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HomeMy WebLinkAbout0297.091• ,J. ,. ------.-.-' --.----~~------------:-~::;::: 114y 30, 1991 BONORAB1~ CITY COUNCIL Palo Alto, california ,---, BUDGET 91-92 Attention: Finance and Public Works Committee Bini! OJ' DTU 'R1 81 rmm UBDVIS Members of the council: Bftar1; ill arl.r "I'hl. 1. an intor.ational report and no Council action is necessary ~ staff has prepared this report to advise council of the status of the Enterprise Funds' reserve levels. The levels are related to the proposed 1991-92 budget submittals and proposed rate increases. Reserves discussed in this report InclucJe the Transfer Stabi­ lization Reserves ('l'SRJ, System .Improvement Reserves (SIR), Emerge­ ncy Plant Replacement Reserves (EPR), Calaveras, Gas Supplemental SUpply (SSR) and Landfill Closure/post Closure Maintenance Reserves. The TSR and SIA levelS are an indication of the fiscal health of the various Enterprise Funds. MC):9Totm.4 The estimated balances in each selected reserve as of June 30, 1991 are listed in Table 1 of this report. It should be noted that the information US6.::! to estimate the balance in each reserve as of June 30, 1991 reflects the most recant financial information available; therefore, it is slightly different frOlll what vas budgeted for ~990-9~. The estimated balances include actual interest earnings and movement of funds for specific unforeseen us~s. Table 2 lists the estimated balance in each reserve as projected for June 30, 1992, taking into account proposed rate changes and uses of reserves. C!IR: 297: 91 1 ._----.;.,..:,,_-...... • /' o o • TAEILE 1 PROJECftl) BALANCES AS or 1/30/71 ~SFER SYSTEM STIBILI%ATIOR 1MPKOVXENT 11000) bEl-GENCY PL.UI'! RfiPWt.CIOOQlT SUBtoTAL ELEC'n.IC '6.990 $9.302 'WA.TEI. 2S( .a0 GAS 1 .. '21 '~Cl5 wASTIW.&na • 1. '00 nnnmrr 2.000 COLLEC'l'IOH ClO 0) REFUSE 2.,100 S"t'OU DRAI.NAGE i12 (1) Calavera .. C2} Gas Supplemental Supply (3) Landf!ll Closure Reserve $1.801 <61 'n 986 ..,. 308 • Sua of Tre.~.nt and Collection Subfunds. am.:297.U 2 $18.093 l~US 6.268 2.616 :Z~'78 • :a. 100 812 3,711 (2) 53. Cl) 'J'O'l'AL $<6.701 L195 10 .. 045 2 .. 686 2.£78 8 812 .4 • ELECT.Ie U~216 VATU US o 'fABLE 2 BH"I"EDUSE IESEI.VE FUND BALARCBS mpn n .. ,4, 135 1$000) DDGQCY '!.AII~ mLAepma SQlTQTAL 11.873 SU.507 50) 1~876 I GAS 2 .. 7'" 3.283 076 6.503 , , WAS'rnI'n'R. .. 2.361 ftEA'l'KEIIT 2 .. 140 COLL.I'CJ'ION 221 REFtlSE 2.105 STO.lll tlRAIlfAGE 1.259 ClJ Cal.vera. (2) Gaa Supplemental Supply (3) Landfill Closure Re •• rve 1.042 121 315 • Sum of Treatment and ColleetloD SUbfunda. alit; 2 97: 91 3 ],ell 2 .. 867 544 2.105 1.2S9 12'.881 (1) 3.0" (2) 1.lD1 Il) ----........... I\O!". r:j'''' .... -''" ... --.-."'~,'''----------•. SU r 388 1,81( 10. J17 3. '11 ',867 5" 1,259 o A deacr iption of each reserve i B pre sented in Appendix 1 and IItmaarized below.. For aac:h reaarve, council.has established either • target balance or a ranqe wi thin which the balance in each fund should .tall. The S~ Table in the conclusion shows whether or not the projected 1991-92 res<OrVe balances will fall within the ranqea or tarqat set by council. The Trar",fer stabilization Reserve (TSR) v •• e.tablished in the Electric, Water and Gas Funds to ensure. that prudent transfer levele are provided tor, .e determined by the enterprise method­ ology. The lIinimum balance in the fun<! bas been established to be the neltt year"a General .Fund return on equity transfer, and the aaxiMwa. has been established at 2:0 percent ot the next year's estt.ated sal •• revenue.. The Syatea Improvement ResQrVe {SIR) has been estabUshed in all six Enterprise FUnds to permit larqe planned expenditures and to permit participation in supply alternatives as they ari~e. The minimum SIR balance haa been set at 75 percent_ and the .axbu. at ~SG percent of the next year's capital IoIprovement Proqr .... (ClP). The EIIIerqency Plant ReplaceJIlent Reserve (EPR) 18 created in the Electric, Water, Gas an~ Wastewater FUnds for replacement or emerqency repairs of aamaqed ~ipment. This reserve 1s required by the City Charter and may not exceed. 