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HomeMy WebLinkAboutApproved Minutes - 2010-12-08 SpecialCITY COUNCIL SPECIAL MEETING MINUTES DECEMBER 8, 2010 Mayor Jack D Hoffman called the special City Council meeting to order at 6:34 p.m. on D cember 8, 2010, in the City Council Chambers, 380 A Avenue. Present: Mayor Hoffman, Councilors Hennagin, Olson, Moncrieff, Tierney, Jordan and Vizzini. Staff Present: Alex McIntyre, City Manager; David Donaldson, Assistant City Manager; David Powell, City Attorney; Jane McGarvin, Deputy City Recorder; Ursula Euler, Finance Director; Joel Komarek, Project Director; Kim Gilmer, Director 3. STUDY SESSION 3.1 Introduction to the Draft Environmental Impact Statement (DEIS) for the Lake Oswego to Portland Transit Study Mayor Hoffman announced that the meeting would be divided into two phases; first, an introduction with key team members, Jamie Snook, Doug Obletz and Brant Williams to explain the DEIS; it was not a time to ask questions unless it involved how the document was organized. There would be further discussions with this team in January about the modeling and assumptions. The second phase is a Redevelopment Agency meeting approving the appointments of the Budget Committee followed by an Executive Session to which Councilors -elect Jeff Gudman and Mike Kehoe were invited to attend. Mr. Williams, Director, Economic and Capital Development, recommended that Council go through the summary if they did not have the opportunity to flip through the lengthy DEIS documentation. Mr. Obletz, Ms. Snook and himself met a month ago with the Council who requested a brief introduction about the DEIS; they arranged to come back to the Council for at least two sessions after the first year, possibly towards the end of January and early February. Ms. Snook and Karen Withrow from Metro would also be happy to answer any questions. Doug Obletz, Project Manager, Lake Oswego -Portland Transit Project, stated this document represents tremendous effort, hard work and had been a very lengthy process to prepare. He commended Jamie Snook for producing and preparing the document for public review. Despite the challenging economy, their population continued to grow in this region, and projections indicated in terms of population, another City of Portland was coming to this region by 2035. There was a shared responsibility to invest in public projects that will provide benefits for generations to come; that was why Metro, TriMet and the other partners in this project, including the City of Lake Oswego, invested a lot of time and money in the preparation of this DEIS, which analyzes the choices they face along one specific corridor, Hwy. 43 between Portland and Lake Oswego. This document carefully compares the tradeoffs associated with different public investments and with maintaining the status quo. He outlined a couple of summary findings. It was clear the buses alone would not solve traffic congestion while they did not cost as much to buy and build, they cost more to operate. It was necessary to find innovative approaches to reduce cost and transit operations. There was a need to ensure that the limited transportation dollars also supported other community needs, like City Council Special Meeting Minutes Page 1 of 19 December 8, 2010 protecting farms and forests and leveraging private investment in existing properly zoned and serviced land within the Urban Growth Boundary (UGB). The region's transportation budget is not like a family budget; the money used for this project was transit specific. While there were currently preliminary estimates including the DEIS, they could not determine the final cost or bill for any particular City or County or other partner in this project until they made more decisions about their direction. Economists say that public investment always paves the way for economic recovery and as a community they had the ability and the responsibility to shape the economy they need. Prosperity in their region rests on shared fate and working together, not by just meeting individual needs. He introduced Ms. Snook to walk the Council through the DEIS. Jamie Snook, Principle Planner, Metro, gave a PowerPoint presentation. She gave a brief introduction about her professional background and experience with DEIS. She reviewed the process for developing a transit project. The Federal Transit Administration (FTA), Metro and TriMet prepared the document in conjunction with their local partners. FTA was also a partner through the whole process and reviewed the DEIS consistently with her; they maintained contact on a weekly basis and she emphasized it was a partnership with the federal and local governments. The US Army Corps of Engineers, Federal Highway Administration, Federal and State agencies along with the Tribes also participated in the process providing input and review of the DEIS. She reviewed the DEIS, which consists of seven chapters plus appendices. She explained each chapter has its own specific purpose except for Chapter 3, which has many disciplines that it covers, broken into sections. She reviewed each of the DEIS chapters as outlined in her presentation. The Executive Summary was a concise version making it easier for everyone to read. Mr. Williams advised Council's schedule was tight in January but they might be able to fit a meeting in towards the end of the month, which would allow time to return again in February to follow up if necessary. Mayor Hoffman agreed, and asked for more details regarding the modeling that was used, he was unclear how they achieved the transit numbers. Ms. Snook advised she was not the modeling guru and apologized in advance if she said anything that was incorrect. She believed the modeling for both the traffic and transit was based on the regional travel demand model. They have one of the best demand models in the country; FTA points people to Metro, stating anyone who wants to learn how to do it correctly should contact Metro. They used the model to develop all of their transit and highway planning in their region. It started with a 2005 base, based on the 1994 household survey; they project into the future based on the most recent financially constrained regional transportation plan. Councilor Olson referred to page 2-32 and 2-33; a discussion about operations and maintenance costs that shows the operating costs of the streetcar itself is actually greater than the enhanced bus and the lower operating cost figure made available to the public, is a net of the higher $3.78 million per year to operate the streetcar. This is $1 million more a year than enhanced bus in true operating cost; however the figure being used is $1.25 million and the DEIS states that it was achieved by "reflecting a reduction in the bus operating cost in the corridor of $2.53 million". She asked if there was greater detail available about operating costs than what was contained in those two pages and what makes up those costs? Council was yet to get an answer on who would be operating the streetcar. Ms. Snook replied the reported net operations and maintenance cost was the sum the region had to pay on an annual basis, whether it was TriMet or Portland Streetcar Inc. Councilor Olson believed whosoever operated the streetcar should pay that cost. Doug Obletz clarified TriMet operated the streetcar and PSI was the contracting agency. Councilor Olson stated the streetcar operator would be determined in the next phase and suggested reflecting the true cost of operating costs in total dollars without the net. She inquired if a lobbyist had been hired to lobby at the State level. Mr. Williams replied no, but there were discussions with regional partners about developing a strategy for the State to use a contracted City Council Special Meeting Minutes Page 2 of 19 December 8, 2010 lobbyist. He added the legislature starts up soon and to be successful, one needs to prepare for that strategy going into the session. Councilor Olson clarified the City had not paid for any part of Dan Bates to lobby at the State level, but they planned to before selecting the streetcar as an alternative. Mr. Williams replied that was correct. Councilor Vizzini said in an earlier briefing they had discussed the review process, with each partner reaching a decision about their locally preferred option, but those decisions could come with conditions, and other recommendations. He asked for more detail; he believed as they moved towards a full discussion in January, it would be worthwhile keeping track of not only what they would like to see happen amongst these alternatives, but under what kinds of conditions. Mr. Obletz agreed. He believed the most important statement was that the LPA was primarily a decision about mode; selecting among no -build enhanced bus or streetcar. He believed it appropriate to have the City Council of Lake Oswego say, "Here is our recommendation for mode and here are the issues of concern that we want addressed during those future studies". A number of issues could be raised, whether physical, economic or related to how the facility is constructed. He gave the example of the Johns Landing area, they were hearing issues related to what will happen to the Willamette Shore Line if the recommendation in the City of Portland is to put streetcar in Macadam. It is a major concern; the neighborhood has voiced if streetcar is going to be in Macadam, then more attention should be paid to pedestrian facilities, specifically wider sidewalks on the eastside of Macadam and more crosswalks. Councilor Jordan offered that much had been made about the Park and Ride garage being a very large facility, creating traffic impasse at the terminus. She noted either one of those alternatives would have the large Park and Ride terminus. She understood there was a "high and a low" estimate for the streetcar caused by the confusion over backing out the right-of-way versus where it will be built off the right-of-way. She inquired if there was a specific place that showed how much. If one comes off the right of way Mr. Obletz replied that information was not contained in the document, but it was a question they received increasingly. His responsibility was to come back