SR-502-001-01 (5)Council Meeting: June 21, 2005 Santa Monica, CA
TO: Mayor and City Council
From: City Staff
Subject: Supplemental Information Regarding the Status of the Water, Solid Waste,
and Wastewater Funds and Additional Options for Addressing Rate
Increases
Introduction
This report provides additional information regarding expenditures and revenues for the
above noted enterprise funds and additional options for addressing the need to bring
expenditures and revenues into balance.
Backqround
As noted in the study session presentation of May 17, 2005 and in the staff report
associated with Item 8C on the City Council agenda for June 14, 2005 expenditures in
the Water, Solid Waste and Wastewater funds are outpacing revenues. Council was
asked to provide direction to staff regarding options for rate increases to include in the
budget for 2005/06 and budget plan for 2006/07 but deferred the item to June 21.
Discussion
Sound Financial Practice
The basic rules of good public financial practice that the City observes in regard to the
General Fund are essentially the same for Enterprise Funds. They include:
• Forecasting expenditures and revenues five years out
1
• Constraining expenditures and raising revenues to correct projected imbalance
• Distinguishing between revenue trends that can be considered ongoing as
opposed to one-time or short duration
• Using one-time or short duration funds only for finite, one-time purposes
• Maintaining infrastructure investment at a responsible level
• Maintaining a prudent reserve
Unlike Santa Monica's General Fund, the Enterprise Funds do not enjoy a diverse
revenue base and are supported in significant part by rate payers. As noted in the
study session presentation, the Enterprise Funds are subject to many of the expenditure
trends that the General Fund has faced in recent years with costs rising at a rate above
the increase in the Consumer Price Index (CPI) that is applied annually to rates that are
paid for Enterprise services. Beverly Hills and Culver City are considering Enterprise
rate increases for the same reasons.
The staff recommendation to increase the rates paid for Water, Solid Waste and
Wastewater services stems from the need to close the gap between the projected trend
line for expenditures and revenues in each fund and maintain a sufficient reserve to
respond to emergencies and other unanticipated contingencies.
"Translating" Financial Information
Council Members and other interested parties have requested additional information
about the activities and finances of the enterprise funds. To the extent that information
is available, Finance and Environmental and Public Works Management staff have
addressed those questions and attachments to this report reflect that effort.
2
Limitations on the immediate availability of information stem in large part from the
"program" related information requested and the method of budgeting and financial
reporting long used by the City - the "line item" budget. Our current method, one of
several appropriate for public agencies, associates expenditures and revenues with line
items by organizational unit (for example, fuel, utilities, and salaries are line items for
the Human Services Division, the Solid Waste Division and the Fire Prevention Division,
etc.) An alternative approach, not used by the City, is a"program" budget, which
associates expenditures and revenues by individual services or activities (for example,
traffic control could be a program and costs associated with that program, regardless of
where in the organization they are incurred - the sign shop, signal repair shop,
accounts payable or motorcycle patrol unit - would be attributed to that program).
Converting line item information to program information is a considerable exercise and
isolating portions of line item costs to assign to programs requires the development of
reasoned assumptions.
Because Water and Solid Waste Fund rate increases are recommended for 2005/06
and a Wastewater Fund rate increase is not recommended until 2006/07, staff has
concentrated on the former for this report. The charts at Attachments A through H
present information on costs and revenues for the Water and Solid Waste funds and tie
to financial information in the June 14 staff report and City budget documents. Pie
charts for each fund demonstrate where the money comes from and where the money
goes. For the Solid Waste Fund, trend information for the past five years by cost and
revenue category is also presented (at Attachments C and D). Because past trend
3
information for the Water Fund is distorted by one-time revenue and expenditure events
and accounting changes related to MtBE settlement agreements it is not meaningful for
decision making. Trend information for the principal factors driving Solid Waste costs is
provided at Attachment F.
Harmonizing Values and Policies
In the study session Council Members sought assurance that economies and
efficiencies had been sought prior to recommending rate increases. The staff report for
Item 8C on the June 14 agenda highlighted such efforts. While staff seeks continuously
to enhance efficiency, those efforts are tempered by the need to harmonize them with
other Council and community values and policies.
