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Budget Message y... BUDGET MESSAGE FY 1980-81 TIGARD WATER DISTR'I'CT April 8f 1980 During the present fiscal year the water district has been on the accrual versus cash basis in its account- ing and budgetary method. This method of accounting commenced on July 1, 1975 and employs the generally accepted principles for an operating utility enterprise. The accrual method of accounting will again be -utilized for the new Fiscal Year 1980-81, beginning July 1, 1980. The financial policies of the water district will remain essentially the same as in past years . PHYSICAL STATUS OF THE NATER SYSTEM The present excellent physical status of the water system represents a decade of constant vigilance, effort and high expenditures to update a complex system that was experiencing chronic water shortages in the late 1960 's and early 70' s. In 1971, a study was prepared by Stevens, Thompson & Runyan (now STRAAM) , Consulting Engineers, out- lining utlining a detailed plan on capital improvements necessary to meet the needs of both the present customers and, also, future growth. This study is still being used as a guide- line and has proved invaluable in designing a workable water system and establishing priorities for future proj- ects. The patrons of the water district have not experi- enced a water shortage or restrictions on usage since the summer of 1971. -1� BUDGET MESSAGE (Continued) All domestic water systems consist of the following elements; a. Source b. Distribution C, Storage It is with a great deal of pride that the district can view the outstanding status of two of these elements; namely; distribution and storage. Distribution This past month the district replaced the last remaining steel main in the system (S, W, Gaarde Street) . This culminated a 10-year program of pipeline replacements in which all steel and galvanized mains were replaced with either cast or ductile iron pipe. Cast and ductile iron pipelines have been known to last for 50 to 100 years so it is believed that future expenditures in this area will be unnecessary for many years, As a result of the above programf Tigard Water Dis- trict enjoys perhaps the lowest water loss percentage of any water system in the state. Ten year ago water losses were as high as 33%, Water losses for the past two years have averaged less than 5%. Systems with less than 10% losses are considered outstanding. In addition •to reducing water losses to almost nil, pipelines installed were increased in size to provide for future growth, improve fire flows, and upgrade pressures throughout the district. Indicative of the district 's fine distribution system is the fact that there have been --2� BUDGET MESSAGE (Continued) only a few main breaks during the past five years, thereby reducing maintenance, repairs, and overtime costs (in addition to providing uninterruptible water service to the patrons) , Storage With the completion of construction of a 10.-- million 0�million gallon (MG) reservoir last year, the district now has 17. 5 MG"s of storage. The Oregon State Health Division prescribes that water purveyors must have at least 3 days ' average water demand on hand in storage, Since the district consumes about 2, 1 MV s per day on an annual basis, the storage requirement is 6, 3 MG1's, Even with projected growth, it is anticipated that no additional reservoir capacity will be needed until about 1990 to comply with the Health Division directive, Note, however, that a 1"MG tank may be required within 3 years at S. W. 135th and Fern Street to accomodate the rapid growth in that area, The existing 0, 8 MG tank will soon be inadequate to meet the needs of developments such as SUMMER LAKE, MORNING HILL, and WINTER LAKE . Source For 30 years the water district depended upon deep wells for its water supply. However, with the high growth in the sixies, it became necessary to import costly surface water from both Lake Oswego (Clackamas River) and Portland (Bull Run) , Direct connections to these suppliers were completed in 1973. Not only has the district been forced to pay more for the expensive -3- . BUDGET MESSAGE (Continued) imported water, but some independence was lost. Because of these reasons, it has been the policy of the Board of Commissioners to continue seeking and investigating alternate sources of water. By a process of elimination, alternate sources of water have been narrowed down to the following: a. Willamette River (surface) b. Deep wells near the Willamette River, including Ranney Collectors (a special well system) . Environmental protection Agency (EPA) requirements on water treatment, including carbon adsorption, make filtering the Willamette River water a very costly endeavor. Wells appear to hold the best promise for an