HomeMy WebLinkAboutMinutes - March 25, 2008 SSCITY OF LODI
INFORMAL INFORMATIONAL MEETING
"SHIRTSLEEVE" SESSION
CARNEGIE FORUM, 305 WEST PINE STREET
TUESDAY, MARCH 25, 2008
An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday,
March 25, 2008, commencing at 7:00 a.m.
A. ROLL CALL
Present: Council Members — Hitchcock, Hansen, Johnson, Katzakian, and Mayor Mounce
Absent: Council Members — None
Also Present: City Manager King, City Attorney Schwabauer, and City Clerk Johl
B. TOPIC(S)
B-1 "Infrastructure Replacement Account"
City Manager King provided a brief introduction of the infrastructure replacement account.
Public Works Director Richard Prima provided a PowerPoint presentation regarding the
infrastructure replacement charges and fund balance. Specific topics of discussion
included, but were not limited to, an outline, water services funds, historical background,
the problem, the cause, the fix, rate issues, progress, 2001 rate issues, reserves,
infrastructure replacement, regulatory and other requirements, operations and maintenance
costs, range of revenue requirements, recommendations, and supplemental information.
In response to Mayor Mounce, Mr. Prima stated the erroneous split was not previously
discussed because it was sidetracked in light of the PCE/TCE issues and the cash was
going to that effort regardless of the split.
In response to Mayor Pro Tempore Hansen, Mr. Prima stated the annual adjustment was
done in 2004 in conjunction with the Proposition 218 Notice and was not effective until the
following year for both water and wastewater.
In response to Mayor Mounce, Mr. Prima stated the annual amount collected from the
relevant line item is $2.2 million. He stated that staff understood the line item to provide for
infrastructure on a broader and more general level.
In response to Mayor Pro Tempore Hansen, Mr. Prima stated from 2000 to the present the
maintenance and operation costs have been increasing by approximately six percent per
year and rates were raised at only three percent per year.
Discussion ensued between Mayor Pro Tempore Mounce and Mr. Prima regarding
spending $900,000 per year for capital replacement, the possibility of doing a current and
future adjustment without retroactivity, the direct application of the $2.2 million to
infrastructure only, and the options associated with raising rates and rebalancing. Mr. King
discussed the public policy for having an infrastructure replacement policy to address
ongoing maintenance and operations needs, money advanced to PCE/TCE litigation, the
ongoing creation of a deficit because the rates do not match the costs, the
misinterpretation regarding rate application to infrastructure only, and the options of rate
increases or a rebalancing to make up the difference.
In response to Council Member Katzakian, Mr. Prima stated the PCE/TCE costs are
separate from the ongoing operations and maintenance costs and the money from the
connection fee was included in the wastewater fund. Mr. King reiterated that the one-time
payment for Flag City has not yet been received and it is difficult to apply one-time funding
to ongoing needs such as operations and maintenance costs.
Continued March 25, 2008
In response to Mayor Pro Tempore Hansen, Mr. Prima stated that the actual dollars spent
on the line replacement are being charged to bond proceeds. He stated the $6 million goes
into the development fee impact fund and payments are made from there. Mr. Prima stated
the transfers are used to pay debt service.
In response to Mayor Pro Tempore Hansen, Mr. Prima confirmed that the annual
adjustment for Consumer Price Index (CPI) of approximately three percent is not covering
the operations and maintenance costs of approximately six to eight percent for water and
wastewater. He stated one option may be to increase the operations side only while leaving
the capital side alone.
Discussion ensued between Mayor Pro Tempore Hansen and Mr. Prima regarding the
understanding of how the line item money was to be distributed, specifics for debt service
for water and wastewater, the need to assess how to make up the difference, debt service
as a complicating factor, unfunded mandates for sewage treatment plant, PCE/TCE, the
lack of multiple line items for other municipalities, and a single infrastructure line that is
distributed as necessary.
In response to Council Member Katzakian, Mr. King stated they are looking at rebalancing
now and there may be an ability to rebalance away from infrastructure to operations and
maintenance. Mr. King stated another option is that the line item goes away and funds are
spent generally on infrastructure and operations and maintenance. He also discussed
approval of a capital improvement program to fund projects with the annual budget, efforts to
avoid rate increases, restricted funds for infrastructure only while addressing operations and
maintenance with an increase, or another hybrid approach of the same.
Discussion ensued between Mayor Pro Tempore Hansen and Mr. Prima regarding
operations and maintenance cost growth over an extended period of time, the growing costs
of materials and supplies, and the theory of CPI to assist in maintaining these increases.
