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4/22/2011 1 Infrastructure Funding Options Utilities and Streets Council Study Session April 26, 2011 ---PAGE BREAK--- 4/25/2011 2 Utilities Relative Rates Our rates are relatively low: Puyallup rates compared to other cities • Water -33.9% • Sewer • Storm -15.7% ---PAGE BREAK--- 4/25/2011 3 Comparative Utility Rates As of 4/1/2011 Single Family - Per 1,000CF or ERU Water Sewer Storm Puyallup 22.29 63.29 10.45 Bellevue 46.21 66.68 Bonney Lake 27.18 57.07 14.00 Buckley 33.37 72.11 17.66 Enumclaw 32.83 99.82 Kent 43.52 52.71 10.06 Kirkland 47.84 76.20 14.86 Lacey 25.73 47.25 7.15 Milton 48.77 15.50 Sumner 23.10 71.62 9.97 Tacoma 29.11 51.01 17.00 Tumwater 24.48 45.42 7.27 Average 33.70 63.93 12.39 Puyallup vs Average (11.41) (0.64) (1.94) Percent lower than average rate -33.9% -1.0% -15.7% ---PAGE BREAK--- 4/22/2011 4 Needed per Rate Study With our existing financing mix z Funding for infrastructure at today’s prices z Assumed continued debt usage z Assumed SDC’s changed as recommended z Increase over current operating rates needed • Water +30% • Sewer +18% • Storm +12% z For Infrastructure only ---PAGE BREAK--- 4/22/2011 5 Previous Proposals z Increases recommended by consultants • Water + 4% - 6% annually for 29% over six years • Sewer + 4% - 7% annually for 34% over six years • Storm + 5% - 7.5% annually for 40% over six years z Alternate proposal provided by City staff • Inflation plus 3% annually for all utilities • IF inflation averaged 2.5%, this would be 33% for six years z We can do better than either of these options! • With lower rate increases and more complete funding ---PAGE BREAK--- 4/22/2011 6 A Different Strategy IF we • Cash fund capital projects • Debt begins to drop off after 2016 • Adopt SDC’s as recommended by consultants • Tie operating rates to inflation Then we • Can use small “catch-up” rates over inflation • Keep up with increasing infrastructure costs • With lower overall rate increases • Maintain our low rates compared to other cities ---PAGE BREAK--- 4/22/2011 7 Model Objectives • Minimize costs to our citizens while meeting needs • Adequate funding for six year capital plan • Adequate funding for capital beyond the six year plan • Each utility funded appropriately • Provide relatively smooth, predictable changes • Eliminate dependence on debt and interest costs • Continued stable, fiscally prudent operations ---PAGE BREAK--- 4/22/2011 8 Modeled Assumptions • 2011 Budgeted Income and Expenditures • Inflation applies to expenditures and projects • Assumes average of 3.5% per year • System Development Charges increased as recommended by consultants • No new debt issues • Current staffing levels ---PAGE BREAK--- 4/22/2011 9 Summary of Results • We could balance in 2018 by tying rate increases to inflation plus additional “catch-up increments” of • 3.3% for Water • 0.9% for Sewer • -0.5% for Storm • Overall catch-up increments add about 1.3% • Around 2017 realign rates for when debt is paid off • Catch-up increments could be discontinued ---PAGE BREAK--- 4/22/2011 10 Water – assuming 3.5% Inflation Inflation plus catchup 3.3% Operating Revenues 6.8% Water SDCs 12.8% per consultants Water Expenses 3.5% Water 2011 2012 2013 2014 2015 2016 2017 2018 Operating Revenues 4,700,000 5,020,329 5,362,490 5,727,971 6,118,361 6,535,359 6,980,777 