9.E.
City Council Draft Agenda
- Meeting Date:
- 04/16/2024
- Co-Submitter:
- Shannon Jones
- From:
- Erin Young, Water Resources Manager
TITLE:
Consideration and Adoption of Resolution No. 2024-19: A resolution of the Flagstaff City Council adopting a notice of intention to increase water, sewer, and reclaimed water rates or rate components, fees, or service charges; and setting a public hearing date on June 18, 2024.
STAFF RECOMMENDED ACTION:
- Read Resolution No. 2024-19 by title only
- City Clerk reads Resolution No. 2024-19 by title only (if approved above)
- Adopt Resolution No. 2024-19
Executive Summary:
A Notice of Intention must be adopted, pursuant to Arizona Revised Statutes Section 9-511.01, before a municipality may increase water, wastewater, reclaimed water or stormwater rates, rate components, fee or service charges. The Notice of Intention must be adopted at least 60 days prior to a public hearing (June 18, 2024), and published in the local newspaper not less than 20 days before the public hearing (May 29, 2024). A written report and cost flow analysis to support the rate increases must be filed with the City Clerk and posted on the City website at least 30 days prior to the public hearing (May 19, 2024). A public hearing is scheduled for the June 18, 2024 City Council meeting. The second public hearing is scheduled for the July 2, 2024 City Council meeting.
Staff and the city's rate consultant will introduce the full set of proposed rate adjustments for Council review and discussion.
**A presentation will be included in the Council's final packet**
Staff and the city's rate consultant will introduce the full set of proposed rate adjustments for Council review and discussion.
**A presentation will be included in the Council's final packet**
Financial Impact:
Water, Wastewater, and Reclaimed Water user fees will be phased in over a 5-year period. The new rates for Year 1 would take effect on September 1, 2024:
As prescribed by the City of Flagstaff's adopted Water Policies, the City conducts a formal rate study every three years for the water, wastewater, reclaimed water, and stormwater funds for the utility's updated ten-year financial plan. The ten-year plans are used to ensure that rate changes generate sufficient revenues to cover costs of serving customers and to maintain adequate reserves per the City's adopted financial policies. The impact on the combined utility bill is carefully considered in determining the appropriate balance between rate increases and expenditure needs including future capital improvements and debt financing needs. The last formal rate study for the water and wastewater was completed in 2015, reclaimed water was completed in 2016, and stormwater in 2023. Water Services is overdue in starting a formal rate study in 2018 as prescribed, and did not execute the current study until 2023. The time lag since the last study, coupled with inflation and a new level of post-covid increases in material and labor costs, makes this rate adjustment a substantial one for our customers.
- Year 1: September 1, 2024 through December 31, 2025
- Year 2: January 1, 2026 through December 31, 2026
- Year 3: January 1, 2027 through December 31, 2027
- Year 4: January 1, 2028 through December 31, 2028
- Year 5: January 1, 2029 through December 31, 2029
As prescribed by the City of Flagstaff's adopted Water Policies, the City conducts a formal rate study every three years for the water, wastewater, reclaimed water, and stormwater funds for the utility's updated ten-year financial plan. The ten-year plans are used to ensure that rate changes generate sufficient revenues to cover costs of serving customers and to maintain adequate reserves per the City's adopted financial policies. The impact on the combined utility bill is carefully considered in determining the appropriate balance between rate increases and expenditure needs including future capital improvements and debt financing needs. The last formal rate study for the water and wastewater was completed in 2015, reclaimed water was completed in 2016, and stormwater in 2023. Water Services is overdue in starting a formal rate study in 2018 as prescribed, and did not execute the current study until 2023. The time lag since the last study, coupled with inflation and a new level of post-covid increases in material and labor costs, makes this rate adjustment a substantial one for our customers.
