12-Move to approve an ordinance setting the water and sewer rates

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City of Paris Water & Sewer Enterprise Fund Enterprise funds are used by governmental units to account for services provided to the general public on a user-charge basis in the same manner that a private sector business would account for its operational activities. A city's goal, therefore, is to set rates and fees to cover its costs in a manner comparable to how a private sector business sets its prices to cover its costs and make a profit. While local government is not usually thought af as a profit making entity, the Water & Sewer Fund is required by a bond covenant to set rates and other charges at a level that will produce revenues equal to at least 1.1 times all operation and maintenance expenses of the water and sewer system plus an additional amount to pay all debt payments and establish the required reserves related to that debt. A question was raised about the propriety of the current practice of transferring money from the Water & Sewer Fund to the General Fund for administrative support and in payment of a franchise fee. With regard to this practice, please consider the following points. Such transfers are common practice not only in Texas but across the nation and sanctioned by the American Water Works Association. The AWWA is the recognized water industry authority where municipal utilities are concerned. The basis for such transfers is grounded in the fact that numerous costs related to the operation of the utility are not reflected in utility budgets. Examptes of such costs in the case of the City of Paris utility include services provided by the City Manager's Office, Finance Department, City Attorney's Office, City Clerk, Information Technology Department, Human Resources Department, and the Engineering Department. These are actual services without which the utility could not function and if were not available from the General Fund would be required to be obtained from the private sector at a higher cost. To not include such costs in setting utility rates undermines the whole enterprise fund concept. After all, what business receives free management, accounting, legal, and technology services? In keeping with the goal of operating our public utility in the same manner in which privately owned utilities are operated, the City of Paris utility pays a 3% franchise fee for the right to place both water and sewer lines in City rights of way. Other utilities that operate within the City pay either 4% to 5% franchise fees currently. The City has been making transfers from the Water & Sewer Fund to the General Fund as far back as records can be located (1954-55 budget). The practice of making these transfers is consistent with generally accepted accounting principles whereby the accounts of the City are organized on the basis of funds. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance related legal and contractual provisions. From an accounting standpoint, the City is not a single entity but multiple entities and acts accordingly. 3. These transfers represent reoccurring revenues to the General Fund. Elimination or reduction of such revenues would have to be dealt with by increasing the tax rate or reduction of expenses which really means reduction of services. Replacement of these transfers with property tax dollars would require over seven cents on the tax rate. T ,~r~n!nr}n (