HomeMy WebLinkAbout05/29/2003, PH2 - 2003 SEWER FUND REVIEW Council M..i,Nk
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CITY OF SAN LUIS OBISPO Y
FROM: John Moss, Utilities Director
Prepared By: Sue Baasch,Administrati alyst
Dave Hix,Wastewater Division Manager
SUBJECT: 2003 SEWER FUND REVIEW
CAO RECOMMENDATION
1. Review and accept the 2003 annual sewer fund financial review; and
2. Conceptually approve the proposed operating program change requests and capital
improvement plan requests contained in the preliminary 2003-05 Financial Plan, pending
final budget review and adoption; and
3. Direct staff to set a public hearing on June 17, 2003 to consider the adoption of a resolution
increasing sewer service charges by five and one-half percent (5.5%), effective July 1, 2003,
and by five percent (5.0%), effective July 1, 2004.
REPORT IN BRIEF
The 2003 analysis shows that with regular, relatively small, rate increases, the sewer fund will
maintain its health and be able to pay for the complex services and activities that provide high
quality wastewater services to this community. The recommended 2003-05 Financial Plan
provides the wastewater funding to maintain vital services and infrastructure as well as to make
or plan for significant improvements to the system. Wastewater collection efficiency and
service to the southern portion of the City will be enhanced with the design and construction of
the new Tank Farm Lift Station. The future master. plan improvements to the City's Water
Reclamation Facility will allow wastewater staff to meet existing and upcoming State and
Federal discharge requirements.
This is positive news as all the same economic forces that are impacting the City's general fund,
such as rising insurance, worker's compensation and retirement costs, are also affecting the
sewer fund. As well, this fund has annual debt service payments of$2.135 million each fall for
the major plant and collection system improvements completed in the early 90's.
Rate increases have been minimized by two factors: development impact fees have met or
exceeded projections, and budget reductions. To contain costs and minimise sewer rate
increases, the Utilities' wastewater staff have taken a number of steps. Wastewater staff have
reduced operating costs by at least five percent from last year, eliminated an operator position at
the Water Reclamation Facility, and absorbed the administration of the Phase H storm water
program from the general fund,without additional staff and with limited new funding.
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In summary, while this year's fund analysis indicates that small regular rate increases will be
required over the next several years, the 2003-05 Financial Plan for the Sewer Fund reflects the
accomplishment of significant goals for the City and the efforts of wastewater staff to control
costs while providing high quality wastewater services.
The Utilities Department requests conceptual approval of the preliminary 2003-05 Financial
Plan, the operating program change requests, and capital improvement plan requests contained
therein. In addition, the department recommends that Council direct staff to set a public hearing
on June 17, 2003 to consider the adoption of a resolution that would increase sewer rates by
5.5%, effective July 1, 2003 and 5.0% percent, effective July 1, 2004. A public hearing is
required by State law prior to increasing a charge of this type.
DISCUSSION
Background—the development of the 2003-05 Financial Plan
Knowing the economic challenges facing the City, the wastewater operations staff developed
their recommended budgets, and, at the same time, identified areas for possible reductions or
productivity enhancements. This resulted in a number of departmental recommendations, such
as working with Engineering to develop a design/bid/construct process for Water Reclamation
Facility equipment maintenance that would result in reduced expenses in both consultant design
costs and contractor construction costs, and assuming responsibility for Phase 2 of the storm
water NPDES program.
The cumulative impact of the sewer fund budget balancing activities was to reduce expenditures
by about $130,100 annually, and to develop recommendations for providing support to the
General Fund(described above) as well as paying an increased franchise fee.
Overview of cost Rediuctions-by NN'astewater Program
Administration/Engineering contract services reduced by Service Impact: technical
$25,500/yr contract and legal services,
Office supplies reduced by$1,400 public information have been cut
Travel reduced by$1,400 back to minimal or zero funding.
Operating Materials reduced by
$1,800/yr
Wastewater Collection Overtime reduced by$3,300/yr Service Impact: No contingency
Utilities reduced by$10,000/yr funding for unexpected weather
or emergencies.
