Lake Havasu City Council Work Session

Police Facility, 2360 McCulloch Boulevard N.

Tuesday, January 27, 2009, 4:00 p.m.

 

CALL TO ORDER

Mayor Mark Nexsen called the meeting to order at 4:00 p.m.

 

PLEDGE OF ALLEGIANCE

The mayor led in the Pledge of Allegiance.

 

ROLL CALL

PRESENT:         Councilmembers Mark Nexsen, Dean Barlow, Lee Barnes, Don Callahan, David McAtlin, and Margaret Nyberg. Councilmember Wedemeyer arrived at 4:02 p.m.

 

CALL TO THE PUBLIC

There were no requests to address the council.

 

PUBLIC HEARING: DISCUSSION AND DIRECTION RE: PRESENTATION ON WATER RATE, IMPACT AND SERVICE FEE UPDATE

Ms. Gayle Whittle, Finance Director, advised that Red Oak Consulting was in attendance to present several revised scenarios based on council’s instructions at the September 30, 2008, meeting. Ms. Whittle said the council communication also included a proposed timeline to move forward with adopting impact fees and water rates. She added that this presentation would focus on the impact fee portion because the rate plan and proposed rate designs are not ready for presentation at this time.

 

Ms. Whittle gave the following background information:

Ÿ         On September 24, 2002, the council adopted a three-year rate plan for the water rates and implemented a 10 percent increase on October 24, 2002; a 10 percent increase on July 1, 2003; another increase on July 1, 2004; and there have not been any water rate changes since July 1, 2004.

Ÿ         In September 2003, Red Oak Consulting completed a water financial plan and rate study, and presented impact fees to the council at that time. Red Oak modeled the water rates from the water rates that the council had already adopted, so no new water rates were proposed at that time.

Ÿ         Ms. Whittle was hired on March 4, 2005, and at that time, recommendations were already in process for implementation of a water system development fee and a water resources development fee.

Ÿ         Those fees were adopted by the council in June 2005, effective September 13, 2005.

Ÿ         On December 13, 2005, the council rescinded the impact fees and at that same meeting, the council awarded a contract to Carollo Engineers to begin a Water Master Plan update.

Ÿ         On March 27, 2007, the council authorized a loan agreement with the Water Infrastructure Finance Authority (WIFA) to borrow up to $7.5 million, but actually borrowed $5.7 million, and pledged that the city would have 1.2 times debt service coverage for revenues, and would also maintain a 20 percent cash reserve.

Ÿ         On November 13, 2007, the council adopted the Water Master Plan update.

Ÿ         On December 3, 2007, staff advertised for a Request for Proposal (RFP) to do a Water Rate Impact and Service Fee study.

Ÿ         On February 26, 2008, that contract was awarded to Red Oak Consulting. Since that time, city staff has been working with information derived from the Water Master Plan to come up with a Community Investment Plan (CIP), and Red Oak has worked on several different scenarios.

Ÿ         Red Oak came before the council in September 2008, and at that time, the council asked for Red Oak to bring back some revised scenarios.

 

Ms. Whittle explained that this item is not something that suddenly appeared on the horizon because of the depressed revenues, but has actually been a work in progress since 2005, trying to complete the Water Master Plan, along with the rate study.

 

Ms. Pat Walker and Mr. Kevin Burnett, both from Red Oak Consulting, were in attendance to give a presentation. Ms. Walker gave the presentation objectives:

Ÿ         Provide on overview of the study for the benefit of the new councilmembers.

Ÿ         Update city council on study progress.

Ÿ         Receive direction in regard to the capital plan and which financial plan the council would like to see move forward to the next council meeting.

Ms. Walker said that a comprehensive rate study begins with the financial planning component. It begins with the Master Plan and consideration the projects needed to not only be able to provide water and sewer service to existing customers, but for the future customers. Once that is done, and then the CIP is built by looking at the components that include Operations and Maintenance (O&M), sources and uses of funds, impact fees, debt service, reserves, and the different financing tools that can be used.

