MINUTES OF MEETING

CORAL SPRINGS

IMPROVEMENT DISTRICT

The regular meeting of the Board of Supervisors of the Coral Springs Improvement District was held on Monday, May 16, 2005 at 4:05 p.m. at the District Office, 10300 NW 11^th Manor, Coral Springs, Florida.

Present and constituting a quorum were:

Bob Fennell President

Bill Eissler Vice President

Glen Hanks Secretary

Also present were:

George Keller Manager

Dennis Lyles Attorney

John McKune Engineer

Dan Daly District Staff

Joni Hayworth District Staff

Susan Walker District Staff

Roy Kroker Severn Trent Services

Roger Moore Severn Trent Services

FIRST ORDER OF BUSINESS Roll Call

Mr. Eissler called the meeting to order and Mr. Keller called the roll.

SECOND ORDER OF BUSINESS Approval of the Minutes of the April 14, and April 18, 2005 Meetings

Mr. Fennell stated each Board member received a copy of the minutes of the April 14, and April 18, 2005 meetings and requested any additions, corrections or deletions.

Mr. Hanks stated I have two corrections. On page 21 in the first sentence of the April 18, 2005 meeting, that is not me; and on page 24 the third line from the bottom should be me.

Mr. Lyles stated on page 20 of the April 18, 2005 meeting strike the sixth paragraph from the record.

Mr. Eissler stated on page two of the April 14, 2005 meeting, I would like the items 3, 4 and 6 defined for the record.

On MOTION by Mr. Eissler seconded by Mr. Hanks with all in favor the minutes of the April 14, and April 18, 2005 meetings were approved, as amended.

THIRD ORDER OF BUSINESS Consideration of Change Order No. 2 to Intrastate Construction Corporation Contract for Wastewater Plants C and D Rehab for a Net Increase of $19,886.07

Mr. McKune stated previously the Board authorized us to proceed with the design and construction of the wastewater quality handling system, and modification to the existing sludge and new aeration system, which is a $3 million project. Part of that project represents $100,000 for modifications to the existing floating digester cover. It is made of steel and it is rusting. The project will involve removing that and converting the tank to an aerated sludge removal. This taking is one of the primary sources of odor at the plant. We hooked up a temporary pumping system to recirculate material. In order to minimize the odor is to aerate the tank. We would like to remove the floating digester cover by change order because this contractor has the equipment on side. The District can also do a direct purchase of the 100 hp blower to aerate the tank. This change order for removing and disposing of the cover, which weights approximately 40 lbs, is $19,886.07. The amount of the blower that I would like the District to purchase is in the amount of $35,000.

Mr. Eissler asked do have a place to put the blower?

Mr. McKune responded yes, and it will have a sound deadening enclosure around it.

Mr. Hanks asked does that include the enclosure?

Mr. McKune responded yes.

Mr. Eissler stated we have talked about odors for the past year. Why hasn’t this come up before?

Mr. McKune responded it has. We talked about it as part of this overall project.

Mr. Eissler stated I don’t remember talking about removing the cover. It is a great idea.

Mr. Moore stated we made a modification to this particular tank about six months ago. We added a recirculation pump. That somewhat decreased the odors. This is the primary cause of our odors. This contractor has the crane on site; this will save us mobilization costs.

Mr. McKune stated there are two major sources of odor. One is head-works and the other is the two story building for the sludge. One of the main reasons it is an odor producer is because the material pumped to that building comes from this tank. By putting air into the holding tank, we minimize any odor during the sludge thickening process.

Mr. Hanks stated this was originally designed as an aerator. What is this going to do on the line? How is this going to affect the screening as it goes to the belt presses?

Mr. McKune responded it is going to improve it because it has not been functioning as a digester for the last 10 years. It has simply been a sludge holding tank.

Mr. Hanks stated we are going to change our system to another type of system that is in practice.

Mr. McKune stated correct, to match with the digestion system in Plants A and B.

Mr. Moore stated when you come to the plant directly through the gate and turn right if you look straight ahead there is a circular tank.

Mr. Fennell asked was that originally a digester tank? It is very small.

Mr. McKune responded it was part of a three-digester system. It was part of an exotic system, under President Reagan’s administration, to go into an energy reduction system and produce methane gas which has to be dried and stored, and excess methane would be placed into another tank to run district vehicles. By the time it was built, the department disbanded in Florida. This kind of system is still being used today, but not down here.

Mr. Hanks stated they have something like this in Providence, Rhode Island.

Mr. Fennell asked do we have to bid this out?

