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HomeMy WebLinkAbout10-20-15 City Council Meeting Packet 3 of 3MAYOR AND COUNCIL COMMUNICATION DATE: 10/20/15 REGULAR ITEM: #15 AGENDA ITEM: WAC/SAC “Proforma” Projection Model SUBMITTED BY: Clark Schroeder THROUGH: Clark Schroeder REVIEWED BY: Clark Schroeder SUGGESTED ORDER OF BUSINESS: - Introduction of Item ................................................................................. Clark Schroeder - Report/Presentation ................................................................................. Clark Schroeder - Questions from Council to Staff ............................................................ Mayor Facilitates - Public Input, if Appropriate ................................................................... Mayor Facilitates - Call for Motion .............................................................................. Mayor & City Council - Discussion ..................................................................................... Mayor & City Council - Action on Motion .................................................................................. Mayor Facilitates PUBLIC POLICY STATEMENT: NONE BACKGROUND AND STAFF REPORT: At recent council meetings, there have been discussions surrounding the “profroma” projection model which is used to forecast future activity in the enterprise funds (water, sewer and storm water). There were questions related to the spread sheets presented at the meeting. In reviewing the spread sheets, when they were printed, one of the columns did not print (2014 actual activity). This resulted in the numbers printed not adding up to the total listed on the spread sheet. Another question was asked on why certain numbers were not exactly divisible by the set WAC fees per rec of $4,000. As a result of special prepaid water agreements with Lake Elmo Avenue land owners, some of which were not directly driven by a set number of Rec units, cause that math to not be exact. Changing any of the assumptions (# and timing of build outs; residential or commercial, etc) can impact the projected revenue by millions of dollars; up or down. The Pro-forma projection models are not new. They are long term projections which are done when there is any significant development activity planned. Models have been found dating back as far as 2004 and were updated in 2007, 2009, 2010 and 2011 by the Finance staff at that time. In 2012 it was decided to hire Northland Financial Services to do an independent model which they did do and present to the City Council on 10/2/12 (see attachment). All of the statistical information was compiled and provided to Northland services by the City Finance Department. In 2013, Northland services was again hired to update the model to determine if the fees being charged in the Utility funds were reasonable and consistent with other Cities. Their proposal was presented to the City Council on 2/28/13 (see attachment), suggesting the current utility fee structure which is in place today. (Changed the development fee structure from one $3,900 fee due at build out to a $4,000 fee of which a $3,000 water access fee is due by the developer at plat with the remaining $1,000 water connection fee being due at the time of the building permit.) In 2013, the Finance Committee decided that a new Proforma model should be developed which would look at each line of the proposed water loop (I94 vs Lake Elmo Avenue vs Old Village) to determine whether each line would fund itself. This model was built focusing on those lines and provided information specific to those lines. This model was presented to the City Council as a basis for deciding whether to approve the Lake Elmo Avenue water and sewer lines. At this meeting, the City Council decided that the independent lines were not relevant as it was all part of the larger water “loop”. The new model then became obsolete as it was set up by water line as a decision making tool for expansion and once the expansion was under way it needed to be revamped and streamlined. In 2015, the Finance Director built a new condensed version of the proforma projection model, utilizing key linked worksheets (CIP, Debt service etc) and adding in new components which were previously not incorporated into the model (special assessment collections, new prepaid water contracts with parties in the I94/Lake Elmo Avenue area etc). This model was first shared with the City Council on 2/5/15. It needs to be noted that the special assessments receivable changed significantly when the development activity increased due to the large 100% infrastructure assessment projects (Section 34 etc). This new model is the version being discussed today. Accounting Information/Clarification The enterprise funds are classified as “Business-Type” funds which are intended to be self-sufficient and not impacted by, nor funded by, the General Levy Funds (taxpayers). All activity in each of the enterprise funds (water, sewer and storm water) is audited each year by the City external auditors and is reported separately within the annual Comprehensive Annual Financial Report (reports available on the City website). However, if for some reason the Enterprise funds cannot cover their expenses, the bonds are backed by the City. The Enterprise activity is comprised of two distinct components; Infrastructure and Operations. Infrastructure fees (Water and Sewer Access fees) are charged to be used for the expense of building and maintaining the infrastructure. Operational fees (Water and Sewer Connection fees) are charged to be used for the operating expenses to provide the services to the users (staffing, water meters, etc). The challenge is in determining the level of infrastructure fees needed to be retained in reserve to cover the long term maintenance and replacement of the water and sewer infrastructure. The operating fund balance needs to be sufficient to cover the operating costs while not charging an unreasonable fee to the users. Now that the water system is being expanded and new users are coming on board, there should be some relief coming to the water rates (tiers) which were initially developed in response to the state water conservation initiative. Any decisions being made need to factor in this on- going water conservation initiative and penalties if water usage exceeds the mandated per capita water consumption levels. RECOMMENDATIONS: Move to a proforma software package to simplify the projections. Obtain a cost estimate to have an Engineer develop a system analysis of our infrastructure, looking at long term funding needs. ATTACHMENTS: 1. Northland Utility Infrastructure Plan presented to the City Council on 10/2/12 2. Northland Financial Management Plan for Enterprise Funds presented to the City Council on 2/28/13 3. 9/4/15 Proforma with all columns shown