Finance Director answers questions concerning sewer rate increases

Editor's Note: The following was submitted by the Fort Scott Director of Finance Susan Brown to explain the reason for a potential 10 percent increase in water and sewer rates.

On Dec. 1, 2009, the Fort Scott City Commission will vote on whether or not to increase water and sewer rates by 10 percent. Though the current economic situation is challenging, past decisions not to raise utility rates have made a larger impact on the city's need to increase revenue to cover expenditures in this area.

For example, from 1992 to 2006 (14 years) water utility rates did not increase, even though several large capital improvement projects were completed adding an additional $656,703 annually in debt service. Most of the major capital projects in the water and sewer utilities were completed due to state mandates. One key component in additional operational costs in the water utility is due to the addition of an ozone plant. Fort Scott is one of five plants in the state of Kansas that uses this new water quality tool. Increases in annual salaries, operational costs and state mandated testing has put a strain on budgets.

The past three summers, the City has experienced generous amounts of rainfall. This has created some concerns for the utility with water usage dropping more than 14% from 2006 to 2008. Although a 10 percent rate increase was adopted in the water fund in 2007, revenues only increased two percent due to water consumption dropping. In addition, with an already aging utility infrastructure, other capital improvements have been deferred due to state mandates at both the water and sewer plants. Furthermore, the age of the water meters, which are the "cash registers" for the utilities, are past their useful life. City administration and the Commission face many challenges in the years ahead to efficiently run the utilities while maintaining a quickly aging system.

In 2000, taxpayers voted to adopt a one percent county wide sales tax with one-half cent funding a city sewer rate stabilization fund. This fund was created to pay for debt issued in the sewer fund due to state mandated improvements to the sewer plant. The one-half cent sales tax generates on the average $650,000 in revenue annually, which was more than expected to cover the annual sewer debt service of $411,905. In 2007, the commission voted to expand the resolution for the stabilization fund to cover capital improvements of the city. At that time, a portion of the water utility debt ($200,000) was transferred to the rate stabilization fund to relieve some pressure and defer a higher increase in rates. During the Nov. 12, 2009 work session, commissioners discussed using some of the cash reserves in this fund to finance future capital projects in both the water and sewer funds. This one-half cent sales tax sunsets in June of 2011, which could potentially cause rate increases of 50% or more if not renewed.

Some commonly asked questions are:

Why are utility rates increasing?

If a three percent annual increase in the water utility rates had been adopted in 1992 the water utility would be in the same rate position as it currently is in 2009. Commissioners have raised the rates 50 percent over the past four years which equates to what a three percent annual increase would have been from 1992 to 2009. Long range financial planning is critical to the fiscal health of the utilities.

Why weren't utility rates raised in past years?

The past decision of not raising rates was made with the good intention of keeping rates low for the consumer during those years. However, the long term effect of not making a gradual 3% increase caused a need for larger increases in recent years to make up the difference.

How will an increase in water rates effect an average person who uses 1,500 gallons of water a month?

The minimum rate of $9.99 for 1,496 gallons will not change in the proposed rate increase so there will be very little effect on these users. An average family of two to three people that uses 5,500 gallons will see an increase of approximately $1.93 in water and $1.83 in sewer. An average family of five or more people that uses 8,200 gallons will see an increase of approximately $3.22 in water and $2.10 in sewer.

Are my property taxes rising to cover utility costs?

No. Property taxes and utility costs are two different topics. One does not affect the other. Property taxes are levied to cover basic operations of the city such as public safety, public works, parks etc. Utility rates help support the utility. Property tax dollars are not used to support any utility of the city.