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10/20/2008 BWS - 6119� � CfTY OF FRIDLEY CITY COUNCIL BUDGET WORK SESSION October ZO, ZOO8 - 6:0o p.m. Fridley Municipal Center Meeting Room i (Lower Level) 1. Health Insurance. 2. Revision of Transfers and Cash Balance Projections. 3. Elimination of Payments to Outside Agencies. 4. Recreation Brochure. 5. Police Department Personnel Items. 6. Funds for Imaging. 7. Engineering Interns. 8. Capital Improvements Changes. 9. Enterprise Fund Issues. 10. Other Budget Issues. Adjourn. � � William W. Burns M E M O R A N D l,l M City Manager G7TY OF FRIDLEIf Memo to: The Mayor and Council p� From: William W. Burns, City Manager �� Subject: Budget Work Session Date: 10-08-08 We're scheduled to hold our second budget work session for the 2009 budget on October 20 between. It will begin at 6:00 p.m. in the lower level meeting rooms. There will be sandwiches and beverages there for your dining pleasure. While anything in the budget is fair game for discussion, I would like to suggest that we plan to address the following items. � � Health Insurance Recommendations Deb Dahl will be there with Jim Sarych from Financial Concepts to discuss our health and dental insurance recommendations. In a nut shell, they will be recommending that we switch from Health Partners to Medica. The City went to the market and received five bids in all. Health Partners came in with a renewal at 15% but Medica proposed a reduction of 6.2% from our current levels. This is great news and demonstrates that the changes we've made in the last few years to consumer driven models are working. In addition to recommending the switch to Medica, staff is recommending that we eliminate what we call our High Plan Option (the Cadillac plan). About 40% of our employees are enrolled in this higher premium/benefits plan and are generating about 45% of our claims. In keeping with our plan to continually provide ways to reduce the high cost of health insurance, we think this change to a new option will continue to motivate our users to remain watchful of health costs. Additionally, we are recommending a second type of Health Savings Account (an HSA) in addition to the one (HRA) we currently have. I'll rely on Deb to explain the difference. Our Employee Benefits Task Force overwhelmingly approved moving to Medica, dropping the High Option and adding the Healthcaxe Savings Account (HSA). They also recommend that we keep the same employer contribution that is in effect for 2008. You may recall that we built a 10% health insurance increase into the budget which we presented in June. With all of the changes proposed and the reduction in rates from Medica, we will see a$65,198 reduction to the health insurance line item. The recommendation for the dental package will remain the same as proposed. Budget Work Session October 8, 2008 Page 2 Revision of Transfers and Cash Balance Proiections Having dealt with health insurance, I will ask Rick Pribyl to explain adjustments that we have made since our June work session. He will also offer projections as to how these changes affect our cash balance projections. You may recall that we have reinstated a Police Department position that was removed from the initial budget proposal. Pve also added the purchase of a car for the Fire Chief and eliminated a utility vehicle from the Parks Maintenance budget. The biggest change, however, is on the revenue side where we have had to reduce our property tax levy to accommodate the levy limits imposed by the Governor. Unfortunately, these limits have wiped out approximately $451,900 of the $ 610,547 increase that we expected from LGA changes. Elimination of Pavments to Outside Agencies The proposed budget continues to exclude City funding for Alexandra House, Mediation Services of Anoka County, or SACCC (Values First). The 2008 budget includes $21,000 for Alexandra House, $5,800 for SACCC, and $1,500 for Mediation Services. I expect that at least one of these groups may be present at the work session to plead their case with you personally. Staff continues to recommend that, in view of our own General Fund financial shortfall, that we not fund these outside agencies in 2009. Police Department Personnel Items At our June work session, you asked that our Public Safety Director ask District #14 to help support our Crime Prevention Specialist who serves in the elementary schools. Don reports that Superintendent Robertson received our request for funding this position to keep it in the schools and has not said yes or no to it at this point. The district is considering