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10-05-2004 City Council Study Session PacketCity of Grand Island Tuesday, October 05, 2004 Study Session Packet City Council:Mayor: Jay Vavricek City Administrator: Gary Greer City Clerk: RaNae Edwards T u 7:00:00 PM Council Chambers - City Hall 100 East First Street Carole Cornelius Peg Gilbert Joyce Haase Margaret Hornady Robert Meyer Mitchell Nickerson Don Pauly Jackie Pielstick Scott Walker Fred Whitesides City of Grand Island City Council Call to Order Pledge of Allegiance Roll Call A - SUBMITTAL OF REQUESTS FOR FUTURE ITEMS Individuals who have appropriate items for City Council consideration should complete the Request for Future Agenda Items form located at the Information Booth. If the issue can be handled administratively without Council action, notification will be provided. If the item is scheduled for a meeting or study session, notification of the date will be given. B - RESERVE TIME TO SPEAK ON AGENDA ITEMS This is an opportunity for individuals wishing to provide input on any of tonight's agenda items to reserve time to speak. Please come forward, state your name and address, and the Agenda topic on which you will be speaking. MAYOR COMMUNICATION This is an opportunity for the Mayor to comment on current events, activities, and issues of interest to the community. City of Grand Island City Council Item -1 Update on 1/2 Cent Sales Tax Projects Tuesday, October 05, 2004 Study Session City of Grand Island Staff Contact: Gary Greer City of Grand Island City Council Council Agenda Memo From: Gary D. Greer, City Administrator Meeting: October 5, 2004 Subject: 1/2 Percent Sales Tax Projects Item #’s: 1 Presenter(s): Gary D. Greer, City Administrator Recently, there has been a lot of discussion concerning financing strategy concerning the ½ Percent Sales Tax Projects. As is the case most of the time, there is not enough money to accomplish all the projects immediately. Therefore, as the numbers are clearer concerning the ½ cent projects, there will be a need to continually: Ø Prioritize Ø Cost Contain Ø Value Engineer Ø Justify Expenses Ø Seek Other Revenues Ø Avoid Unnecessary Cost This is no different than a private business that is facing positive growth and the need to update facilities. Additionally, we are finding that bid costs are coming in higher for construction related projects due to the many projects that are in store for the community. City Administration recommends the City Council consider Fire Station #1, the Law Enforcement Center, and the Library Expans ion as top priorities for immediate attention. In order to assure that these facilities move forward it appears that the other proposed sales tax projects need to be delayed, phased, and/or considered pay as you go projects. Additionally, the cost for the three priority projects will need to be contained, reduced without reducing the effectiveness of the facility. We will have to continually adjust to the economic forces surrounding each of the ½ percent projects as information becomes available. Following is the original ½ percent project plan along with a possible re-prioritization of the ½ percent sales tax projects that will allow us to move forward with the priority projects: Original ½ Percent Project Plan Financed Projects: 1) Fire Station # 1 Replacement $3,000,000 2) Fire Training Facility $4,000,000 (Land, Building, Burn Building, Training Tower) 3) Police/Sheriff Law Enforcement Center $3,000,000 4) Library Expansion $7,000,000 5) Aquatics Projects (according to Aquatics plan) $3,000,000 Total: $20,000,000 The aforementioned if amortized for 20 years at 5% would create approximate annual costs of: $1,593,449. Annual Cash Projects: 1) Grand Generation Center Capital Fund $100,000 2) Cornhusker Army Ammunition Recreation Development $125,000 3) Hike/Bike Trail Development $125,000 4) Infrastructure Emergency Funds $ 56,551 Total: $406,550 Annual Grand Total: $2,000,000 Possible Re-Prioritization of ½ Percent Sales Tax Projects: Financed Projects: 1) Fire Station # 1 Replacement $3,000,000 2) Police/She riff Law Enforcement Facility $8,600,000 3) Library Expansion $7,000,000 Total: $18,600,000 The aforementioned if amortized for 20 years at 5% would create approximate annual costs of: $1,492,512. Annual Cash Projects*: 1) Grand Generation Center Capital Fund $100,000 2) Cornhusker Army Ammunition Recreation Development $125,000 3) Hike/Bike Trail Development $125,000 4) Infrastructure Emergency Funds $ 56,551 5) Fire Training Facility (Phased plan to be determined) ? 6) Aquatics Projects (according to Aquatics plan) ? * Growth in sales tax and/or inclusion of other sources of revenue (grants, general fund, other agencies, fees, ect.) may be included to fund phases of projects. Item -2 Update by Bill Stovall, Hall County Regional Airport for Air Service to the East Bill Stovall representing Hall County Regional Airport and Jeff Bethune representing Mesa Airlines will update the Mayor and Council on air service to the east. Tuesday, October 05, 2004 Study Session City of Grand Island Staff Contact: Bill Stovall, Executive Director Regional Airport City of Grand Island City Council Item -3 Electric Utility Economic Study Tuesday, October 05, 2004 Study Session City of Grand Island Staff Contact: Gary R. Mader City of Grand Island City Council Council Agenda Memo From: Gary R. Mader, Utilities Director Meeting: October 5, 2004 Subject: Electric Utility Economic Study Item #’s: 3 Presenter(s): Gary R. Mader, Utilities Director Mary Garrison, Stanley Group Background The last rate increase in the Electric Department was in 1980. In that intervening period the City has enjoyed an unusually stable period of electric costs due to a number of factors including steady city load growth, low inflation rates, and stable fuel prices nationally, particularly coal and natural gas. But over the last few years, that stable environment has changed. Discussion As was discussed at last year’s Electric Budget hearings and more recently by the Utility Auditors, the Electric Utility financial reports have shown a general down trend in the financial position of that utility for over a year. From December ’02 to December ’03, the department’s reserves have been reduced by 26%. The reduction occurred during a period of relatively normal operations and capital improvements. Department staff began analyzing the source of the decline and now believes that it is directly attributable to increased energy costs for production; fuel costs and purchase power costs. The following indicate the state of these factors; · Delivered coal costs have increased 14% since December ‘02 and are expected to firm up at that or a higher level. · Natural gas prices are extremely volatile but on average, have approximately tripled in the last two years. · Oil prices have increased sharply and OPEC continues production limits. Electric energy markets have reflected the aforementioned source fuel price increases. The attached graphs illustrate the history of the department’s energy costs. For most of the last 15 years (Graph #1), production costs, while very variable on a month to month basis, did, on average, remain fairly steady through 1999 (Graph #2). The historical high peaks are periods when PGS has been down for maintenance and the old gas fired steam units and power purchases were used to meet City electric demand. But in 2000, the volatility of pricing increased and there began a general uptrend in the average costs (Graph #3), with average production costs ramping up approximately 40% from 2000 to 2003. Department staff believes that this is a trend in the industry rather than a “blip” on the radar. This view is shared by other of the state’s electric utilities who have had rate increases in the last two years; including OPPD, NPPD, Lincoln, Hastings and others. Economic Evaluation As a result of the declining financial condition of the Electric Utility, an economic evaluation was begun in May, 2004. The firm of Stanley Consultants was commissioned to conduct the study working closely with Electric Department Staff. The Study concludes that it is necessary to increase Electric Department revenue to maintain that Department. The results of that Economic Evaluation are scheduled for presentation to Council at the October 5, 2004 Study Session.