Special Called Budget Workshop Minutes – April 19, 2018
For your consideration, please read the minutes from the Special Called Budget Workshop held on Thursday, April 19, 2018.
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Brunswick-Glynn County Joint Water and Sewer Commission
1703 Gloucester Street, Brunswick, GA 31520
Thursday, April 19, 2018 at 9:00 AM
SPECIAL CALLED BUDGET WORKSHOP MINUTES
Donald M. Elliott, Chairman
Michael Browning, Vice-Chairman
Clifford Adams, Commissioner
Steve Copeland, Commissioner
Tripp Stephens, Commissioner
Ben Turnipseed, Commissioner
Jimmy Junkin, Executive Director
Charlie Dorminy, Legal Counsel
Andrew Burroughs, Deputy Executive Director
Todd Kline, Director of Engineering
Pam Crosby, Director of Procurement
John D. Donaghy, Director of Finance
Jay Sellers, Director of Administration
Mark Ryals, Superintendent
Donnie Bankston, Superintendent
Derrick Simmons, Superintendent
Mark Hopkins, Superintendent
Janice Meridith, Exec. Commission Administrator
Tony Hairston, Raftelis Financial Consultants, Inc.
Cornell L. Harvey, Commissioner
Chairman Elliott called the workshop to order at 9:00 AM.
- FY2019 Budget Workshop Introduction Presentation – J. Junkin
Mr. Junkin presented the Budget Workshop Introduction to the Commissioners. He advised that the revisions were made to the Budget and to the proposed Rate Structure based on the discussions held at the April 4th Workshop. Mr. Junkin explained the key issues impacting the FY2019 Budget, and then reviewed the key changes that were made to the original budget draft that was presented on April 4th. Those key changes included revising the budgeting for current vacancies, personnel hiring rates were based on minimum benefits rather than maximum, and various budget expenditures were reclassified from non-infrastructure requirements to O&M infrastructure needs. He provided a chart reflecting a comparison between the original proposed 2019 Budget and the revised proposed 2019 Budget and the net changes for each of the various divisions. Mr. Junkin then provided a second chart reflecting a comparison between the 2018 Budget and the revised proposed 2019 Budget and those net changes for each of the divisions. Commissioner Stephens inquired about the $800K that was saved in interest expense and to what part of the budget it was moved to. Mr. Junkin advised that it was placed in the R&R Reserve for Capital Projects. Commissioner Turnipseed confirmed if the Repair & Replacement Reserve was for fixing pipes and repairing pump stations, and not for capital improvements for increasing capacity. Mr. Junkin advised that the R&R Reserve is only for repairing assets that JWSC already owns, and that the expansion funds come from tap fees collected which is not a part of this budget. Commissioner Stephens asked if there is an option to take the 2% that was moved from the original proposed budget areas and into maintenance and repairs, and move it into the reserves to further build those reserves. Mr. Junkin advised that there was that option. Andrew Burroughs added that this can be placed into Capital Reserves, but there would be the same results. Commissioner Stephens noted his understanding was that reserves sets the mentality that it is there in case you have to have it, not just to spend it. Mr. Junkin explained that when they set the reserves, it is called reserves, but is actually an amount of money needed to accomplish the projects as identified, and it was set at a number thought to be an affordable number that allows us to accomplish as much as we can. After a brief discussion on the Five Year R&R Plan, Chairman Elliott requested that it be placed as a Commission discussion item in May. Commissioner Turnipseed readdressed the Repair & Replacement Reserve to clarify that it was said that the individual managers would use those funds to repair their facilities. Mr. Junkin responded, regarding the monies for purchased infrastructure repair, the individual managers will manage the smaller projects that they are closest to, for example, in Systems Pumping & Maintenance Kirk Young would be managing the manhole repair program. Commissioner Turnipseed expressed concerned to ensure that these funds were not spent on outside engineering that was not needed. Commissioner Stephens readdressed the 2% identified in the original budget draft and moved into R&R, and noted he would still like to see it moved into cash reserves and let those reserves build, while they are still available in case they are needed. Mr. Junkin commented that there is an emergency reserve set up and they still want to build on that with any free money outside of the Five Year Plan projects. He added that the Emergency Reserve has already been started and continued contributions to it are still planned. He also noted that policy is being set so that projects are not started until the funding for all estimated costs (engineering, easements, permits, construction, etc.) needed to complete the specific project is on hand. He advised that there will be standby reserves well in advance of projects being started since it will be required to accumulate all the money for a project before any work can be started. Commissioner Stephens again commented that the money that was moved