The underlying values of customer service, responsiveness to community needs and
commitment to sustainability can and do affect operating efficiency. Street sweeping
schedules and trash collection routes that are established for optimum efficiency have
been modified to accommodate factors as diverse as school drop off/pick up hours and
constituent complaints of early morning vehicle noise. Both a focus on customer
service and commitment to achieving sustainability goals and objectives led Santa
Monica to direct savings achieved by conversion to automated one-person collection
vehicles into a new green waste collection service rather than rate reduction. Enterprise
service consumers bear the cost of programs that educate the community to reuse and
recycle in pursuit of diversion goals and others that demonstrate low-water landscaping
in pursuit of conservation goals. The City's alternatively fueled vehicles, now mandated
4
by the SCAQMD for public agency fleets, cost substantially more than the
conventionally fuelled vehicles that are used by private refuse companies.
Action Options
Staff has offered three options to close the revenue/expenditure gap in each Enterprise
Fund. Delay in addressing the need for rate increases will result in the necessity of
even higher rates when ultimately instituted or an even longer recovery schedule for the
funds. Adoption of a balanced budget requires action on rates. If Council wishes to
pursue additional efficiencies and economies, approving the first year rate increase of
the extended (three-year recovery) option will provide time to do so and may reduce the
amount of increase in the subsequent two years.
For the Solid Waste Fund, staff proposes to evaluate an array of options for addressing
collection, recycling and transfer operations over the next six to eight months, with
information and recommendations scheduled to reach Council in the spring. That
process will include input from expert advisors and stakeholders. Clearly the revenue
and expenditure projections for out years can be affected by the future decisions
reached by Council. Notwithstanding possible outcomes, a 2005/06 rate increase
remains the appropriate course of action and staff has identified an additional option for
consideration.
Ongoing Solid Waste Management Fund expenditures could be reduced by $395,000
annually by eliminating a number of programs which might be considered discretionary
5
rather than essential in addressing the City's diversion goals. The resulting reduction in
ongoing costs would lower the minimum required 2005/06 rate increase from 12%
(8.2% above CPI) to 9% (5.2% above CPI). The programs are as follows:
•$59,000 -- Elimination of restaurant food waste recycling program that currently
services 35 restaurants. Cost savings from reduced temporary employee wages,
equipment costs, and disposal costs.
•$125,000 - Elimination of Chrysalis cardboard recycling program on the 3rd
Street Promenade and SM Pier. Savings from reduction in contract costs.
•$75,000 - Elimination of Christmas tree recycling program. Savings from
reduced overtime costs.
•$44,000 - Reduction of commercial mixed waste paper recycling program.
Savings from reduced temporary employee wages, vehicle costs, and processing
costs.
•$62,000 - Cease composting of curbside collected greenwaste and instead
begin diverting greenwaste to landfill for use as daily cover. Savings from
reduced processing costs.
•$30,000 - Elimination of electronic waste recycling program. Savings from
reduced processing costs.
Budaet/Financial Imaact
The extended option rate increases as recommended in the June 14 staff report for the
Solid Waste Fund (beginning in July 2005 with 12%, or 8.2% above CPI) and for the
Water Fund (beginning in January 2006 with 12%, or 8.2% above CPI) will close the
projected gap between revenues and expenditures for those funds over the next several
years. As noted above, the elimination of certain Solid Waste Fund programs would
reduce the previously recommended July 2005 rate increase for that fund to 9% (or
5.2% above CPI). For the Solid Waste Fund, the second and third year increases on
the extended option may be revised depending upon the outcome of the analysis of
6
collection, recycling and transfer options to be conducted over the next eight months.
Rate increases to bring the Wastewater Fund into balance are recommended to
commence in July 2006 and can be acted upon by Council during adoption of the
budget for FY 2006/07.
Recommendation
Staff recommends that the City Council adopt rate increases for the Water and Solid
Waste Funds as noted in the preceding paragraph and on the extended schedule
shown in the June 14 staff report, determining for the Solid Waste Fund whether
programs identified above should be eliminated to provide for a lower rate increase.
