2014 BudgetDepartment Presentations

Infrastructure Funding Options

Utility Infrastructure

210/29/2013

2012 Utility Operations

From latest audited financial statements (2012) WATER WASTEWATER STORMWATER

OPERATING REVENUES

4,340,926

9,048,780

4,264,734

OPERATING EXPENSES

4,768,287

8,347,668

4,430,730

Operating income (loss)

(427,361) 701,112

(165,996)

OTHER NET EXPENSES

(41,034)

(392,111)

(39,559)

Income before contributions and transfers*

(468,395) 309,001

(205,555)

Two of our utilities are operating at a loss.*Capital contributions are investments in the system and not operating income.

310/29/2013

Increasing Construction Costs

Infrastructure maintenance needs based on HDR study.• Study was based on original cost, and adjusting for inflation per Engineering News Record

Construction Cost Index

Year Start ENR-CCI Increase Adjusted

2010 6,250,000

2011 6,250,000 2.8% 175,000 6,425,000

2012 6,425,000 2.6% 167,000 6,592,000

2013 6,592,000 2.7% 178,000 6,770,000

Indexing ordinance was intended to keep the utilities from falling further behind

410/29/2013

Previous Proposals Increases recommended by consultants

• Water + 4% - 6% annually for 29% over six years• Sewer + 4% - 7% annually for 34% over six years• Storm + 5% - 7.5% annually for 40% over six years

Current indexing ordinance helps the utility keep from falling further behind

Engineering News Record Construction Cost Index increase of 2.7% applies Feb 2014 absent other Council action

Debt to cash policy helps in the long term – but not enough

510/29/2013

Utility Repair and Replacement Needsvs. Funding Provided by RatesYear 2021 Analysis (in today’s dollars)

Estimate of revenue needs after debt is paid off

Other considerations:1. Projected total utility shortfalls 2013-2028

• Water $17.5 M Sewer $10.5 M Storm $ 1.2 M

2. This only considers existing infrastructure – does not provide for capacity growth

3. Water never reaches full funding without increases above inflation

WATER SEWER STORM TOTAL Annual Project Needs 2,050,000 2,930,000 1,250,000 6,230,000Provided by rates now 650,000 1,000,000 960,000 2,610,000Additional after debt payoff 462,000 1,960,000 335,000 2,757,000Total Funding Provided 1,112,000 2,960,000 1,295,000 5,367,000(Shortfall) / Catchup (938,000) 30,000 45,000 (863,000)

Utility rates and SDC revenues 5,257,000 10,168,000 4,570,000 19,995,000

Percent of increase needed 17.8%

610/29/2013

Water rate changes vs. total utility revenues

Effect of each 1% increase in water rates on total utility revenues

1. Each additional 1% increase in water rates, increases total utility revenues by about ¼ of 1%.

WATER SEWER STORM TOTAL

Utility rates and SDC revenues 5,257,000 10,168,000 4,570,000 19,995,000

Percent of water rate increase 1% 2% 3% 4%

Additional Water Revenue 52,570 105,140 157,710 210,280Total Base Revenue 19,995,000 19,995,000 19,995,000 19,995,000

Percent to total revenue 0.26% 0.53% 0.79% 1.05%

710/29/2013

Rate Recommendation Objectives

Move the City in the direction of fully funding utility infrastructure repair and replacement

Avoid emergency double or triple digit rate increases

Strategy depends on making the system last long enough

Avoid excessive rates – increase no more than is needed

810/29/2013

Utility Rate Recommendation

At minimum, continue to index Water, Sewer and Storm rates based on the Engineering News Record Construction Cost Index.

It is necessary to keep up with increasing costs

Add a catch-up increment for Water rates of 4% each year for four years.

Have external consultants update the rate studies in 2018

910/29/2013

Street Infrastructure

1010/29/2013

Local Street ReconstructionFunding StrategiesTax options available• Property tax – “banked capacity”

• Unused tax authority is $3,260,000• Requires supermajority vote of Council

• Utility tax – current rates are 2.2% on private utilities

• Transportation Benefit District – separate entity• More appropriate for a permanent adjustment• Local license fee• Sales tax option

1110/29/2013

Local Street ReconstructionA Possible Approach

Increase taxes on private utilities in 1% rate increments per year for three years

• Sunset each increment after six years• Designate revenues for street fund• Each 1% generates about $800,000 / year

• Monthly cost on a $500 utility bill = $5

• Current rates of 2.2% are relatively low• Apply to privately owned utilities

• Telephone, electricity, gas, cable

1210/29/2013

Potential Revenues Generated by Utility tax Option

Effective Rate Increase 1.0% 2.0% 3.0% 3.0% 3.0% 3.0% 2.0% 1.0%Year 2014 2015 2016 2017 2018 2019 2020 2021

Revenues generated 808,000 1,617,000 2,425,000 2,425,000 2,425,000 2,425,000 1,617,000 808,000

Projected shortfall 4,950,000 4,950,000 4,950,000 4,950,000 4,173,000 3,534,000 2,747,000 2,747,000

After tax increase 4,142,000 3,333,000 2,525,000 2,525,000 1,748,000 1,109,000 1,130,000 1,939,000

A significant shortfall remains even after a short term utility tax rate increaseThis may be mitigated somewhat by additional funding coming from• Real estate excise taxes – recently at historic lows, beginning to improve• Traffic Impact fees as development activity increases• Tier 3 funds available in good years after full funding of Tier 2 maintenance• Lift Grant when streets are located within the revenue development area

1310/29/2013

Council Direction Requested

Does Council wish to enact a dedicated funding source for transportation projects at this time?

1410/29/2013

End of Presentation

1510/29/2013

Held in Reserve

Use if necessary to answer questions

1610/29/2013

Local Street Reconstruction

This pertains to rebuilding of local streets beyond annual maintenance efforts.

Past emphasis on major arterials has spent traffic impact fees prior to receipt.

Bonds were issued and local street work deferred to pay for these projects.

1710/29/2013

Local Street ReconstructionAnnual Requirements

Estimated Annual Need Based On• Current inventory of infrastructure• Total expected life before rebuilding• Adequate funding of annual maintenance• Today’s prices

1810/29/2013

Local Street ReconstructionCurrent Inventory

150.8 lane miles of arterials/collectors• Average life 30 years if well maintained• 150.8 / 30 = 5.0 miles per year average to rebuild

194.9 lane miles of residential streets• Average life 50 years if well maintained• 194.9 / 50 = 3.9 miles per year average to rebuild

Total annual rebuilding needed = 8.9 miles

1910/29/2013

Local Street ReconstructionToday’s Costs of Rebuilding

Converting lane miles to square yards:• 1,760 yards per mile X 4 yards per lane = 7,040

Estimated cost per lane mile• Estimated cost per square yard = $80.00• 7,040 X $80 = $563,200 per lane mile

8.9 miles per year X $563,200 = $5,012,480

So approximately $5 million / per year

2010/29/2013