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Home My Public Portal AboutMinutes_CCWorkMeeting_02172015CITY COUNCIL WORK MEETING FEBRUARY 17, 2015 - 6:00 P.M. IONA COMMUNITY CENTER PRESENT: Mayor Brad Andersen, Council President Robyn Walker, Council Member Rob Geray, Council Member Dan Gubler, Council Member Kathy McNamara, Public Works Director Zech Prouse, Building Inspector Allen Eldridge, Police Chief Matt Lurker, and City Clerk Julie Hammond. ABSENT: Treasurer Amy Sullivan and Animal Control Officer Kayla Key. VISITORS: Sally Price. Water Rate Study Discussion: Paul Scoresby of Schiess & Associates prepared a Water Rate Study for the City of Iona, Exhibit "A." The purpose of the study was to keep the water fund on a sound financial track and plan for future capital projects. The City's current water tank is structurally sound for approximately ten to twenty years. Water pressure has decreased over the years and with additional housing a plan needs to be put in place to make sure the City's water needs are met. Council decided to take Scenario 1 and 2a off the table because they wouldn't accomplish anything. Any increase over 3% would require a public hearing and a rate of $40 would be required for any grant funding. Council was concerned that doubling the water rate would result in people increasing their water usage and installing meters would let people know how much water they were using but at the same time they may water less to control costs and end up with brown lawns and swales. Council would put a Water Committee together, consisting of no more than ten people, to investigate and educate the public. The committee would hold town hall meetings, survey citizens for their input, and come up with a plan of action. The City would purchase land this year for a water tank and/or well. Grow Idaho Falls Discussion: Council supported Grow Idaho Falls last year with a $500 donation. They believed they had a good program but didn't see a direct benefit to Iona. A decision to support them again would be made during Council. Live Nativity Scene Discussion: Evan and LoAnn Belnap are interested in putting together a Live Nativity Scene, like the one performed in Ucon, at the Iona Square Grand Stands. Attorney Storer advised Mayor Andersen to have a separate entity, such as the Lion's Club, sponsor the activity so there was a division of church and state. Mayor Andersen also reported that the Belnap's could have a chance at being one in ten in the nation for the light show they display every Christmas. Planning & Zoning Discussion: Mayor Andersen reported that others in the community felt that members of the Planning & Zoning Committee should live in Iona's Impact Area. Further discussion would be held during Council. Splash Pad Shelter Discussion: Inspector Eldridge put together costs for the Splash Pad Shelter and Pergola. He would present during Council. Solid Waste Franchise Ordinance Discussion: Council's consensus was to limit solid waste hauling to one day and during certain times. Council Member Geray had additional notes that he would forward to the rest of the Council. Reports, Drinking Water: Director Prouse reported a brief power outage had triggered the well to start pumping. It had been shut off for the winter and had not been disinfected yet. This caused a positive test result for coliform bacteria in the drinking water. The water had been treated with chlorine and notices would be posted and sent to the public. Smith -Heuer Property: Director Prouse has been working with Attorney Storer on a Joint Use Agreement. He thought one water service per lot in exchange for access of the road, to the acre the City is considering purchasing for the placement of a future water tank and/or well, would be in line. Wilde Ave and Longhurst Ave Overlay: Director Prouse reported an estimate of $25,000 to $30,000 to put a 2" overlay on Wilde Ave and Longhurst Ave to help mitigate water pooling problems. Wilde Ave and Longhurst Ave overlay and seal coating needed to be added to Council's agenda. Walking Path: Director Prouse indicated the Cottonwood roots were growing through the walking path and needed to be removed. The cost was included in the overlay and seal coating estimate. He would also rent a sweeper to clean up the walking paths. Meeting adjourned 6:58 p.m. COUNCIL APPROVED: March 17 2015 ATTEST: i Jul' ammond, City Clerk Robyn W. lker, Acting Mayor Schiess & Associates IMPROVING COMMUNITY INFRASTRUCTURE 7103 SOUTH 45TH WEST, IDAHO FALLS, ID 83402 OFFICE: (208) 522-1244 FAX: (208) 522-9232 January 15, 2015 Brad Andersen, Mayor City of Iona 3548 N Main St Iona, Idaho 83427 Dear Mayor Andersen: We have completed the requested rate work. This work was done to enable the city to