City Council on Tuesday will deal with a $10 million hole it blew in next year’s water and sewer budget because members rejected an 8 percent rate increase last month.
One likely result of turning away $9.9 million the rate increase was to have generated is that Columbia will not be able to borrow money for $50 million of a projected $100 million in upgrades to the utility systems, city officials said.
The utility department has yet to determine which of the 24 water projects or 26 sewer projects scheduled for fiscal 2014-15 would be postponed into the following fiscal year or later, said assistant city manager Missy Gentry.
“We cannot issue a bond (loan) right now without an (rate) increase,” Gentry said. “It will affect both water and sewer (projects).”
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The 24 water projects set for next fiscal year total $34.3 million. The sewer projects total $57.6 million.
Borrowing the money without the collateral of a rate increase also might hurt the credit rating of the city’s utilities system, Columbia budget director Missy Caughman said in a memo to council. A lower credit rating would result in higher borrowing costs for future water or sewer projects.
But no new loan also means the city pays $3 million less next year toward its overall water/sewer debt, Caughman said in the memo.
Improvements to the sewer system have priority because the city has signed a binding agreement with the U.S. Environmental Protection Agency for upgrades during the coming decade. Those repairs are projected to cost about $750 million. The agreement, called a consent decree, sets strict timetables for upgrades that are designed to stop sewer spills that have violated federal pollution standards.
A federal judge signed off on the agreement May 21, Gentry said.
Despite the commitment to sewer system repairs, the city will spend enough on the water system to keep it operating properly, she said. “We will not jeopardize our water system,” the assistant city manager said.
Asked how the city will accomplish that without a new loan, she said, “We’re figuring that out.”
It’s likely to be midsummer before a decision is reach on which projects are delayed, Gentry said. That also gives council enough time to decide whether to OK a smaller rate increase, which would permit a smaller loan for the projects.
If council does not approve any rate increase, the water/sewer operating budget for the fiscal year that begins July 1 will be about $623,000 less than the current $128.2 million spending plan, budget director Caughman said.
Besides the loss of income from the rate increase, the water/sewer budget took a $7.9 million hit caused by last year’s sale of part of the city sewer system in Northeast Richland to Palmetto Utilities based in Elgin, Gentry and Caughman said. Those 11,000 customers are being phased out as ratepayers to the city, as is the expense of operating that system.
The benefit of the sale to the city is that it could open the door to new customers in that vicinity, which Gentry said is ripe for growth. Columbia also saves the cost of treating waste from those 11,000 customers.
One way the city is working to improve its income from the water/sewer system is to upgrade its billing procedures, Gentry said. An audit is under way, starting with large customers – primarily industries, apartment complexes and hospitals that consumer large volumes of water.
The audit eventually will check whether all bills are accurate, she said.
The utilities department also is intensifying efforts to persuade customers that the city is effectively spending its water/sewer income and maintaining the systems.
Councilwoman Tameika Isaac Devine told council last month that customers are watching carefully how the city manages the utilities system and its finances. Critics say council’s decision in the early 2000s to transfer millions of dollars from the water and sewer systems to pay for other services accelerated its deterioration.
Gentry said the utilities department soon will begin posting signs at project work sites that say, “This is your money at work.” Further, customers will be kept abreast of progress on projects through social media, including Facebook, Twitter and YouTube.
“We’re going to make sure the public knows what we’re doing and when we’re doing it,” she said. “I do think that (the city’s ineffectiveness) is a perception. I don’t think that it’s a reality.”