Police Facility,
Tuesday, March 31, 2009, 5:00 p.m.
CALL TO ORDER
Mayor
PLEDGE OF
ALLEGIANCE
The mayor led in the Pledge of Allegiance
ROLL CALL
PRESENT: Councilmembers
CALL TO THE PUBLIC
There were no requests to address the
council.
PUBLIC HEARING: WATER RATE,
IMPACT, AND SERVICE FEE UPDATE
Finance
Director Gayle Whittle advised that the water rate, impact, and service fee
issue has been an ongoing project for a few years. She said the last water rate
study was completed in 2003, and the last water rate increase was implemented July
1, 2004. Ms. Whittle noted that the city has contracted with Red Oak
Consulting, who has brought the Community Investment Program (CIP) plan back to
council several times. The council has previously made determinations on impact
fees, and now this item for discussion is the rate portion of the study. She
noted that Red Oak Consulting presented a water rate plan in January 2009, and were
given direction by council to develop some revised scenarios for presentation at
a future council meeting.
Ms. Pat Walker,
Principal Consultant II, and Mr. Andrew Rheem, Senior Consultant, both from Red
Oak Consulting, were in attendance to present the revised scenarios. Ms. Walker
listed the specific objectives of the presentation:
§
Recap
January 27, 2009 presentation and confirm the council’s direction and what was
used for the rate structure analysis and cost of service.
§
Review
cost of service.
§
Discuss
and receive direction on rate structure.
§
Answer
any questions.
Ms. Walker recapped the January 27, 2009
presentation:
§
A financial
plan was presented.
§
Advised
the council that a 29 percent increase was needed and would be effective July
1, 2009, in order to meet the 20 percent reserve requirement, the 1.2 times
debt service coverage required by the Water Infrastructure Financial Authority
(WIFA), and to fund the CIP for core essential projects.
§
Council
decided not to adopt the water impact fees.
§
Maintain
the water resource fee applicable to development outside the Irrigation and
Drainage District (IDD).
§
Direct
Red Oak Consulting to consider in the rate structure a $3 increase to Single Family
Residential (SFR) using 13 cubic feet (Ccf) or less.
§
Build
a rate structure around “Scenario 5.”
Ms. Walker reviewed the structure of
Scenario 5:
§
Core/Essential CIP of $79 million and the rates it would take to fund it.
§
The current impact fees, which is just the water resource fee. (The current water resource fee of $660 is assessed outside
the IDD).
§
Continue IDD tax beginning in FY 2013-14 so it would remain in the water
fund instead of being transferred to the sewer fund.
§
Monthly bill increases from $23.74 today to $30.62 in FY 2009-10.
§
$69 million in bonds issued over a 10-year study period.
§
Revenue increases needed to meet cash reserve ratio and to minimize
issuance of non-growth capital- related debt.
§
Continued IDD tax helps to offset reliance on rate revenue in the plan’s later
years.
§
Plan meets revenue requirements and cash reserve ratio on an operations
and total-fund basis.
§
Funds capital improvements plan of $90 million, which is inflated over
the 10-year period.
Ms. Walker said that Red Oak Consulting
is developing the third step of a comprehensive rate study. The first step is
to look at the Master Plan and identify which projects are needed to serve not
only new growth, but also to provide for the repair, replacement, and
maintenance of the existing infrastructure. The second step is the financial
plan, where it is determined what type of revenue the city needs to fund not
only the capital costs, but also the operation and maintenance costs, along
with the other criteria such as reserves and debt service ratio coverage. The
third step will be discussed at this meeting, and is where the cost of service
is looked at to identify how much it costs to serve each of the classes to which
the city provides water. The fourth step determines the type of rate structure based
on who provides the most cost and how those costs will be recovered and
collected. The pricing objectives could have emphasis on conservation while
recognizing recognize the need for revenue stability, and how they would be
built into a rate structure.
Ms. Walker explained that cost for service is
a detailed allocation of system costs and it is based on unique characteristics
of customer classes, because not everyone uses water the same way. The first
step is to identify:
§
Revenue requirements (which have been completed).
§
Operation and maintenance budget.
§
Debt service.
§
Cash funded capital.
§
Reserves and debt service coverage ratios.
The next step
is to put those costs into functional categories and distribute in the
following manner:
Operation and
maintenance is distributed between treatment, production, transmission,
distribution, administrative, and meters and services for billing. Once it is
known where all the costs fall in the functional categories, then the amount of
water each of the classes is using is determined by calculating the average day
demand, maximum day, and maximum hour. She noted that a SFR uses more water in
the summer and peaks differently from the commercial customers. The next step
is to calculate the Ccf volume per unit cost to serve the SFR, commercial, and
multi-family. She said the cost is then broken down by base charge, or what is
termed fixed charge, which covers local distribution, meters and services, and
billing collection. The cost is then determined by meter size, so there is a
base charge and a volume charge. She said the graph below is the result of
these calculations and the cost for service per Ccf by customer class.
