Davis business owners have reason to worry about the city’s proposed water rate hikes, especially since most don’t actually know how much the increases will cost them.
Business owners who rent commercial space for their shop, eatery or professional office don’t get municipal utility rate bills in the mail.
Their landlords do.
And that is why a movement is afoot among a group of commercial property owners in Davis who not only fear how much lighter their wallets will be, but also what the rate hikes will do to the local economy.
While lease terms differ, commercial property owners tend to build utility costs into the rents or recover them in monthly surcharges.
But it doesn’t do them any good if higher rents and surcharges price out their tenants.
“This is what got me saddened: Public Works did not look at the impact on businesses. You could say that’s not their responsibility, but it is the responsibility of the City Council,” said Randy Yackzan, president and co-owner of the Yackzan Group, which develops and manages properties in Davis.
Yackzan and other large-property owners recently started meeting with city staff and council members to see if they could form a citizens’ oversight committee that would evaluate how the rate hikes are implemented.
The city’s current proposal is to ramp up water rates annually over the next five years to fund the Woodland-Davis Clean Water project. The joint project would pipe surface water from the Sacramento River to Woodland and Davis, providing the cities with a reliable and quality water supply.
City engineers estimated that the average household water bill may triple by 2016. Rates may increase by up to 28 percent next year for the average household.
Under Proposition 218, ratepayers may submit written protests by the scheduled public hearing date of Sept. 6. If the city receives protests by at least a majority of ratepayers — more than half of Davis’ 16,402 ratepayers — rates cannot be imposed.
However, the City Council and staff have indicated they would take into account a considerable public resistance even if there is not technically a majority protest.
Yackzan said he would like to see the council consider alternative rate structures, such as a 10-year plan. If given the time and opportunity, the citizens’ committee could evaluate possible alternatives and facilitate public participation, he said.
And the citizens’ committee would not be comprised solely of commercial property owners, he said. It would be made up of business owners, school officials, student renters and other stakeholders, he said.
“We support the project, but the proposed rate increases are shocking,” Yackzan said.
Mayor Joe Krovoza said the council welcomes the effort to find creative ways to make the costs less burdensome on ratepayers.
“This is exactly what we hoped to (have) happen through the public vetting of the Prop. 218 process,” Krovoza said, adding, “I’m pleased that they understand the main need for the project (and) the main focus is how we pay for it in a way that is as soft on the community as possible.”
“We’re just discovering these rate increases, although we’ve been talking about this project for 20 years,” Yackzan said.
A year ago, he said, city estimates showed an 18-percent increase for the average household in the first year. Now, it’s 28 percent.
And it’s a whole different story for apartment buildings and other commercial properties.
Yackzan said he expects a water rate increase up to 48 percent for his company’s apartments and more than 50 percent for restaurants in the first year. He would not disclose the cost in dollars, but, he said, it is a lot of money.
“You can’t absorb these kinds of increases immediately,” he said.
In Davis, where there’s a significant population of college students, leases typically lock in rental rates for a year. Additionally, commercial properties are often leased for longer periods of time.
That means property owners who are unable to raise rents right away will suffer a major blow in the first year or two of the water rate hikes, Yackzan said.
Another concern is renters — many of whom are business owners — may not realize what costs are coming their way.
Max Connor, who owns The Laundry Lounge with his sister Dina, said their landlord bills them for utilities, but they don’t know what the breakdown is for water rates versus other charges.
As costs rise, however, they have no choice but to pass the cost down to their customers, Connor said. They may end up increasing the price per pound for wash-and-fold services, he said.
“I’d have to run the numbers to see the exact amount, but, basically, we’re not making a whole lot of money now,” he said, so if water rates are going to rise by a certain percentage, they will probably need to raise the rates by about the same amount just to keep afloat.
Connor said they did not factor in the steep rate increases when they opened their business. If worse comes to worst, they will have to relocate, he said.
“We love Davis and it always pains us when we think about all the people that we would essentially be letting down if we had to leave here,” he said.
The trickle-down effect could hurt the local economy in a big way, especially if business owners are unprepared, said Doby Fleeman, who owns some commercial properties in town with his wife, Jennifer Anderson.
“If you have a hair salon, it’s the cost of the water you’re using; if you have a restaurant, it’s the cost of the water you’re using to wash dishes — at some point, it gets passed along to the consumer,” Fleeman said.
The way Prop. 218 works, only the ratepayer — usually the property owner — is notified of proposed rate hikes, which means many renters are left in the dark, he said.
“I think the idea is to try to get the word to the tenants as soon as possible,” Fleeman said.
Business owners are “concerned, definitely,” said Katy Zane, interim director of the Davis Downtown Business Association.
“In particular, restaurants or salons, those places that use a lot of water are most concerned,” Zane said. The DDBA is hosting a “Brown Bag Lunch” presentation for members about the rate increases at noon Wednesday, Aug. 17, in the River City Bank conference room, 239 E St.
“Our main role is just to provide outreach to the businesses because we’re concerned that a lot don’t know that this rate increase is just around the corner,” Zane said.
The Davis Chamber of Commerce also is planning a presentation at its membership luncheon at 11:45 a.m. Tuesday in the Odd Fellows Hall, 415 Second St.