Workshop Item - Alison Bong, Deputy Finance Director; Nick Fleischhacker, Deputy Public Works Director
Title
Title
Proposed 2023 Water, Sewer, Storm Utility Funds Budgets and 2023-2027 Capital Improvement Programs
end
Background
This is an extension of what was shared with Blaine City Council during the September 9, 2022 (WS 22-105) workshop, at which staff shared preliminary budget information and the opportunity to begin rightsizing the programs’ service levels and user fees with council’s stated guidance.
Water, Sanitary Sewer and Storm Sewer are all enterprise funds which are constructed with the goal of operating and maintaining systems with levels of service established by the council to meet the needs of the system’s users. Fees collected from these services should cover the enterprise’s total cost, including all operations, maintenance, and capital outlay.
In prior years, the focus was maintaining operations through rapid growth and development. As the city shifts positions from heavy development to sustaining and preserving a fully developed city, capital outlay and long-range planning will play a more significant role in the budget process.
Council guidance supports this endeavor: water delivered to homes is expected to meet the highest standards possible; wastewater and storm drainage is to be cleared through the system with no backups, breaks, or flooding. Recent discussions during the August 8 workshop related to the city’s long-term water treatment plant capacities (WS 22-095) indicated that council supported a standard service level that provides fully treated water for normal consumption periods and very low rates (10-25% max) of untreated water on the highest consumption days as the city continues to grow.
Staff continues to work with Baker Tilly, and a finalized rate model will be presented to the council at a workshop in the second quarter of 2023. Significant progress has been made to date that has greatly improved the city’s current rate model. Finance, Public Works, and Engineering staff have collaborated in-depth to produce a preliminary long-range capital plan. Blaine’s 5-year Capital Improvement Program (CIP) includes plans for all capital asset categories.
The 2023 analysis for minimum, recommended, and rightsizing rates used the following assumptions:
• Long-range planning and stability will be part of the rate study;
• Analysis focuses on minimizing the financial risk of losing a AAA rating, maintaining healthy reserves, and being able to fund an emergent situation
• All capital is financed through debt in 2023. Debt issuance is necessary to maintain adequate fund reserves. Any projects funded with ARP will reduce the debt issuance
• Staff developed minimum (min), recommended (rec), and rightsized (right) user-rate options based on impacts to fund reserves and fully funding all department-recommended expenses
• Departments recommended capital expenses in all programs with the intent to minimize the risk of asset failure
Blaine Utilities Program-Wide Recommended Residential Quarterly Bill Example
|
|
Water* |
Sewer |
Storm |
Total |
$ Change |
% Change |
|
2022 Rates |
$46.14 |
$63.00 |
$10.50 |
$119.64 |
N/A |
N/A |
|
Minimum |
$52.92 |
$68.00 |
$11.55 |
$132.47 |
$12.83 |
10.72% |
|
Recommended |
$57.31 |
$70.00 |
$12.10 |
$139.41 |
$19.77 |
16.52% |
|
Rightsized |
$61.70 |
$72.50 |
$12.10 |
$146.30 |
$26.66 |
22.28% |
*Example has water billed at 24,000 gallons per quarter
Water Utility Fund
Blaine’s municipal water system provides users with clean, treated, potable water. The system serves nearly 21,000 accounts, 95% of which are residential. Overall, Blaine provides water to more than 96% of city residents. The system has a daily pumping capacity of 18.5 million gallons, with average daily usage of 6.4 million gallons.
The city’s water operation functions as a division of the city’s Public Works Department, with 10 full-time equivalents (FTE) staff budgeted in the division. An additional FTE position, a Water Treatment Plant Foreman, is proposed to be added in 2023.
Rates
Water rates presented are quarterly residential; commercial rates are the same as the residential rates.
|
Quarterly Residential |
2022 |
2023 Min |
2023 Rec |
2023 Right |
|
Flat Fee |
5.50 |
6.60 |
7.15 |
7.70 |
|
0-24,000 |
1.61 |
1.93 |
2.09 |
2.25 |
|
24,001-75-000 |
2.03 |
2.44 |
2.64 |
2.84 |
|
75,001-150,000 |
2.08 |
2.50 |
2.70 |
2.91 |
|
150,000+ |
2.80 |
3.36 |
3.64 |
3.92 |
|
State Test Fee |
2.43 |
2.43 |
2.43 |
2.43 |
Revenues
Water service fees generate 92-95 percent of total operating revenue. Other revenue sources include penalties, permits, meter sales, and interest; water access charges (WAC) provide a revenue source for capital projects and improvements.
