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    9.    
Business Meeting
Meeting Date: 12/09/2014 Length (in minutes): 15 Minutes
Agenda Title:    Public Hearing: Consideration of New Water Rates
Prepared For: Toby LaFrance, Finance and Information Services
Submitted By: Liz Lutz, Financial and Information Services
Item Type: Resolution
Public Hearing - Informational
Meeting Type: Council Business Meeting - Main
Public Hearing: Yes
Publication Date:

Information
ISSUE
Shall the Council adopt new water rates for the next five years starting January 1, 2015?  On November 18, 2014, Council instructed staff to prepare two water rate scenarios.  If Council adopts water rates, which of the two scenarios Council instructed staff to present to Council at this hearing will be approved?
STAFF RECOMMENDATION / ACTION REQUEST
Staff recommends adopting new water rates.
KEY FACTS AND INFORMATION SUMMARY
  • In November 2010, Council set water rates and charges intended to pay for Tigard's share of the Lake Oswego / Tigard Water Partnership (LOTWP) which will provide Tigard Water customers with their own water source allowing the city to no longer depend on Portland Water.
  • The result of the 2010 study increased water rates over five years, with increases of 34% in the first year followed by three years of 14% increases.  Tigard is set to implement the final 4.3% increase on January 1, 2015.  That final increase was intended to represent the annual cost of living increases that would be needed in years beyond the first five years.
  • In February 2012, Tigard issued $97 million in water revenue bonds to pay for the start of the LOTWP project.  At the time of issuance, it was known that a second bond issue would be needed to finish the project.  It is projected that the proceeds from the first bond will be completely used by February/March 2015.
  • Last year, Tigard City Council agreed to change the partnership to increase Tigard's share in the water source by an additional 4 million gallons per day (mgd). This will increase Tigard's share in the project costs. Prior to making the decision to purchase the 4 mgd share, Council was advised the purchase would most likely result in the need to further increase water rates.
  • In August 2014, Tigard contracted with HDR Engineering to have Joe Healy perform a water rate analysis to determine the additional revenue required that will permit Tigard to issue a second water revenue bond in February, 2015.
  • On November 18, 2014, Tigard City Council held a Workshop to review two proposed scenarios to adjust rates.  The adjustments are based on the conclusions of a water revenue analysis performed by Tigard’s rate consultants, HDR.  The water revenue analysis report is attached to this agenda item.  The analysis determined the revenue requirements necessary to issue bonds to finish the LOTWP project.  The analysis also includes the need to issue a separate $7 million bond in FY 2019 to pay for capital projects during the FY 2019 – FY 2021 timeframe.  The two scenarios were:
    • Scenario #1: Replace the upcoming 4.3% increase set for January 1, 2015 with three years of 5.3% rate increases.  This will be followed by rate increases of 2% annually starting in 2018.
    • Scenario #2: Replace the upcoming 4.3% increase set for January 1, 2015 with a 10.5% increase.  This will be followed by rate increases of 2% annually starting in 2016.
  • After deliberations at the November 18, 2014, workshop, Council expressed a preference for Scenario #2.  Council also instructed staff and the consultant to explore a new Scenario #3.  Scenario #3 is based on Scenario #2, but the 2% rate increases starting in 2016 would be replaced by increases sufficient to build fund balances that would allow the capital projects in the FY 2019 – FY 2021 timeframe to be cash funded; alleviating the need for additional debt to the water system.  HDR's Addendum to the water rate study to include Option #3 is attached to this agenda.  The result of that analysis is:
    • Scenario #3: Replace the upcoming 4.3% increase set for January 1, 2015 with a 10.5% increase.  This will be followed by rate increases of 3.25% annually starting in 2016.
  • Attached to this agenda item are two revised Master Fees and Charges that could be the Exhibit A for the resolution adopting the new water rates.  The two revised versions are based on Option #2 and Option #3.
OTHER ALTERNATIVES
Council can choose to study further rate options. Choosing this option would likely delay the decision on water rates sufficiently that the rates would not be in place in time to sell bonds in February.  This may lead to the city seeking higher cost short-term borrowing while the issue of water rates is decided.

Council can also choose not to pass new water rates.  Choosing this option would likely place the city in a financial position resulting in violation of the agreement to jointly fund the Lake Oswego/Tigard Water Treatment Plant.
COUNCIL GOALS, POLICIES, APPROVED MASTER PLANS
LOTWP Bond #2
DATES OF PREVIOUS COUNCIL CONSIDERATION
November 18, 2014 - Workshop on results of water rate study.
July 8, 2014 - Briefing on Infrastructure Financing Project including water and sewer rates
December 10, 2013 - Council adopts IGA on LOTWP to purchase additional 4 mgd of water
July 23, 2013 - Council Executive Session on potential water rate impact of additional 4 mgd of water.
Attachments
Resolution No. 14-55
Water Rate Study including Options 1 and 2
Addendum to Water Rate Study for Option 3

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