HomeMy WebLinkAboutAgenda Packets - 1983/03/19WORK SESSION AGENDA
Saturday, March 19,
8:00 a.m.
I 198.3 Water &
Sewer System Maintenance and Capital Improvement
Program
A.
Introduction -
Don Pauley
B. Water System - John Johnson
1, History and Condition of System
2, System Maintenance and Capital Improvement Needs
3, Cost to Fulfill System Maintenance and Capital Improve-
ment Needs
C. Sewer System - John Johnson
1, History and Condition of System
2, System Maintenance and Capital Improvement Needs
3. Cost to Fulfill System Maintenance and Capital Improve-
ment Needs
ivo' D. Enterprise (Water and Sewer)
Funds - Don Brager
1, Financial Condition of Enterprise Funds
2, Financial Needs of. Funds to Meet Operational, Maintenance and Capital Improvement Requirements
E. Wrap -Up
Reference Material: (
suggest bringing to work session; copies
are available if needed)
1982 Infiltration and Inflow Study by TKDA
1978 Water Systems Study by CED
1981 City of Mounds View Financial Statements
COO
WATER SYSTEM MAINTENANCE NEEDS
Background ata
Initial system improvements were made in 1961 and 1962 with the construction of
well Nos. 1 and 2 „ treatment plant No. 1 and tower No. 1. Tower No. 2 located in
the southeast part of town was constructed in 1968. versified, Inc. Report) summarizes
Table W-1 (taken from 1978 Consulting Engineers Di
the specific data on the existing City wells. It should be noted that well No. 4
was utilized intermittently in 1977 and has been out of service since due to high
iron and odor problems.
Well Number
Date completed
Initial construction
depth (feet)
Type of well
Pump type
TABLE W-1
WELL DATA
1 2 3 4 5 6
1/1961 8/1962
855 835
Rock Rock
1/1970 7/1970
337 835
Rock Rock
4/1970 4/1970
340 850
Rock Rock
Vertical Vertical Vertical Vertical Vertical VerticalTurbineTurbineTurbineTurbineTurbineTurbine
Current pumping rate (gpm) 1000 1000 1000 1000 1000 1000
Date of last service
1977 1971 1981 1976 1982 1983
3Well drilled into Jordan Sandstone but provided with screen and gravel pack.
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painted
scheduled for filter inspection and cleaning
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The system has app
locating various system components.
Water Production Trends
Figure 1 illustrates the historical water prodbased on 1) the 21 year historical daiuctionbytheCityofMoundsView.
Three projected consumption trends are shown,
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Maintenance Program
The water system has 4 main components; 1) wells, 2) treatment plants, 3) storage
tanks and 4) distribution system. The design life of the various components range
from 10 to 15 years for a pump or motor to 30 to 40 years for watermains and storage
tanks.
Studies by the American Society of Civil Engineers, the Water Pollution ControlFederation, the Water Research Center and the Transport and Road Research Laboratory
of the United Kingdom have shown that early identification, correction and salvage
of existing structures results in long term cost savings. It has been shown
deterioration of a utility system escalates rapidly if left unchecked by regular
inspection and maintenance. Studies have shown that planned maintenance will
sifnificantly reduce annual maintenance costs when compared to emergency repair, cost
when a major component fails.
Using as an example the 1982 service and repair costs for well No. 5, the following
conclusions can be drawn:
a) If the pump and motor had been serviced 5 to 7 years after initialconstruction, the repair costs could have been as low as $5,100.
b) Actual costs for repairs affected after 11 years of use were $8,339.
c) Possible net savings $3,239.
d) If a 21 to 22 year life cycle is assumed, then per item (a) above, the total repair costs would be $15,300 (service every 7 years or 3
l times in 21 years).
e) If a 21 to 22 year life cycle is assumed, then per item (b) above, thetotalrepaircostwouldbe $16,680 (service every 11 years or 2 times
in 22 years).
f) Net life cycle cost savings of $1,380.
The recommended maintenance schedule for the water system components is as follows
see figure 4):
1) Wells - service and inspect one well per year or each well once every
7 years. (This anticipates that a new well will be constructed in the
northeast part of Mounds View.)
2) Treatment Plants - inspect and clean filters every 3 years or one plant
per year. Filter tanks should be cleaned and painted once every 12 to 14
years.
3) Storage Tanks - inspect and clean tanks every 3 years or 1 tank per year.
Storage tanks should be painted and/or repaired once every 12.to 14 years.
I
4) Distribution System - forty hydrants should be serviced per year. This
would allow all hydrants to be serviced once every 10 years. Ten valves
should be serviced or replaced per year. Six hundred lineal feet per
year of watermain should be repaired and/or cleaned using chemical treat-
ments or inserting mechanical devices in watermain.
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TABLE W-2
MAJOR MAINTENANCE SCHEDULE
Frequency
of Service Estimated Annualized
Unit Service Description in Years Service Cost Service Cost
Well No. 1 Motor and Pump Service 7 16,000 2,290
Meter Service 7 800 115
Well No. 2 Overhead Motor 7 5,000 715
Pump Service 7 16,700 2,390
Meter Service 7 800 115
Well No. 3 Motor and Pump Service 7 15,000 2,145
Meter Service 7 500 70
Well No. 4 Inspect Well, Pump & Motor 7 5,600 800
Well No. 5 Motor and Pump Service 7 8,500 1,215
Meter Service 7 500 70
Well No. 6 Motor and Pump Service 7 16,000 2,290
Meter Service 7 500 70
Treatment Plant 1 Filter Service 7 500 170
Compressor/Atometer 3 600 200
Paint Tanks and Pipes 14 15,000 1,070
Treatment Plant 2 Filter Service 3 200 70
Compressor/Atometer 3 300 100
Paint Tanks and Pipes 14 15,000 1,070
Treatment Plant 3 Filter Service 3 </ 200 70
Compressor/Atometer 3 ' 300 100
Paint Tanks and Pipes 14 J i 15,000 1,070
Tower 1 Clean and Inspect 3 2,100 700
Clean and Repair 14 25,000 1,790
Tower 2 Clean and Inspect 3 2,100 700
Clean and Repair 14 25,000 1,790
Ground Reservior Clean and Inspect 3 5,100 1,700
Repair Tank 14 30,000 2,140
Repair Roof 14 20,000 1,425
Repair Brick Veneer 7 4,900 700
Hydrants Clean, Repair & Replace 7 42,000 6,000
Gate Valves Repair and Replace 7 28,000 4,000
Watermain Clean and Repair 7 35,000 5,000
TOTAL 42,500
7
Based on 1983 dollars, the above maintenance program is estimated to cost $42,500
per year. It is anticipated that after the first seven year cycle that repair
f and service cost would decrease because most of the previously deferred maintenance
will have been addressed. (See Table W-2, Major Maintenance Schedule.)
