CALL TO ORDER
Budget Committee Meeting
May 2, 2011 6:00 p.m.
Civic Center Council Chambers, 1175 East Main Street
The Budget Committee Meeting was called to order at 6:00 p.m.
Mayor John Stromberg, Committee Members Keith Baldwin, David Chapman, Dee Anne Everson, Douglas Gentry, Chuck Keil, Greg Lemhouse, Michael Morris, David Runkel, Russ Silbiger, Dennis Slattery, Lynn Thompson, and Carol Voisin were present. Roberta Stebbins was absent.
Rob Lloyd, Information Technology Director, presented the budget. He noted that IT’s roll is to supply the technology tools and services to the organization that allows departments to meet their operating missions. Investments in technology make employees more efficient, effective and capable in their work. As a consequence, citizens and businesses have benefitted improvements and interactions with municipal government. IT provides effective business systems that meet the City’s requirements: a secure and stable environment, projects for departments that are well planned and executed, alignment of IT resources with the City’s strategic goals, and a balanced and self-sufficient Ashland Fiber Network (AFN) budget.
He explained the IT Department has two major divisions. First is Technology Services, formerly Computer Services Division, which is the internal IT arm of the City’s organization. He addressed the Budget Over Time – Technology Services (see slide), stating it was a status quo budget; increases were centered on personnel. Central IT represents approximately 1.9% of the City’s operational budget; AFN is a factor in that portion. He highlighted some achievements: focused on foundational IT issues, upgraded Microsoft Office, supported public safety projects for e-ticketing, mobile computers in emergency vehicles for both Police and Fire, worked with Ashland Fire and Rescue to complete a number of projects for emergency communications, emergency radio broadcasts are now online, increased the capacity of the emergency phone hotline by a factor of 40, and signed Intergovernmental Agency Agreement for the Emergency Notification System partnering with Jackson County and the City of Medford. With these accomplished, plans are to focus on departmental needs and citizen services with a more solid IT foundation.
Mr. Lloyd moved to the 2012 Proposed Budget-Technology Services (see slide). He noted the department converted one management position to an IT analyst for programming. Department anticipates requests for public safety services to continue. This area is where the PC allocation fund is and typically replaces about one-quarter of the PCs every year to insure consistent performance and reduce downtime. Per unit price goes up every year.
Mr. Lloyd addressed the Budget Over Time - Ashland Fiber Network (see slide). This is the second major division, also known as Telecommunications Division. This represents 3.5% of the City’s operating budget. The spike shown on the graph is due to an additional debt contribution. Projected budget is lower than amended due to a tap in EFB less with revenues that were higher than projected and salary savings. He noted some achievements: completed the AFN WiMax project, AFN Strategic Business Plan, new website for customers and vendors, increased market share from 41% to 46% with a goal of 53% by the end of 2012. Majority of market share growth was attributed to AFN direct. AFN is enjoyed by businesses, but, the majority is home office consumers.
Mr. Lloyd reviewed the Proposed Budget –AFN for 2012 (see slide). He noted there is a heavy emphasis on Materials and Services and that AFN operating expenses are fully covered by its operating revenues with a goal it will contribute more in the future. Central and Technology Services fund back, plus debt is $830,500 a year. One success is controlling internet bandwidth cost. AFN has been able to grow well and save money at the same time.
He moved to the Revenue graph for AFN (see slide). He noted the growth in customers with AFN. Expect to do better with AFN and WiMax deployment of services and working with the Internet Service Providers (ISP) to see them grow. The Committee discussed the areas of AFN growth, revenues and debt. Mr. Lloyd added that as AFN does better than projections, the priority order is capital and then debt.
Mr. Lloyd addressed upcoming work in FY 2012 (see slide). He discussed: the need to complete the City’s IT Strategic Plan, they met AFN strategic goals, the Utility Billing System is highest priority project and represents 20% of the City’s revenues, to complete business system projects for intranet, HR’s online application and processing system, working with Electric on the Supervisory Control and Data Acquisition (SCADA) security to meet Federal requirements, Public Safety has more communication and mobile computing projects and Comm Dev to do development review applications online. Long range projects are to set paths for AFN next generational shift, the City’s phone system is obsolete and looking at solutions, and accrue the licensing for the Microsoft Windows 7.
Mr. Lloyd reviewed to the Performance measures-Technology Services (see slide). This Division is primarily an internal service with outcome measures mainly focused on customer service satisfaction and compliance related activities. IS security policy and incident response shows positive integrity of the City’s computing system. New outcome based measure goals highlighted were: Maintain a system that is safe, secure with high integrity and achieving uptime of 99.3%. There will be a focus on successfully executing projects; saving departments time and money. It was noted the WiMax, Office and Network migrations were not finished on time.
