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REQUEST FOR COUNCIL ACTION Date: 11/4/2024 Item No.: 7.c. Department Approval City Manager Approval Item Description: Review the 2025 Proposed Utility Rates 1 2 Background 3 Unlike many city services that are supported by property taxes, our utility or enterprise operations are 4 funded primarily by user fees and are operated as separate, stand-alone functions. The City engaged 5 Ehlers to perform an update to the utility rate study of the Water, Sanitary Sewer and Storm Drainage 6 Funds from 2022, attachment 2 contains the study. Ehlers staff presented their analysis at the October 7 7 City Council meeting and the October 8 Finance Commission meeting. Over the past few years, city 8 staff have curtailed capital improvements to allow for water and storm drainage funds to build their 9 minimum fund reserves. Attachment 3 is a memo from the Public Works Director outlining changes 10 made to the capital improvements to the Water, Sanitary Sewer and Storm Drainage funds. 11 12 Water Fund Operations 13 The updated Utility Rate Study done by Ehlers on the Water Fund recommends a 5.5% increase in rates 14 for 2025 to cover fixed and variable costs, debt service and replenishment of fund reserves. The 15 previous study recommended an 8% increase in rates for 2025. As a result of curtailment of capital 16 improvements, this fund is starting to recover and build reserves. One of the main costs is the purchase 17 of water from St. Paul Regional Water. Their increases for 2025 are roughly 8% and then drop to a 5% 18 increase in 2026. In addition, this fund is still working on building fund reserves to cover the minimum 19 for operations and the amount needed for capital. The study anticipates hitting these reserve levels in 20 2030. 21 22 Storm Drainage Operations 23 The City provides for the management of storm water drainage to prevent flooding and pollution control, 24 as well as the street sweeping program. In 2022, the Utility Rate Study done by Ehlers recommended a 25 33% increase for 2023-2024 to cover fixed and variable costs of the Storm Drainage fund and a 2.5% 26 increase thereafter. Through the increases in 2023 and 2024 and the curtailment of capital 27 improvements made by Public Works, the fund is now on course to be able to cover operations and 28 capital infrastructure needs for the next five years. The current update of the utility rate study 29 recommends a 0% increase. 30 31 Sanitary Sewer Operations 32 The City maintains a sanitary sewer collection system to ensure the public’s health and general 33 welfare. The previous study recommended a 2% increase to mainly cover the cost increases of 34 Metropolitan Council Environmental Services. The current update of the utility rate study recommends a 35 0% increase. Public Works has included an updated lift station study in the 2025 budget. It is 36 anticipated that this study will impact future capital improvement project costs and needs. 37 38 Recycling Operations 39 The recycling operation provides for the contracted curbside recycling pickup throughout the City and 40 related administrative costs. The primary operating cost is the amounts paid to a contractor to pick up 41 recycling materials. In 2024, the City solicited bids on the recycling operations and on October 7, 2024, Page 1 of 3 Qbhf!55!pg!297