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HomeMy WebLinkAbout2006-04-10 - MinutesMayor Dan Coody City Attomey Kit Williams City Clerk Sondra Smith City Council Water & Sewer Meeting Minutes April 10, 2006 Page 1 of 7 Member Aldermen aye evi le AR KA N SA 5 City of Fayetteville Arkansas City Council Water & Sewer Committee Meeting Minutes April 10, 2006 Ward 1 Position 1 - Robert Reynolds Ward 2 Position 1 - Kyle B. Cook Ward 3 Position 2 — Robert Ferrell Ward 4 Position 2 - Lioneld Jordan A meeting of the Fayetteville City Council Water & Sewer Committee was held on April 10 at 5:30 p.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. MEMBERS PRESENT: Alderman Kyle Cook, Chair; Alderman Robert Alderman Robert Ferrell; Members Absent: Alderman Lioneld Jordan Staff Present: David Jurgens, Tim Conklin, Gary Dumas, Steve Davis, Ron Petrie Chairman Kyle Cook called the meeting to order. 1. Farmington — Fayetteville Negotiations Update Reynolds, Alderman Cook said the negotiation team met with Farmington on Thursday, April 6. Farmington representatives were given a list of possible scenarios and Steve Davis went over those options with them, explaining how everything was calculated. In response to a question from Alderman Reynolds, Alderman Cook said the City had the five scenarios about a week before the meeting with Farmington. The sixth scenario has been added since then. He said the W&S Committee did not receive the material before now because of the planned meeting with Farmington. He said the material is informational only and no vote is to be taken today. The negotiating team just wants to bring the Committee up to date on where the negotiations are at this point. Steve Davis explained the six scenarios presented to Farmington regarding rate options. He said that according to the 2003 Black & Veatch rate study predicted the Fayetteville residential customer should be paying $2.95 per 1000 gallons and a Farmington residential customer should be paying $7.16 per 1000 gallons in 2006. The actual rate charged is $3.10 per 1000 gallons for Fayetteville customers and $7.16 per 1000 gallons for Farmington customers. When the 2003 rate study based on the cost of service was presented to the City Council, it called for a fairly substantial increase for commercial and industrial customers. The Council chose not to increase those rates, but instead to increase everyone's rates inside Fayetteville by the 9% per year for three years to generate the necessary revenue for the system. The rates were based on the two plants being operational in 2006 and the need to generate an additional 29% to cover the 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes April 10, 2006 Page 2 of 7 increased operational costs of both plants. We have been collecting this money since 2004. The plant will not be functional until May 2008 so there is money currently being collected for operational expenses that can be applied to fund additional construction costs. Alderman Ferrell asked if enterprise funds could be used for this. Steve Davis said yes. He continued that the 2006 rate for cost of service for Fayetteville goes from $3.10 to $3.98, reflecting the increased cost of the WSIP (from a $125 million facility to a $175 to $180 million facility). In the negotiations with Farmington, they have said they want a rate that calculates actual usage. Scenario 1 reflects what Farmington should pay based on the City earning a rate of return on the assets used by Farmington of 5.98% with Farmington paying for the maintenance associated with the Farmington system and Fayetteville paying for all the cost of the lift station that Farmington uses, resulting in a rate of $4.66 per 1000 gallons. This is based on Fayetteville charging Farmington for the facilities they actually use today. Scenario 2 is based on the assumption that Fayetteville will borrow $47 million and get a rate of return on all of the assets that we own, except those funded with a direct EPA grant. That takes Fayetteville's rate to $5.26 and Farmington's rate to $10.45. Scenario 3 says Farmington is not a customer at all, with Fayetteville paying $2.5 million to build the lift station to take care of the Fayetteville flow west of I540. This scenario is explored in order to test what it would cost Fayetteville rate payers if Farmington ceased to be a customer and we no longer had that customer base over which to spread fixed costs. Scenario 4 is calculated based on Fayetteville borrowing $42 million, Farmington borrowing $4 5 million and then negotiating with Fayetteville for Fayetteville to pay its share of the lift station. This rate does not include any debt payment that Farmington will have. Alderman Cook said that the reality is that Farmington cannot afford to take on any more debt. Steve Davis said the only way it could be done is for Farmington to add some additional dollars per 1000 gallons to Fayetteville's rate to Farmington customers. Continuing on with his explanation, Mr. Davis said that Scenario 5 assumes that Fayetteville will borrow $4.5 million to build the Farmington lift station, we split the debt service 80% for Farmington and 20% for Fayetteville and Fayetteville borrows an additional $42 million to complete the WSIP, then earns a rate of return on