Cape Girardeau utility rate analysis still 'in flux', full report still to be completed

Carl Brown, president of www.gettinggreatrates.com and a utility analyst, gave early recommendations to the Cape Girardeau City Council for water rate changes and pay structure at the council meeting Monday, June 17.

Brown outlined a few points from his report, that has not been completed. Assistant city manager Trevor Pulley said the city and Alliance Water Resources are working with Brown to give a detailed analysis of rates and what’s the best way to move forward.

“You (City Council) will be receiving reports from city staff regarding where we need to be going,” Pulley said. “We're going to make sure you have a very good report of what's acceptable to the citizens and to the city and what's the best for the city.”

Finance director Lisa Mills said one of the key takeaways from the first discussion is that the city's 5% increase structure will only work short-term to fund the expenditures needed for water system improvements. While Brown talked about the current rates and how it compares to the national average, he also spoke about how they would recommend the city change the water cost structure.

He said the city's current cost system is not in a cost-to-serve structure. Brown said cost-to-serve is where everyone pays according to the expense they cause the city to incur.

“I know that I will end up recommending that you have meter size-based minimum charges,” Brown said.

He said he almost always recommends that type of charge especially when a city such as Cape Girardeau has a lot of big meters.

Brown went on to explain that meter size-based minimum charges are when everyone pays a minimum charge within a class, regardless of whether they use water. That minimum charge would cover fixed operating costs such as billing costs. He said there would also be a surcharge based on the peak flow capacity of each size and type of meter.

Brown said, for example, most of the city’s meter sizes are 5/8 centimeters, “the typical residential meter size”, and that would sit as the basis for peak flow.

Mills said another takeaway from the discussion is that the city will have to consider where it might want to go with the pay structures.

Brown also spoke about what the city looks like on its affordability index.

“The affordability index typically equates the monthly bill for water for a 5,000 gallon per month residential customer and the median household income in the service area of those kinds of households,” Brown said at the meeting.

Cape Girardeau is at .7 %, with the national average at 1%. He said even at the 1% point, the city would still not likely be eligible for federal grants for the needs of the water system.

“Most of the needs-based grant programs are looking for those communities that, were they to pay cash or were they to borrow and then pay debt service, their affordability index would be 1.5% or higher. So, in other words, by 50% more than the national average affordability index,” Brown said. “Even under the assumption that you were to pay cash for the $72 million capital improvements, you'll still only be right at 1% affordability. You don't even have to borrow to be able to get to that place.”

He also indicated that the city could not borrow any more money in its current financial situation. In a May 3 study session, Mills said the city has a debt service requirement of $9.9 million in the Financial Year End 2025, with the earliest possible payout on the debt in 2034.

The $70 Million figure Brown spoke of is for all of the ongoing capital expenditures required in the city’s 10-year planned period, which includes $56,528,700 associated for water-system improvements, according to an email from Mills. The overall improvements for this project amount to $120 million, but $56 million is projected to be completed in the 10 years.

Brown also recommended that the city should have a higher reserves than it does now. He said a system of the city’s size should have total reserves of $20 million, which includes operating, repair, replacement, capital improvement and debt coverage reserves.

“You don't have anywhere near that,” Brown said.

Mills stated in an email to the Southeast Missourian that the city's projected reserves at the end of the fiscal year are $8.4 million with $7.8 million unrestricted. She stated that the city has used some of the reserves to start on the water system project.

Mills stated in the email this city does have reserves, just not enough to fund the expenditures for system improvements without a rate increase.

He said most of his clients’ systems are not as large as Cape Girardeau’s but also not as “rapidly growing.”