The Utilities Fund is broken into two categories: a Capacity Expansion Fund and an Operating Fund.

Size: px

Start display at page:

Download "The Utilities Fund is broken into two categories: a Capacity Expansion Fund and an Operating Fund."

Julian McLaughlin
5 years ago
Views:

2 Attachment 1 O16-19 BACKGROUND REPORT The Utilities Fund is an enterprise fund. An enterprise fund establishes a separate accounting financial reporting mechanism for municipal services for which a fee is charged in exchange for goods or services. This fund is not commingled with the revenues expenses of other government activities. Tax dollars are not used for any purpose related to the Utilities Fund enterprise, the Utilities Fund fees are not used to supplement the tax supported General Fund, other than those funds transferred for services rendered, such as human resources, purchasing, legal services, finance, other support services. The goods services provided by the Utilities Department are the production delivery of treated drinking water the collection treatment of wastewater. The Utilities Fund is broken into two categories: a Capacity Expansion Fund an Operating Fund. The Capacity Expansion Fund is funded with availability pro rata fees, bond proceeds, interest on investments. These revenues are one time funds are used for projects required by the system s expansion or changes in regulations or technology. The Operating Fund provides for operational activities including annual operating maintenance activities, long-term repair, renewal, rehabilitation of capital assets debt service, which are funded with user fees collected in accordance with the Board approved rates. During the rapid residential growth in the 1980 s 1990 s, the Utilities Department built up a large cash reserve through the collection of availability pro rata fees. These fees were collected to ensure expansion could be provided when needed, such as the new Lake Mooney Reservoir water treatment facility. With such a large balance, previous Boards did not see the need to raise user fees between , which left the Capacity Expansion Fund the only source for rehabilitation projects kept the user fees at an unsustainably low level. FY Approved Rate Increases Percent Growth in Customer base Water Sales Percent Change Actual Revenue Increase Average Monthly User Fee (5,000 gal) Consumer Price Index Change Average User Fee if increased Based on CPI Change Only % 7% 5% 5% $ % $ % 5% 5% 5% $ % $ % 6% 9% 9% $ % $ % 7% 18% 18% $ % $ % 6% 0% 0% $ % $ % 4% 4% 4% $ % $ % 6% 12% 12% $ % $ % 7% -2% -2% $ % $ % 7% 7% 7% $ % $ % 3% 3% 3% $ % $ % 4% 4% 4% $ % $33.59

3 FY Approved Rate Increases Percent Growth in Customer base Water Sales Percent Change Actual Revenue Increase Average Monthly User Fee (5,000 gal) Consumer Price Index Change O16-19 Page 2 Average User Fee if increased Based on CPI Change Only % 3% -4% 3% $ % $ % 2% 2% 11% $ % $ % 1% -5% 1% $ % $ % 2% 3% 3% $ % $ % 3% 3% 4% $ % $ % 1% 1% 4% $ % $ % 0% -3% 2% $ % $ % 3% 0% 8% $ % $ % 2% -3% 5% $ % $ % 2% 2% $ % $ % $ Meeting Financial Policy Goals Although the Operating Fund is able to cover the daily operational costs, the money in the fund is insufficient to account for debt service or maintenance/rehabilitation projects in the Capital Improvements Program (CIP). Debt service payments are recurring expenditures are used by the rating agencies when considering the County s Utility Fund bond rating. This is why the Board s adopted fiscal policy dictates that The Department of Utilities will establish rates fees for services provided by the system to ensure that, in each fiscal year, Net Revenues (Gross Revenues less Operating Expenses) are greater than or equal to 100% of Total Debt Service, after excluding 100% of non-recurring revenues such as availability fees, pro rata fees, connection fees reserves (this ratio will be met no later than FY 2018). If the proposed CIP is adopted with the additional projects, a rate increase will be required to bring in sufficient revenue to meet the recurring costs the debt ratio as described in the Fiscal Policy. A rate increase is also required to meet the fiscal policy regarding cash reserves. The policy states, An Operating Reserve will be established maintained in a total amount equivalent to not less than 150 days annual operating maintenance expenses to ensure against short-term revenue shortfalls unanticipated operating /or maintenance expenses. The rate increase proposed will meet the fiscal policy on the 3R reserve capacity ensure we have sufficient cash flow to meet generally accepted accounting principles. State/Federal Mates Adding to Operational Costs Both County wastewater treatment facilities were upgraded in 2007 at a cost of $34 million to meet stricter nitrogen phosphorus removal requirements. Revenue bonds were issued for these improvements debt service was included in the recurring costs covered by the Operations Fund. The lower limits also increased the need for chemical additions electrical usage for nutrient removal, resulting in an annual increase of approximately $675,000. Changes to water regulations have also added some additional operational costs. Total Organic Carbon (TOC) monitoring was mated as a part of the Disinfection Byproduct Rule, requiring a prescribed percentage of TOC removal from the source water before distribution to the water system.

