HWU 2020-2021 Budget – Executive Summary
Presented here are the Henderson Water Utility 2022-2023 Operating and Capital Budgets. We will discuss this in detail and seek your approval at the 16 May 2022 Board Meeting.
The budget and budgeting process for this upcoming fiscal year was arduous, to say the least. Continuing issues from prior year’s budget, including the South Water Intake and new System Operation Center, were joined by additional urgent and significant capital needs related to Pratt Industries and emergency pumping issues at both water plants. These capital issues, along with the current economic environment of increasing costs, personnel recruitment and retention along with product lead times and availability put added pressures on budget preparation. Historically, management’s goal has been to not exceed an over 3% increase in budgeted operating expenses. However, this year due to factors noted above, budgeted operating expenses increased by 5.24%.
The Operating Budget includes estimated operating revenues of $24.9 million, which shows an increase of approximately 3.66% from last year’s budget. Revenues were budgeted projecting static usage from our major contractual customers and factoring the continuing noted trends of usage from non-contract customers.
Operating expenses are budgeted at $22,383,533, a 5.24% increase when compared to last year’s budget. The increase is due primarily to higher projected costs for salaries and benefit costs, sludge hauling and disposal and chemicals.
This budget includes a significant increase in capital expenditures to fund several critical projects and does include expected additional borrowings for these major projects. Capital expenditures in this budget will be paid from cash generated from operations, and new debt. Operating Income is projected to decrease slightly while overall Net Position is expected to improve, however cash position is budgeted to significantly decrease due to capital expenditures.
- Salaries and wages are based upon the 104 full-time budgeted positions identified below. With Commissioners, temporary/seasonal employees and interns, our total budgeted complement is 119. FICA and Medicare are determined by salaries and overtime charged at the applicable statutory rates.
- Life Insurance, Employee Assistance Program, and Cancer Insurance expenses are based on the number of eligible employees and rates supplied by the City.
- Medical Benefits expense is based on the number of eligible employees and the rate per employee supplied by the City, projected at a cost of $20,000 per employee and is based on experience in the self-insured plan from prior fiscal years.
- Workers Compensation charges are based upon 2021 – 2022 charges to date.
- Unemployment Insurance expense is based on 2022 projected rates from the City.
- Retirement Expense is based upon the required contributions of 26.79% of gross wages for non-hazardous duty employees. This rate is down 0.06% from last year. Rate is set annually by CERS.
- The Payment in Lieu of Taxes (PILOT) to the City of Henderson will remain unchanged this year at $550,000 for FY 2022-2023.
Changes in some items compared to last year’s budget:
Utilities: We have decreased our planned expenditures by approximately 22% compared to last year’s budget due to change in costs incurred at the South Water Treatment Plant (SWTP). With the failure of Big River’s large pumps and our shift to smaller pumps, will result in significantly lower power costs.
Sludge Hauling and Disposal: Due to the uncertainty surrounding this expense from the disposal component regarding contract term renewal, and current trends in volumes, we have budgeted this expenditure to increase by 33% from prior year budget levels.
Repairs to Vehicles, Equipment and Structures: These numbers tend to vary annually, since expenditures depend on what breaks and when, along with normal maintenance of equipment and facilities. Budgeted cost in this fiscal year remained relatively flat primarily to reducing SOC projected repairs and maintenance due to moving to new facility along with overall newer age of fleet and equipment.
Chemicals: We have increased the chemical budget based on increasing costs along with current trends in usage, which are variable annually based on water and wastewater conditions. Current economic conditions have increased vendor prices and limited bidders and options. Overall increase is budgeted at a 25% for the upcoming fiscal year.
Administration Fee from City: The administration fee we pay the City for services provided for utility billing, IT, accounts payable, human resources and safety. Current fiscal year level was $730,000 (actual) with next year projecting to be approximately $796,000. Increase in current fiscal year relates to increased budgeted costs of City/departments, no changes in allocation methods.
Last year’s personnel budget (after amendment during the year) contained 104 full-time classified employees, 5 Water & Sewer Commissioners and 10 interns and seasonal employees, for a total of 119 budgeted positions.
In this year’s budget, we will maintain the same total number of budgeted positions, but vacancies in key positions (from retirements, resignations, etc.), as well as striving to build in promotional opportunities in various areas, have caused us to make some changes to categories, titles, and responsibilities.
