Columbus City Council members voted to approve increased water rates on Tuesday night, but tabled a proposed increase in sewer rates until November to change the parameters of the accompanying bond.
Several members are interested in paying off the principal on the sewer bonds in the first three years which officials said would save $10 million in the long-run, but would increase sewer rates even more for consumers in the short-term.
The vote to table the sewer rates was 7-2 with council members Tom Dell, D-At-large, and Josh Burnett, R-At-large voting no. The motion to table the sewer rate bond ordinance was 8-1 with Dell voting against. The sewer bond ordinance was to issue revenue bonds in an amount not to exceed $61 million, as well as bond anticipation notes in an amount not to exceed $11 million for sewer utility projects.
The proposed water rates were approved 8-1 with Dell voting against. The water rate bond ordinance to issue revenue bonds in an amount not to exceed $36 million for water utility projects, plus $4 million in bond anticipation notes, if necessary was also approved 8-1 with Dell voting in dissent.
The reason for the increases are planned capital projects over the next few years to critical CCU infrastructure that had been deferred in years past, according to CCU officials.
The new rates were backed by the Columbus City Utilities (CCU) board during its meeting on Aug. 19 and recommended by an outside firm, Baker Tilly. However, now the board must reapprove a modified sewer bond ordinance and sewer rates sometime between now and November. The CCU board’s next regularly scheduled meeting is on Oct. 17.
“We’ve always been in a mode of, we need to get this done at the lowest possible impact to residential on a current month-to-month. Right now, the council’s doing something that’s a little bit different, because they’re looking at it like, how do we have the total lowest financial impact?” Kelso said in a phone interview Thursday.
“What we’re going to do is set the documentation up so that the council has multiple options,” Kelso said. “… If you’re going to do this rate, this is what the maximum bond issues could be, they’ll probably be three main alternatives.”
Baker Tilly’s recommendations were based on a cost-of-service study done for both utilities and cost of service rate adjustments will vary based on customer class.
Water rates are subject to Indiana Utility Regulatory Commission (IURC) jurisdiction, whereas sewer rates are not. Although the council approved water rate increases, the IURC will ultimately approve a certain rate schedule, which takes about a year. Because of this, the water rate increases won’t be effective until 2026, even though the proposed phase one sewer rate increases would get started in January of 2025 if approved later by council members.
The IURC will decide whether to accept the proposed water rates as presented, or may adjust them. If they are adjusted, the new water rates would come before city council one final time sometime next year for approval.
Water rates
Water rates are to be increased over two phases, beginning with 18% increase in 2026, followed by another 15% increase in 2027 for a typical residential user, assuming usage of 4,000 gallons per month.
According to a cost driver breakdown presented to council members, debt service and capital improvement plan projects are responsible for 81% of the increase in water revenue requirements and about 19% is due to operating expenses.
Below is an example of an average residential user monthly bill, assuming usage of 4,000 gallons per month:
- Current ($16.45)
- Phase 1 ($19.39)
- Phase 2 ($22.29)
Sewer rates
Members considered the proposed new sewer rates first, which were to be increased over three phases beginning with a 5% increase during phase 1 in 2025, a 9% increase during phase 2 in 2026 and another 5% increase in 2027.
A cost driver breakdown indicated that the sewer rate increase is 48% due to debt service, 39% because of operating expenses and 13% for replacements and improvements.
Below is an example of an average residential user monthly bill, assuming usage of 4,000 gallons per month:
- Current ($40.37)
- Phase 1 ($42.57)
- Phase 2 ($46.40)
- Phase 3 (48.73)
The discussion on the sewer rates began with council member Elaine Hilber, D-District 2, asking for more information about the interest rates on the bonds.
“I don’t have issue with the plan, the rates, the things that we discussed, but we did talk about the the interest on the bonds,” Hilber told Baker Tilly and CCU representatives. “Can you explain that a little bit more?”
“Both ordinances are a parameters ordinance, so everything has to fall with the max parameters that are set,” CCU counsel Adam Steuerwald told council members. “It’s $36 million for (the water bond ordinance), 6% up to 35 years.”
Steuerwald noted that with current interest rates, “If these were sold now, they would be nowhere close to the 6%.”
Council member Chris Bartels, R-District 1, said he was interested in setting a max interest rate and came with an amortization sheet for the sewer bond, noting the city would be paying $3 million annually in interest-only payments through 2030. He suggested scooting up the date the city begins paying principal on the bonds.
“We did provide an amortization schedule that assumed the 6% interest rate, just to compare the rates that have been proposed,” Baker Tilly’s Courtney Holliday said. “We’ve built in a 4.5% interest rate on the water and the sewer side, just based on current interest rates and where SRF (State Revolving Fund) is currently sitting. These bonds will be issued sometime in the near future. So we don’t anticipate a lot of change, but of course we can’t forsee the future.”
Pushing up the date the principal is paid on the sewer bond would result in an increase in sewer rates of about $3, per Holliday.
“Right now for 4,000 gallons it costs $40.37. With pushing principal up, in phase three it’s to about $53, so it would be $13 a month (higher than the current rate) at the end of phase 3,” Holliday told council members.
“If we start paying day one, we’re at $91 million vs. $100.5 million, so that’s a 10% savings right out the gate for a $3 increase on the end user,” Bartels said.
While the bonds’ interest rate is 6% for 35 years, CCU officials said it’s more of an outer boundary and the term of the bond would more likely end up being paid off in 20 years.
SRF has a special program that allows for certain portions of projects to be financed with a 35-year term because with a longer useful life of assets, “they usually give a subsidized rate,” Steuerwald said.
“It’s like a 15-year mortgage compared to 30, right?” Kelso said to Bartels. “I get what you’re saying, I just have not had a conversation like this where somebody wants to drive the rates up.”
Dell said he was opposed to setting a maximum interest rate.
“I think that would be detrimental to allowing them to be able to bid on those bonds in the marketplace,” Dell said. “… The percentage is going to vary based on who’s participating in the those bonds.”
In previous council meetings on the matter, Bartels noted that much of the debt service on the sewer side drops off after 2026, and wondered if deferring CCU’s largest capital project— a $20 million westside interceptor— to later would be worthwhile. He also asked if redevelopment dollars could be put towards the interceptor out of the central tax-increment-financing district. Both were in the name of lowering the impact on the consumer, he said at the time, but seeing the amortization schedule changed his outlook.
“When I saw the numbers associated with it, that changed my perception,” Bartels said. “And so yes, now we’re switching roles, and you’re saying we want to keep things low, but I’m looking at the bigger picture, because if not now, it’s going to hit really bad later when we draw the bond for the $70 million water treatment facility.”
During the first reading of the ordinances Kelso said there would be more rate increases in the near future to restore one of CCU’s water treatment plants, which Bartels was referring to.
“I’m with you, I will be super confident to set the rate, where we can set ourselves on the trajectory to buy down debt. Like, I’ll take that heat all day long,” Council member Kent Anderson, R-District 5, said. “… If we have a council who’s willing to bear a little bit higher rates, can we start working towards a non-debt-fed utilites, even if we’re talking a 40-year timeline? We can set a new policy and put this community on something a little more fiscally responsible.”
Several board members had observed that they have had to make a more difficult decision now, because it was deferred by elected officials in the 1990s.
