With an $11 million water expansion project under way, it’s a given that the city will have to borrow money in order to pay for it. The question is how to pay off that debt? The answer could be by increasing sewer and water rates.

“There will need to be some adjustments in our rates to pay for the debt service,” Karen Goschen, Sequim’s administrative services director, said.

There is $4 million set aside for the project in the city’s 2008 budget and another $1 million might be able to be transferred from Sequim’s replacement and general facility reserves, but the remaining $6 million will have to be borrowed.

The city is looking at increasing monthly sewer and water rates and general facilities charges in order to pay off that future debt.

“How much I’ll have left that’s remaining that I need to finance I won’t know until we get done with the construction of the project and the project will take 18 months,” Goschen said. Monthly rates are what show up on residents’ sewer and water bills. They are used to pay for day-to-day operations and maintenance. General facility charges are one-time, paid by anyone hooking up to the city’s sewer and water system. These monies are exclusively for capital improvement projects such as the current wastewater reclamation facility expansion project.

“Over time, you need to be setting aside a certain amount of your rates so that you can replace or repair items,” Goshen said.

The Sequim City Council has to decide whether to hurt now or to hurt later — increase rates and general facility charges in anticipation of the debt or wait until the project is completed and then decide how much to raise the rates and charges.

“That’s all up to council. Council can decide to do something now or to wait,” Goschen said, pointing out that the council can’t only anticipate the current expansion project but needs to consider other future capital improvement projects as well.

“Do we want to start saving on the side by raising GFCs and rates so that the next major capital investment we need to make we have money in reserves for it?” Goshen said. “Or do we not want to do that because it puts too much strain on its rates?”

Increasing general facility charges and monthly rates could hinder development and growth, which is essential for building up a reserve fund. Developers might not be interested in building in Sequim if the general facilities charges are too steep.

“What could’ve been a GFC that was just fine may be not so fine now because their other costs have gone up,” Goshen said. “As you have growth, you have other revenue coming in to pay for this, and when you don’t have growth then it’s all on the (monthly) rates,” Goshen said.

During the city council’s June 16 study session, Peninsula Financial Consulting gave council members a tutorial in utility financing including the need to make assumptions to help decide what to do. These assumptions include variables such as the rate of future growth, estimates of debts and possible future expenditures.

“Council needs to give us some direction on what assumptions they want to make about these things,” Goshen said. “They’ll have a lot to think about.”