HomeMy WebLinkAboutNovember 3, 2003 Work SessionCITY OF COLUMBIA HEIGHTS
590 40th Avenue N.E., Columbia Heights, MN 55421-3878 (763) 706-3600 TDD (763) 706-3692
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ADMINIS TRA TlON
NOTICE OF CITY COUNCIL MEETING
to be held in the
CITY OF COL UMBIA HEIGHTS
as follows:
Mayor
Julienne Wyckoff
Councilmembers
Robert A. Williams
Bruce Nawrocki
Tammera Ericson
Bruce Kelzenberg
City Manaoer
Walt Fehst
6:30 p.m.
Meeting of:
Date of Meeting:
Time of Meeting:
Location of Meeting:
Purpose of Meeting:
Commission interview (Conference Room 1) - Kevin McDonald
COLUMBIA HEIGHTS CITY COUNCIL
NOVEMBER 3, 2003
7:00 P.M.
CONFERENCE ROOM 1
WORK SESSION
~4 GENDA
1. Review of insurance claim process - League of MN Cities Insurance Trust
2. Utility Rate Study- SEH
3. Community Development budget
4. Finance/IS/Summary budget
.5 hour
1.5 hours
.5 hour
.5 hour
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12-17-01
CITY COUNCIL LETTER
WORK SESSION OF: NOVEMBER 3, 2003
AGENDA SECTION: ORIGINATING DEPT: CITY MANAGER
NO: FINANCE APPROVAL
ITEM: LEAGUE OF MINNESOTA CITIES BY: ~BY-~~j~A
INSURANCE TRUST (LMCIT) ~~
INSURANCE PRESENTATION DATE: OCe'TOBER 29, 2003
NO:
Representatives from the League of Minnesota Cities Insurance Trust will be present at the
council work session to give a presentation on. ~ their insurance program, how it works, and
also to explain how liability is determined and when and how insurance claims are paid.
Attached are two handouts that the LMCIT has provided to us in relationship to this subject.
This meeting is not intended to cover the city's policy and procedures on cleaning private
residential basements after sewage backup. This is a separate issue that is not related to the
LMCIT's insurance coverage. If the City Council wishes to review internal policies regarding
cleaning private basements or to develop a policy to contract with companies that specialize in
this business, this should be scheduled for a future work session at which time staff could
assemble more detailed information specific to that type of presentation.
RECOMMENDED MOTION: Staff is not recommending any formal action at this time.
WE:sms
0310291COUNCIL
Attachments: Sewer Backups: Is There Legal Liability?
When LMCIT Denies a Liability Claim ....
COUNCIL ACTION:
League of Minnesota Cities
Insurance Trust
145 UniversityAvenue West, St. Paul, MN 55105-2044
(651) 281-1200 · (800) 925-1122
Fa~c (651) 281-1298 o TDD: (651) 281-/290
www.;mnc, org
SEWER BACKUPS: IS TI~ERE LEGAL LIABILITY?
The following is a summary of the common claims brought by plaintiffs, the legal standards, and
typical defenses for cities in sewer backup eases. Although I intentionally made the list quite
inclusive, the legal standard that will be applied in almost every situation is negligence.
Therefore, the primary issue in most cases is going to be whether the City had notice of a
problem, and how the City responded after it knew of the problem. Regular maintenance (what
is feasible, of course, within the City's resources) of sewer lines, along with some form of
documentation of maintenance, goes a long way toward a successful defense in these types of
claims.
1. Common Claims By Plaintiffs
A. Negligence
2.
3.
4.
Failure to exercise reasonable care.
Negligent maintenance.
Negligent design/construction.
Delayed or inappropriate response
2. Res Ipsa ("the thing speaks for itself")
'Incident would not have occurred unless someone was negligent.
Sewer system under exclusive control of city.
3. Strict Liability
Liability imposed on city regardless of fault.
Violation of the Minnesota Environmental Response and Liability Act
(MERLA)-release of"hazardous substance."
4. Trespass
1. "Invasion" of sewage constitutes a wrongful invasion of property.
5. Nuisance.
1. Discharge of sewage interferes with the use and enjoyment of property.
2. Infringement of right or interest in property.
2. Legal Standards
Negligence: A city is not an insurer of the safe condition of its sewer systems.
Pettinger v. Village of Wirmebago, 239 Minn. 156, 162, 58 N.W.2d 325, 329
(1953). A city does have the duty, however, to exercise ordinary or reasonable
care in the maintenance and inspection of its sewer system. Lawin v. City of Long
Prairie, 355 N.W.2d 764,766 (Minn. Ct. App. 1984).
In order to show negligence on the part of a City for a particular incident, a person
must prove that:
There is a defect in the sewer system;
The City had notice of the defect;
The City failed to remedy the defect within a reasonable time after
receiving notice of it; and
Such failure was the cause of the person's damage.
Id._:. at 160-63, 58 N.W.2d at 328-30; Baker v. City of St. Paul, 198 Minn. 437, 270
N.W. 154 (1936); Pottner v. City of Minneapolis, 41 Minn. 73, 42 N.W. 784
(1889); Taylor v. City of Aust.in., 32 Minn. 247, 20 N.W. 157 (1884). A
municipality is liable for damages after notice of the condition and a reasonable
opportunity to remedy it. Tate v. City of St. Paul, 56 Minn. 527, 530-31, 58
N.W.2d 764, 766 (Minn. Ct. App., 1984) (emphasis added).
Statutory (Discretionary) Immunity: Statutory (discretionary) immunity is
provided by Minn. Stat. § 466.03, subd. 6 for "any claim based upon the
performance or failure to exercise or perform a discretionary function or duty,
whether or not the discretion is abused." Conduct which involves social, political,
and economic considerations is protected. Nusbaum v. Blue Earth County, 422 N.
W. 2d 713, 718 (Minn. 1988).
The Minnesota Supreme Court held that a City's decision to not make capital
improvements to a storm drainage system is a protected discretionary decision.
Chabot v. City of Sauk Rapids, 422 N.W. 2d 708, 710-11 .(Minn. 1988). A city's
consideration of budget and fund availability in choosing a construction plan or
scheduling upgrade and repair is also the type of Planning that is protected by
statutory immunity. Wennerlyn v. City_ of Minneapolis, C3-99-362 (Minn. Ct.
App., Aug. 31, 1999) (unpublished opinion).
Res Ipsa: In order for the doctrine of res ipsa to apply, three factors must be met:
1) the plaintiff must have been damaged by an instrumentality, the nature of which
is such that the injury is not ordinarily to be expected in the absence of
negligence; 2) both inspection and use must have been in the exclusive control of
the defendant; and, 3) the damage must not have been due to any voluntary action
on the part of the plaintiff. Quigle¥ v. Village of Hibbing, 268 Minn. 541,543,
129 N.W.2d 765, 768 (1964).
Strict Liability: Strict liability applies in situations where abnormally dangerous
' activities'are carried' out and there is a high degree of risk of harm to people or
property. See Restatement (Second) of Torts §§ 519, 520. For example, courts
have held that strict liability could apply to water main breaks when the break
occurs in either the reservoir itself or in the principal main of a city's water
system. Bridgeman-Russell Co. v. City of Duluth, 158 Minn. 509, 197 N.W.2d
971 (1924) (city has duty to keep a potentially destructive, large reservoir or pool
confined). Strict liability does not normally apply to sewer backup claims.
The Minnesota Court of Appeals has also found that raw sewage is excluded from
regulation under MERLA (Minn. Stat. § 115B.05, subd. 1); therefore, strict
liability does not apply. Jindra v. City of St. Anthony, 533 N.W.2d 641 (Minn.
Ct. App., 1995).
o
Trespass: One may be liable for trespass if he intentionally a) enters land in the
possession of the other, or causes a thing or a third person to do so, or b) remains
on the land, or e) fails to remove from the land a thing which he is under a duty to
remove. See Restatement (Second) of Torts § 158. A plaintiff must prove that
the defendant intended the act that resulted in the trespass. With respect to sewer.
backups, courts have only allowed trespass claims where there was some
intentional discharge of water by the city on to private property. See, e.g., Miles
v. City of Oakdale, 323 N.W.2d 51 (Minn. 1982) (trespass and nuisance found
where city substantially altered or diverted the flow of surface water onto
plaintiff's property).
o
Nuisance: Nuisance is defined as the wrongful invasion or infringement of a
legal fight or interest of another caused by negligence, recklessness or ultra-
hazardous conduct. The Minnesota Supreme Court held that nuisance involves
some type of wrongful conduct which may be characterized as intentional
conduct, negligence, ultra hazardous activity, violation of a statute or some other
tortuous activity. Highview North Apartments v. County of Ramsey, 323 N.W.2d
65, 70-71 (Minn. 1982). The court also held that negligence is the appropriate
cause of action for a sewer backup claim. Id_~. at 71.
7. Statute of Limitations: Minn. Stat. § 541.051, subd. 1 provides:
[No] action by any person in contract, tort, or otherwise to recover damages for
any injury to property, real or personal, or for bodily injury or wrongful death,
arising out of the defective and unsafe condition of an improvement to real
3
property,.., shall be brought against.., the owner of the real property more than
two years after discovery of the injury.., nor, in any event shall such a cause of
action accrue more than ten years after substantial completion of the
construction...
Sanitary sewer and storm water systems are "improvements to real property" for
pur~OSe'~ of the statute. See Capitol Supply CO. v. City of St; Paul, 316 N.W.2d
554 (Minn. 1982); Ocel v. City of Eagan, 402 N.W.2d 531 (Minn. 1987); Western
Lake Superior Sanitary Dist. v. Orfei & Sons, Inc., 463 N.W.2d 781 (Minn. Ct.
App. 1990) (wast,water treatment system constituted improvement to real
property for purposes of § 541.051). The statute applies to negligent design or
construction claims, not to claims of negligent maintenance. See Minn. Stat.
§541.051, subd. l(c). In some cases, the statute may be applied even when a
plaintiff has not explicitly claimed negligent design. Nemechek v. City of B~on,
C4-99-1052 (Minn. Ct. App., Dec. 14, 1999) (unpublished opinion).
Minn. Stat. § 541.05, subd. 1 provides for a six-year statute of limitations for
claims involving injury to personal property.
Defenses by City
1. No negligence
1. No notice of a defect.
2. Regular maintenance.
3. Timely, reasonable response after City knows of problem.
4. City's negligence or failure to remedy was not the cause of the backup.
2. No wrongful conduct; therefore, no nuisance
3. No intentional diversion of water; therefore, no trespass
4. Statutory (Discretionary) Immunity Under Minn. Stat. § 466.03, subd. 6.
2.
3.
4.
Statute
Development of inspection and maintenance policy based on resources.
Development of emergency response policy based on resources.
Allocation of funds for upgrades/capital improvements.
Design/cOnstruction of system, lift station~
of Limitations
Negligent design or construction claim is barred if brought more than two
4
years after discovery of the backup or more than ten years after completion
of construction of sewer system or lift station.
o
Negligent maintenance claim is barred if brought more than six years after
damage.
6. "Res'IpsaNot Applicable ' · : ·
Sewer system not under exclusive control of city.
Open system; all citizens have access and can put items in to system.
Strict Liability Not Applicable
Operation of sewer system is not abnormally dangerous activity.
Under law, appropriate cause of action is negligence.
Sewage excluded from regulation under MERLA.
C
LMCIT
Risk Management Information
145 University Avenue West, St. Paul, MN 55103-2044
Phone: (651) 281-1200 · (800) 925-1122
Fax: (651) 281-1298 · TDD (651) 281-1290
www. lmcit.lmnc, org
WHEN LMCIT DENIES A LIABILITY CLAIM...
