Loading...
2001-08-30 Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28 WORK SESSION, AUGUST 30, 2001PAGE 755 ASSEMBLY The New Hanover County Board of Commissioners held a Work Session on Thursday, August 30, 2001, at 5:00 P.M. in the Assembly Room of the New Hanover County Courthouse, 24 North Third Street, Wilmington, North Carolina. Members present were: Chairman Ted Davis, Jr.; Vice-Chairman Robert G. Greer; Commissioner Julia Boseman; Commissioner William A. Caster; Commissioner Nancy H. Pritchett; County Manager, Allen O’Neal; County Attorney Wanda M. Copley; and Clerk to the Board, Lucie F. Harrell. Chairman Davis called the meeting to order and reported that the purpose of the meeting was to hear a financial analysis of combining City and County Water and Sewer utilities. He requested Finance Director Bruce Shell to begin the presentation. FINANCIAL ANALYSIS OF CITY-COUNTY WATER AND SEWER SYSTEMS Finance Director Bruce Shell reported that in February the Wilmington City Council and the New Hanover County Board of Commissioners adopted resolutions directing the City and County Finance Directors to develop financial projections for separate and combined water and sewer utility budgets. Since that time, estimates for a 10-year period have been developed. Capital project expenditure projections include only those for new debt and debt service appropriations. Capital project costs to be financed with existing capital reserve (available fund balance) are not reflected in the projections. The percentage rate adjustments are not intended to represent a proposed fee structure. Finance Director Shell requested Deputy Finance Director Julie Griffin to present the financial summary. The following summary was presented: County Customer Base: There are 26,000 New Hanover County Water and Sewer District customers representing17,700 sewer customers, 2,700 water customers, and 5,600 water and sewer customers. During FY 2001, the District experienced a growth rate of 6%. The City has approximately 37,000 customers, of which 12,500 customers are from the recently purchased Dobo Systems. Operations Summary: Information was presented showing the revenues, including the ½ cent sales tax revenue as well as operating expenses plus debt service. Since a majority of the ½ cent sales tax has been transferred to the Environmental Management Department, only $1.1 million was budgeted for FY 2001-2002, and the Water and Sewer District may have to rely on the fund balance if this trend is not reversed. Impact Fees: Impact fees were implemented in the early 1980s when the District was established. These fees were earmarked to fund construction of a Northside Wastewater Treatment Plant. In December 19, 1995, the impact fee calculation was increased to collect more revenue to fund water and sewer projects. The average revenue generated annually from collection of impact fees for the past 15 years has been $1.9 million; however, this figure has decreased in the last two years, and it is expected to continue to decline because of a slow down in development. Currently, the average revenue received from the collection of impact fees is $1.1 million and the fund balance of the Water and Sewer District as of June 30, 2001 is $17.6 million. Economic Model: This model was developed in 1995 by the Finance Staff and members of a Sewer Task Force working together to formulate a priority list. Upon completion of the list, it was provided to the Finance Department and it has been used since that time. When a project is approved, the priority list is updated to show the projected cost of the project at the end of that fiscal year and for the next 20 years. Current bond/installment debt service figures and debt service figures through FY 2011 were presented. NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28 WORK SESSION, AUGUST 30, 2001PAGE 756 A lengthy discussion followed on the loss of revenue from the transfer of the ½ sales tax to the Environmental Management Department. Deputy Finance Director Griffin presented the history of revenue generated from the transfer of the ½ sales tax and stressed the importance of this revenue being transferred back to the Water and Sewer District to avoid the District running out of money by 2012. Finance Director Shell explained that the entire economic model is based on numerous assumptions but the one variable that can be controlled is the revenue generated from the ½ cent sales tax transfer. If the ½ cent sales tax is transferred back to the Water and Sewer District, the approved priority list can be implemented. If the sales tax revenue is not returned to the District, projects will have to be delayed. Vice-Chairman Greer explained that a number of years ago when the first bond issue was approved, it was believed that sufficient funding would be available to provide sewer to the unincorporated county; however, this was not the case. In an effort to address these needs, a list of priorities was developed, and it was felt that revenue generated from the ½ cent sales tax transfer and collection of impact fees would allow the District to move forward with constructing water and sewer projects as scheduled. With continued loss of revenue from operation of the solid waste disposal program, revenue from the ½ sales tax had to be transferred to the Environmental Management Department. If this revenue is not returned to the Water and Sewer District, it will not be possible to complete the scheduled projects. Deputy County Manager Atkinson advised that a large portion of the bond money was spent on the northeast interceptor, which was a costly project. The consulting engineer at that time prepared an economic model that projected sufficient funding for the sewer projects. Unfortunately, these projections were wrong and there was not enough money to provide sewer to all areas in the unincorporated county. Discussion was held on the need to increase rates or find other sources of revenue. Deputy Finance Director Griffin explained that the figures presented had included rate increases at 5% in FY 2003 and 3% each fiscal year thereafter. In concluding the report, Finance Director Shell reported that the current financial situation has been presented as well as the economic model. The intent was to make the Board aware of the decisions that will have to be made regarding the financial condition of the Water and Sewer District. The economic model is flexible and can be designed to fit the policies approved by the Board of County Commissioners. COMBINED FINANCIAL ANALYSIS OF CITY AND COUNTY WATER AND SEWER UTILITIES Finance Director Bruce Shell advised that the financial analysis being presented had already been presented to the Wilmington City Council for