7,456,553 SDCs 557,000 594,962 594,962 594,962 594,962 594,962 594,962 594,962 Interest, etc 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 Total Revenue 5,332,000 5,690,291 6,032,452 6,397,933 6,788,324 7,205,321 7,650,739 8,126,515 Operating Expense 4,128,311 4,272,802 4,422,350 4,577,132 4,737,332 4,903,138 5,074,748 5,252,364 Income before debt 1,203,689 1,417,489 1,610,102 1,820,801 2,050,992 2,302,183 2,575,991 2,874,151 Debt 544,208 553,066 556,337 547,545 537,607 550,910 369,857 265,978 Balance for projects 659,481 864,424 1,053,765 1,273,256 1,513,385 1,751,273 2,206,134 2,608,172 Infrastructure Needs 2,050,000 2,121,750 2,196,011 2,272,872 2,352,422 2,434,757 2,519,973 2,608,172 deficit / surplus (1,390,519) (1,257,326) (1,142,246) (999,616) (839,037) (683,484) (313,839) 0 -29.59% ---PAGE BREAK--- 4/22/2011 11 Sewer – assuming 3.5% Inflation Inflation plus catchup 0.9% Operating Revenues 4.4% Sewer SDCs 8.0% per consultants Sewer Expenses 3.5% Sewer 2011 2012 2013 2014 2015 2016 2017 2018 Operating Revenues 9,400,000 9,812,742 10,243,608 10,693,392 11,162,925 11,653,075 12,164,747 12,698,886 SDCs 768,000 829,168 829,168 829,168 829,168 829,168 829,168 829,168 Interest, etc 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Total Revenue 10,268,000 10,741,910 11,172,776 11,622,560 12,092,093 12,582,243 13,093,915 13,628,054 Operating Expense 6,871,695 7,112,204 7,361,131 7,618,771 7,885,428 8,161,418 8,447,068 8,742,715 Income before debt 3,396,305 3,629,706 3,811,644 4,003,789 4,206,665 4,420,825 4,646,848 4,885,339 Debt 2,175,432 2,388,303 2,392,626 2,356,288 2,319,552 2,363,953 1,702,112 1,157,561 Balance for projects 1,220,873 1,241,403 1,419,018 1,647,501 1,887,113 2,056,872 2,944,735 3,727,778 Infrastructure Needs 2,930,000 3,032,550 3,138,689 3,248,543 3,362,242 3,479,921 3,601,718 3,727,778 deficit / surplus (1,709,127) (1,791,147) (1,719,671) (1,601,042) (1,475,129) (1,423,049) (656,983) 0 -18.18% ---PAGE BREAK--- 4/22/2011 12 Storm – assuming 3.5% Inflation Inflation plus catchup -0.5% Operating Revenues 3.0% Storm SDCs 67.6% per consultants Storm Expenses 3.5% Storm 2011 2012 2013 2014 2015 2016 2017 2018 Operating Revenues 3,850,000 3,964,882 4,083,192 4,205,032 4,330,507 4,459,727 4,592,803 4,729,850 SDCs 719,000 1,205,142 1,205,142 1,205,142 1,205,142 1,205,142 1,205,142 1,205,142 Interest, etc 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 Total Revenue 4,609,000 5,210,024 5,328,334 5,450,174 5,575,650 5,704,869 5,837,945 5,974,992 Operating Expense 3,301,876 3,417,442 3,537,052 3,660,849 3,788,979 3,921,593 4,058,849 4,200,908 Income before debt 1,307,124 1,792,582 1,791,282 1,789,325 1,786,671 1,783,277 1,779,096 1,774,083 Debt 495,227 347,709 350,046 349,409 344,676 346,215 344,359 171,012 Balance for projects 811,897 1,444,873 1,441,235 1,439,915 1,441,994 1,437,062 1,434,738 1,603,072 Infrastructure Needs 1,260,000 1,304,100 1,349,744 1,396,985 1,445,879 1,496,485 1,548,862 1,603,072 deficit / surplus (448,103) 140,773 91,492 42,931 (3,885) (59,423) (114,124) -11.64% ---PAGE BREAK--- 4/22/2011 13 Water – assuming 0% Inflation Inflation plus catchup 3.3% Operating Revenues 3.3% Water SDCs 12.8% per consultants Water Expenses 0.0% Water 2011 2012 2013 2014 2015 2016 2017 2018 Operating Revenues 4,700,000 4,855,829 5,016,824 5,183,158 5,355,006 5,532,552 