Moab City Council held a workshop before their regular May 12 meeting to discuss raising water rates for city residents and businesses. As an enterprise fund, the city’s water fund is supposed to be self-sustaining, like a business. As Moab City Engineer Chuck Williams stated in a presentation to the council, Moab’s water rates over the years have not kept up with inflation, or with the improvement and maintenance needs of the system.
Critical infrastructure needs
Williams outlined the improvements needed to the city water system and what those projects will cost. The city’s water comes from four springs and three wells, Williams said, and he would like the city to drill a new well to ensure an adequate water supply for the city should conditions change.
“If we were to enter into some type of extended drought, or something were to change underground, springs could be reduced in flow,” he said, adding that he isn’t specifically predicting that will happen, but observing it is a possibility.
Sixty percent of the city’s water delivery infrastructure is over 50 years old, Williams said, adding that the life-span of many of the system components is only 50 or 60 years. Some of the pipes may be “World War II era,” he said. He also noted that the existing infrastructure does not provide adequate pressures for firefighting purposes.
A list of capital improvements projects identified in the city’s Water Distribution Master Plan amounts to costs of over $15 million. Williams said he and Levi Jones, water superintendent for the city, had combed through the list and prioritized approximately $7.5 million worth of projects, including one new well, a 2.2 million-gallon storage tank, and the replacement of pipes and fire hydrants in key fire flow areas. Part of their financing strategy includes the strong hope that the city will be eligible for a federal fund-match for the storage tank project.
Williams said that for the current fiscal year, the Water Fund is operating at a $54,000 deficit and warned that if rates are not adjusted, the deficit next fiscal year (which begins on July 1) will be $98,000.
Moab’s rates “shockingly” low
Currently, the monthly base charge for a residential water user is $10.00 a month, which includes the first 2,000 gallons used. The commercial base rate is $25.00 for the first 2,000 gallons. Residential users are then charged $0.75 per thousand gallons used up to 10,000 gallons, and commercial users pay $1.00 per thousand gallons used up to 5,000. The rates are further subdivided beyond those use thresholds, and are also different for city water users within and outside the city limits.
Williams displayed a chart comparing Moab’s water rates to 15 other Utah cities. Moab was 13th out of 15 for median income level, and had the lowest water use base rate of all 15. The next highest rate was that of Nibley, Utah, which charges $10.50 for a residential base rate; however, a representative from Zions Public Finance who has been assisting Williams with financial planning and was present at the meeting said that Nibley is also in the process of raising their rates. The next lowest rate after Nibley is in Perry, Utah, where the residential base rate is $15.
The closest water provider, the Grand Water and Sewer Service Agency, which serves the adjacent unincorporated area of Grand County, charges a residential base rate of $21.75, which does not include any base amount of use comparable to Moab’s first 2,000 gallons covered by the base rate.
Mayor Emily Niehaus and councilmembers all agreed that they didn’t want to “kick the can down the road” any longer on the water rate issue.
“It is shocking that we have had such low water rates for so long,” Niehaus said. “We have to do this, council,” she added, speaking of raising the rates.
Three options to raise rates
To get the water fund operating back in the black, the city needs to raise rates. Williams offered 3 plans on how to do so. In the first, the residential and commercial base and usage rates would increase by 50% in 2021 (starting July 1), and increase by 5% each year thereafter. The two highest commercial usage tiers, which Williams said would likely include mostly hotels, would see base and usage rate increases of 75% in 2021, and 5% each year thereafter.
The second option would raise residential and commercial base rates by 40% in FY 2021, with 5% increases in subsequent years, and raise the usage rates by 50% for all users in FY 2021, also increasing those rates by 5% in subsequent years. Again, the two highest tiers of commercial users would see a higher increase in 2021, bumping up to 70%.
The third option would increase residential base rates by 30% next year, followed by 5% increases in future years, and raise commercial base rates by 50% next year, also followed by a 5% increase per year in future years. All usage rates would increase by 50% in this plan, except for, again, the two highest tiers of commercial users, for whom usage rates would increase by 70%.
For all the options, the city would issue a $6 million bond in 2020 and a $2.5 million bond in 2022 to obtain the funds up front to be able to start the necessary infrastructure improvements. Each of the options also raises the amount of water covered by the base rate from 2,000 gallons a month to 3,000 gallons a month. Williams said a small, water-wise household would probably use about that much per month, and he and his staff wanted to make sure that water-conscious users benefit from using it conservatively.
Williams explained two reasons for putting the highest tier users at a higher rate. One reason, he said, is that the biggest water users are the users that require more infrastructure.
“So you can make an argument that they should be paying for those improvements and the maintenance,” said Williams.
The other reason is that commercial costs will often get passed on to customers, which in the case of Moab, will largely be tourists.
Williams gave hypothetical examples of what each option would mean for a resident or business. Under option A, the residential base rate in 2021 would be $15 instead of $10, and in 2022 it would bump up to $15.75. For a commercial user, the 2021 base rate would be $37.50 instead of $25, and in 2022 it would be $39.98. Under option B, residential base rates would bump first from $10 to $14, then up to $14.70, while commercial base rates would bump first from $25 to $35, then to $36.75. Under the last option, residential base rates would jump from $10 to $13 in 2021, then to $13.65 in 2022, and commercial base rates would go from $25 to $37.50 in 2021, then up to $39.38 in 2022.
“Any of those options will allow us to complete that reduced project list and not maintain a deficit,” said Williams.
While councilmembers agreed that rate hikes have to happen, they expressed discomfort with doing so in the current economic climate, when the coronavirus pandemic has taken a financial toll on individuals, businesses, and families. Councilmember Kalen Jones suggested that staff create another rate increase option that would boost the base rate up more quickly for commercial users, and then see what the usage rates would need to be to make up the remaining financial needs of the water fund. Williams had noted that high base rates are a more stable stream of revenue for the fund, as usage rates fluctuate; however, keeping base rates low minimizes impacts to users with low income.
The council ultimately decided they would like to hold another public hearing on the matter and review more options before coming to a decision. It seems likely that a bump in rates for city water users is in the near future.