01-13-03 Council Meeting Minutes

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REGULAR MEETING JANUARY 13, 2003 Mayor Luecke advised that because this is,a two (2) year rate ordinance, the administration will come back in two (2) years to propose an additional increase to cover costs and operations of the wastewater treatment plant and sewage facility. He noted that he appreciates the amendment that calls for the establishment of an Advisory Committee and welcomes it being introduced into the bill. Mayor Luecke asked for the Council's favorable acceptance and action on this ordinance tonight. He noted that he believes that it is fair even though there are still big increases for some customers. It sets rates that are still competitive across the state. Mayor Luecke introduced Mr. John Skomp of Crowe Chizek who explained the technical aspects of the ordinance. Mr. John Skomp, Crowe, Chizek, no address given, advised that Crowe Chizek completed the Cost of Service Study for the South Bend municipal sewage works. It was completed earlier in the year and has been updated from time to time. The December 20, 2002 report is a complete report and is the one that has been used to derive the rates that are in the current ordinance. Mr. Skomp advised that many things are done in compiling a Cost of Service Study starting with taking a look at the utility's current financial condition. Exhibit A of the study is a balance sheet and shows the Utility Plant in Service at eighty-eight million dollars ($88,000,000.00). The City currently has two (2) bond issues outstanding on the sewage utility. One is a state revolving fund loan and the other is a loan that is done on the open market. The state Revolving Loan Fund was used in the past because of the 2.9% interest rate over a twenty (20) year period. Exhibit B of the report is an operating income statement. June 30, 2001 was used as the test year and this information has been updated from time to time and was used since the process began to try to establish what the rates were. The revenues and expenses for this test year were reviewed, and adjustments were made as indicated on Exhibit C to try to determine a normal year. Non -recurring events were taken out and adjustments were made for things that are known will occur in the future. As a normal year is determined, rates are set by taking out all the fluctuations in expenses from year to year. The revenues were found to be in line and stable but some adjustments were made to the expenses for payroll items and health insurance. The new utility receipts tax that has to be paid was looked at and adjustments were made for that. As those adjustments were made as far as expenses were concerned, revenue had to be brought in as well as capital improvements. Exhibit E is the utility's revenue requirement. The utility needs to bring in enough money for the expenses and other requirements. This is a cash in cash out type of situation. There are two (2) exceptions. In order to obtain the state Revolving Fund Loan at the low interest rate, the City is required to set aside money each year for an equipment replacement fund for any items that were purchased with those loan proceeds. The state will provide the low interest loan the first time but from then on they want the rates to accumulate enough money to be able to pay for that equipment when it comes to the end of its useful life. Accordingly, five hundred thousand dollars ($500,000.00) each year has to beset aside for the equipment replacement fund. The loanrequires that if money is spent out of that account it has be replaced into that fund within two (2) years. The interest rate is attractive at 2.9% but there are strings attached. Mr. Skomp stated that an ongoing capital improvement plan needs to be funded. Discussions have been held since the inception of this rate study and the introduction of the ordinance. He noted that