around in the proposed budget should be moved into cash reserves so that it is there when it is needed. Mr. Junkin noted that it can be moved into the Emergency Reserve. Commissioner Stephens asked when the budget was to be voted on. Chairman Elliott responded that it had to be released and forwarded to the City and County by May 1st, and that a vote does need to be structured. He revisited the conversations regarding the budget draft with no increase, and increasing the budget but shifting the amount that was moved into the R&R Reserves and putting it into Cash Reserves. Mr. Junkin clarified that what he had said earlier was that they took the cuts that were made and put it back into purchased infrastructure which is a line item on the operating budget. He added that it could just as easily be moved into R&R Reserves or Emergency Reserves. Chairman Elliott asked the Commissioners to confirm that if before the Commission Meeting this afternoon, staff prepares a recommended motion that they are prepared to accept and pass the budget, and Andrew Burroughs noted with the amount that had been placed into Purchased Infrastructure and putting it into Reserves. Commissioner Stephens asked for clarification of what “Reserves” meant. Commissioner Turnipseed added that at the last workshop there was $1M in the budget for manholes, which was shifted from one category to another category, and asked if it had been shifted back. Andrew Burroughs explained that with this recommendation they actually added more money to that line item to fix manholes. Commissioner Turnipseed asked if the $1M for manholes was for fixing manholes or replacing manholes. Mr. Burroughs replied that it could be replacing manholes or lining manholes, depending on the condition of the manhole. Commissioner Turnipseed asked how the amount of $1M was determined. Mr. Junkin responded that it was a number applied, and that amount was already in the annual budget since he has been with JWSC. Commissioner Copeland asked how many more years is this program expected to go, and Chairman Elliott asked to confirm the number of manholes in the system, which is 4,000. Depending on the condition of the manhole it was estimated that $10K to $20K could be spent on each; $1M covers an estimated 65 manholes; and it would take some number of years to complete all the manholes. Commissioner Browning provided that he would like to hold close to the same operating budget as was for 2018, and that any savings or available funds be put into the repairs of the infrastructure and system. Commissioner Stephens mentioned he would like to see an annualized column added to the financial reports, and Chairman Elliott agreed. Mr. Donaghy noted he would add the column to the reports for the afternoon meeting. Chairman Elliott inquired about the 2:00 Commission meeting and the time for the approval of the budget, and clarified with the additional funds that were carved out going into the reserves, not into the operating budget, for use of improving and repairing restoring the infrastructure of the sewer and water system. Andrew Burroughs provided that the revision to the budget draft of moving the funds into the reserve account would be done prior to the afternoon meeting. Commissioner Browning mentioned that he could accept some of the extra funding having been added within the expenses of the divisions for repairs and system needs. The line item details of the report were addressed and Commissioner Turnipseed commented that he would like to at least discuss highlights within the line item detail. Commissioner Browning noted that the budget did not have to be approved on this same day, and Chairman Elliott agreed and provided that the budget draft only had to be released to the City and County by May 1st, and he added that does not mean the budget has to be approved it just means we release it to them for their review. Commissioner Copeland addressed the adjustments that were made within the wages category and inquired as to where this was reapplied. He noted concern that if vacant positions were filled at the higher costs then the money that was intended to be placed into R&R would have to be pulled back and would not be spent on infrastructure. Mr. Junkin provided that there is risk involved in this approach in terms of moving money to the infrastructure, but the hope is to realize less expenses and be able to spend more money on infrastructure. Commissioner Stephens readdressed placing any extra revenue into cash reserves. Commissioner Copeland readdressed the wages and inquired where the money comes from if an employee is hired at a higher cost (salary, insurance, social security, etc.). Mr. Donaghy advised that any extra costs for new hires above the budgeted amount comes from within the divisional operating budgets. Commissioner Turnipseed asked how the Purchased Infrastructure Repairs was different from the Repair & Replacement Reserves. Mr. Junkin explained that Purchase Infrastructure Repairs is the money that the O&M staff uses within their parameters to make repairs for example, manhole repairs, pump repairs, road paving, and all repairs done by contractors and not JWSC employees. Chairman Elliott requested that staff prepare a recommendation for the afternoon meeting.