 

Ms. Walker stated that the city is in the financial planning stage, and what that means is that the city will look at what revenues will be taken in and what the expenses the city has, and if the revenues are less than the expenses, then that is the necessary revenue increase. She clarified that the rate increases have not been designed yet, so the city would only be looking at what its system needs in order to recover the revenues to pay the bills. The cost of service would then be analyzed to determine whatever percentage is needed to serve a residential or commercial customer, and then by using the rate design and rate structures, the amount needed to recover the costs for each of the classes could be determined. She said that in other words, the city would look at the various pricing objectives such as what type of rate structure should be built to collect the water and sewer fees. Would the city want conservation, revenue stability, or both?

 

Ms. Walker said that for financial planning, WIFA requires two major criteria: cash reserve ratio and debt service coverage. The cash reserve ratio is 20 percent, or 73 days of annual O&M expense, and since it is required by WIFA, it is a driver in the study and the financial plan. The debt service coverage is 1.2 times the annual debt service, which is calculated by dividing the combined net revenues by the annual debt service payment.

 

The following assumptions were used in the study and are very important because they dictate the results of the study:

Growth

Ÿ         0.5% beginning in FY 2008-09,

Ÿ         0.75% in FY 2011-12,

Ÿ         1% in FY 2013-14, and

Ÿ         1.5% in FY 2015-16.

 

Other assumptions

Ÿ         O&M expenses are projected to increase at 3 percent per year with the exception of personnel costs, which when adding in salaries and benefits, it will usually increase at 5 percent per year.

Ÿ         CIP is projected to increase at 4 percent per year.

Ÿ         Revenue increases are projected to be effective July 1, 2009, and April 1, thereafter.

Ÿ         Rate increases assume conservation and will not necessarily equate to an equal revenue increase.

 

Ms. Walker said the projected CIP have all been identified in the Master Plan. She noted that when she reported to the city council in October 2008, the CIP presented to council was $157 million. She said the council directed city staff to relook at the CIP as Red Oak would run different scenarios. She noted that the city staff identified essential projects that needed to be done that amounted to $107 million. By the way, the study period is until 2018/19, which is 10 years from this fiscal year. She advised that the Core/ Essential & Delay CIP projects are those projects that Public Works Director Mark Clark feels must be done in order to maintain service to the existing customers and to accommodate the growth percentages that are shown in the assumptions, and with that, the CIP was reduced from $107 million to $79 million. Ms. Walker wanted to bring to the council’s attention that there is some give-and-take when giving up these CIP projects.

 

Ms. Walker presented a graph showing the initial and revised compared-inflated amounts of the CIP for FY 08/09 to FY 18/19. She said she had mentioned that one of the pieces of the financial plan is how much the city will collect in impact fees in order to fund those growth-related projects, because growth-related projects are included in that $79 million. In order to do that, different methodologies can be used such as buy-in, hybrid, or a planned-based approach which looks at future growth. She said the council consensus was for the buy-in approach, which looks at all the city’s assets at today’s dollars and projecting them out in the future, and then consider which growth that will serve. Ms. Walker advised that the fee would be based on a $3,894 buy-in approach in conjunction with the current water resource fee of $660 which would increase to $835.

 

Ms. Walker also advised that by using the Essential & Delay CIP of the full $107 million, the impact fee would be even higher at $4,407 per residential household.

 

Ms. Walker compared the current residential development fees with other Arizona communities. She said the average fee without Lake Havasu City is $8,827 for water and sewer. The current Lake Havasu City development fee is $2,660, and when calculated with the resource fee, and assuming the Core/Essential plan of $79 million, the total would be $5,894.

 

Ms. Walker proceeded to discuss the various scenarios for the financial plan. She said there is a lot of discussion regarding percentages, but she advised the council to remember where Lake Havasu City is today as far as compared with the other communities, and noted that the average without Lake Havasu City is $30.07 for a residential bill based on 13 ccf monthly water usage. The city’s current bill is $23.74, which is on the low end of the averages. She also noted that 66 percent of the city’s customers use 13 ccf of water or less.

 

Ms. Walker explained the details of a “No CIP Scenario.”

