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HomeMy WebLinkAbout01-12-18 Agenda PacketTHE FULL PACKET IS POSTED ON THE WEBSITE www.mwmcpartners.org MWMC MEETING AGENDA Friday, January 12, 2018 @ 7:30 a.m. City of Springfield City Hall, Library Meeting Room 225 Fifth St., Springfield, OR 97477 Turn off cell phones before the meeting begins. 7:30 – 7:35 I. ROLL CALL 7:35 – 7:40 II. CONSENT CALENDAR a. MWMC 12/08/17 Meeting Minutes Action Requested: By motion, approve the Consent Calendar 7:40 – 7:45 III. PUBLIC COMMENT Request to speak slips are available at the sign-in desk. Please present request slips to the MWMC Secretary before the meeting starts. 7:45 – 8:00 IV. FY 2016-17 AUDITED FINANCIAL STATEMENTS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Meg Allocco Action Requested: By motion, accept the Annual Financial Report and audited financial statements for FY 2016-17. 8:00 – 8:20 V. FY 2018-19 BUDGET KICK-OFF: KEY OUTCOMES AND PERFORMANCE INDICATORS . . . . . . . . . . . . Matt Stouder/ Dave Breitenstein/ Katherine Bishop Action Requested: Provide input to staff regarding the purpose statement, key outcomes and performance indicators. 8:20 – 8:45 VI. SMALL HOMES SYSTEM DEVELOPMENT CHARGES (SDC) . . . Matt Stouder Action Requested: Discuss and decide on criteria for program and dollar amount for line item in budget. 8:45– 9:00 VII. BUSINESS FROM COMMISSION, GENERAL MANAGER, AND WASTEWATER DIRECTOR THE FULL PACKET IS POSTED ON THE WEBSITE www.mwmcpartners.org 9:00 VIII. ADJOURNMENT _______________________________________________________________________________ The meeting location is wheelchair-accessible. For the hearing-impaired, an interpreter can be provided with 48-hours-notice prior to the meeting. To arrange for service, call 541-726-3694. All proceedings before the MWMC are recorded. ________________________________________________________________________________________ MWMC MEETING MINUTES Thursday, December 8, 2017 @ 7:30 a.m. City of Springfield City Hall, Library Meeting Room 225 Fifth St., Springfield, OR 97477 President Inge opened the meeting at 7:30 a.m. Roll call was taken by Kevin Kraaz. ROLL CALL Commissioners Present: Pat Farr, Bill Inge, Doug Keeler, Walt Meyer, Peter Ruffier, Jennifer Yeh Absent: Joe Pishioneri Staff introductions were made: Jolynn Barker, Katherine Bishop, Dave Breitenstein, Judy Castleman, Patrick Cox, John Huberd, K.C. Huffman (attorney), Laura Keir, Madeline Klein, Tonja Kling, Kevin Kraaz, Shawn Krueger, Troy McAllister, Todd Miller, Josh Newman, Samuel Novac, Mark Smith, Loralyn Spiro, Matt Stouder, and Greg Watkins Guests: Alan Zelenka and Luke Werner – Kennedy/Jenks Consultants Karl Morgenstern – EWEB CONSENT CALENDAR a. MWMC 11/10/17 Meeting Minutes MOTION: IT WAS MOVED BY COMMISSIONER KEELER WITH A SECOND BY COMMISSIONER MEYER TO APPROVE THE MINUTES. THE MOTION PASSED UNANIMOUSLY 6/0. PUBLIC COMMENT There was no public comment. BIOGAS/RENEWABLE NATURAL GAS (P80095) CONSULTANT SELECTION Josh Newman, Managing Civil Engineer, requested approval of Resolution 17-15, authorizing the MWMC Executive Officer to execute a contract with Kennedy/Jenks Consultants for engineering consultant services in support of the MWMC’s Renewable Natural Gas (RNG) Upgrades Project P80095. This project follows five years of studying biogas and finding a utilization pathway that would allow full utilization of the gas. Currently the MWMC uses an 800 kilowatt generator due to EWEB’s customer generation policies, and the result is 30% of our biogas resource is wasted. This project is motivated by the desire to get the highest value we can for all of MWMC’s biogas. Earlier this year staff issued a Request for Proposals (RFP) to identify a buyer for the biogas if the biogas was MWMC Meeting Minutes December 8, 2017 Page 2 of 12 upgraded to RNG. Three buyer (off-taker) proposals were received and Trillium CNG was selected. So now the MWMC has a company waiting in the wings to purchase RNG, it has raw biogas, but it lacks the facilities to upgrade the biogas to RNG. In September, the Commission directed staff to further pursue a project to furnish the facilities to upgrade the biogas to RNG including procurement of an engineering consultant to help with further developing the concept, getting better information for the Commission to make a final decision, and if the Commission choses to go forward with the project. This consultant would be the design consultant for the project. This approach is spelled out in Attachment 2 of the agenda memo (Agenda Item IV). On October 18, 2017, staff issued an RFP for RNG Upgrades Engineering Consulting Services and received seven proposals. Kennedy/Jenks Consultants was the highest ranked proposer and staff issued a Notice of Intent to award the contract on November 28th. The seven-day protest period cleared on December 4th. Mr. Newman introduced Alan Zelenka and Luke Werner from Kennedy/Jenks Consultants and stated that their proposal did the best job in spelling out how they would serve the MWMC’s needs based on what the RFP had requested. Mr. Zelenka is the company leader on energy and renewable fuels. They have also partnered with a company called Blue Source that is in the business of developing RINs (renewable identification numbers) which would be the most valuable attribute associated with the RNG. Blue Source also brings to the table a range of tools that will be helpful in risk estimation. Mr. Newman stated the project is two phases of work. The contract that staff is asking the Commission to authorize will be for the first phase of predesign activity. The consultant will be gathering a lot of information for the Commission to consider including a governmental policy review and risk assessment. Technology will be looked at to find the best for a conceptual design which will then lead to better cost estimation. When it is better defined, then staff will come back to the Commission to get a decision; hopefully in the spring time around the May or June. Should the Commission decide to go forward, the rest (detailed design and services during construction) would be done We will also be looking at as a contract amendment with Commission approval. DISCUSSION: Commissioner Keeler said in the packet, the graph showed $7.3 million, is that the current best guess for the entire project. Mr. Newman replied it was. Commissioner Ruffier asked Mr. Newman to give a little bit more of his view on the process to proceed to Phase 2. Mr. Newman said first there will be a memo to describe the governmental fuel policies that come into play and that will influence the potential value of the MWMC’s RNG in the future. Kennedy/Jenks will be contacting people throughout the industry to gather information. There is a lot of moving parts to this discussion including the legislative track record and litigation history that have been encountered in administering these programs. Because the payback period on the project hinges on the Renewable Fuel Standard (RFS) heavily, this information will help the Commission understand the relative stability of that program, how the renewable fuel volumes are determined (and accordingly the associated RIN values), and how the courts have interpreted the law to rule on cases of litigation. Understanding this history will give the Commission a sense of the legal stability of the program and how the RIN values may perform in the future. Mr. Zelenka said that he has been involved in energy policy for over 30 years. He was the Power Manager at Emerald PUD and for the last decade he has been working with Kennedy/Jenks as their Energy Services Leader. The most recent projects have been waste-to-energy projects. That MWMC Meeting Minutes December 8, 2017 Page 3 of 12 used to mean generating electricity like MWMC does at the plant, but now, because of the RFS, it means the most economical option is to turn it into fleet fuel. He said that he would be looking at the political landscape, legislative history, the industry players, what is going on in Washington DC in regards to the RFS (which is a federal law), what is happening in Oregon in regard to the CFS (Clean Fuel Standard) and in California with the Low Carbon Fuel Standard; all these programs will play into this project. He added that Kennedy/Jenks has done 36 of these projects around the country. The leader in the area of monetizing the environmental attributes of RNG is Blue Source. They have developed forecasting tools about what’s happening to the price over time and also some risks models which they sell to large corporations such as Chevron and Google to inform their investment decisions in a similar fashion. Commissioner Ruffier stated that he gathered from the discussion that most of the decision making will be around the risk assessment and the economic value versus technological feasibility of preparing the gas for use. Mr. Newman replied, that is also important but it takes place outside of the context of the governance decision making. Staff has a fairly good idea of the quality of the gas, but needs a better data set for a reliable characterization and it will be one of the things that looked at. That will lead to better understanding of how to configure equipment, what kinds of equipment are needed, and at what size or capacity. The other piece of this is NW Natural and their interconnection requirements. When we have Kennedy/Jenks working with us that will allow us to negotiate with NW Natural, keeping in mind that Portland is really forming the basis right now of that negotiation because they are moving forward with their project. Our contract will be shaped, to a large degree, by how Portland proceeds. Commissioner Meyer asked when we negotiate with NW Natural and others will that agreement be a long term agreement so we have some assurance that things will not change very quickly. And how long, typically, are these agreements for? Mr. Zelenka responded there are no agreements with NW Natural currently. The one with Portland will be the first. He expects it to be 10-20 years with an automatic renewal period in it with some flexibility to get out of it. Portland will set the template for all the contracts that go after that so there will be limited negotiations with NW Natural. Commissioner Keeler asked if Kennedy/Jenks is involved in the Portland project. Mr. Zelenka said that they were not and that Portland did most of it on their own, internally. President Inge said he is interested in the risk assessment tool; has MWMC purchased it or is staff going off the modeling that Mr. Newman did, and does it make sense to purchase it? Mr. Zelenka replied that the MWMC would not buy it but would use Kennedy/Jenks and Blue Source’s tools. Kennedy/Jenks would provide the tools to do the assessment on both the policy aspects and the long term price of RIN. President Inge stated that we should do the assessments first. Mr. Newman replied it is the very first thing that will be done once Kennedy/Jenks is hired. Commissioner Farr asked if Mr. Zelenka was confident that we are on top of the technology; that nothing is going to change in the near future that will make us wish that we had waited a year. Mr. Zelenka replied that the technology and equipment is Luke Werner’s expertise. Mr. Werner said that we will be doing a screening of the various technologies. There are emerging technologies that come out every year but you don’t want to be the first one to use that technology because there is a risk associated with that. Also, the new technologies usually cost more. There is a MWMC Meeting Minutes December 8, 2017 Page 4 of 12 balance. If you wait for the next great technology, you are also losing money on the back end by not having your project implemented. We will be talking to manufacturers and suppliers on what else is coming down the road. Mr. Zelenka stated that the technology involved in biogas conditioning has been around for a while; the MWMC actually has some of that equipment in place already and has had it for the last 15 years or so. The newer technology that would be added is the CO2 removal equipment. President Inge (referring to Agenda Item IV memo, page 1, third paragraph, last sentence) asked what was meant by “Phase 2 services would then be negotiated subsequent to the completion of Phase 1 through a direct appointment contract amendment.” Mr. Newman replied he wanted to have consultants competing on the basis of their qualifications for delivering the whole scope of work. In the RFP it is spelled out very clearly that this is going to be authorized for the first part, the second part would be authorized only after the decision is made and then we would do it as a contract amendment. That is allowable under MWMC’s procurement rules so long as it is a continuation. Commissioner Keeler stated that staff did well on setting out the criteria, weighting those, and going through the evaluation to get a good objective decision. MOTION: IT WAS MOVED BY COMMISSIONER KEELER WITH A SECOND BY COMMISSIONER RUFFIER TO APPROVE RESOLUTION 17-15. THE MOTION PASSED UNANIMOUSLY 6/0. FY 2017-18 SUPPLEMENTAL BUDGET #2 Katherine Bishop, ESD Program Manager, presented the Supplemental budget item that was prepared by Meg Allocco, MWMC Accountant. She requested approval of Resolution 17-16 authorizing the proposed supplemental budget requests for FY 2017-18. Ms. Bishop stated there are two components to the supplemental budget. The first component includes the item previously discussed, appropriating $470,000 from capital reserves to fund the consultant engineering services agreement for the Biogas/RNG project. The second item is corrective in nature. Following the MWMC’s budget approval in April 2017, the construction contract for the Operations and Maintenance Building Improvements project was awarded in May 2017 with the budget requiring a $3.9M adjustment. The plan was to include this adjustment in Supplemental Budget #1, which did not occur. As such, we have included the $3.9M adjustment in Supplemental Budget #2. This will allow the total amount of approved funds to be allocated to the specific project account in the budget. MOTION: IT WAS MOVED BY COMMISSIONER RUFFIER WITH A SECOND BY COMMISSIONER MEYER TO APPROVE RESOLUTION 17-16. THE MOTION PASSED UNANIMOUSLY 6/0. LIABILITY INSURANCE RENEWAL FOR 2018 Ms. Bishop stated the MWMC’s insurance is renewed annually; liability insurance is on a calendar year (January 1st) and property insurance is on a fiscal year (July 1st). In January 2015, the MWMC choose Brown and Brown Northwest as their new Insurance Agent of Record. In May 2015, the MWMC moved from City County Insurance Services (CIS) to Special Districts Insurance Services (SDIS). The reason for the change was because at that time there were more agencies MWMC Meeting Minutes December 8, 2017 