Lincoln Council To Consider New Water Surcharge
REVENUE WILL PAY FOR $4.5-MILLION WATER TANK
LINCOLN — Lincoln City Council plans to consider an ordinance at its January meeting to assess a rate increase on city water bills to pay the costs for a new water storage tank to hold two million gallons of water.
The exact amount of the increase has not yet been determined but some options were discussed at a meeting held in late November.
The city is contracting with Crist Engineers Inc., of Little Rock, for a new elevated water storage tank and pumping station to improve the city’s water distribution system. The tank will be located on two acres on the east side of North Jackson Highway. The city purchased the land from Thomas Lee and Gloria Jean Hunton for $50,000.
The city contracted with Anderson Engineering Consultants to conduct a geotechnical survey of the land and this analysis found the site suitable for a water storage tank.
In a city meeting held Nov. 27, Matthew Dunn, vice president with Crist, gave an update on the project and discussed several options on a rate increase to generate enough revenue to pay for the project.
Dunn said the design plans have been submitted for approval to the Arkansas Health Department. He hopes the Health Department will approve the plans in early January. The city will then advertise for bids to build and install the tank in January, with a tentative bid opening in mid February.
The city is working with Stephens Inc., of Fayetteville, and Friday, Eldredge & Clark law firm on the financial side of the project. The city plans to issue up to $5 million in revenue bonds to pay for the land and the storage tank project. Dunn estimates the project will cost $4.5 million.
Dunn said his staff looked at more than two years of monthly water consumption reports to
determine the rate increase needed to pay off the revenue bonds.
“We wanted to build a model of your water usage from all your customers to project the rate changes needed to generate the additional income,” Dunn said.
For the model, Dunn said the firm only looked at revenue coming in, not the revenue that should come in because not everyone pays. The model was based on 2,343 customers.
Dunn offered several options for bringing in revenue to retire the new debt, depending on whether the city wanted to assess a flat surcharge for all customers or base the rate increase on water usage.
On the average, the water department’s operating budget has been about $1.9 million per year for the past three years, Dunn said. The average income for the same period is $1.88 million annually, with data showing the trend line is slightly up on monthly revenues.
Dunn did not recommend basing a rate increase on anticipated growth in customers and usage. If the city’s revenue increases, he said the city would just “bank” that additional income to pay off the debt sooner.
Dunn estimates the city’s annual debt cost will be about $300,000 or $25,000 per month for the water storage tank project. He recommended a rate increase or surcharge that would bring in about $375,000 per year.
Those at the meeting, which included city staff and members of the City Council and Planning Commission, discussed whether to go with a flat fee increase for all customers or a surcharge that is a combination of flat fee increase plus a percentage increase based on usage.
Dunn said a flat fee increase or surcharge of $13 per month per customer would bring in $300,000 annually and a $13.50 surcharge per month per customer would generate $379,000. For the average city customer using 4,000 gallons of water each month, water bills would go up from $47.02 to $60.50 with a $13.50 flat surcharge, Dunn said.
Another option, he said, could be a $10 surcharge per customer per month and then a 9 percent increase on each unit rate. This would bring in about $381,000 per year. For example, under this option, a city customer’s average bill for 4,000 gallons would go up $12.58 per month.
Terry Bryson, who will become a new Council member in January, said the most fair method probably would be to base part of the rate increase on water usage.
However, Rhonda Hulse, city business manager, pointed out the rate increase has to bring in the revenue needed to make the bond payment.
“If water usage is down, revenue may not come in,” Hulse said, adding, “We’ve seen very up years and very down years. One bad year could be a huge problem.”
Hulse said another consideration for a flat fee is that Lincoln charges different rates for five user groups on the city’s water system. These are agricultural, county, city, southeast water and rural west. The unit rates for some of these user groups are much higher. If the city increased the unit rate per gallon by 9 percent, some of those groups would see a much higher increase than other groups, Hulse said.
Looking at the budget, Hulse said she preferred a flat surcharge per customer, noting, “I’ve seen it (water usage) fluctuating so much.”
The consensus at the meeting was to recommend the City Council approve a flat fee for the water storage tank project, with the promise the surcharge would cease after the debt is paid off. Another suggestion at the meeting was that the city create a separate escrow account for the revenue generated by the surcharge.
Monday, Rhonda Hulse said the exact amount for the fee increase “obviously” is a decision that will have to be discussed and debated by the City Council and the way to assess the fee increase also will have to be decided by Council members.
For example, Hulse said the city could increase the base fee for the first 1,000 gallons of water used by all customers by the same amount or just put in a line item water tank surcharge on everyone’s bill.
She said the city may try to schedule another public meeting on the water tank before the Jan. 15 Council meeting.