From the 2011 Water Quality Report:
In April 2010, the Village hired a consultant with expertise in financial planning for water utilities to complete a water rate study. The study identified the annual estimated expenditures needed to operate the system and compared them with the annual revenues projected to be collected with the current water rates. They determined if the Village maintained water pricing at the current level, there would be a $2.75 million deficit by 2011 which would increase to almost $5 million by 2015. As a result, the consultant recommended that water fund revenues increase by 14% per year over a three year period, beginning in 2010. This measure was determined to be necessary to ensure that adequate funding is available for the current and future operation of the Village’s water system. The complete Final Water Study Report can be found on the Village’s web site.
At their meeting on November 9, 2010, the Village Council approved a measure to restructure water fees and the manner in which water bills are calculated. Downers Grove water customers saw these changes reflected in bills received after January 1, 2011. There are three main reasons for the change:
• The price of water that the Village buys from the DuPage Water Commission has significantly increased and is expected to continue at a rate of 10% per year.
• Large portions of the system have reached the end of their useful life. This includes water main pipes that deliver water to homes and businesses, as well as water towers, fire hydrants, water valves, and meters. A significant investment is needed to avoid disruptions in water service due to failed equipment.
• Water consumption has declined by about 1% annually over the past five years and is projected to continue along this trend in the future.
The Village’s water system consists of 7 water towers with a storage capacity of 8 million gallons. The Village also has 3 stand-by wells that are tested and maintained regularly in case of an emergency. In addition to the water towers, the Village also maintains 233 miles of water mains, 3,144 fire hydrants, 2,940 valves, and almost 16,000 water meters. Last year the Village pumped an average of 5.3 million gallons of water per day.
There was much discussion and deliberation over the massive increases in charges to residents and businesses included in the Water Utility Council voted Yes to pass in November of 2010. Costs for the system of pipes, pumps and towers that deliver potable water, and for the actual water used were dissected and parsed. The desired result was a viable and sustainable Water Utility fee structure would guarantee the system would be financed properly moving forward. Those charges will increase compounded at ~14%/year for the next five years minimum, so what is expensive now will be more expensive in the future. So it goes. A significant investment is needed to avoid disruptions in water service due to failed equipment and leaking pipes.
The study itself identified an annual need for about $4 million a year for system maintenance, rising to
about $5 million a year by 2020. It appears rather than prioritize projects based on scope and need to meet the available funding provided by the Utility, staff moved ahead with several big projects now rather than build up the available funds and pay for them as cash becomes available for projects.
At one point in the Water Utility Study (p.14) two options were presented: double the water rate in a few years, or borrow money to finance the intial maintenance work needed now. This $10 million debt issuance would be the first of two recommended by the consultants. Round Two of borrowing, if needed, would be in 2015 to the tune of about another $6 million. At that point the system should be in reasonable enough shape that ongoing Water Utility revenues can pay both for the principle and interest of the debt, and for the continued maintenance of the water system infrastructure.
It’s important to note that the revenues are dedicated and designated for this debt issuance. These are not debt issuance backed by property taxes, they will be backed by Water Utility revenue. Borrowing always crates an “empty” interest expense; money that buys nothing. All the more reason to get out from under the debt ASAP. The sooner the system is stabilized and self-funding on an annual basis, the sooner the cost curves flatten out to a degree.
The Water Utility will be used to fund a 3R Reserve (Repair, Replacement and Rehabilitation) that will accomplish the financing past 2020. By then, the Village should have about $20 million built into the reserve for projects, and won’t have to waste money on interest-only expenses related to borrowing.
Council approved the $10 million debt issuance unanimously 6-0. Commissioner Neustadt was not in attendance, and did not vote.