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AC–2015ATM
<br />PPROPRIATIONOMMITTEE
<br />this year’s system improvements will be funded entirely from retained earnings of the Water Enterprise
<br />Fund.
<br />Capital appropriations for similar purposes have been made in most years over the last decade (except for
<br />FY2006 and FY2012, when engineering studies were not ready). The goal is to assure dependable service
<br />with high water quality, pressure, and volume for domestic needs, commercial needs, and fire protection,
<br />as well as minimization of water main breaks.
<br />Prior to FY2006, capital expenditures for water distribution and related improvements were funded by a
<br />combination of enterprise fund cash capital, which was raised in the rates, and borrowing. Subsequently,
<br />there was a transition to funding these ongoing improvements exclusively with debt. While the transition
<br />to debt financing in the enterprise funds mitigated the need for rate increases early on, that change, to-
<br />gether with the fund’s allocated contribution to the debt service for the new DPW facility, steadily in-
<br />creased the annual debt service costs of the Water Enterprise Fund, both in dollar and percentage terms,
<br />as illustrated below.
<br />Growth in Water Fund Debt Service Costs
<br />Fiscal YearWater Debt ServiceTotal BudgetDebt Service Ratio
<br />2006
<br />$213,150$6,237,2353.4%
<br />2007
<br />$358,301$6,514,5025.5%
<br />2008
<br />$425,565$6,469,3886.6%
<br />2009
<br />$757,247$7,190,80010.5%
<br />2010
<br />$1,074,551$7,241,30414.8%
<br />2011
<br />$1,137,075$7,619,91914.9%
<br />2012
<br />$1,258,968$8,039,41315.7%
<br />2013
<br />$1,299,091$8,124,84616.0%
<br />2014
<br />$1,260,655$8,707,21914.5%
<br />2015
<br />$1,379,622$9,270,88014.9%
<br />2016
<br />$1,415,508$10,094,34414.0%
<br />The Committee has previously noted that judicious use of some of the fund’s accumulated retained earn-
<br />ings could help defray the impact of these growing capital costs and help to maintain long-term rate sta-
<br />bility. We are pleased that this recommendation has been adopted for a third year, with a substantial cash
<br />contribution from retained earnings funding the entire annual water distribution system improvements
<br />cost and, as noted below, also funding the acquisition of equipment replacements. Even if this level of
<br />cash contribution from retained earnings cannot be sustained in future years, it can be seen from the table
<br />above that it has moderated the growth in debt service costs that would otherwise have to be included in
<br />rate requests going forward, and is a productive use of excess reserves.
<br />Note that two additional capital appropriations will be funded by Water Enterprise Fund retained earnings
<br />under Article 11. Under Article 11(b), $40,500 will be requested to cover 45% of the cost to replace a
<br />Ford F350 pick-up truck (an additional 45% will be covered by the Wastewater Enterprise Fund and the
<br />balance of 10% will be covered by the General Fund). Under Article 11(l), $75,000 from the Water
<br />Fund’s retained earnings will be requested to fund half the cost of an ongoing hydrant replacement pro-
<br />gram shared 50-50 with the General Fund. For a more complete discussion of the status and use of water
<br />and sewer enterprise fund retained earnings, see the discussion of enterprise funds under Article 5.
<br />The Committee recommends approval of this request (8-0).
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