C. COMMENTS BY THE PUBLIC ON NON -AGENDA ITEMS
None.
D. ADJOURNMENT
No action was taken by the City Council. The meeting was adjourned at 8:03 a.m.
ATTEST:
Randi Johl
City Clerk
2
AGENDA ITEM Z ap I
CITY OF LODI
COUNCIL COMMUNICATION
M
AGENDA TITLE: Infrastructure Replacement Account
MEETING DATE: March 25,2008 (Shirtsleeve Session)
PREPARED BY: Public Works Director
RECOMMENDED ACTION: Receive information on the following:
• Rebalancing operations and capital sub -funds within the water
and wastewater utilities
• Placing water/wastewater rate revenue into operations sub -fund
and transferring to capital as needed through the budget
process
• Simplifying billing by combining the separate "infrastructure
charge" with the base charge but keeping the water PCE/TCE
charge separate
• Updating revenue/rate models in FY 08/09
BACKGROUND INFORMATION: In 2001, the City Council approved significant water and wastewater
rate increases. At Council's direction, the increase was itemized
separately on customer bills as "replacement program".
As City staff implemented this specific direction and attempted to implementour 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 requirementswere 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 impression that all the "infrastructure replacement" revenue is
for one specific purpose, staff is presenting this for public information and will return to Council for further
direction.
FISCAL IMPACT: No direct impacts, however, implementingthe recommendations will make
future rate and revenue analysis and presentation more efficient.
FUNDING AVAILABLE: Not applicable.
Richard C. Prima, Jr.
Public Works Director
RCP/PJ Flpmf
Attachment
APPROVED:
Blair Ki Manager
KIWPIUTILITY RATES1Shirtsleeve Infrastructure Funds.doc 3/21/2008
Water Services
Infrastructure Replacement
Charges & Fund Balance
City Council
Shirtsleeve Session
March 25. 2008
Outline
Water Services Funds (and sub -funds)
The "Problem"
The Cause
The Fix
Rate History
Rate Issues
Recommendations
(D,
,,
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
3
Historical Background
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 -fungi
51
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
5
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
0
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)
7
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
Water
Services
Rate
Increase
History
Date
Water
Jul -07
Jul -06
Jan -06
May -05
May -04
Jul -02
Jan -02
Jun -95
Aug -91
Mar -89
Jun -76
Jun -65
% Chg.
13%
13%
13%
2.2%
35%
25%
25%
18%
5%
69%
50%
100%
Aug<D
Wastewater
Date
Jul -07
Jul -06
Jul -05
May -04
Jul -02
Jan -02
Feb -91
Jan -90
Oct -88
Oct -87
Jan -78
% Chg.
3.4%
2.0%
25%
25%
35%
35%
15%
15%
15%
15%
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
10
2001 Rate Issues
);�- Reserves
➢Infrastructure Replacement
Regulatory & Other Requirements
Operations & Maintenance Cost
Range of Revenue Requirements
Discussed
11
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 — 25% 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 reserve (emergency repairs), plus
one year's capital costs.
Recommended Reserve for Lodi Water[Wastewater Utilities:
➢ 15% of annual operating expenses, plus
➢ $300,000 capital reserve in Water
$600,000 capital reserve in Wastewater
Infrastructure Replacement
K Major City Objective: Provide Resources to Maintain City `s Infrastructure,
0 Critical Components of Water/Wastewater System Being Maintained
it Replacement of Underground Facilities — Water Distribution Mains & Services
and Wastewater Collection Pipes Is Lagging
➢ Replacements Being Done In Conjunction With Other Projects
➢ Need to Move Into a Pro -Active Replacement Program Has Been
Recognized
➢ Staffing Now In Place to Begin Program
➢ New Budget (2 — Year) Includes $300,000 (W) & $200,000 (WW) per year
✓ Will replace about 2,400 Ft. of pipe
WIWW systems have about 2 Million 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 Million for sewer
➢ Replacement on a 75 -year cycle would require funding of $3.0 Million
for water and $2.4 Million for sewer
Reaulatory & Other Renuirerne
Regulatory and Other Requirements
it Wastewater
➢ Meet New Discharge Permit Requirements
✓ Estimates in $34 Million Range
✓ Other Agencies Seeing Additional Requirements & Cost
✓ Some Portion of Cost Will Be Allocated To New Development
✓ Possible Offsets — Grants & Project Partners
.' Energy Cost? ? ?
