Source: Sherman Publications

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No need to raise twp. water rates, study says

by CJ Carnacchio

July 03, 2013

Good news for Oxford Township's 2,490 water customers there's no need for any rate increases at this point.

Last week, the Water and Sewer Committee voted 3-0 to recommend to the township board that it leave water-related charges which includes usage rates, new connection fees and debt reduction charges "as is for the near future."

"That's a motion that I find palatable," said township Trustee Jack Curtis, who chairs the committee.

Based on the water/sewer rate analysis conducted for the township by Paul Stauder, of the Ann Arbor-based Stauder, Barch & Associates, the water fund currently has enough, between the revenue it's currently collecting and its approximately $1.5 million in reserves, to meet its obligations without raising any rates or fees.

"I think on a current basis, you look to be in good shape," Stauder told the committee. "I think it's probably worth the risk of seeing how things develop over the next few years in terms of new taps and growth of revenue and so on."

Although Stauder's report stated that the water fund's "current equity position (i.e. reserves) can take (the township) as far as eight years down the road," he still advised the committee to "take another look at (the financial situation) a few years down the road" to determine if any rate adjustments are necessary.

There's been some concern in recent years over the township water fund's ability to pay off the bond issued through Oakland County in 2005. It paid for system improvements such as the construction of two treatment plants and a 1 million-gallon elevated storage tank on N. Oxford Rd.

The outstanding principal is $9 million. Add interest and the township's water users owe approximately $13 million.

October 2030 is when the township is scheduled to make its last bond payment. However, it's likely the bond will be refinanced in two years.

When the bond was issued, the township was relying on new connection fees to pay off the debt as the community grew.

The township charges a onetime fee of $6,075 per Residential Equivalent Unit (REU) for new connections to its water system.

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.

Due to the economic downturn, new construction in the township slowed considerably in recent years, meaning the number of new connections didn't come in as originally projected when the bond was issued.

The good news is the current $45 per REU capital charge that water users pay quarterly ($180 annually) is covering most of the bond payment.

Annual bond payments are about $716,000 now and will grow to about $753,000 in 2028.

Stauder's report showed the capital charge is generating $562,000 annually, leaving a balance of $154,000 that needs to come from other sources such as new connection fees, interest earnings, water fund reserves or rate increases.

Over the last four years, the water system has added an average of 21 new customers per year, generating an average of $130,000 annually in new tap fees.

"Assuming no further connections to the water system and no rate adjustments," Stauder reported the water fund's $1.5 million in reserves would be completely exhausted in eight or nine years.

However, he noted that "a more likely scenario might be" that the township experiences "modest growth over the next couple of years followed by a return to normal growth patterns several years from now and beyond."

"Given this level of future growth, the current capital charge and tap-in fees are projected to be adequate to sustain positive balances (in the water fund)," Stauder wrote. "This is true even with a more modest growth level of 15 to 25 new connections per year."

But Stauder warned that "should the system show no signs of growth after a three-year period, some level of rate increase may be needed to bring in enough revenue to support debt service."

So far this year, the township has issued building permits for 45 new houses, which could translate into $273,375 in new connection fees for the water fund, plus $8,100 annually in debt service charges.

That's assuming these new houses are all located in areas where connecting to the township water system is mandatory.

The township board has also given preliminary approval for 52 new detached condominiums in The Hills of Oxford development located at M-24 and Indian Lake Rd.

If final approval is secured, that project alone will generate $315,900 in onetime connection fees and $9,360 in annual debt service fees.