City Council Meeting Date: September 16, 2025
To: Mayor and City Council
City Administrator
From: Brenda Angelstad, Finance Director
Justin Wagner, Utilities Manager
David Bennett, Public Works Director and City Engineer
Title
Review of Proposed Utility Rates and Related Study.
Body
Action Requested:
The Northfield City Council discusses the Utility Rate Study Update.
Summary Report:
Baker Tilly US, LLP, a public sector financial advisor, conducted a Utility Rate Study on Water, Wastewater (Sewer), Storm Water, and Garbage (Refuse) rates for the City. Attached is a copy of the rate study that included updated assumptions regarding budget revenue and expense projections and 10-year Capital Equipment and Capital Improvement Plans. A presentation is in development and will be provided as a supplemental memo.
The previous utility rate study was conducted in 2018 by Springsted Inc. Additionally, the City conducted an updated Utility Rate Study with Baker Tilley US, LLP, on water rates, storm water rates and wastewater rates. All of the scenarios are based on the current Capital Improvement Plan. The proposed rate adjustments based on the 2025 Utility Rate Study are listed below with different scenarios:
Water
There are four scenarios presented in the Utility Rate Study. All options are needed to pay for anticipated operating expenses, debt service and capital outlay including the targeted amount to maintain adequate cash reserves.
- Scenario A – Building modest incremental reserve for future water treatment plant. 9% annual increase for five years. The City would revisit after 5-years the analysis for need of a new plant and related design (study includes 3% for remaining 5-years but again presumes at that mid-point a check in related to future plant planning). The rates would be more gradually phased in which was a concern heard under the last proposal. This is staff recommended option.
- Scenario B – Minimum to meet current operations and Capital Plan, a 4% annual increase for three years and then 2% annual increase for seven years. This is only about $1/month for less than scenario A. Includes no additional reserve for potential future water plant.
- Scenario C – Construction of a gravity filtration and reverse osmosis water treatment plant in 2030. 28% increase for four years and then 3% annual increase for six years.
- Scenario D – Construction of a gravity filtration water treatment plant in 2030. 25% increase for four years and then 3% annual increase for six years.
Note: With the proposed water rates for a Water Treatment Plant in Scenario’s B & C water rates would continue to be affordable based and not eligible for state grants due to rates water rates being below 1.2% of the median household income.
Wastewater (Sewer)
There are two scenarios presented in the Utility Rate Study. All options are needed to pay for anticipated operating expenses, debt service and capital outlay including the targeted amount to maintain adequate cash reserves.
- Scenario A – This option is based solely on the current wastewater system. A 3% increase recommended for the next 10 years. All planned projects would be funded through wastewater reserves with this option. This is the staff recommended option.
- Scenario B – This option includes the addition of construction of a trunk sewer line to the Northwest Industrial Area in 2028. This option would require bonding for the 2030 biosolids project. This option would be a 6.5% increase for the next three years and then a 3.5% annual increase for seven years. Staff believes we should wait to see how the NW Industrial project develops.
Storm Water
A 5% increase is recommended for 2026 and 2027. After 2027, a 2% increase is recommended. The increase is needed to pay for anticipated operating expenses, debt service and capital outlay including the targeted amount to maintain adequate cash reserves.
Trash (Refuse) Rates
A 6% increase recommended for 2026 and 2027. After 2028, a 3.5% increase will be required. This is based on projected tipping fees for 2026, however, depending on the negotiated rates, the garbage rates may need to be adjusted. The increase is needed to pay for anticipated operating expenses, debt service and capital outlay including the targeted amount to maintain adequate cash reserves.
Staff Recommendations for 2026
- Water – 9% increase
- Wastewater (Sewer) – 3% increase
- Stormwater – 5% increase
- Garbage – 6% increase
Average Monthly Utility Bills based on staff recommendations
Average Monthly Utility Bill – Scenario B Water
Average Monthly Utility Bill – Scenario C Water
Average Monthly Utility Bill – Scenario D Water
Water Treatment at NCRC
Staff has been working on receiving quotes for installation of a reverse osmosis system at the NCRC for residents to use that has lowered levels of manganese in the water. Staff is still working through some of the final details on this; however, staff does not anticipate the system costing more than $75,000 upfront and $10,000 annually for maintenance and testing. As a note, the NCRC is only open Monday through Friday, and water would not be available for residents on evenings or weekends. Staff is also working with the Community Action Center to apply for a potential grant for paying for a portion of the water treatment system.
Manganese Communication Plan
With the City’s drinking water having elevated levels of manganese in the drinking water, staff is planning to communicate to the public annually on manganese and the potential health effects on infants. Attached is a one-page document that provides information regarding the City’s manganese level and potential health effects. Additionally, staff has created a communication plan that is attached that is anticipated to cost $16,400 annually for public education.
Water Testing at the Faucet
There has been some interest raised to have the City water department to either directly or through reimbursement to provide testing at the faucet. Staff has significant reservations with this approach and is preparing some background information to provide in the presentation.
A presentation will be coming via supplemental prior to the work session.
Alternative Options:
Not recommended.
Financial Impacts:
N/A
Tentative Timelines:
New rates would take effect January 1, 2026.