The Virgin Valley Water District Board of Directors devoted most of its April 18 meeting to an information session on WaterWorth, a software that helps utilities evaluate revenues and expenses to model options for budget decision-making. The demonstration was held as the board deliberates revenues for fiscal year 2017-2018.
The board authorized spending $2,500 for an annual subscription for the software in 2016, expecting it to be a cost saving tool. Outside consultant assistance hired for calculating revenue needs in 2015 cost the district $60,000. WaterWorth allows district staff to perform most yearly review functions in-house.
With a recent update of the District Master Plan approved, the board accepted a set of long term projections for district growth and expenses. The board is now tasked with deciding how to best tailor revenue streams to match expenses. Use of the WaterWorth software allows the board and staff to perform “what if” scenarios to evaluate how adjusting revenue streams impact the future financial position of the district. Water sales comprise the district’s main revenue source, with other revenue coming from water share leases, a percentage of sales tax, a debt reduction fee, the Ordinance II fee, facilities development charges (impact fees), and other miscellaneous income.
District Finance Manager Wes Smith led the software demonstration, with software developer J.P. Jolley of Econics, on a live conference call link. Over the past months, district staff has loaded data gathered from the Master Plan update into WaterWorth. A resulting one-page summary graph of district growth and expenses was produced, with the ability to manipulate various expense and revenue figures. Adjustment of those elements provides alternate pictures of the district’s financial condition over time.
Stepping through the capital and operating expenses that have been laid out for the future,
Smith explained major expenditures will be incurred in the 2018-2019 period that pull district cash reserves to a low point. After that, Smith said it is important that the district works to rebuild its reserves to be able to cover future expenses without taking on debt, and must also work to avoid burdensome increases for customers.
Budgeted capital projects for 2017-2018 will total about $11 million, including completion of Well 27A hookup, replacement of the Flat Top water tank and transmission system, continuing work on Well 1A and the water transmission system upgrades.
Smith approached the revenue component of the WaterWorth demonstration by modeling an option of a 2 percent rate increase in the coming fiscal year. The model produced by that increase, followed by future yearly rate increases of 0.5 percent, appears to provide adequate revenue for the District when extended out long term. An alternate model shows that when no rate increase is provided, the district will fall short of its expansion and service obligations by about 2030.
Other options will be modeled before the upcoming budget is finalized.
Smith and Board Member Richard Bowler both voiced their preference for taking a conservative approach to raising water rates, but felt district long term sustainability points toward a 2 percent water rate increase in the coming year. Board Member Barb Ellestad proposed the possibility of instituting such an increase in 1 percent increments.
Board member Travis Anderson asked if staff had more historical back-up figures to give a
better view of past rate increase actions. The board instituted a major one-time increase
in 2015 because it faced increased capital and legal costs and had not voted in rate increases during the recession. Board President Nephi Julien commented that the board needed to look to the future, and he saw little productive value in doing further research on district expenses and revenue prior to 2014, when the study for the 2015 increase was begun. Ellestad commented that WaterWorth is an awesome tool that will help explain district revenue needs to the public. She speculated that yearly reviews might actually help the board reduce rates for a short term if revenues exceed expenses.
Staff and board members voiced consensus in their desire to avoid taking on debt and keep any rate increases low while meeting service obligations. The current debt reduction fee costs every rate payer $10 per month, which will be collected until debt retirement in 2033. Smith pointed out that consumer price index increases in the past two years have equaled 2.6 percent, meaning district revenues lag general cost increases, even with at a 2 percent hike in water rates in the coming year. Ellestad and other board members noted that retirees have not seen a Social Security increase to cover CPI increases.
Concluding the software demonstration, Smith stated he wanted all to understand the assumptions that are built in to future projections while considering the conclusions that are produced. District Manager Kevin Brown interjected that one factor that has not been
built into capital expenditure projections is the need for office space to house expanded staff and workload. He is currently studying industry standards to model the district’s future staff needs in handling district expansion.
The board will continue its discussion of rates for the coming year at its May meetings. The district’s final budget for FY2017-2018 must be submitted to the state at the end of May.