Depending on what type of water user you are, there was good news and bad news in the City of Corcoran’s preliminary report on its water rate study. Metered residential users stand to benefit, while it appears commercial, industrial and state prison users will see their rates increased. Residents who currently pay a flat rate will also see a small increase in their water bills as things stand.
The final report is expected in May. City council adoption of the new rates will kick-start a 45-day process of notifications to local municipal water users, as well as a public hearing phase.
Last week’s report was made by Dan Bergman of IGService, the firm contracted for the study. He explained that, according to Proposition 218, which does not allow users to be charged more for water than it costs to serve them.
He also told the council that funds can be transferred from an enterprise fund to another fund when there is a justified benefit to the enterprise fund. In addition to water, other city enterprise funds include sewer, refuse, transit and storm drain. These are business operations within the city operation, he said.
The city currently does transfer money from its enterprise funds to other areas of the overall budget, under its government overhead allocation. Although that portion of the study has not yet been completed, one graph showed administrative overhead, as well as billing and customer service and fire protection each receiving a small portion of the enterprise funds.
The study showed that Corcoran customers pay more for their water than most surrounding communities. Only Bakersfield showed a rate just higher than Corcoran, with Coalinga, Reedley, Parlier, Fresno, Hanford, Dinuba, Lemoore and Tulare all lower.
For about half the city’s residential users, that rate will go down. Bergman said his study shows that metered residential users are paying more than they should for water. That rate should drop by about 28 percent under his proposal. People living in apartment complexes fare even better; those rate are expected to decrease as much as 50 percent. That leaves half of residential water users paying a flat rate. Those bills are expected to increase by a small amount.
And they get off lucky compared to commercial users, who face an approximate 20 percent increase; industrial, almost 50 percent; and the prisons, about 40 percent.
Residents need not cheer too soon, however, since the preliminary report also calls for a three percent increase in the water bill each year over the next five years. The increase gets to the heart of the matter: the bond repayment for the city’s water treatment plant, on which almost $17 of the original $18 million is still owed.
The original $18 million bond was sought in 2008 to construct the plant in order to meet state and federal standards for arsenic content in the city’s water wells. The city was required to renew its letter of credit for continued bond financing by the end of March, but did not make the deadline. Union Bank, holder of the letter of credit, provided a three-month extension, but noted it would not be participating farther with the city in bond sales. The city was notified during the same time period that its overall credit rating has been lowered.
The city has been racing to refinance the bonds. City staff determined that at least one of the bond covenants had been breached: the city is required to take in, in revenues from the water fund, 120 percent of the amount required to make the bond payment. City staff realized last year they would not reach that mark.
Part of the problem is continued state mandated water conservation regulation. Those on meters who conserve water pay less to the city. Flat rate payers have continued to pay their same rate. Thus, revenues into the water fund have dropped.
The city attempted to implement an emergency 19 percent water rate increase earlier this year, but failed followed a public outcry. The council did finally approve an eight percent increase, while falling in line with Prop. 218 and approving the required water rate study.
The rates are being established with repayment of the remaining bond in mind, Since the city will no longer be paying on a variable interest rate basis, changing strategies will cost an additional $3.76 million for terminating the plan originally in place. The new plan will eliminate the requirement for a letter of credit and will be based on a fixed interest rate. An additional $2 million state loan is assumed in 2017 and will be repaid at a rate of $119,000 a year for 20 years.
The city also plans to spend approximately $1.5 million to convert the remaining existing flat rate customers to meters. The state requires the change be made by 2020.