Page 5 of 12 with CIS that were having employee related claims and premium rates were going to increase significantly for the MWMC. We moved to SDIS because the MWMC does not have employees and SDIS is better fit in terms of risk exposure, coverage levels and premiums. MWMC’s premiums have remained fair and stable. SDIS also has a program that includes best practices which allows us to earn up to a 10% discount on our premiums. The liability insurance we are looking to renew is through SDIS and the coverage is $5M per occurrence with no deductible. The combined 2018 premium and membership dues is $26,068, for the calendar year effective January 1, 2018. DISCUSSION: Commissioner Keeler asked what year did the Commission decided to take on more risk on property insurance by raising the deductible. Ms. Bishop replied FY 2015-16; historically, the deductible was $100,000 and then the Commission increased it up to $250,000. At that time there was a premium savings of about $14,000 for doing so. Also at that time, an insurance reserve was set up and started taking the money remaining from the savings into the insurance reserve. Currently there is a balance of $515,000 in the Insurance Reserve. Commissioner Farr asked how the MWMC’s property was being affected by the flood zone changes. Ms. Bishop replied the short answer is insuring the infrastructure. One example is on Franklin Blvd in the Glenwood area, the Glenwood Pump Station, which takes the flow from both cities. That location happens to be in a very high risk flood rated zone. That one pump station includes a $500,000 deductible versus $250,000. Commissioner Farr said he expected that kind of answer and would like to know more about where MWMC’s property is located. MOTION: IT WAS MOVED BY COMMISSIONER KEELER TO AUTHORIZE THE GENERAL MANAGER TO ENTER INTO AN AGREEMENT WITH SPECIAL DISTRICTS INSURANCE SERVICES FOR LIABILITY INSURANCE FOR THE NEXT CALENDER YEAR. IT WAS SECONDED BY COMMISSIONER MEYER. THE MOTION PASSED UNANIMOUSLY 6/0. MWMC FINANCIAL PLAN DISCUSSION #1 Ms. Bishop stated that she, John Huberd, Eugene Finance and Administration Manager, and Meg Allocco, MWMC’s accountant, would be bringing information to the Commission on proposed policy updates over a series of meetings. They hope to complete the updates in the calendar year of 2018. They will include a review by the MWMC’s financial advisors. It will be a partial update with a comprehensive policy update planned for when the permit is renewed. Ms. Bishop went over three policies that staff is currently working on. 1) The Working Capital Reserve is to ensure there is cash on hand to pay expenses on an ongoing basis. The current policy states the Working Capital Reserve be set at $200,000 for the City of Springfield and at $500,000 for the City of Eugene. The policy allows the size of the reserve to be adjusted as needed to ensure that it is sufficient and that neither city experiences negative cash flow. Staff would like to update $500,000 with $700,000 to reflect our current levels. 2) The Insurance Reserve was set up in FY 2015-16 and staff would like to add a policy covering it. Ms. Bishop asked for feedback on the language of the policy and gave the following as an example. “The Insurance Reserve is intended to accumulate funds necessary to provide for insurance deductible amounts, while recognizing that insurance MWMC Meeting Minutes December 8, 2017 Page 6 of 12 deductibles are applied on a per occurrence basis. The Insurance Reserve will maintain funds and not fall below two times the current insurance deductible amounts.” Ms. Bishop pointed out that the deductible is $250,000 and we currently have $515,000 in the Insurance Reserve. If we did have a significant earthquake, our deductible would be much greater than $250,000 because it is calculated differently. President Inge asked if she has an idea what the deductible would be if there was an earthquake; was there any evidence from other municipalities that have had earthquakes what their costs were. Ms. Bishop replied, many agencies do not carry earthquake coverage or carry low levels because of the high premium expense. Underground pipes are often not insured by cities/agencies. The cities of Springfield and Eugene, for example, do not carry insurance coverage on underground sewer pipes. However, the MWMC does, in fact, carry insurance on regional sewer pipes including underground pipes with a coverage limit of $10M. President Inge said we have $515,000 in the reserve now and you said if we have an earthquake it would cost us more, how much more. He said he was trying to get a sense of how much more is needed in the reserve. Ms. Bishop replied that staff would have to do a calculation on the earthquake and take into consideration the underground pipes. The underground pipes have a limit of $10M. When Napa, California had the earthquake, staff contacted them. Napa said that most of their problems happened on above-ground pipes where they were coming up from underground and going into the infrastructure and on raised pipes that are mounted above ground. Commissioner Farr asked if the Napa, California quake made their insurance rate go up. Ms. Bishop did not know but she said that there was a very long wait to get reimbursed from FEMA. So at a minimum, an agency needs to have funds available to get back up and running, knowing that the reimbursement from FEMA is going to be delayed. Commissioner Keeler stated the MWMC has a number of funds so it can draw upon them, should it be needed; that is a good thing. We use to have a graph called the spaghetti chart. It was a graphic display of all the funds and reserves that MWMC had and how they interacted. It may be good to republish that, especially for our newer Commissioners. Ms. Bishop replied that in many cases the funds had to do with requirements in the initial construction in the 1980’s and others had to do with revenue bond requirements. In either case, we could actually remove some of those that are no longer required. It would be good to see a chart. Commissioner Meyer said our facility is approaching 40 years old. He would like to see a presentation on the Asset Management Plan and its relationship with the Equipment Replacement Fund with a projection of where we are for the next five to ten years based upon the Asset Management Plan. Much of the equipment is pretty old, and that includes the major pump stations; he believes the presentation would give the Commission some idea of where we are at. Matt Stouder, MWMC General Manager, stated staff has been kicking off a robust asset management program and John Huberd, Katherine Bishop, and others have been working on it. He believes there is a presentation scheduled in the upcoming months. President Inge said he is not a big proponent of insurance generally. So looking for the opportunities to reduce the costs through some self-funding mechanisms that we have, he thinks is really important. Ultimately, he believes it is best for the rate payers. Look at the ten year MWMC Meeting Minutes December 8, 2017 Page 7 of 12 history; we had a lot of insurance over that period of time. So anything we can do to reduce those costs where the risks are relatively minimal and the gain is quite significant, he thinks we need to do that. Ms. Bishop went over the last policy that staff is currently working on. 3) The Equipment Replacement Reserve is intended to accumulate funds necessary to provide for the timely replacement or rehabilitation of equipment, and may also be borrowed against to provide short-term financing of capital improvements. An annual analysis is performed on the Equipment Replacement Reserve. The annual contribution is set so that all projected replacements will be funded over a 20-year period and at the end of the 20-year period, the reserve will contain replacement funds for all equipment projected to be in use at that time. Ms. Bishop stated that the 20-year period referred to in the Equipment Replacement Reserve policy was a requirement from the funding that was part of the early construction in the mid- 1980’s and it may not be relative anymore. This item will be brought back at a future meeting when John Huberd and Meg Allocco can be there to contribute to the discussion. She would like to understand what the Commission’s desire is in terms of framing the policy language for the Equipment Replacement Reserve given the age of the plant. There is good work happening on the Asset Management Program refinement in the Key Outcome in the budget. It looks like there will be additional assets identified that are not currently included. At a minimum it will reset some of the replacement cost estimate which may increase. Right now the equipment replacement reserve is around $12M, which is more reflective of a ten-year period rather than a 20-year period. Much of it has to do with the additional assets that have come into the modeling from this asset management refinement program. Commissioner Ruffier said he is concerned that as we put money into these funds and maintain them we are sitting on a lot of cash we don’t necessarily use. He said it would be helpful for future discussions to have a history of expenditures from the funds. For instance, he is not sure if we have ever drawn from the Operating Reserve. An expenditure history might give us a little bit of an assessment of the risk of needing these different funds. In conjunction with that discussion, perhaps, give some thought to the mandatory nature. For a number of these funds, the policy says “shall be maintained.” We might want to consider “may” or “should” instead of a mandatory requirement. Ms. Bishop said that she wondered if the “shall” was in the framework that came from other agencies as a part of their requirements of the MWMC. Commissioner Meyer stated when the plant was put into place in the early 1980’s the MWMC was required by the EPA to have an equipment replacement fund. Now that the assets have reached almost 40 years, he doubts if we would still be under that requirement. The reason they did that was because so many agencies would get a grant and not have any money; it was a proof of planning. Commissioner Ruffier, in regards to waiting to do a full Financial Plan update until the permit is renewed, said the current Financial Plan is 12 years old from the last partial update. Given that we have no foreseeable certainty for permit renewal, he would question whether or not it is better to go forward with a full review and update at this point rather than wait. Ms. Bishop replied that it is one document amongst many in the same situation. If you think about our 2004 Facilities Plan, which had a partial update in 2016, our SDCs are reflective of our project lists but what is the project lists going to be following permit renewal. She said staff plans to do a fairly thorough MWMC Meeting Minutes December 8, 2017 Page 8 of 12 review, and believes we will need to add additional information once we receive the new permit and the Facilities Plan. Mr. Stouder said we are open to do a more comprehensive review, however there are certain policies in the Financial Plan that lend themselves to wait until we get a new permit but there are a number of things that could be updated now. President Inge asked Ms. Bishop if she was suggesting that the equipment fund is underfunded when she said the fund was actually for a ten-year period rather than a 20-year. Ms. Bishop replied, based on what we know at this moment in time, she would not say it is underfunded because the equipment is used past what is stated as its useful life. But what has happened is new expansion type equipment has come in and is being added. Ms. Bishop said that she believes that once additional assets are identified and worked into the system, at that point, we will see a new number of what we need in our reserve. It will be more comprehensive than what is currently identified and it will have updated some of the replacement costs. Currently it doesn’t reflect 20 years but when we add additional equipment to that schedule in the analysis, which will take several months, we will likely see a need to increase the reserve dollars. President Inge asked if Ms. Bishop could give the Commission an analysis on how each of the funds and reserves relate to what their intended purpose was and whether they officially effectively cover that. Ms. Bishop said that this discussion will be coming back to the Commission from time to time. She asked if there was any further input or direction at this time regarding format or anything else. Commissioner Keeler replied that he would like to receive the information in paper format. PURE WATER PARTNERS UPDATE Todd Miller, Environmental Management Analyst, explained that the Pure Water Partners (PWP) is a water quality partnership opportunity between the MWMC and the Eugene Water and Electric Board (EWEB). He introduced Karl Morgenstern from EWEB who is leading up the PWP development for EWEB. Mr. Miller said that there are two components in formalizing the relationship between the MWMC and EWEB for the PWP program: 1) An inter-governmental agreement (IGA) with EWEB and 2) A fiscal services agreement with an organization called Cascade Pacific Resource Conservation and Development. Mr. Miller stated EWEB is trying to protect Eugene’s drinking water source with the PWP. EWEB’s interest is in protecting the watershed and MWMC’s interest is in restoring the watershed for thermal load reduction; they complement one another. The MWMC has been working formerly under a memorandum of understanding (MOU) with EWEB for the past two years. EWEB is moving forward with the program and staff would like to have the IGA and the fiscal management piece in place by early 2018 so MWMC can take advantage of the initial outreach of the program and get name recognition out there with owners. BACKGROUND: Between September 2016 and now The Freshwater Trust (TFT) has quantified the potential for shade credits available in the PWP’s program area. PWP’s focus is on the McKenzie watershed (the source of drinking water for EWEB). There is a possibility that could expand into the middle fork and coast fork Willamette watersheds too. If that happens, it would open up a lot more geographic area for credit-worthy riparian shading, depending on where MWMC Meeting Minutes December 8, 2017 Page 9 of 12 EWEB goes with their second source program. Also, the model could allow MWMC to move forward to other geographic areas that are outside of EWEB’s area. Looking at the entire geographic area, TFT calculated somewhere around five billion Kilocalories (Kcal) per day of credits that are available out there. It is well above and beyond the 93 million Kcal target (MWMC’s thermal load qualifier). Next, Mr. Miller went to Attachment 2, the conceptual framework chart. Mr. Miller pointed out that the PWP Program is a vehicle that allows MWMC to streamline its investment in shade credits at a much lower cost than if we developed credits independently. He is still working out the costs but it appears to be significantly lower than what we experienced in our pilot projects. It greatly streamlines outreach to landowners. The relationship with Cascade Pacific and PWP Watershed Conservation Fund provides a simplified investment vehicle for MWMC; MWMC will just pay into PWP and Cascade Pacific will manage the funds – making sure all the players are getting what they paid for. TFT will be involved by making sure the work on the ground is done. DISCUSSION: Commissioner Ruffier asked to be reminded what the basis is upon which we are continuing to seek shade credit since the temperature standard is in question and our permit has not be renewed. Mr. Miller replied that there is a 2006 Total Maximum Daily Load (TMDL) document that imposed a waste load allocation upon the MWMC which calculated out to 93M Kcal/day. The TMDL was challenged in court and a big component of it, the Natural Conditions criterion, was thrown out. Even though the TMDLs need to be redone, the DEQ contends the existing TMDL is still legal. If the MWMC were to get a permit tomorrow, the DEQ would apply the TMDL with the natural conditions criterion pulled out. Commissioner Ruffier asked about the validity of the trading and credit program. Mr. Miller replied that the trading program is pretty robust right now. The DEQ has accepted it, it has been challenged and bolstered at the national level through EPA so trading programs are emerging across the nation. In Oregon, the DEQ adopted new water quality trading rules in December 2015. Staff is working close with the DEQ. There are other facilities such as Clean Water Services and Medford with trading programs as well; we are seeing how those move forward in their permits. Mr. Stouder added this is part of our portfolio of options for thermal load compliance. The DEQ has a framework set and they have gone through the public process on that. There is no 100% iron clad guarantee that when we get a permit it won’t be challenged. This is the most cost effective way to reduce our thermal load and it seems very likely in some capacity to move forward. Commissioner Meyer said one of the elements of the DEQ’s requirements for a trading program is that the MWMC has a trading plan to meet those credits and that plan goes through a public hearing process. Often the public hearing for the trading plan has been rolled in with the public hearing for the permit. It doesn’t have to be that way. There could be a separate public hearing which involves the DEQ for the trading plan. Commissioner Meyer asked if it would be prudent for the MWMC, if we are going to get financially involved, to go ahead and have a program written and have a public hearing with the DEQ so that what the MWMC does is actually recognized as part of a plan. Then, when we ultimately do get a permit, it gets rolled into it. Mr. Miller said it was an excellent suggestion and he will be pursuing it in his conversations with the DEQ. What he had worked out in the agreements with EWEB and Cascade Pacific is we have this assumed geographic trading area to be superseded by the trading plan when that gets adopted by the DEQ. MWMC Meeting Minutes December 8, 2017 Page 10 of 12 Commissioner Meyer stated if you check the internal management directive from DEQ for the trading program, the elements of the program are not that complicated. Everything in there you probably already have, for example, the geographic location is upstream of our service area. All the elements are there so you could put them into the document and then get it reviewed by DEQ and ultimately a hearing. Commissioner Keeler stated that the chart helped him. He wanted to know who is certifying that these credits will meet MWMC’s regulatory requirement; is it a straight line to us with our DMR? Mr. Miller replied that StreamBank™ is the registry for the credits (StreamBank™ is TFT’s proprietary water quality credit management tool). You can actually go there and see the credits that have already been registered for our pilot projects. All the documentation, the verification reports, planting plans, all those documents are there in the data base. The DEQ has accepted that. That is the model moving forward. Commissioner Ruffier, regarding the IGA, pointed out the terms for funding states not less than $10,000 per year for the first five years for administrative costs and suggested that staff might want to consider a provision that would allow us to make some adjustments to that based on actual administrative costs. Mr. Miller replied that he is currently working that out with Mr. Morgenstern. He has a list of what the program cost will be. Commissioner Ruffier stated that on Attachment 2 there are a lot of dollar signs attached to all the arrows. Mr. Miller replied his intention was to show that there is only one transaction with MWMC but there are all these costs across the landscape of this program. The way it is set up is that there is just one annual payment into the Conservation Fund. Mr. Morgenstern said it is a larger landscape that EWEB is working in which he thinks is a benefit to MWMC. There is money coming in from the Forest Service, EWEB, OWEB, and they are starting a business sponsorship program as well; all those funds are going into the Conservation Fund which then is going to actions on the ground. MWMC may be paying just for that first 60 feet of shade credits, but on that landowner’s property there will be other money going for additional restoration protection activities. He thinks there is a good story in that the MWMC is making an investment to meet its regulatory requirements in a watershed that is actually providing drinking water to our mutual customers. Commissioner Ruffier asked if there will be any competitors for the shade credits in the partnership. Mr. Miller replied not at this point. In tandem with this there is the Willamette River Alliance initiative coming up out of Oregon ACWA. ACWA is looking at how to develop some kind of program, very similar to this, that is happening on a Willamette-Basin-wide scale. Mr. Morgenstern said they are working with the Santiam Basin to essentially export this model to Salem. So there might be other opportunities for people to buy shade credits down the road. Commissioner Ruffier appreciates the magnanimity of providing shade credits for others but said it doesn’t hurt to be the only player in the game for shade credits. Mr. Morgenstern asked if it is something that the Commission would want to put into the IGA; that the MWMC would get the first refusal on the credits. Commissioner Ruffier said possibly. Mr. Miller said we could work that in. Commissioner Keeler said he appreciated Todd’s and Karl’s enthusiasm especially as he reads the second paragraph of the IGA, it refers to them as the Partiers to the Agreement. MWMC Meeting Minutes December 8, 2017 Page 11 of 12 BUSINESS FROM COMMISSION, GENERAL MANAGER, AND WASTEWATER DIRECTOR Commission: President Inge appreciated the employee list that was emailed out to the Commission. Commissioner Farr said the MWMC serves the metropolitan area but we have a lot of customers who do not have a City Councilor. In the urban transition area, which is mainly River Road and Santa Clara, they only have a County Commissioner. They are underrepresented in terms of the MWMC and other boards. They are also underrepresented in the level of urban services that they receive. We have just started a River Road/Santa Clara refinement plan update. Four weeks ago was the kick-off meeting and over 400 people were in attendance and all of them are rate payers for the MWMC. Most of them do not live within the city limits. As the refinement plan moves forward, Commissioner Farr will apprise the Commission what is happening. General Manager: DEQ has developed an advisory process for redoing the Willamette Mercury TMDL. There are a number of stakeholders that are participating and Mr. Stouder has been asked to sit on the Committee as an MS4 Phase II Stormwater representative. It will benefit MWMC because the Mercury TMDL will also impact MWMC. IGA provisions regarding hauled waste outside the service area is out to the three agencies to be approved. Eugene’s City Council will see it on Monday, December 11th, Lane County on December 19th, and Springfield will see it in January. DEQ is preparing to issue the MS4 Phase II General Stormwater Permit which affects over a dozen communities in the state (including Springfield). A draft permit has been issued and is under public comment right now. It is a very challenging process. So although we haven’t seen anything on the wastewater side, they are moving quickly on the stormwater side – the environment could change quickly. o Commissioner Ruffier asked if there has been any change in the regulatory requirements for the stormwater permit for the treatment plant. Mr. Breitenstein stated we just got our 1200Z permit renewed, he wasn’t aware of any significant changes. o Commissioner Meyer said the benchmark for zinc was lowered significantly. o Commissioner Ruffier asked if copper had been changed. Mr. Breitenstein replied that he would check into any changes and let Commissioner Ruffier know what they are. Wastewater Director: Treatment has been going well especially in coordination with the capital improvement projects going on at the plant. Risk and Readiness: Staff has just completed a check list from the EPA which assesses our risk and readiness around floods and earthquake hazards. Asset Management: We have been putting a lot of effort into improving our asset management program. We started out with completing a gap analysis based on a tool made available through Water Environment Research Foundation. Two employees have completed a correspondence course in asset management which was developed by a Public Works organization in Australia. ADJOURNMENT President Inge thanked guests Alan Zelenka, Luke Werner, and Karl Morgenstern in taking time to join us. MWMC Meeting Minutes December 8, 2017 Page 12 of 12 President Inge adjourned the meeting at 9:25 a.m. Submitted by: Kevin Kraaz M E M O R A N D U M DATE: January 5, 2018 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Meg Allocco, MWMC Accountant SUBJECT: FY 2016-17 Audited Financial Statements and Report ACTION REQUESTED: Accept the annual financial report _____________________________________________________________________ BACKGROUND The Commission is required to issue an Annual Financial Report, which has been audited by an independent Certified Public Accounting firm. The financial statements are the responsibility of the Commission’s management. The accompanying statements for the MWMC were audited again this year by Grove, Mueller & Swank, P.C. DISCUSSION At the January, 2018 MWMC meeting, Ryan Pasquarella from Grove, Mueller & Swank, P.C. will discuss the FY 2016-17 Audited Statements and Financial Report. It is customary for the auditors to provide a letter to the governing board, which is included as Attachment 1. The letter discusses audit findings, estimates, representations and qualitative aspects of accounting practices. Additional information about the financial statements can be found in the management discussion and analysis section of the audit report (Attachment 2), along with notes to the financial statements. Both staff and the auditors will be available at the January meeting to answer any questions from the Commission. ACTION REQUESTED By motion, accept the Annual Financial Report, including the audited financial statements for FY 2016-17. ATTACHMENTS 1. Governance Letter 2. FY 2016-17 Annual Financial Report 475 Cottage Street NE, Suite 200, Salem, Oregon 97301 (503) 581-7788 December 22, 2017 Governing Body Metropolitan Wastewater Management Commission 225 Fifth Street Springfield, Oregon 97477 We have audited the financial statements of the Metropolitan Wastewater Management Commission (the Commission) as of and for the year ended June 30, 2017, and have issued our report thereon dated December 22, 2017. Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated August 29, 2017, our responsibility, as described by professional standards, is to form and express an opinion about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Commission’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the Commission solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, and our firm have complied with all relevant ethical requirements regarding independence. ATTACHMENT 1 Page 1 of 9 Qualitative Aspects of the Entity’s Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the Commission is included in the notes to the financial statements. The Commission implemented one new pronouncement: GASB Statement No. 77, “Tax Abatement Disclosures,” addresses the disclosure requirements for governments that have tax abated properties in their jurisdiction. The statement requires governments to disclose a description of the tax abatement program, the gross dollar amount of taxes abated during the period, and commitments made by a government, other than to abate taxes, as part of the tax abatement agreement. There was no effect to the Commission’s financial statements as a result of implementing this pronouncement. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. The most sensitive accounting estimates affecting the financial statements are: Management’s estimate of the carrying value of capital assets, based on management's determination of the useful lives and future economic benefit of the assets. Management’s estimate of the fair market value of investments, based on third-party brokerage information. Management’s estimate of the allowance for doubtful accounts, based on past experience with uncollected accounts. Management’s estimate of the contractual liabilities, based on the proportionate share of the cities of Eugene and Springfield’s other post-employment benefits, net pension liability and related deferrals, and compensated absences. The other post-employment benefits and net pension liabilities are based on calculations from an independent third-party actuary. We evaluated the key factors and assumptions used to develop the estimates and determined that they are reasonable in relation to the basic financial statements taken as a whole. Significant Difficulties Encountered during the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the ATTACHMENT 1 Page 2 of 9 effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. There were no misstatements noted as a result of audit procedures. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the Commission’s financial statements or the auditor’s report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in the attached letter dated December 22, 2017. Management’s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings, or Issues In the normal course of our professional association with the Commission, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the Commission’s auditors. We applied certain limited procedures to management’s discussion and analysis, which is required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the supplemental information, which accompanies the financial statements, but is not RSI. With respect to this supplemental information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplemental information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. ATTACHMENT 1 Page 3 of 9 This report is intended solely for the information and use of the governing body and management of the Commission and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, CERTIFIED PUBLIC ACCOUNTANTS ATTACHMENT 1 Page 4 of 9 ATTACHMENT 1 Page 5 of 9 ATTACHMENT 1 Page 6 of 9 ATTACHMENT 1 Page 7 of 9 ATTACHMENT 1 Page 8 of 9 ATTACHMENT 1 Page 9 of 9 REGIONAL WASTEWATER PROGRAM ANNUAL FINANCIAL REPORT June 30, 2017 and June 30, 2016 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION OF THE EUGENE-SPRINGFIELD METROPOLITAN AREA ANNUAL FINANCIAL REPORT For the Years Ended June 30, 2017 and 2016 Page INTRODUCTORY SECTION Governing Board iii FINANCIAL SECTION Independent Auditor's Report 1-3 Management's Discussion & Analysis 4-9 Basic Financial Statements Comparative Statements of Net Position 10 Comparative Statements of Revenues, Expenses and Changes in Net Position 11 Comparative Statements of Cash Flows 12 Notes to Financial Statements 13-21 Supplemental Information Schedule of Revenues, Expenses and Changes in Fund Net Position - Budget and Actual Combining Schedule of Metropolitan Wastewater Funds 22 Regional Wastewater Fund 23 Regional Wastewater Capital Fund 24 Regional Wastewater Bond Capital Fund 25 COMPLIANCE SECTION Independent Auditor's Report Required by Oregon State Regulations 26-27 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 28-29 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION ANNUAL FINANCIAL REPORT For the years ended June 30, 2017 and 2016 TABLE OF CONTENTS Introductory Section Metropolitan Wastewater Management Commission Of the Eugene-Springfield Metropolitan Area June 30, 2017 GOVERNING BOARD Bill Inge Lane County 1831 W. Broadway Citizen Representative Eugene, OR 97402 President Peter Ruffier Eugene 2724 Malibu Way Citizen Representative Eugene, OR 97405 Vice-President George Brown - June 2016 – December 2016 Eugene George Poling - January 2017 – March 2017 Council Representative Vacant – April 2017 – June 2017 125 E 8th Ave., 2nd Floor Eugene, OR 97401 Faye Stewart Lane County 125 E. 8th Ave. Lane County Commissioner Eugene, OR 97401 Joe Pishioneri Springfield 961 S 70th Street Council Representative Springfield, OR 97478 Doug Keeler Springfield 3905 Hayden Bridge Rd. Citizen Representative Springfield, OR 97477 Walt Meyer Eugene 3987 Brae Burn Dr. Citizen Representative Eugene, OR 97405 ADMINISTRATION 225 Fifth Street Springfield, Oregon 97477 Anette Spickard MWMC Executive Officer Matt Stouder MWMC General Manager Dave Breitenstein Interim Wastewater Division Director Robert J. Duey MWMC Finance Officer iii Financial Section Independent Auditor’s Report 475 Cottage Street NE, Suite 200, Salem, Oregon 97301 (503) 581-7788 INDEPENDENT AUDITOR’S REPORT Governing Board Metropolitan Wastewater Management Commission 225 5th Street Springfield, Oregon 97477 Report on the Financial Statements We have audited the accompanying statements of net position of Metropolitan Wastewater Management Commission (MWMC) as of June 30, 2017 and 2016, and the related statements of revenues, expenses and changes in net position, and cash flows for the years then ended, and the related notes to the financial statements, which collectively comprise MWMC's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to MWMC’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of MWMC’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metropolitan Wastewater Management Commission as of June 30, 2017 and 2016, and the respective changes in financial position, and cash flows thereof for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Other Matters Management’s Discussion and Analysis Accounting principles generally accepted in the United States of America require that the management's discussion and analysis (MD&A) be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the MD&A in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplemental Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise MWMC’s basic financial statements. The supplemental information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplemental information is fairly stated in all material respects in relation to the basic financial statements as a whole. Report on Other Legal and Regulatory Requirements Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 22, 2017, on our consideration of MWMC’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering MWMC’s internal control over financial reporting and compliance. Other Reporting Required by Oregon Minimum Standards In accordance with Minimum Standards for Audits of Oregon Municipal Corporations, we have issued our report dated December 22, 2017, on our consideration of MWMC's compliance with certain provisions of laws and regulations, including the provisions of Oregon Revised Statutes as specified in Oregon Administrative Rules. 2 The purpose of that report is to describe the scope of our testing of compliance and the results of that testing and not to provide an opinion on compliance. GROVE, MUELLER & SWANK, P.C. CERTIFIED PUBLIC ACCOUNTANTS By: Ryan T. Pasquarella, A Shareholder December 22, 2017 3 Management’s Discussion and Analysis MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the Metropolitan Wastewater Management Commission (MWMC), we offer readers of MWMC’s financial statements this narrative overview and analysis of the financial activities of MWMC for the fiscal year ended June 30, 2017. Please read it in conjunction with MWMC’s basic financial statements, which begin on page 10. Mission The purpose of the MWMC is to protect health, safety and the environment by providing high quality wastewater management services to the Eugene-Springfield metropolitan area. The MWMC and its regional partners are committed to providing these services in a manner that is effective, efficient, and meets customer service expectations. Since the mid-1990’s, the Commission and staff have worked together to identify key outcome areas within which to focus the annual work plan and budget priorities, as well as planning capital and construction administration. Responsibility and Controls The City of Springfield performs all administrative duties, as well as planning and capital construction of major capital assets for the MWMC in accordance with the provisions of an intergovernmental service agreement among the City of Springfield, the City of Eugene, and MWMC. The City of Eugene performs all operations and maintenance duties for the MWMC in accordance with the provisions of the intergovernmental service agreement among the City of Eugene, the City of Springfield, and MWMC. FINANCIAL HIGHLIGHTS Total assets and deferred outflows of resources at June 30, 2017 were $215.5 million and exceeded liabilities by $155.8 million (i.e. net position). The increase in net position of $8.4 million was the result of a combination of a rate increase and a reduction of debt service. Of the total net position, $4.9 million is restricted for capital improvements, $78.4 million represents net investment in capital assets, $.6 million for debt service, and $71.8 million is unrestricted and available for future appropriation. Operating revenues for the year were $32.4 million. This is an increase of 3.9% from fiscal year 2016 operating revenue of $31.2 million. Fiscal year 2016 had a 3.5% increase from 2015 increasing from $30.2 million to $31.2 million Total operating and maintenance expenses for the year were $13.4 million and the total administration expenses were $3.4 million compared to the prior year when expenses were $14.9 and $3.6 million respectively, and 2015 where they were $10 and $2.8 million respectively. 4 OVERVIEW OF ANNUAL FINANCIAL REPORT Management’s Discussion and Analysis (MD&A) serves as an introduction to the basic financial statements and supplementary information. The MD&A represents management’s examination and analysis of MWMC’s financial condition and performance. The financial statements report information about MWMC using the accrual basis of accounting. As such, revenues are recognized when they are earned and expenses are recognized when they are incurred. The financial statements include a statement of net position; a statement of revenues, expenses, and changes in net position; a statement of cash flows; and notes to the financial statements. The statement of net position provides information about the nature and amount of resources and obligations at year-end. The statement of revenues, expenses, and changes in net position presents the results of the business activities over the course of the fiscal year and information on how the net position changed during the year. The statement of cash flows presents changes in cash and cash equivalents resulting from operational, capital and related financing, and investing activities. This statement presents information about cash receipts and cash disbursements, without consideration of the earnings event, when an obligation occurs, or depreciation of capital assets. The notes to the financial statements provide required disclosures and other information that are essential to a full understanding of material data provided in the statements. The notes present information about MWMC’s accounting policies, significant account balances and activities, material risks, obligations, commitments, and contingencies. The financial statements represent a consolidation of three budgetary funds: the Regional Wastewater Fund, the Regional Wastewater Capital Fund, and the Regional Wastewater Bond Capital Fund. For financial reporting purposes, management considers the activities relating to the operation of wastewater management to be of a unitary nature and they are reported as such. For operational purposes, the accounts of wastewater management are organized on the basis of funds, each of which is considered a separate accounting entity. Supplementary information comparing the budget to actual revenues and expenses is provided. The financial statements were prepared by City of Springfield staff from the detailed books and records of MWMC. The financial statements were audited during the independent external audit process. Financial Analysis The following comparative condensed financial statements serve as the key financial data and indicators for management, monitoring, and planning. 5 CONDENSED FINANCIAL STATEMENTS Statements of Net Position 2017 2016 2015 Current and other assets 93,313,107$ 83,217,275$ 113,788,853$ Capital assets, net, where applicable, of accumulated depreciation 118,992,082 122,974,232 127,022,500 Total assets 212,305,189 206,191,507 240,811,353 Deferred outflows of resources 3,237,587 3,584,183 - Current liabilities 6,548,006 5,866,035 8,000,720 Long-term liabilities 53,208,828 56,489,753 90,310,045 Total liabilities 59,756,834 62,355,788 98,310,765 Net position: Net investment in capital assets 78,386,308 79,714,451 52,076,163 Restricted for capital improvement 4,908,728 4,798,029 4,257,063 Restricted for debt service 641,728 641,728 8,770,908 Unrestricted 71,849,178 62,265,694 77,396,454 Total net position 155,785,942$ 147,419,902$ 142,500,588$ June 30, The largest portion of MWMC’s net position is net investment in capital assets, followed by unrestricted assets, and then the restricted amounts held for investment in the capital improvement plan and finally, the remaining amount that is restricted for debt service. Statements of Revenues, Expenses, and Changes in Net Position 2017 2016 2015 Operating revenues 32,443,512$ 31,222,377$ 30,166,903$ Operations & maintenance (13,396,494) (14,933,988) (9,978,175) Administration (3,385,618) (3,630,803) (2,884,378) Depreciation (8,264,162) (8,264,304) (7,911,295) Operating income 7,397,238 4,393,282 9,393,055 Non-operating revenues (expenses), net (includes capital contributions)968,802 526,032 (1,143,049) Change in net position 8,366,040$ 4,919,314$ 8,250,006$ June 30, 6 Operating revenues increased by 3.9% from fiscal year 2016 to 2017 and 3.5% from fiscal year 2015 to 2016. This increase was primarily due to the increases in user fees and a significant increase in septic hauler revenues. Operating expenses decreased by 6.6% overall from fiscal year 2016. This is almost entirely due to the reporting adjustments for pension liabilities leveling out from the upward swing in pension expense experienced in the prior fiscal year. Operating expenses for the year ended June 30, 2016 increased by 31% from the previous year. The increase was attributed largely to the Cities of Springfield and Eugene (from whom MWMC contracts its employees) implementing a new accounting and reporting standard for pensions in 2015 that resulted in a prior period adjustment and increased pension costs going forward. To further complicate matters, the State’s Legislature passed pension reforms in a prior year that resulted in the Cities PERS net pension liability becoming a net pension asset in 2015. The reduction of pension expenses that resulted from this legislation was allocated across all business-type activities and resulted in significant decreases in expenses in 2015 compared to previous years. That was a temporary decrease as the PERS legislation was subsequently challenged in the courts and overturned and we saw a large adjustment reversing that decrease in 2016. The impact of the legislation was a $2.2 million decrease in expenses in 2015 and a $3 million increase in personnel expenses in 2016. If we were to remove the impact of these adjustments to net pension liability, operating expenses increased 1.4% from fiscal year 2016 to fiscal year 2017. The increase was mostly related to personnel costs for operations and administration, with materials and services staying relatively flat. Non-operating expenses (interest and bond costs) decreased by 54% from fiscal year 2016 primarily due to the interest expense decreasing as debt service dropped by half when the 2006 revenue bonds were retired at the end of last fiscal year. Non-operating income decreased by 43% because the gain on bond refunding in 2016, an event that is rare for the MWMC, was not repeated in the current fiscal year. Capital Assets MWMC’s investment in capital assets as of June 30, 2017 was $119 million (net of accumulated depreciation). This investment in capital assets includes land, buildings, machinery and equipment, and other assets. The net decrease in the MWMC’s investment in capital assets for the current fiscal year was 3.2%. MWMC has added assets this year as part of the continuing capital improvement plan in place for the facilities upgrades, but the increase in assets was not as high as the annual depreciation. 