5 percent of the net book value of the fixed assets In the fund to which it applies. This analyst. does not cover certain other reserves: Enc:u.brances and Reappropriation&:, Underground Loan, Conservation Loan, and Debt service. While those reserves are llDportant parts of each fund's operations, they are already collJlitted for a specific purpose, such as for prior years' appropriations carried over into the next fi"'" 1 year. Electrio fund The Electric Fund reserves, the eatimated balance on June 30, 1991, the Ilinimm or-maxi.mull set by current council pol icy, and the proposed endinq balance for 1991-92 are listed beloY. BSSpyE TSR sn EPR calaveras CJIR:297:91 ELECTRIC FUND RESERVE BALANCES ($000.000) FISCAL YR. 1990-91 ESTIKATEO ENDING 'M NICE $7.0 9.3 1.8 28.6 c FISCAL YEAR 1991-92 IUNlMUM BALAIICE $6.5 4.7 MAXI"""!! DrUCE $13.0 9.4 2.7 PROPOSED BAlANce $8.3 9.4 1.9 24.9 • • I • The r_erves in the Electric .FUrJd remain strong. The calaveras Reserve vas established to be drawn down over a nWDl:>er of years to .iniai.ze rabl increase. e. •• ociated with the Calavel.-as debt .er~1ce requlreJMDta. Tb. calaveras reserve ia proposed to be drawn down in 1991-92 to oftset debt service costs. The reserve is expected to be depleted in apprcxiaately the 1999-2001 time frawe • Water FUnd The Water Fund reserve., the estimated balance on June 30~ 1991, the ainimuD and aaxill.... BOt by current Counc 11 po liey and the proposed ending balance tor 1991-92, are listed below. B'SERVE 'l'SR SIR :a>R WA'l'ER FUND RESERVE BALANCES ($000,000) FISCAL YR. 1990-91 ESTlKATED ENDING BALMIer; FISC!1 YEAR 19~1-9? $ .3 .5 .5 lUI/DIU!! R!.I'!"HCE $1.7 1.1 HAXIHUl! BALANCE $2.4 2.2 .8 PROPOSED BAUlfCE $ .6 .7 .5 In 1991-92 the ending projected balances in the SIR and 'l'SR vill be significantly below the minillum reserve tarqets even with the proposed 18 percent rate increase. The low reserve balances are due to increased wholeaale prices paid by Palo Alto, conservation expenditures and lost revenues as a 'result of the drought. The Gas Fund reserves, the estimated balance on June 30 , 1991, the .int.uB or .l!Ixillum set by current Council policy, and the proposed ending balance for 1991-92 are listed below. CXR: 297: 91 5 '. / o o GAS FUND RESERVE BALANCES ($000,000) TSR Snt EPR SSR FISCAL YR. U90-91 ES'l'IHATED ENDDfG BI:T!HCE $1.4 4.4 .4 3~8 fI~~lal n.A8 1!21-2a I!INI1!U!! IlAXnroK PROPOSED BALANCE MUNCE B!I,,I,HCE $1.4 $3.~ $2.7 2.0 4.0 3.3 .6 .5 3.0 3.8 The reserve balances in the Gas Fund are vi thin the ranges recc .. ended by Council. Nev qaa contracts vill decrease purchase costs In 1991-92 and vill eli.inate the need tor the 15 percent tate increase that had been planned in the oriqinal 1991-92 bUdqet. wa.teya1;Rr FUnd The Wastewater FUnd, the estimated balance on June 30, 1991, the .inimum. or maxilllum set by current Council policy, and the proposed endinq balance tor 1991-92 are listed below. WASTEWATER FUND RESERVE BALANCES ($000,000) RESERVE SIR Treatment collection BPR Treatment Collection nsCAL YR. 1990-91 ESTIMATED ENDING BM.N!CE $1.7 2.0 (.J) 1.0 .7 .3 FISC!I X~)R 19'1-92 MINnroM 8JH peE $1.4 IlAXIMllK BAUNCE $2.9 2.1 PROPOSED BAUNcE $2.4 2.1 .2 1.0 .7 .J Tbe Wastewater Fund Reserves as a whole are within the limits set by Council. The Wastewater reserves consist ot both Treatment and Collection. '!'he $2.0 million balance in the Treatment &ubfund SIR i. at a prudent level. am:297:91 6 ; The OOll.ction portIon of the wastewater Reserves has lov reserve balAnC*8. This haa occurred because ot the ongoinq increases in Trut..ent 4Il<p<In4lturaa for enviroroaental _ndatea (of which a portion of the cost ia then passed to Collection). and because ot reduced revenues as a result ot recSl.lcad water uSlI.qe by city ~to.ar. during the drou9bt~ The Collection reaerve. have been uaed.. to offset these inereaaee in costa and reductions in revenues.. With & proposed 26 percent revenue increa.Cle this year, the reserves vill increaee but .till be under the rang ••• at by council. BecaU.8 the wastewater Fund is dealqned to break-eve. .. and lU;xe no tranater to the General FUnd, there 18 no Transfer Stabilization Raaerve associated