HomeMy WebLinkAbout1979-02-15 Board of Public Works Minutes For information contact:
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1801 N. Front Street
® Harrisburg, Pa. 17102
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Washing Out Water
and Sewer Rate Structures
JOHN D. RUSSELL, P.E. The first step in this process is to and sewer systems should frequently
Executive Vice President, determine the total revenue require- pay- not only for city services pro-
Associated Utility Services,Inc., ments needed to meet operating vided. but also should make a pay.
Cherry Hill,New Jersey maintenance, replacement debt ser- ment in lieu of property taxes. Many
vice and other water and sewer sys- communities compute property taxes
'N THESE DAYS of continuing infla- tem obligations. Recent or current as if the utibty was investo,riwned(in
tion along with new Federal re- budget information is useful,but with Wisconsin,such a computation deter-
quirements. water and sewer rates continuing inflation and prospective mines a maximum contribution al-
need to be frequently updated.In the power, chemical or other cost in- lowed in the rates by the Public Ser.
1950's and early 1960's, increasing creases, it is more common now to vice Commission for municipal
water sales generally offset a large forecast ahead during the time the utilitiesl. This payment is intended to
share of the modest amount of infla- rates will be in effect. The forward compensate the municipality for the
tion so that water rate increases were looking test period will enable reve- use of the credit rating of the city in
required only about every four or five nues to more nearly equal costs,and issuing securities, for the use of
years.The last decade,however,has will provide for an orderly continua- streets and public rights of way, for
brought a dramatic shift in inflation lion of the construction program police and fire protection, and other
that has touched all parts of the without undue financial strain-. The intangible benefits. Putting payments
economy. Water system construction revenue requirements should also in- between the city and the water and
' costs have more than doubled.labor clude a fair and complete evaluation sewer department on a cash or com-
costs. including fringe benefits, have of all city services provided to the putational basis for services rendered
nearly doubled and are currently in- water and sewer department so that eliminates any claims that water cus-
creasing between 7 and 12 percent general taxpayers will not be subsidiz- lomers or taxpayers are being sub.
annually. Electric power costs have ing the utility customer. One of the sidized or penalized.
jumped dramatically in the past sev. results of the California Proposition 13 Costs of Services
eral years as a result of higher oil experience will be greater emphasis
prices and environmental controls, on cost accountability and payment Prior to the development of rates
and greatly increased cost of building for services rendered through fair for water and sewer service,a cost of
new power generating capacity.Fed- user charges. service study is prepared to allocate
eral guidelines under the Safe Drink- In determining the revenue re- cost to the various customer groups.
ing Water AM and Water Pollution quirements, an important considera- There are several allocation methods
Control Act have precipitated tion is the method of financing new available and guidelines for such
additional capital investment and in- construction and replacement of a studies contained in the manual pub-
creased annual operating expenses. worn-out plant. The cast of construc- fished by the American Water Works
All of these inflationary factors hit tion is normally financed through an- Association and the Federal
hard at the annual cost of owning and nual operating revenues,debt finane- guidelines for sewer cost studies are
operating a water and sewer system. ings, and customer connection fees. useful. The degree of refinement for.
Many municipalities and investor- Each city's situation is unique, but in the cost of service study will depend
owned utilities have applied rale in- general there should be an economic somewhat on the information and re-
creases on a uniform percentage balance for financing certain con- cords available for each water and
across-the-board.This method of rate struction projects through annual sewer utility.
adjustment is expeditious, but mayrevenues and fees,and major projects One of the imporant and controv-
also compound existing inequities. through debt.There is also a trend to ersial subjects occurring more fre.
