03-10-26 City Council Workshop Packet

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land uses are determined by an equation based on the land use which is then applied to that $95 flat fee. Current Situation As part of this year’s utility study update, we’ve incorporated the goal of covering all expenses, including depreciation, within the next 10 years. Over time, that additional revenue could help cover capital improvements, including street project-related stormwater improvements. That said, those planned revenues for the stormwater fund may not support the level of outlays to street projects necessary to cover 100% of the stormwater portion of those improvements. Attached is a draft cash balance report from the utility study that will be presented at next week’s meeting. This report reflects the 8% increase to the flat fee every year for 10 years in order to reach a net positive revenue-less-expenses for the Stormwater Fund. The cash balance will increase each year, and we would be able to dedicate some portion of that to capital assets starting in 2030 if the Council chooses. Note, that while our recommendation for next week is to implement an increase in the flat fee for 2026, future increases in revenues may come from a combination of fee increases and fee structure revisions. If, instead of planning for incremental changes we tried to pay for all stormwater improvements, including those related to street projects, that fee increase may need to be significantly higher to cover this shift in practice. Because Finance staff does not have a thorough understanding of the costs of stormwater related expenses within each street project, and because our CIP only goes out 10 years, it’s difficult to project those future fee increases. A review of the project costs of a few of our more recent projects show it might be 30 – 45% of any street improvement project in developed areas. Our 10-year average for Residential Street Improvements is currently $2,440,000. So, we would need an average of between $730,000 to $1,100,000 in additional revenue to cover all stormwater improvements related to those projects. Annual revenue in the stormwater fund is approximately $650,000, so we would need to more than double our revenues in order to sustain ongoing contributions to street projects. So the question is then “should we or shouldn’t we use stormwater funds for capital”? What problem are we trying to solve? And how quickly do we need to solve it? One of the concerns mentioned that might motivate a change in practice was equity, part of which is the concern that stormwater capital expenses should be paid by stormwater users, similar to water and sewer. However, unlike the Water and Sewer Funds, which are only used by approximately 60% and 30% of properties respectively, Stormwater Fees are paid by the vast majority of properties and Stormwater Management is a city-wide issue. Based on the structure of the stormwater fee and its broad application across most properties, staff has not identified significant equity concerns related to the current funding approach. As such, staff has been looking at the idea of revising the Street Project funding mechanisms as a potential future improvement to our processes, in coordination with other incremental improvements in our asset management and financial modeling activities. Changing these processes is not a small task and we need to do so carefully and thoughtfully. There are pending reviews by staff, Engineering, and legal counsel regarding a number of other issues that may impact practice, policy and city code, including issues related to, lot size, agricultural land, impervious surfaces, street width, stormwater credits, the appeal process and HOAs. These issues are, to some degree, independent of the capital project funding issue,