Workshop Item - Joe Huss, Finance Director/Asst. City Manager
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Proposed 2022 Water and Sewer Utility Funds Budgets
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Background
As part of the City’s comprehensive budgeting process, staff will be presenting proposed budgets for the Water Utility and Sanitary Sewer Utility Funds.
Water Utility Fund
The city’s Water Utility Enterprise Fund accounts for the operations of the city’s water system. As an enterprise fund, the water fund is designed to recover the cost of providing clean, potable water to its customers through user fees. 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 under the direction of the Public Works Director, with 10 full-time equivalent (FTE) staff budgeted in the division.
Revenues
Operating revenue in 2021 is expected to exceed budgeted levels significantly due to high consumption levels in response to the persistent drought. Water sales are projected to generate $980,000 more than budgeted levels.
Operating revenues in 2022 are budgeted to increase from the 2021 budget amount by about $800,000 based on the expectation of a typical year’s consumption combined with a fee adjustment of 20¢ per thousand gallons. As is always the case, staff monitors rates and recommends adjustments based on current conditions and the impact of a rate adjustment on the fund’s long-term viability
Expenses
Budgeted operating expenses (not including depreciation) are proposed to increase by $410,000 from the 2021 budget. While staff are slated to receive a 3% general wage increase and an increase in cafeteria compensation, management staff time that was previously budgeted directly in the Water Fund payroll will now be funded entirely in the General Fund. The Water Fund portion will be included in the Administration charges paid to the General Fund. Thus, personal services (salaries and benefits) are expected to remain steady. The supplies budget is increased $125,000, which reflects the increased use of treatment chemicals in Water Treatment Plant #4. Contractual service expenses are increased by $140,000 due primarily to increased electrical use. Administrative charges paid to the General Fund will increase by $89,000, and charges paid to the Building Maintenance internal service fund will increase $2,000.
Capital Improvements
Capital projects totaling $2.1 million are slated for 2022, along with the acquisition of $165,000 in capital equipment. Of this total, well-house rehabilitation is planned for $600,000; $800,000 for equipment replacement and interior improvements at treatment plant #2; $40,000 for cleaning and inspection of Tower #1; $150,000 in trunk oversizing to prepare for future development; and $400,000 is allocated for system improvements done in conjunction with street improvement projects. Debt service payments totaling $2.4 million are scheduled for 2022 as well. In order to fund future system expansion that results from new development, staff is recommending that WAC fees be increased 2% pursuant to the plan adopted by Council in December 2003.
5-Year Projections
In addition to the 2022 budget, staff has completed 5-year projections for the water utility operations as well as the fund’s capital improvement plan. Both 5-year plans are monitored closely and updated annually to ensure that the fund maintains its financial stability and that rates and fees are adjusted properly. Water rate increases totaling 80¢ per thousand gallons are built into the last four years of the 5-year model.
Sewer Utility Fund
The city’s Sewer Utility Enterprise Fund accounts for the operations of the city’s sanitary sewer system. As an enterprise fund, the sewer utility is designed to recover the cost of collecting, treating and disposing of the wastewater of its customers through user fees. 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. Overall, Blaine provides sanitary sewer service to over 96% of city residents. The city’s sewer operation functions as a division of the Public Works Department under the direction of the Public Works Director, with 3.75 FTE staff allocated to the division.
Revenues
As with the Water Utility Fund, the Sewer Utility Fund receives the bulk of its funding through fees charged to customers. The utility’s fee schedule is designed to provide sufficient revenue to recover all operating costs, as well as to provide for the replacement of major capital components of the system. Staff has reviewed the need to increase sewer rates pursuant to the plan that has been in place over the last several years. The proposed budgeted fee increase of $1/month for 2022 aligns with the plan set in place in 2016 to ensure against operating losses and to maintain adequate reserves for continued system expansion and replacement of major components.
Expenses
The largest single expense in this fund is the monthly charge from Metropolitan Council Environmental Services (MCES). MCES collects, treats, and disposes of wastewater across the metro area. Overall MCES accounts for over 70% of the fund’s operating costs, excluding depreciation. For 2022, MCES fees for collection, treatment and disposal of wastewater will increase by $461,600 (12%). Supplies and all other operating expenses (excluding depreciation) increase by $41,000, of which $20,000 is for general and facilities management funds.
Capital Improvements
Sewer utility capital improvements are primarily funded through current fees, of which there is a component for the replacement of capital assets once they are placed into service, and assessments to property owners for improvements to the system that enhance the value of the property benefiting from the improvement. The proposed 2022 sewer utility capital budget totals just over $1.7 million in improvements, including $1,275,000 for lift station improvements; $400,000 for sanitary sewer lining; and $36,000 to replace a back-up generator at LS21.
5-Year Projections
In addition to the 2022 budget, 5-year projections for the Sewer Utility operations and capital improvement plan have been prepared. Both 5-year plans are monitored closely and updated annually to ensure that the fund maintains its financial stability and that rates and fees are properly adjusted. Since depreciation is included in operating costs, the replacement of existing capital assets is funded with current operating revenues. The current 5-year outlook indicates that planned rate increases will provide a safe operating margin and maintain adequate reserve levels in the sanitary sewer fund through 2026.
Staff Recommendation
Upon discussion of the attached budget and the programs supported by the proposed budget, staff is seeking Council input regarding adoption of the budget and the setting sewer utility fees for 2021.
Attachment List
Budget summaries -
• Water Utility Fund
• Sewer Utility Fund