The City of Miami Beach owns, operates, and maintains a water and sewer utility. The City’s water and sewer utility does not treat its water and sewer. Instead it has long-established agreements with Miami-Dade County to purchase water and transmit sewage at volume rates.

The utility has been notified by the Miami Dade County Water and Sewer Department (WASD) that there will be a $0.1017 increase (3.18%) on the wholesale sanitary sewer rate and a $0.1043 increase (6.17%) on the wholesale water rate beginning October 1, 2020. The City’s water and sewer rates are typically adjusted on October 1 of every year to coincide with the fiscal year and the County’s schedule.

At its March 18, 2020 meeting, the City Commission made a motion to accept the recommendation of the Finance and Economic Resiliency Committee to accept the five-year critical needs capital plan for the City's water and wastewater system, totaling $122.2 million. This approved the use of the $24 million available from bond proceeds and the commencement of a rate study of the water and wastewater utility to determine financial capacity for the water and wastewater work associated with the remaining funding of critical needs. The Public Works Department engaged GovRates, Inc. to conduct the rate study which is now complete.

As was mentioned at the May 8, 2020 meeting, the City is currently negotiating with the bank to reduce the existing interest on debt by refinancing the Series 2009 and the Series 2010 Gulf Breeze Water and Sewer Bonds which should reduce the necessary revenue requirements for debt service.

A preliminary rate hearing is being presented today to the Finance and Economic Resilience Committee. This preliminary hearing will be followed by a rate hearing at the City Commission Meeting on November 18, 2020 for the proposed rates to take effect on January 1, 2021.

As of September 30, 2020, the water and sewer uncollectible account has a balance of $1.6 million representing almost double the amount of the uncollected revenue for the previous fiscal year which may be indicative of customer difficulty in paying utility bills due to worsened economic conditions.

In order to limit changes to the utility’s rate structure and provide stable water and sewer rates through the end of the calendar year, the utility rate structure will remain unchanged until January 1, 2021, foregoing the typical yearly adjustment at the beginning of the fiscal year.

The proposed effective rate increase to finance the five-year critical needs capital plan is 2.4% in 2021 and 2.3% every year after through 2025 (in addition to any pass-through adjustments). Additional details are provided in the below table:

Additionally, wholesale sewer rates will be right-sized, in order to accurately capture the cost of transmission, during the proposed rate increase. As seen in the table below, the wet season and dry season wholesale sewer rates for Town of Surfside, Bay Harbor Islands, and Village of Bal Harbour will be increased 3.6% in Fiscal Year 2021.

The rate increases, which will be implemented annually through Fiscal Year 2025, will fully fund the five-year critical needs capital plan for the City's water and wastewater system – totaling $122.2 million – while maintaining debt service coverage and cash reserves at levels sufficient to maintain the system's creditworthiness. The funding plan assumes: i) the use of the remaining proceeds from the Series 2017 Bonds; ii) the issuance of additional bonds in 2022 to finance approximately $50.2 million of projects; and iii) the refunding of the outstanding Series 2009 and Series 2010 Bonds. The refunding of the existing bonds would provide additional cash flow to fund a portion of the critical capital needs on a pay-as-you-go basis (balanced debt risk). It is estimated that the debt service savings from refinancing the Series 2009 and Series 2010 Bonds using a bank loan, would be approximately $16.5 million through Fiscal Year 2030 (an approximate net present value of $12 million). These numbers are estimated using today's current market conditions and can vary depending on credit availability and general market conditions at the time of the Bond issuance or securing the bank loan. Additional information is provided in the chart below.

[*] The refunding of the existing Series 2009 and 2010 Bonds would provide additional cash flow to fund on a pay-as-you-go basis a portion of the critical capital needs recognized through the Fiscal Year 2024 as well as critical capital needs identified beyond Fiscal Year 2024. Based on preliminary numbers provided by the City's Financial Advisor, debt service savings could potentially total about $16.5 million through the Fiscal Year 2030.

These proposed rate increases reflect the funding of the projects identified in the critical needs capital plan, as adopted by the City Commission. Additional increases may be required if water and sewer improvements are constructed as part of the Jacobs Engineering neighborhood prioritization.

The rate study recommends the following items for the City Commission's consideration:

1. Adopting the proposed monthly water and sewer rates.

2. Passing-through future wholesale rate increases from Miami-Dade County pursuant to the formula contained in the City's Code of Ordinances.

3. Proceeding with the refunding of the Utility's outstanding Series 2009 and Series 2010 Bonds to achieve an estimated $16.5 million in debt service savings through Fiscal Year 2030 (previously approved at FERC on May 8, 2020).

4. Right-sizing the wholesale sewer rates once updated costs of the City's sewer transmission booster stations are available.

5. Continue to monitor the financial position of the Utility system and adjust the financial and rate plan as needed. The long-term effects of COVID-19 as well as changes in economic conditions, customer usage trends, the regulatory environment, capital needs, etc. could significantly affect financial projections.

The Administration recommends holding a rate hearing at the City Commission Meeting, scheduled for November 18, 2020, and proceeding with the aforementioned recommendations; including the recommended rate increases, which will take effect on January 1, 2021 and average 2.3% annually through 2025.