SFR = Single Family Residential MFR = Multi-Family Residential COMM/IND = Commercial / Industrial
IRR-OTH = Irrigation-Other IRR-SFR = Irrigation Only-Single Family Residential HYD = Hydrant RVP = RV Park
Ms. Walker
explained that this study indicates that whatever it costs the city to provide
the service, the city will need to recover those costs in revenue, which is
true cost of service, and everybody truly pays what their cost is for the
system. She mentioned that it does not always work out exactly that way because
sometimes policy decisions will have one category subsidizing another category.
She said that in summary, the users pay their proportionate cost of the system,
and rate equity can be achieved by allocation and rate design, and the rates
are based on standard approaches within the industry.
Ms. Walker
recapped the two components of the water rates:
§
Base Charge -
Intended to recover the fixed costs of providing service such as meter reading,
meter maintenance, customer service, and a portion of the cost for the local
distribution system. The fee is assessed on a monthly basis, and based on the meter
size.
§
Volume Rate -
Recovers all costs not recovered through the base charge for items such as
production, treatment, transmission, and a portion of the cost for the local distribution
system. The fee is assessed monthly based on metered water use. So the more
water used, the higher the cost, and higher amount that will be paid. Ms.
Walker said she refers to this as variable versus fixed costs.
She reviewed the current monthly water base charges for all customer
classes, and noted that everyone pays the same base fee based on meter size,
and is not broken out by different customer classes at this point:
|
Meter Size |
Base Fee per Month |
|
ľ-inch |
$ 4.50 |
|
1-inch |
6.50 |
|
1 ˝-inch |
9.50 |
|
2-inch |
12.50 |
|
3-inch |
39.50 |
|
4-inch |
50.50 |
|
6-inch |
76.50 |
|
8-inch |
104.50 |
Ms. Walker
said that today’s volume rate structure is four-tiered:
|
Volume Rate |
Tier |
Rate per Ccf (1) |
Percent of Tier 1 |
|
Tier 1 |
First 1,500
cubic ft |
$1.48 |
100% |
|
Tier 2 |
Next 1,500
cubic ft |
$1.62 |
109% |
|
Tier 3 |
Next 10,000
cubic ft |
$1.80 |
122% |
|
Tier 4 |
Over 13,000
cubic ft |
$1.96 |
132% |
|
(1) Inside
district rate. Outside district is 30% more than the inside district rates. |
|||
Ms. Walker said
this chart identifies the biggest demands on the city’s system and how the
rates are structured:
|
Customer Class |
Bills |
% of Total |
Use Ccf |
% of Total |
|
Single-Family |
299,873 |
87% |
3,504,611 |
65% |
|
Multi-Family |
16,029 |
5% |
465,893 |
9% |
|
Comm. / |
13,099 |
4% |
626,667 |
12% |
|
Other
Irrigation Only |
4,885 |
1% |
485,836 |
9% |
|
SFR
Irrigation Only |
11,201 |
3% |
238,307 |
4% |
|
RV Park |
48 |
0% |
25,839 |
0% |
|
Hydrant |
941 |
0% |
75,446 |
1% |
|
Total |
346,076 |
100% |
5,422,599 |
100% |
She said this
chart indicates that 87 percent of the bills are for SFR, but only 65 percent is
for usage, and it goes the opposite way when looking at the multi-family,
commercial-industrial, and other categories.
Mr. Rheem stated
that the rate design considered several items during the financial planning
process and arrived at the amount of revenue that would need to be generated in
a given year. It was determined that a 29 percent increase was needed in FY
09-10. He said that the exercise of using pricing objectives helps in creating
a structure that not only generates the revenue, and different alternatives all
generate the same amount of revenue, but it also identifies which objectives
are important to the design of the rate structure. Mr. Rheem said city staff’s
choices for the top five pricing objectives for designing a rate structure are:
1. Water conservation
2. Stable revenue stream
3. Cost of service equity
4. Administrative ease
5. Customer impact
He noted that
the objectives may not always be in line with each other, so there is a bit of
push and pull with these objectives. For example, the most stable revenue
stream would be a fixed fee per year, per account, but that may not necessarily
promote water conservation, and may not be very equitable. He said that conservation
rated very high in terms of pricing objectives.
