City Council will face tough choices if water rate increases overturned
City Clerk Robin Patch and other staff members continued to sift through letters Thursday from residents protesting the effort to raise water rates, matching signatures to parcel numbers to check their validity.
City Clerk Robin Patch, left, checks protest letters along with Debra Wright and Fritz Ludemann on Tuesday morning. Del Norte Triplicate / Bryant Anderson
Patch and her colleagues expect to be counting Proposition 218 protests through Thursday, City Manager Eugene Palazzo said.
Officials say the Council will face some difficult decisions if the protest succeeds in overturning the rate increase. Two possible options may include defaulting on a state loan and risk damaging the city’s credit rating, or using the city government’s general fund to fill the $649,000 budget gap in the water fund and risk having to cut other services.
“If I were a city resident and I heard that the City Council was considering a policy to use that money to subsidize the water system for county residents living outside the city, I would be concerned,” said Interim Finance Director Susan Mayer. “This would be a very difficult policy choice to make because these are the city residents’ tax dollars.”
Staff members began counting protest letters following the Council meeting Monday night. At that time community activists opposing the rate increase said they had collected 2,203 protests, more than enough to halt the city’s plans.
Since the water system serves 3,741 parcels, valid protest letters for 1,871 parcels are required to stop the rate increase.
Staff members are weeding out the letters that contain multiple signatures for one parcel, said City Attorney Bob Black. Under Proposition 218, only one protest letter per parcel can be accepted. Even in the case of an apartment complex with 30 or 40 residents who have submitted protests, only one of those will be counted for that property, he said.
If the protest effort fails and the Council grants its final approval, water customers would see increased rates starting in December.
Rates would increase by $6.16 — or 60 percent — for residential water customers who use 1,600 cubic feet of water per month. Rates would increase again by $3.79 in 2014, by $3.44 in 2015, by 72 cents in 2016 and 74 cents in 2017.
The rate increases are necessary to close the water fund’s budget gap and put the city into a position to try to obtain loans to finance a $4.5 million five-year capital improvement plan, said Public Works Director Eric Wier. Right now there is no money for preventative maintenance or the day-to-day operation of the system, he said.
If the rates don’t increase, the city’s water fund will be out of cash by January, according to Mayer. The city owes the state $175,000 in a January payment of a zero-percent state loan that paid for redundant water lines and increased capacity at the water tank near Washington Boulevard in 2000. The second semi-annual loan payment is due in July, Mayer said.
If the rate increases are overturned, Palazzo said, he would review the city’s options with the Council. One of those options include re-evaluating the proposed rate structure, which could start a new Proposition 218 protest process.
“There’s another 218 and they can collect signatures,” he said, referring to the opponents who went door to door to collect signatures.
Defaulting on the debt to the state could damage the city’s credit rating, making it difficult to obtain loan financing for future water and sewer projects, according to Mayer.
Taking out such loans “is an industry standard and it is a good business practice,” Mayer said. “However in this case, it is more than good practice, it is the only way you will be able to make these improvements. You simply don’t have the cash and you have such a backlog in your projects.”
Another option is for the Council to use money from its sole discretionary source, the general fund, to close the water fund’s deficit, Palazzo said. Unlike the water and sewer funds, which is sustained through ratepayers, revenue for the general fund comes from property tax, sales tax and transient occupancy tax. The general fund pays for the Police Department, the Fire Department, the city’s parks, streets and street lighting and the swimming pool, Palazzo said.
“The Council has a choice on how those funds are spent,” he said. “I’m going to have to go through what we’ve spent our general fund money on and probably come to the Council and provide some recommendations on where we can trim.”
Monday night, Palazzo told Councilwoman Kelly Schellong that $642,000 would have to be cut out of the general fund to subsidize the water fund.
During a public comment period, a handful of residents said they didn’t buy the staff’s description of what would happen if the rate increase doesn’t take effect. They pointed out that county residents pay sales tax in the city in addition to their water bills, but aren’t able to take part in city elections.
“How dare the two of you talk about blackmailing your taxpayers. That’s not appropriate,” said county resident John Stetson, addressing Mayer and Palazzo. “It’s not appropriate for any government official to tell the people if you don’t give us more money we’re going to cut your service.”
Stetson said the city should consider cutting expenses before asking for a water rate increase, and should prioritize the water system’s repairs.
“Why does the taxpayer and everybody who’s a rate-payer have to cut except the city?” he asked.
In the past three years, the city’s water fund has lost between $300,000 and $500,000 a year, according to Mayer. In the past the city has dipped into the fund’s reserves to pay its bills. That reserve has been now been depleted, and the city’s long-term goal is to rebuild the reserve, she said.
The city’s water system has 4,100 individual meters, 490 hydrants and serves a population of about 14,000 — many of them non-city residents, according to Wier.