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Home My WebLink AboutRESOLUTION 2003-16SUBSTITUTE Suggested by: Administration City of Kenai RESOLUTION NO. 2003-16 A RESOLUTION OF THE COUNCIL OF THE CITY OF KENAI, ALASKA INCREASING THE WATER AND SEWER RATES. WHEREAS, the City of Kenai commissioned a study of water and sewer rates; and, WHEREAS, CH2M Hill performed the study and recommends water rates be increased 30% and sewer rates be increased 35% effective for fiscal year 2004; and, WHEREAS, it is in the best interest of the City of Kenai to phase in this increase over more than one year; and, WHEREAS, the water and sewer rates have not been increased since 1993; and, WHEREAS, the water and sewer system is self-supporting and in order to have sufficient funds for capital improvements and operations it is in the best interest of the City to increase rates effective June 15, 2003; and, WHEREAS, an increase of 10% for water and 12% for sewer would provide adequate resources for the Water and Sewer Fund for FY 2004° NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, that the rates identified in the Public Utility Regulations and Rates in Schedules A, B, C and E be increased 10% for water and 12% for sewer effective June 15, 2003. PASSED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, this 2nd day of April, 2003. ~~ ~H~ILL~AMS,c~AYOR She~adilla, actin~ City Clerk Approved by Finance' (3/26/03) hl CITY OF KENAI "Oil Capital of Alaska' 210 FIDALGO AVE., SUITE 200 KENAI, ALASKA 99611-7794. TELEPHONE: 907-283-7535 FAX: 907-283-3014 MEMORANDUM TO. FROM' DATE' RE' Mayor Williams & City Council Members Linda L. Snow, City Manager ~"~ March 12, 2003 Water and Sewer Rate Increases As you know, the City's water and sewer utilities face a number of challenges, including the capital improvements needed to replace aging infrastructure and the imperative to comply with Federal and State regulatory measures. CH2M Hill was selected by the City to prepare water and sewer rate reviews and financing plans to help address these challenges. The Administration has reviewed and concurs with the final reports and rate recommendations presented by CH2M Hill in the City of Kenai Water Rate Study and Finance Plan and the City of Kenai Wastewater Facility Master Plan. Specifically, CH2M Hill recommends a 30% water rate increase and a 35% sewer rate increase as illustrated in'the first chart on the attached schedule prepared by Keith Komelis. The City has not increased water and sewer rates since 1993. CH2M Hill reports the majority of Alaska communities' surveyed have increased rates at least once since that time. Revenues have traditionally been adequate to support operations and maintenance costs of the water, sewer, and sewer treatment plant departments, but are insufficient to fund capital expenditures. The results of no rate adjustments for the last ten years are that the City has not established replacement reserves, cannot absorb increased operations and maintenance costs, and has no development fees available to finance a portion of the requirements for capital improvement programs. According to CH2M Hill, if the current single-family monthly water rate of $10.35 had risen with general inflation (21% during the nine-year period, U.S. Bureau of Labor Statistics Anchorage Price Index), the rate would currently average about $12.50 per month. This rate would have contributed to increased revenue for water system replacements and CIP costs. The consultant's experience has shown that more modest, but frequent rate increases generate more sufficient revenues and result in overall lower rates than less frequent but major rate increases. As an alternative, Council may wish to consider phasing in the recommended increase over two years, rather than doing it all in one year. As illustrated in the second chart on the