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Budget Message BUDGET MESSAGE FY 1984-85 TIGARD WATER DISTRICT April 10, 1984 During the present fiscal year the water district has been on the accrual versus cash basis in its accounting and budgetary method. This method of accounting began on July 1, 1975 and employs the generally accepted principles for an operating enter- prise. The accrual method of accounting will again be utilized for the new Fiscal Year 1984-85 , beginning July 1, 1984 . The financial policies of the water district will remain essentially the same as in past years. Fiscal restraint has been the policy of the Board of Commissioners since formation of the district in 1938 . The present excellent financial con- dition of the district reflects this conservative approach. Again this year, the water district received a clean, un- qualified opinion from the auditors (Coopers & Lybrand) for both the financial report and budgetary report for the period ended June 30, 1983. GENERAL The patrons of the water district have not experienced a water shortage or restriction on usage, of any kind, since the summer of 1971. Supply of water is ample until beyond year 2000. The appearance of the water facilities, including reservoir sites, pump stations, etc. , is first-class. All grounds are landscaped and well-maintained and are an asset to the community. The good news is that no increases are planned next year in water rates, meter charges, or tax rate. These days, one can claim a major victory just to keep the status-quo . The district will maintain its policy of "living-within- income" and continuing to reduce bonded indebtedness. The dis- trict will be debt-free in 111-2 years (January 1, 1996) at which time, no tax subsidy will be required to support the district. -1- BUDGET MESSAGE (Continued) SIGNIFICANT EVENTS OF PAST YEAR One may recall that last year the district was recovering (financially) from a depressed economy and the fact that the district had, the previous year, constructed a 2. 5-MG reservoir at a total cost of $550, 000 without borrowed funds. Thus, the budget was very austere and resulted in the necessity to increase water rates in February 1983 . The district survived this slump and has recovered fully. Planned projects were completed as well as a few extras . Most important was the installation of 3, 200 feet of 24-inch D. I. (ductile iron) pipe along S. W. Fonner Street, between 115th and Walnut Street, to complete a direct connection to the Bull Run system (Portland) . The master meter for the connection is located at Bradley Corner, intersection of Hall Blvd. , Green- burg, and Oleson Roads. The district was also able to purchase a diesel generator' to provide auxiliary power at Hi Tor reservoir. This had been a major deficiency for many years. STATUS OF THE WATER SYSTEM A crisis situation has not existed in the district for many years. The district has solved its problems for the present and short-range time period and is now actively building for the intermediate and long-range time periods, beginning in 1990 . The three elements in a water system are discussed below: Source of Supply Each water purveyor would like to own and control its own water source (s) . Unfortunately, even in the damp northwest, there are not enough streams and rivers, with high raw water quality, to meet the ever-increasing needs of the citizens. The Portland metropolitan area is served, primarily, from three (3) surface sources of water, namely: Clackamas River, Bull Run, and Upper Tualatin - Trask River. -2- BUDGET MESSAGE (Continued) In lieu of developing new sources of water, such as Ranney wells on the Willamette River at Newberg, the district has adopted a policy of a multi-source system. This is the best course of action next to owning one 's source of supply. The district has inter-ties (with long-term contracts) for three (3) different sources of water, namely: Clackamas River (City of Lake Oswego) Bull Run (City of Portland) Upper Tualatin - Trask River (City of Beaverton) The district also has four (4) deep wells which have been placed in a stand-by status. This multi-source system increases reliability and provides the district with some measure of inde- pendence. Storage Last year the district completed construction on a 2 . 5-MG (million gallon) reservoir, located at S. W. 135th and Fern Street, in northwest Tigard. This provides the district with 20 million gallons of storage. The State Health Division requires that a water purveyor have at least 3 days' average daily demand on hand in storage. In TWD ' s case, with an average of 2. 