HomeMy WebLinkAboutItem 51
City of Lakeville
Finance Department
To: Mayor and Council
From: Justin Miller, City Administrator
Jerilyn Erickson, Finance Director
Date: October 23, 2017
Subject: 2018 Proposed Utility Fund/Liquor Fund Budgets & Utility Rates
The purpose of this report is to provide the City Council with an overview of the proposed
Utility Fund and Liquor Fund budgets and proposed utility rates to support the services
provided.
PERSONNEL REQUESTS
No new position requests are included in the 2018 proposed Utility Fund budgets.
WATER OPERATING FUND
The proposed 2018 Water Fund budget reflects the cost of operating the City’s water system
as well as ongoing water meter replacements, well rehabilitation, and watermain replacement
as part of the 2018 Reconstruction Project. It also includes the Water Fund’s share for the
capital replacement of a trench box and three pickup trucks.
Except for slight increases in 2012 and a larger one in 2016, the unrestricted funds in the Water
Fund have steadily declined since 2009. A decrease is anticipated from 2016 to 2017. This is
due in part to the amount and associated cost of maintenance being done each year; the
amount of water consumption which can be dependent on weather; water rates being reduced
significantly in 2010 followed by insignificant increases in 2011, no increases in 2012 and 2013,
and insignificant increases in 2014 and 2015. Rates were increased in 2016 and 2017. In
addition, this fund has annual debt service obligations of $1.2-$1.3 million for $12.8 million in
bonds issued from 2014-2017. Debt is still contemplated being issued for major maintenance
projects in years 2018-2020.
The 2018 revenues for water sales reflect increases of $0.13 to $0.36 per thousand gallons for
the tiered consumption as well as an increase of $0.92 in the quarterly base charge. Years
2019-2023 also reflect increases in the tiered consumption and the base charge.
The underlying goals with these rate adjustments are as follows:
Not significantly reduce the unrestricted funds any further;
Maintain a minimum cash balance to fund three months of operating expenses, debt
service payments, major maintenance expenses (net of any bond proceeds during the
period) and emergency maintenance expenses;
2
Potentially get to a point where the users of the water system are paying for some or all
of the depreciation of the system (replacement costs) and it is not necessary to issue
debt (the current rate projections assume no new debt will be issued after 2020).
SANITARY SEWER OPERATING FUND
The proposed 2017 Sanitary Sewer Fund budget reflects the cost of operating the City’s
wastewater system as well as sewer main repair projects, lift station rehabilitation and
replacement, other major maintenance and debt repayment for the debt that was issued in
2016 for lift station #6 rehabilitation. It also includes the Sanitary Sewer Fund’s share for the
capital replacement of a trench box and three pickup trucks. In addition, the Metropolitan
Wastewater Charge as communicated by the Met Council will have a 14.5% increase for the
City of Lakeville in 2018. This is much higher than normal. The City does not control this cost,
although the cost is based on our share of the discharge into the regional wastewater system.
The 2018 revenues for sanitary sewer sales reflect a $0.20 increase per thousand gallons for the
sewer rate as well as an increase of $0.40 in the quarterly base charge. Years 2019-2027 also
reflect increases.
The underlying goals with these rate adjustments are as follows:
Not reduce the unrestricted funds any further;
Maintain a minimum cash balance to fund three months of operating expenses, debt
service payments, and emergency maintenance expenses.
STREET LIGHT OPERATING FUND
The Street Light Operating Fund reflects the cost of operating city street lights. We anticipate
increases from both Xcel Energy and Dakota Electric Association.
The 2018 revenues for the Street Light Operating Fund reflect an increase of $0.09 in the
quarterly charge. Future rate increases range from $0.18 to $0.21 in the quarterly charge.
The underlying goal with this rate adjustment is to maintain a minimum cash balance to fund
three months of operating expenses, debt service payments, and emergency maintenance
expenses.
There are no streetlight projects currently planned in years 2018-2027.
ENVIRONMENTAL RESOURCES OPERATING FUND
The Environmental Resources Fund reflects the cost of managing, promoting and protecting
the City’s natural resources including lakes, wetlands, streams, prairies and woodlands. The
2018 budget includes annual stormwater rehabilitation projects and improvements around
City facilities to be compliant with the MS4 permit.
The revenues for this Fund reflect an increase of $1.12 in the quarterly charge.
The underlying goal with this rate adjustment is to maintain a minimum cash balance to fund
operating expenses and emergency maintenance expenses.
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UTILITY RATE STUDY
Staff is in process of working with Northland Securities Inc. to complete a utility rate study, the
primary goal of which is to determine the appropriate structure and level of rates to fund
operations and the replacement of infrastructure, with consideration of our goals of
minimizing the use of bonds and maintaining an appropriate level of reserves. The study is
expected to be completed in mid-November, and it is expected that the results of this study
may impact our decisions on the 2019 utility rates.
