components of the increase in operating expenses for 2020 are due to increases in processing costs relating to the Windsor Biosolids Pelletizer Facility, increased chemical and utility costs for the plants, and an increased overhead allocation that is based on total budgeted costs. The impact of these increases are mitigated from decreased Enwin administrative costs, reduced appeal refunds and an increase in recoveries from capital projects. The net increase in operating expenses is $318,502, which represents an increase of approximately 0.7% over 2019 expenditures.
Capital Expenditures
Over the last several years, the sewer surcharge has contributed $21.6M annually to fund sewer related projects in the capital budget (compared to approximately $5M in the early 2000's). These expenditures fund sewer rehabilitation projects which reconstruct deteriorating sewers and support the installation of new sewers, as well as the replacement of old sewers. In addition, the downspout disconnection and basement flooding subsidy program, aimed at reducing basement flooding, are some of the worthwhile projects funded from the sewer surcharge. These ongoing capital expenditures are crucial in order to reduce the risk of basement flooding and to protect the environment.
In 2019 City Council, in anticipation of the significant investments required from the Sewer Master Plan and in consideration to various Disaster Mitigation Adaptation (DMAF) grant opportunities approved capital increases to the Sewer Surcharge budget. These increases added $1M to the Sewer Surcharge Budget to address inflationary impacts, $6M in additional capital funding to begin to account for anticipated Sewer Master Plan work, and $2.6M per year in additional funding to continue the Basement Flooding Subsidy Program.
Continuing on this basis, the 2020 Sewer Surcharge budget recommends an additional investment of $6M in capital expenditures. Of this total amount, $1M is intended to address baseline inflationary pressures and $5M to increase additional capital funding to continue to address the significant anticipated Sewer Master Plan investments while leveraging grant funding opportunities wherever possible.
The sewer surcharge also currently funds approximately $4.87M of equipment purchases and replacements at the two water reclamation plants and the pumping stations through transfers to the Pollution Control Reserve. While the 2020 operating budget included an Administrative recommendation to increase the transfer to reserve in order to provide adequate funding for capital needs, the request is not currently being recommended. It is Administration's view that this funding discussion is better addressed as part of the work coming out of the Sewer Master Plan and the Storm Water Financing Study, which will take a more comprehensive approach to long term funding of reserve requirements.
Other Factors Impacting the Sewer Surcharge Revenue
The trend of lower water consumption appears to be continuing for 2020. This trend is likely related to water conservation measures and technology. It is difficult to predict if this trend will stabilize or continue in future years.