City staff present sewer-rate scenarios; recommend reinstating 7% increases to meet operating threshold

City staff presented six financial scenarios for Alexander Citys sewer utility at a council work session, saying the system needs rate increases and growth to remain viable and to prepare for a large capital expense projected for 2030.

Lynn Miller, a consultant with SewerLakes, told the council the models—built with software funded through ARPA—show a "do nothing" scenario would leave the utility below its operating threshold and therefore not viable. Miller said the models baseline projects through 2032 and that only the scenario combining reinstated rate increases and predicted customer growth would allow the utility to maintain operations and build reserves.

The scenarios presented included: (1) no change; (2) increases only tied to a 3% CPI; (3) CPI plus a $5-per-month self-storage unit tax on roughly 2,000 units; (4) the previously planned multi-year increase; (5) a hotel-tax option mentioned by council members; and (6) the previously planned increase plus an assumed customer-growth projection tied to local development. Miller said scenario 6, which assumes a 7% increase in the near term and a sustained 3% annual customer growth beginning after 2026 (about 50 new customers per year on an estimated 5,000-customer base), is the only scenario that produces sustained positive cash positions and allows the utility to put money into reserves for future capital projects.

Miller summarized the operating shortfall: "We're not meeting operating threshold," and said the analysis shows the utility must "react in some type of form" if the city wants a sustainable enterprise fund.

Council members pressed staff on the growth assumptions. The presentation included a projected major capital need around 2030 (described by staff as a roughly $20,000,000 expense tied to Coney/Cully Creek work and associated debt service) and a broader project total that staff cited later in the meeting as about $30.39 million. Staff said those capital needs make it important to avoid running below the operating threshold while preserving reserves.

Alternatives discussed

- Storage-unit tax: Staff modeled a $5 fee per unit on an estimated 2,000 self-storage units. In one part of the presentation staff calculated that at $5 per unit per month 2,000 units would generate about $100,000 annually; later in the discussion staff said a storage fee at that level "is gonna raise a little over $200,000 a year," indicating inconsistent estimates in the presentation. The transcript did not resolve the discrepancy; the city should treat the projected yield as "not specified" until a precise unit count and structure are finalized.

- CPI-only increases (3%): Those projections did not meet the operating threshold in the modeling.

- Reinstating the 7% increase: Staff said reinstating the 7% rate (prorated for 2025 where applicable) and another 7% in 2026, then relying on customer growth afterward, was the most realistic option among the scenarios presented. Staff emphasized the 7% schedule was part of a five-year plan developed after consultants previously recommended much larger increases.

Customer impact and communication

Staff gave an example to illustrate household impact: a standard household using 3,000 gallons would see roughly a $3.03 monthly increase under the 7% change as presented. Councilors suggested framing increases as per-thousand-gallon increases (for example, a dollar per 1,000 gallons) rather than a percentage to improve public understanding. Several councilors and staff said clearer prior communication would have helped after the council delayed the reinstatement earlier in the year.

Uncertainties and dependencies

Staff repeatedly warned the council that modeled revenue depends on uncertain, large projects and development coming online, including a graphite-related industrial customer and developments referred to as Willow Point and Shiner's Cove. The presentation noted some customers (for example, a lumber plant) would contribute only small wastewater volumes, while others (graphite-related businesses referenced in the transcript) could meaningfully affect revenue if they come online as projected; staff described those revenue estimates as uncertain because the industrial projects have changed schedules and numbers.

Staff also noted an unexpected capital expense earlier in the fiscal cycle (a Cedar Creek Road expense of roughly $650,000) that had required pulling money from reserves, underscoring the risk of unforeseen costs.

Formal actions and next steps

No formal council vote on sewer rates was recorded in the transcript. Staff recommended reinstating the previously planned increases at least temporarily while the city evaluates revenue-replacement options; council members asked for clearer public messaging and requested more precise revenue estimates for alternatives such as the storage-unit fee. A motion to adjourn was made and seconded later in the meeting; the transcript records the motion and second but not a roll-call vote.

Why it matters

City staff said the sewer enterprise faces both rising operating costs and looming, high-cost capital needs. The council must weigh whether to reinstate the planned rate increases, adopt alternative revenue sources such as a storage-unit fee, or otherwise close a projected gap that, without action, the model shows will push the utility below its operating threshold.

What remains unresolved

Key unknowns the transcript leaves open: exact revenue yield from a storage-unit fee (the presentation gave both ~$100,000 and an inconsistent figure "a little over $200,000"), the timing and scale of large industrial customers (graphite-related work), and whether the council will formally reinstate the previously planned increases. Staff identified a projected major capital permit/rehab window around 2030 that will require planning and funding decisions in the coming years.