Mr. Lyles responded we have an existing contract covering the work that is being done to the tune of $1.2 million. This is a change order that has arisen out of the course of the contract. Since we bid the underlying contract, the change order is allowable. It is in the Board’s discretion. There is no legal impediment.

Mr. McKune stated the other issue is the direct purchase of the blower. In the past we bid out pieces of equipment on this order, but we know we want a specific blower.

Mr. Fennell asked is this holding the solids for Plants C and D?

Mr. McKune responded Plants A, B, C, D and E.

Mr. Fennell stated we had a solids removal previous to this. The waste goes through the tanks, eats up everything it can, and comes back into this holding tank.

Mr. Moore stated this is the last step before dewatering.

Mr. McKune stated the tank itself does not have any air. It was originally a non-aerated tank. To avoid building another tank, we converted it into a holding tank. As long as the amount of solids going through the tank is reasonable it did not cause an odor. With the edition of Plant E, we now have more solids to process and the tank is being overloaded. As it is filling up, it is pushing out the air.

Mr. Fennell asked will you have to turn this tank off temporarily?

Mr. McKune responded yes.

Mr. Fennell asked do you have a by-pass?

Mr. McKune responded you can work around it for a short period of time.

Mr. Hanks asked is that short period of time sufficient for the contractor to complete his work?

Mr. McKune responded yes. We plan on obtaining the blower, providing power to the blower, testing it, putting in the air piping, take the tank off, put the aeration system in and turn the blowers on to minimize the time it is out of circulation.

Mr. Fennell stated we were having other issues because we had no one here to run the system during the three to four day holidays. Is this feeding into it? Will it be down for two or more weeks?

Mr. McKune responded around a week. The belt press system we purchased will handle the sludge processing and we can retain many tons of solids in the treatment plants for two days.

Mr. Hanks stated there will be an increase in the odor when you make that transition.

Mr. McKune stated for a very short period of time. The county and DEP will be aware of this before hand.

Mr. Fennell stated we have this change order of $20,000 and we have something else coming for an additional $35,000.

Mr. McKune stated I would like the Board’s authorization to have staff start the process of ordering the blower. I have two quotes—one for $70,000 and one for $29,000.

Mr. Fennell stated the $20,000 is pretty clear.

Mr. Hanks asked what happens if we don’t do anything about this now?

Mr. McKune responded we will have a major mess on our hands. The top has been in danger for about five years. No one has been on top of the tank to look around. It is too dangerous.

Mr. Eissler asked what is the differential from $29,000 and $70,000?

Mr. McKune responded the blower itself is not the difference. It is the sound deadening enclosure. Someone is making a profit. It is a 5DB enclosure.

Mr. Hanks stated that 5DB reduction at the location is not going to translate into that corresponding reduction at the property line.

Mr. McKune responded it may, the way sound reduces is for every doubling of the distance from the source, you reduced the DB by 6DB. By the time we go to 300’ to the property line you are down below the noise ordinance level. We like to go as far below that as possible.

On MOTION by Mr. Eissler seconded by Mr. Hanks with all in favor Change Order 2 to the Intrastate Construction Corporation Contract for the Wastewater Plants C and D Rehab in the amount of $19,866.07 were approved.

Procurement of Blower

Mr. McKune stated for the authorization to purchase the blower, we have heard it is a four week delivery.

Mr. Lyles stated I may not have understood the sequence of events. We have the contractor in place, he has the crane in place, he is mobilized so we did the change order to his contract. Is the blower coming from a totally different source and being installed by other resources? How is this going to happen?

Mr. McKune responded the District will purchase the blower. The blower will be delivered to Intrastate to install the blower.

Mr. Lyles stated we need to bid this. Even though you have phone quotes, it needs to be bid. Under our special act if it is over $4,000 it needs to be bid.

Mr. McKune stated we can bid it, but I don’t want to be forced into taking the lowest bid if Joe’s Blower Shop gives the lowest bid. I will have a problem with that.

Mr. Lyles stated the bid specifications should take care of that.

Mr. McKune stated you are talking about going through a procedure.

Mr. Lyles stated it is the same procedure we always have to go through.

Mr. Hanks stated by the nature of the specifications you are specifying one supplier.

Mr. McKune stated we have two options available to us—emergency and a sole source. I consider this a sole source requirement because I want this blower to be from the same manufacturer of the other two blowers doing the same duty.

Mr. Hanks stated you are looking at if from a compatibility, available of parts, maintenance issue. You don’t want an operator saying this part is for this blower, and that part is for the other blower.

Mr. Fennell asked did you say you are getting a temporary blower?

Mr. McKune responded the overall program will have two of these blowers. We want to put one in as fast as we can.

Mr. Keller asked are we confident we can have the specifications to qualify for the same source?