Mr. Rheem defined
Alternatives 1 through 3:
§
Alternative 1 – The structure that is in place today with a 29 percent
increase. It is a way to generate an increase in water rate revenues, and is a
system-wide tiered structure.
§
Alternative 2 – Sends the strongest conservation message. It talks
about how much to increase the unit price per Ccf in the upper tiers compared
to the first tier. It has modified tiered pricing, modified tiered water
allocations by class, and separately develops the cost of service base charge.
§
Alternative 3 – This alternative has the same objectives as Alternative
2, but with weighted customer impact versus conservation pricing.
Mr. Rheem
showed a graph that builds on the previous graphic that showed the cost of
service by class, and said it indicates a comparison of the average costs per
Ccf to the cost of service; in other words, how much revenue is being recovered
as compared to the cost of providing the service.
He explained
that volume charge is another component in designing the rates, and is the cost
per unit that is assessed as customers use more water. The first alternative is
the same as it is today, where all customers’ first 1,500 cubic feet are at the
Tier 1 price. The second 1,500 cubic feet are at the Tier 2 price, the next
10,000 cubic feet are at the Tier 3 price, and anything above 13,000 cubic feet
is assessed at the Tier 4 price.
Mr. Rheem
said that one thing Red Oak Consulting did under Alternative 2 and 3 was to
look at different water allocations for the different customer classes, and it
was found that based on how the SFR class uses water, the first 1,300 cubic
feet is at the first tier, the next 1,200 cubic feet is at the second tier, the
next 2,500 cubic feet is at the third tier, and use over 5,000 cubic feet is
priced at the fourth tier. He said this combines looking at the equity in terms
of how customers use water as well as sending a stronger conservation message. He
said the multi-family residential (MFR) class had a lot wider and diverse use
due to the variation of meter sizes and a different way the water is used. As a
class, this structure captures a similar amount of water use in the different
tiers as compared to the SFR. The first tier of the MFR is at 2,600 cubic feet
and more than 200,000 cubic feet would be assessed in the fourth tier.
Mr. Rheem pointed
out a few other differences in this structure. The first difference is that
Tier 1 would be assessed only for SFR customers and not available to the
commercial and industrial customers. He explained that Tier 1 is actually a
sanitary indoor use tier and would not be part of the pricing structure for
irrigation-only accounts. He added that the hydrant customers are by far the
most expensive customers to serve, and a tiered rate structure could be
developed for that customer, because just by its nature, it is very
unpredictable, and therefore all use was priced at Tier 4.
Mr. Rheem
also pointed out that under Alternative 1, 29 percent across the board will
result in the highest Tier 1 price. On the surface, Alternative 1 has the same
relationship to Tiers 2, 3, and 4 as Tier 1 has. Comparing to Tier 1, Tier 2 is
9 percent higher, Tier 3 is 22 percent higher, and Tier 4 is 32 percent higher,
so combined with the monthly service charge and base increases, revenues will
increase by 29 percent.
He noted that
on the two other structures that Red Oak Consulting developed, Alternatives 2
and 3, and up to this point, the base on Alternatives 2, 3, and the water
allocations by class are exactly the same. He said this is where the difference
between these alternatives comes through, along with the relationship of Tiers
2, 3, and 4 to the base. Everything being equal, Alternative 2 is sending a
stronger conservation pricing signal by pricing Tiers 2, 3, and 4 of those
increasing amounts of use at higher levels. He also noted that everything else
being equal, the same amount of revenue is being recovered, so Tier 1 is a
little bit lower. He added that the relationships are not quite as steep in
Alternative 3. As a consequence, since the higher tiers are a little lower per
unit, the base, or Tier 1, is a little higher. This relationship will be seen
when looking at the impact in terms of the bills.
Mayor Nexsen
asked if Alternative 2 would create revenue instability. Mr. Rheems said it
would create the potential for revenue instability because more of the revenue
is being recovered at the higher levels, and if the customer is successful in
conserving water, then there is a variable revenue recovery.
Mr. Rheem
explained the impact or effect on the monthly bill for different types of
customers, and reviewed the monthly bill comparison for a SFR with varying
levels of water usage. He noted that 87 percent of the bills are from these
types of customers:
|
Single-Family Residential ľ-inch Meter |
|||||
|
|
Use – CF |
Current |
Alt 1 |
Alt 2 |
Alt 3 |
|
Low |
400 |
$10.42 |
$ 13.44 |
$ 12.51 |
$ 12.99 |
|
Medium |
1,300 |
23.74 |
30.62 |
26.91 |
28.47 |
|
High |
5,000 |
87.00 |
112.23 |
115.87 |
113.44 |
Mr. Rheem
noted that the typical customer who uses 1,300 cubic feet of water per month
would see an increase of 30 percent in Alternative 1, which is about $7. Due to
the rate design, the Alternative 2 increase is slightly lower at about $3.15,
and Alternative 3 has an increase of about $4.75, which is a slightly higher
increase than Alternative 2. He said the reason for that is because the
customer who uses 5,000 cubic feet per month would have a lower bill in
Alternative 3 as compared to Alternative 2 due to the conservation pricing. He
also said that in Alternative 1, even though it has higher bills for the lower
water-using customers, the higher water-using customer has the lowest bill, and
the lowest conservation pricing amount.
