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Only Mild Opposition as Palm Coast Council Prepares to Raise Utility Rates 22% in 3 Years

| January 15, 2013

Plenty of room for expansion at Palm Coast's newest water plant, and the city plans on taking advantage of it. (© FlaglerLive)

Plenty of room for expansion at Palm Coast’s newest water plant, and the city plans on taking advantage of it. (© FlaglerLive)

Palm Coast is in trouble with its creditors—those bond-holders who like their debts paid just as much as less sharply dressed, kneecap-busting lenders. The city borrowed heavily to buy a $100 million water utility 10 years ago, supposedly to take control of local water rates and protect rate-payers, and borrowed heavily to upgrade and maintain the system. To pay its debts and maintain its credit rating, the city bet on continued growth. The city lost that bet.

The water and wastewater system has colossal needs—for repairs, upgrades and compliance with regulatory requirements that every utility system must comply with. Palm Coast is adding to that additional expansion of the system, even though the system’s existing capacity is more than adequate for current needs and then some. The bill for the next five years: $78 million.

The city’s creditors have been getting nervous about Palm Coast’s ability to pay its debts and maintain the system it needs to do so. The city’s credit rating could suffer as a consequence, costing the city, and therefore its taxpayers, that much more in future financing costs.

The only solution: raise water and sewer rates.

That’s what the city is planning to do. Rates will go up 22 percent over the next three years, beginning with an 8 percent increase that would kick in this March. The typical single-family house using some 4,000 gallons of water a month would see its rates go from $54.64 to $59.25, a $4.61 monthly increase, or $55 for the year.

For the combined three-year increase, those typical residents will see their rates go up $144 a year. That’s full one-third the tax bill of the typical Palm Coast homeowner, paying taxes on a $150,000 house with a $50,000 exemption. But the Palm Coast City Council doesn’t consider its utility rates to be a tax. That’s how it has managed, year after year, to keep its property tax artificially low, while its many other fees (stormwater, wastewater, water, garbage) have been going up.

The council held its first of two public hearings Monday evening, ahead of approving a resolution raising the rates (what council members insist on calling an “adjustment”). Residents turned up, but by no means in the sort of large numbers that have confronted the council on, say, the stormwater fee controversies of the past year and a half, or to protest proposed developments (such as the building of an assisted living complex adjacent to the Woodlands, a plan the council approved in September) .

And ironically the crowd was both smaller and far less heated than when the council considered adding a $6.30-a-month utility fee to pay for the city’s stormwater system, even though, in the aggregate, that fee’s burden  would have been significantly smaller (over three years)  than the currently proposed rate increases.

In all, just nine people addressed the council Tuesday evening, all but one opposing the rate increases—and alternately ridiculing, protesting and doubting the city’s assurances that the five-year plan is necessary to maintain the system and ensure future rate-payers’ security. Vince  Liguori, a frequent critic of most kinds of city expansions and a critic of its acquisition of the water utility 10 years ago, proposed selling the utility “for a magnificent price.”

“You may say well, Vince, your rates will go up. They’re going up now,” he said.

Others were critical of the utility department’s lack of transparency: the presentation about the $78 million 5-year plan was rich in detail (so rich, in many cases, that eyes could easily glaze over), but it was never placed in the context of the utility department’s complete, ongoing finances: what it takes in every year, what it pays out.

The city administration and its council members at every turn justified that plan.

“We consider this five-year plan fairly bare minimum,” but it also provides for growth, Richard Adams, the city’s utilities director, said. In other words, the utility system is planning to expand. Why that growth is being provided for now, when the city is not experiencing much growth, and when the utility system’s existing capacity can ensure at least some growth, is a question Mayor Jon Netts attempted to answer.

“At some point you reach the capacity of your plants,” Netts said. “Once you get to that level you can’t add one or two houses or three houses, you have to add a whole plant.” Otherwise there’s a risk of “major shut-downs in service.”