to the Council and other agencies with more specificity on that issue. There were literally 49 permutations dependent on which design option is selected. He believed as they moved into the LPA process, it would be one of the things they would see emerge through the public comment period. He believed they could begin to narrow the options in terms of a description and portraying the project cost; Council would see that in the next 60 days approximately. Councilor Elect Gudman stated the document speaks to a funding of 60/40 and speaks to a variety of officials. A portion of this document, the Portland Streetcar Report adopted by the Portland City Council last year, all point to 50/50 yet the presentations continue to go at 60/40. He believed since they had consistently heard about being fiscally prudent in this project, it would be prudent to use the assumption of 50/50 for the local match rather than 60/40. Mr. Obletz believed there was a footnote as they presented the document in draft form to FTA, that the document reference is 60% funding. It was made clear that it was not cited, and that it would be 60% funding, in addition they asked for a couple of notations of the possibility of 50% funding. He believed part of their responsibility going forward would be to portray the differences, if 50% funding would be available instead of 60%. At this point there was no specific Federal policy, which pointed them away from 60% funding. He did not believe moving automatically to 50% was in the interest of the region, but a very strong effort would be made to seek 60% funding for this project through the Congressional Delegation. Ms. Snook added the FTA had funded up to 80% of a project, and Portland/Milwaukie had always received 60%. She emphasized it was not out of the norm to ask for 60%. She described in Chapter 5 on page 5-11, how the FTA had not committed the funding, but it did state that there could be a potential for a 50/50 match. City Council Special Meeting Minutes Page 3 of 19 December 8, 2010 Councilor -Elect Gudman referred to the Economic Development table on page 3.13; in the Lake Oswego section, it discussed potential development of 30 million sq. ft. compared to 5 million that is currently in existence, for a net unused and potential for development between now and the year 2035. The figure of 25 million sq. ft. of space translates into 17 Washington Squares in downtown Lake Oswego and that kind of additional space seemed to be mildly unbelievable. He understood how one could plug the numbers in and have a model that generates 25 million but did they really want to be presenting a document that says they would have 17 more Washington Squares in downtown Lake Oswego. Ms. Snook replied the numbers were based on existing zoning. Councilor -Elect Gudman replied that was incorrect, because it stated the zoning would have to be changed in footnote 6. Mayor Hoffman confirmed he was correct. Councilor Olson read the footnote, which said, "It assumes we rezone. "She commented it was not based on existing zoning. Ms. Snook was unable to answer that particular question at this time. However, she would investigate the matter and get back to him. Councilor Olson understood that this number meant that they would develop every block of downtown in the current Urban Renewal district to the maximum allowable square footage possible. Ms. Snook clarified it was not stating that it will be developed, but that it was a potential. She agreed with Councilor Olson that the potential is the absolute maximum square footage possible ever. Mayor Hoffman clarified that the team would get back to the Council on the 17 Washington Squares and assumed it would be the second or third week in January depending on the team and Council's schedule. 3.2 Continuation of Water Cost of Service Analysis Joel Komarek, Executive Director the Lake Oswego/Tigard Water Partnership, introduced Ms. Sanchez Virnoche, Principal, and Mr. Sergey Tarasov, Project Construction Director, from FCS Group, who was hired to prepare this analysis. Joel Komarek apologized that the Council had not received the PowerPoint presentation. He discussed the overview of Cost of Service (COS). As requested the Summary Revenue and Expenses tables were included in the Council's packet. It was not necessary to review all the Key Assumptions and current Rate Models because Council had seen that slide at the last meeting. In regard to the Sensitivity Impacts, that information was included in a narrative form in the Council report. He discussed what would happen if they changed the assumptions regarding labor and the inflation rate of labor costs. The message was, of all their assumptions the one most sensitive was the change in the debt interest cost assumption. If it were reduced or increased by a full percentage point it would cause rates to increase or decrease by just over 5%. Of all the assumptions they had made in the rate model, the debt interest cost assumption is the most sensitive to changes. He revisited the Tiered Rate Structure, when they adopted the current tiered structure back in December 2008, there were a number of policy objectives that structure was intended to achieve. It was designed to move the City in the direction of being a steward of its precious water resources and to communicate the importance of those resources to the community. Ms. Virnoche gave a presentation in reference to the new tier rate methodology, what it was trying to accomplish today and how it had changed from the last study completed in 2007. She reviewed the various slides via PowerPoint giving a detailed breakdown of the monthly fixed charges. She outlined weather and other programs and devices were factors that can change the measurement of the shifts they had seen. She made reference to the bar graph; the first grouping showed January through to October is the largest revenue producing months. They wanted to demonstrate in terms of that particular case not only is it more total rainfall during that period, but for those revenue producing months there is much more rainfall in terms of what had been seen previously. They focused on the period of 2007 because those were the statistics that was used to develop the Tiered Grade Structure originally. Councilor H nnagin did not believe this had been a steady increase year by year, but varied for various years. City Council Special Meeting Minutes Page 4 of 19 December 8, 2010 Mr. Komarek explained when they previously reported revenues were down about $200,000 they discussed that the causes for that shortfall could be due to conservation, part of the economy or weather. Typically what they had seen was consistent throughout the region. With these kinds of weather patterns one can expect water revenues to be down because consumption is down. The intent of that slide was to communicate that. He believed the other slides might help everyone to understand that much was due to weather and conservation. Ms. Virnoche pointed out in terms of Slide 8 showing the average single-family usage comparison from 2007 to 2010, the slide showed winter, summer and annual averages. Those particular units were in 100 cubic feet and demonstrated across the board where they were definitely down. She reiterated they could not say all of this was due to the tiered rate structure or the weather, since they only had one set of data points. However, as they move on they would begin to accumulate more data points. She commented with the limited data, she noticed a definite drop, which she believed had something to do with the number of things being done as a City. Mr. Komarek explained the winter consumption changes were half a percent down. When they talked about problematic effects of conservation, that was the typical winter water use. They were not irrigating and individuals were taking advantage of the City's rebates in toilets and low flow showerheads. He indicated that 8% could not be attributed entirely to that, but believed some portion was due to conservation. Commissioner Tierney asked if the rate structure established, factored in the decrease in the water usage for tiers and if so at what percentage. Ms. Virnoche replied it was actually a decrease of 10% and it was only in Block Three. They anticipated there might be a 10% reduction for consumption. Commissioner Tierney asked if the rate itself has much more of a material impact than the 10%. Ms. Virnoche replied it was a higher per unit cost as depicted in the table. She further clarified they had calculated that there would be a 10% reduction only in the third tier. She clarified for Councilor Olson that it was factored into the rates and the revenue was down because they did not anticipate having a very wet year. Councilor Olson noted the use was down at 7.5% in Block 3. Mr. Tarasav explained when he compared the total usage from 2007, 2008 and 2009 he did not have exact statistics, especially with the new tier structure for those years, because the tier structure had only been in effect for a short period of time. In 2009 for single-family residential customers, the consumption decreased by about 10%. What they budgeted for based on 2007 numbers was about 1.5 million ccf in the 2008 time frame. Combining all the bars in the grey area, and growths of 0.5% or so it would be at about 1.5 million ccf. He assumed a total reduction of about 10% dropping them to around 1.35 ccf and in terms of the total 2009 consumption, which was approximately the level the single-family class consumed. They did not anticipate additional reduction strictly from the weather. In addition to that 10%, weather reduced their total consumption and if one added those up it would be about 1.26 million ccf. Councilor Olson asked if the 2009 reduction was all in Tier 3. Mr. Tarasav did not have the specific statistics for overall reduction clearly set out to perform the same analysis he performed for the data here, but would go back and check. Councilor Olson was trying to track the assumptions in the original tiered rate structure that was adopted. She clarified he was actually saying it assumed a 10% reduction in Tier Three, which they had in 2009. She asked if it was down 7.52% in 2010, was that