Ÿ         No CIP for the first three years, Core/Essential CIP at $73 million. The CIP amount is reduced from $79 million to $73 million because when projects are pushed out, they go beyond the study period, and therefore the amount drops. This scenario assumes that impact fees will remain the same with no CIP from FY 09/10 through FY 12/13.

Ÿ         Monthly bill increases from $23.74 today to $51.46 in FY 18/19.

Ÿ         $61.0 million in bonds are issued.

Ÿ         CIP is deferred for three years. A 12 percent rate increase would still be needed.

Ÿ         Revenue increases are needed to meet cash reserve ratio and minimize issuance of non-growth capital related debt.

Ÿ         Plan meets revenue requirements and cash reserve ratio on an Operations and Total Fund basis.

Ÿ         Fully funds capital improvements plan of $82 million (which is inflated over that time period).

 

Ms. Whittle said she asked Red Oak Consulting to present this scenario because this is unrealistic in that there must be some CIP to replace water lines in conjunction with the sewer project. She said money was borrowed for that, but the city needs to raise revenue in order to meet its financial ratio calculations. She noted that some of the booster stations cannot wait for three years to be serviced, and they are very expensive to repair. She also noted that since the Irrigation and Drainage District (IDD) will not have any money, the money would have to come out of the General Fund Contingency.

 

Ms. Walker also noted that with no CIP, the rate increase would be at 12 percent, but the rates have not increased since December 2004, yet with an inflationary rate of 3 percent to 4 percent, the increase would need to be at approximately 12 percent to 16 percent, just for all the different items needed for the operation and maintenance, salaries, etc., with the Enterprise System.

 

Ms. Walker presented the following scenarios:

Scenario 1: Essential & Delay the CIP ($107 million CIP). It assumes the current impact fees with no increase:

Ÿ         Monthly bill increases from $23.74 to $31.10 in FY 09/10 for 13 ccfs and to $64.61 for 13 ccfs in FY 18/19.

Ÿ         $94.0 million in bonds issued.

Ÿ         Revenue increases are needed to meet cash reserve ratio and minimize issuance of non-growth capital related debt.

Ÿ         Plan meets revenue requirements and cash reserve ratio on an Operations and Total Fund basis.

Ÿ         Fully funds capital improvements plan of $125 million (based on 4 percent inflation).

 

Scenario 2: Essential & Delay the CIP ($107 million CIP). Rates, current impact fees based on the current water resource fee of $660 assessed outside the IDD, and continued IDD tax beginning in FY 13/14:

Ÿ         Monthly bill increases from $23.74 to $31.10 in FY 09/10 for 13 ccfs and to $60.24 for 13 ccfs in FY 18/19.

Ÿ         $94.0 million in bonds issued.

Ÿ         Revenue increases are needed to meet cash reserve ratio and minimize issuance of non-growth capital related debt.

Ÿ         Continued IDD tax helps to offset reliance on rate revenue in later years of plan.

Ÿ         Plan meets revenue requirements and cash reserve ratio on an Operations and Total Fund basis.

Ÿ         Funds capital improvements plan of $125 million (inflated).

 

Scenario 3: Essential & Delay the CIP ($107 million CIP). Based on the current water resource fee of $660 assessed outside the IDD.

Ÿ         Monthly bill increases from $23.74 to $30.39 in FY 09/10 for 13 ccfs and to $57.48 for 13 ccfs in FY 18/19 by updating impact fees.

Ÿ         $94.5 million in bonds issued.

Ÿ         Revenue increases are needed to meet cash reserve ratio and minimize issuance of non-growth capital related debt.

Ÿ         Plan meets revenue requirements and cash reserve ratio on an Operations and Total Fund basis.

Ÿ         Funds capital improvements plan of $125 million (inflated).

 

Scenario 4: Core/Essential CIP, but it is delaying some of the projects ($79 million CIP). Based on the current water resource fee of $660 assessed outside the IDD.

Ÿ         By updating the impact fees, the monthly bill increases from $23.74 to $30.62 in FY 09/10 for 13 ccfs and $53.94 for 13 ccfs in FY 18/19.

Ÿ         $73.0 million in bonds issued.

