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HomeMy WebLinkAbout05/19/2020 08 Draft Plan for Utility Bill Relief in COVID-19 Emergencey 't..an,gtntj ka d E$A aY 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 2 \ .1 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. 3 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 4 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 5 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 6 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 7 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 8 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) 9 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: 10 • 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 11 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 12 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.