just the difference between the data in 2007 and 2010 and if the 10% assumed was per year forever. He clarified the 10% reduction was assumed when the initials changed from rate structure going from an 88 cent flat structure to a three tier structure, so as an initial transition the 10% was assumed in that year. It would drop initially because of the tier rates and then flatten out for the two or three-year period. Mr. Komarek explained to Councilor Olson they basically had one data point. The new rate tiered structure was approved by Council in December 2008 and actually went into effect July 1, 2009. It was staggered in 2009 because they billed monthly; part of that bill would be pro -rated back to the original pre -tier structure rate and the other half going forward. City Council Special Meeting Minutes Page 5 of 19 December 8, 2010 Councilor Vizzini stated there were two different factors, and it was dangerous to confuse the two. First, there is total usage and it sounded like they did a comparison of two points in time or two years. The second factor is the amount of revenue received from that usage. That was where the tier and the analysis of which tier is producing that usage comes into play, because it is the usage times the rate in the tier that generates the revenue. The problem is the tiers were only in effect for a limited period of time, so going back to 2007 is not a possibility because there is a single rate in 2007 and a tiered rate in 2010. He emphasized they had to be careful because there were two different kinds of numbers being thrown around. He was concerned they were not making this decision; he believed they should not be even looking at the numbers in discreet years. The rate structure should be smooth over time so that it takes out the effect, or minimizes the jumping up and down of revenue that occurs because of climate variability and changes in usage. He believed they should anticipate that there would be a conservation affect that will occur over time, which will reduce total demand over time because price signals will drive that. Councilor Tierney addressed Councilor Vizzini stating his concern was the shortfall of $200,000 and the proposal to increase the rate to drive the additional $200,000. In view of the vagaries of the weather he questioned did they need to move a rate structure based on that variable? Councilor Olson agreed with Councilor Tierney she queried, if the rates were structured originally to account for a drop in consumption because of conservation, and the rates accounted for that, then why were they short? She reminded there was some concern that when they went to tiered water rates, they would end up not having enough revenue to cover their costs and the rates would be increased further because of conservation. Councilor Tierney understood there were three options, the weather, conservation and the other new connections. Mr. Komarek explained he was unable to obtain that information earlier in the week from the building or finance department, it was primarily to discuss SDC revenues but also the numbers of new connections. He expressed there are a host of things that can influence how people use water and electricity in their homes. It could possibly be conservation, weather but also the current economic period as people were making conscious choices to reduce water usage. He cautioned it was important not to get too bogged down into what they were seeing in one or two years, because that could not be used for reasonable forecasting. They were trying to do the best they could, and had always communicated that it is a long-term deal since they were trying to achieve long-term savings. Right now with only a couple of data points they could not draw any conclusions from it. He expressed it was hard for Staff to say specifically what it was; they were just not there yet. Mayor Hoffman received further clarification that the $200,000 shortfall was approximately 3.3%. Ms. Virnoche explained that the budget amount was about $6.2 million and they were projecting approximately $6.04 million. Mayor Hoffman stated if they could say that this was an anomaly, they were then really not short, and since next year will be a dry year why did they have to adjust the rates? Mr. Komarek explained it was necessary to adjust rates for the operating and capital costs. If they decided to continue historic practice and implement rates in July 1, then they would need to be 27.1 % based upon the rate model. If the Council chose to implement in March, they could maintain the rate structure that had been communicated to the public into the Council, the 25.5%, which is sufficient to fund their share of the partnership project and operating costs and all of that. He advised that was one decision that they needed some direction on tonight. Mr. Komarek explained they were trying to attempt to answer the question about the drop in revenue. He reiterated that right now it was a projection through the end of the fiscal year. It may turn out that in June they are only $50,000 short. Mayor Hoffman noted it seemed as if they had been distracted over the real issue. Councilor Hennagin noted they were talking about a shortfall in revenue from residential use. Mr. Komarek replied it was revenue to the utility, all customer classes. Councilor Hennagin responded that they were not seeing what the commercial use was and whether they were down. Ms. Virnoche explained they had the data but the one issue they had was the caution comparing data from the previous data point to this data point, because the process to go through the raw City Council Special Meeting Minutes Page 6 of 19 December 8, 2010 data to organize it into classes was not as clean as previously explained. The data appeared to be much better and more consistent this time around. Councilor Hennagin asked if commercial use was down in 2010 as compared to 2007. Mr. Tarasav explained he could tell it was down, but the question then becomes how accurate was the data in 2007. Councilor Olson replied they received notification in their Master Fees and Charges packet that there was an error in the commercial rates, which she believed had created the $50,000 shortage. She asked if that $50,000 error was part of the $200,000. Mr. Tarasav advised that was wastewater. Councilor Olson acknowledged Mayor Hoffman's comment that if this is an anomaly and at the end of the year it is not $200,000 but $50,000 why did they raise rates earlier in March and do they need to raise the rates? Ms. Virnoche stated she believed it all probably came down to a choice in terms of the risk level and how comfortable the Council felt in terms of that decision. Staff was trying to present something that will make the City financially whole. Councilor Vizzini indicated it was a combination of the tolerance to risk and the methods that are set in place to manage it. He gave the example of having a stabilization fund that takes a portion of the revenue stream and banks to create smoothing over time, almost like an insurance fund to deal with a bad or good weather year. In a good weather year one might feed money into the reserve for ratepayers. In his 15-20 years of experience, it is the stability and predictability of rates over time that is really important particularly to businesses but also homeowners. He believed it unrealistic to think that 18 months before the end of a fiscal year, one can take a guess. If one can get within 3% of a guess on revenue like this one, is doing very well. That was why he was not so concerned about the shortfall, he believed it important to have the system feed back information about what is occurring, but it was more important to have management strategies in place to deal with the outside risk. Councilor Olson reiterated Angie's point about commercial space; they had experienced more vacancies than normal and if that is driving part of the $200,000, then maybe they needed to closely monitor it, because that could be an ongoing problem. She agreed wholeheartedly with Councilor Vizzini. Councilor Jordan expressed the need to be sensitive to a lot of different factors that could play into how much revenue water can be expected to bring in. Then factor that into the rate structure so there is the predictability that they have a revenue stream that is going to be able to take care of those years regardless of weather conditions. She did not want the Council to keep going back and forth changing rates each year in an attempt to predict the future weather. Councilor Olson stated she would prefer not to change the timing of the rate increases to March also. Councilor Jordan replied it had to do with the bond they were going out for; they had to have a certain amount of revenue stream in order to show they can cover the cost on the water project. If they wanted to go with the lower rate increase it would have to start in March, if they were willing to go to a higher rate increase they could start in July, and that was the whole point of this discussion. Councilor Tierney declared the differences in these rate increases were 25.5% to 27.1 % and the bottom line was they were looking at a large rate increase plus a little rate increase. Councilor Vizzini noted that in terms of stability, he acknowledged they had missed that opportunity two decades ago. Mayor Hoffman stated in order to move forward there were some decision points they had to make with recommendations and direction. One of the advantages of March is that one would not get people twice, because July is a high watering month and if the rate is implemented in March, at least the impact is not that great to individual household, it was another option. He made reference to the earlier discussion of going from 25% to 27%, which equates to 50 cents extra per month. Councilor Olson noted that was based on the list of assumptions that Mr. Komarek provided and she suggested tweaking those assumptions. City Council Special Meeting Minutes Page 7 of 19 December 8, 2010 Mr. Komarek advised there were a few more slides that needed to be reviewed Ms. Virnoche was aware some detail was provided on the annual actual dollar figures in the Council report and this was the same