Tuscaloosa Finance Committee Meeting - August 5, 2025: Water and Sewer Budget and Bond Update
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Tuscaloosa Finance Committee Meeting - August 5, 2025: Water and Sewer Budget and Bond Update
This meeting of the Tuscaloosa City Council Finance Committee focused on the fiscal year 2026 water and sewer capital and operating budgets, budget revisions, financing discussions for the Noah's Fork recommendation, and an update on bond issuances. Presentations were led by Mayor, Kimberly Michael (Water and Sewer), and Carly Standridge (Budget), followed by council discussion and action.
Water and Sewer Capital Budget Overview
Kimberly Michael presented a $7 million capital budget recommendation for water and sewer projects, funded by the 6% rate increase authorized in fiscal year 2021 and accumulated in a dedicated escrow account. This is in addition to the existing 10-year water and sewer plan. The proposal included six projects:
- Mercedes Force Main Lift Station Engineering ($1.2 million): To engineer rehabilitation of lift stations 39, 40, 41, and 15 as part of a holistic approach to the force main system.
- Water Resource Recovery Facility Phase III Improvements (cost not specified): Upgrades to aeration basin blower system and return activated sludge (RAS) system.
- Hillcrest Tank Rehabilitation ($1.2 million): Painting and modifications to booster pump stations to allow the tank to be taken offline.
- Remainder of Outfall Line at Fletcher Facility (cost not specified): Approximately 300 feet of additional outfall line requiring temporary bypass pumping.
- Airport Runway Expansion Sewer Betterment ($400,000): Installation of a sewer casing under the runway for future expansion, not covered by FAA grant.
- Line A Raw Water Main Repair (cost not specified): Repair of a 36-inch steel raw water main; in-house engineering with contractor construction.
Carly Standridge explained the funding mechanism: the 6% rate increase is set aside annually, pays debt service for the 10-year plan, and the remaining balance funds new projects. Approximately $9.5 million had accumulated in the escrow, but about $8 million was used for pre-payment of bond-related expenses, to be reimbursed upon bond closing. The $7 million proposal represents the available balance thereafter. Council members asked clarifying questions about project selection and the relationship to the rate structure. The committee expressed support and indicated a desire to move it to a vote soon.
Water and Sewer Operating Budget Overview
Mayor presented the fiscal year 2026 operating budget, noting it was his 20th budget presentation. He highlighted improved metrics: salaries and benefits dropped from 27% of budget in 2007 to 21% today; debt service dropped from 30% to 16%. The budget proposed $86,057,113 in revenues and $86,952,439 in expenses, resulting in a budgeted deficit of $895,326 (which is significantly smaller than prior years due to strong revenue performance, and when depreciation is added back, the fund is cash-positive). Revenue assumptions include a 3% CPI increase and 6% capital increase per ordinance. Revenue growth of 21% is projected, driven by improved meter reading, billing accuracy, and identification of previously uncharged accounts (e.g., sewer charges for in-city customers, county surcharges) rather than volume increases. Kimberly Michael elaborated on AMI system contributions. Expense increases included $170,000 more in bad debt write-offs, IT costs for MUNIS upgrade, and a $2 million increase in depreciation to better reflect actual asset values. The budget also includes a 3% cost-of-living adjustment for non-public safety employees and an 8.3% health insurance increase (lower than initially projected). Debt service decreased by $302,811 due to maturing bonds. Council asked about the depreciation increase and confirmed it was based on actual asset data.
Budget Revisions
Item 3: Water and Sewer Budget Revision – Requested to use insurance proceeds from a vehicle incident to purchase two replacement fleet vehicles: $62,000 and $24,060. The motion was seconded and passed unanimously (voice vote).
Item 4: General Fund Reserve Budget Revision – To close out two projects (Wanting Drive Phase II with $382,596 remaining and Public Safety Logistics Center with $500,000 under budget) and transfer those funds ($882,596 total) to the Neighborhood Drainage project for protective buyouts, as earlier reviewed in the projects committee. The motion was seconded and passed unanimously.
Noah's Fork Recommendation Financing Discussion
The committee discussed how to finance the Noah's Fork recommendation projects (long-term drainage and infrastructure). Options included a line of credit (LOC) or borrowing in advance. Council member requested staff research different LOC structures from local banking partners without committing to a specific product, while also exploring internal cash availability to self-finance short-term needs. It was agreed to separate project scope discussions (to be handled in the projects committee) from financing discussions (in finance committee). Staff will prepare information on cash availability and LOC product variations. No vote was taken.