Water rates were adjusted in 2022 by splitting the third consumption tier, creating four tiers. Gradual increases were applied at each tier: 15 cents per thousand gallons on the first tier, 20 cents on the second, 25 cents on the third, and 30 cents on the fourth.
Total revenues budgeted for 2023 using the recommended rates are $8 million, plus a debt issuance to fund capital expenses of $4.6 million. If council decides to allocate ARP funding towards water capital projects, the debt issuance will be reduced.
Expenses
Budgeted operating expenses (not including depreciation) are proposed to increase by $1,105,742 (20.3%) from the 2022 budget.
• Personal services - increasing $204,292 (17.8%)
o Addition of a Water Treatment Plant Foreman
o 3% general wage increase and contractual increases
• Supplies - increasing $527,500 (122.2%)
o Treatment chemicals - inventory rightsizing, significant inflationary cost (30% current spot pricing), vendor desires monthly or quarterly contracts rather than annual
o Small tools - high inflationary cost (15-40% depending on the tool)
• Contractual services - increasing $321,200 (27.8%)
o Electric costs - Water Treatment Plant 4 is fully operational
o Maintenance agreements - Treatment plants and hydrants
• Other category - increasing $52,750 (5.4%)
o Administrative chargebacks
o Building Maintenance internal service fund
Capital Improvement Plan
The 2023-2027 five-year plan includes $21.5 million in capital improvements, with an additional $31.7 million beyond 2027, which is attached in detail. The 2023 proposed capital budget includes $4.6 million in improvements. A summary of the plan by category can be found below.
|
Project Category |
2023 Budget |
2024-27 |
Beyond 2027 |
Total |
|
Capital Equipment* |
$476,500 |
$147,000 |
$30,000 |
$653,500 |
|
Treatment Plant Reconstruction |
$0 |
$1,400,000 |
$30,000,000 |
$31,400,000 |
|
Water Main Construction |
$1,000,000 |
$5,400,000 |
$1,200,000 |
$7,600,000 |
|
Water Tower Maint/Replacements |
$0 |
$3,985,000 |
$0 |
$3,985,000 |
|
Water Trmt Plant Maint/Replacements |
$2,995,000 |
$1,180,000 |
$0 |
$4,175,000 |
|
Well Construction |
$0 |
$0 |
$400,000 |
$400,000 |
|
Well Maintenance/Replacements |
$30,000 |
$350,000 |
$100,000 |
$480,000 |
|
Well Upgrades |
$55,000 |
$660,000 |
$0 |
$715,000 |
|
Wellhouse Construction |
$0 |
$3,785,000 |
$0 |
$3,785,000 |
|
Grand Total |
$4,556,500 |
$16,907,000 |
$31,730,000 |
$53,193,500 |
* Capital equipment from 2024 and on has not been fully accounted for in this plan; a long-range capital equipment plan will be created during the 2024 budget cycle
Sanitary Sewer Utility Fund
The city’s Sanitary Sewer Utility Enterprise Fund collects, treats, and disposes of the wastewater of its customers. The system serves almost 21,000 accounts, 95% of which are residential. Those properties that maintain a private septic system and those not in the Metropolitan Urban Service Area (MUSA) are not required to subscribe to the city’s sewer service. Blaine provides sanitary sewer service to over 96% of city residents. The city’s sewer operation functions as a division of the Public Works with 4 FTE staff allocated to the division. The 2023 model proposes adding one Public Service Worker split evenly between the sanitary sewer and storm sewer operations.