Mr. McKune responded yes, but then we have been submarined in the past, because what the contractors and suppliers will do is submit a bid, and submit requested changes to the specifications and take the requested changes directly to the owner and bypass the engineer, and threaten to sue the District if you didn’t use their submittal.

Mr. Fennell asked what happens if we take off the cover and we don’t have the blower?

Mr. McKune responded you don’t want to take off the cover without it.

Mr. Fennell asked what is your definition of urgency?

Mr. McKune responded this is urgent, but it depends on your definition of urgent.

Mr. Lyles stated let’s go back to basics. All the consultants who serve as your staff, serve other government entities as well. The unfortunate fact is you have a special act with the Florida legislature as you know was recently codified, updated and passed last year. The standards established in the early 1970s for bidding such requirements are still there. We don’t have an exception in our special act for urgent circumstances or for making sure equipment is consistent with a type of machinery that is already in place. If it is over $4,000, we need to bid it. Many times we have accomplished things by putting out to bid the entire project, and it is up to the contractor to obtain the necessary equipment to put it into place and make it compatible with our existing operations. If we are going to buy it separately and it has a price tag of over $4,000, we are required by our special act to bid it. Staff needs to rethink the approach it wants to take. I was aware of the change order in the package, but not this second part which involves the blower.

Mr. Eissler stated the change order may be null and void, if the contractor does not have the equipment to remove the cover.

Mr. Fennell asked was this part of the original idea for Plants C and D?

Mr. McKune responded it is related to Plants C and D. We put this into the most recently approved budget.

Mr. Fennell stated this is part of the overall project.

Mr. McKune stated that is correct.

Mr. Fennell asked did we expense the blowers at that point?

Mr. McKune responded yes, it is included in the price of the project being designed.

Mr. Fennell stated we have not bid the project yet; we have just designed it. During the design process is look at this and say we need to do something about this now.

Mr. McKune stated we came to the conclusion two years ago and thought we could wait until the overall project was designed. We don’t need to wait; we can carve this part out. I can put specification out and advertise it within the week. That is not an issue.

Mr. Fennell asked can we give them pre-approval to order it after the bid?

Mr. Lyles responded not really. You have a week to do the specification. It has to be published for two consecutive weeks. For all intent purposes you are into the next meeting anyway. Does that critically affect the time line?

Mr. McKune responded everything will be delayed a week or two.

Mr. Lyles asked will the crane still be on site?

Mr. McKune responded not that I am aware of, but I do not know that for a fact.

Mr. Lyles asked does that affect the price we are getting?

Mr. McKune responded no.

Mr. Lyles stated as long as we stay within the change order price contemplated by Change Order 2 and go through the proper bid and notice process on this piece of equipment. If you get proposals that do not satisfy you, we reserve the right to reject everything at Board level.

Mr. McKune stated in the past we have contacted suppliers and let them what the process is and there should be no surprises.

Mr. Hanks asked are we putting out to bid just the blower, or the housing too?

Mr. McKune responded the housing too. It is a complete unit.

Mr. Hanks asked do we want the component of taking it off the truck and installing it with the bid package?

Mr. McKune responded once it gets here, I would prefer the contractor who is on site to take over the responsibility.

Mr. Lyles stated as a tax-exempt public agency, if we buy it direct from the supplier we don’t pay sales tax.

Mr. McKune stated we may not have the bids for the agenda package, but we can place it on the agenda and bring the results to the meeting.

On MOTION by Mr. Fennell seconded by Mr. Hanks with all in favor staff was authorized to bid for the procurement of a blower, and bring the results to the next meeting.

FOURTH ORDER OF BUSINESS Distribution of the Proposed General Fund Budget for Fiscal Year 2006

Mr. Keller stated you have been given a proposed draft budget of the general fund for fiscal year 2006. It has been a collective and collaborative process involving Ms. Susan Walker, Mr. Roger Moore, Mr. Roy Kroker and a number of people from the District and Severn Trent. This is the initial draft for 2006 and provides opportunity at the June meeting for more discussion with its final adoption at the July public hearing. In the same sequence we will do the water and sewer budget presentation at the June meeting, discussion at the July meeting with its final adoption in August at the public hearing. That is the tentative framework for the budget hearings this year.

Mr. Fennell asked how much money do we have in reserves now?

Ms. Walker responded as of 9-30-2005 we have $875,000 for the pump replacement, and the reserves for first quarter funding. We recommend another $220,000 to bring the total up to $1,103,000. Page 19 shows the reserves for renewal and replacement.

Mr. Keller stated we are projecting a slight increase in the assessment of $4 per assessment unit.

