Some at City Want a Water Rate Cut

Now that the proposed $136 million water reclamation project is dead for this year, Councilwoman Charlotte Farmer wants to know why the City of San Angelo’s water rate has to remain so high. At least part of the rate increase that went into effect in January of this year was to provide the cash flow to finance a $136 million project that isn’t going to be built, she said.

Farmer characterized the rate increase at approximately $5 per customer. With 33,000 water customers, the increased cash flow to the water utilities department and its enterprise fund equates to around $165,000 per month in additional revenue, she said.

The rate increases, as presented and approved at the Nov. 3, 2015 city council meeting impact the average residential customer like this over time:

• Current rate in 2015 - $51.17 - 0%
• 2016: $57.05 - +$5.88 - 11.49% (year-over-year increase)
• 2017: $63.61 - +$6.56 - 11.50% (year-over-year increase)
• 2018: $70.93 - +$7.32 - 11.51% (year-over-year increase)
• 2019: $74.88 - +$3.95 - 5.57% (year-over-year increase)
• 2020: $79.08 - +$4.20 - 5.61% (year-over-year increase)

“That’s [a large capex project] what the increase was presented to us on,” she said.

City of San Angelo Water Utilities Director Bill Riley pointed out the council adopted a five-year plan in November 2015, and the condition of the utility was dire when considering where the fund balance was at the end of last year.

The water utilities is treated like a business and bank account with its own profit and loss statement attached to a fund balance. Riley pointed out the water utilities fund, the bank account, had a negative balance at the end of 2015 before the new rates went into effect.

“The five-year plan was not just to pay for new water [like water reclamation]. The words of the consultant I believe was to ‘right the ship’,” Riley said (watch here).

City ordinance requires the water utilities enterprise fund to have 75-days of operating capital. That equates to $5.5 million, Riley said. The fund balance is at approximately $1 million now, Riley added.

As for financing a large capital investment and loan, Riley said the five-year plan did not anticipate having to pay monthly payments on bonds until 2017 at the earliest.

“The short answer is that nothing (of the water billing) is being collected for (building) a new water supply (this year),” Riley said. “The new rates are just to bring the water utility into a good financial position.”

“That’s not what I recall the increase was for, and I’ve gone back to look at what’s written there and that is not definitely what the increase was for,” Farmer shot back.

Mayor Morrison jumped in to support Farmer, “(To Riley) I don’t think the minutes will support you on that,” he said. “Does that mean, if we go back for seven months, we’re already up to $1 million [and] we have $300,000 to go? When we hit that $300,000, are we going to reduce the rates to maintain that level?”

Riley responded, “Again, it’s a five-year plan, and ultimately, at the end of the five years, [the goal is] to have the fund balance we need to cover the 75 days.”

At this point, City Manager Daniel Valenzuela spoke in support of Riley.

“Mayor, we did discuss those talks with the consultants as well,” he said. “We did talk about the fund balance. We talked about a future project; we talked about debt service as well. We can definitely take a look at the minutes to see what was said, but those are areas that [we said] needed to be taken care of.”

Farmer, however, responded, “I definitely want numbers, actual numbers, from the inception of time. And I definitely want the minutes, and possibly the film reviewed, because I stated my understanding, [which was] a lot of the public’s understanding, that that’s what their $5 was increasing [to pay for]. Maintenance and five-year plan was to come later, and that $5 would be going towards that as well. But I really want it explained in detail.”

Morrison added, “We were sold that we were funding a $136 million project. And that’s what this increase was for. And if we’re not going to do the $136 million project, then we need to give the people back what they’re paying for.”

Then, Councilman Harry Thomas came to Riley’s defense. 

“I wasn’t sitting on the council at the time, but I was sitting in the audience,” he said. “And my recollection is, the first thing we needed to do was ‘right the ship.’ So, I will encourage Mr. Riley to bring back those numbers, have this conversation at the next council meeting and go through this. I agree that we should not be collecting money if that’s not what the intent was, but I want to know what the intent was at the time.”

Councilman Marty Self concurred with Thomas later in the discussion.

Farmer continued, “Well, I want to make sure that we protect the public as well as the city because, if you do simple math, it works out to be a considerable sum.”

Assistant City Manager Michael Dane also spoke in support of Riley, reminding the council that there is a mechanism built into the rate hikes that allow the council to review the fund balance and water rates annually, and it allows for rate reductions, or even a rebate, to each water customer based upon the financial performance of the water enterprise.

Riley concurred with Dane’s representation. He said there should be a water enterprise profit and loss review prior to the end of the year, as mandated by the five-year plan. At that time, the water rates can be adjusted up or down.

Mayor Morrison piled on another issue of big spending from the newly invigorated water fund balance.

“I just remember, at the end of last year, our water fund was broke,” he stated. “We had no money; we were in dire circumstances. We’ve got to get more money, and we passed this, and that [$136 million] was in it. And then I believe it was in March or April, all of a sudden we had $334,000 in our budget to do a comprehensive water study. So that kind of sticks in my crawl as well. How we can be broke in January, and in March or April, we’ve got $334,000 to do a study. So, I am particularly interested in what Charlotte has brought forward here.”

The Mayor added, “If our people are being overcharged, we need to fix it. And we need to fix it quick.”

Mike Boyd, a local banker and chairman of the City of San Angelo Water Advisory Board, said last night that his primary concern, and reason why his board recommended the rate hikes, was to first build the 75-day fund balance. In his presentations since the hikes were enacted, Boyd has stressed the importance of the water utilities to have the cash cushion. Boyd has been hesitant to support building a $136 million water reclamation project right away, preferring instead to build a sustainable cash flow and cash reserves first.

City ordinance requires a 75-day fund balance, which Riley said was approximately $5.5 million. Boyd said this was in line with what a banker looks at for the health of any business. “We usually like to see at least 60 days,” he said.

At the same council meeting, the government body approved a revised way to calculate drought water conservation levels. Now, the months of water supply will also incorporate 1.5 million gallons per day of groundwater from the Hickory Aquifer. Previously, the calculation only incorporated ground water from the lakes. The 1.5 million gallons of water flow is the minimum use of the Hickory water, making the groundwater addition to the calculation somewhat conservative.

By adding ground water into the calculation, the likelihood of the City of San Angelo declaring a water conservation level is slightly less, meaning the city can sell more water, and this is likely to increase revenue and profits.

The city ordinance mandating the new calculation ingredients will be approved after its second public reading at the next council meeting.