graph the Council had seen during the last period. They wanted to address any questions on the detailed numbers that were provided in the Council report. Councilor Tierney asked for clarification on the non -rate revenue decrease from 2011 to 2012 on the detailed sheet. Mr. Tarasav replied the reason for the decrease from 432,000 to 253,000 was because they were using approximately $4 million from their current reserves to start paying for the LO -Tigard capital projects. They movement of funds was outlined on the funding second sheet; they were moving from the $8 million operating beginning balance. Councilor Tierney clarified it was the interest. He believed it would have been non Lake Oswego revenue and where they were selling wholesale water. He asked if there was an opportunity to increase the wholesale water either on a rate basis or on a quantity basis. Mr. Komarek asked if there are new markets for wholesale water right now and what was being done for their current wholesale customers? He could not quote the exact percentage of their wholesale consumption but noted the biggest consumer right now is Lake Grove Water District and the City of Tigard. The rest of the wholesale customers operating within the service boundary that they periodically supply water to is miniscule. They had requested FCS Group to conduct a cost and service analysis on the wholesale customers. The work was completed, but he believed based upon the cost to serve those customers, the rates would increase. The idea was to bring those in line with the rate increases that the retail customers were seeing. Increasing rates to reflect the cost to serve based upon historic consumption patterns would have generated another $200,000 in revenue. With respect to new markets for wholesale water consumption, they had not explored reaching out to other communities. He asked if there was interest in buying into either their expanded water supply system, or purchasing more water now. Councilor Tierney believed there was a challenge in buying more today because their demand would be in the summer. He asked if the theory behind pricing to the wholesale was a cost of service or a cost of service plus a benefit to the providers, at what percentage was the benefit? Mr. Komarek explained there was a component in how they would structure a wholesale rate that recovers the rate of return. Typically, that was set to be equivalent to the current interest cost on debt. He agreed it was low right now but that was the typical rate setting methodology for wholesale customers who do not share the risk and ownership of the system, but benefit from the product. He noted they were not compensating for any risk and believed that was an opportunity. Mr. Komarek agreed that needed to be addressed. He apologized that he had not been able to present it to Council earlier. Mayor Hoffman commented he had not received a request to include it on the agenda but acknowledged they should arrange to address this matter. Mr. McIntyre stated he had been pressing Mr. Komarek about this question because he believed if resident ratepayers are paying for the service upgrade and the enhancement of the water quality; it seemed non -ratepayers should perhaps be paying a premium for the service. He emphasized they needed to be careful they were not the only ones in the market. Councilor Tierney commented they were in some part their citizens. Mr. McIntyre agreed with the citizen's part, however, his point was they do have other markets. They were not the only one in the neighborhood providing water, and Portland would happily serve them as well albeit more expensively. Councilor Jordan inquired if they should have similar increases for commercial water purchase? Mr. Komarek believed this rate model did not reflect any increases in the current wholesale across the water, those increases would be brought to the Council as a matter of amendment to the existing agreement they had with those customers. Mr. Komarek clarified for Councilor Olson that the rate increases to the wholesalers would generate approximately $200,000, due to inter -governmental agreements with each one of the wholesale customers. For instance, Glenmorrie Water District operates within the urban service boundaries, Skylands, Lake Grove, River Grove; they had an agreement with each one that allows them to operate within the City boundaries and serve water to not only their customers, but in some cases to Lake Oswego's customers. Those agreements include provisions for increasing City Council Special Meeting Minutes Page 8 of 19 December 8, 2010 rates; they vary and some require a 60 -day advance notice. If the rates are to be increased, they will go into effect in 60 days, in other cases it takes immediate effect. Councilor OI on asked if that could help make up the $200,000 shortage. Mr. Komarek replied not this year but this piece of work needed to get before Council, he believed there was no good reason why they should be assessing their own customers the cost to serve and not doing likewise with the wholesale customers. This was linked to the implementation date and if they wanted to maintain the current proposed rate schedule of 25.5% increases here in the next two years, they would need to implement these new rate increases in March. Alternatively, they could wait and hope to recover the $200,000 shortfall. Should they decide to implement July 1, the rate model suggests that those rates would need to increase a couple of percents and as Mayor Hoffman pointed out, it would add approximately 54 cents. Prior slides illustrated that in order to cover the capital and operating costs going forward it required increasing revenues coming into the utility by either 25.5% or 27.1 %. Achieving that was another subject of rate setting and rate design. In this case it was where customer statistics came into play; who were using the water within each customer class, how much were they using and when. FCS Group had taken the customer statistics provided by the City and analyzed them to try to develop some rate design options that would, (1) achieve the objectives of assuring adequate revenue streams coming in for operating capital expenses; (2) assign the costs to serve to appropriate customer categories; and (3) achieve the objectives again of valuing the water appropriately. Ms. Virnoche reviewed the slides in terms of the three single -families options single -families (SF1), S172 and SF3 as outlined in the PowerPoint presentation. During internal discussions with Staff they determined the most optimal solution for this particular case might be SF3. Council had not received the relevant packet but the details were included in the back of the other two options. She reviewed the table and described the various fixed charges for Block One, Block Two and Block Three. Mayor Hoffman asked to look at the previous slide. He then called a 10 -minute break to organize the relevant documentation at 8:30 p.m. The Council Meeting reconvened at 8:40 p.m. Councilor Jordan stated they had discussed their rates had been held too low for too long and had not grown the way they envisaged. She stated what was being proposed here were two different scenarios to ramp up to the bond, which takes big jumps the first couple of years, slightly smaller jumps the next couple of years, and then a sudden ramp down into the 4% and 3% increases annually. She asked why did they have to do the big ramp up, why could it not be a more gradual with 8/8/8 or something like that. Mr. Komarek stated he would answer that and then ask Mr. Tarasov to explain the 4% and 3% and whether or not that puts them in the same position they find themselves in today at some future date. The 25.5% is a function of cash flow and the timing of that cash flow to fund the debt service on the bonds they intend or would need to issue in the beginning of 2012/2013 and then 2014/2015. That was based upon the schedule for the partnership project, which they had to complete by July 1, 2016. A cash flow was generated for that schedule, which was given to FCS and that generated the timing of these rate increases. To his knowledge, once the LO -Tigard Project was completed, they still have the rest of the system to be maintained, replaced, renewed and operated. Councilor Ti rn y stated the 2013/2014 on the schedule has zero, which was interesting because that was the year that the new debt service would come in for the next $3 million. He was still confused as to why they would need to ramp up in 2010, 2011 and 2012 to produce the $3 million, he asked if there a less painful way to achieve that. Ms. Virnoch replied they had already assumed interest only, to try to help out as much as possible. They were not only assuming full interest in principle; as the City begins to incur this new City Council Special Meeting Minutes Page 9 of 19 December 8, 2010 debt the City would pay for three years interest only, and then start to ramp up to give the City time to get to their goal. However, as indicated on the bar graph, initially in 2012/2013 just the interest is about $3 million. One would have the 60% increase or 40% for the fiscal year. Councilor Tierney asked if they decided to have 63% over three years, why not spread it more evenly as opposed to having the third year drop down. Mr. Tarasav answered part of the confusion was strictly due to the visual and presentation, the 25.5% was 25.5% related to 2011/2012, the increase goes into effect the prior fiscal year, but is actually related to the following fiscal year. He indicated if they had done an increase in that year as well, they would have had two increases four months apart. To drop the increases down to 25.5%, they would need at least three years worth of March. If one did foresee additional large capital for the other system or any repair, this would definitely have to be taken into consideration, but for the time period they were looking at only the majority large capital expenditures were coming from the LO-Tigard project. Councilor Hennagin mentioned that the longer-range weather forecast he had seen indicated they were going to have above average rainfall throughout winter and into the spring. He acknowledged