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12. Water Well Issue/Water Rate Study(110 a 1s Incorporated 1892 Telephone (406) 752-6600 Douglas Rauthe FAX (406) 752-6639 Mayor Post Office Box 1997 Zip 59903-1997 Bruce Williams City Manager Date: March 20, 1995 To: Al Thelen, City Manager City Council From: John Wilson, Assistant City Engineer Members: Gary W. Nystul Ward I Purpose of Memorandum Cliff Collins The March 25 workshop agenda will present another opportunity for the City Council Ward I to review and discuss the January 1995 Water Rate Study. The study was previously Barbara Moses discussed at the January 8 Council workshop and recapped in the follow up Summary Ward II Report. This memorandum is to 1) present an alternative for recovering costs allocated Dale Haarr to fire hydrants, 2) inform the Council that the rate review need not be finalized before Ward II bonds may be sold and 3)support our request that the sale of bonds proceed as quickly Jim Atkinson as possible, to enable construction of the new well and other water system Ward III improvements this summer. All except one of the proposed improvements are included Lauren Granmo in the F.Y. 96 budget. ward III Pamela B. Kennedy Action Requested Ward IV Staff hereby requests authorization for the sale of approximately $1,000,000 in water M. Duane Larson revenue bonds to finance the five water system improvement projects discussed in this Ward IV memorandum. Staff also requests authorization to advertise for engineering design and inspection services for three of the five projects, as described below. Alternative for Recovering Costs Related to Fire Hydrants Bond financing details may be found in the attached memorandum from Amy Robertson. The primary recommendation of the January 1995 Water Rate Study is the revenue neutral transition to a simpler, more equitable rate structure. Included in that recommendation is a continuation of the present policy, by which fire protection costs are recovered from the General Fund through hydrant rental fees. Under the present rate structure hydrant rental fees total $34,100 per year. The rate study recommends a reallocation of costs which would increase the annual total to approximately $63,300. In an effort to limit General Fund expenses, staff recommends that the hydrant rental policy be eliminated and that fire protection costs be recovered through the bi-monthly minimum charge on all water accounts. This policy would add $2.11 to all water bills, with respect to the proposed water rates. Or, if the Council so chooses, hydrant rental fees could continue to collect the present amount, $34,100 per year, from the General Fund and the $29,200 increase in allocated costs could be recovered through bi-monthly minimum charges. This policy would add $0.97 to all water bills, with respect to the proposed water rates. 1 of 4 The original recommendation for hydrant rental fees was based on past practices, but we have since found that Great Falls is one community which recovers these costs through water rates. A decision to transfer these fire protection costs from the General Fund to the bi-monthly minimum charge would not change the revenue neutral aspect of the proposed rates, with respect to total revenue collected. Bonding and Water System Improvements When the Water Rate Study began in the fall of 1994, the staffs intention was to "clean up" the rate structure and prepare for a rate increase, as necessary to meet bonding requirements for several high priority water system improvements. Since that time, we have found the Water Fund to be in better shape than anticipated. While a bond sale is still required to finance recommended improvements, the present Water Fund cash flow is adequate to satisfy bonding requirements. Staff proposes that the sale of bonds proceed as quickly as possible so that these improvements may be funded during the next construction season. The total cost of engineering and construction for the recommended improvements is $865,000. Adding bond issue and reserve expenses, staff recommends the sale of approximately $1,000,000 in water revenue bonds. Please refer to Amy Robertson's memorandum with more detailed information on the bond issue. As the Council may recall, in past years the State Licensing and Certification Bureau, which oversees health care facilities, has been emphatic in their demands that we improve the fire protection services throughout the hospital area. The 1991 Hafferman Upper Service Zone (USZEngineering Analysis_ recommended a new well near the Community College to resolve this and other USZ problems. Thomas, Dean & Hoskins was hired to design and inspect construction of that well system. The test well was completed in October 1995 and design for the production well is about to proceed. We propose that the sale of bonds move forward as soon as possible, while the engineering design is in progress. Bonds could be sold within 90 days, making funds available to begin well construction and other improvements by mid -summer. The Community College has asked that construction take place during the summer months to avoid disruption of classes. Given the current low interest rates, the expense of financing the bond issue and the need for numerous water system improvements, staff recommends that the bond issue include funds for four other water system improvements. All of these projects, with the exception of the South Woodland Drive water main extension, are included in the F.Y. 96 budget. The following list of high priority improvements was developed from the recommendations of the Upper Service Zone Engineering Analysis prepared by Hafferman Engineering, the South Woodland Facility Plan prepared by Thomas, Dean & Hoskins and the observations of the Public Works Department staff. 