9.0 Financial Plan. 9.1 Introduction. 9.2 Past Financial History

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1 9.1 Introduction 9.0 Financial Plan The effective implementation of a water system plan (WSP) is dependent upon accurately developing a document which can be financially supported by the water system, will meet State and local regulatory requirements, and provides the flexibility to deal with unforeseen changes. The discussion below presents elements of this WSP addressing each of these issues. This chapter will develop a financial plan which reviews the sources of funds (revenues) and applications of funds (expenses) for the City of Palouse. The financial plan will include projected operating and capital costs of the system for the six-year projected period of calendar year () 2012 to The capital costs contained within this financial plan utilize the capital improvements plan developed as part of this water plan. The results of the financial plan will outline the annual operating and capital needs of the water system and determine if the current water revenues are sufficient to cover costs. 9.2 Past Financial History The past three years of financial information for the City of Palouse water system were evaluated to gain an understanding of the past performance of the system, and at the same time, gain perspective of the current financial status of the City s water system. The City maintains four different water funds as follows: Water (Main water fund with funds being transferred out to the 410, 411, and 412 funds listed below) Water Capital Improvements (capital improvement fund replacing meters, pipe projects, etc.) Pump Maintenance Reserve (emergency fund) Water System Reserve (fund for loan payments on well #3 and future water system projects listed in CIP) Provided below in Table 9-1 is a summary of the four-year financial history ( 2009 to 2012) for the City. The Table is a summation of all four of the above water funds. As can be seen from the Table, the City s water system operating expenses have exceeded their revenue. In January 2011, the City implemented a new water rate structure which decreased the negative operating budget from a $37,440 to $3,145, a 92% improvement. This improvement continued into 2012 as the negative operating deficit shifted into a positive surplus of $47,372 (see Table 9-5). It should be noted that the overall balance includes carryover from previous years. This creates a positive overall surplus in the four water funds City of Palouse Water System Plan 9-1

2 Table 9-1 Summary of Four-Year Financial Plan Description Revenue: Billings + Other $177,082 $169,632 $202,514 $208,340 Interest Income $1,228 $591 $412 $293 Total Revenue: $178,310 $170,223 $202,926 $208,633 Expenses: Operations (including transfers out to other funds) $163,331 $173,394 $150,326 $131,346 Capital Improvements $9,909 $20,743 $3,565 $3,560 Loan Payments $14,062 $13,935 $19,562 $13,605 Other (WSP Costs) $0 $0 $20,000 $12,750 Total Expenses: $187,304 $207,663 $206,071 $161,261 Net Earnings: ($8,994) ($37,440) ($3,145) $47,372 Account Balance (includes carryover) $196,694 $179,539 $194,970 $184, Development of the Six Year Financial Plan The development of the six-year financial plan is intended to demonstrate the City s ability to meet its capital improvement needs, while maintaining sufficient rate levels to support those needs. As previously stated, the financial plan was developed to review the projected revenues and expenses of the water system for In developing the financial forecast, three cost components were reviewed; operating & maintenance (O&M) expenses, general and administrative (G&A) expenses, and capital improvement projects funded from rates. The City s 2011 water system budget was used as a starting point. Projections for future years were obtained by applying an assumed annual escalation (inflation) factor of 3%. The first component of the financial plan reviews the sources of funds of the water system. There are two primary types of revenues received from operations: Rate revenues received from water sales to customers, and Miscellaneous revenues received from water service hookup fees, investment interest, and other miscellaneous revenue. Rate revenues for all four water funds are $218,633 in Revenue growth was tied to the additional number of service connections (9) as shown in Table 2-7. Rate revenues are anticipated to be approximately $214,266 in Table 9-2 below provides a projection of the six year planning period of Capital improvements will be funded by both the 410 Water Capital Improvements budget and the 412 Water System Reserve budget. The 410 Water Capital Improvements budget will cover mainly meter installation and pipe replacement while the 412 Water System Reserve budget can be used for any of the Capital Improvement projects listed in Chapter 8. Both the 410 and 412 budgets are planned to be expanded by transferring money from the 401 General Water Fund. The 410 budget will be expanded by City of Palouse Water System Plan 9-2

