Utility Undergrounding Survey

Underground utilities are already required in new construction, but existing pole infrastructure is aging. Nation and state wide there is mounting discussion on how to convert the existing aboveground utilities. As funding programs become available, the cities that have their underground conversion plans ready to implement will be at a great advantage to qualify for these funds. To take maximum advantage of these opportunities, cities should consider establishing a Conversion Master Plan, Conversion Planning Committee, and a Utilities Conversion Plan as outlined in Appendix E, Electric Rule 20 Guidebook, October 2021***.

Undergrounding citywide in Monterey will require 90 miles to complete. According to the most recent PG&E estimate, the average cost to underground is $3.75 million per mile to convert overhead lines to underground *. These cost estimates do not include the lateral lines from the street to your home electrical meters. This cost may vary from $5,000 to $20,000 depending upon your landscaping, driveways, etc., and the distance from the street to the meter on your home. Some cities, such as San Diego include these costs in their undergrounding program. Funding to underground could take the form of special taxes, property assessments, state and federal grants, and of course utility contributions.

The cost to underground can be up to $50 thousand per parcel, usually financed through their property tax over 15-30 years. This process requires an approval of a majority of voters within a proposed underground district.

Other options for undergrounding funding include: Grants, utility user tax (UUT), sales tax, or parcel taxes assessment districts/parcel taxes. Since 1996, due to Proposition 218, any change in methodology or rates of taxes must be voter approved. Most general fund measures require a majority vote and taxes for specific use require a 2/3 voter approval. Parcel Tax and assessment districts place the burden of cost directly to the home owners.

Grants: Federal, state and county grants for undergrounding projects will likely become more available as the risks of wild fires increase. Having well-planned shovel ready projects will help with successfully bringing in needed funds without a significant tax burden on us.

User Utility Tax (or UUT) is a tax imposed by a city on the use of utility services, most commonly electricity, gas, telephone and cable television. An increase in this tax has the advantage of a nexus with the undergrounding of utilities. The City of Monterey currently imposes a UUT on water, telephone (including cell phones), gas and electricity. Monterey is one of only three cities to charge a different rate for UUT for its residents (2 percent) and commercial users (5 percent). The average UUT (both residents and commercial) in California cities is currently 5.4%. By comparison with other local cities, Santa Cruz collects 8.5%, Seaside 6 percent, Watsonville 6 5%, Pacific Grove 5%, Salinas 6% and Sand City 5%. The City of Monterey is composed of 85 percent residential utility meters and 15 percent commercial meters**.

Sales Tax increases have been the vehicle that most cities have used to increase funds for special or general fund projects. Monterey recently passed Measure P to increase the local sales tax to 1 percent for road construction that is set to expire in March 31, 2027. Most recently the City of Monterey also passed Measure G to add another .5 percent increase in the sales tax under an emergency declaration for general funds set to expire June 30, 2029, which brings the total sales tax up to 9.25 percent, among the upper levels within the county. Currently, 60% of sales tax is paid for by tourists.

Property Taxes are paid by the property owner. They are based on the assessed value of the benefit received (assessment districts) or on the characteristics of a parcel (parcel tax).
With Assessment Districts, each property within an assessment district (minimum 600 ft) is assessed an amount sufficient to cover the proportional cost of the benefit received. A fixed lien is recorded as a district is formed. District approval requires a simple majority of property owners, weighted by assessment amount.
A Parcel Tax is City-wide and requires a 2/3rds vote. The rate can differ based on the type of property. For instance, improved and unimproved properties may have different rates, and residential and commercial properties may also have different rates.

Neighborhood and Community Improvement Program (NCIP) is a program locally funded by 16% of transient occupancy tax (TOT or “hotel tax”) that can support some of the planning and design work, but construction costs are limited.

The table below summarizes these funding options that you can refer to while taking the survey.

Construction can either be done as funds are collected, or the City can buy Bonds that are secured by the expected income for any new taxes.

Build as we go: Advantages of undergrounding as funds are collected are more affordable since no interest would be collected. However, it would take much longer to complete.

Buying Bonds has the advantage of being able to underground Monterey much faster, but would cost more due to interest and fees.