- Water and Sewer Rate Structure Presentation – Tony Hairston, Raftelis Financial Consultants, Inc.
Mr. Junkin introduced the presentation and discussion on the Rate Structure. He noted that staff took the feedback from the previous workshop and made the modifications to the Rate Structure to accommodate those needs. He advised the 3 primary goals in preparing the Rate Structure of: improved affordability, improved equity, and improved revenue stability. Tony Hairston from Raftelis Financial Consultants gave a presentation regarding the Rate Structure. He reviewed the revisions as requested by the Commissioners from the last workshop, 2 weeks prior. The first Rates Mr. Hairston provided were those for the Existing Rate Structure and Operational Agreement comparing FY2018 with FY2019, for the same sub-sets of customers as identified in the previous workshop. With this structure, the seasonal customers with 0 gallons use incur a very small decrease on their monthly bill while all the other sub-sets incur increases between 3.9% and 5.9% on their monthly bills. He then presented the proposed Rate Structure for FY2019 with the revision as requested by the Commission in the previous workshop of lowering the amount of water included in the minimum bill from 2,000 gallons to 1,000 gallons. The minimum bill for all City and County customers who use 1,000 gallons or less per month would be $28.50. He also noted again, that this proposed Rate Structure realigns residential and non-residential water conservation blocks, and provides increased fixed charge revenue recovery from 28% to 36%. Commissioner Copeland inquired if this would provide the 3% increase in revenue and Mr. Hairston confirmed that it would. He then provided an example of what a minimum bill would look like under the proposed Rate Structure for a 1 REU customer using 1,000 gallons of water or less per month, and gave a detailed explanation. The discussion continued with a chart indicating the proposed usage charges under the proposed Rate Structure. Sewer usage for all customers was noted first, with the rate per 1,000 gallons going from $7.15 to $7.58, no matter how many REUs. The water usage tiered rates were separated by single family (individually metered residential) and non-residential, with the difference between the two being the number of gallons included in each tier of the usage rates. Mr. Hairston explained and discussed the tiered rates for single family (individually metered residential) and then for non-residential. Next, he presented several charts providing comparisons of JWSC with other various utilities for residential water and sewer bills for different amounts of consumption. Commissioner Turnipseed asked which utilities were added to this comparison since the previous workshop, and Mr. Hairston advised that Kingsland and Macon were added. After reviewing the comparisons between utilities, a chart was provided with examples of monthly bills for the identified representative accounts monthly. For each representative account a bill for FY2018 was compared with what it would be in FY2019 under the current Rate Structure with a 3% increase, and also the proposed Rate Structure for FY2019. Mr. Hairston then reviewed the benefits of the proposed Rate Structure and also the timeline for the Rate Structure milestones. There was extensive discussion pertaining to the chart showing the calculations of the monthly bills for the representative accounts and comparing those bills with the FY2018 rates, FY2019 current Rate Structure with 3% increase, and the FY2019 proposed Rate Structure. The Commissioners questioned how a 3% increase in revenue would be seen with the indicated bill reductions reflected on the chart, and Mr. Hairston provided that these were only examples, not a representation of all accounts bills, outliers were not included, and definitely not all accounts would see a reduction, and he explained that there would still be a 3% increase in revenue as targeted. The Commissioners expressed that with the examples provided on this chart they were not able to understand how bills could be reduced and the organization still see a 3% increase in revenue. Discussion continued with differentiation between City and County, water only accounts as compared to water & sewer accounts and sewer only accounts, and identification of 10% of customers being considered seasonal residential with zero usage. It was noted that not all accounts currently incurring zero usage are seasonal residents and that, for example, some of those