creating their own position to perform this work in the schools. We will continue to discuss this with them, but will not be budgeting any revenue from this source far 2009. Also, since the June work session, we have agreed to send an officer to the DEA Task Force. I have budgeted the expenditures and revenues for this position in the Police Activity Fund. I've also replaced funding for the DEA assigned position with funding for an entry level police officer to be funded from the General Fund. There is $117,528 budgeted on both the revenue and expenditure sides in the Police Activity Fund, and $65,730 budgeted for the entry level position in the General Fund. At this point we are only assuming that there will be revenues to offset costs in the Police Activity Fund. We really have no idea what that revenue will be. If, however, the projected revenue materializes, we could realize a net General Fund savings of $27,058. This is the difference between the salary and benefits for the officer transferred to the DEA Task Farce ($92,788) and the salary and benefits for his/her entry level replacement ($65,730). On the other hand there is the possibility that we will not recover enough income from the DEA position to cover any of the cost of the entry level officer or the additional costs of the DEA position. Budget Work Session October 8, 2008 Page 3 There is also likelihood that staff will ask the Council to allow us to transfer a second officer to the Gang Strike Task Force in 2009. There could be unknown benefits/liabilities associated with this position as we1L Funds for Ima�ing At the June work session, there were questions about the need to spend $19,282 from the City Clerks budget for temporary employees who would help us with a huge imaging backlog. Rick Pribyl has provided the following list of records that should be put in electronic format as well as a discussion of the imaging and storage process. We strongly believe that by imaging these things, we will save considerable staff time in dealing with our numerous customers. Permanent Records to be Imaged Record Series Division City Council Minutes (Completed & ongoing) City Clerk Resolutions (Completed & ongoing) Ordinances (Completed & ongoing) Agenda Books Deeds/Easements Contracts and Agreements Leases Assessing/Property Files — (have almost Assessing com leted 3 of the 5 uintiles . Address Cards (1 drawer out of 9 is complete) Inspections Inspection Slips Address Files (Building permits, plans, sign permits, drawings, correspondence, code enforcement items, photos, etc.) Commercial Plans (com leted throu h 2002) Land Use Files Community (Plats, lots splits, rezonings, special use Development ermits, vacations, variances, etc Engineering Project Files Engineering Asbuilts Financial Reports Finance Investments Payroll Reports (end of the year) Accounts Payable (2"d check co y& detail Personnel Files Human Resources Budget Work Session October 8, 2008 Page 4 Each file must be reorganized with the use of the record retention schedule prior to imaging. Once the files have been reorganized, each file would then be imaged and reviewed to ensure everything has been scanned and quality. During this process it goes through the optical character recognition (OCR) for full text search. After the documents have been scanned and checked, the documents are then ready for indexing. Indexing requires typing information into Docuware so the documents are retrievable by type or through a full text search. After they have been indexed, another search is done of the documents to proof the results of indexing. Time estimate is difficult as the larger the file, the more complicated and longer it will take. We have volumes of paper that needs to be scanned and indexed. In the process we can also review our records retention schedule to change our record from paper to electronic after it is scanned in and get rid of the paper copies. We are running out of storage room. We currently have about 175 file drawers or shelves in Central Files and departments for scanning. In addition we have another 2,758,096 cubic inches of paper in the tunnel, print room and vault, not to mention the off-site storage at Fire Station 2 to scan. Engineering Interns You also raised questions about the need for spending $29,827 for three summer, engineering interns. After discussions with the Public Works Director, I am recommending that we cut this back to two engineering interns who will be providing on site assistance with the 2009 capital improvement projects. This will save us approximately $10,000. Capital Imurovement