Mr. Fennell asked do we think we will have to spend $2.3 million on canal bank maintenance under repair and replacement?

Mr. Moore responded I’ll have to go back and look. Sunshine Water Control District [Sunshine WCD] has two outfall canals and we have an estimate of approximately $2.2 million to clear all the canal banks. The first phase has been completed. I used that estimate in this budget, and we are working with the city in cleaning the canals up in the Dells. Sunshine WCD is putting in $50,000 and the city is putting in $75,000. We are looking at 10 years to clean the canal banks in that District. Canals do need to be excavated due to settlement of material at the bottom, especially along the outfall canals.

Mr. Hanks asked have you looked at the main canals?

Mr. Moore responded some were 8’ to 10’ deep and are now 6’.

Mr. Fennell stated that is a huge number for a budget like this. It is a major wake up call that we need to think about.

Mr. Moore stated Sunshine WCD spent $300,000 when the hurricanes came through. Coral Springs Improvement District [CSID] spent $100,000 in emergency funds to clean the trees from the canals. We applied to FEMA for a refund, but it costs three times to take a tree out of the canal than we take it out prior to it falling down.

Mr. Eissler asked what is the homeowner’s responsibility along the canals? We have trees where the limbs are starting to break off. I assumed it was the homeonwer’s responsibility to remove the trees.

Mr. Moore responded we have been meeting with the city over the last six months. There is a rule and “thought to be rule.”

Mr. Keller stated we met with the City Manager of Coral Springs and the Public Works Director, and this morning Mr. Selchan and I met with the Public Works Director and other staff members. The local rule in terms of code enforcement is that the adjacent property owner is responsible up to the water line, and we are responsible from the water line into the water body. In terms of enforcement philosophy that has not always been followed; that has not been enforced vigorously and is why you see a lot of heavy growth dropping into the canal. If they are cited, the homeowners cut the growth and drop it into the canal so it becomes our problem. That is what we are struggling with. We have had a couple of productive meetings with the city and we are working to resolve some of these issues. There is a cooperative venture in the Dells and Meadows in the Sunshine WCD. In some areas there is heavy growth that has taken place over the last two decades, and it will be major work and expense to keep those waterways clear to have good drainage.

Mr. Eissler asked did you say it was the homeowner who is responsible to the water’s edge?

Mr. Keller responded yes.

Mr. Eissler asked who is paying to take the trees out? In our area the homeowners are not even looking to the city to take the trees out.

Mr. Keller responded in this particular area there is eligible federal funding under the CDBG program to assist with the city’s portion and Sunshine WCD is contributing, and we are working hand in hand.

Mr. Eissler stated if the homeowner is responsible to the water’s edge that pays for everything.

Mr. Moore stated in the Dells most of the canals are straight ditches, not the 4:1 slope you see if most areas. The city has a problem asking the homeowners to maintain to the edge of water where is it straight down, and if there is an accident the city could be liable. We talked to the city about spraying the vertical piece, if they will interpret the edge of water to be the top of the bank in that area. Sunshine WCD owns the right-of-ways. It is not an easement.

Mr. Hanks stated there are canals in this District that are vertical cut as well, particularly Atlantic and the Sawgrass.

Mr. Moore stated on the Sawgrass section. The city was not enforcing the maintenance to the edge of water and thing are overgrown. Sunshine WCD spent $60,000 six years ago to clean out an area with the verbal agreement the city would maintain and enforce their deed restriction. They never enforced the codes and it grew back. This time Sunshine WCD entered into a written contract. Also the schools do not maintain down to the water’s edge. In this year’s budget I put in $50,000. I talked to a couple of school board members to see if their agency can also maintain to the water’s edge. If they put a fence in, they will not maintain to the water’s edge and it gets overgrown.

Mr. Eissler stated the law says they are supposed to maintain to the water’s edge. Why would we pay because they are negligent in maintaining their area? Why not sue them?

Mr. Moore responded the city told me they will take the first step and cite the school board.

Mr. Eissler stated if I decide not to maintain the canal bank, you will not sue me and make the whole community pay for my mess.

Mr. Moore stated that is not the intent on the individual lakes. On the major canals we have to keep open, the intent it to get the large trees out so they cannot come down during a hurricane and block the drainage.

Mr. Eissler stated I have a problem with that. It is the law.

Mr. Moore stated we do not have any enforcement powers. We have no right unless we sue. We turn the problems into the city. The city code enforcement cites them on the code.

Mr. Keller stated we had very good cooperation with some of the other local governments and the city said they anticipate being more in communication with us, but more aggressive with their code enforcement action. Some of the things that were in the past allowed will now be cited. We will take care of the water body and there is a good solid condition to maintain a more strict enforcement philosophy in the future and be more effective.