System Improvements
Studies currently underway have or will conclude that certain system improvements
are necessary to provide desireable water quality. Necessary and desireable improve-
ments during the 1983 to 1989 time frame are as follows:
1. New Treatment Equipment at Plant Nos. 1, 2 and 3 $135,000
2. New Atometer at Treatment Plant No. 1 6,000
3. Update Pump Motor Controls (7 Motors) 84,000
4. Modify Compressor Controls at Treatment Plant No. 1 1,000
5. Convert Well No. 2 Motor to Electricity or Propane 5,000
6. Install Treatment Equipment at Well No. 4 20,000
7. Repair of Ground Reservior 55,000
f
8. Water Treatment Studies 17,200
9. Thorough Inspection of Well No. 4 5,600
TOTAL $328,800
Conclusions
The system improvements listed above are only probable cost estimates. Final design
plans and specifications will allow preparations of more exact cost estimates.
Hopefully, final design plans will reduce the estimated costs. Table W-3 summar-
izes the proposed seven year maintenance and improvement program costs.
The 1981 Mounds View Financial statement listed the value of water fund property,
plant and equipment as $3,784,043.00 based on original cost. It is conservatively
estimated that replacement at 1983 dollars of only the pipe, valves, hydrants,
treatment plants, wells and storage tanks would cost at least $8,100,000.00.
TABLE W-3
WATER SYSTEM MAINTENANCE AND IMPROVEMENT SCHEDULE
1984 TOTAL 74,000 $114,700 $188,700
Annual System Net Total
Fiscal
Year Description Maintenance Improvements For Year
1983 Well No. 6 Service iq8 ' $ 16,500
Treatment Plant No. 2 Service 500
Treatment Plant No. 3 Service 500
Regasket Well No. 2 Motor doAr qe'( 700
Hydrant, Valve and Main Service 15,000
Treatment Plant No. 1 Compressor - 600
Service
Modify Treatment Plant No. 1 " ' 6,000
Atometer
Update Well No. Motor Controls 12,000
Modify Treatment Plant No. 1 1,000
Compressor Controls
Water Treatment Study - Treatment 14,500
Plant Nos. 1, 2, 3 and Well No. 3
New Treatment Equipment - Treatment 40,000
Plant Nos. 2 and 3 d°^,',"
1983
y
TOTAL $ 33,000 73,500 $107,300
1984 Well No. 2 Service d."q $
16,800
Overhaul Well No. 2 Motor 5,000
Tower No. 2 Service J°' 32,100
Clean and Inspect Ground Reservior°^ 5,100
Hydrant, Valve and Main Service 15,000
Update Well No. 3 Motor Controls 12,000
New Treatment Equipment Well No. 3 20,000
Aeration (if needed)
Well No. 4 Treatment Study 2,700
Convert Well No. 2 Motor bN 5,000
1984 TOTAL 74,000 $114,700 $188,700
TABLE W-3 (cont.)
10
Annual System Net Total
Fiscal Maintenance Improvements For Year
l1 Year Description
1985 Hydrant, Valve & Main Service 15,000
Tower No. 1 Clean & Inspect 2,100
Install Treatment Equipment
20,000
Well No. 4
Update Ground Reservoir
24,000
Motor Controls
Repair Ground Reservoir°^t q 3it 55,000
Treatment Plant No. 1 Service 1,100
Inspect Well No. 4 Pump & Motor 5,600
18,200 104,600 122,800
1985 TOTAL
1986 Well No. 1 Service 16,800
Tower No. 2 Clean & Inspect 2,100
Treatment Plant No. 2 Inspect 15,500
Paint
Hydrant, Valve & Main Service 15,000
t` Update Well No. 4 Motor Controls 12,000
49,400 12,000 61,400
1986 TOTAL
1987 Hydrant, Valve & Main Service 15,000
Treatment Plant No. 3 Service 15,500
Paint
Update Well No. 6 Motor Controls 12,000
30,500 12,000 42,500
1987 TOTAL
I 1988 Well No. 3 Service 15,500
Hydrant, Valve & Main Service 15,000
Clean & Inspect Ground Reservoir 5,100
Tower No. 1 Clean & Inspect 2,100
Treatment Plant No. 1 Service 1,100
38,800 38,800
1988 TOTAL
10
TABLE W-3 (cont.)
C Fiscal
Annual System Net Total
Year Description
Maintenance improvements For Year
1989 Well No. 5 Service $ 9,000
Hydrant, Valve & Main Service 15,000
Tower No. 2 Service 2,100
Treatment Plant No. 2 Service 500
Update Well No. 5 Motor Controls $
12,000
1989 TOTAL $
26,600 $ 12,000 $ 38,600
GRAND TOTAL 7 YEAR CYCLE $271,300 $328,800 $600,100
11
consulting
engineers
diversified
inc. =F=--0
Jmorth
Legend
6 Inch Pipe
8 Inch Pipe
40 Inch Pipe
12 Inch Pipe
14 Inch Pipe
16 Inch Pipe
Water Tower
90 -Reservoir &
Booster Station
Well
N Well &Treatment
Plant
SANITARY SEWER SYSTEM MAINTENANCE NEEDS
Background Data
The existing sanitary sewer system of three (3) main elements 1) the collection
systemof 6 -inch to 36 -inch diameter pipe -- Pipe materials are vitrified clay
VCP), reinforced concrete (RCP), polyvinyl chloride (PVCP) and cast iron (CIP);
2) lift stations -- four (4) of which are owned and maintained by the City and
one which is owned and maintained by Metropolitan Waste Control Commission; and
3) MWCC 66 -inch diameter interceptor. The sanitary sewer varies in depth from 6
to 25 feet with the typical sewer being 9 to 12 feet deep.
