JOINT
LEGISLATIVE, FINANCE AND ADMINISTRATION
AND
UTILITY COMMITTEE
The Joint Legislative, Finance, and Administration and Utility Committees meeting was held on December 11, 2006, at 5:30 p.m. with Council President Williams presiding. Members present were Mr. Salters, Mr. Carey, Mr. Hogan, Mr. Slavin, Mr. Ruane, Mr. Shevock, Mrs. Jones, Mr. Cregar, and Mr. Snaman. Members of Council present were Mrs. Russell, Mr. McGlumphy, and Mr. McGiffin. Mayor Speed was also present.
AGENDA ADDITIONS/DELETIONS
Mr. Hogan moved for approval of the agenda, seconded by Mr. Salters and unanimously carried.
Budget and Electric Rate Review and Recommendations
During their Regular Meetings of November 27, 2006, both the Utility Committee and the Legislative, Finance, and Administration Committee considered items related to electric rates (Potential Electric Rates for January 1, 2007 and Financial Reporting and Information Flow). The Utility Committee recommended that a joint meeting of the Legislative, Finance, and Administration and Utility Committees be held to further discuss the potential electric rates.
Mrs. Donna Mitchell, Finance Director, provided a presentation regarding the Budget and Electric Rate Review and Recommendations (Attachment #1). Mrs. Mitchell informed members that a one percent (1%) rate increase would equal approximately $393,000. Referring to slide number #7, she advised members that the average increase in the annual kilowatt hour sales was 1.2% per year. Mr. Carey suggested lowering the 2007 projection based on the previous three (3) years. Mr. Hogan suggested that trend lines be added to graphs and that ten years be the standard measurement used when reviewing and analyzing information.
Responding to Mr. Slavin, Mrs. Mitchell stated that the Finance Department developed the allocated expense ratios by fund, based on head count, benefits, and salaries. These ratios are then averaged together. Ratios for the City Manager, City Clerk, Finance Director, and the Mayor are done based on fixed assets and budgets. She noted that this process has been in place for the last three (3) years; however, it has not been compared to other municipalities. Mrs. Mitchell also stated that she will provide additional information regarding a comparison.
Responding to Mrs. Williams, Mrs. Mitchell stated that even if the electric rates are not increased until July, Moody’s will look for evidence that the City has taken the necessary steps to correct the budget short fall before the end of the fiscal year. At the request of Mayor Speed, Mrs. Mitchell provided information on the downgrading of the City’s water bonds and the three (3) years it took to restore the water bonds to a favorable rating.
Responding to Mr. Salters, Mrs. Mitchell stated that if the power supply and PACE Management fee of $84 a megawatt hour increases, then the electric rates would need to be adjusted to cover any increase. She stated that a decrease is also possible.
Mr. Tony DePrima, City Manager, suggested that members focus on the remaining fiscal year and the next fiscal year, noting that the recommended rate increases will cover those periods. Mr. Slavin reminded members that any disciplines adopted this year will be carried over into later fiscal years and it would be prudent for Council to address the out years, in addition to the remaining and the next fiscal years.
Responding to Mr. Ruane, Mrs. Mitchell stated that the electric improvement projects funded through reserves were neither decreased or removed from the CIP during the formulation of the alternatives being presented.
Responding to Mr. Slavin, Mr. DePrima stated that the sales of emission credits, as listed in Alternative 1, is an excess and there will be no risk associated with the sale of the credits. Mrs. Mitchell explained that the interest earned from reinvesting the reserve funds has been moved from cash flow and is now reflected as income for covenant purposes.
With reference to Alternative 3, Mr. Ruane reminded members that Council voted unanimously to place the carry forward balance into the library reserve. Mrs. Mitchell stated that Alternative 3 does not account for the carry forward balance to be place in the library reserve.
Responding to Mr. Ruane, Mrs. Mitchell listed several of the budget reductions that are part of Alternative 4 - CIP Not Purchased Year-to-Date. Mrs. Mitchell stated that the implementation of Alternative 4 will cover the bond covenant and will not result in a downgrade in the City’s bond rating.
Mrs. Theresa Tieman, Senior City Administrator, provided samples by customer class for the proposed rate increases, per 1000 kilowatt hour, as listed in Alternatives 2 and 3. A sample by customer class for Alternative 4 was not received from the Consultant in time to be included.
Mrs. Tieman explained the process of testing rates and the comparisons that are made. The average deviation from the tested rates and the consultant’s rates will be communicated to Council.
Mr. Hogan commended staff on the amount of work done and the information presented. He also stated that a decision must be made regarding the percentage increase for the electric rates and the amount of the transfer from the General Fund.
Mr. McGlumphy also complimented staff and stressed the importance of selecting an alternative that provides the net margins necessary to retain the City’s favorable bond rating. He also stated that fixed costs and the CIP should be examined more closely to determine additional reductions.