A scenario
A water main breaks and your city's sewer system backs up into several homes causing major
damage. Or someone falls and is injured on a city sidewalk, or a tree falls in a windstorm and
damages a car. A citizen has a loss and is looking to the city to pay for it. Your city has liability
coverage through LMCIT, so you report the claim to LMCIT - and the claim is denied. City
officials quickly hear from angry citizens demanding to know why LMCIT won't pay for such
losses and what the city is going to do about it.
Some background
The League of Minnesota Cities Insurance Trust (LMCIT) provides liability coverage for over
750 Minnesota cities. LMCIT is not an insurance company - it is a cooperative self-insurance
organization of cities. The idea behind LMCIT is that rather than paying premiums to an
insurance company, the cities pool those funds and use them to cover claims. Any funds LMCIT
collects from its members that are not needed to cover losses or expenses are returned to member
cities as dividends. LMCIT has returned over $109 million in dividends to its member cities
since 1987.
When LMCIT denies a liability claim, it is usually not an issue of coverage - i.e. whether or not
the city's LMCIT liability coverage covers the claim. Rather, the issue is liability; that is, is the
city legally liable for the damages of each particular claim?
About liability
When a third party makes a claim against the city and the city submits that claim to LMCIT, the
key issue is liability. It's important to remember that the city isn't automatically liable simply
because the injury occurred on city property, or because city equipment or personnel were
involved.
It's very much an over-simplification, but, in general, for the city to be liable for someone else's
damages, three conditions must be met:
1. The city must have been negligent. That is, the city must have done something it
shouldn't have done, or failed to do something it should have done.
2. The damages must have been caused by the city's negligence.
3. It must not be one of the areas in which the city is immune from liability.
When the city reports a liability claim to LMCIT then, the key issue for LMCIT's claims staff is
whether the city is legally liable for the damages that are being claimed. Sometimes it's very
clear from the facts that the city is liable. In such cases, the adjuster's job is to pay the claimant
a fair settlement of the damages as quickly as possible. In other cases, it may be very clear that
the city is not liable, in which case the adjuster will deny liability and decline to offer any
settlement.
In many cases though, it may not be obvious whether the city is liable. The facts may be unclear
or disputed; it may be debatable whether or not the city acted negligently; other parties'
negligence (including the claimant's) may be involved; there may be questions about what really
caused the damages; and so on. It's harder to generalize about these cases. Depending on the
particular facts and circumstances and how likely it seems that the city will ultimately be held
liable, LMCIT's claims staff may or may not attempt to negotiate a compromise settlement in
these kinds of cases.
Ultimately, of course, evaluating and deciding on liability is what the court system is for. If a
claimant disagrees with LMCIT's denial of a claim, the claimant can bring the issue to the
courts. If that happens, it's LMCIT's responsibility to pay for the cost of defense and to pay the
damages the court awards against the city.
One final note. Legally, the burden is on the person making the claim to prove that the defendant
is liable. In other words, it's the claimant's responsibility to show that the city is liable - not the
city's responsibility to show that the city isn't liable. That' doesn't mean that LMCIT's adjusters
will simply sit back and do nothing, waiting for the claimant to assemble and present the
evidence. The LMCIT adjuster's job is to investigate the claim, collect the relevant facts and
information, and make a reasonable evaluation of whether the city is liable. It does mean,
though, that if that investigation doesn't produce good evidence to show that the city is liable,
LMCIT's position will be to deny city liability. Keep in mind too that when LMCIT denies
liability on a claim, it shouldn't necessarily be interpreted as saying that the damage is the
claimant's own fault.
Why does LMCIT stick to a legal liability standard in deciding whether or not to pay a
liability claim?
No one - neither city officials, nor LMCIT's staff- enjoys telling a citizen, The city is not
responsible for your damages because your problem was not caused by city negligence. We're
sorry, but you're on your own. But if we apply the standard of legal liability, sometimes that's
exactly what we have to say.
Sometimes that means that the city officials will hear complaints from an angry citizen. The
reaction is very understandable: I've been injured, and it was the city's tree (or sidewalk or
sewer or whatever) and I didn't do anything wrong. From a political standpoint, it would
2
sometimes be a lot easier to simply make a payment to the damaged party, even though legally
the city isn't liable for that payment. However, there are at least three good reasons why it
wouldn't be appropriate for LMCIT to do so:
First, the funds LMCIT uses to pay claims arepublic funds that are really the joint property
of LMCIT's member cities. Because we are dealing with public funds held by LMCIT in
trust, we have a duty to ensure that those funds are paid out only when legally owed. To do
otherwise would amoUnt to making a gift of those public funds to a private individual.
Second, the funds LMCIT uses to pay claims really belong jointly to all of LMCIT's member
cities. LMCIT is simply holding the money in trust for these members. Each member city
has the right to expect that LMCIT will pay those funds out only if the money is in fact
legally owed.
Finally, we have to be concerned about setting a precedent. If LMCIT were to make a
payment on one such claim to one person in one city, LMCIT would have to be prepared to
do so for every claimant in every member city that faces a similar situation.
What if we disagree with the LMCIT adjuster's determination?
There's often a good deal of judgment involved in evaluating liability, and it's certainly possible
that city officials may disagree or have questions about the LMCIT adjuster's evaluation and
conclusions. Those disagreements can be in either direction; it could be a ease where you think
that a claim LMCIT has denied should be paid, or a case where you think a claim LMCIT plans
to pay should be denied.
The first thing to do is to talk with the adjuster. If there are facts or information that the adjuster
isn't aware of, or if there are issues that s/he hasn't investigated which you feel should be, give
the adjuster a call. It's not the adjuster's job to do everything possible to either deny or to pay a
claim; the adjuster's job is to try to get it right.
In some cases, you may still have some concerns or questions after talking with the adjuster. If
so, please call Doug Gronli, LMCIT's Claims Manager, at (651) 281-1279. Or call Pete Tritz at
281-1265, or Tom Grundhoefer at 281-1267. We' 11 be glad to review the claim to make sure that
we're comfortable with the position the adjuster has taken on LMCIT's behalf, or to modify that
position if it' s appropriate.
If LMCIT has denied liability on a claim, and the city believes it should be paid, can the
city pay the claim itself, using the city's own funds?
City officials may feel it's appropriate to pay a claim denied by LMCIT out of city funds. They
may feel it is the city's responsibility to take care of its citizens, regardless of legal liability, or
they may simply and understandably feel sympathy for the claimant's situation. Obviously, the
city coUncil is responsible for the city's funds and has the power to decide when and how those
funds should be spent. But while it's clearly the council's call, the city also needs to think about
some of the same issues that LMCIT has to consider.
One important question, of course, is whether this is an appropriate and authorized use of city
funds. We'd suggest that cities discuss this with the city attorney before making a payment in
these kinds of circumstances.
Another important issue is the precedent the city would set by making a voluntary payment in a
particular case. Once the city has made a payment in one circumstance, it would be very
difficult not to do so again for the next citizen who's in a similar circumstance. Depending on
the size and number of such future claims, the total cost to the city could be much greater than
the amount in question on this one claim.
While it is, of course, up to the council to decide what to do, in many cases a better solution may
be to focus on solving the problems that have resulted in claims against the city, and to provide
citizens with the information they need to protect themselves from loss.
LMCIT is here to help.
If you receive questions from citizens or the press, or if you have questions regarding your city's
coverage, your city's liability, LMCIT's investigation of the claim, or any related area of
concern, please call the LMCIT staff. We'll do everything we can to answer your questions, to
get you the information you need, and, if necessary, to correct any mistakes or problems there
may be.
Dealing with a denied claim can be a difficult process, especially in times of community
hardship. If you have any questions about the information contained in this article, or any other
concerns related to LMCIT, please call Doug Gronli, Tom Gnmdhoefer, or Pete Tritz at the
numbers shown on the previous page, or toll-free at 1-800-925-1122.
PST- 10/27/99 - fax.66270
4
CITY COUNCIL LETTER
Meeting of: 11/03/03
AGENDA SECTION: WORK SESSION
NO:
ITEM: UTILITY RATE STUDY PRESENTATION AND
RECOMMENDATIONS
ORIGINATING DEPARTMENT:
PUBLIC WORKS
BY: K. Hansen~
DATE 10/30/03 ~
CItY MANAW
Background:
The City Council directed staff to prepare Request for Proposals (RFP) for a Utility Rate Study at their October 14, 2002 regular
meeting. Eight proposals were received and the City Council awarded the Study to SEH at their January 27th regular meeting. Data
collection began in February and City staff has been working with SEH for the last several months reviewing various rate scenarios.
The process, findings and recommendations are detailed in the attached Utility Rate Study Report dated October 28th, 2003.
Analysis/Conclusions:
The City of Columbia Heights desired to conduct a rate study for the development and implementation of equitable rate structures
for sanitary sewer, storm sewer, and water utilities over the next 5-year period. This was done to ensure that the necessary revenues
would be available for debt repayment and the uninterrupted operation and maintenance of these services.
The primary study elements generally consisted of the following: · Data Collection.
· Review and update the 5-year Utilities CIP.
· Establish Historical Trends and Projections.
· Determine Revenue Needs.
· Develop a unit cost of service over a 5-year period.
· Report production and presentation.
· Conversion to a Monthly Billing System.
The City of Columbia Heights current rates were established by resolution 99-17 at $2.072 per 1,000 gallons for water and $1.93
per 1,000 gallons for sanitary sewer. The study evaluated expenses and revenues over the last 5 years and concluded that the
current rates are not sufficient to cover future expenses. The water fund has actually been operating in a deficit over the last 3 years.
Over the next 5 years, O & M expenses were projected, debt service from the 1999 and 2003 bonds was added, impacts of
governmental mandates were reviewed, and the Capital Improvement Program (CIP) was analyzed to determine total future
expenses. The CIP was one of the expense areas that was determined by staffneeding to be reduced to lessen potential rate
increases. Through an iterative process, the CIP for all utility departments were reduced over this five-year period, the reduction in
the water CIP by nearly fifty percent. On page 3 of the report, Table 1 details the impact of the proposed rate increases to a
residential consumer based upon family size, for a utility bill, including refuse. In the first year, the maximum increase is less than
10 percent, with the lowest consumption customer actually seeing a decrease of 3.5%. For the proposed rates, in 2004 the average
residential customer would pay $88.43 per quarter for Water, Sanitary and Storm (excluding refuse). For comparison, the same
customer with the same services would pay $110.02 in Minneapolis, $111.00 in Golden Valley $113.64 in New Hope. These
comparisons for quarterly utility bills are also illustrated graphically in Figure 7 for a total of 10 cities, using 2003 rates. The
recommended rate increases and resulting percentage increase (annually) are shown in Figure 6. The percentage increase for the
average residential customer is 5.1%, 5.3, and 5.4% for years two, three, and four respectively and 2.7% in year 5.
Another study element was the consideration of converting from a quarterly to a monthly billing system. A study was done in 1992
describing the feasibility of converting to a monthly billing system, and is attached to the report in the appendix. The City's current
billing software system is set up to handle monthly billing. No additional staffing is required for the conversion, but there would be
a cost for an automated folding and bill-stuffing machine, currently estimated at $27,000. The primary advantage of going to a
COUNCIL ACTION:
CITY COUNCIL LETTER
Meeting off 11/03/03
AGENDA SECTION: WORK SESSION
NO:
ITEM: UTILITY RATE STUDY PRESENTATION AND
RECOMMENDATIONS
ORIGINATING DEPARTMENT:
PUBLIC WORKS
BY: K. Hansen
DATE 10/30/03
CITY MANAGER
BY:
DATE:
monthly billing cycle would be smaller bills (vs. quarterly) for budgeting purposes to customers. Xcel Energy and Minnegasco both
bill on monthly cycles, and by conversion would allow a customer a more routine way of budget planning. As the 1992 report
details, it would take approximately 5-6 months for the conversion to monthly billing to be complete.
