LAKEHAVEN UTILITY DISTRICT
King County, Washington

SPECIAL BUSINESS MEETING
November 22, 2005

A special meeting of the Board of Commissioners of the Lakehaven Utility District, King County, Washington, was held on November 22, 2005 at the Lakehaven Center, 31531 First Avenue South, Federal Way, Washington, 98003.

President Stewart opened the meeting at 6:00 p.m. and asked Commissioner Mayer to lead the flag salute. Members/officials present were as follows:

Ed Stewart - President of the Board
Beverly Tweddle - Vice President of the Board
Don Miller - Secretary of the Board
Tom Jovanovich - Commissioner
Dick Mayer - Commissioner
Don Perry - General Manager
Bert Ross - Engineering Manager
Steve Pritchett - General Counsel
Morgan Dennis - Director of Finance/Information System

APPROVAL OF AGENDA

Upon motion of Commissioner Mayer, which was duly seconded by Commissioner Tweddle, the Board unanimously approved the evening’s agenda as amended below:

1. Action Item #72, Customer Service Bill Printing Outsourcing; defer this item.

CITIZENS COMMENT

Commissioner Mayer reported that the Christmas tree in the lobby of the Administration Building had been decorated earlier in the day with tags depicting the needs of several families within the District’s service area. He encouraged everyone to support this cause.

Mr. Mark Freitas was in the audience to address the Board on several items. He began by thanking the Board for what they do in this community as water and sewer service is critical. He added he is a real estate developer and has contact with District staff and appreciates the service they provide. He added he is also an amateur radio operator and appreciates the antennas the District has allowed to be installed on District water tanks as a service to their organization. He then stated that one of his duties as a fire commissioner was to evaluate and look at the possibility of having paid staff move to City hall. He prefaced his comments by stating they would be given as a private citizen. He went on to state that the staff of the Fire Department continuously interact with the public. Apparently they had a need to expand and had negotiated with staff from the City of Federal Way for space at City Hall. He noted this turned out to be very workable and the Fire Marshall’s office now resides there. He went on to discuss what was involved in the move and added he felt it is a cost-effective way to do business and has allowed them the opportunity to do other critical missions. He then referred to the idea that had been discussed by the City of Federal Way of having a “One Stop Shop” at City Hall to assist the development community in obtaining necessary information. Mr. Freitas then challenged the Board to raise the value of emergency management and discussions. He noted he had also challenged all the City Council members to do better. It was then noted that the District has two Board members that serve on the internal Safety and Emergency Management Committees. Mr. Freitas explained the Greater Federal Way Emergency Management Team that meets the second Thursday each month and referred to the binder that each Board member has explaining their role in an emergency. Commissioner Stewart stated he received information regarding the larger emergency management committee in the past. He noted that Mr. Perry attends those meetings, as had Mr. Ross in the past, and added he felt the District has good coverage in this area. Subsequent to the discussion, the Board thanked Mr. Freitas for addressing them.

ACTION ITEMS

It was noted that a public hearing had been scheduled at 6:15 p.m. to hear testimony about the proposed 2006 Rates/Budget/Fees and Charges. Since it was that time, it was the consensus of the Board to address this item next.

#071, 2006 Rates/Budget/Fees and Charges - Public Hearing and Adoption – 6:15 p.m., Resolution No.’s 2005-1056, 2006-1057 and 2006-1058: At approximately 6:15 p.m. Commissioner Stewart recessed the regular meeting and called to order a public hearing to hear testimony from anyone in the audience relative to the proposed 2006 Rates/Budget/Fees and Charges. As there was no one in the audience who wished to provide any public testimony, Commissioner Stewart adjourned the public hearing and reconvened the regular meeting. It was the consensus of the Board to consider this item as it was scheduled on the agenda outline. The next item to consider was Action Item #69.

#69, Adelaide Beach Sewers – Planning Proposal for Amendment 4 to The Comprehensive Wastewater System Plan: Mr. Ross began the presentation by explaining the purpose of the amendment to the Comprehensive Wastewater System Plan. He then stated it was the recommendation of staff that the amendment be approved by the Board.

Upon motion of Commissioner Mayer, which was duly seconded by Commissioner Tweddle, the Board unanimously approved the proposal offered by PACE, Inc. in the amount of $12,857.00 to prepare Amendment 4 to the 1999 Comprehensive Wastewater System Plan and authorized the General Manager to execute a change order to the on-call professional planning contract with PACE to authorize the work to be performed. Mr. Ross thanked the Board and stated he would be advising PACE of this action the next day.

