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HomeMy Public PortalAbout2009_tcwsmin0727 Council Work Session July 27, 2009 Council Chambers, 25 West Market Street, 7:30 p.m. Mayor Umstattd presiding. Council Members Present: David S. Butler, Thomas Dunn, II, Katie Sheldon Hammier, Marty Martinez, Ken Reid, Kevin Wright and Mayor Kristen Umstattd Council Members Absent: Council Member Dunn arrived at 8: 36 p.m. and left at 9:13p.m. Staff Present: Town Manager John Wells, Town Attorney Jeanette Irby, Deputy Town Manager Kaj Dentler, Director of Utilities Randy Shoemaker, Director of Finance Norm Butts, Deputy Director of Utilities Aref Etemadi, and Management Specialist Debi Parry AGENDA ITEMS 1. Work Session Items for Discussion: a. Utility Rate Discussion Mr. Wells outlined the utility service area. He stated as of June 15, 2009 there were 15,024 water customers and 14,934 sewer customers. He stated approximately 80 percent of the customers reside in Town. He stated since 2005 there has been a 5.3 percent increase in total water and sewer customers. Mr. Wells discussed customer growth stating the projected growth for FY 10 is 2.5 percent, FY 11 is 3.5 percent, FY 12 is 3 percent, FY 13 is 3 percent and FY 14 is 2 percent. He stated these projections are based on the Town of Leesburg flow projections. Mr. Wells stated in looking at the growth projects we also examined our capacity to meet those projections. He stated currently the capacity of the Water Pollution Control Facility (WPCF) is 7.5 million gallons and there is 12.5 million gallons capacity at the Water Treatment Plant (WTP). He stated when you take into consideration that it takes 5 years to bring additional capacity online you see that there we do not currently have an overage of capacity at our plants. Further, he stated we do not want to get into a situation where we have approved development coming online in our service area without the ability to provide service. Mr. Wells discussed system costs stating the operational expenditure in the FY 10 budget is less than for the FY 08 actual expenditure. He stated the staffing in the Utility Department has been reduced from 88 staff positions to 81 staff positions, including those that are frozen. He stated in looking at the consumer price index and the per capita operations of the Utility Fund back to 2003 the actual operational budget including debt service decreases by 3.7 percent. Mr. Wells stated the budgeted cost of the Lower Sycolin Sewer Shed CIP project has been reduced from $14.6 million to $10 million based on reexamination of the phasing and consideration of utilization of the second phase for areas other than Bolen Park. He stated based on arrangements with developers we may be able to collect development costs upfront or through a pro rata which may also positively impact the fund. He stated the Town was Town Council Work Session of July 27. 2009 Page 2 awarded an energy grant and we have a consultant looking into the utility operations in the areas of energy and chemical costs. He stated the results from this review will be delivered one week from Wednesday. Mr. Wells stated following the budget process Council passed a resolution requesting a management audit of the Utility Fund. He stated the results of the audit are due in December. He stated the original plan was to have the rate study due a few months after the management audit; however, given the Judge's ruling requiring the rates to be set by September 1 this is not possible. Further, he stated in response to a question he received from Council, $126,000 in expenditure reductions would be required to match one percent in utility rates. Council Member Wright verified that would be an operational reduction not a capital reduction. Mr. Wells stated two weeks ago the consultants presented three different methodologies in rate setting. He stated several needs were balanced in this recommendation including meeting the legal requirements per the bond covenants and the judge's order for the establishment of rates. He stated staff and the consultants recommend utilization of the Cash Needs Method for the establishment of in-town rates and the Utility Method for the establishment of the out-of-town rates resulting in a differential between the two rates. He outlined the projected rates for in-town customers as an increase of 7 percent for FY 10, 6 percent for FY 11, 5 percent for FY 12, 4 percent for FY 13, and 3 percent for FY 14 and 15. He further outlined the sewer rate increase for in- town residents as 7 percent in FY 10, 6 percent for FY 11, 5 percent for FY 12, 5 percent for FY 13, 4 percent for FY 14 and 3 percent in FY 15. Further, he stated the fixed charges have been established with a specific methodology. Mr. Wells stated the proposed average consumption differentials of the six year period between the in-town and out-of-town rates are 33 percent for water and 53 percent for sewer. He outlined the proposed average bill for in-town a high use residential customer consuming 26,000 gallons a quarter showing an increase of $15.58 per quarter or $62.32 annually. He stated for out-of-town residents with the same usage scenario their total bill would reduce in the first year by $87.90 per quarter or $351.60 per quarter. Jeanette Irby outlined the proposed draft ordinance. She highlighted changes addressing availability fees stating power has been provided for the Town to turn off the water of a user who has refused to pay their availability fees. She further outlined the proposed advertisement for the August 11 public hearing. Council Member Reid asked if the backflow prevention program is new. Ms. Irby stated some of it was incorporated into the ordinance before and the entire document will now be included in the Town