City staff: Water rate hike needed

Sean C. Morgan

The city council intends to use the proceeds from the sale of the former Public Works headquarters and Water Treatment Plant on 9th Avenue to help pay for needed capital projects at the Water Treatment Plant and offset some potential rate increases this year.

City staff presented four options for water rate increases to the City Council during a work session held on Feb. 25. The options would increase the average water bill by $4.35 to $9.33 per month.

The average bill is for 600 cubic feet. The majority of water customers use less than the average. How the options would affect customers at different levels of use was unavailable.

The presentation did not include the underlying rate structure, the combination of the fixed base charge and the variable commodity charge, which is based on how much water a customer uses. The New Era requested that information, but it was unavailable by press time because the finance director had been out of town since the meeting.

City staff did say that the base charge would continue to include the first 300 cubic feet of water a customer uses, but without the underlying base charge and commodity charge, potential increases or decreases for anyone other than the average user are impossible to calculate.

The figures are just preliminary and will change based on the council’s discussion, City Manager Ray Towry told The New Era Monday.

As city staff has been digging into issues in the water system, Towry told the council, it’s been like an onion, with the staff uncovering layers of issues.

Among those issues, the city needs a new pump for the backwash system at the Water Treatment Plant and variable drive pumps, Towry said. The backwash pump is the top priority.

The backwash cycle pumps water backward through the system to allow the reuse of the plant’s filters.

The variable drive pumps allow the plant to send water into the system at a variable rate. The pumps in use now are either completely open or completely closed, causing water pressure to spike, creating a hammer-like effect on the pipes and causing leaks when they’re turned on.

The variable drive pumps allow the pressure to increase gradually, protecting the system from sudden increases in pressure, Towry said.

The city also is continuing to replace water meters, many of which are past or even at double their normal lifespan, Towry said, and the city continues to replace 2-inch mains with larger pipes.

During the council’s three-day work session earlier in February, the council reached a consensus that these issues were them most immediate needs among capital projects in the works or under consideration, Towry said.

Finance Director Brandon Neish told the council that the city’s systems development charge doesn’t provide any valuable assistance in taking care of operations and maintenance, debt or capital expenses, noting that the debt for the Water Treatment Plant will be active until 2035.

Capital is the city’s biggest concern right now, Neish said. As with any city, “capital funding is hard to come by.”

The city’s water rates contribute little the city can use for capital, Neish said. Its capital reserves have gone dry, about $310,000.

Based on the current funding scenario, all the city can afford is to replace the sand filters in the Water Treatment Plant and the water main in 9th Avenue; but the city has “emergent capital needs” in the backwash system and the variable drive pumps.

All four of those projects will cost around $820,000, Neish said, and Public Works estimates another $8 million in capital projects needed in the next 10 years, in addition to ongoing leak repairs and meter replacement.

The city can increase rates to cover the projects, Neish said, or it can limit rate increases, which will decrease the number of capital projects it can complete.

The city could also reduce operations and maintenance expenses by changing the utility manager position to a “project manager” position, Neish said. That would shift a cost of $12,000 to $14,000 in the General Fund and spending on streets.

With funding generated by the first of four options, which would increase average bills by $4.59 per month, the city could do the backwash system project or the variable drive pumps but not both, Neish said.

Under the second, $4.35 per month, the city would need to reduce operations and maintenance by $31,000 with some offsets in the street and general funds for the project manager position.

The third option, a $6.48 per month increase, would provide $100,000 more to annual capital reserves and cover the cost of the backwash system and variable drive pumps, Neish said. That runs at about $300,000 right now.

The fourth option, $9.33 per month, would cover the capital projects and set aside an additional $250,000 annually for capital projects.

Neish told the council that the staff is not recommending any increases in sewer or storm water drainage rates.

Splitting the difference between the first and third options would allow the backwash project and the variable drive pumps to be completed over two fiscal years.

The city could borrow from its SDC fund, Neish said, but the projects are not eligible for SDC funding. SDCs are charged on new construction and used to expand capacity in infrastructure. Loans from the SDC fund could be paid back with or without interest. Repayment must be completed within 10 years and would need to be covered by the water rate.

The city is in the process of developing new SDCs.

City councilors discussed and reached a consensus to use the proceeds from the sale of the 9th Avenue Public Works property to help cover capital projects.

The sale generated about $207,000. The council had previously hoped to use the proceeds from the sale to help pay for remodeling at the new City Hall, which opened in August. The city borrowed $800,000 from its water fund to help pay for the remodel.

Towry told The New Era that staff will propose using the proceeds as a payment against the debt to the water fund, which contains the capital reserves to pay for projects like these.

Towry told The New Era that at the time the city borrowed money from its water fund for the new City Hall, officials were unaware of the problems they were going to find in the water system.

With the new City Hall, “that whole process was started years ago,” Towry said.

During the meeting, Councilor Diane Gerson noted that the council always raises water rates and never decreases them.

She would be interested in a monthly fee separate from the rate structure, something like $10 per month, for a short period, like two years, to help pay for the capital projects, Gerson said. After that time, the fee would disappear.

Councilor Lisa Gourley pointed out that the city is close to funding all of the capital projects needed right now with the money it has in its reserves now, $310,000; the $300,000 it can expect in the 2020-21 budget; and the $207,000 from the sale of the 9th Avenue project, a total of $817,000.

Towry told The New Era Monday that the city has actually spent down some of those reserves on related projects.

Following the meeting, Towry told The New Era, he and Neish discussed it further and tightened down the figures, counting about $250,000 in reserves available this year, $275,000 next fiscal year and $207,000 from the proceeds of the property sale, a total of $732,000.

That will actually leave the city about $230,000 short for all of the capital projects, Towry said.

Going forward, the city needs to plan for rate stability, Towry told the council. It’s already done it with wastewater, and he doesn’t expect a need to increase sewer rates for a decade.

The increase in water rates probably won’t need to be as drastic as it was in wastewater, Towry said, but “there’s an emergent need that we were unaware of.”

The goal is to increase rates to where they match the needs listed in the city’s Capital Improvement Plan, Towry said. While the city cannot anticipate changes in things like the power rate, “we’ll always work toward zero” rate increases.

“I hate these increases that are so high,” said Councilor Dave Trask. He would like to get to a point where annual increases are minimal.

Mayor Greg Mahler said that the fourth option, $9.33 per month was not even in the equation and suggested that the council needs to see more numbers.

Gourley noted that water bills increased a lot in 2017.

Using the money she outlined earlier for capital improvement, “I think we’re doing pretty good,” Gourley said.

Towry told the council he would come back to the council with proposals adjusted based on including the proceeds from the 9th Avenue property sale.

Present at the meeting were councilors Cortney Nash, Susan Coleman, Gourley, Mahler, Gerson, James Goble and Trask.