Departments of Finance and Utilities
Reference: Water Treatment Plant and Rate Discussion
To: Mayor Gregory Mills and Members of City Council
Through: Michael Martinez, City Manager
Prepared By: Catrina Asher, Finance Director
Marc Johns, Interim Utilities Director
Date Prepared: May 17, 2022
PURPOSE
To provide City Council with updates and recommendations regarding a proposed reset of the water rate reduction approved in 2019, the Water Treatment Plant and related financing including a proposed Water Treatment Plant Fee, and proposed enhancements to the Water Assistance Program to support income-qualified customers.
STRATEGIC FOCUS AREAS
Innovative, Data-Driven, Results-Focused City Government
Financially Responsible
Supportive, Sustainable Infrastructure
WATER RATE RESET
BACKGROUND
In 2018 and 2019, City Council and Staff identified concerns regarding the rates charged to customers and the growing reserves in the Water Fund. It was determined that the growing reserves were due to projects being planned but not completed in a timely manner. With the assistance of a water rate consultant, the rates were reviewed and options were considered, including leaving rates stable or reducing rates temporarily. The decision made by City Council in 2019 was to reduce rates by 8% in order to utilize the excess operating reserves that had accumulated in the fund. This rate decrease was implemented in 2020 and applied to all customer categories. Rates remained consistent in 2021 and 2022.
In 2022, the rate model and financial results of the fund were updated and reviewed by Staff with the support of the water rate consultant. The updated model with financial results from 2020 and 2021 revealed that the reserves had been spent down as planned but are now lower than anticipated or recommended. It is a best practice to maintain an operating reserve equal to six months of the annual operating budget of the fund. This practice allows for the fund to absorb variances in...
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