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Home My WebLink AboutR-11178 approving revisions to the adopted 2020-21 Water and Sewer Fund Budget AppropriationsR 11178 RESOLUTION NO. 11178 (2020 SERIES) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, APPROVING REVISIONS TO THE ADOPTED 2020-21 WATER AND SEWER FUND BUDGET APPROPRIATIONS WHEREAS, the City Council adopted the 2019-21 Financial Plan on June 4, 2019 and appropriated the budget for 2019-20; and WHEREAS, City staff prepared the 2020-21 budget with appropriate revisions and adjustments from the adopted budget to address changes in revenue assumptions, work program needs, and community priorities; and WHEREAS, Utilities staff froze funding for two full-time equivalent positions in the 2020-21 budget; and WHEREAS, City staff prepared the 2020-21 budget review to evaluate whether the 2020- 21 revenue budget assumptions are still accurate and to make appropriate corrections; and WHEREAS, the 2020-21 October Budget revisions are now ready for consideration and appropriation as set forth in the attached “Exhibit A”: and NOW, THEREFORE, BE IT RESOLVED, by the Council of the City of San Luis Obispo as follows: SECTION 1. The City Council approves funding the two frozen full-time equivalent positions. SECTION 2. The City Council approves increasing the Water Fund Recycled Water revenue budget by $302,000. Resolution No. 11178 (2020 Series) Page 2 R 11178 SECTION 3. The City Council approves decreasing the Sewer Fund Cal Poly Sales revenue budget by $400,700. Upon motion of Council Member Pease, seconded by City Council Member Christianson, and on the following roll call vote: AYES: Council Member Christianson, Pease, Stewart, Vice Mayor Gomez and Mayor Harmon NOES: None ABSENT: None The foregoing resolution was adopted this 20th day of October 2020. ____________________________________ Mayor Heidi Harmon ATTEST: ____________________________________ Teresa Purrington City Clerk APPROVED AS TO FORM: _____________________________________ J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, on _____________________. ____________________________________ Teresa Purrington City Clerk EXHIBIT A R 11178 October Budget Revisions to Adopted 2020-21 Supplemental Budget Water and Sewer Funds Recommendations 1. Decrease the Sewer fund Cal Poly revenue budget by $400,700. 2. Increase the Water Fund recycled water revenue budget by $302,000. 3. Unfreeze the Water Quality Laboratory Analyst position. 4. Unfreeze the Water Distribution Operator position. Summary During the 2020-21 budget planning process, the City did not know how COVID19 would affect the utilities department. Staff forecasted significant revenue declines and took steps to respond to the reductions, such as freezing positions and utilizing unreserved working capital. In preparation for the October review, the Utilities Department analyzed 2019-20 results, reviewed upcoming operational and capital needs, and current and future debt obligations to re-assess the financial position of each of the Water and Sewer funds. Because of the results, staff is forecasting higher revenues and is recommending unfreezing two essential positions. Additionally, when the 2020-21 budget was adopted in June, Council approved a strategy of deferring the scheduled 2020-21 water and sewer rate increases until the impacts of Covid-19 could be further analyzed. Staff was directed to return to Council with a rate increase recommendation at the October budget Council meeting. The deferment was meant to accommodate community members who have been negatively impacted by the Covid-19 related economic downturn. Staff will continue to analyze the funds and return to Council with a final recommendation in December. 2019-20 Revenue At the onset of the Covid-19 pandemic, the Utilities Department did not know how business and school closures and the stay-at-home orders would impact water and sewer sales. Six months into the Covid-19 pandemic, the economic impacts to the water and sewer funds are now better understood, though there are some remaining unknowns. From March through September there was decreased water consumption at businesses and schools, resulting in a correlated decrease in revenue. However, there has been a corresponding increase in residential and landscape water consumption and revenue. Due to both an increase in one area and a decrease in another, the effect of thi s change in typical usage patterns still resulted in 2019-20 water and sewer sales revenue ending the year very near to the original 2019-20 budget amounts. 2019-20 water sales revenue was 102% of budget and 2019-20 sewer sales revenue was 99% of budget. Residential and Landscape Consumption Business and Schools Consumption EXHIBIT A R 11178 2019-20 Budget v. Actual Budget Actual Difference % Difference Water $21,137,107 $21,468,339 $331,232 102% Sewer $16,612,500 $16,448,856 $(163,644) 99% 2020-21 Revenue During the 2020-21 Financial Plan Supplement process in June, the Utilities Department maintained a cautionary strategy related to the impacts of Covid-19 to water and sewer use. At that time, it was assumed that water consumption would decrease by 6% in 2020-21. For the most part, this decrease has not materialized. Year-to-date (YTD) water revenue is 125% of what we expected to see by September and YTD sewer revenue is 103% of expected. However, we are only three months into the year and there are still many unknowns. Many customers have a higher than normal past due balance because Utilities has not been shutting