Recent cost increases have had im. eliminating free water and free sewer quently is a rational allocation of cost
pact on customers in different ways so service by putting everything on a between customers inside and out-
that two things are now more com- pay-as-you-go basis. Thus, the city side the city limits. The problem of
mon: hall, municipal hospital and other setting municipal utility rates for cus-
♦ Rate increases annually or at municipal operations should pay for tomers outside the corporate limits is
about 18 months maximum interval, the use of water as a regular cus- an old one.Many such rotes were set
and timer. The city general fund should arbitrarily at 50 or 100 percent higher
e More frequent cost of service also pay for public fire protection ser. than city rates. Careful analysis of in-
studies to evaluate the impact of cost vice according to the results of a cost dwidual situations reveal that facts
increases on the rates. of service study. Conversely, water and circumstances may justify a small
4m•nMwaF M.m•nm Fe+IWIK Wbb,e.bnwn ,TY
or relatively high differential depend- service to such customers at the low- not only here to stay,but has become
ing upon how the suburban water sys. est possible cost with out the burden of the major national economic problem.
tem has been built and financed. undue administrative costs or without Water utilities, unlike some other
Where the municipal utility has ex- subsidy. These objectives can be ac- kinds of utilities and services, have
pended funds to build transmission cumplished by "unbundling" water not benefited materially from
lines. water reservoirs, pumping ata- rates into "customer charges" and technology. Thus, inflation hits har-
tionss and others,a relatively high dif- "water charges"which recognize that dest at the construction and operation
ferential may be justified. On the the water demands for customers of a typical water and sewage system.
other hand, where a large portion of with modest annual and generally Too often in the past, across-the.
the water system has been built uniform consumption are pro- board rate increases have magnified
through customer contribution, portionately lower than for customers the disparity between costs and revs
through customer financing of water with large lawns and heavy sprinkling nues for certain kinds of services. A
mains, the actual investment in the requirements. cost of service and rate study is the
suburban area per customer may be first step toward correcting such in-
smaller than for city residents. Seasonal Rates equities. Where substantial diRer-
Another factor influencing the cost of ences occur,it is obviously not practi-
providing water service in the sub Consideration of seasonal rates cal or possible to "close the gap" in
urbs is the larger suburban lot sizes whereby customers who use more one step. Two or three rate adjust-
and the lower density of customers water in the summer or peakload sea- menta may be required before the
per mile of main than for the city.The son in excess of their average winter costs and revenues are in line.
only universal rule that can be given is use are charged at a higher rate is Modern rate design can not only con.
that each case is different and re- another possible method of better dis- cider the cost of serving groups or cus.
quires careful analysis. tribution of water service costs.In the tourers, but can provide more equity
Issues relating to these matters are same manner, the development of in charges for individual customers.
coming more frequently before utility sewer service rates on the basis of av- At present,unfortunately,many resi.
commissions and courts. The erage winter consumption is a ra- dential customers with minimum use
availability of a cost of service study is tional approach to the problem of are,in fact,paying on an average cost
not only useful in case of controversy, levying a sewer charge on water that basis which, in reality, tends to sub-
but
ubbut may permit rates to be developed is used for lawn sprinkling and does sidize customers with large lawnsand
in such a way as to settle the issues not enter the sewer. The use of sea- substantial sprinkling consumption.
without going to litigation or hearings. sonal rates not only better distributes Better rate design can put individual
A cost of service study provides useful costs,but encourages conservation on customers on a payment plan which
information with respect to the cost of the part of residential, commercial, will more nearly match the cost of
serving the various customer groups and industrial customers. Conserva- serving each variety of customer.
such as residential, commercial, in- tion efforts which can defer an expan- Water rates which contain a minimum
dustrial and others, and additionally sion of the supply and treatment pro- with a substantial water allowance
provides important unit costs which gram will ultimately benefit all cus- forces some customers to pay for
are a helpful guideline in designing tourers by avoiding high cost con- water which is not used. Cost based
the rates. struction. rates will also encourage large cus.
The principal consideration in de- The rate study should also include a tomers to conserve water in such a
signing the rates is to charge on the review of public and private fire pro- manner as to economize their own
basis of cost. Many municipalities, tection charges,sales to wholesale or operations, delay expansion of the
citizens and regulatory agencies are large customers who may be served water and sewer system, and gener.
concerned with providing service at from the transmission or sub- ally benefit all customers. Since infla.
as low a cost as possible to the con- transmission system(and who should tion does not appear to be leaving,
sumers, particularly for senior Citi- not be burdened with the cost of dis- good management requires close sur-
zens,individuals on fixed incomes,or tribution fines) and fees for meter, veillance and periodic cost of service
so-called"life&ne"customers.Proper service connections and main exten- and rate adjustments for these im-
rate design can provide a reasonable sions. portant municipal utility ser-
basis of supplying water and sewer There is no question that inflation is vices. [1011
Budget Overview
Z Finance Committee' s Guideline = $2, 164,963
B.P.W.