Mr. Rheem
explained that with the other customer classes, there is slightly more
variation in not only the types, but also in how they use water. He noted that
the vast majority of customers in
Mr. Rheem
said that in terms of the irrigation only customers in all classes and meter
sizes, the pricing of conservation begins to resolve in some higher bill
impacts. He noted that these are the most expensive types of customers to serve
because they put the highest peak demands on the system. So in pricing, the city
is not only sending a conservation message, but also recovering the cost of
service, and the impact to these customers is the highest. He explained that
the bill increases are based on the rates and proposed structure under
Alternatives 2 and 3 are going to be higher than Alternative 1 for those
customers. Alternative 1 just takes today’s rate and increases it by 29 percent
and Alternatives 2 and 3 sets the tiers by class, and tries to send that
conservation message.
Ms. Walker
said that she discussed cost comparisons at the last council meeting
presentation, and had an updated chart with new comparables for some of
|
Typical Water Residential Monthly Bill (Based on 13 Ccf monthly water usage) |
|
|
Entity |
Monthly Bill |
|
Kingman |
$23.32 |
|
|
24.72 |
|
Parker |
27.01 |
|
|
32.24 |
|
|
34.44 |
|
|
44.08 |
|
|
44.84 |
|
|
|
|
Average
without |
$30.97 |
|
|
|
|
|
$23.74 |
|
|
30.62 |
|
|
26.91 |
|
|
28.47 |
Ms. Walker
advised that no matter what alternative is chosen, all of the
The following
chart is a recap of how these different alternatives fit in with the pricing
objectives that were talked about earlier in the presentation.
|
Pricing Objectives |
Alt 1 |
Alt 2 |
Alt 3 |
|
Conservation |
3 |
1 |
2 |
|
Revenue
Stability |
1 |
3 |
2 |
|
Cost of
Service Equity |
2 |
3 |
1 |
|
Administrative
Ease |
2 |
3 |
3 |
|
Customer
Bill Impact – High Use |
1 |
3 |
2 |
|
Customer
Bill Impact – Low Use |
3 |
1 |
2 |
|
1 = Best Achieved 2 =
Middle 3 = Least Achieved |
|||
She said that
in Alternative 1, conservation is achieved the least amount because based on the
tier structures and costing, a customer is paying more at the lower levels than
at the higher levels, so there is not a very strong conservation message being
sent. Alternative 2 sends the best conservation message because the rates go
higher as more water is used, and Alternative 3 is somewhere in the middle. She
said revenue stability is best achieved in Alternative 1, but not in
Alternative 2 because of the instability of people not using as much water,
which is the balance that she talked about where conservation may not line up
with revenue stability. She said that Alternative 3 best achieves the cost of
service equity. Also, no matter which alternative is chosen, administration of
the program will be difficult at first, but once it is in the system, it should
not cause problems with any administrative procedures.
Ms. Walker
said she is looking for direction from council on which alternative they would
like to see brought forward at the April 14, Notice of Intent meeting, with
July 1, 2009 as the effective date for the rate increases. She was also looking
for direction from council on whether to adopt a one-year or three-year plan for
rate increases.
Councilmember
Wedemeyer thought that there should be some discussion regarding the homes that
are not being used and have their water turned off, because it still costs
money to get the infrastructure to the homes. Ms. Whittle said the problem is
that there is nobody to bill if there is no water service to a house. Ms.
Whittle said the county sends tax bills to the owner of record, but there is no
legislation that forces someone to agree to sign up for utility bills, and the
only procedure the city has in place is for collecting taxes. She added that
taxes are legislatively enacted and go with the property, whereas a utility
bill goes with a customer and not necessarily with the property.
Mayor Nexsen
opened the public hearing.
