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HomeMy WebLinkAboutIR 7021 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7121 May 14, 1985 to 2. To the Mayor and Members of the City Council r�xAy. Subject: WATER AND SEWER FISCAL POLICY e,3 Background The Water and Sewer Fund is comprised of several separate funds organized broadly into four categories: operating fund, debt service funds, rehabilitation and replace- ment funds and capital improvement project funds. In April, 1985, these funds col- lectively accounted for more than $90 million in cash resources. Other than relevant state statutes governing the use and investment of public funds, current guidelines concerning management of water and sewer funds are limited. to two fundamental sources. First, the City Charter restricts the transfer of water and sewer revenue from Water Department accounts. Second, the existing revenue bond ordi- nances and attendant covenants establish minimum requirements for the amount of cash that must be maintained in the debt service fund. Apart from these broad rules, no policies are in place to establish an operating reserve fund, or to govern use of water and sewer revenues in excess of annual operating expenses and debt service. The absence of any official policy on the use of water and sewer funds creates diffi- culties in (a) controlling the transfer of cash between the operating fund and capi- tal project funds, (b) budgeting for the use of prior years' surplus revenues in the 0011, current year's operating budget, and (c) developing strategic capital improvement plans that employ the most effective blend of debt financing and current revenues. Thus, there is a longstanding need to codify a comprehensive Water and Sewer Fiscal Policy that defines an administrative framework within which water and sewer revenues can be managed efficiently and equitably. Recommendation The following set of guidelines establishes a Water and Sewer Fiscal Policy for the City of Fort Worth: 1.0 General Standards 1.1 Funds generated by the Fort Worth Water Department will be used solely for the development, operation, maintenance, and administration of the water and wastewater utility systems, including general fund expenses allocated to the Water Department as determined by cost allocation studies and street rental charges at a specified percentage of utility service income. 1.2 Current operating expenses will be paid by revenues and will not be financed by debt. 1.3 Equity shall be recognized separately for the water system and the sewer system, and shall be defined as the sum of retained earnings plus contribu- tions in aid of construction. 1.4 Equity in each system will be maintained at no less than 60% of the system's total assets (i.e. , proportion of assets provided by owners is greater than or equal to 60% of all assets) . ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS — N INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7021 2 RTtp • �Qfsaar To the Mayor and Members of the City Council May 14, 1985 0 �rX C9 Subject: 1073 WATER AND SEWER FISCAL POLICY 2.0 Water and Sewer Operating Reserve Fund 2.1 An Operating Reserve Fund will be established and maintained at 20% of the current year's budget appropriation for operation and maintenance, defined as the total budget less debt service expense and capital projects. 2.2 The Operating Reserve Fund shall be placed at the 20% level of each year's operation and maintenance budget by means of the year-end adjustments occurring in the first quarter of each new budget year. 2.3 The Operating Reserve Fund may be expended for extraordinary expenses resulting from unanticipated emergencies which place an undue burden on water and sewer financial resources. 3.0 Water and Sewer Rates 3.1 Water and Sewer Rates will be set at a level sufficient to meet current obligations of the water and sewer systems, including debt service and debt reserve requirements as defined by all applicable bond covenants. 3.2 Total interest income earned from the investment of all water and sewer funds shall be credited immediately upon receipt to the appropriate water and sewer fund, and shall be used therefrom to offset the, total revenue requirement or debt service requirement to be recovered by water and sewer rates. 3.3 Water and sewer rates and service charges will be reviewed annually to determine the adequacy of these rates to meet annual revenue requirements. Rate adjustments will be recommended as required, but normally no more than annually. 3.4 "Net Revenues Available for Debt Service" are defined as gross revenues after deducting and paying the current expenses of operating and maintain- ing the water and sewer systems. Depreciation shall never be considered an expense of operation and maintenance. 3.4.1 Water and sewer rates shall be set to generate "Net Revenues Available for Debt Service" equal to 110% of the highest future year debt service requirement, as specified in all current appli- cable bond covenants. 4.0 Use of Water and Sewer Revenues (Surplus) 4.1 Net revenues remaining in excess of all current expenses of operation and maintenance, debt service, and operating reserve requirements may be used for a combination of any of the following: 4.1.1 capital improvements: 4.1.2 redemption of outstanding debt. ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7021 - .p.3 ,,RTiq + ;oE 40Rr,�o To the Mayor and Members of the City Council May 14, 1985 i.. H *TE✓✓xA . Subject: WATER AND SEWER FISCAL POLICY 4.2 Water and sewer revenues will not be transferred between the operating fund and bond project funds without written authorization of the Water Director or designated representative. 4.3 Current revenues shall not be used to fund City participation in Community Facilities Agreements (CFA) . 5.0 Water and Sewer Capital Improvement Program 5.1 Current revenues legally available will be used to fund capital replacement and rehabilitation projects each year in an amount approximately equal to the depreciation experienced in the water and sewer capital structures, respectively. For purposes of budgeting these capital projects, deprecia- tion shall be measured in terms of replacement cost. 5.2 Debt instruments will be issued with maturities no greater than 25 years. 5.3 If a current year's capital improvement funding is insufficient to meet that year's ultimate capital project needs, priorities for the use of the limited remaining funds will be: 5.3.1. Replacement of deteriorated existing facilities to maintain ser- vice; 5.3.2. Replacement, relocation or adjustment of inadequate existing facilities ahead of street, storm drain, or highway improvements: 5.3.3. Community facility agreement cost participation: or 5.3.4. Installation of facilities for the improvement of water and sewer service. Recommendation To provide for sound management of the various water and sewer funds, it is recom- mended that the City Council endorse a Water and Sewer Fiscal Policy as described herein. If endorsed, the Water and Sewer Policy will be incorporated into the City's administrative policies regulations. Staff is available to answer any questions you may have regarding this report . 0111P a �, las Harman City Manager DH:pprs ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS