[CALL TO ORDER]
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TODAY ON JUNE 2ND, IT'S NINE OH FIVE.
I'M GONNA CALL THIS MEETING TO ORDER.
AND ATTENDANCE IS MYSELF, UH, COMMISSIONER ION, COMMISSIONER MAXWELL GAINES, AND STAFF.
I GUESS THE FIRST ITEM IS THE PUBLIC COMMUNICATION.
DO YOU HAVE ANY SPEAKERS? NO SPEAKERS TODAY.
[1. Austin Water Financial Forecast Fiscal Year 2026-2030 Update]
THE NEXT ITEM, WHICH IS THE AUSTIN WATER FINANCIAL FORECAST, FISCAL YEAR 2026.JOSEPH GONZALEZ, ASSISTANT DIRECTOR OF FINANCIAL SERVICES WITH AUSTIN WATER.
AND TODAY WE'LL BE PROVIDING A, UH, FIVE YEAR FORECAST UPDATE, UM, WHICH IS REALLY THE PRECURSOR TO, TO OUR ANNUAL, UH, BUDGET SUBMITTAL.
UM, AND, UM, YOU KNOW, AND JUST KIND OF TALK THROUGH THE, THE PROCESS AS FAR AS, UH, BUDGET SUBMITTAL AND ADOPTION.
UM, AND, UH, SO, UH, WE, SO WITH THAT, WE'LL GET STARTED IF WE CAN PULL UP THE PRESENTATION.
ALL RIGHT, SO TODAY WE'LL, WE'LL TALK ABOUT, YOU KNOW, UM, OUR FINANCIAL CONDITION, THE, THE THINGS THAT WE CONSIDER AS WE DEVELOP BOTH OUR FORECAST AND, AND OUR ANNUAL BUDGET PROCESS.
UM, WE'LL, WE'LL, UH, TALK ABOUT SOME OF OUR KEY BUDGETARY DRIVERS, UH, LOOK AT, UH, YOU KNOW, FINANCIAL METRICS, AND THEN PROVIDE A, UH, A BRIEF SUMMARY, UM, AND, YOU KNOW, AN, AN OPPORTUNITY FOR DISCUSSION.
BUT AS WE GO THROUGH, IF YOU HAVE QUESTIONS, FEEL FREE TO ASK AS AS WE GO THROUGH.
SO, UH, YOU KNOW, AS, AS WE PUT TOGETHER OUR BUDGET, UH, YOU KNOW, WE, WE START WITH, UH, REVENUE CONSIDERATIONS.
UM, YOU KNOW, OUR RATE INCREASES NECESSARY, UM, YOU KNOW, TO, TO COVER OUR, OUR COSTS, BOTH OUR, OUR OPERATING COSTS, BUT YOU KNOW, AS WELL AS OUR INVESTMENT AND INFRASTRUCTURE.
AND, AND, UH, YOU KNOW, AFTER SEVERAL YEARS WITH NO RATE INCREASES, WE, WE ARE FORECASTING AND WE HAVE BEEN, HAD A FEW RATE INCREASES, UM, TO COVER BOTH INCREASING OPERATING COSTS, BUT, UH, PARTICULARLY A GROWING CAPITAL PLAN.
UM, AND, AND OH, BY THE WAY, WE CONTINUE TO BE, UH, IN THE MIDST OF A DROUGHT.
AND SO CERTAINLY WHEN WE CONSIDER REVENUE, UH, YOU KNOW, WE, UH, WE HAVE TO CONSIDER DROUGHT CONDITIONS AND HOW, HOW THOSE CONDITIONS IMPACT OUR DEMAND AND ULTIMATELY OUR, OUR REVENUES.
UM, ANOTHER DRIVER, UH, FROM A REVENUE PERSPECTIVE IS OUR CUSTOMER ASSISTANCE PROGRAM GROWTH.
UM, OVER THE LAST FEW YEARS, WE'VE SEEN, UH, TREMENDOUS GROWTH IN OUR CUSTOMER ASSISTANCE PROGRAM, UH, WHICH, UH, PROVIDES DISCOUNTED WATER AND WASTEWATER RATES FOR, UM, FOR ELIGIBLE CUSTOMERS.
UM, AND, UH, FOR THOSE CUSTOMERS, THEY'RE, THEY'RE GENERALLY ELIGIBLE IF, UM, THEY ARE ALREADY, UM, ENROLLED IN, IN ONE OF A NUMBER OF SOCIAL PROGRAMS, UM, YOU KNOW, LIKE CHIP OR MEDICAID.
UM, SO THERE'S, WE, WE USE A THIRD PARTY PROVIDER WHO, UM, WHO MANAGES OUR, OUR, OUR CUSTOMER ENROLLMENT AND HAS, UH, AN AUTOMATIC ENROLLMENT PROCESS.
SO THEY MATCH UP, YOU KNOW, OUR CUSTOMER LIST WITH, UM, WITH INDIVIDUALS THAT ARE PARTICIPANTS IN, YOU KNOW, AGAIN, A A LIST OF ABOUT SEVEN, UH, SOCIAL PROGRAMS. UM, BUT CUSTOMERS CAN ALSO, IF THERE'S NOT AN AUTOMATIC MATCH, CUSTOMERS CAN ALSO, UM, APPLY, UH, DIRECTLY TO THE PROGRAM.
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YOU KNOW, FOR OUR CUSTOMER ASSISTANCE PROGRAM, WE'VE SEEN, UH, TREMENDOUS GROWTH, UH, YOU KNOW, WHICH IS PART OF A, UH, A COUNCIL INITIATIVE TO, UH, TO EXPAND THE PROGRAM.SO FOR US, UH, YOU KNOW, TWO YEARS AGO WE HAD ABOUT 15,000, UH, RESIDENTIAL CUSTOMER ASSISTANCE PROGRAM PARTICIPANTS.
UM, AND, AND AT THAT SAME TIME, WE WERE RAMPING UP A MULTIFAMILY PROGRAM.
MULTIFAMILY CUSTOMERS HAVEN'T HISTORICALLY BEEN ABLE TO PARTICIPATE IN THE CUSTOMER ASSISTANCE PROGRAM BECAUSE, UH, THEY'RE GENERALLY SERVED BY MASTER MEAT OR WHETHER, YOU KNOW, APARTMENT COMPLEX.
AND SO, UH, FOR WATER AND WASTEWATER SERVICES, WE, YOU KNOW, HAVE, HAVE NOT HAD AND DO NOT HAVE A, A DIRECT BILLING RELATIONSHIP.
UM, SO WE DIDN'T HAVE, UM, A METHODOLOGY TO PROVIDE DISCOUNTED RATES FOR OR ANY KIND OF DISCOUNT FOR THOSE CUSTOMERS.
UH, BUT A COUPLE OF YEARS AGO, IN 2022, WE IMPLEMENTED A MULTIFAMILY PROGRAM.
UH, WE PARTNERED WITH AUSTIN ENERGY TO, UM, PROVIDE, UM, A DISCOUNT THROUGH THE ELECTRIC PORTION OF THE BILLS, BECAUSE ON THE ELECTRIC SIDE, UM, YOU KNOW, MOST CUSTOMERS, IF, IF NOT ALL CUSTOMERS ARE, ARE INDIVIDUALLY METERED.
AND SO THOSE CUSTOMERS WHO ON THE WATER SIDE ARE SERVED BY MASTER METER DO HAVE, UM, A, A METER FOR, UH, THEIR ELECTRIC SERVICE.
AND SO WE'VE BEEN PROVIDING DISCOUNTS ON THE ELECTRIC SIDE, UH, TO PROVIDE A, A BENEFIT FOR THOSE CUSTOMERS, UH, IN THE SAME, IN, IN A SIMILAR WAY TO OUR, OUR RESIDENTIAL CUSTOMERS WHO WE HAVE A DIRECT BILLING RELATIONSHIP WITH.
UH, BUT AS THAT PROGRAM, UH, HAS GROWN, WE'VE HAD TO INCREASE OUR COMMUNITY BENEFIT CHARGE, UH, TO PROVIDE ADEQUATE FUNDING FOR THOSE CUSTOMERS.
SO, SO THE ENROLLMENT HAS, UM, YOU KNOW, MORE THAN DOUBLED OVER THE LAST TWO TO THREE YEARS.
AND AS PART OF LAST YEAR'S BUDGET, WE, WE DOUBLED THE COMMUNITY BENEFIT CHARGE FROM 15 CENTS PER THOUSAND GALLONS FOR WATER AND WASTEWATER SERVICE TO 30 CENTS PER THOUSAND GALLON TO, UM, TO COVER THE COST OF INCREASED ENROLLMENT.
UM, ALSO, YOU KNOW, IN TERMS OF REVENUES, UM, AND, AND SPECIFICALLY CAPITAL RECOVERY FEES OR IMPACT FEES, UH, WE ARE SEEING, UH, SLOWER DEVELOPMENT.
OUR, OUR CAPITAL RECOVERY FEES, UH, PEAKED IN 2022 AT AROUND 44 MILLION.
UH, BUT THE LAST TWO YEARS WE'VE BEEN ABOUT 30 MILLION IN 2020 9 MILLION.
SO, SO WE'VE SEEN, UH, YOU KNOW, A, A A 10 TO $14 MILLION DROP.
UM, YOU KNOW, THE AVERAGE PRIOR TO THE, THE, THE PEAK IN 22 WAS ABOUT 40 MILLION.
AND SO, SO WE ARE ON AVERAGE ABOUT 10 MILLION BELOW THAT NOW, AND WE USE THOSE FUNDS TO, UH, TOFE DEBT.
AND SO WE'LL TALK A LITTLE BIT MORE ABOUT THAT WHEN WE TALK ABOUT, UH, YOU KNOW, OUR DEBT MANAGEMENT EFFORTS.
UM, AND THEN FROM AN EXPENDITURE PERSPECTIVE, UM, YOU KNOW, WE CONTINUE TO INVEST IN, UM, YOU KNOW, RESILIENCY AND SERVICE RELIABILITY, BOTH, UM, YOU KNOW, ON THE OPERATIONAL SIDE, BUT, BUT CERTAINLY FROM AN INFRASTRUCTURE PERSPECTIVE.
AND, AND SO THAT'S A BIG DRIVER WITH A GROWING CAPITAL PLAN.
UM, YOU KNOW, ON THE, ON THE OPERATING SIDE, WE, YOU HAD A NEED FOR INFLATIONARY COST INCREASES.
AND, UM, BUT YOU KNOW, AGAIN, TRYING TO KEEP UP WITH, UH, YOU KNOW, UH, SIGNIFICANT GROWTH IN OUR CAPITAL PROGRAM.
UH, OVER THE LAST FEW YEARS, WE'VE MADE SIGNIFICANT INVESTMENTS IN OUR WORKFORCE TO SUPPORT, YOU KNOW, RETENTION.
UM, AND AS WELL AS, YOU KNOW, INCREASED STAFF.
WE'VE CONTINUED TO GROW STAFF AS, AS THE UTILITY AND OUR, OUR, OUR CUSTOMER BASE HAS GROWN.
UM, AND, UH, YOU KNOW, MAYBE STARTING TO SOUND LIKE A BROKEN RECORD, BUT, UH, YOU, AGAIN, WE'VE GOT A, A GROWING CAPITAL IMPROVEMENT PLAN.
UH, THAT'S A REALLY BIG COST DRIVER FOR US.
UM, AND TO MITIGATE SOME OF THOSE COST INCREASES, WE'VE, UH, WE'VE HAD A NUMBER OF DEBT MANAGEMENT STRATEGIES THAT WE'VE UTILIZED, UH, REALLY OVER THE LAST 10, 11 YEARS, STARTING IN 2016.
UM, AND WE'LL TALK A LITTLE BIT ABOUT THAT.
UM, AND THEN ALL OF THAT REALLY HELPS US MANAGE OUR, OUR FINANCIAL PERFORMANCE, OUR FINANCIAL METRICS.
UM, YOU KNOW, AS WE, AS WE CONTINUE TO, YOU KNOW, ALIGN OUR RATES WITH, UM, YOU KNOW, OUR GROWING, OPERATING AND CAPITAL COSTS, UH, WE DO EXPECT TO SPEND DOWN SOME CASH RESERVES TO, UM, TO, TO PHASE IN RATE INCREASES, UH, TO, TO TRY AND BALANCE AFFORDABILITY WITH THE INVESTMENTS IN, IN OUR INFRASTRUCTURE AND, UH, YOU KNOW, OUR OPERATING COSTS.
UM, AND, UM, IN ADDITION, WE'VE GOT A CASH FINANCING FINANCIAL POLICY THAT TARGETS, UM, INVESTING ABOUT BETWEEN 35 AND 50% OF, OF OUR CAPITAL PROGRAMS. SO, YOU KNOW, WE ARE, WE'RE SPENDING IN, IN THE NEIGHBORHOOD OF 250 TO 300 MILLION A YEAR.
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AND SO THIS FINANCIAL POLICY SAYS THAT, YOU KNOW, ABOUT 35 TO 50% OF THAT AMOUNT WE WOULD, WE WOULD PAY FOR IN CASH, UH, TO, UM, TO REDUCE THE AMOUNT OF DEBT WE'RE TAKING ON.UH, BUT ALSO THERE'S A SIGNIFICANT PORTION OF OUR CAPITAL PROGRAM THAT IS FOR THINGS THAT, YOU KNOW, DON'T HAVE, UM, YOU KNOW, A MINIMUM 30 YEAR LIFE.
AND SO WE CAN'T ISSUE 30 YEAR BONDS FOR SOMETHING THAT ISN'T EXPECTED TO LAST 30 YEARS.
AND SO, UH, YOU KNOW, A PORTION OF THAT ALSO COVERS, UH, THOSE, UH, SHORTER LIVED ASSETS LIKE COMPUTERS AND VEHICLES.
AND, UM, SO IT'S A COMBINATION OF, UH, YOU KNOW, PAYING CASH FOR THINGS THAT DON'T LAST THAT LONG, BUT ALSO TRYING TO, UM, TRYING TO MANAGE OUR, OUR, OUR DEBT SERVICE PAYMENTS.
IT'S MUCH LIKE A MORTGAGE, RIGHT? YOU KNOW, THE MORE YOU PUT DOWN THE LOWER YOUR, UH, YOUR, YOUR MORTGAGE PAYMENT IS, AND, AND THAT'S WHAT THAT FINANCIAL POLICY IS INTENDED TO DO.
UH, WE, WE, UM, OUR CONSIDERING CHANGES TO THAT FINANCIAL POLICY, THE FINANCIAL POLICY AS WRITTEN WAS, UH, ADOPTED FOR FISCAL YEAR 2022, UM, KIND OF PRE, UM, PRE POST COVID, BUT REALLY PRE-IMPACT OF, OF COD AND, AND, UM, YOU KNOW, PRE-IMPACT OF, YOU KNOW, THE COST OF CONSTRUCTION.
UH, IT WAS AROUND THAT TIME, 22, 20, 20, 22, 23, WHERE WE REALLY STARTED TO SEE, YOU KNOW, INCREASED COST OF, OF CONSTRUCTION, UM, AND TAKING ON A SIGNIFICANT PROJECT LIKE OUR WALNUT CREEK EXPANSION, WHICH IS A, A A BILLION DOLLAR PROJECT.