Plan Changes There are a number of factors that have occurred since our June budget work session that will force us to realign our 2009 street program. These factors include the use of about $250,000 for the local match on the 85�' Avenue Bikeway project. Also, MNDOT recently advised that the MSAS revenue increase of $97,000 that was included in the 2008 transportation bill has been revised downward to $40,000. The reduction is attributable to reduced fuel consumption/gas taxes. Additionally, MNDOT advised us in September that they are planning to replace the traffic signal at Highway 65 and Moore Lake Drive in 2008. We project that our cost for this work will be $135,000. Since this money will also come from MSAS funds it will eliminate entirely the work planned for the Sylvan Hills area. This work included milling and overlaying Satellite Lane west of Mercury Drive, Sylvan Lane west of Jupiter Drive, Comet Lane, Rainbow Drive, and Sunrise Drive (approximately 0.82 miles). The • remaining mill and overlay project will focus on the West University Avenue Service Drive. We are also proposing that we spend $4,000 to make building modifications in the Permit Technician work area. We will reduce the budget for Police Department work space modifications by $4,000 to make room for this addition. Budget Work Session October 8, 2008 Page 5 Enternrise Fund Issues In June, we told you that we were budgeting $125,000 for 500 automated meters that would be installed randomly throughout the City. The purpose of doing this is to get a Fridley specific idea of the payback we can expect from the transition from customer reading of older meters to automated reading of new meters. Once we have this information we will project the timing for future automated meter installations and the imnact of these installations on rates. While I don't think this was an issue in June, I want to make sure that Council agrees with this plan. Perhaps the biggest issue of the evening is the proposed restructuring of the City's utility rates. Based on our water rate study that was completed by Progressive Consulting Engineers as well as on our internal work, staff is recommending the following changes in the existing rate structure: 1. Elimination of minimum billing. 2. Replacement of minimum billing with a fixed cost for all users. Implementation of a five tier rate structure that accommodates DNR requirements for water conservation. When we met in June, we forecast utility rate increases based on the budget and on the existing rate structure. These increases assumed that we needed $561,950 in new revenue. This, in turn, would require a 14.9% water rate increase that would cost the average user $13.68 per year. Far the Sewer Fund we projected a$620,315 revenue increase that translated into a 5.3% rate increase that would cost the average water user $11.52 per year. We also projected a 3% stortn water charge increase that would cost residential property owners $.40 per year. That brought the total increase for all three utilities to $25.60 or 7.9% for the year. I will need to hold off until next week completing the new rate structure and rates for 2009. The last item is the appropriation for an Oak Glen Creek erosion control and remediation project. The amount budgeted in the Storm Water Capital Improvements Fund is $45,000. Since June, we have been in contact with the Anoka County Soil and Water Conservation District. Jim Kosluchar indicates that they are currently doing an engineering study of the problem area and will be providing a report that outlines their proposed solutions and cost later this year. While we believe that the Soil and Water Conservation District may be able to fund part of the cost, at this point, we do not know what portion they may fund. We are going under the assumption that the portion not funded by outside agencies will be split between the City and benefiting property owners through property owner assessments. This is consistent with past practice. Other Issues If there are other issues that Council would like us to be prepared to discuss, please give me a call. I will be happy to gather additional information for our work session on the 20�'. emo To: William W. Burns, City Manager � IU From: Debbie Dahl, Human Resouxces Director � Date: October 10, 2008 Re: OCT.13, 2008 BUDGET MEETING This memo is to provide you and the City Council with a stunmary of some of the final nuxnbers xelated to the Personal Services portion of the budget. GENERAL INCREASE ADJUSTMENTS The pYOposed budget has planned for a 3% general increase for all