The technology utilized for the Project is well recognized in the field. It is an expansion of treatment technology that has been utilized in the City and elsewhere for many years. No new features or treatment processes will be included. The improvements to the distribution system are, likewise, based on well recognized and accepted technology.

This Project is wholly technical in nature. It is proposed to carry out the work by following planning and construction procedures established by the City over the past years. Each phase will start with the issuance of a Request for Proposal (RFP). This document will be circulated among design engineering firms that had previously expressed an interest in working in the area. City Staff will carry out construction management with the assistance of the Design Engineer.

Quality Control of the engineering studies and design will be carried out by means of frequent consultation between City Staff, the Project Inspector and the Design Engineer. The Project Inspector will maintain detailed daily inspection records throughout the duration of the project. The City has established engineering standards over the years. Design will conform to these standards. The City also has operation and maintenance manuals that will continue to serve the proposed infrastructure. The City have operation and maintenance manuals that will continue to serve the proposed infrastructure. Present staff is totally familiar with the operation and control of the treatment methodology. No new technology will be employed.

The long term feasibility of this project will be secured by the subsidized construction of water service capacity serving both existing customers and needs of future development within the City’s sphere of influence service area. Both at present and in the financial feasibility projections over the next 25 years, the utility customers will provide full funding for utility operations and ongoing capital replacement expenditures. Nonetheless, even with the competent operations of the existing water treatment plant and distribution system, current facility deficiencies and inadequate service peak capacities require correction and expansion through capital funding that the existing community economy cannot provide without the Border Environment Infrastructure Fund (BEIF) grant assistance.

a. Financial Feasibility

As shown in table 4.2, financial feasibility for the project requires significant amount of grants. The North American Development Bank (NADB) along with the Border Environment Cooperation Commission (BECC) developed the financial structure for the project. In such structure, the NADB defined the grant amount needed from the Border Environment Infrastructure Fund (BEIF). The BEIF is composed of construction grant and transition funds, the allocation of construction grants for this project was defined in $3,000,000.00 and $3,477,320.00 for transition funds. Additionally, the City of Calexico has requested PDAP $190,000.00 funds for the Phase II and III final design. Approval of those funds is likely to occur when the project is certified by the BECC.

1) Financial Statements - Historical

As part of the assistance provided by the BECC through the PDAP technical assistance program, Kennedy Jenks, Inc. for the City of Calexico analyzed the financial statements for the past 5 years. As described in the report prepared by KJ, in FY Ending 1995-96 the Fund equity was approximately $3 million, with outstanding COPs of $5.8 million on undepreciated assets of $14.2 million. In FY 1995-96 the total charges for services were $2.3 million from 4,731 water customer accounts; there was a net increase in Fund cash of $434,329.

The City is audited annually by an independent auditor. The City’s General Fund is maintained on a modified accrual basis in conformance with the principles affirmed by the Government Accounting Standards Board. For all years shown, the Independent Auditor’s Report found that the City’s general and water enterprise fund statements present fairly the financial position of the City of Calexico in conformance with generally accepted accounting principles.

The projection of the water fund sources and uses for the 25-year life of the project loan was analyzed. For FYs 1997-98 through 2003-04 an annualized Pro forma was prepared; thereafter a projection of FY 2014-15 and FY 2024-25 in constant values shows the impact of increasing service area customers.

The revenue sources and uses are shown in a modified income statement format, with adjustments for depreciation, developer-based (capital facilities fee) revenues and capital expenditures incorporated instead of retained earnings. Non-operating revenues include grants, as well as the interest and principal portions of existing debt service expenditures. The annual revenue streams from the project, net of the costs of effective operations and maintenance, are significantly above the 1.2 ratio for the water utility’s annual debt service requirements for all projected years.

3) Financial Structure of the Project and NADB Analysis

The project consists of water treatment plant expenditures of $11.33 million divided into three phases through FY 2003-04, plus annual facilities replacement projects of $190,000. Moreover, grant funding of $1.2 million (net of City matching funds of $300,000), have been applied for from the Economic Development Agency.

On the other hand, the project is currently on the State of California Revolving Fund Priority List, but funding from that source has not been approved. The local share of project financing is from utility user fees. These revenues will be derived from an increase in water rates billed to customers, and from the projected increase in customers through population increases and scheduled annexation of the City’s service area. Table 4.2 shows the financial structure of the project.

As the Table 4.3 shows, the BEIF money is divided in construction grant and transition funds. The construction grant is going directly to cover portions of phase I of the project. The transition funds are provided to the project sponsor to alleviate the coverage of the debt service during the period necessary by the City of Calexico to raise the water rates. This means that such transition funds will cover part of the interest costs and payment of principal for the first six years after initiating the project. A period of six years has been defined as needed by the City of Calexico to adequate their rate to a level to support the project expenses.

The NADB analysis provided the disbursement calendar for the transition funds as shown in Table 4.4. This definition is based on cash flow projections, the final numbers may vary according to real figures on operating revenues and O&M costs.

4) Capital Improvement Plan/Budget

Table 4.1 itemizes the capital project expenditures. The projected expenditures are for the three phases of the project. All expenditures are for fixed assets that will be capitalized to the water utility fixed asset inventory.

