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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 Visit Our Website at: www. ci. columbia-heights, tnn.us 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 The City of Columbia Heights does not discriminate on the basis of disability in the admission or access to, or treatment or employment in, its services, programs, or activities. Upon request, accommodation will be provided to allow individuals with disabilities to participate in all City of Columbia Heights' services, programs, and activities. Auxiliary aids for handicapped persons are available upon request when the request is made at least 96 hours in advance. Please call the City Council Secretary at 706-3611, to make arrangements. (TDD/706-3692 for deaf or hearing impaired only) THE CITY OF COLUMBIA HEIGHTS DOES NOT DISCRIMINATE ON THE BASIS OF DISABILITY IN EMPLOYMENT OR THE PROVISION OF SERVICES EQUAL OPPORTUNITY EMPLOYER CITY OF COLUMBIA HEIGHTS APPLICATION FOR APPOINTMENT TO BOARD OR COMMISSION BOARDS(S) OR COMMISSIONS(S) ON WHICH YOU WOULD LIKE TO SERVE: (INDICATE PREFERENCE: 1, 2, 3, IF MORE THAN ONE) TELECOMMUNICATIONS COMMISSION LIBRARY BOARD CHARTER COMMISSION 0~ot,: If applying for this commission, please indicate if you are a qualified yom': __Yes __ No ECONOMIC DEVELOPMENT AUTHORITY HUMAN SERVICES COMMISSIbN TRAFFIC COMMISSION ~__PARK & RECREATION COMMISSION PLANNING & ZONING COMMISSION POLICE/FIRE CIVIL SERVICE COMMISSION HOME PHONE: NAME: /~/'M" 1~ t-~0t,,/,gSct-~ HOME ADDRESS: ZIP CODE: LIVED IN COLUMBIA HEIGHTS SINCE: PROPERTY OWNED IN COLUMBIA HEIGHTS(O~HER THAN RESIDENCE) 'PRESENT EMPLOYER: WORK PHONE: POSITION TITLE: EDUCATIONAL BACKGROUND: /~. CIVIC EXPERIENCE: .. iI i| PLEASE STATE BRIEFLY WHY YOU ARE INTERESTED IN SERVING ON THIS BOARD/COMMISSION FOR WHICH YOU ARE SUBMITTING THIS APPLICATION AND WHY YOU FEEL YOU ARE QUALIFIED: · ,~ ',. - _ -I- I AM NOT AVAILABLE FOR BOARD/COMMISSION MEETINGS ON THE FOLLOWING EVENINGS (CIRCLE): MONDAY TUESDAY WEDNESDAY THURSDAY /t~DA~ PLEASE LIST THREE REFERENCES: ADDRESS PHONE I HEREBY CERTIFY THAT THE FACTS WITHIN THE FOREGOING APPLICATION ARE TRUE AND CORRECT TO THE BEST OF MY KNOWLEDGE. Return application to: D~ut-y City Clerk City of Columbia Heights 590 40th Avenue NE Columbia Heights, MN 55421 (763) 706-3611 TDD (763) 706-3692 For Office Use Only: Date received: 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 Utility Rate Study A-COLHT0302.00 "-- 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. Utility Rate Study A-COLHT0302.00 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. Utility Rate Study A-COLHT0302.00 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. Utility Rate Study City of Columbia Heights A-COLHT0302.00 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 Utility Rate Study A-COLHT0302.00 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. Utility Rate Study A-COLHT0302.00 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) Utility Rate Study A-COLHT0302.00 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. Utility Rate Study City of Columbia Heights A-COLHT0302.00 Page 23 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 Utility Rate Study City of Columbia Heights A-COLHT0302.00 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. Utility Rate Study City of Columbia Heights A-COLHT0302.00 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. Utility Rate Study City of Columbia Heights A-COLHT0302.00 Page 27 0 ~ 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. Utility Rate Study A-COLHT0302.00 ~'- 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 $25,000, the City could convert to a monthly billing system, which would provide more convenience to the utility customers by allowing a smaller, more uniform utility payment. Other than this increased value to the customer, there does not appear to be a compelling financial reason to make the transition, · as the additional revenue earned and the additional cost required are approximately the same. If the City is interested in providing an increased level of customer convenience, it is recommended that the monthly billing concept be further considered. Utility Rate Study City of Columbia Heights A-COLHT0302.00 Page 33 Figures Figure I - Comparison of Water Rates with Average Use Figure 2 - Community Comparison of Water Rates Figure 3 - Comparison of Sewer Rates with Average Use Figure 4 - Community Comparison of Sewer Rates Figure 5 - Community Comparison of Storm Water Rates Figure 6- Total Utility Bill Annual Comparisons Figure 7 - Community Comparison of Total Bills (E;O0~) Ined (COOg) ell!^esol:l (COOg) pleuqo!l:J (gOOg) edoH ~eN (COOg) S!lOdeeUU!lH (~:OOg) poo~eldelH ,. : - ($OOg) epeueo (COOg) ~elleA ueplocO ($OOg) le3s/uo (~00~ pesodo~d) · slql~!eH e!qtunloo (sooz) slql~!eH e!qtunloo (SO0~:) uol~u!u~ooll~ =E ._C~ 0 U..C) (800~) In~d 'iS (800~) ell!^eSOl:l (SO0~) Ple§qo!EI (J~O0~) edoH MeN (800~) S!lod~euu!l~l (~00~) poo,v, eldel~l (I~OOE) epeu~o el~,!l (800~) ~elleA ueplo9 (800~) le~Sf~E) (tO0~ pesodoJd) slq§!eH e!qLunloo (~00~) slq§!eH e!q~unloo ~ (E~00~) MG!AGJOLJ~ (~00;~) In~d 'iS ~lJed s!noq (~00g) ell!AeSO~ (B00g) qlnom~ld (B00g) edoH M~N (~00~) UOIH~PB MeN (~00~) ~uoleuu~ (gO0~) S]lod~uu~ (gO0~) poo~ld~ (gO0~) ~AoJ9 ~ld~ (gO0~) ~P~U~O ~1~] gO0~) ~II~A u~PlO9 (gO0~) ~] ]s~Jo~ (gO0~) ~P~]~ u~p~ (gO0~) (gO02) sp~d~ uooo p~sodo]~) s;q6~H ~qmnloo (gO02) slq6~H ~qmnloo (gO0~) u~s~qu~qo (gO0~) ~J~ U~lHOOJ~ (gO0~) ~U~l~ (gO0~) A~II~A ~lddV 0 0 0 0 o o. o o o o o o o o o o c; o o c3 o c5 O~ OD ~ CID LO ~" CO ~J lsoo ~l~e~no o o o. o o o cD o o o o 8E ._~ 0 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 (800~) Ined 'IS (800E) ell!^esol:l (800;~) (~00~') edoH ~aN (800~) Sllod~euu!lN (gO0~) pooMeldel~ (800~) epeueo (SO0~) ~elleA UePlO9 (800~) lels~JO q o o q o o. o (5 (5 o c5 o 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.