Last year, an aging water main under Main Street crack, split and turned a big chunk of the street into a messy sinkhole.
Well, expect a lot more of that if the council doesn’t boost water rates 25 percent, Assistant Public Works Director Buzz Walker told a skeptical audience at a Citizens Awareness Committee (CAC) recently.
Not only will the town’s aging water mains start to fail, but the Blue Ridge Pipeline could sink into a fiscal sinkhole, said Walker. The town should have raised rates six years ago, but now has to impose a big hike to catch up.
Walker warned his leery audience not to be misled by the water department’s nearly $7.5 million in reserves — nearly two years worth of an operating budget.
The money was raised mostly from impact fees before the housing market collapsed – and it’s already earmarked for eventual construction of the Blue Ridge Pipeline.
Even with all that money in the bank, the town needs to raise roughly another $10 million in the next decade to replace 50-year-old water mains all over town. The replacement of those aging, undersized water mains will eventually extend fire hydrant coverage to most of the half of town now such protection.
“It’ll take about 10 years to get hydrants in most areas,” said Walker. “We’ll rehab (old water lines and facilities) until they fail — we’ll eke every bit of life we can out of them.”
Walker said the current water rates don’t provide enough money to cover routine operating costs, much less allow the town to accumulate the $10 million needed to upgrade the water system.
Moreover, the town could endanger its ability to get federal grants and loans for Blue Ridge if it can’t demonstrate its water rates are high enough to guarantee payments on revenue bonds needed to build the $30-million project.
The proposed 25 percent hike in water rates would bring in about $1 million annually. The cost of the bonds to build the Blue Ridge Pipeline will also likely cost about $1 million annually.
The town had hoped to repay the bonds with money from impact fees. At the peak of the building boom, the town collected $2 million a year in impact fees – but that has fallen to almost nothing in the past two years.
Some members of his audience said existing reserves should give the town a big enough cushion to avoid a rate increase for another year, when the region’s economy has recovered.
“Wouldn’t it make sense to look at the economic situation and delay that increase for another year?” asked Tom Loeffler, a member of the Gila Community College Board and a board member for the Citizen’s Awareness Committee.
“I wouldn’t delay it,” said Walker, “but I’m not the one who votes. I don’t get paid to be overly compassionate,” he added.
Council members Su Connell, Ed Blair and Richard Croy all listened from the audience. None revealed how they’ll vote, but each expressed various degrees of support for Walker’s presentation — which amounted to a hard sell for a big increase. The council this year earmarked $1 million in water department reserves for a loan to balance the town’s operating budget this year in case tax revenues fall short by June.
Several audience members worried that the council will raise water rates, then use the money to balance its budget rather than replacing water lines and building the Blue Ridge pipeline.
“What guarantee do we have they aren’t going to take that money and do something else with it?” asked one audience member.
“I don’t think there’s ever a guarantee,” said Walker. “But they said they wouldn’t do that.”
“What they say and what they do are two different things,” retorted the questioner.
“We can’t just switch money from the water department to the general fund,” said Councilor Blair. “It’s just a loan. That’s the law. We’re not going to break the law.”
“It was a very hard decision to (earmark the money for a loan),” said Councilor Connell. “It’s not like we went out and had a big party. We’re hoping to use a very small portion of it – if any,” to balance this year’s budget.
Councilor Croy added, “if we got into trouble, that money would be there to use to keep our heads above water.”
Other audience members suggested phasing in any rate increase.
Jim Hippel, an accountant and member of the CAC board, later suggested the town phase in the rate increase, at no more than 10 percent per year.
But Walker advocated an immediate rate increase to catch up, followed by regular, smaller rate increases in the future.
He said the arrival of some 3,000 acre-feet of Blue Ridge water each year starting in about 2015 will require major investments and yield major benefits.
The town will have to spend about $2 million adapting several wells so that the town can inject Blue Ridge water into the underground water table — essentially using excess Blue Ridge water to build up underground reserves necessary to carry the town through future droughts.
Moreover, since the Blue Ridge water will flow down hill into the town’s water system, new pipes and connections will essentially fill most of the town’s water tanks by gravity flow — instead of expensive pumping from wells several hundred feet deep.
So the town needs the rate increase to keep up with the capital improvement needs of the system, which will have to one day serve twice as many people.
Walker said the town’s existing network of wells has grown from 6 to 42 in the past 30 years, and the number of fire hydrants has grown from 5 to 165. Even so, roughly half the town has no fire hydrants, mostly because the two and four-inch water mains can’t carry enough water pressure.
“We have a $4 million annual budget, out of which $1 million each year is to replace old, aging infrastructure,” said Walker. “But we haven’t stayed on top of water rates like we should have.”
He vigorously denied that the rates charged in other towns have anything to do with the recommendation for a rate increase. “For some reason, everyone wants to know what someone else pays, but it has nothing to do with our water rates.”
He said the water department’s reserve fund has fallen from about $11 million to just more than $7 million in the past few years, mostly as a result of paying initial costs for the Blue Ridge Pipeline including the town’s $2.5-million contribution to repairing a stretch of pipe atop the Rim owned by the Salt River Project.
Hippel tried to pin Walker down on whether current water users could end up having to pay the $1-million annual cost of revenue bonds for Blue Ridge if the housing market fails to generate the roughly 150 impact fees needed each year to pay off the bonds.
“There’s a real risk there,” said Hippel.
“Life is full of risk,” shrugged Walker.
“On a scale of 1 to 10, how much risk do we face?” asked Hippel.
“Everything in life is a risk,” cried out one audience member.
But Walker said the long-term history of development in Payson suggests the town will most likely issue at least the necessary 150 building permits annually even if building never returns to the 250-per-year average that held for five years before the building crash.
Hippel said the town could still run short of water if growth resumes. The town’s current usage figures show that Payson uses only about 60 percent of the natural recharge into the water table. However, if the town were to exclude the potential output of the Tower Well in Star Valley, it would be using more like 90 percent of the natural recharge amount. So if the town doesn’t use the Tower Well but continues to grow, it could run short of water again, said Hippel.
“Things don’t move that quickly,” said Walker of the water needs of future residents. “We have Blue Ridge now,” which will give the town enough water for a population of 38,000.