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BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT
Item No. 8.
For Meeting of: May 19, 2020
ITEM TITLE: Discussion of draft plan for utility bill relief in COVI D-19
emergency
SUBMITTED BY: Scott Schafer, Public Works Director
Steve Groom, Director of Finance & Budget
Ryan Bleek,Assistant City Attorney
SUMMARY EXPLANATION:
In response to Council's request for a draft plan for utility bill relief, please see the attached
documents along with the memo from the City of Yakima Legal Department included in the
confidential packet.
ITEM BUDGETED: No
STRATEGIC PRIORITY: Economic Development
APPROVED FOR SUBMITTAL BY THE CITY MANAGER
RECOMMENDATION:
ATTACHMENTS:
Description Upload Date Type
Memo from Pi nonce 5/1312020 Presentatic n
C erne from Public I c rks partment 5/13/2020 resentation
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TO: Honorable Mayor and Members of the City Council
Alex Meyerhoff, Interim City Manager
FROM: Steve Groom, Director of Finance and Budget
James Dean, Utility Services Division Manager
DATE: May 13, 2020
RE: Utility Fund Reserves and Utility Billing
To contribute to the question being asked by council whether fund balances can be used to pay
a month's bill for utility customers, this will provide the facts a city council member would want to
be briefed on in conjunction with Legal and Public Works information provided separately.
While the Finance Department, as the protector of the city's assets, urges City Council to exercise
caution in eroding Utility Fund reserves, we recognize that this is exactly the discretionary policy
issue that City Council is tasked with deciding and financial facts are needed. The following,while
technical in places, is provided as foundational for policy-level city council members to aid in
decision-making and our intent is truly to be helpful.
Fund Accounting. Governmental Fund Accounting, mandated by the Government Accounting
Standards Board (GASB), matches restricted revenues and expenditures. Some restrictions
accompany revenues, such as federal and state programs in which the city has a fiduciary duty
on behalf of specific funding requirements. The city has a responsibility to demonstrate legal
compliance in expending restricted funds for the purposes they are dedicated. Some restrictions
come from the governing authority of the city council itself embodied in the budget adoption
ordinance in the City's annual appropriated budget. In issuing debt, the city pledges revenue
which is then obligated in the repayment of that debt.
Funds. Generally, all funds except the General Fund are restricted. The City of Yakima
segregates the following Enterprise funds, keeping each separate: Airport, Stormwater, Transit,
Refuse, Wastewater, Water, and Irrigation. In addition, there are many funds, reported in the
City's audited annual financial report, for: Economic Development Fund for HUD grants,
Community Relations Fund for Cable TV franchise fees, Arterial Streets Fund for motor vehicle
taxes, Cemetery Fund for site sales, Emergency Services Fund for a voter-approved special tax
levy, Public Safety Communications Fund for dispatch contracts and telephone utility tax, Police
Grants for grant-specific revenues, Downtown Yakima Business Improvement District for
business assessments within the boundary, Trolley Fund for trolley grants, Tourist Promotion
Area for a dedicated $2/room night fee self-imposed by the lodging participants, two Public
Facilities Districts for the 0.25% and 0.33% sales tax credit for Convention Center and Capitol
Theatre. There exist debt service funds and capital expenditure funds which further account for
already-restricted revenues to provide for payments on long-term projects. There are separate
funds to account for city liabilities for unemployment, employee health benefits, risk management,
and vehicle replacement, and workers compensation.
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Enterprise Funds. By definition, Enterprise Funds are used to report activities for which a fee is
charged to external users for goods or services. Generally Accepted Accounting Principles
(GAAP) requires the use of an enterprise fund for any activity whose principal revenue sources
are either 1) debt backed solely by fees and charges, 2) a legal requirement to recover cost, or
3) a government's policy decision to recover cost. In recovering costs, both operating and capital
costs are forecasted in arriving at the fees to charge for the particular service so that they are
borne only by the recipients, the users, of the fund's service. The principle behind matching utility-
user revenues and expenses is that it would be unfair to charge non-users for part of the cost of
a service they didn't use. Also, Enterprise Funds are required to use full-accrual accounting,
unlike governmental funds like the General Fund, Parks and Streets. A new street is fully
expensed when the labor and materials are spent. Because an attempt is made to match rate
payers with the cost of services in the same year of service, full-accrual means that assets such
as treatment plants and distribution and collection systems are expensed by depreciating annually
over the life of each asset. This also means that "fund balance" does not represent actual cash
on hand, because some of the assets in a fund balance are composed of the value of tangible
assets (such as a treatment plant) and amounts that are owed to the City, but not yet received
("receivables"). In other words, though the fund balances show a positive amount, much of the
fund balance is not actually in cash, and the illiquid capital assets and receivables can't be "drawn
down," used or spent.
