#02 - Utility Financial Management Plan Updates

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Debt Per on-going conversations regarding the city’s current overall debt load, we also wanted to avoid issuing new debt unless necessary or beneficial. In the current model, we’ve planned for debt for capital projects in the Water Fund through 2031, though there would likely be opportunity to pay more with cash. Starting in 2031, we expect to be able to pay cash for most capital projects, and as such, the Water Fund could be debt free after 2045. For the Sewer Fund, our current model does not include any new debt issued (except one tentative project in 2034). There would be an opportunity to issue up to $3 million in debt for projects to manage cash flow or take advantage of low interest rates. Stormwater Fund With few capital projects on the horizon and relatively low operating expenses, we modeled for stormwater fees to remain generally the same for the foreseeable future. This would help lower the overall percentage increase to a quarterly utility bill. This scenario does not allow the Stormwater Fund to achieve expense recovery, and this issue should be revisited in future models and CIP updates. See Appendix F for Stormwater Fund reports and charts. Proposed Fees and Quarterly Bills Appendix A shows the Proposed Rates for 2025 under this model. Tables in the attachments show an illustration of a low, middle, and high quarterly bill in both Residential and Commercial. A low-volume user will see a change in their quarterly bill of around $18, or a little over $6 per month. Comparisons to Other Cities Appendix B shows the comparisons of fees to other cities. These were the same cities selected in the Northland comparison last year. All but three of those comparable cities have or are planning water treatment plant(s). The charts show 2024 fees, with Lake Elmo 2025 (with 20% increase) ranking is 6th highest in the group, up from Lake Elmo 2024 ranking of 10th. Hastings is currently planning for a water treatment plant, as well, and their fee ranking is expected to increase by at least 3 spots, as well. We do not have 2025 fee data for the remainder of the cities as of the writing of this report. Development / Connection Charges The Water and Sewer Availability and Connection Charges (WAC, WCC, SAC, SCC) have not been changed since 2013; staying at $3000 for availability and $1000 for connection charges for each fund. Staff did not increase those charges for this model, but if there is interest from Council, we can incorporate rate increases to those fees, which could add millions in revenue in the coming years. This seems appropriate given increasing construction costs in years past. These connection fees vary widely from city-to-city, in both rate and application and it would take a significant amount of staff time to provide a thorough analysis of these. With direction from Council, staff would plan to work this analysis into the next update of this study. Multi-Family Rates To date, a separate Multi-Family rate has not been adopted in any of the funds. This leads to some unclear processes about how to apply those rates, and/or applying a rate that doesn’t align with the property or usage. As such, we are proposing Multi-Family Rates as shown in the attached fee table. Water – A per unit base rate is proposed, which aligns with many other cities’ practices, and acknowledges the large draw of these facilities on the water system. However, a single tier usage rate is recommended in conjunction with that, which acknowledges that the higher-gallon usage on those meters is due to the multiple units and is generally basic residential utilization like cooking, bathing, and laundry. Sewer – Again a per unit base fee and a single tier usage fee that align with regular residential and commercial rates.