The city is projecting spending of $78.4 million in capital improvements between 2013 to 2017: $45.7 million of that would be to the wastewater system, $28 million of it would be for the water system, and the rest would be for “miscellaneous utility services.” As the city sees it, the spending is essential in order to invest in a system that generates revenue enough to pay back the lenders who made its construction possible. The customer’s bottom line, in other words, is not as much a priority as the bond holders’ bottom line.

The $78.4 million will be generated by refinancing existing bonds, releasing an insurance fund that had previously backed a bond issue, and that is no longer necessary, and mostly, issuing new bonds in 2014-15 (that will yield $39 million of the total). The various mechanisms will provide more money, but will also increase the city’s annual debt costs by $400,000 to $500,000.

If the city was still growing at the same pace as it had in the first half of the last decade, it would not have had to go through so many financial contortions to keep its utility system on a sound foundation: the more it grew, the more it added utility customers, the more it generated revenue to the utility system to cover what, essentially, is its utility system’s mortgage payment.

But growth stopped. As with so many other aspects of the economy, including individual mortgages, the city had overleveraged itself on the assumption that growth would not stop. Now that it has, it’s left with a massive capital program, a lot of it driven by regulatory requirements and normal, necessary improvements, and a lot of it driven by what is owed the city’s lenders—the bond holders.

The city could seek out more debt to lower the cost to customers, but it then risks seeing its bond rating drop, which would result in higher borrowing costs—and heavier costs to customers anyway, including higher borrowing costs in the future. Palm Coast’s rating is high, but it’s not the highest it could be. If the city’s rating were to be downgraded by one of its rating agencies, its financing costs would increase by about $40,000 a year. But if two rating agencies dropped the city’s rating by any measure, the city would have to rebuild a $6 million reserve to back up its bonds again—the same $6 million reserve it will soon release into its revenue stream for coming improvements.

Simply put: the city cannot keep borrowing the money it needs, so rate-payers must make up the difference.

Bill McGuire, the city council member, asked under what conditions the rate-payers’ increases might be halted, and instead decrease sometime in the future. “Is that a pipe dream or could it be a reality?” he asked the city’s consultant from the Orlando-based Public Resources Management Group, which crunched the city’s utilities rates and produced a study outlining the city’s financial needs.

“It could happen theoretically,” the consultant said. But the likelihood of that happening is low, and PRMG’s goal was not to provide a financial plan with that in mind, but to ensure that the city will responsibly pay its debts. “The main goal is to have financial sustainability,” the consultant said.

Two factors could yield that turn-around: Interest rates on the city’s investments could go back up, generating some additional revenue. But the city isn’t a hedge fund: its investments are limited. Or growth could resume to such a point as to generate significantly more rate-paying revenue. But that, too, is as unlikely as another housing bubble, though some more solid growth is expected.

The council did not take action Tuesday evening. It will hear more public input on the issue on Feb. 5 at 6:30 p.m., and on Feb. 19, when it will hold another public hearing, at 9 a.m.—and vote.


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22 Responses for “Only Mild Opposition as Palm Coast Council Prepares to Raise Utility Rates 22% in 3 Years”

  1. JoJo says:

    ….And the county wants to buy a dilapidated water plant in another county? Imagine if we decided on building that desalination plant here in Flagler County. What happened to that plan? Too expensive!
    Ever get the feeling we are stranded in a County like a desert County?

  2. Edman says:

    City water will still cost much less than most people probably pay for plastic bottled water. Maybe we’ll buy fewer bottles and help save the environment. This is not to excuse careless spending by our representatives but we’re spoiled by having such an important resource at a reasonable cost… and year in and year out our water supply is rated highly and is quite tasty.

    • jp says:

      I wouldn’t drink city water ever! Its not the plant water that will kill you…its the pipes that carry the water…there are all nasty bacteria filled nightmares. Bottled water is far saver….and go with the less plastic bottles.