Mr. Eissler asked who trims the trees by the Coral Springs car wash?

Mr. Moore responded the city.

Mr. Hanks asked who the chairman of the school board?

Mr. Moore responded I met with her twice, and she is more than willing to meet with us.

Mr. Fennell stated you are pointing out a problem that needs to be solved. Mr. Eissler brings up a good point of who is going to pay for this. Mr. Eissler lives on a canal and I don’t, yet I am paying the same about Mr. Eissler does. I don’t know if I want to pay another extra for the District to take his trees out. The canals are there for everyone’s benefit as far as flooding. I don’t know if I want to pay to improve the aesthetics for his home.

Mr. Moore stated we get objections because we are taking away their privacy. Our concern is the large trees that can come down and block drainage during a hurricane.

Mr. Fennell asked do you need to go down each canal?

Mr. Moore responded we have already done that and did a master plan.

Mr. Fennell asked do the homeowners know?

Mr. Moore responded yes. The politics have already started.

Mr. Fennell stated I am wondering about the $2.3 million.

Mr. Moore stated I need to look at it one more time. I want to make sure the number is correct.

Mr. Fennell stated the work is extensive.

Mr. Hanks stated whether it is tree maintenance, bank maintenance.

Ms. Walker stated this is to put money aside to keep assessments close to the same.

Mr. Eissler stated that is not the point. When you have $2 million out of $3.5 million that is a big chunk of money.

Mr. Hanks stated this is a drainage issue, and this makes up a large part of drainage.

Mr. Eissler stated you need to keep the drainage going. I can see dredging the canal. I am not sure about removing trees.

Mr. Keller stated we have time between now and the next meeting for discussing and workshoping this particular budget. The public hearing is two months away. Let’s take another look at the numbers and if there is another approach to this.

Mr. Fennell stated also the equity of who pays for this.

Mr. Eissler stated when the trees are cut down you create an eyesore. In my situation it will be enhanced. The State is going to put up a 4’ wall by the Sawgrass. This is a big chunk of this budget.

Mr. Keller stated no action if required today, but that is a policy decision of how much you pay, and the resources you want to include.

Mr. Fennell stated don’t commit to the city that we are going to spend some money.

Mr. Keller stated they only money committed to the city is from another district [Sunshine WCD].

Mr. Fennell stated we need to make sure people understand there is a problem and some long term education. They need to control the area, they are responsible for the area, and they need to know which trees are involved.

Mr. Moore stated we are doing an educational pamphlet with the city. We are getting a pilot program together with another district and we want it to overlap into this District.

Mr. Hanks asked has the city mandated any replacement of these trees?

Mr. Moore responded not at this time because they are mostly noxious species.

FIFTH ORDER OF BUSINESS Staff Reports

A. Attorney – Lake Maintenance Agreement with Lake Coral Springs Association

Mr. Lyles stated nothing new to report, and nothing has been spent. I have been out of town for two weeks, so I will follow up with their attorney. I suggest we take this off the agenda as a recurring item and when we have something I’ll bring it to your attention for approval.

Mr. Fennell asked are we doing anything for them?

Mr. Moore responded we need legal access.

Mr. Lyles stated the other hold up is the price for other maintenance that they questioned. They think it is too high and they want detailed scientific backup to support each price. It is irrelevant because we are not going to do those things if it needs to be done. The District is going to do nothing more than the basic maintenance as with any other location throughout the District where people are paying the same level of assessment. We are not going to provide cleanup of coconuts, pull boats off of sandbars, etc. They also need an agreement from us to do the maintenance themselves as well which they are currently ignoring. When a problem occurs, they will want an agreement in a hurry and things will happen quickly.

B. Engineer

1. Monthly Water & Sewer Charts

Mr. Fennell stated we also asked for a chart of complaints.

Mr. Moore stated that is coming up under item D.

Mr. Fennell asked how old in Plant E?

Mr. McKune responded just under one year.

Mr. Fennell stated we have made two big improvements—Plant E, the surge tank, as well as the wastewater handling. What has been the overall affect?

Mr. Moore responded you have added what you need to the plant. All the other problems we have are because we are so efficient with Plant E. With Plants C and D coming on line we are becoming more efficient by 20% to 30%. By the time we are through the next phase for Plants A and B, we will be working like a Swiss watch.

Mr. Eissler stated in cost savings, we are not going to save much. By putting in new blowers we are going to use more power.

Mr. Fennell stated we are not spraying the chemicals anymore.

Mr. Moore stated that has been reduced by 60%. We used to spend $170,000 and this year we put in $50,000 for the next budget. To date we spent about $20,000.

