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Budget Message
BUDGET MESSAGE FY 1987-88 TIGARD WATER DISTRICT April 14 , 1987 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 1987-88 , beginning July 1, 1987. 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 many of the required capital improve- ments in the water system. Since then the district has been "living" within income without borrowed funds. 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 district will be debt-free in just 82 years at which time no annual tax levy will be necessary to fund this liability, provided future capital improvements are not needed on a crash basis and bonds must be issued. 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, 1986. 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 appears to be ample until well beyond year 2000. The good news is that no increase in fees of any kind is proposed for the next fiscal year. Consumer rates were last increased in February 1983 . The tax rate will continue its annual decline from 27� to 19� per $1, 000 assessed valuation, the lowest .rate in at least 30 years. -1- BUDGET MESSAGE (Continued) SIGNIFICANT EVENTS OF PRESENT FISCAL YEAR a. A water supply study and plan of the Bull Mountain area was prepared by Consulting Engineer Gilbert Meigs. This study was deemed necessary in view of the enormous growth of new housing developments to occur in the near future on the mountain. Sanitary sewers were recently installed on the south side of the mountain so planned density of home sites has increased. Major capital improvements will be necessary in the near and immediate future, including the construction of five (5) new reservoirs, if the district is to keep pace with demands. b. An architect was retained, on a conditional basis, to design the new Operations Center which is to be constructed at S. W. Hall and Burnham Street, beginning in July 1988 . For several reasons, including cost, the Board of Commissioners, forfeited this option and resolved to utilize the design-build concept of designing and constructing the new facility which will cost between $800, 000 and $1, 000, 000. A process has been established to select three (3) firms/teams, each consisting of architect (s) - engineer (s) building contractor, who will pre- pare and submit a proposal, including a firm bid, to design and construct the center. This process should be completed and a team selected by the end of 1987 . c. Tigard Water District completed installation of water mains along S. W. Upper Boones Ferry Road to finish all capital improvements in the City of Durham. All asbestos-cement pipe- lines have been replaced or abandoned. d. A parallel 16-inch pipeline is presently being installed along S. W. Bull Mountain Road to improve the district' s capa- bility to pump water to Hi Tor reservoir, located at the summit of Bull Mountain. The installation of the remaining half of this project is scheduled in the new fiscal year, beginning July 1, 1987 . e. Two 50-hp pumps were installed at the 132nd Street pump station, increasing the capacity from 400 GPM to 600 GPM, thereby improving the district' s capability to pump water to Hi Tor. -2- BUDGET MESSAGE (Continued) f. A 200-KW diesel engine-generator for auxiliary power was installed at No. 2 reservoir site, located at S. W. 119th and Gaarde Street. In the event of an emergency or natural disaster when electrical outages occur, this unit will generate power to operate the motors for pumping water to Hi Tor and 10-MG reservoir, and the deep well. g. The district completed one-half street improvements with street widening, including curbs and sidewalks, along S. W. Burnham Street, adjacent to property where the new operations center will be located. h. Prior to the end of this fiscal year, June 30, 1987 , the district will complete one-half street improvements, in- cluding curbs and sidewalks, along the north side of S . W. Baylor Street at the site of the district' s two steel reservoirs near I-5 freeway and the Haines Street overpass. i. Again this year, installation of 16-inch and 12-inch mains along S. W. 135th and Scholls Ferry Road, including an- other inter-tie with the City of Beaverton, was not completed because of problems obtaining an easement and approval for annexation to the district. Funds for this project will be rebudgeted this year because installation of this pipeline is very important to the district in that it completes a vital circulation loop where fire flows are deficient. GOALS OF THE WATER DISTRICT A critical situation (on water supply) has not existing in the district for many years. The district has solved its problems for the present and short-term time periods 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. -3- BUDGET MESSAGE (Continued) A primary goal of the district is to govern and operate a "pay-as-one-goes" water system without future indebtedness. The present indebtedness of the district is $14 million and, as indicated earlier, that will be paid off within 8h years. To continue along this financial plan means that monies have to be set aside each year from the General Fund 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, or earlier: 1988 : Operations Center at S. W. Hall and Burnham Street. Estimated cost: $800, 000 to $1, 000, 000. Amount in fund: $377,700. (June 30, 1987) 1993 : 1-MG reservoir at Hi Tor on Bull Mountain. Estimated cost: $400, 000. 