Tumwater rate study: large capital program could require a one‑time spike in 2027

Tumwater’s Public Works Committee heard a presentation Thursday, Feb. 6, 2025, from Corolla Engineers showing that funding nearly $80 million in planned water system capital projects through 2035 could require a substantial single‑year rate increase under some scenarios — a 31.2% jump in 2027 in one modeled case — unless the city spreads costs using debt or other smoothing strategies.

The study, presented by Isla Barnes of Corolla Engineers and introduced by Patrick Soderberg, Tumwater’s water and resource and sustainability program manager, lays out the model assumptions, revenue requirements, affordability benchmarks and an impact‑fee update and provides a scenario tool staff can use in annual financial planning.

Why it matters: Tumwater faces large, growth‑driven projects (the presentation lists a Southeast reservoir and system extension near $25 million among about $80 million in identified capital over an 11‑year planning horizon). The study’s scenarios show that timing and method of funding those projects — pay‑as‑you‑go from rate revenue, issuing debt, or a mix — materially change near‑term rate needs and reserve balances and will affect affordability for lower‑income households.

Barnes told the committee the model follows American Water Works Association guidance (the AWWA M1 manual) and that the consultants handed the working model over to city staff so it can be used to run alternative scenarios. Barnes said the analysis assumes a 20% operating reserve target (measured as 20% of O&M expenses plus annual debt service), 1% annual growth in customers, 3.5% escalation of O&M costs (base FY2025), 3% escalation of capital project costs, a 1.25 debt service coverage ratio and a one‑year debt service reserve if the model assumes debt issuance.

The presentation lists major capital items used in the model, including water rights acquisition, a brewery well field, a water‑main replacement and extension program and a Well 15 improvement. The largest single line item in the CFP shown was a Southeast Reservoir and system extension (about $25 million). Total capital in the consultant’s scenario is “a little under $80,000,000” from 2024 through 2035.

One modeled funding scenario — which assumes previously approved rate increases for 2025–26 but no additional increases until 2027 — produced a 31.2% single‑year increase in 2027 followed by a 5% increase annually thereafter. Barnes said that spike reflects an assumed roughly $10 million capital spend in 2027 and the practice of using cash on hand for near‑term mitigation until reserves are no longer sufficient. The model also shows options to issue debt beginning in 2028 to smooth rate impacts; the gray bars in the consultant charts reflect debt service in later years.

On impact fees, Barnes said the consultants used an incremental‑cost methodology (appropriate where growth requires new capacity) and calculated a water impact fee of $5,749 per equivalent residential unit (ERU). She noted Tumwater’s current fee of $5,511 is “right in line” with the consultant calculation and was recently adjusted.

The study examined affordability using multiple benchmarks rather than a single median‑income test. Metrics shown included median household income, a county ALICE (asset‑limited, income‑constrained, employed) measure, MIT living‑wage figures for the Olympia‑Lacey‑Tumwater area, and federal poverty levels (the presentation used a four‑person household for federal poverty comparisons). For the city’s approved 2025 rates the consultant reported: water‑only bills were about 0.7% of the ALICE benchmark, combined water/sewer/stormwater about 2.1% of ALICE, and the total utility bill about 4.8% of the federal poverty threshold for a four‑person household. Barnes also translated bills to hours at Tumwater’s $16.66 minimum wage: about 2.4 hours of work for a water‑only bill and roughly 7.7 hours for the total utility bill.

Barnes and committee members emphasized the model is a decision tool rather than a firm prediction; Dan (staff member) and other staff noted the model has been updated multiple times as budgets and actual capital decisions have changed and that staff will continue to revise inputs annually. Staff recommended keeping the financial plan updated annually and reviewing the impact‑fee calculation every three to five years (or sooner if major changes occur).

Committee members asked that future presentations include a clearer, “bottom‑line up front” slide for the public and that staff present the model outputs to the full council when appropriate during the capital‑budget cycle.

Votes at a glance: The committee approved the minutes from the Jan. 9, 2025, Public Works Committee meeting. The motion, a second and an affirmative voice vote were recorded; mover/second and the numerical tally were not specified on the record.

Ending: Staff said the rate model and consultant report will be retained as a working tool for future budget, rate and capital facility plan decisions and that choices about debt issuance, rate structure adjustments (for example, separating small/large commercial classes) and timing of projects will be evaluated using the model.