Study suggests water rates should increase

The University of Tennessee’s Municipal Technical Advisory Service is recommending that the town of Signal Mountain raise rates for customers of its municipal water system by about 15 percent now and for the next two years, a cumulative 52 percent increase over three years, followed by moderate annual increases for the foreseeable future.

MTAS consultant Brad Harris said that although the water system turned a profit of around $20,000 last year, if the town does not raise rates, expenses will soon exceed revenue and the system’s cash balance will be entirely depleted by FY2022-23.

The water system’s current cash balance is around $3 million, and the town’s goal is to create a rate structure that would allow it to fund capital projects on a cash basis rather financing them and incurring interest costs, said Town Manager Boyd Veal.

Updates for the aging system include buying $660,000 in automated meters and related software in 2019-20, and replacing lines on Dunsinane Road and Tennessee and Georgia avenues in 202021 for $499,950 and $354,750, respectively.

MTAS representatives who performed a recent rate study offered two new rate options. Either would immediately raise revenues by about 15 percent while simplifying the current rate structure.

Customers last saw an increase in 2011 when rates were hiked 14.97 percent.

Customers now pay $20.19 for up to 4,000 gallons, plus $5.78 per each additional 1,000 gallons; or $60.59 for up to 12,000 gallons, plus $5.78 per each additional 1,000 gallons. Customers outside of town pay about 125 percent of the rate for town residents. Most meters are read quarterly, though some larger customers’ meters are read monthly.

The most recent audit done in FY2017-18 tallied 3,756 taps in the town, but only about 3,260 are active in any given year. Customers are not currently charged for inactive taps, MTAS consultant Sharon Rollins said.

With Option A, the town would implement a monthly customer service charge this July of $5.94, which would be billed regardless of whether any water was used, although there’s no charge for inactive taps.

Customers would also pay a usage charge of $5.94 per 1,000 gallons starting in July, and that rate would increase by 15 percent in both July 2020 and July 2021. After that, annual costof-living increases would be implemented. MTAS calculated those increases at 4 percent, but that could change as the town evaluates its cash flow and net position over the next three years, Veal said.

Option B — which MTAS recommends — includes a monthly service charge of $6, which would be billed for all taps, both active and inactive.

The additional usage charge would be $5.80 per 1,000 gallons. As in Option A, that rate would increase by about 15 percent over each of the next two years, with annual cost-of- living increases after that. Rates for customers outside the town would be about 120 percent of the rates of customers within the town.

Option B would bring in slightly more revenue — about $1.625 million in FY2020, compared to $1.623 million with Option A.

Rollins said she recommends Option B because of the equity the service charge for inactive taps provides for customers, as well as the value of having water available at those meters.

The council decided to wait until Councilman Bob Spalding, who was absent for the meeting, can weigh in on a rate increase or whether to keep or sell the town’s water system. Walden’s Ridge Utility District and Tennessee American Water have submitted bids.

“I’m not opposed to getting to the decision; I just want to have a full council,” Councilwoman Amy Speek said, adding that while some council members may feel the majority of citizens want to keep the system, it’s still a controversial issue that deserves the input of the full council.

Veal, answering a question from Mayor Dan Landrum on the timing of a rate vote before deciding whether to sell the system, said the new rates in at least one of the purchase proposals are based on where the rate is set at the time of sale.

If Spalding votes at the March 25 council meeting and the council moves forward with the rate increase or the sale of the water system, staff would need to draft an ordinance. The next meeting is April 8.