Finance & Administration Report: Sewer User Fee Options
A report presenting options for a new sewer user fee structure based on water consumption and a three-tier progressive rate for institutional and non-residential users.
TOWN OF VIEW ROYAL
COMMITTEE OF THE WHOLE REPORT
FINANCE & ADMINISTRATION
TO: Committee of the Whole DATE: September 10, 2020 FROM: D. Christenson, Director of Finance MEETING DATE: September 15, 2020
Sewer User Fee Options
RECOMMENDATION:
THAT the Committee recommend to Council that a bylaw be prepared to implement sewer user fees based on water consumption (year-round consumption for institutional users and annualized winter consumption for non-residential and residential users) and a three-tier progressive rate structure for institutional and non-residential users.
CHIEF ADMINISTRATIVE OFFICER’S COMMENTS:
I concur with the recommendation.
DIRECTOR OF ENGINEERING AND PARKS COMMENTS:
I concur with the recommendation.
PURPOSE OF REPORT:
To consider user fee options for recovering the cost of sewer collection, treatment and disposal, including costs relating to the Capital Regional District’s (CRD’s) sewer system.
TIME CRITICAL:
User fee bills are typically sent to connected users mid-October, with payment due at the end of November. A bylaw setting the user fee rates must be adopted by Council before bills can be calculated and produced. Once Council has confirmed the preferred user fee option, staff will prepare a bylaw accordingly and return it to Council for approval in October.
DISCUSSION:
At its December 10, 2019 meeting, Council considered various options for changing the method of cost recovery for the CRD’s sewer service, to which View Royal’s service connects for treatment and disposal (see attached Sewer Utility Cost Recovery report dated December 4, 2019). Subsequently, Council approved the decision to enter into an agreement with the CRD that would allow those costs to be recovered by user fees rather than taxes on property assessment values.
The current user fee rate structure is based on collecting 15% of total required revenue from a flat fee, based on single-family unit equivalents assessed per the bylaw schedule (attached to the December 4, 2019 report). The volumetric rate is based on collecting 85% of the total required revenue based on total water consumption between November and April (6 winter months).
Total sewer service costs to be recovered in 2020 are $2,252,448, which includes $850,875 for View Royal’s service and $1,401,573 for CRD’s service. This report discusses some of the user fee options and considerations raised previously, looking at current consumption data and after in-depth analysis.
One of the concerns identified in the previous report was the disparity between the distribution of costs to user classes compared with estimated use of the service, based on water consumption. This was especially apparent when considering institutional users, where as a class in 2019 they contributed 7.6% of the revenue while the total class consumption was 17.5%.
After in-depth analysis, staff are recommending a new rate structure with the following elements:
- User accounts are assigned to one of three classes, based on BC Assessment’s actual use code for each property – institutional, non-residential and residential.
- Volumetric user fees for residential and non-residential classes are based on annualized winter water consumption, while the full-year consumption value is used for institutional users.
- The current flat fee, based on a single-family equivalent (SFE) assignment, is replaced with a minimum charge per account.
- Volumetric rates are determined separately for residential and institutional/non-residential classes. The residential class would be assessed a single cubic metre rate for all consumption. Institutional and non-residential classes would be assessed a progressively increasing rate, depending on their total consumption within three tiers, as follows:
| Consumption Tier | Volumetric rate |
|---|---|
| Tier 1: First 1,000 m³ | Base rate (equal to residential rate) |
| Tier 2: Next 10,000 m³ | Base rate times 110% |
| Tier 3: Remaining consumption | Base rate times 125% |
Analysis of consumption data indicates that approximately 99% of sewer accounts are in the residential class or have total consumption within the first tier (less than or equal to 1,000 m³), using the recommended approach to assessing consumption values described. These accounts are responsible for 72% of the total consumption.
| Consumption Tier | % of total m³ | Number of accounts |
|---|---|---|
| Residential | 69% | 2388 |
| Tier 1: First 1,000 m³ | 3% | 42 |
| Tier 2: Next 10,000 m³ | 9% | 14 |
| Tier 3: Remaining consumption | 19% | 5 |
The recommended rate structure as described above addresses the identified concerns with the current structure while supporting identified objectives and principles, such as conservation, equity, revenue stability and transparency. With this rate structure, institutional users contribute 21% of the total sewer service costs, while being responsible for 18% of the total consumption.
