MI-AWWA/MWEA JOINT EXPO 2013

Board Leadership Changes at DWSD February 11, 2011

Specifies nomination authority for Counties

Professionalizes the Board

Provides for Board staff

Budget & Rates (5/7)

Seated by 4/1/2011

April,2011- current

New Board is seated – 2 new City of Detroit

Commissioners

– New Commissioners for Wayne, Oakland and Macomb

New Chair is seated

Board staff is hired

Board Committees are Active

Changes effected by Federal Court Orders to achieve long term compliance with the CWA

November 4, 2011 Adopts the Plan of Action

New independent functions: HR, Finance, Legal, Procurement

Expanded Procurement authority

November 4, 2011

Separate DWSD CBAs by 7/1/12 w/o COD bumping

Can outsource/subcontract

Struck past practice

Increased workforce flexibility required

WCCC , MERC enjoined from jurisdiction

Unions enjoined from related grievances, ULPs or arbitration demands

Management Leadership Change

New Director hired (1/12)

Early observations: Court order Requirements

– Operational Independence

(HR, Law, Finance, Procurement)

Cultural/Structural Issues – Leadership aloofness

– Siloed organization

– Disintegrated Technology & business systems

– Narrowly defined jobs

– Lack of accountability and responsibility

Unacceptable rate trajectory

High Debt

Deferred Capital investment

Absence of planning and strategy

Structure in place for Customer Community engagement – DWSD leadership absence

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Fiscal Year

Compounding Effect of Sewage Rate Increases

Wholesale

Retail

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Fiscal Year

Compounding Effect of Water Rate Increases

Wholesale

Retail

10 Year History of Rate Increases

The affordability picture (June, 2012)

Federal regulations gauge water services as affordable if ‘bills’ are less than 2% of the median annual household income.

Sewer bills are now consuming a higher share of income than in 2009 having risen from 2.43% to 2.64% MAHI (June, 2012)

Water bills are consuming approximately 1% of MAHI

6

90 day Assessment Key Findings Siloed organization

Inflexible job descriptions

Multiple reporting levels

Lack of training

Seasonal work issues

Ineffective deployment and use of technology

Disconnected business processes

7

Identified Reduction Opportunities (not targeted)

Item Reduction/Year Notes

Staffing $139.6 Million 1,978 to 357

Chemical Use $2.6 Million 15% of $17.4M

Energy Use $4.8 Million 15% of $32.3M

Vehicles $3.6 Million 724 vehicles @ $5,000

Total $150.6 Million 33% Reduction

• Additional costs and projects are required to achieve these savings

• Does not include cost savings from benefit changes already

implemented, reductions in overtime, or staffing savings already

implemented

8

DWSD Staff Reduction “potential”

9 Time/Phase

Contracting

Out 19%

Reduction

Sta

ffing

Lev

els

Technology

Upgrades

(Deferred)

5% Reduction

Current

1978

Positions

Budgeted

positions

2,244 Resource Group

373

Positions

Implementation

$32.6M

1,144

Positions

Implementation $98.5M

99

Positions

Implementation

$8.5M

Phase I

Job Design

58%

Reduction

Phase IV (Deferred) Phase II Phase III

To achieve staff reductions…..

Complete job design, training, re-organization and technology projects

Invest in current systems and technologies through licensing costs and on-going training

Outsource for large engineering projects and for peak times

Contract out non-core functions for low cost services

Does not considered ‘in-sourcing’ of work done by contractors

10

11

-$100

-$50

$0

$50

$100

$150

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

An

nu

al S

avin

gs

(Co

sts)

Mill

ion

s

YEAR

DWSD Reorganization Estimated Savings

Labor Savings Operational Savings Ongoing Expenses Projects Severance Expenses NetSeparation Expense

DWSD Filled Position Statistics / Projections

12

8

9

10

11

12

13

14

1,000

1,200

1,400

1,600

1,800

2,000

2,200Ju

l-1

1

Au

g-1

1

Sep

-11

Oct

-11

No

v-1

1

Dec

-11

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

No

v-1

3

Dec

-13

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Est

Lab

or

Cost

s -

$ m

illi

on

s

Fil

led

Posi

tion

s

Filled Positions Est Labor Costs - $millions

Remove 123 Budgeted

Positions Attrition since 7/2011

= 185 positions Anticipated additional

attrition thru 7/2012 =

104 positions

FY 2013-14 Financial Plan Strategy

13

While our target budget commitment was to reduce the ‘new revenue’ requirement by

50%, we challenged ourselves to carry the 50% impact through to the increase required.

“System” Sewage Rate Increases

14

0%

2%

4%

6%

8%

10%

12%

14%

16%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

“System” Water Rate Increases

15

0%

2%

4%

6%

8%

10%

12%

14%

16%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Outstanding DWSD Debt Service

16 (50)

0

50

100

150

200

2013 2018 2023 2028 2033 2038 0

50

100

150

200

250

2013 2018 2023 2028 2033 2038

Jr SRF

Sr SRF

2nd Lien

Sr Lien

Plan calls for more of our revenue dollar to go to capital and reserves

17

Summary DWSD’s circumstances may be exaggerated by the

scale of the operation, but they are not unique:

(Deferred capital, limited appetite for rate increases)

Sources available to finance capital may exist largely within the existing your revenue stream/budget, whether you use those funds for paying debt service or for cash funding of capital.

Financial Planning with support of your Board and Customers is critical to resolving these issues.