November 27, 2013 - Oxford Village residents could be facing increases to both their water and sewer rates in order to help pay some debts, cover increased operating costs and finance future system improvements.
But before anything is decided, village officials are looking into both the amount and timing of the potential increases.
How much should they go up? Should they be implemented as large, onetime adjustments or multiple, smaller increases over a period of years so as to make it more manageable for those living on fixed incomes?
To help answer these questions, village officials did what governments usually do in these situations – they formed a committee to explore their options.
This committee met Nov. 22 and decided to do the following:
n Solicit proposals to have a rate study conducted by an independent, third-party consultant;
n Recommend approving the repayment of a previous $500,000 transfer from the sewer fund to the water fund;
n Determine how much money would be needed on an annual basis to fund capital improvements;
n Review and evaluate the combined $150,000 in administrative fees currently being paid by the water and sewer funds to the village general fund for services ranging from meter reading to monthly billing and collecting from customers.
"The key thing is how soon do you need the money," said village Manager Joe Young. "Part of what we're trying to avoid is saying all of a sudden, we've got to have a 50 percent increase. We are in good shape today. But looking down the road, in a couple years, we're going to need that money, so we should start building it up now."
"We wouldn't have to raise rates today or next year even, but based on these capital outlay needs and us really, actually covering our costs, which is what we should be doing, we need to raise them," Young added.
Serving on this committee are Young, councilmen Bryan Cloutier and Elgin Nichols, village attorney Bob Davis, village engineer Rob Lavoie and township Clerk Curtis Wright.
The committee's next meeting will be at 8:15 a.m. Friday, Dec. 6 in the village Community Room at 22 W. Burdick St. This meeting will be open to the public.
Cloutier noted he's more concerned with making the right decision than the popular decision.
"It is what it is," he said. "And if it means you have to increase the rate to make ends meet, then that's what it is. If I don't get elected, so be it. I don't plan on running anyway. I want to do what's best for this community now for the long-term. If it's not popular, so be it."
Although the water and sewer funds are currently solvent, Young said they each will be running a deficit within two years if the rates are left as is.
"We're not in any serious situation (with the water fund), but at some point, we're going to need to raise the rates and perhaps look at restructuring how it's set up," he said.
Davis said implementing "a gradual rate increase" now makes sense from "a planning perspective."
"This is something you shouldn't wait on; you should do it now," Davis said. "Should we be planning? The answer is yes . . . You've got to get ahead of this. You can't be waiting until there is a problem and then say, 'Okay, we need to fix this.'"
Village water customers currently pay a base, fixed rate of $18.10 per month, which covers up to 2,000 gallons whether they use it or not. They then pay $3.41 for each 1,000 gallons above the initial 2,000.
The last time village water customers received a water rate increase was in 2008 when council hiked it by 5 percent.
In contrast, Lavoie noted communities that receive their water from Detroit have annual rate increases that average between 5 and 15 percent. "The village has really got a good system here," he said. "You're keeping the costs down."
Village sewer customers currently pay a monthly base rate of $22.85, which includes up to 8,333 gallons. They then pay 51 cents for every 1,000 gallons above 8,333.
Young noted "most" residential customers pay a $22.85 sewer bill because their use doesn't exceed or even approach 8,333 gallons.
The last time sewer customers received a rate increase was in 1999. It went up 25 percent (or $4.51), according to Young.
Debts to pay
Both the water and sewer funds have debts to pay.
Water customers owe a total of $3.4 million in principal from outstanding bond issues, which requires approximately $420,000 in annual payments. The interest rates range from 2.5 to 4.75 percent.
Water customers also owe the sewer fund quite a bit of money from previous loans and cash transfers. They owe $200,000 for the water tower repairs and painting in 2011 and $500,000 for cash transfers made in 2011 and 2012.
Young indicated there's no legal obligation to repay the sewer fund for the $500,000 in cash transfers because it didn't have any debt at the time they were made.
"So, it's discretionary," he said.
"But I would think you'd have to repay that," Davis said.
"You have a moral obligation," Nichols said.
"It's somewhere between moral and legal," Davis added. "I think it's almost borderline you're supposed to (repay it)."
Lavoie pointed out if the sewer fund isn't repaid, "you open yourself up for criticism."
Cloutier noted the practice of diverting money from the sewer fund to the help the water fund is "just borrowing from one place to prolong the inevitable."
"That's what happened with the DDA (Downtown Development Authority) in the village," he said. "We're putting ourselves on the same path and we need to get it fixed now."
Sewer customers are facing $2.2 million (principal and interest combined) in bond debt, which is their share of the $136 million worth of improvements to the larger system that transports waste from their village homes and businesses to Detroit.
To pay their sewer debt over a 20-year period, village sewer customers will be responsible for approximately $110,000 per year.
However, the village will be receiving a credit with regard to its sewer debt because when the payment amount was calculated, it was based on how much sewage the village could potentially send. Things changed and the village will only be paying based on how much sewage it actually sends.
County charges going up
In addition to this increased debt load, Young noted the sewer rates from Oakland County will be increasing "significantly" as well, which will further eat into the sewer fund.
"Their operating costs are going up because (the sewage) passes through to Detroit, which increased their rates," he said.
Between 2014 and 2018, the county's operational charges will increase by a total of 26 percent. That means the village will go from being billed $390,000 this year by the county to $523,000 in 2018.
Davis indicated the village needs to look into how much of a "markup" the county includes in what it's charging the village for sewer services.
"Oakland County is not shy about markups," he said. "Then you get into this analysis on whether the markup is a tax or whether it functions as a service fee. Those markups can be significant."
Young said the county bills the municipalities approximately 50 percent (or $150 million) more than what Detroit bills it for sewer.
However, he noted the county is providing services for the additional charges including maintaining sewer lines.
"(The county is) maintaining all the sewers now because they (acquired) those from Detroit," Young said.
Capital improvements needed
In addition to paying off its debts, village officials also want the water fund to have enough money to pay for capital improvements to the system.
Back in 2009, the village had a water reliability study conducted and one of its findings was that the municipality needed $3.085 million in system improvements, most of which were water main replacements. It was recommended at that time they be done over a 15-year period at an annual cost of approximately $200,000.
"There's still some 4-inch and a lot of 6-inch mains in the village that need to be replaced," Lavoie said. "And we talked about the need to extend a new (12-inch) line down Lakeville (Road from Glaspie to Bay Pointe Dr.)."
Lavoie will be updating the list of needed improvements and corresponding cost estimates with the aid of Don Brantley, superintendent of the Department of Public Works.
Young noted the water fund is doing well right now thanks to the $500,000 cash infusion from the sewer fund and a $445,000 deal council approved January.
"The water fund is in much better shape than it was two years ago cash-wise," he said.
Earlier this year, council allowed a California company to buyout the village's existing lease agreement with AT&T Wireless for the cellular service equipment it has located atop the municipal water tower on S. Glaspie St.
Under the deal, Black Dot Capital & Real Estate Group agreed to pay the village six installments of $74,166.67 from Feb. 1, 2013 to July 1, 2015 in exchange for control of the AT&T-occupied tower space for 50 years.
CJ Carnacchio is editor for The Oxford Leader. He lives in the Village of Oxford with his wife Connie and daughter Larissa. When he's not busy working on the newspaper, he enjoys cigars/pipes, Martinis/Scotch, hunting and fishing.