Hillsboro City Council discussed options for increasing utility rates Tuesday. Hillsboro has not had a rate increase in five years, city administrator Larry Paine said.
Paine reccommended raising rates to build cash reserves for each utility for emergencies and to increase the city’s future bond rates, which is currently an A-.
“The Moody Bond Rating Scale measures bond interest by how towns handle their money,” Paine said. “They look at how much cash we have on reserve and how we handle that cash. They recommend having a 120 day operating cost built up for emergencies.”
Paine used several models to estimate changes in water, sewer, electric, and sanitation rates, looking at options of changing base rates and variable rates.
Options could change either base or variable rates, or both. Paine presented an option for all utilities that would increase base rates.
Rates are currently $43.67 base and $4.33 per 1,000 gallons for water; $25.45 base and $2.68 per 1,000 gallons for sewer; $9.00 base and $.96 per kilowatt-hour for electricity; and $7.84 for sanitation.
“Is there a way we could raise the same amount of money by only raising unit costs?” council member Marlene Fast asked. “I’m just worried about the little old lady on a fixed income who only uses one or two units. Increasing the base rate would increase her utility bill drastically.”
“Whatever we do is going to be unpopular,” Paine said. “The plan is designed to get to where we can pay for things that need to be done in cash instead of bonds and help prepare for future potential disasters. Right now only our electrical fund has enough money to meet the 120 day operating guideline Moody sets.”
A plan to increase the cost of water sold to Peabody was also discussed.
“This is a business and we have to operate it like a business,” Paine said. “We must make a profit; we can’t go bankrupt, and right now the split between the cost of making water and what we sell it to Peabody for is too low.”
It costs the city $1.77 per unit to create drinkable water, currently Hillsboro is selling water to Peabody for $1.84 a unit.
“The spread needs to be much wider,” Fast said, “because they don’t have to pay any debt from building the water facility and we do.”
By contract, Peabody is exempt from paying on any debt for the Hillsboro water plant. Paine said the city has some critical areas in need of water line improvement.
“There’s several spots around town that are addressed multiple times a year,” he said. “I would like to have enough funds built up to fix those as we tear up streets for the street project. It makes sense to just do it all at once so we do not keep tearing up the street.
“We have a lot invested in infrastructure in this town. I would estimate between $200 and $300 million. What I want to do is maintain and improve without getting into everyone’s wallet unnecessary.”
Paine’s planned reserve funds would cover for example power lines and poles that are not covered by the cities insurance plan.
“If, say, a tornado went through the federal and state governments would pick up some of the tab, but we would have to make up the balance and right now we would have a hard time doing that,” he said. “We are going to have to do something on sewer because our funds are on a downward trend.”
Fast recommended that, after finalizing new rates, the council look at reviewing rates every year.
“Perhaps it’s a process we should go through every fall to get an accurate picture of what we need to be charging per year instead of hiking the rates a lot every five years,” she said.
The council asked Paine to present several cost scenarios at its next meeting Dec. 17. A budget hearing on amendments to the 2014 budget is also scheduled for Dec. 17.
Smoke testing successful
The smoke testing of the city’s sewer lines Nov. 18 through 22 was successful. Crews found several problem spots, Paine said.
“Most problems were residential cleanouts, but there are a few places that need to be repaired,” he said.
The testing showed city crews where water was getting into the sewer lines.
“It’s causing some overflow issues at the plant,” Paine said. “There should not be that much water in those lines.”
The city will send out letters to residents with problems.
“We had a few things we need to look at,” he said.
One problem crews will address immediately is a storm sewer catch where smoke was escaping on Birch St. Paine said a couple of fire calls were attributed to the testing.