MVWD Board Struggles Over Agendizing Rate Increase

By VERNON ROBISON

Moapa Valley Progress

After approving a draft budget for fiscal year 2017 that scarcely met the district’s operating expenses and stripped out more than a million dollars in scheduled capital improvement projects, the Moapa Valley Water District (MVWD) Board of Trustees went on to spend more than an hour of its April 14 board meeting debating whether they should move now to raise rates.

The 2017 budget document, which will be approved and finalized in a public meeting next month, included only three capital improvement projects, totalling $240,000. These three had been determined too essential to be postponed. It also included $115,000 in vehicle and equipment purchases also considered immediately essential to the district.

Though these items had been previously planned for with special pools of money set aside for their purposes, trustees were hesitant to dig further into the $1 million list of capital projects that had been anticipated for this year. This is because it would have caused a significant deficit in the district’s annual budget.

With district revenues on a steady five year decline and operating expenses rising significantly each year, board members had asked district staff to prepare a report proposing what should be done in future years to stop the apparently widening gap in the budget. Assistant General Manager Lon Dalley presented that report to the board at the meeting.

The report projected out the district’s operating income and expenses for more than a decade. Using the past five years as a model, it projected little or no change to district revenues, but a 4-5 percent annual increase in operating expenses.

Under those perameters the district would experience significant deficits by fiscal year 2019. This would continue and increase nearly every year. By 2027, the annual deficit alone could be as much as $684,000, according to the projections.
“The point of this study was to see where we are going to be in the future with expenses increasing as they are,” Dalley said. “I think that it is clear that, with what we have been bringing in each year, we won’t be able to operate on that amount.”

Board member Randy Tobler pointed out that the report did not account for setting aside any additional money for infrastructure or equipment.
“You have to strip those things out of the budget just to meet operating costs,” Tobler said.

In addition, MVWD General Manager Joe Davis said that certain non-operating revenues received by the district, including payments from Southern Nevada Water Authority and revenues from the district’s share of the 1/4 cent sales tax, are meant to be used for infrastructure. But those would also be eaten up by operating costs according to the report, he said.
“If you strip those two things out, and put them towards what they are actually allocated for, we would be in the negative already,” Davis said.

Continuing with his report, Dalley showed several scenarios of possible rate increases that could bring operating expenses into balance. They all began with an initial increase of 5 percent. This was then followed by additional increases of between 1.5 and 3 percent each year over a period of 11 years.
“It is important to note that these numbers do not include any capital improvements,” Dalley said. “It is just staying stagnant with what we have and repairing what is existing in place.”
The initial 5 percent increase would add an additional $3.21 to the average residential customer bill in the district, Dalley said.

The last time the MVWD saw a rate increase was in January 2011 when a previous board instituted a 3 percent increase.
“Are you recommending, then, that we consider raising rates at this time?” asked Board member Ryan Wheeler.
“Yes,” Davis responded. “Right now we are only making enough to operate and not to do anything else. Even money that is coming in that is for the purpose of doing capital improvements can’t be used that way. It has to pay operating expenses.”

Board chairman Ken Staton said that he would rather institute a modest rate increase now than put it off and have a sudden, much higher increase in the future in order to make up the difference.
“No one wants to see a rate increase, but I don’t want to get to the point where we are way behind,” he said.

Board member Lindsey Dalley agreed.
“We have a good amount of cash in the bank that a previous board saved for us so that we wouldn’t have to operate in crisis mode,” Lindsey Dalley said. “It would not be fiscally responsible for us to use that as we take our time figuring out what is going on. We have enough evidence to see that we need some rate increase. I think it would be irresponsible not to act on that evidence.”

But Board member Ryan Wheeler disagreed.
“I have a hard time approaching the ratepayers saying we are going to raise rates when we have money in the bank,” he said.
The district currently has a total of about $6 million in reserve. But much of that money is in restricted accounts set aside for specific purposes like infrastructure improvements and equipment purchases, staff members said. In addition, the district is required to keep around $2.5 million in its bank account to avoid bank fees of $600-$1000 per month, staff said.

Wheeler pointed to the fact that the board had recently voted to contract an engineer to study the district’s entire system, forecast what the vital infrastructure needs would be and draft a timeline and budget for addressing them. Wheeler suggested that the board wait until that study was complete to see what the full capital need was going to be. Then the district could go to ratepayers one time with a single rate increase proposal.

This process would take roughly a year, Wheeler said. In the meantime, he favored drawing down the district’s cash reserve to meet the operational needs of the district.
But Tobler recommended that the operational needs should be met right away with a moderate rate increase. Then the board could factor in the capital needs when the study was completed.
“I think we need to get the operating side where it needs to be,” Tobler said. “If we wait a year, I guess I am open to that. But we need to clearly define what we are doing, and have a definite plan in place on the percentages we are going to implement, and when. This board tends to take its time to do things and this is something where we could quickly run out of time. I will tell you, if we wait too long, I think you are going to see the need for a much higher rate increase.”

“That is exactly right,” Staton said. “I don’t want to get us to a point where we have kicked this can down the road for so long that we find ourselves forced to do a huge increase just to get us back to treading water.”
Tobler said that once the operations gap was stopped, he would be more comfortable with using cash reserves to complete capital needs in the near future.
“I’ve heard customers ask why we would raise rates when we have so much money sitting in the bank,” Tobler said. “To me the answer is that we know that capital improvements are coming. So if we want to spend down that account, let’s let the operations side be kept whole with a rate increase and then use the reserves to fund capital improvements rather than floating a bond.”

Lindsey Dalley acknowledged that there were really two issues to consider. First was the operational and second was the capital improvement side.
“The operational side, we don’t need a study there,” he said. “We need to move on that. It is in the red. The Capital improvement side we have the flexibility to wait and maybe spend bank money to do some of it. I just don’t think that it is responsible, given what we know on the operations side, to not do anything at all.”

But Wheeler was still unconvinced. He preferred to wait until the infrastructure study had been completed and then come to the ratepayers for a single rate increase that would cover everything, even if it had to be a much higher increase.
“You are more comfortable, then, with 10 percent or higher being our initial increase?” Tobler asked. “The higher you raise the rates, the more people will start taking out grass, using less water as a reaction to the increase. That then brings down sales revenues and we have a negative cycle started.”

But Wheeler was firm.
“I just don’t feel comfortable going to the public now to fix one side of the house and then saying, that in a year we will be back for more,” Wheeler said.
“But it isn’t just one side of the house,” Tobler said. “It is the whole house!”

After more than an hour of debate, MVWD Attorney Byron Mills reminded board members that the discussion had only been agendized as part of a general manager’s report. If a substantive discussion was going to take place on rate increases, it should be properly noticed on a future agenda so that the public could weigh in on it, he said.

Staton suggested that the item be placed on the next meeting agenda for a more full discussion. That meeting was scheduled for Thursday, May 19 at 4:00 pm.