Ÿ         Revenue increases are needed to meet cash reserve ratio and minimize issuance of non-growth capital related debt.

Ÿ         Plan meets revenue requirements and cash reserve ratio on an Operations and Total fund basis.

Ÿ         Fully funds capital improvements plan of $90 million (inflated).

 

Scenario 5: Core/Essential CIP ($79 million CIP). Rates, current impact fees, and continued IDD tax beginning in FY 13/14.

Ÿ         Monthly bill increases from $23.74 to $30.62 in FY 09/10 for 13 ccfs and $50.18 for 13 ccfs in FY 18/19.

Ÿ         $73.0 million in bonds issued.

Ÿ         Revenue increases are needed to meet cash reserve ratio and minimize issuance of non-growth capital related debt.

Ÿ         Continued IDD tax helps to offset reliance on rate revenue in later years of plan.

Ÿ         Plan meets revenue requirements and cash reserve ratio on an Operations and Total fund basis.

Ÿ         Funds capital improvements plan of $90 million (inflated).

 

Scenario 6: Core/Essential CIP ($79 million CIP). This is the updated impact fee buy-in approach.

Ÿ         Monthly bill increases from $23.74 to $30.62 in FY 09/10 for 13 ccfs and $52.41 for 13 ccfs in FY 18/19.

Ÿ         $73.0 million in bonds issued.

Ÿ         Revenue increases are needed to meet cash reserve ratio and minimize issuance of non-growth capital related debt.

Ÿ         Plan meets revenue requirements and cash reserve ratio on an Operations and Total fund basis.

Ÿ         Funds capital improvements plan of 490 million (inflated).

 

Ms. Walker reviewed the scenario comparisons, and noted the various differences with rate increases:

 

 

No CIP

1

2

3

4

5

6

Description

Rates, Cur impact fee, $79 CIP, No CIP first 3 yrs

Rates, Cur impact fee, $107 CIP

Rates, Cur impact fee, IDD, $107 CIP

Rates, Higher impact fee, $107 CIP

Rates, Cur impact fee, $79 CIP

Rates, Cur impact fee, IDD, $79 CIP

Rates, Higher impact fee, $79 CIP

Rate Increases

FY 08-09

0%

0%

0%

0%

0%

0%

0%

FY 09-10

12%

31%

31%

28%

29%

29%

29%

FY 10-11

12%

10%

10%

10%

10%

9%

10%

FY 11-12

12%

10%

10%

10%

9%

8%

9%

FY 12-13

9%

12%

8%

12%

9%

6%

9%

FY 13-14

9%

12%

9%

10%

9%

6%

9%

 

Ms. Walker advised that in the following chart, $23.74 is the current rate, $31.10 in FY 09/10, and $47.20 in FY 13/14. She noted that with a higher impact fee and no IDD tax, the rate increases to $43.63 in FY 13/14.

 

 

No CIP

1

2

3

4

5

6

(1) Description

Rates, Cur IF, $79 CIP, No CIP First 3 yrs

Rates, Cur IF, $107 CIP

Rates, Cur IF, IDD, $107 CIP

Rates, Higher IF, $107 CIP

Rates, Cur IF, $79 CIP

Rates, Cur IF, IDD, $79 CIP

Rates, Higher IF, $79 CIP

Bill Today

$23.74

$23.74

$23.74

$23.74

$23.74

$23.74

$23.74

Bill 09-10

$26.59

$31.10

$31.10

$30.39

$30.62

$30.62

$30.62

Bill 13-14

$39.63

$47.20

$44.30

$45.30

$43.63

$40.51

$43.63

(1) Assumes 13 ccf monthly water usage

 

Ms. Walker said that in comparison to Kingman, Bullhead City, Parker, Prescott Valley, Yuma, Prescott, and Chino Valley, the average monthly bill without Lake Havasu City is $30.07. She said the bill is based on 13 ccf average monthly water usage, and if assuming Scenarios 4, 5, and 6, for FY 09/10, with the same average water usage, the monthly bill for Lake Havasu City would be $30.62.

