By Noelle H. Lowery
City Council’s recent decision to raise utility rates is reopening an on-again-off-again public dialogue about who should pay for what when it comes to the Marco Island Utilities. To that end, City Council will hold a special workshop Tuesday, Dec. 3, from 8 AM to 12 PM.
According to Council Chairman Ken Honecker, the workshop will focus on two topics. The first half of the discussion will center on the utility’s five-year Capital Improvement Plan, or CIP, and the second half of the conversation will tackle the question of a “fair and equitable” utility rate structure.
Many Marco Islanders were unhappy with the utility rate hikes approved in August. Truth be told, some City Councilors were not too keen on the increases either. While Councilor Chuck Keister voted against the increases, Councilor Joe Batte says, “We had been putting it off and putting it off until we were forced to do it, and it was very unfair as far as I was concerned.”
“It will be a tough, long conversation,” concedes Honecker.
The rate increases that sparked this workshop include a 7 percent rise effective November 1, 2013, along with succeeding annual increases ranging between 2.1 and 2.3 percent effective October 1 for the next four years beginning in 2014.
Viewed as a necessary evil, they were approved in conjunction with the refinancing of the series 2003 and series 2008 utility system revenue bonds. The refinancing was accomplished with the issuance of Series 2013, $60.75 million Utility System Draft Refunding Revenue Bonds. The refinancing secured a much-lower interest rate for the city, which will save $4 million in interest payments over the 20-year life of the refunding bond series. It also frees up close to $6.6 million in debt service reserve funds to help fund critical repair and renovation projects in the utility’s CIP.
The utility’s pre-refinancing CIP for fiscal years 2014 to 2018 totaled $37 million. How the debt service funds will change this outlook and the priorities therein will be revealed during the workshop.
Honecker explains that the rate increase was essential to the refinancing of the bonds and ultimately the city’s ability to reap the rewards of the transaction. “We are self-funding now,” he says. “Essentially, we are putting extra money away, more than we need each year so when four years down the road we need a $5 million project we’ve got cash to pay for it. We are pre-saving it so we don’t have to go out and bond again.”
Fair and equitable
Then there is the “fair and equitable” question. It is a complicated question with many moving parts. It also is a long-stand and contentious question on Marco Island. “There has always been a conflict with the rate structure,” quips Honecker.
The first component of the question is a general reluctance from past city councils to raise rates at all. Prior to the recent rate increase, it had been two years since utility rates had changed, but the pattern goes back even farther to when the city bought the utility from Florida Water Service Corp. in 2003. Council Vice Chairman Larry Sacher notes the City Council of the time vowed not to raise rates for the first five years Marco Island owned the utility. “At the same time, they purchased a broken-down water system knowing full well they would have to invest to repair it,” he adds.
So, how does the city pay for these repairs and new systems? Well, bonds, of course, and component No. 2: a revenue-generating rate structure that fuels the divisive debate about water usage in condominiums vs. single-family homes. At its core, the rate structure forces single-family homeowners to pay more for their water and sewer services than condo owners without the benefits of reuse water. Based on the size of pipes connecting the utility to residences, the rate structure change brought in an additional $2 million annually at its peak. The city also launched its Sewer Tank Replacement Program during that time.
According to Honecker, a philosophy of “borrowing from Peter to pay Paul” ensued in which extra utility revenues were used to fill financial holes for projects when necessary. Though City Finance Director and Interim City Manager Guillermo Polanco has a handle on the situation now, “there was a lot of financial engineering done to make it all work (back then),” Honecker adds.
Studies and consultants
The final component of the “fair and equitable” debate is rate studies and the consultants who generate them. The City of Marco Island has plenty of both. In fact, the city currently has three rate studies on the books conducted by two different consultants. There is the M-1 study, the M-54 study and the rate study that accompanied the bond refinancing. Each study cost the city between $80,000 and $100,000.
If you ask city councilors how they feel about these rate studies, most agree they are inaccurate, incomplete and in one case obsolete. Still, the councilors are equally reluctant to pound their fists on the dais calling for a new rate study with a new consultant. “I don’t believe our community has the stomach for more consulting,” says Sacher.
Councilor Bob Brown agrees: “The city has spent a lot of time and money studying these issues and to date has never really finalized many of the points that were identified. Because the Utility Debt is such a huge amount of money, it is important that the burden be shared equitably by all. In the past, this has pitted homeowners against condo owners and commercial accounts were also unfairly burdened. We need to revisit this issue and try to bring parity to all.”
Batte, however, has been pushing for a new rate study for some time, as he believes Marco Island residence deserve better, and he will continue to push during the upcoming workshop. “I am looking for council to suck it up now and get back to basics and to give the public a product,” says Batte. “The public paid for it. Let’s not kick the can down road anymore.”
Scheduled Utility Rate Increases:
Year Percent Rate Adjustment
2014 7.0% (effective Nov. 1, 2013)
2015 2.1% (effective Oct. 1, 2014)
2016 2.1% (effective Oct. 1, 2015)
2017 2.2% (effective Oct. 1, 2016)
2018 2.3% (effective Oct. 1, 2017)