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that the unions, in their contract negotiations, had settled at a 2% increase for 2015. Mr. Schwartz noted that the percentage increase for costs for employee insurance benefits had exceeded pay increases over the last 5-10 years. Member Cihacek sought staffs assumptions for supply costs, based on prime inflation rates or how they determined those assumptions. Mr. Miller responded that, while the City uses the Consumer Price Index (CPI) for inflation projections and assumptions, it was different when determining supply/maintenance for the water/sewer structure from that typically used for individuals determining increases for groceries, gas and household supplies, with Mr. Schwartz also factoring in inflationary costs based on cost trends provided by suppliers. Historically, Mr. Miller advised that they remained close to inflationary costs; however, noted that they could range from 2% to 4% depending on the type of supplies and materials needed. Member Cihacek asked staff for specifics for containing prices for these commodities. Mr. Schwartz responded that the majority of the department's expenses were personnel or equipment related in the water/sewer utility funds, with staff purchasing supplies, materials and equipment off state contracts for the most part when available. Mr. Schwartz advised that the major driver for water/sewer rates were for costs attributed to the wholesale cost of water and treatment of sewage, representing approximately 80% of the rates. Mr. Schwartz advised that the City had been experiencing higher than general inflationary costs from the Metropolitan Council and Saint Paul Regional Water Services, which was driving the rates more than local costs. At the request of Member Seigler, Mr. Miller responded that the storm water drainage rates were being driven mostly by the age of existing infrastructure, with most of the lines providing 50-65 years for a typical life span, and the cost to build a sewer main is depreciated over 50 years. Mr. Miller advised that the preferred process would be to set aside a little money over that 50 year cycle to be available when replacement was needed. At the request of Member Seigler, Mr. Miller advised that the replacement cycle was now occurring with the twenty-year projected CIP; however, he clarified that it had not been done diligently in the past, which created the rate hikes for 2015 as shown, with depreciation averaged out, and dollars actually averaged out, but capital spending fluctuating from year to year. Page 7 of 17