they could not predict the future either and did not want them to count on making up much of that $200,000. Councilor Olson believed that 3% on the $6 million was more than within their range. She understood they had 100 plus City accounts that represented around 15% of their water usage. She emphasized she did not know if the numbers were correct but asked if the City usage was down. She recalled the City itself was doing conservation with the toilets and goal post stuff plus trying to irrigate better with the parks and contracts. Mr. Komarek confirmed they were being tracked and Kevin McCaleb, Conservation Coordinator, had reported the statistics to Council. They were seeing the positive effect of that and as expected, the consumption was down for the facilities where those new fixtures were installed. Unfortunately they did not have that information available for the Council tonight but they would certainly ask Public works or Mr. McCaleb to present an update to the Council on how the City facilities were doing in terms of conservation. Councilor Olson clarified with Mr. Komarek that one would expect some portion of it to be part of the shortfall from their accounts. Mr. Tarasav stated overall 25% was related to the entire revenue requirement in all the classes. Mr. Komarek explained some would be appendix information. The PowerPoint presentation indicated the Staff recommendation for the rate design for first single - family residential class of customers. Ms. Virnoche explained how that would change the current fixed and variable charges. She also reviewed the table showing the impact to a typical single -family ratepayer, depending on their usage per month. If one is using a typical 10 units per month, one will see a $7.24 change in their bill. Ms. Virnoche explained there were two rate options for multi-family customers: the first one being an across the board increase and the additional option being the three percent fixed remaining on the variable charge. She emphasized this was not at the tiered rate structure, only the single families had the tier rate structure. Essentially they were looking at the fixed charges and the variable charge; there were technically only two components to work with in terms of generating the additional revenue needs. The across the board increase will increase everything equally to each component. Staff's recommendation was more option 1 versus the option 2; they were incurring more debt, more fixed cost. The 3% did not represent the secure revenue stability they would have if they increased that fixed component higher. Councilor Tierney asked if the fixed costs were the same today, why not try to stay there. Ms. Virnoche explained today's fixed costs are approximately 72% of the total. Councilor Tierney clarified that today the multi-family rate is $13.88 and the single family is $13.88. He was curious as to why there was no recommendation to increase that to the MF3, which was Staff's recommendation for the single family. He believed there must have been some logic behind keeping the fixed cost for meter, the same between multi- family and single family. City Council Special Meeting Minutes Page 10 of 19 December 8, 2010 Ms. Virnoche agreed that was a recommendation they could be looking at, she believed for the single -family they were definitely per account, they were not linking it to any type of meter. On the multi-family, one would have the meter sized then pay a certain amount and have a per unit cost. They were a little different in terms of how they were assessed by customer class, because after the initial meter charge each unit of a multi-family is actually charged a rate. They discussed the across the board increase would then go from $13.88 to $17.42 for the fixed meter charge, and then the $12.52 for the unit increases to the $15.71. Additionally, the variable charges at $1.53 to $1.92 in the 2011 rate; each of these would be just an across the board increase. Councilor Olson asked for clarification on the monthly extra unit fixed. Mr. Tarasav explained if the multi-family account had more than one unit, each additional unit would be charged an extra unit charge. Ms. Virnoche clarified for Councilor Hennagin the variable was for all water usage consistently. Ms. Virnoche asserted the non-residential rate was more similar for a multi-family. They had the across the board increase, which Staff recommended as well as the 3% fixed. The various similar reasons for the first option, increasing that fixed charge component to align more with how they would begin incurring costs in the future with that higher debt. She explained $13.88 goes to the $17.42, so those two numbers within a multi family and a commercial are actually the same for the fixed charge. Ms. Virnoche explained for Councilor Hennagin that it would apply to an office building is there were certain anomalies in the non-residential class that would account for the extra units, like a recreational facility or a homeowners association. It is not a common thing to have a unit charge on the non-residential it is more common to have it on the multi-family. However it did apply to some very few commercial accounts because of the nature of their business. Councilor Hennagin commented if it is an office building and this non-residential rate applies to them, they would move their variable up the same as they are moving multi-family. Ms. Virnoche explained the irrigation rates likely occur in Block Two and Block Three and they wanted to align the irrigation type of use to those particular blocks. That is why it was an average of the Block Two and Three rates. It would show the same exact rate options as a single -family rate, they are strictly tiered aligning with the Block Two and Three rates. Councilor Vizzini asked if these property owners were separately metered. Councilor Tierney noted portable water cost the same to produce no matter what the end use. He asked if irrigation was the same as what the single -family would pay for that first CCF. Ms. Virnoche replied irrigation was probably a little more because it was an average of Block Two and Block Three. Mr. Komarek agreed that it should be more because there was a higher impact on the system. Councilor Vizzini expressed they were trying to depress demand. Mr. Komarek clarified the PowerPoint table represented the staff recommendation for irrigation. 15% applied to the fixed charge and the remainder in the variables. He asked to go back and look at the current 265 per CCF moving up to $3.39, and then $4.32. Councilor Jordan asked if applying more of the increase to the fixed rate actually accomplished the balance that had occurred with different water years and different vacancy rates. Mr. Komarek explained they were creating a more stable rate structure, similar to what they did for the lowest bond and the rate structure. Councilor Vizzini stated they actually had a rate design that does that and drives to a more sustainable feedback loop on use. Not only is the fixed portion of the bill increased but the high end use portion of the bill. In terms of thinking about this as an opportunity to build to drive sustainability behaviors, there is actually a rate structure. He expressed if this was mostly balanced on fixed, he would have problems with it. The fact that the variable rate on the high end increased not only the first tier but for all of them, is appropriate. The two high tiers going up will be a feedback providing price signal. Mr. Komarek summarized the options. Staff and the technical team examine and do a hybrid of the two. Did not apply all the fixed or all the variables but tried to find a sweet spot in the middle that provided some revenue stability but also continues to send that price signal about the City Council Special Meeting Minutes Page 11 of 19 December 8, 2010 resource. Councilor Vizzini declared this provided an opportunity for a property owner to manage their bill, which is very important, particularly if on a fixed income, that fully loaded fixed charge would be detrimental, but if one manages the use to manage the code bill one has achieved something. Mr. Komarek concluded the presentation with the following comments: the slide still required some direction from Council on the three items shown. The basic message is if they want to adjust their assumption about debt interest cost that has the biggest effect on rates, he recommends caution because he would hate to find years from now when going to the bond market, that they assumed a debt interest cost that was too low and find out that they either get a bond rating on the new water bonds or find out they have to do another substantial rate increase. A considerable amount of time had been spent with their bond financial advisors finding what they thought, was a reasonable assumption for a debt interest cost and that was what they assumed in the model. Councilor Vizzini commented, as raised by Councilor Jordan and Councilor Tierney, the other strategy is to mix the bond type, use GO, a full faith and credit bonds, that reduces the debt reserve requirement. He assumed the Debt Reserve Requirement is actually what is driving a lot of the frontend rate increases since they were trying to get revenue into the system to back the bond. Mr. Komarek understood that staff was trying to position themselves so that when they go to the bond market, the rating agency would see they have a favorable revenue stream for that debt service. It was determined staff would not need to do so much of it, if shooting for a bond structure revenue and GO backed. This would be one way to reduce the rate increases a little, but there might still be some rates moderation or increases in the near term. Councilor Vizzini explained that strategy was used for the lowest bonds. Council authorized a full faith and credit obligation for both bond issues, which bought about 30 to 50 bases points in terms of reduced interest cost. It also avoided having that debt reserve, as the financial advisors explained, if they put that in the reserve it is cash that has to sit there and earn maybe 0.5% in the LGIP while paying 3.5% on if so it is a losing situation. That was an option he had