 The high sign? Here we go. I guess that's the high sign. Okay, so good morning, everybody. This is the BPS budget subcommittee meeting. And I need to remind you that only three microphones can be on at the same time. So us board members can talk all we want. And you guys can be quiet, I guess. But anyway, so I guess the point is when you're not speaking, mute your microphone. We are now taking, let's see, a roll call. Is that on here? Okay. Anyway, Madam Secretary, can we have a roll call? Yes. Board member Sierra. Here. Board member Bartholome. Here. And Chair Wright. Here. All right. Let the record reflect that all subcommittee members are present. Okay. Now we are taking public comments and item two, public comments. If you're in the room, please move the microphone and wait for the timer to appear on the screen. Anyone wishing to make a public comment who is present at the meeting will be able to use the microphone. The chair will, oops, that's me. Anybody making any public comments? I don't see any. Okay. So now I guess Director Burke, do you want to introduce the next item? Sure. Thank you. Chair Wright, members of the subcommittee. Our only item for today's budget subcommittee will be our fiscal year 24-25 budget overview. And Nick Harvey, our acting deputy director of water and water administration will be presenting. Good morning, everyone. As Director Burke mentioned, my name is Nick Harvey. I'm an acting deputy director of administration for Santa Rosa Water. Today we're going to be going over some of the, especially for the benefit of our new board member here, going over some of the fund background and regulatory environment around some of the funding that we do, that we use. Then we'll talk about some preliminary financials from last year's, the 22-23. Since that was our last completed fiscal year, we'll talk about some of those results. And then we'll go over some preliminary budget assumptions and information that we're using to currently develop the 24-25 budget. Okay. So we're going to look at our three water enterprises being water, waste, water, and regional. And then we'll also touch on stormwater. And as you, as you may recall, I believe the current fiscal year is the first year that the stormwater enterprise, sorry, 22-23 was the first year that the stormwater enterprise was brought under the purview of the Board of Public Utilities. Okay. So the current year. And so we always like to update you on what's going on with stormwater so that you all get a better feel for what's going on policy-wise, especially now that you have budgetary authority. Okay. So our first enterprise, our water enterprise for the fiscal year ended June 30th, 2023. We got approximately $43.6 million in rate revenue and $5.2 million in fees. The rate revenue is collected across approximately 54,000 water accounts. We have both the usage and fixed rate. And we have a two-tiered rate structure whereby residential property pays. They have their indoor use up to, so tier one is indoor use. And we determine indoor use by looking at the sewer cap, which is a three-month evaluation every winter for each residence. And so up to the sewer cap, they get the tier one or indoor rate. Above the sewer cap, they pay a tier two commodity rate. And the commercial and irrigation accounts all pay on a single tiered commodity rate. Another distinction between the fees and the rates you see here is that the rates, the rate revenue is collected from all customers evenly. The fee revenue, the $5.2 million consisting of demand fees and miscellaneous fees, those are not considered a rate revenue. And those are only collected from rate payers or from customers who have a nexus. So demand fees, if you're building new development, you pay a demand fee representing an increased load on the system. And the same with our miscellaneous fees. Wastewater enterprise for the fiscal year 2022-23, $70.2 million in rate, million dollars in rate revenue across approximately 50,000 sewer accounts. You'll notice that 50,000 sewer accounts is lower than the water accounts. And that's because water, we also have dedicated irrigation meters, which obviously don't have a wastewater component to them. There's only one rate, but there is some variation on the commercial side, based on the strength of discharge from a particular business. And then we collected approximately $7.2 million in fees consisting of demand fees, South Park sanitation, maintenance fees, and the miscellaneous fees. Our water, our regional water reuse enterprise consists of the Laguna treatment plant. And it's funded by our five partner agencies. We distribute the operating costs every year based on flow into the plant. So we have flow meters and we pro rate the operating costs by those flows each year. Debt service payments are calculated based on when and what debt issued, debt was issued for. So depending on the type and timing of the project, that's what determines the debt service. CIP costs are distributed by the original sub regional operating agreement. And as a reminder, Santa Rosa's share is paid by our wastewater fund. So if you were to look in our financials, you see wastewater, you're not going to see wastewater in regional because those are always combined, get solidated into one financial statement. Okay, on the stormwater in 1996, city council added title 16 of the city code creating stormwater enterprise. This was formed to comply with national pollutant discharge elimination system permitting requirements and to reduce flooding property damage and stormwater degradation in the city. It's funded by an annual parcel assessment for creek restoration, water quality improvement and drainage improvements. And the funding is somewhat subsidized by the city's general fund. So there's two personnel sections in particular that the general fund contributes to. And the capital improvement program receives