Mr. Chuck
Vaughn said he noticed that not only was there a proposed change to the tier
structure, but a price increase to the water rate was also added. He felt that
Red Oak Consulting gets a mandate from the city to do what the city tells them
in order to get the money, but with no consideration for the people who live in
this city. He said he heard Red Oak Consulting pushing for was 12,000 cubic
feet, which is a 20 percent drop in the amount of water to another 12,000 cubic
feet, which is a 40 percent drop in the amount of water, to 5,000, which is a
50 percent drop in the water. He said the tier structure was not only being
changed, but also adding a price increase to the water. He said it was bad
enough when the sewer rates increased, and people were taking fewer showers and
tearing their plants out to try to conserve water, and if the water rates
increase, things will just get worse. He said he can afford the increase, but
there are a lot of people in this community who cannot afford the rate
increase, and he hopes the council takes this into account. He said the mayor
stated that he wants to accelerate the sewer program and finish it in two years.
He said the city takes millions of dollars away from the CIP in the water
program to go to the sewer project to replace water lines from the main to the
meters. He asked if this takes into account that in two years the money will no
longer have to be put into the sewer project, because the project will be over.
Ms. Whittle advised that the savings has been accounted for. Mr. Clark also
noted that the city has to spend approximately $79 million on water projects
over the next 10 years. Mr. Vaughn asked what the city has for bond measures
for water at this time, and is just for the new water treatment facility. Mayor
Nexsen said the city only borrowed money to replace some water lines, and Ms.
Whittle advised that the city borrowed $5.7 million.
Mr. Ron Funk
said he met with Mayor Nexsen and Councilmember Callahan, and he wondered how
much of these increased fees are going toward the city’s water infrastructure.
He said he is a proponent of property taxes, and he wondered if infrastructure fees
were being put into the charge for the water that is going to be used, or was
the city was going to finance the $79 million to upgrade the water system. He
wondered if that would be in the fees, or would that be addressed as a property
tax. Mayor Nexsen said water use will be based on a user fee that will be recouped
$79 million over a 10-year period. Mr. Funk asked if the city could look at a
millage on a property tax, so the 8,200 empty lots that are not yet hooked up
to the sewer, yet are realizing a property value increase, would also be paying,
so the city could collect property tax revenue from everybody in Lake Havasu
City, including taxes collected on closing the 1,200 properties in trusteeship,
receivership, or in foreclosure, that have had everything turned off. Mr. Funk
said he did not have a problem paying for the increased water fees, but there
are people in this city who are having a problem paying the fees. He said he drives
around the city and sees what has happened to our city in the last ten years. This
used to be a city to be very proud of and to show friends that came to visit,
but now look at all the dead landscaping. People are not watering because they
cannot afford the ridiculous way the city is funding these projects. He said
the property taxes on his 1,900 square foot home in
Mayor Nexsen
closed the public hearing.
Ms. Whittle
advised that in January 1997, the citizens passed Proposition 200, which
mandates that any tax increase must go to a vote of the people; therefore, the council
cannot just enact a tax, and this is something the city has been living with
for a while. She said she received an opinion from the city attorney, and in
his response, he states that the IDD tax was at a higher rate in 1997 than it
is now, so the tax can be raised up to that level without violating Proposition
200. However, the IDD boundaries do not encompass the entire city limits, so if
the city were to raise the tax, it would not cover any properties outside the IDD
boundary that are on the city water system. She advised that the city is also constrained
on a few other requirements, and that rates and fees are the methods available
at this time.
Councilmember
Wedemeyer asked if there was anything to stop this citizen from starting an
initiative for a property tax so that everyone is contributing to the costs,
and Ms. Whittle said he is welcome to do that. Mr. Clark asked if the council
could consider a higher out-of-IDD rate that would compensate for that difference
related to the IDD tax inside the city limits, and Ms. Whittle responded that it
is already in the water rate. Mr. Clark suggested that it could be balanced if
the IDD tax was increased inside the IDD, and to make that an equivalent cost
on the outside of the IDD, the rate could be raised on the properties outside
the IDD, which would make it even. Mayor Nexsen said what if the IDD tax went
up, and to make up for that increase, there would be an impact fee outside the
IDD to make up for the IDD tax. Ms. Whittle recalled that council has already
had this discussion, and they were not willing to go forward with impact fees. Mayor
Nexsen thought that was because the council felt that the impact fees were
going to be inside the IDD. Ms. Whittle said the city attorney advised that it
would be very difficult to devise an impact fee structure, a rate structure,
and a tax structure that would meet the equitability requirements for
properties inside and outside the IDD.
Councilmember
Wedemeyer asked if the council adopted the rate increase right now, could the
citizens at a later point create some type of property tax that would be solely
used to reduce those fees. Ms. Whittle stated that the citizens can put forth
an initiative, and based on customer input, council could also decide to elect
to put the question on the ballot, but all those alternatives for elections
take time to implement. Mayor Nexsen noted that unless an election was part of
a regular consolidated election, it would cost the city another $80,000. Ms.