Mr. DePrima noted that the electric rates for the City of Dover remain competitive with other municipalities. The City of Dover will be the second lowest utility in the state, even after the proposed rates are approved. Mr. DePrima stated that being on the watch list for Moody’s does not mean a fiscal crisis. It means that the City has been proactive and in open communication with the rating agencies. Mr. DePrima also stated that all five alternatives presented meet the requirements of the rating agencies and do not draw from any of the reserves. He advised members that staff is committed to cutting the budgets and will work closely with PACE to examine plant functionality and deficit reductions.
Staff recommended approval of Alternatives 3 and 4, due to the positive net incomes and covenant coverages. Mr. Hogan suggested that members consider the $5.4M positive net income margin, as listed in Alternatives 3 and 4, a reduction in the transfer to the General Fund by $1M, a transfer to the Library Reserve of $800,000, and a 6% electric rate increase.
Responding to Mr. McGlumphy, Mr. DePrima stated that, of every $100 paid on a residential electric bill, approximately $71 goes toward the purchase of power, $4 is allocated for inter-fund transfers, $6.50 for electric transmission and distribution, $7 for capital projects, $6 for transfer to the General Fund, and $2.30 for debt service coverage.
Mr. Slavin moved to recess, seconded by Mr. Hogan and unanimously carried.
Meeting Recessed at 7:12 P.M.
Mr. Carey moved to reconvene, seconded by Mr. Hogan and unanimously carried.
Meeting Reconvened at 8:22 P.M.
Mr. Hogan moved to recommend that there be a 6% rate increase in January 2007, that the transfer from the Electric Fund to the General Fund be reduced by $1M, and that a minimum margin of $5.4M be maintained. The motion was seconded by Mr. Carey.
Responding to Mr. Slavin, Mrs. Mitchell noted that setting the three (3) variables would probably result in a net margin of greater than $5.4M. Mr. Slavin requested staff to communicate to Council the results of the proposed set variables, noting that if they do not meet the set goals, another formula will be necessary. Mr. McGiffin asked if a higher net margin would indicate that a lower rate increase would be possible. Mrs. Mitchell stated that, in order to maintain the margin, a downward rate adjustment would have to be less than ½%. She suggested moving forward with the recommended action. Responding to Mr. Slavin, Mrs. Mitchell stated that the proposed actions would meet the recommendations of the rating agencies to have the rates represent a truer cost of providing services, to cover the debt service on the bonds, and to provide relief to the General Fund by reducing the amount of transfers to the Electric Fund.
Mr. McGlumphy asked if it would still be necessary to increase rates another 15% in July. Mrs. Mitchell stated that, although staff will be working on reducing the amount, it is likely that a 15% increase will be necessary in July 2007.
Responding to Mr. Ruane, Mrs. Mitchell stated that the consultant has assured her that a three percent (3%) increase would result in $1.79M, which would maintain the $5.4M margin and restore the carry forward balance for the library.
The motion to recommend that there be a 6% rate increase in January 2007, that the transfer from the Electric Fund to the General Fund be reduced by $1M, and that a minimum margin of $5.4M be maintained was unanimously carried.
Mr. Carey moved to institute a hiring freeze until the end of Fiscal Year 2007, with the exception of the Electric and Water/Wastewater Departments engineer positions, seconded by Mr. McGlumphy.
Mr. Slavin suggested that staff develop a review process or that a hiring council be instituted in order to consider hiring in cases of emergency. Mr. Salters felt that enough action had been taken to address the electric rates and a hiring freeze could be counter-productive. Mr. Ruane requested staff to address the vacant positions referenced in Scenario 5. Mr. DePrima stated he has instituted a process that requires justification of new positions prior to approval. He noted that the two (2) vacant engineer positions could be frozen because consulting engineers have been filling the gap at a more cost effective rate than full-time engineers. Mr. DePrima advised members that the following positions are currently vacant: Librarian II, Administrative Assistant in the Budgeting Office, Programmer/Analyst in the Information Technology Department, Engineers in the Electric and Water Departments, Storekeeper, reductions in hours for the Library Pages, Clerks I and II, and Lifeguards.
Mr. Hogan moved to table action pending further information on the current vacancies and the establishment of a hiring plan for the remainder of the fiscal year. The motion was seconded by Mr. Carey and unanimously carried.
Mr. Slavin moved to direct the Budget Team to prepare a list of positions that are currently vacant and a hiring plan for the remainder of the fiscal year. The motion was seconded by Mr. Carey and unanimously carried.
Mr. Hogan moved for adjournment, seconded by Mr. Carey and unanimously carried.
Meeting Adjourned at 8:55 P.M.
Respectfully submitted,
Reuben Salters, Chairman
Legislative, Finance, and Administration Committee
Carleton E. Carey, Sr., Chairman
Utility Committee
RS/CEC/hf/tm
S:ClerksOfficeAgendas&MinutesCommittee-Minutes200612-11-2006 Joint LFA & Utility.wpd
Attachments
Attachment #1 - Presentation - Budget and Electric Rate Review and Recommendations