attachment, this would result in a combined water and sewer increase of only $7.00 in FY 04 and $7.00 in FY05. Resolution No. 2003-16 increases all of the water rates by 30% and sewer rates by 35%. However, if Council wishes to pursue the option to phase in the recommended increase, then those may substitute the percentage rates in the Resolution identified in the second chart as "OPtion to Increase the Water and Sewer Total Monthly Bill by $7.00 for the Next 2 Years." ..................................... CiTY"oF KE~ ..................... ............... FROM CH2MHILL' WATER AND SEWER RATE sTuDY .......... ........ DATED MARCH* 2003 .... ......... FLAT RESIDENTIAL RATE ~- Year ' % Water % SewerI ' Water 'sewer ' ' Sub Total Sales Tax' TOtal ....... Increase Increase! $ $ ........ $ ........ $ ..... $ 2~2/03 ...... 0 0% ..... 10.35 28.70 ..... 3.9.05 ..... 1,95 ' ' '41.00 ~3/04~ '30% 35% .... 13~46 .... 38.75 '" 52.21' '' 2.6'1' ' 54.~82 ~2004/05' i 4% ' "4% ' ;i3.99 ' '40.29 " 54.28 " 2.71 .... 56.99 ~t "4%i ..... 4% 14.55 " 4i.91 .... 56.46 ...... 2182' - 59.28 2(N)6/07 "t" 4%t ' ' 4% 15.14 43.58r 58.72 2.94 61.66' '2(~7/08" ! . . 0%i" .. ' 0% .... ....... 1.5.14 .".. ".'. '43.58 ' "58.72 "' 2.94 ....... 61.66 "' Option .*-°','lr~,c~~, .the W~er and Sewer Total ~nthly Bill ,by ,~7.00, for,Next,,2,Yea~ 2002/03 .... 0.0~ 0.0~ ' ''10.35'1 .... 28.70 ..... 39,05 ' 1~.95 ....... 41:00. 2003/I~ i' 15.0%" 17.8% "' 1'1,90i"'' .' "33.:8!i 45.71 2.29 .~ :48~00 2004/05 ~' 1'3.0% 15.1%I ..... 13.45! 38.93 52.38 2.62 55.00 20(15/t::16 8.'2%[ '7.7%i 14.55! '" 41.9'1 ..... 56'.46 ' 2.82 ' 59'128 ~07 .... 4 1% .... 4.0%j'' 15.141' .43.58i ' ' 58'721 ' 2.94 ' "61.66 .~. '.'. 1 ~i.0~,~ ...... '0,0%"[" ..~.~.~,41 ', ",,,,' 4~.'~I ........ ',~8~721,, ', ,, ~,,~ ........... '., Prepared by Keith Kornelis 03/13/2003 Page I CITY OF KENAI "Oil Capital of Alaska" 210 FIDALGO AVE., SUITE 200 KENAI, ALASKA 99611-7794 TELEPHONE: 907-283-7535 FAX: 907-283-3014 MEMORANDUM TO: THROUGH: FROM: DATE: SUBJECT: City Council Linda Snow, City Manager Lawrence A. Semmens, Finance Director March 26, 2003 Water and Sewer Rates This memo is to supplement the March 12, 2003 memo from Linda Snow included in the packet. The following are the primary reasons that an increase in water and sewer rates is necessary at this time: , Recent capital improvement expenditures in the amount of $1,200,000 have depleted the fund balance to below acceptable levels. The City has relied on matching grants to finance capital improvements; however, it is uncertain if grants will be available for furore improvements. Unfortunately, even if grants are available, the Water and Sewer Fund does not have cash to match the grants. This puts the ability of the water and sewer system to meet furore service demands at risk. In their report CH2M Hill recommends that the City raise rates 30% to 35% if we use debt to finance a portion of furore capital costs. If debt is not used they recommend that the water and sewer rates need to be increased 90% & 100% respectively! Copies of their reports are in your packet. , The Water and Sewer Fund is self sUpporting- services are paid for from user fees. Costs are increasing, and have increased substantially since the last rate increase effective FY 1994. That year the operating cost was $938,350. In FY 2002 the operating cost was $1,220,000, which is a 30% increase. Service fee revenues have increased 10%. Water production has increased 40%! Population growth over the same period is 2%. We have added 4 miles of sewer lines, an increase of 5%, to a total of 78 miles and we added Wellhouse 3. All without increasing rates. It is very interesting that water production is up 40% while service fee revenue is only up 10%. Why? Because there is no correlation between water production and revenue when most of the customers are on a flat rate. Our customers are using 40% more service, but only paying an additional 10%. o Operating costs are going to continue to increase (unless services are reduced). General inflation over this period is 21%. While our cost per gallon produced (a measure of efficiency) has dropped by over 20% in the same time frame, new regulations are expected to increase operating costs due to higher water quality standards and security requirements. 