➢ General Cost of LivinglOperations
Water
➢ Regulatory Requirements
✓ Contaminants — DBCP, PCEITCE, others
✓ Naturally Occurring Elements — Radon, Arsenic
✓ Fluoridation & Chlorination
✓ Cost Impact Will Depend on Levels Established & Grant Funding
➢ Provide Additional Supply
✓ Wide Range of Potential Costs -
- $35+ M. for Surface Water Transport & Treatment (If Available)
- $2 to $4 M. for Prelim. Engineering & Permits for County Project
✓ Conservation
✓ Possible Offsets — Grants & Project Partners
➢ Energy Cost? ? ?
➢ General Cost of LivinglOperations
Operations & Maintenance Costs
➢ Vary from year to year
)�Have exceeded inflation (+ 3%/year)
. Water expenses: + 6%/year
. Wastewater expenses: + 8%/year
(D'15
Operating }Annual Operating % Increase
—*—CPI Yearly % increase: — Expon. (Operating)
= 1 E-43e0.0565X
R2 = 0.8619
WID Water Purchase Costs Excluded
+Operat ing
CPI Yearly % increase:
Annual Operating % Increase
—Expon. (Operating)
y =
6E -68e 0.0847x
R2 = 0.947
Increased Revenue Requirements
$ Per Year
Water Utility
Recommended Potential
Component Program Program
Sustain Fund Balance
wlReserve $45,000 $ 45,000
Replace Infrastructure $2,200,000 $2,240,000
Alternate Water Supplies $20,00a $2,000,000
Total: $2,265,000 $4,245,000
Wastewater Utility
Sustain Fund Balance
wlRese►ve $ 245,000 $ 245,000
Replace Infrastructure $ 2,000,000 $ 2,000,000
Wastewater Treatment
Upgrades $ 370,0x0 $ 2,380-000
Total: $ 2,fi15,000 $ 4,625,000
Grand Total: $ 4,880,000 $ 8,870,000
Recommendations
)� Direct City Manager to:
• Rebalance operations and capital sub -funds within
the water and wastewater utilities
• Place all rate revenue into operations sub -fund,
transfer to capital as needed through budget process
• Simplify billing — combine "infrastructure charge" with
base charge (keep water PCE/TCE charge separate)
• Update revenue/rate models in FY 08/09
• Leave replacement program as is and consider rate
increases to meet operational needs
19
Supplemental Information
➢Minutes from 2001 Council meeting
approving rates
Water Rate Resolution 2001-231
Wastewater Rate Resolution 2001-232
20
..T
MOTIDN 121) /_11 TE:
The City Council, on motion of Coun6l Member tlitohcock, Howard second, adopted
Resolution No. 2001-231, pursuant to Section 13,08,010 of the Lodi Municipal Cade,
providing for and establishing rates to be charged for water service, and further directed
staff to:
acid a Eine item on the utility bilis identIfying the water cost increase with a description
specifying its purpose for infrastructure replacement;
prepare a long-range, tern -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 time of settlement related to the PCE T E issue, repay the water fund for the
previous million expenditure, using the balance remaining after priority takes.
The above motion carried by the following gate.
Ayres: Council Members — Hitchcock, Howard, Pennino and Mayor C' akenishi
Maes; Council Members — None
Absent: CounciI Members T Lanz!
MDTI N (4211 VOTE.
The City Council, on rnvtion of Council Member Howard, Hitchcock second, adopted
l esolulion No. 2001-232, pursuant to Section 1 .12.240 of the Lodi Municipal 'Code,
providing for and establishing rates to be charged for sewer services, and further directed
stuff to:
• acid a line item on the utility fills 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 tar over this
period.
The above motion carried by the following vote:
Byes: Council Members — Hit&cock, Howard, Pennine 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 AND
ESTABLISHING RATES TO BE CHARGED FOR
WATER SERVICE
WHEREAS, pursuant to the requirements of Government Code Section 54354.5,
a Public Hearing was held on October 3, 2001, to consider adoption of a Resolution
setting and establishing an amended fee schedule for water service rates.
NOW, THEREFORE, BE IT RESOLVED, by the Lodi City Council:
Section 1: The schedule of water service rates for the City of Lodi shall be as shown
as follows:
Water Utilii
Residential Flat Rate (per month):
Single Family Unit (one bedroom)
(two bedrooms)
(three bedrooms)
(four bedrooms)
(five bedrooms)
(six bedrooms)
(seven bedrooms)
Multiple Family Unit (one bedroom)
(two bedrooms)
(three bedrooms)
Commercial/Industrial Flat Rate
Existing accounts only. New accounts
are metered.
