Hope City Manager Catherine Cook told the Hope City Board of Directors in a special noon meeting Wednesday that wastewater rates must increase if Hope is to keep pace with the need to rehabilitate what is, in some places, a century-old sewer system.
Cook recommended to the board that residential base rates increase from $6.30 per month currently to $10.50 per month by 2021 and usage rates, based upon a minimum 2,000 gallons per month average, increase from $1.50 per thousand gallons to $2.75 per thousand gallons by 2021.
She said commercial usage rates are billed on actual usage, where residential use rates are billed based on the average usage between October to December each year, and adjusted in the succeeding year.
The board took no action on the proposal Wednesday, but is expected to make a decision July 2 about how it will incorporate Cook's plan into a bond issue to refinance existing 1997 and 2007 wastewater revenue bonds, and what period to set for retiring them.
She said the plan calls for a 25-year payout to reduce annual costs, and for a single bond issue to reduce fiduciary costs, as well as a limit below $10 million to allow Arkansas banks to bid on the bonds.
Cook emphasized that her plan is not a take it or leave it proposition.
“It can be fine-tuned or tweaked any number of ways,” she said.
But, the board needs to develop a financing plan for a proposed $7.1 million wastewater line rehabilitation and replacement program which it has already approved, she said.
“This is on about seven percent of the system,” Cook said. “So, there is more bad pipe out there.”
She said the city has raised its wastewater rates only twice within the past 20 years. Cook said that, while Hope has the second-lowest rates among 27 cities in Arkansas surveyed, it is unrealistic to think they cannot remain low by comparison with good management.
“We're trying to keep the base rate low enough where the small user and households on fixed incomes can afford it,” she said. “
The average monthly residential base rate among the 27 cities is $13.52 and average per thousand usage rate is $4.50, she said.
“Looking at the base rates, some are really low,” Cook said. “Ours is significantly below the average; where we diverge significantly is in per thousand usage.”
She recommended a 25-year amortization period for the bonds, but warned that other capital projects will be necessary during that period, and the city should maintain at least $625,000 in revenue reserves for debt maintenance alone.
“During the first three years of the bond issue, we will have a lot of construction going on,” Cook said. “There will not be a lot of capital outlay, otherwise, in that budget.”
However, within the first five years of the bond issue, Cook said capital expenses will increase in other areas in the wastewater fund, requiring more than $625,000 in reserve for debt service and capital projects.
Page 2 of 2 - “There will come a time when a tank will need to be painted, a pump station will go out; but, those are things which can be planned for,” she said.
But, it will require a revenue reserve adequate to the need. And, based upon Cook's planned approach to incremental increases beginning this year through 2021, debt service and capital outlay reserves can be estimated between $659,185 and $863,084 per year, she said.
Cook said damage to the wastewater collection system has been severe in recent years because of drastic fluctuations in weather conditions.
Mayor Dennis Ramsey urged the board to be prepared to consider action on some variation of Cook's proposal at the next board meeting in light of rising bond interest rates, which have gone from 1.62 percent six weeks ago to 2.53 percent at the close of business Tuesday.
Ramsey said that when Hope's rates are compared with the cities Cook surveyed, local rates will still average in the middle range, despite the percentage increase the rates themselves represent.