San Marcos Mercury | Local News from San Marcos and Hays County, Texas

August 12th, 2011
City lowers proposed utility rate increases

smnews1by SEAN BATURA

City of San Marcos officials on Thursday proposed less of an increase in water and wastewater rates than they did last week.

City staff now propose water and wastewater rate increases of three percent and 2.5 percent, respectively, in each of the next two budget years (FY 2012 and FY 2013). The previously-proposed rate hikes were six percent in the water rate and 3.5 percent in the wastewater rate in FY 2012 and FY 2013, respectively.

San Marcos Finance Director Steve Parker said two modeling errors were responsible for the reduced rate increase. The previous model led city staff to project a $1.2 million shortfall in the water/wastewater (W/WW) fund in the next two budget years unless rates were increased. Parker said the currently-projected shortfall for the W/WW fund is $778,000 in the next two years, which, he said, still warrants rate increases to prevent the use of reserves to cover operations.

According to Parker, the new proposed rate increases mean $1.25 more for average monthly residential customers using 2,400 gallons of water per month; $2.01 more for users of 5,000 gallons; and $3.49 more for users of 10,000 gallons.

Parker said average residential customers use between 5,000 and 6,000 gallons per month. Per capita usage in the city is about 3,450 gallons per month, said San Marcos Public Services Director Tom Taggart during an Aug. 11 city council budget workshop.

“Even with sprinkling, we’re fairly conservative on our water use at 115 gallons per capita per day,” Taggart said.

San Marcos City Manager Jim Nuse, during the budget workshop, said he will conduct an audit during FY 2012 to find ways to reign-in money transfers out of the W/WW and electric utility funds.

According to Parker’s budget presentation last week, the city’s general fund receives franchise fees averaging $3.6 million from the electric utility and $2.1 million from the W/WW utility per year. The franchise fees reimburse the general fund for the utilities’ use of public right-of-way for poles, underground wire conduits, and pipelines, and for the use of roads and resulting roadway wear and tear.

City staff propose to reduce all franchise fees from nine percent to 8.5 percent of the utilities’ gross revenues, with a four-year target goal of seven percent.

Parker said the last time the city increased W/WW rates was 2006.

City staff still anticipate a $400,000 shortfall in the drainage utility fund next budget year unless a 20 percent drainage rate increases in FY 2012 and FY 2013 do not occur. City staff said the drainage utility will have a negative fund balance of between $4.5 and $5 million in 2013 unless it receives more funding. The proposed drainage rate increases amounts to $1.12 more for the average residential customer, city staff said last week.

During Thursday’s budget workshop, Parker said the city’s credit score could be downgraded by rating agencies if the W/WW utility does not stop using its reserves to cover its operating expenses. Parker said the city risks having its credit rating downgraded by rating agencies if the W/WW fund’s reserves equal less than 25 percent of its expenditures, which is projected to happen in 2015 if there is no rate increase.

According to Parker, the W/WW utility will have a negative fund balance, beginning in 2017, of $2,060,534, unless it receives more funding.

Parker said the city risks having its credit score downgraded if W/WW rates are not set to allow the utility’s net revenue (revenue available after maintenance and operations) to equal at least 1.2 times its debt (including interest and principal). The W/WW utility’s debt coverage ratio is currently one and will dip to between .8 and .9 in 2015 unless rates are not increased, according to Parker.

According to city staff, the W/WW utility’s debt coverage ratio will reach the 1.2 optimum in 2017 if rates are increased at the proposed level in the next four budget years — and if water fees and wastewater fees are increased by nine percent and 2.5 percent, respectively, in FY 2016 and FY 2017.

As projected last week, residents would still probably be in store for further rate increases if the city proceeds with current plans to participate in the Hays Caldwell Public Utility Agency (HCPUA) project. The project calls for the city to spend $40 million in debt to gain access to water from the Carrizo-Wilcox Aquifer.

City staff recommend regular rate increases to avoid double-digit rate increases, bolster the city’s credit worthiness, better position the city to issue debt for the HPCUA project, fund capital projects with a better mixture of cash and debt, and to keep the debt coverage ratio from sinking too far in the face of the looming HCPUA debt issuance.

The $40 million debt issuance for the HCPUA project could occur as early as 2015, said Parker. Parker said the project’s estimated total cost is $115 million, to be shared among Kyle, Buda, San Marcos, and Crystal Clear Water Corporation. According to the HCPUA, San Marcos is projected to undergo a water shortage beginning in 2026.

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7 thoughts on “City lowers proposed utility rate increases

  1. Some of the information below is taken from a Wall Street Journal story on Aug. 11, 2011. Other information has been take from Lisa Spencer’s investigation of the City of San Marcos proposed budget increases and fee increases. This report was publically presented by Ms. Spencer at last week’s Open San Marcos meeting. Since most of my information is coming from secondary sources, if any of you think I have made errors, please let me know.

    Jefferson County, Alabama (Birmingham for all intents) is on the verge of default over debt on their sewer system.

    The County has refused to raise the sewer rates because of the impact on the poor residences that use the system.

    The average income for Jefferson County is $31,704. Making Jefferson very poor.

    The average income for San Marcos is $32,205. Making San Marcos very poor. The Texas average is $50,043

    The average sewer fee for Jefferson County is $37 a month.

    I do not have an average fee for San Marcos but the first 5,000 gallons (which I think is the minimum fee) is $54.58.

    The Texas State wide average for sewer is $35.35

    The Jefferson County Bond holders have agreed to “take a hair cut” on the bonds because they don’t believe the rates can be raised much higher without the system becoming bankrupt.

    Jefferson County too poor to pay anymore that $37 a month?

    San Marcos not too poor to pay $54 plus an increase over the next 5 years that would come to 19%?