Recommended Motion: Move to approve and adopt Resolution No. 2003-50, establishing the rates for Water Service, Sanitary
Sewer Service and Storm Sewer for the years 2004 through 2008.
Recommended Motion: Move to approve the conversion to a monthly billing system in beginning in 2004 and authorize staffto
seek bids for an automated folding/stuffing machine.
I~:jb
Attachments:
SEH Utility Rate Study dated October 28th, 2003
COUNCIL ACTION:
City of Columbia Heights
Resolution 2003-50
BEING A RESOLUTION SETTING RATES ON SEWAGE DISPOSAL
AND WATER SUPPLY IN THE CITY OF COLUMBIA HEIGHTS
BE IT HEREBY RESOLVED by the City Council of the City of Columbia Heights, that:
In accordance with the operating costs and rates to be paid by the City of Columbia Heights to the
Metropolitan Council Environmental Services and the Minneapolis Water Department, the following rates
shall be put into effect as of January 1, 2004 on all billings rendered thereafter:
Water Supply Rates:
Customer Classification
Year
2004 2005 2006 2007 2008
Residential
Fixed Fee $12.00 $12.90 $13.87 $14.91 $15.66
Rate per 1000Gallons $ 2.28 $ 2.46 $ 2.63 $ 2.83 $ 2.97
Water Meter Surcharge $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
Senior
Fixed Fee $ 6.90 $ 7.80 $ 8.77 $ 9.81 $10.56
Rate per 1000 Gallons $ 2.28 $ 2.46 $ 2.63 $ 2.83 $ 2.97
Water Meter Surcharge $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
Commercial/Industrial
FixedFee $12.00 $12.90 $13.87 $14.91 $15.66
Rate per 1000Gallons $ 2.28 $ 2.46 $ 2.63 $ 2.83 $ 2.97
Water Meter Surcharge $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00
Sewer Disposal Rates:
Residential
FixedFee $12.00 $13.20 $14.52 $15.97 $16.45
Rate per 1000Gallons $ 1.30 $ 1.43 $ 1.57 $ 1.73 $ 1.78
Maximum charge for
24,000gallons $43.20 $47.52 $52.27 $57.49 $59.22
Senior
FixedFee $ 6.90 $ 8.10 $ 9.42 $10.87 $11.35
Rate per 1000Gallons $ 1.30 $ 1.43 $ 1.57 $ 1.73 $ 1.78
Maximum charge for
24,000gallons $43.20 $47.52 $52.27 $57.49 $59.22
Commercial/Industrial
Fixed Fee $12.00 $13.20 $14.52 $15.97 $16.45
Rate per 1000Gallons $ 1.30 $ 1.43 $ 1.57 $ 1.73 $ 1.78
Resolution 2003-50
Page 2
3. Storm Sewer Rates:
Land Use
Rates (2004-2008)
R-1 $ 2.46/unit
R-2 $ 2.46/unit
R-3 $16.23/acre
R-4 $16.23/acre
RB $31.57/acre
LB $31.57/acre
GB $35.69/acre
CBD $35.69/acre
I $27.85/acre
I-1 $31.57/acre
MWW $ 3.90/acre
BE IT FURTHER RESOLVED that all foregoing rates are made effective January 1, 2004 in order to meet
the additional cost to the City of Columbia Heights for these respective services.
Passed this lOth day of November, 2003.
Offered by:
Seconded by:
Roll Call:
Patricia Muscovitz, Deputy City Clerk
Mayor, Julienne Wyckoff
3535 Vadnais Center Drive, St. Paul, MN 55110-5196
architecture engineering
651.490.2000
environmental
651.490.2150 FAX
transportation
October 28, 2003
Utility Rate Study
Columbia Heights, Minnesota
SEH No. A-COLHT0302.00
Mr. Kevin R. Hansen
Public Works Director/City Engineer
City of Columbia Heights
637 38th Avenue NE
Columbia Heights, MN 55421
Dear Mr. Hansen:
Dependable sewer, water and storm sewer systems are among the most important services a city can
provide to promote the health and welfare of its citizens. The development and implementation of
equitable rate structures for these utilities ensure that the necessary revenues will be available for
continuous operation and maintenance of these systems.
Short Elliott Hendrickson Inc.® (SEH) is pleased to submit the attached Utility Rate Study for the
City of Columbia Heights in accordance with your authorization. This study is based on the scope
listed in our December 27, 2002 proposal.
We would be pleased to review this report with you in detail at your convenience.
Sincerely,
David F. Simons, PE
Project Manager, Principal
nm
x:~ae~co lhfi030200M-~lhatilrat estdy.doc
Short Elliott Hendrickson Inc. · Your Trusted Resource · Equal Opportunity Employer
Utility Rate Study
Columbia Heights, Minnesota
SEH No. A-COLHT0302.00
October 28, 2003
I hereby certify that this report was prepared by me or under my direct
supervision, and that I am a duly Licensed Professional Engineer under the
laws of the Stat of~/linnesota.
David F. Simons, PE
Date: October 28 Lic. No.: 19699
Reviewed by: ~~
Date
Short Elliott Hendrickson Inc.
3535 Vadnais Center Drive
St..Paul, MN 55110-5196
651.490.2000
Table of Contents
List of Figures
Figure 1 - Comparison of Water Rates with Average Use
Figure 2 - Community Comparison of Water Rates
Figure 3 - Comparison of Sewer Rates with Average Use
Figure 4 - Community Comparison of Sewer Rates
Figure 5 - Community Comparison of Storm Water Rates
Figure 6 - Total Utility Bill Annual ComParisons
Figure 7 - Community Comparison of Total Bills
Appendix
1992 Proposal to Convert to Monthly Billing System
Utility Rate Study
City of Columbia Heights
A-COLHT0302.00
Page iii
October 28, 2003
Utility Rate Study
Prepared for City of Columbia Heights
1.0
Executive Summary
Background
The Columbia Heights City Staff and SEH began working in February
of 2003 to develop recommendations for new water, sewer and storm
water rates. The City's goal was to establish rates for the 5-year period
beginning in 2004 and extending through 2008. Other goals were to
provide funding for proposed capital improvement projects, to build
and maintain a comfortable cash balance for emergencies in each of
the funds, and to encourage water conservation. These goals had to be
balanced with the desire to keep rates comparable with other
communities.
Historical records were used to compare revenues and expenses for the
past 5 years, and the current health of each fund was evaluated.
Governmental mandates and new technologies were researched to
determine what their impact might be on the future costs to operate
each utility. In addition, the 5-year Capital Improvement Plan was
reviewed and updated. Other issues which could affect the future
expenses within each utility were researched. Future expenses were
then projected for the years from 2004 through 2008.
Using the projected expenses over the next 5 years as a guide, the
existing rates were tested to see what would happen if existing rates
were not changed over this time period. The analysis concluded that
large, deficits were expected to occur if the rates were left as is. The
existing rates would not Provide enough future revenue to pay for
anticipated future expenses or allow the City to make capital
improvements and repairs. It was concluded that the rates would need
to be adjusted upward to keep pace with future expenses.
SEH is a registered trademark of Short Elliott Hendrickson Inc.
Utility Rate Study
City of Columbia Heights
A-COLHT0302.00
Page 1
1.2
Water, Wastewater and Storm Water Funds
An interactive computer model was utilized to investigate multiple rate
scenarios. Using this approach, various rate scenarios were quickly
and efficiently tested to determine the impact on utility customers.
The City's previous rate structure included a minimum charge, which
typically does not promote water conservation because there is no
incentive within the minimum usage to use less water. Replacing the
minimum charge with a fixed service fee or a fixed charge would
promote water conservation because the customer would pay for every
gallon used.
For this reason, it was decided to eliminate the current minimum
charge and implement a fixed charge in its place. In addition to the
fixed charge, the City's current usage charge will be maintained. The
fixed charge will not provide any usage for the fi.xed charge, and the
usage rate will begin at 0 gallons.
In order to provide a discount to seniors who may be on a limited
income, the fixed fee will be reduced by $5.10 per quarter for the
senior classification. This discount will be provided for both the water
and sewer fixed fees. This is the same discount that is provided for the
cUrrent water rates.
Commercial/industrial rates will be set equal to residential rates for
both sewer and water, with the exception that there will be no
maximum charge for sewer under the commercial/industrial category.
This methodology is the same as the current rates.
Table 1 shows that the increases to the total utility bill in 2004 will be
less than 10% for all customer classifications. This table includes
water, sewer, storm water, refuse and recycling. In fact, the total utility
bill for the single adult using 5000 gallons per quarter would decrease
by approximately 3.5% between 2003 and 2004. Although they are not
shown in Table 1, increases are also planned for the years from 2005
to 2008. Figure 6 in the back of this report shows that annual increases
will be approximately 5% per year in the years 2005, 2006 and 2007.
In 2008, the total utility bill will increase by only 3%.
Given the needs facing the City, these annual increases appear to be
very reasonable considering that cost of living increases have averaged
about 3% annually in recent years.
Utility Rate Study A-COLHT0302.00
City of Columbia Heights Page 2
Table I - Total Utility Bill Comparison
Customer
Description
2003 .Est. Total 2004 Est. Total
Utility Bill Utility Bill
(Per Qtr) (Per Qtr)
Est. Total
Increase
Percent
Increase
Single Adult
Two Adults
Avg. Residential
Family of Four
Family of Six
$96.37
$108.15
$118.51
$135.63
$170.57
$92.98
$112.29
$130.18
$148.08
$183.81
($3,40)
$4,14
$11.67
$12.45
$13.24
(3.5%)
3.8%
9.8%
9.2%
7.8%
Tables 2, 3 and 4 show how the proposed 2004 utility rates compare to
the current rates. As shown in the tables, the water and storm water
rates will increase and the sewer rate will decrease.
Figures 1 through 7 in the back of this report show that the average
customer in Columbia Heights will have utility bills comparable to
nearby communities. The average Columbia Heights residential
customer with the usage of 15,000 gallons per quarter will pay $49.19
per quarter for water, $31.50 per quarter for sewer and $7.74 per
quarter for storm water. This will be a total of $88.43 per quarter.
By way of comparison, the same customer would pay $110.02 in
Minneapolis, $111.00 in Golden Valley and $113.64 'in New Hope for
the same services. Figure 7 is a graphical representation of this
comparison. It is important to note that this comparison does not take
into account any possible proposed rate changes by the other
communities. Also, these other communities may have alternative
ways of' funding capital expenditures, such as connection fees,
surcharges, availability charges, assessments, etc.
Utility Rate Study
City of Columbia Heights
A-COLHT0302.00
Page 3
Table 2 - Water Rate Comparison
Quarterly Charge
2003
2004
Residential
Minimum charge incl. 4488 gal.
Fixed Fee
Rate per add'11000 gal.
Rate per 1000 gal.
Water Meter Surcharge
Senior
Minimum charge incl. 4488 gal.
Fixed Fee
Rate per add'11000 gal,
Rate per 1000 gal.
Water Meter Surcharge
Commercial/Industrial
Minimum charge incl. 4488 gal.
Fixed Fee
Rate per add'11000 gal,
Rate per 1000 gal.
Water Meter Surcharge
$14.40
$2.07
$3.00
$9.32
$2.07
$3.00
$14.40
$2.07
$3.00
$12.00
$2.28
$3.00
$6.90
$2.28
$3.00
$12.00
$2.28
$3.00
Utility Rate Study
City of Columbia Heights
A-COLHT0302.00
Page 4
Table 3 - Sewer Rate Comparison
Quarterly Charge
2003
2OO4
Residential
Minimum charge incl. 4488 gal.
