Missoula proposes utility fee increase to fund capital costs, cover deferred maintenance

Citing the importance of delivering efficient utilities and the rising costs of doing so, the city on Wednesday unveiled its plans to increase rates by a small percent over each of the next three years.

The city's water, stormwater and wastewater fees remain less than other Montana cities, and some fees, such as water and wastewater, haven't increased in years.

But city officials on Wednesday said rate increase are now needed to fund ongoing maintenance, cover large capital improvements, address climate change, and continue upgrading an aging system that's expected to provide services to a growing city and an increasing number of users.

“We've seen what happens when municipalities allow for continued deferred maintenance of water and wastewater systems. You get catastrophic failures. You get people getting poisoned,” said City Council member Julie Merritt. “We're following the right process of taking into account the variables that are there, and planning our rates based upon good, solid information.”

According to data provided by the FCS Group – a consultant hired by the city – capital needs for the stormwater system over the next four years are estimated at $4.1 million. The wastewater system will required $11.2 million in improvements over the same time, while the city's drinking water system will require $36.7 million.

“Part of our job is to keep costs down, but also to ask when necessary for additional funding and investment to keep the system running well,” said Jeremy Keen, director of Public Works and Mobility. “We have an aging system and we're seeing increasing costs. We're relying on infrastructure that's well past its life. We need to accelerate our replacement program in order to avoid more costly emergencies and disruptions in the system.”

Melanie Hobart with the FCS group said the capital costs needed over the next four years would be covered by a range of funding sources, including grants, loans, development fees and user fees.

For the water system, the proposed rate increase for the average city user would amount to $1.26 in 2022, $2.17 in 2023, and $2.28 in 2024. For the wastewater system, the rates would increase $1.41 in 2022, $1.54 in 2023 and $1.68 in 2024.

The city's water rates remain at 2011 levels and wastewater rates haven't increased since 2015. Hobart said that even with the rate increases, combined utility bills in Missoula would remain less than most peer cities in Montana, including Bozeman, Kalispell, Butte and Billings.

“Compared to your neighbors, your customers are paying less,” she said. “It's the sign of a well-run utility.”

According to the proposal, investments in stormwater and wastewater would cover a range of deferred capital needs and invest in modern systems intended to provide greater efficiencies and environmental protection, such as diverting phosphorous and nitrogen from the Clark Fork River.

The revenue would fund new lift stations, expand the city's compost facility and decrease greenhouse gas emissions by 10% over the next five years. It would also complete third-party financing for a 500 Kilowatt solar farm at the city's Resource Recovery Facility.

But the largest capital needs lie in the drinking water system, which Missoula acquired from public owners back in 2015. At the time, deferred maintenance in the system was estimated at $100 million and it leaked half the water it pumped.

“Deferred maintenance kills systems like these,” said Mayor John Engen. “If we were to further defer maintenance on the system, like the water system, there is at some point an opportunity for catastrophic failure. Our expectation is that the residents we serve understand pretty clearly that if we're going to take care of this precious resource, we're gong to have to make these investments.”

The system's high rate of leakage also leads to greater energy costs, which in tern run contrary to city goals around climate change. Investments already made to the system on the city's north side prevent an estimated 1 million gallons a day from leaking back into the ground.

But the system is large, and some of it dates back a century.

“When we acquired the system, half the water we pumped never made it to an end user. That's horribly inefficient, and that's why these main replacements are so significant,” Engen said. “That's a big deal in terms of energy usage. In the end, these improvements have a remarkable cumulative impact.”