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Budget Message s BUDGET MESSAGE FY 1986-87 TIGARD WATER DISTRICT April 8 , 1986 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 1986-87, beginning July 1, 1986 . 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 . Until 1976 it was necessary to issue General Obligation bonds to fund the many required capital improvements in the water system. Since then the district has been "living" within income without borrowing . Consequently, each year the district has improved its financial position as indebtedness is reduced and monies are set aside in a reserve fund for future capital improvements . Of significance ,is the fact that the dis- trict will be debt-free in just 92 years at which time no annual tax levy will be necessary to fund this liability. 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, 1985 . GENERAL The patrons of the 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 well beyond year 2000 . The good news is that no increase in charges of any kind is proposed for the next fiscal year. Consumer rates were last in- creased in February 1983 . This will be the longest time interval between rate increases in over 20 years . The tax rate will con- tinue its annual decline from 32G to 28G per $1, 000 assessed valu- ation. -1- BUDGET MESSAGE (Continued) SIGNIFICANT EVENTS OF PRESENT FISCAL YEAR a. A 200-KW diesel engine-generator for auxiliary power was installed at the district's shop located on S . W. Canterbury Lane. In the event of an emergency with electrical outages, this unit will generate power to operate the pumps which provide water pressure to those residents living on Little Bull Mountain, to operate the deep well pump, if needed, and all power tools at the shop. b. Within a month S & K Painting Company, Oregon City, Oregon, will complete sandblasting and painting both the interior and exterior of the three steel tanks (reservoirs) in the system. All coal tar enamel has been removed from inside surfaces and replaced with white epoxy paint which is regarded to be the best for water quality by the Oregon State Health Division. The cost of this project was considerably more than anticipated and con- tributed to an over-expenditure in the Materials & Services account which will be corrected in a supplemental budget. Fortunately, this type of maintenance needs to be done only every 20 years . It represents a good case for building concrete tanks versus steel tanks . c. The district recently completed one-half street improve- ments with street widening, curbs and sidewalks, along S . W. Hall Boulevard and Burnham Street where the new Operations Center will be located (in July 1989) . d. On July 1, 1985 TWD assumed responsibility for water service to the City of Durham with 227 meter connections . A com- mitment was made to replace all asbestos-cement pipe in Durham's water system. Progress toward this goal has been satisfactory with about one-half of the work completed. The project will be finished by Labor Day, 1986 . e. Since May 1985 the water district has been supplying water to meet all the needs of the City of Tualatin. Tualatin consumes about one-half the quantity of water that TWD utilizes to serve its patrons . Tualatin suffered major breaks in its concrete cylinder pipeline from the City of Portland, its chief supplier . The addi- tional burden upon TWD' s system was handled without difficulty and is indicative of the system' s capabilities . However, substantial -2- BUDGET MESSAGE (Continued) additional amounts of water had to be purchased from the City of Lake Oswego, playing havoc with the adopted budget for the present fiscal year. A supplemental budget is, therefore, necessary to authorize the extra expenditures . f. 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 not completed because of problems ob- taining an easement and approval for annexation to the district. 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 beyond 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 for water service in Washington County. A primary goal of the district is to operate a "pay-as-you-go" water system without future indebtedness . The present indebtedness is less than $1� million and, as indicated earlier, that will be paid off within 9h years . To continue along this financial plan means that monies have to be set aside each year for future major capital improvements. Such a fund is called "Capital Projects Reserve Fund. " The district has established a reserve fund for the first of the following projects which should be constructed in the years indicated: 1988 : Operations Center at S . W. Hall and Burnham Streets. Estimated cost: $800, 000 with $50, 000 placed in reserve fund last year . 