After completing a rate study of the City of Kenai’s water and wastewater services, PBA Consulting’s Principal Bill Wilks recommended the city increase its rates or risk negative cash flow as soon as 2027. No action was taken on the recommendation during the meeting.

It’s important for the city’s water service to be financially healthy, Wilks said. That is, it needs to produce enough revenue to cover operating and maintenance costs while also generating reserves. Also, those rates need to be reasonable to the service being provided the customer.

If the rates are maintained as currently set, negative cash flow is projected by 2027. He said that’s the findings of a preliminary study that leaves out some factors like depreciation of the utility.

“Status quo is one of those things where, if it’s not broke, don’t fix it,” Wilks said. “This shows that if we don’t fix it, it will be broke.”

If nothing is done, the reserves drop “pretty critically down to where it’s just not operating anymore.”

The recommendation, Wilks said, is “a strategy of modest rate increases.” He proposed a 5% hike this year followed by 4% increases each year for the next 10. That model would generate a fund balance for capital reserves directed at improvements or repairs.

There’s flexibility to that plan, he said, and those increases can be evaluated each year to a point where the city feels comfortable. The “sweet spot” is having enough money to take on necessary capital projects without creating rates that are too high.

Council member Deborah Sounart did the math for the 10-year-proposal, finding that if a current rate were $100, it would be $150 by the end of the described decade.

City Manager Terry Eubank told the council that there are ways to leverage debt to spread out payments on improvements — “I don’t think it has to be these 4% increases.” The council also would have to discuss and set the rate every year.

“What this is highlighting is that there is a situation,” he said. “But I think we have the tools and we have the time to start addressing it as a community. I don’t think the sky’s falling, but I think this is a great discussion to have.”

A full recording of the meeting can be found at kenai.city.

Reach reporter Jake Dye at jacob.dye@peninsulaclarion.com.