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HomeMy WebLinkAboutAgenda Report - April 16, 2008 K-01AGENDA ITEM KNP 1 AM CITY OF LODI COUNCIL COMMUNICATION M AGENDA TITLE: Provide Staff Direction Regarding Water and Wastewater Rate Revenue Accounting MEETING DATE: April 16,2008 PREPARED BY: Public Works Director RECOMMENDED ACTION: Direct the City Manager to: Rebalance operations and capital sub -funds within the water and wastewater utilities Place water/wastewater rate revenue into operations sub -fund and transfer to capital as needed through the budget process • Simplify billing by combining the separate "infrastructure charge" with the base charge but keep the water PCE/TCE charge separate • Update revenue/rate models in FY 08/09 BACKGROUND INFORMATION: In 2001, the City Council approved significant water and wastewater rate increases, in a large part, to address capital maintenance needs for these utilities. At Council's direction, the increase was itemized separately on customer bills as "replacement program". As City staff implementedthis specific direction and attempted to implement our interpretation of the Council's intentions, this revenue has been tracked separately and placed into the capital "sub -funds" within the respective utility enterprise funds. However, that rate increase was not solely intended to be for capital replacement. Increased operations costs, building an overall reserve within the enterprises, and meeting upcoming regulatory requ i rements were also part of the analysis that resulted in the rate increases, as described in the attached presentation. Normally, staff would make these adjustments within the enterprise funds without specific Council direction. However, given that there is an impressionthat all the "infrastructure replacement" revenue is for one specific purpose, staff is presenting this for public information and for further Council direction. FISCAL IMPACT: No direct impacts, however, implementingthe recommendations will make future rate and revenue analysis and presentation more efficient. FUNDING AVAILABLE: Not applicable F. Wally San lin Public Works Director FWS/pmf Attachment APPROVED: ` \ Blair King Kfj" anager K=PWTILITY RATESIW,WW Infrastructure Funds doc 41312008 Water Services Infrastructure Replacement Charges & Fund Balance City Council April 16, 2008 Water Services Funds Water and Wastewater enterprise funds both have "sub -funds" for Operations, Capital and Development Impact Mitigation Fees (IMF) State law requires separate fund for IMF (not discussed further in this presentation) Standard practice provides separation of Operation and Capital funds Historical Background 'i,, All revenue from rates went to Operating fund Transfers to Capital fund would be made periodically as needed Council directed in 2001 that the rate increase be identified specifically on the bill for infrastructure replacement (not included in Resolution) Following 2002 rate increase, the "infrastructure" revenue was placed directly in the capital sub -fund 3 The Problem Both Funds have a large cash imbalance between operating (negative) and capital (positive) . Water Operating: ($8.5 million) . Water Capital: $7.5 million . Sewer Operating: ($8.8 million) . Sewer Capital: $11.3 million 4 The Cause Not all of the 2002 rate increase was for capital expenses Motion to approve rate increase included identification on bill, but was not discussed earlier Operating costs have increased greater than anticipated All "infrastructure" revenue placed in capital sub -fund The Fix Make transfers to rebalance operations and capital sub -funds within the water and wastewater utilities Place all rate revenue into operation sub -fund, transfer to capital as needed through budget process Simplify billing — combine "infrastructure charge" with base charge (keep water PCE/TCE charge separate) Options presented