Water and Sewer Rates, Take Two

2009 July 20
by Chuck Shotton

As noted last week, Leesburg is planning on raising water and sewer rates. For some, it may be by as much as 60%. The question is whether or not it’s an inescapable increase, or if casting an eye towards expenses and deferred system upgrades might result in a more tolerable increase. Here are some things to consider.

The town’s water and sewer systems are financed using an enterprise fund, which has several requirements placed on it. It must operate independently of the town’s general fund, it must retain specific cash reserves, and until recently, it must be able to underwrite its own financing for capital improvements. In short, it is supposed to be a self-sustaining, independent business entity from the ongoing operation of the town. However, it is intertwined with the town’s finances, since it relies on town staff for things like payroll, maintenance, IT services, etc. It has also relied on the town to underwrite its last bond issues, ostensibly to obtain better financing rates, but the net effect is to make Leesburg tax payers liable for any default on the bond payments.

Many may not realize this, but Leesburg has cadillac of a water and sewer system. It’s much nicer than most of our neighbors, and has more than enough capacity to service all of Leesburg and a lot of the surrounding communities. State and federal requirements place some additional burden on the expense side of the water and sewer equation, with more stringent water standards leading to ongoing upgrades and expenses at both plants. And these expenses often come with little or no extra money to implement the mandate. Unfortunately, we are now in a situation where driving a cadillac and having to incur its maintenance costs is going to bite us if the town council and staff don’t find a credible way to reduce the costs.

With a downturn in home and new business construction, the system is far over the capacity requirements currently needed by the town. It is also not receiving hook-up fees and availability fees that would normally be paid by developers to offset the costs of providing this increased capacity. Consequently, we are stuck paying for all of the equipment, buildings, etc. to support a much larger user base that is actually using the 2 plants. While the incremental operational cost to provide this overcapacity is relatively small, there is no revenue currently being received from this excess capacity, so it’s a net loss to the town.

There are public hearings on July 28th and August 11th to discuss the proposed rate increases. The proposed rates are coming from an outside consultant whose business is advising local utilities, and it is working with the town staff to propose rates that will cover all of the revenue shortfalls and cover the current and planned capital projects. But there are very likely lots of ways to reduce expenses or increase revenue that are not being considered. If you plan on speaking at one of these public hearings, you might consider asking about the following.

  • What capital projects are being cut or terminated to reduce costs?
  • What reductions in staff have been considered to reduce costs?
  • What overhead costs have been cut to reduce expenses?
  • Has the town considered selling excess water and sewer capacity to the county or to private developments using wells and septic systems?
  • Has the town considered selling a portion or all of the water and sewer plants to private operators or to LCSA in return for a share of operating profits?
  • Has the town considered contracting operation of the plants to a private entity while retaining ownership?

At the end of the day, the bulk of the expenses behind these utilities comes from capital improvement projects and the bulk of the revenue was planned to come from an increased user base and fees, supplemented by the existing customers. In the absence of the increase in users and fees, it begs the question of why we have ongoing capital projects related to capacity. Inquiring minds want to know!

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