The FY 1996-97 Capital Improvement budget includes capital replacement, additional expenditures associated with the upkeep of Phase I, II and III facilities, the existing water mains and a 1 and a 3 mgd treated water storage tank. The existing treated water storage tanks were built in the 1940s, and are projected to be replaced within the next seven years at an approximate cost of $1.5 million. Similarly, approximately 15 percent of the water mains are more than 60 years old as of 1997; these and additional pipelines will be in need of replacement in the next 25 years. Moreover, these long-term capital expenditures are estimated based on the available fund reserve levels at the projected utility service rate-based revenues.

5) Operations and Maintenance Budget - Historical

A five year summary of the FY 1991-92 through FY 1995-96 O&M actual utility expenditures is included in the report described previously. Moreover, the FY 1996-97 approved budget summarized for comparison with the expenditures of the prior five year actual expenditures. These summaries are based upon the City’s audited financial documents.

The water system has two primary sources of revenue. Monthly service charges pay for operations (including capital replacement and improvements) and repayment of debt. The second source of revenue is from connection fees collected at the time building permits are issued. This fee is used to augment other revenue sources for expansion-related costs, including capital expenditures and expansion-related debt repayment.

The pro forma projections are based on the FY 1996-97 budget, and incorporate the projected increases in water demands over the next 25 years, with utility administration and billing service cost increases are a function of the number of utility customers. The expenditure level is based on the FY 1996-97 budget for capital replacements.

7) Sensitivity Analysis

Sensitive variables, which may impact the financial viability of the project, include increases in project costs, rate of population growth, and reduced grant funding. The impacts of varying these elements is shown as the additional FY 1997-98 rate-based revenues from utility customers required in order to cover the changed variable. Under the nominal projected pro forma revenue requirement projection, annual rate adjustments are required of 10 percent and 2 percent for FY 1997-98 and FY 1999-00.

Other variables analyzed by the BECC and NADB include different loan interest rates and a 10 and 20 year payment period. As shown in the sensitivity analysis, a reduction in the level of grants, or an increase on project costs, could double to triple the nominal rate increase required from City residents in FY 1997-98.

8) Financial Break-Even Analysis

The City of Calexico Water Utility enterprise is self-supporting non-profit municipal service. The rate structure as recommended by the NADB and BECC, lists the utility rate-based revenues required to recover total costs, including O&M costs, capital-related expenditures, and funding of appropriate reserve levels. All revenues are based on the recovery of costs while maintaining minimally adequate reserves during the projection period through FY 2003-04.

9) Demographic and Economic Information of the Proposed Service Area

Demographic and economic information for the City of Calexico and the County of Imperial is shown in Appendixes A, B, and F. The City’s historical and current population is shown in the previously described Table 3.1; projected population and utility demands are shown in Table 3.2.

The City of Calexico is included in the Imperial County labor market area. The largest industry within the County is agriculture. The unemployment rate based on August 1997 data was 32 percent. Unemployment within the City was 41 percent, based on a civilian labor force of 9,940. Because of the high unemployment and large pool of unskilled labor, Calexico has become a prime target area for manufacturing and assembly plants. Several sites within the City limits are zoned for light industry, including a 66-acre industrial park being developed by the Calexico Community Action Council, Inc. There are 410 acres in the City limits zoned for light industry; about 40 percent is vacant with parcels ranging in size from 1 to 10 acres. An additional 168 acres within the City’s sphere of influence also is zoned for light industry.

Property taxes in California are limited to 1 percent of the full cash value, except for taxes to pay debt service on indebtedness approved by voters prior to 1 July 1978 and on debt service on bonded indebtedness for the acquisition or improvement of real property approved on or after 1 July 1978 by a two-thirds vote of the people. Yearly taxable value increases following the base year are limited to the growth in the customer price index, but may not exceed 2 percent annually. For assessment and collection purposes, property is classified either as "secured" or "unsecured," and is listed accordingly. The "secured roll" is that part of the assessment roll containing State assessed property and property on which a lien is sufficient for the County Assessor to secure payment of the taxes. Other property is assessed on the "unsecured roll."

The Imperial County Tax Collector collects secured tax levies for each fiscal year representing taxes levied for each fiscal year on taxable real and personal property which is situated in the County as of the proceeding April 1. Unsecured taxes are assessed and payable on April 1 and become delinquent on 31 August, in the next fiscal year. One-half of the secured tax levy is due April 1 and November 1, and become delinquent April 10 and December 10, respectively. A 10 percent penalty is added to any late installment. On June 30, delinquent properties are sold to the state. Property owners may redeem the property upon payment of delinquent taxes and penalties. If no payments are made at the end of five fiscal years the property is deeded to the state. Such properties may be thereafter conveyed to the County Tax Collector as provided by law. The City’s net combined total debt is 2.34 percent of adjusted assessed valuation.

b. Fee/Rate Model

Analysis was carried out by the NADB and the BECC including an evaluation of the current rate-based revenues from the City’s utility customers by user classes and water demands. The population projection is based on the Local Agency Formation Commission- (LAFCO) defined sphere of influence (service area) for the utility and the Southern California Area Governments- (SCAG) based population projection for the City. The projected customer base is defined as equivalent dwelling units.

