Cityconsidering big jump in sewer rates

Published on Thu, Sep 16, 2004 by eg Olson

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City considering big jump in sewer rates

By Meg Olson

The city’s general sewer plan is ready for adoption, but city council is still trying to digest that sewer rates and hookup costs may need to almost double to pay for it, and think of how to avoid community wide rate shock at the increases.

“I’d suggest as few surprises as possible,” said rate consultant Ed Cebron of Financial Consulting Solutions Group at a work session preceding the September 13 city council meeting.

Cebron said the city had already fallen behind on sewer rates, which haven’t increased since 2000, while costs have gone up. “You’re not charging now for the cost of service,” Cebron said. “Right now your rates should be $48 to collect the costs already embedded in the system.” The city now charges a residential customer a flat rate of $39.78.

Besides paying for the system as it is, the city has to find funds to pay for the changes recommended by the new general sewer plan, recently accepted by the state department of ecology as the path to curbing the city’s problem of sewer system overflows. The plan recommends $42 million dollars be spent over the next 25 years, with the top $30 million going to build a new wastewater treatment facility and equalization storage facility on Marine Drive, and $12 million to upgrade the collection system once the plant is up and running.

“The city is pursuing an aggressive but realistic financing program,” said CH2M Hill consultant Jennifer Barnes in presenting the sewer plan in regular session at the September 13 meeting.

In the earlier work session Cebron outlined the web of grant and low-interest loan funding the city would need to build the new treatment plant. “For that major construction phase there is a lot of grant funding” he said, saying funds were expected to be available from both the state Centennial Clean Water fund and through direct federal appropriations. “You’ll have to actively work with your delegation for that,” he said.

The sewer project’s capital program anticipates getting $8 million in grants over the next seven years, and borrowing $25 million from low-interest public funding programs such as the state’s public works trust fund, which Cebron said offers rates as low as half a percent. “That’s the big source,” he said. Blaine public works director Steve Banham confirmed the city had already been recommended for governor approval to receive a $5.1 million loan at one percent in 2005.

With the sewer program already operating in the red, it would be impossible to pay back $25 million in loans, even low-interest ones, without raising rates substantially, Cebron explained. “Right now your utility has about $1.5 million a year in revenue,” he said, and half a million a year goes to retire existing debt. By 2008, to that would be added another $1 million a year in new debt service.

Cebron is suggesting rates go to $50 a month for a single family home next year, and then go up by $5 per year until they plateau at $67.94 in 2008, and the city sewer system breaks even – a 70 percent increase in the rates in four years. If growth projections are accurate another rate increase would not be needed until 2012, and it would be to adjust for inflation. Cebron added if the grant funding increased to lower debt by one million, it meant the city would need to charge $1.50 less per customer per month. “Big changes hinge on the grant assumptions,” he said.

A more significant increase than in rates would be in the cost of connecting to the Blaine sewer system, which Cebron is recommending jump from $2,408 now to $4,400 for a single family home in 2005, with commensurate increases for larger developments. “That puts you on par with higher communities in this area,” he said. He is also recommending the fee increase by $250 a year until it hits $7,000. “That’s really the most we can argue fairly,” he said. “You could jump to $7,000 now but then the growth you are expecting could see an impediment.”

Cebron presented two other strategies to generate the funds needed to implement the sewer plan that could moderate rates but would hit homeowners in a different pocket. “We could go to the voters and pay for it through taxes,” he said. If voters approved a $10 million general obligation bond for the sewer the flat rate could go down to $55 in 2008, but a $200,000 home would be paying an additional $12.41 in property taxes. “It moves you from a cost-recovery scenario to a tax scenario, where you charge more to those who can more afford it,” Cebron said. Along the same lines, an assessment on each property through a local improvement district could get the monthly rate down to $50 in 2008, but property owners would be paying $28 per month on their assessment, “and that would apply to a vacant lot too,” Cebron said.

Cebron recommended to council they stick with a flat rate structure during the next few years of rate instability, but then they might look at a volume-based rate with a lower base rate and charges for usage based on average winter-water use. “The reason I’ve always been interested in this is conservation,” Banham said. “People don’t have to pay if they conserve. Today, some people get four times the utility benefit of the rate from other people.”

Council member Bruce Wolf said he was interested in moving to a volume-based rate system as soon as possible. “We have a demographic here with a lot of older people living on the edge, and they would really benefit,” he said. City manager Gary Tomsic said the flat rate structure already had a provision for a discount for low-income seniors. “The alternative is the young family with all the kids,” said council member Marsha Hawkins, pointing out that a significant percentage of children in the Blaine school district come from families with incomes low enough to qualify them for state aid buying lunch. “The volume-based system works against the people with eight teenagers.”

Banham said one change that would be implemented next year to make the system more equitable would be to charge 75 percent of the monthly rate to unoccupied homes. Under the current system, a property owner can turn off their service and not pay a monthly bill until they need it on again, when they pay $25 to reconnect. “When you go south you don’t stop paying your mortgage, and the city has a mortgage too, on the treatment plant,” Banham explained. “This is a fairness issue,” Cebron agreed. “Other customers end up paying their share of the capital costs.”

Under the new system a temporary suspension of service would mean the customer would pay 75 percent of the flat rate until they wanted the connection active again. A permanent suspension of service would mean “they come in again as a new connection and would have to pay the general facilities fee,” Banham said.

Banham said he wanted to see the new rates in place before the beginning of the new year. The general sewer plan will be on the agenda again September 30 for council approval, but Banham recommended at least a month be dedicated to public comment on proposed rate changes. “Feedback that comes in could help inform your decision,” he said.