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HomeMy WebLinkAboutAgenda - Mail Packet - 1/9/2018 - Council Finance & Audit Committee Agenda - January 8, 2018Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com AGENDA Council Finance & Audit Committee January 8, 2018 10:00 am – 10:45 am CIC Room - City Hall Approval of Minutes from the November 20, 2017 Council Finance meeting. 1. Lane Rental Fee 30 minutes L. Kadrich Other Business: Scheduling of a Special Council Finance Committee meeting at the end of February for Broadband Council Finance Committee & URA Finance Committee Agenda Planning Calendar 2018 RVSD 12/29/17 ck Jan 8th Lane Rental Fee 30 min L. Kadrich URA N College URA Strategy 30 min P. Rowe Whitewater Park 30 min P. Rowe Feb 12th Utility LTFP Review – 4 Utilities 60 min L. Smith Soccer Stadium Proposal 30 min J. Birks CRISP Project Cost 30 min C. Workman URA Mar 19th City Fund Implementation 30 min M. Beckstead N. Bodenhamer Vine/Lemay – Financing Alternatives 30 min C. Crager M. Beckstead Broadband Revenue Bonds 45 min T. Storin URA April 16th URA Future Council Finance Committee Topics: County IGA – URA TIF Evaluation Process Phase II Fee Discussions – Development Review Fees & Wet Utilities DDA Credit Line Renewal Future URA Committee Topics: Annual URA District Updates – Anticipate memo format Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Finance Committee Minutes 11/20/17 10:00 am - noon CIC Room - City Hall Council Attendees: Mayor Wade Troxell, Ross Cunniff, Ken Summers, Gerry Horak Staff: Darin Atteberry, Mike Beckstead, Jeff Mihelich, Travis Storin, John Voss, John Duval, Andres Gavaldon, Ginny Sawyer, Blaine Dunn, Lance Smith, Kevin Gertig, Matt Fater, Tyler Marr, Mark Kempton, Joanne Cech, Kelly DiMartino Via video: Tim McCollough Others: Kevin Jones (Chamber of Commerce), Dale Adamy (Citizen) Meeting called to order at 10:15 am Ross Cunniff moved to approve the Minutes for the October 16P th P Council Finance Committee Meeting. Ken Summers seconded the motion. Minutes approved. A. KFCG Renewal Discussion Ginny Sawyer, Policy and Project Manager Blaine Dunn, Sr. Sales Tax Auditor EXECUTIVE SUMMARY The Keep Fort Collins Great (KFCG) .85% dedicated tax will expire December 31, 2020. Well in advance of this date, staff is developing a community outreach plan to engage residents in a conversation on desired level of service and potential funding options while targeting a potential ballot measure in November 2018. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED  Does Council Finance support the proposed plan and timeline?  What financial information and narrative is most critical to Council Finance? BACKGROUND/DISCUSSION In 2008-2009 the City was experiencing significant revenue shortfalls. In response, a major initiative was launched to engage the public regarding elimination of services and identification of new revenue. That engagement process focused on: 2  House in Order- services and personnel that had been cut and other efficiencies  Appropriate Role in the Economy- City-driven economic health activities  Resourcing Our Future- Immediate needs and options to get there The end-result of these efforts and dialogues was the passage of KFCG. By vote, these dollars support the following operations: The City Utilizes KFCG dollars to fund numerous programs and basic services. Approximately 50 positions, more than half of which are in Police Services, are currently funded by KFCG revenues. Loss of KFCG funding through the sunset would have a significant impact on the level of service the City is able to provide. Staff is proposing a community conversation beyond a “renewal” of KFCG and instead focusing on desired programs and services and clarification on what the “base rate” (2.25%) should cover and what a dedicated tax might cover. Items to consider in this outreach effort include:  Is the current base rate at the right level?  Is the recent increase in assessed values and property tax part of this equation?  Can we achieve community goals without increasing, and possibly decreasing, overall tax burden?  Are additional fees part of the conversation? 33% Street Maintenance and Repair 16% Other Transportation Needs 17% Police Services 11% Parks and Recreation 11% Other Community Priorities 12% Poudre Fire Authority 3 Discussion / Next Steps: Mike Beckstead: Blaine Dunn and Noelle Currell did a detailed analysis of the last two years of spending by department with KFCG. What should be General Fund or KFCG funded. There is quite a bit of rigor behind the funding and reporting data. Darin Atteberry requested that staff provide brief high-level historical background to bring everyone up to speed. Ginny Sawyer; originally this was called ‘Resourcing Our Future’. At the time, we were looking at a significant revenue shortfall and the need to do away with significant services. Community conversations and a robust meeting schedule for Council to talk about a House in Order and the desired level of services and funding. Kelly DiMartino; concerns about decreasing revenue and increasing needs - the community conversations were very robust - talked through what the future might look like - we originally proposed a 1% - which was scaled back to .85% based on community input We are in a different space this time – analysis is showing that many of our core operations are funded out of the .85%. Would we be looking at separating out part for base… looking for direction on that topic. Darin Atteberry; this was originally proposed in 2008-2009 timeframe - we had gone through layoffs and eliminated approximately 150 jobs - lots of community conversation about those reductions - What was interesting about our public process was that each Councilmember hosted a district meeting and heard from citizens before you go through these cuts that are being recommended - ask us what we think. Every district hosted listening sessions - coming forward with a slight tax increase which was proposed in perpetuity - final agreement was .85% to sunset in 10 years. The City reports on an annual basis - we look at and document efficiencies that are put in place. This was O&M tax and we were very clear about that and in hindsight it was the best thing to do to use 10-year sunset - it passed with 61% of vote. Police & Fire were talking about setting up reserves - if we get to year 10 and it doesn’t get renewed we have a transition instead of a cliff - we have not saved up to mitigate a cliff - we do not have reserves to mitigate that and we would be doing layoffs not just Police and Fire but Parks etc. PFA board just talked about this last week and they were aware that this conversation was going on today. Finance Committee over last several years has had a significant conversation about how to diversity our revenue steam to be less dependent on sales tax. Ross Cunniff; How do we achieve community goals without increasing, and possibly decreasing overall tax burden? - this should be a goal. 2018 is an accelerated time line - we could go to 2020 – we need to be very careful not to make it look like we are going to ask the easy question. We need to consider the increase in assessed value and property tax. Instead of increasing sales tax, should we increase mill levy skewed toward that would benefit commercial interests which could be a plausible nexus in asking for significantly lower than .85% for KFCG. If KFCG didn’t pass - we wouldn’t go out and cut services 4 evenly across the board - core services such as Police and Fire would not suffer cuts compared to Recreation for example. Gerry Horak; the Chamber has approved how we define basic services (Streets / Fire / Police) and that part of the tax could be for perpetuity for base level services. We get larger community support to get that passed. And a separate tax for other services (amenities) that would be renewable (10 years). Ken Summers: I like the approach - KFCG passed in 2008 - 2009 during a recession. The lesson to learn might be that no tax is temporary - you can call it a 10 year tax but we need to renew it. I like the base tax rate for a couple of reasons; 1) Speaks of greater integrity – our base rate hasn’t changed since the 80’s which is ac ompeling rationale / argument that we do have some on-going needs. Our goal as Ross mentioned; How do we achieve community goals without increasing, and possibly decreasing overall tax burden? lower sales tax / higher mil / whatever it takes - difficult to diversity revenue streams 2) Fits more with our BFO process - designated taxes - we are focusing on inputs creates greater alignment to right size our sales tax base - get base funding at a level that is appropriate and is going to generate adequate revenues for services and amenities as our economy grows - our own local economic development efforts and strategies. Gerry Horak; caution on any property tax increase - voters tend to vote no versus a sales tax increase - they tend to vote yes – they are not solely paying for it. Looking practically at two sales taxes; one for perpetuity and a separate one for other things. Mayor Troxell; KFCG did a job in reporting was unparalleled – reported on an annual basis where revenues were going that was part of promise made - very supportive of services that are above and then putting in another category - term limited to include other community priorities. .85% was too high - I was arguing for a .5%. Given our current mid budget adjustment on the street maintenance - we have dialed that back - our performance is exceptional. Fort Collins has always delivered on its promises as it relates to the capital expenditures and this is something we should always keep top of mind going forward in our commitment to our citizens - hallmark of Fort Collins. I like Gerry’s basic proposal of carving out basic services and then however others are carved out for value and have that be term limited. Committee; If permanent it needs to include only basic services; Police, Fire, Transportation as a category which includes; Streets, Transport / Max - maybe .4% Recast Parks & Recreations maintenance as a series of targeted projects. Ken Summers; Fort Collins voters would put their city first - be aware as you go into an election season there could be a push for a state sales tax increase as well - how many tax increase measures are on the ballot - state / county / local. Darin Atteberry; At a county level, I anticipate a second conversation about mental health at a county level – there is a county wide meeting on December 18P th P. 5 Ken Summers; I like the approach and direction. What do we need to do to fund these critical services? Mayor Troxell; I agree directionally / conceptually - I share Gerry’s concern about property taxes and I agree with Ross’ point on how to tailor it more toward the business sector. Ross Cunniff; mill levys don’t necessarily just fail - if we have the business community at least aligned and willing to contribute to the campaign then that could help. Mike Beckstead; if packaged - use increased assessed values in to consideration. We talked about the Franchise Agreement with Xcel which is .3 of a point and will be factored into this discussion as well. B. Utility L&P and Water CIP and LTFP Review Kevin Gertig, Utilities Executive Director Lance Smith, Utilities Strategic Financial Director Tim McColllough, L&P Operations Manager Matt Fater, Water Field Services Operations Manager SUBJECT FOR DISCUSSION – Utilities 2017 Capital Improvement Plans and Strategic Financial Plan Update for the Light & Power and Water Utilities UEXECUTIVE SUMMARY The purpose of this agenda item is to provide the Council Finance Committee with an overview of the planning processes underway within Fort Collins Utilities. This agenda item will focus on the Light & Power and Water Enterprise Funds with a second agenda item in February 2018 discussing the Wastewater and Stormwater Enterprise Funds. The 2017 Capital Improvement Plans (CIPs) and the 2017 Strategic Financial Plans as well as the processes behind them are outlined. The resulting investment projections set the basis for beginning the 2019-20 Budgeting For Outcomes (BFO) cycle. UGENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does the Council Finance Committee support the Utilities Strategic Financial Plan assumptions ahead of the 2019-20 BFO cycle? 