4 Page 3 In 2006, the Smith Lake Water Treatment Facility was not able to meet this Environmental Protection Agency (EPA) mate with their existing treatment process resulting in a switch in chemical coagulants. The switch in coagulant chemicals caused additional changes in corrosion inhibiting chemicals as well, which increased the daily operational costs. In general most of the costs associated with the distribution treatment of water the collection treatment of wastewater are mated by the state or federal government. Maintenance of the infrastructure is also a mate. The inventory of pipes, hydrants, manholes, valves, etc. has increased in Stafford by 24% over the last ten years. Increasing Expenditures Declining Water Sales Another factor driving the need for a rate increase is the decline in water sales due to new, more efficient plumbing fixtures a decline in outdoor watering, which started during the recession. The table below shows the number of accounts the corresponding water sales each year. Although the County s customer accounts, the infrastructure required to service those customers, has increased by 19%, the total amount of water distributed the resulting revenue has decreased by 1.2%. Percent Growth Water Distribution Water Distribution FY in Cust base Millions of gallons Percent Change , % 2, % % 2, % % 2, % % 2, % % 2, % % 2, % % 2, % % 2, % % 2, % % 2, % Totals 19% % Proposed Rate Increases Utilities throughout the country are experiencing the same decrease in consumption with an increase in customerbase. Although the decrease in consumption appears to decrease the need for system expansion, this is not the case. The design of the treatment capacity delivery system must be based on a peak flow day. In other words, treatment facilities pipes must be designed to fulfill the peak dem expected of the customers. The County must provide the facilities to supply the maximum amount of water needed on a nice summer Saturday when customers are watering the lawns, washing their cars doing laundry, still provide supply for an emergency such as a house fire. In order to provide water sewer service, fees need to be collected from customers for these fixed costs, which are not related to the amount of water/sewer used each month. on usage. This provides more stable revenue to the Utilities Fund during low usage amounts still provides incentives for conservation with the usage fee.

