Source: Sherman Publications

Remove Images

Going up?
Committee recommends doubling twp. sewer rates to pay county, stop $900K annual loss

by CJ Carnacchio

July 03, 2013

Oxford Township's 3,484 sewer customers could see their bills double in order to stop their system from operating at an annual loss of about $900,000.

"People aren't going to like this one bit, but we're not going to like it if we keep depleting our (sewer) funds," said township Trustee Jack Curtis, who chairs the Water and Sewer Committee. "This will stop the bleeding."

That's if the committee's recommendations are approved by the township board.

Last week, the committee voted 2-1 to recommend to the township board that sewer bills be increased from $86 per Residential Equivalent Unit (REU) every six months to $86 per REU every three months beginning Oct. 1.

An REU is a unit of measurement that's equal to the average water/sewer usage of one single family home. A single family home is assigned one REU, while a business like a restaurant or car wash may be assigned multiple REUs.

Under this proposed increase, the total annual cost for sewer services would jump from $172 to $344 per REU and township sewer customers would be billed four times per year instead of twice.

"The input that I received talking to some of the sewer customers is that a quarterly billing is more palatable than a larger bill twice a year," Curtis said.

"The important thing for the people to know out there is we're not making any money on this," said township Supervisor Bill Dunn, who also serves on the committee along with Clerk Curtis Wright.

"All we're doing is trying to pay our bills. We cannot do like other communities and get in the hole."

The committee also voted 2-1 to recommend that sewer tap fees the cost to hook up to the system be increased from $2,500 to $3,500 per REU beginning Jan. 1, 2014.

The township board is expected to consider these recommendations at its 7 p.m. Wednesday, July 10 meeting. Meetings are held on the second floor of the Oxford Veterans Memorial Civic Center (28 N. Washington St.) in downtown Oxford.

In a nutshell, the committee recommended doubling usage rates because the sewer fund is operating with an annual loss of approximately $900,000.

Last year, the township was charged $1.6 million by the Oakland County Water Resources Commissioner's Office for the operation and maintenance of the sewer system. The county basically serves as the township's Department of Public Works.

Those charges from the county included approximately $53,000 in payments for bond debt associated with the Oakland-Macomb Interceptor (OMI) rehabilitation project.

The OMI Drain is the sole conveyance conduit for transporting wastewater from more than 830,000 Oakland and Macomb residents to the Detroit wastewater treatment plant.

Factor in the depreciation of the sewer system's infrastructure, which amounted to $195,255 and is considered an expense, and it cost $1.8 million to operate the township sewer system last year.

The problem is only $899,169 in payments were collected from sewer customers, so the system operated at a loss of $897,703.

Right now, these operating losses are being covered by the sewer fund's reserves, which as of the end of 2012, amounted to $3.9 million.

But those reserves are not going last forever if the township keeps losing $900,000 annually, Dunn told this reporter. Plus, he said that money is needed to help pay for sewer projects, both expected and unexpected.

"The user fees are eating a hole in the (sewer) budget right now," Curtis said.

If the depreciation is factored out, the township sewer fund's actual cash loss last year was $702,448.

The depreciation amount basically represents how much the township should be collecting, if it chooses to, for future repair and replacement of aging sewer lines.

"Some communities fund depreciation as a way of maintaining reserves for future capital improvement needs or on-going capital needs and so on," explained Paul Stauder, who conducted a water/sewer rate analysis for the township. "Others take the position that it's a non-cash expense and it's not required to be funded.

"There is no legal requirement to fund it. I think it depends in part on what your comfort level is and what you guys want to do with maintaining reserves down the road."

In Stauder's opinion as long as the township fully funds its bond payments and have enough left over to deal with general capital improvement needs, "you don't necessarily have to fund (the depreciation)."

However, if the township needs "to provide funds for things like eventual replacement of sewer lines," Stauder said, "then I think it is a good idea to fund it."

"We can go over these numbers all day, but the thing is we have to pay our bills," Dunn said.

In order to help pay for the increase in bond debt that's expected over the next two years, the committee also recommended increasing the sewer connection fees from $2,500 to $3,500 per REU.

This is the onetime fee that homeowners, businesses and developers pay to hook up the township's sewer system.

The committee's hoping this $1,000 increase will help cover the existing and proposed bond debts associated with the OMI rehabilitation project and improvements to the Clinton-Oakland Sewage Disposal System (COSDS), of which Oxford is a part.

The township's share of the principal for these existing and proposed debts amounts to $4.6 million. Factor in interest rates ranging from 2 to 5.5 percent and the township's looking at an average total of approximately $310,000 in annual debt service payments over a 20-year period.

Assuming all that bond debt is issued for the OMI and COSDS, Stauder recommended sewer users be assessed a $13 per REU quarterly capital charge as well.

That recommendation would have added $52 per REU in capital charges each year to the proposed $344 per REU in sewer usage rates, bringing the total annual sewer cost up to $396 per REU.

Right now, there are no capital charges levied on sewer customers.

According to Stauder's calculations, the capital charge would pay $260,000 of the $310,000 in annual debt payments. It's assumed the other $50,000 would be covered by connection fees from new hookups to the system.

Township engineer Jim Sharpe explained the reason behind the capital charge.

"The (proposed) $86 (per REU quarterly usage rate) would cover the operational cost, but you still have to deal with the upcoming bonds," he said. That's where Stauder's proposed capital charge comes in.

But committee members didn't like the idea of adding a capital charge on top of raising the usage rates. That would amount to a $99 per REU per quarter increase.

"I would just as soon not put any more burden on the sewer users," Dunn said. "That's a pretty healthy increase for a normal family to double their sewer (bill)."

Instead of recommending a capital charge, the committee decided to raise the sewer connection fee by $1,000 per REU beginning Jan. 1, 2014, so that new construction can help cover some of this anticipated debt.

Dunn noted that right now, the township is probably going to have 30 to 50 new sewer customers this year based on building permits. Given this growth, he felt it isn't necessary to implement a capital charge right now.

But Dunn acknowledged that could change in the future.

"There may be a time down the line when we have to add a debt reduction portion to their bill," the supervisor said. "Let's get over this shock and just keep an eye on it for the next few years."

Dunn noted he feels "comfortable" holding off on levying a capital charge and seeing how the increased tap fees work because the sewer fund has $3.9 million in reserves.

Curtis expressed his concern that raising the sewer connection fee might hinder economic development and growth.

"If there are communities around us with tap fees lower than ours, that offer a community like ours, do you think they may go there instead of coming here?" he asked.

"I don't think it will affect it," Dunn said. "If someone wants to come here to Oxford (and) they're going to have to pay $1,000 more than (somewhere) else (for a sewer tap), it's going to be part of the cost of the house (that's passed on to the customer). Is that going to stop them? I don't even think they'll think about it."

Stauder noted the township could use some its $3.9 million in sewer reserves to pay their portion of the OMI and COSDS projects up-front and not incur any more debt.

"Sometimes it's hard to convince people that certain rates and charges are necessary when you're sitting on a couple million bucks," he told the committee. "Sometimes it's easier to use those funds for capital outlay like this (and) not incur the future debt.

"I think in the long run your rates and charges will probably be more tolerable if you use those assets to reduce your need for future debt rather than sock it away and/or use it for operating," Stauder added.