2020-03-25-AC-ATM-rpt - Laserfiche WebLink

Browse Search

APPROPRIATION COMMITTEE-2.020 ATM 25 March 2020 Article 13 Appropriate for Water System Improvements Funds Requested Funding Source Committee Recommendation $2,000,000 Water EF Debt $200,000 Water EF Rates Approve (8-0) $2,200,000 This article addresses proposed capital expenditures to be made during FY2021 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 5. Work to Be Done and Funding 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-8. 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 to minimize water main breaks. Traditionally, the amount requested under this article each year was $1,000,000. Beginning last year,that amount was increased to $2,200,000, and this higher level of capital investment is expected to continue indefinitely. The justification for the substantial increase is an asset management study recently completed by a consultant,the Wright-Pierce environmental engineering firm,which recommended an ongoing annual expenditure of this magnitude 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 recom- mends the replacement of I%of the Town's water mains on an annual basis (based on an estimated system useful life of 100 years). In a break from recent practice,it is proposed that this year's maintenance and upgrade work be funded not exclusively with debt, but with a combination of debt ($2,000,000) and cash capital raised in the rates ($200,000). The goal is gradually to completely transition funding of the maintenance program to a cash capital basis. To mitigate pressure on water rates in the short term,the changeover would be phased in over eleven years. See discussion of Article 5 above and Brown Book,p. XI-8. Rate Implications This Committee supports the principle of routine capital investment to assure the continued safety, sound- ness and longevity of the Town's water and wastewater infrastructure. It has also advocated for funding the cost of these long-term maintenance operations—essentially the annual operating expense of the enterprise funds—with cash capital raised directly in the rates charged to users. The current practice of revolving debt financing incurs significant interest expense, which is ultimately passed on to ratepayers. See, e.g., AC Report to 2019 Annual Town Meeting, p. 37: "A sustainable funding strategy would rely on cash capital, funded directly by rate revenue, for the most predictable components of the program." However, Town Meeting should be aware that the combination of the recent substantial increase in the planned annual expenditure and the changeover in funding to cash capital will have a noticeable impact on water and wastewater rates, both this year and for a number of years going forward. Going forward, the impact on rates should be offset increasingly by lower debt costs and a reduced risk of unscheduled repairs of aging pipes. 34