The Richland City Council on Tuesday unanimously took a step toward raising the city's water rates with a vote to approve a new water rate ordinance.
But because all city ordinances require two votes, a second vote must come before the new rates become official.
Public Works Director Pete Rogalsky told the council that an increase is necessary to prevent the city water utility's reserves from being depleted.
Rogalsky, after working with the city's volunteer Utility Advisory Committee, recommended a 9 percent increase, divided into two 4.5 percent increases in January 2012 and January 2013.
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The ordinance voted on by the council would make effective only the first 4.5 percent increase. Public Works staff would review the water utility's finances before asking the council to adopt the 2013 increase.
Under the proposed 2012 increase, the average residential customer would pay about $1.75 more a month for water.
The monthly fixed charge would rise from $24.60 to $25, and the consumption charge of $1.12 per cubic feet -- about 750 gallons -- would be lowered to 95 cents.
The city last raised water rates in 2008 to fund debt payments for the city's $30 million replacement of steel water mains.
But the insurance guaranteeing those debt payments was downgraded because of the financial turmoil of the recession, and now the city is being required to keep $1.8 million in cash reserves to satisfy its bond contracts, the staff report said.
The rate increase is being proposed because the city didn't account for the cash reserve requirement in the last round of increases. If the reserve is not set aside, the city's debt rating likely would be reduced and borrowing costs would be more expensive for future projects, Rogalsky said.
Councilman David Rose asked how long it will take the city to pay off the bonds for the steel main replacement, and what happens to the money held in reserves once they're paid.
Rogalsky said once the bonds are paid, the city would no longer be required to keep the $1.8 million cash reserve and could use it to hold off on future rate increases or give ratepayers a rebate if finances allow.
But the city will be paying that debt for at least 10 more years, he added.
Mayor John Fox noted that despite a national conversation about eliminating government debt, it sometimes makes sense for cities to finance large projects such as the steel water main replacement -- namely so that costs are spread out to include future users who will benefit from those projects.
"For a utility, going into debt is a way of having future ratepayers pay for the capital facilities they enjoy the use of rather than present and past users paying for them in advance," Fox said. "There's a philosophical basis for doing this that makes sense."
The final vote on the water rate ordinance likely will be taken in September.