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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 12/2/2003 * 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 December 2, 2003 1:30 p.m. PRESENT: Mayor Elaine M. Scruggs, Vice Mayor Thomas R. Eggleston, and Councilmembers Joyce V. Clark, Steven E. Frate, David M. Goulet, H. Phillip Lieberman, and Manuel D. Martinez ALSO PRESENT: Ed Beasley, City Manager; Pam Kavanaugh, Assistant City Manager; Jon Paladini, Acting City Attorney; and Pamela Hanna, City Clerk 1 . UTILITIES RATES AND DEVELOPMENT IMPACT FEES ANALYSIS CITY STAFF PRESENTING THIS ITEM: Mr. Ken Reedy, Deputy City Manager and Mr. Roger Bailey, Utilities Director OTHER PRESENTERS: Mr. Jack Boomhouer, Black and Veatch Consultant This is a request for City Council to review and provide direction on the water and sewer rates analysis and the Development Impact Fees analysis. This is an opportunity to continue to update and present to the City Council the costs of implementing the infrastructure needs recommendations developed by several consultants. Rate increases for water and sewer services are required in order for the Water Enterprise Fund and the Sewer Enterprise Fund to maintain adequate operational cash reserves and finance the 10-year Capital Improvement Program (CIP) necessary for the viability of the sewer system and the water system. The rate increases will also help to offset costs due to escalating regulations and mandates set by federal and state regulatory agencies related to the operational aspects of all City of Glendale water and wastewater treatment facilities. The Water Development Impact Fees (DIF) are necessary so that the city can expand and improve its facilities to serve new growth. Otherwise, existing residents could potentially experience a decline in the level of services they receive. A fee on new development is used to finance costs related to additional capacity. 1 Council Policies Or Goals Addressed These recommendations will ensure the city will remain in compliance with regulatory standards. This will maintain the quality water supply for Glendale residents. In order to be consistent with the Council goals of providing financial stability and coordinating exceptional service delivery, an increase in sewer rates and water rates is necessary. Also, consistent with Council policy, the increase in water Development Impact Fees will ensure growth-related projects continue to be self-supporting. Background WATER AND SEWER RATE AND DEVELOPMENT IMPACT FEES Black & Veatch was selected as the consultant to complete the Water Master Plan. In support of the Water Master Plan, Black & Veatch conducted a water and sewer rate analysis. They recommended a series of water rate increases and two 4% increases in sewer rates in Fiscal Years (FY) 2011 and 2012. These recommendations are based on a detailed analysis of revenue generated monthly under the existing rate structure and the future needs as determined by the findings detailed in the Water Master Plan. Consultant Black & Veatch also prepared an updated report on the city's Water and Sewer Development Impact Fees. Their update utilized the methodology established by Tischler and Associates, Inc. in the comprehensive fee study completed in 2001. Based upon the Black & Veatch evaluation, they recommend that water development fees be increased and that the sewer development fees remain the same. The Water Development Impact Fee report documents the cost of the water facilities to maintain current levels of service while accommodating new development, and proposes changes to the current Water Development Impact Fees. Revenue from the proposed charges will cover the capital costs associated with growth. Previous Action on Items WATER AND SEWER RATES AND DEVELOPMENT IMPACT FEES A previous Council Communication incorrectly stated that the last increase in water rates was 3%, effective for all utility bills on and after November 1, 1993. However, the Council authorized a 3-year series of rate increases beginning with the November 1, 1993, billing and ending with the November 1 , 1995 billing. There have been no further water rate increases since November 1, 1995. The last increase in Water Development Impact Fees was January 10, 2002. 2 Community Benefit A periodic increase in sewer rates will enable the Utilities Department to continue to provide excellent sewer services and quick response times to problems. By implementing the new water rate schedule and water impact fees, the city will be able to maintain its current level of service to existing residents and support future growth. Direction/Policy Guidance The recommendation is to consider and provide direction on water and sewer rates and Water Development Impact Fees. Mr. Reedy clarified the city's last rate increase was in November 1995, not 1993 as previously reported. Mr. Boomhouer explained the water and sewer budgets are done jointly, however, their analysis separates everything out to ensure each utility's budget is able to stand on its own. Mr. Boomhouer reviewed changes made in the water rate study since the last time it was updated. He said the Water Capital Improvement Program increased from $110 million to $229 million from FY2004 to FY 2014 due to additional water treatment facilities, additional water storage and transmission