HomeMy WebLinkAbout05/23/1995, 2 - SEWER FUND RATE REVIEW IIII�` I��p fll�fl MEETING DATE:
I gll�f�fIWAMIi��` city of San LUIS OBispo May 23 1995
COUNCIL AGENDA REPORT ITEM NUMBER:
FROM: John Moss, Utilities Director}��(� /
Bill Statler, Finance Director W
Prepared by: Sue Baasch, Administrative Analysl
SUBJECT: SEWER FUND RATE REVIEW %%''`"'
CAO RECOMAN.NDATION
Adopt a resolution increasing sewer service charges by six and four-tenths percent (6.4%),
effective July 1, 1995 and six percent (6%) effective July 1, 1996.
DISCUSSION
Overview
Modest sewer rate increases of 6.4% in July 1995 and 6.0% in July 1996, followed by cost-of-
living adjustments in 1997 and 1998, are projected in this sewer fund rate analysis. By 1996-977
fund stability will be achieved following several years of significant increases to support the $35
million capital improvements to the wastewater treatment and collection infrastructure and related
operating requirements. It represents the completion of a ten year cycle, beginning in 1986, of
the planning, designing, and constructing of necessary improvements to allow the City to meet
stringent effluent discharge requirements to protect the San Luis Obispo Creek.
The projected rate increases are consistent with the goal of ongoing review and moderate rate
increases to facilitate rate stability. These rates reflect ongoing departmental efforts to control
expenditures while providing quality service and maintaining costly infrastructure.
The equity contribution from Cal Poly as provided in the City's 1993 rate agreement with the
University is assumed in this analysis. The effect of this contribution is discussed in more detail
in the assumption section. It acts to moderate the amount of rate increase necessary in July 1995
and creates a fund balance in excess of the 20% operating expense requirement that will be the
subject of another report to Council (at such time as the equity contribution is received) which
will explore the considerations and strategies for the most effective use of that fund balance.
The proposed rates for 1995-97 for all customers are provided in Exhibit A. Financial schedules
supporting the proposed rates are provided in Exhibits B.1 through B.3.
Background
Financial Plan policies require the City to perform an annual review of the sewer fund and adjust
fees and rate structures to ensure they remain appropriate and equitable. In June 1993, the
Council reviewed a sewer fund analysis and adopted rates for sewer service charges through
1994-95. The sewer fund review in June 1994 confirmed the rates were valid and that no
change in the previously adopted rates was required. In addition, the 1994 review projected rate
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COUNCIL AGENDA REPORT
increases of 7.5% for 1995 and 7% for 1996, an amount slightly higher than is actually
recommended by this more recent analysis. This report analyzes the revenue requirements of
the Sewer Fund for the next four years, and recommends rate adjustments for the next two
years, based on the predicted 1994-95 revenues and expenditures, and the preliminary 1995-97
Financial Plan.
Sewer Rate Review Objectives
As adopted by the Council in May of 1988, the City's rate review should accomplish the
following objectives:
■ Comply with legal requirements
■ Ensure revenue adequacy to fully meet system operating and capital needs
■ Encourage conservation
■ Provide equity and fairness between classes of customers
■ Result in rate structures that are easy to understand by our customers and easy to
administer
■ Provide for ongoing review in order to facilitate rate stability
This annual review of the Sewer Fund has been performed with these goals and philosophy in
mind. Provided in Exhibit B.1 is a summary projection of revenues, expenditures and changes
in financial position for the Sewer Fund through fiscal year 1998-99. This projection outlines
the operations and capital improvement budget for the Sewer Fund as presented in the
preliminary 1995-97 Financial Plan. The assumptions used in this financial position projection
are detailed in Exhibit B.2.
Rate Setting Methodology
In determining sewer rate revenue requirements and setting recommended rates, the following
general methodology is used:
Step 1: Determine Sewer Fund revenue requirements for:
■ Operations and maintenance
■ Capital improvements and replacements
■ Debt service obligations (existing and projected)
Step 2: Subtract from this amount "non-rate revenues" such as:
■ Interest earnings
■ Connection fees
■ Revenues from other agencies (Cal Poly)
■ Other service charges (industrial user charges)
Step 3: Identify sewer rate requirements.
Revenue needed to be generated from sewer rates is the difference between sewer
revenue requirements (Step 1) and "non-rate" revenues (Step 2).
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city of San JS OBISp0
MWMA
COUNCIL AGENDA REPORT
Step 4: Determine new rates.
Model the rates to achieve an appropriate rate that ensures revenues to meet
projected expenses.
Because we perform this analysis over a multi-year period, other factors are considered such as
fund balance available to support capital projects, debt service coverage requirements, and
minimum fund balance policy.
Summary of Key Assumptions
Based upon the assumptions in Exhibit B.2 and the factors discussed above, the financial position
projections indicate that sewer rates require an increase of 6.4% in 1995-96 and 6.0% in 1996-
97. The following is a summary of key assumptions for expenditures and revenues:
■ Operations and maintenance costs are based on the preliminary 1995-97 Financial Plan
with an inflation rate of 4% thereafter.
■ Debt service includes annual repayment of 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"). This is projected at
$2,135,900 per year.
