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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 9/17/2012 MINUTES CITY OF GLENDALE AD HOC CITIZEN TASK FORCE ON WATER AND SEWER PALO VERDE ROOM ADULT CENTER 5970 W. BROWN STREET GLENDALE,ARIZONA 85301 MONDAY, SEPTEMBER 17, 2012 6:00 p.m. CALL TO ORDER The meeting was called to order at 6 p.m. by Michael Ashcraft, facilitator. He gave a brief overview of the evening's agenda and stated that tonight's presentations would be the last ones by staff. He discussed the timeframes but stressed that enough time was needed for thorough discussions. He requested member approval to stick to time limits so that the meeting could be adjourned by the expected 8:30 end time. Voice approval was given by the members. ROLL CALL APPROVAL OF MINUTES OF THE AUGUST 20, 2012 MEETING Miriam O'Neal, Water Services Management Aide, asked for approval of the Final Minutes for the August 20, 2012 meeting from the Task Force. A motion to approve the minutes was made by Comm. Hackenberg, seconded by Comm. Loya. The minutes were approved as written by voice vote. WELCOME WITH UPDATES Michael reminded members that next week's tentatively scheduled meeting is cancelled. The next meeting on Tuesday, October 2, will begin the process of prioritizing the members' items of interest into the recommendations that will be made to Council. Staff will compile the items into the required Council presentation format and then the Task Force will begin the selection process. WATER RESOURCES PRESENTATIONS Craig Johnson, P.E., Executive Director, Water Services, greeted members and thanked John Gallagher with Red Oak Consulting for providing the refreshments for the meeting. He explained that John will present procedural thoughts on how rates are developed and Diane Goke, COG Chief Financial Officer, will explain the financial picture, including rates and the Enterprise Fund, specifically for the city. He clarified that while no new rate increases are planned in the near future, the Task Force will be presented the factors that go into determining when an increase is needed. He introduced John Gallagher of Red Oak Consulting whose firm has worked with the city for the past five years. September 17, 2012 Ad Hoc Citizen Task Force on Water and Sewer Minutes Page 2 John Gallagher explained the rate structuring process in a detailed PowerPoint presentation. He explained it would be a 30,000 foot overview since he had 20 minutes to present a process that takes approximately six months to complete. Glendale's rates are a combined accounting made up of two main components, water and sewer. There is an operating fund financial plan and a debt service coverage component. It has two types of reserves, operating and capital. The cost of service is aligned with the two components of water and sewer. The rate design process takes into account pricing objectives, structure, and rates. Comm. Sherwood asked what comprises the base charge. John answered it is the cost of billing (what goes into sending out each monthly bill), local main charge (the water meters in front of residences), replacing meters cost (based on meter size), and fire protection coverage. Several members requested this slide be forwarded to them. John explained the water volume charge (based on number of gallons used) and finished his presentation by discussing some of the water challenges facing the city. One challenge is the conservation effort. That effort to conserve is working very well; however, the result is that the decline in usage is impacting revenues for the city. Diane Goke, the city's Chief Financial Officer, presented the financial picture pertaining to the city. She began by explaining enterprise funds. An enterprise fund is used for funds when a fee is charged in exchange for municipal services. Funds are segregated from all other governmental activities. It retains any investment earnings and operating surplus funds, and is a useful tool to identify total service cost and provide management information. She explained that by city code and charter, Glendale is not required to account for water & sewer activity in an enterprise fund; but government accounting standards recommend that this be done. She explained the fund balance. When enough is accumulated in the Water & Sewer fund balance, those funds can be used instead of obtaining bonds to finance projects that are used to replace operating items such as water meters and water lines. To fund long term projects such as building water plants, bonds are the preferred method because funding projects in that manner will not saddle current users with the costs for items that future customers will be using. Revenues and expenditures were addressed on two slides and Diane pointed out that decreased usage has impacted the revenue numbers. Going forward from FY 2013, the fund balance begins to drop; revenues decrease