Riff Raff: Water, money, and lawyers
It’s safe to say a majority of frustration with a water rate hike for Fort Smith residents and tens of thousands of residents in nearby cities is the size of said hike. But you, Kind Reader, should instead be miffed as hell about the irresponsibility resulting in the need for hefty rate rises.
The Fort Smith Board of Directors on July 11 voted to increase water rates for all city residents and businesses, and contract water customers like the City of Van Buren. The 5-2 vote for rate increases came more than six months after the board received clear data showing an urgent need to raise revenue for the water system. It is also the first water rate increase since 2011.
The most common residential water bill – 3 ccf, or 2,244 gallons – is $11.81 a month, and will rise 18.4% to $13.98 a month beginning Aug. 1. If you have children like mine who spent enough time in the shower to fill a battleship drydock and use 5 ccf – 3,740 gallons – a month, your bill will rise 32.5% from $16.37 to $21.70.
The 2024 rate rise will need to be followed by a 2025 rate rise if the city is to meet bond covenant obligations. Proposed 2025 rates would push the 3 ccf bill up to $19.05, which would be a 61.3% rate rise in two years.
Let’s consider three points.
• There are rules and repercussions when you agree to use other people’s money.
The city, as does many cities, uses bond proceeds to finance water system improvements. The bond agreement requires the city to generate net revenue to cover 110% of the annual bond payment. The city fell short of that in 2023 and projections indicate the city will miss the 110% requirement in 2024. A 2024 miss would be because city directors failed to act earlier this year when it became clear that revenues would again fall short.
The proposed 2025 rate increase, which would begin Jan. 1 and includes residents in cities which buy water from Fort Smith, is projected to raise enough revenue to hit the 110% mark.
We’ve been playing a dangerous game in missing the 110% requirement. The bond managers are within their rights to step in and place the city’s water system in receivership. Not only would outside attorneys and bond managers unilaterally mandate water rates in a receivership, but future bond proceeds are likely to cost more. Also, any city that fumbles its way into receivership of such a vital system as a water supply will take a hit on being attractive for economic development.
• This is a revenue problem, not an expense problem.
Espousing populist rhetoric and dismissing fact-fueled urgency, a few directors balked at rate hikes by suggesting the city could cut costs to make up for what is expected to be a $10 million shortfall in 2024. When the city generates under $27 million a year in water revenue, finding $10 million in savings moves beyond the category of a fool’s errand into mystifying recklessness.
Fiscal mismanagement isn’t always about fraud, waste, and abuse with public monies collected. It also applies to public bodies that fail to adequately fund a system supplying liquid life to a majority of the around 280,000 folks in the metro area. You show me any municipal enterprise that has not raised rates in 13 years and I’ll show you a system with a revenue problem.
• The Fort Smith board should move fast on 2025 rate hikes, and should consider a plan to index water rates so each year we responsibly address basic costs, growth, financing, and other key needs.
City Director Jarred Rego was spot on prior to the July 11 vote to raise 2024 rates.
“The decision we have to make tonight that we have with consequence delayed isn’t one about popularity. It is about responsibility, and it’s about leadership. Do we want the headlines in this community to continue to say things like progress, growth and expansion? Or do we want them to say words like default, downgrade and debt covenance? We have to act,” he said.
We have to act, indeed. Bond attorneys may already have a “We’ll be dropping by Monday to collect the water system keys” letter ready if the city fails to meet the 110% requirement in 2025. But simply raising rates in 2024 and 2025 to meet the existing shortfall is a band-aid. We’ve essentially spent 13 years digging ourselves into this hole. A few shovels of extra revenue ain’t gonna fill it up over the long term.
Many cities larger and smaller than Fort Smith index water rates so each year the revenue covers the costs of operation and provides flexibility to address existing system maintenance, growth and emergencies. For example, if the board implemented 13 years ago a small percentage increase in annual rates for all water users, we would not be in a mess that now requires a more than 60% rate increase in two years for many Fort Smith residents.
Fort Smith is under a federal consent decree that will cost more than $600 million – possibly more – to fix a sewer system because city leaders failed over decades to raise enough revenue to responsibly maintain the system. Let’s hope, as Mr. Rego noted, that we’ve learned the lesson of “consequence delayed” and city officials will move with haste and wisdom to ensure we avoid future episodes of Russian roulette rate politics.