2. How would the Council Finance Committee support including the need to issue debt in the Water Enterprise Fund as part of the 2019-20 BFO cycle? UBACKGROUND/DISCUSSION The financial health of each utility Enterprise Fund depends on active management of ongoing operating and maintenance expenses as well as planning for large capital expenditures. In some years it is expected that the capital investment alone may exceed the annual operating revenues for each 6 Fund even before considering operating expenses. Thus the capital investment required to maintain the current levels of service provided by each of the four utility services to the community requires a long planning horizon and consistent reevaluation and prioritization. Additionally the expected operating and maintenance expenses must be forecasted and managed so that the financial sustainability of each utility is ensured while continuing to provide the levels of service expected without large rate increases being necessary in any given year. Utilities Planning Process: Light & Power CIP The 10 year CIP for the Light & Power Fund consists of projects needed to provide adequate substation and distribution capacity to developing areas of the City, anticipated annexations including the Mulberry Corridor, operational technology improvements and system renewal of existing substations and underground distribution assets. Assess Operational Needs / Risks Determine Optimal Solutions & Mitigations Identify Anticipated Capital Projects Over Planning Horizon Establish Capital Project Prioritization Criteria Determine Relative Weighting of Criteria Prioritize Projects with Criteria Review Financial Position of Each Utility Determine Capital Investment Capacities Recommend Financial Strategy to Achieve Operational Objectives Master Planning Capital Improvement Planning Strategic Financial Planning 7 The Mulberry Annexation is expected to cost this utility $15M in asset acquisition and integration costs over several years with some of the preliminary work potentially starting as soon as 2020 ahead of the annexation itself to minimize acquisition costs. Two new substations will also be required in 2022 and 2023. Other annexations will require capital investment without offsetting development fees as well. The 2017 CIP for Light & Power includes a significant increase in identified capital work over the 2016 CIP. The 2016 CIP identified $89M as being needed to meet the capital investments needed over the next decade. The 2017 CIP includes $188M of capital investments. This is due primarily to increased construction costs for the installation of duct banks because of the required horizontal drilling associated with such installations in developed areas. It also includes providing services to newly annexed and anticipated to be annexed areas of the City that are not economically supported from within this Enterprise Fund. The previous CIP did not include any system renewal investments either as it was based strictly on an assessment done by an outside consultant to identify what will be required to serve new growth and grossly underestimated the cost of such based on recent completed capacity projects. Water CIP The 10 year CIP for the Water Fund includes the construction of the Halligan Reservoir in 2019-20, an additional treated water storage facility in 2022 and significant renewal costs for the Poudre Pipeline in the Poudre Canyon potentially starting in 2019. Based on the Water Quality Lab Master Plan in 2017 a new combined water and wastewater testing laboratory is included here at a total cost of $20M. It also includes significant investment in the distribution system throughout the City as the renewal rate for the distribution assets is increased. Significant investment has been made in the Water Treatment $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Annual Capital Investment Light & Power Fund Capital Improvement Plan New Capacity Fiber Optics Improvements Substation Improvements Operational Technology Distribution System Improvements Annexations Service Area - wide Historical Ave Capital 2007-16 Ave Capital Investment 2017-26 Previous CIP Estimated 2017-2026 Capital Investment 8 Facility since its expansion in 1999 allowing for more attention to be given to the source of supply and distribution systems over the coming decade. UStrategic Financial Plan Operating Revenue and Operating Income Forecasts Each utility collects operating revenues through monthly charges to its ratepayers. These revenues are used to operate and maintain each utility as well as for making capital investments in system renewal and improvements. Because operating expenses are expected to be recovered through monthly operating revenues it is first necessary to determine what the expected operating and maintenance (O&M) costs will be for each utility. The Strategic Financial Plan includes a section on O&M for each utility including a forecast of how much O&M can grow annually while meeting the expected capital investments. Light & Power O&M expenses have increased at an unsustainable rate over the past decade. This will need to be addressed through active management. The rate and debt issuance forecasts in the plan assume that O&M will increase at a rate close to the rate of inflation. By limiting O&M to a more modest rate of growth it is expected that the L&P Fund will generate positive operating income which will be available for capital investments. This will limit the amount of debt issuance that is necessary over the coming decade. The colored areas represent a 95% confidence band around the expected operating income. The Water Fund has consistently generated positive operating income over the past decade. With the increased capital investment increasing the depreciation expense along with the anticipated growth in O&M expenses, the amount of operating income is expected to decrease over the coming decade. Modest rate adjustments (less than 3%) may be prudent to maintain positive operating income rather than letting it erode over this timeframe although the financial models objective, metric driven rate criteria wouldn’t require such until 2028. Operating Revenues Available for Capital Investment The chart below looks at the 2015 and 2016 realized operating revenues for the Light & Power and Water Enterprise Funds and highlights the amount of operating revenue that was available for such capital investments. There was a significant increase in the amount spent on Energy Services and community renewables in 2016 followed by another significant increase in 2017. These increases continue to put significant rate pressure on this Fund. This is discussed further in the Strategic Financial Plan. With so little operating revenue available to address the capital needs of the Light & Power assets, it will be necessary to increase retail electric rates in the near term to provide capital for these investments along with the anticipated electric capacity fee revenues (which is a non-operating revenue source). 