and remain flat while expenses continue to rise. Bond ratings for Water& Sewer are very good. The minimum debt coverage ratio allowed is 1.2% before a severe impact to ratings occur, at the end of last fiscal year Glendale's ratio stood at 1.6%. Costs for the department are handled by revenue, bond proceeds, or a combination of the two. Several years of significant capital expenses have occurred. Projections for FY 2015 and beyond show the fund balance dropping dangerously low to a negative balance in FY 2017. The financial plan is crafted for 5 years but it is reviewed every year. Bond issues are crafted for 20 years with 3-5% interest rates. Bonds were re-funded last year. In 2010, refinancing was a bit higher (6%) and a government refund helped but part of that funding could be going away. Bond rating from Moodys is Aa3 and the Standard & Poore rating is AA. These are very good ratings. In the event that we do not meeting the debt coverage ratio, steps must be taken immediately to fix it. The city is always aware of the ratio. Diane went on to address the Coyotes payments. In 2011, a $25 million payment was made to the NHL. $20M was borrowed from the Landfill enterprise account and $5M was borrowed from Sanitation's. The city's general fund is currently paying that back at approximately $1.1M per year. This year$20M has been placed in an escrow account for the National Hockey League (NHL) with $15M borrowed from Water and Sewer, and $5M borrowed from replacement September 17, 2012 Ad Hoc Citizen Task Force on Water and Sewer Minutes Page 3 funds. This money is not currently used, it is being held in an escrow fund awaiting talks with the NHL. It is hoped that a long-term payment plan can be developed with the NHL where those funds are paid over several years rather than all at once. The total amount of the payment is $25M and if the entire payment must be paid as soon as possible, then the additional $5M will also come from Water and Sewer. The$15M is included in the$70M Ending Fund Balance total for FY 2012. Comparisons among Valley water & sewer rates were presented. Diane gave a brief summary of the factors used when considering rate changes. She left the members with several questions to consider. Task Force members were given the opportunity to make comments or ask questions. Comm. Stratton stated that no rate increases should be made until the city replaces the $15M that it has taken to pay the Coyotes. Diane explained that the Capital Improvement Plan has been pushed out because of the smaller fund balance. But there are no immediate plans for a rate increase. Comm. Stratton questioned what need would be addressed if the $15M was available for use. Diane stated it was hard to say but the 5-year plan is reviewed annually. Comm. Stratton also stated that with another $5M, we'd have enough money. Comm. Livingston reiterated a sentiment that some members had towards the very beginning of the task force and that was the city charter needs to be changed to stop financial people from raiding this (Enterprise) fund. Diane explained that the city pools funds to invest. The investment rate returns have dropped from 4-5% to less than 1% currently. The loans will be paid back to Water and Sewer by the General Fund at approximately 2-3% rates which is higher than they would be earning if left in the investment pool. Diane answered the question "what would we do if we didn't have the water & sewer fund" -- We would possibly have to go out for loans and/or make different decisions, I'm sure. Comm. Livingston asked for confirmation on his statement that we the citizens of Glendale will never, ever see a decrease in their rates. Diane stated she could not say that. She did state that when you have revenues and debt, and you have expenditures, and those two don't equal,funds are always adjusting. Comm. Short stated that revenue expenditures for the next four years don't look very good. He asked if rate increases are figured into those figures. Diane explained there are no rate increases calculated in to those figures and that on the Capital Improvement expenses, the city could issue bonds to pay for those but those amounts would have to be paid back later. Comm. Zomok stated that although the money shouldn't have been used for the Coyotes, it's done. Now things need to be dealt with. He pointed out that while revenues are projected as being flat, operating expenses are projected to go up by 30% from FY 2013 to FY 2017. Diane explained that inflation is figured in and the Capital Expense fund is projected high because aging infrastructure issues will need to be addressed. Comm. Garland asked what the debt service ratio would be if the $15M was calculated into the total. Diane explained that the debt service coverage doesn't include the fund balance. It figures in when the rating agencies look at the overall financial picture of the city to