Loading...
HomeMy WebLinkAbout20.09.09 - Minutes, Environmental Management Adv. Cmt.ENVIRONMENTAL MANAGEMENT ADVISORY COMMITTEE – Sub-Committee MINUTES DATE: 09/09/2020 ATTENDING: Rebecca Beecroft Lisa Reigh Brock Shriver Randall Morin Lisa Horn Joe Moss Austin Abraham Russ Weaver Terry Schlotterbeck Jeremy Mose Davina Yutzy Sara Greaves Lacey Capshaw I. CALL TO ORDER: Brock opened the meeting at 1705 hours. II. APPROVAL OF AGENDA: Becky moved to approve the agenda. Austin seconded the motion. Agenda passed unanimously. III. NEW BUSINESS: a. Introductions (EMAC & Staff) Austin Abraham – Appointed by Commissioner Keefer Joe Moss – Appointed by Commissioner Meinelschmidt Terry Schlotterbeck – Appointed by Commissioner Wagner Russ Weaver – Appointed by Commissioner Cline b. Brief of Current Situation i. Sara Greaves Here because County staff continues to recommend rate increases to the Commissioners annually. Explained some historical information pertaining to taking over the Sanitary District. The understanding we have is that the rates that were in place at that time, were not sufficient to cover the costs. Through the years, rates have been raised more often at lower increases, rather than higher increases, less often. This was to try to help the rate payers absorb costs reasonably over a period of time instead of all at once. The County invested millions of dollars from the general fund, into the sewer fund, back in 2010, 2011, and 2012. This increased fund balance and cash reserves in order for those smaller rate increases to continue. This way, the cash reserves could be drawn down in the fund over the next 6-8 years. The idea was that as those cash reserves were drawn down, the rates would simultaneously increase by 3-4% per year. The hope was that those increases would increase revenues enough to the point where when the time came for cash reserves to run out, revenues would be sufficient to cover expenditures. With the costs covered, there would be no need for the continued draw down in reserves as part of the annual budget. Certain assumptions were made in the rate model that were not realized. Therefore, when cash reserves ran out, revenues were not sufficient to cover expenditures. From a budgetary perspective, even in FY21, the budgets have been reduced by approximately $2.5M overall, which is very significant, but we are still in a position where we cannot cover the costs. That $2.5M in reductions is made up of $2M in 96A bonds that we paid off and that created significant savings, the other $500,000 in savings came from a plan that Jeremy and Sara had worked together on in an attempt to reduce expenditures related to personnel. That is where you generally can realize the most savings, through reductions in personnel costs. We can’t stop maintaining the plant, we can’t stop ordering chemicals, so we were trying to find savings where we were able. We do understand the impact that this has on our citizens. We are very aware, we are sensitive to it, and we don’t want to raise rates either. We are doing what we can, what is reasonable, to keep these plants running, but to also reduce expenditures in hopes that in the future, we can have lower rate increases. As far as the model goes, we’ve made changes to assumptions based on current and projected economic activity. The Model takes into account current expenditures and projections, and those projections and assumptions can change. I believe they’re very reasonable at this time. The model is a budgetary tool, please keep that in mind when we have these discussions about the Water and Sewer Rate Model. Last year, the general fund contributed about $3M to the sewer fund because there was a serious deficit, and the sewer fund did not have any cash reserves to cover that. This is after that 3.5% rate increase that we had last year, $3M was still needed to provide for that gap. We are in a position now, where for FY21, we haven’t used any general fund money to balance the budget. We do have reserves from some project savings that we have, so we can use those for our cash reserves, but we do expect for FY21 to use those reserves up. Then we expect to need about $1M in loans from the general fund to get us through FY22, even while proposing a 3.5% rate increase for that year. After this point, we expect to be closer to a position where we are not in an annual deficit. Keep in mind that if we have a loan from the general fund, we have to pay that back. If revenues sufficiently cover expenditures, it does not mean that we won’t require a rate increase, it’s possible that a rate increase may not be as high. 3.5% equates to approximately $350,000-$400,000 in the sewer fund. The impact to our customer base equates to about $2 a month for the average customer, or $6 a quarter. The water and sewer fund shares employee costs, so the employee savings is spread between these two funds. Jeremy has also been trying to implement some operational cost savings as well, but we think the largest impact is within the wages and benefits of positions that have been put on hold. Again, the plan that was in place for many years is that we would draw down the cash reserves and incrementally increase rates. That has stayed the same over the years, it’s what the County chose to do. Unfortunately it just did not align the way that they thought it would. They thought that once the 96A bond was paid off that revenues would be sufficient enough to cover expenditures, and they aren’t. We can clearly see that our expenditures exceed our revenues. The model