Oak Harbor staff warn utility rates must rise to cover wholesale water, tipping fees and reserves

Oak Harbor Deputy City Administrator and Finance Director David Goldman told the City Council the city’s current utility rates are not sufficient to cover recent cost increases and recommended a series of rate adjustments phased over the next five years.

Goldman said wholesale water charges from the City of Anacortes will raise Oak Harbor’s water purchase costs by about $451,000 (roughly 22.5 percent compared with the 2024 budgeted amount), while Island County has notified the city to plan for roughly a 22 percent increase in solid‑waste tipping fees plus an inflation adjustment. “The current water rates are not sufficient to be able to cover those increases,” Goldman said, and staff will bring proposed water and solid‑waste rate adjustments to council for consideration in 2025 with implementation planned in early 2026.

Why it matters: Goldman showed modeled fund balances that go negative on several utility funds within the next two to three years if rates are not adjusted. He said the city is currently drawing on utility fund balances to cover those increases, which is not sustainable. The presentation included 10‑year rate history and a five‑year proposed rate path that would raise the average combined residential utility bill by about 5.4 percent annually over five years, roughly in line with recent 10‑year average increases.

City staff laid out the main cost drivers: the Anacortes wholesale water increase, Island County solid‑waste tipping fees (including an inflation factor tied to Bureau of Labor Statistics measures), the creation of a facility and infrastructure replacement reserve, and general inflation. Goldman said solid‑waste costs are mostly driven by the tipping fee paid to the transfer station and that the County’s recent resolution increases those fees for haulers and drop‑off customers.

Council members pressed for additional detail. Council member Wiesner asked about a projected reduction in “operation and maintenance” line items in some funds from 2025 to 2026; Goldman explained accounting rules (BARS manual) sometimes require repair‑type capital costs to be recorded in operating accounts rather than capital, which can cause one‑year spikes. Goldman also noted the city’s 2022 rate study recommendations are being implemented unevenly: the city set aside 100 percent of the recommended replacement reserve for water and storm but only 50 percent for sewer, and that reserve policy affects projected fund balances.

Alternatives and constraints: Staff confirmed there is limited operating‑support grant funding that could offset these costs long term, and that most grant dollars target capital projects. Goldman and Council members discussed policy choices that could defer rate pressure — for example, delaying or reducing the facility‑replacement reserve — but council members and staff emphasized the long‑term risk of deferring reserves: fund balances could become negative, triggering auditor, bond‑counsel, or credit‑rating consequences.

Next steps: Staff plans to bring formal rate ordinances to the council in 2025 for implementation in early 2026; staff will also continue seeking capital grants to reduce future rate pressure and include communications to ratepayers explaining that much of the increase stems from costs outside the city’s direct control.

Ending: Council members urged careful public messaging, noting residents should understand the increases reflect external cost pressures (wholesale water and tipping fees) and planned infrastructure reserves rather than discretionary revenue increases.