HWU 2020-2021 Budget – Executive Summary
Presented here are the Henderson Water Utility 2020-2021 Operating and Capital Budgets. We will discuss this in appropriate detail and seek your approval at the 18 May 2020 Board Meeting.
Our conservative budgeting and forecasting over the last several years have served us well. Our declining cash position resulted in adjustment to our rate structure thru the implementation of fixed charges for water and wastewater customers. These changes generated needed revenue and cash flow resulting in an improved cash position. Current issues including urgent capital needs and increased utility and sludge disposal costs, along with the ongoing concerns related to pension and benefit costs put additional pressures on budget preparation. These issues resulted in an overall budgeted expense over 7% which exceeds our annual goal of 3% or less.
The Operating Budget includes estimated operating revenues of $23,659,240, which shows an increase of approximately 6.5% from last year’s budget. Revenues were budgeted projecting static usage from our major contractual customers and factoring the continuing trend of usage decrease from non-contract customers (projected a conservative 4% decline across all customer bases).
Operating expenses are budgeted at $20,839,049, a 7.23% increase when compared to last year’s budget. The increase is due primarily to higher projected costs for utilities, maintenance costs, and sludge hauling and disposal.
This budget includes increased capital expenditures to fund critical projects but does not include any additional borrowing for these major projects. Capital expenditures in this budget will be paid from cash generated from operations and existing reserves. Both Operating Income and Net Position are anticipated to improve, however cash position is budgeted to decrease due to capital needs.
- Salaries and wages are based upon the 102 full-time budgeted positions identified below. With Commissioners, temporary/seasonal employees and interns, our total budgeted complement is 117. 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 $18,000 per employee and is based on experience in the prior fiscal year.
- Workers Compensation charges are based upon 2019 – 2020 charges to date.
- Unemployment Insurance expense is based on 2021 projected rates from the City.
- Retirement Expense is based upon the required contributions of 24.06% of gross wages for non-hazardous duty employees. This rate is unchanged from last year due to the passage of Senate Bill 249, which held the rate steady. Change in required contribution rate moving forward will be capped at 12% annually.
- The Payment in Lieu of Taxes (PILOT) to the City of Henderson will increase by $50,000 this year to $500,000 and continue to increase by that amount to a total of $550,000 in FY 2021-2022.
- Contractual Services is largely made up of miscellaneous consulting services that are not associated and charged to specific projects and other general contractual services related to maintenance of facilities and properties.
Changes in some items compared to last year’s budget:
Utilities: We have increased our planned expenditures by approximately 19% compared to last year’s budget due to additional costs incurred at the South Water Treatment Plant (SWTP) and recent trends of consumption and rates Utility wide. The additional electric costs from Big Rivers of approximately $480,000 were not known until after preparation of the previous budget.
Sludge Hauling and Disposal: Based on increases incurred during previous bidding process in the fall of 2019, current trends in volumes, and potential for increases in next bidding cycle, we have increased this expenditure by approximately 49% 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. Separation into additional subcategories in the prior budget year has provided better tracking, as anticipated. Increased budgeted cost in this fiscal year relates primarily to the $108,000 in repairs related to UV bulb replacement at the North Wastewater Treatment Plant.
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. Overall increase is budgeted at a modest 4.3% for the upcoming fiscal year.
Administration Fee from City: In addition to annual increase in PILOT payment, we have also been projected with a $30,000 increase to 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 $650,000 (actual) with next year projecting to be approximately $680,000. Prior budget included estimate of $670,000 but actual cost was finalized at $650,000 based on final City budget approved after Utility’s. Increase in current fiscal year relates to City/Utility’s restructuring of safety operations.
Last year’s personnel budget (after amendment during the year) contained 101 full-time classified employees, 5 Water & Sewer Commissioners and 10 interns and seasonal employees, for a total of 116 budgeted positions.
In this year’s budget, we will increase our complement of employees to 102 full-time equivalents, including some unfilled positions. This equates to 85 full-time employees at full staff. This is a result of eliminating currently unfilled positions and restructuring in some areas.
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||5||10|
|Water Treatment Operator II||9|
|Wastewater Treatment Operator I||6||8|
|Wastewater Treatment Operator II||8|
|Maintenance Tech I||3||10|
|Maintenance Tech II||9|
|Maintenance Tech Sr.||1|
|Utility System Worker I||9||18|
|Utility System Worker II||6|
|Utility System Worker III||6|
As an example, there are 14 total classified positions listed in the Water Treatment Operator I and II classifications; however, there will never be more than 10 of those positions permanently filled. Five 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 10 water operators.
All of these “ghost” slots taken together overstate our actual full-time complement by sixteen positions, so that the authorized grand total of 102 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:
Operator Positions: We are adding and subtracting operator positions to adjust the mix of entry and experienced operators, but these adjustments do not impact the total number of employees.