Fund Balances. Fund Balance is the difference, at a point in time, between the assets and
liabilities in a fund. It's the cumulative difference of all revenues and expenditures since the fund's
creation, and therefore the result of the cumulative budgeting and operating decisions and events
since the fund's creation. Because of seasonality, some funds have different inflows and outflows
during different times of the year. Due to the complex nature of a year-end closing, with accruals
that may only be done once a year in conjunction with the annual audit, with annual actuarial
reports and interfund transfer true-ups, annual reports are most reliable. Annual budgeting must
provide balanced budgets so only exceptions or deviations from budget would cause a change in
fund balance. As part of long-term budgeting, large future expenditures savings must be
anticipated and either paid through debt payments or savings or a combination of both. The
capacity for debt payments in each annual budget is limited so fund balances in anticipation of
large future expenditures must be considered.
Enterprise Fund Reserves. In the case of Enterprise Funds, large future capital projects or debt
issues must still be financed by the user fees that cover all present and future costs for the
restricted purposes of that fund and are considered in fee studies and rate decisions. For that
reason, working capital (current assets minus current liabilities) is better considered as reserves
and yet uncollected receivables must still be subtracted to arrive at what is truly currently
spendable.
The Quarterly Financial Report goes to City Council for review to assure the governing body that
the city's assets are being managed and protected and also as a progress report on the execution
of the adopted budget. The most recent report shows Enterprise Fund balances as follows:
p. 2 of 4 Memo-Council - Finance Utility Bill Relief 5-13-2020-final
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ENTERPRISE OPERATING FUNDS
2020 As of March 32th
Beginning 2020 2020 Ending
Fund Balance Actual Rev. Actual Exp. Balance
Airport Operating S 227,055 S 351,088 5 417,621 $ 160,522
Stormwater Operating 1,418,779 544,795 513,394 1,450,180
Transit Operating 5,269,065 1,815,303 1,825,907 5,258,461
Refuse 2,239,015 1,823,127 1,663,434 2,399,608
Wastewater Operating 4,596,230 5,826,598 3,946,749 6,476,079
Water Operating 2,220,102 2,226,908 1,932,364 2,494,646
Irrigation 721,032 533,951 658,586 596,397
Utility Services (381,561) 223,363 349,989 (507,987)
Total Enterprise Operating Funds S 16,310,617 S 13,345,333 $ 11,328,044 $ 18,327,906
Utility Fund Cash Flow. The Quarterly Accounts Receivable Report for City Council review is
also to assure the governing body that the city's assets are being managed and protected.
Specifically and most materially, the utility billing in that report reveals to what extent the City has
expended the costs of delivering services for Water Treatment and Distribution, Wastewater
Collection and Treatment, Refuse Collection and Disposal, and Irrigation Distribution. The
Finance Department's Utility Services Division bills individual users of each service, for
approximately 60-days (2 months) of usage after the service has been provided, and tracks
collection. This means that the City pays for the cost of the service and for 75 days or so is at
risk of not recovering the cost. The most recent 1st Quarterly Report shows that the amount
awaiting payment, the ending balance at the moment the quarter ended on March 31st, is $5.8
million in these four Enterprise Funds, of which $2.6 is overdue by 120 days (an accumulation of
several years since accounts aren't written off until 7 years have transpired). In other words,
though the total Enterprise Operating Funds balance shown above is $18,327,906, this includes
the $5.8 million that the City is owed, but hasn't actually received.
