Item 3: Ratification of FY11 MWMC Budget

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Metropolitan Wastewater Management Commission Capital Improvement Program CIP Financial Planning and Policy Overview The RWP CIP is funded primarily through proceeds from revenue bond sales, system development charges, and transfers from the operating fund to Capital Reserves. Project financing is also available through the Clean Water State Revolving Fund (SRF) loan program. In 2008, staff applied for a construction SRF loan, and in 2009, staff applied for a planning SRF loan. As a result, the MWMC entered into a loan agreements with the State of Oregon Department of Environmental Quality (DEQ) in 2008 and 2009 that will allow the MWMC to borrow up to $37.5 million over the next five years for qualifying projects. Through the construction loan program, $8,000,000 dollars of financing has been approved for the Tertiary Filtration—Phase 1 project. Another $7,500,000 dollars of financing is approved and pending for the Odorous Air Control project. Of that $7,500,000, $4,000,000 is funded through the American Reinvestment and Recovery Act (ARRA, or “Stimulus”). ARRA funds require only 50% be repaid at 0% interest, resulting in $2,000,000 of revenue to the CIP. Additionally, $1,279,200 in SRF financing is available to the MWMC for RWP planning efforts. Loan payments on both construction and planning efforts start in October 2010. The operating fund derives the majority of its revenue from wastewater user charges that are collected by Eugene and Springfield from their respective customers. Transfers from the operating fund are budgeted annually consistent with the MWMC Financial Plan to meet the financial needs of the capital projects. The RWP uses these transfers to reduce the amount of borrowing necessary to finance the capital program. For each fiscal planning cycle, only one year of budget authority is appropriated. The remaining four years of the CIP are important and useful for fiscal and work planning purposes, but the funds in the outer years of the CIP are only planned for, not appropriated. The full amount of obligated multi-year project costs is typically appropriated in the first year of the project, unless a smaller subset of the project, such as project design, can be identified and funded without budgeting the full projected project cost. For these multi-year contracts, unspent funds from one fiscal year will be carried over to subsequent fiscal years until the project is completed. The RWP CIP reflects projected price changes over time that affect the cost of materials and services. Until about 2003, the 20-year average Engineering News Record (ENR) inflationary factor for construction served as a good predictor for future inflation and was used for projecting the MWMC costs. Initial cost projections for projects included in the Facilities Plan were included in the Plan based on January 2004 construction costs. In recent years however, construction inflation has accelerated and local construction cost inflation has even accelerated faster than the ENR average and the MWMC has modified its inflationary projections accordingly. In early 2006, the MWMC hired the consulting firm CH2M Hill to perform a comprehensive update of project cost estimates. Following that update, the RWP CIP assumes general prices change at five percent per year over the planning period. This does not reflect a projection of any single inflation index but was developed by CH2M Hill to reflect a reasonable aggregate rate of increases for the next five years, based on the historical activity of both construction and Page 38 DRAFT FY 10-11 BUDGET AND CIP