Recent McKinney City Council discussions have flowed from rising water rates, water leaks caused by aging infrastructure and the role water conservation plays in the city’s contract with the North Texas Municipal Water District.
Water rates from the NTMWD, which includes 13 large member cities and an additional 34 smaller water customers in parts of 10 counties, have been increasing by at least 10 percent each year since FY 2011-12. Rates are expected to continue to rise as the district seeks new water resources and builds new infrastructure, including an 11 percent rate increase for FY 2015-16.
These rate increases, coupled with less revenue to the city’s water and wastewater fund because of successful city and resident conservation efforts, have prompted the city of McKinney to pass on the full 11 percent increase by the NTMWD to residents this year.
This will be the first time the city has not paid the majority of the rate increase on behalf of its residents for several years.
“As a resident, I hate it. I am paying these water bills, too,” McKinney Mayor Brian Loughmiller said. “But I understand the hardship the city faces when these rates rise. I wish we could continue to pay the majority of the increases, but at this time it’s just not feasible.”
Interim City Manager Tom Muehlenbeck said passing on the rate increase, which city staff said will amount to an increase of about $1.36 per residential monthly water bill, was necessary because of the diminishing balance in the city’s water and wastewater fund.
“We have not, as history shows, [passed on the entire NTMWD water rate increase to residents],” Muehlenbeck said. “When our ending [water and wastewater fund] balance was high, the council wanted to start chipping away at those [NTMWD rate] increases, and as a result the city has been absorbing most of it on behalf of its residents. But, now that our ending fund balance is depreciating very quickly, we feel like we need to pass this along.”
City Finance Director Randy Rhoades said the city has been increasing rates by about 2 to 3 percent annually during the past few years when the NTMWD had been increasing them by anywhere between 10 to 14 percent over the same period of time.
“Because we had only been increasing rates by 2 to 3 percent each year, we have absorbed slightly over $4.5 million in the water and wastewater fund as a result of not passing that full increase along,” Rhoades said.
The recent increases of NTMWD water and sewer rates will be used to fund major projects, such as the $992 million Lower Bois d’Arc Creek Reservoir project in Fannin County, according to NTMWD Director Tom Kula.
“In the last 20 years our area has doubled in population, and we are due to double again,” Kula said. “Right now we are in the midst of a number of projects to make way for that growth. That’s why we have seen somewhere around 10 to 11 percent increases annually with our water rate.”
Water woes
The contract between the NTMWD and the cities requires each member city to pay for the maximum amount of water it has used at any point in its history. The amount of water paid for by the city does not waver from that historic maximum whether the area has an exceptionally wet or dry year or if a surplus of water is left over.
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NTMWD officials said they are required through the contract to be able meet the peak water demands cities have set in the past.
McKinney pays for 10.1 billion gallons of water per year—a historic maximum set in 2007—but used 8.9 billion gallons in FY 2013-14.
The last time the city came close to reaching its historic maximum was in 2013 when the city used 9.8 billion gallons—despite losing 28 percent of its water supply in 2014 because of aging pipes.
The NTMWD does factor in an average loss of 12 percent to each city, but McKinney is losing more than double that amount because of deteriorating infrastructure.
“We won’t really know how much it costs until we find out how many leaks we have and how bad they are,” Muehlenbeck said. “It will be a five- or six-year program, though repairs may not take that long. We have the funds right now [for repairs]; we budgeted around $19 million in the capital improvement fund this year. That includes leak detection as well.”
Muehlenbeck said the majority of the leaks occurred between the water main and the water meter at residences. To fix the problem, he said, it would require residents to go without water for roughly 25 minutes while crews remove the antiquated copper pipes and replace them with PVC pipes.
Payment struggle
Water district officials say the water contract system, which many cities call a “take-or-pay” billing approach, has benefited cities at different points of their development. Growing cities often set new historic maximums or come close to them every year and cities that are more built-out and have improved infrastructure and conservation measures in place are paying for much more water than they are using.
For many area cities the historic maximums were set in the early 2000s when the region first saw a large population boom and water conservation was not a priority, according to district officials. Today, as water conservation becomes a necessity, many of the district’s member cities use much less water than they have in the past.
Though the city of McKinney is passing on the full district increase for the first time to residents, it is not in the same dire position as its neighboring cities.
Although the district does offer some rebates for unused water, cities such as Plano and Garland are struggling to pay for large quantities of water they do not use.
Plano officials said the city pays for 26.7 billion gallons of water per year—a historic maximum set in 2001—but used 17.9 billion gallons from Aug. 1-July 31. This year, Plano issued revenue bonds to cover projects normally funded through its water and sewer fund. Since that fund is dwindling, Plano would have to increase water and sewer rates by 30 percent to cash fund those projects, Plano city officials said.
Garland found itself struggling in July when Fitch Ratings downgraded the city’s bond rating from AA+ to AA based on its outstanding revenue bonds for water and sewer projects. The bonds total approximately $200 million. Reasons for the downgrade included “a disadvantageous contract” with the NTMWD as well as wholesaler rate pressures and increasing debt levels, according to the international ratings agency.
Loughmiller said although the city of McKinney is in support of the take-or-pay billing approach, he does feel a change is in order to address the large role conservation has played in recent years.
“The take-or-pay [system] is a hardship on the cities right now, but it’s also a hardship in terms of having to pay the bonded indebtedness that was required to meet the maximums set by cities historically,” said Joe Joplin, McKinney’s appointed board member and president of the NTMWD board of directors. “The conundrum we have is that even if a city uses less water, we still have to have the capacity to deliver the maximum amount of water set by a city historically, and we still have a debt to pay based upon a rate figured by that maximum demand.”
Regional conservation efforts
Water conservation has been a major topic in recent conversations between the district and its member cities. District officials say the conservation efforts benefit the environment and protect vital resources needed for the future.
As cities focus on conserving water, less water is used by residents. Therefore, less revenue is received by the city. Yet the water district requires more funding to prepare for future growth.
Joplin said the 13 member cities have put so much effort into conservation efforts that the district saw an overall 27 percent decrease in water usage last year.
The payment system has allowed the district to better plan and fund capital improvement projects by having a firm grasp of the amount of funding coming in from each city, allowing the district to issue bonds for capital improvement projects, Joplin said. The program was successful for many years, and several projects have been completed because of its success.
Kula said the current and future growth of the area coupled with the drought seen during the past several years has kept the district focused on supplying additional water. In addition to the Lower Bois d’Arc Creek Reservoir in Fannin County, a pump station, pipelines and several other projects are planned—all of which require funding.
The district has about 1.6 million customers in 2015—a number that is expected to increase to an estimated 3.7 million customers by 2070.
However, the addition of conservation efforts has caused concerns from member cities. Other concerns voiced by member cities include the option to remove their appointed board member.
The district has been working on protocol to call a meeting with the member cities to discuss possible changes. Any change in the contract, requires an agreement between all 13 member cities and the district.
Kula said the protocol should be established this fall and a meeting could soon follow.