7 Major capital asset events during the current fiscal year included the following: Work continued on the Biogas Co-generation system replacement project with expenses of $.3 million spent in FY17. Work continued on Digestion Capacity Increase, with expenses of $1.7 million in the current year. Operations & Maintenance Building Improvements work continued, spending $0.7 million in the current year. $77,000 was spent on the Electrical Distribution system in FY17. Planning and design work continued for the Thermal Load project spending $180,000 in the current year. MWMC’s Capital Assets (net of depreciation) 2017 2016 2015 Land 7,731,550$ 7,731,550$ 7,731,550$ Construction in progress 6,986,921 4,061,186 6,137,343 Buildings 53,094,898 57,403,901 61,401,771 Machinery and equipment 49,062,873 51,584,667 49,289,088 Other assets 2,115,840 2,192,928 2,462,748 Total 118,992,082$ 122,974,232$ 127,022,500$ June 30, Debt Administration: At the end of the current fiscal year, the MWMC had total bonded debt outstanding (net of premium and discounts) of $34.8 million, all of which is secured solely by sewer revenue sources. The 2006 and 2008 revenue bonds reported in prior years were refunded and replaced with the 2016 revenue bond with the balance referenced above. Notes payable were comprised entirely of State Revolving Fund Loans (SRF) which were obtained as additional funding to implement the Facilities Plan at more advantageous interest rates than would result from issuing another revenue bond. Additional information on the MWMC’s capital assets and related debt can be found in Note F and Note H, beginning on page 18 of this report. 8 Economic Factors and Next Year’s Budget and Rates: For the year ended June 30, 2017, MWMC approved a 2% rate increase that was effective July 1, 2016 (a 2.0% increase was effective July 1, 2015). The new rate resulted in an average residential billing of $25.1 per month based on typical residential consumption of 5,000 gallons. The budget included an annual capital contribution of $11.3 million in order to fund implementation of the Facilities Plan. The budget also reflected the activities of a very large capital improvement program that will span at least 20 years and is currently estimated to cost around $242 million. In May of 2016, the MWMC refunded and replaced the 2008 revenue bond with the 2016 revenue bond at a lower interest rate. At the same time, the 2006 revenue bond was paid in full, and the funds previously budgeted for debt service on that bond are now being used to fund the capital program with an increased capital contribution. The FY 2017-18 budget reflects an 3% rate increase over the 2017 rates. The rates fund operations, administrative services, debt service, capital contributions, and satisfy bond coverage requirements. The new budget also includes an annual capital contribution of $14 million in order to fund the Facilities Plan. Requests for Information This financial report is designed to provide our citizens and rate payers with a general overview of the finances for those funds maintained by the MWMC and to show MWMC’s accountability for the funds it receives. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to: MWMC Accountant City of Springfield 225 Fifth Street, Springfield, OR 97477 9 Basic Financial Statements Metropolitan Wastewater Management Commission Comparative Statements of Net Position June 30, 2017 2016 ASSETS Cash and cash equivalents Unrestricted 73,150,220$ 60,945,958 Restricted 16,094,130 17,650,430 Accounts receivable 60,144 61,471 Intergovernmental receivable, net 2,879,012 3,096,205 Accrued interest 173,189 182,281 Prepaid expenses 36,865 - Deposits 700,000 700,000 Notes receivable (System Development Charges) 219,547 580,930 Capital assets: Land and work in progress 14,718,471 11,792,736 Other capital assets, net of accumulated depreciation 104,273,611 111,181,496 Total assets 212,305,189 206,191,507 DEFERRED OUTFLOWS OF RESOURCES Deferred charge for debt refunding 3,237,587 3,584,183 LIABILITIES Current liabilities: Accounts and contracts payable 2,406,051 1,803,215 Other accrued liabilities 43,480 71,983 Interest payable 281,539 304,211 Current portion of notes payable 1,077,926 1,048,619 Current portion of revenue bonds payable 2,725,000 2,625,000 Unearned revenues 14,010 13,007 Total current liabilities 6,548,006 5,866,035 Long-term liabilities: Due to other governments 8,195,095 7,173,145 Notes payable 12,968,659 14,046,585 Revenue bonds payable (net of unamortized premium, and current portion)32,045,074 35,270,023 Total long-term liabilities 53,208,828 56,489,753 Total liabilities 59,756,834 62,355,788 NET POSITION Net investment in capital assets 78,386,308 79,714,451 Restricted for capital improvement 4,908,728 4,798,029 Restricted for debt service 641,728 641,728 Unrestricted 71,849,178 62,265,694 Total net position 155,785,942$ 147,419,902$ The accompanying notes are an integral part of these statements. 10 Metropolitan Wastewater Management Commission Comparative Statements of Revenues, Expenses and Changes in Net Position 2017 2016 Operating revenues: Sewer user fees 32,389,993$ 31,208,778$ Other operating receipts 53,519 13,599 Total operating revenues 32,443,512 31,222,377 Operating expenses: Operations and maintenance 13,396,494 14,933,988 Administration 3,385,618 3,630,803 Depreciation 8,264,162 8,264,304 Total operating expenses 25,046,274 26,829,095 Operating income 7,397,238 4,393,282 Non-operating revenues (expenses): Interest income 858,398 651,251 Interest expense (1,611,275)(3,358,331) Bond costs - (176,776) Lease income 51,771 50,537 Gain (loss) on disposal of assets 36,632 14,673 Gain on bond refunding - 915,528 Miscellaneous revenue 28,954 98,753 Total non-operating revenues (expenses)(635,520) (1,804,365) Income before contributions 6,761,718 2,588,917 Capital contributions 1,604,322 2,330,397 Change in net position 8,366,040 4,919,314 Net position, beginning of year 147,419,902 140,326,224 Prior period adjustment - Note I - 2,174,364 Net position, beginning of year, as restated 147,419,902 142,500,588 Net position, end of year 155,785,942$ 147,419,902$ The accompanying notes are an integral part of these statements. For the years ended June 30, 11 Metropolitan Wastewater Management Commission Comparative Statement of Cash Flows 2017 2016 Cash flows from operating activities: Cash received from customers 32,608,513$ 31,407,218$ Cash paid to other governments (9,794,401) (7,013,215) Cash paid to suppliers for goods and services (5,428,293) (8,847,033) Other operating receipts 54,522 15,766 Net cash provided by operating activities 17,440,341 15,562,736 Cash flows from capital and related financing activities: Acquisition and construction of capital assets (4,254,842) (4,152,651) Proceeds from sale of capital assets 38,416 50,041 Proceeds of capital contributions 1,604,322 2,330,397 Proceeds from issuance of notes payable - 69,510 Principal paid on notes payable (1,048,619) (754,276) Principal paid on revenue bonds payable (2,778,353) (40,232,160) Costs of bond refunding - (176,776) Interest payments (1,633,947) (3,752,640) Net cash used in capital and related financing activities (8,073,023) (46,618,555) Cash flows from investing activities: Interest received 867,490 754,704 Notes receivable issued (149,589) (310,137) Cash received on notes receivable 510,972 338,351 Lease income 51,771 50,537 Net cash provided by investing activities 1,280,644 833,455 Net increase (decrease) in cash and investments 10,647,962 (30,222,364) Cash and investments, beginning of year 78,596,388 108,818,752 Cash and investments, end of year 89,244,350$ 78,596,388$ Reconciliation of operating income to net cash provided by operating activities: Operating income 7,397,238$ 4,393,282$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 8,264,162 8,264,304 Changes in assets and liabilities: Intergovernment receivable 217,193 198,440 Other accounts receivable 1,327 - Prepaid expenses (36,865) 19,107 Accounts and contracts payable 602,836 (400,957) Due to other governments 993,447 3,086,393 Unearned revenue 1,003 2,167 Net cash provided by operating activities 17,440,341$ 15,562,736$ The accompanying notes are an integral part of these statements. For the year ended June 30, 12 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Metropolitan Wastewater Management Commission (MWMC) was established on February 9, 1977 through an intergovernmental agreement between Lane County and the Cities of Eugene and Springfield. It was formed to construct, operate, and maintain regional sewage facilities. The Commission is composed of seven voting members from Eugene, Springfield, and Lane County. Three of the seven members are elected officials from each of the partner agencies’ governing bodies. The financial operations of MWMC are reported as an entity using enterprise fund accounting. It is MWMC’s intent that the costs of providing services to users on a continuing basis will be financed or recovered primarily through an equitable fee levied on all user classes. Reporting Entity These financial statements include all funds, organizations, departments, and offices that are not legally separate from the MWMC. The City of Springfield performs all administrative duties and construction of major capital assets for MWMC in accordance with the provisions of a July 14, 1983 service agreement, which was updated and reaffirmed in 2005. The City of Eugene performs all operations and maintenance duties for MWMC under the same updated service agreement. The agreement is part of an arrangement among the Cities of Eugene and Springfield and MWMC whereby the two Cities perform all necessary operational and staff support activities of MWMC. Basis of Accounting The financial operations of MWMC are accounted for using the accrual basis of accounting. As such, revenues are recognized when they are earned and expenses are recognized when they are incurred. All activities of MWMC are accounted for within three proprietary (enterprise) funds. Proprietary funds are used to account for operations that are (a) financed and operated in a manner similar to a private business enterprises where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. The accounting and financial reporting treatment applied to MWMC is determined by its measurement focus. The transactions of MWMC are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operations are included on the statement of net position. Net position (i.e., total assets less total liabilities) is segregated into four categories: net investment in capital assets; restricted for capital improvements; restricted for debt service; and unrestricted net position. MWMC distinguishes operating revenue and expenses from non-operating items. Operating revenues and expenses generally result from providing services to users. The principal operating revenues involve charges for services and the major operating expenses include the costs of plant operation and maintenance, administration, and depreciation of capital assets. All revenues and expenses not meeting these definitions are reported in these financial statements as non-operating revenues and expenses. 13 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued Cash and Investments MWMC participates in a cash and investment pool maintained by the City of Springfield as well as a separate MWMC LGIP account. The amount reported as cash and investments is the MWMC share of the total City of Springfield cash and investment pool in addition to the separate MWMC LGIP account. As of June 30, 2017, MWMC does not maintain investments separate from the investment pools. State statutes authorize the City to invest in obligations of the U.S. Treasury and its agencies, bankers’ acceptances, high grade commercial paper, the State of Oregon Local Government Investment Pool, and repurchase agreements. Fair Value Measurements Investments are stated at fair value. Fair value is defined as the price that would be received at the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The City categorizes fair value measurements within the hierarchy established by GASB Statement 72. This hierarchy defines three levels of inputs used to assess fair value which allows financial statement users to identify the level of reliability and determine variance risk between actual amounts received during a sale of assets or transfer of liabilities to that which is reported in the financial statements for the measurement date. For purpose of the statement of cash flows, cash and investments in the City-wide investment pool (including restricted cash, investments and LGIP) are considered cash and cash equivalents. The pool has the general characteristics of a demand deposit account for MWMC in that MWMC may deposit additional cash at any time and may withdraw cash at any time without prior notice or penalty. Accounts Receivable The municipal water utilities for the Cities of Eugene and Springfield bill and collect sewer user fees. The collected amounts are due to MWMC. Accordingly, MWMC records the amounts due from the local water utilities as its accounts receivable. Both utilities have historically collected over 99% of accounts receivable, therefore only a small allowance for uncollectible amounts is recorded. Restricted Assets Assets whose use is restricted for construction or other purposes by provisions of state law, grants, bond or other agreements, are segregated. When both restricted and unrestricted resources are available for use, it is MWMC’s practice to use restricted resources first, when applicable, then unrestricted resources as they are needed. Capital Assets All capital assets are valued at historical cost or estimated historical cost. Cost includes labor, materials, and related indirect costs. The cost of additions, renewals, and betterments over $10,000 are capitalized. Repairs and minor replacements are charged to operating expenses. All depreciation is accumulated and shown as a reduction of historical costs reported on the Statement of Net Position. Depreciation has been provided over the estimated useful lives of the assets using the straight-line method. Upon disposal of such assets, the accounts are relieved of the related historical costs and accumulated depreciation and resulting gains and losses are reflected in income. 