all assets except those paid for directly with EPA grants or sales taxes. In response to a question from Alderman Ferrell, Alderman Cook said it is his opinion that Scenario 5 is the most favored by Farmington, but they weren't entirely happy with it. In response to a further question from Alderman Ferrell, Steve Davis said the biggest weakness of the Black and Veatch report is that many of their assumptions were not documented in the rate study document itself so you couldn't follow their calculation of the numbers. Black and Veatch had been doing our rate studies since the early 1970's so no one questioned this at the time. Alderman Cook said it was after this that the Committee decided to look at possibly getting someone else to do the next rate study. Steve Davis said that it is probably not a good thing to get your professional advice from one consulting firm for more than ten years. Fayetteville rotates external auditors out on five to seven year increments to make sure we get a fresh perspective. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes April 10, 2006 Page 3 of 7 Continuing on, Mr. Davis said that Scenario 6 is based on Fayetteville recovering a rate of return on assets paid for with sales tax and allocating 80% of the debt service to Farmington customers. It is basically the same as Scenario 2 except that there is a direct allocation on the $4.5 million debt service in this scenario and there is not in Scenario 2. Alderman Cook said that on Scenario 5, Farmington would most likely have two different impact fees: one for our treatment plant and one to pay for the lift station. Of course, impact fees can only pay for increased capacity so the new lift station, up to the point that it serves now, would be financed through rates. Anything above that would be financed through the impact fee. One of Farmington's concerns was why we would collect all their impact fees and they would still have to pay more than Fayetteville customers. They had difficulty understanding that the impact fees only pay for increased capacity. In response to a question from Alderman Reynolds, Steve Davis said that the population of Farmington is now (on sewer) approximately 4,750. The development called Sellers subdivision changes the dynamics of all the scenarios because all the scenarios assume that all the Farmington wastewater comes through one point of contact at the Farmington lift station. The Sellers Subdivision will come through Owl Creek which means that additional money the City is spending for the Owl Creek lift station and the pipes to get the wastewater from there to the plant will now become part of the rate base of which Farmington would have to pay a portion. Farmington also has the option of not having the development approved as a Farmington development. David Jurgens said the development is adjacent to the city limits. He said Farmington also has the option of going to the Farmington lift station. The development is also very close to a better location that will be proposed for putting in the new Farmington lift station further downstream from the current one. So there may be some ways to benefit by having that development actually pay for part of the costs of building the lift station and the force mains through it as well as the pipes coming to it. Steve Davis said Scenarios 2 through 6 (excluding #3) assume one location, one lift station. In discussions with Farmington regarding an annexation boundary, Farmington said if the annexation boundary is an issue, they would move their Hwy 16 boundary back to Dot Tipton. Gary Dumas said a Dot Tipton boundary would still put part of Farmington in the Owl Creek basin. Steve Davis said the Owl Creek issue is where we are right now. If we add Owl Creek and the separate connection, it adds more money to the costs of Scenarios 2 through 6. Alderman Cook added that Fayetteville would also have to decide whether to allow Farmington more capacity. We have only allotted capacity for a population of 5000 at this point. In response to a question from Alderman Ferrell, Steve Davis said the Farmington City Council has passed a resolution saying they intend to institute impact fees. As part of the proposal Farmington wants to know if we agree with the Dot Tipton line and they want to see what we will use to compute their rates and what the rates would look like on January 1, 2009 based on data already assembled. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes April 10, 2006 Page 4 of 7 Alderman Cook explained that none of the numbers are solid until we actually do a formal fiscal rate study. There was a discussion about the location of Dot Tipton Road and the Sellers Development. Steve Davis said Farmington wants Fayetteville's assistance in getting their moratorium removed. Alderman Reynolds asked if we are at the point that we can lift the moratorium by July and still meet the needs of both cities until 2008. David Jurgens said we could treat the flow but in order to get it to the Noland Plant, three line segments would probably have to be replaced in front of the Clarion Inn There is about 600 feet of pipe there that just isn't big enough to handle the flow. It is marginal whether the lift station would have to be enlarged. By the time houses are built and