Fixed Fee
Rate per add'11000 gal.
Rate per 1000 gal.
Max. Charge incl. 16,457 gal.
Max. Charge for 24,000 gal.
Senior
Minimum charge incl. 4488 gal.
Fixed Fee
Rate per add'11000 gal.
Rate per 1000 gal.
Max. Charge incl. 16,457 gal.
Max. Charge for 24,000 gal.
Commercial/Industrial
Minimum charge incl. 4488 gal.
Fixed Fee
Rate per add'11000 gal.
Rate per 1000 gal.
$31.76
$1.93
$45.00
$16.22
$1.93
$45.O0
$31.76
$1.93
$12.00
$1.30
$43.20
$6.90
$1.30
$43.20
$12.00
$1.30
Utility Rate Study A-COLHT0302.00
'" City of Columbia Heights Page 5
1.3
Table 4 - Storm Water Rate Comparison
Current Rates Proposed Rates
Land Use (2003) (2004-2008)
R-1 $1.48/unit
R-2 $1.92/unit
R-3 $9.87/acre
R-4 $9.87/acre
RB $19.22/acre
LB $19.22/acre
GiB $21.74/acre
CBD $21.74/acre
I $16.96/acre
I-1 $19.22/acre
MWW $2,57/acre
$2.46/unit
$2.46/unit
$16.23/acre
$16.23/acre
$31.57/acre
$31.57/acre
$35.69/acre
$35.69/acre
$27,85/acre
$31.57/acre
$3.90/acre
Recommendations
The following recommendations can be made as a result of this study:
The current rates will not cover future expenses and will not
provide the City with funds needed to make system repairs and
construct future capital improvements. In order to provide the City
with the needed funds, it is recommended that the new rates
contained in this report be implemented in 2004.
The results of this study are based on 5-year projections of
revenues and expenses. It is recommended that an additional study
be made at the end of this 5-year period to review the actual
revenues and expenses and to make projections for future years.
The higher water rates may promote water conservation, which
may in turn reduce the water usage and also reduce the project
revenues. It is recommended that the City monitor water usage on
a yearly basis and revisit the rate structure periodically. If a
significant amount of water conservation is occurring, the rates
may need to be adjusted upward to increase revenue to the desired
level.
The new contract between the City of Columbia Heights and the
City of Minneapolis for providing water has not been finaliZed, but
is anticipated to be Completed prior to the end of 2003. If the final
contract contains a higher water rate that what has been assumed
Utility Rate Study A-COLHT0302.00
.'" City of Columbia Heights Page 6
2.0
2.2
($1.81 per 1000 gallons), it is recommended that the City review
the prOposed rates to determine if additional increases are needed.
MCES sanitary sewer treatment costs should be monitored over the
next 5 years. If actual charges from MCES vary significantly from
the estimates used in this study, it is recommended that the City
revisit the sewer rates to determine if additional increases are
needed.
Supplementing the utility revenues with alternative revenue
sources would make it easier to fund improvements. If significant
redevelopment is expected to occur in the future, it is
recommended that the City consider implementing City SAC and
City WAC charges to help offset the larger demand that the
redevelopment areas will place on the City's utility infrastructure.
It is recommended that the City consider special assessments to
benefiting properties as another method to collect additional
revenues for improvement projects.
There is not a compelling financial reason to make the transition
from the current quarterly billing system to a monthly billing
system. However, for an upfront investment of about $25,000 in
equipment, the City could convert to a monthly billing system
which would provide more convenience to utility customers. If the
City feels that the additional customer convenience is worth the
upfront investment, it is recommended that a monthly billing cycle
be implemented.
Introduction
Authorization
On February 12, 2003, Short Elliott Hendrickson, Inc. (SEH) was
given authorization by the City of Columbia Heights to prepare a
Utility Rate Study. The scope of work for the study is described in the
SEH December 27, 2002 proposal.
Scope
The purpose of this study is to establish equitable utility rates for the
residents and businesses within the City, and to provide funding for
future maintenance and upgrades of the utility systems. Other specific
goals include the following:
1. Develop a five-year plan of projected expenses and revenues for
the water, wastewater and storm water funds.
Utility Rate Study
City of Columbia Heights
A:COLHT0302.00
Page 7
2.3
2. Develop a rate structure that is easy to understand and is
compatible with existing billing software.
Promote conservation of water.
Develop a capital improvement allowance within each fund.
Obtain cash baiances that are adequate to fund capital
improvements and cover unexpected repairs without depleting
reserve balances.
Develop water rates that cover the higher costs of purchasing water
which are expected to occur at some point in the future as a result
of Minneapolis' new water filtration system.
Consider the impact of new rates on all users, including both low
volume and high volume users.
Project MCES expenses for wastewater treatment over the next
five years.
Research pending Federal, State and Regional mandates dealing
with the utility systems, and include an allowance in the rates to
cover the associated costs.
10. Evaluate monthly versus quarterly billing.
11. Review alternative revenue sources.
12. Survey other communities to determine how Columbia Heights'
rates compare with other similar metro communities.
Data Available
Information used in the preparation of this report generally includes
those items listed under the "Required Information" section of the
December 27, 2002 proposal. The specific data provided by the City is
listed below:
· Sewer and Water Year End Balance Sheets, 1996-2000
· Draft Capital Improvement Plan, 2003-2007
· Annual Water Usage, 1986-2002
· MCES Monthly Metered Sewer Flows, 1997-2000
· Water Service Connection Information, 1997-2002
· Historical Rate Increase Data, 1980-2000
· Ordinance #1397, Establishment of a Storm Water Utility, 1999
· Comprehensive Annual Financial Report (CAFR), 2001
Utility Rate Study A-COLHT0302.00
City of Columbia Heights Page 8
3.0
· ' Comprehensive Plan, June 2001
· Development Ordinance, Section 6
· I/I Analysis, 1983
· I/I Study for Chatham Road Lift Station, 1999
· Six Cities Watershed Management Plan, 1997
· Water Distribution System Analysis, 1999
· Water Emergency and Conservation Plan, 1997
· Water Resources Management Plan, 2000
· Zoning Ordinance, 2001
· Storm Water Utility Billing Records, 2000-2003
Historical -Data
Historical Population and System Connections
The population of the City of Columbia Heights has remained
relatively steady over the past five years, with less than a 1 percent
change from 1997 to 2002. As a result, ~the number of system
connections has remained fairly steady. Table 5 shows the historical
population and the number of system connections between 1997 and
2002. Table 6 shows the breakdown of system connections by
customer class.
Table 5 - Historical Population and Water/Sewer Connections
Sewer/Water
Year Population* Households* Connections
1997
1998
1999
2000
2001
2002
18,699
18,699
18,714
18,520
18,529
18,600
7,792
7,806
7,847
8,033
8,039
N/A
* Population and household data from State of Minnesota Demo(
N/A
N/A
N/A
6,258
6,388
6,345
iraphics Website
Utility Rate Study A-COLHT0302.00
City of Columbia Heights Page 9
Table 6 - Water/Sewer Connections by Customer Class (2002)
Customer Class No. of Connections
Single Family
Duplex
Senior
Commemial
Government
Industrial
Institutional
Multi-Dwelling Residential
5,365
326
166
268
33
3
31
155
Total 6,347
3.2
Historical Rates
Table 7 is a summary of the historical water and wastewater rates for
the City of Columbia Heights. The years listed across the top of the
table indicate that rate adjustments were made in those years. The
current rates were established in 2000 and are shown in the far right
column.
As shown in Table 7, rates have been set differently for residential,
senior and commercial/industrial customers. In all cases, the minimum
charge has allowed for a certain amount of usage to take place without
additional charges. The water meter surcharge was added in 2000 as a
means to recover the cost of the automated meter reading system. The
sewer rates have utilized a maximum charge for residential and senior
customers. The maximum sewer charge has not applied to commercial/
industrial customers.
Table 8 is a summary of historical rates for the Storm Water Utility.
The only change between the original rates established in 2000 and the
current rates is the R-2 rate, which was increased from $1.48/unit to
$1.92/unit.
Utility Rate Study A-COLHT0302.00
City of Columbia Heights Page 10
Table 7 - Quarterly Historical Water/Sewer Rates
Basis of Rates 1980 1982 1992 1995 1999 2000
Historical Residential Rates
Water
Min. Charge including 600 CF or 4,488 gallons $7.00
Rate per additional 100 cubic feet 0.80
Rate per additional 1,000 gallons N/A
Water Meter Surcharge N/A
Sewer
Min. Charge including 600 CF or 4,488 gallons $16.50
Rate per additional 100 cubic feet 0.75
Rate per additional 1,000 gallons N/A
Max. Charge including 2,200 CF or 16,457 gallons 22.50
Quarterly Water Charges
$8.00 $12.00 $13.20 $14.40 $14.40
0.85 1.25 1.35 1.55 1.55
N/A N/A N/A N/A 2.07
N/A N/A N/A N/A 3.00
Quarterly Sewer Charges
$18.70 $25.30 $28.60 $33.00 $31.76
0.85 1,15 1.30 1.50 1.45
N/A N/A N/A N/A 1,93
25.50 34,50 39.00 45.00 45.00
Historical Senior Rates
Water
Min. Charge including 600 CF or 4,488 gallons
Rate per additional 100 cubic feet
Rate per additional 1,000 gallons
Water Meter Surcharge
Sewer
Min. Charge including 600 CF or 4,488 gallons
Rate per additional 100 cubic feet
Rate per additional 1,000 gallons
Max. Charge including 2,200 CF or 16,457 gallons
Quarterly Water Charges
$4.50 $5.00 $7.35 $8.55 $9.32 $9.32
0,80 0,85 1.25 1,35 1,55 1.55
N/A N/A N/A N/A N/A 2.07
N/A N/A N/A N/A N/A 3.00
$7.50
0.75
N/A
22.50
Quarterly Sewer Charges
$8.00 $10.80 $14.10 $16.22 $16.22
0.85 1.15 1.30 1.50 1.45
N/A N/A N/^ N/A 1.93
25.50 34.50 39.00 45.00 45.00
Historical Commercial/Industrial Rates
Water
Min. Charge including 600 CF or 4,488 gallons
Rate per additional 100 cubic feet
Rate per additional 1,000 gallons
Water Meter Surcharge
Sewer
Min. Charge including 600 CF or 4,488 gallons
Rate per additional 100 cubic feet
Rate per additional 1,000 gallons
Quarterly Water Charges
$7.00 $8.00 $12.00 $13.20 $14.40 $14.40
0.80 0.85 1.25 1.35 1.55 1.55
N/A N/A N/A N/A N/A 2.07
N/A N/A N/A N/A N/A 3.00
$16.50
0.75
N/A
Quarterly Sewer Charges
$18.70 $25.30 $28.60 $33.00 $31.76
0.85 1.15 1,30 1.50 1.45
N/A N/A N/A N/A 1.93
Utility Rate Study A-COLHT0302.00
City of Columbia Heights Page 11
3.3
Table 8 - Monthly Historical Storm Water Rates
Original Rates Current Rates
Land Use (2000) (2003)
R-1
R-2
R-3
R-4
RB
LB
GB
CBD
I
I-1
MWW
$1.48/unit
$1.48/unit
$9.87/acre
$9.87/acre
$19.22/acre
$19.22/acre
$21.74/acre
$21.74/acre
$16.96/acre
$19.22/acre
$2.57/acre
$1.48/unit
$1.92/unit
$9.87/acre
$9.87/acre
$19.22/acre
$19.22/acre
$21.74/acre
$21.74/acm
$16.96/acre
$19.22/acre
$2.57/acre
Historical Water Sales and Wastewater Flows
A summary of the annual historical water sales and wastewater flows
is presented in Tables 9 and 10, respectively. The water sales
information in Table 9 is from City records. The wastewater flows in
Table 10 represent the actual annual flow of wastewater discharged to
MCES for treatment.