facilities, and increased replacement expenditures. He said changes were also made to projected operation and maintenance expenses and a reduction was made in Development Impact Fee (DIF) revenue. Mayor Scruggs asked what accounted for the $13 million drop. Mr. Boomhouer explained staff adjusted the Capital Improvement Program to take into account projects that were moved or already started and no longer needed to be shown in 2004. Mayor Scruggs said revenue from Development Impact Fees was lower than anticipated because not as many entities paid the fee as was projected by Tischler in its study. She stated, as a result, the city has to increase the impact fee in order to expand and improve its facilities to serve new growth. Mr. Boomhouer explained they have taken the current data and made sure their projections are as responsible and realistic as possible. Vice Mayor Eggleston asked if the recommended impact fee rates have been changed since the study was conducted in 2001. Mr. Reedy responded yes, stating an update was conducted in 2002. He explained the impact fees projected in the study were not incorrect, the city simply did not see as much development as was projected in the Capital Plan at that time. 3 Councilmember Clark asked, at what point did they factor in that the Western Area was going to develop as primarily industrial/business as opposed to the residential development assumed up until the Western Area General Plan was adopted in July 2002. Mr. Reedy stated the current General Plan was a predominant part of the current study. Councilmember Clark pointed out that, according to Page 10 of the study, the DIF (Development Impact Fees) is not covering the true cost of development. Mr. Boomhouer continued his presentation, explaining non-growth projects represent a higher level of replacement expenditures and regulatory requirements. Councilmember Clark asked about the estimated costs of meeting EPA requirements. Mr. Reedy said the Disinfection Byproduct Rule goes into effect in 2006 and will significantly impact the Western Area Plant. He stated many other requirements already exist concerning nitrate levels. He said the need to treat the city's well water will increase as the city's reliance on groundwater increases. He said there have also been other significant changes to the EPA rules. In response to Vice Mayor Eggleston's question, Mr. Reedy stated approximately 16 percent of the city's water currently comes from wells. He explained ground water gives the city a third water resource to meet peak demand. Councilmember Lieberman pointed out the city will have to rely more heavily on well water as it reaches its limit of Central Arizona Project (CAP) water. Mr. Reedy said, today, the city buys excess CAP water, however, that option will become more expensive in the future. In response to Mayor Scruggs' question, Mr. Reedy explained the information presented to Council at previous meetings was the best available at the time. He said, as part of the final rate analysis, they evaluated each project to determine when the projects will start. Mayor Scruggs asked if the $21 million change in projects increases the urgency of approving the rate increase. Mr. Boomhouer stated the timing of the rate increase has not changed, however, the rate analysis accentuated the fact that a capital infusion was necessary. Mr. Reedy said staff previously brought to Council an $80 million obligation sale. Councilmember Clark asked what is the obligation the city is selling. Mr. Reedy explained the obligations take on the form of a loan or note and are subject to different terms than bonds. Councilmember Clark asked for how long will the obligations be issued. Mr. Lynch explained staff attempts to level debt payments, therefore, they matched the obligation with existing outstanding debt and spread the costs out over 20 to 25 years. Councilmember Clark asked how much will the city pay annually for the $80 million. Mr. Lynch said the annual debt service totals $11.3 million now, but will increase with the obligation issue to $12.4 million. He pointed out $70 million in debt will drop off within the next six years. Councilmember Clark asked why the city did not wait until the $70 million was repaid before issuing the $80 million in new debt. Mr. Lynch explained that, as growth occurs, the city has to build new facilities and repair 4 and maintain existing facilities. He said they do not have the option of waiting to do necessary repairs and maintenance until the $70 million is repaid. Councilmember Clark asked why they are not reflecting a decrease in water rates once the $70 million in debt drops off. Mr. Reedy stated the Capital Plan totals $364 million, therefore, the city will need much more than $70 million in additional debt. He stated the $80 million obligation issue is actually only for the next year. Mr. Lynch pointed out users of the system actually benefit by having the cost of the system spread out over the lifetime of the system. Councilmember Lieberman commented on the interest rates the city has been able to secure, stating it should take advantage of the long term rates. In response to Councilmember Martinez's questions, Mr. Reedy stated the city will have a difficult time meeting the 2006 EPA Disinfected Byproducts Rule without the recommended rate increase. Mr. Art