06-28-10 Common Council Meeting Minutes

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REGULAR MEETING JUNE 28, 2010 improvements anticipated to be completed in 2013. The remainder of the capital improvements would be paid for through annual extensions and replacements funding. This funding has been designed to equal approximately 40% of the outstanding debt both current and proposed to allow the City to have sufficient coverage on its bonds. In order to fund the proposed bond issues, the currently outstanding debt and operating expenses, the Utility would step in rate increases over the next three-and-a-half years. For the purposes of the operating expenses certain assumptions regarding annual increases to thee expenses and taxes. For the purposes of estimating PILOT, the City has indicated that the annual increase in PILOT funding, could be held to 5% in order to allow for lower necessary rate increases. For this first scenario, the first rate increase of 16% would be effective in July 2010. The remaining rate increases would go into effect on January 1, of each year. For 2011, the rate increase would be eighteen percent (18%). In 2012 and 2013, the rate increases would be twelve percent (12%) and eight percent (8%) respectively. Scenario 2 – Maximum Rate Increase of 9% - Scenario 1 focused on the Utility’s priority of funding the necessary capital improvements in order to resolve the CSO problems and to maintain a working system. For Scenario 2, this priority is considered in the context of one of the Utility’s additional priorities looking out for the well-being of the Utility’s customers in regards to the monthly rates and charges. The Utility understands that any rate increase places an additional burden on its users as so, in Scenario 2, the Utility is considering options to reduce the impact to the users while still working towards accomplishing its capital improvement plan. For this scenario, the Utility considered the nine percent (9%) the maximum allowable rate increase on annual basis. By setting a maximum allowable rate increase, the Utility is looking to identify the portion of its capital improvement plan that would need to be funded through revenue sources other than the Utility’s revenues. Scenario 3 – Rate increase required to maintain sufficient coverage on existing bonds. This final scenario provided assumes that the Utility considers only the minimum rate increase necessary to cover its operations and existing debt. In this scenario, the Utility would not bond for any new capital improvements proposed for 2010 through 2013. While the goal of this scenario is to provide as minimal a rate increase necessary to the ratepayers, the Utility must also be cognizant of keeping a good credit evaluation by maintaining adequate coverage on its existing debt. Since the Utility will need to issue debt to fund Phase II of the CSO plan, it is imperative that the Utility maintain a minimum coverage on one hundred twenty-five percent (125%) on its existing debt. Future purchasers of the Utility’s debt will look to its historical coverage ratios to evaluate the Utility’s creditworthiness. In this scenario, the minimum coverage recommend is one hundred thirty percent (130%) while one hundred forty percent (140%) is preferred. The rate increases are the same as proposed in Scenario 2. This is due to the fact that the Utility is currently not meeting its coverage requirements. At the present time, revenues are providing a coverage percentage of approximately one hundred four percent (104%) of the Utility’s current operation and maintenance expenses, taxes due and debt service. Mr. Skomp stated that they recommend that the Utility should have at least one hundred thirty percent (130%) coverage. Therefore, for this scenario, the Utility would be implementing rate increases of eight percent (8%) in 2010, five percent (5%) in 2011, two percent (2%) in 2012 and one percent (1%) in 2013. The coverage amount calculated into the minimum rate increases in this scenario as annual extensions and replacement funding would allow for just under $8 million of these improvements to be funded through the Utility’s revenues. As in Scenario 2, the Utility would contribute currently available cash in the amount of $4.4 million. The remainder, almost $95 million, would need to be funded through other revenue sources if the Utility is to stay on track in addressing its CSO issues. This being the time heretofore set for the Public Hearing on the above bill, proponents and opponents were given an opportunity to be heard. The following individuals spoke in favor of this bill. Mr. Henry Mascott, 19492 Cottage Ct., South Bend, Indiana, spoke in favor of this bill. Mr. Mascott stated that this bill seems very reasonable. He noted that a great deal of planning went into this bill and it shows sensitivity to ecology. Mr. Mascott stated that the overflow into the river needs to stop. 10