessor’s Office on the assessment bill.

RECOMMENDATION: The Board to review the options available to the District to levy the charges to the property owners.

BACKGROUND: The largest source of revenue in the District’s budget has traditionally been the District’s “User Fee”, which currently accounts for approximately 46% of MPWMD’s overall budget. Through a recent CPUC decision, the District’s ability to collect its User Fee has been impaired. Failure to reinstate the User Fee will result in the District suspending environmental and water supply development programs and possible lay-offs and/or furloughs.

The District has collected a User Fee from Cal-Am customers and other water system customers continuously since 1983. The District has adopted 14 ordinances since then, modifying and adopting the User Fee at different levels for different purposes. This fee is allocated based on actual water use. It is shown on Cal-Am water bills and also on bills from the Seaside Municipal Water System and the Pebble Beach Reclamation Project. The User Fee has been expressed as a percentage of meter and water charges. The User Fee was set at 8.325% of a customer’s water bill when it was suspended.

At the February 23, 2012 Board Meeting, the Board approved a contract to hire consultant to develop a rate study which will provide support for the Proposition 218 hearing process and provide public documentation and support for the allocation of District costs to parcels. The Consultant will allocate water usage by parcel type and category, using industry accepted usage factors and meter sizes, and assigning the fee based on type of property. After the completion of the rate study, acceptance by the Board and approved by ratepayers through the Proposition 218 process, the District will be required to either direct bill the property owners and customers or levy the charges through the Monterey County Assessor’s Office on the assessment bill.

Staff has identified several different options that could be utilized for collecting the alternate User Fee. The cost for the different options are outlined in Exhibit 3-A.

Option 1

This option assumes that the User Fees are collected through the Monterey County Assessor’s Office on the assessment roll. This is the most cost effective option identified by staff. This method is also considered a secure source of revenue for bonding requirements. The County charges a rate of ½ percent of the total collected amount. The District will not have to maintain separate Accounts Receivable Module to track the billing & payment information of individual accounts.

Option 2

This option assumes that the User Fees are collected by direct billing method but utilizing the services of a third party vendor to print and mail the statements. The third party vendor will print, fold, sort, insert, affix postage and mail the customer statements. By outsourcing this process, the District will experience savings of staff time, lower printing costs of invoices and envelopes. The vendor printed bar-coded envelopes will qualify for the lowest pre-sort postage rate available. Currently, the District does not have the staff or the equipment to perform this process in-house. This is a cost effective method compared to Option 3. Within this option, staff identified three different billing frequencies (monthly, bi-monthly and semi-annual). Each of the billing frequency costs is included in the attached Exhibit. This option also assumes contracting with a bank for their lockbox services to collect and deposit receipts. Staff feels that this option may not be as secure as Option 1 for bonding requirements. It is also anticipated that with this option, there may be a lot of uncollectible debt which would require additional noticing and ultimately placing on the Assessors Roll to lien against the property. This option will require the District to purchase, implement and maintain a separate Accounts Receivable Module to track the billing & payment information of individual accounts.

Option 3

This option assumes that the User Fees are collected by direct billing method in which the District will print and mail the statements. Within this option, staff identified three different billing frequencies (monthly, bi-monthly and semi-annual). Each of the billing frequency costs is included in the attached Exhibit. This option assumes contracting with a bank for their lockbox services to collect and deposit receipts. In addition, hiring of one clerical employee will be needed to fulfill the billing, printing and mailing tasks. Staff feels that this option may not be as secure as Option 1 for bonding requirements. It is also anticipated that with this option, there may be a lot of uncollectible debt which would require additional noticing and ultimately placing on the Assessors Roll to lien against the property. Additional equipment and stationary costs are anticipated with this option. This option will require the District to purchase, implement and maintain a separate Accounts Receivable Module to track the billing & payment information of individual accounts.

All of the options identified above will provide the District a greater control over its User Fee in order to ensure a secure funding source for its activities.

EXHIBIT

3-A Bill Print & Mail Analysis

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