by 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.Email | Print