2023 financial model update: Water, Wastewater, Solid Waste

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Water and wastewater services are essential to quality of life for all Tempe residents and workers. These services are provided to the public for a fee and not through taxes. This requires the city to analyze existing and future projected costs and revenues to determine if changes to the rates are needed.

In 2023, the City conducted financial model updates for water, wastewater and solid waste services. The update to the models entailed:

reviewing industry inflationary trends from the United States (U.S.) Consumer Price Index – Water and Sewerage Maintenance series and trash collection series, provided by the U.S. Bureau of Labor Statistics and
updating the financial model with revenues and expenses from the most recently completed fiscal year to determine revenue requirements for this fiscal year.

The revenue adjustment (rate increase) recommendation, if adopted, would apply to each water, wastewater and solid waste service provided by the utility and become effective Jan. 1. These financial model updates were completed with the assistance of a contracted third-party financial consultant, Stantec Consulting Services, Inc.

Based on the update, typical residential customers can expect an 8.6% increase in their utility bills, equivalent to $7.32 per month or $87.84 annually, effective Jan. 1.

The 8.6% increase to a typical utility bill is a result of a 14.75% water revenue adjustment, a 6.25% wastewater revenue adjustment and a 5% solid waste revenue adjustment, which are driven primarily by inflation. The stormwater / environmental fee will remain at $3 a month. Links to the Technical memorandums from Stantec Consulting Services, Inc., detailing the analysis performed and recommended revenue adjustments are available in the 2023 Water and Wastewater Financial Model Update and 2023 Solid Waste Financial Model Update.

These rate adjustments are necessary to ensure the financial stability of the utility, which involves covering the costs of providing reliable and high-quality water, wastewater and solid waste services and supporting critical capital improvement projects. The proposed rates represent the utility’s commitment to maintaining competitive rates while ensuring long-term financial sustainability.

Frequently Asked Questions

What services do water and wastewater rates, fees and charges currently fund?

Tempe’s water and wastewater rates, fees and charges are used to provide clean and safe drinking water, collect wastewater for treatment, and replace critical infrastructure. In addition to those primary functions, Tempe’s utility rates also support water resources management including drought management and planning, water conservation including efficiency education and incentives, regulatory compliance with hundreds of local, state and federal requirements, stormwater program management, and more. For all services, visit the Water Utilities webpage.

How do Tempe’s utility rates compare to neighboring municipalities?

How does Tempe’s utility funding work?

What is a rate study? What is a financial model update? How often are they conducted?

The city reviews water and wastewater utility rates and solid waste rates every year to ensure that charges stay current and to prevent large gaps between revenue and expenses. Every two years, the city conducts an extensive water, wastewater, stormwater and solid waste rate study that forecasts revenue and expenses for the next 10 years. This study serves as a snapshot in time of projected future costs to the utility based on past water use and current costs. During non-rate study years, the city conducts a financial model update that reviews the impact of inflation and other trends.

During a rate study, consultants work with city staff to identify the total amount of money a utility must collect from customers to pay all costs associated with providing the services. This process includes identifying all current and estimated future operations, maintenance, programmatic and capital costs over a 10-year period. These costs are examined carefully and are broken down by specific processes or services, so that a relationship can be created between the cost of the service and the user of the service. At the end of the rate study, a report is produced that provides the data, analysis and a recommended rate structure. The goal of the rate study is to identify if any adjustments to rates, fees and charges are needed to maintain the financial stability of the utility.

What Tempe City Council Performance Measures are considered in a rate study?

The 2022 Water, Wastewater and Stormwater Rate Study will align with and support the following City of Tempe Performance Measures:

1.13 – Safe Drinking Water: Continuously meet or exceed Safe Drinking Water Act standards for water quality.

1.27 – Achieve 100% compliance with industry standards related to the replacement or rehabilitation of infrastructure and assets.

2.02 – Customer Service Satisfaction: Achieve satisfaction ratings of “Very Satisfied” or “Satisfied” with the “Quality of Customer Service” greater than or equal to the top 10% of the national benchmark cities as measured in the Community Survey.

4.03 – Water Conservation and Efficiency: Achieve or exceed water conservation and efficiency targets for Single Family, Multifamily and Landscape customer class water use by Fiscal Year 2025/2026.

4.04 – Solid Waste Landfill Diversion: Achieve or exceed Council-adopted solid waste landfill diversion rates by the Fiscal Year 2025/2026.

5.01 – Quality of Business Services: Achieve ratings of "Very Satisfied" or "Satisfied" with the "overall level and quality of business services provided by the City of Tempe" greater than or equal to the national benchmark cities as measured in the Business Survey.

Visit the City of Tempe's Performance Measures webpage for more information.

Does the city make a profit on water and solid waste utility services because they are an enterprise fund?

No. Net revenue, if achieved, remains in the Water and Wastewater and Solid Waste funds to offset future inflation and forecasted capital expenses, mitigate rate increases and maintain sufficient reserves in accordance with the city’s water and wastewater and solid waste fund balance policies. The fund balance is essential to make sure that the Utility will be able to provide uninterrupted service.

Fund balance policies are as follows:

Water/Wastewater

The City shall maintain an unrestricted retained earnings reserve in the Water/Wastewater Enterprise Fund of no less than 25% of current-year operating revenues, plus 2% of the gross book value of the tangible assets of the City's water/wastewater system.

Solid Waste

The City shall maintain an unrestricted retained earning reserve in the Solid Waste Enterprise Fund of no less than 15% of current-year operating revenues.

When and how are water, wastewater and solid waste rates adopted?

Pursuant to A.R.S. Section 9-511.01, water and wastewater rate adjustments must be adopted by the Tempe City Council. The Tempe City Council will vote to adopt a Notice of Intention (NOI) to adjust water and wastewater rates and set a date for a public hearing on the proposed adjustment at least 60 days after the adoption of the NOI. A copy of the NOI will be published one time in a newspaper at least 20 days before the public hearing date. The city will file a written report with information about the new rates with the City Clerk’s Office and post the report on the city website at least 30 days before the public hearing and adoption of rates.

Pursuant to A.R.S. Section 9-499.15, a written report supporting a stormwater / environmental fee will be posted on Tempe’s website at least 60 days before Council votes to approve or disapprove the fee. An NOI to adopt a stormwater / environmental fee will be posted to Tempe’s website and distributed through Tempe’s social media accounts at least 15 days before Council votes.

Are there assistance programs for residents who are experiencing challenges paying for water, wastewater solid waste and stormwater services?

Whom can I call if I have a question about my utility bill or am having difficulty paying my bill?

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City of Tempe, AZ

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