10.02 2017 Capital Improvements/Utility Rate Analysis Report

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We have provided a five-year projection of water and sewer rates with this plan (Tab 4). As part of three promised updates to this plan, we will monitor performance of the water and sewer funds, making adjustments as needed to accommodate the City’s planning and budgeting needs. This will be of particular importance in the first year after these recommendations are implemented. Development Fees A quick word about development fees. Pequot Lakes, by far, had the highest development fees of the comparison group. While asking future development to pay its fair share of utility system upgrades is the correct thing to do, at a certain point such fees can be self-defeating. When fees are so high they act as a barrier to new development there is no benefit. We recommend the City put a freeze on raising development fees any higher than current levels. Better yet, a reduction in fees would probably be advisable. Perhaps a fee of $2,000 ERC for Water and $2,000 for ERC for Sewer would be appropriate. This would put Pequot Lakes on equal footing with Cross Lake and Breezy Point. Final Thoughts and Recommendations The City is currently in financially strong health. The City has a healthy amount of reserves in the General Fund and enjoys very low debt levels. Despite contemplating nearly $10 million (present value) in new spending over the next fifteen years the total cost of City services (taxes, water, and sewer) is expected to increase at a very reasonable pace. Ultimately these factors seem to put Pequot Lakes at a competitive advantage over neighboring communities that may be struggling with how to pay for public improvements. Recommendations: 1. Cease or reduce the SAC/WAC fees for the City as noted above. 2. If and when the City receives the County turn-back payments, deposit that money into Fund 402. If and when the City undertakes the new maintenance facility and 2018 street projects (using these same funds), officially establish an internal loan via resolution that clearly states the repayment schedule. This is important so that funds are replenished to take on the Patriot Avenue project with cash in the future. 3. Raise sewer rates by a nominal amount every year, even if not believed necessary in the short term. 4. For residential, remove gallons from the water base fee and reduce the base rate by 60% as shown in Tab 4. Raise water rates 3% per year commencing in 2019. Tab 4 indicates these rates (for both water and sewer) for the next five years. 5. For commercial and multi-family, the City should continue providing up to 5,000 gallons with the base rate. Again, raise water rates 3% per year commencing in 2019. 6. Review utility performance annually. Of particular importance is the Water Fund. 7. Not discussed earlier, but illustrated in the tax rate exhibit in Tab 3, is a significant increase in the City’s levy request (nearly 20%) by the year 2019. While most of that increase is scheduled for 2019, we would advise breaking that increase down over a two-year period (10% increase in 2018, 10% in 2019). This has the dual benefit of reducing the “shock” of such a large increase and produces some additional cash in 2018. As of right now, the model shows about a 5% increase heading into 2018 and a 15 % increase going into 2019. If the City decides to accept this suggestion, it will raise questions from the public. If it does, feel free to share this report with them (particularly the tax rate table in Tab 3) showing how tax rates stabilize (perhaps even decline) after that.