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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 6/5/2001 (3) * PLEASE NOTE: Since the Glendale City Council does not take formal action at the Workshops, Workshop minutes are not approved by the City Council. MINUTES CITY OF GLENDALE CITY COUNCIL WORKSHOP June 5, 2001 1:30 p.m. PRESENT: Mayor Scruggs, Vice Mayor Eggleston, and Councilmembers Clark, Frate, Goulet, Lieberman, and Martinez. ALSO PRESENT: Martin Vanacour, City Manager; Ed Beasley, Assistant City Manager; Rick Flaaen, City Attorney; and Pamela Oliveira, City Clerk. 1. ENTERPRISE FUND REVIEW AND RATE DISCUSSION CITY STAFF PRESENTING THIS ITEM: Mr. Ken Reedy, Deputy City Manager; Mr. Charlie McClendon, Budget Director; and Ms. Pilar Aguilar, Budget and Rate Manager The City's enterprise funds are used to account for goods or services, which are provided to the public where it is the City Council's intent that the costs be recovered primarily through user charges. Funds classified as enterprise funds include the Landfill Fund, the Sanitation Fund, and the Water & Sewer Fund. In keeping with the intent of the enterprise funds, a thorough analysis of the user charges has been completed to ensure the self-sufficiency of each enterprise. This analysis included the assessment of the enterprise fund capital improvement plans (CIP), review of operating budgets and debt requirements, and an analysis of the rate setting tools used. Staff involved in the analysis included Field Operations staff, Utilities staff, Engineering staff, Finance staff, and Budget staff. It is good practice to provide the City Council with the opportunity to review the enterprise fund operations and cost recovery on an annual basis. This would normally occur with the normal budget process. However, due to the need for major revision to the capital improvement plans, replacement of some rate setting tools and the Council's wish to review all potential impacts to a citizen utility bill simultaneously, staff has organized all of these items for this workshop. Items to be presented for review include: • Landfill Fund Operating and Capital Budgets and Rate Implications • Sanitaticn Fund Operating Budget and Rate Implications • Water and Sewer Fund Operating and Capital Budgets • Development Fee Update • Water and Sewer Rate Study 1 Budget staff presented the preliminary findings to the Mayor and City Council at their November 16, 2000 Goal-Setting Session. The New Landfill Development Plan was presented to the Mayor and City Council at the February 6, 2001 Workshop. Enterprise fund CIP information was provided to the Mayor and City Council, with the full CIP, at the March 6, 2001 Workshop. Enterprise fund operating budget materials were provided to the Mayor and City Council with the Public Works operation budgets at the April 24, 2001 Budget Workshop. Supporting documentation and reports related to the enterprise fund capital improvement projects and development fees were provided to the Mayor and City Council on May 18, 2001. The report submitted by Black & Veatch, discussing the rate study for the Water and Sewer Utilities, and a sample water bill were provided to the Mayor and City Council on May 29, 2001. Public notices were being posted in accordance with the Open Meeting Law and City policies. Rate adjustments were recommended to meet revenue requirements in the Sanitation and Utilities Funds. Tentative budget adoption for fiscal year 2001-02 was scheduled for June 5, 2001. Final adoption will incorporate any reallocations or reductions directed by the Mayor and City Council. The recommendation was to review the recommended Fiscal Year 2002-11 Enterprise Fund Capital Improvement Plan, the recommended Fiscal Year 2001-02 Operating Budget, and recommended rate adjustments and provide staff direction. Mr. McClendon introduced the comprehensive details of the budget, which the Council had requested. He stated that, with the adoption of last years' budget, the Council had authorized the creation of a position for Budget and Rate Manager to enable the Budget Department to coordinate all the rate setting and be consistent. He indicated that the Budget Department hired Ms. Pilar Aguilar, who came to the City after having done rate work in a few other cities. Ms. Aguilar is very qualified and has done a wonderful job. LANDFILL CAPITAL IMPROVEMENT PLAN Ms. Aguilar indicated that the budget for the Landfill Capital Improvement Plan is $4,222,000 for Fiscal Year 2001-02. She said the base budget is $8,586,730.00, which is included in the Operating Budget Workshop packet that the Councilmembers received at the April 24, 2001 meeting. Carryover is $542,917, which covers mostly equipment costs. 