we use is 20 years old, so it would probably be beneficial to have an updated model. Would having a new rate model change the rate increases that are necessary to provide for the funds? Probably not, in my opinion. The model is currently in Excel, but it was not created in Excel. Not sure that it was created at the same time that the County took over the Sanitary District. People often want to know when the rate increases will stop. There will always be additional regulations from the State that we must comply with related to our capital improvements. Conococheague WwTP ENR Upgrade was a $30M plant, (18M was grant funded). Smithsburg WwTP Upgrade is currently in the CIP budget as a $7M project. This project could potentially be reduced to $5M due to some cost saving measures that the Department of Water Quality found, so we’re looking into that. These plants continue to cost us millions of dollars, and a lot of these upgrades are required by MDE. Even when revenues are sufficient to cover expenditures, it’s probably wise moving forward to have a small (1% to 1.5%) rate increase to try to buffer that fund balance and those cash reserves, just until we get these funds into a good financial position. Another good thing about the model is that it takes into account debt service. Whatever projects that we have in our 10 year CIP plan, the model takes those projects and it estimates what the debt service will be. Russ Weaver advised the model was created in 1992 or so. He advised that it doesn’t capture any of the Sanitary District’s history. Russ said that it was his understanding that at that time the reserves were good, although he wouldn’t characterize the Sanitary District as something that was being run very efficiently. Another thing is, sometime between 1992-2000 the Commissioners committed to putting $2.3M into the water and sewer. Then in 2009-2010, I think Greg Murray was there, we did away with that. The projection was that we were going to be okay in a few years and so we did away with that $2.3M. Then there was something called ENR and that hit us really hard and we had to borrow money. Russ said that his understanding is that the size of this expenditure is based on the size of that system, so some piece of that was driven by that economic development. Advised that he believes some of the expenditures today are still being driven by the Hopewell project, and that he’s hopeful that this Committee will prove him wrong. Brock asked, if we were going to do one rate increase, what would that need to look like? To answer Brock’s question, Sara advised we have to look at it from a couple of different perspectives #1- Are we going to have a surplus or a deficiency? We’re going to try to get that close to “0.” We also have to start building our reserve level. The County has a policy in our enterprise funds to maintain 25% cash reserves. 25% cash reserves is probably close to $2.5M for sewer. We aren’t there yet, but when Sara put a 10% rate increase into the model for FY22 (which would be next year), no rate increases were put in for FY23 & FY24, had to put a 1% rate increase for FY25 annually ongoing, to get to where we only have a small deficiency in annual revenues for FY22. With these assumptions, there is an approximately $300,000 deficiency. Sara advised 10% rate increase would generate $1.4M in revenue. 10% rate increase would be approximately $6 a month, or $20 quarterly for the average customer. Sara advised that the sewer fund, with continued rate increases, could become self -supporting. The water fund, without some significant change, won’t be self-supported. The water fund has a significantly smaller customer base that pay the cost of the fund. Approximately 1,000 water customers verses 11,000 customers in the sewer fund. Austin asked if the $3M would have to be repaid. Sara advised it was not a loan, it was an appropriation. A loan does have to be repaid, an appropriation does not. A bond agency looks at loans and the condition of an enterprise fund, whether self-supported or not, to establish our bond rating. The longer it takes to repay a loan (even though it is internal from the general fund), it reflects to a bond agency as the enterprise fund not being fully supported, and that does have an impact on our bond rating. We aren’t necessarily at risk right now of having a reduced bond rating, we don’t want to give that impression, but it is something that we are aware of. If we had a loan, we would want to pay that loan back as soon as possible. ii. Jeremy Mose Jeremy advised that within the water fund, Sharpsburg WTP is our biggest expense. That’s mostly due to the fact that it’s surface water, and that costs more to treat than well water or spring water. All of our other plants are either well fed or spring fed. Sharpsburg WTP is surface water from the Potomac River. In the past, they looked at drilling wells in Sharpsburg, the costs were very high since they were on Federal property. The Battlefield and the Federal Government didn’t really want to go the route of buying/selling land and easements. We’re actually looking into using a property in Sharpsburg that the County owns, drilling a supplemental well. This isn’t to replace the surface water, but just to supplement the surface water so that we can reduce costs. We have approval from MDE to proceed with researching this, so we will start that research within the next couple of months. If we are able to drill that supplemental well, we are hopeful that we can reduce costs by approximately half, so we