Extra Positions to Allow Promotions: Over the last few years, we’ve added several slots that allow us to test and promote from within, calling these “ghost” positions. They are summarized in this table:
|Position||Number Available||Not-To-Exceed (Filled)|
|Water Treatment Operator I||6||11|
|Water Treatment Operator II||11|
|Wastewater Treatment Operator I||5||8|
|Wastewater Treatment Operator II||10|
|Maintenance Tech I||3||9|
|Maintenance Tech II||8|
|Maintenance Tech Sr.||1|
|Utility System Worker I||8||19|
|Utility System Worker II||7|
|Utility System Worker III||7|
As an example, there are 17 total classified positions listed in the Water Treatment Operator I and II classifications; however, there will never be more than 11 of those positions permanently filled. Six Water Treatment Plant Operator I positions exist, allowing us to hire and train new operators due to turnover or vacancy; but these positions are only filled when new, untrained operators are hired, and as they gain certification and experience, they will test up into the higher classification, never expanding our total working complement of 11 water operators.
All of these “ghost” slots taken together overstate our actual full-time complement by eighteen positions, so that the authorized grand total of 104 full-time positions overall will never actually exceed 86 actual employees, excluding our Commissioners, seasonal employees, and interns.
The following briefly discusses some changes to personnel in this Budget:
- For our Senior Management Team, we are making changes associated with the upcoming retirement of the General Manager. Bart Boles will occupy the newly created “Assistant General Manager” position, with a salary upgrade of 15%. Bart currently oversees Safety, and that function will be transferred to Todd Bowley, our CFO, with a 5% adjustment to salary for him. These changes will help to ensure the smooth transition of a critical position in the Utility, while we continue to focus on Safety as a vital function.
- Additional duties have been added to the HWU Treatment Superintendent which justify the change in grade from 35 to 38.
- The Chief Operators at our North and South Water Treatment Plants retired this past year. This provided the opportunity to restructure and combine these two positions into one Water Treatment Plant Manager position and add a Water Treatment Plant Operator. So, while two positions (the NWTP and SWTP Chief Operators) are being eliminated from the roster, one new position (Water Treatment Plant Manager) and an additional Water Treatment Plant Operator has been added. Zero net change in our number of positions. As an aside, one of our Wastewater Treatment Chief Operators will be retiring this year, resulting in this same structure on the wastewater operations side, come mid-year.
- The Collection System Operator (CSO) resigned in April. This position was created a couple of years ago when our Industrial Pretreatment Program Coordinator retired. The responsibility of the CSO started out as primarily overseeing pretreatment and FOG but expanded in scope and responsibility to include collections systems operation and management, pump station maintenance, sewer camera management, and vactor & call truck operations. This is a highly specialized position that requires a working knowledge of our system and can’t be filled by an inexperienced applicant. The current Distribution System Operator possesses much of that needed experience. Resultingly, we are eliminating the Distribution System Operator and Collection System Operator positions and creating the HWU Utility Systems Manager position. We will also be reinstating the Pretreatment Coordinator position. Because of the added responsibilities in the HWU Utility Systems Manager position, the grade will increase to Grade 28. Zero net change in our number of positions.
- In the area of our Utility System Workers, we had 5 Crew Leader positions on the roster. We are reclassifying one of those positions into an additional Utility System Worker II position. Net zero change in our number of positions.
- In the area of Maintenance, we are eliminating the HWU Maintenance Supervisor position and a Maintenance Tech II position. This allows us to bring back two Maintenance Team Leader positions (one for plant maintenance and one for pump station maintenance). Net zero change in our number of positions.
There are many structural changes that have been made in response to vacancies and striving for leaner efficiencies where they can be made.
We believe that these changes will help us not only meet the current needs we have while rebuilding our workforce but will also provide more built-in advancement opportunities for our workforce while making us more wage-competitive in several critical positions. All without an increase in total headcount.
Our Capital Budget for this year includes a total allocation of $31,034,357 for capital projects and new equipment. This represents a significant increase compared to the typical $4 million in previous fiscal year budgets. This increase was requested due to urgent infrastructure needs related to the numerous Pratt Industries related projects, the new SOC facility, SWTP Intake and Pipeline, NWWTP Basin and NWTP High Service pumps. We have included detailed descriptions of some of the items listed; more details available on request. Several projects that were budgeted in the 2022 fiscal year but are being carried over into next year’s budget as incomplete due to delays in design and permitting.
Our focus in the next two fiscal years will be the tanks, pumps, mains and lines associated with Pratt, the South Water Intake and the new SOC facility. The Pratt project schedule dictates that these projects, totally an estimated $17 million (at current estimates), be completed by fall of 2023. The South Intake project, with an estimated cost of $10 million, continues in the design and permitting stage and will carryover to multiple fiscal years due to its scope. The new SOC facility was recently bid and, if authorized, should be completed in FY23 for an estimated $5.35 million. Additionally, basin #2 at the NWWTP will need to be renovated to current technology due to the increased flows from Pratt as well as the current system being near end of life. That project is budgeted with $2.5 million in the current year. The Utility will use approximately $4.1 million in ARPA funds from City, $1.3 million in grant funds, along with $5 million from the 2020 City bond issue and future estimated borrowings of $18 million to fund these projects.
