Need for rate increase explained
COLUMBIANA – The city needs a plan to pay back a 40-year federal loan for the new water plant, Chris Ryman told council this week.
Ryman was representing Arcadis Engineering, the company hired on a $690,000 contract in 2008, and spoke to council following their request he explain the figures they received recently that reflected water rate increases for city customers.
Ryman said the figures were a collaborative effort between the company and the United States Department of Agriculture (USDA) following the company’s analysis of the city’s 2010 financial records, water plant expenses and the cost of the new plant.
“Those rates were projected as to what is needed to meet loan and obligations for reserve amounts set aside to cover future expenses and operating expenses,” he said.
The city sought and was approved for a $4.09 million grant and 40-year, two-percent interest loan through the USDA Rural Development Water and Wastewater Disposal Program.
The funding will cover the cost of the roughly $15 million construction project that has been in the works since 2006 after a number of studies identified the aging infrastructure of the current water system, Ryman said.
The project has yet to be bid out, and he said the city can’t move forward with that process until the USDA sees it will have the sufficient funding to pay back the loan in the coming years.
“The key thing is that to continue this funding process, they need to see some plan,” he said.
The agency does not enforce water rate increases, although that is one way the city can ensure the loan is paid back, he added.
Rates presented to council recently showed the loan could be paid back by increases to customers through 2015, the same year the plant is slated to be operational.
Finance Director Mike Harold said the city is expected to make $400,000 annual payments on the loan and that figure includes the required reserve.
Ryman explained the reserve is necessary so the city will always have one year’s worth of payments available.
He said it’s the company recommendation the city move forward with the draft plan with the understanding that water rates could be adjusted as needed.
He stressed that approving the rates does not mean they will be enforced, or even set in stone.
“Those rates could be adjusted, potentially down, as new numbers come in,” he said.
Harold said the water fund had a $612,000 balance at the end of the year and that the city wouldn’t need to implement a rate increase right away, but Councilman Bryan Blakeman argued that waiting would only result in a larger increase later.
The water rates, whether increased or adjusted down, would need to meet USDA approval for the loan payback, Ryman said.
Councilman Lowell Schloneger said when the project was first being discussed in the early 2000s, it was understood there would be rate increases.
“This was already done once with a joint council and citizen’s committee to move forward with the water plant knowing there would be rate increases,” he said.
He then suggested that instead of implementing increases each customer could be charged a $3.00 fee on their bills, similar to the fee already being charged for electric.
Following the lengthy discussion council approved accepting the draft rate increase plan, with a stipulation that the city work on its own plan over a period of 90 days.
Accepting the plan does not mean the rates will be increased at this time, Councilman Tom Ferguson pointed out.
“I think we all agree there is no way to do this plant without demonstrating we can pay the loan back,” Councilman James King said.
Blakeman was the only one who voted against.
Council also approved:
A request from Larry Deidrick to hold the annual Wine Festival at Whispering Pines from 11 a.m. to 9 p.m. June 15.
– A request from Jacob Sevek, American Legion street fair manager, to hold the annual street fair on Sept. 4.