Santa Cruz council OKs water rate hike

Tuesday, the Santa Cruz City Council unanimously approved a five-year water rate increase and temporary drought-recovery fee designed to fund long-needed infrastructure improvements, grow reserves and replace revenue lost during mandated rationing.

Under Water Director Rosemary Menard's plan, the ready-to-serve charge and separate consumption charge paid will increase 10 percent in October and 10 percent each July for the next four years. Including the drought recovery fee, the increases represent a total hike of more than 60 percent through 2019.

The drought fee — about $7 per month in 2014 the first year and $2 per month in 2015 for customers with the average meter size — will expire in June 2016. It is not tied to actual water consumption, as some called for, because of the variability of use based on weather and conservation habits.

Menard anticipates raising $40.5 million through the increases and $3.25 million through the drought fee. By comparison, the department's annual operating budget is $25 million and it has $48 million in planned capital improvements.

The cost for in-city, single-family customers with typical monthly consumption of 8 units — about 6,000 gallons — would increase from the current $40 to $64 in 2019. For out-of-city customers in Live Oak and elsewhere, single-family customers with the same typical monthly consumption would go from $50 currently to $81 in 2019.

The city has received at least 170 protest letters in response to the notice of a potential rate increase mailed directly to customers. Fifty percent of property owners, or about 15,000, were needed to block the increase. The last rate increase was in 2011, and there were hikes from 2004-2008.

"The timing is bad for this," Westside resident Pat Powers said. "It leaves a sour taste in your mouth when everyone is trying to reduce their consumption. It's just not right."

Tuesday, the council approved a request by Menard to revise development charges by 2015 that haven't been adjusted for 10 years and redesign the rate structure by 2016 to encourage more conservation. Rick Longinotti, a founder of the Desal Alternatives group opposed to a seawater desalination facility, said rates need to reward low-water users.

"If they use less, they pay less," he said.

Councilwoman Hilary Bryant said the Water Department, which largely has funded improvements through rates, will need to clearly and more frequently communicate how the money is being spent, considering how well the community has responded to rationing that began in May.

"It has a huge impact on people coming out of a recession," Bryant said.

The entire package of rate and fee increases is estimated to help the utility serving 94,000 people cover major capital improvements, including about $15 million in fixes at the Graham Hill Water Treatment Plant and $10 million in work on the North Coast conveyance system. Menard said the guarantee of future funding will improve the utility's ability to finance improvements.

The utility also will tap the funds to establish $10 million in reserves — a three-month reserve and separate emergency fund, as well as replenishment of an account designed to minimize future rate increases on customers. The hike also will generate an estimated $880,000 in city general fund revenue from a utility tax of 8.25 percent assessed on each monthly charge for city customers.

The Santa Cruz Water Department will increase rates for the next five years and a drought-recovery fee for the next two years.

October 2014: 10 percent plus monthly drought recovery fee of $7.37*

July 2015: 10 percent plus monthly drought recovery fee of $2.45*

July 2016: 10 percent

July 2017: 10 percent

July 2018: 10 percent

* The fee is based on the typical meter size.