1. 2014 Budget Department Presentations Infrastructure Funding Options

2. Utility Infrastructure 2 10/29/2013

3. 2012 Utility Operations From latest audited financial statements (2012) WATER WASTEWATER STORMWATER OPERATING REVENUES 4,340,926 9,048,780 4,264,734 OPERATING EXPENSES 4,768,287 8,347,668 4,430,730 Operating income (loss) (427,361) 701,112 (165,996) OTHER NET EXPENSES (41,034) (392,111) (39,559) Income before contributions and transfers* (468,395) 309,001 (205,555) Two of our utilities are operating at a loss. *Capital contributions are investments in the system and not operating income. 3 10/29/2013

4. Increasing Construction Costs Infrastructure maintenance needs based on HDR study. Study was based on original cost, and adjusting for inflation per Engineering News Record Construction Cost Index 20106,250,000 20116,250,0002.8%175,0006,425,000 20126,425,0002.6%167,0006,592,000 20136,592,0002.7%178,0006,770,000 Indexing ordinance was intended to keep the utilities from falling further behind 4 10/29/2013

5. Previous Proposals Increases recommended by consultants Water + 4% - 6% annuallyfor 29% over six years Sewer + 4% - 7% annuallyfor 34% over six years Storm + 5% - 7.5% annually for 40% over six years Current indexing ordinance helps the utility keep from falling further behind Engineering News Record Construction Cost Index increase of 2.7% applies Feb 2014 absent other Council action Debt to cash policy helps in the long term – but not enough 5 10/29/2013

6. Utility Repair and Replacement Needs vs. Funding Provided by Rates Year 2021 Analysis (in today’s dollars) Estimate of revenue needs after debt is paid off Other considerations: 1. Projected total utility shortfalls 2013-2028 Water $17.5 MSewer $10.5 M Storm $ 1.2 M 2. This only considers existing infrastructure – does not provide for capacity growth 3. Water never reaches full funding without increases above inflation WATERSEWERSTORMTOTAL Annual Project Needs 2,050,0002,930,0001,250,0006,230,000 Provided by rates now650,0001,000,000960,0002,610,000 Additional after debt payoff462,0001,960,000335,0002,757,000 Total Funding Provided1,112,0002,960,0001,295,0005,367,000 (Shortfall) / Catchup(938,000)30,00045,000(863,000) Utility rates and SDC revenues5,257,00010,168,0004,570,00019,995,000 Percent of increase needed17.8% 6 10/29/2013

7. Water rate changes vs. total utility revenues Effect of each 1% increase in water rates on total utility revenues 1. Each additional 1% increase in water rates, increases total utility revenues by about ¼ of 1%. WATERSEWERSTORMTOTAL Utility rates and SDC revenues5,257,00010,168,0004,570,00019,995,000 Percent of water rate increase1%2%3%4% Additional Water Revenue52,570105,140157,710210,280 Total Base Revenue19,995,000 Percent to total revenue0.26%0.53%0.79%1.05% 7 10/29/2013

8. Rate Recommendation Objectives Move the City in the direction of fully funding utility infrastructure repair and replacement Avoid emergency double or triple digit rate increases Strategy depends on making the system last long enough Avoid excessive rates – increase no more than is needed 8 10/29/2013

9. Utility Rate Recommendation At minimum, continue to index Water, Sewer and Storm rates based on the Engineering News Record Construction Cost Index. It is necessary to keep up with increasing costs Add a catch-up increment for Water rates of 4% each year for four years. Have external consultants update the rate studies in 2018 9 10/29/2013

10. Street Infrastructure 10 10/29/2013

11. Local Street Reconstruction Funding Strategies Tax options available Property tax – “banked capacity” Unused tax authority is $3,260,000 Requires supermajority vote of Council Utility tax – current rates are 2.2% on private utilities Transportation Benefit District – separate entity More appropriate for a permanent adjustment Local license fee Sales tax option 11 10/29/2013

12. Local Street Reconstruction A Possible Approach Increase taxes on private utilities in 1% rate increments per year for three years Sunset each increment after six years Designate revenues for street fund Each 1% generates about $800,000 / year Monthly cost on a $500 utility bill = $5 Current rates of 2.2% are relatively low Apply to privately owned utilities Telephone, electricity, gas, cable 12 10/29/2013

13. Potential Revenues Generated by Utility tax Option Effective Rate Increase1.0%2.0%3.0% 2.0%1.0% Year20142015201620172018201920202021 Revenues generated808,0001,617,0002,425,000 1,617,000808,000 Projected shortfall4,950,000 4,173,0003,534,0002,747,000 After tax increase4,142,0003,333,0002,525,000 1,748,0001,109,0001,130,0001,939,000 A significant shortfall remains even after a short term utility tax rate increase This may be mitigated somewhat by additional funding coming from Real estate excise taxes – recently at historic lows, beginning to improve Traffic Impact fees as development activity increases Tier 3 funds available in good years after full funding of Tier 2 maintenance Lift Grant when streets are located within the revenue development area 13 10/29/2013

14. Council Direction Requested Does Council wish to enact a dedicated funding source for transportation projects at this time? 14 10/29/2013

15. End of Presentation 15 10/29/2013

16. Held in Reserve Use if necessary to answer questions 16 10/29/2013

17. Local Street Reconstruction This pertains to rebuilding of local streets beyond annual maintenance efforts. Past emphasis on major arterials has spent traffic impact fees prior to receipt. Bonds were issued and local street work deferred to pay for these projects. 17 10/29/2013

18. Local Street Reconstruction Annual Requirements Estimated Annual Need Based On Current inventory of infrastructure Total expected life before rebuilding Adequate funding of annual maintenance Today’s prices 18 10/29/2013

19. Local Street Reconstruction Current Inventory 150.8 lane miles of arterials/collectors Average life 30 years if well maintained 150.8 / 30 = 5.0 miles per year average to rebuild 194.9 lane miles of residential streets Average life 50 years if well maintained 194.9 / 50 = 3.9 miles per year average to rebuild Total annual rebuilding needed = 8.9 miles 19 10/29/2013

20. Local Street Reconstruction Today’s Costs of Rebuilding Converting lane miles to square yards: 1,760 yards per mile X 4 yards per lane = 7,040 Estimated cost per lane mile Estimated cost per square yard = $80.00 7,040 X $80 = $563,200 per lane mile 8.9 miles per year X $563,200 = $5,012,480 So approximately $5 million / per year 20 10/29/2013