HomeMy WebLinkAboutMinutes - 5/19/2008 - Finance and Personnel Committee (2) FINANCE AND PERSONNEL COMMITTEE MEETING
�.. Monday,May 19,2008
Aldermen's Conference Room, 6:30 p.m.
In Attendance:Committee Members: Chairman Alderman Murgatroyd, Alderman Peterson. and
Alderman Scl�aefer. Absent: None.
Also in Attendance: Mayor Low, City Administrator M�einer(arrived at 6:39 p.m.), Director of Finance
Black, City Attorney McArdle(arrived at 7:12 p.m.)and City Clerk Jones.
Chairman Alderman Murgatroyd called the meeting to order at 6:32 p.m.
Discussion Re�arding Water/Sewer Fund
Finance Director Black reiterated to the Committee that in 1997 the Council approved an Ordinance that
provided for an annual adjustment to the rate in subsequent years based on the rate of inflation of the prior
year. In accordance with the Ordinance, the Council must annually approve the new rates. Adjustments
are calculated using the Consumer Price Index (CPI) for All Urban Consumers for Chicago-Gary-
Kenosha, as published by the U.S. Department of Labor.
Director Black provided the Committee with a ta.ble showing revenues generated from water/sewer sales
in individual fiscal years from 2005/2006 through 2008/2009. Director Black noted that sales revenues,
with the exception of the fixed portion of the debt service fee, represent the base for all rate increases;
however, in addition to a rate increase, revenues generated are affected by several factors, most nota.bly
growth in the number of customers and weather conditions.
� Director Black stated that during recent budget deliberations Committee members indicated it would be
prudent to further review water/sewer revenues due to the utility's increasing expenses, reflected
primarily as a result of rising salary costs,benefits and electricity cost.
Additionally,the Committee expressed a desire to know the amount of revenue which would be needed to
cover debt service for construction of the South Wastewater Treatment Plant (SWWTP) expansion.
Director Black informed the Committee that Staff continues to research this issue.
City Administrator Maxeiner arrived at 6:39 p.m.
Director Black explained that most government utilities set utility rates based on a cash-needs approach.
This refers to the total revenues required by the utility to meet its cash expenditures, which reflect a11
personnel, operating and maintenance, together with administrative expenses, as well as ca.pital
improvements. Cash expenditures include all items in the City's annual budget, except depreciation
expense.
Historically, all raxe increases have applied to both the water and sewer utilities. However, each utility
has separate operations that have varying operational and capital improvement funding needs. Also, debt
service on bond issues may only be funded by the rate payers of the utility making the capital
improvement. Due to this fact, Staff provided an analysis of each fund separately.
Water Fund:
Director Black informed the Committee that expenditures are expected to exceed revenues in 2007/2008
and 2008/2009 by $320,000 and $567,100, respectively. Operating expenses, primarily salary and
� benefits, have grown at a rate greater than the CPI increases in recent years. Notably, the 2008/2009
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� May 19, 2008
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budget includes a 20%increase in electricity because of the rate increases. Also, $360,000 is included in
the 2008/2009 �udget for water's share of the remodeling costs of the public works building. These
significant increases contribute to the operating deficit.
Director Black indicated that water rates need to be adjusted at a rate greater than CPI to meet ercisting
expenses and to keep pace with future expense growth. He stated that an urternal review of projected
expenses and revenues should be done as part of any rate increase.
Sewer Fund:
Director Black informed the Committee that the Sewer Fund has a source of revenue that is not available
to the Water Fund. The sewer rate charged to customers includes a fixed debt rate fee per customer that
generates appro�mately $390,000 annually. The funds are to be used for debt service, which was last
paid by the Sewer Fund in 2006/2007 when debt on expansion on the South Wastewater Treatment Plant
was retired.
In the Sewer Fund, expenditures are expected to exceed revenues (not including the debt service fee) in
2007/2008 and 2008/2009 by $377,800 and $103,300, respectively. Director Black noted that the
2008/2009 expected deficit of $103,300 corresponds to a 4.8 percent increase of the current year's
projected revenues. Rate increases in future years would need to be set taking into account �pected
capital improvement needs.
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In summary, Staff believes that rate increases that exceed the annual CPI are necessary to fund annual
operating expenses and capital improvements for the Water/Sewer Fund. To erase the current operating
deficit,the City could consider significantly increasing rates in the cunent year or next year, followed by
annual adjustments which would be based on an internal review of cash needs. Another option would be
to adopt smaller rate increases for three or more consecutive years, while ensuring that revenues equal
e�enditures over the period of the rate increase.
Director Black provided the Committee with a chart indicating combined water/sewer rates for the City of
McHenry and several sunounding municipalities.
Chairman Alderman Murgatroyd opined he would support an increase this year so, over time, the
increases would not need to be significant. Additionally, he suggested looking at options for 3 or 4 yea.rs
into the future. Alderman Peterson concurred
City Attorney McArdle arrived at 7:12 p.m.
A discussion ensued. Director Black inquired if the Committee would like Staff to bring a 2-year
projection back to the Committee for consideration. Chairman Alderman Murgatroyd opined it was not a
crisis situation at this time and he felt he didn't have sufficient information to make a determination.
Mayor Low departed at 7:22 p.m.
Chairman Alderman Murgatroyd suggested Staff look into a debt seroice fee for water on the new Public
� Works building over a 3, 4 and 5-year period. Responding to Chairman Aldernian Murgatroyd's inquiry,
Finance and Personnel Committee Meeting
� May 19, 2008
Page 3
Director Black nformed the Committee the information could be prepazed and ready for consideration at
the neat Financc and Personnel Committee meeting scheduled in August.
Responding to a.n inquiry from Alderman Schaefer regarding implementation, City Administrator
Maxeiner stated there would be an approximate turnaround of 90-days from consideration to
implementation
It was the consensus of the Committee to instruct Staffto prepare information regarding a debt service fee
for water to cover the cost of the Water Division's share on the renovation of the new Public Works
building over a 3, 4 and 5-year period for consideration at the Finance and Personnel Committee meeting
in August, 2008.
Adiournment
Motion by Peterson, seconded by Schaefer,to adjourn the meeting at 725 p.m.
Aye: Murgatroyd, Peterson, Schaefer.
Nay: None.
Absent: None.
Motion carried.
Respe�tfixlly submitted,
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Steven C. Murgatroyd, C
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