For the first time since 1996, it appears that water and wastewater rates will soon increase for the City of Santa Monica.

The city is spending more money than it takes in, said the city’s water resource manager Gil Borboa, who provided the City Council with a presentation on water and wastewater rate studies at its meeting Tuesday, May 8th.

Without an increase in rates, reserve funds will be exhausted and fund balances will go negative in fiscal year 2008-09.

“CPI [Consumer Price Index] increases every year are just insufficient to keep our reserves and fund balance at a healthy level,” Borboa said.

Since 1999, the city has had only CPI inflation-based rate increases.

Borboa said the city looked at the water and wastewater rates in five-year windows, specifically from fiscal year 2007-08 through fiscal year 2011-12.

“Our objective in the water rate study is to bring our reserves back up to a healthy level,” Borboa said to the council.

Also, it was important to consider changes to the rate structure in keeping with the city’s sustainability goals to encourage water conservation.

In June 2005, City Council directed staff to conduct a water rate study to finalize additional rate increase amounts required to balance the fund and also approved a six percent increase for the water rates for fiscal year 2005-06.

At the council meeting, Borboa said that a major impact on the water fund is the cost of importing water.

Currently, the city purchases 95 percent of its water from the Metropolitan Water District.

Borboa said that cost of importing the water will continue to increase.

The Reed Group conducted the water rate study and developed four options for increasing water rates.

City staff recommends implementing “Option 4,” which is a uniform rate increase of 11 percent per year for the next five years.

This option also utilizes a $1 million rate stabilization reserve and a portion of the $1.275 million capital reserves to offset required rate increases, thereby providing additional financial flexibility to respond to unanticipated occurrences during the next five years, according to a staff report.

The existing water rate is structured so that every single-family, multifamily and non-residential customer pays a bi-monthly service charge based on size of the water meter.

“We wanted to look at a structure that would promote conservation and also promote some equity among the customer class,” Borboa said.

The structure presented was a “commodity-only rate structure,” which eliminates the service charge on the meter size.

“If you use zero water, you get zero bill for water for that period,” Borboa said.

Currently, the average water rates for a single-family customer is $70.52, but under Option 4, for fiscal year 2007-08, that rate would rise to $74.21, an increase of 5.23 percent.

The current wastewater rate structure comprises a fixed service charge based on water meter size, plus a commodity charge, but these fees will also soon change.

Wastewater treatment services are provided to Santa Monica by the City of Los Angeles at the Hyperion Treatment plant through a contract agreement.

Raftelis Financial Consultants, which conducted the wastewater rate study, came up with three alternative approaches to meeting revenue requirements, and staff recommends the “pay as you go” funding scenario.

With this scenario, no debt would be incurred during the planning period and all capital expenditures over the next five years would be funded through wastewater rate adjustments and available cash.

Under this “pay as you go” option, rates would increase 30 percent in 2007-08, 25 percent in 2008-09, 20 percent in 2009-10 and ten percent in 2010-11.

Currently, the average bi-monthly charge for a single family is $41.37, and under the proposed pay as you go structure, for fiscal year 07-08, that charge would be $55.34, a 33.77 percent increase.

But Borboa said he was confident that, with new information that was available, the 30 percent first-year rate increase could be brought down significantly.

“One of the things that could help us bring down the 30-percent number is to look at other sources of funding for the sewers,” he said. One of those potential funders is FEMA (Federal Emergency Management Agency), he said.

“I appreciate the effort to bring down that 30 percent,” said Mayor Richard Bloom.

Bloom also had a question about exemptions.

“Do we have any kind of low income or senior exemption or a program to assist people for whom increasing rates could be a hardship?” he asked.

Borboa said that had not been addressed in the new rates.

“Currently, what we do have is a low-income exemption,” Borboa said. “What we do is we waive the service charge currently for low-income customers.”

But Borboa said that staff would also look at incorporating some other kind of accommodations for low income customers.

Staff is to come back to the City Council in June to present final rate recommendations, Borboa said.

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