With minimal increases to utility rates this year, Purcellville residents’ finances probably weren’t affected much when the Town Council adopted the budget. But mixed with a lack of anticipated water and sewer connections, a burdensome sewer debt and nearly 20 water projects that need attention, the town’s finances were.
The town’s Water Fund is down by 39 percent and its Sewer Funds by 16 percent compared with Fiscal Year 2019, operating at $3.23 million and $4.08 million. Those funds were higher last year and even higher in Fiscal Year 2018, when water and sewer fund revenue came in a combined $1.5 million over budget.
This year’s utility funds also show a 75 percent drop in expected water connection fee revenue, a 90 percent drop in expected sewer connection fee revenue and utility rates that were increased by less than the recommended amount—by 3 percent, rather than 9.
Town Manager David Mekarski asserts that the utility funds aren’t depleting, noting that they’re above the levels that the town’s enterprise fund financial policy establishes. He said the town knows it will have difficulty maintaining structural balance within the funds over time if it doesn’t take action to correct the issues at hand.
Mekarski said there are two factors at play—the town’s sewer debt is nearly $31 million, and its water projects are many.
Considering 7 Water Project Delays
While water fee revenues have come in at virtually the same amount in the last five fiscal years, only fluctuating by a half-million dollars at most, five-year funding for the town’s water projects has been increasing in the last three years. In Fiscal Year 2018, the town budgeted $963,500 in five-year funding for water projects. That rose to$5.68 million in Fiscal Year 2019 and$7.28 million in the current fiscal year.
On Oct. 9, Mekarski, Public Works Director Buster Nicholson andCapital Projects and Engineering ManagerDale Lehnig briefed the Town Council on a possible strategy that would relieve pressure on the water fund—by punting some projects to the next decade. “That’s going to help a lot,” Mekarski said.
Vice Mayor Tip Stinnette said that last week’s meeting wasn’t called as an emergency response to shrinking utility funds, but that it had been planned for about a year.
Mekarski told the council that while the town currently has $21 million worth of water fund-related capital improvements to be completed between 2020 and 2030, the town staff has found a way to drop that amount to nearly $13 million by delaying nearly half of those projects to 2030-2040.
According to the risk analysis, 12 projects need to be worked on between now and 2030, with $220,000 to be spent on two of them before July 1 next year. Those include $140,000 toward the $280,000 replacement of the F Street water main and $80,000 toward the $1.08 million design and installation of a new intake structure at the Hirst Reservoir. The new intake structure will replace the old one that partially failed a few years ago, along with the currently inoperable sluice gate that has been overcome with algae.
Other projects for this decade include the $2.24 million replacement of the water main connecting the reservoir with the water treatment plant, which is located less than three milesnorthwest of the downtown area along Short Hill Road; $2.3 million for improvements to the more than 30-year-old water treatment plant to address the amount of expected additional water that will need to be treated and new EPA requirements; $1.95 million to prepare for a possible water connection with another jurisdiction; a $1.12 million Cooper Springs raw water main replacement that will replace the existing 74-year-old, 6-inch cast iron pipe with anew ductile iron pipe;$700,000 to replace the G Street water main; $600,000 toward the Jeffries Filter Facility; $300,000 to replace the Holly Lane water main; $290,000 to replace the 12th Street water main; and $126,000 for the installation of an A Street water line loop from theGardner Meadows community to a water line at Blue Ridge Middle School, which will provide residents in the area with continued water supply should the 20th Street water line need repairs.
According toLehnig, one of the most important water projects for the town to consider handling immediately is the $2 million replacement of the 59-year-old 12-inch water line that connects the water treatment plant and 1-million-gallon water storage tank with the town’s water main. Lehnig said that if the pipe were to break, there would be no other way to flow water from the plant to the town. Town staff members have recommended that phase one of that project be performed in Fiscal Years 2023 and 2024, although it was originally recommended to be handled from 2015-2019, according to the October 2010 Water Distribution System Capital Improvements Plan.
As for projects that could be rolled into the next decade, the risk analysis showedseven of them.
Those include $3.422 million for the construction of a new elevated water tank, which would provide the town with an additional 500,000 gallons of water capacity to conform to Virginia Department of Health requirements; $2.3 million to finish water treatment plant improvements; $2.3 million for phase two of the project that will replace the water line connecting the water treatment plant with the town’s water main; $337,000 for the replacement of the E Street water main; $232,000 for the replacement of the Loudoun Valley Shopping Center water main; $163,000 for an extension of the Springsbury Drive water main; and $112,000 for an extension of the Rugby Court water main.
