12-Move to approve an ordinance setting the water and sewer ratesCITY COUNCIL AGENDA ITEM BRIEFING SHEET
Submittal Date:
Originating Department:
Presented By:
Agenda Item No.:
06-17-2009
Council Date:
Finance
Gene Anderson
12.
07-27-2009
RECOMMENDED MOTION:
Move to approve an ordinance setting the water and sewer rates on all non-contract customers of the
City of Paris per the latest cost of service study.
POLICY ISSUE(S):
Fiscal Management
Contracts with several large industrial customers require a cost of service study to be conducted each
year. Rates for these industries are determined by the study and go into effect automatically per the
contracts. Residential and commercial rates are also examined in the study and are given to the City
Council for approval. The study points out that the City needs to continue to replenish its Water &
Sewer Fund operating reserves which are about $620,000 below the 45 day minimum reserve and
$1,013,400 below the more comfortable 60 day reserve. Adequate reserves are critical for the City since
5 customers provide 45% of the utility's rate revenue. A loss or decline in consumption of one these
customers could result in a significant financial strain for the City. Also, the sewer portion of the fund is
not currently self-sufficient and additional funds are also needed for capital improvements. The study
recommends a 1% increase in residential and commercial water rates and a 4% increase in residential
and commercial wastewater rates, for a total increase for the average residential customer of $1.27 and
$1.63 for the average commercial customer.
BOARD/COMMISSION RECOMMENDATION:
NONE
EXHIBITS:
Ordinance; Rate Study Presentation
ACTION:
BUDGET INFO:
❑ Financial Report ❑ Minute Order
Expense
$25,000 estimated
❑ Department Report ❑ Resolution
Budgeted Amt.
$25,000
F-I Presentation ~ Ordinance
-
yTD Actual
$22,025
I Public Hearing ❑ Other
F
Acct. Name
Consultants
Acct. Number
10-0318-81-00
FISCAL NOTES:
None
REVIEWED AND APPROVED BY:
~ Administration E City Clerk ❑ Community Development ❑ EMS/IT Z Finance ❑ Fite
❑ Municipal Court Z Legal ❑ Library ❑ Police ❑ Eng./Public Works ❑ Utilities
City of Paris • UuU666 Revised 2/04/08
ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS,
AMENDING SECTION 34-22(b), WATER RATES, AND SECTION 34-23(a),
(b) AND (c), SEWER RATES, TO REFLECT CHANGES RECOMMENDED BY
THE 2009 COST OF SERVICES RATE STUDY; PROVIDIIVG A REPEALER
CLAUSE, A SEVERABILITY CLAUSE, A SAVINGS CLAUSE, A PENALTY
CLAUSE; AND PROVIDING FOR AN EFFECTIVE DATE.
WHEREAS, on the 8th day of June, 2009, the City Council of the City of Paris, Texas,
was presented with the annual Cost of Service Study for Water and Sewer Services
prepared by R. W. Beck, Inc., with certain findings and recommendations for proposed
water and sewer rate increases; and,
WHEREAS, the Cost of Service Study shows a need to increase City water rates one
percent (1%) and the need to increase the sanitary sewer rate four percent (4%) for City
water and sewer users; and,
WHEREAS, the Ciry Council has determined that it is in the best interest of the City
of Paris and its citizens to implement the proposed rates for water and sewer services by
amending portions of Chapter 34, Water, Sewer, and Sewage Disposal, of the City Code of
Ordinances.
NOW THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF
PARIS, TEXAS:
Section 1. That the findings set out in the preamble to this ordinance are hereby
in all things approved.
Section 2. That Subsection (b) of Section 34-22 of the Code of Ordinances of the
City of Paris, Texas, be, and the same is hereby amended to read in its entirety as follows:
"Sec. 34-22. Water rates.
(a) Charges for water furnished by the Ciry under contract shall be as stated in the
contract.