1998 : 2h-MG reservoir on S. W. 150th Avenue, between Beef Bend Road and Bull Mountain Road. Estimated cost: $1 million. FISCAL CONSIDERATIONS All funds in the Bond Construction Fund were expended on June 30, 1979. Therefore, the district has only three active funds shown 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 briefly above. Since General Fund is the most detailed, it will be explained last. -4- BUDGET MESSAGE (Continued) 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, 1987, the water district' s indebtedness will be $1, 245, 000. Annual requirements in principal and interest, along with outstanding debt, to liquidate this indebtedness are shown below: (with assumed annual growth of 7% in assessed valuation) . Annual Payment: Estimated Fiscal Principal Tax Rate Outstanding Year + Interest per $1, 000 Indebtedness 1987-88 $ 231,802 19� $ 1, 080, 000 1988-89 183,870 17� 955,000 1989-90 192, 322 14� 815, 000 1990-91 165, 653 13� 695, 000 1991-92 164,172 12� 570, 000 1992-93 162, 298 lid 440, 000 1993-94 165, 017 10G 300, 000 1994-95 162,178 10� 155,000 1995-96 163, 912 9� -0- Annual payments peaked in 1982 so requirements will continue to decrease substantially each year. Two of the five outstanding bond issues were liquidated this past year. Another one will be paid-up this fiscal year. While 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 opposite side of folder) . It is estimated that the tax rate will decrease from 27� to 19� per $1, 000 assessed valuation this next fiscal year, a 30% decrease in taxes due. This 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 two years ago ' for the first time to set aside funds toward construction of the district' s Operation Center. The first year $50, 000 was placed in the fund while last year $300, 000 was side aside, With interest earned, it is estima- ted that $377, 700 will be on hand on June 30, 1987 . -5- BUDGET MESSAGE (Continued) While this reserve fund is important, it should be noted that the district still owes $200, 000 plus $12,000 interest for the purchase of the land (Air-King site) . This final payment should be made on July 1, 1987, thus removing any confusion on ownership when applying to the City of Tigard for a conditional use and building permit. With this final payment for purchase of land, the district can afford "only" $283, 000 to be placed into the reserve fund. With interest to be earned, $700, 000 should be available on June 30, 1988 when construction is scheduled to begin. The remaining required funds for construction will be included in the budget for FY 1988-89, beginning July 1, 1988 . Prior to making this transfer of funds, the exact cost of the project will be known. This process does not rule out the possibility of short-term borrowing to meet immediate requirements of con- struction. Some major improvements have already been completed at the Air-King site by district personnel. This includes street im- provements on S. W. Hall and Burnham Street, including curbs and sidewalks. All utilities have been stubbed to the jobsite. This July, existing structures will be demolished and soil tests conducted. The accomplishment of this preliminary work reduces the amount of funds required to be placed in the reserve fund for construction of the facility. 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 costs for the water main installation to serve the new Tigard Civic Center. 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, together with supporting docu- ments and historical data as of March 31, 1987. -6- BUDGET MESSAGE (Continued) 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 water 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 beeri published in THE TIGARD TIMES on the time and date of the first meeting of the committee. Subsequent meetings, if necessary, will be called by the elected 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. -7- BUDGET MESSAGE (Continued) GENERAL FUND INCOME % of Account Amount Total Beginning Balance. . . . . . $ 797 ,700 23% Water Sales. . . . . . . . . . . . 2, 012, 500 59% Meter Installation Inc. 503 ,800 15% Other Income. . . . . . . . . . . 118 , 000 3% Total: $3, 432, 000 100% Beginning Balance Beginning balance on July 1, 1987 is a very important figure and is derived by adding the actual balance on March 31, 1987 to estimated income, less expenditures, for the remaining three months (April, May and June) of the fiscal year. 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, 1987 . 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 59 % 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. History of water sales is shown on page la in the attached folder. Those percentage increases reflect adjustments in con- sumer rates as well as consumption so they should not be used as a sole basis for projecting future revenue. No increase in con- sumer rates is contemplated this year. Wet summers, conservation, and rate increases tend to keep water consumption down. However, with the high growth in the Tigard area, it is believed that water consumption will increase by 10% over last year' s consumption. This percentage is used in estimating revenue as well as increased costs to purchase water from both Lake Oswego and Portland. -8- BUDGET MESSAGE (Continued) Meter Installation Income Income from meter installations is very volatile and unpre- dictable, being dependent upon the economy and building construc- tion. 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. Inflation-- has it disappeared? Nonsense. The cost of doing business, purchasing pipe and fit- tings, salaries, etc. , has continued its upward spiral. So, these increases in cost must be reflected in the budget. 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 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 vehicles and equipment as well as a reduction in the quality of service to patrons. Following is a listing of expenditures in the proposed budget: % of Account Amount Total Personal Services. . . . . . . . . . . . . $ 597, 100 17% Water Costs. . . . . . . . . . . . . . . . . . . 847 , 000 25% Water Costs-- Electricity. . . . . 84, 000 3% Meter Installation Expense. . . . 72, 500 2% Equipment. . . . . . . . . . . . . . . . . . . . . 60, 000 2% Pipeline Extensions. . . . . . . . . . . 180, 000 5% Land & Improvements. . . . . . . . . . . 290, 000 9% Capital Projects Reserve. . . . . . 283 , 000 8% Other Expenditures. . . . . . . . . . . . 529, 600 15% Ending Fund Balance. . . . . . . . . . . 