presented in the Council report that they would want to consider in the future. Councilor Vizzini offered that he went back through the Master Rate Schedule as far back as possible to 1993 for water, sanitary and surface water. The rate increase from 1993 to 2000 was at an average annual rate of 7.5% for water. From 2000 to 2010, it was a 2.24% average annual rate, so if the rate increases remain around 7% or 6% or 5% they would be in a very different situation than they are now. He commented would it have been acceptable for Council to essentially skim revenue out of the population and reserve it for this day during the boom of the 1990s. Mayor Hoffman reminded Council time was of the essence and asked for direction. Councilor Moncrieff stated the technical team and the staff had done an extremely thorough job and due diligence putting this report together and presenting the recommendations. She was comfortable supporting the financial assumptions as they were presented; it seemed like the best course of action. She was inclined to do the proposed rate increase in March or the lower usage months as opposed to July because she believed it was easier on ratepayers to receive an increase on a lower bill instead of one of the highest bills and would give users the opportunity to ease into the new rate structure. She concurred with all the Staff's recommended options on the rate designs. Councilor Hennagin explained he did not have the expertise or the knowledge to dispute what has been presented. Staff had conducted a very thorough job and without other information he was prepared to go with their recommendations. He agreed with Councilor Moncrieff that the rates should increase in January or March. Mayor Hoffman ascertained they were looking at page 11 of the PowerPoint, and clarified Councilors Moncrieff and Hennagin were also comfortable with the recommendation. Councilor Jordan stated she believed they should do the rate increases in March from now on. Removing that zero would take away the effect of making it look like Council were saving that year, City Council Special Meeting Minutes Page 12 of 19 December 8, 2010 when they were just shifting. She agreed they should always do the increase in March and just move that schedule ahead. Councilor Olson inquired if the utility bill increases along with sewer, storm water and street maintenance fees would also be in July? Mayor Hoffman clarified that Ms. Euler was saying the water bill would increase in March and the other utility bills would increase on July 1. Councilor Olson said she did not understand why fee increases, history and revenue could not be tracked with their fiscal year and their budget year. She asked Ms. Euler for her feedback as to whether this would create problems for her, and should they consider putting everything to July 1. She asked if we will be able to get good data in the future with the change of implementation date. Ursula Euler, Finance Director, responded that it was confusing for the customers, readers of the Master Fees and Charges Booklet because most charges go into effect January 1 to correspond with the calendar year. Until now, all the utilities would go into effect on July 1; now they were changing some to March 1. Some Council members including their City Manager had previously suggested they should maybe line up some of the stakes a little better and maybe that could be January 1 or July 1. She knew that some Directors like Kim Gilmer, had arguments for having fees because there had been discussions about all City fees going into effect on January 1, since it allows people to plan for seasonal tickets, parks and recreation programs as an example. She believed there definitely was a valid argument for being specific about dates. A March 1 implementation for Water Rates will create additional labor for them because their billing period spans two months, but believed staff would deal with those changes and dates accordingly. She had concerns about water rates changing every March for eternity. She supported the idea of going back to July 1 after the first few increases. She indicated this was perhaps a topic for discussion later next year when the time was available to talk about those stakes in general. Councilor Olson and Councilor Vizzini noted they both preferred July 1. Councilor Vizzini added he understood the argument about some of the program fees, however, these were major revenue streams and the ability to track them accurately fiscal year, to fiscal year made a lot of sense. Based on past experience he would not recommend the proration route, and preferred going to March for a briefly. He clarified for Mayor Hoffman he would be more comfortable with the upper chart on Page 11. Councilor Moncrieff stated she was fine with going for July if it made more sense in their billing cycle. Alex McIntyre, City Manager, reminded staff would be impacted no matter what the decision. On July 2, they received an incredible volume of phone calls after the bills went out. He argued that of staff's time was taken up dealing with complaints about the dramatic rate increase. He had a brief discussion with Ms. Euler about this, and recommended that staff do the pro -rating that would start on March 1. Being a slower ramp up, it would reduce the impact on all the other rates going up. He believed July 1 made more sense and although Staff welcomed telephone inquiries about bills. The calls would be greatly reduced, Ms. Euler clarified there were approximately 10,500 accounts and estimated that staff had received calls from 12% of those accounts. Ms. Euler understood that Councilor Olson was concerned about the difficulty in obtaining requested data and did not believe the change would make it even harder in terms of the data quality. Councilor Tierney suggested the difficult issue was the magnitude of the increase. He was comfortable with all the rate plans as presented and the recommendations. He reminded Council that come July, the sewer rate would be increasing to 17% so that would also create a second flood of calls. Councilor Olson noted she preferred July to implement the water increases because of the magnitude of the increase. She indicated if the idea to move to March is an attempt to make up for the lower than projected revenue, she would prefer not to do that and would rather absorb it. Councilor Jordan replied they were not absorbing it, because they were going to 27% if they go in July, so they are just making it up later. Councilor Olson did not support going to 27% in July. City Council Special Meeting Minutes Page 13 of 19 December 8, 2010 Mayor Hoffman explained due to time constraints, he needed to have the direction of a majority of the Council for the December 14 public hearing on the Master Fees and Charges. He asked for nods of heads in terms of March versus July or defer to staff as suggested by Councilor Tierney. He asked how many people were comfortable with Councilor Tierney's approach. Councilor Tierney reiterated the increase was 25.5% and it is either March, which gets more revenue or July. He expressed he did not want to move to July at 27.5%. If they move to July he proposes they remain at 25.5% and take the risk for $200,000. Councilor Vizzini was comfortable with the proposal. He believed the question was whether or not they stay on March or change, two fiscal years out. At that time they could make a tactical decision based on input from Staff, in the future Council could make a decision as to whether they want the 12.9% increase in FY12 and what would they want to do in FY13, stay on March or go back to July. He reiterated Councilor Tierney's point was probably the most pertinent point; limit the increase this year and next year at 25.5% and just defer the question as to whether they will stay in March or go to July for when it becomes an issue in this schedule. Ms. Virnoche cautioned she believed it extremely important to understand if one stays with the 25.5% and July versus March, the only issue that it may cause is that in the year 2013 when going up to the bond market, if one did not make up that revenue, one will be at a 1.19% debt service coverage and one needs a 1.25% debt service coverage, or that would force one to do full faith and credit. Councilor Vizzini explained adopting the table at the top of page 11, accomplishes the goal. If a future Council revisits this two fiscal years from now and wants to change it so the rate increases occur in July, one will advise them on what that rate increase needs to be to accommodate that. However, tonight they could adopt the top of page 11 and accomplish everything stated by Councilor Tierney and move on. Councilor Tierney noted they were going to have a public hearing and make a decision. If they prefer 25% or 27% in March, just wait to see what the public says and then make a decision. Mr. McIntyre stated they would then load the Master Fees and Charges Schedule, a full schedule of every other charge as well, and Staff would be asking for one vote to approve everything. He agreed they would have a public hearing on the entire Master Fees and Charges and obviously, Council is allowed to amend it. Councilor Tierney stated that equally important was the cost of service, what they charge others and the opportunity is to sell some water particularly if they have greater conservation. Those were real dollars and that could effect what they have to charge the existing customer base or new customers who move into the service area. Councilor Olson agreed to keep it at 25% in July and take the risk. Mr. McIntyre clarified Staff required to understand from Council the basis of the recommendation coming their way and determine if there was any protest against Staff's concept. He acknowledged they were all generally in agreement. Staff was very close and would come back probably with the recommendation as they see it tonight, and if the Council chose to amend that recommendation in a week that was certainly their prerogative to do so. Councilor Hennagin suggested that if one recommends March, then Council could make a decision. Mayor Hoffman clarified that Staff had enough direction. 