Newton water rates to jump 19 percent

Newton water rates to jump 19 percent
 
Date June 01, 2006
Section(s) Local News
Brief  
 
By PETER HUSSMANN

Editor

Last October, L.D. Palmer knew he had a difficult situation on his hands. It was just three months into the fiscal year, but the director of the Newton WaterWorks knew his revenues wouldn’t meet the costs of providing water service.

The reason was easy to see. Maytag was using a lot less water — about $500,000 a year less to be exact. Couple that with the $800,000 investment the WaterWorks would need to make to bring water service to the Newton Speedway project area, plus the ever-increasing cost of doing business, and his budget bursts like a worn out water pipe.

“I’ve never dealt with anything like this,” the long-time WaterWorks director said.

In order to bring revenues in line with operating costs, the WaterWorks Board of Trustees voted late last week to raise water rates 19 percent to all classes of users. The rate adjustment will go into effect July 1 and will be reflected on the first billing cycle that month.

Palmer said it was a difficult decision for the water board to make, following so close on the heals of Whirlpool’s decision to close all Newton Maytag operations and put an estimated 1,800 people out of work.

“From a psychological aspect, this was hard,” he said.

But it was a necessary move to balance the cost of the service with the cost of operations. Without the 19 percent increase, operating expenses would have exceeded income by $180,000 by the end of the next fiscal year.

For years, Maytag was the Newton water system’s largest customer. At its peak in the 1980s and 1990s, Maytag used an average of 1.2 million gallons of water a day, generating as much as $600,000 in water sales each year. A cost of service study conducted in November 2000 projected that rate to continue and was used in large part to set water rates for the coming years. The WaterWorks’ last increase in rates was in 2003, the third year of the implementation of the service study recommendations that adjusted rates so revenues from its industrial, commercial and residential customers, plus Central Iowa Water Association, would be as close as possible to the cost of serving each class.

Today, with production at the Newton Maytag plant dwindling and its closure slated for next year, actual sales have fallen below $150,000 a year, with projections showing it dropping below $100,000 as the plant moves toward closure.

“With this change in the user dynamics for Newton,” Palmer said, “a much larger share of expenses will have to be picked up by residential and commercial customers, as well as the Central Iowa Water Association.”

Palmer said the rate increase would have been higher had it not been for the water sales to the CIWA for their use in their rural water system. CIWA plans to purchase 770 million gallons next fiscal year bringing in sales receipts of nearly $600,000 next fiscal year compared to $440,000 in the current budget year.

“If not for selling to Central Iowa Water Association the rates would have been even higher,” Palmer said.

The water board also faces the cost of providing water service to the Newton racetrack area. The water board plans to issue an $800,000 capital loan note to cover the expense but will not be able to use a tax-exempt instrument due to bonding capacity thresholds, Palmer said he was told by bonding authorities. He said the water board plan to issue a short-term note and then refinance it with a lower interest rate note as soon as possible.

Palmer does not rule out the possibility that more increases may be coming but is optimistic that new development, especially at and near the racetrack, will offset or delay the need for additional rate hikes.

“New development will help offset sales revenue losses and may extend the need for future rate adjustments,” he said. “However, effects from new development will not have an immediate impact on revenues. Future rate decisions will reflect future revenues and costs, both of which are highly uncertain at the present time.”

A typical homeowner, who uses about 800 cubic feet (5,984 gallons) of water a month will see an increase of $2.60 ($13.60 to $16.20) on their July bill for water service.

Palmer noted that the monthly water bill includes not only water service, but sewer, garbage collection and recycling. While the water portion of the bill goes for operation and maintenance of the water system, the bill also includes charges for city sewer and landfill operations. The water portion of the bill is typically approximately 33 percent of the total.

Even with the increase, Palmer said Newton’s new rate is still below current rates charged in a number of nearby communities, some of which are also anticipating increases in the coming year. A typical homeowner in Altoona pays $30.20 a month for water service while residents in Ankeny pay $20.06.

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