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Budget Message r BUDGET MESSAGE FY 1990-91 TIGARD WATER DISTRICT APRIL 10, 1990 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 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 1990-91, beginning July 1, 1990. 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 district will be debt- free in just 5 1/2 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, unqualified opinion from the auditor (Coopers & Lybrand) for both the financial report and budgetary report for the period ending June 30, 1989. "BUDGET MESSAGE(Continued) GENERAL The patrons of the district have not experienced a water shortage or restrictions on usage, of any kind, since the summer of 1971. These 19 years with no restrictions, include the drought years of 1977 and 1987. Supply of water appears ample until will beyond year 2000. The good news is that no increase in consumer rates is proposed for the next fiscal year. Consumer rates were last increased in February 1983. The tax rate will continue its annual decline from 130 to 120 per $1,000 assessed valuation, the lowest in at least the past 30 years. SIGNIFICANT EVENTS OF PRESENT FISCAL YEAR A. The last water supply and distribution study of Tigard Water District was conducted by Stevens, Thompson and Runyan, Inc., in 1971. This study became obsolete when 98% of the recommendations were completed. A new water supply and plan of Tigard Water District area was prepared by consulting engineer Gilbert Meigs, of Economic and Engineering Services, Inc. This study was deemed necessary in view of the enormous growth of new housing developments that are occurring. Sanitary sewers were recently installed on the south side of Bull Mountain. Proposed sanitary sewers are planned for the north side of Bull Mountain this summer. 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. Tigard Water District completed installation of 4,760 feet of 24-inch water mains along S.W. Bonita Road, S.W. Hall Blvd., and S.W. McDonald. The remaining portion of the 24" water mains that parallel the existing 16" transmission main to Lake Oswego will be completed over the next 2 fiscal years. Again this year, installation of 12" mains along S.W. 131st completed a vital circulation loop where fire flows were deficient. These deficiencies were identified in Mr. Meigs 1986 Bull Mountain study. This reinforces the fire flows in King City, S.W. Beef Bend Road and Fischer Road. 2 "BUDGET MESSAGE(Continued) C.. Upon assuming the responsibility of Administrator of the Tigard Water District on July 1, 1989, my top priority to my staff was the updating and printing of a Rules, Rates and Regulations Book. This book covers the most important concerns of our customers and staff. Since September this Rules, Rates and Regulations Book has been compiled, forwarded and approved by the Board of Commissioners. Also, at this time I introduced the staff to the production of an Employee Handbook, job descriptions for every member of the Tigard Water District, a Comprehensive Policy and Procedure Manual, and a Board of Commissioners Manual. D. In early October, the Chairman of the Board, Mr. Denis Borman, asked me to produce and comply to four (4) very specific requirements: 1 . Hire a consultant 2. Produce an Employee Handbook 3. Produce a Grievance Procedure 4. Produce a Manual for the Board of Commissioners. The following items have been completed: 1 . In early October, I interviewed several consultants and hired Sally Peterson. Sally is a professional personnel consultant with a masters degree in English. 2. An Employees Handbook has been written and submitted to the Board for approval. The handbook took much research, formatting and printing and is, as much as possible, a statement of the policies and procedures that are being used at the present time. It has been reviewed by our lawyer, Derryck Dittman twice for legal requirements and liabilities. 3. Within the Employees handbook there is a Grievance Procedure. 4. The Tigard Water District Procedure Manual for Board members was submitted to the Board in February and is awaiting action. 5. A Comprehensive Policy and Procedure Manual is in the rough draft stage of completion. This Manual will detail the supervisory procedures which compliment the Employee Handbook. It will include a discipline procedure written for the guidance of the supervisors. 3 1 i "BUDGET MESSAGE(Continued) E. Additional improvements that have been made to the Bull Mountain system is the update of two (2) pumps at the old Hi-Tor pump station. These pumps are the stand-by system to pressurize the water at the peak of the mountain. Finally in the 1990-91 budget year an additional 1 million gallon reservoir is planned at the Hi-Tor site. The estimated cost is $650,000. This land is owned by the district. In summary, Mr. Meigs', 1986 Water Study Plan for the Bull Mountain area recommended the first capital improvement phase. 1. Increase capacity of high head pump at station No. 2 to 1400 G.P.M. Completed. 2. Provide auxiliary power at pump station No. 2. Completed. 3. Begin reconnaissance and study on purchase of land sites for four new reservoirs. Partially Completed. 