discussion. The following report was presented: Future Development: The New Hanover County Water and Sewer District has a 20-year economic model and the City has a 10-year economic model. To be consistent, the Water and Sewer District model was cut back to 10 years for preparation of the financial analysis for a combined City and County water and sewer service. Future Development in 10 Years County$132 million City 55 million *County projects consists of the following: Brierwood/Weaver Acres $ 4,266,000 2002 Middle Sound 13,500,000 2002 NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28 WORK SESSION, AUGUST 30, 2001PAGE 757 Wrightsboro Water System 3,000,000 2003 Water Treatment/Well Field 12,000,000 2003 Kings Grant 15,000,000 2003 Castle Hayne 7,400,000 2004 Northside Wastewater Treatment Plant 20,000,000 2004 Wrightsboro 10,600,000 2004 Southside Wastewater Treatment Plant 15,500,000 2005 Motts Creek 14,700,000 2007 Kings Grant 13,900,000 2010 Silva Terra 2,500,000 2011 Total $132,366,000 *City projects consists of the following: Northside Wastewater Treatment Plant$ 22,000,000 2002 Annexation Distribution Lines 8,000,000 2002 Southside Wastewater Treatment Plant 15,000,000 2004 Sweeney Water Plant Expansion 10,000,000 2005 Total$ 55,000,000 Rate Impacts: If City and County water and sewer services are combined with limited use of the sales tax transfer, rates will have to be increased over a period of 10 years by 48% as shown on Attachment F. If full use of the sales tax transfer is used, the rates will increase 24% over a period of 10 years as shown on Attachment D. Vice-Chairman Greer expressed concern for the 48% increase in rates being misleading and stated that rates per year should not increase more than 3.5% to 4% compounded over a 10-year period. He stressed the importance of the public understanding that combining the two systems will not suddenly increase water and rates by 48%. He also noted that the public should understand that if the two utilities are not combined, major projects already approved by the City and County will still have to be paid by the City and County as separate entities. Combined Utility: A combined City and County Utilities System could be accomplished by an interlocal agreement whereby the City and County would operate a new public entity that could be a separate governing body. The use of language referring to a separate governing body means that the governing body of the new public entity can be structured in a number of ways with the appointment of members by the City Council and Board of County Commissioners. Restructured Service Area: Two service areas could be established, one for the City and one for the unincorporated area of the County. Under the service area concept, the City would have financial, operational, and regulatory responsibility for all water and sewer services in the City, and the County would have the same responsibility for utilities in the unincorporated area of the County. This would simplify billings to customers and reduce billing costs. If the County moves forward with combining the utilities, the priority projects on the District’s list will have to be addressed at some point. If the option is selected to place all the sales tax revenue into water and sewer under a consolidated entity, this action will create a loss of flexibility in paying for future County projects. Currently, $2 million of the ½ sales tax is going into the General Fund for other purposes. If these funds are removed, this will impact the property tax rate. In concluding the presentation, Finance Director Shell offered to answer questions, and he requested the Board to review the information presented in the financial analysis. After commenting on a sense of equity, Commissioner Caster said that he felt the two utilities should be combined. He also requested an explanation of how the City would have financed the Kings Grant area project if they had been approached to provide water and sewer services. NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28 WORK SESSION, AUGUST 30, 2001PAGE 758 Finance Director Shell responded that the City has the option to assess each property owner; however, the City has accumulated a significant water and sewer enterprise fund balance over a period of years that has been used for annexation purposes. Commissioner Caster asked if the City would have required the residents of Kings Grant to pay for construction of water and sewer lines. County Engineer Blanchard responded that he was not sure how the City would have financed the project for the Kings Grant area; however, the areas annexed since areas A and B in Pine Valley have involved the Water and Sewer District. The City is now providing sewer to Masonboro Sound Road and once this work is completed, it will be turned over to the District as required under the interlocal agreement. The purpose of this requirement is to avoid having a street that receives water and sewer services from the District and City with two separate billings. Commissioner Caster noted that this was another reason why the two utilities should be combined. He advised that good financial data has been prepared by the City and County Finance Directors and stated that the next step will be up to the City Council and Board of County Commissioners. County Manager O’Neal advised that a great deal of time has been spent by Finance Director Bruce Shell, City Finance Director Brent McAbee, and Deputy Finance Director Julie Griffin to prepare the financial analysis. No direction is being requested from the Board. The data presented demonstrates the need to restore the sales tax funding to the Water and Sewer District. The next two budget years will be critical for the Water and Sewer District, and the Board will be faced with difficult decisions, particularly when neighborhoods request services and funding is not available to respond to these needs. Commissioner Caster requested Staff to compare water and sewer rates with similar areas throughout the State to determine what is a reasonable rate. County Manager O’Neal responded that this would be good information; however, due to the number of variables that have to be considered, such as the age of the system, water quality, distance between homes, etc., it will be difficult to compare rates. After further discussion, the Commissioners requested County Manager O’Neal to compare rates with similar cities and counties and report back to the Board. A copy of the financial forecast and attachments presented are hereby incorporated as part of the minutes and are contained in Exhibit Book XXVII, Page 5. ADJOURNMENT Chairman Davis adjourned the meeting at 6:30 P.M. Respectfully submitted, Lucie F. Harrell Clerk to the Board