Lynch, Chief Financial Officer, emphasized that rating agencies will downgrade the city's rating if the city cannot show the necessary revenue streams. He pointed out that, should the city be downgraded, the rating on previously issued debt would also be downgraded. Councilmember Martinez asked if the plan could be reworked to allow the city to meet minimum requirements without having to increase the rates as much. Mr. Reedy said, while removing some projects from the Capital Plan would reduce the rate impacts, doing so would impact the city's ability to reach its goals. Councilmember Clark asked if the rate increase is being recommended so that the city receives a favorable rating and is able to capitalize on good rates when it issues new debt. Mr. Reedy said, while that is part of it, the funds are necessary to build capacity to allow development to occur, to meet regulatory requirements and to cover operating costs. He stated the ability to meet regulatory requirements is paramount. Mayor Scruggs referred to a Council Communication dated October 28, stating the Council approved the sale of water and sewer revenue obligations, not to exceed $80 million, for projects in the 2003/04 Capital Improvement Program. She asked what portion of those funds are related to sewer projects. Mr. Reedy said the Western Area Plant expansion currently underway is the only significant sewer project. Mr. Boomhouer explained the $80 million debt has been structured so that repayment will begin as the $70 million debt goes away. Mr. Boomhouer continued his presentation, stating the fees are designed to pay for growth with credit for future debt payments in user rates. He said there is about $158 million in the growth-related Capital Improvement Program, representing a net capacity cost of $11.14 per gallon per day or $4,610 annually for a 3/a inch meter. He stated the study's recommendation for a water DIF of $3,500 for a 3/4 inch meter will keep Glendale in line with surrounding cities. He said, however, Council is free to adopt a $4,610 DIF if it so chooses. 5 Mayor Scruggs asked if the Council could decide to start at $3,500 with $250 annual increases for a given number of years. She explained doing so would eliminate the expenses associated with hiring consultants to go through the study process every two years. Mr. Reedy said the recommendation for this year is $3,500, however, graduated increases towards $4,610 would be a good solution. Mr. Boomhouer noted most cities adopt graduated annual increases. Councilmember Goulet asked if the amount of the increase will impact the city's bond rating. Mr. Boomhouer explained that, while there is a relationship, Development Impact Fee revenue does not have the direct impact on bond ratings that rate revenue does. In response to Mayor Scruggs' question, Mr. Reedy identified users of % inch to 4-inch meters. He said residential users have 3/a inch meters and one inch meters, while small water use businesses typically have 1 1/2-inch meters. He said apartment complexes, grocery stores and other large water use businesses utilize the larger meters. Mayor Scruggs asked if the recommended fee would keep the city in line with other cities for all meter categories. Mr. Boomhouer stated the recommendations are in proportion to the capacity factors of the meters. Mayor Scruggs pointed out the gradual annual increases would have to be proportionate as well. Councilmember Clark said, while she supports the idea of an annual increase, the fee structure itself would have to be reviewed on some frequency. She pointed out the suggested structure will require existing residents to subsidize 20 percent of the cost of new growth. She asked at what point will they require new growth to pay for itself. Mr. Reedy said, while the city has adopted rates that cover the cost of growth in the past, there was concern that a dramatic increase would make it difficult to attract new development. Councilmember Clark pointed out the majority of growth that will occur in west Glendale will be commercial development, asking why residential should be forced to subsidize commercial growth. Mr. Boomhouer noted some cities charge significantly higher impact fees for commercial development than Glendale, even assuming the proposed increase. Councilmember Clark expressed her opinion commercial developments will see the impact fees as the cost of doing business and the fee will not override other more important considerations when choosing a location. Mr. Boomhouer reviewed the rate study, explaining water rates are intended to pay for operating and maintenance expenses, debt service and capital costs. He said a cash flow analysis was performed to recognize the added DIF revenue and they attempted to do cash financing of replacements. He noted DIF revenue is also used to help pay debt service. Mayor Scruggs said the only reason to not go closer to what state statutes allow is fear of competition with other cities. Mr. Boomhouer agreed. Mr. Boomhouer reviewed current operating and maintenance expenses as opposed to those identified in the previous study, pointing out they are very similar. He noted costs 6 will be higher in the future due to the operation of new facilities. He clarified that their recommendation for a rate adjustment was not based on increased operating expenses, but on the