November 13, 2008
City Pondering Rate Hike to Offset Water, Sewer Budget Deficits
The Memphis City Council took the first step at its November 6th meeting in what likely will be higher water rates for customers in 2009.
The council voted 4-0 to contract with the municipal engineering service for a water and sewer rate survey. The last time such a review was performed was 2002.
The move was deemed necessary as the city appears to be heading for a second consecutive deficit budget year in the water department. City Treasurer Michelle Drummond informed the council the water department is facing an estimated deficit of $30,000. Projections under the current rate structure show that figure could double by the end of 2009 without other financial considerations by the city.
The council held a special work session October 30th to address the situation. Members discussed the $643,000 annual budget and considered possible means to trim costs.
The city did experience significant cost increases for supplies and water treatment chemicals of 25% and 37% respectively in 2007, but combined those budget items only account for less than $60,000 in expenditures.
The bulk of the budget is required for personnel, as the department maintains eight full-time employees in addition to the superintendent, accounting for roughly $375,000 of the budget annually.
The council discussed possible adjustments in this area, but Superintendent Dennis Howard indicated it was not advisable to reduce the water plant staff and eliminate 24-hour coverage at the facility as hourly testing is required. He warned of the ramifications such a reduction might produce for the permitting process with the Missouri Department of Natural resources as well as other testing requirements.
Howard noted short of closing the plant, securing a contract and hooking on to an alternative water source, he could not foresee significant savings being made in budget reductions.
The council agreed that closing the water plant was not an option they were willing to consider.
“Unfortunately that means raising the water rates,” said Alderman James Parker. “How much is something we will have to determine in the coming months, but basically we are telling the community now they are likely coming. I can’t see anything stopping that.”
The water department currently utilizes the Show-Me Ratemaker software program made available by the Missouri Department of Natural Resources’ Environmental Assistance Office. This system is being used by more than 2,400 water and sewer service providers state and nationwide to monitor current service costs and prices while making projections for future costs and needs.
At the October workshop, Drummond presented a number of rate scenarios for the council to consider.
Due to the uncertainty of a number of variables in the software, the council agreed to contract for the engineering service rate survey, which is expected to be completed by the first of next year following the city’s annual audit.
The new rate structure will have to address the growing deficit in the water department as well as the under funding of the system’s replacement fund, which also has basically been exhausted after nearly $60,000 of repairs were required by two sewer line breaks this year.
Under the previous rate structure only $3,000 annually was transferred into water and sewer replacement fund.
The council will have to consider revenue options to rebuild this fund while returning the operating budget to level financial ground.