keep the water fund on a sound financial track and to plan for future capital projects. This work was modeled after the American Water Works Association (AWWA) manual titled, Developing Rates for Small Water Systems. To prepare this work, we obtained current and past financial documentation from the city clerk and treasurer, discussed expectations with the mayor and met with the city public works director to understand current reserve funding and to understand the city goals and objectives for capital improvements and timing of them. The findings of this data gathering effort formed the basis for our work. We have attached five spreadsheets that depict four future cash flow scenarios: 1. No immediate rate increase with limited capital projects after 2015 2. A limited annual rate increase with limited capital projects after 2015 3. A large annual rate increase with the intent to self -fund a $2,000,000 capital project in the year 2026. 4. A large one-time rate increase in 2016 with the intent to construct a $2,000,000 capital project in 2018 with a DEQ sponsored loan. Assumptions used in the preparation of these scenarios are given on the spreadsheets. We modified city reserve funds beginning in 2016 to be more in line with the recommendations in the AWWA manual identified above. A few pages regarding reserves from this publication are attached to help justify the approach we took to increase city reserve funds. We funded the city operating or O&M reserve fund to equal two months of rate collections. We funded the capital reserve fund to equal 2.0% of current assets, then doubled this number to begin making financial preparation for future replacement of all newer waterlines in newer subdivisions. We then added additional capital reserves for the minor capital improvements the city plans to make for the next few years on the year improvements are made. On the scenario with a DEQ sponsored loan we included the required loan reserve. Scenario 1 indicates that the city, with the current amount of new homes being built could delay a rate increase until 2020. At that time, due to the assumption that only 10 homes will be built in the years 2020 and 2021, a 2% rate increase is needed to keep net operating income positive. This scenario does not save for major capital improvements. Connection fees collected from new homes would partly be used to subsidize the monthly user rates. This is not sound planning. We discourage the city from enacting this plan. Exhibit "A" Mayor Andersen Jan. 15, 2015 Page 2 If all connection fees captured from 2015 through 2021 were set aside and only used for capital improvements, then the ending cash balance of the city in 2021 would equal current cash balance plus connection fees minus capital improvements made during this period which would be approximately $738,000. This can be accomplished with a modest 2.8% annual rate increase. Scenario 2a illustrates this cash flow plan. This plan will not fund a major capital improvements project. We ran another scenario (Scenario 2b) that illustrates what the cash balance would look like if the city raised the rates 4% annually during this same time period. This scenario generates more cash and remains a reasonable plan, but still would not fund a large capital improvement project in the near future. If the city does not seek to implement a large capital improvement project in the near future then an annual rate increase near the statutory amount allowed without a public hearing such as Scenario 2b should be considered. Scenario 3 illustrates that all user rate types would have to be raised 8.0% per year for the next 11 years to collect enough revenue along with the connection fees to fund out-of-pocket a $2,000,000 capital improvement project in the year 2026. It was assumed in this calculation the interest made on city reserves would offset the inflation of the $2,000,000 project. Scenario 4 illustrates that if the city raised the water rates to all user types 74% in 2016 and completed a $2,000,000 project in 2018, the city by the year 2020 would have a million dollars of cash (before reserves). This would inevitably result in the city being able to pay the 20 year loan off early. A 74% increase to the city residential rate would result in a $40/month rate, which is about the rate needed to compete for these loan dollars. Further evaluation of this plan would be in order if the city desired to pursue a loan in the near future. We hope that these scenarios will allow the city to make good planning decisions. Please let me know if you have any questions or want to refine these calculations or look at other scenarios. Sincerely, Paul H. Scoresby, PE Attachments: Five cash flow scenario spreadsheets Three pages from the AWWA