Study suggests Fort Smith water rate increases in 2011, 2012

Catching up is hard to do.

Such was part of the message Tuesday (Feb. 22) during the Fort Smith Board of Directors study session as Ted Kelly presented options to maintain funding for water and sewer operations and expansions. And part of that message included a proposal to raise water rates 5% in 2011 and another 5% in 2012.

Kelly, with the Kansas City-based firm of Burns & McDonnell, explained to the board that expenses in the water operations are likely to overtake revenue in 2013. Expenses are already higher than revenue with sewer operations.

Fort Smith City Administrator Ray Gosack and Steve Parke, director of utilities, explained that much of the expenses are tied to the ongoing Environmental Protection Mandate to improve the sewer system, ongoing work to improve water transmission lines between Lake Fort Smith and Fort Smith and ensuring that the city and region has long-term water security. Gosack said he doubts city leaders want a repeat of the 1980s when the city was about out of water.

“We do not need to let ourselves get back in that situation,” Gosack explained.

Parke also attempted to explain to the board that for many years the city has not used a rate structure that factors in the true costs of providing water and sewer service. In some cases, sales tax revenue has subsidized the costs, and some fees for connections have not changed in several decades. Parke also said increased costs of chemicals and energy are also driving expenses higher.

In a memo, Parke suggested changes to water and sewer installation charges he estimates will increase annual revenue from $78,337 to about $187,425. Some of the water connection rates haven’t changed since the late 1980s. The board did not review the fee proposal during the Tuesday session.

Kelly estimated the 5% water increases would increase the average residential bill from $16.37 to $17.17 in 2011 and $18.03 in 2012. The Burns & McDonnell study showed rates from comparable areas. The current Fort Smith average of $16.37 was higher than the Central Arkansas Water users ($10.33), and Fayetteville ($15.64). Kelly said Central Arkansas will soon adjust its rates higher. The Fort Smith average is lower than Broken Arrow, Okla., ($17.96) and Edmond, Okla. ($17).

Kelly said most cities haven’t recently built or secured a long-term water supply, but will likely have to do so soon.

“Some of the other communities have not yet built that (water supply costs) in like you have,” Kelly told the board.

But several board members were reluctant to talk about rate increases so soon after the board boosted rates in late 2010. During a Dec. 7 board meeting, a 5% water rate increase was approved in a 5-2 vote to help cover cover a 110% debt covenant threshold on about $15 million in debt service requirements. Estimates provided by Parke said the 5% increases would result in a monthly increase of $1.40 for water and sewer use of 5 ccf (each); a monthly increase of $3.02 for 10 ccf; and a $6.31 monthly increase for 20 ccf.

Looking for cover, City Director Don Hutchings asked how the board is to explain this to citizens. Parke responded by saying that for too long now the city has not been allowed to recover the rising costs of providing water and sewer service, and “now we are in a catch-up period.”

Also concerned about citizen backlash over another rate increase was City Director Pam Weber. She called for an “efficiency study” of the utilities department to look for savings that might offset the need for future rate increases. When Parke and Gosack explained that an internal review is in the works, Weber rejected that as an alternative, saying instead that she wants an “independent” review by a company that has not done business with the city.

Parke and Gosack said city staff will set that process in motion.

As for the overall water and sewer rate study, Burns & McDonnell and city staff are expected to have a final report to the board within a month.