Title
Storm and Surface Water Financial Analysis and Rate Structure
Recommended Action
Receive information on the financial status of the Storm and Surface Water Utility. Move to direct staff to proceed with the concepts presented and further develop an operating budget and a revised storm and surface water rate structure for implementation in 2019.
Report
Issue:
Whether to authorize staff to proceed with finalization of a revised storm and surface water rate structure for implementation in 2019.
Staff Contact:
Andy Haub, Water Resources Director, 360.570.3795
Presenter(s):
Andy Haub
Background and Analysis:
As part of the financial analysis for the Storm and Surface Water Plan (Plan), the Utility hired a consultant, FCS Group (FCS), to help develop a rate strategy that provides stable revenue to meet the Utility’s operating and capital costs. FCS determined that the Utility was in solid financial condition.
Full implementation of the Storm and Surface Water Plan strategies
FCS’s analysis assumed full implementation of all of the Plan’s strategies and capital projects. If that were to happen, the resulting rate increase would be 54% through 2022. The biggest driver in FCS’s recommendations was increasing depreciation funding to equitably charge current customers for the wear and tear and future replacement of the infrastructure. Depreciation funding alone accounted for a 20% rate increase. Keeping up with inflation, salaries and construction costs was anticipated to raise rates an additional 14% through 2022. Hiring additional employees, if justified, for inspection and maintenance, street sweeping and pipe televising, accounted for an additional 8% rate increase.
More likely implementation scenario
Staff will discuss the Utility’s strategy for a modified implementation strategy that would raise rates by approximately 27% by 2022. The strategy will involve:
• A slower increase in depreciation funding,
• Fully accounting for inflation and construction costs
• Delaying a few large capital project to smooth rate increases
• Continuing modest funding for sea level rise adaptation
• Adding new employees only as warranted
• Grant funding water quality projects
Rate Design
The Utility‘s primary source of funding is rate revenue. As part of their financial analysis, the Utility also requested FCS to evaluate alternative rate structures. The objectives were:
• To make the rate structure more equitable based on the level of onsite stormwater mitigation. The current rate structure is based on the year a property was developed which does not necessarily coincide with the level of onsite stormwater mitigation. The current rate structure also does not have a low impact development category.
• To incentivize property owners to retrofit their properties to provide greater levels of onsite stormwater mitigation.
• To incentivize property owners to maintain the stormwater infrastructure they do have.
New development and most redevelopment is required to comply with low impact development standards. City streets and facilities can be retrofitted to provide greater levels of stormwater mitigation. Retrofitting existing private development is one of the greatest challenges to improving stormwater quality.
Formalized storm and surface water rates and operating budgets will be brought to the Committee in June and September.
Neighborhood/Community Interests (if known):
During public outreach for the development of the low impact development standards and Storm and Surface Water Plan, the Utility frequently heard the desire to incentivize the retrofit of existing development to provide higher levels of stormwater mitigation. The Utility conducted a survey as part of developing the Plan. Survey results indicated more than 81% of respondents were willing to pay more to achieve the Utility’s goals.
Options:
Option 1: Move to direct staff to proceed with the concepts presented and further develop an operating budget and a revised storm and surface water rate structure for implementation in 2019.
Option 2: Move to direct staff to develop an operating budget and rate structure integrating specific modifications to the concepts presented.
Option 3: Move to direct staff to provide additional information to inform budget and rate decisions.
Financial Impact:
Based on inflation and construction costs alone, rates will need to be increased to support the current services provided by the Utility. Whatever rate structure is developed will be designed to be revenue neutral.
Attachments:
FCS Group Stormwater Management Plan Financial Analysis Memorandum