Public Works is pleased to provide you the attached proposed contract between the City of Burbank (Burbank) and the City of Los Angeles (Los Angeles) for wastewater treatment and discharge. After much negotiation with Los Angeles� staff, we have reached a mutually acceptable agreement.

The City of Burbank has had a contract with the City of Los Angeles since 1927 for the disposal of wastewater. This contract was updated in 1944 and 1946 to include additional provisions, while maintaining the other existing terms of the 1927 contract. Los Angeles has disputed the 1927 contract and its amendments (collectively referred to as the "existing contract"), and both parties have made attempts to negotiate a new contract since the 1960s.

Under the terms of the existing contract, Burbank�s payments for wastewater discharge are based on the volume, or flow, of sewage that is sent to Los Angeles each year. Los Angeles alleges that under this payment methodology, Burbank is and has been underpaying its fair share of the wastewater disposal costs. Los Angeles argues that Burbank�s payment obligation should be based on both flow and strength, not flow alone. Therefore, they argue, the existing contract is obsolete and must be replaced with a contract that incorporates both flow and strength charges.

In 1999, Los Angeles reached agreement with a number of other cities and agencies that discharge wastewater into their system. This agreement came after years of litigation and negotiation between parties. The agreement included a thirty-year contract known as the Universal Terms Contract, which replaced all of the agencies� previously held contracts. The discharging agencies and Los Angeles agreed that this Universal Terms Contract, which calculates each entity�s payment obligations for wastewater treatment services (includes capital, operations, and maintenance costs) on both flow and strength, is a fair and equitable agreement and is consistent with the Clean Water Act requirements.

Each discharging entity agreed to this new contract, with the exception of Burbank and Glendale. Both Burbank, which owns and operates its own treatment facility, and Glendale, which owns 50% of a treatment facility, did not feel that the unique concerns of these cities were being addressed. In 1999, Los Angeles threatened to sue Burbank to recover the alleged $38,000,000 in past due amounts unless Burbank signed the Universal Terms Contract. Our concern at that point was that although the universal terms part of the contract may be equitable, there were a number of items specific to Burbank (known as "below-the-line" terms) that were not addressed.

Burbank staff has negotiated with Los Angeles since 1999 on the proposed wastewater discharge contract. The proposed contract is compliant with the Clean Water Act and contains the same universal terms as other cities and agencies discharging into Los Angeles. The proposed contract also contains below-the-line terms specific to Burbank that take into account our unique concerns because of our own treatment facility.

From the outset of negotiations, it was clear that there were a few key points of contention. These issues were (1) percentage of Burbank flow treated at the Los Angeles-Glendale Water Reclamation Plant (LAG-WRP), (2) baseline for calculation of sewer facilities charges to Los Angeles, and (3) the start date for charges under the new billing system. Each of these issues required compromise before agreement was reached.

The amount of Burbank�s wastewater that would be treated at LAG-WRP was our number one contract negotiation priority, and the first item addressed in negotiations. This item is critical for Burbank in order to maintain some level of control over the cost of sewage conveyance to Los Angeles.

Sewage conveyance cost (the cost to carry the sewage to a treatment facility) is calculated using the MGD-mile approach. A MGD-mile is the amount of flow, in millions of gallons per day (MGD), multiplied by the number of miles that the sewage must travel. For example, 2.0 MGD of discharge to LAG-WRP (which is 4.0 miles away) results in 8.0 MGD-miles. The number of MGD-miles discharged each year by Burbank will be multiplied by a unit rate, resulting in the annual conveyance cost.

Wastewater discharged from Burbank to Los Angeles gets treated at either the LAG-WRP, or the Hyperion Treatment Plant (HTP). Since the distance to LAG-WRP is 4.0 miles, and the distance to HTP is 18.5 miles, our MGD-miles will be lower when more of our flow is treated at LAG-WRP (see Exhibit A).

Several scenarios were presented before a resolution was reached. The final settlement includes a minimum of 63% of Burbank�s wastewater treated at LAG-WRP.