488 , 800 14% Total: $3, 432, 000 100% -9- BUDGET MESSAGE (Continued) 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 4% 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. 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 costs. The contract with Lake Oswego states: "City will attempt to notify purchaser by April lst of each year of any contemplated changes so that purchaser can include such changes in its annual budget which begins July 1st. " Lake Oswego has given no such notification so it is assumed that the wholesale rate will remain the same at 40G per 1.00 cubic feet. The above notwithstanding, it is possible that Lake Oswego will increase wholesale rates by 10% beginning July lst. (Any Lake Oswego increase in rates normally applies to its citizens as well as wholesale purchasers) . Since TWD will spend about $800, 000 in water purchases from Lake Oswego in FY 1987-88 , such an increase would mean an additional expense of $80, 000. A sufficient amount will be placed in the contingency fund to account for this possibility. Portland has indicated that it will decrease wholesale rates to TWD by 2. 8% from 81. 8 to 79 . 5 per 100 cubic feet. (As far as is known, this is the first time ever that Portland has de- creased rates to TWD) . Either way, it will not have a signifi- cant effect upon water purchases from Portland because TWD will consume only 3a+ Bull Run water. -10- BUDGET MESSAGE (Continued) Water Costs -- Electricity Although Lake Oswego charges about one-half the amount for water as Portland it should be noted that all water purchased while from Lake Oswego must be pumped/Portland ' s water is provided by gravity flow. Electrical costs add about 5� per 100 cubic feet to the price of water from the Clackamas River (Lake Oswego) . Meter Installation Expense A 10% increase in meter installation expense is predicted to be in consonance with meter installation income. Equipment Three (3) new trucks (1 van, 2 pickups) are needed to re- place old, worn-out models. Also, an air compressor is required to replace a 1974 model. (See page 6a in attached folder) . Pipeline Extensions Only three (3) pipeline installations are planned for the next fiscal year, all of which have a high priority. (See page 6a in attached folder) . Pipelines are described below: a. The 16-inch main installation on S. W. Bull Mountain Road, between 125th and 133rd Avenues, will materially improve the district' s capability to pump water to Hi Tor reservoir and was recommended as one alternative in the engineering study of the Bull Mountain area. b. The need to complete an important circulation loop at S. W. 135th Avenue and Scholls Ferry Road was discussed on Page 3 (i) of this report. C. The 12-inch main extension connecting HAWKSRIDGE and SONOMA HILLS developments (on south side of Bull Mountain) is required because of insufficient water being delivered to the new FOXGLOVE subdivision, located north of Beef Bend Road. This main installation will provide for an alternate solution to that recommended by the consulting engineer in which a parallel 12-inch main would be installed along S. W. 150th Avenue. -11- BUDGET MESSAGE (Continued) Land & Improvements As indicated on page 6 of this report, the outstanding indebtedness for the purchase of 5.16 acres (reduced to 4 .79 acres due to right-of-way dedication) of land (Air-King site) should be liquidated on July 1, 1987 in the amount of $200, 000 plus $12, 000 interest. Thus, the parcel of land where the new Operations Center is to be located will be owned by the district, free and clear. The district will continue to lease a small portion of the property (with existing office building) to Rain or Shine Roofing Company with annual rental income estimated at $9, 000. Rental expenses include advalorem taxes of about $1, 500. One of the primary objectives of the district, about year 1998, is to construct a 23�-MG (million gallon) reservoir on S. W. 150th Avenue, as mentioned on page 4 of this report. This reservoir will require about 3 acres of land. The specific parcel desired by the district should become available for pur- chase this year. (Note: this purchase was budgeted last year but was not executed; therefore, the same amount is rebudgeted) . This purchase will ensure ownership of two of the five reservoir sites required in accordance with the engineering study for Bull Mountain. Ending Fund Balance An Ending Fund Balance (including inventory) of $488 ,800 is deemed necessary to ensure adequate funds to start the succeed- ing fiscal year. Remember, on the first day of that fiscal year (FY 1988-89) , the district must have sufficient funds on hand to begin construction of the Operations Center. This balance is considered a minimum to ensure that short-term borrowing to meet current expenses will be unnecessary and, also, to gain some interest income from short-term investments (savings) . -12- BUDGET MESSAGE (Continued) SUMMARY This budget can be described as not only "austere" but "bare bones. " There is little room to maneuver. However, this is to be expected when attempting the purchase of land and to save funds for the proposed Operations Center, without borrowing. One cannot have it both ways . 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 bene- ficiaries 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 contributions made by all employees of the district. PERSONAL MATTERS Upon completion of construction of the new Operations Center in 1989, I will have completed all of my goals and it will be time to retire on June 30th, two years from now. Leadman John Dixon intends to retire at the same time. It is not too early to designate who the personnel replacements will be in the command structure. There are individuals now employed by the district who are fully capable and willing to assume greater responsibilities. Respectfully submitted, Robert E. 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