determine its financial health. Comm. Sherwood questioned what impact upcoming regulation changes in the next few years will have. Craig Johnson stated that those figures aren't built into the budget currently. Craig also informed the members that the impacts of recent Arizona forest fires are currently being felt. The 2011 eastern Arizona Wallow Fire is now impacting the SRP watershed, bringing soot and particles, and impacting the water production plants. Staff needs to do more treating and add more chemicals to clear the water. CAP has a different source of water and uses the CAP canal to deliver the water. During the rainy season, water demand is down which causes canal water September 17, 2012 Ad Hoc Citizen Task Force on Water and Sewer Minutes Page 4 to stagnant and form algae. This results in high organics in the water. This has impacted our carbon budget. It has gone from $500 per day to $1,000 per day. Craig pointed out that this is the second year we have not asked for a rate increase. One issue is that the systems need maintaining and the infrastructures need replacing. The Capital Improvement Plan is looked at every year. Craig doesn't want to sell any bonds for a while. The debt restructuring brought $3M back to the city. Savings have been realized with optimization efforts by staff Currently, the department has 204 FTEs and we have 24 vacancies. Diane emphasized that she has not said that there will be a rate increase next year or 5 years from now. She explained that many factors are looked at to make that determination. Comm. Zomok asked John Gallagher if the loan payback is considered in the revenues of $82M in FY 2013. John replied that no, that isn't calculated as part of it. Diane stressed that the $15M loan hasn't been made yet. That money is sitting in an escrow account only. No future revenues are taking payback amounts into account because the loan isn't made yet. We are negotiating with the NHL to possibly pay that amount over many years. Comm. Knickerbocker asked what the cost of system expansion is. Craig explained that development impact fees are used to pay for expansion and new development construction. We work with the Planning Department to determine those fees charged to developers. Capital Improvement Project funds are used for water line upgrades. Comm. Knickerbocker stated that Engineering also helps to decide if the fees are enough. Craig said that there is sufficient appropriate money for the Capital Improvement Plan projects. Comm. Knickerbocker stated that it's the citizens that provide cash flow. He further stated that bonds would be to help the worst case scenario. Craig assured members that Water & Sewer's bond rating is good. There are some waterline and sewer line replacements planned and that infrastructure would be fixed when needed. Comm. Short asked what a comfortable fund balance number is and what percentage of the CIP balance is for future development. Craig said he would answer the second question first: there is no percentage allotted for future growth. Future growth has all been pushed out. And there is no set figure for a fund balance number. Everything is looked at every year. Comm. Arnold questioned if the projects are based on the tax increase just implemented. Diane replied that the tax increase does not affect the Water & Sewer fund. Water & Sewer fund is an enterprise fund and not supported by taxes at all. Comm. Arnold further asked if enterprise funds are set up for exclusive use of those certain departments. Diane replied that yes, that's the reason they're set up. Comm. Arnold clarified that it's just not worded as such. Diane answered that he was correct. Enterprise funds are not required to account for Water & Sewer funds, however it helps to track the information and government accounting standards state that the funds should be accounted for in that manner. Comm. Bethel stated that Craig said there are 24 vacant positions in Water Service. He asked how many positions have gone unfilled throughout the whole city since 2008? Diane replied that there's been approximately a 25% decrease in the employee number or roughly 300 positions. Comm. Sherwood asked for the debt service ratio figure again. He believes he heard 1.6. Diane stated that yes that was correct and her comfort zone is a figure above 1.5. Bond covenant is 1.2. She further explained that the fund balance is looked at in determining the debt coverage ratio along with many other factors that are figured in. FACILITATED EXERCISE ON PRESENTATIONS Members discussed policy issues and areas of concern, and indicated their top areas of interest in the Blue/Red Dot poll. Results will be compiled by staff and distributed at the next meeting. September 17, 2012 Ad Hoc Citizen Task Force on Water and Sewer Minutes Page 5 ADJOURNMENT The meeting was adjourned at 8:35 p.m. Respectfully submitted, Sally ing, Recording 'cretary