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Policy Development/Review Workshop - Call to order at 04:02 PM


A. Update regarding Public Safety Needs Assessment and related impacts to the City's Facility Plan -- Terry Jones, Support Services Construction Manager and Micki Rundell, Chief Financial Officer

This item was pulled by staff.

Jim Briggs presented the "Water Rates & Related Financial Policies" workshop. He said this workshop deals with water rates and financial policies related to water revenues, and the presentation is included on muniagenda with minor changes for readability. Briggs noted the issues and objectives are as follows: In April and May 2009, prior to the summer, the City expected large capital improvements in the future and those plans were blended with conservation plans. He said discussiosn with the General Government And Finance Committee (GGAF) reviewed the upcoming plans, and the conversations addressed water revenues included current water rates and risks, conservation impacts, capital improvement needs, proposed rate and policy revisions, non-potable irrigation and the next steps in the process.

He recalled the rate structure was established in the 1980s when the rates fit the usage of the time, but recent growth has outpaced the system. Briggs clarified that the original policies used a simple volumetric use (gallon use charges to consumers each month) instead of placing capital on the more appropriate fixed elements of the rates (versus variable expenses). According to Briggs, the general philosophy was selling more water to acquire more revenue for capital improvements, consequently no incentives existed for conservation because the City needed water sales revenue to earn capital for improvements.

Briggs spoke to the original structure's encouragement of growth, low income assistance, and fit to the system with 4-5,000 users in 1985. He mentioned if consumption was low you did not pay much. Briggs identified present day changes in the City's system and community demographics which now serve over 20,000 users at over 200 gallons per capita. He detailed the monthly base rates of $16.50 for 3/4 inch meter that has been the standard. He informed Council of the value of the 3/4 inch meter due to the operational issues occurring with the 5/8ths meter. He said new irrigation and sprinkler systems cause poor pressure performance for domestic flows. The cost differential between the meter sizes was negligible while performance and flow needs became problem. Briggs said the utility system did not want to charge customers for dual meters, additional costs for size change, and installation charges, so the 3/4 inch meter became the standard. However, the $16.50 does not cover fixed costs such as debt service on capital.

He said a scaling factor can determine what a meters can handle, and this scaling is based on volumetric mathematical calculations. Variable rates (225/1000) fund more than variable costs, so this exposes the City to weather related revenue risks such as increased demand impacting revenue during hot and dry periods and the potential revenue shortfalls during wet periods. He told Council that during wet seasons, with this effect, the City will not have enough funds to cover the debt service and the minimal operational needs. Briggs commented that each summer a conservation block rate is implemented to meet the summer peak capacity units that must be on-line to meet the demand.

Briggs stated the water conservation plan's goal of reducing average consumption and saving customers money. The current average use is 200 gallons/day. The City's goal is 180 gallons/day by 2020. Briggs relayed The Texas Water Development Board (TWDB) recommendation of 140 gallons/day, but operationally this rate is not feasible and will not sustain our community's quality of life. He added that conservation is also a way to save on irrigation costs. Conservation rates were designed to impact consumption and reduce rates on irrigation, and users are aware that it costs more to put water on the ground during conservation periods. Briggs talked about conservation rates established in 1997 as a way to effect 10-15% of users peaking the system, and those rates were intended to pay for necessary expansions and capital additions. Lower per capita consumption lowered the revenue requirements and expansion was not as available. Briggs said this process did not allow for managing demand. Briggs showed Council a chart demonstrating water usage of residential customers from May through September, and indicated how conservation can save customers money.

Capitol improvement needs include a surface water treatment plant expansion beyond what was recently approved to cover the current issues of fire protection and the immediate needs on ground water volubility. Surface water is needed due to the growth and demand on system. Currently, the proposed $12 million expansion of the Lake Water Treatment Plant (LWTP), is a shared system with Chisholm Trail Special Utility District and The City of Georgetown, and based on it's capacity it's not wholly ours. There is an area system demand for increased capacity and demand on our water resources. The fixed cost and debt service could be $750,000/year basis and could have a significant dollar impact on the rates.