The majority of the system and three of the four lift stations were constructed
in 1964 and 1965. Approximately 60 to 70 percent of the system was constructed
prior to 1968.
The collection system has been divided into nine drainage subareas. (See attached
map.) Table S-1 summarizes the makeup of the subareas and system. The collection
system contains approximately 14,650 lineal feet of sanitary sewer in two trailer
parks. These pipes are private lines thus leaving a net system length of 215,685
feet.
Condition of System
In 1982 an Infiltration and Inflow (I/I) Analysis was conducted by TKDA. The study
concluded, that based on E.P.A. criteria, no "excessive" (over 3,000 gpd/inch-mile)
I/I existed within the system. The study did note a few subareas that had moderate
I/I values. The I/I observations were based on flow recorders, calculated infiltra-
tion rates and limited field inspections. Table S-2 ranks the infiltration rates
based on flow recorder data.
TABLE S-2
Table S-3 lists those
Infiltration Rates Based on Low Flow Data
I/I based on limited
1. Subarea 4, 5 & 6 Temp MH 2) 1510 gpd/inch - mile
2. Subarea 4, 5, 6 & 8 M-203) 1445 gpd/inch - mile
3. Subarea 7 & 9 M-202) 1300 gpd/inch mile
4. Subarea 1 & 2 Tem MH1) 1270 gpd/inch mile
Table S-3 lists those portions of the system which were identified as having
moderate I/I based on limited field inspections.
1
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TABLE S-3
Infiltration Based on Limited Filed Inspection
Ranking
Location
Subarea Manhole No
I/I Rate
pd/inch-mile)
Length
of Pipe
1 7 8-671W 2685 3,000
2 5 5-7555 1760 8,740 (Trailer
4,125 Park)
3 4 4-250E 1490 5,560
4 3 3-323NW 1440 1,080
5 9 9-577E 1420 7,920
6 4 4-20ON 1410 5,840
7 8 8-671N 1210 21,390
8 9 9-577N 1160 6,090
9 2 2-88S 1110 1,360
10 6 6-444E 1020 5,910 (er
2,270 Park)
Since acquisition of the jet rodder by the City an annual log of sanitary sewer
cleaning has been kept. Two types of activities are noted:
1) routine cleaning
2) cleaning resulting from complaints due to blockage
The areas which have required repeated servicing due to blockage complaints are as
follows:
1) Pinewood Drive, east of Quincy (11 times in 4 years)
2) Terrace Drive, east of Jackson
3 Raymond Avenue, south of Bronson (2 times in 4 years)
4) Clifton Drive, north of County Road H-2
5) Rainbow Lane, north of County Road H (2 times in 4 years)
6) Red Oak Drive, north of Sherwood (2 times in 4 years)
7) Quincy Street, north of County Road I
M
Inspection and Maintenance Programs
Review of the I/I study data, sewer cleaning records and consultation with sewermaintenancepersonnelconcludedthatamaintenanceplanwhichwouldresultina
thorough inspection and maintenance of the entire collection system once in 10
years would be reasonable. It was further suggested that initially a 5 -year plan
be established and target areas be reevaluated on an annual basis.
The recommended inspection and maintenance program is as follows:
1) Televise 10 percent or 21,600 lineal feet each year looking for
root and leak problems.
2) Conduct a detailed physical survey of 85 manholes per year.
3) Re -televise approximately 2.0 percent or 4,400 lineal feet in second
year as follow-up to work done in previous years.
4) Treat 1.5 percent or 2,800 lineal feet for root control.
5) Grout 200 joints and 12 manholes per year.
Since the I/I study concluded that the trailer park areas may be contributing
significant amount of I/I flow it is recommended that a special flow monitoringprogrambesetuptosubstantiateapossiblesurchargetocovertheextracosts due
to "excessive" I/I. This would require 4 to 8 temporary flow monitors be set during
April thru July time frame to document flows.
The estimated costs for the inspection and maintenance program is as follows:
1) Televise 26,000 lineal feet
2) Physical survey of 85 manholes
3) Flow monitor rental
4) Root control treatment
5) Pipe joint & manhole grouting
9,100
3,400
1,100
1,500
7,800
TOTAL $ 22,900
System Improvements
The three (3) major lift stations in the City's system are nearly 20 years old. Therefore, it is anticipated that in the next five (5) years at least three (3) or
four (4) of the six (6) motors and/or pumps will need replacement. In 1982 one of
the smaller pumps and motors was replaced at an equipment cost of $3,800.
Lift station No. 4 on the east end of Woodale Drive (behind Edgewood Community
Center) has been averaging a new pump and motor every 12 to 18 months at a cost of
1,000 to $1,500. It is staff's goal to phase out lift station No. 4 at the time
4
Herbst Construction subdivides their property.
Lift station control panel service is starting to increase due to age of equipment
1 and the corrosive environment. It is anticipated that at leat one if not two of
l the control panels will need major service in the next five (5) years.
The recommended system/equipment annual budget needs are summarized as follows:
1) Lift station pump and motor repair $ 7,000
2) Control panel repair
3,200
TOTAL $ 10,200
Conclusions
It is recommended that $33,100 ($22,900 for inspection and maintenace and $10,200
for system improvements) be budgeted on an annual basis to develop an adequate
inspection, maintenance and system improvement program.