3 transferring $12,073 in 2012 and $6,000 per year added to the 410 budget beginning in Variable transfer amounts are planned to be transferred into the 412 budget beginning in With these amounts set aside each year the funds will continue to grow to fund the Capital Improvements. External funding (see Section 9.4) will be sought for the O & M projects listed in the CIP schedule in Table 8-1. If external funding is not secured, these projects will be postponed until a later date when external funding is available or rate revenues have accrued to a level where their cost can be covered in the budget. Increasing rate revenues could include a future rate increase to grow the funds at a faster rate but, currently the City is not planning to increase rates again for the period of this Water System Plan. Description Table 9-2 Projection of Revenues FORECASTED 2012 (actual) Projected Income 401 Fund $189,272 $186,700 $188,177 $189,669 $191,175 $192,697 $194,234 - Projected Income 410 Water Capital Improvements $12,073 $6,000 $7,200 $7,200 $7,200 $7,200 $7,200 - Projected Income 411 Pump Maintenance Reserve $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 - Projected Income 412 Water System Reserve $28,335 $36,300 $90,300 $48,300 $48,300 $48,300 $28,300 Projected Total Water Revenue $234,680 $234,400 $290,877 $250,369 $251,875 $253,397 $234,934 Interest $1,026 $595 $497 $277 $295 $333 $332 Grand Total Water Revenue $235,706 $234,995 $291,374 $250,645 $252,170 $253,730 $235,266 External Funding (Requested amounts not guaranteed) $0 $0 $108,000 $105,000 $250,000 $0 $0 Projected Grand Total with External Funding added $235,706 $234,995 $399,374 $355,645 $502,170 $253,730 $235,266 The second part of the financial plan is a review of the applications of funds or expenses of the water system. Applications of funds include operating & maintenance expenses, general and administrative expenses, and capital improvement projects funded from rates. These costs are summarized in Table 9-3. City of Palouse Water System Plan 9-3

4 Table 9-3 Projection of Expenditures Description FORECASTED 2012 (actual) Projected Expenditures 401 Fund 1 $164,145 $162,785 $244,759 $191,633 $195,890 $200,276 $184,793 - Projected Expenditures 410 Water Capital Improvements 2,11 $584 $5,290 $6,495 $13,537 6 $6,580 $6,625 $6,671 - Projected Expenditures 411 Pump Maintenance Reserve 3 $0 $0 $17,000 $0 $0 $18,000 $0 - Projected Expenditures 412 Water System Reserve 4 $12,872 $12,752 $120,633 7 $117,514 8 $262,395 9 $213, $12,156 Expense Annual Percentage Increase 5 n/a 3% 3% 3% 3% 3% 3% Total Expenses $177,601 $180,827 $388,887 $322,684 $464,866 $438,177 $203, Includes salaries, benefits, clothing, office & operating supply, fuel, taxes and misc. expenses 2. Capital Improvements such as meter and pipe replacement 3. Routine maintenance of the two well pumps and any pump emergencies that may occur 4. Loan payments on Well #3 and also reserving money for future water system projects 5. Annual increase of 3% due to inflation 6. Includes Water Loss Control CIP project of installing meters at cemetery and park. 7. Includes $108,000 for Culton Street Waterline Replacement from Table Includes $105,000 for Ellis Street Waterline Replacement from Table Includes $250,000 for Mohr Street Waterline Replacement from Table Includes $201,000 for Church Street Waterline upsizing for fire flow system deficiency from Table Includes all Conservation projects listed in CIP schedule in Table 8-1 including the WUE goal of completing the irrigation sprinkler system at the park listed in Section 4.3 and all other WUE measures. City of Palouse Water System Plan 9-4

5 9.4 External Sources of Funding Some of the projects listed in the CIP (Table 8-1) will require external sources of funding. A few of the available funding sources are discussed below. Table 9-5 provides a summary of the contacts for the various funding agencies (see Appendix I- 1 for a full listing). It is important to note that these sources rarely provide full funding of a construction project. The City will need to supplement these funds with other sources of revenue (such as a rate increase) to ensure that construction of the recommended capital improvement projects occurs. Table 9-4 Funding Agency Contacts Program Address Phone Internet Community 1011 Plum Street Development Block Southeast Olympia, WA Grant (360) Rural Development Drinking Water State Revolving Fund Public Works Trust Fund 1606 Perry Street, Suite D Yakima, WA (509) Department of Health DWSRF PO Box Olympia, WA Public Works Board P.O. Box Olympia, WA wa (360) (360) Community Development Block Grant (CDBG) Funding available for final design and construction of domestic wastewater, drinking water, side connections, stormwater, streets, bridge, community facility, economic development, and housing rehabilitation projects. Types of CDBG funding available: Grant Up to $1 million No match required, but local contribution and gap financing preferred Rural Development (RD) Funding for pre-construction and construction associated with building, repairing, or improving drinking water, solid waste facilities and wastewater facilities. Types of RD funding available: Loans; (Grants in some cases) Interest rates vary (currently %) Up to 40-year loan term No pre-payment penalty City of Palouse Water System Plan 9-5

