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A Motion to Approve a Preferred Water & Sewer Rate Structure and Rates for 2027 through 2031 and Direct Staff to Prepare the Necessary Ordinance Amendment
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Introduction
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Earlier this year, NewGen Strategies and Solutions provided both a presentation to the Village Board, as well as, the Finance Committee in order to gain feedback on proposed rate structure alternatives, rate methodology, and billing format strategies. Staff is now returning to the Village Board to secure formal direction on a preferred water and sewer rate structure in order to inform water and sewer rates for the 2027 through 2031 calendar years. Staff will return to the Board later this year for formal adoption of the proposed rate structure.
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Recommended Action
Approve the Motion.
Prior Board Action
There is no prior Village Board action associated with this item.
Background
While the Village has been able to maintain a healthy Water & Sewer fund balance over the past few years, it is clear that rising costs due to inflation, forthcoming regulatory mandates, and aging infrastructure are quickly putting the Village on a path towards necessary expenditures outpacing anticipated revenues. NewGen assisted Village staff in identifying three key financial goals for 2027 through 2031:
• Maintain a minimum Water & Sewer fund balance consistent with industry best practices.
• Stabilize cash flow within the Water & Sewer fund.
• Increase fixed revenue recovery to approximately 20 percent.
Following an initial rate recommendation for fiscal year 2026, Village staff requested that NewGen explore alternative rate structures that allow the Village to recoup the same revenue while meeting additional Village goals related to affordability, equity, and sustainability.
Following feedback from the Village Board in early May 2026 and the Finance Committee in mid-July, NewGen Strategies and Solutions will present three water and sewer rate structures and rate recommendations, impacting fiscal years 2027 through 2031. As evidenced below, the fixed rate charge across all three rate structures remains the same, an increase to 20% fixed revenue recovery spread out over 10 years; however, the volumetric rate structure changes in each proposed alternative.
1. Fixed Rate Charge and Flat Volumetric Rate
a. Fixed Rate Charge increase to 20% fixed revenue recovery over 10 years.
b. Water and Sewer Rates both increase by 5% each year for the 2027 through 2031 calendar years.
2. Fixed Rate Charge and Increasing Block Rate
a. Fixed Rate Charge increase to 20% fixed revenue recovery over 10 years.
b. Tier One: 0-7,000 gallons (2 people x 40 gallons x 90 days)
i. US Census Bureau data suggests that the median household in Oak Park has 2.3 members.
c. Tier Two: 7,000 gallons +
3. Fixed Rate Charge and Increasing Block Rate
a. Fixed Rate Charge increase to 20% fixed revenue recovery over 10 years.
b. Tier One: 0-10,000 gallons (3 people x 40 gallons x 90 days)
i. US Census Bureau data suggests that the average family in Oak Park is comprised of 3 people (2 adults and 1 child or 1 adult and 2 children), with a significant drop-off in households that have 4 or more members.
c. Tier Two: 10,000 gallons +
In order to address concerns brought up at the Finance Committee meeting in mid-July, NewGen was able to provide two examples of the impact of the increasing block rate alternatives on both a high-volume user, as well as, a multi-family building, and how those increases compare to the current volumetric rate structure. Thus illustrating that the overall impact on a water bill, regardless of rate structure, will land somewhere between a five to six percent increase.
Timing Considerations
As the Village prepares the fiscal year 2027 budget, timely approval of the water and sewer rate structure for 2027 through 2031 is necessary to establish revenue estimates and inform the impact of necessary expenditures according to the plans outlined in the water and sewer rate study.
Financial Impact
While there is no budget impact directly associated with the approval of this item, approval of a preferred water and sewer rate structure will inform the water and sewer rates for fiscal years 2027 through 2031, ultimately impacting water and sewer financial decisions for the next five years.
Operations Impact
Public works staff spent approximately 10 hours per month for the last two years on the project.
DEI Impact
Since water and sewer services are essential public services, the rate structure has the ability to greatly impact affordability disparities. Village staff, along with the consultants at NewGen, spent time considering how the various water and sewer rate structure alternatives impacted customers with different incomes, household sizes, housing types, neighborhoods, ethnicities, ages, and abilities. For example, low-income households may spend a higher percentage of income on water bills, whereas fixed charges might disproportionately affect low-volume users, which are oftentimes households on a fixed income. The increasing block rate, recommended by the consultants at NewGen and Village staff, encourages conservation while protecting basic “indoor” use that the first-tier targets.
Community Input
There has been no community input given in relation to this item.
Staff Recommendation
All of the water and sewer rate structures presented accrue the necessary revenue to cover the planned expenditures from the water and sewer fund and maintain a healthy fund balance that aligns with industry recommendations and standards. Village staff recommends the Village Board choose a preferred water and sewer rate structure that aligns with its goals and values.
Advantages:
• All presented water and sewer rate structures phase in volumetric and fixed rate increases over five years to meet the financial needs of the water and sewer systems.
• Based on finance committee feedback, all models continue to increase fixed revenue recovery from 8.8 percent to approximately 20 percent over a ten-year period.
• Proposes to meet and exceed the minimum standard, 90 days Operations and Maintenance (O&M), and recommends 180 days O&M, associated with the water and sewer fund balance.
Disadvantages:
• Should one of the alternative rate structures be chosen, additional notification and education of the Village’s residents will be needed ahead of the transition in an effort to reduce confusion and prepare residents for potential impacts to their overall water bill.
Alternatives
Alternative 1:
The Board can delay action to gain additional information.
Advantages:
• This action would allow for additional time to gather the information requested.
Disadvantages:
• By delaying action, water and sewer rate information for the fiscal year 2027 budget would also be delayed. Preventing progress on the 2027 budget for the water and sewer fund.
Anticipated Future Actions
Village staff anticipates returning to the Village Board in early November with a formal water and sewer rate recommendation for fiscal years 2027 through 2031 based on the preferred rate structure.
Prepared By: Erin Duffy, Deputy Public Works Director
Reviewed By: Rob Sproule, Public Works Director
Approved By: Kevin J. Jackson, Village Manager
Attachment(s):
1. Water and Sewer Rate Study- 2027 through 2031 Rate Forecasts Presentation