As the City begins to implement the proposed inspection and maintenace program, it
is anticipated that efficiences may result in cost reductions. A more concerted
inspection and maintenace program has been shown by others to extend the life of
major system compenents. It has further been shown that a planned maintenance program
reduces life cycle costs of the system over that of a "crisis" maintenance program.
The 1981 Mounds View Financial statement listed the value of sewer fund property,
959,345.00 based on original cost. It is conservativelyplantandequipmentas $4estimatedthatreplacement at 1983 dollars of only the pipe, manholes and lift
stations would cost at least $5,500.00.
5
TO: Mayor & Council
FROM: Finance Director -Treasurer Brager
DATE: March 19, 1983
RE: 1983 WATER & SEWER SYSTEM MAINTENANCE &
CAPITAL IMPROVEMENT PROGRAM
I. Financial Condition of Enterprise Funds
The Water Fund in the last several years has, on a cash basis,
generated sufficient revenues from sales to pay for current operat-
ing expenses. The Water Fund has also seen an increase in cash and
investments. This has largely been due to unusually high interest
rates. Unfortunately it appears now that the Fund will no longer be
able to benefit as much from investment income. Current interest
rates on our investments are now between 7-8o compared to 14-160
during the early summer of 1982. The Fund, however, does have
sufficient cash on hand for working capital.
The Sewer Fund, on a cash basis, in 1981 did not generate
sufficient cash from Sewer Use Fees to pay for current operating
expenses. A 1981 transfer of $61,076 to the Fund from Revenue
Sharing still did not allow the Fund to break even on a cash basis.
1981 Sewer Use Fees $371,655.00
1981 Current Expenses 442,964.00
1981 Loss from Operations ($ 71,309.00)
1981 Transfer from Revenue
Sharing Fund 61,076.00
1981 Loss ($ 10,233.00)
In 1982 Sewer Use Fees did exceed current operating expenses
by $5,403 on a cash basis. The Fund does not have sufficient cash
on hand for working capital. In June 1982 the Fund had a cash deficit
of $33,804. As a result, interest on investments of the Fund have
been small in comparison to the Water Fund.
I have previously stated that the Water Fund has sufficient
cash on hand for working capital and that the Sewer Fund does not.
Working capital is only one of several reasons for a Utility Fund
to maintain a certain level of cash on hand. I shall comment on these
individually and then try to assign some dollar values to them andillustratewhatadesiredlevelofcashonhandforboththeWater
Fund and the Sewer Fund may be. One of the main reasons for main-
taining cash on hand is to provide cash for operating expenses of
the Water Fund and the Sewer Fund (working capital).
This is
March 19, 1983
Page 2
necessary to provide funds for expenses which must be made before
we receive revenues. Utility bills are sent to our customers on a
quarterly basis and the payments are received over a period of
approximately one month to one and one-half months. We must have
some cash to meet payrolls and to provide for payment of other
expenses which are made on a regular basis. A desirable amount of
cash on hand for operating expenses would be approximately one
quarter of the annual expenses of the Water Fund and also the Sewer
Fund.
A second important factor to be considered is what financial
analysts call "cushion". This is the amount that is considered
necessary to replace possible revenue shortfalls and/or to provide
funds for unexpected expenditures which may occur in the coming
year. Possible revenue shortfalls could include higher than normal
delinquencies with respect to payment of utility bills, non payment
of a bill by a large customer or several large customers, lower than
expected revenues from user fees. Lower than expected user fees is
more likely to occur in the Water Fund than in the Sewer Fund. This
could arise from a wet year in which less lawn watering was done or
any number of factors which would cause a sharp decrease in water
consumption.
Some unexpected expenditures could be caused which would be
due to natural disasters, costs higher than expected because of
inflation, higher than anticipated wage and salary settlements, high-
er than expected utility costs, public safety costs which could be
incurred through contamination of the water source, unanticipated
mechanical failure of a piece of major equipment.
It is important to have a revenue "cushion" because budgeted
expenditures must be funded from anticipated revenues. It is not
always possible to adjust budgeted expenditures rapidly. This may
be because of contractual obligations, union contracts, or other
factors. A revenue "cushion" would allow some time to adjust to an
unexpected revenue shortfall. It is desirable to have on hand approxi-
mately one quarter's revenue in the event of possible revenue short-
fall.
An expenditure "cushion" should be maintained to provide for
unexpected expenditures. Previous discussions have centered around
a maintenance fund and an amount of $80,000 for both the Water and
Sewer Funds have been suggested.
Also in inflationary times such as these it is wise to have
a contingency for fluctuations in the current operating budget.
These could provide for greater than expected costs, such as, utility
rate increases by the gas, electric or telephone utility companies,
or unexpected increases by the Metropolitan Waste Control Commission
MWCC). A desirable level to provide for an operating contingency is
100 of the operating budget of the fund.
I
March 19, 1983
Page 3
other factors to be taken into consideration as to levels
of funds to keep on hand involve specific planned future expenditures.
This would be the setting aside of funds for a major capital ex-
penditure which is either unusual or which is non-recurring. In
such a case the City may wish to save funds gradually over a period
of years rather than to sell bonds at the time the expenditure is
made. This practice would result in substantial savings on interest
costs if this approach is adopted and the Council could budget an
amount each year for the capital expenditure.
Another factor to consider involves bonding and bond ratings.
When a bond is issued the bond agreements normally require that
adequate funds be maintained for protection of bond holders. In the
case of Utility Funds if revenue bonds are sold it is sometimes re-
quired that retained earnings be restricted in a specific amount
until the bond issue is paid off. Also the amount of fund balance
or cash on hand plays an important part in the bond rating process.
Normally the better the rating the less the interest costs. Over a
typical bond issue the savings from lower interest costs as a result
of a good bond rating can be quite substantial. While rating agencies
do not publish any specific guide lines on fund balance levels be-
cause it is just one of many rating factors they do look at the trends
of fund balances, a positive factor in rating is a history of the
fund balance increasing as opposed to the fund balance decreasing.
Bond rating analysts also stress the importance of maintaining a
cushion" in fund balances. This is important because it would min-
imize possible short term borrowing. The absence of short term bor-
rowing is a positive factor in a bond rating.
