Palm Coast Council Postpones Water Rate Increase in Face of Opposition, But Raises Utility Impact Fees on Builders

There will be no water and sewer rate increase in Palm Coast for now: the Palm Coast City Council today voted 4-1 to postpone a rate increase, while significantly raising “capacity,” or utility impact fees, the one-time levy on builders of new homes and businesses. That revenue is used to defray the cost of growth on the city’s utility infrastructure.

The council faced a lot of anger from dozens of residents today as it prepared to vote on what would have been a recommended 18 percent rate increase over the next four years, along with the 36 percent water impact fee and 25 percent sewer impact fee increase over the same period.




There was a warning to the council from Utility Director Stephen Flanagan, who, with consultant Eric Grau, had three times since mid-November outlined to the council, sometimes in controlled but dire language, why this 18 percent increase was essential, despite coming on the heels of a 20.6 percent increase since 2018: between growth projections and an aging infrastructure, higher rates are the only way to ensure that there will be enough water and sewer capacity in coming years, and to prevent what could be catastrophic infrastructure failures if maintenance falters.

“Our capital is not funded now,” Flanagan said. “Without these rate increases, we don’t have the money to expand facilities, to make any room for growth for the pipeline that’s out there today. I understand exactly what the mayor said. We don’t have crystal balls. We do our best and our rate consultant has done his best to gauge what the crystal ball is in the future. We do have factual information for the five years in the past today, which benefits us greatly. But I’ll tell you, if you don’t pass a portion of this at a minimum, we do not have the capital to expand facilities or even address some of our operational issues that we need to address.”

The city cannot predict what specifically will fail. “But we know the failure rate will increase if we don’t maintain what we have,” Flanagan said.




Resident after resident appeared before the council to criticize the proposal. “You just can’t ask us residents who are here now to foot this whole bill,” one said. “If you’re concerned about the availability of good water, what appears to be out of control housing is only going to make this much, much worse,” another said. One resident took out her calculator to show council members how the rates would affect her, cumulatively. Another reminded the council members of the annual increases since 2018.

“Smart growth is growth that we can afford, not growth that puts an undue burden on the wallets of the current residents of Palm Coast and will negatively affect our quality of life, our health, our safety, and our welfare,” Darlene Shelley of Hidden Lakes, a frequent presence at council meetings, said. And so it went.

The consultant’s projections drew the sharpest criticism from council members–particularly Mayor David Alfin and Council members Cathy Heighter and Ed Danko. “We’re being made to make a decision on presumptions of what may or may not happen in the future, while at the same time holding our citizens in a place where it’s going to affect their lives,” Heighter said.

Danko said he did not put trust in those projections, either. He wants to wait a year on the assumption that–despite the current low inflation, low-unemployment, high-growth and one of the best economic climates since the 1990s boom–what he calls “Bidenomics” will end in a year, and next year’s economy, should Donald Trump be elected, will be better. (Danko, fellow-Council member Nick Klufas and Alfin are all facing voters later this year–Klufas and Danko in races for the County Commission, Alfin in a race for re-election to the mayor’s seat.)

Alfin pointed out the previous rate increases that residents are still paying. “I’m struggling with the idea that putting this plan into place–and this has to do with your forecasting and your budgeting–is not going to result in ongoing increases like this,” he told Flanagan and the consultant. “In other words, why is there no budget or plan that we can count on that caps these increases and doesn’t go above what our expectations are?” As he saw it, the proposed plan was to “polish” the system today so it doesn’t cost as much to do so in the future. “But we don’t always have that luxury to polish everything today so it’s more pristine in the future.”




The city administration would not use words like “polish,” “pristine” and “luxury” to describe the utility infrastructure, or its needs. The administration’s worry is more along the lines of a creaking system that could have catastrophic failures. On the other hand, the same administration routinely issues press releases boasting about the system or its employees winning awards, about the quality of the water, the reliability of the system overall: it is not a clunky system. Still, Flanagan put the matter in the context of today’s proposal before the council. Short of rate increases, that quality would drop.

“If you were to propose a rate less than the analysis has shown,” Flanagan said, “we would tighten our belts at the utility to stay within that two times rate. And you would see a level to our customers–our citizens, those that we provide service to and that we’re proud to do daily–we would see a level of service decrease. We would have to decrease the maintenance of the system, which would then cost us in the long term down the road. That is what we want to avoid at all costs, basically. So these numbers are not inflated numbers. These numbers are numbers to maintain our system at somewhere close to the level we maintain it today, which is not a perfect level, but it’s a level that probably beats the average.”

It was Council member Theresa Pontieri who made the motion bifurcating the recommended proposal. She said she was worried about raising rates now, “if growth does in fact slow down” and a recession were to take place. “Without really knowing what our real financial future looks like, I’m hesitant.” She was more willing to raise impact fees, “because I refuse to let our current residents pay for and subsidize growth. We know for a fact that growth has caused a lot of the cost of capacity, maintenance, etc., to go up. So for me, that’s a no-brainer.” (As structured, impact fees by definition shift the cost to new residents, new businesses, or at least to people buying new homes and moving into new structures for their businesses.)




Pontieri acknowledged that not raising utility rates puts the city on a path to failure. But she wasn’t foreclosing on higher rates. she wanted to explore what the proposal would look like if rates were limited to usage, which would then encourage conservation and give people at the lower end of the usage rate a way to limit the impact of rate increases. So she restricted her motion to impact fees, pending an analysis on what rates would look like if they were limited to usage.

The current water impact fee is $3,994. The sewer fee is $5,441. The water fee would rise in four increments to $5,421. The sewer fee would rise to $6,800, for a combined water and sewer fee of $12,221 by 2028. Annamaria Long, the executive officer of the Flagler Homebuilders Association, said she was prepared to offer support for the proposed fees, but was still waiting on the study the city was required to do to justify those particular increases. “So until I can see that I cannot just blindly offer support, but at the same time it’s not often that we are saying hey, yes, we support an impact fee,” Long told the council.

Klufas seconded Pontieri’s proposal, even as he noted that the city’s infrastructure is on its way to failure if it is not maintained, whether new residents move in or not. “I want to be able to separate cost of our infrastructure as it exists today, and the maintenance of that infrastructure, versus what the prospective impact of the future people would have on our existing infrastructure,” he said, “because if we all stayed here and didn’t let anybody else in, that infrastructure is still going to be a problem, correct?”

Grau, the consultant, said it was a “fair statement,” but added: “There’s a cost for growth, but it also offsets to a degree the rate revenues paid by existing ratepayers today, because you’re spreading the cost of providing the service over more units. So there’s a benefit from that perspective.” He said the annual cost of operating the utility system will be outpacing annual inflation.

Klufas added: “I know there were some people who came up today who were complaining about water quality, clarity, things like this, but if we had a real water main break, and were unable to actually maintain our system, that’s a catastrophic failure. I would never be able to say we did the right thing if we had literal professionals here telling us we are approaching an area that is extremely dangerous for a catastrophe to happen.” Nevertheless, he went against the professionals’ recommendation in today’s vote.

Klufas, Pontieri, Danko and Heighter voted for Pontieri’s motion. Alfin voted against. He explained after the meeting that, even though it was only on impact fees, that increase will affect affordability of homes. “That’s been an ongoing issue, so I’m not okay just passing that along,” he said. But the mayor is open to considering rate increases based on usage–and considering the Klufas proposal of a one-time dip into reserves, to stave off a portion of the increases. Those possibilities are also awaiting further analysis. Today’s vote was the first reading of the ordinance. The administration is expected to have the answers the council needs ahead of the second reading.