Code as an appendix. Council Member Reid verified this stipulates an annual inspection and asked if other municipalities in Virginia require that inspection. Randy Shoemaker indicated that an annual inspection is required for high hazard users such as restaurants, mortuaries and veterinary clinics. Town Council Work Session of July 27.2009 Page 3 Council Member Reid expressed concern regarding the annual inspection requirement for individuals with irrigation systems. Mr. Shoemaker stated an irrigation system that connects to the sewer line is considered high hazard. Council Member Wright stated his office is located in Fairfax County and even though he is not a high hazard use, there is a yearly inspection required. Council Member Reid asked if there is latitude to do a bi-annual inspection for residential users with sprinkler systems. Mr. Shoemaker stated it is a Virginia Health Department mandated program. Council Member Reid verified the changes to the availability fee portion of the ordinance will still allow users to pay availability fees in stages. Council Member Wright stated he would like to have Council adopt a set of fiscal policies at the same time as the new ordinance and rates are adopted on August 11. He asked if the recommendation outlined tonight meets the bond requirements, revenue requirements and requirements of the court order. Mr. Wells stated the recommendation provided tonight meets all of the requirements. Council Member Wright stated for the record that the out-of-town users will receive a reduction in their rates in FY 10 and then follow the same escalation pattern as the in-town users starting in FY 11. He verified there will be an adjustment in the calculation of sewer only fees and discussed the methodology in the recalculated fixed rate. Further, he asked that the changes in calculation for the high consumption users be clarified. Mr. Cox stated when water usage in any given quarter exceeds the winter quarter by 35 percent a surcharge of 145 percent of the rate will be applied. He stated that is an increase from the current 135 percent. Council Member Wright stated a discount has been added for qualified senior citizens who live outside the Town to match the discount already offered to qualified seniors residing in-town. Vice Mayor Hammier asked that a press release be issued to disclose the rates that will be discussed tomorrow night. She asked that tonight's briefing be provided before the petitioner's section tomorrow night. She stated with the rates outlined tonight her family would be looking at a potential bill increase of $2.60 per month. Further, she asked if it is possible to move some of the larger percentage increases a few years out and still meet our revenue requirements. Mr. Wells stated after working with the consultants and our financial advisor, he does not believe it is prudent to push out the recommended increases any further than what has been proposed. He stated in the absence of litigation we will now be able to review the rates regularly and make adjustments as needed due to economic increase or slow down. Town Council Work Session of July 27.2009 Page 4 Vice Mayor Hammier stated after the rates are set she would appreciate having Council look at certain development projects and how those will impact the future for Leesburg. She asked if the cost reduction for the Lower Sycolin Sewer Shed project has any impact on the debt service and whether that was factored into the calculations. Mr. Wells stated that project has most of its cost in FY 11 and FY 12. He stated there was information received today that may further decrease the project based on discussion with some of our potential out-of-town partners. Council Member Wright stated it is important to be mindful that the majority of the cost for this project is growth capital, which would not impact the rate. Vice Mayor Hammier stated in looking at our fiscal policies it may be beneficial to look at the rate of inflation as the increase in some of the out years looks to be about the same as the rate of inflation. Council Member Butler stated assuming the growth numbers are not conservative and all of the projects come to fruition as expected then we will be close to capacity for the WPCF and WTP. He stated it is his understanding that preparations were made to decrease the cost of a future expansion during the last expansion. Mr. Wells stated there will be a reduction in the proportional cost to increase capacity because some of the components of the system were sized to handle an increase in capacity. Council Member Butler expressed concern with the water rate calculator to be added to the website stating if it is going to be a true calculator people would need to input their winter quarter numbers as well as their current quarter numbers in order to calculate exactly what their bills would be. Council Member Martinez asked Council to consider rate reductions for members of the military on active duty or deployment. He stated in looking at the proposed ordinance he could not find an exact trigger at which Council will begin to look at denying applicants or increasing capacity at the WPCF or WTP. Mr. Shoemaker stated the prior permit requires an 80 percent trigger and once we meet 80 percent capacity we have to submit a preliminary engineering report to the Department of Environmental Quality addressing how we will bring on additional capacity. He stated last week staff reviewed our new Virginia Discharge Permit and 95 percent is the point at which we have to bring on additional capacity prior to allowing connections. Council Member Martinez asked if the Town would be able to establish an 85 percent trigger for itself. Mr. Shoemaker stated generally the need to add capacity is driven by our permit and if