Policy Impact:
The City is proposing modifications to the water, wastewater, and reclaimed water rates, rate structures, and increasing miscellaneous water charges to meet cost recovery requirements for services provided to specific customers. The impact on the combined utility bill for water and wastewater service was carefully considered in determining the appropriate balance between the proposed rate changes and debt financing. Based on the ten-year financial plans, a synopsis of cost impacts is explained below:
Water
The water enterprise fund is impacted by multiple cost factors over the five-year planning period including:
The wastewater enterprise fund is impacted by multiple cost factors over the five-year planning period including:
Water and Wastewater Miscellaneous Charges
To address cost recovery, to meet the City's financial policy that charges recover all direct and indirect costs of service, miscellaneous charges are assessed to specific users of the service so that general rate payers do not bear the burden.
The proposed miscellaneous charge increases include:
Water
The water enterprise fund is impacted by multiple cost factors over the five-year planning period including:
- Operating cost increases for treatment chemicals due to scarcity and supply challenges.
- Operating cost increases for contractual services necessary for treating raw water.
- Increasing costs for replacing and repairing aging infrastructure.
- Surface water treatment plant upgrades to improve water source resiliency and maintain water quality.
- Increasing costs required for drought preparedness through watershed health.
- Additional operations and trades staff to support a growing community, and capital improvement program development.
- Operating cost increases for personnel services and benefits.
- Adjustments to water capacity fess and revenues to align fee per single family equivalent (3/4-inch meter equivalent) with current level of service requirements, growth-related shares of past infrastructure investments and planned capital improvements, and preparations for sustainable future water supplies.
- While Water Services proposed to decrease the base fee from 29% cost recovery to 25% cost recovery, the overall increases to base fees are proposed to better reflect the recovery of fixed operating costs.
- Increases to commodity rates are proposed to generate sufficient revenues to maintain the water fund as a self-sustaining enterprise, encourage efficient water use and urge conservation.
- Condensing the Institutional customer class to the Commercial customer class to remove single-user categories from the customer class list.
- Additionally, the ratios between water rate tiers are being adjusted to provide price incentives for efficiency indoors and re-setting the cost-of-service of providing water for outdoor water uses.
The wastewater enterprise fund is impacted by multiple cost factors over the five-year planning period including:
- Operating cost increases for treatment chemicals due to scarcity and supply challenges,
- Increasing cost for replacing and repairing aging infrastructure.
- Maintenance cost increases of system infrastructure due to deferred maintenance due to a lack of funding and increased system demand.
- Operating cost increases for personnel services and benefits.
- The introduction of base fees are proposed to reflect the recovery of fixed operating costs and adjusted for the cost-of-service to each customer class.
- Adjustment to the wastewater capacity fees and revenues to align the fee per single family equivalent (3/4-inch meter equivalent) with current level of service requirements including solids treatment capacity, growth-related shares of past infrastructure investments and planned capital improvements, and preparations for future wastewater treatment expansions.
- Adjustments to volumetric rates are proposed to reflect the cost of wastewater loadings by customer class and generate sufficient revenues to maintain the wastewater fund as a self-sustaining enterprise.
Water and Wastewater Miscellaneous Charges
To address cost recovery, to meet the City's financial policy that charges recover all direct and indirect costs of service, miscellaneous charges are assessed to specific users of the service so that general rate payers do not bear the burden.
