Facing financial losses, Austin Water considers 15.2 percent rate hike

With the Austin Water Utility projected to lose another $27 million this fiscal year, David Anders, the utility’s assistant director of finance and business services, said customers could potentially see a 15.2 percent rate hike in their water service bills next year.

 

Under the proposed water and wastewater service rate hike, the average customer would pay an additional $12.01 every month. The average customer’s bill, which is currently $81.13, would be $93.14.

 

If approved by City Council, the proposed water and wastewater rate hike is projected to generate an additional $43.8 million for the cash-strapped utility in 2015. At the end of the last fiscal year, Austin Water had a $10 million cash balance in its water fund. At the end of March, the utility had a negative cash balance of $8.7 million, with the deficit expected to grow over the summer.

 

“This is depressing,” said Water and Wastewater Commissioner Mickey Fishbeck after getting a rundown of the utility’s financial situation at Tuesday night’s budget meeting.

 

Daryl Slusher, the assistant director for environmental affairs and conservation at Austin Water, said the drought and resulting conservation efforts from customers is the main cause of Austin Water’s money troubles. Although Austin Water customers are buying less water from the utility due to conservation efforts, the utility’s fixed costs such as treatment plants, pumps and pipes remain the same.

 

“We know and promote the many benefits of conservation in particular to what’s happening in the drought. Obviously it’s a wise thing to do, to have strong conservation programs,” Slusher said. “But we’re just talking about the finical reality.”

 

“Some people will say (higher rates are) counter intuitive or punishment for conservation, we certainly understand that reaction and why it would seem counterintuitive,” he added. “But when you get a little closer to it, it boils down to math.”

 

During the budget meeting, Anders laid out an updated five-year financial forecast that assumes the city will stay in Stage 2 water restrictions. After a proposed 15.2 percent rate hike for 2015, the utility proposes smaller annual rate hikes of about 3.5 percent in the following four years. Under the proposed forecast, the average customer’s bill would be $106.75 by 2019.

 

Anders said Austin Water is aiming to bump its water cash reserve from the negative to around $100 million by 2019.

 

“We feel like we need to have higher cash balances, so when we have reductions due to drought or rain or whatever that we can absorb those without going to the extremes, either low or negative,” Anders said.

 

On top of the proposed rate hike, Austin Water is considering an additional drought rate surcharge to levy on customers if the city goes into Stage 3 or Stage 4 water restrictions. Michael Castillo, the Austin Water Utility budget and finance manager, said an additional surcharge would be needed because Austin Water is projected to lose an additional $29.4 million under Stage 3 and $71.3 million under Stage 4 water restrictions.

 

One idea discussed at the budget meeting proposed charging an additional 83 cent per 1,000 gallons used under Stage 3 restrictions. If the city went to Stage 4 restrictions, the proposed surcharge would be $2.52 per 1,000 gallons. For reference, the average Austin Water customer uses a little less than 7,000 gallons per month.

 

During the budget meeting, Austin Water staff touted the utility’s cost-saving efforts. Austin Water will defer a plan to hire additional full-time employees by a year, saving $4.3 million in 2015. Also, the utility identified 5 percent savings, or $4.5 million, for non-personnel costs. With those savings included, the FY 2015 budget is projected to be slightly less than the FY 2014 budget.

 

Anders stressed that the proposed Austin Water FY 2015 budget and recommended rate increase could change before the City Manager presents the entire City budget to Council in July. He said the purpose of April 29 subcommittee meeting was to give commissioners an overview of the big issues going into the budget process.