Budget Committee Meeting
May 12, 2005, 7:00pm
Civic Center Council Chambers,
CALL TO ORDER
Chairman Jim Moore called the Ashland Budget Committee meeting to order at 7:02 p.m. on May 12, 2005 in the Civic Center Council Chambers,
Mayor Morrison was absent. Councilor Amarotico, Hartzell, Jackson, and Silbiger were present. Councilor Hardesty was absent. Budget Committee members Bond, Levine, Mackris, Thompson, and Williams were present. Budget Committee member Olsen was absent.
STAFF PRESENT: GINO GRIMALDI, CITY ADMINISTRATOR
LEE TUNEBERG, FINANCE DIRECTOR
DICK WANDERSCHEID, ELECTRIC AND
SCOTT JOHNSON, ELECTRIC SUPERINTENDENT
RICHARD HOLBO, TELECOMMUNICATIONS ENGINEER
MICHAEL AINSWORTH, CABLE TV MANAGER
CINDY HANKS, PROJECT COORDINATOR
BRYN MORRISON, ADMINISTRATIVE SECRETARY
Ron Roth- 6950 Old Hwy 99 South. He stated that he is glad to hear the Budget Committee and Council are taking AFN seriously. He suggested two options; the concept of selling or spinning AFN off, similar to how the hospital was done, or, consider buying out Charter accounts in
Break until 8:30
ELECTRIC page 3-109 to 3-118
Dick Wanderscheid, Electric/Telecommunication Director and Scott Johnson, Electric Superintendent, presented the budget. Mr. Wanderscheid pointed to P. 3-109 to 3-118 and gave an overview of the conservation programs, adding that rates are competitive with Pacific Power.
Mr. Wanderscheid spoke to the Conservation Budget. He pointed to P. 3-117 and the Water Conservation program that provides advice, programs, and rebates to customers to help save water. He said the plan is mandated to save 20% water demand in year 2050 and is funded by the water utility. He added they would like to move into technology based irrigation systems.
Mr. Wanderscheid said the Conservation Budget is up $30,000, as a result of the energy analyst increasing by .2 FTE. He brought attention to line item 608 Conservation Commissions, which used to be under Administration and is now in Conservation. He explained that some of the money spent on conservation is eligible for reimbursement through Bonneville and it is projected that $50,000 will pass on through to customers for energy efficiency. When asked about the 620 program costs, he said the program reflects the amounts paid to customers for various energy programs. He also said the City is putting in money for energy upgrades and gives zero interest loans.
Mr. Wanderscheid spoke to the Electric Division. Pointing to P. 3-113, he explained the Supply Division is where they account for the cost of wholesale power. He said the City buys 98 percent of its power from Bonneville, and we also have a small generator at the water treatment facility that produces some power. Committee asked why there was no maintenance last year. Mr. Johnson explained that this year they had to install a DEQ mandated oil separator system and will spend $15-20,000. Mr. Wanderscheid added that they have a maintenance agreement with a contractor and repair is driven by when something breaks.
Mr. Wanderscheid spoke to the Transmission Division and explained that this is to pay Bonneville to get the power to the City. He said the transmission rates just increased by 12% due to a recent settled rate case.
Mr. Wanderscheid spoke to the Distribution Division. He said personal services increased $156,000 because of a new IBEW labor contract. He explained that his salary is completely charged to electric now rather than split between AFN and Computers. He added that his secretary’s salary is also going back to Electric. He pointed to line item 703 and said the capital outlay is for the covered storage building. They have shared it with water for a number of years, and water has agreed to give full use of the building. There is a need to cover it to resolve the problems with the birds causing deterioration of building and vehicles. They would also like to add office space and are hoping to do it for less than the budgeted $120,000. Committee stated that capital projects did not add up to $556,000, and wanted to know what performance measure is used for reliability. Mr. Wanderscheid responded that not all of the projects are included in the Capital Improvement Plan; some are based on past history and what we’ve spent in the past on infrastructure items. He added the Engineers could give the data on reliability, number of outages, time of outages, rates and how we compare to others.
Mr. Wanderscheid pointed to P. 3-111 and spoke to the overall Electric Budget. He explained that out of the $12.94 million budget, $4.2 million or 32% are costs that are controlled internally. The remainder is for fees and power costs that are outside of their control.