8 MGD, the minimum is 8. 4 million gallons. Therefore, the district has almost 231 times the required capacity on hand. Distribution The distribution system is superb with all pipelines either cast or ductile iron, capable of lasting up to 100 years. Water losses have averaged 4. 9% for the past five (5) years. Any per- centage below 10% is considered excellent. These losses include fire hydrant usage by the fire district and water used to flush new pipelines, as well as actual water losses due to leaks. Fire flows and pressures are excellent throughout the district. The water district was instrumental in the fire district obtaining a Class 3 fire insurance rating, the highest attainable for a rural fire district. The water system accounts for 39% of this rating. -3- BUDGET MESSAGE (Continued) The district has all of the above, along with one of the lowest per capita costs in Washington County, as shown in the following table prepared by the Center for Urban Studies, Portland State University, in December 1983 : Total Expenditure for the Provision of Water Services Per Per $1, 000 Per 100 Per House- Assessed Cubic Feet Jurisdiction Capita Hold Value Water Sold West Slope W. D. 49 . 80 113 . 87 1. 94 0. 94 Sherwood 64 . 83 167 . 96 2 . 60 1. 03 Cornelius 66 . 17 168 . 13 3 .18 1.34 Raleigh W. D. 71. 87 154 .41 2 . 06 0. 88 *Tigard W. D. 79 . 02 181. 34 2. 26 1. 08 Durham 85 . 95 251. 09 2 .27 2 .42 Hillsboro 103 .14 282.26 4 . 03 1.28 Forest Grove 115 . 00 292 . 38 5 . 60 2. 65 Metzger W. D. 161. 92 368 .81 4 . 72 3 . 00 Beaverton 179 . 70 405. 82 5. 26 2 .74 Wolf Creek Hwy W. D. 212 . 13 466.76 5. 54 2.34 Tualatin 258 . 69 632. 18 7 . 50 4 .16 In summary, the district excels in every category. The goal of the district is to operate a "pay-as-you-go" system without future indebtedness. FISCAL CONSIDERATIONS All funds in the Bond Construction Fund were expended on June 30,1979. Therefore, the water district has only two active funds, those being the General Fund and the Debt Service Fund (sometimes called: Bond Sinking Fund) . The General Fund is used for the everyday operations of the district while the Debt Service Fund is a fund established to reserve monies to pay off bonded indebtedness. *These figures :take on added significance when it is realized that TWD is the only water purveyor in the upper half of the listing with a large number of meter connections (7 , 000) and high growth (average 250 meter installations per year) . For example: Raleigh Water District has only 900 meter connections and installs about 10 meters per year. These smaller entities with low growth do not encounter the need for major capital improvements, such as reser- voirs, transmission mains, pump stations, etc. , which must be funded, primarily, by the patrons, as a whole. -4-. BUDGET MESSAGE (Continued) DEBT SERVICE FUND The last bond issue for the district was in 1976 and no new bond issues are proposed in the new budget. This has been the longest time interval between bond issues since 1959 . On July 1, 1984, the water district's indebtedness will be $1, 881, 000. Annual requirements in principal and interest to liquidate this debt are shown below: Fiscal Year Principal + Interest 1984-85 $302, 895 1985-86 299, 190 1986-87 295, 037 1987-88 231, 802 1988-89 183, 870 1989-90 192, 322 1990-91 165,653 1991-92 164,172 1992-93 162 , 298 1993-94 165, 017 1994-95 162,178 1995-96 163, 912 Annual payments peaked in 1982 so, hereafter, requirements will begin to decrease substantially each year, particularly in FY 1987-88 and FY 1988-89, at which time five (5) of the out- standing six (6) bond issues will be liquidated. While the bonded debt payments decrease annually, the assessed valuation of the district continues to increase. Thus, as the years pass, this has a compounding effect on reducing the tax rate. A history of advalorem taxes is shown on page 7a (on oppo- site side of folder) . It is projected that the tax rate will be the same as last year (36� per $1, 000 assessed valuation) which will provide sufficient funds to make all bonded indebted- ness payments for the next fiscal year, plus one-half year. -5- BUDGET MESSAGE (Continued) GENERAL FUND 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 only, and when approved and adopted, legally authorizes the Board of Commissioners to expend funds in specific cate- gories. It does not authorize the staff to spend any