ORDER-2018-185 : Sewer Enterprise Operating Budget for Fiscal Year 2019 in the amount of Eight Million, Fifty Four Thousand, Thirty Five Dollars and Seventy Three Cents ($8,054,035.73).

Transcript (~36 min @ 2:48:10)

Speakers identified by voice; unnamed voices are numbered within this recording. Auto-caption text — verify against the video.

▶ 2:48:09 Jennifer L. Lemmerman: dash 1 8 5 second a motion made by President Zwirko and seconded by Alderman Forbes to combine order 2018-18 for the water enterprise operating budget with 2018-25 the sewer enterprise operating budget all in favor of combining the two aye aye any opposed the combined order is before you thank you thank you for

▶ 2:48:36 Scott M. Forbes: being here tonight I appreciate your presentation I have just a series of questions I just wanted to go through with you can you just tell us what the retained earnings were for this fiscal year for water and sewer yes it was for

▶ 2:49:00 Speaker 4: water four hundred and twelve thousand four twenty nine and saw three seventy

▶ 2:49:09 Scott M. Forbes: nine four fifty four fifty and about twenty thousand dollars of that money is going to go towards reserves that's marked in those two orders that are before us tonight but those remaining funds what do we those to help pay for some of the capital improvement projects that we have in line or what are the

▶ 2:49:28 Speaker 4: purpose where would that money be going the free cash that's is not appropriate will simply flow to the bottom line for both funds and go into next year's determination of free cash thank you

▶ 2:49:50 Scott M. Forbes: okay so looking at the information that's presented before us can we just talk about there were no changes to the base fees for water because we're currently at 10 percent sewer base fees are going up from six percent to eight percent as we continue

▶ 2:50:10 Scott M. Forbes: their climb to ten um is ten percent for a base fee is that standard is it enough do we need to maybe reevaluate and take a look at that and possibly we when we had our consultant here

▶ 2:50:26 Speaker 3: um a few years back now that's a recommendation that they made and they made that based on the costs in our budget what we know we're going to spend reading meters sending out bills electricity things that we know we're going to do and he said he equated it to about 10% of the budget and that's always been our goal that

▶ 2:50:44 Speaker 2: said the next fiscal year one of the things I want to do is have the

▶ 2:50:48 Speaker 3: consultant come back and and update us and look at our operating budget again and and as we approach the 10% to see if 10% still the goal or if it should be

▶ 2:50:58 Scott M. Forbes: something to see if the 10 actually covers those hard costs right right okay yeah that's what i

▶ 2:51:03 Speaker 2: was and that's a healthy thing um the consultant has been away for three years now so part of the budget does have funding to bring him back in the fall to look at our bills again he'll look at all

▶ 2:51:17 Speaker 3: 8 600 bills look at our operating budget and our costs and um and see if that's still a goal that

▶ 2:51:26 Scott M. Forbes: we should be um striving towards next year great uh i definitely appreciate in the package having the rate history the consumption charts um all the information you know obviously the more information that we can present the better can we just uh i just want to kind of take a dive into those uh the indirect costs can you just kind of explain to everybody the the concept of indirect costs not only for the people here at the board but also for everyone watching at home and how they apply to the budgets that are presented before us tonight?

▶ 2:51:52 Speaker 4: Certainly. Absolutely. As part of Massachusetts General Law's Chapter 44, we are provided a vehicle to account for the resources necessary to manage and operate both enterprise funds under the Department of Revenue category entitled, in particular, Shared Employees. Clearly, from a funding perspective, it is the most cost-effective approach when one considers how much it would cost otherwise to fund these services. If we were required to hire full-time staff with benefits, it would be substantially higher. For example, if we simply look at the legal cost, how much you think we would have to pay for the procurement services, contract development, authorization, compliance matters, bidding disputes, collective bargaining issues, contract negotiations, JLMC representation if necessary, contract impasse matters, employee grievances, et cetera, workers' compensation matters, representation, fact-finding, et cetera, contract billing disputes, claims, related time contract performance issues etc legal opinions regarding water and soil matters

▶ 2:53:17 Speaker 4: the list goes on and on what's good is that um the department of revenue division of local services under general law chapter 44 section 53 f and a half let's turn here because it might be good

▶ 2:53:32 Speaker 4: It's good for everyone here to, and I appreciate the question, to refresh where this comes from and why we have it.