groups, including the patrol and fire labor unions. Note, however, that the police sergeants have not yet settled foY 2008 and are scheduled for arbittation on Nov. 18, 2008. PERA INCREASES In a series of increases mandated by the state pension plan, the employer contribution will increase to 6.75% (up .25%) for the Coorclinated Plan and 14.1% (up 1.2%) for the Police and Fire Fund, which will Yesult in an overall incxease to the General Fund of $85,285 as reported in the Proposed Budget. BENEFIT RATES/CHANGES Health Insurance—There is great news regaYding the Yenewal xates for health insurance! The City went to the maYket and received five pxoposals. The 2009 Proposed Budget included a 10% projection. HealthPaztriers responded with an incYease renewal of 15%. Medica, however, pxovided a 6.2% REDUCTION. The Benefits Task Team met to review the pxoposals and offeYed input into this recommendation. After carefully weighing the proposals, the coinmittee recommended to move to the Medica plan and drop the High Oprion (the Cadillac plan). In considering the options, the group learned that 40% of the paxticipants are on the High Option and are responsible fox 45% of the claims. The committee felt that the City has worked hatd to educate employees about ways to reduce the high cost of health insurance for sevexal years. They agreed that the education and the consumer-driven models are woxking to cuxb e�enses and by elimuiating the High Option and offering an alternative would keep the City moving in the same positive direction. Medica offered a comparable plan design, an open network system, and is a plan that is highly regaxded. The down side is that some employees may need to switch provideYS. A disruption report has been ): \Peisonl\Personnel\Payroll\BudgetPersServ\2009\coundl.memo.doc ordered to deterinine how many people will be affected. It is anticipated that there will be few employees affected. The insurance consultants, Financial Concepts, Inc. presented information on a Healthcare Savings Account (HSA), which was positively accepted by the coinmittee and was considered as an attractive alternative to the High Option. Like the Health Reimbuxsement Account (HRA), the HSA is paired with a high deductible health plan and allows the employee (in addition to the employer conteibution) to contribute money (pre-tax) into an account to use for health and dental care e�enses. The difference is that the employee does not need to "use it or lose it" like the fle�rible spending account It is even mare fle�ble by allowing changes throughout the year. The money can be rolled forwa.td into an investment account and earn interest. The employee is also xequired to serve as the adjudicatox of the claims, meaning they are xesponsible for authenticating and tracking e�enses (just like the t� system). The premium is lower than any of the other plans and the employer contdburion toward the VEBA will be the same, just as with the HRA. In the proposed budget for the Oct. 13, 2008 meeting, the recommended changes will xesult in an overall reduction of the general fund e�penditutes by $65,198 for the health insurance line item. It is also my recommendation to keep the same employer contriburion (dollat amount) as in 2008 due to language in the labox contracts that lock us into the "greater of the union or non-union rates, whichevex is higher." Our tradition has always been to mirror the non-union benefit plans with the unions. If we xeduced the non-union zates, we would still have to keep the current level because the language requires the union receives the higher of the two rates. I have included the rate sheets, the plan summary as well as a suminarp of the new HSA for yout review and considerarion. Dental Insurance—The renewal rates are scheduled to inctease by 5% and ate detailed in the attached information. The employer contribution remauis the same at $22 per month and presents no additional increase to the budget. Any increase in premium will be absoYbed by the employee. Cash Option—The Cash Oprion allows fox employees to opt out of health and dental insurance and xeceive a monthly cash amount (taxable). Curtendy, there are 51 employees who enjoy this benefit. Traditionally, though not consistently, the cash option has been set at 80% of the single employer contribution level (computed off of the Base Plan). Since we received a reduction in the health insurance quote, I am recommending that we keep the same employer contribution for health as well as the cash option. The incxease in the line item for the General Fund is due to the 11 additional employees electing to take cash instead of health insurance from 2008. Life Insurance—There are no rate changes ox contribution changes scheduled for life insurance, however, we will be jouung a pool of otheY cities and counties, which will offeY additional enhancements, including an Employee Assistance Program, for the same rate. A sumxnary is attached that provides the detail of those enhancements. These rates axe guaranteed for three yeaxs. Thexe are no other changes or increases scheduled for benefits beyond the proposed budget. I will be available at the Oct. 13�' meeting, along with Jim Sarych of Financial Concepts to answer any questions you or the Council may have. 