Oxnard City Manager Enterprise Funds Update

By Greg NyhoffOxnardLogoSquare

Wishing you a safe and blessed New Years Holiday.  

I want to provide you a brief update regarding the City’s Utility Enterprises.  We have been meeting and working on our Water and Wastewater Enterprises.  We have also been discussing our needs to raise rates for Environmental Resources but the needs in this Enterprise are not as urgent as Wastewater and Water.
 
WASTEWATER ENTERPRISE:  We are currently working on updating a few of the assumptions from the last 218 process and preparing the rate model based on those changed assumptions.  We presented the timeline at the City Council meeting and intend to meet the various deadlines.
City Council approved the 5 year rate plan earlier this year for Wastewater.  We implemented the 35% rate increase.  The ballot initiative passed in November and the Judge agreed to a stay of the rates until a judgement can be rendered.  The approved 5 year 218 rate increase called for a second rate increase of 10% on January 1, 2017.  Yesterday I met with the City Attorney, Finance Director and Public Works Director regarding the proposed rate increase of 10%.  After consultation I made the decision to not implement the 10% rate increase for January 1, 2017 at this time.
  
The reasons are:
1.  The Judge has not ruled on the 35% current rate increase.  He has only ruled on granting a temporary stay.  We are having to set aside the rate increase revenue in the event he rules against the City and we have to reimburse rate payers.  Approving an additional 10% rate increase on top of the 35% rate increase did not make sense until we hear the Judge’s final decision regarding the ballot initiative.
2.  We are reworking some of the assumptions that were made in the existing rate model and preparing to present different options to the Utilities Task Force, City Council and the community in the next several months.  It did not make sense to approve additional rate increases based on the current model when we are preparing an updated model that we will present to City Council and presumably to the rate payers during our updated 218 process.
Our 218 process includes our ability to raise rates for components of the utility costs as pass through costs.  I believe these costs will be addressed in the updated rate model so I do not recommend any increase for pass-through at this time.
WATER ENTERPRISE:  Standard and Poors in reviewing our financial situation based on the 14-15 audit and preliminary numbers for 15-16, year ending June 30, 2016.  Finance staff is working on providing answers to questions they raised during our conference call last week.  We expect they will make an announcement regarding our rates early to mid January.
Staff has been reviewing our rate modeling and capital improvement plan for Water.  In a conference call with our rate study consultant and staff just before Christmas we reached a consensus that our current rate models will need to be updated as we are doing with Wastewater based on assumption changes and changes in use categories that impact rate setting.  That means before we present rate increase adoption to the Utilities Task Force, City Council and the community we will need to go back through the 218 process.  We are working on that schedule.
As we noted throughout our presentations regarding the need for water rate increases, we highlighted the major issue with this enterprise was expenditures were significantly higher that revenues causing a rapid decline in cash reserves.  Our 14-15 audit portrayed a multi-million dollar decline in fund balance.  The June 30, 2016 preliminary audit indicates that we will likely see further decline in reserves by over 6 million dollars.  Our current fiscal year budget indicates further decline in reserves to a level that soon will nearly deplete our reserves and we will be in a similar situation as Wastewater was in prior to the 35% rate increase.  Going through the 218 process will mean that we will not have taken any steps to alleviate this decline in revenues until July, 2017 at the earliest. 
 
Because of the steep decline in reserves staff is evaluating the implementation of pass-through rate increases in January to slow the pace of reserve balance decline until we can propose and ultimately adopt rate increases after the 218 process is completed.  We have been working with the City Attorney’s Office to insure legal compliance should we move forward with this pass-through rate increases.  Finance is in the process of evaluating the rate increase based on pass-through only.  This pass-through rate increase can be accomplished administratively.  I intend to discuss with City Council during the second meeting in January prior to implementation.
ENVIRONMENTAL RESOURCES:  You may recall that we accomplished the required noticing and voting requirements to comply with proposition 218 for Environmental Resources.  In our preliminary review of the rate study we conclude that the City does not need to initiate a new 218 process to adopt a five year rate increase plan for ER.  We are considering a plan to return to City Council for consideration and adoption of the ER rates in February 2017.  We will meet and discuss with the Utilities Task Force before presenting to City Council for consideration.  City Council adoption would be by Ordinance and there would be 2 readings.
Many have been out of office for the holidays; however, we continue to address the needs to adopt rate increases for all three of our Enterprise Funds.  I wanted to give you a brief update and snap shot of what actions lie ahead as it relates to rate increases.  There are several moving parts in each of the three funds so changes will likely occur as we progress through these processes.
Challenges lie ahead.  It is my hope that we can address all three of these Enterprises so we can get them back on solid financial footing.
Greg
A report will be prepared for the Utilities Task Force Meeting we anticipate scheduling for mid January.  
Greg Nyhoff is Oxnard City Manager
 

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2 Responses to Oxnard City Manager Enterprise Funds Update

  1. Eileen M Tracy December 30, 2016 at 9:50 am

    I’d sure like to see the City Treasurer’s opinion on this. He has far more of the public’s confidence than your City Attorney

    Reply
  2. Steven Nash December 29, 2016 at 8:38 pm

    Well, not one mention of the Utility Ratepayers Advisory Panel (URAP). This suggests to me the importance of such a Panel to City Manager Nyhoff. I hope I am wrong. The following is from the City’s website.

    “The City of Oxnard encourages residents and business owners to apply for the utility ratepayers advisory panel (URAP) by Jan. 10, 2017, to provide feedback as the City begins the process of setting new rates for proposed wastewater rate increases in 2017. The URAP will consist of three members representing single-family residential residents, one member representing multi-family residential residents and four members representing the business ratepayer community.”

    Why waste residents’ time if their input is neither solicited nor wanted? I applied for the Panel and I really do not want to be part of a dog and pony show.

    Reply

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