Table 9 - Historical Water Sales (Gallons)
Year Pop.
Res. Water
Sold
Indust. Gov't Instit. Total
Water Water Water Com'l Water Total Water Sold
Sold Sold Sold Sold Water Sold per Capita
1997 18699
1998 18699
1999 18714
2000 18520
2001 18529
2002 18600
563,828,888
540,251,802
549,733,334
476,675,299
472,069,861
479,815,612
1,383,148 8,305,621 21,285,072 57,841,632 652,644,161 34,903
1,186,410 7,703,439 21,696,500 57,069,411 627,907,563 33,580
997,153 8,364,915 24,707,410 55,808,816 639,631,627 34,179
774,982 7,364,964 18,498,648 55,041,316 558,355,208 30,149
356,821 7,408,193 24,528,352 53,570,933 557,934,160 30,111
415,917 7,111,910 26,019,693 52,805,651 566,168,782 30,439
3-Yr Avg (2000-2002)
6-Yr Avg (1997-2002)
476,186,924
513,729,099
515,907 7,295,022 23,015,564 53,805,966 560,819,383 30,233
852,405 7,713,174 22,789,279 55,356,293 600,440,250 32,227
Utility Rate Study
City of Columbia Heights
A-COLHT0302.00
Page 12
Table 10 - Historical Wastewater Flows (Gallons)
Total Water MCES
Total Water Sold per Wastewater
Year Population Sold) Capita MCES Wastewater per Capita
1997 18699 652,644,161 34,903 611,100,000 32,681
1998 18699 627,907,563 33,580 576,900,000 30,582
1999 18714 639,631,627 34,179 578,000,000 30,886
2000 18520 558,355,208 30,149 559,300,000 30,200
2001 18529 557,934,160 30,111 584,100,000 31,524
2002 18600 566,168,782 30,439 598,100,000 31,156
3-Yr Avg. (2000-2002)
6-Yr Avg.(1997-2002)
560,819,383 30,233 580,500,000 31,293
600,440,250 32,227 584,583,333 31,383
3.4
Historical Fund Cash Balances
Summaries of historical fund balances for the water, wastewater and
storm water funds are presented in Tables 11, 12 and 13, respectively.
The annual revenues shown in the tables include sales, penalties, fees,
bond proceeds, and interest income. The expenses include salaries,
professional services, materials, supplies, electricity, depreciation,
fiscal expenses, bond payments, capital improvements, etc. The
wastewater expenses include MCES charges for wastewater treatment.
It is important to note from Table 11 that the water fund has been
operating in a deficit mode for the last 3 years, and the deficit has been
increasing. On the other hand, the wastewater and storm water funds
have generally had a positive annual net income.
Table 11 - Historical Water Fund Balances: 1997 thru 2002
Description
Year
1997 1998 1999 2000 2001 2002
Cash Flows from Operating
Activities
Cash Flows from Non-Capital
Financing Activities
$159,971 $155,124 $336,057 $167,434 $5,847 $108,551
($82,584) ($134,675) $547,550 ($107,956) ($116,684) ($119,366)
Cash Flows from Capital &
Related Financing Activities
Cash Flows from Investing
Activities
Net Increase (Decrease) in
Cash Balance
Water Fund Previous Year End
Cash & Cash Equivalents
($309,254) ($112,519) ($422,337) ($467,438) ($382,125) ($316,240)
$59,113 $49,689 $12,260 $73,562 $53,213 $44,188
($172,754) ($42,381) $473,530 ($334,398) ($439,749) ($282,867)
$844,834 $665,788 $623,407 $1,096,937 $762,539 $322,790
Water Fund Cumulative Year
End Cash & Cash Equivalents
$672,080 $623,407 $1,096,937 $762,539 $322,790 $39,923
Utility Rate Study A-COLHT0302.00
City of Columbia Heights Page 13
Table 12 - Historical Wastewater Fund Balances: 1997 thru 2002
Year
Description 1997 1998 1999 2000 2001 2002
Cash Flows from Operating
Activities
Cash Flows from Non-Capital
Financing Activities
$206,291 $54,156 $525,533 $470,500 $359,274 $242,430
($82,584) ($87,781) ($416,199) ($107,955) $152,984 ($109,364)
Cash Flows from Capital &
Related Financing Activities
Cash Flows from Investing
Activities
Net Increase (Decrease) in Cash
Balance
Wastewater Fund Previous Year
End Cash & Cash Equivalents
($118,188) ($122,336) ($523,126) ($15,434 $142,401 ($214,368)
$145,110 $148,578 $61,745 $168,377 $129,300 $172,481
$150,629 ($7,383) ($352,047) $515,488 $783,959 $91,179
$1,509,207 $1,648,709 $1,641,326 $1,289,279 $1,804,767 $2,588,726
Wastewater Fund Cumulative
Year End Cash & Cash
Equivalents
$1,659,836 $1,641,326 $1,289,279 $1,804,767 $2,588,726 $2,679,905
Table 13 - Historical Storm Sewer Fund Balances: 1999 thru 2002
Description
Year
1999 2000 2001 2002
Cash Flows from Operating Activities
Cash Flows from Non-Capital Financing Activities
$0 $35,380 $126,715
$18,788 $0 $0
$123,557
($10,000)
Cash Flows from Capital & Related Financing Activities $778,475
Cash Flows from Investing Activities $3,521
Net Increase (Decrease) in Cash Balance $800,784
Storm Sewer Fund Previous Year End Cash & Cash
Equivalents $0
($324,758) ($657,194) ($106,270)
$70,572 $34,184 $14,706
($218,806) ($496,295) $21,993
$800,784 $581,978 $85,683
Storm Sewer Fund Cumulative Year End Cash & Cash
Equivalents
$800,784 $581,978 $85,683 $107,676
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"-- City of Columbia Heights Page 14
4.0
Governmental Mandates and New Technologies
Governmental Mandates
Governmental mandates will affect the future costs of operating
utilities. The copper/lead testing program and the nitrate testing
program are examples of previous mandates involving drinking water.
Copper, lead and nitrate testing is typically completed on an annual
basis.
The Public Water Supply-Emergency and Conservation Plan is another
example where the City of Columbia Heights has been involved with
governmental mandates. This involved a law which was passed in
1993 that required public water suppliers which serve populations of
more than 1,000 to develop a plan discussing alternative sources of
water. Columbia Heights prepared its Water emergency and
Conservation Plan in 1997.
A few of the recent governmental mandates that may significantly
affect the City of Columbia Heights are listed below:
The Safe Drinking Water Act Amendments of 1996 (SDWA)
made extensive changes to previous requirements. The U.S.
Environmental Protection Agency (EPA) will select at least five
new candidate contaminants to consider for regulation every five
years. Public water systems will be required by the EPA to provide
customers with annual consumer confidence reports in newspapers
and by direct mail.
Another regulation that will affect future costs to many
communities involves lead-based coatings. Many older water tanks
have coatings which exceed the one percent limit for lead. The cost
to repaint these structures can be significant.
Wastewater treatment regulations will cause an increase in costs
for changes to wastewater sludge treatment and disposal
regulations. The State of Minnesota is also slowly implementing
restrictions on the quantity of phosphorus that can be discharged
into rivers and lakes from wastewater treatment plants. Tighter air
pollution regulations at treatment facilities are also expected in the
near future.
The storm water utility will be impacted by the cost to implement
the National Pollutant Discharge Elimination System (NPDES)
Phase II requirements. Under this program, each owner of a
municipal storm sewer system must prepare a Storm Water
Pollution Prevention Plan (SWPPP). In addition, rigorous permit
requirements are now being implemented to control pollution of
water bodies from construction sites.
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City of Columbia Heights Page 15
4.2
o
The Metropolitan Council Environmental Services (MCES) has
implemented a Metropolitan I/I Reduction Program. This FI
reduction program is currently being studied by MCES and may
result in additional costs over and above the anticipated annual
MCES rate increases. Depending on the level of I/I associated with
the City's collection system, there may be additional costs to the
sewer utility as a result of this program.
Environmental Protection Agency (EPA) is proposing a new
requirement which states that each community must prepare a
written Capacity, Assurance, Management, Operation and
Maintenance (CMOM) program for their collection system. Each
community must outline how they will address each of these four
elements. The ultimate goal of the rule is to eliminate sanitary
sewer overflows. The rule defines the sanitary sewer overflow as
any event where water escapes the collection system, such as
basement backups, pipe breaks and manhole overflows. This new
requirement will have an impact on the cost of operating the
sanitary sewer utility.
Another new mandate is known as GASB 34. This acronym stands
for Government Accounting Standards Board 34. This mandate
requires all governmental units to "book" their fixed assets (such
as utility infrastructure), establish their original value, update their
value based on improvements, and depreciate their value over time
in order to determine the correct value of these assets. The future
cost to implement GASB 34 will have an impact on the utility
funds.
8. In response to the attacks on September 11, 2001, Congress passed
the Public Health Security and Bioterrorism Preparedness and
Response Act in 2002. This act requires all public water supply
systems that serve 3,300 persons or more to complete a
vulnerability assessment of their system and supply a copy to the
Environmental Protection Agency. For Columbia Heights, this
vulnerability assessment is due on June 30, 2004. Capital
improvements to facilities such as the elevated tower, valve vaults,
and booster stations will likely be identified as part of this
assessment. Congress is also reviewing legislation on vulnerability
assessments for wastewater facilities such as lift stations that may
also require additional improvements.
New Technologies
The renovation of aging utility infrastructure and the advancements in
technology will also impact the future costs of operating utilities. One
example is the Minneapolis Water Works (MWW) membrane
filtration improvements.
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City of Columbia Heights Page 16
5.0
The MWW is presently constructing a 70-million gallon per day
(MGD) membrane filtration plant at the Columbia Heights Filtration
Plant complex. The new plant will replace the existing 1913 vintage
single media sand filtration plant. The anticipated startup date is 2005.
The MWW is also scheduling a new membrane filtration plant at their
Fridley complex. This new plant will be designed for 95 MGD and
will supplement the existing dual media sand/anthracite filtration
plant. The Fridiey membrane filtration plant is expected to be on line
in October 2007. Both membrane plants will utilize ultra-filtration
technology to provide increased removal of bacteria, turbidity and
microbial contaminants such as giardia, cryptosporidium and viruses.
As the cost of updating this technology will be significant, it is
anticipated that the cost to purchase water from the MWW will
increase in future years.
Projections
Connection and Population Projections
The projected population and water/sewer connections are given in
Table 14. The projections are based on historical trends. It is
anticipated that the residential connections will increase by about 20
connections per year, and non-residential connections will remain
constant during the study period.
Year
Table 14- Population and System Connection Projections
Columbia Heights
Population Served
Projected Service Connections
by Water/Sewer Residential Other Total
Systems Households Connections Connections Connections
.-- 2003 18724 8111 6012 335 6347
2004 18792 8138 6032 335 6367
2005 18860 8165 6052 335 6387
2006 18928 8192 6072 335 6407
2007 18996 8219 6092 335 6427
'-- 2008 19064 8246 6112 335 6447
5.2
Projected Water Sales and Wastewater Flows
The projected water sales and wastewater flows are presented in
Tables 15 and 16. The projected flows are based on the historic
average per capita flows multiplied by the projected population for
each year.
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Page 17
Table 15 - Projected Water Sales (Gallons)
Year Pop.