9 The asterisk denotes that for the electric utility the portion of the operating revenue that is necessary to pay for the purchased power expenses from Platte River and the portion of the Payments In-Lieu of Taxes (PILOTs) associated with this expense have been removed to show how the remaining portion of the operating revenues available to Utilities was allocated. This represents 76% of the total operating revenues collected from electric customers, or $94.6M of the $125.1M total operating revenue. Platte River allocates those revenues across many of the same categories separately. Is Growth Paying Its Own Way? Given the forecasted shortfall for capital investment it is reasonable to ask if growth is paying for itself. Each Enterprise Fund assesses plant investment fees (PIFs) based on the actual cost of connecting new customers including the amount of system capacity being allocated to those customers. The determination of what is included in and how the PIFs are calculated is through a cost of service model similar to the cost of service models that are updated every two years for existing ratepayers. The PIF model utilized by the three wet utilities was last reviewed by an outside entity in 2009 and is based on industry best principles. In 2016 a consultant was contracted to review and modify as necessary the existing Light & Power PIF model. Light & Power PIFs are more referred to in Code as the Electric Capacity Fees. This model was adopted by Council and implemented in October of 2017. The intention of all of the utilities’ PIF models is that growth is paying its own way. It is important, however, to recognize that capacity is normally built ahead of the new development requiring such capacity. This is done to both ensure that adequate capacity exists so as to not be a barrier to economic growth and because capacity is usually added in larger amounts than a single new customer may need so as to realize the economies of scale for such large capital investments. For example, the Water Treatment Facility was last expanded in 1999 to its present treatment capacity. This capacity is expected to be sufficient to serve all customers even through buildout of the water 33% 34% 46% 44% 19% 21% 11% 12% 9% 7% 5% 4% 7% 7% 12% 11% 16% 24% 6% 6% 5% 6% 10% 1% 21% 23% 0% 20% 40% 60% 80% 100% 2015 2016 2015 2016 Actual Actual Actual Actual 2015/16 Expenses as % of Operating Revenues Operating Revenues Available for Capital PILOTs Energy Services / Community Renewables Debt Service Other Transfers CS&A Operations Light & Power * Water 10 utility’s service territory. That expansion was paid for through existing cash reserves, the portion of operating revenues available for capital investment and revenue bonds. As new customers are connected to the water system the PIFs assessed to those customers will recover the amounts paid by existing customers for the portion of that capital investment now being allocated to the new customers. Rate Adjustment and Debt Issuance Forecasts L&P Rate and Debt Forecasts Based on the significantly higher CIP and the assumption that O&M expense growth is limited to the rate of inflation over the coming decade, it is expected that there will need to be two significant rate adjustments in 2019 and 2020 followed by a debt issuance in 2023. The issuance of debt for electric distribution infrastructure in 2023 will allow for the issuance of all debt prior to support the broadband initiative. It is expected that the increased operating revenue from the broadband initiative by 2023 will increase the debt capacity of this Fund and cover the debt service expense associated with the debt issued for the initiative. Water Rate and Debt Forecasts With the two significant rate increases in 2017 and 2018 along with the operating budget cuts that were included in the 2017-18 BFO cycle, minimal rate increases are forecasted for the coming decade however it will be necessary to issue debt in 2018 to fund some near term capital work and then again in 2022. These issuances are timed with the retirement of existing debt so that the annual debt service expense will remain at or below the current levels over the coming decade. UConclusion As shown there will be a need for considerable capital investment in each of the utility services in the coming decade. This is not unexpected given the growth of our community and the high levels of service required to support its economic development and sustainability. The low utility rates and high level of customer satisfaction are the results of City Leadership, both past and present, showing tremendous foresight and commitment to these municipal services and to the planning, operational 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Rate Increase 3.5% 1.8% 5.0% 4.9% 2-3% 0-2% 0-2% 1-3% 1-3% 0-2% Debt Issuance $M $20.0 $165M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations. 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Rate Increase 5% 5% 0-1% 0-1% 0-1% 0-2% 0-2% 1-3% 1-3% 1-3% Debt Issuance $M $5-8 $21-25 $168M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations 11 and customer focused efforts of City staff. This update to the Council Finance Committee is intended to maintain this tradition through a long term Utilities Strategic Financial Plan ahead of the 2019-20 Budgeting For Outcomes process. Discussion / Next Steps: 2019-2020 - 5% threshold - don’t increase any utility more than 5% Water / Wastewater - no increase L&P - proposing 5% each year- some smoothing happening to spread that across 2019 and 2020 We are making efforts on the budget side as well We do anticipate issuing debt in 2023 to meet some of the capital needs. Rate pressure - operating budget increases - curb to 2.4% to rate of inflation Working on Identifying increased efficiencies Increase investment in capital work and we do that in house crews that were working on O&M will be working on capital work. We want our electric rates to be low and competitive with our neighboring communities but we