Rochester Hills Legistar System

A motion was made by Ambrozaitis, seconded by Holder, that this matter be

Approved.

Resolved that the Financial Services Committee hereby approves the Minutes of

the Regular Meeting of April 14, 2005 as amended as follows:

pages 2 and 3- delete the following paragraphs:

* City has been subsidizing the rates with the excess "tap in" monies sitting in

the Water and Sewer Fund.

* City has been subsidizing drains with the City's cash reserves which should be

held and used for any Capital Improvements.

* Original customer "tap-in" fees amounted to $48 million and have decreased to

the current amount of $13 million through subsidization.

* City's current focus is to take Capital and Lateral revenues and place them into

Brian Francis, Geoproducts, Inc. and Michael Samueloff, Owens Corning, provided a

brief presentation on an optional road improvement system called "Trupave Engineered

Paving Mat" noting the following:

* This is a tool for the City to use in its strategy as part of the road paving program

which can move the condition of the City's roads to better condition.

* Trupave engineered paving mat from Owens Corning Trumbull is a non-woven fiber

glass/polyester hybrid pavement interlayer designed to add pavement strength and

create a moisture-resistant barrier which will reduce reflective cracking.

* Trupave preserves the pavement surface and protects the pavement structure longer

which reduces long-term maintenance and rehabilitation costs.

* The Trupave Mat product remains stable under "super pave" high-temperature

hot-mix asphalt or concrete surface which means it will not shrink or melt.

* Trupave installs quickly thus allowing the choice to pave it over immediately or leave it

open to traffic

* Trupave is millable and recyclable.

* The product prevents water from going through the pavement and prevents cracks

from coming back from the bottom up.

* The product allows the road to do its job and shed water off to the side; this slows

down the pavement cracking process caused by freeze/thaw and thermal expansion

and contraction.

* The product is made with fibers and can be pieced back in by creating an overlap

when/if a water main breaks.

* Trupave had to validate product performance to obtain an (ASTM) American Standard

for Testing Materials specification.

* Owens Corning tested the following processes:

* Adhesion

* Flexible Strength

* Water Permeability

* Heat Dimensional Stability

* Ride Quality

* Recyclability

* They applied stress and force on the following four (4) grades of asphalt and

concluded that Trupave mat is four (4) times as strong in flexible strength:

* Regular asphalt failed at 90,000 cycles

* AC20 asphalt failed at 130,000 cycles

* SBS Grid failed at 150,000 cycles

* Fiberglass Mat failed at 400,000 cycles

* Cost Benefit Analysis:

* Typical two (2) inch hot mix overlay is approximately $7.50 per square yard with

additional Trupave fabric installation at approximately $2.50 per square yard.

* Trupave provides a fifty (50%) percent increase over the life cycle for about ten

(10%) percent of cost.

* Every one ($1) dollar spent on maintenance saves four ($4) dollars on

reconstruction.

Mr. Francis and Mr. Samueloff indicated that they would be happy to look at Rochester

Hills paving surfaces.

Committee members thanked Mr. Francis and Mr. Samueloff for presenting their product

and Jon Rea, Citizen Representative, for initiating the presentation.

Julie Jenuwine, Finance Director, discussed Chapter 102, Utilities (Water & Sewer)

Ordinance Changes noting the following:

* The first request and/or recommendation is due to operational difficulties for Finance

and Accounting Departments; recommendation is to reduce Ordinance from four (4)

funds to three (3) funds by combining the Capital Replacement Fund and Capital

Improvement Fund. This will result in the Capital Replacement fund continuing to

increase with annual depreciation while the Capital Improvement Fund will decrease

with less capital and lateral charges coming in or declining revenues.

* The second request and/or recommendation is to move the Bond Interest and

Redemption Fund first. The current Ordinance reads City will set rates first to take care

of operations, such as salaries; it then reads Replacement Fund and then Bond Fund.

When the City bonds, the requirements of the Bond Covenant indicates that the City's

first dollar should be put towards the Bond to obtain a good rating status. With this

recommended change the Ordinance will demonstrate that the City is going to pay the

Bond first.

The Committee discussed Ms. Jenuwine's recommendations noting the following:

* Historically residents objected to paying now for something that they may never use

and there is the perception of the residents who stated in the past that they prefer a "pay

as they go".

* It was City Council and not the residents who decided that the past surplus of monies

collected should be dispersed to the residents by subsidizing water rates.

* The City needs to avoid having too large of a fund balance.

