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MEMORANDUM DATE: October 1, 2009 TO: City Council FROM: Mike Morrison, City Manager Roger Larson, Finance Director ITEM: SEWER RATE INCREASE & DISCUSSION Based on 2008 financial data, the City Auditor reported the need for a sewer rate increase. Operating revenues totaled $797,360 compared to expenditures of $810,920. The deficit of ($13,560) was offset by miscellaneous revenue such as late fees, interest earnings and sewer connection charges. The last sewer rate increase was in 2003 when the rate was changed from $2.77 per 1,000 gallons to $3.30 per 1,000 gallons. Since 2003, there has been no need for an increase due to the City's aggressive I & I program that significantly reduced or eliminated ground water entering the sanitary waste disposal system. This resulted in less gallons being processed by Metropolitan Waste and stabilized disposal costs. Projected expenditures for 2009 total $843,350. Factors that increased operating costs include: 1) Cost of living increase for City employees. 2) Rising cost of health insurance. 3) Sanitary waste disposal costs. The anticipated shortfall for 2009 ($45,990) will come from the existing fund balance of the Water/Sewer Fund. CharlZes for sanitary waste disposal: The Met Council is moving ahead with restructuring how it pays for sewer capacity already built as part of their system in anticipation of future growth and development. Previously, these charges were paid for by hookup fees called SAC Credits. The current fee of $2,000 per credit is charged for new homes, new development and redevelopment. Because of a significant decline in growth of new development, resulting in loss of income from SAC Credits, the Met Council is shifting the costs to existing homes and businesses. The result for 2010 is that the Met Council has approved sanitary waste disposal increase of 3.8%. The good news for St Anthony is the 1 & I pr ogram has been effective tool in reducing the amount ofsanitary waste entering the system. The reduced flowage offset the 3,8% increase and in 2010 the City will experience a $10,400 decrease in sanitary waste disposal costs. Discussions are on-going and the Met Council has set up a task force to determine the options for 2011 and 2012. If increases are approved for those years, a sewer rate increase may be necessary for each of those years.