Puyallup underfunded in its water utilities

Government: Council members asked to decide on a 4 percent increase in tax rate

of the HeraldJanuary 22, 2014 

Some pipes that feed water to Puyallup residents are more than 100 years old. Many pipes in the utility system are wearing away.

Public Works Director Rob Andreotti said the city has underfunded the maintenance and replacement of the infrastructure for years.

“There is pipe that is breaking well below 60 years,” Andreotti said. “As a general rule, we want to replace pipes every 60 years.”

The city replaced one pipe more than 50 years old on 7th Street Southwest between 23rd Avenue and 17th Avenue last year, Andreotti said.

“We replaced that pipe instead of the older stuff because it was breaking on us on a regular basis,” Andreotti said.

That said, what’s old isn’t necessarily broken.

Throughout the years, Andreotti said the city wants to be on schedule to spend about $2 million a year to replace aging pipes. The city spent about $1.3 million in 2013 and will spend that same amount in 2014, he said.

“The $1.3 million is available from system development charges and rates, but with that, we’re not keeping up with our replacement schedule,” Andreotti said. “We’re not replacing as quickly as we’d like to.”

City Manager Bill McDonald said the Puyallup City Council made a smart decision last year to improve the financial health of its water, sewer and storm-water utilities by indexing utility rates to the construction price index.

The first increase, 2.6 percent, occurred last February. If approved again this year, a 2.7 percent increase in rates across all utilities will hit again next month.

McDonald recommended to the city council last week to leave in place the indexing of rates. In addition, he suggested council add a 4 percent increase annually in each of the next four years to water utilities to catch up to where capital reserves need to be.

McDonald reported a $17 million cumulative shortfall as a long-term structural deficit in water utilities between 2014-30. A 4 percent increase would amount to less than $1 on a typical residential monthly water bill, city staff members said.

That increase would reduce the cumulative project funding shortfall in water utilities to $4.7 million from $17 million.

“Even with the 4 percent, it’s what I call a mocha a month,” McDonald said.

McDonald said the city is under $1,400 every year for where it ought to be for water utilities.

“Indexing does not generate enough revenue in the water fund in particular to catch up on the capital replacement side,” he said. “There is a 100-year-old line that delivers an incredibly expensive source of supply that, if we had to replace it, would be huge. Those kinds of costs would have to be passed on to the ratepayers. So, we have to get on top of this.”

McDonald said continuing to index for sewer and stormwater will decrease the debt service in those utilities.

“The sewer and storm will be able to reserve money on the capital side,” McDonald said. “The indexing was an important step in 2013.”

Deputy Mayor John Hopkins said it’s important to deal with the water, but the question is, “How do we get there?”

Council member Tom Swanson said the city should frontload the money to pay for water and pay down debt service.

“If we focus all the increase on water, that will bring down the debt service,” Swanson said. “We need to pay down as much debt as humanly possible in the water utility.”

Council member John Palmer agreed.

“I don’t think we can address all three funds at once,” he said.

Mayor John Knutsen said the city’s debt is the bane of all its problems.

“Debt has crippled the things we can do,” Knutsen said. “The golden cow is utilities.”

But Palmer said he doesn’t see debt as the real issue in the utility funds. That’s not the driver, he said.

McDonald agreed.

“Our debt in utilities is not large,” McDonald said. “We have $3.5 million in debt in all utilities. Debt is not the big issue.”

McDonald said city residents should expect an ongoing discussion on the design of water rates in the coming months.

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