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
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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