Recommendations for the block rates for water consumption and sewer use for the period beginning April 1, 2019 and ending March 31, 2020

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 an 7.0% increase in the sewer use block rate, resulting in a 5.2% increase in the combined rate for the period beginning April 1, 2019 and ending March 31, 2020. This is the ninth consecutive year that the City has been able to produce a 0% increase in the water rate.

In last year’s recommendation, the projected FY20 rate increases for water, sewer, and combined were 1.5%, 7.0%, and 5.7%, respectively, based on March 2018 consumption rates and projected budgets. We have been able to produce a lower water rate than estimated primarily due to revised capital budget projections in the Water Budget and the Sewer Rate is consistent with prior year projections.

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 Massachusetts Water Resources Authority (MWRA) budget; therefore, revenue needs are based upon estimated expenditures. Generally, 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

Two major factors determine the rate necessary to generate enough revenues: water consumption and the budget. The total FY20 Water Budget reflects a decrease from the FY19 Budget. This will be the last year the Water department is able to offset the increased operating budget costs related to cost-of-living allowances, pension and healthcare benefits with the declining debt service payments since the last debt service payment for the Water Treatment Plant occurs in FY20.

The planned FY20 capital allocation is $4,500,000 using pay-as-you-go capital funding based on current revenues. This is a $1,000,000 increase from FY19. FY20 capital projects consist of significant improvements to our water distribution system including water mains ($2M), water treatment plant equipment and systems upgrade, reservoir facilities improvements, Fresh Pond Master Plan implementation and reservation projects, reservoir gaging station maintenance, water meter replacement, watershed consulting services, and hydroelectric renewable energy generation.

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Water and sewer charges are directly linked to water consumption, with sewer costs comprising approximately 76.1% 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 higher rate compared to the previous fiscal year. However, the City continues its campaign to reduce water consumption with a conservation reminder flyer included in bills.

Table 4 on page 5 indicates the details of Water Fund projected revenues and expenditures for FY19-24. Table 7 on page 7 shows actual Water Fund balances for FY14-18 and the projected balance for FY19.

SEWER

The FY20 Sewer Budget reflects a $2,975,753 increase from the FY19 Projected 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 89.9% of the total FY20 Sewer Budget.

The preliminary FY20 MWRA assessment is scheduled to increase by $1,117,623 or 4.38% from the final FY19 assessment. The MWRA rate increase projected for the City is subject to change based on the MWRA budget, which is adopted later in spring 2020. 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 costs attributable to the $14,160,000 general obligation bonds (net of premium) issued in March 2019, used to fund sewer projects in The Port, Harvard Square, and River Street, as well as capital repairs and climate change sewer projects. It should be noted that the City also received a MWRA Local I/I 0% interest loan ($2,812,625) and grant distribution ($8,437,875) on March 7, 2019 to fund “The Port” project resulting in a reduction of the sewer debt issued in FY19.

The FY20 capital allotment of $1,500,000 in sewer revenues will continue to finance the remedial reconstruction program.

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 (FY20-24) calls for an additional investment of approximately $166,927,275 (primarily sewer, $144,197,275) in the water and sewer systems. The City carefully monitors the issuance of debt to fund authorized sewer projects and takes advantage of State MWRA interest free loans and grants to ensure that debt service cost increases, which impact the sewer rate, remain moderate.

Subsidies from the State Revolving Fund (SRF) loan program will cover only $44,440 or 0.1% of the total debt service of $25,193,254 for all FY20 sewer projects. The City will continue to receive state subsidies on existing debt. The FY20-24 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 FY19- 24.

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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

FY19 Projected

FY20 Budget