City’s recommended budget would increase all 3 utility rates; specific rate proposal to be made in the fall

photo by: Journal-World photo illustration

A City of Lawrence utility bill is pictured in a photo illustration.

Citing the need to spend millions to fix water and sewer lines and other long-neglected utility infrastructure, the Lawrence city manager’s recommended budget calls for continuing the utility rate increases of recent years in 2022.

The city provides water and sewer, storm water and solid waste service, and City Manager Craig Owens’ 2022 recommended budget proposes increases in all three city utility rates. Owens said that the city’s approach with utility rate increases represented a pivot from how things had been done in the past and that the city had to face the fact of its infrastructure needs and what it costs to address them.

“We are confronting the realities of what it takes to be in the business that we’re in,” Owens said. “That means we have to stay on top of and address aging infrastructure issues of the assets that our community owns and depends on. Deferring it doesn’t fix it. It makes it more expensive, and we’re trying to end that over the next five years.”

Utility rates have been increasing at an average of about 7.5% annually since 2015, with the average bill now more than $100 per month. Though the exact recommendation for the proposed utility rate increases is not yet finalized, the city’s multiyear utility rate models call for that level of annual increase to continue for next year. Owens and other city officials have said that the rate increases were needed to address years of neglected utility infrastructure maintenance.

Utility rate model

The city’s three utility funds are enterprise funds, meaning the rates charged to residents are set to cover the personnel, maintenance and other costs of operating the utility service. The city’s multiyear utility rate models, which were last presented in December before the city’s most recent utility rate increase, project the rate increase needed for the city to cover all the projects currently included in Owens’ recommended capital improvement plan and other maintenance plans.

Under the December rate model, the city projected that to cover the city’s CIP in 2022, a 7.5% rate increase would be needed for water and sewer; a 4.5% rate increase for storm water; and various rate changes would be needed in commercial and other solid waste rates. The solid waste projections called for no increases in single-family residential rates, a decrease in the multifamily residential rate, a 3% increase for roll-off dumpsters, a 5% increase for commercial rates, a 10% increase for downtown rates and a 5% increase for school and commercial cardboard recycling.

Those rate increases will go to fund the CIP and other maintenance plans. The 2022 recommended CIP calls for about $19.1 million total to be spent from the utility water fund and the utility debt fund, including $5.27 million for an “infrastructure rehab” at the Kaw Wastewater Treatment Plant and $1 million on “storage and solids handling” at the Wakarusa Wastewater Treatment Plant. The CIP calls for $4.45 million to be spent from the storm water fund and the storm water debt fund, including $2.5 million for a storm water system assessment and model creation and $1.95 million for a maintenance project for the Jayhawk watershed area in the area of Ninth and Mississippi streets. All the city’s capital costs were formerly listed under one plan, the CIP, but under a new format such costs are now broken up across three separate plans — the CIP, a maintenance plan and a third plan for vehicle replacements — and other expenses from utility funds are also included in those plans. All together, the three plans include more than $117 million in infrastructure and maintenance funding from all funding sources.

If the city moves forward with them, the projected increases in the rate model would continue the rate increases of recent years. From 2015 to 2021, the typical utility bill, based on average use of 4,000 gallons of water per month, has increased from about $77 per month to about $112 per month, according to past city budget documents. That equates to a 45% increase in city utility rates since 2015, or an average of about 7.5% per year over that time period.

Budget & Strategic Initiatives Administrator Danielle Buschkoetter said the city was still in the beginning stages of the rate model process and did not yet know whether it would be recommending the rate increases projected in December, but that those projections did represent the most current information. Exactly what the proposal will be won’t be known until the fall, after the budget is adopted in August.

The city used to adopt any utility rate changes as part of the summer budget process, but Buschkoetter said the city changed the timing of the utility rate proposal to the fall for various reasons. Those reasons include the timing of when the city is able to get audited financials ready internally and that the city has added rate models for the storm water and solid waste funds, where before there was only a model for the water and sewer fund. She said the new schedule gave the city the time needed to run, evaluate, verify and correct the models as well as time to run different scenarios.

Buschkoetter said that in addition to the city’s CIP and maintenance budget, utility rate models rely on various figures, including audited financials from the previous year, prior-year water production and wastewater treatment quantities, year-to-date billed versus collected revenues, and forecasts for use and prices of chemicals, power, raw water and material supplies, among other factors. She said once the models were updated, they would come to the City Commission for consideration in the fall.

“We will be able to get into much more detail later in the year when we actually have those rate models completed,” Buschkoetter said.

Buschkoetter said that similar to last year’s budget process, several options for the proposed rates — that fully or partially cover the recommended budget’s CIP and maintenance plans — would be brought forward for the commission’s consideration in the fall. Though commissioners must approve the spending authority for potential rate increases as part of the budget process if they are to have rate increases as an option later in the year, they could later decide not to increase rates or to increase them at a lower rate than city staff recommends.

Buschkoetter said if the commission were not to approve any utility rate increase, the city would have to go back and look for reductions to operating expenses and the capital and maintenance projects to fall in line with the reduced revenue.