Wastewater Pretreatment Laboratory /coritrect services reduced Service Impact: The five percent
by$1,000/yr reduction allows the program to
Office supplies reduced by$1,500/yr still meet federal and state
Educ&Training reduced by$3,200/yr mandates. While service is not
Various materials & supplies reduced cut drastically, some aspects of
by$4,000/yr public education must be delayed
or rely on previously developed
materials.
Water Reclamation Facility Eliminate one operator position for two Service Impact: eliminating an
years-savings of$57,000/year operator position requires more
Biosolids hauling reduced b overtime, which has been
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Council Agenda Report-2003 Sewer Fund Review
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Biosolids hauling reduced by overtime, which has been
$20,000/year included in the recommended
Travel and meetings reduced by budget. The reduction in utilities
$2,0001year is related to the savings from the
Utilities reduced by$91,000 year 1 and energy conservation projects.
$214,100 year 2
Ongoing Commitment to Meeting our Goals
The recommended budgets are based on the Utilities Department's ongoing commitment to
maintaining a high level of wastewater collection and treatment service for this community,
while planning for future service improvements, and for meeting existing and upcoming State
and Federal discharge requirements. Following is a review of the recommended operating
budgets and a,listing of the recommended 2003-05 significant operating program changes and
capital improvement projects.
2003-05 Financial Plan: Sewer Fund Operations
The table below shows the recommended 2003-04 and 2004-05 operating budgets for the
programs in the Sewer Fund.
ProgramsWastewater
Program 03-04 Budget 04-0. 5 Budget
Admin/Engineering 792,200 624,000
Wastewater Collection 710,000 734,200
Wastewater Pretreatment 264,600 257,600
Water Reclamation Facility 2,471,400 2,387,800
Total Sewer Operating Programs 4,238,200 4,003,600
How do the recommended budgets vary from previous years? Overall, as discussed below, they
are at or below 2002-03 budgets, once the increased costs of worker's compensation, retirement
contributions and franchise fees are taken into account. These three items represent an increase
of about$300,000 per year to the Sewer Fund.
Recommended Operating Program Changes
Technical Studies for the Water Reclamation Facility
Contracting for technical services for the required studies required in the Water Reclamation
Facility's National Pollutant Discharge Elimination System (NPDES) Permit will cost $206,000
in 2003-04.
Phase II of the Storm Water NPDES Program
Funding for various activities of this required on-going program will cost $40,000 annually.
This is a mandated State/Federal Clean Water Act program originally proposed to be
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administered by the Public Works Department.
Development of Local Discharge Limits
Developing local discharge limits in compliance with Federal and State requirements will cost
$15,000 in 2003-04 for laboratory services and sampling analysis.
Water Reclamation Facility NPDES Permit Fee Increase
An increase to the Water Reclamation Facility's NPDES permit will cost an additional $13,500
annually.
2003-05 Financial Plan: Sewer Fund Capital Improvement Plan
The Capital Improvement Plan for the Sewer Fund is shown in Attachment 2.C. Below are brief
descriptions of the major projects. The first section describes new, one-time capital projects.
The second section describes ongoing maintenance and replacement projects.
Section 1. Master Plan Improvements
Collection System Master Plan Improvements— Tank Farm Lift Station
Implementation of the collection system component of the Wastewater Facilities Master Plan;
the construction of the Tank Farm Lift Station will correct existing deficiencies and provide
adequate infrastructure for areas of the City having development potential, is projected to cost $6
million in 2004-05. Design funds of$500,000 were approved in the 2000-01 Financial Plan.
Water Reclamation Facility Master Plan Improvements
Design and construction of improvement projects identified in the Wastewater Master Plan for
the Water Reclamation Facility to correct existing deficiencies, provide additional facilities
necessary to serve existing residents, address future discharge requirements and planned growth
within the City, will cost $1,600,000 in 200405 for design and $17,650,000 in 2006-07 for
construction. Studies funding of$190,000 was approved in the 2002-03 Financial Plan.
