Dunedin officials weigh phased water, sewer and reclaimed-rate increases to cover rising costs

DUNEDIN, Fla. — City staff and consultants told the Dunedin City Commission on May 6 that rising operating costs, large planned capital projects and existing debt have created a revenue gap in the city’s water and wastewater enterprise fund and that customers will likely face phased rate increases to restore long‑term financial sustainability.

At a workshop presentation, Raftelis consultant Terry Bovary summarized a 10‑year revenue sufficiency review and recommended a two‑year phase‑in of higher rates, an increase to reclaimed‑water charges and a policy target of roughly $9.5 million per year for capital reinvestment to keep the system funded over the coming decades.

The study matters because Dunedin operates water and sewer as an enterprise fund, meaning user fees must cover all operating costs, debt service and capital needs. Consultants told commissioners the city faces above‑forecast operating cost increases since 2019, a concentrated slate of capital projects in the near term, and a technical shortfall that requires action to meet minimum debt‑coverage tests in fiscal 2025.

Terry Bovary, the Raftelis presenter, said the firm used the city’s operating budgets, asset records and the capital improvement program to estimate replacement needs. Bovary said the city’s recorded original cost for utility assets is about $161 million, which inflates to roughly $382 million when adjusted for current replacement‑cost assumptions. Amortizing that replacement cost over long planning cycles produced an annual planning allowance the firm set at about $9.5 million.

“Utilities are very capital intensive businesses with nonlinear investments,” Bovary said during the presentation. He recommended targeting a debt‑service coverage ratio in the 1.5–2.0 range to preserve credit strength and to support planned borrowing for projects.

Nan Bennett, Utility Operations Division director, and staff described the utility’s scale: roughly 12,000 connections (about 10,326 single‑family accounts in FY24), about 88 employees, average daily water production near 3.4 million gallons per day and wastewater treatment around 3.7 million gallons per day. The city has about 173 miles of water mains and 152 miles of sewer mains. Staff said the city currently serves some unincorporated areas and must provide proper notice and alignment with those customers as rates change.

Consultants and staff laid out roughly $90 million in capital needs over the plan horizon, with the single largest near‑term project the wastewater plant electrical rehabilitation (roughly $19.4 million). Other large items included pipe lining, reclaimed‑water storage, a deep injection well and multiple lift‑station upgrades. For near‑term cash needs the plan assumes about $30 million of new debt in addition to existing SRF loans and bonds; consultants used a conservative 5% market rate assumption for planning but noted SRF (state revolving fund) financing can offer lower rates and sometimes partial forgiveness.

Bovary also recommended aligning reclaimed‑water prices with a more typical regional cost‑of‑service approach. Consultants said reclaimed‑water fees in Dunedin historically have been very low (about $0.50 per 1,000 gallons) and that raising those fees would both better reflect the system’s costs and reduce pressure on potable water and sewer rates. “If we don’t do that, we’ll need higher increases on the water and sewer side,” Bovary said.

Commissioners asked detailed operational and policy questions. Commissioner Steven Sandbergen sought clarification on the number of accounts and how outside customers are counted; staff said the 12,000 figure includes accounts outside city limits served by the utility and that the system lost a large customer, noted as Coca‑Cola, which had represented several percent of system revenue. Commissioner Robert Walker pressed staff on the distinction between accounting depreciation and the service‑life replacement model Raftelis used (Bovary said the firm used a planning replacement cycle and examined both 30‑ and 40‑year spreads, ultimately using a 40‑year planning view to determine the annual reinvestment target). Commissioners also asked about SRF eligibility, project timing, the city’s internal service fund allocations and communications plans for explaining rate changes to customers.

Staff and consultants emphasized timing and next steps. The city manager told the commission this was a workshop presentation and that no vote would occur that day; the commission has a first reading scheduled for May 22 and rates would need to be in place by Oct. 1, the start of the city’s fiscal year. Bovary said the study team will deliver a detailed report and supporting Excel tables before the first reading and that city staff will return with recommended ordinance language and outreach materials.

No formal action was taken at the workshop. Commissioners signaled interest in a phased approach rather than a single large increase, asked for additional backup showing the drivers of cost increases (object‑code detail), and requested communications that foreground conservation steps, tools available to customers (meter alerts, conservation tiers) and the relative value of reclaimed water.

Staff also noted implementation constraints: some projects depend on SRF approvals, reimbursements and program eligibility; SRF funds typically reimburse afterconstruction and may not cover every project. Bovary said that SRF financing is attractive but administratively constrained, which is why the plan assumed conservative market debt for programming.

The presentation and follow‑up work will include: a written report with line‑item backup, the Excel model supporting the revenue projections, refined proposed rate tables (including reclaimed‑water and meter‑set fees), and an outreach plan explaining impacts and conservation options. The commission will consider the ordinance at public hearings May 22 and June 5, with effective dates tied to the Oct. 1 fiscal‑year change if adopted.

For now, the workshop left the commission with a shortlist of policy choices: how aggressively to phase increases, what minimum debt‑coverage target to enshrine, how quickly to raise reclaimed‑water charges toward full cost recovery, and whether to pursue additional grant/loan structuring to soften near‑term rate pressure.

Ending — City staff and consultants framed the rate study as a balancing exercise: the city must raise revenue to pay for rising operating costs and substantial near‑term capital needs while trying to minimize short‑term rate shock for households. The commission delegated to staff the preparation of the detailed ordinance, backup materials and a communications plan ahead of first reading on May 22.