After more than an hour of heated discussion Monday, members of the Clearwater City Council couldn’t reach a consensus about the future of the city’s water and sewer rates.

 

Since April, the council has been debating whether to refinance a 2008 PFA loan for the sewer expansion project that has an outstanding balance of about $5.3 million.

 

If the city extended the loan another 10 years and had the same interest rate, debt service payments would be cut from $580,000 to under $300,000. But it would mean the city would be paying more interest over the long run.

 

Mayor Pete Edmonson, a proponent of the refinancing, said that would allow the city to eliminate the need for a sewer rate increase and allow the fund to grow.

 

Currently, the sewer fund is barely in the black, and is not growing fast enough to support a major capital improvement project or a major expansion project.

 

Other members of the council agreed the sewer fund needed to be increased, but weren’t willing to embrace the refinancing option without a utility rate study, which would give them a better idea of where rates should be with or without refinancing.

 

Monday, Justin Nilson of Abdo Eick & Meyers (AEM), the city’s financial advisor firm, presented that rate study to the council and those in attendance.

 

Nilson said in order to keep both the water and sewer funds viable and growing to cover future capital improvement needs, they were proposing to set a target amount of $350,000 for the water fund and about $600,000 for the sewer fund, or $800,000 with a capital improvement allocation by the year 2021.

 

To achieve that goal with the water fund required a three percent rate increase in the base fee and usage fee each year for the next five years.

 

Nilson presented four different scenarios for reaching the sewer fund goal.

 

The first scenario assumed a 15% sewer base fee increase and 7% usage fee increase for three years, then a 5% increase in the base fee and usage fee for 2020 and 2021.

 

That scenario achieved an $800,000 balance.

 

The second scenario assumed no rate increases, but the refinancing of the 2008 PFA loan. That scenario lowered the debt service payment, but didn’t bring in as much in revenues. By 2021, the cash reserves reached $290,446 - well short of the suggested balance.

 

The third scenario assumed the proposed rate increase, no refinancing, and also included an annual capital improvement allocation of $200,000. In that case, the fund would be in debt $175,000 by 2021.

 

The final scenario included the rate increase, refinancing the loan, plus the $200,000 capital improvement allocation. That scenario hit the target right at the $800,000 level.

 

With those numbers in front of them, members of the council struggled with finding a solution that would not only solve the shortage, but be palatable to city residents.

 

A chart prepared by AEM showed an average 4,000-gallon usage bill would increase from $75.65 to $112.22 a month by 2021 if the rates were increased as proposed.

 

Edmonson reiterated his point about the need to lower debt service payments by refinancing, while other members of the council were still reluctant to add more debt interest and extend the loan another 10 years into the future. None were happy with the idea of a 15%-plus increase over the next few years.

 

What followed was a back-and-forth debate over refinancing, too high sewer rates, using general fund money or local government aid (LGA) to subsidize the fund, and criticizing past councils for not increasing the rates more to build up the fund.

 

In the end, no one had an answer, and some members of the council suggested tabling the issue and having another workshop to figure it out. 

 

“From now until then, what magic information are we going to get to give us advice on where our rates should be?” asked Edmonson.

 

Administrator Kevin Kress told everyone to settle down.

 

“I don’t think there’s a magic number. What I would suggest is that you all need to bring your understanding of what you would propose as a rate increase or decrease and we need to look at that as part of the fee schedule in December,” he said. 

 

“But you need to respect each other’s opinion. Be realistic when you’re talking about what you’re going to do with the fund, whether it’s subsidizing through the general fund or if its refinancing or no refinancing.”

 

The workshop has been set for Dec. 5 at 6 p.m., just before the regular council meeting.