Residents living in Hutto’s city limits have likely noticed a recent increase in their utility bills after the city took action to curtail a growing imbalance in the city’s utility fund.
Acting on recommendations from city staff, Hutto City Council voted Jan. 18 to raise the wastewater rate structure by 25 percent after learning the city’s wastewater fund was “draining” from the city’s utility fund.
NewGen Strategies & Solutions, a management consulting firm hired by the city to audit the utility fund and respective fee schedule, recommended the city raise the wastewater utility rate by 25 percent per year for the next three years and introduce a monthly $4 drainage fee.
City Council chose to adopt the rate hikes for the rest of the current fiscal year and the drainage fee to allow Hutto City Manager Odis Jones the chance to collect revenue through alternative strategies.
“Our success is going to be directly guided by our ability to drive growth,” Jones said. “Let’s try and have some of this growth come in and see if we need [the rate increase next year].”
Jones and his staff will look to amend some of the city’s development fees to market-rate prices as a measure to increase Hutto’s revenue streams.
Sometime in the second quarter of 2018, Jones will introduce new development fee rates and a Traffic Impact Fee to replace the city’s Traffic Impact Analysis fees. The hope is that as businesses develop in Hutto—such as the first tenants in the Co-Op District—a steady revenue of impact fees will cushion the city’s wastewater utility debt.
“With those impact fees and development fees coming in, I don’t think we’ll have to raise [wastewater rates]that much,” Hutto City Council Member Tom Hines said.
According to city documents, the city of Hutto in 2014 borrowed more than $24 million to build the new Hutto South Wastewater Treatment Plant—a move mandated by the Texas Commission of Environmental Quality after Hutto’s previous facility had reached its maximum capacity.
Jones said the city government at the time did not properly adjust the utility rate schedule at a sufficient rate to generate revenue to repay the borrowed construction funds. Records show the city raised the water and wastewater rates by 5 percent each in 2015, and in May 2017 City Council voted to raise retail wastewater rates by 16 percent in fiscal years 2016-17 and 2017-18 each.
The annual debt service payment for the wastewater treatment plant is $800,000 per year until 2026 before increasing to more than $1 million per year by 2039, according to city documents. NewGen estimated the city’s utility fund would be $3.8 million in debt by 2020 under the current rate schedule.
In a Jan. 4 presentation to Council, former Hutto Chief Financial Officer Michel Sorrell said the city would be at risk of falling into financial vulnerability if the utility fund fell into insolvency.
“We wouldn’t meet our debt service ratio and bond holders,” Sorrell told council members. “Our credit rating…could go down.”
The new wastewater rate schedule was adopted Jan. 18 by City Council, and Jones believes residents should have seen the new rates reflected on their utility bills in February or March. NewGen estimates the average Hutto resident will see a $15.39 increase in his or her month-to-month utility bill. If the city ends up having to adopt NewGen’s rate schedule recommendation over the next three fiscal years, city residents could see their utility bills inflate by $47 by 2020, which is exactly what city staff is looking to avoid with increased development fees.
“I think our ability to creatively solve without having that fund having to be increased again is going to be measured by getting products off the ground,” Jones said. “Right now we’ve got a business plan, and we’re working it.”