Celebrating Growth, Embracing Community. Fiscal Year 2015/16 Proposed Financial Plan for Community Services and Budget Memos

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1 Celebrating Growth, Embracing Community Fiscal Year 2015/16 Proposed Financial Plan for Community Services and Budget Memos

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3 ~ Cityof dllllffi CHAMPAIGN REPORT TO CITY COUNCIL FROM: Dorothy Ann David, City Manager DA TE: May 1, 2015 SUBJECT: BUDGET MEMO 2015/2016: SS SANITARY SEWER FEE A. Introduction: The purpose of this report is to obtain Council direction on a proposed rate increase for the City's sanitary sewer fee. Staffs proposal is to increase the sanitary sewer fee rate for billing year 2016 (which begins January 1) by six percent, from $3.02 to $3.20 per average daily cubic feet of water usage. B. Recommended Action: The Administration seeks Council direction to prepare the Council Bill to increase the City's sanitary sewer fee for billing year 2016 by six percent, to $3.20 per average daily cubic feet of water usage. C. Prior Council Action: The City Council adopted a Sanitary Sewer Maintenance, Rehabilitation, and Expansion Plan in 1990 (CB ) and adopted a sanitary sewer fee to fund activities specified in the plan. Council approved an agreement with the Urbana and Champaign Sanitary District (UCSD) for billing services in January 2005 (CB ). The City Council has adopted Financial Policies stating Council will review the Sanitary Sewer Fee every other year. The last increase in City's sanitary sewer fee was in 2013 (CB ). The Council Bill increased the sanitary sewer fee for billing year 2014 six percent to $3.02 per average daily cubic feet of water usage. D. Summary: The City adopted a sanitary sewer fee in The City's financial policies require funding sanitary sewer services with the sanitary sewer fee. The sanitary sewer fee currently generates approximately $2.1 million annually for sanitary sewer operation, maintenance, rehabilitation, and expansion. The current sanitary sewer fee rate is $3.02 per average daily cubic feet of water usage. The last increase in the sanitary sewer fee rate was in 2013 effective Staff estimates that since the 2013 rate increase, sanitary sewer expenditure costs have increased three percent annually. Staff also estimates that sanitary sewer expenditure costs will increase approximately three percent annually in the future. Staff estimates that without a sanitary sewer fee rate increase, services will need to be decreased annually by approximately $63,000. Staffs proposed service decrease would generally reduce

4 the amount of sanitary sewer rehabilitation completed annually. Specifically, the proposed service decrease would reduce the amount of sewer pipe lined and/or the number of point repairs made to the sewer pipes. Continued annual reduced funding for these work items would cause increases in pipe failures, emergency repairs, backups, and sewage overflows. E. Background: 1. Sanitary Sewer Services. The City operates and maintains the sanitary sewer collection system that provides access to wastewater services for properties within the City s corporate limits. The collection system refers to the sewers that run between private service lines (connected to buildings) and the large interceptor sewers, which are operated and maintained by Urbana-Champaign Sanitary District (UCSD). UCSD also treats the wastewater. 2. Sanitary Sewer Fee. Council adopted the sanitary sewer fee on September 23, The City Council adopted a Sanitary Sewer Plan in 1990 and adopted a sanitary sewer fee to fund activities recommended in the Plan. The goal of the Plan and fee was to improve the operation, maintenance, and rehabilitation of the City s sanitary sewer system. The adopted financial policies state that the City shall fund services with user fees when benefit to particular parties can be measured and there is a cost effective way to charge them. The City adopted the sanitary sewer fee in 1990 consistent with that policy. The sanitary sewer fee was implemented rather than increasing taxes to provide additional resources for improved sanitary sewer operation, maintenance, and rehabilitation. The financial policies also state the sanitary sewer fee should be reviewed every two years. 3. Sanitary Sewer Fee Benefits. The sanitary sewer fee provides the resources to allow the City to be proactive in the operation, maintenance, and rehabilitation of the City s sanitary sewer collection system. Proactive rather than reactive operation, maintenance, and rehabilitation provide several benefits to City property owners. a. Emergency repairs occur less often. Emergency repairs frequently result in disruptions to neighborhoods and can result in backups on private properties. The City regularly cleans and televises every foot of sewer pipe in its collection system. When the cleaning and televising identifies a structural problem in the pipe, the pipe is repaired thereby eliminating the chance of a future emergency repair. b. There are fewer backups on private property. Sewage backups can cause property damage, are a public health concern, and are very disruptive to property owners. Most backups are caused by roots and/or grease or by surcharging sewers. Surcharging sewers are typically caused by structural pipe failures (emergency repairs) or the infiltration/inflow of rainwater into the sanitary sewer collection system. The City s proactive maintenance and rehabilitation of its sanitary sewer system and its aggressive approach to solving drainage flooding problems has resulted in significant reductions in sewage backups on private property. This reduction is also caused by the City s overhead sewer program. This program is a cost share that changes the plumbing in a home to eliminate the potential of a sewage backup. 2

