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Budget Message BUDGET MESSAGE FY 1989-90 TIGARD WATER DISTRICT April 11, 1989 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 enterprise. The accrual method of accounting will again be utilized for the new Fiscal Year 1989-90, beginning July 1, 1989 . 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 improvements 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 dis- trict will be debt-free is just 631 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, unquali- fied opinion from the auditor (Coopers & Lybrand) for both the financial report and budgetary report for the period ended June 30, 1988. GENERAL The patrons of the district have not experienced a water short- age or restrictions on usage, of any kind, since the summer of 1971. These 18 years with no restrictions include the drought years of 1977 and 1987. Supply of water appears ample until well beyond year 2000. The good news is that no increases in fees or rates of any kind are proposed for the next fiscal year. Consumer rates were last increased in February 1983. The tax rate will continue its annual decline from 15� to 13G per $1, 000 assessed valuation, the lowest in at least the past 30 years. -1- BUDGET MESSAGE (Continued) SIGNIFICANT EVENTS OF PRESENT FISCAL YEAR a. Of course, the biggest event of the year was construction of the new Operations Center at SW Hall and Burnham Street. The two buildings consist of an administrative structure (8, 456 square feet) and a field maintenance structure (9, 496 square feet) . Bids were opened on June 14, 1988 by the Board of Commissioners. Six (6) bids were received, the lowest three are shown as follows: SILCO Construction Company. . . . . . . . . . $1, 063, 529 R. A. Gray Construction Company. . . . . 1, 064, 900 Triplett Wellman, Inc. . . . . . . . . . . . . . . 1, 094 , 000 SILCO Construction Company was awarded the contract, effective July 1, 1988. Construction progressed fairly well but it took a lot of time and effort by the staff to ensure that both quality workmanship and material were used. Some of the related work was accomplished by district personnel and equipment. While this saved the district substantial funds it took time and assets away from direct water district functions, such as construction of major pipelines, etc. However, the end result was well worth it. The structures have been accepted by the district except for minor corrections. This locates the office and field personnel at one site for the first time. It is believed that the water district can be more efficient with such an arrangement. b. Intertie with City of Beaverton. An important intertie with the City of Beaverton at SW 135th and Scholls Ferry Road was completed with installation of a 16-inch main along 135th Avenue. Although the intertie is not needed at this time it is available, to both entities, should an emergency arise. C. The internal distribution and storage system continued to function as engineered in an outstanding manner. Very few problems were encountered during the year. d. Retirements. Both Administrator Bob Santee with almost 20 years of service and Leadman John Dixon with 17 years will be retiring within a few months on June 30, 1989. Superintendent John Miller has been designated to be the new Administrator. Randy Volk will be promoted to superintendent. -2- BUDGET MESSAGE (Continued) BACKGOUND INFORMATION ON WATER SYSTEM A critical situation on water supply has not existed for many years. For the past 18 consecutive years the patrons of the district have not endured water shortages or restrictions, of any kind. 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: source (s) , storage, and distribution. While the district has been unsuccessful in developing new sources of water or becom- ing an owner or part-owner in a long-term source of water, it is the only district or city with four (4) independent sources of supply, namely: a. Clackamas River via City of Lake Oswego b. Bull Run via City of Portland C. Upper Tualatin River via City of Beaverton d. Two deep wells owned by district Average daily demand of the district is four (4) million gallons per day (MGD) . By order of the Oregon State Health Divi- sion the district must have 3 days ' average daily demand on hand in storage. The district has 20 MG' s of storage, far exceeding the required 12 MG' s of reservoir capacity. All pipeline replacements were completed about nine (9) years ago. Thus, all mains are either cast or ductile iron pipe, capable of lasting for 50 to 75 years . In addition to an outstanding water system, the district has one of the lowest per capita costs for water service in Washington County. The district has the lowest consumer rates, lowest meter connection fees and one of the lowest tax rates and bonded indebted- ness. A primary objective of the district has been to govern and operate a "pay-as-one-goes" water system without reliance on borrowed funds for capital improvements . The district has been successful in this endeavor. The present indebtedness of the district has been reduced to less than $1 million and, as indicated earlier, will be -3- BUDGET MESSAGE (Continued) fully paid off in just 6�2 years . To continue along this financial path means that monies have to be set aside each year from the General Fund for future major capital improvements. Such a fund is called a "Capital Projects Reserve Fund. " The district estab- lished its first reserve fund in 1980 and the following projects have been completed and paid for in this manner: a. 2. 