on-line, it is possible that wouldn't be required. Gary Dumas said that any additional growth is contingent upon the Fayetteville City Council allowing Farmington to go above the 5000 population. David Jurgens said last year the Noland plant had 12.4 million gallons per day average flow (recognizing last year was a dry year) and is serving all of our population right now. We are working on figuring out the residential flows based off the population from the 2000 census and the number of connections that we have, in order to project out what real population we can serve. The Master Facilities Plan was done by people being paid to be conservative. The Facilities Plan number projects serving a total population of 93,000 in 2020, 85,000 for Fayetteville only. They were figuring the west side plant to be treating a population of 61,000 in 2020. Staff is using the current efficiency at the Noland Plant, which is an operator number proven over the last 18 years, and applying that to both plants. There is a little factor of risk, but by the time we are full we'll know at what exact efficiency the west plant is operating. The process to be used at the new plant is similar to Noland, but more updated. Staff believes it can be run as efficiently as Noland, but it may take a little while to get all the bugs out of it. However, he believes the number they come up with using real efficiency numbers, actual population and actual connections will be significantly higher than the 93,000 projected in the Facilities Plan. He hopes to nail down an actual verifiable number by the end of this week. The Farmington population number of 5000 was a projected number. He believes that number will also increase using the real efficiency numbers. Alderman Reynolds asked Steve Davis which of the six scenarios is best for Fayetteville and better for Farmington. Steve Davis said Scenario 5 is best. Alderman Cook said Scenario 5 is as good an offer as Fayetteville can make. In response to a question from Alderman Reynolds, Gary Dumas said the basic philosophical question now is whether we will allow Farmington's population to go over 5,000. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes April 10, 2006 Page 5 of 7 Alderman Ferrell said both cities want to be good neighbors and both want the best thing for their citizens. But the question is how to pay for it. Steve Davis said Scenario 3 addresses the issue of how it would affect Fayetteville ratepayers if we didn't have Farmington as a customer. He added this scenario in response to the question of not driving up the cost to Fayetteville ratepayers based on serving another community. There was a discussion among the staff and Committee regarding the pros and cons of the options, the terrain of the area, the potential future build -out on the west side of Fayetteville and in Farmington. There was also discussion about what Farmington wants and what is best for Fayetteville ratepayers. Alderman Ferrell asked what the percentage rate of increase for Fayetteville citizens is in Scenario 5. Steve Davis figured that the percentage would be about 68%. He said he is concerned about the citizens who are struggling right now to pay utility bills. Alderman Ferrell said he knows we have to do something, but that is a significant increase and he just wants to figure out how best to do what needs to be done. Alderman Cook asked Steve Davis to go over what the City may have to borrow to cover added costs and run through the scenarios for east side work that have been discussed. Regarding Farmington, he stated that Fayetteville is still a municipal system, although it is acting as a regional system now. He questioned at what point the City should discuss becoming a regional system. Alderman Ferrell asked to hear some of the pros and cons of a regional system. Steve Davis said if a regional system is developed, the municipal system that Fayetteville owns, plus Farmington, Greenland and Elkins would just be merged together. It would eventually mean rate parity. He said the Little Rock/North Little Rock system took about five years to reach rate parity. He said the problem comes in when there are very expensive infrastructure improvements that you want to fund with sales tax. Fayetteville might want to do a sales tax but the other three cities might not be able to. You lose some flexibility with a regional system. If the participating partners don't participate the same way that the major partner participates, there will be a rate difference. David Jurgens gave a brief update on the WSIP project, outlining pipe work done and what is still being done. He said the two promises made to the voters regarding this project were to eliminate the overflows on the lift stations and interceptors and to split the flows. The overflows on the north side of town will be eliminated by the work being done in that area. He talked about other overflows in the City and what is being done to eliminate them. He also reviewed some line work that needs to be done, potential costs of each project and the relative importance of each. He said two of the jobs were as much major maintenance issues as they are expanding capacity. One of those projects carries a higher risk if left undone than does the other. A failure in that line could result in a major spill into the White River and he feels that is an unacceptable risk. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes April 10, 2006 Page 6 of 7 In response to a question from Alderman Ferrell, Steve Davis said it would take $53 million to take care of the rest of the WSIP. We can generate about $8 to $9 million between system revenues, impact fees, and selling 35 acres of land, leaving $42 million. If you want to deal with the Farmington situation, you have to add back $5 million. David Jurgens said he will have the updated total project cost at the next Water/Sewer Committee meeting. We now have bids out and just last week got some new appraisal numbers. Land values have increased considerably since last year. He plans to have a report listing costs of what has been done already and what is still in the future. 2. OTHER TOPICS a. WSIP Staffing In response to a question from Alderman Ferrell, David Jurgens said he has received five applications for project manager of the WSIP. One interview has been done and one will be scheduled next week. He hopes to make an offer within ten days. He said he has received 25 applications for the Inspector position and there are some very good candidates. b. Impact Fees Tim Conklin reminded the Committee that the Council approved a contract with Duncan & Associates to look at updating our water & wastewater impact fees. They put together a policy memorandum and scope and staff has revised the scope to negotiate the contract and returned it to them for their review. Once an agreement has been reached, staff will bring that before the Council. c Annexation Subcommittee Update Gary Dumas updated the Committee on the work being done by the Annexation subcommittee. They have met three times since last Tuesday (April 4) and have one or two more meetings scheduled this week. They are looking very seriously at the annexation around Dot Tipton Road and south of Hwy 16. There are some complications because Washington Water Authority is immediately west of Double Springs Rd. He believes that the discussions of this Committee and the Annexation Committee must dovetail. No conclusions have been reached by the Annexation Committee at this time but discussions are moving forward quickly. d. W/S Extension Policy David Jurgens brought up an issue regarding extending water mains to customers outside the existing mains. He said the City has 650 miles of water mains that touch around 35,000 customers right now. There are at least 1500 lots that are one lot removed from the end of our pipes. We have never used city funds or city crews to extend mains to these customers. We provide service to existing customers and have had the philosophy that those who receive the benefit of the service, pay for the service. If a customer wants access to Fayetteville water or sewer, the customer hires an engineer and contractor and extends the main. The City crews have all they can do right now to service the existing lines. He asked guidance from the Committee regarding whether the City wants to move into the territory of using City funds and crews to extend service to new customers. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes April 10, 2006 Page 7 of 7 In answer to a question from Alderman Reynolds regarding enlarging a water line in Goshen, Ron Petrie said the simple answer is that we are doing what the master fire plan says we should do to allow for projected growth in this area. He explained that it is not just for Goshen, but is for the City's growth area. Although it is being done in another city, it is in Fayetteville's service area and serving existing customers. Gary Dumas explained that the Council made the decision to purchase the White River Rural Water System, and this (the Goshen area) is that system. Every new lot in Goshen is paying impact fees for these types of system improvements. There was general and specific discussion about City policy to this point and the costs to the City of changing that policy. Also, there was discussion regarding the changing needs of city customers and changes that need to be made within the system. Alderman Ferrell recommended, based on the information provided tonight and the consistent policy of the City, that staff be instructed to continue the current policy of not extending water mains to new customers. There was general agreement among Committee members regarding this issue. Alderman Reynolds asked if anyone had talked to Beaver Water District to find out their concerns regarding water for the coming summer, considering the levels of Beaver Lake and the population growth of NW Arkansas. David Jurgens said he has spoken with them. He said the lake levels are move than adequate to carry us through the coming summer. The water usage out of the lake is discretionary based off power, flood control and water supply — with water supply being the first priority. Beaver Water District assured Mr. Jurgens as recently as a week and a half ago that there is adequate water for the area if the drought continues throughout the summer. The next Water & Sewer Committee meeting is scheduled for April 20. (Note: This date was later changed to April 27, 2006 at 5:30 p.m. in Room 219) 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org