2 Ms. Aguilar noted that supplemental requests are slightly different from the April figures due to allocations for the cost of the accountant position for Landfill/Sanitation that was requested by the Field Operations Department. Therefore, the costs were allocated so that both enterprises would share the cost. Ms. Aguilar stated that no rate changes were recommended for Fiscal Year 2001-02. Vice Mayor Eggleston inquired about the Landfill Excavation item for $745,000. Mr. Reedy indicated that this was for a program that would construct a new cell at the Landfill and excavate it. The City was supposed to begin excavation this year but decided that it could probably forego that project and begin it in another year. Ms. Aguilar introduced the Landfill Rate Cost Components chart, which shows each portion of the budget to be 34.9% for Contractual/Supplies, 29.5% for Capital, 15.5% for Closure/Post Closure, 13.6% for Personnel, and 6.6% for GF Indirect. SANITATION BUDGET OVERVIEW Ms. Aguilar introduced the Sanitation base budget, which was at $10,326.240. There were no carryover requests for this department. Supplementals totaled $698.060. One supplemental was deleted for the front load container division and there was a supplement allocated from the Sanitation Department to the Landfill fund. There is a $0.75 rate increase in Fiscal Year 2001-02. Of that $0.75, $0.50 is to be allocated to residential collection and $0.25 to residential recycling. Councilmember Clark asked how much revenue was expected to be generated from the $0.50 residential collection increase. Ms. Aguilar stated that the additional $0.50 increase would generate approximately $300,000, with the $0.25 generating approximately $150,000 for the recycling program. Councilmember Goulet asked if the front loader purchases might impact commercial customers. Mr. Reedy stated that it depends on the commercial market. He stated that there has been a reduction in commercial customers in the last couple of months and the City does compete for commercial customers. Councilmember Martinez asked why the $0.25 increase in the recycling program was not anticipated, as the program was only started a year ago. Mr. Reedy indicated that the City did not have a historical pattern to predict from, but the additional $0.25 will help stabilize revenue for the program. Councilmember Geulet asked about participation from the community in the recycling program. Mr. Reedy stated that participation is much higher than predicted. Councilmember Goulet asked if the recycling market was depressed. Mr. Reedy stated that it is better than it was a few years ago. Mr. Mike Hoyt, Director of Field Operations, stated that the difference of where the City is versus the projections was based on the market value of commodities. He stated that, since last year, all commodities have gone up 30-40% in price. Therefore, the rate recommendation is based on the assumption that the situation is stable. Councilmember Clark asked how much of the facility capacity was currently being utilized. She also asked if it was anticipated that others would use the facility. Mr. Hoyt stated that the building was designed for shifts, each shift processing 125 tons. The 3 daily average for the facility is close to 100 tons. If another city was added, another shift would be added. The building is sized correctly and all equipment and capital is in place to handle a 20-hour-per-day, six-day-per-week operation. The goal for the next year is to fill out that one shift. Councilmember Clark asked if the $150,000 that will be generated from the $0.25 increase in residential recycling is to offset the lowered revenue stream from the product that is sold. Mr. Reedy stated that Councilmember Clark was correct. Councilmember Clark then asked what the $300,000 in residential collection was for. Ms. Aguilar said this was to offset the costs that are being incurred in the Sanitation Division. She explained that the largest portion of the sanitation costs are personnel- related and there were increases in salary for both last year and this year, which are now in the base budget. This helps offset those costs and any inflationary costs, and fuel costs also have to be covered by that increase. Vice Mayor Eggleston asked what would be done if the commodity price for recycled materials increased and they suddenly became very valuable. Ms. Aguilar stated that, at this time, recycling is not recovering its costs and is actually losing approximately $900,000 to $1 million per year. Any increase in recyclables will just help cover any costs that are being incurred at this time. Councilmember Clark commented that the City is basically subsidizing the recycling program by $900,000 to $1 million per year. Ms. Aguilar reiterated the fact that the landfill rates and recycling revenue would cover costs of the recycling program. Mr. McClendon indicated that when the program was instituted, it was understood that the revenue from the landfill and recycling program would come from fund balance in the landfill fund, so the actual charges paid by outside haulers and other cities into the landfill help support the costs of the recycling program. Councilmember Clark stated that she understood the offset. She asked why the Landfill cannot cover the $150,000 in additional revenue and if the rest is made up for with the charge to the residential customer. Mr. McClendon explained that $1 .36 of the $12.75 charge that people pay goes to the recycling program and this has been the case since the program began. The $0.25 charge added to that will make it $1.61 and $13.50 respectively. This pays for the additional costs that the recycling program needs. The rest is paid for out of revenues generated elsewhere in the Landfill fund, primarily the fees paid by outside haulers and the other cities that have contracts with the Landfill. Mr. McClendon also explained that the costs of the recycling program exceed the revenues that come in from the $1.36 charge. The reason why the money is placed in the Landfill