City delays setting new utility rates, discussing how to fund infrastructure for development
City staff walked City Commissioners through their annual review of water, sewer and stormwater systems during their April 1 work session.
Staff annually reviews the program’s resources and needs to determine if rate adjustments are needed.
In recent years, staff has reviewed the utility systems and rates with commissioner in the spring to then conduct the public hearings and have new rates in place for the budget, which begins July 1.
Water, sewer and stormwater are enterprise funds intended to cover their expenses with user fees. The city has also used various state and federal funding sources, as well as its own tax increment financing program, to help cover the cost of significant infrastructure improvements.
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During the meeting, Jake McKenna, utilities division manager, and Cody McRady, water plant branch manager, said that they weren’t proposing multiyear rate increases since they’ll be doing a water rate study soon and will use that to inform consideration of rate adjustments.
Staff has said in multiple meetings in recent years and again on April 1 that the city’s water, sewer and stormwater infrastructure has an estimated $2 billion replacement value.
Changes in federal regulations have required upgrades to the system, driving some cost increases.
Going into the next budget year, staff said other budget drivers include the end of federal COVID relief funds; high electricity costs; collective bargaining for employees within these divisions; chemical cost increases; the potential impact of tariffs to equipment, parts, lab supplies; and roughly $8.5 million in deferred capital investment due to the city not raising fees for three years during COVID.
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Tariffs could impact the overall water, sewer and stormwater infrastructure, “that’s an unknown right now,” said Chris Gaub, city public works director.
Gaub said they’re also awaiting bids on chemicals that are required for water and wastewater treatment and hoping the costs haven’t increased as much as they did in recent years.
Development is also increasing costs to the city as expanded infrastructure is needed; aging infrastructure versus new infrastructure requirements; the potential impact of Calumet’s expansion and pretreatment requirements; and the BNSF proposal to close the crossing at 4th Street Northeast, near the wastewater treatment plant and West Bank Park.
The 4th Street crossing is an “unknown” since the city doesn’t have a definitive plan from BNSF/Calumet and who will pay for what, staff said.
Revenues aren’t meeting expenses for the water, sewer and stormwater divisions.
Staff said that if expenses were to remain the same, they’d need a 30 percent rate increase for water to cover expenses.
To account for expected cost increases in the water system, the city would need to raise the water rate by 36 percent, staff said.
That rate increase within one year is “unrealistic,” Gaub said, and it “will take time to dig out of this.”
Based on a regional utility rate study completed by AE2S for the city, its rates remain low and the 2024 rate was about the same as the regional average from 2012 at $26.28.
The city’s typical monthly residential water bill in 2024 was $26.78, according to city data and was the lowest of the major Montana cities.
Staff is proposing 10 percent rate increases for residential and commercial users for each water, sewer and stormwater, which would be a monthly increase of $6.04 on the average residential utility bill, according to city staff.
That increase would generate about $1.7 million in additional revenue for those three divisions and would allow for continued operations, about $5.3 million the required $11.1 million of sustaining capital improvements, about $5.8 million additional debt or deferred capital and cover employee salaries and benefits.
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It would also mean less sewer main lining, less water main replacement, less storm drain infrastructure added and doesn’t subsidize development, plus defers capital improvements.
City Manager Greg Doyon said that the city’s infrastructure capabilities was something for commissioners to keep in mind in terms of development since developers often ask whether the city can contribute toward extending or upsizing infrastructure for their projects.
Doyon said that there’s sometimes an expectation from developers that the city would cover that cost.
Commissioner Suran Wolff said that they didn’t want to increase rates beyond what was necessary and that the city is “frugal.”
She said that when she lived in Oregon, their utility rates increased significantly because the community still had wooden water mains.
Wolff said city staff’s proposal wasn’t that bad and “I don’t think we should be afraid of that.”
McKenna told commissioners that they work to replace about 25 blocs of water main replacement annually, to cut down on water main breaks that can be disruptive and costly. In the current fiscal year, they’ve only been able to do nine blocks so far.
The city tracks the number of water main breaks that occur annually and 1996 was a high point with 122 breaks.
McKenna said they don’t want to see that number again.
In 2024, there were 25 breaks. The lowest number of breaks since 1984 was 2023 with 21 breaks, according to city data.
The number of breaks has trended downward as the city worked to upgrade those mains.