Indust. Gov't Instit. Com'l Total
Res. Water Water Water Water Water Water Total Water
Sold Sold Sold Sold Sold Sold Sold per Capita
2003 18724
2004 18792
2005 18860
2006 18928
2007 18996
2008 19064
481,206,800 561,720 7,489,600 22,468,800 54,299,600 565,464,800 30,200
482,954,400 563,760 7,516,800 22,550,400 54,496,800 567,518,400 30,200
484,702,000 565,800 7,544,000 22,632,000 54,694,000 569,572,000 30,200
486,449,600 567,840 7,571,200 22,713,600 54,891,200 571,625,600 30,200
488,197,200 569,880 7,598,400 22,795,200 55,088,400 573,679,200 30,200
489,944,800 571,920 7,625,600 22,876,800 55,285,600 575,732,800 30,200
Table 16- Projected Wastewater Flows (Gallons)
Year Population MCES Wastewater MCES Wastewater per
Capita
2003 18724 587,933,600 31
2004 18792 590,068,800 31
2005 18860 592,204,000 31
2006 18928 594,339,200 31
2007 18996 596,474,400 31
2008 19064 598,609,600 31
400
400
400
400
400
400
5.3
Projected Capital Improvement Plan
'['he City's fort-net Capital Improvement Plan (CZP) was completed in
1999. This CIP was updated as a part of this study. The process of
updating the CIP was iterative, in that the CIP cost had to be balanced
with the need to keep utility rates comparable to other communities.
The process involved working the original CIP down from its initial
cost, since the initial cost resulted in proposed rate increases that were
out-of-step with other communities. The final CIP was determined to
be a satisfactory compromise between needs and cost.
Examples of possible improvement projects include a SCADA update
and removal, and replacement of old cast iron pipes in the water
system.
Part of the SCADA update will include a change in the radio
frequency so that there is no conflict with the State Patrol frequency.
In addition, the master SCADA control panel will be updated. The
existing control panel is out of date and repair parts are no longer
made for the panel. Security system improvements for some city
facilities are also planned,
Utility Rate Study A-COLHT0302.00
City of Columbia Heights Page 18
Parts of the City's original water system are nearing the end of their
useful life, and are in need of replacement. The City has replaced small
segments of the water system on an annual basis, and plans to continue
this practice.
Other miscellaneous projects include pipe repairs, pipe enlargements,
and pipe extensions for the water, sewer and storm water systems. A
summary of the projected capital improvement plan is presented in
Table 17.
Even with rate adjustments, the projected capital improvement plan
would not be affordable without bonding for some of the
improvements. It is anticipated that capital improvement bonds will be
needed in years 2006 and 2008 for the water and storm water utilities.
This includes a $1,200,000 improvement bond in 2006 and a $450,000
improvement bond in 2008, as shown in Table 18.
Table 17- Projected Capital Improvement Plan
Year
2003 2004 2005 2006 2007 2008 Total
Water CIP $0 $125,000 $300,000 $275,000 $225,000 $225,000 $1,150,000
Sewer OlP $175,000 $275,000 $225,000 $200,000 $175,000 $175,000 $1,225,000
Storm OlP $50,000 $132,900 $97,900 $97,900 $97,900 $97,900 $574,500
Total $225,000 $532,900 $622,900 $572,900 $497,900 $497,900 $2,949,500
Table 18 - Anticipated Capital Improvement Bonds
Year
Utility 2006 2008 Total
Water Utility $700,000 $450,000 $1,150,000
Sewer Utility
Storm Water Utility $500,000 $0 $500,000
Total $1,200,000 $450,000 $1,650,000
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City of Columbia Heights Page 19
5.4
5.5
Assumptions for Future Expenses
The cost to purchase water from the City of Minneapolis is an
important factor in the determination of future financial needs.
Historically, water increases from the City of Minneapolis have been
in the 7% to 9% per year range.
The new contract between the City of Columbia Heights and the City
of Minneapolis has not been finalized, but is anticipated to be
completed prior to the end of 2003. Discussions with the City of
Minneapolis to date indicate that the cost to purchase water ove~: the
next 5 years will likely remain very close to the current rate.
Accordingly, for the purpose of this report, it has been assumed that
the cost to purchase water from Minneapolis will remain at the current
rate of $1.81 per 1000 gallons for the next 5 years. If'the final contract
contains a higher rate than what has been assumed, it is suggested that
the City revisit the proposed rates to determine if additional increases
are needed.
The MCES projected treatment cost per 1000 gallons is the largest
expense for the sewer utility. The projected treatment cost for each
year within the planning period was obtained from the MCES and
incorporated into sanitary sewer expenses. For 2003, MCES charged
$130 per 100,000 gallons of sewage treated. According to MCES
projections, this cost will increase to approximately $155 per 100,000
gallons treated by the year 2008. These estimated treatment costs do
not include any potential costs for the Metropolitan I/I Reduction
Program. If actual charges from MCES vary significantly from these
assumptions, it is suggested that the City revisit the sewer rates to
determine if additional increases are needed.
Projected Revenue and Expenses - Existing Rates
As a means of testing the existing rates, an analysis was completed to
see what would happen if the existing rates were not changed. Using
the future projections for population, connections, and flows, the
annual revenue was projected using the scenario that rates would
remain unchanged over the next 5 years. For this scenario, cumulative
year end balances for each utility are shown in Tables 19, 20 and 21.
As shown in the tables, large deficits are expected to occur if the rates
are left as is. The existing water, sewer and storm water rates will not
provide enough future revenue to pay future expenses or allow the
City to make needed capital improvements and repairs. The rates will
need to be adjusted upward.
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City of Columbia Heights Page 20
Table 19 - Projected Water Fund Balances (Existing Rates)
Year
Description 2003 2004 2005 2006 2007 2008
Operating Revenues $1,397,298 $1,404,499 $1,411,701 $1,418,902 $1,426,104 $1,433,305
Other Revenue $36,398 $32,592 $28,787 $724,982 $21,177 $467,371
Subtotal Water Fund
Revenues $1,433,696 $1,437,092 $1,440,488 $2,143,884 $1,447,280 $1,900,677
Basic Expenses $1,797,160 $1,754,751 $1,812,658 $1,872,475 $1,934,267 $1,998,098
Bond Payment $127,397 $177,570 $173,875 $261,918 $260,531 $327,077
Capital Improvements $0 $125,000 $300,000 $275,000 $225,000 $225,000
Subtotal Water Fund
Expenses $1,924,557 $2,057,321 $2,286,533 $2,409,393 $2,419,799 $2,550,175
Net Income
Water Fund Previous Year
End Cash Balance
($490,862) ($620,229) ($846,045) ($285,509) ($972,518) ($649,498)
$39,923 ($450,939) ($1,071,167) ($1,917,212) ($2,182,721) ($3,155,239)
Water Fund Cumulative
Year End Cash Balance
($450,939) ($1,071,167) ($1,917,212) ($2,182,721) ($3,155,239) ($3,804,738)
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City of Columbia Heights Page 21
Table 20 - Projected Wastewater Fund Balances (Existing Rates)
Year
Description 2003 2004 2005 2006 2007 2008
Operating Revenues $1,199,208 $1,203,175 $1,207,143 $1,211,111 $1,215,078 $1,219,046
Other Revenue $143,711 $140,685 $137,658 $134,632 $131,606 $128,580
Subtotal Water Fund
Revenues $1,342,919 $1,343,860 $1,344,802 $1,345,743 $1,346,684 $1,347,626
Basic Expenses $1,317,557 $1,317,557 $1,361,036 $1,405,950 $1,452,347 $1,500,274
Bond Payment $4,831 $4,798 $4,851 $4,795 $4,829 $4,853
Capital Improvements $175,000 $275,000 $225,000 $200,000 $175,000 $175,000
Subtotal Water Fund
Expenses $1,497,387 $1,597,355 $1,590,887 $1,160,746 $1,632,176 $1,680,127
Net Income
Water Fund Previous
Year End Cash Balance
($154,469) ($253,495) ($246~086) ($265,003) ($285,492) ($332,501)
$3,303,309 $3,148,840 $2,895,346 $2,649,260 $2,384,257 $2,098,766
Water Fund Cumulative
Year End Cash Balance
$3,148,840 $2,895,346 $2,649,260 $2,384,257 $2,098,766 $1,766,265
Table 21 - Projected Storm Water Fund Balances (Existing Rates)
Year
Description 2002 2003 2004 2005 2006 2007 2008
Projected Revenue $195,285 $195,285 $195,285 $195,285 $195,285 $195,285
Other Revenue
Sources $10,000 $26,580 $19,580 $19,580 $19,580 $19,580
Projected Basic
Expenses $153,512 $146,108 $158,413' $171,334 $184,9.00 $199,145
Bond Payment $111,625 $128,048 $127,557 $135,511 $179,520 $180,979
Projected CIP
Expenses $50,000 $132,900 $97,900 $97,900 $97,900 $97,900
Projected Bond
Proceeds $0 $0 $0 $500,000 $0 $0
Projected Excess
(Shortage) of Funds ($75,864) ($151,203) ($135,017) $344,108 ($213,467) ($229,171 )
Year End Cash
Balance $11,272 ($64,592) ($215,795) ($350,812) ($6,704) ($220,171 ) ($449,342)
Utility Rate Study A-COLHT0302.00
City of Columbia Heights Page 22
6.0
6.2
Proposed Rates
Rate Structure Philosophy
Communities have differing views regarding rate structure philosophy.
However, most communities share in the same desired end result - to
obtain sufficient revenue from the rates to offset projected expenses.
To this end, the following concepts regarding rate structures are
generally accepted:
1. Rate structures should be simple, easy to understand, and
compatible with existing billing softwares.
2. Rate structures should promote the conservation of water.
3. A percentage of the "fixed expenses" should be recovered from a
fixed charge.
4. Rate structures should not place a disproportionate share of the
cost burden on any particular user classification.
5. Rate structures should provide a reasonable margin between
revenues and expenses so that funds can be built up to cover
emergency expenditures.
Fixed Charge
For water and sewer, the City of Columbia Heights' current rate
structure has 3 customer classifications: Residential, Senior and
Commercial/Industrial. The current rates contain minimum charges
which allow the customer up to 4,488 gallons per quarter water usage
and up to 16,457 gallons per quarter wastewater discharge before the
usage charges are applied.
The use of a minimum charge typically does not promote water
conservation because there is no incentive within the minimum usage
to use less water. Replacing the minimum charge with a fixed service
fee or fixed charge would have a tendency to promote water
conservation because the customer would pay for every gallon used,
beginning at zero.
A fixed expense is an expense that is incurred regardless of how much
water is sold or wastewater is discharged. For example, expenses such
as staff salaries, office supplies, and routine equipment repair are
considered fixed expenses. On the other hand, expenses such as
electricity to run lift stations, chemical additives for water treatment,
and fuels for running motors are considered variable expenses because
they will vary depending on the amount of water sold or wastewater
discharged.
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6.3
Ideally, the fixed charge should be. high enough to cover all of the
fixed costs for a utility. This would provide funds to pay for all fixed
expenses, even under the theoretical case where no water is sold in a
particular quarter. The disadvantage of a high fixed charge is that it
reduces the incentive to conserve water because it tends to reduce the
need for a higher usage charge. Therefore, a high fixed charge places
more of a burden on the low-end users and less of a burden on the
high-end users. This is undesirable. A more realistic approach is to
structure the rates such that the fixed charge will cover a percentage of
the fixed expenses.
Summary of Proposed Rates
For the reasons described above, the proposed rate structure for
water/sewer will eliminate the minimum charge and implement a fixed
charge. In addition to the fixed charge, a usage charge will be
maintained. The fixed charge will not provide any usage for the fixed
charge, and the usage rate will begin at zero gallons.