also want to promote energy conservations and renewables. We have some data from Longmont and Loveland and they are spending about 5% of their O&M on energy services and conservation and we are spending about 21% - 4x what they are spending on investment. Ross Cunniff; the 1997 wind power purchase - what % of people took that – Accelerating further - renewable / conservation programs - people want to say they are 100% solar Mayor Troxell; polarity part – push back a little - The part that comes with PRPA that is energy – that is not us - we are paying for it If there is a decrease in energy requirement it is a decrease – I would think our distributed energy – demand charge – if we become more of an active player – More reflective of actual cost – we are not recovering all of our costs from our demand charges Lance Smith; our structure is consistent with PRPA – passing that through to our rate payers Energy demand for residential is in one bucket - will be separated with time of use. We need to understand that may change our rate structure. Mayor Troxell; our rate structures don’t reflect what it actually - from the demand side So for example part of that is that our demand charges should be more - Net might be equivalent General tendency to push back that costs will just naturally go up - If we Invest more in our infrastructure and yield less energy - resources are coming from citizens within our communities – plug in electric – parking garages, etc. We can be smart in how we think about managing our energy and distributed energy within our city. I don’t know how that plays out in the projection you have going forward - I think your projections are using conventional ways of how we have done things and maybe not how we will transform how we will do things. 12 Lance Smith; forecasting is relying on historical costs and is not looking at a paradigm shift As we are currently structured - we are spending more than neighboring communities but we are desiring our rates to be competitive with them but we are not there right now. Bottom line - the rate increases will get the operating income to be positive Ross Cunniff; Is there a reason why we wouldn’t move part to 2018 - playing devil’s advocate Lance Smith; the reason we didn’t propose that is that we were keeping 2018 forecast consistent with the budget. Mike Beckstead; the significant changes to me are the $8-9 M spending changed to $16M in capital spending. It is not a lot of new projects it is primarily an update to cost estimates of doing that work. Those two dynamics are behind the two increases – maintain liquidity so we can support broadband in the 2019 – 2020 time frame and have it up by 2022 and supporting its own debt coverage. We are not using electric rates for Broadband but we are using available debt capacity. Maintaining cash flow to do the capital. Ross Cunniff; the pain level of a 5% rate increase is significant to a lot of people. Rates for this year - that we are about to adopt on 2P nd P reading. It would have been nice to have 3.5 / 3.5 / 3.5. Mike Beckstead; had we updated the costs 2 years ago when we did the CIP that is where we would have ended up – really new information that is the significant change in the CIP from 2 years ago to today. Ross Cunniff; what portion of the new capacity fees are covered by impact fees? Lance Smith; there are two components; Building site charge which is billed directly to the customer and represents 10% of our electric capacity fees and the 90% are used to pay for that infrastructure we have been talking about. They are very volatile so I am trying to be conservative in estimating what those fees are going to be. I am assuming that we are going to be bringing in approximately $4.5M per year of electric capacity fees will be used to fund some of the capital work. The challenge for Mulberry for example -we won’t be getting those fees unless someone redevelops the property. We pay Xcel upfront for the book life on their assets - then we come in - annexation is a different bucket. Tim McCollough; the components of CIP - new capacity represents and will serve both greenfield development and annexation development. In that new capacity there is a fraction of both - Xcel and Poudre Valley REA systems - addn annexation costs include such things as changing transmitters and undergrounding - there are additional new costs in the new capacity piece and in the annexation piece 13 ACTION ITEM Ross Cunniff requested a follow up memo to breakdown what proportion –want to make sure that the rate increases don’t include anything that should be paid for by capital expansions, Tim McCollough; we build capacity out years ahead of when we will recover expenses -our expenses lead the capacity fees by a number of years and may not be supported by capacity fees until we grow out to the full GMA border – it depends on if you are looking at short term or longer term. CIP represents support of another Anheuser-Busch type facility which puts a fairly intensive demand on our system - there is another sub station we are projecting in the NE area. In a future with battery storage and flexible loads through demand response - Does that change the amount of new capacity infrastructure that we need? Answer is not drastically because we still want to retain our reliability and resiliency in those areas - we build out capacity to address those peak. The CIP that you have in front of you has minor changes to 2018 - we have had some short term industrial load growth - East Harmony Road corridor - some increased demand which creates a short term funding gap of approximately $1.6M – we do have some unanticipated revenues that we are bringing in. Working with Lance and Mike on how to cover this small funding gap to meet our customer demands in 2018. Darin Atteberry; Do we have a Council adopted policy that says within 10 years of annexation we underground completely? Trying to understand the policy context. Tim McCollough; that has been our practice - I don’t know if that is an adopted policy that we have a precedent to underground and serve to the full GMA boundary. Some of the annexations that we are projecting here look a lot like rural extensions - for example the parcel that was recently annexed at the end of East Carpenter Road (I25)- we have a $5-6m outlay in front of us to get our infrastructure