Prepared by: Susan E. McCarthy, City Manager
Craig Perkins, Director of Environmental and Public Works Management
Steve Stark, Director of Finance
Attachments: A. June 14, 2005 Staff Report (http://www.santa-
monica.orq/cityclerk/ council/aqendas/2005/20050621/s2005062108-A.pdf)
B. Total Solid Waste Fund Costs by Category 2005/06
C. Total Solid Waste Fund Revenues by Category 2005/06
D. Total Solid Waste Fund Costs by Category 2001/02 to 2005/06
D1. Total Solid Waste Fund Costs by Category 2001/02 to 2005/06
(Table)
E. Total Solid Waste Fund Revenues by Category 2001/02 to
2005/06
E1. Total Solid Waste Fund Revenues by Category 2001/02 to
2005/06 (Table)
F. Trend Information on Principal Cost Drivers for the Solid Waste
Fund
G. Total Water Fund Costs by Category 2005/06
G1. Total Water Fund Costs by Category 2005/06 (Table)
H. Total Water Fund Revenues by Category 2005/06
H1. Total Water Fund Revenues by Category 2005/06 (Table)
7
TOTAL SOLID WASTE FUND COSTS BY CATEGORY
PROPOSED FY 2005-06 -- $19,287,951
, o,
9°k
9°k
0 Employee Wages/Insurance/Retirement
Landfill Disposal/Recycling Processing
^ Vehicle Repairs & Maintenance
^ Vehicle Replacement Program
^ City Yard Rent
DAdministratlve Indirect
Environmental Programs Reimbursement
^ Miscellaneous Supplies & Expenses
^ Liability & Vehicle Insurance
Special Department Supplies
^ Vehicle Fuels
0 Bin Repairs/Purchases
City Yard Repairs & Improvements
16°k
TOTAL SOLID WASTE FUND REVENUES BY CATEGORY
PROPOSED FY 2005-06 -- $17,282,122
o ~% ~% 1%1%
~oi1/o
7%
8%
42%
0 Multi-Family Collection/Street Sweeping Fees
Single Family Collection/Street Sweeping F
^ Commercial Collection Fees
^ Commercial Street Sweeping/Litter/Sidewalk
Cleaning Fees
^ Reimbursement for City Parking Structure
Maintenance
OThird Street Promenade Reimbursement
Public User Transfer Facility Fees
^ Private Hauler Surcharge
^ Recycled Material Sales
Transit Mall Maintenance Reimbursement
^ Private Hauler Transfer Facility Fees
0 City Dept. Transfer Facility Fees
Miscellaneous Revenues
^ Recycling Contractor City Yard Rent
17%
TOTAL SOLID WASTE FUND COSTS BY CATEGORY
FY 2001-02 TO FY 2005-06
20,000,000
17,500,000
15,000,000
12,500,000
~
H
O 10,000,000
U
7.500.000
5, 000, 000
2, 500, 000
0
FY 01-02
FY 02-03 FY 03-04 FY 04-05 FY 05-06
YEARS
City Yard Repairs &
I mprovements
0 Bin Repairs/Purchases
^Vehicle Fuels
Special Department Supplies
^Liability & Vehicle Insurance
^Miscellaneous Supplies &
Expenses
Environmental Programs
Reimbursement
DAdministratlve Indirect
^ City Yard Rent
^Vehicle Replacement Program
^Vehicle Repairs & Maintenance
Landfill Disposal/Recycling
Processi ng
0 Employee
Wages/I nsu rance/Reti rement
ACTUAL ACTUAL ACTUAL REV.BUDGET PROPOSED
SOLID WASTE FUND COST CATEGORIES FY 01-02 FY 02-03 FY 03-04 FY 04-05 FY 05-06
Employee Wages/Insurance/Retirement 5,957,571 6,343,832 6,898,657 7,572,847 7,606,467
Landfill Disposal/Recycling Processing 2,032,296 2,055,930 2,854,577 2,742,900 3,109,100
Vehicle Repairs & Maintenance 1,993,350 2,017,867 2,128,574 2,120,700 2,627,900
Vehicle Replacement Program 1,940,410 1,759,149 1,179,618 522,709 1,757,702
City Yard Rent 891,200 891,200 891,200 1,204,268 1,204,268