Water and sewer rates are proposed to increase on an annual basis
from 2004 to 2008, but storm water rates are proposed to be constant
from 2004 through 2008. A summary of the proposed rates is given in
Tables 22 through 24.
Table 22 - Proposed Quarterly Water Rates
Customer Classification
Year
2004 2005 2006 2007 2008
Residential
Fixed Fee
Rate per 1000 Gallons
Water Meter Surcharge
Senior
Fixed Fee
Rate per 1000 Gallons
Water Meter Surcharge
Commercial/Industrial
Fixed Fee
Rate per 1000 Gallons
Water Meter Surcharge
$12.00 $12.90 $13.87 $14.91 $15.66
2.28 2.46 2.63 2.83 2.97
3.00 3.00 3.00 3.00 3.00
$6.90 $7.80 $8.77 $9.81 $10.56
2.28 2.46 2.63 2.83 2.97
3.00 3.00 3.00 3.00 3.00
$12.00 $12.90 $13.87 $14.91 $15.66
2.28 2.46 2.63 2.83 2.97
3.00 3.00 3.00 3.00 3.00
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Page 24
Table 23 - Proposed Quarterly Sewer Rates
Year
Customer Classification
2004 2005 2006 2007 2008
Residential
Fixed Fee $12,00 $13.20 $14.52 $15.97 $16.45
Rate per 1000 Gallons 1.30 1.43 1.57 1.73 1.78
Maximum Charge for 24,000 Gallons 43.20 47.52 52.27 57.49 59.22
Senior
Fixed Fee $6.90 $8.10 $9.42 $10.87 $11.35
Rate per 1000 Gallons 1.30 1.43 1.57 1.73 1.78
Maximum Charge for 24,000 Gallons 43.20 47.52 52.27 57.49 59.22
Commercial/Industrial
Fixed Fee $12.00 $13.20 $14.52 $15.97 $16.45
Rate per 1000 Gallons 1.30 1.43 1.57 1.73 1.78
Table 24 - Proposed Monthly Storm Water Utility Rates
Current Rates Proposed Rates
Land Use (2003) (2004-2008)
R-1 $1.48/unit $2.46/unit
R-2 $1.92/unit $2.46/unit
R-3 $9.87/acre $16.23/acre
R-4 $9.87/acre $16.23/acre
RB $19.22/acre $31.57/acre
LB $19.22/acre $31,57/acre
GB $21.74/acre $35.69/acre
CBD $21.74/acre $35.69/acre
I $16.96/acre $27.85/acre
I-1 $19.22/acre $31.57/acre
MVVW $2.57/acre $3.90/acre
6.4
Projected Revenue and Expenses Using Proposed Rates
The fund balances using the proposed rates show that there will be
enough revenue to pay for future expenses and allow the City to make
needed capital improvements and repairs. The annual revenues shown
in Tables 25 through 27 are based on projected usages and flows, and
are calculated using proPosed water, wastewater and storm water rates.
The tables are based on the assumption that the new rates will be
implemented at the start of 2004.
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Page 25
Table 27 - Projected Storm Water Fund Balances Using Proposed Rates
Year
Projected
Other Projected Bond Projected Projected Excess Year End
Projected Revenue Basic Payment Capital Bonds (Shortage) of Cash
Revenues Sources Expenses s Expenses Proceeds Funds) Balance
2002 $11,272
2003 $195,285 $10,000 $153,512 $111,625 $50,000 $0 ($75,864) ($64,592)
2004 $287,508 $26,580 $146,108 $128,048 $132,900 $0 i$58,980) ($123,572)
2005 $287,508 $19,580 $158,413 $127,557 $97,900 $0 ($42,794) ($166,366)
2006 $287,508 $19,580 $171,334 $135,511 $97,900 $500,000 $436,331 $269,965
2007 $287,508 $19,580 $184,900 $179,520 $97,900 $0 ($121,244) $148,722
2008 $287,508 $19,580 $199,145 $180,979 $97,900 $0 ($136,948) $11,773
6-Yr Balance (2003-2008)
6.5
$501
Effect of Proposed Rates
Tables 28 through 31 show the impact of the proposed rates on
residential and commercial customers for water and wastewater
service.
The proposed rate structure will tend to promote water conservation.
Since the future reduction in water sales due to water conservation is
difficult to predict, this report did not reflect such a prediction. It is
recommended that the City monitor water usage on a yearly basis and
revisit the rate structure periodically. If a significant amount of water
conservation is occurring, the rates may need to be adjusted upward to
increase revenue to the desired level.
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o
6.6
Comparison with Other Communities
One of the goals of this rate study is to keep the rates comparable to
nearby communities. The comparisons shown in Figures 1 through 7
are based on the 2004 proposed Columbia Heights rates and the
existing rates for the other communities. The comparisons are for
quarterly bills because most of the communities bill on a quarterly
basis.
When comparing water rates, Columbia Heights should be compared
to communities that get their water from a surface water source that is
softened and treated (i.e. Golden Valley, Little Canada. Maplewood,
Minneapolis, Roseville, St. Paul, etc.). These communities must
charge higher rates due to the additional cost of softening and
treatment. Columbia Heights should not be compared to adjacent
communities that get their water from an underground source (i.e.
Fridley, New Brighton, Blaine, Shoreview, etc.).
Figures 1-7 show that the average customer will have utility bills
comparable to nearby communities. The average Columbia Heights
residential customer, with a usage of 15,000 gallons per quarter, will
pay $49.19 per quarter for water, $31.50 per quarter for sewer, and
$7.74 per quarter for storm water. This will be a total of $88.43 per
quarter. By way of comparison, this same customer would pay
$110.02 in Minneapolis, $111.00 in Golden Valley, and $113.64 in
New Hope for the same services. It is important to. note that this
comparison does not take into account any possible proposed rate
changes by the other communities. Also, these other communities may
have alternative ways of funding capital expenditures such as
connection fees, surcharges, availability charges, assessments, etc.
Figure 6 is a total utility bill annual comparison for the City of
Columbia Heights. This figure shows the approximate total utility bill
for each customer type for each year between 2003 and 2008. The far
right column is the percent increase of the total utility bill between the
2 years listed in each table. A negative percent increase indicates that
the total utility bill will decrease between the 2 years listed.
Figure 6 shows that the increases to the total utility bill in 2004 are less
than 10% for all customer classifications. In fact, the total utility bill
for the single adult using 5000 gallons of water per quarter would
decrease by approximately 3.5% between 2003 and 2004. In years
2005, 2006 and 2007, the total utility bill will increase approximately
5% per year. In 2008, the total utility bill will increase approximately
3%. Given the needs facing the City, these annual increases appear to
be very reasonable, considering that cost of living increases have
averaged about 3% annually in recent years.
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~'- City of Columbia Heights Page 30
7.0
7.2
Other Considerations
Administrative Costs
In any community, there 'is a significant administrative effort
associated with the operation of utility funds. In most cities, the
administrative cost to operate the utility fund is typically charged to
that utility fund unless other funds are available to subsidize
administration of the utility funds. This is a general accepted practice
among Minnesota cities, as shown in the following quote from a
League of Minnesota Cities publication: "To ensure that fees and
charge generate the revenue needed to fund a city service, city officials
need to know the full cost of providing a service, including all
operating costs, the cost of indirect services and administrative
support, depreciation expense and reserves for capital replacement'?
It is common practice in some Minnesota cities to track expenses of
staff salaries for each utility based on hours spent. The percentage of
staff time typically varies based on classification. It is quite common
for this percentage to vary from 15% for a city manager to 100% for a
billing clerk. While some communities have developed these types of
systems to track expenses, others have estimated percentages based on
ratios of employees in each fund versus total city utilities. These milos
can then be used to charge administrative fees.
In reviewing the amount of administrative costs that are assigned to
the utility funds in Columbia Heights, it appears that the percentages
may be slightly below average for the amount of administrative costs
assigned to the utility funds. Since this percent of staff time dealing
with utility issues may change from time to time, it is suggested that
administrative costs assigned to utility funds be periodically adjusted
to reflect how staff time is actually spent.
Alternative Revenue Sources
The City of Columbia Heights must ensure that there are sufficient
funds to cover needed capital improvements, normal system repairs,
normal operating costs and unexpected or emergency repairs. The City
must also maintain utility rates which don't overburden any particular
classification of customer. In addition, the rates need to be comparable
to nearby communities.
Accomplishing all of these goals can be a delicate balance, as there are
competing interests involved. Supplementing the utility revenues with
alternative revenue sources can make it easier to strike an appropriate
balance. Alternative revenue sources could include SAC/WAC fees
and special assessments.
t From an article entitled "Exercising Effective Fiscal Oversight" by Sharon KlumPp, found in the December 1997
edition of the Minnesota Cities magazine.
Utility Rate Study
City o1: Columbia Heights
A-COLHT0302.00
Page 31
7.3
Columbia Heights has no city sewer availability charge (City SAC) or
city water availability charge (City WAC) currently in place. The City
does have a metro SAC that is a pass-through cost from MCES to the
applicant. With any new development or redevelopment, the City
should consider implementing City SAC and City WAC fees to
supplement the revenue stream. Typically, SAC and WAC charges are
a one-time fee that is collected by the City at the time of the building
permit. City SAC and City WAC charges in the metro area normally
range from $500 to $2,500 each, depending on the community. City
SAC and City WAC charges for non-residential development/
redevelopment can be tied to the size of the water meter, so that the
larger flow users pay a higher charge.
If significant redevelopment is expected to occur in the future, the City
may wish to implement City SAC and City WAC charges to help
offset the larger demand that the redevelopment areas place on the
City's utilities.
Assessments against benefiting properties is another method that the
City could consider for collecting additional revenues for utility
improvement projects. Minnesota Statutes Chapter 429 is the statutory
authority that authorizes municipalities to finance local improvements
by specially assessing all or a portion of the cost of the improvements
to benefiting properties. The benefit of special assessments is that it
provides an additional revenue stream that would otherwise have to
come from utility funds or the general fund. One of the disadvantages
of special assessments is the additional administration work Which is
necessary to administer the process. Other disadvantages include
quantifying the benefit to those being assessed and dealing with the
potential assessment challenges which can take time and resources to
resolve.
Quarterly versus Monthly Billing
The City of Columbia Heights currently bills on a quarterly basis.
Billing is done with ACS billing software which is set up to be used on
either a quarterly or monthly basis. With the new automated meter
reading system, monthly billings can be done quickly and efficiently
without a significant increase in staff time. Monthly billing could
improve the City's cash flow by reducing the time between incurring
expenses and receiving the revenue for providing services. Monthly
billing could also assist customers in budgeting the otherwise sizeable
utility expenses that come with a quarterly billing, thus reducing bill
delinquency.
Because of the potential advantages to converting from a quarterly to a
monthly billing system; the City Finance Department has studied this
issue in the past. The appendix of this report contains an analysis
prepared in 1992 related to this possible conversion. This information
Utility Rate Study
City of Columbia Heights
A-COLHT0302.00
Page 32
was presented to the City Council for their consideration in 1992. No
action was taken at that time.
In 1992, it was estimated that the City would generate approximately
$23,000 in interest revenue per year by going to a monthly billing
cycle. This revenue was the result of improved cash flow and investing
the excess money at 6%.
Due to inflation since 1992, it is anticipated that the annual savings
with a monthly billing cycle may be slightly higher today, as costs for
sewer, water and refuse have increased. This additional revenue is
expected to be offset by additional postage and supply costs of about
$27,000. Essentially, the additional revenue generated and the
additional costs required are approximately equal, so the additional
cash flow interest income would roughly cover the additional
expenses.