Quarterly Activity Status
Beginning Payments! Ending Current to Over Over
Entopiise Receivables Balance Silted Write-offs Balance 90 Days 90 Days 120 Days
Wastewater 5 2631,662 , +,095,62e $ 4,926,577 $ 2;503,711 $ 1,543,177 S 47.269 5 5303,265
Water 595.43E 2,091,950 1 S45,321 1,139,117 643.397 7,020 455,700
Refuse 4154,359 5335,050 15761533 1726370 555,339 23,645 546915
Inigatioit 4e1147 501,662 767,615 595.193 319,66£. 3,436 272,059
Total.Enteipric,e Receivables $ 5,15•3556 $ 5930,253 $ 5319,051 $ 5,764.391 $ 3,067,051 S 51,370 $ 2,615,970
A receivable is an asset, so can be misleading when looking at an enterprise fund with a large
positive fund balance. When paid, receivables become cash, reducing the receivable and
increasing cash. Since Fund Balance by definition is Assets minus Liabilities, this simply shows
that of the Fund Balance reported on the balance sheet, these receivables may contribute to the
Fund having a positive Fund Balance but aren't spendable or available for any purpose, since the
City hasn't yet actually received these funds.
p. 3 of 4 Memo-Council -Finance Utility Bill Relief 5-13-2020-final
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Utility Services Billing. The Finance Department's Utility Services Division bills customers for
Water,Wastewater, Irrigation and Refuse for the services provided to each customer. Not all city
addresses are served by City of Yakima Water because some are within the service are of Nob
Hill Water. Nob Hill Water does not benefit from and is not subject to the authority of City Council
actions. A regular billing cycle is for about 60 days, so there are six invoices per year and
approximately eight sectors of the city, one each week, are billed sequentially throughout the
month. Payment on account is due fifteen business days after bill date, at that point bill is
considered late. Seven days after bill due date a late/reminder notice which informs customer of
date service is eligible to be disconnected is generated and mailed. Seven days after the late
notice generates an automated reminder call is sent to the phone number on file for the account
letting the customer know payment has not been received as of the date of the call. Three days
after the first reminder call a second call notifying customer that service is scheduled to be
terminated on a specific date. Three days after the second reminder call an order to disconnect
service is produced.
Utility Services — Payment Arrangements. Customers are encouraged to call the Utility
Services Division when unique circumstances arise so that staff can make payment
arrangements. Payment arrangements are based on a review of account history i.e. amount in
arears, & past payment history. Standard procedure is half of past due amount is to be paid and
arrangements can be made on remaining balance. If payment arrangement extends beyond due
date of next billing the new/current charges of that bill must be paid in full on or before their due
date for pay arrangement to remain in effect. Utility bills can be made online, using the city's
website, automatic debit, mailed or put into one of two drop boxes (City Hall and the Harman
Center).
Utility Services — Rate-setting for a class of customers. Should Council choose to offer
reduced utility rates, staff would need policy direction on specific rates being reduced, the
beginning and ending dates of the rate reduction, and how Utility Services staff would verify
eligibility. Rates could be reduced for a set percentage or dollar amount for water, wastewater
and/or refuse. Eligibility would need to be specified so staff could document compliance in a
manner that could be documented for the annual independent audit by the State Auditor's Office.
Staff recommends a finite, or limited, time frame unless council wants to require both
documentation for loss of income and restoration of income. The timeframe selected would draw
down the utility reserves and, if done permanently, would require the remaining users of the utility
to bear the increased cost through rate increases.
Recommendation. Recognizing that Council is balancing its fiduciary role in safeguarding City
assets with deploying City assets to assist utility payers in need:
1. Only the portion of Fund Balances that are available may be drawn down, using the most-
recent full-accrual audited financials, which eliminates capital assets and receivables.
2. The projects that Public Works is planning should be considered and prioritized while
considering reducing revenue that funds utility capital projects.
3. Should council wish to consider identifying residents requiring assistance, staff would
require sufficient policy direction to identify the criteria staff would need to document relief
eligibility to be audit-ready post-implementation.
4. Council will also want to consider that some water customers inside the city are Nob Hill
Water customers.
5. Keep in mind that revenue is pledged for debt sufficient to meet payments.
6. Payment deferrals is another alternative council might consider. Staff recommends that,
since shutoffs are currently discontinued, watching the growing uncollectable balances
over the next 60 days may help quantify the upper limit of the amount being discussed.
p. 4 of 4 Memo-Council - Finance Utility Bill Relief 5-13-2020-final
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Memorandum
Date: May 8, 2020
To: Honorable Mayor, Members of City Council, and Interim City Manager
From: Scott Schafer, Public Works Director
Dave Brown, Assistant Public Works Director
Subject: Utility Enterprise Reserve Funds
It has long been a standing City policy to maintain operating reserve levels which are equivalent
to 60-days or 16.7% within the Water/Irrigation, Wastewater/Stormwater and Refuse Divisions.
