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10/28/2012 6:01:00 AM
Kingman councilman not convinced wastewater rate hike is necessary
Councilman Richard Anderson
Councilman Richard Anderson

Wastewater rates are most likely going up by 25 percent Jan. 1, but Councilman Richard Anderson continues to question whether or not it's a good idea.

During an early October meeting, Anderson was the sole Councilman to vote against a motion that started this year's rate-hike process. He requested city staff provide additional concrete information to support the increase. Councilman Larry Carver, though he voted to approve the motion, said he wanted to see the information Anderson requested, too.

Anderson's argument against the full 25 percent increase is focused on the wastewater fund and the money in it that was carried over from last fiscal year.

"There's a lot more in there than we projected," Anderson said.

The fund contained $2.5 million to start the current fiscal year, according to the October City Manager's Report. That's a little over $1 million more than expected, Anderson said.

However, the amount is supposed to get its final audited adjustment this week and the amount could change.

The rate increase is expected to raise $1.2 million, but since the fund is better off than projected Anderson argues a full 25 percent rate hike is not needed.

Coral Loyd, the city's finance director, said that money has a defined purpose required by the Western Infrastructure Finance Authority, which is the entity that financed the construction of the city's two wastewater plants.

Though not raising the rates by 25 percent would help people out financially in the short run, it could mean the city has to face hefty consequences in the future.

"The dangers of not raising rates sufficient to meet (WIFA) requirements include a financial downgrading that would result in derogatory and out-of-compliance findings reported in the city's financial statements and degradation of the city's credit rating," Loyd said. "Any future borrowings of any nature would carry a much higher interest rate."

Anderson doesn't buy it.

"I want the actual details and the actual language," Anderson said of the loan covenants. He said the WIFA implications of not raising the rates by 25 percent have not been spelled out to Council, and he can't understand why it would care as long as the city has enough revenue to meet its covenants.

"If we can't (adjust the increases), why would we ever want to deal with WIFA again?" he said.

Anderson said it's quite possible that a 5 percent increase would do the trick. He wants the city to validate the proposed increase and believes it's the responsibility of Council to make sure it does.

Here's how it all breaks down.



Loans

The city took out two 20-year loans through the WIFA in 2009 and 2011 to build the Hilltop Wastewater Treatment Plant and the Downtown Wastewater Treatment Plant. Combined, these loans are worth between $53 million and $55 million.

The final cost for Hilltop was $33.7 million, $1.3 million short of the original estimate of $35 million, according to a report put together by Loyd.

The downtown facility is close to completion. By early October, the city had spent more than $15 million on the plant. But Loyd expects the plant to cost roughly $1 million less than the original $18.5 million estimate.

The city took advantage of multiple cost-saving ideas at both plants, and that's why the final construction cost for both is less than the original estimates. Additionally, the cost-saving mechanisms put in place by the city should save on operation costs and potentially lower the final amount paid on the loans.



Payback

The city needs $7 million in annual wastewater revenue to pay back the loans, remain in compliance with WIFA and operate the plants, Loyd said.

The annual loan payment is $4 million, and the city must also set aside a little more than $775,000 a year in reserves. To actually operate the plants costs between $1.9 million and $2.1 million a year, and the city puts away $125,000 for contingencies.

Over the course of the first five years of the loans, WIFA requires the city to set aside more $775,000 a year combined for debt reserves. At this rate, the reserves will amount to nearly $3.9 million at the end of the five years, Loyd said.

"That's essentially one full year's payment," she said.

But the $775,000 requirement doesn't end after five years have passed. Once each plant surpasses the five-year mark - 2014 for Hilltop and 2016 for Downtown - the city will begin putting $775,000 a year into a repair and replacement fund and continue doing so throughout the life of the loans, Loyd said.

The annual $775,000 payment - whether it fulfills the reserve requirement or the repair-fund requirement - contains $535,127 for the Hilltop loan and $243,420 for the Downtown loan.

If the city does need to make an expensive repair to either of the plants, it can use the money in the fund, but it doesn't need to replace what it spends on a dollar-for-dollar basis. The city would simply need to deposit that $775,000 a year into the fund, Loyd said.