▶ 2:53:46 Speaker 4: As is stated here, Department of Revenue, appropriation for indirect cost. Indirect costs are generally appropriated as part of the general fund operating budget and are allocated to the enterprise fund as reported on schedule A-2.

▶ 2:54:06 Speaker 4: We do not appropriate these costs in both the general fund operating budget and in the enterprise fund budget. What I passed out for everyone was three sheets.

▶ 2:54:19 Speaker 4: One is this one here that talks about allocation to services. This is directly from Costing Municipal Services, Department of Revenue, Division of Local Services. And it says, and I want to read it for the record because of the misinformation that I heard earlier this evening. It says, number one, that although indirect costs are not easily attributable to individual services, they are an essential part of the cost of municipal government. and it is important to include them in the full cost of providing municipal services. For this reason, indirect costs are allocated to departments and services according to the amount of indirect costs for which they are responsible. Number two, indirect costs are distinguished from direct costs by the fact that they cannot be assigned precisely to various municipal activities. As a result, the indirect costs allocated to a particular department or service are approximate rather than exact costs. We are not a manufacturing company, so everyone should realize that. Sometimes this fact bothers officials who like to have precise cost figures. It is important to remember that even though indirect costs are approximations, including them and the full cost of municipal services results in more accurate cost information than if they are not included at all. And number three, the director of accounts may reject any community's methodology, written or otherwise, as unreasonable for tax rate setting purposes. It is very important, therefore, that we follow the protocol requested by the Department of Revenue Division of Local Services and maintain an allocation methodology that is reasonable and calculated in a fair and consistent basis. That was written by the Department of Revenue Division of Local Services.

▶ 2:56:41 Speaker 4: Also, what you have in your budget book is the breakdown.

▶ 2:56:50 Speaker 4: This is their breakdown.

▶ 2:56:54 Speaker 12: They developed this worksheet.

▶ 2:56:57 Speaker 4: We're required to comply with what they're requesting.

▶ 2:57:02 Speaker 12: We do that each and every year.

▶ 2:57:07 Speaker 4: We have never had a year where they challenged or questioned the indirect cost assigned to any budget in this city. We have never had an audit finding of any kind on the indirect cost applied to any fund within this city,

▶ 2:57:25 Speaker 4: ever. So if someone makes an accusation otherwise, they simply are ignorant, and they don't understand basic municipal

▶ 2:57:36 Speaker 4: finance law. Here is the tax rate that is approved by the Department of Revenue. Over the years, the directors have

▶ 2:57:46 Speaker 4: changed however each and every year a new director scrutinizes what we submit it is certified take a look at our history I also provided you a five-year history our approximation of indirect cost over five years is approximately

▶ 2:58:06 Speaker 4: eleven point four percent reasonable and consistent do you know what other

▶ 2:58:18 Speaker 4: communities around us use for indirect costs percentages what do you think malden uses combined ours is 11 11 what do you think saugus uses 11 what do you think salem uses 10

▶ 2:58:39 Speaker 4: percent. What do you think Saugus uses? Eleven percent. What do you think Winchester uses? Twenty-three percent. Why? Because by following the methodology provided by the Department of Revenue, Division of Local Service, and guidance from the independent auditors, those percentages and are used consistently, and they're approved consistently by the Commonwealth. We know what we're doing, and if anything, we should— in fact, it's interesting, I'm glad you brought that up also, because guess which community they asked to submit information on their indirect cost so that they could try to set up a system where others would uniformly provide that information. It was us. They asked me to submit our methodology to them so they could try to create a uniform system for all cities and towns, even over and above what they had provided here, because we are consistent and accurate.

▶ 2:59:50 Speaker 4: it. So again, it's something that we take great pride in, and I think that the cost that we're showing and representing more than without a doubt clearly indicates the approximate cost for those services. Look at the treasurer's office. Guess how many bills they process for water and sewer a year. $40,000.