It is important to note that any change in rate structure or billing frequency will necessitate a
significant communication effort with the public. These changes would also require
substantial time to make the necessary changes in the utility billing software and electronic
bills; therefore, 2019 is the earliest these types of changes could be effective.
UTILITY FEE CHANGES
The following chart reflects the fee changes that have been incorporated into the proposed
revenues for each of the Utility Funds:
2018 2017
Quarterly rates Basis Proposed Actual
Water base Account
7.49$ 6.57$ 0.92$ 14.0%
Water tier 1 (<30,000) Gallonage
1.45$ 1.32$ 0.13$ 10.0%
Water tier 2 (30,000 - 49,000) Gallonage
2.30$ 2.09$ 0.21$ 10.0%
RESIDENTIAL ONLY-Water tier 3 (>49,000) Gallonage
3.93$ 3.57$ 0.36$ 10.0%
Irrigation sprinkler accounts Gallonage
3.93$ 3.57$ 0.36$ 10.0%
Water testing fee 1.59$ 1.59$ -$ 0.0%
Sanitary sewer base Account
8.30$ 7.91 0.40$ 5.0%
Sanitary sewer usage Gallonage
4.11$ 3.92$ 0.20$ 5.0%
Sanitary sewer non metered accounts Account
82.28$ 78.40$ 3.88$ 4.9%
Street lights Account 8.85$ 8.76$ 0.09$ 1.0%
f.f.0.2477$ 0.2451$ 0.0025$ 1.0%
Environmental Resources Fee Account 10.42$ 9.30$ 1.12$ 12.0%
Increase
4
The following chart reflects the impact of the proposed rate increases on a property using
18,000 gallons/quarter:
Impact of Utility Rate Increases
2017
2018
Change
Water $ 30.30 $ 33.59 $ 3.29
Sewer 78.39 82.32 3.93
Street Lights 8.76 8.85 0.09
Environmental Resources 9.30 10.42 1.12
State Surcharge 1.59 1.59 0.00
Total $ 128.34 $136.77 $ 8.43
This equates to about $2.81 monthly and $33.72 annual increases for City water, sewer, street
lights and environmental resource services.
CHARTS
The following charts reflect the expenses, revenues, cash position and projected rate changes
for each of the utility funds. These will be referenced during our discussion.
Percentage of total operating fund expenses by year by type (2017-2022):
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Water Operating Fund Expenses by Year
Operating expenses Capital/equipment purchases
Major maintenance expenses Debt payments
5
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Water Operating Fund Revenues by Year
Revenues Bonds issued
8,000,000
6,000,000
4,000,000
2,000,000
0
2,000,000
4,000,000
6,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Cash on handYear
Water Fund Cash Position at December 31
Cash position-with rate increases
Cash position-with no rate increases after 2017
Desired cash position
6
(1) 2010 through 2017 are actual percentage changes in rates. 2018 through 2027 are proposed changes
in rates.
-60%
-40%
-20%
0%
20%
40%
60%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Proposed Water Rate Changes by Year (%) (1)
Water base Water tier 1 Water tier 2 Water tier 3
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Sewer Operating Fund Expenses by Year
Operating expenses MCES wastewater charges Capital/equipment purchases
Major maintenance expenses Debt payments
7
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Sewer Operating Fund Revenues by Year
Revenues Bonds issued
(16,000,000)
(14,000,000)
(12,000,000)
(10,000,000)
(8,000,000)
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Cash on HandYear
Sewer Fund Cash Position at December 31 by Year
Cash position-with rate increases Cash position-with no rate increases after 2017
Desired cash position
8
(1) 2010 through 2017 are actual percentage changes in rates. 2018 through 2027 are proposed changes
in rates.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Proposed Sewer Rate Changes by Year (%) (1)
Sanitary sewer base rate Sanitary sewer usage rate
Sanitary sewer non-metered accounts
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Street Light Operating Fund Expenses by Year
Operating expenses Major maintenance expenses Debt payments
9
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Street Light Operating Fund Revenues by Year
Revenues Bonds issued
(800,000)
(600,000)
(400,000)
(200,000)
-
200,000
400,000
600,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Street Light Fund Cash Position at December 31 (by
year)
Cash position-with rate increases Cash position-with no rate increases after 2017
Desired cash position
10
(1) 2017 is the actual percentage change in rates. 2018 through 2027 are proposed changes in rates.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Proposed Street Light Rate Changes by Year (%) (1)
Street light fees
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Environmental Resources Fund Revenues and
Expenses
Revenues Operating expenses
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(1) 2017 is the actual percentage change in rates. 2018 through 2027 are proposed changes in rates.
