09-24-2018 Council Work Session Packet

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TO: Mayor Walsh and Council Members FROM: Ron Olson, Finance Director DATE: September 24, 2018 SUBJECT: 2019 Enterprise Fund Budgets Attachments: 1. Enterprise Funds Summary 2. Enterprise Fund Line Items 3. CIP Pages 4. Rate Study Profit/Loss Projections The enterprise fund budgets consist of the Water, Sewer, Stormwater, Recycling and Cable TV Funds. Unlike the General Fund, the accounting in the enterprise funds is similar to the accounting practices of private enterprise. The goal of the enterprise funds is to operate independent of tax support. 2012 was the first year that a formal budget was adopted for the enterprise funds. Prior to 2010, the enterprise funds did not attempt to cover depreciation expenses. Beginning with the completion of the 2009 rate study, the suggested rate increases were designed to cover depreciation. The rate study was reviewed in 2014 and the suggested rate increases are used to set the annual revenue budget. Staff is currently working on an updated rate study. Water Fund The water fund has historically been operating at a loss. Because depreciation is a non-cash expenditure, the fund has had a positive operating cash flow since 2009. In most years, the operating loss has been covered by the revenue received from antenna leases on the water towers. Effective in 2018, the tower revenue has been moved out of the Water Fund. The reduction of lease revenue and an increase in the administrative charge will need to be recovered in rates. Based on the staff's work on the rate study, rates will need to continue increasing at an 11% rate for the next 5 years to reach profitability. The expenditure budget is increasing by $215,789 (31.2%). $60,329 of the increase is in Personal Services and is the result of allocating the Public Works staff to more accurately reflect their time. Depreciation is increasing $77,400 due to the addition of Well 4 and other additions to the system. The Administrative Charge is increasing by $86,660. These three areas account for $224,389 of the increase. The operating transfer of $55,000 is to the debt service fund supporting the Casco Point Bonds ($55,000). The non-operating interest expense is for the interest on the 2014 Water Bonds. A total of $474,855 of capital expenditures are identified in the 2019 draft CIP include: North Water Plant Painting ($21,000), South Water Plant Painting ($78,000), a screen at Well 3 ($92,000), Water Main Replacement at CSAH at Cty 15/19 ($169,855), annual Valve Replacements ($24,000) and water meter replacements ($90,000) for a total cost of $474,855. The Water Fund's current cash balance is $847,960.