After two years of quietly bubbling on the city's back burner, it's likely a decision on raising water bills will come before the City Council in 2010.
Consultants are working on a rate study that Public Works Director Nick Pinhey wants to show the council by September.
The study will look at Modesto's future water needs, plug in estimates about how much those needs will cost and tell city staff whether a rate increase is warranted. If the answer is yes, Pinhey said, he'd like new rates in place in January 2011.
But first he'll the need council's approval. That discussion could veer into choppy waters, given the city's recent history with water rate issues.
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When the city last raised water bills in 2005, it used a flawed study to set the new rates. Both city employees and consultants were blamed for the errors. City-hired consultants used an inaccurate customer count. City staff told consultants to base water consumption estimates on 2003, a hot year with unusual amounts of water use.
The faulty study meant the new rates didn't generate enough money to pay for needed improvements. The city was left with a $29.5 million shortfall in its water fund.
To avoid a repeat, the city will have one group of consultants write the rate study, with another set of consultants reviewing it for accuracy.
"They'll go through and look at the math and make sure everything is lined up correctly," Pinhey said.
A fiscal reservoir
Others also will keep a close eye on the process.
Eric Reimer of the Stanislaus Taxpayers Association said he wonders why the city is considering a rate increase when there seems to be plenty of money in the city's water fund.
"The last time I looked we had over $100 million stashed away in surplus revenues, way, way above the projected capital requirements," Rei- mer said. "So the question in my mind is, why are you even beginning to talk about this (rate increase) at this point?"
The water fund in 2008 operated well in the black, bringing in $51.4 million in revenue but spending $34.6 million, according to an annual budget report.
The city draws on the fund to pay for water system improvements such as wells, pipelines and water tanks. It can't be used for other city services such as police or fire.
Pinhey said the water fund's reserves only tell part of the story. Operating costs will increase next year, when a new surface water treatment plant adds another 30 million gallons a day to Modesto's water system.
The city also faces costs associated with new state regulations and replacing aging pipes, Pinhey said.
"In a snapshot it may look like you have huge reserves available, but that can draw down rather rapidly depending on what projects are coming online," Pinhey said. "If everything stopped today and you didn't have to make any improvements or add anything new, you might not have to change your rates."
No builder study this time
Builders weren't happy with the last round of water rate increases, when connection fees for new houses jumped from $545 to $5,700.
The Central California Building Industry Association raised concerns that the 2005 rate study was flawed, and even hired its own consultants to crunch numbers. The BIA turned out to be right, but that didn't win it a break on fees.
BIA chief executive Steve Madison said his organization will keep close tabs on the upcoming water rate study. The economic downturn means the builders' group won't fund its own study this time. But Madison said he's hoping that won't be necessary. There have been several city staffing changes — including a new city manager and a new public works director — that make Madison think the water rate process will go more smoothly this time.
"In the previous process, we were stonewalled," he said. "The way the city has been conducting business since (City Manager) Greg Nyhoff came, it's been more transparent and that kind of attitude helps foster healthy discussions."