HWU 2018-2019 Budget – Executive Summary
Presented here are the Henderson Water Utility 2019‐2020 Operating and Capital Budgets. We will discuss this in appropriate detail and seek your approval at the 20 May 2019 Board Meeting.
The Operating Budget includes estimated operating revenues of $22,219,240, which shows an increase of approximately 7.7% from last year based on the implementation of additional fixed charges for water and wastewater services, effective July 1, 2019. Revenues were budgeted projecting static usage from our major contractual customers and factoring the continuing trend of usage decrease from non‐contract customers (projected 4% decline in residential and static usage in industrial and commercial customers).
This budget does not anticipate any additional borrowing for major projects. Capital projects in this budget will be paid from cash generated from operations and existing reserves. Our conservative budgeting and forecasting over the last several years have served us well, however our declining cash position resulted in adjustment to our rates and rate structure thru the implementation of $15 fixed charges for water and wastewater customer being phased in effective July 1st in 2018 and 2019. Additional adjustment to our rate structure will likely be necessary in the future to sufficiently fund operations and capital projects.
Operating expenses are budgeted at $19,434,323, a 2.75% increase when compared to last year. The increase is due primarily to higher projected costs for employee benefits, utilities, maintenance costs and sludge hauling and disposal.
- Salaries and wages are based upon the 101 full‐time budgeted positions identified below.
With Commissioners, temporary/seasonal employees and interns, our total budgeted complement is 116.
- 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, at a cost of $18,000 per employee, up from $ 17,000 in the prior fiscal year.
- Workers Compensation charges are based upon 2018 ‐ 2019 charges to date.
- Unemployment Insurance expense is based on 2020 projected rates from the City.
- Retirement Expense is based upon the required contributions of 24.06% of gross wages for non‐hazardous duty employees. Last year the required contribution was 21.48%. Change in required contribution rate continues to 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 $ 450,000 and continue to increase by that amount to a total of $ 550,000 in FY 2021‐2022.
- Contractual Services is largely made up of two components:
- Miscellaneous Consulting Services, when not charged to a specific project
- Mowing and grounds maintenance covering all HWU facilities and properties
Changes in some items compared to last year’s budget:
Utilities: We have increased our planned expenditures by approximately 9% considering recent trends of consumption and rates. While we cannot predict all variables in our consumption or rates (with various vendors), we have trended over budget during the past fiscal year to date.
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. Management anticipates increased costs in this area due to rising costs in parts and services, especially related to pumps and paving.
Sludge Hauling and Disposal: Based on projected increases during upcoming bidding process, and current trends in volumes, have increased this expenditure by approximately 18% from prior year budget levels.
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.
Administration Fee from City: In addition to increase in PILOT payment, we have also been projected with a $50,000 increase to the admin fee we pay the City monthly for services provided for utility billing, IT, payroll and accounts payable. Current fiscal year level was $620,000 (actual) with next year projecting to be approximately $670,000.
Last year’s personnel budget (after amendment during the year) contained 102 full‐time classified employees, the General Manager, 5 Water & Sewer Commissioners and 13 seasonal employees, for a total of 117 budgeted positions.
In this year’s budget, we will reduce our complement of employees to 101 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.
Interns and Seasonal: We are continuing the Seasonal “Treatment/Engineering Intern” positions, although we’ve had difficulty in luring young people into these positions. The number of seasonal employees remains unchanged.
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||4||10|
|Water Treatment Operator II||10|
|Wastewater Treatment Operator I||7||8|
|Wastewater Treatment Operator II||7|
|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. Four 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 101 full‐time positions overall will never actually exceed 85 actual employees, excluding our Commissioners, seasonal employees and interns.
Force Reductions: During our discussions in early 2018 with the City Commission about our reserves and our forecasts of our cash position, we agreed to address our shortfall in part by expense reductions. This led to a review of our organizational structure that identified several positions that could be eliminated or left unfilled as we sought to implement $ 400,000 in annual savings.
The following briefly discusses additional changes:
Director Positions: We combined the former separate Director positions in Field and Plant Operations into a unified Director of Operations, assisted by a Treatment Manager, in late 2018. This change has worked well. This budget continues that arrangement.
Our Automation Manager position has been vacant for several months, after the retirement of the incumbent. We are not filling that position; our alternative is to reclassify one of the existing Automation Specialists into a lead role, which he has been filling since the retirement of the former manager.
In last year’s budget, we created a Specialist position to act as the “second” to the operator of the Camera Truck. This was intended to allow succession planning, but after further review, we feel it more proper to remove this now‐vacant position from the roster and add an additional Utility System Worker II position in its place. We will then rotate several Utility System Workers in various classes through this position so that more employees are competent in handling this vital tool. When succession eventually happens, we will then be able to provide an opportunity for advancement to a pool of employees, instead of a chosen successor.
We have three Water Quality Specialist positions in our water and wastewater laboratories. This year, we will make one of those positions a Water Quality Specialist – Lead, to have a leadership position available in this vital area.
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.
Our Capital Budget for this year includes a total allocation of $3,500,000 for capital projects and new equipment. 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
2018‐2019 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 three of a series of projects to renovate our nine water storage tanks with the Frontier, College and Vine Street Tank projects in recent years,
and the Green River Road Tank has been bid and awarded this spring. Funds for the GRR Tank project are being earmarked in the 2019‐2020 Capital Budget.
In the Capital Budget section, $1,512,245 is being allocated to ongoing projects, $275,000 is being dedicated to new projects in the coming year, leaving $1,712,755 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 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 2023 to 2034. 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 equipment piece, new sewer vacuum truck.
A Final Note:
The operating margin presented in this budget continues to improve. With the implementation of fixed water and wastewater charges, along with a comprehensive review of expenses, both overall and specifically in conjunction with cost saving initiatives, we have improved the operating outlook projected for the next fiscal year. However, based on our required debt service and needed capital expenditures, we are still projecting to diminish cash reserves by approximately $166,000 during the fiscal year. The final phase in of additional fixed charges at the start of this new fiscal year and projected consumption trends will provide additional needed revenue, but constant prudent examination of operating costs and future capital needs will be required.
In conclusion, this is an austere budget. Needed actions have been made to improve the financial position of the Utility but additional measures will be needed to ensure that future operating and capital needs are met.
We want to thank our Administrative Staff for their diligence 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 services, from intake to outfall.