5 Page 4 Each meter setting puts a dem on the County s system even if their usage is minimal. In order to account for this dem, the proposed rate change increases the fixed dem for each meter setting, as well as a five percent increase on the fees based the Utilities Fund balance has decreased $42 million dollars over the last ten years. The proposed ten year CIP contains projects totaling $197 million, $120 million of which are related to economic development or capacity expansion ($37.6 million is replacement of existing infrastructure with additional capacity), $76 million in infrastructure maintenance projects. In addition, there is $7-13 million of debt service payments per year. The current rate structure, remaining fund balance, expected availability, pro rata funds are not sufficient to cover the proposed CIP recurring operational costs. An overall rate increase of 9% would provide the needed funds to proceed with the CIP as proposed provide for rehabilitation of the existing aging infrastructure. The proposed fee increases are shown below using an average water bill of 5,000 gallons per month: 5% user fee + fixed fee for three years FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 Overall Revenue Increase Current 9.0% 9.0% 9.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Fixed Charges $16.44 $20.05 $24.08 $28.60 $29.46 $30.34 $31.25 $32.19 $33.16 $34.15 Change in Fixed Charge N/A $3.61 $4.03 $4.52 $0.86 $0.88 $0.91 $0.94 $0.97 $0.99 Monthly Residential Bill Variable User fee increase N/A 5.0% 5.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 5,000 Gallons per month fee $42.40 $44.51 $46.77 $49.06 $50.53 $52.05 $53.61 $55.22 $56.87 $58.58 Variable User fee actual increase N/A $2.11 $2.26 $2.29 $1.47 $1.52 $1.56 $1.61 $1.66 $1.71 Total Residential 5, 000 gal $58.84 $64.56 $70.85 $77.66 $79.99 $82.39 $84.86 $87.41 $90.03 $92.73 Total Change in Monthly Bill N/A $5.72 $6.29 $6.81 $2.33 $2.40 $2.47 $2.55 $2.62 $2.70 Currently Stafford County has one of the lowest Utilities rates of our peer localities. The proposed rate increases would keep Stafford in line with the other localities. On March 24, 2016, the Utilities Commission held a public hearing on the proposed rate increases. There were no speakers at the public hearing. Subsequent to the public hearing, the Utilities Commission voted 5-0 (DaBora Lovitt was absent the Hartwood District seat is vacant) to recommend adoption of the rate increases as advertised. No action is required at the April 5, 2016 Board meeting. The Board will be asked to consider adoption of proposed Ordinance O16-19 at its meeting on April 19, 2016.

6 PROPOSED BOARD OF SUPERVISORS COUNTY OF STAFFORD STAFFORD, VIRGINIA ORDINANCE At a regular meeting of the Stafford County Board of Supervisors (the Board) held in the Board Chambers, George L. Gordon, Jr., Government Center, Stafford, Virginia, on the 5th day of April, 2016: MEMBERS: VOTE: Robert Bob Thomas, Jr., Chairman Laura A. Sellers, Vice Chairman Meg Bohmke Jack R. Cavalier Wendy E. Maurer Paul V. Milde, III Gary F. Snellings On motion of, seconded by, which carried by a vote of, the following was adopted: AN ORDINANCE TO AMEND AND REORDAIN THE FEES FOR PROVIDING WATER AND SEWER SERVICE WHEREAS, the Board is authorized to set reasonable fees charges for public water sewer service; WHEREAS, such authority may be found in Virginia Code , , , ; WHEREAS, the Board desires to set the fees for these services commensurate with the services provided by the County; WHEREAS, Stafford County Code Chapter 25 authorizes the establishment of public water sewer fees; WHEREAS, the Board carefully considered the recommendations of the Utilities Commission staff, the public testimony, if any, at the public hearing; NOW, THEREFORE, BE IT RESOLVED by the Stafford County Board of Supervisors on this the 5th day of April, 2016, that the fees for providing public water sewer service be they hereby are amended reordained as follows:

7 Page 2 USER FEES Effective for water usage on or after June 1, 2016 reflected on bills on or after July 1, 2016 User Category CONSUMPTION CHARGES, gallons WATER SEWER Code Section RESIDENTIAL (including Apartments) Current Proposed Change Current Proposed Change 0-2,000 gallons $2.29 $2.40 $0.11 $5.42 $5.69 $0.27 3,000-4,000 gallons $3.18 $3.34 $0.16 5,000-8,000 gallons $4.36 $4.58 $0.22 9,000-12,000 gallons $8.76 $9.20 $ ,000-25,000 gallons $11.11 $11.67 $0.56 Above 25,000 gallons $15.45 $16.22 $0.77 NON-RESIDENTIAL (Commercial, Industrial, Multi-Family, Public, Semi-Public Mobile Homes) All Consumption Water-Dependent, Home- Based Business Irrigation, Bulk, Construction Hydrant Meters Monthly Customer Service Charge (per account) all usage up to nonseasonal all usage nonseasonal gallons for all usage up to nonseasonal $4.27 $4.44 $0.17 $5.42 $5.69 $0.27 $10.67 $11.10 $0.43 $5.42 $5.69 $0.27 $15.45 $16.07 $0.62 n/a n/a n/a 96(e) $2.07 $2.25 $0.18 $2.10 $2.29 $ (c) 98(d) Monthly Dem Charge (per Meter Equivalent, per account) $5.19 $6.63 $1.44 $7.08 $8.88 $ (d) 98(e) USER FEES Effective for water usage on or after June 1, 2017 reflected on bills on or after July 1, 2017 User Category CONSUMPTION CHARGES, gallons WATER SEWER Code Section RESIDENTIAL (including Apartments) Current Proposed Change Current Proposed Change 0-2,000 gallons $2.40 $2.52 $0.12 $5.69 $5.98 $0.29 3,000-4,000 gallons $3.34 $3.51 $0.17