The purpose for such reserves is to provide sufficient cash flow to meet daily financial needs
without disruption to customer service should a catastrophic event take place such as a water
main break, flood event or current pandemic. Reserves are to cover contingencies. Since each
of the Enterprise Divisions are heavily regulated at federal, state and local levels, such
disruption could have a significant negative impact on the health and safety of the community.
Utilities are to be run as a business with following objectives:
1. They are to be funded from charges for cost of service (rates), not taxes
2. They must be self-supporting
3. Established rates should be stable in meeting the utility's financial, operating and
regulatory requirements
As mentioned, each of the Utility Enterprise Divisions are closely regulated and must meet both
operational and capital needs to adhere to such regulations. Rates are based on anticipated
growth, repair/replace and system improvements often outlined within Facility and Capital
Improvement Plans that evaluate needs over periods of 5, 10 and 20-years.
Below is a summary of each of the Enterprise Divisions:
Water/Irrigation Division
History
Water:
The original City of Yakima water system was developed by the Pacific Power and Light
Company (PP&L) in the early 1900s. The City of Yakima purchased the system on July 1,
1926. At that time, the supply consisted of a diversion from the PP&L power canal.
In an effort to expand the water supply, the City purchased 343 acres of land at Oak Flats to
develop a source on the Naches River. A 14-mile, 24-inch wood stave transmission main was
constructed to transport the supply to twin concrete reservoirs with a combined 24-MG capacity.
Three shallow wells, including a Ranney collector were later developed in 1948 and 1950 to
supplement the Oak Flats supply. The first well developed was the Wright Avenue Well. (The
water right for the Wright well was later transferred to the Kissel Park well.) The second well
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developed was located near 1Sth Avenue and what io now Highway 12. This well was
abandoned in 1969 when this section of Highway 12 was expanded to four lanes.
Two deep wells were developed inl862 and l8G5to further supplement the Oak Flats supply.
The first of these was the Kiwanis Park Well (1962) and the second was the Airport Well (1965).
Both of these wells are in service today us backup sources ufsupply.
A water treatment plant near Rowe Hill on the Naches River and a 48-inch transmission pipeline
to the City were constructed during the period from 1969 to 1971 to replace the Oak Flats
supply.
|n10S3the Kissel Park Well was added tn the Citv'xsystem. This well ix also used for backup
purposes and tu help meet peak demands.
In 2005 the Ranney well was decommissioned; the water rights were transferred to the Kissel
Well and to the proposed Gardner Park Well. In 2011 the Gardner Park Well was placed in
service axa replacement for the Ranney and aoa backup source.
|n recent years, the City has not found it necessary to make any majorexpansions tn the water
system facilities, in part because uf the high level uf service that the system is already capable
of providing, and also because expansion of the City's water service area is limited by the
surrounding water association and municipal water purveyors. Potential for expansion is also
limited by the "place of use" conditions of the surface water rights.
The city has made provisions to meet water demand in the ever increasing and more frequent
droughts. This will be mitigated through the installation and use of Aquifer Storage and
Recovery. Water will be stored in the ground during the winter and recovered during the
summer in drought years.
Irrigation:
The City of Yakima was originally developed on irrigated farmland, with irrigation provided by
several private irrigation systems. Eventually, urban development replaced farmland. The
irrigation systems were left and suitably modified to irrigate lawns, gardens and small farms. To
date, the City of Yakima maintains two water delivery systems; one for potable water and one
for irrigation water. The City's irrigation Utility currently serves approximately 10,690 parcels,
totaling over 2,000 irrigated acres. The irrigation Utility in the City of Yakima is served partially
by City-owned water rights, and supplemented by water shares from seven canal companies.