Metered Rate
plus monthly base
charge:
Construction Water
Charges:
Present January 2002 July 2002
Rate
$ 8.65
$10.38
$12,45
$14.95
$17.94
$21.53
$25,82
$ 7,42
$ 8.90
$10.6a
varies
S 0.296
$11.43
$ 10.81
$13.51
$ 12.98
$16.22
$ 15.56
$19.45
$ 18.69
$ 23.36
$ 22.43
$28.04
$ 26.91
$33.64
$ 32.28
$40.35
$ 9.28
$11.60
$ 11.13
$13.91
$ 13.35
$16.69
+ 20% for ea. add'€. bedroom
add 25%
add 25%
per 100 cu. ft. (approx. 400 per 1,000 gal.)
$ 0.397 $ 0.524
3/4" meter No change
$17.14
1" meter
No change
$22.85
1'/i' meter
No change
$28.58
2" meter
No change
$40.00
3" meter
No change
$51.43
4" meter
No change
$74.25
6" meter
No change
$97.16
8" meter
No change
$ 0.296 per 100 cu. ft. (approx. 40¢ per 1,040 gal.)
$ 0.397 $ 0.524
Section 2: The rates established by this Resolution shall be effective January 2002
and July 2002, or applied to the next full billing cycle following the effective date.
Section 3: All resolutions and parts of Resolutions in conflict herewith are repealed
insofar as such conflict may exist.
Dated: October 3, 2001
I hereby certify that Resolution No. 2001-231 was passed and adopted by the
City Council of the City of Lodi in a regular meeting held October 3, 2001, by the
following vote:
AYES: COUNCIL MEMBERS - Hitchcock, Howard, Peanino and Mayor
Nakanishi
NOES: COUNCIL MEMBERS - None
ABSENT: COUNCIL MEMBERS - Land
ABSTAIN: COUNCIL MEMBERS - None
SUSAN J.
City Clerk
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, pursuant to the requirements of Government Code Section 54354.5,
a Public Hearing was held on October 3, 2001, to consider adoption of a Resolution
setting and establishing an amended fee schedule for sewer service rates.
NOW, THEREFORE, BE IT RESOLVED, by the Lodi City Council:
Section 1: The schedule of sewer service rates for the City of Lodi shall be as
shown as follows:
Wastewater Utility
Disposal to Domestic System:
Residential (per month) 1
Bedroom
2 Bedrooms (basis for 1 Sewage
Service Unit) (SSU)
3 Bedrooms
4 Bedrooms
5 Bedrooms
6 Bedrooms
7 Bedrooms
Moderate Strength (annual per SSU)
(Most commercial & industrial unless
"high strength"
High strength user:
Flow (per MG, annual basis)
BOD (per 1,000 lbs., annual basis)
SS (per 1,000 lbs., annual basis)
Grease Interceptor and Septic
Holding Tank Waste within City
Limits (per 1,000 gal.)
Septic (only) Holding Tank Waste
Outside City Limits (per 1,000 gal.)
Disposal to Storm Drain System (per
MG)
Present January July
Rate 2002 2002
$5.34 $7.21 $9.73
$7.12 $9.61 $12.97
$ 8.90
$10.68
$12.46
$14.24
$16.02
$85.42
$12.02
$14.42
$16.82
$19.22
$21.63
$115.32
$
$554.88
411.02
$
$271.54
201.14
$
$221.97
164.42
$62.96
$85.00
$ $180.45
133.67
$66.13 $89.28
$16.23
$19.47
$22.71
$25.95
$29.20
$155.68
$749.09
$366.58
$299.66
$114.75
$243.61
$120.53
Section 2: The rates established by this Resolution shall be effective January 2002
and July 2002, or applied to the next full billing cycle following the effective date.
Section 3: All resolutions and parts of Resolutions in conflict herewith are repealed
insofar as such conflict may exist.
Dated: October 3, 2001
I hereby certify that Resolution No. 2001-232 was passed and adopted by the
City Council of the City of Lodi in a regular meeting held October 3, 2001, by the
following vote:
AYES: COUNCIL MEMBERS - Hitchcock, Howard, Pennino and Mayor
Nakanishi
NOES: COUNCIL MEMBERS - None
ABSENT: COUNCIL MEMBERS- Land
ABSTAIN: COUNCIL MEMBERS - None
SUSAN J. BLACKSTON
City Clerk