Section 2. Ongoing system and plant maintenance and replacement
System Improvements— Wastewater Collection
Constructing collection system improvements that replace aging and inadequate sewer
infrastructure to ensure uninterrupted wastewater collection and reduce maintenance activities,
will cost $700,000 in 2003-04, $750,000 in 2004-05, and$750,000 in 2005-06 and 2006-07.
Voluntary Sewer Lateral Rehabilitation Program
Maintaining adequate funding for the Voluntary Sewer Lateral Rehabilitation Program that meets
demand as property owners repair their privately-owned sewer laterals, and, thereby, reduce
infiltration and inflow into the City's wastewater collection system, will cost $150,000 in 2003-
04 and 2004-05.
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Major Water Reclamation Facility Maintenance and Upgrade projects
Continuing the ongoing major maintenance at the Water Reclamation Facility, to ensure proper
function, prolong service life, and maintain high quality treatment processes, will cost $360,000
in 2003-04, $475,000 in 2004-05, and is projected to cost $478,000 in 2005-06 and $480,000 in
2006-07.
Vehicle Replacements
Replacing Wastewater Division vehicles to provide adequate and reliable equipment and
transportation for staff will cost $116,000 in 2003-04 and $127,000 in 2004-05. In 2003-04,
Wastewater Collection's 1991 video inspection van is recommended for replacement, and a
shared sedan for Pretreatment and WRF staff is recommended to be added to the fleet. In 2004-
05,two service trucks for the Wastewater Collection are recommended for replacement.
Working Capital Balances
Projected working capital exceeds the policy minimum of 20% of operating expenses. Using
working capital funds in excess of the policy minimums to reduce requested rate increases is not
recommended as an ongoing strategy. As can be seen, almost $2.5 million of working capital is
used to fund capital projects in 02-03 and an additional $528,600 of working capital is projected
to be used in 03-04. It is not until 2004-05 that revenues and expenditures are forecasted to
match. Thereafter, revenues and expenditures match fairly closely and working capital remains
fairly level. This working capital level, while not extremely high, does allow the fund to meet
emergency situations and to pay for some one-time capital projects without debt financing.
Rate Review Exhibits
Financial schedules providing detail for the sewer fund analysis are provided in Attachments 2.
A through 2.C. These include an analysis showing changes in working capital from 2001-02 to
2007-08; summary of key assumptions by year; and the proposed four-year capital improvement
plan.
Rate Setting Methodology
In determining sewer revenue requirements and setting recommended rates, the following
general methodology is used:
Step 1: Determine Sewer Fund revenue requirements for:
a. Operations and maintenance
a. Capital improvements and replacements
b. Debt service obligations (existing and projected)
Step 2: Subtract from this amount"non-rate revenues" such as:
a. Interest earnings
b. Connection fees and meter sales
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c. Revenues from other agencies (Cal Poly)
d. Other service charges (service start-up fees, late charges, etc.)
Step 3: Identify sewer rate requirements:
a. Revenue needed to be generated from sewer rates is the difference between sewer
revenue requirements (Step 1) and"non-rate"revenues (Step 2).
Step 4: Determine new rates:
a. Model the rate base (consumption and customer account assumptions) against the
existing rate structure and rate requirements identified in Step 3.
Because this analysis is performed over a multi-year period, other factors are considered, such as
working capital available to support capital projects, debt service requirements, and minimum
working capital policy.
Summary of Key Assumptions
The following is a summary of key assumptions for expenditures and revenues:
a. Operations and maintenance costs are based on the preliminary 2003-05 Financial Plan with
an inflation rate of 3%thereafter.
b. Sewer customer growth rate is projected at 1%.
c. Sales to Cal Poly are based on historic use and the 2003 Agreement between the City and the
University. This agreement set the proportion (74%) of the non-residential rate the
University pays to account for the University's difference from other customers (capacity
interest percentage in the collection system and at the Water Reclamation Facility).
d. Capital improvement charges (development impact fees) are estimated based on inflation and
customer growth assumptions. This analysis assumes a varying percentage collection of these
fees (see Exhibit 2-A). Development occurring under maps vested prior to impact fee
establishment pays only those fees in place at the time of approval.
e. Annual debt service payments of$2,135,500 are to repay the State Revolving Loan Funds
received by the City for the construction of the Unit 3 and 4 improvements to the Water
Reclamation Facility and collection system improvement("Relief Sewer Main").
f. Annual debt service payments of$282,900 for the energy conservation projects will begin in
2003-04. Electrical savings at the Water Reclamation Facility are projected to equal debt
service payments by 2004-05.
g. Annual debt service is increased by $360,000 in 2005-06 to pay for the $4.5 million Tank
Farm Lift Station project.