  3. Brad says:

    What good would it do?, these thieving inept crooks do what they want anyway , the county asked them not to put camera`s on Rt 100 and the told them to kiss off , well rob the citizens of this town on every street in the county, they blew all the money for the canals and swales on their over planted over watered , medians, and crepe myrtles planted every 10 feet apart all the way down to US1 on area`s where there`s over grown lots and this stupid myrtle sticking out out of the ground , its like putting a dress on a pig, but hey their friends need the work and I`m sure they got a nice kickback,, so not us suckers who already pay the highest waters bills in the state , can just use our unemployment checks and forget about food for the rest of the month, to fix their blunders

  4. Anonymous says:

    ,,,,just wondering how much the rate payers would save If they eliminated the very costly color propaganda brochures that are mailed with our monthly bills…..

  5. PJ says:

    Let’s face it, it just poor management over the last many years.

    Every city manager knew that this is a growth and management issue. As usual they worry about their jbs and wait till the last minute. They never want to rock the boat and the city council is guilty too of this. The Mayor has been on the board the longest how did he not want to know more?

    So here we are paying for it all at once.

    I agree we must make the investment again no disagreement here. All I’m saying is we pay you managers a fair wage why can’t you do your job and make these raises as a part of doing business and give us small raises that don’t have such a bite to many of the retired folks that reside here.

    I did not go to the meeting as I agree on the raise to continue the longevity of the service but I don’t think were getting our monies worth from management, is all I’m sayin’.

  6. BrunoTars says:

    What does that say. Palm Coasters are tuned out. Why? Include me SSSD.

  7. confidential says:

    As a city resident and utility user I was for the increase in our storm water rates as our system is old eroding and needs costly repairs.
    Now this water service increase I am not so happy about specially when the city government have used and wasted utility funds in like; several million pursuing a total nonsense unaffordable Coquina Desalt Plant for way over two years of consultant meetings, plans etc.
    Six million for the infrastructure welcome mat for a Walmart that never showed up and God knows how many more millions to benefit the Town Center and other developers and not its residents.
    The least we should demand before approving this increase is a detailed city utilities yearly finances since we all approved the purchase I believe in 2002 or 2003. As all of us owners of that city enterprise we do have the right to see the numbers of how much revenue comes in and how much is spent “and in what”, to move our confidence and trust.
    If the utility was over expanded and the growth never materialized, it is not its customers fault but the goofy decision of our utility administrators and city leaders always eager to mortgage us in new debt for capital improvements for which as usual I only guess with strings attached to financially benefit the one’s approving them. To the contrary of what our local government does I do not spend lmy income like a drunken sailor. My car is eleven years old, my furniture date of over thirty, I lived in the same house for over ten years and other than getting new loans spending in renovating or get new stuff, while what I have is still working well…I keep some savings in the bank “for rainy days”.

    Not only is FPL having as pay for future growth…but now our city water as well.

  8. Umm says:

    Opposition never does us any good, we all know that Palm Coast just does whatever the hell they want anyways.

  9. Magnolia says:

    This is the same story about Palm Coast, over and over again. I urge each of your readers to look at surrounding citie’s rates on these issues. In many cases, our rates here are many times higher, as is the salary of our esteemed city manager. You have to ask yourself why that is the case. Until you do that homework, speak out at these meetings, and elect qualified people for these jobs, this city will continue its downward spiral. You have a lobbyist elected to the council. Who do you think he is looking out for?

    My vote is for Mr Liguori. We have too many officials and major landholders here looking to ride the path to easy wealth when all we are doing is moving closer to insolvency every time. Tough job and they are not doing very well.

  10. Anon says:

    I know this is sounding like a broken record.
    This city does not have sufficient revenue streams. So it will continue to raise: property taxes, water/sewer rates, other fees as well as install red light cash cow cameras in order to make up the difference. The burden placed on the city residents will continue to increase.

