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Water Bond Debt Fee Water Bond Debt Fee and Water Rate Modification and Water Rate Modification Presented by Presented by City of Fernley Public Works Department City of Fernley Public Works Department April 4, 2012 April 4, 2012 ---PAGE BREAK--- Flat Fee Assessment in Flat Fee Assessment in 2011/2012 2011/2012 May 2011 May 2011 – Residential Temporary Residential Temporary Flat Fee Assessment of $18.00 per Flat Fee Assessment of $18.00 per month month June 2011 June 2011 - Commercial Temporary Commercial Temporary Flat Fee Assessment of $36.00 per Flat Fee Assessment of $36.00 per month. month. As of March 31, 2012 Finance has As of March 31, 2012 Finance has collected $1.1 million dollars collected $1.1 million dollars ---PAGE BREAK--- Annual Bond Payment Annual Bond Payment The Annual Water Bond Payment is The Annual Water Bond Payment is $4.72 million $4.72 million By the end of fiscal year 11/12 we will By the end of fiscal year 11/12 we will have collected $1.4 million in have collected $1.4 million in assessment assessment The remaining $3.32 million is slated The remaining $3.32 million is slated to be paid for through a General Fund to be paid for through a General Fund Loan and draw down of Water Fund Loan and draw down of Water Fund Balance Balance ---PAGE BREAK--- We need a long term solution This option will not work for FY12/13 – Increasing Cost in General Fund will reduce available loan amount – Draw down of Water Fund Balance is not enough to pay remaining bond payment Requested assistance from rate consultant to develop long term strategy Recommendation to separate collection of fee for bond debt from operating and capital budgets ---PAGE BREAK--- Collection of $4.72 Million Collection of $4.72 Million ItIt’s possible to collect a fee from each s possible to collect a fee from each customer as part of the annual customer as part of the annual property tax statement property tax statement ItIt’s possible to collect a fee from all s possible to collect a fee from all customers AND will customers AND will-served lots served lots ItIt’s possible to collect a fee based on s possible to collect a fee based on meter size meter size ---PAGE BREAK--- Fee collection methodology Existing customers could be charged the fee Existing customers could be charged the fee that corresponds to their connection meter that corresponds to their connection meter size size Lots with committed water will Lots with committed water will-serves, but serves, but no current system connection could be no current system connection could be charged the base fee charged the base fee As growth and economic development As growth and economic development occur, new connections to our municipal occur, new connections to our municipal system could result in an automatic yearly system could result in an automatic yearly fee decrease. fee decrease. ---PAGE BREAK--- Water Bond Recovery Water Bond Recovery Rate Table Design Rate Table Design Meter Size Capacity Meter Size Capacity Rate Rate Will Will-served lot served lot Base Rate Base Rate ¾ Base Rate Base Rate 1 Base Rate* 1.67% Base Rate* 1.67% 1 1 ½ Base Rate* 3.33% Base Rate* 3.33% 2 Base Rate* 5.33% Base Rate* 5.33% 3 Base Rate* 10.00% Base Rate* 10.00% 4 Base Rate* 16.67% Base Rate* 16.67% 6 Base Rate* 33.35% Base Rate* 33.35% *Based on American Water Works Association best practices ---PAGE BREAK--- One Scenario One Scenario (current customers only) (current customers only) $3,201.60 $1600.80 2 6 $13,602.72 $800.16 17 4 $1,440.00 $480.00 3 3 $35,305.92 $255.84 138 2 $9,110.88 $159.84 57 1 ½ $10,581.12 $80.16 132 1 $330,720.00 $48.00 6890 ¾ Collected Fee # of Accts Meter Size ---PAGE BREAK--- $2,934.80 $1,467.40 2 6 $23,848.00 $44.00 542* Will‐Serve Lots $12,469.16 $733.48 17 4 $1,320.00 $440.00 3 3 $32,363.76 $235.52 138 2 $8,351.64 $146.52 57 1 ½ $9,699.36 $73.48 132 1 $298,012.00 $44.00 6890 ¾ Collected Fee # of Accts Meter Size Another Scenario Another Scenario (current customers plus will served lots) (current customers plus will served lots) ---PAGE BREAK--- Recovery Fee Pros: Recovery Fee Pros: Collecting the Water Bond Debt Fee as part Collecting the Water Bond Debt Fee as part of the property tax statement may alleviate of the property tax statement may alleviate burden on Citizens paying their burden on Citizens paying their water bills water bills Spreading the debt equitably among Spreading the debt equitably among customers and will customers and will-served lots, everyone served lots, everyone would pay their share would pay their share Collecting the entire annual bond payment Collecting the entire annual bond payment amount would allow for a new water utility amount would allow for a new water utility rate structure rate structure - possibly decreasing possibly decreasing bills bills ---PAGE BREAK--- Water Rate Modifications Water Rate Modifications If debt service is covered by a separate fee, If debt service is covered by a separate fee, water rates only need to cover operating water rates only need to cover operating costs, which include operation and costs, which include operation and maintenance, capital improvements and maintenance, capital improvements and reserves reserves Existing revenue sources are projected to Existing revenue sources are projected to generate $5.07 million in annual revenue in generate $5.07 million in annual revenue in FY12/13 FY12/13 The DRAFT FY12/13 operating and capital The DRAFT FY12/13 operating and capital budget is $3.22 million. budget is $3.22 million. ---PAGE BREAK--- Water Rate Modifications Water Rate Modifications Revenue remaining after operation and Revenue remaining after operation and capital costs, not including bond debt capital costs, not including bond debt $5.07 million $5.07 million - $3.02 million = $1.85 million $3.02 million = $1.85 million Not really Not really “surplus surplus” because rates do not because rates do not represent represent “full cost pricing full cost pricing” Due to high bond debt service Due to high bond debt service requirements, current rates do not requirements, current rates do not adequately cover capital reserves and adequately cover capital reserves and reinvestment reinvestment ---PAGE BREAK--- Water Rate Modifications Water Rate Modifications Capital Capital reserves are not funded in reserves are not funded in current operating budget current operating budget Capital reserves have been reduced Capital reserves have been reduced drastically during last 5 years to cover drastically during last 5 years to cover debt service payments debt service payments Professionals recommend funding 1.0 Professionals recommend funding 1.0 to 1.5 times depreciation for annual to 1.5 times depreciation for annual capital reserves capital reserves ---PAGE BREAK--- Water Rate Modification Water Rate Modification Benefits Benefits Rebuild capital reserves Partially fund depreciation Possibly reduce water rates Possibly alleviate impact to revenues when/if consumption decreases Possibly alleviate impact to those on fixed incomes, small water users, and large water users ---PAGE BREAK--- Direction from Council Direction from Council Should we separate the water bond debt from the operating and capital expenses? Should we collect the entire annual water bond debt through a meter based fee on existing customers and will-served lots as part of the property tax statement? Should we assess modifications to the water rates as a result of collecting the bond payment independently from water rates?