California is requiring residents to cut back on consumption of potable water because of the severe drought, but costs to treat water to make it drinkable are fixed and can’t be reduced, Benicia City Council heard Tuesday night.

Even a recent rate increase and emergency drought surcharge aren’t replenishing losses to the city water and wastewater funds, city employees said, advising that future rate increases need to be considered.

But one resident said raising rates would be like punishing those who have cut back in compliance with city and state mandates.

Without additional revenue, however, the reserves in those two funds will be depleted, according to a staff report.

Finance Director Karin Schnaider, in her second presentation on the proposed 2015-17 city budget, reminded the Council that the General Fund, the city’s operating account that accounts for 54 percent of the budget, was covered previously.

Tuesday night, she focused on the funds that make up the balance. Water accounts for 15 percent of the budget; wastewater, another 13 percent; internal services, 8 percent; and other funds combined make up 10 percent.

The city expects to take in $63,400,000 in Fiscal Year 2015-16, but its expenditures that year are anticipated to reach $66,723,000. The next fiscal year, the city should get $60,733,000 in revenues but spend $62,568,000, Schnaider said.

Both the water and wastewater accounts, as enterprise funds, are supposed to operate like a business. Revenues are expected to cover the costs of providing the public services.

Much of the working capital reserves in those funds have come from earlier developments, Schnaider said, as Benicia experienced only moderate development in the past 10 years.

By the end of Fiscal Year 2016-17, the Wastewater Fund reserves will drop to $7.6 million, she said; by the same date the Water Fund reserves will be less than $1 million. Beyond that, reserves could disappear unless some corrective action is taken.

That decline will happen despite the rate increase and drought surcharge, Schnaider said.

Residential wastewater customers pay a flat rate; commercial customer rates are a blend of flat rates and usage fees, she said, and “For the last three years, revenues have not been sufficient to fund any major capital, and no capital was planned during the last rate increase.”

No capital improvement projects are planned during the next two years, either, she told the Council, even though the 2010 Sewer Master Plan calls for improvements to the wastewater collection system and treatment plant that would cost $19.1 million if done during the next 10 years.

That price tag grows to $37.5 million if work is delayed to the next 20 years, Schnaider said.

The water fund’s revenues depend on usage — 60 percent of the rates are fixed revenues and the balance are variable revenues, Schnaider said. But more than 90 percent of the expenses are fixed, giving the city no chance to reduce costs.

Though the capital needs of the city water operations would be $7.8 million during the next 10 years, growing to $17.5 million if the work is delayed, the current rate increase would pay only for deferred maintenance projects, Schnaider said.

If any of the needed projects are to be built, water rates will need to be increased again, Schnaider said.

The drought hasn’t helped. Benicia spent an unbudgeted $900,000 last year for 4,000 acre-feet of water after the State Water Project limited the city’s allocation to 5 percent of its contract. By making other adjustments, city employees have tried to assure that customers should have enough water through the end of 2016.

But there are no guarantees the drought will be over by then, Schnauder reminded the Council.

And even after the rains come, she said, consumers aren’t likely to return to pre-drought consumption levels. For one thing, in addition to changing wasteful water habits, many residents and commercial customers have taken advantage of rebates that helped them buy water-saving appliances and bathroom fixtures.

They also have ripped out lawns, spurred by a “cash for grass” replacement rebate, and have changed landscaping to more drought-tolerant plantings, Schnaider noted.

But that means water sales revenues won’t bounce back to pre-drought levels, either, she said.

“As people conserve, we lose more revenue,” Schnaider said. Those losses are outpacing use reduction.

For instance, Benicia customers reached the initial goal, suggested but not mandated by Gov. Jerry Brown, of cutting back 20 percent. But the city experienced a 25-percent drop in revenues as a result.

The California Water Resources Control Board has told Benicia it must increase its conservation efforts, from the original 20 percent to a new level of 28 percent, or face stiff fines.

When water customers meet the new goal, the city’s revenue loss is expected to be 33 percent, Schnaider said.

“We believe the changes are permanent. The landscape is changing in Benicia,” she said, advising the Council to consider how new practices and habits will affect the city’s finances.

In fact, the topic is so important, city employees will be raising the matter with the Council once the new two-year budget is in place, she said. That needs to be done no later than June 30.

Rather than delve deeply into solving the enterprise funds’ problems Tuesday night, Schnaider said city employees will present a 10-year forecast and suggestions for Council consideration early in July.