St. Cloud, MN Case Study
Rates Recovery
St. Cloud, MN is a growing city that needed a plan to get back on track toward revenue sufficiency. Rate increases over the past decade were virtually non-existent, yet the city required significant capital to update and expand existing infrastructure. City staff were struggling with in-house spreadsheets that weren’t robust enough to serve their needs.
Presented at the Water Finance Conference
Customer since 2018 | Population: 68,000
CHALLENGES
The city of St. Cloud, Minnesota, needed $70 million to be compliant with new state regulations, and to meet the need of its fast-growing population. But, they’d only raised rates by 33 cents over the previous 10 years.
SOLUTION
In its first year of using Waterworth, St. Cloud developed a schedule of rate increases and financing that would generate the total necessary funding to support their growth, while remaining compliant with state regulation.
BENEFITS
• Financing plan which ensures compliance with upcoming state regulations.
• Clear, realistic path toward revenue sufficiency and equitable rates.
• Better understanding of key issues by council members, and increased trust through the credibility of Waterworth.
• 5-year schedule of rate increases.
SNAPSHOT: ST. CLOUD’S NEEDS
St. Cloud is a growing metropolitan community of about 68,000 located about an hour north of the Minneapolis/St. Paul area. St. Cloud’s needs came in three parts: First, the city had grown quickly in recent years, but faced geological complexities in providing water to these new areas. St. Cloud needed $30 million to build new infrastructure, plus a new rate structure to equitably account for the change in usage. Second, St. Cloud needed a $40-million facility upgrade to meet pending state regulations in drinking water treatment. Third, the State of Minnesota mandated the implementation of a conservation rate structure, which the city’s current billing software could not support.
Compounding the problem, the city had issued rate increases of less than one percent over the prior decade — equivalent to 33 cents per unit (1 unit = 748 gallons). St. Cloud needed $70 million over 10 years to get itself back on track.
HOW WATERWORTH HELPED
With Waterworth’s professional support, St. Cloud staff developed several different options of rate increases and debt financing. “That was the fun part!” recalls Lisa Vollbrecht, St. Cloud assistant public utilities director. Staff immediately saw value in Waterworth, especially compared to the in-house spreadsheets they had been using, which had degraded over time after continual updates. “[Waterworth] is super easy to use. Once you press calibrate or go and it makes the graph, you’re like, Yeah!” Vollbrecht says. “I couldn’t make a spreadsheet do that to save my life.”
Using Waterworth’s simple, powerful graphics, St. Cloud staff created and presented the following scenarios to council:
Option A focused on meeting infrastructure needs only, proposing an initial rate increase of 0.6 percent, followed by 25 cent increases for five years, and an infrastructure bond in 2023. However, this would not meet the new water treatment regulations.
Option B acquired funding using a phased approach. This proposed an 8 percent rate increase the first year and 25 cent increases for five years after, as well as an improvement bond in 2019, followed by an infrastructure bond in 2023.
Option C generated funding by 2020, in the form of an initial rate increase of 16 percent and an improvement bond in 2019, followed by 25 cent increases for five years. However, this did not provide for necessary infrastructure expansion.
Option B was also the only one that kept the cash balance in the black. It was the clear winner and this new plan addressed all of the city’s three key needs. Moreover, St. Cloud’s new revenue model ensured that charges were equitable across rate classes, and accounted for projected future growth. “[Previously] our rates weren’t capturing the actual cost of service for drinking water, but we also weren’t capturing our growth,” Vollbrecht says. “I think Waterworth was helpful in showing us what that future growth looks like and how much money needs to go into that.”
St. Cloud’s new rate structure will now allow the city to service a bond that provides the required $70 million in funding over the next 10 years. Guided by Waterworth, Vollbrecht’s team had laid a path toward financial sustainability. Now they just needed approval.
SUPPORT MAKES ALL THE DIFFERENCE
Although Vollbrecht was working with a trusting mayor and finance department, she needed to be able to clearly explain the city’s complex, three-part need. Easy-to-understand visualizations helped facilitate this conversation, making it easy for council to get on board. The St. Cloud utilities department was able to present a systematic approach to achieve what previously had seemed impossible.
Vollbrecht says it was especially helpful to show council the long-term, exponential benefit of using Waterworth, adding that working with Waterworth and creating a five-year schedule of rate increases took the drama out of having the same conversation year after year. “Waterworth painted the picture that it is completely doable, and that it can be done reasonably and equitably,” Vollbrecht says.
Vollbrecht also found the Waterworth team to be highly knowledgeable and easy to communicate with. Always available to problem-solve situations or answer questions, Waterworth worked with Vollbrecht’s team to find the best, most sustainable long-term solution. “It wasn’t like we bought software and just walked away,” Vollbrecht says.
SUMMARY
When St. Cloud signed on with Waterworth, the city had a long way to go. It had state-mandated requirements coming down the pipe, but insufficient cash flow to meet them. Now the city has a plan to achieve its financial and conservation goals over 10 years, and a tool to re-evaluate as circumstances change.
“It surprises me that every utility in Minnesota does not use Waterworth,” Vollbrecht says. “It’s super easy. I feel like we’re much further ahead because we do use it.”