5 Hundreds of property owners have participated in the overhead sewer cost share program. The program is funded 100 percent with sanitary sewer fee revenue. c. Illinois Environmental Protection Agency (IEPA) enforcement action is reduced. Due to state law, the City is required to self-report to IEPA sanitary sewer overflows. Overflows are caused by surcharging sewers. Surcharging sewers are typically caused by blockages, structural pipe failures, or heavy rainstorm events. Reporting frequent overflows to IEPA can result in fines and consent decrees. 4. Sanitary Sewer Fund. In FY14, the sanitary sewer fee generated approximately $2.1 million in revenue. This includes interest on the revenue collected throughout the year. The revenue from the sanitary sewer fee is used exclusively for the operation, maintenance, rehabilitation, and expansion expenditures for the City s sanitary sewer collection system. A typical year of Sanitary Sewer Fund revenue and expenditures are summarized in Table 1. Typical sanitary sewer revenue and expenditures are described below. Table 1 Typical Sanitary Sewer Fund Revenues & Expenditures A. Revenue 1. Sanitary Sewer Fees $ 2,115, Connection Fees $ 20, Fund Transfers $ 586,500 Total $ 2,722,000 B. Expenditures 1. Personnel $ 1,163, Fees $ 571, Construction $ 545, IEPA Loans $ 247, Fleet $ 195,000 Total $ 2,722,000 a. Personnel. All wages and benefits for the seven full-time employees and a supervisor assigned to the Public Works sewer crew are paid with sanitary sewer fee revenue. The fee also pays for the engineering time needed to design and construct sanitary sewer rehabilitation projects, manage the Sanitary Sewer Fund, and respond to basement backups. The Public Works sewer crew works on both the sanitary and storm sewer collection systems. In a typical year, the sewer crew will spend about 65 percent of their time on the sanitary sewer collection system and 35 percent of their time on the storm sewer collection system. Work activities and expenditures on both collection systems are tracked separately. Throughout the year, transfers are made from the Stormwater Fund to the Sanitary Sewer Fund to cover these costs; in a typical year, the transfers were approximately $518,000. The City does the same for snow and ice expenditures. Transfers are made from the General Fund to cover the cost of these expenditures. In a typical year, the General Fund transfers are $68,500. b. Fees. Annually, approximately $223,000 of administrative costs are paid from sanitary sewer fee revenue. This represents the cost of services provided by the City Manager s 3

