The Montecito Sanitary District is proposing an incremental rate increase to address a projected disparity between its revenues and expenses.

In a letter to its roughly 10,000 customers, the special district cited rising operation and maintenance costs and a number of capital improvement projects that cannot currently be sustained with its present, fixed rates, which haven’t been raised in five years.

The district, which handles sewer and wastewater services for unincorporated Montecito, is holding a public hearing on the proposed increase on May 9.

“We look at it every year to see if our rates are fine in comparison to our expenses, and this is the year to do it,” Diane Gabriel, the district’s general manager and district engineer, told Noozhawk.

“If we wait too much longer, we start getting into reserves and then potentially not being able to fund the capital improvement program,” she said.

“And then if you wait too much longer after that, then you can’t even fund your operations. So we’re catching it definitely in time, but we wouldn’t want to wait another year or two — for sure.”

The proposal is the product of the district’s latest study of its revenues and expenses, which determined the proposed rate after considering customer growth, maintenance and operations costs, capital improvement projects, target levels for funds and reserves, and debt obligations.

Currently, a single-family home is assessed $1,080 a year for wastewater services, a fee that is collected annually with customers’ Santa Barbara County property tax bill.

Under the proposed set of rates, which would increase over the next three fiscal years, a single-family home would be charged $1,280 for 2016–2017, $1,380 the following year, and $1,480 after that.

A condominium or second dwelling would see its wastewater service rates rise from its current $510 to $602, $649, and then $696 during 2018–2019.

Commercial properties are charged differently and are based on 100 cubic feet of water use.

Based on low-, medium- and high-strength use, commercial customers pay a fixed charge plus a smaller additional variable charge that is derived from the previous calendar year’s actual water use — all of which are proposed to increase by similar margins to residential rates.

The new rates would go into effect in July and would be collected as a surcharge on this August’s property tax bill, according to Gabriel.

The district’s projected operating revenue for the 2015–2016 fiscal year is $4.52 million, while its projected operating expenses for the year are an estimated $4.16 million — an 8 percent net operating income that has shrunk dramatically the past few years and is projected to fall into the negatives by 2017–2018, according to the wastewater rate study.

Once revenue that doesn’t come from service charges, like property taxes, is added, and expenses unrelated to routine operations, such as capital expenditures, are subtracted, the district’s net income for this fiscal year vanishes to zero.

Residents’ water conservation efforts have been a significant contributor to the district’s lower revenues, as well.

Under the proposed service charges however, net operating income will be back over the target 20 percent margin by the next fiscal year, according to the study.

Much of the district’s expenditures come from capital improvement projects, however.

“Since 2007, we’ve been doing a fairly aggressive capital improvement program,” Gabriel said.

Much of the program deals with the rehabilitation of 1960s-era sewer mains made out of clay, she noted.

Additionally, the district is working on replacing much of its treatment plant infrastructure, preventing tree roots from disrupting pipelines, and expanding its 78 miles of sewer mains into currently unserved areas.

To block the rate increase, a majority of residents would have to file a protest, Gabriel said. Otherwise, a board vote at the public hearing would implement the changes.

The hearing is set for 1:15 p.m. May 9 at Montecito Sanitary District headquarters, 1042 Monte Cristo Lane. Residents are invited to ask questions and express any concerns.

— Noozhawk staff writer Sam Goldman can be reached at sgoldman@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.