    What is the big difference? A huge chunk of the money you pay in San Marcos is transferred out of the sewer system and into the City general fund. This year the City proposes to up that transfer by another million to million and a half dollars plus the already huge 9% taken right off the top. If the city were not funding the General Fund with money from the waste water system. There would be no need for a rate increase. It is possible that if the City general government took no money from the sewer system, it would not only be solvent but would probably be able to lower rates.

    The same moving money around to the General Fund happens with the Water money and the Drainage frees. It might be interesting for somebody to explore just how much of the drainage fee is spent on non-drainage items. Nobody has really investigated the Electrical system but my guess would be that it is the worst of the bunch.

    Why does all this moving around of money occur? Because it makes it possible for the City to keep spending huge amounts of money without a tax increase that would upset the voters. If your taxes went up, you might start questioning where all the money is going. Instead, the City Council does a stealth increase through the utility systems.

    Our new City Manager, Jim Nuse, is not the bad guy here. The bad guy is the Mayor and Council ( as well as past Councils) who have directed Mr. Nuse to give all the City departments a 2% raise across the board. They should be telling the City Manager and Staff to do a drastic cut where possible to get our utility fees back to where they should be and help the City avoid a bond default. The City bond holders are getting nervous because the City has stretched the limits of borrowing, hasn’t completed enough projects with the borrowed money and are not in line with the Cities fiscal covenant to maintain a certain level of reserve.

    Every citizen of San Marcos should ask to see Lisa Spencer’s presentation. It will scare the hell out of you. It appears that Lisa’s information has caused the City to cut the rate increase in half this last week.

    Mr. Nichols, Mr. Hooper and Mr. Thomaides were present at the Open San Marcos presentation so they are all aware of this situation. I do not know if any of the setting City Council or the Mayor have this information. The current City council should not make any decisions about the up coming budget without knowing about these issues.

    Charles Sims

  2. As I understand it the utility income transferred to the general fund is called the “Franchise Fee” and is currently 9% of gross revenue. It will be reduced to 8.5% next year and then to 7% either 1 or 2 years after that. This money ostensibly covers costs the city incurs for “managing” the utility and acts as lease payment for using city property as easements, etc. It makes me wonder what the franchise fee is in other cities.

    Having looked at the budget I’m also driven to wonder how our city tax rate compares to other cities of similar size and growth. I think the council, being elected, is not inclined to suggest a tax increase so instead generates revenue in this less direct manner.

    Lastly, perhaps we should audit our appraisal district to see if values are set fairly and accurately across the board before we tax and fee our citizens to death.

  3. Not everybody in San Marcos pays property taxes. Everybody in San Marcos pays water and electricl bills. The cost of local government falls heavily on local private property owners. Many property owners(schools, TSU,County, State, Federal, churches, frozen senior citizens) pay no or reduced property taxes shifting the burden to property owners that do pay full-rate taxes. All of them, however, pay water and electric bills.

  4. This shifting of money from utilities to the General Fund of San Marcos reminds me of how, for years, money paid by workers to Social Security has been shifted to other U.S. departments. The Social Security Administration is holding big IOUs from the Federal government, but fat chance it will ever see repayment. That’s one reason Social Security is in trouble.

    The city should stop raiding the utilities funds, because every cent meant for them — and MUCH more — will be
    needed when the Hays Caldwell Public Utility Agency costs ratchet up as construction starts on the water
    pipelines from Caldwell and Gonzales counties to Hays County.

  5. This information comes from the web site of Texas Budget Source which claims to be the leading source of government spending and financial transparency in Texas.

    San Marcos is listed as failing.

    Cities: Transparency Rankings
    Growing expenditures made at the city government level necessitate a greater level of transparency.

    With this in mind, has developed its own transparency rankings to recognize local government that lead, put an effort into, or can improve upon transparency initiatives, according to three categories: exemplary, pass, and fail. These rankings are based on an analysis of what information the county has posted online—e.g. budgets, check registers, and financial statements—as well as the quantity of information available; how prominently it is displayed; how searchable the information is; and whether the data is in an easily downloadable format that users can manipulate.

    More cities will be added to these rankings as their information is reviewed. If your city is currently ranked by Texas Budget Source, but has upgraded its transparency, please send a note to

    The categories are defined below:
    An “exemplary” ranking indicates that a local government has exceeded basic expectations of open government.
    A “pass” designation indicates a local government that has taken steps to become transparent, but with room for improvement.
    A rank of “fail” denotes an entity that is not meeting its obligation to make public information available, accessible, or searchable.

    Transparency Ranking Snapshots – Cities

    Exemplary Cities
    Passing Cities
    Failing Cities
    Exemplary Cities

    The city of Arlington has an entire page dedicated to open government – including its budget, financial reports, campaign finance reports/check registers, city council meeting agendas, minutes, and videos, the American Recovery and Reinvestment Act data, and open records requests links.

    Corpus Christi
    The city of Corpus Christi has posted adopted budgets, capital budgets, comprehensive annual financial reports, city annual reports, and check registers.

    The city of Huntsville exemplifies the rank of exemplary with its inclusion of its financial reports, budgets, and check registers, plus the ease of access to find the data.

    Passing Cities

    The city of Austin has recently increased its transparency initiatives, but needs to improve by posting their check registers to the website.

    To earn a ranking of exemplary from Texas Budget Source, the city of Dallas needs to begin posting its check registers.

    Houston has been recognized with a passing rank, with the potential to improve its fiscal transparency with the inclusion of its check registers.

    Failing Cities

    Each of the following cities has made minimal attempts to provide fiscal transparency to the public. These cities may have tried to post at least one budget to their site, but remain well short of what we consider to be complete fiscal transparency.

    1) Brownsville

    2) San Marcos

    3) Waco

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