8 Page 3 5,000-8,000 gallons $4.58 $4.81 $0.23 9,000-12,000 gallons $9.20 $9.66 $ ,000-25,000 gallons $11.67 $12.25 $0.58 Above 25,000 gallons $16.22 $17.03 $0.81 NON-RESIDENTIAL (Commercial, Industrial, Multi-Family, Public, Semi-Public Mobile Homes) All Consumption Water-Dependent, Home- Based Business Irrigation, Bulk, Construction Hydrant Meters Monthly Customer Service Charge (per account) Monthly Dem Charge (per Meter Equivalent, per account) all usage nonseasonal all usage up to nonseasonal all usage nonseasonal $4.44 $4.62 $0.18 $5.69 $5.98 $0.29 $11.10 $11.54 $0.44 $5.69 $5.98 $0.29 $16.07 $16.71 $1.96 n/a n/a n/a $2.25 $2.45 $0.20 $2.29 $2.50 $0.21 $6.63 $8.24 $1.61 $8.88 $10.89 $ (e) 96(c) 98(d) 96(d) 98(e) USER FEES Effective for water usage on or after June 1, 2018 reflected on bills on or after July 1, 2018 User Category CONSUMPTION CHARGES, gallons WATER SEWER Code Section RESIDENTIAL (including Apartments) Current Proposed Change Current Proposed Change 0-2,000 gallons $2.52 $2.65 $0.13 $5.98 $6.27 $0.29 3,000-4,000 gallons $3.51 $3.68 $0.17 5,000-8,000 gallons $4.81 $5.05 $0.24 all usage all usage all usage up 9,000-12,000 gallons $9.66 $10.14 $0.48 to nonseasonal nonseasonaseasonal non- 13,000-25,000 gallons $12.25 $12.86 $0.61 Above 25,000 gallons $17.03 $17.89 $0.81 NON-RESIDENTIAL (Commercial, Industrial, Multi-Family, Public, Semi-Public Mobile Homes) All Consumption $4.62 $4.80 $0.18 $5.98 $6.27 $0.29

9 Page 4 Water-Dependent, Home- Based Business Irrigation, Bulk, Construction Hydrant Meters Monthly Customer Service Charge (per account) Monthly Dem Charge (per Meter Equivalent, per account) $11.54 $12.00 $0.46 $5.98 $6.27 $0.29 $16.71 $17.38 $0.67 n/a n/a n/a $2.45 $2.67 $0.22 $2.50 $2.72 $0.22 $8.24 $10.05 $1.81 $10.89 $13.16 $ (e) 96(c) 98(d) 96(d) 98(e) AJR:MTS

PROPOSED BOARD OF SUPERVISORS COUNTY OF STAFFORD STAFFORD, VIRGINIA RESOLUTION

PROPOSED BOARD OF SUPERVISORS COUNTY OF STAFFORD STAFFORD, VIRGINIA RESOLUTION Attachment 1 R16-93 BACKGROUND REPORT On April 21, 2015, pursuant to Resolution R15-117 (Attachment 5), the Board authorized bonds and appropriated proceeds for the projects included in the FY2016 Capital