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U � O Z O00 U t,l U m c tn o �>a a°o in �p�' � o m` Z � � ui � a �� oo ui � tR O � � N p � � Z o O � � � O � ao �i 0 � .� �m � v � $ m � �.� m Q .�w�ao��i � `�r Z Z` �a�._�n � �a � ��25 rnam� ��, �� v -� € �� i �S tn� $ v,�25 �� m o �-� �-� � �� g � � � ��g g � � o g�� °�ei�`R � Z .e- O Z � � a � � � � � 3 m +�T � � E m � c o � � ��. � � ��$� c Vl p �' � u1 � 1i g� ti � E � u- o � Z ur�ic"�i� c`�i t� °�Z c� � w � � c�a�v'' 69� � � � � N o �� Z � �� V� � � O � m � � C N LL � � � � � � �` � � � � p � wF] �� Op p O .� m � p Z tn� 10 U � �� > �aP� 1(y C NLL �> S� O �'� g � g w v Z � ^ � _ �� 2 ��ri � � � r r � � O � � Z ,� � � � Y V �" � fJ �� 4 � G � � � � N � � � � � � � 4 � � � > N ° ° � x > > '� x � E a � � U g° o '" R O � "� � � ci''' 9� � � '�" � E � 3 0 � '� E � � 3 � 7�a'�C. � �. � � � � � � � 3 ��F � � ~L � O � L 4 � W J � � � � rd � � � X m � � c � � � O � � C � a a �. � s � � � � T V � � .� � � a FCI Cit_y/Count_y Pool If selected to enter the pool the following features and enhancements are included: • 3 year rate guarantee • In the line of Duty benefit - Additional benefit for Public Safety ;� Officers who suffer an AD&D loss. Lesser of $50,000 or 100% of the AD&D benefit. • Repatriation Benefit - An additional benefit to pay expenses related to transporting the remains of the member who dies more than 200 miles from their primary residence. Benefit is the lesser of 10 percent of the Life benefit or $5,000. • Physical violence against the employee while at work benefit - Provides an additional benefit to a member who is actively at work and who suffers an AD&D loss due to an act of physical violence punishable by law. Lesser of $25,000 or 50% of the AD&D benefit. • Extra benefit for death on public transportation - Provides an additional benefit if the member dies as a result of an accident while riding as a fare-paying passenger on public transportation. The mode of transportation must have regular passenger routes with a definitive schedule. Lesser of $200,000 or 100% of the AD&D benefit. • Disappearance benefit - Allows AD&D benefit to be paid if loss of life is due to a disappearance reasonably resulting from an accident and the disappearance continues for 365 days. • Loss of hand or foot (even if surgically attached) benefit - Provides for the loss of hand or foot benefit to be paid. • Loss of Speech and/or loss of hearing benefit - The loss of speech or hearing must be complete, uncorrectable and irrecoverable. 50% of the AD&D benefit. � Quadriplegia benefit - Paralysis of both upper and lower limbs. 100% of the AD&D benefit. • Hemiplegia benefit - Paralysis of upper and lower limbs on the same side of the body. 50% of the AD&D benefit. • Paraplegia benefit - Paralysis of both lower limbs. 50% of the AD&D benefit. • Exposure benefit - Allows AD&D benefit to be paid if loss is due to accidental exposure to adverse weather conditions. • Higher Education benefit pays for qualifying tuition expenses - Tuition expenses incurred by a child who is enrolled within 12 months of the member's death. The lesser of $20,000 or 25% of the AD&D benefit, not to exceed $5,000 per year over a period of 4 years. • Career Adjustment benefit pays tuition or training expenses - Tuition expenses incurred by the spouse within 36 months from date of the member's death. The lesser of $10,000 or 25% of the AD&D benefit, not to exceed $5,000 per year. • Child Care Benefit pays child care costs - Child care expenses incurred within 36 months from date of the member's death. The lesser of $10,000 or 25% of the AD&D benefit, not to exceed $5,000 per year. • $25,000 Reasonable Accommodation Egpense benefit - Up to $25,000 payable to ANY employer, for reimbursement of approved work site modifications. • Lifetime Security Benefit will continue LTD benefits until death - LSB provides a lifetime income to severely disabled employees, extending