Watertown property owners will see a significant increase to their water and sewer bills in 2013 after city council took action last week aimed at creating stability in the city’s enterprise funds.
The typical homeowner, depending on usage, can expect to pay roughly 19 percent more for water consumption and 5 percent more for sewer consumption beginning Jan. 1, a total increase of about $9.02 per month for a home that uses 8,000 gallons of water. The increases are designed to increase revenue in the city’s water and sewer funds, known as the enterprise funds, where operational expenses and debt payments have far exceeded revenue since 2008.
The enterprise funds are designed to operate independently of the general fund, with rates and fees generating enough revenue to cover operational expenses. However, since 2008, the enterprise funds have relied on general fund support to the tune of roughly $850,000. That includes $346,000 in loans from the general fund and $510,000 in general debt levy assistance.
City administrator Luke Fischer said the widening gap between expenses and revenue in the enterprise funds has been steady over the last 4 or 5 years, with little or no stabilization.
“That led us to believe in doing this water and sewer rate study that we have a collection issue with the way that we charge fees and rates,” Fischer said during the Nov. 27 city council meeting. “Our current system isn’t sustainable. This isn’t a flash in the pan, or a one time bad year where something that we didn’t plan for happened. This has been a consistent thing that has happened over time.”
The instability in the enterprise funds is largely a result of rapidly declining growth in the city over the last decade. Projections originally used in determining water and sewer rates projected between 100 and 150 new homes being built in the city each year. When new homes are connected to the water and sewer systems, they are charged $4,000 for each. With 110 new homes projected in Watertown in 2012 that never came to fruition, the city essentially came up $440,000 short of projected revenue in both the water and sewer funds.
“When that growth didn’t happen, our water and sewer fees didn’t adjust to absorb that as quickly as they maybe should have,” Fischer said.
While all the city’s bills have been paid, Fischer said it is ill-advised to continue to let the general fund support the enterprise funds for numerous reasons. First, when rate and fee revenue is exclusively used to support operational expenses, it ensures that the biggest users are charged the most, whereas, when tax money is used to support the enterprise funds, that money is based on property value instead of usage.Secondly, using general fund money to support the enterprise funds can be harmful to the city’s credit rating.
The most significant part of the utility rate changes adopted by the city council last week relate to the base charges for both sewer and water. Currently, the monthly base fee for sewer service is $10 per Equivalent Residential Unit (ERU), and the monthly base charge for water service is $15.50 per connection into the system. The base charge for water service will increase from $15.50 to $17, but more significantly, will now be charged per ERU, just like sewer service has been charged in the past.
An ERU is a calculation of how much water a user consumes compared to an average residence. For instance, the school district was previously being charged for one connection to the water system – just like a residential home – but will now be charged for 51 ERUs. By billing based on ERUs instead of connections to the system, the city will add roughly 700 billable units and generate and additional $165,000 per year.The monthly sewer base charge will also increase from $10 to $17. That increase is expected to generate roughly $163,800 in annual revenue.
Another factor in the poor state of the city’s enterprise funds is that depreciation of the equipment and operating system has never been factored into the rates that residents pay, meaning that as equipment begins to fail, there will not be money in the funds to pay for repairs or replacement. Ultimately, the city council made the decision to fund 50 percent of depreciation through rates and fees under the new policy, a decision that will save residents money compared to if they had chosen to fund 100 percent of depreciation.
However, it also could cause problems or lead to additional rate increases in the near future. Fischer said that in funding 50 percent of depreciation, the city should have enough cash available to fund its 2013 projects, a list he said included conservative projects. Projects slated for 2014, however, are estimated to cost twice as much.
Fischer also noted that the depreciation figures used in calculating the new utility rates are not arbitrary numbers. They are actual figures that come from audits and are assigned by auditors.
“Not funding the complete depreciation simply means we won’t collect enough revenue to match the estimated cost of replacement when those projects come due,” Fischer said.
Fischer said 61 percent of users in Watertown use between 2,000 and 8,000 gallons of water and sewer. Under the new water rates, a home using 8,000 gallons of water will see its bill jump from $34.88 per month to $41.60 per month, an estimated increase of 19 percent. Under the new sewer rates, a home using 8,000 gallons will see its monthly bill jump from $47.70 to an estimated $50, an increase of 4.8 percent. In all, the two increases will amount to an estimated $9.02 per month increase for a typical home, or $108.24 per year.
While the utility rate increases will be fairly substantial, the increases would have been even higher had the council funded 100 percent of depreciation. If that were the case, the monthly water bill for an 8,000 gallon user would have increased by nearly 40 percent, or $13.62 per month, and the monthly sewer bill for an $8,000 gallon user would have jumped by 24 percent, or $11.30 per month. In all, it would have meant a $24.92 per month increase, or an additional $299.04 per year.
The council ultimately voted 3-1 in favor of the new rate structure that includes 50 percent depreciation, with Nicholas Hoese voting against the measure.