The proposed miscellaneous charge increases include:
| Connection Fees – Meters | Current | Proposed | Difference | ||
| 3/4" | $ 210.00 | $ 806.00 | $ 596.00 | ||
| 1" | $ 390.00 | $ 972.00 | $ 582.00 | ||
| 1 1/2" | $ 790.00 | $ 1,466.00 | $ 676.00 | ||
| 2" | $ 940.00 | $ 1,703.00 | $ 763.00 | ||
| Service Charges | |||||
| Water service turn on | $ 24.00 | $ 45.00 | $ 21.00 | ||
| Emergency turn on/turn off | $ 24.00 | TBD | |||
| Turn on/turn off after hours | $ 65.00 | TBD | |||
| Collection/ non-payment | $ 24.00 | $ 56.00 | $ 32.00 | ||
| Existing Meter Testing Rate - Accuracy Test | $ 74.00 | $ 74.00 | no change | ||
| Backflow prevention permit fee | $ 87.00 | $ 87.00 | no change | ||
| Backflow compliance fee | $ 87.00 | $ 87.00 | no change | ||
| Malicious Damage | $ 150.00 | TBD | |||
| Industrial Pretreatment | |||||
| Discharge permit fee (per year) | $ 250.00 | TBD | |||
| Scavenger wastes - septage per 100 gallons | $ 8.00 | $ 10.00 | $ 2.00 | ||
| Scavenger wastes - restaurant grease per 100 gallons |
$ 11.00 |
$ 11.00 |
$ - |
||
| Scavenger wastes - mud sump per 100 gallons | $ 25.00 | $ 32.00 | $ 7.00 | ||
| Afterhours fee for scavenger wastes dumping | $ 35.00 | $ 146.00 | $ 111.00 | ||
| Scavenger waste permit fee | $ 24.00 | $ 45.00 | $ 21.00 | ||
| River Can Fees per can | $ 1.00 | $ 1.15 | $ 0.15 | ||
Previous Council Decision or Community Discussion:
Council & Water Commission Meetings
Presentations were provided to the Flagstaff City Council about the Rate Study on the following dates. The videos of these meetings are available on the City's Rate Study website cleanwaterflagstaff.com from the "View Past Meetings" tab.
Presentations were provided to the Flagstaff City Council about the Rate Study on the following dates. The videos of these meetings are available on the City's Rate Study website cleanwaterflagstaff.com from the "View Past Meetings" tab.
- February 21, 2023 Discussion regarding a rate and fee study for water, reclaimed water, and wastewater funds.
- March 7, 2023 Consideration of a Contract for Professional Services with Stantec Consulting Services, Inc
- September 5, 2023 Introduction of the Rate Study Team
- December 12, 2023 Water, Wastewater, and Reclaimed Water Rate Study Presentation 1 of 2 on Capacity Fees and Misc. Fees
- January 23, 2024 Water, Wastewater, and Reclaimed Water Rate Study Presentation 2 of 3 on Capacity Fees and Misc. Fees
- February 6, 2024 Water, Wastewater, and Reclaimed Water Rate Study Presentation 3 of 3 on Capacity Fees and Misc. Fees
- February 13, 2024 Introduction to Water, Wastewater, Reclaimed Water Rate Design
- April 2, 2024 Follow-up discussion from the March 25, 2024 City Council - Water Commission Joint Meeting
Joint meetings of the Flagstaff City Council and Water Commission were held on the following dates. The videos of these meetings are available on the City's Rate Study website cleanwaterflagstaff.com from the "View Past Meetings" tab.
- October 23, 2023 Discussion and Direction on the Rate Study Financial Plans
- March 4, 2024 Wastewater Rate Design Workshop & Direction on Rate Design
- March 25, 2024 Water & Reclaimed Water Rate Design Workshop & Direction on Rate Design
Presentations were provided to the Water Commission about the Rate Study on the following dates. The videos of these meetings are available on the City's Rate Study website cleanwaterflagstaff.com from the "View Past Meetings" tab.
- August 7, 2023 Introduction of Stantec Team
- September 21, 2023 Rate Study Update on Task 2
- October 19, 2023 Rate Study Financial Planning Scenarios Presentation and Discussion
- November 16, 2023 Rate Study Approach for Capacity Fee Calculations, Cost Allocations, Misc. Fees
- December 14, 2023 Update on Capacity Fee Calculations, Cost Allocations, Misc. Fees
- January 18, 2024 Water, Wastewater, and Reclaimed Water Rate Study Presentation on Capacity Fees and Misc. Fees
- February 15, 2024 Rate Design Discussions with Water Commission
Community Meetings
- Water Services held a Water Rate Study Informational Meeting on December 7, 2023. This was a public information meeting available as a dial-in (spanish or english) or WebEx. Video is available on cleanwaterflagstaff.gov
- Water Services held a drop-in meeting on Capacity Fees at its Administrative Offices on January 30 & 31
- Water Services tabled at the Downtown Community Library on April 1 from 5-7 pm; Jay Lively Ice Arena on April 3 from 5-7 pm
- Water Services is scheduled to table at Science Saturday at Willow Bend on April 6, Joe Montoya on April 10 from 10-noon
- Water Services is scheduled to host a drop-in event at the East Flagstaff Community Library on April 8, 2024 from 5:30 to 7:00 pm
Meetings to discuss various components of the Rate Study have been held with individual customers and community groups including the Greater Flagstaff Chamber of Commerce, Capstone Homes, Northern Arizona University, Snowbowl, a member of the Downtown Business Alliance, Historic Brewery, Joy Cone. Community "Roundtable" type discussions were held in September 2023. The community groups comprised representatives of the City of Flagstaff's commissions.
