Fort Smith Board set to discuss water system revenue, infrastructure needs

A water rate increase on the agenda for Tuesday’s (April 16) Fort Smith Board of Directors meeting proposes a “holistic look” at the city’s entire rate structure that would bring increased rates to all types of users.

According to a memo on the plan from Lance McAvoy, director of utilities, proposed changes to the rate structure include:
• Taking the residential rate structure from three tiers to four tiers; consolidating the industrial rate from two tiers to one tier;
• Establishing rates for contract water users north and south of the Arkansas River; and,
• Establishing a surcharge of 1.5 times the normal rate for retail customers outside the city limits.

“The water rate increases for the first year are needed to cover both operating cost and debt service ratios needed to comply with the bond covenants,” McAvoy said.

The city’s water rate revenue does not fund the ongoing federal consent decree that since 2014 has mandated significant improvements to the city’s sewer system. In May 2022, Fort Smith voters passed a 0.75% sales tax from Jan. 1, 2023, to Dec. 31, 2030, with 83.3% of the revenue going to federal consent decree work on the city’s water and sewer system, and 16.7% directed to the police department. City officials estimated in late 2023 that consent decree work will cost $428.068 million over the next 12 years. Over the past six years, the city has spent approximately $127 million in capital costs for required improvements.

WATER RATE STUDY
The city hired Burns and McDonnell Engineering to do a water rate study in 2023. David Naumann, with Burns and McDonnell Engineering, presented the study to the city board in December and returned April 9 with further analysis. Naumann said with the water and sewer department’s approved budget in 2024, the department will have to dip into the department’s reserve funds to cover expenses this year to the tune of approximately $8 million.

Naumann’s presentation suggested that the city look at a rate increase that would raise rates for residential, retail, industrial, outside of city and contract users. The goal, according to the presentation, is to develop a pricing of services that reasonably reflects the level of service provided.

Though there was discussion both in the rate study and by board members to go before citizens and ask for a sales tax to help fund the water needs, Naumann said he was not suggesting a sales tax at this time. Director Lavon Morton said it was not the right time to expect a sales tax to fund all the needs of the department.

“(T)he budget shows that we are failing the debt covenants for 2024, the year we are in now. Failing debt covenants on $200 million of debt is a serious thing for a city of our size. And people know about it. Once you do that they don’t forget it, so the next time we issue bonds, it’s going to cost of us more money. We are not going to be viewed as a responsible city. We should take into account that in April of 2024, if we do nothing for the rest of the year, we’re going to fail that bond covenant, a serious matter,” Morton said. “I really think we should put rate increases for the first two years on the agenda to be voted on, and we should think about the structure of the sales tax and that if we approve a 1% sales tax, we’re going to be above 10%. I think that is a hard sale. Vote on the first two years, look at alternatives more, and if we decide sales tax bonds need to go, they go in ’25.”

Morton said the rate increase could help the utilities department make its budget. Then after the board had a better chance to study the need for infrastructure work, they could look at talking to voters about a sales tax.

PROPOSED RATES
On the residential side, the lowest base rate for water (not including sewer or solid waste fees) beginning July 1, would be $6, up from $4.97. Residential customers using 1-3 ccf per month would have a $2.66 charge for water; those using 4-7 ccf would have a $3.86 charge; those using 8-16 ccf would have a $5.25 charge; and those using more than 17 ccf for the month would have $6.75 charge for water.

“Most residential customers will see less impact, some as low as $1.03,” Naumann said. “Impact to low-income residential customers will be 50% lower.”

The proposed rate chart shows another increase in January 2025, taking the lowest base rate up 75 centers to $6.75. Residential customers using 1-3 ccf per month would see their charge increase to $4.10. The rate for 4-7 ccf would go up to $5.95, and the rate for 8-16 ccf would go up to $8.11. The highest rate for residential customers, those using 17 ccf or more per month, would be $10.42.

Fort Smith utility customers have not had a water rate increase since 2011, though they did have a big increase in sewer rates to fund the consent decree work.

Directors have discussed the possibility of half-cent sales tax as a way to raise funds for completion of a 48-inch water transmission line from Lake Fort Smith and major upgrades to the Lake Fort Smith treatment plants. At the April 9 board study session, Morton questioned whether these needed to be completed as quickly as they have thought.

WATER LINE, NEW CAPACITY COST
The city has been working toward a 48-inch water transmission line that will cover over 30 miles from the Lake Fort Smith Water Treatment Plant in Mountainburg to Fort Smith for a number of years. The line will replace the original 27-inch water transmission line constructed in the 1930s.

Phase I of the project, six miles from the Lake Fort Smith Water Treatment Facility to near the intersection of State Highway 282 and Interstate 49, is complete, and Phase II, a 12-mile section from the end of Phase I to a location near the intersection of Rudy Road and Old Dollard Way, is under design, an update on the city’s website states. This project will be implemented in phases and is planned for completion in 2025.

“The larger diameter line will allow the amount of water supplied to the region’s water users to increase from 34 MGD (million gallons a day) to 70 MGD. It will also improve the level of service to the south and east sides of Fort Smith,” the website states.

A recent federal appropriations bill signed in March gives Fort Smith $12 million in federal funds for that project.

Representatives from Hawkins Weir Engineers Inc. addressed the Board of Directors Feb. 13, stating that the city is reaching its maximum daily water flow capabilities and the only fix, a 48-inch water transmission line and upgrades to the Lake Fort Smith Water Treatment Plant, will cost the city approximately $221 million. According to the study, the need for the 48-inch water transmission line and capacity upgrades to the plant are needed to ensure proper water pressure and fire flow to the area, McAvoy said in a memo regarding the study.

CAPACITY NEED QUESTIONED
But directors have questioned whether the city is really that close to capacity. According to a water report sent to city directors, the city had 20 days in 2023 when water delivery exceeded 42-45 million gallons daily. There were no days in 2023 that the city used 45 to 47 million gallons per day and no days when it used more than 47 million gallons.

Fort Smith has two water treatment plants. The Lee Creek plant, which can treat and transmit 10 million gallons per day, and the Lake Fort Smith Plant, which treats and transmits up to 40 million gallons per day now without any upgrades. The total Fort Smith can treat and transmit daily is 50 million gallons.

In 2022, there were 14 days when the city used 42-45 million gallons of water a day, five when it used 45-47 million gallons and none when it used more than 47 million gallons. In 2021, there were three days when it used 42-45 million gallons a day and one day when it used 45-47 million gallons of water a day, the report showed.

Morton said that he believes the city needs to look at a way that for a few days of years, the city can deliver more than 40 million gallons.

“Spending it right now is not the best approach without more study. We need to hire someone who will look at this issue. … It’s worth spending a few thousand dollars for those two or three locations (in the city where pressure might be low for a few days a year). We need to see if there is a cheaper plan,” Morton said.