Additionally, WIFA requires the city raise revenue sufficient to cover 120 percent of the annual loan payment, which guarantees the city always has at least 20 percent of the payment ready to go, she said.



Rates

When City Council adopted a notice of intent to raise the wastewater rates by roughly 25 percent in early October, it started the city down a familiar road.

The incoming Jan. 1 rate hike represents the fifth increase to the city's sewer rates in as many years. Council raised the rates by 50 percent, 48 percent, 25 percent and 25 percent for fiscal years 2009, 2010, 2011 and 2012, respectively.

The good news: The increase being discussed for fiscal year 2013 is the last one scheduled.

Though the city has roughly 18,500 water customers, less than half of them are connected to the sewer, Loyd said. This poses a problem for the approximately 9,050 wastewater customers because they're the ones footing a majority of the bill for the two plants.

The only sources of wastewater revenue are ratepayers and wastewater investment fees, according to Loyd's report.

The money collected through wastewater investment fees hasn't come close to what was outlined by the 2008 Independent Utilities Rates Study completed by Red Oak Consulting and commissioned by the city.



Huge shortfall

The study anticipated sewer impact fees would bring in an average of $770,000 annually between 2009-2012. Instead, it's brought in an average of $188,000 a year during that time for a whopping $2,328,706 shortfall, according to Loyd's report.

Based on the study, only three rate hikes were going to be needed - the 50 percent for 2009, the 48 percent for 2010 and a seven percent one for fiscal year 2011.

Several factors led to the city needing to adjust the rates to balance projection shortfalls, including the recession and the state-imposed moratorium on impact fees, Loyd said.



What's next?

Council will discuss many of Anderson's concerns at the Nov. 6 meeting, and the information he requested should be available at that time. Also, a public meeting to discuss the rates is set for Nov. 20.

For Loyd, it all comes down to compliance.

"The city must remain in compliance with (the) loan covenants and be able to provide adequate sewer service for the community," Loyd said. "Out of compliance, environmentally or financially, is not acceptable."

KRMC (career choice)-46961
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Reader Comments

Posted: Thursday, November 1, 2012
Article comment by: Proud Kingmanite

@ Frank, educate yourself. http://en.wikipedia.org/wiki/Arizona_v._California
Arizona vs. California. Look it up.


Posted: Wednesday, October 31, 2012
Article comment by: Frank Harris

Proud Kingmanite, how do you figure CA takes AZ water. If you'd understand how the Colorado River allocation is divided up you'd know your statement is irresponsible and inaccurate.

Posted: Tuesday, October 30, 2012
Article comment by: vock canyon

I'll repeat this. It costs 20,000.00 to drill a well and install a septic system. How come the developers get away with only paying $1400.00 to hook up new houses to the septic system. It is time the city to stop subsidizing house building developers through cheap septic hook up rates. We need to increase the hook up rates to at least $15,000.00 to cover the cost of the new system.

Posted: Monday, October 29, 2012
Article comment by: This is Insane

I am glad I don't live in Kingman. My septic cost $ 1600 twenty two years ago (about
$ 6.00/mo) and my water costs $ 16.03 per month. If I lived in Kingman they would condemn my septic so I had to hook up to the sewer and pay ten times as much. For what? Mismanagement, or is it the contractors and kickbacks? In WI I paid $ 38.00/mo for city water and sewer and had a garden.


Posted: Monday, October 29, 2012
Article comment by: V Stokes

One question for all the posters....do you know when your sewer rates are set and how they are adjusted throughout the year?

I doubt it. Call the billing office and ask the nice ladies to explain it to you. With a little bit of conservation for 3 months, you will save throughout the year. Or WTH...just go here...http://www.cityofkingman.gov/pages/depts/water/sewer_fees.asp

I can't imagine a 2 person household paying more than about $85-90 (water, sewer and sanitation) a month, unless they garden extensively or have a pool.


Posted: Monday, October 29, 2012
Article comment by: Truth Teller

Number users to the cost of the project? Someone didn't require development contractors to build the infrastructure ahead of time. Anyone making sure new developments use the system ?

