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CITY OF SEWARD, ALASKA
RESOLUTION 2010 -083
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD,
ALASKA, ESTABLISHING A REPAYMENT SCHEDULE FOR THE
ELECTRIC ENTERPRISE FUND $1,889,765 IN CONTRIBUTIONS MADE
SINCE 1996 FOR HOSPITAL AND SMIC SHORTFALLS, AND
APPROPRIATING 2011 REVENUE SHARING FUNDS IN THE AMOUNT
OF $226,846 TOWARD REPAYMENT
WHEREAS, the City of Seward's electric enterprise fund has been tapped repeatedly over
the period since 1996, to assist with covering deficits in the Seward Marine Industrial Center
enterprise fund (SMIC), due to the inability of that fund to generate revenues sufficient to cover
required bond payments, as well as to assist with the costs of closing Seward General Hospital in
1996; and
WHEREAS, numerous City Councils made decisions over the years to tap the electric fund
for these contributions due to the then -new condition of the electric transmission line (upgraded in
1995), the level of reserves on hand in the fund at the time, and the fact that contributions to assist
with the closure of the hospital and the extinguishment of the SMIC debt would have required an
increase in taxes or a decrease in City services, which the Councils did not find to be in the public
interest; and
WHEREAS, the electric enterprise fund has not made any such contributions since 2006,
and given the growing list of deferred maintenance projects and the dwindling level of enterprise
fund reserves, the City Council desires to have the General Fund begin to repay the costs that were
more properly the responsibility of the General Fund; and
WHEREAS, the total of the amounts withdrawn from the electric utility since 1996 for these
purposes total $1,889,765; and
WHEREAS, the City of Seward will receive $226,846 in State revenue sharing for FY2011,
which was not included in the City of Seward 2011 Budget due to the uncertainty of the funding
during the budget preparation process; if received, revenue sharing, was originally intended to be
utilized for the purpose of funding General Fund- related capital needs, but the City Council prefers
to utilize it to apply toward repayment of the indebtedness to the electric enterprise fund.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SEWARD, ALASKA that:
Section 1. The Seward City Council hereby establishes an indebtedness to the Electric
Enterprise Fund in the amount of $1,889,765 for the purpose of repaying contributions made by the
electric fund toward SMIC deficits and the closure of Seward General Hospital.
CITY OF SEWARD, ALASKA
RESOLUTION 2010 -083
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Section 2. State revenue sharing for FY2011 in the amount of $226,846 is hereby accepted
into the State revenue sharing account no. 101- 0000 - 4350 -0140 effective January 1, 2011, and is
appropriated to the electric enterprise fund account no. 501- 0000 - 3070 -0101 to be applied to
repayment of the abovementioned debt for 2011.
Section 3. The remaining indebtedness in the amount of $1,662,919 is intended to be repaid
over a 15 -year period (first payment in 2012) in annual increments of $110,861, as approved by the
Seward City Council in each year's budget. To the extent funding is not made available in a single
year, the payment period will be extended until such time as the debt is extinguished.
Section 5. This resolution shall take affect immediately upon its adoption, with the
appropriation contained in Section 2 above to be effective for 2011.
PASSED AND APPROVED by the City Council of the city of Seward, Alaska, this 13`" day of
September, 2010.
THE CITY OF . ; WARD, ALASKA
Willard E. Dun am, Mayor
AYES: Valdatta, Smith, Shafer, Amberg, Dunham
NOES: None
ABSENT: Keil, Bardarson
ABSTAIN: None
ATTEST:
j'an Li � .,,,,
Cit Clerk ♦ ♦ ♦y Or S� q�
• (City Seal) ;• �'' ��
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COUNCIL AGENDA STATEMENT
Meeting Date: September 13, 2010 D oT Self" 1
Through: Phillip Oates, City Manager
From: Kristin Erchinger, Finance Director Fes0 4, ASM -
Agenda Item: Establishing Indebtedness from General Fund to Electric Fund to repay contributions made
on behalf of Seward General Hospital and SMIC since 1996
BACKGROUND & JUSTIFICATION:
The City of Seward's electric utility constructed a new transmission line in 1995. In 1996, the Seward City Council
was asked to contribute $214,502 toward the closure of the Seward General Hospital because the General Fund
lacked sufficient reserves to pay the costs, and the City Council preferred to utilize electric fund reserves rather than
to raise taxes or implement service cuts to pay the cost.
Since 1996, the decision was made six times (1999 -2002, 2005, 2006) to utilize electric fund reserves to cover
shortfalls in the SMIC enterprise fund which did not generate sufficient revenues to pay general obligation bonds on
dock infrastructure. During the time that decisions were made to utilize electric fund reserves, the electric fund was
considered to be healthy, with sound infrastructure and sufficient reserves to cover the contribution costs without
significant adverse impact to the utility.
In recent years, circumstances have changed in the electric enterprise fund. One more than one occasion, the utility
has absorbed utility rate increases from Chugach Electric Association which were not passed on to the utility's
customers. As fuel prices rose, the City Councils hesitated to add even higher rates to utility customers, many of
whom were struggling to pay higher heating fuel costs. This failure to pass along cost increases, along with a
reluctance to increase utility rates periodically to cover increased costs associated with inflation, has resulted in a
systematic depletion of utility reserves. Add to that the fact that the utility has experienced significant costs
associated with replacing electric generators and constructing a new generator building and automated controls, as
well as a growing list of maintenance needs such as right -of -way clearing and system upgrades, and this has led to
the current situation where the utility is struggling to reverse the downward trend in reserves.
The Seward City Council desires to establish an indebtedness between the City's General Fund and the electric fund,
to enable the electric fund to recoup the contributions it has made to SMIC and the hospital. In total, the
contributions from 1996 to present total $1,889,765. In addition, the City Council has expressed a willingness to
utilize FY2011 State revenue sharing funds in the amount of $226,846 toward repayment of this indebtedness,
leaving the balance of $1,662,919 to be repaid over a period of 15 years beginning in 2012, in annual increments of
$110,861, subject to appropriation.
CONSISTENCY CHECKLIST:
Where applicable, this agenda statement is consistent with the Seward City Code, Charter, Comprehensive Plans,
Land Use Plans, Strategic Plan, and City Council Rules of Procedures.
FISCAL NOTE:
The State's revenue sharing payment will be booked as 2011 revenues in the General Fund, and will be transferred
out of the General Fund into the electric fund in 2011 to begin repaying the indebtedness. The annual repayment of
$110,861 from the General Fund to the electric fund will be programmed into the proposed 2012/2013 budget.
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CITY OF SEWARD
RESOLUTION 2010-o53
Approved by Finance Department: k 44 4te.ks t.►
RECOMMENDATION:
Council approve Resolution 2010 -53, establishing an indebtedness from the General Fund to the electric fund,
authorizing a transfer of State revenue sharing funds to the electric fund, and establishing a plan for repayment of
said debt at the rate of $110,861 per year over a period of 15 years.
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