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Budget Message E BUDGET MESSAGE FY 1985-86 TIGARD WATER DISTRICT April 9 , 1985 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 1985-86 , beginning July 1, 1985 . 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 condition of the district reflects this conservative approach. Again this year, the water district received a clean, un- qualified opinion from the auditor (Coopers & Lybrand) for both the financial report and budgetary report for the period ended June 30, 1984 . GENERAL The patrons of the water district have not experienced a water shortage or restrictions 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, well-maintained and are an asset to the community. The good news is that no increases are planned next year in consumer rates . The last rate increase occurred in February 1983 . This will be the longest time interval between rate increases in -1- BUDGET MESSAGE (Continued) the past 20 years . The tax rate will continue its annual decline from 374 to 31G per $1, 000 assessed valuation. However, upon realizing an inequity in meter connection fees, the Board of Commissioners approved an increase in the cost of larger meters, effective July 1, 1985 . Cost of the standard (household) meter (5/8" x 3/4" ) will remain the same. SIGNIFICANT EVENTS OF PAST YEAR a. Major Capital Improvements . TWD installed 4 , 800 feet of 24-inch ductile iron pipe along S . W. Bonita Road, between I-5 freeway and Lake Oswego' s Waluga reservoir, to parallel and reinforce an exising 16-inch main. This main installation materially improves the district' s capability to import more Clackamas River water from Lake Oswego. A 75-KW diesel generator for auxiliary power at Hi Tor reservoir has been purchased and should be operational within two months . b. Purchase of Land. TWD purchased on contract 5 .16 acres of land, commonly called "Air-King site" , located at the northwest corner of S . W. Burnham and Hall Boulevard, for a future Operations Center (FY 1989-90) . Four annual payments of $100, 000 each, plus accrued interest, will become due, commencing on July 1, 1985 . One-half street improvements at the site will be completed by June 1985 . C. Equipment. A new Case backhoe was purchased, replacing a 1977 model. -2- BUDGET MESSAGE (Continued) d. Annexations. Approximately 400 acres of land on the north and south slopes of Bull Mountain were annexed to the district. These annexations complete the district' s boundary on the west side and is coincidental with the Metropolitan Urban Growth Boundary. At this writing, it appears that the city of Durham will be annexed and served by TWD, beginning on July 1, 1985 . Prior to this time, Durham has been served by Lake Grove Water District on an out-of-district basis.. There are about 200 meter connections in the city of Durham. Only one parcel of land of about 100 acres remains to be annexed to the district prior to year 2000, unless the Urban Growth Boundary is changed. This proposal, located at S . W. 135th and Scholls Ferry Road, will be submitted to the boundary commission soon, but the property owners must, first, agree to be annexed to the city of Tigard. Upon approval, boundaries of the district will be finalized as follows: East: I-5 freeway North: Beaverton and Metzger Water District West: Metropolitan Urban Growth Boundary South: Tualatin River e. Projects not completed . Sandblast and paint three (3) steel tanks . This project was postponed until the State Highway Division completes improvements to I-5 freeway at the Haines Street overpass . Installation of 16-inch and 12-inch mains along S . W. 135th and Scholls Ferry Road, including another inter-tie with the city of Beaverton, was only partially completed because of problems obtaining an easement and approval for annexation. -3- BUDGET MESSAGE (Continued) f. Change in Political Structure. In an effort to get municipalities more involved in the decision-making process of the water system, it was suggested, for study, the possibility of a reorganization of the governing body so that more direct representation of cities could be achieved. The district' s attorney presented a legal brief in which he stated, in part: "The first question seems to be what can the Board of the Water District do, if anything, to alter the manner in which the composition of its governing body is determined, i .e. , is it possible that commissioners be chosen to represent municipal entities within the boundaries of the District as opposed to the electorate of the District as a whole? My conclusion is that that cannot be done by the Board or by the electorate of the District. The District is a special district created pursuant to enabling legislation of the State of Oregon. ORS Chapter 264 , ' Domestic Water Supply Districts ' . As such, the District Board can exercise only those powers and functions which are delegated to them by the legislature . Even the voters of the District on their own initiative cannot change the governmental structure required of the District. That would require