we exceed our permit then we face fines. Council Member Martinez stated he would like to consider a lower capacity as a 95 percent trigger does not allow for much latitude if we reach that amount and then receive a large development application. Town Council Work Session of July 27 , 2009 Page 5 Ms. Irby stated the state increased the trigger to 95 percent last week and staff has not had the time to address that change yet. She stated Council could pass a resolution indicating that once we reach 85 to 90 percent capacity we will begin looking at expansion options. Council Member Martinez asked if the ordinance provides incentives for those who use their irrigation systems during off peak times. Ms. Irby stated the incentive is provided by the conservation surcharge. Council Member Butler stated he believes houses constructed with irrigation systems have a larger meter and pay a larger fixed charge as well. Council Member Martinez stated he saved money by installing an irrigation system at his house and timing it to turn on at two o'clock or three o'clock in the morning. Further, he stated once the rate schedule is set we should not look at deferring those increases as that is how previous Councils have caused this cu rrent situation. Council Member Dunn asked what staff would have to cut in order to get a balance without raising rates. Mr. Wells stated $126,000 would need to be cut per percentage rate. He stated a series of recommendations will be provided based on the energy audit findings for utility and chemical costs next Wednesday. He stated in terms of broader reductions he would need direction from Council as it is important to consider the various mandates and requirements to operate the system. He stated reductions have been made in the Utility Fund from a dollar and staffing perspective. Further, he stated additional cuts can be identified; however, he does not believe Council would like to be in a position where we cannot service our service area. There was further discussion of potential reductions to the Utility Fund. Council Member Dunn stated it is difficult for him to make an educated decision about how to proceed without looking at cuts. Council Member Wright stated he understands the need to look at how we can reduce expenses; however, we approved cuts in the FY 10 budget and asked for a management study to see what additional cuts could be made. He stated if we look at the URAC survey and background to the 1980s we see there were huge gaps in rate review and rate increases were cancelled based on the collection of connection fees. He stated we have inherited a long histo'ry to clean up; however, at some point we do have to accept the reality we are in and move forward. Further, he stated we will continue to review the rates and address them as necessary. Vice Mayor Hammier stated the key points that were made in the briefing were very calming with facts and statistics to back the fact that expenses have been cut in the Utility Fund over the last six years. She stated if you net out the results of the study; a family like hers will pay an additional $2.50 per month for the first month and then very quickly track inflation rates. Town Council Work Session of July 27. 2009 Page 6 Council Member Dunn stated it seems staff would want cuts to continue on in a path they have followed in the past. He expressed concern that he does not know what the alternative is to raising rates because he has not been given a fair analysis of what the true cost would have to be to accomplish the same thing. Further, he stated it seems we are always too quick to look at how we can tax the people to get what we need rather than looking at cuts. Council Member Butler concurred with Council Member Wright and Vice Mayor Hammier. He stated people in the past found it easy and politically expedient to cut rates when there was a pot of money that could be pulled from. He stated as a consequence we now have $5 million in debt service per year since 2005. Further, he stated it is a tremendous management job over the years to absorb that increase in debt service and he is very comfortable with the direction in which Council is proceeding. Mayor Umstattd stated it is clear to her where Council Member Dunn is coming from; however, we also have to recognize that Council adopted the cuts proposed by staff in the budget. She stated this is a highly regulated utility requiring a minimum amount of staffing to meet the federal and state requirements governing the operation. She stated given how long it takes to plan and build capacity, we are where we should be right now and should not go out looking to recruit new users. She stated she is not pleased with the way this is going as we are not really using the utility method, rather a modified method because of what the judge ordered. She stated what was ordered was self contradictory as he ordered the Town to use the utility method which would have resulted in an even higher out-of-town surcharge on average. She stated he also ordered the Town to reduce the surcharge, which violated the utility method and how we came up with the surcharge proposed. She expressed support for using a pure utility rate method for out-of-town users as an increase is needed for the in-town rates to make up for the lost revenue from decreasing the surcharge. She asked the return on investment for in-town residents. Council Member Dunn left the meeting at 9: 13 p.m. Mr. Cox stated the return on investment is proposed to be 6.43 percent. Mayor Umstattd verified we will not be implementing charges on the out-of- town customers through the Payment in Lieu of Taxes (PILOT) theory, the General Obligation Pledge Bond Savings theory nor are we implementing a franchise fee. She stated staff and the consultants are in a difficult position given the Judge's ruling; however, she will not support the modified approach as it is not fair to the citizens of Leesburg. She stated she would have supported the numbers that were presented two weeks ago as they were fair, justified and thoroughly reasonable. Council Member Reid asked if there is a laboratory technician that performs the water quality testing. Mr. Shoemaker stated the Town does not have a single laboratory technician position, rather all employees at the WTP are trained and certified by the state to perform the testing. Town Council Work Session of July 27. 