Metropolitan Council Environmental Services A Clean Water Agency Presented to the Environment Committee July 13, 2010 Use of MCES Wastewater Operating Reserves Jason Willett, MCES Finance Director

2 M.S subd.1 Allocated costs may include amount for: 1.Reserve or contingency fund 2.Cash flow management fund* *Must not exceed 5% of Council’s total waste control operating budget.

3 Council Policy 3-8 Target Fund Balance — Intended to Help operating fund/unit meet cash flow needs Ensure adequate protection for unanticipated events — Targets are benchmarks, not absolutes — Environmental Services: 10% of annual budgeted operating expenses

4 Operating Reserves Contingency Reserve Balance Working Capital Reserve TOTAL Operating Reserve Year-end 2009 $26.9M $0.0M $26.9M

Reserve Changes 2010 Budget Adopted Budget Amendment 2010 Surplus (estimated) ($2.0M) ($0.1M) $0.0-$2.0M Contingencies Year-end 2010 ? Total 2010 Change ($2.1)-$2.0M 2010 Forecast Balance $ M

6 Target Balance Debt Service, PAYG (operations part of MCES budget) 2010 MCES Budget $212.1M -$92.1M $12.0M Council Target for MCES Total Budget 2010 x 10% Reserves Over Target: $12.8 million-$16.9 million $120.0M

7 Ideas for Use Future rate mitigation Other post-employment benefit (OPEB) reserve for MCES liability Pay as you go (PAYG) for wastewater capital projects Current value credit payoff Special project funding OR Retain for confidence-building and cash flow management

8 Planned Use for Rate Mitigation $2.5M $2M $2M $1M $1M = $8.5M Contingency Reserve Usage

9 OPEB Liability OPEB = Other Post-Employment Benefits (non-pension) — Explicit health benefit versus implicit health benefit — Accounting vs. Funding — 2010 Actuarial study results soon

10 OPEB Funding Impacts on Future Budgets Council funding policy: — At minimum fund retiree premiums and normal cost — Normal costs accumulated in segmented fund (invested at State Board Investment) — Account balances (Transit, ES, RA) — Year after full funding estimated for division reimbursement (i.e., budget impact)

11 PAYG for Capital Projects (millions) SAC (Service Availability Charge) CRF (Capital Revolving Fund) Favorable VarianceAnnual Budget Proposed

12 PAYG Impacts on Future Debt Service $1 million PAYG $1 million PAYG $73,111 of avoided debt service per year for 20 years 4% interest) $73,111 of avoided debt service per year for 20 years 4% interest) Scalable: i.e., $2 million PAYG is twice the avoided debt service

13 Current Value Credit Payoff Regionalization of local facilities per M.S (4) 12/31/09 balance: $619,599* — Columbia Heights, Mendota Heights, New Brighton, Shoreview — 2010 payments: $107,157* 12/31/10 balance: $512,442* 4% interest *principal only

14 Other Special project funding — E.g., technology upgrade Other ideas? Discussion