are customers who have already paid for taps, have not moved in yet and are paying the minimum bill with zero usage. Commissioner Copeland suggested that for understanding, they need to see the 2018 current Rate Structure increased by 3% and then multiplied by the forecasted number of customers to give the total revenue requirements for that year, and then use that same number in the 2019 proposed bill to spread across the various categories and see how the numbers change. This should show how the 2 variations for FY2019 actually compare with one another. He also noted that he would like to be able to see where the other money is going to come from for the $1M revenue. Commissioner Turnipseed noted that he believed that many of the non-residential users will benefit from the proposed Rate Structure, moreso than the residential customers, and questioned why this would be since most of those users are transient people eating at the large restaurants. He asked Mr. Hairston to justify again the large quantities included in the tiers for the non-residential. Mr. Hairston provided a detailed explanation regarding REU’s, usage, and Debt Service. Chairman Elliott confirmed that on the Debt Service now restaurants pay much more on the Debt Service using the REU’s, and what Mr. Hairston had done was blended in the usage rate, part of the Debt Service because that fixed cost was basically put into the variable portion, and inquired if this was correct. Mr. Hairston responded that there was actually more cost recovery out of the REU because some of the pay as you go capital is in there, but not all of it is in there, currently it’s all in the usage charge. Chairman Elliott asked if the REU charge is still covering all of the debt and some of the capital, and Mr. Hairston noted most of the debt and some of the capital, and that in total it is recovering more than it is now. Chairman Elliott asked if it was possible to put together a pro-forma bill and show what the actual bill would look like to help in the understanding of what is being proposed. He added a concern of being able to see a 3% growth in this proposal. Mr. Hairston agreed that it could be done. Chairmen Elliott noted that this may help the Commissioners to understand more of where the 3% is coming from and what the dynamics are. Commissioner Stephens questioned why not just do a 3% increase across the board rather than trying to change the Rate Structure. Chairman Elliott noted that it was because there is still a customer base being missed that is not paying their fair share and we are subsidizing them. Mr. Junkin recalled that there were 3 major attempts or roles in changing the Rate Structure: one was to accommodate that; there was also the effort to improve the affordability of our overall rates for the lower end service; and the third goal was revenue stability which this also accomplishes. Commissioner Stephens noted understanding those goals, but is not sure the numbers support that and cannot see where the numbers meet those goals. Mr. Hairston added that he could provide printouts with all the numbers and go through them with the Commissioners. There was additional discussion pertaining to the chart as provided on the representative accounts and that the increase cannot be seen using this data. Mr. Hairston reminded that this chart does not provide the deep details of outliers and the actual numbers of customers in the representative accounts as charted, this is not a representative distribution. Commissioner Turnipseed again noted that on the chart as provided, he only saw an increase in the seasonal residential and low use residential accounts and on none of the other representative accounts. Chairman Elliott advised that what the Commissioners need to see is a better representative of what the population is under those rate structures. Mr. Hairston inquired to confirm that Commissioner Turnipseed supported keeping the same (as it is now) tier structure for all users regardless of REU. Commissioner Browning commented that he thinks that the seasonal residential needs to be looked at because the utility has to be maintained to provide for those people who are truly seasonal, and for what they are not paying it goes to every other ratepayer. Chairman Elliott asked Mr. Hairston to come back in early May to discuss again with the Commission. Mr. Hairston provided that they will come back and provide a higher level of detail with more of the numbers and outliers.
There being no further business, the meeting adjourned at 11:39 am