City Proposing Water and Sewer Rate Increases to Cover Long-Term Operating and Capital Expenses
Council is considering a proposed two-tier system with high-volume users being charged more in fiscal year 2027.
By Adele Uphaus
MANAGING EDITOR AND CORRESPONDENT
Email Adele
About 10% of customers of Fredericksburg City’s water and sewer system account for half of the system’s total usage.
“These customers place disproportionate strain on long-term capital investment” in the system, according to a presentation by PFM Financial Advisors. The firm was hired to conduct an analysis of the city’s water and sewer rate structure and presented the results to City Council at a March 31 work session.
In order to better balance water and sewer system revenues with operating and capital expenditures, PFM is recommending an 8% increase in water and sewer rates in each of the next two fiscal years for average users.
PFM consultants said that an average family of four uses 8,000 gallons on a bimonthly basis.
PFM is also recommending a new tiered structure in which higher volume users—those using more than 25,000 gallons on a bimonthly basis—would be charged a higher rate next fiscal year (fiscal year 2027).
Under the current structure, all users are charged a fee per meter size, plus a volumetric rate of $4.30 per 1,000 gallons of water use and $8.03 per 1,000 of sewer use. Bills are issued on a bi-monthly basis.
Under the new structure, lower-volume users would be charged $4.64 per 1,000 gallons for water and $8.67 per 1,000 gallons for sewer in fiscal year 2027 (July 1, 2026 through June 30, 2027).
Higher-volume users would be charged $5.02 per 1,000 gallons for water and $9.34 per 1,000 gallons for sewer in fiscal year 2027.
In fiscal year 2028, all users, both average and high-volume, would see rates increase by 8%.
According to PFM’s presentation, “the average residential bill expected to increase by $2.22 per month in FY27 and $2.40 per month in FY28.”
PFM is recommending the rate increases because water system revenues have not kept pace with operating and capital expenditures. Over the past 10 years, according to PFM’s presentation, operating expenses for the water system have grown 5.5% per year, while revenues have grown 5.3%.
Operating expenses for the sewer system have grown by 4.3% per year, and revenues have grown by 5.1%.
Both systems have “large capital needs that are planned to be funded in the near-term horizon,” according to the presentation. These include the $180 million new wastewater treatment plant; replacement of sanitary sewer interceptors at $28.6 million; and additional shared water projects with Spotsylvania County at $6.8 million.
“Part of what we’re recommending is to set rates so those revenues will cover not only operating expenses but also capital [expenses],” the PFM consultant told Council. “That’s the ultimate goal here.”
Another goal is to continue maintaining more than the recommended minimum cash balance in the water and sewer funds.
“Water and sewer system revenues have been less than operating and capital expenditures, which has led to a draw down in cash,” the PFM consultant said. “To some extent, that’s acceptable and expected as you’re ramping up capital spending, but that’s something that is not necessarily sustainable in the long term.”
Council also raised water and sewer rates by 8% and 6% respectively for the current fiscal year.
City Manager Tim Baroody reminded Council at the work session that “We’ve been talking about the heavy lifts that are now before us for at least the past four or five years.”
“We have a historic need for legacy projects to improve water and wastewater,” he said. “The time is now. This has all been anticipated to a large extent. We’re not beating around the bus about the expense that is now before us.”
Baroody also noted that the city is receiving $110 million in state funding for the new wastewater treatment plant, in the form of $27 million from American Rescue Plan Act (ARPA) State and Local Recovery Fund; $29.2 million from the ARPA Enhanced Nutrient Removal Certainty Program; and $54.6 million from the Virginia Water Quality Improvement Fund.
Amanda Six, the city’s finance director, said staff understand that community members will be impacted by the 8% rate increase and the higher increase for higher-volume users.
Apartment complexes and higher education institutions are examples of some of the higher-volume users, PFM consultants said at the work session.
Six said staff “didn’t take lightly that there may be some push back from those impacted by the higher tier.”
But, she noted, the 8% proposed rate increase for average residential users “would have been much higher without the increase to large users.”
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