AND SO WE'LL TALK A LITTLE BIT MORE ABOUT THAT, UH, SHORTLY.
UM, NOW WHEN WE, WHEN WE GO THROUGH OUR BUDGET PROCESS, YOU KNOW, KIND OF ONE OF OUR FUNDAMENTAL, UH, PRINCIPLES IN, IN TERMS OF REVENUES, THAT, THAT OUR RATES ARE CALCULATED BASED ON, ON COST OF SERVICE, AND WE CALCULATE THOSE RATES ANNUALLY AND, UH, STRIVE TO, TO MAINTAIN COST OF SERVICE BASED RATES.
AND SO EVERYBODY'S PAYING THEIR FAIR SHARE OF, OF THEIR DEMAND ON OUR SYSTEM.
UM, WE, WE MONITOR, YOU KNOW, REVENUE TRENDS AND, AND, UH, PREPARE, UH, FORECAST UPDATES ON A MONTHLY BASIS.
UM, AND, AND THAT'S PART OF OUR ANNUAL, UH, REVENUE FORECASTING AND, AND BUDGET DEVELOPMENT PROCESS.
UH, FROM, FROM AN OPERATING BUDGET PERSPECTIVE, UM, YOU KNOW, WE'VE BEEN DOING A NUMBER OF THINGS TO MAKE SURE OUR, OUR BUDGET IS, IS, YOU KNOW, RIGHT SIZED, UH, UM, SO WE DO A COMPREHENSIVE REVIEW OF HISTORIC BUDGET UTILIZATION, UM, TO MAKE SURE THAT, UM, THAT OUR BUDGET IS, UM, AGAIN, RIGHT SIZED FOR WHAT WE NEED TO, TO FUND OUR, YOU KNOW, OPERATIONS.
UM, IN ADDITION, YOU KNOW, AS PART OF THAT REVIEW, WE DO KIND OF AN OPEN ENCUMBRANCE, UH, REVIEW.
UM, AND ENCUMBRANCE IS, YOU KNOW, JUST A KIND OF A, AN OBLIGATION OF PURCHASE ORDER THAT THAT'S OUTSTANDING.
AND, UM, SO ONE OF THE WAYS YOU CAN OBLIGATE BUDGET IS BY, UH, SETTING UP A PURCHASE ORDER.
UM, AND WE, WE WORK TO MATCH UP THOSE ORDERS WITH, WITH THE FISCAL YEAR.
BUT IF, EXCUSE ME, IF, UH, THERE'S A BIG ENCUMBRANCE, A BIG ORDER THAT'S KIND OF OUTSTANDING AT YEAR END, UM, THAT, YOU KNOW, COULD COVER SERVICES PROVIDED IN THE FUTURE YEAR, THEN WE'RE, WE'RE NOT REALLY MATCHING, UM, THE, THE TIMING OF, OF OUR COST WITH, WITH THE BUDGETARY IMPACT.
AND, AND SO WE DO A PRETTY DETAILED REVIEW TO, TO MAKE SURE THOSE THINGS MATCH UP.
UH, BECAUSE AN OPEN ENCUMBER, A LARGE OPEN ENCUMBRANCE AT YEAR END LOOKS LIKE, UM, YOU KNOW, A BUDGETARY OBLIGATION LOOKS LIKE AN EXPENSE, UH, BUT IF IT'S REALLY FOR THE NEXT YEAR, THEN IT'S KIND OF A MISMATCH.
AND SO, SO WE'VE BEEN WORKING TO MAKE SURE WE BETTER ALIGN WITH THAT.
AND ONE OF THE WAYS WE DO THAT IS, UM, UH, WE'RE HAVE OUR FOLKS SET UP QUARTERLY ENCUMBRANCES.
HISTORICALLY, A LOT OF PEOPLE LIKE TO SET UP A SINGLE ENCUMBRANCE AT THE BEGINNING OF THE YEAR TO TO COVER WHAT THEY MIGHT SPEND.
UM, AND, AND SO BY DOING QUARTERLY ENCUMBRANCES, WE CAN BETTER MATCH COST WITH, UM, WITH THE PERIODS IN WHICH THEY'RE INCURRED AND, AND, AND TRUE UP AS WE GO.
UM, AND, AND SO AGAIN, YOU KNOW, KIND OF ANOTHER STEP INTO, UH, WHAT WE CALL BUILDING A A, A BETTER BUDGET, UM, YOU KNOW, AND AS WE GO THROUGH OUR BUDGET DEVELOPMENT PROCESS, UH, THE EXECUTIVE TEAM, UH, HAS, YOU KNOW, TWO TO THREE MEETINGS WHERE WE, WE REVIEW SIGNIFICANT BUDGET INCREASES, UM, AND, UM, AND LOOK
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TO THE EXECUTIVE TEAM TO, UH, TO MAKE DECISIONS ABOUT SOME OF THOSE BUDGET INCREASES AND, AND, AND WHAT, YOU KNOW, WHICH ONES WE WANNA MOVE FORWARD WITH OR, OR, OR DELAY, YOU KNOW, AS NECESSARY.UM, AND THEN FROM A STAFFING PERSPECTIVE, UH, ON AN ANNUAL BASIS, WE, WE DEVELOP A, A TWO YEAR, UM, STAFFING PLAN, UH, WHERE WE REALLY TRY AND DIAL IN THAT, THAT NEXT YEAR, AND THEN HAVE A FRAMEWORK FOR THE SECOND YEAR OF THE, OF THE TWO YEAR BUDGET PROCESS.
UM, AND THEN, YOU KNOW, WHEN, WHEN THAT SECOND YEAR ROLLS, WE, YOU KNOW, WE START WITH REVIEWING WHAT WE THOUGHT, WHERE WE THOUGHT WE WERE GONNA BE, AND THEN WE FINE TUNE.
SO, UM, YOU KNOW, WE LOOK AT STAFFING, YOU KNOW, ON A, ON A TWO YEAR BASIS.
UM, AND THEN FOR OUR CAPITAL BUDGET, YOU KNOW, IT'S, IT'S, UM, ALMOST, UH, KIND OF A ZERO BASED BUDGET PROCESS.
YOU KNOW, CERTAINLY IF WE'VE GOT SOME REALLY BIG PROJECTS THAT ARE IN THE WORKS, YOU KNOW, WE, UM, UNLESS, YOU KNOW, THERE'S UNUSUAL CIRCUMSTANCES, I MEAN, WE'RE NOT GONNA STOP A REALLY BIG PROJECT THAT THAT'S IN THE WORKS.
UH, BUT WE, WE DO REVIEW EVEN PROJECTS THAT HAD BEEN PREVIOUSLY APPROVED AND, AND JUST MAKE SURE A, THEY'RE STILL ON TRACK AND B, YOU KNOW, THEY'RE STILL OUR HIGHEST PRIORITY PROJECTS.
AND SO, UM, IT IS POSSIBLE TO, TO PULL BACK EVEN A PROJECT THAT, UH, HAD BEEN PREVIOUSLY APPROVED IF OTHER, YOU KNOW, MORE IMPORTANT PROJECTS.
AND, UM, OR, AND, AND YOU KNOW, WHEN I SAY IMPORTANT, YOU KNOW, WE, WE HAVE KIND OF A RISK-BASED CAPITAL BUDGET DEVELOPMENT PROCESS.
AND SO IF, IF ANOTHER PROJECT COMES IN THAT, YOU KNOW, UH, IS, IS NEEDED TO, YOU KNOW, TO MITIGATE RISK, YOU KNOW, WHETHER IT'S RISK OF INFRASTRUCTURE FAILURE OR, UH, WHATEVER THE CASE MAY BE, THEN YOU KNOW, WE'LL, WE'LL CERTAINLY CONSIDER THAT AND, AND, AND HAVE A HOLISTIC LOOK AT ALL OF THE PROJECTS THAT, THAT HAVE BEEN PROPOSED.
UM, AND, AND THOSE PROJECTS ARE REVIEWED BY A SUBSET OF OUR EXECUTIVE TEAM.
WE HAVE, UH, WHAT WE CALL A BUSINESS CASE REVIEW COMMITTEE, AND, AND THEY, UH, REVIEW AND APPROVE EVERY PROJECT, UH, ON AN ANNUAL BASIS THAT GOES INTO OUR CAPITAL SPENDING PLAN.
UM, AND CERTAINLY AS WE DEVELOP, YOU KNOW, OUR FORECAST AND OUR ANNUAL BUDGET, UM, YOU KNOW, WE'RE MINDFUL OF OUR BOND RATINGS.
'CAUSE OUR BOND RATINGS IMPACT, YOU KNOW, OUR COST OF, OF BORROWING OUR COST OF DEBT.
UM, AND AS WE, WE LOOK AT, UH, FOR EXAMPLE, OUR CREDIT HIGHLIGHTS FOR WHERE WE ARE, UH, OR WHERE WE WERE WITH OUR LAST CREDIT, CREDIT RATING, WHICH WAS, UH, A LITTLE OVER A YEAR AGO, UM, YOU KNOW, WE, WE HAVE THREE RATING AGENCIES THAT, THAT WE USE, FITCH, MOODY'S, AND S AND P, UM, AND THEY ALL HAVE US, UH, WELL, MOODY'S AND S AND P HAVE US AA RATED, UM, AND, AND FITCH HAS THIS AA MINUS, BUT, BUT ALL WITH A STABLE OUTLOOK.
SO, UM, AND THEN IN TERMS OF HIGHLIGHTS, UH, YOU KNOW, THEY'VE HIGHLIGHTED, YOU KNOW, OUR, OUR LIQUIDITY, OUR, OUR CASH ON HANDS, OUR CASH RESERVES, UM, YOU KNOW, UH, ADEQUATE TO STRONG, UH, DEBT SERVICE COVERAGE, UM, AND, AND LOW LEVERAGE, UH, YOU KNOW, A LOW AMOUNT OF DEBT, UH, AS, AS COMPARED TO TO OUR REVENUES.
UM, NOW THEY ARE, UM, MONITORING, YOU KNOW, THEY'RE AWARE THAT OUR CAPITAL PROGRAM IS, IS GROWING.
AND SO FACTORS THAT COULD RESULT IN A DOWNGRADE WOULD BE, YOU KNOW, UH, SIGNIFICANT INCREASE IN, IN OUR LEVERAGE.
UM, SO, UM, YOU KNOW, IF, IF OUR LEVERAGE GOT REALLY HIGH, UM, YOU KNOW, SO OUR, OUR ANNUAL DEBT AS COMPARED TO, UM, ANNUAL DEBT SERVICE AS COMPARED TO ANNUAL REVENUES, IF IT GOT TO SAY 10 TIMES.
SO IF, IF, UH, OR I'M SORRY, OUR CUMULATIVE DEBT, WHICH IS ABOUT THREE AND A HALF BILLION DOLLARS, UM, SO CURRENTLY WE HAVE, UH, YOU KNOW, ALMOST 800 MILLION IN, IN DEBT, WHICH IS, YOU KNOW, FROM A LEVERAGE PERSPECTIVE IS AROUND, YOU KNOW, JUST UNDER FIVE TIMES LEVERAGE.
UH, BUT IF, IF OUR CUMULATIVE, UH, OUTSTANDING DEBT GREW, SAY TO $8 BILLION, UM, AND WE WERE STILL BRINGING IN ABOUT 800 MILLION, THEN THAT WOULD GET US TO ABOUT A 10 TIMES LEVERAGE.
AND, AND THEY WOULD START TO BE CONCERNED ABOUT THAT.
AND SO THAT'S ONE OF THE REASONS THAT, UH, WE'RE WORKING THROUGH REALIGNING OUR, OUR RATES AND OUR REVENUES WITH, YOU KNOW, PARTICULARLY WITH THE GROWING CAPITAL PLAN.
UM, SO THIS JUST SHOWS, YOU KNOW, UM, THE, THE TWO COLUMNS, THE, THE LIGHTER, UH, BLUE AND, AND, AND THE DARKER BLUE SHOW, OUR REVENUES, UH, THE, THE LIGHTER IS THE REVENUES THAT THE DARKER IS, UH, OUR ANNUAL EXPENSES.
UM, AND YOU CAN SEE, YOU KNOW, THERE, THERE ARE TIMES WHERE REVENUES
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ARE LESS THAN EXPENSES, AND THAT'S, UH, KIND OF STRATEGIC USE OF OUR, OUR FUND BALANCE AND OUR CASH TO, TO BALANCE AFFORDABILITY.SO, YOU KNOW, LOOKING AT THE FIRST TWO COLUMNS, 2024, UM, YOU KNOW, IN THE FIRST TWO YEARS, UH, EARLIER YEARS OF THE DROUGHT IN 2022 AND 23, UM, YOU KNOW, BECAUSE IT WAS SO HOT AND SO DRY, UH, BUT THE DR, YOU KNOW, WAS STILL KIND OF RELATIVELY EARLY ON IN THE DROUGHT, WE SAW, UM, SIGNIFICANT INCREASES IN REVENUES, YOU KNOW, DEMAND, UH, FOR, YOU KNOW, PARTICULARLY DURING THE HOT DRY SUMMER, WAS HIGHER THAN WE HAD EXPECTED IN 22 AND 23.
AND SO WHEN THAT HAPPENS, WE TRY AND USE IT IN A WAY, UH, THAT EXCESS CASH FROM PRIOR YEARS TO, UM, TO BUY DOWN RATE INCREASES.
AND THAT'S WHAT WE DID, UH, IN 24.
AND WE, UH, TYPICALLY WILL USE SOME OF THAT CASH TO, TO DEFE DEBT AND MANAGE OUR, OUR DEBT SERVICE REQUIREMENTS.
UH, BUT YOU CAN SEE, YOU KNOW, THE, THE LINE SHOWS THE, UH, ANNUAL RATE INCREASES, UH, BOTH HISTORIC FOR 24 AND 25, UM, AND THEN PROJECTED RATE INCREASES FOR 26 FORWARD, UH, PEAKING TO, YOU KNOW, OVER 9% IN, IN 26, UM, AND THEN TAPERING BACK DOWN, UM, TO, TO MORE OF A, UM, MORE OF AN INFLATIONARY TYPE LEVEL OF, OF, OF RATE INCREASES.
AND, UM, SO AS, AS OUR COSTS GROW, WE'RE, WE'RE NEEDING TO GROW OUR, OUR RATES AND REVENUES TO, TO MATCH AND, UH, YOU KNOW, CONTINUE TO HAVE SUSTAINABLE, UM, OPERATING BUDGET.
SO THIS IS OUR, OUR FORECAST FUND SUMMARY.
UH, AGAIN, IT'S A FIVE YEAR FORECAST.
UM, FY 24 REPRESENTS ACTUAL YEAR END RESULTS FOR 24.
UM, THEN, YOU KNOW, WE'VE GOT THAT FY 25 BUDGET AND, UH, YOU KNOW, WE, UH, FORECASTED A, YOU KNOW, A SLIGHT DEFICIT I'LL, I'LL NOTE THAT, UM, WHEN WE SUBMITTED OUR BUDGET, WE WEREN'T NECESSARILY FORECASTING A SLIGHT DEFICIT.