Committee members discussed the preliminary Water & Sewer Rates - effective July 1,

2006 noting the following:

Julie Jenuwine, Finance Director, stated that Detroit Water & Sewer Department

(DWSD) has not disclosed exact rate increases and she will present proposed

preliminary rates at the April Financial Services meeting. She further reviewed the

following information with the Committee:

* A Historical perspective of the Current rates.

* An overview of the assumptions used in determining the rate.

* How DWSD formulates the City's rates

* Current year factors:

* DWSD proposed to the Detroit City Council a six (6%) percent system wide water

rate increase.

* DWSD increased Rochester Hills' water rate 3.1% not the 6% system wide

increase.

* DWSD has formed a voluntary Advisory Committee consisting of suburban

customers who discuss input pertaining to the rate restructure.

For the understanding of new City Council members, the Committee briefly discussed

the 2005 water and sewer rate methodology

The Committee discussed the preliminary Water & Sewer Rates noting the following:

* DWSD Model is adopted worldwide with the peak factors always being part of the rate

model

* DWSD is planning on a standard APWA rate model which demonstrates equality

across the board of all the residents.

* Peak rates encourage communities to put water in storage rather than DWSD having

to building storage facilities; there are communities that are building storage facilities.

* It is much less expensive for DWSD to deliver water at a flat rate than it is at a

variable rate and storage facilities would reduce DWSD demand for their capital

improvements.

Ms. Jenuwine stated that the new DWSD Water Service Contract and Rate

Methodology projected to be finalized within the next six (6) months. She further noted

that the preliminary rates are under the 2005 assumptions.

The Committee discussed the reservoir project noting the following:

* Cost of the reservoirs is $8 million

* Rates are established from prior years data and the City's missed the construction

cycle so the expected benefit expected could be pushed out one year

* The initial reservoir study was a result of the City's fire protection rating which

indicated that the City had four areas that had low pressure for fire fighting.

* In addition the DPS has received complaints from residents regarding low water

pressure

* The cost return was a secondary benefit to the reservoirs with the real emphasis on

addressing low water pressure; however the emphasis has been shifted to the financial

analysis of the reservoirs rather than on the fire fighting or domestic use.

Ms. Jenuwine asked Committee what assumption changes they would like made in the

analysis to obtain preliminary Rochester Hills Water & Sewer rate increase which she

will present at April meeting. She further explained that when the water and sewer rate

is developed, it is not what is in isolation for the next year but rather a forecast for seven

years out. It also includes all capital improvement projects for the Water and Sewer

Fund that are in the CIP.

Mr. Yalamanchi requested an analysis excluding the Water Reservoirs and DPS Facility.

Enactment No: RES0219-2006

Julie Jenuwine, Director of Finance, explained her memo's intent is to serve as an initial

communication regarding the current discussions of the Contracts Sub-Committee as it

relates to the new Water Service Contract. She noted the following:

* A "Technical Advisory Committee (TAC)" made up of Detroit Water & Sewer

Department (DWSD) staff, volunteer wholesale customers, and local consulting groups

has been established.

* The Committee's effort is to improve the relationship between DWSD and its wholesale

customers by addressing contemporaneous concerns of all parties involved.

* Sub-Committees created by TAC are:

* Contract Sub-Committee to improve the contract between DWSD and its

wholesale customers including Rochester Hills.

* Rates Sub-Committee to study the water rate methodology for possible changes.

* Last month, the TAC rolled out a draft Water Service Contract that the subcommittee

states is eighty (80%) percent complete.

* TAC is requesting feedback regarding the contract from the wholesale customers prior

to finalizing the draft contract.

* The draft contract includes the following:

* Contract duration to be 35-year service contract

* Contracted minimum volume

* Growth pays for growth

* Contracted system pressure

* Rate based on maximum flow

* Maintenance and ownership of meters and other equipment

* Co-mingling of water sources - emergency exceptions

* Construction standards

Ms. Jenuwine stated that she has forwarded the draft contract to the City Attorney and

the City Engineer for their review and comments.

The Committee discussed the financial impacts of Homeowner/City cost sharing

divisions in association with Special Assessment Districts (SAD) noting the following:

* Does the City want a short-term solution for a long-term problem

* If the City beginning in 2007 contributed ten (10%) percent of the SAD cost, it would

create a $1.6 million operating budget deficit.

* A policy needs to be developed that would apply to everyone.

* It was suggested that a short-term solution be developed to take action now and at the

same time look for a long-term solution.

* It was noted that residents did not want to pay for other resident's projects and that a

SAD is a solution to fixing poor roads.

* A concern expressed was that residents could possibly end up paying for a Special

Assessment District plus a Road Millage in the future.

Mr. Rousse stated that "good practice" would be for the City to utilize the money for

maintenance to prevent further deterioration of other roads.