To: Mayor and City Council From: Charles Ozaki, City and County Manager Prepared by: Pat Soderberg, Finance Director Kim Pfeifer, Revenue Manager Billie Reyes, Billing and Accounts Administrator Meeting Date Agenda Category Agenda Item # November 27, 2018 Council Business 7(b) Proposed Ordinance No. 2080 Amending Broomfield Municipal Code Sections 13-12-010 and 13-02-020 to change Monthly Water Service Charges and Water License Fee - First Reading Proposed Ordinance No. 2081 Amending Broomfield Municipal Code Section 13-12-020 to change Monthly Sewer Service Charges - First Reading Summary Broomfield operates water and sewer utilities for the benefit of Broomfield citizens. User charges and fees provide revenues to cover operating costs. License fees, which are the fees paid for new connections to the utility system, are charged to new or expanded users to provide revenues for capital expansion and system growth. The utility funds are operated as Enterprise Funds. Enterprise Funds are required to be self-sustaining and therefore need sufficient funds to continue operations. In 2012, the City Council authorized a rate and fee study to evaluate the the adequacy of the charges in the utility funds - for both service charges and license fees. As a result of the study, the council approved increases in 2013 for increases in service charges for both the water and sewer utilities, and an increase in the sewer license fees. Even though additional service charge increases were projected at the time of the rate study for 2014 and 2015, careful monitoring of the actual operating revenues and expenses in the water and sewer funds did not show increases to be warranted. Using the utility financial models, staff did recommend modest service charge rate increases of 1.5% in 2016 and 2017 and a 2.0% increase in 2018. There have been no increases in license fees since 2013. Based on continuing review of the financial models staff is recommending that a 2.0% increase in water and sewer utility service charges be enacted for 2019. In addition, due to increased capital costs associated with the water utility system, a 5.0% increase in water license fees is proposed. The recently adopted 2019 Budget included projections for revenues based on 2.0% increases in water and sewer service charges, and a 5.0% increase in the water license fee (an increase of $1,123 per tap equivalent unit). With the service charge increases, the average monthly water service charge for a single family residence is projected to increase $1.00 and the average monthly sewer service charge for a single family residence is projected to increase by $.36, for a total of $1.36 per month. The chart below compares present rates to proposed rates. Water and Sewer Service Charges Average Monthly Charge - Single Family Residence Current 2018 Proposed 2019 $ Change % Change Monthly Flat Charge Water Used Charge (based on annual usage of 163,000 gallons) $9.82 $42.92 $10.01 $43.73 $.19 $.81 2.0% 2.0% Subtotal $52.74 $53.74 $1.00 2.0% Total Sewer Service Charges (based on average winter consumption of 6,000 gallons) $19.62 $19.98 $.36 2.0% Total Average Water and Sewer Charges $72.36 $73.72 $1.36 2.0% Water License Fees Current 2018 Proposed 2019 Change Water License Fee (¾ Connection) $22,454 $23,577 $1,123 When compared to other water and sewer providers, Broomfield customers are in the lower third of the average monthly charges for water and sewer customers. This comparison remains consistent with the proposed rate increases. Proposed Ordinance Nos. 2080 and 2081 authorize 2.0% increases in the service charges for water and sewer funds, respectively, and a 5.0% increase in the water license fee. Prior Council Action Ordinance Nos. 2056 and 2057 increasing water and sewer user charges and fees were adopted by Council on December 12, 2017 for 2018. Financial Considerations Service charge increases are needed to assist in covering operating cost increases. The rate adjustments are consistent with the Utility long-range financial plans and the 2012 Water, Sewer and Reclaimed Water Rate and Fee Study. The fee adjustments are consistent with the Long Range Financial Plan. Alternatives An alternative rate increase or no rate increase. Proposed Actions/Recommendations If Council desires to proceed with the project, the appropriate motion is That Ordinance No. 2080 be adopted on first reading and ordered published in full. That Ordinance No. 2081 be adopted on first reading and ordered published in full. That a public hearing on the ordinances be scheduled for 6:00 pm December 11, 2018, in the Council Chambers at the George Di Ciero City and County Building. That second and final reading on Ordinances Nos. 2080 and 2081 be scheduled for December 11, 2018, following the public hearings. 7(b) - Page 1
