WSSC’s FY18 Spending Affordability Guidelines & Process

October 19, 2016

Established in April 1994 by Resolution by both Councils

Based on multi year planning model to stabilize annual rate increases and limit rate supported debt to less than 40% of the operating budget

Goal of establishing mutually acceptable limits by November 1 of each year for: ◦ Maximum Average Rate Increase ◦ Debt Service ◦ New Debt ◦ Total Water & Sewer Operating Expenses

Final Council approved budget/rates can be above or below November limits

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Budget

Development

Review &

Approval

Process

Approved

Budget

Interactive Process Between the Finance Team

Operating Departments and County Staff

Develop Proposed

CIP

Additional or

Reinstated Requests

Recurring Items

General Review

Upper Management Review > GM Review

Commission Review > Citizen Input > County Executive

Review > Citizen Input > County Council Review >

Review & Approval by Counties

Adopted Operating Budget

July -

November

November

December

– June 1

July 1

Spending

Affordability

Review

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Bi-County Staff Working Group meet: ◦ July on Proposed Draft CIP (7/6 & 7/7)

◦ September (9/7 & 9/22) and review opearting budget & rate scenarios and discuss related issues

Montgomery County Council Public Hearing (9/27)

Montgomery County T&E Hearing (10/6)

Prince Georges County THE Hearing (10/27)

Prince Georges County Council (11/1)

Montgomery County Council (TBD)

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* FY2016 rate increase was 1.0%; average bill increase was 6.0% with year 1 of Infra. Investment Fee (IIF) phase-in. ** FY2017 rate increase was 3.0%, however the average bill increase was 6.5% with final phase-in of the IIF.

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Components of Rate Increase Revenue: ◦ Use of Fund Balance = 2.2%

FY17 =$25.55 MM

IT Strategic Plan (ITSP); Rate reduction; 1X Additional & Reinstated; Watershed Land Acquisition

◦ FY18 = $12.68 MM (ITSP)

Expenditures: 4.6% ◦ Debt Service = 2.9% ◦ PAYGO = 1.5% ◦ Salaries & Wages = 0.9%

Reserves ◦ Use of Fund Balance = $13.2 MM ◦ Ending Reserves = $110.6

FY19 Indicated Rate Increase=9.9%

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WSSC Request & Montgomery County Council staff recommendation

Operating Budget: $730,522

$11.3 MM in unspecified reductions

Total Operating Growth at only 0.6%

$29.0 MM in additional rate revenues

Use of Fund Balance = $11.5 MM

Ending Reserves = $112.2

FY19 Indicated Rate Increase=10.0%

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Montgomery County Executive Recommendation

Assumes keep $11.3 MM in unspecified reductions

Use of Fund Balance = $14.5 MM

$26.1 MM in additional rate revenues

Ending Reserves = $109.3

FY19 Indicated Rate Increase=10.6%

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Montgomery County T&E Recommended

Assumes keep $11.3 MM in unspecified reductions

Use of Fund Balance = $23.2 MM

$20.3 MM in additional rate revenues

Ending Reserves = $100.6

FY19 Indicated Rate Increase=11.6%

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CIP reductions instead of or with operating cuts

Increased spending reductions instead of fund balance draw downs

Increased use of fund balance

Increases to Misc. Fees (Study underway)

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Total Reserves: Combined Water and Sewer Fund ending balances

Working Capital Reserves: 10% of Projected volumetric revenues plus Ready to Serve Charges

Unallocated Reserves: Total W&S ending balances less ◦ Working Capital Reserves

◦ Uses of Fund Balance during current year

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Work with Financial Advisor to assess adequacy of current policy in light of: ◦ Cash flow needs for current obligations

◦ Rating Agency Criteria for water utilities

◦ Operating Flexibility

◦ Future customer expectations and challenges

May need to consider ◦ Revenue Stabilization Fund

◦ Increasing working capital reserves

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Discussion with Both Counties: Cost control measures ◦ Strategic Sourcing Teams: Fleet, Chemicals, Pipes ◦ Group Insurance: Joint bids; Flat premium growth in

CY18; increased employee contribution; Employer Group Waiver Program (EGWP) for Medicare Retiree Prescription coverage

Potential Rate impact on Reconstruction Program, Infrastructure reliability, and IT Modernization

WSSC’s budget is primarily driven by capital needs not labor costs

Addressing issues with customer service, billing, paving, rate increases

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QUESTIONS

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