6 Washington Department of Health (DOH) In August 1996 Congress reauthorized the Safe Drinking Water Act (SDWA) and appropriated funding for states to develop their Drinking Water State Revolving Fund (DWSRF) loan programs. Each state receives annual allocations in the form of a Capitalization Grant. In Washington State, the DWSRF is jointly managed by DOH, Division of Drinking Water, the Public Works Trust Fund Board (Board), along with its partner, the Department of Community, Trade and Economic Development. DWSRF loans are available to all community public water systems, and non-profit, noncommunity public water systems, except federally and state owned systems. The loans may be used to address SDWA health standard violations, replace infrastructure for SDWA compliance, or consolidate supplies and acquire property if needed for SDWA compliance. The following options are available in the DWSRF: Loan 1 percent loan fee $6 million per jurisdiction a year $12 million for jointly-owned projects 0 to 1.5 percent interest rate 20-year term No local match required Public Works Trust Fund The Public Works Trust Fund (PWTF) Loan program is a loan program set up by the Legislature to assist cities, towns, counties, or special districts with funding for different types of public works projects. The projects can include streets, roads, drainage systems, water systems, and sanitary sewer systems. The emphasis of allocating funds for water and sewer systems is based on replacement and/or repair of existing systems. No funds will be allocated to install a new system. Rather, funds will be granted to rehabilitate or replace an existing system serving an existing population. The following options are available in the PWTF: Loan $10 million per jurisdiction each biennium Must complete work within 60 months Rates and Terms vary based on an affordability index (which assesses a utilities ability to sustain the utility) Interest rates: % Repayment Term: 20 or 30 years Non- distressed Communities 0.5 to 2 percent depending on local match. 5, 10 or 15 percent local match required For non-distressed, 5-year term, or 20-year term if construction funds are acquired before first loan principal payment City of Palouse Water System Plan 9-6

7 9.5 Summary of Financial Projections The City of Palouse s financial program has incorporated the Conservation and Water Loss Control projects outlined in Section 8.1. A summary of the financial plan and resulting financial status of the water system is provided below in Table 9-5. Table 9-5 Summary of the City of Palouse s Six-Year Financial Plan Sources of Funds Rate Revenues & external funding (Table 9-2) $235,706 $234,995 $399,374 $355,645 $502,170 $253,730 $235,266 Applications of Funds Expenditures (Table 9-3) 3 $177,601 $180,827 $388,887 $322,684 $464,866 $438,177 $203,620 CIP Projects (See Table 8-1) 1. Irrigation management on City Property 2. Education 3. Toilet Dye Tablets Total Applications of Funds $180,308 $183,534 $391,594 $325,391 $467,573 $440,884 $206,327 Balance or Deficiency of Funds $55,398 $51,461 $7,780 $30,254 $34,597 ($187,154) $28,939 Carryover Available 1 $126,242 $181,640 $233,101 $240,881 $271,135 $305,733 $118,579 Total Available Water Funds $181,640 $233,101 $240,881 $271,135 $305,733 $118,579 $147, Based on remaining 2011 funds added to Balance 2- Includes external funding estimates 3- Includes the Water meter, Culton St., Ellis St., Mohr St., and Church St. projects listed in CIP (Table 8-1) As seen from the above table, the City of Palouse is capable to fund the Conservation and Water Loss Control projects as detailed in Table 8-1. Additionally, the City has sufficient funds at the end of 2016 ($252,224) to fund the design and construction of the Church Street Waterline projects. The Culton Street, Ellis Street, and Mohr Street Waterline projects are included in their planned years (see Table 8-1) but the funding for these projects includes external funding which is also factored into the budget. If external funding is not secured, they will be postponed until funding can be accrued via rate revenues, increase rates, or externally through grants or loans as discussed in Section 9.4 above. 9.6 Review of Water Rates The City of Palouse has adopted water rates to meet their financial requirements. These water rates were implemented in January 2011 based on information provided in a Water Rate Study performed by the Rural Community Assistance Corporation (see Appendix I-2) The current, adopted water rates are as follows (see section 4.3.1): Within City Limits Single-family residences: $23.00 per month per service connection for the first 600 cubic feet of water metered, and thereafter $1.25 per each additional 100 cubic feet metered or increment thereof. City of Palouse Water System Plan 9-7

8 Multifamily and apartment houses: $23.00 per month per service connection for the one initial base dwelling or apartment unit for the first 600 cubic feet of water metered; $11.50 per month for each additional dwelling or apartment unit per service connection for the first 300 cubic feet of water metered to each unit; $1.25 per each additional 100 cubic feet, or increment thereof, per service connection metered to all units combined. Outside City Limits Multifamily and apartment houses: $29.40 per month per service connection for the one initial base dwelling or apartment unit for the first 600 cubic feet of water metered; $14.70 per month for each additional dwelling or apartment unit per service connection for the first 300 cubic feet of water metered to each unit; $1.25 per each additional 100 cubic feet or increment thereof per service connection metered to all units combined. All other uses: $29.40 per month per service connection for the first 600 cubic feet of water metered, and thereafter $1.25 per each additional 100 cubic feet or increment thereof metered. To promote water conservation, the City of Palouse is considering the Water & Sewer Committee s proposal to change the water billing structure. The rate change should help to enforce conservation measures and reduce water consumption. The proposed changes are as follows: Implement an additional overage charge as follows: $2.00/100 cubic feet (CF) for usage above 80,000 CF This change discourages excessive water use which primarily occurs at the school playfields during summer months. Additionally, the Water & Sewer Committee will work with the RCAC every 18 months, starting in the Summer of 2012, to evaluate existing rates and subsequently consider changes to the rate structure such as a tiered rate structure for overages and increasing the base rate. City of Palouse Water System Plan 9-8