(b) Charges for water furnished by the City, measured in cubic feet, are
established as follows: based upon customer class and meter size and
which incorporates a base monthly cost which includes the cost for the first
increment of water, and a cost per one hundred (100) cubic feet or portion of
one hundred (100) cubic feet used above the first increment:
Page 1
n r1UU06;~
RESIDENTIAL CLASS
METER SIZE
(/nches)
3/4 or less
1 and Larger
METER SIZE
(Inches)
3/4 or less
1 through 2
3
4
6
8 and larger
BASE COST FOR FIRST
INCREMENT
(ln Cubic Feet)
$ 8.90 for first 200
$ 43.39 for first 1,000
COMMERCIAL/INDUSTRIAL CLASS
BASE COST FOR FIRST
INCREMENT
(In Cubic Feet)
$ 10.85 for first 200
$ 43.39 for first 1,000
$ 155.76 for first 3,000
$ 2,559.00 for first 100,000
$3,838.00 for first 150,000
$5,118.00 for first 200,000
$ 3.01
$ 3.01
SERVICE IN
EXCESS OF BASE
(For Each Additional 100 Cu6ic Feet)
$ 3.01
$ 2.46
$ 2.46
$ 2.46
$ 2.46
$ 2.46"
Section 3. That Subsections (a), (b) and (c) of Section 34-23 of the Code of
Ordinances of the City of Paris, Texas, be, and the same are hereby amended to read in its
entirety as follows:
"Sec. 34-23. Sewer rates - For customers using City water.
(a) Charges for sewer service furnished by the City to residential, commercial
and industrial customers shall be based upon customer class and meter size,
incorporating a base monthly cost for the first increment of usage and a cost
for each additional one hundred (100) cubic feet or portion of one hundred
(100) cubic feet above the first increment, as follows:
RESIDENTIAL CLASS
BASE COST FOR FIRST
METER SIZE INCREMENT
(Inches) ln Cubic Feet)
3/4 or less $ 10.22 for first 200
1 and Larger $47.69 for first 1000
Page 2
SERVICE IN
EXCESS OF BASE
(For Each Additional 100 Cubic Feet)
$ 4.14
$ 4.14
SERVICE IN
EXCESS OF BASE
(For Each Additional 100 Cubic Feet)
~ 000070
COMMERCIAL/INDUSTRIAL CLASS
BASE COST FOR FIRST
METER SIZE INCREMENT
(Inches) (In Cubic Feet)
3/4 or less
$ 13.62 for first 200
1 through 2
$ 47.69 for first 1000
Larger than 2
$ 96.48 for first 2,000
SERVICE IN
EXCESS OF BASE
(For Each Additiona1100 Cubic Feet)
$ 4.31
$ 4.31
$ 4.31
(b) Monthly residential customers' wastewater volume for purposes of
assessing the sewer charge shall be based upon one hundred percent (100%)
of the actual metered potable water consumption averaged for the preceding
IVovember, January, and February consumption, which shall be known as the
"flat winter average." Customers that do not have recorded water usage for
each of the winter average months will have their winter average calculated
based on the residential class average of 600 cubic feet.
Monthly commercial and industrial customers' wastewater volume shall
be based upon one hundred (100) percent of the actual metered potable
water consumption, except those customers whose wastewater is metered,
and their volume shall be based upon one hundred (100) percent of the
metered wastewater. The former shall be billed for one hundred (100)
percent of the metered potable water and the latter shall be billed for one
hundred (100) percent of the metered wastewater.
(c) Users desiring to discharge sewage into the City's sewerage system, the
strength of which sewage exceeds two hundred fifty (250) parts per million
biochemical oxygen demand (BOD), two hundred fifty (250) parts per million
of total suspended solids, (TSS), or thirty (30) parts per million of ammonia
(NH3), and which is acceptable under article III of this chapter, may do so
upon written permission of the ciry and by paying a monthly treatment
charge in the amount of ninety-five cents ($0.95) per pound of biochemical
oxygen demand (BOD) in excess of the allowable biochemical oxygen
demand (BOD); fifty-one cents ($0.51) per pound of total suspended solids
(TSS) in excess of the allowable total suspended solids (TSS); and forty-four
cents ($0.44) per pound of ammonia (IVHa ) in excess of the allowable
ammonia strength. The city shall make the necessary tests of the user's
sewage strength to determine this charge. The charge prescribed by this
subsection shall be in addition to the charges prescribed in subsection (a)
hereof."