need to pay for a significantly higher Capital Improvement Program. Councilmember Lieberman asked when will the three new treatment plants be built. Mr. Reedy stated the design of the Western Area Treatment Plant will begin in 2004 and the plant will be online in 2006. The Zone 2 Plant and the groundwater treatment plant in west Glendale are both shown in 2010 to 2014. He noted a $9 million project will begin this year to bring the Cholla Water Treatment Plant into compliance with regulatory requirements. He assured Councilmember Lieberman that the proposed rate increase includes those as well as many other projects. He stated their goal is to combine water, sewer and street projects when possible, minimizing the cost of the projects. Vice Mayor Eggleston asked Mr. Reedy to describe the Disinfection Byproduct Rule. Mr. Reedy stated the water at the Cholla Treatment Plant comes from the Arizona Canal which has a high organic loading. He explained adding chlorine to water with a high organic loading creates tri-halmethane, therefore, the water has to be disinfected prior to be chlorinated. He stated, in order to meet the Disinfection Byproduct Rule requirements, the current filters will be replaced with a full-depth granular activated carbon filter media. Councilmember Clark asked if the Disinfection Byproduct Rule and the ground water treatment plants are the primary reasons for the rate increase. Mr. Reedy responded no, explaining the $80 million is needed to meet the Capital Improvement Program currently underway. He said additional debt requirements will be needed to cover projects in the next few years. Mayor Scruggs expressed concern that the city is moving forward with a plan for additional ground water treatment plants when there is no evidence at this point that the plants will actually be needed. Mr. Reedy noted staff will come back to Council annually with an update on each analysis. He assured Mayor Scruggs they will reevaluate the Capital Plan to determine if the groundwater treatment plants are still necessary prior to increasing water and sewer rates in the future. Mayor Scruggs pointed out, however, that the rate structure is built based on the groundwater treatment plants being built. Mr. Reedy acknowledged that the plants are included in the proposed rate increase, stating, however, they will reevaluate each project on an annual basis to determine if they should proceed as planned. Mr. Boomhouer continued his presentation, stating projections of pay as you go capital increased since the previous study. He explained the increase reflects additional debt service as well as cash financed capital improvements. He reviewed a chart comparing revenue under existing rates with revenue requirements, pointing out the revenue level becomes insufficient to cover incurred costs beginning in 2008. 7 Mayor Scruggs asked if they could make it through 2007 if the water rates were not increased. Mr. Boomhouer responded yes, stating, however, there will be other implications and ramifications of not increasing the water rate at this time. Mr. Boomhouer confirmed for Vice Mayor Eggleston that the proposed Development Impact Fees used to help pay debt service are included in the Revenue Under Existing Rates line in the chart. Councilmember Martinez pointed out the operating and maintenance expenses do not seem to increase much during the next three years. Mr. Reedy explained the granular activated carbon is more expensive, therefore, operating costs will increase substantially over time once the first plant comes online in 2006. Councilmember Frate asked how dramatic would a rate increase have to be in 2008 if Council decided not to proceed with the proposed rate increase at this time. He also asked how much difference would it make if the Development Impact Fees were increased to the maximum allowed by the state. Mr. Boomhouer said the DIF change would be minimal because the difference between the proposed fee and the maximum allowed would equate to approximately $1 million in annual revenue. He explained the city's financial position has started to deteriorate over the past five years and, while the city could continue to operate in the same manner, rating agencies prefer smooth, annual, modest increases over time. Councilmember Clark asked why they are not proposing the minimum increase necessary to ensure a good bond rating. She also asked why they are not looking at the ongoing rate structure for the non-residential side where the majority of growth will occur. Mr. Boomhouer explained the program they laid out has alternating adjustments in either the sewer or water rates. He stated the sewer rate will not increase again until after the series of water rate increases have been completed. Councilmember Clark asked what is the minimum water rate increase needed to accomplish what they need. Mr. Lynch said the proposed four percent increase is necessary to keep the city's financial position from deteriorating further and to ensure a good bond rating. Councilmember Clark asked why the city's financial position deteriorated between 1998 and 2000 when the economy did not begin to go down until 2000/2001. Mr. Lynch explained new capitally financed costs lowered the city's reserves. Mr. Reedy noted rate increases did not occur during that time because Council adopted Impact Fee