The exhibits attached show the recommended levels of cash for
the Water Fund and the Sewer Fund. It should be noted that the Water
Fund has a balance of $427,364 after immediate cash needs have been
meet and the Sewer Fund falls short of meeting its immediate cash
needs by $342,571. Planned future expenditures for replacement of
Water and Sewer Fund physical plant, mains, and equipment have not
been taken into consideration. A discussion of that is beyond the
scope of this report. However, I would like to illustrate part of
the problem we may face in the future. The 1981 Financial Statements
Statement 22) indicate that the Water Utility has $3,784,043 of
property, plant, and equipment and that the Sewer Fund has $4,959,345
of property, plant, and equipment. The values of the property, plant,
and equipment are stated at cost. Replacement cost would be substan-
tially more. Replacement of existing property, plant;. and equipment
is another reason to maintain cash balances. Some cash is available
in the Water Fund for this purpose. The Sewer Fund has no cash avail-
able for this purpose.
The 1981 Financial Statements indicate that $1,343,335 of
depreciation expense has been taken for Water Fund property, plant
and equipment and $1,408,774 has been taken for Sewer Fund property,
plant, and equipment. I have often been asked: "Since depreciation
expense is not an actual expenditure of cash, why don't the Water and
Sewer Funds have that cash on hand?" The answer is that the cash will
March 19, 1983
Page 4
only be realized if revenues (water sales & sewer use fees) are of
an amount sufficient to pay current expenses and to pay depreciatio
expenses. In the past utility revenues have not always been suffic
to pay depreciation expense.
t
My understanding is that, in the past, revenues have not been
sufficient to pay depreciation expense because of past policy re-
garding the financing of the replacement of plant and equipment. Much of the physical plant of the utilities was originally financed
by special assessments against benefitted properties. Past policy
has been that replacement of those items would also be financed from
special assessments at the time of replacement. Following that
rationale, depreciation expense on those assets was not taken into con-
sideration when past rates were set. That depreciation is identified
in the financial statements as Depreciation On Assets Acquired From
Contributions. Assets financed from sources other than special
assessments are identified as Depreciation On Assets Acquired With
Own Funds. It wasn't until the last few years that depreciation on
assets acquired with own funds was taken into consideration when
rates were established. For these reasons cash on hand does not equal
the amount of depreciation expense that has been taken.
Staff recommends that the present cash balances of the Water
Fund and the Sewer Fund be maintained at current levels. While I
have previously discussed their cash balances separately they must
also be considered as a whole. The Water Fund has sufficient cash
on hand for working capital but the Sewer Fund does not. The cash
balance of the Water Fund after working capital needs are taken into
account is, in effect, providing the working capital for the Sewer
Fund. Additionally the cash on hand should be maintained and even
increased so that at a future date when both funds have sufficient
cash for working capital the money could be used to finance replace-
ment of plant and equipment rather than having to borrow for this
purpose. A further reason is to enable the Water Fund to continue
to realize the benefit of Investment Earnings.
II. Financial Needs of Funds to Meet Operational, Maintenance &
Capital Improvement Requirements.
Operational Needs - Water Fund
The ideal situation for an enterprise fund is that current
sales should be sufficient to cover the costs of current operations,
current maintenance needs, and depreciation expense on assets ac-
quired from contributions and acquired with own funds. Investment
Income would be used to help offset the difference between the re-
placement cost of assets and the amount of cash set aside from
depreciation expense (depreciation expense is based upon actual cost
of the asset). Amounts used for operations, contingency, and de-
preciation on assets acquired with own funds, are from the previously
adopted 1983 Interim Water Budget. Depreciation On Assets Acquired
With Contributions is based upon audited depreciation schedules.
Maintenance is per the Public Works Director's recommendations.
March 19, 1983
Page 5
As can be seen from the exhibit labeled Water Fund - Ideal
Situation this would require a water rate of $1.03/ 1,000 gallons
of water sold. For numerous reasons a rate of $1.03/ 1,000 gallons
is not realistic and is, therefore, not recommended.
The 1983 Water Fund Interim Budget is contained in an attached
exhibit. The Budget is in total dollars and in the form of the amount
per 1,000 gallons of water sold. It should be noted that the present
rate of $0.55 per 1,000 gallons of water sold does not generate
enough revenue to meet current operating expenses of $0.6763. The
additional $0.1263 that is needed is being financed primarily from
Investment Income ($0.1303). The present water rate of $0.55 per
1,000 gallons has been in effect since January 1, 1980. A review
of the 1982 Water Fund Budget and the 1983 Interim Water Fund Budget
shows that Investment Income has subsidized water rates. Staff re-
commends that Investment Income not be used to subsidize water rates
and that water rates be at a level sufficient to ensure that water
sales generate enough revenue to cover the costs of operations,
depreciation on assets acquired with own funds, and contingency.
Investment Income is an unpredictable source of revenue and
fluctuates greatly as interest rates move up and down. When 1983
estimated Water Fund revenues were prepared last summer interest
rates were between 12% - 16%. At that time I conservatively estimated
Investment Income for 1983 at $70,000 based upon an average interest
rate of 10%. At the present time interest rates are between 7% - 8%.
I have, therefore, revised my estimate of 1983 Investment Income to
49,000 based on an average interest rate of 7%. This is a reduction
of $21,000 from the previous estimate.
An exhibit labeled Investment Income - Water Fund illustrates
how Investment Income can vary greatly depending on interest rates.
Due to the unpredictability of interest rates and the subsequent
unpredictability of Investment Income, staff recommends that Invest-
ment Income not be a consideration in setting utility rates.
Staff recommends that water rates be set at a level sufficient
to ensure that current sales revenues would cover the costs of Current
operations, Depreciation on Assets Acquired With Own Funds and
Contingency. The exhibit entitled Water Fund - Rate Needed for Sales
to Equal Current Expenses illustrates that a water rate of $0.70 per
1,000 gallons would be required.