 

Mayor Nexsen asked what the differences were between Scenarios 1 and 3. Ms. Walker explained that Scenario 1 has the current impact fee and Scenario 3 has the increased impact fee, so it is the timing of growth-related projects as to when it affects what year. Mayor Nexsen asked why the revenue or the rate increase would still need to increase to 28 percent versus 31 percent. Ms. Walker said that was because of the O&M costs and the timing. She said there are a lot of components in the plan, one of which is the financing, and because the city does not have the cash up front for the impact fees, the financing is paid part with cash and part with financing. She further noted that the impact is felt in the long term by having impact fees because that is cash coming in to pay for the projects. Mayor Nexsen thought there must be a very small amount of impact fees being collected. Mr. Burnett commented that the other issue taking place with the 0.5 percent growth for the next couple of years is that the impact fee revenue generated on that growth is so small that it does not really have an impact until it builds up over time.

 

Mayor Nexsen asked if the impact fee would be for inside and outside the IDD. Ms. Walker said that was correct, although a credit of $864 was calculated for inside the IDD. Ms. Walker clarified that the credit is included in the $2,855 impact fee in FY 09/10 of Scenario 3. Mayor Nexsen asked why the people inside the IDD would not also get credit for the excess capacity that is built in, in terms of water availability, because the city has more water than it needs inside the IDD. He also noted that the city has already purchased water that allows for full growth inside the IDD as well as some growth outside the IDD, so since the city has already paid for the water, then why not have new growth pay a credit and bring the costs to an even keel. Ms. Walker explained that the methodology used is the “buy-in” approach, so when new people come to Lake Havasu City, they are buying into the existing water system, and the fee is based on the capacity as well as the assets, which is how the fee is calculated. She also said that the fee is not based on the projects that are planned for the future. She said that in essence, the existing users are getting credit because the new people coming in will help pay for the system that is already here today as well as funds to pay for future projects.

 

Mayor Nexsen said the new people are going to get the benefit of water that the city already owns, so if there was no such thing as outside the IDD, then the city would not be buying water today because there would be plenty of water, but since the city has this extended water service area, there would be an abundant allocation of water if the city did not grow at all. He said he is struggling with why the people outside the IDD should not have to give a credit to everyone inside the IDD for that excess capacity. He said all the people inside the IDD have already bought 27,000 acre-feet of water, and it is more than enough to cover everybody inside the IDD. Mr. Clark suggested that the 27,000 acre-feet of water actually represents about three components, and the last component was the 2,000 acre-feet of Cibola water that was recently purchased. He also noted that 25,000 acre-feet were finalized when the water service boundaries were expanded, and he thought there was another number prior to that. Dr. Doyle Wilson, Water Resources Coordinator, explained that the original amount of water that the city purchased was approximately 13,000 acre-feet, and that has been augmented through time as the water service area has expanded. He said that amount increased to 19,000 acre-feet, and then the Kingman grant added another 6,000 acre-feet, which totaled 25,180 acre-feet to cover the IDD and a good portion of the expanded water service area.

Councilmember Wedemeyer asked for clarification of whether the city pays for the water or the rights to the water. Dr. Wilson explained that the city’s contract covers up to an entitlement of 27,000 acre-feet, and the city does pay for it, but the cost is only $.25 per acre foot, so there is a nominal fee paid to the federal government every time the city asks for an annual allocation. He also clarified that the water allocation is set in the city’s contract and it is not “use-it or lose it,” because the water will eventually be used.

 

Dr. Doyle Wilson advised that the city currently has a water allocation of 27,319 acre-feet, and the city diverted approximately 17,000 acre-feet last year, and it does not get banked, but is used by the Central Arizona Project (CAP). Mr. Clark explained that Lake Havasu City has only paid money to acquire both the Kingman water and Cibola water, which are the only water rights the city has ever had to pay for. He said the other water rights were either given initially to the city or when the city was part of the reorganization of the service boundaries.