14 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued The estimated useful lives agree with those used for cost analysis purposes as required by federal regulations. They are as follows: Plant and buildings 10 – 50 years Machinery and equipment 1 – 50 years Interest is capitalized on assets acquired with tax exempt debt. The amount of interest capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until completion of the project with interest earned on invested proceeds over the same period. Accumulated Unpaid Vacation, Sick Pay and Other Benefit Amounts The portions of accumulated unpaid vacation, sick, and compensatory time that are not expected to be paid within the year are reported as long-term liabilities as “due to other governments” since all employees are contracted from the cities of Eugene and Springfield. Long-term Debt Long-term debt is reported as a liability in the Statement of Net Position. Bond issuance costs are expensed in full in the year incurred and deferred amounts on refunding are amortized over the life of the new debt. Bond premiums and discounts are amortized using the bonds outstanding method. Use of Estimates In preparing the Commission’s financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Risk Management MWMC is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets. MWMC carries commercial insurance for such risks of loss. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. NOTE B – INTERGOVERNMENTAL AGREEMENTS In accordance with the MWMC service agreement dated July 14, 1983 and updated on July 5, 2005, the City of Eugene is responsible for the operations of the regional sewage facilities. The agreement obligated MWMC for costs incurred by the City of Eugene in operating and maintaining the Regional Sewage Facilities. These costs include employee benefits for City of Eugene employees. The interagency payable at June 30, 2017 for operation and maintenance costs incurred by the City of Eugene is $1,253,470 ($1,246,932 for 2016). The total costs charged to MWMC for the year ended June 30, 2017 were $13,396,494 ($14,933,988 for 2016). The City of Springfield, in accordance with the MWMC service agreement dated July 14, 1983 and updated July 5, 2005, provides the technical, financial, and administrative support services to MWMC. Costs charged to MWMC for the years ended June 30, 2017 and 2016 were $3,385,618 and $3,630,803 respectively and include employee benefits for City of Springfield employees. 15 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE B – INTERGOVERNMENTAL AGREEMENTS – Continued These costs include a pro-rata share of other post-employment benefits, specifically medical, dental and vision coverage for eligible retirees, their spouses, domestic partners, and dependents on a self-pay basis. Due to the effect of age, retiree claim costs are generally higher than claim costs for all members as a whole. The difference between retiree claim costs and the amount of retiree healthcare premiums represents implicit employer contribution. In addition, life insurance benefits are provided to fully disabled employees. The actuarial computed liability for the plan at June 30, 2017 was $160,024 ($150,997 for 2016). MWMC has no employees of their own. All personnel costs reflected are related to the employees of the cities of Eugene and Springfield contracted to do the work of MWMC. In addition to the post-employment benefit liability referenced above, MWMC has recorded an interagency payable to the respective cities for the compensated absences of $664,367 ($636,344 for 2016), and the net pension liability of $7,370,704 ($6,385,804 for 2016) computed for those employees. The total interagency payable due to the cities of Eugene and Springfield is $8,195,095 ($7,173,145 for 2016). NOTE C – COMMITMENTS AND CONTINGENCIES At June 30, 2017, MWMC was obligated by contracts for uncompleted construction projects for $25,987,611. At June 30, 2016, the obligation on contracts for capital improvement projects was $4,743,883. NOTE D – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgetary information MWMC follows these procedures in establishing the budgetary data reflected in the statements presented in the supplementary information section. In the spring of each year, the Executive Officer submits a proposed budget to the Metropolitan Wastewater Management Commission. The budget is prepared on the modified accrual basis of accounting. Estimated revenues and expenditures are budgeted for by fund, department, and category. Information on the past year’s actual receipts and expenditures and the current-year amended budget are provided in the budget document. MWMC conducts a public hearing for the purpose of obtaining citizen comments on the budget. MWMC then adopts the budget. All three governmental bodies included in the intergovernmental agreement, the City of Springfield, the City of Eugene, and Lane County, ratify the budget as appropriate. MWMC then makes a final approval by resolution. MWMC may change the budget throughout the year by transferring appropriations between levels of control and by adopting supplemental budgets. Any changes adopted by MWMC in this manner must also be adopted by the City of Springfield, because MWMC’s budget is included in the budget of the City of Springfield. Management may transfer budget amounts between individual line items within the control level, but cannot make changes between the legal levels of control. During the fiscal year ended June 30, 2017, MWMC adopted several transfer resolutions and supplemental budgets increasing expenditures by $989,048. This was funded by reserves and adjustments to beginning cash - carrying forward budget planned, but not spent at the end of FY 2016. 16 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE E – RESTRICTED CASH AND INVESTMENTS The Commission maintains cash and investments in several fund accounts in accordance with bond resolutions and Commission authorization. Descriptions of these fund account types are as follows: Construction Funds – Used to account for legally restricted cash and investments for the purpose of construction of capital projects. Funds include proceeds from the issuance of bonds and notes and interest earned on those proceeds. System Development Charge Reserves – Used to account for charges assessed and collected in conjunction with installation of new sewer services in the Regional Sewer System and are restricted by State of Oregon Statutes to system enhancements and other related capital expenditures. Investments for Bond Principal and Interest – Used to account for cash and investments restricted by Bond Indentures of Trust for future payment of principal and interest on debt. State Revolving Loan Reserves – Deposits held for debt service as required by the State of Oregon Department of Environmental Quality for Clean Water State Revolving Fund Loan Agreements. Insurance Reserve - Deposits held by direction of the Commission for use towards future insurance claims. Detailed amounts for restricted cash and investments were as follows: Current Construction funds 8,248,221$ State Revolving Fund loan reserves 641,728 System development charge reserves 4,689,181 Investments for bond principal and interest 2,000,000 Insurance reserve 515,000 Current restricted cash 16,094,130$ 17 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE F– CAPITAL ASSETS Capital asset activity for the year ended June 30, 2017 was as follows: Beginning Decreases and Ending Balance restated Increases Reclassifications Balance Capital assets, not being depreciated: Land 7,731,550$ -$ -$ 7,731,550$ Construction in progress 4,061,186 2,925,735 - 6,986,921 Total capital assets, not being depreciated 11,792,736 2,925,735 - 14,718,471 Capital assets, being depreciated: Buildings 121,706,619 115,915 - 121,822,534 Machinery and equipment 122,594,423 1,076,828 (220,521) 123,450,730 Other 4,627,133 165,318 - 4,792,451 Total capital assets, being depreciated 248,928,175 1,358,061 (220,521) 250,065,715 Less accumulated depreciation for: Buildings (64,302,718) (4,424,918) - (68,727,636) Machinery and equipment (71,009,756) (3,596,838) 218,737 (74,387,857) Other (2,434,205) (242,406) - (2,676,611) Total depreciation (137,746,679) (8,264,162) 218,737 (145,792,104) Total capital assets, being depreciated, net 111,181,496 (6,906,101) (1,784) 104,273,611 Capital assets, net 122,974,232$ (3,980,366)$ (1,784)$ 118,992,082$ Capital asset activity for the year ended June 30, 2016 was as follows: Beginning Decreases and Ending Balance restated Increases Reclassifications Balance Capital assets, not being depreciated: Land 7,731,550$ -$ -$ 7,731,550$ Construction in progress 6,137,343 3,099,981 (5,176,138) 4,061,186 Total capital assets, not being depreciated 13,868,893 3,099,981 (5,176,138) 11,792,736 Capital assets, being depreciated: Buildings 121,283,258 423,361 - 121,706,619 Machinery and equipment 117,084,034 5,952,136 (441,747) 122,594,423 Other 5,241,449 - (614,316) 4,627,133 Total capital assets, being depreciated 243,608,741 6,375,497 (1,056,063) 248,928,175 Less accumulated depreciation for: Buildings (59,881,487) (4,421,231) - (64,302,718) Machinery and equipment (67,794,946) (3,620,616) 405,806 (71,009,756) Other (2,778,701) (222,457) 566,953 (2,434,205) Total depreciation (130,455,134) (8,264,304) 972,759 (137,746,679) Total capital assets, being depreciated, net 113,153,607 (1,888,807) (83,304) 111,181,496 Capital assets, net 127,022,500$ 1,211,174$ (5,259,442)$ 122,974,232$ 18 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE G – REBATABLE ARBITRAGE MWMC issued revenue bonds in the amount of $47,270,000 on November 14, 2006, and $50,730,000 on November 20, 2008. As of May 3, 2016 the 2006 and 2008 revenue bonds were refunded and a 2016 Revenue bond in the amount of $32,725,000 was issued. Interest earnings on unspent bond proceeds may result in an arbitrage rebate due to the federal government. Arbitrage regulations require that the first installment date computation be made at five years from the delivery date. The rebate is required to be made within 60 days of the calculation. MWMC’s liability is estimated at zero as of June 30, 2017. NOTE H – LONG TERM DEBT Revenue Bonds On May 3, 2016, the Metropolitan Wastewater Management Commission undertook an advanced refunding of the 2006 and 2008 revenue bonds. Proceeds, including premium, of approximately $37.4 million plus approximately $36.6 million of cash for scheduled debt service were sent to escrow to pay the principal and interest on $69.4 million of existing bonds. As a result, the 2006 and 2008 bonds have been defeased in FY2015-16, and the liability was removed from the statement of net position. This refunding was undertaken to reduce total debt service payments by $52.1 million over ten years and resulted in an economic gain of $15.3 million. MWMC issued $32,725,000 in new revenue bonds as a result of the refunding. The bond premium of $5,249,467 is being amortized over the life of the bonds. Additionally, a deferred charge for debt refunding of $3,639,258 is being amortized over the life of the 2016 bonds with $3,237,587 unamortized as of June 30, 2017. There are no longer specific reserves required by the bond covenants. Revenue obligation bonds payable transactions for the year ended June 30, 2017 are as follows: Final Effective Outstanding Issued Matured Outstanding Issue Maturity Interest July 1,During During June 30,Due Within Date Date Rate 2016 Year Year 2017 One Year Sewer system revenue bonds serviced by fund revenues: Series 2016 5/3/2016 2027 1.461% 32,725,000$ -$ 2,625,000$ 30,100,000$ 2,725,000$ Unamortized premium 4,670,074 Due in current year (2,725,000) Total revenue bonds payable 32,045,074$ Revenue obligation bonds payable transactions for the year ended June 30, 2016 are as follows: Final Effective Outstanding Issued Defeased Outstanding Issue Maturity Interest July 1,During During June 30,Due Within Date Date Rate 2015 Year Year 2016 One Year Sewer system revenue bonds serviced by fund revenues: Series 2006 11/15/2006 2025 3.966% 33,470,000$ -$ 33,470,000$ -$ -$ Series 2008 11/20/2008 2028 4.910% 40,020,000 - 40,020,000 - - Series 2016 5/3/2016 2027 1.461%- 32,725,000 - 32,725,000 2,625,000 Unamortized premium 5,170,023 Due in current year (2,625,000) Total revenue bonds payable 35,270,023$ 19 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE H – LONG TERM DEBT - Continued Maturities of bond principal and interest are as follows: Fiscal Year Principal Interest 2018 2,725,000$ 1,282,850$ 2019 2,835,000 1,171,650 2020 2,955,000 1,055,850 2021 3,090,000 919,500 2022 3,245,000 761,125 2023-2027 15,250,000 1,383,500 Total 30,100,000$ 6,574,475$ Notes Payable At June 30, 2017, notes payable are as follows: Oregon Department of Environmental Quality (DEQ) State Revolving Fund loan, payable in semiannual installments, including interest at 2.77%, due 2030.2,349,050$ Oregon Department of Environmental Quality (DEQ) State Revolving Fund loan, payable in semiannual installments, zero interest, due 2030.1,300,000 Oregon Department of Environmental Quality (DEQ) State Revolving Fund loan, payable in semiannual installments, including interest at 2.44%, due 2030.6,058,033 Oregon Department of Environmental Quality (DEQ) State Revolving Fund loan, payable in semiannual installments, including interest at 2.65%, due 2032.3,338,011 Oregon Department of Environmental Quality (DEQ) State Revolving Fund loan, payable in semiannual installments, including interest at 1.25%, due 2030.1,001,491 Total 14,046,585$ 20 METROPOLITAN WASTEWATER MANAGEMENT COMMISSION NOTES TO FINANCIAL STATEMENTS June 30, 2017 NOTE H – LONG TERM DEBT - Continued Long-term liability activity for the year ended June 30, 2017 was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Notes payable 15,095,204$ -$ (1,048,619)$ 14,046,585$ 1,077,926$ Long-term liability activity for the year ended June 30, 2016 was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Notes payable 15,779,970$ 69,510$ (754,276)$ 15,095,204$ 1,048,619$ Principal and interest amounts due on these notes payable in each of the next five years, and in the aggregate thereafter, are as follows: Fiscal Year Principal Interest 2018 1,077,926$ 372,231$ 2019 1,099,435 346,707 2020 1,121,455 320,582 2021 997,327 293,845 2022 870,979 269,230 2023-27 4,664,106 969,017 2028-32 4,085,090 295,694 2033 130,267 2,377 Total 14,046,585$ 2,869,683$ MWMC maintained a loan reserve of $641,728 as of June 30, 2017 in accordance with the loan agreements with the Oregon Department of Environmental Quality. NOTE I – PRIOR PERIOD ADJUSTMENT A prior period adjustment in the amount of $2,174,364 was recorded in fiscal year 2016 that increased the beginning net position. MWMC replaced the accounting tool used for tracking capital assets and calculating depreciation. As a result of this transition, it was discovered that some assets were over-depreciated in earlier years resulting in higher depreciation expense and lower net asset value. This adjustment corrected the 2016 beginning net position and capital asset and accumulated depreciation amounts. No further adjustments were made in fiscal year 2017. 