Of the total 18 projects that town staff is suggesting for completion in the next 20 years, many of them were recommended, per the 2010Water Distribution System Capital Improvements Plan, to be done prior to the end of 2019 to enhance fire protection in localized areas.
The town staff decided in which decade each project needed attention by determining the likelihood of pipe failure, which was determined by assessing pipe age, pressure and breakage history. Along with the use of a severity rating scale to determine how badly a break would affect the town’s water system, staff determined that the G Street water main replacement, fromSouth Maple Avenue to South 20th Street,is the most crucial project to undertake at the moment, since the main has a 22 percent likelihood of failure that would result in catastrophic effects if it did break.
In addition to the town’s risk analysis, the Jacobs engineering firm has also been working on a water resources study to prioritize utility projects by considering five factors—the capacity of water each project can provide; whether it will improve the reliability and availability of the town’s water supply; its complexity; whether it needs to be performed sooner than others to conform with local and state regulations; and whether it needs to be completed sooner than others because of a public health or safety concern.
Sewer Debt a Contributing Factor
Aside from the water fund, the town’s sewer fund has also seen a decline in recent years. In Fiscal Year 2018, the fund was down by about $70,000 from the previous year. In Fiscal Year 2019, it was down by $1.4 million. This year, it’s down by $780,000 over last year.
During Town Manager David Mekarski’s budget presentation in March,Councilman Joel Grewe pointed out that the town’s sewer fund would be emptied in less than three years at the rate it’s decreasing.
Mekarski said that in the current fiscal year, the town is required to pay off $1.16 million in sewer debt, with payments going up to about $2.5 million by Fiscal Year 2023. He emphasized that the town might be unable to pay $5.5 million on its debt service if it doesn’t adjust rates or raise alternative revenue, such as connecting its water and sewer system with the Town of Hamilton. “That could be a very positive thing for the wastewater fund,” he said.
Lost Chances for a Remedy?
A thought among some is that Purcellville could have avoided some, or much, of its current utility fund issues by annexing the 131-acre Warner Brook property, which the Town Council voted to deny in October 2018. The Warner family has proposed to build 160 single-family homes, 15,000-square-feet of office space, an outdoor recreational area, a town center and 70,000-square-feet of retail space, and an indoor recreation center on the property, which sits just north of the town limits off Purcellville Road.
If that vote had gone through, the development would have provided the town with $10.9 million in one-time tap fees and about $1 million in net annual tax revenues, according to estimates from RCLO Real Estate Advisors.
The Municipal & Financial Services Group last year also suggested the town raise utility rates by 9 percent each year from Fiscal Year 2020-2024 to achieve structural balance of the utility funds by Fiscal Year 2025.
Before the vote to deny the Warner Brook annexation request, Mayor Kwasi Fraser described the suggested 9 percent increase as being “mythical” and a “scare tactic” that is “not based on any degree of precision or fact.”
Fraser has not responded to emails or calls to comment on the town’s utility funds.
Mekarski ultimately proposed, and the Town Council adopted, a budget that included a 3 percent utility fund increase, bumping water rates up to $6.66 per 1,000 gallons and sewer rates to $15.95 per 1,000 gallons.
Mekarski said he recommended deferring the 9 percent increase in Fiscal Year 2020 toallow the Stantec engineering firm, the town’s utility rate consultant, to complete its utility rate study.
Stantec was expected to present the Town Council with its analysis on water and sewer cost of service on Tuesday night.
The firm will additionally present the council with its proposed water and sewer rate structure on Oct. 28, which the town will use when deciding how to set utility rates for the next 10 fiscal years.
Overall, Mekarski said the town is going to simplify its 17-tier water and sewer rate model to ensure equity for all utility users, seeing that some users might not be “paying their fair share,” while others are paying for more than they use.
He said the town is open to looking at alternative scenarios to bring the utility funds out of a potential crisis by possibly sending a portion of the meals tax to the utility funds or paying for capital improvements in the utility funds with a portion of property taxes. “Basically, everything is on the table,” he said.
He said the Town Council could also consider raising utility rates halfway through Fiscal Year 2020, but that staff feels there’s enough time to talk about rate hikes during the Fiscal Year 2021 budget process.
Up to five utility fund work sessions are tentatively scheduled throughout November, with another two in December.