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3 Reasons to review your city’s utility rates ASAP

March 27, 2024

by Justin Nilson, CPA

City Utility Rate Analysis

As inflation persists, the cost of providing water and other utility services continues to rise. This creates a predicament for some cities: Enterprise fund reserves dwindle as the list of capital improvements continues to grow.

Regardless of your city’s current situation, it’s critical to regularly analyze its future resources for capital projects. This is where a utility rate analysis can be a proactive approach to planning for the future.

What is a utility rate analysis?

A utility rate analysis is a thorough review of your city’s utility funds cash flows, future capital needs, and the effect of rate adjustments on the funds in the future. The study on your city’s water and utility services could encompass everything from personnel expenditures to citywide indirect costs and potential rate tier changes.

With this insight, you can determine what your city’s rates should be to recover the full cost of providing services while also planning for the future.

Here are three reasons to analyze your city’s utility rates asap.

1. Your city is experiencing negative cash flow.

If you’re seeing a yearly decline in the cash balance of your city’s enterprise funds, it’s likely your rates are not sufficient to cover the utility funds costs. Conducting a utility rate analysis can help you get to the bottom of the issue.

2. Your city has aging infrastructure.

Saving for the future can be a political challenge. However, in most cases, the need to replace or improve deteriorating infrastructure makes it nonnegotiable.

Conducting a utility rate analysis allows you to proactively plan for projects or significant expenditures. The alternative? A reactive approach that could put your city’s project plans in jeopardy and lead to a significant rate hike in the future.

3. You haven’t done a utility rate analysis in a while.

To ensure your city’s rates are sufficient to cover the cost of city services, you should conduct a formal (i.e., in-depth) rate analysis every 3 to 5 years. That said, every city is different. Some cities choose to increase rates without conducting a formal analysis. This approach can be effective to keep up with inflation but likely ignores rising cost and need for infrastructure improvements.

The bottom line: It’s a wise move to regularly assess your city’s utility rates to determine if you need to increase them—and if so, what increase makes the most sense for your city’s future.

Position your city for a prosperous future.

Taking time to conduct a utility rate analysis can allow your city to stay on track despite a changing economic environment. This is where our forward-thinking team of advisors can help.

Depending on your city’s needs, we can review and analyze its utility rates and compare its projected cash flow to projected costs of operations and infrastructure improvements. With our expert guidance, you can make the right decisions to position your city for success—regardless of what tomorrow may bring.

To learn more about how Abdo could provide a clear path for your city, contact us today.


Meet the Expert

Justin Nilson, CPA

Justin enjoys helping local governments create a strategic vision to move forward with confidence.

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