Chesapeake staff outlines water and sewer rate options as council backs plan to fund public-safety priorities without raising real-estate tax

City staff and consultants told the Chesapeake City Council on April 19 that Chesapeake Public Utilities faces sharply higher operating and construction costs and that current rates will not keep pace without adjustments.

The city’s financial consultant, Andy Burnham of Stantec Consulting, said the 2.9 percent annual rate plan adopted in 2021 was based on forecasts that have since changed: treatment chemicals, fuel and natural gas for the utility rose roughly 87 percent from 2021–2024, salaries and benefits rose about 41 percent, and a broader basket of operating costs increased roughly 25 percent over the same period. Burnham said the utility’s average annual capital need has grown from about $40 million per year in the 2021 plan to about $61 million per year in the updated forecast.

“The last study simply could not have anticipated the magnitude of those input-cost increases,” Burnham said. “We’re seeing challenges trying to maintain a rate plan that was adopted and established several years ago in today’s economic conditions.”

Why it matters

City staff and consultants warned that, under the status-quo 2.9 percent annual increases, revenues will lag expenses and the utility would draw down reserves and approach insufficient debt-service coverage later in the forecast period. Burnham emphasized the city’s financial-policy pillars — adequate reserves and debt-service coverage — and said the updated plan seeks to keep revenue and expense bars aligned so reserve and bond covenants are maintained.

Rate options and customer impacts

Stantec presented two modeled options. Option A assumes about $21 million in tax-increment financing (TIF) tied to an Avalon-area capital project and would require no rate increase beyond the approved 2.9 percent in 2026, a one-point incremental increase in 2027 (a total annual increase of 3.9 percent that year), and then about 4.9 percent per year in later years. Option B assumes no TIF support and would require larger near-term increases: an incremental two-point increase in 2026 and another two-point increase in 2027, producing an ongoing annual increase of about 4.9 percent in the forecast.

Burnham showed customer bill examples for a typical single-family household using 5,000 gallons of water: the total Chesapeake portion of a combined water and sewer bill was about $132 in fiscal 2025. Under the models, the Chesapeake portion would rise by a few dollars per month depending on the option, before accounting for separate Hampton Roads Sanitation District (HRSD) charges, which Burnham said HRSD is forecasting to increase about nine percent in 2026 and 2027.

Operations, billing and meters

City staff reported that last year’s billing irregularity that produced some extended bills has been resolved and credited. The utility has replaced roughly 13,000 meters with automatic (radio-read) equipment and is installing newer meters in new subdivisions; staff estimates a full rollout to automated meter infrastructure (AMI) could take about five years with added staff and use of the city’s LoRaWAN/fiber network. Staff also reiterated the industry practice of presenting bills on a monthly-equivalent basis even though many residential customers receive bimonthly physical bills.

Council direction and budget funding decisions

After the utility presentation, City Manager (Mr. Price) ran through budget assumptions and a separate discussion of enhanced public-safety requests. The manager and staff separated public-safety “priority A” items (about $4.9 million) from priority B requests and longer-term unfunded needs. To fund priority A without raising the advertised real-estate tax, the manager asked four straw-poll questions and reported general consensus on each:

- Fund public-safety priority A if possible (consensus) - Avoid increasing the real-estate tax rate if possible (consensus) - Redirect eight cents of the personal-property tax currently committed to mosquito control to a new public-safety dedication (consensus) - Return the water and sewer utility to being as self-sustaining as practicable so user fees fund the utility rather than broad general-fund subsidies (consensus, with a caveat offered about minimizing cost to users)

Based on the straw poll, the manager recommended “Option 1” to fund priority A without a real-estate tax increase: use about $500,000 of bottom-line budget capacity, redirect the eight cents of personal-property tax to public safety, and eliminate general-fund support to the utility so the utility fund covers its own operations and capital. The manager said those three steps would produce slightly more than the $4.9 million needed to cover priority A and instructed staff to prepare ordinance language for the council to adopt in May.

What the council asked

Council members pressed staff on details: Councilmember Ritter asked whether the bills shown were monthly or bimonthly (staff answered the table was monthly equivalents and customers who get bimonthly bills would see the increase doubled on the two-month statement). Councilmember Miller asked about the status of meter replacements and the billing fix; staff said the billing issue has been fixed and meter replacement is underway with the goal of completing AMI in about five years. Councilmember Smith asked whether revenue projections included future growth; staff said the financial plan uses recent account-growth trends and assumes roughly one percent annual account growth.

Next steps

Manager Price said staff will prepare proposed budget ordinance amendments based on Option 1 and return them for council adoption next week. If council accepts the recommendation, staff will not pursue the advertised two-cent real-estate tax increase and will communicate that to the public. The manager also said there remain unfunded long-term public-safety needs and that staff will return with additional revenue and expenditure options for priority B and beyond.

Selected quotes

“My take is that the city’s done a good job of balancing its needs, to try to provide the highest level of service at the lowest possible cost. But I think it’s a point in time to recognize that our cost structure has changed rather substantially,” Andy Burnham, Stantec Consulting.

“The utility should be self-sustaining,” Mr. Price, City Manager.

Ending

Staff will return the proposed ordinance language and budget amendments for council consideration in May, after which the council could adopt a final budget ordinance that funds the public-safety priority A items without a real-estate tax increase and that incorporates the chosen utility-rate path.