1995: 1-MG reservoir at Hi Tor on Bull Mountain. Estimated cost: $300, 000 . 2000: 5-MG reservoir on 150th Avenue, between Beef Bend Road and Bull Mountain Road. Estimated cost: $1 million. -3- BUDGET MESSAGE (Continued) FISCAL CONSIDERATIONS All funds in the Bond Construction Fund were expended on June 30, 1979 . Therefore, the district has only three active funds as follows: a. General Fund b. Debt Service Fund C . Capital Projects Reserve Fund The General Fund is used for the day-to-day operations of the district while the Debt Service Fund is a fund established to reserve monies to pay off bonded indebtedness . The Capital Projects Reserve Fund was explained on the previous page. Since the General Fund is the most detailed, it will be explained last. DEBT SERVICE FUND The last bond issue for the district was in 1976 and no new bond measures are proposed now or in the foreseeable future. This has been the longest time interval ever between bond issues . On July 1, 1986, the water district' s indebtedness will be $1, 463, 000. Annual requirements in principal and interest, along with outstanding debt, to liquidate this indebtedness are shown below: Annual Payment: Estimated Fiscal Principal Tax Rate Outstanding Year + Interest per $1,000 Indebtedness 1986-87 $ 295, 037 28� $1, 245, 000 1987-88 231, 802 21G 1, 080, 000 1988-89 183, 870 15� 955, 000 1989-90 192, 322 15� 815, 000 1990-91 165, 653 12G 695, 000 1991-92 164 , 172 ll� 570 , 000 1992-93 162, 298 10� 440,000 1993-94 165, 017 10G 300 ,000 1994-95 1621178 9� 155, 000 1995-96 163, 912 9G -0- -4- BUDGET MESSAGE (Continued) 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 decrease annual- ly, the assessed valuation of the district continues to increase. Thus, as the years pass, this has a compounding effect on reducing the tax rate. (Only taxes are used to liquidate the district ' s indebtedness) . 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 32� to 28� 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 . CAPITAL PROJECTS RESERVE FUND This fund was established last year for the first time with a deposit of $50, 000 toward future construction of the district' s Operations Center . Initially, it was believed that the district would have to wait until FY 1989-90 before starting construction on this project. With an improved financial status of the district, it is believed that construction can be moved ahead one year with work to begin on July 1, 1988 (and occupancy by June 1989) . (See attached drawings) . This means a stepped-up schedule for deposits in the reserve fund. Accordingly, $250, 000 is proposed to be set aside this fis- cal year. With interest compounding each year, a total of $332, 000 should be available by June 30, 1987 toward the estimated cost of $800, 000 . Deposits in FY 1987-88 and FY 1988-89 should provide ample funds to complete the project. It should be noted that some costs are being incurred at this time versus later. For example: the street improvements on Hall and Burnham will not have to be repeated . Also, it eliminates one governmental body in the project review process -- Oregon State Highway Division. City of Tigard will be the governing authority. It should be noted, further, that the water district has built up credits, valued at $14, 526 . 26, with the City of Tigard by waiving fees and labor for the water main installation to serve the new Tigard Civic Center. -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 as of March 31, 1986 are, also, included. 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 committe 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 (water sales and meter installation income) 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 and authorized by the patrons at the polls. The public has the right to appear before the committee and make its views known on the current budget document. 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 one in arriving at more accurate projections. 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 carefully those line items which represent a large percentage of the total budget. Correct forecasts on these line items can have a marked impact on the preparation of a realistic budget. -6- BUDGET MESSAGE (Continued) GENERAL FUND INCOME % of Account Amount Total Beginning Balance. . . . . . $ 782, 200 24% Water Sales. . . . . . . . . . . . 1, 908 , 700 60% Meter Sales. . . . . . . . . . . . 352, 000 11% Other Income. . . . . . . . . . . 