4. 1988-90: Installation of 16-inch along Murray Road. Not Completed. 5. 1990-95: Construct 1.0 million gallon reservoir at Hi-Tor. Not completed. F. In July, 1989 we purchased 11.03 acres for $125,000 for two (2) future reservoir sites and pump stations. These sites were identified in the 1986 Bull Mountain study by Mr. Gilbert Meigs, consulting engineer. The first of these two reservoirs will be a 2.5 million gallon reservoir at elevation 410 feet. The second reservoir will be a 1 million gallon reservoir at elevation 470 feet. These two reservoirs will supply the north side of Bull Mountain. In addition to these sites the Tigard Water District is in the process of purchasing a 1.9 acre site on the south side of Bull Mountain, east of SW 150th for a proposed 2.5 million gallon reservoir that should be constructed sometime in 1996 based on future growth. 4 "BUDGET MESSAGE(Continued) BACKGROUND INFORMATION ON WATER SYSTEM A critical situation on water supply has not existed for many years. For the past 19 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 becoming 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 the district Average daily demand of the district is four (4.5) million gallons per day (MGD). By order of the Oregon State Health Division 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 13.5 MG's of reservoir capacity. 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 indebtedness. 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 will be fully paid off in just 5 and 1/2 years. To continue along this financial path means that monies have to be set aside each year from the General Fund for future 5 "BUDGET MESSAGE(Continued) major capital improvements. Such a fund is called a "Capital Projects Reserve Fund." The district established 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 the year 2000, the following projects must be funded through savings if borrowed monies are not to be used: a 1990: I-MG reservoir at Hi Tor on Bull Mountain. Estimated cost: $650.000 b. 1996 2 and 1/2-MG reservoir on SW 150th Avenues, between Beef Bend Road and Bull Mountain Road. Estimated cost: 1.2 million C. 2000 1-MG and 2 and 112-MG reservoirs near 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 500 meters per year and that rate will probably continue in view of new housing developments in the planning phase. The district now serves about 9,700 meter connections and that number is expected to double by the turn of the century, 10 years hence. At that time the Urban Growth Boundary is expected to be expended 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. 6 "BUDGET MESSAGE(Continued) 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 projected high growth which is inevitable. Funding must be budgeted for the following major expenditures: 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 $4.6 million this year. Monies for this fund are derived, primarily, from water sales and meter connection 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 13¢ to 120 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: 7 'BUDGET MESSAGE(Continued) Fiscal Assessed Estimated Tax Rate Amount Year Valuation % Increase per $1.000 Required 1990-91 1 ,218,000,000 5% 121; 136,000 1991 -92 1 ,257,000,000 5% 141; 170,000 1992-93 1 ,320,000,000 5% 131l: 169,000 1993-94 1 ,386,000,000 5% 121; 173,000 1994-95 1 ,455,000,000 5% 12o; 171 ,000 1995-96 1 ,528,000,000 5% 11¢ 173,000 On October 1, 1989, the last payment was made on the bond issue of 1968. Only the bond issue of 1976 remains outstanding. GENERALFUND 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 documents and historical data as of March 30, 1990 (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 authorize 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 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. 8 "BUDGET MESSAGE(Continued) 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. GENERALFLIND INCOM Beginning Balance................................... $1 ,470,000 31 % Water Sales............................................. 2,284,000 49% Meter Installation Income....................... 750,000 16% Other Income........................................... 188.400 4% Total $4,692,400 100% Beginning Balance Beginning Balance on July, 1990 is a very important figure and is derived by adding the actual balance on March 30, 1990 to estimated income, less expenditures, for the remaining three (3) month's (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, 1990. Beginning balance also includes cash on hand (in checking accounts), accounts receivable, less accounts payable. 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 9 "BUDGET MESSAGE(Continued) 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 49% 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 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 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 5% 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 unpredictable, 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. 10 "BUDGET MESSAGE(Continued) GENERALFUND EXPENDITURES % of A count Amount Total Personal Services.............................. $796,300 17% Water Costs........................................ 