Maintenance & Capital improvement Requirements- Water Fund
Public Work's Director Johnson has proposed a maintenance
program based upon seven year and fourteen year maintenance cycles.
The annual cost of this maintenance program is $42,500. Additionally
various system improvements were proposed. The earlier years of this
schedule contain "catch up" maintenance projects and the later years
have "normal" maintenance. Staff recommends an annual maintenance
allowance of $42,500 be funded for the seven and fourteen year main-
tenance cycles. In the earlier years this allowance would be entirely
used for maintenance projects. In the later years after the "catch up'
1
March 19, 1983
C
Page 6
maintenance is performed not all of it would be used. The unused
portion would be accumulated so that enough cash would be on hand
to perform larger maintenance projects without borrowing to finance
them.
During the period 1983--1985 it is estimated by Public Works
Director Johnson that new treatment plant equipment at Treatment
Plants 2 & 3 at a cost of $40,000 will be needed, new treatment
equipment at Well 3 at a cost of $75,000 will be needed, and Ground
Reservoir repairs costing $55,000 will be needed. Staff recommends
that these items be financed through an interfund loan from the
Special Capital Projects Fund to be repaid at 8% interest per annum
for ten years. Interest of 8% is recommended to replace the lost
Investment Income of the Capital Projects Fund over the term of the
loan. Principal and interest on the loan would be $23,458 per year
or $.0623 per 1,000 gallons of water sold. (See exhibit entitled
Water Fund - Maintenance and Improvement Needs.)
Staff recommends the balance of the maintenance and improvement
needs for the period 1983 - 85 be financed from cash on hand in the
Water Systems Contributions Fund. The cash balance of the Fund at
December 31, 1982 was $84,602. Should the cash from the Water Systems
Fund not prove sufficient, staff recommends the balance be funded
from the Water Fund's cash on hand. This is recommended in order to
preserve the cash on hand in the Water Fund. The exhibit entitled
Investment Income - Water Fund shows the effect a reduction of the
Water Fund's cash on hand has on Investment Income and what a water
rate would have to be to earn an equal amount of cash. At an interest
rate of 7% each reduction of the Water Fund's cash by $100,000 would
result in a loss of Investment Income of $7,000. An additional rate
of $.0160 would be necessary to earn an equivalent amount of cash.
Staff recommends the Water Fund cash on hand be maintained to benefit
from Investment Income as well as for reasons previously mentioned.
To provide an annual maintenance allowance of $42,500 would
require a water rate of $0.1130 per 1,000 gallons of water sold. A
rate of $0.0623 per 1,000 gallons of water sold would be required to
repay the interfund loan recommended. A combined rate of $0.1753
per 1,000 gallons would be required for both these items.
Staff recommends that non -sales revenues be used to finance
the annual maintenance allowance and repayment of the loan from the
Capital Projects Fund. Non -sales revenues are equal to $0.1731. The
remainder ($0.0022) would be paid from net income.
Staff proposes that 1983 water rates be set at $0.70 per 1,000
gallons and that the 1983 Water Fund Budget be adopted as presented
in the exhibit labeled Water Fund - 1983 Proposed Income Statement.
March 19, 1983
Page 7
rational Needs - Sewer Fund
The ideal situation for an Enterprise Fund is that current
sales should be sufficient to cover the costs of current operations,
current maintenance needs and depreciation expense on assets acquired
from contributions and acquired with own funds. The exhibit entitled
Sewer Fund - Ideal Situation outlines these costs and the required
sewer rate per REC to generate the necessary revenues. Amounts used
for operations & contingency are from the previously adopted 1983
Interim Sewer Budget. Depreciation on Assets Acquired from Contri-
butions is based upon audited depreciation schedules. Maintenance
is per the Public Works Director's recommendation rounded to the
nearest nickel per REC. Based upon these figures a sewer rate of
34.26 per REC per quarter would be required. For various reasons
a rate of $34.26 per REC per quarter is not realistic and is, there-
fore, not recommended.
The 1983 Sewer Budget proposed during last fall's budget
process is contained in an attached exhibit. It should be noted
that the rate proposed per REC of $27.75 would not generate enough
revenue to meet current operating expenses of $27.9677. The addi-
tional $0.2177 necessary to pay for current operations financed from
non -sales revenues.
Staff recommends that sewer rates be set at a level sufficient
to ensure that revenues from Sewer Use Fees cover the costs of current
operations, depreciation on assets acquired with own funds, and
contingency. The exhibit entitled Sewer Fund - Rate Needed To Equal
Current Expenses illustrates that a rate of $28.00 per REC per quarter
would Be required.
Maintenance Needs - Sewer Fund
Public Works Director Johnson has recommended an inspection,
maintenance and system improvement program that has an annual cost of
approximately $33,100. A rate of $1.75 per REC per quarter would be
required to finance that program. Staff recommends that the rate per
REC per quarter be increased $1.75 to finance the recommended mainten-
ance program.
Staff further proposes that 1983 Sewer Use Fees be set at
29.75 per REC per quarter and that the 1983 Sewer Fund Budget be
adopted as proposed in the exhibit labeled Sewer Fund - 1983 Proposed
Income Statement.
