Report Prepared by: Venus Rodriguez, Finance Officer
Title
SUBJECT: City of Merced Financial Forecast, CalPERS, and Sewer Rate Update
REPORT IN BRIEF
Presentation of the Financial Forecast, CalPERS, and Sewer Rate Update.
RECOMMENDATION
City Council - Adopt a motion adopting Resolution 2022-77, A Resolution of the City Council of the City of Merced, California continuing the base sewer service rates and charges unchanged.
Body
CITY COUNCIL PRIORITIES
The City Council has set a policy to be financially sustainable.
DISCUSSION
Presentation to the City Council and the public of the City’s Financial Five Year Forecast as well as a CalPERS update. The City Council has made a policy to become and remain financially sustainable. This presentation is to provide financial information that could assist in guiding future City Council decisions.
Sewer Rate Update
The last Sewer Rate and Connection Fee study was completed and adopted by the City Council on April 5, 2010. The sewer rate study indicated a reduction to rates and fees at that time. Fiscal Year 2010-2015 included no increases to those base rates. As of Calendar Year 2016 the adopted ordinance requires the City to increase its fees per a consumer price index (CPI) annually until the next Sewer Rate Study is completed and adopted. Last year, staff recommended not to increase sewer rates for Calendar Year 2022, which the City Council agreed and adopted Resolution 2021-121 on December 20, 2021. The current sewer rate for a single-family home is $43.93, which includes a cumulative increase of $3.64 over the last 7 years. The CPI increases have averaged from 0%-3% annually. If the city increases the Sewer Rate based on the ordinance it is scheduled to increase $3.74 (9%) and would be effective 1/1/2023. Attached you will find the last 6 years of increases and what the increases would be if we implemented per the ordinance.
The City has held off on completing a new Sewer Rate Study until the City’s Sewer Master Plan has been finalized. Until the Sewer Master Plan is complete, it would be difficult to determine and include what long term maintenance and replacement projects will need to be included in the rate study. Currently, work on the Sewer Master Plan is wrapping up and is anticipated to be complete by December 2022, with a new sewer rate study to kick-off in the spring of 2023. The sewer rate is the only utility in which the rate increase happens on a calendar year. During the rate study process we would like to line up the increases on a fiscal year, similar to water and refuse. This helps with budgeting and forecasting. If the rate study determines an increase is needed the soonest an increase would be implemented is July 2023.
The Wastewater operating fund is financially stable and healthy. It is recommended that it have a six-month reserve and it continuous to carry over one year of reserve. Due to the healthy reserve, the large increase the CPI would create, and not knowing if it is actually needed, staff is recommending no increases to sewer rates at this time.
In order to not increase the sewer rates In January 2023, the City Council needs to adopt a resolution stating the sewer rates will not increase.
ATTACHMENTS
1. Resolution 2022-77
2. Sewer Rate Summary