Agenda - 11-21-2002-1 - Laserfiche WebLink

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s~- Town of Hillsborough -Water 8c Sewer Operations New Customer Information -Regarding High Rates Dear New Water/Sewer Customer: Wfiy Are the Water & Sewer Rates So High ~ The purpose of this pamphlet is to make you aware of the Town's very high water/sewer rates, explaining the reasons why the rates have to be so high, and sharing what actions the Town has taken to address this situation. Hillsborough's rates are some of the highest in North Carolina and thus likely much higher from what you've paid in other places you have lived. The Town is trying to make new customers aware of this unfortunate fact, so you will not be surprised upon receiving your first bill. Hopefully, sharing information about the crisis facing our water and sewer operations will help new customers understand this difficult situation. One of the more difficult issues surrounding the high rates is that, as is the policy in many other municipalities, out-of--town customers are charged "double" or 100% greater than the in- town rate. For years, this policy had not been an issue because rates were not high. Now, due to the tremendous rate increases over the past five yeazs, a minimum monthly bill for an out-of--town customer with water and sewer service (3,000 gallons or less) has grown to $72.78. So, it is quite common for out-of--town customers to have monthly bills much higher than this, even double or triple the amount if they are very high water users. The issue of the "double rates" has been debated fervently since September 2000. The Town Board has discussed the possibility of setting along-term goal of reducing the rate disparity between in-town and out-of--town customers from being 100% greater to a lesser percentage. The Town Board plans to review this issue during its annual budget deliberations in April-June. In addition to alerting you to the Town's high rates, the other purpose of this pamphlet is to share information on the financial and operational condition of the utility system, as well as explaining why the high rates are essential. While it is impossible to fully explain a situation of this magnitude in a pamphlet, we hope you fmd this information helpful in evaluating some of the issues and problems facing Hillsborough's utility operations. Newly elected Mayor Phelps, the Town Board, the Citizens' Water & Sewer Advisory Committee, and Town staff aze truly concerned about the burden these high rates are placing on our customers, especially those on fixed incomes. The Town is committed to keeping the rates as low as possible, yet still doing what is necessary to run an efficient and environmentally responsible operation, avoiding bankruptcy and preparing for the future. Thank you for your patience and understanding! Sincerely, Eric Peterson Town Manager Hillsborough has had the extreme misfortune of having to deal with a variety of fmancial and operational problems all at the same time. The following list highlights some of the major reasons for the current rate problem. In 1993 the voters of Hillsborough approved $S.8 million in General Obligation Bonds to pay for a reservoir to address long-time water shortages and allow for future growth. Construction on the reservoir project started in 1998. Waiting five years to start the project created inflationary increases in the construction and land costs. This delay, combined with additional requirements from the State and lawsuits from property owners whose land was condemned to build the project, resulted in the reservoir costing over $10.1 million, more than $4.3 million over budget. Annual debt service payments on the reservoir alone are $723,000 per year for the next 18 years -this is approximately 15% of the Water/Sewer Fund budget. In addition, the Town recently had to take approximately $800,000 from its savings to pay off the remaining costs and final lawsuits associated with the reservoir. This completely depleted the Capital Reserve Fund and drained the Water/Sewer fund balance (savings) down to its lowest "safe" level. While the cost and location of the reservoir has been frequently debated in the past, nonetheless, it is now completed, Hillsborough needs the water supply, and thus is now legally obligated to pay the debt incurred to provide water to the citizens of Hillsborough. The Wastewater Treatment Plant is 26 years old and has never received a major rehabilitation or upgrade. Partially due to the outdated design and other limitations of this "older" plant, the Town has been fined by the State of N.C. numerous times for violations. The Town is borrowing $750,000 in January 2002 to make improvements to the plant that will hopefully delay the need for a major overhaul for another five years. This adds another $130,000 per year of annual debt for the next seven years. The Water Plant is 28 years old and has never received a major upgrade. The Town is in the process of starting an estimated $3.3 million upgrade to the plant. Fortunately, the Town received a $2.0 million grant and a low interest loan from the State (at half the market rate) for the remaining $1.3 million. Still, this will add another $100,000 in annual debt payments for 15-20 years. The plant will likely run out of capacity in S-7 years, necessitating an expansion at that time. Due to the age of the Town's system, many lines in town aze over 70 years old, serious problems exist with leaking from water lines and inflow into sewer lines, and line breaks aze quite common. While the Town has made quite a bit of progress in recent years on this matter, it still