Briggs gave Council a detailed review of the rate methodology. He said the proposed rates will implement a 3/4 inch base meter at $18.50 (currently the rate is at $16.50) over two years, and scale the existing base rates for larger meters to meet the American Water Works Association's ( AWWA) standard base. This will be consistent to fixed rate applicable to each customer's use based on meter size over 4 years. Modifications to the 1st block on the conservation rate will be from 19 to 18 and the creation of a 75,000 gallon (and above) conservation block. Proposed rates will apply residential conservation block rates to small commercial users with similar use patterns such as residential offices and small businesses. Changes to the ordinance will include a review of rates with impact fees every 3 years to consider inflation adjustments and the regional CPI Index. Every 3 years there is a review of impact fees, a cost study, and a full financial analysis of utility, water and waste water to allow for small adjustments as needed. Staff wants Council to consider a demand related charge in lieu of "super user" rate. The scheduled cost study and complete financial analysis is an appropriate time to review water rates.

Sansing asked and Briggs said GGAF was involved with the discussion regarding a more frequent review so as to not duplicate staff's workload. Briggs said from staff's standpoint, since water utilities are undergoing a financial analysis, it is an opportune time to evaluate rates on a 3 year timeline without duplicating studies and workload. He added there was discussion on creating a super user rate and discussions about applying electric utility principles for making rates. Essentially a demand rate would be used for extremely high volume use such as individual owners of large meters or owners of many meters with an aggregated consumption of 10 million gallons or more per month.

Briggs showed Council a chart of the proposed rate revenue impact over the next 5 years. He said these rates are static and do not include any system growth or additional meters, and he noted conservation will have some impact, but conservation rates will be in effect during those months. Briggs showed Council a base rate comparison graph of the surrounding cities. The first Georgetown line shows the City's current condition, the second line is part of a 2 year phasing in 2010, the 3rd line shows the ultimate goal after project is phased in (AWWA figures). These are the base rate minimum charges associated with each count between $16.50 and $18.50 over 2 years. Conservation rate block comparison is all over the board from nearby cities. Austin started at $9 at 19,000 gallons to $10 before you get to 30,000 gallons. This climb in price, in Austin, is pretty punitive pretty quickly. Sansing asked about cities owning their own utilities with exception of Leander, Cedar Park, and Pfluegerville.

Additional recommendations are to create a funding reserve within the Water Fund and use water revenues from dry years, where revenues are high, to offset potential revenue shortfall in wet years. This process will require issuing more debt and reserving cash for weather related impacts. The current "cash on hand" will not be used to fund the LWTP. Creation of a low income discount to a base rate will maintain $16.50 rate and a lower option for the Old Mill property will be included for people who are on low to moderate income. Sansing asked how the City would deal with someone who lived in a low income area and used a lot of water? He also asked at what point do other water users stop subsidizing the water wasters? Briggs said education and working with Caring Place on water conservation has been done in the past. He said working with the people will address the issue, but he's not aware of any water wasters at this point.
Berryman returned to the dias at 4:16 p.m.

Briggs said non-potable irrigation rates are currently under review, and noted they do not fund the cost of services or the five year CIP plan. The current rates are at 85 cents per 1,000/gallons, and there is a proposed 2-step increase at 95 cents per 1,000/gallons effective January 1, 2010. There will be a six month notification process for large irrigation customers. After January 1, 2011, a rate change of $1.05 rate will cover enough to meet debt service ratio. However, even with these rates in place, the fund is only able to cover debt service ratio because it's blended with water/waste water. Oliver asked and Briggs said the rate has been at 85 cents for 6 years. Briggs said there were small increases in rates, but the rate has been based on the original cost of electricity.

Briggs explained the next steps in the process.

Mayor asked to see the slide on the 4 year increases from 2010-2013. $382,000 is above and beyond revenue being collected. Mayor is troubled by the threefold increase in round numbers in revenue and wants the rational aside from 'we need it'. What justifies a threefold increase? What are the dollar allocations that need to be funded to justify the increase so it can be justified to community . Mayor says the increase is staggering. Mayor asked and Briggs said the LWTP expansion is the reason the City needs to increase the rate. He noted the debt service needed to cover our portion of the project, including the water treatment plant's capacity to put the water on the ground, is over $750,000. Sattler wondered why the existing facility needs a $12 million expansion and whether the treatment capacity is currently at it's maximum He asked if new homes and businesses will require an expansion of the plant to ensure good service for current customers and efficiency for future city growth. Briggs said the existing lots, in addition to the new developments, are reasons for this plant expansion. He said the LWTP expansion project is the cheapest option for plant capacity because the City already has the land, tanks, and pumps to ensure water quality.
Sattler asked and Briggs said this plant expansion will allow the City to move water to areas that need it. Sattler asked and Briggs confirmed that this process will ease pressure on taxpayers because the City has the ability to make rate adjustments based on the fact that it has off-system sales and alternative revenue coming in. Sattler asked and Briggs said we have the ability to sell water to Round Rock and other local areas as we have done in the past.

