9.3. SR 07-07-2008Item # 9.3.
Citv of
fiver
MEMORANDUM
TO: City Council
FROM: Lori Johnson, City Administrator
DATE: July 7, 2008
SUBJECT: Request to Fund Trunk Water Line under 193rd Avenue
Extension
As we discussed during the last 193Td Avenue project update, Elk River Municipal Utilities is
installing a trunk water line under the 193`d Avenue extension to loop the water system that
serves the northeastern portion of the urban service area. Bryan Adams, general manager of
ERMU, has indicated that this is the last trunk water main that will be necessary to serve this
area. Mr. Adams and the ERMU Commission are requesting that the City fund this
extension or a portion of the extension through the City's Trunk Utility Fund.
As background, here is a brief summary utility financing pertinent to this discussion. Elk
River Municipal Utilities does not have authority to issue debt or to levy assessments; as a
result, the City issues debt for water improvement projects, levies the assessments, and
ensures the assessment revenues are used for payment of the debt. As with the sewer utility,
the intent is that the water utility maintains a fund balance sufficient to pay for
improvements that are not going to be assessed to benefitting property owners.
The Trunk Utility Fund was established in 1996 to segregate trunk assessments received in
areas of the urban service area where trunk lines had previously been installed but
assessments were not levied when the improvements were made. The intent of the fund is
to provide internal financing for future trunk assessment projects and to pay for future trunk
line capital repairs in areas that have already been assessed.
The eastern area improvement project started contributing to the Trunk Fund after the
bonds for this 1998 project were paid ul full. Because development occurred rapidly in the
eastern area following the installation of municipal services, special assessment pre-payments
were sufficient to pay the bonds early. In addition, new areas were opened to development,
bringing in assessment revenue not originally anticipated at the time of the improvement
project.
As Lstated, that. assessment revenue has been held in the Trunk Utility Fund. The share of
the fund attributable to the eastern area is currently approximately $2,334,000. That balance
is both for water and sewer trunk line improvements. Assuming the balance is split equally,
there is approximately $691,200 currently available for trunk water main extensions in the
eastern area. That remaining balance takes into account the two water improvements already
funded for ERMU out of the Trunk Utility Fund; a trunk line in Eagle's Marsh for
approximately $125,000 and a trunk line under County Road 40 for approximately $827,000.
The funding request for 193`d Avenue is approximately $250,000. When water is extended
to the southeastern part of the City, additional expense will be incurred to install trunk water
mains. At this time, no analysis has been done to determine if special assessments will be
able to fund the entire cost of that project.
In conclusion, if the Council agrees with funding this trunk improvement for the water
utility, I propose that a Trunk Utility Fund policy for the expenditure of trunk water and
sewer funds be adopted. The Trunk Utility Fund does not have an on-going source of
revenue other than special assessments and interest income. The vast majority of the
property in these improvement areas has been assessed thus future special assessment
revenue is limited. Therefore, before spending these funds, it is important to have a policy
defusing how the funds can be spent. Attached is a list of items proposed to be included in
the policy. Following discussion at the worksession and assuming the Council concurs, a
formal policy and approval of funding request will be placed on a future agenda fox
consideration.
Proposed Components of a Trunk Utility Fund Policy
^ The City will levy, collect, and retain revenue from all special assessments for
projects funded through the Trunk Utility Fund.
^ The City Council will determine when expansion will be made within the urban
service area.
^ The City Council will determine and approve any future expansion of the urban
service area.
^ Elk River Municipal Utilities may request funding for trunk water facilities not
included as part of a special assessment project.
^ City Council approval is required before any projects to be funded out of this fund
may begin.
^ The Finance department will maintain an accounting of the funds.
^ Future revenue from assessments currently levied is to be shared equally between the
water and sewer trunk accounts.
^ Future assessment revenue will be split based on the proportionate share of levied
water improvements and sewer improvements.
^ Non-assessed water trunk projects will be paid from the Trunk Utility Fund only if
funds exist in the trunk water account.
^ Non-assessed sewer trunk projects will be paid from the Trunk Utility Fund only if
funds exist in the trunk sewer fund.
^ This fund maybe used only for trunk connections or improvements in the area fox
which the assessments were collected.
^ The City retains ownership of the funds in the Trunk Utility Fund and has the right
to change this policy at any time as it deems appropriate.
^ As of June 16, 2008, the balance for water trunk revenue is $691,207.68.