Rates
Sewer rates presented are quarterly residential; commercial rates are derived from the residential rates.
|
|
2022 |
2023 Min |
2023 Rec |
2023 Right |
|
Residential |
63.00 |
68.00 |
70.00 |
72.50 |
Revenues
As with the Water Utility Fund, the Sewer Utility Fund receives most of its funding through fees charged to customers; 96-97 percent of total revenues are collected in fees. Total revenues budgeted for 2023 using the recommended rates are $8.5 million, plus a debt issuance to fund capital expenses of $8.8 million. If council decides to allocate ARP funding towards sewer capital projects, the debt issuance will be reduced.
Expenses
Budgeted operating expenses (not including depreciation) are proposed to increase by $888,940 (11.8%) from the 2022 budget.
• Personal services - increasing $83,440 (19.2%)
o Addition of 0.5 of a Public Service Worker (split with storm sewer)
o 3% general wage increase
• Contractual services - increasing $59,230 (16.3%)
o Increased electric costs from two lift stations coming online
o Additional funds budgeted for software licenses and data/reporting professional services
• Metropolitan Council Environmental Services (MCES) charges - increasing $691,940 (15.8%)
o MCES charges account for over 72% of the fund’s operating costs, excluding depreciation
o MCES collects, treats, and disposes of wastewater across the metro area
• Other category - increasing $46,830 (5.2%)
o Administrative chargebacks
o Building Maintenance internal service fund
Capital Improvement Plan
The 2023-2027 five-year plan includes $25.8 million in capital improvements, with an additional $2.5 million beyond 2027. The 2023 proposed capital budget includes $8.8 million in improvements. A summary of the plan by category can be found below, and a detailed listing of the capital improvement program is included as a supplemental attachment.
|
Project Category |
2023 Budget |
2024-27 |
Beyond 2027 |
Total |
|
Capital Equipment* |
$480,000 |
$0 |
$0 |
$480,000 |
|
Lift Station Maintenance/Repairs |
$7,805,000 |
$12,210,000 |
$1,440,000 |
$21,455,000 |
|
Sewer Asset Reloc.-Hwy 65 Project |
$0 |
$1,600,000 |
$400,000 |
$2,000,000 |
|
Sewer Costs for Transportation Projects |
$225,000 |
$900,000 |
$225,000 |
$1,350,000 |
|
Sewer Line Cleaning |
$200,000 |
$800,000 |
$200,000 |
$1,200,000 |
|
Sewer Line Reconstruction |
$0 |
$50,000 |
$250,000 |
$300,000 |
|
Sewer Manhole Maintenance |
$100,000 |
$500,000 |
$0 |
$600,000 |
|
Sewer Trunk Oversizing |
$0 |
$950,000 |
$0 |
$950,000 |
|
Grand Total |
$8,810,000 |
$17,010,000 |
$2,515,000 |
$28,335,000 |
* Capital equipment from 2024 and on has not been fully accounted for in this plan; a long-range capital equipment plan will be created during the 2024 budget cycle
Storm Sewer Utility Fund
The City’s Storm Sewer Utility Enterprise Fund accounts for the operations of the City’s storm drainage system. The fund was created in 2006 as staff began separately accounting for storm drainage activity. Prior to that, storm sewer operations were accounted for in the Sanitary Sewer budget. The Council approved a storm water utility fee in 2007 and implemented it in January 2008.
The City’s storm drainage system includes over 185 miles of storm sewer pipes, almost 111 miles of ditches, and numerous catch basins, outfalls, manholes, weirs, culverts, and ponds. The system serves roughly 23,000 parcels throughout Blaine. The storm sewer operation is a division of the City’s Public Works Department with 7.5 full-time equivalent (FTE) positions. These FTEs consist of a Surface Water Manager and 5 Public Service Workers, with half FTEs allocated to Supervisor, Foreman, and Project Engineer. The proposed budget includes the other half of the Public Service Worker referenced in the sanitary sewer section.
Rates
Storm rates presented are quarterly residential; commercial rates are the same as the residential rates.
|
|
2022 |
2023 Min |
2023 Rec |
2023 Right |
|
Residential |
10.50 |
11.00 |
11.55 |
12.10 |
Revenues
The Storm Sewer Utility Fund receives the bulk of its funding through fees charged to customers. Total revenues budgeted for 2023 using the recommended rates are $4.1 million, plus a debt issuance to fund capital expenses of $1.8 million.
