Council weighs options to fund state-mandated lead service-line replacements

City finance staff presented four financing scenarios for complying with a state-required 10-year lead service-line replacement program, estimating about 3,400 affected connections (roughly 26% of water services) and a total cost in today’s dollars of about $84,000,000, or roughly $8,400,000 per year.

Bill Hanna, the staff presenter, summarized the scenarios staff developed: Option 1 funds lead replacements entirely within the water utility’s rates; Option 1A pairs that approach with an illustrative $2,650,000 in alternate revenues; Option 2 assumes roughly $5,300,000 in alternate revenues with the remainder covered by rates; and Option 3 would fund replacements completely through water-rate adjustments. Hanna also outlined an illustrative blended-bill approach showing combined electric, water and sewer impacts under each scenario.

The discussion focused on striking a balance between rate pressure on residents and protecting utility fund health. Hanna noted staff had modeled escalation and included an escalation factor to account for material and contractor-cost increases during the multi-year program. He also identified a potential one-time $4,500,000 transfer from the general fund to the Water Fund as a staff-proposed starter subsidy to reduce near-term rate pressure.

Several aldermen said they were uncomfortable placing the whole burden on water customers. One council member said they would eliminate Option 3; others said they preferred Option 1 or 1A, often adding a sunset provision to temporary revenue elements. “For me, I’m not interested in option number 3 because you’re going to have to get a significant amount of revenue from a different source,” one council member said. Another member urged incorporating some nonresident or nonuser contributions where feasible to spread the cost.

Staff stressed that the illustrative rate impacts vary by customer and season and that the utility forecasts include other ongoing capital needs (wells, distribution, treatment capacity). They cautioned that the lead-service-line obligation is an added requirement on top of routine water utility projects and that all options would still require increases to cover basic operating and capital needs.

Public comment reflected similar trade-offs. Resident Steve Loeffler urged creative rate design, including a capital-expenditure charge on water bills to accelerate replacements while limiting broad rate shocks.

Next steps: staff will refine the scenarios, confirm which alternate revenues are realistic, and return with more detailed cost and rate illustrations for council direction at an upcoming workshop.