Mr. Fennell stated we also saved it the right way.

2. Discussion of Five Year Capital Improvement Plan and Funding Requirements

Mr. McKune stated there are three major components of the project. The first is the solids handling system. The second is the water plant addition to take some of the existing water plant out of service and maintain it, which has been authorized. We are waiting for some direction on how much of that water system program we want to do immediately and how much we can defer if we need to for financial reasons. The third is Plants A and B, which are ready to fall apart. We spend $250,000 every two years to patch them up. It is time to replace them. It is a function of timing and dollars.

To summarize, we have $670,000 on the current project contracts and $400,000 into next year. For the scheduled improvements the total is $12 million for a grand total of $13 million for the five-year period. The first three years [2005, 2006 & 2007], $250,000 is for 2005; $3.7 million; $3.8 million respectively. Keep in mind the three projects we talked about. There are projects that can be deferred. Our recommendation for improvements for the first three years comes to $7.6 million. That is what we need to do right now. Based on the draft audit, we have $8 million in unrestricted funds. That is after we take $1 million to refund the repair and replacement account, and pay for the projects that still need to be completed that are under construction now. Conservatively we can spend $8 million. We can get a contract for all three projects and fund these projects.

Mr. Eissler stated a few months ago there was some doubt as to whether we had the $8 million.

Ms. Walker responded we have $8 million.

Mr. McKune stated on an annual basis for revenue, expenses and debt services, we end up with a $5.6 million bond issue, which under standard assumptions gives you an interest payment of the first year of $255,000, with 29 annual payments of $375,000.

Mr. Eissler stated is this using the same numbers as our last bond issue?

Mr. McKune responded this is from the same people.

Mr. Fennell stated I am looking for a cash flow sheet. If we have $8 million, say we authorize the first couple of years’ projects now, what is the time frame, when will the project start, and when we have to pay for them?

Ms. Walker responded you are looking for how much money we will need each month.

Mr. Fennell stated you should be able to tell me this is when we will spend all the $8 million and this is where we will need to do the bond issue.

Mr. McKune stated that is a large amount of detail we cannot prepare.

Mr. Fennell stated this is where our accounting department and our management group needs to come in with high powered financial management to forecast. This is a great start. With the $8 million we still have the required reserves.

Ms. Walker stated we cannot increase our expenses, or we cannot cover our debt. We barely made it last year on the budget. Reducing security will help. We want to keep up with the $200,000 a year for renewal and replacement. We have $1 million in the fund and we only put in $100,000 this year. In the past we have always put in $200,000, but we couldn’t cover our debt so we reduced it.

Mr. Keller asked Mr. McKune, can you talk about the projections we did on the annual rate structure and service charges?

Mr. Hanks stated before we go into that, this takes us out five years and yet we are looking at a 30-year bond. What happens years six through ten, or 10 to 15? What are we going to be faced with 15 years from now?

Mr. McKune responded additional expenses, but if you raise the rates to the level they need to be raised, you will accumulate over time the surplus needed which is the reason you have the $8 million now. You can either accumulate cash every year and earn interest or do a zero based budget and wait 15 years, have a bond issue and pay interest. I would rather accumulate and earn interest.

Mr. Eissler stated when you float a bond issue we are required to have a reserve.

Mr. McKune stated it is part of the bond issue and is usually equal to one year’s payment.

Mr. Fennell asked who did the financial analysis?

Mr. McKune responded I did. The last sheet has the annual financing performance from 2004 to 2011. The numbers for 2004 and 2005 are either audit numbers or budget numbers; these are not projected. The debt service of $1.4 million is the refunded debt. If we do the $5.6 million bond issue, you will not need that money until 2008. After that the normal debt service will be $375,000 every year. That point requires additional revenue which means you need to tailor your rates. Right now you are having trouble funding all the accounts you need to fund, and you do need to increase rates. Some of the reductions in costs over the past year Mr. Keller and Mr. Moore have recommended helped tremendously, but I don’t think additional reductions will help us in this upcoming budget to meet the financial obligations.

Mr. Fennell stated we picked up $100,000 by reducing the security issue.

Mr. Eissler stated rates have not been raised in this District for years. No one is going to like a rate increase, but we need to start seriously thinking about gradually increasing the rates as we go.

Mr. McKune stated an alternative is to eliminate the allocation of the first 3,000 gallons of water as free and go to zero per gallons, then you will have an addition of $2 million in revenue per year which will solve all problems. If instead of zero you drop it to $2,500, we have a 5% increase in the monthly bill. If we drop it to $2,000, we have a 10% increase in the monthly bills. This should be in the upcoming budget which means we need to start the public hearing process.