increases that offset some of the costs originally built into the rate structure. Mr. Boomhouer reviewed a chart comparing revenue under existing rates and the proposed rates, pointing out the proposed increase would bring revenue in line with projected expenses. He stated, while increasing the Development Impact Fees to the maximum amount allowed the city to reduce the water rate increase, the decrease would be less than one percent. Mayor Scruggs pointed out a one percent decrease in the water rate increase would cost $300,000, however, raising Commercial Development Impact Fees to their 8 maximum amounts would bring in over $1,000,000. She asked what percent does the indirect cost transfer increase each year. Mr. Reedy explained the amount varies and is based on actual use of the human resource system, the legal system and so forth. Ms. Sherry Schurhammer, Budget Director, noted the indirect cost allocation for water and sewer will decline in 2004. She explained the city's financial policy states they should charge the Enterprise Fund for services provided by General Fund departments. Mayor Scruggs suggested perhaps the city's policy needs adjusting if it is resulting in residents being over burdened by water and sewer rate increases. Vice Mayor Eggleston asked why the Capital Improvement Program has increased so significantly. Mr. Reedy explained the increase is based on the needs assessment and evaluation. Councilmember Clark noted the city used to have a minimum rate, asking how the rate study would be impacted if the minimum rate were reinstituted. Mr. Reedy expressed his opinion the city's current system is fairer to minimum use customers. Mr. Boomhouer reviewed a chart depicting the city's financial position if nothing were done, stating the city would end up $40 million in the red by 2014. Councilmember Clark expressed her opinion a rate increase is not necessary until 2007. Mr. Lynch explained smaller annual adjustments will help prevent double digit rate increases in the future. Councilmember Clark asked if the rating agencies look at the city's revenue streams or its Operating Fund balance and reserves. Mr. Lynch said they look at both. He explained that in exchange for the ability to borrow money at very low rates, the city agrees to keep covenants which involve reserves, coverage factors and net revenues. In response to Councilmember Martinez's question, Mr. Reedy explained the city will be out of compliance with its bond covenants long before it goes into the red in 2010. Mayor Scruggs said the proposed DIF fees total 24 percent of what could be charged by law. She asked if Council is comfortable with that percentage, given the fees charged by other cities. She also asked if the fees should be changed or if a tiered structure should be created. Councilmember Clark stated she would like to use the calculated model versus the proposed Development Impact Fee, except with regard to residential impact fees. She said residential impact fee revenue will be minimal as compared to commercial development. She suggested staff present several options for Council's consideration, including one that has rate increases beginning in 2006, one using a calculated rate, and one using staggered rate increases. Mayor Scruggs asked if the city would exceed the amount allowed by state law if it charged the maximum Development Impact Fee allowed, but later reduced the Capital Improvement Program. Mr. Reedy acknowledged the possibility exists. 9 Vice Mayor Eggleston expressed his opinion the difference between the proposed and calculated Development Impact Fees is not significant enough to alter peoples' decisions to locate in Glendale. He said he is not comfortable with a four percent increase every year for the next five years. Councilmember Lieberman stated he does not want to see a double digit increase in 2007 or 2008, therefore, they need to control the rate of the increase over several years. He stressed the importance of keeping the city's favorable bond rating, stating the city benefits from the low interest rates a favorable rating allows. Councilmember Martinez agreed the rates have to be increased and that smaller increases should be done over a period of time. He said, however, the Development Impact Fees for commercial development should be brought closer in line with the calculated costs. Councilmember Goulet said he is leaning toward the calculated amounts, but would like to see a plan that ensures users that increase the marketplace pay for the increase. He expressed his opinion a four percent increase every year for five years will have a negative impact on the community. He suggested the increases be staggered or tiered in some way. Councilmember Clark agreed the Development Impact Fees should reflect the users' demand on the system. She said the burden should not be placed on residential customers when the demand is coming from commercial development. Mr. Boomhouer referred to a chart depicting the results of a Cost of Service Analysis, stating revenue from existing rates for residential customers slightly exceeds their cost of service, whereas revenue from all other customers is slightly less than their cost of service. He said, therefore, the first rate adjustment would have a greater impact on commercial users to bring them up to their cost of service level. Mayor