He moved to the AFN performance measure (see slide). This Division is an internal and external service; City’s municipal and consumers’ area network. AFN has met its financial revenue and debt goals. There was Committee discussion about matching up ISP’s goals without competing with them for the same customers. Mr. Lloyd responded that the Master Contract splits out who their partners are versus retail and wholesalers. The goal of adding $50,000 to contingency was discussed and the reasons behind the recommendation. Mr. Lloyd believed building the Contingency Fund back up to $100,000 is good policy in case of emergencies. Mr. Lloyd moved to UB referrals and gave credit to Finance and utility billing staff. Residents who sign up for utilities are also offered telecommunications; AFN Direct and HomeNet.
Mr. Lloyd reviewed the Performance to Budget (See slide). Budget outcomes and success criteria focuses on: City, citizen and business interactions and service, to utilize IT resources well, and improve project success.
Mr. Lloyd moved to Significant budget changes from FY 2012 (see slide). He noted the merging AFN Internet and High-Speed facilitated billing and basically was a change in structure. On the budget adjustments side, increased AFN debt payment to $409,000 level, maintained higher capital investment in AFN, rebuilding AFN contingency fund, reconstructed IT training to provide great service to staff and lowered spending on PC/server replacement. Mr. Gentry inquired about the Cloud and advantages and disadvantages were discussed. Mr. Gentry also inquired about the City’s partnership with SOU. Mr. Lloyd expressed there is no partnership with SOU, but has closer ties with Jackson County.
Mr. Lloyd reviewed the Preparing for FY 2013 (see slide). Goals are to complete IT strategic planning to manage work priorities with departments and finishing the Master Contract for AFN will address a lot of the concerns and clarifies the partner relations. He reported AFN progress is positive, technology services have improved and expanded and continues to work with all City departments.
Lee Tuneberg, Finance Director, and Scott Johnson (retired) will present Electric’s Budget. Mr. Johnson is here to answer technical questions and will assist with discussions on Bonneville Power (BP) about the North Mountain substation.
Mr. Tuneberg reviewed the Budget over time (see slide). He noted this is the City’s largest budget outside of the General Fund at $15 million and is more than that when EFB is added.
Mr. Tuneberg continued to 2012 proposed budget. Unlike most departments having Salaries and Benefits as the largest portion of their costs, this department is providing and selling a product with Materials and Services at almost $11 million. He moved to the 2012 Proposed Budget in Millions showing all components (see slide) and explained this breaks down the Materials and Services portion, with the largest piece being wholesale power at $5.7 million, Materials and Services in general at $2.4 million covers materials and supplies for projects and provide a service, Franchise payment of $1.3 million to the General Fund and reviewed the remaining components.
Mr. Gentry asked for more detail on the Franchise portion. Mr. Tuneberg responded that all enterprises make franchise payments to the General Fund and sometimes to the Street Fund. The Fund pays 10% of the operating revenue, if we borrow money we do not pay 10% of that, but on the charges and fees that it takes in, 10% is paid to the General Fund. Next year it is anticipated to be $1.3 million. It is intended to pay for access and right of way of streets and curbs. There was Committee discussion on the AFN & Clean Renewal Energy Bonds (CREBS) Debt portion.
Mr. Tuneberg moved to the Budgeted requirements in millions (see slide), comparing FY 2011 and FY 2012 and showing the various increases that will be further discussed in the next slide. He then moved to the Significant Budget Changes -excludes conservation (see slide). BP has given the City a 13.9% rate increase effective October 1st
, which calculates out to about $700,000 a year, depending on weather. This Fund also paid additional PERS, more in franchises if the City sells more or raise rates, additional contribution to debt went up $289,000 picking up shortfall the City does not have in other areas, re-budgeted $125,000 to do the dam inspection which was supposed to be done in this fiscal year, and negotiating with BP for $1 million to purchase North Mountain substation, this represents the large portion of the Capital item. If negotiations are successful, there will be a $165,000 reduction in transforming charge each year. The Fund will benefit from an $80,000 net savings each year the substation is owned.
Ms. Thompson inquired about the contribution to technical debt and the options were discussed such as raising utility rates, put it in General Fund and raise property taxes, spend down EFBs, or not contribute $700,000 to reserve for next year.
Mr. Keil asked if the substation would incur additional labor costs for maintenance and operations? Mr. Johnson responded it would be minimal the first five years and these costs are factored into the budget. It was noted the facility was built in 1976 and BP estimates the life of the transformer to be 54 years, leaving approximately 20 more years. He also discussed the minimal annual maintenance and estimated approximately $25,000 in operational costs.
Mr. Baldwin inquired if replacement of the transformer is figured into the net per year or are you making an assumption when you might have to replace the transformer? Mr. Tuneberg responded that replacement cost 20 years out is not included in there, nor is it estimated what the increased costs as BP raises rates to the City would amount to during that same time period. Mr. Johnson added the bottom line is do we spend money now to save money later? There was Committee discussion about the cost of transformer replacement; buying new, used, same or larger. Ms. Voisin inquired about the cost of an entire new facility. Mr. Johnson said engineering estimated the cost of a new facility would be approximately $1.8 million, which does not include the land as they looked at existing land the City owns. Mr. Gentry inquired about electrical usage of customers, demands on the system and conservation efforts. Mr. Tuneberg offered to put some information together on how the City’s system is run for the Committee’s review. Ashland’s average kilowatt usage per capita has been relatively flat over the last 10-20 years, whereas comparables have increased by 30%.