Mr. Eissler asked what is the time period to raise the rates?

Mr. Lyles responded we have two different processes we follow. One is for the budget itself and the assessment we levy. The other is rate making, we do that by resolution and a 30-day notice provision as I recall.

Mr. McKune stated if all we do is reduce the amount of free gallons, is that in fact a rate increase?

Mr. Lyles responded I would treat it that way, because it will affect the bill that is received by the consumer.

Mr. Eissler stated that is a way to do this, and it will have to be done to fund all this. After 12 years, it should not come as a shock, particularly if we tell them what other people pay for water. That makes it go down a little easier.

Mr. Hanks stated with these proposed changes, you are changing it at the first 2,000/3,000 gallons. Does a household that uses 4,000 gallons increase by 5%?

Mr. McKune responded the percentage increase on a low volume user will be tremendous. The 3,000 free gallons is what we call a lifeline rate, which was a fixed monthly bill. You can leave the 3,000, you still need the 5% increase. Increase the fixed monthly charge everyone pays, or you can increase the step-rate for people who use an excess of 12,500 gallons so the low volume user is not affected. Those high users will triple.

Mr. Eissler asked what is the average use?

Mr. McKune responded 7,000 to 8,500 in the first tier.

Mr. Fennell stated our engineer has gone above and beyond the call of duty. We need to have our own accounting and management group come back with a proposal and I expect some differences in opinions of how we can do this.

Mr. Keller stated a range of different scenarios.

Mr. Fennell stated we need management input, possible cost reductions, the politic issue of sensitivity; possibility of doing this over five years instead of three; cost of living increases only; surcharges; the anticipated fuel costs; different bond issues; etc.

Mr. Keller asked do you have any particular philosophy you want us to stay away from—high end users, low end users, overall?

Mr. Fennell responded if we sold more water, will we make more money?

Mr. Keller stated in any event, we will recommend on an annual basis you consider some kind of adjustment so you do not get to a point many years later where you have a lot of catching up to do.

Mr. Hanks stated if we phase out the first tier over four or five years, we are still faced with how we are going to continue to increase our rates to stay with the cost of living.

Mr. McKune stated that has been the issue over the last 11 years. As inflation continued, you were making sufficient revenues for your debt service coverage; however, the annual surplus decreased. Now you have no more surplus; therefore, when you raise rates they have to be done affectively every year.

Mr. Eissler stated everyone should pay.

Mr. Fennell stated in the past when we were short of water, the rates were adjusted so that people who used more water paid more which is an incentive to conserve. People did not conserve water; they just paid more money.

Mr. Daly stated it hurt the family of six as opposed to the family of four because they use more water anyway.

Mr. Eissler stated our water is cheap. Our water is good. To raise the rates is not going to break anyone’s back. We need the money to run the plant so we have water tomorrow.

Mr. Fennell stated I want to hear it from our accountants as to how much money they think we are going to need, and another independent viewpoint as to what the financial structure is. I prefer not to raise rates. I prefer to spend money on ways to save money while we still have the $8 million.

Mr. Eissler stated we are selling water and we are tapped out. We don’t have anyone else to sell it to.

Mr. Fennell stated that is one of my questions. We are building another water plant as a back-up. We can supply a lot more water. Is there anywhere we can sell the water through Interlocal Agreements? Set up our own bottling plant.

Mr. Eissler stated the City of Memphis, Tennessee has the purest artesian water. When I lived there they sold bottled water from the City of Indianapolis, Indiana, and people bought it.

We need to raise rates because we can’t sell any more product.

Mr. Fennell stated I don’t like spending capital when the answer comes back it will cost us more because we spent more capital. Something is wrong in my engineering belief of that one.

Mr. Hanks stated we need to look at what it will cost to put a whole new system together and how much will it cost if we were to have the system completely fail.

Mr. Keller stated along with some of the long term operating and maintenance costs. Hopefully under the maintenance costs you will show some savings over time.

Mr. McKune stated one item the State always asked is, “What have you done about reclaimed water reuse?” and every five years we say, “We think it is a good idea, but we have no customers and it is not feasible for us to do that.” The State has made us do a reclaimed water feasibility study. They have reviewed it, and we gave them two alternatives. Irrigating golf courses, Eagle Trace, Cypress Park and one on the west side. Those are the only large customers in a reasonable distance. We told them it will cost on an annual basis between $500,000 to $1 million to implement the programs. It will either be a 7% rate increase or 19% increase. In our opinion it does not seem to be acceptable numbers. The State wrote back and said. “It does not sound bad to us.”

Mr. Fennell stated ask them if they would like to buy our water.

