Recession and Water Conservation Costing Wake Municipalities

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The recession coupled with the 2008 drought has Raleigh’s water merger communities taking a hard look at the cost of serving some of the city’s 485,000 water customers.

Starting in 1999, six Wake County towns began joining Raleigh’s water system through a merger agreement. Each of the six – Garner, Rolesville, Wake Forest, Wendell, Knightdale and Zebulon – were already on the Raleigh water system to some extent.

This week the Raleigh City Council voted to extend the payback period for Zebulon by three years and take back some of the capacity the town originally bought in order to reduce the town’s debt to the City of Raleigh.

Raleigh’s assistant Public Utilities Director Robert Massengill said the merger agreement “allowed the towns to purchase additional water and sewer treatment allocation, which was financed by the city and paid back over time through the rate differentials.”

Each town purchased different amounts depending on anticipated growth. But when the recession hit in 2008, growth slowed, leaving some towns lagging behind both in debt payment and in the use of extra water and sewer.

As the six water merger towns go, the rates vary. Raleigh and Garner pay about $44 a month because Garner has already paid off its debt to the city of Raleigh.

area water rates

Among eastern Wake County towns, Wake Forest pays $53; the average bill goes as high as $84 in Zebulon.

A portion of the water and sewer allocation each town purchased was earmarked for future growth. Since that growth has slowed, towns like Rolesville and Wendell have given back some of their unused water and sewer, offsetting the remaining debt.

But Zebulon Mayor Bob Matheny was reluctant to take this compromise. Growth has slowed now, “but we don’t have a crystal ball,” he said.

Development will likely pick back up in the future and, when it does, Matheny said, “if we give back our allocation, we’ll have a higher buyback.”

Zebulon purchased its extra water and sewer, about 300,000 gallons per day, at $4 a gallon.

“The price now is $7 a gallon and it is projected to go as high as $19 a gallon. If we can hold on to it, it’s a truly valuable asset,” Matheny said

Raleigh city councilors, however, didn’t agree.

Matheny spoke to the council Tuesday, asking them to consider letting Zebulon keep its additional water and sewer while maintaining an already agreed upon three-year extension to pay off its debts for merging onto Raleigh’s water system.

The 300,000 gpd equates to a $1.33 million reduction in Zebulon’s debt to Raleigh. But, as Matheny pointed out, “If we keep the amount, we can still pay it off in three years. If we give it back, we’ll actually pay it off in two extra years.”

Though other towns have agreed to this, it isn’t making up the difference completely.

Last year, Rolesville water and sewer customers had a $5 surcharge added on to their bills to keep the town in line with its amended 2016 payoff date.

Knightdale customers face steeper rate increases with a 9.25 percent rate increase set to go into effect this summer, which equates to an extra $5.82 a month on the average water bill.

Wendell customers will see a 10 percent rate increase this summer, bringing average monthly rates for these customers to $73 a month.

Wake Forest customers will see the highest percentage increase, with a 12 to 15 percent hike this summer — though those customers’ rates remain relatively low among most merger communities at $59.60 a month. The high percentage increase for Wake Forest was due to recent improvements on the town’s aging lines.

Although Zebulon’s projected rate increase – 5 percent in the new fiscal year that begins July 1 –  is much lower than Wake Forest or others in eastern Wake County, the town’s current rate is already significantly higher than any other municipality and stands to go even higher at $88 this summer.

The rate goes higher still for residents outside Zebulon town limits at more than $100 a month.

“We all want the same goal,” Matheny told the city council, “to offer affordable utilities to our citizens.”

In the short term, giving back the unneeded water and sewer would be a debt relief for Zebulon, as Mayor Nancy McFarlane pointed out.

“Wouldn’t it be advantageous to take off the $1.3 million from your debt when you need it the most?” she asked Matheny.

“It’s a bad time to be predicting what you need,” he replied. “If I really feel we don’t need it, I’ll be the first one to stand up and give it back. We’d appreciate the opportunity to get back in to a normal growth cycle and make decisions on firmer numbers.”

City Manager Russell Allen said the negotiations haven’t been to Raleigh’s benefit.

“Accommodations have been made … On our side, we feel like we did [work with them],” he said. “We went through the options with them on our dime. Keeping capacity was important to all the municipalities. It’s not fair to Raleigh customers to have them keep the capacity we don’t project they need.”

Massengill said Zebulon and the other towns’ capacity will increase periodically at a rate of about 3 percent every three years.

“They wouldn’t likely need [the 300,000 mgp] – maybe in 10,15 or 20 years,” he said. “I don’t think they will likely need it in two years.”

Though 300,000 gpd is a small number compared to what customers in Raleigh, Garner and Wake Forest use, “it will impact us today,” Massengill said.

“The future water capacity is going to cost more,” he said. “The burden on the city is, when we have to provide the extra capacity in 10 to 20 years, it will be $10 to $20 million at the Little River Reservoir rate.”

But the prospect of paying more for water and sewer that Zebulon once had at a cheaper rate led Matheny to appeal to the Raleigh council, “please don’t take advantage of your partners.”

The council ultimately sided with Raleigh staff’s advice, voting 7-1 to have Zebulon’s payback period extended three years to 2024 and have the town return the 300,000 gpd of unused water and sewer capacity.

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