UM, BUT AS PART OF THE BUDGET ADOPTION PROCESS LAST YEAR, THERE WAS A, A REQUEST FROM FROM COUNCIL TO, UM, TO KIND OF ROLL OVER AND CONVERT, UM, A RETENTION STIPEND THAT HAD BEEN IN PLACE FOR, UH, FOR ABOUT TWO FISCAL YEARS, REALLY A YEAR AND A HALF, UM, TO, UM, TO, UH, COME UP WITH A WAY TO AVOID, UH, ESSENTIALLY EMPLOYEES SEEING A CUT IN THEIR PACE.
SO, UM, AT, AT THE WORST OF, YOU KNOW, IN 2022 WHEN, UH, WHEN SHEA SSON, OUR, OUR DIRECTOR STARTED, UM, AT SOME OF OUR WATER TREATMENT PLANTS, WE HAD ABOUT 30% VACANCIES AND, UM, BUT BUT ALSO HAD HIGH LEVELS OF VACANCIES THROUGHOUT THE UTILITY.
AND SO WE IMPLEMENTED A, A 10% RETENTION STIPEND, UH, ON, YOU KNOW, UH, OUR BIWEEKLY PAYCHECKS, UH, FOR OUR EMPLOYEES.
AND, UM, WE HAD PLANNED TO WIND THAT STIPEND DOWN FOR FY 25, BUT RATHER THAN, UM, HAVE IT GO AWAY ENTIRELY, COUNCIL ASKED US TO COME UP WITH A WAY TO AVOID, YOU KNOW, WHAT WOULD'VE BEEN ESSENTIALLY A 10% DROP IN EMPLOYEE PAY, UM, IN, IN THE NEW FISCAL YEAR.
AND, UH, SO, SO WE PUT TOGETHER A PLAN TO, UM, TO HAVE A SMALL NET INCREASE, UM, FOR THE FISCAL YEAR.
UM, SO RATHER THAN SEE THE 10% REDUCTION, UM, WE, WE PROPOSED A, UM, IN CITYWIDE AS PART OF THE BUDGET, EMPLOYEES WERE EXPECTED TO GET A 4%, UH, ACROSS THE BOARD WAGE INCREASE.
UM, AND THEN WE SUPPLEMENTED THAT WITH A 7% STIPEND CONVERSION SO THAT THERE WAS A NET 1% INCREASE.
UM, NOW THAT WASN'T PART OF OUR PROPOSED BUDGET, AND WE DIDN'T AMEND THE BUDGET TO COVER THAT COST.
SO, UM, AS A RESULT OF THAT CONVERSION FOR 25, WE HAVE A SLIGHT BUDGETARY DEFICIT.
UM, I WILL SAY THAT, YOU KNOW, UH, IN THE EARLY PART OF THE YEAR, REVENUES HAVE DID COME IN A LITTLE BIT STRONGER THAN WE ANTICIPATED.
AND SO, UM, AS WE, AS WE LOOK AT AND FORECAST FISCAL YEAR END, WE DON'T THINK WE'LL HAVE A DEFICIT FOR, FOR 25.
UM, BUT FOR 26, WE ARE, UH, ANTICIPATING A $10 MILLION DEFICIT AGAIN, TO KIND OF TRY AND PHASE IN, UM, YOU KNOW, RATE INCREASES.
UM, WHEN WE LOOK AT COST OF SERVICE, PARTICULARLY FOR, FOR RESIDENTIAL, UH, YOU KNOW, THE, THE NEED IS MORE IN THE, UH, 14% RANGE.
UM, BUT WE UNDERSTAND THAT THAT THAT'S A BIG INCREASE FOR OUR RESIDENTIAL CUSTOMERS.
AND SO WE'RE WORKING TO PHASE THAT
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IN, UH, OVER, OVER THE NEXT FEW YEARS, PARTICULARLY 26 AND 27, WITH, YOU KNOW, UH, JUST BELOW A 10% INCREASE FOR 26, UH, UH, A LITTLE BIT LESS FOR 27, AND THEN TAPERING DOWN AGAIN TO, TO MORE INFLATIONARY TYPE INCREASES.UH, BY THE TIME WE GET INTO FISCAL YEAR 30, UH, WE THINK THAT, UH, YOU KNOW, OUR, OUR, OUR RATES AND OUR REVENUES WILL BE BETTER ALIGNED.
AND SO, UH, THEN WE WOULD EXPECT A MORE PERIODIC RATE INCREASES, YOU KNOW, POTENTIALLY LIKE EVERY OTHER YEAR.
UH, BUT, BUT MAINTAINING INFLATIONARY INCREASES SO THAT WE DON'T, UM, HAVE BIG INCREASES TO CATCH UP WITH INFLATION.
SO, UH, YEAH, WHEN WE HAVE TITLE SLIDES, IT MEANS WE GOTTA HIT, WE GOTTA GO TWICE, BUT, UM, SO THIS IS, THIS IS OUR CURRENT FIVE YEAR CAPITAL.
WELL, THIS IS OUR CAPITAL FIVE YEAR CAPITAL SPENDING PLAN HISTORY.
UM, AND IT REALLY JUST SHOWS HOW OUR, UH, INVESTMENT IN, IN OUR INFRASTRUCTURE HAS GROWN OVER THE LAST FIVE YEARS.
UH, YOU KNOW, LOOKING BACK TO 2020 THROUGH 2022, UM, OUR FIVE YEAR SPENDING PLANS WERE, UH, RIGHT AROUND A BILLION DOLLARS, YOU KNOW, ROUGHLY 200 MILLION, UH, A YEAR.
UM, AND YOU KNOW, WHEN WE GOT TO 23, UH, BOTH BECAUSE WE'VE HAD SOME SIGNIFICANT PROJECTS ON THE HORIZON, UH, BUT ALSO THE COST OF CAPITAL DELIVERY, IT REALLY STARTED TO, TO GROW ON US.
UM, YOU CAN SEE THAT, YOU KNOW, IT GREW IN 23 TO JUST BELOW 1.4 BILLION, AND THEN UP TO ALMOST 1.9 BILLION FOR THE 24 THROUGH 28 PLAN.
UM, AND THEN THE, THE FIVE YEAR, UM, THIS WAS PROPOSED FOR LAST YEAR AND, AND ULTIMATELY ADOPTED THE FIVE YEAR PLAN, UM, THAT WE'RE CURRENTLY WORKING UNDER IS ABOUT 2.3 BILLION.
UM, NOW THAT STARTS TO PROGRAM IN THE WALNUT CREEK EXPANSION AND UPGRADE PROJECT.
AND, AND SO IT'S A COMBINATION OF, AGAIN, UM, YOU KNOW, SOME, UH, PROGRAMMING IN SOME SIGNIFICANT PROJECTS, BUT, BUT ALSO, UH, RECOGNIZING THAT THE COST OF CAPITAL DELIVERY HAS INCREASED.
AND, AND, UH, SO, UM, THAT'S JUST A LITTLE BIT OF HISTORY OF WHERE WE'VE BEEN NOW, UH, UM, NEXT SLIDE.
YOU WILL SEE KIND OF OUR NEW PROPOSED, OH, SORRY, WE DIDN'T HAVE IT.
UM, SO FOR, UM, FOR OUR PROPOSED FIVE YEAR SPENDING PLAN, YOU KNOW, WE JUST ROLLING IT ANOTHER YEAR, UM, YOU KNOW, ABOUT 95% OF 95% OF OUR NEW PLAN IS JUST ROLLING, YOU KNOW, PROJECTS THAT WERE ALREADY IN THE PLAN.
AND, AND WE THINK THAT'S GONNA BE ABOUT $2.8 BILLION.
SO ONE OF THE WAYS WE'VE BEEN WORKING TO, TO MITIGATE, YOU KNOW, THOSE INCREASES AND REALLY MANAGE OUR, OUR DEBT SERVICE REQUIREMENTS IS, UH, THROUGH A NUMBER OF, OF DEBT MANAGEMENT STRATEGIES.
I, YOU KNOW, TALKED EARLIER ABOUT OUR USE OF IMPACT FEES AND CAPITAL RECOVERY FEES TO, TO FEES DEBT.
UM, AND THAT'S REALLY, UH, UM, YOU KNOW, TAKING CAPITAL RECOVERY FEES OR OTHER AVAILABLE CASH.
SOMETIMES WE'VE USED, UM, UNUSED CIP CASH OR EXCESS OPERATING, YOU KNOW, CASH WHEN WE, WHEN WE SEE REVENUES COME IN A LITTLE BIT STRONGER, UH, TO DE FEES DEBT.
AND THAT'S, YOU KNOW, SIMPLY MAKING EXTRA PAYMENTS ON OUR DEBT SERVICE.
UH, EXCEPT THAT WE CAN TARGET SPECIFIC FISCAL YEARS.
AND YOU CAN SEE, UM, ON THIS CHART, THE BLUE BARS REPRESENT, UM, OUR ACTUAL DEBT SERVICE FOR, FOR EACH OF THOSE FISCAL YEARS, UH, BOTH ACTUAL HISTORIC OR, OR CURRENT SCHEDULED DEBT SERVICE BASED ON, UH, OUR AMORTIZATION TABLES FOR ALL OF OUR ISSUES.
UH, THE GREEN HASH MARK REPRESENTS THE SAVINGS AMOUNT.
UM, AND YOU CAN SEE IN SOME YEARS WE'VE, WE'VE TARGETED MORE HEAVILY, UH, FOR EXAMPLE, IN, UH, FISCAL YEAR 24, UM, YOU KNOW, WE, UH, WE BOUGHT DOWN, UM, AND I'M MY EYES, UH, WE, WE BOUGHT DOWN ABOUT 75 MILLION OF, OF DEBT SERVICE.
SO WE CAN, WE CAN TAKE CASH FOR DEFIANCE AND WE CAN TARGET SPECIFIC YEARS, UH, WHERE WE EITHER NEED TO CREATE CAPACITY, MANAGE OUR FINANCIAL METRICS, UM, AND, AND, UH, SO THAT'S WHAT WE'VE BEEN DOING SINCE 2016.
IN ADDITION, WE'VE BEEN, UH, PURSUING LOW INTEREST LOANS, UH, PRIMARILY THROUGH THE TEXAS WATER DEVELOPMENT BOARD.
UM, BUT, UH, YOU KNOW, AS WE LOOK FORWARD, UH, PARTICULARLY FOR THE WALNUT CREEK PROJECT, WE'RE, UH, PLAN TO USE, UH, FEDERAL EPA DOLLARS THROUGH THE WIA PROGRAM, UH, TO HELP FUND THAT PROGRAM.
AND SO TO DATE, UH, WE'VE SAVED WITH THE, WITH THE DEFIANCE TRANSACTION
[00:30:01]
THAT JUST CLOSED LAST WEEK, UM, WE'VE, WE'VE SAVED OVER 625 MILLION, UH, SINCE 2016.SO, UM, CAN YOU EXPLAIN A LITTLE BIT MORE? YOU WERE SAYING THAT YOU CAN, I GUESS, IS IT BECAUSE OF THE BOND YEARS THAT, THAT YOU CAN PAY OFF CERTAIN ONES PRIOR OR, YOU KNOW, ADD EXTRA PAYMENTS TO CERTAIN YEAR BONDS? IS THAT THE YEAH, OUR BONDS, SO WE SELL OUR BONDS, UM, IN, IN INCREMENTS.
AND, AND SO SAY WHEN WE ISSUE, WHEN WE ISSUE BONDS, UM, WE ISSUE IT IN A WAY THAT, UM, CERTAIN PORTIONS OF THE BONDS ARE DUE KIND OF THROUGHOUT THE 30 YEAR TIMELINE.
UM, AND WHEN OUR BONDS BECOME CALLABLE, UM, YOU KNOW, THEY'RE, THEY'RE CALLABLE A COUPLE TIMES THROUGHOUT THE LIFE OF THE BONDS, AND, AND SO WHEN THEY'RE CALLABLE, WE CAN PAY OFF THE BONDS OR EVEN A PORTION OF THE BONDS THAT ARE CALLABLE AND, UH, BUT THAT WILL INCLUDE, YOU KNOW, EVEN FUTURE DATED BONDS.
UM, BUT REALLY THE WAY A DEFIANCE TRANSACTION WORKS IS, UH, DEPENDING ON THE TIMING, HISTORICALLY, WE'VE, WE'VE TRIED TO TARGET BONDS THAT ARE PRESENTLY CALLABLE.
UM, AND, AND SO WITHIN LIKE A 90 DAY WINDOW, EITHER 90 DAYS BEFORE THE CALL DATE OR 90 DAYS AFTER THE CALL DATE, WE CAN, UM, IT'S A PRETTY SIMPLE TRANSACTION WHERE, YOU KNOW, WE, WE DO PUT MONEY INTO AN ESCROW, BUT IT, IT GENERALLY, UM, YOU KNOW, THE BONDS ARE PAID OFF WITHIN 90 DAYS.
UM, BUT IT WORKS THE SAME WAY REALLY FOR ANY OUTSTANDING BONDS.
WE COULD PUT MONEY INTO AN ESCROW TO PAY OFF BONDS THAT ARE, UH, NOT YET CALLABLE, BUT WILL BE CALLABLE SAY, IN FIVE YEARS OR 10 YEARS, AND THEN THE MONEY IS JUST IN THE, IN THE ESCROW.
UM, AND IT WILL GROW AT A RATE TO PAY OFF THE BONDS, UM, WHEN, WHEN THEY'RE DUE.
SO, UM, BECAUSE BONDS ARE BROKEN UP THE WAY THEY ARE, WE CAN TARGET REALLY ANY YEAR WITHIN WHAT'S OUTSTANDING.
UM, AND I'LL ADD TO THAT, THAT WHEN WE DO, UH, DEFEATS DEBT, OH, CHRISTINA ROMERO, AUSTIN WATER
SO WHEN IT, WHEN THE CASH IS PUT IN ESCROW AND IT'S PAYING THOSE DEBT SERVICE PAYMENTS, IF, UM, IT'S NOT PAID OFF, UH, IT STILL TAKES IT OFF OF OUR BALANCE SHEET SO IT'S NO LONGER, UH, AUSTIN WATER DEBT.
AND THEN I'LL JUST POINT OUT, UM, YOU KNOW, WE, WE, WE TRY AND SHOW, YOU KNOW, ROUGHLY 10 YEARS, I THINK THIS IS MAYBE 11, BUT ROUGHLY 10 YEARS OF HISTORY, UM, WHEN WE STARTED USING CAPITAL RECOVERY FEES TO DE FEES DEBT IN 2016, UM, YOU KNOW, OUR DEBT SERVICE THAT, THAT GREEN LINE SHOWS WHAT PERCENTAGE DEBT SERVICE MAKES UP OF OUR TOTAL BUDGET.
UM, SO IN 2016, IT WAS ABOUT 40% OF OUR, OUR TOTAL BUDGET.
I THINK IT ACTUALLY PEAKED IN 2015 AND ABOUT 42%.
UM, YOU SEE THAT WE'VE KIND OF WORKED THAT DOWN TO, WITH, YOU KNOW, WITHIN THE TWENTIES AND AS LOW AS, AS ABOUT 23%.
UM, YOU KNOW, AS WE TAKE ON THIS GROWING CAPITAL PLAN, WE'RE GONNA MOVE BACK TOWARDS 30%, BUT WE THINK THAT'S, UH, YOU KNOW, SUSTAINABLE 40% IS, WAS, YOU KNOW, TOO HIGH A PERCENT REALLY TO HAVE, YOU KNOW, DEBT SERVICE B AS YOU KNOW, A PERCENTAGE OF OUR OVERALL BUDGET.
