Magnolia residents, businesses and schools may see their water bills rise in 2018 as city officials continue discussions about raising water rates for the first time since 2005. The costs to provide water and wastewater services have risen while the city has kept its water rates steady, City Administrator Paul Mendes said. “They had to be increased,” he said. “We’ve been struggling to keep ahead of things because even though we haven’t raised the water rates, the cost of everything has gotten more expensive. Since 2005, nothing is the same.” Magnolia City Council members began holding workshops this summer to discuss when, how and to what amount rates should increase to keep pace with rising costs of water production, distribution and treatment. While a timeline to phase in the rate increase has not yet been decided, council members authorized engineering firm Jones & Carter to conduct a water and sewer rate analysis in fiscal year 2016-17. Based on that analysis, the council, city staff and the firm are working to select new rates that sufficiently fund the city’s expenses while minimizing the added burden to residents. “Council has been very conscious of trying to keep the cost down and making it affordable and so forth,” Mendes said. “What we’re trying to look at right now is being able to provide a good product but also put enough money aside—maybe a couple cents of every 1,000 [cents]—for repairs or for capital improvements so years down the road, when we need to put in a new water well or a water tower, we’ve got money.” Increasing costs For multiple years since 2005, Magnolia’s water expenses have exceeded revenue from its water users, according to budget data. “The cost of water in a public water supply in Texas is driven by [the] need for additional supplies to meet the state’s increasing population,” said Kathy Turner Jones, general manager of the Lone Star Groundwater Conservation District, a water conservation agency in Montgomery County. “With this increased need we have seen increased [water] prices over the last decade.” Based on city budget data, water revenue—including water user fees and fees from new developments—has increased close to 187 percent since FY 2004-05, while water expenses—including capital improvements and the cost to provide water—have increased 246 percent during that time period. According to the Bureau of Labor Statistics, prices of goods and services have risen 24 percent since October 2005. Mendes said the cost of chlorine, labor and lab testing, which are necessary expenses to maintain water operations, have increased greatly in the last 12 years. Mandated by the Texas Commission on Environmental Quality, the cost of testing water samples has increased from about $400 each month to nearly $1,400 since 2005, he said. With the existing rates, the city is losing money each month from providing water and wastewater services to its users, except those that pay commercial rates, Jones & Carter engineer Ed Shackelford said during a Nov. 14 workshop. “You’re making money on your commercial accounts,” he said, referring to the city’s water and wastewater usage. “You’re upside down on your institutional [accounts], and you’re upside down on your residential.” The costs to distribute water to the city’s water users on top of cash funding any major maintenance projects totals $8.06 per 1,000 gallons of water used—more than twice as much as the existing water rate for residential users of $3.65 per 1,000 gallons of water, Shackelford said. The total rate also includes depreciation expenses for the system. However, fees paid to conservation districts and authorities were not included in analysis calculations. Additional water revenue would allow the city to fund the upkeep of and improvements to its water and wastewater systems to provide services to a growing number of users. Mendes said the city has room to add more than 1,000 connections, but he said he expects residential developments slated along FM 1488 to add hundreds of homes in the next few years. “Population growth, even with conservation, requires additional water supplies,” Turner Jones said. “[Water] prices will undoubtedly continually rise to meet increasing demand.” Despite the steady water rate on the city’s end since 2005, residents’ total water bills have grown since 2010 as additional fees from water conservation agencies, such as the LSGCD and the San Jacinto River Authority, have spiked, Mendes said. The city’s budgeted expenses for fees paid to the LSGCD and SJRA have increased 2.8 percent and 190 percent, respectively, since FY 2011-12. Magnolia signed a contract to join the SJRA’s Groundwater Reduction Plan in 2010 to help the city comply with conservation regulations put forth by the LSGCD to help reduce the region’s consumption of groundwater. According to the SJRA, the FY 2017-18 fee totals $2.64 per 1,000 gallons of groundwater pumped, an increase from $2.50 per 1,000 gallons in FY 2016-17. “The cost of the water has gone up over the years, but it’s been the San Jacinto River Authority and Lone Star [Groundwater Conservation District] fees added onto ours, which made [residents’] bills higher,” Mendes said. Revising the rate structure The city’s existing utility rates are determined by the size of the water user’s meter. Jones & Carter proposes a tiered structure based on the volume of water used. The proposed water rates would differ by the category of the water users. Proposed categories include residential, senior or disabled residential, multifamily, irrigation, commercial, institutional and out-of-city user. Schools and tax-exempt entities would also pay institutional rates instead of commercial rates under the proposed rate structure. Although schools and other tax-exempt entities like churches are some of the city’s largest users, these entities do not pay impact fees—a fee collected to fund a new water user’s share of the city’s water or wastewater capacity—or property taxes that help fund the maintenance and operations of infrastructure, Mendes said. Implementing an institutional rate would allow the city to collect funds from these entities in place of taxes or other fees, Mendes said. “What we’re trying to do is even it out where the burden isn’t just on the homeowners—basically, everyone pays their fair share,” he said. Based on average institutional usage, the city loses about $400 each month when providing water and wastewater services to each institutional user, Shackelford said.

“Residents and homeowners are subsidizing the institutional places in order for them to participate on our system,” Mayor Todd Kana said at the workshop.

With the proposed institutional rate, an institutional user’s total bill for 100,000 gallons of water and wastewater could increase from $852.85 per month to $2,791.38—a 227 percent increase, according to the analysis. Magnolia ISD Communications Director Denise Meyers said MISD’s four campuses that receive city water would pay higher rates as an institutional user under the proposed structure. However, in-city residents and commercial users would see a smaller rate increase—even a possible decrease—under the proposed rate structure. The average in-city resident uses 7,000 gallons of water and would see a 24 percent increase—about $18—in a total bill for water and wastewater services. Senior residents using 2,000 gallons of water, however, would see a 39 percent decrease in their bills. “The more water you use, the more you should pay,” Mendes said. In addition to the proposed water rates, higher wastewater rates are also being discussed. Wastewater usage is tied to how many gallons of water are used each month. The rate analysis proposes users pay $7.47 per 1,000 gallons of wastewater—an increase from the existing rate of $3 per 1,000 gallons. A resident’s monthly bill would increase nearly 50 percent for 7,000 gallons of wastewater. Looking ahead As the rate analysis outlines only proposed rates, the move to increase rates in Magnolia is subject to continued discussion. The costs and categories for new rates have not yet been decided. “There’s no easy way to say, ‘Hey, I’m going up on your rates,’” Council Member John Bramlett said at the workshop. City staffers are expected to propose a timeline to implement the new rates during the Dec. 12 City Council meeting. “If we could implement institutional, commercial and outside-the-city changes [in early 2018], then [we can] continue to work on our in-city residential and phase it in at a point we’re comfortable with it, whether that being mid-year or two months [later],” Kana said. Mendes said the city will hold meetings closer to the implementation date to educate residents about the need for a rate increase. The council must approve any changes in the rates or fee structure before users may see their bills increase. “I don’t think anybody is arguing whether we have to do it or need to do it,” Council Member Jonny Williams said at the workshop. “I think it’s just going to be a hard pill to swallow.”