Scruggs asked when will the Development Impact Fee increases be implemented. Councilmember Frate asked for examples of the impact of other percentage increases. Mayor Scruggs voiced Council's consensus to look at the impact of going with calculated Development Impact Fees for all classes, with the residential impact fee being implemented over a three year period. She suggested they also show the impact of going with 90 percent of the calculated amount. She said staff should also show how the increased Development Impact Fees will affect the need for rate increases. She asked that they also provide options showing the impact of lower percentage rate increases and staggered rate increases, as well as the affect the increases will have on various sized residential and commercial uses. She also asked for additional information concerning the bond rating covenants with which the city has to be in compliance. 10 The meeting recessed for a short break. Mr. Boomhouer continued the presentation, reviewing a chart comparing revenue under existing and proposed rates. He said, given the series of four percent adjustments, the Sewer Utility is now projected to operate until at least 2010 with sufficient revenues to pay expenses. He stated a series of four percent adjustments are proposed starting in 2010 to keep revenue in line with expenses. He stated, while Sewer Development Impact Fees could increase slightly, they propose leaving the fees at current levels to help maintain the city's competitive edge. Councilmember Martinez commented on how little difference there is between the existing and calculated Development Impact Fees. Mr. Boomhouer explained the Capital Improvement Plan on the Sewer side has not changed. Councilmember Clark proposed the city go forward with the calculated Development Impact Fees. In response to Councilmember Goulet's question, Mr. Boomhouer said the only statutory requirement with regard to the Water and Sewer Development Impact Fees is that they not exceed the maximum allowed by the state. Councilmember Goulet stated he does not have a problem proceeding with the calculated amount. Vice Mayor Eggleston agreed. Mayor Scruggs asked where the calculated fee would put Glendale in relationship to the fees charged by other cities. Mr. Boomhouer said Deer Valley rates are the highest, however, other cities are expected to make adjustments as well. Mayor Scruggs pointed out Glendale would exceed Peoria's rates, which are the highest, by $600 on the residential side, however, it would be well below other cities in terms of commercial development. She asked staff to provide charts comparing the calculated rate with the rates charged by other cities for each of the different meter sizes. Mayor Scruggs voiced the Council's consensus to proceed with the calculated Development Impact Fee with regard to Sewer. Councilmember Clark expressed her opinion the Water/Sewer/Sanitation bill should be broken down by utility so they can understand what is attributable to each service. Mayor Scruggs asked for an explanation of max day peaking factor. Mr. Meyers said, when calculating peak demand, they looked at historic average day demands and max day demands. He said they also looked at how Glendale's peaking factor compared with other valley cities, noting Glendale's factor of 1.6 is one of the lowest. Councilmember Frate asked what happens if the city exceeds the projected peak demand. Mr. Meyers explained the city would probably be able to meet higher than 11 projected peak demands for a short period of time using stored water, however, residents would have to cut back on their water consumption if the shortage extended beyond a few days. Councilmember Clark asked why the city does not do more to encourage water conservation, especially during times of peak demand, rather than planning for ever higher peak demands. Mr. Reedy emphasized that the city practices water conservation and encourages its customers to use water wisely. He said planning for restrictive water use is not advisable because it relies on people acting in restricted manner for an extended period of time. He explained peak demand looks at a peak period, not a peak day. He pointed out imposing constant water conservation measures lessons peoples' willingness to comply with water restriction measures during severe droughts. Councilmember Clark stressed the importance of water conservation strategies given the drought being experienced throughout the state. Mr. Reedy agreed, stating many people already voluntarily take steps to conserve water. He explained that the amount of water used by consumers is in direct proportion to the temperature, therefore, peak period demand would not substantially decrease as a result of year-round water conservation efforts. Councilmember Clark asked if there is a correlation between water conservation efforts and a more consistent level of water consumption. Mayor Scruggs suggested AMWA as another source of information, stating they have an extensive water conservation program. Councilmember Martinez pointed out the city's Marketing Department distributes a lot of information concerning water conservation. He referenced a press release which stated Glendale saved 150 million gallons during the past year through its water conservation efforts. Mr. Reedy noted the Parks Department alone has saved over 100 million gallons over the past two years. Councilmember Lieberman asked at what point would the city start enforcing water conservation measures. Mr. Reedy said a combination of factors come into play, including Salt River Project (SRP) and Central Arizona Project (CAP) water supplies. He said the city would probably need to request its residents to employ conservation measures if SRP or CAP dramatically reduced their supplies. He pointed out SRP is projecting the same level as last year. Vice Mayor Eggleston asked if there would be an impact on water rate revenues if everyone made an effort to conserve water. Mr. Reedy responded yes, noting every city that has ever enforced drought restrictions has had to raise rates to make up for the loss in revenue. 