The city’s water and sewer customers will have the right to
protest a 12-percent increase in their monthly bills coming Jan. 1.
The city council Wednesday unanimously approved the
”
Prop. 218 notice
”
that will be sent to all customers in the next couple of
weeks.
The city’s water and sewer customers will have the right to protest a 12-percent increase in their monthly bills coming Jan. 1.
The city council Wednesday unanimously approved the “Prop. 218 notice” that will be sent to all customers in the next couple of weeks. The notices are required under Proposition 218 of the state constitution. The letters explain how the city charges its customers, how much the monthly rates are scheduled to go up for each of the next five years and list the city’s chief costs in providing the services.
The letters also explain how customers can protest the rate increases if they choose to. Protests must be submitted in writing to city hall by Nov. 16.
If a majority of the city’s 12,500 or so utility customers protest the rate hikes, the city may not raise rates. The city council will conduct a public hearing on the rate increases Nov. 16.
City staff plan to mail all the notices out by Sept. 16, according to interim utilities business manager Jimmy Forbis.
Water and sewer customers contacted this week had mixed feelings about protesting the rate hikes.
“They’re playing catch-up,” said north Morgan Hill resident Wess Hoffman, 39, when shown a copy of the city’s Prop. 218 notice which lists the five-year schedule of rate increases.
By 2016, the average water bill will go up from its current rate of about $20 to about $30 per month – a 50 percent increase. The average sewer rate will go from the status quo of about $38 to about $48 per month, or about a 26 percent hike.
In 2012, the average customer will pay about $7 more per month on combined rates than they do now.
“I’m surprised how low they were, which means our sewer and water service are under standard,” Hoffman said.
The services likely would be substandard if the city had not drained its utility reserve funds to the tune of about $1.3 million the last couple of years in order to supplement declining revenues from sales. That kind of deficit spending cannot continue, hence the coming rate increase, city staff have said.
As a construction contractor, Hoffman said he is aware of water and sewer costs throughout the South Bay, and Morgan Hill’s rates have always been lower than those of other cities.
He added the extra $20 a month or so by 2016 is unlikely to have a significant impact on his household budget, which includes his wife and two children, and he does not plan on protesting the increase.
But Pat Doubrava, 57, said he is thinking about protesting the rate hikes – not because it would take a toll on his wallet but because the city’s explanation for the need to raise rates is “ridiculous.”
He said he knew when the city and water district started asking people to conserve water in response to the 2007 drought that the agencies would suffer financially from decreased sales, and they would eventually ask for more money from the rate payers.
“But how do they make their business? By the product they sell,” Doubrava said outside his 78-year-old mother’s home off Del Monte Street in east Morgan Hill. “It’s not fair at all. We ought to start using more water. Common sense says, if they’re not selling a product, they’re not going to stay in business.”
Doubrava also wondered why the city’s costs wouldn’t be going down if there is less consumption.
“If they’re not processing a lot of water, they can cut back on their services,” Doubrava said.
Since 2007, water consumption in Morgan Hill has declined by about 11 percent, city staff said. That’s due not only to the drought, but also to the recent recession which resulted in less commercial and residential water consumption.
The city’s five-year rate schedule, based on a cost-to-revenue analysis by consultant Bartle Wells, also assumes that water consumption will decrease by 20 percent by 2020, and about 950 more homes will be built in Morgan Hill by 2016.
If a Prop. 218 protest is successful, rates would stay the same and Forbis said the financial effect on the utility funds would be “catastrophic.”
“We had originally proposed much lower rate increases (in May), and those would still require layoffs,” Forbis said. “We wouldn’t meet our debt obligations. We’d be looking at everything, including personnel.”
The original recommended budget for the water and sewer funds proposed a minimum 10 percent first-year increase in both rates, as well as six layoffs and cuts to ongoing maintenance of pumps, pipes and other infrastructure.
That would likely result in more “emergency repairs,” which cost more than preventive maintenance, Forbis said.
The rates ultimately approved by the council in June avoid layoffs and service cuts.
The last time the city raised water and sewer rates and mailed Prop. 218 notices, only about 25 customers protested, Forbis said.
Prop. 218 also requires utility providers to demonstrate how their costs justify or match the rates charged to customers, according to a judgment earlier this month in the City of Palmdale vs. Palmdale Water District lawsuit.
The city of Morgan Hill hired consultant Bartle Wells earlier this year to conduct a comprehensive rate study that shows that correlation between the city’s costs and the customer’s rate.
For water service, the city’s biggest expense is groundwater charges paid to its supplier, the Santa Clara Valley Water District. This year the city budgeted $2.1 million for the charges.
The biggest expenses for the city’s sewer service are annual operations expense for the South County Regional Wastewater Authority treatment plant, debt service on existing revenue bonds used for the construction of the plant, and staff costs. In fiscal year 2010-2011, sewer rate revenues fell $900,000 short of operations costs, city staff said.
The new rates over the next five years will add $2.2 million in revenues from water rates by fiscal year 2015-2016. Those revenues are projected to bring a total of $9.9 million in revenues to the water fund by that year.
Rising sewer rates will bring about $2.3 million more revenue, or a total of about $9.8 million from that source by 2015-2016.
One area where the city does not demonstrate or even claim that rates are proportional to expenses is in the upper “tiers” it charges to the thirstiest water customers, Forbis said.
With the tiered rates, residential customers who use substantially more water than average are charged more per unit of water. The city has three tiers, and most customers stay within the first tier, Forbis said.
Most cities in the Bay Area implement tiered rates, and Forbis said Morgan Hill does so purely to promote conservation.
“It’s not our intention to recoup costs because of increased usage. The tiers are in place to promote conservation. It’s almost punitive,” Forbis said.
The Palmdale judgment found that the “irrigation” tier fees charged by the Palmdale Water District exceeded the cost to provide the service to those customers – one of which was the city of Palmdale. The Palmdale city attorney’s office did not return phone calls by press time.
The judgment upheld that tiered rates are constitutional as long as their revenues do not exceed the service provider’s cost. However, the effect of the decision on Morgan Hill and other cities that charge customers a higher per-unit charge depending on how much water they consume – without demonstrating it costs more to provide the extra service – is unclear.
Details about the city’s costs and revenue needs for water and sewer service are contained in Bartle Wells’ rate study, and can be found at http://www.morgan-hill.ca.gov/index.aspx?NID=1021.