Proposed Monthly Water and Sewer Rate Change and License Fee Change Page 2 BACKGROUND Broomfield s Water Fund, Sewer Fund, and Water Reclamation Fund (collectively the Utility Funds ) operate as Enterprise funds where rates and fees within each fund are set to cover the costs of providing respective services to customers. By law, enterprise funds are not supported by tax revenues. They must operate as a stand-alone business and generate the revenues necessary to provide services. In Broomfield, there are two separate components to the overall operation of each utility fund; an operating component and a capital component. The operating component accounts for the day-to-day functions of running the utility for existing customers, recovering the cost of providing service, and maintaining the existing capital investment. The major revenue sources associated with the operating components are user service charge rates and fees. The capital component takes into account any of the costs related to building or expanding the existing system, which may include new debt associated with constructing new infrastructure. The major revenue associated with the capital component is the license fee. License fees are impact fees or assessments designed to recover the costs of capital improvements or facility expansion attributable to growth paid when a new or expanding user ties into the system. In 2012, Council authorized a Utility Rate and Fee Study which was conducted by ARCADIS U.S., Inc. This rate study evaluated the rates and fees charged by Broomfield s Water and Sewer Utilities and provided a multi-year plan that projected potential annual increases in user charges through 2021 to cover the costs associated with operations of the utilities. Since completion of the study, the financial models underlying the recommended potential increases have been evaluated annually to assess and incorporate the most current factors. In the study, ARCADIS incorporated two basic scenarios in their analysis; just-in-time increases and smoothing. Just-in-time increases allow fund balance and available cast to reach minimum levels before increases are imposed and potentially results in high single year increase in the that cash reserves reach minimum levels. Smoothing, as the term implies, takes the larger increase and spreads it over several years in lesser increments to more evenly spread the impact. The key to the smoothing approach is that multi-year increases may be required to achieve the necessary revenue. Council direction at that time was to utilize the smoothing approach when evaluating the need for increases in user charges. The following charts compare the annual increase projected by the rate study with the actual increases through 2018 and revised projections for 2019 through 2021. As shown below, based on careful review of the revenues and expenses associated with the Utility Funds in 2014 and 2015, no increases were recommended by staff. For 2016 and 2017, a 1.50% increase was recommended each year in order to keep the funds in a fiscally healthy position. For 2018 a 2.0% increase was recommended. For 2019 a 2.0% increase is also being recommended. The revised financial models show that similar increases may be necessary for 2020 and 2021. Staff will continue to monitor the actual revenues and expenses as each budget year is reviewed to determine if the projected increases will be recommended. If approved on the first reading, the proposed rate increases and notice to the public hearing for the second reading will be communicated to our citizens through the Broomfield Enterprise, messages on the waters bills, the Utility Billing webpage and the Utility Billing payment website, Paymentus, Twitter and Facebook. 7(b) - Page 2
Proposed Monthly Water and Sewer Rate Change and License Fee Change Page 3 WATER FUND SEWER FUND Year Actual Projections Projected Increases - Rate Study Revised Projections Year Actual Increase in Rates Projected Increases - Rate Study Revised Projections * Actual Environmental Compliance Fee (EFC) Projected Environmental Compliance Fee (ECF) - Rate Study Revised Environmental Compliance Fee (ECF)* 2013 7.00% 7.00% -% 2013 13.00% 13.00% -% $2.00 - - 2014 0.00% 6.00% -% 2014 0.00% 13.00% -% $2.00 - - 2015 0.00% 6.00% -% 2015 0.00% 13.00% -% $2.00 - - 2016 1.50% 5.00% -% 2016 1.50% 12.00% -% $2.00 - - 2017 1.50% 0.00% -% 2017 1.50% 12.00% -% $2.00 - - 2018 2.00% 0.00% -% 2018 2.00% 11.00% -% $2.00 - - 2019 2.00% 0.00% -% 2019 2:00% 11.00% -% $2.00 4.00 2.00 2020* --- 0.00% 2.00% 2020* --- 0.00% 2.00% --- 4.00 4.00 2021* --- 0.00% 2.00% 2021* --- 0.00% 2.00% - 4.00 4.00 *Projected *Projected SERVICE CHARGES - PURPOSE OF PROPOSED INCREASES Service charge revenues are fees designed to recover the costs of operations, provide for a two month operating reserve, and allow for the costs of routice capital improvements to the system, rather than growth related improvements. As noted above, the service charges have either remained constant or had a modest increase since 2014. Water Fund In the water fund, service charges have two components: Flat monthly charge (no usage included) per dwelling unit User charges for all water used per 1,000 gallons A 2.0% increase in the service charges is expected to produce approximatel y $351,000 mo re in operating revenue in the water fund in 2019, which is intended to offset the annual deficit between expenses and revenues using the smoothing approach which was noted previously as the preferred method of managing increases. The operating costs for the water fund have increased annually due to: Increased water supply cost charged by Denver Water Energy cost increases Chemical cost increases Costs associated with routine maintenance of capital assets to keep them in good working order Sewer Fund In the sewer fund, service charges are based on: User charges per 1,000 gallons of the average winter consumption (AWC) with a minimum of 4,000 gallons A 2.0% increase in service charges is expected to produce approximately $134,000 m ore in operating revenue in the sewer fund in 2019, which is intended to offset the annual deficit between expenses and revenues using the smoothing approach which was noted previously as the preferred method of managing increases. 7(b) - Page 3