21 Supplementary Information Regional Regional Regional Wastewater Wastewater Wastewater Fund Capital Fund Bond Capital Fund Eliminations Total Revenues: Charges for services 32,417,615$ 1,971,601$ -$ (352,391)$ 34,036,825$ Investment earnings 118,566 568,645 171,189 - 858,400 Intergovernmental revenue 39,162 217 - - 39,379 Licenses and permits 12,057 - - - 12,057 Fines and forfeitures 2,300 - - - 2,300 Miscellaneous receipts 28,239 9,042 715 - 37,996 Total revenues 32,617,939 2,549,505 171,904 (352,391) 34,986,957 Expenses: Current operating: Finance 122,467 - - - 122,467 Development and public works 17,011,429 607 - (352,391) 16,659,645 Debt service: Interest and premium amortization 1,764,628 - (153,353) - 1,611,275 Depreciation 8,264,162 - - - 8,264,162 Total expenses 27,162,686 607 (153,353) (352,391) 26,657,549 Excess of revenues over (under) expenses 5,455,253 2,548,898 325,257 - 8,329,408 Other financing sources (uses): Transfers in 6,475,855 12,598,619 2,625,000 (21,699,474) - Transfers out (15,223,619) (3,876,966) (2,598,889) 21,699,474 - Loss on disposal of assets 36,632 - - - 36,632 Total other financing sources (uses)(8,711,132) 8,721,653 26,111 - 36,632 Change in net position (3,255,879) 11,270,551 351,368 - 8,366,040 Net position, beginning of year, as restated 128,724,261 42,307,430 (23,611,789) - 147,419,902 Net position, end of year 125,468,382$ 53,577,981$ (23,260,421)$ -$ 155,785,942$ Year Ended June 30, 2017 COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION Metropolitan Wastewater Management Commission 22 Adjustments Budget to Budget GAAP Original Revised Basis Basis Basis Budget Budget Actual Variance Actual Actual Revenues: Charges for services 31,676,000$ 31,676,000$ 32,769,155$ 1,093,155$ (351,540)$ 32,417,615$ Investment earnings 85,000 85,000 102,318 17,318 16,248 118,566 Intergovernmental revenue - - 39,162 39,162 - 39,162 Licenses and permits 9,510 9,510 12,113 2,603 (56) 12,057 Fines and forfeitures 600 600 2,300 1,700 - 2,300 Miscellaneous revenue 700,000 700,000 98,299 (601,701) (70,060) 28,239 Total revenues 32,471,110 32,471,110 33,023,347 552,237 (405,408) 32,617,939 Expenses: Current operating: Finance 135,880 135,880 122,467 13,413 - 122,467 Development and public works 17,560,750 17,690,150 15,786,254 1,903,896 1,225,175 17,011,429 Debt service: Principal 3,454,633 3,679,633 3,673,619 6,014 (3,673,619) - Interest 2,049,829 1,824,829 1,787,300 37,529 (22,672) 1,764,628 Depreciation - - - - 8,264,162 8,264,162 Total expenses 23,201,092 23,330,492 21,369,640 1,960,852 5,793,046 27,162,686 Excess of revenues over (under) expenses 9,270,018 9,140,618 11,653,707 2,513,089 (6,198,454) 5,455,253 Other financing sources (uses): Transfers in 2,020,191 2,020,191 2,020,191 - 4,455,664 6,475,855 Transfers out (11,550,000) (11,550,000) (11,550,000) - (3,673,619) (15,223,619) Gain (loss) on disposal of assets - - - - 36,632 36,632 Total other financing sources (uses)(9,529,809) (9,529,809) (9,529,809) - 818,677 (8,711,132) Change in net position (259,791) (389,191) 2,123,898 2,513,089 (5,379,777) (3,255,879) Net position, beginning of year 10,684,205 11,988,887 11,988,888 - 116,735,373 128,724,261 Net position, end of year 10,424,414$ 11,599,696$ 14,112,786$ 2,513,089$ 111,355,596$ 125,468,382$ SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION (NON-GAAP BUDGETARY BASIS) - BUDGET AND ACTUAL Year Ended June 30, 2017 Metropolitan Wastewater Management Commission REGIONAL WASTEWATER FUND 23 Year Ended June 30, 2017 Adjustments Budget to Budget GAAP Original Revised Basis Basis Basis Budget Budget Actual Variance Actual Actual Revenues: Charges for services 1,200,000$ 1,200,000$ 1,976,352$ 776,352$ (4,751)$ 1,971,601$ Investment earnings 108,200 108,200 571,970 463,770 (3,325) 568,645 Intergovernmental revenue - - 217 217 - 217 Miscellaneous receipts 2,500 2,500 9,069 6,569 (27) 9,042 Total revenues 1,310,700 1,310,700 2,557,608 1,246,908 (8,103) 2,549,505 Expenses: Current operating: Development and public works 6,589,000 3,379,119 1,659,444 1,719,675 (1,658,837) 607 Capital projects 19,780,206 23,819,445 237,897 23,581,548 (237,897) - Total expenses 26,369,206 27,198,564 1,897,341 25,301,223 (1,896,734) 607 Excess of revenues over (under) expenses (25,058,506) (25,887,864) 660,267 26,548,131 1,888,631 2,548,898 Other financing sources (uses): Transfers in 11,550,000 11,550,000 11,550,000 - 1,048,619 12,598,619 Transfers out (2,020,191) (2,020,191) (2,020,191) - (1,856,775) (3,876,966) Total other financing sources (uses)9,529,809 9,529,809 9,529,809 - (808,156) 8,721,653 Change in net position (15,528,697) (16,358,055) 10,190,076 26,548,131 1,080,475 11,270,551 Net position, beginning of year 51,787,247 57,382,122 57,382,122 - (15,074,692) 42,307,430 Net position, end of year 36,258,550$ 41,024,067$ 67,572,198$ 26,548,131$ (13,994,217)$ 53,577,981$ SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION (NON-GAAP BUDGETARY BASIS) - BUDGET AND ACTUAL Metropolitan Wastewater Management Commission REGIONAL WASTEWATER CAPITAL FUND 24 Year Ended June 30, 2017 Adjustments Budget to Budget GAAP Original Revised Basis Basis Basis Budget Budget Actual Variance Actual Actual Revenues: Investment earnings 210,000$ 210,000$ 235,592$ 25,592$ (64,403)$ 171,189$ Miscellaneous revenue - - 715 715 - 715 Total revenues 210,000 210,000 236,307 26,307 (64,403) 171,904 Expenses: Capital projects 10,576,394 10,606,684 2,598,889 8,007,795 (2,598,889) - Debt service: Interest - - - - (153,353) (153,353) Principal - - - - - - Total expenses 10,576,394 10,606,684 2,598,889 8,007,795 (2,752,242) (153,353) Excess of revenues over (under) expenses (10,366,394) (10,396,684) (2,362,582) 8,034,102 2,687,839 325,257 Other financing sources (uses): Transfers in - - - - 2,625,000 2,625,000 Transfers out - - - - (2,598,889) (2,598,889) Total other financing sources (uses)- - - - 26,111 26,111 Change in net position (10,366,394) (10,396,684) (2,362,582) 8,034,102 2,713,950 351,368 Net position, beginning of year 10,366,394 10,610,803 10,610,803 - (34,222,592) (23,611,789) Net position, end of year -$ 214,119$ 8,248,221$ 8,034,102$ (31,508,642)$ (23,260,421)$ SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION (NON-GAAP BUDGETARY BASIS) - BUDGET AND ACTUAL Metropolitan Wastewater Management Commission REGIONAL WASTEWATER BOND CAPITAL FUND 25 Compliance Section 475 Cottage Street NE, Suite 200, Salem, Oregon 97301 (503) 581-7788 INDEPENDENT AUDITOR’S REPORT REQUIRED BY OREGON STATE REGULATIONS Governing Board Metropolitan Wastewater Management Commission 225 5th Street Springfield, Oregon 97477 We have audited, in accordance with auditing standards generally accepted in the United States of America, the basic financial statements of Metropolitan Wastewater Management Commission (MWMC) as of and for the years ended June 30, 2017 and 2016, and have issued our report thereon dated December 22, 2017. Compliance and Order Matters As part of obtaining reasonable assurance about whether MWMC's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants, including the provisions of Oregon Revised Statutes as specified in Oregon Administrative Rules 162-10- 000 through 162-10-320 of the Minimum Standards for Audits of Oregon Municipal Corporations, noncompliance with which could have a direct and material effect on the determination of financial statements amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. We performed procedures to the extent we considered necessary to address the required comments and disclosures which included, but were not limited to the following: Deposit of public funds with financial institutions (ORS Chapter 295). Indebtedness limitations, restrictions and repayment. Budgets legally required (ORS Chapter 294). Insurance and fidelity bonds in force or required by law. Programs funded from outside sources. Authorized investment of surplus funds (ORS Chapter 294). Public contracts and purchasing (ORS Chapters 279A, 279B, 279C). In connection with our testing nothing came to our attention that caused us to believe MWMC was not in substantial compliance with certain provisions of laws, regulations, contracts, and grants, including the provisions of Oregon Revised Statutes as specified in Oregon Administrative Rules 162-10-000 through 162-10- 320 of the Minimum Standards for Audits of Oregon Municipal Corporations. 26 Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered MWMC’s internal control over financial reporting to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of MWMC's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of MWMC's internal control. Restriction on Use This report is intended solely for the information and use of the governing board and management of MWMC and the Oregon Secretary of State and is not intended to be and should not be used by anyone other than these parties. GROVE, MUELLER & SWANK, P.C. CERTIFIED PUBLIC ACCOUNTANTS By: Ryan T. Pasquarella, A Shareholder December 22, 2017 27 475 Cottage Street NE, Suite 200, Salem, Oregon 97301 (503) 581-7788 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Governing Board Metropolitan Wastewater Management Commission 225 5th Street Springfield, Oregon 97477 We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the Metropolitan Wastewater Management Commission (MWMC), as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise MWMC’s basic financial statements, and have issued our report thereon dated December 22, 2017. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered MWMC’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of MWMC’s internal control. Accordingly, we do not express an opinion on the effectiveness of MWMC’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of MWMC’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether MWMC’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 28 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of MWMC’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering MWMC’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. CERTIFIED PUBLIC ACCOUNTANTS December 22, 2017 29 M E M O R A N D U M DATE: January 5, 2018 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Matt Stouder, MWMC General Manager Dave Breitenstein, Wastewater Division Director Katherine Bishop, Environmental Services Program Manager SUBJECT: FY 2018-19 Budget Kick-Off: Key Outcomes and Performance Indicators ACTION REQUESTED: Provide comments and input to staff regarding the purpose statement, key outcomes and performance indicators. _____________________________________________________________________ ISSUE At the meeting on January 12, staff will provide a presentation to include key dates for the FY 2018-19 budget development and adoption process, and an overview of the key outcomes and performance indicators. The Commission will be requested to confirm or modify the purpose statement, key outcomes and performance indicators, and provide staff with input on the indicators and measures that should be reported in the FY 2018-19 Budget. BACKGROUND AND DISCUSSION Each year, Regional Wastewater Program (RWP) staff begins the annual budget process for the RWP by reviewing the work plan performance and projections. Staff also reports performance relative to the Commission’s key outcomes and performance indicators that are included in the current MWMC FY 2017-18 Budget. In addition, the January 12 meeting provides an opportunity for an annual review of the MWMC purpose statement. The proposed FY 2018-19 key outcomes and indicators overall include carrying forward several indicators that are incorporated in the adopted FY 2017-18 Budget with minor revisions, and also includes additional performance indicators to be discussed at the meeting. Memo: FY 2018-19 Budget Kick-Off: Key Outcomes and Performance Indicators January 5, 2018 Page 2 of 5 REGIONAL WASTEWATER PROGRAM OVERVIEW The Metropolitan Wastewater Management Commission (MWMC) The MWMC was formed by Eugene, Springfield, and Lane County through an intergovernmental agreement (IGA) in 1977 to provide wastewater collection and treatment services for the Eugene-Springfield metropolitan area. The seven-member Commission is composed of members appointed by the City Councils of Eugene (3 representatives), Springfield (2 representatives) and the Lane County Board of Commissioners (2 representatives). Since its inception, the Commission, in accordance with the IGA, has been responsible for oversight of the RWP including: construction, maintenance, and operation of the regional sewerage facilities; adoption of financing plans; adoption of budgets, user fees and connection fees; adoption of minimum standards for industrial pretreatment and local sewage collection systems; and recommendations for the expansion of regional facilities to meet future community growth. Staffing and services have been provided in various ways over the 41 years of MWMC’s existence. Since 1983, the Commission has contracted with the Cities of Springfield and Eugene for all staffing and services necessary to maintain and support the RWP. Lane County’s partnership has involved participation on the Commission and support to the Lane County Metropolitan Wastewater Service District (CSD) which managed the proceeds and repayment of general obligation bonds issued to construct RWP facilities. Regional Wastewater Program Purpose and Key Outcomes The purpose of the RWP is to protect public health and safety and the environment by providing high quality wastewater management services to the Eugene-Springfield metropolitan area. The MWMC and the regional partners are committed to providing these services in a manner that will achieve, sustain, and promote balance between community, environmental, and economic needs while meeting customer service expectations. Since the mid-1990s, the Commission and RWP staff have worked together to identify key outcome areas within which to focus annual work plan and budget priorities. The FY 2018-19 RWP work plans and budget reflect a focus on the following key outcomes or goals. In carrying out the daily activities of managing the regional wastewater system, we will strive to achieve and maintain: 1. High environmental standards; 2. Fiscal management that is effective and efficient; 3. A successful intergovernmental partnership; 4. Maximum reliability and useful life of regional assets and infrastructure; 5. Public