#70, Board Meeting of 12/8/2005; Discuss Canceling or Rescheduling to 12/1/2005: A discussion began as to the reason for canceling the meeting as well as which date would be the best to reschedule the meeting. It was noted that historically, the Board elects officers for the next year at the first meeting in December and it would be preferable for all Board members to be present at this meeting. Mr. Pritchett added that there could possibly be collective bargaining discussions scheduled for the first or the second meeting in December.

Upon motion of Commissioner Mayer, which was duly seconded by Commissioner Tweddle, the Board unanimously approved canceling the next regular Board meeting scheduled to be held on Thursday, December 8, 2005 and authorized scheduling a special Board meeting to be held on Thursday, December 1, 2005 at 6:00 p.m.

#071, 2006 Rates/Budget/Fees and Charges - Public Hearing and Adoption – 6:15 p.m., Resolution No.’s 2005-1056, 2006-1057 and 2006-1058: As there was no one in the audience to provide testimony relating to this item during the public hearing, a discussion began among the Board and staff. Mr. Dennis stated that all of the issues relating to the items above had been discussed at previous meetings and added he would be glad to answer questions. The discussion began with the proposed Operations and Maintenance (O&M) budget. According to the information provided in the agenda packets, Mr. Dennis stated that within one year the District had collected more revenues than anticipated. He added that the Capital Facilities Charges (CFC) had been increased a bit to reflect a more realistic look at new projects of the District. The District’s debt service had changed slightly due to bond refinancing and the receipt of Public Works Trust Fund monies. He noted that there were very few changes in the O&M and went on to state that other increases reflected utility costs. In summary, Mr. Dennis stated that not as much has been spent for O&M as projected; historically approximately 65% to 75% of what is budgeted is spent. Mr. Dennis went on to state that in prior years, the capital projects were presented as a line item and this amount was merely the sum of all projects for the coming year. He added this tends to cloud the issue between where cash is received and where it is spent. Next Mr. Dennis explained how he proposed changing from presenting capital projects as one line item to setting aside funds in a reserve account to use whenever the project occurs. If the project is not completed in 2006, there will be money set aside for it. Mr. Dennis stated this new procedure would “levelize” the capital cash each year and enable the Board to see a more even trend. Mr. Dennis next discussed the CFC. He indicated he had included suggestions that had been discussed at the last meeting with Mr. Cebron and reviewed the different elements that are considered in developing the charge. A discussion followed about the elements and the advantages of incorporating some of the suggestions. Also discussed was the Board’s philosophy that growth pays for growth and how that figures into the CFC. Mr. Dennis next discussed the Bond Buyers interest rates that was one of the topics discussed with Mr. Cebron at the previous meeting. It was noted that incorporating these rates would be taking the most conservative approach. The last item of discussion was the wastewater system capacity. Mr. Dennis stated that capacity is currently figured on peak flows. The suggestion at the previous meeting was the use of an average of peak flows. Mr. Dennis went on to explain the difficulty in figuring the capacity as suggested. There currently is very little data available; however, each year more will be accumulated which will help determine if the suggested way to figure would be more accurate. It was noted that most districts in the area have surpassed Lakehaven’s CFC’s by now. It was noted that the Fees and Charges resolution for 2006 that will be presented to the Board for consideration at the next Board meeting will reflect the changes that the Board had expressed interest in. Mr. Dennis next moved to the Cash Flow Projections for 2006 and provided a graph for illustration purposes. He explained the assumptions that were made in the model for purposes of illustrating the cash flow from now to 2015. Based on the information that was provided, Mr. Dennis stated that it indicated the District would suffer a water fund shortfall in 2012 or 2013. He then presented several options for the Board to consider to prevent such an occurrence. One change discussed was to change the way capital expenditures are budgeted. He then discussed proposing an increase in water rates. He noted that if rates are not increased the District would be facing a shortfall in the water fund at some point within next half decade. Mr. Dennis indicated that if the Board adopted a 3% increase in the water rate, a customer using 10,000 cubic feet of water per billing period would realize little more than a $5.00 increase per year. He went on to briefly discuss commercial, irrigation and multi-family customers. He reminded the Board of the change in the multi family water rate that removed the summer premium and stated the model he was proposing included that change. Mr. Perry noted that Mr. Dennis had shown him the information that he had developed and he had determined from the data that it was unnecessary to increase the sewer rates. In summary, Mr. Dennis stated that next year at this time, the Board will be able to see what is available for Operations and Maintenance and what is available for capital projects. He added that staff has been working on a financial policy that includes this proposal as well as some other suggestions. He stated that he felt by incorporating the proposal, it clearly demonstrates that money is being set aside for plant improvements and repair as well as the Board’s philosophy that growth does pay for growth. Commissioner Stewart then referred to all the construction and improvement projects that have occurred in the District over the last few years and commented that eventually, some of this should subside. Mr. Perry stated the projects would then be switched to the water mains. He noted that Lakehaven’s piping system must have the capacity to transport water to our neighbors. He added that this is what he recommended be done seven or eight years ago. The proposed Fees and Charges resolution was then discussed. The new resolution incorporated the proposed changes into the handouts that were provided to the Board. Mr. Dennis stated that the biggest change was the water meter installation charges. The increase in this area is due to permit and inspection fees from both the City of Federal Way and King County. He went on to briefly review other changes that were included in the new resolution. He noted the resolution that will be presented to the Board at the next meeting will include the updated CFC charges. He added that the 2006 Budget resolution will have incorporated within it a separate section for the inclusion of a list of all the planned capital projects and the amount of the expenditure for each. He then asked for Board consensus on a proposed increase in the water rate for 2006. It was the consensus of the Board to direct staff to include a 3% increase in the District’s water rate for 2006. Mr. Dennis thanked the Board; in addition, the Board thanked Mr. Dennis for the very informative presentation and all the hard work.

