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MINUTES OF THE ORONO CITY COUNCIL MEETING Monday, March 11, 2019 7:00 o’clock p.m. _____________________________________________________________________________________ Page 3 of 16 FINANCE DIRECTOR REPORT 11. UTILITY RATE DISCUSSION Olson stated every year the City updates its utility rates. The fees for Sewer, Storm Water and Recycling were previously set when the 2019 City Fee Schedule was approved on December 10, 2018. Staff has been working at establishing water rates that will provide for long-term sustainability for the Water Fund. Prior to the 2009 water rate study and the establishment of a tiered water rate schedule, the City did not really put any money towards depreciation of equipment. Walsh stated a better phrase would be a reserve for replacement to avoid the need to borrow money. Olson stated the rates are being proposed with an emphasis on a user sustained system that will not require bond sales or special assessments for infrastructure maintenance and replacement. The following factors have been considered in the rate proposal: - Emphasis of self -sustainability - Institution of best practices, which includes establishment of a 25 percent operating reserve and a 25 percent capital reserve. - Elimination of borrowing and special assessments - Age of the distribution system - Elimination of lease revenue - Increased administration charge The reason for the 25 percent capital reserve is to cover the depreciation and the 25 percent capital reserve is to have the capital to replace them. The system in Navarre was installed in the 1970s, and it is estimated through 2045 the City would be replacing 65 percent of the pipes, which will amount to a lot of money. The City has used the special assessment route previously when major infrastructure repairs have been necessary. Walsh stated the goal with this is that each of the City’s funds will be individually self-sustaining so when things need to be repaired, the money is available for those repairs and the City does not have to either borrow the money or levy special assessments. If the City puts the funds on a good budgeting foot right now , they will not be put in a position where the City needs to borrow a bunch of money. The other objective is t o make it a policy decision so if five years from now someone wants to change it, they will have to do it in a public setting so everyone will know about it. Seals stated 30 percent seems like a high number and asked how this rate increase will affect the average resident. Olson noted there are approximately 1,000 properties currently on the City’s water system, with another 2,000 properties having private wells. The goal is for the replacements to be supported by the people who are receiving city water and the increase will only be for people who are connected to city water. Crosby asked whether any of these dollars would go towards the sewer fund.