19 - Water & Wastewater Cost of Service Study

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recommended that a new facility be built, more on this will be provided in a near future City Council meeting. We are currently experiencing an incredible low in interest rates throughout the market, we have also sent in a pre -application to pursue a revolving loan fund through the State which would further have great interest savings over a 30 year life. Nevertheless, we are currently looking at a very large expense to build the facility which will need to be supported by the Wastewater Rate. If the City were to approve proceeding with this project in 2020; design through completion would take 3-5 years. It is at that time we would experience the full impact of a debt service payment. It is strongly recommended that the City begin a healthy and gradual ascent in its Wastewater Rate to prepare itself for this ultimate expense, but more importantly to acclimate our users gradually over the span of 3-5 years rather than a sudden and drastic increase at the end. Ultimately, debt payments will be owed when they come due, therefore being prepared with the Wastewater Rate to afford these payments will prevent a drastic impact to the reserves or, much worse, to taxes. City Staff will do all it can to look for opportunities to find savings in the design and construction of the project, there will be some minor savings in efficiency through operation and maintenance brought on by a new facility, the drastic reduction in infiltration that is occurring between the City and the Facility currently will bring about some savings, and Staff will look for an opportunity to refinance existing debt during this time if rates continue to hold low. Ultimately though, it is the Staff and Engineer's recommendation that we strategically begin to address this much needed project now, including adjusting our rates, to avoid the ultimate situation of being forced to act by the TCEQ — or worse, suffer a failure of operation at the Wastewater Treatment Facility. Adjusting rates pursuant to Scenario 1 would be a step in managing the ultimate impact to users over the next 3-5 years. BUDGET: The rate study cost is $28,500 similar to previous years. Funds are budgeted in the Water Billing Office budget to pay for the study. OPTIONS: 1. Adopt Scenario 1 rates which cover the full cost of service of the water and wastewater system (note — this does not take in to account the Wastewater Treatment Facility, that will need to be examined if and when the Council approves the design to proceed). 2. Adopt Scenario 2 which meets the minimum amount of our rate maintenance policy but does not cover the full cost of service of the system and relies on reserves to make up the shortfall (note — again, this does not take in to account the WWTF). 3. Adopt a third scenario to be specified by the Council — City Staff will be available to discuss scenarios the council might have. RECOMMENDATION: The staff recommends the Council, given the long term forecast with the Wastewater Treatment Facility, adopt Scenario 1 rates.