We have three Water Quality Specialist positions in our water and wastewater laboratories. Last year, we attempted to make one of those positions a Water Quality Specialist – Lead, to have a leadership position available in this vital area. This year, we are eliminating that Lead position and returning to the previous arrangement.
Our Environmental Compliance and Pretreatment Coordinator position has been vacant for several months, after the retirement of the incumbent. We are eliminating that position, and instead will add a position titled “Collection System Operator”, which will fulfill the duties of the former position, as well as some additional duties on the wastewater side of the business. This is similar to the Distribution Operator position we added a few years ago and concentrates some duties within the Collection System under one individual, for better accountability.
We are adding a position for an additional Project Engineer and attempting to hire a young engineering school graduate near the end of this calendar year. This person will be trained to assume duties currently performed by other staff who are nearing retirement.
In the Systems Operation area, we are adding a position for an additional Locator/Geospatial Technician. With the added emphasis on “Call 811 Before You Dig” at the State level, the workload for this function now exceeds the ability of one person to handle. When workload is smaller, adding an additional person will allow us to perform more mapping and GIS-locating of our existing infrastructure, as well as some condition assessments that we have lagged on in the past.
This is a small number of changes compared to recent years. As far as number of positions, their duties, and the coverage we have for vital functions, the Personnel front is relatively stable. With all these changes, including adding the Project Engineer position, our head count is increasing by one.
Our Capital Budget for this year includes a total allocation of $4,500,000 for capital projects and new equipment. This represents an increase of $1,000,000 compared to the previous fiscal year budget. This increase was requested due to urgent infrastructure needs and available reserve funds. We have not included detailed descriptions of the items listed as they seem to be self-explanatory; details available on request. Several projects that were budgeted in the 2019-2020 fiscal year are being carried over into next year’s budget as incomplete.
Completion of the North Wastewater Plant (Headworks) project in the last quarter of CY 2016 was the last piece necessary to complete our Long-Term Control Plan (LTCP) as amended, as required under a Consent Judgment with the Commonwealth of Kentucky. As we completed that long process, we were able to terminate that judgment and are released from those obligations.
Our focus continues on Water System projects, including planning for expansion/renovation at the South Water Plant. We have completed the first four of a series of projects to renovate our nine water storage tanks with the Frontier, College, Vine Street, and Green River Road Tank projects in recent years, and the Four-Star Tank is ready to be bid and awarded this spring. Funds for the Four-Star Tank project are being earmarked in the 2020-2021 Capital Budget.
Additional funds for design of the South Water Treatment Plant Raw Water Intake and Pipeline are included in this budget. Design of this large project will be completed near the end of this calendar year, with bidding and construction starting in the spring of 2021. This project is a high priority due to greatly increased electric power costs at the current intake on the Big Rivers property, due to shut down of portions of the power generators on that site, on which we depend for raw water.
An additional project funded in this year’s budget is the Myrene Drive Force Main, which will replace an aging line near the river with a larger line that travels through neighborhoods between the Myrene Drive sewer pump station and the Atkinson Park pump station. Further segments of this project will include a new Atkinson Park sewer pump station and replacement of the force main from that station, back into the sewer system near the intersection of 14th Street and Adams Lane.
After accepting Proposals, we are working to evaluate an Advance Metering Infrastructure (AMI) project that will replace most of our residential water meters over the next few years. An allocation of $600,000 from the new Capital Budget will continue implementation of this system into the new fiscal year.
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, $2,353,000 is being allocated to ongoing projects, $300,000 is being dedicated to new projects in the coming year, leaving $1,847,000 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 customers demand.
No additional borrowings or refinancing are currently projected for the upcoming fiscal year. 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 ranging from 1.0% to 3.5% with maturities ranging from fiscal year 2024 to 2035. 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 are, in conjunction with the City, exploring 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.
A Final Note:
The operating margin presented in this budget continues to be sound, considering some specific challenges related to sludge disposal and electric costs. With the implementation of fixed water and wastewater charges, along with our previous comprehensive review of expenses, both overall and specifically in conjunction with cost saving initiatives, we have continued to generate cash from operations to adequately fund our debt service and a portion of our needed capital expenditures in conjunction with a sensible use of cash reserves. Based on our required debt service and budgeted increase in capital expenditures, we are projecting to decrease cash reserves by approximately $1.3 million during the 2021 fiscal year.
Constant prudent examination of operating costs and future capital needs will be required. Additional adjustment to our rate structure will likely be necessary in the future to sufficiently fund operations and capital projects. Furthermore, possible refinancing of outstanding debt and additional borrowings for critical capital needs may be warranted, especially if advantageous interest rates continue.
In conclusion, the budget continues to be austere. Needed actions have been taken to improve the overall financial position of the Utility but additional measures will likely 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.
We want to thank our Administrative Staff for their diligence and professionalism in working on this document. It represents a combined effort of many people. This group has an ongoing commitment to providing safe, clean, dependable, and reasonably priced water, wastewater, and stormwater services, from intake to outfall, for the citizens of Henderson and our service area.