LTD beneiits beyond the regular Maximum Benefit Period. • MedEx Travel Assist beneft when traveling more than 100 miles from home - A travel assistance benefit that is provided with all Life policies. • EAP benefit - Up to three face-face assessment and counseling sessions. • Seat Belt benefit - Lesser of 100% of the AD&D benefit or $10,000. • Air bag benefit - Lesser of 100% of the AD&D benefit or $5,000. Payable if a seat belt benefit is payable. , ; . � , � � CITY COUNCIL CONFERENCE MEETING OCTOBER 20, 2008 CffY OF FRIDLEY To: William W. Burns, City Manager �� From: Richard D. Pribyl, Finance Director Re: Revision of Transfers and Cash Balance Projections Date: October 16, 2008 No changes have been made to the actual budget document for 2009 since the "Proposed 2009 Budget" was passed via resolution on August 25, 2008. One of the substantial changes that made on that document was the adjustment on the tax levy due to the levy limits on cities imposed by the State of Minnesota. The levy limit law did impact the City of Fridley by including LGA in the calculation. As you may recall, for the budget year of 2009 we are anticipating an additional $610,547 in LGA, but what they provided to us via an increase in LGA they took away under the levy limit calculations. We actually lost levy authority in the amount of $449,959. Since we had to reduce our levy as calculated on the Minnesota Department of Revenues "Payable 2009 Initial Overall Levy Limitation Notice", we had to increase the amount of dollars "transferred in" from our General Fund, Fund Balance in that same amount. Because of the increase in the amount of Fund Balance needed to balance the 2009 Budget, this has an impact on the longevity of the funds that we rely on to balance the General Fund. Since we will need an additional amount to balance the budget of approximately $450,000, this amount will be needed annually in the future times any inflationary increase on that amount. The attached schedule shows the impact this has on the Closed Bond Fund and the Liquor Operations Fund. These are our finro main "transfer in" sources to assist in balancing the General Fund Budget. Number 1— Indicates the cash balance as of 12/31/2007 -$5,554,464 Number 2— Indicates the projected cash balance as of 12/31/2008 -$3,845,400 Number 3— Indicates the inflationary increase that we are projecting on both our revenues and expenditures over the projection period. Number 4— Shows the declining cash balance of the General Fund. By the year 2015, the General Fund will need to borrow money from other funds for cash flow purposes. Number 5— Indicates that the Closed Bond Fund has been fully consumed. Number 6— Indicates that all surplus cash has been consumed by 2010 and only the annual earnings will be available for use by the General Fund. In conclusion the increase in LGA served no use full purpose to the City of Fridley when combined with Levy Limits. The General Fund is now in a situation that is in conflict with the Fund Balance reserve goals established in 1991 as shown on the attached exert from the Audit Management Letter from 12/31/2007. The Budget year of 2015 will be a difficult one. Attachment � •• � . � � � � � � � Audit Management Letter General Fund Although the General Fund balance increased during 2007, the balance at December 31, 2007 is not sufficient to fulfill the reserve goal established by Resolution 96-1991. A comparison of reserves established by Resolution 96-1991 and the amount of fund balance available is as follows: General Fund Fund Balance Reserves Reserve Fund Balance Per Policy Amount Designation (Res 96-1991) Available Deficiency Inventory $56,345 $56,346 $1 Long-term receivables 9,182 9,182 - Working capital 6,149,876 5,206,778 (943,098) Capital asset replacement 438,800 - (438,800) Contingency 1,435,869 - (1,435,869) Total reserved/designated $8,090,072 $5,272,306 ($2,817,766) The 2008 budget anticipates a decrease in fund balance of $861,000. i i I I� I�i ;,, �I� � ' ' ' � I I , � � i I � � �� w � � I�,��m� i i ' I L � L �- N I I I � � � � � I I I � ! ina�ma�iU II i @� EC� � � I ; � L��= d- ; � i � � ..�°.� °�n- `0 0-�o I i ' I I I N N� G 7 I I I Y O L O. 