5-MG reservoir located at SW 135th and Fern Street b. Operations Center By year 2000, the following projects must be funded through savings if borrowed monies are not to be used: a. 1992: 1-MG reservoir at Hi Tor on Bull Mountain. Estimated cost: $600, 000 b. 1996: 2h-MG reservoir on SW 150th Avenue, between Beef Bend Road and Bull Mountain Road. Estimated cost: $1. 2 million C. 2000: 1-MG and 23i-MG reservoirsnear SW Scholls Ferry Road and Merlo Lane. Estimated cost: $2 million The water district cannot ignore the enormous growth that is occurring and will continue to occur in the years ahead. The Tigard area is one of the fastest growing areas in the State of Oregon. The district is presently installing about 400 meters per year and that rate will probably continue in view of new housing developments in the planning phase. The district now serves about 9 , 200 meter connections and that number is expected to double by the turn of the century, 11 years hence. At that time the Urban Growth Boundary is expected to be expanded westerly in conjunction with the west side bypass highway. Also, with Washington County reducing its urban- level responsibilities in the unincorporated areas, it is believed that, at some point in time, the water district will absorb the most southerly half of Metzger Water District, thereby acquiring another 3, 000 meter connections. IMMEDIATE OBJECTIVES OF THE WATER DISTRICT With the near-term problems of the district well under control, the district cannot afford to "rest on its laurels. " There are some immediate concerns that must be addressed in preparation for pro- jected high growth which is inevitable. Funding must be budgeted for the following major expenditures: -4- BUDGET MESSAGE (Continued) a. Construction of 1-MG reservoir at Hi Tor. b. Parallel existing 16" transmission mains with 24" mains to both Portland and Lake Oswego. C. Purchase land for future reservoir sites. This budget has been prepared with these objectives in mind as well as funding for the everyday operations of the district. FISCAL CONSIDERATIONS All funds in the Bond Construction Fund (Proceeds for General Obligation Bonds) were expended by June 30, 1979. Therefore, there are only three active funds as shown below: 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 which will total about $4 million this year. Monies for this fund are derived, primarily, from water sales and meter con- nection fees. Details on the GF will be explained later. The Debt Service Fund is a fund established to reserve monies to pay off bonded indebtedness. Monies for this fund are derived from advalorem (property) taxes. As indicated earlier, the tax rate this year is expected to be reduced from 15� to 13G per $1, 000 assessed valuation. It is this category of revenue that the district is attempting to eliminate which will occur on January 1, 1996 . A schedule of estimated payments is shown below: Fiscal Assessed Estimated Tax Rate Amount Year Valuation % Increase per $1, 000 Required 1989-90 $1, 140, 000, 000 5% 13G $150, 000 1990-91 1, 197, 000, 000 5% 14� 170, 000 1991-92 1, 257, 000, 000 5% 14(� 170, 000 1992-93 1, 320, 000, 000 5% 13G 169,000 1993-94 1, 386, 000, 000 5% 12fi 173, 000 1994-95 1, 455, 000, 000 5% 12� 171, 000 1995-96 1, 528, 000, 000 5% llG 173, 000 On October 1, 1989, the last payment will be made on the bond issue of 1968 . Thereafter, only the bond issue of 1976 will be outstanding. -5- BUDGET MESSAGE (Continued) The Capital Projects Reserve Fund allows a governmental body to set aside monies from the General Fund for future capital im- provements . This fund was briefly described earlier. The Capital Projects Reserve Fund was reduced to zero this past year when the new Operations Center was constructed. Now, in accordance with an immediate goal of the district; namely: construction of a 1-MG ; Ik KK funds should be set aside in another reserve fund. This reservoir should be built in FY 1991-92 at an eftimated cost of $600, 000 . It is proposed in this budget that $250, 000 be a aside in a new Cita .. ojects Reserve Fund for this purpose. Land for this reservoir is owned by the district and a "conditional use" permit has been granted by Washington County. Construction plans are well on the way toward completion. GENERAL FUND A summarized preliminary budget document for the General Fund has been prepared for the new fiscal year and is shown on the oppo- site side of this folder, together with supporting documents and historical data as of March 31, 1989 (9 months of the present fiscal year) . 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 operation of the water district. Taxes are utilized for annual 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. -6- BUDGET MESSAGE (Continued) Appropriate public notices have been 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. For the past several years the committee has been able to complete its work in just one meeting. 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. GENERAL FUND INCOME % of Account Amount Total Beginning Balance. . . . . . . . . . . $1, 021, 800 25% Water Sales. . . . . . . . . . . . . . . . . 