AND, AND, AND SO REALLY WHAT WE'RE TRYING TO DO IS, IF YOU JUST FOCUS ON THE BLUE BARS, IS, IS TRYING TO HAVE RELATIVELY LEVEL DEBT SERVICE.
UM, WHERE, YOU KNOW, YOU CAN SEE WITH THE, THE ADDITION OF THE BLUE AND THE GREEN, YOU KNOW, OUR DEBT SERVICE WASN'T LEVEL, AND SO WE HAD SOME PEAK YEARS AND, AND THOSE ARE HARD TO MANAGE, RIGHT? BECAUSE, UM, YOU KNOW, IF YOU'RE, IF WE'RE, UH, KIND OF JUST AS, AS WE GO ALONG WITH OUR, OUR, OUR RATES, IF, IF IT'S RELATIVELY STABLE AND THEN YOU HAVE A PEAK YEAR, THEN YOU GOTTA HAVE RATE INCREASES TO ADDRESS THE PEAK YEAR.
BUT THEN, UM, YOU KNOW, YOUR RATES MIGHT ACTUALLY BE TOO HIGH, YOU KNOW, 'CAUSE IF THEY'RE SET FOR, FOR PEAK YEAR, UM, THEN WHEN YOU HAVE A DROP, IT JUST, IT, IT IMPACTS, UH, RATE STABILITY.
AND SO, UH, TO THE EXTENT THAT WE CAN HAVE A LEVEL BLUE BARS, UM, THAT MEANS OUR DEBT IS STABLE.
UM, AND, AND IT HELPS US MANAGE, UM, YOU KNOW, UH, RATE STABILITY.
THE OTHER THING, UH, THAT'S, THAT'S A REALLY BIG CONSIDERATION IS OUR DEBT SERVICE COVERAGE, WHICH IS KIND OF THE THIRD OF OUR THREE BIG, UM, FINANCIAL METRICS.
UM, DEBT SERVICE COVERAGE IS THE AMOUNT OF REVENUES AVAILABLE FOR DEBT SERVICE.
SO YOU, YOU TAKE YOUR ANNUAL REVENUES, SUBTRACT OUT OPERATING COSTS, AND THEN THE LEFTOVER AMOUNT IS MEASURED, UM, AS A MULTIPLIER OF ANNUAL DEBT SERVICE COSTS.
SO, UH, YOU KNOW, WE'VE ROUGHLY BEEN TARGETING ABOUT 175 MILLION IN ANNUAL DEBT SERVICE COSTS.
UM, NOW OUR BOND COVENANT, UH, REQUIRES US TO HAVE, UH, DEBT SERVICE COVERAGE OF AT LEAST 1.25 TIMES.
[00:35:01]
UH, BUT OUR FINANCIAL POLICY IS 1.75 TIMES DEBT SERVICE COVERAGE, SO TO MAINTAIN COMPLIANCE WITH OUR FINANCIAL POLICY, UM, AND WE'LL HAVE SOME CHARTS ABOUT THIS, UH, YOU KNOW, DIG INTO DEBT SERVICE COVERAGE.BUT, UH, TO MAINTAIN FINANCIAL POLICY COVERAGE, THAT MEANS WE HAVE TO GENERATE ENOUGH REVENUE, UH, TO HAVE LEFTOVER REVENUES AFTER OPERATING EXPENSES, UH, EQUAL TO 1.75 TIMES OUR ANNUAL DEBT SERVICE REQUIREMENTS.
SO, UM, OUR DEBT MANAGEMENT EFFORTS, YOU KNOW, HAVE A BIG IMPACT ON RATE AFFORDABILITY BECAUSE EVERY DOLLAR OF DEBT AT A FINANCIAL POLICY LEVEL COST US A DOLLAR COST CUSTOMERS A DOLLAR 75, RIGHT? SO WE'VE GOTTA MAINTAIN THAT LEVEL.
AND SO BY, BY MANAGING DEBT SERVICE REQUIREMENTS AND BY SAVING THE 625 MILLION, WE'VE ACTUALLY SAVED OVER A BILLION DOLLARS IN, IN REVENUE REQUIREMENTS WHEN YOU CONSIDER DEBT SERVICE COVERAGE.
ALRIGHT, SO THIS IS, THIS IS OUR KIND OF OUR, OUR HISTORY WITH, UH, WITH DEBT SERVICE COVERAGE.
AND, UH, THERE'S, THERE'S SEVERAL, SEVERAL LINES HERE.
UM, THE 1 7 5, THE, THE, THE GREEN LINE AT THE BOTTOM, UH, REPRESENTS OUR, OUR, UH, FINANCIAL POLICY.
UM, 1 8 5, THE, THE, THE NEXT STRAIGHT LINE GOING UP THE BLUE LINE, UH, IS OUR MANAGEMENT TARGET.
SO WE'VE GOT A LITTLE BIT OF CUSHION, UM, IN CASE REVENUES COME IN LIGHT.
UM, SO WE'VE GOT A LITTLE BIT OF CUSHIONS TO, TO TRY AND MAINTAIN COMPLIANCE.
UM, THE, UM, THE LIGHT BLUE LINE SHOWS OUR, OUR, OUR FORECAST, UM, AND, AND THE, UM, THE, THE RED LINE SHOWS OUR, UM, OUR PREVIOUS FORECAST.
SO, SO THIS KIND OF COMPARES LAST YEAR'S FORECAST TO, UH, THE, THE, THE CURRENT YEAR FORECAST.
BUT YOU CAN SEE, UH, THAT GENERALLY WE EXPECT TO MAINTAIN COMPLIANCE, UH, WITH, UM, WITH THE FINANCIAL POLICY.
UH, BUT AS WE LOOK AT HOW WE COMPARE TO OTHER PEOPLE THAT, THAT LINE AT THE TOP THAT GROWS, GOES ACROSS, THAT'S A, A MOODY'S MEDIAN.
SO, UH, THE RATING AGENCIES DO MEDIAN REPORTS, SO WHERE THEY LOOK AT ALL THE, UM, UTILITIES THAT THEY RATE, AND, UM, FOR ALL OF THE AA UTILITIES THAT, THAT THEY RATE, UM, ON AVERAGE OR MEDIAN, NOT AVERAGE, UM, THEY, THEIR, THE UTILITIES THAT THEY RATE HAVE ABOUT A 2.2, UH, DEBT SERVICE COVERAGE.
UH, WE CHOSE 1 7 5 BECAUSE WE FELT LIKE IT STRUCK, UH, AN APPROPRIATE BALANCE OF, YOU KNOW, UH, NOT NECESSARILY BEING, UH, AS HIGH AS SOME OF OUR PEERS, BUT, UH, IT BALANCED AFFORDABILITY WITH THE, THE NECESSARY, UH, INVESTMENT IN, IN OUR, UM, CAPITAL PROGRAM AND IN OUR INFRASTRUCTURE.
UM, YOU KNOW, AS WE, AS WE GET INTO, UH, THE ESCALATING YEARS OF OUR, OUR CAPITAL PROGRAM, WE, WE DO EXPECT TO, UM, COVERAGE TO, TO INCREASE, UM, IN PART BECAUSE, UH, WE'RE GONNA BE GROWING OUR, UM, OUR CASH FINANCING.
AND, AND THAT'S, UH, WE'LL TALK ABOUT THAT HERE, UH, ON ONE OF THE NEXT COUPLE SLIDES.
BUT, UH, WE'RE, WE'RE NOT QUITE AS HIGH AS SOME OF OUR PEERS, BUT, BUT THE RATING AGENCIES ARE, ARE COMFORTABLE WITH US BEING IN THIS RANGE.
SO THIS IS OUR CASH FINANCING OF, OF OUR CAPITAL PROGRAM.
AND AGAIN, UH, YOU KNOW, IF YOU LOOK AT THE TWO LINES THAT, THAT GROW, YOU KNOW, HORIZONTALLY STRAIGHT ACROSS, UH, 35% IS KIND OF OUR MINIMUM FINANCIAL POLICY TARGET UP TO 50%.
UM, AND THEN THE SAME, UH, WITH THE, UH, THE RED AND, AND THE, THE BLUE LINES SHOW, UH, YOU KNOW, OUR CURRENT AND PRIOR FORECAST NUMBERS.
NOW HERE WE ARE FORECASTING TO GO BELOW THE 35% MINIMUM.
AND, AND, AND THAT WAS A DECISION THAT WE MADE COMING OUT OF LAST YEAR'S COST OF SERVICE PROCESS.
UM, AS WE LOOKED AT, UM, AT HOW OUR CASH FINANCING OR OUR CAPITAL PROGRAM, UH, IMPACTS RATES, UM, CONSIDERING LARGE GENERATIONAL PROJECTS SPECIFICALLY, YOU KNOW, WALNUT CREEK.
BUT, BUT YOU KNOW, WE ALSO HAVE SOME, UH, OTHER LARGE GENERATIONAL PROJECTS ON THE HORIZON.
SO WHEN YOU THINK ABOUT A BILLION DOLLAR PROJECT LIKE OUR WALNUT CREEK UPGRADE
[00:40:01]
AND EXPANSION, UH, IF WE ARE ASKING OUR CUSTOMERS TO FUND 35% OF THAT, WHICH IS THE MINIMUM TARGET, UM, OVER THE, OVER THE, UM, THE PROJECT IMPLEMENTATION TIMELINE, UH, OUR, OUR CURRENT CUSTOMERS WILL BE PAYING FOR OVER A THIRD OF A BILLION DOLLAR EXPANSION FOR A PROJECT THAT'S GONNA SERVE CUSTOMERS AND FOR THE NEXT 50 YEARS, RIGHT? AND SO, UM, SO WE TALKED TO, UM, PART PARTICIPANTS IN OUR, OUR COST OF SERVICE PROCESS, AND, UM, AND WE RECOMMENDED A LOWER LEVEL OF CIP FINANCING FOR, FOR LARGE GENERATIONAL PROJECTS.AND THROUGH THAT PROCESS, WE SETTLED ON, YOU KNOW, 20% TARGET FOR LARGE GENERATIONAL PROJECTS.
SO WE STILL, YOU KNOW, WE STILL WANNA HAVE A SIGNIFICANT DOWN PAYMENT SO THAT WE'RE, YOU KNOW, OUR, OUR, OUR DEBT SERVICE PAYMENTS AREN'T AS HIGH, UM, PARTICULARLY AGAIN, WHEN YOU CONSIDER DEBT SERVICE COVERAGE.
'CAUSE EVERY DOLLAR COST AT LEAST A DOLLAR 75, UH, FROM A RATE PERSPECTIVE.
UM, BUT WE ALSO WANTED TO BE EQUITABLE AND NOT HAVE TODAY'S CUSTOMERS PAY FOR, UM, YOU KNOW, MORE THAN THEIR FAIR SHARE OF, YOU KNOW, THESE LARGE GENERATIONAL PROJECTS.
AND SO, UH, WE ANTICIPATE MODIFYING THIS FINANCIAL POLICY TO, TO HAVE KIND OF A TWO-PRONGED APPROACH.
YOU KNOW, IN GENERAL, WE WOULD STILL TARGET BETWEEN 35 AND 50% FOR, UM, THE MAJORITY OF OUR, YOU KNOW, CIP PLAN, BUT WE WOULD KIND OF PULL OUT ANY LARGE GENERATIONAL PROJECTS AND TARGET 20%.
AND SO THAT BLENDED RATE WILL BE A LITTLE BIT LOWER.
BUT UNTIL WE MAKE THAT CHANGE, UM, WE'LL BE BELOW THE 35% MINIMUM.
AND WE, UM, THE RATING AGENCIES ARE COMFORTABLE WITH THAT, BUT WE ALSO THINK IT'S IMPORTANT FROM, UH, AN AN AFFORDABILITY PERSPECTIVE AND AN EQUITY PERSPECTIVE.
UM, AND THEN DAYS CASH ON HAND, ALTHOUGH WE DO ANTICIPATE, UM, YOU KNOW, AS WE KIND OF PHASE IN RATE INCREASES, UM, WE'RE WORKING TO GET TO A STRUCTURALLY BALANCED BUDGET.
AGAIN, IF YOU THINK BACK TO THAT FUND SUMMARY IN FISCAL YEAR 26, UH, WE ANTICIPATE A, A, A DEFICIT, UM, AGAIN, TO, TO PHASE IN PARTICULARLY THE RESIDENTIAL RATE INCREASE.
UM, SO, SO THAT WE'RE NOT, YOU KNOW, WE DON'T HAVE A 14% RATE INCREASE IN 26.
UM, SO WE'LL, WE'LL USE SOME OF OUR, OUR FUND BALANCE AND OUR OPERATING CASH TO COVER THOSE COSTS AND, AND THEN, UH, HAVE A MORE PHASED IN, UH, RATE INCREASE OVER THE NEXT FEW YEARS.
UM, BUT HERE, UH, THE MOODY'S AA MEDIAN, UH, FOR, FOR OUR PEERS IS AROUND 534, UH, DAYS.
UM, YOU KNOW, WE HAVE 200, OUR TARGET IS 245 DAYS.
WE'VE BEEN ABOVE 300 DAYS FOR THE LAST SEVERAL YEARS.
UH, BUT, UM, DAYS CASH ON HAND IS REALLY A MEASURE OF IF WE TAKE OUR ANNUAL OPERATING COST AND DIVIDE IT BY 365 DAYS, YOU KNOW, ONE, ONE DAY OF OPERATIONS GENERALLY, YOU KNOW, ROUGHLY COST US ABOUT A BILLION, A A MIL, A MILLION DOLLARS, SORRY.
UH, ONE DAY OF OPERATIONS COST US ABOUT A MILLION DOLLARS.
SO, UH, WE'VE ROUGHLY HAD, UH, 300 DAYS CASH, WHICH MEANS AROUND $300 MILLION OF, OF OPERATING CASH ON HAND.
BUT AS OUR OPERATING REQUIREMENTS GROW, UM, THE ONE DAY OF CASH, IT GETS A LITTLE BIT BIGGER.
UM, AND SO THAT'S PLAYED, UH, KIND OF A ROLE IN PUSHING DOWN JUST, UM, YOU KNOW, AS A BUDGET GROWS, UM, THAT SAME AMOUNT OF CASH, UM, ISN'T AS MANY DAYS.
AND, AND SO THAT PLUS OUR USE OF CASH RESERVES TO, TO PHASE IN RATE INCREASES, UH, IS GONNA PULL DOWN A LITTLE BIT ON OUR, OUR DAYS CASH ON HAND.
UH, BUT YOU KNOW, AGAIN, IF YOU LOOK AT THE, THE, THE BLUE AND RED LINES OR, OR, YOU KNOW, OUR, OUR FORECAST, UM, YOU KNOW, WE, WE EXPECT TO, TO BE ABOVE 245 DAYS BETWEEN, UH, REALLY PROBABLY, YOU KNOW, BETWEEN 260 DAYS AND, AND AROUND 290 DAYS OVER THE FIVE YEAR FORECAST PERIOD, WHICH IS SLIGHTLY LOWER THAN WE'VE BEEN, BUT, UM, STILL IN A, IN A RANGE THAT THE RATING AGENCIES ARE COMFORTABLE WITH.
