Issue. Background. Options and Recommendation

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1 Date: March 3, 2016 To: Public Works Commission Members From: Heather Buchanan, Support Systems Sr. Manager Subject: FY2017 O&M Budget Issue Public Works is proposing its FY 2017 operations and maintenance (O&M) budgets for General, Sewer, Solid Waste, Geothermal, and Municipal Irrigation Funds. Background The budget consists of base and onetime revenues and expenses. Base budget items make up 99% of the total budget; these amounts support our regular ongoing approved service levels. For these items, we have an accepted budget amount that is indexed for inflation and growth as needed. Within the base levels, there are a few areas that may need additional changes depending on economic conditions, rate changes, or program delivery changes. Onetime items are exactly that budgetary needs that happen only in a given year. Many times these are for a special event or program. Therefore, this memo will focus on briefly explaining the major changes from the FY 2015 actuals. The packet that follows the memo includes a base budget summary by fund and proposed changes. The cash flow projections for Sewer, Solid Waste and Geothermal Funds and the rate analysis for the Sewer and Solid Waste Funds will be presented at the meeting. Options and Recommendation General Fund Public Works General Fund budget provides for Government Buildings, municipal lighting, drainage and hillside plan review, capital project management and the Air Quality and Stormwater programs. FY 2017 personnel costs are increasing over FY 2015 actuals by approximately $273,700 due to 3% base salary and 1.25% onetime goal achievement increases, a 4.5% health insurance increase, and two new positions, a Sustainability Project Manager and a Stormwater Program Manager, being added to the budget in FY In General Fund for FY 2017, we expect to be fully staffed. 1

2 O&M costs are increasing by $999,300 due primarily to a citywide policy decision to reflect the full indirect cost allocation plan in the General Fund Budget. In prior fiscal years, the General Fund share of the indirects was not included in the budget. Minor changes in minor repair and maintenance (R&M) accounts and 1% inflation in most other O&M costs are also included. Budgeted revenues for FY 2016 are anticipated to be $68,800 more than FY 2015 actuals due to increased indirect reimbursement revenues for Government Buildings. This leaves us at net zero with our base intergovernmental revenue (IGR) surplus. Additional funding will need to be requested to fund additional project needs for the Sustainability program. Sewer Fund The Sewer Fund encompasses the two treatment plants, maintenance of the pipeline, operation of the Twenty Mile South Farm, engineering, pretreatment and water quality, education and outreach, and administration. FY 2017 base operating revenues are budgeted at $43.3 million, reflecting an annual system growth of 3%. FY 2017 base expenses are budgeted at $43.7 million. FY 2017 personnel costs are increasing over FY 2015 actuals by approximately $2.1 million due to 3% base salary and 1.25% onetime goal achievement increases, 4.5% health insurance increase. Budgeted O&M costs are increasing by $2.1 million, 16.7%, over FY 2015 actuals due to: $555,800 for indirect cost allocation increases. The indirect cost allocation plan is the City s tool used to allocate the cost of central departments, such as Human Resources, Legal, Information Technology, and Finance, to the departments that utilize the services (Public Works, for example). Changes to the allocation basis for the indirect cost allocation plan went into effect in FY 2016, and are reflected in the proposed FY 2017 budget. Historically, the plan had a 2 year lag between the time the services were utilized to the time that the Sewer Fund paid. With the new updated plan, use of internal services is now paid for in the year they are utilized, therefore, eliminating the lag and resulting in the bump in cost. $587,500 for chemical cost inflation and addition for the new Dixie Drain facility. $393,900 increase in power and other utilities. The power increase includes the addition of the new Dixie Drain facility, but is tempered by process operating efficiencies gained by the Operations team. $100,000 increase in other miscellaneous accounts. This includes general inflation. $342,600 increase in minor R&M. $348,000 increase in depreciation With the addition of new facilities, depreciation expense increased by $348,000. 2

3 The only proposed base additions for the Sewer Fund budget are for additional staffing. Two additional FTE are being requested for FY2017. A Plant Operations Supervisor position, $103,000, to manage the new processes related to phosphorus production is being added for the West Boise Treatment Facility. An Environmental Data Analyst position, $114,000, is included for the Environmental team. The position will be responsible for modeling and analyzing all of the sampling data points gathered. Also included in the proposed budget is a 1% operational savings. Within the Sewer Fund, we are generally able to achieve a budgetary savings of roughly 1% each fiscal year. This equates to $337,300 for FY These proposed additions along with the anticipated 1% budgetary savings bring the FY 2016 Sewer Fund expense budget to $43.4 million, with a net operating shortfall of $37,900. To fund the existing customers share of the NPDES related capital facility costs, we have assumed internal financing. To date, the estimated capital costs included total $50.0 million dollars; amortization of these costs over 20 years with 2.0% interest results in an annual payment of $3.06 million. A 7.5% rate increase would bring the fund to a net surplus of $3.02 million, and cover this annual payment for FY Solid Waste Fund Solid Waste Fund operations include the Republic Services contract, landfill expenses, household hazardous waste, and education and outreach. With the 3% base salary and 1.25% onetime goal achievement and 4.5% health insurance increase, FY 2017 personnel costs are anticipated to increase $298,000 over FY 2017 actuals. O&M costs for the FY 2017 base budget are generally status quo after incorporating the 4% increase to the Republic Services contract for commercial trash services in mid FY Changes to the City s indirect cost allocation plan resulted in a $500,000 increase in indirect costs for the Solid Waste fund. Otherwise, all other factors have remained the same with costs increasing only for inflation and customer growth. The following are the proposed changes for the FY 2017 budget: Administration A 1.0 FTE is requested to support the proposed composting program. This position will cost approximately $105,000. Esther Simplot Park monitoring Ongoing monitoring for the Esther Simplot Park will be required due to the remediation completed in FY $120,000 is included in the budget. Composting program A new composting program is being proposed for FY The program is anticipated to begin in February The net cost of the program is estimated to be $2.5 million dollars. This estimate includes the cost to operate the composting facility, offset by compost sales, landfill and other program savings. This is not yet included in the proposed budget. If the program 3