economical, dependable source of water. FY 1980-81 will be a year of continued study and investigation of well systems near the Willamette River. It is believed that this year would be an inappropriate time to be considering large expenditures with bonds as the funding vehicle for major capital improvements , In the meantime, negotiations will continue with the city of Portland to arrive at a more equitable, reasonable agreement for the purchase of surplus Bull Run water. (The city of Lake Oswego cannot provide the long-range supply of water to meet the needs of the district) . INDEBTEDNESS The last bond issue for the district was in 1976 and no new bond issues are proposed in the new budget. -4� BUDGET MESSAGE (Continued) On July 10 1980, the water district' s indebtedness will be $2, 658'j'000. Annual requirements in principal and interest to liquidate this debt are shown below; Fiscal Year Principal' + In'tere`st 1980-811 $314F,851 1981,821 3160887 1982--83t 318F519 1983-84: 310,435 1984-851 302, 89.5 198586.1 299 190, 1986-87= 295?037 1987,881 2310802 1988-89; 183, 870 1989--90i 192022 1990-914 165653 1991921 1641172 1992-93: 1620,298 199.3-941. 1650017 19.94-95: 162f,178 1995-,96: 163 912 The annual payments peak in 1982-83 after which, requirements begin to decrease significantly, Tax revenues are used to liquidate a portion of these General Obligation bonds each year. The remainder is provided from the General Fund, ADVALOREM TAXES It is proposed that the tax rate be decreased from 40� to 38� per $10000 assessed valuation, the lowest rate in five years. With increased valuation, this will gener- ate slightly more revenue than last year in real dollars, It becomes apparent from the listing above of the dis- trict' s indebtedness that both actual taxes and tax rates can be reduced in the near future, provided another bond issue is not required, -5- BUDGET MESSAGE (Continued) BOND CONSTRUCTION FUND All funds in the Bond Construction Fund were expended by June 30, 1979, Therefore the `crater district has only two active funds, those being the General Fund and the Bond Sinking Fund. The General Fund is used for everyday operations of the district while the Bond Sinking Fund is a fund established to reserve monies to pay off bonded indebtedness, LAST YEAR"S BUDGET Prior to proceeding to the new budget, a review of last year's budget and the anticipated ending fund balance is deemed appropriate, Beginning in July 1979 the budget year started out like "gang-busters" , It was a hot summer with increased revenues from water sales . The building boom continued into Fall which increased the sale of water meters. Unfortunately, a combination of an early wet, cold Fall and the onset of an economic recession with high interest rates, the financial picture turned bleak in a hurry. As a result, the following major impact is pro- jected on the budget for the period ending June 30, 1980: Income: Meter Installations down $111, 000 Water Sales up 95, 900 Expenses; Water Costs up 92, 800 Water costs can be offset with water sales , but the district must absorb losses from meter installations, The district will finish the year "in the black" , but the ending fund balance will be marginal, -6- BUDGET MESSAGE (Continued) BUDGET DOCUMENT FOR NEW FISCAL YEAR A summarized preliminary budget document for the General Fund has been prepared for the new fiscal year and is shown on the opposite side of this folder. Supporting documents with historical data are also shown. It is emphasized that the budget document is a financial guide ohly,. and when approved and adopted, legally authorizes the Board of Commissioners to expend funds in specific categories, It does not authorize the staff to expend any funds. Approval of individual appropriations is accomplished at regular monthly meetings by the Board of Commissioners. The Budget Committee is the final approving authority of the budget document. It is not necessary to acquire voter approval of the budget document because taxes are not used to operate the water district. Taxes are utilized only to pay a portion of the bonded indebtedness which previously was/approved at the polls by the patrons. However, the public has every right to appear before the committee and make their views known. Appropriate notices have been published in the TIGARD TIMES on the time and date of each committee meeting. GENERAL FUND The next few pages discuss the expenditures and income proposed in the General Fund. -7- BUDGET MIESSAGE (Continued) GENERAL FUND EXPENDITURES Salaries and Fringe Benefits. , . , . . . $ 426 ;800 Water Costs. . . . . . . . . . .., . . , , , 651x900 Equipment. . . . . . . . t . . . . . .•. . . . . . . . . . . 147, 000 Pipeline Extensions. . , , , . . . 