Economist: Sewer rates must rise

Sean C. Morgan

If city wastewater rates stay where they are, the city will use up its reserves and be unable to continue paying for its sewer system, according to a report from EcoNorthwest.

EcoNorthwest Senior Economist Anne Fifield told the City Council during its regular meeting on Jan. 14 that its current rate structure is unsustainable.

To completely pay for the system as it stands today, the average sewer service customer, who uses 5,000 gallons per month or 668.4 cubic feet of water, would see a 26 percent increase in the wastewater rate.

But the city is considering improvements at the Wastewater Treatment Plant to comply with Oregon Department of Environmental Quality requirements.

During heavy rains, the sewer system can become overloaded through leaky pipes and cross connections to the storm drainage system. The Wastewater Treatment Plant cannot handle the extra flow and must bypass untreated wastewater to the South Santiam River. The DEQ requires that the city repair and improve the sewer system to prevent those bypasses.

The city has completed four construction projects in the past 13 years to repair and replace sewer pipes and significantly reduced those flows, but the price per gallon to further reduce the flows is increasing. Improvements to the Wastewater Treatment Plant so that it can handle the flows are likely to be cheaper, according to Public Works Director Mike Adams.

Repaying those debts could drive even higher sewer rates.

EcoNorthwest compared Sweet Home’s sewer rate to the seven closest communities with populations of 1,500 or larger and with six comparably sized cities in the Willamette Valley, including Monmouth, Jefferson, Silverton, Lebanon, Creswell, Harrisburg, Veneta, Junction City, Albany, Independence, Brownsville and Stayton.

The average Sweet Home residence is charged $49 per month for wastewater service, Fifield said. The lowest monthly bill is in Monmouth at $38 per month. The highest is in Stayton at $55, a flat rate charged no matter how much water the household uses. The average charge is $45.59, about $3 less than Sweet Home’s current rate.

Sweet Home’s fee for an average customer is higher than all but three comparable communities.

Sweet Home is charging less than the full cost of the operation, a total of about $2.1 million, Fifield said. The full cost is $2.7 million.

EcoNorthwest corrected small errors in the spreadsheet the city uses to calculate the cost of the utility and rates, Fifield said. That amounted to about $100,000.

The banks also like debtors to have a revenue cushion of 25 percent for debt payment. Right now, the city is charging only the actual debt requirement, Fifield said. The city also has not included depreciation, which is used to pay for replacement of equipment, in its rate; nor does it include an operating contingency of 3 percent or a rate of return, which recoups the intangible costs and risks of owning and operating the utility.

It has not charged the rate of return because of the recent increases in rates to cover debt payments, Fifield said.

To recover the full cost of operating the wastewater utility, the city would need to charge average users $61.21 per month, which would be the highest cost among EcoNorthwest’s list of comparable cities, Fifield said.

If the city borrows money to pay for Wastewater Treatment Plant improvements, the average bill increases depending on the term and interest rate for the loan. On a $15 million 10-year loan at 3 percent interest, the rate would increase to $119.97 per month. On a 30-year 4.5-percent interest loan, the bill increases to only $92.05 per month.

EcoNorthwest determined that the city’s current rate structure is unsustainable and requires the city to rely on reserves to cover costs, Fifield said, and EcoNorthwest recommends that the city recover the full cost, which would increase monthly bills to $61 per month for average customers.

Financing improvements of up to $15 million through bonds alone would cause significant increases, Fifield said, and revenue estimates at such high rates may be unreliable as delinquencies would increase, and residents may choose to move out of the community. Given this, EcoNorthwest recommended the city pursue grants and low-interest loans to pay for the improvements.

EcoNorthwest also recommended the city continue using the corrected spreadsheet to calculate costs and rates and to include depreciation in the revenue requirement calculation to ensure the city can fund future capital expenditures along with a 3-percent contingency.

The council acknowledged receipt of the report, which will be used by staff to develop recommendations to the council for action in the future as they plan improvements to the Wastewater Treatment Plant.

Present at the meeting were councilors Marybeth Angulo, Greg Mahler, Craig Fentiman, Mayor Jim Gourley, Scott McKee Jr., Dave Trask and Bruce Hobbs.