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34 eliminate the need to use the fund balance, the focus of the rate increases turned to make sure the rates 35 covered the rising costs for operations (inflationary city costs plus St. Paul Water rate increases). 36 37 As a result of all the variables, a scenario was initially created that showed an 8% rate increase would 38 cover 2023 operational costs, assuming a portion of the under billing was collected in 2022. This 39 information was presented to the Council on Oct. 19. As final disposition of the collection on under 40 billing was not finally determined until October 24 and letters notifying customers of their under billing 41 amount, it is unlikely that much of the under billings will be paid in 2022. 42 43 Due to the under billings, the City has little cash on hand going into 2023 to cover the operational costs. 44 If the City had not had the under billing, there would be more cash on hand to absorb the sharp increase 45 from St. Paul water and may have somewhat mitigated the rate increase in 2023 and allow the City to 46 spread out rate increases over a period of years to cover the increased costs. However, given the 47 projected rate increases from St. Paul water and our continued capital needs, a significant rate increase 48 over a period of years will still be needed. Having the revenue from the under billings in hand may 49 have altered the schedule for the higher rate increases, but they still would have been necessary. 50 51 So even though the City Council has directed collection of all of the under billings, staff is still 52 recommending an 8% increase in 2023 to ensure sufficient cash flow to cover operational costs. The 53 collection of the under billings throughout the year will also help cash flow. From the analysis, the City 54 would need to have water rate increases of 8% through 2027, with 2028 being 7%. 55 56 However, in full acknowledgement that the rate increase along with the collection of under billings 57 from some customers may be burdensome to rate payers, it has been determined that 7% rate increase 58 in 2023 followed by rate increases of 8% through 2028 would also be acceptable. For the average 59 single-family user, the difference between a 7% and 8% increase in 2023 would be $3.36 annually. 60 61 Storm Drainage Operations 62 The City provides for the management of storm water drainage to prevent flooding and pollution 63 control, as well as the street sweeping program. Based on the 2021 Utility Rate Study done by Ehlers, a 64 4% increase is recommended for 2022-2024 to cover fixed and variable costs of the Storm Drainage 65 fund and a 1% increase thereafter. Public Works did an intensive analysis of the infrastructure in the 66 Storm Drainage system and identified a significant increase in capital improvements over the next 20 67 years. Although the initial improvements have been curtailed, they are still significant. The current 68 update of the utility rate study is recommending a 33% increase for 2023 and 2024 and then a 2.5% 69 thereafter. While the percentage seems high, the actual dollar amount change is about $5 per quarter 70 for residential properties. 71 72 Sanitary Sewer Operations 73 The City maintains a sanitary sewer collection system to ensure the general public’s health and general 74 welfare. Ehlers included a review of the rates for Sanitary Sewer in this year’s Utility Rate Study and is 75 recommending a 2% increase. For 2022, the city increased the base rates by 3.5% and the usage rates 76 by 1.92%. Public Works made some reductions in the proposed capital improvement projects so the 77 2% increase recommended by Ehlers is adequate for this fund. 78 79 Recycling Operations 80 The recycling operation provides for the contracted curbside recycling pickup throughout the City and 81 related administrative costs. The primary operating cost is the amounts paid to a contractor to pick up 82 recycling materials. In 2021, the City solicited bids on the recycling operations. On July 26, 2021, the Page 2 of 5