Expenses
Budgeted operating expenses (not including depreciation) are proposed to increase by $222,260 (10.9%) from the 2022 budget.
• Personal services - increasing $60,810 (7.5%)
o Addition of 0.5 of a Public Service Worker (split with sanitary sewer)
o 3% general wage increase
• Contractual services - increasing $28,200 (15.9%)
o Emerald Ash Borer mitigation
• The other category - increasing $46,250 (10.8%)
o Administrative chargebacks
o Building Maintenance internal service fund
Capital Improvement Plan
The 2023-2027 five-year plan includes $5.5 million in capital improvements, with an additional $0.4 million beyond 2027. The 2023 proposed capital budget includes $1.8 million in improvements. A summary of the plan by category can be found below, and a detailed listing of the capital improvement program is included as a supplemental attachment.
|
Project Category |
2023 Budget |
2024-27 |
Beyond 2027 |
Project Total |
|
Capital Equipment* |
$860,000** |
$600,000 |
$150,000 |
$1,610,000 |
|
Culvert Replacement |
$0 |
$150,000 |
$0 |
$150,000 |
|
Drainage Improvements |
$0 |
$100,000 |
$0 |
$100,000 |
|
Infiltration Basin Construction |
$400,000 |
$150,000 |
$150,000 |
$700,000 |
|
Other Improvements |
$100,000 |
$400,000 |
$0 |
$500,000 |
|
Outfall Replacement |
$50,000 |
$350,000 |
$0 |
$400,000 |
|
Storm Pipe Lining |
$350,000 |
$900,000 |
$100,000 |
$1,350,000 |
|
Storm Pipe Maintenance |
$0 |
$500,000 |
$0 |
$500,000 |
|
Storm Pond Improvements |
$35,000 |
$590,000 |
$0 |
$625,000 |
|
Grand Total |
$1,795,000 |
$3,740,000 |
$400,000 |
$5,935,000 |
* Capital equipment from 2024 and on has not been fully accounted for in this plan; a long-range capital equipment plan will be created during the 2024 budget cycle
** 2023 storm sewer capital equipment includes purchase of a vac-con truck for $625,000 as staff are switching from two vac-con trucks to one vac-con and two jetters (one jetter included in 2023 sewer capital equipment), which decreases the total equipment investment needed to clean sewer and storm infrastructure. The current vac-con is unreliable, and needs replacement to ensure emergencies can be addressed
Staff Recommendation
Staff took a service-level and needs-based approach to building the 2023 operating and capital budgets. The budgets and associated rates are financially feasible if the city shifts to funding capital projects with debt and are in line with council guidance to begin gently rightsizing the programs to deliver quality service at an affordable price. The rates recommended to fund the 2023 budget are lower than 2022 rates in all comparable cities except one. The information on comparable rates can be found on slide 16 of the attached presentation.
The basis for the staff recommended amount in all utilities is to reduce risk of asset failure and reduce financial risk. Choosing the minimum rate scenario will impact the service level, either introducing moderate to high risk of asset failure; introducing moderate to high financial risk to the programs by depleting the fund reserves to levels well below targeted amounts; or a mixture of both.
Staff is seeking feedback on the following questions, which will determine the next steps as it pertains to the adoption of utility budgets and user rates for 2023.
• Is council comfortable with the recommended expenditures for 2023?
o Water
o Sewer
o Storm Sewer
• Is council supportive of staff recommendation using debt to finance capital costs for 2023?
• Which rate scenario does council support to maintain the levels of service (minimum, staff recommended, or rightsized scenario)?
If no further consideration is needed, the water, sanitary sewer, storm sewer budgets, rates, and CIP’s will be brought back for adoption at the December 5 city council meeting.
Attachment List
Budget summaries -
• Water Utility Fund
• Sanitary Sewer Utility Fund
• Storm Sewer Utility Fund
Capital Improvement Programs (CIP) -
• Water Utility Fund
• Sanitary Sewer Utility Fund
• Storm Sewer Utility Fund
Presentation