Utility Rate Increase Explanation

On December 9th 2019, the Orono City Council approved the 2020 Budget and Fee Schedule. The Fee Schedule included significant increases in the City’s utility rates. These increases are needed for a variety of reasons which includes the implementation of best practices and the City’s goal to be able to fund infrastructure needs through utility rates rather than through special assessments and borrowing. 
The best practices include maintaining a 25% operating reserve and a 25% capital reserve. The operating reserves are meant to ensure that the Utility has at least three months of operating cash on hand. These reserves are necessary to ensure that utility operations can continue in case there is a significant disruption in cash flow. 
In addition to the above factors, each utility has other pressures on rates: 
Water 
The water fund has historically been operating at a loss. Cash flow needs were being artificially maintained by the use of revenue from leases with telecommunication antennas on the water towers. These funds are now being used to fund city road projects. In order to achieve operating profit in the water fund, rates need to be increased. 
Sewer 
In recent years the sewer fund has mostly operated at a loss. Non-operating revenues (Special Assessments) have consistently offset the losses. However, these special assessments will be paid off over the next few years and the funding will need to be recovered by rates. By far the expenditure item that is driving the needed rate increases are charges payable to the Metropolitan Council. These charges have increased from $394,529.76 in 2016 to $619,395.36 this year. This is an increase of 57% in only four years. The increase from 2019 to 2020 alone totals $64,000. The 2020 rate increase results in an additional $69,000. This is a net increase of only $5,000 to the fund. 
Storm Water 
The City has developed a Pavement Management Plan designed to provide long-term funding for its road infrastructure. As these road projects are undertaken, drainage projects (curb and gutter, culvert replacement, ditch rehabilitation) are being performed simultaneously. While this is the most cost effective and time efficient method to perform the storm water projects, without a rate increase, the fund does not have sufficient resources to pay for upcoming projects. The 90% rate increase in 2020 will stabilize the rate structure into the future with minimal rate increase needed in the next 5 years. 
Recycling 
The City’s contract for recycling services expired in 2019. The City undertook a Request for Proposals during the year and the best proposal received was a 62% increase in costs. The rate increase of 60% for recycling simply matches the increase in expenditures. Information on the utility budgets is available on the city website. Additional questions regarding rates, the City’s Capital Improvement Plan and Budgets can be directed to Ron Olson at the following email address: rolson@ci.orono.mn.us.