With the department heads scrambling to prepare budgets before the month’s end, rate discussions and spending plans seemed inevitable at the City and Borough Assembly’s Tuesday evening meeting.
High up on its agenda was a continued discussion of the city’s residential and commercial water rates, which have lagged well behind covering costs. In light of looming supply problems (see water plant story), significant capital investments ahead for a new plant, and prospective development at the Institute and former mill sites, every penny counts for the water enterprise fund.
At the past several meetings, interim city manager Carol Rushmore presented Assembly members with an assessment of rates charged to local water users, prepared by city accounting and public works staff. What they found is, the break-even point varies between service categories.
The break-even point for residential consumption, for example, which is unmetered and charges a flat $40.75 monthly rate, is at just under 10,000 gallons of water. Less than that and the city makes some amount of profit, but higher consumption means the city begins to lose money.
Commercial rates can be starker, such as for high-volume metered users. For large commercial users a $401.67 monthly base rate begins to climb once usage passes a 500,000-gallon threshold. But well before that point the city’s break-even is at 119,565 gallons, meaning the city loses increasingly more money on production the more water gets used.
“Right now when you look at our rates, they’re way off kilter. We’re giving our water away,” Rushmore commented.
Finance director Lee Burgess explained there are difficulties in figuring total cost to produce that go beyond the water plant. Much of Wrangell’s water infrastructure has been funded and maintained through state or federal assistance, either through grants, loans or direct appropriations.
When the city’s last water rate study was conducted, rate adjustments were formulated with the anticipation such grants and other supplementary funding would continue to contribute toward upkeep and maintenance projects. A recommended increase based on these figures was rolled out in five-percent annual increments over five years, concluding in the summer of 2015.
In short, rates have been kept artificially low over the years, and while the water fund has largely been able to make ends meet operationally, additional funding to be set aside for future projects has not been accrued. In the face of diminished state and federal funding availability, the current rate structure thus poses a significant problem. A similar situation ongoing with the harbor facilities fund prompted the Port Commission last year to approve its own overdue adjustment to public moorage and storage rates, one which would begin setting aside money for deferred maintenance.
At the Assembly’s request, a proposed change to the water rate schedule was prepared by staff, envisioning incremental increases to unmetered, flat rates for commercial and residential users, and an adjusted schedule for metered users. Under the recommended schedule, flat rates for metered commercial use would apply to the first 4,000 or 5,000 gallons before increasing per 1,000 gallons. For large commercial users, this drop from the 500,000-gallon base would be a significant change, but be more in line with the rate structure of communities Haines, Petersburg and Sitka.
While this could help incentivize more conservative use among larger water consumers, the unmetered use still poses a problem to managing demand. Assembly member Mark Mitchell expressed his support for eventually adding meters to all users, a decision he explained was one made from necessity.
“The idea of metering is not because we want to be metered,” he commented. “It’s just the cheapest option available for producing more water.”
Public Works director Amber Al-Haddad explained general benefits of having meters include giving the city and consumers both a better idea of what is being used, and allocating costs more fairly. Meters also better help the city identify and locate leaks in the line, which can otherwise sap supply. Adding meters from scratch can be a costly and time-consuming process though, she added. Burgess roughly estimated it could cost about $500,000 to acquire and install the devices, though ensuring they would fit each line properly and adequately siting them could pose difficulties and costs of their own.
“It will take us some time to determine those costs,” Rushmore explained. Rather than wait for meters, she recommended the Assembly take some action on adjusting water rates sooner.
Even with the proposed increases, Assembly member Patty Gilbert noted rates would still be behind estimated production costs. “It’s just amazing how far we are off in terms of getting close to the actual cost of producing water,” she said.
Assembly members Stephen Prysunka, Becky Rooney and Mitchell discussed the merits of raising unmetered rates by a higher percentage than only five, noting that only amounted to a couple of dollars per month per household. Along with David Powell they were in general agreement that more of an adjustment would be preferable.
“Five percent, I wouldn’t even bother making that increase if we’re not putting it back where it needs to be,” Mitchell said.
Mayor David Jack directed Rushmore to come back next meeting with a formal ordinance proposal that would alter rates, preferably by more than five percent.
In its new business, the Borough Assembly also examined and approved a proposed budget for Wrangell Medical Center, covering the coming fiscal year. In a meeting rescheduled to Monday, the WMC governing board had approved the item for submission, which projects an $11.34 million operating budget.
The budget also assumes a 10-percent increase in hospital services pricing across all service lines. Speaking to the Assembly, hospital chief executive Robert Rang explained these increases were long overdue.
“We haven’t raised our prices in a number of years. We’ve been leaving a lot of money on the table,” he said. This can be problematic when dealing with Medicare and Medicaid reimbursements, which together make up about 78 percent of WMC’s revenues. If rates lag behind actual costs, the difference starts to add up quickly for the hospital’s bottom line.
“You always want to charge more than what it costs,” Rang summarized.
While $13.28 million in charges are anticipated for the year, when factoring in bad debts, discounts and other allowances, net revenue for the year is forecast at $10.98 million. As a result, the budget assumes an operating loss of $360,000, a net loss of $295,000, but a positive cash flow of $30,000.
The new budget also prioritizes major capital purchase requests. Its topmost priorities are a system-wide phone system for its information technology department, as well as a Microsoft Office software upgrade, which together would cost $97,000. The records department, in order to meet federal reporting requirements, also needs upgrades to its software and training for its staff, which together would be another $100,000.
For medical machinery, the nursing department needs a new telemetry system, a roughly estimated at around $75,000. A firmer quote would be needed before procurement. The hospital’s laboratory wants to replace its 10-year-old hematology analyzer as well, a $62,000 investment. Carried over from last year’s requests and considered a lower priority, the radiology department is also hoping to replace its ultrasound machine for a cost of $115,000.
Finally, the Assembly decided in executive session to approve hire of a new, permanent city manager. A contract for candidate Lisa Von Bargen was accepted, with a start date expected later this summer. Rushmore will continue to serve in that position in the interim.
Negotiations on contract terms have been ongoing since Von Bargen was officially selected on April 11. Von Bargen has been the director for community and economic development in Valdez since 2001, and has worked for the city’s Chamber of Commerce and its Convention and Visitors Bureau prior to that.
Visiting Wrangell as a potential hire early last month, Von Bargen had expressed a wish to hold off on any in-depth interviews about herself until an offer and negotiations with the city had been resolved. She was unresponsive to requests for comment made by the Sentinel on Monday.
The Assembly’s next meeting has been moved from the 23rd to the 30th, to be held inside City Hall at 7 p.m. A budget workshop will likely be held prior, but will be announced by the borough beforehand.
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