Underground Utility Assessment District Formation Policy

INTRODUCTION

The City of Laguna Beach supports neighborhood groups showing interest in the undergrounding of overhead utilities. The reasons for pursuing these projects have included view enhancement, safety, improved neighborhood aesthetics, and utility modernization. This Policy describes the utility undergrounding process and requirements.

HOW IS IT DONE?

There generally are two methods to accomplish an undergrounding project:

  • Private Project: Property owners work together with the utility companies to accomplish the undergrounding privately.
  • Assessment District: Property owners petition the City to form an assessment district.

This policy includes an overview of both methods.  Click here to download a copy.   Forming an assessment district provides a mechanism for financing the improvements. It is a lengthy process and can take three to six years to complete a utility undergrounding project depending on the number of projects currently in progress, the availability and cooperation of the utility companies, and the level of cooperation from participating residents.



To Jump to key sections in this page use the following links:



Who starts a project?

Defining the Project Area

The Methods

Project Planning

Boundary Confirmation and Petitioning

Engineering and Design
City Council Action and Requirements of Proposition 218
Project Costs
Cash Pay-off Period

Bond Sales and Easement Acquisition

Construction Process
District Closeout
Frequently Asked Questions
Utility Company Contacts
City Contacts


WHO STARTS A PROJECT?

Both of the processes described above require one or more property owners to act as the neighborhood liaison between neighbors and the City or utility company representatives. The property owner informally surveys all affected property owners in the area to determine if there is sufficient support for undergrounding. The City will assist in creating a boundary map for the project based on the information gathered from the survey.

DEFINING THE PROJECT AREA

The boundary map defines which properties are specially benefited from having the utility poles removed and wires placed underground. Once the boundary is defined, the City will verify the proposed boundary with the utility companies, including Southern California Edison or SDG&E, Cox Communications, and Verizon telephone.       


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THE METHODS

Private Project: A privately financed undergrounding project is handled exclusively by property owners and the utility companies. This approach can save financing and administration costs associated with an assessment district.

The City generally does not participate in this type of project. However, the project design must be submitted to the Community Development Department for Design Review. The underground construction requires a Public Works permit, and conversion of individual meters to underground service requires an electrical permit from the City’s Building Division.

The utility companies are paid by property owners to prepare plans for the conversion of the overhead facilities to underground facilities. Property owners then arrange to receive bids from contractors on these plans. Engineering, construction and incidental fees must be paid directly by property owners. This method of undergrounding allows for any number of parcels to be included; however, all affected properties are required to participate at some level.

Property owners are also responsible to pay for the cost of connecting to the underground system from the street to the house. A licensed electrical contractor can do this work. Alternatively, property owners may choose to contract with the general contractor doing the work in the street. This aspect of the private project requires that every affected property owner agree to at least pay for their on-site underground service connection, or to allow others to do the private connection work.

Assessment District: To initiate the assessment district process, the following minimum requirements must be satisfied:

  • At least five parcels must be included.
  • 600 linear feet of line must be placed underground.
  • 60% of affected property owners must sign a petition indicating support for the project.
  • Property owners who sign the petition must deposit an initial fee of $500 to cover a portion of the assessment engineering and utility design costs; the deposit will be refunded if the district is ultimately formed.

The City will form an assessment district by providing project management, administrative and financial coordination, and if necessary, fund a portion of the initial assessment engineering and utility design cost. If sufficient interest exists to proceed with a district based on petition response, then the City will coordinate the design, financing and construction of the project. The primary benefit of this method is that the improvements can be financed over time. The main drawback is that the process can take up to six years to complete.

If property owners are interested in proceeding with the formation of an assessment district, then the following, more detailed, information regarding procedures is provided.  


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PROCEDURES FOR THE FORMATION OF AN ASSESSMENT DISTRICT


PROJECT PLANNING



The first step in forming an assessment district is to determine which poles and wires the neighborhood is interested in placing underground. Typically, a property owner will seek the assistance of other neighbors. An alternative would be to arrange a neighborhood meeting to present the project and receive input from meeting attendees. City staff can be available to attend community meeting to describe the assessment district process in greater detail. Holding such a meeting is also a good way to enlist the assistance of members of the neighborhood.