to get there with a potential electric capacity fees of $1-2M in that region - we will be building out beyond our capacity – it has been my understanding that L&P will serve to the full boundary of the GMA into the future. Ross Cunniff; have we ever investigated partnering with adjacent cities it the area - Loveland? Tim McCollough; we do partner to an extent with our adjacent utilities. Poudre Valley REA for example serves that area and has infrastructure in place - we have long term agreements with Poudre Valley and Xcel - how to handle these annexations. In the West end of Mulberry annexation – we have opted to make some investments and put some infrastructure in place ahead of an anticipated annexation that would not have to be removed in a few years when that annexes (underground). ACTION ITEM: Ross Cunniff requested a memo which might require some legal analysis regarding the use of URA AND TIF as a tool for infrastructure improvements in the East Mulberry annexation. 14 Darin Atteberry; we are making good progress - could be months away If Council chooses to form the enclave - that is where we really get into these cost / benefit analysis Will be working on this over 3 years to determine whether or not that is a smart Ross Cunniff; many of these questions will need to be flushed out before we go forward Mayor Troxell; Two of our largest accounts have committed to being 200% renewable -there may be others as well. Are you treating that as a bulk supply or are there strategies that incorporate that within the CIP plan? Tim McCollough; we are treating that both at the distributed supply and the bulk supply level. Opportunity for both to develop their own distributed resources (solar) on their own property that can be done behind the meter. We are working with our Platt River partner to see if we can meet that at the bulk system level as well. Mayor Troxell; there is nothing beyond the meter to support heat plan at CSU or at Anheuser Busch. Tim McCollough; We partnered with Platt River / CSU and Fort Collins to study the replacement heat plans and to look at a sizing and impact analysis. See how we can support their efforts for cogeneration on campus. Mayor Troxell; How does this relate to our climate action plan? Tim McCollough; It has an impact on community wide carbon goals by repowering a heating place such that and capturing what would normally be wasted energy it would reduce carbon emissions – On a 100% renewable goal – I would say there is minor polarity there because you look at the state renewable standard for a cogeneration facility like that and it is considerable renewable under others and is not – not sure how CSU would look at this in meeting their specific goals but would help the community in meeting our goals because it would capture otherwise wasted energy. Kevin Gertig; we will follow up - I understand the concern - our team and the whole Climate Action - we will keep you updated as we move forward. Mayor Troxell; if we are ever going to get there, we need to combine these long term and address them together. WATER Potential for a new laboratory facility. Historical spend increase up from $10m to approximately $16m. We don’t propose increases in water rates in 2019 or 2020 - support the issuance of debt ($5-8m) for capital work. We will be coming back in February to talk about Wastewater and Stormwater and will be looking for some more specific direction as we head into BFO. 15 Ross Cunniff; what does the $20m remodel for the water quality lab include? Kevin Gertig; background - located at water treatment plant built in the early 80’s Served us very well – we are looking out to the future strategically on how we can leverage staff / since early 80s - currently two distinct labs with separate chemists and staff, etc. This year we launched a master plan with outside consultants to look at how we can leverage that for the future and also given the depreciation of the actual laboratory – we have 30+ year old buildings – the inside of these labs have met their age in deprecation and in use. Looking ahead I feel strong about starting to leveraging staff and instrumentation at one site – understanding we are not going to be able to do this immediately but this if the current proposal in the master plan but of course this is subject to Council approval, Ross Cunniff; portion allocated to wastewater - what is the total cost? Lance Smith; approx. total cost of $20m Ross Cunniff; is this the depreciation model for our underground distribution infrastructure? Lance Smith; we have historically had master planning done at the plants – We are working on a master plan for the distribution system at this point – we will be getting much more precise for example, these are the pipes we are looking at replacing. We recognize a certain level of investment will be required in the distribution system and we will need to escalate that program over time. Ross Cunniff; when it starts to contribute to rate increases – if you could prepare analysis showing the actual benefit to rate payers of doing this on this model versus the plan we are on right now. Mike Beckstead; Per the Committee’s direction, the memos will be sent out shortly. C. Boxelder Basin Regional Stormwater Authority (BBRSA) IGA Mike Beckstead, CFO EXECUTIVE SUMMARY Several issues were identified by the member entities of BBRSA. Two teams were formed to analyze the issues and develop recommendations to resolve these issues. The teams have developed recommendations that will be memorialized within a new IGA that would be signed by the three member entities. In addition, a separate IGA with the town of Timnath, the County and Fort Collins is also proposed that defines Timnaths share of long term asset maintenance. The are 2 new IGA’s are planned to go to Council for adoption on December 5P th P. 16 2 teams put together - Technical Fee Team and Framework Team 17 Our determination - there have been some issues in the past but things are largely working the way we want them to work now. No fee waivers at this time. Framework Team - trying to talk through the longer-term issues of cost sharing big issues - timing of the transfer and the timing of dissolution (trigger event) Debt & Operations Cost - we have tentative agreement of all 4 parties including Timnath on the percentage shares. Ross Cunniff; have we