4. The fund has had two revenue sources that are drying up. In FY 2001 the fund started receiving interest earnings. In that year the amount was $107,000 and last year it was $63,000. Since fund balance has dropped from over $1 million to less than $150,000 at the end of FY 2003, interest earnings will be insignificant especially at current rates. Second, the fund has been receiving special assessment payments from the Thompson Park Project. Almost all of these assessments will be paid off in 2005. These revenues will have to be replaced. For all of the forgoing reasons it is my strong recommendation that water and sewer rates be increased. The financial health of the system depends on it. It is understandable that the Council does not want to raise rates 30% and 35%, particularly this year. Given that, it is my recommendation that you take the alternative mentioned in City Manager Snow's memo to increase rates in two steps of $7 in FY 2004 and 2005. For residential customers this will be $84- per year. For other customers this would be about a 16% increase each year. The total estimated revenue increase will be $215,500 which would provide some growth in fund balance. This is a reasonable and justifiable approach. CITY OF KENAI "Oil Capflal of Alaska" 210 FIDALGO AVE., SUITE 200 KENAI,'ALASKA 99611-7794. TELEPHONE: 907-283-7535 FAX: 907-283-3014 MEMORANDUM TO. FROM: DATE: RE' Mayor Williams & City Council Members Linda L. Snow, City Manager ~,'~' March 12, 2003 Water and Sewer Rate Increases As you know, the City's water and sewer utilities face a number of challenges, including the capital improvements needed to replace aging infi'astructure and the imperative to comply with Federal and State regulatory measures. CH2M Hill was selected by the City to prepare water and sewer rate reviews and financing plans to help address these challenges. The Administration has reviewed and concurs with the final reports and rate recommendations presented by CH2M Hill in the City of Kenai Water Rate Study and Finance Plan and the City of Kenai Wastewater Facility Master Plan. Specifically, CH2M Hill recommends a 30% water rate increase and a 35% sewer rate increase as illustrated in the first chart on the attached schedule' prepared by Keith Komelis. The City has not increased water and sewer rates since 1993. CH2M Hill repons the majority of Alaska communities surveyed have increased rates at least once since that time. Revenues have traditionally been adequate to support operations and maintenance costs of the water, sewer, and sewer treatment plant departments, but are insufficient to fund capital expenditures. The results of no rate adjustments for the last ten years are that the City has not established replacement reserves, cannot absorb increased operations and maintenance costs, and has no development fees available to finance a portion of the requirements for capital improvement programs. According to CH2M Hill, if the current single-family monthly water rate of $10.35 had risen with general inflation (21% during the nine-year period, U.S. Bureau of Labor Statistics Anchorage Price Index), the rate would currently average about $12.50 per month. This rate would have contributed to increased revenue for water system replacements and CIP costs. The consultant's experience has shown that more modest, but frequent rate increases generate more sufficient revenues and result in overall lower