City needs money as loans come due on $1 billion in water-system upgrades
by Lynh Bui – Jan. 5, 2011 12:00 AM
The Arizona Republic
A year after approving a controversial water-rate increase, Phoenix officials are proposing another rate hike, saying the money is needed to pay off debt and comply with federal clean-water rules.
The city’s water department is proposing a 7 percent increase in water rates, which would add $2.21 to the average resident’s monthly water and sewer bill starting in March if the City Council approves it.
City officials say the increase, which would not be the largest in recent years, would generate nearly $23 million annually to help pay off debt on more than $1 billion in water-infrastructure improvements. They say federal rules requiring public utilities to filter certain chemicals from drinking water have forced the city to employ more people and make costly upgrades to treatment facilities. And they say the same costs are likely to drive up rates again for each of the next five years.
At least two city councilmen question whether the rate increase is intended to help keep employees on the payroll even though other city departments have cut staffers. The water department has already absorbed some extra city employees as their positions in other departments were cut.
Last year’s increase in water and sewer rates drew extra public scrutiny amid the recession. During that year, the city cut services and staff, raised fees for parking and other city functions, and instituted a 2 percent citywide tax on food to help fend off public-safety layoffs and further cuts to staff.
Another increase this year is sure to draw more fire before the City Council votes on the rate hike Jan. 19.
“We got the message very loud and clear from the council last year that they want to see very low or no increase in the water rates,” said Barbara Glaus, acting water-services director. “But even though we’ve made reductions to our budget, we just couldn’t get there.”
In the past decade, Phoenix has spent more than $1 billion to improve and expand the city’s water and wastewater system. Projects included everything from relocating water lines to make way for light rail, to replacing old water mains, to building the $228 million Lake Pleasant Water Treatment Plant to accommodate future development and growth in north Phoenix.
About $200 million was spent to install new filtration systems in city water-treatment plants to comply with the federal government’s Safe Drinking Water Act. The U.S. Environmental Protection Agency has required public utilities by 2012 to filter certain chemicals from water that are believed to pose reproductive, cancer and other health risks.
In addition to the rising debt payments, the city will be saddled with an extra $15 million in annual operating costs to run the filtration systems.
The water department has cut its $287 million operating budget by 3 percent and plans to delay more than $263 million in planned capital projects to save money.
But the city needs to increase water rates, Phoenix Finance Director Jeff Dewitt said, because the “mortgage” is coming due on more than $1 billion the city borrowed over the past five years to build major water projects.
Phoenix currently pays $112.4 million toward the loan for projects such as security upgrades, water-treatment plants and pump stations. That annual payment is expected to balloon by almost $40 million by fiscal 2015-16. The city needs revenue from the rate increase to make the payments.
The city’s financial planners had long expected to raise water and sewer rates this year to make the rising debt payments, and they plan to continue doing so in years to come.
The city has projected a water-rate increase of 7 percent in 2012, 6.25 percent in 2013 and 5.5 percent 2014. Sewer rates will not go up next year, but are expected to increase by 2 or 3 percent a year starting in 2013 through 2016.
“If you leave the rates at zero, the system will be bankrupt in four years,” Dewitt said.
Council members Sal DiCiccio and Bill Gates question whether the increase is about paying off capital debt or keeping employees on the payroll.
As the city was facing a more than $270 million budget shortfall last year, some staffers from other departments were moved to open positions in the water department. The water department had the money to pay for the transferred employees because it is funded through water and sewer rates and not tax revenues that dramatically declined during the recession.
Glaus said the city only moves employees to the water department if they are qualified for jobs needed to keep the water system safe.
But DiCiccio said high personnel costs are driving the water budget up. In the city’s last round of layoffs, 32 jobs from other parts of the city were eliminated and those employees were shifted to the water department. From Jan. 1, 2010, to Dec. 6, the water department filled 165 positions at a cost of $10.6 million annually in salary and benefits. The positions ranged from engineers and budget analysts to secretaries and water inspectors. The department also has $6.2 million budgeted for more than 130 vacant positions that can be filled by outside hiring or by employees from other departments.
“This rate increase is to protect staff and their jobs,” DiCiccio said.
Gates said the city must pay its debts, but said the water department has not attempted to become more efficient and trim staff in the same way other city departments have in the past year. The department got rid of 16 positions out of more than 1,500 employees during a recent management reorganization.
“I’m really sensitive to raising fees on folks in this economy,” Gates said.
Councilwoman Thelda Williams, however, said the proposed rate increase is not about personnel.
Williams said the city must pay off debt for its water plants and construction projects. And it has to have people to run new systems built to meet new federal water standards.
“One regulation created more than 20 new positions,” Williams said. “The fact that we relocated current employees into the water department doesn’t matter. We would have had to hire new employees anyway.”
The Phoenix City Council was divided over last year’s water- and sewer-rate hike, which increased water rates 9 percent and sewer rates 4.5 percent.
Glaus said even with the proposed rate increase, Phoenix has some of the lowest water and sewer rates in the Valley and the country.
Phoenix Mayor Phil Gordon has said that the proposed increase this year isn’t necessarily good news, but it is one of the smaller rate increases in recent history. Because sewer rates are not going up this year, a resident’s combined water and sewer bill would increase 4.4 percent.
From 2005 to 2010, the combined water- and sewer-rate increases ranged from 7.2 to 10.3 percent.
But DiCiccio says the water department didn’t cut enough from its operating budget.
“A 3 percent cut is an embarrassingly low number,” DiCiccio said.
Longtime Phoenix resident John Chodras said the city’s yearly water- and sewer-rate increases have already been a “huge tax and financial burden” on his family and he doesn’t want to see it go up again.
Chodras, who has a lawn and a pool, paid $280 for his water bill in July. The 60-year-old, who owns a carpet-cleaning business, said he paid $165 for his December water and sewer bill.
“This will be the nail in the coffin for people barely hanging on to their homes,” Chodras said.
Read more: http://www.azcentral.com/community/phoenix/articles/2011/01/05/20110105phoenix-water-rate-increase.html#ixzz1CZmyo3YS