10-26-2010 Council Work Session Packet

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. � MEMORANDUM To: Mayor and Council From: Ron Olson, Finance Director Subject: Enterprise Fund Budgets Date: October 22,2010 Water Fund• As illustrated by the attached chart for the Water Fund, the fund is operating at a loss. Non- Operating revenues (Tower Leases, Special Assessments, Interest), generally offset the operating loss and result in a positive income statement. In most years,the operating loss is less than the amount of depreciation for the year. In the past, the City has not been attempting to completely fund the depreciation. During this year's audit presentation, our auditors commented on the fact that the fund is operating at a loss. The expenditure budget presented with this memo proposes a increase of 2.26% over the 2009 budget. The significant increases are in chemicals and the administrative charge. We have limited ability to control chemical costs. The Administrative Fee (which is revenue to the General Fund) is being increased to be in line with what we charge the other utility funds. The Maintenance and Repairs line item is budgeted higher than 2010's actual. This is to fund the final year of the project to replace manual read meters with radio read meters. When completed this will save the time required to read meters and should result in increased revenue because old water meters will under register usage. The revenue budget as presented is based on a 5.5%rate increase. This is the amount identified in the recently completed rate study as being necessary for the long term funding of the utility. The budget also assumes an increase in water usage to normal levels. In 2010 operating revenues decreased as the result of a decrease in water usage. Variations in water usage from year to year are not unusual. In addition to the operating expenditures, capital expenditures in the amount of$430,000 are being planned for 2011. These include $30,000 in pump maintenance and $400,000 for the rehabilitation of an Ion Exchanger. The 2011 capital expenditures will be paid for using funds available from the Water Fund. A list of upcoming capital needs is included with this memo. It is likely that bonding will be required in the future. Staff would like the Council's input into the rate increase and capital purchases for 2011.