HomeMy WebLinkAboutEmailed Comments from Robert Goldberg dated 081620201
Gloria Harper
From:Robert Goldberg <rgoldberg@live.com>
Sent:Sunday, August 16, 2020 3:14 PM
To:Thomas Moore; Schelly Sustarsic; Mike Varipapa; Sandra Massa-Lavitt; Joe Kalmick
Cc:Jill Ingram; Gloria Harper; Kelly Telford; Charles M. Kelly; Jeannette Andruss; Steve
Myrter
Subject:Follow-up Comments to Update Presentation on Water/Wastewater Rates
Attachments:Water Rate Study.post presentation comments.doc; Sewer Rate Forecast.Impact of
Bond Payoff & 21% Revenue Cut.1.1.21.xls; Sewer Rate Forecast.Impact of Bond Payoff
& 25% Revenue Cut.1.1.21.xls; Sewer Rate Forecast.Impact of 25% Revenue
Cut.1.1.21.xls
Dear City Council Members,
With the benefit of having listened to staff's presentation last Monday, I have updated my previously
submitted comments on this matter (see attached word doc). Also attached are referenced spreadsheets.
Thank you for your consideration and service,
Robert Goldberg
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you
recognize the sender and know the content is safe.
Dear Council,
After having the opportunity to watch staff’s presentation (with frequent use of the pause
button), I would like to share some follow‐up comments on the two issues that I raised prior to
last Monday’s meeting.
Early Payoff of the 2011 Sewer System Revenue Refunding Bond: The staff presentation
confirmed my positive budget forecast for the combined Sewer Operations & Capital Funds. Staff
recommended a 25% revenue cut this coming January, but did not mention of a possible bond
payoff. My reanalysis after the presentation indicates that we could reasonably do both given the
high interest rate (4.8%) on this bond and the size of our current cash reserves.
I have attached reworked spreadsheets that show five‐year budget projections for three
scenarios: a) a 25% revenue cut with no bond payoff (staff recommendation), b) a 25% revenue
cut with bond payoff ($1.94 million principal & interest), and c) a 21% revenue cut with bond
payoff.
The table below summarizes the key numbers for these scenarios in the last year of the current
rate setting cycle (FY 24‐25). These numbers are based on data that is accessible to me from the
adopted budget and CAFR, and assuming that a 3% annual increase in operating and maintenance
costs.
No Bond Payoff
Revenue Cut January 2021 25% 25% 21%
FY 24‐25:
Total Revenue 2,017,500$ 2,017,500$ 2,125,100$
Total Expenses (O&M + CIP) 3,010,991$ 2,741,911$ 2,741,911$
Net Cashflow (993,491)$ (724,411)$ (616,811)$
Total Reserve Balance (Year End) 1,947,431$ 1,303,269$ 1,786,469$
Reserve Target (O&M + Capital) 1,869,498$ 1,802,228$ 1,802,228$
Debt (Principal at Year End) 2,885,911$ 1,920,911$ 1,920,911$
Principal & Interest Due in Next FY 546,002$ 276,502$ 276,502$
Bond Payoff January 2021
The table shows that adding the payoff of the bond to staff’s recommended 25% revenue cut
would result the following positive financial effects in FY 24‐25:
1) A $269,000 (27%) reduction in the negative net cashflow (i.e., budget deficient). The
magnitude of this deficit will be a critical determinant of the likely revenue increase that
will be needed starting in July 2025. The adage “Pay now, pay more later” clearly applies
here.
2) A $965,000 (33%) reduction in the Sewer Fund’s debt load, and consequently, a $269,000
(49%) reduction in the principal and interest that must be paid in FY 25‐26.
The only negative impact of the $1.94 million bond payoff would be to reduce reserves in June
2025 by $644,000 to $1.3 million. This would be $500,000 less than the $1.8 million reserve target
recommended by our consultant, Raftelis. In response to this potential negative, I would make
several points.
