Presentation Helps Holly Understand Water Rates and Infrastructure
(Crystal A. Proxmire, March 10, 2019)
Holly, MI – Village of Holly officials, staff and members of the public attended a morning-long study session on Feb. 9 to learn more about how the water and sewer fund works, and get answers to common questions regarding water service.
Brian Camiller a consultant with Plante Moran, gave the overview. Budgets are done each year by the Village Council, but with a five-year projection. And every five years an outside consultant comes in to take a deeper look.
Walker said the process has worked well in Holly, with the Village keeping rates lower than projected at the last five-year analysis.
Five years ago, Plante Moran expected that the bond debt cost would be in excess of $50 per premise by this time. However, because the Village Council decided to refinance some of the bonds, they’ve been able to keep that cost at $37.05 a month, which is $13.25 for water debt and $23.80 sewer debt.
The current bonds will be paid off in 2025 and 2026. However, infrastructure repairs will likely require the community to take on more debt in order to maintain water and sewer services.
Infrastructure refers to the physical pieces of the water system – all the pipes, pumps, filters, drains, access points, water towers, treatment plant, etc that bring water in, and carry it away from homes and businesses.
Each community’s infrastructure is different, which explains why water rates vary even in nearby towns.
Brian Klaassen, Utilities Director, explained that Holly has its own water system.
“Holly is like an island, that’s why we have our own plants. There is no one to connect to without going through hills and swamps,” he said.
Cities that are close together are able to share equipment and expenses, often resulting in lower rates.
But even connectivity is not the only factor in rate differences.
“You can’t even compare to other communities like ours because the land is different. We have 13 lift stations in 2.2 square miles,” Klaassen said. “Milford is the same size as us, but Milford only has two lift stations.”
The reason for the difference, he explained, is because Holly has more low-lying areas. “Holly is built on a swamp. Most systems are gravity fed. When you have low areas and swamps you have to have lift stations.”
Holly also has their own expenses due to upgrades done in the past.
A decade ago Holly increased its capacity, moving from a three filter to a six filter system and adding a half million gallon tank at Quick Road. There were also $6 million in improvements to the waste water treatment system. The total expenses came to $18 million.
Klaassen said improvements will need to be made soon, but won’t be as intensive as the previous upgrades. “It will be several million,” he said.
Part of that expense will be replace the grit removal system throughout the entire system. “It’s a 40 year old grid grit removal system, so that gets holes in it over time,” Klaassen said. “Things get through.” Other foreseeable expenses include “purchase of equipment, such as dump trucks a back hoe a van, a vactor and a pickup truck; water main replacements; building upgrades; meter upgrades; well work, sewer main replacements; lift station replacements; pump program improvements; and various other routine repairs and maintenance,” according to the report.
TESTING EXPENSES AND STATE MANDATES
Ever-changing regulations and requirements for testing also add cost to a water system. Miller explained that the Flint water crisis and recent studies of PFAS contamination have prompted an even more stringent look at water quality and wastewater treatment. The new Lead and Copper Rule will require municipalities to do more testing, and more repairs to the system if the new standards are not met. Even having to change treatment plans to comply with new requirements adds a cost.
“Tests cost $500 a pop, and they’re putting it on the municipalities,” Klaassen said.
WATER USAGE DECLINE AND OTHER FACTORS
There are other factors which add to expenses. One is the fact that water usage in the Village of Holly has gone down over the past five years. In 2013 there were 145,463 units sold and in 2017 there were 134,755. Each unit is 1,000 gallons. When there is less water sold, there is less money coming in to pay the basic costs of operating the system. The more water sold, the more the costs can be spread out.
Unbilled water is also an expense. 15-20% of the water being used by the system is not being covered by customer payments. This includes water for fire trucks and hydrants, street cleaning, watering flowers downtown, and back flushing the system. It also may include leaks. “15-20% is medium to high,” Camiller said. “But if you’re looking to invest in finding the leaks and repairing them you’re looking at millions of dollars worth of work to correct a problem that costing you a lot less.”