6 Office and the Human Resources, Finance, Information Technologies, and Legal Departments. Additionally, the administrative costs cover the commodities and services paid for within the fund. Under the City s Financial Policies and generally accepted accounting principles, the Fund is considered an enterprise fund that accounts for its costs similarly to a private business. The fund also pays a portion ($128,000) of the City s Risk Management and Workers Compensation attributed to the sanitary sewer system. The Sanitary Sewer Fund is also charged $150,000 annually for right-of-way or franchise fees. Illinois American Water Company (IAWC) and Ameren each compensate the City for the use of City right-of-way for their utility. That obligation has been extended to the City s sanitary sewer collection system. Finally, UCSD charges the City three percent (approximately $70,000 annually) of billed revenue for its billing and collection services. Since 2005, UCSD has billed and collected the sanitary sewer fee for the City. UCSD displays the City s sanitary sewer fee as an individual line item on the UCSD bills issued to property owners for wastewater treatment services. UCSD provides the same service for the City of Urbana and the Village of Savoy. c. Construction. Annually, the City spends approximately $330,000 completing point repairs and approximately $215,000 lining sanitary sewer pipe. Sanitary sewer pipe lining is a process that requires no excavation and involves inserting a new pipe inside the existing pipe from manhole to manhole. Pipe lining is relatively inexpensive (approximately $30 per foot) and after the lining is complete, the old sewer is like new. The City lines annually approximately 6,000 lineal feet (l.f.) of sanitary sewer pipe. Unfortunately, not all sanitary sewer pipe can be rehabilitated with lining. Some sewer pipes have structural deficiencies that can only be repaired with the traditional method of excavation and replacement of the damaged pipe section. This method (point repair) is very expensive (average $5,000 per point repair) and very disruptive to the public. d. IEPA Loans. The City has three IEPA sanitary sewer low interest loans plus intergovernmental agreement obligations on two UCSD IEPA sanitary sewer low interest loans. The loans were used to line all deteriorating concrete pipes in the City collection system and to finance several sanitary sewer expansion projects. Typically, the expansion projects were done in partnership with UCSD where both parties paid their prorated share of the cost. Examples of these partnerships are the interceptor sewers that were built to serve the areas north of I-74 along North Prospect Avenue and the interceptors to serve the areas around the new I-57/Curtis Road interchange, and the areas south of Curtis Road east of Duncan Road. The plan was to recover the sanitary sewer fee revenues used to finance these expansion projects from the private property owners who connect to the collector sewers that are in turn connected to the expansion interceptors. In FY08, the City collected approximately $140,000 in fees from connections to these expansion sewers. These connection fee amounts fluctuate each year depending on land development and the economy. In FY14, connection fees were only $18,800. For the purpose of Table 1, staff has assumed the revenue from connection fees at $20,000 per year. 4

7 e. Fleet. Maintaining the City s sanitary collection system requires equipment and vehicles. The sewer crew has one large dump truck, two pick-up trucks, three one-ton dump trucks, a backhoe, vactor, jetter, and a sewer televising van. All replacement and maintenance costs for the sewer crew equipment/vehicles are paid from sanitary sewer fee revenue. 5. Recommended Rate Increase. Staff recommends an increase of six percent in the sanitary sewer fee, effective An increase of six percent would raise the fee to $3.20 per average daily cubic feet of water usage. A six percent increase would generate approximately $126,000 of additional revenue annually. In accordance with the City s Financial Policies, another rate increase would not be considered for another two years. Table 2 summarizes the impact the recommended sanitary sewer fee increase could have on typical properties in the City of Champaign. Table 2 City of Champaign Current/Proposed Sanitary Sewer Fee Annual Fee Property Type Usage Current Fee Proposed Fee Single Family Home 25 $ $ Small Commercial Office Building 47 $ $ Fast Food Restaurant 352 $ 1, $ 1, Full-Service Restaurant 745 $ 2, $ 2, Large Retailer 923 $ 2, $ 2, Rate Increase Justification. Since the last rate increase (six percent effective 2014) two years ago, staff estimates personnel costs have increased on the average three percent annually, and fees/construction/fleet (Table 1) costs have increased on the average three percent annually. Personnel cost increases include across the board wage increases and fringe benefit, step, and longevity increases. Staff also estimates that in the future over the next two years personnel costs and fees/construction/fleet costs will increase the same amount as the last two years, or annually about three percent. The proposed sanitary sewer fee increase and the estimated annual cost increase over the next two years for sanitary sewer services are equal. If the sanitary sewer fee is increased as recommended, staff does not anticipate any service reductions. 7. Potential Service Reductions if Fee is not Increased. As discussed above, staff anticipates that sanitary sewer costs in the Fund will increase approximately three percent annually. If there is no increase in the sanitary sewer fee, staff will need to make sanitary sewer service reductions. The reductions will need to be in the range of about $63,000 per year (three percent). The sanitary sewer service reduction would be made either in sanitary sewer pipe lining and/or in the repair to sewer pipes. Reductions in these Sewer Fund expenditure categories would have the least immediate impact on our customers. 5

