Water rate study explained...

This past week when I read the headline in the April 2, 2009 Milan News-Leader issue:

“Water rate study may lead to tax hike,”

...I was puzzled.

Because the headline is not true.

Some facts:

The goal of the water and sewer rate study is to make our rates fair and to ensure that our rates cover the cost to maintain and provide the service to our customers.

Until the study is complete, we won't know what the results will be.

The city council never discussed a tax hike in relation to the water and sewer study. The headline on the water rate story is completely erroneous.

It is more accurate to say that we are trying to make our water and sewer service self-sustainable, which currently, it is not.

AND we're concerned that our billing system is giving our largest users an unfair advantage over our residents.

I am concerned that some of our biggest customers, who use up to 40-percent of our waste water treatment capacity, pay a “readiness to serve” charge that is not comparable to the costs of providing and maintaining infrastructure for those users.

Let me put it another way:

40-percent of the time our waste water treatment plant operates, it processes sewage from one or two major customers, yet those customers do not pay 40-percent of the costs of building or operating the plant.

It is my belief, and our city auditor’s contention, that, this is unfair to our residents because our residents may be subsidizing our larger customers because of our current billing structure.

If this is true—then it is not fair to our residents and it must be fixed. A water rate study will answer that question along with others.

Other questions include, do our current rates cover what it costs us to provide water and sewer service? The short answer is, no.

The general fund subsidizes our water / sewer budget—and it should not work that way. The rates we charge must cover what it costs us to provide and maintain the service.

In 2002 the Milan City Council approved a 20 year, $13.7 million bond to fund an expansion project on the waste water treatment facility. In 2002, it was believed that the city would experience a huge growth period, with projections of some 200 new homes per year over a 20 year period. This new growth, which never happened, was supposed to pay the some $1 million per year payment on that bond. Because the growth never happened, and the city did not include a mill increase to pay back this debt, currently there is no built in mechanism for paying back the $13.7 million general obligation bond debt.

Because of this, the tax-payers of Milan have had to foot the bill for this expansion and our tax-exempt users, who use 40-percent of the capacity of the new waste water treatment plant, haven’t paid anything.

Our auditor, and our city administrator Ben Swayze, and myself, believe that the bonding debt was never factored into our current billing structure. And it should be.

This study will not lead to a tax hike, as the headline read.

It could lead to a fee increase, or a total utility bill restructure with no increase.

Or, the council could choose to reduce the tax rate by the amount of the bond payment general fund subsidy of $550,000, which would equate to a nearly 2-mill tax reduction for city residents!

But at this point, before the study has been completed, it is too soon to conjecture what will happen as a result. However, a tax hike, is completely incorrect, and was never even part of the water and sewer rate study discussion.