 

Councilmember Barlow asked the statutory requirements were to impose an impact fee. He thought the only way an impact fee could be implemented was if the fee was for future growth and future use of whatever the city was charging for. Ms. Whittle explained that once the projects are determined, then allocate what percentage of the project is due to growth, and then charge an impact fee for growth for those projects. She clarified that with the buy-in method, the calculations are based on what the city currently has. She said the impact fee is not based on what the city has now plus what it will own in the future. She said the impact fees will help fund those projects in the future, but the new customers are buying into a proportional ownership of what the city currently owns, and that cash will fund what the city intends to build in the future.

 

Mayor Nexsen said the current impact fee for water resource is currently $660 and is only applied to people outside the IDD, and that is to purchase future water, but what about the fact that the city has enough water for them already, then should they not pay the city back. Ms. Walker explained that as new people come into Lake Havasu City, the water resource fee is paying the cost of replenishing the water that was purchased in the past. Mayor Nexsen said the city has enough water for approximately 96,000 residents, and if the city grew to 85,000 residents, then the city would not need that water, although that would depend on consumption and drought. Mayor Nexsen said he just does not understand why there can be a fee outside the IDD to buy future water, but the city cannot get paid back for water that was already acquired on behalf of the new growth. Ms. Walker explained that the water resource fee that is being recommended is for the entire city and not just outside the IDD, and the new fee being considered for the plan-based approach does do that for the water resource fee.

 

Ms. Walker asked to address a few of the questions and concerns that were discussed. She said that according to the state statute, growth is to pay for growth-related projects or for the impact to services that growth has on a community, and it does not dictate the methodology used. She said that the methodologies used to calculate the impact fees that people should pay as a result of the impact of growth are: 1) the buy-in methodology, which probably would not collect as much money to pay for the new projects, and there is a balance; 2) the hybrid methodology, which is based on existing and new growth projects; or, 3) the plan-based approach, which has higher impact fees because it looks only at new growth projects in the future.

 

Ms. Walker explained that the formula for impact fees is to look at the cost of the water system, which is based on the assets in today’s dollars divided by the units to be served today and in the future. She said that also considered is the population over this time period, and not looking at the full population out, but instead looking at the 10-year window, which is how the city’s water system fee is calculated.

 

Ms. Whittle said that in this plan, the city is not looking at purchasing additional allocations of water, and what the water resources fee is being allocated to is the expansion of the treatment plant and development of new wells. She further stated that those two projects have a portion that goes to the water resources fee because water resources are being developed. She said the prior fee, which was based on the 2003 report, was only looking at purchasing additional water allocation because the city did not have the level that it has now, and that there are different components in this study than there were in the prior study.

 

Mayor Nexsen commented that when adding up all the numbers for the sewer and water, and extending the current police and fire services, the impact fee for inside the IDD would total approximately $11,000. Mayor Nexsen asked how the impact fee for a commercial operation fell into this equation. Ms. Walker replied that the fee was based on meter size, and as the demand on the system increases, so does the size of the meter, which would result in a higher impact fee.

 

Mayor Nexsen opened the public hearing.

 

Mr. Chuck Vaughn asked if the impact fees would be recalculated if the city received money from the stimulus plan, and how many water-related CIP projects were applied for in the stimulus project, to which Mr. Clark replied that not a significant amount of water-related projects were listed. Mr. Vaughn said there were a lot of residents on a fixed income such as Social Security, and he hoped that the city would try to keep the sewer and water rate increases to a minimum.

 

Mayor Nexsen closed the public hearing.

 

Councilmember Barlow asked if the population figures for Lake Havasu City had decreased, and he was told that the Lake Havasu School District reported that their student population has decreased by a few hundred, and Mr. Clark thought that most of the families averaged a few students, and for every couple of students, there might be a whole family that leaves the city. He said that the Department of Economic Security (DES) numbers that were delivered in December 2008 for July 2007 indicated that the official population for Lake Havasu City is approximately 55,000. He also noted that those numbers are based on housing units and not on occupancy.

 

Mr. Clark advised that last summer, the existing water treatment plant reached about 82 percent capacity, and it is not a case of needing to construct a water treatment plant because of a large amount of people moving to Lake Havasu City, but that the city needs to be able to meet the maximum peak need during the summer. He thinks that with the options provided, and from a system standpoint, the Public Works Department staff is very comfortable with continuing the IDD tax as a resource when it would be necessary for the sewer funding, as well as the impact fees, because they allow the rates to be as low as possible. He added that the old booster stations within the IDD are projects that have been identified, and when they are fixed or repaired, they will be upgraded to handle the water demands of build-out.

