Kalamazoo City Utility Policy Committee adopts amended neighborhood water-extension policy, recommends franchise change and reviews audit and rate study

KALAMAZOO, Mich. — At its July 10 Utility Policy Committee meeting, members adopted amendments to the committee27s neighborhood non-emergency existing-development water-extension policy, voted to ask the City of Kalamazoo to pursue a Galesburg North 30 Fifth Street franchise amendment with Comstock Township, reviewed the city27s quarterly financials and audit, and received a preliminary cost-of-service briefing from consultant Stantec ahead of 2026 water-rate work.

The policy change shortens the service-connection cost that an occupied parcel would pay where a neighborhood project builds a service lead to the property line, reducing the customer-side connection charge from $6,000 to $3,000 for that situation; new home construction would still be charged the full $6,000. Committee members also inserted an administrative provision that any township subsidy for private-side connection costs should be paid at the time connection fees are paid, to keep subsidy accounting clear.

Why it matters: the adopted amendment changes how much individual homeowners might owe when neighborhoods gain water service infrastructure and clarifies when external subsidies must be applied. The committee recommended the change to the city for implementation and approved the amendment as modified.

Committee discussion and details Tom (Utility Policy Committee member) explained the subsidy timing change during discussion and said, "if there's any township subsidy, it shall be paid at the time of connection fees are paid." The committee clarified that the $3,000 charge applies when a project has already constructed a service lead to the property line; where no lead exists, for example on new construction, the $6,000 full connection charge would apply.

Members also discussed an apparent discrepancy in the system capacity buy-in figure. Committee materials show a large, recent system-capacity buy-in payment that contributed nearly $400,000 in the period under review; separately, committee materials and appendices referenced both an $11.75 per-unit figure and a proposed $1,200 figure tied to exhibit/appendix updates. Staff said the appendix containing the unit rate will change later in the year (the packet notes it will follow the annual appendix and change in November), and the committee adopted the policy amendment with the updated appendix timing.

Franchise amendment recommended to city The committee heard a multi-party proposal identified in the packet as the Galesburg North 30 Fifth Street franchise amendment, which involves the City of Galesburg, Comstock Township and the City of Kalamazoo water system. The amendment would tidy up which agency serves particular frontages and corrects service responsibility for one parcel identified on the map as "Alien Auto Care." Jeff Chamberlain moved that the UPC approve the franchise amendment as recommended and ask the City of Kalamazoo to take the necessary next steps; Peter seconded and the motion carried.

Committee members asked staff to consult the city attorney about whether the existing Comstock-Galesburg franchise needs amendment language or whether a new agreement is required now that Kalamazoo provides system services to some of the affected area.

Quarterly finances, audit and debt coverage Committee members reviewed a packet summary of the water fund27s quarterly numbers and the recently posted annual audit. The committee27s summary showed operations at roughly 33% of budget at midyear and operating revenue at about $16 million of a $41 million budget (about 38%), with the caveat that billed service is often received and recorded later in the fiscal cycle.

The external audit returned an unqualified opinion on the financial statements. As the committee noted, the audit reported a positive ending net position of about $29.5 million and a change in net position of roughly $56 million for the year; of that change, roughly $43.8 million was listed as contributed capital (developer contributions, grants, or similar). The audit also reported that debt-service coverage measured about 2.3 times for the year, above the UPC27s adopted minimum coverage policy of 1.4 times.

Peter (Utility Policy Committee member) summarized the audit results to the committee and noted, "The financial statement opinion on the financial statements by the auditors was unqualified." Committee members congratulated staff for an audit with no findings and noted the single-audit work on federal grant compliance found no material weaknesses or significant deficiencies; the packet shows approximately $13 million of federal assistance on the schedule of expenditures of federal awards.

Rate study and next steps Consultant Danica Katz of Stantec presented preliminary cost-of-service results and the firm27s revised approach: Stantec performed a four-year demand/peaking analysis on billing records before finalizing revenue sufficiency so that peaking factors would be smoothed across anomalous years. Katz told the UPC that, based on the 2025 budget snapshot, single-family residential customers were under-recovering their cost relative to other classes; commercial, industrial and seasonal classes were closer to or slightly over-recovering. She said the firm27s next step is a revenue-sufficiency analysis to determine the total percent increase needed for fiscal year 2026 and then to recommend how to allocate that increase across customer classes.

Katz said the consultant team is "utilizing a 4 year average" for peaking factors to reduce year-to-year volatility. Stantec plans to deliver rate-recommendation materials about a week before the UPC27s August meeting; the UPC expects to provide a recommendation in September and the city commission will consider rates in October. The UPC moved and approved a request for member Peter to participate in the city27s rate-setting discussions with staff and Stantec.

Votes at a glance - Agenda adoption: motion approved (unanimous voice vote recorded). - Acceptance of 05/08/2025 draft minutes: motion by Peter, second by Tom; approved (voice vote). - Adoption of Neighborhood Non-Emergency Existing Development / Neighborhood Water Extension Policy as modified (fee corrections, subsidy timing, appendix timing): motion by Peter, second by David; approved (voice vote). - Galesburg North 30 Fifth Street franchise amendment: motion by Jeff Chamberlain, second by Peter; UPC recommended that the City of Kalamazoo take necessary next steps to finalize the amendment; motion carried (voice vote). - Request that Peter participate in 2026 rate-setting work: motion by Tom, second by John; approved (voice vote). - Professional service invoice approvals: multiple motions to approve consultant invoices (Krein & Newhall, Main Meridian LLC, Eiffel Group LLC). The packet motions passed; several invoice motions were recorded as passing with six ayes and one abstention for some items.

Committee operations and other items Committee members also briefly reviewed the capital improvement plan timeline; staff reported they expect updated CIP materials in time for an autumn meeting. Committee members asked for follow-up at a future meeting on the UPC per-diem compensation implementation (left to the city to implement). The UPC was also briefed on operational reliability and emergency response: staff said the system has been obtaining temporary generator units for outages, has made progress installing standby power at many water towers, and continues to work on radio/communications redundancy.

The committee adjourned with the next UPC meeting scheduled for Aug. 14 at 8:30 a.m.

Ending: The UPC recommended the procedural steps needed to finalize the franchise amendment and signaled the committee will consider Stantec27s August revenue-sufficiency recommendations before making a formal rate recommendation in September.