at end of presentation 19 6 Rate Issues Historically, the City went many years between rate increases Rate adjustments were not planned very far in advance Policies regarding internal charges (cost of services) and in -lieu transfer to the General Fund have varied considerably Reserve targets were not established 7 Water Water Wastewater Services Date %Chg. Date %Chg. Rate Jul -07 13% Jul -07 3.4% Increase History Jul -06 13% Jul -06 2.0% Jan -06 13% Jul -05 25% May -05 2.2% M ay -04 25% May -04 35% Jul -02 35% Jul -02 25% Jan -02 35% Jan -02 25% Jun -95 18% Feb -91 15% Aug -91 5% Jan -90 15% Mar -89 69% Oct -88 15% Jun -76 50% Oct -87 15% Jun -65 100% Oct -86 15% Aug -55 Jan -78 8 Progress! Transfers to General Fund now cost of service formula based Revenue models developed periodically to help establish rate adjustments Annual adjustments based on CPI Policy to establish reserves 2001 Rate Issues Reserves Infrastructure Replacement Regulatory & Other Requirements Operations & Maintenance Cost Range of Revenue Requirements Discussed 9 10 Water/Wastewater Reserves • Present City Policy- Minimum of 15% of annual operating expenses. • AWWA - 5°% annual surplus revenue over total expenses: six to twelve months of O&M expenses, plus one year's debt service. = City of Tracy -251 of annual operating plus one year's debt service. • City of Stockton - 25°% of annual operating plus capital reserve (unspecified amount) • State Of California (Loan Fund Revenue Guidelines - 10% to 50% of annual operating plus capital reserve • Consultant (Washington State) - 10% of operating, plus $250,000 contingency resorve (emergency repairs), plus one year's capital costs. • Recommended Reserve for Lodi Water/Wastewater Utilities: 'r 15% of annual operating expenses, plus m $300,000 capital reserve in Water y $800,000 capital reserve in Wastewater Infrastructure Replacement • Major City Objective: Provide Resources to Maintain City's Infrastructure. • Critical Components of WaterlWastewater System Being Maintained • Replacement of Underground Facilities - Water Distribution Mains & Service: and Wastewater Collection Pipes Is Lagging > Replacements Bel ng pone In Conjunatlon With Other Projects > Need to Move Into a Pro -Active Replacement Program Has Been Recognized > Staffln9 Naw In Place to Begin Program > New Budget (2 - Year) Includes 5300,000 (W) & $200,000 (WW) per year ✓ Wi11 replace about 2,400 Ft. of pipe ✓ WlVVW systems have about 2 M111lon feet of pipe ✓ 2,400 Ft. represents 0.12 % of the system's total footage ✓ At that rate of replacement, a pipe installed today would have to last 824 years before it gets replaced > Replacement on a 100 -year cycle would require funding of $2.2 Million per year for water & $1.8 MIII ion for sewer Y Replacement on a 75 -year cycle would require Funding of $3.0 MiIfion for water and $2.4 Million for sower Regulatory and Other Requirements Wast—ter + Maet New Di3Cnarga Permit Requirement3 ✓ Estimates in 534 Million Range ✓ Other Age— ies Seeing Add ltl Dnal Req uiremen t3 & Cast Some PGrl ion of Cost Will 6e Allocated To New Development ✓ Possible Otfsets -Grants & Project Partners + Energy Cast 7 ? : COneral Cost of Lmn glOperMians Water Regulatory Requiremenls ✓ Contaminants - OB CP, PChlTCE, others ✓ Nayu ra l ly Occ urr l ng Elements -Rada n, Arsenic r Fl uorida lion & C 111 r'OM ion ✓ COst Im pael Will Depend on Levels EstaWish ed & Gra nl FU nd i ng Pmvl de Ad diti one l 5 up ply Wide Range of Potenl l al Costs - - $3Sr M. For Su rfaco Water Transport & Treatment (It Ara l lable) - $Z to 44 M. for Pral l m. Engineering & Permils For Coumy Project ✓ Conservation / Possible OfFsuui -Grants & Project Partners Energy Cost? 7 7 General Cost of Ll vin ofOoerat Ions Range of Revenue Requirements ■ Exhibit from 2001 ■ Actual revenue lower: • Water — avg. $2.0 M/yr • Wastewater — avg. $2.3 M/yr ■ Infrastructure