a state- wide initiative or an action of the legislature to amend Chapter 264, ORS . . . . . . . . . . . . . . . The suggestion that the governing body of the district should be comprised of commissioners designated by and to represent municipalities within the district is not legally possible under ORS Chapter 264 . " -4- BUDGET MESSAGE (Continued) GOALS OF THE WATER DISTRICT A critical situation (on water supply) 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 to meet needs until year 2000 . The district excels in all categories of a water system, namely: storage, distribution, and supply. In addition to an outstanding water system, the district has one of the lowest per capita costs in Washington County for water service. A primary goal of the district is to operate a "pay-as-you- go" water system without future indebtedness . The present indebt- edness is less than $2 million and that will be paid off within 10� years . To continue along this financial plan means monies will have to be set aside each year for future major capital improvements. Such a fund is called "Capital Projects Reserve Fund" . Monies earmarked for these purposes must be kept in a fund, separate and distinct from all other funds . These reserves may be established only for the future financing of a specific project or activity. The district has plans for three (3) specific projects to be constructed prior to year 2000 . These are: 1990 : Operations Center at Hall and Burnham Streets . ($800, 000) (Land is being purchased on contract) . 1995 : 1-MG reservoir at Hi Tor. ($300, 000) . (Land is owned by district) . 2000 : 5-MG reservoir on 150th Avenue, between Bull Moun- tain Road and Beef Bend Road . ($1, 000, 000) . (Land must be purchased) . -5- BUDGET MESSAGE (Continued) FISCAL CONSIDERATIONS All funds in the Bond Construction Fund were expended on June 30, 1979 . Therefore, the 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 indebt- edness . As noted on the previous page, the establishment of a Capital Projects Reserve Fund will be recommended this year . 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, 1985, the water district' s indebtedness will be $1, 675, 000 . Annual requirements in principal and interest to liquidate this debt are shown below: Annual Payment : Estimated Fiscal Principal Tax Rate Year + Interest per $1, 000 1985-86 $ 299 , 190 31G 1986-87 295, 037 28G 1987-88 231, 802 21� 1988-89 183 , 870 15G 1989-90 192, 322 15G 1990-91 165 , 653 12� 1991-92 164 , 172 llG 1992-93 162, 298 10t 1993-94 165 , 017 10G 1994-95 162, 178 9� 1995-96 163 , 912 9� Annual payments peaked in 1982 so requirements will continue to decrease substantially each year, particularly this year and next year, at which time three of the five outstanding bond issues will be liquidated. While the bonded debt payments -6- BUDGET MESSAGE (Continued) decrease annually, the assessed valuation of the district con- tinues to increase. Thus, as the years pass, this has a com- pounding effect on reducing the tax rate. A history of advalorem taxes is shown on page 7a (on opposite side of folder) . It is estimated that the tax rate will decrease from 37� to 31G per $1, 000 assessed valuation which will provide sufficient funds to make all bonded indebtedness payments for the next fiscal year, plus one-half year. 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 categories . 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 Commissioners 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. These bond measures were previously approved by the patrons at the polls . The public has the right to appear before the committee and make their views known on the current budget document. -7- BUDGET MESSAGE (Continued) Appropriate public notices have been published in THE TIGARD TIMES on the time and date of the first meeting. Subsequent meet- ings, if necessary, will be called by the chairman of the budget committee. 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 pro- jections . 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 care- fully 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. GENERAL FUND INCOME % of Account Amount Total Beginning Balance. . . . . . $ 474, 000 19% Water Sales . . . . . . . . . . . . 1, 600, 300 65% Meter Sales. . . . . . . . . . . . 249, 100 10% Other Income. . . . . . . . . . . 146 , 600 6% Total: $ 2, 470., 000 100% Beginning Balance . Beginning balance is a very important figure and is derived by adding the actual balance on March 31, 1985 to estimated income, less expenditures, for the remaining three months (April, May and June) of the fiscal year. An excellent beginning balance is fore- casted as a result of higher than estimated revenues received from water sales, meter sales, and developer ' s projects . -8- BUDGET MESSAGE (Continued) Being on the accrual method of accounting, the beginning balance includes inventory on hand which is estimated to be about $150, 000 on July 1, 1985 . Beginning balance also includes cash on hand, accounts receivable, less accounts payable. Water Sales. Water Sales represent the single most important source of income in the budget, accounting for 65 % 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 for the past five calendar years is shown as follows: Consumption: Calendar Million Gallons % increase Year per Day or decrease 1980 2 . 