with the Fund. The Refuse Pun4 reserves, the range or tarqet set by Council, the •• tiaated ba1ance on June 30, 1-991 and the propost8d ending balance for 1991-92 are listed belovo REFUSE RESERVE BALANCES ($000,000) FISCAL YR. 1990-91 FISC1:J: XQR 1991-92 ESTDL\TEO ZllDING RECOIIHENOED PROPOSED BE'QD ,arulCI I.MI, 8.IJ.ANCE SDl $2.1-$1.0 $2.1 LAllDFILL/ POST CLOSlIRE .5 1.1 The polLcy adopted by Council in 1990 vas to tarqet the SIR balance at $2.C .1Ilion; the Refuse lUnd will be .liqhtly over the tarqet in both 1990-91 and L991-92. In 1990-91 approximately $3.7 .illion of the Ratuse FUnd SIR balance was utilized. 8.5 a source of funding to .1tigate the. need tor a rat. increase. A 30 percent rate incr .... bas been proposed for 1991-92 and: future increases are projected for several years thereafter to meet expected lonq-term. haulinq oblLiation. 'till ur~er neqotiation. Tbe Landfill ClosurejPost Closure Maintenance Reserve was estab­ liabed in 1989-90 to fund landfill closure and post-closure aaintenance costs: as mandated by State law. This reserve will ~ built until 1999-2000 Vben the balance is projected to be $7.2 million. This balance will keep Palo Alto in compUane .. with 0IR:297,U 7 • \ , '~ - o exJ.8tinq state-_ndatad closure r.aerve requireJllants ~ JIeca .... tl11. Fund 18 d .. i9"ed to operate on a break-even bads th .... 18 no TraNl1'er St.bilization Reaerve associated with thla P\uld. St;grw prlinDg. :In 1989, couneil approved stAtf'. recolllDandations tor a StOl"1l Drainaq. Fund iaplement.Uon plan. Start proposed an SrR tarqet ot $.5 aillion to be built up over tae. The balance as ot Jun~ 30, un will be approxillately $.8 ailUon. The projected endinq balance 1'or 19U-92 b $1.2 million. For 1991-92 the projected endi.ng balance ia over tha recommended range ~ This increase bas occurred due to the del.y 01' capital projecta until issuinq of bondII and the ellainatlon of t..'''. project to replace the Chaucer Str_t Bridge. These funds "ill increase the srR balance for 1991-n. Thi. Fund a180 does not include a Transfer Stabilization Reserve since there is no intention to transter funds to the General Fund. Co»s1.yi 91l As • ......,ized in the table below, only two funds' balances are projected to fall below the acceptable ranges established by Council, the water Fund and the Collection portion of the Wastewater FuncL !'be Water Fund reserves reaain low due to the onqoiDg drouqht and. increase.s in purchase costs. The Collection portion of the Wastewater Fund reaains low due to increased expenditures and lower revenues caused by the drouqht. Staff will keep council informed if any other reserve fund balances fall below the t.arqets desiqnated by Council. Despite the poor condition of water Fund reserves, staff does not r~end increasing these amounts. To do so 'Would require even greater rate increases than those previously recommended. Eaerqeneiea. which exceed reserve balances can be met by -borrowing­ fro. other utility funds and making repayments 'When the Water Fund stabl1lze8~ Should current conditions change and .ore money flow to the Water FUnd, reserves can be rebuilt over time. CIIR:297: 91 8 .-, .;.- / SO!IIIARY TABLE PROJE(:TEt) lUl-92 RESERVE BALANCES IIITIIIII OR ABOVE RECOMMENDED RANGE lIIIIR .uB Electric Yu weur 110 Ga. y- Wastewater 'l'reataent COllection Ref .... stono Drainage Respectfully .uba~tted. ~ H:vrwnrJrr; VYRGDIU IlARRIIIG'l'ON sr. Financial Analyst of Finance CIIR:297:n UB ru Yes Yes 110 Yes Yes Yea Yea Yea Yea Yes No Yes Yes Yes 9 Yes (Calaveras) Yes (SSR) Yes (Landfill Closure) o o PPIIfP:I1 I Trana~er Stabilization Reserve (TSRJ The Electric, Water and Gas Transfer Stabilization Reserves were eatabliebed by council Resolution in ~985. Each reserve va.. established. to ensure that prudent transfer levels are provided tor, as detarained by the anterprln .ethodology. All retained earninqs not alloc.at~ to any other reserves are placed in the TSR. rnterest allocated to the balance i. credited to the reserve. In 1988 council directed that a mini""" and llaXimUIII balance be aaintained at a leval ot the next year's General .Fund return on