5,715,984 5,905,498 SDCs 557,000 575,467 575,467 575,467 575,467 575,467 575,467 575,467 Interest, etc 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 Total Revenue 5,332,000 5,506,296 5,667,292 5,833,625 6,005,473 6,183,019 6,366,451 6,555,965 Operating Expense 4,128,311 4,128,311 4,128,311 4,128,311 4,128,311 4,128,311 4,128,311 4,128,311 Income before debt 1,203,689 1,377,985 1,538,981 1,705,314 1,877,162 2,054,708 2,238,140 2,427,654 Debt 544,208 553,066 556,337 547,545 537,607 550,910 369,857 265,978 Balance for projects 659,481 824,920 982,643 1,157,769 1,339,556 1,503,798 1,868,283 2,161,676 Infrastructure Needs 2,050,000 2,050,000 2,050,000 2,050,000 2,050,000 2,050,000 2,050,000 2,050,000 deficit / surplus (1,390,519) (1,225,080) (1,067,357) (892,231) (710,444) (546,202) (181,717) 111,676 -29.59% ---PAGE BREAK--- 4/22/2011 14 Sewer – assuming 0% Inflation Inflation plus catchup 0.9% Operating Revenues 0.9% Sewer SDCs 8.0% per consultants Sewer Expenses 0.0% Sewer 2011 2012 2013 2014 2015 2016 2017 2018 Operating Revenues 9,400,000 9,483,742 9,568,231 9,653,472 9,739,472 9,826,239 9,913,778 10,002,098 SDCs 768,000 829,168 829,168 829,168 829,168 829,168 829,168 829,168 Interest, etc 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Total Revenue 10,268,000 10,412,910 10,497,399 10,582,640 10,668,640 10,755,407 10,842,946 10,931,266 Operating Expense 6,871,695 6,871,695 6,871,695 6,871,695 6,871,695 6,871,695 6,871,695 6,871,695 Income before debt 3,396,305 3,541,215 3,625,704 3,710,945 3,796,945 3,883,712 3,971,251 4,059,571 Debt 2,175,432 2,388,303 2,392,626 2,356,288 2,319,552 2,363,953 1,702,112 1,157,561 Balance for projects 1,220,873 1,152,913 1,233,077 1,354,657 1,477,393 1,519,759 2,269,139 2,902,010 Infrastructure Needs 2,930,000 2,930,000 2,930,000 2,930,000 2,930,000 2,930,000 2,930,000 2,930,000 deficit / surplus (1,709,127) (1,777,087) (1,696,923) (1,575,343) (1,452,607) (1,410,241) (660,861) (27,990) -18.18% ---PAGE BREAK--- 4/22/2011 15 Storm – assuming 0% Inflation Inflation plus catchup -0.5% Operating Revenues -0.5% Storm SDCs 67.6% per consultants Storm Expenses 0.0% Storm 2011 2012 2013 2014 2015 2016 2017 2018 Operating Revenues 3,850,000 3,830,132 3,810,366 3,790,702 3,771,140 3,751,679 3,732,318 3,713,057 SDCs 719,000 1,205,142 1,205,142 1,205,142 1,205,142 1,205,142 1,205,142 1,205,142 Interest, etc 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 Total Revenue 4,609,000 5,075,274 5,055,508 5,035,845 5,016,282 4,996,821 4,977,460 4,958,199 Operating Expense 3,301,876 3,301,876 3,301,876 3,301,876 3,301,876 3,301,876 3,301,876 3,301,876 Income before debt 1,307,124 1,773,398 1,753,632 1,733,969 1,714,406 1,694,945 1,675,584 1,656,323 Debt 495,227 347,709 350,046 349,409 344,676 346,215 344,359 171,012 Balance for projects 811,897 1,425,689 1,403,586 1,384,559 1,369,730 1,348,730 1,331,225 1,485,312 Infrastructure Needs 1,260,000 1,260,000 1,260,000 1,260,000 1,260,000 1,260,000 1,260,000 1,260,000 deficit / surplus (448,103) 165,689 143,586 124,559 109,730 88,730 71,225 225,312 -11.64% ---PAGE BREAK--- 4/22/2011 16 Bottom Line Summary in 2018 Infrastructure Requirements $308,998 $0 Total +$225,312 $0 Storm -$27,990 $0 Sewer + $111,676 $0 Water 0% Inflation 3.5% Inflation ---PAGE BREAK--- 4/22/2011 17 Questions about utilities ? z Local Street reconstruction next ---PAGE