These are Yakima-Tieton Irrigation District, Naches and Cowiche Canal Company, Yakima
Valley Canal Company, RS&C Irrigation Company, New Sohanno Ditch Company, BroadQauQe
Ditch Company and Old Union Ditch Company. Not all irrigation users within the City of Yakima
are served by the City's irrigation Utility. A number of users obtain water directly from the Canal
companies listed above, use city domestic water, have a private well, or are supplied from a
private irrigation system. The Cih/'s largest irrigation system, the General System, is the only
system where the City owns the water rights. For all other systems, the City purchases water
shares from the canal companies.
The irrigation system in the City of Yakima started in 1912 with the construction of the MaClaren
Street Water System, under a local improvement district (L|D). Since lUl2. there have been
approximately G7 LIDS developed and turned over to the City torun. Each district was operated
separately and operation and maintenance costs were assessed to the property owners with no
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allowance for capital improvements. Several of these systems have reached the end of their
useful lives. The City refers to these LIDS as systems, for example the MaClaren System.
In 1997 the City consolidated these individual LID's into a single utility.
Responsibility
Water
For the treatment and delivery of potable water of sufficient quantity and quality to meet
domestic, fire suppression, commercial, industrial and irrigation needs within the system's retail
service area. Treated to meet state and federal drinking water standards.
• Treat 8 to 21 million gallons of water per day from the Naches River and/or wells.
• 4 wells
• Aquifer Storage Recovery
• Approximately 18,900 services
Irrigation
For the operation and maintenance of the City-owned utility in supplying irrigation water to its
customers. Water is supplied through the Nelson Dam diversion, Fruitvale Canal (new Schanno
Ditch Company), Naches Cowiche Canal Association, Yakima Valley Canal, Yakima Tieton
Irrigation District and Old Union Ditch Company.
• 66 individual delivery systems
Budget
Water Budget = $10.97 million
Operating Reserves = $2.24 million
Capital Reserves = $5.97 million
Irrigation Budget = $1.93 million
Operating Reserves = $719,000
Capital Reserves = $5.57 million
The water usage among businesses such as restaurants and offices has decreased in the last
month due to COVID-19 but has increased with residents. In all, water usage seems to be fairly
consistent in comparison from previous years.
The following capital projects are scheduled to be conducted in 2020 with appropriate funding in
reserves:
Water
• $2.5M Modification to WTP intake
• $0.45M N. 1' Street Water Main (N to north)
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w $O225MFiubva|e Roundabout Water Main
w $O.lM Design for Viola and N4lIt Ave water main replacement
Tnbs� aApnnxinabe/v$3.275&Y
Irrigation
w $6M Not spending so adequate funds are available for the Nelson Dam Removal Project
VVaytemater/Stormnmater []iviyion
History
Sewerage for the City of Yakima was first provided in 1886. By 1891 most of the original central
business district was set up for the area's raw waste to be conveyed to the Yakima River. /n
1936, the primary treatment plant was constructed, providing treatment for 2 Million Gallons per
Day (MGD). Nearly all of the City's approximately 27,000 residents were connected to this
system.
In 1955 food processing wastewater (fruit and vegetable waste) was separated from domestic
mmstemmter treatment and sent tuulOU'aure spray field which still borders the plant unthe
south and east. Although the spray field eliminated a major source of organic loading to the
plant, deteriorating river water quality led the Washington State Pollution Control Commission to
direct the city to provide secondary treatment. /nl8G5` the city added secondary treatment by
building two 1 70-foot diameter trickling filters. The new secondary treatment facility was capable
of treating a flow of 15.4 MGD. In 1972, amendments to the Federal Water Pollution Control Act
required the City to re-evaluate the performance of its wastewater treatment facility. This
eventually led to further facility upgrades including the addition of an activated sludge system.
In 2009, the facility improved systems further by removing gas chlorination disinfection and
installing an ultra violet disinfection system. |n2Ol2' un anaerobic digester was installed tu
treat high-strength industrial waste. Upgrades, as described above, are helping to recover and
sustainably re-use resources, expand capacity, encourage business and industry, improve the
environment, reduce electricity costs and keep ratepayer costs down.
Responsibility
The Wastewater/Stormwater Division improves, operates and maintains the collection and
treatment of domestic and industrial waste and provides for stormwater drainage; protecting the
environment and public safety in compliance with federal, state and local regulatory
requirements while promoting economic development.