60 +1. 6' 1981 2 .76 +6 . 20 1982 2 . 81 +1 . 8% 3 . 3% ay. inc . 1983 2. 79 -0 .7% 1984 3 .00 +7 . 5% History of water sales is, also, shown on page la in the attached folder . Those percentage increases reflect consumer rates as well as increases in consumption so they should not be used as a basis for projecting future revenue. No increases in consumer rates are planned this year. Wet summers and conservation tend to keep water consumption low. It is believed that with the revived economy and improved con- struction activity, along with the addition of 200 meter connections in the city of Durham, consumption will increase to 3 .15 MGD (million gallons per day) or 5% higher than last year . This percentage is used in estimating revenue as well as increased costs to purchase water from others . -9- BUDGET MESSAGE (Continued) Meter Sales . Income from meter installations is very volatile and unpre- dictable, being dependent upon building construction. Some additional revenue will be generated due to an increase in fees for the larger meters, 1-inch and above. A conservative 10% increase in revenue from meter sales is predicted. EXPENDITURES To some on the budget committee it may be frustrating not to be able to reduce expenditures more . Unfortunately, just like the federal and state budgets, 80% of the expenditures are "built" into the system. It costs a certain amount of money just to open the doors each morning. 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. Indeed, this is often the tactic used when funds become. short near the end of the fiscal year. This can, however, be more costly in future years because of more rapid deterioration of the system and higher maintenance costs for trucks and equipment as well as a reduction in the quality of service to patrons . EXPENDITURES % of Account Amount Total Personal services . . . . . . . . . . . $ 499 , 100 20% Water Costs . . . . . . . . . . . . . . . . . 680, 000 28% Repairs: (Lines, pumps, etc .) 45, 000 2% Meter Installation Expense. . 62, 000 2% Equipment. . . . . . . . . . . . . . . . . . . 75, 000 3% Pipeline extensions . . . . . . . . . 223, 000 9% Land & Improvements . . . . . . . . . 152, 000 6% Other Expenditures. . . . . . . . . . 333, 900 14% Trans to Cap. Proj . Res. . . . . 50, 000 2% Ending Fund Balance. . . . . . . . . 350, 000 14% Total: $2, 470, 000 100% -10- BUDGET MESSAGE (Continued) 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 opportunity to negotiate an acceptable wage package) . After several lengthy meetings of the board, it was agreed to grant the employees a 2-�% increase in basic pay and a 3% increase (from 7% to 10%) in dis- trict' s contribution to the retirement plan. It should be noted that such changes in the basic salaries also affect other elements in the personal services account, namely: retirement, social security, SAIF, life and disability insurance, and overtime pay. Eleven of the twelve full-time employees are eligible for the pension and deferred compensation plan. Water Costs . Costs to import water account for the highest single expendi- ture. A 5% increase in water consumption is projected, both in revenues and costs . Repairs : Lines, pumps, reservoirs, etc . In addition to normal repairs on pipelines and pumps, etc . , again, this year it is deemed necessary to sandblast and paint the three steel tanks owned by the district. This work was postponed from last year. These tanks have not been painted in over 11 years . Rust is showing through on the sides . Two of these tanks are located near the Haines Street overpass at I-5 freeway, while the other one is a small tank located at S . W. 121st and Gaarde Street. -11- BUDGET MESSAGE (Continued) Meter Installation Expense. A 10% increase in meter installation expense is predicted to coincide with meter installation income. Equipment. The need for auxiliary power at No. 1 reservoir has existed for too long. A 175-KW generator should be purchased to be in- stalled in the shop area. This generator will provide power to operate the pumps when normal electricity is curtailed for any reason. These pumps increase the water pressure to an acceptable level to about 500 homes in the Little Bull Mountain area . As the district continues to grow, so does the need for larger equipment to perform the necessary tasks . A supplementary computer with more memory is required so that fixed assets and inventory can be included in the accounting system. This was recommended by the auditor. The district has limited office space for such additional equipment. Fortunately, computers are being built smaller and smaller each year . Included in the budget are funds to purchase a new pick-up truck to replace a 1976 model. Pipeline Extensions (See attached map) . a. Beaverton connection. 