The City released a website for rate study information in October, 2023 at cleanwaterflagstaff.com. Since October, the website has seen over 2,800 views. Customers can leave comments from the website.
Water Services has emailed out notices throughout the study to multiple lists of customers and organizations, sharing information about Council or Commission meetings, and community meetings, to customers monthly. The City's Public Information Office issued press releases related to the rate study, on October 16, 2023, December 12, 2023, February 29, 2024, and March 28, 2024.
The City released a website for rate study information in October, 2023 at cleanwaterflagstaff.com. Since October, the website has seen over 2,800 views. Customers can leave comments from the website.
Water Services has emailed out notices throughout the study to multiple lists of customers and organizations, sharing information about Council or Commission meetings, and community meetings, to customers monthly. The City's Public Information Office issued press releases related to the rate study, on October 16, 2023, December 12, 2023, February 29, 2024, and March 28, 2024.
Options and Alternatives to Recommended Action:
Adopt the notice of intention to change or increase water and wastewater rates and charges for fiscal years 2025 through 2029 and establish June 18, 2024, as the date for public hearing to proceed with proposed rate changes in conformity with State statutes.
At the April 16th meeting, the City's rate consultant, Stantec, will provide City Council with a list of assumptions used in the model to achieve the City's Council objectives for the rate study. Should City Council elect to explore alternatives to the rates package as presented, Stantec can explain how adjusting the model assumptions might result in adjustments to the rates and fees that Council is seeking to better meet the study objectives.
At the April 16th meeting, the City's rate consultant, Stantec, will provide City Council with a list of assumptions used in the model to achieve the City's Council objectives for the rate study. Should City Council elect to explore alternatives to the rates package as presented, Stantec can explain how adjusting the model assumptions might result in adjustments to the rates and fees that Council is seeking to better meet the study objectives.
Connection to PBB Priorities and Objectives:
Serve the public by providing high quality customer service
Deliver outstanding services to residents through a healthy, well-maintained infrastructure system
Support and strengthen a robust, diverse, and sustainable economy
Promote, protect, and enhance a healthy, sustainable environment and its natural resources
Deliver outstanding services to residents through a healthy, well-maintained infrastructure system
Support and strengthen a robust, diverse, and sustainable economy
Promote, protect, and enhance a healthy, sustainable environment and its natural resources
Connection to Regional Plan:
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 services including their treatment, distribution, and collection systems in both urbanized and newly developed areas of the City to provide efficient delivery of services.
Goal WR.4. Logically enhance and extend the City’s public water, wastewater, and reclaimed water services including their treatment, distribution, and collection systems in both urbanized and newly developed areas of the City to provide efficient delivery of services.
Connection to Carbon Neutrality Plan:
CR-2 Strengthen existing community systems to create resilience to both short-term shocks and long-term change.
WS-1 Improve water infrastructure and expand water reuse.
HS-3 Adequately fund services for disaster preparedness.
HS-4 Improve the resilience of public infrastructure and City facilities.
WS-1 Improve water infrastructure and expand water reuse.
HS-3 Adequately fund services for disaster preparedness.
HS-4 Improve the resilience of public infrastructure and City facilities.
Connection to 10-Year Housing Plan:
none
Connection to Division Specific Plan:
Council-adopted Water Policies 2014
Section A Finance Policies:
Policy A1.1, A1.2
Policy A3.1, A3.2, A3.3
Section A Finance Policies:
Policy A1.1, A1.2
Policy A3.1, A3.2, A3.3