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HomeMy WebLinkAboutRes2019-075 Sponsored by: Meszaros aim CITY OF SEWARD, ALASKA RESOLUTION 2019-075 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, AUTHORIZING THE CANCELLATION OF AN INTERFUND DEBT OWED TO THE GENERAL FUND FROM THE WASTEWATER ENTERPRISE FUND IN THE REMAINING AMOUNT OF $1,219,150 RELATED TO THE FAILURE OF THE LOWELL POINT SEWAGE LAGOON LINER AND ASSOCIATED DREDGING COSTS INCURRED IN 1990 WHEREAS, in 1990, the City's sewage lagoon at Lowell Point experienced a failure of the liner which required repairs and necessitated dredging the lagoon; and WHEREAS, the City received grant funds to assist with the costs of repairs and dredging at that time, and the General Fund contributed the amount of $1,603,350 toward the project, which was not considered a debt to the Wastewater Fund at the time that it was contributed to the project; and WHEREAS, during the 1999 budget process, the Seward City Council determined that Les the Wastewater Enterprise Fund should repay the General Fund for its contributions to the project, and settled on annual contributions of$76,840 to be made in years when the Wastewater Enterprise Fund was financially in a position to make repayments; and WHEREAS, in the past 20 years, payments have been made in only five of those years, totaling$384,200, due to insufficient reserves in the Wastewater Enterprise Fund; and WHEREAS, in 2014,both of the City's sewer lagoons(Lowell Point and Seward Marine Industrial Center) required dredging, and it was necessary to perform repairs to the aeration system at Lowell Point sewer lagoon, resulting in grants to the City requiring local matching funds, which the City is paying from the Wastewater Enterprise Fund via two loans with the State of Alaska Department of Environmental Conservation (ADEC), with the outstanding balance of the ADEC loans at December 31, 2018 of$1,080,603; and WHEREAS, the Wastewater Enterprise Fund reserves are not sufficient to continue making contributions to the General Fund due, in part, to new ADEC loan debt, without raising sewer rates. Since the General Fund has five months' of undesignated reserves—well within the Fund's target of three to six months — it is in the best interest of the City to cancel this interfund loan with no further contributions required by the Wastewater Enterprise Fund to the General Fund to repay the 1990-related project costs. r NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA that: `w CITY OF SEWARD, ALASKA RESOLUTION 2019-075 Section 1. The Seward City Council hereby authorizes the cancellation of an interfund debt due to the General Fund from the Wastewater Enterprise Fund in the amount of$1,219,150, representing the remaining outstanding balance of the Lowell Point Sewer Lagoon dredging and repair costs related to the 1990 failure of the sewer lagoon. Section 2. The remaining amount of $1,219,150 is not recorded on the books of the General Fund or the Wastewater Enterprise Fund and, therefore, requires no appropriation. Section 3. The Seward City Council directs that no remaining loan payments be factored into future budgets for repayment by the Wastewater Enterprise Fund of this loan, and directs that this loan be considered cancelled for purposes of establishing recommended rates for the Wastewater Enterprise Fund during the upcoming Water and Wastewater Classification and Rate Study. Section 4. This resolution shall take effect immediately upon adoption. PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 26th day of August, 2019. THE CITY OF SEWARD, ALASKA David Squires, Mayok, AYES: Towsley, Seese, Osenga, McClure, Horn, Squires NOES: Lane ABSENT: None ABSTAIN: None ATTEST: (7iv--e7jsz Brenda J. Ballou, MMC City Clerk A '"‘"9 C , f y c e !c ♦patue,s' �7 *i (City Seal) ��''..Po 'Q Cj ••pR •. 'A . • a SEAL I • J �f ••.