DB/ ds
Attachments
EXHIBITS
1983 WATER & SEWER SYSTEM
MAINTENANCE k CAPITAL IMPROVEMENT PROD RAM
PRESENTED TO
CITY COUNCIL
CITY OF MOUNDS VIEW
MARCH 1% 1983
rom
DON BRAGER
FINANCE DIRECTOR—TREASURER
Exhibit 1
DEPRECIATION EXAMPLE
ASSUMPTION
1, VEHICLE PURCHASE PRICE: $5,000,00
2, USEFUL LIFE: 5 YEARS
3, ANNUAL DEPRECIATION EXPENSE : $1,000,00
YEAR 1 1,000,00
YEAR 2 1,000,00
YEAR 3 1,000,00
YEAR 4 1,000,00
YEAR 5 11000.00
ACCUMULATED DEPRECIATION 5,000,00
COST OF REPLACEMENT : $5,000,00
AFFECT OF INFLATION:
COST OF REPLACEMENT $7,500,00
ACCUMULATED DEPRECIATION 5,000,00
ADDITIONAL COST TO REPLACE $2,500,00
PREPARED 3/14/83
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ASSETS:
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LESS :ACCUMULATED
DEPRECIATION
NET
TOTAL ASSETS
LIABILITIES
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1,100.00
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ACCOUNTS PAYABLE 100,00
TOTAL LIABILITIES 100,00
FUND EQUITY:
RETAINED EARNINGS 4,000,00
TOTAL FUND EQUITY 4,000,00
TOTAL LIABILITIES & FUND EQUITY 4,100,00
PREPARED 3/14/83
Exhibit 3
Exhibit 4
WATER FUND
ANALYSIS OF CASH NEEDS
CASH & INVESTMENTS 12/31/82 X788,243.00
LESS:
CURRENT LIABILITIES 17,754.00
DEPOSITS PAYABLE 109,480.00
WORKING CAPITAL 57,448.001QUARTEREXPENSES)
REVNUE CUSHION 73,218.00QUARTERREVENUE)
EXPENDITURE CUSHION 80,000'00
CONTNGENCY FOR CURRENT OPERATIONS10% OF OPERATING BUDGET 22,979.00
BALANCE $427,364.00
PLANNED FUTURE EXPENDITURES?
VEHICLES REPLACEMENT?
EQUIPMENT REPLACEMENT?
RECONSTRUCTION?
PREPARED 3/14/83
Exhibit 5
SEWER FUND
ANALYSIS OF CASH NEEDS
CASH & INVESTMENTS 12/31/82 $ 84,602.00
LESS:
CURRENT LIABILITIES 43,986.00
DEPOSITS PAYABLE 1,213.00
WORKING CAPITAL 120,533.001QUARTEREXPENSES)
REVENUE CUSHION 133,228.00
1 QUARTER REVENUE)
EXPENDITURE CUSHION 80,000.00
CONTjNGENCY FOR CURRENT OPERATIONS
10% OF OPERATING BUDGET) 48,213.00
BALANCE $(342,571.00)
PLANNED FUTURE EXPENDITURES?
VEHICLES REPLACEMENT?
EQUIPMENT REPLACEMENT?
RECONSTRUCTION?
PREPARED 3/14/83
WATER FUND
IDEAL SITUATION
WATER SALES
CURRENT EXPENSES:
OPERATIONS
DEPRECIATION ON ASSETS:
ACQUIRED WITH OWN FUNDS
ACQUIRED WITH CONTRIBUTIONS
CONTINGENCY
MAINTENANCE
TOTAL CURRENT EXPENSES
REQUIRED RATE - $1,0371,000 GALLONS
PREPARED 3714783
DOLLARS
387,280.00
229,793,00
9,525.00
88,580.00
15,000.00
42,500.00
Exhibit 6
PER 1,000
1.0300
6112
0253
2355
0398
1130
385,398,00 $1,0248
Exhibit 7
WATER FUND
1983 INTERIM BUDGET
REVENUES
EXPENSES
OPERATIONS
PROPOSED PROPOSED
DEPRECIATION
DOLLARS) PER I-jGOU GALLQNS
CONTINGENCY 15,000'00
WATER SOLD)
WATER SALES 206,800.00 5500
PENALTIES & INTEREST 11,500.00 0306
CONNECTION FEES 3,320'00 0088
PERMITS 500.00 0014
INVESTMENT INCOME 49,000,00 11303
OTHER REVENUES 750'00 0020
TOTAL REVENUES 271,870.00 7231
EXPENSES
OPERATIONS 229,793,00 6112
DEPRECIATION 9,525.00 0253
CONTINGENCY 15,000'00 0398
TOTAL EXPENSES 254,318.00 6763
INCOME 17,552,00 0468
PREPARED 3/14/83
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Exhibit 9
DATER FUND
RATE NEEDED FOR SALES TO EQUAL CURRENT EXPENSES
DOLLARS PER 1,000
GALLONS
WATER SALES $263,200.00 $ .7000
CURRENT EXPENSES:
OPERATIONS $229,793.00 $ ,6112
DEPRECIATION 9,525.00 .0253
CONTINGENCY 15,000,00 '0398
TOTAL CURRENT EXPENSES $254,318,00 $ .6763
NET INCOME $ 8,882.00 $ .0237
PREPARED 3714783
Exhibit 10
WATER FUND
MAINTENANCE & IMPROVEMENT NEEDS
AMOUNT NEEDED TO REPAY INTERFUND LOANS
PRINCIPAL & INTEREST
a 8% FOR 10 YEARS
PREPARED 3/14/83
23,458.00 PER YEAR OR $.0623 PER 1,000 GALS.
1983 1984 1985
MAINTENANCE & IMPROVEMENT NEEDS 107,300.00 188,700.00 122,800.00
SOURCES OF FUNDING:
ANNUAL MAINTENANCE ALLOWANCE 42,500.00 42,500.00 42,500 00
INTERFUND LOAN 40,000 00 75,000 00 55,000.00
CASH FROM WATER SYSTEMS
CONTRIBUTIONS AND/OR
24,800.00 71,200.00 35,300,00
WATER FUNDS
107,300.00 188,700.00 132,800.00
AMOUNT NEEDED TO REPAY INTERFUND LOANS
PRINCIPAL & INTEREST
a 8% FOR 10 YEARS
PREPARED 3/14/83
23,458.00 PER YEAR OR $.0623 PER 1,000 GALS.
