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Home My WebLink AboutA034 - Water and Sewer Rate AdjustmentsITEM #:38 DATE:04-14-26 DEPT:W&PC SUBJECT:WATER AND SEWER RATE ADJUSTMENTS FOR FY 2026/27 COUNCIL ACTION FORM BACKGROUND: Each year as part of the annual budget process, staff updates a model for the Water and Sewer Funds that reflects current and projected operating and capital expenses over the next ten years, and the resulting annual ending fund balances in each of the two separate funds. This model is used to establish a long-range pattern of rate increases that will fully finance these self-funded enterprise utilities, including an operating reserve that is slowly being increased to a target of 25% of the annual operating budget. During the development of the FY 2026/27 budget, staff determined that a three-and- one-half percent (3.5%) increase to water rates and a five-and-one-half percent (5.5%) increase to sewer rates would be needed, effective July 1, 2026. This is the same pattern of rate adjustments as was anticipated in the staff presentation one year ago. While the need for an increase was discussed during the budget presentations, no formal action has yet been taken by Council to adopt these new rates. At the City Council the Staff will present a summary of the fund balance analysis in a format that is very similar to what has been used in prior years. Highlights from the attached slides will be shared at the Council meeting in a brief presentation. ALTERNATIVES: 1. Direct staff to prepare an ordinance enacting a 3.5% increase in water rates and a 5.5% increase in sewer rates, effective July 1, 2026. 2. Direct staff to prepare an ordinance to enact some alternate rate adjustments. 3. Do not take any action to adjust water and sewer rates at this time, and provide guidance to staff on expenditure reductions in order to maintain positive balances in the Water and Sewer Funds. CITY MANAGER'S RECOMMENDED ACTION: The proposed rate increases are necessary to fund the ongoing operations and maintenance budget plus the anticipated capital improvements projects. The recommendation is part of a consistent, predictable pattern of rate increases projected over the next ten years, and reflects a continuation of the pattern shown to Council at this time last year. Therefore, it is the recommendation of the City Manager that the City Council adopt Alternate No. 1, as described above. 1 ATTACHMENT(S): FY 2026-27 Water & Sewer Rates.pdf 2 3/16/2026 1 FY 2026-2027 WATER & SEWER RATES OUTLINE2 i.National, State, and Ames Trends ii.Projected Revenue Needs iii.Translate Revenue to Rates iv.Projected Future Rate Trends v.Customer Perspective vi.Council Direction 1 2 3 3/16/2026 2 DATA SOURCES3 •2024 Cost of Clean Water Index National Association of Clean Water Agencies •2025 Water and Wastewater Rate Survey American Water Works Association •2025 Iowa Water and Wastewater Rate Survey City of Ames Water and Pollution Control •2025 Consumer Price Index Tables Bureau of Labor Statistics NATIONAL TRENDS IN RATE STRUCTURES4 •Utilities with a minimum fee: Water – 100% Wastewater – 99.7% •Utilities billing monthly: Water – 80.2% Wastewater – 83.4% •Utilities with a similar volumetric charge structure: Water (increasing block) – 50.6% Wastewater (flat block) – 73.4% Source: AWWA 2025 Water & Sewer Rate Survey 3 4 4 3/16/2026 3 NATIONAL TRENDS 2021-20255 Water National Average Annual Increase: 6.79% Sewer National Average Annual Increase: 4.85% Average Annual CPI Increase: 4.70% IOWA TRENDS 2021-20256 Percent of Iowa Utilities serving >10,000 