City staff proposes 3.5% annual water increases and 5.5% annual sewer increases to sustain funds and CIP

City staff presented a multiyear rate study and recommended a schedule of annual rate adjustments to stabilize the water and sewer funds and to support planned capital projects.

Presented data compared national and statewide trends to Ames’s recent rate history. Staff said national drinking-water rates rose about 4.42% per year between 2019 and 2024 and Iowa drinking-water rates rose about 5.3% in a similar interval; Ames water and sewer increases over the last four years averaged lower than statewide and national averages and below inflation. Staff noted capital needs—including a wastewater nutrient-reduction project, resiliency and security upgrades, and routine infrastructure replacement—are driving future funding needs.

Staff modeled a 10-year outlook. With no rate increases, the water fund would project a large negative ending balance and the sewer fund a larger negative balance. To meet a target operating reserve (25% of operating expenses at the end of the 10-year window) and preserve debt coverage, staff proposed annual increases of 3.5% for water and 5.5% for sewer for the next 10 years, with associated fee adjustments tied to the same percentages where appropriate (meter-setting fees would be based on actual cost recovery). The recommendation is to adopt rates by ordinance so that bills mailed on or after July 1 reflect the new rates; staff proposed a timeline with an ordinance first reading April 22, second reading May 13 and final adoption May 27.

Staff provided sample-bill impacts for a median residential customer (600 cubic feet of water usage) showing a $2.89 monthly increase to a combined utility bill (about a 1.95% increase on the total utility bill) if the water/sewer increases were adopted, and lower overall percentage impacts for commercial accounts that use proportionally more electricity than water. Staff noted an electric-rate adjustment is also expected later in the year and showed combined impacts to help the council understand total utility-bill changes.

Council members asked questions about statewide comparisons, the drivers of higher costs (for example, nutrient-removal and resiliency projects), and the rationale for smaller, more frequent increases versus infrequent large increases. Staff said the approach favors smaller, regular increases to avoid rate shock and to meet reserves and debt coverage requirements.

Staff asked the council to return on April 22 with an ordinance proposing the 3.5% water and 5.5% sewer increases effective for bills mailed on or after July 1. No final council vote on the ordinance occurred at this meeting; staff will present the ordinance at the next council meeting.