 

Councilmember Wedemeyer asked if builders were informed that it was possible that another impact fee was coming at some point in time. Mr. Kaffenberger replied that nothing was sent out specifically, but there have been several occasions where impact fees were discussed. Ms. Walker advised that part of the Arizona State Statute requires a Notice of Intent, which also gives 60 days for discussion before it even comes back to the council for a public hearing. She said that part of the process was to bring the study forward, put a copy of the study in the City Clerk’s Office, and then meet with the homebuilder community and discuss the study. She said she is still in the process of creating the study and financial plan, which will go into the study Notice of Intent, which is planned for the February 10, 2009, Council Meeting.

 

Councilmember Barnes felt that along with the building impact fee for commercial and residential, the sewer hook-up fee for current and future residents, and a sewer rate increase of 10 percent for three years which is about 34 percent compounded, there are also proposed water impact fees, water rate increases, and possible increased fees for service, and that about makes it impossible for the low income, fixed income, and jobless citizens in the community to deal with the situation. He said he does not feel this is the right time to do this.

 

Mayor Nexsen said that from a logical standpoint, he considers Scenario 5 to be the most fair, but with electric rates increasing by 25 percent, sewer rates increasing 34 percent over the next three years, and a small increase to the water rate because there has not been an increase in five years, the rates will increase 100 percent within 10 years, and the people just cannot afford it. He thought that if the city receives stimulus money or money from the Colorado River Sewer Coalition (CRRSCo) efforts, then that could decrease the sewer bill. He said the utilities need to be looked at as an overall impact, and there is a point where the people just cannot afford the costs. He felt that the people might be able to handle an increase of $3 per month, but to ask them to pay more could pose a hardship. He realizes that from a logical standpoint, the city must pay for these projects and pay for the replacements and repairs, but city funds are running out.

 

Councilmembers Barnes and Callahan agreed that there are a lot of people that are hurting right now, and city government, to a degree, needs to think about those people too. Councilmember Callahan said that the current utility rates are driving people away because they cannot afford to pay them. He suggested that the costs for CIP projects might have to come out of the General Fund, and if that is the case, then maybe that is what has to happen for just a certain period of time. Ms. Whittle advised that the General Fund has no money, so if there were an emergency such as a waterline break, the water would continue to run down the street because the city cannot fix it right away. She also mentioned that in order for the city to meet its financial obligations to WIFA, there must be a 12 percent increase, and if the city does not keep its financial commitment to WIFA, they will not give the city another loan, and that impacts the sewer system, as well as other loans that might be acquired for the water system. She advised that the council made a commitment that rates would be raised sufficient to meet those financial ratio criteria.

 

Councilmember Wedemeyer asked if there was another way to save money in terms of how the city delivers the water to the houses. Mr. Chuck Michalski, Water Division Manager, said that due to the elevations in the city, the cost for pumping water exceeds most communities of comparable size. He assured the council that when any of the booster stations have been rebuilt, he has tried to design the best and most efficient pump station as possible.

 

Ms. Whittle advised that the purpose of this meeting is to decide:

1.     Does the council want to charge impact fees or not. If the council wants to choose impact fees, then there are several scenarios to choose from, and if the council does not, then there are also several scenarios to choose from.

2.     Should the IDD tax continue in FY 13/14 and not be transferred to wastewater and be kept in the IDD.

3.    If there are no impact fees, then should the rates pay for everything that is needed?

 

Councilmember Barlow felt that it does not do any good to have an impact fee if nothing is going on, which is basically what is happening right now, and if the council decided to do an impact fee, then it would not have any impact because there is no building. He said that when he thinks of CIP, he thinks of some large project, such as the second bridge, but the Core/Essential system CIP 2008 projects on the list are more everyday items. Ms. Whittle explained that the top portion of the worksheet lists maintenance to the existing system, and then lists a few items that are growth related. Councilmember Barlow noted that if an impact fee is imposed, and it does not generate any money, the system will still have to be maintained. Ms. Whittle agreed and said the costs for these are covered by the rates. She also noted that the 12 percent increase will not pay for anything on the CIP list.

