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HomeMy WebLinkAbout20070416 - VIII-A-1Vll 1-A-1 MEMO To: Honorable Mayor and City Council From: Tom Montgomery Date: April 10, 2007 Re: Annual Utility Rate Review and Funding Proposal for Water System Improvements WATER RATES - CURRENT RATE: $1.55/1,000 GALLONS BASE RATE $1.95/1,000 GALLONS SURCHARGE RATE OVER WINTER QUARTER USAGE RECOMMENDED: NO CHANGE Last year, Council adopted a new rate structure that increased the base water rate by $0.10 gallon to fund 25% of the water system improvements -anew well, water treatment plant, and trunk watermains. A $0.40 surcharge applied to water usage above the winter quarter usage was also adopted to help fund water treatment costs and encourage summer water conservation (winter water needs can be met with a little more than two of the City's six wells running while summer water needs may result in ail six wells running for most of the day to keep up with demand). Last year's dry weather, combined with the implementation of the new surcharge resulted in an operating surplus of $600,000. While this surplus may seem to be very high, our utility replacement costs have also been very high over the past four years as we rebuild streets in the older parts of town and replace the original 1906 utility system. Annual Construction Calculation Year Project Water Fund Wastewater Fund 2007 2007-1 5th St. Area Impr 1,196,000 1,001,000 est 2006 2006-1 3rd St. Impr 549,746 558,568 2006-2 NFR 25,000 2005 2005-1 Dakota Hifls 447,260 127,377 2005-2 Zweber Lane 57,047 10,835 2004 2004-1, Westwood 645,483 514,827 2004-2, 31st St. Reconstruction 12,570 5,028 2004-4, Hwy 61 & 10th St. 64,579 19,767 2003 GSDr. Ext, RSO, Spiral & 31st Ext. 0.00 0.00 Total, Past 5 years replacements 2,997,685 2,237,402 Average Annual Replacement Expenses $ 599,537.00 $ 447,480.33 The 2006 year end operating cash balance of the water fund was $1.7 million, but with the estimated $1.2 million of water main replacement costs for 2007, the cash balance is expected to drop to near $1 million. I am recommending no change to the water utility rate, and will continue to monitor fund balance and water system improvements and replacement costs to keep a sufficient Water Fund reserve to address water systems emergencies in the future. WASTEWATER RATES - CURRENT RATE: $2.65/1,000 GALLONS RECOMMENDED $2.85/1,000 GALLONS I am recommending a $0.20 per ],000 gallon increase in wastewater rates to $2.85 per 3,000 gallons (approximately a 7% increase). At this rate, operating expenses are estimated to show a small surplus. However, sanitary sewer replacement costs over the past four years have depleted the Wastewater Fund reserve. The 2006 Wastewater Fund year end balance was $1.1 million, and we are estimating approximately $1 million in sanitary sewer replacement costs for the 5'n Street reconstruction project. Wastewater rates would have to be raised about $1.75/1,000 gallons to raise $t million to fund 2007 estimated sanitary sewer replacement costs. The majority of the sanitary sewer being replaced is about 100 years old and needs replacement, but raising wastewater rates to fully fund replacement costs would result in extreme rate increases. Rather than huge rate increases to fund sanitary sewer replacements, I will be recommending funding a large part of the sanitary sewer replacements costs through the construction bonds that are part of the City's debt levy. Funding the sewer replacements through bond debt will help maintain an adequate Wastewater Fund reserve. WAC, SAC, ~ INTERCEPTOR SEWER CHARGES Council adopted a resolution in 1993 that updated utility connection fees and indexed these fees to the American City and County magazine construction cost index. This index increased 3.0% last year. Accordingly, staff is recommending increasing the connection fees as shown below. These connection fees are charged to new development to fund expansions of the Ciry~s sewer and water system that are needed to support new development. Examples of system expansion included new wells, water storage, and trunk sewer and water mains. Recommended Charges Current Rate Rate WAC $2,465 $2,540 SAC $750 $775 Interceptor Sewer $385 $400 COUNCIL ACTION REQUESTED Council is requested to adopt the enclosed resolution that would: • Increase the wastewater rate to $2.85/1,000 gallons • increase WAC charge to $2,540 • increase SAC charge to $775 • increase Interceptor Sewer charge to $400 If adopted, the WAC, City SAC, and Interceptor Sewer Charge increases would go into effect immediately for all new permit applications and final plat approvals. The wastewater rate increase would be implemented with the May billing. ~ ~. CITY OI; N1Rt.STIH6S CITY OF HASTINGS Dakota County, Minnesota Resolution No. RESOLUTION INCREASING THE WASTEWATER COMMODITY RATE, THE WATER ACCESS CHARGE, THE CITY SEWER ACCESS CHARGE, AND THE INTERCEPTOR SEWER CHARGE WHEREAS, the City of Hastings presently owns and operates the municipal water system and the sanitary sewer collection system and sells this service to industrial, commercial, and residential consumers, and WHEREAS, the City of Hastings has completed an analysis of the charges of providing said services, and WHEREAS, the City of Hastings has determined that it is necessary to increase the cost of said services to prevent the City utilities from operating a[ a loss. NOW, THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF HASTINGS AS FOLLOWS; 1. The existing wastewater commodity rate of $2.65/1,000 gallons shall be increased to $2.85/1,000 gallons effective with the May 2007 billing. 2. The existing Water Access Charge (WAC) shall be increased from $2,465 to $2,540 effective upon the adoption of this resolution. 3. The existing City Sewer Access Charge (SAC) shall be increased from $750 to $775 effective upon the adoption of this resolution. 4. The existing Interceptor Sewer Charge shall be increased from $385 to $400 effective upon the adoption of this resolution. ADOPTED BY THE CITY COUNCIL OF HASTINGS, MINNESOTA, THIS 16TH DAY OF APRIL, 2007. Ayes: Nays: ATTEST: Melanie Mesko Lee, City Clerk Paul J. Hicks, Mayor (Seal)