Newport council reverses course, rejects wastewater rate increase

A proposed wastewater rate increase that Newport Beach city leaders voted to support last month is on hold indefinitely.

On a second reading of the ordinance Tuesday night, the City Council voted 4 to 3 to reject the proposal, which would have almost doubled wastewater rates over a five-year period.

City ordinances are required to go before the council for formal votes twice before they can be implemented.

The council’s move also effectively prevents the city from moving forward with a rebate program that would give each residential customer a one-time payment of about $55 to cover the cost of the rate increase for three years.

Residential and commercial water users in Newport Beach are charged on their regular bills for removal and treatment of wastewater, which includes sewage and water from sinks and showers, known as “gray water.”

Council members Ed Selich, Scott Peotter, Kevin Muldoon and Marshall “Duffy” Duffield voted against the rate increase. Selich supported the increase at the council’s Jan. 26 meeting but said Mayor Diane Dixon’s rebate proposal, which would be funded with about $1.7 million from the city general fund, was fiscally irresponsible.

Selich said he changed his vote on the increase Tuesday because it was the only way he could kill the rebate.

“It’s bad public policy to commingle those funds,” he said of the general fund and the sewer enterprise fund, which is used for capital improvement projects.

Dixon said the idea behind the rebate was to use some of the surplus in the general fund, or operating budget, to lift some of the financial burden on residents from the rate increase. The city currently has a $14.2 million operating budget surplus.

A typical single-family home in Newport currently pays about $9.75 per month for wastewater service. The proposed rate increase would have meant the same home would pay $11.89 per month beginning in March and for the rest of 2016. The monthly rate for most customers would have increased to $13.16 in 2017, $14.64 in 2018, $16.21 in 2019 and $18.02 in 2020.

Dixon said after Tuesday’s meeting that she was surprised by Selich’s vote.

“We need to get the sewer rate increase passed,” she said, pointing to the importance of the sewer enterprise fund to pay for repairs that could prevent sewage spills. “And I still would like to return some of the budget surplus to our residents.”

A need for an increase in sewer rates was cited when the city completed its Sewer Master Plan in 2010. The plan identified several capital improvement projects that were necessary to improve the city’s 50-year-old sewer system. However, the council at the time did not increase the rates, partly because of the recession, officials have said.

Since the most recent rate increase in 2005, the city has outsourced various water services and reduced expenditures in the capital improvement program, but it wasn’t enough to stave off a rate increase forever, said George Murdoch, the city’s utilities manager.

In 2013, the city contracted with HF&H, an Irvine-based consulting firm, to study rates for wastewater and recycled-water services. Based on the study, the City Council decided in June 2014 to halve the cost to ratepayers of recycled water.

However, the study concluded that the city needs to bulk up its fund for wastewater service if it wants to pay for system improvements that are expected to cost about $30 million over the next 30 years. HF&H projected the city would have to dip into reserves to fund the projects, which by 2017 could wipe out the $900,000 the city has in wastewater reserves.

Murdoch said staff likely will revise the sewer rate study and get feedback from the council during a study session before moving forward with a new proposal for a rate increase.

The city likely will have to defer some capital improvements such as pipeline repairs and replacement that had been planned this year until funding is available, Murdoch said.

“I want customers to know that they will be receiving the same level of service, even without the rate increase,” he said.