2019-03-25-AC-ATM-rpt - Laserfiche WebLink

Browse Search

APPROPRIATION COMMITTEE-2019 ATM Article 17 Appropriate for Water System Improvements Funds Requested Funding Source Committee Recommendation $2,200,000 Water EF debt Approve(9-0) This article addresses proposed capital expenditures to be made during FY2020 as part of a continuing program to upgrade and maintain the assets of the Water Enterprise Fund. For general background on the enterprise funds, and the relationship between the budget process and the water rate setting process,please see Appendix B and the discussion under Article 12. A total of$2,200,000 is requested this year to replace unlined or inadequate water mains and deteriorated service connections and to eliminate dead ends in water mains. The details of the projects can be found in the Brown Book(p.XI-12). Capital appropriations for similar purposes have been made in most years over the last decade (except for FY2006 and FY2012,when engineering studies were not ready). The goal is to assure dependable service with high water quality, pressure, and volume for domestic needs, commercial needs, and fire protection, as well as minimization of water main breaks. The amount requested this year is 2.2 times the approximately $1,000,000 annual amount which has typi- cally been requested under this article in past years. The justification for the substantial proposed increase follows from an asset management study recently completed by a consultant, the Wright-Pierce environ- mental engineering firm, which has recommended an ongoing annual expenditure of this magnitude over the next 25 years to keep Lexington's water system safe and reliable. The asset management plan identifies areas of vulnerability, aging pipe, and areas with low volumes and pressures; and it recommends the re- placement of 1% of the Town's water mains on an annual basis. The costs of this year's water system improvements are proposed to be funded entirely via borrowing. Unlike recent years, due to a variety of factors, no retained earnings are proposed to fund these system improvements, although the use of retained earnings is proposed to support certain other enterprise fund capital projects covered by Article 16 (Municipal Capital Projects and Equipment) as noted in the discus- sion of Article 12.The resulting debt service costs for this year's borrowing would be borne by the operating budget for the Water Enterprise Fund for ten years until the debt is retired (see Brown Book, p. XI-12, Table I1). If this new,more costly, annual water system improvements program is to be funded going forward exclu- sively by borrowing, there is some cause for concern. As the projections given in Table 11 of the Brown Book referenced above show,this year's initial increased borrowing will not have a major impact on future debt service costs.However,if a similar debt burden of$2,200,000 is added each year going forward,which would be much larger than the prior debt being retired,the net effect will be a steady growth in the fund's annual debt service obligations,well beyond the historical amounts shown in the table below. Prior to FY2006, capital expenditures for water distribution and related improvements were funded by a combination of enterprise fund cash capital, which was raised in the rates, and borrowing. Subsequently, there was a transition to funding these ongoing improvements exclusively with debt. While the transition to debt financing in the enterprise funds mitigates the need for rate increases early on,that change,together with the fund's allocated contribution to the debt service for the new DPW facility, steadily increases the 36