Water and sewer rates in Sebastopol may go way up in 2024

The city's water and wastewater funds are deep in the red, and the city council spent most of the last council meeting looking for a solution

All council members were present at the Oct. 3 Sebastopol City Council meeting, including Mayor Neysa Hinton, Vice Mayor Diana Rich, Councilmember Sandra Maurer, Councilmember Jill McLewis, and Councilmember Stephen Zollman.

The Oct. 3 council meeting was given over almost completely to a discussion of the new water and sewer rate study and the resulting proposed rate increases. Not the most glamorous topic perhaps, but there was plenty of drama in the room as council members wrestled with the prospect of explaining to their constituents why their utility bills may be increasing by more than 100%.

Cities generally do rate studies for their water and sewer systems every five years to ensure that these enterprise funds, which are funded by rate payers, bring in enough money to pay for operating costs and maintenance, as well as capital improvements.

The city of Sebastopol did a rate study in 2012 and another in 2019.  In May 2023, the City contracted with a firm called Raftelis to conduct a utility rate study for both water and wastewater enterprise funds.

Sadly, the 2019 study didn’t foresee that Sebastopol’s fervent embrace of water conservation combined with lower water usage during COVID would significantly reduce revenues. The water system saw revenues drop by $600,000, and the sewer system saw a $1,200,000 revenue loss.  If nothing is done, both systems will descend further into the red.

Attempting to address this problem, Raftelis offered three different scenarios:

1. Operations and Maintenance (O&M) Only:  A large increase in the first year (with smaller increases after that) would fund operations and maintenance only. No capital improvements over the next ten years, except some very small ones already in process.

2. Right the Ship: A whopper of an increase in the first year (with no increases after that). This model would allow both water and sewer systems to get back into the black almost immediately and would also pay for badly needed capital improvements over the next ten years.

3. Capital Improvement Plan (CIP) Phase-In: A larger increase than scenario 1 in the first year (with larger increases after that) would fund operations and maintenance plus phased-in capital improvements over ten years.

I would like to say there’s good news and bad news about these scenarios, but from a rate payers’ perspective, there’s only bad news. Ratepayers may be looking at water and sewer rate increases ranging from 60% to 175% starting in March 2024, and there isn’t enough money left in the city’s enterprise or general fund reserves to subsidize a soft landing.

WATER RATE INCREASES UNDER THESE PLANS:

SEWER RATE INCREASES UNDER THESE PLANS:

You can see how each of these scenarios plays out—in terms of breaking even, creating reserves and facilitating capital improvements—across numerous charts in the staff report.

Scrambling for a better solution

Councilmembers were horrified. Councilmember Maurer asked the consultant if he had seen increases like this in other towns. He mentioned some (Calistoga is facing a 50% increase in water rates and a 35% increase in sewer rates), but none as steep as these.

“I have not seen these magnitude of increases,” said Raftelis Project Director Kevin Kostiuk.

Council members took aim at the study’s underlying assumptions, trying to pare down the overall cost: Why, given the budget crunch, were the consultants assuming that each system, water and sewer, would add an extra employee? Why was the reserve set at 33% instead of 25%? Were employee benefit really rising at 10% a year? (Answer: Yes.)

Several council members expressed frustration with the lack of detail in the presentation and the report.

“In reviewing the presentation and your staff report, it was quite frustrating that there weren't any details on how you got to these figures,” Maurer said. “It's kind of like if you have an algebra formula and you just give your answer, but you don't show your work.  All the work that went into figuring out these numbers was not available to us. And that was frustrating. The presentation is one thing, but where's the study?”

After two and a half hours of discussion and questioning, the council essentially sent the consultants back to the drawing board. Some of the changes they wanted to see included the following:  

• multiple scenarios other than those presented that evening;

• scenarios that did not include the addition of two staff members;

• scenarios using a reserve fund of 25% instead of 33%;

• more details and more data than staff report and presentation provided;

• a prioritization of the CIP projects and what can and cannot be delayed;

• a clarification of the recommended rate increases for water and sewer and how that translates in dollar amounts on the bill of residents;

• The impact of smart meters on water rates;

Does this move the goal post?

It is unclear how these revisions will affect the goal of having a new rate structure in place by March 2024.

Raftelis presented the following timeline at the Oct. 3 council meeting.

Asked about the timeline, City Manager Larry McLaughlin said “I don't know of any reason why we wouldn't be okay.”