The City of Yakima Regional Wastewater Treatment Facility (WvVTF) serves a population of
94,000 people living within the City of Yakima as well as providing wholesale wastewater
treatment to the City of Union Gap, Terrace Heights Sewer District (including the City of Moxee)
and areas of Yakima County within the Cih/'s urban growth area. |n all, the VVVVTF serves a
population of approximately 115,000. Continued investment into the system is required to meet
anticipated growth, meet regulatory and permit requirements, capital repair/replacement of
VVVVTF. upQradeofpipeoapaoityvvhereneeded. andrepair/rep|aoennentofdeterioratedpipes.
Wastewater:
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• Treats approximately 3.9 billion gallons of wastewater per year (capacity is 22 MGD)
• The wastewater collection system consists of:
• over 350 miles of pipe, ranging in size from 6-inches to 48-inches in diameter
• 11 lift-stations
• 7,000 manholes
Stormwater:
• City's Municipal Separate Storm Sewer System (MS4) consists of City streets, catch
basins, curbs, gutters, ditches, manmade channels, underground injection controls (UIC)
systems and approximately 30 miles of legacy Yakima County drainage improvement
district (DID) pipes.
Budget
Wastewater Budget = $24.4 million
Operating Reserves = $4.92 million
Capital Reserves = $4.55 million
Stormwater Budget = $4.1 million
Operating Reserves = $1.42 million
Capital Reserves = $6.38 million
The following capital projects are scheduled to be conducted in 2020 with appropriate funding in
reserves:
Wastewater Treatment Plant
• $0.5M - Sharpies (back up centrifuge) improvements [DC-to-AC backdrive conversion,
new conveyors] —Working on scope
• $0.3M UV System Gate Replacements -Working on scope
• $0.4M Rudkin Lift-Station Controls Update —Working on scope
• $1 M Lagoon cleaning —Working on scope
• $2M Grit System Replacement
• $0.5M Yard Pump Station Renovation
• $0.4M Primary Treatment Improvements [primary clarifier drives, primary sludge pumps]
• $0.5M VWVTP Facility Plan — RH2 selected
Total: approximately$5.6M
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Wastewater Collections System
• $0.25M Collection System Master Plan Update — Underway w/Akel
• $1.0M Aging Infrastructure Replacements — Finishing up PSA Scope/first task design
with H LA
• $1.3M Fair Ave Phase A—Construction starting next week
• $1.0M Fair Ave Phase B— Design done; should bid in next couple of weeks
• $0.6M Collections Building Renovation —out to bid
• $0.4M Beech Street Corrosion Control —consultant preparing bid
Total: approximately$4.55M
Stormwater
• $1 M Streets/Intersection Flooding — scoping
• $1M DID Integration/Abandonment— scoping
• $1 M North 1st St Project Phase 2
• $0.3M Stream Flood Mitigation — scoping
• $0.3M Stormwater Master Plan Update — Underway with Akel
Total: approximately$3.6M
Refuse Division
Responsibility
To protect the public health and safety of all residents of the City of Yakima by providing quality
municipal solid waste services that are efficient, cost effective and environmentally responsible.
The Refuse Division is responsible for collection and disposal of all garbage, yard waste and
other debris for residential customers within the City's limits and from all City-owned facilities.
Budget
Refuse Budget = $7.86 million
Operating Reserves = $2.4 million
With the impact of COVID-19, the Refuse Division is experiencing a significant amount in
additional garbage from residents due to the Stay Home directive. The tonnage has increased
by approximately 9%. This has increased the cost by 7% consisting of the tipping fees at the
Yakima County landfill as well as fuel costs due to the additional trips needed to dispose of the
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extra garbage. This will be reflected in the coming months; the Refuse Division will need to
utilize some of its reserve balance.
Refuse
• 27,000 customers
• Annual tonnage is approximately 32,000 tons
• Approximately 80 service orders per day
• 14 daily routes
Reserves are intended to cover contingencies within both operational and capital funds;
representing approximately 20% of the total budget of each of the Enterprise Divisions. Over
$17.0 million in capital projects between the Wastewater/Stormwater Division and the
Water/Irrigation Division have already been scheduled and allocated to begin in 2020. It
becomes even more essential to have adequate reserves levels. COVID-19 is already affecting
the reserve level of our Refuse Division. Without proper reserves, equipment failure and/or
events can rapidly reduce or eliminate vital services to the community.