awareness and understanding of MWMC, the regional wastewater system, and MWMC’s objectives of maintaining water quality and a sustainable environment. The Commission believes that these outcomes, if achieved in the long term, will demonstrate success of the RWP in carrying out its purpose. In order to help determine whether we are successful, indicators of performance and targets have been identified for each key outcome. Tracking performance relative to identified targets over time assists in managing the RWP to achieve desired results. The following indicators and performance targets provide an important framework for the development of the FY 2018-19 RWP Operating Budget, Capital Improvements Program and associated work plans. Memo: FY 2018-19 Budget Kick-Off: Key Outcomes and Performance Indicators January 5, 2018 Page 3 of 5 Outcome 1: Achieve and maintain high environmental standards. Indicators: Performance: FY 2016-17 Actual FY 2017-18 Estimated Actual FY 2018-19 Target Volume of wastewater treated to water quality standards 100%; 14.7 billion gallons 100%; 12.5 billion gallons 100%; 13 billion gallons Average removal efficiency of carbonaceous biochemical oxygen demand (CBOD) and total suspended solids (TSS) (permit limit 85%) 97% 97% 90% High quality biosolids (pollutant concentrations less than 50% limit) Arsenic 29% Cadmium 15% Copper 40% Lead 12% Mercury 12% Nickel 7% Selenium 8% Zinc 35% Arsenic 20% Cadmium 10% Copper 35% Lead 10% Mercury 10% Nickel 15% Selenium 10% Zinc 15% Arsenic <50% Cadmium <50% Copper <50% Lead <50% Mercury <50% Nickel <50% Selenium <50% Zinc <50% ISO 14001 Environmental Management System Certification (no major nonconformance) No major or minor nonconformance No major or minor nonconformance No major nonconformance Outcome 2: Achieve and maintain fiscal management that is effective and efficient. Indicators: Performance: FY 2016-17 Actual FY 2017-18 Estimated Actual FY 2018-19 Target Annual budget and rates align with the MWMC Financial Plan Policies met Policies met Policies met Annual audited financial statements Clean audit Clean audit Clean audit Uninsured bond rating AA AA A Reserves funded at target levels Yes Yes Yes Financial Plan policy updates --- Partial plan updates Adoption and implementation System Development Charges update --- Adopted and implemented --- Memo: FY 2018-19 Budget Kick-Off: Key Outcomes and Performance Indicators January 5, 2018 Page 4 of 5 Outcome 3: Achieve and maintain a successful intergovernmental partnership. Indicators: Performance: FY 2016-17 Actual FY 2017-18 Estimated Actual FY 2018-19 Target Industrial Pretreatment Programs are consistent with the MWMC pretreatment model ordinance Consistent across service area Consistent across service area Consistent across service area MWMC Facilities Plan projects consistent with CIP budget and schedule 100% of initiated projects within budget and 86% (6 of 7 projects) on schedule 100% of initiated projects within budget and 100% (6 of 6 projects) on schedule 100% of initiated projects within budget and 75% on schedule MWMC IGA modifications to allow acceptance of hauled waste from outside the service area --- Amendment of the IGA approved by the governing bodies --- Capacity Management Operations and Maintenance (CMOM) Program development Implemented Regional CMOM Program Plan --- --- Outcome 4: Maximize reliability and useful life of regional assets and infrastructure. Indicators: Performance: FY 2016-17 Actual FY 2017-18 Estimated Actual FY 2018-19 Target Preventive maintenance completed on time (best practices benchmark is 90%) 95% 95% 90% Preventive maintenance to corrective maintenance ratio (benchmark 4:1-6:1) 4.7:1 5:1 5:1 Emergency maintenance required (best practices benchmark is less than 2% of labor hours) 1% 1% <2% Asset management processes and practices review and development Gap analysis completed Asset management work plan development Draft asset management plan completed Memo: FY 2018-19 Budget Kick-Off: Key Outcomes and Performance Indicators January 5, 2018 Page 5 of 5 Outcome 5: Achieve and maintain public awareness and understanding of MWMC, the regional wastewater system, and MWMC’s objectives of maintaining water quality and a sustainable environment. Indicators: Performance: FY 2016-17 Actual FY 2017-18 Estimated Actual FY 2018-19 Target Communications Plan Implemented high priority elements Update of plan completed Continue implementation and refresh as needed Promote MWMC social media channels Created new YouTube channel Created new Facebook and Twitter accounts Implement strategies to grow Facebook followers to 300, and Twitter followers to 250 Create and distribute MWMC e-newsletters 4 newsletters Update design and increase distribution by 10% Distribute monthly and increase distribution by 10% or greater Pollution prevention campaigns 2 campaigns and 3 sponsorships; reaching 20% of residents in service area 2 campaigns and 3 sponsorships, reaching 20% of residents in service area 2 campaigns and 4 sponsorships; reaching 20% of residents in service area Provide tours of the Water Pollution Control Facility Provided tours for about 750 people Provide tours for greater than 750 people Provide tours for greater than 750 people Community survey Annual review of data --- Plan for surveying in 2019 MWMC website New website launched Increased unique visitors by 15% --- ACTION REQUESTED Provide comments and input to staff regarding the purpose statement, key outcomes and performance indicators. M E M O R A N D U M DATE: January 5, 2018 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Matt Stouder, General Manager SUBJECT: Small Homes System Development Charges (SDCs) ACTION REQUESTED: Discussion Regarding Creating a Line Item in the Budget to Pay SDCs on Behalf of Qualifying Developments _____________________________________________________________________ ISSUE At the November 2017 MWMC meeting, the Commission directed staff to move towards implementing a line item in the FY2017/18 budget that would allow the MWMC to pay SDCs on behalf of qualifying applicants building small homes. BACKGROUND In 2017, the MWMC received two requests to consider waiving or incentivizing SDCs for small homes (accessory dwelling units and “tiny” houses). The Commission discussed policy issues associated with the requests at its June 2017 meeting, and directed staff to look into whether a separate user class for small homes would be appropriate. Staff subsequently contracted with Galardi Rothstein Group (GRG) to perform the work. After analyzing local, state and national data, GRG found that assessing small homes at a rate consistent with the multi-family rate would be justifiable and defensible due to the correlation between household size and flow. At the October 2017 meeting, the Commission directed staff to implement a rate for small homes (sized 800 square feet or smaller) consistent with the rate for multi-family dwellings on MWMC’s SDC rate schedule. The Commission memo from the October meeting is presented as Attachment 1. After the October meeting, the Commission requested additional conversation on the topic of waiving SDCs. Staff and legal counsel returned at the November 2017 meeting for discussion, and the Commission directed staff to move towards creating a line item in the FY18-19 budget process to allow the MWMC to pay for SDCs on behalf of applicants that meet qualifications for small home (800 square feet in size or smaller). The Commission also asked for a summary of what the Cities of Eugene and Springfield are doing with respect to waiving SDC’s at the local level for new development, which is discussed in the paragraph below. The City of Springfield has waived SDC’s for newly constructed Accessory Dwelling Units for the period of July 1, 2017 through June 20, 2019. Springfield does not waive SDC’s for any other development type. The City of Eugene does not provide waivers for any type of development. Memo: Small Homes System Development Charges January 5, 2018 Page 2 of 2 Also, as discussed in the November 2017 meeting, another approach to address the SDC waiver issue is to engage in lobbying at the State level. It would be helpful to have specific guidance from the legislature regarding the circumstances when SDC’s can be waived or reduced with respect to small homes. As discussed in October and November, the current legislative language only provides for the waiver of SDCs in limited circumstances, none of which appear to apply to the MWMC’s current situation. DISCUSSION The action of creating a line item in the MWMC’s budget for the purposes of paying SDC’s on behalf of qualifying development is fairly straight forward. Once the Commission agrees on the criteria for the program (including an associated amount), staff will incorporate the information into the FY18/19 budget process. There are a few policy issues that require further consideration by the Commission, which are summarized below and will be discussed at the January meeting. Criteria It will be necessary for the MWMC to establish criteria regarding eligibility for anyone wishing to build a small home and have their regional wastewater SDC’s paid for by the MWMC. Criteria that has already been expressed by the Commission requires the development to be new residential construction, 800 square feet or less, to include homes known as accessory dwelling units. Other criteria that should be considered include: should the program be limited to a first come, first serve basis? Can one owner/builder be eligible for more than one home (i.e. could one builder be eligible for 20 small homes in the event they submit building permit plans for 20 homes as part of a small housing development)? Amount The Commission will need to establish an amount to be set aside in the line item budget. MWMC’s current SDC for small homes, as established by the Commission at the October 2017 meeting is $1,465.43. For an example, budgeting $30,000 would allow for approximately 20 small homes to qualify under the program. For reference, there were zero (0) small homes built in the City Springfield in the past two (2) years that were 800 square feet or smaller. Over the same time period, the City of Eugene issued twenty-five (25) permits for new single family dwellings under 800 square feet, and four (4) new accessory dwelling units. ACTION REQUESTED Staff requests the Commission discuss the above issues and provide direction to staff prior to the FY18/19 budget process. ATTACHMENTS 1. October 6, 2017 Commission Memo M E M O R A N D U M DATE: October 6, 2017 TO: Metropolitan Wastewater Management Commission (MWMC) FROM: Matt Stouder, General Manager SUBJECT: System Development Charges – Small Homes ACTION REQUESTED: Discussion and Direction Regarding Next Steps for System Development Charges for Small Homes _____________________________________________________________________ ISSUE In response to recent requests to consider waiving regional wastewater system development charges (SDCs) for small homes, the Commission discussed several policy issues at its June 2017 meeting, and directed staff to look into whether creating a new residential SDC user class is justifiable. BACKGROUND SDCs are impact fees collected when development or intensification of use occurs on property served by municipal infrastructure. SDCs allow for the accumulation of capital funding needed to provide sufficient capacity in infrastructure systems to accommodate growth, and help to recoup a portion of the community’s investment in existing infrastructure. The MWMC’s existing SDC methodology was adopted in September of 2009. Modifications to the project list and fee schedule were adopted in 2017 to ensure equity and fairness by type and establishment. Earlier this year, the MWMC received two requests to consider waiving or incentivizing SDCs for small homes (accessory dwelling units and “tiny” houses). The Commission discussed policy issues associated with the requests at the June 2017 meeting (Attachment 1). After discussing issues such as equity across the service area, the rationale for incentivizing SDC’s, and Intergovernmental Agreement (IGA) concerns, the Commission directed staff to look into whether a separate user class for small homes would be appropriate. Staff subsequently contracted with Galardi Rothstein Group (GRG) to perform the work. An analysis of GRG’s work is presented in Attachment 2. DISCUSSION GRG Analysis GRG looked at local and national data with respect to development of fee structures and policy-based incentives that reduce development costs for smaller homes. In addition to state Memo: System Development Charges October 6, 2017 Page 2 of 2 mandates on SDC’s (California) and SDC exemptions for low income housing, GRG also analyzed SDC structures currently being used in the industry. Several examples exist, including assessing SDC’s as a flat fee per unit, or having an individual rate based on household size. The most common approach for assessing SDC’s for smaller homes included charging them at the same rate as multi-family (multifamily homes generally use proportionally less flow then single family homes and therefore are charged a proportionally less rate). GRG’s findings will be discussed in more detail at the October meeting. GRG also analyzed flow and load data as part of their work, and found that specific data for small homes in not readily available because utility billing systems generally do not include separate classifications for such users. However, general flow data from the City of Eugene and City of Bozeman, MT indicates there is a correlation between the amount of flow and household size (smaller homes use proportionally less flow than large homes). Because MWMC’s regional wastewater SDC is comprised of two components (flow and strength), GRG concluded that assessing small homes at the multi-family rate would be defensible should the MWMC desire to do so. For reference, the MWMC’s current single family dwelling SDC rate is $1,709.67, while the multifamily rate is $1,465.43. Next Steps In the event the Commission decides to assess “small” homes at a rate that is different than single family, the Commission will need to decide on a definition for what constitutes a “small” home. Two examples include: A ny home smaller than a certain size threshold (750 square feet for example) Any home that is accessory to a primary residence (i.e. Accessory Dwelling Units only) Additionally, the MWMC’s SDC rate schedule would need to be adjusted to correspond to any action taken by the Commission. ACTION REQUESTED Staff requests the Commission discuss the issue of assessing regional wastewater SDC’s on small homes, and provide direction regarding categorizing them at the multifamily rate. ATTACHMENTS 1. June 2, 2017 Commission Memo 2. Galardi Rothstein Group Tech Memo