Rich Civic Times
GARDEN CITY, Utah.
March 2014. Fred Philpot, Garden
City water consultant, reported findings in the area of monthly rates. He looked at the three pricing objectives of
revenue sufficiency and maintenance of bond covenants, a simple and equitable
rates structure, and something that is easy to implement.
The assumptions made were as follows: That an increase in expenditures should be
about 3 percent annually. The annual
repair and replacement allocation should be $525,200. One hundred percent funding of the capital
improvement plan needs to be included.
Ninety-nine and one-half percent collection rate adjustments are to be
used. The growth in ERC’s will be 1.15
percent through 2019 and 2.36 percent thereafter. The current fee structure (per month) base fee
is $35.00. The current ERC base fee
outside the city limits is $53.50. The
vacant lot fee is $10.00 and the overage fees per 1,000 gallons is $1.00 for
the next 5,000 gallons, $2.00 for 5001 to 10,000 and greater than 10,000 gallons
is $3.00 for each additional 10,000.
This allows Philpot to determine the overage revenues because he can use
the actual usage figures from the past two years.
Another area that must be considered is the capital
improvements that must be made in the next few years along with all repair and
replacement costs that will occur.
Expected construction costs incurred over the next few years paid for by
rates is $1,632,799. The cost of growth
that will be paid by impact fees is $1,533,919.
There will be a shortage of $283,957 that must be paid for through
increased rates.
The Garden City Capital Improvement Plan and the needed
repairs and replacement costs must also be considered over the next few
years. These items are estimated by
taking into account the distribution system with a total value of $15,854,000 and
with a cost per year assuming a 50 year life of $317,000. The water storage tanks have a total value of
$2,611,000 with a cost (assuming a 50 year life) of $52,200. The final item to take into account is the treatment
plan at a total cost of $5,200,000.
Assuming 40 percent of the plant is replaceable equipment at 20 years
comes out at $104,000 per year. The
treatment plant building at 60 percent year replacement equals about
$52,000. Also, funding depreciation will
reduce the District’s need to issue debt and will therefore decrease future
interest expense.
Philpot figured our four different scenarios. For each scenario, it was determined that the
coverage ratio must be at least 1.25 percent, and the year-end fund balance
should provide for 150 days of operating capital and maintenance.
There is an inclusion of depreciation at 20 percent with 100
percent inclusion of the capital improvement plan. All scenarios must include the proposed
projects in 2020 which will impact the rate analysis as well as the new well
that will need to be constructed. A
table was included that gave the cost of capital projects and the amount of
funding needed to handle the required amount of depreciation. The total amount of debt by 2020 would be
about $1,088,939.
Scenario 1 (baseline) is a suggestion where there will be no
rate increase. The table with this plan
shows that by 2020 there would be $469,828 net revenue available to handle debt
service. Debt service is a negative $388,150. That means there is a surplus of revenue of
$81,678. However, the total capital
improvement plan has incurred a negative balance of $1,088,939 along with a
negative change in cash position of $1,007,261.
The beginning cash reserves were a negative $382,668. The ending cash reserves are a negative
$1,389,930. Unrestricted day of working
cash hits zero in 2015, and the City never gets out of that situation. The City would have to try and borrow money
with no real plan or resources to repay the loans.
Scenario 2 contains the suggestion where the monthly rate be
increased by 40 percent or $49.00 within the City and $73.50 outside the City
limits through 2020 without any additional raises in rates and not taking into consideration any debt. All of the following scenarios will begin in
January of 2015. The table with this
plan shows that by 2020 there would be $752,329 net revenue available to handle
debt service. Debt service is a negative
$388,150. There is a surplus of revenue
of $364,178. However, the total capital
improvement plan has incurred a negative balance of $1,088,939 along with a
negative change in cash position of $724,761.
The beginning cash reserves area is a positive $965,644. Unrestricted cash reserves are $240,883, and
the City is able to maintain the 150 days of unrestricted working cash.
Scenario 3 contains the suggestion where the monthly rate be
increased to $42.00 for individuals within the City and $63.00 for those living
outside the City through 2020 with a proposed series of bonds for $580,052 purchased
in 2015. This gives the City an
additional net amount of money for future projects of $196,870. The table with this plan shows that by 2020
there would be $611,079 net revenue available to handle debt service. Debt service is a negative $430,575. Surplus revenues are $180,503. However, the total capital improvement plan
has incurred a negative balance of $908,436.
The beginning cash reserves are a positive $651,732. The ending cash reserves are a negative $256,704. The City is able to maintain the 150 days of
unrestricted working cash up to 2020 where this resource zeros out.
Scenario 4 contains a gradual rate increase with debt along
with an annual adjustment. Here the base
rate with begin at $42.00 for individuals within the City limits and $63.00 for
those outside the City limits. This is
actually a 20 percent raise in rates from 2014.
There would be an annual rate increase of $3.0% each year after 2015.
The table with this plan shows that by 2020 there would be $746,063 net revenue
available to handle debt service. Debt
service is a negative $430,575. Surplus
revenues are $315,488. There is a total
change in the Capital Improvement Plan of $1,088,939. The total change in cash position is a
negative $773,451. The beginning cash
reserves are a positive $904,777. The
ending cash reserves are a positive $131,327.
The ending Cash Unrestricted Cash Reserves are a positive $131,327. The City is able to maintain the 150 days of
unrestricted working cash up to 2020 where days drop down to 81 instead of the
150 that is the goal.
Scenario 4 is the one recommended by Philpot. He noted that because debt service coverage
is in the most positive light, and the City is able to maintain the necessary
maintenance and repair monies for the 150 day requirement, it will be possible
for the City to be able to borrow money at a lower rate there by saving high
interest costs.
Fred included a chart showing the rates for the next six or
seven year, but encourages the City to look at the financial side of things
every year to make sure they are not far from the predicted money figures. If there is much deviation, other changes may
need to be implemented.
Since adoption of the new water rate fees was not included
on the agenda, this matter will be discussed and decided at the April City
Council Meeting. There was a hearing
prior to the Meeting where the public was allowed to give comments. There were not many individuals present
thereby giving the Council the feeling that raising rates will be acceptable to
those affected by the changes.
The entire report is on the City’s web site for those
individuals interested in looking at the entire document. It is called 2014 Culinary Water Impact Fees and Rate Analysis, Garden City, Utah
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