ANALYSIS
Staff considered multiple rate structures with several variables and studied the resulting implications for users. The following describes the factors that determine user fees and rationale for the recommended rate structure.
| Factor | Recommendation | Rationale | Other options | Current |
|---|---|---|---|---|
| User class | Users are assigned to one of 3 classes, based on BC Assessment’s actual use code for the property: • Institutional (schools, hospital, community centres) • Non-residential (commercial, light industrial) • Residential (single-family dwellings, strata condo units) |
• Rates can differ for each user class • Property actual use codes reflect usage that likely correlates to sewer usage • Independent determination • Easily verifiable • Low administration cost |
• No class assignment • Class assignment based on BC Assessment property tax class |
No class assignment; both flat and volumetric rates apply equally to each user |
| Consumption | • Institutional class – full year consumption • Non-residential and residential consumption – annualized winter consumption (November to April, inclusive) |
Consumption analysis indicates that the variance between winter and summer water consumption for residential and non-residential users is 20% of total consumption, while for institutional users, the variance is 10%. | • Use winter consumption for all user classes • Use full-year consumption for all user classes |
Winter consumption for all user classes (November to April, inclusive) |
| Volumetric rate | Residential class: • all consumption at a single base rate Institutional and non-residential classes: • First 1,000 m³ at the base rate • Next 10,000 m³ at 110% of the base rate • Remaining consumption at 125% of the base rate |
• Conservation incentive for high volume users • Some correlation to additional burden and demand for greater infrastructure capacity |
• Some other rate factors for tiers, ie: Tier 2 at 105%, Tier 3 at 110% | All consumption at a single rate |
| Flat fee | Eliminate flat fee | • Not easily correlated to burden on system capacity • SFE factor determination not clearly understood • Not independently determined • Not easily verifiable • High administration cost |
• Status quo • Determination of another basis for assigning fees |
Flat fee based on single-family equivalents (SFE), based on a proxy for usage (ie: restaurant per 25 seats or portion thereof = 1.5 SFE |
| Minimum fee | $100 per account | • Simple to understand and administer • Captures users with little or no winter consumption • Captures accounts that come on stream or are deactivated mid-year |
• No minimum • Some other minimum amount (ie $50, $150) |
No minimum |
The implication for users varies considerably, but follows the pattern described in the December 4, 2019 report. Properties that have high consumption will pay significantly more than they previously did, however this is offset if the property had a high property tax assessment.
Residential users with winter water consumption of 77 m³ assessed at $727,000 in 2019 paid $402 for sewer services, including the CRD sewer tax and View Royal sewer user fee. With the recommended user fee structure, a residential property with 77m³ winter water consumption will pay $335 for the same sewer services.
Staff will be able to describe implications in greater detail and as requested by Council and the Committee of the Whole meeting.
When staff return to Council with a proposed bylaw, consideration will be given to measures that would mitigate the financial pressure for sewer users who experience a significant impact as a result of the change in the fee structure. For example, users whose bill increases by 150% or more compared to 2019 may be allowed to carry an outstanding balance past December 31, 2020 without penalty or interest charges. This may be most important for strata corporations to allow time to adjust strata fees, where previously part of this cost was paid directly on taxes by the individual strata property owner.
RECOMMENDATION:
THAT the Committee recommend to Council that a bylaw be prepared to implement sewer user fees based on water consumption (year-round consumption for institutional users and annualized winter consumption for non-residential and residential users) and a three-tier progressive rate structure for institutional and non-residential users.
SUBMITTED BY: D. Christenson, Director of Finance
REVIEWED BY: K. Anema, Chief Administrative Officer
Attached: Sewer Utility Cost Recovery report dated December 4, 2019
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