looked at sedimentation rates? Ken Sampley - we had a plan - in 10 years we were doing a bath metric survey which will determine the sedimentation that will come Ross Cunniff; is it possible to model? Darin Atteberry; high level policy conversation – Ken’s professional judgment would be better than what we have now. Ken Sampley; I will take a look and see what approaches might work. Definitely some modeling we could look at. Fees remitted by December 2017 which is a critical issue - all members ratify loan by December as well. Timing is very compressed in order to get done by 12/31/17 when settlement / final payment must be made. No new obligation to city rate payers. County may ask for additional funding if there is a shortfall in the asset reserve. ACTION ITEM: Ross Cunniff; can we get a chart prior to Council that shows over time between now and 2031 with anticipated fees and what reserve balances and fee collections look like. And it would be useful to know to know what any shift in percentages would be for the Mulberry Annexation. 18 Mayor Troxell; kudos to Gerry Horak Mike Beckstead; Todd Blodstrom has been critical as well as Ed Canon, City Manager of Wellington. Approached this as let’s understand the detail and make good decisions. D. Audit Response Follow-Up Travis Storin, Accounting Director SUBJECT FOR DISCUSSION City response to findings included in: • Independent Auditors’ Report on 2016 Financial Statements • Independent Auditors’ Report on Compliance for Major Federal Programs EXECUTIVE SUMMARY In July 2017, RSM presented the Report to the City Council. This report covered the audit of the basic financial statements and compliance of the City of Fort Collins for year-end December 31, 2016. The City received unqualified or “clean” opinions for both reports. Incidental to these audits, RSM identified certain control deficiencies that they recommend we rectify prior to the 2017 audit. All deficiencies identified were of the lowest severity on a scale of one to three. A copy of the communicated deficiencies is included as Attachment #2. City staff has implemented process improvements throughout 2017 to respond to these two control deficiencies. Corrective action is complete in both cases. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Staff seeks input on areas of priority or concern, other than those established in this Report to the City Council, for matters of recordkeeping and/or the City’s internal control environment. BACKGROUND/DISCUSSION Every year the City is required to be audited in compliance with Government Auditing Standards. RSM finalized both the financial statement audit and compliance report on June 19, 2017 and the firm reported the results of the audit to those charged with governance at the July Council Finance Committee meeting. Materials presented and reviewed. Council Finance members will circle back with any questions. Meeting adjourned at noon Page 1 of 3 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Laurie Kadrich, Planning Development and Transportation Director Joe Olson, City Traffic Engineer Date: January 8, 2018 SUBJECT FOR DISCUSSION Proposed Lane Closure Policy EXECUTIVE SUMMARY Maintenance and improvement projects within the City’s Right Of Way (ROW) are important and necessary for a healthy, growing, and vibrant community. However, roadway congestion, travel delays, increased vehicle emissions and adverse business impacts related to work areas are a major source of frustration. In addition, work areas create traffic safety concerns for both workers and the community. There is a need to better regulate work areas. The proposed lane closure policy will use mobility data to determine the best and safest times for work to occur on different roadways and incentivize projects through varying fees to support safety and thoughtfully minimize impacts to the traveling public, adjacent businesses, and nearby residents. The new fee structure, including fines for unauthorized work is proposed to be implemented using existing staff starting in the 2018 construction season. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Staff seeks input on the proposed policy change, and comments on areas of concern. BACKGROUND/DISCUSSION UIntroduction Work Area Traffic Control (WATC) permits are required for all work within the ROW, such as roadway maintenance, utility work, major capital projects, traffic operations work, pedestrian improvements, landscaping, and various private endeavors on or adjacent to roadways. The permits have historically involved a single minimal flat fee regardless of impact or duration. Determination of any limits of work within the ROW has been done on a case-by-case basis using previous experience, engineering judgement, and broad assumptions related to traffic impacts. There are no fines for unauthorized work beyond approved times resulting in frequent non-compliance with work time limitations. As Fort Collins has grown, the number of projects in the roadway has dramatically increased (WATC permits have increased 66% in the past six years to more than 2,800 per year in the City). The result is that roadway congestion, delay and increased vehicle emissions due to construction has become an increasing safety concern (for workers and travelers) and source of frustration for the community. Page 2 of 3 UPurpose and Goals A new approach is based on the following justifications: • Congestion (partially a result of work zones) is consistently one of the top two issues for Fort Collins residents in community surveys. City Council has indicated interest in addressing congestion and any effort to limit work zone impact is typically welcomed. • Work zone congestion and delays create safety concerns for both workers and road users, and has broad based negative impacts on mobility, travel time reliability, air quality, and livability for those along detours and neighborhood cut through routes. • The Federal Highway Administration (FHWA) has an adopted the Work Zone Safety and Mobility Rule that requires agencies that receive federal-aid funding to broadly consider safety and mobility impacts of work zones and implement strategies that help manage these impacts. The proposal is to utilize mobility data to determine the least impactful and safest times for crews to be in the roadway, and incentivize projects through