ANALYSIS: Huge Sewer Bills Due to Town Council Missteps

By DORIE SOUTHERN
Cape Charles Wave

June 11, 2013

NEW MINIMUM USAGE UTILITY RATES 07/01/13  $107.92.

So reads the message at the bottom of this month’s utility bill sent to every household and business in the Town of Cape Charles.

Technically, the message jumps the gun, because Town Council has not yet voted for the increase or even held the required public hearing.

But Town staff and elected officials have made clear that the rate increase is a foregone conclusion.

Meanwhile, an analysis by the Wave finds that the increase continues a years-long pattern of hiding the true cost to Town residents of sewage treatment.

The Wave analysis further reveals that Town Council and staff manipulated utility billing in the run-up to the 2012 Town elections, spending Town reserves to avoid increasing utility bills in an election year.

Finally, Town records disclose a disturbing pattern of cutting utility connection charges even as the Town planned an expensive new sewage treatment plant. In addition, the Town miscalculated badly in assuming that the new treatment plant would be partially paid by the developers of Bay Creek.

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Effective July 1, the current minimum monthly sewer charge of $35.45 is planned to increase to $60.85 – a jump of 72 percent in one year. But if the true cost of sewage treatment were reflected, the increase would be 82 percent.

Town Council is postponing purchase of a needed sewage grinder and manhole repairs and engineering studies for pump stations – costs that, when eventually incurred, will further increase rates.

The full increased cost of sewage treatment is also being hidden by reducing both other portions of users’ utility bills: minimum monthly water charges are being cut $5, and garbage collection will be reduced $1.75.

That sounds like good news, except that Town records fail to indicate any basis for cutting those charges. Garbage contractor Davis Disposal did not reduce its rate, and in fact the tipping fee is going up.

On the water side of the utility bill, no provision was made for the $371,000 needed to connect new Keck wells. Public Works Director Dave Fauber informed Town Council May 2 that the State Department of Environmental Quality requires those wells to be connected.

The Town had already borrowed the money to connect the wells and is paying debt service on the loan, but it spent the money to purchase the Bank of America building for use as a library.

Now the well connections will have to be paid through higher water bills — but not this year, as the Town has deferred compliance with DEQ. In the face of future higher costs, the Town is cutting current water receipts.

The same practice occurred last year around the time of the May Town Council elections. Utility bills were an election issue, and elected officials made sure not to increase them, even while incurring major debt service for the new sewage treatment plant.

Officials avoided a rate increase by spending $172,500 of the Town’s fund balance – in effect, the Town’s savings account – to help pay the first year’s sewer bond debt.

The action got the Town a rap on the knuckles by its auditors as a violation of accepted accounting principles, and is not being repeated this year.

That’s one reason for the huge increase in a non-election year. But the larger reason is the Town’s failure to anticipate the cost of the treatment plant and to budget accordingly.

According to Town Councilman Steve Bennett, utility connection fees are supposed to be used exclusively for water and sewer infrastructure. During his campaign for the May 2012 Council election, Bennett emphasized that cutting the cost of connection fees would have no impact on users’ utility bills, because utility bills were only for operating costs, while connection fees were for capital expenses.

But that’s not what has happened. Over the past two years, Town Council cut utility hookup fees significantly, only to discover now that there’s not enough money to service debt on the new treatment plant. The difference is being covered by increased sewer charges.

In 2009, Town Council set the water and sewer connection fee at $20,000. The connection fees are  a one-time cost  for new buildings to help pay for constructing water and sewer facilities. According to assistant town manager and wastewater consultant Bob Panek, the $20,000 fee was based on “growth projections, water and wastewater capacity expansion cost estimates, and grant/loan estimates available at the time.”

But by 2011, “greater grant percentage than assumed” led Panek to advise Town Council that connection fees could be reduced. But the calculation was based on future, not current financial need. The Town was facing a $5 million debt for the sewer plant under construction, with little to no connection fee reserves to service the debt.

On March 10, 2011, Mayor Dora Sullivan signed an ordinance to reduce water and sewer connection charges from $20,000 to $12,350, and to refund the difference to persons who had paid the higher amount.

The ordinance begins: “Whereas, water and sewer connection charges should be set at a level sufficient to finance the anticipated capital cost of necessary system capacity. . . .”

Panek advised Town Council to assume that 50 percent of the cost of future water and sewer expansion would be paid by Bay Creek under a 1991 Annexation Agreement.

Bay Creek has yet to pay a penny under that 1991 agreement, because development in the gated community has yet to require increased water/sewer capacity.

The Town’s new $19 million sewage treatment plant greatly improves water quality, but does not add treatment capacity. A 1990 report by the Commission on Local Government anticipated future increased water quality standards, and recommended that the annexation agreement be extended to include payment by the developer for “all costs” of serving [Bay Creek].

That recommendation was not followed, which is why Bay Creek is not obligated to pay any expense of building the new plant.

On May 10, 2012, Town Council cut connection charges again by half for one-bedroom apartments to a total of $6,175 as an incentive to Echelon Resources, Inc., to build 17 one-bedroom apartments in the Old School in Central Park.

On June 28, 2012, Town Council again reduced Echelon’s connection charges by half – now down to $3,087.50 per apartment. The Town further provided $41,000 in insurance proceeds for Echelon’s use to pay the fees.

If connection fees had remained at $20,000, the apartment building in Central Park alone could have provided $340,000 – well more than the Town’s $289,000 annual debt service on the new treatment plant.