fund is because the Landfill benefits. Councilmember Clark asked why, in that case, the Landfill could not cover the $150,000 shortage. Mr. McClendon explained that, if the residential rate was not covered by that $0.25, it would draw the fund down further. He pointed out that in the early years of the Landfill Development Plan, the fund balance was dropping each year. Over the short term, that was acceptable; however, the City cannot continue to have a dropping fund balance because it is required to have sufficient funds at the time of Landfill closure in order to cover those costs. He added that when the lease financing and some of the initial equipment for the recycling center is paid off, costs will be reduced and the program will be closer to self-sufficiency. If the City gets other partners that come into the recycling program and run the second shift and generate more revenue, that will help reduce the costs. The $150,000 is needed to help narrow that gap between the cost of the program and the revenue generated to avoid drawing down the Landfill fund balance 4 any more than necessary. Councilmember Clark stated that she thought it could be done in any one of the next several years. She asked if it was absolutely critical that the $0.25 charge be imposed this year. Mr. McClendon recommended that it be imposed this year. While it will not bankrupt the fund in the next year if it is not done, he said he felt it would be advisable to make that drop in fund balance as small as possible. Councilmember Clark said she anticipated a rate increase in other areas of the budget. She stated that she was just looking for ways to keep rate increases minimal or more manageable over a longer period of time. Mr. McClendon stated that this latest rate increase would take place with the August billing. Vice Mayor Eggleston recalled being told that recycling costs were initially projected to be $1.36. He stated that there were subsequent studies and then they were asked for an increase of $1.61 or $1 .64. He stated that $1.61 was where they wanted it to be last year, but they held to the $1.36 commitment. Vice Mayor Eggleston said he was told that the loose trash pick-up would also be separated out . Mr. Reedy explained that the City does track those costs. He noted that Vice Mayor Eggleston's point was relevant and possibly separating out the costs is not necessary. Enterprise accounts do need to pay for themselves, but they do not need to be separated out. They should all be focused on as "sanitation services". Vice Mayor Eggleston agreed with the Mr. Reedy's comments and indicated that the costs need to be more compatible with what the customer wants to pay. Councilmember Lieberman stated that the City lost ground last year when the Northwest Valley turned down Proposition 300. He felt it would have helped Glendale's recycling program. He stated that he saw both sides of the landfill/recycling issue. He indicated that the customer sees sanitation as one service, but the Council needs to know the individual costs of each service. Councilmember Clark said she understood that certain parts of Sanitation Services would not recover costs, but noted that the Council needs to know where Sanitation is deficient and where it is strong. Mr. McClendon stated that he was not originally involved in the recycling program start-up. He stated that the costs which were presented were higher than the $1.36 and an impact fee was put into effect so that the containers for new development did not have to be paid for by existing customers. This helped lower costs elsewhere for sanitation so that more of that could be absorbed. Councilmember Martinez stated that, if the Council did not approve the $0.25 rate increase this year, it might result in a higher increase later. Mr. McClendon stated that small increases make future rate increases lower. Mayor Scruggs inquired as to whether there was tremendous improvement in the revenue from commodity increases. Mr. McClendon stated that additional revenues would be used to offset costs. Mayor Scruggs stated that the City needs to do a good job of emphasizing total sanitation. Mayor Scruggs conveyed the Council's support of the $0.75 increase beginning in August. Mr. Chris Zapata, Utilities Director, presented the Utilities Department overview. Councilmember Lieberman asked what "Operating Impact" meant. Mr. Reedy stated 5 that it represents the annual operating costs. Eventually, an annual cost increase is needed to operate that portion of the program. Mr. Reedy confirmed for Councilmember Clark that the City is proposing a new water treatment plant somewhere in the western part of Glendale, not specifically at the location listed. Councilmember Clark stated that the water treatment plant would generate an additional 15 million gallons per day. Mr. Reedy explained that 10 million gallons per day are being processed, and ultimately 15 million gallons per day are needed. Councilmember Clark stated that the off-project water shortage (3.8 million gallons) would be reduced by the re-rating of the Pyramid Peak Plant. Mr. Reedy stated that the Pyramid Peak Plant has been operating at optimum capacity, 26 million gallons per day. Councilmember Clark stated that the re-rating of Pyramid Peak plant and the new plant will cover water needs until 2010. Councilmember Lieberman asked how much more water can be taken