Walker asked to note that there is a state statute that requires how the city
spends its primary property tax versus its secondary property tax, which makes
it even more complex, because the city can use secondary property taxes only
for debt service, and there is also a maximum allowable levy.
Councilmember
Barnes said his concern is that 20 percent of the citizens are already just
down, and it concerns him that there are so many dead trees and vegetation around
in the city. He is also concerned because it seems like the city is increasing
everything, yet in this recession, there are a lot of people who cannot pay the
increased rates and fees. He said there are approximately 1,300 foreclosures in
the city and with more rate and fee increases, there will be 2,000 foreclosures
in the city. Mayor Nexsen does not think there is anybody here who is not
concerned, and he does not disagree that there are a lot of people who cannot
afford another increase, but having said that, they also cannot afford what
bankruptcy of the city would do to them. The city does not have enough money,
and it is a tough situation, but this council was elected to figure it out.
Councilmember
Wedemeyer also voiced his concern. He asked Ms. Whittle if she has ever
recommended increasing water rates since the last increase in 2004. Ms. Whittle
replied that she knew the Public Works Department had a Water Master Plan
project coming up, and fees cannot be set before figuring out what has to be
paid for. She said this process has taken a little longer than she originally
planned, but the steps are being followed, and now the Water Master Plan is done,
the needs have been identified, and the needs were pared down to the absolute
minimum, and then the rate and fee study was embarked on. She would have
recommended rate increases in 2005, 2006, 2007, and 2008, but according to the
state statute, there must be a report that justifies and explains how the proposed
rates and fees were calculated. She said without that background, she had no
report to give to the public or to the council that explained her rationale for
coming up with any fee increase. She added that this process has been a
work-in-progress for almost four years, and it is extremely unfortunate that
the bottom fell out of the economy eight months ago.
Councilmember
Barlow asked if other neighboring communities such as
Mayor Nexsen
asked if the $79 million in projects included the new water treatment facility.
Mr. Clark said the $79 million program includes about $27 million for the water
system, and it needs to be factored into the rate as part of the 10-year
program. He said a rate study will be conducted every four or five years, so
there is no need to make a huge rate increase over the next ten years. Mr.
Clark noted that $24 million cash was spent in 2004 for a water treatment
plant, but he thought the money should have been borrowed, and with the costs
spread over the next 20 years. Mayor Nexsen and Ms. Whittle agreed that it would
have been the wiser thing to do, because operating cash should not be used for
long-term assets.
Mr. Chuck Michalski,
Water Division Manager, reported that on peak days during the summer, the
existing water treatment plant reaches approximately 18 to 19 million gallons
of water per day, and the plant was designed for a capacity of 26 million
gallons per day. He advised that a second water treatment plant is necessary
for a community of this size, and he recommends building a second source of
water treatment rather than increasing the existing plant. Mayor Nexsen felt
that if the city adopted a high conservation alternative, then the time for
increasing the water capacity or adding a secondary source could be extended.
He added that if that were the case, then why is there a need to increase the
rates today for a water treatment plant that might be needed years in the
future. Mayor Nexsen thought he heard that it was preferable to borrow the
money and deal with it at that time than to pay cash for it, because what the
city is really doing is accumulating cash at the moment. Ms. Whittle replied
that this was a combination of accumulating cash and also issuing debt, and
these rates cover the debt service. She added that cash is not being
accumulated to pay for all these projects with cash. This is a plan that blends
cash for some things and debt for others. Ms. Walker also said that the 29
percent increase does not include the cost of expanding the water treatment
plant, although it is included in rate increases for the future.
Mayor Nexsen
said that if there is a proposed 29 percent increase on July 1, 2009, then what
is being proposed for Years 2010, 2011, and 2012. Ms. Walker advised that there
would be a 15 percent increase in FY 10-11, 10 percent in FY 11-12, and 9
percent in FY 12-13 and FY 13-14. She advised that the water rate in FY 18-19
will be $60.98 per month for 13 Ccf. She added that since the time of the out
year calculations, the city has had a shortfall in revenues, so based on
projections of usage, there is a shortage of approximately $500,000.
Mayor Nexsen
felt that Alternative 2 was the best alternative because it promotes the
highest conservation, it has the least fee impact for the lower water users,
and customers who use a high amount of water will pay higher fees.