BOUNDARY CONFIRMATION AND PETITIONING


Once project boundaries have been identified, City staff will meet with representatives of the utility companies. The purpose of this meeting is to confirm whether the boundaries of the project are sufficient to move forward, or if they need to be modified to ensure that the utility companies can maintain their systems adequately.

Formal petitioning begins after the boundaries are confirmed. Staff will provide the official petition for circulation. Every property owner within the district boundary should be given the opportunity to sign the petition. In addition to signing the petition, each property owner who signs will be required to deposit a non-refundable initial fee of $500 that will cover a portion of assessment engineering and utility design costs. The City will act as the collection agent after signatures from at least 60% of the property owners have been submitted. Upon final approval of the assessment district, the fees collected will be credited against the assessments of those who paid the initial fee. If the assessment district fails due to a majority protest through the balloting process, then the fees will not be returned to the property owners.

ENGINEERING AND DESIGN

After the City Council has confirmed that a sufficient number of signatures have been filed and deposits have been received, staff will forward the boundary map to the utilities so design of the underground systems can begin. Southern California Edison or SDG&E, depending on which utility provides service to your neighborhood, will prepare the initial design of the underground system. Those plans are then forwarded to Verizon and Cox Communications for their respective designs. This phase of the process can take two years or more to complete depending on the size of the project and the existing workload of the utility companies.

During the design phase of the project, the City will hire an assessment engineer to prepare the Engineer's Report. The report includes a detailed breakdown of all costs associated with the formation of the undergrounding district and lists the estimated amounts proposed to be assessed to individual property owners. The Final Engineer's Report will list the actual costs and individual assessments that will be used for balloting.

The final step in the design process is for the project to be submitted to the Design Review Board for review and approval. Most undergrounding projects require the installation of above ground transformers and possibly other structures. This process allows all property owners to understand and have input on the impacts of the project before the balloting process.

CITY COUNCIL ACTION AND REQUIREMENTS OF PROPOSITION 218

State law requires that the City Council conduct a public hearing and balloting process for determining assessment district approval. The purpose of the hearing is to review the project and to provide property owners an opportunity to show support for, or to protest against, formation of the district.

All property owners who are subject to proposed assessments are mailed a Notice of Public Hearing with an assessment ballot as required by Proposition 218. The mailed ballots allow all affected property owners to express their support for or opposition to the proposed assessment. If a majority of the assessment ballots cast are in favor of the project, as weighted by each assessment amount, the City Council must proceed with formation of the assessment district. If a majority of the ballots cast are in opposition to the project, then the district must be abandoned.



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PROJECT COSTS

Individual assessments may vary substantially depending on the special benefit received from utility undergrounding. Assessments for a single family dwelling in 2012 ranged from $6,000 to $45,000. All costs relating to the district formation and underground system construction are financed by the sale of municipal bonds that are paid off over a 15 or 20 year period through assessments included with property tax bills. Property owners must retain a contractor to connect their home to the underground system. The cost of this work generally ranges from $3,000 to $5,000.

CASH PAY-OFF PERIOD

After the City Council has taken action to officially form the district, property owners will have an opportunity to pay off their assessment before it is placed on the property tax bill. The “Cash Collection” period is typically 30 days from the date of the Public Hearing. Paying the assessment during the cash collection period allows one to receive a discount of approximately 8% to 10% of the assessment amount, and to avoid interest charges for the term of the bonds.

BOND SALES AND EASEMENT ACQUISITION

Assessment districts are financed through the sale of municipal bonds. The sale of bonds can typically occur within two months after approval of the district. However, the sale of bonds will normally be delayed until all necessary easements have been acquired. If easements through private properties or private streets are needed, then that process can take up to a year.