Salaries dense
B.P.W. $ 803,077 $ 492,033
Snow and Ice 94,652 62, 325
Rubbish 32, 100 238,900
Equip. Repl . 80,000
Park Construction
Street Acceptance 17,903
Spec. (M.D.C. ) 180,665
$ 929,829 $ 793,258 97,903 180,665
Water 274. 120 613.420
$1 , 203,949 $1 ,406,678
$1 ,685,246
$2,889, 195
Debt and Interest 689,330
$3,578,525 Total B.P.W. (See P 1
of Bud. Request)
Less - Water (-) 887,540
$2,690,985
Income: (-) 583, 158
$2, 107,827 Vs $2, 164,963
(-) $57136
IL Water Surplus
Operation Sal . and Exp: $887,540
Income (-) 885. 180 a wash
2,360 No surplus
February 15, 1979
Meeting of the Board of Public Works convened in Room 16, Muni-
cipal Building at 7:30 P. M.
Present were Chairman Dustin, Secretary Price, Board Members
Russell , Cowell and Testa, Superintendent Louanis, Assistant Super-
intendent Bergeron and William Redford of the Engineering Division.
It was moved, seconded and voted that the minutes of the meet-
ing of February 8th be accepted as written.
The Board reviewed the Water and Sewer Rate Structure report
and proposed Water and Sewer Rate summaries as prepared by the
Engineering Division. The Board discussed the report and the Super-
intendent stated it was necessary for the Town to get itself in a
position with the Water ExpansionProgram so that the Town will have
the necessary information and data required when State Funds become
available and further the Board should look at the water rates
every year and raise them if needed in order to keep pace with the
inflation. Following further discussion, Mr. Russell moved that
effective April 1 , 1979 the water rate be set at $1 . 20 per hundred
cubic feet with a 10% discount for payment within 45 days. It was
seconded. Mr. Price requested the Board discuss the report on a com-
puter before taking the vote on Mr. Russell ' s motion. The Board
further reviewed data prepared by the Engineering Division (copies
attached) pertaining to the Water and Sewer Rate Structure and
computer. Mr. Testa questioned the wisdom of the flat rate structure
and asked the Superintendent if he had considered the possibility of
an escalating rate structure for those who were major users such as
commercial and industrial customers. He was concerned the flat rate
structure would impact citizens on fixed incomes and was looking for
a way to ease their burden. The Superintendent pointed out that the
rate change voted in 1976 had established the flat rate structure
and eliminated the previous adv ntage to large users by making all
customers pay the same rate for all water used. This has already re-
sulted in a reduction of water used by some of the major users and
has brought about a decrease in estimated income. The Superintendent
also pointed out the information necessary to develop a graduated
' rate structure was not available at this time and that if this rate
structure was voted the Department would have a year in which to
evaluate it and look at alternative rate structures.
Mr. Price requested the Chairman move the question. It was voted
5-0 in favor. The Board recommended the budget include $16,200
for the recommended computer equally shared by the Water and Sewer ,
Departments. Mr. Cowell stated he would like to see a firmed-up
proposal with the Tax Collector ' s Office on the issue of the com-
puter assuring the Finance Committee that the computer would serve
both offices and that a letter be forthcoming from the Tax Collector
stating the computer would be a joint venture between the Tax
Collector and the Department of Public Works regarding the mainten-
ance of records for water and sewer billing.
It was moved, seconded and voted 5-0 to reconsider Sheet #25
of the Budget - Sewer Maintenance Account No. 4600. It was moved
that the bottom line figure of $121 ,719 as approved previously be
changed to $129,819 due to the fact that the Board is adding $8, 100
for the sewer billing machine. It was seconded and voted 5-0 in
favor.
It was moved to change the rates for the sewer use charge to
.60 per 100 cubic feet of water used with a ten percent discount
if paid within 45 days of the date of the billing effective April ,
1 , 1979. It was seconded and voted 5-0 in favor.
