Public Hearing, Consideration and Possible Adoption of Ordinance No. 2016-23:  An ordinance of the Flagstaff City Council amending Title 7, Health and Sanitation, and Title 12, Floodplain, of the Flagstaff City Code, by amending Chapters 7-02-001-0039, Sewer Use Charges, Capacity Charges; 7-03-001-0010, Water Rates; and 7-03-001-0011, Water Main Capacity Charges; 7-03-001-0014 Water Conservation and Chapter 12-02-002-0003, Schedule of Stormwater Management Utility Service Charges and Fees, thereof. (Ordinance increasing certain utility rates, charges and fees)

This action adopts an ordinance increasing water, sewer and stormwater user and service fees, and water and sewer capacity fees. A summary of the changes follows;

• Water, Sewer and Stormwater user fees are increased over five years in order to adequately fund operations, maintenance, debt repayment and replacement projects contained in ten year capital improvement program per Council direction.
• Water and Sewer capacity fees are updated as recommended per Council direction.
   

The City desires rates and fees that fully fund operations, maintenance and future capital costs for water and wastewater treatment; distribution and collection systems, and stormwater infrastructure. The city is facing several challenges to continuing its high quality operations. Utility revenues are not keeping pace with increasing operation, maintenance and capital costs.

Water, Sewer and Stormwater user fees will be phased in over a five year period. The new rates would take effect on July 1, 2016 and the next increase on January 1, 2017 and then each January 1st through the year 2020.

A summary of Council recommendations;

• Base Monthly Service charge increase of 4.4 percent (%) annually for 5 years
• Water Rate 4.4% annually increase for 5 years, maintaining approximately 24% debt versus revenues
• Council requested $140,000 annually be directed towards water conservation efforts ( increased rebates, additional services)
• Water Rates structure change-lowered residential tier rate levels
• Wastewater Rate 7% annual increase for 5 years, maintaining approximately 20% debt versus revenues
• Stormwater Rate 6% annual increase for five years, no debt
• Buy-in Capacity Fees-Water approximately a -.2.8% decrease
• Buy-in Capacity Fee-Wastewater approximately 19% increase

The water and sewer capacity fees reflect the value of extra capacity available in the water and wastewater systems and the anticipated cost of the new facilities that will be required by growth over the next ten years.

COUNCIL GOALS:
Ensure Flagstaff has a long-term water supply for current and future needs

Provide sustainable and equitable public facilities, services, and infrastructure systems in an efficient and effective manner to serve all population areas and demographics
 
REGIONAL PLAN:
Goal WR.2.2  Maintain and develop facilities to provide reliable, safe and cost effective water and wastewater and stormwater services.

Policy LU.1.5 Maintain and upgrade existing infrastructure and invest in infrastructure to make redevelopment and infill an attractive and more financially viable development option.

Yes, on August 25, 2015 Council adopted a Notice of Intent to consider increasing water, sewer, reclaimed water and stormwater rates.  On February 17, 2016, Council gave direction on the rate changes as proposed herein.  The Public Hearing and first read of this Ordinance was held on April 5, 2016.

An alternative would be to choose not to implement any rate modifications. The ramification of such action would be to reduce capital improvement projects contained within the ten year capital improvement program. This action would delay needed capital pipe replacement projects which increases maintenance costs for existing piping and limits infill development within the exiting infrastructure as well as necessary treatment plant maintenance and upgrades.

The City retained Willdan Financial Services (Willdan) to prepare a long term financial plan and rate and fee study for each utility fund (water, wastewater, reclaimed water and stormwater) to ensure the Utilities Division has sufficient revenue 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 a part of this rate study, the consultant, facilitated dialog with the City's Water Commission and City staff at several Commission meetings over a period of seven months. During these meetings, the Commission made recommendations to be incorporated into the study where appropriate. The final draft report documents the findings, analyses and recommendations of the comprehensive rate and fee study effort.

The results of the rate and fee study were then posted on the City website and presented by staff to numerous civic, neighborhood, business and manufacturing groups involving a variety of customers during numerous meetings and public presentations. The Water Commission final rate recommendations have been incorporated into the proposed rate and capacity fee modifications included in the final rate and fee study. The rate recommendations have been available online since July 16, 2015 and are on file with the City Clerk effective August 1, 2015. They will have been available for review and comment for more than 180 days prior to the ordinance consideration.

There was extensive public outreach conducted prior to the first public hearing held on October 6, 2015.  City Council continued the public hearing on October 13, 2015, October 20, 2015, November 17, 2015 and February 17, 2016.   Proposed changes to reclaimed rates were discussed but are not included herein.  Proposed changes to reclaimed rates, if any, will be brought forward to Council at a future date. 

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 an fees should generate sufficient revenue to meet operating and maintenance costs, capital program requirements, debt service obligations and maintain 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
• A financial plan that follows the water policies and goals established by City Council on April 1, 2014

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 the recommendations in this study provide a fair, reasonable and balance set of proposed rates and fees for the City that meets these key objectives.

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

The Community benefits of the proposed rate adjustments include updated water and sewer mains and services, new storm drain facilities to remediate current flooding conditions,  and improved solids handling at the wastewater treatment plant facilities.

Involve: During the Water Commission review and discussion on the rate study, local members of the community were very involved in the rate making process.  The public and members of the commission  asked questions, requested information, requested modification to rate structures, discussed impacts of Commission decisions. 

Inform: City staff has met with the numerous customer groups,across all customer classes to discuss and inform the public on proposed rates and fees adjustments to water, sewer and stormwater. Below is a summary of our public outreach efforts to inform the public. 

• The Water Commission held meetings to discus the rates and capacity fees on 1/15/15, 2/19/15, 4/16/15, 5/21/15, 6/18/15, 7/16/15.
• The Water Commission considered numerous options prior to making their final recommendations to Council in July 16,2015.
• A public notice was advertised on 6/2/2015 in the Arizona Daily Sun notifying all customers of the Water Commission meeting
• The Water Commission held an informational Public Hearing meeting on 7/16/2015 This meeting is videotaped and is available on the City website.
• Letters were sent to the city's top 20 water users notifying them of the proposed rate modifications on 7/21/2015
• Staff met with Northern Arizona University and the largest 15 customers on 7/30/2015 to discuss the increased water and sewer fees and the projected impacts to their businesses.
• Staff met with the Chamber of Commerce on 9/16/2015 to discuss the increased water, sewer and stormwater user fees and the impacts to local business community.
• Staff met with the Northern Arizona Homebuilders Association and Northern Arizona Realtors on 9/9/2015 to discuss the increase in water, sewer and stormwater fees  as well as the proposed capacity fee increases and the impacts to the local home builders.
• Staff met with Civic groups (Lions Club, Liberty), ASCE, Sierra Club and various neighborhood associations in the South Side and Sunnyside areas to discuss the need for rehabilitation and replacement the City's water, sewer and stormwater infrastructure in their neighborhoods. We discussed the need for financial sustainability of the utility system and the results of the Rate study.
• The pubic hearing, along with the Resolution of Intent adopted by the City Council, was advertised in the Arizona Daily Sun 8/1/2015 and 8/8/2015.
• A public announcement was made on local radio stations during the months of July, August and September 2015.
• The public hearing was advertised and held at the 10/6/2015 Council Meeting.