McKenna said the city did about the same number of main replacements in 2024 as in 2020, of 0.74 miles, and the cost was about double, rising from $174,507 to $321,836.
There were two large main repairs with costs outside the normal range, according to the city, including the significant break last summer in the Skyline/Riverview area that required the city to issue a boil order.
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The total cost of that repair is not yet known and staff said there’s about $100,000 in sidewalk repairs remaining.
Staff are proposing to increase the cost of water main taps by 5 percent in effort to be development friendly but helping cover costs of parts, equipment and labor.
Gaub said the city is planning to hire a consultant to conduct a water master plan over the next year, which will help evaluate rates and the northside river crossing.
The city is wrapping up its stormwater master plan this fall and staff said the discussion will be who pays for future development needs.
Wolff said that she appreciates the concept of investment is the best prevention.
She said she thought people would be interested in knowing how many stormwater retention ponds are in the city since, “people are not aware when they’re driving by what these look like, because they’re not ponds.”
Wolff said the city should also do a better job talking about what it takes to have clean water and what public works employees do.
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“They just take it for granted, they don’t know all this information,” Wolff said.
Commissioner Rick Tryon asked if the water master plan was done in house or contracted, to which Jesse Patton, city engineer, said it would be contracted.
Tryon asked if the water and stormwater master plans could be combined, to which McKenna said they’re always separate plans as they’re separate utilities.
Tryon asked if the significant decline in water main breaks was due to better maintenance, which staff said it was.
Gaub said if they had 122 water main breaks now, it would be very difficult for the city to make those repairs in house with staff vacancies and would likely have to call in contractors.
Tryon said staff was impressive and “we’re fortunate to have that level of expertise in this very important work that you guys are doing.”
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He said that the water system is like the blood system of a human and “you don’t have a community without it. We all just take for granted” the water system.
Tryon said that he was sorry they sometimes had to raise utility rates, but was struck by how Great Falls remained among the lowest rates regionally.
“For the level of service we get, we’re getting a good deal,” Tryon said.
Doyon said that staff had “just floated a big balloon” of what’s coming our way in terms of infrastructure costs and developers expecting the city to pay for infrastructure extensions.
Doyon said the city is currently trying to do regular maintenance, keep up with regulatory requirements and then consider large development installation.
He said when the city is asked, it’s a “big scramble” to answer questions about the city’s infrastructure capabilities if the Great Falls Development Alliance is working to recruit a major industry or business.
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Doyon said the city wants growth, but balancing that against existing infrastructure in a community “acutely sensitive” to rates is the challenge.
He asked commissioners if they want ratepayers subsidizing private development to accommodate development at the rate some people want.
Doyon said the city has a small margin for accommodating new development.
On one hand, having cheap utility rates makes the city attractive, “but we’re knitting together a fragile system.”
Doyon said he was “communicating loudly” to the commission that requests will be coming for the city pay to for infrastructure for development, but they need to keep that in mind while looking at rates.
Mayor Cory Reeves asked no questions of staff during their presentation on their utility rate increase proposal, but after Doyon gave further remarks on the potential impact of future development and how to fund infrastructure, he asked what other cities were doing and what the standards are.
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Doyon said that when the city first started working on projects to fund with ARPA dollars, there were discussions on potentially investing in infrastructure, but it became clear quickly that they couldn’t use that funding for such a project.
He said that the resiliency study the city is conducting with Malmstrom Air Force Base currently was a way to collaborate.
In response to Reeves comment, he said other communities might have more available funding and “we’re not growing fast enough to do impact fees here yet.”
Bozeman uses those fees to manage fast growth, Doyon said, and every community approaches infrastructure needs for development differently. The city will likely have to do things differently to handle the level of development people want to see in the future.
Commissioners gave no further guidance on staff’s proposal for water, sewer and stormwater rate increases.
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Staff’s proposed schedule included commissioners setting a public hearing during their April 1 meeting for May 6 for rates to take effect on June 1, and be included in the city’s budget for the upcoming fiscal year that is already in development.
During the regular meeting, when commissioners were asked to set the public hearing on utility rates for May 6, Reeves said they’d had a good discussion but thought they have some significant capital needs and potential future development so they needed to have further discussion.
He said they’d probably need to set a special meeting to keep that process moving.
