To: Honorable Mayor and Members of Town Council
From: Mark Marlowe, P.E., Utilities Director
Anne Glassman, Business Solutions Manager
Title
Resolution: Approving the Utilities Financial Management Plan
Body
________________________________________________________________________________
Executive Summary
As part of the 2015 strategic plan initiatives, Utilities created a Financial Management Plan (FMP). The goals listed below for the Utilities FMP were derived based on the Utilities’ main vision to become a national leader in the water industry and our mission to provide our community exceptional service. Each goal that is listed below has been set in place to help the utility achieve this status. The Financial Management Plan has been created to help guide the Utility with making the best possible financial decisions to help achieve and maintain the goals. The FMP goals are as follows:
1. Minimize future rates at or below the 2013 Hybrid Model levels.
2. Minimize debt carrying costs at or below industry standards.
3. Minimize risk by balancing fixed versus variable revenues and expenses where appropriate.
4. Keep costs at or under budget for capital and operational budgets each year by fund and continuously strive towards more efficient operations.
5. Keep our rates and fees competitive with surrounding communities.
6. Keep adequate reserves and maintain fund balances between minimums and maximums.
7. Keep rates and fees affordable within various national affordability indices.
8. Develop regional partnerships to provide economies of scale to reduce total costs of infrastructure to our customers.
9. Be an industry leader in the application of financial management benchmarking ourselves against others locally and nationally.
In support of these goals, Utilities has been able to come to many conclusions and recommendations for the current and future financial management of the enterprises. These conclusions and recommendations below will help guide future actions and discussions in the best possible direction for the enterprises and for the customers.
• Debt and Financing
o Study the option of using inter-fund loans from water and wastewater to help minimize the rate increases needed to fund the long term renewable water plan in the water resources enterprise.
o Evaluate options for issuing additional future debt to help fund the long term renewable water plan including options to fix a portion of the Certificate of Participation (COP) variable interest rate debt.
o Engage a financial advisor to evaluate debt options.
o Evaluate issuing new debt as it makes sense in order to fund the needed CIP projects.
• Reserve Policies
o Reevaluate annually the reserves to ensure that the levels meet the needed standards in the industry as well as to ensure that the levels are enough to cover the needs of the various enterprises.
o Reevaluate and consider establishing a more robust renewal and replacement reserve to ensure the long term management of the $550 million of capital assets for which the Utilities Department is responsible.
o Establish a fatal failure reserve for stormwater to help cover and minimize risk due to the unknown weather patterns and damage that can come from storms as seen in the spring of 2015.
• Budget Management
o Evaluate the variable expenses versus the variable revenues annually to take and recommend actions to council and for internal use to help minimize revenue risks.
o Manage budgets to come in at or under budget each year for operating and non-operating budgets.
o Continue to utilize best practices in bidding and pricing construction projects to ensure results are competitive in the market and reevaluate processes each year.
o Continue to look for opportunities to maximize energy management and asset management benefits to help reduce costs and come in under budget each year.
o Reevaluate the staffing plans each year to determine the most efficient levels of staff in order to meet the needs of services and projects each year.
o Evaluate and update special charges annually to help ensure that customers that are incurring the costs are paying for the costs.
o Improve each year with respect to dollars per million gallons per day cost as shown in Key Performance Indicators for water and wastewater funds.
o Minimize non-revenue water through audits and evaluating the system for leaks and breaks and other areas that can cause non-revenue water.
• Benchmarking
o Compare the rates and fees each year to the 2013 Hybrid levels and make adjustments where possible to stay below 2013 levels.
o Compare our rates and fees to similar surrounding utilities.
o Utilize key performance indicators to drive improvements.
o Utilize the National AWWA annual benchmarking study to evaluate our performance on a host of financial indicators.
o Continue to identify and negotiate regional partnerships to provide economies of scale.
• Balance Sheet
o Reevaluate the yearly CIP projects to find ways to decrease costs while still completing these projects.
o Look for economies of scale by the use of extra territorial service and funds raised through that service which can help pay for long term infrastructure.
o Balance lost revenues from water conservation with other revenues or rate increases in order to fund future projects.
o Maintain a level of 90 days or less for the accounts receivable turnover ratio throughout the year.
• Use the Financial Management Plan to support the Utilities strategic plan and be an industry leader.
The entire draft FMP is included in Exhibit 1. The FMP will be used to continue to support the Utilities strategic plan to be an industry leader. The FMP will be updated periodically on a three to five year schedule depending on changing conditions.
History of past Town Council, Boards & Commissions, or other Discussions
On October 28, 2015, the Utilities Commission unanimously recommended Town Council adopt the Utilities Financial Management Plan by resolution as presented by staff.
Budget Impact
The plan will be used to positively impact the budget, rates and fees and overall financial health of the Utility.
Staff Recommendation
Staff recommends Town Council approval of the resolution in Attachment A approving the Utilities Financial Management Plan.
Proposed Motion
I move to approve Resolution: Approving the Utilities Financial Management Plan.
Attachments
Attachment A: Resolution
Exhibit 1: Draft Financial Management Plan