226000 Transfer to Bond Sinking .Fund, . . , . , 120, 000 Miscellaneous 294, 300 Ending Fund Balance. , . , . , . , . . . . . „ 200,000 Total : x$22,0,6 6,, 000 Salaries and Fringe Benefits Representatives of the Board of Commissioners and the employees have been meeting for several months and a settlement on wages and fringe benefits has been approved by both parties. (Note: the water district has 14 full-time employees, all of whom are non--union) . The entire compensation package consists of an across the board 13. 9% cost-of-living increase in pay, a revised retirement program with group life insurance and disability paid for by the district, and an addi-- tional holiday each year. Water Costs For the first time in the district' s history, water costs are the highest single expenditure. This is due to the huge amounts of water that must be imported from Lake Oswego and Portland. Secondly, of major significance is the fact that the city of Tualatin will soon be receiving all of its water via Tigard Fater District, This alone accounts for an expenditure of $205, 000, As will be discussed later, recent increases in wholesale -8- BUDGET MESSAGE (Continued) water costs from both Lake Oswego and Portland will be the primary reason for recommending a 15% increase 'in retail water rates and meter installation charges, effective October 20, 1980, Equipment The following new equipment is deemed necessary to be purchased during the next fiscal year; a. 3/4--ton pickup truck b, Pump station at Al reservoir C, Computerized billing machine d. Copy machine With the increased construction of multiple dwell ings on Little Bull Mountain (near Canterbury Lane) , a new pump station to improve water pressure is necessary. The need for an updated billing system has been prevalent for several years, In each of the last three years the auditor has strongly recommended that the dis- trict consider the use of a computerized billing system. Almost all water districts and cities, many of which serve fewer customers than Tigard Water District, have gone to more efficient automated billing systems. Because of obsolescence, Burroughs Corporation has terminated the maintenance agreement to service the present manual billing machine, This machine is 13 years old. If this machine should fail prior to replacement, the district would be in serious trouble'. Several com- puterized billing systems are presently being studied. From the experience of other water districts, renting a system is not the answer. 9- Saw BUDGET MESSAGE (Continued) Pipeline Exte'n'sions A majority of the expenditures for pipeline extensions will be to improve the district',s capa- bility to receive more Bull Run water. This is shown graphically, on the next page as Phase I of the 24-inch main along S. W. Tiedeman Street. Estimated cost of Phase I is $145, 000. With phased construction, within three years the direct connection between Portland and Tigard Water District will be complete. Ending Fund Balance Being on the accrual method of accounting, the Ending Fund Balance becomes very important in the budget for the succeeding year. The Ending Fund Balance consists of; a. Inventory b. Accounts Receivable c. Cash on hand Inventory of material and supplies usually exceeds $100, 000 and Accounts Receivable can get as high as $80, 000 after billing. Therefore, it is concluded that at least $200, 000 must be reserved for this balance. This allows the district to operate efficiently without the need for short-term borrowing. According to Moody ' s Investors Service, the need for short-term borrowing for the day-to-day operations of a business reflects adversely upon the caliber of management and, thus, upon the credit rating. Incidentally, the credit rating of the district is A-1 for bonds. . �10� .r X10" Master .yt►+/// M er / y Bradley Corner k BEAVERTON 81vd LD ro 44 S. W• Scholls gcrry goad c� 19h ti �1 0 S. W. North Dakota Street � f `tip Greenb 4, S. W. Tigard Street9 � a N 40 A 24" 46-- Phase I: oa 1980-81 �y 2411 nit Street � � S, W• Wal Former Street a 06 41. 24"��` Phase II: `01 ooh 1981-82 Phase III: a a� TIGARD 1982-83 a yaiP 4 Aw 24 41 �S? Aw Lnif y Qao a // S. W. Gaarde S. W. MacDonald Street AE AM 36" 36" 16' 1610 TO LAKE OSUEGO � W CLACKAMAS RIVER LnN ''' 10-MG reservoir S. W. Dull tit. Road EXISTING PROPOSED TRANSMISSION MAINS 1980 - 1983 KING CITY Durham Rd TIGARD WATER DISTRICT 8841 S.W. COMMERCIAL STREET •TIGARD, OREGON 97223 TELEPHONE: (503) 639-1554 Now" BUDGET MESSAGE (Continued) GENERAL FUND INCOME Beginning Working Capital. . . . . . . $ 177, 500 Meter Installations. . , . . , , . , ,,, . , 295?,500 Water Sales. . . . , ... . .. , .:. . . . , .:R . . 1,439 f,000 Developers. . . . . . . . . . . . . . . . . . . . . . 130,000 Miscellaneous. . . . . . . . . . . . . . . . . . . 