Ephraim water, sewer running in the red – Rate increases are the answer, utility consultants say

EPHRAIM—Both the water and sewer systems in Ephraim are running in red, and substantial rate increases will be required to fix the problem, according to two consultants who analyzed finances of the two utilities.

Rita Trick and Chad Busch, both small utility consultants with the nonprofit Rural Community Assistance Corporation of Sacramento, presented their somewhat alarming findings to the Ephraim City Council March 18.

Trick took an in-depth look at culinary water while Busch analyzed the sewer system.

Both systems have accumulated healthy reserves, the consultants reported. The problem is that revenue coming in from rate payers does not cover the day-to-day operating costs of the system, so the city is dipping into reserves to make up the differences.

This comes at a time, they said, when based on the ages of the systems, it is more important than ever to have cash on hand to cover debt payments on past projects, emergencies, and capital needs such as replacement of a water tank or putting in a network of new sewer pipes.

Is the water system paying its bills? Trick asked. Her answer: “No. Not only are you not saving toward your reserves, you’re using your reserves to pay your bills.”

In recent years, Ephraim has been successful at bringing in state and federal grants and low-interest loans. But the grant environment is changing, Busch warned.

“The state is going to be requiring municipalities to put more into reserves. Some of the federal funding that has been mixed with state funds has gone away.”

Bryan Kimball, director of community development and city engineer, said the reason for bringing in the California consultants was that “we wanted to take a look at what is the reality facing us….We’ve been looking at this internally as a staff—public works, finance, city manager….Mostly we wanted to bring it in front of the council and help everybody get a sense of what we’re looking at going forward.”

For her analysis of the water system, Trick presented tables showing estimated revenue coming in from rate payers, and money going out for operating and administrative costs in 2025-2026 (the fiscal year ending in June 2026). She added $240,000 to the cost column, the amount she calculated that the system needs to put into reserves each year.

With those numbers as the base, she assumed 4 percent inflation per year plus 1 percent population growth, and calculated revenue and expenses though 2029-30.

That analysis produced minus numbers for every year. For instance, in 2025-26, the city expects to bring in approximately $1.46 million from customer payments and some other minor sources. But it will cost $1.76 million to deliver water to customers and put money into reserves. That translates to a deficit of $328,00.

Those projected deficits generally get bigger as the years pass. In 2027-28, the projected shortfall is $380,000. Based on the projections, by 2029-30, the system will be $452,000 short of what it needs to cover its costs. For the five years from 2025-26 to 2029-30, cumulative projected losses come to $1,857,000. (See Table 1.)

Currently, the base rate for Ephraim residents is $30 per month for the first 7,000 gallons. Households using more than 7,000 gallons pay an additional $1.87 to $2.67 per 1,000 gallons.

Households on the outskirts of the city who get their water from the city pay $45 for the first 7,000 gallons. When they exceed 7,000 gallons, they pay $2.82 to $4.01 per 1,000 gallons for the overage.

Trick calculated how the culinary system would come out if rates were raised 10 percent per year for the next five years. The base rate for residents would go to $33 per month in the first year and increase to $48.32 per month in Year 5. For non-residents, the base rate would go to $49.50 per month in the first year and climb to $72.47 per month by the fifth year.

But a revenue-and-expense table showed 10 percent would not work at all. Trick’s projections showed expenses would exceed revenue every year for five years. The city would not be able to fully fund reserves in any year.

Trick looked at the option of raising rates 22 percent per year. That plan was better but not optimal. The city would have positive cash flow in the first three years but go into the minus in the last two. Over five years, Trick projected a loss of $100,000—a small loss compared to the scale of the system.

With 22 percent rate increases per year, the city would not be able to put any cash into reserves the first year. It the next two years, it could partially fund reserves. In the final two years, it could fund the full recommended amount.

Trick’s recommendation was to raise rates both in and out of the city by 57 percent as soon as possible and keep them there. The base rate for residents would go from $30 to $47. For users outside the city, the rate would go from $45 to $70.50.

“Implementing those increases brings five-year operating expenses into the black and covers the recommended contribution to reserves,” she said.

Over five years, Trick projected, those rates would bring in $9.32 million, generate $167,000 more than expenses, and generate an average of $274,000 per year for reserves. (See Table 2)

And the $17 increase for residents and $25.50 for non-residents is not that bad, the consultant said. Federal guidelines say culinary water should cost up to 2.5 percent of the median household income in the jurisdiction a system serves. For city residents, a charge of $47 per month comes to 1.31 percent of median household income.

Likewise, Busch based his analysis on five years, this time years ending in 2027 to 2031. As with the water system, his analysis showed the sewer system firmly stuck in minuses.

According to his projections, as things now stand, revenue falls short of expenses every year. For instance, in 2026-27, projected revenue is $1.17 million while expenses come to $1.33 million. Over five years, while projected revenue grows (possibly due to population increase), Busch’s projections show the gap between revenue and expenses getting bigger every year. In 2028-29, the system is $321,948 in the hole. In 2030-31, the shortfall is $432,776.

Busch said the Ephraim sewer account currently has $1.5 million in cash. His projections, based on current conditions, anticipate use of the cash to cover the annual deficits. By the end of five years, the savings are gone. In the final year, the city was $73,000 short of what it needed to cover the shortage for that year.

For the most part, Ephraim does not provide sewer services outside the city. The base rate for residents is $33 per month. Busch presented two scenarios, both of which he said were viable.

One was to raise the base rate from $33 to $42 per month over five years. Under that scenario, the city would plan to use $140,000 out of reserves to subsidize the system. But because the city has $1.5 million in cash now, at the end of five years, it would still have $175,000 in the bank, the recommended level of ongoing reserves.

The other scenario, Busch’s preferred scenario, calls for an approximately16 percent rate increase the first year, and increases ranging from 1 to 6.4 percent after that, bringing the final rate to $46.25.

That table has no minuses. “Projections show revenue and expenses will stay balanced,” he said. (The plan) “meets the reserve goal of $1.75 million by 2031.”

And based on federal guidelines, rate the increases under his preferred scenario are affordable. The guidelines say residents should expect to pay up to 1 percent of median household income for sewer services. In the final and highest year, rates would come out at 0.79 percent of household income.

Under preferred scenarios proposed by the two consultants, base charges for water and sewer combined for Ephraim residents would rise from $63 presently to $94.

One council member asked Jeff Jensen, director of public works, how his department has been getting by. “Primarily, we’ve put off projects,” he said. “We do not build our reserves to replace emergency funds. That is where the big chunk of subsidization comes from.”

He said his department has been getting by, “but we aren’t funding our system the way it should be funded to handle emergencies.” That has become a bigger issue, he said, as prices on materials have risen sharply.

“We’ve held off on rate increases for a long time,” Kimball said. “…But at some time, we have to make sure that our system is functional.”