Water Bond Debt Fee and Water Rate Modification

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1 Water Bond Debt Fee and Water Rate Modification Presented by City of Fernley Public Works Department April 4, 2012

2 Flat Fee Assessment in 2011/2012 May 2011 Residential Temporary Flat Fee Assessment of $18.00 per month June Commercial Temporary Flat Fee Assessment of $36.00 per month. As of March 31, 2012 Finance has collected $1.1 million dollars

3 Annual Bond Payment The Annual Water Bond Payment is $4.72 million By the end of fiscal year 11/12 we will have collected $1.4 million in assessment The remaining $3.32 million is slated to be paid for through a General Fund Loan and draw down of Water Fund Balance

4 We need a long term solution This option will not work for FY12/13 Increasing Cost in General Fund will reduce available loan amount Draw down of Water Fund Balance is not enough to pay remaining bond payment Requested assistance from rate consultant to develop long term strategy Recommendation to separate collection of fee for bond debt from operating and capital budgets

5 Collection of $4.72 Million It s s possible to collect a fee from each customer as part of the annual property tax statement It s s possible to collect a fee from all customers AND will-served lots It s s possible to collect a fee based on meter size

6 Fee collection methodology Existing customers could be charged the fee that corresponds to their connection meter size Lots with committed water will-serves, but no current system connection could be charged the base fee As growth and economic development occur, new connections to our municipal system could result in an automatic yearly fee decrease.

7 Water Bond Recovery Rate Table Design Meter Size Capacity Rate Will-served lot ¾ Base Rate Base Rate 1 Base Rate* 1.67% 1 ½ Base Rate* 3.33% 2 Base Rate* 5.33% 3 Base Rate* 10.00% 4 Base Rate* 16.67% 6 Base Rate* 33.35% *Based on American Water Works Association best practices

8 One Scenario (current customers only) Meter Size # of Accts Monthly Fee Collected Monthly ¾ 6890 $48.00 $330, $80.16 $10, ½ 57 $ $9, $ $35, $ $1, $ $13, $ $3,201.60

9 Another Scenario (current customers plus will served lots) Meter Size # of Accts Monthly Fee Collected Monthly ¾ 6890 $44.00 $298, $73.48 $9, ½ 57 $ $8, $ $32, $ $1, $ $12, $1, $2, Will Serve Lots 542* $44.00 $23,848.00

10 Recovery Fee Pros: Collecting the Water Bond Debt Fee as part of the property tax statement may alleviate monthly burden on Citizens paying their monthly water bills Spreading the debt equitably among customers and will-served lots, everyone would pay their share Collecting the entire annual bond payment amount would allow for a new water utility rate structure - possibly decreasing monthly bills

11 Water Rate Modifications If debt service is covered by a separate fee, water rates only need to cover operating costs, which include operation and maintenance, capital improvements and reserves Existing revenue sources are projected to generate $5.07 million in annual revenue in FY12/13 The DRAFT FY12/13 operating and capital budget is $3.22 million.

12 Water Rate Modifications Revenue remaining after operation and capital costs, not including bond debt $5.07 million - $3.02 million = $1.85 million Not really surplus because rates do not represent full cost pricing Due to high bond debt service requirements, current rates do not adequately cover capital reserves and reinvestment

13 Water Rate Modifications Capital reserves are not funded in current operating budget Capital reserves have been reduced drastically during last 5 years to cover debt service payments Professionals recommend funding 1.0 to 1.5 times depreciation for annual capital reserves

14 Water Rate Modification Benefits Rebuild capital reserves Partially fund depreciation Possibly reduce monthly water rates Possibly alleviate impact to revenues when/if consumption decreases Possibly alleviate impact to those on fixed incomes, small water users, and large water users

15 Direction from Council Should we separate the water bond debt from the operating and capital expenses? Should we collect the entire annual water bond debt through a meter based fee on existing customers and will-served lots as part of the property tax statement? Should we assess modifications to the water rates as a result of collecting the bond payment independently from water rates?