AND A RANGE THAT WE'RE COMFORTABLE WITH, UM, YOU KNOW, IN TERMS OF, OF WORKING THROUGH OUR, OUR RATE ALIGNMENT PLAN.
SO, JUST SO I UNDERSTAND, HISTORICALLY, I SEE A LOT OF THESE METRICS WERE CHANGED FISCAL YEAR 22, WHAT WAS LIKE, YOU KNOW, 'CAUSE IT WENT FROM, YOU KNOW, 30, IT WAS 20% TO 35, AND THEN WAS 60 DAYS TO 180 DAYS, WHAT? IT HAPPENED IN FISCAL YEAR 22 FOR POLICY.
SO A COUPLE THINGS COMING OUT OF, OF THE PREVIOUS DROUGHT, YOU KNOW, THE DROUGHT FROM, UH, 2008 TO 2015, UM, OUR FINANCIAL CONDITION
[00:45:01]
WAS STRAINED, UM, IN FACT IN 2014.UH, SO WE MAINTAINED, YOU KNOW, SEPARATE FUNDS FOR OUR WATER ACTIVITIES AND OUR WASTEWATER ACTIVITIES.
UM, WATER REVENUES ARE HEAVILY WEATHER DEPENDENT.
UM, AND SO AS WE WENT THROUGH THAT DROUGHT, UM, YOU KNOW, WE STRUGGLED TO, TO, UH, HAVE A GOOD ALIGNMENT IN TERMS OF OUR RATES AND REVENUES.
OUR COSTS ARE RELATIVELY FIXED.
UM, AND IN 20, WE, WE SLOWLY SAW AN EROSION, PARTICULARLY IN OUR CASH BALANCES ON THE WATER SIDE.
UM, WE ACTUALLY GOT TO A POINT WHERE OUR WATER CASH WAS NEGATIVE IN 2014, SO WE WERE KIND OF BORROWING MONEY FROM WASTEWATER.
UM, WASTEWATER IS MORE STABLE.
UM, BUT, UM, AND, AND THEN AF YOU KNOW, AS WE CAME OUT OF THE DROUGHT, WE HAD A PREVIOUS COST OF SERVICE STUDY IN 2016 WHERE WE SET THESE MANAGEMENT TARGETS.
UM, BUT, BUT YOU KNOW, GOING THROUGH THAT PREVIOUS DROUGHT AND GOING THROUGH THE PREVIOUS COST SERVICE STUDY, UM, AND, AND LOOKING AT MEDIANS, YOU KNOW, WE RECOGNIZE THAT OUR FINANCIAL POLICIES WEREN'T STRONG ENOUGH, UM, TO PROVIDE A MINIMUM LEVEL OF GUIDANCE, UM, AND TARGETS TO, TO MAINTAIN, UM, YOU KNOW, A STRONGER FINANCIAL CONDITION EVEN IN, YOU KNOW, WHETHER IT'S, UH, DROUGHT CONDITIONS OR, UM, SO, UH, COMING OUT OF THE LAST COST OF SERVICE STUDY, WE, WE HAD PLANNED TO UPDATE, UH, YOU KNOW, OUR, UH, FINANCIAL POLICIES TO STRENGTHEN THEM AND PROVIDE BETTER GUIDANCE, YOU KNOW, UH, NOT JUST FOR, FOR US AS IN TERMS OF, OF MANAGEMENT TODAY, BUT FOR, UH, OUR FUTURE MANAGEMENT WHEN, WHEN WE'RE GONE.
UM, AND THEN THE, YOU KNOW, AND THEN, UH, COVID HIT.
AND, UM, SO, SO WE DIDN'T, WE DIDN'T GET THERE UNTIL 2022, BUT IT WAS KIND OF A FIVE YEAR PROCESS COMING OUT OF THE, THE PREVIOUS COST OF SERVICE STUDY THAT ENDED IN 2017.
AND THEN, UM, AND THIS JUST A, A ANOTHER LOOK AT KIND OF WHERE WE'VE BEEN IN TERMS OF, OF OF DAY'S CASH ON HAND, YOU SEE, UM, UM, AND, AND IT SHOWS HOW WE HAD INCREASED TO, UH, YOU KNOW, A A A PEAK OF OVER 330 DAYS.
AND THAT WAS COMING OUT OF 2023 WHEN, YOU KNOW, AGAIN, WE SAW EXCESS REVENUES, UM, IN 2023, WHICH WAS A VERY HOT AND DRY YEAR, BUT LAKE LEVELS WERE, UH, HIGHER THAN THEY WERE, OR HIGHER THAN THEY ARE TODAY.
AND SO, UM, MOST OF THAT BIG DROP WAS, YOU KNOW, PLANNED USE.
WE USED ABOUT $40 MILLION OF OPERATING CASH TO, TO DE FEES DEBT.
UM, UH, BUT AS WE, YOU KNOW, SINCE THEN WE'VE BEEN RELATIVELY STABLE, YOU KNOW, MORE AT THE LOWER THREE, YOU KNOW, UH, LOW THREE HUNDREDS HIGH, TWO NINETIES IS KIND OF WHERE WE ARE.
UM, BUT IT FLUCTUATES BASED ON, UH, YOU KNOW, WHEN THE TIMING OF EXPENDITURES AND, AND, AND REVENUES.
UH, YOU KNOW, COMING OUT OF THE SUMMER IS WHEN WE, UM, WE SEE OUR HIGHEST LEVEL OF REVENUES BECAUSE, YOU KNOW, DEMAND IS HIGHER.
UM, BUT, UM, AND THEN THROUGHOUT THE YEAR WE'LL HAVE PEAK PERIODS OF SPENDING.
UM, BUT THAT JUST GIVES YOU A SENSE OF OUR OVERALL LEVEL OF, OF MONTHLY DAYS, CASH ON HAND FOR THE LAST FEW YEARS.
SO AGAIN, UM, YOU KNOW, WE ARE, WE'RE WORKING THROUGH RATE INCREASES NECESSARY TO COVER OUR, UH, INCREASING OPERATING, BUT PARTICULARLY OUR INCREASING CAPITAL COSTS.
WE CONTINUE TO MONITOR, UH, DROUGHT AND THE LOCAL ECONOMY, PARTICULARLY AS RELATED TO CAPITAL RECOVERY FEES AND, AND, YOU KNOW, CONNECTION FEES, UH, TO, TO THE SYSTEM.
UM, CUSTOMER ASSISTANCE PROGRAM GROWTH, UH, ALTHOUGH IT'S DOUBLED IN THE LAST COUPLE OF YEARS IS KIND OF STABILIZED.
WE DO EXPECT, UH, CONTINUED GROWTH.
UH, I THINK AUSTIN ENERGY IS LOOKING TO ADD ABOUT ANOTHER 20,000 CUSTOMERS AND LOOKING AT ADDITIONAL PROGRAMS. THEY'RE, UM, HAVE THEY DONE THE SCHOOL LUNCH PROGRAM YET OR IS THAT ONE ON THE HORIZON? YES.
SO THEY HAVE DONE THE SCHOOL LUNCH PROGRAM, UH, FOR FREE LUNCH.
THOSE THAT GET FREE LUNCH, UM, CAN ENROLL IN THE CUSTOMER ASSISTANCE PROGRAM.
THEY ARE ANTICIPATING, UH, AN INCREASE BEGINNING THIS MONTH, UM, AS THEY, UM, WORK THROUGH THE COUNCIL INITIATIVES ON EXPANDING ENROLLMENT.
SO CURRENTLY WE HAVE OVER 50,000 CUSTOMERS ENROLLED IN AUSTIN WATER, AND WE'RE ANTICIPATING SOMEWHERE AROUND 80,000 IN TOTAL, WHICH IS WONDERFUL BECAUSE WE ARE HELPING THOSE THAT, UM, ARE LOW INCOME AND THAT ARE MOST VULNERABLE.
UM, AND THEN, UH, YOU KNOW, AGAIN, FROM AN EXPENDITURE PERSPECTIVE, UH, INFLATIONARY
[00:50:01]
INCREASES PARTICULARLY, UM, IN, IN, YOU KNOW, SEVERAL AREAS, YOU KNOW, OUR, OUR BRASS PARTS ARE HAVE, HAVE GONE UP QUITE A BIT AND, YOU KNOW, SUPPLY IS STILL LOW.UH, BUT, BUT YOU KNOW, SOME OF OUR, YOU KNOW, THE COST OF, OF, OF BRASS IN SIMILAR PARTS HAS, HAS GONE UP.
CHEMICAL COSTS HAVE GONE UP SIGNIFICANTLY OVER THE LAST SEVERAL YEARS.
UM, THE, THE GROWING CAPITAL PLAN AND THE CASH FINANCING AMOUNT AND JUST, UH, AND, YOU KNOW, I'LL, I'LL GET THROUGH THE SLIDE AND THEN MAYBE, UH, GO BACK TO, UM, OUR, OUR FUND SUMMARY.
UM, BUT, UM, OUR, UM, OUR CASH FINANCING OF CIP, YOU KNOW, EVEN HISTORICALLY WHEN WE WERE ABOVE THAT 35%, UH, YOU KNOW, THAT NUMBER WAS MORE IN THE $60 MILLION RANGE ANNUALLY FOR, FOR THE UTILITY WHERE WE'RE, YOU KNOW, WITH THE GROWING CAPITAL PLAN, EVEN AT BELOW 35%, YOU KNOW, WE'RE GONNA BE IN THE 90, 95, A HUNDRED MILLION DOLLARS RANGE, UM, TO MAINTAIN, YOU KNOW, OUR TARGET LEVELS, UM, JUST BECAUSE THE PLAN IS THAT MUCH BIGGER.
UM, SO, SO OUR DEBT MANAGEMENT STRATEGIES ARE GONNA CONTINUE TO BE IMPORTANT.
UH, WE'RE WORKING TO, TO SMOOTH PEAK, YOU KNOW, DEBT SERVICE COVERAGE IN 28.
UM, AND THEN WHEN YOU LOOK, WHEN YOU THINK ABOUT OUR, OUR, YOU KNOW, DEBT SERVICE REQUIREMENTS, IT, IT'LL PEAK, YOU KNOW, GETTING INTO 2028 AND THEN KIND OF DROP OFF.
SO WHEN WE CAN GET OVER THAT PEAK, UM, THERE'S CAPACITY IN THE FUTURE YEARS TO TAKE ON THE, THE DEBT SERVICE THAT WE'LL BE ADDING WITH OUR GROWING CAPITAL PROGRAM.
UM, IT'S LIKE, UH, YOU KNOW, IF YOU'VE GOT TWO CAR PAYMENTS AND YOU GET RID OF ONE, UM, YOU KNOW, UH, WHEN YOU GET RID OF ONE, THEN YOU, IF YOU, IF YOU WANT ANOTHER ONE, YOU CAN ADD BACK AND KIND OF ROUGHLY BE AT THE SAME LEVEL, YOU KNOW, AS WE GET INTO 28 TO 30 AS WE GET PAST THAT PEAK, YOU KNOW, WE'LL, WE'LL BE AT A POINT WHERE WE'RE BETTER ABLE TO TAKE ON DEBT.
AND SO OUR DEBT MANAGEMENT PLAN, YOU KNOW, OVER THE NEXT FEW YEARS, IT'S GONNA CONTINUE TO BE REALLY IMPORTANT.
UM, AND ALTHOUGH WE DO, YOU KNOW, EXPECT TO SEE A, A DROP IN CASH RESERVES AND, AND WE'LL, WE'LL BE BELOW THE FINANCIAL POLICY LEVEL FOR OUR CASH FINANCING, UM, WHAT WE'RE GONNA BE MONITORING MOST CLOSELY IS, IS THAT DEBT BURDEN AND, AND MAKE, TRYING TO MANAGE, UH, LEVERAGE.
AND SO OUR RATES ARE GONNA HAVE TO GROW AS OUR DEBT SERVICE GROWS, BUT OUR DEBT MANAGEMENT EFFORTS WILL HELP MITIGATE THAT.
AND, AND SO WE THINK, UM, YOU KNOW, OVER THE NEXT FIVE YEARS, YOU KNOW, WE DON'T ANTICIPATE GETTING TO THAT 10 TIMES LEVERAGE.
YOU KNOW, WHERE, WHERE, UM, OUR, OUR, OUR TOTAL DEBT, OUTSTANDING DEBT SERVICE IS 10 TIMES OUR ANNUAL REVENUES.
WE EXPECT TO BE MORE IN THE, UM, SEVEN TIMES, WHICH, YOU KNOW, I THINK THE RATING AGENCIES WILL UNDERSTAND BASED ON THE INVESTMENTS WE'RE MAKING.
YOU KNOW, THEY, THEY, THEY WANT US TO MANAGE OUR, OUR, OUR DEBT LEVELS, BUT THEY ALSO WANT US TO INVEST IN OUR INFRASTRUCTURE.
I THOUGHT WE HAD A QUESTION SLIDE.
SO PRETEND THERE'S A QUESTION SLIDE HERE,
SO NOW WE'RE OPEN TO ANY QUESTIONS.
IT'S FUNNY 'CAUSE ON MY SCREEN IT SAYS QUESTIONS
UM, BUT WE'RE HAPPY TO ANSWER ANY QUESTIONS YOU MAY HAVE TRYING TO FIND.
SO THE, UM, YOU KNOW, FROM A, FROM A VARIABILITY, DROUGHT RELATED STANDPOINT, UM, YOU KNOW, WITH AUSTIN, YOU KNOW, CHANGING THEIR CONSERVATION STAGES TO WATERING ONCE A WEEK, I GUESS I'M JUST WONDERING, YOU KNOW, IF, IF, BECAUSE AS WE GO THROUGH THE STAGES, YOU KNOW, IT JUST CHANGES THE TIME UNTIL WE GET TO, WHAT WAS IT, STAGE FOUR? I GUESS MAYBE IT IS THAT IT LIKE CUTS OFF ALL IRRIGATION.
SO, YOU KNOW, THEY'VE BEEN WATERING ONCE A WEEK, LET'S CALL IT THAT FOR MANY YEARS NOW.
SO, YOU KNOW, JUST AS THE DROUGHT COMES ALONG, UM, YOU KNOW, YOU'RE SAYING THAT WE'RE MOVING, YOU'RE SELLING MORE WATERS, SO, YOU KNOW, BUT IF WE'RE STICKING WITH THESE, IF PEOPLE ARE, YOU KNOW, STICKING TO THIS, LIKE SHOULD THERE NOT BE SO MUCH OF A VARIABILITY FROM A DROUGHT RELATED, UH, STANDPOINT, UNTIL WE GET TO A DRASTIC THERE, THERE'S NO IRRIGATION.
YES, VARIABILITY HAS, IS, IS GREATLY REDUCED.
UM, SO IF YOU THINK ABOUT THE PREVIOUS DROUGHT, THE 2008 THROUGH 2015 DROUGHT, WHEN AT THE BEGINNING OF THAT DROUGHT, UM, OUR AVERAGE RESIDENTIAL DEMAND WAS ABOUT 8,800 GALLONS A YEAR.
SO, UM, SO WHAT THAT MEANT WAS WE HAD A, A LOT OF IRRIGATION DEMAND.