Firstly, the Sewer Fund reserve target is a recommended goal, not a legal requirement. In fact, this
goal will not be reached by the Water Fund. The graphic presented by staff (slide #16) shows that
the multiple Water Fund revenue increases will not be sufficient to meet its combined O&M and
Capital reserve target even by the end of FY 24‐25. This is despite the potential negative impact on
the Water Fund’s plan to sell a $12 million bond in 2023. The Sewer Fund will not be borrowing
money in the next five years.
Secondly, the tract record that I have observed over the last 10 years of CIP project planning has
been that projects are often not completed within the timelines initially presented in an Adopted
5‐Year CIP. Delays in spending on Sewer CIP projects over the next five years could easily push out
the planned $625,000 spending in FY 24‐25 by a year or two. Any such delay would result in the FY
24‐25 year end reserves to exceed the $1.8 million target even with the bond payoff.
Thirdly, any reserve target shortfall in June 2025 can be rectified by rate adjustments subsequent
to the next Water/Sewer Rate Study which should be presented to Council in five years (Spring
2025). At least by paying off the 2011 bond now, your successors at that time will be looking at a
27% smaller budget deficit and a debt load of $1.9 million rather than $2.9 million. I think they will
be appreciative.
Finally, if staff and/or Raftelis convince you that dropping below the reserve targets in FY 24‐25
would have dire consequences, and thus, bond payoff not possible, then I would suggest that a
lower revenue cut should be considered. The far right column in the table above shows that a
small reduction in the revenue cut from 25% to 21% would be all that is needed to both pay off
the bond and keep reserves above targets.
In my opinion, this hybrid approach would be the most fiscally responsible way to balance the
competing goals of providing rate payers with immediate relief in January, keeping reserves from
dropping below recommended targets, and reducing the inevitable “whipsaw” increase in rates
that will needed as soon as July 2025 to eliminate the budget deficit. Backing off slightly now on
the current rate cut and paying off the 2011 bond will reduce this deficit from nearly a $1 million
to just over $600,000.
While an isolated decision on whether to pay off the bond could be made after the current rate
setting process, tying a bond payoff to a smaller rate cut in January would require an immediate
analysis by staff and our consultant given the rate setting timeline. Therefore, I would ask that one
or more Council members request that this analysis be presented at the next Council meeting on
September 14th.
Why doesn’t the City’s General Fund pay for the water it uses? I was relieved to hear that the new
rate structures will require the City to pay for the water it consumes and wastewater it produces.
The presentation also indicated that the City is currently required to make payments to the Water
and Sewer Funds. This was surprising to me since I had asked about these payments previously,
and was told by the City that there were none.
On 12/7/15, I submitted a public record request (CPRA 15‐520) asking for records related to any
FY 14‐15 transfers from the City’s General Fund to the Water Revenue Fund (017‐000‐34000) and
Water Capital Charge Fund (019‐000‐37000) to pay for water use by the City, and transfers to the
Sewer Fees Fund (043‐000‐36000) and Sewer Capital Charge Fund (044‐000‐37150) to pay for
sewer service to City facilities. On 12/16/15, City Clerk Roberts informed me by email that there
were “no responsive documents,” and that “Finance has indicated that no such transfers have
occurred.”
If the City’s response in 2015 was correct, then an immediate audit would be warranted to
determine the amount of past due payments owed by the General Fund to the Water and Sewer
Funds before new rates are established.