1, 400 feet of 12" pipe along Scholls Ferry Road and 1, 000 feet of 16" pipe along 135th Avenue. b. City of Durham loop. 2, 900 feet of 12" pipe along Upper Boones Ferry Road to replace asbestos-cement pipe. C. Ross and 81st Avenue. 2, 500 feet of 8" pipe for circulation loop. d. Naeve Street. 740 feet of 8" pipe for circulation loop. -12- BUDGET MESSAGE (Continued) Land and Improvements . Contract terms for purchase of the Air-King site call for four annual payments of $100, 000 each, plus interest on the out- standing balance at 6%, on July 1, 1985, 1986 , 1987 , and 1988 . Funds to make the first payment on July lst, plus $24, 000 interest, are included in the budget. One of the primary objectives of the district, prior to year 2000, is to construct a 5-MG (million gallon) reservoir on S . W. 150th Avenue, as noted on Page 5 of this report . This reservoir will require 3 acres of land. A site has been selected, at the correct elevation, for purchase . The land is presently vacant and should be available for purchase this year. This land purchase will complete all required land acquisitions until year 2000 . Air-King Site. Although the district purchased this land last year, on con- tract, actual possession of the property will not occur until July 1, 1985 . On that date it is proposed to lease the property for $36 , 000 annually for at least a 2-year period, with options for additional years . This is shown as rental income in the budget. Likewise, there are rental expenses to consider . These include $10, 500 in property taxes and about $1, 500 for fire insurance, etc . The remainder of income, $24, 000, will take care of the annual interest payment. The district has the option of leaving the property vacant and, thus, not paying property taxes (because of tax-exempt status) . In view of the gain to be derived, as noted above, it is considered prudent to lease the property and keep it on the tax rolls . -13- BUDGET MESSAGE (Continued) Ending Fund Balance. An Ending Fund Balance of $350, 000 is deemed necessary to ensure adequate funds to start the succeeding fiscal year . To start the fiscal year, the $100 , 000 payment (in cash) must be made for the Air-King site. The Ending Fund Balance also in- cludes $150, 000 in inventory as well as Accounts Receivable, less Accounts Payable. This balance is considered a minimum to ensure that short-term borrowing to meet current expenses will be unnecessary and, also, provides some interest to accrue from short-term investments (savings) . CAPITAL PROJECTS RESERVE FUND This fund will be established for the first time this year with a modest deposit of $50, 000 as a beginning. In future years, it is believed that larger amounts can be placed into this account. In compliance with budgetary law, these funds will be ear- marked for the specific purpose of constructing an Operations Center in the near future. (See attached drawings) . SUMMARY In the opinion of this budget officer who has reviewed the district' s budgets for the past 15 years, this budget is probably the best. It provides the funds necessary to accomplish important tasks, correct the few remaining deficiencies in the system, and at the same time, continue liquidating indebtedness and investing in the future. The patrons are well-served with no consumer rate increases and a reduction in the tax rate while being beneficiaries of a more reliable water system and alternatives for future water supply. In passing, one cannot forget to mention the continued out- standing performance and contribution made by all employees of the district. -14- BUDGET MESSAGE (Continued) THE FINALE This is as an appropriate time, .as any, ,to announce my retirement as Administrator/Engineer in four years no later than. June 30, 1989, God willing. This advance notice is made so that the district will be aware and can start making plans for an orderly transition. Twenty years duration on a second career is long enough. I have, essentially, accomplished all of my goals and am proud and completely satisfied with the status of the water district. The district progressed from one of the worst to one of the best. It is unbelievable that it took so long to get to this point. One thing is for sure -- water systems are .not built in a day. It is hoped that, in the future, a registered engineer will not be required on the staff. With advance work and planning, this can be accomplished. For example, prior to leaving, it is my intention to have permits and plans prepared for the three major projects programmed to be completed prior to year 2000 . (see Page 5) . Almost all major pipelines extensions for the district will be completed within a few years . Only pipeline replacements will be necessary in which an engineer is not required. Developers can utilize consulting engineers for design work as is now authorized by statute. The district may desire to retain a registered engineer on a consulting basis, only. It is sincerely hoped that the Board of Commissioners will select a replacement from within the organization. Res ectfully submitted, Ober�tE antee Budget Officer -15-