As a result, residents and commercial business owners can expect their water and sewer bills to rise each year through at least 2024.
Budget and Finance Chairperson Bob Mendes said the new rates being proposed by Metro Water Services, which are expected to take effect Jan. 1, will either be approved by the Metro Nashville Council or ordered by state officials.
“Sometime in the middle of November, the state board that has been overseeing [MWS] being a distressed water department will release an order saying the city shall institute the new rates by Jan. 1,” Mendes said. “There’s not going to be a lot of discussion—either we’re doing it or [the state] is doing it.”
A cost-of-service study released Oct. 15 by Raftelis, a public utility consulting firm, recommended MWS institute a “significant rate adjustment” beginning in January, to be followed by a 4% increase in 2021 and by 3% increases in 2022, 2023 and 2024.
The proposed increases, which have the support of Mayor John Cooper, are expected to be reflected on February bills, according to MWS.
“We didn’t get into this situation overnight, but continued underinvestment can’t be our future,” Cooper said at the Oct. 15 Metro Nashville Council meeting. “This is a hard but important step [toward] improving our neighborhood infrastructure.”
According to MWS, which provides public water, sewer and stormwater services to more than 250,000 customers, departmental costs have risen 30% over the last decade. Prior to three years of consecutive rate increases from 2009-2011, the city last approved a water rate increase in 1995.
That lack of rate increases, as well as the costly upkeep of the city’s aging water and sewer systems, has led to a backlog of 60 projects in need of funding, according to Sonia Allman, a public information officer for MWS.
“It’s difficult to budget for projects when we go for long periods of time between rate increases.”
She said the department was forced to scale back on capital projects in 2017 after the Metro Nashville Council disapproved a rate increase in 2016.
Projects currently on hold include 150 miles of sewer main improvements, $400 million in upgrades to the department’s central wastewater treatment plant and other water and sewer capital projects, according to MWS.
In January 2018, the state comptroller directed MWS to seek assistance from the water and wastewater financing board, which determined the department was “financially distressed” and was not taking in enough money to cover its operating costs. MWS is self-funded and does not receive city tax dollars, in accordance with the Metro Nashville municipal code.
Due to the department’s financial standing with the state, the rate study by Raftelis found the department’s long-term financial needs cannot be addressed with a one-year rate adjustment. At a meeting with Metro Nashville Council members Nov. 13, Deputy Comptroller Jason Mumpower said the comptroller’s office supports the rates being recommended and urged members to approve the rates before being ordered to do so by the state.
“[The Metro Nashville Council] has an opportunity to define its future instead of being under a state order,” Mumpower said.
Scope of study
According to the study, if the current rates are maintained over the next four years, MWS is expected to have a budget shortfall of $45 million in fiscal year 2019-20 and a shortfall of $94 million in FY 2023-24.
Raftelis presented in the study three separate tiered funding scenarios for how much water and sewer rates could increase to offset these project shortfalls. Based on Raftelis’ recommended outcome—one of the three scenarios—a household that uses an average amount of water—nearly 3,000 gallons per month in Davidson County—would see a combined increase of about $9-$14 on their monthly water and sewer bills through 2024. Fewer than 20% of customers would see a monthly rate increase of more than $15, according to the study.
Unlike residential rates, which Allman said are tiered to encourage water conservation, commercial rates would be static, at $2.75 for water and $5.85 for sewer—both per 748 gallons per month.
Then, beginning in 2025, the department would implement annual rate increases of no more than 3% to adjust for operating costs and debt service, according to the study recommendations. The study does not specify when, or if, the annual rate increases would cease.
Along with the planned Jan. 1 rate changes, MWS is also adding an additional monthly fee equal to 10% of a customer’s overall water changes. The water infrastructure replacement fee, similar to the department’s existing sewer infrastructure replacement fee, serves as a dedicated funding source for the replacement of water pipes. The sewer development fee was cut in half in 2009 due to the Recession and was never reinstated, according to MWS.
Nearly two-thirds of all water and sewer mains in Metro Nashville are more than 40 years old, Allman said. Once the new rates are implemented, the department plans to replace 20 miles of its water mains each year with pipes that have an estimated 100-year lifespan.
“As these pipes continue to age, it’s going to require maintenance,” Allman said. “The longer we wait to do these projects, the higher the cost will be.”
How rates compare
Officials said that despite these rate increases, Nashville’s water and sewer rates will remain low as compared to other cities, both regionally and nationally.
“Even with the rate increases, Nashville is still one of the lowest in the region as well as the nation,” Allman said.
The average monthly cost for water and sewer among peer cities is $76, according to the study.
“We’ve had some of the lowest water rates in the region and the nation over the past 20 years,” Cooper said. “Meanwhile, Nashville is burdened with an aging and failing infrastructure when it comes to one of our most precious resources, and we must take action.”
According to Cooper, MWS responded to 13 emergency water main repairs during the first two weeks of October, including water main breaks on Sparta Road in West Meade and Crestmoor Road in Green Hills.
Due to ongoing issues, such as water main breaks and delayed projects, the proposed rate increases have gained support from several council members. District 25 Council Member Russ Pulley, who represents the Green Hills area, said the rate increases would help fund projects in his district.
“It was a priority of mine going into this council term to do something about our water issues because I am very well aware that we are way behind in what we need to be doing,” Pulley said. “These rate increases will set us pretty much on par with our local peer cities, but we’ll still be well below our national peer cities.”
MWS, which uses water and sewer revenues to support bonds for its projects, is the largest user of the city’s revenue bonds, according to city documents. Revenue bonds must be authorized by the Metro Nashville Council.
“At this point in time, we don’t even have the revenue sources to support the issuance of bonds without this rate increase, so I’m highly supportive of it,” Pulley said.