The second key issue that was negotiated related to the baseline for Sewer Facilities Charges (SFCs). This charge relates to the existing capacity rights that Burbank owns in Los Angeles� wastewater facilities. Once this baseline capacity is exceeded, Burbank would be required to pay these SFCs.

Burbank�s is in a unique situation because a new development may discharge directly to the Burbank Water Reclamation Plant (BWRP) or the Los Angeles wastewater system depending on its location and the current position of gates in Burbank�s wastewater collection system. At the same time, even though the raw wastewater may enter the BWRP, the sludge from this wastewater will be sent to Los Angeles. Therefore, this unique situation had to be addressed.

The result of negotiations was that the total amount of wastewater sent to Los Angeles, rather than on the specific development, would be used as for the calculation of SFCs. This total amount, less an already purchased baseline amount, would determine Burbank�s SFCs to be paid. After lengthy discussions, the negotiated baseline is 5.5 MGD.

Due to the recent contract negotiations, payments for the last three fiscal years have been disputed. Burbank has made partial payments for the 1999-00 and 2000-01 fiscal years, but has not yet paid for the 2001-02 fiscal year. The amount still owed for these three years is $4,047,585.

Perhaps the most important issue that this proposed contract resolves is the one that was set aside at the outset of negotiations, the waiver of the $38 million claim against Burbank. Los Angeles based this claim on the alleged underpayments by Burbank from 1984 to 1999. The proposed contract waives this claim and resolves the decades of dispute between Burbank and Los Angeles on wastewater issues.

The Sewer Enterprise Fund covers all expenditures for wastewater treatment and discharge to the City of Los Angeles. When the previous version of this contract was signed in 1999, sewer rates were increased by 5.47% each year for three years. This increase was required to recover what was then projected as $3.5 million in annual payments to the City of Los Angeles.

The estimated increase in overall costs to Burbank is illustrated in Exhibit B. The total cost to Burbank is now estimated at $4,500,000 a year. As this chart illustrates, the potential cost to Burbank would have been much higher if the below-the-line terms were not successfully negotiated. Nevertheless, the anticipated increased costs will need to be offset by rate increases. The Finance Department has determined that the rate increases are necessary to maintain the Sewer Enterprise Fund at a proper financial level. These rate increases are illustrated on Exhibit C.

As can be seen from Exhibit C, the sewer rate was lowered from $17.56 in 1995 to $10.90 in 1998. The rate increases being proposed will raise the sewer rate to $18.34 gradually over the next five years. Accounting for inflation, the proposed rates are in line with those in place in 1985. Residents have enjoyed a lower rate in the intervening years due to the prolonged negotiations with the City of Los Angeles.

It should be noted that the charges from Los Angeles are not the only driver for the rate increases over the next five years. Upgrades at the Burbank Water Reclamation Plant, necessary due to regulatory requirements, are another significant cost to the Sewer Enterprise Fund. In fact, it is these increasingly stringent requirements that are causing the high cost of wastewater discharge to Los Angeles.

Although increases in sewer service charges are never desirable, the sewer service charge to Burbank residents is currently one of the lowest in the region (see Exhibit D). The future sewer rate increases facing Burbank residents will also be experienced by other agencies due to similar regulatory requirements. Burbank sewer rates should continue to be competitive with other cities in the region for years to come.

Public Works recommends signature on the Universal Terms Contract with the negotiated below-the-line terms (Exhibit E). Resolution of the contract dispute waives all claims from the City of Los Angeles on past damages, alleged to be $38,000,000. It also puts Burbank and Los Angeles in full compliance with the Clean Water Act as it relates to payments made on flow and strength. Furthermore, the negotiated below-the-line terms effectively caps the amount of conveyance charges required by Burbank and retains capacity rights for discharges previously paid.

1. Treatment Plant Locations
2. Costs to Burbank Under New Contract
3. Anticipated Sewer Rate Increases
4. Sewer Service Charge Rate Comparison
5. Proposed Contract

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