Additional focus continues on Water System projects, with the purchase of new High Service Pumps and renovation of the pump building at the North Water Treatment plant for $1.5 million, being of primary focus after the failure in spring 2022 of the existing pumps. Additional funds for design and construction of the South Water Treatment Plant Raw Water Intake and Pipeline in an amount of $2.0 million are included in this budget. (This project was delayed from FY22) Additional funds will be needed in the 2023-2024 fiscal year. Design of this large project will be completed near the end of this calendar year, with bidding and construction starting in the spring of 2023. This project is a high priority due to the failure of the Big Rivers pumps in April 2022, and the emergency temporary solutions that were installed to maintain service over the construction period of 18-24 months.
We are also continuing funding for the Countryview Subdivision stormwater projects that are being constructed as a joint venture with the City. We have committed to continued joint funding of this project in segments as funds become available and have worked with the City and a consultant on final design of several more sections, moving street by street to address long-standing drainage issues.
In the Capital Budget section, $28,830,526 is being allocated to ongoing known projects, $325,000 is being dedicated to new equipment, etc in the coming year, leaving $1,878,831 in unobligated funds for various projects in our Strategic Plan. You have received a copy of our updated Capital Improvement Program and Strategic Plan separately, which outlines our plans in the short and long terms for capital construction. This plan was first produced in 2014, and we’ll continue to revise this blueprint yearly at about this time, to better tailor our budgeted capital expenditures to the needs identified in the plan, and to provide justification for our capital spending priorities.
We will replace a few vehicles as the year progresses but will keep these expenditures to a minimum since funding is so tight. This is necessary to keep us on an even keel, as we rely heavily on our fleet to provide the services our customer’s demand.
Due to the significance of the current capital projects, additional borrowings of $18 million are currently projected for the upcoming fiscal year, this will be in addition to the approximately $5 million the Utility utilized from the City’s 2020 bond issue. Current debt service mainly consists of notes to City of Henderson for funds associated with General Obligation bonds, issued in their name, which were issued to fund various capital projects over time. All have varying fixed rates with maturities ranging from fiscal year 2027 to 2041. The Utility borrowed funds during a mostly advantageous period in interest rates and have wisely refinanced issues when financially beneficial. Additionally, we entered a capital lease in FY 2019, to finance the purchase of a vital piece of equipment, a new sewer vacuum truck.
We continually, in conjunction with the City, explore the potential savings and benefits of refinancing our outstanding debt issues considering the current interest rate markets. However, due to the volatility of these markets and the current economic conditions, final determination for any potential refinancing will be carefully studied and brought forward for discussion and action later, if warranted.
Based on current construction environment and needed capital expenditures in FY24 and beyond to both complete identified and required projects and to fund future projects, additional borrowings may be needed in short term.
A Final Note:
The operating margin presented in this budget continues to be sound, considering some specific challenges related to increasing operating costs. Previous implementation of fixed charges, along with our previous comprehensive review of expenses, have allowed us to continue to generate cash from operations to adequately fund our debt service and a significant portion of our needed capital expenditures in conjunction with a sensible use of cash reserves. Based on our required debt service and substantial budgeted increase in capital expenditures, we are projecting to decrease cash position by approximately $5.2 million during the 2023 fiscal year, including the projected additional borrowing of $18 million.
Constant prudent examination of operating costs and future capital needs will be required. The Utility made a significant economic impact with its $5 million contribution to the City for the purchase of the land for the Pratt Industries development. This outlay while significant in its own has resulted in considerable additional capital expenditures that will lead to future revenue and cash flow for the Utility. Furthermore, possible refinancing of outstanding debt and additional borrowings for critical capital needs may still be warranted beyond fiscal year 2023, especially if advantageous interest rates continue.
In conclusion, the budget continues to be frugal. Needed actions have been taken to improve the overall financial position of the Utility but additional measures may be needed to ensure that future operating and capital needs are sufficiently met. Continuous examination of operations and capital infrastructure, both in the short and long term, considering ever evolving economic, regulatory, and environmental conditions will be essential. Even though the next few fiscal years will be challenging with significant projects in an unstable construction market along ever changing economic conditions effecting operating costs, the Utility is in a position of opportunity with the new industry coming online in the future.
We want to thank our Administrative Staff for their diligence and professionalism in working on this document. It represents a joint effort of many people. This group has an ongoing commitment to supplying safe, clean, dependable, and reasonably priced water, wastewater, and stormwater services, from intake to outfall, for the citizens of Henderson and our service area.