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Sewage rate increase for city gets first OK
By: Cindy Klepper - Wednesday, November 13, 2013 12:35 PM
A proposed 43.4 percent sewage rate increase for Huntington utility customers received unanimous approval Tuesday, Nov. 12, by members of the Huntington Common Council, who say they have no choice but to raise rates to pay for state-mandated improvements to the city's wastewater collection and treatment system.
The increase must still be approved on a second vote, expected to take place on Nov. 26, and could be reduced if the cost of the project can be lowered. The rate increase would take effect in the first billing period following final approval.
The prospect of paying higher sewage rates didn't sit well with the 10 people who spoke during a public hearing conducted prior to the vote.
"Forty three percent - it just blows me away," businessman Gregg Ness said.
City officials say the across-the-board increase of 43.4 percent would result in a typical homeowner using 4,000 gallons of water a month, who is currently charged $32.58, paying an additional $14.14 a month.
Huntington landlord Teresa Kaylor disputed those figures, saying that, judging by the bills her tenants currently receive, the average increase for a family of four would be closer to $28 a month.
Both Kaylor and Chris Zahm, who owns Parkmoor Car Wash, said the increase would be a crippling burden to businesses who are already dealing with higher taxes and a slow economy.
Bruce Stanton, representing a group of rural subdivisions that pay the city to treat their sewage, said those 179 customers should not be responsible for paying for improvements to a system that was in place before they hooked on two years ago. They've already gone from paying nothing to paying $88 a month, he said, and the additional fees could prove too much for some homeowners.
"We've seen properties that people have had to walk away from because they can't afford the utilities," Stanton said.
Paul Tellef said the increase could have the same effect on city property owners.
"It just hurts the people who can least afford it the most," he said.
Mayor Brooks Fetters said the rate increase, although it may end up being less than 43.4 percent, is not optional. The city has been ordered by state and federal officials to comply with the Clean Water Act and has already dragged its feet on taking action.
"It has pressed us here in the community to do double time," Fetters said. "The city has got its back to the wall on this."
Todd Samuelson, of the financial advisory firm Umbaugh, said the amount of the rate increase depends on how the city decides to pay off the bonds it issues to fund the current project.
The city is still paying on four previously issued bonds, Samuelson noted.
By making smaller payments (around $500,000) on the new bond for each of the first 15 years of the new bond and larger payments (upwards of $2 million a year) for the last six years, the sewage rate increase could be reduced to about 27.5 percent, he said. However, that structure would cost the city an additional $2.6 million in interest over the 20 years.
"Here, we're deferring principal out until the year 2030," Samuelson said. "From a financial perspective, that's not something I typically recommend."
The proposed 43.4 percent increase assumes that the city will make annual payments of just less than $1 million each year through 2035. In addition to saving on interest costs, Samuelson said, that structure would also give the city the flexibility of funding additional projects that may be needed in the future.
Revenue from the rate increase would be used to pay off $16.5 million in bonds that will fund construction of interceptor sewers leading to a storage tank, where excess water coming in to the sewage treatment plant during heavy rains would be temporarily held. Solids will settle to the bottom of the tank and the cleaner water at the top of the tank would be released into the river.
This project, known as the Rabbit Run I project, is the third phase of a nine-phase project that will total an estimated $63 million and take until 2026 to complete.
The total project has been mandated by the Indiana Department of Environmental Management to stop raw sewage from being released into the river.