Purcellville Council Wrestles with Utility Rate Options

The Purcellville Town Council on Monday began its effort to revamp its utility rate structure, quizzing a team of consultants on options to lower the cost for customers.

For an hour and a half, Municipal & Financial Services Group President Edward J. Donahue III and manager Eric Callocchia, along with Kyle Laux from the town’s financial advisor, the Davenport Group, were peppered with questions from council members seeking alternatives to current plans to impose annual rate increases. However, no clear path was evident at the end of the session.

The consultants said municipalities nationwide are under pressure to increase rates because of declining water use and need to replace aging utility systems.

The consultants took the council through the various steps of rate setting, and listed the “building blocks” of revenue requirements that must be addressed: contributions to reserves; planned capital improvement projects; existing debt service; operating and maintenance expenses.

Mayor Kwasi Fraser said he wants a change from the current “broke system” and noted the council hears complaints from residents with unmanageable $300 utility bills.

Donahue said it would be naïve to think rates will not continue to increase. “That’s not reality.” He also said the industry needed to do a much better job of explaining to the pubic how expensive it is to produce clean water and to adequately treat wastewater.

Fraser wanted to look at different models dealing with a variety of situations. “What are the variables—so I can tell people,” he asked.

Councilman Ryan Cool wanted to know how MSFG arrived at the right model when setting rates. Callocchia said the company looked at different structures. He noted most communities don’t have as many rate tiers as Purcellville and suggested the town should reduce them.

The sewer system’s annual debt service payment was a big concern to the council. Director of Public Works Alex Vanegas noted that the payment due to bond holders was almost equal to the total operational costs of wastewater management.

Councilwoman Kelli Grim wanted to see as many options as possible and said she was concerned about the impact on lower volume users. She also questioned whether the town’s reserve fund was excessive. “Are we over taxing?”

Laux explained that a decade ago when faced with the need to build a new sewage treatment plant, the town was “exploding with growth.”

“Back then, there was a lot of risk having to build the plant to support growth,” he said, noting that building a solid reserve fund was important in the case that the growth slowed.

Town Manager Robert W. Lohr Jr. pointed out that the town has had to spend millions of dollars to comply with new state and federal treatment mandates and to keep pace with rapidly changing standards in technology.

Cool pushed for “out of the box” creative thinking for revenue options, adding he didn’t want to see modeling based on assumptions of 3 percent and 5 percent yearly increases.

The mayor reintroduced his suggestion to dedicate revenue from the town’s meals tax—about $365,000 a year—to reduce the town’s utility system debt.

“That would be tricky, and it’s not generally considered best practice by the rating agencies,” Laux said of using General Fund revenues to subsidize the Utility Fund.

That could jeopardize the town’s triple-A bond rating, he said. “Be very cautious as to how you do it, given where you are, in the top tier for a town—you have to save the credit rating. At the same time, you need balance, a rationale and a framework.”

Cool said the goals going forward should be to simplify the rates, define what is “fair,” expand revenue options, and better explain to the public that utilities are expensive, and clean water is necessary. He also suggested a switch to monthly billings.

Following the meeting, Vanegas said probably the answer would lie in a combination of the two approaches—rates restructuring and increasing sources of revenue for the town, as well as some administrative measures.

“You need some sort of growth or [the town] will die—you see that elsewhere,” he said.


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