Consideration and Adoption of Resolution No.  2015-31: A resolution of the Flagstaff City Council pursuant to A.R.S. 9-511.01 adopting notice of intention to increase water, reclaimed water, wastewater and stormwater rates or rate components, fees or service charges and establishing a date for a public hearing on October 6, 2015.

This action adopts a Notice of Intention, which is required by the Arizona Revised Statutes Section 9-511.01 prior to a municipality increasing domestic water, reclaimed water, wastewater or stormwater rates, rate components, fees, or service charges. Arizona Revised Statutes require a Notice of Intention be adopted by the City Council and published in the local newspaper to set a date for a public hearing prior to an increase in rates. A report must be filed with the City Clerk and available to the public for review at least thirty days prior to the hearing. The report must include rate increases being considered and their justification. This action does not bind Council to adopt rate increases at the October 6, 2015 meeting.

The City is recognizing the need to evaluate rates in order to meet expenditures, pay down the existing debt service, maintain the ability to issue future bonds, ensure sound fiscal management of the utility division and provide for an ongoing capital improvement program to replace and rehabilitate water and sewer pipelines that have reached the end of their useful life. The proposed rates will establish a capital improvement program that is financially capable of replacing 2 miles of waterline and 1 mile of sewer line during each fiscal year. 
 
The increased water and sewer capacity fees reflect the value of extra capacity in the systems and the anticipated cost of new facilities that will be attributed to growth for the next ten years. 
 
Water, Sewer and Reclaimed water user fees will be phased in over a 5 year period. The new rates would take effect on January 1 of each year beginning in the year 2016.
 
The new capacity fees and service fees would go into effect in January 1, 2016.

None.

An alternative would be to choose not to approve the NOI to implement any rate modifications. The ramifications of such action may result in the Utilities Division requiring larger increases in the future to catch up. The City water and wastewater utility is an enterprise fund that has been self-supporting for many years. The City Stormwater utility is also an enterprise fund.
 
Another option would be to further delay any Capital Improvement or pipe replacement projects. and phase in rate increases over a longer period of time. This may be done in many different ways (length of time between rate increases). This is another option that is open to the City Council.

The City retained Willdan Financial Services (Willdan) to prepare a long-term financial plan and rate and fee study for each utility to ensure the Utilities Division has sufficient revenues to meet their operational, capital and debt service obligations and that rates are set proportionate to the costs of providing utility service to each customer class. As part of this rate study, the Willdan consulting team, facilitated dialogue with the City’s Water Commission and City staff at several Commission meetings. The attached report documents the findings, analyses and recommendations of the comprehensive rate and fee study effort.
 
The City desires rates and fees that fully fund operations, maintenance, and present and future capital costs for plant expansions as well as distribution systems and collection system capacity, infrastructure rehabilitation, enhancements, and expansion.  Utility infrastructure is aging and must be replaced soon. Therefore, the purpose of the rate and fee financial study is to provide recommendations on changes to the current utility rate and fee structures to meet these challenges.
 
The rate recommendations have been available online since August 6, 2015 and are on file with the City Clerk effective August 2015. They will have been available for review and comment for more than 30 days prior to the October 6th public hearing and ordinance consideration.

Several objectives were identified during the rate study to guide decisions regarding the proposed financial plans and rate structures. The major objectives of the study were: 

• Utility rates and fees should generate sufficient revenues to meet operating costs, capital program requirements, debt service obligations, and maintain adequate reserves consistent with sound financial management practices
• Utility rates should be set proportionate to the cost of providing utility service to each customer class to promote fairness and equity
• A financial plan that minimizes future rate and fee impacts on existing and new customers
• Utility rate and fee structures should be supported by a financial model that is easy to update should costs and assumptions change in the future beyond what was projected at the time of this report

In reviewing the above objectives, it should be noted that the City has limited control over external forces such as growth, consumer behavior, and system usage. Recognizing these factors, we believe that the recommendations in this study provide a fair, reasonable, and balanced set of proposed rates and fees for the City that, to the extent possible, meets these key objectives.

Regular rate reviews and modifications are necessary to maintain a stable financial position for the water, reclaimed, wastewater and stormwater utility.

Inform
Involve
Empower
 
The Water Commission held meetings to discuss the rates, capacity and service fees on 1/15/2015, 2/19/2015, 4/16/2015, 5/21/2015, 6/18/2015, and 7/16/2015.
 
The Water Commission has considered numerous options during the meetings prior to making their final recommendations to Council July 16, 2015.
 
A public notice was advertised in the 8/1/2015 and 8/8/2015 Arizona Daily Sun notifying customers of the Notice of Intent Public Hearing to consider rates, capacity and service fees on 10/6/2015. This information was available on the City website since July 2015.
 
Meetings are being held with multiple community organizations, Northern Arizona University, largest 15 Customers of the Utility, large irrigation customers and other public groups who requested a presentation during the months of August through October of 2015.
 
Additional meetings are scheduled with the Homebuilders, Chamber of Commerce and stakeholder groups during the months of August and September 2015.
 
A public hearing will be advertised and held at the 10/6/2015 Council meeting.