with a rate increase in the past two years: Drinking Water: 93% More than 5%: 64% More than 10%: 43% Wastewater: 84% More than 5%: 72% More than 10%: 40% 2025 versus 2023 Water and Wastewater Rate Survey, City of Ames 5 6 5 3/16/2026 4 IOWA TRENDS 2021-20257 Water National Average Annual Increase: 6.79% Iowa Average Annual Increase: 6.68% Sewer National Average Annual Increase: 4.85% Iowa Average Annual Increase: 3.42% Average Annual CPI Increase: 4.70% AMES TRENDS 2021-20258 SewerWater 5.0%--FY 21/22 --8.0%FY 22/23 7.0%--FY 23/34 5.5%3.5%FY 24/25 4.38%2.88%4-year Average 7 8 6 3/16/2026 5 AMES TRENDS 2021-20259 Water National Average Annual Increase: 6.79% Iowa Average Annual Increase: 6.68% Ames Average Annual Increase: 2.88% Sewer National Average Annual Increase: 4.85% Iowa Average Annual Increase: 3.42% Ames Average Annual Increase: 4.38% Average Annual CPI Increase: 4.70% IOWA TRENDS IN WATER RATES 2005-2025, Cities with population >10,000 with lime softening, 600 cf per month 10 $0 $10 $20 $30 $40 $50 $60 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Water Rates in Iowa, 2005-2025 Cities >10,000 600 cubic feet per month Ames ranks 23rd out of the 27 included utilities. This places Ames at the 15th percentile (Ames was at the 19th percentile last year) 9 10 7 3/16/2026 6 IOWA TRENDS IN SEWER RATES 2005-2025, Cities with population >10,000 600 cf per month 11 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Sewer Rates in Iowa, 2005 - 2025 Cities >10,000 600 cubic feet per month Ames ranks 37th out of the 43 included utilities. This places Ames at the 19th percentile (Ames was at the 21st percentile last year) FORCES IMPACTING PROJECTED EXPENSES12 Evolving regulatory requirements Risk and Resiliency Improvements Infrastructure Renewal and Replacement Responding to current and future growth 11 12 8 3/16/2026 7 WATER FUND ENDING BALANCE over 10 years with no adjustments 3.5% -30,000 -25,000 -20,000 -15,000 -10,000 -5,000 0 5,000 10,000 15,000 20,000 25,000 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 35-36 En d i n g B a l a n c e ( $ 1 , 0 0 0 ' s ) Ending Fund Balance Operating Reserve Percentage Rate Increase SEWER FUND ENDING BALANCE over 10 years with no adjustments 7%5.5% -40,000 -35,000 -30,000 -25,000 -20,000 -15,000 -10,000 -5,000 0 5,000 10,000 15,000 20,000 25,000 30,000 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 35-36 En d i n g B a l a n c e ( $ 1 , 0 0 0 ' s ) Ending Fund Balance Operating Reserve Percentage Rate Increase 13 14 9 3/16/2026 8 APPROACH TO RATES: Timing and Magnitude15 Meet debt coverage requirements (SRF requires 110% coverage) Meet operating reserve target Gradual increase over time until achieve 25% of each Fund’s annual operating expenses Adjusts both water and sewer annually Models have built-in presumption of 3.5% inflation 10-YEAR RATE FORECAST16 FY 36FY 35FY 34FY 33FY 32FY 31FY 30FY 29FY 28FY 27FY 26FY 25 3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%0%Water Fund 5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%7.0%Sewer Fund 15 16 10 3/16/2026 9 WATER FUND ENDING BALANCE over 10 years with projected adjustments 3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5%3.5% 0 5,000 10,000 15,000 20,000 25,000 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 35-36 En d i n g B a l a n c e ( $ 1 , 0 0 0 ' s ) Ending Fund Balance Operating Reserve Percentage Rate Increase SEWER FUND ENDING BALANCE over 10 years with projected adjustments 7%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5%5.5% 0 5,000 10,000 15,000 20,000 25,000 30,000 24-25 25-26 26-27 