•• .1 �g1Z: • Agenda Statement • Meeting Date: August 26, 2019 Through: Scott Meszaros, City Manager �! From: Kristin Erchinger, Finance Director Agenda Item: Cancellation of Interfund Debt owed from Wastewater Enterprise Fund to General Fund related to 1990 Lowell Point Sewer Lagoon dredging and repairs BACKGROUND & JUSTIFICATION: The City of Seward owns two sewer lagoons; one at Lowell Point and one at the Seward Marine Industrial Center. In 1990, the sewer lagoon at Lowell Point experienced a failure of the lagoon liner, requiring significant costs to dredge the lagoon and perform repairs. At the time, the Wastewater Enterprise Fund (Sewer Fund) was not in a financial position to pay the costs of the repairs,so the City Council authorized payment from the City's General Fund. The City's General Fund is considered the primary operating fund of the City and it must legally have the capacity to maintain sufficient reserves to handle shortfalls in enterprise funds. The General Fund's contribution to the repairs at the Lowell Point sewer lagoon in 1990 were $1,603,350;the City Council at that time did not consider the payments on behalf of the Sewer Fund to be in the form of a loan. However,a later Council in 1999, expressed concern about the level of reserves in the General Fund,and decided to assess the Wastewater Enterprise Fund through annual debt payments of$76,840,in years when the Sewer Fund was capable of making those payments. In the past 20 years, the Sewer Fund has made those payments only five times, totaling $384,200, leaving a balance owing of$1,219,150. The City is in the process of performing a Water and Wastewater Classification and Rate Study to determine the appropriate classification of customers, as well as the rates necessary to ensure the ongoing positive financial condition of the utilities going forward. Debt requirements are factors taken into consideration when setting rates. In 2014, both sewer lagoons required dredging and repairs,resulting in the Sewer Fund incurring loans with the State of Alaska Dept of Environmental Conservation; the balance on those loans at 12/31/18 is $1,080,603. The annual payment on the ADEC loans is approximately $72,632. To strengthen the financial condition of the Sewer Fund going forward, the administration recommends that the City Council cancel the debt between the Sewer Fund and the General Fund in the amount of $1,219,150. The General Fund has a balance of approximately five months' undesignated reserves(based on 2018 Actuals), falling within the required band of between three- and six-months' expenditures and transfers-out. By cancelling this debt, annual payments in the amount of$76,840 can be excluded from the pending financial analysis for setting sewer rates into the future,bringing less financial pressure to bear on the Wastewater Enterprise Fund,which has a significant need for investment to replace sewer line infrastructure at the end of its useful life. INTENT: This transaction authorizes cancellation of an interfund zero-interest debt owed by the Wastewater Enterprise Fund to the General Fund. The cancellation of this debt will alleviate the need for potential sewer rate increases in the upcoming Water and Wastewater Classification and Rate Study, directly related to this outstanding debt_ CONSISTENCY CHECKLIST: Yes No N/A Comprehensive Plan:p. 10 "Create funding mechanism for repair and 1 replacement of city infrastructure. "P. 44 "Develop infrastructure and X utility expansion plans ...for undeveloped property. "P. 49 "Continue to conduct rate studies on utilities as needed. " Strategic Plan : p. 10 "Reduce utility costs;" and "Develop infrastructure and utility expansion plans... "p. 19 "The City of Sevi and X is a fiscally responsible entity tMich utilities creative and responsible fun ing alternatives. " 3. Other (list): Resolution 91-112, 91-119; Budgets 1999- 2019 X FISCAL NOTE: This action is not intended to have an effect on either the General Fund or the Wastewater Enterprise Fund's financials,since the interfund debt is not recorded on the books of either Fund. However, it is expected to offer rate relief from an additional approximately 15 required payments totaling $76,840 each, to the Wastewater Fund. It will offer less flexibility to the General Fund to meet future unexpected needs and emergencies, but the strength of the General Fund's current reserves is considered sufficient to warrant the cancellation of this debt. Approved by Finance Department: ATTORNEY REVIEW: Yes No_X_ RECOMMENDATION: Seward City Council adopt Resolution 2019- , authorizing cancellation of an interfund debt owed from the Wastewater Enterprise Fund to the General Fund in the amount of$1,291,150 related to 1990 Lowell Point Sewer Lagoon repairs.