2 of 4 Projects Included in F.Y. 96 Budget - North Side Water Well Estimated Construction Cost - $415,000 Engineer - Thomas, Dean & Hoskins The number one recommendation of the 1991 Hafferman engineering study is to construct a new well as a second water source for the USZ. Thomas, Dean & Hoskins engineers have been hired to provide design and inspection services for that project. The test well and preliminary design are completed, the water rights application has been filed and easements are in place on the Community College site. Final design work is set to proceed, with construction anticipated during the coming summer. 14th Street East Water Main Improvements Estimated Construction Cost - $40,000 Engineer - City Engineering Staff The Public Works staff is currently designing a new storm water collection system in 14th Street from 5th Avenue East to Dry Bridge Park. In conjunction with this work and before the street is rebuilt, one block of undersized old cast iron water main will be replaced and another block of water main will be added to create a loop between existing mains in 6th and 7th Avenues East. Liberty Street/Upper Service Zone South Loop Estimated Construction Cost - $90,000 Engineer - Consultant (to be selected) The concept of this project originated with a recommendation in the 1991 Hafferman engineering study for a south loop on the USZ, connecting the water mains in Garland Avenue and Parkway Drive. Through the years serious concerns have also developed about substandard fire flows and low water pressure in the area west of Meridian Road between Three Mile Drive and Liberty Street. This project would combine all of these issues with a south loop on the USZ, connecting the water mains at Garland Avenue and Meridian Pointe. The work would include a short sections of new pipe, reconfiguration of existing piping and the installation of one or more pressure reducing valves to regulate pressure in the lower lying areas along Liberty Street. Two Mile Drive Water Main Improvements Estimated Construction Cost - $95,000 Engineer - Consultant (to be selected) Houses along Two Mile Drive between Glenwood and Northern Lights Boulevard are presently served by a substandard 2 inch water main. Also in this area, insufficient water main looping contributes to the problem of marginal fire flows at the Two Mile Vista, Westwind Village and Kalispell Senior Apartment complexes. A new connection between the water main west of Hawthorn Drive and the water main in Glenwood Avenue would address these problems. 3 of 4 Proposed Project - South Woodland Drive Water Main Improvements Estimated Construction Cost - $150,000 Engineer - Consultant (to be selected) The water system on the southeast edge of town had developed with two dead end systems into the South Woodland Avenue and Kelly Road areas. Marginal fire flows are a concern in the South Woodland Drive area (Woodland Court) and both dead end systems are vulnerable to widespread water outages in the event of a main break or shut down for repairs. A new water main along South Woodland Drive between Kelly Road and the Woodland Court subdivision would eliminate these problems while encouraging development of vacant lots which currently do not have access to community water. One engineering consultant would be chosen to design and inspect the Liberty Street and Two Mile Drive projects, while another consultant would handle the work on South Woodland Drive. Both consultants would be chosen through a single Request for Proposals. The total cost of engineering services is estimated at $75,000. Construction would take place under two or three separate contracts. 4 of 4 A III Incorporated Incorporated 1892 Telephone (406) 758-7700 FAX (406) 758-7758 Post Office Box 1997 Kalispell, Montana Zip 59903-1997 Date: March 22, 1996 TO: Al Thelen City Manager From: Amy Robertson / Finance Director RE: Water Fund bond issue During the last budget process we anticipated selling revenue bonds to fund the new water well and several looping projects identified by Public Works. John Wilson's estimated cost for construction and engineering amount to $865,000. In addition we will need to maintain a reserve equivalent to the highest annual debt service payment. This would be approximately $90,000 annually on a million dollar bond issue. There would also be issue costs and printing. Past practice has been to fund the required reserves through the bond issue. Cash on hand for operations is currently at $502,000 (equivalent to 8 months operating reserve). Our water billings for this year are slightly under projections and will depend on the weather this spring. Our operating expenses are right on target with the budget. The Water Fund financial statements for FY95 indicate that we have more than adequate cash flows for debt service funding. We would be required to provide 125% coverage for the debt service, approximately $112,000. We have no debt in the Water Fund. The net cash provided by operating activities last year was $404,146 per the City's Statement of Cash Flows. This bond issue can easily be sold with no increase in the City's water rates. In my discussion with Kreg Jones of D. A. Davidson, I assumed that we would be looking at a 20 year bond issue. He indicated that rates are at 5.5% currently and thouht we would have no problem selling the bonds. After given the authority to proceed it will take about 45 day for the sale and another 30 days to have the funds 1 hand. It is not recommended to sell the bonds until the construction bids are received in order to insure that the bonds are sized correctly. In order to have funds for construction this summer we need to proceed soon. Douglas Rauthe Mayor Bruce Williams City Manager City Council Members: Gary W. Nystul Ward I Cliff Collins Ward I Norbert F. Donahue Ward fI Dale Haarr Ward II Jim Atkinson Ward III Lauren Granmo Ward III Pamela B. Kennedy Ward IV M. Duane Larson Ward IV