2, 309, 700 58% Meter Installation Income. . . 514,100 13% Other Income. . . . . . . . . . . . . . . . 168, 600 4% Total: $4, 014,200 100% Beginning Balance Beginning Balance on July 1, 1989 is a very important figure and is derived by adding the actual balance on March 31, 1989 to estimated income, less expenditures, for the remaining three (3) 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, 1989. Beginning balance also includes cash on hand (in checking accounts) , accounts receivable, less accounts payable. -7- BUDGET MESSAGE (Continued) Beginning Balance sets the tone for the whole fiscal year. Besides the obvious fact of ample cash flow, a high balance ensures a good start on funding requirements for the next fiscal year as well as earning interest income. This year, the district will start the fiscal year with about $1 million, the highest balance ever. With a total General Fund budget of $4 million, it becomes apparent that the district is in excellent financial condition. Water Sales Water Sales represent the single most important source of income in the budget, accounting for 58 % 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 predicable. History of Water Sales is shown on page la in the attached folder. Listed annual percentage increases reflect past adjust- ments 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 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 8% over last year. This percentage is used in estimating revenue as well as increased costs to purchase water from both Lake Oswego and Portland. Meter Installation Income Income from meter installations is very volatile and unpre- dicable, being dependent upon the economy and building construction. A conservative 5% increase in revenue from meter sales is predicted. It is believed that as interest rates increase, construction of houses will decrease as more and more potential buyers are squeezed out of the market. -8- BUDGET MESSAGE (Continued) GENERAL FUND EXPENDITURES % of Account Amount Total Personal Services. . . . . . . . . . . . . . . $ 690, 900 17% Water Costs. . . . . . . . . . . . . . . . . . . . . 928 ,800 23% Water Costs: Electricity. . . . . . . 108, 000 3% Meter Installation Expense. . . . . . 87, 400 2% Buildings & Additions. . . . . . . . . . . 39, 000 1% Pipeline Extensions. . . . . . . . . . . . . 333, 200 8% Land & Improvements. . . . . . . . . . . . 225, 000 6% Capital Projects Reserve Fund. . . 250, 000 6% Other Expenditures. . . . . . . . . . . . . . 772 ,400 19% Ending Fund Balance. . . . . . . . . . . . . 579, 500 15% Total: $4, 014,200 100% 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, 800 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? No. The cost of doing business, purchasing pipe and fittings, salaries, health benefits, etc. , continues its upward spiral. This fact should not discourage the budget makers but merely include these additional costs in the proposed budget. Hopefully, increased efficiency and additional revenue due to growth can offset these inflationary costs. Water Costs 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) . Employees have been granted a basic 4. 1% increase in wages. Some employees have been promoted, thereby earning addi- tional 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. -9- BUDGET MESSAGE (Continued) Water Costs Costs to import water from both Lake Oswego and Portland account for the highest single expenditure in the budget. An 8% increase in water purchases is projected, identical to water sales. The contract with the City of Lake Oswego states: "City will attempt to notify purchaser (TWD) by April lst of each year of any contemplated changes (in wholesale rates) so that purchaser can include such changes in its annual budget which begins July lst. " Lake Oswego, to date, has given no such notification so it is assumed that the wholesale rate will remain the same at 40� per 100 cubic feet of water. The above notwithstanding, it is possible that Lake Oswego will increase wholesale rates by 25% (from 40� to 50G) beginning July lst. (Any Lake Oswego increase in rates normally applies to its citizens as well as wholesale water purchasers) . Since TWD will spend about $1 million in water purchases from Lake Oswego in FY 1989-90, such an increase (25%) would mean an additional expense of A sufficient amount must be placed into the o account for this possibility. 17 Portland has indicated that it will increase wholesale rates to TWD by 7. 9% from 84 . 8 to 91. 5 per 100 cubic feet. This means Portland charges 229% more than Lake Oswego for wholesale water. The district sells water at retail for 95G per 100 cubic feet. Obviously, if 100% Bull Run water were utilized, the district would have to increase rates substantially. Fortunately, by con- tract, TWD need only purchase 3. 