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RECOMMENDATION Staff recommends the City Council authorize staff to mail the Proposition 218 notice to the ratepayers regarding the proposed changes to the water and sewer rates and set the public hearing date for consideration of this matter by the City Council on October 6, 2015. FINANCIAL STATEMENT The water and sewer funds are enterprise funds. The operations of these funds are 100% fee based and as such, the proposed rate increases if ultimately approved by the City Council will be borne by the water and sewer customers. The City is a customer of the utilities also and as such, will incur rate increases for the water and sewer services at City parks, government buildings including the police station, City Hall, Library and Fire Stations. ANALYSIS OF WATER AND SEWER RATES Guidelines and Parameters for Water and Sewer Rates Staff met with the Audit Committee of the City Council to develop the guidelines and parameters for structuring the proposed water and sewer rates. These parameters included: • Encourage water conservation • Maintain (to the degree financially possible) senior and low income discounts • Include funding for a recycled water program • Adhere to existing City fiscal policies • Enterprise Funds must be self- sufficient and fiscally sustainable • cost of services are to be borne by users of the system and • repair and replacement of capital facilities are fully funded through rates • Establish fair and equitable rates across all customer classifications. Based on these guidelines and parameters staff proceeded with a study of both the water and sewer operations to determine if there was a need for an increase in the sewer and water rates for these City provided services. The City retained HDR to prepare a local water and sewer rate study. A complete copy of the two reports are included in Attachment 1 and 2. Audit and Review of Accounts and Expenditures The first step in the analysis of the current water and sewer rates was to review and audit existing customer accounts to determine if there were any inconsistencies in the billing system. This is a routine operating procedure for a utility. Also, staff reviewed existing expenditures to determine if there were areas where costs could be reduced or an economy of scale could be realized prior to developing the expenditures for the rate analysis. In both cases, substantial adjustments were made that resulted in the need for a lower water rate increase than otherwise would have resulted without the review and audit. As is noted later in this report under the section Proposed Local Sewer Rate Increase, there is a need to restructure the charges to properties in the Ruby Hills area in order to have fair and equitable rates across all customers. Page 2 of 18