Despite recent rate hikes, the borough’s user fees are still insufficient to fully cover future big-ticket infrastructure costs, according to the audit of last year’s municipal finances.
At a Nov. 15 assembly work session, Finance Director Mason Villarma and Joy Merriner, of the audit firm BDO’s Anchorage office, suggested that the borough conduct “comprehensive rate revaluation and reserve modeling” annually, to ensure that rates keep up with inflation and generate enough money to maintain essential infrastructure, like vacuum trucks, telephone poles, and the water and sewage plants.
Last spring, water rates increased 30% and sewer rates increased 21%. These fees had not been adjusted since 2019. The assembly this year also raised residential trash collection fees about 51%.
However, Wrangell residents should brace for additional increases in the coming years.
In the past, utility rates did not account for the future maintenance and replacement costs of the borough’s aging assets, and this lack of foresight has already begun to impact its finances. “We don’t have sufficient reserves to purchase the assets that we should,” Villarma explained.
“The sewer, for example—we have a vac truck that has reached its useful life. We have a sewage treatment plant that’s going to need $5 million in overhauls. Clearly, over time, we didn’t save enough in user fees to cover that cost.”
User fees, Villarma explained, should be designed to absorb the total “cost of doing business,” including staff time, administrative time and equipment maintenance and replacement. “The borough has not ever fully absorbed those costs.”
In five years, he hopes borough accounts will be self-sustaining, with user fees sufficient to cover the municipality’s immediate needs and also plan for the future.
Villarma acknowledges that reaching sustainability will take time. “We can’t just come out and throw the impact on (taxpayers) all at once,” he said. “But I can’t in good faith say we’re sustainable when we’re not.”
“Reserve modeling” — which Villarma plans to implement — would allow the borough to predict and prepare for future costs by factoring the age of equipment and likelihood of repairs into rates.
The exact amount that rates would need to increase to achieve sustainability remains uncertain, but they would need to be raised at least 2% to 3% a year just to keep pace with historical inflation. “If we were to keep everything the same, (we’d) get to the point of non-sufficient reserves,” he said. Establishing healthy reserve funds would require even greater hikes than those needed to cover inflation.
To determine appropriate rate levels, he plans to conduct a full-scale assessment, which will involve studying the impacts of inflation and establishing the municipality’s priorities for the next 10 to 30 years.
Villarma is working on a user fee proposal and anticipates holding a work session with assemblymembers in March of 2023. Any rate increases would require assembly approval. “(The assembly) might say, ‘no, we hit them too hard last year,” he said.
His plan may also involve “creative ways of not impacting residents to the maximum degree,” like charging non-residents higher prices to house their boats in Wrangell harbors.
The borough has “roughly as much cash as Petersburg,” he explained, but their infrastructure is newer and more effectively maintained. “They took care of things and recapitalized.”
Wrangell may have similar numbers in the bank, but the borough’s property — including buildings, equipment and facilities — is older than that of Petersburg, meaning that steep repair and replacement costs may be on the horizon. “Eventually, we’re going to foot that bill. The cost of infrastructure failure and addressing it as an emergency is going to be much greater.”
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