BUDGET REVIEW AND EXPENDITURE ESTIMATES

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Cynthia Harrison
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1 FINANCE & ECONOMIC DEVELOPMENT COMMITTEE SEPTEMBER 6, :00 A.M. TO 8:56 A.M. COUNCIL PRESENT: ANDY RYDER, LENNY GREENSTEIN COUNCIL ABSENT: CYNTHIA PRATT STAFF PRESENT: SCOTT SPENCE, TROY WOO, SCOTT EGGER, DAVE SCHNEIDER, KRISTY WOLF, CHELSEA YARWOOD, PERI EDMONDS MOTION: APPROVE FINANCE & ECONOMIC DEVELOPMENT COMMITTEE AGENDA. MOTION WAS MADE, SECONDED, AND CARRIED BY MAYOR RYDER AND COUNCILMEMBER GREENSTEIN TO APPROVE AGENDA. BUDGET REVIEW AND EXPENDITURE ESTIMATES INFORMATION ONLY Revenue Outlook General Property Tax Levy $6,438,002 - Overall increase of $252,420 Projected Sales Tax Changes - Overall increase of approximately $800, Stable new construction through 2018; year-to-date increase -24.5%. - General Merchandise Stores inconsistent; year-to-date increase +1.9%, with decrease in February, no change in March/April, and growth in May and June. Utility Funds 2018 Rate Increase for Residential Accounts $0.96/month increase scheduled for water (tentative). $0.83/month increased scheduled for sewer. $0.61/month increase scheduled for stormwater. $0.76/month approved rate increase for LOTT Expenditures Outlook Cost of Labor - Two of three labor contracts expire One contract includes 2018; maintenance of benefits; COLA = 2.9% (90% midyear CPI-W). Employee Benefits (preliminary). - Regence HealthFirst 250 = % increase - Group Health = % increase - Dental and Vision no increase - PERS = 13.8% increase - LEOFF = 4.0% increase Page 1 of 5

2 Transportation Benefit District (TBD) Street overlay to return after one-year suspension in 2018 ($1.8 million). - Golf Club Road and Lacey Blvd - 14 th between College Street and Ruddell Road - 17 th, 18 th, and 19 th Avenues off of College Street - Stikes Drive and Stikes Loop Other 2018 Budget Initiatives Budget structure changes: - New fund for TBD - Lacey Veterans Services HUB separate budget under Public Affairs - Public Affairs/HR plus City Clerk to become new Administrative Services Department Public Records Project. Implementation of Indirect Cost charges for Water Utility. Investment Advisory Services. Washington State Budget State Budget Bottled water sales tax exemption repealed cities will receive an estimated additional $7.4 million during biennial. - Municipal Research and Services Center (MRSC) fully funded. - State version of National Marketplace Fairness Act adopted; Lacey s projected impact is $2,018,850; 2018 = $90, Pending Capital Budget (Street Sweeper and Operator Department of Ecology Grant $415,000) BUDGET AMENDMENT ORDINANCES MOTION: RECOMMEND FULL COUNCIL ADOPTION OF THE PROPOSED 2017 BUDGET AMENDMENT ORDINANCE MOTION MADE, SECONDED AND CARRIED BY MAYOR RYDER AND COUNCILMEMBER HEARN The following are significant budget amendments that have been identified since the adoption of the 2017 Budget: Current Expense Fund (General Fund) A Pedestrian and Bicycle Plan-Federal Transportation Alternative Program grant funded ($127,600). Move Lacey Veterans Services HUB to Public Affairs budget ($125,000). Mayor s Gala fundraising for Lacey Veterans Services HUB ($36,000). Inmate security at a medical facility ($7,000 profession services; $129,375 wages and benefits). Page 2 of 5

3 Arterial Street Fund (Capital Fund) College and 22 nd Roundabout Project-Two Federal Transportation Alternative Program grant funded ($117,600 and $25,950). Building Improvement Fund Reserve for construction of the 50 th Anniversary Train Depot Trail amenity and 5700 Lacey Blvd Museum building improvements ($250,000). Parks and Open Space Fund Completion of the Woodland Creek Community Park asphalt trail connection ($52,000 additional). Completion of the Pickleball Courts project ($50,000). Regional Athletic Complex Capital Fund Regional Athletic Complex bleacher cover project-grant from the Washington State Department of Commerce will match a portion project ($25,220 grant amount; $125,220 total project budget). Wastewater M&O Fund Replacement for Wastewater Maintenance Van budgeted in the incorrect program; request to be transferred from Wastewater Main Maintenance program to Lift Station Maintenance program; net zero effect on the budget ($191,072). Higher than expected LOTT treatment sales have occurred; revenue and expenditure line items utilized to pass through the revenues to LOTT need to be adjusted ($420,760). Water Capital Fund Consultant study of 400 pressure zone ($50,000). Amendment to Well Source No. 31 professional services agreement to resolve sanding screen issue ($161,571). Wastewater Capital Fund Expand scope of Steilacoom Road Lift Station and Water Improvement Project ($1,500,000). Additional funds for Liftstation #2 due to increased dewatering costs, upgrading the electrical power from single-phase to three-phase, a property purchase, increased design costs, and construction costs are rising faster than inflation ($1,352,000). Purchase right-of-way for Liftstation #3 project ($310,000). Information Services Fund Replace aging phone and voic system ($147,181). Page 3 of 5

