OCEAN CITY – Proposed increases to Ocean City’s water and wastewater rates will advance following a presentation this week.
On Tuesday, NewGen Strategies and Solutions Partner Eric Callocchia presented the Mayor and Council with the results of a five-year water and wastewater rate study. He said the report featured recommended rate increases that would support operations and capital improvements over the coming years.
“We need to operate these systems 24 hours a day,” he said. “How do we do that? By balancing the costs and the burden to your customers.”
Callocchia said his company completed a study of Ocean City’s water and wastewater systems in 2019 and had forecasted operating expenses and capital costs over a five-year period. He noted, however, that the current study showed increases in both.
“So our recommendations last time were reasonable based on the information we had then,” he said. “Our recommendations now are reasonable based on the information we have now.”
Callocchia told officials this week his firm was recommending water rate increases of 7% in fiscal year 2025, 5% in fiscal years 2026 and 2027, and 3% in fiscal years 2028 and 2029. Under wastewater, NewGen recommended rate increases of 5% in fiscal year 2025 and 3% for the years that follow.
“We’re forecasting that these rate increases will result in a sustainable five-year forecast of revenues to support the expense forecast that we developed in the first step in the study.”
Callocchia said under the proposed rate increases, customers can expect to see higher water and wastewater bills. He said the average quarterly bill would increase from $227 to $277 by the end of fiscal year 2029.
“It’s on average $10 per year,” he said. “It’s slightly frontloaded. You can see the first year would be a $15 per quarter increase, $5 a month. And by the end of our forecast, it’s about $8 per quarter.”
Callocchia said the rate study data relied on the town’s operating and maintenance budgets, capital plans, current debt amortization schedules and customer usage, as well as future improvements and minimum recommended reserves.
“We want to make sure we’re not just breaking even, we are putting away some money in our fund balance year to year to protect against rate shock and needing to increase rates,” he said. “So our recommendation is based on two things, 60 days of operating expenses in the bank at all times and 2% of the book value of your assets. Essentially as your asset value grows, we want to make sure we have more in capital reserves to fund the replacement and rehabilitation of those assets.”
Callocchia said under the current water and wastewater rates, with expenses increasing, fund balances would be depleted by fiscal year 2029. He said the new rates would keep water and wastewater fund balances above the recommended minimum requirement.
“Again, this is assuming you adopt those rate increases,” he said.
Councilman John Gehrig noted that under the recommended wastewater rates, the projected fund balance would continue to decline, even though it remains above the minimum requirement. He questioned why the firm hadn’t suggested a larger wastewater rate increase.
Callocchia said a larger increase would have a greater impact on customers. He noted, however, that the recommended increases would keep the fund balance above minimum requirements.
“So in a perspective of both utilities and given the fund balance over that sort of minimum recommendation, we sort of plan to have that increase not quite cash flow positive, but enough to sustain this fund balance over that minimum, over the five years,” he explained.
After further discussion, the council voted 6-0, with Councilman Will Savage absent, to move forward with a resolution on the proposed water and wastewater rate increases.