Mr. Runkel inquired if there were other sources that are less expensive than BP? Mr. Tuneberg responded that the City has a good record for looking at other options and that there are not a lot of alternatives for buying power other than buying from BP. Mr. Johnson added that to do that the City would have to have a power broker. He then reviewed BP’s rates to Ashland’s usage with Tier 2 Power.
Ms. Voisin inquired about where the $1 million would come from for this purchase? Mr. Tuneberg responded that the City would borrow the money, unless they identify reserves for this use and then use the savings for paying back the debt service. Options for financing, borrowing and interest rates were discussed.
Ms. Thompson inquired about line item changes in distribution of Personal Services with a difference of 15% seems significant. Mr. Tuneberg responded that when you have the top two paid positions vacant and lose a couple of crew employees, you see that kind of savings.
Mr. Tuneberg reviewed the Potential Rate Increase (see slide). He noted there is a 6% increase in the budget which approximates the increase from BP starting in October and going forward. It calculates at $700,000 and we have only included $500,000 more in wholesale power purchased in this budget, but in 12 months it will be around $700,000. The increase depends on what actual costs and revenues are this year and EFB carry forward from FY 2011. He anticipated a public hearing on rate increases in August 2011. There has only been two rate increases in the last 5-6 years and one had a neutral impact to the consumer because the surcharge went away and the rate was adjusted. Last increase of 4% was in 2009. The Committee discussed what an average monthly power bill is and how it was calculated to be $4.73/month more. The rate increase is entirely driven by not only existing rates, but rate increases in the future. BP’s contracted rate extends to 2014/15.
Mr. Tuneberg addressed Here’s the Work Being Done in FY2011 (see slide). He highlighted: Upgraded Morton Street Feeder, completed 8% line inspections for the Public Utility Commission (PUC), completed 51% of safety inspections and implemented first phase of SCADA, the system for monitoring the system and components.
Mr. Tuneberg moved to the work coming for FY 2012 (see slide). The City will continue to work on the new contract with Bonneville Power Administration. There are new elements such as power factor charges that are being implemented as there are surges in the power that go beyond the levels that are in the contract which increase charges. The Committee discussed what causes the power spikes and ways and efforts to minimize power spikes. Mr. Tuneberg noted Electric will continue negotiations on the purchase of the Mountain Avenue substation, continue with PUC inspections and corrections, more of the management control implementation, and should be preparing for a rate study. It has been at least 10 years since a rate study was done on the City’s utility rates. As the City looks at the different ways of dealing with the loads and impacts, it should be looked at how block rates are set, and which customer groups we charge for the different impacts that they cause.
Mr. Tuneberg addressed Values (see slide) He itemized: Participatory government, where we seek to be efficient and effective with public funds, responsible resource use of land, water, energy and public services, and basic needs.
Mr. Tuneberg moved to Performance to budget (see slide). Legal compliance, inspections, dealing with efficiency and conservation, all contribute to the reliability of the system.
Mr. Tuneberg reviewed Performance (see slide). He focused on inspections and making sure that equipment is safe and reliable with a goal of 10% inspection on all the components. Key factor in reliable energy delivery is related to equipment failure and an improvement from 35% to 23% was seen this year. Street light repair is being done within one day at 100%. Goal is to promote an environmentally friendly community.
Mr. Keil inquired in addition to the top two positions being vacant, how did the actions of the absence of the two lineman affect the goal achievement for 2011. Mr. Tuneberg replied that most of the work done out in the field take several people. If Electric does not have those people, there are less crews going out and doing repairs; example, inspections and repairs fell short in the last 2 years, units going out doing work for safety, providing service and capital projects are not getting done.
The Committee had a discussion on the 6% increase in both 2011 and 2012 and this will be further discussed in August after the costs for this year are available. It was noted that rates have been lowered before.
Mr. Tuneberg moved to the 2010 electrical outages (see slide) 28% are attributed to storms, car accidents and animals.
The focus Electric has is on equipment failure, due to more control over these events at 23%. Inspections in safety, operational training, and repair work all help make that a better number. There were 109 outages in 2010. Customer generated outages represent 49%, and requires a house call and typically the customer did not switch the main breaker on and off. There is no charge for this service.
Mr. Tuneberg addressed Preparing for FY 2013 (see slide). Electric is looking at a formal rate study if it is approved, evaluate what needs to be done about staffing with current vacancies and upcoming retirements, prepare for BPA’s transmission rate increase due in 2014-15 where wholesale power could also go up, changes in the North Mountain substation, how Electric will use the substation to provide power and how it works with the Nevada Street substation that needs upgrades.
Ms. Everson extended a compliment to Bryn Morrison for her efforts working with the clients and the fine job she does.
The Budget Committee Meeting was adjourned at 7:38 p.m.
Temporary Administrative Secretary