10-28-2019 Council Work Session Packet

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TO: Mayor Walsh and Council Members FROM: Ron Olson, Finance Director DATE: October 28, 2019 SUBJECT: 2020 Enterprise Fund Budgets Attachments: 1. Enterprise Funds Summary 2. Enterprise Fund Line Items 3. CIP Pages 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 is reviewed annually and the suggested rate increases are used to set the annual revenue budget. Updated rate study information is included with this memo. Water Fund In 2018 the Water Fund experienced an operating loss of $129,659. In previous years, operating losses were offset by the lease revenue received from the telecommunications companies with antennas on the tower. In 2018, this revenue source was moved to the Pavement Management Fund to help fund the City's road infrastructure. As a result of the reduction of this revenue the operating loss was not offset and the Fund experiences a net loss of $96,264. Expenditures for capital improvements and debt service impact cash flow but are balance sheet items and are not recorded on the income statement. When these items are included and depreciation (a non-cash expenditure) is backed out, the fund had a negative cash flow of $287,401. The current cash balance of the fund is $217,004. The expenditure budget information was provided to the Council as part of the August 26' work session. The expenditure budget is increasing by $57,230 (6.2%). $38,000 of the increase is in the Other Expenses Category. Specific line items increasing are Gas and Electric, Depreciation, and Intergovernmental Services. The increased utilities and depreciation are the result of the addition of Well number four to the water system. Intergovernmental Services are charges from Long Lake and Wayzata for properties connected to their utility systems. The $16,000 increase in Professional Services is partially offset by a reduction in the Supplies and Maintenance category. This is the result of shifting expenses to the new IT Fund and Fleet services. The line items recording the expenses are now under Professional Services instead of Supplies and Maintenance. Personal services are increasing by $5,670 which is the result of an increase in contract wages and in the City's insurance benefit contribution.