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July 17, 2014

White Springs to hold utility workshop

Water/wastewater rates will be discussed

Jasper — On Tuesday, July 8, Bob Mearns from Florida Rural Water Association (RWA) presented a utility rate study to the White Springs Town Council. Mearns was asked by the town to provide the council with updated information on water and wastewater rates to ascertain whether or not current rates are meeting expenses as they begin this year’s budget process.

“As you may recall, we had the RWA conduct a study last year (July), which provided us with the information we needed to make some tough choices during our budget process,” said Mayor Helen Miller.

The RWA recommended that the town increase wastewater rates to cover debt service and operating expenses. Mearns explained that the base rate is determined by reviewing fixed cost expenses (debt service and infrastructure repair needs). The charge per 1,000 gallons is determined by the operational expenses divided by the number of gallons sold, divided by 1,000.

The current base rate for water is $17, which includes up to 2,000 gallons, and then an additional $2 per each 1,000 gallons after that.

Water system revenue is about $72,729 per year and the system’s expenses are $60,994 per year, leaving a balance of $11,735.

“The water system is not accruing any reserves for future needs, such as capital improvements and contingencies,” Mearns explained.

Wastewater rates were significantly increased in Oct., 2013. The current base rate is $24.35, which includes up to 1,000 gallons, and then $8.41 per each 1,000 gallons after that.

The wastewater system’s revenue is on track to be $130,000. The debt is about $74,000 per year and system expenses are $125,000 per year, which is nearly $200,000 per year in rates and charges. Miller reminded everyone that the debt of $74,000 is for the loan for the construction of the wastewater system.

“The wastewater system is not accruing any reserves for future needs, such as capital improvements and contingencies,” Mearns said.

The current rate structures provide an enhanced revenue stream and provides fairness to the ratepayers in that ultimately the customer must fund the operation and debts of the system, Mearns explained.

“That’s common sense,” he said. “The city doesn’t have any other way of earning money than through the rate they are asking to pay for the operation and maintenance of the system.”

He also said that since the town must operate a fiscally sound water and wastewater system, it would be beneficial to continue the current rates and re-evaluate them in 12 months. Then, if it does not provide the expected revenue, the town can revisit the base rate and/or increase the 1,000 gallon rate.

He explained that excessive amounts of rainfall increase the costs of operation because the wastewater system has to work overtime to treat storm water. Add to that the cost of electricity.

Andrew Green, who manages the wastewater plant, stated that April and May heavy rainfall this year put the system at 99 percent capacity.

“Last month we were only at 50 percent,” said Green.

It has been six months since the first study was done and Mearns said an 18-month study would offer a better overview. The town, he added, should consider an inclining or tiered rate structure, for both water and wastewater, which would allow them to capture more revenue.

Mearns recommended that the town create restricted reserves in the water and wastewater funds, and implement an asset management program for funding infrastructure repair and replacement projects, such as facilities, pumps, tanks and motors. Without an asset management program, he said, the town should definitely have a reserve for contingencies.

“An asset management program takes a while to do, but it is quite simple,” he said.

Basically, it is putting aside funds on a regular basis that will be available in case a major piece of equipment fails and needs to be replaced, and to ensure long-term sustainability of the water and wastewater utility.

“Your system is not going to last forever,” he said. “It is constantly in need of repairs.”

Yearly adjustments

Mearns said some water and wastewater systems adjust their rates annually by three percent, plus or minus. FRWA, he said, suggests using the Florida Public Service Commission percentages or the Consumer Price Index percentages, which for 2013 were 1.63 percent and 1.7 percent respectively.

“These are verifiable indexes and will defeat any charges of arbitrary and capricious annual rate increases,” he said.

Council weighs in

Vice Mayor Walter Mckenzie said, “The (recent) increase was traumatic for a couple of reasons. One reason is because we hadn’t had an increase in a good number of years. All of a sudden, we were faced with a situation that we had to catch up with all at once to keep from getting in the hole, and to be able to pay the debt we owe.”

Another reason the rate hike was so traumatic, McKenzie said, is that the residents of White Springs are very economically disadvantaged.

“We’ve got a lot of people on low and minimum incomes,” he said. “It’s a concern for all of us.”

McKenzie said a lot of people have been asking the same question, which is why are White Springs rates so much higher than neighboring towns or towns down the road? He posed the question to Mearns, who said he gets asked that question all the time.

“Understand that your expenses are related directly to the debt, which is your base rate,” said Mearns. “The base rate, again, has to be paid each year as a debt you owe. I just came from another community that had no debt, so their rates were low.”

Other communities, he said, have astronomical debt and astronomical rates.

“You’re kind of in the middle,” he said.

Loans

Town Clerk/Finance Director Pam Tomlinson explained there are two loans, one to the Department of Environmental Protection (DEP) and one to the U.S. Department of Agriculture-Florida Rural Development for a total of about $74,000 annually. The county, she said, pays $45,000 toward the rural development loan through an interlocal agreement with the town for services provided. The funds are earmarked for debt service. Mearns said this was the first he had heard of the county’s monetary contribution. He said it would change the base rate, but not a lot. He said he would like to see the new rates stay in place for another six months in order to gauge how things are going.

Councilman Rhett Bullard noted that the last time there was a rate increase was 2005.

“So, there hadn’t been one for eight years,” Bullard said.

Tomlinson advised the council, “Per your loan agreement with DEP, we were supposed to raise the rates annually (3 percent).”

Tomlinson said the town council back then agreed to the yearly increases in order to meet the terms of the loan agreement, but it was never implemented.

Prior to the 2008 recession bond monies were able to sustain the DEP wastewater plant construction loan payments each month. Then, with the bond no longer making money, the loan cost was put on the town to pay.

The loan amount was sitting at $96,000 when Bob Farley came on board as town manager last year. He got it reduced to $33,000 by refinancing the outstanding loan whereby the town was able to reduce the interest rate and extend the length of time needed to pay off the balance.

The bottom line, Miller said, is the town is in a better financial position now since the rate increase last year.

“We’re meeting our long term debt and we’re paying expenses,” said Miller.

“But you’re still not building reserves,” Mearns interjected.

“So, that gets us back to the asset management program you’re recommending,” Miller noted.

Miller suggested that Mearns take the inventory list of the plant and start building an asset management plan for the town that would need to be updated yearly.

Miller also asked that Tomlinson give the council copies of the original loan agreement to review and then have a workshop on the matter after the new town manager arrives later this month. That way, council members would all have the same amount of information; the original document as a beginning point, then determine what has happened over time, what was supposed to happen over time, what happened last year, and where the town is today.

McKenzie said when they have the workshop he wants to know why the annual three percent increase was never implemented, and also how much the base rate would be if the $45,000 county contribution is taken out of the equation that was used for the rate study by RWA.

“I have a feeling that it’s not going to be a lot, but I want to know,” McKenzie said.

Mearns offered to be present at the workshop if the town so desired.

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