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HomeMy WebLinkAboutTKDA Operational Info_CostofServiceStudy-June10-2016CITY OF LAKE ELMO, N C ST OF SERVICE ST Y FIR ATER, SA ITA Y SE E A D ST R TE FU DS 2016 REPORT JUNE 1 2016 PREPARED BY: 4,2 fMM. MN N5101 4,1NO tk da.com u-Ic''./r S,`—��p^v�o� June1O.2O16 KristinoHondt City Administrator Cathy Bendel Finance Director Lake Elmo City Hall 38OOLaverne Ave N. Lake Elmo, MN55042 Re: Cost ofService Study for City Utility Funds TKDAProject Nn.1O1O2.0D0 Dear Kristina and Cathy: TKDAispleased topresent the City ofLake Elmo with ecost ofservice study for the City'aUtility Funds to be part of an overall Financial Management Plan for said funds. TKDA was hired to analyze and present 10 year cost of service projection for the three utility funds. The analysis and report includes a cost analysis ofpast costs and oprojection foreach.mddedstaMing.andsomecapbo|inveotmentsh}r the existing system. Also included were a recommendation for a work order system, a change in some depreciation schedules, and arecommendation tnuse ehigher projected rateofinOationhzrthoutiUUeo rather than 2Y6. We appreciate the opportunity to provide service to the City of Lake Elmo. Sincerely, Bernie Bu|kart 3oniorVVabor88/aatewater Engineer Lake Elmo Cost of Service Study TKDAwas tasked with doing acost ofservice study for the water, sanitary sewer, and storm sewer utilities, The projected 10 year costs of operations will be used to project utility rates going forward for the next 10 year period with adjustments annually based on actual costs over time. A three year actual cost history was used, although the sanitary and storm systern are small and changing in size rapidly, therefore the cost history was not as relevant. This report highlights all the assumptions put into the model in order to bring the cost of operations forward over the next l0year period. The assumptions are asfollows: 1. a) Expenses are coded in two different ways, Supplies and other charges are directlycudedtothe appropriate utility fund. Labor charges are prorated by staff as the percentage of their time spent working uoeach utility and are subject to change. b) Some of the citywide overhead is not charged to the utilities but is paid through general tax revenue. These include city clerk time, city council costs, attorney costs, building costs, and equipment cost. This may be noticeable to the customers who have well and septic systems as they are funding some utility costs through the general tax revenue. c) in order to charge costs accurately, a work order system should be implemented and an overhead rate could bedetermined and charged asapercentage of the budget toeach utility inorder to reimburse the general tax revenue, d) Depreciation schedules looked appropriate except for water distribution pipe which was scheduled at 30 to 33 years. The normal industry practices depreciate water distribution pipe over 75 years. 2, a) The inflation rate generally used by Lake Elmo is 2%. It was not revised for this study. However, utilities usually experience inflation in the range of 3 to 3.5%. We would recommend the City use a higher inflation rate for this utility rate study. b) The water system growth in system miles over the next 10 years is projected at 5% per year. c) The sanitary system growth in system miles over the next 10 years is projected at 50% per year. d) The storm system growth in system miles over the next 10 years is projected at 7% per year. e) Maintenance costs are generally related to pipe length and volume but greater emphases is placed on the length of pipe. Therefore costs for a new system are expected to increase as the length of the new system expands. f) For purposes of future expenses, we used 5% for water plus inflation, 30% for sanitary plus inflation, and 7% for storm plus inflation. The sanitary number was reduced from 50% to 30% to maintain a more proper balance in the budget numbers for water and sanitary operational costs. 3� a) Staff does not code labor time or equipment time to jobs however, materials are charged directly to the correct utility. Amork order system will help correctly track all costs to the correct utility. b) Not all preventative maintenance on the utility systems is currently being done. For example, the hydrant flushing program is incomplete and there is no valve operating program on the water system. c) The utility staffing level of three staff members for 2016 is low when compared to other utilities and we have increased it to 3,5 for 2017. This should allow for additional preventative maintenance. d) Staffing added over the next 10 years is as follows: 1. Yz laborer added in 2017, .2FTE water, .2FTE sanitary, .1FTE storm 2. Yz laborer added in 2019, ,2FTE water, .2FTE sanitary, .1FTE storm 3. Yz laborer added in 2022, .2FTE water, .2FTE sanitary, .FTE storm 4. 'A laborer added in 2025, .2 FTE water, .2 FTE sanitary, .1FTE storm 5. Yz billing clerk added in 2018; 40% water, 25% sanitary, 35%© storm 6. Yz billing clerk added in 2022; 40% water, 25% sanitary, 35% storm 7. Yz billing clerk added in 2025; 40% water, 25% sanitary, 35% storm e) Another Yz FTE laborer should to be added to streets based on increased street miles. That is a suggestion but was not part of this study. A new billing system is needed and the efficiencies gained with a new system will affect the hiring of clerical staff. The billing clerk was re -proportioned for 2017 and going forward to the three utilities based on staff recommendations. Postage and software support were also re -proportioned to the three utilities based on staff experience. Based on a previous staffing study of east metro suburbs completed for White Bear Township by TKDA, the average staffing level for four similar cities was 13 staff in Public Works based on your 2025 projected population. The additions recommended here bring utility staffing to 12. It should be able to be slightly smaller as Lake Elmo's systems will be new relative to other suburbs. 4. Other operational expense adjustments were made as follows: a) $25,000 in meters was added for 2017 and 2018 to replace old water meters that should be replaced. The balance of water meter costs is for meters for new buildings and other maintenance replacements. b) Water purchased from Oakdale is discontinued from the projections as Lake Elmo will end the purchase in 2017. c) Software support was increased across the three utilities to implement a new billing system shown in the capital projects. d) Insurance costs were increased for the three utilities as they expand. This insurance would be purchased from the League of Cities. e) The Metropolitan Council Wastewater Treatment expenses are based on projected flows. The numbers were shifted two years because MCES uses actual flows from the last complete year to project their next year's bill. Therefore the 2017 charges are based on the 2015 flows. The new operating cost projections for the next 10 year period should be a reasonable estimate of costs. Each year after the annual accounting is complete, the costs should be compared to the projection and the next budget cycle adjusted accordingly to align with actual costs.