rates than less frequent but major rate increases. As an alternative, Council may wish to consider phasing in the recommended increase over two years, rather than doing it all in one year. As illustrated in the second chart on the attachment, this would result in a combined water and sewer increase of only $7.00 in FY 04 and $7.00 in FY05. Resolution No. 2003-16 increases all of the water rates by 30% and sewer rates by 35%. However, if Council wishes to pursue the option to phase in the recommended increase, then those may substitute the percentage rates in the Resolution identified in the second chart as "Option to Increase the Water and Sewer Total Monthly Bill by $7.00 for the Next 2 Years." ..................................... CITY OF KENA! ......................... ~ ...... ...... RECOMMENDED' By CH2MHiLL WATER AND SEWER RATE STUDY ........... ............. DATED MARC,H, 2003 ............ ' '' FLAT 'RESIDENTIAL RATE ........... ........................ ..... year % Water % SeWer ' 'water ..... sewer SUb Total .....sales Tax .... Total ..... FY Increase InCreaSe $ $ ...... $" $' " $ ..... ..................... ~2002/03 " 0 0% "' 10.35 '2'8170 .... 39,05 ' ' 1.95 '4'~ '00' 2003/04 30% .... 35% 13.46''' 38.75 52.21 '2161 " 54'.82~ 2004105 ........ ;4% ' "4% .... i3.99 40.29 .... 54.28 " 2.71 .... 56.99 2005/06 4% "' 4%' "14.55' " 41.91 56.46 2.82 .... 59'.28 2006~07 4% 4% " 15.14 ' '43158 " 58.72 "' 2.9.4 61.66 2007/08 .... 0% "0% "' 15.14 ..... 43.58 58.72 2.94 61.66 ', ", ......... option to. !,nc,rea ,se,~, ,,,th® Water and, ,,S.,eWer.T0tal ,,Mo...,,nth!y, Bi.II by ,$7.00 for.Ne ,xt,,2 'Yea.,,.r.,.S ',','., 2002/03 0.0% '0.0% ..... 10.35 ' 28.70 ..... 39.05 1.95 ........... 41.'00 2003~04 ...... 15.0% ' 17.8% ...... 11.90 .... 33.81 ....... 45.7i' ' '2.29 ' "48.00 2004105 .... 13.0% "'15.1% 1'3'.45 " 38.93 52.38 2.62 55.00 2006/06 ..... 8.20/0 '7.7% ........141'55' ' 4i.91 56.46 2.82' '59.28 2006107 ..... 4.1% 4.0% , 15.14 ", 43,.58 58'.72 .... 2.94 61.66 200'7/08' '0.0% 0.0% ' ' 15.14 43.58 " '5'8.72 2.94 ' 61'.66 ........................... ........................... ,, O~3tio,n. ,,. to Increase '.the..W,a, te,.,r and seWer T.o, ta, ! Monthly Bill bY !0 % for 2003~04 2'002/03 0'0% '" 0.0% 10.35. 28.70 '' 39.05 1'.95 ' ' 41100 2003~04 10%' 10% '"11'.38 ..... 31.57 ...... 42.95 "' 2.15 45.10 . ,,,,, , ,, ~,, ~,, , ~,, , ....... ,,, ~ , ,,,, ..... , .... , ..... ~,, ..... ~ ,,, , , , , ,,, , ,,,,, ..... , , Prepared by Keith Komelis 3/27/2003 Page I Revenues Usage Fees Hook-up Residential Water Commercial Water Residential Sewer Commercial Sewer Total Usage Fees City Of Kenai Fiscal Year 2004 Operating Budget Budget Projection Fund 10: Water and Sewer Fund Actual FY 2001 Original Amended Actual Budget Budget FY 2002 FY 2003 FY 2003 5,320 228,904 106,377 627,374 276,599 1,244,574 3,800 $ 5,O00 232,953 233,000 111,969 115,000 644,331 640,000 289,964 280,000 1,283,017 1,273,000 5,000 233,000 115,O0O 640,000 280,000 1,273,000 Projection FY 2003 3,200 235,OO0 110,000 645,000 280,000 1,273,2OO Administration Recommended FY 2004 3,500 27O ,250 126,500 759,810 323,95O 1,484,010 Miscellaneous Revenues Penalty and interest 17,552 18,234 18,000 18,000 18,000 18,000 Spec. Asmnt. Principal 41,617 40,414 40,000 40,000 32,000 30,000 Sale of Assets .... Interest earnings 106,919 63,409 58,000 58,000 40,000 28,000 Other 3,011 2,013 2,500 2,500 2,500 2,500 Total Miscellaneous Revenues 169,099 124,070 118,500 118,500 92,500 78,500 Total Revenues 1,413,673 1,407,087 1,391,500 1,391,500 1,365,700 1,562,510 Expenditures Water Department 453,486 405,426 467,347 496,831 1,446,831 482,569 Sewer Department 450,903 230,627 290,726 307,423 307,423 274,473 Sewer Treatment Plant Dept. 745,810 584,104 673,836 725,522 725,522 644,445 Total Expenditures 1,650,199 1,220,'157 1,431,909 1,529,776 2,479,776 1,401,487 Contribution