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PUBLIC WORKS COMMITTEE 2014/01/13 MinutesPUBLIC WORKS COMMITTEE MONDAY, JANUARY 13, 2014 – 6:30 P.M. MUNICIPAL SERVICES – 800 N. FIELD DRIVE TRAINING ROOM MEETING MINUTES I. CALL TO ORDER/ROLL CALL: Chairman Kent Novit called the meeting to order at 6:53 p.m. Aldermen Tack and Waldeck were present. City staff in attendance included Robert Kiely, City Manager; Michael Thomas, Director of Public Works; Dan Martin, Superintendent of Public Works; Robert Ells, Superintendent of Engineering; Elizabeth Holleb, Director of Finance; and Donna Dunn, Assistant to the Director of Public Works. Members of the public present included Kate Jacobson from TribLocal. II. APPROVAL OF THE DECEMBER 10, 2013 PUBLIC WORKS COMMITTEE MEETING MINUTES: Alderman Waldeck moved to approve the minutes of the December 10, 2013 meeting as written. Alderman Tack seconded the motion, which carried unanimously. III. WATER RATE STRUCTURE PRESENTED BY DIRECTOR OF FINANCE, ELIZABETH HOLLEB: Director of Finance Elizabeth Holleb reviewed the history of the water rate discussion and our current water rate structure, which is a combination of fixed and variable rates. As part of her presentation, Director Holleb referenced a water rate structure survey that included 290 northeast Illinois water utilities with service population in excess of 1,000. She reviewed the percentage of those communities and which type of rate structure they utilize, in addition to decreasing and increasing block rate communities. The survey did not differentiate communities that purchase their own water versus communities that produce their own water. Director Holleb reviewed considerations for both the variable rate and the fixed rate structure. Chairman Novit questioned if the Finance Committee considered seasonal water rate structures. Director Holleb replied that it Public Works Committee Meeting Minutes from January 13, 2014 Page 2 of 5 would require a change in the way the current billing cycles are handled and therefore not a feasible option at this time. Director Holleb explained that they use a rolling average of the previous five years’ consumption to determine the required water revenue, which projects that a 2.5% growth is needed to support the Water Fund. Alderman Waldeck questioned why the capital improvement amount is increasingly higher and continues to be projected higher than it was in FY2013. Director of Public Works Michael Thomas explained that there are substantial capital costs in the upcoming fiscal year(s) at both the Water Plant and within the water/sewer infrastructure. Alderman Tack noted that capital costs nearly doubled in all projections after FY2013, which mirrors the concern by Alderman Waldeck. City Manager Robert Kiely explained that staff is following the direction of City Council at the November budget meeting. The Committee discussed the cost of the services that the City provides to residents and what services the residents pay for. Utilizing additional reporting tools, staff evaluated water billing data for the year ending September 30, 2013. Billing cycles were eliminated for this study. Accounts were then classified by church, commercial, multifamily, school, or residential. The data showed that churches, commercial accounts, multifamily accounts, and schools have consistent water usage throughout the year, regardless of the season. The residential accounts, however, show that the differential varies considerably by quarter for households that utilize over 60,000 gallons. The Committee discussed how different rate structures will impact the residents. The proposed rate structures attempt to be equitable to all classifications of water users, to address all the considerations, and to meet the demands of funding the Water Fund while allowing the City Council flexibility to adjust the structure moving forward. The Committee discussed the City’s need to consider how to promote conservation, as well. Director Holleb explored three concepts: Option 1. Increase fixed rate portion to recover specific aspect of water utility budget. The fixed rate charge increased 25% and the variable rate remained the same. This change would produce the 2.5% revenue increase that is necessary for the Fund. Director Holleb reviewed the considerations and if they were achieved by the concept. She then reviewed how specific user types would be affected by the change. Public Works Committee Meeting Minutes from January 13, 2014 Page 3 of 5 Option 2. Second tier rate for high consumption to incentivize conservation in peak demand periods. The fixed charge remains the same, the 1st tier variable rate remains the same, and the 2nd tier would include a 5% premium for over 60,000 gallons per quarter. It did not meet the 2.5% threshold in a low usage year, but looking at the average it would be close to meeting the threshold. Director Holleb reviewed the considerations and if they were achieved by the concept. She then reviewed how specific user types would be affected by the