PRWID Considers District Rate Hike
Water users across the Price River Water Improvement District will likely see rate increases within the next two years.
In a board meeting Tuesday, board members directed staff to consult with the districts financial advisers and present a recommended rate increase which the board can then take to the public.
The decision to pursue the possible rate increase comes on the heels of a report presented at the Aug. 15 meeting regarding the districts financial position.
Jason Burningham, one of the principal financial advisers for Lewis, Young, Robertson & Burningham Inc., presented a report which addressed the districts bond obligations in particular and the districts financial status as a whole.
In his review, Burningham told the PRWID board that the district was not meeting certain obligations in connection to some of its bonds.
One of the clearest shortcomings of the district relates to rate increases which had been recommended three years ago by financial advisers.
At that time advisers had recommended an increase of $2.93 to water rates in 2003, with an additional 90 cents in 2004 and $3.20 in 2005.
A projected $200,000 in annual revenue was expected to be generated by the increases suggested three years ago.
However, none of the recommended increases were made and, as a result, the district has slowly narrowed the gap between revenue and expenditure.
The 2003 increase had been recommended for a number of reasons, ranging from debt service obligations to general operation and maintenance costs, factors that are still a concern for the financial status of the district.
Some of PRWIDs bonds carry covenants for the district. One of those covenants, associated with a loan from the Utah Division of Drinking Water, stipulates that the district maintain a debt service coverage ratio of 125 percent.
The obligation requires that the district revenues meet or exceed 125 percent of the amount paid in debt service. So if the district has $100,000 in debt service in a particular year, it should collect a minimum $125,000 in revenue.
In his report to the board, Burningham said the district has raised rates once since the recommended increase in 2003 - a sewer increase of $1.75 that year, still lower than the $2.93 recommended - with no rate hikes in 2004 or 2005.
The increase in 2003 had been required by a bond for the ammonia-stripping project, and did not apply to any of the districts other debt obligations.
In 2003 as a result of the boards decision to maintain rates at a lower level, PRWID missed out on an estimated $200,000 in potential revenue, and has continued that trend in recent years.
Jeff Richens, assistant manager for PRWID, observed that in the past few years most, if not all, of the rate increases and property tax mil levies have been to cover debt obligations.
Meanwhile, costs associated with wages, benefits, fuel costs and prices of raw materials have all increased, with no increases in revenue dedicated to the rising operational costs of the district.
Burningham added that while the total number of users has gone up in the past couple of years, water consumption has gone down. In part, that is due to secondary water systems which have come online in the past few years, reducing customers consumption of culinary water for outside use.
So while the total customer base has increased at a modest two percent, revenues have gone down for the district by $150,000 to $180,000 each year for the last four years.
Our revenues are not as significant as we had expected, said Burningham.
Due to the combination of these and other related factors, the district is now $450,000 short in revenues for sewer and water, requiring that funds earmarked for operation and maintenance have been channeled to debt service.
And despite the fact that the financial requirements are not getting met, the board has been hesitant to raise rates in recent years.
Raising rates and/or taxes has been difficult, said Keith Cox, who chairs the PRWID board. Were trying to make the best go of it we can.
Cox recognized that district staff has alerted the board of the need to increase rates and taxes in the past, but has felt hesitant do so at the risk of upsetting the general public.
Burningham recommended that board members consider raising rates before the end of 2006 and again in 2008 in order to meet the districts debt service obligations and cover operation and maintenance.
For retail water customers, such as consumers in unincorporated areas of the county, an increase of $4.00 or 19.2 percent was recommended to the base rate before the end of the year.
Burningham also recommended a $3.25 increase in district sewer, an increase of 12.75 percent.
If PRWID board members acted on the financial recommendations, in unincorporated areas, where customers currently pay more than $46 between the base rate for water and sewer, customers would see a total increase of $7.25 before the end of the year, an increase of 15.65 percent overall.
But the recommended rate increases dont stop as pipelines cross city boundaries.
Recommendations included an increase in sewer rates for Wellington of $3.25 or 22.6 percent, with an increase of $3.61 or 23.5 percent in Price sewer and $3.25 or 22.6 percent in Helper sewer rates.
On top of recommended sewer rate increases, the financial recommendation contained an increase of $4.25 or 24.5 percent for wholesale water customers, such as Prices additional summer usage and Wellingtons year-round usage.
Beyond the recommended rate increases for 2006, Burningham presented an additional $1.25 across the board for all customers in 2008.
Between the increase recommended for the current year and that proposed in 2008, rate increases could exceed the 30 percent level for some of the water improvement districts customers.
All PRWID customers will take a hit of at least 21 percent in the two-year period.
The recommended increases are projected to generate $450,000 to $550,000 in annual revenue in the long-term - enough to cover the districts financial obligations.
We have to do something with rates, said board member Tom Matthews, expressing the common sentiment of the board. In order to be fiscally solvent and meet its debt obligations, the district has to do something to address the issues presented by Burningham.
Recommended rate increases were presented in an even distribution, with most similar customers taking similar increases.
In the cases of the cities, if the district raises rates, each city has the option of determining how it will cover costs, which are assessed to the city directly. In most cases, costs are passed on to customers.
Each city can choose to subsidize all or part of the PRWID rates, and as a result, customers within cities may see a difference between the actual amount assessed by the district and the amount shown on their bills.
The recommendation from financial advisers was just one of many approaches that the board could take.
And while there will be pros and cons for any increase in rate structures, the bottom line is that the district needs to do something to bring revenues back into parity with expenses.
The water improvement district has seen annual increases in expenses at 5 percent recently, with revenues climbing an average of two percent annually.
So far, the district has continued to operate in the black, but that cant last long if the current trend continues, said Burningham, adding that in the status quo, the district will soon be operating at a deficit.
We all knew we were squeaking this baby, said Cox, noting that the district has tried to trim operational costs as much as possible.
Burningham agreed that the water improvement district was likely running on an extremely lean operational budget, with operational costs below similar-sized water districts around the state.
Board member Richard Tatton moved to instruct the PRWID staff consult with Burningham to create a proposed rate increase for the board to consider, with a unanimous vote in favor.
That recommendation could come back to the board as early as Sept. 5, with advertising and public hearings to follow, should the board continue with plans to increase rates.
Coupled with the recommended rate increases, Burningham suggested that the water improvement district consider entering into discussions with the Utah Permanent Community Impact Board.
Of more than $2 million in district debt, a substantial portion is connected to the CIB, said Burningham.
The CIB receives a large portion of the mineral lease monies it allocates from Carbon County.
And with Carbon and Emery counties represented well on the state board, the CIB is one of the districts most likely lenders to consider restructuring debt.
If the water improvement district can restructure debt with the CIB and possibly other entities, PRWID could save thousands of dollars in annual debt service payments.
PRWID board member Mike Dalpiaz moved to authorize Jason to look for and present a recommendation on how to restructure the districts debt.
The motion passed with a unanimous vote from the PRWID board members.