'CAUSE DOMESTIC DEMAND IS RELATIVELY STABLE, YOU KNOW, UM, COOKING, WASHING CLOTHES,
[00:55:01]
YOU KNOW, FLUSH TOILETS, SHOWERS, THAT, THAT'S PRETTY STABLE.UM, SO AT THE BEGINNING OF THE LAST DROUGHT WE STARTED ABOUT 8,800 GALLONS AVERAGE RESIDENTIAL DEMAND.
UM, BY THE END OF THE DROUGHT WE, WE GOT TO ABOUT 5,800.
UM, AND, AND, AND DURING THAT TIME, WE IMPLEMENTED THE, THE ONE DAY A WEEK, UH, WATERING.
UM, SINCE THEN IT'S BEEN RELATIVELY STABLE.
WE, WE'VE BEEN PLUS OR MINUS 200 GALLONS OF THAT 5,800 AVERAGE.
SO IN, YOU KNOW, EVEN IN A, YOU KNOW, WHAT, WHAT WE CALL, YOU KNOW, A, A PEAK YEAR OR, OR YOU KNOW, YEARS WHERE WE HAVE HAD EXCESS DEMAND, YOU KNOW, IT MIGHT GET UP TO 6,000 GALLONS, UM, BECAUSE WE'RE STILL DOING THE ONE DAY A WEEK, BUT PEOPLE ARE, ARE TAKING ADVANTAGE OF, OF, OF, YOU KNOW, THOSE DAYS WHEN THEY'RE AVAILABLE.
UM, AND AS WE'VE GOTTEN INTO DROUGHT CONDITIONS OR WHEN IT'S BEEN WET, UM, YOU KNOW, IT'S BEEN, YOU KNOW, MAYBE 5,500.
UM, SO THAT HAVING THAT CONSISTENT, UM, THE, THE CONSERVATION STAGES BE CONSISTENT AND HAVING A CONSISTENT ONE DAY A WEEK HELPS WITH REVENUE STABILITY.
UM, YOU KNOW, I MENTIONED IN THE PREVIOUS DROUGHT, I MEAN THERE WERE TWO YEARS WHERE WE WERE 40 AND $50 MILLION BELOW BUDGET FROM A REVENUE PERSPECTIVE.
UM, BECAUSE BECAUSE THE DEMAND DROPPED SO QUICKLY.
UM, AND, UM, ALTHOUGH, YOU KNOW, WE WOULD LIKE OUR CUSTOMERS TO, UM, TO CONSERVE, YOU KNOW, PARTICULARLY AS WE ARE IN EXTREME DROUGHT CONDITIONS, UM, IT'S EASIER FOR US TO, TO FORECAST AND, AND MANAGE 'CAUSE IT IS RELATIVELY STABLE.
UM, AND EVEN IF OUR CUSTOMERS, EVEN WHEN OUR CUSTOMERS PULL BACK SOME, UM, YOU KNOW, IT'S NOT A HUGE DROP BECAUSE, UH, MOST OF OUR DEMAND ACTUALLY IS DOMESTIC DEMAND.
UM, AND, AND THE THREE OR FOUR MONTH PERIOD WHERE WE SEE THE IRRIGATION DEMAND, UM, YOU KNOW, ALTHOUGH IT'S, IT'S SIGNIFICANT DURING THOSE PERIODS ON AN ANNUAL AVERAGE BASIS, IT'S DOESN'T MOVE THE NEEDLE VERY MUCH.
UM, WE ALSO HAVE THE WATER REVENUE STABILITY RESERVE FUND THAT WE HAVE NOT TAPPED INTO, AND THAT IS AVAILABLE TO US IF, UH, WE START TO SEE EXTREME DROPS IN REVENUE.
'CAUSE I MEAN, I KNOW THAT'S ON, I CAN SEE THAT ON MY BILL, YOU KNOW, RIGHT.
SO EXPLAIN THAT, WHAT YOU JUST MENTIONED ABOUT TAPPING INTO THAT.
YEAH, THAT, THAT REVENUE STABILITY FUND ACTUALLY, UH, WAS CREATED DURING, DURING THAT PREVIOUS DROUGHT, UM, AS A WAY TO, UM, YOU KNOW, BECAUSE DURING THAT DROUGHT AS, AS DEMAND DROPPED FROM THE 8,800 GALLONS DOWN TO 5,800, UM, EVERY YEAR WE WERE TRYING TO PROJECT HOW MUCH DEMAND WAS GONNA DROP, AND, AND WE WERE TRYING TO SET A RATE INCREASE TO COMPENSATE FOR THAT DROP.
UM, AND, AND FRANKLY, WE, YOU KNOW, WE COULDN'T, WE KEPT MISSING IT, RIGHT? UH, SO IN 2013 AND 2014, WE HAD, YOU KNOW, 40 AND $50 MILLION REVENUE SHORTFALLS.
UM, SO WE CREATED, UM, AND MAYBE EVEN SOONER THAN THAT, I THINK THERE MAY HAVE BEEN ONE IN 2012.
UM, BUT, UM, IN 2013 WE CREATED THIS, UH, REVENUE STABILITY RESERVE FEE, UH, WHICH IS, UH, WHICH AT THE TIME WAS ABOUT 19 CENTS PER THOUSAND GALLONS, UM, SO THAT WE COULD CREATE A RESERVE.
UM, THAT RESERVE IS INTENDED TO, TO HAVE ABOUT 120 DAYS OPERATING CASH.
SO IF YOU THINK ABOUT THE DAY'S CASH CALCULATION OF, YOU KNOW, WHAT, TODAY IS ABOUT A MILLION DOLLARS.
UM, SO WE WANT ABOUT $120 MILLION WITH TODAY'S, YOU KNOW, DAY'S CASH, UM, IN THAT RESERVE FUND.
UH, BUT THAT WAS CREATED AS, YOU KNOW, DURING THAT LAST DROUGHT SO THAT WE WOULDN'T HAVE TO CHASE THE RATES THE WAY WE DID.
AND, UH, IF WE EXPERIENCE A REVENUE SHORTFALL, WE COULD TAP INTO A REVENUE SHORTFALL OF AT LEAST 10%.
WE COULD TAP INTO THAT RESERVE, UM, SO THAT WE CAN AGAIN, TRY AND MAINTAIN MORE STABLE RATES INSTEAD OF, UH, HAVING A BIGGER RATE INCREASE, YOU KNOW, TO OFFSET A DROP IN DEMAND, WE CAN TAP INTO THE RESERVE FUND TO COVER COST AND, AND JUST HELP STABILIZE RATES.
SO THE, ONCE WE GOT UP TO THAT 120 DAYS, LIKE, I GUESS, REVENUES THAT ARE COMING IN ON THAT LINE ITEM, I GUESS LET'S CALL IT THAT, THAT'S JUST GOING INTO NOW THE GENERAL REVENUES? WELL, NO, IT'S, IT'S ACTUALLY TO MAINTAIN IT BECAUSE, BECAUSE OUR, OUR OPERATING REQUIREMENTS
[01:00:01]
CONTINUE TO GROW, UM, AT A RATE OF ABOUT FIVE.'CAUSE THE, THE NEW RATE IS 5 CENTS, AND IT'S BEEN 5 CENTS SINCE ABOUT 2018.
UM, SO 5 CENTS IS MORE OF THE MAINTENANCE LEVEL.
IT'S JUST TO MAINTAIN THAT 120 DAYS.
'CAUSE IF YOU DON'T KEEP SUPPLEMENTING IT AS YOUR, AS YOUR, UM, YOU KNOW, COST TO OPERATE, GO, GO UP, THEN YOU WOULD GET BELOW THE 120 DAYS.
WE'RE ACTUALLY BELOW 120 DAYS NOW WE'RE AT ABOUT ONE 17.
AND SO SOMETIMES WE'LL SUPPLEMENT THAT WITH OPERATING CASH TO, TO MAINTAIN IT RATHER THAN CHANGE THE, CHANGE THE RATE.
YEAH, AND I'LL ADD TO THAT, UM, IT IS RESTRICTED.
SO, UH, IF WE WERE TO USE THOSE FUNDS, WE'D NEED TO GO TO COUNCIL, UH, TO USE THEM.
SO THEY ARE RESTRICTED IN AN ACCOUNT, BUT THAT DOES, UM, HELP US LEVERAGE IF WE HAVE SIGNIFICANT SHORTFALLS IN ANY A GIVEN YEAR DUE TO EXTREME DROUGHT.
UM, SO DO WE HAVE A, SOMETHING FOR THE BUDGET SCHEDULE? DO WE HAVE A, WE CAN TALK.
SO I DO WANNA TALK A A LITTLE BIT ABOUT, UM, THIS PROCESS.
UM, SO HISTORICALLY, UM, WE'VE BEEN ABLE TO, UM, KIND OF GIVE A, A HEADS UP ABOUT SOME OF THE THINGS THAT ARE COMING IN, IN OUR BUDGET PROCESS.
UM, THE, THE BUDGET OFFICE AND, AND CITY MANAGEMENT HAS, UM, UH, YOU KNOW, WANTING US TO, TO, TO LIMIT WHAT WE SHARE IN TERMS OF BUDGET SPECIFICS TO, UM, TO INFORMATION THAT'S, THAT'S PUBLICLY AVAILABLE NOW, THE FORECAST WE SUBMITTED, UH, UH, WE SUBMITTED BACK IN MARCH AND IT WAS PRESENTED TO COUNCIL IN APRIL.
SO, SO OUR FORECAST HAS BEEN, UH, YOU KNOW, IS PUBLICLY AVAILABLE, UM, FOR THE BUDGET ITSELF.
UM, WE'VE, WE SUBMITTED OUR BUDGET, UH, TO THE BUDGET OFFICE IN, UM, IN MAY.
UH, BUT IT WON'T BE PRESENTED TO COUNSEL UNTIL JULY.
SO WE'RE NOT, UM, GOING TO BE ABLE TO SHARE SPECIFICS ABOUT OUR BUDGET.
WE CAN ANSWER QUESTIONS AND GENERAL QUESTIONS.
UM, AND SO I THINK IN THAT WAY, THIS, THIS PROCESS, UH, WILL BE A LITTLE BIT DIFFERENT.
WHAT WE'VE, WHAT WE'VE TRIED TO DO WAS HIGHLIGHT, YOU KNOW, SOME, SOME BIG CHANGES AND, AND ALTHOUGH I WILL SAY THAT WE TRY AND CAPTURE THOSE CHANGES IN OUR FORECAST, SO, SO, YOU KNOW, WE, WE REALLY TRY AND ALIGN OUR FORECAST WITH, YOU KNOW, WHERE WE THINK WE'RE GONNA BE FROM A BUDGET BUDGET PERSPECTIVE.
SO IF THERE WAS SOMETHING THAT IS IN OUR FORECAST, WE CAN TALK TO THAT.
UM, AND WE DIDN'T HAVE, UH, A, A TON OF CHANGES, UM, FROM FORECAST TO BUDGET.
THERE WERE A FEW, UM, THAT, YOU KNOW, WE WON'T NECESSARILY BE ABLE TO GET INTO SOME OF THOSE DETAILS.
UH, BUT, BUT JUST IN TERMS OF HOW, UM, THIS COMMITTEE HAS WORKED, UM, IN THE PAST WE'VE, YOU KNOW, PROVIDED AN INITIAL FORECAST OVERVIEW LIKE THE ONE WE JUST DID.
UM, AND THEN WE'VE KIND OF DUG INTO TO A COUPLE OF THINGS.
AND, AND SO WHAT WE CAN TALK TO, UM, IN A, IN A FUTURE MEETING, AND WE'VE GOT SOME TIME, UH, BEFORE, UM, THE BUDGET IS SCHEDULED TO BE ADOPTED IN, IN AUGUST, PRESENTED TO COUNCIL IN, IN JULY.
UM, AND WE'VE GOT SOME TIME TO, UH, BETWEEN NOW AND THEN, BUT WE CAN TALK THROUGH, UH, 'CAUSE WE DO HAVE A LIST OF SIGNIFICANT CHANGES THAT WERE INCLUDED IN OUR FORECAST.
UM, CERTAINLY WE CAN TALK ABOUT, UM, YOU KNOW, OUR, UH, THE FORECAST INCLUDED, UH, YOU KNOW, OUR, UM, CIP PLAN.
AND SO HISTORICALLY WE'VE PROVIDED INFORMATION ABOUT OUR CIP PLAN AND SOME OF THOSE SIGNIFICANT CHANGES.
AND SO AS WE THINK ABOUT, UH, YOUR KIND OF NEXT STEPS, IT WOULD BE GETTING INTO SOME OF THOSE DETAILS.
SO I GUESS LAST YEAR WE HAD, WE PREPARED, I GUESS A, A SUMMARY AND A LETTER AND A RECOMMENDATION TO COUNCIL.
WILL WE NOT BE DOING THAT THIS YEAR AS WELL? I THINK WE WOULD STILL SEEK, UM, A, A RECOMMENDATION.
UM, SO WE'RE, WE'RE PLANNING TO, UM, AGAIN, UH, BUDGET SCHEDULED TO BE ADOPTED, UH, MID-AUGUST.
UM, BUT PRESENTED TO COUNCIL JULY 15TH, AND I THINK WE MEET JULY.
UM, I THINK WE MEET THE DAY AFTER JULY 6TH.
SO, UM, WE PLAN TO TAKE TO FULL COMMISSION.
UM, WE'LL, WE'LL PRESENT THE PROPOSED BUDGET, UM, AND AS SOON AS, AS SOON AS IT'S RELEASED TO COUNCIL, UH, WE'LL SEND IT OUT TO ALL OF THE COMMISSIONERS.
UM, BUT THEN IT'LL BE A REALLY TIGHT, LIKE THE NEXT DAY, UH, TURNAROUND FOR, FOR A RECOMMENDATION.
UM, BUT, BUT LIKE I SAID, BECAUSE YOU KNOW, WE REALLY TAKE THE
[01:05:01]
APPROACH THAT OUR FORECAST IS KIND OF THE BASIS FOR OUR BUDGET THAT WE SHOULD BE ABLE TO TALK THROUGH, YOU KNOW, ANY, ANY SIGNIFICANT CHANGES BECAUSE WE'VE TRIED TO INCORPORATE THEM IN THE FORECAST.UH, THERE'S SOME SMALLER THINGS THAT MAYBE DIDN'T MAKE IT.
UM, BUT WE, WE GO THROUGH A PROCESS WHEREBY WE, UH, WE ASK ALL OF OUR DIVISION MANAGERS AND PROGRAM MANAGERS, UM, TO, TO TRY AND GIVE US A SENSE OF, UH, SIGNIFICANT CHANGES THAT THEY THINK ARE GONNA HAPPEN FOR BUDGET, BUT WE TRY AND PULL THOSE IN FOR FORECAST.
AND SO, UM, UM, AND BECAUSE THE FORECAST, UH, IS PUBLICLY AVAILABLE, WE CAN TALK THROUGH ANY OF THOSE CHANGES.
SO WE DO HAVE ANOTHER MEETING OF THIS COMMITTEE SET FOR, WE TYPICALLY HAVE HAD TWO OR THREE MEETINGS.