Administratlve Indirect 501,700 598,500 522,400 670,000 777,935
Environmental Programs Reimbursement 371,593 377,399 394,935 503,200 534,200
Miscellaneous Supplies & Expenses 857,718 481,117 580,050 554,222 499,079
Liability & Vehicle Insurance 111,800 141,600 93,300 161,400 293,000
Special Department Supplies 402,923 317,330 332,608 279,000 270,800
Vehicle Fuels 152,540 188,539 238,169 199,000 240,100
Bin Repairs/Purchases 550,397 339,356 247,879 193,200 185,000
City Yard Repairs & Improvements 250,000 540,000 75,000 164,465 182,400
TOTAL 16,013,498 16,051,819 16,436,967 16,887,911 19,287,951
TOTAL SOLID WASTE FUND REVENUES BY CATEGORY
FY 2001-02 TO FY 2005-06
20, 000, 000
17, 500, 000
15, 000, 000
12, 500, 000
~
w
~
W 10, 000, 000
>
w
~
7, 500, 000
5, 000, 000
2, 500, 000
0
FY 01-02
FY 02-03 FY 03-04 FY 04-05 FY 05-06
YEARS
^ Recycling Contractor City Yard Rent
Miscellaneous Revenues
0 City Dept. Transfer Facility Fees
^ Private Hauler Transfer Facility Fees
Transit Mall Maintenance
Reimbursement
^ Recycled Material Sales
^ Private Hauler Surcharge
Public User Transfer Facility Fees
OThird Street Promenade
Reimbursement
^ Reimbursement for City Parking
Structure Maintenance
^ Commercial Street
Sweeping/Litter/Sidewalk Cleaning
Fees
^ Commercial Collection Fees
SOLID WASTE FUND REVENUE CATEGORIES ACTUAL ACTUAL ACTUAL EST. BUDGET PROPOSED
FY 01-02 FY 02-03 FY 03-04 FY 04-05 FY 05-06
Multi-Family Collection/Street Sweeping Fees 6,866,205 7,694,617 7,462,401 7,454,829 7,478,755
Single Family Collection/Street Sweeping Fees 2,692,860 2,881,237 2,978,297 2,965,149 2,900,473
Commercial Collection Fees 889,954 1,237,339 1,216,996 1,304,453 1,320,179
Commercial Street Sweeping/Litter/Sidewalk Cleaning Fees 1,202,959 1,371,957 1,279,962 1,275,569 1,300,593
Reimbursement for City Parking Structure Maintenance 673,489 831,403 856,145 700,700 1,163,022
Third Street Promenade Reimbursement 778,800 778,800 778,800 778,800 802,200
Public User Transfer Facility Fees 667,976 693,458 776,824 780,000 780,000
Private Hauler Surcharge 369,202 309,733 333,290 419,700 419,700
Recycled Material Sales 118,079 159,475 199,574 200,000 220000
Transit Mall Maintenance Reimbursement 0 173,800 173,800 173,800 215,700
Private Hauler Transfer Facility Fees 156,392 136,598 244,206 200,000 210,000
City Dept. Transfer Facility Fees 269,731 180,683 206,074 180,000 180,000
Miscellaneous Revenues 280,244 115,259 110,751 775,626 174,100
Recycling Contractor City Yard Rent 118,028 101,241 77,923 117,400 117,400
TOTAL 15,083,919 16,665,600 16,695,043 17,326,026 17,282,122
Trend Information on Principal Cost Drivers for the Solid Waste Fund
As indicated in the May 17th presentation to City Council and in the June 14, 2005 staff
report there are six major expenditure factors: salaries, health insurance, retirement,
vehicle fuel (natural gas and CNG), vehicle maintenance and disposal fees which have
the greatest impact on the Solid Waste Fund balance. The costs associated with the
above expenditures are far out pacing the Consumer Price Index as published by the
Department of Labor for the periods of February to February annually.