are very hopeful for that. On the water side, if we’re going to save money, it will have to be at the Sharpsburg WTP. The other WTPs are fairly inexpensive to run. The Sharpsburg WTP is the major expense within the water fund. “ENR” stands for Enhanced Nutrient Removal. ENR is in partnership with the State to meet goals for the Chesapeake Bay for nutrient removal and nutrient reduction. This is to help lower total nitrogen and total phosphorous going into the Bay. The County currently operates two ENR plants, Conococheague WwTP and Winebrenner WwTP. As Sara touched on, our next ENR upgrade will be at the Smithsburg WwTP. That could cost us around $7M – we’ve been exploring some different processes that would reduce this down to $5M. We’re pretty optimistic about that. On the Sewer side, Conococheague WwTP is our largest plant and largest expenditure. We are currently permitted for 4.5M gallons per day at Conococheague WwTP. Russ wanted to know what capacity we were running at the Conococheague WwTP. Jeremy advised that we are currently running at approximately 50% capacity. Russ advised that’s the Town of Sharpsburg’s frustration, they built a $4.7M plant, for an idea, which was a big pipe, and a few big customers, manufacturers would be pumping to the Conococheague WwTP, but it’s never occurred and we’re at 50% capacity. Russ asked when the Conococheague WwTP had the ENR upgrade, do you have to permit it for what’s currently running through there or the 4.5M gallons per day? Jeremy advised there was a lot of grant money involved with Conococheague WwTP ENR Upgrade because when you go to ENR standards, that opens up a lot of grant funding. Russ requested documents showing those numbers. Russ wants to understand how much of the upgrade capacity is driving our costs, as it’s not operating at full capacity. We also have a Superstation project that will redirect customers that went into Hagerstown’s system, that will come to our Conococheague WwTP after that project is completed. Russ advised that until he’s proven different, he thinks it’s driving costs up. It’s not fair that Sharpsburg residents have to pay for economic development decisions. What Russ advised he wanted to be sure of, is when we’re done with this exercise, we can say that a 4.5M gallon capacity plant isn’t driving costs just from an economic development perspective from the previous investment. Jeremy advised that we’d send out how much the Conococheague WwTP ENR upgrade cost us as well as how much was grant funded. Russ encouraged Jeremy to also consider completely replacing the Sharpsburg WTP. Russ advised that out of those 1000 water customers that Sara spoke about, 650-700 of them are on the Sharpsburg Water System. Russ advised that they are that system, and that they sit on top of a lake, so we have tons of water under the Town of Sharpsburg. Russ advised he would like to join in and put the political pressure on to replace the entire Sharpsburg water system. Jeremy advised that to go with the supplemental well water, it would significantly reduce the costs in Sharpsburg. We are definitely exploring that. Randall asked what our costs are in comparison to other areas. Are we cheaper, more, or about the same as our surrounding areas? On the sewer/wastewater side, we are pretty in line with other jurisdictions. Water rates, we were high compared to other jurisdictions. Attributed a lot of that to a lower customer base. Austin asked for local comparisons on rates. Russ Weaver wanted local rates, stated that our sewer is significantly higher than Williamsport, Smithsburg, Hancock, and Boonsboro, as per their websites. Randall asked if there were specific areas where we could possibly expand our water service? Jeremy advised that Fort Ritchie is an area we are very hopeful to expand our water customer-base with the development of Fort Ritchie. Brock asked how we got to such a deficiency. Jeremy was explaining historically the County took over these water systems, absorbing these plants, as well as contract operations, they’re all small water systems. Russ added that the County had to create a water system for health concerns and reasons associated and that’s exactly what happened in Sharpsburg. Sharpsburg was on wells. Russ further advised that he thought it was Hopkins that did a study that the people shouldn’t be drinking the water. It was surface water, a lot of it was hand-dug wells, so the EPA, environmental people, and everybody else came in and said the we needed to fix this. We got a lot of grants to put the system in, but what we didn’t realize is that Sharpsburg is land-locked. How do you get more customers when the surrounding area is land-locked, and how do you get help to these communities that have since been land-locked that need this water system, for health reasons? I think Sharpsburg needs to go to the Federal Government and say we need their help. Brock asked if there was any potential to streamline the amount of plants we run. Jeremy explained that operators don’t spend the entire day at each of these small plants. We would spend approximately an hour a day for someone to go to these small areas and work. Randall asked, the rate that people pay for water, is different around the County? Jeremy clarified that if they are a County water customer, they pay the same rate across the entire County. Russ then asked about bringing Maugansville on? Jeremy advised that is the Superstation Project. Right now, that flow from Maugansville goes to the City of Hagerstown. We maintain the lines, and the