Council approved a water rate increase that will go into effect April 1, 2011.
For well over a year now, we have discussed the need to increase water rates to keep up with costs. The fund is not breaking even and reserves are depleted. Water service is provided to residents and property owners in Salida through an enterprise fund. This accounting structure is used for business-type activities. Water operations are not operated as a governmental fund supported by tax dollars. Revenue generated from the business activity (providing water) needs to be sufficient to pay for that activity.
The City has followed a revenue model whereby quarterly fees paid for operations and routine maintenance or upgrades. Development fees paid for capital improvements and debt service on those improvements. In recent years, revenue has not kept pace with the capital needs and debt service requirements. The City made substantial investments in capital infrastructure including the high zone water tank, new transmission lines, upgrades to the treatment plant, purchase and installation of radio-read meters and acquisition of water rights. Strong development activity in the mid 2000’s paid for a substantial portion of the capital improvements; however, it was not sufficient to fully pay for all such improvements. In addition, aging facilities are continuing to require upgrades and maintenance to extend their service period. Development has now slowed substantially and is not sufficient to pay existing debt service or cover capital requirements. In 2010, we used up capital reserves and obtained a commitment for additional debt to pay for capital improvements of the galleries water tank. Future capital requirements need to be paid by fees for water service.
Last year we contacted our engineering firm, Schmueser Gordon Meyer (SGM), about completing an assessment of future capital needs and a rate study. A draft report was distributed to council and posted on the city’s website on March 1st.
We plan to raise rates to generate sufficient revenue to pay for current operating expenditures, debt service and capital requirements. Future development fees will be used to begin rebuilding reserves. In addition, during a recent work session, council directed staff to develop a model that would generate enough revenue to increase reserves by $100,000 to $150,000 annually.
Our goal is to operate the water system efficiently and design a rate structure whereby users of the water system share in its costs of operations in a fair and equitable manner. No one welcomes rate increases, but we need to cover costs. As one of the larger users of water the City’s general fund will share in about $30,000 of the incremental costs.
Last year, the City generated approximately $870,000 in fees from water service. An additional $480,000 is needed in 2011 to break even. A further increase in revenue is needed to begin re-building reserves. As discussed more fully in the rate study, we are proposing only slight modifications to the existing rate structure.
The revenue structure includes two fixed components and a third variable component on each quarterly bill.
- A flat service (or “ready to serve”) fee.
- A maintenance fee (for residential customers) or a demand fee (for commercial customers).
- Charges per thousands of gallons of water used during the quarter.
Many communities bill for water using what is called “tiered rates.” The City will begin this practice, as well. This method of billing creates an incentive for water conservation. Under this method of billing, per gallon water usage charges increase if more than a certain number of gallons are used each quarter. The usage categories are as follows:
Charge per thousand gallons
Gallons / Quarter Residential Commercial
Up to 6,000 no charge Tier 1 rate
6,001 to 40,000 Tier 1 rate Tier 1 rate
40,001 + Tier 2 rate Tier 2 rate
The proposed new rate structure increases the volume of water included as “base” usage for residential customers. This is intended to provide an allowance for enough water for a conservative single-person household at the base rate (ie. without any incremental usage charges).
To help illustrate how our customers will be affected by the new rates, we have updated the water and sewer bill illustration with “before and after” calculations. For those inclined to play with spreadsheets, this file can be updated with different water use scenarios to calculate future charges.
Those who think there are way too many little numbers on this page may contact the finance department for assistance by calling 719-530-2623 or emailing firstname.lastname@example.org.
The rate increase is based on a study completed by city engineers, Schmueser Gordon and Meyer.