CONSTRUCTION PROCESS

The time frame for a typical utility undergrounding project is three to five years, from initial planning to the end of construction. After the City Council has approved the project at the public hearing, has awarded a construction contract, and the utility companies have received and recorded all easements necessary to construct the facilities, then construction to convert the overhead facilities to underground facilities can begin. After all of the underground work has been completed, including private service undergrounding work by property owners (which are not included in individual assessments), the utilities will then install wires, transformers, cabinets and connect homes to the underground facilities. After all this work has taken place, the poles and overhead wires can be removed.

DISTRICT CLOSEOUT


If there are any surplus funds after all work to remove the overhead utilities has been completed, then those funds will be refunded in cash to property owners who paid off their assessment during the cash collection period, or will be credited against future assessment obligations, thereby reducing the term of the improvement bonds.



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UTILITY COMPANY CONTACTS:


Southern California Edison

14155 Bake Parkway
 Irvine, CA 92718
(949) 458-4436


Or


San Diego Gas & Electric
662 Camino de los Mares
San Clemente, CA 92672
(949) 369-4721




CITY CONTACTS


For information on assessment districts contact:
City of Laguna Beach Public Works Department
505 Forest Avenue
Laguna Beach, CA 92651
(949) 497-0711

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FREQUENTLY ASKED QUESTIONS

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Can the cost of connecting a home to the utility owned system be added to the property tax assessment?
This cost is not included in individual assessments; property owners pay for this work separately.

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Do the utility companies contribute to the cost of the undergrounding?
The electric and telephone utility companies do not contribute funds to utility undergrounding districts. The cable company pays its costs of undergrounding in an assessment district, but not in a private undergrunding project. 

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How Am I Billed?
Residential solid waste collection charges are included with the annual property tax statement. Commercial collection is billed directly by Waste Management of Orange County on a monthly basis. Properties with 5 or less dwelling units are classified as residential. Properties with 6 or more dwelling units or properties used for commercial purposes are considered commercial.

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How are assessments calculated?
A Engineer's Report is prepared by a consulting assessment engineer. The report describes the scope of the project and list all costs and assessments to be levied. Assessments are based on the special benefit that each property receives from the improvements. For instance, properties gaining enhanced views, safer conditions and improved neighborhood aesthetics pay higher assessments than properties only benefiting from safety and aesthetic improvements. The report is made available at City Hall for public review and during the district formation process.

How much does it cost?
Assessments vary substantially from project to project depending on physical constraints impacting construction, the number of parcels sharing the costs and utility costs.  Total costs for a 30 parcel district formed in 2012 ranged from $6,000 to $45,000. 

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How to pay for it?
Assessments are placed on your property tax bills to be paid over a 15 to 20 financing period.  Property owners may pay the assessment in full during a 30 day cash collection period.  If the assessment is paid during the cash collection period, then no lien will be recorded and no annual payments will be collected through the property tax bill.  Payments made during the cash collection period will be made to the City Treasurer.  Property owners should consult their financial advisor for tax related questions.

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Is financial assistance available?
Currently there are no programs available that provide financial assistance.

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Is the bond interest rate fixed or variable?
The interest rate is fixed and is set when the bonds are sold.

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Is there any benefit to prepaying the assessment, and can the assessment be paid after the cash pay-off period has lapsed?
If a property owner chooses to prepay their assessment during the cash collection period, then they do not have to pay bond issuance costs, and they will receive about an 8 to 10 percent discount on their assessment.  Also, interest on the bonds does not have to be paid over the life of the bond.  The assessment can also be paid in full at any time, although there would be no savings on bond issuance costs if paid after the cash collection period. 

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What costs are included in the Project?
Two thirds of the cost for a recent project were construction related.The power and telephone companies charge for their expenses to design and convert to an underground system.  The cable television company contributes its share of the cost.  Other expenses include engineering, legal, administration and bond issuance costs required to finance the project.

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What do I do if I have other questions?
Call Joe Chiquete at the City of Laguna Beach at 497-0338.

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What if the property is sold before the debt is paid in full?
This is a matter that can be discussed between the buyer and the seller. The lien is recorded against the property.