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HomeMy WebLinkAbout02-27-12-WS (8 pm) lt EN HILLS Approved: March 26, 2012 CITY OF ARDEN HILLS, MINNESOTA CITY COUNCIL WORK SESSION MEETING FEBRUARY 27, 2012 ARDEN HILLS CITY COUNCIL CHAMBERS CALL TO ORDER/ROLL CALL Pursuant to due I call and notice thereof, Mayor David Grant called to order the City Council Work Session meeting at 8:10 p.m. Present: Mayor David Grant, Council Members Brenda Holden, Fran Holmes, Nick Tamble, and Ed Werner Absent: None. Also present: City Administrator Patrick Klaers; and Director of Finance and Administrative Services Susan Iverson AGENDA ITEMS A. Utilijy Rates Director of Finance and Administrative Services Iverson presented the City Council with a memo regarding utility rates for the City of Arden Hills. She indicated a discount was requested by the Council, which was quite labor intensive for staff. Another option would be to charge for all water use, beginning with gallon one, with a reduced meter charge. Director of Finance and Administrative Services Iverson discussed two rates with the Council addressing a new rate study in detail. She explained with one option, a 5,000 gallon user's rate would remain the same. She stated that through this rate the City would lose $39,000 in water meter charges, but would gain $55,000 through usage charges. This would be a $16,000 water revenue increase for the City. She then discussed the rates for a 10,000 gallon user and a conservative user. Councilmember Holmes expressed frustration that all users' utility rates would increase, whether using 3,000 gallons or 10,000 since fixed rates were remaining the same. Councilmember Holden questioned how much money would be lost with the new rate system. ARDEN HILLS CITY COUNCIL WORK SESSION—FEBRUARY 27, 2012 2 Director of Finance and Administrative Services Iverson reviewed the two options; leaving the 5,000 gallon user the same would result in a $16,000 increase, leaving the 10,000 gallon user the same results in a $103,000 decrease in revenue. Further discussion ensued regarding potential utility rates. Councilmember Holmes wanted to see the rates reduced for those using less than 10,000 gallons. Director of Finance and Administrative Services Iverson indicated this was the case with the second utility rate option. If this option were to be selected, the City could see a net loss of approximately $103,000 in water revenues per year. She reviewed the numbers in further detail with the Council. Councilmember Holmes stated the residents using 5,000 gallons are currently paying the same amount as those residents using 10,000 gallons. She suggested the Council seek further changes. Councilmember Tamble encouraged the Council to consider the value of the City's water. Councilmember Holden indicated that the property owners in the City of Roseville and the City of New Brighton paid less for their water bills. Director of Finance and Administrative Services Iverson cautioned the Council from comparing the City's water fees to each of these communities as the water was billed differently. She stated some cities used TIF districts to assist with water rates. She added that Arden Hills does not assess for water improvements, which needed to be reflected and fully understood within our water rate structure. Councilmember Holden indicated the population of the City was aging and that 46% of the residents used less than 5,000 gallons of water per quarter. Due to the fact these residents were paying for 10,000 gallons, they feel no need to conserve water. Councilmember Tamble questioned what a proper solution would be. Councilmember Holden suggested the residents be charged per gallon, starting with gallon one. Director of Finance and Administrative Services Iverson indicated a new rate schedule would allow for water to be billed out from one gallon of use. Councilmember Holmes expressed concern that the 8,000 gallon users would be paying more with the new rate than those currently using 10,000 gallons. She questioned why this should proceed. Director of Finance and Administrative Services Iverson indicated the rate structure was changing and fixed costs still needed to be covered. Mayor Grant stated an adjustment was necessary to cover the gallons used, but the fixed costs were not considered. ARDEN HILLS CITY COUNCIL WORK SESSION—FEBRUARY 27, 2012 3 Councilmember Holden questioned what the percentages were for meter rate versus water charges. Director of Finance and Administrative Services Iverson indicated this would require further analysis and a rate study. She explained that after speaking with the Council and residents, another option would be to keep the meter rate the same and charge residents beginning at gallon one. She stated there were a number of ways that the Council could proceed. She recommended the Council proceed with the middle of the road rate change. Councilmember Holden commented she would be motivated to use less water if her bill went down for using less than 10,000 gallons. Director of Finance and Administrative Services Iverson stated she could continue to run additional rate scenarios for the Council to review. She discussed the rates she ran in November of 2011 and how these compared to the current examples. Mayor Grant suggested the information be presented in two columns comparing the present rates with the two new rates structures. He indicated this would provide the Council with greater perspective on where the rates were going. Councilmember Tamble commented the new rate structure could be construed to be unfair but with the new structure, all water usage would be billed accordingly with no subsidies. Councilmember Holden stated the current structure could be viewed to be unfair because 3,000 gallon users were paying the same rate as 10,000 gallon users. Councilmember Tamble questioned if the City would run the risk of a deficit moving forward with the per gallon usage utility rate. Director of Finance and Administrative Services Iverson stated conservation could lead to a deficit and the City's inability to cover fixed costs. This was the reason a meter charge was selected to cover fixed costs with a rate structure to cover the variable expenses. Discussion ensued regarding the proposed rates structures. Councilmember Tamble questioned how much more the bills would increase for those residents using 5,000 gallons