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Sanitary Sewer Operations: The City maintains a sanitary sewer collection system to ensure the general public's health and general welfare. The single largest operating cost to the sanitary sewer operation is the treatment costs paid to the Metropolitan Council Environmental Services Division (MCES). The MCES has notified us that our treatment costs are expected to increase by approximately 3% in 2006. In addition, the City's internal operating costs are expected to increase by approximately 1% reflecting slightly lower planned capital replacements from the previous year. Unlike the Water Fund, the Sanitary Sewer Fund is in a relatively strong financial position which will somewhat offset some of the operating cost increases. Storm Water D:raina�e O�erations: The City provides for the management of storm water drainage to prevent flooding and pollution control, as well as street sweeping and the leaf pickup program. The storm sewer costs are expected to somewhat higher than in previous years, due to the planned replacement of Stormwater systems. In an effort to ensure adequate func� are on hand for these replacements as well as other operating costs, an increase in the rates will be needed. Rec.r�g Operations: The recycling operation provides for the contracted curbside recycling pickup throughout the City. The primary operating cost is the amounts paid for a contractor to pickup recycling materials. The 2006 contract will allow recycling rates to remain at their 2005 levels, and should limit the increasefor 2007 to a less-than-inflation amount. Recommendation After reviewing the needs of the various enterprise-type operations and the current rate structure, Staff feels a rate adjustment is warran�ed. This is based on the following: 1) The City will realize a 3% increase from various service providers including the City of St. Paul, and MCES 2) The City is projecting a 3°/o increase in City-controlled operating costs 3) Substantial capital replacement costs will be incurred in the next several years that will require both the use of existing reserves, as well as planned rate increases 4) The City has f�ed costs that it must recoup independent of the amount of citywide usage 5) The City has typically applied rate adjustments on an equal percentage basis across various property types Based on these reasons, Staff is recommending the following rate adjustments as shown in the tables below: � �