Mesa City Council took the first step toward raising utility rates incrementally but the debate on the proposed increase is still at least two months away.
An ordinance proposing the increase is to be introduced Nov. 16 for a public hearing on Dec. 1. Any decision by Council would take effect next Jan. 1.
“We are also at the beginning of an annual review process to discuss utility rates,” Mayor John Giles said, adding the notice followed “a high-level overview of staff recommendations” and that full details of those recommendations would be released In late October.
“We are months away from any action on this topic and all factors will be considered,” he said.
Giles said he is focused on averting a potential crisis in utility cutoffs and evictions with thousands of cutoffs possible when a moratorium expires Thursday.
He said preventing the cutoffs and helping renters avoid eviction through use of federal pandemic-relief funds are his priority, but that the council will address the utility rates next month. The eviction prevention hotline number is 480-644-5440.
“Right now, we are very focused on making sure Mesa residents are aware of the Utility Assistance and other programs that are available to help with financial challenges brought on by the pandemic,’’ Giles said in a statement.
Budget officials recommended a series of 1.5 percent increases in water rates per year during a five-year planning period but the upcoming council vote will apply only to the present 2020-2021 fiscal year with the rates issue reviewed yearly.
The city’s relatively high water rates have generated controversy in the past. A chart on the city’s website shows Mesa with the highest water rate in the Valley while the overall cost of utilities is somewhat less glaring in comparison with other cities.
The utility analysis is based on the expectation that costs are bound to go up as the city grows, especially in east Mesa, and either expands or upgrades infrastructure.
A decision to postpone the inevitable for two years and keep the present rates unchanged would eventually clobber customers with a nine percent increase for residential water users in fiscal years 2023-2024 and 2024-25, according to a forecast by Mesa’s Office of Management and Budget.
Non-residential water customers would be hit even harder with an 11 percent increase.
But the chart containing these hikes is marked “for planning purposes only’’ and was included to demonstrate the need for the much smaller yearly increases recommended by budget officials.
The recommended increases are designed to favor residential users over commercial users. For residential users, water would increase l.5 percent; wastewater would increase 3.5 percent; and solid increase would remain unchanged.
The typical residential customer’s water bill would increase from $37.67 to $38.24 per month. The wastewater bill would go from $22.43 to $23.22, according to the city.
Non-residential users would see a 5 percent increase in water, a 4 percent increase in wastewater and a 3.5 increase in solid waste.
With the effort to spread out increases and keep rates affordable, the utility funds would still be operating at a loss, reducing the present reserve of $129,970,396 to $95,440,730 by fiscal year 2025-26, according to the analysis.
“The current fund balance level allows us time to adjust the rates over multiple years rather than all at once, which is more beneficial for our customers,’’ Candace Cannistraro, the city’s director of management and budget, told the Tribune.
But the reserve balance would never fall below the 20 percent generally required by bond rating companies, a critical consideration in Mesa because it relies on municipal bonds covered by the secondary property tax to pay for capital improvement projects.
Mesa voters authorized $196 million in such bonds alone in the 2018 election to finance the construction of a variety of municipal projects, including new police and fire stations and a new library in East Mesa.
“The better the bond rating, the less interest we pay. We want to make sure we stay in the 20 percent range,’’ Cannistraro said. “What we’re trying to do is to spare our customers from a large rate increase in any given year.’’
Cannistraro said the utility rates are unrelated to the $63.5 million ASU building.
“The utility rate adjustments are not tied to the ASU building. It’s tied to the operation of the utilities themselves,’’ she said.
“We want the rates to be sufficient to cover our operating expenses,’’ Cannistraro said. “We’re trying to get to net zero and to keep our fund balance at 20 percent.’’
The goals factored into the analysis include affordability for customers and covering operating costs and expansion, especially with the explosive growth anticipated in the near future near Phoenix-Mesa Gateway Airport.
This growth includes several industries with water needs, including data centers, Legacy Sports Park and Cannon Beach, a combination of a surf park and industrial park with a large hotel.
“We have to anticipate the additional capital costs of expanding relatively new plants,’’ City Manager Chris Brady told Council. “It’s accelerating the need to invest in plant expansion.’’
Council member Dave Luna, a member of the finance and audit committee that reviewed the proposed utility increases, said he supports spreading out the increases to minimize the impact on customers.
“We have to get the revenue somewhere,’’ Luna said, noting the lack of a property tax. “I think it’s a smart way to do it.’’
“I think if we are intelligent and do it methodically, I think that’s the best way,’’ he said.
But many Mesa residents already consider the city’s utility charges too expensive, with outgoing Councilman Jeremy Whittaker arguing against depleting reserves.
Whittaker sponsored the Yes on Affordable Utilities Initiative that would have capped the Enterprise Fund transfer at 20 percent rather than the 33 percent eventually approved by Council, a less stringent plan sponsored by Giles.
Giles has clashed with Whittaker repeatedly, describing Mesa’s somewhat higher utility rates as the cost of living in the largest city in the country without a primary property tax.
The utility revenue essentially is used as a substitute for property tax revenues. Giles’ plan requires that 20 percent of the annual transfer is earmarked to pay for public safety. Low income seniors also received a 30 percent reduction on their water bills if they qualify through the Mesa CAN program.
But in the end, Whittaker was unable to collect enough signatures for his initiative amid the COVID-19 pandemic.
Whittaker was the only council member to vote against issuing the rate hike notification.
A chart on the city’s web site shows Mesa has the highest water cost for the typical homeowner during 2019-2020 fiscal year in the Phoenix region, with only Tucson’s higher. Mesa’s average cost was $452, compared with $282 in Chandler and $239 in Gilbert.
When all utilities are considered, Mesa’s charges are still high, but the comparison is less glaring. Mesa’s overall utility cost is $1,983 a year, Tempe’s was $1,989, Phoenix was at $1,878, Chandler’s was $1,662, and Gilbert’s was $1,557. Glendale was highest at $2,370 and Tucson was second at $2,334.