some enterprise funding, but also receives outside funding such as facility fees, gas tax and grants. Okay, so on the stormwater assessment, so this is used to fund regulatory compliance, but funding is insufficient for infrastructure improvements, which is evidenced by the fact that we are bringing outside funding sources to execute our capital projects. The funding is split. The revenue is allocated between the two funds, 47% and 53% creeks, stormwater creeks respectively. The annual assessment is escalated based on the consumer price index. And so every year we run the consumer price index for our area. We do the calculation. We give Sonoma County the calculation and they include the assessment on the property tax roll. So it's on every property owner's tax bill. And it's for the fiscal year 2324. So the year that we're currently in, the per equivalent residential unit was $39.98 per ERU. And that's the piece that gets escalated every year. Okay, and as a reminder, getting into some of the regulatory requirements, water and sewer rate payer funding is governed by Prop 218. May not intermingle funds, subsidize customers charged for costs of services, sorry, must charge for cost of services and approve rates through public hearing process. The two big ones here for us anyways may not intermingle funds. So we have a very strict fund structure in center as a water to where we ensure that we're only moving money, water money between water operating and capital funds, sewer from sewer operating and capital funds and the same for regional. Because obviously if we get into a position where we're using water money to pay for sewer than the water rate payers are subsidizing somebody's sewer bill. That second piece is important too may not subsidize customers. You may, so you may not subsidize customers with rate revenue. So our water fund does have a program called the H2O program to help to others program where we work with a local nonprofit to vet low income families. And we do offer some subsidized assistance through that, but that's paid via sell tower lease revenues that we get. And so they're not rate revenues and therefore we remain in compliance with Prop 218 even though we're offering a subsidy. And the regional funding again Santa Rosa pays our portion from the rate sewer rate payer funds or local sewer enterprise governed by the regional agreement and the stormwater funding is allowed for both stormwater and creeks. And a vote is required to do anything other than escalate the P per ERU price by the CPI every year. Here's a look at our annual budget for the water enterprises as a whole, not including stormwater, just the three core water enterprises in the current fiscal year. And that budget consists of $169 million, $103 million O and M, $38 million and CIP and $28 million of debt service, of which most of that is going to fund the debt service piece of the regional enterprise rather than our local system. Our current annual budget for the stormwater enterprise is $5.5 million, $3.3 of that being in operations and maintenance 2.2 and capital projects $480,000 of the that CIP funding is coming directly from the stormwater and creeks enterprise funds directly. $1.72 million is the outside funding sources of gas tax, capital facility fees and other miscellaneous sources that were spoken to on a previous slide. Okay, so here's the distribution of our O and M expenses, our O and M expense budget in the current fiscal year. Two of these stick out more than the others, salaries and benefits and water purchase. And lo and behold, those are two hot button items as we look into programming next year's budget as well. So, you know, the city's MOUs are expiring at the end of this fiscal year. We haven't negotiated them yet. So we're not sure what salary and benefits impacts are going to be over the next couple of years. And Sonoma water has also been bringing pretty aggressive proposed rate increases. The, you know, last year we sold at 10 and a half percent this year. They brought force over 14 percent. And we're currently in talks to see where we end up with our final proposal will update you accordingly. Okay, so now we're going to go over some of our budget information for next year, including assumptions, talk a little bit about purchase of water and some of our revenues. I'll speak briefly to CIP funding. You'll see what I mean when we get there. And I'll remind you all what our remaining schedule is for the budget approval process for next year. Okay, so as I just mentioned, the first expenditure assumption is that there's no colas. So as such, we're not building any colas or increased benefits into our budgeting for next year. And that's true of every department in the city. It's not unique to water. Insurance this year, we've in our water funds, we've seen between 19 and 65 percent increase in our insurance premiums for liability and property insurance. I believe the smallest increase I saw was 19 percent. So that's pretty aggressive. Electricity, obviously PG&E's raising rates. You saw pretty aggressive electricity budget last year. We're trending about on that budget for actuals this year, and we're looking to make another increase next year. Not exactly sure where we're going to land on that, but it is going to be another significant year of increases. There's talks from our energy and sustainability group that PG&E, I believe, is proposing 18 percent at ACPUC meeting next month, I believe. So anyway, there's a lot going on with that. We'll have updates for you later on in the budget cycle as more information comes available. Water purchase budget, obviously, with the Sonoma Water aggressive increase request, that's a big line item. So we'll keep you apprised of what's going on there. Software as a service. As we all know, most software these days is going cloud-based. We're utilizing, we're trying to increase our use of