3.3 Review of Master Fees and Charges Update Ursula Euler, Finance Director, advised she had received additional information not included in the packet. She briefly outlined the four items to be reviewed in terms of the non-residential waste water rates. She advised the Water SDC booklet, Council had received as an attachment did not have the most current information for SDC water utility and distributed a handout. The documentation reflected a water revenue requirement of 25.25°/x, which was a typo and should read 25.5%. At the time she wrote the memo, it had about a 14 -cent effect on some graphs in the booklet, Kim Gilmer consulted on tennis fees with the advisory committee for the Tennis Enterprise Fund; they would like to set aside $2 of certain charges for a future capital fund for an expansion or new tennis facility. City Council Special Meeting Minutes Page 14 of 19 December 8, 2010 Kim Gilmer, Parks and Recreation Director, elaborated on what the Parks and Recreation Advisory wanted to do. The tennis rates in the Master Fees Schedule is $18 per hour and they want to set aside $2 of every $18 charged for daily drop-in rates, seasonal play and one other event fee. They proposed setting that aside in a restricted account for future use for capital purposes for a new tennis facility. There was also a caveat that does not tie the hands of the Council so that if for some reason the fund cannot afford to do that this year; it is not required to do that. Councilor Olson questioned the report related to page 165, in the middle paragraph which starts "other', she read, "library fees were not changed neither were fees in several other areas such as municipal court, tennis, golf..." She recalled they had talked about raising tennis fees to help pay for the new tennis center and she was surprised the schedule showed no increase. Ms. Gilmer replied from her recollection that was the recommendation in the consultant's report, but at the time, they had the discussion they were charging $15 last year, which increased to $1 effective September. They typically raised rates in September of every year because that was when seasonal fees began and those seasonal fees remain consistent through the summer and then they charge again. Currently, they were actually paying $16 and that would increase in September to $18 and then the Parks & Recreation Board was recommending setting aside $2 out of that $18 from the capital fund, but not until September. Councilor Tierney stated if the City has an intention to build a new tennis facility, they needed to be consistent in what was contained in the consultant's recommendation as to current fees. He emphasized Council should not give the impression that they would be building the tennis facility based on this revenue stream and then temper the fees if it did not come together well. He believed the park and recreation's suggestion to basically restrict funds was a non-starter. If the number projected was $24, they were not aligned, as they should be and he did not understand how this worked. Mayor Hoffman expressed he did not understand why it is a non-starter if they restrict funds for the intended use. Councilor Tierney emphasized these are Tennis Enterprise Fund revenues; the biggest issue is if the City had the latitude to spend the money as they wished within the Tennis Fund. He was not interested in being encumbered to allocate that money for a tennis facility unless Council goes ahead and implements the program. Ms. Gilmer clarified the proposed sum to be set aside for this year was $18, it was not the figure proposed by the consultant's report, which stated the fees should be $24 when a new facility is built. Councilor Olson stated that was her recollection and the reason why she asked that question. She believed they were going to raise the fees stepwise in anticipation of building the tennis center. She reiterated her surprise to see there were no increases. Ms. Gilmer said that to further clarify, she explained the consultant's report recommended charging $24 per hour in a new tennis facility. It did not state that in the report, but when she had spoken to the consultant, it was identified that the existing facility does not have the amenities to justify charging $24 per hour, it lacks a viewing room, showers, bathrooms and those types of amenities. Last year, they went from $15 to $16 and this year they would go to $18 in September and then two years from now or the following year, they would go $20 to $22 per hour. When they met with the tennis group the goal was to be able to set a portion of that aside into a capital reserve. The way the Master Fee Schedule would read, would not restrict it so tightly that one could not use it for other purposes in tennis if needed. The rationale for that type of step increase was because the tennis community felt they would support raising and paying fees if they knew that a facility was going to be built and going up to $24 per hour right now would not be something that they could support; if they could see a design in place they would be willing to go up to a higher fee. Councilor Hennagin explained the memo misstates what is going on in tennis. Mr. McIntyre agreed that the memo was incorrect. The memo states there are no fee increases in tennis and the reality is, there is a $2 fee increase on September 1. Councilor Jordan recalled before they were City Council Special Meeting Minutes Page 15 of 19 December 8, 2010 going to build the new tennis center, Council wanted to make sure that $24 per hour was still going to work with their plan. She never heard back that $24 per hour was actually still good, because somebody was talking about the possibility of having to go to $26 or $28 in order to cover the cost to build the new tennis facility. She never received any further feedback beyond what was in the report, an expectation for an hourly rate that would pay off any building of any new tennis center. Ms. Gilmer indicated that Council had wanted additional reconfirmation of the operating plan and advised they were in the midst of preparing that and probably would not be able to bring that back until January. Councilor Jordan stated that leads to her other point, being if they were in fact going to be raising rates and still did not know the actual cost of a new tennis facility, how could Council start ramping up if they did not know where it was going. She assumed part of this raise was to cover costs of staff and everything else in the enterprise fund. If money is being set aside from it then the rate should be raised higher. Ms. Gilmer replied going from the current fee of $16, to $18, the $16 per hour covers costs plus some while the additional $2 per hour is additional funds and they are not necessary at this time to cover operating costs. Councilor Tierney noted Council was confused because Councilor Montcrieff verified there was no increase, the current charges are listed as $18 per hour. Ms. Gilmer clarified that staff came forward with a recommendation in the Master Fees last year to charge up to $18 per hour for court fees. Staff anticipated setting up a capital reserve in the future, which was one of the recommendations that came out of the tennis report. Councilor Hennagin stated whatever was being charged assuming it is $16, has been providing a surplus over and above the operation and maintenance cost and it was his recollection that the surplus was subsidizing the golf course or other Parks and Recreations programs. Ms. Gilmer explained surplus for tennis went into an ending balance in the tennis fund. There are transfers that were previous to this current fiscal year; additional transfers of $35,000 went into the General Fund to be used for General Fund purposes. Councilor Hennagin understood and clarified with Ms. Gilmer that the $16 was projected to sufficiently cover any increase on operation and maintenance costs this coming year. Mayor Hoffman requested putting this item to the side temporarily due to serious time constraints in order to discuss improvement SDCs versus reimbursement SDCs on two big new infrastructure projects. Ms. Euler presented the staff report and made reference to page 2, noting they had just discussed the costs of service to water and Council had verbalized their sentiment on that. She stated in terms of wastewater staff was asking for a correction in the non-residential waste water rates, non-residential being a terminology for commercial. This time last year, they actually looked at some information, but it was not the source documentation. At the consultant's presentation, they reviewed a slide for adoption of those rates and that slide did not bear the same information as the actual rates study. The rates study would have been the source document, the slide should have been an exact image of that, but was an error. She stated staff would like to correct that now as quickly as possible but then also pick up from there and implement the requested rate increase as of July 1, 2011. They reviewed a table that showed what should have been implemented as of July 1, 2010 and staff's proposal for July 1, 2011. She expressed her relief that the impacts were fairly small and resulted in undercharging the customers. Mayor Hoffman asked if someone with a two-inch meter would pay $50 July 1, 2010 and would it be increased to $90 in July 1, 2011? Ms. Euler clarified they should have paid $75 but had not, so as of July 1, 2011, they will be required to pay $92.50. Councilor Olson clarified that the City's accounts were included in the non residential. She asked if there was a specific reason why they were waiting until March 1, since the document stated that on March 1, they were going to go up to the intended rate. They discovered the error in September and she was wondering why the middle column could not be implemented sooner than March 1 to try and recoup more of that $50,000. City Council Special Meeting Minutes Page 16 of 19 December 8, 2010 Mr. McIntyre explained it was a logistics question because the Council would not approve this theoretically until next week and to the extent that they could not update all of the accounts. He asked if commercial was billed bi-monthly. Ms. Euler replied everything was billed