or less. Director of Finance and Administrative Services Iverson estimated the first option would keep their rate the same. For those using between 5,000-10,000 gallons they would have a $4.19 increase. All users over 10,000 gallons would see an$8.00 increase in their bill. Councilmember Holden asked if the water per gallon rate could be increased to 80 cents. Director of Finance and Administrative Services Iverson stated the rates could be rerun with this rate. ARDEN HILLS CITY COUNCIL WORK SESSION—FEBRUARY 27, 2012 4 Councilmember Holden was in favor with Option 1. Mayor Grant agreed stating he was hoping it would have been more progressive. City Administrator Klaers indicated if a 10,000 gallon users' bill were to go up, it may encourage them to use less water. Councilmember Holmes was concerned that the rates were not reduced further for the 5,000 gallon and less users. She wanted to see the residents pay for the water used. Director of Finance and Administrative Services Iverson indicated the water rate was now being restructured along with a way to cover fixed costs. Councilmember Holmes felt the City did not fully understand what the fixed costs were and for this reason, was not creating a proper solution. Councilmember Werner asked if it was worth $25,000 to discover the City's fixed costs through a rate study. Director of Finance and Administrative Services Iverson indicated the last rate study was completed in 2008 and implemented in 2009. She indicated the predictions within that report have been realized and the City's funds were recovering. A new study was planned to be completed in 2014. Mayor Grant was encouraged that the City was on target through the past rate study and felt the City did not require another rate study at this time. Councilmember Holmes indicated the proposed rate structure was a band-aid and was not properly fixing the problem with the utility rates. She stated a rate study would allow the City to more fully understand where the water expenses were. Mayor Grant asked if a penny could be added to the upper tier and taken away from the lower tier. Director of Finance and Administrative Services Iverson stated she could analyze the numbers further. She indicated the meter charges were the same for all residents. City Administrator Klaers requested the Council discuss their goals for the water rates. Councilmember Holden commented the numbers were reviewed in November and a significant increase was proposed for those using more than 10,000 gallons. Councilmember Holmes stated she would like to see a larger break for those residents using less than 10,000 gallons. Councilmember Tamble indicated his goal would be for staff to have a system for creating and manipulating a water bill that is succinct and as fair as possible. ARDEN HILLS CITY COUNCIL WORK SESSION—FEBRUARY 27, 2012 5 Councilmember Werner questioned what demographic or water usage client was generating the most complaints. Director of Finance and Administrative Services Iverson stated the majority of the complaints are received from those using less than 10,000 gallons. Mayor Grant agreed with Councilmember Holmes and felt the 0-10,000 gallon usage rate should be reduced further. Councilmember Werner suggested the City address the complaint calls from those that do not use any water in the winter months as this was the main concern at this time. He saw the problem being on the users within the 0-5,000 gallons during the winter months. Councilmember Holden stated she was not interested in changing the entire rate structure for the snowbirds. Her goal would be to complete a rate study in 2013 and keep the current rates. Mayor Grant asked if the City had the capability to complete a rate study. Director of Finance and Administrative Services Iverson stated she had a model from Ehlers to complete a rate study however this was incredibly labor intensive. Mayor Grant questioned if the rate structure was limited to three tiers. Director of Finance and Administrative Services Iverson indicated she could establish as many tiers as the Council requested. She noted each tier required another change to the rate structure. Councilmember Holden questioned if there should be a 3,000 gallon minimum within the rate structure. Councilmember Holmes stated she was not saying there should be a minimum. However, this would assist with the lower usage residents to cover the overall expenses. Director of Finance and Administrative Services Iverson explained that an additional tier within the rate structure may assist in covering expenses. Mayor Grant proposed there be a 5,000 gallon minimum so long as the residents were not paying more for each bill than the 10,000 gallon users. Each gallon after the 5,000 would be paid on a per gallon basis. Councilmember Holmes was not in favor with this recommendation. She felt the residents should be paying only for what was used and that the fixed costs should be reevaluated. Mayor Grant stated another option would be to allow the fixed costs to remain in place, and have each gallon charged on a per gallon basis. ARDEN HILLS CITY COUNCIL WORK SESSION—FEBRUARY 27, 2012 6 City Administrator Klaers clarified several goals from the discussion this far being that users under 10,000 gallons should be paying less based on a per gallon model. In addition, everyone under 5,000 gallons should be paying less than what they are currently paying. Director of Finance and Administrative Services Iverson explained that these goals would require the top tier per gallon rate to be increased. Mayor Grant requested the 10,000 gallon user's bills remain the same and that those under this threshold be slightly lowered. This would encourage conservation and fairness. Director of Finance and Administrative Services Iverson stated this would be greatly determined on how the tiers were established. Councilmember Holmes asked if the fixed costs were more reasonable, if the issue could be resolved. She felt the issue could be resolved if the fixed costs were accurately determined. Mayor Grant understood this to be a concern but could not be fully comprehended until another rate study was completed. He noted the Council has not reached a consensus on possible changes to the utility rate structure. ADJOURN Mayor Grant adjourned the City Council Work Session meeting at 9:40 p.m. David Grant Patrick Klaers Mayor City Administrator