publication, Developing Rates for Small Water Systems STOZ'ST'uet'SalepOssV ssalyas Aq pa+edaJd 999'ELS LO6'TL4$ 8£b'OLVS LT4'LZ'S 8E6'E8E$ 60Z"OYES SZZ'VSE$ 664'6Z4$ S3A8353/I HUM 30NVlV13 HSV70NION3 £Z EZO'L£T$ 086:SETS Z8L'EET$ OTV'Z£T$ L£0'T£T$ S9916ZT$ OOS'OL$ 000156$ samosa81e101 ZZ quawanwdwq xoq maw pue welpAq lenuue Jo; %Z 1! ppe pue saulpalem uoppgpgns;o wawaaeldw axons lq wnooae of algnop uay21099'W$=ZO'O.STO'EEZ'Z$ = Passe;o pod 8(.10 NZ) auasau wawaaeldau +8 oedeu (suupualpa alel;o s4luow Z) wuasw ly10 Aep 09 001146$ OB8'EES 0991E6S OVV'£6S OZZ'E6$ 000'E6$ OS 0$ anlasa9 pudeO TZ EZ6'ZVS OOT'Z/S ZZT'OPS OL6'8E$ LT8'LES S99'9E$ OS 0$ woosau 141180 OZ 0$ OS 0$ 0$ 0$ O$ 00S'OL$ 000156$ pe,aua9) sauasau 6T Sanlasau 689'809$ L88'L09$ TZZ'V09$ LZ816SS$ 9L6'4T5$ SL8'694$ Szent$ 664'4ZS$ samasa8 wan aauelea 4se08gpu3 8T (8EZ'LL9$)divines +T9Z'L9$14sea=SlOi;o aaue!eq 4seo 8u!uul8ae 038'409$ TZZ1409$ LZ8'6SS$ 9L6'4TS$ SL8'694$ SZLbib$ 6fitenS$ aauelee 4se08uppg8a8 sn!d LT Z08$ 999'ES V6£'VV$ TS8144 TOM'S OST'SV$ (4LL166$) LTZ189$ SN011083d0 NOW (SS01)314100N113N 91 TT$ 000'TT$ OOOET$ 0001T$ 00011$ 000'TT$ 005'T9T$ LT6'04$ u;so01e71dao paaueoli ale8 ST awyluoJ ldaaxa STOZAi sage rivawanwdw(lel!dea iO(ew oN OOO OS OS OS O$ OS OS O$ 0$ aalnlaS AOO VT Alenuue saxoq xalaw OT pue sweJpAy ZOWIT$ 999'4T$ 46E'SS$ TS8'SS$ TOY9S$ OST'9S$ 9ZL'T9$ VET'60T$ awoaul9ulle+adO laN ET OZ919LZ$ 128119Z$ 8SZE9Z$ T06'£SZ$ TSL'90Z$ E0816£Z$ OSO'EEZ$ £8E'VOZ$ ZZ9'88Z$ S6V'En$ Z59'9T£$ ZSL'60E$ ZS8'ZO£S ZSfi'S6Z$ 9LL'VEZ$ LTS'ETE$ sasuadx3 W@0! 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Assume 25 homes/yr for 2016- 2020. Assume 10 new homes/yr after 2020 $1,200 $o $31,200 $1,200 $o $31,200 $332,098 $337,975 $261,258 $268,829 $276,620 $96,203 $63,269 $61,355 14 Debt Service 15 Rate Financed Capital Costs 16 NET INCOME (LOSS) FROM OPERATIONS 17 Plus Beginning Cash Balance $0 $0 $0 $40,917 $161,500 $11,000 $68,217 ($99,774) $53,932 $524,499 $0 $11,000 $63,580 $0 $11,000 $73,988 $424,725 $478,657 $542,236 $0 $11,000 $85,203 $616,225 $0 $0 $11,000 $11,000 No major capital improvements after FY2015 except for three hydrants and 10 meter boxes annually $52,269 $50,355 $701,427 $753,696 Beginning cash balance of 2015 = cash ($47,261 + savings($477,238) 18 Ending Cash Balance Before Reserves $524,499 $424,725 $478,657 $542,236 $616,225 $701,427 $753,696 $804,051 Reserves 19 Reserves (General) 20 0&M Reserve 21 Capital Reserve 595,000 $70500 $0 $0 $0 $0 $0 $38,132 $40,903 $43,836 $0 $0 $93,000 $93,220 $93,440 $0 $0 $0 $46,937 $50,217 $51,198 60 day O&M reserve (2 months of rate collections) Repair & Replacement Reserve (2% orig cost of assets = $93,660 $93,880 $94,100 $2.233,015•0.02=$44,660), then double to account for future replacement of subdivision waterlines and add it 2%for annual hydrant and meter box improvements 22 Total Reserves $95,000 $70,500 $131,132 $134,123 $137,276 $140,597 $144,097 $145,298 23 ENDING CASH BALANCE AFTER RESERVES $429,499 $354,225 $347,525 $408,113 $478,949 $560,830 $609,600 $658,754 Prepared by Schiess Associates, Jan. 15, 2015 STOZ'SI'Ulf "1NNeo.Vanl88 Ay peanuts 68✓LES 667148'TS 992'ttEl$ 99EITL'T$ EET'STTI$ b9T'606$ iL91Tt$ EE0159S 9tl'EES$ 168'2Et$ 01)81,5E$ EZZIOSES 6016205 E3/183538 t)3109,NV1Y9 NSVJ 9NION3 tZ TWEILZS OL8'68T$ 999'istS SE1'OLI$ 6Z2'493 USISTS 9ZSISI$ SKIMS TESTn$ OEE'LEI$ 86E1E3 00VOLS COOS6$ d on%)P101 EZ wnwu. 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Poro1d Ielfdeo lojew 10; ueld Mold Liss) Developing Rates for Small Systems AWWA MANUAL M54 First Edition A\. American Water Works Association Science and Technology AWWA unites the drinking water community by developing and distributing authoritative scientific and technological knowledge. Through its members. AWWA develops industry standards for products and processes that advance public health and safety. AWWA also provides quality improvement programs for water and wastewater utilities. 22 DEVELOPING RATES FOR SMALL SYSTEMS Operating Reserves Operating reserves are typically established to provide the utility with the ability to withstand cash -flow fluctuations. Another term for this reserve fund balance is a working capital reserve. There can be a significant length of time between when a system provides a service and when a customer may pay for that service. A study of the utility's historic cash flow and an aging of its account receivables balance can accurately quantify the time period between delivery and payment for service. In addition to timing, the volume of cash flow can be affected by weather and seasonal demand patterns. This is a larger issue for some water utilities than it is for others. For those who do not have sufficient information to conduct this type of analysis, there