Proposed Monthly Water and Sewer Rate Change and License Fee Change Page 4 The operating costs for the fund have increased annually due to: Energy cost increases Chemical cost increases Bio-solid transportation cost increases Costs associated with routine maintenance of capital assets to keep them in good working order The chart below compares average monthly charges using the current rates with the proposed average monthly charges reflecting the recommended increases. Average Monthly Charge Current 2018 Proposed 2019 $ Change % Change Monthly Flat Charge Water Used Charge (based on annual usage of 163,000 gallons) $9.82 $42.92 $10.01 $43.73 $.19 $.81 2.0% 2.0% Subtotal $52.74 $53.74 $1.00 2.0% Total Sewer Service Charges (bases on average winter consumption of 6,000 gallons) $19.62 $19.98 $.36 2.0% Total Average Water and Sewer Charges $72.36 $73.72 $1.36 2.0% WATER LICENSE (CONNECTION) FEES - PURPOSE OF PROPOSED INCREASED Water License (Connection) Fees License fees are the fees that are paid by developers and builders for new connections to the water system. The purpose of license fees is to provide funds to pay for the capital costs of expanding the water utility to serve new growth. Accordingly, the fees are used to pay for the following costs associated with the City & County s growth: recovery of past capital expenditures, payment of bond, Windy Gap Project and the Water Treatment Plant expansion. As discussed during the review of Broomfield s proposed 2019 Budget, an increase of 5.0% in water license fees are proposed for 2019 as shown in the table below. This increase is recommended, primarily, due to the increased costs associated with the Windy Gap project and the construction of the Water Treatment Plant expansion. The chart below compares the current license fee with the proposed license fee reflecting the recommended increase. Water License Fees Current 2018 Proposed 2019 Change % Change Water License Fee (¾ Connection) $22,454 $23,577 $1,123 5% COMPARISON OF BROOMFIELD S RATES WITH THOSE OF OTHER CITIES A chart showing Broomfield s current average annual and monthly water and sewer service fee charges, as well as water license fees, compared to other local water and sewer providers are illustrated in the tables below. For an average utility customer, the amount paid by a Broomfield resident is in the bottom third for water and sewer service. As noted above, if the rate increase is approved the average monthly charges for the Broomfield Customer would increase to $53.74. for water and $19.98 for sewer service - which is still comparatively low when referenced to the table. Water license fees would increase $1,123. 7(b) - Page 4
Proposed Monthly Water and Sewer Rate Change and License Fee Change Page 5 WATER RATE COMPARISON Based on 163,000 gallons per year SEWER RATE COMPARISON Based on 6,000 gallons per month WATER LICENSE COMPARISON Based on an average lot 8,600 SQ. FT. City 2018 Usage Charges 2018 Flat Charges 2018 Total Annual Average Monthly City 2018 Flat Charges Average Monthly City 2018 Water License Aurora $886.72 $149.28 $1,036.00 $86.33 Erie $590.40 $49.20 Louisville $30,500 Thornton $919.32 $101.52 $1,020.84 $85.07 Castle Rock $474.48 $39.54 Erie $29,214 Brighton $100.80 $192.00 $945.58 $78.80 Westminster $427.68 $35.64 Westminster $25,341 Golden $857.38 $39.84 $897.22 $74.77 Boulder $411.12 $34.26 Thornton $24,990 Greeley $707.42 $162.60 $870.02 $72.50 Longmont $372.24 $31.02 Aurora $24,324 Northglenn $129.24 $155.52 $854.99 $71.25 Brighton $356.40 $29.70 Superior $22,570 Erie $258.60 $ - $811.71 $67.64 Arvada $341.28 $28.44 Broomfield $22,454 Littleton $151.20 $184.68 $803.50 $66.96 Northglenn $325.44 $27.12 Brighton $22,012 Superior $572.13 $215.28 $787.41 $65.62 Superior $319.20 $26.60 Golden $20,742 Louisville $ - $221.16 $768.09 $64.01 Denver $312.48 $26.04 Arvada $19,720 Westminster $154.56 $ - $766.36 $63.86 Loveland $305.28 $25.44 Castle Rock $18,758 Longmont $166.20 $145.80 $722.97 $60.25 Louisville $302.40 $25.20 Boulder $12,432 Arvada $609.62 $69.96 $679.58 $56.63 Fort Collins $265.68 $22.14 Longmont $12,296 Loveland $490.63 $176.88 $667.51 $55.63 Aurora $262.08 $21.84 Northglenn $11,600 Boulder $519.97 $146.16 $666.13 $55.51 Broomfield $235.44 $19.62 Greeley $11,400 Fort Collins $451.51 $214.44 $665.95 $55.50 Thornton $212.40 $17.70 Windsor $9,400 Broomfield $515.08 $117.84 $632.92 $52.74 Golden $187.92 $15.66 Lafayette $9,360 Lafayette $462.92 $162.24 $625.16 $52.10 Lafayette $177.84 $14.82 Ft. Collins $9,164 Castle Rock $459.66 $114.48 $574.14 $47.85 Greeley $140.40 $11.70 Littleton $5,000 Denver $373.27 $184.68 $557.95 $46.50 Windsor $117.36 $9.78 Loveland $4,990 PROPOSED ORDINANCES Proposed Ordinance Nos. 2080 and 2081 would approve increases for water and sewer service charges and an increase in the water license fee effective January 1, 2019. If approved on first reading, it is proposed that a public hearing on the ordinances be scheduled for 6:00 p.m. on December 11, 2018, and that a second and final reading follow the public hearing.. 7(b) - Page 5
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