County Sewer Rates To Rise 22 Percent To Avoid Debt Default

Andrew Trzaska | October 2, 2011

With expert analysis and opinion saying that Muskegon County’s wastewater management system could go into default, the county public works board voted 8-1 Tuesday to approve a 22% increase on sewer rates charged to towns and private customers.

The vote to increase comes after the county hired Utility Financial Solutions, LLC to do a study of the wastewater system’s finances, and left some commissioners looking for ways to ease the pain.

Sewer rates pay for the system’s operations, upgrades and debt service, and the board of public works currently sets these rates. Generally, the fewer customers the system has, the less “flow”, and the more the public works board has to charge.

The system took a huge hit when one of its largest users, Sappi paper, shut down operations in the area several years ago.

Since then, the county has chosen not to make significant changes to the wastewater system’s rates, instead hoping that the county could attract new major private customers by keeping rates low.
That gambit has not panned out, as the system’s flow has only decreased.  Attracting other cities to join the system has failed, most notably the county’s attempt to recruit Coopersville, who would have been the first beyond county lines.

How this affects the average county resident is still not completely defined.  Cities and townships that are part of the system are charged a wholesale rate by the county for their usage.  These towns can then independently set what they will charge residents.  Based on a previous meeting, Muskegon Heights preempted Tuesday’s vote by instituting a rate increase pegged at 22%.

With cities generally being cash-strapped, it appears residents will likely be left on the hook.

Commissioners generally agreed on passing the rate increase on Tuesday, with District 2 commissioner Alan Jager as the only dissenting vote.  Yet, commissioners spent most of the meeting looking unhappy with the situation.

“We don’t need to be another Greece,” said District 5 Commissioner Marvin Engle, referring to the European Union nation that is narrowly toeing the line with financial collapse.

Jager, who was voted in last November, believes the board was not given enough time to responsibly review the consultants’ recommendations.

District 3 commissioner John Snider disagreed, pointing out the board has operated under the plan for the past year and before.

“We’ve had this in front of us for years. We discounted rates… it’s doomsday for needing a rate increase at this point.”

County Drain Commissioner David Fisher noted that the county could no longer shy away from raising rates.

“We’ve succumbed to the emotional issue of rate increases for the last five years. We keep projecting higher revenues than we’ve got.”

The consultants’ analysis recommends that immediate large rate increases must be made to avoid default, but longer-term rate increases would be needed to keep from toeing the line in future years.

Mark Beauchamp of Utility Financial Solutions spoke at Tuesday’s public works meeting, recommending the percentage increase and answering questions from the board.

Beauchamp and his company see paying the system’s debts as top priority – much like the downgrading of U.S. Treasury bonds a few months ago.  The county’s bond rating could be downgraded if the wastewater system goes into default, leading to higher interest rates and making it more difficult for them to raise money.

Right now, Beauchamp noted, they are barely scraping by.

Beauchamp sees building larger cash reserves as second priority; this will soften the blow of future improvements or crises as they arise, so future rate increases need not be so large.

Unfortunately, as part of their findings, Beauchamp also said the way the wastewater system bills customers is “unstable”: the system did not have enough cash reserves and is losing revenue from having fewer customers.  The 22% increase stands as an example of how large increases could result from the current billing model.

Beauchamp provided recommendations to the board for further review about how to stabilize sewer rates for the future, which would be discussed at a future meeting.