147, 100 5% Total: $3, 190, 000 100% Beginning Balance. Beginning balance on July 1, 1986 is a very important figure and is derived by adding the actual balance on March 31, 1986 to estimated income, less expenditures, for the remaining three months (April, May and June) of the fiscal year . An excellent beginning balance is forecasted as a result of higher than anticipated reve- nues from water sales, meter sales, and interest income . Also, some savings were realized in the Capital Outlay account by not performing a few pipeline extension projects. 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, 1986 . Beginning balance also includes cash on hand (including checking accounts) , accounts receivable, less accounts payable. Water Sales . Water Sales represent the single most important source of income in the budget, accounting for 60% 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 six calendar years is shown as follows: -7- BUDGET MESSAGE (Continued) Consumption Calendar Million Gallons % increase Year per Day or decrease 1980 2 .60 + 1 .6% 1981 2 .76 + 6 .2% 1982 2 .81 + 1.8% 5 .4% average 1983 2 .79 - 0 .7% annual increase 1984 3 .00 + 7 .5% 1985 3 . 47 +15 .7% History of water sales is, also, shown on page la in the attached folder . Those percentage increases reflect adjustments in consumer rates as well as consumption so they should not be used as a sole basis for projecting future revenue. No increase in consumer rates is planned this year . Wet summers, conservation, and rate increases tend to keep water consumption down. It is believed that with the revived economy and improved construction activity, including a banner year in meter sales, consumption will increase to 3 . 8 MGD (million gallons per day) or 10% higher than last year ' s consumption. This percentage is used in estimating revenue as well as increased costs to purchase water from Lake Oswego and ,Portland. Meter Sales Income from meter installations is very volatile and unpre- dictable, being dependent upon the economy and building construction. 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, and by not pur- chasing new vehicles and equipment. Indeed, this is often the -8- BUDGET MESSAGE (Continued) 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 vehicles and equipment as well as a reduction in the quality of service to patrons. EXPENDITURES % of Account Amount Total Personal Services . . . . . . . . . . . . . $ 537 , 100 17% Water Costs. . . . . . . . . . . . . . . . . . . 753, 800 24% Water Costs -- Electricity. . . . 75, 600 20 Meter Installations . . . . . . . . . . . 90 , 200 3% Equipment. . . . . . . . . . . . . . . . . . . . . 130, 000 4% Pipeline Extensions . . . . . . . . . . . 250, 000 8% Land & Improvements. . . . . . . . . . . 230, 000 7% Capital Projects Reserve. . . . . . 250, 000 8% Other Expenditures . . . . . . . . . . . . 426 , 900 13% Ending Fund Balance. . . . . . . . . . . 446 , 400 14% Total: 3, 190, 000 100% Personal Services Representatives of the Board of Commissioners and employees met a few months ago and a mutually agreeable settlement on wages was approved. (Note: water district employees are non-union but are afforded the opportunity to negotiate an acceptable wage package) . After a short, amicable meeting it was agreed to grant all employees a 5% cost-of-living increase in basic pay. It should be noted that such changes in basic salaries also affect other elements in the personal services account, namely: retirement, social security, SAIF, life and disability insurance, and overtime pay. Several years ago the district had a total of 13 full-time employees. As a result of voluntary resignations this number was reduced to 11 and part-time personnel were utilized to fill the gap. Two part-time employees (one field and one office) have demonstrated that they possess the skills, desire, and capability to become full- time. The workload demands at least 13 full-time employees. -9- BUDGET MESSAGE (Continued) Water Costs Costs to import water from Lake Oswego and Portland account for the highest single expenditure. A 10% increase in water con- sumption is projected, both in revenues and cost. The contract with Lake Oswego states: "City will attempt to notify purchaser by April 1st of each year of any contemplated changes so that purchaser can include such changes in its annual budget which begins on July lst. " Lake Oswego has given no such notification so it is assumed that wholesale rate will remain the same at 40� per 100 cubic feet. Portland has indicated that it will increase wholesale rates to TWD by 3 .8% to 81.8 per 100 cubic feet on July 1, 1986 . It is anticipated that TWD will purchase only 3 .0% of its water from Portland so the increase in rates will not be significant. Water Costs -- Electricity Although Lake Oswego charges about one-half the amount for water as Portland it should be noted that all water purchased from Lake Oswego