A common misunderstanding is that water bills are high because of the Pulte Development, a subdivision that had expected to sell 900 homes, yet stopped building only partially through. The Village had agreed to install water and sewer mains in front of the properties and has yet to recoup the cost. Currently there are just over 400 homes, with several more having pulled permits for construction in the spring.
As new homes are being built, it’s adding more users to the system. While this may, in principle, help spread the cost around, it is also creating new problems. “As we add more people onto the system, there are changes in pressure, water going into pipes that have been dry for a long time. Things break and it creates more stress on the system,” Klaassen said. “We’re glad to have more homes on the system, but it’s not the financial gain you might think.”
Another challenge to the water and sewer fund is a lawsuit against the Village claiming unfair taxation.
The original lawsuit was filed June 9, 2017 by Heidi Gumbleton stating that the $5 water and $5 sewer fees charged by the Village of Holly violated the Headlee Amendment as an “impermissible tax,” and sought $1,000,000 in damages for herself and a class of plaintiffs being water and sewer customers of the Village of Holly, represented by Dale Smith and Peter Deahl, who also live in the community.
The lawsuit was dismissed in Aug. 2017, They tried again and it was dismissed in Dec. 2017. It has since been appealed twice, each time with the court favoring the village. Currently Gumbelton and her attorneys are awaiting word from the Michigan Supreme Court to see if they will hear it.
While Walker is optimistic that the Village will win, it is still an expense for the community. To date the Village has spent $198,500.50 on attorney fees, $3,859.24 on attorney costs, $14,021.45 for an expert on water/sewer rates, and $490 for accounting. This does not include the cost of staff time spent on the lawsuit.
“This is an expense that is costing the users of the water system money,” Walker said.
THE BUDGET ITSELF
Camiller explained what their firm felt were healthy and attainable goals for Holly. This would be to have resources for 60 days’ worth of operating expenses, one year of debt service payments, 5% of the net book value of the system’s capital assets in the event of an emergency capital replacement, and a planned capital replacement reserve for future improvements to the Village’s treatment plants ($1,000,000 for water, $760,000 for sewer).
In Holly water rates were last increased in July 2017. Miller said that raising rates is an inevitability with aging infrastructure. “Every once in a while its okay to have zero increase, but you can’t keep that up or you’ll have larger increases down the road,” he said.
He recommended that the debt service rates remain the same, but that the water rate should increase 2%. He also recommended that rates increase incrementally every year. “You need to raise rates ever year,” Miller said. “People need to know costs are going up. Educate the public.”
COMMUNICATION WITH THE PUBLIC
“I can’t think of much that is more regulated than water and sewer,” said Village Council President Thomas McKenny. “We need to communicate with the public about the scope and expense of testing. It’s not just drilling a well and pumping it out.”
“It would be great to have more people come out on a Saturday to understand our rates and why we pay what we pay,” said Village Manager Jerry Walker.
Walker said another misconception is that the Village is making money off water bills. He stated that the Water and Sewer funds, by law, cannot be profitable. Money coming in for those uses must remain committed to funding those services. “People think when there is an increase, that the village is making money. That’s not the case,” Walker said.
The presentation was part of a series of workshops looking at the various departments. The budget, as well as any potential rate increases, will be discussed publicly and voted on by the Village Council later in the spring. All Village Council meetings and agendas are posted on the Village of Holly website.
Oak Park Settles Storm Water Fee Lawsuit for $2,850,00 (Oct. 29, 2018)
Things You May Not Have Known About Water and Sewer Service (June 12, 2018)
MML#2 – Health and Cost Considerations in Proposed Lead and Copper Rule Changes (April 2, 2018)
Lawsuit Against Village of Holly over Water/Sewer Fees Dismissed (Dec. 12, 2017)
Royal Oak, Birmingham, and Ferndale See Different Results from Water Lawsuits (Dec. 24, 2015)