Oak Harbor city staff is considering raising system development charges as well as lowering utility rates by 3%.
During Wednesday’s city council workshop, Public Works Director Steve Schuller said that the calculations that determine what fees developers in Oak Harbor pay haven’t been updated since 1996.
“This is going to create some issues,” he said.
Chris Gonzalez of Financial Consulting Services Group and manager of the utility rate study gave a presentation where he recommended that Oak Harbor increase its system development charges.
According to Gonzalez, system development charges are fees on new developments to recover an equitable share of costs, which include existing assets and future capital projects. The charges are calculated by adding the existing system cost to the future project cost and dividing it by existing customers and future growth.
“We ultimately want to include only the costs that the utility funded, so we’re not charging developers amounts that the city didn’t fund,” Gonzalez said. “Such as what other developers paid or grants that helped offset what the city had to pay.”
Oak Harbor currently charges the least for water, sewer and storm drain system development charges compared to eight nearby cities including Anacortes, Marysville and Mount Vernon. Gonzales said updating the charges would bring Oak Harbor up to charging the fourth highest amount behind Bonney Lake, Anacortes and Bremerton.
“You certainly have the discretion to phase it in or impose charges that are less than the maximum,” he said. “Just the key thing to be aware of is the less you recover from development, the more you recover from existing rate payers.”
Councilmember Shane Hoffmire said that while he agreed the calculations needed to be updated, he was only comfortable with matching Oak Harbor’s system development charges with what Marysville currently has and phasing them in over 24 to 36 months.
Gonzalez said increasing the charges would not dramatically change the near-term utility rate forecast.
“At the end of the day we’re trying to promote equitable cost recovery from development, not necessarily revenue generation just for its own sake,” he said.
City Administrator Blaine Oborn said the city would give advance notice of charge increases so developers can plan for it.
“We’ve been struggling the past number of years with our new home construction,” said Councilmember Dan Evans. “We were averaging somewhere around 200 homes a year for a good period of time. It dropped down to seven at one point and we’re just starting to come back up.”
His concern was that a new change in fees would cause new home construction to drop again.
Gonzalez said that system development charge is a relatively small portion of building costs, especially for residential development, and that it wouldn’t necessarily affect developers’ interest in the area or costs of homes.
A utility rate study will have to be conducted to determine how much revenue each utility needs to cover its cost and how much different types of customers will have to pay.
This plan proposed to keep water as is, meaning a 0% increase. According to Gonzalez, the revenues are going to be sufficient to cover costs through 2027.
A possible sewer rate reduction of 3% could be implemented and still cover operating expenses. That would decrease the monthly rate for a family home from $122.07 to $118.41.
“Increasing the system development charge could potentially enable a further rate reduction,” Gonzalez added.
Increases were proposed for solid waste utility rates. There would be a 31% increase in the yard waste rate in 2023, followed by a 2% for the following year. This would be a $2.51 increase in the average monthly residential bill for yard waste service. Yard waste is the only optional service.
Dumpster rates would remain the same until 2024. In the following years, it would go up by 1.5% every year.
For roll carts, a 2% decrease was proposed meaning residents would pay $0.48 less for a 35-gallon cart.
In total, the monthly solid waste bill would go up by about $2 in 2023.
No rate increase was proposed for the storm drain rate.
Oak Harbor pays the most in utility rates compared to the eight similar cities, while having the lowest system development charge out of that same group.
“Those concepts are related, I think,” Gonzalez said.
All in all, the updated rates would mean a slight decrease from an average of $223.06 per month to $221.43 per month for utilities in Oak Harbor – a 3% decrease.
“I want to be sure we’re not kicking the can down the road,” Councilmember Beth Munns said. “I know we still have miles of water pipe or storm water that need to be repaired.”
Finance Director David Goldman said that the charge increase would ultimately have a positive impact on the city.
“They actually help provide the valuable facilities and the infrastructure that’s needed to accommodate growth,” he said, “and if funding is not available to do that, it can have the opposite effect.”
Council agreed that they were comfortable with lowering utility rates and would create an ordinance for an upcoming meeting. However, they decided to continue to discuss system development charges further at a future workshop.