varying fees to thoughtfully plan construction and minimize impacts to the community. This policy is applicable for any work that requires a Work Area Traffic Control permit. This includes work by other City Departments for reasons of fairness, equity, and community impact. The anticipated outcome of the policy is to strike an appropriate balance between accommodating the broadest allowable timeframe for work to occur, lessening impacts for road users and adjacent businesses and supporting safety for everyone. UApproach Determining the most appropriate work hours for projects along arterial streets within the City has been done utilizing a combination of the City’s hourly traffic count information and real time Bluetooth travel time data. For each arterial link in each direction a performance pattern has been identified by hour and day of the week, resulting in an understanding of the anticipated mobility impact of construction work. The mobility impacts are compiled into four categories from low impact to exceptional impact by time of day. These impact categories are used to populate a look up table that identifies the best and safest time to work specific to locations along arterials throughout the City. The table identifies daily fee surcharges for work that will occur during more impactful times. The policy includes increasing fees for work not completed on time and requiring extensions, and allows assessment of fines for unauthorized work outside of approved hours. Some exceptions to the fees are identified, including weather days, emergency work, short term maintenance, or projects that are incentivized for efficient work in other manners. Page 3 of 3 UFinancial Impact The current annual revenue for Work Area Traffic control permits (the one-time fee per project) is about $63,000. The fee on local and collector roads is being lowered, but will be charged on a daily basis. This is anticipated to roughly result in approximately the same revenue as currently received. For the approximately 50% of projects that impact arterials, the amount of new revenue collected will depend on how contractors or departments choose to do their work. The goal is to have work done efficiently during less impactful and less expensive times. We also expect the number of requested permit days to decrease as contractors become thoughtful about actual approval days needed. The number of fines assessed is also unknown as contractors will hopefully minimize their unauthorized work. Having noted the uncertainty, in the first year of the program, additional revenue could be several hundred thousand dollars. The goal is for the revenue to decrease as the program matures. Policy review and fee adjustments will be done on an annual basis. UNext Steps City staff is beginning outreach to other departments, as well as the business and contractor community. We’re also working with the City Attorney’s office to detail the legal requirements for the fee adjustments and implementation of the fines. The anticipated roll out of the program would be this spring. ATTACHMENTS 1. Powerpoint Slides 1 Proposed Lane Closure Policy Work Area Traffic Control Permits • 2,800+ permits in 2017 • 66% increase since 2011 • ~20 permits / workday in construction season • 48% are on arterials • 16% request extensions • Planning, management and enforcement difficult 2 1683 2257 2195 2454 2505 2453 2805 0 500 1000 1500 2000 2500 3000 2011 2012 2013 2014 2015 2016 2017 Safety in Work Zones In the last five years within work zones: 3 • 497 reported traffic crashes • 22 serious injury crashes • 6 workers involved •Does not include crashes on detour routes (aggressive drivers) 4 Safety in Work Zones Safety in Work Zones 5 0 10 20 30 40 50 60 70 0 20000 40000 60000 80000 100000 Crashes Daily Traffic Crashes vs. Traffic Volume 2017 Citizen Survey 6 * Much Below National and Front Range Benchmarks Please rate the following areas of transportation in Fort Collins. (Ave. rating: 0=very bad, 100=very good) 2017 2015 2013 2012 2010 2008 2006 2003 2001 Ease of driving * 53 51 61 65 61 57 50 NA NA Ease of traveling by public transportation 59 57 56 54 48 51 38 NA NA As a walkable city 67 67 71 71 67 68 60 NA NA Ease of traveling by bicycle 79 77 79 81 78 78 68 NA NA Availability of parking Downtown * 47 46 49 51 51 52 NA NA NA Level of traffic congestion * 37 33 45 50 48 44 NA 32 27 Street maintenance 65 57 61 61 52 60 NA 59 59 “Transportation and traffic still top residents’ list of priorities” Travel Time Reliability 7 What we report (average travel time) Travel Time Reliability 8 What we report (average travel time) What people remember Lane Closure Policy Incentivize Safety & Manage Impact Encourage thoughtful and efficient approach in order to: 9 • Reduce worker exposure • Reduce work zone related crashes • Minimize impacts to road users and adjacent businesses • Improve travel reliability 10 0 5 10 15 20 25 30 35 40 0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 Delay (Vehicle-Hours) Harmony Ziegler to Timberline Typical Delay 1 Lane Closed Delay Data Driven Approach 11 0 5 10 15 20 25 30 35 40 0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 Delay (Vehicle-Hours) Harmony Ziegler to Timberline Typical Delay 1 Lane Closed Delay Data Driven Approach 12 Low Exposure, Low impact • Full Closures Easier • Low Traffic Volume • Safer Challenges / Considerations • Difficult hours for work crews • Potential higher cost • Noise Incentivizes Off-peak And Weekend Work Lane Closure Policy 13 Existing Proposed Base Fee $35/permit Local: $5/day Collector: $10/day Arterial: $35/day Work Hours Typically 8:30 – 3:30 Based on roadway specific delay data Surcharge None Varies by roadway and time of day: $0 - $500/day Fines None For unapproved work or work outside permitted times/days Exceptions/ Alternative Approach None Emergencies, short duration maintenance, planned projects incentivized in other ways (contract) Financial Implications 14 Current Revenue: • $63,000 / year Anticipated revenue: • Estimated to be similar for work on local and collector roads • On arterials, depends on how contractors approach work, efficiency, requested days, unauthorized fines, etc. • May be several hundred thousand dollars in year 1 • Goal is to collect less, not more Performance Measures 15 • Permit Days • Work Zone Crashes • Travel Reliability 16