Staff:
Agenda:
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Lisa Mills, Finance Director
8/5/2024 |
AGENDA REPORT
Cape Girardeau City Council
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24-125
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SUBJECT
The City of Cape Girardeau City Council considers calling an election and placing on the ballot at the November 5, 2024, General Election a proposal to increase water fees more than 5% and, provided the proposal passes, an ordinance establishing Water Rates for the City of Cape Girardeau, Missouri, effective January 1, 2025, by amending Article 2. Section 29-213 of the Code of Ordinances relating to water rates.
EXECUTIVE SUMMARY
The proposed ballot measure would allow voters to consider an increase in water fees. The purpose of the increase is to adequately fund capital improvements, and operations and maintenance in the current and future fiscal years.
The ballot measure is necessary because the City, in accordance with Section 6.13 Fee Limitations states that the City shall not increase water fees by more than (5%) in any given year unless authorized by simple majority voter approval.
The City of Cape Girardeau has identified water system capital improvements that are needed to assure a continued quality and adequate supply of water to Cape Girardeau residences. Engineering studies conducted regarding our treatment capacity and distribution system recommend expansion of Water Plant 1, and rehabilitation and upgrading our existing water system.
The City commissioned a Water Rate Study to analyze rates and to model financial scenarios that will fund the future water system costs as recommended.
This ordinance establishes water rates that are needed to meet the capital improvements, operating costs and maintenance costs required to continue providing the quantity and quality of water our citizens and visitors to the City of Cape Girardeau require.
BACKGROUND/DISCUSSION
As a regional destination for healthcare, education, entertainment, shopping and employment, the City of Cape Girardeau's population swells from 40,000 to 100,000 daily. The average daily consumption demand for water is from low demand of 6MG daily to peak demand of 9MG daily. Water usage in the City has grown significantly. The attached chart of water usage history depicts an increase of 7.7 MGD to the 2023 level of 9.7 MGD. The city has 330 miles of water mains, 2500 fire hydrants, seven pump stations, twelve storage tanks, and two water treatment plants. We service 18,306 water connections across 30 square miles. During periods of high usage, the water system is challenged to keep up with demand, even with both plants operating at maximum capacity.
In order to determine the best plan moving forward for the the City's water system needs, the City has commissioned multiple engineering studies completed during a three year period, investing a total of $630,000, that studied our treatment capacity and distribution system. The recommend course of action is the expansion of Water Plant 1, and rehabilitation and upgrading our existing water system in order to ensure a continued supply of quality water to Cape Girardeau residents. Recently staff presented the water system issues and solutions to council. The issues are changing source water, increasing demand, infrastructure, and funding.
The recommended solutions and timeline for improving and funding the system have begun. Phase 1 of the plan is in process and includes 9M of improvements that are already funded. The timeline attached depicts the timeline for the improvements.
The City commissioned a Water Rate Study to analyze rates and to model financial scenarios that would support the future water system costs. The study identified our current rates as modest, and the study reports with a rate increase the City can build prudent reserves and fully fund the water system for future years. The summary memo and the complete water study are attached.
Regionally and nationally water rates have been increasing. It is the result of deferred maintenance and improvements and water utilities are "catching up". The City of Cape Girardeau is experiencing the same. For reference, attached are a few examples of other cities recently proposing an increase or increasing water rates.
FINANCIAL IMPACT
The city of Cape Girardeau operates it's Water system as an Enterprise Fund. This type of fund is required to cover the cost of providing services, including capital costs (depreciation or debt service) with fees and charges rather than taxes. Pricing policies of the water fund are established and designed to cover the cost of operating, maintaining and improving the Water System.
In the attached Water Rate Study Memo, the chart depicting Missouri Cities Monthly Water Bills reports that The City of Cape Girardeau's water rate is comparably low. In addition, it also reports that the proposed increase would result in monthly water bills less still less than the Missouri average.
Water Treatment Plant Improvements and distribution system improvements totaling $56.5M are projected to occur during 2024-2032. In 2033 and beyond, other potential improvements identified totaled $63.5M.
The Water Study commissioned by the City (attached) reports that adopting the increased water rates recommended will fund the planned improvements during 2024-2032, with modest reserves projected in 2032 of 10M. This study highlights that our current rates are modest and currently below the affordability index. The study also reports that without rate increases larger than 5%, attempting to make needed improvements will completely deplete reserves and result in negative reserves by 2027.
The City is providing two charts depicting the average monthly increase in water bills for reference. The proposed rate increase is reflected in the charts that report, based on the USAGE readings on Customer's Monthly Bills, the average monthly increase.
It is notable that 93% of residential water rates, considering usage, will increase raging between $8.19 and $13.89 per month. It is also notable that all residential and commercial customers pay the same rate for water for the first 70 CCF of use. Above 70CCF the water rates decline.
STAFF RECOMMENDATION
The team of staff members that have studied the matrix of issues and available solutions for the City, recommends moving forward with the improvements to the City Water System, and funding those improvements by a voter approved rate increase in addition to annual increases necessary to continue to fund the Enterprise Water Fund moving forward.
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