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Pribyl, Finance Director Re: Utility Rate Recommendations Date: October 17, 2008 CHA1�D D. FRIBYL Finance Director In Order to meet the newly-enacted State of Minnesota unfunded mandate to implement conservation utility rate structure by 2010, the City of Fridley is recommending the following water utility rate for 2009. Water Rate Recommendation and Examples Current Water Rate Structure The City of Fridley's 2008 water rates are $1.30 per 1,000 gallons for quarterly consumption in the range of 0 to 5 Million gallons or $1.36 per 1,000 gallons for quarterly consumption exceeding 5 Million gallons. This structure involved a minimum billing of 12,000 gallons for any customer class and a reduced rate for seniors. Fixed 2008 Current Rate Structure Actual Consumption (Quarterly 0-5,000,000) Actual Consumption (Quarterly 5,000,000 - xxx) Senior Guidinq Principles to New Structure Cost per Thousand 1.30 1.36 0.96 In order to research other potential rate structures, the City outsourced the completion of a water rate study to Progressive Consultant Engineers (PCE). PCE evaluated three different types of rate structures (Base Extra Capacity, Inclining Block, and Flat) to aid in the discussion of choosing the best method. PCE ultimately Utility Rate Recommendations October 16, 2008 Page 2 recommended an increasing block rate structure with a fixed charge. Although City staff agrees with the basis of this recommended structure, staff has made modifications to the inclining block recommendation by the consultant in order to limit the amount of impact to the various customer classes while maintaining the various goals needed with a new rate structure. Five tiers were chosen in an attempt to balance the dispersion of volumes across the wide range consumption levels within the various customer classes. Anything less than five steps did not appear to properly address the idea of conservation and anything more than five created complexity in the administration of the rates and billing. The structure works to implement conservation pricing without becoming punitive at the various levels. The creation of the steps and the pricing are very dynamic and require balancing of both the steps and the pricing in order to accomplish a rate increase that is acceptable in the economic climate that we see ourselves in today. It should be noted that given the history of the City's utilities rate restriction, infrastructure needs and the overall financial health of these funds, rates need to be increased significantly regardless of whether or not a new rate structure is implemented. As a basis for evaluation of structures, staff used the following criterion: • Structure that uses conservation measures to limit the amount of water used between each of the classes and that is compliant with the new State Statute as interpreted by the DNR. • Structure that allows the city to reach income and cash balance goals in order to cover system capital improvement and operating needs. • Structure that limits increases among all customer classes and also keeps the across the board increases consistent/uniform. • Structure that limits future increases to 8 to 10% annually. • Structure that is relatively easy to administer and maintain. Utility Rate Recommendations October 16, 2008 Page 3 New Water Rate Structure The City of Fridley staff is proposing a 2009 rate structure that includes five tiers along with a fixed charge of $9.50 per quarter. The fixed charge will be the same across customer types and will cover the bulk of the annual administrative expenditures. The first tier starts with $1.08 per 1,000 gallons for quarterly consumption in the range of 0 to 20,000 gallons. The new fixed charge necessitated that this first tier start at a lower level in order to keep the low residential consumer at an acceptable increase. The remaining pricing at each successive step is based and balanced on this starting point. This tier captures approximately 50% of all of our customers and with the average residential usage at 21,000 gallons per quarter; this will help in satisfying the DNR's mandates for conservation. When reviewing the percentage increases in the various classes of customers, one will find that the smaller the consumption, the larger the percentage increase. This is due to the much smaller bill at the low end. An example of this situation is with the senior rate customer. Since this rate class has been removed and replaced with the fixed and volume charge, the percentage increase appears much larger due to the comparison of the smaller bill. The next tier is $1.15 per 1,000 gallons for quarterly consumption in the range of 20,001 to 50,000. Again, this next tier is meant to deter residential and small commercial usage above the average consumption and thus satisfy DNR requirements. The next tier is $1.45 for quarterly consumption in the range of 50,000 to 500,000. This is where approximately 38% of our highest concentration of commercial customers resides in this dispersion of steps. This 30 cent increase is a marked increase from the prior step and is used to capture a majority of the commercial users in the City. Utility Rate Recommendations October 16, 2008 Page 4 The final two tiers are $1.52 and $1.59 for quarterly consumption in the range of 500,000 to 1,000,000 and 1,000,001 and greater, respectively. Again, these two tiers capture the City's largest users in the hopes of bringing their annual increases up proportionately to residential users. 