The Price River Water Improvement District board confirmed on Tuesday its intentions to pursue a rate increase before the end of the year. Various figures have been thrown around by the board since financial advisers pointed to the need to increase revenues in August.
At the Sept. 19 meeting, the board reviewed the need to increase rates and heard a report from district staff outlining a proposed rate increase which came out of a work meeting one week earlier.
Jeff Richens, assistant director for the water district, presented the information reflecting that rate proposal and provided additional information regarding the need for rates to be increased.
The district received advice from financial advisers to raise rates, and the board has repeatedly recognized the need to raise rates. Now the question is by how much and when. The district is unable to meet its financial obligations unless it generates new revenue.
"If we're not going to raise rates, what are the reasons?" asked Keith Cox, who chairs the board.
That's a question Cox would like to have answered as the board prepares to vote on a rate increase in the next month or so. Board members Richard Tatton, representing Price, and Mike Dalpiaz, representing Helper were absent. the remaining board members felt uncomfortable heading into a public comment period without the two absent board members.
Cox urged the board to make a decision on how to proceed at the next meeting, scheduled for Oct. 3. If the board votes in favor of a rate increase proposal, the district will begin a public comment period, with a public hearing and final vote as early as November.
Board member Tom Matthews said the district has not been irresponsible in getting to this position; rather, the PRWID board has been hesitant to raise rates and has been cutting costs in other places.
"We're not bad managers," said Matthews. "We've just been absorbing the costs."
Last year, the water department generated just over $1 million in revenue from water rates generated by 1,769 retail customers and 1,117 wholesale connections. Wholesale users include Wellington, and the Spring Glen and Pinnacle canal companies.
The largest expenses for water was $471,700 for the water treatment plant in Price Canyon. The water and sewer departments share the fleet and maintenance departments. As a result, the operational costs of the two departments are split evenly between the water and sewer department. The water department's share of the maintenance department budget last year was $377,500, with $176,000 going to the fleet department.
Between those three areas, all of the revenue for the district, and then some, is consumed. Still there are other water-related expenses that must be paid.
The district currently has roughly $20 million in outstanding debt. Each of the bonds that make up the debt require annual payments. From the water department, annual payments last year totaled $374,800. That figure does not include the district's general obligation bond. The general obligation bond is funded entirely by a mil levy on district-wide property taxes.
The district is required under the terms of its bonds to maintain a bond reserve fund. Last year's reserve fund requirement was $285,375.
District staff included a modest $20,000 capital project reserve in the figures presented on Tuesday. Richens later said capital projects generally will cost more than that amount. For comparison, he pointed out that the water line replacement on 1100 West, just east of Carbonville Road was completed at a cost of approximately $20,000. He stated that the relatively small project included roughly 750 feet of pipe.
The final expense presented to the district related to a 1.25 percent bond coverage requirement set by one of the district's bonds funded by the Utah Permanent Community Impact Fund Board. Currently, the district is not meeting that requirement. Staff suggested that a four-year goal to generate those funds may be achievable. As a result, Richens included an expense of $78,500 to go toward the bond coverage requirement.
In the end, the district shows a $761,773 deficit in the water department. With a total revenue of $1,022,102, that deficit is greater than three-fourths of the total revenue for the department.
Similar, though less serious, figures also come out of the sewer department. The sewer department generated $1.7 million in revenue from customers last year. Close to $600,000 was spent at the sewer plant. Maintenance costs totaled $377,500, while fleet costs came to $176,000. On sewer revenue bonds, the district spent $612,000, leaving the district in the black by $20,500. Bond reserves state that the district maintain a reserve fund of more than $250,000. District staff again included a modest $20,000 capital project reserve and $96,000, representing one-fourth of the 1.25 percent coverage requirement.
After all expenses are taken out, the district is in the red $348,475.
After a work meeting last week, Dalpiaz had suggested a rate structure for water users. He had suggested bringing the base rate up to $22 for 6,000 gallons and suggested adding $1.50 per 1,000 gallons for overage from 7,000 to 40,000 gallons. He added $2 per 1,000 gallons for overage from 41,000 to 100,000 gallons and $2.50 per 1,000 gallons for usage above 100,000 gallons.
Based on an average overage of 10,000 gallons, the figures presented by Dalpiaz would generate $785,436 from retail users and $272,094 from wholesale users, for a grand total of $1,057,530, a paltry $35,428 more than last year's revenues.
The figures presented by Dalpiaz do not generate the funds necessary for the district to climb out of its deficit. Staff again suggested figures closer to those presented by district financial advisers in August.
In the materials presented by Richens, staff suggested a sewer increase of at least $3.65 per connection this year with an additional $1.82 in 2008.
One idea that has been thrown around a couple of times is increasing the rate on overages. the problem with that idea is that consumers will generally consume less and the anticipated revenue will generally be lower. Further, areas with secondary water systems tend to generate less revenue in overages.
Matthews suggested lowering the amount of water included with the base rate. By lowering that amount and keeping the base rate roughly where it is, the district can count on families using more. It can hit those users and the larger water users with bigger increases, and leave rates lower for small users. That way, customers still have the option of conserving to save money and the rate increases will tend to impact working adults and companies more than they do lower income families and retired seniors.
No matter the amount, board members present on Tuesday agreed that the rates will need to be increased. The board is also looking at restructuring its bonds with the CIB, in an effort to lower payments.
Board members are also hesitant to impose a dramatic rate increase. Wellington Mayor Karl Houskeeper said that if the district raises its rates too much, it will generate the reserve funds it needs and end up with a surplus in a few years, with customers paying unduly higher rates.
However, the district could likely put any surplus to good use.
"There are needs now that we keep pushing back," said Richens.
Some board members favor a more modest rate increase, which will generate funds over a longer time span. By imposing a lower rate increase, it may take the district six or eight years to come up with funds that, under staff recommendations, would take only four.
In the meantime, however, the district would likely not be able to receive anymore bonds. The district is currently out of compliance with its bond obligations. Funding agencies are likely to be hesitant to loan the district money until it comes into compliance.
So if the district takes more time to generate funds, it is also putting off possible loan and grant resources. Cox said that in his view, the district should look at a two to three year time frame for coming into compliance.
The district also asked that staff look at ways to increase fees in other areas. Those may include connection fees and impact fees for new customers. Also included in other fees are hauler rates which the city imposes on contractors and property owners when it performs one-time tasks, such as pumping septic tanks and accepting gray water and wastewater from mine companies and construction contractors.