Hillsboro council plans increase in utility rates

Hillsboro residents and businesses should prepare for a utility rate increase in 2014.

City Admini?strator Larry Paine walked city council members through the ?what,? ?why? and potentially ?how much? during the Dec. 3 meeting.

If Paine?s proposed rates had been approved as presented, the monthly bill for water, sewer, electric and sanitation services combined would increase by 12.8 percent. Instead, the council will use the information as a starting point for further discussion.

Paine said the city hasn?t raised its utility rates since 2009. Rising costs of operations, plus inadequate cash reserves to continue operating in the event of an emergency, are motivating the current increase.

?As we put the 2014 annual budget together, it was clear we could not use reserves to keep utility rates at their current levels,? Paine said.

He said no one likes to raise rates, but it is the fiscally responsible move.

?Of all the things we do under the umbrella of Hills?boro, (providing utility services) is a business, and we need to operate it as a business,? Paine said. ?It can?t go bankrupt. It can?t.?

Situation analysis

In preparation for the meeting, Paine produced reports based on a computer analysis of customer types, consumption rates and revenue for the past 12 months.

Then, for at least two of the city?s four utilities, Paine used a template developed by a rate-analysis consultant to arrive at his proposed adjustments for Hills?boro.

The template uses two key factors?fixed cost and variable cost?to reach revenue targets.

Fixed cost forms the basis for the ?base rate??the fee each customer pays simply to participate in the utility.

The variable or unit cost has to do with how much product?water and electricity, for example?a customer consumes.

Three of the city?s four utilities are covering operational costs with the current rates. But Paine emphasized the need to increase cash reserves to maintain those systems and to operate in the event of an emergency.

?Not enough attention has been paid to keeping our utility rate base up to speed,? he said. ?Conserva?tive financial communities generally don?t have a lot of energy for putting money aside.?

In addition to enabling a city to pay cash?instead of borrowing?for major equipment repairs or replacement, cash reserves affect a city?s credit rating for bonds when borrowing is necessary.

Paine said Hillsboro?s credit rating is an A-minus because of inadequate cash reserves. The Moody?s rating system looks for 120 to 180 days of operating cash in the bank, according to Paine. Sanitation is the city?s only utility to achieve that goal.

?You would be amazed how much money we have invested in infrastructure to keep this town running,? Paine said.

Counting such things as power lines, water and sewer lines, streets, facilities and equipment, he estimated the investment at $250 million, and said those assets need to be maintained.

?We?re not trying to get into everybody?s wallets,? Paine said. ?We all maintain our cars and our homes. That?s what we?re doing here?only on a much higher scale.?

Council response

Council members didn?t argue the need for rate increases, but they did express a preference that the city move toward small rate increases each year rather than occasional large hikes.

They also asked about the comparative impact of raising the base rate for customers versus raising the consumption rate.

Paine said finding the best balance between the two fee categories is more of an art than a science.

In principle, he said, raising the base rate can penalize someone for being a customer; raising the unit cost can reward a customer for low consumption.

?Do you penalize the large user or smaller user?? he asked at one point. ?There always will be winners and losers.?

The council asked Paine to develop a variety rate scenarios for the next meeting so they can compare the impact of each formula on the various categories of customers.

Toward the end of his presentation, Paine acknowledged the difficult choices facing council members.

?You all have an aversion to raising rates,? he said. ?It?s not unusual, you?re an elected official.?

Paine said raising rates will generate criticism from constituents, but he also encouraged council members to remind constituents of the major improvements made in the city in recent years.

?Those projects were accomplished because of you folks sitting around this table,? Paine said.

Other business

In other business, the council:

? heard Paine say he has prepared information for the public hearing scheduled for 4 p.m. Dec. 17 regard?ing amendments to the 2013 budget. The routine amendments address accounting adjustments within the budget, but do not affect the mill levy.

? heard from Paine about the results from the recent smoke testing of sewer lines in Hills?boro. The process went well overall, he said, but ?a compilation of problems? were discovered.

Residences where problems were found will receive a letter from the city requiring that the identified issue be corrected.

? heard the revenue from city sales tax as 2013 draws to a close remains ahead of previous years. October sales generated $616,000 in tax revenue, compared to $611,000 in 2012 and $557,000 in 2011.

? heard from Paine that David Lancaster has agreed to serve as the volunteer director of the weather-watch program in Hillsboro.

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