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May 7, 2019 - Work Session - Minutes - Michigan Rural Water Association


BUCHANAN CITY COMMISSION WORK SESSION MEETING MINUTES
Michigan Rural Water Association – Rate Establishment and Status of Water/Wastewater Infrastructure in America
Tuesday, May 7, 2019

A Special Meeting of the City Commission for the City of Buchanan was scheduled at City Hall, 302 N. Redbud Trail, Buchanan, Michigan Tuesday, May 7, 2019 at 6:30 p.m.  The Mayor called the meeting to order at 6:30 p.m. The Mayor led the Pledge of Allegiance.

Members present: Mayor Moore, Commissioners Toerne, Downey, Weedon, and Denison
Members absent:  None
Staff present:        City Manager Bill Marx, City Treasurer Juli O’Bryant, City Bookkeeper Cathy Horner, City Clerk Cashier Renee Cornwell, Waste Water Treatment Plant Operator Bill Housand, Water Foreman Scott Desenberg, and City Clerk Brenda Hess
Guests/Visitors present:   Tim Neumann and Brian Minor from the Michigan Rural Water Association and members of the public (four).

Mayor welcomed guests.  Bill Housand introduced Tim Neumann and Brian Minor from the Michigan Rural Water Association and provided a review of session purpose. Rural Water Association provides training and technical assistance to smaller communities with water and wastewater issues. They provide cost effective ways to obtain training and support. 

Neumann gave brief overview of organization. Established in 1990 to provide full support to communities under 10,000 residents with water/wastewater protection of assets and management. Rate studies and asset management plans are also their specialty. This Sustainable Management of Rural and Small Systems Workshop has been given around the State.  Covers the 10 Key Management Areas. 

Challenges to smaller communities are aging infrastructure being “out of sight, out of mind”, rate issues, customer service/satisfaction/confidence with services and rates.  DEQ has changed its name to EAGLE.  Public needs to be educated about the value and importance of clean water and reliable sewer services. Maintenance is of utmost importance.  Additional issues center around operation, workforce complexities, as well as having knowledgeable and engaged board members. 

A well-managed utility has 10 components…
•    product quality-Clean drinking water and efficient handling of waste.
•    customer satisfaction-What do customers expect, do they understand value of water, does the municipality gather feedback?
•    infrastructure stability-How old is equipment? What are maintenance costs?
•    community sustainability and economic development – Water/wastewater need to be active participants in community development. Do you have capacity for growth? Industry coming and going affects both systems. Protect the watershed while still growing.
•    stakeholder understanding and support – Do customers understand water/wastewater issues and why rate increases are necessary?
•    employee and leadership development-Are your employees competent and motivated? Can you retain the employees you have?
•    operational optimization-energy and water efficiency-Are you meeting goals and minimizing loss of resources? Water loss should only be 10%. Chemical usage 
•    operational resiliency – identify safety and security threats, vulnerability assessment and cybersecurity, emergency response plans
•    water resource adequacy – Be sure to have resources to meet current and future needs, balance between conservation and usage
•    financial viability – asset management and replacement plans, prioritization of replacement and upgrades

Water and wastewater are enterprises and cannot take tax money to operate.  They must earn their own funding through the fees they charge customers; grants are difficult to obtain.

Self-Assessment Exercise was completed by City staff at previous training. Housand commented that almost all communities at training had common issues regarding infrastructure and raising rates. General discussion of public understanding of rates and how we got to where we are today across the country.  The Federally mandated safe water act of the 1930s, and the Clean Water Act of the 1970s provided foundational systems and equipment which are all wearing out and almost all communities are in the same situation. Systems wear out over time and most communities did not raise rates enough over the years to cover the costs of replacing large systems.  Federal government did not continue to support local water/wastewater systems after initial investments. New issues regarding lead service line replacements were not anticipated from the State as a reaction to Flint water crisis. State doesn’t provide funding for lead/copper service line replacement, so it will have to be added to customer rates. 

O’Bryant commented on rate histories in the City. The only year we did not raise rates was in 2009 during the economic downturn. Over the past 20 years we have consistently raised rates at an even pace.  This has helped build a fund balance to start on the oxidation ditch. We have been very responsible with our rates and have been able to increase our fund balance. We are more financially healthy than most communities when it comes to water and sewer.

Minor began his presentation about rates with a review of what an “enterprise” means.  It’s a real business and should be run that way. No taking funds away for other non-water/wastewater funding issues.  Rates need to be fair and equitable.  Rates should hold up in court.  High enough to cover justifiable expenses required to operated and maintain the system.  

Comparing rates between communities is not a good practice because of differences in treatment processes, grants/loans, styles of management…only compare policies, not charges.

These are multi-million-dollar investments in our communities. Past investors have paid for maintenance and equipment. Inadequate rates are a disservice to the community because the investment needs to be taken care of.  Need to take care of employees and don’t do inadequate maintenance. High turnovers in employees are problematic because of the amount of training that needs to be completed.  Loss of knowledge has negative affect.  Crisis management occurs when there is a lack of investment in infrastructure. Will always be putting out fires.  

Rates can be flat-rate, ready to serve plus consumption, consumption, declining rates, inclining rates.  Can be charged on classification (residential, commercial, industrial, non-profit), but it has been found to be challenged legally.  Flat rates mean every customer pays the same fee.  Declining rates mean the more a customer uses the less they pay, but this isn’t fair to lower users like residential customers (inhibits conservation). Inclining prices mean the rates get higher the more you use (promotes conservation).  Free water minimum bill gives customers an included number of gallons for “free” which penalizes low amount users (does not promote conservation). Base rate (ready to serve) which is fixed and is based on meter size, and then you are charged additionally according to consumption.

Rates are based on the budget; budgets are NOT based on rates. There are operations and budgets and reserve budgets.  Operations cover what is needed now and reserves are there for equipment and future equipment replacement needs. Budgets need to be detailed to show the public the need for rate increases.  Budgets and rates go hand in hand.  Rate analysis is important to the process.  System evaluation is important to identify deficiencies. Reporting on infrastructure is important. Living documents of projects. There are fixed expenses like loans, bonds, reserve funding, replacement needs, portion of operating expenses, insurance, labor, etc. Variable items are labor, electricity, chemicals, operating supplies, labor, etc. Some items fall under both fixed and variable categories. Fixed costs are often billed as a Ready-to-Serve fee and variable costs are billed through consumption (water and sewer usage). Day to day expenses change with conditions like weather. Better budget means less surprises.  Do not want too much money in reserves, should have projects to spend the money on.  Do not want budget swings; aiming for stability. 

Capital improvement plans are based on needs. Big projects, new additions to existing facilities.  Reserves can be used as a down-payment for bigger projects, not for complete funding.  Reserves are also needed for emergencies.  Surcharges help with conservation and compensate for extra and special usages because they cost more.  Buy in and Equity Fees are calculated for newer users because they are charged for existing infrastructure, but they need to be calculated fairly.  Everyone needs to pay a base rate (Ready-to-Serve) whether you are consuming water or not. 

General questions were answered from the public by both the presenters and City staff.

 Being no further discussion, Toerne moved, seconded by Denison to adjourn the meeting at 8:43 p.m. Voice vote carried unanimously. 

____________________________            ____________________________
Brenda J. Hess                    Patricia Moore, Mayor
City Clerk                            
 

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