(4,000,000)
(3,000,000)
(2,000,000)
(1,000,000)
-
1,000,000
2,000,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Environmental Resources Fund Cash Position at
December 31 (by year)
Cash position-with rate increases Cash position-with no rate increases after 2017
Desired cash position
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Environmental Resources Rate Changes by Year (%)
(1)
Environmental Resources fee
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LIQUOR FUND
The proposed 2018 Liquor Fund budget reflects the costs of operating the three liquor stores
as well as the anticipated sale/leaseback of the Kenrick store.
Staff is in the process of refunding the 2007 Liquor Revenue bonds to achieve interest savings
over the remaining term of the bonds. The estimated interest savings has been incorporated
into the 2018 budget. In addition, the Liquor Fund has historically contributed $400,000
towards the repayment of the bonds issued to construct the police station. Due to a declining
fund balance, the amount contributed in 2017 was reduced and the amount proposed in 2018
has been further reduced. The final payment on the police station debt is February 2032. The
debt is callable February 2024.
BUDGET AND CAPITAL IMPROVEMENT PROGRAM SCHEDULE
Nov 27 Workshop – Final 2018 Budget Review; 2017 Yearend Preview; 2018 Fee
Schedule Changes
Dec 4 Meeting – Public Budget Meeting (Truth in Taxation) / Adopt 2018 Budget &
2018 Tax Levy / Adopt 2018 Fee Schedule
COUNCIL DIRECTION
Staff is seeking direction regarding the Utility Fund and Liquor Fund budgets and utility rate
adjustments.
Attachment: Liquor Fund – Working Capital
2017 2017 2018
2015 2016 ADOPTED DEPART ADOPTED
ACTUAL ACTUAL BUDGET ESTIMATE BUDGET
Revenues
Liquor sales 13,611,292 14,130,830 14,045,802 14,659,714 15,003,435
Cost of goods sold (10,322,173) (10,666,687) (10,605,816) (11,048,784) (11,307,073)
Net revenues 3,289,119 3,464,143 3,439,986 3,610,930 3,696,362
Expenses
Personnel services 1,320,513 1,395,926 1,443,341 1,452,124 1,575,765
Commodities 54,971 55,896 70,710 64,790 77,818
Contractual services 918,721 767,544 857,233 849,676 990,790
Total expenses 2,294,205 2,219,366 2,371,284 2,366,590 2,644,373
Net operating income/(loss)994,914 1,244,777 1,068,702 1,244,340 1,051,989
Other Receipts (Disbursements)
Interest income 5,104 2,905 3,744 8,511 19,110
Other income 52,377 3,762 7,500 7,500 7,500
Sale of capital assets - - - 2,625,000
Capital outlay acquisitions (74,475) (72,382) (205,000) (48,577) (7,300)
Paying agent (503) (416) (450) (450) (450)
Interest expense (145,479) (136,500) (127,042) (110,995) (54,161)
Bond proceeds - - - 2,270,000 -
Bond premium - - - 91,414 -
Bond Discount/Issuance - - - (79,525) -
Debt principal payments (175,000) (180,000) (200,000) (2,715,000) -
Total other (337,976) (382,631) (521,248) (577,122) 2,589,699
Net incr(decr) before transfers 656,938 862,146 547,454 667,218 3,641,688
Transfer to General Fund (Admin.) (124,876) (131,345) (145,706) (145,706) (142,013)
Transfer to Gen Fund (technology) (40,297) (41,625) (53,113) (53,113) (52,853)
Trasfter to Comm (Marketing Spec) - - - (35,735) (87,525)
Trasfter to Comm (Fiber) - - - (12,246) (12,313)
Transfer to Environmental Resources (1,557) (1,348) (2,275) (2,482) (3,050)
Transfer to Equipment Fund (831,242) (500,000) - - (250,000)
Transfer to Police Station Bonds (400,000) (400,000) (346,360) (346,360) (300,000)
Total transfers (1,397,972) (1,074,318) (547,454) (595,642) (847,754)
Net increase/(decrease) (741,034) (212,172) - 71,576 2,793,934
Working capital, January 1 2,242,553 1,501,519 1,206,463 1,289,347 1,360,923
Working capital, December 31 1,501,519 1,289,347 1,206,463 1,360,923 4,154,857
Total Working Capital 1,501,519 1,289,347 1,206,463 1,360,923 4,154,857
Work Cap - Reserved for future - - - - 2,625,000
Work Cap - Available for operations 1,501,519 1,289,347 1,206,463 1,360,923 1,529,857
LIQUOR FUND
PROJECTED WORKING CAPITAL
G:\Budget\2018 Budget\Budget Adopted\LIQUOR BUDGET 2018 ADOPTED BUDGET : BUDGET Page 1 10/18/2017