Funding Options Proposed For Blue Ridge

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A preliminary water rate analysis and long-term financial study, presented at the Tuesday, May 23 special Town Council meeting, reported that Payson's current fee structure falls short of funding needed to operate the town's municipal water system.

Dan Jackson, chief executive officer and managing director of economists.com, a consulting firm serving infrastructure industries, also said a combination of rate increases, bonds and government grants will help the

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Water from the C.C. Cragin Reservoir allocated to Payson will flow through a turbine operated by the Salt River Project at the mouth of the reservoir. That turbine generates electricity, another potential source of income for Payson.

town fund its share of the Blue Ridge project.

"Even without considering the Blue Ridge project, there is a need to do a rate adjustment here in the town," Jackson said.

Jackson's presentation follows a commitment from the water department to the Town Council to conduct three studies, establishing a comprehensive plan for the Blue Ridge, now called C.C. Cragin, project.

The first analysis, called the Black & Veatch study, completed February 2006, outlined a preliminary design for the project's infrastructure and the cost to build it.

"(These two studies) are designed to give us information to determine our comfort level with the utilization of that new water source and our ability to pay for that," said Public Works Director Buzz Walker.

A third investigation, not yet scheduled, will cover the possibility of using excess C.C. Cragin water to recharge existing wells while ensuring the safety of mixing the two water sources.

These studies provide potential development scenarios for the C.C. Cragin project, not slated for completion until 2016, according to town estimates.

Meanwhile, the preparation begins.

As the town grows, and more residents place demands on the area's natural resources, the water department must accommodate progress.

"Water is a business," Jackson said. "It is run by the town like a business. It expects to bring in the revenues that are needed to pay the expenses without any outside assistance."

The cost of finding and providing municipal water is on the rise worldwide.

"Water service increased at an average compound rate of 7 percent per year during the 1980s, nearly double the rate of inflation," the U.S. Environmental Protection Agency reports on its Web site.

An independent study conducted by the National Rural Water Association confirmed the EPA's findings. It reads, "For the past decade, water bills have increased faster than the rate of inflation, and it is likely that this trend will continue."

Material expenses, environmental studies, gas, insurance, maintenance, water exploration, hazard abatement and other factors affect the bottom line.

Payson's 7,613 customers --growing by 233 a year -- connected to the municipal water system use 5,000 gallons at a rate of $27.60.

But that income is not enough.

Projected revenue for 2006 will bring in $3.5 million, or $691,000 short of the $4.211 million required to operate the system.

To correct this deficiency, currently covered by the town's water development fund, Jackson proposed a "series of gradual, annual adjustments," including a total monthly rate increase of $33.09 by October 2007.

"We believe that will minimize the impact on rate payers," he said.

From 2008 to 2011, the proposed average-monthly water fees will jump from $36.24 to $47.58, respectively, to cover maintenance costs and the payment of debt service created by the C.C. Cragin project.

"The average water bill will go up by about as much as a gallon of gas each year for the next six years," he said.

To fund the majority of the project's $26-million budget, the town would issue a total of $21 million in bonds -- paid off over 20 to 30 years -- between 2010 to 2011.

To offset the rest of the cost, the plan recommends an additional $5 million generated from consumer-water revenue.

And Jackson offered another option: Raising impact fees, thereby requiring developers to contribute to the project.

Doubling impact fees to $7,570 could reduce the C.C. Cragin budget by $4 million and alleviate consumer responsibility by $2.55.

Walker said rate increases wouldn't happen without public input and council approval.

In the meantime, grants and other income sources offer alternatives.

Bond specialist Grant Hamill, of the financial consulting firm Stone & Youngberg, said Jackson used conservative figures in determining costs, but state and federal grants could shave off even more. In particular, the Rural Water Supply Act of 2005, which is making its way through the U.S. Senate now, could provide additional funding for Blue Ridge water, a project that began in 1995.

Meetings among tribal groups, government agencies and Phelps Dodge -- the mining company that owned the rights to the Blue Ridge reservoir --along with the passage of the Arizona Water Settlements Act in 2004 paved the way for Payson to secure 3,000 acre feet of surface water a year.

The Black & Veatch study provided the framework for the Blue Ridge infrastructure.

Water allocated to Payson will flow through a turbine operated by the Salt River Project at the mouth of the reservoir. That turbine generates electricity, another potential source of income for Payson.

From there, water meanders down the East Verde River into 14.5 miles of ductile iron pipeline to Payson where it enters a water treatment plant.

Because the plan employs gravity-created pressure, a few booster stations and an innovative, mostly unmanned treatment plant, annual operating expenses drop to $168,000.

Comparable treatment plants that require energy for pumps, boosters and personnel to man the facility can exceed $500,000 a year.

It will require another decade of intergovernmental and private cooperation, the securing of easements and environmental impact studies, and, of course, the building of the system itself.

"You have to start the ball somewhere," Walker said.

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