The Raleigh City Council ended a months-long debate at a budget work session Monday and voted to increase water rates by 8.5 percent. The increase, down from the proposed 17 percent, will go into effect Friday for Raleigh and Garner. In the same vote, council decided to go to a tiered water rate system in December.
The rate increased passed 6-2, with Thomas Crowder and Philip Isley voting against. Council also voted to increase connection fees by $500, with only Isley voting against.
Water consumption overall dropped by 7 percent after last year’s drought, and revenue from water fees has dropped with it. The Raleigh Public Utilities Department needs to make up a $14 million shortfall for the upcoming fiscal year. The approved rate increase will cover all but $1 million, said City Manager Russell Allen.
To put the increase in actual dollars and cents, at the current rate water costs $2.63 per 1,000 gallons. After the rate increase goes into effect, water will cost $3.07 per 1,000 gallons. The average Raleigh household uses 4,500 of water a month. The average household’s bill will increase by about $2.
Councilors’ concerns over the rate debate had two sides. First, almost every council member said they did not want to increase water rates during the current recession. Second, councilors expressed concern over not being able to continue paying off debt and maintaining a AAA bond rating.
Most of the $14 million needed is to service the public utility debt. Payments on the department’s debt is scheduled to increase to almost $14 million. The debt is for bonds used for water and sewer projects.
In voting for the rate increase, council also approved implementing the new tiered water rate system on Dec. 1. The tiered rate system, which only applies to residential customers, charges residents more for using more water.
Tier 1 – Less than 3,000 gallons a month – $2.80 per 1,000 gallons
Tier 2 – 3,000 to 7,500 gallons a month – $4.15 per 1,000 gallons
Tier 3 – More than 7,500 gallons a month – $5.50 per 1,000 gallons
Isley, who has consistently opposed the tiered rate system, questioned whether the city should go ahead with the new rate system with questions about the public utilities department’s budget still on the table. He proposed, as he has in the past, running a pilot program to test how water customers will react to the new system.
Alexis Warmath, a consultant working with the city on tiered rates, said there is a risk to revenue in working to reduce consumption. “It’s a judgment call,” Warmath said, between encouraging conservation or delaying the program because of revenue concerns.
Warmath said a pilot program would be problematic. “It would be nice,” he said, but the data would be skewed. Warmath said he would want to see two years worth of data from the new rate system to be able to judge its effects on revenue.
“Timing is crucial,” Warmath said. He said starting tiered rates just before a drought can cause a huge drop in revenue for the city.
The tiered rate system is expected to cost the city $2-3 million, according to the city manager. He said the costs will come from moving to billing monthly instead of every other month.