Thank you for your consideration and service,
Robert Goldberg
SEWER FUND BUDGET PROJECTIONS WITH 25% REVENUE CUT JANUARY 2021Expenditures for Combined Operations & Capital Funds FYE 2020 Estimated Actual FYE 2021 Budget- Amended to Cut Revenue Flow by 25% on 1/1/21 Assumed Annual Increase FYE 2022 FYE 2023 FYE 2024 FYE 2025Recommended O&M and Capital Reserve TargetSalary & Benefits 1,024,600$ 1,213,800$ 3% 1,250,214$ 1,287,720$ 1,326,352$ 1,366,143$ Maintenance and Operations (Excluding Overhead, Transfer Out- Operation, and Bond payments) $ 259,900 373,400$ 3% 384,602$ 396,140$ 408,024$ 420,265$ Overhead Payment to General Fund $ 54,000 54,000$ 0% 54,000$ 54,000$ 54,000$ 54,000$ Principal & Interest $ 238,900 542,600$ 2011 Sewer System Revenue Refunding BondsPer CAFR 267,560$ 268,560$ 269,080$ 269,080$ Sewer CIP Loans #1 & #2 Per CAFR 276,503$ 276,503$ 276,503$ 276,503$ 90 Days Operating Cash on HandOperations & Maintenance Subtotal $ 1,577,400 2,183,800$ 2,232,879$ 2,282,923$ 2,333,959$ 2,385,991$ $596,498Budgeted Capital Projects $ 169,700 550,000$ Per CIP 3,120,000$ 670,000$ 625,000$ 625,000$ $1,273,000 Non-Budgeted Carry-Over CIP Appropriations (see Budget p. 213)775,000$ Average Annual CIP (FYE 21-25)Total Expenditures 1,747,100$ 3,508,800$ -$ 5,352,879$ 2,952,923$ 2,958,959$ 3,010,991$ RevenuesCapital Revenue 1,946,000$ 1,707,125$ 0% 1,463,250$ 1,463,250$ 1,463,250$ 1,463,250$ Operations Revenue (Excluding Transfer In from Sewer Cap) $ 739,500 646,625$ 0% 554,250$ 554,250$ 554,250$ 554,250$ Total Revenue 2,685,500$ 2,353,750$ 2,017,500$ 2,017,500$ 2,017,500$ 2,017,500$ Net Cash Flow 938,400$ (1,155,050)$ (3,335,379)$ (935,423)$ (941,459)$ (993,491)$ Beginning Cash* $8,369,833 9,308,233$ 8,153,183$ 4,817,804$ 3,882,381$ 2,940,921$ Total Reserve TargetEnding Cash $9,308,233 8,153,183$ 4,817,804$ 3,882,381$ 2,940,921$ 1,947,431$ $1,869,498*First figure of $8,369,833 as of 6/30/19 per page 30 in FY 18-19 CAFR. All other Cash figures are derived from this data point. Revised 8/14/20
BUDGET PROJECTIONS FOR SEWER FUND: PAYOFF OF 2011 BOND & 21% CUT IN REVENUE IN JANUARY 2021Expenditures for Combined Operations & Capital Funds FYE 2020 Estimated Actual FYE 2021 Budget- Amended to Pay off 2011 Bond & Cut Revenue Flow by 21% on 1/1/21 Assumed Annual Increase FYE 2022 FYE 2023 FYE 2024 FYE 2025Recommended O&M and Capital Reserve TargetSalary & Benefits 1,024,600$ 1,213,800$ 3% 1,250,214$ 1,287,720$ 1,326,352$ 1,366,143$ Maintenance and Operations (Excluding Overhead, Transfer Out- Operation, and Bond payments) $ 259,900 373,400$ 3% 384,602$ 396,140$ 408,024$ 420,265$ Overhead Payment to General Fund $ 54,000 54,000$ 0% 54,000$ 54,000$ 54,000$ 54,000$ Principal & Interest $ 238,900 2011 Sewer System Revenue Refunding Bonds1,985,540$ Cost of Bond Pay-off on 1/1/21 Per CAFRSewer CIP Loans #1 & #2276,502$ Per CAFR 276,503$ 276,503$ 276,503$ 276,503$ 90 Days Operating Cash on HandOperations & Maintenance Subtotal $ 1,577,400 3,903,242$ 1,965,319$ 2,014,363$ 2,064,879$ 