11-25-2013 Council Work Session Packet

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� TO: Mayor McMillan and Council Members FROM: Ron Olson, Finance Director DATE: November 25, 2013 SUBJECT: 2014 Enterprise Fund Budgets Attachments: 1. Enterprise Funds Summary 2. Enterprise Fund 2014 Line Items 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 at a profit. 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. Water Fund The water fund has historically been operating at a loss. In 2012 however, a very dry summer resulted in a higher than average level of water consumption and the fund operated at a profit. For 2013 the fund is expected finish the year with an operating 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. Due to consolidations in the cellular industry and changing technologies,the lease revenue is not guaranteed to continue indefinitely. As part of the fee schedule discussion, staff is proposing to increase water rates by 11% to 15% in 2014. As presented, the operating budget for 2014 will have an operating loss. The revenue amount is calculated using the four year average for consumption and an 11% rate increase. The expenditure budget is decreasing by $19,966 (3.19%). The operating transfer of $55,000 is to the debt fund supporting the Casco Point Bonds and is required to pay for the water main improvements that were completed as part of the project. This transfer will continue for an additional eight years. 2014 capital expenditures as identified in the CIP include the north tower painting/rehabilitation,well #1 and#3 rehabilitation, main replacement on West Lafayette Road, and the feasibility report for the ion exchanger rebuild. The 2014 capital expenditures total$874,500 with an additional$460,000 called for in 2015. With a current cash balance of the fund at $1,214,623, staff would like the Council to consider issuing bonds to finance needed infrastructure improvements. The debt service on the bonds would be paid through water revenues.