must be pumped while Portland' s water is provided by gravity flow. Electrical costs add about 5� per 100 cubic feet to the price of water from Lake Oswego . Meter Installation Expense A 10% increase in meter installation expense is predicted to coincide with meter installation income. Equipment The following new equipment is deemed necessary to be purchased this year: a. New Case 680K backhoe to replace 1981 Case 680H. b. New GMC or Chev dump truck to replace 1979 truck. C. 175-KW diesel engine-generator for auxiliary power at #2 reservoir site (S . W. 119th and Gaarde Street) to pump water to Hi Tor reservoirs on Bull Mountain. -10- BUDGET MESSAGE (Continued) Pipeline Extensions Pipeline extensions proposed for the next fiscal year include, with two exceptions, projects identified on the master water plan dated July 1985. All proposed projects are listed in detail on page 6a on the other side of this folder. The exceptions include continued replacement of asbestos-cement pipelines in the City of Durham as described earlier in this report and installation of an 8-inch circulation loop on S . W. Naeve Street. It is believed that these improvements will materially improve water service and fire flows to patrons of the district. Land & Improvements The district intends to make an annual payment of $150, 000 on July 1, 1986 (along with $18 , 000 interest due @ 6%) toward the con- tract purchase of the Air-King site located at S . W. Hall Boulevard and Burnham Street. This is the site of the new Operations Center. That will leave a remaining balance of $150, 000 which will be paid on July 1, 1987 with interest due of $9 , 000 . The district will continue to lease this property to five different proprietors with rental income estimated at $35, 100 annually. Rental expense includes advalorem taxes (about $10 , 400) . Three of the lease contracts will not be extended beyond June 30, 1988 at which time construction is scheduled to begin on the Operations Center. The other two lessees can remain indefinitely because buildings and land they are occupying (located at the west end of the property) will not be required for the new construction. One of the primary objectives of the district, about year 2000, is to construct a 5-MG (million gallon) reservoir on S . W. 150th Avenue, as mentioned on page 3 of this report. This reservoir will require 3 acres of land. Two sites are presently being studied for appropriate elevation and price. Both parcels of land are vacant and should be available for purchase this year. This purchase will complete all required land acquisitions until year 2000 . -11- BUDGET MESSAGE (Continued) Ending Fund Balance An Ending Fund Balance (including inventory) of $446, 400 is deemed necessary to ensure adequate funds to start the succeed- ing fiscal year. On the first day of that fiscal year, the final payment of $150, 000 plus $9, 000 interest must be made for the Air- King site. 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 invest- ments (savings) . SUMMARY Without question, this budget proposal represents an ambitious undertaking of projects, purchases and workload. Each year, it is hoped that some of these burdens will ease but this is not the year. The water district must move ahead and be prepared to keep pace with anticipated growth in this area. This budget provides the funds necessary to accomplish the most 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 increase and a reduction in the tax rate while being the 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. PERSONAL MATTERS Last year the Board of Commissioners was advised of my inten- tions to retire on June 30 , 1989, three years from now. After 26 years as a marine and almost 20 years with the water district it will be time to let the youngsters take over.-- and there are individuals now employed by the district capable and willing to assume greater responsibilities . For myself, I have some specific objectives and goals to accomplish prior to retirement. These are: -12- BUDGET MESSAGE (Continued) a. Complete construction of new Operations Center to be located at S . W. Hall Boulevard and Burnham Street. Work will start on July 1, 1988 and be finished by June 30 , 1989 . b. Purchase 3 acres of land for proposed 5-MG reservoir to be located on S . W. 150th Avenue, between Beef. Bend Road and Bull Mountain Road. (Funds have been obligated in new budget) . C. Installation of 175-KW diesel engine at No . 