The CPI increases have been as follows over the period used to establish trends:
FY98/99 FY99/00 FY00/01 FY01 /02 FY02/03 FY03/04 FY04/05 FY05/06
0.9% 2.0% 2.7% 3.6% 2.7% 3.9% 2.1 % 3.8%
The following tables and charts illustrate Solid Waste Fund salary and benefits and
major non-salary expenditure percentage changes from FY 1998-99 through FY2005-
06. Note that all data are based on actual expenses except FY2004-05, which is based
on the Revised Budget and FY2005-06, which is based on the Proposed Budget.
Salary and Benefit Cost Factors for the Solid Waste Fund
Salary and benefit costs - salaries, health insurance, and retirement contribution - have
risen from $4.6 M(FY1998-99) to $7 M(FY2005-06), growing at an average rate of
6.3% annually, with fluctuations ranging from 1 percent to 13 percent each year. The
chart below shows the fluctuation in growth rate compared to CPI
Solid Waste Fund
Salary and Benefit Cost Growth Rate Over Time
s
o r
.
~z
o r
.
d
m
~ 9.0 % t CPI
s
V
r Salaries & Benefits
~
~ 6.oi Average Growth
a
3
0 %
.
0.0 %
FY98/99 FY99/00 FY00/01 FYON02 FY02/03 FY03/04 FY04/05 FY05/06
Fiscal Year
Solid Waste Fund
Salaries, Health Insurance and Retirement Growth Rate Over Time
~o
o r
.
60
0 %
.
50
0 %
.
40
0 %
.
m 30
0 %
.
c
R
zo
oi t CPI
V
. a~~~~,~Salaries
y
~ ~o.o r
a p_p ~
~ ~ ~ ........ ~~
"
~ ~
~"" ±~~ ~•~~~~~~ '° ~ n„ x~,~ Health/Dental lnsurance
Retirerrent Contributions
-~o
o r
.
-zo
o r
.
-30
0 %
.
-40
0 %
.
FY98/99 FY99/00 FY00/01 FYON02 FY02/03 FY03/04 FYOM05 FY05/06
Fiscal Year
• Salaries increased from $3.9 M(FY1998-99) to $5.3 M(FY2005-06), growing at
an average rate of 4.9% annually. Growth increased more rapidly in FY2000-01
primarily due to the addition of 6.0 FTE positions, 5 of which are fully reimbursed
from the Parking Authority Fund for parking structure maintenance. The
reimbursement is reflected in the interfund transfer section of the budget.
• Health/dental insurance increased from $423,266 (FY 1998/99) to $894,150 (FY
2005-06), growing at an average rate of 11.8% annually. Growth increased by a
larger percentage in FY2001-02 primarily due to higher medical insurance costs,
a pattern found in all City budget divisions.
• Retirement contributions grew from $210,657 (FY1998/99) to $789,816 (FY2005-
06), growing at an average rate of 15.8 percent. While the annual contribution
was reduced in 1998-99 and 1999-00, contributions increased significantly in
subsequent years. Increases in FY2003-04 and FY2004-05 primarily reflect the
increase in the employer-share of retirement contributions and affected all City
budget divisions.
Principal Non-Salary Cost Factors for the Solid Waste Fund
Major non-salary cost factors - fuel, vehicle maintenance, and disposal costs - in total
increased from $3.6 M(FY 1998-99) to $5.9 M(FY2005-06), growing at an average rate
of 7.3% annually. The chart below shows the fluctuation in growth rate compared to
CPI.
Solid Waste Fund
Major Non~alary Cost Factors Growth Rate Over Time
25
0 %
.
20
0 %
.
15
0 %
.
N
m
s 'ID"0 /o t CPI
U
~ Major Non-Salary
v 5
0%
. Average Growth
~
a
o
o r
.
-5
0 %
.
-1D.0 %
FY98/99 FY99/00 FY00/01 FYON02 FY02/03 FY03/04 FY04/05 FY05/06
Fiscal Year
Solid Waste Fund
Fuel, Vehicle Maintenance and Disposal Costs Growth Rate Over Time
50
0 %
.
