Readying for Showdown With Residents, Palm Coast Nudges Slightly on Water Rates
FlaglerLive | February 14, 2013
Palm Coast residents will see significant increases in their water bills beginning in spring. The increases may not add up to 22 percent over the next three years, as the Palm Coast City Council first proposed a few months ago. But it’ll be close to that—perhaps 16 percent—and what charges are not levied immediately will then be levied more heavily in subsequent years.
That’s the consensus of the council as it heads toward decision day on Feb. 19, when the council is scheduled to approve one of two options setting the course for water and sewer rate increases for the next few years, with the understanding that whatever the council approves next week, it can and likely will renegotiate (with itself) in a couple of years. The Feb. 19 meeting, at 9 a.m. at the Palm Coast Community Center, could, despite being held in the morning, be one of those contentious affairs that draws out a crowd. Opponents of the city’s rate increases have been organizing, and talking about possibly holding a rally to pressure the council to scale back its water-utility’s $78 million five-year plan.
That plan entails heavy borrowing at steeper costs (although interest rates remain low), refinancing of existing debt, maintenance, expansion, and repairing and replacing various aspects of the city’s utility, which has been in Palm Coast ownership for 10 years.
The city is in something of a bind because of a combination of problems, including inadequate financing plans in the past that displeased bond holders and rating agencies that are, in part, an indirect result of the housing crash: Palm Coast had bet on continued growth to sustain the investments it needed to make in its plants. When the growth stopped, the bills (and debts) didn’t. And the city carries heavy debt: Palm Coast’s utility owes $207 million on two bond issues that mature in 2033 and 2036.
The city’s rating was downgraded by Moody’s and Fitch, two of three major credit-rating agencies, thus raising Palm Coast’s borrowing costs. They did so, a city financial consultant told the council, because “they’re concerned about the debt service coverage and the liquidity position back in 2010.”
The city has taken steps to stabilize that position since, and the steps it’s about to take next week are a further effort to placate bond holders. But it’s doing so at rate-payers’ expense, because rate-payers are the only sure source of revenue right now. The city can’t bet on growth resuming—at least not for the dollars due bond-holders. Ironically, the city is betting on growth resuming as it projects a need for a new wastewater treatment plant, a colossal cost that accounts for close to a third of the $78 million five-year plan. The plant isn’t needed right now. But the city’s existing plant is at around 70 percent capacity, triggering the normal planning for a second plant.
Meanwhile, Palm Coast may even invite ratings agency officials to visit the utility to set their minds at ease. But the city’s consultant also said that nothing the city does now guarantees that its rating will improve—or, indeed, that it won’t get worse. “I don’t want to sit here and say you get downgraded it’s the end of the world, you can’t finance new debt,” the consultant said. “You can. It’s just going to cost you more money, higher interest rates.” And again, it’ll be rate-payers who’ll bear that cost.
With all that in mind, the city had endorsed a study showing the need for that $78 million five-year-plan, as well as the way to pay for it through rate increases: 8 percent next year, 7 percent in each of the two years after that, then 2 percent increases in the last two years of the five-year plan. The average homeowners’ water bill would have gone up $55 the first year, and up an additional $50 in each of the subsequent two years. The city has 42,720 water accounts and 35,102 sewer accounts.
The plan triggered an outcry that hasn’t abated. Earlier this month, the council faced a chamber-full of residents angered by the projections. More than a dozen spoke to the council, some of whom subsequently met with Richard Adams, the utility director, with questions and proposed alternatives.
The city administration worked up eight such alternative options and presented them to the council on Tuesday. But in the end, only two of the eight (specifically, Option 2 and Option 4: see below) were acceptable to council members and the administration. Either would only slightly reduce the rate increases. But they would not change the way the utility is run, they would not change the essence of the five-year plan beyond perhaps delaying the construction of the second sewer plant, and they would not change the formula by which rate-payers are the totality of the city’s revenue source. One of the plans opponents had proposed was to bring utility rates under the city’s taxing authority: residents would then pay their utility costs as if they were paying taxes. They could then write-off the cost. But that proposal went nowhere.
On Tuesday, council members rallied around their preferred options, defending the city and warding off criticism that would suggest that the city is in this spot because of past mismanagement.
“But it was not true mismanagement on the part of the city or the utility,” Mayor Jon Netts said. “It was something over which had no control.”
A highlight of the council’s meeting on Tuesday, which straddled their lunch break, was novice council member David Ferguson’s near-outburst (it got his colleagues urging him to “calm down”) about suggestions that the city could somehow make do without its five-year plan, and its associated costs.
“I don’t want to pay more for water. No one does,” Ferguson said, his voice rising. “But you don’t want to pay more for gasoline. You don’t want to pay more for cable television, or whatever else. Everything is going up. Everything. Water is pretty important to my household, as it is to everybody, and it’s just going to be more expensive no matter what we do with it, if it’s $4.32 more per month or if it’s $3.90 or if it’s $3.70, it’s going to go up. That’s the story. I mean—I don’t mean to get emotional about it, but we spend a lot of time talking about how we’re going to sell this. You know, I was a citizen long before I was responsible for explaining why other citizens have to do what the government does, but I’m just going to plan to pay for more, simple as that. If you want to have low water, go to New York. Or go to Colorado.”
Netts added: “It’s unfortunate because any rate increase here goes hand in hand with an increase in gasoline, increase of bread, increase of everything else. I cannot solve all the other problems of the world.” The mayor then essentially patted the council and the administration on the back for taking on suggestions, analyzing them, producing options and ruling them out. “It very responsible for city council to look at the options that have been proposed,” Netts said. “It would be irresponsible not to look at them. It would be equally irresponsible not to choose the one that made the best fiscal sense for our city.”
When Netts asked Chris Quinn, the city’s finance director, what option would be best for the city, Quinn picked Option 2, which mildly scales back some capital costs (the sewer plant) but leaves everything else in place as previously planned. “This to me would be the bare, bare, bare minimum, and it probably isn’t the best thing from an overall financial perspective,” Quinn said. “No matter what we pick, we need to come back in two years and look at this again, because if we do have an unbelievable spurt of growth or something happens, it allows us to deal with it.”
All the options will again be presented at the Feb. 19 meeting—not for debate, however, but for public consumption. By then, the administration will have drafted one or two resolutions for the council to vote on, incorporating one or both of preferred options. That vote, based on Tuesday’s discussion, is already cast but for the roll call. And the public’s outcry, which council members are calculating will be an unpleasant couple of hours they’ll endure to ensure the five-year plan’s viability as they see it.
Council member Bill McGuire summed up the council’s manifesto for next Tuesday: “We need to show that all of the things that the voters are up in arms about have been considered in an honest fashion, that there’s a reason why we’re not going to kill the tennis center, there’s a reason why we plant plants in the middle of Belle Terre, because the alternative just doesn’t help us any. We need to say it.”