Other commissioners nodded or said that was fine but offered no further comment on the delay.
As of April 13, no special meeting has been set and no further action on the rates has been scheduled, Doyon told The Electric. The commission agenda for April 15 do not include further discussion of the utility rates.
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Doyon told The Electric that he thought commissioners paused after the April 1 work session when they realized that “the city is not well-positioned to facilitate growth and development initiatives when new infrastructure is required.”
He said staff would review the rate structure again to see if there are options available that commissioners may want to consider when addressing future development such as what options are available and reasonable when setting utility rates; how can the city maintain affordable rates while encouraging development of new infrastructure to grow the community’s tax base; how can the city be better at attracting new commercial development, manufacturing and industry.
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Doyon said that attracting new development is difficult when infrastructure isn’t readily available and in most cases, new infrastructure has been driven by private development.
Doyon said the answer to slow growth in the city may be the city’s tactics and investment in water, sewer, stormwater and streets.
The question of infrastructure needs and its relation to new development is not a new conversation for the city.
In 2017, commissioners awarded a $137,313 contract to Advanced Engineering and Environmental Services, Inc., or AE2S, for a utility study to evaluate current and future costs, comparing those to industry standards for the state and region.
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City officials have said this study on water and sewer costs of service is necessary to evaluate current and future costs and compare them to industry standards for Montana and the region.
In 2018, Doyon said the public works department does a good job keeping commissioners informed on the rate adjustments and why they’re needed.
Utilities is one of the ways the city deals with economic development, Doyon said at the time.
In 2022, staff presented several proposals to incentivize working with the city, decreasing the cost of homebuilding in Great Falls and using federal COVID relief funds to offset those costs.
Former Mayor Bob Kelly requested the proposals, which were discussed in the summer of 2022.
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Those included creating a fund to subsidize permit costs on a project by project basis; expanding water treatment facilities on the north side; and expanding infrastructure to the imminent NeighborWorks Great Falls development on the southern end of the city.
Those proposals emphasize areas of “identified need, benefit low and moderate income developments and are compliant with ARPA requirements,” according to the 2022 city staff report.
Those proposals would have set aside about $4.2 million of COVID relief funds for several significant infrastructure projects designed to facilitate primarily housing development.
Those proposals did not move forward.
In 2024, Brett Doney of the Great Falls Development Alliance spoke in favor of the utility increases as necessary systems for a functioning community.
In an April 2 Facebook post, Reeves wrote, “Great Falls is at a crossroads. We can continue with modest increases—about 73 cents per month—to maintain our water and sewer systems as they are. Or, we can invest in real growth, improving our infrastructure to support development and opportunity. That would mean an increase of about $10 per month, bringing the total to $36.”
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The 10 percent across the board increases proposed by city staff for water, sewer and infrastructure, would actually be $6.04 for the average residential utility bill, according to figures presented by city staff during the April 1 work session. That would bring the total average monthly utility bill to $66.46.
The proposed 10 percent increase for stormwater alone is 83 cents monthly. A 30 percent increase on stormwater only would be about $2.50, bringing the monthly stormwater fee to about $10.84.
A 30 percent increase, which staff said would be necessary to cover the cost of existing expenses, on all water, sewer and stormwater, would be about $18 per month, bringing the average residential monthly utility bill to about $78.58, based on simple math using figures presented by the city.
From staff’s presentation, “the choice comes down to this: Do we want to simply maintain what we have, or do we want to build for the future? Who pays to increase stormwater pipe capacity on existing
system? Rate payer (directly or debt service) or developer (directly or SID or ?)
Doney, of GFDA, told The Electric that extending utilities, mostly on the edges of the existing system, is a cost consideration for developers.
There are also some issues in areas like downtown, where utilities only exist on one side of the street, so renovating existing buildings requires new service lines, which can cost upwards of $100,000, he said. For those projects, developers have the option to access some downtown tax increment financing funds toward those costs.
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Doney said the city has been making good investments in the water and sewer systems, but “we need to see that same level of investment in the stormwater system.”
He said GFDA would like to see the city be more aggressive in catching up on the existing stormwater system, particularly on the east side of the city.
Stormwater infrastructure in particular has held back some significant private development in recent years, Doney said, for a mix residential, commercial and industrial projects.
