Wastewater service is getting more expensive in Newport Beach, but residential customers won't pay more out of their pockets 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."
The City Council voted 4 to 3 on Tuesday night to approve a proposal to roughly double wastewater rates over a five-year period. Typical homeowners will see their bills rise by as much as $2.14 per month beginning in March.
However, Mayor Diane Dixon introduced — and the council approved — a program that will give each residential customer a one-time rebate of about $55 to cover the cost of the rate increase for three years.
Council members Marshall "Duffy" Duffield, Kevin Muldoon and Scott Peotter voted against the rate increase.
"This money is not our money," Muldoon said. "It's better to give it to the ratepayer than have it be wastefully spent by the city."
In the council's 5 to 2 vote for the rebate, members Ed Selich and Keith Curry dissented, calling Dixon's proposal financially irresponsible.
"Here out of the blue we're proposing to take $1.7 million out of the general fund and just give it away," Curry said. "It is fiscally irresponsible to manage our finances this way."
Dixon said the idea is 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. General fund revenue for the 2014-15 fiscal year was $185.9 million — $4.4 million more than expected and $11.9 million higher than the city brought in during fiscal 2013-14.
"I felt that this was something that would be felt in the residents' pocketbook," Dixon said. "Given the amount we have in surplus, I figured why not do something to give back to people in some way."
Last fiscal year, the city allocated money from the surplus to one-time capital improvement projects and to help pay down the city's unfunded pension liability. Dixon said some of the surplus likely will be used for similar efforts.
The rebate probably will be issued in March, according to George Murdoch, the city's general manager for utilities.
A typical single-family home in Newport currently pays about $9.75 per month for wastewater service. The rate increase will mean the same home will pay $11.89 per month beginning in March and for the rest of 2016. The monthly rate for most customers will increase to $13.16 in 2017, $14.64 in 2018, $16.21 in 2019 and $18.02 in 2020.
Murdoch said the city does not plan to increase rates again immediately after 2020.
The additional wastewater revenue is necessary for the city to improve its aging water system, Murdoch said. That revenue does not go to the general fund but rather to a separate fund for water-related maintenance and improvements.
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 indicated 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.
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, Murdoch said. The city Finance Committee recently looked at outsourcing more water-related services but decided it wouldn't be cost-effective.
The city's wastewater master plan recommended the council approve a wastewater rate increase in 2009. However, the council at the time did not increase the rates, partly because of the recession, officials said.