out of Central Arizona Project (CAP), according to Project 9009 and what water allotment does the City have. Mr. Doug Kukino, Environmental Resources Director, stated that the City is using almost 100%, but a re-allocation is expected. Mr. Reedy presented Project 9249, Replacement of Waterlines. Councilmember Clark inquired about the age of the city's water system. Mr. Reedy stated that it was purchased in 1940, but the system began in 1916. Councilmember Lieberman inquired about how much water storage was available and where. Mr. Reedy stated that, with the additional water treatment plant, there are 60 million gallons of water storage in City. Councilmember Lieberman inquired about turf facilities. Mr. Reedy stated that g line would be constructed from the treatment plant or the recharge facility out to 99t and Glendale Avenues to provide irrigation water for new development projects. Councilmember Lieberman asked about the availability of a dual potable water system and a system for re-used water. Mr. Reedy stated that providing the dual water system where it is appropriate was a more viable solution. He stated that the longer those distribution pipelines run, the less viable the system becomes. Councilmember Lieberman inquired about Black & Veatch's recommendation of blending water. He said, in his opinion, it would be hard to sell to the public compared to the possibility of developers helping cover the cost of a dual water system. Mr. Reedy stated that reclaimed water for irrigation resources is a viable product. There is no need to talk about blended water, and the City can trade water for irrigation and for drinking. He added that three million gallons a day go into lakes and golf courses. Mr. Reedy stated that there were nine projects on the sewer side, two of which would be discussed in detail. The western area plant no longer has five years growth potential. The City needs to re-rate the plant and operate 24 hours a day to start Phase 2 of project. The Environmental Protection Agency (EPA) requires the City to have the ability to serve population needs. He indicated that staff is doing a sewer system analysis. 6 In response to a question posed by Councilmember Martinez, Ms. Aguilar stated that the City is planning to sell bonds for the Operations Center facility, and property tax revenues will also be used. Ms. Aguilar presented the Water & Sewer Capital Improvement Plan. The water subtotal for Fiscal Year 2001-02 is $11,975,000. The 10-year total is $90,225,000. The sewer subtotal for Fiscal Year 2001-02 is $20,175,000. The 10-year total is $182,175,000. Assessment studies which have been completed include a water treatment system study completed by Black & Veatch and a waterline assessment done by CH2MHill. A financing update included discussion of the Tischler Development Fee Update and Black & Veatch Rate Study. The new fees were approved in June of 2000. An update was done based on the revised Capital Improvement Plan. Water Development Fees were as follows: Growth-Related Capital Improvements — Ten-Year Capital Improvement Plan (CIP) Fiscal Year 2001 - $49,043,000; and Ten- Year CIP Fiscal Year 2002 - $81,487,500. Development Fees were as follows: Single- Family House in Fiscal Year 2001 - $1,301; and Single-Family House in Fiscal Year 2002 - $2,370. Sewer Development Fees were as follows: Growth-Related Capital Improvements — Ten-Year CIP Fiscal Year 2001 - $37,462,000; and Ten-Year CIP Fiscal Year 2002 - $32,187,500. Development Fees were as follows: Single-Family House in Fiscal Year 2001 - $2,003; and Single-Family House in Fiscal Year 2002 - $1,677. Councilmember Lieberman asked if the City needs to raise the development impact fees on homes to cover this. Ms. Aguilar replied in the affirmative. Councilmember Lieberman stated that the sewer development fee would then be lowered because i1: is less money. Ms. Aguilar affirmed his statement. Councilmember Lieberman then stated that costs would go up $900 per home. He asked about the new development fees put into effect two years ago. Ms. Aguilar said this would be a new development fee that would replace the fees adopted two years prior. Mayor Scruggs summarized her understanding of the request. Ms. Aguilar stated that rate changes will ensure there is consistency between growth paying for growth and what the ratepayers pay for existing services. Mayor Scruggs commented that, on the sewer side, almost all is growth related. Mr. McClendon explained that non-growth related costs have to be paid by existing users. The rates are sypporting the costs of non-growth. Mr. Reedy explained that, for example, the 99t Avenue plant was not growth-related like the western area plant because they are using capacity. Councilmember Clark asked how much it would cost. Mr. Reedy estimated it to be approximately $680,000 per year. Councilmember Lieberman stated that the cost per home for sewer development fees dropped, and yet the proposal is to increase the fee 4% for the next three years, compared to water development fees, which have gone up 86%, and where the City is not showing any increase at all in water revenue. Mr. McClendon explained that, 7 because of the increase in development impact fees, there are no water rate increases required. Most of the capital on the water side is due to growth, and if the development impact fee is raised so that the full cost