technology and different asset management programs, and we're always upgrading. And so we're having to buy a lot more software licenses than we have in years previous. Not all of that is an increase, though. Some of it's just a change as to how it was paid for. So for example, this year, you'll see some sharp increases on software as a service if you were to look at that line item. But our IT allocation from downtown went down. And so basically what happened was instead of them paying for our licenses and us paying them, we've stepped outside of that model and started paying for some of our licenses directly. And we're also putting forth some staffing changes. Doing the math, oops, there we go. We're looking at possibly putting forth a new utility system supervisor on the regional enterprise. The title of that position would actually be a reclamation supervisor on the reclamation system. We're also looking into the possibility of adding a trucked waste coordinator to manage our waste tipping program at the plant, which is now our largest revenue generator currently. And just a reminder, our rates, we're coming into the final year of our rate increases. July 1, 2024, we're going to increase water use and fixed 4% and 2% on the sewer use and fixed. We're expecting development to stay stable. We've seen in terms of water demand, we've seen some growth. So like when we budgeted this year, we budgeted for about a 5% rebound in demand. And we're seeing about that, but about that in reality year to date. That being said, I don't think we want to assume that we're going to get another 5% bump in demand next year. So we're going with the 1% growth assumption and flat demand. And as I just said, volume of water increasing by 1%, that's the 1% growth rate assumption. The Sonoma water rate increase. I spoke earlier that we're in talks with them about this. They came with over 14%. Just came back yesterday, I believe, with 9.88%. That by no means, it's not certain that we'll end up here. We may see more changes, but we're still very much in process on that. On our revenues, like I said, increasing volume 1% plus the 4% rate increase. Sewer, we're increasing revenue by the 2% rate increase. And then just to remind you here that the sewer revenue changes more slowly than water revenue because of the sewer caps. So if you use more water than the tier one, you get billed tier two rates for the rest of your usage. If you use more than your sewer cap of water, you pay the sewer cap as a residential customer. You don't get paid charge incrementally up above the sewer cap. So we see the growth behaves differently in the wastewater side than it does on water. Then in terms of our regional revenues, like I said, our truck waste tipping fees are increasing. I believe we've seen pretty big year over year growth on that. We're budgeting 3.6 million for next year. And we have made some downward adjustments to interest and miscellaneous revenues. Just looking at the actuals for several years, the miscellaneous revenues and the interest earnings were just over budgeted. So we've adjusted those numbers down to be more in line with what we think the actuals would be. Now looking at our reserves, just a reminder, we can only show you the reserves as of June 30, 2023 because we're currently in the year, ended June 30, 2024. So we're always two years in arrears on these looks. Operating reserves, we always keep at 15% of operations. Catastrophic reserves are for emergencies. We've kept those static for several years. Wastewater and regional have small reserves as being the rate stabilization reserve and the 1.25 million geysers reserve. Other than that, we have all three funds have an undesignated fund balance. It's actually called reserve for contingencies, but regional has the refund reserve. Reason we call it refund reserve is because any amounts turned back by regional is therefore refundable to those agencies by the amount in which they overpaid. And we've retained that in the fund to use as rate smoothing. But when you see refund reserve, undesignated fund balance, it's the same thing. The only difference is on one hand you're talking about a local enterprise and when you talk about a refund reserve, it's always with respect to the regional enterprise. Undesignated fund balance, I wanted to point out this 6.4 million and 3.4 million. So we ended the year in water with 14.8, ended the year in wastewater with 13.6. The 6.4 and the 3.4 million are the amount of undesignated fund balance that were consumed as of June 30, 2023. So from July 1, 22 to June 30, 23, our reserves went down by that much in each of the funds. With that being said, we intentionally budgeted approximately a $3 million deficit in both of the funds last year. And our actuals came in a little higher than that. Some of that has to do with our contributions to the 115 trust. But we just wanted to show you because sometimes you see these reserve numbers and they're just like these huge numbers and you don't really have the context. But as you can see, if we're not careful budgeting, we can spend down those reserves pretty quickly. Do you have a question? Is the fund balance is at negative 6.4? Does the fund balance is the difference between the 14 and the 6.4? I've seen that, right? No, no, sorry, sorry. So I did a bad job on the slide, so I apologize. So 14.8 million is where water ended up. And that was after consuming 6.4 million. So that number was north of 20 for June 30, 2022. So that's our fund balance. And that is now, I think that is now as of June 30, 2023. It's a, yeah, it's a balance sheet account. So it's always moving, you know. And then the wastewater fund had a little over 716 million in undesignated fund balance. They spent 3.4 to get down to where they are today. Can we know that you have a fund balance today? No, it's impossible to know because we, in order for, in order to