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Item No. 4 Meeting Date: October 6, 2025 Type of Business: Council Work Session City Administrator Review: ______ City of Mounds View Staff Report To: Honorable Mayor and City Council From: Gayle Bauman, Finance Director Item Title/Subject: Review Utility Rates for 2026 COUNCIL CONSIDERATION Staff is requesting City Council to review and provide feedback on the proposed utility rates for 2026. UTILITY RATES Sewer Fund Staff is proposing a 5% increase in rates. The impact on a household that uses an average of 16,000 gallons of water per quarter would be $5.38 per quarter or $21.52 per year. Because the plan is to complete $500,000 of sewer lining and to purchase a new Vactor truck in 2026, the fund will realize a cash loss in 2026. The 5% rate increase will assist in maintaining a sufficient cash balance for the long term. Street Lighting Fund Staff is proposing a 0% increase in rates. It appears an increase will be needed in 2027. Surface Water Management Fund Staff is proposing a 18.9% increase. The impact on a household would be $3.50 per quarter or $14.00 per year. This fund will require increases for the foreseeable future. The mandates related to storm water ponds is putting a strain on the fund. Council and Staff will need to prioritize projects and seek grant funding in order to proceed with work. Water Fund As council is aware, this fund is facing some challenges. The cash deficit in the Water Fund at the end of 2024 was over $950,000. Even with the rate increase in 2025 and the one being proposed for 2026, the budget shows the fund will still lose money. The goal is to try to spread rate increases out over a period of years to bring this fund back into the black. The City assesses two types of water rates – a fixed, flat fee and a rate applied to gallons used. The flat fee is meant to cover fixed costs in the fund. Fixed costs are those that do not change based on water use. These would include wages, debt service, insurance, memberships, training, and some supplies and professional services. These costs remain the same no matter how many gallons of water are used per year. Our fixed costs are currently in excess of $1,000,000 per year, partly due to the debt service payments due through 2036. Examples of fixed costs are: Personnel $620,940 Supplies $ 42,580 Insurance $ 11,800 Training/Dues $ 5,920 Debt Service $434,000 The debt will be fully paid off in 2036, but fixed costs will still exceed $600,000 per year.