2 reservoir site to generate auxiliary power for pumping water to Hi Tor reservoirs. (Funds have been obligated in new budget) . d. Prepare plans and specifications for 1-MG reservoir to be constructed at Hi Tor in 1995 . e. Design and install pump station at 10-MG reservoir to improve capability to pump water to top of Bull Mountain. Funds will be requested in FY 1987-88 budget. f. Begin phased construction of 24-inch main installation, paralleling existing 16-inch main, from intersection of Fanno Creek and S . W. Bonita Road to intersection of S . W. Gaarde Street and Pacific Highway, via Bonita Road, Hall Boulevard, MacDonald Street, and Pacific Highway. This will result in the equivalent of at least a 30-inch main all the way from Lake Oswego' s Waluga reservoir to TWD' s terminal (10-MG) reservoir located at S . W. 125th and Bull Mountain Road. This will enhance the district' s capability to import Clackamas River water well beyond year 2000 . This will be a major undertaking with installa- tion of approximately 10, 000 lineal feet of 24-inch ductile iron pipe with an estimated cost of $500, 000 . Obviously, this will be a phased project with portions accomplished each year as funds become available. Plans and specifications have been prepared but funds for first phase will not be requested until FY 1987-88 . -13- BUDGET MESSAGE (Continued) To accomplish all of these projects in my remaining time is a tall order and will require a major effort (and some luck) . However, it will provide for an orderly transition for my successor. From an operational standpoint the district is in excellent shape and will be in better shape three years hence. All future pipelines to serve the district have been designed and plans pre- pared. (This does not apply to new developments in which water requirements are unknown at this time. Those projects can be designed by consulting engineers which is usually the case, even now) . With completion of the 24-inch pipeline mentioned in "f" on the preceding page, there will be no need to consider other alternate sources of water other than Clackamas River and Bull Run. Engineering design work for other new reservoir (s) will not be required until about year 2000 . From an administrative standpoint, practically all of the time- consuming tasks of past years have been completed with no need to repeat the work accomplished. For example, water supply contracts for the long-term or with automatic renewal clauses have been negotiated and executed with all adjacent water districts and cities . Except for one parcel of land (37 acres) located at S . W. 135th and Scholls Ferry Road, no additional annexation proposals will be necessary because the boundaries of the district are, essentially, complete. The district is contiguous to all adjacent water pur- veyors and has reached the limits of the urban growth boundary on the west flank. Burdens of administering and monitoring future bond issues, including budgeting therefor, will not be encountered by my successor. While the above noted problems are behind the district there will be new challenges in the years ahead, such as a merger with and service to the remainder of Metzger Water District after Portland, Beaverton and Tigard (City of) agree on future boundaries . This will probably occur prior to year 2000 and will require a major effort to combine the two districts. My relief need not be an engineer (almost all water managers and administrators are not engineers) . Hopefully, I will be around to offer advice and assistance, if needed. You will find me in Palm Springs four months of the year. Please, no long conversations-- no time. Respectfully submitted, A6 Robert E.ItXllantee Budget Officer -14- TIGARD WATER DISTRICT . •, v .t- ., _ .✓-ah-. .J ` f�a.r ��� til • ,� cid "�_:i:r .'�`-'L•:��• ___-- _ �' ._ '. `r <.- " . Railroad_ ,,tracks .ate ' _ - •....-:i...� � - •�• -�� ,/,� 'i 'i. .. . !: �• + `^'K'••,� •.:ice;*t :. S . W. BURNKAM STREET BIRDSEYE PERSPECTIVE OF PROPOSED OPERATIONS CENTER Construction to begin: July 1, 1988 Present administrative office on S . W. Commercial Street will be vacated and ownership returned to Date of occupancy: June 30, 1989 Tualatin Rural Fire Protection District. Present shop and storage area on S . W. Canterbury Lane will be vacated but ownership retained for existing reservoirs and inside storage of material . Water district will retain ownership of lots with evergreen trees and John Tigard house. ►RO►t RTY LIME SCREtN "EDGE •yl�,P o • 's' �fC A oy 7p� �c . rUll SERVICI \\ ►i►E STORAGE ( \\ ♦ .p0 \ FUTURE PUBLIC ` \• `f^'••, ( 8U LDING \ UNLOADING RAMP •\ Q •" ♦ , OR TRUCKS PARKING f •'� `\J♦;�'•,••. ; AMD EQUIPMENT ,L \GATE i. \ 1 SERVICE.;. 41 IMPLay'l L_ •%. ,\ ry B• `O �. �� INC ` CAT[ ]+y -. .•^S� I[N •Wkico 1 \ OO j N \ •" (ACCELERATION.' \• `•� , T� i..LANE 1 -[ \ Ofr A ICING f•%CAWN ARIA O PER ATIONS CENTER "�o :•t; i 3 SITE PLAN :___ _ ��• '` II ►ERTY`• time V! SCALE: : iu "R4 ?ITNACK--�- "__