Council Receives Rate Study Results

Dec 26 2019 /

by Terry Rogers

 

 

Photo Source: www.cityofmilford.com.

On Monday, December 9, Milford City Council received the results of a rate study focused on water, wastewater and solid waste rates in the City. The study was similar to one conducted on electric rates several years ago to determine that rates charged are adequate to cover the cost of operations. Dawn Lund, Vice-President of Utility Financial Solutions (UFS) presented the results of the study.

“When we determine how adequate your rates are, we look at three factors,” Lund explained. “We look at your debt coverage ratio, which is the amount you must pay to cover bond issues for large projects. We also look at what your minimum cash reserve needs to be to keep your bond rating high as well as what your operating income is for each service. Using that information, we develop suggested rate increases or decreases to keep each department solvent in the future.”

The first department reviewed by UFS was the water department. Lund explained that the City anticipated a large water project in 2023 which would increase the debt ratio by $7.6 million. Once that debt is established, Lund explained that the City would see losses in the water department by 2024 if there was no rate increase. Based on the criteria, UFS recommended a 3.9 percent rate increase starting in 2020 and increasing by 3.9 percent each year for the next five years.

“The $7.6 million is for a new water tower and plant upgrades,” Lund said. “With a 3.9 percent increase, the average customer will see an increase in their water bill of around 78 cents. I also will point out that the City has not raised water rates since 2012.”

There are no large projects planned for the wastewater department, Lund told Council. However, without a rate increase, the City’s debt coverage ratio will drop below acceptable standards. UFS recommended a 4.9 percent increase over five years which would increase the average bill by $1.18.

“Why not go to 6 percent,” Mayor Archie Campbell said. “If 4.9 percent is just going to cover the costs, maybe we need to consider going higher.” Lund explained that raising the rates too high too quickly could result in pushback from both residents and businesses. Currently, 4.9 percent would cover the needs of the wastewater department and preserve the City’s bond rating.

As for solid waste, the City is expecting capital improvements which include the purchase of new trucks. In 2023, those trucks could cost as much as $670,000. UFS recommends that the City raise solid waste rates by 4 percent, increasing costs for the average customer by $1.05.

“Another option is for the City to consider changing some of the services covered by the solid waste rate,” Lund said. “Currently, the City of Milford picks up recycling weekly while companies that cover surrounding areas do so bi-weekly. The City also picks up yard waste weekly while surrounding companies do not offer that service on a regular basis. Some surrounding companies do not offer bulk trash pickup while others charge an additional fee. The City of Milford does not charge extra and picks up bulk items weekly. It is possible that the City could keep rates the same by reducing recycling pickup to every other week as well as by charging additional fees for yard waste and bulk pickup.”

Lund also provided information about PILOT payments which allow the City to use utility funds to cover the cost of police, fire and other City services. Lund explained that in order for PILOT payments to work, the City would need to increase rates by as much as 7 percent in order to cover the reduction in utility reserves. This 7 percent would be in addition to any rate increases that were implemented.

“Before you decide to implement PILOT payments, we recommend that you get a legal opinion,” Lund said. “If you need to increase rates by 4.9 percent in wastewater to cover costs and then add another 7 percent on top of that, you will probably get a big pushback, especially from your commercial clients. Before you take that route, you should talk to the City Solicitor and weigh whether that increase is worth it or you should fund needs in a different way.”

Council will review the rate survey information and determine whether rates will increase at a future meeting.

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