Hard on the heels of this year’s 10 percent increase in water rates, the Payson Town Council Thursday laid the foundation of a potential additional increase of about 24 percent over the next three years.
But don’t get upset yet: It’s still all hypothetical.
The complicated rules for setting water rates requires the town do to a study to justify any rate increase based on costs — and then set a ceiling on potential rate increases in advance.
The town’s water rates had remained unchanged for about five years before the recent 10 percent increase a month ago.
The town’s water rate consultant had recommended an immediate 20 percent rate increase with additional, smaller increases every year — instead of waiting for costs to accumulate and then boosting the rate all at once.
The recently raised rates set the minimum monthly charge at $21.71, which covers the first 2,000 gallons a month. The cost per 1,000 gallons then escalates — starting at $2.93 and rising gradually to $6 for amounts above 20,000 gallons a month.
The phased-in increase for the next three years would raise the minimum charge to about $26.96 and the per-1,000-gallon rate at $6.86 for people using more than 20,000 monthly.
The council will meet Aug. 5 to potentially adopt the new rate schedule.
However, Payson Mayor Kenny Evans said the proposed rate schedule schedule represents a worst-case scenario.
He said the council would probably have to approve the actual rates each year. That annual rate increase couldn’t exceed the three-year schedule — but could be lower.
The most recent rate increase covered most of the water department’s ongoing operating deficit, since the town had been gradually eating into money accumulated through impact fees intended to pay for the $30 million Blue Ridge Reservoir pipeline.
The town’s water rate consultant had recommended the escalating rates based on several pessimistic assumptions, to make sure the town’s water department would generate enough money to pay for the pipeline.
Several factors could provide money to pay for the pipeline without raising rates, said Evans.
For instance, if the town works out a deal with ASU to build a four-year college in town — that project alone would generate $6 million in water impact fees. That would cover about 20 percent of the cost of the pipeline — and reduce the need for rate increases.
Moreover, if the housing market revives in the next several years the town would again start collecting a $7,500-per-unit water impact fee. That would also reduce the need for water rate increases to pay for the pipeline.
The bonds to build the pipeline will cost somewhere between $270,000 and $440,000 annually, according to town projections. If the town resumed building 200 houses annually, it would generate $1.5 million a year in water impact fees.
Still, even if the water impact fees covered the full cost of the pipeline, the town council might need some rate increases in the next few years to provide the money to upgrade the town’s water infrastructure.
Assistant Public Works Director Buzz Walker estimated the town needs to generate about $10 million in the next decade to replace aging, undersized water mains serving about half of the town.
Those water mains date back about 40 years. Not only are they increasingly prone to breaks, but they aren’t big enough to supply water for fire hydrants.
As a result, firefighters have to rely on water tanker trucks to fight fires in most of the older areas of town.
However, some residents objected to this year’s 10 percent water rate hike based on the water department’s healthy cash reserves — mostly accumulated from water impact fees in the boom years.
The town borrowed $1 million from the water department to get through the current fiscal year, but will have to start repaying that loan to itself in the upcoming fiscal year.