Councilmember
McAtlin said he had a problem with Alternative 2 because it changes the level
for the minimum user from 1,500 to 1,300 cubic feet per month, and the next
tier changes from 1,500 to 1,200 cubic feet per month. His concern is that when
getting into the higher tiers, the water usage amount will be cut back, which
might lead to more conservation than anticipated. He suggested keeping the
minimum amount for the lower water user at the current rate of 1,500 cubic feet
per month. Ms. Whittle reported that the average consumption year round for a
SFR is 1,300 cubic feet per month, and that is why the amount changed. Councilmember
McAtlin suggested increasing the IDD tax to the original amount for inside the
IDD, establishing a rate for those outside the IDD, and combining those with
the proposed water rates.
Ms. Whittle
advised that all the proposed scenarios from Red Oak Consulting have been used
up, so if the council wants any significant change on a number of different
scenarios, then she will need to do a change notice to their contract, and they
will charge the city an additional fee.
Ms. Walker
noted that any discrimination factors associated with charging different costs
to different locations will need to be discussed.
Ms. Whittle
advised that for the boundaries of the IDD to be changed to the city limits, it
would require a vote of the people because that would authorize the existing
tax to encompass the city limits. Mr. Clark explained that historically, the
reason there was no discussion of expansion of the IDD boundaries as the city
limits grew, was because prior councils discussed sun setting the IDD system.
He added that if the council felt the IDD would be a resource to continue into
the future, then it might be worthwhile expanding the IDD boundaries to the
city limit boundary. Ms. Whittle added that the IDD tax is based on increments
of ˝-acre lots.
Councilmember
Nyberg noted that some of the surrounding communities have a much higher meter
installation fee, but they all have impact fees in place, and Lake Havasu City
does not. Ms. Whittle stated that
Mayor Nexsen
commented that the average SFR water user will see an increase of approximately
$7 per month in Alternative 1, yet the increase in Alternative 2 is
approximately $3 per month. Councilmember Wedemeyer said he was in support of
Alternative 2, but he did not support going beyond one year with these rates. Councilmember
Nyberg also agreed with choosing Alternative 2 for one year. Councilmember
Callahan also agreed with Alternative 2 because it is seems to be the best deal
for the more conservative water users. Councilmember Barlow agrees with
Alternative 2, but he also said some of the maintenance projects have been
delayed and it’s a losing proposition for the city if the required maintenance
falls behind.
Mr. Clark
thought that returning the IDD tax to what it was before would generate
approximately $3.4 million per year for the city, which could be explored as a
long-term solution to the CIP needs.
Councilmember
Barlow asked why the IDD tax was reduced. Ms. Whittle explained that was done
at the direction of a prior city councils, and the prior rate study actually
modeled that with the rates being increased, the tax being decreased, and
getting rid of the IDD. She noted that the only reason the IDD was kept in
place was because the IDD funds were a source of stable revenue to be used to
assist with the Wastewater System Expansion Program (WWSE). She also noted that
approximately $1.5 million was transferred every year from the IDD to the
Street Department to help with drainage issues, and that money is now going to
the WWSE instead of the Street Department because a portion of the WWSE project
is street replacement. She said that decision was made in FY 01-02 to use the
money that was going to the Highway User Revenue Fund (HURF) for the street
replacement project.
Councilmember
Wedemeyer asked if city staff could look at a possible expanded IDD or find
some other way to assess all property owners to determine how it might affect
or lower the fees even further. Ms. Whittle said city staff could explore that
after the budget is completed, but it will take a few months to do all the
research and consult with legal counsel.
Mayor Nexsen
asked how much money is raised in a single year with the 29 percent increase.
Ms. Walker replied that $3.1 million would be raised per year. Mayor Nexsen
commented that with the IDD tax back to where it was, a rate increase would not
be needed. Ms. Walker clarified that was just in today’s dollars, and to keep
in mind the other rate increases in the future.
Ms. Whittle
also commented that most of the projects listed on the CIP are within the IDD limits,
and most of the maintenance that needs to be done is to existing facilities
inside the IDD.
Mayor Nexsen said
the consensus he heard was to consider Alternative No. 2 and bring the IDD tax back
to its previous level in order to minimize the impact on rates. Councilmember
Barnes said he heard that once a tax rate was lowered, it could not be raised
again because that would be considered an increase. Ms. Whittle noted that the
legal opinion from the city attorney is that as long as the IDD tax is not raised
higher than the rate that was in effect when Proposition 200 was passed by the
voters. Councilmember McAtlin stated that he would like to explore expansion of
the IDD. It was the council’s consensus to explore expansion of the IDD and to
implement Alternative 2 for one year.
