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7.A. - Page 1 <br /> REPORT <br /> To the Honorable Mayor and City Council <br /> From the City Manager <br /> June 13, 2016 <br /> SUBJECT <br /> Public Hearing on Proposed Increase to Water Utility Service Rates and Charges <br /> RECOMMENDATION <br /> Conduct Proposition 218 Public Hearing on Proposed Increase to Water Utility Service <br /> Rates and Charges; Waive First Reading and Introduce Ordinance Amending <br /> Redwood City Municipal Code Section 38.5 (Water Service Charge) <br /> BACKGROUND <br /> In 2015, the City retained Bartle Wells Associates to develop a long-term financial plan <br /> and rate study for the City's water utility enterprise. While the City has annually <br /> reviewed and adjusted water rates, the actual rate structure had not been independently <br /> reviewed in many years. With guidance from City Council's Utilities Committee, staff's <br /> key goals while developing the proposed water rates and structure were to: (1) recover <br /> the costs of providing service; (2) ensure charges are fair and equitable to all <br /> customers; (3) create rates that are easy to understand and implement; (4) comply with <br /> the requirements of the California Constitution, Article 13D, Section 6 (i.e. Proposition <br /> 218) and the general mandate of Article 10, Section 2 that prohibits the wasteful use of <br /> water; and (5) support the long-term operational and financial stability of the water <br /> utility. <br /> Conclusions from the rate study support a proposed average annual water rate increase <br /> of approximately 6.8% per year for the next three fiscal years, starting with 2016-17 and <br /> continuing to 2018-19. Even with the proposed increases, the City's water rates are <br /> projected to remain in the lower-to-middle range compared to other regional agencies. <br /> ANALYSIS <br /> As an "Enterprise" fund, the City's water utility is legally required to be self-sustaining. <br /> All water fund expenditures must be directly related to operations, maintenance, repair, <br /> and replacement of the utility. Revenues collected from rates and other water charges <br /> are segregated from other municipal funds and uses, and cannot be commingled with <br /> other activities. <br /> Water rate increases are being proposed to eliminate annual budget deficits and pay <br /> for: <br />