Bond Issuance Update
An update was given on the recent bond sale: the 30-year tax-exempt bonds were sold at approximately 4.8% interest rate, which was slightly higher than a prior issuance but favorable given market conditions. The annual debt service payment is about $119,000 less than projected in the 10-year plan and $16,000 less than budgeted. The A and C series closed on the meeting date, and the D series will close on August 26 after a council vote on August 12.
Key Outcomes
- The Water and Sewer capital budget ($7 million) was reviewed with general support; a formal vote is expected soon.
- The Water and Sewer operating budget was presented; detailed hearings will occur in August and September.
- Budget Revision #3 (water and sewer vehicle purchase) passed unanimously.
- Budget Revision #4 (general fund reserve transfer for drainage) passed unanimously.
- Staff will research line of credit structures and internal cash availability for Noah's Fork financing; further discussion scheduled.
- Bond issuance successful; closing of remaining series scheduled.
Meeting Transcript
Sorry. All the papers say I meet the units or adopted the days. I'll not have the wrong thing, so I apologize. Can we go based on we can uh we can move we can do this whole school? So uh Michael, you all are up on item number one. Yeah, new misses water and sewer capital budget overview. Yes, sir. Um, Mr. Busby, as you requested, you you asked us to in advance of the August 19th budget submittal to go ahead and begin um putting out portions of the budget for the council to begin considering. So today we're gonna start with water and sewer capital and water and sewer operations. Um as you recall when we presented our capital budget back on August 19th. Um we said that we wanted to wait following getting through the bond issues to present present the water sewer capital. The reason being is in 2021, and I believe it was effective in 2000 fiscal year 2022, the city council authorized a six percent uh rate increase for capital projects. Um we have funding going towards two things. One obviously capital projects that are needed within the water and sewer system, and the second was the funding of the uh water and sewer plan a 300 million dollar presentation over 10 years, and we have begun um working that plan into fruition thanks to your leadership. So we wanted to get through that the bond issues or get substantially through, so we would have a more exact recommendation for you on the capital side. So today we are recommending seven million in capital projects that comes from that six percent that you authorized back in fiscal 21. And you will see a little bit later as we discuss operating um the benefits of your leadership taking taking on the water and sewer operating budget, which has significantly helped our ability to do capital projects. So the projects that you see that a sheet has been handed out with seven projects listed. This is in addition to what's into our 10-year water and sewer plan. So this would be in addition to what's been authorized. So at this time I'm gonna turn it over to Kimberly Michael to quickly walk you through these projects that make up the seven million in recommendations. So Kimberly. Yes, sir. It's this sheet looks like this. I'm sorry, six projects. So we were just giving just a brief overview of the project. So yeah. Um so the first project is what we're calling the Mercedes Force Main Live Station. And so we did a let the study for lift station 42 that we talked about um off and on throughout a couple of years, and when we were doing that, we decided it'd be best to move all the way up uh from where the the uh waste is coming from. So that would start at Mercedes and it goes to look section 39, 40, 41, 15, and then 42. So we've studied all of those stations for an overall holistic approach for how that wastewater gets into the treatment system. Um so with doing that, we came up with recommendations that are needed to rehab with station 39, 40, 41, and 15. And so um, so this would be to engineer the rehab of those stations. So that's what the first 1.2 million is for this is to engineer it, yes, sir, or to do it to engineer the there's four lift stations there that need would need work. Okay, so this is just the study uh drawing of what we need to be done. This the Mercedes line is a complicated project, number one because of the length and geography, but number two because of the lack of flows that exist within the line because it really just serves Mercedes as part of the overall project Rosewood agreement from the early 90s. Um so it's just it's complicated and it has to be done in a way to meet those challenges that uh I just outlined. We don't have an engineer for this yet, so the 1.2 is our estimate on what it would cost for that. So we would have we'll just go out for an RFT or an RQ seat qualified engineers and then select one based on that. Okay. All right. The next project is the water resource recovery facility phase three improvements. And so this particular phase of this, we include upgrades to the aeration basin, um, the aeration basin blower system, and then the return activated slow system, which we call the RAS. Um, so these are um very old systems that we have as we've been going through the processes of starting at the beginning of the plant, we're now at this next phase. Um, if you recall right now, we're working on the aeration basin itself, so that's the actual the concrete basins that are out there. So working on all the components, the equipment that's inside of those basins, and so this next phase would be the RAS system and then the blowers that feed into the basins. No, I don't know what RAS is the URI. I've been out there, okay. Uh again, uh hasn't asked for the yet we're just doing the work or just figuring out what needs to be.
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