871 ,500 19% Water Costs: Electricity................... 120,000 2.6% Meter Installation Expense................ 152,300 3% Buildings and Additions...................... 18,000 .4% Pipeline Extensions........................... 326,000 7% Land and Improvements..................... 460,000 10% Capital Projects Reserve Fund.......... - 0 - 0% Other Expenditures............................ 478,300 10% Ending Fund Balance 1.470,000 31 % Total: $4.692, 400 100% 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, 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? 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 cost in the proposed budget. Hopefully, increased efficiency and additional revenue due to growth can offset these inflationary costs. 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 and acceptable wage package). Employees have been granted a basic 4.5% increase in wages. Some employees have been promoted, thereby earning additional pay. 11 "BUDGET MESSAGE(Continued) 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 both Lake Oswego and Portland account for the highest single expenditure in the budget. A 5% 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 1st of each year of any contemplated changes (in wholesale rates) so that purchaser can include such changes in its annual budget which begins July 1st." Lake Oswego, to date, has given no such notification so it is assumed that the wholesale rate will remain the same at 40C per 100 cubic feet of water. The above notwithstanding, it is possible the Lake Oswego will increase wholesale rates by 25% (from 404P to 500) beginning July 1st. (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 1990-91, such and increase (25%) would mean an additional expense of $250,000. A sufficient amount must be placed into the contingency fund to account for this possibility. Portland has indicated that it will decrease wholesale rates to TWD by 6.1% from 91.5r to 8 .4¢ per 100 cubic feet. This means Portland charges 216% more than Lake Oswego for wholesale water. The district sells water at retail for 95¢ per 100 cubic feet. Obviously, if 100% Bull Run water were utilized, the district would have to increase rates substantially. Fortunately, by contract, TWD need only purchase 3.60% Bull Run water in FY 1990-91 which will not be significant. 12 "BUDGET MESSAGE(Continued) One might wonder why the district purchases any Bull Run water from Portland. It is and 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. Water Costs -- Electricity The average person does not normally associate the need for electricity to provide water service nor the cost therefore. 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(r per 100 cubic feet to the price of water from the Clackamas River. With increased demand, it is estimated that electrical costs will exceed $120,000 in FY 1990- 91 . Meter Installation Expense A 5% increase in meter installation expense is projected which is in consonance with meter installation income. Equipment None. 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 equipment 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. 13 "BUDGET MESSAGE(Continued) 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 transmission mains with 24-inch pipelines. 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 side of this folder designates 24-inch mains along SW Greenburg Road. 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 pipeline noted above, the district must be prepared to install 24-inch main at the intersection of SW Pacific Highway and Gaarde Street. This intersection is scheduled for road improvements. A new development of 700 home sites located in the far northwest 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 16-inch main should be installed along SW Beef Bend Road, between 131st and Barrington Heights, to complete an important 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 is one potential site desired by the water district. It is 2 acres of land between Beef Bend Road and Bull Mountain Road. A 2 and 1/2-MG reservoir is planned for this site to be constructed in the future. This purchase will ensure ownership of four of the five reservoir sites required by the district by the engineering study of 1986 for the Bull Mountain area. 14 "BUDGET MESSAGE(Continued) Ending Fund Balance An Ending Fund Balance (including inventory) of at least $1,000,000 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 condition of the water district. This is partially rewarding in view of the fact that the district is able to construct a million gallon reservoir without borrowed funds. The patrons can be proud that the district is meeting its commitments, without borrowing, without a consumer rate increase, and at the same time, reducing bonded indebtedness and providing for growth. The staff, too, Is proud of these accomplishments and looks forward to another year of increased productivity. In passing, one cannot forget to mention the continued outstanding 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. MILLER, BUDGET OFFICER 15