Mr. Russell moved the budget for the Water Department be
approved at $681 ,508, Mr. Cowell seconded and it was voted 5-0
in favor.
It was moved to reconsider Sheet #12 voted at $145,271 on
February 12, and change it to $144,271 (Salaries $140,736 and
Expenses $3,535) . This was seconded and voted.
Mr. Russell said he would like to see the effect of the income
on the increased sewer rate so that we can see how we approach the
Finance Committee' s guideline figure of $2, 164,963. The Superin-
tendent agreed to correct all budget sheets and have them delivered
to the Board in the package for the weekend.
Meeting adjourned at 10:20 P. M.
pectful/l/y/✓�submi tted,
ecreta'
be '
A
Mini-Computer Summary
The existing Olivetti billing machine as pointed out in
the Report on Computers and Data Processing for the Depart-
ment of Public Works dated April 3, 1978 is subject to in-
creasing mechanical failures.
In FY-78 the Olivetti machine was inoperative for 271-2 days.
In FY-79 from July 1 , 1978 to Feb. 8, 1979 the machine was in-
operative for 511� days. This represents 10.3 weeks out of 27
weeks to date or a 38% down time. The down time has resulted
in each billing going out late since last year.
The Board of Public Works was very cognizant of the serious
condition of its existing facilities and investigated alterna-
tives beginning in May 1977 in an attempt to determine the most
advantageous available solution to the Departments water and
sewer billing system requirements.
The alternatives deemed appropriate for investigation were
as follows:
1 . Complete re-evaluation of the existing system and existing
costs as a basis for comparison even though the unit will
not be usable for another year.
2. Replacement accounting machine that would basically be a
continuation for an existing system with new equipment.
3. Alphanumeric Display Terminal using the Regional Vocational
High School ' s computer as a main frame.
4. Remote Batch Terminal using the Regional Vocational High
School ' s computer as a mainframe.
5. Service Bureau to perform the necessary data processing.
6. Mini-Computer system for inhouse processing.
The results of this investigation indicate that the system
that would best serve the requirements of the Department and pro-
vide some flexibility that can only result in future benefits to
the Town is the choice of the mini-computer option. The Board
has investigated some financing alternatives and has decided to
use a five year lease-purchase-rental option. The Department may
cancel the unit at any time, or buy out the remainder of the
lease at any time. The amount paid yearly would be counted 50%
towards the reduction of the purchase price.
The implementation of the mini system option will probably
not result in a billing under the new system until the January
M 1980 or April 1980 billing.
During the new rate structure analysis it was found that
because of the method of collection of the Tax Liens for unpaid
bills that there was a real cost to the Town in lost interest of
approximately $25,800 to $28,000 projected for 1980 that will
now be eliminated because of the flexible rate structure avail-
able with the mini-computer. This is not money to the Water
Department but money to the Town.
COST SUMMARY
OF
WATER AND SEWER BILLING SYSTEM ALTERNATIVES
1 . Existing System (Olivetti )
$ 14,770.00 Labor
2,900.00 Expenses
960.00 Equipment Maintenance
$ 18,630.00 Subtotal
21660.00 Additional necessary functions that would be done
by mini-computer
$ 21 ,290.00 Total/yr
2. Accounting Machine Replacement System (Philips Business Sys. Inc.)
$ 13,255.00 Labor
8,739.00 Expenses
4.803.00 Equipment costs (5 yr. Lease) $20,000.00 (Purchase)
$ 26,797.00 Subtotal
4,000.00 Additional necessary functions that would be done
by a mini-computer
$ 30,797.00 Total/yr
Alphanumeric Display Terminal (Honeywell )
This is no longer an alternative due to the
vocational school ' s refusal to accept an on
line-direct-entry terminal system
4. Remote Batch Terminal (Consolidated Computer)
$ 9,364.00 Labor
2,656.00 Expenses
16,045.00 Equipment costs (5 yr. lease) $44,058.00 (Purchase)
$ 28,065.00 Subtotal
4,000.00 Additional necessary functions that would be done
$ 32,065.00 Total/yrs-computer
5. Service Bureau (Arlington Trust Co. )
$ 9,364.00 Labor
1 ,800.00 Expenses
15. 500.00 Service Bureau Costs (not including set-up costs)
$ 26,664.00 Subtotal
4,000.00 Additional necessary functions that would be done
by a mini-computer
$ 30,664.00 Total/yr
�6. Mini-computer (I .B.M.)