2,116,911$ $529,228Budgeted Capital Projects $ 169,700 550,000$ Per CIP 3,120,000$ 670,000$ 625,000$ 625,000$ $1,273,000 Non-Budgeted Carry-Over CIP Appropriations (see Budget p. 213)775,000$ Average Annual CIP (FYE 21-25)Total Expenditures 1,747,100$ 5,228,242$ 5,085,319$ 2,684,363$ 2,689,879$ 2,741,911$ RevenuesCapital Revenue 1,946,000$ 1,746,145$ 0% 1,541,290$ 1,541,290$ 1,541,290$ 1,541,290$ Operations Revenue (Excluding Transfer In from Sewer Cap) $ 739,500 661,405$ 0% 583,810$ 583,810$ 583,810$ 583,810$ Total Revenue 2,685,500$ 2,407,550$ 2,125,100$ 2,125,100$ 2,125,100$ 2,125,100$ Net Cash Flow 938,400$ (2,820,692)$ (2,960,219)$ (559,263)$ (564,779)$ (616,811)$ Beginning Cash* $8,369,833 9,308,233$ 6,487,541$ 3,527,322$ 2,968,059$ 2,403,279$ Ending Cash $9,308,233 6,487,541$ 3,527,322$ 2,968,059$ 2,403,279$ 1,786,469$ $1,802,228*First figure of $8,369,833 as of 6/30/19 per page 30 in FY 18-19 CAFR. All other Cash figures are derived from this data point. Revised 8/14/20Total Reserve Target
BUDGET PROJECTIONS FOR SEWER FUND: PAYOFF OF 2011 BOND & 25% CUT IN REVENUE IN JANUARY 2021Expenditures for Combined Operations & Capital Funds FYE 2020 Estimated Actual FYE 2021 Budget- Amended to Pay off 2011 Bond & Cut Revenue by 25% on 1/1/21 Assumed Annual Increase FYE 2022 FYE 2023 FYE 2024 FYE 2025Recommended O&M and Capital Reserve TargetSalary & Benefits 1,024,600$ 1,213,800$ 3% 1,250,214$ 1,287,720$ 1,326,352$ 1,366,143$ Maintenance and Operations (Excluding Overhead, Transfer Out- Operation, and Bond payments) $ 259,900 373,400$ 3% 384,602$ 396,140$ 408,024$ 420,265$ Overhead Payment to General Fund $ 54,000 54,000$ 0% 54,000$ 54,000$ 54,000$ 54,000$ Principal & Interest $ 238,900 2011 Sewer System Revenue Refunding Bonds1,985,540$ Cost of Bond Pay-off on 1/1/21 Per CAFRSewer CIP Loans #1 & #2276,502$ Per CAFR 276,503$ 276,503$ 276,503$ 276,503$ 90 Days Operating Cash on HandOperations & Maintenance Subtotal $ 1,577,400 3,903,242$ 1,965,319$ 2,014,363$ 2,064,879$ 2,116,911$ $529,228Budgeted Capital Projects $ 169,700 550,000$ Per CIP 3,120,000$ 670,000$ 625,000$ 625,000$ $1,273,000 Non-Budgeted Carry-Over CIP Appropriations (see Budget p. 213)775,000$ Average Annual CIP (FYE 21-25)Total Expenditures 1,747,100$ 5,228,242$ 5,085,319$ 2,684,363$ 2,689,879$ 2,741,911$ RevenuesCapital Revenue 1,946,000$ 1,707,125$ 0% 1,463,250$ 1,463,250$ 1,463,250$ 1,463,250$ Operations Revenue (Excluding Transfer In from Sewer Cap) $ 739,500 646,625$ 0% 554,250$ 554,250$ 554,250$ 554,250$ Total Revenue 2,685,500$ 2,353,750$ 2,017,500$ 2,017,500$ 2,017,500$ 2,017,500$ Net Cash Flow 938,400$ (2,874,492)$ (3,067,819)$ (666,863)$ (672,379)$ (724,411)$ Beginning Cash* $8,369,833 9,308,233$ 6,433,741$ 3,365,922$ 2,699,059$ 2,026,679$ Total Reserve TargetEnding Cash $9,308,233 6,433,741$ 3,365,922$ 2,699,059$ 2,026,679$ 1,302,269$ $1,802,228*First figure of $8,369,833 as of 6/30/19 per page 30 in FY 18-19 CAFR. All other Cash figures are derived from this data point. Revised 8/14/20