■ Rate increases for other agencies sending effluent to the Water Reclamation Facility are
based on an agreement with Cal Poly, approved by the City on January 5, 1993. In
accordance with the agreement, Cal Poly is pursuing the option to make an equity
contribution to the City's sewer system and thereby reduce its ongoing sewer expenses.
The equity contribution is due by June 30, 1995, but due to the State budget process, it
is more likely that it will be received in 1995-96. Based on this assumption, Cal Poly
sewer rates are fixed at 70% of the commercial rate as of 1995-96 and will increase
proportionately with other commercial customers, thereafter.
■ Fund balance exceeds the 20% of operating expenses requirement, due to the equity
contribution from Cal Poly. Because of the number of variables (emergency expenses,
claims) and considerations (prepaying a portion of the SRF loan) which could reduce this
projected fund balance, using fund balance as an ongoing strategy for balancing revenues
and expenditures is not recommended. If the equity contribution is received, staff will
provide Council a full analysis of the options for the appropriate use of the fund balance
in excess of the 20% requirement.
■ Sewer customer growth rate is projected at less than 1% until 1998-99. This projection
corresponds with the assumptions used in the- information regarding General Fund
revenues presented at the January 21, 1995 Council Goal Setting Workshop.
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COUNCIL AGENDA REPORT
■ Capital improvement charges (development impact fees) are estimated based on
inflationary and customer growth adjustments to the base year (1992-93) projection of
$583,200, which assumed annual growth of 1% in the City. These impact fees are
projected at $190,300 in 1995-96 and $328,300 in 1996-97.
■ Reimbursement for disaster-related expenses (January and March storms) are projected
from the Federal Emergency Response Agency (FEMA) and Office of Emergency
Services (OES) at $54,700.
FISCAL IMPACT
The proposed 6.4% and 6% rate increases will (rounded to the nearest five cents) establish
monthly sewer rates of$20,75 for single family dwellings in July 1995 and $22.00 in July 1996.
This is an increase of$1.25 in 1995 and $1.25 in 1996 in the monthly charges. The following
summarizes current and proposed rates for all customers:
Proposed Proposed
Type:of'AccountCurrent 7/1195 7/1/96
Fsingle`Fan ily`:: :.`` $19.50 $20.75 $22.00
a.Multi-Family::.;;:;'; .:,';: 15.50 16.50 17.50
m m6bale'h6meltrailer`park 11.70 12.45 13.20
="Schools:'=avgdaily attendance;.:. .:, 2.20 2.35 2.50
"AM;ffi r.accounts:.
r=::Minimum:":Charge;'` 19.50 20.75 22.00
<'``Additional;'charge`
lbase d ori water use) 2.30 2.45 2.60
Vehicles'd'ischarging effluent
...:
mto'City`sewer';system.
MinimumCharge' 65.00 69.00 73.00
Additional'charge (per
100.gal
. _ ..: ..
::..'n.excess:.9f`15.00 gallons). 3.90 4.15 4.40
ATTACffiVIDVT
Resolution adopting sewer service rates
E7HMITS
A. Schedule of proposed Monthly Sewer Service Charges, effective 7/1/95 and 7/1/96
B. Sewer Fund Rate Review
1. Changes in fund balance - sewer fund
2. Assumptions for sewer fund projections
3. Capital improvement plan for the sewer fund
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RESOLUTION N0. (1995 SERIES)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
ESTABLISHING SEWER SERVICE RATES
WHEREAS, it is the policy of the City of San Luis Obispo to review enterprise fund fees
and rates on an ongoing basis and to adjust them as required to ensure that they remain equitable
and adequate to fully cover the cost of providing services; and
WHEREAS, a comprehensive analysis of sewer fund operating, capital and debt service
needs has been performed for fiscal years 1995-96 through 1998-99; and
WHEREAS, the Council has reviewed the sewer service rates necessary to meet
operating and system improvement requirements.
NOW THEREFORE BE IT RESOLVED by the Council of the City of San Luis Obispo
as follows:
SECTION 1. Resolution No. 8259 (1994 Series) is hereby rescinded on the effective
date of this resolution.
SECTION 2. The rates set forth in Exhibit A shall be effective July 1, 1995 and July
1, 1996.
On motion of , seconded by
and on the following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing Resolution was adopted on this day of , 1995.
ATTEST: Mayor Allen Settle
City Clerk Diane Gladwell
APPROVED AS TO FORM:
C' tto� ey J re orgensen
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EXHIBIT A
MONTHLY SEWER SERVICE CHARGES
Effective Dates
Type of Account 7/1/95 7/1/96
Single family dwelling, including
single meter condominiums and townhouses $20.75 $22.00
Multi-family dwelling in any duplex,
apartment house or roominghouse, per
each dwelling unit 16.50 17.50
Mobile home or trailer park, per
each dwelling unit 12.45 13.20
Public, private, or parochial school,
average daily attendance at the school 2.35 2.50
All other accounts
Minimum charge 20.75 22.00
Additional charge for every 100 cubic feet
in excess of 500 cubic feet of metered
water consumption 2.45 2.60
Each vehicle discharging sewer into City system
Minimum charge 69.00 73.00
Additional charge per 100 gallons
in excess of 1500 gallons discharged 4.15 4.40
EXHIBIT B.1
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