11-13-2017 Council Work Session Packet

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TO: Mayor Walsh and Council Members FROM: Ron Olson, Finance Director DATE: November 13, 2017 SUBJECT: 2018 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 was reviewed in 2014 and the suggested rate increases are used to set the annual revenue budget. Staff will be updating thee rate study in 2018. 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. Due to consolidations in the cellular industry and changing technologies, the lease revenue is not guaranteed to continue indefinitely. For the last four years, water rates have been increased by 11% annually. The 2018 budget is being presented with a 5% rate increase with future increases projected to be in the 3% range. As presented, the operating budget for 2018 will break even. The expenditure budget is increasing by $25,310 (2.1%). $9,000 of the increase is in maintenance supplies and maintenance. As a result of recently completed water system improvements, the depreciation expense is also increasing by $10,000. 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 $428,000 of capital expenditures as identified in the 2018 draft CIP and include a Scada Upgrade for the North Wellhouse ($61,200), north tower maintenance ($62,500), OCB Road Main Replacement ($210,000), and well #3 inspection and maintenance ($20,000). The Water Fund's current cash balance is $977,699.82. Sewer Fund In recent years, the sewer fund has mostly operated at a loss. Non-operating revenues however, have