▶ 3:00:20 Speaker 4: Guess who has to process the payments for the vendors? The payments to the city, the walk-ins, the counter work, the refunds. Who has to reconcile financial statements to my office, the treasurer? Process online payments, as we heard this evening. Apply to customer accounts. Reconcile differences. Address non-payment issues the list goes on and on and on and where my office is concerned we have to process we have to

▶ 3:00:50 Speaker 4: audit we have to approve every single vendor payment every single payroll submitted regarding water and sewer we have to prepare all the information for the outside auditors the the Department of Revenue, Division of Local Services, Standard & Poor's, our bond rating company, our bond council, that all comes from the office of the auditor, treasurer, collector. The amount of work is phenomenal on water and sewer. So to suggest for any moment that any of these figures are out of line or there's something improper being done is simply a disgrace. Thank you.

▶ 3:01:37 Scott M. Forbes: thank you um well you answered my next question because i was going to ask you if we reached out to other municipalities to compare our percentages of indirect costs to see if we're equal to less than or above average so i appreciate you sharing that with us um concept of shared employees now we have 15 employees from seven different departments that total about 530 000 dollars of our 1.6 and direct costs um out of those 15 employees or out of those seven departments they play different roles correct um do you know would you be able to summarize what roles they

▶ 3:02:17 Speaker 4: play as far as legal and like just as a i just read over i read the list as to what the legal department provides correct so that's phenomenal that's the only what i gave you was just a snapshot of what they do because don't forget we have employees nine in water and three in soar that are part of a union and that as the director will tell you there's issues that pertain to staff and employees that have to be addressed um procurement the as i indicated earlier legal opinions uh everything from contract disputes because just because you go out to bid It doesn't mean you're not going to get a dispute from a contractor because they lost the bid. You have to handle that dispute in a legal and professional way. There's a phenomenal amount of work that goes into that. Documentation, which we don't want to talk about, but it's true. The fact that the amount of work that you have to put forward for documentation today, the amount of work that we have to put forward for simply maintaining backup data to what transpires is phenomenal. we have to record everything you have to identify you have to document in a way that in the past as I said before you know ten years ago I've never seen the volume that we have to do today it's really has increased phenomenal okay so

▶ 3:03:44 Scott M. Forbes: health insurance and pensions I'm assuming that I look at the water and the sewer for the indirect cost they're different amounts they're not allocated identically since the salaries are allocated identically no because what

▶ 3:03:57 Speaker 4: happens in the health insurance we actually go by the program of the plan that the person the employee is under specifically that's why you'll see a change because as employees change plans the cost change as if an employee took an opt-out the cost would go go down if they were on a family plan so we actually go through that process of identifying that very very clearly as

▶ 3:04:24 Scott M. Forbes: well okay and then I know that includes the Medicare to which was talked about

▶ 3:04:31 Scott M. Forbes: earlier yep and I know we briefly touched on the technology portion of all this I know before we were reaching out to consultants and asking them to build us models but now we actually have that technology we're able to do that engineers office and we'll be actually able to forecast out depending upon if if it's a dry month or a wet or a dry quarter or a wet quarter and try to be able to connect the dots

▶ 3:04:58 Speaker 4: and be more proactive instead of playing catch up yeah and again through the chair to all the enforcement that has been a phenomenal help we saw the model in in action we're able to change the assumptions and when the output that comes out of it to make decisions on that we couldn't do that five years ago so this has been a significant jump and to everyone's credit again another effort by the committee to make that happen okay I think that's

▶ 3:05:24 Scott M. Forbes: everything I have for right now I thank you for everyone's leniency I know I kind of spoke at length here but you know there's still a lot of work to do as far as water and sewer you know looking at the looking at the 2017 numbers on the MWRA website our average bill is over $2,300 as opposed to doing 3,000 cubic feet a quarter that is the second highest or actually no the third highest Redding and Belmont are the two communities with higher totals than us and then Milton and Newton are the only other communities that are above $2,000 I think the average is about 1,600 bucks so I know there's work to do but I know that you know we're being aggressive and I and I and we're hoping that that will bear fruit and hopefully some of these costs will come down and I agree leaf so