BREAK--- 4/22/2011 18 Local Street Reconstruction z This pertains to rebuilding of local streets beyond annual maintenance efforts. z Past emphasis on major arterials has spent traffic impact fees prior to receipt. z Bonds were issued and local street work deferred to pay for these projects. ---PAGE BREAK--- 4/22/2011 19 Local Street Reconstruction Current Funding Status 2011 Budget: • Motor Vehicle Excise Tax $360,000 • REET1 & REET2 $800,000 • $1,160,000 • Street related debt $1,354,000 Special revenues do not cover existing debt z Funding depends on General Fund transfers z Traffic impact fees repaying advanced spending ---PAGE BREAK--- 4/22/2011 20 Local Street Reconstruction Annual Requirements Estimated Annual Need Based On • Current inventory of infrastructure • Total expected life before rebuilding • Adequate funding of annual maintenance • Today’s prices ---PAGE BREAK--- 4/22/2011 21 Local Street Reconstruction Current Inventory z 150.8 lane miles of arterials/collectors • Average life 30 years if well maintained • 150.8 / 30 = 5.0 miles per year average to rebuild z 194.9 lane miles of residential streets • Average life 50 years if well maintained • 194.9 / 50 = 3.9 miles per year average to rebuild z Total annual rebuilding needed = 8.9 miles ---PAGE BREAK--- 4/22/2011 22 Local Street Reconstruction Today’s Costs of Rebuilding z Converting lane miles to square yards: • 1,760 yards per mile X 4 yards per lane = 7,040 z Estimated cost per lane mile • Estimated cost per square yard = $80.00 • 7,040 X $80 = $563,200 per lane mile z 8.9 miles per year X $563,200 = $5,012,480 So approximately $5 million / per year ---PAGE BREAK--- 4/22/2011 23 Local Street Reconstruction Funding Strategies Council Policy Decision • Reduce governmental operations further • Increases taxes • Or a combined approach Tax options available • Property tax • Voted levy for Bradley Lake drops by $608,000 • Unused tax authority is $3,464,085 • Requires supermajority vote of Council • Utility tax ---PAGE BREAK--- 4/22/2011 24 Local Street Reconstruction A Possible Approach Increase taxes on private utilities in 1% rate increments per year for two or three years • Designate revenues for street fund • Utility taxes grow with inflation • Each 1% generates about $1 million / year • cost on a $500 utility bill = $5 • Sunset or review in six years • Current rates of 2.2% are relatively low • Telephone, electricity, gas, cable ---PAGE BREAK--- 4/22/2011 25 Why only 2 or 3 years of increases when the need is $5 million ? Because other funding will become available in time • Real estate excise taxes are at historic lows • Will probably take 4 or 5 years to recover • May eventually add $800,000 per year or more • Interfund loan from Sewer fund will be paid off • Scheduled payments are $410,000 / year • Civic Center loans will be paid off • Scheduled payments are $315,000 • Budget stability policy should normally produce some funding for capital projects ---PAGE BREAK--- 4/22/2011 26 Conclusion These are just some alternatives for Council to consider as we move toward our Budget Policy Session. Your input will be very important as we begin to prepare our 2012 budget, and plan for capital needs for the years beyond. Accordingly, please contact me with any questions you may have prior to the Budget Policy session scheduled for June 28th.