24ifl00 Total: * $:2y�Ob6,'000 Meter Installations income from meter installations is projected to increase a modest 10% over the actual revenue to be received this year. With a proposed increase in 3/4" meter connections of $100 each (see next paragraph) , total revenue will be about the same as the income received in FY 1978--79 , Income from meter installations is very volatile and unpredictable. Thereforef caution must be used in forecasting this income. Water Sales Obviously, water sales are the most important single item of income in the budget, accounting for almost 3/4 ' s of the budget revenue, Therefore it is very important that maximum attention be given to this source of income, An error of just a few percent- age points can make a significant difference in the total amount of income. Fortunately, unlike meter installations, water sales are reasonably predictable, However, weather (and temperature) can have an impact upon the amount of water sold. * Note: It took the water district 40 years to develop the need for a $1 million budget, It has taken just 3 years to exceed $2 million. X12 BUDGET MESSAGE (Continued) Included in the revenue for water sales is $300, 000 to be received from the city of Tualatin, Also, a 10% increase , in water consumption is pre- dicted for the next fiscal year, However to balance the budget, it is necessary to increase water rates and meter installation charges by about 15%, beginning in October 1980, (An increase in rates at this time of year when water consumption is low means less of a hardship on the patrons) , Retail water rates were last increased in December 1978. The 21% increase in wholesale rates planned by Portland on July 1, 19.80 means that PortlanV s rates will have increased 53% since the district last raised its rates. Lake Oswego raised its wholesale rates by 20% on January 1, 1980. Unit cost of wholesale water is summarized below: (July 1, 1980) Source Unit Cost per % used 100 cubic feet by TWD Well 10� 20% Lake Oswego 30� 40% Portland 52G 40% With such uncontrollable increases in wholesale rates, it is no wonder that the district continues the search for an independent supply of water. The dis— trict cannot absorb these types of increases, along with inflation, and remain solvent, without a rate increase, Although no action need be taken by the budget committee at this time, it is proposed that rates be increased as shown on the next page, r13— BUDGET MESSAGE (Continued) PROPOSED INCREASE IN RATES AND CIMRGES OCTOBER 2 0',\19$0. e c a•- Meter Installationst (15,4% increasel 3/4" meter: $650 to $750 $100 x 300 meters/yr: . , . $30, 00.0 8 months revenue. , . . , , . , $20f000 Water Rates; Minimum: 014,3% increase). 3/4" meter; $3, 50 to $4, 00/mo. $0, 50/mo x 12 mo, x 6,000 meters, , . . , 36, 000. 8 months revenue, , . , . . , . 24f000 Water Charges: (15. 4% increase) Over minimum of 400 cubic feet; 65� to 75� per 100. cu,ft, 10� x 100, 000, 000 cu,ft, . . . , . , . . . . 100, 000 8 months revenue, . , . , , , 67 , 000 Total: (Year) $166, 000 Total; (8 months) $111, 000 With wholesale rates being increased annually by Portland and Lake Oswego, the district will have to review its rate structure more often in the future, The days of waiting 3 years between rate hikes are gone. From the criticism of the public at the last rate hearing, it would appear that smaller raises more often are prefer- able. The proposed basic rate of, 75t per 100 cubic feet will still be one of the lowest rates in east Washington County. For example: Tualatin will soon be charging $1. 00 per 100 cubic feet. -14r- • uw BUDGET MESSAGE (Continued) Developers This income consists of charges placed upon developers for professional services rendered, equip- ment rental, and labor provided by district employees , For example; the district receives 10% of the total cost of each pipeline installation for inspections, water loss, overhead, administration, water samplings etc. Another 8% is charged for engineering design of the pipeline, including original drawings with specifi- cations, permits, "as--built" drawings{ intersection maps, etc. Additionally, as time permits, district employees and equipment are used to install some pipe lines for developers, This generates revenue for the district and assists in paying for district labor and equipment. With a definite slowdown in construction forecasted during the next year, revenue from this source will be less than last year. CONCLUSION The proposed balanced budget, as explained in this report, is believed to be fiscally responsible, fair to patrons of the district, and will provide sufficient funds to meet the goals of the district for the next fiscal year, A detailed explanation of each line item in the budget will be provided at the public meeting(s) , 'I/A Z- ROBERT E ANTEE BUDGET OFFICER -15r-