The City Council is expected to decide Wednesday whether or not
to raise water rates for residents using city water. If it
decides
“yes”, rates could increase, most likely by 2 percent, as of
April 1, 2003.
The City Council is expected to decide Wednesday whether or not to raise water rates for residents using city water. If it decides “yes”, rates could increase, most likely by 2 percent, as of April 1, 2003. A second, third, fourth and fifth round of 2 percent raises would occur on Jan. 1 of 2004, 2005, 2006 and 2007.
The new rates, if approved, would include a required report from the city’s finance director to the council by the Sept. 30 before each Jan. 1 increase. The report would describe the potential need for the upcoming increase; council would have the option of eliminating the increase.
Under advice from John Farnkopf, of the Walnut Creek accounting firm Hilton Farnkopf and Hobson, and the city’s Finance and Audit Committee, city staff recommended in a November 2002 workshop and a January 2003 public meeting that water rates must be raised slightly if required revenues are to be maintained.
The review was an outcome of the city’s new master plan for sewer and water systems, ensuring that the needs of established and new residents will be met.
Council was given three choices from which to begin discussion:
• Increase water rates by 2 percent each year, beginning in 2002/2003 and ending in 2006/2007
• Increase water rates – all at once – up 8 percent on April 1, 2003
• Borrow $2 million in bonds during 2004/2005 to pay for capital improvements and forestall some future rate increases.
All five council members preferred choice one, the incremental increase.
On Wednesday, council, under staff request, will also consider reserves. The staff report includes a 10-year projection of financial activity for the water funds that reflects three components of proposed reserve levels for the water funds. The fund with the highest priority is listed first:
• operating reserves equal to 25 percent of operating expenses (1.5 times the annual maximum fluctuation in the water fund balances)
• capital reserves greater than one year’s average five year CIP (capital improvement program) or the minimum amount necessary to keep this reserve zero.
• rate stabilization reserves equal to 20 percent of annual operating revenues for revenue shortfalls.
City staff recommends including all three reserves. However, if the council chooses not to finance the rate stabilization reserve, the report says, the same increases should be implemented except that the 2 percent increase in January 2007 should be eliminated. This would keep reserves above the two highest priority target reserve levels. This action would result in potential rate adjustments if a revenue shortfall were to occur.
Rates for a single family home, using the mean of 19,000 gallons per month would increase from $31.50 to $32.13 under the 2 percent increase. Rates are incremental: the more water used, the higher the rate.
These rates are higher than in Gilroy and other cities in the county because, among other differences, Morgan Hill terrain requires more pumping stations; water must be pumped up to houses on the hillsides, which is more costly, according to Jim Ashcraft, director of Public Works.
Council determined earlier that sewer rates did not need to be raised at this time.
City Council meets at 7 p.m. the first and third Wednesdays in City Hall Chambers, 17555 Peak Ave. Details: 779-7271. Council meetings are broadcast live on cable access channel 17. The complete council agenda information is available at City Hall and on the city’s website, www.morgan-hill.ca.gov
