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What Not to Expect from a Water or Sewer Rate Consultant

September 17, 2009

Many times, elected officials have the wrong ideas about what a water or sewer rate consultant will bring to the table.  In this example from Fort Smith, AK we see an elected body that questions why the city would spend so much on the consulting contract.  Their rationale for going ahead?  The consultant might find a way to increase revenues by $4 million without having to increase rates.  This is a case where the rationale is wholly irrational.

Water and sewer utilities get their funding from up to three sources: user charges, development fees and, in decreasing cases, taxes.  In the Fort Smith example, the news report says that the problem is that the revenues are short of the operating expenses by $4 million.  If so, the only two rational solutions are to: a) increase revenues by way of increasing the user charges  by $4 million, or b) to decrease operating expenses by $4 million.  Of course, the city could find any middle ground between rate increases and cost reductions too.

These kind of shortfalls are not uncommon and, in fact, they are increasing in their frequency and magnitude.  As existing infrastructure wears out and has to be replaced, the capital costs of replacing those assets is high – think of it like having to replace your house after you’ve already repaid the mortgage – and those costs are going to be reflected in the water and/or sewer rates.

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