▶ 3:06:19 Speaker 5: and be good thank you very much thank you thank you um in terms of just the budgets alone i

▶ 3:06:29 Monica C. Medeiros: i know um mr shenna i believe i saw there was a vacancy in the uh i want to say the water foreman position is that still vacant and do you what do you expect to happen there we're actually

▶ 3:06:41 Speaker 3: preparing an offer for someone right now but that's um that's a position that we've had a lot of trouble filling that position requires a distribution level three certified license from the uh from the state that's the position that matt hickey held for nearly 50 years so we had to be very uh proven in our selection process to make sure that um we we hired someone who had the license or the ability to obtain one in a short amount of time so we have a we've recently put a plan in place we're about to we're about to finalize that and that will no longer be a vacancy

▶ 3:07:28 Monica C. Medeiros: okay um i'm just going to talk a little bit in general here and you know i think

▶ 3:07:35 Monica C. Medeiros: i'm going to kind of address the past a little bit but i really want to stay focused in the present it because that's where we are today and that's where we're going to move forward and i think you know that mr shenna you hit it on the head when you said that you know some of our priorities are affordability stability of funds stability of increases and i think you know some of the frustration that's been seen by you know i think the the board in the past at least myself And I think some of the people in the public are that, you know, it's good to see the detail and the indirect cost, which we, you know, we're not necessarily seeing as much detail of that in the past. And that, you know, if we see this most recent five years, there's not much difference in that number. You know, if we did go back about three years prior to that, there was a big jump. And I think the frustration that I had in particular was that it wasn't necessarily fully presented. And it did represent a shift in cost bearing to the rate payers and off of the general fund budget. And that's not anything that, you know, I don't think there's been any movement, I don't personally believe there's been any movement of funds that was illegal I just want to you know say that clearly if I thought there was something illegal I'd be saying I would be yelling a lot more but there is a policy shift decision and doing that making that shift that we saw probably about 70 years ago to really

▶ 3:09:32 Speaker 5: increase that percentage that did open up funds to get more cash flow in the

▶ 3:09:36 Monica C. Medeiros: operating fund budget and it more it may have more accurately described all of

▶ 3:09:44 Speaker 5: the costs to the water and sewer fund but it's not necessarily something that

▶ 3:09:56 Monica C. Medeiros: we had to do but it's something that I think we the administration chose to do and in that's that's something that's come to bear now we saw big increases in the in the average bill at that time which were pretty jarring to some people we changed the rate structure and we

▶ 3:10:19 Monica C. Medeiros: did that very quickly and you know i am happy that this what we're going to see later on for rates are pretty much stable again um for the second year in a row which is which was basically unheard of before in tobacco we are now we see the the list of the indirect costs and you know you can see dollar for dollar not just percentage wise but you can see dollar for dollar that they are more consistent and they're not having big swings like we had seen you know a few years prior where 45 percent increase in that from one year to the next and that um come on so you know

▶ 3:10:56 Monica C. Medeiros: and back to where we are today i think we've made great strides to that i don't think we can

▶ 3:11:03 Speaker 5: you know i don't think we can go back um because it's it's done but i'm glad to see that we

▶ 3:11:14 Speaker 5: are having consistency and you know not huge swings so um i do just want to point out too

▶ 3:11:18 Monica C. Medeiros: that these percentages are not percentage of the say health and it's not that this cost is say the percentage of the health insurance budget as a whole it's a pers it's the percent of the budgeted

▶ 3:11:39 Speaker 4: cost for the budgeted cost of correct correct correct absolutely correct so if you looked at

▶ 3:11:47 Monica C. Medeiros: say the treasurer's office to employees it's not you know 0.6 percent of the treasurer's time it's 0.6 percent of this budget so just people get get that thank you thank you it's a point

