After months of assessing the goals identified in our Strategic Business and Operating Plan, the Metropolitan St. Louis Sewer District (MSD) submitted a proposed budget of $377.6 million for fiscal year 2012 (July 1, 2011 to June 30, 2012) to our Board of Trustees. This submittal is the next formal step in a budget process that is expected to be complete before the close of the District's current fiscal year on June 30, 2011.
We know our customers, employees, business partners, and others may have questions. Here is more information: How does MSD's proposed FY12 budget compare to its current budget? The proposed budget includes a 3.7 percent increase in MSD's traditional operating budget. It also includes increases in the District's capital improvement program and debt payments. Why are these increases necessary? To ensure future regulatory compliance, the District is undertaking a $6 billion, multi-decade program to renew and improve our aging wastewater collection and treatment facilities. Much of the proposed budget increase is needed to continue funding this required work and to pay the debt interest we have incurred since FY2004 in implementing this $6 billion program. Like wastewater and stormwater utilities nationwide, MSD is also facing rising operating costs. Sensitive to the need to contain costs, the FY12 budget includes only a modest wage increase for employees. By eliminating 37 unfilled positions, salary costs for FY12 are down slightly. What does the FY12 Budget include? MSD's budget has four parts.
- A $156.6 million Operating Budget, which covers the day-to-day operation and maintenance of the District's seven wastewater treatment plants and 9,630 miles of wastewater and stormwater sewers. Some 6,700 miles are wastewater sewers, making our wastewater collection system the fourth largest system in the country -- roughly the same size as the wastewater system in Los Angeles, which has more than twice the population to support it.
- $21.7 million in additional expenses not usually included in the traditional general operating budget: $3.5 million for the District's basement backup fund, $1.8 million for wastewater system repairs not included in the Capital Improvement and Replacement Budget (below), and $18.3 million for day-to-day stormwater sewer repairs.
These additions are necessary for three reasons: 1. to reflect that the District was required to revert back to a former method of funding stormwater improvements after a judge invalidated the fee that MSD had been collecting since March 2008 to fund stormwater improvements. 2. to reflect that MSD is actually two separate utilities -- a wastewater utility and a stormwater utility. Our bond agreements require that we account for the funding for the utilities separately. 3. to comply with Generally Accepted Accounting Principles (GAAP), per the Federal Accounting Standards Advisory Board.
- A $153.4 million Capital Improvement and Replacement Budget, which covers the design and construction of projects that are part of our $6 billion, multi-decade program to renew and improve our aging wastewater collection and treatment system.
- A $45.8 million Debt Service budget, which covers the mandatory principal and interest payment the District must make on the $735 million in bonds we have used to help fund wastewater construction projects since FY 2004.
|Traditional Operating Budget||$151.1 million||$156.6 million||3.7%|
|Additional Expenses Included in Operating Budget||$ 0||$ 21.7 million||--|
|Capital Improvement & Replacement Budget||$139.3 million||$153.4 million||10.1%|
|Debt Service||$ 42.2 million||$ 45.9 million||8.7%|
|TOTAL:||$336.6 million||$377.6 million|
OPERATING BUDGET How is the Operating Budget funded? The Operating Budget is funded through rates and taxes collected throughout St. Louis Cityand most of St. Louis County. Why are MSD's operating costs increasing? Among the items driving the $5.5 million increase in our day-to-day expenses are:
- Rising employee pension costs -- All MSD employees hired before Jan. 1, 2011 will receive a defined benefit pension when they retire. Our cost to fund this benefit has risen dramatically in recent years. Due, in part, to this increase, MSD implemented a new, lower-cost defined contribution retirement plan for all employees hired after Jan. 1, 2011. Under this program, MSD will contribute a percentage of employees' salaries, as well as a partial match of employees' voluntary contributions, to their retirement. This approach is projected to save MSD $18 million over the next decade.
- Increasing costs for utilities, chemicals, fuel and other supplies needed for day-to-day operation
- Unfunded regulatory requirements -- Funds will be used to implement an asset management program for 125 miles of force mains. While necessary to meet regulatory requirements, this program is outside the parameters of MSD's regular capital budget.
