Recommendations for the block rates for water consumption and sewer use for the period beginning April 1, 2017 and …

The City administration and City Council continue to recognize the importance of minimizing increases in water and sewer rates. I recommend that the City Council approve a 0% increase in the water consumption block rate and a 7.7% increase in the sewer use block rate, resulting in a 5.6% increase in the combined rate for the period beginning April 1, 2017 and ending March 31, 2018. This is the seventh consecutive year that the City has been able to produce a 0% increase in the water rate.

In last year’s recommendation, the projected FY18 rate increases for water, sewer, and combined were 4.0%, 7.5%, and 6.6%, respectively, based on March 2016 consumption rates and projected budgets. We have been able to produce a lower water rate than estimated primarily due to lower operating budget projections in the Water Budget. The sewer rate is slightly higher than anticipated due to a Massachusetts Water Resources Authority (MWRA) assessment in the Sewer Budget that is 3.0% higher than the projection provided by the MWRA last year.

In March of each year, the City Council establishes water and sewer rates, which determine water and sewer revenues for the next fiscal year. Because of the timing requirements, water and sewer rates are set prior to the adoption of both the Cambridge budget and MWRA budget; therefore, revenue needs are based upon estimated expenditures. Historically, water and sewer rates have been established so that revenues generated by them, when combined with other related revenue sources, cover projected annual costs.

WATER

In FY17, due to extreme drought conditions in Massachusetts, the City appropriated $3,600,000 from the Water Fund Fund Balance to purchase water from the MWRA to ensure an adequate supply of water to meet the needs of residents, businesses, and universities. The Water Department is projecting to use only $1,600,000 of that amount since conditions have started to improve.

We are also recommending a transfer of $1,000,000 from the remaining $2,000,000 to the Water Department Public Investment Fund for meter replacement. The Department continues to carefully monitor the city's water supply system and implement water conservation efforts. The FY18 water rate does not include additional funds to purchase MWRA water.

The planned FY18 capital allocation is $3,500,000 using pay-as-you-go capital funding based on current revenues. FY18 capital projects include waterworks construction, meter and meter transmission unit replacement, a drainage and community garden project, Fresh Pond Master Plan implementation, U.S. Geological Survey gauging stations, and reservoir facility improvements.

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Two major factors determine the rate necessary to generate sufficient revenues: water consumption and the budget. The total FY18 Water Budget reflects a $1,494,040 decrease from the FY17 Budget. The Water Department is able to offset costs related to cost-of-living allowances, pensions, and health benefits in the salaries and wages portion of the operating budget with decreases in debt service payments and capital expenditures.

Water and sewer charges are directly linked to water consumption, with sewer costs comprising approximately 74.1% of total water and sewer expenditures. When consumption declines, revenues are negatively impacted. In the current fiscal year, water is being consumed at a slightly lower rate compared to the previous fiscal year due to the drought and water conservation efforts.

Table 4 on page 5 indicates the details of Water Fund projected revenues and expenditures for FY17-22. Table 7 on page 7 shows actual Water Fund balances for FY12-16 and the projected balance for FY17.

SEWER

The FY18 Sewer Budget reflects a $3,631,896 increase from the FY17 Budget. This includes the MWRA assessment, debt service payments, and the sewer component of the Public Works budget. Debt service on sewer bonds and the MWRA assessment account for 90.6% of the total FY18 Sewer Budget.

FY18 estimated sewer revenues will cover the FY18 estimated MWRA assessment, which is scheduled to increase by $1,206,845 from the FY17 final assessment. The MWRA rate increase projected for the City is subject to change based on the MWRA budget, which is adopted later in spring 2017. These changes have typically been minor in past years. Unlike the water budget, sewer revenues are credited to the general fund and not to a separate proprietary fund that can be drawn upon if the need arises.

Included in the sewer budget are debt service increases attributable to the $21,045,000 general obligation bonds issued in March 2017, which include sewer projects in Agassiz, Cambridgeport, Harvard Square, and the Port, as well as capital repairs.

The FY18 capital allotment of $1,000,000 in sewer revenues will continue to finance the remedial reconstruction program and development.

The City Council has authorized significant investments in the water and sewer systems to ensure Cambridge continues to benefit from a healthy and environmentally sound water and sewer system. In addition to the projects currently under way, the City’s five-year capital plan (FY18-22) calls for an additional investment of approximately $140,615,500 (primarily sewer, $118,615,500) in the water and sewer systems. The City carefully monitors the issuance of debt to fund authorized sewer projects and makes adjustments to ensure that debt service cost increases, which impact the sewer rate, are moderate.

Subsidies from the SRF loan program will cover only $44,307 or 0.2% of the total debt service of $22,344,311 for all FY18 sewer projects. The City will continue to receive state subsidies on existing debt. The FY19-22 capital plan includes other projects that may be eligible for subsidized loans from the state. As in past years, it is not certain that these projects will receive state subsidies and the debt service on these projects has been calculated based on funding through general obligation bonds.

If state subsidies become available to the City, they will be used to lower the sewer rate in future years. Table 5 on page 6 shows the detail of sewer-related expenditures and revenues for FY17-22.

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COMBINED WATER & SEWER

The table below reflects the projected combined water and sewer metered revenue requirements needed to cover water and sewer expenditures.

TABLE 1

FY17 Projected

FY18 Budget