8 Currently, the City lines approximately 6,000 l.f. of sanitary sewer pipe each year at an estimated cost of $215,000. Annually, 60 to 70 sanitary sewer pipe point repairs are made costing $330,000. An annual reduction of $63,000 equates to approximately 2,100 l.f. less pipe lined, or 13 to 15 fewer sewer point repairs. A $63,000 reduction continued over several years would cause an increase in pipe failures, emergency repairs, backups, and sewage overflows. 8. History. Table 3 below summarizes the rates for the City s sanitary sewer fee from its origin to its current level. Revenues from the large rate increases from were used to eliminate the Property Tax subsidy to the Sewer Fund, allowing the City to dedicate additional property tax revenue to stormwater improvements. Table 3 City of Champaign Sanitary Sewer Fee Rates Council % Effective Authorization Increase Date Rate* CB $1.22 CB % 1994 $1.32 4% 1996 $1.37 CB % 1999 $1.45 CB % 2002 $ % 2003 $ % 2004 $ % 2005 $2.37 CB % 2006 $2.47 CB % 2007 $2.57 CB % 2009 $2.77 CB % 2011 $2.85 CB % 2014 $3.02 * Average Daily Cubic Feet of Water Usage 9. Other Communities. Table 4 summarizes sanitary sewer fees for other communities in central Illinois. Table 4 Sanitary Sewer Fees Community Rate* Urbana $ 3.72 UCSD $ 2.59 Savoy $ 2.70 Decatur $ 3.43 Bloomington $ 5.84 Normal $ 3.36 Champaign (current) $ 3.02 Champaign (proposed) $ 3.20 * Average Daily Cubic Feet of Water Usage. 6

9 F. Alternatives: 1. Direct staff to prepare the Council Bill to increase the City s sanitary sewer fee by six percent, effective January 1, 2016, to $3.20 per average daily cubic feet of water usage. 2. Do not direct staff to proceed with the sanitary sewer fee increase as proposed, and provide further direction to staff. G. Discussion of Alternatives: Alternative 1 would direct staff to prepare the necessary Council Bill to increase the City s sanitary sewer fee. a. Advantages Provides additional funding to approximately offset future expenditure cost increases in the Sanitary Sewer Fund. Provides funding to maintain sanitary sewer service levels. Consistent with the City s financial policies regarding funding such services with user fees. b. Disadvantages Increase costs for customers of the City s sanitary sewer system. Alternative 2 would not direct staff to proceed with the recommended sanitary sewer fee increase and would require further Council direction. a. Advantages Would provide an opportunity for Council direction. Depending on Council direction, there could be other advantages. b. Disadvantages No fee increase would result in sanitary sewer service reductions. Depending on Council direction, there could be other disadvantages. H. Community Input: Staff has not sought community input on this specific issue, but the public will have an opportunity to provide input at the Council meeting when this issue is discussed. Public Works received 476 service calls in 2014 from residents concerning sanitary sewer backups. Approximately one-third or 133 of the calls were the result of a problem in the City s sanitary sewer line. In 2014, Public Works made no sanitary sewer emergency repair declarations and there was only one sanitary sewer overflow that had to be reported to the Illinois Environmental Protection agency. There were 170 citizen service calls concerning basement backups in 2014 resulting in approximately 100 basement inspections by staff. 7

10 I. Budget Impact: At the current rate, the sanitary sewer fee generates approximately $2. 1 million annually. A six percent rate increase would generate an estimated additional $126,000 annually. This increase in revenue would offset future projected cost increases in the Sanitary Sewer Fund, thereby allowing the City to maintain current service levels for the next two years. J. Staffing Impact: Staff spent approximately 60 hours evaluating Sanitary Sewer Fund expenditures and revenues and preparing this Report to Council. Staff estimates it will talce another 20 hours to prepare the Ordinance, Council Bill, and Report to Council to increase the sanitary sewer fee. Prepared by: ~h~ Dennis Schmidt Public Works Director Reviewed by: K~~ City Accountant 8