funds. Approval of individual appropriations is accomplished at regular monthly meetings of the board. The budget committee is the final approving authority of the proposed budget document. Subsequently, the Board of Com- missioners will adopt the approved budget. It is unnecessary to acquire voter approval of the budget because revenues from taxation are not used to fund the operation of the district. User fees constitute most of the income necessary to operate and maintain the system. Taxes are utilized for payments on bonded indebtedness only. Previous bond measures were approved by the patrons at the polls. However, the public has the right to appear before the committee and make their views known. Appropriate public notices have been published in THE TIGARD TIMES on the time and date of the first meeting. Subsequent meetings, if necessary, will be advertised, also. The next few pages discuss income and expenditures proposed in the General Fund budget. Most estimated figures are derived from historical data of previous years. In other cases, knowledge of pending developments assists in arriving at more accurate estimates. It is noted that no one has a crystal ball so any and all comments and suggestions are welcome. It is recommended that the budget committee examine very carefully those line items which represent a large percentage of the total budget. Correct forecasts on these line items can have a marked effect on the preparation of a realistic budget. -6 BUDGET MESSAGE (Continued) GENERAL FUND INCOME o of Account Amount Total Beginning Balance. . . . . $ 342, 600 17% Water Sales. . . . . . . . . . . 1, 435,800 70% Meter Sales. . . . . . . . . . . 207 , 400 10% Other income. . . . . . . . . . 64,200 3% Total: $21050-, 000 100% • Beginning Balance Beginning balance is a very important figure and is derived by adding the actual balance on April 1, 1984 to estimated income, less expenditures, for the remaining three months (April, May, and June) . An excellent beginning balance is forecasted as a result of higher than estimated revenues received from water sales and meter sales this past year. Being on the accrual method of accounting, the beginning balance includes inventory on hand which is estimated to be about $140, 000 on July 1, 1984. Beginning balance also includes accounts receivable, less accounts payable. Water Sales Water sales represent the single most important source of income in the budget, accounting for 70% of the total revenue. Therefore, maximum attention should be given to this line item. An error of just a few percentage points can make a significant difference in the total amount of revenue estimated to be received. Fortunately, water sales are reasonably predictable. Water consumption within the district has been relatively constant for the past few years, noted as follows: CY 1978: 2. 2 MGD CY 1981: 2 . 8 MGD CY 1979: 2 . 6 MGD CY 1982: 2 . 8 MGD CY 1980: 2. 6 MGD CY 1983 : 2. 8 MGD -7- BUDGET MESSAGE (Continued) Wet summers,, increased water rates, and conservation tend to keep water consumption low. These have all occurred during the past few years. It is believed that with the revived economy and improved construction activity, consumption will increase to 3 MGD (million gallons per day) or 7% higher than last year. This percentage is used in estimating revenue as well as increased cost to purchase water from others . Meter Sales Income from meter installations is very vcl.aC le and unpre- dictable, being dependent upon building construction. After two consecutive years of declining revenues, this past year saw a turn-around with increased income, estimated to be about 49% higher than last year, by June 30th. Due to this relatively large increase this past year, no increase is projected for the next fiscal year. EXPENDITURES To some on the budget committee it may be frustrating not to be able to reduce expenditures. Unfortunately, just like the federal budget, 80% of the expenditures are "built" into the system. It costs a certain amount of money just to open the doors. One will find that, for the most part, savings can be made most easily by minimizing or delaying capital expenditures, such as pipeline extensions, major maintenance and repair jobs, and by not purchasing new vehicles and equipment. This can, however, be more costly in future years (commonly called "the out-years" ) because of rapid deterioration of the system and higher mainten- ance costs for trucks and equipment as well as a reduction in the quality of service to the patrons. 