$ 9,364.00 Labor
2,656.00 Expenses
13,980.00 Equipment costs (5 yr. Lease $44,350.00 (Purchase)
2,700.00 Software costs
$ 28,700.00 Total/yr
Water Rate Summary
Objective: To make total committed income equal the total expenses.
The projected deficit for FY-79 is approximately. .... . . . $ 49,912.
(Note: The General Tire account has decreased
their water bills by $50,248. from FY-77 to FY-78)
The projected deficit for FY-80 is approximately.. .. . . . . $ 82,876.
Cost of water system improvements and computer. . .. . .. . . . 108. 150.
Total FY-80 Deficit. . . . . . . . . . . . . . . . .. . . .. . . ... .. . . . 191 ,026.
The projected deficit for FY-81 is approximately. . . . . . . . 118,952.
Cost for water system improvements and computer.. .. . . . .. 108. 150.
Total FY-81 Deficit. . . . . . . . . . . . . . . . . . ... . . .. . . . . . .. $ 227,102.
FY-80 Water rate required to cover total costs would have
to be $1 .05/100 Ft3
FY-81 Water rate required to cover total costs would have
to be $1 .08/100 Ft3
The water system improvements and the computer funds were
not required. The required water rates to cover the total
costs would have to be $0.91/100 Ft3 for FY-80 and $0.95
/100 Ft3 for FY-81 .
I would recommend that the $1 .08/100 Ft3 be used due
to the cost of changing the billing materials etc.
This would represent a 36.3'/ increase in the water
rates over a 6 year time span.
If the water system improvements and computer were
not required there woulc be an 18.75/ increase in the
rates over a 6 year time span, or an annual increase of
less than 3%.
The consumer cost index for the same time span is
likely to be 40.45% or an annual increase of a little
less than 6%.
The rates indicated in the previous sections represent
the required rates to cover the costs. The analysis of these
rates based on actual income vs expenditures as shown in the
#3 Figure shows the impact that the time delay payments for
tax liens have on the overall cost to the Town.
A summary of this impact is as follows:
In 1978 the amount of money that will have to be collected by
the Tax Liens is projected to be $162,600 for the water and
sewer department committments.
The amount of money the Town loses because of this time
delay of payments is in fact a cost to the Town.
If a 6% interest rate is used as a typical value of money
the Town will have in effect lost $14,800 in interest from the
above liens.
If the current trend continues to place bills to the tax
liens the amount for 1979 will be approximately $206,500 which
will represent a loss to the Town of $18,300 if the current
rates. remain in effect.
If the proposed rates are approved, the impact if in
effect for a full year will be an increase from the $206,500
to $280,000 and a resultant interest loss to the Town of $25,800.
if the same number continue to not pay the bills. The number
will probably increase due to the increased rates faster than
they are currently increasing.
To improve the current problem of monies having to be
collected by the Tax Liens the Town could implement a discount
fee rate that would make paying early attractive: ie introduce
an 10% discount rate for people paying within 45 days of the
due date. This would mean that the discount water rate would
be $1 .08/100 Ft3 and the normal water rate would be $1 .20/100
Ft3. The sewer discount rate would be $0.54/100 Ft3 and the
normal water rate would be $0.60/100 Ft3.
The following examples show what impact this could have
on the Town.
Sewer Rate Summary
Objective: To make total committed income equal sewer mainten-
ance and M.D.C. charges.
The projected deficit for FY-79 is approximately. . . . . $ 44,611 .
The projected deficit for FT-80 is approximately.. . . . 69,274
Cost for computer. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. 100
Total FY-80 deficit $ 77,374
The projected deficit for FY-81 is approximately. . . . . 85,640
Cost for computer. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 8. 100.
