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12/28/2010 1 Landfill Fees Settlement Payment Options ---PAGE BREAK--- 12/28/2010 2 Primary legal consideration RCW 43.09.210 …no department, public improvement, undertaking, institution, or public service industry shall benefit in any financial manner whatever by an appropriation or fund made for the support of another. • Prohibits the use of one utility fund to pay the expenses of another • Requires interfund loans to be treated as “arm length transactions” • The sanitation fund can not receive terms more favorable than market rates at the expense of other funds ---PAGE BREAK--- 12/28/2010 3 What about the “Combined Utility ? Mention of using the revenues of the Combined Utility was a premature suggestion that had not been fully researched. • Ordinance 2162 cites RCW 35.67.331 as its authority for combining the utilities for bonded debt purposes • The underlying enabling legislation does not overcome the separate accounting for the specific services required under RCW 43.09 • This appeared at first blush to be an option but on further consideration does not appear to be legal. ---PAGE BREAK--- 12/28/2010 4 Requires External Source of funding The sanitation fund does not have sufficient resources of its own on hand to pay the settlement Borrow internally or issue bonds ? • Long term interfund loans would probably be challenged by the State Auditor as a violation of RCW 43.09.210 • A shorter term would drive up the rate increase to pay the debt service • No other funds have sufficient resources to spare long term in a fiscally prudent manner ---PAGE BREAK--- 12/28/2010 5 Funds with significant balances The General Fund should have a year balance of around $3.3 million Council is advised against using General Fund reserve for this purpose • It would be a violation of City’s own policy of maintaining a minimum 8% reserve • It could “place the City at risk of not being able to meet all of its financial obligations” • The State Auditor addressed similar findings to the elected officials of the City of this year. Report number 1004321. ---PAGE BREAK--- 12/28/2010 6 Funds with significant balances The Utility Funds should have a year end balance of around $12.7 million Council is advised against using these reserves for this purpose • Fiscally prudent reserves for the utilities are about $9.1 million • Two months for operating contingencies • Three months for capital contingencies • Required debt service reserves • Reminder – one major line break could cost millions in immediate needs ---PAGE BREAK--- 12/28/2010 7 Bond Issue is the prudent choice The rate study indicated a minimum target for annual utility maintenance capital projects of $6.25 million. Current rates afford only $2.4 million 2011 budgeted projects would draw down reserves by about $2.9 million Use of reserves would further defer some capital projects increasing the risk of emergency situation There is absolutely no benefit to borrow internally Internal borrowing does increase risk unnecessarily ---PAGE BREAK--- 12/28/2010 8 Rate Options The original rate option presented to Council was a flat rate increase of $1.60 per month, or $3.20 applied to all accounts. This is Option 1. Option overlooked – City may have different rates for different classes of customers. This is Option 2. • Council could choose to maintain the existing approximately 12:1 ratio between commercial and residential rates • Residential increase $0.85 $1.70 • Container cans increase $10.20 $20.40 bi This is a Council policy decision – no staff recommendation ---PAGE BREAK--- 12/28/2010 9 Rate Options $35.07 $17.87 $14.67 Container Cans $2.95 $4.45 $1.25 Residential Option 2 Option 1 Current Rates