City Council elects to tie water project rates to all-debt financing payment method

Conscious of a dramatic spike in utility bills, driven by the looming cost of the Woodland-Davis Clean Water Agency surface water project, the City Council signed off Tuesday on a proposed water rate hike tied to a scenario where the city would pay for the project entirely through debt financing.

Based on numbers the city provided to the council at their meeting, all-debt financing likely would smooth out rates for residents over the first five to seven years of the project, softening the blow to the consumer.

Compared to what city staff had been proposing, all-debt financing would lower rates — which city engineers have estimated will triple water bills during the next five years — by about 15 percent.

The council was asked Tuesday to approve water rates for five years that would be included on Proposition 218 notices that the city will send out later this month to inform property owners of the proposed rate increases.

The city needs to pump up water rates in order to begin to pay off the $113 million surface water project that will siphon water from the Sacramento River, treat it and pipe it to Davis and Woodland to replace each municipality’s existing ground well water supplies.

The Prop. 218 process allows cities to set maximum rates that the council can implement each year based on the revenue the city needs to generate in order to fund the city’s water utility.

City staff, including Herb Niederberger, the city’s general manager of utilities operations and development, recommended Tuesday that the council approve rates with a more diversified financing approach in order to receive the best bond rating possible.

But that would mean higher costs to the ratepayers up-front.

So, following some deliberation after receiving a handful of public comments from local business stakeholders — all of whom spoke to the immediate jump in rates that city staff was proposing — the City Council unanimously decided that the city should pay for the project entirely through debt financing.

“While it would be nice to have the ability to pay less over the full life of the project, I think for many residential customers, the increases are rather steep,” Councilman Brett Lee said. “I think it’s always nicer to have a slower ramp up until you hit that rate.”

On the other hand, as City Manager Steve Pinkerton pointed out, because the city would be deferring costs and — in essence — increasing the amount of revenue the city would need to generate overall, in roughly 10 years rates would consistently be higher until the project is completely paid off in 2050.

But Lee and the rest of the council would not be dissuaded.

“We get an extra four years (in the beginning) to get to that level of payment required from the customers, so basically we’re almost doubling the amount of time that people have to ramp up to the new, higher rates,” Lee said.

Prop. 218 notices including the five-year rate schedule and the rate structure, as well as information on the public hearing, will be sent out at the end of the month.

The public hearing will take place on March 19 in the Community Chambers of City Hall, 23 Russell Blvd. More than half of the city’s approximately 16,000 property owners must file written protest to block the water rate increase.

The City Council has placed the project up for a public vote through an all mail-in election of Measure I. Ballots asking whether registered voters approve of the city moving forward with the project will be sent out the week of Feb. 4 and are due back to the Yolo County Elections Office by March 5.

If the majority of the voting public votes No on the project, the city says it will still have to raise rates in order to maintain the city’s water utility. According to city numbers, rates would increase by 50 percent over the next five years without the surface water project on the books.

— Reach Tom Sakash at tsakash@davisenterprise.net or 530-747-8057. Follow him on Twitter @TomSakash Follow all Davis water news using #daviswater

Tom Sakash

Tom Sakash covers the city beat for The Davis Enterprise. Reach him at tsakash@davisenterprise.net, (530) 747-8057 or @TomSakash.

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