▶ 3:12:00 Speaker 4: of information if i made through the chair to alderman medeiros i was there in fy 13 when the department of revenue came here to the city because the water and saw enterprise funds at that time had no reserves we had run a deficit and the sore enterprise fund the department of regular director of accounts jerry perry came here himself sat with me and two of the aldermen the board at that time and the mayor and set out policies and guidelines for us to follow including the indirect cost methodology and we actually did that over a span of several years so that we didn't i think i mentioned to the board before so we didn't have a larger increase in one year over the next they allowed us to spread it out over multiple years to avoid that but it's because we didn't have reserves that the rates had to go up as hot as high as they did for for as long as they did until we met our reserve requirement. It wasn't for nothing. The second thing is that they changed their methodology. They wanted us to have a more formal procedure which we adopted and as a result reflected what it really cost, really cost to run both those enterprise funds, period. And we were also required to hire a consultant, which we did do. We had two of them to ensure that our rates were going to be consistent and applied and take out any politics from the processes which we were told. And finally, I was required to provide them with monthly reports of our progress myself through my office until they were satisfied that we were continuing on the effort and the initiative they indicated or or they were not going to set our tax rate that year so it didn't come from out of the sky and it wasn't something that was initiated by just us we followed to the letter of the law because we have to have a tax rate if we don't send out tax bills we're out of business period so we followed the guidelines from the director himself and adhere to those guidelines what you see is the results of years and years of compliance with their guidelines in their recommendations I am very proud to offer what I offer here and I'm very proud of the work that's been done and I think everyone in here should be proud thank you thank you madam chair I'll try to be

▶ 3:14:48 Michael P. Zwirko: as succinct as possible but I'm gonna be a little bit all over the place on some of the questions so and first of all again thank you for all the work on the committee the Commission rather throughout the year I know that the spring gets rather busy and you meet a couple times so I also wanted to add that Alderman Medeiros last year put in the ordinance for a night meeting which I appreciate because I was able to attend so appreciate that order last year and also on the ability to have residents because they it's more likely that they can show up at night first question and you alluded to this earlier I think last year the number of meters that we still had not changed was about 300 but we put an ordinance in had that figure changed because of the ordinance or was there any I guess benefit to the city with the ordinance did we find did you say that we started to find people or did we find them then change the meter I mean the ultimate goal is to bring that 300 down to zero did it move in the past year or did we just find 77 okay I missed that earlier

▶ 3:15:51 Speaker 3: and the balance is still being fined okay it's called a manual read fee right not a fine but every quarter I believe is $50 they pay $50 extra because they won't let us in yet sure we're trying to do some other things we have some ideas I need to talk to the building inspector see if there's a way to tie in the plumbing inspector and maybe and other items maybe maybe even metal items just a way to get someone's attention so this way we can go in and finish this up

▶ 3:16:24 Michael P. Zwirko: thank you for the effort especially in the last year with the benefit of the ordinance I want to go back a little bit the it was mentioned during your presentation with the city engineer that in 2008 we had put in the INI donation balance due to development and I'm curious do we know is that has that kind of leveled off a little bit I mean I know that there have been development projects over the past decade that those they tail off that that balance is it

▶ 3:16:59 Speaker 3: level no that we assess I&I mitigation whether it's a project like the senior home on Essex Street and sometimes even if people just add a bedroom we look at we look at it in a project by project basis we have a fund and the fund is managed by the auditor's office and where those are where that revenue goes

▶ 3:17:21 Michael P. Zwirko: and those are dedicated for future I&I future I&I projects the I was looking at

▶ 3:17:28 Michael P. Zwirko: the it's the last page of the packet that you gave us which was I appreciated

▶ 3:17:40 Michael P. Zwirko: is the water and sewer rate history from 2012 to present and my first question before we get through to go through the history is it possible under current law to have different classifications of residential property for billing

▶ 3:17:59 Speaker 4: purposes I have to check with I'd have to check for you on that one okay so

▶ 3:18:02 Michael P. Zwirko: then I'll get to the history of this so we used to have a flat rate then we moved to a three tiered structure excuse me we used to have a flat rate but we had separate rates for residential and commercial then we went to a three tiered rate that didn't which removed the commercial we stayed there and then we moved to a two tiered rate all and while along we added base fees and now where we're at is the two tiered rate with base fees how come there's no