8 BUDGET MESSAGE (Continued) GENERAL FUND EXPENDITURES % of Account Amount Total Personal Services . . . . . . . . . . $ 473 ,400 23% Water Costs. . . . . . . . . . . . . . . . 614, 700 30% Repairs: Lines, (res . ) ,etc 37 , 000 2% Meter Installation Exp. . . . . 33 , 200 2% Equipment. . . . . . . . . . . . . . . . . . 33 , 000 1% Pipeline Extensions. . . . . . . . 287 , 000 14% Land & Improvements. . . . . . . . 62, 500 3% Other expenditures. . . . . . . . . 259, 200 13% Ending Fund Balance. . . . . . . . 250, 000 12% Total: 2, 050, 000 100% Personal Services Representatives of the Board of Commissioners and the employees met a few months ago and a mutually agreeable settle- ment on wages and fringe benefits was approved. (Note: water district employees are non-union, but are afforded the oppor- tunity to negotiate an acceptable wage package) . Last year, employees volunteered to freeze their wages in view of the depressed economy. However, when the economy and the financial position of the district improved, the board agreed to review the wage scale of employees. An across-the-board increase of 6% was agreed upon, retroactive to January 1, 1984 and to be effective until June 30, 1985. It should be noted that any changes in the basic salaries affects other elements in the personal services account, namely: retirement, social security, SAIF, life and disability insurance, and overtime pay. A few years ago the district had 14 full-time employees. With the depressed economy, this was reduced to 11 by normal attrition. With the increased workload, employment of a third full-time office person is deemed necessary. Fifteen (15) years ago the district employed two office (administrative) persons. Steadily, over the years, the need for more assistance became apparent and part-time help was utilized. The part-time help -9- BUDGET MESSAGE (Continued) has now become full-time because of the increased workload. A starting salary of $12, 600 is recommended. All twelve (12) full-time employees will be eligible for the pension and deferred compensation plan. Water Costs Costs to import water account for the highest single expend- iture. The amount projected to be spent next year is lower than budgeted this year due to the fact that the city of Tualatin will be entirely off TWD' s system. As noted earlier, a 7% increase in water consumption, both in revenues and costs, is projected. On July 1, 1984 , wholesale costs for water will be as follows: City of Lake Oswego: 40� per 100 cubic feet (No increase) City of Portland: 74� per 100 cubic feet W increase) *City of Beaverton: 74� per 100 cubic feet W increase) *Water from the city of Beaverton would be used in cases of an emergency only. By reciprocal agreement, the rate charged by the city of Portland will prevail. Mention must be made of the penalty due Portland. For example, it was necessary in the new 25-year contract with Portland (signed in February 1983) to agree that a certain (guaranteed) percentage of Bull Run water (to the total consumed) would be purchased. The percentage established was 5% which is considered a 5-year average. If that minimum amount of Bull Run water is not purchased, a penalty must be paid to equal that amount. If that designated amount (5%) is exceeded, a "growth impact charge" is assessed. In other words, if the designated amount of Bull Run water is not purchased, either more or less, a penalty is imposed by the city of Portland. They cannot lose. -10- BUDGET MESSAGE (Continued) The 5-year average is a "running" average in that it changes each succeeding year as actual historical data are recorded. This minimum purchase penalty was applicable in the prior 10-year contract with Portland as well. However, there was no "Growth Impact Charge" . On the former contract, the district was required to pay a penalty for one (1) year only, noted as follows: FY 1981-82: $44 , 960 On the new 25-year contract, the penalties will be as follows: Minimum New Guaranteed Fiscal Purchase Purchase Year Penalty Percentage 1982-83 $18 , 509 (Actual) 5. 00% (Actual) 1983-84 43 , 100 (Estimated) 4 . 58% (Actual) 1984-85 38 ,100 (Estimated) 3 . 