Mr. Wanderscheid pointed to P. 4-42 and spoke to the long term plan for Electric. The Intergovernmental Revenue of $50,000 will come from Bonneville for conservation programs. He said charges for service are what we charge for electricity which includes an upcoming proposal to Council for a rate increase of 5% and a 2% increase for kwh hour growth. He is proposing a reduction in surcharge because he thinks it will go away totally in 2006.
Mr. Wanderscheid spoke to the handout on rates. See attached. He pointed to the credit from Bonneville and that
The Budget Committee asked about operating transfers out to AFN and why it is shown as an expenditure to electric and if that was unusual. They also think it would be more transparent if the subsidy was shown as a recovery from the Electric Utility Tax into the General Fund for AFN. Mr. Tuneberg explained when the budget was constructed, they put the numbers in transfers out, but they are not expecting to have that in each year. It is not unusual and this is how they transfer between funds. He also said they will look at the subsidy going into the General Fund if proposed.
The Committee asked if the 5% increase is reflected in the AFN subsidy as the same figure, saying it would be helpful to show the subsidy as part of the balance sheet. Mr. Tuneberg responded that it does result in a rate adjustment when they transfer funds, and added that they have proposed a decrease in the surcharge. Mr. Wanderscheid responded that the tax is not in the Electric Fund but in the General Fund. He explained that they have a 10 year service contract with Bonneville through 2011 and in the beginning saw a 46% charge by Bonneville and that’s when they came up with the surcharge. Now it is at 32%, and is projected to be 37% in October through September. He added the long term is unsure. The Committee said they should include a line item that states AFN specifically as they do for others like in the General Fund. The Committee added that even if the rates drop from Bonneville and they could use the reduction to absorb AFN subsidy, it would not make the subsidy go away but only cover part of it.
Mr. Wanderscheid spoke to the Electric Division Goals on P. 3-112. He said they would like to analyze the costs and benefits of purchasing the
Committee asked why there is a reduction in franchise fees. They said they should recognize the increase, but probably should not approve the budget until they hear the AFN Budget. P.4-42 operating transfer out may change with the reorganization. Mr. Tuneberg will check the budget from 2005 and get back to the Committee.
The Committee asked about P. 4-42 which shows an excess of expenditures over revenues. Carry over is higher. Mr. Wanderscheid explained where they started the year and how ending balance was achieved. He also said even if they didn’t have the AFN subsidy, they would still have a deficiency because it is attributed to the cost of business. He thinks Bonneville costs will decrease in future years.
Councilor Kate Jackson/Councilor Alex Amarotico m/s to approve Electric Budget contingent on remaining discussion. All Ayes.
AFN/COMPUTER SERVICES (INFORMATION TECHNOLOGY)
Lee Tuneberg, Finance Director, Richard Holbo, Telecommunications Engineer, and Michael Ainsworth, Cable TV Manager, presented the budget. Mr. Tuneberg gave an overview of the budget and spoke to the handouts provided based on the 5/10/05 Council meeting determination. Pointing to P. 3-28 to 3-32, he explained the Technology Department is comprised of the Computer Services Division whose activity is part of the Central Service Fund and AFN which is in the Telecommunications Fund. He noted that one of their issues as the departments and divisions move around is that the historical isn’t as representative as they would like it to be. Pointing to line item 605, he explained the miscellaneous charges and fees are internal charges for services from central services, also equipment and insurances. Line item 606 is programming fees and different services provided in cable TV. They are looking at ways to reduce costs. Mr. Tuneberg said Internet services are supported through internet service providers and capital outlay is for costs for replacements, or upgrades. Debt service has changed over the years. In 2003, $6.1 million was internal borrowings paid back. In 2004 it grew to $6.9 million and in 2005 it was budgeted to refinance both internal and external debt. The Electric Fund was the guarantor and in 2006 $1.234 million will be expended for interest.
Mr. Tuneberg explained that there was much discussion of where AFN should reside. He pointed to the handouts and explained that they tried to show AFN as a department that has stood alone for the last few years. He spoke to the changes in expenses. They have adjusted where they added back in secretarial support, and took the Finance (Administrative Services) Director’s time out and put back in the IT Director and .5 FTE for a technician. He said two adjustments were required, a $55,000 increase in personal services to fund the differences, and a $35,000 increase in central service charges. He explained that they have not remodeled the long term but it will be updated for changes for the final meeting. Revenue includes $500,000 as a subsidy. They are anticipating a carry forward of $963,000. He added that each transfer will be brought to Council as a resolution and they only move money as needed to meet costs. Committee asked if anyone was exempt from tax or rate increase. Mr. Tuneberg believes schools and universities are not taxed, but will look into it.