It appears that a monthly billing system could be implemented without
adding more staff. However, the City would need a significant
automation of equipment to fold and stuff the utility bills once they are
generated. The estimated cost for this additional equipment is
approximately $25,000. The equipment would consist of an automated
folding and stuffing machine that would work in conjunction with the
mailing machine.
Although the information in the appendix is from 1992, it appears that
with the exception of a few cost changes,' the theorY still holds true.
For an upfront investment of about $25,000, the City could convert to
a monthly billing system, which would provide more convenience to
the utility customers by allowing a smaller, more uniform utility
payment. Other than this increased value to the customer, there does
not appear to be a compelling financial reason to make the transition,
· as the additional revenue earned and the additional cost required are
approximately the same.
If the City is interested in providing an increased level of customer
convenience, it is recommended that the monthly billing concept be
further considered.
Utility Rate Study
City of Columbia Heights
A-COLHT0302.00
Page 33
Figures
Figure I - Comparison of Water Rates with Average Use
Figure 2 - Community Comparison of Water Rates
Figure 3 - Comparison of Sewer Rates with Average Use
Figure 4 - Community Comparison of Sewer Rates
Figure 5 - Community Comparison of Storm Water Rates
Figure 6- Total Utility Bill Annual Comparisons
Figure 7 - Community Comparison of Total Bills
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Figure 6
Total Utility Bill Annual Comparisons
2003 - 2008
Typical Refuse 2003 2004
ryplaal Description QuarterlyServiceUtility Sill Utility Sill
of Customer Water Usage Plan Total Pement
(Gallons)(Gallons) Water' Sower Storm Reluse" Recycling Total Water' Sewer Storm Refuse-· Recycling Total Increase Increase
s:ing[e .Aaa[t:5.000 22 $20.77$31.76$4.44 $29.88 $9.54$38.37$27.70 $16.50$7.38$29.86 $9.54S92.98-S3.40-3.5%
?we ~du].~ to.oeo ~o $31.13$31.76$4.44 $31.28 $9.54S108.15 $39,09 $25.(30 $7.38$31.26 $9.54$112.29 S4.14 3.8%
Ave=a~le Sea:ld~nt:J.~ ~.S.00O 60 $41.49$31.75$4.44 $31.28 $9.54Sl18.81 $50.49 $31.50S7.38$31.28 S9.54$130.18 611.679.5%
Fam[].y o~ Fou~20.000 60 $51.85$38.52$4.44 S31.28 $9.54S135.63 S61.88 $38.00S7.38$31.28 $9.54S148.08 S12.459.2%
yam[[}' o[ sJ.x30.000 9o $72.57$45.00S4.44 $39.02 $9.54$170.57 $84.67 $43.20$7.38$39.02 $9.54$153.01 $13.247.8%
· Includes $3 meter surcharge and $1.30 State Testing Fee
*' Includes 9.75% Tes
Typical Refuse 2004 2005
Typical Descriptor QuarterlyService Utility Bill Utility Bill
of Customer ~Vater Usage Plan TotalPercent
(Gallons) (Gallons) Water' Sewer Storm Roluse" Recycling Total Water' Sewer Storm Roluse" Recycling Total Increase Increase
s[ne~.~ ,,,au[~e.0o~ 3~ $27.70$18.50$7.38 $29.86 $9.54 S92.98$29.45 $20.35$7.38529.88 $9.54i 595.55 $3.00 3.9%
?~o ~,,~t~[~= ~o.ooo ~o $39.09$25.00$7.38 $31~28 $9.54 S112.29 $41.70 $27.50$7.38$31.25 $8.54i$117.4C S5.11 4.6%
~,var~O= ~==~.,~=n~. zs,ooo ~o $50.49$31.50$7.38 $31.28 $9.54 S130.18 $53.95 $34.65$7.38$31.28 $9.546135.8CS6.61 5.1%
~t].y =~ ~=u= 2o.ooo ~o $61.88$38.00$7.38 $31.28 $9.54 $148.08 $66.20 $41.80$7.38$31.28 $9.54S156.2C88.12 5.5%
F~rn£[y o[ s~.x30,000 9o $84.67$43.20$7.38 $39.02 $9.54 S183.81 $90.70 $47.52$7.38$39.02 $9.54S194.1E$10.35 5.5%
Includes $3 meter surcharge and S1.30 State Testing Fee
includes 9.75% Tax
Typical Refuse 2005 I 2006
'ypical Descrtption~ Quarterly I Service Uliltiy BillI Uttilty Bill
of Customer Water Usage Plan
Total
Percent
(Ga ons) Ga oas Water' Sewer Storm Refuse" Recycling Total Water' Sewer Storm Refuse" Recycling Total ncrease ncrease
~[r~e[= ~,du[~ s,ooo ~ $29.45$20.35$7~38 $29.86 $9.54 $96.58$31.34 $22.39$7.38$29.86 $9.54$1oo.51 S.3.92 4.1%
r~= ~u:[~a ~.a,ooo ~o $41.70$27.50$7.38 $31.28 $9.54 6117.40 $44.51 $30.25$7,38$31.28 $9~54:122.9~ S5.56 4.7%
w~a~= e==ta=n~,~.s.ooo ~o $53.95$34.65$7.38 $31.28 $9.54 $130.80 $57.68 $38.12$7.38$31.28 $9.54;143.96 S7.19 5.3%
~am~.[y o~ Fo~c20.000 60 $66.20$41.80$7.38 $31.28 $9.54 $156.20 $70.85 $45.98$7.38$31.28 $9.54$165.03 S8.53 5.7%
?am~.[y o~ s£x 30.000 ~o $90.70$47.52$7.38 $39.02 $9.54 $104.16 $97.19 $52.27$7.38$39.02 $9.54$205.4C $11.24 5.8%
· Includes $3 meter sumharge and $1.30 State Testing Fee
"includes 9.75% Tax
Typical Refuse 2006 2007
'ypical Description; QuarterlyServiceUtility Bill Utili[y Bill
of Customer Water Usage Plan Total Percent
(Gallons)(Gallons) Water' Sewer Storm Retuso" Recycling Total Waler' Sewer Storm Refuse" Recycling Total Increas$ Increase
~/.rto[= ~a~.t s.oo0 22 $31.34$22.39$7.38 529.86 $9.54$100.51 S33,37$24.62$7.38$39.86 S9.54$104.7~ $4.27 4.2%
~wo ~.a~.~= [o.ooo ~o $44.51$30.25$7.38 $31.28 $9.54S122.96 $47.53$33.27$7.38$31.28 $9.54$129.0£ S6.04 4.9%
~.ve=age ~{es~.denCJ.~ 3.5.o00 60 $57.68$38.12$7.38 $31.28 $9.54$143.99 $61.69$41.92$7.38$31.28 $9.54S151.81 $7.82 5.4%
Fam[iy o~ Foe= 20.000 6o $70.85$45.98$7.38 $31.28 $9.54$165.03 $75.85S50.57$7.38$31.28 $9.54S174.6'~ $9.59 5.8%
?amJ. ly o[ slx30.000 ~o $97.19$52.27$7.38 $39.02 $9.54$205.40 $104.17 $57.49$7.38$39.02 $9.546217.6( 612.20 5.9%
· Includes S3 meter surcharge and $1.30 Slate Testing Fee
'* Includes 9.75% Tax
Typical Refuse 2007 2008
*yplcal Desorlptlon QuarterlyService Utility Bill Utility Bill
of Customer Water Usage Plan TotalPement
(Gallons) (Gallons) Water· Sewer Storm Refuse" Recycling Total Water' Sewer Storm Refuse*' Recycting Total Increase increase
~1~e[= Aau[~ 5.o~o ~= $33.37524.62$7.38 $29.88 $9.54 $104.77 $34.83 $25.36 $7.38 $29.86$9.54$105.9~$2.20 ~1%
~o ~,a~[~ ~.~.0oo ~o $47.53 $33.27$7.38 $31.28 $9.54 $129.00 $49.70$34.27$7.38$31.28 $9,54$132.1~ $3.17 2.5%
Iwe=age Re=£denc:la 3.5.000 ~0 i $61.69 $41.92$7.38 $31.28 $9.54 S151.81 $64.57$43.18$7.36$31.28 $9.54S155.9.~ S4.14 2.7%
~'~',:[1¥ oE ~=~ 2o.oo~ 60 $75.85 $50.57$7.38 $31.28 $9.54 S174.62 $79.44$52.09$7.38$31.28 $9.546179.731 $5.11 2.9%
Family o[ sJ.x 30.000 sa $104.17$57.49$7.38 $39.52 $9.54 $217.30 $109.18 $59.22S7.38$39.02 $9.54S224.33 $6.74 3.1%
Includes $3 meter surcharge and $1.30 State Testing Fee
Figure 6
Total Ulility Bill Annual Comparisons
2003-2008
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Appendix
1992 Proposal to Convert to Monthly Billing System
DATE:
JANUARY 6, 1992
STUART AND]~:~ON
CrrY MANAGER
FIN~ D~R
FRO~:~OSAL TO CONVERT TO A lvIONTHLY UTIliTY
A~ched is a proposed plan to convert our ,,,~ty billing system from a quarterly to a monthly
structure. There are two advantages in doing this corm~ Fust, it would provide a benefit to
the citizem of Columbia Heights in that they would rtceive smart bills on a momhb] ba~ whic~
revenue soor~' whtch wcruki provkie the utility fund wtth additioMl investment revenue. Based an
current calculations, this would ~,.:~,g appraximatel~ $23,000 of additional revesme into the u~
The attached sununary plan shows how the conversion from quarterly to monthly billing can be do~e
with no increased s~aff requirem~ in the financ~ department ~ hopefully, ~h n~ntmal
inconvenience_ to the citizens.
One of the main functions of this plan is that the City would go to a self-heading system where the
residents would do LheLr own meter reading. The meter z~utin~, on a monLh]y basis, would be
submitted with their pay~mt.. The biBing card watt~d have a place on the ~qurn poflion for their
In reviewing the various al ~i~'ratives, ~ a]~o looic~d at the fea~ of ~ to a i,:...onthly billing
system. Th~ system would work. However, the det~ments to a bi~ sysOem is that the bills
!_ _P~_~ and t~ wotdd ~te sending out a meter rending caxd sepa~te from the _h~___ This would
involve additional postage and would require the citizen ~,,~t rending their meter at a different
time from the time pefi~ when they pay the bill.
Staffa]so looked intothe alternative of goin~ with an automated meter systen~ h'&:nn~ prkT quotes
were received on this type of sy3tem. To tr, st~ll ~ where the meter zeader could read the meter
with an autonut~ scanner ham the outside of the house would cost a~ $125.00 per meter
to instal. Using t~ system would still requ~ a full-Ume ~ ~er to rtad all meters on a
monthly b~ The cost benefit of installing this tyFe of system may not be feasible.
If there is mo~ information you want on this sulyje~ please let me ]<now.
W~:soh
CITY OM COLUMBIA
PROPOSAL TO CONVERT TO A MONTttLY ~ BH.I21WG MYSTI~
PROI;OSAL TO CONVERT TO A MONTHLY
Staffing
CITY O~ COL~ H~IGH'~
PROPOSAL TO CONVERT TO A MONTHLY UITLITY BILLING SY~'rF.M
2_ Sewer payments to MWCC axe one month in advaz~c~
3. Refuse payments are made [or the morala of collectio~c
More tha~ hall o[ all utility payments from customers m _l~r~_'l~ m t1~ 1st a.nd
the llth o[ the month, thereiare, colleciio~s are ~corded as received in the month due.
~'20t63
1~O~ TO C~)NVERT TO A MONTHLY UTIIJTY IFEJ21~G SYSTEM
Convert o~e sectitm at a 6me.