54% Bull Run water in FY 1989-90 which increase will not be significant (about $6 , 000) . One might wonder why the district purchases any Bull Run water from Portland. It is an insurance policy to ensure sufficient water, particularly during peak demand periods. Indeed, on a few days every summer, the district is required to utilize water from three (3) independent sources, namely: Clackamas River, Bull Run and deep wells. -10- BUDGET MESSAGE (Continued) Water Costs -- Electricity The average person does not normally associate the need for electricity to provide water service nor the cost therefor. All water purchased from Lake Oswego must be pumped. All water to serve the Bull Mountain area must be pumped again. In fact, to serve the area immediately surrounding the High Tor reservoirs at the summit of Bull Mountain, water must be pumped a total of five (5) times, beginning at the intake in Gladstone on the Clackamas River. Electrical costs add about 5� per 100 cubic feet to the price of water from the Clackamas River. With in- creased demand, it is estimated that electrical costs will exceed $100, 000 in FY 1989-90. Meter Installation Expense A 5% increase in meter installation expense is projected which is in consonance with meter installation income. Equipment Only one new truck should be purchased this year. That will be a new 3/4-ton pickup truck to replace a 1980 model. Maintenance costs have become excessive on the old model. Pipeline Extensions The district must get back to a more aggressive policy on pipeline extensions. The last few years pipeline extensions have been delayed due to lack of funds and time, particularly the latter. In this regard, it is preferable that district personnel and equip- ment be utilized to perform most of this work. Cost to install mains can be reduced as much as 50% by using in-house personnel & equipment and engineering design. The AGC (Associated General Contractors' Union) notwithstanding, this is one of the secrets that has saved enormous sums for the water district over many years. With the internal water system in excellent condition, the water district must concentrate its efforts on improving its capability to import water from both Lake Oswego and Portland. This means the continuation of paralleling existing 16-inch trans- mission mains with 24-inch pipelines. -11- BUDGET MESSAGE (Continued) There is no crisis so the district can continue constructing these major transmission mains in increments over several years. The list on page 6a on the opposite site of this folder designates 24-inch mains along SW Greenburg Road and Bonita Road. (See attached maps also) . The above noted pipeline construction must be coordinated with major street improvements proposed by the City of Tigard. The voters approved $8. 5 million in bonds for street improvements. In addition to the two pipelines noted above, the district must be prepared to install 24-inch mains at the intersections of SW Hall & MacDonald and SW Pacific Highway & Gaarde Street. These intersections are scheduled for road improvements. A new development of 700 home sites located in the far north- west corner of the district, south of SW Scholls Ferry Road, is in the planning phase. The district must install an offsite 12- inch main to provide adequate pressure to serve this development. Lastly, a 12-inch main should be installed along SW Scholls Ferry Road, between 130th and 135th Avenues, to complete an impor- tant circulation loop. Land and Improvements Being in a high growth area it is mandatory that the district keep pace by purchasing land for future reservoir sites while it is still vacant. The land must be large enough, at the correct elevation above sea level, and be close to existing water mains, if possible. There are two potential sites desired by the water district. These are located as follows: a. 3 acres of land on SW 150th Avenue, between Beef Bend Road and Bull Mountain Road. A 2�-MG reservoir is planned for this site to be constructed in 1996. b. 11 acres of land located near SW 150th Avenue and Sunrise Lane. 1-MG and 2�-MG reservoirs are planned on this site to be constructed in about year 2000. These purchases will ensure ownership of four of the five reservoir sites required by the district as prescribed by the engineering study of 1986 for the Bull Mountain area. -12- BUDGET MESSAGE (Continued) Ending Fund Balance An Ending Fund Balance (including inventory) of at least $500, 000 is deemed necessary to ensure that adequate funds are available to begin the succeeding fiscal year. This balance is considered a minimum to remain solvent and avoid cash flow problems. CONCLUSION The budget this year reflects the excellent financial con- dition of the water district. This is particularly rewarding in view of the fact that the district was able to construct a million dollar facility (the Operations Center) without borrowed funds. The patrons can be proud that the district is meeting its commitments, without borrowing, without a consumer rate in- crease, and at the same time, reducing bonded indebtedness and providing for growth. The staff, too, is proud of these accom- plishments and looks forward to another year of increased pro- ductivity. This is a transition year for the district in which top level personnel are leaving. We thank them for their contribu- tion and wish them well in retirement. We will miss them. In passing, one cannot forget to mention the continued out- standing performance and contributions made by all employees of the district. They are the ones primarily responsible for the excellent condition of the water district. Respectfully submitted, JOHN P. 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