City officials didn’t discuss during their April 1 meeting staff’s proposal to purchase 3.23 acres at 5200 2nd Ave. N. that is in the county with commercial zoning for $374,000 for a regional stormwater pond.
The purchase request is on the commission’s April 15 agenda and would be funded through the stormwater utility fund.
Staff is recommending the purchase to help alleviate the stormwater capacity issues identified in that area and support future development, and is also an ideal spot for a future sanitary sewer lift station to serve the area, according to the city staff report.
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The parcel currently functions as an existing stormwater detention pond and the Montana Department of Transportation owns and operates an existing stormwater lift station, which pumps water from the pond into the city’s stormwater system near Loy Elementary School, according to the city.
Modeling in the upcoming stormwater master plan shows “significant flooding and full pipe capacity issues in these nearby storm mains, especially on 3rd Avenue South. Flows from these areas could be rerouted to this pond via new storm mains and alleviate the capacity issues,” according to staff, as well as reduce the impact to pipe networks.
The parcel could support an estimated pond volume of 500,000 cubic feet, according to staff.
Undeveloped properties between 57th Street South and Malmstrom, between Loy and the east side Walmart, could potentially drain to this parcel and it could be used to accommodate stormwater from future developments in the area.
The city may be able to recoup some of the infrastructure costs based on a future development’s proportional use.
Commissioners could to reject the purchase and direct staff to consider other options or maintain the status quo.
“If that were the case, it may become more difficult to acquire land for future improvement of a pond at this location. If status quo is maintained, the city would continue to face challenges with managing the existing storm sewer capacity issues. Development in these areas may continue to have costs or restrictions associated with discharging into the existing storm main network,” according to the staff report.
Housing, and construction, costs are continuing to rise, so Doney said if more housing isn’t built, costs will continue to rise for local residents.
GFDA has been pushing infill development since there’s existing infrastructure and it doesn’t add more strain to public safety resources, but some development will need more space and need to go on the fringes of the city, which will require expensive service line extensions.
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Doney said GFDA has testified in recent years in support of steady increases since the city doesn’t have enough resources to subsidize utility systems.
“It’s better to have smaller increases each year rather than go for a long period of time and have a huge jump,” Doney said of utility rates. “It’s much better, I think, for everyone to have robust reliable systems.”
Doney said he wouldn’t recommend that the city build infrastructure in the hopes that development would come since that wouldn’t foster development and “you haven’t achieved anything other than created a windfall for that landowner.”
But, if the city had some resources available to share costs with developers for infrastructure, it could negotiate better cost sharing agreements that would benefit both the city and the developer.
On the east side, GFDA is awaiting word from a manufacturing company considering a Great Falls location that would be at about 200 acres in the Agri-Tech Park, on the east side next to Malmstrom Air Force Base.
If selected, the would be land use decisions would come before the City Commission for consideration.
Jolene Schalper, GFDA vice president, told commissioners in October that she can’t disclose the name or details of the company, but that if Great Falls is selected, it would be a $1.1 billion capital improvement with about 300 jobs of which the lowest wage is about $55,000.
The project has been dubbed Project Falcon.
During the October commission work session, Brock Cherry, city planning director, said that the city may need to hire consultants to help navigate the large project and that staff wanted commissioners to be aware of the magnitude of the project.
Schalper said the potential project highlights the importance of public infrastructure and that the Berkshire Hathaway projects were a component since the manufacturing company would need power resources.
GFDA owns a large amount of land in the Agri-Tech Park on the east side, near Malmstrom Air Force Base, and works to fill those lots.
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Admiral Beverage is moving forward to construct a 100,000 warehouse on the 22-acre lot they purchased from GFDA last year.
GFDA held $80,000 from the land sale for the private sewer line GFDA is helping fund.
The city and Montana Department of Environmental Quality also approved water, sewer and road improvements for the northern portion of 67th Street North that would open up lots 7, 8, 9 and 10, all owned by GFDA, for companies.
GFDA submitted a grant application to the U.S. Economic Development Administration seeking 60 percent of the estimated $1.62 million cost and is continuing to work with the city to extend the tax increment financing district in that area to help recover infrastructure costs.
GFDA also submitted a funding request to the Montana congressional delegation for 75 percent of the cost to extend 18th Avenue North eastward covering the 42 acres GFDA has put under option to purchase, which would end at the entrance to the more than 500 acres another prospect has put under option.
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