Sequim's water and sewer customers could face monthly water rate increases of between 5 and 10 percent and monthly sewer rate increases of between 15 and 20 percent next year to fund capital projects such as the water reclamation system expansion and water reservoir and pump station.
Additional increases could follow in 2010-2012 but those should be considered later, the city's financial consultant told the council at Monday's study session.
"There's no rosy scenario to get you out of that first rate increase," said Ashley Emery from Peninsula Financial Consulting of Brinnon.
They should decide upon that first rate increase, then see what other loans they can get to finance those capital projects, Emery said.
But the city faces significant water and sewer rate hikes regardless of what loans are obtained, he said.
Emery will return at the Aug. 25 city council meeting with more specific numbers for the council's review and possible approval.
The council also will consider speeding up the 2008-2012 schedule for increases in the "general facility charges," the one-time only fees paid by new customers connecting to a utility.
Future decisions include whether to shift some of the water reuse system's capital costs and $50,000 in operation and maintenance costs from the sewer utility to the water utility and what mix of rates, loans and possibly revenue bonds to use for financing future capital projects.
The city's water rates are "very competitive," Emery said.
City residents pay a $19.55 monthly charge plus up to $5.43 for the first 800 cubic feet or 6,000 gallons of water per month.
Water customers outside the city limit pay 150 percent or a $29.33 base rate plus $8.15 for the first 6,000 gallons per month.
The city's sewer rates are going up and it's only going to get worse, Emery said.
City residents pay a monthly sewer charge of $39.18 per month if their winter water usage averages less than 800 cubic feet or 6,000 gallons a month.
If winter water usage exceeds that amount, then the sewer charge is $45.30. Sewer customers outside the city limit pay twice the base rate or as determined by contract.
Emery said the 2007 water and sewer capital financing analysis recommended 3.5-percent increases annually in the monthly water charge through 2012 and 5-percent increases annually in the monthly sewer charge.
But that was based upon $10.9 million in water utility projects through 2012 and $11.4 million in sewer utility projects through 2012 and shifting $1.4 million of the water reuse system's capital costs to the water utility, he said.
It also was based upon "general facility charges" of $4.9 million for the water utility and $6.6 million for the sewer utility through 2012, which is a 5-percent annual growth rate or about 200 new hookups per year, Emery said.
The analysis also was based upon $4.3 million in new debt for the water utility and $3 million in new debt for the sewer utility, he said.
But now there's an estimated $5.1 million in water utility projects through 2012, which could increase to $7.8 million if funding part of the water reuse system expansion is included, Emery said.
The $3 million reservoir project has been delayed because of slower growth, he said.
The sewer utility also has an additional estimated $16.4 million in capital projects through 2012, Emery said.
The annual growth rate of general facility charges also was revised down to 3 percent annually, he said.
That means a $2.2 million loss of revenue through 2012 for the water utility and a $2.9 million loss of revenue through 2012 for the sewer utility, Emery said.
"You're going to have to issue debt, there's no way around it," he said.
The water utility could issue as much as $6.9 million in new debt through 2014 and the sewer utility could issue as much as $8 million in new debt through 2014, he said.
If the city could get loans and grants, they would have lower than market rate interest and no debt coverage requirements, Emery said.
Revenue bonds would have market interest rates plus issuance fees and requirements for debt coverage and reserves, he said.
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