replacement expenditures have been approx. $850,000 per year in each utility Alternatives A B C Eliminate itemization of "infrastructure Keep separate replacement' on bill "infrastructure replacement' charge Going forward, all rate revenue to one account, Keep revenues in transfer cash as needed per annual budget separate sub -funds Transfer between sub- Leave existing sub- Raise rates to cover funds to eliminate past funds as -is (will balance operating deficits deficits over time) Update revenue/rate models in FY 08/09 The City Council, on motion of Council Member Hitchcock, Howard second, adopted Resolution No. 2001-231, pursuant to Section 13.08.090 of the Lodi Municipal Code, providing for and establishing rates to be charged for water service, and further directed staff to; • add a line item on the utility bills identifying the water cost increase with a descriptor specifying its purpose for irfrastructure replacement; • prepare a long-range, ten-year financial model spreadsheet identifying water, sewer, and electric expenses, including the dollar amount for the utility user tax over this period; and • at the lime of settlement reiated to the PCFITCE issue, repay the water fund for the previous $6 million expenditure, using the balance remaining after priority takes. The above motion carried by the following vote: Ayes: Council Members - Hitchcock, Howard, Pennine and Mayor Nakanishi Noes: Council Members -None Absent:COL ncil Members-Land MOTION f4211 VOTE: The City Ccurcil, on motion of Council Member Howard, Hitchcock second, adopted Resolution No. 2001-232, pursuant to Section 13.12.240 of the Lodi Municipal Code, providing for and establishing rates to be charged for sewer services, and further directed staff to: • add a line item on the utility bills identifying the wastewater cost increase with a description specifying its purpose for infrastructure replacement; and prepare a long-range, ten-year financial model spreadsheet identifying water, sewer, and electric expenses, including the dollar amount for the utility user tax over this period. The above motion carried by the following vote: Ayes: Council Members -Hitchcock. Howard, Pennino and Mayor Nakanishi Noes: Council Members - None Absent: Council Members - Land RESOLUTION NO. 2001.231 A RESOLUTION OF THE LODI CITY COUNCIL ADOPTED PURSUANT TO SECTION 13.08.010 OF THE LODI MUNICIPAL CODE, PROVIDING FOR AHD ESTABLISHING RATES TO BE CFWRGED FOR WATER SERVICE WHEREAS, pmont 1q Ub requw-rds of Governme,u Code S-6- 54354.5. a Public Nearing was hold an October 3, 2001, tp WMIO r .1000W Of a Resolution ,e,.g and eslablisNog an amended fee schedule for water sefviw rales. NOW, THEREFORE, BE IT RESOLVED, by the Lod City CwW; Section 1: The sc! Ovule of water senior foles fIX Ino City Or Lodi shell 8e as shovm m folloaa: Warier U61 Praaant January 2002 July 2002 Rah Secean 1: The Scheawa of 5eh'ar s mr fa%a for Irw Resrdantiel Fla[ Ram [per nwnlhl: shall be e9 Shown as foapw.: prrgle gamily Una Coma bedroom} E 8.65 5 10.81 $13.51 [Mo be0r0ar,L.) x10.38 51x.96 $1822 v✓eaeadropms) 512.45 S 15.56 $ 945 {fwr bedreo ) $14.95 $1 Beg 1Beg $23.36 ({ bedroorrta) $17,94 $ 22.43 528.04 (NX bedrooms) $21.53 $26.97 $33.04 I-oeQfooma) $25.82 $32.28 $40.35 Mulliple Famihy Una lone bedroom} $ 7.42 S 9.2B 511,60 ttwv bodPl*rns] $ x-90 $ 11.13 $11, [Three bedrporml 510.65 S 13.35 516.89 516.62 $22.71 • 20%I.e. - aam. bodroorn Cone alllnd-w,p; Flal Ryle rages add 26% add 2556 Ensting account..*. New ape ws $21,53 $29.20 Moderate Slmrtglh (annual per SSU) V& metered. $115.32 $155.66 [Most c rnardal a iridustrial unless Metered Rale $ 0296 per 100 W - 1I. (app0x-40q par 1,000 "high glrangtW $ 0.397 $0.524 Pius monthly base 9+1.43 id' malar Na d+amga charge: S 5554.88 $749.09 S17,14 1"meterMe charge BOO (per 1.000 lbs.. annual basis) $22$5 1Yr- meta, No change 528.58 2"nmlerMDMarge SS (par 1,000 lb.., annual basis) 340.00 3"malar No change $51A3 4'meter NO Mange Grease Interceptor and Sepw $74.29 6" meter No charge Holding Tank Waste Wirlin Cily $97,16 e7 malar No Marge water $ 0.296 per 100 w. R. (approx. 