City of Hagerstown treats the wastewater. It’s a joint service area (JSA) for us. Russ then asked, when you bring in a thing like that, is there a business case study done? Or is it politically driven? Russ advised that his thing is, for the advisory committee and everything, general principle should be that you don’t bring on any more customers and run any more lines and build any more plants unless there’s a good solid business case for bringing it in. Sara advised that she has an estimate in the rate model of approximately $1M in additional annual revenue once it’s online. Russ advised he was asking if it was a general practice to do a business case study before bringing on other customers. Jeremy advised he would get the information from Engineering Services on what the planning process on something like the Superstation Project and bring that information back. Russ advised that we are a political entity, so he wasn’t sure if there was a practice in place and recognized that sometimes there are pressures to do things that are not business-justified. Austin asked about hook-up charges for various utilities in the area as well. c. OBJECTIVES: i. What are we tasked with achieving? Brock advised that he’s reliant upon the sub -committee members to advise everyone what their understanding from the Commissioners is that we are tasked with. Asked the sub-committee members to chime in on what they were tasked with. Russ advised that as far as the Town of Sharpsburg, #1- Is there anything as far as the water that we can do to help with the water rates, they’re extremely high and no way to get them under control that we can see at the current moment. Then on the water/sewer side of things, we’re hoping to establish the fact that the County Commissioners committed many years ago to provide assistance to the sewer fund to cover the economic development impact, whatever that may be. Many sets of Commissioners have committed to that over the years. It’s our contention still that a significant portion of the cost of the sewer system is being driven by the Hopewell Road Project, which is a very large “build it and they will come” development. As you heard from Jeremy the Conococheague WwTP is running at 50% capacity after all of these years. The fair thing to do is for the County to continue to contribute to the sewer fund to keep the rates down. I’ll let Sara tell the customers that they’ll be getting a 10% rate increase next year. Sara advised she definitely would not be recommending 10%, she’ll be recommending 3.5% next FY. Russ advised the expenditure that was made on the Hopewell Road Project was very large and it was a debt that did not pay off and we’re still paying the price for it. Russ advised that he thinks when we compare our rates to other area rates, we’re higher, and there’s a reason we’re higher. Austin advised that his understanding for what we are tasked with was the repetitive annual rate increases were a cause of concern. Joe advised that he didn’t have any idea what exactly the objectives were going to be. I can give an opinion from the City’s standpoint. Jeremy and I work together a lot on water and sewer issues. As far as the rates, I don’t know that I’ll be able to add valuable information to that. It sounds like that’s the main goal of this committee, the rates every year. If you don’t have increased customer base, your costs will continue to go up. If you’ve got some potential economic development coming along, then you might be able to make some headway at reducing the rate increases. It’s tough when the County is spread out so far between your systems. It’s not easy, without putting infrastructure in. Terry advised that it would be a good idea to get a better idea from the Commissioners. I spoke with some people that were involved in the rate model back in the day. It’s like Joe said, I don’t think we’re going to make too many adjustments. What I’m being told is that they want to look at the structure, how it’s being run, and things along those lines. I think it’s a good idea to get something from the Commissioners in writing, knowing where they want to go with this, and not let it get real political. Rebecca added that she thinks it’s very important to have a specific charge from the Commissioners. Everyone has very valid points of view. Otherwise, we’re going to be hashing and re-hashing those points of view without getting to the crux of what we’re supposed to be doing together. Brock advised he will put together an e-mail asking the Commissioners to clarify in writing the task(s) at-hand. Brock reiterated that we have 3 months as per the Commissioners. Lisa Horn was askin g what the cost per facility is. Jeremy advised we can send that out as well. Russ asked about contract operations such as Clear Spring. ii. What do we need to achieve these tasks? Becky moved to table this topic until we have the clear objectives in writing from the Commissioners. Lisa Horn seconded the motion. Motion passed unanimously. d. Discussion: N/A e. Schedule Moving Forward: Brock will send an email to the Commissioners. We will schedule a meeting for 09/23/2020 if that’s alright for everyone. There ended up being a conflict with an existing agenda for the EMAC. Meeting moved to Wednesday, 09/30/2020 at 5:00 pm. Confirmed that everyone is okay with via ZOOM. IV. AGENDA FOR NEXT MEETING: V. ADJOURNMENT Austin moved to adjourn; Russ seconded. Meeting adjourned at 1829 hours. The next meeting will be held September 30, 2020 at 5:00 pm. The location of this meeting will be via Zoom.