City Council approved new water rates that will bring an increase of 10 percent later this year, in addition to passing a $1.4-million bond ordinance to begin the first phase of upgrades to the water treatment plant.

The governing body adopted the measures by a 7-0 vote (with two council members absent) during a short special meeting last night. The City Council was briefed on the water treatment plant and options to address water capacity during a presentation at its last meeting Aug. 12. Ordinance O-39-13 sets the new water rates by Oct. 1 while Ordinance O-34-13 borrows $1.4 million to cover some design and engineering costs in addition to some immediate repairs and upgrades.

Half of the $16.6-million upgrades will be financed interest-free through the New Jersey Environmental Infrastructure Trust and about $8.5 million will be financed at market rates, likely over 20 years. The City Council will have to approve a bond ordinance in the future to borrow the $8.5 million. Annual debt service of about $1 million over 20 years will be paid off with the help of the increased water rates while scheduled payments decline on the back end of the 20-year lease of the water utility to United Water.

This latest rate increase also is expected to make the water utility self-liquidating after several years of bridging deficits through the city budget. The average water rate is now up almost 27 percent since the council approved increases in November 2011 (O-30-11) and February 2013 (O-11-13), and now O-39-13.

The average homeowner in Rahway is expected to see their water bill increase by about $40 per year, from an average $432 to $472 (or $10 per quarter, from $108 to $118).