Councilmember
Barnes asked what the IDD tax rate was before it was lowered. Ms. Whittle
advised that in 1997, the IDD tax rate was $268.86 per acre, which equated to
$134.43 per half-acre, and the current IDD tax rate is $50.37 per half-acre. Councilmember
Wedemeyer said he was concerned that at some point in time, the IDD tax might
be allocated to fund some other project instead of keeping the fees down for
everyone. Ms. Whittle advised that according to the IDD Charter, any tax or
fees collected must be used for irrigation and drainage purposes only.
Following a
discussion regarding rates, fees, and IDD taxes for properties inside and
outside the IDD, Ms. Whittle asked if the council wanted to hold another work
session to discuss the alternatives, and if so, there would not be enough time
to implement a rate increase effective July 1, 2009. Ms. Whittle explained that
a report with all the alternatives must be ready by the council meeting on
April 14, 2009, for presentation to the public, which would only allow three or
four days for the report to be completed, and she feels that is not possible.
She also said that the report must be ready 30 days before calling for the public
hearing. The public hearing is set for May 26, 2009, so there would not be
enough time to call for a public hearing if the report is not presented until
the April 28, 2009 council meeting.
Mayor Nexsen
suggested that the council approve a three-month increase through September 30,
2009, which would give Red Oak Consulting enough additional time to complete
the second scenario for the IDD tax. Ms. Whittle said it would be extremely
difficult for Customer Service to explain that to the customers. She
recommended that if the council wants this plan modeled out, she will submit a
change notice to Red Oak Consulting’s contract so they can come for an
additional council meeting, and any decision will be delayed until August 1,
2009. She also advised that the council could hold a special meeting in April
to discuss this.
Mayor Nexsen
asked if the IDD tax could possibly be phased in over a three-year period. Ms.
Whittle said that those alternatives could also be calculated.
Councilmember
Callahan asked when the IDD tax funds would come into play. Ms. Whittle replied
that the levy would be enacted in July 2009, with all the other tax levies. The
county would send out those bills as part of the tax bill in October 2009, and
the city would begin collecting the taxes beginning in October 2009 through the
next fiscal year. Councilmember Callahan asked if that timeframe would be
sufficient to cover the city’s needs. Ms. Whittle said a revenue source needs
to be in the city’s budget, so she is asking for council direction whether to
have fee increases or tax increases. Mayor Nexsen commented that cash flow from
an increased IDD tax would be preferable to monthly water rate fees collected
monthly. With the IDD tax, the city will receive a substantial amount of tax
revenue in October and November 2009 and then a smaller tax revenue amount in
May. Councilmember Nyberg noted that any IDD tax paid can be deducted from the
federal income tax.
Ms. Whittle
said that she will present a cost proposal from Red Oak Consulting at the April
14, 2009 Council Meeting, for a cost increase to their contract with the city.
Mayor Nexsen
confirmed that discussion regarding the increase in water rates would be
delayed to August 1, 2009, in order to allow enough time to develop other
scenarios. Ms. Whittle said that she could set another time line and schedule
for alternatives and set another work session. Mayor Nexsen felt there should
be one more work session to discuss the new alternatives, and he encouraged the
councilmembers to talk to people in the community to get their sense of what
they feel is most fair. Ms. Whittle said the final report could be prepared
based on the alternative that the council chooses, and then begin the public
hearing process and develop a schedule of those time lines at the next meeting.
Mayor Nexsen
said that even if a lot of the rate increases were eliminated, he would still
want the rate spread that promotes conservation. Councilmember Barnes thought
there would still be a whole lot more dead vegetation. Mayor Nexsen did not
think that would happen with the IDD tax, and he needs to know if the people
would rather have something that everybody has to pay, even vacant lot owners,
which helps with the water rates and is deductable, or pay through user fees.
Mr. Didion
said he wanted to see if there was any staying power with going forward with
the 29 percent increase now, but only for the one-year period, and recognizing
the timing issues and variables that need to be addressed. He commented that
there would be an additional cost for the six-month delay that would need to be
made up. Mayor Nexsen clarified that the delay would only be from July 1, 2009
to August 1, 2009. Mr. Didion wondered if the council might also want to look
at Alternative 2 for a one-year period. Ms. Whittle said Alternate 2 will still
be included as one of the options to bring back as part of further options
along with the new scenarios. Mayor Nexsen felt that it depended on whether the
residents wanted to raise the IDD tax or pay the user fees. Councilmember
Wedemeyer said that before the next work session, he would like to have
something to show the people when gathering their feedback. Mayor Nexsen
clarified that he was suggesting a more conceptual question of whether the
people would rather pay a property tax or user fee.
Mayor Nexsen
confirmed that everyone had a general consensus of how to go forward and
everyone has a sense of what the council is asking.
ADJOURN
The meeting
adjourned at 7:12 p.m.
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