Exhibit 11
WATER FUND
1983 PROPOSED INCOME STATEMENT
PROPOSED PROPOSED
DOLLARS) (1,000 GALLONS
WATER SOLD)
REVENUES
WATER SALES 263,200.00 7000
PENALTIES & INTEREST 11,500.00 0306
CONNECTION FEES 3,320.00 0088
PERMITS 500.00 0014
INVESTMENT INCOME 49,000.00 1303
OTHER REVENUE 750.00 0020
TOTAL REVENUES 328,270.00 8731
EXPENSES
OPERATIONS 229,793.00 6112
DEPRECIATION 9,525.00 0253
CONTINGENCY 15,000.00 0398
MAINTENANCE 42,500.00 1130
DEBT SERVICE 23,458.00 0623
TOTAL EXPENSES 320,276.00 8516
NET INCOME $ 7,991.00 $ .0215
PREPARED 3/14/83
Exhibit 12
SEWER FUND
IDEAL SITUATION
DOLLARS PER RE_c
SEWER USE FEES $649,707,00 $3LI,26
CURRENT EXPENSES:
OPERATIONS - MWCC 354,754,00 18,7067
OPERATIONS - CITY 127,377,00 6,7167
DEPRECIATION ON ASSETS:
ACQUIRED WITH OWN FUNDS 19,600,00 1.0335
ACQUIRED WITH CONTRIBUTIONS 85,975,00 4,5335
DEBT SERVICE 13,650,00 7198
CONTINGENCY 15,000,00 7910
MAINTENANCE_ 33,187,00 1,7500
TOTAL CURRENT EXPENSES 649,543,00 34,2512
REQUIRED RATE - $34,26 PER REC
PREPARED 3/14/83
Exhibit 13
SEWER FUND
1983 BUDGET PROPOSED DURING BUDGET_HEARINGS
REVENUES
EXPENSES
OPERATIONS
PROPOSED PROPOSED
DEPRECIATION
D0- LLARS)PER REC)
SALES 526,251.00 27.7500
CONNECTION FEES 500.00 0263
PERMITS 450.00 0238
INVESTMENT INCOME 3,500.00 1845
OTHER REVENUE 712.00 0375
TOTAL REVENUE 531,413.00 28.0221
EXPENSES
OPERATIONS 482,131.00 25.4234
DEPRECIATION 19,600.00 1.0335
DEBT SERVICE 13,650.00 0.7198
CONTINGENCY 15,000.00 0.7910
TOTAL EXPENSES 530,381.00 27.9677
NET INCOME $ 1,032.00 $ .0544
PREPARED 3/14/83
Exhibit 14
SEWER FUND
RATE NEEDED FOR SALES TO EQUAL CURRENT EXPENSES
DOLLAR. PER REC
SEWER USE FEES $530,992.00 $28,00
CURRENT EXPENSES;
OPERATIONS $4821131,00 $25,4234
DEPRECIATION 19,600,00 1.0335
DEBT SERVICE 1.3,650,00 .7198
CONTINGENCY 15,000 00 .7910
TOTAL CURRENT EXPENSES $530,381,00 $27,9677
NET INCOME
PREPARED 3/14/83
611.00 $ .0323
Exhibit 15
SEWER FUND
1983 PROPOSED INCOME STATEMENT
EXPENSES
PROPOSEDPROP H
PER
OPERATIONS -MWCC
DO L.ARS) nC
REVENUES
127,377.00 6.7167
SEWER USE FEES (OPERATIONS) 530,992.00 28.0000
SEWER USE FEES (MAINTENANCE) 33,187 00 1.7500
CONNECTION FEES 500.00 0263
PERMITS 450.00 0238
INVESTMENT INCOME 3,500.00 1845
OTHER REVENUE 712.00 0375
TOTAL REVENUES 569,341.00 30.0221
EXPENSES
OPERATIONS -MWCC 354,754.00 18.7067
OPERATIONS -CITY 127,377.00 6.7167
DEPRECIATION 19,600.00 1.0335
DEBT SERVICE (BONDS) 13,650.00 7198
CONTINGENCY 15,000.00 7910
MAINTENANCE 33,187.00 1.7500
TOTAL EXPENSES 563,568.00 29.7177
NET INCOME $ 5,773.00 $ .3044
PREPARED 3/14/83
MEMO TO: Mayor and City Council
FROM: Clerk-Administrato
DATE: March 18, 1983
SUBJECT: 1983 WATER & SEWER SYSTEMS MAINTENANCE AND CAPITAL
IMPROVEMENT PROGRAM
The following is a summary of the staff recommendations contained in
the earlier portions of this report.
Water System and Fund
1. Set water rates at a level sufficient to insure that annual
sales revenues cover the costs of annual operating costs,
depreciation of equipment purchase with Water Enterprise funds,
and contingency. A rate of .70/1,000 gallons or a .15/gallon
increase over the present rate of .55/1,000 gallons would be
required.
2. Establish an annual maintenance program with an average annual
cost of $42,500 to be funded out of non -sales revenues.
3. Approve a capital improvement program during the period 1983-1985
C
at an estimated cost of $328,800 to be funded with cash -on -hand
in the Water System Contribution Fund and an interfund loan
from the Special Capital Projects Fund to be repaid over a
period of 10 years at 8% interest per annum. The loan would be
repaid from non -sales revenues.
Sewer System and Fund
Establish an annual inspection, maintenance and system improvement
program at an annual cost of $33,100 to be funded by a $1.75/REC/
quarter rate increase for a new rate of $29.75/REC/quarter.
DFP/p£
PRODUCT ION CREDITS
CClerk -Administrator DON PAULEY
Director of Public Works/ JOHN JOHNSON
Commtunity Development
Finance Director DON BRAGER
Technical Assistance MARY TATAREK
GARY KARDELL
BILL HANGGI
WALLY MORTENSON
LARRY DECHEINE
Text Production PATT FRY
Specialists
BARB COLLINS
DOROTHY SANDGREN
Graphics FRANK KAMPEL
Text Reproduction TAMMY TURNACLIFF
Specialist
This presentation made possible through the
generous financial support of:
THE TAXPAYERS OF THE CITY OF MOUNDS VIEW
and
CUSTOMERS OF THE CITY OF MOUNDS VIEW
t
WATER & SEWER UTILITIES
Copyright: March 2983, CITY OF MOUNDS VIEW