Hastings residents will see changes to their water and sewer bills beginning with the July 2017 billing.
The city council voted 5-0 May 15 to approve changes to the city's utility rate structure and associated fees.
One item on the council's agenda this year was to figure out how to bring utility fund revenues in line with expenses, while attempting to minimize the impact on residents. The approved model will increase usage rates and also provide a discount on sewer and water availability charges.
For low-end users, that will increase the total utility bill by about $20 a quarter. A median user will see little to no change.
Mayor Paul Hicks said that the vote was not an easy one to make because of the financial impact, but it was necessary.
Hastings' utility funds cover water, sewer and stormwater infrastructure expenses. The funds do not rely on the city's general fund or tax levy; they are generated entirely out of utility revenues, a revenue that is supposed to support all the costs associated with the city utility systems.
When the city needed to build a water treatment plant to remove harmful nitrates from the water supply in the mid-2000s, it took out a 20-year revenue bond and created a repayment plan. The majority of the debt, 75 percent, was to be repaid out of the city water availability charges (WAC), and the remaining 25 percent would come from ongoing water usage charges.
At the time, the repayment method seemed sound, but WAC fees are applied to new or expanding businesses. With the downturn of 2008, those expected revenues fell flat. Water conservations efforts and more efficient water system designs have led to a downward trend in water usage, which also results in lower water fund revenues.
The idea behind the changes is to create a funding model that covers the city's utility costs and is also stable and sustainable. A review of the current utility rate structure had not been done for more than 20 years and rates had not been adjusted since 2014.
In June 2016, the city hired Ehlers, Inc. to perform financial analysis, develop modeling and help facilitate Finance Committee and Council Workshop meetings. Ehlers provided a presentation of their final report at the May 15 meeting of a ten-year utility rate study for water, sewer and storm water funds in the city of Hastings.
The water fund is currently generating revenues from base charge, two-tiered consumption charge and WAC. To ensure that everyone is paying for the fixed costs of the system, regardless of usage, Ehlers recommended changed the base charge of $6 per quarter to a charge that increases for larger sized meters. The quarterly charge ranges from $15.09 to $1,055, depending on meter size.
The current consumption rate charge is $1.85 per 1,000 gallons in the winter quarter and $2.35 per 1,000 gallons in the non-winter quarter. The new system will have a four-tiered consumption charge instead that will help offset the increase in the base charge for lower water users. The range of rates would be from $0.91 per 1,000 gallons to $3.59 per 1,000 gallons for the highest users.
The sewer fund generates revenues from base charges, uniform consumption charge based on winter averaging and SAC.
Ehlers recommended that the quarterly base charge increase from $1.50 to $14.66 in 2017. The current rate covers just 10 percent of total fixed costs of the system and the increase would ensure fixed costs are covered 100 percent, regardless of usage.
The rate structure for the sewer fund will not change but Ehlers recommended the rate be increased from $3.25 per 1,000 gallons in 2016 to $3.32 per 1,000 gallons in 2017.
The SAC charges will reduce by 25 percent. This will decrease from $945 per SAC unit to $709 per SAC unit.
Ehlers did not recommend any changes to the rate structure for the stormwater fund, but they did recommend increases in the rates for the stormwater fund in 2017.
Council member Trevor Lund suggested that the council continue to look at the utility rate on an annual basis. Council member Lisa Leifeld agreed and said that the approval of the changes is just the first step. The council will continue to review utility rates.