STAFF REPORTS

GENERAL COUNSEL: Mr. Pritchett reported a bargaining session with AFSCME representatives was scheduled for the next Monday.

DIRECTOR OF FINANCE/INFORMATION SERVICES: Mr. Dennis explained the reason for removing the Customer Service Bill Printing Outsourcing item from the agenda. He stated that a local firm provided a proposal for this work and he would like time to review it further before asking the Board to consider authorizing a contract. In addition, staff wanted to ensure that the members of the AFSCME bargaining unit had no objections with the new procedure as these are the employees that currently perform the work that would no longer be performed if this proposal was authorized. Next, Mr. Dennis stated that the listing of the proposed Capital projects for 2006 included funds for the new Utility Billing System that had been discussed. He noted that the new version of the system will work with the GIS system and will also allow for more people to support it.

ENGINEERING MANAGER: Mr. Ross reported staff had recently finalized the District’s participation in the project with the City of Federal Way at the intersection of South 336th and First Way South and he went on to briefly review the history of the project. He also explained the District’s portion of the work that will be done. Next, Mr. Ross stated that, pursuant to Board authorization, staff is beginning the recruiting process for a Project Engineer. He noted that management is contemplating providing a work area for the new employee at Lakehaven Center and asked if the Board had any comments. No one expressed an objection to Mr. Ross’s proposal.

GENERAL MANAGER: Mr. Perry reported current water flows of 1,000 gallons per minute of Second Supply project water and added this should continue with the anticipation of increasing flows to 3 million gallons per day. He noted staff had received no calls about chlorine, to date. Commissioner Jovanovich reported he had received an email from someone who expressed concern with fluoride. Mr. Perry then stated that the new project engineer would be participating in the City’s Development Review Committee. Next, Mr. Perry indicated he was scheduling a meeting with representatives from the Chamber of Commerce. He then provided a status report on several wells that were being rehabilitated for various reasons. He added that Puget Sound Energy had requested a customer service rating and he had expressed his disappointment in the quality of their power. He added the District seems to have power issues each year from September to the first of the year and he felt something needs to be done to protect District facilities. He then provided a brief status report on the District’s aquifer levels. Next, Mr. Perry stated several meetings had been held with the mediator regarding bargaining issues with the IUOE bargaining unit. He noted the mediator intended to present a proposal to the Board with the intent of speaking to the union after that. After a brief discussion, it was the consensus of the Board that it would be inappropriate for the mediator to speak to the Board directly – he should present his proposal to the bargaining team, who in turn would report to the Board. In response, Mr. Perry indicated he would speak with the mediator and would report back to the Board President. He added he could review the proposal and write a response for the Board to review.

ADJOURNMENT

There being no further business to come before the Board, the meeting was adjourned at approximately 7:45 p.m.