equity transfer and 20 percent of the next year's sales revenue, reapecti7ely. The W.stewater, Refuse and storm Drainage FUnds do not provide a transfer on equity to the Genera 1 Fund and do not require the est&blls~ent ot this reserve. System Improvement Reserves (SIR) The SySt~ Improvement Reserves have been established by Council resolutions in all Enterprise Fund. to perllli t large planned expenditures and to provide financial resources tor participation in attractive supply alternativas as they arise. In ~988 Council directed that a SIR reserve balance tarqe-t be maintaine.d at a level of 110 percent of the following year's projected capital Improve­ -.e.nt Prcqraa (CI:PJ expenditures for Electric, water, Gas and Wastewater. This tarqet level is recommended to provide adequate funds to continue capital/infrastructure work planne.d. for the upcoming year., plus a 10 percent increaent for unexpected projects that aay develop during the year. Also approved were lowe~ anQ upper l~vels of the reserve at 75 percent and 150 percent, respec­ tively, of the following year's CIP. The recommended levels tor the SIR in Ref'L:.se and. Storm Drainage were set with the recommendation of staff. The Refuse Fund SIR policy targets the reserve balance at about $2.0 million. This aaount would cover eJltiergency equipment purchases, hiqher-than­ budgeted ~ntract refuse collection costs, and one year's commit­ ment of funds to the Refuse Closure/Post-Closure Maintenance Reserve # as mandated by State law. The Storm Orainage Fund SIR policy establishes a reserve tarqet of $45 .111ion to be built up over tbe4 _r<1ency Plant Replacement Reserve (EPRJ This reserve vas wastewater Funds eaergencies only. 0IR:297:91 0;.:" established tor the Electric, Water, Gas, and as set forth by the city Charter for unplanned The RafUse and StOnl Drainage Funds have no EPR. 1 • • t , • t • • t l', F " ~: ~ ·i . , i , . . '. ./ 'The charter direct. that EPR reserve balances are not to exceed S percent of the net book value of the fixed assets of the tund. ComH:il alBo directed that the balance of the reserve should be equal to IU1 UlOW1t that covers the 'IIOst expensive item of equipment vtUch, if lost, VDuld cause interruption in the nonaal activity of that utility. As rOlqUired by the City Charter, these funds are available for use only tor replac_ent or emergency repairs .of daa&98d equipaent, and such ~ae. require special appropriation by Council • calavera. Reserve 'l'hia raaerve was established in 1983 by Council Resolution to provide funds for debt obligation.. arising from the Calaveras Hydroelectric Project. Three .illll per non-baseline KWH of electricity BOld i. allocated to this reserve, as veIl as the 1ntereet allocated to the balanc... The allocation will stay in effect through June 30, 1991, when the first debt service payment will be required. From that point on, the three mills per non­ baaeline XWB will be incorporated in the rates, and the reserve will only gTOW hy the interest allocated to its cash balance. SUpp18llental Supply Reserve (SSR) In 1988 Council approved the establishJIent of a reserve tor a laited gas supply and development progr..... The level ot the SSR wa. established at $3~O al11ion, based upon the estimated cost of drilling sufticient wella to supply approl<batBly 10 percent of the City'S p8 requirelllents. ThiB reserve will allow the city to develop an optionm so.pply portfolio recognizinq the balance between supply, reliability and price considerations. Interest allocated to the bal.enee is to be credited to the reserve and is the only annual addition to the rese~~e balance. No funds hava been used frOB this reserve to date. Landfill Closure/Post Closure Maintenance Reserve This reserve was established in 1989-90 to fund landfill closure and post-closure aalntenance costs, as mandated by state law-. The reserve vill be built until 1999-2000 when the balance is projected to be $7.2 aillion. This reserve was established to keep Palo Alto in cDJIiIIliance with State-mandated closure re.serve requireme.nts. QIR'297'91 2 . ··---.. ·' ..... ""'''''' .. 'ft .. , ........... ·'''''-'~'- • \.