Storm Water Fund
2022-2027 Financial Plan
Introduction
The storm water collection and street cleaning programs make up the budget for the Storm Water Fund. The fund accounts for storm design work, construction, street cleaning activities and maintenance of the city’s storm drainage system. A portion of the Storm Water fund is used for sanitary water interceptor and treatment services, a function that is carried out by Metropolitan Council Environmental Services (MCES). The Storm Water Fund portion is approximately 5.0% of the total paid by the City to MCES with the main portion of 95.0% being provided by the Sanitary Sewer Fund. The street cleaning activities is a function of the Transportation Maintenance and Repair division of the Public Works department, with funds provided by the Storm Water fund.
Fund resources include monthly utility billing for storm drainage services, quarterly reimbursement for maintenance services provided to the State and County, reimbursement for design work, services provided to other city departments and outside parties, and proceeds from long term liabilities and grants. The Surface Water & Sewer division is responsible for the management of operations within this fund.
Historical financial performance
The Storm Water Fund has performed well in the last five years, maintaining a cash balance above $25 million, and keeping the three-month operating cash reserve of $7.0 million and an unreserved balance of $21.6 million at the end of 2020. It has consistently generated operating revenues in excess of operating expenses by $10 million. As a result, the Fund has been able to:
- Pay off all outstanding bonds and debts issued prior to 2019;
- Increase personnel for infrastructure and construction programs;
- Increase capital expenditures for the future years;
- Meet its obligations for shared costs and services with other City departments;
- Restructure future debt financing; and
- Control utility rates.
The fund will continue with design work, storm water tunnel repair, storm water rehabilitation, televising and cleaning in addition to flood mitigation and various vegetation maintenance work using both operating and capital appropriations. The goal has been to maintain and rely on unrestricted cash reserves and fund balance, and to use debt financing only as needed. With a substantial unrestricted reserve, the fund plans to spend increasingly on capital programs, infrastructure, and major repairs over the next five years.
Revenues
For the current year, operating revenue is projected to come in at $44.8 million, the same amount as budgeted. The utility rate for the current year is $13.62 per equivalent storm units (ESU) compared to $13.42 for 2020. Per signed agreement, the maintenance revenue from the State and County will be realized in full as budgeted. Design work and capital related revenues are dependent on capital activities; so as capital expenditures increase, bond revenues and reimbursement increase.
Expenses
Operating expenses for 2021 are projected at $30.2 million for the year. In capital programs, $41.2 million is projected to be spent in the current year which is $14.7 million more than budgeted. Transfer for shared costs, estimated at $1.7 million, will be expended as budgeted.
Net position and cash balance
The cash balance and net position have remained steady over the past five years. For the current year, net position and cash balance are projected to total $350.1 million, and $23.3 million respectively. These are decreases from 2020 actual amounts due to large capital expenditures related to the Central City Tunnel project.
2022 Budget
Revenues from operations account for 52.0% of the budget with the remaining 48.0% coming from the capital program as bond proceeds and service charges. With significant increases in capital expenditures planned for next five years, funds from bond sales are in the plan in order to maintain a positive cash balance. Expenses from operations account for 34.8% of the total budget with 58.4% allocated for capital, 1.8% for transfers, and 5.0% for debt services. The combined sewer flow program has been discontinued from the operating budget but will continue in the capital program.
Revenues
The 2022 revenue budget is $89.8 million, compared to $69.6 million projected for 2021, reflecting an increase of $20.2 million. This is due to combined increases in: (i) service revenues by $1.1 million, due to increases in monthly utility rates; (ii) increase in maintenance revenues by $0.2 million as per State and County schedule; (iii) increase in capital revenues by $27.6 million, due to increases in long term financing of the Central City Tunnel project; (iv) and a decrease by $9.3 million in grants/proceeds others, due to $8.5 million of state bonding and a $0.8 million grant for the Bassett Creek project in 2021 that will not be received in 2022.
Expenses
The 2022 total expense budget for the Storm Water Fund is $93.9 million, an increase of $19.0 million from the 2021 projection with the following changes: (i) increase in storm design work by $1.8 million (ii) decrease in street cleaning activities by $0.3 million (iii) increase in storm drainage maintenance of $0.4 million (iv) increase in debt services by $2.8 million; (v)increase in administration expense by $0.5 million (vi) and an increase in capital programs by $13.6 million due to the Central City Tunnel project. Capital expenses for 2022 total $54.8 million and include combined sewer overflow, storm tunnel rehab, flood mitigation, and storm-paving programs. These are designated to be funded from cash reserves and bond proceeds. The tunnel rehab program is seeing a significant increase in 2021.
Transfers
Transfers out of this fund are for an environmental services program in the General Fund which is fixed at $110,000. An additional of $1.6 million transfer is the Storm Water Fund’s contribution to the Paving program. These transfers will remain a yearly budget item on an ongoing basis.
Debt service
The fund paid off all its previous debt service obligations in 2016. Bond funded programs started again in 2019. As a result, debt service payments of $1.9 million are estimated for 2021. For 2022, debt service payments of $4.7 million are budgeted.
Net position and cash balance
The Storm Water Fund started 2021 with a cash balance of $28.7 million and a net position total of $355.4 million. Both the cash balance and net position are projected to decrease in 2021 due to the Central City Tunnel project and projections for 2021 year-end are a cash balance of $23.3 million and a net position of $350.1 million. The five-year plan projects a level cash balance between $16.7 million and $19.2 million, and a level net position between $343.5 million and $346 million.
The city financial policy requires the fund to carry a cash balance equal to or greater than three months of operating expenses. The target cash balance for 2022 is $8.2 million making an estimated $11.0 million available as an unrestricted amount to fund capital programs, debt services and transfers.
Storm water utility rates
The Department proposed a storm water utility rate of $14.03 per ESU for 2022, which is an increase of $0.41 over the 2021 rate. It was increased to fund operations, transfers, debt services, and capital programs.