How are personnel expenses impacting the budget? Salaries for MSD employees have been frozen since the beginning of FY11. Sensitive to the need to contain costs, the FY12 budget includes a modest 2.5% wage increase for MSD employees. By eliminating 37 unfilled positions, salary costs for FY12 are down slightly from FY11. CAPITAL IMPROVEMENT & REPLACEMENT BUDGET How is the Capital Improvement & Replacement Budget funded? This budget is funded through rates and the proceeds of bond sales. By using bonds to help fund construction, the District is able to implement more manageable rate increases. What wastewater construction projects is MSD planning for FY12? We will use 95% of our capital improvement budget, or $145.8 million, for the design and/or construction of 49 new or ongoing wastewater improvement projects in FY12. These improvements are necessary not only for regulatory compliance, but also to protect the community from the health and safety risks associated with raw sewage entering basements, yards and waterways during sewer overflows. A modern, efficient and effective sewer system is also needed to support viable and sustainable economic development for generations to come. Projects include:
- Improvements at all seven of MSD's wastewater treatment plants, including projects at the Lemay, Bissell, Coldwater, and Missouri River treatment plants to install disinfection technology to remove bacteria that remains after sewage treatment, which is needed to meet new regulatory requirements.
- Projects to remove and alleviate sewer overflows, which will help further reduce basement backups in areas where sewer systems are overwhelmed by stormwater during heavy rainfall.
- Projects related to expected future regulations for managing, operating, and maintaining the collection system.
What stormwater projects is MSD planning for FY12? We will use 5% of our capital improvement budget, or $7.6 million, for the design and/or construction of 19 new or ongoing stormwater improvement projects in FY12. This is a nearly 75%, or $22.2 million, reduction from FY11. These projects will benefit more than 100 properties and 48 geographic areas facing stormwater-related issues, as well as address erosion issues on 72 properties. Why is the stormwater budget being cut so drastically? MSD lost more than $20 million in annual revenue in July 2010 when a circuit court judge invalidated a fee that MSD had been collecting since March 2008 to fund stormwater improvements. This fee -- about $3.50 to $4.00 a month for a typical household -- was based on the amount of land on a customer's property that didn't absorb rainfall. Runoff from these impervious surfaces is a major source of stormwater and water quality issues. MSD has since reverted to its former method of funding stormwater improvements: a $0.24 per month charge on each MSD sanitary bill for single-family residences ($0.18 for multi-family units) and property taxes that vary according to a property's location. This inequitable system, cobbled together over many decades, is insufficient to meet the District's stormwater needs. If MSD is so short of stormwater funds, why are existing stormwater taxes being reduced to zero in some parts of St. Louis County? Stormwater taxes being rolled back to zero in four taxing districts in St. Louis County(Creve Coeur, Fountain Creek, Clayton-Central and Black Creek), reducing revenues by $2.2 million. All are located within larger taxing districts that also collect stormwater taxes, producing a revenue surplus in these small pockets of the County. In laymen's terms, residents in these areas were being double-taxed. Because these taxes MUST be spent within the districts where they are collected, and because stormwater fees cannot be used for wastewater needs and vice versa, MSD is suspending the stormwater tax in these districts-within-districts until this surplus is depleted. To learn if they will be impacted, residents should compare their 2010 and 2011 property tax bills or contact the Tax Assessor's office. DEBT SERVICE BUDGET How is Debt Service funded? MSD's loan payments are funded by rates. How much debt does MSD currently have? Since FY2004, we have issued $735 million in bonds to help finance our capital improvement and replacement program. Based on current projections, our debt load will increase to $1.7 billion by end of FY16 as we accelerate our efforts to meet the increasingly stringent federal and state regulatory requirements. Is it necessary to finance construction with bonds? By using bonds to fund construction, the District has been able to implement more manageable rate increases, helping to keep customer rates lower than or comparable to national averages. How might a larger budget impact customer rates? MSD customer rates for FY12 are already set, with the average residential customer scheduled to pay $28.73 a month for wastewater service, up from $27.80 currently. Looking ahead, we recognize that our budgetary demands will place an increasing financial burden on our customers. We will be calling on our community many times in the coming years to support -- both philosophically and financially -- our efforts to build the modern, efficient, and effective sewer system needed to protect the public's health and safety, and support a viable and sustainable community for generations to come.