2. STREET INFRASTRUCTURE REPORT CITY STAFF PRESENTING THIS ITEM: Mr. Ken Reedy, Deputy City Manager; Mr. Stuart Kent, Field Operations Deputy Director; Mr. Larry Vassel, Street Operations 12 Superintendent. This is a request for City Council to review the current condition of the Glendale street network and to receive information regarding the methods and costs associated with maintaining the street network to a safe and reasonable standard. The proper maintenance of the city street network will enhance the quality of life for Glendale residents by improving street conditions to provide a safe commute throughout the city, maintain a good transportation system, and add vitality to the city's overall appearance. On April 29, 2003, City Council reviewed the budget reductions that departments submitted for the current fiscal year. During this meeting some concern was raised by several council members regarding the reductions made in the Streets Division, specifically the funds associated with pavement management. City Council asked for an update by staff as to the overall condition of the street network and what resources would be needed to maintain the streets appropriately in the future. Additional resources will need to be allocated to maintain the street infrastructure and these costs will vary based on the condition of the street. All streets, regardless of age, amount of traffic, or location will need routine maintenance over their life. Staff can complete some of this maintenance, which includes fog and slurry seal treatments. However, much of the work will continue to need to be contracted to other companies. Contracted work includes asphalt overlays, crack sealing, and larger slurry seal projects. In 1985, the street pavement management computer system was implemented thereby creating a database of the condition of every street in the city. Updated data regarding the condition of the streets is gathered every three years and the system is updated. In 1992-93, City Council received an update on the status of the street network and authorized $1.7 million annually to complete contractual maintenance and maintain a safe street network. In order to meet budget reduction targets in the organization, there has been a reduction in the funding for contractual pavement management. In FY03-04 a total of $1.15 million is available. As indicated in the table below, contractual funds spent for street overlays and other contractual maintenance has reduced significantly since FY00. FISCAL YEAR EXPENDITURES FY00 $1 ,913,540 FY01 $1,797,713 FY02 $1,744,139 FY03 $1,114,426 FY04 $1,148,000 (estimated) 13 In September of this year asphalt overlays were completed on nine miles of street at a cost of approximately $865,000. The remaining funds will be used to complete other contractual maintenance including crack seal and contractual slurry seal coating. The community is dependent on a safe and well-maintained street network to conduct its daily business. With over 700 miles of public streets to be maintained, it is important that the public investment is prudently maintained. Staff has evaluated the overall condition of the street network and has found it to be in good condition. Although funding increases of $2.1 million will be needed during the next five fiscal years, the current funding level of approximately $1.15 million will be sufficient for the next fiscal year (FY05). Staff will continue to evaluate opportunities to leverage street maintenance resources with other funding sources and projects including street improvement/widening projects and water and sewer infrastructure improvements. The recommendation was to review the updated street infrastructure report and provide staff direction. Councilmember Clark asked if some forms of damage to streets are worse than others. Mr. Vassel explained all asphalt, over time, will ravel and, if caught early, the problem is easily fixed. Distortion, however, is a structural failure and the asphalt has to be removed. Mr. Vassel reviewed slides depicting streets in good, fair, poor and failed condition. He noted less than one mile of streets in the City of Glendale fall into the failed condition category. Councilmember Clark asked if the city has decided to wait until the improvements to Grand Avenue are completed to address the holes at the intersection of 59th Avenue and Grand. Mr. Vassel explained Grand Avenue, itself, is state highway and not under the City's jurisdiction. He said they recently milled out humps near the tracks and the railroad intends to raise the