▶ 3:18:31 Speaker 3: commercial rate we went straight volumetric the basis of our rate system when we went away from commercial and residential five six years ago was to go of pure volumetric you pay what you use and if you use more you pay more regardless if you're a single family house or if you're a business the reason we went there it was a recommendation of the uh of the consultant it's something that a lot of a lot of water districts put in place we're 96 percent or more residential and we have some residents that use more water than our commercial base our commercial base is a realtor commercial base is a tiny little coffee shop it might not be using a lot of water and that's why we put the system that we put in place I attached yesterday as well this way you know we see these accounts all the time but that's so that the alderman if the public are interested as well you could see who our top users are and um and the basis of the system was the more water you use the more you owe the dis the system um and that's why we went where we went and that's why there isn't commercial or residential um and you know mechanically that would even be a difficult thing to do because we'd have to go back and really figure out who truly is commercial and true truly is residential and we have some accounts

▶ 3:20:08 Speaker 3: that about that's why this is a straightforward volumetric approach where if you use a lot of water you pay more and if you don't use a lot of water you play you pay less with with the base fees covering the portion of our budget that we know we're going to spend to run a system I

▶ 3:20:28 Michael P. Zwirko: I mean I guess I understand the difference in the pros and cons of volumetric I just feel that for commercial properties a coffee shop for example can make money off their water I can't make money off my water so I feel that they could bear a little bit more of the costs even if it was volumetric and I'm just we used to have them we decided to move away from them I I'd appreciate it if maybe in the next year, we look into this a little bit more about and even if we have to go back and start looking at what properties are commercial, I mean, when I look at the list of users, the first one is the hospital. I would presume that they would be considered commercial. I know they're a nonprofit, but I don't think that they're residential. So it's I think it's worth investigating again residents and when you just when you lumped everybody into one residential volumetric you're taking away the ability for a business to profit off the use of the water. So I think I think it's worth the time to look into.

▶ 3:21:49 Michael P. Zwirko: The Alderman Forbes had mentioned earlier about the appropriations that's needed for reserves and I went back and I looked at what we did last year and we directed those excesses back and it I believe in your question your answer to Alderman Forbes questioning we're actually doing that so it's going back into but it won't affect this year's rates it'll just go back in for for 2019 is that

▶ 3:22:15 Speaker 4: right yeah we'll just close it out it'll be used as one of the factors to the

▶ 3:22:26 Speaker 11: retained earnings calculation for next year and final question are we I'm so in

▶ 3:22:32 Michael P. Zwirko: 2016 we had the study the consultant I apologize I forget the name Woodward Woodcock and associates and in their presentation in April of 2016 they made a suggestion to us that our reserves should target or the city should be striving for 20 to 25 percent correct um that seems to me um gratuitous

▶ 3:23:03 Michael P. Zwirko: and we've decided that the current target should be 10 are we comfortable staying there is there an idea that we may seek to raise the reserves higher in the future will we be using the reserves at all are we saving the reserves for exactly its use when we have a a potential deficit i know that there were similar uh i believe it was winthrop and stonem that decided to dip into their reserves one year to lower the rates and they ended up that ended up backfiring but i'm just curious you know based on the consultant's report from 2016 and i know that we've achieved our target last year what's the future of the reserve account at least from my perspective i'm comfortable

▶ 3:23:47 Michael P. Zwirko: at ten percent you're comfortable at ten percent and i know that our bond rating agencies also look at the enterprise accounts do you feel that absolutely do you feel that they're comfortable

▶ 3:23:55 Speaker 4: at ten percent they're comfortable in my opinion at the ten percent i also think they're comfortable that we're consistent and that they don't see the the dips that we're we have a target we we strive for it and uh we haven't let up on that that's just as important to them thank you and that's

▶ 3:24:10 Michael P. Zwirko: the end of my questioning but just to move this forward i'd like to make a motion to recommend

▶ 3:24:17 Jennifer L. Lemmerman: on the combined orders the motion to recommend orders 2018 and 2018 184 and 2018 185 second seconded by alderman forbes any further discussion all in favor aye aye opposed