❒ Council to hear how water fund losses are affecting reserves

Despite a rate increase in 2012 and a surcharge imposed last year, Benicia’s budget still is being impacted by the drought, according to a report by City Manager Brad Kilger, Assistant City Manager Anne Cardwell and Finance Director Karin Schnaider.

The City Council will hear that report Tuesday, when staff members will say the city’s working capital reserves will be reduced $5.1 million in the 2015-17 budget.

“The primary use of reserves is to fund deferred maintenance, such as street resurfacing and traffic improvements,” the three wrote.

“However, the water and wastewater funds revenues are still not sufficient to fund any capital or deferred maintenance; in fact, the water fund has been so severely impacted by the drought costs and conservation efforts, it must pull from reserves in order to cover operations and debt during the next two-year budget.”

Benicia is in the third year of a five-year rate increase for the city’s 9,000 water and wastewater customers.

Prior to adopting new rates in December 2012, the Council had not changed rates for six years, because of a court ruling that rate modifications would end the practice of having younger utility customers subsidize rates of older residents. “As a result, with the moderate rate increase approved in 2012, both utilities are now only sufficient to cover operations and debt service payments,” Kilger, Cardwell and Schnaider wrote. “Any deferred maintenance or capital improvements to the utilities must be funded from reserves.”

The water fund, in particular, has been hit hard by both the drought and citywide conservation efforts, they wrote. While water purchases have increased the city’s expenses, voluntary and mandatory saving efforts have cut into revenues, according to the report.

The 2015-17 budget covers multiple city funds, the three wrote. The General Fund, the largest one, underwrites day-to-day activities and community services involved in running the city government. Each of the city’s nine departments are supported by the General Fund.

Enterprise funds operate similarly to private business: special revenue funds account for specific revenue sources; internal service funds usually operate on a cost-reimbursement basis to finance goods, services and costs within the city; and debt service funds account for revenues used to pay long-term debts.

In the budget, the three wrote, citywide revenues are expected to be $63.4 million in 2015-16 and $60.8 million in 2016-17. The difference in the two comes from a reduction in pension obligation bond allocations, a reduction in special revenue funds because of decreased draw-downs from the Valero-Good Neighbor Steering Committee account; and a one-time grant from Solano County for the city’s street and transportation fund for the bus hub project near the Benicia Industrial Park.

Citywide spending is expected to be $66.78 million in 2015-16 and $62.6. million in 2016-17, with the decreases caused by drops in pension obligation bonds and grant funding from Valero and Solano County that will happen only during the first half of the two-year budget.

Benicia’s net balance will drop $3.3 million in Fiscal Year 2015-16 and $1.8 million the next year, they wrote. Money in reserves will be needed to pay for operations and debt, they wrote.

The budget, which is expected to be approved and in place by July 1, also looks at the California gas tax, which is distributed to cities based on population and registered vehicles and is to be spent on street maintenance and capital expenditures.

In 2014, the Board of Equalization recalculated revenues, resulting in a 30- to 35-percent reduction statewide in gas tax revenues. The staff report said that resulted in a $200,000 loss in Benicia.

Because that loss may remain in place for the next five years, the gas tax would have used $830,000 of its reserves during the next two years. After that, the city’s resurfacing program should be cut by $300,000, the report said.

The Traffic Impact Mitigation Fund, which gets money from Traffic Impact Fees (TIF), state grants, development fees, investment earnings and interfund transfers, has been expected to pay for eight roadway improvements and seven intersection projects.

In addition, in Fiscal Year 2015-16 a street widening and turn lane on Columbus Parkway to eastbound Rose Drive should be designed, and construction should begin in the summer of 2016.

During Fiscal Year 2016-17, Rose Drive’s sidewalk and a ramp near Columbus Parkway should be built to comply with the Americans with Disabilities Act.

Working capital reserves are finite, primarily leftovers from earlier development fees, the three wrote, and the city has seen little new development because it is nearly built out.

“The proposed projects are exhausting the current reserves in this fund and future projects listed in the 2014 TIF update will need to be deferred until reserves are built up sufficiently to fund these projects,” they wrote.

Wastewater fund charges will be raised 4 percent on July 1, and another 4-percent increase comes July 1, 2016, under the current rate increase provisions.

While rates remained the same for six years, the city deferred all but what the three called “the most critically needed capital maintenance and replacement costs.” Some employee positions were kept vacant for long periods to save the department money, they added.

The 2015-17 budget has $75,000 set aside for minimal capital maintenance.

From 2014 to 2015, the city conducted a needs assessment, based on the 2010 master plan, that indicated that in the next 10 years the wastewater treatment plant will need $12.4 million and the wastewater collection system will need another $6.7 million allocated for maintenance and repairs.

That number gets larger when they looked into the needs of the next 20 years. By then, the city’s rates won’t generate enough money to underwrite any of those costs, and employees said the Council should look at increasing the feeds again.

Capital needs are estimated at $7.8 million during the next decade, and $17.5 million for the next 20 years, more than current rates can fund.

The water fund in particular has been affected by the drought, forcing city officials to buy water at a higher cost than budgeted.

Residents and businesses have cut back on water consumption, which in turn has cut back on revenues. An emergency surcharge hasn’t been able to make up the difference, and city employees are expecting that customers will still conserve even after the drought ends.

In addition, the water fund is spending its reserves at rates between 6 and 8 percent annually, Kilger, Cardwell and Schnaider wrote.

In the meantime, the water fund no longer pays for field utilities and street workers and has delayed filling other vacancies, and purchases of chemicals through the North Bay Agency Chemical Pool have reduced some costs.

Special funds are those accounts for lighting and landscape districts; such community services as tree maintenance and cemetery improvements; local grants; the state gas tax fund; the Community Development Block Grant rehabilitation program; the Southern Pacific Depot; street and transportation grants; traffic impact mitigation funds; Tourtelot Mitigation; Valero-Good Neighbor Steering Committee; library programs; public safety; and restricted federal grants.

In 2015-16, revenues from those districts are expected to be $4,222,000, and in 2016-17 should be $2,327,000, because that year wraps up the street and transportation grant that is paying for the bus hub and park-and-ride project in the Industrial Park.

Expenditures related to those districts are expected to be $5,062,000 in 2015-16 and $3,720,000 in 2016-17, again primarily because the street and transportation grant has ended.

Debt service funds account for revenues earmarked for general governmental long-term debts. The city acts as a conduit for the collection and remittance of the obligations, Kilger, Cardwell and Schnaider wrote.

Among them are general government funds, including two bonds, the 2006 Pension Obligation Bonds and the 2012 General Obligation Refunding Bonds, as well as the Energy Conservation Fund, related to the city’s purchase of a solar array, and capital leases involving Casa de Vilarrasa, a fire engine and the police station and stormwater improvement funds.

The city’s enterprise funds, designed to work like private businesses, are the Benicia Marina, the wastewater debt and the water debt. Combined, these will account for $8,185,335 in Fiscal Year 2015-16 and $7,203,325 in Fiscal Year 2016-17.

The Council will be asked to give city staff its concurrence with the proposals presented in the report.

Benicia City Council will meet at 6 p.m. Tuesday to discuss legal matters. The regular meeting will start at 7 p.m. in the Council Chamber of the City Hall, 250 East L St.