 

Councilmember Nyberg asked if there was a way to make the rate increases smaller by putting the CIP off for one year instead of three years, and Ms. Whittle replied that would only be shifting it over one year.

 

Mayor Nexsen asked how many citizens only used 1,300 ccfs or less, and Ms. Walker advised that 66 percent of the residential customers used that amount of water, and at that rate, they pay approximately $24 per month. Mayor Nexsen said that two-thirds of the citizens are obviously the lower water users. He suggested a solution where the city would charge a flat fee of $3 per person, which is similar to how Kingman charges its water users, and the fees are used for replacement of water lines, etc. He added that Lake Havasu City’s graduated rate structure does not promote any water conservation, and yet 66 percent of the citizens are using a conservative amount of water, so those people should be rewarded by only being charged a $.10 per day increase, which is $3 per month. He suggested that if the higher water users have to pay more, then maybe they will conserve more. Ms. Walker explained that what Mayor Nexsen was describing was the next step, which is the rate design, and that was why she tried to make the distinction between how much revenue increase the city needs in order to pay for the expenses versus the rate increases.

 

Mayor Nexsen said he has already decided that the impact fees are doing nothing for rates, so why have them, and instead of going 29 percent, 10 percent, 9 percent, and 9 percent, his solution will raise more than 12 percent, plus those who choose not to conserve and who use more water will pay a higher rate. He also said that he did not want Red Oak Consulting to come back with scenarios to choose from, but he would rather explore some other ways to get to a better answer.

 

Ms. Whittle asked for a consensus from the council whether or not to have impact fees, and if the council chooses no impact fees, then their scenarios are restricted to Scenarios 1, 2, 4, and 5. She said Scenarios 3 and 6 are out of the picture, and so they will not do any more on the financial plan with regard to impact fees, and that means that all revenue has to be generated by rates. Mayor Nexsen said that looking at Scenarios 5 and 6, Scenario 6 has an impact fee, but the amount being generated by rates is virtually the same, so forget impact fees, and continue to retain the IDD tax.

 

Mayor Nexsen commented that most of what is going to be done has nothing to do with growth – it has to be dealing with replacement of existing lines. Ms. Whittle noted that the most expensive project on the list, the water treatment expansion, does have to do with growth, because additional people coming into the city require that treatment capacity. She also noted that the city has water allocation capacity, but not treatment capacity for that entire allocation. Mayor Nexsen recognized that the treatment capacity is currently at 82 percent, but he felt confident that if the city starts charging more for the high water users, the available capacity of the treatment plant will be increased, and therefore, the expansion will not be necessary.

 

Councilmember Barnes suggested charging all water users $.15 per day as a fixed amount on the water bill. Ms. Whittle said that Red Oak Consulting will incorporate these suggestions into proposed alternative rate designs for consideration by the council. Ms. Whittle said it appears to be the consensus of the council not to go forward with impact fees, which means that the financial plan will be funded with rates. It was also suggested by the council that the impact fees would only apply to areas outside the IDD. Mayor Nexsen clarified that the impact fees currently in place inside the IDD pertain to police, fire, and general government, and so those would not change. He said the question is whether or not to add a water impact fee to the current fees in the IDD. He also explained that there is currently a water resource impact fee in place outside the IDD, and he is not suggesting that change either.

 

Councilmember Barnes noted that the city charges its customers for the cost of the water meter and its installation, plus the $660 impact fee.

 

Ms. Whittle clarified the council consensus:

1. Move forward with the $79 million plan.

2. Move forward with keeping the IDD tax inside the IDD at the end of the wastewater program.

 

She said that the council’s plan is basically Scenario 5, and Red Oak Consulting will design the rate structure to meet the council goals that have been expressed.

 

ADJOURN

The meeting adjourned at 5:41 p.m.

 

 

 

                                                                                                      ______________________________________

                                                                                                             Carla Simendich, City Clerk