Sansing commented on how the City has never implemented a conservation program. He said he feels that the City needs both the plant expansion and the promotion of conservation measures. Briggs agreed that conservation is necessary. Mayor asked about the conservation figures and noted if the City has a 10% reduction in usage, people are not buying as much water. He added, therefore, there is a revenue shortage. He asked where does the City go with that? Briggs replied the City cannot count on conservation. There may be a 10% fluctuation at one period in time but that is when variable costs are high, we cut variable costs and that does not affect the fixed costs.

There was much discussion.

Eason asked and Briggs replied that these rates deal only with drinking/potable water. Sattler asked whether by doing this partial build there any environmental issues that will cause EPA or water quality boards to come back and say there is a problem.

Dishong and Briggs are not aware of any problems, but obviously cannot tell the future. Briggs indicated that the City is a tenant of the Army Corp of Engineers, and the City has filed the ultimate development plan with the army core for vetting. By building the base and putting the steel on the ground, the footprint is already on the ground so some environmental issues are mitigated. Site expansion will eventually be pushed to 40 million gallon, but we cannot afford to put that foot print on the ground right now.

Russell introduced Brett Bowers from the Texas Municipal League (TML). Mayor welcomed Bowers.

Bowers presented the background on TML, an overview of the benefit processes, and the differences between the nonprofit TML and other for-profit companies. TML serves the entire state and has a service center just down the road. TML utilizes a Risk Pool with 700 participating political subdivisions. TML is a political subdivision itself and has a board of directors that meets every quarter. Currently, TML covers 30,000 employee lives and upwards of 65,000 people when including dependents. Underwriting game is played and TML ensures extra monies go to member equity, and all money will roll back to members if TML ever had to close their doors. At this time, 85 cents goes to paying claims out of every dollar received by TML.

Bowers said TML was established in 1979. He noted there are 611 groups served including municipalities, appraisal districts, school districts, water utility districts, and they have the option of being fully funded or self funded. TML could help the City move to self funded option; However, many cities are moving toward rate stability with different funding options. There are current self funded members that want to move to risk pool due to the cost of health care. The pool allows problems to be spread across all members. He said TML is moving toward public / private partnerships and noted profit providers were offering better cost for services because of size and partnerships and better discounts. TML interviewed with the private sector to get better deals for customers and entered into an alliance with United Healthcare Network for comparable price for service.

TML is the administrative arm of the Public Employee Benefit Alliance (PEBA). This alliance leverages their pool, and enhances cost efficiency in purchasing. TML is a full service organization and can work directly with the City or through a consultant. Most cities work one on one with TML due to the cost efficiency. The TML satisfaction survey shows over 98% of customers were satisfied with TML services. TML is not an insurance company, and they are not governed by the Department of Insurance. TML is governed by Chapter 172 protection which states no bid requirements have to go out every 3 years, and for anyone over 18 years of age, TML will mail $150 incentive for healthy initiatives after the individual has undergone preventative check-ups, personal health coaches, no cost preferred lab, no cost generic drugs at CVS pharmacy, http://bewellattmliebp.org/, under and over 65 years retiree coverage options are services provided. PEBA and Caremark help bring these benefits to the City. He spoke about how TML treats retiree benefits.

Mayor asked Russell to review the details of the interlocal agreement. Ross asked about proposals and the large claims from last year. Ross wanted to know if TML will help with the spikes in claim history. Russell replied that TML has a risk pool with a the large number participating in the pool. He said the maximum increase last year was 16%, and noted the size of the pool helps carry those with big issues and other years there are few claims. Ross said he wants to make sure the TML pool will help smooth out the City's high and low claim years. Russell confirmed that TML will help with the spikes. All $3.3 million that City has paid to the previous provider, Humana, will stay with Humana, and the City will be starting fresh in January with TML.

Council recessed to Executive Session at 5:02 p.m. under Sections 551.071, 551.074, and 551.086.
Council returned to Open Session 6:05 p.m.