2009 Proposed Rate Structure Actual Consumption (Quarterly 0-20,000) Actual Consumption (Quarterly 20,001-50,000) Actual Consumption (Quarterly 50,001-500,000) Actual Consumption (Quarterly 500,001-1,000,000) Actual Consumption (Quarterly 1,000,001-xxx) Examples of Chanqes to Water Rates Fixed ��Y�] Cost per Thousand 1.08 1.15 1.45 1.52 1.59 Average Residerrtial(RM Peterson) Dollar % Increase Increase 2007 Consumption 97,000 gallons Over 2008 Over 2008 2008 Cument Billing $ 126.10 2009 Current Billing $ 144.53 $ 18.43 14.62% 2009NewStructure $ 145.07 $ 18.97 15.04% Average Senior(Robert Mruz) Dollar % Increase Increase New Strudure eliminates 2007 Consumption 56,000 gallons Over 2008 Over 2008 reduced rates for seniors 2008 CurTent Bllling $ 74.88 2009 Current Billing $ 85.80 $ 10.92 14.58% 2009 NewStructure $ 100.02 $ 25.14 33.57% Average Commercial(BNSF) Dollar % Increase Increase 2007 Consumption 1,415,000 gallons Over 2008 Over 2008 2008 Current Billing $ 1,839.50 2009 Current Billing $ 2,108.35 $ 268.85 14.62% 2009NewStructure $ 2,045.85 206.35 11.22% Large Commercial(Aramark) Dollar % Increase Increase 2007 Consumption 27,287,000 gallons Over 2008 Over 2008 2008 Current Billing $ 35,910.32 2009 Current Billing $ 41,167.72 $ 5,257.40 14.64% 2009 NewStructure $ 42,938.73 $ 7,028.41 19.57% Utility Rate Recommendations October 16, 2008 Page 5 Sewer Rate Recommendation and Examples The consultant reviewed the sanitary sewer fund and again suggested that our administrative costs be set up as a fixed charge with an additional charge based on volume. In the case of the sewer utility, the fixed costs were divided by the number of customers as a basis to establish this charge. The fixed cost is recommended to be set at $7.12 for 2009 and increase annually by 4%. The commodity charge associated with the volume is recommended to be set at the current rate of $3.01 per thousand gallons and limited annually to an 8% increase. The only increase in revenue associated with this proposed structure is the addition of the fixed charge in order to provide for the administrative costs. 2008 Current Rate Structure Actual Consumption (volume x gallons) Volume Fixed Charge Charge None $3.01 The current rate structure provides for both a minimum billing using 12,000 gallons for residential and 25,000 gallons for all other customer classes. The current structure also provides for a Senior and Qualifying Disabled rate. 2009 Proposed Rate Structure Actual Consumption (volume x gallons) Volume Fixed Charge Charge $ 7.12 $3.01 The proposed rate structure eliminates the Senior and Qualifying Disabled rate. This is due to establishing the fixed component. When reviewing the percentage increases on those customers with very small consumption, their percentage will look larger due to the establishment of the fixed charge as compared the small bill that it is being compared to. The large consumers will see a very small increase because the fixed charge is being compared to a much larger bill. Utility Rate Recommendations October 16, 2008 Page 6 Examples of Chanqes to Sewer Rates Average Residerrtial(RM Peterson) Dollar % Increase Increase 2007 Consumption 97,000 gallons Over 2008 Over 2008 2008 Current Billing $ 291.97 2009 Current Billing $ 307.49 $ 15.52 5.32% 2009NewStructure $ 299.09 $ 7.12 2.44% Average Senior(Robert Mruz) Dollar % Increase Increase New Strudure eliminates 2007 COf1SUf11pt10I1 56,000 gallons Over 2008 Over 2008 reduoed rates for seniors 2008 CurTent Billing $ 168.56 2009 Current Billing $ 177.52 $ 8.96 5.32% 2009 NewStructure $ 175.68 $ 7.12 4.22% ' Average Commercial(BNSF) Dollar % Increase Increase 2007 Consumption 1,415,000 gallons Over 2008 Over 2008 2008 Current Billing $ 4,259.15 2009 Cutrent Billing $ 4,485.55 $ 226.40 5.32% 2009 NewStructure $ 4,266.27 $ 7.12 0.17% Large Commercial(Aramark) Dollar % Increase Increase 2007 Consumption 27,287,000 gallons Over 2008 Over 2008 2008 Current Billing $ 82,133.87 , 2009 Current Billing $ 86,499.79 $ 4,365.92 5.32% 2009 New Structure $ 82,140.99 $ 7.12 0.01 %