Eagle may see $25 per month water bill hike
November 18, 2016
EAGLE — Eagle water customers may be facing a $25 surcharge on their monthly bills to finance construction of the long-anticipated new municipal water treatment plant.
On Tuesday night, consultants from SGM presented results from its water rate and tap fee study commissioned by the Eagle Town Board. The study was launched to look at financing alternatives for the town's Lower Basin Water Treatment Plant, a second treatment facility to be built upstream from the town's existing wastewater treatment plant at an estimated cost near $18 million.
Phase 1 of the facility calls for a 2.4 million gallons per day capacity, a figure approximately equal to the treatment capacity of the town's existing plant located southeast of town along Brush Creek Road.
At the onset of the discussion, SGM project engineer Ryan Loebach addressed the question of need. He noted Eagle currently has roughly 2,500 water customers and there are 430 additional households the town has committed to serve, but who have not yet tapped into the system.
"If you look at the peak day demand … and add those additional units, your production would be at 85 to 90 percent of your current capacity," Loebach said. "Prudent planning calls for looking at a new plant at 75 percent of capacity."
Loebach stressed that the capacity number is not a goal, but rather a caution.
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"You don't want to run your plant like a race car," he said.
With the need for a new plant outlined, Chris Lehrman, of SGM, tackled the issue of how to pay for it.
Lehrman noted that for a number of years, Eagle has instituted a 5 percent annual increase in monthly water rates and because of this practice, the town has built up a respectable fund balance in its water fund. But the amount the town has socked away isn't enough to pay for the plant construction and maintain the fund balance it needs to safeguard against unanticipated expenses and provide maintenance for its existing system.
The town can pay approximately $5 million toward the plant cost and must finance the rest of the construction. Eagle has a couple of options — a revenue bond or a loan from the State Revolving Fund. SGM has recommended the SRF option, noting Eagle will likely save between $2 million and $3.5 million in loan costs.
Regardless of how the town decides to finance the plant construction, it will face a big challenge in figuring out how to pay for it. That issue prompted the water rate and tap fee study and the numbers are daunting.
To pay off the anticipated $14 million debt, SGM recommended a plant surcharge fee of $12.50 per month be instituted in 2017 and increased to $25 per month in 2018. Customers would pay the surcharge on top of their regular, monthly water service rates. SGM also recommended the town continue its practice of annual increases for water rates.
Tap fees, too
Along with the proposed $25 per month plant surcharge, SGM recommended Eagle increase its tap fees for new development. Currently a water tap fee costs $7,000 in Eagle.
The company outlined two workable scenarios. The first is to institute a 13 percent annual increase starting in 2017. The second is to increase tap fees by a flat $1,000 annually beginning in 2017. Both scenarios would bring tap fee revenues to between $17,000 and $18,000 by 2027.
Lehrman noted that the tap fee proposal would likely be more palatable to town residents because they would not be carrying the financial burden. However, tap fee revenue isn't a stable revenue source for loan repayment because it can vary widely depending upon the economy. If Eagle sees a building boom, then the tap fee revenues will increase. However, during building downturns, the funding wouldn't be there and a loan repayment plan would require a stable funding source, such as the proposed monthly surcharge.
SGM has recommended that the town select a loan option that doesn't include a substantial penalty for pre-payment so it can use revenue from tap fees, as it becomes available, to pay off the loan early.
While the town must make a decision relatively soon about the Lower Basin Water Treatment Plant and how to finance its construction, the proposed plant surcharges won't show up on Eagle's January water bills.
The town's 2017 budget, which will be approved next month, features the traditional 5 percent increase in water rates and the town plans to reach out to the public with an education and engagement project before moving forward with the proposed surcharges.
"I think it is going to be a very important message to send to customers, especially existing ones, that you are not subsidizing development (with the plant construction and surcharge fees)," said Eagle resident Jason Cowles.
Likewise, members of the town board noted the surcharge proposal wouldn't be popular.
Mayor Anne McKibbin says Eagle would have to find a way to soften the surcharge effect for people on fixed incomes.
"A change like this in a water bill is going to be a big deal for some people," she said.
Other town board members questioned if an aggressive water conservation plan could buy the town some additional time before needing the second plant. SGM representatives responded that Eagle has already used up much of its buffer. If the town applies for a SRF loan in 2017, then it wouldn't receive funding until 2018 and plant construction will likely take two years after that.
While they noted they aren't ready to impose surcharges and institute fee increases, town board members agreed it is time to launch work on the SRF loan application.
"That simply gets us in line with deadlines," McKibbin said.
Along with that application, the town is also looking to begin a public outreach effort after the first of the year to let people know about the plant project, its financial challenges and the possible hike in their water bills.