tracks. He stated the potholes will be fixed shortly. Mr. Kent noted, however, the city attempts to time projects relative to other construction in the area. Mr. Vassel explained a roadway expected to be upgraded as part of a future construction project will be maintained to a minimum standard until the project begins. Councilmember Frate said a number of constituents have commented and complimented the city on the improvements to Thunderbird Road. He asked how long is it after cracks are filled that a road is slurry sealed. Mr. Vassel said they try to slurry the road within one year. Mr. Vassel explained every street segment is inventoried by name, length, width and classification. He said the overall condition of each street is then rated and the information is entered into a database. He stated the database is then used to perform "what if" scenario analyses to reflect various funding alternatives. Mr. Kent stated the base budget currently totals $1.15 million. He said they do not believe additional supplemental request funding will be necessary next fiscal year. He explained a graduated increase has been built in so that in FY 2006, there will be a .35 percent increase and the new base will become $1.15. He said another supplemental 14 increase in the following year will increase the budget to $2.25 million in FY 07. Councilmember Clark said Council was concerned about the dramatic reduction in the number of miles being maintained every year. She asked if the proposed budget represents their efforts to regain some of the funding lost in previous years. Mr. Kent reported doing between 15 and 19 overlay miles per year five years ago, but only nine miles in the past year. He said the proposed budget is an attempt to make a graduated movement toward their previous budget. Councilmember Clark pointed out the same amount of money will no longer cover the same amount of roadway due to inflation. Mr. Kent said, actually, the system has averaged around $100,000 per mile over the past few years. He said their financial prospects appear to be improving and it was their intent to bring forward a logical budget that will allow them to maintain the network at the current "good" level. He said the proposed budget will allow for nine to eleven miles in the first year and 12 to 13 miles in the second year. Mayor Scruggs emphasized Council's concern regarding the recommendation to cut $250,000 from the Streets budget to balance the city's budget. She said they were shocked to find out the same amount had been cut two previous years. She explained that, while the City of Glendale will not receive funding as a result of the Regional Transportation Plan, it will be able to offload transportation expenses that it currently pays for. She pointed out that, while cities gave ADOT money to build roads, they failed to provide money for ADOT to maintain the roads. She said, as a result, many roads are in very poor condition. She explained the census in FY 2006 will result in a $3.5 million loss to the City of Glendale and she fears the Streets Fund will once again be raided. She asked if street maintenance was considered when the Transportation Election package was developed. Mr. Kent responded no, stating, however, there was a street enhancement component. Mayor Scruggs pointed out the city's last Transportation Election did not project the number of cars that will come onto Glendale streets as a result of the Cardinal Stadium and Coyote's Arena. She said, therefore, simply returning funding to its previous level will not be sufficient. She stated the Transportation Election did not take into consideration the additional revenue that will be generated by the sports venues either. She asked, therefore, if a percentage of the sales tax revenue could be used to establish a true street maintenance program that is not at the mercy of the budget balancing process. Councilmember Lieberman supported Mayor Scruggs suggestion to use the sales tax revenue to fund street maintenance. He asked how many new miles of roadway have been constructed during the past five years. Mr. Vassel stated there were 425 miles in 1986 and there are currently 701 miles. Mayor Scruggs expressed her opinion the city does not have an assured revenue stream to maintain its streets. Mr. Reedy stated the proposed plan will get them back to where they need to be to meet growth needs, however, they could expedite programs if additional money were made available. Mr. Tim Ernster, Deputy City Manager, noted funding was included in the GO Transportation Funds for maintenance of facilities. He said a process has been established through the CTOC (Citizens Transportation Oversight Commission) whereby funds can be reprogrammed for other transportation purposes. Councilmember Goulet said the city has a public safety responsibility to maintain its streets. Councilmember Clark commended Mr. Vassel for his willingness to take on and resolve 15 issues in a timely manner. Mayor Scruggs summarized that Council does not believe $1 .15 million will be adequate to maintain the street system and that the funds will be in jeopardy of future raids. She directed staff to research how they can move the street maintenance program under the transportation tax so that it is protected from future raids. ADJOURNMENT The meeting was adjourned at 6:05 p.m. 16