Adelanto water hikes loom (May 8, 2017)
First-year projection: $10 more monthly for average customer
ADELANTO — Now backed into a corner, city officials seem begrudgingly on board with drastically increasing water rates for residents in order to comply with bond stipulations and avoid a heap of other trouble.
Rates have not changed since 2012 and, since September, two consultant-led proposals to hike rates have been rebuffed by the Council, which has seen such a move as the last resort despite repeated warnings of no recourse.
On April 27, the president of public finance consulting firm Bartle Wells Associates, Doug Dove, delivered to the dais the most dismal message to date: Nixed twice by city leaders, the proposed five-year rate hike for year one had since increased tenfold in the “worst case scenario” and its passing was as critical as ever.
Twice before the Council rejected five-year proposals that were less than $1 more each month for the average residential customer in the first year. Rates would then increase no more than 2.6 percent each year for the following four years.
Dove projected the average residential customer could now pay a whopping $10.91 more each month during the first year. In years two through five, increases were similar to the previous proposals.
It was a sound-thealarm revelation that required much massaging, while also acting as a bitter pill for city leaders who were now faced with the prospect they waited too long to pull the trigger.
“We’ve been kicking this can down the road for a while now. I think we’re going to have to face the music,” Councilman John “Bug” Woodard said. “Our city has to continue to be successful. Right now, we’re on a crash course with doomsday here.”
Asking the Council to levy this size of a burden on ratepayers — a group, it should be noted, of whom they all belong — is also a major political risk for three councilmen facing re-election in 2018.
It was a point not lost on consultants, even as it seemingly bothered the local policymakers less.
“Let’s get it done, get it done fast, try to keep it out of the papers,” Woodard joked.
Mayor Pro Tem Jermaine Wright, however, was quick to pivot to strategy and question how well consultants could execute the admittedly extremely tough sell.
“You can’t come in here and backtrack,” Wright told Dove and others during the April 27 workshop, insisting they be confident enough to fully express as-is the fire-andbrimstone situation and not waiver under pressure to some false notion that alternatives may exist.
Woodard also urged consultants to ensure the next presentation to the Council and rate-paying public rejected complexity.
“Please, please, please make it as simple as possible, because our constituents — most of them are pretty simple-minded people,” he said. “They don’t understand a lot of facts and figures and all that and it scares the crap out of them.”
Why are such seemingly exorbitant hikes necessary in the first place?
For starters, the Adelanto Public Utility Authority has fallen into technical default and can’t comply with its bond convenance. So while it might carry an adequate cash balance to meet operating costs through roughly 2021, it doesn’t have the ability to stash away 25 percent of its operating revenue for capital improvements and cash reserves.
That favorable 1.25 times debt service coverage is weighed heavily by rating agencies. In turn, it’s a target that would enable the APUA to refinance bonds at a better interest rate and realize long-term savings.
Those savings, tentatively projected right now at potentially $7 million over 30 years, could then theoretically be applied to water rates in order to draw down costs for the authority’s 7,500 customers.
But the city, Dove said, must at least show the willingness to increase rates, even if the projected $10-plus-per-month hike was admittedly a “worstcase scenario” that could or could not stick.
Initially, when the Council was brought the water rate study in September, long-term savings were nearly double today’s projections, estimated at $13 million over 30 years. At both times that earlier plans were presented to the Council, the APUA was still meeting the debt service ratio.
“Being in technical default has a lot of negative consequences,” Dove said. “You will not be able to access the capital markets, you will not be able to refinance your bonds and you may end up getting sued by the bondholders because they’re concerned about getting paid back their investment.”
“It’s pretty clear we can’t ignore the problem,” he continued. “Rates do need to be increased.”
The exigency is exacerbated by a 22-percent plummet of APUA revenues due to conservation during the drought and 6-percent increases annually to augmented water purchases through the Mojave Water Agency, consultants say.
Even so, the proposed increase, Dove added, would only slightly move Adelanto on the regional comparison scale — from below average to just above, and hikes are also being dealt with by other jurisdictions, including Helendale.
Notwithstanding increases, the city also must approve a new rate structure that isn’t at odds with a court ruling declaring as illegal any tiered structures meant to encourage conservation or those which are not costfor- service justified.
The proposal includes downsizing the city’s three tiers to two tiers specific to meter size. The city will mail its third Proposition 18 notice to ratepayers since September — a roughly $3,000 expense — and then must wait at least 45 days as public comment is collected.
After 45 days, city staff can raise the item to the Council and hold a public hearing.
Source: Shea Johnson, Daily Press