After completion of the BEIF analysis by the NADB, the recommended rate increases were defined in order to support the proposed project. The Table 4.5 shows the current monthly fixed rate for a residential customer of $21.40. This fixed rate corresponds to a 3,000 cu ft (85 m³/month) consumption per residential user per month.

As previously mentioned, the current monthly fixed rate for a residential customer of $21.40, during FY 1998-99 this value is projected to increase to $23.33. During FY 1999-00 is projected to increase to $25.26. As shown in Table 4.5, the monthly residential fixed rate is necessary to be increase in $1.93 dollars per year.

This rate increase is based on a conservative approach considering the minimum water consumption range to be charged to the residential users. It is also important to mention that BEIF funds are targeted to subsidize residential users only, and consequently will not subsidize commercial nor industrial customers.

The Calexico City Council is authorized to adopt utility rate adjustments by resolution after public notification and hearings at Council Meetings. The last rate adjustment was completed by City Resolution 88-41 on 20 October 1988, whereby a series of rate increases over the following five years were enacted. By City Resolution No. 97-35 adopted May 6, 1997 the Calexico City Council authorized the filing of this grant funding application to BECC for Project Phase I, II and III certification. The Council has been appraised of the financial impact of the water treatment plant project, and is prepared to establish economically viable user fee adjustments.

1) Organizational Structure

The organization chart of the City of Calexico depicts the positions of key management and functional department heads, and the lines of authority among the positions. The positions include the Director of Public Works, the Finance Director, the Water Department Supervisor, and City engineering functions. The job functions, lines of communication and responsibilities including management of construction projects of all personnel have been provided to the BECC. Of particular importance is the significant experience these individuals have with the City of Calexico, with an average of 28 years each. This continuity of staffing will provide additional efficiencies during the critical program implementation phase of the project. Below is a brief description of the three major management team leading the water utility.

Function, Responsibility, Line of Communication, Requirements:

Imperial Valley College - Water/Wastewater Technology; California State University, Sacramento- Water/Wastewater Technology Courses; Michigan State Univ. - Wastewater Technology Courses

A Steering Committee was appointed by City Council at their regular meeting of May 6, 1997. The Steering Committee is made up of the following five community members:

The Steering Committee met on June 9, 1997. The Steering was informed of the Certification Criteria for BECC, discussed the impacts the project would have on the City, set the public hearings and established the 30-day period to inform the community of the project. These public hearings were held on July 14, 1997 and July 17, 1997. Public hearings were published in the local newspapers and affidavits of publication and minutes of these hearings are in Appendix E. The committee, as part of the community outreach will meet with various community organizations to inform them of the project.

The project was subject to several hearings before the Planning Commission and will require a number of City Council approvals. The Steering Committee and City Staff has made presentations to local businesses through the Chamber of Commerce Community members have been reached and general public comments have been received during presentations made to Calexico Neighborhood House Group and Calexico Community Action Council.

City of Calexico Staff and members of the steering committee held two meetings with local organizations. The local business were reached through the Camber of Commerce and the Community has been notified through the advertisements of the public meetings in the local newspapers and by a meeting held with the Calexico Neighborhood House Group. The Chamber members showed interest and support for the project. Chamber issued a letter of support for the project. The second meeting was with the Neighborhood house community members. This group meets on a weekly basis to inform the citizens of community happenings. The meeting with this group generated several questions regarding the increase of water rates. The group seemed very supportive of the City’s need for this project. The Neighborhood House also issued a letter in support for the project.

Additionally, during a Workshop organized by the BECC in El Centro, CA., City of Calexico staff met with CESPM, Mexicali, BC (Comisión Estatal de Servicios Públicos de Mexicali). In such meeting the water treatment plant upgrade and expansion project was presented.

Information regarding the project was made available to the public 30 days prior to the first public hearing held by the Steering Committee for the project. Copies of project information were available at the public library, office of the City Clerk and the department of public works office. This notice to the public informing them of the public hearing and availability of documentation was published in the local newspaper.

Public Hearings were held by the Steering Committee on July 14, 1997, July 17, 1997 and May 5, 1998. Meetings were held at 5:30 p.m. at the Calexico City Council Chambers. The Steering Committee discussed the project in detail. Mr. Mariano Martinez, Public Works Director, presented a description of the project. Question regarding the raising of the water rates was posed and the public was informed that those could be a possible increase but as of the date of the hearing, an exact amount or percentage was not given. The public was informed that the firm of Kennedy/Jenks Consultants to determine such increases was performing a Financial Feasibility Study.

The meeting on May 5, 1998 was advertised 30 days prior to the meeting to comply with the BECC criteria. The advertisement also announced locations where information on the project could be obtained, the date, time and location for the meeting and a table with the suggested water rates. Project information was available for public review at:

Mariano Martinez gave a detailed presentation of the project, including the proposed user fee increases required to support the project. Those attending the meeting received project summaries that included tables depicting the financial structure of the project and the BEIF grant money defined by the NADB.