Sequim staff propose multiyear water, sewer rate and hookup-fee increases to avoid reserve shortfall

Staff from Sequim's utilities and finance departments presented a multiyear rate and general facility charge (GFC) proposal at a June 12 work session, saying models show the utilities' cash position could cross the city's minimum-reserve threshold within five to 10 years if changes are not made.

The presentation, led by a utilities presenter identified in the meeting as Paul, outlined three modeled scenarios and recommended a combination of GFC increases and multiyear utility rate increases. Paul said outside consultants (FCS Group) recommended earlier, smaller annual increases that were not fully implemented and that compounding inflation since 2020 has eroded the utility's purchasing power. "Some outside consultants called the FCS group did an a rate analysis for water and sewer and GFCs, and they determined back in 2020 that the utility on the sewer side needed a, 2% increase. Yep. 2% increase every year for 5 years," Paul said during the presentation.

Why it matters: staff's Waterworth model projects that under a low- or no-increase scenario the utilities' projected cash would fall below the city policy minimum (2.5 years of repair/replace capital expenses) and could reach a point where the city would have to delay projects or reduce services. Amy, who led the model demonstration, described the policy threshold on the model: "This red dotted line is our operating threshold. So this is the policy of the city to maintain 2 and a half years worth of repair, replace capital expenses as our our minimum balance." The staff said that, absent changes, sewer cash crosses the policy line around 2029 and the combined utility position becomes critically negative before 2035 in the most conservative scenario.

What staff proposed and why: staff summarized three scenarios: scenario A (no rate increases, 3% annual cost inflation) shows cash falling below policy and then into negative territory; scenario B (3% increases to both rates and GFCs) reduces the decline but still leaves the utility below the policy line; and scenario C (larger near-term increases) keeps the cash position above the minimum. Staff's recommendation to the council is to bring forward an ordinance that would: increase GFCs by 3% per year for five years; raise sewer rates by 5% per year for three years and 3% per year for two additional years; and raise water rates by 6% per year for five years. Paul told the council staff will return annually with updates and could recommend adjustments during the five-year window if actuals differ from projections: "we will be coming back on an annual basis to tell council how this is all working out and whether we can, recommend another rate increase or decrease, at any time during these 5 years."

Household impact and context: staff translated percentages into household dollars to illustrate the scale: a 6% water increase for five years would add roughly $1.05 to $1.25 per month for a single-family resident in the early years and a 5% sewer increase sequence of 5% for three years then 3% for two years would be roughly $3.25 to $3.50 per month in earlier years, according to staff's examples. Staff also compared Sequim rates with nearby utilities and found Sequim remains lower than Port Townsend and Port Angeles for 2025 service levels. Paul noted that differences in source water and treatment (groundwater versus surface water) are key drivers of those differences.

Planned capital needs and grant strategy: staff walked the council through the capital-improvement program and identified several projects that will require large sums or outside funding. Paul highlighted an aerobic digester capacity upgrade preliminary cost estimate between $20 million and $45 million and said that, if that figure holds, the city would have to pursue significant grant funding rather than fund it solely from rates. Staff emphasized they have separated some preliminary, high-uncertainty projects from the near-term CIP until scopes and costs are better defined.

Council and staff direction: council members asked questions about timing, inflation assumptions and options (for example, 4.5% or 5.5% alternatives were modeled live). Staff will prepare a draft ordinance for the next council meeting and include proposed GFC and rate changes and a request for a public hearing. Amy demonstrated how quickly scenarios can be revised in the Waterworth tool and staff said they expect to update the model quarterly or at least annually with actual expenditures to keep rolling projections current.

What remains unsettled: the council did not vote on rates at the work session. Council members discussed preferences and trade-offs (a smoother, steady increase versus a larger near-term increase), but the only formal next step recorded was staff's plan to bring a draft ordinance and public hearing request to the next council meeting. Staff also asked for direction on the level of transparency and annual reporting; they proposed returning with an annual status report before each budget cycle.

Ending: Staff emphasized the models are decision tools, not final orders, and urged the council to consider the multiyear view to avoid sudden large increases later. Paul concluded the presentation by saying staff would bring a draft ordinance and the council's feedback would be incorporated before the public hearing two weeks later.