    The so called leaders should finally realize that the tennis center with loses of over $100,000 per year must close.

  11. Anonymous says:

    So glad Im moving, murders, drugs, rapes in school, rapes by city leaders.

  12. confidential says:

    Both the tennis center as well as the Palm Harbor Golf course given by Landon and the council to Kemper Sports to manage, are just cash cows for Kemper. They are on the red since a year from the start in March 2009 when Kemper Sports was given the contract and is something very peculiar to me after three years, because at least the golf course has good attendance that I see driving by, as I live on it!
    But look at the staff they have! Can imagine those pay rates and the residents have to plug the financial hole every year. Kemper is a private business and we have no right to ask for financial’s but they force the obligation on us all, to cut a year check for their losses. What happened to the Friends of Golf..? Why they were not given oversight of Kemper Sports activities thru a Board or Committee. If we, the tax payers are forced to subsidize their losses then we should have the right to see their financial’s,as I see that something is wrong with this picture. If they do not have enough players for the revenue expected what about reducing staff hours, pay rates etc.? This is called belt tightening and we all have to do it nowadays. Where do we have a business that is gifted all the shop set up and they only have to run it and “keep all the profit” and if profit is not enough then landlord foots in the difference..? Only in Palm Coast and Flagler County as the commissioners have their own Airport Enterprise in our pockets too.
    Accountability demand is needed here.

  13. Lonewolf says:

    Anon…why don’t we shut down everything that costs money and not build anything else that costs money. That means no more sidewalks or trails, we should shut down all parks (avoiding maintenance), the Palm Harbor Golf Course, and the Frieda Zamba pool.

  14. Brad says:

    And I just seen in today`s News Journal , sure enough, one of their friends that get all the work in town were awarded some big contract to build some ridiculous three stage money pit down at the end of town , so get this ……… water spills over onto the interstate, they didn t even have a name for this , but hey , Cline could use the work ….and the the suckers in Palm Coast can pick up the cost.And you have to love this one …………..We have to have the money cause the population has grown , well then your already robbing that many more people with your outrageous water bills, use that money!!!!

  15. Gia says:

    Come on people we’re all ready paying the highest water bill in FL.

  16. Diego Miller says:

    It is extremely disconcerting to see the way our money is being squandered by a few obviously incompetent morons. Just like Coffey and the Cowboys and Girls at the Cow Palace they continue to get into our wallets but never have any solutions. We are already paying the highest water rates in the state, check the facts.

  17. Joe says:

    And I will say it again, elections have cosequences…… enjoy !!!!!

  18. jnot says:

    increase increase thats all we see on everything sad only our pay gets smaller and smaller we are going backwards always – the water bill is outrages im paying almost 3 times moore now since this company took over and without doing anything diff i have less people at home and paying much more i got ripped off by them for at least the first 4 months when they took over never got a credit on my bill hate this city i wish i could get the hell out of here to but not that easy -they do what they want when they want no one cares how bad things are they only care abaut them selves the more money they have the more they want

  19. Concerned says:

    Since the utilities will raise 22% within 3 years, the Florida Retirement System (FRS) now costs 3% of my salary and all living expenses in general have risen in the past few years when will Flagler County realize that 4 years without giving raises to it’s deputies must not continue. I make less now that when I first started serving Flagler Counties citizens. Now Palm Coast Utilities will raise 22% in this economic climate?

  20. susan says:

    Just remember city officials need to stop spending what they are not taking in. We have NO industry here because city goverment does not want it here. On several occasion Palm Coast had the opportunity to have Hawaiian roll co. (they turned them away over 1 yr ago) and then in (2003-2004) Mreceses wanted to build a Parts plant they were turned away. Clearly Palm Coast doesn’t want industry, well I as a resident of Plam coast am getting fed up of paying High cost on water ,& electric & taxes. I have put the hpuse up for sale cannot afford that either.

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