AND, UM, SO, YOU KNOW, UM, BASED ON AVAILABILITY, YOU KNOW, IF WE, UH, I, I, I WOULD THINK WE WOULD WANT TO HAVE AT LEAST ONE OTHER MEETING WHERE WE GET INTO A LITTLE BIT MORE OF THE DETAILS ON, ON CIP AND THEN SOME OF THE SIGNIFICANT CHANGES THAT WERE INCLUDED IN OUR FORECAST.
I CAN'T FIND THE EXACT SLIDE THAT THEY PERTAIN TO, BUT I THINK IN GENERAL, UM, THAT ONE WITH THE BLUE BARS WE WERE SHOWING, I THINK IT WAS ON SLIDE 11, THE, UM, DO YOU HAVE A FORECAST FOR 30 31? LIKE IS IT STEADY? ARE YOU, ARE WE TRYING TO KEEP THEM AS STEADY AS, AS WE CAN MOVING FORWARD, OR IS THAT GONNA GO BACK DOWN, OR WHAT, WHAT DO YOU THINK WE, WE DO THINK IT WOULD BE, SO ARE YOU TALKING ABOUT THE, THE RATE ALIGNMENTS? I THINK WE'RE TALKING ABOUT THE RATE, UM, THAT SHOWS THE, THE REVENUES VERSUS THE EXPENSES.
YEAH, THAT'S THE, UH, RATE ALIGNMENT SLIDE, UH, SLIDE NUMBER SEVEN.
UM, AND I'LL LET JOSEPH SPEAK ON, ON 31.
UM, SO AGAIN, OUR, OUR FIVE YEAR FORECAST IS, IS, UM, GOES THROUGH 30.
UM, AND, AND SO IN TERMS OF, OF WHAT WE PROVIDED TO THE BUDGET OFFICE, THIS IS, UM, THIS IS AS FAR OUT AS, AS WE PROVIDED, BUT YEAH, WE, WE LOOK, UM, WE, WE, WE LOOK AT THE NEXT FIVE YEARS BEYOND THAT.
AND, AND I THINK AT, AT, YOU KNOW, AFTER WE GET TO 30, I WOULD EXPECT, UM, YOU KNOW, DEPENDING ON WHAT'S HAPPENING WITH INFLATION IN THE ECONOMY, UM, THAT WE WOULD, WE WOULD BE MORE IN AN INFLATIONARY RATE INCREASE ENVIRONMENT THAT, THAT 30 GETS US TO THAT, THAT ALIGNMENT THAT, UM, WE'RE, YOU KNOW, UH, THE ALIGNMENT THAT WE'RE TRYING TO SEEK WITH RATES AND REVENUES AND, AND, AND OUR LEVEL OF CIP SPENDING.
UM, YOU KNOW, THINKING BACK TO THE, TO THE LAST DROUGHT, YOU KNOW, AS WE WERE CHASING THAT, YOU DROPPING DEMAND, WE WERE KIND OF DOING THE SAME THING, BUT, UM, WE WERE TRYING TO, TO MATCH IT UP WITH, WITH DEMAND, SINCE DEMAND HAS BEEN STABLE, IT'S REALLY ABOUT OUR COST AND OUR INVESTMENT IN, IN CIP, AND, AND SO IT, AS WE GET TO 30, WE THINK, UM, THAT THAT'S THE POINT WHERE, YOU KNOW, IF INFLATION IS IN THE TWO TO 3%, WHICH IT HISTORICALLY IS KIND OF A HISTORIC AVERAGE, THAT WE WOULD BE MORE IN THAT RANGE IN TERMS OF FUTURE RATE INCREASES.
AND I'LL ADD THAT, UM, THE FURTHER OUT YOU GO, THE MORE UNCERTAINTY, UM, ESPECIALLY SINCE, UH, A LOT OF OUR REVENUES IS WEATHER DRIVEN AS WELL.
SO, UM, BESIDES THE ECONOMIC IMPACTS, UH, THAT, BUT ALSO AS WE, UM, GO OUT AND WE SEEK OTHER FUNDING OPPORTUNITIES LIKE THE, UH, WFI ALONE THAT HAS THE ABILITY TO RESTRUCTURE SOME OF THE DEBT THAT WE BRING ON WITH, UH, THE WALNUT CREEK WASTEWATER TREATMENT PLANT.
UM, I GUESS JUST BIG PICTURE, WHEN YOU TALK ABOUT THE PREVIOUS DROUGHT BACK 2015, THERE WERE A LOT LESS PEOPLE IN AUSTIN, RIGHT? IN 2015.
UM, YOU KNOW, THE REASON REBUILDING A WALNUT AND EXPANDING IS BECAUSE WE HAVE MORE PEOPLE COMING.
WE EXPECT MORE PEOPLE TO CONTINUE TO COME, UM, AND MORE PEOPLE WILL USE MORE WATER, THEY'LL CONSERVE, BUT IT'LL STILL BE MORE, UM, IN TERMS OF, OF THAT, I MEAN, WHERE DO YOU SEE THAT GOING? WELL, WE DO SEE, UM, SO GROWTH HAS SLOWED.
I MEAN, WE, WE CONTINUE TO SEE PEOPLE COMING AND, AND WE'RE ADDING CUSTOMERS.
UM, YOU KNOW, DURING 2010 TO 2020, WE, WE WERE SEEING CUSTOMER GROWTH AT ABOUT 1.5%.
WE'RE, WE'RE NOW AROUND ONE 1.1%, UM, ON, ON AVERAGE.
UM, BUT YEAH, PEOPLE, PEOPLE ARE STILL COMING.
UM, I THINK, UM, AND WE'RE PLANNING FOR CONTINUED, UH, GROWTH IN THE ONE TO ONE POINT HALF PERCENT.
UM, AND, AND YOU KNOW, I THINK THAT THAT'S RELATIVELY STABLE, YOU KNOW, UM, BUT I, YOU KNOW, IN TERMS OF WHO WE SERVE, I KNOW THOUGH THAT A LOT OF FOLKS ARE
[01:10:01]
MOVING MORE IN, IN, IN THE SUBURBS AND THE SUBURBS ARE GROWING FASTER THAN, YOU KNOW, THE CITY, YOU KNOW, WITHIN THE CITY LIMITS.UM, WHICH, WHICH ISN'T A BAD THING, YOU KNOW, IT MEANS THERE'S A LITTLE BIT LESS DEMAND.
THERE'S STILL DEMAND ON OUR SYSTEM, BUT A LITTLE BIT LESS NEW DEMAND ON OUR SYSTEM, UM, THAN, THAN MAYBE SOME OF OUR, UH, NEIGHBORING COMMUNITIES.
WHERE DO YOU HAVE PROJECTED IN TERMS OF THE INDUSTRIAL GROWTH IN THE CITY? UM, WE, WE ARE SEEING SOME, WE'RE SEEING, UM, INTEREST IN BRINGING DATA CENTERS.
UM, UH, WE, YOU KNOW, WE KIND OF GET A HEADS UP IF THERE'S, YOU KNOW, AN INDUSTRIAL CUSTOMER, UM, YOU KNOW, ON, ON THE HORIZON.
WE'RE NOT HEARING ABOUT ANY BIG ONES, ALTHOUGH SAMSUNG HAS BEEN TALKING ABOUT, UH, EXPANDING, UM, POTENTIALLY, YOU KNOW, WITHIN AUSTIN.
BUT CERTAINLY WITHIN, WITHIN THE, UM, YOU KNOW, WITHIN THE MSA, UM, WITHIN THE METROPOLITAN AREA, UM, WE, WE ARE NOT AWARE OF ANY, ANY BIG, UM, ADDITIONS THAT ARE CURRENTLY ON THE HORIZON.
BUT WE KNOW THAT AUSTIN IS, UM, YOU KNOW, A POPULAR PLACE TO, EXCUSE ME.
BUT FOR THOSE, YOU KNOW, AS WE, UM, WE, WE ARE GENERALLY AWARE, YOU KNOW, A COUPLE OF YEARS IN, IN ADVANCE, YOU KNOW, IT TAKES A FEW YEARS TO, UM, TO, TO MOVE AND EXPAND.
UM, SO IF THERE'S ANY, YOU KNOW, WE'RE NOT AWARE OF ANY, ANYTHING BIG ON THE HORIZON, BUT, UH, YOU KNOW, WE TYPICALLY HAVE THREE TO FIVE YEARS, UH, KIND OF A HEADS UP FOR THOSE KIND OF THINGS.
AND SO WE'RE ABLE TO INCORPORATE THOSE, UH, NEW ADDITIONS INTO OUR FORECAST, UH, YOU KNOW, IN SOMEWHAT IN ADVANCE, UH, TO THE EXTENT THAT, UM, YOU KNOW, THEY KINDA SHARE THE, THE DETAILS IN TERMS OF, OF THEIR ANTICIPATED DEMAND.
AND I'LL ADD TO THAT, THERE WAS A COUNCIL RESOLUTION THAT WAS RECENTLY PASSED IN APRIL, UH, JUST, UM, UH, INFORMING THE CITY MANAGER TO, TO WORK WITH DEPARTMENTS REGARDING, UM, ANY RESOURCES OR IMPACT OF THE, OF LOCAL DATA CENTERS OR ANY DATA CENTERS MOVING HERE.
SO, UH, THAT IS SOMETHING THAT'S BEING LED BY, UM, CITY MANAGER.
SO WOULD YOU SAY THAT, YOU KNOW, WITH THE FORECASTED RATE INCREASE, JUST PRIMARILY BEING REALLY THE SHEER FACT THAT WE STAED OFF RATE INCREASES, LIKE DURING, YOU KNOW, THE COVID YEARS, AND I MEAN, I KNOW THAT, YOU KNOW, COSTS ARE INCREASING AND, AND, AND ALL THOSE KIND OF THINGS, BUT YOU KNOW, FROM A, UH, MAKEUP STANDPOINT, UM, JUST BECAUSE WHEN YOU, YOU KNOW, SEE THIS, AND THEN IT GOES BACK DOWN TO MORE OF A INFLATIONARY KIND OF ADJUSTMENT, AND THAT WOULD MEAN LIKE, WE'RE KIND OF MAKING UP RIGHT FROM, WELL, SOME YEARS OF, I MEAN, THERE, THERE'S, THERE'S, THAT'S A PART OF IT, BUT IT, IT, UM, REALLY THE, THE BIGGEST PART IS THE GROWING CAPITAL PLAN.
AND, YOU KNOW, WHEN YOU THINK ABOUT, YOU KNOW, JUST IN TERMS OF CASH FINANCING OF CIP, ESSENTIALLY OUR, OUR, OUR DOWN PAYMENT ON OUR CAPITAL PROJECTS, UM, YOU KNOW, ADDING, YOU KNOW, 50% GOING FROM ROUGHLY 60 MILLION TO ABOUT A HUNDRED MILLION BY THE END OF, OF, OF THE FORECAST PERIOD, UM, YOU KNOW, THAT'S $40 MILLION OF, OF ANNUAL REVENUES, UM, THAT, YOU KNOW, WE HAVE TO COVER.
UM, AND YOU'RE ADDING DEBT SERVICE.
SO, UM, WHEN DEBT SERVICE GROWS, YOU'RE, YOU KNOW, YOU'RE ADDING MORE THAN THE 40 MILLION.
THE 40 MILLION FOR THE CASH FINANCING IS KIND OF A DOLLAR DEAL, BUT, UM, WHAT'S FLOWING TO DEBT SERVICE IS ADDING A DOLLAR 75.
UM, AND, AND SO THAT'S THE, THE BIGGEST PART OF IT.
IF YOU THINK ABOUT THE, YOU KNOW, UH, YOU KNOW, OUR, OUR LAST RATE CHANGE IN 2018 WAS, UM, WAS ACTUALLY A 4.8% RETAIL RATE REDUCTION.
AND WE WERE ABLE TO MAINTAIN, UM, STABLE RATES IN PART BECAUSE ALTHOUGH WE SAW INFLATIONARY INCREASES, YOU KNOW, WE, WE WERE ALSO SEEING CUSTOMER GROWTH, RIGHT? SO CUSTOMER GROWTH WAS, WAS, UM, AND, AND THAT REVENUE GROWTH WITH CUSTOMERS, UH, WAS COVERING, YOU KNOW, COST INCREASES AT, AT THAT TIME.
BUT BECAUSE OUR CAPITAL SPENDING PLAN WAS STABLE, YOU KNOW, WE WEREN'T SEEING CHANGES IN DEBT SERVICE COSTS.
UM, ONCE WE GET TO THIS ALIGNMENT, UM, IF WE CAN STABILIZE DEBT SERVICE COSTS, THEN,
[01:15:01]
YOU KNOW, WE ARE REALLY TALKING ABOUT, UM, OPERATING COSTS AND, AND, AND SO THAT'LL BE MORE INFLATIONARY.SO THIS RATE EMPLOYMENT, SO WE NEED TO GET UP TO THAT NEXT PLATEAU, BUT IF WE CAN STABILIZE OUR CAPITAL SPENDING PLANET ROUGHLY, YOU KNOW, 2.8 TO THREE, YOU KNOW, $3 BILLION, UM, WE CAN MANAGE THAT WITH, UM, WITH MUCH SMALLER INCREASES.
AND, AND I HAVE RELATIVELY STABLE RATES NOW IF, IF THE COST OF CAPITAL DELIVERY, YOU KNOW, CONTINUES TO GROW LIKE IT HAS SINCE 2022, UM, THEN THAT WOULD PUT MORE PRESSURE ON, ON ON RATES.
BUT, BUT YOU KNOW, I THINK GETTING TO FISCAL YEAR 30 AND GETTING TO THIS LEVEL, UM, YOU KNOW, WE'LL, WE'LL BE IN MUCH BETTER POSITION EVEN TO TAKE ON, YOU KNOW, NORMAL CHANGES IN CAPITAL DELIVERY COSTS OR THE NEXT GENERATIONAL PROJECT
SO IF THAT, ONCE THAT FALLS OFF, IF WE ADD IN ANOTHER GENERATIONAL PROJECT, UM, IN ROUGHLY THE SAME AMOUNT, IT'S, IT'S JUST REPLACING THOSE COSTS AND, AND NOT, YOU KNOW, WHAT WE DON'T WANNA DO IS TRY AND HAVE STACK GENERATIONAL PROJECTS.
UM, AND TO THE EXTENT THAT WE CAN, WE CAN PLAN THEM AND, AND IT'S STAGGER THEM IN A WAY THAT, YOU KNOW, AS ONE DROPS OFF, A NEW ONE COMES ON, THEN WE CAN MANAGE THAT.
SO JUST TO CLARIFY ON THIS SLIDE, 'CAUSE IT, IT'S A LITTLE BIT DECEIVING IN TERMS OF THE RATE INCREASING AND THEN IT KIND OF LOOKS LIKE IT'S DROPPING, IT'S NOT REALLY DROPPING, IT'S JUST INCREASING BY LESS, RIGHT? CORRECT.
YES, IT'S GETTING, UM, YOU KNOW, UM, WE HAVE A, A GOAL TO, TO HAVE AVERAGE RATE INCREASES OF AROUND 2%.
SO, UM, AVERAGE ANNUAL RATE INCREASES OF 2%.