bi-monthly so they were looking at a pro -ration again. She wanted to give herself a little time before then to check all that data. Mr. McIntyre stated if it was in the Council's interest to authorize staff to charge this immediately and then implement it as quickly and efficiently as possible, Staff could do so. He agreed with Councilor Olson that to the extent that they could begin to recover those losses as soon as possible. Councilor Olson expressed she would have been happier if Staff had brought this issue to Council's attention earlier upon discovery and requested a resolution sooner. Councilor Hennagin stated he just did a comparison between July 1, 2010 and July 1, 2011 from the first column to the third column and he thought it was an anomaly that in the 5/8 to 3/4 inch mains, there is a progression up from 5/8 to 3/4 of $8, and then $18.50 and $19.50, then it jumps to $42 for two inch and then jumps back to $29 for a 3 inch and $51 for four inch; it looked like the three inch is an anomaly in so far as the progression is not mathematically in order. He suggested perhaps it was a typo but it seemed strange that it went from $42 down to $29 and then back up to $51 and keeps increasing. Mayor Hoffman asked if they were in agreement with Councilor Olson in terms of fixing the problem as quickly as possible. He called for a vote and noted a vote of 6-1 that all were in agreement besides, Councilor Tierney. Councilor Tierney believed it was their mistake and their responsibility to absorb the problem. Councilor Jordan agreed with Mayor Hoffman that they needed to go forward and fix the problem. However she agreed with Councilor Tierney that they should move as soon as possible to the middle and then keep moving to the next option. Councilor Olson was concerned because that would mean the residential customers would be impacted. Ms. Euler reported that for previous plans in the storm water utility, a 7% increase had been adopted so the attached Master Fees and Charges Booklet reflected that increase. Councilor Olson made reference to the top of page 165, which refers to the adopted Clean Streams Plan and calls or the annual 7% increase. She asked how those increased funds would be utilized. Mr. McIntyre explained he had general details but would not be able to give a complete breakdown; the operational costs for storm water maintenance increases every year, the Clean Streams Plan talked about a couple of things. One being a more aggressive public outreach program and one of the hopes was tying some of the Clean Streams funds into the watershed, sensitive lands and public outreach concepts. Staff was stalling while waiting for Council to give direction on the sensitive lands question on communications and outreach. He thought there was a proposal to find a project manager in the Plan and staff had not yet hired that function, he pointed out there was not enough funds available to bring on a full new body, it would be a partial body. Staff was coordinating with the Engineering Division of Public Works through the CIP progress, which they were just beginning to figure out how much funds were actually available for capital improvements for storm water. Ms. Euler explained under Resolution 10-19, street maintenance fees were increased over a three-year period and staff had incorporated that according to the Plan. Councilor Tierney expressed that he had asked at one point to associate with tonight's meeting, the capacity of the City on how much they would be spending for the annual repair. He believed they had $1.25 million budgeted and if they were going to spend only a million, the revenue be reduced to reflect what they are going to spend in this current year. A part of that was the annual street maintenance line. It could be carried over for future years but his concern was this was not the first year. Every year they had under spent that and increased it with a great debate to 32% this year. Mayor Hoffman acknowledged that was a good point and asked if that could be addressed if they had two line items, one is the project that might be done that year and two is just the reserves for the big projects. Councilor Tierney replied it should be the reserves but it was listed in the budget as an annual. Assurances were given that if the money was allocated it would be spent but that City Council Special Meeting Minutes Page 17 of 19 December 8, 2010 has not been the case. He would like to see the sum reduced to reflect what is being spent. Councilor Moncrieff concurred. She believed that fee increase was going to be used to grant PCI level, which was primarily for major reconstruction. Mr. McIntyre reminded the will of the Council would certainly rule here, but the fact that they were or were not spending the funds in a particularly given year did not necessarily mean the needs do not still exist. As staff had presented to Council a complete program of deficiencies in the street condition, he was concerned that if they start lowering the amount of money as they borrow, it will only continue to set the City back further in the ability to catch up. He understood Councilor Tierney's questions about capacity but believed that was a slightly different conversation. He would argue that the Council considers the Engineer's recommendations if they are pooling funds for three years out, it might be smarter to save those funds rather than, three years out jump the rate to reflect the need at that time. Councilor Tierney replied they had a multi-year capital budget and should be able to fund that capital budget. He believed it appropriate to extract in essence, true fees of what they will be able to really produce this year. If that annual line is under spent for a third and fourth year and they start to keep building it up without the capacity, then it does not get spent and they do not improve the streets. Councilor Hennagin asked if it would require a supplement. Councilor Jordan believed that part of the discussion when they talked about raising the rates was to calculate this based on a different method. Councilor Tierney believed that Council had set it based upon improving a PCI, based upon the staff presentation and it was not being fulfilled and they did not need that money at this time. Councilor Jordan replied what they were doing was not necessarily the projects that will really increase the PCI; they were taking care of a lot of little things instead of addressing some of the major issues that will take them up at a higher level. Mayor Hoffman summarized if they could receive a Staff Report from Mr. McIntyre and staff between now and next week, that would be great, and this should be available for next week's conversation. Councilor Tierney responded he had actually requested it for this session in order for it to correlated with the discussion with the Master Fees. Ms. Euler referred to the additional handout she distributed earlier, which was a replacement for the page 47 in the Master Fees and Charges Booklet, page 215 in the packet. She noted it was Section 12, System Development charges and starts out with a table in blue entitled Water SDC. She clarified for Mayor Hoffman that the old table said "sanitary" at the bottom because that was what they had revised. Sanitary was moving to the next page, so the new page she distributed would replace the one paragraph of water SDC charges with two paragraphs. They would keep the sanitary part intact. Technically, it was not actually replacing that page but moving the sanitary piece to the next page. She reported from what she understood with the rates study in the water utility about a year and a half ago, the original one that created the plan for the LO -Tigard partnership also included a restructuring and an increase of SDC fees. The booklet attached to the Staff report for the November 30 did not reflect those new SDC rates. They were a rather steep increase and spread over three years; therefore, it showed some very hefty increases from the first table to the second table. She reviewed the various tables. The track changes will show all the changes and Council will see the changes from the original attachment. Councilor Olson asked why does it say, "...effective to 2011?" Ms. Euler explained those rates were actually adopted as of February 2, another date actually deviating the implementation date. Councilor Olson inquired if all the other rates increase on January 1, why not include this one. Ms. Euler replied City Attorney David Powell explained that was not possible because they were adopted as a rate structure and required a 60 -day notice. Mr. McIntyre assured staff would keep striving to align the implementation dates. City Council Special Meeting Minutes Page 18 of 19 December 8, 2010 Ms. Euler reported that Parks Director Kim Gilmer and Library Director Bill Baars believed most Library, Parks and Recreation services, and programs fees under the current economic circumstances should remain the same. They had not increased except for a few minor exceptions like tennis. Councilor Tierney referred to page 167 under public safety, residents that only look at the charge of the proposed fees and then at the public safety section will see a police contract of $791,000 in 2010 income. He stated the memo had not specifically addressed public safety; he asked for an explanation as to why that changed for the record. Ms. Euler explained that this was purely a presentation matter. She drew their attention to the previous years, under fire contracts the amounts hovered over $2 million. The fees were more accurate breaking police apart from fire. In this case, the revenue in total from fees and services for public safety had not increased by that revenue; it was not new revenue. She clarified for the Councilors these were 911 contracts for two other municipalities and they billed those on an annual basis. Mayor Hoffman concluded there were no further questions of staff. 11. ADJOURNMENT Mayor Hoffman adjourned the meeting at 9:54 p.m. Respectfully submitted, Jane McGarvin Deputy City Recorder APPROVED BY THE CITY COUNCIL: ON April 51 2011 William J. Tierney, Council resident City Council Special Meeting Minutes Page 19 of 19 December 8, 2010