TO: Honorable Mayor and Members of the City Council
FROM: Robin Kampmann, City Engineer
SUBJECT:
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Request for Council input and consideration on the proposed water and sewer rate study
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RECOMMENDED COUNCIL ACTION:
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Staff respectfully recommend that the City Council move forward with one of the following options:
1) The City Council can direct staff to move forward by selecting a rate plan option and
2) formalizing new rates as proposed. The rate consultant will draft a rate study report describing the rates as proposed and begin the Proposition 218 public notification process, or
3) The City Council can direct staff to make changes to the rate plan options as proposed. The rate consultant will return on August 4th with revised results for the City Council to review and formalize the revised rates into a draft rate study report. Please note this may delay rate implementation beyond the anticipated January 1, 2027 proposed date, or
4) The City Council can choose not to move forward with new rates on the Water or Sewer System. This would require adjustments of either operational costs or capital costs to keep the system operating with the required net income to support debt service obligations.
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SUMMARY:
The City Council is being asked to review the draft Water and Sewer Rate Study recommendations and provide direction on the proposed water and sewer rate schedules. The information will be presented by the City’s consultant, Sophia Mills, with the firm LT Municipal Consultants (LTMC).
PREVIOUS COUNCIL ACTION:
The City Council approved Ordinance 832 on February 1, 1997, establishing the sewer rates.
On May 20, 2008 the City Council approved an incremental increase of 5% to water consumption rates, beginning July 15, 2008.
On June 2, 2009 the City Council postponed the increases to the water rates.
On August 7, 2010 the City Council directed Staff to postpone the CPI rate increase based on December 2008 and 2009 until FY2011/12, at which time staff will present the FY2011/12 CPI rate increase to City Council.
On April 17, 2012 the City Council Conducted a public hearing and directed staff to prepare the CPI rate increase for FY2012/13.
DISCUSSION:
The City of Red Bluff provides water and sewer service to a population of about 14,400 people via approximately 4,600 active water and sewer connections. Water and sewer services are funded entirely through monthly rates paid by customers. Water and sewer rates were last adjusted July 2012 with a one-time increase. Prior to 2012 the water rates had not been increased since 2008 and the sewer rates had not been increased since they were established in 1997. The City Council has the authority to approve rate changes when necessary to ensure the financial stability of the Water and Sewer Enterprise Funds. The rate change and rate study process is governed by Proposition 218, which was added to the California Constitution in 1996. All property-related fees including water and sewer service fees must meet Proposition 218’s requirements for calculating, documenting, and adopting fees. The proposed water and sewer rates will also be subject to a majority protest public hearing anticipated to be held in October 2026.
LTMC used projected operating costs and capital improvement plan projections to develop 5-year rate structures that would support the needs of each utility and maintain adequate debt coverage to qualify for future grants. Currently, the City is out of compliance with the rate covenant requirement associated with the California State Water Resources Control Board grants. All financial plan options include the minimum increases needed to meet debt service coverage requirements in the first year of the rate study period.
In addition to operating costs and debt service, the City must fund short- and long-term capital improvements necessary to keep the water and sewer systems operational and compliant with state requirements. The proposed water and sewer rate options would fund varying levels of capital improvements and offer different financing approaches, such as cash funding only or a combination of cash and loan proceeds.
The rate study also proposes rate structure adjustments to better comply with Proposition 218 requirements and recent court rulings.
Currently, water customers are charged a base fee by meter size with usage billed on a tiered system. It is proposed that tiered water usage be replaced with a uniform rate for all water usage.
Residential and Multifamily sewer customers are currently charged a flat monthly fee based on their residential type and commercial customers are separated into three (3) classes, bakery, restaurant and all others, with a base fee and allowable minimum usage and a use rate over the minimum usage for each class. It is proposed that the sewer rate structure be simplified by grouping customers into categories based on typical usage and wastewater strength. Residential customers would be classified as single-family or multifamily. Commercial customers would be categorized as low, medium, or high strength users based on business type and typical flow and pollutant characteristics. Under the proposed rates, residential sewer customers would continue to pay a fixed monthly fee. Commercial sewer customers would pay a base fee that includes the first 5,236 gallons of usage, with an excessive flow charge applied to usage above 5,236 gallons.
A summary of the water rate plan options are as follows:
Water Rates Option 1 - Cash Fund Full CIP:
• Rates fund $18.9M water CIP.
• No debt
• Initial 1st year increase on average for a single-family residence is from $28 to $59 with additional increases in year 2 and year 3 but no increases year 4 or year 5.
• Will provide positive operating revenue in year 1 and positive net revenues in year 4
• Estimated ending fund balance after year 5 will be $4.96M
Water Rates Option 2 - 50% Cash / 50% Debt to Fund Full CIP:
• Rates fund $18.9M water CIP, $8.8M in loans and $10.1M in cash
• Annual debt payments of $709,000 beginning year 4
• Initial 1st year increase on average for a single-family residence is from $28 to $59 but year 2 and year 3 will have smaller increases than Option 1 and year 4 and year 5 will have no increases similar to Option 1
• Will provide positive operating revenue in year 1 and positive net revenues in year 4
• Estimated ending fund balance after year 5 will be $3.57M
Water Rates Option 3 - Phased-in to Fund Half CIP:
• Rates fund $9.2M water CIP
• No debt
• Initial 1st year increase on average for a single-family residence is from $28 to $42 with consistent increases year 2 through year 5
• Will provide positive operating revenue in year 2 and positive net revenues in year 4
• Estimated ending fund balance after year 5 will be $2.64M
A summary of the sewer rate plan options are as follows:
Sewer Rates Option 1 - Cash Fund Full CIP:
• Rates fund $16M sewer CIP
• Full repayment of the sewer fund deficit of $2.8M in approximately 10 years
• No new debt
• Initial 1st year increase on average for a single-family residence is from $34 to $86 with additional increases in years 2 through 5
• Estimated ending fund balance after year 5 will be $4.15M
Sewer Rates Option 2 - 50% Cash / 50% Debt to Fund Partial CIP:
• Rates fund $18.6M sewer CIP, $8M in loans and $10.6M in cash
• Full repayment of the sewer fund deficit of $2.8M in approximately 10 years
• Annual debt payments of $641,900 beginning year 3
• Initial 1st year increase on average for a single-family residence is from $34 to $86 with additional smaller increases in years 2 through 5 compared to Option 1
• Estimated ending fund balance after year 5 will be $3.92M
Sewer Rates Option 3 - Cash Fund Lower CIP:
• Rates fund $8M sewer CIP
• Full repayment of the sewer fund deficit of $2.8M in approximately 10 years
• No new debt
• Initial 1st year increase on average for a single-family residence is from $34 to $86 with additional smaller increases in years 2 through 5 compared to Options 1 and 2
• Estimated ending fund balance after year 5 will be $3.78M
CITY FISCAL IMPACT:
Cities have the authority to impose fees, charges and rates for services and facilities it provides. Use of these revenues is limited to paying for the services for which these fees are collected.
ATTACHMENTS:
1. Red Bluff Rate Study Presentation