4 INVESTMENT ADVISORY SERVICES RECOMMENDATION RECOMMEND FULL COUNCIL APPROVAL OF PROFESSIONAL SERVICES AGREEMENT WITH GOVERNMENT PORTFOLIO ADVISORS On June 1, 2017, a Non-Discretionary Investment Advisory Services request for proposal (RFP) was issued. Proposals were received from five firms in total, and three were interviewed. The City retains all buy and sell authority under a non-discretionary investment advisory services arrangement. Based on the proposals submitted, an interview process, and guidance provided by the City s investment policy, Government Portfolio Advisors (GPA) was selected as the advisor best suited to provide advisory services for the City s investment portfolio. The proposed agreement will be effective October 1, 2017, with a three-year term and includes an option for a two-year renewal. A complex and robust implementation period will occur prior to the City s first securities purchase under this proposed agreement. The implementation period is typically a five to six month process, so results will not be immediate. It is assumed that the 2018 Budget will be impacted by the proposed investment advisory services agreement. Staff requests that the Finance & Economic Development Committee review the proposed professional services agreement and upon concurrence recommend full City Council authorization of the proposed agreement for Investment Advisory Services WATER RATE RECOMMENDATION SCHEDULED FOR DISCUSSION AT OCTOBER 5, 2017, COUNCIL WORKSESSION The City Council adopted Ordinance No establishing the current water rate schedule is the final year of the adopted rate schedule. The next scheduled update of the water comprehensive plan will begin in 2018 and is expected to be a two-year project. Based on City Council guidance provided during the 2017 Budget process, staff is developing a two-year rate recommendation until the comprehensive plan can be updated and contemplate a long-term rate schedule. This short-term model uses an average cost methodology rather than a more detailed line-by-line item analysis that is typically performed in a full Comprehensive Plan update. The current rate schedule ( ) was developed based upon the following fiscal policies: Operating reserve level of days. Capital reserve equal to 1.0 percent of the existing plant asset valuation. Debt to equity ratio not to exceed of 50.0 percent. Growth escalator of 1.25 percent. A capital improvement plan that is limited to essential projects (other capital projects are deferred). Maintain current rate structure, low-income discounts, and outside City multiplier. Page 4 of 5

5 The rate model maintains the same policies. A combination of a recovering economy and a conservative approach to financial planning has resulted in the improvement to the financial condition of the Water Fund. Stronger than expected growth, delayed General Fund indirect cost plan implementation, slower than planned capital project construction, and two fewer debt issuances than planned for in the comprehensive plan have had positive impacts to the utility s fund balance. These results will give the utility more flexibility and less of a financial burden on the ratepayers. Significant assumptions of the staff developed water rate model include: Historic increases for operational and maintenance expenses including labor No debt issuance required $12 million two-year capital improvement program ( ) Average development levels rather than recent higher levels Maintains fireflow utility tax despite State Legislative fix to the Lane v. City of City court ruling 2018 implementation of the City General Fund indirect cost plan No consideration for the proposed septic to sewer conversion program The proposed water financial model includes a three (3.0) percent inflationary increase. A three percent increase maintains the cost recovery approach for operations and maintenance and maintains the historic capital improvement program funding level. The three percent increase to the 2018 residential water service charge is equal to $0.95 per month (900 cubic feet). The following table illustrates the impact of a 3.0 percent increase for 2018 and 2019: Base Rate $ $ $ $ Consumption Total Monthly Charges $ $ $ $ It is recommended that the Water General Facility Charge (GFC) continue to be increased 6.0 percent or by the Engineering News Record Construction Cost Index (ENR CCI), whichever is higher until the GFC reaches the comprehensive plan calculated level. The Water Comprehensive Plan Update is expected to be completed by the end of 2019, and is expected to fully address the utility needs for the years 2020 through City staff is scheduled to provide the same briefing to the Utilities Committee on September 8, and the final recommendations will be discussed with the full City Council at the October 5 Budget Worksession, so the rate recommendation can be incorporated into the proposed 2018 Budget. The public process will occur through the 2018 Budget public hearings that are scheduled for November and December. Page 5 of 5

LACEY CITY COUNCIL AGENDA SEPTEMBER 28, :00 P.M. 420 COLLEGE STREET, LACEY CITY HALL

LACEY CITY COUNCIL AGENDA SEPTEMBER 28, 2017 7:00 P.M. 420 COLLEGE STREET, LACEY CITY HALL CITY COUNCIL ANDY RYDER Mayor CYNTHIA PRATT Deputy Mayor VIRGIL CLARKSON LENNY GREENSTEIN JASON HEARN MICHAEL