Diving Into Water part three: rate increase
Council to vote on rate increases on June 6th
On June 6th 2023 the City Council will be voting on raising our water rates. To read my previous posts providing background on this topic check out the water section.
THE DETAILS
The council will be asked to vote on a 9% raise in rates effective July 1st. Rather than trying to summarize I have copied and pasted the staff agenda memo which gives some background and the details. I am also including a PDF of the documents which include the council resolution.
EXECUTIVE SUMMARY
The City provides water to the community for domestic and irrigation use through the Water Fund Enterprise. Under Colorado’s Taxpayer Bill of Rights (TABOR), enterprise funds can establish rates and fees and issue debt but can only use enterprise revenues for enterprise purposes and are restricted in use of enterprise funding from other sources for enterprise purposes. City Council, acting as the board of the Water Fund Enterprise, is responsible for setting associated rates and fees by resolution.
The City has been actively working to update revenue and expenditure projections for the water utility to ensure that rates and fees are sufficient to cover costs now and into the future. Significant revenue increases are required to meet projected expenditures. Resolution No. 2023-42 increases monthly fixed water charges and water usage charges by 9% effective July 1, 2023, to help begin aligning revenues with expenditures over several years and reduce the magnitude of future increases. Substantial increases will still be required over the next several years and will be presented through the annual budget process.
City Council Strategic Outcome (most applicable): Excellent City Services and Infrastructure
BACKGROUND INFORMATION
In 2021, the City hired Raftellis Financial Consultants (Raftellis) to provide a limited review and analysis of revenues and expenditures in the Water Fund Enterprise. This analysis confirmed significant gaps between projected revenues and expenditures, particularly as major capital expenses begin to come due in the next 3-5 years. City Council approved a combination of rate structure and rate/fee changes for 2022 to begin to address the revenue and expenditure gap.
In 2022, the City hired Raftellis to conduct a more comprehensive study of the City’s water, water reclamation, and stormwater utility enterprises. Initial findings for the water and water reclamation enterprises were presented to City Council at workshops on Mar. 27, 2023, and April 24, 2023. Consistent with the 2021 findings, significant revenue increases in the Water Fund Enterprise are needed to maintain the solvency of the enterprise as costs for major capital projects begin to come due over the next several years. An additional mid-year increase in 2023 is recommended to help reduce the magnitude of increases needed in subsequent years. While the City has some history of doing very large one-time increases, it is largely considered a best practice to implement smaller increases over several years to reduce “rate shock” to utility customers.
Several multi-year rate increase scenarios were presented at the April 24, 2023, City Council Workshop. All scenarios that preserve the solvency of the fund require significant revenue increases over the next several years. Scenarios that include a mid-year increase in 2023 reduce the magnitude of anticipated increases in subsequent years. Resolution No. 2023- 42 would increase the fixed monthly charge and cost per 1,000 gallons of water use by 9% effective July 1, 2023. This adjustment is expected to generate approximately $400,000 in total additional revenue during the remainder of 2023.
The bill impact to individual customers would vary based on water meter size and actual metered water usage. The fixed monthly charge for a 3/4” water meter (typical single family residential customer) is currently $17.25 and would increase by $1.55/month. The current Tier 1 rate per gallon of water use is $0.0035/gallon ($3.55 for one thousand gallons) and would increase by $0.0003/gallon. The City’s highest rate tier (Tier 5), generally only applicable to customers with very high use within their customer class, is currently $0.01242/gallon ($12.42 for one thousand gallons) and would increase by $0.0011/gallon.
Staff are currently working with the Sister Carmen Community Center to assess any anticipated impacts of the mid-year increase on the demand for utility bill assistance. The City is prepared to increase its contribution to support the utility bill assistance program based on any increased demand. Staff are also continuing to pursue enhancements to the water conservation program with a focus on encouraging efficient outdoor water use. The community uses approximately 2 million gallons of treated water per day in the winter months to serve indoor uses. During summer months, treated water demand increases by as much as 5X due to outdoor irrigation.
Staff are continuing to work with Raftelis to further refine projections and are engaging the City’s financial advisor (Hilltop Securities) to further explore financing options to spread costs over a larger number of years. In any scenario, the annual revenue increase required to maintain solvency will far exceed the proposed 9% rate increase. In the event that future costs are more favorable than projected, rate increases anticipated for future years could be reduced accordingly. If Council elects not to implement an additional increase in 2023, the draft financial plan will be updated accordingly to keep the Water Fund enterprise solvent with larger, double digit, increases identified in 2024 and beyond and presented as part of the 2024 budget process.
NEXT STEPS
Staff will present the findings of the Comprehensive Utility Rate & Fee study later this year. Recommendations of that study will guide budget development and rate setting for the utility enterprise funds for the next 3-5 years.
CURRENT RATES
PROPOSED NEW RATES
HOW TO PROVIDE INPUT TO THE CITY COUNCIL
You can contact council with your thoughts via a variety of options
Attend the meeting in person and speak during public input at the beginning of the meeting which starts at 5:30pm
Call in remotely during public input by calling toll-free at 1-877-853-5247
You will be asked for the meeting number: 869 1163 2580
Press # after entering the number
Press *9 to raise your hand to speak during Public Input. When it is your turn to speak, your microphone will be unmuted and you will be asked to share your comments.
To request interpreter services, please submit a request at least two (2) days prior the meeting at www.lafayetteco.gov/InterpreterRequestForm.