27-28 28-29 29-30 30-31 31-32 32-33 33-34 34-35 35-36 En d i n g B a l a n c e ( $ 1 , 0 0 0 ' s ) Ending Fund Balance Operating Reserve Percentage Rate Increase 17 18 11 3/16/2026 10 PROPOSED FY 26/27 WATER RATES 3.5% NewIncreaseExisting $0.0298 $0.0010 $0.0288 Winter All customers; all consumption Summer Residential $0.0298 $0.0010 $0.0288 Block 1 (First 1,000 cf) $0.0525 $0.0018 $0.0508 Block 2 (Next 1,500 cf) $0.0790 $0.0027 $0.0763 Block 3 (Over 2,500 cf) Irrigation & Yard Water $0.0429$0.0015 $0.0415 Block 1 (First 2,000 cf) $0.0790 $0.0027 $0.0763 Block 2 (Next 3,000 cf) $0.1315 $0.0044$0.1270 Block 3 (Over 5,000 cf) $0.0389 $0.0013 $0.0376 Non-Residential All consumption $0.0298 $0.0010 $0.0288 Non-Peaking Industrial All consumption PROPOSED FY 26/27 SEWER RATES 5.5% TotalIncreaseExisting $14.48 $0.75 $13.73 Minimum Charge All customers, per month $5.56 $0.29 $5.27 Prorated Minimum $3.70 $0.19 $3.51 Consumption, per 100 cubic feet All customers, all consumption 19 20 12 3/16/2026 11 RATE PROJECTIONS VS. STATEWIDE TRENDS21 $39.77 $41.97 $44.31 $46.79 $49.41 $52.20 $55.15 $58.28 $61.60 $65.12 $68.86 $107.04 $111.78 $116.76 $121.99 $127.47 $133.23 $139.28 $145.64 $152.33 $159.35 $166.74 $66.77 $69.80 $72.98 $76.31 $79.80 $83.45 $87.28 $91.30 $95.50 $99.91 $104.54 $85.96 $90.21 $94.69 $99.42 $104.41 $109.68 $115.24 $121.11 $127.31 $133.86 $140.78 $- $25.00 $50.00 $75.00 $100.00 $125.00 $150.00 $175.00 $200.00 $225.00 $250.00 $275.00 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Statewide Range Ames Residential Statewide Median PROJECTED COMBINED MONTHLY WATER AND SEWER BILL 600 cubic feet per month ASSOCIATED FEES22 Fees found in Appendix Q will be adjusted by the same respective percentage Meter setting fees will be adjusted based on actual cost Happens as a part of the City- wide fee schedule adjustment later in the spring 21 22 13 3/16/2026 12 SAMPLE CUSTOMER BILL – JULY 1, 2026 MEDIAN USE RESIDENTIAL23 WaterStorm Electric TotalSewerSummerWaterSummerElectric / Water Use 5.5%3.5%1.5%Planned Increase $153.51$34.79$31.98$5.20$81.54600 kWh and 600 cf $1.44$1.44Electric ECA $154.95$34.79$31.98$5.20$82.98Totals $1.68$1.68Increase Due to ECA Change $4.25$1.91$1.12$0.00$1.22Increase Due to Rate Change $160.88$36.70$33.10$5.20$85.88Totals 3.83%% Impact on Total Bill COMBINED UTILITY RATE ADJUSTMENTS (Sample bills below shows customers’ total bill, including electric, water, sewer, storm water)24 November 1, 2026July 1, 2026Current RatesCustomer Type (1.5% Electric – Winter)(3.5% Water, 5.5% Sewer) $65.98 $68.13 $65.90 Minimum Use Residential 3.38%100 kWh and 100 cf $147.97 $160.88 $154.95 Median Use Residential 3.83%600 kWh and 600 cf $213.58 $235.09 $226.19 Large Residential 3.93%1,000 kWh and 1,000 cf $348.70 $354.16 $341.46 Small Commercial (GP) 3.72%2,000 kWh and 600 cf $754.31 $763.42 $735.64 Small Commercial (GP) 3.78%5,000 kWh and 1,000 cf $1,539.84 $1,567.17 $1,509.43 Small Commercial (GP) 3.83%10,000 kWh and 3,000 cf $2,760.17 $2,805.71 $2,698.19 Commercial (LP) 3.98%20,000 kWh and 5,000 cf $7,871.86 $8,008.48 $7,693.41 Commercial (LP) 4.10%60,000 kWh and 15,000 cf $12,730.16 $12,912.32 $12,404.52 Commercial (LP) 4.09%100,000 kWh and 20,000 cf 23 24 14 3/16/2026 13 RECOMMENDED ACTION AND TIMELINE25 Direct staff to prepare a draft ordinance for consideration on April 28 that will: •Adjust Water Rates by 3.5% •Adjust Sewer Rates by 5.5% •New rates effective for bills due on or after July 1, 2026 Timeline •First reading on April 28 •Second reading on May 12 •Third reading and adoption on May 26 QUESTIONS AND DIRECTION 25 26 15