Well managed utility funds were the topic of discussion during the city of North Branch’s work session on March 17, along with a presentation of the city’s Utility Fee Study by Ehlers.
Jessica Cook, Economic Development Advisor with Ehlers Inc. provided council with the update.
“I have the pleasure of sharing some good news with you this evening, especially in the difficult time it’s nice to have, as it relates to the storm water fund and the sewer fund,” Cook began.
Noting Ehlers Inc. has been doing utility rate studies for almost 20 years around Minnesota, they worked with the EDA last fall comparing development fees for different development scenarios with North Branch and other communities.
“We understand that the impetus for this rate study in part came out of the results of that study and the concern and feedback the city’s been receiving from the development community, and just a good governance desire to make sure that rates were fair and equitable and meeting the city’s needs as well as being as affordable as possible,” Cook said.
With the focus set forth by the EDA, Ehlers took on the task.
“When we begin a rate study we first assess the situation, and you really had a good news situation, and from our perspective your utility funds have been well managed,” Cook said. “We found that there were adequate cash balances to meet the needs of the utility, that your rates have been stable and increasing modestly over time.
“The other reason I can deliver some good tonight is that you’ve had some growth in your community, and with growth has been new customers paying for the same fixed costs, so that’s been very helpful,” Cook added.
Some of the questions guiding the study included, developers questioning the need for development fees, the fact that a rate study hasn’t been completed for several years, the long-term need to increase wastewater treatment facility capacity, as well as new regulatory requirements and increasing cost for storm water.
“We understand that as the community grows, of course then there are challenges with having to expand wastewater treatment facilities in particular, as well as some reconstruction of roads and the sewer and the storm water that’s associated with those roads,” Cook said.
The study completed provides the council with a 10-year financial plan with the assumptions; city expenses increasing two to four percent per year, existing sewer and storm debt were incorporated, future debt was assumed to have a 15 year term, sewer use to remain consistent from existing customers and sewer use increases of 50 gallons/unit/day for multi-family; 100 gallons/unit/day for single family.
The assumed growth used for the study was set at 33 single family units per year, two duplexes per year, three industrial SAC units every three years, and not factored in, 68 new multifamily units in 2020.
Cook explained the cost drivers for the sewer utility for 2021 were estimated at $1,038,933 for debt service, $681,623 for operating costs and $271,440 for capital projects.
In addition to the cost drivers, there are a projected number of improvements slated for future years.
“There are two reconstruction projects; Northwest Old Town and Maple Street reconstruction which are significant, we put in a place holder for future capital because it’s always difficult to know what it will be, but we know it will be there,” Cook said.
Also included in the improvements is a lift station upgrade with today’s cost at $90,000, timed for 2021; a wastewater treatment plant expansion at $5,000,000 with a date yet to be decided.
In order to fund projects and make improvements, while still offering the same utility standard, Ehlers proposed increases to development fees, sewer rates and storm water rates.
Based upon Ehlers’ analysis, according to Cook, the development fees would increase from $2,059 in 2020 to $2,471 in 2021; trunk fees would decrease from the 2020 rate of $2,070 to $1,656 in 2021.
The proposed 2021 monthly sewer rate would decrease, at a five percent monthly decrease of five percent for a family using 3,000 gallons per month; adjusting the 2020 rates of $15.80 base fee for a single family home to $14.50 for 2021, with the rate per 1,000 gallons decreasing from $10.10 to $9.80.
“We’re recommending a change to the structure in the sewer utility rate, right now the rate is a base fee that everybody pays $15.80 per month, a common practice and one that staff was interested in implementing was to have a graduating fee so the bigger the meter, meaning the more demand you place on the system the higher the base charge,” Cook said.
In doing that, the recommendation was the decrease in base fee.
In regard to the storm water utility, the 2021 expenditures were projected at $316,153 for operating costs, $260,000 for capital projects and $17,427 for debt service. Capital improvements would include effluent storm separation at $100,000, a new street sweeper for $150,000 and other future projects.
The proposed storm water rates would increase for 2021 to $6.23 per REF per month, from 2020 which was $5.15.
“Part of our recommendation is based on the fact that we think steady, modest rate increases are easy, no rate increases are every easy, but they’re easier to institute than what we could’ve said is, ‘you don’t need to increase for a while but then you’re going to need a big one,” Cook said.
Cook concluded her presentation by noting again that the utility funds have been prudently managed, the growth in the community provides opportunity to moderate sewer rates and development fees will fund growth-related infrastructure at current discounted rates, and the city can achieve reductions in 2021 utility bills for most customers.
The council’s next step will be to consider the proposed rates as part of the fee ordinance next fall.