Public Hearing: Providing staff and consultants rate study presentation prior to modifying water, wastewater, reclaimed water and stormwater rates and fees.  (Staff/consultant presentation and public comment regarding rate adjustment)

This is continuation of the Public Hearing first opened on October 6, 2015, for utility rate adjustment discussions on amending existing rates and fees for water, wastewater, reclaimed water and stormwater. In these meetings staff will introduce the proposed rate adjustments  and the recommended options. The Council will be able to identify any policy issues or options that warrant a more in-depth discussion, either at the current meeting, or in a future meeting. Most of the questions raised at the October 6, 2015, will be answered at this October 13 Special Meeting.

This action complies with Arizona Revised Statute 9-511.01 Water and Wastewater business; rates; procedures. The City Council adopted a notice of intention to increase water, wastewater, reclaimed water and stormwater fees at at its regular meeting of August 25, 2015. This public hearing was advertised in the Arizona Daily Sun on August 1, 2015 and August 8, 2015. All State requirements for modifying the water, wastewater, reclaimed water and stormwater rates and fees have been met.

Council Goals:
2) Ensure Flagstaff has a long-term water supply for current and future needs.
3) Provide sustainable and equitable public facilities, services, and infrastructure systems in an efficient and effective manner to serve all population areas and demographics.
7) Address key issues and processes related to the implementation of the Regional Plan.

The Flagstaff Regional Plan 2030 supports the update and adjustment to City utility rates with the following goals; Policies are only included where needed to clarify a goal.
Goal WR.2 Manage a coordinated system of water, wastewater and reclaimed water utility service facilities and resources at the City level and identify funding to pay for new resources.
Goal WR.4 logically enhance and extend the City's public water, wastewater and reclaimed water utility services including their treatment, distribution and collection systems in both urbanized and newly developed areas of the City to provide an efficient delivery of services.
Goal E.1 increase energy efficiency.
E1.4 promote cost effective energy efficient terminologies and design.
Goal U.7 Provide for public services and infrastructure.
Goal LU.8 balance future growth with available water resources.
Goal CD.1 Improve the City and County financial systems to provide for needed infrastructure development and rehabilitation, including maintenance and enhancement of existing infrastructure.
Goal PF.2 Provide sustainable and equitable public facilities services, and infrastructure systems in an efficient and effective manner to serve all population areas and demographics.

The City Council adopted a Resolution of Intent to modify water, wastewater, reclaimed water and stormwater at the August 25, 2015 meeting.

Council has the option to choose not to implement any rate modifications.

The City desires rates and fees that fully fund operations, maintenance, present and future capital costs for plant improvements as well as distribution and collection systems capacity, infrastructure rehabilitation, replacements and expansion. The City is facing several challenges to continuing its high-quality operations. Utility revenues are not keeping pace with increasing operational and capital costs. Growth and approved development has necessitated the need to procure additional water supply through the drilling of new wells. Utility infrastructure is aging and requires replacement and rehabilitation. The rate and fee study  considers many factors that impact the cost of providing water,wastewater, reclaimed water and stormwater services. Among these factors are; requirement to maintain sufficient revenue to cover the City's debt service costs, the cost of operations, including employee and energy costs,  the cost of future projects to maintain service reliability, the cost of panned infrastructure maintenance and expansion. The rate and fee financial study guides the rate evaluation and provide recommendations on changes to the current utility rate and fee structures to meet these challenges.

Willdan Financial Services was retained by the City to conduct a Utilities Rate Study for the City's water, wastewater, reclaimed waler and stormwater utilities. Willdan gathered the background budget information, financial records, billing data and other relevant information prior to their analysis. A fair and equitable cost based system of rates and charges were then developed which are projected to provide sufficient revenue for each utility evaluated. The results of their analysis ad final report will be presented.

The City Water Commission has met on six occasions over the past nine months reviewing the proposed rates. The water commission made recommendations for council to adopt rate options as identified in the July 16, 2015 Water Commission meeting. The final rate study analysis have been available online and on file with the City Clerk effective August 1, 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 fess should generate sufficient revenues to meet operating costs,capital program requirements, debt service obligations and maintain adequate reserves consistent with sound financial management practices with a continued commitment to water conservation.
• Utiity 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.
• Rate increases are necessary to keep City Utility financially sustainable. 

Capacity fees are being updated on the basis of "growth pays for itself" as proposed by the City's rate consultant, Willdan Financial Services. The City of Flagstaff has been implementing utility buy-in capacity fees since the 1970's.

Utilities is one division, with four separate financial funds. Services provided by the City are funded by money collected from rate payers for those services. The City of Flagstaff Utilities Department receives no funding from property taxes. Money collected from the wastewater rate payers may be used only to fund wastewater services and money collected from water ratepayers may be used only to fund water services. Transfer of money between these funds is prohibited except as payment for services provided.

Comparison of Flagstaff rates with other Arizona cities will be provided in the staff presentation.

The City is recognizing the need to establish an on-going 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 an the anticipated cost of new facilities that will be attributed to growth for the next ten years.The increased capacity fees will add to the cost of development.

Water, Wastewater, Reclaimed Water and Stormwater 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 would go into effect in January 1, 2016.

Regular rate reviews and modifications are necessary to maintain stable financial position for the water, wastewater, reclaimed water and stormwater funds. The goal of the proposed rate increase is to provide for a financially sound and sustainable utility system.

Inform
Consult
Involve
Collaborate

The Water Commission held meetings to discuss the rates, capacity and service fees on 1/15/2015, 2/19/15, 4/16/15, 5/21/15, 6/18/15 and 7/16/15. The Water Commission held an informational Public Hearing meeting on 6/15/15. This meeting was videotaped and is available for review on the City website.

The Water Commission has considered numerous options during the spring prior to making their final recommendation to Council in July16 2015.

Meetings have been held with numerous outside public stakeholder groups including Chamber of Commerce, Northern Arizona University, largest 15 customers of the Utility, Northern Arizona Home Builders Association, Northern Arizona Realtors, Lions Club, and many other neighborhood civic groups.

A public hearing notice was advertised in the 8/1/15 and 8/7/5 Arizona Daily Sun notifying customers of the proposed rate adjustment.  being considered by the City.

An alternative would be to choose not to implement any rate modifications. The ramifications of such action would be to reduce and eliminate capital improvements projects and upgrades for the utility system. This option would be to further delay Capital improvement such as pipe and treatment plant replacement projects. Consequently the Utilities Division would require larger increases in the future to catch up.

Another option would be to phase in rate increases over a longer period of time. This may be done in many different was (length of time between rate increases). This is another option that is open to the City Council.