Memorandum 16-107 Water and Sewer Rates

Memorandum 16-107

TO:                       Honorable Mayor Wythe and Homer City Council

FROM:                 Katie Koester, City Manager

DATE:                  June 8, 2016

SUBJECT:         Resolution 16-063: Water Sewer Rates

The purpose of this memo is to provide information on sewer rates in Kachemak City for Council’s consideration of Resolution 16-063, setting water and sewer rates for July 1, 2016 through June 30, 2017.

How much water does the average residential Homer customer use? 3,000 gallons a month (after removing low usage outliers)

City of Homer had approximately 265 residential customers who consume less than 1,000 gallons per month in 2015.
1,034 residential customers consume between 1,000 to 10,000 gallons per month, with an average of 2,976 gallons per month.
Among the above 1,034 customers, 667 of them consume between 2,000 to 8,000 gallons per month, on average of 3,556 gallons per month.

Right now the City of Homer bills Kachemak City as if each customer uses 3,500 gallons of water. Kachemak City has argued that their users are more conservative than this average given that households, for the most part, use hauled water.

How much would the system lose if we reduced the per gallon charge to Kachemak City Households to 3,000 gallons? $17,000

Excluding customers who consume on average less than 1,000 gallons per month (such as seasonal households), the average residential water usage in Homer is approximately 3,000 gallons per month. If Resolution 16-063 reduces the average water usage number for Kachemak City to 3,000 gallons, it will reduce revenue to the Sewer system by $17,000. There are 1,774 billed customers (excluding non-metered Kachemak City residents).* If you were to spread the $17,000 equally  among those users, it would be a cost of just under $10 annually per billed customer, or just over a 1% increase in sewer rates. However, there is a surplus in the utility fund for 2015, though it is 50% under target that Council set last year for sewer reserves.

Does Kachemak City pay City of Homer sales tax? No – but they may be required to in the future.

The City of Homer bills Kachemak City in one lump sum for non-metered customers. In turn, Kachemak City bills each customer and collects KPB sales tax. We bill metered customers (17) directly, but also do not charge City of Homer sales tax. This is based on advice from the Borough that sales tax is charged where the service is rendered. As you may recall from the presentation from Larry Persily with the Borough, this part of tax code – how to charge sales tax when a service is multi-jurisdictional, is very confusing. The Borough Administration is including clarification to that part of code as part of their tax code clean up. Under the proposed language, if the work is performed in two different  jurisdictions (the sewer is pumped in Kachemak City but treated in Homer, for example), 100% of the transaction is taxable at the service provider’s place of business.  For those 17 customers that are metered and we bill directly, we could charge sales tax after the tax code clean up takes effect.

It is more complicated for the approximately 113 customers we bill Kachemak City for as a group, as no sales tax is charged for government to government transactions. However, Kachemak City could include a City of Homer sales tax on the individual invoices it sends out to customers (currently they only include KPB sales tax).  Charging City of Homer sales tax to these customers would result in a little over $5,000 a year in increased sales tax revenue for the City of Homer.

*There are 1,774 “billed” sewer customers which includes Kachemak City.  Kachemak City consists of 113 customers served right now. So, 1,774 billed customers, 1,886 served customers.