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At the first of two rate study presentations to the Portola City Council to discuss increases in city water and sewer rates, Mayor Pro Tem Juliana Mark asked, “Why now? Right now, people are having a hard time of it, so why are we talking about rate increases now?”
City Manager Jim Murphy had several reasons: Right now, the water and sewer funds are not covering their actual costs and their deficits are being covered by the General Fund, which is not an acceptable practice. The Lake Davis Treatment Plant (LDTP) will be online soon, and although the construction of the plant had not been financed by the water fund, its upkeep, maintenance and replacement down the line will be part of the water budget.
While water breaks and the LDTP are primarily responsible for the necessity of significant increases (an estimated shortfall of 25 percent) in the water rates, sewer shortfalls are primarily due to the cost of increased federal and state regulation.
In addition to these extra expenses, a comprehensive rate study has never been done. Capitalization plans to replace old infrastructure in a periodic and planned fashion and cash reserves are both inadequate for each of the enterprise funds.
Last August, the city hired HDR Engineering to examine the data and design alternative utility rate structures for the council to examine. The completed study, paid for by Community Development Block Grant funds, was presented to the council and to the public at special meetings held Jan. 18 and Feb. 15.
At the first meeting, HDR’s Shawn Koorn outlined a process for examining data in three steps: First, compute how much revenue is coming in as well as what will be required in the future and then note the level of adjustment required. Second, determine the cost of service by examining various customer classes (residential, commercial, etc.). Third, design rate structures that will meet revenue needs and be distributed among the customer base as fairly as possible.
In examining revenue requirements, HDR’s table indicated $125,000 shortfall in the water fund at the end of 2011 at current rates. Anticipating only 3 percent growth in customer base, at current rates, that deficit would increase to $768,000 in 2016.
Koorn presented a rate increase schedule over a period of six years. Because of the need to recoup historic deficiencies as well as anticipate future operation and maintenance of the LDTP, the city planned to spread out the increases in order for ratepayers to adapt to and incorporate the increases.
Large upfront rate increases at the beginning of the six-year period put the funds in the black at the end of 2012, but the rate increase per customer would go up nearly $20 per month the first year, with following years showing smaller increases. At the end of six years, the rate increases would cumulatively be smaller, resulting in a $43.56 total increase over six years.
The council opted for a different approach, one that would yield a much smaller increase the first year and similar increases for the following years. The budgetary shortfalls would last for more years and the cumulative customer increase would be more ($54.93/month) but the first year’s increase would be an average of $9.43, not $20.
In addition to deciding how long a period to stretch rate increases over, city staff and council members examined their customer classes and current rate structures and billing practices. Several changes were made.
Several years ago, the city stopped billing itself for water usage, including the summer watering of the many parks. The reasoning behind that decision was that all residents in the city benefited from the parks. Murphy said that the city’s water bill was about $24,000 per year. In the future, the city will pay its water bill from the General Fund.
Other structure changes included a policy of minimum billing, whether there was water usage or not, and eliminating 5,000-gallon water allowances. In the proposed rate structure, all water is billed at $2.80 per 1,000 gallons after the first 1,000 gallons are used.
These changes will benefit small households who may not be using all of their current allotments. Households who use only 1,000 gallons per month will actually see a decrease in their bill of $5.80 and households using 2,000 gallons per month will experience bills with no change.
In sewer, HDR data showed an existing deficiency of $113,000 at current sewer rates and predicted a $323,000 shortfall by 2016. The report named an increase in testing and system maintenance costs, the necessity of replacing aging infrastructure, and an increase in sludge removal as increased costs.
Koorn said that the flat rate structure that the city currently used did not require changes, as the water system did; rather, it only requires an increase. Because the deficits in the sewer fund were not as great as in water, the council opted for a larger upfront rate increase, bringing current monthly bills of $25.24 to $32.81, with $3 to $4 increases in subsequent years.
At this second meeting, the council confirmed its earlier option choices and directed city staff to include all six years of increases in the Proposition 218 process. While the city may choose not to implement planned rate increases in following years, it cannot go over the designated amounts if the rate schedules are established through Proposition 218.
The city plans for considerable public outreach in future weeks to answer as many residents’ questions as possible. To that end, it has put together a list of frequently asked questions and responses for community benefit. The meeting presentations are also available on DVD and on the city’s website.
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