are various industry standards that are in use. A 46- to 90-day (approximately 6 to 13 weeks) O&M reserve is a frequently used industry norm. Because of the potential delay in payment, many utilities attempt to keep an amount of cash equal to at least 45 days or one eighth of their annual cash O&M expenses in an operating reserve to mitigate potential cash flow problems. The reserve level will be a policy decision for the utility based on the financial comfort level of the utility and will also be dependent on its billing frequency. It may also be dependent on the utility's access to short-term `loans" from other sources. For example, if the utility is part of a municipal organization or district, it may have access to working capital funds that would allow for the maintenance of lower reserves. To the extent these funds are "accessed," the utility should plan for the repayment of such funds. Repair and Replacement Reserves A capital reserve balance, or a repair and replacement reserve, is intended to be used to replace system assets that have become worn out or obsolete. For this reason, annual depreciation expense is frequently used as a metric to determine the minimum level of funding for this capital reserve. It is important to understand that depreciation expense is an accounting concept for estimating the decline in useful life of an asset and does not represent the current replacement cost of that asset. Therefore, an optimal balance may be an amount that is greater than annual depreciation expense to approximate replacement cost. Capital replacement reserves for equipment and main replacements or other normal annual capital additions and replacements are typically estimated at the rate of 1% to 2% of total original cost asset value of the utility's property. Contingency Fund The contingency reserve fund balance is essentially "insurance" against unantici- pated emergencies or failure of the utility's most vulnerable system components. This reserve provides funding for emergency repairs or replacements, typically those caused by natural disasters such as hurricanes, floods, earthquakes, tornados, fires, and similar natural disasters. One method for determining the balance to maintain in such a reserve is to determine the cost of replacing the most expensive facility of the utility system and reserving an amount equal to that cost, less any potential insurance payments that may be applicable. Another method is to base the level of reserve on the historical records and experience of the utility in dealing with such emergencies and disasters, reflecting the chance of incidence of these situations. Determining the emergency reserve level for a system is also a function of management objectives and overall system reliability. The need for a contingency reserve may be mitigated or even eliminated through the establishment of a close working relationship with local lending institutions and creation of an available line of credit to quickly draw on during such a period. i PREPARING A FINANCIAL PLAN 23 Debt Reserves Establishment of a debt reserve is legally required by the covenants and indentures of most revenue bonds and may be required by some general obligation bonds. Many state lending programs also have similar requirements. The establishment of a debt reserve provides security to the bondholders that adequate funds will be available to pay the debt service obligations, even under a distressed situation. The debt service reserve fund is typically established at an amount equal to the lesser of the maximum annual debt service on. all outstanding senior parity bonds, or 120% of the total annual debt service, or 10% of its bond issue amount. Often this amount is included in and funded from the principal amount of the bond issue and serves to secure the debt service payment to bondholders. However, it can also be funded from current -year rate revenues over a period of years, e.g., funded monthly over the first 60 months after the issue date. Bond surety insurance can be purchased in the amount of the required debt service reserve requirement, in lieu of maintaining an actual funded balance for this reserve. Establishment of appropriate reserve balances will provide utility management with additional resources to help manage the financial position of the utility and ensure financial stability. The reserves provide a buffer in lean years and give the utility greater flexibility at all times because there is "money in the bank" that can be utilized to take advantage of opportunities that may arise. The reserve recommendations contained within this discussion should be tailored to the specific needs of the utility. Some of the reserves may not be required or appropriate for all utilities.