Posted: Monday, October 29, 2012
Article comment by: Proud Kingmanite

How about we get the money from California, who uses up to 50% of OUR water from the Colorado River? Raise the rates they pay to receive that from us and funnel that money into paying for our wastewater plant loan.

It's about time California was forced to get their water from that enormous body of water (aka the Pacific Ocean) instead of taking it from AZ anyway. Salt water can be processed to remove the salt and made into perfectly potable H20, and there's plenty of it right off their coastline.


Posted: Monday, October 29, 2012
Article comment by: Always Question

Anderson, Anderson ... HE's our man. He asks qestions like nobody can ... or WILL!
(Him and our KDM's investigative Reporters)

We want 100% PROOF!

WHO's paying it?
HOW much are they paying?
WHY are they paying it?
WHEN do they HAVE to pay it?
WHERE do their payments go?
WHAT else receives any part of those payments?
(Fill in any blanks here)


Posted: Sunday, October 28, 2012
Article comment by: I can't afford to live in Kingman City Limits

No advance planning and I have to pay for it?? Thanks a LOT!

Posted: Sunday, October 28, 2012
Article comment by: Jack Friedman

Like hogs feeding the City of Kingman WASTED money on things they didn't "need" thinking the endless stream of money wasn't going to stop. Even in the past 2 years they are spending money on things that aren't important so the 9,000 "customers" have to pick up the slack. Why not base the amount of usage and spread it around to the 18,000 "customers" which would be more fair? Stop the garbage talking and get behind the tax payers and stop bending us over!

Posted: Sunday, October 28, 2012
Article comment by: Frances Perkins

Rate payers are being hammered to death on these sewer rates. Find a way to get the other water users to help pay. They are benefitting also, since all our water comes from the ground beneath us.

Posted: Sunday, October 28, 2012
Article comment by: H J

Seems like Mr. Anderson is the only member on council who actually looking out for the people he was elected
To represent!


Posted: Sunday, October 28, 2012
Article comment by: carl milner

Hey council people, how about reducing the burden on the ratepayers by implementing a sewer standby charge and have everybody who may become connected in the next 20 years pay it on their bills or property taxes

Posted: Sunday, October 28, 2012
Article comment by: the first time and not the last time

pls back rich on this as he is not from the good old boys network

Posted: Sunday, October 28, 2012
Article comment by: Teresa Wegscheid

Good for Mr. Anderson to ask questions and bring this out in the open. If things are explained to people, it helps some even if we don't like we are getting robbed each month just to pay for water and sewer.

We have bills over $250 a month because we had grass. We got rid of the grass in front and our bills are still $110-$120, which is still too high. There are just 2 of us in our house.

This in addition to the extra sales tax you spend when going out to eat is hitting people where it hurts.

My husband and I are fortunate enough to have stable jobs, and it still puts a dent in our budget. I can't even begin to imagine what it's like for those who are trying to make ends meet because they have no job.


Posted: Sunday, October 28, 2012
Article comment by: jack bittner

My comment will most likely be viewed as useless as lips on a woodpecker, but still, lets consider- If the City Wizards want to pay for all the improvements to the waste water plant, then why not keep the rates the same as they are now, and just pay off their bill at a longer rate of time. The tax payer didn't ask for all these improvements, but most likely they had to make the improvements to keep up with what ever powers force them to do so. Let the City dig into their own pockets to pay for it, which as we all know, those pockets were filled by US- The Tax Payers Anyway. I wouldn't be surprised if they have money given to them by the federal government that could pay for the project (hands down) that they are not telling the people about.

Posted: Sunday, October 28, 2012
Article comment by: The Fox Hound

It seems to me that the debt could have been structred in a more longer term period. Either someone in govt made a decision that home owners wouldn't mind paying 200 a month for their toilet or they were not aware that this would happen. I'm not sure which is worse. If this is something that the state mandates for environmental heatlh why isn't the cost shared among all Arizona residents. It just seems very unfair for such a small amount of people to pay for such a large part of our infastructure.



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