change. Commercial users hit the higher threshold in every quarter. Alderman Tack noted that approximately 60% of the population in this model would not contribute to the increased costs of operating the Water Plant and producing water for users, which makes it inequitable. Director Holleb explained that this concept addresses the behaviors that create an additional burden on the system to produce water during specific times throughout the year. Option 3. Inclusion of a minimum water usage amount in a higher fixed rate. Director Holleb reviewed the considerations and if they were achieved by the concept. She noted that this concept was not studied further because it has the same outcome as concept #1 and does not promote water conservation. This billing structure was also abandoned in 2007 based on a study by Burns & McDonnell. Director Holleb reviewed the recommendation to combine the first two concepts by increasing the fixed rate charge per quarter, implementing a tiered variable rate for residential customers using over 60,000 gallons per quarter, and implementing a variable rate increase of 2.5% for all other classes. This combined concept would produce an increase in annual revenue greater than the required 2.5%. Director Holleb added that looking solely at the premium 2nd tier rate, approximately 2/3 of residential customers would not be impacted. Approximately $30,000 of the projected revenue would come from commercial accounts. Alderman Tack suggested that the fixed rate increase is more equitable and that residents unable to afford rate structure changes could apply for a fixed rate reduction. Alderman Tack added that it is unfair to place a burden on commercial accounts just because they consistently place a Public Works Committee Meeting Minutes from January 13, 2014 Page 4 of 5 demand on the system. The Committee discussed the equity in a fixed rate structure, a variable rate structure, and a combination rate structure. City Manager Kiely stated that City Council needs to determine the appropriate percentage of revenue from fixed vs. variable rates moving forward. Staff was hesitant to propose structure changes that would take rates to that percentage in the first year. Alderman Waldeck questioned what else could be done if they chose not to raise water rates. Staff responded that to date, the Water Fund has funded itself and property taxes have not been used for operation and improvements. This is another policy decision for City Council to discuss. The potential issue with raising property taxes is that residents with higher property values will be impacted more than others, even if they aren’t using the system. The Committee then discussed possible conservation efforts and the impact that will have on the demand on the Water Plant. Rebates that reward people for conserving water instead of changing the rate structure should be considered. The Committee discussed changing the ordinance to require updates to sprinkler systems by a certain date/year. After much discussion, the Committee agreed that conservation is its own issue and that rate structure should be adjusted to address the stability needed in revenue, not to address conservation. After Committee discussion, Alderman Tack moved to recommend the following adjustments to the water rate structure to the Finance Committee at their January 21, 2014 meeting. Alderman Waldeck seconded the motion, which carried unanimously. The Committee agreed that their recommendations to the water rate structure are to address immediate funding needs, and that the topic of water conservation requires its own emphasis and separate discussion/program. The Public Works Committee recommends that: • The fixed rate charge increase from $20 to $25, $100 to $125, and $500 to $625 per quarter effective May 1, 2014. • The 1st tier variable rate for residential customers remains the same and that a 2nd tier be introduced at a 5% premium for usage over 60,000 gallons per quarter effective May 1, 2014. • The non-residential variable rate increase 3% for all usage effective May 1, 2014. Public Works Committee Meeting Minutes from January 13, 2014 Page 5 of 5 • A hardship/abatement program be instituted for residents unable to afford the increase in water rates (threshold to be determined). • During FY2015, a committee (either Public Works Committee or a new subcommittee) more thoroughly review the water rate structure and possible rate changes for residential and non- residential customers in future fiscal years. • During FY2015, staff research and develop an incentive program to promote updates and upgrades to existing sprinkler systems throughout the city. IV. OPPORTUNITY FOR PUBLIC COMMENT: None. V. NEXT MEETING: The next meeting of the Public Works Committee will take place on Monday, February 10, 2014. VI. ADJOURNMENT: Alderman Waldeck moved to adjourn the meeting of the Public Works Committee at 9:05 p.m. Alderman Tack seconded the motion, which carried unanimously. Respectfully submitted, Donna Dunn Assistant to the Director of Public Works