of those improvements are paid by growth, then current rate payers are not required to help support the cost. Ms. Aguilar stated that, in response to a question posed by Councilmember Clark, the 4% increase will generate $547,500. Ms. Aguilar explained the Water & Sewer Operations for Utilities, which includes a Base Budget of $20,095,483, Carryover of $1,287,896, and Supplementals of $1,671,454. Environmental Resources includes a Base Budget of $1,521,695, Carryover of $208,425, and Supplementals of $176,109. Mr. Zapata explained the carry-overs and supplementals for Councilmember Clark. He stated that almost $1 .2 million is ongoing for supplementals. Councilmember Clark asked how much of the $33 million for water treatment was for personnel. Mr. Reedy stated that the staff was being increased to seven-days-a-week, 24-hours-a-day. An additional $2.5 million per year is being budgeted for the additional personnel. Councilmember Clark stated her belief that the City was essentially building for capacity in 2010; therefore, it would be over-capacity for a few years. Mr. Reedy said he thought it was going to be close, but he believed Councilmember Clark was correct. The Council discussed the projected population figures in the staff report. Ms. Aguilar presented the Water & Sewer Rates for Fiscal Year 2001-02. She said there would be no water revenue increase. This assumes no new regulatory mandates and increased development fees. There will be 4% adjustments for three years to increase sewer revenue, which assume 20-year bond terms. Mr. Zapata introduced Mr. Jake Boomhouwer from Black & Veatch, who presented a rate study. Sample utility bills were shown, and customer usage was discussed. Water, sewer, and sanitation comparison rates were also shown. Councilmember Clark asked if the cost of service was slightly greater than revenue. She suggested that the City look at adjusting the commercial side. Mr. Boomhouwer stated that some improvements are possible. He emphasized the need to collect more data. Mr. Boomhouwer then presented the rate study for the sewer side of the program, which is primarily non-growth. The rate structure shows adjustments in revenue. He recommended a single service charge for all users of $4.95 per month. Currently, there is a single service charge for most users, but residential customers are also paying the fixed capital charge. Mayor Scruggs asked if the $4.95 service charge was already in the base rate that users pay. Mr. Boomhouwer stated that the $4.95 service charge is less than the fixed charge that users pay now. Councilmember Clark inquired about the proposed service charge increase. Mr. McClendon stated that the service charge is currently a combination of the $3.55 and $7.09. It would go from $10.64 down to $4.95, which is why low-end users actually pay 8 less under the new rate structure. The fixed charges are smaller and more is actually based on usage in this system. The majority of the residential customers will actually benefit from the change in rate structure. Mr. Boomhouwer showed the impact on customers from the change in the sewer rate structure. Mr. McClendon stated that, for the average monthly user, there would be a nominal adjustment or increase because the system is going up about 4%. He noted that, for those users who are using less than average, there is actually a decrease in their monthly charge for sewer. For customers who are using more, the more they use, the more it will go up because of the increase to $1.76 from $1.00 on the volume charge. Ms. Aguilar reviewed three sample bills. All three samples were for low-end users and they were actual bills from customers in the system. Councilmember Clark asked what would happen by the year 2004. Ms. Aguilar stated that in 2003, the low-end user would see an increase of $0.45. By 2004, the total cumulative increase would be $1.22. Ms. Aguilar explained that Sample #1 reflects about 16% of current customers who use these amounts. She noted a $2.95 decrease in the sewer portion for all three samples. Sample #2 reflects 32% of customers. There will be a $0.62 increase by 2003. Sample #3 reflects 21% of customers. By 2003, it will increase by $0.83. By 2004, the increase will go up to $1.61. This shows a cumulative increase of $4.35. Mr. McClendon summarized the activities that would take place if the Council approved the budget. Councilmember Clark inquired about the rate increase for septic users. Mr. McClendon stated that they would only see the $0.75 sanitation increase. Vice Mayor Eggleston commented that, for 21% of the current customers, the bill would go up $4.35 per month over three years. Councilmember Frate stated that the Council and staff were talking about things that citizens take for granted. He stated that it basically comes down to quality and affordability. These are things that must be done just to live in Glendale, which offers a quality product that everyone should take pride in Councilmember Clark stated that no one wants to raise rates if they can possibly be avoided. She conveyed her belief that there is no alternative to raising rates. Councilmember Lieberman agreed with Councilmember Clark. Councilmember Martinez also agreed with Councilmembers Clark and Lieberman. He stated that no one likes increased rates, but at some point it must be done. ADJOURNMENT The meeting was adjourned at 4:30 p.m. 9