Consideration and Adoption of Resolution No. 2017-24:  A resolution of the Flagstaff City Council adopting Notice of Intention to increase Reclaimed Water Rates or Rate Components, Fees of Service charges and establishing a date for a public Hearing on the proposed changes for September 19, 2017.

This action adopts a Notice of Intention, which is required by the Arizona Revised Statutes prior to a municipality increasing reclaimed water 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 30 days prior to the hearing. The report must include rate increases being considered and their justification.

The City is recognizing the need to establish reclaimed water rates in order to meet current expenditures, provide for an ongoing capital improvement program to improve reclaimed water distribution system and ensure sound fiscal management of the Reclaimed Water Enterprise Fund.

The new reclaimed water rates and service fees would go into effect in January 1, 2018.

None.

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 reclaim water services.

None.

• Adopt Resolution 2017-24.
• Not adopt Resolution 2017-24. This alternative would be to choose not to implement any rate modifications. The ramifications of such action would begin to impact the ability of the Reclaimed Enterprise Fund to pay its monthly expenses beginning in January 2018. At that time the Utility would need to reduce it's operational expenses.
• Another option would be to reduce or further delay the Capital Improvement program by phasing in or delaying capital projects over a longer period of time. This is another option that is open to the City Council. 

The City desires Reclaimed Water rates and fees that fully fund operations, maintenance and capital costs for plant and distribution system improvements. The City is facing several challenges to continuing its high quality operations. Revenues are not keeping pace with increasing operational and capital costs. Customer account growth is flat because summer demands on the reclaimed water system exceed the available reclaimed water supply. Additionally, the City recently lost a large manufacturing business that was a significant reclaimed water user.  The purpose of the reclaimed water rate amendments is to meet these challenges and complete the recommended capital improvements needed for this system. 
 

In accordance with the adopted City of Flagstaff Water Policies

• Utility rates and revenues should generate sufficient revenues to meet operational 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
• 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 customer 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.

• The reclaimed water utility fund recently lost one its major manufacturing customers which shut down operations and closed it's door. The loss of this single manufacturing customer represents an annual loss of approximately ~$126,000 in revenues to the Reclaimed Water Enterprise Fund.

Regular rate reviews and modifications are necessary to maintain a stable financial position for the reclaimed water utility and avoid transfers from the General Fund.

The Flagstaff Water Commission held a public meetings to discuss the reclaimed water rates and service fees on 6/15/2017. This meeting was videotaped and is available for review on the City website.
 
The Utilities Division held numerous public meetings with local stakeholders including the Chamber of Commerce, Citizen Advisory Committee, Northern Arizona Homebuilders Association, Northern Arizona University and the largest 15 Reclaim Water Customers throughout the past 18 months to help communicate the issues to the public.
 
A public hearing is being advertised to be held at the September 19, 2017 City Council meeting.