40
0 %
.
~
~~~~~~~~~~~~
30.0 % «
~
20.0 % ~
t~ M~h
~~~~ ~~ ~~ '
~'~
''
c ~
~
t CPI
U ~o
oi ~~ ~ ~1~
.
,~ a~,~~~,pFuel
~
~ '~
d o
o i _ Vehicle Maintenance
.
n
d
a
~~
Disposal Costs
-~o.o i
~
-zo.o r ~~~
~ ~~,,,,,,u,
nuu
;
~
u
~
-30.0 % uu'°,,,,,~
-40
0 %
.
FY98/99 FY99/00 FY00/01 FYON02 FY02/03 FY03/04 FY04/05 FY05/06
Fiscal Year
• Fuel costs fluctuate over time, although fuel usage is consistent each year.
The anticipated cost for next year ($240,100) varies little from the actual
spent in FY1998-99 ($220,629). The annual fluctuation in fuel cost is based
on price-per-gallon which is influenced by factors outside of the City's control.
• Vehicle maintenance costs increased from $1.5 M(FY 1998-99) to $2.6 M
(FY2005-06), growing by 7% annually. The growth rate fluctuates and is
dependent on when vehicles are replaced. Replacement of aging vehicles is
often reflected in decreased maintenance costs. An increase in maintenance
costs may reflect attempts to prolong the life of vehicles prior to their
replacement.
• Waste disposal costs have increased from $1.9 M(FY1998-99) to $3.1 M
(FY2005-06), growing at an average rate of 8.4% annually; however, from
FY2001-02 to FY2003-04, disposal costs grew by 40%. Costs are based on
two key factors: tons delivered and cost per ton. While the City has taken
many steps to divert refuse, the City does not control the cost per ton charged
by disposal sites. Measures within the City's control, such as changes of
work schedules, have been taken to access disposal facilities with lower
disposal rates during their operating hours.
TOTAL WATER FUND COSTS BY CATEGORY
PROPOSED FY 2005-06 -- $16,301,647
2% 1%
2%
6°r
7%
0 Employee Wages/Insurance/Retirement
Water Purchases
^Capital Improvement Projects
^ Environmental Programs Reimbursement
^Administratlve Indirect
0 Miscellaneous Supplies & Equipment
Special Department Supplies
^ Interfund Transfers Out
^ Electricity
Water Treatment Plant Contract Repairs
^ City Yard and Water Office Rent
OVehicle Repairs and Maintenance
PROPOSED
WATER FUND COST CATEGORIES FY 05-06
Employee Wages/Insurance/Retirement 4,537,998
Water Purchases 3,727,688
Capital Improvement Projects 1,806,839
Environmental Programs Reimbursement 1,305,300
Administratlve Indirect 1,176,786
Miscellaneous Supplies & Equipment 1,034,080
Special Department Supplies 849,500
Interfund Transfers Out 502,800
Electricity 483,900
Water Treatment Plant Contract Repairs 348,500
City Yard and Water Office Rent 304,556
Vehicle Repairs and Maintenance 223,700
TOTAL 16,301,647
TOTAL WATER FUND REVENUES BY CATEGORY
PROPOSED FY 2005-06 -- $13,322,000
~ o,
24%
0 Multi-Family Fees
Single Family Fees
^ Commercial Fees
^ Fire Service & Recycled Water Fees
^ Reimbursement from Other Funds
D Other Miscellaneous Revenues
Water Capital Facility Fees
^ Water Demand Mitigation Fees
^ Interest Earnings
26%
PROPOSED
WATER FUND REVENUE CATEGORIES FY 05-06
Multi-Family Fees 4573318
Single Family Fees 3442830
Commercial Fees 3150398
Fire Service & Recycled Water Fees 699054
Reimbursement from Other Funds 531,400
Other Miscellaneous Revenues 455,000
Water Capital Facility Fees 200,000
Water Demand Mitigation Fees 180,000
Interest Earnings 90,000
TOTAL 13,322,000