The drought may be over, but Palo Alto's water forecast shows rates going up every year for the next decade, starting with a 4 percent increase that will kick in on July 1.
The rate change, which the City Council approved on Monday night by a 6-1 vote, with Mayor Greg Scharff and Councilman Adrian Fine absent and Greg Tanaka dissenting, is a harbinger of things to come. Current projections show rates rising by 6 percent in each of the next four years.
According to Utilities Department staff, the main driver for the increase in the water rate is the rising cost of buying water wholesale from the city's supplier, the San Francisco Public Utilities Commission (last year, the wholesale costs rose by 9 percent, according to department staff). In addition, the city expects to see a $1 million increase in operating costs for emergency generators for wells and pump stations.
The cost of replacing water mains is also going up, thanks to a generally hot construction climate. An April report from Utilities notes that these costs have "risen substantially in recent years, and it is possible higher CIP (capital-improvement project) expenditures will be required in the future."
The proposed rate increase would add about $3.24 to the median residential water bill (which is currently $81.03 per month) However, the impact of the increase is expected to be largely offset by the concurrent elimination of drought surcharge that the city had tacked on to local bills during the recent dry spell. As a result, staff anticipates that the change will in fact result in a decrease of 2 to 4 percent for most customers whose usage remains similar to pre-drought consumption.
The council's Finance Committee had discussed the proposed increase on April 4 and supported moving ahead with a more modest increase of 3 percent in the current fiscal year. But in May, as the committee reviewed the rate in the context of the entire utilities budget, it acceded to staff's recommendation of 4 percent.
City Manager James Keene said the decision was driven by a desire to invest in needed infrastructure in the near term, when the city's overall utility rates are "competitive," as opposed to "postponing some of that spending to the future."
Tanaka disagreed with staff and called the 4 percent increase "over the top." The city, he said, should "hold the line" and look out for the city's ratepayers, who trust the council to be responsible with funding.
"I don't believe we're being responsible here by increasing it by 4 percent," Tanaka said.
In addition to approving the 4 percent increase to the water rates, the council also voted on Monday to adopt a 5 percent increase to the city's refuse bills. The change means that the monthly rate for a 20-gallon "minican" will go up from $26.48 to $27.81 in July. For those with 32-gallon cans, the rate would shift from $47.69 to $50.07, while for those with 64-gallons cans the rate will go from $95.38 to $100.15.