401 Pea 1.000 :onslnrctim barges; Sepllc (Only) Holchng Tank Waste S $180.45 $243-51 0-1- City Lkrpls (per 1,DW 9.1.) $ 0.397 $ 0.524 RESOLUTION NO. 2001-232 A RESOLUTION OF THE LODI CITY COUNCIL ADOPTED PURSUANT TO SECTION 13.12.240 OF THE LODI MUNICIPAL CODE, PROVIDING FOR AND ESTABLISHING RATES TO BE CHARGED FOR SEWER SERVICE WHEREAS, PUMUOnt to the requirements of Govemmenl Code Sedion 54354.5, a Public Hearing 1.aa held On Odober 3, 2001, 10 o Sider adoption of a Re%Nulion seteng and establishing an amended fee Schedule for sewer service hies. NOW, THEREFORE. BE IT RESOLVED. by the Lod, City Council; Secean 1: The Scheawa of 5eh'ar s mr fa%a for Irw City of Lodi shall be e9 Shown as foapw.: Washwalar Utmity Pmewt January July Rah 2002 2002 DISpnsal to Domestic System Residential [per monthl 1 S 5.34 S 7.21 S 9.73 Bodfoom 2 86dropms (basis for 1 Sewage S 7.12 S 9.61 512.97 Serviq Unit) (SSU) 3 Bedrooms S6.90 512.02 $18.23 4 Bedrooms 510.68 $14.42 519.47 5 Badrogms $12.46 516.62 $22.71 6 geonwrns $14.24 519.22 $25.95 m 7 Bodruvs 515.02 $21,53 $29.20 Moderate Slmrtglh (annual per SSU) $85.42 $115.32 $155.66 [Most c rnardal a iridustrial unless "high glrangtW FYgh s'"'77"user: Flow 1par MG, annual basis) S 5554.88 $749.09 +11.02 BOO (per 1.000 lbs.. annual basis) S 5271.54 5356.58 201.14 SS (par 1,000 lb.., annual basis) $ 5221.97 $299.66 164.42 Grease Interceptor and Sepw 562.96 585.00 $114.75 Holding Tank Waste Wirlin Cily Limits (par 1,000 gal ) Sepllc (Only) Holchng Tank Waste S $180.45 $243-51 0-1- City Lkrpls (per 1,DW 9.1.) 133.67 Olspo.al tc Stcrm Drain System (per WAS $8928 $120.53 MGI seams 7tr nw a..we>nan >Y are Rose.n,m era, a. me�va +rr.�.r 2ooz e•e Nr 8002. or xpaed q w mal nor carp � ro.orrmp ..a ertecvn morn. ' w� 9. inpu;o�n rye wm w Rescw,mre n cmtl tnw"n em •ep�rta defer u ardr eernp mry eaai oaaee: ameera. lav+ ay ce�«rn ew+nr an R..p„ma No. xo1-n1 ... pa..n ap wen cr va p+ a .. car � Los a .rex,. en.wp rw Deme. a, mol, m w. ryw.y wee nvas c�uRca MaMeER no.arn, P. --Moa Pa$EM' Cg1RC1 MEMBERS -Lap easTnin eapxca MEMesRs-Hoa a- SusM+e B�aTpa c.rcw• Senior ? The r.:.e eele00Nad N h4 -. tpe y ee -P-- 4arvay 2W2 aro Jul, u pWn•n ua mp N. d Mr,.this f6low he.nerLxtl w seciwr's ns d ae.deeaea :. en.asa Nr..4N r. rePrWe imnir of eiM [Mate e+ey e•kl m mxd: Dancer a, mal h.rrM canny liar R.ad,em No. NO1.212 .ref pd.ed end ac Did M ay GN Lwm� d i� Cpy W LWT r . ragWr rmpor1p moa oneaer ], 2001, It, Ura ryq.a�p wLe' wra5=1U 1 vE�ERS - Hemwa. Hvwd. er4 al.la NOES. COUNCIL MEMaER.-Rorty • sENT: C-LMEMBERS-LaM ABSTNN: COUNCiLMEMRERS-Nary susP++u aw�row C1b C4rw 11 E' °?``�'� BUILDING INDUSTRY ASSOCIATION OF THE DELTA C8r GnvATnv TWENTY YE1R5 �'FICERS March 25,2008 idley McGee mball Hill Homes Mayor Mounce y ahesh Ranchhod City of Lodi nerican-USA Homes 221 W. Pine St, remy White e Grupe, Company Lodi CA 95240 hn Looper r) Grade construction Re: Water Services Infrastructure Replacement Charges & Fund Balance )ARD OF DIRECTORS Mayor Mounce, �bbie Armstrong d Republic Title company The BIA of the Delta would like to first thank the City of Lodi for maintaining all att Arnaiz necessary records for the purpose of tracking the revenues and expenditures D. Arnaiz Corporation A Attebery associated with the accounts in question, and also for brining this matter up for a +umiller & Beardslee public discussion. 