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City staff urge council to weigh reserve targets and MCI auto-adjust for utility rates
Summary
Staff presented discussion options for utility-rate setting, including using a three-year average of debt to smooth monthly rates and adding an automatic municipal cost index (MCI) adjustment to the wastewater ordinance to prevent reserve erosion.
City staff briefed the council on approaches to setting utility rates and recommended council members consider reserve-fund targets and mechanisms to smooth rate volatility. Staff said one option is to set the utility debt charge based on the full-year principal and interest required, and another is to use a three-year average of debt obligations to smooth large swings in rates across billing periods.
“We can just do the straight amount that's needed for that principal and interest payment for the full year for just that year,” staff said, noting the alternative three-year average can blunt sudden increases when bonds drop off the schedule. Staff also flagged that the wastewater ordinance does not currently include an automatic annual MCI adjustment and recommended that council consider adding such a provision to preserve reserve funds against inflation. The council discussed tradeoffs between phasing in increases automatically or asking citizens for harder votes when changes are needed.
No vote was taken; staff will return with detailed numbers for each fund and scenarios showing the effect of different treatments of the debt charge and of adding an MCI automatic adjustment to the ordinance.