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h. Annual debt service is increased by $96,000 in 2005-06 to pay for the design phase of the
Master Plan improvements and increased by $1,059,000 in 2007-08 to pay for the
construction phase of Master Plan improvements at the Water Reclamation Facility. It is
hoped that this project will receive State Revolving Loan Funding.
By 2007-08, the sewer fund is projected to have more than $3.93 million dollars in annual debt
service payments. This will last for only four years, as the State Revolving Loan Funds for the
improvements in the early 90's will be paid in full by the fall of 2012, retiring the annual debt
service of$2.135 million.
Sewer Rate History
The table below shows a ten-year history of sewer rates from 1995 to 2005. It also shows an
additional two years into the future as it is anticipated that the master plan improvements will be
underway, and the sewer fund must be positioned to fund the debt service for $17.7 million in
improvements. As can be seen, over the ten years from 1995 to 2005, sewer rates will have
increased by about $9.00 per month for single family residents. They are projected to increase
by an additional $2.39 in 2006-2008 as the fund begins to support the costs associated with
master plan improvements.
SingleYear Family
ChargeSewer Service
A Historical Perspective of
Projected Sewer Rates
2007-08 31.75
2006-07 30.53 In the ten-year period from 1995-96
2005-06 29.36 to 2005-06, projected sewer rates
2004-05 27.96 will have increased 44% while the
2003-04 26.63 cost of living will have increased a
projected 54%. The single-family
Adopted sewer rate will have increased from
$20.35 to a projected $29.36 per
2002-03 25.24 month. When considered in context
2001-02 24.50 with the increases associated with
2000-01 23.79 inflation and the significant
1999-00 22.88 improvements made to our services,
7998-99 21.79 facilities and infrastructure, the
1997-98 21.47 increase represents considerable
1996-97 20.95 value versus expense.
1995-96 20.35
SUMMARY
The City Council's commitment to adopting small, regular sewer rate increases and setting
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Council Agenda Report=X003 Sewer Fund Review
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FISCAL IMPACT
In July 2003, the recommended sewer rate increase of five and one-half percent establishes
monthly sewer service rates of $26.63 for single-family dwellings, an increase of $1.39 per
month over the 2002 single-family rates. In July 2004, the recommended sewer rate increase of
five percent establishes monthly sewer service charges of$27.96 for single-family dwellings, an
increase of$1.33 from the,2003 rates.
ATTACHMENTS
1. Proposed Schedule of Monthly Sewer Service Rates for consideration June 17, 2003
2. Sewer Fund Review
Exhibit 2. A—Changes in financial position
Exhibit 2. B—Assumptions for fund projections
Exhibit 2. C—Capital improvement plan
Attachment 1
PROPOSED SCHEDULE OF MONTHLY SEWER SERVICE RATES
Effectnre Date
.• of Account July 1, 200300.
Single family dwelling, including single
meter condominiums and townhouses $26.63 $27.96
Multi-family dwelling in any duplex,
apartment house or rooming house, per 20.97 22.02
each dwelling unit
Mobile home or trailer park,per each 15.83 16.62
dwelling unit
Public, private, or parochial school,
average daily attendance at the school 3.00 3.15
All other accounts
Minimum charge 26.63 27.96
Additional charge for every 100 cubic 3,12 3.28
feet in excess of 500 cubic of
metered water consumption
Each vehicle discharging sewer into City
system
Minimum charge 87.73 92.12
Additional charge per 100 gallons in 5.28 5.54
excess of 1500 gallons discharged
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