Water lines still in use after 125 years were a “great bargain” for Durango more than a century ago, said Bob Lowry, interim Public Works director.
“But we’re on borrowed time,” he said.
City Council unanimously approved 10% water and 20% sewer rate increases Tuesday at the recommendation of Public Works.
Lowry said the increases, scheduled to take effect Jan. 1, will raise the average residential utility bill by $12 per month and the average commercial bill by $95.
He said the rate increases are needed to build a fund balance for preventive and responsive maintenance and capital projects.
One such project is replacing the 9-mile pipeline that delivers drinking water from the Florida River to the city reservoir ‒ a project expected to cost $35 million to $40 million.
The city’s water fund is expected to be in deficit by the end of 2030, and the sewer fund could run a deficit as early as next year.
Lowry said the Government Finance Officers Association recommends municipalities keep fund reserves equal to 60 to 90 days of operating and maintenance costs, but the city currently has no reserve fund policy.
GFOA guidelines suggest the city should have $1.2 million to $1.75 million in reserve for water and $1.5 million to $2.3 million for wastewater, he said.
“If we had to replace all our water and sewer infrastructure today, it would cost in excess of $800 million. That’s a big number. But that’s a very real number, and that’s in today’s dollars,” he said.
Assuming water and sewer lines have an average 50-year life span, 2% of lines would need to be replaced annually, costing about $16 million ‒ on top of $14 million in operating expenses, he said.
“Big fund balances are not a bad thing when you’re looking at tens of millions of dollars in deferred maintenance in the system,” he said.
Many city water lines are in “critical condition” and underground infrastructure is at “extreme risk of failure,” he said. The rate hikes are necessary now because the city has not followed best practices by implementing smaller annual increases over time.
Gloria Platt, city chief financial officer, said at a City Council budget retreat in October that a 2% annual increase for water and sewer fees was implemented in 2019. A reduction to the water rate and a 10% increase to the sewer rate were carried out in 2022.
Those adjustments were made at the recommendation of the now-defunct Infrastructure Advisory Board, she said.
Councilor Dave Woodruff said City Council relies on the city’s boards and commissions for advisement and guidance on subjects in which councilors lack expertise. But had the city stuck to an initial plan in 2021 describing gradual rate increases, it could be in a much different financial situation today with regard to its water and sewer funds.
He pointed to a 2021 staff proposal to gradually raise water rates by 5% in 2023 and 4% annually through 2026, and sewer rate increases of 3% in 2023 followed by 2% annual increases ‒ and former IAB chair John Simpson’s argument against such a proposal.
“That premise was to take small bites to the fee structure so the city could stay on top of bond payments, operations and future CIP projects,” Woodruff said. “The IAB board chair at the time made the comment that, ‘We are raising rates for the sake of raising rates without any real justification.’”
At that time, staff had described exactly the scenario the city finds itself in now, Woodruff said. On Feb. 17, 2023, staff noted the city’s growing financial predicament.
“‘Costs were increasing at a faster rate than revenues by system growth alone,’” he said, paraphrasing a staff report. “And there was a recommendation for incremental rate increases in 2023 and beyond.”
Woodruff said Simpson’s correspondence with then Councilor Olivier Bosmans, however, is even more alarming than the guidance to defer incremental rate increases.
“The IAB board chair at the time was e-mailing directly with a city councilor at the time to influence them in voting against any rate increase,” he said.
Woodruff made no mention of Simpson or Bosmans by name. But previous reporting by The Durango Herald makes clear who he was talking about.
A 2023 records request by the Herald retrieved a 374-page document of copied emails between Simpson and Bosmans containing private discussions about IAB, City Council and other city business.
In the recovered emails, Simpson frequently included messages such as “not subject to CORA requests” at the bottom of his messages ‒ an indication that he was attempting to shield his communications with Bosmans from the public eye, Woodruff said.
In a Jan. 18, 2022, email, Simpson apologized to Bosmans for missing his call and then explained how a base water rate collects an “arbitrary” 25% of water fee revenues, when it should collect just enough for fixed costs such as salaries, debt service and other items.
“This email is private and not subject to CORA requests,” the email concludes.
“To me, it’s a clear ethical violation of the ethical standards that we as a council body set forth along with our various boards and commissions,” Woodruff said. “This broach of trust makes me wonder if we are in this position because of meddling of an individual into our water and sewer rates based upon misrepresented information.”
Simpson tuned into Tuesday’s City Council meeting virtually and said the city has a tendency to fall behind schedule on capital improvement projects.
He spoke against the rate increases.
He challenged the water rate hike and said it was “premature and places an unnecessary burden on local families and businesses.”
He added that he supports an increase to base sewer rates while leaving water consumption charges alone, which he said would be equitable to families and small businesses.
Woodruff said the city finds itself in “an impossible situation” and risks defaulting on its bond payment if it doesn’t take action on water and sewer rates.
The city sits atop an aging water system, faces unexpected repairs in the future, and it will need funds to address repairs and perform much-needed preventive maintenance.
“As a reminder, we cannot use taxpayer revenue to pay for water and sewer bond payments, operations or capital improvement projects,” he said. “The only revenue we can use to fund these entities is through the fee-based structure we currently have.”
The city is at “a point of no return” and needs to raise its water and sewer rates to maintain a pace ahead of bond payments, operations and future capital improvement projects, Woodruff said.
cburney@durangoherald.com
