Making Ends Meet in Difficult Economic Times – Evaluate Utility Rates

Many small cities (and towns) are struggling economically and finding it difficult to operate in our current economic climate.  Cities, both big and small, are suffering from reduced sales tax revenues.  The slowdown in the real estate market has led to reduced revenues from real estate excise taxes.  How can a city or town survive? 

One answer may be found by re-examining the current rates and charges imposed by the city utilities, particularly water and sewer.  The provision of water and sewer services by a city is a classic municipal function.  After the city has explored all other methods of reducing costs, including fully evaluating whether staffing level changes are necessary, the city should examine what it truly costs to operate its water or sewer system and make sure it is recouping all of its costs through the rates and charges to customers located both inside, and to the extent they exist, outside of the city.  It may be that it is time to re-evaluate what the rates and charges should be for those receiving these city utility services.  Similar statutes for setting water and sewer rates provide that, in classifying city utility customers, among other reasonable grounds for distinction, the city may examine the following factors: 

            •           The difference in cost of providing the service to the customers.

            •           Whether the customers are located within or outside of the city.

            •           The difference in maintenance, operation, and repair associated with the parts of the system serving the class of customer.

Other specific factors are identified for water and sewer systems in RCW 35.92.010 and RCW 35.67.190, respectively. 

In addition to the monthly utility rates, a full examination of the cost to connect a new project to the utility system should be evaluated.  RCW 35.92.020 permits cities to charge a connection fee for connection to the city water or sewer system, which reflects the equitable share the new customer should bear with respect to the historical cost of the system, together with interest at the city borrowing rate in effect at the time construction of the historical components of the system occurred for a period not to exceed 10 years. 

In small cities, much of the duties associated with operating water and sewer systems are performed by city employees tasked with numerous functions within the city.  Those employees may include the public works director, maintenance workers, the city clerk/treasurer and his or her deputies.  The full salaries and benefits associated with the individuals performing these functions should be examined and the time spent working on the city utility functions allocated to the utilities to be paid for through customer rates. 

The examination suggested in this blog is not intended to encourage cities to raise utility rates, but rather is intended as food for thought to be evaluated by cities when determining whether additional untapped potential city revenue sources may exist.  Making sure a city has sufficient revenues to provide a reasonable level of basic governmental services is a general responsibility of local government.  For a more in-depth analysis of your current utility rates, please contact Chuck Zimmerman.

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