THOMAS L. FREDERICK, EXECUTIVE DIRECTOR
SUBJECT: PROPOSED BUDGET FOR FISCAL YEAR 2008-09
DATE:

Please find enclosed a draft copy of staff\u2019s proposed operating budget for the Rivanna Water
& Sewer Authority for the fiscal year beginning July 1, 2008. The Board will be asked at this
meeting to adopt a Preliminary Rate Resolution to set a public hearing on the proposed budget
for Monday, May 19, 2008 and authorize staff to advertise the proposed changes to the
wholesale rates to support the proposed budget. The Board\u2019s actions at this meeting do not
establish any precedent for final Board approval of the budget, including amendments or
changes to the proposed budget the Board may want to consider later. The Board\u2019s final
deliberations and actions on the budget will not be requested until immediately after the
public hearing, as required by Commonwealth law.

As the Board is aware, the Authority is currently in an upward cycle of capital improvements
for both water and wastewater services, and the reasons for this upward trend include
significant new regulations and mandates that are unfunded (with the exception of partial
funding for the nutrient upgrade project), the need to replace worn assets at the end of their
service life, and improvements to system capacity to support planned growth. The
Authority\u2019s work over the past few years in multi-year financial planning is now being
realized as the Urban Water wholesale rate for next year is increasing at less than inflation
(2.65% for City and 2.44% for ACSA), even as funding is meeting the requirements of a new
Ragged Mountain Dam. The Urban Wastewater side is presently more challenging as the
extent to which rehabilitation is needed for our wastewater interceptors is still being defined
by an on-going engineering study to be completed later this year. Largely to address
interceptor needs being added to the capital budget this year, an increase in the wastewater
wholesale rate of 10.43% for the City and 10.54% for ACSA is proposed. In addition to the
interceptors, increasing rates continue to support the non-grant portion of the Moores Creek
WWTP ENR project, and one significant addition to the operating budget this year is
impacting wastewater wholesale charges \u2013 we are proposing next year to clean and remove
sediment and solids from one of two large holding ponds at the Moores Creek WWTP
($275,000) that provide capacity for wet weather flows. These ponds have not been cleaned
since the plant began operation about 1981, and although significant in cost, this cleaning is a
part of continuing efforts to reduce odors as well as provide more holding capacity for large
wet weather events.

Overall, the effect of the budget process continues to be to maintain an administrative
environment that encourages and rewards efficiency in operating decisions, looks long-term,
promotes environmental protection, and limits the growth in the total number of employees
but provides for growth and training opportunities to facilitate the productivity and work
environment of existing employees.

The proposed budget includes two new positions that are being recommended by the
Executive Director out of five requested by the department managers. The new
positions recommended include an Information Systems Assistant Administrator in
the Finance & Administration Department and an Administrative Office Technician
in the Engineering Department.

A merit pool equal to 4% of budgeted salaries is included in the draft budget. It is
recognized that some adjustment of this amount may be discussed before the final
budget is adopted, as it becomes clearer what other local government agencies are
adopting. I do ask that the Board adopt a pool for RWSA that is competitive with the
other local government decisions as a whole.

The budget includes a new Support Department called the Maintenance Department
that functions under a Maintenance Manager to coordinate effective and efficient
preventive and corrective maintenance. This reflects what is already \u201cin-practice\u201d on
the ground so that the Maintenance Manager is held accountable for his own unit\u2019s
support costs, and was developed from funds previously assigned to the departments
that funded their support \u2013 in other words, these budgeted expenditures are being
transferred and are not \u201cnew\u201d costs.

A vehicle replacement fund is being created this year to receive transfers from the
depreciation of vehicles, rolling stock, and equipment assigned to the various
departments. Going forward, we propose that fleet replacements be purchased out of
the new fund, having the effect of \u201cleveling\u201d the expenses of the departments from
year-to-year.

Revenues for water and wastewater charges are based on estimated consumption for FY 09 at the same level as was estimated for the FY 08 budget; actual consumption year-to-year tends to swing significantly based primarily on weather (influencing landscape watering) and the institution of water restrictions, both of which are not possible to predict months in advance.

The proposed budget: continues to provide an allowance for emergency pipeline
repairs as well as several requests to rehabilitate or replace old process equipment;
provides for anticipated increases in electricity and chemicals resulting largely from
the rise in fuel prices; and continues to rely on the hydro plant to supply considerable
electrical demand for the South Fork Water Treatment Plant. One significant request
that was deferred and not included in this budget is a new bathymetric survey for the
South Fork Reservoir.

At this time I would like to thank Mr. Lonnie Wood and the employees of the Finance &
Administration Department, as well as the directors, managers, and assistant managers in all
RWSA departments, for their work in assisting with the development of this proposed budget
document.

It is respectfully recommended that the Board of Directors adopt the attached preliminary resolution calling for a public hearing on the budget for May 19, 2008 and authorizing the advertising of proposed wholesale rates.