Rate survey gives Council sewer puzzle’s missing piece
Residents are invited to state their views on the city's future sewer options Thursday as the De Soto City Council nears a decision about where it will build a new wastewater plant.
Information provided Council members in advance of Thursday's meeting indicates the topic should be of considerable interest to current sewer customers.
An analysis from Shafer, Kline and Warren consultants shows De Soto's current sewer customers will face a rate increase of from 9 percent to 26 percent in 2005 just to meet the debt service on the new treatment plant. Just how much of a rate increase will be passed on to customers will depend on where a new plant is built and how the debt is structured.
Last month, the Council narrowed its options when it agreed to either build a new sewer near the current plant east of Kill Creek north of 83rd Street or in the West Bottoms. The Council requested the rate implications of the two options before making a final selection, which could come at Thursday's meeting.
The finance options the consultants provided indicate the city would need a bond of $6.82 million to build a new plant near Kill Creek. A West Bottoms' plant would require a bond of $8.64 million. The need for a new force main and pump station improvements accounts for the added cost at the West Bottoms' site. However, the cost of the two sites are nearly identical for the plant's 20-year projected life.
The city has two methods of raising revenue to pay off the debt. Those are the monthly sewer fees all those on the system pay and a system-development fee charged to new development. Obviously, the greater reliance the city places on system development fees the less it would have to increase customer rates.
The other tool the Council can use to lessen the pinch on current customers was "back loading" the debt. City Administrator Greg Johnson explained that involved structuring higher annual principal payments in the bond's later years.
"It's an assumption that there will be a larger customer base to help pay for the principal payments," Johnson said. "If you look at the fact that this is a utility that is going to serve as a primary generator of new growth, it makes sense we look at what the future customer base will be and that impact on rates."
The analysis assumed the city add 75 new sewer customers a year during the bond's 20-year retirement schedule, Johnson said. That is about 35 more than the current number, but still a conservative number when planning two decades ahead, he said.
The consultants' rate analysis didn't provide all the details, Johnson said. De Soto sewer rate includes a base rate of $9.50 with additional charges at stepped water-use levels.
The rate system could be adjusted a number of ways to meet a given percentage rate increase, with different consequences to different users, Johnson said.
"One of the things we're going to try to do before the meeting is to sit down and develop some numbers about what is the average impact of rate increases to the general user," he said.
The analysis the consultants provided indicated sewer rates would have to be increased 18 percent next year to build a plant at Kill Creek plant if system development fees weren't increased and the debt wasn't back loaded.
Rates would have to be increased that same 18 percent in 2005 should system development fees increase from $1,000 to $2,000 on new multi-family units and from $1,400 to $2,500 on new single-family homes. However, that increase in development fees would substantially lower rate increases in succeeding years.
If the debt was back loaded and system development fees increased, the Kill Creek plant would require a 2005 rate increase of 9 percent. Additional rate increases of 8, 7, 7, 6, 6 and 5 percent would be needed the next six years, the analysis indicates.
Should the system development fee be maintained at its present level and no attempt be made to back load the bond, sewer fees would have to be increased a whopping 26 percent in 2005 to meet debt obligations on a West Bottoms plant. Rate increases from 20 percent to 11 percent would be needed in the next six years.
Raising system development fees as described above would cut the required 2005 rate increase to 21 percent.
Back loading the debt on a West Bottoms plant in combination with an increase in system development fees would reduce the required 2005 rate increase to 14 percent. Rate increases from 12, 10, 9, 8, 14 and 12 percent would be needed in six following years to service the debt.
Johnson cautioned that like all planning tools the rate model became more unreliable the further it looked in the future. The projects for the first three or four years would probably be close, he said.
The possibility of development at the Sunflower Army Ammunition Plant and in the new areas opened to sewer service could greatly skew projects further down the road.
De Soto Mayor Dave Anderson, who will miss the meeting because of a business trip, said that was why he favored the West Bottoms site.
"It's got to be the choice because of the opportunity for growth," he said. "That's where the most opportunity to expand is.
"We have to look at who's going to pay for it in the long run."
Tim Maniez was the only member of the Council to express a preference for the sewer site at the last meeting. Concerned about rate increases, he preferred the Kill Creek site.
Tuesday, Maniez said he hoped to cushion current customers as much as possible.
"I don't think there was any question we would need rate increases to help pay for a new plant," he said. "We don't have any choice about a new plant. The state has said we have to do it.
"I was just hoping to defray most of the expense on developers so that we can keep things affordable for our existing customers."