The Committee stated that charges for services seemed to go up 61% in the long term, and added that consultants said AFN charges should be raised to market rates. Mr. Tuneberg said the charges for services are modeled and based on an overall 10% increase. He added they won’t know what the actual increase will be until they do more research. Michael Ainsworth, Cable TV Manager, said we should not have any assumption on what the competition would do, but should set our own rate strategy. He said he would possibly move the rate to the national average. Committee is concerned about the volatile market and asked what a wireless system would do to us if someone brought it in. Richard Holbo, Telecommunications Engineer, would have to look at what the market currently is, but the rates of local providers of high speed service are currently lower than the national average. He also said anyone coming in with wireless would have hard time justifying the expense for construction. But, with any competition, anyone could come in and take our market away. Council mentioned AFN adding wireless to extend service. Council then asked if they could get an idea of what the changes would be when they go to adopt the final budget. Mr. Tuneberg feels comfortable at this preliminary point to use 10% model and added this is the first run at laying things out, and replacement pages will be given for the final meeting.
The Committee gave a brief history of AFN and how it was presented as a system that would be very profitable. They said the proposed profit was to provide property tax or electric tax relief. They also stated it is really hard to understand why they should go forward with a system that continues to cost money. Committee recommended that others read Russ Silbiger’s email concerning the economics of the system. Committee pointed to P. 3-30, 3-31, and asked if there is enough in Technology to stay current. Mr. Holbo said we can do a lot with the technology we have, if we do things differently. He also said that there are some things that Council and others want us to do that are not in budget. He questioned: do we spend money on the gadget, sell it to the customer and hopefully pay back the gadget; or do we loose the customer because we don’t have the gadget? Marty Levine, Budget Committee Member, added that it is a Council decision on whether the City keeps AFN or not, and whether it provides enough benefit to the community. He feels it is never going to function as a department in the City, and it needs to be a separate corporation like the hospital. He added the City could be the sole shareholder. He said if Council decides it doesn’t warrant the costs, then they should sell to highest bidder.
Committee said they appreciate all the concerns being raised, and they want to identify different options. They discussed still having an advisory Committee and timeline of decisions. They said it is difficult to budget and understand how it will work out. If AFN is sold, it will continue to provide services to the citizens. The Budget Committee said it cannot operate a business as volatile as this when decisions need to be made on daily basis. They would like to see the process sped up and not see another year of agony. The Committee was troubled about huge subsides continuing and approving a budget that contemplates that. They said it is questionable how any business can be profitable with that level of subscription at any rate that you charge. Lynn Thompson, Budget Committee Member, said she would approve the budget with subsidy, with the understanding that when they come back to the process next year, this will not happen again. The Committee said they have agreed to a set of steps through next fiscal year, with an options taskforce. The timeline would have a final decision before the next budget year.
Council is looking at options, including hiring a temporary director instead of a permanent one. Operationally next year pays for itself. The Committee said that what we see in current budget is debt payment not a subsidy, adding there are people in town that argue if AFN is a valid utility. The Committee wonders if the budget makes it possible for Council to move forward to a decision to keep it and how they move forward. This budget provides the opportunity for Council and operations to look at it and come back with hard data to make decision. The Committee said we have a responsibility to provide reasonable funding, recognizing it is not a long term solution.
Budget Committee Chairman James Moore, said our first priority is to look at fiscal responsibility; second he does not see a commitment from Council yet; and third at some point in next year we have to talk to the citizens of
Mr. Tuneberg said the Committee should accept the budget as presented, knowing that we will bring back the changes that were initiated by Council. The Committee asked about debt payment, and if it was all interest. Mr. Tuneberg said it is all interest, with principal starting in July 2007. The term is 20 years, levels out at 1.4 million per year at 2007.
Councilor Russ Silbiger/Councilor Cate Hartzell m/s to accept the Information Technology Budget as presented.
The Budget Committee discussed waiting to see changes. Mr. Tuneberg doesn’t think there is any harm in approving the budget as is, because the final vote will be on the revised budget. The Committee asked if they could make sure when the revisions are made that the changes are made known.
Amarotico y Bond y Hartzell y Jackson y Levine n Mackris y Moore n Silbiger y Thompson y Williams n
This meeting was adjourned at 9:45 p.m.