The city also has millions in reserves in the fund balance of the water and sewer fund, but Buschkoetter said only a portion of that was considered available. According to the fund summary included in the recommended budget, the water and sewer fund is projected to have about $30.75 million in reserves next year, enough to pay 51% of all the fund’s projected expenditures for the year.

Buschkoetter said the level of reserves played a part in the city’s credit rating, and reserves are kept at a higher level under the city’s fund policy to make sure the city has the cash on hand to cover covenants related to its debt. She said that in turn helped the city get lower interest rates, which saves the city and taxpayers money.

“In the long run, it’s cheaper for us to issue debt,” Buschkoetter said.

Specifically, the city’s fund balance policy for the water and sewer fund calls for reserves equal to 250 days of operating expenditures. That is equal to about $28.2 million, leaving about $2.56 million available in reserves, according to the fund summary. The summary projects that collections from charges for service — which are made up mostly of projected rate increases — will increase from 2021 to 2022 by about $4.78 million, meaning if the city were to tap into the $2.56 million in excess reserves, it could significantly reduce the projected rate increase.

Other utility billing considerations

As water rates have increased in recent years, both the current and previous commissions have discussed the possibility of expanding the city’s limited utility assistance fund, and the city recently launched a new program to help those struggling to pay their utility bills.

The city has long had a program that provides discounted utility rates, but that program only serves residents age 60 and older with very low income, and as few as 80 households have received assistance each year, or less than 1% of the city’s utility customers. To qualify, a single person 60 or older must make less than $14,036 per year and a head of household must make less than $18,964 per year, according to the city’s website.

The city recently launched a separate program, the Utility Assistance Program, which is meant to help residents who got behind on utility payments during the pandemic due to lost employment, an inability to work or other circumstances, as the Journal-World reported. Approximately 10% of the city’s residential customers are more than 22 days past due on utility payments, and the total outstanding balance is more than $1.7 million. At this point, the city is paying for the operation of the program but the assistance provided is solely from donations. The program began accepting donations on Aug. 9.

Buschkoetter said that in the first few days of the program launching, 15 people had registered to donate, and that additional communications will be coming to encourage further participation.

The city also began operating under a new billing method for water earlier this year that charges less per gallon for what is considered regular use and more per gallon for excess or irrigation usage. The “inclining block rate” model compares each household’s average winter use to their nonwinter use, and if a household’s water use exceeds 25% more than its average winter use in any given month, the gallons that exceed that threshold are charged at a higher rate.

Finance Director Jeremy Willmoth said in an email to the Journal-World that the inclining block rate methodology encourages water conservation and charges more to those who use water for additional discretionary uses, such as irrigation or swimming pools. Willmoth said residential customers who use water for everyday tasks such as bathing, cooking, and laundry with little to no discretionary uses will likely pay the lowest rate for their water. Willmoth said water treatment and distribution systems have to be built to handle the increased demand for discretionary uses in the summer, and the block method charges customers more for discretionary use to fund the maintenance and improvements to meet their demand.

Potential federal funding

As the Journal-World previously reported, the 2022 budget begins to allocate the approximately $19 million in federal coronavirus relief the city will receive from the American Rescue Plan Act, helping make possible additions to the budget such as $5 million in employee raises and new positions to support the city’s strategic plan. Though specific allocations for the ARPA funds, which the city will receive over the next two years, are not finalized, the city has not specifically called for earmarking substantial portions for infrastructure maintenance as a way to offset utility rate increases.

When asked about that choice, Owens said he was hopeful that the city would get additional federal funding specifically for infrastructure as part of the upcoming infrastructure package, which he said would go toward the bottom line and may reduce the pressures on utility rates. However, he said the city needed to stick to its rate plan model to address deferred utility infrastructure needs such as water and sewer lines and control overall operating costs for the city and its taxpayers.

“What we are doing in our rate model is making sure that we’ve accounted for everything so that we don’t neglect our future the way we had kind of fallen into the habit of doing previously here,” Owens said. “We have great hope that we will see significant infrastructure assistance from the federal relief efforts, but hope is not a business strategy.”

On Tuesday, the U.S. Senate passed a bipartisan $1.2 trillion infrastructure package, and it will now go to the House for debate.

The city’s recommended budget is $383.87 million across all funds and calls for the property tax rate to remain flat. In addition to the more than $117 million in infrastructure and maintenance funding and the increase in utility rates, the budget includes reallocation of existing resources to create a new Housing Initiatives division; $5 million total in pay raises for both union and nonunion employees; and eight new staff positions, four of which are funded at least initially by federal or state grants.

The budget assumes a 2.5% increase in assessed property values, meaning that though the city’s property tax rate wouldn’t increase under the recommended budget, those whose property values increased would pay more than they did last year.

The city’s budget hearing is scheduled for Aug. 31. The City Commission will not approve the specific utility rate increase as part of the budget process, but it will have to approve the spending authority to increase the rates. City staff will bring the exact rate increase proposals to the commission in the fall, and the commission could choose to not move forward with them, or approve lower increases than what the budget provides authority for.

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