Mr. McKune stated they are just setting policies and their policy is to reuse the water. They are not going to buy reclaimed water. We all think it is a great idea, but the golf courses currently have water use permits from SFWMD to take from the canals and it is free. If they agree to not take it from the canal and use reuse water, they are not going to pay for the pipe to get it there. Before we get the renewal of the permit, the Board will need to authorize a letter be written to them to make them understand your position.

Mr. Fennell stated the right thing to do is to ship the water to everyone. They are going to ask for water that we don’t ship to the customers.

Mr. McKune stated we have been talking to the health department, state wide, since 1975.

Mr. Fennell stated they are going through this purity of water issue for the Everglades and it will be purer than rainwater for the quality standards.

This is a great discussion to plan what we are doing and where we are going. We need a cash-flow report with expenses along with cash projections covering this period.

Mr. Hanks stated we should have in that cash flow projection a 10% cost factor one way or the other to see the affects on the cash flow.

Ms. Walker stated every year your expenses increase 5%.

Mr. Keller stated part of the forecast may be to get an independent rate analysis done to have the additional checks and balance and get a good solid foundation because that will be key to long term revenues.

Mr. Fennell stated that will have to be done before we go out for bonds. We are good through 2007 with the money on hand. It may also affect our bond-worthiness if we draw that down too much. We need recommendations as to appropriate time to do that. I do not want to borrow money before hand if we don’t have to. We pay 5% to 7% in interest and we are only getting 1% to 2% from the bank.

Mr. Eissler stated we did improve our interest rate with the last refunding.

Mr. Fennell stated we have paid off $10 million on the debt since I have been here. We are down quite a bit.

Mr. McKune stated I would like to continue on the three major categories of work mentioned earlier. I need to come back to the Board with a proposal to design for Plants A & B.

Mr. Fennell stated what I haven’t received yet is management’s reading on this.

Mr. Keller stated we have been working closely on this, and we have not come up with any major diversions in our opinions.

Mr. McKune stated we all agree on the hardware; the timing is another issue.

Mr. Keller stated we told you if we could resolve things amongst ourselves and bring a collective position, we will tell you where we differ. I am not aware of any at this point. We spend a lot of time going through this.

Mr. Moore stated we have been working on this for 2 ½ years.

Mr. Eissler asked can you tell me about the new water plant?

Mr. Fennell responded the issue was with the reserve capacity. When it is all working we will have more capacity than we need.

Mr. McKune stated as long as everything is working. If we have to take one down for maintenance, we will be where we should be.

Mr. Moore stated our wellfields, withdrawal permits, are based on what we normally produce. We are filling extra capacity so if one breaks we can use the wellfield. You don’t have that much extra. You are building redundancy. You only have enough wells to produce the amount for the three plants. We will either run three plants at a time, or four at 60%. You are only limited a certain amount.

C. Manager – Plant Site Security Control Access Modifications

Mr. Fennell stated before we get to security, last month we talked about accounting.

Mr. Keller stated since last meeting, we talked on a number of different fronts. Mr. Daly, Ms. Walker, Mr. Kroker, Ms. Ellis and I had a number of discussions and meetings. On the computer issue, one question was, “Do we have the option to continue to operate on the existing computer system here or migrate to the new operating system of Severn Trent Services [STS]?” Both options are available. The sense I received from Mr. Daly is to use the existing system. That will continue as it has been with STS. If there is a desire to migrate onto the new operating system that is also available if that is the Board’s intent.

Mr. Daly stated that is just for accounting, not the billing portion.

Mr. Keller stated there are other modulars, including billing, that will be on the STS system.

Ms. Walker stated without utility billing, Mr. Daly would have to manually input the information, and he issues 100 refund checks a month. They don’t have utility billing as of yet, it is still on this system for all the districts.

Mr. Fennell stated if we wanted to we could go to the new system.

Ms. Walker stated I was told they are not going to put utility billing on their system right now.

Mr. Keller stated at some point they will add the additional modular for utility billing so that option is available in the future. The sense I received is they would like to remain with the existing system, and STS has agreed to the status quo regarding the systems.

Ms. Walker stated we recommend changing some of the numbers we pay STS. We pay $15,000 a year and they have been on the system since 1999. The system is old and they have not provided upgrades. I feel we pay too much money to them. They have not provided any additional updates.

Mr. Keller stated we talked about the upgrades as well. If there are upgrades, those issues will be entertained.

Mr. Eissler stated we do our own utility billing and payroll, plus other districts.

Mr. Daly stated nine other districts.

Mr. Eissler asked what does the new accounting system do or take over?

Ms. Walker responded basic A/P, journal entries.