AND SO FOR US, WHAT THAT MEANS IS IF WE'RE DOING LIKE A 4% RATE INCREASE, THEN YOU KNOW, WHAT WE'D LIKE TO DO IS HAVE, YOU KNOW, MAYBE A 4% RATE INCREASE AND THEN NO INCREASE AND, YOU KNOW, THREE AND A HALF PERCENT RATE INCREASE.
SO, UM, AND, AND I THINK THAT'S WHERE WE, THAT'S WHERE WE'RE, THAT'S WHAT WE'RE TRYING TO TARGET FOR POST FISCAL YEAR 30 IS A, THAT WE'RE NOT HAVING, UM, NECESSARILY ANNUAL RATE INCREASES.
AND, BUT WHEN WE DO HAVE THEM, THAT THEY'RE IN LINE WITH WHAT'S HAPPENING WITH, UM, THE ECONOMY AND IN GENERAL OVERALL INFLATION.
UM, SO, SO YEAH, THIS WOULD BE, WE WOULD CONTINUE TO HAVE RATE INCREASES, UM, BECAUSE IT'LL TAKE US SOME TIME TO, TO, TO GET FROM 60 MILLION IN, IN CASH FINANCING, UM, TO ABOUT A HUNDRED MILLION.
UH, BUT DURING THAT TIME, WE'RE ALSO GONNA, YOU KNOW, UNLESS, UNLESS DEVELOPMENT STARTS TO PICK BACK UP AND WE START TO SEE INCREASES, IF WE CAN GET BACK TO $40 MILLION RANGE IN CAPITAL RECOVERY FEES, THEN WE CAN BUY DOWN OUR DEBT MORE AGGRESSIVELY.
UM, THE TIMING OF THE SLOWING OF DEVELOPMENT AS WE ARE ENTERING THIS PERIOD OF HIGH SPENDING HAS BEEN CHALLENGING, RIGHT? BECAUSE, UM, YOU KNOW, IF I HAD AN EXTRA $10 MILLION, THAT EXTRA $10 MILLION A YEAR, UM, WE WOULD BE TARGETING, WE WOULD BE MORE HEAVILY TARGETING, UH, DEFEATING DEBT IN 28 AND 29.
BUT RIGHT NOW I'M HAVING TO FOCUS ON, UH, THE, THE DFE THAT WE JUST CLOSED ON LAST WEEK, UM, IS HEAVILY TARGETING 26.
SO ABOUT, UM, ALMOST 30 MILLION OF IT WAS TO BUY DOWN DEBT FOR 26 JUST TO, UH, AVOID, UM, YOU KNOW, THAT BIG INCREASE FROM 25 TO 26, UM, AN EXTRA $10 MILLION A YEAR WOULD ALLOW ME THEN TO, UH, ALLOW US THEN TO TARGET, UH, ALMOST EQUAL AMOUNTS.
WE MIGHT HAVE HIT 30 MILLION IN 26 AND THEN 20 MILLION IN 27.
AND SO WE'RE, WE'RE ALREADY STARTING TO BUY DOWN 27.
AND SO THAT DROP IN CAPITAL RECOVERY FEES, UM, IS MAKING OUR DEBT MANAGEMENT A, A
[01:20:01]
A LITTLE BIT MORE SHORT TERM THAN IT HAD BEEN HISTORICALLY WHEN WE WERE IN THE $40 MILLION RANGE.IS THERE A PLAN IN THE FUTURE TO ADD, INCREASE THE SERVICE AREA IN ORDER TO GET MORE, UM, I MEAN THERE'S ALWAYS, WE WE'RE, WE'RE SEEING DEVELOPMENT.
UM, I THINK, YOU KNOW, THERE'S SOME CHALLENGES JUST IN TERMS OF A LOT OF THAT DEVELOPMENT IS, IS IN THE ETJ.
AND ONE OF THE OTHER THINGS THAT WE'RE, UM, WORKING THROUGH IS, UM, YOU KNOW, FOLKS CAN ASK TO GET OUT OF THE ETJ, UM, NEW LEGISLATION THAT WAS PASSED, YOU KNOW, DURING THE LAST LEGISLATURE, UH, TWO YEARS AGO ALLOWS, UM, ALLOWS PROPERTY OWNERS TO, TO GET OUT OF THE ETJ.
AND SO ONE OF THE THINGS WE'RE STRUGGLING WITH IS, UM, YOU KNOW, HOW, HOW ARE WE INVESTING WITH OUR SYSTEM ON THE OUTSKIRTS? UM, AND THEN POTENTIALLY SERVING CUSTOMERS WHO, UM, WHO DON'T WANNA BE PART OF THE CITY, UM, BECAUSE THEY DON'T WANNA COMPLY WITH THE DEVELOPMENT RULES WITHIN THE CITY.
AND SO THEY'RE, UH, TRYING TO HAVE THEIR THEIR CAKE AND EAT IT TOO, RIGHT? THEY WANT, THEY WANT TO GET WATER, UH, AND WASTEWATER SERVICE FROM US, BUT, BUT THEY DON'T WANNA FOLLOW, UM, ALL OF THE DEVELOPMENT RULES.
AND SO WE'RE, WE'RE, WE'RE STRUGGLING A LITTLE BIT WITH THAT, BUT, UM, I THINK THE, THE GOOD THING IS, IS THAT WE ARE, UM, YOU KNOW, WE'RE, WE'RE UH, A PREMIER PROVIDER.
AND SO WHEN YOU LOOK AT, UM, YOU KNOW, WHERE, WHERE DO, UH, WHERE DOES DEVELOPMENT WANT TO GET WATER AND WASTEWATER SERVICES, YOU KNOW, BY AND LARGE, THEY, THEY WANT TO GET IT FROM US.
UM, SO, YOU KNOW, WE THINK WE'LL CONTINUE TO HAVE GROWTH.
IT'S JUST MANAGING, UM, YOU KNOW, MANAGING THE WAY IN WHICH WE SERVE THEM, YOU KNOW, WHETHER THEY'RE IN THE ETJ, UM, UH, WHICH IS A LITTLE BIT OF A CHALLENGE, BUT, BUT YOU KNOW, FROM A, FROM AN OVERALL GROWTH PERSPECTIVE, LIKE I SAID, WE'RE STILL, YOU KNOW, WE STILL THINK WE'RE GONNA CONTINUE TO SEE ONE, ONE AND A HALF PERCENT, UM, CUSTOMER GROWTH, UH, YOU KNOW, FOR THE NEAR FUTURE.
AND I'LL ADD TO THAT, UM, FOR THE CAPITAL RECOVERY FEES OR IMPACT FEES, UM, WE ALSO UNDERTAKE A, A STUDY EVERY FIVE YEARS.
SO WE'LL BE REVISITING ALL THE PROJECTS, UM, THAT WILL BE PUT INTO THAT AS WELL AS, UM, WHAT THE NEW FEES WILL BE, UH, IN THE NEXT FEW YEARS.
AND WE LAST UPDATED, UM, FOR 2024.
SO IN, IN 2023, WE UPDATED, UM, WE DID AN IMPACT FEE STUDY TO UPDATE RATES FOR 2024.
UM, SO AS WE THINK ABOUT 2026, I MEAN, THAT'S THREE YEARS IN.
AND SO WE'LL, UH, WE'LL BE UPDATING, UM, EITHER IN 26 OR 27.
UM, ONE OF THE THINGS THAT WE STARTED TO TALK ABOUT INTERNALLY, 'CAUSE WHEN YOU THINK ABOUT A PROJECT LIKE WALNUT, UM, JUST THE WAY THE TIMING WORKED OUT, UM, YOU KNOW, AGAIN, WE'RE, WE'RE, WE, WE THINK IT'LL BE ONLINE, WE'RE WE'RE SHOOTING FOR, UH, 2030 FOR IT TO BE ONLINE.
WELL, WHEN WE DID THE COST SERVICE STUDY IN 2018, THAT WAS SLIGHTLY OUT OF THE 10 YEAR HORIZON.
YOU KNOW, YOU, YOU LOOK AT THE PROJECTS THAT YOU EXPECT TO, TO, TO GO ONLINE WITHIN THE NEXT 10 YEARS.
AND SO IN THE 2018 STUDY, IT, WE WEREN'T, WE DIDN'T THINK THAT IT WOULD, UH, COME IN WITHIN THAT 10 YEAR PERIOD.
SO, UM, THE, THE IMPACT FEE DIDN'T INCLUDE WALNUT CREEK EXPANSION.
UM, AND SO 2024 UPDATE WAS THE FIRST UPDATE THAT INCLUDED THE WALNUT EXPANSION.
UM, AND, AND SO ONE OF THE THINGS WE'VE TALKED ABOUT IS WHEN WE HAVE SOME OF THESE LARGE GENERATIONAL GROWTH PROJECTS, UM, MAYBE INSTEAD OF STRICTLY STAYING ON A FIVE YEAR CYCLE, UH, IT MIGHT MAKE SENSE TO, TO, TO GO ON A FOUR YEAR CYCLE TO, UM, TO, TO JUST MAXIMIZE, UH, THE AMOUNT OF TIME THAT, YOU KNOW, WE CAN, WE CAN INCORPORATE SOME OF THOSE BIGGER PROJECTS.
'CAUSE RIGHT NOW, UM, EVEN WITH THE 2024 UPDATE, UM, THE WATER IMPACT FEE, SO IF SOMEBODY CONNECTS TO OUR SYSTEM, THEY PAY ROUGHLY $4,800, UH, ON THE WATER SIDE, BUT ABOUT $2,900 ON THE WASTEWATER SIDE.
AND SO THERE'S STILL A DISCONNECT EVEN THOUGH, UH, IF YOU LOOK AT, UM, IF YOU LOOK AT OUR CIP PLAN, IT'S, UH, IT'S TWO THIRDS WA, TWO THIRDS WASTEWATER, ONE THIRD WATER.
BUT OUR CAPITAL RECOVERY FEE ISN'T, IS IS THE OPPOSITE.
IT'S MORE, UH, 65%, ROUGHLY TWO THIRDS, 65% WATER,
[01:25:01]
UM, 35% WASTEWATER.AND SO OUR CAPITAL RECOVERY FEES AREN'T ALIGNING WITH OUR CAPITAL PLAN RIGHT NOW.
UM, SO, YOU KNOW, WE WANT TO THINK ABOUT HOW OFTEN WE'RE DOING IT, WHEN WE'RE DOING UPDATES, PARTICULARLY, YOU KNOW, AS WE TRY AND PROGRAM IN LARGER PROJECTS.
DO YOU HAVE ANY MORE QUESTIONS? OKAY, SO I GUESS WE NEED TO MOVE ON.
[2. Review Fiscal Year 2025-2026 Budget Schedule]
WAIT, THE SECOND DISCUSSION ITEM WAS TO REVIEW THE FISCAL YEAR BUDGET SCHEDULE, BUT WE ALREADY DID THAT.UM, OR WE HAVE ANOTHER PRESENTATION FOR IT, NOT, WE DON'T HAVE A PRESENTATION.
WE, UM, WE DIDN'T GO THROUGH THE, THE FULL, UH, BUDGET TIMELINE, BUT JUST IN TERMS OF NEXT STEPS IN THE CITY BUDGET PROCESS, I MENTIONED, UM, THAT ON JULY 15TH THE PRESENTATION WILL BE, UH, PRESENTED TO, TO COUNCIL.
UM, AND THAT REALLY KICKS OFF THE, THE COUNCIL BUDGET PROCESS.
UM, MANY OF THE COUNCIL MEMBERS WILL ALREADY HAVE, UH, COUNCIL BUDGET QUESTIONS DRAFTED, AND ONCE THEY GET THE BUDGET, THEY START SENDING DEPARTMENTS COUNCIL BUDGET QUESTIONS AND, UM, ASKING ABOUT SPECIFICS WITHIN, WITHIN OUR BUDGET.
UM, THERE IS A MEETING ON JULY COUNCIL MEETING ON JULY 31ST TO SET A MAXIMUM TAX RATE, UM, AND, AND START HAVING BUDGET PUBLIC HEARINGS.
SO THAT'S WHEN THE PUBLIC CAN START ASKING, WELL, ASKING QUESTIONS, UM, OR COMMENTING ON THE PROPOSED BUDGET.
UM, AND THEN THERE'S A SECOND, UM, PUBLIC HEARING, UH, IN ADVANCE OF ADOPTION ON AUGUST 7TH.
UM, SO COUNCIL BUDGET WORK SESSION.
UM, AND IN TERMS OF THOSE TWO WORK SESSIONS, THE JULY 31ST HAS MORE OF A GENERAL FUND FOCUS, UM, AND THE AUGUST 7TH WILL HAVE MORE OF AN ENTERPRISE FOCUS.
AND SO, UM, COUNCIL, YOU KNOW, CAN, WILL BE ABLE TO DIG IN MORE DEEPLY, UM, ON THE ENTERPRISE ON THAT AUGUST 7TH WORK SESSION.
AND THEN THE FOLLOWING WEDNESDAY, AUGUST 13TH IS WHEN, UM, COUNCIL WILL START, UH, THE BUDGET ADOPTION PROCESS.
THEY, UM, CAN TAKE UP TO THREE, THREE DAYS, UH, TO ADOPT OUR BUDGET.
UM, BUT UM, WE WOULD EXPECT, UH, IT, IT'S PROBABLY MORE LIKELY THAT THE COUNT, THAT THE BUDGET WILL BE ADOPTED ON AUGUST 13TH AND, AND PROBABLY NO LATER THAN AUGUST 14TH.
AND THEN YOU'LL GIVE US THE PRE, THE PRESENTATION THAT WILL BE GIVEN TO COUNCIL ON JULY 15TH WILL BE PRESENTED TO THE COMMISSION ON THE 16TH.
WELL, WE'LL, WE'LL PUT TOGETHER OUR, OUR OWN PRESENTATION.
UM, THE, THE COUNCIL PRESENTATION ON THE 15TH IS, IS CITYWIDE.
AND SO THEY'LL, THERE, THERE MAY BE, YOU KNOW, ONE OR TWO SLIDES ON, ON AUSTIN WATER.
UM, AND, AND WE'LL HAVE A MORE IN DEPTH AUSTIN WATER BUDGET PRESENTATION.
AND THEN, SO SHOULD WE MAYBE SCHEDULE ANOTHER MEETING FOR US TO CONNECT BEFORE THE 15TH TO MAYBE REVIEW CIP OR OTHER CHANGES? YES, I THINK, I THINK, UM, AT LEAST ONE OTHER SCHEDULE, ONE OTHER MEETING, AND I THINK WE CAN, WE CAN GO THROUGH THE SAME PROCESS AND LOOK FOR, UM, TIMES, YOU KNOW, WE, WE'LL MAKE OURSELVES AVAILABLE WHEN, WHEN, YOU KNOW, AT TIMES AT WORK FOR, FOR YOU GUYS.
UM, SO, UM, WE'LL, WE'LL SEND OUT, UM, UH, TRY AND GET FEEDBACK FROM, FROM THE COMMITTEE, UH, FOR AVAILABILITY AND THEN WE WILL WORK TO ACCOMMODATE.
AND THEN ARE THERE ANY SPECIFIC AGENDA ITEMS THAT YOU WANT TO COVER IN ANY OF THOSE MEETINGS THAT YOU CAN THINK OF RIGHT NOW? I CAN'T THINK OF ANYTHING.
GO AHEAD AND ADJOURN THIS MEETING.