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Request for Council Action
Prepared By:
Dept.:
Council Mtg. Date:
Final Action Needed By:
Sue Iverson
Fh~lancejAdmlnTstration
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January 14, 2008
Agenda
4.1.
Budgeted Amount:
Actual Amount:
$19,000
Water, S'ewe-r~-SL;ifa'ce"Waie'r'''M'iimT&'
TCAAP Funds
Funding Source:
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!A motion to approve a proposal for a Utility Rate Analysis by Ehlers & Associates Inc. in an amount not-ta-exceed $19,000.
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'Stat(r"ecorrlme"iids"app"rovaf"of"the"'Uifilty--Rate Analysis with the 'opti'ona'i"s'lirtac'e'''VVa:'ier''''M'iiiiiigem'e'nt''-ra'ie''sti.l'dy: The current rate study was
'done in 2004, but we have since found those rates to be inadequate for funding operations and maintenance in the enterprise funds. Staff
: has done in depth analysis of the budget and account balances and is now ready to work on a new rate study.
x
Memo dated January 8, 2007
No.:
No.:
Recommendation:
Recommendation:
Proposal from Ehlers & Associates, Inc.
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The cost of the fund will be partially funded through the TCAAP Fund as part of the PDA. The remainder of the cost will be funded through
the Water, Sewer, and Surface Water Management Funds. The study currently is proposed at a not-to-exceed, but staff will work with the
consultant to contain as much of the costs as possible.
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~HILLS
MEMORANDUM
DATE: January 14, 2008
TO: Honorable Mayor and City Council
FROM: Sue Iverson, Finance Director
SUBJECT: 2008 Utility Rate Study Proposal
BackgroundJDiscussion:
As previously discussed, the enterprise funds have excess expenditures over revenues in the 2008 budget.
I met with our financial consultants from Ehlers in November to review the Financial Management Plan
and to discuss conducting a Utility Rate Study. (This was to be part oflast year's Financial Management
Plan, but was postponed in order to get accurate numbers and accurately assess what our major problem
areas were.)
At our December work session, Mark Ruff and Jon North from Ehlers were present to discuss policy
direction to be used in the rate study. It was also noted that part of this study would be used for the
TCAAP resource plan and could be charged back to the developer as it was part of the PDA agreement.
As part of the process, the Council needs to authorize the rate study with Ehlers & Associates, Inc. The
Proposal for the rate study is attached. The cost quoted in the study is a not-to-exceed amount of $14,000
for water and sewer with $5,000 for surface water management. Typically, actual costs are less than the
not-to-exceed amount quoted. It is estimated that approximately 30% of the workload in the study will be
attributable to the TCAAP Resource Plan. We did include some monies in the budget of each enterprise
fund for this study to be completed, but did not anticipate the extent of what was involved at that time.
These estimates are based on Ehlers not knowing what the City can provide and how much work need to
do. Staff anticipates that the actual cost will be less. The last study was done in September 2004 by
Abdo, Eick, and Myers (CPA-consultant) with information provided by City staff that was not entirely
accurate.
The financial impact/costs to each fund would be:
Water $4,900
Sewer $4,900
Surface Water Mgmt. $3,500
TCAAP $5.700 (billable to the developer)
$19,000
Staff has checked references provided in the proposal. All references reported favorably.
Memo
City Council
2008 Utility Rate Study Proposal
2
Slaffrecommends approval oflhe rale study in an amount not-la-exceed $19,000.
STAFF RECOMMENDATION:
A Proposal to the
City of Arden Hills, Minnesota
Fora
Utility Rate Analysis
January 2, 2008
Submitted By:
e
EHLERS
& ASSOCIATES INC
3060 Centre Pointe Drive
Roseville, MN 55113
(651) 697-8500
Scope of the Project
The purpose of this project is to study the financial management systems of the water and sewer
operations for the City of Arden Hills and provide the information needed to establish financial
management strategies and practices to efficiently operate City utilities now and in the future. The
final reports will be provided in electronic format whenever possible so that if the City chooses, it can
update projections and spreadsheets internally in future years.
The City wishes to develop the following tools to guide operations of the utilities:
I. A review of the short term and long term funding needs and options for financing public
improvements, utility projects, and operational needs.
2. A rate study that determines whether current water and sanitary sewer rates for residential,
commercial and industrial customers are reasonable and equitable, while covering the full cost
of services and infrastructure. The rate study will evaluate both user charges and connection
fees, where applicable and appropriate.
3. A rate study can also be included for the City's surface water management utility as an option.
Qualifications Statements
Firm Profile:
Ehlers & Associates, Inc. has been working with public sector clients for over 50 years. Throughout
the years, we have developed and expanded our services to include debt planning and issuance,
strategic and financial planning, public participation, economic housing and redevelopment and
special financial studies, such as utility rate studies
Ehlers and Associates is an independent financial advisory firm with offices in Minnesota, Wisconsin
and Illinois. Our corporate headquarters are located in Roseville, MN, and is the base from which the
study will be performed.