2009 Page 7 Council Member Reid stated he does not see where the judge is stipulating that we use the utility rate method in his decision. Ms. Irby stated what the judge said is that he used the utility rate method to arrive at that decision and in the order that incorporates the opinion, Judge Horne clearly stated that the Town is to consider the rate in the court's opinion and order. She stated he wants us to be objective, reasonable, lawful, and consistent with the findings of the court in this case. Council Member Reid stated the main thing is that he wants us to reduce the charges and asked if the charges will be reduced for out-of-town users by 45.51 and 36.53 percent under the modified proposal. Ms. Irby stated those rates were based on FY06 numbers and we are now in FY 10. She stated we could not reduce the rate by that percentage even if we wanted to because it would be irresponsible. She stated we need to consider the findings of the court in the case using reasonable, lawful and consistent methodology. Council Member Reid asked if the Town could return to the 100 percent surcharge if the Supreme Court finds in favor of the Town. Ms. Irby stated the rates will still have to be fair, reasonable, practicable, equitable and use some sort of methodology whether it is the cash-needs basis, the Montana method, the utility rate base or the modified utility rate base. Council Member Reid verified there are no other municipalities in the state that use the utility rate method. He stated with the availability fees we are also using an outlying method which is volume flow versus meter size. Mr. Shoemaker stated a number of jurisdictions use straight meter sizing to determine availability fees while others use a combined method based on demand plus meter size. He stated Loudoun Water and Prince William County are moving to the combined method for their meters above two inches. Council Member Reid asked how much revenue would be needed over the next four or five years for the Utility Fund to operate without a deficit. Mr. Wells stated he could provide that information after reviewing available data. Council Member Reid asked for a clarification as to what will be covered by the $10 million Lower Sycolin Sewer Shed project. He verified it is the area east of Sycolin Road and includes Luck Stone, Lee Center Business Park, Bolen Park, the Shellhorn property and the jail. Mr. Shoemaker clarified the gravity sewers from the airport along Sycolin Creek and down to the pumping station will be part of Phase I. There was further discussion of this project, pro ratas, flow projections and revenue projections. Town Council Work Session of July 27.2009 Page 8 Council Member Reid stated Loudoun County's deal to purchase $4 million in water per year from Fairfax County is about to expire. He suggested talking to Loudoun Water about servicing Lansdowne or other areas of the County stating if we add customers we may be able to reduce surcharges. Further, he asked how using the modified method will ensure we will not have in increase rates again in four or five years. Mr. Wells stated in the absence of the lawsuit Council will receive regular updates of capacity and utilization. Further, he stated staff is being very conservative in the growth projections and will bring forward a new fiscal policy to be implemented along with the rate adoption. 2. Additions to Future Council Meetings a. Council Member Wright stated he may ask Council to initiate a Town Plan amendment to address a potential issue regarding a segment of Tolbert Lane where a large church is planned. b. Council Member Martinez stated he would like a discussion regarding renaming the road from Ida Lee Drive to the new pool in honor of A.V. Symington and also renaming the road from Davis Avenue to the dog park in honor of former Vice Mayor Mervin Jackson. c. Council Member Reid stated he would like to initiate one of the recommendations of the H-2 committee to transfer sign authority to staff. He requested a briefing on the County Wide Transportation Plan. Further, he requested a discussion in September on the street sweeping budget. d. Council Member Reid expressed concern with an item on tomorrow night's agenda to approve the FY 10 street resurfacing program. He asked that the item be deferred to August for action. It was the consensus of Council to wait on a decision to defer until tomorrow. There was further Council discussion regarding the procedure for tomorrow night's meeting and information to be prepared for individuals attending the meeting for the water rate input session. e. Mayor Umstattd asked that Sandy Delhez be invited to a Council Meeting to accept a certificate for her donation of $1,000 to the R.O.C.K. program. f. Council Member Butler asked that Council consider sending a letter to the County regarding removing signs from the right-of-way. He asked that Council request an exception for signs posted from Friday evening through Sunday evening directing individuals to various houses of worship. Adjournment On a motion by Council Member Martinez, seconded by Council Member / Wright, the meeting was adjourned at 9:47 p.m. 2009_tcwsmin0727 I I