4 is approved to move forward, the budget amounts will be firmed up and an interim budget change will be requested to add to the FY 2017 budget. For the purposes of rate analysis, the composting program costs have been considered. After incorporating these additions, the Solid Waste fund would have a deficit of $1,774,100. If the composting program moves forward, staff would proposing a 17% residential rate increase effective October 1, With that rate increase, the fund would have a surplus of $434,900. If not approved, the residential rate increase recommended would be 3.0% effective October 1, Geothermal Fund Geothermal service is provided to 80 buildings in the downtown core. Service to 10 buildings at Boise State University has been completed. The Geothermal Fund is anticipated to have a net gain of $31,100 in FY By comparison, FY 2015 actuals resulted in a $213,300 net gain. The FY 2017 revenue budget assumptions reflect a $36,100 reduction from FY 2015 actuals. FY 2015 was a fairly cold winter, so revenues were higher than normal. The proposed budget reflects a more moderate winter. The FY 2017 expenditure budget is a $143,100 increase over FY 2015 actuals. The increase reflects the 3% base salary, 1.25% onetime goal achievement, and 4.5% health insurance increases for personnel. Also included is a $25,000 equipment budget for replacement parts, a $36,000 increase in cross charges expenses for repair work done by sewer fund employees, $22,300 increase in minor R&M, and $40,400 difference for an inventory accounting entry. No rate increase is currently proposed. Staff is working on a rate proposal that will be brought to the Commission in the next couple of months. Municipal Irrigation Fund The Municipal Irrigation Fund provides for irrigation service for five subdivisions. The Municipal Irrigation Fund budget is balanced with total expenditures and revenues each budgeted at $58,900. Rate recommendations will be brought forward in January 2017 as required by State Code. Suggested Motion I move approval of the budget recommendations for the FY 2017 for the General, Sewer, Solid Waste, Geothermal, and Municipal Irrigation Funds. 4

5 Expenditure Budget GENERAL FUND Facility Services 385, ,822 1,734,875-2,728,697 (2,342,815) PW Admin 5,823, ,969 1,051,277 1,263,246 4,560,055 Security 28,820 83,968 73, ,198 (128,378) Municipal Lighting 74,219 62,844 1,009,299 1,072,143 (997,924) Development & Information Services 195, ,983 31, ,417 (467,759) Drainage 60,229 78, , ,941 (143,712) Stormwater 24, , , ,947 (300,247) Air Quality 7, ,801 20, ,656 (169,156) Groundwater 1,000-11,000 11,000 (10,000) TOTAL GENERAL FUND O&M 6,601,309 2,402,162 4,199,083-6,601,245 64

6 Expenditure Budget SEWER FUND Sewer Admin 422,560 1,960,233 4,494,230 80,826 6,535,289 (6,112,729) Utility Billing 1,042,355 1,040, ,998 1,977,233 (934,878) Watershed 10, , ,408 14, ,237 (379,137) Sewer Engineering 37,789,920 1,898, ,984 2,310,452 4,752,111 33,037,809 Sewer Environmental 46,000 1,214, , ,742 2,086,615 (2,040,615) Operations - 740, , ,998 1,074,572 (1,074,572) Utility Maintenance 200,761 2,105, , ,039 3,093,018 (2,892,257) Central Lab 54,000 1,707, , ,622 2,500,561 (2,446,561) Lander 26,500 1,300,246 1,409,341 1,162,710 3,872,297 (3,845,797) West Boise 31,350 1,505,246 2,628,297 4,049,521 8,183,064 (8,151,714) BioSolids - 285, , , ,380 (595,380) Lander Maintenance - 668,215 24, ,622 (692,622) West Boise Maintenance - 1,190,571 35,089 13,486 1,239,146 (1,239,146) Application Site 3,703, ,297 1,839, ,257 3,486, ,224 Dixie Drain - 111, , ,639 (646,639) TOTAL SEWER FUND O&M 43,326,856 16,788,390 14,507,213 9,828,267 41,123,870 2,202,986 Sewer Equipment 2,578,500 2,578,500 2,578,500 Sewer Capital Revenue Sewer Engineering Capital (Development Revenue) 7,046,540-7,046,540

7 Expenditure Budget SOLID WASTE FUND Franchise Administration 29,635, ,591 28,161,763 33,372 28,863, , TOTAL SOLID WASTE FUND O&M 29,635, ,591 28,161,763 33,372 28,863, ,134

8 Expenditure Budget GEOTHERMAL FUND Geothermal Operating 647, , , , ,582 31,098 TOTAL GEOTHERMAL FUND O&M 647, , , , ,582 31,098

9 Expenditure Budget MUNICIPAL IRRIGATION FUND Municipal Irrigation Operating 58,920-51,420 7,500 58,920 - TOTAL MUNICIPAL IRRIGATION FUND O&M 58,920-51,420 7,500 58,920 -