Finance Director Pa Thao and consultant Ehlers presented a comprehensive utility rate study designed to cover inflation and fund major infrastructure improvements across water, sewer, and stormwater systems. The study analyzed 2023 usage data and projected 10-year capital needs through 2035, including a $31.5 million water treatment plant, $60 million in sewer trunk improvements, and extensive flood mitigation work.

The proposed rate increases vary by utility. Water rates would rise 5.25% annually to fund the treatment plant while maintaining adequate financial reserves. Sewer rates would increase 9.25% annually—higher than previously recommended—primarily because the Metropolitan Council Environmental Services charges consume 66% of the sewer fund's operating budget and are expected to grow 7% yearly. Connection fees would also increase: 3% annually for water and 9% annually for sewer.

Stormwater faces the most significant pressure. The study recommends a phased rate increase of 15% in 2026, 14.5% in 2027-2028, and 8.5% thereafter to fund flood risk reduction projects across the city, including work in the Morningside ($13 million), Concord ($7.5 million), and Chowen & 60th ($10.5 million) areas. The consultant warned that without these increases, the stormwater fund would deplete its reserves.

The council solicited feedback on alternative funding mechanisms for stormwater, including property taxes, stormwater taxing districts, and special assessments. The study confirmed that existing water rate tiers are working as designed, with median users staying in the lowest tier and only 7% exceeding the second tier.

No formal vote was taken Tuesday, as this was a work session for initial discussion. The council will formally approve the 2026-2027 rates in December 2025.