Title
Approval of the Proposed FY 2021 Budget Reductions
Body
Agenda of: June 24, 2020
Item No.: 2020-214
TO: The Honorable
Board of Directors
Great Lakes Water Authority
FROM: Sue F. McCormick
Chief Executive Officer
Great Lakes Water Authority
DATE: June 24, 2020
RE: Approval of the Proposed FY 2021 Budget Reductions
MOTION
Upon recommendation of Nicolette Bateson, Chief Financial Officer/Treasurer, the Board of Directors (Board) of the Great Lakes Water Authority (GLWA) approves the Proposed FY 2021 Budget Reductions as presented; and authorizes the CEO to take such other action as may be necessary to accomplish the intent of this vote.
BACKGROUND
On March 11, 2020, the Board adopted Resolution 2020-083, “Resolution Regarding Approval of FY 2021 Schedule of Service Charges <https://glwater.legistar.com/LegislationDetail.aspx?ID=4341833&GUID=41FF3725-7998-4299-8061-FC2BFEDB81B4&Options=&Search=&FullText=1>” (the Charges). Since the Board took that action, the COVID-19 pandemic afflicted the United States, causing President Donald Trump to declare a national emergency and Michigan Governor Gretchen Whitmer to declare a state of emergency in Michigan. Further, Governor Whitmer issued Stay Home/ Stay Safe Orders, which currently run through April 30, 2020. In addition, Governor Whitmer issued orders preventing local utilities from discontinuing water service during the declared State of Emergency.
While Michigan has seen positive results from its efforts to slow the spread of the COVID-19 virus, the ultimate duration and impact of the virus continue to remain unclear. Similarly, the duration and effects of the COVID-19 pandemic on the national economy, Michigan economy, and local economies within the GLWA service area remains unknown.
In response to the COVID-19 pandemic, the recommendation to change the effective date for the implementation of 2020-083 “Resolution Regarding Approval of FY 2021 Schedule of Service Charges,” from July 1, 2020 to October 1, 2020 was presented to the Board of Directors (Board) of the Great Lakes Water Authority (GLWA) at the GLWA board meeting on April 22, 2020. In approving this change, it was the Board’s expectation that the Board would receive a plan for operational and budget reduction to the Board by its first meeting in June 2020 and any necessary amendments to the Budget for Fiscal Year 2020-21 to the Board for its review and approval on or before November 30, 2020.
JUSTIFICATION
By delaying the effective date of its adjustment to the Charges by one quarter of the fiscal year, GLWA member partners will experience a 25% percent decrease in the increase to their wholesale water and/or sewer costs. This decrease will allow the member-partner utilities to have the flexibility to adjust their operations and cash flows in order to better provide service to their customers and account for any potential lag in collections. Similarly, GLWA’s is able to make necessary spending and/or budget adjustments as the impact of the current COVID-19 pandemic is better understood. Based on what we know to date, the proposed budget amendments for FY 2021 have been prepared (a) reflecting the impact of the COVID-19 pandemic on GLWA’s operations and revenues and (b) allowing GLWA to continue to operate in a fiscally prudent manner with a balanced budget. Attached is a communication to the Audit Committee dated June 19, 2020 which outlines the corresponding plan to address the budget reduction. The proposed budget reductions are presented by expense category in Table 1 of the attached memo and by core purpose group in Table 2.
BUDGET IMPACT
The delay of the effective date of the FY 2021 Schedule of Service Charges will reduce the revenue available for water operations by approximately $3,000,000 and for sewer operations by $2,650,000. The plan for the proposed FY 2021 budget reductions, attached, fully addresses this revenue reduction with corresponding expense reductions for the combined total of $5,650,000.
COMMITTEE REVIEW
This matter was reviewed by the GLWA Audit Committee at its meeting on June 19, 2020. The Audit Committee unanimously recommended that the proposed FY 2021 budget reductions as presented.
SHARED SERVICES IMPACT
This item does not impact the shared services agreement between GLWA and DWSD.