58% (Estimated) During the negotiations with Portland, prior to agreement on the 25-year contract, the Board of Commissioners was severely criticized in some quarters for being too cautious for not, immediately, signing the 25-year contract, when offered. The extent of these potential penalties over the next 25 years was the reason for the precaution. To commit the patrons to a 25- year contract without a thorough understanding of all provisions would have been foolhardy. Indeed, there are those who wished, today, that they had read the fine print. One might ask, logically: "Why have a contract with Portland"? The reason is that Lake Oswego, in the long-run, cannot provide sufficient water to meet all the needs of the district, particularly, during peak demand periods. Therefore, the Portland contract is a "safety-net" to ensure an amply supply of water at all times. These penalties are the price the district has to pay to be sure the demands of the patrons can be met. -11- BUDGET MESSAGE (Continued) Repairs: Lines, pumps, (reservoirs) , etc. In addition to normal repairs on pipelines and pumps, etc . , this year it is deemed necessary to sandblast and paint the three (3) steel tanks owned by the district. This is one of the disadvantages of steel versus concrete tanks. These tanks have not been painted in over 10 years. Rust is begin- ning to show through. Two of these tanks are located near the Haines overpass at I-5 freeway, while the other is located at S. W. 121st and Gaarde Street. (Estimated cost: $25, 000) . Meter Installation Expense No increase in meter installation expense is predicted, similar to meter sales. Equipment An ambitious construction program has been scheduled this next year in which heavy (24-inch) pipe must be lifted and installed. Adequate equipment must be provided not only to accomplish the work but to ensure a margin of safety. The 1977 Case backhoe 580C should be replaced with a new Case 580D. (Estimated cost: $30, 000) . No other equipment or vehicles can be afforded at this time. Pipeline Extensions (See attached maps) a. 4, 800 ' of 24" D.I. along Bonita Road to Waluga reservoir @ $40/ft. . . . . . . . . . . $192 , 000 b. 1, 700 ' of 16" D. I. along 135th Avenue to Scholls Ferry Road @ $30/ft. . . . . . . . . 51, 000 c. 1, 400 ' of 12" D. I. along Scholls Ferry Road, 130th to 135th Ave. @ $20/ft. . . . . 28 , 000 d. Circulation loops & oversizing. . . . . . . . . 16 , 000 Total: $2871, 000 -12- i I> its IiR I.1 i Z B EAV E RTON m , 1211 D.I• r. O 14 OCAA E : i C "y 511 I 2�way Master T- 8 Meter` y - � \/ -- •�• l 5\ t' TT i• A\ f f� cm i I , C, > S.W. s �DR'Iv t W' LA 1E LILY CIRCL � I 000000 e° �p 77 SU ME ST EE , l _7_T–r 1 _ r i T" 1GARD- '� S.W.M R IN N .W.fALCON I$ dR 32 33 33 '34 A 1 I � _ j •A H o !r - - 3 I E T I A '-�L__•� ,:J] KARE' ST EE J_I SW- –zi C T, N ! � r+ T -�-- --r---� --T- 7-- i T N � E < •14 I CT F a \ S. W. -� — . qY Walnut t. : T— �-� I t SW AUBE t ST 1 01 New reser oir: ,A 2.5-MG TIGARD WATER DISTRICT s" 8841 S. W. COMMERCIAL _ JTGARD, OREG6N 97223, SW VA ION srR e — I I I I I I 5 4 4 3 " 9 10 8 9 S!W RIO TIR --- BUDGET MESSAGE (Continued) a. Installation of 4, 800 feet of 24-inch D. I . pipe to Lake Oswego' s Waluga reservoir (.to .parallel a 16" main) will ensure adequate water from Lake Oswego until after year 2000. Concurrently, Lake Oswego plans to install 7 , 600 lineal feet of 24-inch D. I. pipe along S: W. Iron Mountain Boulevard (in Lake Oswego) to improve and reinforce its capability to serve TWD, as recommended by CH2M-Hill Engineers in a report dated December 1982. b and c. These two pipelines will meet at S . W. 135th and Scholls Ferry Road and will create a second (important) inter- tie with the city of Beaverton. Secondly, it will provide a much needed circulation loop and materially improve fire flows along S. W. Scholls Ferry Road, east of 130th Avenue. (This latter deficiency was noted in the Lee Engineering Report of May 1982) . Land and Improvements A down-payment is recommended on a parcel of land (5+ acres) to be used in the future as a site for an office/shop complex. ($50, 000) . There are many facets to this proposal that require elaboration. Therefore, enclosed as an addendum is a long-range outlook for the future of the water district. Ending Fund Balance An Ending Fund Balance of $250, 000 is deemed adequate. This ensures that short-term borrowing to meet current expenses will not be necessary and, also, provides for some interest income to accrue from short-term investments. (savings) . CONCLUSIONS It is believed that the proposed budget is fiscally responsi- ble, fair to both patrons and employees , and will provide suffi- cient funds to further the long-range goals of the district. Res ctfully submitted, XRo�bertE. an ee Budget Officer -13- next aQ ap CLACKAMAS CO. 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