Case Study: Inver Grove Heights, Minn.
Utility rate structures tend to evolve quietly. Categories are added, exceptions are made, and special circumstances are accommodated. Over time, a structure that once felt reasonable can become difficult to explain, administer, or defend. For public works and finance leaders, the question is not whether rates should ever change, but when it is time to step back and evaluate whether the current structure still aligns with system needs and long-term financial sustainability.
Inver Grove Heights, Minnesota offers a useful example. The city’s experience highlights several common signals that indicate it may be time to take a closer look at the utility rate structure.
Was Your System Built for a Different Time?
Many stormwater utilities were created decades ago to establish a dedicated funding source for infrastructure historically supported by general funds. Early rate structures reflected the tools available at the time: limited parcel-level data, manual calculations, and broad assumptions about runoff and system use.
Since then, capabilities have changed significantly. Today, communities can access GIS-based parcel data, high-resolution aerial imagery, and more precise measurements of impervious and pervious surfaces. System modeling and asset management practices have also improved.
In many cases, however, rate structures have not evolved at the same pace. Methodologies designed for simplicity may no longer reflect how runoff is generated, costs are incurred, or how systems operate today. This disconnect is often the quiet trigger for a rate evaluation.
Signal One: Costs are Rising Faster Than Revenue
In Inver Grove Heights, aging infrastructure, evolving regulatory requirements, advancing technology for determining land use, and years of deferred investment created a growing gap between system needs and available funding. While these pressures are familiar across many communities, they often expose underlying weaknesses in existing rate models.
When costs consistently outpace revenue, incremental adjustments are rarely sufficient. A comprehensive rate evaluation helps determine whether revenues align with:
- Lifecycle maintenance and replacement needs
- Regulatory compliance
- Capital improvement planning
- Long-term financial resilience
Signal Two: Complexity Without Clear Rationale
Inver Grove Height’s stormwater utility included more than 200 custom rates across 45 different categories, with limited documentation explaining how or why distinctions were made. Over time, this level of complexity can create administrative burden, equity concerns, and difficulty explaining rates to decision-makers or customers.
A rate study provides an opportunity to assess whether this complexity is still justified, or whether there’s a better way to improve transparency, consistency, and defensibility while maintaining revenue stability.
Signal Three: Significant Changes to the Community
Inver Grove Heights includes both urban and rural development patterns. Some properties are served by curb-and-gutter systems, while others rely on ditches and gravel roads, but the entire community benefits from parks and waterways, connected roads, city services, and proximity to major highways. Although the infrastructure looks different in various neighborhoods, the system functions as a whole.
When land use patterns, growth, or service expectations change, rate structures that once aligned with system impacts may no longer do so. A structured evaluation helps answer key questions:
- Do rate categories reflect how the system operates today?
- Does your rate structure factor in the wholistic community benefits of the utility?
- Has your community seen significant growth or development since the rate structure was implemented?
A Proactive Approach
The City of Inver Grove Heights did not wave a magic wand for an instant fix. What they have now is a roadmap and a plan, backed by data, and customized to their unique situation. This gives them a solid foundation to begin leadership and community conversations to continue providing those essential services often hidden behind the scenes.
When it comes to budgeting and maintenance, a proactive approach is always better than struggling to find a solution amid a crisis situation. If you or your support team struggle when explaining the utility rate structure, or your operational costs are exceeding your utility collections, it may be time to take a closer look. Contact Jacob Strombeck, PE, AE2S Nexus Practice Leader, if you’d like more information about the rate study process.