03-11-2019 Council Packet - Laserfiche WebLink

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AGENDA ITEM Prepared By: RJO Reviewed By: RJO Approved By: RJO $1,300,000 will be needed. The longer rate increases are delayed, the larger the increases need will need to be in order to fund the necessary improvements. There have been some additional factors that are impacting the need for significant rate increases. One was the decision to move revenue from cellular communication leases on the water towers out of the Water Fund. Another was the increase in Administrative charges to a level the covered actual administration costs being funded by the General Fund. In total, between the reduction in revenue and the increase of expenditures, these changes impacted the Water Fund by $200,000. Because only around one-third of residences are connected to the water system, it is a matter of fairness that the fund be self-supporting and not be subsidized by property tax dollars. The projections included with this memo illustrate a seven year timeline. With a 30% increase for 2019, the water fund would still require an additional $20,000 in order to reach its funding goals. Depending on the rate increase for 2020, the fund would need between $100,000 and $125,000 additional dollars. These additional funds could be obtained through an inter-fund loan from the Sewer Fund. Beginning in 2021, the fund would be able to begin to repay the loan. At the end of the seven year period, the fund is projected to be self-sufficient. There are several possible factors that could positively impact the fund. One is the current discussions with Minnetonka Beach regarding the possibility that the City would provide them with water from our Navarre system. This would significantly increase the number of customers served without requiring the costly installation of new infrastructure. There are also a number of potential developments that would connect to the northern water system. The addition of new customers to either Navarre or the northern systems would positively impact fund revenues. This would stabilize the rate structure and likely would reduce the size of future rate increases. Because there are significant factors currently in play for the water system, staff is recommending that the Council approve a water rate increase for 2019 of 30% for tier 1 (0-10,000 Gal), 40% for tier 2 (10,001-25,000 Gal), and 50% for tier 3 (>25,000 Gal). Staff will review the rates as part of the 2020 budgeting process to include the impact of the possible customer base increases. If there are no significant changes to our customer base, the 2020 rates will likely need to be in the 25% - 30% range that is included in the current projections. Staff will continue to review and update current cost projections of projects included in the CIP. Staff is also currently updating the fixed assets included in our accounting system to make sure that they match the assets included in the Cartegraph system. While this memo is focused on the Water System, staff is also updating fixed asset information and continually fine-tuning the CIP for the Sewer and Storm Water Funds. This information will be incorporated into the budgeting process for 2020. It is anticipated that future budgets for all Enterprise Funds will incorporate the best practices of both working capital and operating reserves. The goal for all Enterprise Funds would be for self-sufficiency without the need for debt or special assessments. 3. Staff Recommendation. Staff recommends approval of a 30% increase in the base water rates as presented in Exhibit A. Staff also recommends the institution of the GFOA’s best practices for operating and capital reserves.