know reserves for a given operating period, you'd have to close out the books and we just, it's not something you can do mid-year. Yes, we do have small deficits built into this year's budget. I believe it's on the order of 3 million per enterprise. No, the current year. Yeah, CIP funding is to be determined. So we're we're looking at our budgets. It's high on our priority this year is priority lists this year is to pass a balanced budget, meaning that our expenditures are covered by our revenues. We're not there yet for next year. We're looking at different options. And so we are going to be evaluating our CIP funding, figuring out what approach we want to take, and we will be updating you all accordingly once we know what the CIP is going to look like. And a reminder of the upcoming budget schedule. Be back. We'll be in front of the full board March 21st to talk about the Sonoma Water Rate increase, taking that same increase to City Council March 26th. Regional partners, the the sub-tact we met with them on the 9th. And then we're meeting with them again in March 14th and we'll schedule a third meeting if needed. We will see you all again for the second time on March 19th, followed by BPU on March 21st with our full budget study session, April 4th at BPU for the formal recommendation to Council, April 16th City Council for the preliminary approval of the regional budget, and then City Council study sessions on May 7th and 8th and hearings and adoption on June 18th. And with that I'll take any questions you all might have. Any questions from board members? Great job. Thank you. I think this is your first time doing this presentation, right? It used to be Kimberly. No, you've done this before. It looks like it, but no it didn't. It didn't. But I was going to give you, that's not what I meant. I was going to give you extra brownie points for that, but you deserve lots of brownie points either way. I guess it, I mean it sounds like every, you know, prices costs are going up, up, up, up. There was only one area where I saw a little bit of downward pressure. And I guess I'm wondering if an increase in fees above the CPI is something, I know it takes a vote it to go above that increase. I just, I'm just wondering, you know, what, what have discussions been around that, if, if any? Yeah. Oh, okay. Not if the BPU. Okay. Never mind. Okay. Go ahead if you have. I have nothing to say. You have not. Thank you. You're welcome. No, I'm good. Thank you. Okay, so thank you very much. I'm just going to say, I guess this was just a overall learning session today and our next meeting will be more of a strategy of moving forward. So, yeah, this today's meeting was to provide some background information, see if the board had the subcommittee had any questions or additional information that would be helpful to receive. And then we are looking for any direction that the committee might have on the assumptions that you saw. So, if you had any direction for us on the flat demand and growth that we're projecting or other assumptions, if those all seem to be reasonable from the subcommittee, then we will move forward with preparing a budget based on those assumptions. I think that increase in demand of 1% seems reasonable, but I was, when, when I was listening to it, I was wondering if with two years now of, you know, good, good water delivery by Mother Nature, if you think that might change. I mean, I know our messaging has been all around, you know, the drought and being careful with our water consumption. I mean, do you think there's a possibility that that might, I mean, it's a difficult thing. You don't necessarily want to encourage that because we could be in a drought next year again, but, but I guess I'm just wondering how that might come into it. So, and I don't know, Nick, if you want to come back up and speak to some of this as well, but, you know, we do look at the trends in the water usage data and we did project a 5% rebound in this fiscal year. We are tracking on that. We're not tracking more than that and based on historical rebound from droughts, we don't see year over year it continue because a lot of the savings tend to be permanent savings. The other thing is it's always difficult when you have a wet winter. There's a double edged sword. So with a wet winter, we tend to see irrigation start later and that's our greater demand. And so I think we're wanting to make sure we're being conservative, but as realistic as we can based on historical trends and I'll let Nick add more detail on that if you'd like. Yeah, I was just going to add as a reminder, you know, we're only talking about budget and when it comes to budgeting, I think the best policy is to under promise and over deliver. And so being as conservative as possible without pulling the rug out from under our own feet is actually beneficial on revenue because if we, we only drive a deficit with expenditures if we blow the expenditure budget, we drive a deficit with revenues for every dollar of revenue we don't collect and that's what's lost on some people. And so I think conservatism is actually good on the revenue side when it comes to budgeting. So I agree. I'll just add my two cents worth here that we in water are almost like farmers that we depend on the weather. And if we have an extremely hot summer, I guarantee you our demand will go up. But you know, everybody talks about the weather, but nobody does much about it. So anyway, those are my comments. So now the meeting is open for public comments. We're now taking public comments and item 3.1. If you're in the room, please move to the microphone and wait for the timer to appear on the screen. Anyone wishing to make a public comment who is present at the meeting will be able to use the microphone. Are there any people standing up? Doesn't look like it to me. Okay. Then I will adjourn the meeting. Thank you very much, everybody.