off water for non-payment or sending accounts to collections. There is a risk that some of these past due balances will never be collected. In addition, it is still not clear how many businesses will permanently close because of the economic downturn. Staff continue to monitor water consumption and sales revenue and, if necessary, adjustments may be necessary at Mid-Year. 2020-21 YTD Budget v. Actual Budgeted Revenue Expected as of September 2020 Actual as of September 2020 Difference % Difference Water $5,018,575 $6,254,342 $1,235,767 125% Sewer $3,968,149 $4,105,503 $137,354 103% Budget Changes Cal Poly Sewer Revenue: Due to Cal Poly’s transition to virtual learning from COVID19, there has been a clear decrease in revenue is Cal Poly sewer. When the Cal Poly campus closed in March, Cal Poly sewer flows declined dramatically. This trend has continued with a below average flow when the Fall quarter started. During the Fall quarter only 13% of classes are in-person and on-campus housing is only at 70% occupancy. Cal Poly has indicated that the Winter semester will also be mostly virtual. Cal Poly sewer flows are not expected to return to normal until the campus and campus housing fully reopen. Staff is recommending reducing the 2020-21 Cal Poly sewer revenue budget from $900,700 to $500,000 to reflect this decrease in campus wastewater flow. Cal Poly 2020-21 Sewer Revenue Budget Current $900,700 Recommended $500,000 Difference $(400,700) Recycled Water: In July 2018, the rate for recycled water increased from $6.54 to $9.01 per unit of water used but the budget was not increased. As a result, since 2018, the actual amount of recycled water revenue collected has far exceeded budget. The Utilities Department is recommending that the 2020-21 recycled water budget be increased from $595,000 to $897,000 to address this. EXHIBIT A R 11178 2020-21 Recycled Water Revenue Budget Current $595,000 Recommended $897,000 Difference $302,000 Frozen Positions Two Utilities Department positions, a Water Distribution Operator, and a Water Quality Lab Analyst, were frozen as a part of the 2020-21 financial plan supplement. The positions were held vacant to create operating expenditure savings if the Covid-19 economic downturn had a significant impact to the water and sewer funds. Water Distribution Operator: Water fund revenue has not been impacted, as initially anticipated, by the economic downturn, so it is recommended that the Water Distribution Operator position be “unfrozen ”. The Water Distribution section is responsible for maintaining 200 miles of underground water mains, 15,600 water meters and service lines, and various water storage tanks and pump stations. This section is currently understaffed by two positions due to one water distribution full-time equivalent (FTE) being utilized at the City’s Water Treatment Plant during the Sustainable Solutions Turnkey (SST) Project construction and another being frozen until the October budget review. The position was frozen to mitigate the, at the time unknown, impacts of the Covid-19 economic downturn to the water fund. Concurrently, the Orcutt area developments, San Luis Ranch, and Avila Ranch are all being constructed, causing a substantial increased workload for the water distribution team. The section is currently reducing maintenance to infrastructure on a short-term basis to accommodate the staffing vacancy and WTP project assistance, but this can only be continued on a short-term basis without significant impacts to operations and possibly service levels. Hiring this position will allow for the section to resume its planned operations and invest in adequate levels of training for its other three newly hired operators. Water Quality Laboratory Analyst: Sewer fund revenue has not been impacted as initially anticipated by the economic downturn, so it is recommended that the Water Quality Laboratory Analyst position be “unfrozen”. The need for an additional analyst position for the Water Quality Laboratory was identified in a 2019 staffing analysis and will allow complete 7-day coverage of necessary and required laboratory activities. These activities include the current regulatory and process sampling for water, wastewater, and the recent additions of sample collection for the Water Treatment Plant, training, accreditation to newly adopted State laboratory standards and the ongoing support for the stormwater program’s creek sampling and monitoring plan. Other activities include increased laboratory support for development activities throughout the City, additional sampling and analysis required for the newly upgraded WRRF along with the anticipated reissuance of the WRRF’s State-issued discharge permit and City stormwater permit. Hiring this position will allow for the section to resume its planned operations. Overall Fiscal Impact The net impact of these changes to the water fund is a $302,000 increase to the revenue budget and a $59,700 increase to the staffing budget. The net impact of these changes to the sewer fund is a $400,700 decrease to the revenue budget and a $60,000 increase to the staffing budget. EXHIBIT A R 11178 Revenue Budgets Current Budget Budget Increase Budget Decrease New Budget Water Sales $20,174,300 $302,000 $20,476,300 Sewer Sales $15,872,596 $(400,700) $15,471,896 Total $36,046,896 $302,000 $(400,700) $35,948,196 Operating Expenditure Budgets Current Budget Budget Increase Budget Decrease New Budget Water $26,757,319 $59,700 $26,817,019 Sewer $11,374,588 $60,000 $11,434,588 Total $38,131,907 $119,700 $38,251,607