|
shiers Advisor • March 2x09
<br />built in 2008, To address the problem, the City is undertaking
<br />multiple strategies uacludirlg:
<br />• Increasing user fees;
<br />• Reducing operating expenses at the plant; and,
<br />• Restructuring the debt with G,Q, capital appreciation
<br />bonds (CABs),
<br />CABs are a type of debt that allows an issue to forego any
<br />interest or principal for five, ten or 20 years. ~e recommend
<br />caution when utilizing this type of debt. Because City B has
<br />$10 million of older debt outstanding, the CABS can be utilized
<br />to increase the duration of the older debt and leave the newer
<br />debt in place. CABs do carry slightly higher interest rates than
<br />typical G.4. Bonds and delaying debt payments significantly
<br />increases the interest costs. The charts on page 3 demonstrate
<br />debt payments before and after tlYe rest~l~ctuting for City B,
<br />Again, local governments should exercise extreme caution u~
<br />delaying debt service payments, Pushing bonds to later years
<br />reduces firtLue flexib' 'ty to layer additional debt on top of the
<br />existing str<rcture. It may be better to find other resources
<br />from the City (interfiind loans, tax levy, etc) to pay debt
<br />service in the short ter7m rather than issue CABs and incur 1~igh
<br />interest costs,
<br />As we refocus to a new economic reality, we at Ehlers want
<br />you to be .aware of all options to consider.
<br />,. _ _-
<br />;, ~ s ~~
<br />-.a l 1
<br />'1 ~ ~~ ~ g` ~~rst 1 `' 4• A Kl
<br />yr
<br />~-.. + z - -
<br />w
<br />~~~~
<br />k
<br />- .~ ~ J -
<br />~ i ,
<br />•.::r t
<br />h~; - ' ~' ~;' F ,~~
<br />- ~ ~~
<br />t ~+r-~~ sue. ~ -
<br />`;; s i t ~.
<br />c ~ ;
<br />z ~ F,
<br />~~ '}. r
<br />y ~ ti
<br />~.
<br />- ~ 1~
<br />~ y
<br />~:: k~ G .
<br />z ALL 1 1%• . ,;
<br />~ -. ~ ~ •`~
<br />flew ~~nnesota .Law - - .
<br />Re wires dater Conser~rat~on
<br />q
<br />Rate Stru ctu res
<br />By Jca~~c i/ogt ar~o' Eiizabe~n Diaz, Flnar~clal Analysis
<br />fUlinnesota State haw requires publicwafer uti itiesta implemenf
<br />residential and commercial rate structures that encourage water
<br />conservation among customers. There are three implementation dates
<br />affecting water utilities serving mare than 1,000 people.
<br />• Now, utilities must comply before requesting State approval to
<br />construct a new well or increase existing well volumes
<br />• Metro area utilities must comply by January 1, 2010, meaning any
<br />necessary changes need fo be made this year,
<br />• All other utilities must comply byJanuary 1, 2013.
<br />Public water utilities that serve fewer than 1,000 people or lack user
<br />meters are exempt from the conservation rate mandate.
<br />A conservation rate structure is a rate structure that provides
<br />households and businesses with a financial incentive to use less
<br />water, The most common conservation rate structure in Minnesota
<br />employs "block rates" which provide for an increase in the rate as
<br />water usage increases,
<br />An example of block rates would be.
<br />• 0 to 1,000 gallons of water usage per quarter would cost $2,00
<br />per 1,000 gallons;
<br />• 15,000~4~,000 gallons of water usage per quarter would increase
<br />to $2.~0 per 1,000 gallons; and,
<br />• 45,ooa=~a,000 gailans~af water usage per quarter would increase
<br />fo$3.15:pergallan. -.
<br />More examples of conservation rate structures an are an the
<br />Department of Natural Resources ~DNR} Web site at.
<br />hftp,llfiles,dnr.state,mn.uslwaterslwatermgmt_sectianlappropriafians
<br />Iconservatian_rate_structures,pdf.
<br />l~hlers recommends taking the following steps fo ensure compliance
<br />with the new law,
<br />• Review your existing rate structure to determine if it meets the
<br />DNR's guidelines far a conservation rate structure.
<br />• If you determine a change is needed, advise your governing body
<br />that they will need to consider new rates over the next 12~2~4
<br />months.
<br />• Select one ar two optional rafe structures, and assess how they
<br />will impact different types of customers. Who will pay mare and
<br />who will pay less than they do now? Will wafer conservation result
<br />in lower wafer bills?
<br />• Prepare a financial projection of the new rafe opfion~s} fo ensure
<br />adequate revenue will be available to the utility.
<br />• Provide the results fo your governing body and request them fo
<br />approve a new rate structure.
<br />• Communicate with your customers, Bill inserts, newsletters, and
<br />open houses all provide opportunities to let yaurcustomers know
<br />about the new rafe structure and ways fo conserve water,
<br />Please see the "Conservation Rates. far Wafer Utilities" resource page
<br />at wwwc>7iers~ir~c.corr~or contact an Fhlers Financial Advisor for
<br />more information.
<br />•4•
<br />
|