$ 93,740
FY-80 Sewer rate required to cover costs would have to be
$0.505/100 Ft3 = 0.51/100 Ft3
FY-81 Sewer rate required to cover costs would have to be
$0.539/100 Ft3 = $0.54/100 Ft3
If the increase to $0.54/100 Ft3 is implemented the
impact would be a 35% increase for the 6 year time span
or an annual increase of a little more than 5%
The rates also reflect a change from past policy on
the rates. In the past the rate basicly paid for the
M.D.C. charge and provided a little above it. The new
rates would cover the cost for the M.D.C. plus the Town's
maintenance and operation costs.
I . Implement above rates
A. Assume all people now pay on time.
The impact of this would be no lost interest to the Town
or a positive gain of $25,800.00 over the present condi-
tion.
B. Assume only 15 of the people who let the bills go to the
Tax Liens would do so now.
The impact of this would be that the Town has reduced its a8
lost interest to $12,900.00 and would also gain $4,000 from e M
the people paying the higher rate. P��s' �,Z50,00 ; od "') ,nia..�FS�•+ i�•
The Total impact would be a net positive gain of $28,ISo•00
over the current conditions. A& Town
C. Assume everything remains the same and the Tax Liens con-
tinue to increase.
The impact of this would be the continued loss of $25,800
in interest and this would be compensated by the payment
of $28,0o0 from the people paying the higher rate.
The total impact would be a net positive gain of $28,000
over the present operationjo ' fke Town
Note: All of these cost savings are to the Town and not the
Water and Sewer Department. But it is a definite area
where an improved procedure will result in a substantial
cost savings to the Town.
In order to implement such a rate structure, the computer
would be 'required because the rate composition would be
beyond the present business machine's capability.
Water Rate Summary
Objective: To make total committed income equal the total expenses.
The projected deficit for FY-79 is approximately. . . . . . . . $ 49,912.
(Note: The General Tire account has decreased
their water bills by $50, 248. from FY-77 to FY-78)
The projected deficit for FY-80 is approximately. . . . . . . . $ 82,876.
Cost of water system improvements and computer. . ... . . . . . . 108. 150.
Total FY-80 Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 ,026.
The projected deficit for FY-81 is approximately. . . . . . . . 118,952.
Cost for water system improvements and computer. . . . . . .. . 108, 150.
Total FY-81 Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 227, 102.
FY-80 Water rate required to cover total costs would have
to be $1 .05/100 Ft3
FY-81 Water rate required tocover total costs would have
to be $1 .09/100 Ft3
'J; The water system improvements and the computer funds were
not required The required water rates to cover the total
costs would have to be $0.91/100 Ft3 for FY-80 and $0.95
/100 Ft3 for FY-81 . _
I would recommend that the $1 .09/100 Ft3 be used due
to the cost of changing the billing materials etc.
This would represent a 36.3% increase in the water
rates over a 6 year time span.
If the water system improvements and computer were
not required there would be an 18.75% increase in the
rates over a 6 year time span, or an annual increase of
less than 3%.
The consumer cost index for the same time span is
likely to be 40.45'5/ or an annual increase of a little
less than 6%.
Sewer Rate Summary
Objective: To make total committed income equal sewer mainten-
ance and M.D.C. charges.
The projected deficit for FY-79 is approximately. . . . . $ 44,611 .
The projected deficit for FT-80 is approximately. . . .. 69,274
Cost for computer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. 100
Total FY-80 deficit $ 77,374
The projected deficit for FY-81 is approximately. . . .. 85,640
Cost for computer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. 100.
$ 93,740
FY-80 Sewer rate required to cover costs would have to be
$0.505/100 Ft3 = 0.51/100 Ft3
FY-81 Sewer rate required to cover costs would have to be
$0.539/100 Ft3 = $0.54/100 Ft3
If the increase to $0.54/100 Ft3 is implemented the
impact would be a 35% increase for the 6 year time span
or an annual increase of a little more than 5%
The rates also reflect a change from past policy on
the rates. In the past the rate basicly paid for the
M.D.C. charge and provided a little above it. The new
rates would cover the cost for the M.D.C. plus the Town' s
maintenance and operation costs.
The rates indicated in the previous sections represent
the required rates to cover the costs. The analysis of these
rates based on actual income vs expenditures as shown in the
#3 Figure shows the impact that the time delay payments for
tax liens have on the overall cost to the Town.
A summary of this impact is as follows:
In 1978 the amount of money that will have to be collected by
the Tax Liens is projected to be $162,600 for the water and
sewer department committments.
