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Attachment 1 Roseville Finance Commission Agenda Item Memo To: Jesse Freihammer From: Michelle Pietrick, Finance Director Date: October 14, 2024 Re: Review of Utility Rate Study on the 2025 Proposed Utility Rates and adopt a recommendation for the City Council Background Unlike many city services that are supported by property taxes, the City's utility or enterprise operations are funded primarily by user fees and are operated as separate, stand-alone functions. The City engaged Ehlers to perform an update to the utility rate study of the Water, Sanitary Sewer and Storm Drainage Funds from 2022. Ehlers presented their analysis at the October 7 City Council meeting and the October 8 Finance Commission meeting. Over the past few years, city staff have curtailed capital improvements to allow for water and storm drainage funds to build their minimum fund reserves. Water Fund Operations The updated Utility Rate Study done by Ehlers on the Water Fund recommends a 5.5% increase in rates for 2025 to cover fixed and variable costs, debt service and replenishment of fund reserves. The previous study recommended an 8% increase in rates for 2025. As a result of curtailment of capital improvements, this fund is starting to recover and build reserves. One of the main costs is the purchase of water from St. Paul Regional Water. Their increases for 2025 are roughly 8% and then drop to a 5% increase in 2026. hi addition, this fund is still working on building fund reserves to cover the minimum for operations and the amount needed for capital. The study anticipates hitting these reserve levels in 2030 Storm Drainage Operations The City provides for the management of storm water drainage to prevent flooding and pollution control, as well as the street sweeping program. In 2022 the Utility Rate Study done by Ehlers recommended a 33% increase for 2023-2024 to cover fixed and variable costs of the Storm Drainage fund and a 2.5% increase thereafter. Through the increases in 2023 and 2024 and the curtailment of capital improvements made by Public Works, the fund is now on course to be able to cover operations and capital infrastructure needs for the next five years. The current update of the utility rate study recommends a 0% increase. Sanitary Sewer Operations The City maintains a sanitary sewer collection system to ensure the public's health and general welfare. The previous study recommended a 2% increase to mainly cover the cost increases of Metropolitan Council Environmental Services. The current update of the utility rate study recommends a 0% increase. Page 1 of 4 Page 45 of 78