Office details are as follows:
Address:
3060 Centre Pointe Drive
Roseville, MN 551 I3
(651) 697-8500
(651) 697-8555
Phone:
FAX:
City of Arden Hills, Utility Rate Study Proposal
January 2, 2008
Page J
Prior Utility Rate Analysis Experience:
Within the last six months, Ehlers and Associates has completed or is in the process of completing
utility rate studies for the following communities:
. City of St. Louis Park, MN
. City of Medina, MN
. City of Edina, MN
. City of Chanhassen, MN
. City of Elk River, MN
. City of Brooklyn Park, MN
. City of Taylor's Falls, MN
. City of Chisholm, MN
. City of Carver, MN
. City of Lake Elmo, MN
Please see the references page at the end of this Proposal.
More and more communities are turning to Ehlers to analyze and assist staff in determining the
appropriate levels of water, sewer and storm sewer rates and charges. Jon North and Mark Ruff would
be the primary financial advisors working with the City on this project. Jessica Cook, Financial
Advisor and Elizabeth Diaz, CPA (Inactive), Financial Analyst, would be primarily responsible for the
analytical portion of the City of Arden Hills Utility Rate Analysis. Meeting client's needs and tailoring
the product to serve those needs is a core belief at Ehlers and Associates. We will work to meet the
needs of the City of Arden Hills.
Ehlers Approach
Ehlers staff has developed a template for completing analyses of this type. The template is sufficiently
flexible enough to tailor it to meet the needs and the special circumstances of the City of Arden Hills.
It is also available to be transmitted electronically to staff at the completion of the Analysis for staff
use, if desired.
The analysis will be conducted in the following two steps.
Step 1.
Complete rate study and financial plan
This step will focus on options for establishing equitable water and sanitary sewer rates for
residential and commercial customers. It will also review Sewer Availability Charges
(SAC) and Water Availability Charges (WAC) charges, other revenue sources, and the
current and projected expenses for the water and sanitary sewer systems. Finally, it will
include reviewing and developing recommendations for the utility. These recommendations
will address cash reserve balances, project funding, and capital replacement, as necessary
and appropriate.
City of Arden Hills, Utility Rate Study Proposal
January 2, 2008
Page 2
. Assemble and review existing historical utility system operating data.
. Develop a pro forma cash flow statement showing projected usage, total operating
revenue, and total expenses, including operations and maintenance costs, depreciation,
department servicing, net income, debt, etc. to test adequacy of existing and proposed
rates.
. Review utility rates and user charges to determine if the rates and charges are sufficient
to pay for operations and capital improvements.
. Review connection charges and review the policy for SAC and WAC charges as they
relate to the City's redevelopment efforts, as necessary and appropriate.
. IdentifY future capital projects and utility funding requirements for the relevant time
period, to be provided by City staff.
. IdentifY any additional issues.
,/ The use of debt vs. cash to pay for capital improvements.
,/ Minimum cash balance for the utility fund.
,/ To ensure the fees are sufficient to operate the utilities and not require a future
tax levy.
,/ Establish a financing plan for funding current and future capital improvements
and operational expenses.
Step 2. Provide a comparison of utility rates and connection fees in comparable commnnities.
The survey will compare water, sanitary sewer fees, and/or storm water fees charged for a
single family home in Arden Hills with fees charged by comparable communities.
Materials/Services to be Provided by the City
. City population projections and estimated new connections per year
. Historic water usage for 2004 through 2007, including number of residential,
commercial, and industrial connections; water pumping records; gallons billed;
. Historic sanitary sewer usage for 2004 through 2007, including usage billed
. Current water connection information, including residential and commercial/industrial
information
. Current 2007 and 2008 operating budgets and actual operating results for 2006.
. Current billing system information, including rates and billing schedule and availability
to analyze usage on a meter and a category basis.
. Current connection charges and basis for calculating
. Existing water, sanitary sewer, and storm water cash and investment balances
. Capital improvements for five to ten year basis (estimated) for each utility
. Operations and management expenses (estimated) by utility
. General information as necessary
Project Cost and Completion Date
Estimated Time for Completion:
City of Arden Hills, Utility Rate Study Proposal
January 2, 2008
Page 3
Step One: Draft for management review three weeks after approval of work plan.
Step Two: Draft for management review two weeks after Step One completed.
Final product for Council review and comment nine weeks after approval of work plan.
Cost: Ehlers and Associates will perform the Utility Rate Analysis for a noHo-exceed cost of
$14,000. The project would be billed hourly, for actual hours worked, at the rate quoted below. The
final cost may be less. The cost breakdown is as follow:
$5,000 - $7,000 for water utility
$5,000 - $7,000 for sanitary sewer utility
$5,000 for the optional surface water management utility study
The noHo-exceed contract amount will include the delivery the number of copies required by the City
for each of a draft and final report, a preliminary estimate of two meetings with City Staff and
presentation to Council, and all travel (one-way) and incidentals. Work will be performed at the
hourly rate of$185.00.
References
We invite you to contact the following communities for references for whom we have completed
similar studies in the recent past.
City of Edina, MN
John Wallin, Finance Director (952) 826-0410
City of Medina, MN
Chad Adams, City Administrator (763) 473-4643
City of Brooklyn Park, MN
Jon Thiel, Maintenance Director, (763) 424-8000
City of Arden Hills, Utility Rate Study Proposal
January 2, 2008
Page 4