The amount of money the Town loses because of this time
delay of payments is in fact a cost to the Town.
If a 6% interest rate is used as a typical value of money
the Town will have in effect lost $14,800 in interest from the
above liens.
If the current trend continues to place bills to the tax
liens the amount for 1979 will be approximately $206,500 which
will represent a loss to the Town of $18,300 if the current
rates remain in effect.
If the proposed rates are approved, the impact if in
effect for a full year will be an increase from the $206,500
to $280,000 and a resultant interest loss to the Town of $25,800.
if the same number continue to not pay the bills. The number
will probably increase due to the increased rates faster than
they are currently increasing.
To improve the current problem of monies having to be
collected by the Tax Liens the Town could implement a discount
fee rate that would make paying early attractive: ie introduce
an 18% discount rate for people paying within 45 days of the
due date. This would mean that the discount water rate would
be $1 .09/100 Ft3 and the normal water rate would be $1 . 29/100
Ft3. The sewer discount rate would be $0.54/100 Ft3 and the
normal water rate would be $0.64/100 Ft3.
The following examples show what impact this could have
on the Town.
I . Implement above rates
A. Assume all people now pay on time.
The impact of this would be no lost interest to the Town
or a positive gain of $25,800.00 over the present condi-
tion.
B. Assume only z of the people who let the bills go to the
Tax Liens would do so now.
The impact of this would be that the Town has reduced its
lost interest to $12,900.00 and would also gain $25,200 from
the people paying the higher rate.
The Total impact would be a net positive gain of $38,100
over the current condition.
C. Assume everything remains the same and the Tax Liens con-
tinue to increase.
The impact of this would be the continued loss of $25,800
in interest and this would be compensated by the payment
of $50,400 from the people paying the higher rate.
The total impact would be a net positive gain of $50,400
over the present operation.
Note: All of these cost savings are to the Town and not the
Water and Sewer Department. But it is a definite area
where an improved procedure will result in a substantial
cost savings to the Town.
In order to implement such a rate structure, the computer
would be required because the rate composition would be
beyond the present business machine's capability.
a
Water and Sewer Rate Structure
The general way that the water and sewer revenue is accounted
for is as follows:
The Town Meeting appropriates an amount and that money comes
out of the Tax Levy. All revenues from the Department are then
collected by the Tax Collector and used for the General Fund. The
money considered to be income to the Department for setting water
and sewer rates is the money committed. This assumes that all
the money is collected in the year it is billed out. This, we
know, is not the case. The monies not collected are put on the
Tax Liens and collected with the next November' s tax bill . The
money is then collected and used to supplement the General Fund.
This process produces a few problems.
1 . The money actually collected for any given year is substan-
tially lower than the money billedout.
2. The money that is put on the Tax Lien for collection actually
shows up as a cost to the Town because this money that has to be
made up from temporary borrowing in lieu of anticipated receipts.
The time lapse from billing out to actual collection is be-
tween 14 to 23 months. The projected tax liens for water and
sewer for 1978 is approximately $162,600 as shown on the attached
sheet. This represents approximately $15,000 lost interest for the
year assuming a 60/ interest rate.
The attached sheets 1 and 2 for proposed new water and sewer
rates are the rates required to make the committments billed out
equal the projected outlay costs for the FY-80 and FY-81 financial
years.
The sewer rental fee in the past was designed to return
enough money to the Town to pay the M.D.C. charge but a condition of
the Federal Grant for sewer construction was that the rate would
cover the maintenance also.
The attached large sheet ##3 is a more accurate way of show-
ing how the income generated by the water rates comes back into
the Town. This sheet is the basis of the rate structure pre-
viously sent out a few weeks ago.
The rates suggested on sheets 1 and 2 will generate the
desired committed income but it will probably also cause the a-
mount of money to be collected through the Tax Liens to increase
even faster than it already is, as shown on the Tax Lien infor-
mation sheet.
The cash flow problem should be considered now even though
it will result in a higher rate for the people that do not use a
discount system and will have no real impar* of our end of the
water rate, it will save the Town as a whole money by improving the
cash flow and making the people that do not pay, pay for the time
delay.
lax
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