'y Chavez -IIy-Moore Paint Company ran Gerding The record of the Council Meeting of October 3,200 1, shows a clear intent by the Ite Homes Council to segregate the funds from this rate increase for the purpose of `thy Ghan infrastructure replacement. The addition of a line item on the utility bill identifying tk Valley Community Bank gorge Gibson the use to which these funds are to be used is not only a statement to staff but also to :B Homes the rate paying public that the Council intends for these funds to be invested back eve Herum into the community and used for the purpose of infrastructure replacement. ,rum Crabtree Brown ayne LeBaron Baron Ranches The State of California provides an all too familiar example of what happens when !rry Miles the infrastructure of roads, water supply and levee protection are neglected. ichert Construction Erol Ornelas sionary Home Builders, Inc. During the Shirtsleeve Session of March 25,2008 City Manager King recognized m Panagopnulos how difficult it can be for infrastructure to receive adequate funding on a regular G. Spanos Companies mise Tschirky basis. But he also added to do so is a good fundamental decision." atthews Homes We strongly encourage the Council to support the sound fiscal policy decision that FFTIME. DIRECTOR s was made on October 3,2001 and maintain the existing infrastructure replacement policy. Ennis Bennett +nnett Development H F1110S Thank you, <U Development, LLC ike Hakeem ikeem, Ellis & Marengo rfrey Kirst John Beckman ikay Development Chief Executive Officer eve Moore ilandev Development Indra Morris d Republic Title Company )ni Raymus iymus Homes, Inc. )ny Souza 509 WEST 1VEBER AVEVUE, SUITE 410 mza Realty & Development STOCKTON, CALIFORNIA 95203-3167 (=09) 235.7831 I'll (1191235-7837 FX 09ae BUILDING INDUSTRY ASSOCIATION OF THE DELTA txi:i�llvi4 . ` gt> S je gP�f.Et fits iix i� _ I igc. g SS q ": CELFERATrAu TwENrr YEARS OF BC7LDrM EXCELLENCE ?FICERS I April 1,2008 rdley McGee rnball Hill Homes Mayor Mounce ahesh Ranehhod City of Lodi ncrican-USA Homes 221 W. Pine St, remy White e Grupe Company Lodi CA 95240 hn Looper p Grade construction Re: April 2,2008 Council Meeting Item K-2 )ARD OF DIRECTORS Mayor Mounce, bbie Armstrong IRepuhlic Title company After reviewing the staff report for this item we would like to add the following itt Arnaiz comments to our letter dated March 25,2008. ), Amaiz Corporation d Attebery umiller & Beardsle.e. The alternatives presented by staff, labeled A, B and C, create a false choice and a F, Chavez false impression that rates would only rise if option C is chosen. These options Ily-Moore Paint Company an Gerding make no mention of the pace at which infrastructure is replaced under any of the to Homes three options. The most important question that must be answered in this discussion thy Ghan is how will the rate of infrastructure replacement be changed under each of these k Valley Community Bank options? urge Gibson B Homes ve He.rum Clearly option C would maintain the existing rate of financing to infrastructure mm Crabtree Brown Tyne LeBaron replacement and therefore maintain the same rate of replacement. With option A or 3aron Ranches B, if there is to be no rate increase then how will the current level of infrastructure -ry Miles replacement be maintained? If option A or B is selected would the rate of chert Construction rol Ornelas infrastructure replacement return to that of the 80's and 90's when "a pipe installed ion ary Home Builders, Inc. today would have to last 824 years before it gets replaced."? i Panagopoulos i, Spanos Companies use Tschirky Again, we strongly encourage the Council to support the sound fiscal policy decision tne.ws Homes that was made on October 3, 2001 and maintain the existing infrastructure replacement policy. ETIME DIRECTORS anis Bennett Thank you, nett Development Filios F Development, LLC John Beckman ce. Hakeem ;eern, Ellis & Marengo Chief Executive Officer 'rey Kirst ay Development w Moore andev Development idra Morris Republic Title Company ii Raymus mus Homes, Inc ry Souza 509 WEST WEBER AVENUE, SUITE 410 7a Realty & Development STOCKTON, CALIFORNIA 95203-3167 (209) 235-7831 PH (209) 235-7837 FX