To/(From) Fund Balance Projected lapse (3%) Adjusted (Deficit)/Surplus Beginning Fund Balance Residual Equity Transfers Ending Fund Balance (236,526) 186,930 (40,409) (138,276) 85,915 45,506 91,787 (46,489) (1,114,076) 84,089 (1,029,987) 161,023 42,O45 203,068 1,132,042 895,516 855,984 1,176,950 1,176,950 146,963 895,516 $ $ 146,963 1,130,461 94,5O4 1,176,950 $ 901,490 $ 350,031 Revenues Usage Fees Hook-up Residential Water Commercial Water Residential Sewer Commercial Sewer Total Usage Fees MiScellaneous Revenues Penalty and interest Spec. Asmnt. Principal Sale of Assets Interest earnings Other Total Miscellaneous Revenues City Of Kenai Fiscal Year 2004 Operating Budget Budget ProJection Fund 10: Water and Sewer Fund Actual FY 2001 Original Amended Actual Budget Budget FY 2002 FY 2003 FY 2003 5,320 228,904 106,377 627,374 276,599 3,8OO $ 5,OOO 232,953 233,000 t 11,969 115,000 644,331 640,000 289,964 280,000 5,000 233,000 115,OOO 640,000 280,000 Projection FY 2003 3,200 235,000 110,000 645,O00 280,000 1,244,574 1,283,017 1,273,000 1,273,000 1,273,200 Administration Recommended FY 2OO4 3,5OO 258,5OO 121,000 7O9,500 302,5O0 1,395,O0O 17,552 18,234 18,000 18,000 18,000 18,000 41,61 7 40,414 40,000 40,000 32,000 30,000 106,919 63,409 58,000 58,000 40,000 28,000 3,011 2,013 2,500 2,500 2,500 2,500 169,099 124,070 118,500 118,500 92,500 78,500 Total Revenues 1,413,673 1,407,087 1,391,500 1,391,500 1,365,700 1,473,500 Expenditures Water Department Sewer Department Sewer Treatment Plant Dept. 453,486 405,426 467,347 496,831 450,903 230,627 290,726 307,423 745,810 584,104 673,836 725,522 1,446,831 307,423 725,522 482,569 274,473 644,445 Total Expenditures 1,650,199 1,220,157 1,431,909 1,529,776 2,479,776 1,401,487 Contribution To/(From) Fund Balance Projected lapse (3%) Adjusted (Deficit)/Surplus Beginning Fund Balance (236,526) 186,930 (40,409) (138,276) 85,915 45,5O6 91,787 (46,489) (1,114,076) 84,089 (1,029,987) 72,013 42,045 Residual Equity Transfers 114,058 1,132,042 895,516 855,984 1,176,950 1,176,950 146,963 895,516 146,963 Ending Fund Balance $ 1,130,461 94,5O4 1,176,950 $ 901,490 $ 261,021 Revenues Usage Fees Hook-up Residential Water Commercial Water Residential Sewer Commercial Sewer Total Usage Fees City Of Kenai Fiscal Year 2004 Operating Budget Budget Projection Fund 10: Water and Sewer Fund Actual FY 2001 Original Amended Actual Budget Budget FY 2002 FY 2003 FY 2003 Projection FY 2O03 5,320 228,904 106,377 627,374 276,599 3,800 $ 5,000 232,953 233,000 111,969 115,000 644,331 640,000 289,964 280,000 5,000 233,000 115,000 640,000 280,000 3,200 235,00O 110,000 645,000 280,000 Administration Recommended FY 2004 3,500 235,000 110,000 645,OOO 275,00O 1,244,574 1,283,017 1,273,000 1,273,000 1,273,200 1,268,500 Miscellaneous Revenues Penalty and interest 17,552 18,234 18,000 18,000 18,000 18,000 Spec. Asmnt. Principal 41,617 40,414 40,000 40,000 32,000 30,000 Sale of Assets .... Interest earnings 106,919 63,409 58,000 58,000 40,000 28,000 Other 3,011 2,013 2,500 2,500 2,500 2,500 Total Miscellaneous Revenues 169,099 124,070 118,500 118,500 92,500 78,500 Total Revenues 1,413,673 1,407,087 1,391,500 1,391,500 1,365,700 1,347,000 Expenditures Water Department 453,486 405,426 467,347 496,831 1,446,831 482,569 Sewer Department 450,903 230,627 290,726 307,423 307,423 274,4 73 Sewer Treatment Plant Dept. 745,810 584,104 673,836 725,522 725,522 644,445 Total Expenditures 1,650,199 1,220,157 1,431,909 1,529,776 2,479,776 1,401,487 Contribution To/(From) Fund Balance Projected lapse (3%) Adjusted (Deficit)/Surplus Beginning Fund Balance Residual Equity Transfers Ending Fund Balance (236,526) 186,930 (40,409) (138,276) 85,915 45,506 91,787 (46,489) (1,114,076) 84,089 (1,029,987) (54,487) 42,O45 (12,442) 1,132,042 895,516 855,984 1,176,950 1,176,950 146,963 146,963 $ 94,504 $ 1,176,950 $ 901,490 $ 1,130,461 $ 895,516 134,521