Section 4. That the water and sewer rates established in Sections 2 and 3 above
shall be reflected in water and sewer billings beginning July 1, 2009.
Page 3
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Section 5. All provisions of the ordinances of the City of Paris, Texas in conflict with the
provisions of this ordinance are hereby repealed, and all other provisions of the ordinances of
the City of Paris not in conflict with the provisions of this ordinance shall remain in full force
and effect.
Section 6. The repeal of any ordinance or part of ordinances affected by the
enactment of this ordinance shall not be construed as abandoning any action now pending
under or by virtue of such ordinance or as discontinuing, abating, modifying, or altering any
penalty accruing or to accrue, or as affecting any rights of the municipality under any section or
provisions of any ordinance at the time of passage of this ordinance.
Section 7. It is the intention of the City Council of the City of Paris that this
ordinance, and every provision hereof, shall be considered severable, and the invalidity or
partial invalidity of any section, clause, or provisions of this ordinance shall not affect the
validity of any other portion of this ordinance.
Section 8. Any person violating any of the provisions of this ordinance shall be
guilty of a Misdemeanor and, upon conviction, shall be fined in accordance with Section 1-6
of the Code of Ordinances and each and every day's continuance of any violation of the
above-enumerated section(s) shall constitute and be deemed a separate offense.
Section 9. Introduced and read on first reading on June 8, 2009, at a regular
meeting of the City Council of the City of Paris and read and passed on second reading on
July 27, 2009, at a regular meeting of the City Council of the City of Paris; the same being
two (2) separate regular meetings of the City Council of the City of Paris.
Section 10. That this ordinance shall become effective from and after its passage of
the second reading and publication as required by law.
PASSED AND ADOPTED on second and final reading this 27th day of July, 2009.
Jesse James Freelen, Mayor
ATTEST:
Janice Ellis, City Clerk
APPROVED AS TO FORM:
Kent McIlyar, City Attorney
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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
(
4. These are real costs incurred by the City for the benefit of the non-city customers that with the
elimination or reduction of the transfer they will not have to pay for because they are served by
Lamar County Water Supply. If the transfers are reduced or eliminated, Paris residents and
businesses would have to absorb that cost in General Fund taxes or fees.
5. If these transfers are taken out of the budget for a single year, it will cause rates to initially fall
but then spike upward when they are resumed. Concurrently, property tax rates would have to
be adjusted upward not only to absorb the loss of the transfer from the utility but also in
recognition of the loss of outside City customer's current contribution to the transfer.
Historically, both residents and business have expressed a preference for small annual increases
to rates verses several years of no increase followed by a spike in rates. When the City used to
conduct a rate study only every three years, the Water & Sewer Fund was consistently
underfunded and customers complained about the rate spike that occurred every three years.
In the 2011-12 fiscal year the City will pay off a significant amount of water and sewer related
debt. There has been discussion that the City may issue new debt at that time to make needed
infrastructure improvements. Given the changes in the bond market, especially the lack of bond
insurers, the City may have to increase its bond coverage requirement in order to obtain
favorable interest rates. In other words, instead of having to generate revenues equal to 1.1
times 0&M expenses plus debt expenses a higher standard would be set. Prior to the current
1.1 times standard, the standard was 1.25. The amounts collected by the Water & Sewer Fund
and later transferred to the General Fund would count toward this coverage factor. Reduction
or elimination of these transfers would adversely affect our ability to meet any increased
coverage requirements.
To use General Fund reserves to build up the Water & Sewer Fund in the short term would be
contrary to enterprise fund accounting theory and by current accounting standards would have
to be recorded as a liability of the utility to the General Fund. Any reserves beyond what should
be maintained in the General Fund could be transferred to the Capital Projects Fund. Building up
the Capital Projects Fund is a forward thinking long term approach for City finances that would
likely reduce the need for future debt.
8. These types of transfers are specifically allowed under the AWWA M1 rate setting manual.
In summary, these transfers are both necessary and a proper way to conduct the City's business.
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